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TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

I. GENERAL PRINCIPLES Article VI., 28(2), 1987 Constitution –


“The Congress may by law, authorize the
President to fix within specified limits and
A. BASIC CONCEPTS subject to such limitations and restrictions
as it may impose, tariff rates, import and
TAXATION export quotas, tonnage and wharfage
dues and other duties or imposts within
 The process or means by which the the framework of the national
sovereign, through its law-making body, rasies development program of the government.:
income to defray the necessary expenses of
government by apportioning the cost among  LOCAL TAXATION
those who, in some measure are privileged to Article X, Sec 5, 1987 Constitution-
enjoy its benefits, and therefore, must bear its “Each local government unit shall have
burdens. (71 Am. Jur 2nd 342; 1 Cooley 72- the power to create its own sources of
73.) revenues and to levy taxes, fees, and
charges subject to such guidelines and
 The inherent power of the sovereign limitations as the Congress may provide,
exercised through the legislature, to impose consistent with the basic policy of local
burdens upon subjects and objects within its autonomy. Such taxes, fees, and charges
jurisdiction for the purpose of raising revenues shall accrue exclusively to the local
to carry out the legitimate objects of the government.”
government.
3. Subject to Inherent and Constitutional
Limitations
NATURE OF THE POWER OF TAXATION
 Lifeblood Doctrine “taxes are the
1. Inherent Power lifeblood of the nation.”
 It is an attribute of sovereignty being
essential to the existence of every  Taxes are the lifeblood of the government
independent government. It exists apart and their prompt and certain availability is
from the constitution and without being an imperious need (Bull vs. United States,
expressed by the people. 295 US 247)
Taxation as a high prerogative of  Taxes are the lifeblood of the nation
sovereignty through which the government agencies
continue to operate and with which the
The power of taxation is an State effects its functions for the welfare
essential and inherent attribute of of its constituents, (CIR vs. CTA, 234
sovereignty, belonging as a matter of right SCRA 348)
to every independent government without
being expressly granted by the people.
 Taxes are the lifeblood of the nation,
(Pepsi-Cola Bottling Company of the
without revenue raised from taxation, the
Philippines, Inc. vs. Municipality of
government will not survive, resulting in
Tanauan, Leyte, 69 SCRA 460).
detriment to society. Without taxes, the
government would be paralyzed for lack
2. As a Legislative Power
of motive owner to active and operate it.
(CIR vs Algue, 158 SCRA 9)
 It is peculiarly and exclusively vested in
the legislature, except where the This ruling also gave rise to the
Constitution provides otherwise. DOCTRINE OF SYMBIOTIC
RELATIONSHIP between the State
NOTE: and its citizen.
 TARRIF POWERS OF THE PRESIDENT Illustrations of the Lifeblood Theory
1. Collection of taxes may not be enjoined
by injunction;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
2
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Taxpayers may seek redress before the


2. Taxes could not be the subject of courts in case of illegal imposition of taxes
compensation and set-off; and irregularities.
3. A valid tax may result in destruction of
property. 2. BENEFITS-PROTECTION THEORY
4. Taxation is an unlimited and plenary
power.  The power of the State to demand
and receive taxes is based on the
reciprocal duties of support and
protection between the State and its
THOERIES IN TAXATION citizen. The citizen supports the State
by paying taxes in order that he may
1. NECESSITY THEORY be secured in the enjoyment of the
 Taxation is a power predicated upon benefits in an organized society.
necessity. It is a necessary burden to [Relate with the Doctrine of Symbiotic
preserve the State’s sovereignty… (Phil Relationship, CIR vs. Algue.]
Guaranty Co vs. Commissioner, 13 SCRA
775) INTERPRETATION AND CONSTRUCTION OF
TAX STATUTES
 Taxation proceeds upon the theory that:
1. The existence of the government is a  Laws imposing taxes are liberally
necessity; construed in favor of the taxpayer and
2. It cannot continue without means to strictly against the government.
pay its expenses;
3. It has the right to compel all its Reason: Burdens are not to be imposed
citizens and property within its limits nor presumed to be imposed beyond what
to contribute. (71 AM. Jur, 2nd 346) the statutes expressly and clearly impart.

 Marshall Dictum: “The power to tax is the  Tax exemptions (including tax amnesties
power to destroy.” and tax condonation) are not presumed
and, when granted, are strictly construed
 Due to the inherent and unlimited nature against the taxpayers and liberally in favor
of the power to tax, it includes the power of the taxing authority. (Principle of
to regulate even to the extent of Strictissimi Juris)
prohibition or destruction.
Reason: Lifeblood Doctrine
 It applies when power to tax is used
validly as an implement of police power in PURPOSES OF TAXATION
discouraging and prohibiting certain Secondary or Non-Revenue
Primary Purpose
things or enterprises inimical to the public Purposes
welfare. To raise revenues 1. Regulation
a. To implement police
 Oliver Windell Holmes Dictum: he power to power of the State;
tax is not the power to destroy while this Court b. For promotion of
sits” general welfare
2. Reduction of social
 The power to tax is unlimited except when inequality
it runs counter to constitutional provisions. 3. Encouragement of
In such case, the court may declare and economic growth.
hold such act as unconstitutional. 4. Protection for local
industries against unfair
 Reconciliation of the Marshall and Holmes competition.
Dictums:

 The power to tax, though unlimited, must


not be exercised in an arbitrary manner.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
3
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

EXTENT OF TAXING POWER NO EX POST FACTO LAW PROHIBITION IN TAXATION


 The prohibition against ex post facto laws
1. COMPREHENSIVE applies only to criminal and not to laws
It covers persons, businesses, activities, which concern civil matters. Our tax laws
professions, rights and privileges. are civil in nature.

2. UNLIMITED NATURE OF TAX LAWS


It is so unlimited in force and searching in Not political in character.
extent that courts scarcely venture to Civil in nature not subject to ex post facto law
declare that it is subject to any prohibition.
restrictions, except such as rests in the Not penal in character.
discretion of the authority which exercises
it. (Tio vs. Videogram Regulatory Board, JUDICIAL REVIEW OF TAXATION
151 SCRA 213)
 Courts have no power to inquire or
3. PLENARY interfere in the wisdom, objective, motive
or expediency in the passage of a tax law,
4. SUPREME this being purely legislative in character.
It is supreme insofar as the selection of (Tolentino vs. Sec. of Finance, 235 SCRA
the subject of taxation is concerned. 630).

 However, the courts may hold such


ASPECTS OF TAXATION legislative acts as unconstitutional IF it
destroys the taxpayers’ natural and
1. Levy or Imposition of Tax fundamental rights by imposing
 enactment of tax laws and statutes; burdensome taxes.
exclusively vested upon the legislature.

2. Tax Administration Basic Principles of a Sound Tax System


 Assessment and collection of taxes which (Canons of Taxation)
are administrative in character, may be
delegated. 1. Fiscal Adequacy
 Revenue raised must be sufficient to
3. Payment meet government or public
 Act of compliance by the taxpayer. expenditures.
 If violated, the law is still valid.
2. Administrative Feasibility
SCOPE OF THE LEGISLATIVE POWER TO TAX  Tax laws must be clear and concise;
capable of proper enforcement and
The power to tax includes the authority to: not burdensome; convenient as to
time and manner of payment.
1. Determine the –  If violated, the law is still valid.
a. Coverage (subjects and objects to be 3. Theoretical Justice
taxed);  Tax imposed must be based on
b. Object (purpose for its levy); taxpayers’ ability to pay.
c. Nature(kind of tax);  The violation of this principle will
d. Extent (amount or rate of tax); render the law as unconstitutional
e. Situs (place of taxation);
f. Method of collection. INHERENT POWERS OF THE STATE
2. Grant tax exemptions and condonations. Taxation – the power by which the sovereign
raises revenue to defray the necessary
3. Specify or provide for administrative as expenses of the government.
well as judicial remedies.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
4
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Police Power – a power of the Sovereign Eminent Domain – the power of the State or
State to legislate for the protection of the those to whom the power has been
health, welfare and morals of the delegated to take private property for
community. public purpose upon payment of just
compensation to be ascertained
according to law.

DISTINCTIONS AMONG THE THREE INHERENT POWERS

Taxation Police Power Eminent Domain


Government of public
To authority which
Government only Government only service companies and
exercises the power
public utilities.
As to relationship to
the Non-Impairment
Inferior Superior Inferior
Clause of the
Constitution
Amount should be
sufficient to cover the
No imposition, the owner
As to amount of cost of the license and
No limit is paid the FMV of his
imposition the necessary expenses
property.
of police surveillance and
regulation
Support of the Promotion of general
As to purpose Public Purpose
Government welfare
On an individual as the
Upon the community or Upon community or class
As to persons affected owner of a particular
class of individuals of individuals
property
No transfer of title, at
The money collected
most there is restraint on There is transfer of the
As to effect becomes part of the
the injurious use of right or property
public funds
property
Protection of a secured
Maintenance of healthy The person receives the
organized society,
As to benefits received economic standard of market value of the
benefits received from
society property taken from him.
government

Note: Taxation maybe used to implement an object of police power. (Luis vs. Araneta, 98 Phil 148) Taxation
maybe used as an implement of eminent domain (Commissioner v. Central Luzon Drug, 456 SCRA 414)

SIMILARITIES AMONG THE 3 INHERENT 4. They constitute the 3 methods by which the
POWERS State interferes with private rights and
property.
1. They are inherent in the State. 5. They presuppose equivalent compensation.
2. They all exist independently of the 6. They are legislative in nature and character.
Constitution.
3. All are necessary attributes of the sovereign Taxes – enforced proportional contribution from
state. properties and persons levied by the State by
virtue of its sovereignty for the support of the
government and for public feeds. (1 Cooley 62)

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
5
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

CHARACTERISTICS OF TAXES:
Reasons:
1. Generally payable in money 1. Taxes are not in the nature of contracts
2. Imprescriptible between the parties but grow out of duty
XPN: when the law provides for to the government. (Republic vs.
prescription. Mambulao Lumber Co., 4 SCRA 622).
3. Levied for public purpose
4. Legislative in character 2. The government and the taxpayers are
5. Taxes are enforced contributions not mutually creditors and debtors to each
6. Not assignable other. (Cordero vs. Gonda, 18 SCRA
7. Not subject to set-off unless it falls under 311).]
the exceptions
8. Imposed at regular intervals XPNs:
9. Imposed under the taxing power of the
State 1. Domingo vs. Garlitos, (8 SCRA 443.)
10. Money for government purposes When both the claim of the
Government for taxes and the claim of the
LIABILITY INVOLVED taxpayer for services rendered have
already become overdue and
GR: Taxes are personal to the taxpayer. demandable as well as fully liquidated,
Corporations tax delinquency cannot be enforced compensation therefore, takes place by
on the stockholder nor transfer taxes of the estate operation of law.
be assessed against the heirs.
2. Republic vs. Ericta (172 SCRA 623)
XPNs:
The taxes due from the taxpayer
1. Stockholders may be held liable for were considered paid through the delivery
unpaid taxes of a dissolved corporation if of certificates of indebtedness.
the corporate assets have already passed
into their hands (Piercing the Corporate
Veil); DOCTRINE OF EQUITABLE RECOUPMENT – a
2. Heirs may be held liable for the transfer claim for refund barred by prescription may be
taxes on the estate if prior to the payment allowed to offset unsettled tax liabilities arising
of the same, the properties of the from the same transaction.
decedent have been distributed to the
heirs.
 The SC, REJECTED this doctrine in
COMPENSATION OR SET-OFF Collector vs. UST (104 Phil 1062) since it
may work to tempt both parties to delay
GR: No set-off is admissible against demands for and neglect their respective pursuits of
taxes levied for general or local government legal action within the period set by law.
purposes.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
6
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

TAX DISTINGUISHED FROM OTHER CHARGES AND FEES

TAX TOLL
1. An enforced proportional contribution from 1. A consideration paid for the use of a road, bridge
persons and property for public purpose/s. or the like, of a public nature.
2. Demand of sovereignty 2. Demand of proprietorship
3. Generally the amount is unlimited 3. Amount is limited to the cost and maintenance of
4. For the support of the government public improvement
5. May be imposed by the State only 4. For the use of another’s property
5. May be imposed by private individuals or entities.
TAX SPECIAL ASSESSMENT
1. Imposed on persons, property rights or 1. Levied only on land
transactions. 2. Not a personal liability of the person assessed.
2. A personal liability of the taxpayer 3. Contribution to the cost of public improvement
3. For the support of the government 4. Exceptional as to time and locality.
4. Regular exaction
TAX LICENSE FEE
1. Imposed to raise revenue 1. For regulation and control
2. Collected under the power of government 2. Collected under police power
3. Generally, amount is unlimited 3. Limited to the necessary expenses of regulation
4. Imposed on persons, property, rights or and control
transaction 4. Imposed on the exercise of a right or privilege
5. Non-payment does not make the business 5. Non-payment makes the business illegal
illegal.
TAX PENALTY
1. Imposed to raise revenue 1. To regulate conduct
2. Maybe imposed by the State only 2. Maybe imposed by private entity
TAX CUSTOM’S DUTY
1. Imposed on persons, property, rights or 1. Imposed on imported or exported goods
transactions 2. It is also a tax
2. Broader than custom’s duty
TAX DEBT
1. Based on law 1. Based on contract express or implied
2. Not assignable 2. Assignable
3. Payable in money 3. Payable in kind or in money
4. Not subject to set-off 4. Subject to set-off
5. Non-payment may result to imprisonment 5. No imprisonment (except when debt arises from
6. Bears interest only if delinquent crime)
7. Governed by the special prescriptive periods 6. Interest depend upon the stipulation of the
provided for in the NIRC. parties
7. Governed by the ordinary periods of prescription.

CLASSIFICATION OF TAXES

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
7
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

BASIS CLASSIFICATION EXAMPLES

As to 1. Personal/Poll or Capitation
Subject matter tax- a fixed amount upon all
persons, or upon all persons of a
Community tax
certain class, residents within a
specified territory, without regard
to their property of occupation.

2. Property tax-imposed on
property, whether real or
personal, in proportion either to
Real Estate tax
its value, or in accordance with
some other reasonable method
of apportionment.
3. Excise tax – a charge upon the
performance of an act, the
enjoyment of a privilege, or the
engaging in an occupation. An 1. Income tax
excise tax is a tax that does not 2. Estate tax
fall as personal or property. 3. Donor’s tax
4. VAT
Note: This is different from the 5. Other percentage taxes
excise tax which is a business
tax imposed on item such as
cigars, cigarettes, wines, liquors,
frameworks, mineral products,
etc.
Excise tax on cigar, cigarettes and
1. Specific-tax of a fixed amount
As to determination of liquors.
imposed by the head or number,
the amount
or by some standard of weight or
measurement.

Ad valorem – tax based on the


value of the property with
respect to which the tax is 1. VAT
assessed. It requires the 2. Income tax
intervention of assessors or 3. Donor’s tax
appraisers to estimate the value 4. Estate tax
of such property before the
amount due can be determined.

As to scope 1. Income tax


2. Estate tax
1. National tax – tax levied by the 3. Donor’s tax
National government 4. Value added tax
5. Other percentage taxes
6. Documentary Stamp taxes

2. Local or Municipal – a tax 1. Real Estate Tax


levied by a local government 2. Community Tax
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
8
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. General/Fiscal or Revenue –
As to purpose tax imposed solely for the 1. Income Tax
general purpose of the 2. Donor’s Tax
government 3. Estate Tax
2. Special/Regulatory – tax levied
for specific purpose, i.e. To Tariff and certain duties on imports
achieve some social or
economic ends
1. Income tax
As to who 1. Direct – one that is demanded 2. Estate tax
bears the from the person who also 3. Donor’s tax
burden shoulders the burden of tax.

1. VAT
2. Indirect – one which is shifted 2. Other percentage taxes
by the taxpayer to someone
else.

As to proportionality of 1. Progressive – a tax rate which 1. Income Tax


graduation increases as the tax base or 2. Estate Tax
bracket increases. 3. Donor’s Tax
2. Regressive – the tax rate
decreases as the tax base or No regressive in the Philippines
bracket increases.
3. Proportional – a tax of a fixed 1. VAT
percentage of amount of the 2. Other percentage taxes
base (value of the property, or
amount of gross receipts etc.)

B. LIMITATIONS ON THE TAXING POWER

 Limitation on the taxing power are either:


1. Inherent Limitations; or
2. Constitutional Limitations

LIMITATIONS ON THE TAXING POWER


Inherent Limitations Constitutional Limitations
1. Public purpose; 1. Due Process of Law
2. International comity; 2. Equal Protection of the Law
3. Territoriality; 3. Uniformity of Taxation
4. Exemptions granted to 4. Progressive Taxation
government agencies or 5. Non-impairment Clause
instrumentalities; 6. Non-imprisonment for Non-payment of Poll Tax
5. No improper delegation 7. Origin of Appropriation, Revenue and Tariff Bills
of the taxing power. 8. Veto Power of the President
9. President’s Power to Tax
10. Freedom of the Press
11. Freedom of Religion
12. Tax Exception of Properties Actually, Directly and Exclusively
Used for Religious, Charitable and Educational
13. Tax Exemptions Granted to Non-stock, Non-profit Educational
institutions
14. Grant of Tax Exemptions
15. Municipal Taxation
16. Supreme Court’s Decision Over Tax Cases

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
9
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

I. INHERENT LIMITATIONS 5. Tax revenue must not be used for purely


 Proceeds from the very nature of the private purposes or for the exclusive
taxing power itself. benefit of private persons.
 They restrict the power although they are
not embodied in the Constitution. 6. Private persons may be benefited but
such benefit should be merely incidental
as main object is benefit of the community
1. PUBLIC PURPOSE in general.

 Tax measures must be for a public 7. Determined at the time of enactment of


purpose. If not, the act amounts to tax law and not at time of implementation.
confiscation of property;
 Congress determines whether the
purpose of taxation is public or private; Requisites of a Taxpayer’s Suit
however, the courts may questions the
propriety of the statute if it appears that it 1. The tax money is being extracted and
is not for a public purpose. spent in violation of specific constitutional
protection against abuses of legislative
 Tax is for a public purpose IF: power.
1. For the welfare of the nation and/or
for greater portion of the population; 2. Public money is being deflected to any
2. It affects the area as a community improper purpose.
rather than as individuals;
3. Designed to support the services of 3. The petitioner seeks to restrain the
the government for some of its respondents from wasting public funds
recognized objects. through enforcement of an invalid or
unconstitutional law.
Concepts Relative to Public Purpose
Note:

1. Inequalities resulting from the singling out  On the absence of the “requisite
of one particular class for taxation or pecuniary or monetary interest”, a
exemption infringe no constitutional taxpayer’s suit will not prosper.
limitation because the legislature is free to Moreover, even on the assumption
select the subjects of taxation. that public funds raised by taxation
were involved, it does not necessarily
follow that such kind of an action to
2. An individual taxpayer need not derive assail the validity of a legislative or
direct benefits from the tax. The executive act has to be passed upon.
paramount consideration is the welfare of The Court is not devoid of discretion
the greater portion of the population. as to whether or not it should be
entertained. (Gonzales vs. Marcos, 65
SCRA 624)
3. A tax may be imposed, not so much for
revenue purposes, but under police power
for the general welfare of the community.
 However, the SC has discretion as to
whether or not entertain a taxpayer’s
4. Public purpose is continually expending. suit and could brush aside the lack of
Areas formerly left to private initiative now locus standi where the issues are of
lose their boundaries and may be transcendental importance in keeping
undertaken by the government if it is to with the court’s duty to determine that
meet the increasing social challenges of public offices have not abused the
the times. discretion given to them. (Kilosbayan
vs. Guingona, 232 SCRA 110)
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
10
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. INTERNATIONAL COMITY c. Excise Tax


 The Philippine Constitution expressly 1. Income Tax – where income is earned,
adopted the generally accepted nationality OR residence of taxpayer.
principles of international law as part 2. Donor’s Tax – location of property;
of the law of the land (Art. II, Sec. 2). nationality or residence of taxpayer
3. Estate Tax – location of property;
 Thus, a State must recognize such nationality or residence of taxpayer.
generally accepted tenets of 4. Value Added Tax – where the transaction
international law that limit the is made.
authority of the government to
effectively impose taxes upon a  Mobilia Sequuntur Personam –
sovereign state and its Movable follows the person.
instrumentalities.
 BUT a tangible property may acquire
3. TERRITORIALITY situs elsewhere provided it has
 Taxing power of a country is limited to definite location there with some
persons and property within and degree of permanency.
subject to its jurisdiction.
 Exception to Mobilia rule – Wells
Situs of Taxation – place of taxation; Fargo bank vs. Collector, 70 Phil 235
 it is the state or political unit –Shares of stocks left by a non-
having jurisdiction to impose resident alien decedent were
taxes. considered subject to Philippine
inheritance tax.
 Factors that determine the situs of
taxation: GR: Situs of intangible personal property
is the domicile of the owner pursuant to
a. Nature of the tax; the principle of the mobilia sequntur
b. Subject matter of the tax; personam.
c. Citizenship of the taxpayer;
d. Residence of the taxpayer; XPNs:
e. Source of income
1. When the property has acquired a
 Exceptions to the Territoriality Rule business situs in another jurisdiction;
a. Where tax laws operate outside When an express provision of the
territorial jurisdiction. statute provide for another rule.
1. Taxation of resident citizens Example: For purposes of estate
on their incomes derived from and donor’s taxes, the following
abroad. intangible properties are deemed
b. Where tax laws do not operate with a situs in the Philippines (Sec
within the territorial jurisdiction of 104, R.A. 8424):
the state.
1. When exempted by treaty a. Finance exercised in the
obligations. Philippines;
2. When exempted by international b. Shares of stocks, obligations
comity. or bonds issued by domestic
RULES IN FIXING TAX SITUS corporations organized and
a. Poll, Capitation or Community Tax constituted in accordance
 Residence of taxpayer with Philippine laws;
c. Shares of stock, obligations,
b. Property Tax bonds issued by a foreign
1. Real Property- where it is located (lex rei corporation where 85% of its
sitae) business is located in the
2. Personal Property – domicile of the owner Philippines;
(mobile sequuntur personam)
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
11
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

d. Shares of stock, obligations, 3. RE: GOCCs


bonds issued by foreign GR: Taxation
corporations which has XPN: Law provides for
acquired business situs, exemption.
when such have been used in
the furtherance of the 4. Government educational institutions
business of the foreign are except from taxes. Their income
corporation; however of whatever kind and
e. Shares and/or rights in a character from any of their properties
partnership business or profit regardless of disposition made
industry established in the of such income shall be subject to tax
Philippines. [(These are (Sec. 30, par. 1, NIRC)
considered located in the
Philippines, regardless of the 5. For purposes of income taxation,
residence of the owner.)] income derived from any public utility
or from the exercise of any essential
 Multiplicity of Situs – Income or governmental function accruing to the
intangible personal properties may be government or to any political
subject to taxation in several taxing subdivision thereof shall be except
jurisdictions. from income tax (Sec. 32, par (B), No.
7 (b), NIRC).
 Remedies available against Multiplicity Donations in favor of
of Situs governmental institutions are
1. Provision of exemptions considered as income on the part of
2. Allowance of deduction or tax the done. Such donations, however,
credit for foreign taxes are not considered as exclusions from
3. Treaties with other states the computation of the gross income.

4. TAX EXEMPTIONS OF GOVERNMENT 6. Transfers made by the decent, during


AGENCIES/INSTRUMENTALITIES his lifetime, in favor of the government
or any political subdivision,
 Properties of national and local exclusively for public purposes –
government units devoted to public use Deductible from the gross estate for
and purposes are generally not subject to purposes of estate tax.
tax. Otherwise, we would be “taking
money from one pocket and putting it 7. Gifts in favor of the national
in another.” government; or any entity created by
its agencies, which is not conducted
However, nothing prevents for profit; or not an political
Congress from taxing governmental subdivision – Deductible form gross
properties of the government since there donations for purposes of donor’s tax.
is no constitutional prohibition thereat.
(MCIAA v. Marcos, 261 SCRA 667). 5. NON-DELEGATION OF THE POWER TO
TAX
 Specific Rules
1. The government is tax exempt. GR: The power to tax is exclusively
However, it can also tax itself. vested in the legislative body and it may
not be delegated.
XPNs:
2. RE: Government entities through
which the state exercises directly its 1. Art. VI, Sec 28(2), 1987 Constitution
governmental functions  Authority of the President to fix
GR: Tax exemption. tariff rates, import of export
XPN: The law expressly provides quotes, tonnage and wharfage
for exemption. dues of other duties and imposts.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
12
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. Art X, Sec 5, 1987 Constitution  Any deprivation of life, liberty and


 Power of local government property by the government is with due
units to create its own sources of process if it is done:
revenue and to levy taxes, fees a. Under authority of a law that is
and charges. valid or the Constitution itself;
b. After compliance with fair and
3. When the delegation relates merely to reasonable methods of procedure
administrative implementation that prescribed by law.
calls for some degree of discretionary
powers under sufficient standards  Thus, one may be deprived of property
expressed by law or implied from the as long as the requirements of due
policy and purposes of the act. process – notice and hearing – have
been complied with.
4. Revenue Regulations issued by the  The due process clause may be
Secretary of Finance are designed to invoked where a taxing statute is so
further explain the implementation of arbitrary that it finds no support in the
the Tax Code and is not given to Constitution, as where it can be shown
amend the law. to amount to a confiscation of property.
(Refer to Sec. 244 – Authority of the (Jose Reyes vs. Pedro Almanzor, 196
Secretary of Finance to promulgate SCRA 322)
rules and regulations, Sec. 57 –  While it is true that the Philippines as
Withholding tax at source, Rates to be a state is not obliged to admit aliens
withheld was designated to the within its territory, once an alien is
Secretary of Finance, he has been admitted, he cannot be deprived of life
given certain powers to legislate) without due process of law. This
guarantee includes the means of
 Legislative Rule – subordinate legislation livelihood. The shelter of protection
by the Secretary of Finance. under the due process and equal
 Interpretative Rule – issuance of protection clause is given to all
guidelines and procedures to enhance the persons, both aliens and citizens.
administration of tax laws by the (Villegas vs. Hiu Chiong Tsai Pao Ho,
Secretary of Finance. 86 SCRA 270)
 Non-delegable legislative power
1. Selection of property to be taxed; Illustrative situations of violations of the
2. Determination of purposes for which due process clause:
taxes shall be levied; a. If tax amounts to confiscation of
3. Fixing of the rate of taxation; property;
4. Rules of taxation in general, b. If the subject of confiscation is
outside the jurisdiction of the
II. CONSTITUTIONAL LIMITATIONS taxing authority;
c. If the law is imposed for a purpose
1. DUE PROCESS OF LAW other than a public purpose;
Art III, Sec1: “No person shall be deprived of d. If the law which is applied
life, liberty and property without due process of retroactively imposes unjust and
law…” oppressive taxes;
 DUE PROCESS IN TAXATION e. Where the law is in violation of
REQUIRES: inherent limitations
1. Tax must be for public purpose.
2. It must be imposed within territorial
jurisdiction.
3. No arbitrariness or oppression in 2. EQUAL PROTECTION OF THE LAW
a. Assessment and Art. III. Sec 1: “…nor shall any person be
b. Collection denied the equal protection of the law.”

 All persons subjected to such legislation


shall be:
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
13
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

a. Treated alike  UNIFORMITY - all taxable articles or


b. Under like circumstances and kinds of property of the same class
conditions, both in the privileges shall be taxed at the same rate
conferred and in the liabilities  A tax is uniform when it operates
imposed (1 Cooley 824-825; Sison Jr. with the same force and effect in
vs. Acheta 130 SCRA 654) every place where the subject is
found.
 The power to select subjects of taxation  Different articles may be taxed at
and apportion the public burden among different amounts provided that the
them includes the power to make rate is uniform on the same class
classifications. The inequalities which everywhere with all people at all
result in the singling out of one particular times.
class for taxation or exemption infringe no
constitutional limitation. (Lutz vs. Araneta,  EQUALITY – when the burden of the
98 Phil 148). tax falls equally and impartially upon all
the persons and property subject to it.
REQUISITES FOR A VALID CLASSIFICATION
 EQUITABILITY – when its burden falls
a. It must be based on substantial on those better able to pay.
distinction.
b. It must apply both to present and future  The Constitution requires uniformity,
conditions; not equality in taxation.
c. It must be germane to the purposes of the
law; 4. PROGRESSIVE TAXATION
d. It must apply equally to all members of the Art. VI, Sec 28(1): “..Congress shall evolve a
same class. progressive system of taxation.”

Note:  The Constitution mandates to


 The PRINCIPLE OF EQUALITY admits of Congress not to prescribe but to
classification or distinctions as long as evolve a progressive tax system.
they are based upon real and substantial
differences between the persons,  This is a mere directive upon
property, or privileges and those not taxed Congress not a justiciable right or
must bear some reasonable relation to a legally enforceable one. We
the object or purpose of legislation to the cannot avoid regressive taxes but
object or purpose of legislation, or to only minimize them. (EVAT En
some permissible government policy or Banc Resolution; Tolentino et. Al.
legitimate end of the government vs. Secretary of Finance, October
30, 1995)
 As long as there are rational or
reasonable grounds for classification. 5. NON-IMPAIRMENT CLAUSE
Congress may group the persons or Art. III, Sec 10: “No law shall be passed
properties to be taxed and it is sufficient if impairing the obligations of contracts.”
all of the same classes are subject to the
same rate and the tax is administered 
There is impairment of obligation
impartially upon them. when the law changes the terms
of the contract by:
1. Making new conditions; or
2. Changing conditions in the contract;
or
3. UNIFORMITY OF TAXATION 3. Dispenses with the conditions
Art. VI Sec 28(1): “The rule of taxation shall be expressed therein.
uniform and equitable…”
 However this does not apply to public utility
franchises.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
14
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

- Under Art XII, Sec. 11 of the 1987  It is not the law but the revenue bill which
Constitution, no public utility must originate exclusively in the House of
franchise or right shall be granted Representatives. It may undergo such
“except under the condition that it extensive changes that the result may be a
shall be subject to amendment, rewriting of the while. (Tolentino vs. Secretary
alteration or repeal by the Congress of Finance 235 SCRA 630.)
when the common good so requires”
(Cagayan Electric Power and Light  The Senate may not only concur with
Co vs. CIR, Sept. 25, 1985). amendments but also propose amendments.

- Removal of income tax exemption in 8. VETO POWER OF THE PRESIDENT


a franchise is not a violation of the Art. VI Sec 27(2): “The President shall have the
non-impairment of contracts. (RCPI power to veto any particular item or items in an
vs. CIR) appropriation, revenue or tariff bill but the veto
shall not affect the item or items which he does
 Tax Exemption. not object.”
- IF the grant of the exemption is
merely a spontaneous concession by  The President, as a general rule, many
the legislature, such exemption may not veto a bill in part and approve it in
be revoked. part. This provision is an exception.
- IF it is without payment of any
consideration or the assumption of 9. PRESIDENT’S POWER TO TAX
any new burden by the grantee, it is Art VI, Sec 28(2): “The Congress may, by law
a mere gratuity. authorize the President to fix within specified limits
and subject to such limitations and restrictions as
- However, if the tax exemption it may impose, tariff rates, import and export
constitutes a binding contract and for quotas, tonnage and wharfage dues and other
valuable consideration, the duties or imposts within the framework of the
government cannot unilaterally national development program of the
revoke the tax exemption. government.”

6. NON-IMPRISONMENT FOR NON PAYMENT  This is the “FLEXIBLE TARIFF CLAUSE”


OF POLL TAX – authority given to the President to adjust
Art. III. Sec 20: “ No person shall be imprisoned tariff rates under Section 401 of the Tariff
for non-payment of a debt or poll tax. “ and Customs Code.

 A person cannot be sent to prison for  This authority, however, is subject to


failure to pay community tax. limitations and restrictions indicated within
 However, a person is subject of the law itself.
imprisonment for violation of the
community tax other than for non-
payment (such as falsification of 10. FREEDOM OF THE PRESS
community tax certificate) and for non- Art. III, Sec 4: “No law shall be passed abridging
payment of other taxes if the law the freedom of speech, of expression or of the
expressly provides. press..”

