Tax Midterm Transcript (1)

7/24/2019 Tax Midterm Transcript (1)

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24 TAXATION MIDTERM TRANSCRIPTATTY AMAGO

BARCENAS | VILLALON | REGALADO | MONTERO | MEJICA | DELA PENA |GARCIANO|EXCLUSIVE USE FOR ROOM 403|

January 4 0!" #$%&u%%$'n(

In&')* +a,is a tax on all yearly profts arising romproperty, proessions, trades or oces.

How about i there is no property, proessions, trades oroces to speak o? s in the middle o the road, youound something?

nswer !classmate"# also called income sir because othe welare that comes to the hands o the taxpayer$o is it imposable on you?

%ncome is a tax on income. %ncome as mentioned insome books would say that it is a tax on all yearlyprofts arising rom property, proession trade or e&enser&ices but in addition to that it should also reer to taxon increases in your net worth.

'hat is this net worth# %n accounting, it is defned inormula which is ssets()iabilities* +apitalnet worth

% e&er there is an increase in your net worth, e&en i itdoes not arise rom the exercise o proessions, dealingswith properties or rendition o a ser&ice, it will still beconsidered income or purposes o income tax. %t couldstill include increases in your net worth, e&en i you donot do anything. -hese are called win hole profts.

%t is then necessary or us to determine on what isincome?road sense# all wealth which /ows into the hands othe taxpayer other than as a mere orm o capital

(0nly that which is in excess o the capital that youin&ested is considered as income

$trict sense# %t is an amount o money coming to thetaxpayer or the ser&ice perormed or an acti&ity whichhe engaged in or or an in&estment he has made but itis not all exclusi&e because as what we ha&e saidanything that is seen without anybody owning thatincome or what can be considered as income in so ar asthe client is concerned.(so including those who does not ha&e a specifc ownerbut can be ound in the hands o the fnder. $0 we ha&eto include those that are not mere profts like those oound by mere luck without spending any capital at all.$o when you get into the specifc acti&ities, you get intothe ser&ices rendered, that is when is becomes in strictsense . $o there has to be something that you ha&e todo beore you can earn this income, except when theseare win hole! wa ko sure sa term" profts, as in the caseo mere luck.

Na+ur* 'n $n&')* +a,(%t is an excise tax which means it is a tax on yourpri&ilege to earn the income. %t is not a tax on the proft.%t is 1ust that the basis o the tax is the proft which youearn. ut you are being taxed not because there is proftbut because you got the right or the pri&ilege to earnsuch proft.+ompare to to real property tax! lahi sya"kay ang gitaxan ka yang property gud. $o ug mere luck#di gud d y ka mataxan ug income tax ka yang pagengage man sa business.

Pur-'%* '. $n&')* +a,(


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Pr$)ary(or the go&ernment to raise re&enueS*&'n#ary -ur-'%*(to o3set regressi&e sales and consumption o taxesHow?'hen you ha&e - which was being discussed in the

case o -olentino to be regressi&e in e3ect ,so thatmeans that we the

consumers get to be burdened by the imposition o -because we cannot pass it to them but who earns theincome? %t is actually the people abo&e us# those whoare prior to the distribution line, so those who aremanuacturers, wholesalers or retailers.How can then the income tax curtail the e3ects o thistax?$o since they are earning more income, they should besub1ect to more taxes and so one way o imposing taxon them is by imposing income tax. 'ill we be theconsumers sub1ect to more taxes or now themanuacturers or wholesalers? %t will be the latterbecause they are earning more income compared to us,considering that we spend the money including thetaxes that we are burdened to pay. -he higher theincome, they will be sub1ect to more taxes compared tothe consumer e3ect.

R*/r*%%$* *1*&+(masub1ect to higher taxes angkatung niearn ug higher income compared sa nagbayadsa indirect tax.

-o mitigate the e&ils arising in the une5ual distributiono income and wealth(those earning more are sub1ected to more taxes andthese taxes will be used or the beneft o those whoha&e less income seems to distribute the wealth(re&iew daw sauna#

6egulation, promotion o gen welare, reduction o socialine5uality, encourage economic growth7ita na daw sa Historical ackground

S'ur&*% '. In&')* +a, 2a(

8ational %nternal 6e&enue +ode%s it the primary source? 8o, it is the constitution(constitution, )egislations and statutes, dmin orre&enue rules and regulations, 1udicialdecisions!persuasi&e(+-. +onclusi&e( $upreme +ourtand tax treaties"

D*n$+$'n '. +*r)%$ge b, try daw natu!ana si sir"

-he term 5-*r%'n5 )*an% an $n#$$#ua26 a +ru%+6*%+a+* 'r &'r-'ra+$'n.(so you will see that a person is di3erent rom what alayman knows. %t also includes artifcialpersons,partnership.. could mean artifcial persons

G*n*ra2 Pr$n&$-2*% '. $n&')* +a,a+$'n

9xcept when otherwise pro&ided in this +ode#

!" citi:en o the ;hilippines residing therein istaxable on all income deri&ed rom sources within

and without the ;hilippines

deri&ed rom sources within and without the

;hilippines< and!" oreign corporation, whether engaged or notin trade or business in the ;hilippines, is taxable

only on income deri&ed rom sources within the;hilippines.

Sy%+*) '. $n&')* +a,a+$'n

S&7*#u2ar Sy%+*)is a system employed where theincome tax treatment &aries and made to depend onthe kind or category o taxable income o the taxpayer.

separate tax return or computation is re5uired oreach type o income(%t accounts on di3erent kinds o taxes at di3erenttimes. % you are earning compensation income. %t isdi3erent rom that earning business income. notherway is by basing on a category say an amount. =i3erenttax rates or di3erent kinds on income.( separate tax return or computation is re5uired oreach type o incomeG2'8a2 Sy%+*)is a system where the tax treatment

&iews indi3erently the tax base and generally treats incommon all categories o income or the taxpayer

without any distinction as to their type or nature, andsub1ects them to a single set o graduated or fxed tax(%n other words, you pull together all orm o income, aslong as it is income and it is one the same thing(How many returns you expect to fle? 0ne kay you can

pull together allP7$2$--$n*%( Par+y S&7*#u2*r6 Par+2y G2'8a2 9&')8$na+$'n '. +7* +' %y%+*)%

9x. pril >, how many returns do you fle# only one(global. %n that return, what do you see# a combination ocompensation and business income being sub1ect to onetax schedule o tax rate. Howe&er when you look at it ina whole picture, while there is one return orcompensation income and business income, there areother income that ha&e di3erent rates. 8ot all taxes aresub1ected to the same rates as those that are fled inapril >. -his is where scheduler applies.@lobal to extent(that you ha&e one return on april >$chedular# there are other income sub1ected to di3erenttax rates

:$n#% 'n $n&')* +a, )*+7'#%(

@ross income method( income is taxed at gross. -hetaxpayers are not entitled to any deduction%s it that in a gross income method, you do not deductanything? ecause it actually defnes those defned insection A4 which cannot be deducted. @% does not saythe entire gross receipts, you also get to deduct certainreturns in your sales, direct expenses( actory o&erhead,labor, materials

COFFEE S;OP EXAMPLE6aw materials# water, cup...


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)abor# one who will stir it0# can it be done manually? ;wede pero di practical.=ghan ka maattain, like kanang magrent, sa pagsell pa.(o&erhead expenses. -hese expenses, you can deductbeore @%.

-hese direct expnses are considered capital. ng dir aallowed ka yang naa sa tax code(katung naa sasec A4

N*+ $n&')* )*+7'#< $n&')* $% +a,*# 'n n*+=Ta,-ay*r )ay &2a$) a22'a82* #*#u&+$'n%(mu&ary sa imo giengage na business


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any deduction. %t is not entirely true. -an awa agormula#

Gr'%% Sa2*%!+0@$+0$+0$e"('hy do we ha&e to deduct this? ns.

below@ross ;roft%ncomeD 6ate@ross %ncome -ax

!+0@$" +ost o @oods $old( manuacturing concern"!+0$" +ost o $ales( Eerchandising concern"!+o$e"+ost o se&ices( $er&ice(oriented entity

ns# -his reers capital. nd i we ha&e to account orincome, it should not account or any return o capital.$o while you recei&e >E, that is not income yet or aportion o that may be considered return o capital. orpurposes o @ross %ncome taxation, while we say that itdoes not amount to allowable deductions, thosedeductions do not account or these direct cost(6awmaterials, )abor, actory 0&erhead

((+o3ee example((((8et income method(discussion !see ormula"%n the tax code, there instances when we ollow thegross income method. -here are also instances wherewe ollow net income method

=iscussion proper#

F# Bpon applying it to our recent tax system. @7a+#$%+$n/u$%7*% +7* P7$2$--$n* $n&')* +a, %y%+*)

# %t is comprehensi&e it terms as to the tax situs. -hebasis o taxation does not account or one actor alone.

-here are se&eral actors to consider when we considerthe tax situs in the ;hilippines. -hat is why wecharacteri:e it as comprehensi&e. +omprehensi&e inrelation to tax situs

Fa&+'r% +' #*+*r)$n* +a, %$+u% $n P;(+iti:enship8ationality o taxpayer(=omicile o the taxpayer 6esidence o the taxpayer(source n income

+ii:enship and =omicile( it matters i resident citi:en kaor 86. 0nly 6 taxed within and without$ource o income(taxed or income sourced with ;H( +or 86

FEATURES

In#$$#ua2 In&')* Ta,a+$'n(

!= S&7*#u2ar( -his is di3erent rom the $chedular $ystem o

-axation. %n here it means that the rate is based on a$chedule which is the (A2 percent which you can fndin $ection A4( o the tax code. -he one where you canfnd the income o GGG pesos or less is sub1ect todistraint. GGG or more where you get >2GGG plus. -hatis what we mean when we say schedular. ecause weare already discussed that in an income tax system, youcan ha&e a schedular tax system but then again you canalso ha&e a global tax system in relation to the returnsto


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be fled annually. nyway, $chedular means that youollow a tax schedule or indi&iduals which is not true orcorporation because in corporations you only ha&e grossincome taxation!eel nko di gross but mao man gud sa

recordings, ang naa sa otes kay global concept btaw"that there is only one rate to be applied and that is AGpercent or corporatons but or indi&iduals, you applythe to A2

= Ta, ra+*% ar* -r'/r*%%$* $n &7ara&+*r(-his means that the tax rate increases as the

income o the taxpayer increases which is not true orcorporate because in such you only ollow one tax rate.ut does that mean that it s not based on the ability topay? 8ot necessarily because the higher your incomestill, you will still pay a higher tax

(bility to pay principle

3= M'#$*# /r'%% $n&')* +a,a+$'n a% r*/ar#% -ur*&')-*n%a+$'n *arn*r

('hat is necessary or you to ha&e acompensation income? ns# -hat there is an employer(employee relationship. $0 i you are purely anemployee, you ha&e no other source o income.

