Professional Documents
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Do landowners pay taxes for transactions FINAL TAX RATES on INTEREST INCOME FOR
CORPORATE TAXPAYER
involving transfer of ownership?
SEC. 66. Exemptions from Taxes and Fees of Land -20% For DC and RFC -Section 27(D)(1) Section
Transfers. - Transactions under this Act involving a 28(7)(a)
transfer of ownership, whether form natural or
2.Interest under the expanded foreign currency
juridical persons, shall be exempted form taxes
deposit system
arising from capital gains. These transactions shall
also be exempted from the payment of registration -7.5% For DC and RFC--Section 27(D)(1) Section
fees, and all other taxes and fees for the conveyance 28(7)(a) NOW – 15%
or transfer thereof: Provided, that all arrearages in
real property taxes, without penalty or interest, shall 3.Interest on foreign loans-20% For NRFC
be deductible from the compensation to which the (Section28(B)(5)(a)
owner may be entitled, 4. Interest on foreign currency loans granted by
FINAL TAX RATES on INTEREST INCOME FOR depository banks to RFC—
INDIVIDUAL TAXPAYER -10% For DC and RFC -- (Section28(A)(7)(b) (Section
1.Interest on any currency bank deposit, yield or 27(D)(3)last par.
other monetary benefits from deposit substitute,
trust fund and similar arrangement;
INTEREST INCOME subject to the NORMAL TAX RATE
--20% For RC,NRC, RA and NRAETB {Sections 24 (B)(1) 5% to 32%(individual) & 30% (corporation) (to be
& Sections 25 (A)(2)} reported in the Annual ITR)
2.Interest under the expanded foreign currency -If the INTEREST INCOME is earned in the normal
deposit system conduct of business like from lending money, goods
-7.5% For RC and RA (now 15%) or credits from one person to another without any
withholding tax made.
EXEMPT For NRC and NRAETB {Sections 24 (B)(1) &
Sections 25 (A)(2) } BQ: State with reasons the tax treatment of the
following in the preparation of annual income tax
3. Interest on long term deposit or investment in returns: Interest deposits with: (i) BPI Family Bank,
bank (maturity-5 years or more) and (ii) local offshore banking unit of a foreign bank.
Mr. X leases its lot to Mrs. Y for a term of 3 years Depreciation ( (300,000) (300,000) (900,000)
with an annual rental of P50,000. As of January of expense 300,000)
the first year, Mrs. Y completed the construction of Net income 1,200,000 (300,000) (300,000) 600,000
an improvement on the lot with a value of from
P1,500,000 with an estimated life of 5 years. improvement
The leasehold contract stipulates that the
improvement will belong to Mr. X after the term of
the lease. Spread-Out
Method
1. OM -
Net income
Value of building P1,500,000 from
improvement
Add: Annual rental per 50,000
agreement (1,500,000 – 200,000 200,000 600,000
900,000)/3 200,000
ROYALTIES Sec. 32A (6) Reason why Liquidating Dividend is NOT TAXABLE-
Return of stockholders investment. It arises from the
-payment or portion of proceeds paid to the owner
distribution of assets by a corporation to its
of a right, such as an oil right or a patent for the use
stockholders upon corporate dissolution. (Section
of it, or a portion of the proceeds from the work of an
73(A) NIRC.
author or composer.
CONFLICTING ISSUES on LIQUIDATING DIVIDEND
FOR INDIVIDUAL TAXPAYERS-always subject to final
tax SECTION 8 of BIR Revenue Regulation No. 06-08,
April 22, 2008- “xxx upon surrender by the
1.Royalty from books, literary works and musical
stockholder of its shares in exchange for cash and/or
compositions -10% For RC, NRC,RA,NRAETB
property distributed by the corporation upon its
2.Royalties other than books, literary works, and dissolution and liquidation, the stockholder shall
musical compositions -20% For RC, NRC, RA, NRAETB recognize either capital gain or loss. xxx” (as capital
gains)
Royalties other than books, literary works, and
musical compositions -20% For RC, NRC, RA, NRAETB Wise & Co., Inc. vs. Collector of Internal Revenue (78
Phil. 655) -“xxx the amount distributed in the
--includes those which are derived from natural liquidation of the corporation shall be treated as
resources or products such as coal, gas, oil, copper, payments in exchange for shares, and any gain or
silver, gold, and other similar products. profit realized thereby shall be taxed to the distributee
as other gains or profit. xxx” (as normal tax)
FOR CORPORATE TAXPAYERS-always subject to final
tax 2nd paragraph of Section 73(A) of the NIRC. - “Where
a corporation distributes all of its assets in complete
ROYALTIES -20% For DC, and RFC,
liquidation or dissolution, the gain realized or loss
DIVIDEND INCOME Sec. 32A (7) sustained by the stockholder, whether individual or
corporate, is a taxable income or a deductible loss, as
earnings derived from the distribution made by a the case may be.” (as normal tax)
corporation out of its earnings or profits and payable
to its stockholders, whether in money (cash dividend) “there was no discussion to guide taxpayers on how
or in other property (property dividend) to treat liquidating dividends. In so doing, the BIR put
in limbo anew the tax treatment of liquidating
Note: the different provisions of the NIRC imposing a dividends and added yet another legal thorn to an
tax on dividend income only includes within its already complicated, time-consuming and costly
purview cash and property dividends making stock dissolution process.”
dividends exempt from income tax.
4. DIVIDENDS received from a COOPERATIVE (R.A.
TAX EXEMPT DIVIDEND INCOME 6938)
1.Dividends received by: 5. STOCK DIVIDEND Section 73(B)
Another Domestic Corporation from a Domestic Reason why Stock Dividend is NOT TAXABLE- There
Corporation (inter corporate dividends) Section is no flow of wealth so no realized gain. It is just a
27(D)4 transfer of surplus account to the capital account.