7. ORIGIN OF APPROPRIATION, REVENUE  The press is not immune from the general
AND TARIFF BILLS regulation by the State. The publisher of a
Art. VI, Sec. 24: “All appropriation, revenue and newspaper has no immunity from the
tariff bills, bills authorizing the increase of public application of general laws. (Tolentino vs.
debt, bills of local application and private bills, Secretary of Finance)
shall originate exclusively in the House of
Representatives, but the Senate may propose of  Thus, withdrawal of exemption previously
concur with amendments.” granted to the press does not amount to
violation of press freedom.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
15
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

A: There is no such constitutional


exemption. However, Sec. 30(h) provides
11. FREEDOM OF RELIGION for this exemption.
Art. III, Sec 5: “No law shall be made respecting
establishment of religion or prohibiting the free  Lung Center of the Philippines vs. Queon
exercise thereof. The free exercise and enjoyment City and Constantino P. Rosas, in his
of religious profession and worship without capacity as City Assessor of Quezon City
discrimination or preference shall forever be [433 SCRA 119]
allowed. No religious test shall be required for the - Under the 1987 Constitution, to be
exercise of civil or political rights.” entitled to the exemption, the
petitioner must prove that (a) it is a
 License fees on sale or distribution of charitable institution, and (b) its real
religious literature not for purposes of properties are ACTUALLY,
profit violates this provision. (American DIRECTLY AND EXCLUSIVELY
Bible Society vs. City of Manila, 101 Phil used for charitable purposes.
386). This will amount to a condition or
permit for the exercise of their right. - Actual Direct and Exclusive use of
the property for charitable
However, if the activity is for profit or from purposes
any of their properly, the income is Is the direct, immediate and
taxable. actual application of the property
itself/ to the purposes for which the
charitable institution is organized. It
12. TAX EXEMPTION OF PROPERTIES is not the use of the income form
ACTUALLY, DIRECTLY AND EXCLUSIVELY the real property that is
USED FOR RELIGIOUS , CHARITABLE determinative of whether the
AND EDUCATIONAL PURPOSES property is used for tax-exempt
Art. VI, Sec 28(3): “Charitable institutions, purposes.
churches and parsonages or convents
appurtenant thereto, mosques, non-profit SUMMARY OF RULES:
cemeteries and all lands, buildings and
improvements actually, directly and exclusively
a. For purposes of income taxation the income
used for religious, charitable or educational
of non-stock corporations operating
purposes shall be exempt from taxation.”
exclusively for charitable and religious
purposes no part of which inures to the benefit
 Coverage – Property taxes ONLY (Lladoc
of any member, organizer or officer or any
vs. Commissioner, June 16, 1965) specific person, shall be exempt from tax.
 Requisite – The property must be
“actually, directly and exclusively used” by However, the income of whatever kind
religious, charitable and educational and nature from any of their properties
institutions. (Province of Abra vs. real or personal or from any of their
Hernando, 107 SCRA 104.) activities for profit regardless of the
disposition made of such income shall be
 Test of Exemption – the use of the subject to tax. (Sec. 30, pan E and last
property for such purposes, not the par., NIRC).
ownership.
b. For purposes of income taxation,
donations received by religious charitable
 Extent of Exemption – it extends to and educational institutions are
facilities which are incidental to or considered as income but not taxable
reasonably necessary for the income as they are items of exclusion.
accomplishment of the main purposes.
 Q: Are these institutions exempt from On the part of the donor, such
income tax? donations are deductible expense
provided that no part of the income of
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
16
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

which inures to the benefit of any private  Exemptions may be created by the
stockholders or individual in an amount Constitution or by statute subject to
not exceeding 10% in case of individual, limitations as the Constitutions may place.
and 5% in case of a corporation, of the
taxpayer’s taxable income derived from  In granting tax exemptions, absolute
trade or business or profession. (Sec. 34 majority vote of the members of Congress
(H), NIRC). is required. However, in withdrawal of
such exemptions, a relative majority is
c. For purposes of donor’s and state sufficient.
taxation donations in favor of religious
and charitable institutions are generally  The following are in the NATURE OF TAX
not subject to tax provided, however that EXEMPTIONS:
not more than 30% of the said bequest, 1. Tax amnesties;
device or legacy or transfer shall be used 2. Tax condonations;
for administration purposes (Sec. 87 and 3. Tax refunds.
101, NIRC)
 Rule on Construction of Exemption:
13. TAX EXEMPTIONS GRANTED TO NON- a. The intent of the legislature to
STOCK, NON-PROFIT EDUCATIONAL grant tax exemption must be in
INSTITUTIONS. clear and unmistakable terms.
Art. XIV, Sec. 4(3): “All revenue and assets of b. Exemptions are never presumed.
non-stock, non-profit, educational institutions used c. The burden of establishing right to
actually directly and exclusively for educational an exemption is upon the claimant.
purposes shall be exempt from taxes and duties. d. GR: Strict construction of tax
Upon the dissolution and cessation of the exemptions
corporate existence of such institutions, their
assets shall be disposed of in the manner XPNs:
provided by law. Subject to the conditions 1. If the statute granting exemption
prescribed by law, all grants, endowments, expressly provides for liberal
donations or contributions used actually, directly interpretation;
and exclusively for educational purposes shall be 2. In case of special taxes (relating to
exempt from tax.” special cases affecting special
persons);
 Entities Covered – ONLY non-stock, 3. In case of exemptions of public
non-profit educational institutions. property
4. Those granted to traditional
 Taxes Covered – internal revenue taxes exemptees;
and custom duties on all revenues and 5. Exemptions in favor of the
assets of such institutions. government;
6. Exemption by clear legislative
 However, incomes which are unrelated to intent.
school operations are taxable.
TAX AMNESTY TAX EXEMPTION
14. GRANT OF TAX EXEMPTIONS  Immunity from al  Immunity from
Art. VI, Sec 28 (4): “No law granting tax exemption criminal and civil civil liability
shall be passed without the concurrence of a obligations arising only
majority of all the members of Congress.” from non-payment of
tax given to all
taxpayers
 Applied retroactively  Prospectively
 The inherent power of the state to impose applied
taxes carries with it the power to grant tax 15. MUNICIPAL TAXATION
exemptions. (See discussion on Local Taxation.)

16. SUPREME COURT’S JURISDICTION OVER


TAX CASES
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
17
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

d. Imposed by the same taxing authority;


Art. VIII, Sec 2: “The Congress shall have the e. Within the same jurisdiction;
power to define, prescribe and apportion the f. During the same taxing period;
jurisdiction of various courts but many not deprive g. O the same kind of character of tax.
the Supreme Court of its jurisdiction over cases
enumerated in section 5 hereof.” 2. Indirect Double Taxation – permissible
double taxation. When one or more of the
Sec. 5: “The Supreme Court shall have the above elements is lacking, it is indirect.
following powers: Review, revise, modify or affirm
on appeal or certioran as the law or the Rules of 3. Domestic Double Taxation – when the
Court may provide final judgments or orders of taxes are imposed by the local and
lower courts in: national government within the same
xxxxx xxxxx state.
(b) All cases involving the legality of any tax,
impost, assessment or toll, or any penalty 4. International Double Taxation –
imposed in relation thereto.” imposition of comparable taxes in two or
more states on the same taxpayer in
 SC has exclusive appellate jurisdiction respect of the same subject matter and
over such judgments or orders. for identical periods.

C. DOCTRINES IN TAXATIONS RELIEFS TO AVOID DOUBLE TAXATION

1. Exemption method – The income or


Tax Pyramiding
capital which is taxable in the state of
source is exempted in the state of
 Occurs when sales taxes are applied
residence. The focus is on the income or
to both inputs and outputs, thus
capital itself.
shifting the tax burden to the ultimate
2. Credit method – The income or capital
consumer.
taxed in the state of source is still taxed in
the state of residence but the tax paid in
 in this situation, some or all of the the former is credited against the tax
stage of production are taxed, with levied in the latter. The focus is upon the
the accumulation borne by the tax. (E.g. foreign income taxes may be
consumer at the point of sale. deducted from the Philippine income tax
of citizens, subject to certain limitations.)
I. DOUBLE TAXATION 3. Allowance of deductions for foreign taxes
 Not forbidden by the Constitution. There is paid.
no constitutional prohibition against it. 4. Reduction of the Philippine Tax rate.
 However, it will not be allowed if it results
in violation of the substantive due process II. PROSPECTIVITY OF TAX LAWS
and equal protection clause.
GR: Taxes must only be imposed
KINDS OF DOUBLE TAXATION: prospectively.
1. Direct Double Taxation – double taxation
in the objectionable or prohibited sense.

Elements:

a. The same property is taxed twice XPN: If the law expressly provides for
when it should be taxed only once; retroactive imposition.
b. Imposed on the same property or
subject matter;
c. For the same purpose;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
18
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 The “ex post facto” rule is inapplicable method of assessing taxable property of
since tax laws are neither political nor income; in order to avoid or reduce tax
penal in nature. liability.

 However, the legislative intent evincing - Also termed as TAX MINIMIZATION.


that a tax statute should operate
retroactively must be explicit and perfectly 5. TAX EVASION – use by the taxpayer of illegal
clear. or fraudulent means to defeat or lessen
payment of a tax.
III. IMPRESCRIPTIBILITY OF TAXES - Also termed as TAX DODGING.

GR: Taxes are imprescriptible.  Evidence to prove tax evasion:

XPN: If the tax law provides for statute of 1. Failure of taxpayer to declare for
limitations. taxation purposes his true and actual
income derived from business for 2
 Purpose of Statute of Limitations: To consecutive years (Republic vs.
safeguard taxpayers from any Gonzales, 13 SCRA 633);
unreasonable examination, investigation 2. Substantial under – declaration of
or assessment. income in the LTR for 4 consecutive
years coupted with intentional
IV. ESCAPE FROM TAXATION overstatement of deductions (Perez
Basic forms of escape from taxation: vs. CTA, May 30, 1958).
1. Shifting;
2. Capitalization; 6. EXEMPTIONS – grant of immunity, express or
3. Transformation; implied, to particular persons or corporations,
4. Avoidance; form the obligation to pay taxes.
5. Evasion;
6. Exemption. KINDS OF TAX EXEMPTIONS

1. SHIFTING – transfer of burden of a tax by the As to basis:


original payer (the one on whom the tax was
assessed or imposed) to another. 1. Constitutional – Immunities from
- This is the case of indirect taxes. taxation which originate from the
- It is the burden of the tax which is Constitution.
transferred. 2. Statutory – Those which emanate from
 Impact of taxation – (statutory taxpayer) the legislation.
point on which the tax is originally imposed.
 Incidence of taxation – the point on which As to form:
the burden finally rests or settles down. 1. Express – Expressly granted by organic
or statute law.
2. CAPITALIZATION – reduction in the price of 2. Implied – When particular persons,
the taxed object equal to the capitalized value properties or excises are deemed exempt
of future taxes which the purchaser expects to as they fall outside the scope of the taxing
be called upon to pay. provision itself.

3. TRANSFORMATION – the manufacturer or As to extent:


producer upon whom the tax has been
imposed, fearing the loss of his market if he 1. Total – Connotes absolute immunity.
should add the tax to the price, pays the tax 2. Partial – One where a collection of a part
and endeavors to recoup himself by improving of the tax is dispensed with.
his process of production, thereby turning out As to object:
his units of products at a lower cost. 1. Personal – Granted directly in favor of
certain persons.
4. TAX AVOIDANCE – the use by the taxpayer 2. Impersonal - Granted directly in favor of
of legally permissible alternative tax rates of a certain class of property.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
19
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

(Maceda vs. Macaraig, 197 SCRA


Principles Governing Tax Exemptions 771)

1. Exemptions from taxation are highly 4. Exemptions to traditional exemptees,


disfavored in law. such as those in favor or religious and
2. He who claims an exemption must be able to charitable institutions.
justify his claim by the clearest grant of
organic or statute law. If ambiguous, there is
no tax exemption. Taxation is the rule, tax D. TAX ADMINISTRATION
exemption is the exception.
3. He who claims an exemption must justify that Source of Tax Laws:
the legislature intended to exempt him by 1. CTA and SC Decisions;
words too plain to be mistaken. 2. Tax code;
4. He who claims exemption should 3. Tax treaties and international agreements;
convincingly prove that he is exempted. 4. Constitutions;
5. Tax exemption must be strictly construed 5. Statutes;
against the taxpayer. 6. Presidential Decrees;
6. Tax exemptions are not presumed. 7. Executive Orders;
7. Constitutional grants of tax exemptions are 8. Ruling by CIR;
self-executing. 9. Revenue Regulations by Department of
8. Tax exemptions are personal. Finance;
9. Deductions for income tax purposes partake 10. Opinions by the Secretary of Finance;
of the nature of tax exemptions, hence, they 11. Local Tax Ordinances;
are also be strictly construed against the
taxpayer. POWER AND DUTIES OF THE BIR
1. Assessment and collection of all national
 When Exemptions are Construed Liberally internal revenue taxes, fees and charges;
in Favor of the Grantee: 2. Enforcement of all forfeitures, penalties
and fines;
3. Execution of judgments in all cases
1. When the law so provides for such liberal decided in its favor (by the CTA and
construction. ordinary courts);
4. Give effect and administer the supervisory
2. Exemptions from certain taxes, granted and police powers conferred to it by the
under special circumstances to special Tax code and other laws.
classes of persons.

3. Exemptions in favor of the government its CHIEF OFFICIALS OF THE BIR


political subdivisions or instrumentalities.
1. Commissioner; and
2. 4 Deputy Commissioners.
- The NPC is a government
instrumentally with the enormous task
of undertaking development of
hydroelectric generation of power and
production of electricity and its
transmission of electric power on a
nationwide basis in order to improve
the quality of life of the people
pursuant to the State policy. It is
evident from the provision of P.D. No. POWER OF THE COMMISSIONER
938 that its purpose is to maintain the 1. To interpret tax laws and to decide tax cases.
tax exemption of NPC from all forms
of taxes including indirect taxes as a. Interpret provisions of the Tax Code and
provided for under R.A. No. 6895 and other tax laws subject to review by the
P.D. No. 380 if it is to attain its goals. Secretary of Finance;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
20
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

b. Decide disputed assessments, refunds of b. To make or amend return in case


internal revenue taxes, fees, charges and taxpayer fails to file a return or files a
penalties in relation thereto OR other false or fraudulent return;
matters related to it subject to the c. To take inventory of goods of any
exclusive appellate jurisdiction of the CTA. taxpayers, and place any business
under observation or surveillance IF
NOTE: [Rev. Reg. No. 12-99 – Power to there is reason to believe that such is
decide disputed assessments may also not declaring his correct income,
be exercised by Regional Directors.] sales or receipts for tax purposes.
d. To terminate taxable period for
2. To obtain information, summon, examine and reasons provided in the Tax Code;
take testimony of persons. e. To prescribe real property values;
f. To inquire into bank deposits of:
Purposes: - A decedent to determine his
a. To ascertain correctness of the return; gross income.
b. To make a return when none has been - A taxpayer who filed
made; application to compromise
c. To determine liability of any person for payment of tax liability, by
any internal revenue tax; reason of financial incapacity.
d. To collect such liability; g. To register tax agents;
e. To evaluate tax compliance. h. To prescribe any additional
requirements for the submission or
 Extent: preparation of financial statements
1. To examine any book, paper, record accompanying tax returns.
or other data which may be relevant
or material to such inquiry;
2. To obtain any information (costs, 4. To delegate powers vested upon him
volume of production, receipts, sales, to subordinate officials with rank
gross income) on a regular basis, equivalent to Division Chief or higher,
from any person other than the subject to limitations and restrictions
person under investigation and any imposed under the rules and
office or officer of the national/local regulations.
government.
3. To summon the following to produce
records and to give testimony:  The following powers shall not be
a. The person liable for tax or delegated.
required to file a return; 1. To recommend promulgation of
b. Any officer or employee of such rules and regulations by the
person; Secretary of Finance;
c. Any person having in his 2. To issue rulings of first impression
possession custody and care the or to reverse, revoke, or modify
books of accounts, accounting any existing rule of the BIR.
records of entries related to the
business of such taxpayers.

3. To compromise of abate any tax


3. To make assessments, prescribe additional liability.
requirements for tax administration and [Exception. The Regional
purposes. Evaluation
4. To assign or reassign internal
revenue officers to
a. To examine returns and determine tax establishments where articles
due;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
21
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. Sugar adjustment taxes (C.A. No. 567);


II. NATIONAL TAXATION 3. Taxes on narcotic drugs (R.A. No. 953);
4. Travel tax (P.D. No. 1183);
5. Private motor vehicle tax (.E.O. No. 43);
6. Energy taxes (P.D. No. 844 and 845; B.P.
I. KINDS OF INTERNAL REVENUE TAXES: Blg. 36);
Income tax (Secs. 22-83); 7. Special education fund taxes (R.A. No.
7160).
Transfer taxes (Secs. 84-104);
a. Estate tax
b. Donor’s tax
A. INCOME TAX
Value-added tax (Secs. 105-115);
I. INCOME – all wealth which flows into the
Other percentage taxes (Secs. 116-128); taxpayer other than as a mere return of capital
a. On small business enterprises; (RR. No. 2).
b. On carries and keepers of garages;
c. On franchise holders or grantees;  Not all receipts of a person constitute
d. On persons paying for overseas income;
communication;  It is the return in money from one’s
e. On banks and non-bank financial business, labor or capital invested;
intermediaries;  It includes incomes specifically
f. On financial companies; described as gain or profit including
g. On life insurance companies and gain derived from the sale or
agents of foreign insurance disposition of capital assets;
companies;  The amount of money coming to a
h. On proprietors, lessees or operators person or corporation within a
of amusement places; specified time whether as payment
i. On winners of prizes in horse races for services, interest or profit from
and jai-alai and owners of winning investment.
horses; AND
j. On sale, barter or exchange of shares II. INCOME DISTINGUISHED FROM CAPITAL
of stocks listed and traded through
local stock exchange, or through CAPITAL INCOME
initial public offering of shares of stock  A fund or material  A flow (service) of
in closely-held corporations; wealth to satisfy wealth
human wants or
tools of production
Excise taxes on certain goods (Secs. 129-151); or resources of
business enterprise
 A fund or property  During a definite
Documentary stamp taxes (Secs. 173-201); existing at one period of time
point in time
 The “tree”  The fruit

Such other taxes as are or hereafter may III. REQUISITES FOR INCOME TO BE TAXABLE
be imposed by law and collected by the 1. There must be gain or profit;
BIR. 2. The gain must be realized or received,
actually or constructively; AND
II. NATIONAL TAXES IMPOSED BY SPECIAL
LAWS:
 DOCTRINE OF CONSTRUCTIVE
RECEIPT OF INCOME – income
1. Customs duties (P.D. No. 1464);
which is credited to the account of
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
22
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

and set apart for a taxpayer and excess of specified amounts and less
which may be drawn by him at any certain deductions and/or specific
time I subject to tax for the year exemptions in cases permitted by law.
during which it was so credited
although not yet then actually erected
or reduced to his possession. To VI. TAXABLE INCOME
constitute receipt in such case, the - The pertinent items of gross income
income must be credited to the specified in the Tax Code, less the
taxpayer without any substantial deductions and/or personal and
payment is to be made. additional exemptions, if any,
authorized for such types of income by
Purpose: to prevent the taxpayer the Tax Code or other special laws.
using the cash basis from
deferring or postponing the actual  Taxable income = GI – D and /or E
receipt of taxable income.
3. The gain must not be excluded by law or VII. NATURE OF INCOME TAX
treaty from taxation.  It is generally regarded as an excise
(privilege) tax. It is not levied upon
IV. TESTS ON TAXABILITY OF INCOME persons, property, funds or profits as
such but upon the right of the person to
1. Flow of Wealth Test – The determining receive income or profits.
factor for the imposition of income tax is
whether any gain or profit was derived from VIII. INCOME TAX BASE
the transaction. (CIR vs. Administration of  Income tax is based on income, either
the Estate of Echerri.) gross or net, realized in one taxable
year.
2. Realization Test – Unless the income is
deemed realized, there is no taxable IX. FUNCTIONS OF INCOME TAX
income. 1. To provide large amount of revenues.
2. To offset regressive sales and
 Revenue is generally recognized consumption taxes.
when both of the following conditions 3. To mitigate the evils arising from the
are met: inequalities in the distribution of income
1. The earning process is and wealth.
complete or virtually
complete; AND  Partnership Theory – the basis of the
2. An exchange has taken right of the government to tax emanates
place. from its partnership in the production of
3. Economic Benefit Principle – Income income by providing resources, incentive
realized is taxable only to the extent that and proper climate for such production.
the taxpayer is, taking into consideration
the pertinent provisions of law,
economically benefited. X. SOURCES OF INCOME
4. Net Effect Test – The substance of the  The property, activity or service that
whole transaction, not the form, usually produced the income, if the income is
controls the tax consequences. derived from:

V. INCOME TAX a. Labor – source is the place where


 Tax on all yearly profits arising from the labor is performed;
property, profession, trade or business or is
a tax on person’s income, emoluments, b. Use of capital – source is the place
profits and the like. (61 C.J. 558). where the capital is employed;

 Tax on the net income or the entire income c. Sale or exchange of capital assets
realized in one taxable year. It is levied – source is the place where the sale
upon corporate and individual income in or transaction occurs.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
23
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Schedular system of taxation


 Other Sources - Income tax treatment varies
1. Treasure found or punitive depending on the kind of taxable
damages representing profits lost income of the taxpayer. It provides
2. Amount received by mistake for different tax treatment for different
3. Cancellation of the taxpayer’s types of income of that a separate
indebtedness return is required to be filed for each
4. Payment of usurious interest type of income and tax is computed
5. Illegal gains on a per return or per schedule
6. Tax refund basis.
7. Bad debt recovery
- This is applicable to individual
XI. DOCTIRNES ON DETERMINATION OF taxpayers.
TAXABLE INCOME
Global system of taxation
 Claim of Right Doctrine – illegally - The tax treatment views indifferently,
acquired income constitutes realized gain the tax base and generally treats in
common all categories of taxable
 Severance Test Theory – separation from income of the taxpayer. The taxpayer
capital of something which is of is required to lump all items of income
exchangeable value earned during a taxable period and
pay under a single set of income tax
 Control Test – power to procure the rules.
payment of income and enjoy the benefit
thereof - This is applicable to corporate
taxpayers.
(Tan vs. del Rosario)
XII. COMPREHENSIVE TAX SITUS
 All possible rules of tax situs are XIV. CLASSIFICATION OF TAXPAYERS
practically applied.
a. INDIVIDUAL INCOME TAXPAYERS
 Criteria used: 1. Citizen
i. Resident
1. Citizenship as basis ii. Non-resident
a. Resident Citizen – taxed on
income from within and without. 2. Alien
b. Domestic Corporation – taxed on i. Resident
income from within and without. ii. Non-resident
c. Non-resident Citizen – taxed on ii.a. Engaged in trade or business
income from within. in the Philippines.
ii.b. Not engaged in trade or
2. Residency as basis business in the Philippines.
a. Resident Alien – taxed on
income from within 3. Special Individual employed by:
i. Regional or area headquarters and
regional operating headquarters of
b. Resident Foreign Corporation – multinational entities in the
taxed on income from within Philippines;

3. Source of income as basis ii. Offshore banking units;


a. Non-resident Alien – taxed on iii. Petroleum contractors and sub-
income from within contractors.

XIII. SCHEDULAR VS. GLOBAL SYSTEM OF b. CORPORATE INCOME TAXPAYERS


TAXATION 1. Domestic
a. Domestic corporation, in general
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
24
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

b. GOCCs (The taxpayer shall submit proof


c. Taxable partnerships to the Commissioner to show his intention
of leaving the Philippines to reside
2. Foreign permanently abroad OR to return to and
a. Resident reside in the Philippines, as the case may
b. Non-Resident be.)

3. Special Corporations 4. Resident Alien – An individual whose


a. Proprietary Educational residence is within the Philippines but who is
Institutions not a citizen thereof.
b. Non-stock, non-profit hospitals  one who is actually present in the
c. Corporations covered by special Philippines and who is not a mere
laws. transient or sojourner.

A. INDIVIDUAL INCOME TAXPAYER 5. Non resident Alien –

Terms 6. Non-resident Alien Engaged in Trade or


Business – An alien carrying on a business in
1. Citizen (Art. IV, 1987 Constitution) the Philippines.

2. Resident Citizen - It connotes more than a single act or


isolated transaction.
3. Non-resident Citizen - It involves some continuity of action.
1. A citizen of the Philippines who - The term trade, business or
establishes to the satisfaction of the profession shall not include
Commissioner the fact of his physical performance of services by the
presence abroad with a definite taxpayer as an employee but it
intention to reside therein; includes the performance of the
2. A citizen of the Philippines who leaves functions of a public office.
the Philippines during the taxable
year to reside abroad, either as an  A non-profit alien who has stayed in
immigrant or for employment on a the Philippines for more than 180
permanent basis; days during any calendar year shall
3. A citizen of the Philippines who works be deemed doing business in the
and derives income from abroad and Philippines.
whose employment thereat requires
him to be physically present abroad  If he stayed for 180 days or less,
most of the time during the taxable he is considered a non-resident alien
year. not engaged in trade or business in
 “Most of the time” – the Philippines.
interpreted to mean physical
presence abroad for at least 7. Offshore Banking Units – A branch,
183 days during the taxable subsidiary or affiliate of a foreign banking
year. corporation which is duly authorized by the
4. A citizen who has been previously BSP to transact offshore banking business in
considered as non-resident citizen the Philippines in accordance with the
who arrives in the Philippines at any provisions of P.D. No. 1034 as implemented
time during the taxable year to reside by CB Circular No. 1389, as amended
permanently in the Philippines shall
likewise be treated as a non-resident  Offshore Banking System – The
citizen for the taxable year in which conduct of banking transactions in
he arrives in the Philippines with foreign currencies involving the
respect to his income derived from receipt of funds principality from
sources abroad until the date of his external and internal sources and the
arrival in the Philippines. utilization of such fund.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
25
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

8. Foreign Currency Deposit Unit – The unit of relationship unless specifically excluded by
a local bank or a local branch of a foreign the Code.
bank authorized by BSP to engage in foreign  If a taxpayer is receiving compensation
currency –denominated transactions, income from 2 more employers, he must
pursuant to R.A. No. 6426. combine all compensation income
received from all employers for a
 Foreign Currency Deposit System – particular calendar year.
the conduct of banking transactions
whereby any person, whether natural  Taxed at graduated rates of 5% to 32%
or juridical, may deposit foreign
currencies forming part of the 2. Business income – rises from self-
Philippine International reserves. employment or practice of profession.
9. Overseas Contract Worker – An individual
citizen of the Philippines who is working and  Taxed at graduated rates of 5% to
deriving income from abroad as an OCW. 32%
- Taxable only on income from sources 3. Passive income. Those subject to a separate
within the Philippines. As long as the and final tax.
qualifications as an OCW are met,
they shall be taxed as non-resident  It is assumed that passive incomes
citizen. are all gross of withholding taxes.
 Final withholding taxes on passive
 Seaman – considered an OCW if: income are remitted by the payer who
a. He is a citizen of the Philippines; serves as withholding agent to the
b. He receives compensation for BIR.
services rendered abroad as a  Taxed at fixed rates ranging from 5%
member of the complement of a to 25%
vessel; AND
c. Such vessel is engaged 4. Capital gains from sale of shares of stock
exclusively in international trade. not traded through a local stock exchange
 This rule shall apply to all individual
10. Special Individual Taxpayers – Alien taxpayers.
individuals employed by regional or are
headquarters or regional operating  Requisites:
headquarters of multinational companies,
offshore banking units and petroleum service a. The transaction is a sale of
contractors shall be subject to final tax of 15% shares of stock of a domestic
of gross income provided that the same tax corporation.
treatment shall apply to Filipinos employed by b. The stock is not listed and traded
the same companies with the same position thru a local stock exchange;
(Filipino counterparts). c. The stock is held by the taxpayer
as capital asset.

 Final tax is computed based on the net


 Multinational Company – A capital gain.
foreign firm engaged in
 Not over P100,000 – 5%
international trade with affiliates
 On any amount in excess of
or subsidiaries or branch in Asia-
P100,000 – 10%
Pacific region and foreign
markets.
5. Capital gains from sale of real property.
This rule shall apply to all individual
CATEGORIES OF INCOME
taxpayers.
1. Compensation income – All remuneration for
services performed by an employee for his  Transactions covered – sale,
employer under an employer-employee exchange, or other disposition,
including pacto de retro sales and
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
26
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

other forms of conditional sales (Sec. [RR No. 17-2003 provides to


24 (D) (1), NIRC 1997) set aside capital gains tax in
a bank IN ESCROW.]
 Requisites:
a. The transaction must be sale of 6. Fringe Benefits – any good, service or other
real property; benefit furnished or granted by an employer,
b. The real property must be located in cash or in kind in addition to basic salaries,
within the Philippines; to an individual employee (except rank and
c. It must be held as capital asset file employee) under an employer-employee
relationship.
 GR: Final tax is computed based on
the gross selling price or the current  Final tax of 34% (1998), 33% (1999)
market value at the time of sale, or 32% (2000 and thereafter) is based
whichever is higher – 6% on the grossed-up monetary value of
the benefit granted.
XPNs:
1. In the case of sale of real property to  The grossed up monetary value is not
the government, tax liability shall be included in the computation of gross
either under the 5-32% rates OR income subject to basic tax (Sec. 24
under this provision, at the option of A).
the taxpayer.
7. Interest from long-term deposit or
2. Capital gains from sales or disposition investment in bank. This rule shall apply to
of the principal residence of a natural all kinds of taxpayers, except NRA-NETBP
person shall be exempt from capital who is taxed a 25% of the gross amount.
gains tax, provided.
 The investment may be in the form of
a. The proceeds are fully utilized savings, common or individual trust
in acquiring or constructing a funds, deposit substitute, investment
new principal residence within management accounts and other
18 months from sale or investments evidenced by certificates
disposition; in such form prescribed by the BSP
with five-year term or longer shall be
b. The historical cost or adjusted except from tax.
basis of the real property sold
or disposed of shall be  if deposit is preterminated before the
carried over to the new 5th year, the corresponding final tax
residence; shall be:

c. The taxpayer shall notify the  4 years to less than 5 years – 5%


Commissioner within 30 days  3 years to less than 4 years –
from sale or disposition thru a 12%
prescribed return of his  Less than 3 years – 20%
intention to avail of the 8. Distributive share in the Profits of a
exemption; General Professional Partnership. The
general professional partnership as an entity,
d. Such tax exemption may be shall not be subject to income tax but the
availed of only once every 10 partners shall be liable for income tax only on
years; their separate and individual capacities. (To
be included in the tax subject to 3-32% rates.)
e. If there is no full utilization of
the proceeds; the portion of
the gain presumed to have Gross Income Taxation vs. Net Income
been realized therefrom shall Taxation
be subject to capital tax.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
27
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Gross Income Taxation – system of taxation =======================


where the income is taxed at gross. The taxpayer
under this system is not entitled to any deduction. NET INCOME TAXATION – system of taxation
where the income is taxed at net. The taxpayer
 Gross Income – means all income may claim allowable deductions.
derived from whatever source, including
but not limited to: (CGGIRR-DAPPS)  Taxable Income (Also Net Income) –
a. Compensation for services; means all pertinent items of gross income
b. Gross income from trade or business specified in the Tax Code less allowable
or the exercise of a profession; deductions and/or personal and additional
c. Gains derived from dealings in exemptions, if any, authorized for such
property; type of income by the Tax Code or other
d. Interests; special laws.
e. Rents;  Advantages of NIT:
f. Royalties ; 1. Equitable and just, as far as the
g. Dividends; taxpayer is concerned.
h. Annuities; 2. Minimizes tax evasion.
i. Prizes and winnings; 3. Generates more revenues.
j. Pension trusts;
k. Partner’s distribute share in net  Disadvantages of NIT:
income of a general professional 1. Vulnerable to graft and corruption.
partnership. 2. Vulnerable to tax evasion; confusing
and complex process of filing ITR
3. Will give rise to loss of revenues due
 Advantages of GIT: to the deductions allowed.
1. Simplifies income taxation. Since no
deduction is allowed, it would be easy  Computational Pattern:
to compute for the tax clue.
2. Generates more revenue to the Gross Income subject to basic income tax [Sec. 32]
government. LESS: Allowable deductions [Sec. 34]
3. Minimizes cost. ----------------------------------------
Net Income before exemptions [Sec. 27A]
4. Substantial reduction in corruption
LESS: Personal Exemptions/HHIP [Sec. 35]
and tax evasion. ----------------------------------------
Taxable (Net) Income [Sec 24A]
X Tax rate (5-32%) [Sec 27]
 Disadvantages of GIT: ------------------------------------------
1. Inequitable, as far as taxpayers are Income Tax Due
concerned. LESS: Tax credits [Sec. 57]
Reason: No deductions and ------------------------------------------
Income Tax Payable (Refundable)
exemptions allowed.
=======================
2. Taxpayers will likely lost interest to
earn more.

3. Taxpayers may resort to fraudulent Note: In case of an individual deriving


scheme that will minimize their tax liability income purely from compensation, only
the applicable personal exemption and/or
 Computational Pattern: HHIP shall be allowed as deduction from
Gross Income gross income.
LESSS: Gross income subject to FT, and
Gross income exempt from tax  Computational Pattern:
Gross Compensation Income
Gross income subject to basic income tax LESS: Personal Exemptions/HHIP
X Tax rate (5-32%)
-------------------------------------------- Taxable (Net) Income
X Tax rate (5-32%)
Income Tax Due Income Tax Due
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
28
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

6. Foreign Corporation

B. CORPORATE INCOME 7. Resident Foreign Corporation – one


TAXPAYER engaged in trade or business within the
Philippines.

