Tax Reviewer by Moi

I.
DEFINITION, NATURE AND GENERAL PRINCIPLES
INCOME – All wealth that flows into the taxpayer other than as a mere return of capital.
- It includes the forms of income specifically described as gains and profits including gains
derived from the sale or other disposition of capital assets.
INCOME, CAPITAL, REVENUE, RECEIPT; DISTINCTIONS
A.) Gross receipt – includes receipts which may constitute capital as well as income;
therefore, broader in scope
B.) Income – connotes a narrower concept limited only to gain derived from labor, capital
or property, excluding non-income items such as the capital invested, cost of gooods
sold or those excluded by law from income taxation
C.) Revenue- refers to al funds or income derived by the government whether from tax or
other sources. (revenue is to the government as income is to private persons or
corporations
SOURCES OF INCOME
-Property (capital)
-Labor (service)
-Sale/exchange of capital asset and activity
Under the tax code, income derived from whatever source forms part of the taxpayer’s income.
This includes the ff:
1. Treasure found or punitive damages representing profits lost;
2. Amount received by mistake
-ex: foreign bank erroneously remitted a sum of money and spent it on various
purchases. Said sum constituted taxable income.
3. Cancellation of the taxpayer’s indebtedness

4. Payment of usurious interest
5. Illegal gains – gambling, theft etc
6. Tax refund – must be claimed as deduction from gross income in the preceeding year
7. Bad debt recovery – must be claimed as deduction from gross income in the preceeding
year.
INCOME TAX; BASIS, NATURE, FUNCTIONS
1. Tax on yearly profits arising from property, profession, trades or offices or as a tax on
person’s income, emoluments, profits and the like
2. It is based on income, either gross or net, realized in one taxable year
3. Excise tax- NOT LEVIED UPON THE PERSON OR PROPERTY but upon the RIGHT of a
person to RECEIVE income or profits
4. FUNCTIONS OF INCOME TAX
 To provide large amounts of revenues
 To offset regressive sales and consumption taxes
 To mitigate the evils arising from the inequalities in the distribution
of income and wealth which are considered deterrents to social
progress.
REQUISITES FOR INCOME TO BE TAXABLE
1. There must be gain or profit, whether in cash or its equivalent
2. The gain must be realized or received.
a. Mere increase in the value of property is not income
b. Increases in the taxpayer’s net worth are not taxable increases in net worth when it
is shown to be merely the result of corrections of errors in its entries in its books
relating to its indebtedness to certain creditors.
A. INCOME TAX SYSTEMS

