Garrison v.

CA

Garrison etc. were US citizens employed in the US Naval Base in Olongapo. They refused to file their income tax returns claiming that they are not resident aliens but only temporary visitors. A decision was rendered against them stating that physical or bodily presence is sufficient by itself to qualify them as resident aliens.

W/N petitioners are resident aliens, hence not exempt from Section 45 of the NIRC? YES

RR 1-79

Who are non-resident citizens

Non resident citizens is one who establishes physical presence abroad with definite intention to reside therein. It shall include: Immigrant; Permanent employee; Contract worker Non-resident citizen for such taxable year with respect to the income derived from foreign sources from the date of departure from the Philippines.

A foreigner whose purpose for coming here is of a nature that requires his prolonged stay for its accomplishment, then he is a resident alien; intention to go back to his country is irrelevant. The Bases Agreement only exempts them for income derived from US sources. They must still file their ITRs to prove that they did not receive Philippine-sourced income which is taxable. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. If he lives in the Philippines and has no definite intention as to his stay, he is a resident. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient. The phrase requires him to physically present abroad most of the time under sec. 22(e) Tax Code means the contract worker must have been outside the Philippines for a period of not less than 183 days during the taxable year. The proof of intention of leaving or return shall be attached to his ITR.

RR 5-01

Filing of Information Returns no longer required Technoserve International Company provides technical services for overseas and domestic projects. It sends some of its employees to Japan for a certain period to work with its mother company, JGC Corp. Their contracts pass thru the POEA. Borromeo is a US citizen who was applying for dual citizenship. He asked BIR whether he will be required to pay income tax for income earned in the US. Non-resident individual; Loss of residence by alien What is the proper treatment of overseas contract workers?

BIR Ruling 33-00

Non-resident citizens are no longer required to file income tax returns for income derived from sources outside the Philippines beginning the taxable year 2001. Non-resident citizens are exempt from taxation of their foreignbased income if they have stayed abroad for at least 183 days in a taxable year. For OCWs, their foreign-based income are tax exempt regardless of length of time, the only requirement being that their contracts pass thru and are registered with the POEA.

BIR Ruling DA 095-05

W/N Borromeo is required to pay income taxes for income earned in the US? NO

Sec 5&6 RR 2

When the dual citizenship is granted, he will be considered as a non-resident citizen and as such, only his Philippine-sourced income is taxable. His US-sourced income will be tax exempt. Only resident citizens are taxable for income sourced within or outside of the Philippines. An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. A mere floating intention indefinite as to time, to return to another country is not sufficient to constitute him a transient. If he lives in the Philippines and has no definite intention as to his stay, he is a resident. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient. But if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the Philippines, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. He retains resident status until he abandons residence and actually departs. A mere intention to

AFISCO v. CA

Pascual v. CIR

Obillos v. CIR

Ona v. CIR

41 non-life insurance companies including AFISCO formed themselves into a pool or clearing house to facilitate their dealings with a foreign insurance company. The pool was assessed deficiency taxes o the ground that it is a partnership liable as a corporation and that AFISCOs collection of premiums on behalf of its members, the ceding companies, was taxable income. Pascual and Dragon bought a total of 5 parcels of land in 1966. They sold 2 parcels to Marenir Devt. Corp in 1968. They sold the 3 to Reyes and Samson in 1970. They realized profits from both sales and thus paid the corresponding capital gains taxes. They were however assessed a deficiency corporate income tax on the ground that they formed an unregistered partnership. Petitioners in this case are siblings who were given two lots in Greenhills by their father for them to build their houses. However, after a year, petitioners sold the land instead and earned profit which they reported for purposes of capital gains tax. They were assessed by the CIR with corporate income tax on the ground that they formed an unregistered partnership. orenzo O a an his children are the heirs and co-owners of an estate which they inherite from O as ecease wife. Despite a partition plan approved by the court, the properties were not really divided but remained under the management of Lorenzo. Lorenzo sold and leased some of these lots and then reinvested the income in other real property and securities. Petitioners thus derived income from these investments and were assessed corporate income tax on the ground that they formed an unregistered partnership.