8. Non-resident Foreign Corporation –


Terms one which is not engaged in trade or
1. Corporation – includes: business within the Philippines.
a. Partnerships no matter how created or
organized, except 9. Improperly Accumulated Earnings Tax
1. General professional partnerships; (IAET) – tax equivalent to 10% of
AND improperly accumulated taxable income.
2. Joint venture or consortium formed for  To whom imposed? Upon a
the purpose of undertaking corporation which is formed or availed
construction projects OR engaging in of for the purpose of avoiding the
petroleum, coal, geothermal and other income tax with respect to its
energy operations pursuant to an shareholders or the shareholders of
operating or consortium agreement any other corporation by permitting
under a service contract with the earnings and profits to accumulate
Government; instead of being divided or distributed.
b. Joint stock companies;
 The following corporations, in the
c. Joint accounts (cuentas en participacion); absence of proof to the contrary, are
considered as improperly
d. Associations; or accumulating earnings;

e. Insurance companies. 1. Holding company


2. Investment company
3. When it permits its profits to
2. General Professional Partnership – One accumulate beyond the
formed for the sole purpose of exercising reasonable needs of the
common profession and no part of its income business.
of which is derived from engaging in any trade
or business. BUT: Accumulation of earnings
 Such entity is exempt from income for the following purposes is not
taxation. prohibited:

a. Additional working capital;


3. Joint Account – when two persons form or b. Expansions, improvements
create a common fund and such persons and repairs;
engage in a business for profit. c. Debt retirement;
 this may result in a taxable d. Acquisition of a related
unregistered association or business OR the purchase of
partnership. stock of a related business
where subsidiary relationship
4. Joint Stock Companies - the midway is established.
between corporation and partnership.
Partnership in the sense that it is an NOTE: Once the profit has been
association of persons who contribute subjected to IAET, the same shall no
money to a common fund. However, it is longer be subjected to IAET in later years
managed by Board of Directors which is a even if not declared as dividend.
feature of a corporation.
 Exemptions from IAET:
5. Domestic Corporation 1. Publicly-held corporations;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
29
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. Banks and other non-bank financial


intermediaries; XPNs:
3. Insurance companies; 1. Those engaged in business as
4. Taxable partnerships; “international carrier” subject to tax at
5. General professional partnership; 21/2 of their “Gross Philippine Billing”;
6. Non-taxable joint ventures; and 2. Those engaged in business as
7. Enterprises duly registered with PEZA offshore Banking Unit;
and those registered pursuant to the 3. Those engaged in business as
Bases Conversion and Development Act regional operating headquarters
of 1992. subject to tax at 10% of their taxable
income;
10. Minimum Corporate Income Tax (MCIT)
 A tax at the rate of 2% based on gross
income.
 Firms that are taxed under a special
 To whom imposed? On domestic and income tax regime such as those in
resident foreign corporations not covered accordance with RA 7916 and 7227 (the
by a special income tax system. PEZA law and the Bases Conversion
Development Act, respectively) are NOT
a. On Domestic Corporations covered by MCIT.

GR: MCIT shall apply to domestic


corporations subject to the normal
corporate income tax.  Carry Forward on Excess Minimum
Tax.
XPNs: Excess of MCIT over NT may be carried
1. Those operating as proprietary forward and credited against NT for the
educational institutions subject to tax three immediately succeeding years.
at 10% on their taxable income;

2. Those engaged in hospital operations  When shall it be imposed:


which are nonprofit subject to tax at 1. Beginning the 4th taxable year
ten percent on their taxable income; immediately following the taxable year
in which such corporation
3. Those engaged in business as commenced its business operations;
depositary banks under the expanded The taxable year in which
foreign currency deposit system business operations commenced
subject to final income tax at 10%. shall be the year in which the
domestic corporation registered with
the BIR.

2. Whenever such corporation has zero


or negative taxable income;
4. Firms that are taxed under a special
income tax regime such as those in 3. Whenever the amount of minimum
accordance with RA 7916 and 7227 corporate income tax is greater than
(the PEZA Law and the bases the normal tax due from such
Conversion Development Act) corporation.

 When reported and paid?


b. On Foreign Corporations  Paid on an annual basis.
 Reported under the Annual Final
Adjustment Income Tax Return which
GR: MCIT shall apply to resident foreign is filed on the 15th of the 4th month
corporation on the gross income from following the close of its taxable year.
sources within the Philippines.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
30
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 Carry-forward provision under the NOTE: This optional tax is available only to
MCIT firms whose ratio of cost of sales to gross
 Any excess of the MCIT over the sales/receipts from all sources does not
normal income tax may be carried exceed 55%.
forward on an annual basis and be
credited against the normal income 12. Manufacturing, Merchandising or Mining –
tax for the 3 immediately succeeding gross income means Total Sales less Cost of
taxable years. Goods Sold plus any income from
investments and from incidental or outside
 Relief from MCIT , Secretary of Finance operations.
may suspend imposition of MCIT on any
corporation which suffers losses – 13. Farming – Gross income includes gains or
1. On account of prolonged labor profits derived from the operation of farms,
dispute; such as stock, dairy, poultry, fruits and truck
2. Because of force majeure; farms, plantations, etc. Income may be
3. Because of legitimate business reported using either:
reverses;  Cash basis
 Accrual basis
 Conditions for the Relief from MCIT;  Crop Year basis
1. Upon recommendation of the
Commissioner, the Secretary of CATEGORIES OF INCOME [BPC2]
Finance, may suspend imposition
of the MCIT. 1. Business Income. Generally, business income
2. Upon submission of proof by the earned by a corporation is taxed as follows:
applicant corporation, duly 34% (1998); 33% (1999) 32% (2000-2005 and
verified by the Commissioner’s thereafter);
authorized representative, that
the corporation sustained - The rates apply to a domestic
substantial losses on account of corporation on income from within
the ff.: and without the Philippines AND to
a. Prolonged labor dispute; resident foreign corporations on
b. Force majeure; or income from within.
c. Legitimate business reverses.
2. Passive Income – Subject to separate and
Note: In the case of a domestic final tax.
corporation whose operations or activities
are partly covered by the regular income
tax system and partly covered under a - Taxed at fixed rates ranging from 5-
special income tax system, the MCIT shall 20%
apply on operations covered by the - Not to be included in the computation
regular income tax system. of gross income

3. Capital Gains on Sale of Shares of Stock,


11. Optional Corporate Income tax – The not traded thru a local stock exchange –
President, upon recommendation by the same rules as that applied to individual
Secretary of Finance may, effective January 1, taxpayers shall govern domestic and resident
2000, allow corporations the option to be foreign corporations.
taxed at 15% of gross income subject to the
following conditions: 4. Capital Gains on Sale of Real Property –
1. A tax effort ratio of 20% of GNP; Same rule as that applied to individual
2. A ratio of 40% of income tax to a total tax taxpayers shall govern domestic corporations.
revenue;
3. A VAT tax effort of 4% of GNP;
4. A 0.9% ratio of Consolidated Public SPECIAL CORPORATIONS
Sector Finance Position to GNP.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
31
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. Proprietary Educational Institutions transactions with local commercial


and Non-Profit Hospitals banks (including branches of foreign
- The tax is 10% on taxable income banks that may be authorized by BSP
except those subject to final tax. to transact business with OBU); and
- BUT I f the gross income from any interest income derived from
unrelated trade, business or other foreign currency loans granted to
activities exceed 50% of total gross residents.
income tax shall be 34% (1998), 33%
(1999) or 32% (2000 and thereafter) 5. Branch Profit Remittances
on the entire taxable income. - Tax is 15% of total profits applied or
earmarked for remittance without
2. Government-Owned-or-Controlled- deduction for the tax component
Corporations (except those activities registered with
GR: All corporations, agencies and PEZA).
instrumentalities owned or controlled by - To whom imposed? Any branch
the Government shall pay same rate of remitting profits to its head office
tax upon taxable income as that imposed (resident foreign corporation).
upon corporations and associations
subject to existing laws. 6. Regional Operating Headquarters
- Tax is 10% of their taxable income.
XPNs:
1. GSIS; 7. Regional or Area Headquarters
2. SSS; - Shall not be subject to tax.
3. PHIC;
4. PCSO; 8. Non-resident Cinematographic Film
Owner, Lessor or Distributor
3. Resident International Carrier - Tax is 25% of gross income from
- A tax of 2 ½% on its gross Philippine within the Philippines.
billings.
9. Non-resident Owner or Lessor of
 Gross Philippine Billings. Amount of Vessels Chartered by Philippine
gross revenue derived from carriage Nationals
of persons, excess baggage, cargo - The tax is 4 ½% of gross rentals,
and mail originating from the lease or charter fees from leases or
Philippines in a continuous and charters to Filipino citizens or
uninterrupted flight, irrespective of the corporations, as approved by the
place of sale or issue and the place of Maritime Industry Authority.
payment of the ticket or passage
document. 10. Non-resident Owner/Lessor of Aircraft,
Machinery and Other Equipment.
- For purposes of international - The tax is 7 ½% of gross rentals,
shipping, gross Philippine billings charters and other fees.
mean gross revenue, whether from
passenger, cargo or mail originating TAX EXEMPT CORPORATIONS
from the Philippines up to final
destination, regardless of the place of Under Sec. 22B: [Gen Jo2]
sale or payments of the passage or
freight documents. 1. General professional partnership;

4. Offshore Banking Unit 2. Joint venture for the purpose of undertaking


Final tax is 10% of income under construction projects;
EFCDS.
3. Joint consortium for the purpose of engaging
 Basis of Tax? Income derived by in petroleum, geothermal and other energy
offshore banking units authorized by operation pursuant to a consortium agreement
the BSP, from foreign currency under service contract with the government;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
32
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

3. No capital represented by shares


Under Section 30: [LaMu B2 C2Non2 GF2] of stock
4. Educational or instructive in
1. Labor, agricultural or horticultural character
organizations not organized principally for
profit; Common Limitations – Sec. 30 last par.
2. Mutual savings bank not having a capital
stock represented by shares and cooperative “Notwithstanding the provisions in the
bank without capital stock organized and preceding paragraphs, the income of whatever
operated for mutual purposes and without kind and character of the foregoing
profit; organization from any of their properties, real,
3. A beneficiary society, order or association personal, or from any of their activities
operating for the exclusive benefit of the conducted for profit regardless of the
members; disposition made of such income, shall be
4. Cemetery company owned and operated subject to tax imposed under this code.”
exclusively for the benefit of its members;
5. Non-stock corporations or associations
organized and operated exclusively for Under Section 27D
religious, charitable, scientific, athletic or 1. GSIS
cultural purposes or for the rehabilitation of 2. SSS
veterans, no part of the net income or assets 3. PHIC
of which shall belong to or inure to the benefit 4. PCSO
of any member, organizer, officer or a
specified person;
6. Business league, chamber of commerce or B. GROSS INCOME
board of trade, not organized for profit and no
part of the net income of which inures to the
benefit of any private stockholder or
INCLUSIONS IN GROSS INCOME
individual;
7. Civic league or organization not organized for
profit but operated exclusively for the INCLUSING IN GROSS INCOME
promotion of social welfare; (CGGIRRDAPPS)
8. Non-stock, non-profit educational institution;
9. Government educational institution; I. Compensation for services paid in whatever
10. Farmers and other mutual typhoon or fire form, including but not limited to fees,
insurance company, mutual ditch or irrigation salaries and wages, commissions, and
company, mutual or cooperative telephone similar items;
company, or like organization of purely local II. Gross income from conduct of trade or
character, the income of which consists solely business or exercise of a profession;
of assessments, dues and fees collected from III. Gains from dealings in property;
members for the sole purpose of meeting its IV. Interests;
expenses; V. Rents;
11. Farmers, fruit growers or like associations
organized and operated as a sales agent, for
the purpose of marketing the products of its VI. Royalties;
member and turning back to them the VII. Dividends;
proceeds of sales, less the necessary selling VIII.Annuities;
expenses, on the basis of the quantity of IX. Prizes and winnings;
produce furnished by them; X. Pensions and
XI. Partner’s distributive share in the net income
 COMMON REQUISITES (Sec. 30) of a general professional partnership
1. Not organized and operated
principally for profit
2. No part of the net income inures I. COMPENSATION INCOME
to the benefit of any member

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
33
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

- All remuneration for services performed


by an employee for his employer unless 3. Facilities and Privileges of a relatively
specifically excluded by the Tax Code. small value. “De minimis benefits”
furnished or offered by an employer to his
 This may include : [PROF2 SEBAC] employees, not considered as compensation
1. Salaries and wages subject to income tax if given merely as a
2. Emoluments and honoraria; means of promoting the health, goodwill,
3. Allowances; contentment or efficiency of employees.
4. Commissions;
5. Fees, including director’s fees; 4. Tips and Gratuities. Paid directly by
6. Fringe Benefits, except those which consumers who are not accounted for by the
are subject to fringe benefit tax; employee to the employer are taxable income
7. Taxable Bonuses; but not subject to withholding.
8. Taxable Pensions and Retirement
pay; 5. Pensions, Retirement and Separation Pay.
9. Other income of similar nature. These constitute compensation income
subject to withholding except those
 The test to determine the existence of specifically excluded.
an employer-employee relationship.
[ACDC] 6. Fixed or Variable Transportation,
1. Appointment Representation and Other Allowances.
2. Compensation Considered as compensation subject to
3. Dismissal power withholding.
4. Control test
 RATA and PERA granted to public officers
 Requisites for taxability of and employees shall not be subject to
compensation income: [SPR] income tax and withholding tax.
1. Services rendered under ER-
EE relationship;  Additional Compensation Allowance
2. Payment for the services (ACA) given to government personnel
rendered; shall be classified as other income which
3. Amount must be reasonable are excluded from gross income subject
to the P30,000-limitation.
FORMS OF COMPENSATION INCOME:

1. Compensation paid in Kind.  Advances and reimbursements for


travelling representation and other
 Fair market value of the things taken in necessary expenses in the pursuit of the
payment is the amount to be included as trade business or profession which the
compensation subject to withholding. employee is required to account or
liquidate are compensation not subject to
withholding.

 If there is a price stipulated, such price 7. Vacation and Sick Leave Allowances.
will be followed in the absence of contrary Constitute compensation subject to income
evidence. tax.

2. Living quarters and meals. XPN: Monetized value of unutilized leave


Compensation subject to withholding. credits of 10 days or less are not subject to
income tax and withholding.
 Exception: IF furnished to an employee
for the convenience of the employer, the DISTINCTIONS BETWEEN COMPENSATION
value is not included as part of AND GIFT:
compensation income.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
34
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. If the payment is intended to represent business or profession of the


payment regardless of its designation for employer;
services rendered either in the past,
present or future, the amount received will 2. Benefits for the convenience or
be taxable income to the recipient advantage of the employer
(Thomas vs. CIR, 135 F2d 378) [Employer’s convenience rule];

2. If the payments are made to show 3. Benefit which is authorized and


goodwill or a mere kindness towards the exempted from tax under special
recipients and are not intended as a laws;
recompense for services rendered, then
the payments represent gifts and should 4. Contribution by the employer for
be exempt. the benefit of the employee to
retirement, insurance and
3. A payment made in satisfaction of a moral hospitalization benefit plans;
obligation or claim without legal obligation
to pay is not a gift and is subject to 5. Benefit given to rank and file
income tax. employees, whether granted
under a collective bargaining
agreement or not;
 Fringe Benefits – any good services or
other benefit furnished or granted by an 6. De minimis benefits.
employer in cash or in kind in addition to
basic salaries, to an individual employee, 7. Using privilege of military officials
except a rank and file employee, such as of the Armed Forces of the
but not limited to: (HEV-HIM-HEEL) Philippines (AFP) consisting of
1. Housing; officials of the Philippine Army,
2. Expense account ; Philippine Navy, and Philippine Air
3. Vehicle of any kind; Force.
4. Household personnel such as
maid, driver and others; 8. A housing unit which is situated
5. Interest on loans at less than inside or adjacent to the premises
market rate to the extent of the of a business of factory.
difference between the market A housing unit is
rate and the actual rate granted; considered adjacent to the
6. Membership fees, dues and other premises of the business if it is
expenses borne by the employer located within the maximum of
for the employee in social and fifty (50) meters from the
athletic clubs or other similar perimeter of the business
organizations; premises.
7. Holiday and vacation expenses;
8. Expenses for foreign travel; 9. Temporary housing for an
9. Educational assistance to the employee who stays in a housing
employee or his dependents; unit for 3 months or less.
10. Life or health insurance and other
non-life insurance premiums or
similar amounts of excess of what
the law allows. (Subject to 10. The use of aircraft (including
peculiar nature requirement.) helicopters) owned and
maintained by the employer.
 However, the following fringe
benefits are NOT taxable (RR-398) 11. Reasonable business expenses
which are paid for by the
1. Benefits required by the nature of, employer for the foreign travel of
or necessary to the trade, his employee for the purpose of

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
35
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

attending business or received by the employee under an


conventions. established written plan which does not
discriminate in favor of highly paid
12. A scholarship grant to the employees;
employee by the employer if the
education or study involved is h. Gifts given during Christmas and major
directly connected with the anniversary celebrations not exceeding
employer’s trade, business or P5,000 per employee per annum;
profession, and there is a written
contract between them that the i. Flowers, fruits and books or similar items
employee is under obligation to given to employees under certain
remain in the employ of the circumstances;
employer for period of time that
they have mutually agreed upon. j. Daily meal allowance for overtime work
not exceeding 25% of the basic minimum
13. Cost of premiums borne by the wage.
employer for the group insurance
of his employees.  Fringe Benefit Tax – is imposed on the
grossed-up monetary value of the fringe
 De minimis benefits – are facilities and benefit furnished, granted or paid by the
privileges furnished or offered by an employer employer to management and supervisory
to his employees that are of relatively small employees.
value and are offered or furnished by the
employer merely as a means of promoting the  Grossed-up Monetary Value – the
health, goodwill, contentment and efficiency of whole amount of income realized by
his employees. the employee which includes the net
amount of money or net monetary
This shall include: [RUM4 FLAG] value of property which has been
received plus the amount of fringe
a. Monetized unused leave credits of benefit tax due thereon.
government employees and monetized
unused vacation leave credits of private - As a general rule, the amount of
employees not exceeding 10 days during fringe benefits and the tax
the year. thereon shall constitute allowable
deductions from gross income of
b. Medical cash allowance to dependents of the employer.
employees not exceeding P750 per
semester or P125 per month;  DOCTRINE OF CASH EQUIVALENT –
provides that any economic benefit to the
c. Rice subsidy of P1,000 or one sack of 50- employee whatever may have been the mode
kg rice per month amounting to not more by which it is effected is compensation
than P1,0000; income.

d. Uniforms and clothing allowances not


exceeding P3,000 per annum.

e. Actual medical benefits not exceeding


P10,000 per annum. II. INCOME FROM BUSINESS, TRADE OR
PROFESSION
f. Laundary allowance not exceeding P300
per month; Business – any activity that entails time,
attention and effort for purposes of livelihood
g. Employee achievement awards in the or profit.
form of tangible personal property other
than cash or gift certificate with an annual Professional Income – recipient must be
monetary value not exceeding P10,000 professionals, whether licensed or riot.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
36
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

b. If it is a security deposit not taxable


 Manufacturing, Merchandising or Mining. unless the lessee violates the terms
- Gross income means Total Sales less of the contract, thus, forfeiting the
Cost of Goods Sold plus any income from deposit in favor of the lessor;
investments and from incidental or c. If in the nature of a loan, not taxable.
outside operations.
2. Leasehold improvements where both
 Farming. Gross income includes gains or parties agree that these shall belong to
profits derived from the operation of farms, the lessor must be recognized as income
such as stock, dairy, poultry, fruits and truck by the lessor using either:
farms, plantations, etc. Income may be
reported using either: a. Spread-out method – income is
1. Cash basis. allocated over the term of the lease;
2. Accrual basis.
3. Crop Year Basis. b. Outright method – income recognized
in the year of completion.
III. GAINS FROM DEALINGS IN PROPERTY
(ORDINARY ASSETS)
3. Other considerations which the lessee
 GR: The entire amount of gain (or may pay to third parties (such as
less) arising therefrom is taxable gain interests, taxes, dividends and insurance
(or deductible loss). premiums) are taxable to the lessor.
 see topic on Capital Gains and
Losses. VI. ROYALTIES

IV. INTERESTS - Payments for the use of property. This


- Those arising from indebtedness, that is, includes earnings from copyrights,
compensation for the loan or forbearance trademarks, patents and natural
of money, goods or credits. resources under lease.

 GR: Interests received by a taxpayer  Involves not only the use of the property
is taxable. but also its exhaustion. Royalties for
properties, which produce coal, gas, oil,
XPN: If exempted by law (such as copper, timber or other similar product
passive income subject to final tax). shall form part of gross income.

 Other royalties are subject to final tax.


V. RENT INCOME
- Amount paid for the use or enjoyment of a VII. DIVIDENDS
thing or right. This is derived, not only
from real estate but also from use of - Distribution made by a corporation out of
personal property. The following shall its earnings or profits accrued and
constitute rent income. payable to shareholders, whether in
money or in property.

1. Advance rentals received during the  Cash and property dividends declared
taxable year, including rentals actually and distributed by domestic corporation to
earned but uncollected as of the end of individual, stockholders who are residents
the period of the Philippines on or after January 1,
1998 but forming part of retained earnings
a. Prepaid rents where there is no as of December 31, 1997 shall not be
restriction as to its disposal by the subject to income tax.
lessor is taxable in the year received
regardless of the accounting method Forms of Dividends and Income Tax Treatment
employed.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
37
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. Cash dividend deductible capital loss to the extent to


- Paid to stockholders/members in cash. the capital gain.
- Taxed at 10% final tax beginning January
1, 2000. 6. Indirect Dividend
 One made through the exercise of right or
2. Property dividend other means of payment.
- Paid in property of the corporation such
as bonds, securities or stock investments  Tax Rates on Dividend Distribution
held by the paying corporation.
- Taxed 10% final tax beginning January 1, 1. If a domestic corporation distributes
2000 respectively dividends to:
a. RC, NRC, RA – 10% final tax
3. Stock dividend b. NRA-ETBP – 20% final tax
- Paid in stock. c. NRA-NETBP – 25% final tax
- Not taxable unless it represents d. DC and RFC – exempt
distribution of earnings of profits. e. NRFC , under certain conditions –
15% final tax conditions.
 GR: Not taxable.
Reason: They are considered  Intracorporate Dividends
unrealized gain and therefore not
subject to tax until that gain is  A 15% final tax is imposed upon cash
realized. or property dividends received by
NRFC from a DC provided:
XPNs:
a. If there is a change in the 1. Paying corporation is a domestic
stockholder’s interest in the net corporation.
assets of the corporation; 2. Receiving corporation is a non-
b. In case of dividend in stock issued by resident foreign corporation;
other corporation; 3. The country where NRFC is
c. Redemption of stock dividend; domiciled shall allow a credit
d. If corporation issues different shares against tax due from the NRFC
of stock; tax “deemed paid” equivalent to
e. Recipient is other than the 20% (1997), 19% (1998), 18%
shareholders. (1999) and 17% (2000 and
thereafter). [TAX SPARING
4. Script dividend. CREDIT.]
 Issued in the form of a promissory note.
 Taxed at 10% final tax beginning January  TAX SPARING CREDIT RULE – dividend
1, 2000. received from domestic corporation (Sec.
28B 5[b])
5. Liquidating dividend.
 Does not constitute taxable income. VIII.ANNUITIES
 Annuity policies sold by insurance
companies, which provide installment
payment for life or for a guaranteed fixed
period of time whichever is longer or for
 BUT if a corporate distributes all its life and guaranteed fixed period.
assets in complete liquidation and
dissolution the transaction is deemed  The portion of each annuity payment that
a sale or exchange between the represents return of premium is not
corporation and the stockholder. taxable while that portion that represents
interest is taxable.
As such, the difference between
the amount received and the cost of IX. PRIZES AND WINNINGS
shares surrendered by the
stockholder is taxable gain or
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
38
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

GR: Contest awards or prizes for commercial 2. Compensation for damages


or non-commercial contests are taxable. Such
payments constitute gains derived from labor.  If it represents payment for loss of
 Rates: profits (such as those recovered
a. If the amount of prize is P10,000 in patent infringement suits) –
or less it is subject to normal tax taxable.
(Sec. 24A).
b. If it is above P10,000.00 a final  If it constitutes a return of capital
tax of 20% applies. (such a moral damages for libel
and slander) – NOT taxable
XPNs:
3. Cancellation of debt of a stockholder
1. Prizes and awards received in recognition to a corporation is in effect, payment
of religious, charitable, scientific, of dividend.
educational, artistic, literary or civic
achievement are not taxable. (See  If cancellation of debt is in
discussion on exclusions from gross exchange of personal services by
income). the debtor, it shall amount to
taxable compensation income.
2. Prizes and awards granted to athletes in  If for no consideration at all, it
local and international sports competition may be considered a gift not
and tournaments are exempt from income taxable as income.
tax. (See discussion on exclusions from
gross income). 4. Bad debts previously charged off but
later recovered shall be taxable
3. Prizes and awards in the nature of gifts income if in the year of recognition of
are not taxable. its being worthless the write-off
resulted in a reduction of taxable
X. PENSIONS income. [Tax benefit rule].
 Amount of money received in lump sum
or on staggered basis in consideration of 5. Tax refunds are generally taxable.
services rendered. Pensions are given
after the individual reaches the age of 
A tax which was previously
retirement. deducted as expense should be
reported as income when a
 It is taxable to the extent of the amount refund of the same is received in
received except if there is an approved a subsequent year.
pension plan by the BIR.  BUT a tax that is not deductible
like income tax is not an income
XI. INCOME FROM WHATEVER SOURCE subject to tax when refunded.
 The following tax refunds are not
 Includes all other income not expressly taxable:
exempt by laws. 1. Phil income tax (except fringe
benefit tax);
2. Estate or donor’s tax;
3. Special assessment;
1. Income derived from illegal sources 4. Stock transaction tax;
(such as gambling, extortion, theft, 5. Income tax paid to foreign
bribes, embezzlement and smuggling) country (if the taxpayer claimed
are taxable. a credit for such tax in the year it
was paid)
PASSIVE INCOME (INCOME SUBJECT TO FINAL TAX)
a. Capital gains tax on sale of shares of stock of domestic corporation not listed and traded thru a local stock
exchange held as capital asset.
b. Capital gains tax on sale of real property in the Philippines, held as capital asset.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
39
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

c. Income from sources within the Philippines on interest under the EFCDS
d. Income from sources within the Philippines on interest on currency bank deposits, yield or other monetary benefits
from deposit substitutes, trust friends and similar arrangements.
e. Income from sources within the Philippines, interest on long-term deposit or investment in banks (with maturity of 5
years or more).
f. Income from sources within the Philippines on royalties on books literary works and musical composition.
g. Income from sources within the Philippines, on royalties other than (f).
h. Income from sources within the Philippines, prizes exceeding P10,000
i. Income from sources within the Philippines, other winnings except PCSO and lotto winnings.
j. Income from sources within the Philippines, dividend from a domestic corporation or form a joint stock company,
insurance or mutual fund company and regional operating headquarters of a multinational company.
k. Share in distributable net income of partnership (except that of a GPP), joint account or joint venture or consortium
TAXABLE as a corporation.
l. Gross income from within the Philippines, cinematographic films and similar works.

interest thereon, the interest shall be


included in the gross income;
EXCLUSIONS FROM GROSS INCOME

 Removal of otherwise taxable items


Implications of Life Insurance Proceeds

 Included in the Gross Estate


Exclusions from Gross Income [LAGCItRM]
1. 3rd person revocably designated as
 Proceeds of Life insurance policies beneficiary.
2. Estate, executor or administrator is
 Amount received by insured as a
designated as beneficiary,
return of premium
revocable or irrevocable.
 Value of property acquired by Gifts,
bequests, device or descent.
 Excluded from the Gross Estate
 Compensation for injuries or sickness
1. 3rd person is irrevocably designated
 Income exempt under treaty as beneficiary
obligations binding upon the 2. Proceeds of group insurance
Government of the Philippines
 Retirement benefits, Pensions,  Premiums on life insurance policy paid
Gratuities, etc. by the employer may form part of
 Miscellaneous items compensation income if the beneficiary
 Miscellaneous items designated are the heirs or family of
the employee

 If the designated beneficiary is the


employer, it is not taxable
compensation income since it is
merely a return of capital.
1. Proceeds of Life insurance policies paid
to the heirs or beneficiaries upon death of 2. Amount received by insured as a return of
the insured, whether in a single sum or premium
otherwise. Reason: it represents mere return of
capital.
GR: Not Taxable
3. Value of property acquired by Gifts,
XPN: If such amounts that are held by the bequests, device or descent.
insurer under an agreement to pay

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
40
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Reason: It is not a product of capital of which are for the purpose of


nor industry. distributing earnings and principal of
the fund, any part of which shall not
 BUT income from such properly be used or diverted to other purposes.
shall be included in gross income;
 Separation pay received because of
 Gifts are subject to donor’s tax death, sickness or other physical
while bequests and devices are disability or for any cause beyond the
subject to estate tax. control of the official or employee.

4. Compensation for injuries or sickness.  Social security benefits, retirement


gratuities, pensions and other similar
Reason: Not a gain or profit benefits received by resident [or non-
resident citizens or resident aliens]
 However, damages representing from foreign government agencies
loss of anticipated income is and other institutions, private or
taxable. public;

5. Income exempt under treaty obligations  Veterans benefits;


binding upon the Government of the
Philippines;  SSS and/or GSIS benefits;

6. Retirement benefits, Pensions, Gratuities, 7. Miscellaneous items


etc.
a. Income derived by foreign
 Benefits under a Reasonable Private government form investments in the
Benefit Plan must comply with the Philippines in loans, stocks, bonds or
following REQUISITES: other domestic securities or interests
on deposits in banks in the
a. The private employee or official Philippines (received by foreign
must be at least 50 years old at government or financing institutions
the time of his retirement; owned, controlled or financed by
b. He must have rendered at least foreign government, regional or
10 years of service to the international financing institutions
employer at the time of established by foreign government);
retirement; b. Income derived by the Government or
its political subdivision from any public
c. There must be reasonable private utility or form the exercise of any
benefit plan approved by the BIR. essential governmental functions;
c. Prizes and awards made primarily in
d. This may be availed of only once. recognition of religious, charitable,
scientific educational, artistic, literary
 REASONABLE PRIVATE BENEFIT or civic achievement
PLAN - pension, gratuity, stock
bonus or profit-sharing plan 1. The recipient was elected
maintained by the employer for some without any action on his part to
or all its employees the contributions join and
2. He is not required to render e. Thirteenth month pay and other
substantial future services as benefits received by officials and
condition to receiving the prize or employees both in private and public
award. entities, which shall not exceed
P30,000 subject to increase by the
d. Prizes and awards in sports Secretary of Finance upon
competitions, granted to athletes recommendation of the
whether held in the Philippines or Commissioner.
abroad.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
41
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

f. GSIS, SSS, Medicare and PAG-IBIG more than five years) bonds,
contributions and union dues of debentures or other certificate of
individuals. indebtedness.
g. Gains realized from sale or exchange h. Gains from redemption of shares in a
on retirement (those with maturity of mutual fund company.

C. ALLOWABLE DEDUCTIONS

DEDUCTION DISTINGUISHED FROM EXEMPTION

DEDUCTION EXCLUSION
1. A subtraction from Gross Income 1. An immunity or privilege, a freedom from a
change or burden to which others are subjected.
2. Not receipt, but are, generally expenditures 2. Generally receipts which are excluded from
which are permitted to be subtracted from taxable income.
income to determine the amount subject to
tax.
3. Reduction of wealth which helped earns the 3. The theoretical personal, family and living
income subject to tax. expenses of an individual

DEDUCTION DISTINGUISHED FROM EXCLUSION FROM GROSS INCOME

DEDUCTION EXCLUSION
1. Subtraction from gross income. 1. Not treated as part of gross income
2. Pertain to the computation of net income. 2. Pertain to the computation of gross income.
3. Something spent or paid in earning gross 3. Something received or
income.

CLASSES OF DEDUCTIONS a. Itemized deductions OR Optional


Standard Deduction.
1. For individuals with gross b. Health and Hospitalization
compensation income only: Insurance Premiums;
c. Personal Exemptions.