a. Global Tax System – the tax system views indifferently the tax base and generally
treats in common all categories of taxable income of the individual. It taxes all
categories of income except certain passive incomes and capital gains.
b. Schedular Tax System – system employed where the income tax treatment varies
and is made to depend on the kind or category of taxable income of the taxpayer.
c. Semi-Schedular or Semi-Global Tax System – It is:
a.) Global, in the sense that all compensation income, business or professional
income not subject to final withholding income tax, and other income not
subject to final tax are added together to arrive at the gross income and the
taxable income. i.e., gross income less allowable deductions and exemptions
b.) Schedular, in the sense that passive investment income subject to the final
tax and capital gains from the sale or transfer of shares of stock of a domestic
corporation and real properties remain subject to different sets of tax rates
covered by different returns.
B. FEATURES OF THE PHILIPPINE INCOME TAX LAW
C. CRITERIA IN IMPOSING PHILIPPINE INCOME TAX
a. Citizenship – the basis of the imposition of income tax is the taxpayer’s citizenship.
Thus, citizens of the Philippines, whether residents or non-residents are subject to
our income tax law
b. Residence- the basis of the imposition of income tax is the residence of the taxpayer.
All income derived by persons residing in the Philippines shall be subject to income
tax on the income derived from sources within the Philippines.
c. Source- the basis of the imposition of the income tax is the source of income. All
income derived from sources within the Philippines shall be subject to income tax.
D. GENREAL PRINCIPLES OF INCOME TAXATION
E. TYPES OF PHILIPPINE INCOME TAX.
1. Graduated income tax on individuals
2. Regular/normal corporate income tax on corporations
3. Minimum corporate income tax on corporations
4. Special income tax on certain corporations
5. Capital gains tax (CGT) on sale or exchange of unlisted shares of stock of a domestic
corporations classified as a capital asset
6. CGT on sale or exchange of real property located in the Philippines classified as
capital asset
7. Final withholding tax (FWT) on income payments made to non-residents
8. FWT on income payments made to non-residents
9. Fringe benefit tax (FBT)
10. Branch profit remittance (BPRT)
11. Improperly accumulated earnings tax
12. Gross income tax
F. KINDS OF TAXPAYERS
1. Kinds of Individual taxpayers
a.) Resident Citizen (RC) – a citizen of the Philippines residing therein, unless he
qualifies as a non-resident citizen under sec.22 (e) of the NIRC
b.) Non-Resident Citizen (NRC) – a citizen of the Philippines who: (PIMP)
1. Establishes to the satisfaction of the commissioner the fact of his PHYSICAL
presence abroad with a definite intention to reside therein
2. Leaves the Philippines during the taxable year to reside abroad, either as an
IMMIGRANT or for employment on a permanent basis. (i.e., overseas
contract workers or OFW)
 Note: Taxpayer should only be treated as NRC for the taxable year
in which he departed from the Philippines after his departure. An
individual taxpayer may be both a resident and an non-resident in
one taxable year.
3. Works and derives income from abroad and whose employment thereat
requires him to be physically present abroad MOST of the time during the
taxable year
 Notes: a) to be considered physically present most of the time
during the taxable year, a contract worker must have been outside
the ph for NOT less than 183 days during such taxable year; b)
citizens who work outside the ph for atleast 183 days in a taxable
year due to a contract of employment with a PH employer are NOT
considered NRC because they are not considered employed abroad
4. Has been PREVIOUSLY considered as a NRC and who arrives in the PH at any
time during the taxable year to reside permanently in the ph shall be
considered as non-resident for the taxable year in which he arrives in the ph
with respect to his income derived from sources abroad until the date of his
arrival in the ph.
 Note: Cannot be considered as NRC – the listed personnel of a
domestic corporation who are temporarily assigned abroad and
who do not have the intention to reside at the places where they
are delegated to, either as immigrants or on a permanent basis.
Overseas Contract Worker- a filipino citizen employed in a foreign country, who

is physically present in a foreign country as a consequence of his employment
thereat.
To be considered as an OCW:
1. He must be physically present in a foreign country as a consequence
of his employment
2. He must be duly registered with the POEA and issued with a valid
overseas employment certificate (OEC)
3. His salaries and wages must be paid by an employer abroad
 Note: An OCW or OFW’s income arising out of overseas
employment is EXEMPT from income tax. However, his income
earnings from business activities within the ph are subject to
income tax.
 A seaman who is a citizen of the Philippines and who receives
compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade
shall be treated as an overseas contract worker;
c.) Resident Alien – An individual whose residence is within the ph and who is not a
citizen thereof. He is not a mere transient or sojourner. He has no definite
intention to stay in the ph. The alien makes his home temporarily in the ph.
 Note: An alien who stayed in the PH for more than 1 year as of the
taxable year is a resident alien
 An alien who has acquired residence in the PH retains his status as
a RA until he abandons the same and actually departs from the ph.
d.) Non-Resident Alien Engaged in Trade or Business (NRA-ETB) - an individual

whose residence is not within the ph and who is not a citizen thereof but doing
business in the ph.
 Note: A NRA who shall come to the PH and stay for an aggregate
period of more than180 days during any taxable year shall be
deemed a NRA-ETB. The aggregate period must be within the same
taxable year to be considered engaged in the trade or business
 “Trade or business” includes the performance of the functions of a
public office but excludes performance of services by the taxpayer
as an employee.
e.) Non-Resident Alien Not Engaged in Trade or Business (NRA-NETB) – A NRA who
shall come to the ph and stay for an aggregate period of 180 days or LESS during
any calendar year.
2. Kinds of Corporate Taxpayers
a.) Domestic Corporation (DC) – a corporation created or organized in the PH or

under its laws
b.) Resident Foreign Corporation (RFC) – a corporation which is not deomestic
and engaged in trade or business in the PH.
c.) s

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I.

DEFINITION, NATURE AND GENERAL PRINCIPLES

3. Cancellation of the taxpayer’s indebtedness

A. INCOME TAX SYSTEMS

Overseas Contract Worker- a filipino citizen employed in a foreign country, who

d.) Non-Resident Alien Engaged in Trade or Business (NRA-ETB) - an individual

2. Kinds of Corporate Taxpayers

a.) Domestic Corporation (DC) – a corporation created or organized in the PH or

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