ATTY. ROMMEL T.

GEOCANIGA
Academic Year 2017-2018
2nd Sem
Tax I

INCOME TAX

I. Introduction and General Principles

a. Definition and concept of Taxation

1. Theory and basis of Taxation

Life blood theory

Commissioner of Internal Revenue vs. Algue Inc. 158 SCRA 9

Necessity Theory
Benefits-Protection Theory
Jurisdiction over subjects and objects

2. Principles of a Sound Tax System

3. Inherent nature power of the state

b. Purpose of Taxation
1. Revenue Raising
2. Regulatory
Tio vs. Videogram Regulatory Board 151 SCRA 208 (1987)
Philippine Health Care Providers vs Commissioner of Internal Revenue 554 SCRA 411
c. Power of Taxation compared with other powers

1. Police Power
2. Power of eminent domain
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d. Limitations on Taxing Power

1. Public Purpose
2. Inherently legislative
Mactan Cebu International Airport Authority vs. Marcos 261 SCRA 667
Napocor vs. City of Cabanatuan G.R. No. 1491110, April 9, 2003
3. Territorial; Situs of Taxation
4. Exemption of government
5. Constitutional Limitations of Taxation

1. Article III, Section 20

2. Article VI Section 28 (1)
Abakada vs. Ermita 469 SCRA 1
Tolentino vs. Secretary Finance 249 SCRA 628

3. Article VI Section 28 (2)

RMO 20-2013 (July 22,2013)
St. Paul College vs. CIR (RTC-Makati Civil Case No. 13-1268, 13-1405, December 27, 2013)
RMO 34-2014
4. Article VI Section 28 (3)
Lung Center of the Philippines 433 SCRA 119
CIR vs. CA 298 SCRA 83
CIR vs. St. Lukes Medical Center September 26, 2012
5. Article XIV Section 4 (3)
6. Article VI, Section 27(2)
7. Article VIII, Section 5 (2)(b)
8. Article X, Section 6
9. Article VI Section 28 (4)
10. Article VI, Section 29 (3)
11. Article III, Section 1 (Due Process)
Pepsi Cola Bottling Company vs. Municipality of Tanauan 69 SCRA 460
Revenue Regulation No. 18-2013
12. Article III, Section 1 (Equal Protection)
John Hay vs. Lim 414 SCRA 356
British American Tobacco vs. Camacho 562 SCRA 511
 13. Article III, Section 5 (Religious Freedom )
14. Article III, Section 10 (Non-impairment of Contracts)

e. Doctrines in Taxation
1. Prescription of tax laws
Republic vs. Ablaza 108 PHIL 1105
2. Double Taxation
Commissioner of Internal Revenue vs. Solidbank Corporation 416 SCRA 436
Compania General De Tabacos vs City of Manila 8 SCRA 367
City of Baguio vs. De Leon 25 SCRA 938
3. Direct vs. Indirect Taxes
Asia International Auctioneers vs. Commissioner of Internal Revenue (G.R. No. 179115, September 26, 2012)

4. Tax Exemption
Republic vs. Caguioa 536 SCRA 194
5. Compensation and set-off
Commissioner of Internal Revenue vs. Gould Pumps Inc. (August 22, 2012)

Solutio Indebiti
Filinvest Development Corporation vs. CIR 529 SCRA 605

Tax Amnesty
6. Construction of tax statutes
Liberal Construction in favor of Taxpayers- Manila Railroad vs. Collector of Customs 52 Phil 950 (1929)

Philippine Health Care Providers vs Commissioner of Internal Revenue 554 SCRA 411

Commissioner of Customs vs. Hypermix Feeds G.R. No. 179579, February 1, 2012
Meralco vs. Vera 67 SCRA 352
Quezon City vs. ABS-CBN 567 SCRA 495- Stricissimi Juris
Non-retroactive application (Section 246 of Tax Code)
PBCOM vs. CIR 302 SCRA 241
BIR Ruling No. 370-2011 October 7, 2011
G.R. No. 198756, January 13, 2015- BDO vs. CIR, et.al

