Tax 1 Frstexam

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES 6. levied for a public purpose.
REQUISITES OF A VALID TAX

1. should be for a public purpose
POWER OF TAXATION
2. the rule of taxation shall be uniform
TAXATION power by which the
3. that either the person or property
sovereign through its law-making body
taxed be within the jurisdiction of
raises revenue to defray the necessary
the taxing authority
expenses of government from among
4. that the assessment and collection
those who in some measure are
of certain kinds of taxes guarantees
privileged to enjoy its benefits and must
against injustice to individuals,
bear its burdens.
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
6. Subject to be taxed, provided it is The power to tax is an attribute of
within its jurisdiction sovereignty emanating from necessity. It
7. Situs of taxation is a necessary burden to preserve the
State's sovereignty and a means to give
TAXES enforced proportional the citizenry an army to resist an
contributions from the persons and aggression, a navy to defend its shores
property levied by the law-making body from invasion, a corps of civil servants to
of the State by virtue of its sovereignty serve, public improvements designed for
in support of government and for public the enjoyment of the citizenry and those
needs. which come within the State's territory,
and facilities and protection which a
CHARACTERISTICS OF TAXES government is supposed to provide.
1. forced charge; (Phil. Guaranty Co., Inc. v. CIR)
2. pecuniary burden payable in money;
3. levied by the legislature; 3. Benefits-Protection / Reciprocity
4. assessed with some reasonable rule Theory
of apportionment; (see theoretical Taxation is described as a symbiotic
justice) relationship whereby in exchange of the
5. imposed by the State within its benefits and protection that the citizens
jurisdiction; get from the Government, taxes are
paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE

CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
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Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The courts power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. Power to tax is the power to
destroy (Marshall Dictum) refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy sufficiency to
meet government expenditures and
2. Power to tax is not the power to other public needs.
destroy while the Supreme Court sits 2. Administrative Feasibility/
(Holmes Dictum) the power to tax Convenience capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice based on the
taxpayers ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the States
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
As long as the legislature, in received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the

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4. Non-impairment of Contracts 2. If the law is clear, apply the law in

Contracts Contracts Contracts may accordance to its plain and simple
may not be may be be impaired tenor.
impaired impaired
3. A statute will not be construed as
5. Transfer of Property Rights imposing a tax unless it does so
Taxes paid No transfer Transfer is
clearly, expressly and
become part but only effected in
of public restraint in favor of the unambiguously.
funds its exercise State 4. In case of doubt, it is construed most
6. Scope
strongly against the Government,
All persons, All persons, Only upon a and liberally in favor of the
property and property, particular taxpayer.
excises rights and property 5. Provisions of a taxing act are not to
privileges be extended by implication.
6. Tax laws operate prospectively
unless the purpose of the legislature
EXAMPLES OF TAXES LEVIED WITH A to give retrospective effect is
REGULATORY PURPOSE, OR COMBINED expressly declared or may be
EXERCISE OF POLICE POWER AND THE POWER implied from the language used.
OF TAXATION. 7. Tax laws are special laws and
prevail over a general law.
a. Motor vehicle registration fees
are now considered revenue or tax NATURE OF TAX LAWS
measures.(Pal v. Edu, G.R No. L-41383, 1. Not political in character
August 15,1988) 2. Civil in nature, not subject to ex
This case reversed the doctrine post facto law prohibitions
previously held in Republic v. Philippine 3. Not penal in character
Rabbit Bus Lines, Inc., 32 SCRA 211, to
the effect that motor vehicle TAXES ARE PERSONAL TO THE TAXPAYER
registration fees are regulatory 1. A corporations tax delinquency
exactions and not revenue measures. cannot be enforced against its
stockholders. (Corporate Entity
b. The tax imposed on videogram Doctrine)
establishments is not only regulatory but Exception: Stockholders may be
a revenue measure because the earnings held liable for unpaid taxes of a
of such establishments have not been dissolved corporation:
subject to tax depriving the government a. if it appears that the corporate
of an additional source of income. (Tio assets have passed into their
v. Videogram Regulatory Board, 151 hands or
SCRA 208) b. when the stockholders have
unpaid subscriptions to the
c. The coconut levy funds were capital of the corporation
all raised under the states taxing and
police powers. 2. Estate taxes are obligations that
The states concern to make it a must be paid by the executor or
strong and secure source not only in the administrator out of the net assets
livelihood of the significant segment of and cannot be assessed against the
the population, but also of export heirs.
earnings, the sustained growth of which Exception: If prior to the payment
is one of the imperatives of the of the estate tax due, the properties
economic growth. Philippine Coconut of the deceased are distributed to
Producers Federation, Inc. Cocofed v. the heirs, then the latter is
Presidential Commission on Good subsidiary liable for the payment of
Government (178 SCRA 236, 252) such portion of the estate tax as his
distributive share bears to the total
CONSTRUCTION OF TAX LAWS value of the net estate. (Sec. 9,
1. Public purpose is always presumed. Rev. Regs. No. 2-2003; see CIR vs.

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Pineda G.R. No. L-22734. b. Regressive Tax tax rate

September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax assessed on used.
property of a certain class 2. Penalty punishment for the
c. Excise Tax imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty amount
d. Customs Duties duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
the tax falls on one person but 6. Margin Fee exaction designed to
the burden thereof can be stabilize the currency.
shifted or passed on to another. 7. Debt a sum of money due upon
3. As to purpose: contract or one which is evidenced
a. General Tax levied for the by judgment.
general or ordinary purposes of 8. Subsidy a legislative grant of
the Government money in aid of a private enterprise
b. Special Tax levied for special deemed to promote the public
purposes welfare.
4. As to manner of computation: 9. Customs duties and fees duties
a. Specific Tax the computation charged upon commodities on their
of the tax or the rates of the tax being transported into or exported
is already provided for by law. from a country.
b. Ad Valorem Tax tax upon the 10. Revenue a broad term that
value of the article or thing includes taxes and income from
subject to taxation; the other sources as well.
intervention of another party is 11. Impost in its general sense, it
needed for the computation of signifies any tax, tribute or duty. In
the tax. its limited sense, it means a duty on
5. As to taxing authority: imported goods and merchandise.
a. National Tax levied by the
National Government Tax Special
b. Local Tax levied by the local Assessment
government
6. As to rate: Imposed on persons, Levied only on land
a. Progressive Tax rate or property and excises
amount of tax increases as the Personal liability Cannot be made a
amount of the income or earning attaches on the personal liability of
to be taxed increases. person assessed in the person assessed

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case of non-payment Tax Debt

Not based on any Based wholly on An obligation Created by contract
special or direct benefit imposed by law
benefit
Due to the May be due to the
Levied and paid Exceptional both as
government in its government but in
annually to time and locality
sovereign capacity its corporate
capacity
Exemption granted Exemption does not
is applicable (Art. apply.
Payable in money Payable in money,
VI, Sec. 28(3) 1987 N.B. If property is
property or services
Constitution) exempt from Real
Property Tax, it is
also exempt from Does not draw Draws interest if
Special Assessment. interest except in stipulated or
case of delinquency delayed
Tax License Fee Not assignable Assignable
Based on the power Emanates from Not subject to Subject to

of taxation police power compensation or compensation or
set-off set-off
To generate Regulatory
revenue Non-payment is No imprisonment in
punished by case of non-payment
Amount is unlimited Amount is limited imprisonment (Art. III, Sec. 20
to the cost of (1) except in poll tax 1987 Constitution)
issuing the license,
and (2) inspection Imposed only by Can be imposed by
and surveillance public authority private individual
TEST IN DETERMINING IF THE IMPOSITION IS A
Normally paid after Normally paid
TAX OR A LICENSE FEE
the start of a before
business commencement of If the purpose is primarily revenue or
business if revenue is, at least, one of the real
and substantial purposes, then the
Taxes, being the License fee may be exaction is a tax. If the purpose is
lifeblood of the with or without regulatory in nature, it is a license.
State, cannot be consideration (PAL v. Edu)
surrendered except
for lawful Tax Debt
consideration
An obligation Created by contract
Non-payment does Non-payment imposed by law
not make the makes the business
business illegal but illegal
Due to the May be due to the
maybe a ground for
government in its government but in
criminal
sovereign capacity its corporate
prosecution
capacity
TEST IN DETERMINING IF THE IMPOSITION IS A Payable in money Payable in money,

TAX OR A LICENSE FEE property or services
If the purpose is primarily revenue
or if revenue is, at least, one of the real Does not draw Draws interest if
and substantial purposes, then the interest except in stipulated or
exaction is a tax. If the purpose is case of delinquency delayed
regulatory in nature, it is a license.
(PAL v. Edu) Not assignable Assignable
Not subject to Subject to

compensation or compensation or

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set-off set-off improvement used
Non-payment is No imprisonment in Imposed only by the May be imposed by:

punished by case of non- State (1) Government
imprisonment payment (Art. III, (2) Private
except in poll tax Sec. 20 1987 individuals or
Constitution) entities
Imposed only by Can be imposed by Tax Penalty

public authority private individual
Enforced Sanction imposed as
proportional a punishment for
COMPENSATION OR SET-OFF
contributions from violation of a law
General Rule: Taxes cannot be the persons and or acts deemed
subject of compensation or set-off. property injurious; violation
Reasons: of tax laws may give
1. lifeblood theory rise to imposition of
2. taxes are not contractual penalty
obligation but arise out of duty
to the government Intended to raise Designed to regulate
3. the government and the revenue conduct
taxpayer are not mutually
May be imposed May be imposed by:
creditors and debtors of each
only by the (1) Government
other. (Francia v. IAC) government (2) Private
Exception: When both obligations are individuals or
due and demandable as well as fully entities
liquidated and all the requisites for a
valid compensation are present, Tax Tariff
compensation takes place by operation
of law. (Domingo v. Garlitos) All embracing term A kind of tax
to include various imposed on articles
DOCTRINE OF EQUITABLE RECOUPMENT NOT kinds of enforced which are traded
FOLLOWED IN THE PHILIPPINES contributions upon internationally
A tax presently being assessed persons for the
against a taxpayer which has prescribed attainment of
may not be recouped or set-off against public purposes
an overpaid tax the refund of which is
also barred by prescription. It is against TAXPAYERS SUIT
public policy since both parties are A case where the act complained of
guilty of negligence. directly involves the illegal disbursement
of public funds derive from taxation
Tax Toll (Justice Melo, dissenting in Kilosbayan,
Inc vs Guingona, Jr.)
Enforced A sum of money for
proportional the use of TAXPAYERS AND PUBLIC OFFCIALS HAVE
contributions from something, a LOCUS STANDI
persons and property consideration which REQUISITES FOR TAXPAYERS SUIT
is paid for the use of
a property which is
a. The tax money is being
of a public nature; extracted and spent in violation of
e.g. road, bridge specific constitutional protections
against abuses of legislative power.
A demand of A demand of b. That public money is being
sovereignty proprietorship deflected to any improper purpose
(Pascual vs Secretary of Public
No limit as to the Amount of toll
amount of tax depends upon the Works)
cost of construction c. That the petitioner seeks to
or maintenance of restrain respondents from wasting
the public

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public funds through the enforcement a. Kind or classification of the tax

of an invalid or unconstitutional law being levied
b. Situs of the thing or property
LIMITATIONS ON THE TAXING taxed
POWER c. Citizenship of the taxpayer
d. Residence of the taxpayer
e. Source of the income taxed
A. INHERENT LIMITATIONS (KEY: SPINE) f. Situs of the excise, privilege,
1. Territoriality or Situs of taxation business or occupation being taxed
2. Public purpose of taxes
3. International comity APPLICATION OF SITUS OF TAXATION
4. Non-delegability of the taxing power
Kind of Tax Situs
5. Tax Exemption of the government
Personal or Residence or
(1) TESTS IN DETERMINING PUBLIC PURPOSE Community tax domicile of the
a. Duty Test whether the thing to be taxpayer
furthered by the appropriation of
public revenue is something, which Real property tax Location of property
is the duty of the State, as a (Lex rei sitae)
government, to provide.
Personal property -tangible: where it
tax is physically located
b. Promotion of General Welfare Test
or permanently kept
whether the proceeds of the tax (Lex rei sitae)
will directly promote the welfare of -intangible: subject
the community in equal measure. to Sec. 104 of the
NIRC and the
(2) NON-DELEGABILITY OF THE TAXING principle of mobilia
POWER sequuntur personam
General Rule: The power of taxation is
peculiarly and exclusively exercised by
the legislature. (See Scope of Business tax Place of business
Legislative Taxing Power, supra)
Excise or Privilege Where the act is
- refers to tax legislation tax performed or where
Exceptions to Non-delegability: occupation is
1. Flexible Tariff Clause: Authority of pursued
the President to fix tariff rates,
import and export quotas, tonnage Sales tax Where the sale is
and wharfage dues, and other duties consummated
or imposts. (Art. VI, Sec.28(2), 1987
Constitution) Income Tax Consider
2. Power of local government units to (1) citizenship,
(2) residence, and
levy taxes, fees, and charges. (Art.
(3) source of income
X, Sec. 5, 1987 Constitution) (Sec. 42, 1997 NIRC)
3. Delegation to administrative
agencies for implementation and Transfer tax Residence or
collection. citizenship of the
- merely refers to tax administration taxpayer or location
or implementation of property
(3) SITUS OR TERRITORIALITY OF TAXATION Franchise Tax State which granted

the franchise
The power to tax is limited only to
persons, property or businesses within
SITUS OF TAXATION OF INTANGIBLE PERSONAL
the jurisdiction or territory of the taxing
PROPERTY
power.
General Rule: Domicile of the owner
pursuant to the principle of the mobilia
FACTORS THAT DETERMINE THE SITUS:

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sequuntur personam or movables follow General Rule: Income is taxable at

the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax
and donors taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function
bonds have acquired a business accruing to the Government of the
situs in the Philippines; and Philippines or to any political
(5) shares or rights in any subdivision thereof is not included in
partnership, business or industry gross income and exempt from
established in the Philippines. taxation. (Sec. 32(B)(7)(b), NIRC)
(Sec. 104, 1997 NIRC). 5. Donations in favor of governmental
institutions are considered as income
(4) EXEMPTION OF THE GOVERNMENT on the part of the donee. However,
As a matter of public policy, it is not considered as taxable
property of the State and of its income because it is an exclusion
municipal subdivisions devoted to from the computation of gross
government uses and purposes is income. (Sec.32 (B)(3), NIRC)
deemed to be exempt from taxation 6. The amount of all bequests,
although no express provision in the law legacies, devises or transfers to or
is made therefor. for the use of the Government or
any political subdivision for
General Rule: The Government is tax exclusively public purposes is
exempt. deductible from the gross estate.
- However, it can also tax itself. (Sec.86 (A)(3), NIRC)
7. Gifts made to or for the use of the
RULES: National Government or any entity
1. Administrative Agencies created by any of its agencies which
a. Governmental function - tax is not conducted for profit, or to any
exempt unless when the law political subdivision of the said
expressly provides for tax. (Sec. Government are exempt from
32 B7) donors tax. (Sec. 101(A)(2), NIRC)
b. Proprietary function taxable 8. Local government units are
unless exempted by law. (Sec. expressly prohibited by the LGC
27C) from levying tax upon National
2. GOCCs Government, its agencies, and

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instrumentalities, and local

government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose 4. Non-Infringement Of Religious
taxes on a sovereign state and its Freedom And Worship (Art. III, Sec.
instrumentalities, as well as on its 5, 1987 Constitution)
property held and activities undertaken A license tax or fee constitutes a
in that capacity. Even where one enters curtailment of religious freedom if
the territory of another, there is an imposed as a condition for its
implied understanding that the former exercise. (American Bible Society
does not thereby submit itself to the vs. City of Manila, GR No. L-9637,
authority and jurisdiction of the other. April 30, 1957)
B. CONSTITUTIONAL LIMITATIONS 5. Non-Impairment Of Contracts (Art.

A. GENERAL OR INDIRECT III, Sec. 10, 1987 Constitution)
CONSTITUTIONAL LIMITATIONS No law impairing the obligation
of contract shall be passed. (Sec.
1. Due Process Clause (Art. III, Sec. 1, 10, Art. III, 1987 Constitution)
1987 Constitution) The rule, however, does not
Requisites: apply to public utility franchises or
a. The interests of the public as right since they are subject to
distinguished from those of a amendment, alteration or repeal by
particular class require the the Congress when the public
intervention of the State. interest so requires. (Cagayan
(Substantive limitation) Electric & Light Co., Inc. v.
b. The means employed must be Commissioner, GR No. 60216,
reasonably necessary to the September 25, 1985)
accomplishment of the purpose
and not unduly oppressive. RULES:
(Procedural limitation) a. When the exemption is bilaterally
The constitutionality of a legislative agreed upon between the
taxing act questioned on the ground of government and the taxpayer it
denial of due process requires the cannot be withdrawn without
existence of an actual case or violating the non-impairment
controversy. clause.

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b. When it is unilaterally granted by Progressivity rate increases as the

law, and the same is withdrawn by tax base increases.
virtue of another law no violation.
c. When the exemption is granted Q: Is a tax law adopting a regressive
under a franchise it may be system of taxation valid?
withdrawn at any time thus, not a A: Yes. The Constitution does not
violation of the non-impairment of really prohibit the imposition of indirect
contracts taxes which, like the VAT, are
regressive. The Constitutional provision
6. Presidential power to grant means simply that indirect taxes shall be
reprieves, commutations and minimized. The mandate to Congress is
pardons and remit fines and not to prescribe, but to evolve, a
forfeitures after conviction (ART. progressive tax system. (EVAT En Banc
VII, SEC. 19, 1987 CONSTITUTION) Resolution, Tolentino, et al vs Secretary
Due Equal of Finance, October 30, 1995)
Uniformity
Process Protection
Taxpayer Taxpayers Taxable 4. Limitations On The Congressional
may not shall be articles, or Power To Delegate To The
be treated alike kinds of President The Authority To Fix
deprived under like property of Tariff Rates, Import And Export
of life, circumstances the same Quotas, Etc. (Art. VI, Sec. 28(2),
liberty or and conditions class, shall
property both in the be taxed at
1987 Constitution)
without privileges the same
due conferred and rate. There 5. Tax Exemption Of Properties
process of liabilities should Actually, Directly And Exclusively
law. imposed. therefore, Used For Religious, Charitable And
Notice be no direct Educational Purposes. (Art. VI,
must, double Sec. 28(3) 7, 1987 Constitution)
therefore taxation The constitutional provision
, be given (above cited) which grants tax
in case of
failure to
exemption applies only to property
pay taxes or realty taxes assessed on such
properties used actually, directly
exclusively for religious, charitable
B. SPECIFIC OR DIRECT
and educational purposes. (Lladoc
CONSTITUTIONAL LIMITATIONS
vs. Commissioner, GR No. L-19201,
June 16, 1965)
1. Non-Imprisonment For Debt Or Non-
The present Constitution
Payment Of Poll Tax (Art. III, Sec.
required that for the exemption of
20, 1987 Constitution)
lands, buildings and
improvements, they should not only
2. Rule Requiring That Appropriations,
be exclusively but also actually
Revenue And Tariff Bills Shall
and directly used for religious and
Originate Exclusively From The
charitable purposes. (Province of
House Of Representatives (Art. VI,
Abra vs. Hernando, GR No. L-49336,
Sec. 24, 1987 Constitution)
August 31, 1981)
The test of exemption from
3. Uniformity, Equitability And
taxation is the use of the property
Progressivity Of Taxation (Art. VI,
for the purposes mentioned in the
Sec. 28(1), 1987 Constitution)
Constitution. (Abra Valley College
Uniformity all taxable articles or
Inc. vs. Aquino, GR No. L-39086,
kinds of property of the same class
June 15, 1988)
are taxed at the same rate.
Equitability the burden falls to
EXCLUSIVE BUT NOT ABSOLUTE USE
those who are more capable to pay.
The term exclusively used does
not necessarily mean total or absolute

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1
use for religious, charitable and 4. Treatment of taxes levied for a

educational purposes. If the property is special purpose. (Art. VI, Sec. 29
incidentally used for said purposes, the (3), 1987 Constitution)
tax exemption may still subsist. (Abra 5. Internal revenue allotments to local
Valley College Inc. vs. Aquino, Gr No. L- government units. (Art. X, Sec. 6,
39086, June 15, 1988) 1987 Constitution)
Corollarily, if a property, although
actually owned by a religious, charitable
and educational institution is used for a DOUBLE TAXATION
non- exempt purpose, the exemption
from tax shall not attach DOUBLE TAXATION taxing the same
property twice when it should be taxed
ART. XIV, ART. VI, but once.
SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious, IS DOUBLE TAXATION PROHIBITED IN THE
non profit educational,
PHILIPPINES?
educational charitable
institution institutions
No. There is no constitutional
Taxes Income tax Property tax prohibition against double taxation. It is
covered Custom not favored but permissible. (Pepsi Cola
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187) (1) Direct Duplicate Taxation /
Obnoxious double taxation in the
6. Voting Requirement In Connection objectionable or prohibited sense.
With The Legislative Grant Of Tax This constitutes a violation of
Exemption (Art. VI, Sec. 28(4), substantive due process.
1987 Constitution)
7. Non-Impairment Of The Elements:
Jurisdiction Of The Supreme Court a. the same property or subject
In Tax Cases (Art. VIII, Sec. 2 And matter is taxed twice when it should
5(2)(B), 1987 Constitution) be taxed only once.
b. both taxes are levied for the
8. Exemption From Taxes Of The same purpose
Revenues And Assets Of c. imposed by the same taxing
Educational Institutions, Including authority
Grants, Endowments, Donations d. within the same jurisdiction
And Contributions. (Art. XIV, Sec. e. during the same taxing period
4(3) And (4), 1987 Constitution) f. covering the same kind or
character of tax.
OTHER SPECIFIC TAX PROVISIONS IN (Villanueva vs. City of Iloilo)
THE CONSTITUTION
1. Power of the President to veto any (2) Indirect Duplicate Taxation not
particular item or items in an legally objectionable. The absence
appropriation, revenue, or tariff bill. of one or more of the above-
(Art VI, Sec. 27(2), 1987 mentioned elements makes the
Constitution) double taxation indirect.
2. Necessity of an appropriation before
money may be paid out of the public (3) Domestic- this arises when the taxes
treasury. (Art. VI, Sec. 29 (1), 1987 are imposed by the local or national
Constitution) government (within the same state)
3. Non-appropriation of public money (4) International- refers to the
or property for the use, benefit, or imposition of comparable taxes in
support of any sect, church, or two or more states on the same
system of religion. (Art. VI, Sec. 29 taxpayer in respect of the same
(2), 1987 Constitution)

Cabrera, Jhundee
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1
subject matter and for identical of income or capital. In some cases, an

periods. exclusive right to tax is conferred in one
of the contracting states; however, for
REMEDIES OF DOUBLE TAXATION other items of income or capital, both
1. Tax Sparing Rule same dividend states are given the right to tax although
earned by a NRFC within the Phil. is the amount of tax that may be imposed
reduced by imposing a lower rate of by the state of source is limited.
15% (in lieu of the 35%), on the SECOND METHOD: The state of source is
condition that the country to which given a full or limited right to tax
the NRFC is domiliced shall allow a together with the state of residence. In
credit against the tax due from the this case, the treaty makes it incumbent
NRFC, taxes deemed to have been upon the state of residence to allow
paid in the Phil. (Sec.28 B 5b) (CIR relief in order to avoid double taxation.
vs Procter & Gamble) (GR No.
66838, Dec. 2, 1991) TWO METHODS OF RELIEF ARE USED UNDER THE
2. Tax deductions SECOND METHOD:
Example: vanishing deduction under
Section 86(A)(2), NIRC 1. The exemption method- the income
3. Tax credits or capital which is taxable in the state
Instances under the NIRC: of source or situs is exempted in the
For VAT purposes, the tax on state of residence, although in some
inputs or items that go into the instances it may be taken into account
manufacture of finished products in determining the rate of tax applicable
(which are eventually sold) may be to the tax payers remaining income or
credited against or deducted from capital.(This may be done using the tax
the output tax or tax on the finished deduction method which allows foreign
product. income taxes to be deducted from gross
Foreign income taxes may be income, in effect exempting the
credited against the Phil. Income payment from being further taxed.)
tax, subject to certain limitations, 2. The credit method- although the
by citizens, including members of income or capital which is taxed in the
general professional partnerships or state of source is still taxable in the
beneficiaries of estates or trusts state of residence. The tax paid in the
(pro rata), as well as domestic former is credited against the tax, levied
corporations. in the latter.(Commissioner of Internal
A tax credit is granted for estate Revenue v. S.C Johnson and Son, Inc. et
taxes paid to a foreign country on al., G.R No. 127105, June 25, 1999)
the estate of citizens and resident
aliens subject to certain limitations. Exemption
Credit Method
The donors tax imposed upon a Method
citizen or a resident shall be Focus is on the Focus is on the tax
credited with the amount of any income or capital
itself
donors tax imposed by the authority
of a foreign country, subject to
NOTE: Computational illustration
certain limitations.
between a tax deduction and a tax
4. Tax Exemptions credit:
5. Principle of Reciprocity
6. Treaties with other states Tax deduction method
Gross income
METHODS RESORTED TO BY A TAX TREATY IN Less: allowable deductions
ORDER TO ELIMINATE DOUBLE TAXATION including
foreign taxes paid
FIRST METHOD: The tax treaty sets out Income subject to tax
the respective rights to tax by the state Multiplied by rate
of source or situs and by the state of Income tax due
residence with regard to certain classes

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resultant basis is used as the new tax

Tax credit method base for purposes of computing the
Gross income allowable depreciation expense, the net
Less: allowable deductions difference between the original cost
excluding basis and new basis is taxable under the
foreign taxes paid economic benefit principle. (BIR Ruling
Income subject to tax No. 029, March 19, 1998)
Multiplied by rate
Income tax due (3) TRANSFORMATION the manufacturer
Less: foreign taxes paid or producer upon whom the tax has been
Net income tax due imposed, fearing the loss of his market if
he should add the tax to the price, pays
the tax and endeavors to recoup himself
FORMS OF ESCAPE by improving his process of production,
FROM TAXATION thereby turning out his units at a lower
cost.
(1) SHIFTING the process by which the (4) TAX AVOIDANCE the exploitation by
tax burden is transferred from the the taxpayer of legally permissible
statutory taxpayer (impact of taxation) alternative tax rates or methods of
to another (incident of taxation) without assessing taxable property or income, in
violating the law. order to avoid or reduce tax liability.
Example: estate planning
IMPACT OF TAXATION point on which tax (conveyance of property to a family
is originally imposed. corporation for shares) (Delpher Trades
Corp. vs. IAC, 157 SCRA 349)
INCIDENCE OF TAXATION point on which (5) TAX EVASION use by the taxpayer of
the tax burden finally rests or settles illegal or fraudulent means to defeat or
down. lessen the payment of the tax.
Illustration: Value added tax. The
seller is required by law to pay tax, but FACTORS IN TAX EVASION
the burden is actually shifted or passed 1. the end to be achieved, i.e. payment
on to the buyer. of less than that known by the taxpayer
to be legally due, or paying no tax when
KINDS OF SHIFTING
it is shown that the tax is due;
a. Forward shifting- when burden of
2. an accompanying state of mind
tax is transferred from a factor of
which is described as being evil, in bad
production through the factors of
faith, willful, or deliberate and not
distribution until it finally settles on
coincidental; and
the ultimate purchaser or consumer
3. a course of action which is unlawful.
b. Backward shifting- when burden is
transferred from consumer through INDICIA OF FRAUD IN TAX EVASION
factors of distribution to the factors 1. Failure to declare for taxation
of production purposes true and actual income derived
c. Onward shifting- when the tax is from business for 2 consecutive years
shifted 2 or more times either (Republic vs Gonzales, L-17962)
forward or backward 2. Substantial under-declaration of
income tax returns of the taxpayer for 4
(2) CAPITALIZATION a mere increase in consecutive years coupled with
the value of the property is not income intentional overstatement of deductions
but merely an unrealized increase in (CIR vs Reyes, 104 PHIL 1061)
capital. No income until after the
actual sale or other disposition of the
TAX TAX
property in excess of its original cost.
AVOIDANCE EVASION
EXCEPT: if by reason of appraisal, the
cost basis of property increased and the Validity Legal and not Illegal and

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1
subject to subject to outside the scope of the taxing

criminal penalty criminal provision itself.
penalty 3. As to extent
(1) Total absolute immunity
Effect Minimization of Almost (2) Partial one where a collection
taxes always
results in
of a part of the tax is dispensed
absence of with
tax payments 4. As to object
(1) Personal granted directly in
(6) TAX EXEMPTION a grant of favor of certain persons
immunity to particular persons or (2) Impersonal granted directly in
corporations from the obligation to pay favor of a certain class of
taxes. property
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
a. Constitutional immunities from mistaken. If ambiguous, there is no
taxation that originate from the exemption.
constitution. c. He who claims exemption should
b. Statutory those which emanate prove by convincing proof that he
from legislation is exempted.
Examples of Statutory Exemptions d. Taxation is the rule; tax exemption
Sec. 27, NIRC is the exception.
Sec. 105 Tariff and Customs e. Tax exemption must be strictly
Code construed against the taxpayer and
Sec. 234 Local Government Code liberally in favor of the taxing
Special Laws, such as the authority.
Omnibus Investment Code of 1987 f. Tax exemptions are not presumed.
(EO 226), Philippine Overseas g. Constitutional grants of tax
Shipping Act (RA 1407 as amended), exemption are self-executing.
Fertilizer Industry Act (RA 3050, as h. Tax exemptions are personal.
amended), Mineral Resources
Development Decree of 1974 (PD 463 THE FOLLOWING PARTAKE THE NATURE OF
as amended), Cottage Industry Act TAX EXEMPTION
(RA 318, as amended) and 1. Deductions for income tax purposes
exemptions in Housing for Low 2. Claims for refund
Income Group (PD 1205, as 3. Tax amnesty
amended) 4. Condonation of unpaid tax liabilities
c. Contractual- agreed to by the NOTE: must be strictly construed
taxing authority in contracts against the taxpayer
lawfully entered into by them
under enabling laws WHEN EXEMPTIONS ARE CONSTRUED
d. Treaty LIBERALLY IN FAVOR OF GRANTEE
e. Licensing Ordinance 1. When the law so provides for such
2. As to form liberal construction.
(1) Express expressly granted by 2. Exemptions from certain taxes,
organic or statute law granted under special circumstances
(2) Implied when particular to special classes of persons.
persons, property or excises are
deemed exempt as they fall

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1
3. Exemptions in favor of the 3. To give tax evaders, who wish to

government, its political subdivisions relent and are willing to reform a
or instrumentalities. chance to do so.
4. Exemptions to traditional
exemptees, such as those in favor of RULES ON TAX AMNESTY
religious and charitable institutions. 1. Tax amnesty
5. If exemptions refer to the public a) like tax exemption, it is never
property favored nor presumed
b) construed strictly against the
Q: May a tax exemption be revoked? taxpayer (must show complete
A: Yes. It is an act of liberality which compliance with the law)
could be taken back by the government
unless there are restrictions. Since 2.Government not estopped from
taxation is the rule and exemption questioning the tax liability even if
therefrom is the exception, the amnesty tax payments were already
exemption may be withdrawn by the received.
taxing authority. (Mactan Cebu Reason: Erroneous application and
International Airport Authority vs. enforcement of the law by public
Marcos, 261 SCRA 667) officers do not block subsequent
correct application of the statute. The
RESTRICTIONS ON REVOCATION OF TAX government is never estopped by
EXEMPTIONS mistakes or errors of its agents.
a. Non impairment clause. Where the Basis: Lifeblood Theory
exemption was granted to private
parties based on material 3.Defense of tax amnesty, like insanity,
consideration of a mutual nature, is a personal defense.
which then becomes contractual and Reason: Relates to the circumstances
is covered by the non-impairment of a particular accused and not the
clause of the Constitution. character of the acts charged in the
b. Adherence to form- if the tax information.
exemption is granted by the
Constitution, its revocation may be Tax amnesty Tax exemption
effected through Constitutional
amendment only Immunity from all Immunity from civil
c. Where the tax exemption grant is in criminal, civil and liability only
administrative
the form of a special law and not by
liabilities arising
a general law even if the terms of from non payment
the general act are broad enough to of taxes
include the codes in the general law
unless there is manifest intent to Applies only to past Prospective
repeal or alter the special law tax periods, hence application
(Province of Misamis Oriental vs retroactive
Cagayan Electric Power and Light application
Co. Inc)
NATURE OF TAX AMNESTY DOCTRINE OF IMPRESCRIPTIBILTY

1. General or intentional overlooking by As a rule, taxes are imprescriptible
the state of its authority to impose as they are the lifeblood of the
penalties on persons otherwise guilty government. However, tax statutes may
of evasion or violation of a revenue provide for statute of limitations.
or tax law. The rules that have been adopted
2. Partakes of an absolute forgiveness of are as follows:
waiver of the government of its right a.) National Internal Revenue Code
to collect. The statute of limitation for
assessment of tax if a return is filed is
within three (3) years from the last day

Cabrera, Jhundee
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1
prescribed by law for the filling of the 7. Revenue Regulations

return or if filed after the last day, 8. Administrative Issuances
within three years from date of actual 9. BIR Rulings
filling. If no return is filed or the return 10. Local Tax Ordinance
filed is false or fraudulent, the period to 11. Tax Treaties and Conventions
assess is within ten years from discovery
of the omission, fraud or falsity. REQUISITES OF TAX REGULATIONS
The period to collect tax is within 1. Reasonable
three years from date of assessment. In 2. Within the authority conferred
the case, however, of omission to file or 3. Not contrary to law
if the return filed is false or fraudulent, 4. Must be published
the period to collect is within ten years
from discovery without need of an NOTE: Administrative regulations must
assessment. always be in harmony with the
provisions of the law. In case of
b.) Tariff and customs code discrepancy between the basic law and
It does not express any general the implementing rule or regulation, the
statute of limitation; it provided, former prevails.
however, that when articles have
entered and passed free of duty or final NON-RETROACTIVITY OF BIR RULINGS
adjustment of duties made, with General Rule: Rulings are not
subsequent delivery, such entry and retroactive if they are prejudicial to the
passage free of duty or settlement of taxpayer. (Sec. 246, NIRC)
duties will, after the expiration of one Exceptions:
(1) year, from the date of the final 1. Where the taxpayer deliberately
payment of duties, in the absence of misstates or omits material facts
fraud or protest, be final and conclusive from his return or any document
upon all parties, unless the liquidation required of him by the BIR.
of import entry was merely tentative. 2. Where the facts subsequently
(Sec 1603,TCC) gathered by the BIR is materially
different from the facts on which
c.) Local Government Code the ruling is based.
Local Taxes, fees, or charges shall 3. Where the taxpayer acted in bad
be assessed within five (5) years from faith.
the date they became due. In case of
fraud or intent to evade the payment of PRINCIPLE OF LEGISLATIVE APPROVAL OF AN
taxes, fees or charges the same may be ADMINISTRATIVE INTERPRETATION THROUGH
assessed within ten (10) years from REENACTMENT
discovery of the fraud or intent to Where a statute is susceptible of the
evade payment. They shall also be meaning placed upon it by a ruling of
collected either by administrative or the government agency charged with its
judicial action within five (5) years enforcement and the legislature
from date of assessment (Sec. 194. LGC) thereafter reenacts the provision
without substantial change, such action
is to some extent confirmatory that the
TAX ENFORCEMENT AND ruling carries out the legislative
ADMINISTRATION purpose.
SOURCES OF TAX LAWS (Key: SPEC2TRA RULE OF NO ESTOPPEL AGAINST THE

BLT) GOVERNMENT
1. Statutes General Rule: The Government is not
2. Presidential Decrees estopped by the mistakes or errors of its
3. Executive Orders agents; erroneous application and
4. Constitution enforcement of law by public officers do
5. Court Decisions not bar the subsequent correct
6. Tax Codes application of statutes. (E. Rodriguez,

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1
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to

1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
Exceptions:
fair play, as where injustice will result
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate a. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs customs law interests,
enforcement b. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers local and c. In the establishment of tax liens,
real property taxes and
d. In estimating the revenues that may
ORGANIZATION AND FUNCTION OF THE be collected by government in the
BUREAU OF INTERNAL REVENUE (BIR) coming year. (Mamalateo,
BIR shall be under the supervision Victorino. Reviewer on Taxation,
and control of the Dept. of Finance (Sec. 2004)
2, NIRC)
POWERS AND DUTIES OF THE BIR KINDS

Assessment and collection of all 1. SELF- ASSESSMENT- one in which the
national internal revenue taxes, fees, tax is assessed by the taxpayer
and charges himself
1. Enforcement of all forfeitures, 2. DEFICIENCY ASSESSMENT- made by the
penalties, and fines connected tax assessor himself whereby the
therewith correct amount of the tax is
2. Execution of judgments in all cases determined after an examination or
decided in its favor by the Court of investigation is conducted. The
Tax Appeals (CTA) and the ordinary liability is determined and assessed
courts for the following reason:
3. Give effect to and administer the a. amount ascertained exceeds that
supervisory and police powers which is shown as the tax by the
conferred to it by the Code or other taxpayer in his return
laws b. no amount of tax is shown in the
return
ASSESSMENT a finding by the taxing c. taxpayer did not file any return
authority that the taxpayer has not paid at all
the correct taxes. It is also a written 3. ILLEGAL AND VOID ASSESSMENT-
notice to a taxpayer to the effect that assessment wherein tax assessor has
the amount stated therein is due as a no power to assess at all
tax and containing a demand for the 4. ERRONEOUS ASSESSMENT- assessor has
payment thereof. power to assess but errs in the
General rule: Taxes are self-assessing exercise thereof
and thus, do not require the issuance of

Cabrera, Jhundee
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1
BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon

PROCEEDINGS written order of the President of the
There is a presumption of Philippines;
correctness and good faith on the part of 2. inspection is authorized under
the CIR; thus, the burden lies on the Finance Regulations No. 33 of the
taxpayer. Otherwise, the finding of the Secretary of Finance;
CIR will be conclusive and he will assess 3. production of the tax return is
the taxpayer. The same is true even if material evidence in a criminal case
the CIR is wrong, if the taxpayer does wherein the government is
not controvert. (Cagayan Robina Sugar interested in the result; or
Milling Co. vs. Court of Appeals, GR. 4. production or inspection thereof is
No. 122451, October 12, 2000) authorized by the taxpayer himself.
Reasons: a. lifeblood theory
b. presumption of regularity in Networth Method- inventory method of
performance of public income tax verification.
functions
NOTE: Assessments by the BIR must have Applies the accounting principle:
on its face the law and facts upon which assets liabilities = networth
the presumption is made. Condition for its use:
1. taxpayers books do not clearly
PRINCIPLES GOVERNING TAX ASSESSMENTS reflect his income or the taxpayer
1. Assessments are prima facie has no books, or if he has books, he
presumed correct and made in good refuses to produce them;
faith. 2. there is evidence of possible source
2. It should be based on actual facts. or sources of income to account for
3. It is discretionary on the part of the increases in networth;
Commissioner. 3. there is a fixed starting point or
opening networth; and
4. there must be proper adjustments to
conform with the income tax laws.
4. The authority of the Commissioner

to assess taxes may be delegated, POWERS AND DUTIES OF THE COMMISSIONER
except the power to make final I. SECTION 4 (power to interpret tax law
assessments. and decide tax cases)
5. It must be directed to the right
party. 1. Interpret provisions of this Code and
other tax laws subject to review of the
Authority of a Revenue Officer - Secretary of Finance
pursuant to a Letter of Authority issued (Quasi-legislative)
by the Regional Director 2. Decide: (Quasi-judicial)
a. To examine taxpayers within a) disputed assessment
the jurisdiction of the district in b) refunds of internal
order to collect the correct revenue taxes, fees and charges
amount of tax; c) penalties imposed in
b. To recommend the assessment of relation thereto
any deficiency tax due in the d) other matters arising
same manner that the said acts from this Code or other laws or
could have been performed by the portions thereof administered by
Revenue Regional Director. the BIR subject to the exclusive
General Rule: income tax returns are appellate jurisdiction of the CTA
confidential. (Sec. 4)
Exception: inquiry into income tax
returns may be authorized- II. SECTION 5 (power to obtain
information, summon, examine and take
testimony of persons)