W/N the pool, acting as a mere agent and performing strictly administrative functions, and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation? YES

change his status does not automatically convert him into a nonresident alien. The pool has a common fund and functions through an executive board which resembles the bard of directors of a corporation. Though the pool itself is not a reinsurer, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich because without it they would not have received their premiums. It is actually an unregistered partnership which is included in the concept of a taxable corporation in the NIRC.

W/N Pascual and Dragon formed an unregistered partnership subject to corporate income tax due to the sale of the real properties? NO

They were co-owners of the properties, but that did not make them an unregistered partnership which is taxable as a corporation. There were only 2 isolated transactions, thus, there was no habituality to engage in business and earn profit which would indicate that a partnership existed. Sharing of returns does not in itself establish a partnership. There must be clear intent to establish such.

W/N petitioners should be taxed as an unregistered partnership? NO

There was only one transaction. They did not contribute anything to a common fund. The distribution of profits from that transaction was merely incidental to the dissolution of the co-ownership they had over the lots. There must be an unmistakable intention to form a partnership.

W/N petitioners formed an unregistered partnership? YES

Co-ownership of inherited properties is automatically converted into an unregistered partnership the mo ment the sai common properties an income erive therefrom are use as a common fun with intent to pro uce profits. here was also ha ituality in the usiness con ucte y orenzo O a. Instead of actually distributing the estate of the deceased among themselves pursuant to the partition, the properties remained under the management of Lorenzo who leased and sold them and invested the income derived. Petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited propertie themselves to be used as a common fund with the intention of deriving profit to be shared by them proportionally. Co-ownership does not necessarily continue until the inheritance is actually and physically distributed. Elements: (1) for the undertaking of a construction project; (2) should involve joining or pooling of resources by licensed local contracts (3) local contractors are engaged in construction business; (4) Joint Venture itself must be duly licensed. Joint ventures involving foreign contractors may also be treated as

RR 10-2012

Joint Venture Formed For The Purpose of Undertaking Construction Projects

a non-taxable corporation only if the member foreign contractor is covered by a special license as contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI); and the construction project is certified by the appropriate Tendering Agency (government office) that the project is a foreign financed/ internationally-funded project and that international bidding is allowed under the Bilateral Agreement entered into by and between the Philippine Government and the foreign / international financing institution pursuant to the implementing rules and regulations of Contractors License Law. The tax exempt joint venture shall not include those who are mere suppliers of goofs, services or capital to a construction project. The joint venture between Aurora Properties Inc. and Avida Land Corp. to develop a subdivision in Laguna is not subject to income tax because a joint venture does not fall under the definition of a taxable corporation. They will only be liable for income tax when they actually receive income. Avida will be taxed on the marketing fees paid to it by Aurora for marketing services. Avida and Aurora will be taxed on the income they derive from the sale of the properties.

BIR Ruling 108-2010

Madrigal v. Rafferty

Avida and Aurora entered into a joint development agreement to construct a residential subdivision. Aurora shall contribute the parcel of land while Avida shall contribute the construction and development of the parcel of land into a subdivision. Each shall receive an allocation of saleable house and lot units from the project. Is the joint venture liable for income tax? Ma rigal an Paternos marriage is governed by the CPG. Madrigal filed his declaration of net income but he claimed that such was income of the CPG hence should be divided and the smaller amount should be made the tax base.

Intention of the legislature is to assist local contractors in achieving competitiveness with foreign contractors. The allocation of saleable units does not constitute a taxable event as no income is actually realized by Avida or Aurora

W/N the income tax should be divided into 2 equal parts because of the conjugal partnership existing between them? NO

Fisher v. Trinidad

Frederick Fisher is a stockholder of Philippine American Drug Company. The company issued stock dividends and Fisher was assessed an income tax deficiency for the stock dividends.

W/N "stock dividends" are "income" and taxable? NO

Limpan Investment v. CIR

Limpan Investment Corp. is engaged in the business of leasing out real properties. They were assessed deficiency taxes for underdeclared rental incomes.