3. For corporations (except NRFC):


a. Itemized deductions
a. Health and Hospitalization Insurance
Premiums;
b. Personal Exemptions BASIC PRINCIPLES GOVERNING
DEDUCTIONS

2. For individuals with gross income 1. The taxpayer seeking a deduction must
from business or practice of point to some specific provisions of the
profession (except NRA-NETBP). statute authorizing the deduction;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
42
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

10. Pensions trust.


2. He must be able to prove that he is
entitled to the deduction authorized or  The Secretary of Finance, upon
allowed; recommendation of the CIR may prescribe by
regulations limitations of ceiling for any of the
 COHAN RULE PRINCIPLE – if there above itemized deductions subject to the
is showing that expenses have been following conditions:
incurred but the exact amount thereof
cannot be ascertained due to the a. Only after public hearing shall have
absence of documentary evidence the been held for the purpose;
BIR has the duty to make an estimate b. Considering the following factors:
of deduction that may be allowed in 1. Adequacy of the prescribed limits
putting the taxpayer’s taxable income. on the actual expenditure
requirements of each particular
3. Any amount paid or payable which is industry;
otherwise deductible from, or taken into 2. Effect of inflation on expenditure
account in computing gross income or for levels;
which depreciation or amortization may
be allowed, shall be allowed as deduction c. No ceilings shall be further imposed
only if it is shown that the tax required to on items of expenses already subject
be deducted and withheld therefrom has to ceilings under present laws.
been paid to the BIR.
1. ORDINARY AND NECESSARY EXPENSES
KINDS OF DEDUCTIONS
(1) Ordinary And necessary trade,
I. Optional Standard Deduction business or professional expenses.
 Deduction form gross income allowed to be
taken in lieu of itemized deductions.  Those directly attributable to the
development, management, operation
 OSD can be claimed only by an individual and/or conduct of trade, business or
other than a non-resident alien exercise of profession, including:

 Taxpayer shall signify in the income tax return a. Reasonable allowances for
his intention to elect OSD. salaries, wages and other
compensation for personal
 10% of the gross income from business or services actually rendered
practice of profession of the taxpayer including gross monetary value
 The election of OSD is irrevocable for the of fringe benefits;
taxable year for which the choice is made. b. Travel expenses in the pursuit of
trade or business;
 He who claims OSD is not required to submit c. Rental and other payments for the
with his ITR any financial statement. continued use or possession of
property, for the purpose of trade,
business or profession;
II. ITEMIZED DEDUCTIONS d. Entertainment, amusement and
(OIITaLBaDDChaRP) recreating expenses during the
taxable year.
1. Ordinary and necessary expenses;
2. Interest;
3. Taxes; (2) Necessary Expense – appropriate and
4. Losses; helpful in the development of taxpayer’s
5. Bad debts; business and are intended to minimize
6. Depreciation; losses or to increase profits.
7. Depletion;
8. Charitable and other contributions;
9. Research and development costs;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
43
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

(3) Ordinary Expense – normal or usual in  Costs of Materials and Supplies – actually
relation to the taxpayer’s business and consumed or used in the operation during the
the surrounding circumstances. year.

 Repairs – minor and ordinary repairs only;


 Requisites for Deductibility of Expenses Major and extraordinary repairs are
(In General): [On T2 SuPRN] capitalized and included in determining
depreciation expense.
1. Ordinary and necessary;
2. Pain or incurred during the taxable year;  Expenses Allowed to Private Educational
3. Paid or incurred in carrying on a trade or Institutions – Option to deduct either as:
business; 1. Expenditures otherwise considered as
4. Substantiated with official receipts or capital outlay of depreciable assets
other adequate records; incurred for expansion of school
5. IF subject to withholding taxes, proof of facilities during the taxable year;
payment to BIR; 2. Allowance for depreciation thereof.
6. Reasonable
7. Must not be bribes, kickbacks or other  Non-Deductible Business Expenses
illegal expenses
1. Personal, living or family expenses;
 For Traveling Expenses 2. Any amount paid out for new buildings or
for permanent improvements or
1. Incurred or paid while away from home; betterment made to increase the value of
2. In pursuit of trade or business. any property or estate
3. Reasonable and necessary expenses. Reason : Capital Expenditure
Except: Intangible drillings and
 For Rentals development costs incurred in petroleum
operations are deductible.
1. Payment was made as a condition to the
continuous use of or possession of the 3. Any amount expenses in restoring
property; property or in making good the exhaustion
thereof for which an allowance is or has
2. Taxpayer has not taken or is not taking been made.
title to the property; Reason : Capital Expenditure

3. Property must be used in the trade or 4. Premiums paid on any life insurance
business; policy covering the life of any officer or
employee in any trade or business carried
4. Subject to withholding tax (5%). on by the taxpayer, individual or
corporate, when the taxpayer is directly or
 Entertainment, Amusement and indirectly beneficiary under such policy.
Recreation: 5. Losses from sales or exchanges property
1. Expense is directly connected to the between related taxpayers.
development, management and operation
of TBP; 2. Interest
2. Expense is directly related to or in  Amount of compensation paid for the use
furtherance of the conduct of TBP; of money or forbearance for such use
3. Reasonable;
4. Not contrary to laws, morals and public  Requisites for Deductibility of Interests
policy or public order; 1. There must be an indebtedness;
5. Substantiated with sufficient evidences.
6. Appropriate amount of withholding tax, if 2. Interest expense was paid or incurred
applicable, is withheld and paid to the upon such indebtedness;
BIR.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
44
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

3. Indebtedness was that of the indebtedness shall be reduced by an


taxpayer; amount equal to the following
percentages of interest income earned
4. Indebtedness is connected with the which had been subjected to final tax:
TBP of the taxpayer;
1. Beginning January 1, 1998 – 41%
5. Interest expense was incurred or paid 2. Beginning January 1, 1999 – 39%
during the taxable year; 3. Beginning January 1, 2000 and
thereafter – 38%
6. Interest is stipulated in writing;
 Optional Treatment of Interest Expense
7. Interest must be legally due;
 Interest incurred to acquire property
8. Transaction was not between related used in TBP may be allowed either
taxpayers; as:
Related Taxpayers 1. Deduction OR
1. Members of the same family, 2. Treated as Capital Expenditure
brothers and sisters, whether (meaning it shall form part of the cost
in full or half blood, spouse, of the asset.)
ancestors and
linear/descendants;  Deductible Interest Expense

2. Stockholders and a 1. Interest on taxes, such as those paid


corporation, when he holds for deficiency or delinquency, since
more than 50% in value of its taxes are considered indebtedness.
outstanding capital stock, However, fines, penalties, and
except in case of distribution surcharges on account of taxes are
in liquidation; not deductible. The interest on unpaid
business tax shall not be subjected to
the limitation on deduction.
3. Corporation and another 2. Interest paid by a corporation on scrip
corporation with interlocking dividends.
stockholders; 3. Interest on deposits paid by
authorized banks of the Bangko
4. Grantor and fiduciary in trust Sentral ng Pilipinas to depositors, if it
is shown that the tax on such interest
was withheld.
5. Fiduciary of a trust and 4. Interest paid by a corporate taxpayer
fiduciary in another trust, if who is liable on a mortgage upon real
the same person is a grantor property of which the said corporation
with respect to each trust; is the legal of equitable owner, even
6. Fiduciary of a trust and though it is not directly liable for the
beneficiary of such trust. indebtedness.

9. Not incurred to finance petroleum  Non-Deductible Interest Expense


operations;
1. An individual taxpayer reporting
10. If incurred to acquire property used in income on the cash basis incurs an
TBP, not treated as capital indebtedness on which an interest is
expenditure. paid in advance through discount or
otherwise:
 Limitation -
 Allowed as a deduction in the
The amount of interest expense year the indebtedness is paid
paid or incurred by a taxpayer in  If the indebtedness is payable,
connection with TBP from an existing periodic amortilization on the
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
45
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

amount of interest which


corresponds to the amount of the  Limitation on Deduction (For NRA –
principal amortized or paid during ETBP and RFC) – deduction for taxes
the years hall be allowed as may be allowed only if connected with
deduction in such taxable year. income from sources within the
Philippines.
2. Interest paid on indebtedness
between related taxpayer.  Tax Credit

3. If the indebtedness is incurred to - The amount allowed by law to reduce


finance petroleum exploration. the Phil. Income Tax due an account
of income, war-profit tax, excess profit
4. Interest on preferred stock, which in tax, paid or accrued to a foreign
reality is dividend. country.

5. Interest on unpaid salaries and TAX DEDUCTION TAX CREDIT


bonuses. Deductible from gross Deductible from Phil.
income Income Tax
6. Interest calculated for cost keeping on
account of capital or surplus invested
in business, which does not represent  IF taxpayer signifies in his return his
charges arising under interest-bearing desire to have the benefit of tax credit, the
obligation. tax herein shall be credited with:
7. Interest paid when there is no
stipulation for the payment thereof. a. For citizens and domestic
corporations –
3. TAXES Amount of tax paid or incurred to
any foreign country during the taxable
 GR: Taxes paid or incurred during the year, subject to limitation on tax
taxable year in connection with TBP of the credit.
taxpayer shall be allowed as deduction.
b. For Partnerships and Estates –
XPNs: His proportionate share of taxes
1. Income tax; of the GPP or estate or trust paid to or
2. Estate and Donor’s Taxes; incurred in any foreign county during
3. Special Assessment; the taxable year. Subject to limitation.
4. Foreign income tax, IF the
taxpayer makes use of tax  An alien and foreign corporation shall not
credit. be allowed the tax credits hereunder.
5. Final taxes.
4. Losses
 Requisites for Deductibility
 Requisites of Deductibility:
1. Must be in connection with taxpayer’s
business; 1. Actually sustained during the year;
2. Tax must be imposed by law once forms of indemnity;
and payable by taxpayer (direct tax); 2. Incurred in TBP;
and 3. Not compensated for by insurance or
3. Paid or incurred during the taxable other
year. 4. It is of property connected with TBP;
5. Declaration of loss sustained shall be
 Tax Benefit Rule – taxes allowed as field in not less than 30 days from
deductions, when refunded or credited date of discovery of the loss;
shall be included as part of gross income 6. Not claimed as deduction for estate
in the year of receipt to the extent of the tax purposes;
income tax benefit of said deduction. 7. Evidenced by complete transaction.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
46
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 Kinds:  Abandonment Losses in petroleum


1. Ordinary Losses operation and producing wells
1. IF the contract area is wholly or
- Net Operating Loss Carry Over partially abandoned, all
(NOLCO). Excess of allowable accumulated exploration and
deductions over gross income of development expenditures shall
business for any taxable year which be allowed as deduction;
had not been previously offset as 2. IF producing well is abandoned,
deduction from gross income, shall be unamortized cost and the
carried over as deduction from gross undepreciated cost of equipment
income for the next three consecutive shall be deductible.
years following the year of such loss,
provided – 5. Casualty Losses
1. The taxpayer was not exempt - Those incurred by property
from income tax in the year of connected with the trade or
such net operating loss; business if the loss arises from
2. There has been no fire, storm, shipwreck or other
substantial change in the casualties.
ownership of the business or
enterprise;  Notes:

- In case of mines other than oil and - Losses due to Voluntary Removal
gas wells, a net operating loss during of Building incident to
the first ten years of operation shall replacement Deductible. (Rev.
be allowed as NOLCO for ht next five Reg. No. 2 Sec. 87)
(5) years. - Loss of Useful Value of Capital
Assets Deductible to the extent of
2. Capital Losses actual loss sustained.
- Losses of Farmers deductible as
- Deductible only to the extent of capital long as incurred in the operation
gains. It includes the following: of the farm.
- Loss on sale or exchange of
property between Related
Taxpayers. NOT deductible
1. Loss arising from failure to (though gains are taxable.)
exercise privilege to sell or buy
property; - Loss due to removal of building if
2. Worthless securities; purchased (not incidental to
3. Abandonment losses in the renewal): NOT deductible.
case of natural resources;
4. Loss from wash sales; 5. BAD DEBTS

3. Wagering Losses – Deductible only  Debts due to the taxpayer actually


to the extent of gains or winnings. ascertained to be worthless and charged
off in the books of the taxpayer within the
4. Losses from Wash Sales of Stock – taxable year except –
NOT deductible.
GR: Losses from wash sales are not 1. Those not connected with
deductible. TBP; and
XPN: When the sale was made by a 2. Those between related
dealer in stock or securities and with taxpayers
respect to a transaction made in the
ordinary course of the business of
such dealer losses from such sale is  General requisites for deductibility:
deductible.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
47
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. Existing indebtedness due to taxpayer  Reasonable allowance for exhaustion,


which must be valid and legally wear and tear (including obsolescence) or
demandable; tangible property used in trade or
2. Connected with the taxpayer’s trade, business.
business or practice of profession;
3. Must not be sustained in a transaction  Requisites for Deductibility:
entered into heaven related parties. 1. Must be reasonable;
4. Actually ascertained to be worthless 2. For property used in TBP;
and uncollectable as of the end of the 3. Charged off during the year;
taxable year; and 4. Schedule of allowance must be
5. Actually charged off in the books of attached to the return
accounts of the taxpayer as of the
end of the taxable year.  Methods of Depreciation
6. The debts are uncollectible despite
diligent effort exerted by the taxpayer 1. Straight line method;
(Sec. 34(E)(1), NIRC 1997. Sec 3., 2. Declining balance method;
Rev. Regs No. 25-2002, Philippine 3. Sum of the years digit method;
Refining Corp vs CA, et. Al. 256 4. Any other method which may be
SCRA 667) prescribed by Department of Finance
7. Must have been reported as upon recommendation of CIR.
receivables in the income tax return of
the current or prior years. (Sec. 103, 7. Depletion of Oil and Gas Wells
Rev. Regs. No. 2)
 Exhaustion of natural resources (wasting
assets) such as mines, oil and gas wells.
 Exceptions:
 Use cost-depletion method, provided –

1. In the cause of banks, in lieu of 1. When allowance for depletion equals


requisite No. 5 above, the Bangko the capital invested, no further
Sentral ng Pilipinas, thru its Monterey allowance shall be granted.
Board, shall ascertain the worthless
and uncollectibility of the bad debts 2. After production in commercial
and it shall approve the writing off of quantities have commenced, certain
the said indebtedness from the banks intangible exploration and drilling
books of accounts at the end of the costs shall be deductible –
taxable year. a. In the year incurred, if for non-
producing wells and/or mines;
2. In no case may a receivable from an b. In full in the year incurred or
insurance of surely company be capitalized and amortized, at the
written off from the taxpayer’s books election of the taxpayer, if such
and claimed as bad debts deduction are for producing wells and/or
unless such company has been mines.
declared closed due to insolvency or
for any such similar reason by the 8. CHARITABLE AND OTHER
insurance Commissioner. CONTRIBUTIONS

 Deductible in Full:
 Tax Benefit Rule – recovery of bad debts
previously allowed as deduction shall be a. Recipient –Government of the
included as part of gross income in the Philippines, or any of its agencies or
year of recovery to the extent of the political subdivisions, fully-owned
benefit of such deduction (tax benefit rule) government corporations

6. Depreciation
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
48
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Purpose – Exclusively to finance, b. Recipient – Accredited NGO’s.


provide for or to be sued in Purpose – Same as above
undertaking priority activities in including:
accordance to a National Priority Plan c. Religious;
to be determined by NEDA in the d. Rehabilitation of veterans;
following fields: e. Social welfare institutions.
1. Science;
2. Education; If conditions (full deduction) are not met.
3. Youth and Sports
development; Limitations:
4. Culture; 1. Amount deductible shall not exceed:
5. Health
6. Economic Development; (1) For individuals – 10% of taxable
7. Human Settlement income before contributions;
(2) For corporations – 5% of taxable
b. Recipient - Foreign institutions and income before contributions.
international organization in 2. No part of net income of done inures to
compliance with treaties and the benefit of any private stockholders or
agreements with the Government. individual.

c. Recipient – Accredited NGO’s 9. RESEARCH AND DEVELOPMENT COSTS

Purpose –Exclusively for:  Nature: a taxpayer may treat research


1. Scientific; and development expenditures in two
2. Educational; ways:
3. Character building and Youth and 1. Revenue Expenditures
Sports Development; Requisites:
4. Cultural a. Paid or incurred during the
5. Health; taxable year.
6. Research; b. Ordinary and necessary
7. Social welfare expenses in connection with trade
8. Charitable; and business or profession.
9. Any combination of the above.
c. Not chargeable to capital account.
Conditions –
2. Deferred Expenses
1. Donation must be utilized not later Requisites:
than the 15th day of the 3rd month a. Paid or incurred in connection
following the close of taxable with trade
year; b. Not treated as expense
2. Administrative expense must not c. Chargeable to capital account but
exceed 30% of the total not chargeable to property subject
expenses; to depreciation or depletion.
3. Upon dissolution, assets shall be
transferred to another non-profit  Exclusion from Research and
domestic corporation or to the Development Expenditures
State.
1. Any expenditure for the acquisition or
 Deductible subject to Limitation improvement of land or for the
improvement of property to be used in
a. Recipient – Government of the connection with research and
Philippines or any of its agencies and development subject to depreciation
political subdivisions and depletion
Purpose – for a non-priority
activity in the same areas as above, 2. Any expenditure paid or incurred for
for public purpose. the purpose of ascertaining the
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
49
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

existence, location, extent or quality D. PERSONAL AND ADDITIONAL


of any deposit of ore or other mineral EXEMPTIONS
including oil or gas.
PERSONAL EXEMPTIONS
10. PENSION TRUST CONTRIBUTIONS - Arbitrary amounts allowed as deductions from
REQUISITES FOR DEDUCTIBILITY gross income of an individual taxpayer from
compensation, business or practice of
a. The employer must have established a profession.
pension or retirement plan;
KINDS OF PERSONAL EXEMPTIONS:
b. The pension plan is reasonable and 1. Basic –on account of civil status of the
actuarially sound; taxpayer.
2. Additional –by reason of qualified
c. It must be funded by the employer; dependent children

d. The amount contributed must be no REQUISITES FOR BASIC PERSONAL


longer subject to the control and EXEMPTION ENTITLEMENT:
disposition of the employer;
1. Taxpayer Must be the Head of the Family.
e. The payment has not yet been allowed as
a deduction; and  “Head of the Family” – an unmarried or
legally separated man or woman with
f. The deduction is appointed in equal parts either:
over a period of 10 consecutive years (1) One or both parents; OR
beginning with the year in which the (2) One or more brothers and sisters
transfer or payment is made. (Whether in full or half blood); OR
(3) One or more legitimate, illegitimate,
recognized natural or legally adopted
children

11. PARTNER’S DISTRIBUTIVE SHARE IN THE


NET INCOME OF A GPP.  PROVIDED, that such brothers, sisters or
See discussion on General Professional children (BSC) are:
Partnership.
a. Not more than 21 years of age,
Premiums on Health and Hospitalization umarried and not gainfully employed,
Insurance of Individual Taxpayers (HHIP) OR
b. Where such BSC, regardless of age,
 Requisites for Deductibility are incapable of self-support because
1. Insurance is actually taken; of mental of physical defect.
2. The amount of deductible premium
does not exceed P2,400 per family or 2. Such BSC are dependent upon taxpayer
P200 per month during the taxable for Chief Support
year;
3. Gross income of the family for the  Principal or main support – More than
taxable year does not exceed ½ of the support required by the
P250,000. dependent.

 In case of married individuals, 3. Living with the person giving support


only the spouse claiming  Does not necessarily mean actual
additional exemptions may be and physical dwelling together at all
entitled to HHIP. times and under all circumstances.

Amount Allowed:
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
50
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

RULES ON CHANGE OF STATUS


1. Single individual OR married but judicially
declared as legally separated, with no
dependent – P20,000
2. For head of the family – P25,000
3. For each married individual – P32,000

Dependent

- A legitimate, illegitimate or legally adopted


child chiefly depend upon and living with the
taxpayer IF:

1. Such dependent is not more than 21


years old, unmarried and not gainfully
employed; OR
2. Regardless of age; he/she incapable of
self-support because of mental and
physical defect.

Senior Citizen:
- Any resident of the Philippines of at
least 60 years old, including those
who have retired from both
government offices and private
enterprise and has an income of not
more than P60,000 per annum,
subject to review by NEDA every
three years.

ENTITLEMENT FOR ADDITIONAL EXEMPTION:

 Additional exemption for dependents


shall only be allowed to one of the
spouses. The husband shall be
deemed the proper claimant unless
waived in favor of the wife.

 In case of legally separated spouses,


additional exemptions may be
claimed only by the spouse who has
custody of the child or children.

 The total amount of additional


exemptions that may be claimed shall
not exceed 4 children.

 In case of married individuals, where


only one spouse is deriving income,
only such spouse shall be allowed the
basic and additional exemptions.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
51
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 Marriage of the Taxpayer – Taxpayer is corporations and therefore are taxed as


still entitled to full exemption for the corporation.
taxable year.
 Death of the Taxpayer – Estate may claim  Thus, partners are considered as
the appropriate personal exemption stockholders and profits distributed to
 Death of the Dependent – Taxpayer is still them are considered as dividends, thus
entitled to additional exemption subject to final tax.
 Additional Dependent – taxpayer is still
entitled to additional exemption  The distributive share of a partner in the
 Dependent becoming more than 21 years net income of a partnership is equal to
of age – Taxpayer can still claim him/her each partner’s distributive share of the net
as dependent income declared by the partnership of a
 Death of Spouse – Surviving spouse may taxable year after deducting the
still claim the full amount P32,000.00) corresponding corporate income tax.

 If the partnership operation resulted to a


E. PARTNERSIHPS AND TRUSTS loss, the partners shall be entitled to
deduct their respective shares in the net
I. Partnerships operating loss from their individual gross
income.
 Classification of Partnerships
1. General professional partnership Co-ownership
2. General co-partnership.
 Shall NOT be subject to income tax if the
GENERAL PROFESSIONAL PARTNERSHIP activities of the co-owners are limited to
the preservation of the property and the
 Not subject to income tax but is required collection of income thereform. In such
to file returns for its income for the case the co-owners shall be taxed
purpose of furnishing information as to the individually on their distributive share in
share in net income of the partnership the income of the co-ownership.
which each partner should include in his  BUT if the co-owners invest the property
individual return. and income in business for profit, they
would constitute themselves into a
 Partners shall be liable for income tax in partnership and such shall be taxable as
their separate and individual capacities. a corporation.

 For purposes of computing the distributive


share of each partner, the net income of II. Estates and Trusts
the partnership shall be computed in the
same manner as a corporation.  The rule in taxation of individuals
generally apply to estates and trusts. The
 Each partner shall report as gross income taxable income of an estate or trust shall
in his return, his distributive share in the be computed in the same manner and on
net income of the partnership, whether the same basis as in the case of an
actually or constructively received. individual.

 IF the result of partnership operation is a  Personal exemption allowed is P20,000.


loss, the loss will be divided as agreed Income tax rates for individuals shall also
upon by the individual partners in their apply.
respective returns.
a. Taxable Estates
GENERAL CO-PARTNERSHIP
1. Estates of deceased persons
under judicial settlement.
 Partnerships, other than GPP, whether
Taxation of estate begins from the
registered or not are considered as
time of death. Thus, any income
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
52
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

received after death. Thus, any b. Taxable Trusts


income received after death shall
form part of the income of the 1. For a trust to be taxable, it must
state. be irrevocable.
2. In case of a revocable trust where
2. Income of estates not under title to income may be revested to
judicial settlement are not taxable the grantor, the trust is not taxable
to the estate. In this case, a co- but it is the grantor who is
ownership is created and the co- taxable.
owners, after actual or
constructive receipt of the
income, are the ones liable to
income in their individual
capacities.

RULES ON THE RECOGNITION OF CAPITAL GAINS OR LOSSES

Individual Corporation
 Holding period  No holding period
 The percentages of gain or loss to be taken  Capital gains and losses are recognized to
into account shall be the ff.: the extent of 100%
a. 100% - if the capital assets has been for
12 mos. Or less; and
b. 50% - if the capital asset has been held
for more than 12 months
 Non-deductibility of Net Capital Losses  SAME
 Capital losses are allowed only to the extent
of the capital gains; hence, the net capital EXCEPTION:
loss is not deductible. If any domestic bank or trust company, a
substantial part of whose business is the receipt of
deposits, sells any bond, debenture, note or
certificate or other evidence of indebtedness issued
by any corporation (including one issued by a
government of political subdivision)
 Net Capital loss Carry-Over  Not allowed
 The net capital loss (in an amount not in
excess of the taxable income before
personal exemption for such year) shall be
treated in the succeeding year (but not
beyond 12 months) as a deduction as short-
term capital loss (at 100%) from the net
capital gains.

F. CAPITAL GAINS AND LOSSES


2. Property held by the taxpayer primarily for
CAPITAL ASSETS sale to customers in the ordinary course
- All property held by the taxpayer whether or of trade or business;
not connected with TBP but not including the
following items enumerated by the Tax Code 3. Property used in trade or business and
as ordinary assets: subject to depreciation.
4. Real property used in trade or business.
1. Stock in trade of the taxpayer or other
properties of a kind which would properly Definition of Terms
be included in the inventory of the
taxpayer;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
53
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. Capital Gain – gain derived from sale or d. Non-resident alien engaged in trade
exchange or capital assets. or business;
2. Capital Loss – The loss incurred from the e. Individuals deriving income from
sale or exchange of capital assets. business or practice of profession,
3. Net Capital Gain – The excess of gains regardless or amount of income;
form sale or exchange of capital assets f. Individuals deriving compensation
over the losses from such sale or income from two or more employers
exchange. during the taxable year;
4. Net Capital Loss – The excess of losses g. Individuals whose pure compensation
from sale or exchange of capital assets income exceeds P60,000
over the gains from such sale or
exchange. 2. Taxable Estates and Trusts
5. Holding Period – The duration for which
the taxpayer held the capital asset. 3. General Professional Partnerships

Capital Gains and Losses on Sale of Share of 4. Corporations


Stock a. Not exempt from income tax;
b. Exempt from income tax but has not
1. Not traded through a local stock shown any proof of exemption.
exchange.
 Confidentially Rule with Respect to
1) Subject to capital gains tax of 5%- tax Returns Field with the BIR
10%
2) Tax shall be paid by the seller on a - This means that although Sec. 71
per transaction basis upon filing of the of the NIRC provides that the tax
required return within 30 days returns shall constitute public
following each sale or other records, it is necessary to know
disposition of shares of stock. that these are confidential in
nature and may not be inquired
into in unauthorized cases under
2. Traded through a local stock the pain of penalty provided for in
exchange. Sec. 270 of the NIRC.

1.) Subject to final tax of ½ of 1 % of the  In the following cases, inquiry into
gross selling price of the stock. the income tax returns of taxpayers
2.) Stockbroker shall turn over the tax to may be authorized:
the BIR within 5 banking days from
date of collection. 1. When the inspection of the return
is authorized upon the written
Capital Gains and Losses on Sale of Real order of the President of the
Property Philippines;
2. When inspection is authorized
 Subject to final tax of 6% based on the gross under Finance Regulation No. 33
selling price or fair market value of zonal of the Sec. of Finance.
value, whichever is higher. 3. When the production of the tax
return is material evidence in a
G. ADMINISTRATIVE PROVISIONS criminal case wherein the
government is interested in the
I. WHO ARE REQUIRED TO FILE INCOME TAX result;
RETURN 4. When the production or
inspection thereof is authorized
1. Individual by the taxpayer himself.
a. Resident citizen;
b. Non-resident citizen; II. WHERE TO FILE
c. Resident alien;

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
54
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

- With any authorized agent bank


Revenue District Officer, Collection V. WITHHOLDING TAXES
agent or DULY authorized Treasurer
of the municipality or city where such  Types of Withholding Taxes
person has legal residence of 1. Withholding Tax on Compensation
principal place of business OR with 2. Expanded Withholding Tax
CIR. 3. Final Withholding Tax
4. Withholding Tax on Government
- For non-resident citizens with the Money Payments.
Philippine Embassy or nearest
Philippine Consulate OR mailed  Time of Withholding
directly to CIR. - The obligation to deduct and
withholding the tax arises at the time
III. WHEN TO FILE the income is paid or payable,
whichever comes first.
 On or before April 15 of each year
covering income of the preceding  Elements of Withholding on
taxable year for individual taxpayers. Compensation
1. There must be an employer-
 However, individuals who are self- employee relationship;
employed or in practice of a 2. There must be payment of
profession are required to file and pay compensation or wages for services
estimated income tax every quarter rendered;
as follows: 3. There must be a payroll period.
1. First Quarter – April 15
2. Second Quarter- August 15  Difference Between a Final Tax and
3. Third Quarter – November 15 Creditable Withholding Tax
4. Final quarter – April 15 of the
following year. 1. A final tax represents the full and
final payment of the income tax that
 For corporations, a quarterly tax is due from a taxpayer, thus the
return for the first three quarters shall taxpayer is no longer required to file
be required on a strictly 60-day basis. a tax return for the income where a
The final adjusted return shall be on final tax had been withheld. An
the 15th day of the 4th month following example of a final tax is the tax on
the close of either fiscal or calendar interest income.
year.
2. A creditable withholding tax is a
IV. SUBSTITUTE FILING OF ITR BY preliminary payment of the tax
EMPLOYEES RECEIVING PURELY liability of the taxpayer, thus, he is
COMPENSATION INCOME (RR No. 3- required to file an income tax return
2002). to report the income and pay the
difference between what is due and
 Requisites: what was withheld. He is entitled to a
refund from the BIR if what was
1. Employee receives purely withheld was bigger than what is
compensation income, regardless of due. An example of which is the tax,
amount, during the taxable year. which is withheld, on wages and
2. He receives the income only from one salaries.
employer.
3. The amount of tax due from the Difference Between a Final Tax and Creditable
employee at the end of the year is Withholding Tax
equal to the amount of tax withheld by
the employer. 1. A final tax represents the full and final
4. The employee’s spouse also complies payment of the income tax that is due
with all three conditions. from a taxpayer, thus, the taxpayer is no
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
55
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

longer required to file tax had been III. TRANSFER TAXES


withheld. An example of a final tax is the
tax on interest income. Transfer Taxes

2. A creditable withholding tax is a - Those imposed upon the graduations


preliminary payment of the tax liability of disposition of private properties. These are
the taxpayer, thus, he is required to file levied on the transmission of properties from a
as income tax return to report the income decedent to his heirs OR from a donor to a
and pay the difference between what is done.
due and what was withheld. He is entitled
to a refund from the BIR if what was - They are not taxes on the property because
withheld was bigger than what is due. An their imposition does not rest upon general
example of which is the tax, which is ownership but on the transfer of property.
withheld on wage and salaries.