7. Tax Avoidance vs. Evasion

CIR vs. Estate of Toda September 14, 2004

II. Income Tax

1. Definitions

Section 22 (A) to (I), (Z), (GG), and (HH), Tax Code

Sections 31, 35 (B), and 39 (A), Tax Code
RA 10963- TRAIN Law

Resident citizens and resident aliens

Garrison vs. Court of Appeals (July 19, 1990)
Non-resident citizens
RR 1-79 (January 8, 1979)
RR 5-01 (July 31, 2001)
BIR Ruling 33-00 (September 5, 2000)
BIR Ruling DA 095-05 (March 29, 2005)
Non-resident aliens engaged in business in the Philippines
Sec. 5 & 6, RR 2
Corporations
AFISCO Insurance Corporation vs. Court of Appeals (January 25, 1999)
Pascual vs. Commissioner of Internal Revenue (October 18, 1988)
Obillos vs. Commissioner of Internal Revenue (October 29, 1985)
Oña vs. Commissioner of Internal Revenue (May 25, 1972)

RR 10-2012 (June 1, 2012)

BIR Ruling 108-2010 (October 19, 2010)

2. Income

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 In general
Madrigal vs. Rafferty (August 7, 1918)
Fisher vs. Trinidad (October 30, 1922)
Limpan Investment Corporation vs. Commissioner of Internal Revenue (July 26, 1966)
Conwi vs. Court of Tax Appeals ( August 31, 1992)
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (March 28, 1955)
Murphy vs. Internal Revenue Service 460 F3rd 79 – D.C. Circuit Court (August 22, 2006)

Statutory “inclusions”
Section 32 (A), Tax Code

Compensation for services

Old Colony Trust Co. vs. Commissioner of Internal Revenue, 279 US 716 (June 3, 1929)

Rents
Helvering vs. Bruun, 309 US 461 (March 25, 1940)

Section 49, RR 2

Dividends
Section 73 (A) to (C), Tax Code

Commissioner of Internal Revenue vs. Court of Appeals (January 20, 1999)

Wise & Co., Inc. vs. Meer (June 30, 1947)

Section 250-256, RR 2

BIR Ruling 322-87 (October 19, 1987)

BIR Ruling 479-11 (December 5, 2011)
BIR Ruling 039-02 (November 11, 2002)

“From whatever source”

James vs. United States, 366 US 213 (May 15, 1961)

Section 50, RR 2
RMC 13-80 (April 10, 1980)

Inventories
Section 41, Tax Code

BIR Ruling DA 128-08 (August 11, 2008)

Exclusions

Section 32 (B), Tax Code

Retirement benefits, etc.

Commissioner of Internal Revenue vs. Court of Appeals (March 23, 1992)
Commissioner of Internal Revenue vs. Court of Appeals (October 17, 1991)
Re: Request of Atty. Bernardo Zialcita (October 18, 1990)
Intercontinental Broadcasting Corporation vs. Amarilla (October 27, 2006)

RMC 27-2011 (July 1, 2011)

Income derived by foreign government

Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation (January 22, 1990)

De minimis/ PERA
Republic Act 9505

RR 5-2011 (March 16, 2011)

RR 17-2011 (October 27, 2011)
RR 8-2012 (May 11, 2012)
BIR Ruling 234-13, June 27, 2013

3. General Principles

Section 23, Tax Code

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4. Source of Income Rules

Section 42, Tax Code

Gross income from sources within Phils.

