ARAULLO UNIVERSITY

COLLEGE OF LAW

TAXATION LAW 1
1st Semester, SY 2017-2018
TUESDAYS 5:30 8:30 PM

GROUND RULES

The schedule of assignments for the Midterms is laid out in the

attached table. Another schedule will be given for the Finals.
Such Assignments are to be followed strictly unless otherwise
instructed by the professor. Sufficient allowance has been made for
possible holidays, calamities, delays, or other contingencies.
Where the students encounter unfamiliar technical words, phrases,
classifications, or languages, students are expected to exercise due
diligence and determine their meaning.
The students are expected to be ready for the assigned topic of the
day. If a student called for recitation turns out to be absent, s/he shall
be given one failing mark for recitation (60%)
The FINAL GRADE shall be the average of the midterm grade and the
final grade.
o class standing: recitation plus quizzes
o midterm grade: average of midterm exams and class standing
o final grade: average of final exams and class standing
Every end of a chapter, a quiz will be given. Students are expected to
bring their examination notebooks.
The Midterm exams will cover General Principles of Taxation.
The Final Exams will cover Income Taxation.
Students are encouraged to attend class. Students who are absent for
2 meetings will have to secure WRITTEN permission from the Dean
before s/he can join the class. Students who will be absent for 4
sessions (cumulative) will automatically receive a failing grade.
Coffee (and other non-alcoholic drinks) as well as non-messy food are
allowed during classes.

ATTY. THEODORICK K. AYUNGO

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 SESSION TOPIC
June 13
I. GENERAL PRINCIPLES
Part I
A. Definitions, Distinctions and Classifications
i. Taxation, defined
ii. Taxation as a Power
a. Essential elements of Taxation
1. Taxation is a necessary power of the
state
2. Taxation is inherent, or is an
attribute of sovereignty;
CASES:
a. Sison vs. Ancheta, 130 SCRA 654
b. Philippine Health Care Providers, Inc. vs. CIR, 18
September 2009
c. Commissioner vs. Algue 17 February 1988

June 20
3. Taxation is essentially legislative;
4. Taxation is intended to raise
revenue;
5. Taxation is effected by imposition of
forced charged (known as taxes)
6. Taxation is on persons, properties
and activities
7. Taxation is limited to territory within
the sovereigns jurisdiction, and
8. Taxation is to defray the expenses of
government

June 27 b. Importance of Taxation and the

Lifeblood Doctrine
c. Benefits for the exercise of the
taxing power
1. Benefits Received Theory
2. Necessity Theory
3. Symbiotic Theory
d. Objectives of Taxation
1. Revenue

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 2. Non Revenue
iii. Taxation as a Process
1. Stages in the tax process
2. Principles of a Sound Tax System

July 4 Quiz
July 11 Part II
A. Limitations on the Exercise of the Taxing
Power
1. Inherent Limitations

July 18 2. Constitutional Limitations

3. Doctrine of Judicial Non-interference
4. Taxpayers suit

July 25 B. Forms of Escape from Taxation

1. Resulting to losses of governments
revenue
i. Tax Evasion
ii. Tax Avoidance
iii. Tax Exemption
2. Not resulting to Losses
1. Shifting
2. Capitalization
3. Transformation
C. Rules of Construction of Tax Laws
CASES
1. CIR vs. CA and Ateneo 18 April 1997

August 1 Quiz
August 8 Midterms
August 15 II. INCOME TAXATION

A. Salient Features of our Present Income Tax

System
1. Schedular System of Taxation vis-a-vis Global
System of Taxation
2. Income Tax Situs
3. Determinative Test of Whether Income is
Taxable- Doctrine of Constructive Receipt of
Income
4. Basis of Taxable Income
5. Net Income Taxation
6. Pay as you file
7. Creditable Withholding Tax
8. Final Withholding Tax
9. Substituted Filing of Income Tax Return
B. The Concept of Income
1. Income, defined
2. Capital Defined
3. Income vs. Capital

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 CASE STUDY
a. Madrigal vs. Rafferty, 38 Phil 414
4. Requisite for the taxability of an Income
1. Existence of a Gain
2. Realization of a Gain
a. Actual
b. Constructive (e.g. Sec. 26)
c. Presumptive (e.g. Sec. 24d)
3. Gain must be excluded (Section 32B)
C. Criteria in Imposing Philippine Income Taxes
1. Place where Income was earned
2. Residency
3. Citizenship
D. The Income Taxpayers and the General
Principles of their Taxability (Tax Situs for
Income Tax Purpose)
1. Section 23 of the NIRC
2. Individual Tax Payers (Section 24-26)
3. Corporations (Sections 27 to 30)
a. See RA 9337
4. Estates and Trusts (Sections 60-66)
5. Definitions of Terms Under Section 22

