MODULE 2 Flashcards
(20 cards)
What is a Taxpayer Class?
- A category or group of taxpayers specified by the tax code to be taxed similarly
- The category or group members share the same characteristics with each other and this becomes the basis for inclusion in that taxpayer class
What are the Four Main Categories of the Taxpayer Class?
Individuals
Corporations
Partnerships
Estates and Trustees
What is Situs?
- situs means place
- situs of taxation = place of taxation
- this together with knowing the taxpayer class allows you to determine taxability
What are the Factors that Influence Situs of Taxation?
-factors which determine where a particular asset or activity is situated or deemed to be situated for tax purposes
- Geographic location
- Residency/Domicile
- Government Policy location
REMEMBER TAXABILITY RULES:
- For individuals, only resident citizens are taxed on income from WITHIN AND WITHOUT the Philippines
- For corporations, only domestic corporations are taxed on income from WITHIN AND WITHOUT the Philippines
- All other taxpayer classes are taxed on income from WITHIN the Philippines
What are the Sources of Income?
•It refers to the activity, property or labor that gave rise or produced the income, or the origin of the income.
For Example:
•Those derived from labor or service
- Those derived from capital
- Those derived from both labor and capital
- Those derived from sale or exchange of property
What are the Tests to Determine Realization of Income?
- Severance Test (also referred to as the Theory of Separability)
- Substantial Alteration Test Theory
- Flow of Wealth Theory
- Doctrine of ownership, command or control of income
- Doctrine of Proprietary Interest
- Claim of right doctrine
- Doctrine of actual receipt of income
- Doctrine of constructive receipt of income
What is the Severance Test (also referred to as the Theory of Separability)?
Under this theory, in order that income may exist there must be a separation of capital and gain
What is the Substantial Alteration Test Theory?
There must be an exchange of something received which is essentially different from that which was parted to the extent of benefit received. (Ex. Land to cash, shares of stock to cash)
What is the Flow of Wealth Theory?
Under this theory, taxation is established on a realization, rather than on an accrual basis. The increase in the value of the capital asset are taxed only when the property is sold and the increased value is reflected in a flow of money to the owner rather than on the basis of annual revaluation of assets.
What is the Doctrine of ownership, command or control of income?
He who exercises the power to dispose of income shows ownership thereof. The income tax law applies to those who earn or otherwise create the right to receive it and enjoy the benefit of it when paid.
What is the Doctrine of Proprietary Interest?
Where shares of stocks, options or other assets are transferred by an employer to an employee to secure better services they are plainly compensation which is taxable income
What is the Claim of right doctrine?
A taxable gain is conditioned upon the presence of a claim or right to the alleged gain and the absence of a definite unconditional obligation to return or repay that which would otherwise constitute gain.
What is the Doctrine of constructive receipt of income?
When an income is credited to the account of, or set apart, for a taxpayer and which may be drawn by him at any time without any substantial limitations or conditions upon which payment is to be made. Once credited or set apart said amount is already taxable to the person.
Tax Evasion
- Also known as tax dodging in some jurisdictions
* Use of illegal or fraudulent means to defeat or lessen the payment of a tax
Tax Shifting
•Concept of “statutory taxpayer“
——>the person subject of the tax
——>on whom the tax is formally imposed by law and who paid the same even if he shifts the burden thereof to another
•Concept of incidence of taxation
——>refers to where the tax burden FINALLY rests
——>a tax has been shifted if the statutory taxpayer is able pass on the burden to another
Tax Avoidance
——>use of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce liability
——>also called tax minimization
Tax Exemption
•Grant of immunity/privilege
•Revocable
•Generally legislative in nature (aside from Constitutional tax exemptions)
——>Meaning it must be in a law
•Tax exemptions are construed strictly against the taxpayer
Tax Amnesty
- General Pardon by the State
* Absolute forgiveness or waiver of right to collect or authority to impose penalties
Can You “Escape” from the Burden of Taxation?
FORMS OF "ESCAPE" •Evasion → ILLEGAL •Shifting → LEGAL •Avoidance → LEGAL •Exemption → LEGAL •Amnesty → LEGAL