Commissioner of Internal Revenue vs. Marubeni Corporation (December 18, 2001)
Commissioner of Internal Revenue vs. BOAC (April 30, 1987)
Commissioner v. CTA and Smith Kline & French Overseas (January 17, 1984)
Philippine Guaranty Co., Inc. vs. Commissioner of Internal Revenue (April 30, 1965)
Howden & Co., Ltd. Vs. Collector of Internal Revenue (April 14, 1965)
Philippine American Life Insurance Company, Inc. vs. Court of Tax Appeals – CA-GR Sp. No. 31283 (April 25, 1995)
Commissioner of Internal Revenue vs. Baier-Nickel (August 29, 2006)

Quill Corp. vs. North Dakota, 504 US 298 (May 26, 1992)
Vodafone International Holdings B.V. vs. Union of India & Anr. (Supreme Court of India, Civil Appeal No. 733 of 2012;
January 20, 2012)

RMC 55-2013 (August 5, 2013)

RAMO 1-95 (March 21, 1995)

RAMO 1-86 (April 25, 1986)
RAMO 4-86 (April 5, 1986)

5. Deductions

Sections 34 and 35, Tax Code

Business expenses
Republic Act 10026 (Sections 3 & 14 only)
Republic Act 8502
Republic Act 8525 (Sections 1 to 5 only)
Republic Act 9999

Commissioner of Internal Revenue vs. Isabela Cultural Corporation (February 12, 2007)
Commissioner of Internal Revenue vs. General Foods (Phils.) Inc. (April 24,
2003)
Aguinaldo Industries Corporation vs. Commissioner of Internal Revenue (February 25, 1982)
Atlas Consolidated Mining & Development Corporation vs. Commissioner of Internal Revenue (January 27, 1981)
Zamora vs. Collector of Internal Revenue (May 31, 1963)
C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue (November 28, 1969)
Calanoc vs. Collector of Internal Revenue (November 29, 1961)
Kuenzle & Streiff, Inc. vs. Collector of Internal Revenue (October 20, 1959)

RR 10-2002 (July 10, 2002)

RR 1-2009 (December 9, 2008)
RR 7-2010 (July 20, 2010)
RMC 38-2012 (August 3, 2012)

Interest (as amended by Republic Act 9337)

Paper Industries Corporation of the Philippines vs. Court of Appeals (December 1, 1995)
Commissioner of Internal Revenue vs. Vda. de Prieto (September 30, 1960)

RR 13-2000 (November 20, 2000)

Interest arbitrage

BIR Ruling No. 006-00 (January 5, 2000)

Taxes
Commissioner of Internal Revenue vs. Lednicky (July 31, 1964)

Losses

Section 38, Tax Code

RR 12-77 (October 6, 1977)

RMO 31-2009 (October 16, 2009)
RMO 6-2012
NOLCO
Paper Industries Corporation of the Philippines vs. Court of Appeals (December 1, 1995)

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 RR 14-01 (August 27, 2001)
BIR Ruling 30-00 (August 10, 2000)
Forex losses
BIR Ruling 206-90 (October 30, 1990)
BIR Ruling No. 144-85 (August 26, 1985)

Bad Debts
Philex Mining Corporation vs. Commissioner of Internal Revenue (April 16, 2008)
Philippine Refining Company vs. Court of Appeals (May 8, 1996)
Fernandez Hermanos, Inc. vs. Commissioner of Internal Revenue (September 30, 1969)

RR 5-99 (March 10, 1999)

Depreciation
Basilan Estates, Inc. vs. Commissioner of Internal Revenue (September 5, 1967)
Limpan Investment Corporation vs. Commissioner of Internal Revenue (July 26, 1966)

RR 12-2012 (October 12, 2012)

Depletion
Consolidated Mines, Inc. vs. Court of Tax Appeals (August 29, 1974)

Charitable and other contributions

BIR Ruling 19-01 (May 10, 2001)

Research and Development

3M Philippines, Inc. vs. Commissioner of Internal Revenue (September 26, 1988)

Additional requirements for deductibility

RMO 38-83 (November 14, 1983)
RR 12-2013 (July 11, 2013)
RMC 63-2013 (September 26, 2013)

Optional Standard Deduction

Section 34 (L), Tax Code as amended by Republic Act 9504

RR 2-2010 (February 18, 2010)

RR 16-2008 (November 26, 2008) (Sections 1 to 5 only)

Premium payments on health and/or hospitalization insurance

Non-deductible expenses
Section 36, Tax Code

Esso Standard Eastern, Inc. vs. Commissioner of Internal Revenue (July 7, 1989)

