Midterm Coverage Flashcards
(38 cards)
What are the classifications of taxpayers? What are its value?
Taxpayers are classified as follows:
1. Micro Taxpayer - Less than 3M
2. Small Taxpayer - 3M to 20M
3. Medium Taxpayer - 20M to 1B
4. Large Taxpayer - 1B above
What is an income? How does it differ from capital?
An income is anything that flows into the taxpayers other than a mere return of capital.
A capital, on the other hand, is a fund of property existing at an instant time or a return of capital.
When is an income considered as taxable?
The requisites for the taxability of income are the following:
(1) There must be an income, gain, or profit
(2) The income, gain, or profit must be realized (it must arise from a closed and completed transaction)
(3) The income, gain, or profit must not be exempt from tax under any law or any tax treaty
What are the two classification of income taxpayers? Enumerate each kind within each classification.
As to individual taxpayers:
1. Resident Citizens
2. Non-resident Citizens
3. Resident Alien
4. Non-resident Alien Engaged in Trade or Business
5. Non-resident Alien Not Engaged in Trade or Business
As to corporate taxpayers:
1. Domestic Corporation
2. Resident Foreign Corporation
3. Non-resident Foreign Corporation
What is the rule regarding whether an income derived from sources within and outside of the Philippines is taxable or not?
In all classifications of income taxpayers, their income derived from source within the Philippines are all taxable. While in sources outside the Philippines, only resident citizens and domestic corporations are taxable.
What are the rules with regards to determining whether the income is derived from sources within or outside the Philippines with regards to:
1. Interest
2. Dividends
3. Services
4. Rentals and royalties
5. Sale of real property
6. Sale of personal property
7. Shares of stock of domestic corporation
To determine whether the income is derived from sources within or outside the Philippines, the situs rule of the following are:
- Interest - Look at the residence of the debtor
- Dividends - Generally, where the corporation declaring the dividends is incorporated. Exception is dividends from foreign corporation with 50% or more income from Philippine sources
- Services - The place where the service was rendered or performed
- Rentals and Royalties - With regards to rentals, where the location of the property is situated. With regards to royalties, where the intangible property was used or exercised.
- Sale of real property - Where the property is located.
- Sale of personal property - Where the property was sold.
- Shares of stock of domestic corporation
Give an example of corporation / organizations that are exempted from tax under the Tax Code. What is the rule as to its exemption?
A nonstock corporation or association organized and operated exclusively for religious, charitable, scientific purposes is exempt from income tax as long as no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer, or any specific person.
However, notwithstanding this rule, the income of whatever kind and character of the organizations from any of their properties, real or personal, or from any of their activities, conducted for profit, regardless of the disposition of such income, shall be subject for income tax.
However, this rule does not apply to non-stock non-profit educational institutions as provided for by the Constitution.
What is the difference between ordinary assets and capital assets?
Ordinary assets are properties held by the taxpayer, whether or not connected with his trade or business:
(1) Including stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close taxable year
(2) Or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business
(3) Property used in the trade or business
Capital assets are those assets which do not belong to the definition of ordinary assets.
What are the three transactions under capital asset transactions?
(1) Sale of shares of stock of a domestic corporation held as capital asset not traded through stock exchange.
(2) Sale of real property held as capital asset located in the Philippines.
(3) Other capital asset transaction which basically means gross income tax.
What are the requisites for sale of shares of stock of a domestic corporation held as capital asset not traded through stock exchange?
How much is the final tax rate imposed?
(1) There must be a sale, barter, exchange, or other disposition
(2) The properties involved are shares of stock of a domestic corporation
(3) The shares of stock must be held as a capital asset by the seller or the taxpayer
(4) The shares of stock are not sold or disposed of through the stock exchange
The final tax rate imposed by law is 15%. All individual and corporate taxpayers are subjected.
What are the requisites for sale of real property held as capital asset located in the Philippines?
How much is the final tax rate imposed?
(1) The properties involved are real property
(2) The property was held as capital asset
(3) The property is located in the Philippines
The final tax rate imposed by law is 6%. All individual and corporate taxpayers are subjected, except Resident Foreign Corporation and Non-Resident Foreign Corporation.
How much is the final tax rate regarding passive income that are subject to final tax with regards to interest income?
With regards to peso currency, all individual and corporate taxpayers are subject to 20% final withholding tax, except Non-Resident Aliens Not Engaged in Trade or Business and Non-Resident Foreign Corporations which are subject to 25% final withholding tax.