F# How come it is considered modifed?-here are site di3erences rom the global that you knowo. ;ure compensation earners really show the whatgross income taxation system is because you are notallowed any deduction at all. Iou work or an employeesay >GGGG pesos a month, you do not deduct anythingother than statutory benefts no but that is not the point.>G,GGG pesos is already net o all statutory benefts.

-his >G,GGG is the one that is sub1ect to income tax, notsub1ect to any deductions but this is consideredmodifed because there are some deductions that are

allowed such as your personal exemptions. Bnder thetax law code, the >G,GGG rom the example can then bededucted with what we call basic personal exemptionsand additional exemption.

(%t is modifed because you are still allowed these basicpersonal exemptions as deductions

4= N*+ $n&')* +a,a+$'n a% r*/ar#% +7'%*$n#$$#ua2 +a,-ay*r% +7a+ #*r$* 8u%$n*%%6 +ra#*'r -r'.*%%$'na2 $n&')*= A22'a82* #*#u&+$'n%un#*r S*&+$'n 34 )ay 8* &2a$)*# 8y $n#$$#ua2+a, -ay*r% 7' #*r$* 8u%$n*%%6 +ra#* 'r-r'.*%%$'na2 $n&')*=

(because then indi&iduals who earn businessincome can still deduct the allowable deductionsallowed or corporations. or example, me, % practice myproession, % am still allowed to deduct the cost odepreciation or my printer, the rent or my oce. -heseare allowed as deductions because % earn businessincome as well. $o i % am only a compensation earneror me teaching here in B$+, % will only be allowed basicpersonal exemptions.

"= Pay a% y'u 2* %y%+*)(-here is this so called sel assessment in tax

which means you assess you own sel based on honesty.)ike when you pay are or 1eepneys, di na makatimaanang drier ug usa ba ka sa mga nakabayad. -he same asincome tax, it is actually up to the indi&iduals to assessthemsel&es on how much they will income they wouldwant to disclose.


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?=un#*r &*r+a$n &$r&u)%+an&*% -ay. +apital(a und or property which you in&ested.2. )aborA. oth )abor and +apital4. $ale o ;roperty or =ealings in ;roperty J when

you sell your real estate

9x. $ari(sari store# in&entory purchased by the owner.)abor(sa naninda)awyer# labor niya iyang ser&ices

Cr$+*r$a +' #*+*r)$n* $. In&')* $% Ta,a82*

>. -here is gain or proft( you would know becausethere is an increase in net worth


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2. -he gain or proft is reali:ed or recei&ed(orincome tax purposes+an you ha&e a proft which is reali:ed but not yetrecei&ed?

Ies sir when there is constructi&e receipt

!naglisodlisod lang gud daw ta";wede ra d y daw tu# nangutang sya sir pero wapa nya nadawat ang bayad, pero nakaearn na syaug proft

+onstructi&e receipt concept !read notes. =i kokacopy paste"$ir# constructi&e receipt doctrine is actuallyapplied in the partnership. %t could be one orm.

Iou ha&e not recei&ed it but it was orced to

someone else 9x. -here is a di&idend declaredrom a tax holder. Iou are obligated to thecorporation. $o

beore the corporation will gi&e you money, itwould want to be paid frst. $o while it declareddi&idends, it did not gi&e money to you. %nstead, inlieu o such money to pay your obligation to thecorporation. 'a ka kadawat but you constructi&elyrecei&ed it.

9xample. Iour A classmates here. -hey ha&e >E.they did not distribute it. 'ill they be sub1ect totax? Ies. ecause it would seem that theyconstructi&ely recei&ed it.

@7*n $22 a -r'+ 8* r*a2$*#6eali:ed when the transaction is completed. 0nlywhen you are able to complete a transaction will itbe considered reali:ed. %n this case, there isreali:ed proft when the sale took e3ect. %t is

di3erent when you talk about taxable income,whether you will tax it starting 2G>K or you willtax it yearly or in 2G2K. Ies, there is reali:ed proftthere. 'hy is there reali:ed proft? ecause thetransaction is already completed. % some party

there will not continue on its obligation, then itcould be ground or damages. $0 because it isalready completed, there is reali:ed proft but onhow much is reali:ed is di3erent. or taxationpurposes, it will be taxed on 2G>L when sherecei&es payment because you are talking aboutreal property.

or there to be reali:ed proft, there has to acompleted transaction, % not completed, then

wala. 2nd, there has to be control o&er the proft.-here is control when the transaction wascompleted!example ni sir sa katung instalment !># GG"

Dra$n/(

;roperty uyer>E >GE payable to aperiod o >G years

>G years

2G>K!year when the transaction happened"2G>L 2G>M 2G>N 2G2G....... 2G2K

@7*n #' * 7a* n' r*a2$*# /a$n +7*n


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Iou ha&e a property bought or >E in 2G>G. Kyears has passed. -he &alue already became E.

Iou did not do anything but did you gainanything? Ies, there is but not yet reali:edbecause there is no transaction. Bnreali:ed pa. =i

ka taxable bsan nay increase.

9xample law students ta. 8ay dakong potential namaemploy para ma paralegal. $0 there is apotential na makaearn ka. Easub1ect ka to tax anana credential? 8o. 8kaearn ka? Ies. %mo d ycredential. 'a mareali:ed, unless maemployka.-here has to be a completed transaction andcontrol.

!EB@'$ @IB= 8%"(Bsually daw shares o sticksold directly to a buyer.%n the ;hilippine stockexchange, the &alue o the share is >GGG pesos.'hen you bought it kay > peso ra. %s there gain?

Ies, there is or NNN? 'ill the person who holdsuch a share be sub1ect to tax? 8o . unreali:ed buti such owner sells his share to Er. D in theamount o GG peso per share? %s there gain? Ies.ut is it the gain e5ui&alent to the &alue o the;$9 or based on the amount you sold beore?ased ud on the amount you sold beore becausethat is the only thing that is reali:ed. -axed ra kaor 4NN pesos.mao ra nareali:e.

yaw pagtuo ha na tanan transaction kay sale ra.)ease ray ako mahuna hunaan

A. $uch gain or proft is not exempt under any law ortreaty(Bnder 8%6+, there are exclusions specifcallypro&ided there.

(ased sa discussion, what is excluded romincome(return o capital. -here are specifcexclusions pro&ided on sec A2 o the tax code

:$n#% '. Ta,a82* $n&')*

Ca-$+a2 Ga$n%( gains or income rom the sale orexchange o capital assetsOr#$nary /a$n%( gains or income rom the sale orexchange o ordinary assets

S*& 3(the term Ocapital assetsO means propertyheld by the taxpayer !whether or not connected withhis trade or business", but does not include stock intrade o the taxpayer or other property o a kind

which would properly be included in the in&entory othe taxpayer i on hand at the close o the taxableyear, or property held by the taxpayer primarily orsale to customers in the ordinary course o his tradeor business, or property used in the trade orbusiness, o a character which is sub1ect to theallowance or depreciation pro&ided in $ubsection !"o $ection A4< or real property used in trade orbusiness o the taxpayer.

nything other than the assets here are ordinaryassets.

Or#$nary a%%*+%(

>. stock in trade o the taxpayer or other propertyo a kind which would properly be included inthe in&entory o the taxpayer i on hand at theclose o the taxable year,


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- it must remain at the end o the taxableperiod. Bnsay klaro na tax in trade(sardinarssa sari sari store. ;ag end sa year kay 2nlang kbuok nabilin. Bnsay may ordinary.ng 2 na nabilin or ang >GG pag start sayear. ns# ng 2 na nabilin( close o thetaxable year

= ;roperty held by the taxpayer -r$)ar$2y .'r%a2* +' &u%+')*r% $n +7* 'r#$nary &'ur%*'. 7$% +ra#* 'r 8u%$n*%%=(in other words, these reer to property youusually sell.

9x. Iou ha&e >G titles o land somewhere in the;H. -his is under your name.naa sa :amboangaang title. @nhan nimo isell. =i ninyo trade orbusiness ang pagbaligya ug yuta ha. 'hen yousell it( di na ordinary asset kay di man ordinarycourse Jcapital asset

$o what i si Er. +abahug. 8aa syay real estatebusiness buying ang seling condo units. terusing it or one night kay ibaligya dayun niya

!hayahaya.HHH" . % ibalgya ni to A

rd

persons.'ill that condo unit be ordinary or capital?0rdinary kay he is engaged man in buying andselling condo units.