Section 119-122, RR 2

6. Individuals

Sections 24 (as amended by Republic Act 9504) & 25, Tax Code

Ordinary Income
Passive Income
Section 22 (T) to (Y), Tax Code

RR 14-2012 (November 7, 2012)

Capital Gains Tax

Section 22 (Z) and 39 (B), Tax Code

Supreme Transliner, Inc. vs. BPI Family Savings Bank, Inc. (February 23, 2011)

RR 8-98 (August 25, 1998)

RR 4-99 (March 9, 1999)
RR 13-99 (July 26, 1999)
RR 14-2000 (November 20, 2000)
RR 06-2008 (April 22, 2008)
RMC 37-2012 (August 3, 2012)
BIR Ruling DA 029-08 (January 23, 2008)

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 BIR Ruling DA 287-07 (May 8, 2007)
RR 6-2013 (April 11, 2013)
OCWs/Senior Citizens/Disabled
M.E. Holdings Corporation vs. CIR & CTA (March 3, 2008)

RR 1-2009 (December 9, 2008)

RR 7-2010 (July 20, 2010)
RR 1-2011 (February 24, 2011)

Personal and additional exemptions/PERA

Section 35 (A), (B), (C), and (D), Tax Code

Republic Act 10165, Sections 3-5 & 22-24 only

Republic Act 9504
Republic Act 9505

Pansacola vs. Commissioner of Internal Revenue (November 16, 2006)

RR 17-2011 (October 27, 2011)

7. Partnerships

Section 26 & 73 (D), Tax Code

RR 2-2010 (February 18, 2010)

8. Corporations

Sections 27 (A) & (D), and 28, Tax Code as amended by Republic Act 9294 & Republic Act 9337

(1) Domestic Corporations

Ordinary Income
Passive Income
Capital Gains Tax
RR 4-99 (March 9, 1999)
RR 06-2008 (April 22, 2008)
RMC 55-2010 (June 28, 2010)
BIR Ruling DA 455-07 (August 17, 2007)

(2) Resident Foreign Corporations

Section 28 (A), Tax Code as amended by Republic Act 9294

In general
International Carrier
Air New Zealand vs. Commissioner of Internal Revenue (CTA Case, January 30, 2008)
Commissioner of Internal Revenue vs. BOAC (April 30, 1987)
United Airlines, Inc. vs. Commissioner of Internal Revenue (September 29, 2010)
RR 15-2002 – Sections 1 to 5 only

OBUs/FCDUs

RR 14-2012 (November 7, 2012)

Branch Profit Remittance Tax

Bank of America NT & SA vs. Court of Appeals (July 21, 1994)
Compania General de Tabacos de Filipinas vs. Commissioner of Internal Revenue – CTA Case No. 4141
(August 23, 1993) & 4451 (November 17, 1993)

ITAD BIR Ruling No. 018-09 (June 23, 2009)

Regional or Area Headquarters and ROHQs

Section 22 (DD) & (EE), Tax Code

RR 11-2010 (October 26, 2010)

(3) Nonresident Foreign Corporations

Section 28 (B), Tax Code

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 In general
Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. (June 25, 1999)
Marubeni Corporation vs. Commissioner of Internal Revenue (September 14, 1989)
N.V. Reederij “Amsterdam” and Royal InterOcean Lines vs. Commissioner of Internal Revenue (June 23,
1988)
Special non-resident foreign corporations
Tax on Certain Incomes of Non-resident Foreign Corporations
Interest on foreign loans
Intercorporate dividends
Section 28 (B)(5)(b), Tax Code, as amended by Republic Act 9337
Commissioner of Internal Revenue vs. Procter & Gamble Philippines Manufacturing Corp.
(December 2, 1991)
Interpublic Group of Companies vs. Commissioner of Internal Revenue (CTA Case No. 7796,
February 21, 2011)
BIR Ruling DA-145-07 (March 8, 2007)
Income covered by Tax Treaties
Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (CTA EB
Case No. 40, June 7, 2005 as affirmed by SC Minute Resolution dated February 18, 2008)

