Sec 105: VAT
- ex: exporter: taxable within PH
Realty is taxable only in PH bec of narrow
understanding
SOURCES OF INCOME
- In all cases, when q involves taxability of
income whether within or without, determine
WHO IS THIS TAX PAYER
- Source rule is meant only for those taxable
from income within
- if income taxpayer is resident cit or resident
corp, doesn’t matter where income came from
Bec always WITHIN AND WITHOUT
- IF TAXPAYER ONLY TAXABLE ON INCOME
WITHIN, MAKE SURE INCOME IS FROM WITHIN
-territoriality is anchored on due process bec
taxation = deprivation of property
INCOME FROM WITHIN SEC 42
Dividends:
1. Domestic corp
- Ex: Non resident receiving from SMC –
Income from within
2. Foreign Corp
- Grandfather rule: If source of income
is at least 50% from PH sources
- grandfather of dividend is source of
income
- sometimes FC has branch
- If 49% only, WITHOUT
- If 75%, then 75% of dividend is within
Services: Place of performance
- ex: worker in Saudi – Not taxable in PH
Rentals & Royalties: Location rule
- ex: lease of intangibles/copyrights : place
where privilege is exercised
Sale of Real Prop: Location Rule
- ex: sale vacation house and lot in US –
WITHOUT, but taxable because seller is resident
citizen
Sale of Personal Property: place of market rule
- Within – within
- without- without
- where was sale consummated? Where was
transfer of ownership?
EXCEPTIONS:
1. If sale of shares of domestic corp, income
derived from this sale is income from WITHIN
irrespective of place of sale
- ex: sale of PH land in US, seller and buyer in US
= WITHIN, taxable in PH, appoint transfer agent
in PH
2. personal properties partly or wholly produced
within but sold without or partly and wholly
produced without but sold within
- ex: manufacturer domiciled in well off
economy, puts up factory in developing country
- raw materials will be shipped to PH without
taxes, but cannot sell in PH, only in country of
source
- branch is labor only contractor
- apportionment/allocation formula:
5k gain is partly within and without – 50% of
gain is apportioned on basis of sales. If zero
sales here, automatic income without.
BUT LOCAL SALES CAN BE MADE IF:
1. Overruns: produced 1.1M of 1M
required – 100K is overrun
2. Defective merch:
Other 50% is on basis of holdings, ex equipment
DIFFERENT CLASSES OF INCOME OF
INDIVIDUAL TAXPAYER
1. Returnable Income Sec 32
- global
- TRAIN Schedule
2. Fringe Benefits
- fringe benefits tax sec 33
- via withholding tax system
* 2 ways/manner of collecting tax:
1. self-assessment
2. withholding tax (fringe benefits of
managerial)
3. Passive investment income
- required in ITR?
- NO if subj to final withholding tax (remember: EXCLUSIONS FROM GROSS INCOME
non-resident cannot be withholding agent in
collecting taxes) 13TH MONTH PAY
- YES if manny pacquiao - From 82k, increased to 90k
- de minimis: to promote well being of
4. Capital Gains SEC 39 employee
- what kind of capital asset? - fringe benefits to rank and file – taxable
- not for sale in business income
- not real prop used in trade/ business - but if they qualify as de minimis, tax exempt
- not ordinary assets - de minimis benefit threshold: ex 1 sack of rice
- ITR? not more than 1500 pesos. Up to 1500 exempt
- tax implication if value of 1 sack of rice given to
TAXABLE INCOME manager is 5k? will it be subj to fringe benefits
- tax on gross (GROSS MINUS DEDUCTIONS) tax because threshold? NO. Regulation is
- other taxed on net generous. Tax implication: up to 1500 exempt.
- equated with tax base Excess will be considered benefits, will pass to
- Tax rates of individual tax payers under TRAIN 90k (as long as may space pa sa 90k)
6 BRACKETS - 2 parameters of exemption: 1. De minimis, 2.
5-32% 90k
- Option to pay 8% in lieu of graduated rates?? - other ex: bonuses
- Compensation income - What if wala nang space sa 90k? EXCESS IS
- Business income/ practice of profession TAXABLE BECAUSE NO MORE EXEMPTION.
- Mixed income – Compensation and non- - TAXED AS PART OF COMPENSATION
compensation income, employee also engaged INCOME IRRESPECTIVE OF WHO IS
in business RECEPIENT, WHETHER MANAGER OR
NOT: taxpayer is employee and has RANK AND FILE. To place at par rank and
deposit with bank earning 1M interest file w managerial. Because
annually makakalamang ang managerial if
- TRAIN: If income earner is purely exempt.
compensation, NO OPTION, graduated only, if - Gross up
business income, has OPTION but only if taxable - Constructive remittance of income
income exceeds 250K-3M bec if 250 only,
exempt, 3M is vat threshold – OPTION: to pay PRIZES
8% in lieu of graduated rates, plus 3% tax under - Exempt only if:
sec 116 1. Recepient did not do act to enter
- Sec 109 VAT threshold contest
- If mixed income earner: 2. not required to render substantial
1M Compensation future services as condition for award
2M business
YES HAS OPTION BUT ONLY ON HIS - to ensure prize will not be compensation for
NON-COMPENSATION INCOME services because compensation income is for
Pay 0-35% on compensation services
- ex: painting contest and best will get 1M: YES
GROSS INCOME Sec 32 a TAXABLE because did act, that is a service in
-MOST IMPORTANT 32B EXCLUDED FROM itself
GROSS INCOME - ex: prize, but must repair headquarters: NOT
EXEMPT because considered compensation for
future service
- element of suddenness akin to a gift must exist
- What if someone entered you without your
knowledge?
- ex: enlist in beauty contest: NOT EXEMPT
- BUT STILL EXEMPT IF FUTURE SERVICE IS ONLY
TO CUT RIBBON
- Prizes for sports: 1995 q – onyok velasco, upon
his return, given 1M by mayor lim, another 1M
by ayala land, brand new car by universal
motors, brand new house and lot by Violago
homes – WHAT IS THE TAX IMPLICATION OF ALL
THE DOLE OUTS? – EXEMPT. Award is taken in
generic context so anything given to promote
well-being of athlete, before during and after
competition (FUGOSO LAW)
- Giver is exempt from donors tax
because it helps our athletes
- if giver engaged in business, donation
is 100% deductible, but not included in
charitable
- EX: Can prize given to Manny Pacquiao, A
PROFESSIONAL BOXER for boxing abroad be
exempt in PH? NO TAX EXEMPTION IS GIVEN
ONLY TO AMATEUR ATHLETES, NOT
PROFESSIONAL – BECAUSE OBJECTIVE OF
FUGOSO LAW IS TO PROMOTE AMATEURISM
- Sanctioned by Philippine Olympic Committee
-

DEDUCTIONS FROM GROSS INCOME