COMPARISON BETWEEN ESTATE TAX AND DONOR’S TAX

Estate Tax Donor’s Tax


Concept involved Succession. Gift of Donation
Donation mortis causa. Donation Inter vivios.
Requisites 1. Death of decedent; 1. Donative intent of donor,
2. Successor is alive at the time of the 2. Capacity /authority of the donor,
decedent’s death; 3. Delivery of donated property,
3. Successor is not disqualified to inherit. 4. Acceptance by donee;
5. Donation must be in proper form
[In writing if value is more than P5,000
or involves real property;
Orally or in writing if the value is less
than P5,000.00
Elements 1. Decedent 1. Donor
2. Heir/Successor 2. Donee
2.1 Compulsory 2.1 Relatives
2.2 Non-compulsory 2.2 Strangers
3. Estate/inheritance 3. Gift
Accrual Period On the date of death of the decent At the time the gift or donation is made
Governing Law Statute in force at the time of death of the Statute in force at the time of the
decedent. perfection /completion of donation
BIR Requirements Notice of death within two (2) months after No notice required
death.
Tax rates 0%-20% Tax rates: 0-15% - 30%
Net estate exempt from tax: P200,000 Net gift exempt from tax: P100,000
Filing of ETR within 6 months from death
 Pay as you file  Filing of DTR within 30 days from
Extension: donation
2 years (if extrajudicial)  Pay as you file
5 years (if judicial) Extension: not more than 6 months
Score RC, NRC, RA – on estate within and without RC, NRC, RA – on gifts within and without
NRA – one estate within NRA – on gifts within.
Computational Pattern Gross Estate (Sec. 85)
Less: (1) Allow. Deductions (Sec. 86) a. On the 1st donation of a year
(2) Net share of the SS in the CP
Gross Gifts
Net Taxable Estate Less: Allow. Deductions
X Taxable Rate (Sec. 84)
Net Gifts
Estate Tax Due X Tax Rate
Less: Tax Credit, if any (Sec. 86 [E]
or 110 [B]) Donor’s Tax on the Net Gifts

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
56
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Estate Tax Payable b. On donation of a subsequent date


================= during the year
Gross gifts made on this date
Less: Deductions from Gross Gifts

Net Gifts
Add: All prior net gifts within the year

Aggregate Net Gitfs


X Tax Rate

Donor’s Tax on Aggregate Net Gifts


Less: Donor’s Tax on all prior net gifts
Donor’s Tax Payable

A. ESTATE TAX 1. Real property 1. Real property


wherever situated in the
 It is a graduated tax imposed on the privilege situated. Philippines.
of the decent to transmit property at death and 2. Personal property 2. Personal property
is based on the entire net estate, regardless wherever situated a. Tangible property
of the number of heirs and relations to the tangible or situated in the
decedent. intangible Philippines
b. Intangible
 It is a transfer tax, not a property tax. personal property
with a situs in the
NOTE: No more INHERITANCE TAX. If estate Philippines
failed to pay the tax, the government may go after unless exempted
those who inherited in proportion to their on the basis of
inheritance. reciprocity
Note: The gross estate shall be valued at its fair
LAW THAT GOVERNS THE IMPOSITION OF market value at the time of the decedent’s death.
ESTATE TAX Intangible Personal Properties with Situs in
the Philippines (Sec. 104)
 Statute in force at the time of death of the
decedent. 1. Franchise which must be exercised in the
Philippines.
PURPOSE OF IMPOSING TAX
1. To generate additional revenue for the 2. Shares, obligations, or bonds issued by any
government. corporation or sociedad anonima organized or
2. To reduce the concentration of wealth. constituted in the Philippines in accordance
3. Provide for an equal distribution of wealth. with its laws;
4. To compensate the government for the
protection given to the decedent that 3. Shares, obligations, or bonds issued by any
enabled him to prosper and accumulate foreign corporation 85% of the business of
wealth. which is located in the Philippines;

GROSS ESTATE 4. Shares, obligations, or bonds issued by any


foreign corporation if such shares, obligations,
INCLUSION IN THE GROSS ESTATE or bonds have acquired a business situs in
the Philippines; and
Resident Citizen,
Non-Resident 5. Shares or rights in any partnership business
Non-Resident Alien or industry established in the Philippines.
Citizen, and
Decedent (Sec. 104, par. 1)
Resident Alien
Decedent

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
57
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Intangible Personal Properties with Situs in - A transfer motivated by the thought of


the Philippines of Non-Resident Alien impending death although death may not
Decedent shall be Exempt from taxation if imminent.
[Reciprocity Clause (Sec. 104)]
1. When the decedent has, at any time, made a
a. The decedent at the time of his death was a transfer in contemplation of or intended to
resident citizen of a foreign country which at take effect in possession or enjoyment at or
the time of his death did not impose an estate after death; OR
tax of any character in respect of intangible
personal property of citizens of the Philippines 2. when decedent has, at any time, made a
not residing in that foreign country; or transfer under which he has retained for his
b. The laws of the foreign county of which the life or any period (which does not in fact end
decedent was a resident citizen at the time of before his death);
his death allow a similar exemption from
estate taxes of every character, in respect of a. Possession, enjoyment or right to income
intangible personal property owned by citizens from the property; or
of the Philippines not residing in the foreign
count. b. The right to designate the person who will
possess or enjoy the property or income
Note: Reciprocity in exemption does not therefrom.
require the foreign county to possess
international personality in the traditional XPN: In case of a bona fide sale for an
sense. adequate and full consideration in money and
money’s worth.
INCLUSIONS IN THE GROSS ESTATE (Sec. 85)

1. Decedent’s Interest (Ordinary Interest) – b. Revocable Transfer


any interest having value of capable of being
valued transferred by the decedent at his  When the decedent has, at any time,
death. made a transfer where the enjoyment
2. Properties not physically in the estate thereof was subject to any change
(These have already been transferred during through the exercise of a power to alter,
the lifetime of the decedent but are still amend, revoke or terminate such transfer.
subject to payment of estate tax);
 It is sufficient that the decedent has the
EXTRAORDINARY INTEREST - property or power to revoke, though he did not
interest, the title of which are no longer under the exercise such power.
name of the decedent but included in the estate
because there are circumstances which make the XPN: In case of a bona fide sale for an
property still subject to the control of the decedent adequate and full consideration in money
or the beneficial interest still belongs to the and money’s worth.
decedent, that is, enjoyment, possession, income.
c. Transfer under General Power of
Appointment
INCLUSIONS IN THE GROSS ESTAE [DRGPIP]
 General Power of Appointment – Right
1. Transfer in Contemplation of Death; to designate the person who will succeed
2. Revocable Transfer; to the property of the prior decedent, in
3. Transfer Under General Power of favor of anybody.
Appointment;
4. Proceeds of Life insurance;  When property is passed under a
5. Transfer for Insufficient Consideration; general power of appointment –
6. Prior interest a. By will;
b. By deed executed in contemplation
a. Transfer in Contemplation of Death of death;

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
58
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 By deed under which he has


retained for his life or for any f. Prior Interest
period not ascertainable without
reference to his death or for any  All transfer, trusts, estates, interest, rights,
period which does not in fact end powers and relinquishment of powers
before his death: made, created, arising existing, exercised
or relinquished before or after the
1. Possession, enjoyment or effectively of the CTRP
right to income from the
property; or NOTE: Capital of the Surviving Spouse is
2. The right to designate the not part of the Gross Estate
person who will possess or
enjoy the property. EXEMPTIONS FROM ESTATE TAX [NMTTB] –
Sec. 87 NIRC
XPN: In case of a bona fide sale for
an adequate and full consideration in 1. Net estates not in excess of P200,00.
money and money’s worth. 2. Merger of usufruct in the owner of the
naked title;
d. Proceeds of Life Insurance 3. Transmission or delivery of the
inheritance or legacy by the fiduciary heir
 Taken by the decedent on his own life or legatee to the fideicommisary.
shall be included in the gross estate if the 4. Transmission from the first heir, legatee,
beneficiary is: or done in favor of another beneficiary, in
accordance with the desire of the
a. The estate of the decedent his predecessor.
executor or administrator (regardless 5. All bequests..transfers to social welfare,
of whether the designation is cultural and charitable institutions
revocable or irrevocable); or provided:
a. No part of the net income inures to
the benefit of an individual;
b. Not more than 30% shall be used for
b. A third person, other than the administration purposes.
decedent’s estate, executor, or
administrator provided that the ALLOWABLE DEDUCTIONS
designation is revocable.
Allowable Deductions [EPPFSMAN]
e. Transfer for insufficient Consideration
1. Expenses, Losses, Indebtedness, and
 The excess of the fair market value of the Taxes
property at the time of the decedent’s 2. Transfer for Public Use
death over the consideration received 3. Property Previously Taxed (Vanishing
shall be included in the gross estate. Deduction)
4. Family Home
 This is applicable to transfers in 5. Standard Deduction
contemplation of death, revocable 6. Medical Expenses
transfers and transfers under general 7. Amounts Received Under RA 4917
power of appointment which are not bona 8. Net Share of Surviving Spouse
fide sale for an adequate and full
consideration in money and money’s 1. Expenses, Losses, Indebtedness, and
worth. Taxes

XPN: Transfer of real property or real a. Actual Funeral Expenses


property considered as capital assets
subject to the Capital Gains Tax of 6%. (1) Cost of burial plot tombstones,
The CGT is imposed whether or not a monument or mausoleum but not their
gain or loss was incurred. upkeep. In case the deceased owns a
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
59
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

family estate or several burial plots, 4. Accountant’s Fees;


only the value corresponding to the 5. Appraiser’s Fees;
plot where he is buried is deductible; 6. Clerk hire
(2) Internment and/or cremation fees and 7. Costs of preserving and
charges; distributing the estate;
(3) The mourning apparel of the surviving 8. Costs of storing or maintaining
spouse and unmarried minor children property of the estate; and
of the deceased bought and used on 9. Brokerage fees for selling
the occasion of the burial; property of the estate
(4) Expenses for the deceased’s wake,
including foods and drinks;
(5) Publication charges for death notices; c. Claims Against the Estate
(6) Telecommunication expenses
incurred in informing relatives of the - Debts or demands of a pecuniary
deceased; nature which could have been
(7) All other expenses incurred for the enforced against the deceased in his
performance of the rites and lifetime and could have been reduced
ceremonies incident to interment. to simple money judgments.

 Expenses incurred after the interment, such


as for prayers, masses, entertainment or the SOURCES OF CLAIMS
like are not deductible. Any portion of the
funeral and burial expenses borne or defrayed 1. Contract
by relatives and friends of the deceased are 2. Tort
not deductible. Cash Advances of Surviving 3. By operation of law
Spouse and heirs are also not deductible as
funeral expense.

 Expenses must be duly supported by receipts  REQUISITES FOR DEDUCTIBILITY


or invoices or other evidence to show that the
expense was really incurred. 1. The liability represents a personal
obligation of the deceased existing at the
b. Judicial Expenses time of his death except unpaid
obligations incurred incident to his death
- expenses incurred during the such as unpaid funeral expenses and
settlement of the estate but not unpaid medical expenses.
beyond the last day prescribed by 2. The liability was contracted in good faith
law, or the extension thereof, for the and for adequate and full consideration in
filling of the estate tax return. money or money’s worth.
3. The claim must be valid and enforceable
 Expenses allowed under this in court.
category are those: 4. The indebtedness must not have been
1. Incurred in the inventory-taking of condoned by the creditor or the action to
assets comprising the gross collect from the decedent must not have
estate; prescribed.
2. Administration of the estate;
3. Payment of debts of the estate;  The debt instrument at the time of
4. Incurred in the distribution of the indebtedness must have been duly
estate among heirs. notarized.

 It may include the following:  If the loan was contracted within 3


1. Fees of executor or administrator; years before death of the decedent,
2. Attorney’s Fees; the administrator or executor must
3. Court Fees; submit a statement showing the
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
60
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

disposition of the proceeds of the If the loan is found to be merely


loan. an accommodation loan where the
loan proceeds went to another
 These are receivable of the deceased person, the value of the unpaid loan
which are uncollectible by reason of must be included as a receivable of
insolvency of the doctor, where the the estate.
values of the decedent’s interest
therein is included in the value of the If there is a legal impediment to
gross estate. recognize the same as receivable of
the estate, said unpaid obligation or
d. Claims of Deceased Against Insolvent mortgage payable shall not be
allowed a deduction from the gross
estate.
 This is deductible provided that:
1. The full amount of the receivables f. Taxes
be included first in the gross  Those accruing before death of
estate; the decedent which were unpaid
as of the time death are
deductible but not those accruing
2. There was an attempt in good after death, such as:
faith to collect such debt but the 1. Income tax on income
act was proven to be futile; received after death;
2. Property tax not accrued
before death; and
3. The incapacity of the debtors to 3. Estate tax.
pay their obligation is proven not
merely alleged. g. Losses
These are deductible provided that they-

1. Arise from fire, storm, shipwreck, or


e. Unpaid Mortgage other casualties or robbery, theft or
embezzlement;
 This is deductible provided that: 2. Are Not compensated by insurance
or otherwise;
1. The value of the property, 3. Are Not claimed as deduction in the
undiminished by such mortgage ITR of the state at the time of the filing
or indebtedness is included in the of the return;
gross estate; 4. Occur during the settlement of the
estate; not later than the last day for
2. The mortgage indebtedness was payment of the estate tax.
contracted in good faith and for
an adequate and full  Note: In case of a non-resident alien
consideration in money or decedent, the same items herein shall
money’s worth. be allowed as deduction but only the
proportion of such deductions which
3. There was an attempt in good the value of his gross estate in the
faith to collect such debt but the Philippines bears to the value in the
act was proven to be futile; entire gross estate, wherever situated
shall be deducted.
NOTE: if in case unpaid mortgage
payable is being claimed by the If you claim deductions form income
estate, verification must be made as tax (from estates earning income, that
to whom was the beneficiary of the is, interest, income rental income)
loan proceeds. then you can no longer claim it as a
deduction for estate tax purpose.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
61
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

must have been finally determined


Phil. Gross Estate x ELIT = Allowable and paid;
Deductions 5. The property on which the
vanishing deduction is taking must
World Gross Estate be identified as the one received or
 It is indispensable that the acquired.
executor administrator or anyone 6. No vanishing deduction was
of the heirs, as the case maybe, allowed on the same property on
includes in the return required to the prior decedent’s estate.
be filed, the value at the time of
his death of that part of the gross  This is vanishing deduction because the
estate of the non-resident not deduction allowed diminishes over a
situated in the Philippines. period of 5 years. The rate of deduction
depends upon the period from date of
2. Transfer for Public Us transfer to the date of death of the present
 All bequests, legacies, devises or decedent as follows:
transfers to or for the use of the
Government of the Philippines or PERIOD DEDUCTION
any of its political subdivisions,
exclusively for public purposes. 1 year or less 100%
1 year – 2 years 80%
 Disposition must be in a last will 2 years – 3 years 60%
and testament, to make effect 3 years – 4 years 40%
upon death. 4 years – 5 years 20%

 In case of a non-resident alien  In case of a non-resident alien decedent,


decedent, the property transferred the property involved must be located
must be located within the within the Philippines and is included in
Philippines and included in the the gross estate.
gross estate.

3. Property Previously Taxed ( Vanishing HOW TO DETERMINE THE AMOUNT OF


Deduction) VANIHSING DEDUCTIONS

 When an item of property forms part of 1. Determine the basis of Vanishing


the – gross estate situated in the Deduction:
Philippines of any person who died within
5 years prior to the death of the decedent; a. The initial value to take as the basis of
OR transferred by gift to the decedent Vanishing Deductions is the value of the
within 5 years prior to his death. property in the prior estate (or value used
for donor’s tax purposes) of the value of
 Conditions such property in the present estate;
whichever is lower. Where the property
1. The present decedent died within referred to consists of two or more items,
five years from receipt of the the aggregate of such item by item lower
property from the prior decedent or of two values shall be the initial basis;
donor;
2. The property on which vanishing b. The initial value as computed in letter (a)
deduction is being claimed is shall be reduced by any payment made
located within the Philippines; by the present decedent on any mortgage
3. The property formed part of the or lien on the property, where such
taxable estate of the prior decedent mortgage or lien was a deduction from the
or of the taxable gift of the donor; gross estate of the prior decedent, or gift
4. The estate tax on the prior of the donor;
succession or donor’s tax on the gift

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
62
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

c. The value as recued in letter (b) shall be  If the Family Home is conjugal or
further reduced by an amount equal to: community property, the entire value shall
be included in the gross estate but only ½
Value after letter (b) X Ordinary deductions shall be deductible as Family Home.
Gross Estate and transfers for

d. In summary, letter (a) less letter (b) and Reason: The Family Home deduction
(c) shall constitute the computed basis of as a separate item of deduction after the
Vanishing Deductions. share of the surviving spouse from the
gross estate has been deducted.
2. On the computed basis of Vanishing
Deductions in the first step, apply the rate of
deduction as indicated in the table above with  If the Family Home is separate or
the corresponding period of death or transfer. exclusive property of the decedent, the
entire value shall be included in the gross
NOTE: The Vanishing Deduction shall be estate and shall also be entirely deducted
a deduction from the exclusive properties as a separate item of deduction after the
of the decedent. share of the surviving spouse from the
gross estate has been first deducted.
4. Family Home

 The dwelling house where a married Reason: The gross estate is only
person or an unmarried head of the family composed of the common property and
and his family resides, and the land on separate property of the decedent. It does
which it is situated. not include the separate property of the
surviving spouse, therefore not subject to
 Within the meaning of “family” are the estate tax.
spouse, parents, ascendants,
descendants, brothers and sisters, who
are living in the family home and who
depend upon the head of the family for
support.
5. Standard Deduction
REQUISITES FOR DEDUCTIBILITY  Represents a fixed amount of P1m that
maybe claimed as a deduction from the
1. The family home must be the actual gross estate, without need of any
residential home of the decedent and his substantiation.
family at the time of his death as certified by
the Barangay Captain of the locality where the 6. Medical Expenses
family home is situated.
 Incurred within 1 year prior to the
2. The total value the family home must be decedent’s death; must be substantiated
included as part of the gross estate of the with receipts, provided it shall not exceed
decedent; and P500,00 whether paid or unpaid.

3. Allowable – deduction must be in the amount  Any amount of medical expenses incurred
equivalent to the current FMV of the family within 1 year from the decedent’s death in
home as declared or included in the gross excess of P500,000 shall no longer be
estate, or to the extent of the decedent’s allowed as a deduction. Neither can any
interest (whether conjugal/community or unpaid amount thereof in excess of the
exclusive property), whichever is lower, but no P500,000 threshold nor any unpaid
exceeding P1,000,000. amount for medical expenses incurred
prior to the 1 year period from date of
death shall be allowed to be deducted
NOTE: from the gross estate as claim against the
estate;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
63
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

ESTATE TAX RETURNS


7. Amounts Received Under RA 4917
In case of:
 Amounts received by the heirs form the a. Transfers subject to tax;
decedent’s employer as a consequence of b. Where gross value of estate
the death of the decedent-employee. exceeds P20,000;
c. Where estate consists of
 Deductible if the amount is included in the registered or registrable
gross estate of the decedent. property, regardless of
amount.

8. Net Share of Surviving Spouse When?


Within 6 months from the
 After deducting the allowable deduction decedent’s death.
pertaining to the conjugal or community EXTENSION: In meritorious cases,
properties included in the gross estate, not exceeding 30 days.
the share of the surviving spouse must be
removed to ensure that only the By?
decedent’s interest in the estate is taxed. By the executor, administrator or
any legal heir.
 The Gross Conjugal Estate shall be
diminished by expenses and charges, To?
except those chargeable to exclusive 1. If it is Resident decedent:
properties and the Net Amount shall be
divided into two. To an Authorized Agent Bank,
RDO, Collection Officer, or duly
authorized Treasurer in the city or
municipality where the decedent was
domiciled at the time of his death, or
to the Office of the CIR.

Estate Tax Credit 2. Non-Resident Decedent


To the RDO or to the Office of the
The tax imposed by the Tax Code shall be CIR.
credited with the amounts of any estate tax
imposed by the authority of a foreign country.
PAYMENT OF TAX
ADMINISTRATIVE PROVISIONS
Pay as you file system
Notice of Death must be filed – Extension: If the Commissioner finds that
such payment would impose undue
When? hardships upon the estate or any heir.
Within 2 months (60 days) after  Not to exceed 5 years if by
the decedent’s death. judicial settlement;
 Not to exceed 2 years if
By? extrajudicial.
To the Commissioner of Internal  No extention IF there is:
Revenue 1. Negligence;
2. Intentional disregard of rules
In cases of: and regulations;
a. Transfers subject to tax; 3. Fraud
b. Even if exempt from tax, if
gross value of estate exceeds Who shall pay?
P20,000  The executor or administrator, before delivery
to any beneficiary of his distributive share.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
64
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Such beneficiary, to the extent of his  It is completed by delivery, either actually or


distributive share in the estate, shall be constructively, of the donated property to the
subsidiary liable for the payment of such donee.
portion of the estate tax as his distributive
share bears to the value of the total net DONATION
estate.
 An act of liberality whereby a person
B. DONOR’S TAX disposes gratuitously of a thing or right in
favor of another, who accepts it.
 It is the tax imposed on donations inter vivos
or those made between living persons to take TRANSFERS SUBJECT TO DONOR’S TAX
effect during the lifetime of the donor.
 Tax shall apply whether the transfer is in
 Donor’s or gift tax, is a graduate tax imposed trust or otherwise, whether the gift is
on the privilege of the donor to transfer direct or indirect and whether the property
property during his lifetime without any is real or personal, tangible or intangible.
consideration. This is not a property tax.
 Transfers subject to donor’s tax include
not only the transfer of ownership in the
PURPOSE OF DONOR’S TAX fullest sense but also the transfer of any
right or interest in property, but less than
1. To raise revenues. title.

2. To tax the wealthy and reduce certain other  Where property, other than real property
excise taxes. subject to capital gains tax is transferred
for less than an adequate and full
3. To discourage inter vivos transfers of property consideration in money or money’s worth,
which could reduce the mortis causa transfers then the amount by which the FMV of the
on which a higher tax, the estate tax, would property exceeded the value of the
be collected. consideration shall, for the purpose of the
donor’s tax be deemed a gift and shall be
included in computing the amount of gifts
4. It will tend to reduce the incentive to make made during the calendar year. Donative
gifts in order that distribution of future income intent therefore, is not always essential to
from the donated property may be to a constitute a gift.
number of persons with the result that the
taxes imposed by the higher brackets of the  A Transfer becomes complete and taxable
income tax are avoided. only when, the donor has divested himself
of all beneficial interests in the property
LAW THAT GOVERNS IMPOSITION OF transferred and has no power to revest
DONOR’S TAX any such interest in himself or his estate.
 A gift that is incomplete because of
The law in force at the time of the reserved powers, becomes complete
perfection/completion of the donation. when either:
1. The donor renounces the power; or
2. His right to exercise the reserved
WHEN DONOR’S TAX APPLIES power ceases because of the
happening of some event or
 The donor’s tax shall not apply unless and contingency or the fulfillment of
until there is a completed gift. some condition, other than because
of the donor’s death.
 The transfer of property by gift is perfected  Renunciation by the surviving spouse of
from the moment the donor knows of the his/her share in the conjugal partnership
acceptance by the donee. or absolute community after the
dissolution of the marriage in favor of the

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
65
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

heirs of the deceased spouse or any other INCLUSIONS IN THE GROSS GIFTS:
person/s is subject to donor’s tax. 1. Resident Citizen, Non-Resident Citizen,
 However, general renunciation by an heir, and Resident Alien (WHEREVER)
including the surviving spouse, of his/her
share in the hereditary estate left by the (1) Rea property wherever situated
decedent is not subject to donor’s tax, (within * without the Phils.)
unless specifically and categorically done (2) Personal property wherever situated,
in favor of identified heir/s to the exclusion tangible or intangible
or disadvantage of the other co-heirs in
the hereditary estate. 2. Non-Resident Alien (only WITHIN)

TRANSFER IN CONTEMPLATION OF DEATH (1) Real property situated within the


VS. REVOCABLE TRANSFER Philippine
(2) Personal property:
TRANSFER IN (a) Tangible property situated within
REVOCABLE the Philippines
CONTEMPLATION OF
TRANSFER (b) Intangible personal property with
DEATH
 Donor has retained  Donee may already situs in the Philippines UNLESS
enjoyment, enjoy, subject to the exempted on the basis of
possession and change at the time of reciprocity
income for himself death.
 Enjoyment is  Donee can enjoy but  RECIPROCITY – occurs if
deprived from donee donor may take it foreign county of which the
way. donor is a citizen and resident
at the time of the gift:
REQUISITES OF A TAXABLE GIFT: 1. Did not impose a donor’s
(CaDonAcAct) tax;
1. Capacity of the donor to donate. 2. Allowed a similar
2. Donative intent exemption from donor’s
3. Acceptance by the donee tax with respect to
4. Actual or constructive delivery of gift intangible personal
5. Donation must be in a proper form property owned by
WHO ARE LIABLE TO PAY DONOR’S TAX? Filipino citizens not
residing in that foreign
a. Taxable within and outside Philippines: country
1. Resident Citizen
2. Non-Resident Citizen Reciprocity rule applies only if the
3. Resident Alien property is an intangible and the
4. Domestic Corporation donor is a non-resident

b. Taxable only within the Philippines: PROPERTIES DEEMED LOCATED IN THE


1. Non-Resident aliens PHILIPPINES (Sec. 104 NIRC)
2. Foreign Corp. (Fran Sha Sha Sha Sha)

NOTE: A corporation, domestic or foreign is not 1. Franchise which must be exercised in the
liable to pay estate tax, but liable to pay Donor’s Philippines
tax.
2. Shares, obligations or bonds issued by
GROSS GIFTS any corporation or sociedad anonima
organized or constituted in the Philippines
 This refers to all property, real or in accordance with its laws.
personal, tangible or intangible, that are
given by the donor to the donee by way of 3. Shares , Obligations or bonds by any
gift, without the benefit of any deduction foreign corporation 85% of its business is
(Sec 104 NIRC) located in the Philippines.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
66
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

4. Shares, obligations or bonds issued by trust or philanthropic organizations,


any foreign corporation if such shares , research institution or organization,
obligations or bonds have acquired a accredited NGO’s, provided that no more
business situs in the Philippines. than 30% of said gifts shall be used by
such donee for administration purposes.
5. Shares or rights in any partnership,
business or industry established in the 2. Gifts made by a non-resident alien – only
Philippines. gifts mentioned in b and c (except accredited
NGO) are exempt from donor’s tax.

VALUATION OF GROSS GIFTS 3. Specific Exemption – net gifts of the amount


 The fair market value of the property at of P100,000 or less are exempt from donor’s
the time of the gift shall be the value of tax.
the gross gift.
OTHER DEDUCTIONS FROM GROSS GIFTS
EXEMPTIONS OF CERTAIN GIFTS
(Deductions from Gross Gifts) 1. Encumbrance on the property donated, if
assumed by the donee;
1. Gifts made by a resident [END[
2. Amount specifically provided by the donor
a. Dowries or gifts made an account of as a diminution of the property donated
marriage and before its celebration or
within one year thereafter by parents to EXEMPTION FROM DONOR’S TAX UNDER
each of the their legitimate, illegitimate or SPECIAL LAWS:
adopted children, to the extent of
P10,000. This, however, does not apply to 1. Donation to IRRI (int, rice res. Inst. )
Non-Resident Alien (NRA) 2. Donation to Ramon Magsaysay award
3. Donation to PIC (Phil. Inventors Conv. )
4. Donation to IBP
5. Donation to the Dev. Academy of the
Phils.

 REQUISITES: 6. Donation to social welfare, cultural or


(1) The gift is given on account of charitable institution, no part of the net
marriage; income of which inures to the benefit of
(2) The gift is given before the any individuals, if not more than 30% of
celebration of marriage or within 1 the donation shall be used by the donee
year thereafter for administration purposes
(3) Donor is the parent or both
parents
(4) Donee is the legitimate, APPLICABLE TAX RATE
recognized natural or legally
adopted child of the donor 1. If the donee is a stranger – 30% of net
(5) Maximum amount of the gifts;
exemption is P10,000.00 for each 2. If the donee is not a stranger, - 2% to
child that may be claimed by each 15% of net gifts.
parent
STRANGER- one who is not a brother,
b. Gifts made to or for the use of National sister spouse, ancestor and lineal
Government or an entity created by any descendant, collateral line within the 4 th
of its agencies which is not conducted for civil degree of the donee.
profit, or to any of its political subdivision.
Note:
c. Gifts in favor of educational, charitable,  Any contribution in cash or in kind to any
religious, cultural or social welfare candidate, political party or coalition of
corporations, institutions, foundations,
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
67
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

parties for campaign purposes, shall be


governed by the Election Code.
1. Each gift made during the calendar year
 All donations made in one year are taxed all which is to be included in computing net
the same rate as if they had been made all gifts;
one time. A new computation of donor’s tax 2. The deductions claimed and allowable;
is made for gifts given at each succeeding 3. Any previous net gifts made during the
year. same calendar year;
4. The name of the done;
 Tax treatment of Donations made by 5. Relationship of the donor to the done;
Spouses: Husband and wife are considered 6. Any other information as may be required
as separate and distinct taxpayers for by rules and regulations made pursuant to
purposes of donor’s tax. law.

However, if what was donated is a


conjugal or community property and only the IV. TAX REMEDIES
husband signed the deed of donation there is
only one donor, for donor’s tax purposes
without prejudice to the right of the wife to  Remedies have been allowed in order to
question the validity of the donation without insure the regular collection of revenue
her consent. necessary for the existence of the
government.
DONOR’S TAX CREDIT
 “No injunction to Restrain Tax Collection
 The donor’s tax imposed by the Tax Rule” – “No court shall have the authority
Code upon a donor who was a citizen or a to grant an injunction to restrain the
resident at the time of donation shall be collection of any national internal revenue,
credited with the amount of any donor’s tax, fee or charge.” (Sec 219, R.A. 8424)
taxes of any character and description
imposed by the authority of a foreign
country. BUT: THE can issue injunction in aid of its
appellate jurisdiction. (R.A. 1125)

ADMINISTRATIVE PROVISIONS A. ASSESSMENT

Filipino of Return  a written notice to a taxpayer to the


With 30 days after the date the gift is effect that the amount stated therein is
made. due as tax and containing a demand for
the payment thereof.

Time of Payment  It is a finding by the taxing agency that the


Pay as you file taxpayer has not paid his correct taxes.

 It must be duly sent to and received by


Place of Payment the taxpayer.

AAB, RDO, RCO, or duly authorized  It is deemed made when released mailed
treasurer of the City or municipality where the or sent to the taxpayer within the three-
donor was domiciled at the time of the transfer or year or ten-year period, as the case may
with the Office of the CIR. be . (CIR vs. Pascor, 309 SCRA 402)

NATURE AND EFFECT OF ASSESSMENT


Return
1. It is not an action or proceeding for the
Shall be in duplicate under oath, setting collection of taxes. It is merely a notice to
forth: the effect that the amount stated therein is
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
68
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

due as a tax and containing a demand for


the payment thereof. (Alhambra Cigar (2) In case of deficiency taxes
Mfg. Co. vs. CIR, 105 Phil 1337). (a) For failure to file a return; or
(b) For filing a false or fraudulent
2. Once the tax is assessed, the taxpayer return;
will owe the government the amount when
the date for payment fixed in the [Sec. 6(D), NIRC – Authority of CIR to
assessment notice arrives. Default in terminate tax period when it comes to
meeting the obligation calls for some his knowledge that taxpayer is: [RIP]
procedure whereby payment can be
enforced. (U.S. vs. Bull, 295 US 247). 1. Retiring from business subject to
tax; or
BURDEN OF PROOF IN PRE-ASSESSMENT
PROCEEDINGS 2. Intending to –
a. Leave the Philippines
 There is a presumption of correctness on b. Remove his property
the part of the CIR, thus the burden of thereform;
proof is on the TAXPAYER. Otherwise, the c. Hide or cancel his property;
finding of the CIR will be conclusive and
the CIR will assess the taxpayer. Such 3. Performing any act tending to –
finding is conclusive even if CIR is wrong a. Obstruct the proceeding for
if the taxpayer does not controvert. collection of tax for past or
current period.
PRINCIPLES GOVERNING TAX b. Render the proceeding totally
ASSESSMENTS [PAD3] or partly ineffective

1. Assessments are prima facie presumed KINDS OFASSESSMENTS:


correct and made in good faith
1. Perspective Assessment – informs the
2. Assessments should be based on actual taxpayer of the examiner who
facts recommends a deficiency assessment.
The taxpayer is usually given 10 days
3. Assessment is discretionary on the part of from notice within which to explain his
the Commissioner side.

4. The authority vested in the Commissioner 2. Official Assessment – issued by the BIR
TO ASSESS taxes may be delegated in case the taxpayer fails to respond to
the proposed assessment, or his
5. Assessments must be directed to the right explanation is not satisfactory to the
party. Commissioner.

CLASSIFICATION: 3. Jeopardy Assessment – a delinquency


tax assessment made without ht benefit of
1. Self-assessing taxes complete or partial investigation by an
- Those not requiring assessment to authorized revenue officer. This is issued
establish tax liability; when the revenue officer finds himself
without enough time to conduct an
- Taxpayer himself computes the tax appropriate or thorough examination in
liability; tax official merely determines view of the impending expiration of the
the accuracy of the taxpayer’s prescriptive period for issuing a valid
assessment after the return has been assessment. T prevent the issuance of a
filed. jeopardy assessment, the taxpayer may
be required to execute a waiver of the
2. Taxes requiring assessment statute of limitations.
(1) When the taxable period of taxpayer
is terminated (Sec 6(D), NIRC); Note:
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
69
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 The Commissioner of Internal Revenue  Installment payment – When tax due is


CIR) shall have the authority to assess in excess of P2,000 and the taxpayer is
taxes. other than a corporation, he may elect to
pay the tax in two equal installments.
 Presumption of Correctness –
First installment falls on the date
Tax assessments by CIR are the return is filed; Second installment is
presumed correct and made in good faith. on or before July 15 following the close of
The burden to prove otherwise is upon the calendar year.
the taxpayer.

 Any return statement or declaration B. COLLECTION


already filed may not be withdrawn
anymore BUT it may be modified,  In cases where assessment of tax is
changed or amended within 3 years from necessary, collection attaches only when
such filing provided no notice of audit or the assessment becomes final and
investigation of such return as in the unappealable.
meantime, been actually served upon the
taxpayer.  The legislature may adopt any
reasonable method for the effective
 CIR may take return if a taxpayer – enforcement of the collection of taxes,
a. Fails to file a return; subject to –
b. Files a false OR fraudulent return. (1) The right of the person to notice; and
(2) The opportunity to be heard.
Options of the government in case of
false or fraudulent return –  The power to impose taxes is clothed with
the implied authority to devise ways and
a. Assess the correct tax liability and means to accomplish collection in the
collect within 5 years (by distraint, most effective manner. Without this
levy or proceeding in court); implied power, the ends of government
b. File a proceeding in court for the may falter or fail. (CIR vs. Pineda, 21
collection without assessment. SCRA 105.)
 Pay-as-you-file system –Sec. 56, NIRC
provides that income for individuals and  Collection of taxes should not be enjoined
corporations shall be paid by the person except upon clear showing of a right to an
subject thereto at the time the return is exemption. (Northern Lines Inc. vs. CA,
filed. 163 SCRA 25.)

SUMMARY OF RULES ON ASSESSMENT AND COLLECTION

RETURN FILED WAS NOT FALSE OR NO RETURN WAS FILED, OR THE RETURN FILED
FRAUDULENT WAS FALSE OR FRAUDULENT

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
70
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

COLLECTION WITH PRIOR ASSESSMENT: COLLECTION WITH PRIOR ASSESSMENT:

Assessment should be made within 3 years from Assessment should be made within ten (10) years
the date of filing of the return (or from the last day from the date of discovery of the failure to file the
required by law for filing, if the return was filed before return, or the falsity or fraud in the return.
such last day).
Collection should be made within five (5) years from
Collection should be made within five (5) years the date of assessment, either by:
from the date of assessment, either by:
(c) Summary proceedings; or
(a) Summary proceedings; or
(b) Judicial proceedings Judicial proceedings.