With regards to foreign currency depositary units, all individual and corporate taxpayers are subject to 15% final withholding tax, except Non-Resident Citizen, Non-Resident Alien Engaged in Trade or Business, Non-Resident Alien Not Engaged in Trade or Business, and Non-Resident Foreign Corporations which are exempted.
With regards to long-term deposits which refers to a certificate of time deposit or investment in the form of savings with a maturity period of not less than 5 years, shall be imposed with the following final withholding tax bason on remaining maturity:
(1) 4 years to less than 5 years - 5%
(2) 3 years to less than 4 years - 12%
(3) Less than 3 years - 20%
How much is the final tax rate regarding passive income that are subject to final tax with regards to cash and/or property dividends?
The following are the corresponding final withholding tax when the cash dividends and property dividends is sold by a domestic corporation to the following persons:
Resident Citizen, Non-Resident Citizen, and Resident Alien - 10%
Non-Resident Alien Engaged in Trade or Business - 20%
Non-Resident Alien Not Engaged in Trade or Business - 25%
Domestic Corporation and Resident Foreign Corporation - Exempted
Non-Resident Foreign Corporation - 25%
How much is the final tax rate regarding passive income that are subject to final tax with regards to royalty income?
A final tax rate of 20% will be imposed upon royalties, except on books, as well as other literary works and musical composition, shall be imposed a final tax of 10%.
How much is the final tax rate regarding passive income that are subject to final tax with regards to prizes and awards?
For non-PCSO prizes and awards, if the total amount is less than Php 10,000, it will be deemed as part of the gross income. But if the total amount is more than Php 10,000, then a final tax rate of 20% will be imposed.
For PCSO prizes and awards, if the total amount is less than Php 10,000, it will be exempt. But if the total amount is more than 10,000, then a final tax rate of 20% will be imposed.
What are gross income?
Gross income pertains to all income derived from whatever source, including but not limited to:
(1) Compensation income
(2) Business income
(3) Gains derived from dealings in property
(4) Interest
(5) Rentals
(6) Royalties
(7) Dividends
(8) Annuities
What are some of the considered as not included in gross income and shall be exempt from taxation?
(1) Life Insurance
Generally, proceeds of life insurance are exempt from taxation, except when the amount are held by the insurer under an agreement to pay interest thereon, it will be included in gross income.
(2) Income Tax Treaty
(3) Retirement Benefits, Pensions, and Gratuities
(4) Miscellaneous Items such as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement only if:
(a) The recipient was selected without any action on his part to enter the contest or proceeding
(b) The recipient is not required to render substantial future services as a condition to receiving the prize or award
What is the Lifeblood Theory as the basis for taxation?
Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. Without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.
What is the Necessity Theory as the basis for taxation?
It is a necessary burden to preserve the State’s sovereignty and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the State’s territory and facilities and protection which a government is supposed to override.
What is the Benefits-Protection Theory as the basis for Taxation?
The Benefits-Protection Theory bases the power of the State to demand and receive taxes on the reciprocal duties of support and protection. The citizen supports the State by paying the portion from his property that is demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of an organized society.
What is the primary purpose test?
If the primary purpose is to raise revenues and regulation is merely incidental, the power exercised is the power to tax.
If the primary purpose is to regulate and raising revenues is merely incidental, the power exercised is police power.
Distinguish tax from license fee.
PBAN
As to its purpose, tax is for revenue while license fee is for regulation.
As to its basis, tax is an exercise of power of taxation while license fee is an exercise of police power.
As to the amount imposed, tax is given unlimited amount, while license fee is only limited to the costs of regulation.
As to the effect of non-payment, in tax, business will still be legal but the taxpayer will be held civilly and criminally liable, while in license fee, the business becomes illegal.
Distinguish tax from debt.
SPANCIA
As to source of obligation, tax is from a law, while debt is from a contract.
As to mode of payment, tax must be paid in money while debt may be paid in money, property, or services.
As to assignability, tax cannot be assigned, while debt can be assigned.
As to the effect of non-payment, in tax, generally, penalty is imprisonment except non-payment of community tax. Debt on the other hand, there is no imprisonment.
As to compensation or set-off, tax cannot be subject to set-off while debt can be subject to set-off.
As to interest, tax can draw interest even without a written agreement, while debt can not draw interest.
As to authority, tax can only be undertaken by public authority while debt is undertaken by private individuals.
Differentiate toll fee from tax.
DAA
As to demand, tax is demand from sovereignty while toll fee is demand of proprietorship.
As to amount, tax is unlimited in amount while toll fee is limited to cost of improvement and to attain reasonable profit.
As to authority or purpose, tax is collected by the government for public purpose and to defray necessary expenses, while toll fee is collected by private entities to reimburse expenses.