Cabrera, Jhundee
Guillermo
1
requirements for tax administration

3. For the Commissioner to ascertain: and enforcement)
(a) correctness of any return or in
making a return where none has 4. Examination of returns and
been made determination of tax due
(b) liability of any person for any A. After a return has been filed the
internal revenue tax or in Commissioner or his
correcting such liability representative may authorize
(c) tax compliance i.
the Examination of any taxpayer
The Commissioner is authorized: and
1. to Examine any relevant Book, paper, ii.
record or other data the Assessment of the correct
2. to Obtain any information (costs, amount of tax;
volume of production, receipts, sales, B. F
gross income, etc), on a regular basis ailure to file a return shall not
from: prevent the commissioner from
i. any person other than the person authorizing the examination of
under investigation or any taxpayer;
ii. any office or officer of the * Any tax or deficiency tax so
national/local government, govt assessed shall be paid upon
agencies and instrumentalities notice and demand from the
(Bangko Sentral, govt owned and Commissioner or his
controlled corporations) (e.g. LTO, representative
Register of Deeds) * Any return, statement or
3. to Summon declaration filed in any
i. the person liable for tax or authorized office shall not be
required to file a return or withdrawn; but within three
ii. any officer or employee of such years from date of filing, the
person or same may be modified,
iii. any person having in his changed or amended;
possession/custody/care provided that no notice for
-- the books of accounts, audit or investigation of such
-- accounting records of entries return, has in the meantime,
relating to the business of the been actually served upon the
person liable for tax or any other taxpayer.
person
-- to produce such books, 5.Failure to submit required returns and
papers, records, and other data other documents
and to give testimony If a person
4. to take the Testimony of the person i. fails to file a required return or
concerned, under oath as may be report at the time prescribed or
relevant to the inquiry ii. willfully or otherwise files a
5. to cause revenue officers and false or fraudulent return,
employees to make a Canvass of any The Commissioner shall Make or
revenue district or region Amend the return from
i. his own knowledge or
Nothing in Section 5 shall be ii. from such
construed as granting the Commissioner information as he can obtain
the authority to inquire into bank through testimony or otherwise
deposits other than as provided for which shall be prima facie
under sec. 6 (F) of the Code. correct and sufficient for all
legal purposes
III. SECTION 6 (power to make
assessments, prescribe additional 6.Inventory-taking, Surveillance,
Presumptive Gross Sales

Cabrera, Jhundee
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1
A. Commissioner may, at any time

during the taxable year 8. Prescribe Real Property Values
(a) order the inventory taking of The Commissioner is authorized to:
goods of any taxpayer or a. Divide the Phils. into different
(b) may place the business zones or areas and
operations of any person b. Determine the fair market value
(natural/juridical) under of real properties located in each
observation or Surveillance, zone or area
if there is reason to
believe that such is not For tax purposes, the value of
declaring his correct income, the property shall be whichever is
sales or receipts for tax higher of:
purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business): authorized to inquire into the Bank
i. When a person has failed to deposits of:
issue receipts as required by (a) a decedent to determine his gross
sec.113 (Invoice requirements estate
for VAT-registered persons) (b) a taxpayer who has filed an
and Sec. 237 (Issuance of application to compromise
Receipts or Commercial payment of tax liability by reason
Invoices) or of financial incapacity
ii. When the books of accounts
or records do not correctly The taxpayers application for
reflect the declarations made compromise shall not be considered
or required to be made in a unless he waives in writing his
return, privilege under RA 1405 and other
Such minimum amount shall general or special laws. Such waiver
be considered correct. shall authorize the Commissioner to
7. Terminate taxable period inquire into his bank deposits.
Commissioner shall declare the tax 10. Authority to Register tax agents
period of a taxpayer Terminated and (a) The Commissioner shall accredit
send notice to the taxpayer of such and Register, individuals and
decision with a request for immediate general professional partnerships
payment of the tax when it has come to and their rep. who prepare and
the knowledge of the Commissioner: file tax returns and other papers
a) that a taxpayer is retiring from or who appear before the BIR
business subject to tax or (b) The Commissioner shall create
b) is intending to leave the Phils. national and regional
or accreditation boards.
c) to remove his property
therefrom or Those who are denied
d) to hide or conceal his property accreditation may appeal the same
or to the Sec. Of Finance who shall
e) is performing any act tending to rule on the appeal within 60 days
obstruct the proceedings for from receipt of such appeal. Failure
the collection of tax to do so within the prescribed

Cabrera, Jhundee
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1
period shall be deemed as approval iii. Heads of the Legal, Assessment

for accreditation. and Collection Div.
iv. Revenue District Officer having
11. Authority to Prescribe Additional jurisdiction over the taxpayer
Requirements
The Commissioner may prescribe d) power to Assign or reassign
the manner of compliance with any internal revenue officers to
documentary or procedural establishments where
Requirement for the submission or articles subject to excise tax
preparation of financial statements are kept.
accompanying tax returns.
V. SECTIONS 8, 14, 15, 16, 17 (Other
IV. SECTION 7 (Authority to Delegate Powers)
Power ) 13. Duty to ensure the provision and
12. The Commissioner may delegate the distribution of forms, receipts,
powers vested in him to certificates, and appliances, and
- subordinate officials with rank the acknowledgment of payment of
equivalent to Division Chief or taxes (Sec. 8)
higher, subject to
limitations/restrictions imposed 14. Authority to administer oaths and to
under the rules and regulations take testimony (Sec. 14)
EXCEPT, (the following powers
shall NOT be delegated) 15. Authority to make arrests and
a) power to Recommend the seizures (Sec. 15)
promulgation of rules and
regulations by the Sec. of 16. Authority to employ, assign or
Finance reassign internal revenue officers
b) power to Issue rulings of first involved in excise tax functions to
impression or to Reverse, revoke establishments where articles
modify any existing rule of the subject to excise tax are produced
BIR or kept (Sec. 16)
c) power to Compromise or Abate
any tax liability 17. Authority to assign or reassign
internal revenue officers and
employees of the BIR to other or
special duties connected with the
enforcement or administration of
the revenue laws (Sec. 17)
provided however that the ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
regional evaluation board may TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
compromise: THE PARTICIPATION OF THE SOLICITOR
1. assessments issued by GENERAL?
regional offices involving NO. The institution or
deficiency taxes of P500,000 commencement before a proper court of
or less and civil and criminal actions and
2. minor criminal violations as proceedings arising under the Tax
may be determined by the Reform Act which shall be conducted by
rules and regulations legal officers of the BIR is not in dispute.
3. discovered by regional and An appeal from such court, however, is
district officials not a matter of right. It is still the
Solicitor General who has the primary
Regional Evaluation Board is responsibility to appear for the
composed of: government in appellate proceedings.
i. Regional Director as Chairman (Commissioner vs. La Suerte Cigar and
ii. Asst. Regional Director

Cabrera, Jhundee
Guillermo
1
Cigarette Factory, GR No. 144942, July

4, 2002)
SOURCES OF REVENUE
The following taxes, fees and
charges are deemed to be national
internal revenue taxes. (Sec. 21, NIRC)
1. Income tax
2. Estate and donor's taxes
3. Value-added tax
4. Other percentage taxes
5. Excise taxes
6. Documentary stamp taxes
7. Such other taxes as are or hereafter
may be imposed and collected by
the Bureau of Internal Revenue.

Cabrera, Jhundee
Guillermo
23
the taxpayer is economically

benefited.
II. NATIONAL TAXATION
CRITERIA IN IMPOSING INCOME TAX
1. Citizenship Principle A citizen of
A. INCOME TAXATION the Philippines is subject to Philippine
income tax (a.) on his worldwide
DEFINITIONS income, if he resides in the Philippines,
INCOME TAX tax on all yearly profits or (b.) only on his income from sources
arising from property, possessions, within the Philippines, if he qualifies as
trade or business, or as a tax on a nonresident citizen.
persons income, emoluments, 2. Residence Principle resident alien
profits and the like (61 CJS 1559) is liable to pay income tax on his income
tax on income, from sources within the Philippines but
whether gross or net. (27 Am. Jur. exempt from tax on his income from
308) sources outside the Philippines.
3. Source Principle An alien is subject
INCOME all wealth, which flows into the to Philippine income tax because he
taxpayer other than as a mere derives income from sources within the
return of capital. Philippines. Thus, a nonresident alien is
liable to pay Philippine income tax on
CAPITAL resource of person, which his income from sources within the
can be used in producing goods Philippines such as dividend, interest,
and services. rent, or royalty, despite the fact that he
Income Capital has not set foot in the Philippines.
CLASSIFICATION OF TAXPAYERS
All wealth, which Fund or property
flows into the which can be used Individuals
taxpayer other than in producing goods a. citizens
as a mere return of or services
(1) resident citizens (RC)
capital.
(2) non-resident citizens (NRC)
Flow of Wealth Fund or property b. aliens
(1) resident aliens (RA)
Source of wealth Wealth (2) non-resident aliens (NRA)
(a) engaged in trade or
REQUISITES FOR INCOME TO BE TAXABLE business within the
1. There must be a gain or profit. Phils. (NRAETB)
2. The gain must be realized or (b) not engaged in trade or
received. business within the
3. The gain must not be excluded by Philippines (NRANETB)
law or treaty from taxation.
Corporations
TESTS ON TAXABILITY OF INCOME a. Domestic (DC)
1. Flow of Wealth Test The b. Foreign
determining factor for the (1) resident foreign corporation
imposition of income tax is (RFC)
whether any gain was derived (2) non-resident foreign
from the transaction. corporation (NRFC)
1. Realization Test - unless the Estates
income is deemed "realized," Trusts
there is no taxable income. Partnerships
2. Economic-Benefit Principle
Test A. INDIVIDUALS
-flow of wealth realized is
taxable only to the extent that WHO ARE TAXABLE?

Cabrera, Jhundee
Guillermo
24
1. Resident Citizen contract workers must be physically

2. Non-resident Citizen present abroad most of the time
A non-resident citizen means, a during the calendar year to qualify as
Filipino citizen: nonresident citizens.
a. who establishes to the 3. Resident alien - means an individual
satisfaction of the Commissioner whose residence is within the
the fact of his physical presence Philippines and who is not a citizen
abroad with a definite intention thereof. [Sec.22 (F, NIRC)]
to reside therein; 4. Non-resident alien engaged in
b. who leaves the Philippines trade or business within the
during the taxable year to reside Philippines. (NRAETB)
abroad, either as an immigrant A non-resident alien means an
or for employment on a individual whose residence is not
permanent basis; within the Philippines and who is not
c. who works and derives income a citizen thereof. [Sec.22 (G)]
from abroad and whose The term trade or business
employment thereat requires includes the performance of the
him to be physically present functions of a public office. [Sec. 22
abroad most of the time during (S)]
the taxable year; The term trade, business or
d. who is previously considered as a profession shall not include
non-resident and who arrives in performance of services by the
the Philippines at anytime during taxpayer as an employee. [Sec. 22
the taxable year to reside (CC)]
thereat permanently shall be A non-resident alien individual
considered non-resident for the who shall come to the Philippines
taxable year in which he arrives and stay therein for an aggregate
in the Philippines with respect to period of more than 180 days during
his income derived from sources any calendar year shall be deemed a
abroad until the date of his non-resident alien doing business in
arrival [Sec.22 (E), NIRC] the Philippines Section 22(G)
notwithstanding [Sec. 25(A)(1)]
NOTE: An overseas contract worker 5. Non-resident alien not engaged in
(OCW) is taxable only on income trade or business within the
derived from sources within the Philippines. (NRANETB)
Philippines. [Sec. 23 (B)(C)]
A seaman is considered as an ONLY RESIDENT CITIZENS are taxable
OCW provided the following for income derived from sources within
requirements are met: and without the Philippines. All other
1. receives compensation for services individual income taxpayers are taxable
rendered abroad as a member of only for income derived from sources
the complement of a vessel; and within the Philippines.
2. such vessel is engaged exclusively
in international trade. Tax Rates: Please refer to Annex A.
Based on the above provisions, B. CORPORATIONS

there are three (3) types of
nonresident citizens, namely: (1) WHO ARE TAXABLE?
immigrants; (2) employees of a foreign 1. Domestic Corporation created or
entity on a permanent basis; and organized in the Phils. or under its
(3) overseas contract workers. law [Sec. 22(C), NIRC]
Immigrants and employees of a foreign 2. Resident Foreign Corporation
entity on a permanent basis are engaged in trade or business within
treated as nonresident citizens from the Philippines [Sec. 22(H), NIRC]
the time they depart from the 3. Non-resident Foreign Corporation
Philippines. However, overseas not engaged in trade or business

Cabrera, Jhundee
Guillermo
25
within the Philippines [Sec. 22(I), other corporate income taxpayers are
NIRC] taxable only for income derived from
A Corporation Includes: sources within the Philippines.
1. Partnerships, no matter how
created or organized; Tax Rates: Please refer to Annex B.
2. Joint-stock companies;
3. Joint accounts (cuentas en C. ESTATES AND TRUSTS
participacion)
4. Associations; or ESTATE refers to the mass of properties
5. Insurance companies [Sec. 22(B), left by a deceased person.
NIRC].
RULES ON TAXABILITY OF ESTATE
Excludes: When a person who owns property
1. General professional dies, the following taxes are payable
partnerships; under the provisions of the income tax
2. Joint venture or consortium law:
formed for the purpose of 1. Income tax for individual under Sec.
undertaking construction projects or 24 and 25 (to cover the period
engaging in petroleum, coal, beginning January to the time of
geothermal and other energy death);
operations pursuant to an operating 2. Estate income tax under Sec. 60 if
or consortium agreement under a the estate is under administration or
service contract with the judicial settlement.
Government.
CORPORATIONS EXEMPT FROM INCOME

TAXATION (FOR INCOME REALIZED AS SUCH) ESTATES UNDER JUDICIAL SETTLEMENT
UNDER NIRC A. During the Pendency of the
1. Those enumerated under Sec. Settlement
30. General Rule: An estate under
Exempt corporations are subject judicial settlement is subject to
to income tax on their income from income tax in the same manner as
any of their properties, real or individuals. Its status is the same as
personal, or from any other activities the status of the decedent prior to
conducted for profit, regardless of his death.
the disposition made of such income. Exceptions:
2. With respect to GOCCs, the 1. The entitlement to personal
general rule is that these exemption is limited only to
corporations are taxable as any P20,000.
other corporation except: 2. No additional exemption is
a. GSIS allowed.
b. SSS 3. The distribution to the heirs
c. PHIC during the taxable year of estate
d. PCSO income is deductible from the
e. PAGCOR [Sec. 27 (C)] taxable income of the estate.
3. Regional or Area Headquarters Such distributed income shall
under Sec. 22 (DD) not subject to form part of the respective
income tax heirs taxable income.
Where no such
Regional operating headquarters distribution to the heirs is made
under Sec. 22(EE) shall pay a tax of during the taxable year that the
10% of their taxable income. income is earned, and such
income is subjected to income
ONLY DOMESTIC CORPORATIONS are tax payment by the estate, the
taxable for income derived from sources subsequent distribution thereof
within and without the Philippines. All

Cabrera, Jhundee
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26
is no longer taxable on the part TRUST A right to the property, whether

of the recipient. real or personal, held by one person for
the benefit of another.
B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL WHEN TRUSTS ARE TAXABLE ENTITIES
DO NOT DIVIDE THE PROPERTY) 1. A trust, the income of which is to be
1. If the heirs contribute to the accumulated
estate money, property, or 2. A trust in which the fiduciary may, at
industry with intention to divide his discretion, either distribute or
the profits between/among accumulate the income.
themselves, an unregistered
partnership is created and the RULES ON TAXABILITY OF THE INCOME OF A
estate becomes liable for the TRUST
payment of corporate income 1. The income of the trust for the
tax. (Evangelista vs. Collector, taxable year which is to be
GR No. L-9996, October 15, distributed to the beneficiaries
1957; Oa vs. Commissioner, GR filing and payment of tax lie on the
No. L-19342, May 25, 1972) beneficiaries.
2. If the heirs, without contributing 2. The income of the trust which is to
money, property or industry to be accumulated or held for future
improve the estate, simply distribution whether consisting of
divide the fruits thereof ordinary income or gain from the
between/among themselves, a sale of assets included in the
co-ownership is created, and "corpus" of the estate filing of
individual income tax is imposed return and payment of tax become
on the income received by each the burden of the trustee or
of the heirs, payable in their fiduciary.
separate and individual Exceptions:
capacity. (Pascual vs. a. In the case of a revocable trust,
Commissioner, GR No. L-78133, the income of the trust will be
October 18, 1988; Obillos vs. returned by the grantor.
Commissioner, GR No. L-68118, b. In a trust where the income is
October 29, 1985) held for the benefit of the
grantor, the income of the trust
ESTATES NOT UNDER JUDICIAL SETTLEMENT becomes income to the grantor.
Pending the extrajudicial c. In the case of trust
settlement, either of the following administered in a foreign
situations may arise: country, the income of the trust;
1. If the heirs contribute money, undiminished by any amount
property, or industry to the estate distributed to the beneficiaries
with the intention of dividing the shall be taxed to the trustee.
profits between/among themselves,
an unregistered partnership is IRREVOCABLE TRUSTS (irrevocable both as
created and the estate becomes to corpus and as to income)
liable for the payment of corporate
income tax; or Trust itself, through the trustee or
2. If the heirs, without contributing fiduciary, is liable for the payment of
money, property or industry to the income tax. Taxed exactly in the same
estate, simply divide the fruits way as estates under judicial settlement
thereof between/among themselves, and its status as an individual is that of
a co-ownership is created and the trustor. It is entitled to the
income tax is imposed on the income minimum personal exemption (P20,000)
received by each of the heirs, and distribution of trust income during
payable in their separate and the taxable year to the beneficiaries is
individual capacity. deductible from the trusts taxable
income.

Cabrera, Jhundee
Guillermo
27
It includes unregistered joint

REVOCABLE TRUSTS the trustor, not the ventures and business partnerships.
trust itself, is subject to the payment of However, joint ventures are not
income tax on the trust income. taxables as corporations when it is;
(a) undertaking construction projects
EXEMPTION OF EMPLOYEES TRUST (b) engaged in petroleum, coal and
Provided: other energy operation under a
1. the employees trust must be part of service contract with the
a pension, stock bonus or profit government
sharing plan of the employer for the General co-partnerships (GCP)
benefit of some or all of his are partnerships, which are by law
employees; assimilated to be within the context
2. contributions are made to the trust of, and so legally contemplated as,
by such employer, or such corporations. The partnership itself
employees, or both; is subject to corporate taxation. The
3. such contributions are made for the individual partners are considered
purpose of distributing to such stockholders and, therefore, profits
employees both the earnings and distributed to them by the
principal of the fund accumulated by partnership are taxable as dividends.
the trust, and The taxable income for a taxable
4. that the trust instrument makes it year, after deducting the corporate
impossible for any part of the trust income tax imposed therein, shall be
corpus or income to be used for, or deemed to have been actually or
diverted to, purposes other than the constructively received by the
exclusive benefit of such employees. partners in the same taxable year
(Sec. 60B, NIRC) and shall be taxed to them in their
individual capacity whether actually
Tax exemption is likewise to be distributed or not. [Sec. 73(D),
enjoyed by the income of the pension NIRC]
trust; otherwise, taxation of those
earnings would result in a diminution of LIABILITY OF A PARTNERSHIP
accumulated income and reduce 1. General Professional Partnership .-
whatever the trust beneficiaries would They are not subject to income tax,
receive out of the trust fund. but are required to file returns of
(Commissioner vs. Court of Appeals, their income for the purpose of
Court of Tax Appeals and GCL furnishing information as to the
Retirement Plans, GR No. 95022, March share of each partner in the net gain
23, 1992) or profit, which each partner shall
include in his individual return. The
D. PARTNERSHIPS partnership shall act as the
withholding agent.
KINDS OF PARTNERSHIP FOR TAX PURPOSES The net income (income for
UNDER THE NIRC distribution) shall be computed in
1. General Professional Partnerships the same manner as a corporation.
(GPP) - formed by persons for: Date of filing of the return is April
a. the sole purpose of exercising a 15 of each year.
common profession and 2. Taxable or Business Partnership -
b. no part of the income of which is The income tax of this type of
derived from engaging in any Partnership is computed and taxed
trade or business. [Sec. 22(B), like that of a corporation. This kind
NIRC]. of partnership, like a regular
2. Taxable or Business Partnership corporation, is also required to file a
All other partnerships except quarterly corporate income tax
general professional partnerships no return. Filing and payment of
matter, how created or organized. quarterly return is within 60 days
after the end of each quarter while

Cabrera, Jhundee
Guillermo
28
the annual return is on or before b. Share of a partner in the loss

April 15 of the following year. of a taxable or business
partnership maybe taken by the
LIABILITY OF A PARTNER individual partner in his return
Rules: of income.
1. Share of a partner in general c. Payments made to a partner of
professional Partnership a business or taxable partnership
a. Each partner shall report as for services rendered shall be
gross income (business income) considered as compensation
his distributed share actually or income subject to sec. 24A.
constructively received in the
net income of the partnership. KINDS OF INCOME TAXES
(Sec. 26, NIRC) [The same share
shall be subject to creditable UNDER THE NIRC
withholding tax of 10%.] They
are liable in their separate and 1. Net Income Tax
individual capacity. 2. Optional Corporate Income tax
3. Minimum Corporate Income Tax
b. Share of a partner in the loss 4. Improperly Accumulated Earnings
of a general professional Tax
partnership may be taken by the 5. Preferential Rates or Special Rates
individual partner in his return of Income Tax
of income. 6. Gross Income Tax
7. Final Income Tax
8. Fringe Benefits Tax
c. Each partner in a general 9. Capital Gains Tax
professional partnership shall, (1) NET INCOME TAX
report as gross income his
distributed share in the net DEFINITION: Means gross income less
income of the GPP, based on his deductions and/or personal and
agreed ratio, whether he, avails additional exemptions (Sec. 31, NIRC)
of itemized or optional standard
deduction. NET INCOME TAX FORMULA
Entire Income
d. Payments made to a partner of Less: Exclusions and Income subject
a GPP for services rendered shall to Final Tax (e.g. Passive
be considered as ordinary Income)
business income subject to Sec. Gross Income
24A (Effective January 1, 1982) Less: Deductions (and/or additional
exemptions, if applicable)
2. Share of a partner in Taxable or Net Taxable Income
Business partnership Multiply by: Tax Rate (%)
a. Share of a partner in the net Net Income Tax Due
income of a taxable or business Less: Tax Credit, if any
partnership (dividend) shall be
subject to a final tax as follows. Tax Still due, if any
Resident Citizen, Non-
resident Citizen and GROSS INCOME
Resident Alien (2000 and
onward) 10% (Sec. 24B2) DEFINITION: Means all income derived
Non-resident Alien engaged from whatever source, including but not
in trade or business 20% limited to the following (Sec. 32)
(Sec. 25 A2) a. Compensation;
Non-resident alien not b. Gross income from profession, trade
engaged in trade or business or business;
25% (Sec. 25B) c. Gains form dealings in property;

Cabrera, Jhundee
Guillermo
29
d. Interests; (2) the transaction involves

e. Rents; stock dividends, and
f. Royalties; (3) the time and manner of
g. Dividends; the transaction makes it
h. Annuities; essentially equivalent to a
i. Prizes and winnings; distribution of taxable
j. Pensions; dividends. (see
k. Partners share in the net income of Commissioner vs. Court of
the general professional partnership Appeals, Court of Tax
Appeals & ANSCOR, GR No.
See Annex D for detailed discussion 108576, Jan. 30, 1999)
of items. b. the recipient is other than the
shareholder (Bachrach vs.
KINDS OF DIVIDENDS Seifert, GR No. L-2659, October
1. Cash and Property Dividends 12, 1950)
Individual Taxpayer c. change in the stockholders
a. From Domestic Corporations equity results by virtue of the
RC, NRC, RA 10% (Sec. stock dividend issuance.
24A)
NRAETB 20% (Sec. 25A2) 3. Liquidating Dividends When a
NRANETB 25% on gross corporation distributes all of its
income (Sec. 25B) assets in complete liquidation or
b. From Foreign Corporations dissolution, the gain realized or
RC, NRC, RA, NRAETB 5- loss sustained by the
32% (Sec. 24, 25A1) stockholder, whether individual
NRANETB 25% on gross or corporation, is taxable
income (Sec. 25B) income or deductible loss, as the
case may be. (Sec. 73A)
Corporate Taxpayer A liquidating dividend is not
a. Foreign to Domestic Corp. 32% a dividend income. The
(Sec. 32A) transaction is considered a sale
b. Domestic to Domestic Corp. or exchange of property
Exempt; intercorporate between the corporation and the
dividends (Sec. 27D) stockholder.
c. Domestic to Foreign Corp. -
Resident Foreign Corp. EXCLUSIONS FROM GROSS INCOME
Exempt (Sec. 28 [A] 7d) NOTE: Under the 1997 Tax Code, the
Nonresident Foreign Corp. term exclusions refers to items that
15% subject to the condition are not included in the determination of
stated in Sec. 28 [B] 5. gross income either because:
Otherwise, it shall be taxed (a) they represent return of capital
at 32%. (See Commissioner or are not income, gain or profit; or
vs. Procter and Gamble, GR (b) they are subject to another kind
No. 66838, December 2, of internal revenue tax; or
1991) (c) they are income, gain or profit
that are expressly exempt form income
2. Stock Dividends tax under the constitution, tax treaty,
General rule: Not subject to tax Tax Code, or a general or special law.
because it does not constitute
income; it represents transfer of 1. Proceeds of life insurance paid by
surplus to capital account. (Sec. reason of the death of the insured to
73B, 1997 NIRC) his estate or to any beneficiary
Exceptions: (individual, partnership, or
a. Sec. 73B, 1997 NIRC corporation, but not a transferee for
(1) there is redemption or a valuable consideration), directly or
cancellation in trust.

Cabrera, Jhundee
Guillermo
30
NOTE: if the proceeds are compensation for a loss, which

retained by the insurer, the interest impaired petitioners capital.
thereon is taxable;
5. Income exempt under Treaty;
2. Return of insurance premium;
NOTE: if such amounts (when added 6. Retirement benefits, pension,
to amounts already received before gratuities, etc.
the taxable year under such a. those derived under R.A. 7641
contracts) exceed the aggregate (pertains to private firms
premiums or considerations paid without retirement trust fund);
(whether or not paid during the b. those received by officials and
taxable year), then the excess shall employees of private employers
be included in the gross income. in accordance with a reasonable
However, in the case of a transfer for private benefit plan;
a valuable consideration, by Requisites:
assignment or otherwise, of a life (1) in the service of the same
insurance, endowment or annuity employer for at least 10
contract, or any interest therein, years;
only the actual value of such (2) at least 50 years old;
consideration and the amount of the (3) must be availed of only once
premiums and other sums (4) plan approved by the BIR
subsequently paid by the transferee (R.R.2-98);
are exempt from taxation. No loss is c. separation pay because of
realized on surrender of a life death, sickness, or other
insurance policy for its surrender physical disability or for any
value. cause beyond the control of the
official or employee (e.g.
3. Gift, bequest or devise retrenchment, redundancy or
Gifts, bequests, and devises cessation of business);
(which are subject to estate or gift for any cause beyond the
taxes) are excluded, but not the control of said official or
income from such property. If the employee connotes
amount received is on account of involuntariness on the part of
services rendered, whether the official or employee;
constituting a demandable debt or separation must not be asked or
not, or the use of the opportunity to initiated by the official or
use of capital, the receipt is income employee.
(Pirovano vs. Commissioner, 14 d. social security benefits,
SCRA 832) retirement gratuities, pensions
and other similar benefits
4. Compensation for personal injuries received by citizens and aliens
or sickness, whether by suit or who come to reside permanently
agreement here from foreign sources
NOTE: The phrase personal private or public;
injuries should be given a e. benefits due to residents under
restrictive meaning to refer only to the laws of the U.S.
physical injuries. The theory for this administered by the U.S.
is that recoupment on account of Veterans Administration
such losses is not income, since it is f. SSS benefits; and
not derived from capital, from labor g. GSIS benefits.
or from both combined. And the
fact that the payment of 7. Miscellaneous items
compensation for such loss was a. Passive income derived in the
voluntary does not change its Philippines by:
exempt status. It was in fact (1) Foreign governments;

Cabrera, Jhundee
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31
(2) Financing institutions Exclusions Deductions

owned, controlled or [Sec. 32(B)] [Sec. 34]
enjoying refinancing from income net income
foreign governments
(3) International or regional Something earned or Something spent or
financial institutions received by the paid in earning of
established by foreign taxpayer which do gross income
governments not form part of gross
b. Income derived from any income
public utility or from the
exercise of any governmental
function; DEDUCTIONS
c. Prizes and awards made
primarily in recognition of DEFINITION: Items or amounts which the
religious, charitable, scientific, law allows to be deducted from gross
educational, artistic, literary, or income in order to arrive at the taxable
civic achievement income.
Requisites:
(1) recipient was selected BASIC PRINCIPLES GOVERNING DEDUCTIONS
without any action on his a. The taxpayer seeking a deduction
part; and must point to some specific
(2) recipient is not required to provisions of the statute authorizing
render substantial future the deduction; and
services. b. He must be able to prove that he is
d. Prizes and awards granted to entitled to the deduction authorized
athletes in sports competitions or allowed. (Atlas Consolidated
and sanctioned by their national Mining & Dev. Corp. vs.
sports association ; Commissioner, GR No. L-26911,
e. 13th month pay and other January 21, 1981)
benefits up to P30,000.00; c. Any amount paid or payable which is
f. GSIS,SSS, Medicare and union otherwise deductible from, or taken
dues of individuals; into account in computing gross
g. Gains derived from debt income or for which depreciation or
securities with a maturity of amortization may be allowed, shall
more than 5 years; be allowed as deduction only if it is
h. Gains from redemption of shares shown that the tax required to be
in Mutual Fund. deducted and withheld therefrom
has been paid to the BIR. [Sec.
EXCLUSIONS VS. DEDUCTIONS 34(K), NIRC]
Exclusions Deductions NOTE: Deductions for income tax

[Sec. 32(B)] [Sec. 34] purposes partake of the nature of tax
exemptions; hence, if tax exemptions
Refer to flow of Refer to the are to be strictly construed, then it
wealth which are not amounts which the follows that deductions must also be
treated as part of law allows to be strictly construed.
gross income subtracted from
because: gross income in
TAXPAYERS WHO CANNOT AVAIL OF
(1) exempted by the order to arrive at
fundamental law; (2) net income DEDUCTIONS FROM GROSS INCOME
exempted by statute; 1. Citizens and resident aliens whose
(3) do not come income is purely compensation
within the definition income (except for premium
of income payments on health and/or
hospitalization insurance);
Pertain to the Pertain to the
computation of gross computation of the

Cabrera, Jhundee
Guillermo
32
2. Non-resident aliens not engaged in The personal exemption shall be

trade or business in the Philippines; equal to that allowed by the income
and tax law of his country to a citizen of
3. Non-resident foreign corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.
1. Individuals
a. with gross compensation income Individuals not entitled to these
from employer-employee exemptions:
relationship only a. Non-resident Alien not engaged
(1) premium payments on health in trade or business
and/or hospitalization b. Alien individual employed by
insurance Regional or Area Headquarters
(2) personal additional of Multinational Companies
exemptions c. Alien individual employed by
b. gross income from business or Offshore Banking Units
practice of profession d. Alien individual employed by
(1) Optional Standard Deduction Petroleum Service Contractor
(OSD) and Subcontractor
(2) Itemized deductions
(3) premium payments on health c. Itemized deductions
and/or hospitalization a. ordinary and necessary
insurance expenses
(4) personal additional b. interests
exemptions c. taxes
2. Corporations d. losses
Itemized Deductions e. bad debts
f. depreciation of property;
g. depletion of oil and gas wells
KINDS OF DEDUCTIONS and mines;
a. Optional standard deductions (OSD) h. charitable and other
10% of the gross income. contributions;
The OSD may be availed of i. research and development;
only by individuals (except j. pension trust contributions of
nonresident alien) who are not employees; and
purely compensation income k. premium payments on health
earners. and/or hospitalization insurance.
b. Personal and additional exemptions (This is the only deduction which
Available only to individuals a compensation income earner
(business income and compensation may claim as a deduction.)
income earners).
d. Special deductions
NRAETB may be entitled to a. private proprietary educational
personal exemptions (only) subject institutions and hospitals that
to reciprocity, i.e., are non-profit (Sec. 34 A, 2)
a. the country of which he is a b. insurance companies (Sec. 37)
subject or citizen has an income c. estates and trusts (Sec. 61)
tax law; and
b. the income tax law of his PERSONAL EXEMPTIONS
country allows personal
exemption to citizens of the A. Amounts of Personal Exemptions
Philippines not residing therein, [Sec. 35, NIRC]
but deriving income therefrom 1. P 20,000 Single individual or
and not to exceed the amount married individual judicially
allowed in NIRC. decreed legally separated

Cabrera, Jhundee
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33
without qualified dependent 3. Husband explicitly waived his

children. right of the exemption in favor
2. P 25,000 Head of the family or of his wife in the withholding
married individual judicially exemption certificate.
decreed legally separated
with qualified dependent A Senior Citizen is:
children. 1. any
3. P 32,000 For each legally resident citizen of the
married individual. Philippines
2. at least
Head of the Family sixty 60 years old, including
1. Unmarried or legally separated those who have retired from
person with one or both parents, both government offices and
or one or more brothers or private enterprises, and
sisters, or one or more 3. has an
legitimate, recognized natural or income of not more than Sixty
legally adopted children living thousand pesos (60,000) per
with and dependent upon the annum subject to the review of
taxpayer for their chief support; the National Economic
and Development Authority (NEDA)
Chief support means more every three years.
than one-half of the
requirements for support. Parents and dependents qualify
2. Where such brother / sister or the taxpayer, to the personal
children are not more than 21 exemption of P25,000 as head of the
years of age, unmarried and not family but not to the additional
gainfully employed, or where exemption of P8,000.
such dependents regardless of
age, are incapable of self NOTE: NRAETB may deduct personal
support because of mental or exemption (not additional
physical defect. exemption), but only to the extent
allowed by his country to Filipinos
Parents, brothers, sisters and senior not residing therein, and shall not
citizen with the tax payer, whether exceed the aforementioned
relative or not, may qualify the amounts. NRANETB cannot claim
taxpayer, to the personal exemption of any personal or additional
P25,000 as head of the family but not to exemptions.
the additional exemption of P8,000.
C. Change of Status [Sec. 35, NIRC]
B. Additional Exemption for 1. If the taxpayer should marry or
Dependents [Sec. 35, NIRC] should have additional
P 8,000 For each of the qualified dependents during the taxable
dependent children not year, he may claim the
exceeding four (4) in corresponding exemptions in full
number. for such year.
The additional exemption refers 2. If the taxpayer should die during
only to qualified dependent children the taxable year, his estate may
such as legitimate, recognized natural, claim the corresponding
illegitimate and legally adopted. exemptions as if he died at the
The proper claimant of the close of such year.
additional exemption is the husband 3. If the spouse or any dependent
being the head of the family except should die or any dependent
under the following cases: should marry or become twenty-
1. Husband is unemployed one years old during the year, or
2. Husband is working abroad like should become gainfully
an OFW or a seaman employed, the taxpayer may

Cabrera, Jhundee
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34
claim the exemptions as if the expenses which constitute bribe,

spouse or dependent died or as kickback and other similar payment,
if such dependent married, being against law and public policy are
became twenty one years old or not deductible from gross income.
became gainfully employed at (Subsec. A, 1, c)
the close of such year.
4. For any other event and for CAPITAL EXPENDITURE An expenditure
which there are no specific rules that benefits not only the current period
applicable from the above- but also future periods. It is not
mentioned, the status of the deductible but depreciable, except, if
taxpayer at the end of the year the taxpayer is a non-profit proprietary
shall determine his exemptions. educational institution which may elect
(strictly construed against the either to deduct the capital expense or
taxpayer) depreciate it.
Examples:
became legally separated See Annex E Business Expenses
can only claim P 20,000
25 years old child became See Annex F Ceiling on
incapacitated cannot claim Entertainment, Amusement and
additional exemption Recreational Expenses
ITEMIZED DEDUCTIONS B. INTEREST
A. ORDINARY AND NECESSARY INTEREST shall refer to the payment for

EXPENSES the use or forbearance or detention of
money, regardless of the name it is
called or denominated. It includes the
NECESSARY EXPENSE appropriate and
amount paid for the borrower's use of,
helpful in the development of taxpayer's
money during the term of the loan, as
business and are intended to minimize
well as for his detention of money after
losses or to increase profits. These are
the due date for its repayment.
the day-to-day expenses.
ORDINARY EXPENSE normal or usual in
REQUISITES FOR DEDUCTIBILITY (REV. REG.
relation to the taxpayers business and
NO. 13-2000)
the surrounding circumstance.
1. There must be an indebtedness;
2. There should be an interest
REQUISITES OF BUSINESS EXPENSE TO BE
expense paid or incurred upon
DEDUCTIBLE
such indebtedness;
1. ordinary and necessary;
3. The indebtedness must be that of
2. paid or incurred w/in the taxable
the taxpayer;
year;
4. The indebtedness must be connected
3. paid or incurred in carrying on a
with the taxpayer's trade, business
trade or business;
or exercise of profession;
4. substantiated with official receipts
5. The interest expense must have been
or other adequate records.
paid or incurred during the taxable
5. if subject to withholding taxes proof
year;
of payment to the Bureau of Internal
6. The interest must have been
Revenue must be shown.
stipulated in writing;
6. must be reasonable (when the
7. The interest must be legally due;
expense is not lavish, extravagant or
8. The interest arrangement must not
excessive under the circumstances)
be between related taxpayers;
7. must not be contrary to law, public
9. The interest must not be incurred to
policy or morals.
finance petroleum operations; and
10. In case of interest incurred to
NOTE: While illegal income will form
acquire property used in trade,
part of income of the taxpayer,
business or exercise of profession,

Cabrera, Jhundee
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35
the same, was not treated as a 2. Deposit account in DEF Bank and
capital expenditure. derived interest income thereof
11. The interest is not expressly amounting to P200,000 on which the
disallowed by law to be deducted final tax of P40,000 has been
from gross income of the taxpayer. withheld.
Assume that Company Xs net
RULES ON DEDUCTIBILITY OF INTEREST income before the deduction of
EXPENSE interest expense is P500,000.
General Rule - In general, the amount of
interest expense paid or incurred within The deductible expense shall be
a taxable year of indebtedness in computed as follows:
connection with the taxpayer's trade
business or exercise of profession, shall Year 2000
be allowed as a deduction from the
taxpayer's gross income. Net Income before
interest expense P500,000
Limitation - The amount of interest Less: Interest Expense P120,000
expense paid incurred by a taxpayer in Less: 38% of interest
connection with his trade, business or income from deposit
exercise of a profession from an existing (38% x P200,000) 76,000
indebtedness shall be reduced by an Deductible Interest
amount equal the following percentages Expense 44,000
of interest income earned which had Taxable Income P456,000
been subjected to final withholding
depending on the year when the interest
income earned, viz: Deductible Interest Expense
38% - beginning January 1, 2000 and 1. Interest on taxes, such as those paid
thereafter for deficiency or delinquency, since
taxes are considered indebtedness
Aim of Limitation: To discourage so- (provided that the tax is a
called back-to-back loans where a deductible tax, except in the case of
taxpayer secures a loan from a bank, income tax). However, fines,
turns around and invests the loan penalties, and surcharges on account
proceeds in money market placements. of taxes are not deductible. The
By imposing a limit as to the amount of interest on unpaid business tax shall
interest expense that can be deducted not be subjected to the limitation
from gross income, the previous practice on deduction.
of tax arbitrage was absolutely nullified. 2. Interest paid by a corporation on
scrip dividends
Tax Arbitrage is a method of 3. Interest-on deposits paid by
borrowing without entering into a authorized banks of the Bangko
debtor/creditor relationship, often to Sentral ng Pilipinas to depositors,
resolve financing and exchange control if it is shown that the tax on such
problems. In tax cases, back-to-back interest was withheld.
loan is used to take advantage of the 4. Interest paid by a corporate taxpayer
lower of tax on interest income and a who is liable on a mortgage upon real
higher rate of tax on interest expense property of which the said
deduction. corporation is the legal or equitable
owner, even though it is not directly
Illustration: liable for the indebtedness.
On June 1, 2000 Company X has:
1. Obtained a loan from ABC Financing NON-DEDUCTIBLE INTEREST EXPENSE
Corporation in connection with the 1. An individual taxpayer reporting
operation of its business and its income on the cash basis incurs an
interest expense on the loan indebtedness on which an interest is
amounted to P 120,000.