COLLECTION WITHOUT PRIOR ASSESSMENT: COLLECTION WITHOUT PRIOR ASSESSMENT:

Assessment should be made within 3 years from Assessment should be made within ten (10) years
the date of filing of the return( or from the last day from the date of discovery of the failure to file the
required by law for filing, if the return was filed before return, or the falsity or fraud in the return.
such last day).
Collection should be by judicial proceedings only.
Collection should be by judicial proceedings only

ASSSESSMENT PROCESS [DLANPFDJCS] b. If the taxpayer is liable for deficiency,


NOTICE OF INFORMAL
1. The BIR shall determine which taxpayer is CONFERENCE
subject to an audit.
The Revenue Officer allows 120 days
 METHODS [B2PEN] from date of receipt of the Letter of Authority, to
a. Best Obtainable Evidence conduct the audit and submit required report of
b. Net Worth Method of Income investigation. If not, he must submit a Progress
Determination Report to his head and surrender the Letter of
c. Expenditures Method of Income Authority for revalidation.
d. Percentage Method of Income
e. Bank Deposit Method of Income 4. Taxpayer should respond to the NOTICE
Determination OF INFORMAL CONFERENCE within 15
days from receipt thereof, otherwise, he
2. The BIR issues LETTER OF AUTHORITY. shall be considered in default.
The BIR examines and scrutinizes
taxpayer’s book of accounts to determine a. If taxpayer responds – taxpayer and
correct tax liabilities. The Letter of BIR come to an agreement, if they fail
Authority is addressed to the taxpayer, to agree – PREASSESSMENT
signed by authorizing officer and contains NOTICE
the scope of Audit, must be served within b. If taxpayer did not respond –
30 days from issuance. PREASSESSMENT NOTICE

3. AUDIT PROPER. The BIR shall make a 5. PREASSESSMENT NOTICE – the letter
report and present the same to the sent by BIR to the taxpayer asking him to
taxpayer who shall either agree or explain within 15 days from receipt why
disagree with the report. he should not be subject of an
assessment notice. It must show facts,
a. If the taxpayer is not liable for
deficiency, ASSESSMENT ENDS a. If taxpayer responds – Commissioner
receives position paper of taxpayer. If

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
71
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Commissioner rejects- FORMAL a. The party adversely affected by the


LETTER OF DEMAND decision of a division of CTA may file
b. If taxpayer did not respond FORMAL a motion for reconsideration or new
LETTER OF DEMAND trial. A denial of motion may be the
subject of a petition for review filed
6. FORMAL LETTER OF DEMAND must with CTA en banc.
contain the facts, laws, rules and b. If CTA en banc’s decision is not
regulations is based, otherwise, it shall be seasonably questioned, decision of
void. The taxpayer should respond within CTA is final, assessment becomes
30 days from the receipt thereof. final, executor and demandable.
c. A party adversely affected by the
a. If taxpayer did not respond – decision of CTA may file a verified
assessment becomes final and petition for review on certioran with
executor, not appealable to CTA. SC.
Thus, the taxpayer must pay the
government. 10. SC – grants petition and reverses
decision of CTA or dismisses petition or
b. If taxpayer responds – taxpayer shall affirms the decision of CTA.
file a PROTEST requesting for
reinvestigation or reconsideration for Some of the important remedies of the
30 days from the receipt of the notice government in collecting taxes under the NIRC
of assessment. are:

7. DISPUTED ASSESSMENT – the taxpayer 1. Administrative: [DLFTC2]


protests administratively within 30 days (1) Distraint of personal property and
from the date of the final demand letter. Levy of real property;
The taxpayer shall submit the required (2) Enforcement of forfeiture;
documents within 60 days from the date (3) Enforcement of tax lien;
of the filing of his letter of protest. (4) Compromise.
(5) Civil penalties.
a. If taxpayer fails to submit the
documents, assessment becomes 2. Judicial:
final and executor. (1) Ordinary civil action;
b. If taxpayer submits documents. (2) Criminal action.
Commissioner resolves the
assessment based on the documents 1. ADMINISTRATIVE REMEDIES
b.1 If favorable to taxpayer,
assessment process a. Distraint And Levy
b.2 If unfavorable to taxpayer,
issuance of Commissioner of the final  DISTRAINT – remedy whereby the
decision on the disputed assessment. collection of tax is enforced on the
goods, chattels or effects of the
8. JUDICAL PROTEST – if protest is denied taxpayer (including other personal
in whole part or is not acted upon within property of whatever character as well
180 days from submission of documents, as stocks and other securities, debts,
the taxpayer adversely affected by the credits, bank accounts and interest in
decision or inaction may appeal to CTA or rights to personal property.)
within 30 days from receipt of said
decision or from lapse of 180 days,
otherwise the decision shall become final,  The seizure by the government of
executor and demandable. personal property, tangible or
intangible to enforce the payment of
9. CTA – has a period of 12 months from the taxes.
time the case is submitted for decision
within which to decide  NATURE (SEA) –

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
72
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. Summary issued by Distraint Certificate


2. Extrajudicial or BIR
3. Administrative Enforcement Notice of Posting in Posting two (2)
Remedies Sale two(2) public places;
public Publication for three
 Kinds: places (3) weeks
1. Actual Distraint - the If bid is not BIR may BIR may forfeit
taking of possession of equal to tax purchase
the personal property Right of None Within 1 year from
from the taxpayer by the redemption sale
government. Constructive There is No constructive levy
Physical constructive
possession is not always distraint
required.
2. Constructive Distraint  Actual Distraint (Sec 208-212, NIRC)
– the owner is merely  When ? Upon failure of
prohibited from disposing person owing delinquent tax or
of his property. revenue to pay at the time
required.
 LEVY – seizure of real properties and
interest in or rights to such properties  How? By seizure of goods,
for the satisfaction of taxes due from chattels or effect and personal
the delinquent taxpayer. property.

 REQUISITES FOR EXERCISE OF  Amount? In sufficient


DISTRAINT (AND LEVY) [D2FP] quantity to satisfy the tax or
1. Taxpayer is delinquent in payment charge, increment, expenses of
of tax; distraint and cost of subsequent
2. There must be subsequent sale
demand to pay;
3. Taxpayer failed to pay delinquent  By? CIR or his duly authorized
tax on time; representative if the amount
4. Period within which to assess and involved exceeds P1M or
collect the tax due has not yet Revenue District Officer if the
prescribed. amount is P1M or less

 SIMILARITIES BETWEEN  GR: Properties exempt from attachment,


DISTRAINT AND LEVY: garnishment and/or execution are not exempt
1. Both are summary in nature; from distraint.
2. Both require notice f sale;
3. Both may not be resorted to if the XPNS: The following properties are as not
amount involved is less than subject to distraint and levy – [BJS]
P100.00
1. Bond or cash deposit for deposit of
firearms;

2. Property under judicial settlement or in


custodial egis without consent of the
competent court.
DISTINCTIONS BETWEEN DISTRAINT
AND LEVY
3. Property which by special laws are
Distraint Levy exempt from attachment or levy (e.g. SSS
Subject Personal Real property and GSIS benefits.)
matter property
Document Warrant of Authenticated  Procedure – [SPSD]
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
73
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

(1) Service of warrant of distraint upon Deficiency – taxpayer shall not be liable.
taxpayer or upon any person, in
possession of the property; If proceeds are insufficient, CIR may
purchase in behalf of the government.
 By? Distraining officer
 CONSTRUCTIVE DISTRAINT (Sec 206),
 Contents NIRC; RMC 5-2001) –the owner is merely
a. An account of the property prohibited from disposing of his personal
distrained. property.
b. Signed by the officer;
c. The sum demanded;  How effected?
d. Time and place of sale;
By requiring the taxpayer or any
 To whom served? [TSDB] person having possession of the property:
[SON]
1. Tangible goods 1. To sign a receipt covering the
 Owner or person in property distrained;
possession; OR 2. To obligate himself to preserve it
 Someone of suitable age and intact and unaltered; AND
discretion at the dwelling or 3. Not to dispose of it without express
place of business of such authority of the CIR.
person.
 Q: What if Taxpayer Refuses or Fails to
2. Stocks and/or Securities Sign?
 Upon the taxpayer AND
 President, manager, treasurer A: Officer shall:
or other responsible officer of 1. Prepare all list of such
the corporation. property; AND
2. Leave a copy of such list in
3. Debts/credits the premises where the
 Upon the person owing the property is located, in the
debt; OR presence of 2 witnesses.
 The person having control
over the credit or his agent.  GROUNDS FOR CONSTRUCTIVE
DISTRAINT (Sec. 206, NIRC)
4. Bank accounts –
 Service of Warrant of - Same as the ground to terminate tax
Garnishment upon the period under Sec 6(D), NIRC.
taxpayer AND
 The president, manager, SPECIFIC CASES WHEN NOTICE OR
treasurer or other responsible WARRANT OF CONSTRUCTIVE DISTRAINT
officer of the bank. OVER THE PROPERTY OF TAXPAYER MAY BE
ISSUED [LRTABUC]
(2) Posting of notice in not less than 2 public
places in the municipality or city and 1. Taxpayer has a record of leaving
Notice to taxpayer specifying the time and the Philippines at least twice a year,
place of sale and the articles distrained. unless such business is justified
and/or connected.
(3) Sale at public auction;

(4) Disposition of proceeds of the sale. 2. Taxpayer applying for retirement


from business has a huge amount
Residue – shall be returned to the owner of assessment pending with the
of the property; BIR.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
74
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

distrained
3. Taxpayer has record of transferring OR Leaving a list of
his bank deposits and other Service of such property
personal properties in the Philippine warrant
to any foreign country (except if Effect on Merely to prevent the
taxpayer is a banking institution); Immediate
collection taxpayer from
step to
disposing his
collect
property
4. Taxpayer uses aliases in bank
accounts other than the name for Note: Property levied upon by the order
which he is legally and/or popularly of a competent court may, with
known; consent thereof, be subsequently
distrianed, subject to the prior lien
of the attachment creditor.
5. Taxpayers keep bank deposits and (Collector of Internal Revenue vs.
other properties under the name of Roberta Flores Vda. De Conidera
other persons, whether or not et. Al No. L-9675, September 28,
related to him, and the same are 1957)
not under any lawful fiduciary or
trust capacity;  Levy on Real Property (Sec. 207(B), 213-
215, NIRC)

6. There is big amount of undeclared - May be made before, simultaneously or


income known to the public and to after the distraint of personal property of
the BIR and there is a strong the same taxpayer.
reason to believe that the taxpayer
will hide or conceal his property;  HOW EFFECTED?
By serving upon the taxpayer a
written Notice of Levy in the form of a duly
7. BIR receives compliant or authenticated certificate (prepared by
information pertaining to undeclared Revenue District Officer) containing;
income (of big amount) and such is
supported by substantial and a. Description of the property upon
credible evidence. which levy is made;
b. Name of the taxpayer;
c. Amount of tax and penalty due.
(Sec 2, RMC 5-2001)
DISTINCTIONS BETWEEN ACTUAL AND  PROCEDURE: [DSASD]
CONSTRUCTIVE DSTRAINT 1. Preparation of a duly authenticated
Actual Constructive certificate which shall operate with
Nature Summary remedy force of a legal execution throughout
Subject the Philippines;
Personal property
matter
Availability Cannot be availed of it tax is not 2. Service of the written notice to the
more than P100. delinquent taxpayer or the occupant
To whom Delinquent Any taxpayer of the property;
made taxpayer (delinquent OR not)
How made Taking of The Registry of Deeds of the
possession place where the property is located
Mere prohibition from
OR shall also be notified.
disposing the
property
transfer of 3. Sale at a public auction;
control
How Leaving a Requiring taxpayer to 4. Disposition of proceeds of sale.
effected list of sign a receipt
property OR
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
75
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 Residue to be returned to the  All the proceeds of  The residue, after


owner; the sale will go to deducting the tax
the coffers liability and
 If there is no bidder or amount is expenses, will go
insufficient, forfeiture by BIR is  Ownership is to the taxpayer.
allowed. transferred to the  Taxpayer retains
government. ownership of the
 Right of Redemption is allowed property seized.
within one year from registration
of deed of sale or declaration of
forfeiture at a price equal to the c. Tax Lien (Sec. 219, NIRC)
amount of taxes, etc. plus 15% - a legal claim or charge on property,
p.a. interest personal or real, established by law as a
sort of security for the payment of tax
 Possession – the owner shall not obligations. Generally, it attaches to the
be deprived of the property until property irrespective of ownership or
the expiration of the redemption transfer thereof.
period.
 A tax is not a lien even upon the property
b. Forfeiture (Sec. 224, NIRC) against which it is assessed, unless
expressly made so by statute
- Divestiture of property without
compensation, in consequence of a GR: A tax lien created in favor of the
default or offense. government is superior to all other claims
or preferences.
- Properly forfeited is transferred to
another without consent of taxpayer XPN: If the claim of workers is upon a
or wrongdoer. corporation which has been declared
bankrupt.
 HOW FORFEITURE IS ENFORCED
 Extent and Nature of Tax Lien:
1. In case of personal property – by seizure
and sale or destruction of property.
2. In case of real property –by judgment of - For what?
condemnation and sale in a legal action Payment of tax, interest, penalties,
or proceeding. costs.

 EFFECT OF FORFEITURE
- Upon?
- To transfer the title to the specific thing The entire property and rights to
form the owner to the government property of the taxpayer.

 In the case of seizure of property under BUT: To be valid against any


distraint or levy any residue of the mortgage, purchaser or judgment
proceeds, after payment of taxes will go creditor, notice of such lien has to be
to the taxpayer. filed by CIR with Registry of Deed

- Applies when?

Attaches when the taxpayer neglects


or refuses to pay tax after demand.
FORFEITURE VS. SEIZURE - Residue?

Goes back to the taxpayer or owner


FORFEITURE SEIZURE
of the property.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
76
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. There must be an offer (by the taxpayer


 EXTINGUISHMENT OF TAX LIEN: or the CIR) of an amount to be paid by the
[P2FD] taxpayer;
3. There must be an acceptance of the offer
1. By payment or remission of the tax; in settlement of the original claim.
2. By prescription of the right of
government to assess or collect;  WHEN MAY VIOLATIONS OF TAX
3. By failure to file notice of such tax lien LAWS/CASES BE COMPREMISED?
in the office of Register of deeds;
4. By destruction of property subject to 1. CRIMINAL CASES: the compromise
tax lien. must be made PRIOR to the filing of the
information in court.
Note: A buyer in an execution sale
acquires in the rights of the judgment 2. CIVIL CASES: before litigation or at any
creditor. stage of the litigation, even during appeal,
although legal propriety demands that
LIEN VS. DISTRAINT prior leave of court should be obtained.
LIEN DISTRAINT
 Directed against  Need not be
CASES WHICH AMY BE COMPROMISED
the property subject directed against the
[DAC3]
to the tax property subject to
 Charged regardless tax
- Upon compliance with the basis set forth
of the present  The property under Sec. 3, ibid. (Sec. 2, Rev. Reg. No. 30-
owner of the should be presently 2002)
property owned by taxpayer
1. Delinquent accounts;
d. Compromise (Sec. 6(F), 204, NIRC; Rev.
Reg. No. 30-2002) 2. Cases under administrative protest after
issuance of the Final Assessment Notice
- an agreement between two or more to the taxpayer which are still pending in the
persons who to avoid lawsuit, amicably RO, RDO, Legal Service, Large Taxpayer
settle their differences on such terms and Service, Collection Service, Enforcement
conditions as they can agree on. Service, and other offices in the National
Office;
- Implies the mutual agreement by the
parties in regard to the thing or subject 3. Civil tax cases disputed before the courts
matter which is to be compromised. (MTC, RTC, CTA, CA, SC.);
 Offer of compromise must be 4. Collection cases filed in courts:
voluntarily accepted by the other
party. 5. Criminal violations
 EXCEPT:
- A contract whereby the parties, by (1) Those already filed in courts; AND
reciprocal concessions avoid a litigation (2) Those involving criminal tax fraud.
or put an end to one already commenced.
CASES WHICH CANNOT BE COMPROMISED
[WC2]

1. Withholding tax cases, unless the


applicant – taxpayer invokes provisions of
law that cast doubt on the taxpayer’s
REQUISITES OF A TAX COMPROMISE: obligation to withhold;
2. Criminal tax fraud cases, confirmed as
1. Taxpayer must have a tax liability; such by the Commissioner of Internal

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
77
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Revenue or his duly authorized


representative; 1. Doubtful Validity of Assessment

3. Criminal violations already filed in courts, (1) The delinquent account or disputed
(DF2E) assessment is one resulting from a
jeopardy assessment.
a. Delinquent accounts with duly
approved schedule of installment  JEOPARDY ASSESSMENT – a tax
payments; assessment which was assessed
without the benefit of complete or
b. Cases where final reports of partial audit by an authorized revenue
reinvestigation or reconsideration officer, who has reason to believe that
have been issued, resulting to the assessment and collection of a
reduction in the original assessment deficiency tax will be jeopardized by
and the taxpayer is agreeable to such delay because of the taxpayer’s
decision by signing the required failure to comply with the audit and
agreement form for the purpose. investigation requirements to present
On the other hand, other protested his books of accounts and/or pertinent
cases shall be handled by the records, or to substantiate all or any
Regional Evaluation Board (REB) or of the deductions, exemptions, or
the National Evaluation Board (NEB) credits claimed in his return.
on a case to case basis.
(2) Assessment seems to be arbitrary;
c. Cases which become final and
executor after final judgment of a - Appearing to be based on
court where compromise is requested presumptions and there is reason to
on the ground of doubtful validity of believe that it is lacking in legal and/or
the assessment; and factual basis.

d. Estate tax cases where compromise (3) Failure to file administrative protest (due
is requested on the ground of final to receive PAN or AN and there is reason
incapacity of the taxpayer. to believe that it is lacking in legal and/or
factual basis);
BASIS FOR ACCEPTANCE OF COMPROMISE
SETTLEMENT – (Sec. 3 Rev. Reg. 30-2002) (4) Failure to file a request for
reconsideration or request for
1. Doubtful validity of assessment; reinvestigation within 30 days from receipt
of final assessment notice (and there is
- There must be reasonable doubt as to reason to believe that it is lacking in legal
the validity of the assessment. and/or factual basis);

2. Financial incapacity of the taxpayer:


(5) Failure to elevate to the CTA an adverse
 There must be clear inability to pay decision of the CIR within 30 days from
the tax. receipt thereof (and there is reason to
believe that it is lacking in legal and/or
 The taxpayer must waive in writing his factual basis);
privilege of the secrecy of bank
deposit under R.A. 1405 or under
other general or special laws, which (6) Assessments were issued on or after
shall also constitute as the CIR’s January 1, 1998, where the demand
authority to inquire into said bank notice allegedly failed to comply with the
deposits. (Sec. 6 (F), NIRC.) formalities prescribed under Sec. 228 of
Tax Code of 1997;
GROUNDS FOR A COMPROMISE
SETTLEMENT:
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
78
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

(7) Assessments made based on the “Best (3) Taxpayer is suffering from net worth
Evidence Obtainable Rule” and there is deficit (total liabilities exceed total assets)
reason to believe that the same can be
disputed by sufficient and competent
evidence;  Provided that in the case of an
individual taxpayer, he has no other
leviable properties under the law
(8) The assessment was issued within the other than his family home;
prescriptive period for assessment as
extended by the taxpayer’s execution of
Waiver of the Statute of Limitations the (4) Taxpayer is a compensation income
validity or authenticity of which is being earner;
questioned or at issue and there is strong
reason to believe and evidence to prove (a) With no other source of income and
that it is not authentic. the family’s gross monthly
compensation income provided for
under Se. 4.1.1 of these Regulations.
2. Financial Incapacity

(b) The taxpayer has no other leviable or


(1) Corporation ceased operation or is distrainable assets except his family
already dissolved. home;

(5) Taxpayer has been declared by any


 Provided, that tax liabilities competent tribunal/ authority/ body/
corresponding to the Subscription government agency as bankrupt or
Receivable or Assets distributed/ insolvent.
distributable to the stockholders
representing return of capital at the
time of cessation of operation or Notes:
dissolution of business shall NOT be
considered for compromise;  COMPROMISE PENALTY – a certain amount
of money which is paid in lieu of criminal
prosecution and cannot be imposed in the
(2) Taxpayer is suffering from surplus or absence of a showing that the taxpayer
earning deficit resulting to an impairment consented thereto.
in original capital by at least 50%

 A compromise validly entered into between


 Provided, that amounts payable or the Commissioner and the taxpayer prior to
due to stockholders other than the institution of the corresponding criminal
business-related transactions which action arising out of a violation of the
are properly includible in the regular provisions of the Tax Code is a BAR to such
“accounts” payable are by fiction of criminal action. (People vs. Madaluyo; L-
law considered as part of capital and 16235 April 20, 1965)
not liability, and provided further
that the taxpayer has no sufficient
liquid asset to satisfy the tax liability;  A compromise can never be entered into after
final judgment because by virtue of such final
judgment the Government had already
acquired a vested right. (Roviro vs. Amparo L-
5482, May 5, 1982)

 Who may compromise tax cases?


2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
79
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

a. The tax or any portion thereof appears to


The Commissioner of Internal Revenue be unjustly or excessively assessed; or
may COMPROMISE the payment of any
internal revenue tax when: b. The administration and collection costs
involved do not justify the collection of the
a. A reasonable doubt as to the validity amount due. [Sec. 204 (B), NIRC) of
of the claim against the taxpayer 1997]
exists provided that the minimum
compromise entered into is equivalent NOTE:
to 40% of the basic tax ; or COMPROMISE – involves a reduction of
the taxpayer’s liability
b. The financial position of the taxpayer
demonstrates a clear inability to pay ABATEMENT – means that the entire tax
the assessed tax provided that the liability of taxpayer is cancelled
minimum compromise entered into is
equivalent to 10% of the basic e. Civil Penalties (Sec. 248, NIRC)
assessed tax - imposed in addition to the tax required to
be paid.
 In these instances the CIR is - Computed at twenty-five percent (25%)
allowed to enter into a o the amount due.
compromise only if the basic tax
involved does not exceed P1M GROUNDS:
and the settlement offered is not
less than the prescribed 1. Failure to file any return and pay the tax
percentages. [Sec. 204 (A) NIRC due on the date prescribed by the NIRC
of 1997] or by rules and regulations;

 In instances where the CIR is not authorized 2. Filing a return with an internal revenue
the COMPROMISE shall be subject to the officer other than those with whom return
approval of the Evaluation Board composed of is required to be filed unless otherwise
the CIR and the 4 Deputy Commissioners. authorized by CIR;

 Note: 3. Failure to pay deficiency tax within the


time prescribed in the AN;
- The courts compel the CIR to exercise
this discretionary power. 4. Failure to pay full or part of the amount f
tax shown on any return… or the full
REASON: To assure that no amount f tax due for which no return is
improper compromise is made to required to be filed.. on or before the date
the prejudice of the government. prescribed for payment.

- A preliminary compromise may be  Penalty of 50% of the Tax:


entered into by subordinate officials In case of willful neglect to file a
subject to review by the CIR; return OR if a false or fraudulent return is
willfully made.
- The Regional Evaluation Board may
compromise tax assessments by revenue False or Fraudulent Return
officers with basic deficiency tax of  A prima facie evidence would be a
P500,000 or than and minor criminal substantial under declaration of taxable
violations. sales, receipt or income OR a
substantial overstatement of
 Abatement deductions.

- The CIR is authorized to ABATE or


CANCEL a tax liability when;

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
80
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Substantial underdeclaration of - The criminal charge is filed directly


Income – failure to report income in an with the DOJ.
amount exceeding 30% of the declared;
- Must also be instituted with approval
Substantial overstatement of of the CIR.
deductions – claim of deduction in an
amount exceeding 30% of actual - Resorted to not only for collection of
deductions taxes but also for enforcement of
statutory penalties of all sorts.
2. JUDICIAL REMEDIES
Note:
a. CIVIL ACTION  Acquittal on tax liability does not
exonerate him from civil liability to pay tax
 Action instituted by the government to due.
collect internal revenue taxes in the  Satisfaction of tax liability does not
regular courts after assessment by CIR extinguish criminal liability
has become final and executor
 Assessment of tax liability is not
 Resorted to when a tax liability becomes necessary to a criminal prosecution for
collectible (that is when assessment tax evasion.
becomes final and unappealable.
 A criminal complaint is instituted not to
THIS OCCURS WHEN: demand payment but to penalize
taxpayer for violation of the Tax Code.
1. Tax is assessed and taxpayer fails to
file a request for reconsideration/  In ordinary criminal cases, civil liability is
reinvestigation within 30 days from incurred by reason of the offender’s
receipt of assessment (Sec. 228, criminal act. In taxation , the civil liability
NIRC); to pay taxes arises not because of the
felony but upon the taxpayer’s failure to
2. Protest was made but CIR denied; pay taxes.
then, taxpayer failed to appeal to CTA
within 30 days from receipt of the  Criminal liability in taxation arises as a
decision. result of one’s liability to pay his taxes.
Consequently, the extinction of one’s
- If the taxpayer files a protest but criminal liability does not necessarily
fails to submit the necessary result in the extinguishment of his civil
documents within 60 days, liability to pay taxes.
assessment shall become final.
NO SUBSIDIARY IMPRISONMENT
Notes: - In case of insolvency on the part of
 The institution of civil action for taxpayer, subsidiary imprisonment
tax collection filed with the regular cannot be imposed as regards the tax
courts cannot be instituted without which he is sentenced to pay.
approval of the CIR However, it may be imposed in case
of failure to pay the fine imposed.
 Once an action is filed with the
regular courts, the taxpayer can REMEDIES OF THE TAXPAYER REGARDING
no longer assail the validity or ASSESSMENT AND COLLECTION OF
legality of assessment. INTERNAL REVENUE TAXES;

b. CRIMINAL ACTION 1. Legal remedies under the NIRC of 1997


available to an AGRIVED TAXPAYER at
- Arises from failure of the debtor to the ADMINISTRATIVE LEVEL with
satisfy his civil obligation. respect to assessment and collection of
internal revenue taxes:
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
81
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

a. Upon receipt of a pre-assessment f. A decision of the CA adverse to the


notice, the taxpayer shall respond to taxpayer may be appealed to the SC
the same within 15 days from receipt through a petition for review on
which is the period provided for by certiorari filed with 15 days from
implementing rules and regulations. notice, and extendible for justifiable
[3rd par., Sec 228(e), NIRC of 1997] reasons for 30 days only. (Sec. 1, 2,
Rules 34, Ibid.)
b. Upon the issuance of an assessment
notice, the taxpayer shall protest C. RULES ON PRESCRIPTION
administratively by filing a request for (SEC. 203 & 222, NIRC)
reconsideration or reinvestigation
within 30 days from receipt of the  Assessment and collection by the government
assessment in such form and manner of the tax due and payable must be made
as may be prescribed by within the prescribed period as provided by
implementing rules and regulations. the Tax Code: otherwise, the right of the
government to collect will be barred.
c. Within 60 days from the filing of the
protest, all relevant supporting  Prescription is a matter of defense, and it
documents shall be submitted; must be proved or established by the party
otherwise the assessment shall (taxpayer) relying upon it.
become final (4th par., lbid.)
 The defense of prescription is not
2. Legal remedies under the NIRC of 1997 jurisdictional and must be raised seasonably,
available to an AGGRIEVED TAXPAYER otherwise it is deemed waived.
at the JUDICIAL ELVEL with respect to
assessment and collection of internal  If no return is required by law to be filed, the
revenue taxes: prescriptive periods provided in Sec. 203 and
222, NIRC are not applicable (e.g. excise
a. If the protest is denied in whole or in taxes).
part, or
b. Is not acted upon within 180 days REASON: Limitation on the right of the
form submission of documents. government to assess and collect taxes will
c. The taxpayer adversely affected by not be presumed in the absence of a clear
the decision or inacted may appeal to legislation to the contrary.
the CTA within 30 days from receipt of
the said decision or from the lapse of  When tax law is silent on prescription, the
the 180-day period; otherwise, the right to tax is imprescriptible and tax may be
decision shall become final, executor assessed at any time.
and demandable [last par., Sec. 229
(e), NIRC of 1997]  The law on prescription, being a remedial
d. On appeal, the taxpayer should ask measure, should be interpreted liberally in
for the issuance of a writ of order to protect the taxpayer.
preliminary injunction to enjoin the
BIR from collecting the tax subject of  If the last day of the period falls on a
the appeal. Saturday, a Sunday or a legal holiday in the
e. A decision of the CTA adverse to the place where the Court sits, the time shall not
taxpayer may be appealed to the CA run until the next working day. (Sec. 1, Rule
by means of a petition for review 22, ROC)
within 15 days from notice and may
be granted and additional period of 15 PRESCRIPTIVE PERIODS FOR ASSESSMENT
days, with no further extension
granted except for the most GR: Where a return was filed, the period for
compelling reason and in no case to assessment is within 3 years after the date the
exceed 15 days (Sec. 1, 4, Rule 43, return was due or was filed whichever is later.
Rules of Court)

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
82
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

XPNs: BENEFITS OF FIXING A PRESCRIPTIVE


PERIOD
1. If there is failure to file the required return-
within 10 years after the date of discovery a. To the Government – tax officers would be
of the mission to file return. obliged to act promptly in the making of the
assessment.
 Date of Discovery must be made b. To the Citizens – after the lapse of the period
within the three-year period of prescription, citizens would have the feeling
following the general rule. of security against unscrupulous tax agents
who will always find an excuse to inspect the
books of taxpayers not to determine the
2. If the return is filed but it is false or latter’s real liability.
fraudulent and made with intent to evade
the tax, the period is 10 years from the - Without such legal defense, taxpayers
date of discovery of the falsity or fraud. would furthermore be under obligation to
always keep their books and keep them
 Fraud is never presumed and open for inspection subject to harassment
the circumstances constituting it by unscrupulous tax agents.
must be alleged and proved to
exist by clear and convincing NOTE: Prescriptive period starts upon the
evidence. filing of income tax return.

- There is no prescriptive period in


3. Where the CIR and taxpayer, before the cases where the law does not require
expiration of the three-year period have the filing of a return. Thus, taxpayer
agreed in writing to the extension ( not must file a return for purposes of
reduction) of the period so agreed upon availing of the prescriptive period.
may thereafter be extended by
subsequent agreements in writing made EFFECT OF FILING AN AMENDED RETURN:
before the expiration of the period
previously agreed upon. 1. If the amended return is substantially different
form original return – the prescriptive period
shall be counted from the filing of the
4. Where there is a written waiver or amended return.
renunciation of the original 3-year 2. If the original is sufficiently complete to enable
limitation singed by the taxpayer. the Commissioner to make a proper
assessment when amendment is not
 Requests for reconsideration of substantial – period shall run from the filing of
tax assessments, as required by the original return.
the BIR, must be accompanied
by a waiver of statute of  When the Assessment Notice or the
limitations accomplished by the Demand Letter of the BIR is Sent by
taxpayer. Mail
- The date when the demand letter or
 The return was amended substantially – notice of assessment is mailed,
related, or sent to the taxpayer is
 The period starts from the filing of the considered the date of actual
amended return. (Commissioner vs. assessment. (Basilan Estates vs. CIR
Phoenix Assurance Co., 14 SCRA 52) 21 SCRA 17)

 Prior to the receipt of the letter-


assessment, no violation has yet been
committed by the taxpayers. The offense
is committed only after receipt was
coupled with the willful refusal to pay the
taxes due within the allotted period.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
83
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

EFFECT OF FILING A WRONG RETURN  Collection by judicial action is deemed


instituted upon filing of the corresponding
- It will be treated as if there is a failure to file a complaint in the court of competent
return. jurisdiction; In summary remedies, upon
- The corollary prescription will be 10 yers from service of the distraint and levy on the
and after the discovery of the failure or taxpayer or persons or entity authorized to
omission. receive the same. (Clara Diluangco vs. CIR 4
SCRA 263)
 FRAUDULENT RETURNS – In addition to
the fact of discovery, there must be a PRESCRIPTIVE PERIOD FOR FILING
judicial proceeding for the investigation CRIMINAL ACTION:
and punishment of the tax offense before  5 years from commission or discovery of
the five-year limiting period begins to run. the violation, whoever is later. (Sec. 281,
Note the conjunctive word “and” between NIRC.)
the phrases “the discovery thereof” and
“the institution of judicial proceedings for - The cause of action for willful failure
its investigation and proceedings.” (Lim, to pay deficiency tax occurs when the
Sr. vs. Court of Appeals 190 SCRA 616) final notice and demand for the
payment thereof is served upon the
PRESCRIPTIVE PERIODS FOR COLLECTION taxpayer.

- The 5-year prescriptive period


General Rules: commences to run only after receipt
of the final notice and demand and
the taxpayer refuses to pay.
1. Where an assessment was made – period for
collection (by distriant or levy or by levy or by
a proceeding in court) is within 5 years Grounds for Suspension of Prescriptive
following the date of assessment. Periods [LORDPAw]

1. Where CIR and the taxpayer agreed in writing


2. If the government makes another assessment to assessment of tax after the time prescribed
or the assessment made is revised, the (Sec. 222(b), NIRC);
prescriptive period for collection of such tax
should be counted from the date the last or 2. Where CIR is prohibited from making the
the revised assessment was made. assessment or beginning distraint or levy or a
proceeding in court for 60 days thereafter,
such as where there is a pending petition for
3. Where an action is brought to enforce a review in the CTA from the decision on the
compromise the prescriptive period is 10 protested assessment (Republic vs. Ker &
years from the time right of action accrues as Co., 25 SCRA 208);
fixed in the Civil Code. (Art. 1144(1), NCC.)
3. When the taxpayer requests for
reinvestigation which is granted by the
Note: Commissioner (Collector vs. Suyoc
Consolidated Mining Co., 104 Phil 819);
 A judicial action for the collection of tax is
BEGUN by filing an ANSWER to the 4. When taxpayer cannot be located;
taxpayer’s petition for review wherein the
payment of the tax is prayed for , where the 5. When the warrant of distraint and levy is duly
assessment is appealed to the CTA. served;
(Fernandez, Hermanos, Inc. vs CIR No. I-
21551, L-21557, September 30, 1969) 6. When the taxpayer is out of the Philippines
(Sec. 223, NIRC)

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
84
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

Note:  Issues raised therein may involve:


a. questions of law; or
 Return is considered filed for purposes of b. fact; or
prescription when the return is valid and c. both questions of law and fact.
appropriate.

 If return was defective it is as if no return  Time: Protest may be filed within 30


was filed at all. days from receipt of the assessment.
(However, all relevant documents
must be submitted within 60 days
II. Remedies of the Taxpayer from filing of protest; otherwise, the
assessment shall become final and
 2 Remedies: unappealable.)
a. Administrative Protest (Protest
Against Assessment)
b. Claim for Refund 4.) Taxpayer may appeal to the Court of Tax
Appeal (CTA) if:
a. PROTEST AGAINST ASSESSMENT (a) CIR decides adversely; OR
(Sec. 228, NIRC; RR No. 12-1999) (b) CIR has no decision yet after the
lapse of 180 days from the
 Must be filed before payment of the tax submission of the documents.
due.

 Prescriptive period to make collection is  Time: If not appealed within 30 days ,


interrupted once a taxpayer protests the the decision/ assessment shall
assessment and requests for its become final.
cancellation.

PROCEDURE 5.) If CTA affirms CTA decision, taxpayer may


1.) Issuance of a pre-assessment notice by appeal to SC on questions of law.
the CIR.
 Time: May be filed within 15 days
Time: Taxpayer has 15 days from receipt from receipt of the CA decision.
of the PAN to respond (which may be
extended to not more than 10 days.) 6.) IF CA affirms CTA decision, taxpayer may
appeal to SC on questions of law.
2.) BIR shall issue an assessment notice if:
 Time: May be filed within 15 days
 The taxpayer fails to respond within from receipt of the CA decision.
the time prescribed; OR
PRE-ASSESSMENT NOTICE (PAN)
 The taxpayer responds but BIR still
opines that he ought to be assessed GR: PAN is necessary before the CIR or
for the deficiency tax. his duly authorized representative can
assess proper taxes.
3.) The taxpayer may file with the CIR an
administrative protest against the XPNs:
assessment. Such protest may either be 1. When the deficiency tax
a: arises from a mathematical
error in the computation of tax
(a) Request for Reconsideration (appearing on the face of the
(b) Request for Reinvestigation return);

2. When there is a deficiency


between the tax withheld and
the amount actually remitted;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
85
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

3. When the taxpayer who opted against the stockholders who have
to claim refund or tax credited received the assets of the corporation.
or excess creditable
withholding tax have carried  REMEDY: The dissolving corporation
over and automatically must secure a certificate of tax clearance
applied the same for the from BIR to be submitted to SEC. the
taxable quarters of the purpose of tax clearance is to ensure
succeeding taxable year; payment of all tax liabilities of the
corporation to the government.
4. When the excise tax due on
excisable articles as not been b. CLAIMS FOR REFUND
paid. (Sec. 299, NIRC.)

5. When an article locally - Actual reimbursement of tax; it must be strictly


purchased by an exempt construed against the claimant.
person has been sold, traded
or transferred to non-exempt TAX REFUND VS. TAX CREDIT
persons. TAX REFUND TAX CREDIT
 There is an actual  The reimbursable
Note: reimbursement of amount is applied
 The taxpayer shall be informed in tax against the sum
writing of the law and facts on which that may due or
the assessment is made; otherwise collectible from the
the assessment shall be void. taxpayer
 In case of an appeal to CTA, what the  Restitution of  Taxpayer asks that
CTA may review are the decisions of money paid as tax the money so paid
the CIR on the disputed be applied to his
assessments. (SEE CIR vs. Villa, 22 existing liability
SCRA 3.)  Taxpayer receives  Taxpayer receives
 The assessment should be protested cash equivalent a tax credit
or questioned first before the CIR; certificate which he
only after the CIR has decided on the may use within a
protest can CTA review such decision. period of the life of
 After the CTA has acquired the certificate
jurisdiction over the appeal, the CIR usually 5 years but
may still modify its assessment maybe extended.
provided it would be done before  Disadvantage: only  Disadvantage:
answer is filed with the court. a small portion of Taxpayer may not
 Mandamus does not lie to compel government budget be able to utilize
CIR to impose a tax assessment not is allotted for the certificate for
found by him to be proper. refunds future uses but it is
not entirely useless
LIABILITY OF STOCKHOLDERS FOR UNPAID because he may
TAXES OF DISSOLVED OR DEFUNCT still transfer it but
CORPORATION: on discounted rate
 2 years to file the  2 year period starts
 As a rule, stockholders are not liable for claim with the from the date such
the tax liabilities of the corporation Commissioner credit was allowed
because the latter has a juridical stars after the in case credit is
personality and distinct from the payment of the tax wrongly made
stockholders. or penalty
 However if the corporation
notwithstanding its tax liabilities, has been
already dissolved and its assets
distributed, the government may run

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
86
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

WHAT MAY BE REFUNDED 3. In corporate dissolution, the 2-year


prescriptive period should be counted
1. Erroneously OR illegally assessed or from 30 days after the approval by the
collected internal revenue taxes; SEC of its plan of dissolution.

2. Penalties imposed without authority; 4. In case of withheld taxes:


 FINAL WITHHOLDING TAXES: 2
3. Any sum alleged to have been years shall be counted from the 25 th
excessively or wrongfully collected day after the close of each calendar
quarter.
REQUISITES
 CREDITABLE WITHHOLDING
1. Written claim for refund files by the TAXES: 2 years shall be counted from
taxpayer with the CIR; the last day of month following the
2. Claim for refund must be a categorical close of the quarter during which the
demand for reimbursement; withholding was made.
3. Filed within two years from date of
payment of tax or penalty, regardless of WHEN TWO YEAR PERIOD SUSPENDED
any supervening cause;
4. Proof showing that payment or amount 1. Taxpayer made to believe by
stated therein was received by the Commissioner of Internal Revenue that
government. the over payment would be credited for
other tax liabilities.
NOTE:
 The withholding agent: 2. Agreement exists between the taxpayer
1. Has a personality to file a written and the BIR to wait for a decision of the
claim for refund. Supreme Court
2. Is technically a taxpayer because he
is required to deduct and withhold the APPEAL TO CTA
tax and he has the obligation to remit
the same to the obligation to remit the - Within 30 days from receipt of BIR
same to the government. decision BUT not to exceed the two-
3. Is not only an agent of taxpayer but year period from date of assessment.
also an agent of the government.
Note: In indirect taxes, the proper party who can
 A payment under protest is not necessary question or seek a refund of the tax is the person
in refund for local taxes. However, on whom the tax is imposed by law and who paid
payment under protest is necessary in the tax even when he shifts the burden thereof to
claim for refund for real property taxes another. (Cebu Portland Cement Co. vs Collector,
and for customs duties. 25 SCRA 789)

 RULE: No interest or refund of tax can be


awarded unless authorized by law or the FORFEITURE OF TAX REFUND
collection of tax was attended by  In favor of the government when a refund
arbitrariness. check or warrant remains unclaimed or
uncashed within 5 years from date of
PRESCRIPTIVE PERIODS: mailing of delivery.
1. Tax is paid in INSTALLMENTS: 2 years
should be counted from the date of the FOEFEITURE OF TAX CREDIT
final payment.  A tax credit certificate which remains
unutilized after 5 years from date of issue,
2. Payments effected through the shall be invalid, unless revalidated.
withholding tax system: IT is from the end
of the taxable year or when the tax liability
falls due that the 2 year prescriptive starts
to run.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
87
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

V. COURT OF TAX APPEALS POWERS


(R.A. 9282, as amended)  Subject to provisions of the Rules of
Court:
ROLE OF THE JUDICIARY IN TAXATION a. To administer oath;
b. To receive evidence;
- Limited to the application and c. To summon witnesses by subpoena;
interpretation of tax laws. d. To require production of papers or
documents by subpoena duces
HIERARCHY OF COURTS IN TAXATION lecum;
e. To punish for contempt for the same
1. Disputed Assessment Issues causes under the same procedure
 Court of Tax Appeals and with the same penalties provided
 Supreme Court for in the Rules of Court;
2. Collection Issues f. To prescribe the form of writs and
 Municipal Trial Court, depending upon the other processes;
jurisdictional amount g. To prescribe rules and regulations for
 Regional Trial Court, depending upon the conduct of its business;
jurisdictional amount h. To assess damages against the
 Court of Tax Appeals appellant if the appeal to CTA is found
 Supreme Court to be frivolous and dilatory.
i. To suspend collection of tax pending
COURT OF TAX APPEAL (CTA) appeal;
j. To render decision on cases brought
NATURE before it.
1. A highly specialized body which reviews
tax cases; SALIENT FEATURE OF RA 9282 RE: APPEAL:
2. Proceedings therein are judicial in nature; - Decisions of the CTA are no longer
3. Not bound by technical rules on evidence; appealable to the CA. The decision of
4. Same level with that of the Court of a division of the CTA may be
Appeals. appealed to the CTA en banc, which
in turn may be appealed directly to
COMPOSITION the SC only on questions of law.
The CTA consists of a presiding Justice
and 5 Associate Justices, appointed by JURISDICTION OF THE CTA
the President upon nomination by the 1. Exclusive appellate jurisdiction to review by
Judicial Bar Council. appeal

PROCEEDINGS 2. Jurisdiction over criminal offenses


a. Exclusive original jurisdiction
- CTA may sit en banc or in 2 Divisions b. Exclusive appellate jurisdiction
consisting of 3 justices.
3. Jurisdiction over tax collection cases
QUORUM a. Exclusive Orig. Jurisdiction
b. Exclusive appellate Jurisdiction
- 4 Justices shall constitute a quorum
for sessions en banc and 2 Justices APPEAL TO CTA
sessions of a Division.
MODE OF APPEAL
DECISION
1. PETITION FOR REVIEW (RULE 42)
- Needs the concurrence of 4 members - Within 30 days from the receipt of
of the Court en banc or 2 members of decision or ruling or from the expiration of
a Division the period fixed by law for the official
concerned to act in cases of inaction.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
88
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 CTA division shall hear the appeal and a  In this case, collection may be suspended
party adversely affected by the decision of at any stage of the proceeding BUT
division may file a Motion for taxpayer shall be required either
Reconsideration or New Trial.
1. To deposit (with the court) the amount
2. PETITION FOR REVIEW (RULE 43_ claimed; OR
- CTA en banc shall hear the case involving
the decisions or rulings of: 2. To file a surely bond (with the court)
for not more than double the amount
a. Central Board of Assessments Appeal of the tax due.
b. RTC in the exercise of its appellate
jurisdiction  IMPORTANT!!
c. Resolution of a CTA Division on
Motion for Reconsideration and New  The 30-day prescriptive period is
Trial jurisdictional. Beyond such period, CTA
cannot acquire jurisdiction anymore.
3. PETITION FOR REVIEW ON CERTIORARI
(RULE 45)  It starts to run from the date of receipt of
the appealable decision.
- Filed by a party adversely affected by a
decision or ruling of CTA en banc before  IF there is a request or motion for
SC. reconsideration, the appealable decision
is the decision denying the request or
 A party adversely affected by a ruling, order or motion.
decision of a Division of the CTA may file a
motion for reconsideration or new trial before  The filing of a civil action in court to collect
the same Division of the CTA within 15 days a tax which was the subject of a pending
from notice thereof. Provided that in criminal protest in the BIR was a justifiable basis
cases, the general rule applicable in regular for the taxpayer to appeal to the CTA and
Courts on matters of prosecution and appeal to move for the dismissal in the trial court
shall likewise apply. of the Government’s action to collect the
tax under dispute. (Yebes vs. Plojo, 15
 No civil proceeding involving matters arising SCRA 278.)
under the NIRC, TCC or the LGC shall be
maintained, except as those provided until  IMPORTANT!! – Ordinary courts, not the
and unless appeal has been previously filed CTA, have jurisdiction over UNDISPUTED
with the CTA and disposed of in accordance ASSESMENTS depending on the
with the provisions of this Act. jurisdictional amount, unless the amount
exceeds P1M in which CTA would have
exclusive Orig. Jurisdiction.
GR: Appeal to CTA (from decision of the CIR,
 GR: CTA has jurisdiction only IF there is a
COC, SOF, STI, SOA, CBAA or the RTC) shall
decision of the Commissioner of Internal
not suspend payment, levy, distraint and/or
Revenue or Commissioner of Customs.
sale of any property of taxpayer for the
satisfaction of his liability.
XPNs:
XPN: IF in the opinion of the court, the
1. If Commissioner of Customs has not
collection by aforementioned government
rendered a decision and the suit is
agencies may jeopardize the interest of the
about to prescribe
government and/or the taxpayer.
REASON : If the taxpayer waits, then
his right of action prescribes.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
89
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. If the Commissioner of Internal a) The positive requirement of Sec. 229,


Revenue has not acted in a refund NIRC of 1997.
case and the 2-year prescriptive
period is about to expire. b) The doctrine that delay of the
Commissioner in rendering decision
REASON: The taxpayer would be left does not extend the peremptory
at the mercy of the Commissioner, period fixed by the statute;
who by his delay leaves the taxpayer
without any positive and expedient c) The law fixed the same period 2 years
relief from the courts. for filing a claim for refund with the
Commissioner under Sec. 204 [C],
3. Where the Commissioner of Internal NIRC of 1997, unlike in protests of
Revenue has not acted upon a assessments under Sec. 228, NIRC
protested assessment within 130 of 1996, which fixed the period (thirty
days from submission of all relevant days from receipt of decision) for
documents supporting the protest, the appealing to the Court, thus clearly
taxpayer adversely affected by the implying that the prior decision of the
inaction may appeal to the CTA within Commissioner is necessary to take
30 days from the lapse of the 180 day cognizance of the case.
period. (Commissioner of Internal Revenue
vs. Bank of Philippines Islands, etc.
 IMPORTANT!! A simultaneous filing of et. al CA GR SP No. 34102,
the application with the BIR for September 9, 1994)
refund/credit and the institution of the
court suit with the CTA is allowed. There
is no need to wait for a BIR denial.

REASONS:

MATRIX OF CTA JURISDICTION

EXCLUSIVE APPELLATE JURISDICTION TO REVIEW BY APPEAL

1. Decisions of the Commissioner on Internal Revenue in cases involving:


a. Disputed assessments;
b. Refunds of internal revenue taxes, fees or other charges and penalties imposed thereto;
c. Other matters arising under NIRC or other laws (under BIR).

2. Inaction by the Commissioner of Internal Revenue in cases involving:


a. Disputed assessments;
b. Refunds of internal revenue taxes, fees or other charges and penalties imposed thereto;
c. Other matters arising under NIRC or other laws (under BIR) where the NIRC provides a
specific period for action, in which case the inaction shall be deemed a denial.

3. Decisions, order or resolutions of the Regional Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their original or appellate jurisdiction.

4. Decisions of the Commissioner of Customs in cases involving:


a. Liability for customs duties, fees or other money charges;
b. Seizure, detention or release of property affected;
c. Fines, forfeitures or other penalties in relation thereto;
d. Other matters arising under Customs Law or other laws (under BOC)

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
90
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided
by the provincial or city board of assessment appeals;

6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions involving the assessment of Customs which are adverse to the
Government under Section 2315 of the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Sections 301 and 302,
respectively of the Tariff and Customs Code, and safeguard measures under RA 8800, where
either party may appeal the decision to impose or not to impose said duties.

8. Decisions of the Secretary of Agriculture in the case of agricultural product, commodity or


article, involving dumping and countervailing duties under Sections 301 and 302, respectively of
the Tariff and Customs Code, and safeguard measures under RA 8800, where either party may
appeal the decision to impose or not to impose said duties.

EXCLUSIVE ORIGINAL JURISDICTION

CRIMINAL CASE/S: CIVIL CASE/S:


1. Violation of 1. Tax collection cases involving final and
a. NIRC, executor assessments for taxes, fees,
b. Tariff and Customs Code, charges and penalties where the principal
c. Other laws administered by BIR and amount of taxes and fees, exclusive of
BOC,… charges and penalties claimed is P1M and
…..where the principal amount of taxes and above.
fees, exclusive of charges and penalties
claimed is P1M and above.

EXCLUSIVE APPELATE JURISDICTION

CRIMINAL CASE/S: CIVIL CASE/S:


1. Violation of 1. Tax collection cases involving final and
a. NIRC, executor assessments for taxes, fees,
b. Tariff and Customs Code, charges and penalties where the principal
c. Other laws administered by BIR and amount of taxes and fees, exclusive of
BOC,… charges and penalties claimed is P1M and
…..originally decided by the regular court above.
where the principal amount of the taxes is
less than P1M or no special amount claimed.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
91
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2. Judgments, resolutions or orders of the RTC


in tax cases originally decided by them 2. Tax collection cases from judgments,
resolutions or orders of the RTC in the
3. Judgments, resolutions or orders of the RTC exercise of its appellate jurisdiction over tax
in the exercise of its appellate jurisdiction cases originally decided by the MeTC, MTC
over tax cases originally decided by the and MCTC
MeTC, MTC and MCTC.

VI. LOCAL TAXATION  Merely a delegated grant (Manila Electric Co.


vs. Province of Laguna, et. al. G.R> No.
 These are taxes that are imposed and 131359, May 5, 1999). It REVERSED the
collected by the local government nits ruling in City Government of San Pablo
in order to raise revenues to enable Laguna, et al. vs Reyes, et al. (GR No.
them to perform the functions for 127708, March 25, 1999), which held that
which they have been organized. municipal corporations are vested by the
Constitution with the power to tax no longer by
virtue of a valid delegation as before but
NATURE AND SOURCE OF LOCAL TAXING pursuant to direct authority conferred by Sec.
POWER 5, Article X of the Constitutions.

(1) Art. X, Sec 5 of the 1987 Constitution:  Not absolute


- Subject to limitations and guidelines as
“Each local government unit shall have the may be provided by law.
power to create their own sources of revenue
and to levy taxes, fees and charges subject to  Exercised by the Sanggunian through an
such guidelines and limitations as the appropriate Ordinance. (Sec. 132, LGC)
Congress may provide consistent with the
basic policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to KINDS OF LOCAL TAX ORDINANCES
the local government.”
1. Those imposing a fee or tax especially
(2) Sec. 129 of the Local Government Code: authorized by the LGC for the LGU’s to
impose.
“Each local government unit shall exercise its
power to create its own sources of revenue to 2. Those imposing a fee or tax NOT specifically
levy taxes, fees and charges subject to the enumerated under the LGC or taxed under
provisions herein, consistent with the basic the provisions of the NIRC or other applicable
policy of local autonomy. Such taxes, fees and laws. (Sec. 186, LGC)
charges shall accrue exclusively to the local
government units.”
COMMON REVENUE RAISING POWERS OF
LGU

1. Fees, Service or User Charges

 May impose and collect fees and service


TAXING POWER OF LGU’s of user charges for any service rendered
by LGU’s in an amount reasonably
 Not inherent commensurate to such serve. [Sec. 153,
May only be exercised if delegated to LGC; Art. 224 (a), Rules and Regulations
them by national legislature or conferred Implementing the Local Government
by the Constitutions itself. Code of 1991]

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
92
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 Provided that no service charge shall be 2. Taxes, fees, charges and other impositions
based on capital investments or gross shall be equitable and based as much as
sales or receipts of the person or possible on the taxpayer’s ability to pay;
business liable therefore. [Art. 244(a),
Rules and Regulations Implementing the 3. They shall be levied and collected only for
LGC of 1991] public purposes;
4. They shall not be unjust, excessive,
2. Public Utility Charges oppressive or confiscatory;

 Collect charges for services rendered by 5. They shall not be contrary to law, public
LGU’s in connection with the operation of policy, national economic policy or in restraint
public utilities owned, operated, and of trade;
maintained within their jurisdiction (Sec.
154, LGC) at rates to be fixed by 6. The collection of local taxes, fees, charges
Sanggunian concerned [Art. 244 (b), and other impositions shall in no case be let to
Rules and Regulations Imp., LGC of a private person;
1991]
7. The revenue collection under the Code shall
3. Toll Fees or Charges inure solely to the benefit of and subject to
disposition by the LGU levying the tax or fee
 May prescribe the terms and conditions, or charge or other imposition unless otherwise
through an appropriate Ordinance specifically provided therein; and
enacted by the Sanggunian for the use of
any public road, pier or wharf, waterway 8. Each LGU shall as far as practicable, evolve a
bridge, ferry or telecommunication progressive system of taxation.
system, funded and constructed by the
LGU. [Sec. 155, Art. 244 (c)]
LIMITATIONS ON THETAXING POWER OF
 EXEMPTION from tolls, fees or other LGU’S IMPOSED BY CONGRESS
charges
1. Fundamental principles of local taxation
a. Officers and enlisted men of the 2. Common Limitations
Armed Forces of the Philippines and 3. Express Authorization Limitation (Doctrine of
members of PNP on mission; Preemption and Exclusion)
b. Post Office personnel delivering mail; 4. Basic Principles of Local Autonomy
c. Physically handicapped and disabled
citizens, 65 years or older. (Sec. 115
LGC) Common Limitations on the Taxing Powers
of LGU’s
ASPECTS OF LOCAL TAXING POWER
 Unless otherwise provided in the Local
1. Levy of taxes, fees, charges and other Government Code, the exercise of taxing
impositions; and power of provinces, cities, municipalities
and barangays shall not extend to the
2. Real property taxation. imposition of the following:

 Both aspects are governed by the Local 1. Income tax


Government Code. XPN: when levied on banks and
other financial institutions;
FUNDAMENTAL PRINCIPLES GOVERNING
LOCAL TAXATION 2. Documentary stamp tax;

1. Taxation shall be uniform in each local sub- 3. Estate and Donor’s Taxes
unit; XPN: if otherwise provided in the
Code;
4. Customs duties.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
93
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

XPN: wharfage on wharves 4. Taxes, fees and charges imposed by


constructed and maintained by special laws.
the LGU concerned;

5. Tax on Carriage of Goods.

6. Taxes on Agricultural and Aquatic


Products. SITUS OF MUNICIPAL TAXATION
7. Taxes on Pioneer and Non-pioneer
Businesses. 1. If place of sale is a branch or sales outlet
8. Excise Taxes. or warehouse.
9. Percentage or Value-Added Taxes.
- Record sales in the municipality
XPN: if otherwise provided in the where the branch or outlet is located
Code; and tax shall accrue thereon.
10. Taxes on Transportation Contractors.
2. If there is no branch or sales outlet or
XPN: if otherwise provided in the warehouse.
LGCode;
11. Taxes on Premiums paid by way of - Record sales in the municipality of
reinsurance or retrocession. principal office and tax shall accrue to
12. Taxes on Motor Vehicles . city or municipality where the sale or
transaction is made.
XPN: Tricycles
13. Taxes on Exported Products 3. If manufacturer, assembler, contractor,
producer or exporter (with factory, project
XPN: if otherwise provided in the office, plant or plantation).
Code;
14. Taxes on Countryside and Barangay - 30% of all sales recorded in the
Business Enterprises. principal office shall be taxable in the
15. Taxes, fees or changes of any kind of city or municipality where the principal
the national Government, its agencies office is located 70% thereof shall be
and instrumentalities and LGU’s. taxable in the city or municipality
where the factory, project office, plant
DOCTRINE PREEMPTION AND EXCLUSION or plantation is located.

 Where the National Government elects to tax 4. If plantation is a place other than where
a particular area it impliedly withholds from the factory is located.
the local government the delegated power to
tax the same field. - The 70% (in item 3) shall be divided
as follows:
 EXCLUDED IMPOSITIONS:  60% to the city or municipality
where the factory is;
1. Taxes which are levied under the NIRC,  40% to the city or municipality
except if otherwise provided by the where the plantation is
LGCode;
5. If manufacturer, assembler, contractor,
2. Taxes, fees and charges imposed under producer or exporter has two or more
the Tariff and Customs Code; factories, project offices, plants or
plantations located in different localities.
3. Taxes, fees and charges the imposition of
which contravenes existing government - The 70% shall be prorated among the
policies or which are violative of the localities such factories, project
fundamental principles of taxation; offices, plants and plantations are
located abed on their respective
volumes of production.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
94
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 The grant of taxing powers to LGU’s


under LGC DOES NOT affect the power
of Congress to grant exemptions to
certain persons pursuant to declared
national policy.

 The legal effect of the Constitutional grant


LGU THROUGH ORDINANCE MAY GRANT to local governments simply means that in
EXEMPTIONS interpreting statutory provisions on
municipal taxing powers DOUBTS MUST
 Sec. 192, LGC- through ORDINANCES BE RESOLVED IN FAVOR OF
duly approved, LGUs may grant tax MUNICIPAL CORPORATIONS. (PAL vs.
exemptions, incentives or reliefs under Edu, 164 SCRA 320)
such terms and conditions as they may
deem necessary.
 IPSO FACTO CLAUSE (An issue relative to
WITHDRAWL OF ALL TAX EXEMPTIONS UPON the equality of treatment in the
EFFECTIVITY OF LGC telecommunications industry)

 Sec. 193, LGC – unless otherwise


provided in the LGC, tax exemptions or - Sec. 23 RA 7925: “Any advantage, favor,
incentives granted to or presently enjoyed privilege, exemption, or immunity granted
by all persons, natural or judicial, under the existing franchises, or may
including GOCC are withdrawn upon the hereafter be granted telecommunications
effectivity of LGC. franchises and shall be accorded
immediately and unconditionally to the
 EXCEPTIONS: grantees of such franchises.” Provided
1. Local water districts however, that the foregoing shall neither
2. Cooperatives duly registered under apply to nor affect provision of the
R.A. 6938 telecommunications franchises covering
3. Non stock and nonprofit hospitals and territory covered by the franchise, the life
educational institutions. span of the franchise, the life span of the
franchise or the type of service authorized
 Withdrawal of tax exemption is not to be by the franchise.”
construed as prohibiting as future grants
of tax exemptions
- SC held that approving Sec. 23, the
- Philippine Long Distance Congress did not intend it to operate as a
Telephone Co., Inc. vs. City of blanket tax exemption to all
Davao, et al., etc. (GR No. 143867, telecommunications entities.
August 22, 2011) – upheld the
authority of the City of Davao, a LGU,
to impose and collect a local franchise - Thus, SMART AND GLOBE are exempt
tax because the local government has from local taxes (including the franchise
withdrawn all tax exemptions tax) because their franchises which were
previously enjoyed by all persons and granted after the effectivity of the LGC
authorized LGU’s to impose a tax exempted them from the payment of local
notwithstanding the grant of tax franchises and business taxes.
exemptions to them.

Notes: VII. REAL PROPERTY


 The withdrawal of a tax exemption should TAXATION
not be construed as prohibiting future
grants of exemption from all taxes.
REAL PROPERTY TAX
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
95
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

condition, amounting to more than a mere


- A direct tax imposed on the privilege to use repair or replacement of parts involving
real property such as land, building, capital expenditures and labor, which is
machinery and other improvements, unless intended to enhance its value, beauty or
specifically exempted. utility or to adapt it for new or further
purposes.” [Sec. 199 (m), LGC]

NATURE OF REA PROPERTY TAX  Doctrine of Essentiality – the property to


be considered immobilized for real
property tax purposes must be “essential
1. Direct tax: burden could not be shifted by the and principal elements” of an industry
one who pays to other persons; without which such industry or works
would be unable to function or carry on
the principal industrial purpose for which it
2. Ad Valorem Tax based on the assessed value was established.
of the property;
KINDS OF IMPOSITIONS ON REAL PROPERTY

3. Local Tax: it is the local government nit that I. REAL PROPERTY TAXES:
levies the real property tax;  Rates of Basic Real Property Tax

1. Basic Real Property Tax


4. It is imposed on USE and not ownership,
hence exemption is also premised upon use (1) PROVINCE: not exceeding 1% of
and not ownership; the assessed value of real
property; and
(2) CITY or MUNICIPALITY: WITHIN
5. It is PROGRESSIVE in character depending the Metropolitan Manila Area, not
to a certain extent on the use and value of the exceeding 2% of the assessed
property. value of real property.

2. Special Education Fund


FUNDAMENTAL PRINCIPLES GOVERNING
REAL PROPERTY TAXATION (Sec. 165, LGC) “A province or city or municipality
WITHIN the Metropolitan Manila Area
may levy and collect an annual tax of
1. That defined as immovables under Article 1% on the assessed value of real
415, New Civil Code; property which shall be in addition to
the basic real property tax.” (Sec.
235, LGC)
2. Personal Properties that are attached to an
immovable (a parcel of land or a building by
one who is NOT the owner of the parcel of 3. Ad Valorem Tax on IDLE LANDS
land or building, which personal properties are
ESSENTIAL and PRINCIPAL ELEMENTS of  Not exceeding 5% of the
the business being conducted in said land or assessed value of the property.
building; (Sec. 236, LGC)

3. Machineries, including mobile equipment,  Only a province, a city or a


which are ESSENTIAL to an industry. municipality WITHIN the
Metropolitan Manila Area can levy
 Improvement – a valuable addition made an annual ad valorem tax on real
to a property or an amelioration in its property. (Sec. 232, LGC)
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
96
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

1. Real property owned by the Republic or any


 For purposes of real property of its political subdivisions except when the
taxation, IDLE LANDS shall beneficial use thereof has been granted for
INCLUDE: (Sec. 237, LGC) consideration OR to a taxable person;

a. Agricultural lands more than


one hectare in area one-half
of which remain 2. Charitable institutions, churches, parsonages,
uncultivated or unimproved or convents appurtenant thereto, mosques,
by the owner or person non-profit cemeteries and all lands and
having legal interest therein. buildings and improvements actually, directly
and exclusively used for religious, educational
Agricultural lands planted and charitable purposes;
by permanent or perennial
crops with at least 50 trees to 3. All machineries and equipment that are
a hectare shall not be actually, directly and exclusively used by local
considered idle lands. water utilities and GOCC’s engaged in the
supply and distribution of water and/or
Lands actually used for generation and transmission of electric power.
grazing purposes shall
likewise not be considered 4. All real property owned by duly registered
idle lands. cooperatives;

b. Lands other than agricultural 5. Machinery and equipment used for pollution
located in a city or control and environmental protection.
municipality more than one
thousand square meters in
area one half of which Mactan Cebu International Airport Authority
remain unutilized or vs. Marcos [G.R. No. 120082, September 11,
unimproved by the owner of 1996]
the property or person having
legal interest therein. Section 234 of the LGC provides for the
exemptions from payment of real property
II. SPECIAL LEVY BY LOCAL GOVERNMENT taxes and withdraws previous exemptions
UNITS (Sec. 240, LGC) thereform granted to natural and juridical
persons, including government-owned and
 Also known as a “special assessment”, it is controlled corporations, exception as provided
NOT a tax but an imposition to recover at therein. These exemptions are based on the
least 60% of the public works expenditures of ownership, character and use of the property.
a local government unit.

 A province, city or municipality, even if REMEDIES OF THE LOCAL GOVERNMENT TO


OUTSIDE the Metropolitan Manila Area may EFFECT COLLECTION OF TAXES
impose the special levy.

 Exemptions: 1. ADMINISTRATIVE
1. Lands exempt from basic real
property tax (1) Real Property tax lien (Secs. 246 and
2. Remainder of land donated to local 251, LGC) – superior to all liens, charges
government unit for the construction or encumbrances;
of the project. (2) Distraint (Sec. 254 [B], LGC);
(3) Levy (Sec. 254 [A], LGC);
(4) Purchase of property by local treasurer for
PROPERTIES EXEMPT FORM REAL want of bidder (Sec. 263, LGC)
PROPERTY TAXES
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
97
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

assessment appeal to the Local


2. JUDICIAL Board of Assessment Appeals .

 How? By filing a petition under oath,


By CIVIL ACTION filed by the local together with copies of tax
treasurer within 5 years from the date real declarations and such affidavits and
property taxes and special levies become documents submitted in support of
due. the appeal.
CLASSIFICATION OF LANDS FOR PURPOSES 3. Tax Refund or Tax Credit
OF ASSESSMENT [Sec. 218 (A)]
1. Commercial  refund of real property tax illegally or
2. Agricultural erroneously levied may be filed with
3. Residential the provincial or city treasurer within 2
4. Mineral years from the date the taxpayer is
5. Industrial entitled to such.
6. Timberland
7. Special  Decision of the local treasurer may be
appealed to the court of competent
SPECIAL CLASSES OF REAL PROPERTY jurisdiction.
(SEC. 216, LGC)
1. Hospitals Note:
2. Cultural and Scientific purposes
3. Owned by Local Water Districts  Unpaid realty tax attached to the
4. GOCC’s rendering essential public property and is chargeable against
services in the supply and distribution of the person who had actual or
water and/ or generation or transmission beneficial use and possession of it
of electric power regardless of whether or not he is the
owner.
REMEDIES OF THE TAXPAYER
 The imposition of back taxes by the
1. Administrative Protest LBAA and CBAA does not violate the
- Filed within 30 days from payment of constitutional prohibition that “no ex
the tax with the provincial city or post facto law or bill of attainder shall
municipal treasurer who shall decide be enacted” Sec. 222 of the LGC is
within 60 days from receipt; not penal in character hence, it may
not be considered an ex post facto
 The PROTEST contemplated under law.
Sec. 252 of the LGC is required when
there is a question of reasonableness  An appeal on assessment of real
of the amount assessed not when the property shall in no case suspend the
question raised is on the very collection of the corresponding realty
authority and power of the assessor taxes on the property involved as
to impose the assessment and of the assessed by the provincial or city
treasurer to collect the tax. (Ty vs. assessor, without prejudice to
Trampo, 250 SCRA 500) subsequent adjustment depending
upon the final outcome of the appeal.
2. Appeal to the Local Board of (Sec. 231, LGC) To suspend the
Assessment Appeals. collection, the taxpayer must secure
an INJUNCTIVE WRIT. The
 Any owner or person having legal prohibition for issuance of writs to
interest in the property who is not enjoin the collection of taxes under
satisfied with the action of the Sec. 229 of the NIRC of 1997, finds
provincial, city or municipal assessor application only in the case of internal
in the assessment of his property revenue taxes.
may, within 60 days from date of
receipt of written notice of
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
98
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 A tax declaration does not bind the 1. Assessment and collection of the lawful
assessor. It only enables the revenues from imported articles and all other
assessor identify the property for dues, fees, charges, fines and penalties
purposes of determining the accruing under the tariff and customs laws;
assessment level. Real property shall
be classified, valued and assessed on 2. Prevention and suppression of smuggling and
the basis of its ACTUAL USE, other frauds upon the customs;
regardless of where located, whoever
owns it and whoever uses it. (Sec.
271, LGC) 3. Enforcement of tariff and customs law s and
all other laws, rules and regulations relating to
 Tax declaration is NOT title to the tariff and customs administration.
property. (Sapuan vs. CA, 214 SCRA
701) 4. Supervision and control over the entrance and
clearance of vessels and aircraft engaged in
foreign commerce;
VIII. TARIFF AND CUSTOMS CODE
5. Supervision and control over the handling of
Definition of Terms foreign mails arriving in the Philippines (for the
purpose of collection of lawful duty on the
 Tariff and Customs Laws. Include: dutiable articles thus imported and the
(1) Provisions of Tariff and Customs prevention of smuggling through the medium
Code and regulations pursuant of such mails);
thereto;
(2) Other laws and regulations subject to 6. Supervision and control of import and export
the enforcement by the Bureau of cargoes landed or stored in piers, airports,
Customs or otherwise within its terminal facilities including container yards
jurisdiction. (Sec. 3514, TCC). and freight stations (for the protection of
government revenue);
 Tariff. Include:
(1) Customs duties, toll or tribute payable 7. Exercise exclusive original jurisdiction over
upon seizure and forfeiture cases under the tariff
(2) Rate of customs; or and customs laws. (Sec. 602, TCC)
(3) List of articles liable to duties;
TERRITORIAL JURISDICTION OF BOC
 Customs Duties. Include: 1. All seas within the jurisdiction of the
1. Taxes on importation and exportation Philippines;
of commodities; 2. All coasts, ports, airports, harbors, bays,
2. Tariff or tax assessed upon rivers and inland waters, whether
merchandise from or exported to a navigable or not form the sea.
foreign country (Garcia vs. Executive (Sec. 603, TCC)
Secretary, 211 SCRA 227)
JURISDICTION OF COLLECTOR OF CUSTOMS
 Note: Customs and tariffs are synonyms OVER IMPORTED ARTICLES
with one another because they both refer 1. Cause all articles for importation to be
to axes imposed on imported and entered into the custom-house;
exported wares, articles or merchandise. 2. Cause all such articles to be appraised
and classified;
3. Assessed and collect the duties, taxes,
fees and other charges thereon;
BUREAU OF CUSTOMS 4. Hold possession of all imported articles
until the duties, taxes , fees and other
FUNCTIONS OF THE BUREAU OF charges are paid.
CUSTOMS [APE2S3] (Sec. 1206, TCC)

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
99
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

WHEN TARIFF AND CUSTOMS LAW IS r.Vehicles, aircrafts, vessels and


APPLIED associated transport equipment;
s. Optical, photographic, medical,
 After importation has begun but before surgical equipment;
importation is terminated. t. Arms, ammunition, parts and
 Importation begins: accessories;
1. When the conveying vessel or aircraft u. Miscellaneous manufactured articles;
and
v. Works of art, collector’s pieces and
2. Enters the jurisdiction of the antiques.
Philippines. 2. Prohibited importation;
3. With intention to unload therein. a. Absolutely prohibited articles;
b. Weapons of war;
 Importation is deemed terminated c. Gambling devices;
1. Upon payment of duties, taxes and d. Narcotics or prohibited drugs;
other charges due upon the articles or e. Immoral, obscene or insidious
secured to be paid, at the port of articles;
entry; AND upon grant of the legal f. Those prohibited under special laws
permit for withdrawal; g. Qualifiedly prohibited articles;

2. In case the articles are free of duties, 3. Conditionally-free importation:


taxes and other charges, until they a. Those provided in Sec 105, TCC;
have legally left the jurisdiction of the b. Those granted to government
customs. agencies, instrumentalities and
GOCC’s in agreements with foreign
GOODS SUBJECT OF TARIFF AND CUSTOMS countries;
LAWS c. Those given to international
institutions entitled to exemption by
1. Articles subject to duty: agreement or special laws; AND
a. Live animals and animal products; d. Those granted by the President upon
b. Vegetable products; recommendation of NEDA.
c. Animal or vegetable fats, oils and
their cleavage products, prepared 4. Duty Free articles
edible fats, animal or vegetable
waxes; CUSTOMS DUTIES
d. Prepared foodstuffs, beverages,
spirits and vinegar; tobacco and GR: No exemption from customs duties
manufactured tobacco substitutes; (Sec 105, TCC);
e. Mineral products;
f. Products of chemical or allied XPN: There could be exemptions from
industries; customs duties –
g. Plastics and articles thereof;
h. Rubber and articles thereof; a. IF provided under the Tariff and
i. Raw hides and skins; leather etc.; Customs Code;
j. Woods and wood articles;
k. Pulp of wood; b. Those granted to government
l. Textile and textile articles agencies, instrumentalities and
m. Articles of stone, plaster, cement, etc; GOCC’s with existing contracts,
n. Footwear, headgear, etc; commitments agreements or
o. Natural or cultured pearls, precious or obligations (requiring such
semi-precious stones; exemptions) with foreign countries;
p. Base metals and articles thereof;
q. Machinery and mechanical c. International institutions, associations
appliances, electric equipment, sound or organizations entitled to
recorders, etc; exemptions pursuant to agreements
or special laws;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
100
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

a. Fraudulently import any article


d. Those granted by the President of the contrary to law assist in so doing ,
Philippines upon recommendation of OR receive conceal, buy sell,
NEDA in the interest of national facilitate transportation,
economic development. concealment or sale of such
articles knowing its illegal
importation;

GOVERNMENT NOT EXEMPT FROM b. Export articles in a manner


CUSTOMS DUTIES, TAXES, FEES AND OTHER contrary to laws.
CHARGES
 Note: The Philippine is divided into various
GR: The following shall be subject to duties, ports of entry. Entry other than those ports will
taxes, fees and other charges provided for in be considered smuggling.
the TCC:
a. All importations by the government for  Evidence for Conviction in Smuggling Cases.
its own use;
b. That of its subordinate branches or GR: Mere possession of the articles in
instrumentalities owned or controlled question.
by the government.
XPN: If defendant could explain that his
Exceptions: Government imports are exempt possession is lawful.
from duties, etc..
a. IF expressly exempted under special DRAWBACK – A device resorted to for enabling a
laws; commodity affected by taxes to be exported and
b. IF imported as conditionally-free sol in foreign markets upon the same terms as if it
importations. (Sec. 1205, TCC) had not been taxed at all. (Uy Chiaco & Sons vs.
Collector, 24 Phil 562).
LIABILITY OF IMPORTER FOR CUSTOMS
DUTIES
CLASSIFICATION OF CUSTOMS DUTIES
a. A personal debt to the government which
can be discharged only by payment in full 1. Regular Duties – those imposed and
of all duties, taxes, fees and other collected merely as a source of revenue.
charges legally accruing; a. Ad valorem Duty – Based on the
value of imported article.
b. A lien upon the articles imported which b. Specific Duty – Based on dutiable
may be enforced while such articles are in weight of goods.
custody or subject to the control of the c. Alternating Duties – Duty which
government. alternates ad valorem and specific.
(Sec. 1204, TCC) d. Compound Duty – Duty consisting of
ad valorem and specific.
 Contraband and Smuggling Defined.
2. Specific Duties – Those imposed in
- “Imported goods must be entered into addition to the ordinary customs duties
a customhouse at their port of entry usually to protect local industries against
otherwise they shall be considered as foreign competition.
contraband and the improter is liable
for smuggling.” (Sec. 101, TCC) a. Anti-Dumping Duty – Imposed upon
foreign products with value lower than
Contraband – Articles of prohibited their fair market value to the detriment
importation or exportation. of local products; it is the difference
between the export price and the
Smuggling – Any act of a person normal value of such product,
who shall: commodity or article.

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
101
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 Imposing authority – The a. To increase, reduce or remove existing


Secretary of Trade and industry protective rates of import duty, provided
(non-agricultural products) OR that the increase shall not be higher than
Secretary of Agriculture 100% ad valorem;
(agricultural products) after formal b. To establish import quota or to ban
investigation and affirmative imports to any commodity;
finding of the Tariff Commission c. To impose additional duty on all imports
b. Countervailing Duty – Imposed not exceeding 10% ad valorem;
upon foreign goods enjoying subsidy d. To modify the forms of duty, whether ad
thus allowing them to sell at lower valorem or specific.
prices to the detriment of local
products similarity situated; it is REMEDIES OF THE GOVERNMENT
equivalent to the value of the subsidy. a. Tax lien (Sec 1204);
b. Compromise/Reduction of Customs
 Imposing authority: Secretary of Duties subject to approval of Secretary of
Finance (non-agri); Secretary of Finance (Sec 709, 2316);
Agriculture (agricultural products) c. Civil action (Sec 1204);
after formal investigation and d. Criminal action;
affirmative finding of the Tariff e. Seizure, Search and Arrest (Sec 2205,
Commission 2210, 2211)
f. Forfeiture (Sec. 2530)
c. Marking Duty – imposed upon those
not properly marked as to place of REMEDIES OF THE TAXPAYER
origin of the goods.
1. ADMINISTRATIVE
 Imposing authority:
Commissioner of Customs. a. Protest (Sec. 2308, 2210)

d. Discriminatory Duty – Imposed  Any importer or interested party –


upon goods coming from countries if dissatisfied with published value
that discriminate against Philippine within 15 days from date of
products. publication OR within 5 days from
date the importer is entitled to
 Imposing authority ; President refund in case payment is
of the Philippines. rendered erroneous or illegal by
events occurring after the
payment.
FLEXIBLE TARIFF CLAUSE  Taxpayer – within 45 days from
 Under Sec. 28, Article VI, 1987 Constitution assessment. Payment under
– the Congress may, by law, authorize the protest is necessary.
President to fix, within specified limits, and  Exclusive remedy in protestable
subject to such limitations and restrictions as cases – the interested party who
it may impose: desires to have the action of the
Collector reviewed, shall make a
a. Tariff rates, imports and export quotas, protest, otherwise the action of
tonnage and wharfage dues; the collector shall be final and
b. Other duties or imposts within the conclusive against him.
framework of the national development
program of the Government. b. Refund (Sec. 1701-1708)

 Under the Tariff and Customs Code Sec.  A written claim for refund may be
401 - In the interest of national economy, submitted by the importer in
general welfare and/or national security, the abatement cases on missing
President upon recommendation by NEDA, is packages, deficiencies in the
empowered: contents of the packages or
shortages before arrival of the
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
102
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

goods in the Philippines, articles c. Abandonment (Sec. 1801)


lost or destroyed after such
arrival, dead or injured animals
and for manifest clerical errors;

 All claims for refund of duties PROCEEDINGS IN THE BUREAU OF


shall be made in writing and CUSTOMS
forwarded to the Collector whom a. Protest cases;
duties are paid and upon receipt b. Seizure and forfeiture cases.
of claim, the Collector shall verify
the same through his records; a. Customs Protest Cases
and shall certify to the
Commission with his - Cases which deal solely with liability
recommendations together with for customs duties, taxes, fees and
all necessary papers and other charges.
documents and upon receipt by
the Commission, he shall cause  Protest is required to be filed only in
the same to be paid if found case the liability of the taxpayer for
correct. duties, taxes, fees and other charges
is determined and the taxpayer
 Drawback cases where the goods disputes said liability.
are re-exported
 REQUISITES FOR CUSTOMS
c. Payment of Fine or Redemption PROTESTS
(Sec. 2307) a. In writing;
b. Points out the particular decision
 In case of settlement of any or ruling by the Collector of
seizure Customs to which exception is
taken or objection is made;
 XPNs: c. States the grounds relied upon for
relief;
(a) When importation is d. Limited to the subject matter of a
absolutely prohibited sngle adjustment;
(b) If release would be contrary e. Filed when the amount claimed is
to law; paid or within 15 days after
(c) When there is an actual and payment;
intentional fraud. f. Sample of goods under protest
must be furnished by the
d. Appeal (Sec. 2313) protestant, when required.
 To the Commissioner, within 15
days after notification by collector  PROCEDURE IN CUSTOMS
of his decision. PROTEST CASES

2. JUDICIAL 1. Collector (within his jurisdiction )


shall cause the imported goods to
a. Appeal (Sec. 2403) be entered at the customhouse;

 To the CTA, within 30 days 2. Collector shall assess, liquidate


from receipt of decision of the and collect the duties thereon OR
Commissioner or Secretary of detain the said goods, in case of
Finance. non-payment;

b. Action to question the Legality of 3. The party adversely affected


Seizure (protestant) may file a written
protest on his foregoing liability.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
103
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

FOREFEITURE NOT EFFECTED IN THE


To? The Collector of Customs ABSENCE OF PRIMA FACIE EVIDENCE
When? Within 15 days after
applying the liquidated  In case of forfeiture of vehicle, vessel or
amount (payment aircraft, it shall not be effected if it is
under protest.) established that the owner or his agent
4. Collector shall conduct a hearing has no knowledge of or participation in
within 15 days from receipt of the the unlawful act.
duly presented protest.
 However, there is prima facie presumption
5. Decision shall be made by the against vessels, vehicles or aircrafts
Collector within 30 days upon under any of the following circumstances:
termination of the hearing.
a. If the conveyance has been used for
IF decision is adverse to the smuggling at least twice before;
protestant, he may: b. If the owner is not in the business for
a. Appeal with the Commissioner within which the conveyance is generally
15 days from notice; used;
b. Then, appeal with CTA within 30 days c. If the owner is financially not in the
from notice; position to own such conveyance.
c. Appeal by certiorari with SC within 15
days from notice. DOCTRINE OF HOT PURSUIT

IF decision is adverse to the 1. Over Vessels:


government, there is – a. Act is done in Philippine waters;
a. Automatic review by the b. Act constitutes a violation of TCC;
Commissioner; c. Pursuit of such vessel began within
b. Automatic review by the Secretary of the jurisdictional waters:
Finance;  Which may continue beyond the
maritime zone;
b. Customs Seizure and Forfeiture Cases  And the vessel may be seized on
the high seas.
 Refers to matters involving
smuggling. 2. Over Imported Articles:
a. There is violation of TCC;
 Administrative and civil in nature and b. As a consequence, they may be
is directed against the res or imported pursued in the Philippines.
articles and entails the determination c. At any place therein (within
of the legality of the importation. jurisdiction over them) for the
enforcement of the law.
ARTICLES SUBJECT TO CONFISCATION
DOCTRINE OF PRIMARY JURISDICTION
GR: Anything that was used for smuggling is
subject to confiscation (e.g. vessels, plane,  THE BOC has exclusive administrative
etc.) jurisdiction to conduct searches, seizures
and forfeitures of contraband without the
XPN: Common carriers which are not interference from the courts.
privately chartered.
 The BOC could conduct searches and
NOTE: Common carriers are generally seizures without need of judicial warrant
not subject to forfeiture except if the owner except if search is to be conducted in a
has knowledge of and consented to its use in dwelling place.
smuggling.
RATIONALE OF DOCTRINE OF EXCLUSIVE
CUSTOMS JURISDICTION

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
104
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

 The rule that the RTC has no power of 3. Officials of the BIR in cases falling within
review over such proceedings is anchored the regular performance of their duties,
upon: when payment of internal revenue taxes
are involved;

(1) The policy of placing no unnecessary 4. Officers generally empowered by law to


hindrance on the government’s drive, effect arrests and execute processes of
not only to prevent smuggling and courts when acting under the direction of
other frauds upon Customs; but more the Collector. (Sec. 2203, TCC).
importantly.
WHERE SEARCHES AND SEIZURES MAY BE
(2) To render effective and efficient the CONDUCTED:
collection of import and export duties
due the State, which enables the 1. Enclosures;
government to carry out the functions 2. Dwelling house; (there must be a search
it has been instituted to perform. warrant issued by the regular courts)
3. Vessels or aircrafts and persons or
 The RTCs are devoid of any articles conveyed therein;
competence to pass upon the validity 4. Vehicles, beasts and persons;
or regularity of seizure and forfeiture 5. Persons arriving from foreign countries.
proceedings conducted by the Bureau
of Customs and sitting in seizure and NOTE: Only upon probable cause may
forfeiture proceedings has exclusive the collector issue such.
jurisdiction to hear and determine all
questions touching on the seizure and
forfeiture of dutiable goods. The RTCs SETTLEMENT OF FORFEITURE CASES
are precluded from assuming
cognizance over such matters even GR: Settlement of cases by fine or
through petitions of certiorari, redemption is generally allowed.
prohibition or mandamus. Even if the
seizure by the Collector of Customs XPNs: When –
were illegal. This does not deprive the
Bureau of Customs of jurisdiction 1. The importation is absolutely
thereon. The allegations or petitioners prohibited;
regarding the propriety of the seizure 2. The surrender of the property to the
should properly be ventilated before person offering to redeem would be
the Collector of Customs (Jao vs. CA, contrary to law; OR
G.R. No. 104604 October 6, 1995) 3. There is fraud.

ABATEMENT OF CUSTOMS DUTIES


WHO MAY ENFORCE TARIFF AND CUSTOMS
LAWS (AND EFFECT SEARCHES, SEIZURES  Reduction or non-imposition of customs
AND ARRESTS) duties on certain imported materials as a
result of:

1. Officials of the Bureau, district collectors, 1. Damage incurred during the voyage;
police officers, agents, inspectors and 2. Deficiency in contents packages;
guests of the Bureau; 3. Loss or destruction of articles after
arrival;
4. Death or injury to animals.
2. Officers of the Philippine Navy and other
members of the AFP and national law
enforcement agencies, when authorized
by the Commissioner of Customs;

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
105
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO

2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE


Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
COMPARATIVE TABLE ON NIRC, TCC, LGC
NIRC TCC LGC
I. GENERAL PRINCIPLES
A. Definitions
 INCOME TAX – tax on yearly profits arising from
property, possession, trade or business, or a tax on  TARIFE – custom duties, toll, tribute  COMMUNITY TAX – tax of affixed amount
income, emoluments, profits and the like. payable upon merchandise to the upon all persons of a certain class within the
government jurisdiction.
 ESTATE TAX – tax levied upon the transfer of the
net estate of a decedent to his heirs.  CUSTOMS DUTIES – tax assessed upon  REAL PROPERTY TAX – a direct tax on
merchandise imported from or exported ownership of lands and building or other
 DONOR’S TAX – excise tax imposed on the to a foreign country. improvements.
transfer of property by way of gift inter vivos.
B. Taxpayers
 INCOME TAX
KINDS SOURCE OF TAX INCOME  IMPORTERS – persons or entities that COMMUNITY TAX
Within and without bring goods or merchandise from a
Resident Within foreign country into the Phils through INDIVIDUALS
Non-resident Citizen Within the port of entry
OCW/Seaman Within  Every inhabitants of the Phils
Resident Alien Within  SUMGGLERS – persons or entities that  Eighteen years of age or over
NRA-ETRB Within fraudulently imports any article or  Who has been regularly employed on a wage or
NRA-NETRB Within and without merchandise contrary to law or whose salary basis for at least 30 days during the
Domestic Corporation Within goods are entered in the Phils other calendar year or who is engaged in business or
Resident Foreign Corp Within than the port of entry. occupation or who owns a real property with an
Non-Resident Foreign Corp
aggregate assessed value of P1,000 or more or
KINDS SOURCES OF TAX INCOME who has required to file an income tax return.

 JURIDICAL PERSONS
- Resident Citizen within and without
- Nonresident Citizen within  Every corp no matter how created or organized
- OCW/Seaman within whether domestic or resident foreign engaged in
- Resident Alien within or doing business in the Phils shall pay an annual
community tax

-NRA ETRB within


-NRA NETRB within REAL PROPERTY TAX
-Domestic Corp within and without
-Resident Foreign Corp within  the owner of the real property or the
-Non Resident Foreign Corp within person having legal interest therein shall
be liable for real property tax.
 ESTATE TAX
KINDS PROPERTY COVERED
- Resident Citizen within and without
- Non Resident Citizen within and without
- Resident Alien within and
without
- Non Resident Alien within

 DONOR’S TAX
- Resident Citizen within and without
- Non Resident Citizen within and without
- Resident Alien within and without
- Non Resident Alien within
C. Inclusions
 INCOME TAX – Gross Income
 Articles subject to duty
 ESTATE TAX – Gross Estate GR: All articles when imported form a foreign
country including those previously exported from
 DONOR’S TAX – Gross Donations the Philippines are subject to duty UNLESS
otherwise specifically provided for in TCC or
other laws (Sec 100 TCC)
D. Exclusions
 INCOME TAX
a. Exclusions from Gross Income  TARIFF AND CUSTOM DUTIES  COMMUNITY TAX
- Proceeds of life insurance 1. Conditionally free from tariff and The ff. are exempt
- Return of insurance premium custom duties – certain conditions must 1. Diplomatic and Consular representatives
- Gift, bequests, or devise be complied with before goods shall be 2. Transient visitors when their stay in the Phils
- Compensation for personal injuries or exempt from tariff and custom duties does not exceed 3 mons.
sickness whether by suit or agreement 2. Free from tariff and custom duties.
- Income exempt under treaty  REAL PROPERTY TAX
- Retirement benefits, pension, gratuities - Exemptions granted to government Real property exempt from real property tax:
- Miscellaneous agencies., instrumentalities, GOCCs 1. Real property owned by the government
with existing contracts, agreements or except when the beneficial use thereof has
b. Exemptions (for individuals ) obligations with foreign countries been granted to a taxable person.
- Personal exemptions - Exemptions of international 2. Real property owned by charitable institutions
- Additional exemptions organizations pursuant to agreements , etc and all lands, buildings and
or special laws improvements actually, directly and
 ESTATE TAX - Exemptions granted by the President of exclusively used for religious, charitable and
Exempt Transmissions the Philippines upon recommendations educational purposes .
of NEDA

Merger of usufruct in the owner of the marked title 3. Machineries and equipments that are
IF commissary substitution actually, directly and exclusively used by local
The transmission from the first heir, legatee water utilities and GOCCs engaged in the
Or done in favor of another beneficiary, in accordance supply and distribution of water and/or
with the wall of the predecessor electric power
Bequests, devices, legacies or transfers to social 4. Real property owned by duly registered
welfare cultural and charitable institutions. cooperatives
5. Machinery and equipment used for pollution
DONOR’S TAX control and environment protection
donation of gifts made by resident/citizen
Dowries or gifts made on account of
Marriage and before its celebration or within Idle lands exempt from tax by reason of:
one year thereafter by parents to each of
their legitimate, illegitimate or adopted - Force majeure
children to the extent of the first P10k - Civil disturbance
gifts made to or for the use of National - Natural calamity
government or any entity created by any - Or any other cause which physically or legally
of its agencies which is not conducted for profit. prevents the owner of the property or person
Gifts in favor of educational, charitable, having legal interest therein from improving
religious, cultural, social welfare utilizing or cultivating the same.
corporation, institutions, foundations, etc
provided that no more than 30% of said
gifts shall be used by such done for
admin purposes
RATES

INCOME TAX
 Valuation is based either on dutiable value ad  COMMUNITY TAX
Individuals – 5% to 32% valorem duties and dutiable weight for specific
Corporation – 35% duties
a. INDIVIDUALS –P500 and annual additional tax of
ESTATE TAX P100 for every P1,000 income regardless of
5-20% whether from business , exercise of a profession
or from property which in no case shall exceed
DONOR’S TAX P5,000
Donee is not a stranger – 2% to 15%
- In case of husband and wife, the additional
tax herein imposed shall be based upon the
total gross receipts or earnings denied by
them.

b. CORPORATIONS – P500 and an annual


- Donee is a stranger – 30% additional tax which in no case shall exceed
P10,000

 REAL PROPERTY TAX


- All real property, whether taxable or exempt
shall be appraised at the current and fair
market value prevailing in the locality where
the property is located

II. ADMINISTRATIVE PROVISIONS


A. Tax Returns

 INCOME TAX  Every importer is required to file an


import entry  REAL PROPERTY TAX
Who is required to file ITR?
a. INDIVIDUAL IMPORT ENTRY – is a declaration showing the - Declaration of Real Property by the
- Resident Citizen particulars of the imported article that will enable the owner/administrator – it shall be the duty of
- Non Resident Citizen on income from within the customs authorities to determine correct duties all persons, natural or judicial, owing or
Phils administering real property to prepare and file
- Resident Alien on income from within the Phils a sworn statement declaring the true value of
- NRA ETRB on income from within the Phils their property, whether previously declared or
- An individual (citizen/alien) engaged in the undeclared, taxable or exempt, which shall be
business or practice of a profession within the the current and fair market value of the
Phils regardless of the amount of gross income property as determined by the declarant (Sec.
- Individual deriving compensation income 202 LGC)
concurrently from two or more employers
- Individual whose pure compensation derived
from sources within the Phils exceeds P60,000

b. TAXABLE ESTATE AND TRUST

c. GENERAL PROFESSIONAL PARTNERSHIP


d. CORPORATION
B. Place of Filing
1. Legal Resident – Authorized Agent Bank,  Office of the Bureau of Custome  Office of the Provincial City or Municipal Assessor
Revenue District Officer, Collection Agent or duly where the real property is situated
Authorized Treasurer
2. Principal Place of Business
3. With the Office of the Commissioner if the
taxpayer has no legal residence or place of
business in the Philippines
C. When to File Tax Returns

 INCOME TAX  An import entry must be accomplished


within 30 days from disembarking of
a. INDIVIDUALS – on or before the 15th day last cargo from vessel
of April each year covering income from
the preceding taxable year.
b. ESTATE AND TRUST – with gross
income of P20k up – file their income tax
return on or before April 15
c. PARTNERSHIP – file HR on or before
April 15
d. CORPORATIONS – within 60 days
following the close of each of the first 3
quarters of the taxable year.

 ESTATE TAX – within 6 months from the


decedent’s death

 DONOR’S TAX - within 30 days after the


date the gift is made.
D. Payment of Taxes

 INCOME TAX – the total amount of tax  Tariff and Custom Duties must be paid  COMMUNITY TAX
shall be paid by the person subject before the goods are released from the
thereto at the time the return is filed Custom’s custody Place of payment – place of residence of the
individual or in the place where the principal office
 ESTATE TAX – shall be paid at the time of the juridical entity is located
the estate tax return is filed by the
executor, administrator or the heirs Time of payment – accrues on the 1st day of
January of each year which shall be paid not later
 DONOR’S TAX – shall be paid at the than the last day of February of each year
time of the filing of the return
Penalty for Delinquency – an interest of 24$ per
annum from the due date until it is paid shall be
added to the amount due
III. TAX REMEDIES
A. Government
1. To effect collection of taxes 1. To effect collection of taxes 1. LOCAL TAX

a. Compromise a. Tax Lien 1. To effect collection of taxes


b. Distraint b. Administrative Fines and Forfeitures a. Tax Lien
c. Levy c. Reduction of Custom Duties/Compromise b. Distraint
d. Tax Lien d. Seizure, search and Arrest c. Levy
e. Civil action e. Civil Action d. Civil action
f. Criminal action f. Criminal action e. Purchase of property by LGU for want of
g. Forfeiture of property bidder
h. Suspension of business operations in 2. To cancel Tax Liability
violation of VAT a. Abatement – reduction or non-imposition of 2. REAL PROPERTY TAX
i. Enforcement of Administrative Fine custom duties on certain imported materials
1. To effect collection of taxes
2. To cancel Tax Liability 3. Power to Assess and Collect – Commissioner of a. Tax Lien
a. Abatement Customs b. Distraint
c. Levy
3. Prescriptive Period of Assessment and NOTE: Automatic Review – if the Collector renders d. Civil action
Collection decision adverse to the government, it will be e. Purchase of property by local
automatically elevated to the Commissioner. If treasurer for want of bidder.
a. Power to Assess Tax – CIR affirmed by the latter, decision shall be reviewed 2. To cancel Tax Liability
1. 3 yrs – from filing of return or date automatically by the Secretary of Finance - Condonation or reduction of real
prescribed by law whichever is the property tax by the President when
later date public interest requires or by
2. 10 yrs – when no return is filed, Sanggunian concerned in cases of
false/fraudulent return general failure of drops or
substantial decrease in price of
b. Collection of Tax agricultural products
1. 5 yrs – from assessment or within a 3. Prescriptive Period of Assessment and
period for collection agreed upon in Collection
writing before expiration of 5 year
period. LOCAL TAX
2. 10 yrs – without assessment in case
of false or fraudulent return with a. Assessment
intent to evade tax or failure to file a 1. 5 yrs – from day they become due
return 2. 10 yrs – in case of fraud
c. Criminal Liability
1. 5 yrs – from commission or b. Collection
discovery of violation whichever is 1. 5 yrs – from the day of assessment
later. by administrative or judiciary action
Local government may appeal to courts from adverse
decision of Sanggunian on purely legal issue

REAL PROPERTY TAX


a. Collection

1. 5 yrs – from date they become due


2. 10 yrs – in case of fraud

NOTE: No Prescriptive Period to Assess


B. Taxpayer
1. Administrative
 Before Payment LOCAL TAX
1. Protest – filing of petition for 1. Protest
reconsideration or - Any importer or any interested party, if Before Assessment
reinvestigation dissatisfied with public value within 15 days 1. Appeal – any question of
2. Entering into a Compromise from the date the importer is entitled to constitutionality or legality of tax
refund; if payment is rendered erroneous or ordinance within 30 days form
 After Payment illegal by events occurring after the payment effectivity thereof to SOJ.
1. Filing Claim for Refund or Tax - Taxpayer – within 15 days from assessment 2. Declaratory Relief when applicable
Credit – within 2 yrs from the  After Assessment
date of payment regardless of NOTE: Payment under protest is ncecessary 1. Protest –within 60 days from receipt
any supervening cause of assessment
2. Refund NOTE: Payment under Protest is NOT necessary
- A written claim for refund maybe submitted by
importer in abatement cases on missing 2. Payment of Subsequent Refund/Tax
packages, deficiencies in contents of Credit – within 2 years from payment
packages or shortages before arrival of the of tax to local treasurer
goods in the Phils, articles lost or destroyed 3. Right of Redemption – 1 year from
after such arrival, dead or injured animals, the date of forfeiture
and for manifest clerical errors.
- Drawback cases where goods are re- REAL PROPERTY TAX
exported 1. Protest – filed within 30 days from date of
3. Settlement of any seizure by payment of fine or payment to provincial city and municipal
redemption treasurer
4. Appeal within 15 days to Commissioner after
notification by Collector of his decision NOTE: Payment under Protest is Required

2. Refund /Tax Credit – within 2 years from date


the taxpayer is entitled thereto
3. Redemption of real property – within 1 year
from date of sale
4. Appeal – within 60 days from assessment of
provincial, city, or municipal assessor (LBAA)
- Within 30 days from receipt of decision of
LBAA- appeal to CBAA
2. Judicial
1. Appeal to CTA Division – within 30 days from
 Civil Action receipt of decision of the Commissioner or LOCAL TAX
1. Appeal – within 30 days from Secretary of Finance.
receipt of decision on the protest 1. Court Action – within 30 days after
or form the lapse of 120 days 2. Action to Question the legality of Seizure receipt of decision or lapse of 60 days of
inaction of the Commissioner to SOJ’s inaction
CTA 3. Abandonment - Within 30 days from receipt when
2. Action to contest Forfeiture of protest of assessment is denied
Chattel - If no action is taken by the treasurer
3. Action for Damages in refund cases and 2 yr period is
about to lapse
 Criminal Action - If remedies available does not
1. Against erring BIR Officials or provide plain, speedy and adequate
Employees remedy
2. Injunction – when CTA in its 2. Action for Declaratory Relief
opinion, the collection of BIR may 3. Injunction – if irreparable damage would
jeopardize taxpayer. Court may be caused to the taxpayer and no
require deposit of an amount or adequate remedy available.
surety bond for not more than
double the amount REAL PROPERTY TAX
1. Court Action – appeal to CBAA’s decision
to CTA
2. Suit assailing validity of tax, recovery of
fund of taxes paid
3. Suit to declare invalidity of tax due to
irregularity in the assessment and
collection
4. Suit assailing the validity of tax sale