RMO 072-10 (August 25, 2010)

ITAD Ruling 102-02 (May 28, 2002)
Deustche Bank vs. Commissioner of Internal Revenue (GR No. 188550 [August 19,2013])

9. Withholding Tax

Section 22 (K), Tax Code

Final Withholding Tax at Source

Section 57 (A), Tax Code
Commissioner of Internal Revenue vs. Smart Communication, Inc. (August 25, 2010)
Section 2.57. (A) & 25.7.1., RR 2-98 (April 17, 1998)
Creditable Withholding Tax
Section 57 (B), Tax Code
Filipinas Synthetic Fiber Corporation vs. Court of Appeals (October 12, 1999)
Section 2.57. (B) & 25.7.2., RR 2-98 (April 17, 1998)
RR 12-98 (August 14, 1998)
Return and Payment of Tax
Section 58, Tax Code
Withholding on Wages
Section 78 – 83, Tax Code
Section 2.78, RR 2-98 (April 17, 1998)
RR 1-2006 (December 29, 2005)
RMC 39-2012 (August 3, 2012)
Withholding Tax by Government Agencies
Section 25.7.2. (N), RR 2-98 (April 17, 1998)

10. Special Rules

(1) Minimum Corporate Income Tax

Section 27 (E), and 28 (A)(2), Tax Code

Chamber of Real Estate Builders’ Association, Inc. vs. Executive Secretary (March 9, 2010)
Commissioner of Internal Revenue vs. Philippine Airlines , Inc. (July 7, 2009)

RR 9-98 (August 25, 1998) – except Sec. 2.28 (E)(7) “Accounting treatment” – as amended by RR 12-2007 (October 10,
2007)

(2) Improperly Accumulated Earnings Tax

Section 29, Tax Code

The Manila Wine Merchants, Inc. vs. Commissioner of Internal Revenue (February 20, 1984)
Commissioner of Internal Revenue vs. Tuason (May 15, 1989)
Cyanamid Philippines, Inc. vs. Court of Appeals (January 20, 2000)
RR 2-01 (February 12, 2001)
RMC 35-2011 (March 14, 2011)
BIR Ruling 25-02 (June 25, 2002)
BIR Ruling 094-2013

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 (3) Fringe Benefits Tax
Section 22(A) and 33, Tax Code

RR 3-98 (January 1, 1998)

RR 8-00 (August 21, 2000)
RR 10-00 (December 14, 2000)

RMC 88-2012 (Stock option plans)

(4) Transfer Pricing

Section 50, Tax Code

Commissioner of Internal Revenue vs. Filinvest Development Corporation (July 19, 2011)
Her Majesty the Queen vs. GlaxoSmithKline Inc., 2012 SCC 52 (Supreme Court of Canada, Court File 33874; October 18,
2012)

RMC 026-08 (March 24, 2008)

RMO 63-99 (July 19, 1999)
RR 2-2013 (January 23, 2013)

11. Special Entities

(1) Proprietary Educational Institutions and Hospitals

Section 27 (B), Tax Code

Commissioner of Internal Revenue vs. St. Luke’s Medical Center, Inc. (September 26, 2012)

RMC 76-03 (November 14, 2003)

(2) GOCCs

Section 27 (C), Tax Code as amended by Republic Act 9337

Republic Act 10026

Philippine Amusement and Gaming Corporation vs. Bureau of Internal Revenue (March 15, 2011)
RMC 33-2013
Philippine Amusement and Gaming Corporation vs. Bureau of Internal Revenue (G.R. No. 215427, December 10,
2014)

(3) Exempt Corporations

Section 30, Tax Code

Executive Order 226, Article 39

Republic Act 7916, Sections 23 – 25
Republic Act 9178
Republic Act 9593, Sections 4 & 86-88
Republic Act 9856