Cabrera, Jhundee
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36
paid in advance through discount or 2. estate and donors tax;

otherwise: 3. special assessments;
allowed as a deduction in the 4. excess electric consumption tax;
year the indebtedness is paid 5. foreign income tax, war profits and
if the indebtedness is payable excess profits tax, if the taxpayer
periodic amortization on, the makes use of tax credit; and
amount of interest which 6. final taxes, being in the nature of
corresponds to the amount of income tax.
the principal amortized or paid
during the year shall be allowed NOTE: Taxes allowed as deductions,
as deduction in such taxable when refunded or credited, shall be
year. included as part of gross income in the
2. Interest paid on indebtedness year of receipt to the extent of the
between related taxpayer income tax benefit of said deduction.
3. If the indebtedness is incurred to (Tax Benefit Rule)
finance petroleum exploration
4. Interest on preferred stock, which For NRAETB and RFC, taxes paid or
in reality is dividend incurred are allowed as deductions only
5. Interest on unpaid salaries and if and to the extent that they are
bonuses connected from income within the
6. Interest calculated for cost keeping Philippines.
on account of capital or surplus
invested in business which does not EXCEPTIONS to requirement that only
represent charges arising under such persons on whom the tax is
interest-bearing obligation. imposed by law can claim deduction
7. Interest paid when there is no thereof:
stipulation for the payment thereof. 1. Taxes of shareholder upon his
interest as such and paid by the
OPTIONAL TREATMENT OF INTEREST EXPENSE corporation without reimbursement
At the option of the taxpayer, from him, can be claimed by the
interest incurred to acquire property corporation as deduction.
used in trade or business may be 2. A corporation paying the tax for the
allowed as a deduction or treated as holder its bonds or other obligation
capital expenditure. [Sec 34 (B)(3), containing a tax-free covenant
NIRC] clause cannot claim deduction for
such taxes paid by it pursuant to
C. TAXES such covenant.
Taxes mean TAXES PROPER, and TAX CREDIT

therefore no deductions are allowed for:
1. interest DEFINITION: right of an income taxpayer
2. surcharges to deduct from income tax payable the
3. penalties or fines incident to foreign income tax he has paid to his
delinquency (Sec. 80, Rev. Reg. 2) foreign country subject to limitation.
REQUISITES FOR DEDUCTIBILITY WHO CAN CLAIM TAX CREDIT

1. must be in connection with 1. resident citizens of the Philippines
taxpayers business; 2. resident aliens under the principle of
2. tax must be imposed by law on, and reciprocity
payable by taxpayer (direct tax); 3. domestic corporations which include
and partnerships except general
3. paid or incurred during the taxable professional partnership
year. 4. beneficiaries of estates and trusts
5. members of beneficiaries of local
TAXES NOT DEDUCTIBLE partnerships
1. income tax;

Cabrera, Jhundee
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37
WHO ARE NOT ENTITLED TO TAX CREDIT (Income Tax) bears to his entire net
1. non-resident citizens income for the same taxable year.
2. resident aliens, if without
reciprocity D. LOSSES
3. resident aliens whose income is
derived solely from sources within LOSSES refer to such losses which do
the Philippines not come under the category of bad
4. foreign corporations (resident and debts, inventory losses, depreciation,
non-resident) etc., and which arise in taxpayer's
profession, trade or business.
FORMULA FOR COMPUTING LIMITATION
1. Per country limitation REQUISITES FOR DEDUCTIBILITY
Taxable 1. Actually sustained during the taxable
income from year
foreign country X Phil. = Tax Credit
2. Connected with the trade, business
Taxable income income tax Limit
or profession
from all sources
3. Evidenced by a close and completed
transaction
2. Over-all limitation
4. Not compensated for by insurance or
Taxable
income from other form of indemnity
outside sources X Phil. = Tax Credit 5. Not claimed as a deduction for
Taxable income income tax Limit estate tax purposes
from all sources 6. Notice of loss must be filed with the
Bureau of Internal Revenue within
The allowable tax credit is the lower 45 days from the date of discovery
amount between the tax credit of the casualty or robbery, theft or
computed under No. 1 and No. 2. embezzlement.
WHEN CREDIT FOR TAXES MAY BE TAKEN NOTE: The taxpayers failure to record
The credit for taxes provided by in his books the alleged loss proves that
Section 30(C)(3) to (9) may ordinarily be the loss had not been suffered, hence,
taken either in the return for the year in not deductible. (City Lumber vs.
which the taxes accrued or on which the Domingo and Court of Tax Appeals, GR
taxes were paid, dependent upon No. L-18611, January 30, 1964)
whether the accounts of the taxpayer
CATEGORY AND TYPES OF LOSSES
are kept and his returns filed upon the
1. ORDINARY LOSSES
accrual basis or upon cash receipts and
a. Incurred in trade or business, or
disbursements basis.
practice of profession
Net operating loss carry-over
LIMITATIONS ON CREDIT FOR FOREIGN TAXES (NOLCO)
1) The amount of credit in respect to Refers to the excess of
the taxes paid or accrued to any allowable deductions over gross
country shall not exceed the same income of the business for any
proportion of the tax against which taxable year, which had not
such credit is taken, which the been previously offset as
taxpayers net income from sources deduction from gross income.
within such country taxable under Can be carried over as a
Title II (income Tax) bears to his deduction from gross income for
entire net income for the same the next 3 consecutive years
taxable year; and immediately following the year
2) The total amount of the credit shall of such loss.
not exceed the same proportion of For mines, other that oil and
the tax against which such credit is gas well, net operating loss
taken, which the taxpayers net incurred in any of the first ten
income from sources without the years of operation may be
Philippines taxable under Title II

Cabrera, Jhundee
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38
carried over for the next 5 The excess over the net
years. book value immediately
before the casualty should
be capitalized, subject to
Requirements: depreciation over the
(1) The taxpayer was not remaining useful life of the
exempt from income tax in property.
the year of such net
operating loss; 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
(2) The loss was not incurred in ONLY TO THE EXTENT OF CAPITAL
a taxable year during the GAINS)
taxpayer was exempt from a. Losses from sale or exchange of
income tax; and capital assets
(3) There has been no b. Losses resulting from securities
substantial change in the becoming worthless and which
ownership of the business or are capital assets.
enterprise. c. Losses from short sales of
There is no substantial property.
change in the ownership of d. Losses due to failure to exercise
the business when: privilege or option to buy or sell
(a) not less than 75% in property.
nominal value of the
outstanding issued shares 3. SPECIAL KINDS OF LOSSES
is held by or on behalf of a. Wagering losses - deductible only to
the same persons; or the extent of gain or winnings. [Sec.
(b) not less than 75% of the 34 (D)(6)]; deemed to apply only to
paid up capital is held by individuals
or on behalf of the same b. Losses on wash sales of stocks - not
person. deductible because these are
considered to be artificial loss.
NOTE: The 3 year period shall
continue to run notwithstanding Wash sales a sale or other
that the corporation paid its taxes disposition of stock or securities
under MCIT, or that the individual where substantially identical
availed the 10% OSD. securities are acquired or purchased
within 61-day period, beginning 30
See Annex S for illustration. days before the sale and ending 30
days after the sale. [Sec. 38]
b. Of property connected, with the
trade, business or profession, if General rule: Losses from wash sales
the loss arises from fires, are not deductible.
storms, shipwreck or other Exception: When the sale is made by
casualties, or from robbery, a dealer in stock or securities and
theft, or embezzlement. with respect to a transaction made in
(1) Total destruction the ordinary course of the business of
The replacement cost to such dealer, losses from such sale is
restore the property to its deductible.
normal operating condition, Elements of Wash Sales:
but in no case shall the (1) The sale or other disposition of
deductible loss be more than stock resulted to a loss;
the net book value of the (2) There was an acquisition or
property as a whole, contract or option for acquisition
immediately before of stock or securities within 30
casualty. days before the sale or 30 days
(2) Partial Destruction after the sale; and

Cabrera, Jhundee
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39
(3) The stock or securities sold were in the market or otherwise cannot be
substantially the same as those deducted from gross income.
acquired within the 61-day
period. E. BAD DEBTS
c. Abandonment losses BAD DEBTS shall refer to those debts

in petroleum operation and producing resulting from the worthlessness or
well. uncollectibility, in whole or in part, of
(1) In case a contract area where amounts due the taxpayer by others,
petroleum operations are arising from money lent or from
undertaken is partially or wholly uncollectible amounts of income from
abandoned, all accumulated goods sold or services rendered.
exploration and development
expenditures pertaining thereto REQUISITES FOR DEDUCTIBILITY
shall be allowed as a deduction. 1. Existing indebtedness due to the
(2) In case a producing well is taxpayer which must be valid and
abandoned, the unamortized cost legally demandable;
thereof, as well as the 2. Connected with the taxpayer's
undepreciated cost of equipment trade, business or practice of
directly used therein, shall be profession;
allowed as deduction in the year 3. Must not be sustained in a
the well, equipment or facility is transaction entered into between
abandoned. related parties;
4. Actually ascertained to be worthless
d. Losses due to voluntary removal of and uncollectible as of the end of
building incident to renewal or the taxable year.; and
replacements - deductible expense 5. Actually charged off in the books of
from gross income. accounts of the taxpayer as of the
end of the taxable year.
e. Loss of useful value of capital
assets due to charges in business EQUITABLE DOCTRINE OF TAX BENEFIT
conditions - deductible expense only A recovery of bad debts previously
to the extent of actual loss sustained deducted from gross income constitutes
(after adjustment for improvement, taxable income if in the year the
depreciation and salvage value) account was written off, the deduction
resulted in a tax benefit. (Tax Benefit
Rule)
f. Losses from sales or exchanges of Illustration:

property between related Case A Case B Case C
taxpayers -losses of this nature is not Net
deductible but gains are taxable. income
(loss)
before
g. Losses of farmers - if incurred in the write off
operation of farm business, it is for bad P10,000 (P 9,000) P 5,000
deductible. debts
Less:
Accounts
h. Loss in shrinkage in value of stock written off
if the stock of the corporation becomes as bad
worthless, the cost or other basis may be debts 3,000 2,000 6,000
deducted by the owner in the taxable Final Net
Income
year in which the stock of its (Loss) P 7,000 (P11,000) (P1,000)
worthlessness is made. Any amount Bad debts
claimed as a loss on account of shrinkage recovery
in value of the stock through fluctuation in a subse-

Cabrera, Jhundee
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40
quent year 3,000 2, 000 6, 000 accordance with the pertinent provisions
TAXABLE
of the instrument creating or in the
INCOME
upon the absence of such provisions, on the basis
bad debt of the trust income allowable to each.
recovery P3,000 P -0- P5,000
METHODS OF DEPRECIATION
ASCERTAINMENT OF WORTHLESSNESS The term "reasonable allowance"
Proof of Two Facts: shall include (but not limited to) an
1. taxpayer did in fact ascertain the allowance computed in accordance,
debt to be worthless, in the year with the regulations prescribed by the
for which deduction is sought, Department of Finance, under any of the
2. that in so doing, he acted in good following methods.
faith. (Collector vs. Goodrich 1. Straight-line method
International Rubber, GR No. L- 2. Declining-balance method
22265, Dec. 22, 1967) 3. Sum of the years-digit method
Depends upon the particular facts and 4. Any other method which may be
the circumstances of the case. prescribed by the Department of
Good faith does not require that the Finance upon recommendation of
taxpayer be an incorrigible optimist the Commissioner of Internal
but on the other hand, he may not be Revenue.
unduly pessimistic.
METHODS OF DEPRECIATION
F. DEPRECIATION Kind Formula
1)Straight-line cost- salvage value
estimated life
DEPRECIATION the gradual diminution in
2)Declining cost depreciation x Rate
the service or useful value of tangible balance estimated life
property due from exhaustion, wear and 3)Sum of the years nth period x cost- salvage
tear and normal obsolescence. digits (SYD) SYD
The term also applies to
amortization of intangible assets, the Illustration: A machine is used in the
use of which in trade or business i s of manufacturing department of
limited duration. Corporation A, compute the depreciation
per annum with the following facts:
REQUISITES FOR DEDUCTIBILITY Cost = P15,000 Salvage
1. The allowance for depreciation Value= P5,000
must be reasonable.
2. It must be for property use or
employment in trade or business or
out of its not being used 1. Straight Line Method with estimated
temporarily during the year. life = 5 years
3. The allowance must be charged off 15,000 5,000 = P2,000
within the taxable, year. 5 years
4. Schedule on the allowance must be
attached to the return. 2. Declining balance with rate of 200%
Year 1: 15,000 0 x 200% = P6,000
PROPERTY HELD BY ONE PERSON FOR LIFE 5
WITH THE REMAINDER TO ANOTHER PERSON Year 2:15,0006,000 x 200% =P3,600
The deduction shall be computed as 5
if the life tenant was the absolute owner
of the property and, as such the expense 3. Sum of the years digits
shall accrue to him. SYD for 5 years = 5+4+3+2+1 or 15
Year 1: 5/15 x (15,000 5,000)
PROPERTY HELD IN TRUST = P3,333.33
Allowable deduction shall be Year 2: 4/15 x (15,000 5,000)
apportioned between the income = P2,666.67
beneficiaries, and the trustees in

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AGREEMENT AS TO USEFUL LIFE ON WHICH Known as cost of depletion

DEPRECIATION RATE IS BASED allowance for mines, oil gas wells and
The Bureau of Internal Revenue and other natural deposits starting calendar
the taxpayer may agree in writing on the year 1976 and fiscal year beginning July
useful life of the property to be 1,1975
depreciated. The agreed rate may be
modified if justified by facts or
circumstances. The change shall not be TO WHOM ALLOWED
effective before the taxable year on Only mining entities owning
which notice in writing by certified mail economic interest in mineral deposits.
or registered mail is served by the party Economic interest means interest in
initiating. minerals in place investment therein or
SPECIAL TYPES OF DEPRECIATION secured by operating or contract
1. Petroleum Operations agreement for which income is derived,
Depreciation of all properties and return of capital expected, from the
directly related to production of extraction of mineral.
petroleum shall be allowed Mere economic or pecuniary
under straight-line (SL) or advantage to be derived by production
declining balance (DB) method by one who has no capital investment in
May shift from DB to SL method the mineral deposit does not amount to
Useful life: 10 years or shorter economic interest.
life as allowed by the
Commissioner FEATURES
Useful life of property not 1. Intangible Exploration and
directly related to production: 5 development drilling cost in
years under straight line method petroleum exploration shall be
2. Mining Operations treated either as:
Depreciation on all properties in a. revenue expenditures; or
mining operations other than b. capital expenditures
petroleum operations at the 2. The total amount deductible for
normal rate if expected life is exploration and development
less than 10 years. expenditures shall not exceed 50% of
If expected life is more than 10 net income from mining operation.
years, depreciation shall be any The excess shall be carried forward
number of years between 5 to the succeeding year until fully
years and the expected life. deducted.
3. Depreciation deductible by non- H. CHARITABLE AND OTHER

resident aliens engaged in CONTRIBUTIONS
trade/business or non-resident
corporation TAX TREATMENT
a. Only when such property is
located in the Philippines. A. Deductible B. Deductible
In Full Subject To Limitation
G. DEPLETION OF OIL AND GAS
WELLS AND MINES
DEPLETION - exhaustion of natural

resources as in mines, oil, and gas
wells. The natural resources are called
wasting assets. As the physical units
representing such resources are
extracted and sold, such assets move
towards exhaustion.

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1) Recipient is: 1) Recipient is: (a) Scientific; (a) Scientific

(a) Government of (a) Government of (b) Educational; (b) Educational
the the Philippines; (c) Cultural; ;
Philippines; (b) Any of its (d) Character (c) Cultural;
(b) Any of its agencies or building/youth (d) Youth and
agencies or political and sports sports
political subdivisions development development
subdivisions; (e) Charitable (e) Charitable
or For a non-priority (f) Social welfare (f) Social
(c) Any fully- activity in any of the (g) Health welfare
owned areas mentioned in A, (h) Research (g) Religious
government and exclusively for a (h) Rehabilitati
corporation public purpose. And satisfying the on of Veterans
following
For priority conditions: If the conditions
activity in: 1. The donation in Table A is not
1. Science; must be utilized complied with:
2. Education not later than
3. Culture the 15th day of Subject to
4. Health the 3rd month limitation:
5. Economic following the (a) Individual -
Development close of its 10% taxable
6. Human taxable year. income from
Settlement 2. The trade
7. Youth and administrative business or
Sports expense must not profession
Development exceed 30% of before
total expenses. contribution
2) Recipient is a 2) Non-government 3. Upon dissolution, (b) Corporation
foreign or organizations assets must be - 5% taxable
international distributed to income from
organization with another non- trade
an agreement profit domestic business or
with the corporation or to profession
Philippine the state. before
Government on contribution
deductibility, or
in accordance
with special law.
3) Recipient is an 3) Recipient is an
accredited non- accredited domestic REQUISITES FOR DEDUCTIBILITY
government corporation or 1. The contribution or gift must be
organization, association actually paid.
organized/ operated organized/operated 2. It must be given to the organizations
for (purposes): for (purposes): specified in the code.
3. The net income of the institution
must not inure to the benefit of any
private stockholder or individual.
VALUATION
Charitable contribution of property
other than money shall be based on the
acquisition cost of said property.
I. RESEARCH AND DEVELOPMENT

(R&D)

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TAX TREATMENT provide for the payment of

Either as: reasonable pensions to his
1. Revenue Expenditures employees;
Requisites: 2. The pension plan is reasonable and
a. Paid or incurred during actuarially sound;
the taxable year 3. It must be funded by the employer;
b. Ordinary and necessary 4. The amount contributed must be no
expenses in connection with longer subject to the control and
trade business or profession disposition of the employer;
c. Not chargeable to 5. The payment has not yet been
capital account allowed as a deduction; and
2. Deferred Expenses 6. The deduction is apportioned in
Requisites: equal parts over a period of 10
a. Paid or incurred in consecutive years beginning with the
connection with trade, business, year in which the transfer or
or profession payment is made.
b. Not treated as expense
c. Chargeable to capital SUMMARY OF RULES ON RETIREMENT BENEFITS
account but not chargeable to PLAN / PENSION TRUST
property subject to depreciation 1. Exempt from Income Tax
or depletion. employees trust under Sec. 60(B)
2. Exclusion from Gross Income
Amount deductible: amount received by the employee
Amount ratably distributed over from the fund upon compliance of
a period of 60 months beginning with certain conditions under Sec. 32(B)
the month taxpayer realized (6)
benefits from such expenditures. 3. Deduction from Gross Income
a. Amounts contributed by the
EXCLUSION FROM RESEARCH AND employer during the taxable
DEVELOPMENT EXPENDITURES year into the pension plan to
1. Any expenditure for the acquisition cover the pension liability
or improvement of land or for the accruing during the year
improvement of property to be used considered as ordinary and
in connection with research and necessary expenses under Sec.
development subject to depreciation 34(A)(1)
and depletion. b. 1/10 of the reasonable amount
2. Any expenditure paid or incurred for paid by the employer to cover
the purpose of ascertaining the pension liability applicable to
existence, location, extent or the years prior to the taxable
quality of any deposit of ore or other year, or so paid to place the
mineral including oil or gas. trust in a sound financial basis
deductible under Sec. 34(J)
J. PENSION TRUST CONTRIBUTIONS
K. PREMIUM PAYMENTS
PENSION TRUST CONTRIBUTIONS a ON HEALTH AND/OR
deduction applicable only to the HOSPITALIZATION INSURANCE
employer on account of its contribution
to a private pension plan for the benefit DEFINITION: It is an amount of premium
of its employee. This deduction is purely on health and/or hospitalization paid by
business in character. an individual taxpayer (head of family or
married), for himself and members of his
family during the taxable year.
REQUISITES FOR DEDUCTIBILITY REQUISITES FOR DEDUCTIBILITY
1. The employer must have established 1. Insurance must have actually been
a pension or retirement plan to taken

Cabrera, Jhundee
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44
2. The amount of premium deductible business carried on by the taxpayer,

does not exceed P2,400 per family individual or corporate, when the
or P200 per month during the taxpayer is directly or indirectly a
taxable ear. beneficiary under such policy. [Sec.
3. That said family has a gross income 36]
of not more than P250,000 for the 5. Losses from sales or exchanges of
taxable year. property between related
4. In case of married individual, only taxpayers. [S ec. 36]
the spouse claiming additional
exemption shall be entitled to this - TRANSACTIONS BETWEEN RELATED PARTIES
deduction. 1. Between members of the family;
Family includes only the
WHO MAY AVAIL OF THE DEDUCTION brothers, sisters (whether by the
1. Individual taxpayers earning purely whole or half blood), spouse,
compensation income during the ancestors, and lineal
year. descendants of the taxpayer.
2. Individual taxpayer earning business 2. Except in the case of distributions in
income or in practice of his liquidation:
profession whether availing of a. between an individual and a
itemized or optional standard corporation more than 50% in
deductions during the year. value of the outstanding stock of
3. Individual taxpayer earning both which is owned, directly or
compensation, and business or indirectly, by or for such
practice of profession during the individual;
year. b. between two corporations more
than 50% in value of the
NON-DEDUCTIBLE EXPENSES outstanding stock of each of
which is owned, directly or
REASONS FOR NON-DEDUCTIBILITY indirectly, by or for the same
1. Personal expenses individual, if either one of such
2. Capital expenditures corporations, with respect to the
3. Items not normally subject to taxable year of the corporation
income tax and therefore are not preceding the date of the sale of
deductible. exchange was a personal holding
4. Items taken advantage of by the company or a foreign personal
taxpayer to avoid payment of holding company; or
income tax. 3. Between the grantor and a fiduciary
of any trust;
SPECIFIC ITEMS (SECTION 36) 4. Between the fiduciary of a trust and
1. Personal, living or family expenses; the fiduciary of another trust if the
2. Amount paid out for new buildings or same person is a grantor with
for permanent improvements, or respect to each trust;
betterment made to increase the 5. Between a fiduciary of a trust and a
value of any property or estate, beneficiary of such trust.
Except that intangible drilling
and development cost incurred in TAX CONSEQUENCES
petroleum operations are The following are not deductible:
deductible; 1. Interest expense [Sec. 34 (B)(2)]
3. Amount expended in restoring 2. Bad debts [Sec. 34 (E)(1)]
property or in making good the 3. Losses from sales or exchanges of
exhaustion thereof for which an property [Sec 36 (B)]
allowance has been made;
4. Premiums paid on any life insurance (2) OPTIONAL CORPORATE
policy covering the life of any officer INCOME TAX
or employee, or of any person SECTION 27 (A)
financially interested in any trade or

Cabrera, Jhundee
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45
APPLIES TO: corporation determined under

1. Domestic corporations (DC) Section 27[A].
2. Resident foreign corporations (RFC)
LIMITATIONS
RATE OF TAX AND DATE OF EFFECTIVITY
15% of the Gross Income effective 1. The MCIT shall apply only to
January 1, 2000 domestic and resident foreign
corporations subject to the normal
CONDITIONS OR REQUIREMENTS corporate income tax (income tax
1. A tax effort ratio of 20% of Gross rates under Sec 27[A] of the CTRP).
National Product 2. In the case of a domestic
2. A ratio of 40% income tax collection corporation whose operations or
to total tax revenues activities are partly covered by the
3. A VAT tax effort of 4% of GNP regular income tax system and partly
4. A 0.9% ratio of Consolidated Public covered under a special income tax
Sector Financial Position (CPSFP) to system, the MCIT shall apply on
GNP operations covered by the regular
corporate income tax system.
OTHER FEATURES 3. In computing for the MCIT due from
1. Available only to firms whose a resident foreign corporation, only
ratio of: the gross income from sources within
the Philippines shall be considered
Cost of sales for such purpose.
<=55%
Gross sales or receipts from all WHEN DOES A CORPORATION BECOME
sources LIABLE UNDER THE MCIT?
2. The election shall be irrevocable
MCIT is imposed beginning on
for three (3) consecutive years
the fourth taxable year immediately
following the year in which such
MEANING OF GROSS INCOME
corporation commenced its business.
General concept
The taxable year in which the business
Gross sales
operations commenced shall be the year
Less:
when the corporation registers with the
(1) Sales Return;
BIR.
(2) Discount and allowances
(3) Cost of goods sold - means
CARRY FORWARD OF THE EXCESS
all business expenses
MINIMUM TAX
directly incurred to produce
the merchandise to bring
Any excess of MCIT over the normal
them to their present
income tax can be carried forward
location and use.
on an annual basis.
The excess can be credited against
(3) MINIMUM CORPORATE the normal income tax due in the
INCOME TAX (MCIT) next 3 immediately succeeding
SECTION 27 (E) taxable years.
Any amount of the excess MCIT
WHO ARE COVERED? which cannot be credited against the
MCIT is imposed on domestic and normal income tax due in the next
resident foreign corporations 3-year period shall be forfeited.
1. Whenever such corporation has zero
or negative taxable income; or
2. Whenever the amount of RELIEF FROM MCIT
MCIT is greater than the normal
income tax due from such The Secretary of Finance is
authorized to suspend the imposition of

Cabrera, Jhundee
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46
the MCIT on any corporation which where the goods

suffers losses because of: are actually sold;
a. prolonged labor dispute; 4.insurance while
b. force majeure; or the goods are in
c. legitimate business reverses. transit.
B. Manufacturing Cost of Sales = All
Substantial losses from a prolonged Gross Income cost of production of
labor dispute" means losses arising from a (Same) finished goods, such
strike staged by the employees which as
lasted for more than six (6) months 1.raw materials
within a taxable period and which has used;
caused the temporary shutdown of 2.direct labor;
business operations. 3.manufacturing
Force majeure" means a cause due overhead;
to an irresistible force as by "Act of God" 4.freight cost;
like lightning, earthquake, storm, flood 5.insurance
and the like. This term shall also premiums;
include armed conflicts like war and 6.other costs
insurgency. incurred to bring
Legitimate business reverses" shall the raw materials
include substantial losses sustained due to the factory or
to fire, robbery, theft, or warehouse.
embezzlement, or for other economic C. Services Cost of Services = All
reason as determined by the Secretary Gross Income = direct costs and
of Finance. Gross receipts less expenses necessarily
sales returns, incurred to provide
TAX RATE: 2% of gross income or allowances, the services required
taxable base pertinent to a discounts and costs by the customers and
trading/merchandising concern or a of services clients including:
service entity a. Salaries and
employee benefits
TAX BASE: Gross Income of personnel,
MEANING OF GROSS INOME consultants and
specialists directly
General concept - gross income means: rendering the
Gross sales service;
Less: b. Cost of facilities
(1) Sales Return; directly utilized in
(2) Discount and allowances providing the
(3) Cost of goods sold - means service.
all business expenses It shall not
directly incurred to produce include interest
the merchandise to bring expense except for
them to their present banks and other
location and use. financial
institutions.
KINDS OF BUSINESS
Gross income excludes passive
A. Trading or Merchandising Concern income subject to final tax.
Gross Income = Cost of Sales = Other income and Extraordinary
gross sales/ 1.Invoice cost of the Income are included since RR 9-98
receipts less sales goods sold; provides that gross sales include
returns, discounts 2.import duties; sales contributory to income taxable
and allowances and 3.freight in under the regular corporate tax.
cost of goods sold transporting the
goods to the place

Cabrera, Jhundee
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47
See Annex T for interplay of normal Dividends actually or constructively

tax, optional corporate income tax paid/issued from the applicable years
and MCIT. taxable income
Amount reserved for the reasonable
needs of the business as defined in the
(4) IMPROPERLY ACCUMULATED Regulations
EARNINGS (IAE) TAX Tax base of improperly accumulated
earnings tax
SECTION 29
EXCLUSIONS
(REVENUE REGULATIONS NO. 2 2001)
For corporations using the calendar
DEFINITION: Improperly accumulated basis the accumulated earnings tax
earnings (IAE) are the profits of a shall not apply on IAE as of Dec. 31,
corporation that are permitted to 1997.
accumulate instead of being distributed For fiscal year basis, the tax shall
by a corporation to its shareholders for not apply to the 12-month period of
the purpose of avoiding the income tax fiscal year 1997-1998.
with respect to its shareholders or the
shareholders of another corporation. IAE as of the end of a calendar
or fiscal year period on or after Dec.
TAX RATE: 10% of the Improperly 31, 1998 shall be subject to the 10%
Accumulated Taxable Income (in tax.
addition to other taxes).
Rationale behind IAET WHO ARE COVERED?
If the earnings and profits were
distributed, the shareholders would then General Rule: The IAE tax shall apply to
be liable to income tax thereon, every corporation formed or availed
whereas if the distribution were not for the purpose of avoiding the
made to them, they would incur no tax income tax with respect to its
in respect to the undistributed earnings shareholders or the shareholders of
and profits of the corporation. Thus, a any other corporation, by permitting
tax is being imposed; earnings and profits to accumulate
a. in the nature of a penalty to the instead of being divided or
corporation for the improper distributed. These are:
accumulation of its earnings, and 1. Domestic corporations as
b. as a form of deterrent to the defined under the Tax Code;
avoidance of tax upon 2. Corporations which are classified
shareholders who are supposed as closely-held corporations.
to pay dividends tax on the those corporations at least
earnings distributed to them by fifty percent (50%) in value
the corporation. of the outstanding capital
stock or at least fifty
IMPROPERLY ACCUMULATED TAXABLE percent (50%) of the total
INCOME combined voting power of all
classes of stock entitled to
Taxable income for the year vote is owned directly or
Add: indirectly by or for not more
Income exempt from tax; than twenty (20) individuals.
Income excluded from gross income; Domestic corporations not
Income subject to final tax; falling under the aforesaid
Net operating loss carry-over (NOLCO) definition are, therefore,
Total publicly-held corporations.
Less:
Income tax paid/payable for the taxable Exception: The said tax shall not apply
year to:

Cabrera, Jhundee
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48
1. Publicly held corporations (Sec. 29) 2. The fact that the earnings or profits
2. Banks and other non-banks Financial of a corporation are permitted to
intermediaries (Sec. 29) accumulate beyond the reasonable
3. Insurance companies (Sec. 29) needs of the business shall be
4. Taxable partnerships (deemed to determinative of the purpose to
have actually or constructively avoid the tax upon its shareholders
received the taxable income under or members unless the corporation,
Sec. 73D) by the clear preponderance of
5. General professional partnerships evidence, shall prove the contrary.
(exempt; taxable against the
partners) Reasonable needs of the
6. Non- taxable joint ventures and business includes the reasonably
7. Enterprises duly registered with the anticipated needs of the business
Philippine Economic Zone Authority such as:
(PEZA) under R.A. 7916, and a. Allowance for the increase in the
enterprises registered pursuant to accumulation of earnings up to
the Bases Conversion and 100% of the paid-up capital of
Development Act of 1992 under R.A. the corporation as of Balance
7227, as well as other enterprises Sheet date, inclusive of
duly registered under special accumulations taken from other
economic zones declared by law years;
which enjoy payment of special tax b. Earnings reserved for definite
rate on their registered operations corporate expansion projects or
or activities in lieu of other taxes, programs as approved by the
national or local. Board of Directors or equivalent
8. Foreign corporations [RR No. 02- body;
2001] c. Reserved for building, plants or
equipment acquisition as
EVIDENCE OF PURPOSE TO AVOID approved by the Board of
INCOME TAX Directors or equivalent body;
d. Reserved for compliance with
1. The fact that any corporation is a any loan covenant or pre-
mere holding company or investment existing obligation established
company shall be prima facie under a legitimate business
evidence of a purpose to avoid the agreement;
tax upon its shareholders or e. Earnings required by law or
members. applicable regulations to be
retained by the corporation or in
Instances indicative of purpose to respect of which there is legal
avoid income tax upon prohibition against its
shareholders: distribution;
1. Investment of substantial f. In the case of subsidiaries of
earnings and profits of the foreign corporations in the
corporation in unrelated Philippines, all undistributed
business or in stock or earnings intended or reserved
securities of unrelated for investments within the
business; Philippines as can be proven by
2. Investment in bonds and other corporate records and/or
long-term securities; relevant documentary evidence.
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.

Cabrera, Jhundee
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49
A speculative and indefinite purpose will 1. It is constituted as a full and final

not suffice. payment of the income tax due from
Definiteness of plan/s coupled with the payee on a particular type of
action/s taken towards its income subject to final withholding
consummation is essential. tax (FWT).
The finality of the withholding
PERIOD FOR PAYMENT OF DIVIDEND/ tax is limited only to the payees
PAYMENT OF IAET income tax liability and does not
Dividends must be declared and paid extend to other taxes that may be
or issued not later than one year imposed on said income.
following the close of the taxable year, 2. The income subjected to final
otherwise, the IAET, if any, should be income tax is no longer subject to
paid within fifteen (15) days thereafter. the net income tax; otherwise, there
would be a violation of prohibited
double taxation.
(5) INCOME SUBJECT TO 3. The liability for the payment of the
tax rests primarily on the payor as
PREFERENTIAL OR SPECIAL
withholding agent.
RATES 4. The payee is not required to file an
income tax return for the particular
Pertains to income derived by a income subjected to FWT. It is the
particular individual or corporation withholding agent who files the
belonging to a class of income taxpayer return.
that is subject to either a preferential or 5. The rate of the final tax is
special rate. multiplied to the gross income.
Thus, deductions and/or personal
Tax Rates: Please refer to Annex C. and additional exemptions are not
allowed.
(6) GROSS INCOME TAX (GIT)
(8) FRINGE BENEFIT TAX (FBT)
GROSS INCOME TAX (GIT) FORMULA
FRINGE BENEFIT TAX is a final income
Entire Income tax on the employee which shall be
Less: Exclusions and Income subject withheld and paid by the employer on a
to Final Tax (e.g. Passive quarterly basis.
Income)
Gross Income FRINGE BENEFIT means any good,
Multiply by: Tax Rates (%) service, or other benefit furnished or
granted by an employer, in cash or in
Net Income Tax Due kind, in addition to basic salaries, to an
individual employee (except rank and
GIT APPLIES TO file employees) such as, but not limited
to the following:
1. Non-resident alien not engaged in 1. Housing
trade or business (25%); and 2. Expense Account
2. Non-resident foreign corporation. 3. Vehicle of any kind
(32%) 4. Household personnel, such as maid,
driver and others
Tax Rates: Please refer to Annex A 5. Interest on loan at less than market
and B. rate to the extent of the difference
between the market rate and actual
(7) FINAL INCOME TAX rate granted.
6. Membership fees, dues and other
GENERAL PRINCIPLES expenses borne by the employer for
the employee in social and athletic
clubs and similar organizations

Cabrera, Jhundee
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50
7. Expenses for foreign travel 2000

68% 32% FWT
8. Holiday and vacation expenses onwards
9. Educational assistance to the
employee or his dependents; and FRINGE BENEFITS NOT SUBJECT TO FBT
10. Life or health insurance and other
non-lire insurance premiums or 1. Fringe benefits not considered as
similar amounts on excess of what gross income
the law allows. a. if it is required or necessary to
the business of employer
PERSONS LIABLE b. if it is for the convenience or
advantage of employer
The EMPLOYER (as a withholding 2. Fringe Benefit that is not taxable
agent), whether individual, professional under Sec. 32 (B) Exclusions from
partnership or a corporation, regardless Gross Income
of whether the corporation is taxable or 3. Fringe benefits not taxable under
not, or the government and its Sec. 33 Fringe Benefit Tax:
instrumentalities a. Fringe Benefits which are
authorized and exempted under
TAX RATE: 32% (from January 1, 2000 special laws, such as the 13th
onwards) of the Grossed up Monetary month Pay and Other Benefits
Value (GMV) of fringe benefits. with the ceiling of P30,000.
In the case of aliens, the tax rates to b. Contributions of the employer
be applied on fringe benefit shall be as for the benefit of the employee
follows: to retirement, insurance and
1. NRANEBT 25% hospitalization benefit plans;
2. Aliens employed by regional HO c. Benefits given to the Rank and
15 % File Employees, whether granted
3. Aliens employed by OBU 15% under a collective bargaining
4. Aliens employed by Petroleum agreement or not; and
Service Contractors and d. The De minimis benefits
Subcontractors 15% benefits which are relatively
small in value offered by the
GMV OF THE FRINGE BENEFIT employer as a means of
REPRESENTS promoting goodwill,
contentment, efficiency of
1. The whole amount of income Employees
realized by the employee which The term Rank and File
includes the net amount of money or Employees shall mean all
net monetary value of property employees who are holding
which has been received; plus neither managerial nor
2. The amount of fringe benefit tax supervisory position as defined
thereon otherwise due from the in the Labor Code
employee but paid by the employer In the case of rank and file
for and in behalf of the employee. employees, fringe benefits other
than those excluded from gross
GMV of the fringe benefit income under the Tax Code and
shall be determined by dividing the other special laws, are taxable
monetary value of the fringe benefit by under the individual normal tax
the Grossed up divisor. The Grossed up rate.
divisor is the difference between 100% DEDUCTIBILITY TO THE TAXABLE
and the applicable rates. INCOME OF THE EMPLOYER
GROSSED UP General Rule: The amount of taxable

YEAR RATE fringe benefit and the fringe benefits tax
DIVISOR
1998 66% 34% FWT shall constitute allowable deductions
1999 67% 33% FWT from gross income of the employer.