W/N Limpan had unreported rental income? YES

Taxes imposed by the Income Tax Law are taxes upon INCOME and NOT upon capital and property. The fact that Madrigals marriage was under conjugal partnership has no bearing on income considered as income. Capital fund existing at an instant of time; Income flow of services rendered by capital Paterno has an interest in the ultimate property rights and in the ownership of property acquired as income AFTER SUCH INCOME HAS BECOME CAPITAL. She has NO ABSOLUTE RIGHT to ONE-HALF THE INCOME of the conjugal partnership. Income Tax Law does not look on the spouses as individual partners in an ordinary partnership. Stock dividends are undistributed increases in the capital of the corporation. he stockhol er oesnt really receive any gain or income (only a stock certificate). What he gets is only an increased interest in the capital of the corporation. An income subject to taxation under the law must be an actual income and not a promised or prospective income. INCOME FROM DIVIDENDS is the actual receipt of profits while STOCK DIVIDEND is the a receipt of a representation of the increased value of the assets of corporation. During trial, their witness admitted to underdeclaring income, but reasoned out that such was caused by them not being able to collect rent from the tenants. Their claim that they were unable to collect was not sufficiently proven by clear and convincing evidence, thus they are liable. Income is received not only when it is actually handed to a taxpayer but also when it is merely constructively received by him. The lessees opted to deposit their payments when the lessor

Conwi v. CTA

CIR v. Glenshaw Glass

Murphy v. Internal Revenue Service

Petitioners are Filipino-citizen employees of P&G who were assigned to subsidiaries outside of the Philippines and were being paid in US dollars as compensation for services rendered. . In their income tax return, they used the dollar-to-peso conversion rate in BIR Ruling No. 70-027( P3.90:$1 from Jan. 1 to Feb 20, 1970; P6.25:$1 from Feb. 21 to Dec. 31, 1970). They filed an amended ITR using the par value of the peso in Sec. 48, RA 265 (this was a lower peso-to-dollar ratio). Glenshaw Co was engaged in a litigation with Hartford-Empire Co where the former demanded exemplary damages for fraud and treble damages for injury to its usiness y reason of the latters violation of federal antitrust laws. The parties settled. Glenshaw did not report the money received as damages from the settlement in its income tax return. The Commissioner assessed Glenshaw for the deficiency. Murphy was awarded compensatory damages for emotional distress and loss of reputation from an administrative action filed against her former employer which blacklisted her. She is now claiming that her award should be excluded from gross income because it was compensation received on account of physical injuries.

W/N petitioners are entitled to a refund? NO

refused to accept the same in 1957. The failure to report the said rental income is unjustified as, when the payments were deposited, the lessor was deemed to have constructive received such rentals. The proper conversion rate should be the free market rate since the par value only applies to foreign exchange transactions, not income tax payments. There were no forex transactions by the petitioners because while they were earning in dollars, they were also spending in dollars, thus, no conversion occurs. Revenue Memorandum Circ. Nos. 7-71 and 41-71 were promulgated to prescribe a uniform rate of exchange from US dollars to Philippine pesos for INTERNAL REVENUE TAX PURPOSES. Income tax is an amount of money coming to a person or corporation within a specified time, whether as payment for services, interest, or profit from investment. The mere fact that such payments were extracted from wrongdoers cannot detract from their character as taxable income. Punitive damages cannot be classified as gifts.

W/N money received as exemplary damages for fraud or punitive damages of an antitrust recovery must be considered gross income? YES

W/N the damages awarded to Murphy is tax exempt? YES ut overturne

Damages cannot be considered as income because they are paid to make her emotionally an reputationally whole an not to compensate for lost wages. It is more in the nature of a return on capital (i.e. human capital), which is not an income. OVERTURNED: Personal injury award is within the reach of the congressional power to tax even if the award was not income within the meaning of the 16th Amendment. Although the Congress cannot make a thing income which is not so in fact, it can label a thing income and tax it so long as it acts within its constitutional authority.