Eind you class# i nakabaligya ka ug K(engagedin real estate

A. property used in the trade or business, o acharacter which is sub1ect to the allowance or

depreciation pro&ided in $ubsection !" o

$ection A4!depreciation"stnigamit

ani. 8ice na inyo walls but dghan na liki run. %tdepreciates in time.

Iou ha&e a building where your store islocated?

0rdinary(used in businessHouse( dili kay gold sya. Poke.(mudepreciate(capital assetHouse sa taas


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imo building kay mulupad. ;ero dba owner oland. 0wner sad ka abo&e sa land

-79 80-9# E9E06%Q9 8@ 4R

F# 'hy necessary to know i ordinary or capital? -oknow that nature o the income so that we will knowwhat tax regime will apply.

Or#$nary /a$n% u%ua22y $n&2u#* y'ur

@ains or income rom the sale or exchange o propertywhich are not capital assets

>. usiness income( deri&ed rom

business. %ncome rom dealings in shares o stocks odomestic corporation whether or not through thestock exchange

2. %ncome rom dealings in real property located in;H

-he trick there is that i it is related rom business, it isalways ordinary. 8ot related rom business(capital

XIV= Gr'%% In&')*>. INCLUSIONS9Section32AHC


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H Gr'%% $n&')* #*r$*# .r') +7* &'n#u&+ '.+ra#* 'r 8u%$n*%% 'r +7* *,*r&$%* '. a-r'.*%%$'n !$ales(+0@$"

H3 /a$n% #*r$*# .r') #*a2$n/ $n -r'-*r+y$n&')*(profts earned when you sell your property

H4 In+*r*%+%


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%llustration# % will buy insurance rom SSS. 'hen % die, mybenefciary will recei&e the proceeds. -he money thatthey recei&e will be excluded rom gross income.

$ir# letOs say your benefciary is your husband, the

proceeds will be excluded? # Ies.

$ir# % we change the benefciary to the insured estate,will the proceeds be excluded? # Ies. -he benefciarydoes not matter when youTre looking at income tax. oras long as it is )%9 %8$B68+9 ;60+99=$ recei&ed bythe benefciary it will not matter who the benefciary is.$omeone has to die so that the lie insurance proceedwill not be taxable.

$ir# 'hat will happen i the person insured did not die?# ;art o the proceeds will be taxable. % it is the returno premium, it will be deemed excluded rom taxes. -heentire amount o proceeds will not be consideredexcluded taxable. ecause, i e&er there is an excess othe amount you paid or, that excess will already beconsidered income. -here is gain, increase in the networth. %t is reali:ed under the endownment policy.

-raditional lie contract( there is no period to outli&e, no

period to consider, or as long as you li&e and continueto pay premium.

9ndowment policy( you 1ust ha&e to li&e or a certainperiod o year and you are able to li&e then you will getthe proceeds o the lie insurance. -hat is sort oconsidered as in&estment.

Eere return o capital is not considered income.9xample# you paid >GGk or a lie insurance, you recei&e>>Gk in return. -he >G,GGG has to be considered as

income, thereore it is sub1ect to tax. -he >GGk which isa mere return o capital is not considered income,thereore it is appropriate that it be excluded.

$ir# %s there an *,&*-+$'n to the rule that a lie

insurance proceeds is not sub1ect to tax?

# a" U i e&er there is an a/r**)*n+ a% +' -ay)*n+'. $n+*r*%+, that interest will not be considered asproceeds o lie insurance. %t would be considered asinterest income. -he proceeds is still excluded.

-his contemplates o a situation where the personinsured died and ater se&eral periods, only then thecompany paid the proceeds. % in the lie insurance

policy o that insured person states that there ispayment o interest at the time the lie insuranceproceeds is supposed to be gi&en to the benefciary,then whate&er interest earned by that lie insuranceproceeds will be considered sub1ect to tax. ut as to lieinsurance proceeds itsel, it would still be excluded.

b" U +ran%.*r +' 2$.* $n%uran&* -'2$&y

Er. D has a lie insurance policy o > million with

+ompany to be paid or a period o >G years. -hepremium pay is >GGk e&ery year. 0n the th year, Er. Dsold the policy to +ompany or the amount o AGGk.ter >G years when the insurance has already ripened,the benefciary ought to recei&e the amount o > million.'ill the entire amount o > million be consideredtaxable? 8o. 9xclude all the capital. +apital# AGGk VGGk * MGGk. 0nly 2GGk is considered income.

ormula in order to compute i e&er there is transer oproperty# the proft sub1ect to tax should be e5ual to lie


14/43



insurance proceeds minus capital which is e5ui&alent tothe purchase price plus the premium paid. ;roft*proceeds ( !purchase price V premium paid"

$ir# or what type o taxes does the designation o the

benefciary matter? 'ill it matter or income taxpurposes i the benefciary is re&ocable or irre&ocable?# %t will not matter or income tax purposes. 'hetherthe benefciary is re&ocable or irre&ocable, it does notmatter.

$ir# ut will it matter or estate tax? # Ies. % you arethe insured and you get to control who the benefciaryuntil you die, the benefciary is re&ocable. % you get tocontrol who is the benefciary o your lie insurance until

you die, who owns it at the time o your death? -heinsured continue to own it e&en i it will go to someoneelse because the control continue to exist until the lastbreath. Pust beore you die, the owner o the property isstill the insured. %t will orm part o his estate becausehe can control that asset. -his is sub1ect to estate tax.

% irre&ocable, it will not matter because you donOt ha&eany control anymore. t the time o your death, will it beconsidered that you owned the property? 8o. 'ill it orm

part o your estate? %t will not because you canOt controlit. %t will not be sub1ect to estate tax.

A. G$.+%6 8*u*%+%6 #*$&*%

9x. donated a parcel o land to . %t will not besub1ected to income tax because it is already sub1ectedto donorOs tax. $ir# %n that case, was there a gain? Ies.ecause you got something that increases your networth.

%s it reali:ed? Ies. %t must ha&e been recei&ed becausethe donation ha&e already been perected the momentyou accepted the donation. %t will not be sub1ect toincome tax because it is already sub1ect to another tax!donorOs tax". 0therwise, there will be double taxation in

the broad sense because the same property is sub1ectto tax. Iou are taxed actually not on the right to earnincome, but on the right to transer property generously.

$ir# 'hat i it is through a will, in your will you writethere OGk will go to my good riendO, why would it notbe sub1ect to tax? # -here is an estate tax imposedalready on such a property because the transer willonly take e3ect ater the death o the decedent.

-hese be5uests and de&ises( the reason why they arenot sub1ected to income tax is because there is alreadya tax imposed in it by the go&ernment.

4. C')-*n%a+$'n .'r Inur$*% 'r S$&n*%%

9x. Er. D, an employee o Er. broke his leg while hewas working. He was awarded compensation by &irtueo the 'orkmenOs +ompensation. $uch compensation isexcluded rom gross income.

$ir# ut what i Er. D cannot sleep because he cannotstop thinking o Es. I. He sued the company becausewhy did they hire Es. I who is the cause o his sleeplessnights. He asked or moral damages. !or the sake oexample lang, donOt take it seriously" He was granted bythe court moral damages. 'ill it be sub1ect to tax? #

Ies. -here must be a physical in1ury or sickness beore itcan be considered excluded rom taxes.


15/43



$ir# Iou are crossing the streets o $an +arlos and therewas this K2c which /y the road recklessly and then youwere bumped. Iou sued the operator o the 1eep net.

Iou asked or actual damages or your hospital bills,moral damages because you were traumati:ed, and

exemplary damages to set an example that 1eep netshouldnOt be dri&en recklessly. 'hich o these damageswill be sub1ect to tax?

# %t must be a personal physical in1ury or sickness or itnot to be taxable. %t could be paid through ccident orHealth %nsurance, or under 'orkmenTs +ompensationct. ;lus the amounts o any damages recei&ed(included as exclusion. %t did not mention o type odamages. or as long as it is a suit relating to physical

in1ury or sickness, then that damages are excluded romtaxes.

Damages granted on account of loss of prots- taxable

"= In&')* *,*)-+ un#*r +r*a+y

$ir# 'hy do you think it is excluded? 'hat principle olaw supports this exemption? # ;acta $unt $er&anda.'e ought to be in good aith whene&er we enter into

agreements with other states. nd because these twostates who are superior in their own right entered intothis type o agreement saying that it should beexcluded, then it should bind all o us in this country.ter all, we ollow the =octrine o %ncorporation.ollowing such doctrine, whene&er the ;hilippinesentered into international agreements with some otherstates, we ought to be bound by such an agreement. 'eought to apply good aith in implementing theseagreements. % that agreement says that it is excluded,then it should be excluded.

$ec. A2b( talks about an income specifcally pro&idedin the tax treaty that it is exempted or at least excluded.

Bnder the SSSS case !sorry lisod ispell ang case W4N#2L",the $upreme +ourt said that there should be good aith

on the part o the ;hilippines in entering intointernational agreements. 'hen the ;hilippines enterinto international agreements with other nations, it mustimplement such agreement outright without anyconditions, unless such condition is stated in the treatyitsel.