Cabrera, Jhundee
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51
Exception: 8. Gifts given during Christmas and

If the basis for computation of the major anniversary celebrations not
fringe benefits tax is the depreciation exceeding P3, 000 per employee per
value, the zonal value or the fair market annum;
value, only the actual fringe benefits tax 9. Flowers, fruits, books or similar
paid shall constitute a deductible items given to employees under
expense for the employer. The value of special circumstances
the fringe benefit shall not be 10. Daily meal allowance for overtime
deductible and shall be presumed to work not exceeding 25% of the basic
have been tacked on or actually claimed minimum wage.
as depreciation expense by the
employer. Provided, however, that if the Time for filing of quarterly remittance
aforesaid zonal value or fair market return of final income taxes withheld
value of the said property is greater The tax imposed under Sec. 33 shall
than its cost subject to depreciation, the be treated as a final income tax on the
excess amount shall be allowed as a employee that shall be withheld and
deduction from the employer's gross paid by the employer, whether a large
income as fringe benefit expense. (Sec. taxpayer or non-large taxpayer, on or
2.33[D], Rev. Reg. No. 3-98) before the 10th day of the month
following the calendar quarter in which
EXAMPLE OF DE MINIMIS BENEFITS NOT the fringe benefits were granted (RR 04-
SUBJECT TO FBT (RR NO. 8-2000 AND 2002).
10-2000)
For Additional Rules on Fringe
1. Monetized unused vacation leave Benefits, refer to Annex H.
credits of PRIVATE employees not
exceeding (10) days during the year (9) CAPITAL GAINS TAX
and the monetized value of leave
credits paid to government officials SUMMARY OF TAX RATES
and employees
2. Medical cash allowance to 1. Individuals
dependents of employees not a. On sale of shares of stock of a
exceeding P750.00 per employee per domestic corporation not listed
semester or P125 per month; and traded thru a local stock
3. Rice subsidy of P1,000.00 or one (1) exchange, held as capital asset
sack of 50kg. rice per month On the Net Capital Gain
amounting to not more than Not over P100,000 FT
P1,000:00, of 5%
4. Uniform and clothing allowance not Amount in excess of P100,000 FT
exceeding P3,000 per annum; of 10%
5. Actual yearly medical benefits not b. On sale of real property in the
exceeding P10,000 per annum; Philippines held as capital asset
6. Laundry allowance not exceeding On the gross selling price, or the
current fair market value at the
P300 per month; time of sale, whichever is higher
7. Employees achievement awards e. g. FT of 6%
for length of service or safety 2. Corporations
achievement, which must be in the a. On sale of shares of stock of a
form of a tangible personal property domestic corporation not listed
other than cash or gift certificate, and traded thru a local stock
with an annual monetary value of exchange, held as capital asset
not exceeding P10,000 received by On the Net Capital Gain
the employee under an established Not over P100,000 FT of
written plan which does not 5%
discriminate in favor paid Amount in excess
employees; of P100,000 FT of 10%

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b. On sale of land/building held as

capital asset The excess of the The excess of the
On the gross selling price, or the gains from sales/ losses from sales or
current fair market value at the exchanges of capital exchanges of capital
time of sale, whichever is higher assets over the assets over the gains
FT of 6% gains from such from such sales or
(Reyes, Virgilio. Income Tax Law and sales/ exchanges. exchanges.
Accounting A New Approach, 2002)
CAPITAL GAINS AND LOSSES TRANSACTION RESULTING IN TAXABLE

IN GENERAL GAINS BUT NON-RECOGNITION OF LOSSES
a. Sale or exchange between
CONCEPT OF CAPITAL ASSETS related parties;
b. Wash sales by non-dealers of
Under the tax code, there is no securities and when not subject
definition for the term "capital assets". to the stock transfer tax;
What it gives is the meaning of ordinary c. Exchanges not solely in kind in
assets: merger and consolidation; and
d. Sales or exchanges that are not
a. Ordinary assets (Sec. 39, NIRC) at arms length.
a. Stock in trade of the taxpayer or
other properties of a kind which REQUISITES FOR RECOGNITION OF
would properly be included in CAPITAL GAIN/LOSS
the inventory of the taxpayer;
1. The transaction must involve
b. Property held by the taxpayer property classified as capital
primarily for sale to customers in asset; and
the ordinary course of business;
2. The transaction must be a sale
c. Property used in trade or or exchange or one considered as
business and subject to equivalent to a sale or exchange.
depreciation; and
RULES ON THE RECOGNITION OF
d. Real property used in trade or CAPITAL GAINS OR LOSSES
business.
b. Capital Assets include all property INDIVIDUAL CORPORATION

held by the taxpayer whether or not
connected in trade or business but Holding Capital gains and
not including those enumerated Period losses are
above (#1) as ordinary assets. The percentages recognized to the
of gain or loss to be extent of 100%.
taken into account (There is no
CAPITAL GAIN CAPITAL LOSS shall be the holding period)
following:
The gain derived The loss incurred a.100% - if the
from the sale or from the sale or capital assets has
exchange of capital exchange of capital been held for 12
assets. assets. mos. or less; and
b.50% - if the
capital asset has
been held for
more than 12
NET CAPITAL NET CAPITAL mos.
GAIN LOSS
Non- Capital losses

Cabrera, Jhundee
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53
deductibility of are allowed only Sales or exchanges resulting in non-

Net Capital to extent of the recognition of gains or losses:
losses capital gains; 1. Exchange solely in kind in legitimate
Capital losses hence, the net mergers and consolidation;
are allowed only capital loss is
includes:
to extent of the not deductible.
Exception: If any a. Between the corporations which
capital gains;
hence, the net domestic bank or are parties to the merger or
capital loss is trust company, a consolidation (property for
not deductible. substantial part of stocks);
whose business is b. Between a stockholder of a
the receipt of corporation party to a merger or
deposits, sells any consolidation and the other
bond, debenture, party corporation (stock for
note or certificate
stock);
or other evidence
of indebtedness
c. Between a security holder of a
issued by any corporation party to a merger or
corporation consolidation and the other
(including one party corporation (securities for
issued by a securities)
government or
political 2. Transfer to a controlled corporation
subdivision) exchange of property for stocks
resulting in acquisition of corporate
Net Capital Loss Not allowed control by a person, alone or
Carry Over
Allowed
together with others not exceeding
The net capital loss four.
(in an amount not in Control means ownership of
excess of the taxable stocks in a corporation amounting to
income before at least 51% of the total voting
personal exemption for power of all classes of stocks
such year) shall be entitled to vote.
treated in the
succeeding year (but SALE OR EXCHANGE OF ORDINARY ASSETS
not beyond 12 months)
as a deduction as
short-term capital loss General rules of income taxation
(at 100%) from the net apply to both gain and loss.
capital gains.
See Annex D (Gross Income Gains
from dealings in property)
See Annex U for illustration.
SUMMARY OF TAX TREATMENT OF
SALE OR EXCHANGE OF CAPITAL ASSETS GAINS/LOSSES IN THE EXCHANGE OF
PROPERTIES
The following are considered as sale
orexchange of capital assets: General Rule: Upon the sale or
1. Retirement of bonds exchange of property, the entire gain or
2. Short sales of property loss, as the case may be, shall be
3. Failure to exercise privilege or recognized. [Sec. 40 (C, 1)]
option to buy or sell property
4. Securities becoming worthless Exceptions:
5. Distribution in liquidation of 1. Transactions where gains and losses
corporations are not recognized
6. Readjustment of interest in a a. Exchange solely in kind in
general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation

Cabrera, Jhundee
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54
b. Transfer to a controlled 2. Shares of stock listed through a

corporation [Sec. 40(C, 2)] local stock exchange of 1% of
1. Transactions where the gross selling price of the stock.
gain is recognized EXCEPTIONS TO THE TAX
but not the loss 1. Gains derived by dealers in
a. Transactions between related securities.
taxpayers [Sec. 36] 2. All other gains which are specifically
b. Illegal transactions [Sec. 96, exempt from income tax under
Rev. Reg. 2] existing investment incentives and
c. Exchanges of property, not other special laws.
solely in kind, in pursuance of
corporate mergers and BASIS FOR COMPUTING GAIN OR LOSS (BIR
consolidations [Sec. 40, (C, 3)] RULING 146-98)
IMPORTANT DISTINCTION The fair market value (FMV) of the

If it is an ordinary asset, the sale of shares not traded but listed
ordinary gains and losses are considered in the stock exchange is the highest
in determining income or loss from closing price on the day the shares
trade, business or profession. (See Secs. were sold, transferred or exchanged.
32A, 34D) When no sale is made in the stock
If it is a capital asset, determine exchange, the FMV shall be the
further whether or not it is a real highest selling price on the day
property located in the Philippines. If it nearest to the day of sale, transfer
is, then it is subject to capital gains tax. or exchange.
(See Secs. 24D, 27D5) (See also Sec s. For shares not listed in the
24C, 27D2) If not, the capital gains and exchange, the FMV shall be the book
losses are considered in determining the value nearest the valuation date
taxable income. (Sec. 39)
The above rules shall be used in
CAPITAL GAINS AND LOSSES computing for the net capital gain/loss
SHARES OF STOCK for disposition of shares.
The taxation of shares of stock IMPORTANT FEATURES

whether or not listed and traded in the
stock exchange is subject to final tax. 1. Sale of shares of stock of a domestic
corporation listed and traded in a
WHO ARE LIABLE TO THE TAX local stock exchange and that of
1. Individual taxpayer, citizen or alien initial public offering shall be subject
2. Corporate taxpayer, domestic or to Percentage tax (Business Tax)
foreign 2. Capital losses sustained during the
3. Other taxpayers such as estate, year (not listed and traded in a local
trust, trust funds and pension among stock exchange) shall be allowed as
others. a capital loss deductible on the same
taxable year only (no carry-over)
RATES OF TAX 3. The entire amount of capital gain
and capital loss (not listed and
1. Shares of stock not traded through traded in a local stock exchange)
a local stock exchange Net capital shall be considered without taking
gains derived during the taxable into account holding period
year from sale, exchange, or irrespective of who is the taxpayer
transfer shall be taxed as follows (on (all 100%)
a per transaction basis): 4. Non-deductibility of losses on wash
Not over P 100,000 - 5% sales.
Over P 100,000 - 10%
FILING AND PAYMENT OF TAX

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1. Listed and Traded in the Stock a. Sale or disposition of the old

Exchange - The stockbroker shall principal residence;
turn over the tax collected to the b. By natural persons - citizens or aliens
B.I.R. within five (5) banking days provided that they are residents
from the date of collection. taxable under Sec. 24 of the Code
(does not include an estate or a
2. Not traded through the stock exchange trust);
- It shall be paid by the seller on a per c. The proceeds of which is fully
transaction basis upon filing of the utilized in (a) acquiring or (b)
required return within 30 days constructing a new principal
following each sale or other residence within eighteen (18)
disposition of shares of stock. calendar months from date of sale or
disposition;
CAPITAL GAINS AND LOSSES d. Notify the Commissioner within
thirty (30) days from the date of sale
(REAL PROPERTY) or disposition through a prescribed
return of his intention to avail the
PERSONS LIABLE AND TRANSACTIONS tax exemption;
AFFECTED e. Can only be availed of only once
every ten (10) years;
1. Individual taxpayers, estates and f. The historical cost or adjusted basis
trusts of his old principal residence sold,
Sale or exchange or other exchanged or disposed shall be
disposition of real property carried over to the cost basis of his
considered as capital assets. new principal residence
The said sale shall include "pacto g. If there is no full utilization, the
de retro sale" and other conditional portion of the gains presumed to
sale. have been realized shall be subject
2. Domestic Corporation to capital gains tax.
Sale or exchange or disposition
of lands and/or building which are GROSS INCOME FROM DIFFERENT SOURCES
not actually used in business and are (SEC. 42)
treated as capital asset. Please refer to Annex I.
EXCEPTIONS TO THE TAX ACCOUNTNG PERIODS AND METHODS OF
1. Gains derived by dealers in real ACCOUNTING
estate
I. ACCOUNTING PERIODS
RATE AND BASIS OF TAX A. General rule (Sec. 43)
A final tax of 6% is based on the Taxable income is computed
gross selling price or fair market value upon the basis of taxpayers
or zonal value whichever is higher. annual accounting period (fiscal or
Note: Gain or loss is immaterial, calendar year) in accordance with
there being a conclusive presumption of the method of accounting
gain. employed.
If no method of accounting
See Annex G Guidelines in
employed or method does not
Determining Whether a Real
clearly reflect the income,
Property is a Capital or an Ordinary
computation shall be made in
Asset.
accordance w/ such method as
the opinion of the Commissioner
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
clearly reflects the income.
CAPITAL GAINS TAX ON THE SALE OR
Taxable income is computed
DISPOSITION OF A PRINCIPAL RESIDENCE
based on calendar year if:
1. accounting period is other
Conditions:
than a fiscal year

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2. taxpayer has no accounting - from fiscal year to calendar

period year
3. taxpayer does not keep - from calendar year to fiscal
books year
4. taxpayer is an individual - from one fiscal year to
Fiscal year: accounting period of another
12 months ending on the last day Effect of change: Net income,
of any month other than shall, with the approval of the
December Commissioner, be computed on
Calendar year: accounting period the basis of the new accounting
from January 1 to December 31 period, subject to Sec. 47.
B. Periods in which items of gross E. Final or adjustment returns for a

income included (Sec. 44) period of less than 12 months
Amount of all items of gross (1) Returns for short period
income shall be included in the resulting from change of
gross income for the taxable accounting period
year in which received by the taxpayer is other than an
taxpayer, unless, any such individual
amounts are to be properly with the approval of the
accounted for in a different Commissioner
period under methods of If change is from fiscal year to
accounting permitted calendar year:
In case of death of taxpayer: - separate final or adjustment
include for the taxable year in return be made for the
which falls the date of his death, period between the close of
all amounts which accrued up to the last fiscal year for which
the date of his death; if not return was made and the
otherwise properly includible in following December 31
respect of such period or a prior If change is from calendar year
period to fiscal year:
- separate final or adjustment
C. Period for which deduction and return be made for the
credits taken (Sec. 45) period between the close of
Deductions provided in this Title the last calendar for which
shall be taken for the taxable return was made and the
year in which paid or incurred, date designated as the close
dependent upon the method of of the fiscal year
accounting upon the basis of If change is from one fiscal year
which the net income is to another:
computed, unless, in order to - separate final or adjustment
reflect the income, deductions return be made for the
should be taken as of a different period between the close of
period. the former fiscal year and
In case of death of taxpayer: the date designated as the
deductions allowed for the close of the new fiscal year
taxable period in which falls the (2) Income computed on basis of
date of his death, amounts short period
accrued up to the date of his In what cases?
death if not otherwise properly a. Where a separate final or
allowable in respect of such adjustment return is made
period or a prior period. on account of a change in
accounting period
D. Change of accounting period b. In all other cases where a
(Sec.46) separate final or
Kinds of changes: adjustment return is

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require or permitted by architects or engineers

R&R prescribed by Sec. of showing the percentage of
Finance. upon completion during the
recommendation of taxable year of the entire
Commissioner work performed under the
Both shall be made for a contract
fractional part of a year. Deductions from gross
Then income is computed on the income: all expenditures
basis of the short period for made during the taxable
which separate final or year on account of the
adjustment return is made. contract: account being
taken of the material and
II. METHODS OF ACCOUNTING supplies on hand at the
beginning and end of the
A. Cash method taxable period for use in
Recognition of income connection with the work
and expense dependent on under the contract but not
inflow or outflow of cash. yet so applied.
Amended return may be
1. Accrual method permitted /required by the
Method under which Commissioner: if upon
income, gains and profits are completion of contract,
included in gross income when taxable income has not been
earned whether received or not, clearly reflected for any
and expenses are allowed as year(s).
deductions when incurred:
although not yet paid. It is the 3. Installment
right to receive and not the basis
actual receipt that determines (1) Sales of dealers in personal
the inclusion of the amount in property
gross income Under rules and
Examples regulations prescribed by
: the Sec. of Finance, a person
1. interest or rent income who regularly sells or
earned but not yet otherwise disposes of
received personal property on the
2. rent expense accrued installment plan may return
but not yet paid as income there from in any
3. wages due to workers taxable year that proportion
but remaining unpaid of the installment payments
actually received in that
2. Accounting for year, which the gross profit
long-term contracts realized or to be realized
Long-term contracts: when payment is completed,
building, installation or bears to the contract price.
construction contracts
covering a period in excess Example: Sale in 2000
of 1 yr Contract price (CP)
Persons whose gross income (installments
is derived in whole or in part receivable) P200, 000
from such contracts shall Cost 150,000
report such income upon the Gross profit (GP) 50,000
basis of percentage of
completion Installments payable in 2
The return is accompanied equal annual installments
by a return certificate of GP/CP ratio

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= 50,000/200,000 = 25%
Collections in 2000=P100,000 taxpayer must be
Income for 2000 entitled to benefits
= P100,000 x 25% = P25,000 under (1) hereof sales of
dealers in personal
(2) Sales of realty and casual property
sales of Personalty in computing income for
In cases of: the year of change or
a. casual sale or other any subsequent year:
casual disposition of amounts actually
personal property received during any such
(other than year on account of sales
inventory on hand of or other dispositions of
the taxpayer at the property made in any
close of the taxable prior year shall not be
year) for a price > excluded.
P1,000, or
b. sale or other 4. Allocation of
disposition of real income and deductions
property, if in either Applicable to: cases of 2 or
case the initial more organizations, trades
payments do not or businesses (incorporated
exceed 25% of the and organized within the
selling price Philippines) owned or
How may income be controlled directly
returned: same as in /indirectly by the same
sales of dealer in interest
personal property above Commissioner is authorized
Initial payments: to distribute, apportion or
payments received in allocate gross income or
cash or property other deductions between or
than evidences of among such organization,
indebtedness of the trade or business, if he
purchaser during the determines that such
taxable period in which distribution, apportionment
the sale or other or allocation is necessary in
disposition is made. order to prevent evasion of
taxes or to clearly reflect
(3) Sales of real the income of any such
property considered as organization, trade or
capital asset by individuals business.
Individual who sells of
disposes of real FILING OF TAX RETURN AND PAYMENT OF TAX
property, considered as
capital asset and is TAX RETURN This is a report made by
otherwise qualified to the taxpayer to the BIR of all gross
report the gain under (2) income received during the taxable
above may pay the year, the allowable deductions including
capital gains tax in exemptions, the net taxable income, the
installments under rules income tax rate, the income tax due,
and regulations to be the income tax withheld, if any, and the
promulgated by the Sec. income tax still to be paid or
of Finance. refundable.
(4) Change from accrual to

installment basis

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PERSONS REQUIRED TO FILE INCOME TAX same information contained in the

RETURN employers annual return.
a. Individual HOW IS SUBSTITUTED FILING DIFFERENT

1. Resident citizen; FROM NON-FILING?
2. Non-resident citizen on income
from within the Phil.; Substituted Filing an individual
3. Resident alien on income from taxpayer although required
within the Phil.; under the law to file his income
4. NRAETB on income from within tax return, will no longer have
the Phil. to personally file his own income
5. An individual (citizens / aliens) tax return.
engaged in business or practice but instead the
of a profession within the Phil. employers annual information
regardless of the amount of return filed is the considered
gross income; substitute income tax return
6. Individual deriving compensation of the employee inasmuch as the
income concurrently from two or information in the employers
more employers at any time return is exactly the same
during the taxable year; information contained in the
7. Individual whose pure employees return.
compensation income derived
from sources within the Phil. Non-filing applicable to certain
exceeds P60,000. types of individual taxpayers
b. Taxable Estate and Trust who are not required under the
c. General Professional Partnership law to file an income tax return.
d. Corporation Example: employee whose
1. Not exempt from income tax; pure compensation income does
2. Exempt from income tax under not exceed P60,000 and has only
Sec. 30 of NIRC but has not one employer for the taxable
shown proof of exemption. year and whose tax withheld is
equivalent to his tax due.
INDIVIDUALS EXEMPT FROM FILING INCOME TAX
RETURN SUBSTITUTED FILING OF INCOME TAX RETURNS
BY EMPLOYEES RECEIVING PURELY
1. Individual whose gross income does COMPENSATION INCOME. [SECTION 4, RR 3-
not exceed total personal and 2002; RMC 01-03]
additional exemptions;
2. Individual with respect to pure Requisites:
compensation income derived from 1. The employee receives purely
sources within the Philippines, the compensation income (regardless of
income tax on which has been amount) during the taxable year.
correctly withheld; 2. The employee receives the income
3. Individual whose sole income has only from one employer during the
been subjected to final withholding taxable year.
income tax; 3. The amount of tax due from the
4. Individual who is exempt from employee at the end of the year
income tax. equals the amount of tax withheld
by the employer.
SUBSTITUTED FILING is when the 4. The employee's spouse also complies
employers annual return may be with all three (3) conditions stated
considered as the substitute Income above.
Tax Return (ITR) of employee inasmuch 5. The employer files the annual
as the information provided in his information return (BIR Form No.
income tax return would exactly be the 1604-CF)

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6. The employer issues BIR Form 2316 REQUIREMENT OF BANKS FOR SUBMISSION OF
(Oct 2002 ENCS) version to each AN ITR FOR LOAN O R CREDIT CARD
employee APPLICATIONS
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED Banks may require the submission of
FILING (STILL REQUIRED TO FILE) BIR Form No. 1700 (for employees not
entitled to substituted filing of ITR).
1. Individuals deriving compensation However, for employees entitled to
from two or more employers substituted filing of ITR, the submission
concurrently or successively during of the Joint Certification will suffice.
the taxable year.
2. Employees deriving compensation JOINT CERTIFICATION - It is a sworn
income, regardless of the amount, statement made by the employer and
whether from a single or several employee, which serve the following
employers during the calendar year, purposes:
the income tax of which has not 1. It contains the employee's consent
been withheld correctly (i.e. tax due that BIR Form No. 1604CF may be
is not equal to the tax withheld) considered his substituted return, in
resulting to collectible or refundable lieu of BIR Form No. 1700, which the
return. employee no longer filed.
3. Employees whose monthly gross 2. It contains the employer's
compensation income does not certification that he has reported
exceed P5,000 or the statutory the employee's income to the BIR
minimum wage, whichever is higher, and that he has remitted the taxes
and opted for non-withholding of tax on the employee's income, as
on said income. indicated in BIR Form No. 1604-CF.
4. Individuals deriving other non- 3. It serves as proof of financial
business, non-profession-related capacity in case the employee
income in addition to compensation decides to apply for a bank loan or a
income not otherwise subject to credit-card, or for any other
final tax. purpose, as if he had in fact filed a
5. Individuals receiving purely BIR Form No. 1700.
compensation income from a single
employer although the income tax of INDIVIDUALS REQUIRED TO FILE AN
which has been correctly withheld, INFORMATION RETURN
but whose spouse falls under 1 to 4
above. Individuals not required to file an
6. Non-resident aliens engaged in trade income tax return may nevertheless be
or business in the Philippines required to file an information return
deriving purely compensation pursuant to rules and, regulations
income, or compensation income prescribed by the Secretary of Finance
and other non-business, non- upon recommendation of the
profession-related income. Commissioner.
NOTE: Non-filing of ITR, for employees PLACE OF FILING

who are qualified for the substituted
filing shall be OPTIONAL for the taxable 1. Legal residence - authorized agent
year 2001, the returns for which shall be bank; Revenue District Officer;
filed on or before April 15, 2002. Collection agent or duly authorized
Thereafter, substituted filing where treasurer
applicable shall be MANDATORY. [Sec 5 2. Principal place of business
RR 3-2002) 3. With the Office of the Commissioner

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Time For Filing (Pay as you file system) parent shall be included in the
return of the parent, except:
April 15 for those earning sole a. when donors tax has been paid
compensation income or solely business, on such property, or
practice of profession or combination of b. when transfer of such property is
business and compensation. exempt from donors tax
RETURN AND PAYMENT OF ESTIMATED INCOME PERSONS UNDER DISABILITY

TAX BY INDIVIDUAL (SELF-EMPLOYED OR
PRACTICE OF PROFESSION) If a taxpayer is unable to make his
own return, it may be made by his
1. First quarter - April 15 of current year 1. duly authorized agents;
2. Second quarter -August 15 of current 2. representative;
year 3. by guardian;
3. Third quarter November 15 of current 4. other person charged with the care
year of his person or property;
4. Final quarter - April 15 of the following who will assume the responsibility of
year. making the return and incurring
penalties provided for erroneous,
Note: When the tax due is in excess of P2, false or fraudulent return.
000 - the taxpayer may elect to pay in two
(2) equal installments: RETURN OF ESTATE, TRUST AND PARTNESHIP
1st installment - April 15
2nd installment - on or before July 15 Estate and Trust with gross income
of P20,000 or more and partnership
EXTENSION OF TIME TO FILE RETURN (whether professional or business) shall
file their income tax return on or before
The Commissioner may on April 15.
meritorious cases grant a reasonable
extension of time for filing income tax TAX RETURNS OF GENERAL PROFESSIONAL
return and may subject the imposition of PARTNERSHIPS (GPP)
twenty (20) percent interest per annum Each GPP shall file in duplicate, a
from the original due date. return of its income (except those
income exempt)
Return Of Husband And Wife Shall set forth:
a. items of gross income and
File one (1) return for the taxpayer deductions allowed
year if following requisites b. names of partners
complied; c. TIN
a. Married individuals (citizens, d. address and share of each
resident or nonresident aliens) partner
b. Do not derived income purely
from compensation. Tax Return of a Corporation
If impracticable to file one return: Those required to file:
each spouse file a separate return of 1. Corporation subject to tax having
income but the return so filed shall existed during the taxable year,
be consolidated by the Bureau for whether with income or not.
the purposes of verification for the 2. Corporation in the process of
year. liquidation or receivership.
3. Insurance company doing business in
UNMARRIED MINOR the Philippines or deriving income
therein
Income of unmarried minors derived 4. Foreign corporation having income
from property received by the living from within the Philippines
Filing of return (Pay as you file system)

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Quarterly returns for the first three

(3) quarters on a strictly sixty (60) day - arises at the time an income is paid
basis and the final or adjusted return on or payable, whichever comes first. The
the 15th day of the fourth (4th) month term payable refers to the date the
following the close of either a-fiscal on obligation becomes due, demandable or
calendar year. legally enforceable. (Sec. 2.54.4 Rev.
Regs. 2.98)
See Annex V for Illustration.
Nature of Withholding Agents Liability
Who shall file? The withholding agent is directly
The return shall be filed by the and independently liable for the correct
president, vice-president, or other amount of the tax that should be
principal officer, and shall be sworn to by withheld from the dividend remittance.
such officer and by the treasurer or (Commissioner vs. Procter and Gamble,
assistant treasurer. GR No. 66838, December 2, 1991)
WITHHOLDING TAXES CONSEQUENCES FOR FAILURE TO WITHHOLD:

1. liable for surcharges and
Withholding Taxes penalties;
Kinds: 2. liable upon conviction to a penalty
1. Withholding Tax at Source: equal to the total amount of the
a. Final Withholding Tax tax not withheld, or not accounted
b. Creditable Withholding Tax for and remitted. (Sec. 251, 1997
(Expanded withholding tax) NIRC)
2. Withholding Tax on Compensation 3. any income payment which is
(Wages) otherwise deductible from the
3. Withholding Tax on Creditable payors gross income will not be
Value-Added Tax allowed as a deduction if it is
4. Withholding of Percentage Tax shown that the income tax
required to be withheld is not paid
FINAL CREDITABLE to the BIR. (Sec. 2.58.5, Rev. Reg.
WITHHOLDING WITHHOLDING 2-98)
TAX SYSTEM TAX SYSTEM
Withholding Tax On Compensation
The amount of Taxes withheld on Every employer must withhold
income tax withheld certain income from compensation paid, an amount
by the withholding payments are computed in accordance with the
agent is constituted intended to equal or regulations.
as a full and final at least approximate
payment of the the tax due from the Exception:
income due from the payee on the said
Where such compensation
payee on the said income.
income. [Sec. 2.57 income of an individual:
(a), Rev. Reg. 2-98] 1. Does not exceed the statutory
minimum wages; or
The liability for The income 2. Five thousand (P5,000) monthly
payment of the tax recipient is still (P60,000 a year)
rests primarily on required to file an whichever is higher.
the payor or the income tax return
withholding agent. and/or pay the ELEMENTS OF WITHHOLDING ON
The payee is not difference between
COMPENSATION
required to file an the tax withheld and
income tax return the tax due on the 1. There must be an employer-
for the particular income. [Sec. employee relationship
income. 2.57(B), Rev. Regs. 2. There must be payment of
2-98] compensation or wages for services
rendered
Time to Withhold Tax at Source 3. There must be a payroll period.

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COMPENSATION EXEMPTED Income of Recipient [Sec. 58 (d)]
1. Remunerations received as an Income which any creditable tax is

incident of employment required to be withheld at source
2. Remunerations paid for agriculture shall be included in the return of its
labor recipient.
3. Remunerations paid for domestic The excess of the amount of tax
services withheld over the tax due on his
4. Remunerations for casual not in the return shall be refunded to him,
course of an employer's trade or subject to Section 204 (abatement,
business. refund/credit taxes).
5. Compensation for services of a If amount withheld at source is less
citizen, resident of the Philippines, than the tax due on his return, the
for a foreign government or an difference is paid in accordance with
international organization Section 56 (payment and assessment
6. Damages of income tax).
7. Life insurance All taxes withheld shall be
8. Amount received by the insured as considered as trust funds and
return of premium maintained in a separate account
9. Compensation for injuries and and not commingled with any other
sickness funds of the withholding agent.
10. Income exempt under treaty
11. Thirteenth (13th) month pay and
other benefits
B. TRANSFER TAXES
12. GSIS; SSS; Philhealth and other
contributions,
TRANSFER TAX INCOME TAX
Tax-Free Covenant BOND [Sec. 57(C)]
Tax on transfer of Tax on income
property.
COVENANT BONDS bonds, mortgages,
deeds of trust and other similar Rates are lower Rates are higher
obligations of domestic/resident foreign --5% to 20% - -- 5% to 32%
corporation, which contain a estate tax
contract/provision by which the obligor -- 2% to 15 % or
agrees; 30% - donors
1. to pay any portion of the tax tax
imposed upon the obligee;
2. to reimburse the obligee for any Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the (1) ESTATE TAXES
obligor may be required/permitted
to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
transmitting property at the time of
Obligor shall deduct and withhold a death and on the privilege that a person
tax = 30% of the interest and other is given in controlling to a certain extent
payments whether interest or other the disposition of his property to take
payments are payable annually or at effect upon death.
a shorter period; whether bonds,
securities, obligations had been/will Estate Tax Formula
be issued/ marketed and the
interest and other payments paid Gross Estate (Sec. 85)
within and without the Philippines if Less: (1) Deductions (Sec. 86)
the interest or other payment is (2)Net share of the SS in the CPP
payable to a non-resident alien or a
citizen or resident of the Philippines Net Taxable Estate

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Multiply by: Tax rate (Sec. 84) 3. Shares, obligations or bonds issued
Estate Tax due by any foreign corporation eighty-
Less: Tax Credit [if any] (Sec. 86[E] or five per centum (85%) of the
110[B] business of which is located in the
Philippines;
Estate Tax Due, if any
4. Shares, obligations or bonds issued
by any foreign corporation, if such
shares, obligations or bonds have
GROSS ESTATE acquired a business situs in the
Philippines;
A decedents gross estate includes 5. Shares or rights in any partnership,
(Sec. 85) business or industry established in
the Philippines.
RESIDENT & NON-
RESIDENT CITIZEN, NON-RESIDENT
RESIDENT ALIEN ALIEN DECEDENT Intangible personal property, with a
DECEDENT situs in the Philippines, of a decedent
who is a non-resident alien shall not
1. Real property 1. Real property
wherever situated situated in the form part of the gross estate if
Philippines. (reciprocity clause) (Sec. 104)
2. Personal property 2. Personal 1. the decedent at the time of his

wherever situated property death was a citizen and resident of a
a) Tangible, and a) Tangible foreign country which at the time of
b) Intangible property his death
situated in a. did not impose a transfer tax or
the
death tax of any character
Philippines
b) Intangible
1. in respect of intangible personal
personal property of citizens of the
property Philippines not residing in that
with a situs foreign country; or
in the 2. the laws of the foreign country of
Philippines which the decedent was a citizen
unless and resident at the time of his death
exempted a. allow a similar exemption from
on the basis
transfer taxes or death taxes of
of
reciprocity.
every character
b. in respect of intangible personal
property owned by citizens of
The law that governs the imposition of
the Philippines not residing in
estate tax
that foreign country
(Reciprocity).
The statute in force at the time of
death of the decedent shall govern
Valuation of the gross estate
estate taxation.
The properties comprising the gross
Intangible personal properties with a
estate shall be valued based on their fair
situs in the Phil. (Sec. 104, 1997
market value as of the time of death.
NIRC)
1. Franchise which must be exercised PROPERTY VALUATION

in the Philippines;
1) Real Property - fair market value
2. Shares, obligations or bonds issued a) as determined by the
by any corporation or sociedad Commissioner or
anonima organized or constituted in b) as shown in the
the Philippines in accordance with schedule of values
its laws;

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fixed by the possess or enjoy the property or

provincial and city the income therefrom.
assessors
WHICHEVER IS HIGHER Exception: bona fide sale for an
adequate and full consideration in
2) Shares of Stock
money or moneys worth.
Unlisted
Common Shares -book value
Preferred -par value 3. REVOCABLE TRANSFER
Shares -arithmetic mean A transfer whereby the terms of
between the highest and enjoyment of the property may be
Listed lowest quotation at a altered, amended, revoked or
date nearest the date of terminated by the decedent alone or in
death, if none is conjunction with any other person, or
available on the date of where any such power is relinquished in
death itself.
contemplation of the decedents death.
It is enough that the decedent had the
3)Right to - shall be taken into
usufruct, use or account the probable power to alter, amend or revoke though
habitation, as life of the beneficiary in he did not exercise such power.
well as that of accordance with the
annuity latest basic standard Exception: bona fide sale for an
mortality table, to be adequate and full consideration in
approved by the money or moneys worth.
Secretary of Finance,
upon recommendation of 4. TRANSFER UNDER GENERAL POWER
the Insurance
OF APPOINTMENT
Commissioner.
A power of appointment is the right
4) Personal - whether tangible or to designate the person or persons who
property intangible, appraised at will succeed to the property of the prior
FMV. Sentimental decedent.
value is practically The general power of appointment
disregarded. may be exercised by the decedent:
1. by will; or
2. by deed executed in contemplation
Inclusions in the Gross Estate (Sec. 85) of his death; or
3. by deed under which he has retained
1. DECEDENTS INTEREST for his life or for any period not
To the extent of the interest in ascertainable without reference to
property of the decedent at the time of his death or for any period which
his death. does not in fact end before his
death:
2. TRANSFER IN CONTEMPLATION OF a. the possession or enjoyment of,
DEATH or the right to the income from
1. A transfer motivated by the thought the property; or
of impending death although death b. the right, either alone or in
may not be imminent; or conjunction with any person, to
designate the persons who shall
2. A transfer by which the decedent possess or enjoy the property or
retained for his life or for any period the income therefrom.
which does not in fact end before his
death: Exception: bona fide sale for an
a. the possession or enjoyment of, adequate and full consideration in
or the right to the income from money or moneys worth.
the property, or
b. the right, either alone or in 5. PROCEEDS OF LIFE INSURANCE
conjunction with any person, to Proceeds of life insurance taken by
designate the person who shall the decedent on his own life shall be

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66
included in the gross estate if the 3. The transmission from the first heir,
beneficiary is: legatee or donee in favor of another
a. the estate of the decedent, his beneficiary, in accordance with the
executor or administrator will of the predecessor; and
(regardless whether the designation All bequests, devices, legacies or
is revocable or irrevocable); or transfers to social welfare, cultural and
b. a third person other than the estate, charitable institutions no part of the net
executor or administrator where the income of which inures to the benefit of
designation of the beneficiary is any individual; Provided, that not more
revocable. than 30% of the said bequests, legacies
or transfers shall be used by such
6. TRANSFERS FOR INSUFFICIENT institutions for administration purposes.
CONSIDERATION
The value to be included in the gross DEDUCTIONS ON GROSS ESTATE
estate is the excess of the fair market APPLICABLE TO
value of the property at the time of the RESIDENT ALIENS AND CITIZENS
decedents death over the consideration (REVENUE REGULATIONS 2-2003)
received. This is applicable in cases of
transfer in contemplation of death,
The following are deductible from
revocable transfer and transfer under
the gross estate of citizens and resident
general power of appointment made for
aliens:
a consideration but is not a bona fide
1. Expenses, losses, indebtedness,
sale for an adequate and full
taxes, etc. (ordinary deductions)
consideration in money or moneys
2. Transfer for public use
worth.
3. Vanishing deduction
4. Family home
7. PRIOR INTERESTS
5. Standard deduction equivalent to
All transfers, trusts, estates,
one million pesos (P1,000,000)
interests, rights, powers and
6. Medical expenses
relinquishment of powers made,
7. Amounts received by heirs under RA
created, arising, existing, exercised or
4917 (Retirement Benefits)
relinquished before or after the
8. Net share of the surviving spouse in
effectivity of the NIRC.
the conjugal or community property
Property relations between Husband
and Wife 1. ORDINARY DEDUCTIONS
The property relations between the
spouses shall be governed by contract A. Funeral Expenses
(marriage settlement) executed before The amount deductible is the lowest
the marriage. among the following:
1. actual funeral expenses
In the absence of such contract, or if 2. 5% of the gross estate
the contract is void: 3. P200,000.
On marriages contracted before August
3, 1988, the system of conjugal It includes the following:
partnership of gains shall govern; 1. Mourning apparel of the surviving
On marriages contracted on or after spouse and unmarried minor children
August 3, 1988 (effectivity of the of the deceased, bought and used in
Family Code of the Philippines), the the occasion of the burial.
system of absolute community of 2. Expenses of the wake preceding the
property shall govern. burial including food and drinks.
3. Publication charges for death
Exempt Transmissions (Sec. 87) notices.
1. The merger of usufruct in the owner 4. Telecommunication expenses in
of the naked title; informing relatives of the deceased.
2. Fideicommisary substitution;

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67
5. Cost of burial plot. Tombstone Requisites:

monument or mausoleum but not 1. The liability represents a
their upkeep. In case deceased personal obligation of the
owns a family estate or several deceased existing at the time of
burial lots, only the value his death except unpaid
corresponding to the plot where he obligations incurred incident to
is buried is deductible. his death such as unpaid funeral
6. Interment fees and charges. expenses (i.e., expenses
7. All other expenses incurred for the incurred up to the time of
performance of the ritual and interment) and unpaid medical
ceremonies incident to the expenses which are classified
interment. under a different category of
Expenses incurred after the deductions;
interment, such as for prayers, masses, 2. The liability was contracted in
entertainment, or the like are not good faith and for adequate and
deductible. full consideration in money or
Any portion of the funeral and burial money's worth;
expenses borne or defrayed by relatives 3. The claim must be a debt or
and friends of the deceased are not claim which is valid in law and
deductible. enforceable in court;
4. The indebtedness must not have
B. JUDICIAL EXPENSES OF THE been condoned by the creditor
TESTAMENTARY OR INTESTATE or the action to collect from the
PROCEEDINGS decedent must not have
Expenses allowed as deduction under prescribed.
this category are those:
1. incurred in the inventory-taking D. CLAIMS AGAINST INSOLVENT PERSONS
of assets comprising the gross
estate, Requisites:
2. administration, 1. The amount thereof has been
3. payment of debts of the estate, initially included as part of his gross
as well as the distribution of the estate (for otherwise they would
estate among the heirs. constitute double deductions if they
In short, these deductible items are were to be deducted)
expenses incurred during the settlement 2. The incapacity of the debtors to pay
of the estate but not beyond the last day their obligation is proven.
prescribed by law, or the extension
thereof, for the filing of the estate tax C. UNPAID MORTGAGE
return. In case unpaid mortgage payable is
being claimed by the estate,
C. CLAIMS AGAINST THE ESTATE verification must be made as to who
The word "claims" is generally was the beneficiary of the loan
construed to mean debts or demands of proceeds.
a pecuniary nature which could have If the loan is found to be merely an
been enforced against the deceased in accommodation loan where the loan
his lifetime and could have been proceeds went to another person,
reduced to simple money judgments. the value of the unpaid loan must be
included as a receivable of the
Claims against the estate or estate.
indebtedness in respect of property may If there is a legal impediment to
arise out of: recognize the same as receivable of
1. Contract; the estate, said unpaid obligation/
2. Tort; or mortgage payable shall not be
3. Operation of Law. allowed as a deduction from the
gross estate.