August 22 TAXATION OF INCOME OF INDIVIDUAL TAXPAYERS

A. Classification of Individual Income Taxpayers and the

factors affecting their Taxability
B. Rules Applicable to Returnable Income
C. Rules Applicable to Passive Income
D. Personal Exemptions (See RA 9504)
a. Basic Personal Exemptions
b. Additional Exemptions
c. Change of Status
E. Taxation of Married Individuals
F. Taxation of Minors
G. Tax Returns and Other Administrative Requirements

*Significance of the Dual Citizenship Law

**Significance of RA 9504
August 29 TAXATION OF INCOME OF CORPORATE TAXPAYERS

A. Definition of Corporation
B. Tests in Determining the Existence of a Corporate
Taxpayer
C. The Tests Applied to Partnerships, Co-Ownerships and
Estates
Cases:
1. Ona v. CIR, 45 SCRA 74
2. Pascual and Dragon v. CIR, 166 SCRA 560
3. Obillos vs. CIR, 139 SCRA 436
4. Afisco Insurance Corp. vs. CIR, 1999
5. Evangelista vs. CIR, 102 Phil 140
D. Kinds of Corporation
E. Rules Applicable to Returnable Income
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 1. See RA 9337
F. Rules Applicable to Passive Income
1. Tax Sparing Rule
a. CIR vs. Proctor and Gamble, 204 SCRA 378
G. Taxes Peculiar to Corporations
1. Minimum Corporate Income Tax
2. Optional Corporate Income Tax
3. Improperly Accumulated Earnings Tax
Cyanamid Phils. Vs. CA, January 20, 2000
H. Tax Returns and Other Administrative Requirements
1. Paseo Realty and Development Corp. vs. CA,
October 13, 2004

September 5 Quiz
September DETERMINATION OF GROSS INCOME AND THE RULES
12 ON INCLUSION AND EXCLUSION FROM GROSS
INCOME

A. The Concept of Gross Income

a. Gross Income, definition
b. Gross Income vs. Gross Sales/Receipts
B. The General Rules on Inclusion and Exclusion of
Income Items (Sections 31, 32A and 32B)
C. The Rules as Applied to Compensation Income and
Other Benefits
a. Taxability of Compensation Income and the
Application of the Employers convenience Rule
i. Henderson vs. Collector, 1 SCRA 649
b. Retirement Payments, Pensions and Gratuities
i. RA 7641, RA4917, Section 60B
c. Separation Payments
d. Leave Benefits
e. 13th Month Pay and other bonuses
f. SSS/GSIS Benefits
g. SSS/GSIS/PhilHealth/Pag-Ibig/Union Dues
h. Fringe Benefits (Sec. 33, Rev. Regs. 3-98 and 10-
2000)
D. The Rules as Applied to Trade/Business or Professional
Income
E. The Rules as Applied to Passive Income
a. Royalties, prizes and winnings
b. Interest Income from bank deposits and deposit
substitutes
1. On Philippine Currency
2. On Foreign Currency
3. Long-term investments
c. Dividends
1. CIR v. CA and ANSCOR, G.R. No.108576,
January 20, 1999
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 2. Section 73B
d. Sale of Real Property classified as capital asset
1. Forced Sales
2. Sale of Principal residence
3. Alternative taxation in case of sale to
government
e. Sale of shares of stocks not listed or traded in the
stock exchange
F. The rules as Applied other Sources of Income
a. Cancellation of Indebtedness
b. Income from Lease and Leasehold Improvements
c. Income from Installment Transactions
1. Banas v. CA, G.R. No. 102967, February 10,
2000
d. Income from Long-Term Constructions Projects
G. Exclusions by reason of Special Laws

September Quiz
19
September SPECIAL INCOME TAX TREATMENT OF GAINS AND
26 LOSSES FROM DEALINGS IN PROPERTY

A. Ordinary Assets vs. Capital Assets

a. China Banking Corporation vs. Court of Appeals,
G.R. No. 125508, July 19, 2000
B. Rules on Ordinary Gains and Losses
C. Special Rules on Capital Transactions (Capital Gains
and Losses)
1. Rules on Real Property classified as capital asset
2. Rules on gains/losses from sale of shares of stocks
not listed or traded in the stock exchange by non-
dealers in securities
3. Rules regarding other capital assets
a. Loss Limitation Rule
b. Holding Period Rule
c. Net Captial Loss Carry-Over (NCLCO) Rule
D. Special Capital Transactions
E. Wash Sales
F. Installment Sales vs. Deffered Sales
1. Banas v. CA, G.R. No. 102967, February 10, 2000
G. Instances when gains are taxable but losses are non-
deductible
H. Instances when gains and losses are not recognized
for tax purposes

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October 3 Quiz
October 10 Final Examinations

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