%nternational agreements stands superior than theregulation placed in the ;hilippines. 'hile there is a taxregulation stating that there should be application or

tax treaty relie beore you can a&ail o the tax treatyincenti&e, it does not mean that beore the tax treaty isapplied as an exemption there has to be compliancewith this regulatory re5uirement. %t is automatic,whether you apply or not, it is automatic that there isincenti&es granted to you. %tOs 1ust that it would bedicult to pro&e i you do not ha&e the application. orcon&enience purposes, you can comply with theregulatory re5uirement that you applied or a tax treatyrelie application. %t is already sel(executing, it is

automatic, the benefts under the tax treaty.

K. R*+$r*)*n+ B*n*+%6 P*n%$'n%6 Gra+u$+$*%6 *+&.

$ir# 'hat do you mean by the reasonable pri&ate beneftplan? # %t means !reer to sec. A2 b K a"

$ir# ased on that defnition, what must beremembered? # %t is in the orm o pension, gratuity,stock bonus or proft sharing.


16/43



$ir# Eust there be a contribution made by the employer?# Ies. %t is a re5uirement that there should be acontribution by the employer.

$ir# or whose beneft it is? # or ocials and

employees

$ir# +an you use the principal or income o such a und?# 8o. or personal or other purposes other than that orthe beneft o employees or ocials.

Ta* n'+*( i it complies with the re5uirement oreasonable pri&ate beneft plan, you already compliedwith the frst condition or it to be excluded.

'hat other conditions must be complied with or theexclusion to apply? $econd, period o ser&ice must be atleast >G years and at least G years o age. -hird,should be a&ailed only once in his lietime. ourth, it hasto be appro&ed by the %6 i all these conditions arecomplied with, it is already excluded rom taxes.

$ir# % Er. , at the age o AG 1oined D +o. and workedthere or years. @ot a separation pay or AGG7. ndthen, at the age o A years, he transerred to I +o.

where he worked or >G years where he got a retirementbeneft worth > million. ;agsugod niya ug lain pa 1ud natrabaho, 4 years old, went back to D +o. and workedthere or K years got a retirement beneft o 2 million.F># or the separation pay, sub1ect to tax or not? #sub1ect to tax. -here are only two causes beoreseparation pay may be deemed excluded rom taxes.irst, the reason could be death, sickness or otherphysical disability. -he sickness should be seriousenough, something that cannot probably be cured

within K months. $ickness as certifed by a medicalpractitioner or doctor.

$ir# $o i those are the reasons or your separation, sayor example you are su3ering rom cancer and you want

to lea&e the company then that can be considered asseparation with due cause. ut letTs say or example youhad a e&er yesterday and then you want to beseparated rom the company already, do you think thatis a separation co&ered under the tax code to beincluded in taxes? 8o, it must be a sickness that isserious enough, somehing which cannot be cured withinK months probably. %t is not particularly mentioned butsince this is an inclusion, it has to be strictly construedagainst the taxpayer. %t could not 1ust be any sickness.

$ir# nother set is that which is beyond your control. $owhat are examples o this? # 6etrenchment, by that wemean that because o possible losses, the employermight want to sa&e on costs such as introducing laborsa&ing de&ice.

$ir# % you are late or you keep on coming to work andthen sleep and you are terminated because o chronicsleeping, are you excluded rom paying taxes? # 8o,

because the reason is not beyond your control.

$ir# or as long as it is a cause beyond your control,being late or sleeping is within your control.6edundancy is one thing which you cannot control, it isout o the companyTs hiring policy which caused thisredundancy. % those are reasons alling under instanceswhich are beyond your control, it is also excluded. 8owin this case, it was not mentioned but because this is anexclusion, it should be construed strictly against thetaxpayer. $ay granting he worked anyway ater retiring


17/43



rom or lea&ing +ompany D, he worked with +ompany I,so it must be or some reason personal to him, letTs 1ustassume that it is not beyond his control. -hereor thisAGG,GGG is should be taxable. 0r i it is beyond hiscontrol then it is excluded.

$ir# How about the second situation? # %t is included orsub1ect to tax because he is not yet G years old whenhe retired.

$ir# How do you con&ert it in order to be excluded? # %he was G years old then this could ha&e been excludedgranting that there is a reasonable pri&ate beneft plan.

$ir# 'hat i there is no reasonable pri&ate beneft plan

o3ered by the company, is there a way that this couldbe excluded? # Bnder the new retirement law, there isan optional retirement age o KG years old andcompulsory og K years old. or it to be exempted romtax, you 1ust ha&e to comply with the retirement age oKG or K and then work or that company or the samecompany or a period o years. % thatTs the case, thenthe retirement beneft that you will get will still beexcluded rom taxes. -hat is i there is no reasonablepri&ate beneft plan set up by your company. 0r e&en i

you do not all under the retirement law, i your +pro&ides or retirement terms, it should be burdensomethan what the retirement law pro&ides. $o you cannotsay in your + nga LG years old and retirement ageand kinahanglan >G years o ser&ice kay burdensome nahinuon sya. t all, what the law say it is not re5uired Jthe re5uirement o age and years o ser&ice. $o at allyou can say KG years or 2G years or as long as theseare not a twin re5uirement. asta dili lang syamahimong mas burdensome kaysa sa law.

$ir# 8ow, under the Ardre5uirement, still sub1ect to taxbecause it has not complied with the years o ser&ice.How about the age? Ies, complied. How about theser&ice re5uirement, it has complied with there5uirement because take not that he has already

worked or years with D +o. beore he went back to D+o. ater > years. He has pre&iously worked with D +o.,naa na syay years duha plus naa pa syay another Kyears ;agbalik niya, so all in all, >> years. %s it re5uiredto be continuous? 8o, it is not pro&ided under the law.$o it is >G years whether continuous or not or as longas it relates to the same employer.

$ir# 'hat i the + applies under the 2nd re5uirement?Bnder the 2ndsituation, there is a +. $o that means

the > million is? + says >G years. %t is excluded. 'illthe second one be excluded rom taxes? 8ot anymorebecause you can only a&ail o it once in your lietime.

$ir# 'hat i % change this.. $o at age 4 he worked orthe go&ernment or a period o >G years and then yougot your retirement beneft rom the go&ernment worth> million pesos. ter that, he worked with D +o., years then at the time he started, worked or >G yearsand recei&ed a retirement beneft o 2 million. irst

situation, exempted rom taxes or sub1ect to tax?9xempted rom tax because your retirement beneft isunder @$%$ thereor it should be excluded rom taxes.

-he second situation, still excluded because you do notcount or purposes o complying with the re5uirementunder letter the retirement o the go&ernment. terall, it says pri&ate, go&ernment is public and theexclusion does not all under letter , it alls under letter J the @$%$ retirement plan. %n this case, you can stilla&ail o the retirement benefts. -hat should be the plan.

% you work or the go&ernment and ater working or the


18/43



go&ernment, you work pri&ately so that you can ha&eexclusions or your retirement plan. ut then again,once you work with the go&ernment SSSSSS.

$ir# How about i the retirement beneft is recei&ed rom

a oreign entity? $ay or example, there is oreignretirement company in the B$ and you used to work orthe B$. ter retiring, you went back to the ;hilippinesand you recei&ed a pension orm the pri&ate retirementcompany. %s it excluded or not? # %t is excluded under$ec. A2b(Kc which pro&ides that retirement beneftsrecei&ed rom oreign entity, pri&ate or public, it isexcluded. 8indot kaayo mo(trabaho sa gawas, whate&eryou recei&e rom abroad, it is excluded. Eaypa magpa(pension sa gawas noh kay excluded man rom taxes, sa

;ilipinas kay sub1ect man to tax kung dili mo(all sare5uirements.

$ir# % you are a eteran? # 9xempt also, that i thebeneft is recei&ed rom the B$ eteranTs ssociation.

$ir# eneft rom $$$, retirement plan? # 9xempted alsobecause they are pro&ided clearly in the tax code. -hereis no need to discuss that, &ery ob&ious noh? +learly 1udgi(pro&ide sa tax code.

$ir# How about miscellaneous items? How would youillustrate letter in the miscellaneous items? # +hinawill deposit money here in )and ank o the ;hilippines,the interest income deri&ed rom it will be consideredexempt rom taxes.

$ir# -his is the situation, tlas is supplying a product toEitsubishi +o. or it to be able to supply that product, itre5uires an e5uipment but it cannot a3ord the

e5uipment. $o what it did was to loan money rom

Eitsubishi +o., it loaned 2 million to buy the e5uipmentand make the product which it will still sell to Eitsubishi+o. Eitsubishi in return borrowed money rom the anko -okyo which is owned by the go&ernment o Papan.

-here is payment o interest on the loan made by tlas

rom Eitsubishi in the amount o >GG,GGG per year, sothat is the interest payment on the loan. 'ill the>GG,GGG interest payment be excluded rom taxes? # %tmust be something connected to a oreign go&ernmentha, it is not enough nga fnancial institution. 'ho mustearn the income? %t has to be the oreign go&ernment. %nthis case, where will tlas pay the >GG,GGG? -oEitsubishi +o. =id the oreign go&ernment earn income?8o, because there is no mention that Eitsubishi ispaying interest to Papan. Had it been the case that we

will allow this situation to happen and it will be excludedthen all companies which is related to a oreign nationwill 1ust loan rom their go&ernments and then enter intotransaction with the ;hilippine corporation here so thatwhate&er loan they will enter into will not be sub1ect totaxes. =ili na sya ang contemplation sa law, thecontemplation is that it must be the oreign go&ernmentwho must earn the income. Had it been mentioned thatEistsubushi is also paying interest to the ank o -okyo,letTs 1ust say G,GGG pesos then the G,GGG is excluded

because this is a loan to the ;hilippines granting thatEitsubishi +o. is in the ;hilippines. ut because we aretalking about the >GG,GGG interest paid or by tlas toEitsubishi, so whoTs earning the income? Eitsubishi +o.,you donTt 1ust connect 1ust because there is a loancoming rom the ank o -okyo. %t has to be an incomeearned by the oreign go&ernment. 0therwise, it will besub1ected to taxes. -he interest is still taxable !+%6 &s.Eitsubishi".