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In all instances, the mortgaged deduction allowed diminishes over a

property, to the extent of the period of five years. The rate of
decedent's interest therein, should deduction depends on the period from
always form part of the gross the date of transfer to the death of the
taxable estate. decedent, as follows:
F. TAXES PERIOD DEDUCTION

Taxes which have accrued as of the 1 year or less 100%
death of the decedent which were 1 year 2 years 80%
unpaid as of the time of death. 2 years 3 years 60%
3 years 4 years 40%
The following are not deductible:
4 years 5 years 20%
1. income tax on income received
after death
2. property taxes not accrued Requisites:
before death 1. the present decedent died within 5
3. estate tax years from transfer of the property
from a prior decedent or donor.
G. LOSSES 2. The property must be located in the
Requisites: Phils.
1. It should arise from fire, storm, 3. The property formed part of the
shipwreck, or other casualty, taxable estate of the prior decedent,
robbery, theft or embezzlement; or of the taxable gift of the donor.
2. Not compensated by insurance 4. The estate tax or donors tax on the
or otherwise; gift must have been finally
3. Not claimed as deduction in an determined and paid.
income tax return of the taxable 5. The property must be identified as
estate; the one received from the prior
4. Occurring during the settlement decedent, or something acquired in
of the estate; and exchange therefor.
5. Occurring before the last day for 6. No vanishing deduction on the
the payment of the estate tax property was allowable to the estate
(last day to pay: six months after of the prior decedent.
the decedents death).
4. FAMILY HOME
2. TRANSFER FOR PUBLIC USE
Conditions:
Requisites: 1. The family home must be the actual
1. The disposition is in a last will and residential home of the decedent
testament and his family at the time of his
2. To take effect after death death, as certified by the Barangay
3. In favor of the government of the Captain of the locality where the
Phil., or any political subdivision family home is situated;
thereof 2. The total value of the family home
4. For exclusive public purposes. must be included as part of the gross
estate of the decedent; and
Note: This should also include bequests, 3. Allowable deduction must be in an
devices, or transfers to social welfare, amount equivalent to
cultural and charitable institutions. 1. the current fair market value of
the family home as declared or
3. VANISHING DEDUCTION included in the gross estate, or
2. the extent of the decedent's
DEFINITION: The deduction allowed from interest (whether
the gross estate for properties that were conjugal/community or exclusive
subject to donors or estate taxes. It is property), whichever is lower,
called vanishing deduction because the but not exceeding P1,000,000

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5. STANDARD DEDUCTION DEDUCTIONS ON GROSS

ESTATE APPLICABLE TO
A deduction in the amount of One
NON-RESIDENT ALIENS
Million Pesos (P1,000,000) shall be
allowed as an additional deduction
The following are deductible from the gross
without need of substantiation. estate of non-resident aliens:
The full amount of P1,000,000 shall
be allowed as deduction for the benefit 1. Expenses, losses, indebtedness and
of the decedent. taxes (ELIT) (ordinary deductions)
6. MEDICAL EXPENSES Formula:

Tax = Phil. Gross
Credit Estate X World
Any amount of medical expenses
Limit World Gross ELIT
incurred within one year from death
Estate
in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be
2. Transfer for public use
allowed as a deduction under this
subsection.
3. Vanishing deduction on property in
Neither can any unpaid amount the Philippines.
thereof in excess of the P500,000
threshold nor any unpaid amount for 4. Conjugal share of the surviving
medical expenses incurred prior to spouse
the one-year period from date of
death be allowed to be deducted
ESTATE TAX CREDIT
from the gross estate as claim
against the estate.
A tax credit is granted for estate
taxes paid to a foreign country on the
7. AMOUNT RECEIVED BY HEIRS
estate of citizens and resident aliens
UNDER REPUBLIC ACT NO. subject to the following limitations
4917
1. One foreign country only
Any amount received by the heirs The tax credit is whichever is
from the decedent's employer as a lower between:
consequence of the death of the 4. Estate tax paid to the foreign
decedent-employee in accordance with country
Republic Act No. 4917 is allowed as a 5. Tax Credit Limit =
deduction provided that the amount of NTE, foreign country X Phil. estate
the separation benefit is included as NTE, world Tax
part of the gross estate of the decedent.
(NTE - Net Taxable Estate)
8. NET SHARE OF THE
SURVIVING SPOUSE IN THE 2. More than one foreign country
CONJUGAL PARTNERSHIP OR The credit shall be that which is
COMMUNITY PROPERTY the lower amount between Limit A
and Limit B.
After deducting the allowable
Limit A. Whichever is lower
deductions (only the ordinary
between:
deductions) appertaining to the conjugal
or community properties included in the Estate tax paid to a foreign
gross estate, the share of the surviving country
spouse must be removed to ensure that Tax Credit Limit =
only the decedent's interest in the NTE, foreign country X Phil. estate
estate is taxed. NTE, world Tax

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Limit B. Whichever is lower When The Gross Estate Exceeds

between: P2,000,000, The Estate Tax Return
Total of estate taxes paid to all Shall Be Accompanied By A Statement
foreign countries Which Is Certified By An Independent
Tax Credit Limit = Certified Public Accountant Stating
NTE outside Phil. X Phil. estate 1. the itemized assets of the decedent
NTE, world Tax with its corresponding gross value at
the time of his death, or in the case
of a non-resident, not citizen of the
SETTLEMENT OF THE Philippines, that part of his gross
estate situated in the Philippines;
ESTATE TAX
2. the itemized deductions from the
gross estate;
A. FILING 3. the amount of tax due, whether paid
or still due and outstanding.
Notice Of Death To Be Filed
In all cases of transfers subject to Place Where to File the Estate Tax
tax, or where, though exempt from tax, Return
the gross value of the estate exceeds
P20,000, the executor, administrator or 1. Resident Citizen
any of the legal heirs, within two - with the Accredited Agent Bank
months after the decedents death, or (AAB), Revenue District Officer,
within a like period after qualifying as Collection Officer or duly authorized
such executor or administrator, shall Treasurer of the city or municipality
give a written notice thereof to the where the decedent was domiciled at
Commissioner. (Sec. 89) the time of his death.
An Estate Tax Return Is Required To Be 2. Non-resident (citizen or alien)

Filed a. has registered executor or
1. when the estate is subject to estate administrator
tax; or - with the Revenue District
2. when the estate is not subject to Office where such executor or
estate tax but the gross estate administrator is registered
exceeds P 200,000; or b. executor or administrator is not
3. regardless of the amount of the registered
gross estate, where the gross estate - with the Revenue District
consists of registered or registrable Office having jurisdiction over
property such as motor vehicle or the executor or administrators
shares of stock or other similar residence
property for which clearance from c. no executor or administrator
the BIR is required as a condition - with the Office of the
precedent for the transfer of Commissioner (Sec. 9C, Rev. Reg.
ownership thereof in the name of 2-2003)
the transferee.
B. PAYMENT
Time for Filing of the estate tax return
The estate tax return shall be filed Payment of the estate tax due
within six (6) months after the death of The estate tax due shall paid at the
the decedent. time when the estate tax return is filed.
When the Commissioner finds that
Extension: The BIR may, in meritorious the payment of the estate tax on the
cases, grant an extension of not due date would impose undue hardships
exceeding thirty (30) days for the filing upon the estate or any heir:
of the estate tax return. a. the payment of the estate tax
may be extended for a period
not to exceed five (5) years if

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there is a judicial settlement of There is nothing in the Tax Code and

the estate; or in the pertinent remedial law that
b. the payment of the estate tax implies the necessity of the probate
may be extended for a period court or estate settlement of courts
not to exceed two (2) years if approval of the States claim for estate
there is an extra-judicial taxes before the same can be enforced
settlement of the estate. and collected by the BIR. On the
NOTE: In case the available cash is not contrary, under Section 94, it is the
sufficient to pay its total estate tax probate or settlement court which is
liability, the estate may be allowed to bidden not to authorize the delivery of
pay tax by installment. (Sec. 9F, Rev. the distributive share to any interested
Reg. 2-2003) party without a certification from the
CIR showing the payment of the estate
Liability for Payment tax. (Marcos II vs. Court of Appeals, GR
The estate tax shall be paid by the No. 120880, June 5, 1997)
executor or administrator before delivery
to any beneficiary of his distributive share COLLECTION OF TAX FROM THE HEIRS
of the estate. An estate or inheritance tax,
Such beneficiary to the extent of his whether assessed before or after the
distributive share of the estate shall be death of the deceased, can be collected
subsidiarily liable for the payment of from the heirs even after the
such portion of the estate tax as his distribution of the properties of the
distributive share bears to the value of decedent. (Palanca vs. Commissioner of
the total net estate. (Sec. 9G, Rev. Reg. Internal Revenue, GR No. 16661,
2-2003) January 31, 1962)
No judge shall authorize the
distribution of the estate unless a The Government has two ways of
certification from the Commissioner that collecting taxes due from the estate.
tax has been paid is shown. (Sec. 94) a. By going after all the heirs and
No shares or other forms of securities collecting from each one of
shall be transferred in the books of any them the amount of the tax
corporation, partnership, business or proportionate to the inheritance
industry organized in the Philippines, received, or
unless a similar certification by the b. Pursuant to the lien created by
Commissioner is shown. (Sec. 97) Section 219 of the Tax Code
When a bank has knowledge of the upon all property and rights to
death of a person who maintained a property belonging to the
joint account, it shall not allow any taxpayer for unpaid income tax,
withdrawal by the surviving depositor is by subjecting said property of
without the above certification. (Sec. the estate which is in the hands
97) of an heir or transferee to the
Provided: that the administrator of payment of the tax due the
the estate or any one (1) of the heirs of estate. (Commissioner of
the decedent may, upon authorization Internal Revenue vs. Pineda, GR
by the Commissioner, withdraw an No. L 22734, September 15,
amount not exceeding twenty thousand 1967)
pesos (P20,000) without the said
certification.

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(2) DONORS TAXES A gift that is incomplete because of

reserved powers, becomes complete
DEFINITION: A tax on the privilege of when either:
transmitting ones property or property 1. the donor renounces the power; or
rights to another or others without 2. his right to exercise the reserved
adequate and full valuable power ceases because of the
consideration. happening of some event or
contingency or the fulfillment of
Coverage Of The Tax (SEC. 104) some condition, other than because
of the donor's death.
RESIDENT & NON- Renunciation by the surviving
RESIDENT CITIZEN, NON-RESIDENT spouse of his/her share in the
RESIDENT ALIEN ALIEN DONOR conjugal partnership or absolute
DONOR community after the dissolution
of the marriage in favor of the
1. Real property 1. Real property heirs of the deceased spouse or
wherever situated situated in the any other person/s is subject to
Philippines. donor's tax.
Whereas general renunciation
2. Personal property 2. Personal property by an heir, including the
wherever situated a. Tangible property surviving spouse, of his/her
a. Tangible, and situated in the share in the hereditary estate
Intangible Philippines
left by the decedent is not
b. Intangible
personal property subject to donor's tax, unless
with a situs in the specifically and categorically
Philippines unless done in favor of identified heir/s
exempted on the to the exclusion or disadvantage
basis of of the other co-heirs in the
reciprocity. hereditary estate. (Sec. 11, Rev.
Reg. 2-2003)
Requisites
STRANGER - a person who is not a
1. Capacity of the donor brother, sister, spouse, ancestor and
2. Donative Intent lineal descendant, or of a relative by
3. Delivery, whether actual or consanguinity in the collateral within the
constructive, of the subject gift 4th civil degree.
4. Acceptance by the donee A legally adopted child is entitled to
all the rights and obligations
Law that governs the imposition of provided by law to legitimate
Donors Tax children, and therefore, donation to
him shall not be considered as
The donors tax shall not apply donation made to stranger.
unless and until there is a completed Donation made between business
gift. The transfer is perfected from the organizations and those made
moment the donor knows of the between an individual and a business
acceptance by the donee; it is organization shall be considered as
completed by the deliver, either donation made to a stranger.
actually or constructively, of the
donated property to the donee. Thus, Valuation of gifts of property
the law in force at the time of the The fair market value of the
perfection/completion of the donation property given at the time of the gift
shall govern the imposition of the shall be the value of the gift.
donors tax.

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Intangible personal properties with a or philanthropic organization,

situs in the Phil. (same as in estate tax research institution or
subject to the reciprocity rule) (Sec. organization, accredited non-
104) government organization (NGO).
Provided, that no more than 30%
Formula: (On a cumulative basis over a of said gifts shall be used by
period of one calendar year) such donee for administration
purposes.
1. On the 1st donation of a year 2. Gifts made by a non-resident not
a citizen of the Phil.
Gross gifts xxx a. same as (b)
Less: Deductions from gross xxx b. same as (c) except accredited
gifts non-government organization
Net gifts xxx (NGO)
Multiply by: Tax Rate xxx
Donors tax on the net gifts xxx A non-profit educational and/or
charitable corporation, institution,
accredited non-government
2. On donation of a subsequent
organization, trust or philantrophic
date during the year
organization, research institution or
organization is
Gross gifts made on this date XX
Less: Deductions from gross gifts XX
1. one incorporated as a non-stock
Net gifts XX
entity
Add: All prior net gifts within the XX
2. paying no dividends
year
3. governed by trustees who receive no
Aggregate net gifts XX
compensation, and
Multiply by: Tax Rate XX
4. devoting all its income whether
Donors tax on aggregate net gifts XX students fees or gifts, donations,
Less: Donors tax on all prior net XX subsidies or other forms of
gifts philantrophy to the accomplishment
Donors tax on the net gifts on this XX and promotion of the purposes
date enumerated in its Articles of
Incorporation.
Exemption of certain gifts
Tax credit for donors taxes paid to a
1. Gifts made by a resident foreign country
a. Dowries or gifts made on
account of marriage and before 1. Donor was a Filipino citizen or
its celebration or within one resident alien
year thereafter by parents to 2. At time of foreign donation
each of their legitimate, 3. Donors taxes of any character and
illegitimate or adopted children description
to the extent of the first P10, 4. Are imposed and paid by the
000. authority of a foreign country.
b. Gifts made to or for the use of
the National Government or any Limitations on tax credit
entity created by any of its
agencies which is not conducted 1. The amount of the credit in respect
for profit, or to any political to the tax paid to any country shall
subdivision of the said not exceed the same proportion of
government. the tax against which such credit is
c. Gifts in favor of educational, taken, which the decedents net
charitable, religious, cultural or gifts situated within such country
social welfare corporation, taxable under the NIRC bears to his
institutions, foundations, trust entire net gift; and

Cabrera, Jhundee
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2. The total amount of the credit shall NOTE: The filing of a notice of donation
not exceed the same proportion of is not required, unlike in estate tax
the tax against which such credit is where notice of death is required.
taken, which the decedents net gift
situated outside the Philippines Place for Filing of Return and payment
taxable under the NIRC bears to his of the Donors Tax
entire net gift.
1. Resident
Formula of Tax Credit Limit With an authorized agent bank, the
Revenue District Officer, Revenue
1. For donors taxes paid to one Collection Officer or duly
foreign country authorized Treasurer of the city or
municipality where the donor was
NG situated Tax domiciled at the time of the
in a foreign country X PDT = Credit transfer, or if there be no legal
Entire net gift Limit residence in the Philippines, with
the Office of the Commissioner.
(NG - Net Gifts; PDT - Phil. Donor's Tax) 2. Non-resident
Filed with the Philippine Embassy
2. For donors taxes paid to two or or Consulate in the country where
more foreign country he is domiciled at the time of the
transfer, or directly with the
NG outside the Phil. X PDT = Tax Office of the Commissioner.
Entire net gifts Credit
Limit Tax rate
The allowable tax credit is the If the donee is a stranger, the rate of
lower amount between the tax credit tax shall be 30% of the net gifts.
limit under (a) and (b). If the donee is not a stranger,
the rate shall be from 2% to 15% of the
net gifts.
SETTLEMENT OF THE DONORS TAX
See Annex W - Donors Tax
Time for Filing of Return and payment
of the Donors Tax
The donors tax return is filed and C. TAX REMEDIES
the donors tax due is paid within thirty UNDER THE NIRC
(30) days after the date the gift is made.
The return shall be under oath in
duplicate setting forth: I. TAX REMEDIES OF THE
1. Each gift made during the calendar GOVERNMENT
year which is to be included in
computing net gifts;
Importance
2. The deductions claimed and
allowable;
1. They enhance and support the
3. Any previous net gifts made during
governments tax collection.
the same calendar year;
2. They are safeguards of taxpayers
4. The name of the donee;
rights against arbitrary action.
5. Relationship of the donor to the
donee; and
Tax collection cannot be restrained by
6. Such further information as may be
court injunction (Sec. 218, 1997 NIRC)
required by rules and regulations
made pursuant to law.
Justification: Lifeblood Theory

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Exception: Injunction may be issued by 7. Forfeiture of Property (Sec.

the CTA in aid of its appellate 224-225)
jurisdiction under RA 1125 (as amended 8. Suspension of business
by RA 9282). operations in violation of VAT
(Sec. 115)
Conditions for the Issuance of an 9. Enforcement of Administrative
Injunction by the Court of Tax Appeals Fine
The CTA may enjoin collection of
taxes: The remedies of distraint and levy as
a. If in its opinion the same may well as collection by civil and criminal
jeopardize the interest of the actions may, in the discretion of the
government and/or the taxpayer. Commissioner, be pursued singly or
b. In this instance, the court may independently of each other, or all of
require the taxpayer either to deposit them simultaneously.
the amount claimed or file a surety bond
for not more than double the amount
with the court. (1) COMPROMISE
* Before enforcement of remedies, DEFINITION: A contract whereby the

assessment is necessary to trigger the parties, by reciprocal concessions, avoid
process. If no return is filed, the litigation or put an end to one already
Commissioner is empowered to obtain commenced (Art. 2028, New Civil Code).
information, and to summon/examine,
and take testimony of persons to Requisites
determine the amount of tax due. (Sec. 1. The taxpayer must have a tax
5, 1997 NIRC) liability.
2. There must be an offer (by the
TAX REMEDIES UNDER THE 1997 TAX CODE: taxpayer of an amount to be paid by
the taxpayer)
1. Summary remedies at the 3. There must be an acceptance (by
administrative level or regulation that the Commissioner or taxpayer as the
are executed without ceremony or case may be) of the offer in the
delay; short or concise settlement of the original claim.
2. Substantive remedies provided for
by law or regulation; an essential part or Officers authorized to compromise
constituent or relating to what is
essential 1. The Commissioner of Internal
3. Procedural remedies involving law of Revenue (CIR) with respect to
pleading, evidence, jurisdiction, etc. criminal and civil cases arising from
4. Administrative remedies available at violations of the Tax Code [Secs.
the administration (BIR) level 7(C) and 204, 1997 NIRC]. This
5. Judicial remedies that are power of the CIR is discretionary and
enforced through judicial action, once exercised by him cannot be
which may be civil or criminal reviewed or interfered with by the
Courts. (Koppel, Philippines vs.
tax remedies of the government to Commissioner, GR No. L-1977,
effect collection of taxes September 21, 1950)
2. By the Regional Evaluation Board
1. Compromise (Sec. 204) composed of:
2. Distraint (Actual and a. the Regional Director as
Constructive) (Secs. 205-208) Chairman,
3. Levy (Sec. 207B) b. Assistant Regional Director,
4. Tax Lien (Sec. 219) the heads of the Legal,
5. Civil Action (Sec. 221) Assessment and Collection
6. Criminal Action (Secs. 221, and Divisions, and
222)

Cabrera, Jhundee
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76
c. the Revenue District Officer 1. A reasonable doubt as to the

having jurisdiction over the validity of the claim against the
taxpayer, as members; taxpayer exists; or
on assessments issued by the a. The delinquent account or
regional offices involving basic disputed assessment is one
taxes of P500,000 or less, and resulting from a jeopardy
minor criminal violations. assessment.
b. The assessment seems to be
Cases which may be compromised arbitrary in nature, appearing
to be based on presumptions,
1. Delinquent accounts and there is reason to believe
2. Cases under administrative protests that its is lacking in legal
3. Civil tax cases being disputed before and/or factual basis; or
the courts c. The taxpayer failed to file an
4. Collection cases filed in courts administrative protest on
5. Criminal violations, other than those account of the alleged failure
already filed in court or those to receive notice of assessment
involving criminal tax fraud; and, or preliminary assessment and
6. Cases covered by pre-assessment there is reason to believe that
notices but taxpayer is not agreeable its is lacking in legal and/or
to the findings of the audit office as factual basis; or
confirmed by the review office. d. The taxpayer failed to file a
(Sec.2, Rev. Reg. 7-2001) request for
reinvestigation/reconsideration
Exceptions within 30 days from receipt of
final assessment notice and
1. Withholding tax cases; there is reason to believe that
2. Criminal tax fraud cases; its is lacking in legal and/or
3. Criminal violations already filed in factual basis; or
court; e. The taxpayer failed to elevate
4. Delinquent accounts with duly to the CTA an adverse decision
approved schedule of installment of the Commissioner, or his
payments; authorized representative, in
5. Cases where final reports of some cases, within 30 days from
reinvestigation or reconsideration receipt thereof and there is
have been issued resulting to reason to believe that its is
reduction in the original assessment lacking in legal and/or factual
and the taxpayer is agreeable to basis; or
such decision. f. The assessment were issued on
6. Cases which become final and or after Jan. 1, 1998, where the
executory after final judgment of a demand notice allegedly failed
court, where compromise is to comply with the formalities
requested on the ground of doubtful prescribed under Sec. 228 of
validity of the assessment (RR. 30 the 1997 NIRC; or
2002); g. Assessments made based on the
7. Estate tax cases where compromise Best Evidence Obtainable
is requested on the ground of Rule and there is reason to
financial incapacity of the taxpayer. believe that the same can be
(RR. 302002) disputed by sufficient and
competent evidence.
Commissioner may compromise the h. The assessment was issued
payment of any internal revenue tax within the prescriptive period
when for assessment as extended by
the taxpayer's execution of
Waiver of the Statute of
Limitations the validity or

Cabrera, Jhundee
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77
authenticity of which is being

questioned or at issue and there
is strong reason to believe and
evidence to prove that it is not c. The taxpayer is suffering from a
authentic. (RR. 30 2002) networth deficit (total liabilities
i. The assessment is based on an exceed total assets) computed by
issue where a court of deducting total liabilities (net of
competent jurisdiction made an deferred credits and amounts
adverse decision against the payable to stockholders/owners
Bureau, but for which the reflected as liabilities, except
Supreme Court has not decided business-related transactions)
upon with finality. (RR. 08- from total assets (net of prepaid
2004). expenses, deferred charges, pre-
operating expenses, as well as
2. The financial position of the appraisal increases in fixed
taxpayer demonstrates a clear assets), taken from the latest
inability to pay the assessed tax audited financial statements,
[Sec. 204(A), 1997 NIRC). In such provided that in the case of an
case, the taxpayer should waive the individual taxpayer, he has no
confidentiality privilege on bank other leviable properties under
deposits under RA No. 1405 [Sec. the law other than his family
6(F)(2), NIRC]. home; (Sec. 3, RR. 302002).
Financial Incapacity. The offer
to compromise based on financial c. The taxpayer is a compensation
incapacity may be accepted upon earner with no other source of
showing that: income and the familys gross
a. The corporation ceased operation monthly compensation does not
or is already dissolved. Provided, exceed (P10,500/month if single;
that tax liabilities corresponding P21,000/month if married), and
to the Subscription Receivable or that it appears that the taxpayer
Assets distributed/distributable to possesses no other leviable/
the stockholders representing distrainable assets, other than his
return of capital at the time of family home; or
cessation of operation or
dissolution of business shall not be d. The taxpayer has been granted by
considered for compromise; or the SEC or by any competent
tribunal a moratorium or
b. The taxpayer, as reflected in its suspension of payments to
latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of bankrupt or insolvent. (Sec. 3, RR.
Internal Revenue, is suffering from 07-2001)
surplus or earnings deficit
resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1. The submission of all
which are properly includible in pertinent information, including
the regular "accounts payable" are but not limited to industry
by fiction of law considered as audits, collection performance
part of capital and not liability, data, status reports on criminal
and provided further that the actions initiated against
taxpayer has no sufficient liquid persons; and
asset to satisfy the tax liability; or 2. The submission of taxpayer
returns.

Cabrera, Jhundee
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78
This is more so, when the court

has rendered a final judgment. As a
Minimum Compromise Rates (MCR) of mere agent of the Government, the
any tax liability Commissioner is not authorized to
a. In case of financial incapacity: accept anything less than what is
MCR = 10% of the basic assessed tax adjudicated in favor of the
b. Other cases: Government. By virtue of such final
MCR = 40% of the basic assessed tax judgment, the Government has
[Sec. 204(A), 1997 NIRC] already acquired a vested right.
Approval of the compromise by the Nature of a Compromise in

Evaluation Board is required when Extrajudicial Settlement of the
a. the basic tax involved exceeds Taxpayers Criminal Liability for his
P1,000,000.00, or Violation
b. the settlement offered is less than
the MCR. It is consensual in character, hence,
may not be imposed on the taxpayer
NOTE: The MCR may be less than the without his consent. The BIR may only
prescribed rates of 10% or 40%, as the suggest settlement of his tax liability
case may be, provided it is approved by through a compromise. The extra-
the Evaluation Board (composed of the judicial settlement and the amount of
BIR Commissioner and the four BIR the suggested compromise penalty
Deputy Commissioners). should conform with the schedule of
compromise penalties provided under
Compromise of Criminal Violations the relevant BIR regulations or orders.
General Rule: All criminal violations
under the CTRP may be compromised. Remedy in case the taxpayer refuses
or fails to abide the tax compromise
Exceptions:
1. Those already filed in court 1. Enforce the compromise
2. Those involving fraud [Sec. 204(B), a. If it is a judicial compromise, it
1997 NIRC]. can be enforced by mere
execution. A judicial compromise
Extent of the Commissioners is one where a decision based on
Discretion to Compromise Criminal the compromise agreement is
Violations rendered by the court on request
of the parties.
1. Before the complaint is filed with b. Any other compromise is
the Prosecutors Office: The CIR extrajudicial and like any other
has full discretion to compromise contract can only be enforced by
except those involving fraud. court action.
2. Regard it as rescinded and insist
2. After the complaint is filed with upon original demand (Art. 2041,
the Prosecutors Office but before Civil Code).
the information is filed with the
court: The CIR can still compromise Compromise Penalty
provided the prosecutor must give
consent. It is an amount of money that the
taxpayer pays to compromise a tax
3. After information is filed with the violation. This is paid in lieu of criminal
court: The CIR is no longer prosecution. A taxpayer cannot be
permitted to compromise with or compelled to pay a compromise penalty.
without the consent of the If he does not want to pay, the CIR must
Prosecutor. (People vs. Magdaluyo, institute a criminal action.
GR No. L-16235, April 20, 1961)
COMPROMISE VS. ABATEMENT

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a. Abatement of penalties on
Compromise involves a reduction of assessment confirmed by the
the taxpayers liability, while lower court but appealed by the
abatement means that the entire tax taxpayer to a higher court
liability of the taxpayer is cancelled. b. Abatement of penalties on
ABATEMENT withholding tax assessment under
meritorious circumstances
The Commissioner may abate or cancel c. Abatement of penalties on
a tax liability when delayed installment payment
under meritorious circumstances
1. The tax or any portion thereof d. Abatement of penalties on
appears to be unjustly or assessment reduced after
excessively assessed; [Sec. 204(B), reinvestigation but taxpayer is
1997 NIRC]. still contesting reduced
a. When the filing of the assessment; and
return/payment is made at the e. Such other circumstances which
wrong venue; the Commissioner may deem
b. When the taxpayers mistake in analogous to the enumeration
payment of his tax is due to above. (Sec. 3, Rev. Reg. 13-2001)
erroneous written official advice
of a revenue officer; 3. The Commissioner may also, even
c. When the taxpayer fails to file the without a claim therefor, refund or
return and pay the tax on time credit any tax where on the face of
due to substantial losses from the return upon which payment was
prolonged labor dispute, force made such payment appears clearly
majeure, legitimate business to have been erroneously paid
reverses, provided, however, the (Sec. 229, 1997 NIRC)).
abatement shall only cover the
surcharge and the compromise
penalty and not the interest (2) DISTRAINT
imposed under Sec. 249 of the
Code; DEFINITION: It is the seizure by the
d. When the assessment is brought government of personal property,
about or the result of taxpayers tangible or intangible, to enforce the
non-compliance with the law due payment of taxes. The property may be
to a difficult interpretation of said offered in a public sale, if taxes are not
law. voluntarily paid. It is a summary remedy.
e. When the taxpayer fails to file the
return and pay the correct tax on Nature of the Warrant of Distraint or
time due to circumstances beyond Levy
his control, provided, however,
the abatement shall only cover The warrant is a summary procedure
the surcharge and the compromise forcing the taxpayer to pay. The
penalty and not the interest receipt of a warrant may or may not
imposed under Sec. 249 of the partake the character of a final decision.
Code; If it is an indication of a final decision,
f. Late payment of the tax under the taxpayer may appeal to the CTA
meritorious circumstances (ex. within 30 days from service of the
Failure to beat bank cut-off time, warrant.
surcharge erroneously imposed,
etc.) (Sec. 2, Rev. Reg. 13-2001) Duties of the officer serving the
warrant of distraint:
2. The administration and collection 1. Make an account of the personal
costs involved do not justify the properties distrained;
collection of the amount due [Sec. 2. Sign the list of personal
204(B), 1997 NIRC]. properties distrained to which

Cabrera, Jhundee
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80
shall be added, a statement of ACTUAL CONSTRUCTIVE

the sum demanded and note of DISTRAINT DISTRAINT
the time and place of sale;
3. Leave either with the owner or Both
person from whose possession Are summary remedies for the collection of
such personal properties were taxes;
NOTE: Refer only to personal property; and
taken, or at the dwelling or
cannot be availed of where the amount of
place of business of such person the tax involved is not more than P100
with someone of suitable age
and discretion (Sec. 208, CTRP)
Requisites for the exercise of the
Two types of Distraint
remedy of distraint
1. Actual: there is taking of
1. The taxpayer must be delinquent
possession of the personal
(except in constructive distraint) in
property from the taxpayer by
the payment of tax;
the government. Physical
2. There must be a subsequent demand
transfer of possession is not
for its payment (assessment);
always required. This is true in
3. The taxpayer must fail to pay the tax
the case of intangible property
at the time required; and
such as stocks and credits.
4. The period within which to assess or
2. Constructive: the owner is
collect the tax has not yet
merely prohibited from disposing
prescribed.
of his property.
Persons who shall seize and distraint
Actual vs. Constructive Distraint
personal property (actual distraint)
ACTUAL CONSTRUCTIVE 1. Amount of delinquent tax is more
DISTRAINT DISTRAINT than P1,000,000 Commissioner or
his duly authorized representatives.
Made only on the Made on the property
2. Amount of delinquent tax is
property of a of any taxpayer,
delinquent taxpayer whether delinquent P1,000,000 or less Revenue District
or not Officer. (Sec. 207(A), 1997 NIRC)
There is taking of The taxpayer is AUTHORITY OF THE COMMISSIONER TO

possession merely prohibited INQUIRE INTO BANK DEPOSIT ACCOUNTS
from disposing of his
property Distraint includes garnishment of
money even in bank deposits because RA
Effected by leaving a Effected by requiring 1405 (Bank Secrecy Law) covers only
list of distrained the taxpayer to sign
divulging of information of deposits. No
property or by a receipt of the
service of a warrant property or by the inquiry is made on garnishment for it
of distraint or revenue officer only earmarks a portion of the deposits.
garnishment preparing and leaving Notwithstanding any contrary
a list of such provision of RA 1405, the Commissioner
property is authorized to inquire into the bank
deposits of:
An immediate step Not necessarily so 1. a decedent to determine his gross
for collection of estate
taxes 2. a taxpayer who waives his right by
reason of financial incapacity to pay his
tax liability (Sec.5, NIRC)
Procedures for the Actual Distraint or

Garnishment

Cabrera, Jhundee
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to the taxpayer to pay to the

I Commissioner the amount of such debts
Commencement of distraint or credits.
proceedings
Either by the CIR or his duly authorized

representative; or by the Revenue Taxpayer must sign
District Officer receipt
II
Service of Warrant of Distraint
(Sec. 208) III
Posting of Notice
(Sec. 209, NIRC)
With respect to:
1. Personal property Notice specifying the time and place
(a) upon the owner of the goods, of sale and the articles distrained. The
chattels, or other personal posting shall be made in not less than
property; or two (2) public places in the city or muni-
(b) upon the person from whose cipality where the distraint is made.
possession such properties are One place for posting of such notice is at
taken. the Office of the Mayor of such city or
2. Stocks and other securities municipality.
(a) upon the taxpayer; and
(b) upon the president, manager,
treasurer or other responsible
officer of the corporation,
company or association which IV
issued the said stock and Sale of Property Distrained
securities.
3. Bank accounts shall be garnished by
serving a warrant of distraint
(a) upon the taxpayer; and The taxpayers property may be placed
(b) upon the president, manager, under constructive distraint when he
treasurer, or other responsible
officer of the bank. 1. is retiring from any business subject
Note: Upon receipt of the warrant of to tax;
distraint, the bank shall turn over to the 2. is intending to
Commissioner so much of the bank a. leave the Philippines,
accounts as may be sufficient to satisfy b. remove his property therefrom,
the claim of the government. c. hide or conceal his property,
4. Debts and credits 3. is performing any act tending to
(a) persons owing or having in his obstruct the proceeding for
possession the debts; collecting the tax due or which may
(b) or under his control such credits; be due from him (Sec. 223, 1997
or NIRC).
(c) upon his agent.
Note: The warrant of distraint shall be Procedure for the Constructive

sufficient authority to the person owing Distraint of Personal Property
the debts or having in his possession or
under his control any credits belonging

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Taxpayers obligation to preserve Real property may be levied upon

before, simultaneously, or after the
distraint of personal property belonging
to the delinquent [Sec. 207(B), 1997 NIRC];
CIR shall require the taxpayer or any
and the remedy by distraint and levy
person having possession or control of
may be repeated if necessary until the
such property to
full amount, including all expenses, is
(a) sign a receipt covering the property
collected (Sec. 217, 1997 NIRC).
distrained and
(b) obligate himself to
Procedure of Levy on Real Property
1. preserve the same intact and
unaltered and
2. not to dispose of the same in any I
manner whatsoever without the Prepare Certificate of Levy
express authority of the I
Commissioner of Internal Preparation of a duly authen-ticated
Revenue. certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due
from him. This certificate shall
Remedy when taxpayer didnt sign operate with the force of a legal
receipt execution throughout the Philippines
(Sec. 207B, 1997 NIRC).
If the taxpayer or person in possession of

the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall II
(a) proceed to prepare a list of such Service of Notice
property and
(b) in the presence of two (2) witnesses
leave a copy thereof in the premises Service of written notice to:
where the property distrained is located, (a) the delinquent taxpayer; or
after which the said property shall be (b) if he is absent from the Philippines,
deemed to have been placed under to his agent or manager of the business
constructive distraint. in respect to which the liability arose; or
c. to the occupant of the property.
(3) LEVY d. the proper Register of Deeds shall
also be notified of the levy (Sec. 207B,
DEFINITION: It refers to the act of seizure 1997 NIRC).
of real property in order to enforce the
payment of taxes. The property may be
offered in a public sale, if after seizure,
the taxes are not voluntarily paid.
III
REQUISITES FOR THE EXERCISE OF THE REMEDY Advertisement of the Time and
OF LEVY Place of Sale
Same as in the remedy of distraint. The advertisement shall contain:

1. the amount of tax and penalties due;
2. name of the taxpayer against whom
taxes are levied;
When may Levy be Effected? 3. short description the property to be
sold.