Dumaguete Cathedral Credit Cooperative vs. Commissioner of Internal Revenue (January 22, 2010)
Commissioner of Internal Revenue vs. G. Sinco Educational Corp. (October 23, 1956)

RR 13-2011 (July 25, 2011)

RMC 35-2012 (August 3, 2012)
RMC 51-2014 (June 6, 2014)

(4) Insurance Companies

Section 37, Tax Code

12. Capital Gains and Losses

Section 39, Tax Code

Capital assets/income
Calasanz vs. Commissioner of Internal Revenue (October 9, 1986)
Section 132, RR 2
BIR Ruling 27-02 (July 15, 2002)
BIR Ruling 142-2011

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 Ordinary assets/income
Section 22 (Z), Tax Code
Tuason vs. Lingad (July 31, 1974)
Net capital gain, net capital loss
Percentage taken into account
Limitation on capital loss
China Banking Corporation vs. Court of Appeals (July 19, 2000)

13. Determination of Gain or Loss from Sale or Transfer of Property

Section 40, Tax Code

Section 136-143, RR 2
Computation of gain or loss
Cost or basis for determining gain or loss
Exchange of property (Tax-free exchange)
Definitions
Section 40 (C)(6), Tax Code
Merger or consolidation
Commissioner of Internal Revenue vs. Rufino (February 27, 1987
Transfer of "substantially all" the assets
Transfer of property for shares of stocks
Commissioner of Internal Revenue vs. Filinvest Development Corporation (July 19, 2011)
BIR Ruling No. 274-87 (September 9, 1987)
Administrative requirements in case of tax-free exchanges
RR 18-01 (November 13, 2001) – (only Sections 3 to 6 and 9 to 12)
RMR 1-02 (April 25, 2002)
Assumption of liability in tax-free exchanges
Cost or basis in tax-free exchanges
Business Purpose
Gregory vs. Helvering, 293 U.S. 465; 55 S.CT. 266 (January 7, 1935)
Rulings
RMC 40-2012 (August 3, 2012)
Losses from Wash Sales of Stocks or Securities
Section 38, Tax Code
Section 131, RR 2
BIR Ruling 614-2012

14. Administrative Provisions

(1) Accounting Periods and Methods

Sections 43-50, Tax Code

Section 166-177, RR 2
Section 51-53, RR 2

Accounting method - cash (actual or constructive) or accrual

Hybrid method
Consolidated Mines, Inc. vs. Court of Tax Appeals (August 29, 1974)
Percentage of completion method
Section 48, Tax Code
Section 44, RR 2
Change of accounting period
Installment basis
Bibiano V. Banas, Jr. vs. Court of Appeals (February 10, 2000)
Allocation of income and deductions

(2) Returns and Payment of Taxes

RR 019-11 (December 9, 2011)

Individual Return
Section 51 & 56, Tax Code

Who are required to file

Those not required to file
Where to file
When to file
Where to pay
Capital gains on shares of stocks and real estate
Quarterly declaration of income tax

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 Section 74, Tax Code

Corporation Returns
Section 52, 53 & 56, Tax Code
Quarterly Income Tax
Section 75, Tax Code
Final Adjustment Return
Section 76, Tax Code
Systra Philippines, Inc. vs. Commissioner of Internal Revenue (September 21, 2007)
Philam Asset Management, Inc. vs. Commissioner of Internal Revenue (December 14, 2005)
Where to file
When to file
Section 77, Tax Code
When to pay
Capital gains on shares of stock
Return of corporations contemplating dissolution/reorganization
Section 52 (C), Tax Code
Sec. 244, RR 2
Bank of the Philippine Islands v. Commissioner of Internal Revenue - CA-GR Sp. No. 38304 (April 14, 2000)
Returns of GPPs
Section 55, Tax Code
Returns of Receivers, Trustees in Bankruptcy or Assignees
Section 54, Tax Code
Others not captured
Section 59, Tax Code

Other income tax requirements

Section 67-72, Tax Code

United Airlines, Inc. vs. Commissioner of Internal Revenue (September 29, 2010)

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