19/43



$ir# re go&ernment owned and controlled corporationssub1ect to taxes? # @eneral rule, @0++s are sub1ect totax unless their charter pro&ides that they areexempted. nd then second re5uirement is that theymust be doing go&ernmental uction alone. ecause i

they are doing propriety unction then that proprietyunction will sub1ect them to tax.

$ir# %s the pro&ision under A2b(Lb applicable to @0++s?# -hey are co&ered by this pro&ision i they areperorming public unctions because it says thereincome deri&ed rom any public utility. 'hat could be apublic utility? 'ater districts are public utitlity, 8@+;.

-hey may be co&ered under this pro&ision i they areperorming public utility. ut i they are not perorming

that, i it is only relating to their essential go&ernmentalunction, that must be a political subdi&ision. ut thenagain, it mentions accruing to the go&ernmenr o the;hilippines, who is considered go&ernment o the;hilippines? % the oce is related to the nationalgo&ernment, then it would still orm part o thego&ernment o the ;hilippines. $o it will ne&er include@0++s because these are di3erent. =iba it must be anoce not separate rom the national go&ernment. $owhere can @0++s then get an exemption? -heir

charters would be one but thereTs another pro&ision,$ection 2Lc which pro&ides that the pro&isions oexisting special or general laws to the countrynotwithstanding, all corporations, agencies, orinstrumentalities owned or controlled by thego&ernment, except @$%$, $$$, ;hil Health, ;+$0 and;@+06, shall pay such rate o tax upon their taxableincome as are imposed by this section uponcorporations or associations engaged in a similarbusiness, industry or acti&ity. ;ag(ibig is likewise

exempted rom income tax. %s ;@+06 included here?

8o, but is ;@+06 exempted? Ies but only in relation toincome deri&ed rom gaming operations because theircharter says so. $o general rule then. @0++s under $ec.2Lc are taxable unless they all under these exemptionshere.

$ir# ut what does it mean when it says shall pay suchrate o tax upon their taxable income as are imposed bythis section upon corporations or associations engagedin a similar business, industry or acti&ity? # Iou mustfnd an industry to which this particular @0++ is relatedto. $ay or example $;, it is related to banks. $owhate&er is the tax applicable to banks, should be madeapplicable to $;. -hat was the position o the %6.'hile % was with ++6, while % was assigned in Eanila

then, the %6 sued $; or deeciency taxes because itsposition is that $; is a bank and all taxes applicable tobank should be sub1ect to tax as pro&ided under $ec2Lc. 'e represented $; and our position was that, yesit may relate to a bank but is it doing an acti&ity similarto bank? ctually no. Ies, it engages in loan but is theloan or proft purposes? 8o, it is to stabili:e thefnancial sector o the country. $o there is ago&ernmental unction. 9ssentially itTs a go&ernmentalunction i youTre looking at $;. $hould the +entral

ank be sub1ected to tax? ecause under the charter othe +entral ank, it is only exempted or a particularperiod and that period has already lapsed. -hereor, itshould be sub1ected to tax under its charter. ut thereare se&eral pro&isions in the tax code which couldactually support that it should be exempted rom taxes.

$ir# s a general rule then, @0++s are sub1ect to taxunless exempted under the law or under their charter.


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(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Panuary >M, 2G>K

E,&2u%$'n% .r') /r'%% $n&')*J these are items o

income which the law deems not sub1ect to tax or at allexcluded rom the term gross income

$ection A2b has L items although we understand thatthe miscellaneous item has se&eral components. 'ewere able to discuss up to income deri&ed by thego&ernment or its political subdi&ision. 'e said that thisparticular pro&ision A2b(Lb would only reer togo&ernment owned and controlled corporations i itrelates to public utility. ut other than that, it will not be

applicable. % there is any exemption relating to any@0++, you should reer to $ec. 2Lc o the tax code.;olitical subdi&isions though are di3erent because it isclearly pro&ided in this pro&ision that politicalsubdi&isions are exempted rom taxes when theyperorm go&ernmental unctions. $o i e&er, politicalsubdi&isions are engaged in non(go&ernmental unctionswhich is actually possible, will they be sub1ect to tax?

-he answer is yes because it should be related to theexercise o any go&ernmental unction.

Pr$*% an# Aar#%

s a rule, pri:es and awards are sub1ect to tax. -hereare 1ust certain conditions that ha&e to be complied withbeore they ay become excluded rom taxes. $o again,as a rule, pri:es and winnings are sub1ect to tax. How doyou di3erentiate pri:es rom winnings? re they one andthe same? % itTs a pri:e, does that re5uire an action onyour part? 8o. 'hereas winnings, you ha&e to perorm

certain actions.

or example, you are engaged in a boxing tournament.How would you call the award? 'ill it be a pri:es orwinnings? %t will be winning because it re5uires you todo something. $o when there is a re5uired ser&ice

beore something is gi&en to you, that would bewinnings.

'hy do you ha&e to di3erentiate pri:es rom winnings?ecause there is di3erent taxation or these when we godiscuss passi&e income later on. ut or exclusionpurposes, pri:es and awards made primarily inrecognition o religious, charitable, scientifc,educational, artistic, literary or ci&ic achie&ement maybe excluded rom taxes i the recipient was selected

without any action on his part to enter the contest orproceeding and when the recipient is not re5uired torender substantial uture ser&ices as a condition torecei&ing the pri:e or award.

$o take note, there is a dual re5uirement. -his is notmutually exclusi&e. oth ha&e to concur beore theexclusion applies.

% or example, you 1oined an in&estigatory pro1ect

contest sponsored by some pharmaceutical company.Iou are not re5uired to render ser&ice to thepharmaceutical company but what you did to 1oin was tosubmit personally or thru mail your entry or thecontest. nd then later on you will be called or thepanel inter&iew. 'ould that all under the exclusion? -heanswer is no. 'hy? ecause there is an action re5uired.ut i you reer to the example gi&en by your classmatelast meeting where there is this cellphone company andout o an electronic raXe, your number was picked and

your won ;2G,GGG, will that exclude you rom paying


21/43



taxes? -he answer is yes or as long as there is noaction re5uired, you ne&er intended to 1oin, it waselectronically raXed without you knowing and thenthereTs no ser&ice re5uired o you later. $o take note othese 2 re5uirements.

nd then not 1ust any award. %t must ha&e a purpose Jreligious, charitable, scientifc, educational, artistic,literary or ci&ic achie&ement. %t not entirely correct to

1ust simply say that the cellphone company rendered araXe, there must be a purpose or that raXe. $o letTsassume that it is intended to support a oundation whichis or charitable purposes.

How about i in the middle o the street you

encountered an old woman whom you guided crossingin that wide street. nd then ater you reached thesidewalk, she ga&e you > million pesos. 0ut o thekindness you rendered in helping her cross the street.'ill you be exempted rom paying taxes? s a pri:e andaward? 'ell, you can always take that position that thisis indeed a ci&ic achie&ement. $o there is somegallantry that you did and as a pri:e or the ci&ic ser&iceyou rendered, you were gi&en > million. $o you can takethat position.

% at all, the %6 will simply say that there is donorTs taxdue on that amount that you 1ust recei&ed. 'as hecompelled to 1oin? 8o, he did not e&en know that therewas a contest. 'as he re5uired to render substantialuture ser&ices? -he answer is none. -ake note that theser&ice has to be substantial. -his is a 5uestion o act.Eost o the pro&isions when they say substantial ormost o the pro&isions o the tax code actually arealmost always 5uestions o act unless there is a

particular percentage set. s ar as % know, there hasnTt

been any standard set as to what is consideredsubstantial. %t is always a 5uestion o act, ater all itdepends also on the ser&ice rendered.

How about in sports competitions, can you be

exempted? %t would only apply to athletes in local andinternational sports competitions and tournaments, itmust be held either in the ;hilippines or abroad so inother words it doesnTt matter diay and it must besanctioned by their national sports associations. ut it isnot 1ust the national sports association, it has to besanctioned by the ;hilippine 0lympic +ommittee.

$o i that is the case, there is always this common5uestion in&ol&ing Eanny ;ac5uiao. 'hether the award

o Eanny ;ac5uiao should be considered excluded romtaxes under this pro&ision. -he answer is no because hisboxing tournament is not sanctioned by the ;hilippines0lympic +ommittee. %t may be sanctioned by the boxingassociation here in the ;hilippines but it is a commonknowledge that the international tournaments on boxingare not sanctioned by the ;hilippine 0lympic+ommittee. $o that would actually tell us that thispro&ision most likely reer to the non(proessionalathletes because what are sanctioned by the ;hilippine

0lympic +ommittee are amateur tournaments althoughthe 0lympics is not only or amateurs. ut that is howthis is discussed, that this would be more applicable toamateur athletes.

)ike 0nyok elasco when he won the sil&er medal in the>NNA 0lympics, should he be sub1ect to tax? -he answeris no because it was sanctioned by the ;hilippine0lympic +ommittee being the 0lympics na gani dibaand it must ha&e been sanctioned also by the ;hilippine

boxing organi:ation whate&er you call it. -ake note o


22/43



the re5uirement that yes it may in&ol&e international orlocal tournament, it may be held here in the ;hilippinesor abroad but there is a re5uirement o accreditationbeore it can be excluded rom taxes.