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The advertisement shall be made to the date of redemption. (Sec. 214,

within 20 days after the levy, and the NIRC).
same shall be for a period of at least 30
days. It shall be effectuated by: Forfeiture to the Government
a. posting a notice at the main entrance
of the municipal building or city hall If there is no bidder in the public
and in a public and conspicuous sale or if the amount of the highest bid
place in the barrio or district in which is insufficient to pay the taxes, penalties
the real property lies; and and costs, the real property shall be
b. by publication once a week for 3 forfeited to the Government.
weeks in a newspaper of general
circulation in the municipality or city Further Distraint and Levy
where the property is located (Sec.
213, CTRP). The remedy of distraint and levy
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from
the taxpayer. Otherwise, a clever
IV taxpayer who is able to conceal most of
Sale the valuable part of his property would
escape payment of his tax liability by
sacrificing an insignificant portion of his
holdings.
Distraint vs. Levy
(4) TAX LIEN
DISTRAINT LEVY
DEFINITION: It is a legal claim or charge
Refers to personal Refers to real
on property, either real or personal,
property property
established by law as a security in
Forfeiture by the Forfeiture is default of the payment of taxes (51
government is not authorized AmJur 881). Generally, it attaches to
provided the property irrespective of ownership
or transfer thereof.
The taxpayer is not The right of
given the right of redemption is Extent and nature
redemption with granted in case of
respect to distrained real property levied The tax, together with interests,
personal property. upon and sold, or
penalties, and costs that may accrue in
forfeited to the
government.
addition thereto is a lien upon all
property and rights to property
Both belonging to the taxpayer.
Are summary remedies for the collection of
taxes; and The lien shall not be valid against
Cannot be availed of where the amount of any mortgagee, purchaser, or judgment
the tax involved is not more than P100 creditor until notice of such lien shall be
filed by the Commissioner of Internal
Redemption of Property Sold Revenue in the Office of the Register of
Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
and interest thereon from the date of When does it Attach?
delinquency to the date of sale,
together with interest on purchase price
at 15% per annum from the date of sale

Cabrera, Jhundee
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84
Not only from the service of the Where to file

warrant of distraint but from the time
tax became due and payable. 1. Court of Tax Appeals where the
principal amount of taxes and fees,
Lien vs. Distraint exclusive of charges and penalties
claimed is One million pesos and
LIEN DISTRAINT above.
2. Regional Trial Court, Municipal
Directed against Need not be Trial Court, Metropolitan Trial
the property directed against the Court where the principal amount
subject to the tax property subject to of taxes and fees, exclusive of
tax charges and penalties claimed is less
than One million pesos. (Sec. 7, RA
Regardless of the Property seized
No. 9282)
owner of the must be owned by
property the taxpayer
THE APPROVAL OF THECIR IS ESSENTIAL IN
CIVIL CASES. However,under Sec. 7, 1997
NIRC, the Commissioner may delegate
(5) CIVIL ACTIONS such power to a Regional Director.
DEFINITION: For tax remedy purposes, Defenses which are precluded by final
these are actions instituted by the and executory assessments
government to collect internal revenue
taxes. It includes filing by the 1. Invalidity or illegality of the
government with the probate court assessment; and
claims against the deceased taxpayer. 2. Prescription of the governments
right to assess.
When resorted to?
(6) CRIMINAL ACTIONS
1. When a tax is assessed but the
assessment becomes final and The judgment in the criminal case
unappealable because the taxpayer shall not only impose the penalty but
fails to file an administrative shall also order the payment of taxes
protest with the CIR within 30 days subject of the criminal case as finally
from receipt; or decided by the Commissioner (Sec. 205,
2. When a protest against assessment is NIRC).
filed and a decision of the CIR was
rendered but the said decision Where to file
becomes final, executory, and
demandable for failure of the 1. Court of Tax Appeals on criminal
taxpayer to appeal the decision to offenses arising from violations of
the CTA within 30 days from the NIRC or TCC and other laws
receipt of the decision. administered by the BIR and the
BOC, where the principal amount of
NOTE: Judicial action may be resorted taxes and fees, exclusive of charges
to even before assessment although and penalties claimed is One million
impractical, as stated in Sec. 203, 1997 pesos and above.
NIRC, and no proceeding in court 2. Regional Trial Court, Municipal
without assessment for the collection of Trial Court, Metropolitan Trial
such taxes shall be begun after the Court on criminal offenses arising
expiration of such (3year) period. from violations of the NIRC or TCC
It should be noted that no civil and other laws administered by the
or criminal action for the recovery of BIR and the BOC, where the principal
taxes shall be filed in court without the amount of taxes and fees, exclusive
approval of the Commissioner. of charges and penalties claimed is
less than One million pesos or where

Cabrera, Jhundee
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85
there is no specified amount It is not a requirement for the

claimed. (Sec. 7, RA No. 9282) filing thereof that there be a precise
computation and assessment of the tax,
IMPORTANT CONSIDERATIONS since what is involved in the criminal
action is not the collection of tax but a
1. No criminal action shall be criminal prosecution for the violation
begun without the approval of the of the NIRC. Provided, however, that
Commissioner. (Sec. 220, 1997 NIRC) there is a prima facie showing of a
2. It shall be brought in the willful attempt to evade taxes. (See
name of the Government and shall Ungab vs. Cusi, GR Nos. L-41919-24, May
be conducted by the legal officers of 30, 1980 in relation to Commissioner vs.
the BIR. Court of Appeals, GR No. 119322, June
4, 1996)
EFFECT OF ACQUITTAL OF THE
TAXPAYER IN A CRIMINAL ACTION (7) FORFEITURE
It does not necessarily result in the DEFINITION: divestiture of property

exoneration of said taxpayer from his without compensation, in consequence
civil liability to pay taxes. of a default or offense.
Rationale: The duty to pay tax is
imposed by statute prior to and ENFORCEMENT OF THE REMEDY OF
independent of any attempt on the part FORFEITURE
of the taxpayer to evade payment. It is
not a mere consequence of the felonious a. In case of personal property The
acts charged, nor is it a mere civil forfeiture of chattels and removable
liability derived from a crime. (Republic fixtures of any sort is enforced by
vs. Patanao, GR No. L-14142, May 30, seizure and sale or destruction of
1961) the specific forfeited property.
b. In case of real property The
EFFECT OF SUBSEQUENT SATISFACTION forfeiture of real property is
OF CIVIL LIABILITY enforced by a judgment of
condemnation and sale in a legal
The subsequent satisfaction of civil action or proceeding, civil or
liability by payment or prescription does criminal, as the case may require.
not extinguish the taxpayers criminal c. In case of distilled spirits, liquors,
liability. cigars, cigarettes manufactured,
products of tobacco and apparatus
NO SUBSIDIARY IMPRISONMENT used for their production Upon
forfeiture, may be destroyed by
In case of insolvency on the part of order of the Commissioner where the
the taxpayer, subsidiary imprisonment sale may be injurious to public
cannot be imposed as regards the tax health or prejudicial to law
which he is sentenced to pay. enforcement.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)
CRIMINAL ACTION MAY BE FILED

DURING THE PENDENCY OF AN d. Other articles subject to excise tax
ADMINISTRATIVE PROTEST IN THE BIR which have been manufactured or
removed in violation of the Code,
dies for printing or making fake

Cabrera, Jhundee
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86
revenue stamps and labels Upon

forfeiture may be sold or destroyed * This does not apply to all public
at the discretion of the officials whether incumbent or retired,
Commissioner. Forfeited property who acquired the information in the
shall not be destroyed until at least course of performance of their duties
20 days from seizure. during their incumbency.
EFFECT OF THE FORFEITURE OF

PROPERTY PRESCRIPTIVE PERIODS FOR
The effect is to transfer the title to
THE ASSESSMENT AND
the specific thing from the owner to the COLLECTION OF TAXES
government. All the proceeds in case of
a sale go to the coffers of the
government (U.S. vs. Surla, GR No. RATIONALE OF PRESCRIPTIVE PERIODS
6536, September 2, 1911). In seizure for
the enforcement of a tax lien, the Such periods are designated to
residue, after deducting the tax liability secure the taxpayers against
and expenses will go to the taxpayer unreasonable investigation after the
(Bank of the Phil. Island vs. Trinidad, lapse of the period prescribed. They are
GR No. 16014, October 4, 1941). also beneficial to the government
because tax officers will be obliged to
INFORMERS REWARD (Sec 282) act promptly.
A. For violations of the NIRC, a reward
of 10% of the revenues, surcharges, RULES ON PRESCRIPTION
or fees recovered and/or fine or
penalty imposed and collected or P 1 1. When the tax law itself is silent
M per case, whichever is lower shall on prescription, the tax is
be given to: imprescriptible;
1. any person who voluntarily gives 2. When no return is required, tax
definite and sworn information is imprescriptible;
not yet in the possession of the Note: Remedy of taxpayer is to file a
BIR leading to the discovery of return.
fraud upon the Internal Revenue 3. Defense of prescription is
Laws and/or any violations thereof waivable;
2. an informer where the offender
has offered to compromise the WHAT CONSTITUTES ASSESSMENT?
violation of law comiited by him
and his offer has been accepted An assessment contains not only
and collected by the CIR . This a computation of tax liabilities but also
excludes an Internal Revenue a demand for payment within a
Officer/employee or other public prescribed period.
official/employee, or his relative
within the sixth degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
General Rule:
B. For the discovery and seizure of Three (3) years after the date
smuggled goods the return is due or filed, whichever is
- a reward of 10% of the FMV of the later (Sec. 203, 1997 NIRC).
smuggled and confiscated goods or
P 1 M per case, whichever is Exceptions:
lower, shall be given to persons 1. Failure to file a return: ten (10)
instrumental in the discovery and years from the date of the
seizure of such smuggled goods.

Cabrera, Jhundee
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87
discovery of the omission to file b. Sale of a real property for a price

the return (Sec.222[A]); less than its fair market value is
2. False or fraudulent return with not necessarily a false return
intention to evade the tax: ten (Commissioner vs. Ayala
(10) years from the date of the Securities)
discovery of the falsity or fraud c. Fraud is a question of fact and the
(Sec.222 [A]); circumstances constituting fraud
Note: Nothing in Section 222(A) must be alleged and proved in the
shall be construed to authorize the trial court (Commissioner vs.
examination and investigation or Ayala Securities)
inquiry into any tax return filed in d. Fraud is never imputed and the
accordance with the provisions of courts never sustain findings of
any tax amnesty law or decree. fraud upon circumstances that
only create suspicion
Fraud must be alleged and (Commissioner vs. Javier)
proved as a fact. It must be the e. Mistakes of revenue officers on
product of a deliberate intent to three different occasions remove
evade taxes. It may be element of fraud (Aznar vs. CTA
established by the: and Collector)
a. Intentional and substantial
understatement of tax 3. Agreement in writing to the
liability by the taxpayer; extension of the period to assess
b. Intentional and substantial between the CIR and the
overstatement of deductions taxpayer before the expiration
of exemptions; and/or of the 3-year period. NB: The
c. Recurrence of the above extended period agreed upon
circumstances can further be extended by a
Falsity constitutes a deviation subsequent written agreement
from the truth due to mistake, made before the expiration of
carelessness or ignorance. the extended period previously
agreed upon (Sec. 222[b]).
There is fraud in the following decided 4. Written waiver of renunciation
cases: of the original three (3) year
1. Fraud must be the product of a limitation, signed by the
deliberate intent to evade taxes taxpayer (Sambrano vs. Court of
(Jalandoni vs. Republic) Tax Appeals, GR No. L-8652,
2. Simple statement that return filed March 30, 1957).
was not fraudulent does not disprove
existence of fraud (Tayengco vs. Note: Notice of the assessment is
Collector) released, mailed or sent to the taxpayer
3. Substantial under-declarations of also within the 3 year period. It is not
income for six consecutive five years required that the notice be received by
demonstrate fraudulence of return the taxpayer within the prescribed
(Perez vs. CTA) period. But the sending of the notice
4. Presence of fictitious expenses, with must clearly be proven. (Basilan Estate,
no evidence presented, proves Inc. vs. Commissioner, GR No. L-22492,
existence of fraud (Tan Guan vs. September 5, 1967)
Commissioner)
AMENDMENT OF RETURN
However, the courts did not consider
the tax returns filed as false or If the amended return is
fraudulent with intent to evade payment substantially different from the original
of tax in the following cases: return, the prescriptive period shall be
a. Mere understatement in the tax counted from the filing of the amended
return will not necessarily imply return. But the said period shall run
fraud (Jalandoni vs. Republic) from the filing of the original return if

Cabrera, Jhundee
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88
the same is sufficiently complete to him in the return, unless he

enable the Commissioner to make a informs the CIR of any change in
proper assessment. (Commissioner vs. his address.
Phoenix Assurance Co., GR No. L-19727, d. When the warrant of distraint or
May 20, 1965) levy is duly served, and no
When Substantive: property is located; and
a. substantial under declaration e. When the taxpayer is out of the
(exceeding 30% of that Philippines (Sec. 223, 1997
declared) of taxable sales, NIRC).
receipts or income,
b. or a substantial overstatement A TAX RETURN IS CONSIDERED FILED
(exceeding 30% of deductions) FOR PURPOSES OF STARTING THE
(Sec. 248) RUNNING OF THE PERIOD OF
LIMITATIONS IF
PRESCRIPTIVE PERIOD FOR THE
COLLECTION OF TAXES a. The return is valid it has complied
substantially with the requirements
General Periods: of the law; and
Five (5) years from assessment
or within period for collection agreed b. The return is appropriate it is a
upon in writing before expiration of the return for the particular tax required
5-year period (Sec. 222, 1997 NIRC). by law.
Ten (10) years without
assessment in case of false or fraudulent Note: A defective tax return is the
return with intent to evade or failure to same as if no return was filed at all.
file return (Sec. 222, 1997 NIRC).
WHAT IS THE PRESCRIPTIVE PERIOD PRESCRIPTIVE PERIOD FOR THE

WHERE THE GOVERNMENTS ACTION IS VIOLATION OF ANY PROVISION OF THE
ON A BOND WHICH THE TAXPAYER TAX CODE (SEC. 281, 1997 NIRC)
EXECUTES IN ORDER TO SECURE THE
PAYMENT OF HIS TAX OBLIGATION? 1. Should be filed within five (5) years
from the (a) day of the commission
Ten (10) years under Art. of the violation of the law, and if
1144(1) of the Civil Code and not three the same be not known, from the (b)
(3) years under the NIRC. In this case, discovery thereof and the
the Government proceeds by court institution of the judicial
action to forfeit a bond. The action is proceedings for its investigation and
for the enforcement of a contractual punishment.
obligation. (Republic vs. Araneta, GR
No. L-14142, May 30, 1961) 2. Illustrative case: (Lim vs. Court of
Appeals GR Nos. 48134-37, Ocober
GROUNDS FOR SUSPENSION OF THE 18 , 1990)
RUNNING OF THE STATUTE OF a. charge is failure or refusal to
LIMITATIONS pay deficiency income tax
committed only after the finality
a. When the CIR is prohibited from of the assessment coupled with
making the assessment or the taxpayers willful refusal to
beginning the distraint or levy or pay the taxes within the allotted
a proceeding in court, and for period. (i.e. cannot be
sixty (60) days thereafter; committed upon filing the
b. When the taxpayer requests for return)
a reconsideration which is b. charge is filing of false or
granted by the CIR; fraudulent return with intent
c. When the taxpayer cannot be to evade the assessment in
located in the address given by addition to the fact of discovery,

Cabrera, Jhundee
Guillermo
89
there must be a judicial It can be used in court in

proceeding for the investigation case administrative remedies
and punishment of the tax have been exhausted. It is
offense before the 5 year also the formal act of the
prescriptive period begins to taxpayer questioning the
run. official actuation of the CIR.
This is equivalent to a
pleading.
II. TAX REMEDIES OF THE b. Entering into a compromise
(Sec. 204, 1997 NIRC).
TAXPAYER After Payment
Filing of claim for refund
or tax credit within 2 years from
General Remedies date of payment regardless of
any supervening cause (Sec. 229,
A. ADMINISTRATIVE 1997 NIRC).
Before Payment
a. Protest filing a petition for B. JUDICIAL
reconsideration or Civil Action
reinvestigation within 30 a.Appeal to the Court of Tax
days from receipt of Appeals within 30 days from
assessment Within 60 days receipt of decision on the protest
from filing of protest, all or from the lapse of 180 days due
relevant supporting to inaction of the Commissioner
documents should have been (Sec. 228, 1997 NIRC).
submitted, otherwise, the b.Action to contest forfeiture of
assessment shall become chattel, at any time before the
final cannot be appealed sale or destruction thereof, to
(Sec. 228, 1997 NIRC). recover the same, and upon giving
proper bond, enjoin the sale; or
Note: Submission of documents after the sale and within 6
within the 60 day period is months, an action to recover the
optional to the taxpayer. net proceeds realized at the sale
(Sec. 231, 1997 NIRC); and
"That the relevant c. Action for damages against a
supporting documents revenue officer by reason of any
mentioned in the law refers act done in the performance of
to such documents which the official duty (Sec. 227, 1997
taxpayer feels would be NIRC).
necessary to support his Criminal Action
protest and not what the a. Filing of criminal complaint
Commissioner feels should against erring BIR officials and
be submitted, otherwise, employees.
taxpayer would always be at b. Injunction when the CTA in its
the mercy of the BIR which opinion, the collection by the BIR
may require production of may jeopardize taxpayer.
such documents which
taxpayer could not produce." Note: With the enactment of the new
(Standard Chartered Bank CTA law (RA No. 9282) amending RA No.
vs. CIR, CTA Case No. 5696, 1125, CTA now has jurisdiction over
August 16, 2001) criminal cases. (See Chapter VI - Court
A protest is a vital of Tax Appeals.)
document which is a formal
declaration of resistance of Substantive Remedies
the taxpayer. It is a 1. Questioning the constitutionality or
repository of all arguments. validity of tax statutes or regulations

Cabrera, Jhundee
Guillermo
90
2. Non-retroactivity of rulings (Sec.246, b. Referral by the Commissioner of

NIRC) request for reinvestigation to
3. Failure to inform the taxpayer in the Solicitor General (Republic
writing of the legal and factual bases vs Lim Tian Teng Sons)
of assessment makes it void (Sec. c. Reiterating the demand for
228, NIRC) immediate payment of the
4. Preservation of books of accounts and deficiency tax due to taxpayers
once a year examination (Sec. 235, continued refusal to execute
NIRC) waiver (Commissioner vs. Ayala
Securities Corp.)
ASSESSMENT AND PROTEST d. Preliminary collection letter may
Assessment serve as assessment notice
General rule: Taxes are self assessing (United International Pictures
and thus, do not require the issuance of vs. Commissioner)
an assessment notice in order to
establish the tax liability of a taxpayer. ACTS OF BIR COMMISSIONER
Exceptions: CONSIDERED AS DENIAL OF PROTEST
1. Tax period of a taxpayer is WHICH SERVE AS A BASIS FOR APPEAL
terminated (Sec. 6(D), NIRC) TO THE COURT OF TAX APPEALS
2. Deficiency tax liability arising
from a tax audit conducted by 1. filing by the BIR of a civil suit for
the BIR (Sec. 56(B), NIRC) collection of the deficiency tax
3. Tax lien (Sec. 219, NIRC) (Commissioner vs. Union Shipping
4. Dissolving Corporation (Sec. Corporation, GR No. 66160, May 21,
52(c), NIRC) 1990)
2. indication to the taxpayer by the
Protest Commissioner in clear and
1. Direct denial of protest unequivocal language of his final
Admnistrative decision on a disputed denial. (Commissioner vs. Union
assessment - The decision of the Shipping Corporation, GR No. 66160,
Commissioner or his duly authorized May 21, 1990)
representative shall (a) state the facts, 3. BIR demand letter reiterating his
the applicable law, rules and regulation previous demand to pay, sent to the
or jurisprudence on which such decision taxpayer after his protest of the
is based otherwise, the decision shall be assessment. (Surigao Electric Co.,
void, in which case the same shall not be Inc. vs. CTA, GR No. L-25289, June
considered a decision a disputed 28, 1974; Commissioner vs. Ayala
assessment and (b) that the same is his Securities Corporation, GR No. L-
final decision (Sec. 3.1.5, Rev. Regs. No. 29485, March 31, 1976)
12-99) 4. The actual issuance of a warrant of
distraint and levy in certain cases
2. Indirect denial of protest cannot be considered a final decision
a. Commissioner did not rule on the on a disputed settlement.
taxpayers motion for (Commissioner vs. Union Shipping
reconsideration of the Corporation, GR No. 66160, May 21,
assessment it was only when 1990)
respondent received the
summons on
the civil action for the

collection of deficiency income FILING OF CLAIM FOR
tax that the period to appeal TAX REFUND OR TAX CREDIT
commenced to run
(Commissioner vs. Union GROUNDS FOR FILING A CLAIM FOR TAX
Shipping Corp.) REFUND OR TAX CREDIT

Cabrera, Jhundee
Guillermo
91
1. Tax is collected erroneously or Garment vs. Collector, CTA Case No.

illegally. 416, November 17, 1958)
2. Penalty is collected without - Merely making a deposit is not
authority. equivalent to payment until the
3. Sum collected is excessive. amount is actually applied to the
specific purpose for which it was
TAX REFUND VS. TAX CREDIT deposited.
4. Tax has been withheld from source
TAX REFUND TAX CREDIT (through the withholding tax
system)
The taxpayer asks for The taxpayer asks - counted from the date it falls due
restitution of the that the money so at the end of the taxable year
money paid as tax paid be applied to his - A taxpayer who contributes to the
existing tax liability withholding tax system does not
really deposit an amount to the
Two-year period to Two-year period
file claim with the starts from the date government, but in truth, performs
CIR starts after the such credit was and extinguishes his tax obligation
payment of the tax allowed (in case for the year concerned. (Gibbs vs.
or penalty credit is wrongly Commissioner, GR No. L-17406,
made). November 29, 1965)
5. End of taxable year vs. date of the
REQUISITES OF TAX REFUND OR TAX filing of the final adjusted return
CREDIT - from the date when the final
adjusted return was filed.
1. Claim must be in writing; - the rationale in computing this
2. It must be filed with the period is the fact that it is only then
Commissioner within two (2) years the corporation can ascertain
after the payment of the tax or whether it made profits or incurred
penalty. losses in its business operations.
Note: No suit or proceeding shall be (ACCRA Investments vs. Court of
begun after the expiration of the Appeals, GR No. 96322, December
said two (2) years regardless of any 20, 1991)
supervening cause that may arise 6. Date when quarterly income tax
after payment. was paid vs. date when final
3. Show proof of payment. adjusted return was filed
- from the date when final adjusted
COMMENCEMENT OF THE TWO (2) YEAR return was filed
PERIOD (JURISPRUDENCE) - The filing of the quarterly income
tax return (Sec. 68) and payment of
1. Tax sought to be refunded is quarterly income tax should only be
illegally or erroneously collected considered mere installments of the
- from the date the tax was paid. annual tax due. (Commissioner vs.
(Commissioner vs. Victorias Milling, TMX Sales, GR No. 83736, January
GR No. L-24108, January 31, 1968) 15, 1992)
2. Tax is paid only in installments or 7. Date when the final adjustment
only in part return was actually filed (ex. Apr.
- from the date the last or final 2) vs. Last day when the
installment or payment because for adjustment return could still be
tax purposes, there is no payment filed (ex. Apr. 15)
until the whole or entire tax liability - from the date the final adjustment
is fully paid. (Collector vs. Prieto, return was actually filed.
GR No. L-11976, August 29, 1961) (Commissioner vs. Court of Appeals,
3. Taxpayer merely made a deposit GR No 117254, January 21, 1999)
- counted from the conversion of 8. Tax was not erroneously or illegally
the deposit to payment (Union paid but the taxpayer became

Cabrera, Jhundee
Guillermo
92
entitled to refund because of (Commissioner vs. Victorias Milling,

supervening circumstances GR No. L-19667, Nov. 29, 1966)
- from the date the taxpayer 2. Under Sec. 79(C)(2) with respect to
becomes entitled to refund and not income taxes withheld on the wages
from the date of payment. of the employees.
(Commissioner vs. Don Pedro
Central Azucarera, GR No. L-28467, TAX CREDIT CERTIFICATE
Feb. 28, 1973)
PAYMENT UNDER PROTEST IS NOT 1. May be applied against any internal
NECESSARY UNDER NIRC revenue tax except withholding
taxes,
A suit or proceeding for tax refund 2. Original copy is surrendered to the
may be maintained whether or not such revenue office,
tax, penalty or sum has been paid under 3. No tax refund will be given resulting
protest or duress (Sec. 229, NIRC). from availment of incentives granted
by law where no actual payment was
Note: Similarly, payment under protest made (Sec. 204C, 1997 NIRC).
is not necessary in refund for local
taxes. (See Sec. 196, LGC). FORFEITURE OF CASH REFUND/TAX
CREDIT
However, payment under protest is
necessary in claim for refund for real 1. Forfeiture of refund in favor of the
property taxes (Sec. 252, LGC) and for government when a refund check or
customs duties (Sec. 2308, TCC). warrant remains unclaimed or
uncashed within five (5) years from
SUSPENSION OF THE TWO-YEAR date of mailing or delivery.
PRESCRIPTIVE PERIOD 2. Forfeiture of Tax Credit a tax
credit certificate which remains
1. There is a pending litigation unutilized after five (5) years from
between the Government and the date of issue, shall be invalid, unless
taxpayer; and revalidated (Sec. 230, 1997 NIRC).
2. CIR in that litigated case agreed to
abide by the decision of the SC as to
the collection of taxes relative REGLEMENTARY PERIODS
thereto (Panay Electric Co. vs. IN INCOME TAX IMPOSED
Collector, GR No. L-10574, May 28,
1958). BY LAW UPON THE TAXPAYER
(PURSUANT TO REV. REG. NO. 12-99,
INTEREST ON TAX REFUNDS SEC. 228 OF THE 1997 NIRC, AND RA
NO. 1125 AS AMENDED BY RA NO.
General Rule: 9282)
Government cannot be required
to pay interest on taxes refunded to the BIR makes a tax assessment
taxpayer in the absence of a statutory
provision clearly or expressly directing If taxpayer is not satisfied with the
or authorizing such payment. assessment file a protest within 30 days
(Commissioner vs. Sweeney, GR No. L- from receipt thereof
12178, August 29, 1959)
Submit supporting documents within
60 days from date of the filing of the
Exceptions: protest
1. When the CIR acted with patent
arbitrariness. Arbitrariness
presupposes inexcusable or obstinate If protest is denied, elevate the matter
disregard of legal provisions. to the Commissioner of Internal Revenue
(CIR) within 30 days from receipt of the

Cabrera, Jhundee
Guillermo
93
decision of the CIRs duly authorized of the succeeding taxable year;

representative officer or
4. When the excise tax due on
Appeal to the Division of the Court of excisable articles has not been
Tax Appeals (CTA) within 30 days from paid;
receipt of final decision of CIR or his 5. When an article locally
duly authorized representative (the purchased or imported by an
taxpayer has the option to appeal exempt person, such as, but not
straight to the CTA upon receipt of the limited to, vehicles, capital
decision of the CIRs duly authorized equipment, machineries and
representative) spare parts, has been sold,
traded or transferred to non-
exempt persons.
If the CIR or his duly authorized
representative fails to act on the Notes:
protest within 180 days from date of As a general rule, payment
submission by taxpayer, the latter may under protest is not required
appeal within 30 days from lapse of the under the NIRC, except when
180-day period with the CTA Division partial payment of
uncontroverted taxes is
The Party adversely affected by the CTA required under RR 12-99.
Divisions decision may file one motion The Commissioner may, even
for reconsideration/new trial within 15 without a written claim
days from receipt of decision. If the MR therefor, refund or credit
is denied file a petition for review with any tax, where on the face
the CTA en banc of the return upon which
payment was made, such
Appeal to the Supreme Court within 15 payment appears clearly to
days from receipt of the CTA en banc have been erroneously paid.
decision under Rule 45 of the Rules of In case of the CIRs final
Court denial of the claim for
refund, the 30-day period to
Pre-Assessment Notice, When Not appeal with the CTA must be
Required (Sec. 228, NIRC) within the 2-year peremptory
period for instituting judicial
1. When the finding for any action.
deficiency tax is the result of
mathematical error in the See Annex N Assessment
computation of the tax as Process and Appeal
appearing on the face of the
return; or
2. When a discrepancy has been ADDITIONS TO THE TAX
determined between the tax (SECS. 247-252 NIRC)
withheld and the amount
actually remitted by the DEFINITION: increments to the basic tax
withholding agent; or incident due to the taxpayers non-
3. When a taxpayer who opted to compliance with certain legal
claim a refund or tax credit of requirements.
excess creditable withholding 1. CIVIL PENALTY / SURCHARGE
tax for a taxable period was 1. 25% surcharge
determined to have carried over a. Failure to file any return and
and automatically applied the pay the tax due thereon as
same amount claimed against required under the
the estimated tax liabilities for provisions of this Code or
the taxable quarter or quarters

Cabrera, Jhundee
Guillermo
94
rules and regulations on the or a substantial

date prescribed; or overstatement (exceeding
b. Unless otherwise authorized 30% of actual deductions) of
by the Commissioner, filing a deductions (Sec. 248)
return with an internal
revenue officer other than 2. INTEREST
those with whom the return - 20% per annum or such higher rate
is required to be filed; or as may be prescribed by the rules
c. Failure to pay the deficiency and regulations
tax within the time
prescribed for its payment in a. Deficiency interest (Sec. 249B)
the notice of assessment; or b. Delinquency interest (Sec. 249C)
d. Failure to pay the full or c. Interest on Extended Payment
part of the amount of tax (Sec. 249D)
shown on any return
required to be filed under 3. OTHER CIVIL PENALTIES OR
the provisions of this Code ADMINISTRATIVE FINES
or rules and regulations, or
the full amount of tax due a. Failure to file certain
for which no return is information returns (Sec. 250)
required to be filed, on or b. Failure of a withholding agent to
before the date prescribed collect and remit tax (Sec. 251)
for its payment. (Sec. 248) c. Failure of a withholding agent of
2. 50% surcharge refund excess withholding tax
a. in case of willful neglect to (Sec. 252)
file the return within the
period prescribed by the
Code, or
will not apply in case a
III. LOCAL TAXATION
taxpayer, without notice
from the Commissioner, POWERS AND LIMITATIONS
or his duly authorized
representative, NATURE AND SOURCE OF LOCAL
voluntarily files the said TAXING POWER (SEE. SEC 5, ART. X,
return (only 25% shall be 1987 CONSTITUTION AND SEC. 129,
imposed) LGC)
50% surcharge shall be
The Local Government Unit has the
imposed in case the
power:
taxpayer files the return
a. to create its own sources of
only after prior notice in
revenue and
writing from the
b. to levy taxes, fees and charges.
Commissioner or his duly
authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)
Congress cannot enact laws

b. in case a false or fraudulent
depriving LGU from exercising such
return is willfully made
power to tax but it may set guidelines
Prima Facie evidence
and limitations for the exercise.
substantial underdeclaration
Such taxes, fees, and charges
(exceeding 30% of that
shall accrue exclusively to the local
declared) of taxable sales,
government units.
receipts or income,

Cabrera, Jhundee
Guillermo
95
Shall be exercised by the Sanggunian

Nature of the Taxing Power of the LGU concerned through an
a. Not inherent; appropriate ordinance.
b. Exercised only if delegated to
them by law or Constitution; Power to prescribe Penalties for Tax
c. Not absolute; subject to Violations and Limitations thereon
limitations provided for by law. (Sec. 516, lgc)
1. The Sanggunian is authorized to
Under the present constitutional prescribe fines or other penalties
rule, where there is neither a grant nor for violations of tax ordinances.
a prohibition by statute, the tax power a. in no case shall fines be less
must be deemed to exist although than P1,000 nor more than
Congress may provide statutory P5,000
limitations and guidelines. The basic b. nor shall the imprisonment be
rationale for the current rule is to less than one (1) month nor
safeguard the viability and self- more than six (6) month.
sufficiency of local government units by 2. Such fine or other penalty shall be
directly granting them general and broad imposed at the discretion of the
tax powers. (Manila Electric Co. vs. court.
Province of Laguna, G.R. No. 131359) 3. The Sangguniang Barangay may
prescribe a fine of not less than
Aspects of Local Taxing Power P100 nor more than P1,000.
a. local taxation
b. real property taxation Power to Adjust Local Tax Rate (Sec.
191, lgc)
Fundamental Principles governing Adjustment of the tax rates as
Local Taxation (Sec. 130, lgc) prescribed herein should not be oftener
a. Shall be uniform in each local than once every five (5) years, and in no
sub-unit case shall such adjustment exceed ten
b. Shall be equitable and based as percent (10%) of the rates fixed under
much as possible on the the LGC.
taxpayers ability to pay
c. Levied for public purposes Power to Grant Local Tax Exemptions
d. Shall not be unjust, excessive, (Sec. 192, lgc)
oppressive, or confiscatory Local government units may,
e. Shall not be contrary to law, through ordinances duly approved,
public policy, national grant tax exemptions, incentives or
economic policy, or in restraint reliefs under such terms and conditions,
of trade as they may deem necessary.
f. Collection of local taxes and
other impositions shall not be Tax Exemptions Existing Before the
let to any person Effectivity of the LGC has been
g. The revenues collected under Abolished (Sec. 193, lgc)
the Code shall inure solely to Unless otherwise provided in this
the benefit of, and subject to Code, tax exemptions or incentives
disposition by, the LGU levying granted to, or presently enjoyed by all
the tax or other imposition persons, whether natural or juridical,
unless otherwise specifically including government-owned or
provided therein controlled corporations are hereby
h. Each LGU shall, as far as withdrawn upon the effectively of the
practicable, evolve a LGC
progressive system of taxation. except the following:
8. local water districts,
Local Taxing Authority (Sec. 132, lgc) 9. cooperatives duly registered under
R.A. No. 6938, non-stock and non-
profit hospitals and

Cabrera, Jhundee
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96
10. educational institutions. LEVYING OF LOCAL TAXES (LOCAL TAX

ORDINANCE)
The power to grant tax exemptions, Requisites:
tax incentives and tax reliefs shall not 1. The procedure applicable to local
apply to regulatory fees which are government ordinances in general
levied under the police power of the should be observed (Sec. 187, LGC)
LGU. 2. Procedural details (Secs. 54, 55, and
Tax exemptions shall be conferred 59, LGC):
through the issuance of a non- a. necessity of a quorum
transferable tax exemption certificate. b. submission for approval by the
local chief executive
Guidelines for the Granting of Tax c. he matter of veto and overriding
Exemptions, Tax Incentives and Tax the same
Reliefs (Art. 282[b], Rules and d. the publication and affectivity
Regulations Implementing the Lgc) 3. Public hearings are required before
any local tax ordinance is enacted
1. On the grant of tax exemptions or (Sec.187, LGC)
tax reliefs: 4. Within 10 days after their approval,
a. the same may be granted in publication in full for 3 consecutive
cases of natural calamities, civil days in a newspaper of general
disturbance, general failure of circulation. In absence of such
crops, or adverse economic newspaper in the province, city or
conditions such as substantial municipality, then the ordinances
decrease in prices of agricultural may be posted in at least 2
or agri-based products. conspicuous and publicly accessible
b. The grant shall be through an places (Sec. 189, LGC)
ordinance.
c. Any exemption or relief granted Residual Taxing Powers of the Local
to a type or kind of business shall government units (Sec. 186, lgc)
apply to all business similarly To levy taxes, fees or charges on any
situated. base or subject NOT:
d. The same shall take effect only 1. Specifically enumerated in LGC
during the next calendar year for 2. Taxed under the provisions of
a period not exceeding 12 the NIRC, as amended, and
months as may be provided in 3. Other applicable laws
the ordinance.
e. In the case of shared revenues, Conditions:
the exemption or relief shall only 1. That the taxes, fees, or charges shall
extend to the LGU granting such not be unjust, excessive, oppressive,
exemption or relief. confiscatory or contrary to declared
2. On the grant of tax incentives: national policy
a. The same shall be granted only
to new investments in the 2. The ordinance levying such taxes,
locality and the ordinance shall fees or charges shall not be enacted
prescribe the terms and without any prior public hearing
conditions therefore. conducted for the purpose.
b. The grant shall be for a definite
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance LIMITATIONS OF THE RESIDUAL POWER
passed prior to the 1 st day of 1. Constitutional limitations on
January of any year. taxing power
d. Any grant to a type or kind of 2. Common limitations prescribed
business shall apply to all in Sec. 133 of the LGC
businesses similarly situated. 3. Fundamental principles
governing the exercise of the

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97
taxing power of the LGUs into or out of, or passing

prescribed under Sec. 130 of through, the territorial
the LGC jurisdictions of local government
4. The ordinance levying such units in the guise of charges for
residual taxes shall not be wharfage, tolls for bridges or
enacted without any prior otherwise.
public hearing conducted for 6. Taxes, fees or charges on
the purpose and agricultural and aquatic products
5. The principle of preemption. when sold by marginal farmers
or fishermen;
Principle of Preemption or 7. Taxes on business enterprises
Exclusionary doctrine certified by the Board of
Where the National Government Investments as pioneer or
elects to tax a particular area, it non-pioneer for a period of 6
impliedly withholds from the local and 4 years, respectively, from
government the delegated power to tax the date of registration;
the same field. This doctrine principally 8. Excise taxes on articles
rests on the intention of the Congress. enumerated under the NIRC, as
amended, and taxes, fees or
Excluded impositions (pursuant to the charges on petroleum products;
doctrine of preemption): 9. Percentage or value-added tax
a. Taxes which are levied under the (VAT) on sales, barters or
NIRC, unless otherwise provided exchanges or similar transactions
by LGC of 1991; on goods or services except as
b. Taxes, fees, etc. which are otherwise provided herein;
imposed under the Tariffs and 10. Taxes on the gross receipts of
Customs Code; transportation contractors and
c. Taxes, fees, etc., the imposition persons engaged in the
of which contravenes existing transportation of passengers or
governmental policies or which freight by hire and common
violates the fundamental carriers by air, land or water,
principles of taxation; except as provided in the Code;
d. Taxes, fees and other charges 11. Taxes on premiums paid by way
imposed under special law. of Reinsurance or retrocession;
12. Taxes, fees or charges for the
COMMON LIMITATIONS ON LOCAL registration of motor vehicles
TAXING POWER (SEC. 133, LGC) and for the issuance of all kinds
Local government units cannot levy: of licenses or permits for the
1. Income tax, except on banks and driving thereof, except tricycle;
other financial institutions; 13. Taxes, fees or other charges on
2. Documentary stamp tax; Philippine products actually
3. Estate tax, inheritance, gifts, exported, except as otherwise
legacies and other acquisitions provided in the Code;
mortis causa except as 14. Taxes, fees or charges on
otherwise provided Countryside and barangay
4. Customs duties, registration fees business enterprises and
of vessels and wharfage on cooperatives duly registered
wharves, tonnage dues and all under R.A. 6810 and R.A. 6938,
other kinds of customs fees, (Cooperatives Code of the
charges and dues except Philippines) ; and
wharfage on wharves 15. Taxes, fees or charges of any
constructed and maintained by kind on the National
the local government unit Government, its agencies and
concerned; instrumentalities, and local
5. Taxes, fees, charges and other government units.
impositions upon goods carried

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CLASSIFICATION OF COMMON spirits, and wines or

LIMITATIONS manufacturers of any article of
1. Taxes which are levied under the commerce of whatever kind or
NIRC unless otherwise provided by b. On wholesalers, distributors, or
the LGC dealers in any article of
Numbers 1, 2, 3, 8, 9, 10 commerce of whatever kind or
2. Taxes, fees, etc. which are imposed c. On exporters, and on
under the Tariffs and Customs Code manufacturers, millers,
Number 4 producers, wholesalers,
3. Taxes, fees and charges where the distributors, dealers or retailers
imposition of which contravenes of essential commodities
existing governmental policies or d. On retailers
which are violative of the e. On contractors and other
fundamental principles of taxation independent
Numbers 5, 6, 7, 11, 13, 14, 15 f. On banks and other financial
4. Taxes, fees, and charges imposed g. On peddlers engaged in the sale
under special laws. of any merchandise or article of
Number 12 commerce
h. On any business, not otherwise
TAXES AND OTHER IMPOSITIONS THAT specified in the preceding
THE LOCAL GOVERNMENT MAY LEVY paragraphs, which the
sanggunian concerned may deem
(A) PROVINCES proper to tax.
(SECS. 134-141, LGC)
1. Tax on Transfer of Real Property 2. Municipal non-revenue fees and
2. Tax on Business of Printing and charges
Publication The municipality may impose
3. Franchise Tax and collect such reasonable fees and
4. Tax on Sand, Gravel and other charges on business and occupation
Quarry Resources extracted from except professional taxes reserved for
Public Land provinces. (Sec. 147. LGC)
5. Professional Tax
6. Amusement Tax Rates of Tax within the Metropolitan
7. Annual Fixed Tax for every Manila Area (sec. 144, lgc)
Delivery Truck or Van of
Manufacturers or Producers, - Not to exceed by 50% the
Wholesalers of, Dealers, or maximum rates prescribed in the
Retailers in, certain products preceding Section.
See Annex J for the rates and

details.
(B) MUNICIPALITIES Payment of Business Taxes

(SEC. 143, LGC) a. It shall be payable for every
separate or distinct
1. Municipal Taxes- taxes on the establishment or place where
businesses of the following: business subject to the tax is
a. On manufacturers, assemblers, conducted and one line of
repackers, processors, brewers, business does not become
distillers, rectifiers, and exempt by being conducted with
compounders of liquors, distilled

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some other business for which c. Service Fees or Charges For

such tax has been paid. services rendered in connection
b. The tax on a business must be with the regulation or the use of
paid by the person conducting barangay-owned properties or
the same. service facilities such as palay,
c. In cases where a person copra or tobacco dryers
conducts or operates 2 or more d. Barangay Clearance No city or
of the businesses mentioned in municipality may issue any
Section 143 of LGC license or permit fee for any
- which are subject to the business or activity unless a
same rate of tax, the tax shall be clearance is first obtained from
computed on the combined total the barangay where such
gross sales or receipts of the said 2 business or activity is located or
or more related businesses. conducted.
- which are subject to e. Other Fees and Charges The
different rates of tax, the gross barangay may levy reasonable
sales or receipts of each business fees and charges:
shall be separately reported for the 1. On Commercial breeding of
purpose of computing the tax due fighting cocks, cockfights
from each business. and cockpits;
2. On places of Recreation
See Annex K for the rates and which charge admission fees;
details. and
3. On Billboards, signboards,
(C) CITIES neon signs and outdoor
(SEC. 151, LGC) advertisements.
The city may levy the taxes, fees, SITUS OF LOCAL TAXATION
and charges which the province or
municipality may impose. A. Situs According to the Cases
The tax rates that the city may levy With respect to excise tax, the
may exceed the maximum rates tax is upon the performance of an act,
allowed for the province or enjoyment of a privilege or the engaging
municipality by not more than 50% in an occupation. The power to levy such
except the rates of professional and tax is not dependent on the domicile of
amusement taxes. the taxpayer, but on the place in which
the act is performed or the occupation is
(D) BARANGAYS engaged in; not upon the location of the
(SEC. 152, LGC) office, but the place where the sale is
perfected. (Allied Thread Co., Inc. v.
Barangays may levy the following taxes, City Mayor of Manila, L-40296)
fees, and charges which shall accrue
exclusively to them: With respect to sale, it is the
place of the consummation of the sale,
associated with the delivery of the
a. Taxes On stores or retailers things which are the subject matter of
with fixed business the contract that determines the situs of
establishments with the gross the contract for purposes of taxation,
sales or receipts for the and not merely the place of the
preceding calendar year of perfection of the contract. (Shell Co.,
P50,000 or less (for barangays in Inc. v. Municipality of Sipocot,
the cities) and P30,000 or less Camarines Sur 105 Phil 1263)
(for barangays in municipalities)
b. Rate = not exceeding 1% of such B. Situs According to Sec. 150, LGC
gross sales or receipts.