2.Dividends received by: INSTANCES where STOCK DIVIDEND is SUBJECT TO
RESIDENT FOREIGN CORPORATION from Domestic TAX
Corporation Section 28(A)(7)(d) a. When there is a change in the stockholder interest
3. PURE LIQUIDATING DIVIDEND in the net equity of the corporation
The role of the corporation’s management is to FINAL TAX RATES on DIVIDEND INCOME
increase the value of the firm to its stockholders. It
1.Dividends received by:
will include what form of profit should be returned to
the shareholders in the form of dividends. Resident Citizen (RC)
Shareholders equity changes due to three (3) things: Non Resident Citizen (NRC)
Stock dividends cannot be issued to a person who NON Resident Alien-Engaged in Trade or Business
is not a stockholder in payment for services (NRA-ETB) From a Domestic Corporation
rendered.
--20% Section 25 (A)2 of the NIRC
Stock dividends can be issued only to stockholders
and not to strangers or non-stockholders. 3. Dividends received by:
c. When Board of Directors declared Stock Dividend NON Resident Alien-Not Engaged in Trade or Business
not in accordance with the Corporation Code of the (NRA-NETB) From Domestic Corporation
Philippines. --25% Section 25 (B) of the NIRC
Example: Declaration of Stock Dividend out of the
Outstanding Capital Stock
BQ: On January 3, 1998, X, a Filipino citizen residing in PRIZES AND WINNINGS Sec. 32A (9)
the Philippines, puchased 100 shares in the capital
stock of Y Corporation, a domestic company. On PRIZES -a reward for a contest or a competition. In
January 3, 2000, Y Corporation declared , out of the other words, a prize is a remuneration of an effort
profits of the company earned after January 1, 1998, reflecting one’s superiority, like prize money of a
a 100% stock dividends on all stockholders of record boxing contest.
as of December 31, 1999 as a result of which X holding
WINNING- a reward for an event that depends by
in Y Corporation became 200 shares. Are the stock
chance.
dividends received by X subject to income tax?
Explain. 8% For example, winnings from gambling, lottery or raffle
ticket.
DIVIDEND INCOME subject to the NORMAL
CORPORATE TAX RATE (30%) (to be reported in the Prizes amounting to Subject to FINAL TAX
Annual ITR) more than P10,000.00 20%
3. Dividends received by a partner in a general BUTTTTT -But if received outside the Philippines, it is
professional partnership. Section 24(B)(2) subject to NORMAL TAX Section 24(B)(1)
BQ: State with reasons the tax treatment of the Winnings from LOTTO and PCSO are EXEMPT FROM
following in the preparation of annual income tax TAX Section 24(B)(1) – BEFORE-
returns: Dividends received by a domestic
NOW – exceeds 10,000 = 20 % FT
corporation from (i) another domestic corporation;
and (ii) a foreign corporation; -Is the prize of One Million Pesos awarded by the
Reader’s Digest subject to withholding final tax?
ANNUITIES Sec. 32A (8)
Who is responsible for withholding the tax?
-subject to regular tax/normal tax
What are the liabilities for failure to withhold such
-installment payments received for life insurance
tax?
sold by insurance companies.
PENSIONS Sec. 32A (10)
a. Annuity payment represents INTEREST - taxable
- allowance paid regularly to a person on his N – not arising from transactions between related
retirement or to his dependents on his death, in taxpayers
consideration of past services, meritorious work, age,
-Shall be included in the Gross Income in the year of
loss, or injury.
recovery to the extent of the tax benefit of said
Generally -TAXABLE deduction.
NOT TAXABLE, in the following instances It is taxable because the taxpayer received tax benefit
through the reduction of its income in the preceding
A. When the LAW provides.
year. . .
B. When BIR approves a pension plan of a private
So, upon recovery of bad debts, it is a taxable gain
company, provided the following requisites are met:
2.TAX REFUND/CREDIT
BIR approves PENSION PLAN
GR : Refunds from taxes paid are TAXABLE
Requisites:
Exception: Refunds of taxes paid in Estate or Donor’s
1.Private retirement plan maintained by the
Tax, Philippine Income Tax, Stock Transaction Tax and
employer approved by the BIR for the exclusive
VAT (claimed as an input)
benefit of all the employee.
-It shall be included as part of gross income in the year
2.Retiring official or employee who has rendered at
of receipt to the extent of the income tax benefit of
least 10 years of service;
the said deduction.
3.At least 50 years of age at the time of retirement
PRINCIPLE OF TAX BENEFIT RULE WILL APPLY (bad
and availed of retirement for the first time.
debts recovery and tax refund)
PARTNER’S DISTRIBUTIVE SHARE FROM THE NET
-states that: if a taxpayer deducted an item on his
INCOME OF THE GENERAL PROFESSIONAL
income tax return and enjoyed a tax benefit
PARTNERSHIP Sec. 32A (11)
(reduction of his tax liability) and in the subsequent
-subject to regular/normal tax year recovers all or part of that item, he will recognize
gross income in the year the deducted item is
BUT, if the partner’s share is from a business recovered.
partnership or general partnership in trade- Such
partner’s share is SUBJECT TO FINAL TAX Also known as RECAPTURE RULE
C –charged off or written off against the books of the b. Ransom Money from Kidnapping
taxpayer
c. Extortion
U – the amount written off must be uncollectible in
d. Smuggling
the near future, no slim chance of recovery collecting
such an amount. e. Embezzlement
A – ascertain to be worthless