;ia 'urt:bach, should she be exempted rom taxes? 8o,in act there is already a news article saying that she isnot exempted rom taxes. ut could it not be consideredci&ic achie&ement? Ies, but there is a re5uirement thatthere must be without any action on her part to 1oin thecompetition. $he has to 1oin diba? Iou can ne&eractually hide under the mantle o $ec. A2b(Lc o the taxcode. -hereTs no other way, so she is most likely sub1ectto tax.

$o how can she possibly get away with it? -ry toresearch how she can get away with taxes. -hereTs away.

F# 7anang lotto $ir ba, excluded na? # Ies, it isexcluded. F# ut % did something man $ir, nipalit man koog ticket? # %t is excluded not under this pro&ision butunder the ;+$0 charter, there is a specifc pro&ision orthat exempting it rom taxes.

!3+7 M'n+7 Pay an# O+7*r B*n*+%

Iou already know that >Ath month pay and otherbenefts ha&e already been amended rom AG,GGG it isnow M2,GGG. $ome companies gi&e employees to theextent o >4th month. 'ill the >4thmonth be co&eredunder this exclusion? +learly no. irst and oremost, thelaw clearly pro&ides that it is only reerring to >Ath

month. ut o course i you are the employer, you donTtterm it as >4thmonth so that your employees can a&ail

o the exemption. Iou can call it instead as +hristmasbonus so that it would all under item no. 4.

>4#2A J >4#4>

-he 4thone, this other benefts, take note you ha&e tomemori:e this. %t would only reer to producti&ityincenti&es and +hristmas bonus. ut under the =eEinimis )aw, there is this additional de minimis nowin&ol&ing producti&ity incenti&es. 'hich may be gi&en&oluntarily by the company or thru a + and theamount then is >G,GGG. $o in addition to your M2,GGG,there is now >G,GGG or producti&ity incenti&es. -hatTsN2,GGG all in all.

8ow we will discuss later on the de minimis benefts likesay or example rice subsidy amounting to >,GG permonth. %n addition to you basic salary, you can be gi&enthis rice subsidy and i it is in excess o >,GG permonth, that excess will be included in the computationo the threshold or this M2,GGG. $o in addition to your>Athmonth, you also include any excesses in the deminimis benefts. -here is a particular re&enueregulation or de minimis benefts. %n act, some owhich you are most amiliar with, clothing allowance is

included to the extent o ,GGG per year, naa paylaundry allowance. 'hy do you ha&e to know these?ecause these would help you plan out a tax shield orcertain employees. 7nowing these can help you sa&e ontaxes or some o your employees later on.

-ake note o that. or now we lea&e it at the >A thmontho M2,GGG plus the producti&ity incenti&e o >G,GGG.

GSIS6 SSS6 M*#$&ar* an# O+7*r C'n+r$8u+$'n%


23/43



-ake note, it is the contribution but then you alreadyunderstood that beneft granted by @$%$, $$$ and ;hilHealth are also exempted as well as your contributions.

-hatTs why e&ery month, when you compute or thewithholding tax on the compensation, you always

deduct frst all these contributions. or example, youha&e a monthly wage o 2G,GGG. Iou deduct there thecontributions or letTs say >,GGG or $$$, >GG or ;ag(ibig, and say GG or ;hil Health. Iou donTt sub1ect theentire 2G,GGG to income tax or to the withholding taxsystem. $o ang imong i(sub1ect sa withholding taxsystem in >M,4GG lang kay i(deduct man nimo daan angimoang contributions ayha ka magcompute sa imoangtax. 'e know under $ec. A2b(L, it is exempted.$tatutory contributions are exempted or excluded rom

taxes.

Ga$n% .r') +7* Sa2* '. B'n#%6 D*8*n+ur*% 'rO+7*r C*r+$&a+* '. In#*8+*#n*%%

'hat are debentures? Bnsecured bonds. -his shouldha&e been considered as part o bonds but they 1ustwant to include it there. ut debentures would reer tolong term liabilities which are unsecured. -hat letter gthere all relates to obligations. 'hene&er there is a gain

on the sale o your obligation, it is not sub1ect to tax buttake note it should ha&e a maturity o more than years. $o i years lang, excluded or not? 8ot.

Iou said that there must be a certifcate oindebtedness, can you securiti:e an obligation? Ies youcan and this actually the reason why there is this termsub(prime crisis which brought about the crisis in the B$way back in 2GGM kay diba itTs because o their sub(prime mortgages being securiti:ed which are actually

unsecured. Eeaning ang tanan nga mga obligations,

you make a security out o it. How come you can make asecurity out o it? =iba there is supposedly anexpectation o payment rom certain persons. $ay orexample kani !index card", this represents an utang andthen that utang has a worth o > million pesos and there

is payment o >,GGG e&ery month. $o i you make asecurity representing the expectation o payment romthat obligation, ako ang gi(utangan, % ha&e expectationo >,GGG, % can assign my right to the >,GGG. 'hat % do is% make a security out o it saying that the >,GGG can bein&ested in this because there is expectation o paymentrom a particular liability. -hatTs what they did, theypulled all the mortgages kay diba this is &ery uso in theB$. Ega mortgages o most merican citi:ens and thenthey make a security out o it ater all there are

expectations o payments rom these indi&idual or aslong as they are working. %t turned out that most o thepeople deaulted on their obligations and this causedthe crisis. -hatTs why it is considered another source oincome. ;eople owe you and then you sell or assign youright to that obligation to someone else. 'hen you dothat, you can be excluded rom taxes but it is re5uiredthough that your liability which you securiti:ed has tobe more than years. $o certifcate o indebtedness is aorm o a security.

$ecurity could be e5uity, it could be debt. Iour shares ostocks is called a security but that is an e5uity security.

-hese bonds are still a security called debt security.

Ga$n% .r') R*#*)-+$'n '. S7ar*% $n Mu+ua2 Fun#

-ake note it must be rom a mutual und. Bnsa manangmutual und? gain, this is 1ust a orm o security butthis is e5uity security. 8ot all o us can in&est in shares

o stocks, we donTt ha&e much money to buy certain


24/43



holds o shares or at all i you can e&en buy it you mustbe SSSSS !24#2K". $o what companies do to make thisopportunity a&ailable to a lot o people, they allowpeople to pull their resources in a und known as mutualund. -his is called mutual because there are a lot o

people contributing to it and this und will be in&estedby certain company on shares o stocks, it could e&enbe bonds as well or as long as these are traded or thereis an a&ailable market or it.

$ay or example shares o stocks, diba as stated in the;hilippines $tocks 9xchange. % % am the one managingthe mutual und, % can in&est in certain shares o stocks.8ow, do % own the shares o stocks? 8o. 'ho owns it?%tTs the mutual und and as a representation that you

ha&e an interest on this mutual und, you will be gi&en acertain certifcate. -hat is the certifcate o shares inmutual und. -hat shares o yours, you can sell. ndwhen you sell it, it can be excluded rom taxes. $o gainsrom redemption o shares in mutual und. ut again ithas to be in a mutual und company or there to be anexclusion.

8ow this came out in the 2G>G ar 9xam but true oralse. ut take note that it has to be redemption o

shares. Eeaning gipalit balik sa mutual und or you sellit to the mutual und itsel. +an the mutual und buy youshares? Ies so that other can in&est in it also, sila nadayon ang mobaligya balik.

9xample ;hilm )ie, it can buy your shares. Eeaningwhen you cash out na ba, thatTs redemption. ;ag ni(cash out naka sa imong in&estment sa mutual und, yousell it back to the one managing the und. 'hene&erthere is gain there on your part, you are not sub1ect to

tax. 'hatTs the reason or this? -o encourage people toin&est in mutual und.

yaw nalang sabta kung unsa ang concept sa mutualund. Huna(hunaa lang this is mutual und. 8aay mutual

und nya ang mag(manage ana is called a mutual undcompany. Iou can buy shares at the mutual undcompany so that you will ha&e shares in the mutualund. 'hen you want to cash in on your in&estment,diba sometimes or most likely, you will ha&e to earn.

-he amount in&ested letTs say is >,GGG and they makerepresentations that based on the &alue o shares thatyou will be buying, you can increase your money. $o ie&er you did earn on your shares o the mutual und,supposedly thatTs income right? %t is sub1ect to tax but

the law deems it that it can be excluded rom taxes.F# $ir, nakakita man gud ko sa - sauna ba nga naaywinnings dayon ang pri:e is > million and then thereTs aline nga tax(ree. %s it really tax(ree or someone ispaying? # $omeone is paying or it because it issupposedly sub1ect to tax. %n act, kanang mga gipa(raXe diha nga mga sakyanan, pangitaan 1ud na og tax(ree kay kung wala gani tax(ree, ikaw mobayad sa tax.% e&er you will win, you cannot get the car 1ust yet untilyou pay the taxes. $o you are right, when you say tax(

ree that someone is paying or it. Eost likely itTs theone sponsoring the raXe.

Ta* n'+*(%t has to be a redemption( sale back to themutual und company, not to the third party.

SITUS OF INCOME

C')-*n%a+$'n .'r %*r$&*% J where the ser&ices is

rendered. 'here the employer(employee

O SC


25/43



relationship actually exists. %t usually exists onwhere the ser&ice is supposed to be rendered.