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Branch or sales office a fixed place in and constructed by the local

the locality which conducts the government unit concerned
operation of the business as an extension Exceptions:
of the principal office a. Officers and enlisted men of the
AFP and PNP;
Principal office- the head or the main b. Post office personnel delivering
office of the business; the city or the mail; and
municipality specifically mentioned in c. Physically handicapped and
the Articles of Incorporation or official disabled citizens who are
registration papers as being the official sixty-five (65) years or older.
address of said principal office shall be (Sec. 152, LGC)
considered the situs thereof.
When public safety and welfare so
1. Place of sale (with branch or sales requires, the sanggunian concerned may
outlet therein): discontinue the collection of the tolls,
Municipality or city where the and thereafter the said facility shall be
branch or outlet is located. free and open for public use.
2. Place of sale (no branch or sales
outlet): COMMUNITY TAX
Municipality or city of principal Cities or municipalities may levy a
office (not in the place of sale) community tax.
3. If manufacturer, assembler,
contractor, producer, or exporter A. Individuals Liable (Sec. 157)
(MACPE) with factory, project office, a. every inhabitant of the
plant or plantation (FPPP) Philippines;
4. 30% of recorded sales in the principal b. eighteen (18) years of age or
office: city or municipality where over;
the principal office is located c. under any of the following
5. 70% of recorded sales in the instances:
principal office: city or municipality d. who has been regularly
where the FPPP is located employed on a wage or salary
pro rata if FPPP are located in basis for at least thirty (30)
different municipalities or cities consecutive working days
in proportion to their respective during any calendar year; or
volumes of production. e. who is engaged in business or
6. If plantation is located in some other occupation; or
place than where the factory is f. who owns real property with
located, the foregoing 70% shall be an aggregate assessed value
subdivided as follows: of P1,000 or more; or
60% to the city or municipality g. who is required by law to file
where the factory is located an income tax return
40% to the city or municipality
where the plantation is located. Tax Rate = P5.00 and an annual
additional tax of P1.00 for every
COMMON REVENUE-RAISING POWERS P1,000 of income regardless of
OF LGUs (SEC. 153 TO 155) whether from business, exercise of
1. Service fees and charges for services profession or from property which in
rendered no case shall exceed P5,000.
2. Public Utility Charges for the In case of husband and wife,
operation of public utilities owned, the additional tax herein imposed
operated and maintained by LGUs shall be based upon the total
within their jurisdiction. property owned by them and the
3. Toll fees or charges for the use of total gross receipts or earnings
any public road, pier or wharf, derived by them.
waterway, bridge, ferry or
telecommunication system funded B. Juridical Persons (Sec. 158)

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101
Every corporation no matter how community tax upon payment of P1.00

created or organized, whether (Sec. 162, LGC).
domestic or resident foreign,
engaged in or doing business in the Presentation of Community Tax
Philippines shall pay an annual Certificate on Certain Occasions (Sec.
community tax. 163)
A. Individual
Tax Rate = P500 and an annual 1. When an individual subject to
additional tax which in no case shall the community tax
exceed P10,000 in accordance with the acknowledges any document
following schedule: before a notary public;
1. For every P5,000 worth of real 2. takes the oath of office upon
property owned by it during the election or appointment to
preceding year based on the any position in the
valuation used for the payment government service;
of the real property tax - P2.00; 3. receives any license,
and certificate or permit from any
2. For every P5,000 of gross public authority; pays any tax
receipts or earnings derived by or fee;
it from its business in the 4. receives any money from any
Philippines during the preceding public fund;
year - P2.00. 5. transacts other official
business; or
The dividends received by a 6. receives any salary or wage
corporation shall, for the purpose of the from any person or
additional tax, be considered as part of corporation.
the gross receipts or earnings of said The presentation of the community tax
corporation. certificate shall not be required in
connection with the registration of a
THE FOLLOWING ARE EXEMPT FROM voter.
THE COMMUNITY TAX (SEC. 159)
1. Diplomatic and consular B. Corporation
representatives; and 1. receives any license, certificate
2. Transient visitors when their stay in or permit from any public
the Philippines does not exceed authority;
three (3) months. 2. pays any tax or fee;
3. receives money from public
PLACE OF PAYMENT: place of residence funds; or
of the individual, or in the place where 4. transacts other official business.
the principal office of the juridical The city of municipal treasurer
entity is located. deputizes the barangay treasurer to
collect the community tax in their
TIME OF PAYMENT: accrues on the 1st respective jurisdictions. (Sec. 164, LCG)
day of January of each year which shall
be paid not later than the last day of The proceeds of the community tax
February of each year. actually and directly collected by the
city or municipal treasurer shall accrue
PENALTIES FOR DELINQUENCY: an entirely to the general fund of the city or
interest of 24% per annum from the due municipality concerned.
date until it is paid shall be added to the
Proceeds of the community tax
amount due.
collected through the barangay
treasurers shall be apportioned as
A community tax certificate may
follows:
also be issued to any person or
corporation not subject to the

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50% accrues to the general fund date it is due until it is paid, but in no
of the city or municipality case shall the total interest on the
concerned; and unpaid amount or portion thereof
50% accrues to the barangay exceed thirty-six (36) months.
where the tax is collected.
Collection of Local Revenues by the
Collection Of Local Taxes Treasurer (Sec. 170 LGC)
All local taxes, fees and charges
Tax Period and Manner of Payment shall be collected by the provincial, city,
(Sec. 165, LGC) municipal or barangay treasurer, or their
Unless otherwise provided, the duly authorized deputies.
tax period shall be the calendar The provincial, city or municipal
year. treasurer may designate the barangay
Such taxes, fees, and charges treasurer or his deputy to collect local
may be paid in quarterly taxes, fees or charges.
installments. In case a bond is required for the
purpose, the provincial, city or
Accrual of Tax (Sec. 166, LGC) municipal government shall pay the
Unless otherwise provided, shall premiums thereon in addition to the
accrue on the first day of January of premiums of the bond that may be
each year. required under the Code.
However, new taxes, fees or
charges, or changes in the rates
thereof, shall accrue on the first LOCAL TAX REMEDIES
day of the quarter next following
UNDER THE LGC
the effectivity of the ordinance
imposing such new levies or rates.
Time of Payment (Sec. 167, LGC) 1. TAX REMEDIES OF THE

Unless otherwise provided shall LOCAL GOVERNMENT UNITS (LGUs)
be paid within the first twenty (20)
days of January or of each Civil Remedies Of The Local
subsequent quarter as the case may Government Units (LGU) To Effect
be. Collection Of Taxes
May, for a justifiable reason or (1) Local Governments Lien Local
cause, be extended without taxes, fees, charges and other
surcharges or penalties, but only for revenues constitute a lien, superior
a period not exceeding six (6) to all liens, charges or
months. encumbrances in favor of any
person, enforceable by any
Surcharges and Penalties on Unpaid appropriate administrative or
Taxes, Fees or Charges (Sec. 168, judicial action.
LGC)
Surcharge not exceeding 25% of (2) Civil Remedies
the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.
Interests on Other Unpaid Revenues Either of these remedies or all may

(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.

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103
a. The treasurer is legally

JURISDICTION OF COURTS OVER LOCAL prevented from the assessment
TAXATION CASES or collection of the tax;
b. The taxpayer requests for a
a. With the amendment brought by reinvestigation and executes a
RA No. 9282, the Court of Tax waiver in writing before the
Appeals now has appellate expiration of the period within
jurisdiction over local taxation which to assess or collect; and
cases decided by the Regional c. The taxpayer is out of the
Trial Court in the exercise of its country or otherwise cannot be
appellate or original jurisdiction. located (Sec. 194, LGC).
b. Regular judicial courts are not
prohibited from enjoining the 2. TAX REMEDIES OF
collection of local taxes, subject THE TAXPAYER
to Rule 58 (Preliminary
Injunction) of the Rules of Court. Remedies Of The Taxpayer In Local
Taxation
Note: Unlike the NIRC, the Local Tax
Code does not contain any specific A. ADMINISTRATIVE
provision prohibiting courts from Before assessment
enjoining the collection of local taxes. a. Appeal any question on
Such statutory lapse or intent may have constitutionality or legality of tax
allowed preliminary injunction where ordinance within 30 days from
local taxes are involved. But it cannot effectivity thereof to Secretary of
negate the procedural rules and Justice (Sec. 187 LGC)
requirements under Rule 58 of the Rules b. Declaratory relief whenever
of Courts. (Valley Trading Co. vs. CFI of applicable.
Isabela, GR No. 49529, March 31, 1989)
After assessment
a. Protest within 60 days from receipt
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT of assessment (Sec. 195 LGC).
AND COLLECTION Payment under protest is not
OF LOCAL TAXES necessary.
PRESCRIPTIVE PERIODS OF ASSESSMENT
1. Local taxes, fees, or charges five b. Payment & subsequent refund or
(5) years from the date they became tax credit within 2 years from
due. (Sec. 194, LGC). payment of tax to local treasurer
2. When there is fraud or intent to (Sec. 196 LGC). It is to be noted
evade the payment of taxes, fees that, unlike in internal revenue
or charges ten (10) years from taxes, the supervening cause applies
discovery of the fraud or intent to in local taxation because the period
evade the payment (Sec. 194, LGC). for the filing of claims for refund or
credit of local taxes is counted not
PRESCRIPTIVE PERIOD OF COLLECTION necessarily from the date of
Local taxes, fees, or charges payment but from the date the
may be collected within five (5) years taxpayer is entitled to a refund or
from the date of assessment by credit.
administrative or judicial action. No
such action shall be instituted after the c. Right of redemption 1 year from
expiration of such period (Sec. 194, the date of sale or from the date of
LGC). forfeiture (Sec. 179, LGC).
GROUNDS FOR THE SUSPENSION OF
THE RUNNING OF THE PRESCRIPTIVE B. JUDICIAL
PERIODS 1. Court action
within 30 days after receipt of
decision or lapse of 60 days of

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104
Secretary of Justices inaction 1. Direct tax on the Ownership of

(Sec. 187 LGC) real property
within 30 days from receipt 2. Ad valorem tax. The value is
when protest of assessment is based on the tax base.
denied (Sec. 195 LGC) 3. Proportionate the tax is
if no action is taken by the calculated on the basis of a
treasurer in refund cases and the certain percentage of the value
two year period is about to lapse assessed.
(Sec. 195 LGC) 4. Indivisible single obligation
if remedies available does not 5. Local tax
provide plain, speedy and
adequate remedy. TAXING AUTHORITIES (SEC. 233, LGC)
2. Action for declaratory relief
3. Injunction if irreparable damage Rate of Basic Real
LGU
would be caused to the taxpayer and Property Tax
no adequate remedy is available.
1. Province not exceeding 1% of
assessed value
IV. REAL PROPERTY 2. City not exceeding 2%

TAXATION
3. Municipality not exceeding 2%.
within Metro
Manila
Definitions:
REAL PROPERTY TAXATION A direct
tax on ownership of lands and
FUNDAMENTAL PRINCIPLES GOVERNING
buildings or other improvements
REAL PROPERTY TAXATION (SEC. 198,
thereon payable regardless of
LGC)
whether the property is used or
1. Real property shall be appraised at
not, although the value may vary
its current and Fair market value;
in accordance with such factor.
2. Real property shall be classified for
Under the LGC, it covers
assessment purposes on the basis of
the administration, appraisal,
actual Use.
assessment, levy and collection
3. Real property shall be assessed on
of Real Property Tax, i.e. tax on
the basis of Uniform classification
land and building and other
within each LGU
structures and improvements on
4. The appraisal, assessment, levy and
it, including machineries.
collection of RP Tax shall not be let
to any Private person
REAL PROPERTY subject to the
5. The appraisal and assessment of real
definition given by Art. 415 of
property shall be Equitable.
the Civil Code.
EXTENT OF THE POWER TO LEVY
IMPROVEMENT valuable addition made
Basic real property tax;
to a property or amelioration in
1% additional real estate tax to
its condition amounting to more
finance the Special Education
than a mere replacement of
Fund; (Sec. 236)
parts involving capital
expenditures and labor. 5% additional ad valorem tax on
Idle lands; (Sec. 236, LGC) and
Special levy or special
assessments (may be imposed
even by municipalities outside
NATURE AND CLASSES
Metro Manila) on lands comprised
within its territorial jurisdiction
CHARACTERISTICS OF REAL PROPERTY specially benefited by public
TAX

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105
works, projects or improvements

funded by the local government CLASSIFICATION OF LANDS FOR PURPOSES
unit concerned. OF ASSESSMENT SEC. 218 (A)
Provided:
Special levy shall not exceed a. Commercial
60% of the actual cost of b. Agricultural
such projects and c. Residential
improvements, including the d. Mineral
costs of acquiring land and e. Industrial
such other real property in f. Timberland
connection therewith g. Special
not apply to lands exempt
from basic real property tax SPECIAL CLASSES OF REAL PROPERTY
and the remainder of the (SEC. 216, LGC)
land have been donated to
the local government unit 1. Hospitals
concerned for the 2. Cultural and Scientific purposes
construction of said 3. owned and used by Local water
projects. (Sec. 240, LGC). districts
4. GOCCs rendering essential public
FOR PURPOSES OF REAL PROPERTY services in the supply and
TAXATION IDLE LANDS SHALL INCLUDE: distribution of water and/or
(SEC. 237, LGC) generation or transmission of
1. Agricultural lands more than one electric power.
hectare in area one-half of which
remain uncultivated or unimproved by PROPERTIES EXEMPT FROM REAL
the owner of the property or person PROPERTY TAX (SEC. 234, LGC)
having legal interest therein. Exemption is limited only to the
Agricultural lands planted to following:
permanent or perennial crops with 1. Real property owned by the
at least 50 trees to a hectare shall government except when the
not be considered idle lands. beneficial use thereof has been
Lands actually used for grazing granted to a taxable person;
purposes shall likewise not be 2. Charitable institutions,
considered idle lands; and churches, personages or
2. Lands other than agricultural convents appurtenant thereto,
located in a city or municipality mosques, non-profit or religious
more than one thousand square meters cemeteries and all lands,
in area one-half of which remain buildings and improvements
unutilized or unimproved by the actually, directly and
owner of the property or person exclusively used for religious,
having legal interest therein. charitable or educational
purposes (Art. VI, Sec. 28,
IDLE LANDS EXEMPT FROM TAX (SEC. Constitution);
238, LGC) 3. Machineries and equipment that
are actually, directly and
By reason of: exclusively used by local water
1. force majeure utilities and GOCCs engaged in
1. civil disturbance the supply and distribution of
2. natural calamity water and/or electric power;
3. or any cause which physically or
legally prevents the owner of
the property or person having
legal interest therein from
improving, utilizing or
cultivating the same.

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106
4. Real property owned by duly DECLARATION BY PROVINCIAL / CITY /

registered cooperatives as MUNICIPAL ASSESSOR (SEC. 204)
provided for in RA 6938; and
5. Machinery and equipment used WHEN: Only when the person under Sec.
for pollution control and 202 refuses or fails to make a
environmental protection. declaration within the prescribed time.
ACTUAL USE OF PROPERTY AS BASIS No oath by the assessor is required.

FOR ASSESSMENT (SEC. 217 LGC)
Notes: Proof of Exemption of Real
Real property shall be classified, Property from Taxation - (Sec. 206)
valued and assessed on the basis of
actual use regardless of where located, WHO: By any person or for whom real
whoever owns it, and whoever uses it. property is declared.
Unpaid realty taxes attach to the Claim for exemption must be filed
property and is chargeable against the with the assessor together with
person who had actual or beneficial use sufficient documentary evidence to
and possession of it regardless of support claim
whether or not he is the owner. To
impose the real property tax on the WHEN: within 30 days from the date of
subsequent owner which was neither the declaration of property.
owner nor the beneficial user of the
property during the designated periods IF PROPERTY IS DECLARED FOR THE FIRST
would not only be contrary to law but TIME (SEC.222)
also unjust. (Estate of Lim vs. City of If Declared for the first time, real
Manila, GR No. 90639, February 21, property shall be assessed for back
1990) taxes:
For not more than 10 years prior to
date of initial assessment
PROCEDURE Taxes shall be computed on the basis
of applicable schedule of values in force
STEP 1: DECLARATION OF REAL during the corresponding period.
PROPERTY
STEP 2: LISTING OF REAL
DECLARATION BY OWNER OR ADMINISTRATOR PROPERTY IN THE ASSESSMENT
(SEC. 202-203) ROLLS (SECS. 205, 207)
File a sworn declaration with the
assessor
All declarations shall be kept and
- once every 3 years during
filed under a uniform
the period from January 1
classification system to be
to June 30.
established by the provincial, city
For newly acquired property
or municipal assessor.
WHEN: Must file with the assessor within
60 days from date of transfer
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
For improvement on property
WHEN: Must file within 60 days upon Determination of fair market value
completion or occupation (whichever (FMV)
comes earlier) For land
WHAT: Sworn statement containing the Assessor of the province/city or
fair market value and description of the municipality may summon the
property. owners of the properties to be
affected and may take depositions

Cabrera, Jhundee
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107
concerning the property, its 2. provided in no case shall the

ownership, amount, nature and total interest exceed thirty-six
value (Sec. 213, LGC) (36) months.
Assessor prepares a schedule of
FMV for different classes of (d) For Advance and Prompt Payment
properties. 1. Advance payment discount not
Sanggunian enacts an ordinance exceeding 20% of annual tax (Sec.
The schedule of FMV is 251, LCG)
published in a newspaper of 2. Prompt payment discount not
exceeding 10% of annual tax due
general circulation in the (Art 342 IRR)
province, city or municipality
concerned or in the absence Collection of Tax (Sec. 247)
thereof, shall be posted in the It shall be the responsibility of the
provincial capitol, city or city or municipal treasurer concerned.
municipal hall and in two other The city or municipal treasurer may
conspicuous public places deputize the barangay treasurer to
therein (Sec. 212, LGC) collect all taxes on real property located
in the barangay; provided, the barangay
For machinery treasurer is properly bonded.
1. For Brand new machinery: FMV is the
acquisition cost Period to Collect (Sec. 270)
2. In all other cases: FMV 1. within five (5) years from the
= Remaining eco. life X Replacement
date they become due
Estimated Eco.Life Cost
2. within ten (10) years from
discovery of fraud, in case there
STEP 4: DETERMINE ASSESSED is fraud or intent to evade
VALUE (SEC. 218)
Suspension of Prescriptive Period (Sec.
Determine Assessed Value 270)
Procedure 1. local treasurer is legally
1. Take the schedule of FMV prevented to collect tax.
2. Assessed Value = FMV x 2. the owner or property requests
Assessment level for reinvestigation and writes a
3. Tax = Assessed value x Tax rate waiver before expiration of
period to collect.
STEP 5: PAYMENT AND COLLECTION 3. the owner of property is out of
OF TAX the country or cannot be
located.
(a) Accrual of Tax: January of every
year and such will constitute as REAL PROPERTY TAX
a superior lien. (Sec. 246) REMEDIES UNDER THE LGC
(b) Time and Manner of Payment: 1. TAX REMEDIES OF THE LOCAL
(Sec. 250) GOVERNMENT TO EFFECT
1. basic real property tax in 4 equal COLLECTION OF TAXES
installments (March 31, June 30,
September 30, December 30)
A. ADMINISTRATIVE
2. special levy governed by
1. Real Property tax lien (Secs. 257,
ordinance
LGC) superior to all liens, charges
or encumbrances;
(c) Interest for Late Payment (Sec. 255)
2. Distraint (Sec. 254[B], LGC);
1. two percent (2%) for each month
3. Levy (Sec. 254[A], 258 LGC);
on unpaid amount until the
4. Purchase of property by local
delinquent amount is paid
treasurer for want of bidder (Sec.
263, LGC).

Cabrera, Jhundee
Guillermo
108
B. JUDICIAL b) in case of denial of refund or

Civil Action ( Sec. 266, 270 LGC) credit, appeal to LBAA as in
protest case.
PRESCRIPTIVE PERIODS FOR THE
COLLECTION OF REAL Redemption of real property (Sec. 261
PROPERTY TAXES LGC)
Remedy against the Assessment/Appeal

1. Basic real property tax and any
1st: within 60 days from notice of
other tax levied under the title on
assessment of provincial, city or
Real Property Taxation five (5)
municipal assessor to LBAA (Sec. 226
years from the date they became
LGC)
due. (Sec. 270, LGC).
2nd: within 30 days from receipt of
2. When there is fraud or intent to decision of LBAA to CBAA (Sec. 230
evade the payment of taxes ten LGC)
(10) years from discovery of the 3rd: within 30 days from receipt of
fraud or intent to evade the decision of CBAA to Court of Tax
payment (Sec. 270, LGC). Appeals en banc
4th: within 15 days from receipt of
GROUNDS FOR THE SUSPENSION OF decision of Court of Tax Appeals en
THE RUNNING OF THE PRESCRIPTIVE banc to the Supreme Court
PERIODS
APPEALS IN REAL PROPERTY
1. The treasurer is legally prevented
TAXATION
from the assessment or collection of
the tax;
2. The taxpayer requests for a PROVINCIAL, CITY OR MUNICIPAL
reinvestigation and executes a ASSESSOR
waiver in writing before the
expiration of the period within within 60 days
which to assess or collect; and Owner/Person with legal interest
3. The taxpayer is out of the country or must file:
otherwise cannot be located (Sec. 1) Written Petition under Oath
270, LGC). 2) With Supporting Documents
2. TAX REMEDIES OF THE

LOCAL BOARD OF ASSESSMENT APPEALS
TAXPAYER (LBAA should decide within 120 days
from receipt of petition)
A. ADMINISTRATIVE
within 30 days
Protest payment under protest is
required within 30 days to provincial,
city, or municipal treasurer. No protest CENTRAL BOARD OF ASSESSMENT
shall be entertained unless the tax is APPEALS
first paid. (Sec. 252 LGC)
within 30 days
Claim for Tax Refund or Credit (Sec.
253)
a) the taxpayer may file a written
COURT OF TAX APPEALS (EN BANC)
claim for refund or credit with
the provincial or city treasurer
within two years from the date within 15 days
the taxpayer is entitled to such
reduction or adjustment.
SUPREME COURT

Cabrera, Jhundee
Guillermo
109
B. JUDICIAL 3. Berthing fee

1. Court Action appeal of CBAAs 4. Harbor fee
decision to Court of Tax Appeals en 5. Tonnage due
banc.
2. Suit assailing validity of tax; Meaning and Scope of the Tariff and
recovery of refund of taxes paid Customs Laws
(Sec. 64 PD 464). Include not only the provisions of the
3. Suit to declare invalidity of tax due Tariff and Customs Code (TCC) and
to irregularity in assessment and regulations pursuant thereto, but all
collection (Sec. 64 PD 464) other laws and regulations that are
4. Suit assailing the validity of tax sale subject to the Bureau of Customs (BOC)
(Sec. 83 PD 464) (Sec. 267 LGC) or otherwise within its jurisdiction.
As to its scope, therefore, tariff and
Condonation of Real Property Taxes customs laws extend not only to the
1. By the Sanggunian provisions of the TCC but to all other
Real property taxes may be laws as well, the enforcement of which
condoned wholly or partially in a is entrusted to the BOC.
given local government unit when:
a. There is general failure of crops; THE BUREAU OF CUSTOMS
b. There is substantial decrease in
the price of agricultural or agri- FUNCTIONS OF THE BUREAU OF
based products; or CUSTOMS
c. There is calamity.
2. By the President of the Philippines 1. Assessment and collection of
when public interest so requires. revenues from imported articles and
all other impositions under the tariff
and customs laws;
V. TARIFF AND 2. Control smuggling and related
frauds;
CUSTOMS CODE 3. Supervision and control over the
entrance and clearance of vessels
and aircraft engaged in foreign
DEFINITIONS commerce;
TARIFF: Customs duties, toll or tribute 4. Enforcement of TCC and related
payable upon merchandise to the laws;
Government. 5. Supervision and control over the
handling of foreign mails arriving in
CUSTOM DUTIES: Tax assessed upon the Philippines;
merchandise from or exported to, a 6. Supervise and control all import and
foreign country. (Garcia v. Executive export cargoes for the protection of
Sec., GR No. 101273, July3, 1992)) government revenue;
7. Exclusive original jurisdiction over
Note: Customs and tariffs are seizure and forfeiture cases under
synonymous with one another. They the tariff and customs laws.
both refer to the taxes imposed on
imported or exported wares, articles, or JURISDICTION OF COLLECTOR OF
merchandise. CUSTOMS OVER IMPORTATION OF
ARTICLES
Other Types of Fees Charged by the 1. Cause all articles for importation to
Bureau of Customs be entered in the customhouse,
2. Cause all such articles to be
1. Arrastre charge appraised and classified,
2. Wharfage due counterpart of 3. Assess and collect the duties, taxes
license, charged not for the use of and other charges thereon, and
any wharf but for a special fund 4. Hold possession of all imported
known as the Port Works Fund. articles until the duties, taxes and

Cabrera, Jhundee
Guillermo
110
other charges are paid thereon. d. Prepared foodstuffs; beverages,

(Sec. 1206, TCC) spirits and vinegar; tobacco and
manufactured tobacco
TERRITORIAL JURISDICTION OF THE substitutes;
BOC e. Mineral products;
1. All seas within the jurisdiction of the f. Products of chemical or allied
Philippines industries;
2. All coasts, ports, airports, harbors, g. Plastics and articles thereof;
bays, rivers and inland waters rubber and articles thereof;
whether navigable or not from the h. Raw hides and skins; leather,
sea. (1st par, Sec. 603, TCC) etc.;
i. Wood and articles of wood, etc.;
CUSTOMS DUTIES j. Pulp of wood, etc.;
k. Textiles and textile articles;
l. Articles of stone; plaster,
WHEN TARIFF AND CUSTOMS APPLIED cement, etc.;
Only after importation has begun but m. Footwear, headgear, etc.;
before importation is terminated. n. Natural or cultured pearls
precious/semi-precious stones;
Importation begins: o. Base metals and articles of base
1) when the conveying vessel or metals;
aircraft p. Machinery and mechanical
2) enters the jurisdiction of the appliances; electric equipment;
Phil. sound recorders, etc;
3) with intention to unload therein q. Vehicles, aircraft, vessels and
associated transport equipment;
Importation is deemed terminated: r. Optical, photographic, medical,
surgical instruments, etc.;
(a) upon payment of the duties, taxes s. Arms, ammunition, parts and
and other charges due upon the articles. accessories;
t. Miscellaneous manufactured
(b) and legal permit for withdrawal articles; and
shall have been granted. u. Works of art, collector's pieces
arid antiques (Sec. 104, Title 1,
In case the articles are free of TCC).
duties, taxes and other charges, until
they have legally left the jurisdiction of 2. Prohibited from being imported
the customs (Sec. 1202, TCC) (Prohibited importation)
a. Absolutely prohibited such as:
INTENTION TO UNLOAD weapons of war; gambling
Even if not yet unloaded, and there is devices; narcotics or prohibited
unmanifested cargo, forfeiture may take drugs; immoral, obscene or
place because importation has already insidious articles; and those
begun. prohibited under special laws
(Sec.102, TCC).
ARTICLES UNDER TCC b. Qualifiedly prohibited
May either be: Where such conditions as to
1. Subject to duty warrant a lawful importation do
a. Live animals and animal not exist, the legal effects of the
products; importation of qualifiedly
b. Vegetable products; prohibited articles are the same
c. Animal or vegetable fats; oils as those of absolutely prohibited
and their cleavage products; articles. (Auyong Hian vs. CTA,
prepared edible fats; animal or GR No. L-28782, September 12,
vegetable waxes; 1974)

Cabrera, Jhundee
Guillermo
111
3. Conditionally-free from tariff and A personal debt which can be

customs duties (conditionally-free discharged only by payment in
importation) full thereof;
Those provided in Sec. 105, TCC; A lien upon the imported articles
Those granted to government while they are in custody or
agencies, GOCCs with subject to the control of the
agreements with foreign government. (Sec. 1204, TCC).
countries;
Those given to international Extent Of Importers Liability
institutions entitled to The liability of an importer is
exemption by agreement or limited to the value of the imported
special laws; and merchandise. In case of forfeiture of
Those that may be granted by the seized material, the maximum civil
the President upon NEDAs penalty is the forfeiture itself.
recommendation. (Mendoza vs. David, GR No. L-9452,
March 27, 1961)
4. Free from TC duties (duty-free)
Imported goods must be Drawback
entered in a customhouse at their A device resorted to for enabling a
port of entry otherwise they shall be commodity affected by taxes to be
considered as contraband and the exported and sold in foreign markets
importer is liable for smuggling (See upon the same terms as if it had not
Sec. 101, TCC). been taxed at all. (Uy Chaco Sons vs.
All articles when imported from Collector of Customs, GR No. 7618,
any country into the Philippines shall March 27, 1913)
be subject to duty upon each
importation, even though previously Import Entry
exported from the Philippines, It is a declaration to the BOC
except as otherwise specifically showing particulars of the imported
provided for in the TCC or other article that will enable the customs
laws. authorities to determine the correct
duties. An importer is required to file an
Liability for Customs Duties import entry. It must be accomplished
General Rule: All importations / from disembarking of last cargo from
exportations of goods are subject to vessel.
customs duties (Sec. 105, TCC).
Transaction value under RA NO. 8181
Exceptions: It is the invoice value of the
(1) Exemptions under the TCC; goods plus freight, insurance, costs,
(2) Exemptions granted to expenses and other necessary expenses.
government agencies, This replaces the Home Consumption
instrumentalities or GOCCs with Value as basis of valuation of goods.
existing contracts,
commitments, agreements, or CLASSIFICATION OF CUSTOM DUTIES
obligations with foreign A. Regular Duties those which are
countries; imposed and collected merely as a
(3) Exemptions of international source of revenue.
organizations pursuant to 1. Ad valorem duty: This is a duty
agreements or special laws; and based on the value of the
(4) Exemptions granted by the Pres. imported article.
of the Phil. upon 2. Specific duty: This is a duty
recommendation of NEDA (Sec. based on the dutiable weight of
105, TCC). goods (either the gross weight,
LIABILITY OF IMPORTER FOR CUSTOM DUTIES legal weight, or net weight).

Cabrera, Jhundee
Guillermo
112
3. Alternating duties: This is a 3. Marking duty

duty which alternates ad 4. Discriminatory duty
valorem and specific.
4. Compound Duty: This is a duty NATURE OF SPECIAL CUSTOMS DUTIES
consisting of ad valorem and Special customs duties are
specific duties. additional import duties imposed on
specific kinds of imported articles under
B. Special duties those which are certain conditions.
imposed and collected in addition to
the ordinary customs duties usually PURPOSE OF SPECIAL CUSTOMS DUTIES
to protect local industries against The special customs duties are
foreign competition. imposed for the protection of consumers
and manufacturers, as well as Phil.
1. Dumping duty products from undue competition posed
2. Countervailing duty by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.
2. Amount/Rate Equivalent to the 5% ad valorem Any amount not

Difference between bounty, subsidy, or of articles exceeding 100%
the actual price subvention. ad valorem of the
and the normal subject articles
value of the article.
3. Imposing Authority Secretary of Finance Commissioner of President of the

Special committee Customs Philippines
on Anti-Dumping
(composed of the
Secretary of Finance
as Chairman;
Members: the
Secretary of DTI,
and either the
Secretary of
Agriculture if article
in question is
agricultural product
or the Secretary of
labor if non-
agricultural product