+ompensation only happens whene&er there is96(99 relationship. =etermined through 4(old test

and 2(tiered test.

S+'& '-+$'n( +an it be a compensation? -o encouragepeople to stay with the company, they gi&e thisstock option. -he idea is when you buy the shareso the company, diba you would want to work oryour own company. Iou would want it to grow. Iouget to ha&e a say. -his is one way by whichemployer encourage people to stay with thecompany?

+an that be considered income? Ies, it can,grating that you are able to beneft out o thatstock option.

How could you be beneftted? % you are able tobuy it on an amount less than it is sold in themarket. or you to say that there is gain on yourpart, there must be a price that is special oremployees. 9x. -he market price o the shares is

>,GGG and the employees were able to buy it at>GG pesos only.

$o how much is considered as income on yourpart? -he NGG pesos which is the di3erencebetween the market price and the exercise !?"price o the stock option.

Ta* n'+*# stock option can only be considered asadditional compensation i it gi&es benefts to the

employee. How can it be a beneft? % the price is

a&orable to you. -he price at which you canexercise the option is lower than the market price.

Gr'%% $n&')* #*r$*# .r') &'n#u&+ '. +ra#* 'r8u%$n*%% 'r *,*r&$%* '. a -r'.*%%$'n

--he basis should be the place o business orwhere the operation is conducted.

- % you ha&e a business abroad !B$", can;hilippines sub1ect your income abroad?

-echnically, it can because when you are aciti:en o the ;hilippines you are taxable orincome within and without the ;hilippines. uti the basis alone is situs or business income,;hilippines cannot ha&e situs o that incomebecause the operation is in the B$.

-=oes it matter i you sell on credit or cash? 8o,or as long as income can be reali:ed.

Ga$n% #*r$*# .r') #*a2$n/% $n -r'-*r+y- % it is personal property? 'here the sale

happened.- 6eal property? 'here the real property is

located.

F. i you sell real property in the B$, can you

be taxed here in the ;hilippines?( -echnicallyyes. ut i you are 1ust looking at the situs othe property itsel, then 80 because theproperty is located in the B$.

In+*r*%+- $itus is the residence o the debtor.- 9x>. D is a ilipino citi:en. -he loan transaction

was perected in Papan !Papan 8ational ank".Iou pay interest on the loan. ;>Eillion plus

payment o >GGk e&ery year. 'ho has

24 TAXATION MIDTERM TRANSCRIPT


26/43



1urisdiction o&er the >GGk? +an the ;hilippinestaxed the interest income o that loan? Ies.

- How can the ;hilippines sub1ect it to tax?eore the resident debtor pays interest to

Papan national bank, it will withhold the portion

on the tax on interest. $o, ang ;hilippinesnaka(collect na.

- F. +an you be compelled to withhold? 8o. utyou can be penali:ed i you donTt withhold.

9x2. ;8 extended the loan to a Papanese+ompany, D +o. a resident o Papan. -here isinterest payment o >GG7. 'ho has 1urisdiction toimpose tax in the interest income? Bnder our law,it would be Papan because the debtor is in Papan.

F. 'ould the ;hilippines be not able to tax this?( itcan because ;8 is here in the ;hilippines. %t maynot sub1ect the tax on interest income but it cansub1ect this to tax on its operation. t the end othe year, it will ha&e an income statement whichwill re/ect the income o ;8 which will be sub1ectto income tax at the rate o AG. !-he ;hilippinesmay be able to tax the income under corporatetaxation, not on the interest income"

R*n+%- 'here the leased property is located.- % it is a rent o a car? 'here the business o

renting the car is operated !oce o the carrental company".

- 6eal property? 'here the property is located,e&en i the residence o the owner o thatproperty is somewhere else.

- % the property is in the B$? nd there is rentthere, can the ;hilippines not sub1ect you to

tax on the rent income in the B$? %t depends

on what type o taxpayer you are. % you are aresident citi:en, then you can be taxed orincome within and without the ;hilippines andstill sub1ect you to tax there. ut supposedly,looking at the situs o rent income alone, the

;hilippines cannot sub1ect you to tax becausethe property is located in the B$.

R'ya2+$*%( income generated by intangible personalproperty

- -o be exact, this is the intellectual properties.- $itus is where the royalty is being used.- 9x. uthor o a book. ;ublisher pays the author

royalty ee. % the books are sold in the;hilippines, your royalty income will be taxed

here in the ;hilippines.- 'hat i the books are sold in the B$, will it be

sub1ect to tax? )ooking at the situs o theroyalty alone, not sub1ect to tax. ut thenagain, you can still be taxed here in the;hilippines because you are a citi:en and aresident o the ;hilippines.

D$$#*n#%( income deri&ed rom in&esting in the shareso a corporation.

-How is this taxed? 'hat is the situs?( it iswhere the corporation is located. 'here thecorporation is registered.

- 9x. -he corporation is registered in the;hilippines as a domestic corporation. +an the;hilippines sub1ect you on your di&idendincome out o the shares o that corporation?

Ies as it is registered in the ;hilippines.- 'hen a corp is created in the ;hilippines under

;H law !=omestic corporation", only the

;hilippines gets to protect it. $o any income



27/43



distributed by that corporation is )'I$considered as income sourced within;hilippines.

- % it is a oreign +orporation? %t depends on howyou categori:e the oreign corporation

!resident or non(resident oreign corporation".o How would you know i it is resident or

non(resident?( you will ha&e to look onhow the income is deri&ed !or purposeso situs ra"

o % its more than M percent then it iswithin the ;hilippines F# 'hat is morethan M?

# Iou ha&e to look at the di&idends o that corporation

or the last three years rom the time the di&idends areactually declared. 9xample# or 9xample you declared itor the Iear 2G>K. 'hat are the periods you ha&e to lookat then? 2G>..2G>4..2G>A whate&er is the income othat oreign corporation.

TA:E NOTE(-he law did not distinguish whether it isresident or non(resident. or as long as it is a oreigncorporation. Iou look at the three year period prior tothe declaration o that di&idend. )etTs say or example#

%t is consistent or >E while at abroad it is 2E thismeans or the three years you ha&e a total o %nsertgraph pls reer to micas picture.

ssuming these are the fgures that you are pro&idedwith. Iou are to determine whether the income isderi&ed rom the ;hilippines or outside because we aretalking about $itus. % it is deri&ed in the ;H, regardlesswho is the taxpayer it will be deemed taxable here inthe ;H. % itTs outside though, only the domestic

corporations maybe sub1ect to tax or resident citi:en othe ;hilippines.

$o, 'hat is the total? -he total o the three year periodis >AEillion. 8ow, i you get the percentage o KEillion

which is rom the ;H o&er the global income o >AEillionthat would be 4K.>G percent.

F# How would you classiy this in term o situs? -hisdoesnTt reach G yet so it is outside the ;hilippines.$9+-%08 42 o the -D +0=9# G percent or less J0B-$%=9 0 ;H Eore than G percent then it isconsidered within the ;H but then regulation will tell usthat i its more than G percent but not more than Mpercent then it is partly within ;H and partly without ;H

%n excess o M it is within the ;H.

'hat do we mean by within?

# %t should be the ;hilippine income or the last threeyears di&ided by global income!total o ;H income andabroad %ncome" 'hate&er is the percentage here that

would tell us what is the situs o that particular incomewhether within or without the ;H.

ANNUITIES( ixed payment in e5ual inter&als.

(%t is a type o in&estment rom which you can getexpectations o payment on a fxed inter&al and thenmost likely than not o e5ual amounts. 'hen does thathappen?



28/43



9xample# -here are insurance products now whichallows you to get fxed income ater you worksupposedly thatTs termed pension but pension re5uiresthat there be employer(employee relationship and sothis is granted in consideration o the work that you

ha&e that is why you pay or it while you are workingbut this is something that is a a&ailable to e&eryone, aproduct o3ered by some insurance companies. 'henthere is an in&estment which gi&es you the the right torecei&e or expectation to recei&e income o e5ualamounts in fxed inter&al or example monthly thatTsfxed inter&al right? 9&ery month you recei&e an amounto probably an amount o 2k ,i you donTt want itmonthly you can ha&e it yearly probably > million pesosper year until you die or or a period o time probably. s

long as it is fxed amount o e5ual inter&als you canterm it as annuities, it is more or less the same aspension in pension lang it re5uires employee(employerrelationship.

SITUS OF ANNUITIES# where the contract is perected.'here it is actually executed.

PENSION(

%t is in consideration o work. %t must relate to theser&ice you rendered while you were an employee. -hisis in consideration o the work you ha&e done. Ioucontinue to add up to the unds o your pension whileyou are working.

$%-B$ 0 -H9 ;98$%08# is where the ser&ice is renderedmeaning where is the employer(employee relationship.

PROFFESSIONAL INCOME OF PROFESSIONAL

PARTNERS(

(where the exercise o proession is undertaken.

9xample# )awyer irms< ccounting ims, @roup o=octors you term it as a general partnership.

S*& 4 '. +7* Ta, &'#* !sir wants us to read itdaw"$ec 42 tell us when a particular income source withinthe ;hilippines

SECTION 4A n'= ! INTEREST((taxable where the debtor is a resident o the;hilippines.

(take note it says here Y6esidentZ reer to your 8%6++odals

-6%+7 %8 -H9 9DE# 'hat i you are a oreigncorporation doing business in the ;hilippines and youha&e a loan obligation. 'here is the situs o interestincome? 'here is the situs? 'ithin the ;hilippines?

nswer# 'ithin the ;H. ecause take note it doesnTtmatter whether you are an alien or a citi:en or a oreign

corporation or as long as you are a resident.DIVIDENDS#(whether it is domestic or oreign(% itTs rom a domestic corporation we look at the threeyear period and determine the percentage#

a."Eore than G to M ( partly within andpartly without the philippines

b."Eore than M ( within the ;hilippinesc." )ess than G ( 0utside the ;hilippines



29/43



RENTALS((where the property is located

ROYALTIES((where the royalty is being used.

SALE OF REAL PROPERTY((where the real property is located.

$)9 0 ;96$08) ;60;96-I#(place where the sale happened. Bnless i its intangibleit will depend i that intangible has already a situssomewhere else.9xample# you assigned a particular bank account and itis located in the ;H but the transaction happened in the

B$? 'here is the situs?

nswer# %t is deri&ed in the ;H. ecause ll law in&ol&ingbank deposits are co&ered by ;H law so in intangibleproperty guiding criterion is when there is a certain lawin the country that go&erns the intangible property thenit is where its situs.

'H- =09$ -H%$ ;60%$%08 E98?

!>" @eneral 6ule. ( rom the items o gross incomespecifed in $ubsection !" o this $ection, there shall bededucted the expenses, losses and other deductionsproperly allocated thereto and a ratable part oexpenses, interests, losses and other deductionse3ecti&ely connected with the business or tradeconducted exclusi&ely within the ;hilippines whichcannot defnitely be allocated to some items or class ogross income# ;ro&ided, -hat such items o deductionsshall be allowed only i ully substantiated by all the

inormation necessary or its calculation. -he remainder,

i any, shall be treated in ull as taxable income romsources within the ;hilippines

9D;)8-%08#-his is where you assign a particular expenses in

relation to income# %n ccounting there is what we callEatching ;rinciple or e&ery re&enue that you generatethere ought to be an expenses incurred in order togenerate that re&enue. 9xample# % there is a salesre&enue? 'hat are your expenses? Earketing alone isalready an expense or you to generate that income.

-he same with taxation it recogni:es with the matchingprinciple. % there is this income deri&e rom the ;H androm abroad. Iou can only deduct expenses in relationto that income generated in the ;hilippines lang.

9DE;)9#

9xpenses is >GGk J i you cannot pin point specifcally iit deri&es mainly rom abroad or rom the ;H you ha&eto pro rate. Iou di&ide the >GGk in the ;H and B$.

9xample the cost o inno&ating that product. %kaw angnaka disco&er og %;H089. Iour research expense thatmeans expenses. Iou sold some o these items in the ;H

and abroad will the cost o research and de&elopmentwill only be attributable to ;H alone? 8o you will prorate section > o the tax code.

Gr'%% $n&')* .r') %'ur&*% $+7'u+ +7*P7$2$--$n*%

( you can either memori:e these or those not within the;hilippines. %tOs up to you basta those not within are

without -hese pro&isions are complimentary#



30/43



-here are also those sourced partly within and partlywithout.

S*&4 Para/ra-7 E=%ncome rom $ources ;artly 'ithin and ;artly 'ithout

the ;hilippines. [ %tems o gross income, expenses,losses and deductions, other than those specifed in$ubsections !" and !+" o this $ection, shall beallocated or apportioned to sources within or withoutthe ;hilippines, under the rules and regulationsprescribed by the $ecretary o inance, uponrecommendation o the +ommissioner. 'here items ogross income are separately allocated to sources withinthe ;hilippines, there shall be deducted !or the purposeo computing the taxable income thererom" the

expenses, losses and other deductions properlyapportioned or allocated thereto and a ratable part oother expenses, losses or other deductions whichcannot defnitely be allocated to some items or classeso gross income.-he remainder, i any, shall be includedin ull as taxable income rom sources within the;hilippines. %n the case o gross income deri&ed romsources partly within and partly without the ;hilippines,the taxable income may frst be computed by deductingthe expenses, losses or other deductions apportioned or

allocated thereto and a ratable part o any expense, lossor other deduction which cannot defnitely be allocatedto some items or classes o gross income< and theportion o such taxable income attributable to sourceswithin the ;hilippines may be determined by processesor ormulas o general apportionment prescribed by the$ecretary o inance.

@ains, profts and income rom the sale o personalproperty produced !in whole or in part" by the taxpayer

within and sold without the ;hilippines, or produced !in

whole or in part" by the taxpayer without and soldwithin the ;hilippines, shall be treated as deri&ed partlyrom sources within and partly rom sources without the;hilippines. C@ains, profts and income deri&ed rom thepurchase o personal property within and its sale

without the ;hilippines, or rom the purchase o personalproperty without and its sale within the ;hilippines shallbe treated as deri&ed entirely rom sources within thecountry in which sold# ;ro&ided, howe&er, -hat gainrom the sale o shares o stock in a domesticcorporation shall be treated as deri&ed entirely romsources within the ;hilippines regardless o where thesaid shares are sold. -he transer by a nonresident alienor a oreign corporation to anyone o any share o stockissued by a domestic corporation shall not be e3ected

or made in its book unless# !>" the transeror has fledwith the +ommissioner a bond conditioned upon theuture payment by him o any income tax that may bedue on the gains deri&ed rom such transer, or !2" the+ommissioner has certifed that the taxes, i any,imposed in this -itle and due on the gain reali:ed romsuch sale or transer ha&e been paid. %t shall be the dutyo the transeror and the corporation the shares o whichare sold or transerred, to ad&ise the transeree o thisre5uirement. @ains, profts and income rom the sale o

personal property produced !in whole or in part" by thetaxpayer within and sold without the ;hilippines, orproduced !in whole or in part" by the taxpayer withoutand sold within the ;hilippines % itOs the sale o personalprop you still ha&e urther consideration.

6emember there was CintangibleC( it depends onwhether that intangible has deri&ed situs in the ;hils orsomewhere else. %n addition to that i that particularpersonal property is said to be produced in the ;hils



31/43



ut it is sold outside the ;hils example dried mangoes. %part o your production is sold abroad, you exported it,will the ;hils be able to tax you? Ies, no 5uestion i youare a domestic corporation because you are alwaystaxable, or income within and income without doesnTt

matter diba. ut what i you are a resident oreigncorporation doing business o producing mangoes in the;hils and part o your production you sold abroad so thesale happens abroad so that is partly within and partlywithout. ecause part o the income is generatedbecause o producing your products in the ;hils.

ut it is really dicult how to apportion like or theexpenses i all o the sale happened abroad. -heproduction expenses are incurred in the ;hils but % only

earned income when % actually sold the products abroad.'hile % ha&e the products in the ;hils, it does not meanthat % earn income rom it until % sell the productsabroad. -he most you can do is 1ust di&ide it by G. $othere are A countries you sold the products to plus the;hils then di&ided by 4 since there is no other way youcan apportion it gi&en the act that sales happenedabroad meaning you did not earn anything in the ;hils.% you sold part o it in the ;hils then only the sales inthe ;hils are sub1ect to taxes here.

0r it could be the other way around. -he entireproduction is outside the ;hils. )etTs say Ealaysia theyare producing rubber and part o the rubber is sold herebut the entire thing is produced in Ealaysia. 'e do nottax the entire thing in the ;hils, instead the law deems itpartly within an partly without.

$o or as long as the ;hils has a participation, it canalways partly tax.

A22'a82* #*#u&+$'n%

D$1*r*n&* 8*+**n #*#u&+$'n an# *,*)-+$'nD*#u&+$'n% ar* 'u+Q'% o income, meaning youdonTt consider it as part o your income thatTs why you

ha&e to deduct it. )etTs say you purchased a candy or >pesos and sold it or 2 pesos. Iour income is only >pesos since the > peso purchase price is your deduction.

-he entire 2pesos is not considered income becausepart i it was you capital. 'hen you pay or somethingthat is an out/ow which is a potential deduction. utwhen you recei&e something that is a potential income.$o deductions are things you let go kai imo man gibayad to someone else< wala na nimo.

9xemptions are actually income itTs 1ust that the lawdoes not tax them. 9xample retirement pay is incomebut since the law exempts it this is not sub1ect to taxe&en i considered in/ows or things that you recei&e.E,*)-+$'n% ar* $nQ'%.

Einimum wages are exempted rom taxes though underthe amendment o tax code exclusion 1ud sya, but cgenalng. %t may be conusin because sometimesexemptions come in the orm o exclusions. $o minimum

wage on the part o the wage earner is income but it isnot sub1ect to tax

E,&2u%$'n%ought to be income.9xample rent o residence not exceeding >2,MGG is notsub1ect to - but is that sub1ect raba sya

+ompared to proceeds o lie insurance which the lawappropriately terms as exclusions. $o while you recei&eit, the law deems that this is not sub1ect to tax because

it is an exclusion. ut exclusions and exemptions are



32/43



more or less the same. $o both *,&2u%$'n% an#*,*)-+$'n% ar* $nQ'%since these are income butthe law deems them not sub1ect to tax.

-he basic principles go&erning deductions>" -here must be a specifc pro&ision authori:ing

deduction. nd there is a pro&ision in the -ax +odewhich talks about deduction and that is sectionA4. =eductions rom gross income. $o those itemsare

REMEMBER T;IS( E, In Ta L' Ba C7a R* P*nPr* D*- D*-

9xpenses%nterest

-axes)ossesad debts+haritable and other contributions6esearch and de&elopment;ensions;remiums paid on hospitali:ation insurance=epreciation=epletion

2" -hen you must be able to satisy all the conditionspro&ided under the law or the deduction to app

Documents

Tax Midterm Transcript (1)