Cabrera, Jhundee
Guillermo
FLEXIBLE necessary; The FUNCTIONS OF
TARIFF CLAUSE and NEDA THE TARIFF
The 3. to impose thereafter COMMISSION
President may an submits its 1. Investigativ
fix tariff rates, additional recommend e Powers
import and duty on all ation to the (Sec. 505,
export quotas, imports not President. TCC)
etc. under TCC exceeding 1. The power a. the
(See Sec. 28, ten (10%) of the administ
Art. VI, per cent ad President to ration of
Constitution valorem increase or and the
and Sec. 401, whenever decrease fiscal
TCC) necessary: the rates of and
1. to increase, import duty industri
reduce or LIMITATIONS within the al
remove IMPOSED abovementi effects
existing REGARDING oned limits of the
protective THE FLEXIBLE fixed in the tariff
rates of TARIFF CLAUSE Code shall and
import duty include the customs
(including a. Conduct by modificatio laws of
any the Tariff n in the this
necessary Commission form of country
change in of an duty. now in
classificatio investigation In such force or
n). in a public a case the which
The hearing. correspondi may
existing The ng ad hereafte
rates may Commission valorem or r be
be shall also specific enacted
increased or hear the equivalents ;
decreased views and of the duty b. the
to any recommend with respect relation
level, on ations of to the s
one or any imports between
several government from the the
stages but office, principal rates of
in no case agency or competing duty on
shall the instrumenta foreign raw
increased lity country for material
rate of concerned. the most s and
import duty The recent the
be higher Commission representati finished
than a shall submit ve period or partly
maximum of their shall be finished
one hundred findings and used as products
(100%) per recommend bases (Sec. ;
cent ad ations to 401, TCC). c. the
valorem the NEDA effects
2. to establish within thirty of ad
import (30) days valorem
quota or to after the
THE TARIFF and
ban imports termination COMMISSI specific
of any of the ON (TC) duties
commodity, public and of
as may be hearings. com-
pound f. the upon regar
specific volume the dless
and ad of industri of
valorem importa es and owner
duties; tions, labor of ship,
d. all compare the while
question d with country still in
s domesti and to the
relative c pro- submit custo
to the duction reports dy or
arrange and of its contr
ment of consum investig ol of
schedul ption; ation as the
es and g. conditio pro- Gover
classific ns, vided. nmen
ation of causes, t
articles and 2. Administrat availe
in the effects ive d of
several relating Assistance when
schedul to to the the
es of competi President impor
the tion of and tation
tariff foreign Congress is
law; industri (Sec. 506, neith
e. the es with TCC) er
tariff those of prohi
relation the bited
s Philippi nor
between nes, impro
the includ- perly
Philippi ing TAX made
nes and dumping REMEDIES 2. Adminis
foreign and cost UNDER THE trative
countrie of TARIFF AND Fines
s, producti CUSTOMS and
commer on; and Forfeitu
cial h. in CODE (TCC) res
treaties, general, appl
preferen to TAX REMEDIES ied
tial investig OF THE whe
provisio ate the GOVERNMENT n
ns, operatio the
economi n of A. imp
c customs ADMINISTRATIV orta
alliance and E tion
s, the tariff 1. Tax is
effect laws, Lien unla
of includin (Sec. wful
export g their 1204 ,
bounties relation TCC) and
and to the attac it
pref- national hes may
erential rev- on be
transpor enues, the exer
tation their goods cise
rates; effect , d
eve or in raba 09,
n the nd. May
whe han The 16,
re ds com 198
the of a ple 3)
artic pers men 3. Reducti
les on tary on of
are who if customs
not is coll duties /
or awa ater compro
no re al mise
long ther use subj
er in eof of ect
Cust (Sec the to
om . Cess appr
s 253 na oval
cust 1 & plan of
ody 253 e Sec.
- 0, for of
unle TCC smu Fina
ss ) ggli nce
the und ng (Sec
imp er oper .
orta Sec. atio 709,
tion 253 n is 231
is 0(a) suffi 6
mer of cien TCC
ely the t for )
atte TCC it to
mpt , in be 4. Seizure,
ed orde dee Search,
in r to med Arrest
whic warr to (Sec.
h ant hav 2205,
case forf e 2210,
it eitu bee 2211
may re, n TCC)
be it is used
effe not in B. JUDICIAL
cted nec smu 1. this
only essa ggli rem
whil ry ng. edy
e that (Lla is
the the mad nor
goo vess o mall
ds el or vs. y
are aircr Com avai
still aft miss led
with mus ione of
in t r of whe
the itsel Cust n
Cust f oms the
oms carr , GR tax
juris y No. lien
dicti the L- is
on cont 288 lost
by A. neo nd
the ADMINISTRATIV us may
rele E or be
ase 1. Protest illeg sub
of a. Any al mitt
the imp by ed
goo orte eve by
ds r or nts the
C inte occu imp
i rest rrin orte
v ed g r in
i part afte abat
l y if r eme
A diss the nt
c atisf pay case
t ied men s on
i with t. miss
o publ b. Tax ing
n ishe pay pack
d er ages
( valu with ,
S e in defi
e with 15 cien
c in days cies
. 15 fro in
days m the
1 fro asse cont
2 m ssm ents
0 date ent. of
4 of Pay pack
, publ men ages
icati t or
T on, und shor
C or er tage
C with prot s
) in 5 est befo
C days is re
r fro nec arriv
i m essa al of
m the ry. the
i date (Sec goo
n the . ds in
a imp 230 the
l orte 8, Phili
A r is 221 ppin
c enti 0 es,
t tled TCC artic
i to ) les
o refu 2. Refund lost
n nd if a. A or
pay writ dest
TAX REMEDIES men ten roye
OF THE t is clai d
TAXPAYER rend m afte
ered for r
erro refu such
arriv allo Com 240
al, wed miss 3
dea in ione TCC
d or any r ,
inju case afte Sec.
red whe r 7
ani re noti RA
mals imp ficat 112
, orta ion 5,
and tion by as
for is Coll ame
man abso ecto nde
ifest lutel r of d by
cleri y his Sec.
cal proh deci 9
erro ibite sion RA
rs; d, (Sec 928
and or . 2)
b. Dra the 231 Sinc
wba rele 3 e
ck ase TCC Sec.
case wou ). 11
s ld of
whe be B. JUDICIAL RA
re cont 1. Appeal 1125
the rary With as
goo to in ame
ds law, 30 nde
are or days d by
re- whe fro RA
exp n m 9282
orte ther rece emp
d e is ipt owe
(Sec an of rs
. actu deci the
170 al sion Tax
1- and of Cour
170 inte the t to
8 ntio Com issu
TCC nal miss e
). frau ione inju
3. Settlem d r or ncti
ent of (Sec Secr ons,
any . etar it
seizure 230 y of wou
by 7 Fina ld
paymen TCC nce app
t of fine ). to ear
or the that
redemp 4. Appeal divis an
tion With ion imp
But in of orte
this 15 the r
shall days CTA may
not to (Sec app
be the . eal
with l g
out e o d
first o a
payi a d y
ng n s s
the
duti i o b
es, m r u
such p d. h t
as in o a
seiz r v
i
ure, t i
t
but n
not e g
in n s
prot t h
f
est r a
i
case y l
l
s. l
e
2. Action w n
d
to i o
questio t t
a
n the h n
legality i b
of n e
e
seizure
n
3. Abando 3 s
t
nment 0 o
r
(Sec.
y
1801 d e
TCC) a f
a. expr y f
f
essl s a
e
y i
c
(Sec f l
t
. r s
i
180 o v
1 m t e
TCC o
) t
u
b. impl h c n
iedl e l t
y a i
c. f d i l
a i m s
i s
o
l c w
u h i
r a d
t e
e r h
g c
i l
t e n
o a
o r
1 e
f f
5 d
i
TWO KINDS OF when the raw
b PROCEEDINGS material PROCEDURE IN
y IN THE imported is CUSTOMS
BUREAU OF utilized in the PROTEST CASES
t production of
CUSTOMS
h finished The Collector
(BOC) products acting within his
e
subsequently jurisdiction shall
A. CUSTOMS exported and a cause the
c PROTEST CASES duty drawback imported goods
o is claimed. to be entered at
l DEFINITION: the
l These are cases Requirements customhouse
e which deal for making a
c solely with protest The Collector
t liability for
o customs duties, shall assess,
1. Must be in liquidate, and
r fees, and other writing collect the
. charges. 2. Must point duties thereon,
out the or detain the
( Note: Before particular
S filing a protest, said goods if the
decision or party liable
e there must first ruling of the
c be a payment does not pay the
Collector of same
. under protest. Customs to
which
1 When customs exception is The party
8 protest taken or adversely
0 applicable objection affected (the
1 made; protestant) may
, The customs 3. Must state file a written
protest is the grounds protest on his
required to be relied upon foregoing
a
filed only in for relief; liability with the
s
case the liability 4. Must be Collector within
of the taxpayer limited to 15 days after
a for duties, paying the
m the subject
taxes, fees and matter of a liquidated
e other charges is amount (the
n single
determined and adjustment; payment under
d the taxpayer protest rule
e 5. Must be
disputes said filed when applies)
d liability. the amount
claimed is Hearing within
b When Customs paid or 15 days from
y protest NOT within 15 receipt of the
required days after duly presented
R the protest. Upon
A Where there payment; termination of
is no dispute, 6. Protestant the hearing, the
7 but the claim must furnish Collector shall
6 for refund arises samples of decide on the
5 by reason of the goods under same within 30
1 happening of protest days
) supervening when
events such as required.
appeal Ferry, Inc., GR
his own Nos. 31776-78, 2. The
If decision is adverse to If decision is adverse to
decision October 21, Philippines
the protestant
. 1993) is divided
3. Lifebloo into various
Appeal with the d SMUGGLING ports of
Commissioner within Theory 1. An act of entry
15 days from notice any entry other
B. SEIZURE AND person than port of
FORFEITURE who entry, will
Appeal with the Court CASES shall: be
of Tax Appeals Division a. Fraudul SMUGGLING
within 30 days from DEFINITION: ently .
notice These refer to import
matters any PORT OF ENTRY
involving article A
Appeal with the smuggling. It isis contrar domestic port
CTA en banc Secretary of Finance
administrative y to open to both
and civil in law, or foreign and
Appeal by certiorari nature and
appeal to the CTA and is b. Assist in coastwise trade
with the Supreme directed against so including
Court within 15 days the on
procedure resthe left.
or doing, airport of
from notice imported or entry. (Sec.
articles and c. Receive 3514, TCC)
entails a , ALL
determination conceal articles
of the legality , buy, imported into
Reasons for the of their sell, the Philippines
automatic importation. facilitat whether subject
review of These are e, to duty or not
decisions actions in rem. transpor shall be entered
adverse to the Thus, It t, through a
Government is of no defense conceal customshouse at
that the owner or sell a port of entry.
1. To of the vessel such ENTRY:
protect sought to be article in
the forfeited had no knowing Customs
interest actual its law
of the knowledge that illegal means-
Govern his property was importa 1.
ment used illegally. tion the
2. A The absence or (Sec. doc
favorabl lack of actual 3601, um
e knowledge of TCC) ent
decision such use is a d. Export s
will not defense contrar file
be personal to the y to d at
appeale owner himself, law. the
d by the which cannot in (Sec. Cus
taxpaye any way absolve 3514, tom
r and the vessel from TCC) s
certainl the liability of hou
y a forfeiture. se
Collecto (Commissioner 2.
r will of Customs vs. the
not Manila Star sub
mis (Sec. 3514, chartered and was a
sion TCC) cannot be consenting
and confiscated. party, it
acc may also be
ept RIGHT OF forfeited.
anc EVIDENCE FOR CUSTOMS 2. If a motor
e of CONVICTION IN OFFICERS TO vehicle is
the SMUGGLING EFFECT hired to
doc CASES SEIZURE & carry
um Mere ARREST (SEC. smuggled
ent possession of 2205) goods but it
s the article in 1. May seize has no
3. question - any vessel, Certificate
the unless aircraft, of Public
pro defendant could cargo, Convenience
ced explain that his article, (CPC), it is
ure possession is animal or not a
of lawful to the other common
pas satisfaction of movable carrier. It is
sing the court (Sec. property thus subject
goo 3601, TCC). when the to
ds Payment of the same is forfeiture,
thro tax due after subject to and lack of
ugh apprehension is forfeiture or personal
the not a valid liable for knowledge
cust defense any time as of the
oms (Rodriguez vs. imposed owner or
hou Court of under tariff the carrier
se Appeals, GR No. and customs is not a
(Ro 115218, laws, rules defense to
drig September 18, & forfeiture.
uez 1995) regulations
vs. 2. May PROPERTIES
Cou THINGS exercise NOT SUBJECT
rt SUBJECT TO such powers TO FORFEITURE
of CONFISCATION only in IN THE
App IN SMUGGLING conformity ABSENCE OF
eals CASES with the PRIMA FACIE
, laws and EVIDENCE
GR Anything that provisions of The
No. was used for the TCC forfeiture of the
115 smuggling is vehicle, vessel
218 subject to COMMON or aircraft shall
, confiscation, CARRIERS; not be effected
Sep like the vessel, FORFEITURE if it is
tem plane, etc. 1. Common established that
ber (Llamado vs. carriers are the owner
18, Commissioner generally thereof or his
199 of Customs, GR not subject agent in charge
5) No. L-28809, to forfeiture of the means of
May 16, 1983). although if conveyance
CONTRABAND: the owner used as
Articles of Exception: has aforesaid has no
prohibited Common knowledge knowledge of
importations or carriers that are of its use in or
exportations. not privately smuggling participation
in the unlawful which b. As a dutiable
act: constitu consequ goods.
Provided, tes a ence No petitions
however, that a violation they for
prima facie of the may be certiorari,
presumption tariff pursued prohibition
shall exist and in the or
against the customs Phil. mandamus
vessel, vehicle laws c. With filed with
or aircraft under b. a jurisdict the RTC will
any of the pursuit ion over lie because
following of such them at these are in
circumstances: vessel any reality
1. If the began place attempts to
conveya within therein review the
nce has the for the Commission
been jurisdict enforce er's
used for ional ment of actuations.
smuggli waters the law. Neither
ng at which (2nd par. replevin
least (i) may Sec. filed with
twice cont 603, the RTC will
before; inue TCC) issue.
2. If the bey Rationale:
owner is ond Doctrine of
not in the REGIONAL Primary
the mari TRIAL COURTS Jurisdiction
business time (RTC) .
for zone VS. Even if a
which , BUREAU OF Customs
the and CUSTOMS (BOC) seizure is
conveya (ii) the illegal,
nce is vess The RTCs do exclusive
generall el not have jurisdiction
y used; may jurisdiction (to the
and be over seizure exclusion of
3. If the seiz and regular
owner is ed forfeiture courts) still
financial on proceedings belongs to
ly not in the conducted the Bureau
a high by the BOC of Customs
position seas and to (Jao v.
to own . interfere Court of
such with these Appeals, GR
conveya 2. Over proceedings No. 104604,
nce. Imported . The October 6,
Articles Collector of 1995).
DOCTRINE OF a. There is Customs has
HOT PURSUIT a exclusive GOODS IN
Requisites: violation jurisdiction CUSTOMS
1. Over of the over all CUSTODY
Vessels tariff questions BEYOND REACH
a. An act is and touching on OF
done in customs the seizure ATTACHMENT
Phil. laws and Goods in
Waters forfeiture of the customs
custody pending Comm. on and other the
payment of Audit members of the importation
customs duties AFP and or
are beyond the Issuance by national law exportation
reach of the enforcement of
attachment. As Collector of agencies when merchandis
long as the a warrant of authorized by e.; and
importation has detention the 2. That such
not been Commissioner of declaration,
terminated, the Customs affidavit,
imported goods Notification 3) officials of invoice,
remain under to owner or the BIR on all letter or
the jurisdiction importer cases falling paper is
of the Bureau of within the false.
Customs. Formal regular (Farolan,
(Viduya vs. hearing performances of Jr. vs.
Berdiago, GR their duties, Court of
No. L-29218, District when the Tax
October 29, collector payment of Appeals, GR
1976) renders his internal taxes No. 42204,
decisions are involved; January 21,
ADMINISTRATIV 4) officers 1993)
E AND JUDICIAL generally
PROCEDURES empowered by PLACES WHERE
RELATIVE TO If decision is not law to effect SEARCHES &
CUSTOMS favorable to the arrests and SEIZURES MAY
SEIZURES AND aggrieved owner or execute BE CONDUCTED
FORFEITURES importer processes of (a) enclosur
courts, when es
Determinati Appeal by the acting under the (b) dwelling
on of aggrieved owner or direction of the house
probable importer Collector. (there
cause and must be
issuance of REQUIREMENTS search
warrant PERSONS FOR CUSTOMS warrant
HAVING POLICE FORFEITURE issued
Actual AUTHORITY TO 1. The by a
seizure of ENFORCE THE wrongful judge)
the articles TARIFF & making by (c) vessels
CUSTOMS LAWS the owner, or
AND EFFECT importer, aircrafts
Listing of SEARCHES, exporter or and
description, SEIZURES AND consignee of persons
appraisal ARRESTS (SEC. any or
and 2203, TCC) declaration articles
classificatio 1) officials of or affidavit, conveye
n of seized the BOC, or the d
property district wrongful therein
collectors, making or (d) vehicles,
Report of police officers, delivery by beasts
seizure to agents, the same and
the Comm. inspectors, and persons of persons
of Customs guests of the any invoice, (e) persons
and the BOC; letter or arriving
Chairman, 2) officers of paper - all from
the Phil. Navy touching on foreign
countrie to law, payment of the
s. UNMANIFESTED or corresponding
CARGO IS 3. when duties and taxes
Note: Burden SUBJECT TO there is and compliance
of proof in FORFEITURE fraud. with all other
seizure or whether the act (Sec. legal
forfeiture is on of smuggling is 2307, requirements
the claimant. established or TCC) (Sec. 1508,
(Sec. 2535, not under the TCC)
TCC) principle of res
ipsa loquitur. It ABATEMENT
REQUIREMENTS is enough that The
FOR MANIFEST the cargo was ACQUITTAL IN reduction or
A unmanifested CRIMINAL non-imposition
manifest in and that there CHARGE NOT of customs
coastwise trade was no showing RES JUDICATA duties on
for cargo and that payment of IN SEIZURE OR certain
passengers duties thereon FORFEITURE imported
transported had been made PROCEEDINGS materials as a
from one place for it to be Reasons: result of:
or port in the subject to 1) Criminal 1) Damage
Philippines to forfeiture. proceedings incurred
another is are actions during
required when SETTLEMENT in personam voyage;
one or both of OF FORFEITURE while 2) Deficien
such places is a CASES seizure or cy in
port of entry General Rule: forfeiture contents
(Sec. 906, TCC). Settlement of proceedings package
Manifests are cases by are actions s
also required of payment of fine in rem. 3) Loss or
vessel from a or redemption 2) Customs destruct
foreign port of forfeited compromise ion of
(Sec. 1005, property is does not articles
TCC). allowed. extinguish after
criminal arrival
IS MANIFEST Exceptions: liability. 4) Death or
REQUIRED 1. the (People vs. injury of
ONLY FOR importa Desiderio, animals
IMPORTED tion is GR No. L-
GOODS? absolute 208005, FRAUDULENT
NO. ly November PRACTICES
Articles subject prohibit 26, 1965) CONSIDERED AS
to seizure do ed or CRIMINAL
not have to be 2. the Note: At any OFFENSES
imported goods. surrend time prior to AGAINST
Manifests are er of the sale, the CUSTOMS
also required for the delinquent REVENUE LAWS
articles found property importer may 1) Unlawful
on vessels or to the settle his importation;
aircraft engaged person obligations with 2) Entry of
in coastwise offering the Bureau of imported or
trade. (Rigor to Customs, in exported
vs. Rosales, GR redeem which case the article by
No. L-33756, would aforesaid means of
October 23, be articles may be any false or
1982) contrary delivered upon fraudulent
practices, consisting of 3. to
invoice, VI. COUR three (3) summon
declaration, Justices. witnesse
affidavit, or T OF The s by
other TAX Presiding subpoen
documents; Justice and a;
3) Entry of
APPEALS the most 4. to
goods at less (RA 1125 Senior require
than their as Associate producti
true weights Justice shall on or
or measures amended serve as papers
or upon a by RA chairmen of or
classificatio the two docume
n as to
9282) divisions nts by
quality or subpoen
value; See ANNEX QUORUM a duces
4) Payment of O for Four (4) tecum;
less than the comparison Justices 5. to
amount due; of CTA as shall punish
5) Filing any created by constitute a contem
false or RA No. 1125 quorum for pt;
fraudulent and the sessions EN 6. to
claim for amendment BANC. promulg
the payment s made by Two (2) ate
of drawback RA No. Justices for rules
or refund of 9282. sessions of a and
duties upon DIVISION. regulati
the PROVIDED: in ons for
exportation NATURE AND case the the
of POWERS required conduct
merchandise quorum cannot of its
; or ELEVATION OF be had due to business
6) Filing any RANK any vacancy, ;
affidavit, shall be of disqualification 7. to
certificate the same level , inhibition, assess
or other as the Court of disability, or damage
document to Appeals, any other against
secure to possessing all lawful cause, appellan
himself or the inherent the Presiding t if
others the powers of a Justice shall appeal
payment of Court of Justice designate any to CTA
any Justice of other is found
drawback, COMPOSITION Divisions of the to be
allowance or Court to sit frivolous
Consists of a
refund of temporarily or
Presiding
duties on therein. dilatory;
Justice and
the 8. to
five (5)
exportation POWERS suspend
Associate
of mdse. 1. to the
Justices
greater than administ collectio
May sit en
that legally er n of the
banc or in
due oaths; tax
two (2)
thereon. 2. to pending
Divisions,
(Sec. 3602, receive appeal;
each
TCC) evidenc and
Division
e;
9. to to personal uted 1. in
render property asse case
decision and/or ssm s
s on 2. levy the ents invo
cases real , lvin
brought property of refu g
before such nds disp
it persons in of uted
10. to issue sufficient inte asse
order quantity to rnal ssm
authoriz satisfy the reve ents
ing tax or nue ,
distraint charge taxe refu
of together s, nds
personal with any fees of
property increment or inte
and levy thereto othe rnal
of real incident to r reve
property delinquency char nue
. ges, taxe
DISTRAINT OF pen s,
PERSONAL This remedy altie fees
PROPERTY AND shall not be s in or
LEVY OF REAL exclusive and rela othe
PROPERTY shall not tion r
Upon the preclude the ther char
issuance of any Court from eto, ges,
ruling, order or availing of other 2. or pen
decision by the means under othe altie
CTA favorable the Rules of r s in
to the national Court. mat rela
government, the ters tion
CTA shall issue JURISDICTIO arisi ther
an order N ng eto,
authorizing the und 2. or
BIR, through the I. EXCLUSIVE er othe
Commissioner: APPELLATE the r
JURISDICTION NIRC mat
1. to seize and TO REVIEW or ters
distraint BY APPEAL othe arisi
any goods, r ng
chattels, or (a) Decision laws und
effects and s of the adm er
the personal Commis inist the
property, sioner ered NIRC
including of by or
stocks and Internal the othe
other Revenu BIR; r
securities, e (b) Inaction laws
debts, 1. in by the adm
credits, case Commis inist
bank s sioner ered
accounts, invo of by
and lvin Internal the
interests in g Revenu BIR,
and rights disp e whe
re Custom 2. or decided
the s oth by the
NIRC 1. in er provinci
prov cas mat al or
ides es ters city
a invo arisi board of
spec lvin ng assessm
ific g und ent
peri liab er appeals;
od ility the (f) Decision
for for Cus s of the
acti cust tom Secreta
on, oms s ry of
in duti Law Finance
whic es, or on
h fees oth customs
case or er cases
the oth law elevate
inac er s d to him
tion mo ad automat
shall ney min ically
be cha iste for
dee rges red review
med , by from
a seiz the decision
deni ure, Bur s of the
al; det eau Commiss
(c) Decision enti of ioner of
s, orders on Cus Customs
or or tom which
resoluti rele s; are
ons of ase (e) Decision adverse
the RTC of s of the to the
in pro Central Govern
local tax pert Board ment
cases y of under
originall affe Assess Section
y cte ment 2315 of
decided d, Appeals the
or fine in the Tariff
resolved s, exercise and
by them forf of its Customs
in the eitu appellat Code;
exercise res e (g) Decision
of their or jurisdict s of the
original oth ion over Secreta
or er cases ry of
appellat pen involvin Trade
e alti g the and
jurisdict es assessm Industr
ion; in ent and y in the
(d) Decision rela taxation case of
s of the tion of real nonagric
Commis ther property ultural
sioner eto, originall product,
of y commod
ity or 000, times
article, II. 000. 00) be
and the or simulta
Secretar JURISDICTI where neously
y of ON OVER there is institut
Agricult CASES no ed with,
ure in INVOLVING specifie and
the case CRIMINAL d jointly
of CASES amount determi
agricult claimed ned in
ural (a) Exclusive - the the
product, original offenses same
commod jurisdicti or proceed
ity or on over penaltie ing by
article, all s shall the
criminal be tried CTA,
cases by the the
involvin arising regular filing of
g from courts the
dumping violations and the criminal
and of the jurisdict action
counter NIRC or ion of being
vailing Tariff and the CTA deemed
duties Customs shall be to
under Code and appellat necessa
Secs. other laws e. rily
301and administe Any carry
302, red by the provisio with it
respecti BIR or the n of law the
vely, of Bureau of or the filing of
the Customs Rules of the civil
Tariff Provide Court to action,
and d the and no
Customs howeve contrar right to
Code, r, y reserve
and where notwith the
safeguar the standin filing of
d principa g, the such
measure l criminal civil
s under amount action action
RA No, of taxes and the separat
8800, and corresp ely
where fees, onding from
either exclusiv civil the
party e of action criminal
may charges for the action
appeal and recover will be
the penaltie y of recogni
decision s civil zed.
to claimed liability
impose is less for (b) Exclusive
or not than taxes appellate
to one and jurisdiction
impose million penaltie in criminal
said pesos s shall offenses
duties. (P1, at all
Over Courts, charges them,
appeals and and in their
from Municip penaltie respecti
the al s, ve
judgme Circuit claimed territori
nts, Trial is less al
resoluti Courts than jurisdict
ons or in their one ion.
orders respecti million Over
of the ve pesos (P petition
RTC in jurisdict 1, 000, s for
tax ion. 000. 00) review
cases shall of the
originall III. be tried judgem
y by the ents,
decided JURISDICTI proper resoluti
by ON OVER Municip ons or
them, TAX al Trial orders
in their COLLECTIO Court, of the
respecti N CASES Metrop RTC in
ve (a) olitan the
territori Exclusi Trial exercise
al ve Court, of their
jurisdict origina and appellat
ion. l Regiona e
Over jurisdic l Trial jurisdict
petition tion in Court. ion over
s for tax tax
review collecti (b) collecti
of the on cases Exclusi on cases
judgme involvin ve originall
nts, g final appella y
resoluti and te decided
ons, or executo jurisdic by the
orders ry tion in Metropo
of the assessm tax litan
RTC in ents for collecti Trial
the taxes, on Courts,
exercise fees, cases Municip
of their charges Over al Trial
appellat and appeals Courts
e penaltie from and
jurisdict s. the Municip
ion over In judgme al
tax collecti nts, Circuit
cases on cases resoluti Trial
originall where ons or Courts,
y the orders in their
decided principa of RTC respecti
by the l in tax ve
Metropo amount collecti jurisdict
litan of taxes on cases ion.
Trial and originall
Courts, fees, y In criminal
Municip exclusiv decided and
al Trial e of by collection
cases, the fixed by law for by a for
Government action. Division reconsiderat
may directly of the ion or new
file the said Modes of CTA trial before
cases with Appeal (2) By filing a the same
the CTA (1) By filing a petition for Division
covering petition for review within 15
amounts review under a days from
within its under a procedure notice
exclusive procedure analogous
and original analogous to to that
jurisdiction. that provided
provided for for under
See ANNEX under Rule Rule 43 of B. Any party
P 42 of 1997 1997 Rules adversely
Comparativ Rules on on Civil affected by
e Diagrams Civil Procedure a resolution
on CTA Procedure decision of a Division
jurisdiction. decision s or of the CTA
, ruling, rulings on a motion
or of the for
inaction Central reconsiderat
of the Board ion or new
Other Commis of trial may
Matters sioner Assessm file a
Those of ents petition for
controversies Internal Appeals review with
which can be Revenue and the the CTA en
considered , Regiona banc.
within the scope Commis l Trial
of the function sioner Courts C. Any party
of the BIR / BOC of in the adversely
under ejusdem Customs exercise affected by
generis rule , the of its a decision
(e.g. action for Secretar appellat or ruling of
the nullity of y of e the CTA en
distraint and Finance, jurisdict banc may
levy; the ion file with the
questioning the Secretar this Supreme
propriety of the y of appeal Court a
assessment; Trade shall be verified
collection of and heard petition for
compromise Industry by the review on
penalties). or the CTA en certiorari
Secretar banc. pursuant to
APPEAL y of Rule 45 of
Agricult Procedure the 1997
When ure or A. Any party Rules on
Within 30 the adversely Civil
days after the Regiona affected by Procedure.
receipt of such l Trial a ruling,
decision or Courts order or Thirty (30) day
ruling or after this decision of a Prescriptive
the expiration appeal Division of Period for
of the period shall be the CTA may Appeal
heard file a motion
Starts to run reporting after a must follow the
from the date notices and request for same rules of
the taxpayer pre- reconsiderat procedure which
receives the assessment ion. bind private
appealable notices are GENERAL RULE: parties.
decision. If the not New issues (Commissioner
taxpayers appealable, cannot be raised vs. Procter and
request for because for the first Gamble, GR No.
reconsideration they are not time on appeal. 66838,
(i.e., the the final December 2,
protest is decision of EXCEPTIONS: 1991,
denied or the the a. Defense of Resolution)
original Commission prescription
assessment is er. Reason: This Tax collection
maintained, the An is a Not Suspended
appealable assessment statutory during Appeal
decision is the can be right.
decision denying appealed if (Visayan General Rule:
the request for taxpayer Land No
reconsideration. does not Transportat appeal taken to
The said seek a ion vs. the CTA shall
period is reconsiderat Collector) suspend the
jurisdictional ion. b. Errors of payment, levy
and non- At times administrati or distraint,
extendible. there is an ve officials and/or sale of
Requests or exchange of Reason: any property of
motions for communicati State can the taxpayer.
reconsideration, ons between never be in
however, taxpayer estoppel Exception: The
operate to and and CTA is
suspend the Commission lifeblood empowered to
running of the er states theory. suspend the
period to that his (Commissio collection of
appeal. A pro action is ner vs. internal revenue
forma request final, then, Procter and taxes and
for period for Gamble custom duties
reconsideration appeal Phils. Mfg. only when there
or one which is begins to Corp, GR was a
directed to the run. No. 66838, c) showing
Secretary of Commission April 15, that
Finance does er must 1988) collection
not suspend the state that of the tax
running of the his decision NOTE: However, may
30-day is final, for this was jeopardiz
reglementary period of reversed in e the
period. appeal to Supreme Courts interest
run. subsequent of the
Only A Final Final resolution governme
Decision Is decision wherein it was nt and /
Appealable To cannot be held that in or the
The Court Of implied from the absence of taxpayer;
Tax Appeals issuance of explicit d) deposit of
warrant of statutory the
Preliminary distraint and provisions to the amount
collection levy, unless contrary, the claimed
letters, post it is issued Government or file a
surety of any tax, the tax or The
bond for fee or penalty, or from Supreme
not more charge the approval of Court will
than imposed by the application not set
double Tax Code. for credit. aside
the The conclusions
amount of provision in Observation: If reached by
tax with Tax Code we are not Tax Court
the Court refers to going to allow which by
when courts other the taxpayer to the very
required; than the file a refund nature of its
and CTA. before the CTA function, is
e) showing (Blaquera and let him wait dedicated
by vs. for the CIRs exclusively
taxpayer Rodriguez, decision, and to the
that GR No. L- the latter failed consideratio
appeal is 11295, to render a n of tax
not March 29, decision within problems
frivolous 1958) the 2-year and has
nor Appeal to period, the said developed
dilatory. the CTA taxpayer can no an expertise
does not longer file a on the
Can The CTA automatical refund before subject,
Enjoin ly suspend the CTA because unless there
Collection of collection his right to has been an
Taxes? unless CTA appeal has abuse or an
issues prescribed. improvident
Sec. 11 of suspension exercise of
RA No. 1125 order at any Weight of authority on
as amended stage of Decision of CTA its part.
by Sec. 9 of proceedings (Commissio
RA No. 9282 . Decisions of ner vs.
grants CTA Tax Court Court of
power to Simultaneous have Appeals &
suspend filing of an persuasive Atlas
collection application for effect and Consolidate
of tax if refund or may serve d, GR No.
such credit and as judicial 86785,
collection institution of a guides. November
works to case before the They have 21, 1991)
serious CTA allowed more
prejudice of persuasive VII.VALU
either The law value than
taxpayer or fixes the same BIR Rulings. EADDED
government period of two CTAs TAX
. (2) years for findings of
However, filing a claim for fact are
(VAT)
Sec. 218 of refund with the entitled to TITLE IV
the Tax Commissioner the highest OF NIRC
Code and for filing a respect.
provides no case with the (Raymundo DEFINITION: The
court may CTA. The two- vs. de Joya, value-added tax
grant year period for GR No. L- is an indirect
injunction both starts from 27733, tax and the
to restrain the date after December amount of tax
collection the payment of 3, 1980)
may be shifted or TRADE OR shall be
or passed on to business BUSINESS considered as
the buyer, only) The regular being course of
transferee or 2. Sale of conduct or trade or
lessee of the Services pursuit of a business.
goods, (in the commercial or Importation is
properties or course an economic subject to VAT
services. This of trade activity, regardless of
rule shall or including whether or not
likewise apply business transactions it is in the
to existing only) incidental course of trade
contracts of sale 3. Exportat thereto, by any or business
or lease of ion (in person
goods, the regardless of The reason
properties or course whether or not for the rule is to
services at the of trade the person protect our
time of the or engaged therein local or
effectivity of business is a non-stock, domestic goods
Republic Act No. only) nonprofit or articles and
7716. 4. Importa private to regulate the
tion organization entry or
VAT replaced (whethe (irrespective of introduction of
Sales Tax as r or not the disposition foreign articles
imposed by in the of its net to our local
previous Tax course income and market.
Laws. of trade whether or not Regulation is
or it sells one of the
HISTORY: business exclusively to purposes of
a. Executiv ) members or Taxation.
e Order their guests), or
No. 273 PERSONS LIABLE government Tax Rates:
b. Republic FOR VAT entity. 1. 10% - the
Act No. Any person rate used in
Therefore if
7716 who, in the sale of
the disposition
c. Republic course of trade commoditie
of goods or
Act No. or business, s and goods,
services is NOT
8241 sells barters, sale of
in the course of
d. Republic exchanges, services,
trade or
Act No. leases goods or and
business then it
8424 properties, importation.
is not subject to
(took renders 2. Zero-rated
VAT; with the
effect services, and (0%) - the
exception of
on 1 any person who rate used in
importation of
January imports goods exportation.
course.
1998) shall be subject
to the value- The rule of
TRANSACTIONS added tax (VAT) regularity, to MANNER OF
COVERED BY imposed in the contrary COMPUTING
VAT: Sections 106 to notwithstanding THE VAT:
1. Sale of 108 of the , services as A. 10% rate of
Commod National defined in this Tax
ities or Internal Code rendered
Goods Revenue Code. in the 1. In sale of
(in the Philippines by commoditie
course IN THE non-resident s and goods,
of trade COURSE OF foreign persons 10% is
multiplied cost plus register is or
with the excise subject to preservation
Gross Selling taxes, If temporary for the
Price. any. closure of the market such
2. In sale of customs establishment as freezing,
services, duties. for 5 days as drying,
10% is provided in salting,
multiplied B. Zero-rated Section 115(b). broiling,
with the (0%) rate of roasting,
Gross tax Exception: It smoking, or
Receipts. does not apply stripping
3. In 1. Export Sales to an exporter does not
importation, as provided who fails to remove the
10% is in Section register. The product
multiplied 106(A)(2)(a) effect is, from its
with the 2. Foreign instead of category of
rates used Currency treating the being in its
by the Denominate transaction as original
Bureau of d Sale as zero-rated (0%), state.
Customs in provided in it is treated as However,
imposing Section 106 an exempt even if the
tariff and (A)(2)(b) transaction. products
customs 3. Sale to were no
duties plus persons or What is the longer in its
customs entities difference? In original
duties, which is VAT zero-rated (0%) state, it can
excise exempt transactions, still be VAT-
taxes, if under tax credit is exempt
any, and special laws available. under
other or However, in Section
charges, internationa exempt 109(r), if
such tax to l transactions, sold by
be paid by agreements tax credit is not agricultural
the to which the available. cooperative
importer Philippines s duly
prior to the is a registered
release of signatory as EXEMPT by
such goods provided in TRANSACTIONS Cooperative
from Section 106 (SECTION 109): Developmen
customs (A)(2)(c) 1. In Section t Authority.
custody: 4. Transactions 109(a) and 2. Under
Provided, subject to (c), food Section
That where zero-rated and non- 109(m),
the customs (0%) as food private
duties are provided in products educational
determined Section are VAT- institutions
on the basis 108(B) exempt as are exempt
of the long as from VAT if
quantity or REGISTRATION these duly
volume of UNDER THE VAT products accredited
the goods, SYSTEM are in its by the DECS
the value- (SECTION 236 original or by the
added tax OF THE NIRC) state. The CHED. In
shall be simple case of
based on General Rule: process of government
the landed Failure to preparation educational
institution, business. It those transferees
no complement mentioned or
accreditatio s Section in the recipients
n is 106(A)(1)(a) preceding shall be
required. where it paragraphs considered
states that are VAT the
3. in order for exempt if importers
the sale or the Gross thereof,
Transaction lease of real Annual who shall be
s in the property to Receipts do liable for
field of Arts be covered not exceed any internal
are VAT- by VAT, it P550,000.00 revenue tax
exempt must be . However, on such
only, as made in the the importation
provided in ordinary limitation of . The tax
Section course of P550,000.00 due on such
109(n), if trade or does apply importation
the seller is business. for those shall
the artist transactions constitute a
himself or 6. Revenue from lien on the
the artists Regulations Section goods
services No. 6-97 109(a) to superior to
performed adds a (y), except all charges
for the requirement (x) because or liens on
production in order for Revenue the goods,
of such the lease of Regulations irrespective
works. residential No. 6-97 of the
units with a imposes a possessor
4. Section monthly P550,000.00 thereof.
109(p) rental of limitation.
makes not more TRANSACTIONS
Regional or than In cases of DEEMED SALE:
Area P8,000.00, tax-free
Headquarte as provided importation The
rs exempt in Section of goods following
from VAT. 109(x), to into the transactions
be VAT Philippines shall be deemed
5. Under exempt, by persons, sale therefore
Section that the entities or making them
109(w) in annual gross agencies covered by VAT:
order for receipts exempt
the sale or must not from tax (1) Transfer,
lease of real exceed where such use or
property to P550,000.00 goods are consumption not
be . subsequentl in the course of
exempted y sold, business of
from VAT, 7. Section transferred goods or
the 109(z) or properties
transaction provides exchanged originally
must NOT that the in the intended for
be sale or lease Philippines sale or for use
conducted of goods or to non- in the course of
in the performanc exempt business;
ordinary es of persons or (2) Distribution
course of services entities, the or transfer to:
trade or other than purchasers,
(a) Shar Less: If at the end 1. to claim for
eholders or Input of any tax credit;
investors as VAT taxable or
share in the due. quarter the 2. to claim for
profits of the output tax refund
VAT-registered If Input exceeds the
persons; or is greater input tax, The claim,
(b) Cred than the excess which must be
itors in payment Output, Tax shall be in writing, for
of debt; Credit is paid by the both cases,
(3) Consignment available. VAT- must be filed
of goods if registered within 2 years
actual sale is person. If after the close
not made within "INPUT TAX" the input of the taxable
sixty (60) days means the tax exceeds quarter when
following the value-added tax the output the sales were
date such goods due from or tax, the made for: a) the
were consigned; paid by a VAT- excess shall issuance of a
and registered be carried tax credit
(4) Retirement person in the over to the certificate; b)
from or course of his succeeding refund of
cessation of trade or quarter or creditable input
business, with business on quarters. tax due or paid
respect to importation of Any input attributable to
inventories of goods or local tax such sales.
taxable goods purchase of attributable
existing as of goods or to the HOW TO
such retirement services, purchase of DETERMINE
or cessation. including lease capital CREDITABLE
or use of goods or to INPUT TAX
How to property, from a zero-rated The sum of
determine the VAT-registered sales by a the excess input
VAT: The tax person. It shall VAT- tax carried over
shall be also include the registered from the
computed by transitional person may preceding
multiplying the input tax at his option month or
total amount determined in be refunded quarter and the
indicated in the accordance with or credited input tax
invoice by one- Section 111 of against creditable to a
eleventh (1/11). the NIRC. other VAT-registered
internal person during
Example: the "OUTPUT TAX" revenue the taxable
total amount means the taxes, month or
indicated in the value-added tax subject to quarter shall be
invoice is P110. due on the sale the reduced
P110/11 = P10. or lease of provisions
P10 is the taxable goods or of Section
amount of VAT. properties or 112. reduced by the
services by any amount of claim
TAX CREDIT person for refund or
AND REFUND registered or OPTIONS OF A tax credit for
required to TAXPAYER AS value-added tax
Formula for register under PROVIDED IN and other
Tax Credit: Section 236 of SECTION 112: adjustments,
Output the NIRC. such as
purchase
returns or (30) days from registration:
allowances and the receipt of Provided, That
input tax the decision only one
attributable to denying the consolidated
exempt sale. claim or after return shall be
the expiration filed by the
The claim of the one taxpayer for his
for tax credit hundred twenty principal place
referred to in day-period, of business or
the foregoing appeal the head office and
paragraph shall decision or the all branches.
include not only unacted claim
those filed with with the Court
the Bureau of of Tax Appeals.
Internal
Revenue but RETURN AND
also those filed PAYMENT OF
with other VAT
government
agencies, such Every
as the Board of person liable to
Investments or pay the value-
the Bureau of added tax shall
Customs. file a quarterly
return of the
The amount of his
Commissioner gross sales or
within 120 days, receipts within
in proper cases, 25 days
from the date of following the
submission of close of each
complete taxable quarter
documents in prescribed for
support of the each taxpayer:
application shall Provided,
grant a refund however, That
or issue the tax VAT-registered
credit persons shall
certificate for pay the value-
creditable input added tax on a
taxes. monthly basis.
Remedy in Any person,

case of full, or whose
partial denial, registration has
or failure on the been cancelled
part of the in accordance
Commissioner to with Section
act upon the 236, shall file a
application for return and pay
tax credit or the tax due
refund: the thereon within
taxpayer 25 days from
affected may, the date of
within thirty cancellation of

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San Beda College of Law

MEMORY AID IN TAXATION LAW

I. GENERAL PRINCIPLES 6. levied for a public purpose.

REQUISITES OF A VALID TAX

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

4. Non-impairment of Contracts 2. If the law is clear, apply the law in

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Pineda G.R. No. L-22734. b. Regressive Tax tax rate

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

case of non-payment Tax Debt

Based on the power Emanates from Not subject to Subject to

TEST IN DETERMINING IF THE IMPOSITION IS A Payable in money Payable in money,

Not subject to Subject to

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

set-off set-off improvement used

Non-payment is No imprisonment in Imposed only by the May be imposed by:

Imposed only by Can be imposed by Tax Penalty

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

public funds through the enforcement a. Kind or classification of the tax

(3) SITUS OR TERRITORIALITY OF TAXATION Franchise Tax State which granted

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

sequuntur personam or movables follow General Rule: Income is taxable at

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

instrumentalities, and local

B. CONSTITUTIONAL LIMITATIONS 5. Non-Impairment Of Contracts (Art.

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

b. When it is unilaterally granted by Progressivity rate increases as the

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

use for religious, charitable and 4. Treatment of taxes levied for a

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

subject matter and for identical of income or capital. In some cases, an

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

resultant basis is used as the new tax

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

subject to subject to outside the scope of the taxing

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

3. Exemptions in favor of the 3. To give tax evaders, who wish to

NATURE OF TAX AMNESTY DOCTRINE OF IMPRESCRIPTIBILTY

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

prescribed by law for the filling of the 7. Revenue Regulations

SOURCES OF TAX LAWS (Key: SPEC2TRA RULE OF NO ESTOPPEL AGAINST THE

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Inc. vs. Collector, L-23041, July 31, an assessment notice in order to

POWERS AND DUTIES OF THE BIR KINDS

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon