NIRC OUTLINE 2.

Unlimited - It is so unlimited in force and searching in extent that courts scarcely

venture to declare that it is subject to any restrictions, except those that such rests
TITLE I ORGANIZATION AND FUNCTION OF THE BIR in the discretion of the authority which exercises it.
TITLE II TAX ON INCOME 3. Plenary - It is complete.
TITLE III ESTATE AND DONOR'S TAXES 4. Supreme - It is supreme insofar as the selection of the subject of taxation is
TITLE IV VALUE- ADDED TAX concerned.
TITLE V OTHER PERCENTAGE TAXES
TITLE VI EXCISE TAXES ON CERTAIN GOODS Q: What are the purposes of taxation?
TITLE VII DOCUMENTARY STAMP TAX
TITLE VIII REMEDIES A: PR3EP
TITLE IX COMPLIANCE REQUIREMENTS
1. Revenue
TITLE X STATUTORY OFFENSES AND PENALTIES
2. Promotion of general welfare – taxation may be used as an implement of police
TITLE XI ALLOTMENT OF INTERNAL REVENUE
power to promote the general welfare of the people.
TITLE XII OVERSIGHT COMMITTEE
3. Regulation of activities/industries
TITLE XIII REPEALING PROVISIONS
4. Reduction of Social inequality – a progressive system of taxation prevents the
TITLE XIV FINAL PROVISIONS
undue concentration of wealth in the hands of few individuals.
5. Encourage economic growth – the grant of incentives or exemptions
GENERAL PRINCIPLES OF TAXATION 6. Protectionism – In case of foreign importations, protective tariffs and customs
are imposed to protect local industries.
NATURE OF TAXATION
Q: What is the nature of the power to tax?
PRINCIPLES OF SOUND TAX SYSTEM
A: The nature of the power to tax is two-fold:
1. inherent and Q: What are the basic principles of a sound tax system (Canons of Taxation)?
2. legislative.
A: FAT
THEORY AND BASIS OF TAXATION
1. Lifeblood theory (Necessity theory) 1. Fiscal adequacy - Revenue raised must be sufficient to meet government/public
2. Benefits-protection theory (Doctrine of Symbiotic Relationship) expenditures and other public needs.
It involves the power of the State to demand and receive taxes based on 2. Administrative feasibility - Tax laws must be clear and concise. Capable of
the reciprocal duties of support and protection between the State and its citizen. effective and efficient enforcement. Convenient as to time and manner of
The government for its part is expected to respond in the form of tangible and payment; must not obstruct business growth and economic development.
intangible benefits. Special benefits to taxpayers are not required. A person 3. Theoretical justice - Ability to Pay Theory).
cannot object to or resist the payment of taxes solely because no personal benefit
to him can be pointed out arising from the tax. POWER OF TAXATION COMPARED WITH OTHER POWERS OF THE STATE

Q: What are the distinctions among the three inherent powers of the State?
Q: What are the characteristics of the power to tax?
A: CUPS TAXATION POLICE POWER EMINENT DOMAIN
1. Comprehensive - It covers persons, businesses, activities, professions, rights and Purpose
privileges. To raise revenue in order Promotion of general To facilitate the taking of
to support of the welfare through private property for public
Government regulations purpose

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 Persons affected 2. It should be uniform;
Upon the community or Upon community or class On an individual as the 3. That either the person or property being taxed be within the jurisdiction of the
class of of owner of a particular taxing authority; and
Amount of monetary imposition 4. The tax must not impinge (strike) on the inherent and constitutional
No ceiling except inherent Limited to the cost of No imposition, the owner limitations on the power of taxation.
limitations regulation, issuance of is paid the fair market
license or surveillance value of his property
Scope of legislative power in taxation?
Benefits received
Protection of a secured Maintenance of healthy The person receives the
organized society, benefits economic standard of fair market value of the 1. The determination of: [SAP-MAKS]
received from society/ No direct benefit property taken from him/ a. Subject of Taxation
government/ No direct direct benefit results b. Amount or Rate of Tax
benefit c. Purposes
Non-Impairment of contracts d. Method of collection
Tax laws generally do not Contracts may be impaired Contracts may be impaired e. Apportionment of the tax
impair contracts, unless: f. Kind of tax to be collected
government is party to g. Situs of taxation
contract granting
exemption for a 2. The grant tax exemptions and condonations.
consideration
Note: It is incorrect to state that the 3 powers are all exercised by the legislature because
3. The power to specify or provide for administrative as well as judicial remedies.
there are other entities which can exercise the said powers.

TAXES TAX AS DISTINGUISHED FROM OTHER CHARGES AND FEES

CONCEPT AND NATof teURE TAX CUSTOMS DUTY
Coverage
More comprehensive than customs duty Only a kind of tax therefore limited coverage
Q: Define taxes.
Object
A: These are enforced proportional contributions from persons and properties,
Persons, property, etc. Goods imported or exported
levied by the State by virtue of its sovereignty for the support of the government
and for all its public needs. TAX PENALTY
Definition
Q: What are the characteristics of taxes? An enforced proportional contribution from Sanction imposed as a punishment for a violation
A: SLEP4 persons and property for public purpose/s. of the law or acts deemed injurious; violation of
tax laws may give rise to imposition of penalty.
1. It is levied by the State which has jurisdiction over the person or property
Purpose
2. It is levied by the State through its Law-making body To raise revenue To regulate conduct
3. It is an Enforced contribution not dependent on the will of the person taxed.
4. It is generally Payable in money TAX TOLL
5. It is Proportionate in character Definition
6. It is levied on Persons and property An enforced proportional contribution from A consideration paid for the use of a road, bridge
7. It is levied for a Public purpose. persons and property for public purpose/s. or the like, of a public nature.
Basis
Demand of sovereignty Demand of proprietorship
Requisites of a valid tax - PUJI Amount
1. It should be for a public purpose;

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Generally the amount is unlimited Amount is limited to the cost and maintenance SCOPE AND LIMITATION OF TAXATION
of public improvement
Purpose
For the support of the government For the use of another’s property
Limitations on the power to tax?
Authority 1. Inherent limitations – otherwise known as “elements or characteristics of
May be imposed by the State only May be imposed by private individuals or entities taxation”. [SPINE]
a. Situs or territoriality
TAX LICENSE FEE b. Public purpose
Purpose c. International comity
Imposed to raise revenue For regulation and control
d. Non-delegability of the taxing power itself
Basis
Collected under the power of taxation Collected under police power e. Exemption of the Government
Amount
Generally, amount is unlimited Limited to the necessary expenses of regulation 2. Constitutional Limitations
and control
Subject
Tests in determining public purpose
Imposed on persons, property, rights or Imposed on the exercise of a right or privilege
transaction 1. Duty test - Whether the thing to be furthered by the appropriation of public
Effect of Non-Payment revenue is something which is the duty of the State as a government to provide.
Non-payment does not make the business Non-payment makes the business illegal 2. Promotion of general welfare test - Whether the proceeds of the tax will
illegal directly promote the welfare of the community in equal measure.
Time of Payment
Normally paid after the start of business Normally paid before the commencement of the
business Q: What are the non-delegable legislative powers?
A: SuPuR2
1. Selection of Subject to be taxed
TAX SPECIAL ASSESSMENT 2. Determination of Purposes for which taxes shall be levied
Nature 3. Fixing of the Rate/amount of taxation
An enforced proportional An enforced proportional 4. Situs of tax
contribution from contribution from owners
5. Kind of Tax
persons and property for of lands especially those
public purpose/s. who are peculiarly
benefited by public Q: What are the rules on tax exemptions of government agencies or
improvements instrumentalities?
Subject
A:
Imposed on persons, Levied only on
property rights or 1. If the taxing authority is the National Government:
transactions land GR: The government is exempt from tax.
Person Liable XPN: When it chooses to tax itself.
A personal liability of the Not a personal liability of 2. If the taxing authority is the local government unit, RA 7160 expressly prohibits
taxpayer the person assessed
local government units from levyin tax on the National Government, its agencies
Purpose
For the support of the Contribution to the cost of and instrumentalities and other LGUs.
government public improvement
Scope 1. Agencies performing governmental functions are tax exempt unless expressly
Regular exaction Exceptional as to time and taxed.
locality
2. Agencies performing proprietary functions are subject to tax unless expressly
exempted.

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STAGES/ASPECTS OF TAXATION Q: What is tax avoidance?
The stages/aspects of a system of taxation are as follows: [LAcPR] aka Tax Minimization -- is the tax saving device within the means sanctioned by
law.
1. Tax Legislation (Levy or Imposition) –enactment of a law by Congress
authorizing the imposition of tax. A: It is the scheme where the taxpayer uses legally permissible alternative
Levy=Imposition refers to the act of imposition by the legislature which method of assessing taxable property or income, in order to avoid or reduce tax
is done through the enactment of a tax law. liability.
2. Tax Administration (Assessment and Collection) – implementation of the tax
law by executive through its administrative agencies. The act of assessing and Q: What is tax evasion?
collecting taxes is administrative in character, and therefore can be delegated.
3. Payment A: It is the scheme where the taxpayer uses illegal or fraudulent means to defeat
4. Refund or lessen payment of a tax.

Note: If what is delegated is tax legislation, the delegation is invalid. If what is delegated is Q: What are the elements to be considered in determining that there is tax
tax administration, the delegation is valid. (Then there is no delegation to speak of, because evasion?
tax administration pertains to the executive or administrative agencies). Levy or the
A: ESC
imposition of tax cannot be delegated since it is exclusively conferred with the Congress.
1. End to be achieved - less or absence of payment
2. Accompanying State of mind - wilful or deliberate and not accidental; and
Q: What are the elements of direct double taxation?
3. Course of action which is unlawful.
A:
1. The same:
Q: Distinguish tax avoidance from tax evasion?
a. object or property is taxed twice
b. by the same taxing authority TAX AVOIDANCE TAX EVASION
c. for the same taxing purpose Validity
d. within the same tax period Legal and not subject to criminal penalty Illegal and subject to criminal penalty
Effect
Minimization of taxes Almost always results in absence of tax
2. Taxing all the objects or property for the first time without taxing all of them for
payment.
the second time.
Exemption from Taxation
Escape from Taxation
Tax Exemption - grant of immunity from tax, express or implied
Q: What are the basic forms of escape from taxation?
Nature of tax exemptions.
1. Personal in nature and covers only taxes for which the grantee is directly liable.
A: SCATE2
Note: It cannot be transferred or assigned by the person to whom it is given
without the consent of the State.
1. Shifting
2. Strictly construed against the taxpayer.
2. Capitalization
3. Exemptions are not presumed. But when public property is involved, exemption
3. Avoidance
is the rule, and taxation, the exception.
4. Transformation
5. Evasion
Compromise
6. Exemption
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Q: Who are the persons allowed to enter into compromise of tax obligations? 2. Tax laws are generally prospective in nature.
A: The law allows the following persons to do compromise in behalf of the 3. Where the language is clear and categorical, the words employed are to be given
government: their ordinary meaning.
1. BIR Commissioner, as expressly authorized by the NIRC, and subject to the 4. When there is doubt, tax laws are strictly construed against the Government
following conditions: and liberally in favor of the taxpayer.
a. When a reasonable doubt as to validity of the claim against the taxpayer exists; Note: Taxes, being burdens, are not to be presumed beyond what the statute
or expressly and clearly provides.
b. The financial position of the taxpayer demonstrates a clear inability to pay the 5. Provisions of the taxing act are not to be extended by implication.
assessed tax. 6. Tax laws are special laws and prevail over general laws.
2. Collector of Customs, with respect to customs duties limited to cases where the
legitimate authority is specifically granted such as in the remission of duties. Q: What are the powers and duties of the BIR?
3. Customs Commissioner, subject to the approval of the Secretary of Finance, in 1. Assessment and collection of all national internal revenue taxes, fees and
cases involving the imposition of fines, surcharges, and forfeitures. charges;
2. Enforcement of all forfeitures, penalties and fines;
Q: Distinguish tax amnesty from tax exemption. 3. Execution of judgments in all cases decided in its favor (by the CTA and regular
TAX AMNESTY TAX EXEMPTION courts);
Scope of immunity
4. Give effect and administer the supervisory and police powers conferred to it by
Immunity from all Immunity from civil liability
criminal, civil and only the NIRC and other laws.
administrative obligations 5. Recommend to the Secretary of Finance all needful rules and regulations for the
arising from non-payment effective enforcement of the provision of the NIRC.
of taxes
Grantee
General pardon given to A freedom from a charge or
To Inquire into bank deposits of
all erring taxpayers burden to which others are a. Decedent to determine his gross income;
subjected b. A taxpayer who filed application to compromise payment of tax liability by
How applied reason of financial incapacity;
Applied retroactively Applied prospectively
c. A specific taxpayer or taxpayers subject of a request for the supply of tax
Presence of actual revenue loss
There is revenue loss None, because there was information from a foreign tax authority pursuant to an international convention
since there was actually no actual taxes due as the or agreement on tax matters to which the Philippines is a signatory or a party of.
taxes due but collection person or transaction is Provided, that the information obtained from the banks and other financial
was waived by the protected by tax institutions may be used by the BIR for tax assessment, verification, audit and
government exemption.
enforcement purposes;
CONSTRUCTION AND INTERPRETATION OF TAX LAWS
Q: What are the powers of the BIR which cannot be delegated?
A: RICA
Nature of tax laws?
1. To Recommend promulgation of rules and regulations by the Secretary of
1. Not political
Finance;
2. Civil in nature
2. To Issue rulings of first impression or to reverse, revoke or modify any existing
3. Not penal in character
rule of the BIR;
3. To Compromise or abate any tax liability;
How are tax laws construed?
XPN: The Regional Evaluation Board may compromise assessments involving
1. Generally, no person or property is subject to tax unless within the terms or
deficiency taxes of P500,000 or less and minor crime violations.
plain import of a taxing statute.
Page 5 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW
4. To Assign or reassign internal revenue officers to establishments where articles
subject to excise tax are kept.

Suspension of Business Operation Q: State the “No injunction to restrain tax collection rule.”
Q: When can the CIR suspend the business operation of a taxpayer? A:
GR: Under this rule, “No court shall have the authority to grant an injunction to
1. In the case of VAT-registered person: restrain the collection of any national internal revenue, tax, fee or charge.” (Sec.
a. Failure to issue receipts or invoices; 219, R.A. 8424)
b. Failure to file a VAT return as required under Sec. 114; or
c. Understatement of taxable sales or receipts by 30% or more of his correct XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its
taxable sales or receipts for the taxable quarter. opinion the same may jeopardize the interest of the government and/or the
taxpayer. In this instance, the court may require the taxpayer either to deposit the
2. Failure of any person to Register as required under Sec. 236: amount claimed or file a surety bond for not more than double the amount with
The temporary closure of the establishment shall be for the duration of not less the court. (RA 1125 as amended by RA 9282)
than 5 days and shall be lifted only upon compliance with whatever requirements
prescribed by the CIR in the closure order. (Sec. 115 NIRC) Note: There is no express provision in the lg prohibiting courts from issuing an
injunction to restrain local givernment from collecting tax
TAX REMEDIES UNDER THE NIRC
1. Taxpayer’s Remedies Doctrine of Equitable Recoupment
2. Government Remedies
It is a principle which allows a taxpayer, whose claim for refund has been barred
Q: What are the remedies available to the taxpayer? due to prescription, to recover said tax by setting off the prescribed refund against
safeguards of the taxpayer’s rights against arbitrary action. a tax that may be due and collectible from him. Under this doctrine, the taxpayer
1. Administrative is allowed to credit such refund to his existing tax liability.
a. Before payment of taxes:
a. Dispute Assessment (Protest) Note: The Supreme Court, rejected this doctrine in Collector v. UST (G.R. No. L-
i. Request for reconsideration 11274, Nov. 28, 1958), since it may work to tempt both parties to delay and neglect
ii. Request for reinvestigation their respective pursuits of legal action within the period set by law.
b. Entering a compromise agreement
b. After payment of taxes: Taxpayer’s suit
a. Claim for Tax Refund It is a case where the act complained of directly involves the illegal disbursement
of public funds collected through taxation.
2. Judicial
a. Civil Taxpayer’s Suit Distinguished From Citizens Suit
b. Criminal > The act compalined of directly involves the illegal disbursement of public funds.
> the plaintiff is affected by the expenditure of public funds
3. Substantive
a. Question validity of tax statute/ regulation > In matter of mere public right, the people are the real partie. It is at least the
b. Non-retroactivity of rulings right, if not the duty, of every citizen to institute in protection of the general
c. Must be informed of the legal and factual bases of assessment public.
d. Preservation of books of accounts and examination once a year > the plaintiff is but the mere instrument of the public concern.

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Requisites of a taxpayer's suit, for him to establish locus standi
a. Public funds are disbursed by a political subdivision or instrumentality and in
doing so, a law is violated or some irregularity is committed; and
b. Petitioner is directly affected by the alleged ultra vires act.
Concept Of Locus Standi As Applied In Taxation
Q: When may a taxpayer's suit be allowed?
A: A taxpayer's suit may only be allowed when an act complained of, which may
include a legislative enactment, directly involves the illegal disbursement of public
funds derived from taxation
Principle of Transcendental Importance
GR: only those with locus standi
XPN: However, the SC has discretion as to whether or not entertain a taxpayer’s
suit and could brush aside the lack of locus standi where the issues are of
transcendental importance in keeping with the court’s duty to determine that
public offices have not abused the discretion given to them.
The following determines the importance of transcendental importance:
a. The character of the funds or other assets involved in the case;
b. The presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of the
government;
c. The lack of any other party with a more direct and specific interest in raising the
questions being raised.
Ripeness for Judicial Determination
When the government's act being challenged has a direct adverse effect on the
individual challenging it. Personal injury must be shown.
What is the Doctrine of Ripeness for Review?
A: This doctrine is the similar to that of exhaustion of administrative remedies
except that it applies to the rule making and to administrative action which is
embodied neither in rules and regulations nor in adjudication or final order.
Page 7 of 55 TATEL, ME
Note: It is applicable when the Interest of the plaintiff is subjected to or
imminently threatened with substantial injury; if the statute is Self-executing;
when a party is immediately confronted with the problem of complying or
violating a statute and there is a risk of Criminal penalties; or when plaintiff is
harmed by the Vagueness of the statute. VICS
Assessment
Q: What is a notice of assessment?
A: It is a written notice to a taxpayer to the effect that the amount stated therein
is due as tax and containing a demand for the payment. It is a finding by the taxing
agency that the taxpayer has not paid his correct taxes.
Q: What are the principles governing tax assessments?
A: PAD3
1. Assessments:
a. Prima facie presumed correct and made in good faith;
b. Should be based on Actual facts; (estimates can also be a basis given that it is
not arrived at arbitrarily or capriciously)
c. Discretionary on the part of the Commissioner;
d. Must be DIrected to the right party.
2. The authority vested in the Commissioner to assess taxes may be Delegated
Q: Is the assessment made by the CIR subject to judicial review?
A: No, for such power is discretionary. What may be the subject of a judicial review
is the decision of the CIR on the protest against the assessment, not the
assessment itself.
Q: What are the different ways of paying taxes?
1. Pay-as-you-file system
2. Installment payment
Requisites for Valid Assessment
The assessment must:
1. Be in writing and signed by the BIR;
2. Contain the law and the facts on which the assessment is made; and
3. Contain a demand for payment within the prescribed period. (Sec. 228, NIRC)
COMMIT TO MEMORY_TAXATION LAW
Constructive Method of Income Determination Can immediately be collected administratively Can be collected through administrative and/or
through the issuance of a warrant of distraint judicial remedies but has to go through the
and levy, and/or judicial action process of filling the protest by the taxpayer
Q: If the taxpayer’s record or methods of accounting are not reflective of his true against the assessment and the denial of such
income, what methods may be utilized by the CIR to determine the correct taxable protest by the BIR
income of the taxpayer? Civil Action
A: NCPBUTTS The filing of a civil action for the collection of the The filling of a civil action at the ordinary court
delinquent tax in the ordinary court is a proper for collection during the pendency of protest
1. Net worth method remedy may be the subject of a motion to dismiss. In
2. Cash expenditure method addition to a motion to dismiss, the taxpayer
3. Percentage method must file a petition for review with the CTA to
4. Bank deposit method toll the running of the prescriptive period
Penalties
5. Unit and value method
A delinquent tax is subject to A deficiency tax is generally not subject to the
6. Third party information or access to records method administrative penalties such as 25% surcharge, 25%
7. Surveillance and assessment method interest, and compromise penalty surcharge, although subject to interest and
8. Such methods as in the opinion of the BIR Commissioner clearly reflect the compromise penalty
income
Q: When is a return considered filed for purposes of prescription?
When is Assessment Made A: When the return is valid and appropriate.
1. Valid – When it has complied substantially with the requirements of law.
A: When it is released, mailed or sent by the collector of internal revenue to the 2. Appropriate – When it is a return for the particular tax required by law.
taxpayer within the three-year or ten-year period, as the case may be. (CIR v.
Pascor, GR 128315, June 29, 1999) PRESCRIPTIVE PERIOD OF ASSESSMENT
DATE OF FILING PRESCRIPTIVE PERIOD
It is the sending of the notice and not the receipt that tolls the prescriptive Filed ON due date 3 years from due date
period. (Basilan v. CIR, GR L-22492, Sept. 5, 1967) Filed BEFORE due date 3 years from due date
Filed beyond due date 3 years from actual filing
Q: What is Delinquency Tax and Deficiency Tax? Fraudulent filing 10 years from discovery of bad
1. Delinquency Tax – a taxpayer is considered delinquent in the payment of taxes faith/fraud
when: Non-filing 10 years from discovery of non-filing
a. Self-assessed tax per return filed by the taxpayer on the prescribed Waiver by Tx: Depends on the assessment of the parties provided that the
date was not paid at all or only partially paid; or agreement to extend is executed prior to expiration of the original period of
b. Deficiency tax assessed by the BIR becomes final and executory. assessment
2. Deficiency Tax – NON-FILING v. LATE FILING
a. The amount by which the tax imposed by law as determined by the CIR or his If the filing of return is BEYOND the taxable year = NON-FILING
authorized representative exceeds the amount shown as tax by the taxpayer upon If the filing is made WITHIN THE TAXABLE YEAR BUT BEYOND THE DUE
his return; or DATE = LATE FILING
b. If no amount is shown as tax by the taxpayer upon his return is made by the
taxpayer, then the amount by which the tax as determined by the CIR or his
authorized representative exceeds the amounts previously assessed or collected Q: What is the effect of filing a defective return?
without assessment as deficiency. A: If the return was defective, it is as if no return was filed. The corollary
prescription will be 10 years from and after the discovery of the failure or omission
Delinquency Tax Deficiency Tax and not the 3 year prescriptive period.
Collection

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Q: When is an amendment considered substantial?
1. There is under declaration (exceeding 30% of that declared) of taxable sales,
receipts or income; or
2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)
GROUNDS FOR SUSPENSION OF PRESCRIPTIVE PERIOD OF ASSESSMENT
A: LOW-R
1. When taxpayer cannot be Located in the address given by him in the return
filed upon which a tax is being assessed or collected.
2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC)
3. When the Warrant of distraint and levy is duly served upon the taxpayer and
no property is located.
4. When the taxpayer Requests for reinvestigation which is granted by the
Commissioner
5. Where the CIR is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court for 60 days thereafter, such as where there is a Pending petition for
review in the CTA from the decision on the protested assessment (Republic v. Ker & Co., GR L-
21609);
6. Where CIR and the taxpayer Agreed in writing for the extension of the assessment, the tax
may be assessed within the period so agreed upon (Sec. 222 [b], NIRC);
7. When there is an Answer filed by the BIR to the petition for review in the CTA (Hermanos v.
CIR, GR. No. L-24972. Sept. 30, 1969) where the court justified this by saying that in the
answer filed by the BIR, it prayed for the collection of taxes.
(ii) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as,
but not limited to, vehicles, capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt persons.
*In the above-cited cases, a FLD/FAN shall be issued outright.
Premise: Sec. 5 of the NIRC provide for powers of BIR to determine whether or
not the entries in the return are true and correct. When BIR exercises any or all the
powers in Sec 5-15 of NIRC and has NEGATIVE findings, an investigation will be
conducted.
1. Letter of Authority shall first be issued.
2. PAN (Preliminary Assessment Notice) for the proposed assessment.
Showing in detail, the facts and the law, RRs, or jurisprudence on
which the proposed assessment is based.

RR 18-13 Amending 12-99 re due process requirement for the issuance of a 15 DAYS from receipt of PAN
Deficiency Tax Assessment NO Response Response – YES
Taxpayer – IN DEFAULT That he/it disagrees with the findings of
PAN – is a form of informal conference with the taxpayer and allows the BIR to deficiency tax or taxes.
open his books of account. The taxpayer’s refusal to open books of account will
BIR shall issue a Formal Letter of Demand Within 15 DAYS from filing/submission of
cause the BIR to issue a jeopardy assessment. FAN is later issued. Mandatory;
and Final Assessment Notice (FLD/FAN), the taxpayer’s response BIR shall issue
otherwise assessment is void. calling for payment of the taxpayer's FLD/FAN calling for payment of
deficiency tax liability, inclusive of the the taxpayer's deficiency tax
Assessment = Liquidation in TCC applicable penalties. liability, inclusive of the
applicable penalties.
FAN – assessment for deficiency tax

NO PAN is REQUIRED: DREAM 3. FAN (Final Assessment Notice)

(i) When the finding for any deficiency tax is the result of mathematical error in FLD/FAN shall be issued by the Commissioner or his duly authorized
the computation of the tax appearing on the face of the tax return filed by the representative. Shall state the facts, the law, rules and regulations, or
taxpayer; or jurisprudence on which the assessment is based; otherwise, the
assessment shall be void.
Page 9 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW
Disputed Assessment Within 30 Within 30 DAYS from RECON: WITHIN 180 DAYS from filing
Within 30 DAYS (non-extendible) from receipt of FLD/FAN DAYS from receipt of decision, of protest
Taxpayer may PROTEST Administratively Otherwise, the assessment shall become receipt of OR elevate (Admin REINVESTIGATION: 180 days from
against FLD/FAN, he/it may file a written final, executory and demandable. decision, Appeal) thru date of submission of the required
request for reconsideration or (beyond 30 days, become automatically APPEAL to RECONSIDERATION to documents within sixty 60 days from
reinvestigation denied) CTA Commissioner the date of filing
>Request for Within 30 DAYS Await the final
FORMS OF PROTEST reinvestigation – NOT from the decision of the
RECONSIDERATION REINVESTIGATION ALLOWED and expiration of REP on the
Involves re-evaluation Involves presentation >Only issues raised in 180-day period, disputed
of assessment based of newly-discovered or the decision of the Rep APPEAL to CTA , assessment
on existing records. additional evidence. s/b entertained by the
It does not toll the It tolls the Statute of Comm. OR
Statute of Limitations. Limitations.
It may involve a It may involve a Note: NO appeal to the CIR from failure to act by the CIR's rep.
question of fact or law question of fact or law
or both. or both. Protest/ADMIN Appeal_ BY THE COMM
Note: It need not be in a form of a pleading and may be a letter for reinvestigation, re- DENIED, in whole or in part NON-ACTION WITHIN 180 DAYS from
computation or motion for reconsideration. Taxpayer shall state the facts, the applicable law, Filing
rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest Within 30 days Otherwise, Within 30 DAYS Await the final
shall be void and without force and effect. from receipt of the assessment from the decision of the
decision, APPEAL shall become final, expiration of 180- Comm. on the
2 KINDS OF PROTEST to CTA executory and day period, disputed
1. Complete – the protest includes all necessary documents demandable APPEAL to CTA , assessment and
2. Incomplete – the documents may be completed and within a period of appeal such final
time as maybe required by the BIR which period shall not exceed 60 days OR decision to the CTA
within 30 days after
the receipt of a
For REQUEST for REINVESTIGATION
copy of such
Within 60 DAYS from FILING of PROTEST decision.
Taxpayer shall submit all Otherwise, the assessment MR of the Commissioner’s denial shall **In case of inaction *Mutually exclusive
relevant supporting shall become final. not toll the thirty (30)-day period to and the resort to one bars the application
documents appeal to the CTA. of the other.
“Final” - shall mean the
**If BIR issues a decision granting/denying the protest after the 180-day period and there is
taxpayer is barred from
already an appeal pending in the CTA division, the appeal shall continue and the taxpayer shall
disputing the correctness of
manifest before the CTA that BIR has issued a decision. Is there a need to file another appeal
the issued assessment by
on the decision of the BIR? There is no need for filing of a new appeal as one already pending
introduction of newly
or inform CTA of BIR decision if protest is denied. If the BIR decision is in favour if the tx, tx can
discovered or additional
withdraw his appeal or inform CTA of BIR decision if protest is denied.
evidence, and the FDDA shall
consequently be denied. Appeal is to CTA DIVISION first.
Period to appeal to CTA en banc? Law is silent so apply the 15-day period of the RC.
BY THE DULY REP
DENIED, in whole or in part NON-ACTION
CTA Jurisdiction - P 1M & above exclusive of interest, penalties, surcharges

Page 10 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW

PRESCRIPTIVE PERIOD for COLLECTION payment of the tax or in case credit is
ASSESSMENT (A) COLLECTION (C) penalty wrongly made
Return is filed on or before 3 years from due date 5 years from receipt of A
due date What are the requisites for a tax refund or tax credit?
Return is filed after due 3 years from the actual 5 years from receipt of A 1. There must be a written claim with the CIR, as it would enable the CIR to correct
date filing
the errors of his subordinate and to notify the government;
Fraudulent filing of return 10 years from the 5 years from receipt of A
discovery of fraud/bad
2. Must be a categorical claim for refund or credit;
faith 3. Must be filed within 2 years after the payment of the tax or penalty otherwise
Non-filing 10 years from discover of 5 years from receipt of A no refund or credit could be taken. No suit or proceeding shall be instituted after
non-filing the expiration of the 2 year period regardless of any supervening cause that may
No assessment is issued by the BIR 10 years from discovery of arise after payment; and
The BIR may opt not to issue assessment when: filing of fraudulent return 4. Present proof of payment of the tax.
1. Return is filed fraudulently; or or non-filing
No return is filed VAT, S112
Q: What is the method used in the collection of taxes? 2-year - admin. Claim
A: The legislature may adopt any reasonable method for the effective 120-day waiting period (CIR decides within 120-day from submission of docs re
enforcement of the collection of taxes, subject to: application for tax refund/credit) -GR: MANDATORY & Jurisdictional
1. The right of the person to notice; and
2. The opportunity to be heard. Illegaly Collected Tax Erroneously collected tax
Definition
Q: How is judicial action for the collection of tax commences? There is a violation of certain provisions of tax No violation of the law but there is a mistake in
law or statute. collection.
1. By the filing of a complaint with the proper court of first instance, or where the On the part of the Taxpayer
assessment is appealed to the CTA; or The tax was paid by him under duress. The payment was made under a mistake of fact.
2. By filing an answer to the taxpayer's petition for review wherein payment of the On the part of the Government
tax is prayed for. (Fernandez Hermanos, Inc. v. CIR, GR L-21551, Sept. 30, 1969) The tax was collected in patent disregard of the The collection was made based on a
law. misapplication of the law.
Criminal Action
Q: What are the criminal actions available for the taxpayer? Q: Is a deficiency tax assessment a bar to a claim for tax refund or tax credit?
A: Yes, the deficiency tax assessment is a bar to a tax refund or credit.
A: Filing of criminal complaint against erring BIR officials and employees.
Note: With the enactment of the new CTA law (RA 9282) amending RA No. 1125, Q: Is the government liable for interests on tax refunds?
CTA now has jurisdiction over criminal cases. GR: There can be no interest on refund of tax.
XPNs:
TAX REFUND TAX CREDIT 1. If interest is authorized by law.
The taxpayer asks for The taxpayer asks 2. Arbitrariness in the collection of tax.
restitution of the that the money paid 3. Under Sec. 79 C [2] with respect to income taxes withheld on the wages of the
money paid as tax be applied to his employees.
existing tax liability
Q: What should be done within the the 2-year prescriptive period for tax refund?
2-yr period to file the 2-yr period starts A: It is necessary that the: othervthan vat
claim with the CIR from the date such 1. Claim for refund in the BIR; and
starts after the credit was allowed – 2. Proceeding in the CTA

Page 11 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW

Is commenced within the 2-year prescriptive period counted from the date of full payment
of the tax or penalty regarless of any supervening event. (Sec. 229, NIRC)
Zero-rated (frim the close of taxable quarter)
Note: This 2-year prescriptive period applies only for the recovery of taxes or penalties
erroneously, excessively, illegally or wrongfully collected. Accordingly, an ordinary claim for
tax credit would prescribe in 10 years under Art 1144 NCC.
Q: State the reckoning of the 2-year prescriptive periods for tax refunds.
1. Tax is paid in installments – 2 years should be counted from the date of the final payment.
2. Payments effected through the 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.
3. In corporate dissolution – The 2-year prescriptive period should be counted from 30 days
after the approval by the SEC of its plan of dissolution.
Q: Is payment under protest a requirement?
A: No. A suit or proceeding for tax refund may be maintained “whether or not such tax,
penalty or sum has been paid under protest or duress.”
interest in or rights to personal property.) The property may be offered in a public
sale, if taxes are not voluntarily paid.
Q: What are the requisites for the exercise of distraint (and levy)?
A: DeF–DeP
1. Taxpayer is Delinquent in payment of tax;
2. There must be subsequent Demand to pay;
3. Taxpayer Failed to pay delinquent tax on time; and
4. Period within which to assess and collect the tax due has not yet prescribed.
Q: What are the kinds of distraint?
1. Actual – resorted to when there is actual delinquency in tax payment.
2. Constructive – a preventive remedy which aims at forestalling a possible
dissipation of the taxpayer’s assets when delinquency sets in. Hence, no actual
delinquency in payment is necessary.

Q: Alyanna has a pending claim for refund with the CIR. The 2-year period is about to end and Q: Define levy.
the CIR has yet to decide on the claim. What must Alyanna do to pursue her claim for refund? A: It is the seizure of real property and interest in or rights to such properties for
the satisfaction of taxes due from the delinquent taxpayer.
A: A claim for refund must be filed with the BIR and the commencement of the proceedings in
the CTA must be done within the 2-year period from the date of full payment of the tax or
Q: When may levy on real property be made?
penalty regarless of any supervening event. Thus, Alyanna must commence the proceedings
with the CTA before the end of the 2-year period without waiting for the decision of the CIR. A: It may be made before, simultaneously or after the distraint of personal
property of the same taxpayer.
Government Remedies
Q: Define forfeiture.
Q: What are the administrative remedies of the government for collection of A: It is the divestiture of property without compensation, in consequence of a
delinquent taxes under the NIRC? default or offense.

A: CELCED Enforcement of Tax Lien

1. Distraint of personal property Q: What is meant by tax lien?
2. Levy of real property A: It is a legal claim or charge on property, personal or real, established by law as
3. Enforcement of forfeiture a sort of security for the payment of tax obligations.
4. Enforcement of tax lien
5. Compromise and Abatement Q: Is tax itself a lien?
6. Civil penalties A: Tax is not a lien even upon the property against which it is assessed, unless
expressly made so by statute.
Q: Define distraint.
A: It is a summary remedy whereby the collection of tax is enforced on the goods, Q: What is the nature of tax lien?
chattels or effects of the taxpayer (including other personal property of whatever A: It is enforced as payment of tax, interest, penalties, costs upon the entire
character as well as stocks and other securities, debts, credits, bank accounts and property and rights to property of the taxpayer. However, to be valid against any

Page 12 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW

mortgagee, purchaser or judgment creditor, notice of such lien has to be filed by 2. The administration and collection costs involved do not justify the collection of
CIR with the Registry of Deeds. (Sec. 219, NIRC) the amount due. (Sec. 204[B], NIRC)

Compromise and Abatement Criminal Action

Q: What is the purpose for filing a criminal complaint?
Q: What is meant by compromise? A: Criminal complaint is instituted not to demand payment but to penalize
A: It is an agreement between two or more persons who, amicably settle their taxpayer for the violation of the NIRC.
differences on such terms and conditions as they may agree on to avoid any
lawsuit between them. It implies the mutual agreement by the parties in regard to Q: What is the nature of this remedy?
the thing or subject matter which is to be compromised. A: Criminal action is resorted to not only for collection of taxes but also for
It is a contract whereby the parties, by reciprocal concessions avoid litigation or enforcement of statutory penalties of all sorts.
put an end to one already commenced.
Compromise Abatement
Q: When must compromise be made? Involves a reduction of the taxpayer’s liability. Involves the cancellation of the entire tax
liability of a taxpayer.
1. Criminal cases – Compromise must be made prior to the filing of the information Officers authorized to compromise: CIR and Officer authorized to abate or cancel tax,
in court. Regional Evaluation Board penalties and/or interest: CIR
2. Civil cases – Before litigation or at any stage of the litigation, even during appeal, Grounds: Grounds:
although legal propriety demands that prior leave of court should be obtained. 2. Reasonable doubt as to the validity of 1. The tax or any portion thereof appears to be
assessment; unjustly or excessively assessed; or
3. Financial incapacity of the taxpayer 2. The administration and collection costs
Q: What are the requisites for Compromise: involved do not justify the collection of the
1. Tax liability of the taxpayer; amount due.
2. An offer of the taxpayer of an amount to be paid by him; and
3. The acceptance (the CIR or the taxpayer) of the offer in the settlement of the
claim

Q: What are the grounds for a compromise?

1. Doubtful validity of assessment; or
2. Financial incapacity

Q: What are the requisites in order that compromise settlement on the ground
of financial incapacity may be allowed?
1. Clear inability to pay the tax; and
2. The taxpayer must waive in writing his privilege of the secrecy of bank deposit
under RA 1405 or other general or special laws, which shall constitute as the CIR’s
authority to inquire into said bank deposits (Sec. 6 [F], NIRC)

Q: What is meant by abatement of tax liability?

A: It is the cancellation of a tax liability.

Q: When is the CIR authorized to abate or cancel a tax liability?

1. The tax or any portion thereof appears to be unjustly or excessively assessed; or

Page 13 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW

II. National Internal Revenue Code (NIRC) of 1997, as amended
INCOME TAXATION
1. Income tax systems
a) Global tax system - all income received by the taxpayer are grouped
together, without any distinction as to the type or nature of the income, and after
deducting therefrom expenses and other allowable deductions, are subjected to
tax at a fixed rate.
b) Schedular tax system - the various types or items of income
(compensation, business or professional income) are classified accordingly and
are accorded different tax treatments, in accordance with schedules
characterized by graduated tax rates. Since these types of income are treated
separately, the allowable deductions shall likewise vary for each type of income.
c) Semi-schedular or semi-global tax system - A system where the
compensation, business or professional income, capital gain and passive income
not subject to final tax, and other income are added together to arrive at the gross
income, and after deducting the sum of allowable deductions from business or
professional income, capital gain and passive income not subject to final tax, and
other income, in the case of corporations, as well as personal and additional
exemptions, in the case of individual taxpayers, the taxable income is subjected to
one set of graduated tax rates; method of taxation under the law.
2. Features of the Philippine income tax law DCPS
a) Direct tax - tax burden is borne by the income tax receipient upon
whom the tax is imposed.
b) Progressive - it provides graduated rates of income tax.
c) Comprehensive - by using the nationality, residence, and source rules.
d) Semi-schedular or semi-global tax system -
3. Criteria in imposing Philippine income tax
a) Citizenship principle - A citizen taxpayer is subject to income tax:
a. On his worldwide income, if he resides in the Philippines. b.
Only on his income from sources within the Philippines, if he
qualifies as non-resident citizen.
b) Residence principle - a resident alien is liable to pay income tax on his
income from sources within the Philippines but exempt from tax on his
income from sources outside the Philippines.
Page 14 of 55 TATEL, ME
c) Source principle - a non-resident alien is subject to Philippine income
tax because he derives income from such sources within the Philippines
such as dividend, interest, rent or royalty.
4. Types of Philippine income tax
1. Presumptive Income Tax – A scale of income taxes is imposed in
relation to a group of person’s actual expenditure and the presumed income.
2. Composite Tax – A tax consisting of a series of separate quasi-personal
taxes, assessed on the particular source of income with a superimposed personal
tax on the income as a whole.
3. Unitary Income Tax – Incomes are arranged according to source. The
separate items are added together and the rate applied to the resulting total
income.
Q: What are the different types of income taxes under the NIRC?
1. Personal Income Tax on individuals
2. Regular corporate income tax on corporations
3. Minimum corporate income tax on corporations
4. Capital gains tax on sale of shares of stocks of a domestic corporation outside
an exchange by a person who is not a dealer in se8curities and capital gains tax on
sale of real property classified as a capital asset by a person who is not a real estate
dealer or developer
5. Tax on passive investment income, such as interest, dividend, and royalty;
6. Fringe benefit tax
7. Branch profit remittance tax on Philippine branches of foreign corporations
8. Tax on improperly accumulated earnings tax of corporations
9. Final withholding income tax on certain income from sources within the
Philippines payable to resident (i.e. interests on bank deposits) or non resident
persons (i.e. interests on foreign loans or management fees paid to non resident
foreign corporation), or to certain special persons (i.e. OBU, ROHQ, PEZA or
SMBA-registered enterprises.)
5. Taxable period
a) Calendar period - accounting period from Jan. 1 to Dec. 31.
b) Fiscal period - accounting period of 12 months ending on the last day
of any month other than Dec.
c) Short period
Q: Can there be a taxable period of less than 12 months?
COMMIT TO MEMORY_TAXATION LAW
A: A taxpayer may have a taxable period of less than 12 months where: DiNe-ChaD
1. Taxpayer Dies
2. Corporation is Newly organized
3. Corporation Changes its accounting period
4. Corporation is Dissolved
6. Kinds of taxpayers
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
(b) Non-resident citizens
a. A citizen of the Philippines who establishes to the satisfaction
of the CIR the fact of his physical presence abroad with a definite
intention to reside therein;
b. A citizen of the Philippines who leaves the Philippines during a
taxable year to reside abroad, either as an immigrant or for employment
on a permanent basis;
c. A citizen of the Philippines who works and derives income from
abroad and whose employment thereat requires him to be physically
present abroad most of the time during the taxable year;
d. A citizen who has been previously considered as NRC and who
arrives in the Philippines at any time during the taxable year in which he
arrives in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines;
e. The taxpayer shall submit proof to the CIR to show his
intention of leaving the Philippines to reside permanently abroad or to
return to and reside in the Philippines as the case may be for purposes of
this section. (Sec. 22 [E], NIRC)
Q: What is the test to determine whether a citizen is a resident of the Philippines?
A: Residence is a permanent place to which a person whenever absent for
business or pleasure has the intention to return to.
(ii) Aliens
(a) Resident aliens
> He is one who is actually present in the Philippines and not a
mere transient or sojourner.
> Intention with regard to the length and nature of his stay.
(b) Non-resident aliens
(1) Engaged in trade or business – stays > 180 days
Page 15 of 55 TATEL, ME
(2) Not engaged in trade or business – stays = < 180 days
(iii) Special class of individual employees
(a) Minimum wage earner - Exempt
(b) Individuals, whether Filipino or alien employed by:
a. Regional or area headquarters (RAHQ) and regional operating
headquarters (ROHQ) of multinational companies in the
Philippines (Sec. 25[C], NIRC);
b. Offshore banking units established in the Philippines (Sec.
25[D], NIRC);
c. Foreign service contractor or subcontractor engaged in
petroleum operations in the Philippines (Sec. 25[D], NIRC).
Q: How are the individuals in number 2 taxed?
A: There shall be levied, collected and paid for each taxable year upon the
gross income received by these individuals employed by multinational companies,
offshore banking units and petroleum service contractors and subcontractor
received as salaries, wages, annuities, compensation, remuneration and other
emoluments, such as honoraria and allowances, a tax equal to 15% of such gross
income. (Sec. 25, NIRC)
Note: For other income of said individuals sourced within the Philippines,
it shall be subject to the applicable income tax, that is, graduated rates, final tax
on passive income, capital gains depending whether a citizen or an alien, as the
case may be.
b) Estates and trusts
Q: When a person who owns property dies, what are the taxes payable under
the income tax law?
1. Income tax for individuals from Jan. to the time of death. (Sec. 24 and 25, NIRC)
2. Income tax of the estate, if the estate is under administration or judicial
settlement. (Sec. 60, NIRC)
Trusts - a right to the property, whether real or personal, held by one person for
the benefit of another.
Q: What are the classifications of trust for tax purposes? TIP
1. Taxable and tax-exempt trust
2. Irrevocable trust and revocable trust (pass through entity)
3. Trust administered in the Philippines and trust administered in a foreign country.
COMMIT TO MEMORY_TAXATION LAW
Q: What is the significance of determining whether the trust is revocable or
irrevocable?
A: The income of a revocable trust is included in computing the taxable
income of the grantor without any of the deductions allowed for estates
while the income of an irrevocable trust is a separate taxable entity
subject to tax as income of the trust after deducting the allowable
deductions
Q: What is the significance in determining whether the trust is a trust
administered in the Philippines or in a foreign country?
A: Only trusts administered in the Philippines is subject to Philippine taxes.
Thus, there are deductions allowed for trusts administered in the Philippines
which are not allowed for those administered in a foreign country.
Q: Define revocable and irrevocable trust.
1. Revocable Trust – a kind of trust where the power to revert (return) to
grantor title to any part of the corpus (body) of the trust is vested: a. In the
grantor, either alone or in conjunction with any person not having a substantial
adverse interest in the disposition of the corpus or the income therefrom; or b. In
any person not having a substantial adverse interest in the disposition of the
corpus or the income therefrom.
2. Irrevocable Trust – a kind of trust which cannot be altered without the
consent of the beneficiary.
c) Corporations
(i) Domestic corporations
(ii) Foreign corporations
(a) Resident foreign corporations – not domestic, engaged in trade/B
Note: In order that a foreign corporation may be regarded as doing
business within a State there must be continuity of conduct and intention to
establish a continuous business, such as the appointment of a local agent and not
one of a temporary character. – Principle of Habituality
(b) Non-resident foreign corporations
Q: What is the test to determine whether a FC is a resident or non-resident?
A: To be a resident foreign corporation, a FC should obtain first a license from the
Philippine Government to operate business in the Philippines through
establishment of a branch or a representative office, otherwise they are
considered as non-resident foreign corporation.
Page 16 of 55 TATEL, ME
Special -> different tax rates
Q: What are the special RFC?
1. International carriers
2. Offshore banking unit
3. Foreign currency deposit unit
4. Regional or area headquarters of multinational corporations
5. Regional operating headquarters of multinational corporations
Q: What are the special NRFC?
1. NR owner, lessor, distributor of cinematographic film
2. 2. NR owner or lessor of vessels chartered by Philippines nationals
3. 3. NR owner or lessor of aircraft, machinery and equipment
(iii) Joint venture and consortium
d) Partnerships – tax as corporation
e) General professional partnerships
A: GPP are not subject to income tax but are required to file information
returns for its income for the purpose of furnishing information as to the share in
net income of the partnership which each partner should include in his individual
return. Partners shall be liable for income tax in their separate and individual
capacities. The share in the partnership income is taxable to the individual
partners, whether or not the share has been distributed, because the GPP itself is
not taxable. Thus, there is a constructive receipt of income in case of GPPs.
f) Co-ownerships
GR: It shall not be subject to income tax if the activities of the co-owners
are limited to the preservation of the property and the collection of income
therefrom. In such case, the co-owners shall be taxed individually on their
distributive share in the income of the co-ownership.
XPN: If the co-owners invest the income in a business for profit they
would constitute themselves into a partnership and such shall be taxable as a
corporation.
7. Income taxation
a) Definition - A tax on all yearly profits arising from property, profession, trade or
business, or a tax on person’s income, emoluments, profits and the like.
b) Nature - It is generally regarded as an excise tax. It is not levied upon persons,
property, funds or profits but on the privilege of receiving said income or profit.
COMMIT TO MEMORY_TAXATION LAW
c) General principles
General principles of income taxation in the Philippines under Sec. 23 of the NIRC.
A: Except when otherwise provided in the NIRC:
1. A RC is taxable on all income derived from sources within and without
the Philippines; ***
2. A NRC is taxable only on income derived from sources within the
Philippines;
3. A citizen of the Philippines who is working and deriving income from
abroad as an OFW is taxable only on income derived from sources within
the Philippines: Provided, That a seaman who is a citizen of the Philippines
and who receives compensation for services rendered abroad as a
member of the complement of a vessel engaged exclusively in
international trade shall be treated as an OFW;
4. An alien individual, whether a resident or not of the Philippines, is
taxable only on income derived from sources within the Philippines;
5. A DC is taxable on all income derived from sources within and without
the Philippines; and ***
6. A FC, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.
8. Income
a) Definition - It refers to all wealth which flows into the taxpayer other than as
mere return of capital. It includes the forms of income specifically described as
gains and profits, including gains derived from the sale or other disposition of
capital assets.
b) Nature
It is generally regarded as an excise tax. It is not levied upon persons,
property, funds or profits but on the privilege of receiving said income or profit.
c) When income is taxable
Q: What are the requisites for income to be taxable? REG
1. The gain must be Realized or received;
2. The gain must not be Excluded by law or treaty from taxation; and
3. There must be Gain or profit, whether in cash or its equivalent.
(i) Existence of income
(ii) Realization of income
(a) Tests of realization
Q: What are the conditions in the realization of income?
A: Under the realization principle, revenue is generally recognized
when both of the following conditions are met:
1. The earning process is complete or virtually complete
2. An exchange has taken place
(b) Actual vis-à-vis constructive receipt
1. Actual receipt – income may be actual receipt or physical receipt.
2. Constructive receipt – occurs when money consideration or its
equivalent is placed at the control of the person who rendered the service without
restriction by the payor.
(iii) Recognition of income
Capital Income
Constitutes the investment which is Any wealth which flows into the
the source of income taxpayer other than a mere return of
capital
Is the wealth Is the service of wealth
Is the tree Is the fuit
Fund Flow
[Exclude: Methods of accounting]
d) Tests in determining whether income is earned for tax purposes
(i) Realization test - Unless income is deemed realized, then there is no
taxable income.
(ii) Claim of right doctrine or doctrine of ownership, command, or
control - A taxable gain is conditioned upon the presence of a claim of right to the
alleged gain and the absence of a definite unconditional obligation to return or
repay.
(iii) Economic benefit test, doctrine of proprietary interest - Taking into
consideration the pertinent provisions of law, income realized is taxable only to
the extent that the taxpayer is economically benefited.
(iv) Severance test - Income is recognized when there is separation of
something which is of exchangeable value.
(v) All events test –
Flow of Wealth Test – The determining factor for the imposition of income tax is
whether or not any gain or profit was derived from the transaction.
Net Effect Test – The substance of the whole transaction, not the form, usually
controls the tax consequences.
Principle of Constructive Receipt of Income – Income which is credited to the
account of or set apart for a taxpayer and which may be drawn upon by him at any

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time is subject to tax for the year during which so credited or set apart, although not
then actually reduced to possession.
9. Gross income
a) Definition
Q: What is the definition of “gross income” under the NIRC?
A: Except when otherwise provided, gross income means all income
derived from whatever source, including (but not limited to) to the
following items: [CG2I- R2DAP3]
1. Compensation for services in whatever form paid, including, but not
limited to fees, salaries, wages, commissions and similar items;
2. Gross income derived from the conduct of trade or business or the
exercise of a profession;
3. Gains derived from dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities
9. Prizes and winnings;
10. Pensions; and
11. Partner’s distributive share from the net income of the general
professional partnership.
The above enumeration can be simplified into 5 categories:
1. Compensation Income - income derived from rendering of services
under an employer-employee relationship.
2. Professional Income - fees derived from engaging in an endeavor
requiring special training as professional as a means of livelihood, which
includes, but not limited to, the fees of CPAs, lawyers, engineers and the
like.
3. Business Income - gains or profits derived from rendering services,
selling merchandise, manufacturing products, farming and long-term
contracts.
4. Passive Income - income in which the taxpayer merely waits for the
amount to come in, which includes, but not limited to interest income,
royalty income, dividend income, prizes and winnings.
5. Gains from Dealings in Property – It includes all income derived from
the disposition of property whether real, personal or mixed.
b) Concept of income from whatever source derived
Page 18 of 55 TATEL, ME
All income not expressly excluded or exempted from the class of taxable income,
irrespective of the voluntary or involuntary action of the taxpayer in producing the
income.
c) Gross income vis-à-vis net income vis-à-vis taxable income
Q:What is net income taxation?
A: It is a system of taxation where the income subject to tax may be
reduced by allowable deductions.
Q: What is taxable income or net income?
A: All pertinent items of gross income specified in the NIRC, less the
deductions and/or personal and additional exemptions, if any, authorized for such
types of income by the NIRC or other special laws.
Q: Distinguish gross income from net income
GROSS INCOME NET INCOME
Allows no deductions Allows deductions
Grants no exemptions Grants exemptions
Gross Income – tax base Net Income
d) Classification of income as to source
(i) Gross income and taxable income from sources within the Philippines
(ii) Gross income and taxable income from sources without the
Philippines
(iii) Income partly within or partly without the Philippines
e) Sources of income subject to tax
(i) Compensation income – ER-EE Relationship
It includes all remuneration for services rendered by an employee for his
employer unless specifically excluded under the NIRC.
(ii) Fringe benefits - Fringe benefit is any good, service or other benefit
furnished or granted by an employer in cash or in kind in addition to basic salaries,
to an individual employee, except a rank and file employee, such as but not limited
to: HEV-HIM-HEEL
1. Housing 2. Expense account 3. Vehicle of any kind 4. Household personnel
such as maid, driver and others 5. Interest on loans at less than market rate to the
extent of the difference between the market rate and the actual rate granted 6.
Membership fees, dues and other expenses borne by the employer for the employee
in social and athletic clubs or other similar organizations 7. Expenses for foreign
travel 8. Holiday and vacation expenses; 9. Educational assistance to the employee
or his dependents 10. Life or health insurance and other nonlife insurance premiums
or similar amounts in excess of what the law allows
COMMIT TO MEMORY_TAXATION LAW

(a) Special treatment of fringe benefits
GR: Subject to final tax on the grossed-up monetary value of fringe benefits
furnished or granted to the employee to be paid by the employer.
XPN: When given to rank and file employees, it becomes part of their
compensation income.
Q: Give the rule on taxation of fringe benefits received by different employees.
A: A Fringe Benefit Tax (FBT) is imposed on the grossed-up monetary value of the
fringe benefit furnished, granted or paid by the employer to managerial and
supervisory employees.
(b) Taxable and non-taxable fringe benefits
Q: What are the kinds of fringe benefits that are not subject to the FBT?
1. Fringe benefits which are authorized and exempted from tax under special laws
2. Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;
3. Benefits given to the rank and file employees, whether granted under a
collective bargaining agreement or not;
4. De minimis benefits as defined in the rules and regulations to be promulgated
by the Secretary of Finance, upon recommendation of the CIR
5. When the fringe benefit is required by the nature of, or necessary to the trade,
business or profession of the employer
6. When the fringe benefit is for the convenience of the employer. This is known
as Employer’s Convenience Rule. (Sec. 32, NIRC; Sec. 2.33 [C], RR 3-98)
(iii) Professional income
It refers to the fees received by a professional from the practice of his profession,
provided that there is no employer-employee relationship between him and his
clients.
(iv) Income from business
It refers to income derived from merchandising, mining, manufacturing and
farming operations.
(v) Income from dealings in property
(a) Types of properties
(1) Ordinary assets
(2) Capital assets
(b) Types of gains from dealings in property
Q: What transactions are covered by the “presumed” capital gains tax on real
property?
A: It covers: 1. Sale; 2. Exchange; or 3. Other disposition, including pacto de retro
and other forms of conditional sales.
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Q: Is the sale of principal residence by an individual subject to capital gain tax?
A: No, sale of principal residence by an individual is exempt provided the following
requisites are present:
1. Sale or disposition of the old actual principal residence;
2. By a citizen or resident alien;
3. Proceeds from which is utilized in acquiring or constructing a new principal
residence within 18 calendar months from the date of sale or disposition;
4. Notify the CIR within 30 days from the date of sale or disposition through a
prescribed return of his intention to avail the tax exemption;
5. Can be availed of once every 10 years;
6. The historical cost or adjusted basis of his old principal residence shall be carried
over to the cost basis of his new principal residence;
7. If there is no full utilization, the portion of the gains presumed to have been
realized shall be subject to capital gains tax; and
8. The 6% capital gains tax due shall be deposited with an authorized agent bank
subject to release upon certification by the RDO that the proceeds of the sale have
been utilized.
What is the significance in determining whether the asset is ordinary asset or
capital asset?
A: They are subject to different rules. There are special rules that apply only to
capital transactions, to wit: 1. Holding period rule 2. Capital and loss limitation 3.
Net capital loss carry over (NELCO)
Q: What is the holding period rule?
A: Where the capital asset sold has been held by the taxpayer for more than 12
months, the gain derived therefrom is taxable only to the extent of 50%.
Consequently, if the taxpayer held the capital asset sold for a year or less, the
whole gain shall be taxable. It is a form of tax avoidance
Who can avail the holding period rule?
A: Only individual taxpayers can avail. It is not allowed to corporations.
(1) Ordinary income vis-à-vis capital gain
(2) Actual gain vis-à-vis presumed gain
(3) Long term capital gain vis-à-vis short-term capital gain
(4) Net capital gain, net capital loss
[Exclude: Computation of the amount of gain or loss]
(5) Income tax treatment of capital loss
COMMIT TO MEMORY_TAXATION LAW
 (a) Capital loss limitation rule (applicable to both corporations and (6) Sale of real property
individuals) (7) Sale of personal property
(b) Net loss carry-over rule (applicable only to individuals) (8) Shares of stock of domestic corporation
(6) Dealings in real property situated in the Philippines
(7) Dealings in shares of stock of Philippine corporations (f) Situs of income taxation (see page 2 under inherent limitations, territorial)
(a) Shares listed and traded in the stock exchange
(b) Shares not listed and traded in the stock exchange (g) Exclusions from gross income
(8) Sale of principal residence Under the Constitution
(vi) Passive investment income Income Derived by the Government or its Political Subdivision
(a) Interest income Q: Is the income derived by the Government or its political subdivision exempt
(b) Dividend income from gross income?
(1) Cash dividend A: Yes, if the source of the income is from any public utility or from the exercise of
(2) Stock dividend any essential governmental functions.
(3) Property dividend
(4) Liquidating dividend Q: Are GOCCs exempt from tax?
(c) Royalty income A: GOCCs performing: 1. Governmental Function: GR: Government agencies
(d) Rental income performing governmental functions are tax exempt.
(1) Lease of personal property
(2) Lease of real property XPN: Unless expressly taxed while government agencies performing proprietary
(3) Tax treatment of functions are taxable
(a) Leasehold improvements by lessee
(b) VAT added to rental/paid by the lessee XPN to XPN: Unless expressly exempted.
(c) Advance rental/long term lease
(vii) Annuities, proceeds from life insurance or other types of insurance 2. Proprietary Functions: subject to taxation.
(viii) Prizes and awards Note: Under Sec. 27 (c) of RA 8424 the following corporations have been granted
(ix) Pensions, retirement benefit, or separation pay exemptions: 1. Government Service Insurance System 2. Social Security System 3.
(x) Income from any source whatever Philippine Health Insurance Corporation 4. Philippines Charity Sweepstakes Office
(a) Forgiveness of indebtedness
(b) Recovery of accounts previously written-off – when taxable/when Under the NIRC PAG-CIR-M
not taxable Q: What are those items that are excluded in gross income and shall be exempt
(c) Receipt of tax refunds or credit from gross income taxation?
(d) Income from any source whatever A: These are: [GLAM-RIC]
(e) Source rules in determining income from within and without 1. Gifts, bequests and devises
(1) Interests 2. Life insurance proceeds 3. Amount received by insured as return of premium
4. Retirement benefits, pensions, gratuities, etc.
5. Income exempt under treaty
6. Compensation for injuries or sickness
(2) Dividends 7. Miscellaneous items. (13P2I2G3)
(3) Services a. 13thmonth pay and other Benefits;
(4) Rentals b. Prizes and awards
(5) Royalties c. Prizes and awards in sports competitions

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d. Income derived by foreign government
e. Income derived by the government or its political subdivisions
f. GSIS, SSS, Medicare and other contributions
g. Gains from the sale of bonds, debentures or other certificate of indebtedness
h. Gains from redemption of shares in mutual fund (Sec. 32 [B],NIRC)
(1) Rationale for the exclusions
(2) Taxpayers who may avail of the exclusions
(3) Exclusions distinguished from deductions and tax credit
(4) Under the Constitution
(a) Income derived by the government or its political
subdivisions from the exercise of any essential governmental function
(5) Under the Tax Code
(a) Proceeds of life insurance policies
(b) Return of premium paid
(c) Amounts received under life insurance, endowment or annuity
contracts
(d) Value of property acquired by gift, bequest, devise or descent
(e) Amount received through accident or health insurance
(f) Income exempt under tax treaty
(g) Retirement benefits, pensions, gratuities, etc.
(h) Winnings, prizes, and awards, including those in sports competition
(6) Under special laws
(a) Personal Equity and Retirement Account
Q: What are the retirement benefits, pensions, gratuities, etc. excluded
from gross income? 7FRUGS2
1. Retirement benefits under RA 7641
2. Social security benefits, retirement gratuities, pensions and other
similar benefits received by resident or nonresident citizens or resident
alien from Foreign government agencies and other institutions, private or
public
3. Retirement received by officials and employees of private firms,
whether individual or corporate, in accordance with a Reasonable private
benefit plan maintained by the employer
4. Benefits from the US Veterans Administration
5. GSIS benefits
6. SSS
7. Separation pay
Q: What are the conditions in order to avail the exemption under a RPBP?
A: Approved-10-50-once
Page 21 of 55 TATEL, ME
1. There must be Reasonable private benefit plan approved by the BIR;
2. He must have rendered at least 10 years of service to the employer at
the time of retirement; and
3. The private employee or official must be at least 50 years old at the time
of his retirement;
4. This may be availed of only once.
Q: What are the conditions in order that separation pay may be excluded
from gross income?
1. Amount received by an official, employee or by his heirs;
2. From the employer; and
3. As a consequence of separation of such official or employee from the
service of the employer:
a. Because of death, sickness or other physical disability; or
b. For any cause beyond the control of the official or employee.
Q: What are causes beyond the control of the employee?
1. Retrenchment 2. Cessation of business 3. Redundancy
(h) Deductions from gross income
(1) General rules
(a) Deductions must be paid or incurred in connection with the taxpayer’s trade,
business or profession
(b) Deductions must be supported by adequate receipts or invoices (except
standard deduction)
(c) Additional requirement relating to withholding
(2) Return of capital (cost of sales or services)
(a) Sale of inventory of goods by manufacturers and dealers of properties
(b) Sale of stock in trade by a real estate dealer and dealer in securities
(c) Sale of services
(3) Itemized deductions
(a) Expenses
(1) Requisites for deductibility
(a) Nature: ordinary and necessary
(b) Paid and incurred during taxable year
(2) Salaries, wages and other forms of compensation for personal services
actually rendered, including the grossed-up monetary value of the fringe benefit
subjected to fringe benefit tax which tax should have been paid
COMMIT TO MEMORY_TAXATION LAW
(3) Travelling/transportation expenses (a) Straight-line method
(4) Cost of materials (b) Declining-balance method
(5) Rentals and/or other payments for use or possession of property (c) Sum-of-the-years-digit method
(6) Repairs and maintenance [Exclude: Computation of depreciation allowance]
(7) Expenses under lease agreements (g) Charitable and other contributions
(8) Expenses for professionals (1) Requisites for deductibility
(9) Entertainment/Representation expenses (2) Amount that may be deducted
(10) Political campaign expenses (h) Contributions to pension trusts
(11) Training expenses (1) Requisites for deductibility
(b) Interest (i) Deductions under special laws
(1) Requisites for deductibility (4) Optional standard deduction
(2) Non-deductible interest expense (a) Individuals, except non-resident aliens
(3) Interest subject to special rules (b) Corporations, except non-resident foreign corporations
(a) Interest paid in advance (c) Partnerships
(b) Interest periodically amortized (5) Personal and additional exemption (R.A. No. 9504, Minimum
(c) Interest expense incurred to acquire property for use in Wage Earner Law)
trade/business/profession (a) Basic personal exemptions
(d) Reduction of interest expense/interest arbitrage (b) Additional exemptions for taxpayer with dependents
(c) Taxes (c) Status-at-the-end-of-the-year rule
(1) Requisites for deductibility (d) Exemptions claimed by non-resident aliens
(2) Non-deductible taxes (6) Items not deductible
(3) Treatments of surcharges/interests/fines for delinquency (a) General rules
(4) Treatment of special assessment (b) Personal, living or family expenses
(5) Tax credit vis-à-vis deduction (c) Amount paid for new buildings or for permanent improvements (capital
expenditures)
(d) Amount expended in restoring property (major repairs)

(d) Losses
(1) Requisites for deductibility
(2) Other types of losses (e) Premiums paid on life insurance policy covering life or any other officer or
(a) Capital losses employee financially interested
(b) Securities becoming worthless (f) Interest expense, bad debts, and losses from sales of property between
(c) Losses on wash sales of stocks or securities related parties
(d) Wagering losses (g) Losses from sales or exchange or property
(e) Net Operating Loss Carry-Over (NOLCO) (h) Non-deductible interest
(e) Bad debts (i) Non–deductible taxes
(1) Requisites for deductibility (j) Non-deductible losses
(2) Effect of recovery of bad debts (k) Losses from wash sales of stock or securities
(f) Depreciation (7) Exempt corporations
(1) Requisites for deductibility (a) Propriety educational institutions and hospitals
(2) Methods of computing depreciation allowance (b) Government-owned or controlled corporations

Page 22 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW

(c) Others (a) Shares traded and listed in the stock exchange
10. Taxation of resident citizens, non-resident citizens, and resident aliens (b) Shares not listed and traded in the stock exchange
a) General rule that resident citizens are taxable on income from all sources (ii) Income from the sale of real property situated in the Philippines
within and without the Philippines (iii) Income from the sale, exchange, or other disposition of other capital assets
(i) Non-resident citizens 11. Taxation of non-resident aliens engaged in trade or business
b) Taxation on compensation income a) General rules
(i) Inclusions b) Cash and/or property dividends
(a) Monetary compensation c) Capital gains
(1) Regular salary/wage [Exclude: non-resident aliens not engaged in trade or business]
(2) Separation pay/retirement benefit not otherwise exempt 12. Individual taxpayers exempt from income tax
(3) Bonuses, 13th month pay, and other benefits not exempt a) Senior citizens
(4) Director’s fees b) Minimum wage earners
(b) Non-monetary compensation c) Exemptions granted under international agreements
(1) Fringe benefit not subject to tax 13. Taxation of domestic corporations
(ii) Exclusions a) Tax payable
(a) Fringe benefit subject to tax (i) Regular tax
(b) De minimis benefits (ii) Minimum Corporate Income Tax (MCIT)
(c) 13th month pay and other benefits, and payments specifically excluded from (a) Imposition of MCIT
taxable compensation income (b) Carry forward of excess minimum tax
(iii) Deductions (c) Relief from the MCIT under certain conditions
(a) Personal exemptions and additional exemptions (d) Corporations exempt from the MCIT
(b) Health and hospitalization insurance (e) Applicability of the MCIT where a corporation is governed both under the
(c) Taxation of compensation income of a minimum wage earner regular tax system and a special income tax system
(1) Definition of statutory minimum wage b) Allowable deductions
(2) Definition of minimum wage earner (i) Itemized deductions
(3) Income also subject to tax exemption: holiday pay, overtime pay, night-shift (ii) Optional standard deduction
differential, and hazard pay c) Taxation of passive income
c) Taxation of business income/income from practice of profession (i) Passive income subject to tax

d) Taxation of passive income (a) Interest from deposits and yield, or any other monetary benefit from deposit
(i) Passive income subject to final tax substitutes and from trust funds and similar arrangements and royalties
(a) Interest income (b) Capital gains from the sale of shares of stock not traded in the stock
(i) Treatment of income from long-term deposits exchange
(b) Royalties (c) Income derived under the expanded foreign currency deposit system
(c) Dividends from domestic corporations (d) Inter-corporate dividends
(d) Prizes and other winnings (e) Capital gains realized from the sale, exchange, or disposition of lands and/or
(ii) Passive income not subject to final tax buildings
e) Taxation of capital gains (ii) Passive income not subject to tax
(i) Income from sale of shares of stock of a Philippine corporation d) Taxation of capital gains

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(i) Income from sale of shares of stock (i) Withholding of final tax on certain incomes
(ii) Income from the sale of real property situated in the Philippines (ii) Withholding of creditable tax at source
(iii) Income from the sale, exchange, or other disposition of other capital assets [Exclude:
e) Tax on proprietary educational institutions and hospitals Miscellaneous Items
f) Tax on government-owned or controlled corporations, agencies or Q: What are the miscellaneous items excluded from gross income? 13P2I2G3
instrumentalities
14. Taxation of resident foreign corporations 1. 13th month pay and other Benefits
a) General rule Q: How much is the maximum amount allowed for 13th month pay and
b) With respect to their income from sources within the Philippines other benefits to be excluded from gross income?
c) Minimum Corporate Income Tax A: Gross benefits received by officials and employees of public and private
d) Tax on certain income entities may be excluded from gross income provided that the total exclusion shall
(i) Interest from deposits and yield, or any other monetary benefit from deposit not exceed P82,000. The excess would be considered as part of the compensation
substitutes, trust funds and similar arrangements and royalties income of the employee where it is subject on a scheduler rate.
(ii) Income derived under the expanded foreign currency deposit system
(iii) Capital gains from sale of shares of stock not traded in the stock exchange 2. Prizes and awards
(iv) Inter-corporate dividends Q: What are the requisites in order for prizes and awards made be
[Exclude: exempted from tax?
(i) International carrier 1. Primarily in recognition of Scientific, Civic, Artistic, Religious,
(ii) Offshore banking units Educational, Literary, or Charitable achievement [SCAR-CEL]
(iii) Branch profits remittances 2. The recipient was selected without any action on his part to join; and
(iv) Regional or area headquarters and regional operating headquarters of 3. He is not required to render substantial future services as condition to
multinational companies] receiving the prize or award.
15. Taxation of non-resident foreign corporations 3. Prizes and awards in sports competitions;
a) General rule Q: What are the requisites for the exclusion of prizes and awards in
b) Tax on certain income competition from gross income? PATS
(i) Interest on foreign loans 1. All Prizes and awards;
(ii) Inter-corporate dividends 2. Granted to Athletes;
3. In local and international sports Tournaments and competitions; and
4. Sanctioned by their national sports associations. (Sec. 32 B [7] d, NIRC)

(iii) Capital gains from sale of shares of stock not traded in the stock exchange
[Exclude:
(i) Non-resident cinematographic film-owner, lessor or distributor
(ii) Non-resident owner or lessor of vessels chartered by Philippine nationals
(iii) Non-resident owner or lessor of aircraft machineries and other equipment]
16. Improperly accumulated earnings of corporations
17. Exemption from tax on corporations
18. Taxation of partnerships
19. Taxation of general professional partnerships
20. Withholding tax a) Concept
b) Kinds
Note: National sports associations are those duly accredited by the
Philippine Olympic Committee.
4. Income derived by foreign government
Q: What are the conditions in order for the income derived by foreign
government from investments in the Philippines be exempted from tax?
1. It must be an income derived from investments in the Philippines;
2. It must be derived from BOnds, Loans or other Domestic securities,
Stocks or Interests on deposits in banks; [BOLDSI] and
3. The recipient of such income from investment in the Philippines must
be a:
a. foreign government;

Page 24 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW

 b. financing institutions owned, controlled or financed by foreign
government; or
c. regional or international financing institutions established by
foreign government
Note: The exclusion may be premised either on the principle of comity or upon the
principle of reciprocity.
5. Income derived by the government or its political subdivisions
6. GSIS, SSS, Medicare and other contributions
7. Gains from the sale of bonds, debentures or other certificate of indebtedness
Note: The bonds, debentures or other certificate of indebtedness sold,
exchanged or retired must be with a maturity of more than five years.
8. Gains from redemption of shares in mutual fund. (Sec 32 [B], NIRC)
Q: What is a mutual fund company?
A: The term “mutual fund company” shall mean an open-end and close-
end investment company as defined under the Investment Company Act.
Q: What is the “Most Favored Nation Clause”?
A: This grants to the contracting party treatment not less favorable than which has
been or may be granted to the most favored among other countries. It allows the
taxpayer in one state to avail of more liberal provisions granted in another tax
treaty to which the country of residence of such taxpayer is also a party; provided
that the subject matter of taxation is the same as that in the tax treaty under which
the taxpayer is liable.
ALLOWABLE DEDUCTIONS FROM GROSS INCOME
Q: Define deductions from gross income.
A: Deductions from gross income refer to items or amounts authorized by law to
be subtracted from pertinent items of gross income to arrive at the taxable
income.
Q: What are the kinds of allowable deductions from gross income?
1. Itemized Deductions: EITL-BD-CPR
a. Bad debts;
b. Depreciation;
c. Depletion;
d. Taxes;
e. Research and development costs;
f. Interest; g. Pension trust contribution;
Page 25 of 55 TATEL, ME
h. Charitable and other contributions;
i. Ordinary and Necessary Expenses;
j. Losses.
2. Optional Standard Deduction (OSD)
3. Special Deductions
Q: What are the requisites for deductibility in general?
A: WaR-With-Pro2
1. The deductions must not have been Waived;
2. The Requirements for deductibility must be met;
3. The Withholding and payment of the tax required must be shown;
4. There must be Proof of entitlement to the deductions; ("No deduction without
documentation.") and
5. There must be a specific Provision of law allowing the deductions, since
deductions do not exist by implication.
ORDINARY AND NECESSARY EXPENSES
Q: What are the requisites for deductibility of expenses (in general)?
A: D-STROWN
1. Paid or incurred During the taxable year;
2. The expense must be Substantiated by proof; (substantation rule)
3. The expense must be incurred in Trade or business carried on by the taxpayer;
4. The expense must be Reasonable;
5. The expense must be Ordinary and necessary;
6. If subject to Withholding taxes, proof of payment to BIR; and
7. Expenses must Not be against public policy, public moral or law such as bribes,
kickbacks, for immoral purposes.
Q: What is the Cohan Rule Principle?
A: Under this principle, taxpayers may use estimates when they can show that
there is some factual foundation on which to base a reasonable approximation of
the expense, they can prove that they had made a deductible expenditure but just
cannot prove how much that expenditure was. (Cohan v. Commissioner, 39 F (2d)
540)
It is the use of estimates or approximations of the amount of cash and other assets
where the taxpayer lacks adequate records.
Note: If there is showing that expenses have been incurred but the exact amount
thereof cannot be ascertained due to the absence of receipts and vouchers of the
COMMIT TO MEMORY_TAXATION LAW
expenditures involved, the BIR will make an estimate of deduction that may be
allowable in computing the taxpayer's taxable income bearing heavily against the
taxpayer whose inexactitude is of his own making. That disallowance of 50% of the
taxpayer’s claimed deduction is valid. (RMC 23-2000)
Compensation for Services.
Q: What are the conditions for its deductibility?
1. Services actually rendered;
2. Compensation is for such services rendered; and
3. Reasonable.
Q: What are the conditions for deductibility of bonus?
A: Although, there is no fixed test for determining the reasonableness of a bonus
as an additional compensation. The following conditions may be taken into
consideration:
1. The payment must be made in good faith
2. The character of the taxpayer’s business
3. The volume and amount of its net earnings
4. Its locality
5. The type and extent of the services rendered
6. The salary policy of the corporation
7. The size of the particular business
8. The employees’ qualification and contributions to the business venture
9. General economic conditions
Travelling Expenses
Q: What are the requisites for its deductibility? RAP
1. Reasonable and necessary expenses;
2. Incurred or paid while Away from home; and
3. In Pursuit of trade or business.
* It includes transportation, meals and lodging.
Rental Expense
Q: What are the requisites for its deductibility?
1. Payment was made as a condition to the continuous use of or possession of the
property;
2. Taxpayer has not taken or is not taking title to the property or has no equity
other than that of a lessee, user or possessor;
3. Property must be used in the trade or business; and
Page 26 of 55 TATEL, ME
4. Subject to withholding tax (5%) if business property the rental must be at least
P500 in case of non-business or residential property the rental is at least P10,000
subject to 5% tax.
Repairs
Q: When is repair expense allowed as a deduction from gross income?
A: Repairs are allowed as deduction when it is minor and ordinary. Major and
extraordinary repairs are capitalized and included in determining depreciation
expense.
Entertainment, Amusementand Recreation
Q: What are the requisites for deductibility?
A: SPuNDR- B
1. Substantiated with sufficient evidence;
2. Paid or incurred in the Pursuit of trade or business ;
3. Not contrary to laws, morals and public policy or public order;
4. Paid or incurred During the taxable year;
5. Reasonable; and
6. Does not constitute Bribe, kickback or other similar payments.
Advertising and Promotional Expenses
Q: What are the requisites for the deductibility of advertising and promotional
expenses?
1. Substantiated with sufficient evidence;
2. All payments for the purchase of promotional give-aways, contest prizes or
similar material must be properly receipted; and
3. All payments for services such as radio and TV time, print ads, talent
fees,advertising expense or know-how must be subjected to withholding tax.
Costs of Materials and Supplies
Q: Are all materials and supplies deductible whether or not they are used?
A: No, materials and supplies are deductible only to the amount actually consumed
or used in the operation during the taxable year.
Interests
Q: How is interest as a deduction from gross income defined?
A: Interest shall refer to the payment for the use or forbearance or detention of
money, regardless of the name it is called or denominated. It includes the amount
paid for the borrower’s use of money during the term of the loan, as well as for his
detention of money after the due date for its repayment.
COMMIT TO MEMORY_TAXATION LAW
Q: What are the requirements under the NIRC for interest to be deductible?
A: The following requirements must be met for interest to be deductible: 1. There
must be an indebtedness; 2. Incurred in connection with the taxpayer’s trade or
business; 3. Indebtedness must be that of the taxpayer; 4. Interest is stipulated in
writing; and 5. Interest expense was incurred or paid during the taxable year. (1992
Bar Question)
Q: Is there any limitation on the amount of deductible interest expense?
A: The taxpayer’s otherwise allowable deduction for interest expense shall be
reduced by an amount equal to 33% of the interest income subject to final tax.
(Note: This is to safeguard from tax arbitrage schemes. This limitation on the
deductibility of interest expense was legislated to specifically address the tax
arbitrage arising from the difference between the 20% final tax on interest income
and the normal corporate income tax rate under which interest expense can be
claimed as a deduction.
Note: The rate of interest limitation is actually the difference between the normal
corporate income tax and the 20% final tax as a percentage of the NCIT rate,
rounded off. Thus under the 30% NCIT, (30%-20%) / 30% = 33.33%.
Q: What is tax arbitrage?
A: It is a strategy which takes advantage of the difference in tax rates or tax
systems as the basis for profit.
Q: What are the deductible interest expenses?
A: Interest:
1. On taxes, such as those paid for deficiency or delinquency, since taxes are
considered indebtedness (provided that the tax is a deductible tax.) However,
fines, penalties, and surcharges on account of taxes are not deductible. The
interest on unpaid business tax shall not be subjected to the limitation on
deduction
2. Paid by a corporation on scrip dividends
3. On deposits paid by authorized banks of the BSP to depositors, if shown that
the tax on such interest was withheld
4. Paid by a corporate taxpayer, liable on a mortgage upon real property of which
the said corporation is the legal or equitable owner, even though it is not directly
liable for the indebtedness
Q: What are the non-deductible interest expenses?
1. Interest on preferred stock, which in reality is dividend
2. Interest on unpaid salaries and bonuses
Page 27 of 55 TATEL, ME
3. Interest calculated for cost keeping
4. Interest paid where parties provide no stipulation in writing to pay interest
5. If the indebtedness is incurred to finance petroleum exploration
6. Interest paid on indebtedness between related taxpayers
7. Interest on indebtedness paid in advance through discount or otherwise and the
taxpayer reports income on cash basis
Note: Interest is allowed as a deduction in the year the indebtedness is paid, not when
the interest was paid in advance.
Q: Who are related taxpayers?
1. Members of the same family, brothers and sisters, whether in full or half blood,
spouse, ancestors and lineal descendants
2. Stockholders and a corporation, when he holds more than 50% in value of its
outstanding capital stock, except in case of distribution in liquidation
3. Corporation and another corporation, with interlocking stockholders
4. Grantor and fiduciary in a trust
5. Fiduciary of a trust and fiduciary in another trust, if the same person is a grantor
with respect to each trust
6. Fiduciary of a trust and beneficiary of such trust
Taxes
Q: Are all taxes deductible?
A: GR: Taxes paid or incurred during the taxable year in connection with trade,
business or profession of the taxpayer shall be allowed as deduction.
XPNs: (ISE2F2)
1. Income tax
2. Special assessments
3. Estate and donor’s taxes
4. Excess electric consumption tax
5. Foreign income tax, if the taxpayer makes use of tax credit
6. Final taxes, being in the nature of income taxes
Q: What are the requisites for deductibility of taxes?
1. Payments must be for taxes;
2. Tax must be imposed by law on, and payable by the taxpayer;
3. Paid or incurred during the taxable year in connection with taxpayer’s trade,
business or profession; and
4. Taxes are not specifically excluded by law from being deducted from the
taxpayer’s gross income.
COMMIT TO MEMORY_TAXATION LAW

Q: What is foreign tax credit?
A: It is the right of an income taxpayer to deduct from income tax payable the
foreign income tax he has paid to a foreign country subject to certain limitations.
This is to avoid the rigors of indirect double taxation, although not prohibited by
the Constitution for being violative of the due process, results to a tax being paid
twice on the same subject matter or transaction.
Tax Benefit Rule
A: Taxes allowed as deductions, when refunded or credited shall be included as
part of gross income in the year of receipt to the extent of the income tax benefit
of said deduction.
Losses
Q: What are considered “losses” for purposes of deductions from gross income?
A: Losses actually sustained during the taxable year and not compensated for by
insurance or other forms of indemnity. (Sec. 34 D [1], NIRC)
Q: Give the requisites for the deductibility of a loss.
A: The requisites for deductibility of a loss are: TAEIE-C45
1. Loss belongs to the Taxpayer;
2. Actually sustained and charged off during the taxable year;
3. Evidenced by a closed and completed transaction;
4. Not compensated by Insurance or other forms of indemnity;
5. Not claimed as a deduction for Estate tax purposes in case of individual
taxpayers; and
6. If it is Casualty loss, it is evidenced by a declaration of loss file within 45 days
with the BIR. (1998 Bar Question)
Q: What are the types of losses?
1. Ordinary Losses:
a. Incurred in trade or business, or practice of profession;
b. Of property connected with trade, business or profession, if the loss arises from
storms, shipwreck, fires or other casualties, or from robbery, theft or
embezzlement. (Casualty loss)
i. Total Destruction – the basis of the loss is the net book value
immediately preceding the casualty to be reduced by the amount of
insurance or compensation received;
ii. Partial Destruction – the replacement cost to restore the property to its
normal operating condition, but in no case shall the deductible loss be
more than the net book value of the property as a whole, immediately
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before casualty. The excess over the net book value immediately before
the casualty should be capitalized, subject to depreciation over the
remaining useful life of the property.
2. Net Operating Loss Carry-over (NOLCO)
3. Capital Losses – losses from sale or exchange of capital assets. Deductible to
the extent of capital gains only.
4. Special Losses:
a. Wagering losses – deductible only to the extent of gain or winnings
deemed to only apply to individuals (Sec. 34 D [6], NIRC)
b. Losses on wash sales of stocks – not deductible since these are
considered as artificial loss
c. Abandonment losses in petroleum operation – all accumulated
exploration and development expenditures pertaining thereto shall be
allowed as a deduction
d. Abandonment losses in producing well – the unamortized cost thereof,
as well as the undepreciated cost of equipment directly used therein, shall
be allowed as deduction in the year the well, equipment or facility is
abandoned
e. Losses due to voluntary removal of building incident to renewal or
replacements – deductible expense from gross income
f. Losses from sales or exchanges of property between related taxpayers
– losses are not deductible but gains are taxable.
g. Losses of farmers – If incurred in the operation of farm business, it is
deductible h. Loss in shrinkage in value of stock – If the stock of the
corporation becomes worthless (not mere market fluctuations,) the cost
or other basis may be deducted by the owner in the taxable year in which
the stock becomes worthless
Bad Debts
Q: What are bad debts?
A: Bad debts refer to debts resulting from the worthlessness or uncollectibility, in
whole or in part, of amount due to the taxpayer by others, arising from money lent
or from uncollectible amounts of income from goods sold or services rendered.
Q: What are the general requisites for deductibility of bad debts? USTCAR
1. The debts are Uncollectible despite diligent effort exerted by the taxpayer;
Note: To prove that the taxpayer exerted diligent efforts to collect the debts:
1. Sending of statement of accounts; 2. Sending of collection letters; 3.
Giving the account to a lawyer for collection; and 4. Filing a collection case in court.
2. Existing indebtedness Subsisting due to the taxpayer which must be valid and
legally demandable;
COMMIT TO MEMORY_TAXATION LAW
3. Connected with the taxpayer’s Trade, business or practice of profession; 5. The amount of charitable contribution of property other than money shall be
4. Actually Charged off in the books of accounts of the taxpayer as of the end of based on the Acquisition cost of said property.
the taxable year;
5. Actually Ascertained to be worthless and uncollectible as of the end of the Q: What contributions are deductible in full?
taxable year; and A: These are: [GAFA]
6. Must not be sustained in a transaction entered into between Related parties. 1. Donations to the Government of the Philippines, or political subdivisions
including fully-owned government corporation to be used exclusively in
Q: What factors will determine whether or not the debts are bad debts? undertaking priority activities in: [CHEESHY]
A: The factors to be considered include, but are not limited to, the following: a. Culture
1. The debtor has no property nor visible income; b. Health
2. The debtor has been adjudged bankrupt or insolvent; c. Economic Development
3. There are numerous debtors with small amounts of debts and further action on d. Education
the accounts would entail expenses exceeding the amounts sought to be e. Science
collected; f. Human Settlement
4. The debt can no longer be collected even in the future; and g. Youth and Sports development
5. Collateral shares have become worthless.
2. Donations to Foreign institutions and international organizations in compliance
Depreciation with treaties and agreements with the Government.
A: Depreciation is the gradual diminution in the useful (service) value of tangible 3. Donations to Accredited NGO’s
property used in trade, profession or business resulting from exhaustion, wear a. Exclusively for: C2HES2Y-RC
and tear and obsolescence. i. Cultural
ii. Charitable
Q: What are the requisites for its deductibility? RUCA iii. Health
1. Reasonable; iv. Educational
2. Property Used in trade, business, or exercise of a profession; v. Scientific
3. The allowance must be Charged off within the taxable year; and vi. Social welfare
4. Schedule on the allowance must be Attached to the return. vii. Character building & Youth and Sports Development
viii. Research
Depletion ix. Any Combination of the above
Q: What is depletion?
A: It is the exhaustion of natural resources like mines and oil and gas wells as a b. Donation must be utilized not later than the 15th day of the 3rd month following
result of production or severance from such mines or wells. the close of taxable year;
c. Administrative expense must not exceed 30% of the total expenses;
Charitable and Other Contributions d. Upon dissolution, assets shall be transferred to another non-profit domestic
Q: What are the requisites for its deductibility? corporation or to the State.
A: AW-SEA
1. The contribution or gift must be Actually paid; 4. Donations of prizes and awards to Athletes
2. It must be paid Within the taxable year; Q: What donations are subject to limitation?
3. It must be given to the organization Specified by law; 1. Donations that are not in accordance with the priority plan.
4. It must be Evidenced by adequate receipts or records; and 2. Donations whose conditions are not complied with.

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3. Donations to the Government of the Philippines or political subdivision exclusive Note: This is in lieu of the itemized deduction where the taxpayer lists down all his
for public purposes. expenses and the corresponding amounts incurred to determine the amount of
4. Donations to domestic corporations organized exclusively for: allowable deductions.
a. Scientific
b. Educational Q: How much is allowed as OSD?
c. Cultural A: The optional standard deduction is an amount not exceeding:
d. Charitable 1. 40% of the gross sales or gross receipts of a qualified individual taxpayer; or
e. Religious 2. 40% of the gross income of a qualified corporation.
f. Rehabilitation of veteran
g. Social Welfare Q: Differentiate itemized deduction from OSD.
A: Itemized Deduction must be substantiated by receipts while OSD requires no
Q: What are the limitations? proof of expenses incurred because the allowable deduction is 40% of gross sales
1. Amount deductible shall not exceed: or receipts or gross income as the case may be.
a. For individuals - 10% of taxable income before contributions;
b. For corporations - 5% of taxable income before contributions. (Sec. 34 H [1], Q: Who may not avail of the OSD?
NIRC) 1. Non-resident aliens whether or not engaged in trade or business in the
2. No part of net income of donee inures to the benefit of any private stockholders Philippines; and
or individual. 2. Non- resident foreign corporations.

Research and Development Expenditure PERSONAL AND ADDITIONAL EXEMPTIONS

Pension Trust Contributions
Q: What are the requisites for its deductibility?
A: P-FRANC
1. The employer must have established a Pension or retirement plan to provide for
the payment of reasonable pensions to his employees;
2. It must be Funded by the employer;
3. The pension plan is Reasonable and actuarially sound;
4. The deduction is Apportioned in equal parts over a period of 10 consecutive
years beginning with the year in which the transfer or payment is made;
5. The payment has Not yet been allowed as a deduction; and
6. The amount contributed must no longer be subject to the Control and
disposition of the employer;
Q: What are personal exemptions?
A: These are arbitrary amounts allowed as deductions from gross income of an
individual representing personal, living and family expenses of the taxpayer.
Q: What are the kinds of personal exemptions?
1. Basic Personal Exemption – the amount subtracted from gross income which is
allowed for the theoretical personal, family, and living expenses of an individual
taxpayer regardless of status, whether single or married individual judicially
decreed as legally separated with no qualified dependents or head of the family.
2. Additional Exemptions – these are exemptions in addition to the basic personal
exemptions that are granted to certain individual who have dependents that
qualify them for this exemption.

OPTIONAL STANDARD DEDUCTION
Q: What is optional standard deduction (OSD)?
A: The OSD is a scheme whereby a taxpayer is given the option to deduct from his
gross revenue or gross income a lump sum equivalent to a percentage of such
gross revenue or gross income for purposes of computing the net taxable income
on which the income tax rate will be applied.
Note: RA 9504 increased the basic personal exemptions to P50,000 irrespective of
whether the individual is single, head of the family, or married. It also increased the
additional personal exemptions to P25,000 for each child provided not more than 4.
Q: Who among the individual taxpayer’s are entitled to personal and additional
exemptions?
1. Resident citizen 2. Non-resident citizen 3. Resident alien

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 Items not Deductible
Q: Is a non-resident alien engaged in trade, business, or in the exercise of a Q: What items are not deductible?
profession in the Philippines (NRA-ETB) entitled to personal and additional A: In computing net income, no deduction shall in any case be allowed in respect
exemptions? to:
A: GR: No. 1. Personal, living or family expenses – these are personal expenses and not
XPN: Can be entitled to personal and additional exemption subject to the rule on related to the conduct of trade or business
reciprocity:
1. His foreign country allows personal exemptions to citizens of the Philippines not 2. Any amount paid out for new buildings of for permanent improvements, or
residing therein; betterments made to increase the value of any property or estate – these are
2. File an accurate return of his income from all sources within the Philippines. on capital expenditures added to the cost of the property and the periodic
time; and depreciation is the amount that is considered as deductible expense
3. Amount allowable is not to exceed our maximum allowable personal
exemption. Note: Shall not apply to intangible drilling and development costs incurred in
petroleum operations which are deductible under Subsection (G) (1) of Sec. 34 of
Additional Exemptions the NIRC
Q: What are the conditions for an individual to be entitled to additional
exemptions? 3. Any amount expended in restoring property or in making good the exhaustion
A: An individual: thereof for which an allowance is or has been made
1. Whether single or married;
2. Shall be allowed an additional exemption of P 25,000; 4. Premiums paid on any life insurance policy covering the life of any officer or
3. For each qualified dependent child; employee, or of any person financially interested in any trade or business carried
4. Provided, that the total number of dependents for which additional exemptions on by the taxpayer, individual or corporate, when the taxpayer is directly or
may be claimed as long as it shall not exceed 4 dependents. (Sec. 35 [B], NIRC) indirectly a beneficiary under such policy (Sec. 36 [A], NIRC)

Q: Who are qualified dependents for purposes of additional exemption? 5. Losses from sales or exchanges of property between related parties (Sec. 36
1. A dependent means [B], NIRC)
a. Legitimate, illegitimate or legally adopted child;
b. Chiefly dependent upon and living with the taxpayer; 6. Interest expense, bad debts, and losses from sales of property between related
c. If such dependent is: parties
i. Not more than 21 years old;
ii. Unmarried; 7. Non-deductible interest
iii. Not gainfully employed or 8. Non-deductible taxes
d. If such dependent: 9. Non-deductible losses
i. Regardless of age; 10. Losses form wash sales of stock or securities
ii. Is incapable of self-support; because of mental or physical defect. (Sec.
2.79 I [1] b, RR 298 as amended by RR 10-2008; Sec. 35 [b], NIRC) Q: What are de minimis benefits?
2. Under RA 7432 (Senior Citizens Law,) a senior citizen may qualify as dependents A: These are facilities or privileges furnished or offered by an employer to his
employees that are of relatively small value and are offered or furnished by the
Note: Parents, as well as brothers or sisters and other collateral relatives are not employer merely as a means of promoting the health, goodwill, contentment and
qualified dependents to be claimed as additional exemptions under RA 9504. efficiency of his employees.

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Q: How de minimis benefits are taxed?
GR: De minimis benefits are not taxable.
XPN: If the total amount of de minimis benefits exceed the P82,000 limit, the
excess shall be considered as part of the compensation income.
Premiun Payments on Health and Hospitalization
Q: Who may avail of the deduction?
A: Only an individual taxpayer may claim said deduction. Individual taxpayers
whether earning purely compensation income during the year or earning business
income or in practice of his profession whether availing of itemized or optional
standard deductions during the year.
In the case of married taxpayers, only the spouse claiming the additional
exemption for dependents shall be entitled to this deduction. (Sec. 34 [M], NIRC)
Q: How much is the amount allowed?
A: The amount of premiums not to exceed P2,400 per family or P200 a month paid
during the taxable year for health and/or hospitalization insurance taken by the
taxpayer for himself, including his family, shall be allowed as deduction from gross
income. (Sec. 34 [M], NIRC)
Q: What are the conditions in order to avail said deduction?
1. The health and/or hospitalization was taken by the taxpayer for himself,
including his family; and 2. That said family has a gross income of not more than
P250,000 for the taxable year.
INCOME TAXATION ON CORPORATIONS
Normal Corporate Income Tax
Q: How are corporations treated under normal corporate income tax (NCIT)?
A: Under the normal income tax, the taxable income of a corporation during each
taxable year is multiplied with the applicable rate of 30%.
Note: The resulting amount should then be compared with the income tax payable
using the MCIT. Whichever is higher between the two shall be the tax due.
Q: To what corporations is the NCIT applicable?
A: It is applicable to domestic and resident foreign corporations.
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Minimum Corporate Income Tax
Q: To what corporations is the minimum corporate income tax (MCIT) applicable?
A: It is applicable to domestic and resident foreign corporations which are subject
to regular income tax. Note: Under its charter, Philippine Airlines is exempt from
the MCIT. (CIR v. Philippine Airlines, Inc., GR 180066, July 7, 2009)
Q: What is the treatment under the MCIT?
A: Under the MCIT, tax is imposed on a corporation at the rate of 2% based on gross
income.
Q: What are the instances when the MCIT is imposed?
A: The MCIT shall be imposed:
1. When there is zero or negative taxable income; or
2. Whenever the amount of the minimum corporate income tax is greater than
the normal tax of 30% due on the taxable income due from the corporation.
Note: The reason for MCIT is to forestall the prevailing practice of corporations of
overstating deductions, in order to reduce their income tax payments.
Q: What are the limitations on the applicability of MCIT?
1. MCIT does not apply if the domestic or resident corporation is not subject to
NCIT.
2. In the case of a domestic corporation whose operations or activities are partly
covered by the regular income tax system and partly covered under a special
income tax system, the MCIT shall apply on operations covered by the regular
income tax system.
3. For resident foreign corporation, only the gross income sources within the
Philippines shall be considered.
4. MCIT does not apply on the first 3 years of business operation of a corporation.
Q: When does MCIT commence?
A: MCIT is imposed beginning the fourth taxable year in which such corporation
commenced its business operations, which is the year when the corporation
registers with the BIR and not when the corporation started its commercial
operation. (Sec. 27 E [1], NIRC)
Q: Can the payment of MCIT be suspended?
A: Yes. The Secretary of Finance, upon recommendation of the BIR, may suspend
the imposition of MCIT on any corporation which suffers loss on account of: [PFL]
COMMIT TO MEMORY_TAXATION LAW
1. Prolonged Labor Dispute – arising from a strike staged by the employees which
lasted for more than 6 months within a taxable period and which has caused the
temporary shutdown of business operations.
2. Force Majeure – a cause due to an irresistible force as by ‘Act of God’ like
lightning, earthquake, storm, flood and the like. It shall also include armed
conflicts like war or insurgency.
3. Legitimate Business Reverses – include substantial losses due to fire, theft or
embezzlement or for other economic reason as determined by the Secretary of
Finance. (Sec. 27 E [3], NIRC)
Q: What is the carry-forward provision under the MCIT?
A: Any excess of MCIT over normal tax (NT) may be carried forward on an annual
basis and be credited against the NT for the 3 immediately succeeding years
CREBA assails the constitutionality of MCIT on the contention that it violates due
process. Is the imposition of MCIT unconstitutional?
A: No, the imposition of MCIT is not violative of due process for the following
reasons:
1. MCIT is imposed on gross income and not capital. Thus, it is not arbitrary or
confiscatory.
2. It is not an additional tax imposition but is imposed in lieu of normal net income
tax and only if said tax is suspiciously low.
3. There is no legal objection to a broader tax base or taxable income resulting
from the elimination of all deductible items and, at the same time, reduction of the
applicable tax rate. In as much as deductions are a matter of legislative grace,
Congress has the power to condition, limit or deny deductions from gross income
in order to arrive at the net that it chooses to tax.
Gross Income Tax (Optional Corporate Income Tax)
Q: What is “optional corporate income tax”?
A: The President, upon recommendation by the Secretary of Finance may,
effective Jan. 1, 2000, allow domestic corporations the option to be taxed at 15%
of gross income subject to the following conditions:
1. A tax effort ratio of 20% of GNP;
2. A ratio of 40% of income tax to total tax revenue;
3. A VAT tax effort of 4% of GNP;
4. A 0.9% ratio of Consolidated Public Sector Finance Position to GNP. (Sec. 27 [A],
NIRC)
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Note: No authority yet has been given by the President.
Q: When is it available?
A: This optional tax is available only to firms whose ratio of cost of sales to gross
sales/receipts from all sources does not exceed 55%. The election of the gross
income tax option by the corporation shall be irrevocable for 3 consecutive
taxable years during which the corporation is qualified under the scheme. (Sec. 27
[A], NIRC)
Improperly Accumulated Earnings Tax
Q: What is an improperly accumulated earnings tax (IAET)?
A: A tax equivalent to 10% of improperly accumulated income. (Sec. 29 [A], NIRC)
Q: What is improperly accumulated income?
A: Improperly accumulated earnings refer to profits of a corporation that are
accumulated instead of distributing it to its shareholders for the purpose of
avoiding the income tax with respect to its shareholders or the shareholders of
another corporation.
Note: If the earnings and profits were distributed, the shareholders would be
liable for income tax, whereas if there is no distribution, they would incur no tax
with respect to the undistributed earnings of the corporation. Hence, IAET is
imposed:
1. In the nature of a penalty to the corporation for the improper accumulation of
its earnings; and
2. As a form of deterrent to the avoidance of tax upon shareholders who are
supposed to pay dividends tax on the earning distributed to them by the
corporation
Q: To whom is it imposed?
A: Upon a domestic corporation and closely-held corporations which is formed or
availed of for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of any other corporation by permitting earnings
and profits to accumulate instead of dividing or distributing it.
Note: IAET does not apply to the following:
1. Publicly-held corporations (Sec. 29 B [2], NIRC)
2. Banks, other non-bank financial intermediaries
3. Insurance companies
4. Publicly-held corporations
5. Taxable partnerships
COMMIT TO MEMORY_TAXATION LAW
6. General professional partnerships
7. Non- taxable joint ventures
8. Enterprises duly registered with the Philippine Economic Zone Authority under
R.A. 7916, and enterprises registered pursuant to the Bases Conversion and
Development Act of 1992 under R.A. 7227, as well as other enterprises duly
registered under special economic zones declared by law which enjoy payment of
special tax rate on their registered operations or activities in lieu of other taxes,
national or local. (Sec. 4, RR 2-2001)
A: PrInSE
1. Not organized and operated principally for Profit;
2. No part of the net income Inures to the benefit of any member or individual;
3. No capital is represented by Shares of stock; and
4. Educational or instructive in character.

Q: What are closely-held corporations?

A: A corporation where at least 50% of the outstanding capital stock in value or at
least 50% of the total combined voting power of all classes of stock entitled to vote
is owned directly or indirectly by or for not more than 20 individuals.

Q: What is the test in determining reasonable needs which is recognized by the

BIR?
A: Under the “Immediacy test” which is recognized by the BIR, the “reasonable
needs of the business” are the immediate and reasonably anticipated needs
supported by a direct correlation of anticipated needs to such accumulation of
profits.

Q: What are the prima facie instances of accumulation of profits beyond the
reasonable needs of a business?
A: 1. Investment of substantial earnings and profits of the corporation in unrelated
business or in stock or securities unrelated business.
2. Investment in bonds and other long term securities.
3. Accumulation of earnings in excess of 100% of paid up capital, not otherwise
intended for the reasonable needs of the business.

Q: What are prima facie evidence to show purpose of accumulation is tax evasion
or determination of purpose to avoid the tax?
A: The fact that:
1. Any corporation is a mere
(a) holding company or
(b) investment (mutual fund) company.

2. The earnings or profits of a corporation are permitted to accumulate beyond

the reasonable needs of the business.

EXEMPTIONS FROM TAX ON CORPORATIONS

Q: What are their common requisites for exemption?

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EXCISE TAX or Sin Tax
Generally imposed on harmful or non-essential goods manufactured or
produced in the Philippines for domestic sale, consumption or for any
other disposition including imported goods.
 In addition to the VAT; To compute for the excise tax, VAT is not inc in the
tax base. To compute for VAT, excise tax is inc in the tax base
 Indirect tax.
Classifications
1. 'specific tax' - based on weight or volume capacity or any other physical
unit of measurement.
2. ‘ad valorem’ - based on selling price or other specified value of the goods.
(3) On locally-extracted natural gas and liquefied natural gas - P0.00
(4) On indigenous petroleum - 3% of the fair international market price
Link: EXCISE TAX RATES:
Filing of Return and Payment of tax – PAY AS YOU FILE
On domestic products
 Before removal from the place of production
On imported products
 Before release from the customs' custody

Purposes
1. To curtail consumption of certain commodities which are considered
harmful to the individual as well as the community as a whole.
2. To protect domestic industries from competition caused by similar
imported products.
3. To distribute tax burden in proportion to benefit derived from a particular
government service.
4. To raise revenue.

Goods subject to Excise tax ATPM2

1. Alcohol Products
a. Distilled Spirits (Section 141)
b. Wines (Section 142)
c. Fermented Liquors (Section 143)
2. Tobacco Products (Sections 144-146)
a. Tobacco Products (Section 144)
b. Cigars & Cigarettes (Section 145)
c. Inspection Fee (Section 146)
3. Petroleum Products (Section 148)
4. Miscellaneous Articles (Section 149-150)
a. Automobiles (Section 149)
b. Non-essential Goods (Section 150) – 20%
(a) All goods commonly or commercially known as jewelry, whether real or imitation,
(b) Perfumes and toilet waters;
(c) Yachts and other vessels intended for pleasure or sports.
5. Mineral Products (Sections 151)
(1) On coal and coke- P10.00 per metric ton;
(2) On all non-metallic minerals and quarry resources - 2% based on the
actual market value of the gross output

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DOCUMENTARY STAMP TAX (DST)
Is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or
property incident thereto.
It is a charge on transactions evidenced by stamps required to be
attached in corresponding docs, instruments and papers.
Nature
 National tax levied upon a right or privilege; excise tax
 Applicable only to transactions effected and consummated within the
Philippines
 It is the transaction that is being taxed, not the document
 The tax may be paid either through purchase and actual affixing to the
taxable docs OR by imprinting the stamps through a documentary stamp
metering machine, on the taxable document.
Who: Any of the parties, depending on their agreement.
Provided, that whenever one party to the taxable document enjoys exemption
from the tax herein imposed, the other party who is not exempt shall be the one
directly liable for the tax.
Documents/papers not subject to DST (sec. 9, RR No. 13-2004)
Effect of Failure to Stamp Taxable Document.
 Instrument, document or paper shall not be recorded
 nor shall it or any copy thereof or any record of transfer of the same be
admitted or used in evidence in any court
 No notary public or other office authorized to administer oaths shall add
this jurat or acknowledgment to any document subject to dst
Time for Filing and Payment of the Tax. PAY AS YOU FILE
 Filed and Paid within 10 days after the close of the month when the
taxable document was made, signed, issued, accepted, or transferred.
Documents Subject to DST
 Documents, Loan Agreements, Instruments and Papers.
 Original Issue of Shares of Stock
 Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of
Due-bills, Certificates of Obligation, or Shares of Certificates of Stock
 Bonds, Debentures, Certificate of Stock or Indebtedness Issued in Foreign
Countries.
 Certificates of Profits or Interest in Property or Accumulations.
 Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, and
Other Instruments. -
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 All Debt Instruments
 All Bills of Exchange or Drafts
 Acceptance of Bills of Exchange and Others
 Foreign Bills of Exchange and Letters of Credit.
 Life Insurance Policies
 Policies of Insurance Upon Property
 Fidelity Bonds and Other Insurance Policies.
 Policies of Annuities and Pre-Need Plans.
 Indemnity Bonds
 Certificates
 Warehouse Receipts.
 Jai-Alai, Horse Racing Tickets, lotto or Other Authorized Numbers Games
 Bills of Lading or Receipts
 Powers of Attorney.
 Lease and Other Hiring Agreements
 Mortgages, Pledges and Deeds of Trust
 Deeds of Sale and Conveyances of Real Property
 Certificates of oaths administered by any government official in his
official capacity or acknowledgement by any government official in
performance of his official duty
 Bank deposit accounts without a fixed term or maturity
 All contracts, deeds, documents and transactions related to the conduct
of business of the BSP
 Written appearance in any court by any government official in his official
capacity
 Papers and documents filed in court by or for the national, provincial,
city or municipal governments
 Affidavits of poor persons for the purpose of proving poverty
 Sale, barter or exchange of shares of stock listed and traded through the
local stock exchange (R.A 9648)
 Policies of insurance or annuities made or granted by a fraternal or
beneficiary society, order, association or cooperative company, operated
on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of
each member and not for profit
 Certificates of the administration of oaths to any person as to the authenticity of any paper
required to be filed in court by any person or party thereto, whether the proceedings be civil
or criminal
COMMIT TO MEMORY_TAXATION LAW
  Statements and other compulsory information required of persons or corporations by the
rules and regulations of the national, provincial, city or municipal government exclusively
for statistical purposes and which are wholly for the use of the Bureau or office in which
they are filed, and not at the instance or for the use or benefit of the person filing them
 Certified copies and other certificates placed upon documents, instruments and papers for
the national, provincial, city or municipal governments
 Certificates of the assessed value of lands, not exceeding P200 in value assessed, furnished
by the provincial, city or municipal Treasurer to applicants for registration of title to land
 Borrowing and lending of securities executed under the Securities Borrowing and Lending
Program of a registered exchange, or in accordance with regulations prescribed by the
appropriate regulatory authority: Provided, however, That any borrowing or lending of
securities agreement as contemplated hereof shall be duly covered by a master securities
borrowing and lending agreement acceptable to the appropriate regulatory authority, and
which agreement is duly registered and approved by the Bureau of Internal Revenue (BIR)
 Loan agreements or promissory notes, the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000), or any such amount as may be determined by the
Secretary of Finance, executed by an individual for his purchase on installment for his
personal use or that of his family and not for business or resale, barter or hire of a house,
lot, motor vehicle, appliance or furniture: Provided, however, That the amount to be set by
the Secretary of Finance shall be in accordance with a relevant price index but not to exceed
ten percent (10%) of the current amount and shall remain in force at least for three (3) years
 Assignment or transfer of any mortgage, lease or policy of insurance, or the renewal or
continuance of any agreement, contract, charter, or any evidence of obligation or
indebtedness, if there is no change in the maturity date or remaining period of coverage
from that of the original instrument.
 Fixed income and other securities traded in the secondary market or through an exchange.
 Derivatives: Provided, That for purposes of this exemption, repurchase agreements and
reverse repurchase agreements shall be treated similarly as derivatives
 Interbranch or interdepartmental advances within the same legal entity
 All forebearances arising from sales or service contracts including credit card and trade
receivables: Provided, That the exemption be limited to those executed by the seller or
service provider itself.
 Transfer of property pursuant to Section 40(C)(2) of the National Internal Revenue Code of
1997, as amended
 Interbank call loans with maturity of not more than seven (7) days to cover deficiency in
reserves against deposit liabilities, including those between or among banks and quasi-
banks
LOCAL TAXATION
Local Taxes - Taxes that are imposed and collected by the local government units
in order to raise revenues to enable them to perform the functions for which they
have been organized.
Fundamental principles of local taxation/Requisites of municipal taxation
A: The following fundamental principles shall govern the exercise of the taxing and
other revenue-raising powers of local government units: UE-LIP
Page 37 of 55 TATEL, ME
1. Taxation shall be Uniform in each local government unit;
2. Taxes, fees, charges and other impositions shall: EPUC
a. be equitable and based as far as practicable on the taxpayer's ability to
pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to law, public policy, national economic policy, or in the
restraint of trade;
3. The collection of local taxes, fees, charges and other impositions shall in no case
be Let to any private person;
4. The revenue collected pursuant to the provisions of the LGC shall Inure solely
to the benefit of, and be subject to the disposition by, the local government unit
levying the tax, fee, charge or other imposition unless otherwise specifically
provided herein; and
5. Each local government unit shall, as far as practicable, evolve a Progressive
system of taxation. (Sec. 130, LGC)
Q: What are the sources of local taxing power?
1. Art. X, Sec 5 of the 1987 Constitution - “Each local government unit shall have
the power to create their own sources of revenue and to levy taxes, fees and
charges subject to such guidelines and limitations as the Congress may provide
consistent with the basic policy of local autonomy. Such taxes, fees and charges
shall accrue exclusively to the local government.”
2. Sec. 129 of the Local Government Code (LGC) - “Each local government unit shall
exercise its power to create its own sources of revenue and to levy taxes, fees and
charges subject to the provisions herein, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
government units.”
Q: What is the “paradigm shift” in local government taxation?
A: The power to tax is no longer vested exclusively on Congress. Local legislative
bodies are now given direct authority to levy taxes, fees and other charges
pursuant to Art. X, Sec. 5 of the Constitution.
Q: What is the nature of the taxing power of the provinces, municipalities and
cities?
A: The taxing power of the provinces, municipalities and cities is directly conferred
by the Constitution by giving them the authority to create their own sources of
revenue. The local government units do not exercise the power to tax as an
COMMIT TO MEMORY_TAXATION LAW
inherent power or by a valid delegation of the power by Congress, but pursuant
to a direct authority conferred by the Constitution.
Q: What are the characteristics of the taxing power of LGUs? DON2G
1. Not inherent – May only be exercised if delegated to them by national legislature
or conferred by the Constitution itself.
2. Direct grant from the Constitution – While a direct grant, the same is subject to
limitations as may be set by Congress.
3. Not absolute –Subject to limitations and guidelines as may be provided by law
such as progressivity etc.
4. Exercised by the sanggunian of the LGU concerned through an appropriate
Ordinance.
5. Its application is bounded by the Geographical limits of the LGU that imposes
the tax.
Q: What are the aspects of local taxation?
1. Local Government Taxation (Sections 128-196, LGC)
2. Real Property Taxation (Sections 197283, LGC)
Q: What are the powers to prescribe penalties for tax violations of the LGU?
1. Limited as to the amount of imposable fine as well as the length or period of
imprisonment;
2. The Sanggunian is authorized to prescribe fines or other penalties for violations
of tax ordinances, but in no case shall fines be less than P1,000 nor more than
P5,000 nor shall the imprisonment be less than one (1) month nor more than six
(6) months;
3. Such fine or other penalty shall be imposed at the discretion of the court;
4. The Sangguniang Barangay may prescribe a fine of not less than P100 nor more
than P1,000. (Sec. 516, LGC)
Q: May LGUs grant exemptions?
A: Yes. Local government units may, through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and conditions as they may
deem necessary. The power to grant tax exemptions, tax incentives and tax reliefs
shall not apply to regulatory fees which are levied under the police power of the LGU.
Q: What are the guidelines for granting tax exemptions, incentives and reliefs?
Tax Exemptions and Reliefs
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a. May be granted in cases of natural calamities, civil disturbance, and
general failure of crops or adverse economic conditions such as
substantial decrease in prices of agricultural or agri-based products;
b. The grant shall be through an ordinance;
c. Any exemption or relief granted to a type or kind of business shall apply
to all business similarly situated;
d. The same may take effect only during the calendar year not exceeding
12 months as may be provided in the ordinance; and
e. In case of shared revenues, the relief or exemption shall only extend to
the LGU granting such.
Tax incentives:
a. Shall be granted only to new investments in the locality and the
ordinance shall prescribe the terms and conditions therefore;
b. The grant shall be for a definite period not exceeding 1 calendar year;
c. The grant shall be through an ordinance passed prior to the 1st day of
January of any year; and
d. Tax incentive granted to a type or kind of business shall apply to all
businesses similarly situated.
Q. What privileges were withdrawn upon the effectivity of the LGC?
GR: Tax exemptions or incentives granted to or enjoyed by all persons, whether
natural or juridical, including government-owned or controlled corporations are
hereby withdrawn upon the effectivity of the Local Government Code.
XPNS: Those exemptions or incentives conferred to:
1. Local water districts
2. Cooperatives duly registered under R.A. 6938;
3. Non-stock and non-profit hospitals and educational institutions.
Q: Does the LGU have power to adjust local tax rates?
A: Yes, provided that the adjustment of the tax rates as prescribed herein should
not be oftener than once every five (5) years, and in no case shall such adjustment
exceed ten percent (10%) of the rates fixed under the LGC. (Sec. 191, LGC)
Q: What is the so-called “Residual Taxing Power of the LGU”?
A: LGUs may exercise the power to levy taxes, fees or charges on any base or
subject NOT otherwise specifically enumerated herein or taxed under the
1. LGC; 2. NIRC; or 3. Other applicable laws.
Q: Can LGUs tax the National Government?
GR: LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities.
COMMIT TO MEMORY_TAXATION LAW
 7. Annual fixed tax for every delivery truck or van of manufacturer or producers,
XPN: When specific provisions of the LGC authorize the LGUs to impose taxes, fees wholesalers of, dealers, or retailer in certain products
or charges on the aforementioned entities
TRANSACTION TAX BASE TAX RATE EXCEPTION
Q: Who shall exercise local taxing authority? SUBJECT TO TAX
A: The power to impose a tax, fee, or charge or to generate revenue under the LGC Tax on transfer of real property ownership
shall be exercised by the sanggunian of the local government unit concerned Sale , donation, Whichever is Not more than fifty Transfer under
through an appropriate ordinance. barter, or on any higher between: percent (50%) of CARP
other mode of 1.total the one percent
transferring consideration 2. (1%)
Q: What are the powers incidental to local taxation? ownership or title of the Fmv if the
1. Power to prescribe penalties for tax violations and limitations thereon. real property transfer is not
2. Power to adjust local tax rate substantial
3. Power to grant local exemptions
Person Liable to Pay: Seller, donor, transferor, executor, or administrator
Q: What are the requisites of a valid tax ordinance? Time of Payment: within 60 days from the date of the execution of the deed or from the
1. The procedure applicable to local government ordinances in general should be date of the decedent’s death
observed. The following procedural details must be complied with: Tax on the business of printing and publication
a. Necessity of quorum Business of printing Gross annual Not exceeding fifty School texts or
and publication of receipts for the percent (50%) of references,
b. Submission for approval by the local chief executive
books, cards, poster, preceding calendar one percent (1%) prescribed by the
c. The matter of veto and overriding the same leaflets, handbills, year. DepEd shall be
d. Publication and effectivity certificates, Capital Investment In the case of a exempt from tax.
2. Public hearings are required before any local tax ordinance is enacted (Sec. 187, receipts, pamphlets, newly started
LGC) and others of similar business, the tax
3. Within 10 days after their approval, publication in full for 3 consecutive days in a nature shall not exceed
newspaper of general circulation. In the absence of such newspaper in the one-twentieth
province, city or municipality, then the ordinance may be posted in at least two (1/20) of one
conspicuous and publicly accessible places percent (1%)
Franchise tax
Businesses enjoying Gross annual Not exceeding fifty percent (50%) of one
Note: The requirement of publication in full for 3 consecutive days is mandatory for
a franchise receipts for the percent (1%)
a tax ordinance to be valid. The tax ordinance will be null and void if it fails to comply preceding calendar
with such publication requirement. year.
Capital Investment In the case of a newly started business, the
tax shall not exceed one-twentieth (1/20)
Taxing power of provinces of one percent (1%)
Q: What are the taxes, fees and charges which a province or a city may levy? Tax on sand, gravel and other quarry resources
1. Tax on transfer of real property ownership Sand, gravel and Fair market value in Not more than ten
2. Tax on business of printing and publication other resources the locality per percent (10%)
3. Franchise extracted from cubic meter of
public lands or from ordinary stones,
4. Tax on sand, gravel and other quarry resources
the beds of seas, sand, gravel, earth,
5. Professional tax
lakes, rivers, and other quarry
6. Amusement tax streams, creeks, and resources

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 other public waters and collected by highly urbanized and independent component cities shall accrue
within its territorial to them and distributed in accordance with the provisions of LGC.
jurisdiction Note: The rates of taxes that the city may levy may exceed the maximum rates
Who issues permit: issued exclusively by the provincial governor pursuant to the allowed for the province or municipality by not more than fifty percent (50%)
ordinance of the Sangguniang Panlalawigan
except the rates of professional and amusement taxes. Cities have the broadest
Distribution of Tax Proceeds: a. Province – 30% b. Component city or municipality – 30%
c. Barangay where resources were extracted 40%
taxing powers.
Note: the authority to impose taxes and fees for extraction of sand and gravel belongs
to the province, and not to the municipality where they are found. 3 types of cities: Component Cities, Independent Component Cities and Highly
Regalian Doctrine is not applicable. Province may not invoke the doctrine to extend the Urbanized Cities. ICCs and HUCs are independent of the province - taxes accrue
coverage of its ordinance to quarry resources extracted from private lands. solely to them.
Amusement tax
Ownership, lease or Gross receipts Not more than 10% GR: The holding of Taxing Powers of Municipalities
operation of from admission of gross receipts operas, concerts, A: Municipalities may levy taxes, fees, and charges not otherwise levied by
theatres, cinemas, fees. from admission dramas… provinces, except as otherwise provided in the LGC.
concert halls, circuses, fees XPN: Holding of
boxing stadium and pop, rock, or
other places of similar concert
Q: What are the taxes that a municipality may impose under the LGC?
amusement 1. Tax on business
Professional tax 2. Fees and charges on business and occupation
Exercise or practice At such amount Not to exceed Professionals 3. Fees for sealing and licensing of weights and measures
of profession and reasonable P300 exclusively 4. Fishery rentals, fees and charges
requiring classification employed in the
government government
licensure
Q: What are the businesses under Section 143 of the Local Government Code
examination upon which municipalities may impose business taxes? ManWhoRE-COP-B
Note: TAX TO BE PAID ONLY ONCE. Person who has paid the corresponding professional tax shall 1. On Manufacturers, assemblers, repackers, processors, brewers, distillers,
be entitled to practice his profession in any part of the Philippines without being subjected to any rectifiers, and compounders of liquors etc of any article of commerce of whatever
other national or local tax, license, or fee for the practice of such profession kind or nature;
Annual fixed tax for every delivery truck or van of manufacturer or producers, 2. On Wholesalers, distributors, or dealers in any article of commerce of whatever
wholesalers of, dealers, or retailer in certain products
Use by manufacturers,
kind or nature;
Every truck, van or Every truck, van or Exempt from tax
producers,wholesalers, vehicle vehicle on peddlers
3. On exporters, and on manufacturers, millers, producers, wholesalers,
dealers or retailers of imposed by distributors, dealers or retailers of Essential commodities;
truck, van or any 4. On Retailers;
municipalities
vehicle in the delivery
5. On Contractors;
or distribution of
distilled spirits.. 6. Banks and other financial institutions; - 50% of 1%
Cigarettes, and other 7. Peddlers; - Not exceeding P50/peddler
products.. 8. Other business not specified which the sanggunian concerned my deem proper
to tax.
Taxing Powers of Cities Note: Municipalities may impose & collect reasonable fees & charges on business &
occupation and, except in case of professional tax, (w/c only provinces & cities may
Q: What is the scope of the taxing power of a city? levy) on the practice of any profession or calling commensurate w/ the cost of
A: The city, may levy the taxes, fees, and charges which the province or regulation, inspection & licensing before any person may engage in such
municipality may impose, except as otherwise provided in the LGC. Those levied business/occupation/practice of such profession or calling.

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Q: What are the rates of business within the Metropolitan Manila Area?
A: The municipalities in Metro Manila may levy taxes at rates which shall not
exceed by 50% the maximum rates prescribed in Section 143, LGC
Taxing Powers of Barangays
Note: The enumeration shall accrue EXCLUSIVELY to them.
3. Toll fees or charges – for the use of any public road, pier, or wharf, waterway,
bridge, ferry or telecommunication system funded and constructed by the local
government unit concerned.
Q: Who are exempted from payment of tolls, fees or other charges? HOP
1. Officers and enlisted men of the AfP and PNP on mission
2. Post office personnel delivering mail
3. Physically Handicapped and disabled citizens, 65 years or older.

SOURCES OF REVENUE TAX BASE TAX RATE Community Tax

BARANGAY TAXES – On Gross sales receipts for Not exceeding 1% of
stores or retailers with preceding calendar year of such gross sales or Q: What is the nature of community tax?
fixed business P50,000 or less (for barangay receipts. A: The community is a poll or capitation tax imposed upon residents of a city or
establishments in the cities); and
municipality. It replaced the former residence tax.
P30,000 or less (for barangay
and municipalities
SERVICE FEES OR Services rendered in Reasonable Fees or Q: Who levies community tax?
CHARGES connection with the charges A: It may be levied by a city or municipality but not a province.
regulation or the use of
barangay-owned properties; Q: Who are liable to pay community tax?
or Service facilities such as 1. Individuals –Every inhabitant of the Philippines eighteen (18) years of age or
palay, copra, or tobacco dryers over: a. who has been regularly employed on a wage or salary basis for at least
BARANGAY CLEARNCE Reasonable Fees or thirty (30) consecutive working days during any calendar year; or
charges b. who is engaged in business or occupation;
OTHER FEES AND Reasonable Fees or
c. or who owns real property with an aggregate assessed value of P1,000.00 or
CHARGES charges
more; d. who is required by law to file an income tax return.
a. Commercial breeding
of fighting cocks, 2. Juridical Persons –Every corporation no matter how created or organized,
cockfights and cockpits whether domestic or resident foreign, engaged in or doing business in the
b. Places of recreation Philippines.
which charge admission
fees Q: How much are they liable to pay?
c. Billboards, signboards, 1. Individuals – a. Basic: P5.00 b. Additional: Additional tax of One peso (P1.00) for
neon signs and outdoor every P1,000.00 of income regardless of whether from business, exercise of
advertisements
profession or from property which in no case shall exceed P5,000.00. Note: In case
of husband and wife, the additional tax shall be based on the total property, gross
receipts or earnings owned or derived by them.
2. Juridical persons – additional tax, which, in no case, shall exceed P10,000.00 in
accordance with the following schedule:
Q: What are the common revenue raising powers of LGUs?
1. Fees, service or user charges
Q: When is the payment of community tax required?
2. Public utility charges – may fix the rates for the operation of public utilities
A: Accrues on the 1st day of January of each year which shall be paid not later than
owned, operated and maintained by them within their jurisdiction.
the last day of February of each year.

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Q: Who are exempted from paying community tax?
1. Diplomatic and consular representatives
2. Transient visitors when their stay in the Philippines does not exceed three (3)
months.
Q: What is a Community Tax Certificate?
A: It is issued to every person or corporation upon payment of the community tax.
Q: Give the common limitations on the taxing powers of the LGUs.
A: The exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following: IDE-C3AP3MENT
1. Income tax, except when levied on banks and other financial institutions;
2. Documentary stamp tax;
3. Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided under the LGC; exception: tax on transfer of real
property
4. Customs duties, registration fees of vessel and wharfage on wharves, tonnage
dues, and all other kinds of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned;
5. Taxes, fees, and charges and other impositions upon goods carried into or out
of, or passing through, the territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees,
or charges in any form whatsoever upon such goods or merchandise;
6. Taxes, fees or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
7. Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from
the date of registration;
8. Excise taxes on articles enumerated under the NIRC, as amended, and taxes,
fees or charges on petroleum products;
9. Percentage or value-added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
10. Taxes on the gross receipts of transportation contractors and persons
engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water, except as provided in this Code; 11. Taxes on
premiums paid by way or reinsurance or retrocession;
12. Taxes, fees or charges for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof, except tricycles;
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13. Taxes, fees, or other charges on Philippine products actually exported, except
as otherwise provided in the LGC;municipalities may impose taxes on exporters)
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and R.A. No. 6938 otherwise
known as the "Cooperative Code of the Philippines" respectively; and
15. Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities, and local government units. (Sec. 133, LGC)
LGUs cannot exercise taxing powers reserved to the National Government.
Q: What is the Principle of Pre-emption or Exclusionary Doctrine or reservation
rule?
A: Where the National Government elects to tax a particular area, it impliedly
withholds form the local government the delegated power to tax the same field.
This doctrine principally rests on the intention of the congress. Conversely, should
the Congress allow municipal corporations to cover fields of taxation it already
occupies then the doctrine of pre-emption will NOT apply.
Q: When does the principle apply?
A: The principle applies to the following:
1. Taxes levied under the NIRC
2. Taxes imposed under the Tariff and Customs Code
3. Taxes under special laws.
Q: What is the Authorization Limitation?
A: With the exception of cities, each local government unit could not exercise the
taxing powers granted to others. Hence, a province could not exercise the powers
granted to municipality and vice-versa. However, a city could exercise the taxing
powers of both a province and a municipality.
Q: What is tax period for the collection of taxes?
A: It is based on calendar year, unless otherwise provided
Q: What is the manner of payment of the taxes?
A: It may be paid in quarterly instalments
Q: Who has the authority to collect such taxes, fees and charges?
A: Provincial, city, municipal, or barangay treasurer, or their duly authorized
deputies.
Q: Who has the authority to inspect the books of persons or association?
A: The local treasurer or his deputy duly authorized in writing, may examine the
books, accounts and other pertinent records.
COMMIT TO MEMORY_TAXATION LAW
Mandatory:
Within 30-day from effectivity of ordinance, assail validity with Sec of Justice.
30-day ti go to court in adverse decision of the Sec of Justice
Naction after the lapse of 60 days - go to court
REAL PROPERTY TAXATION
Q: Define real property tax (RPT).
A: Real property tax is a direct tax on the ownership of lands and buildings or other
improvements thereon not specially exempted, and is payable regardless of
whether the property is used or not, although the value may vary in accordance
with such factor.
Q: What are the local government units responsible for the administration of real
property tax?
1. Provinces
2. Cities
3. Municipalities in Metro Manila Area
Note: Whenever real property has been divided into condominium, each condominium owned
shall be separately assessed, for purposes of real property taxation and other tax purposes to
the owner thereof and tax on each such condominium shall constitute a lien solely thereof.
DOCTRINE OF ESSENTIALITY
Q: May personal properties as defined under the Civil Code be considered as real
property for purposes of RPT?
A: Yes. Properties considered as personal under the Civil Code may nonetheless be
considered as real property for tax purposes where said property is essential to
the conduct of business. The property to be considered as immobilized for RPT
must be “essential and a principal element” of an industry without which such
industry would be unable to carry on the principal industrial purpose for which it
was established.
Q: Give the fundamental principles of appraisal, assessment, levy and collection
of real property taxes. CAULE
1. Real property shall be appraised at its Current and fair market value;
2. Real property shall be classified for assessment purposes on the basis of its
Actual use;
3. Real property shall be assessed on the basis of a Uniform classification within
each local government unit;
4. The appraisal, assessment, levy and collection of real property tax shall not be
Let to any private person; and
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5. The appraisal and assessment of real property shall be Equitable.
Real Property shall be classified, valued and assessed on the basis of its actual
use regardless of where located, whoever owns it and whoever uses it. (Sec. 217,
LGC)
Q: What are the kinds of real property tax and special levies? REAS
1. Basic Real property tax
2. Additional levy on real property for the Special Education Fund
3. Additional Ad valorem tax on idle lands
4. Special levy by local government units
Q: What are the characteristics of RPT?
1. Imposed on use and not ownership
2. Progressive in character pending to a certain extent on the use and value of the
property
3. Indivisible single obligation
The taxing power of local governments in real property taxation is a delegated
power.
Q: What is the extent of the local taxing power in real property taxation?
A: Provinces, cities and municipalities do not only have the power to levy real
estate taxes, but they may also fix real estate tax rates. Sec. 233 of the LGC
provides that they shall fix a uniform rate of basic real property tax applicable to
their respective localities.
Note: No public hearing shall be required before the enactment of a local tax
ordinance levying the basic real property tax.
Q: What real properties are subject to tax?
1. For Basic Real Property Tax and Special Levy on Education Fund: a. Real
Property such as: b. Land c. Building d. Machinery e. Other improvements
2. For Special Levy on Idle Lands and Special Levy on Public Works (Special
Assessments): a. Land only
Q: What are the rates of levy?
1. In the case of a province- at the rate not exceeding 1% of the assessed value of
real property
2.city or a municipality within the Metro Manila area- at the rate not exceeding 2%
of the assessed value of real property. (Sec. 233, LGC)
COMMIT TO MEMORY_TAXATION LAW

Q: What must an ordinance imposing special levy for public works contain?
1. The ordinance shall
a. Describe the nature, extent, and location of the project;
b. State estimated cost;
c. Specify metes and bounds by monuments and lines
2. It must state the number of annual installments, not less than 5 years nor more
than 10 years.
3. Notice to the owners and public hearing
4. Owner can appeal to the LBAA and CBAA
Q: What is the special levy or special assessment by LGUs?
GR: A province, city or municipality may impose a special levy on the lands within
its territorial jurisdiction specially benefited by public works projects or
improvements by the LGU concerned.
XPN: It shall not apply to lands exempt from basic real property tax and the
remainder of the land, portions of which have been donated to the LGU
concerned for the construction of such projects or improvements.
Q: What is the additional levy on real property for the Special Education Fund?
A: A province, city or a municipality within the Metro Manila area may levy and
collect an annual tax of one percent (1%) on the assessed value of real property
which shall be in addition to the basic real property tax. The proceeds thereof shall
exclusively accrue to the Special Education Fund created under R.A. 5447.
Q: What is the additional ad valorem tax on idle lands?
A: A province or city or a municipality within the Metro Manila area may levy an
annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed
value of the property which shall be in addition to the basic real property tax.
Q: What can be considered as idle lands? uncultivated or unimproved
Q: What causes exemption from idle lands tax?
1. Force majeure
2. Civil disturbance
3. Natural calamity
4. Any cause or circumstance which physically or legally prevents the owner or
person having legal interest from improving, utilizing or cultivating the same.
Q: Under the Local Government Code, what properties are exempt from real
property taxes? RP-PWC
Page 44 of 55 TATEL, ME
1. Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted for
consideration or otherwise to a taxable person.
2. Charitable institutions, churches, parsonages, or convents appurtenant thereto,
mosques, non-profit or religious cemeteries, and all lands, buildings, and
improvements actually, directly and exclusively used for religious, charitable, or
educational purposes. Note: the tax exemption herein rest on the premise that
they are actually, directly and exclusively used by said entities or institution s for
their stated purposes and not necessarily because they are owned by religious,
charitable or educational institutions.
3. All machineries and equipment that are actually, directly and exclusively used
by local Water utilities and government owned or controlled corporations
engaged in the supply and distribution of water and/or generation and
transmission of electric power.
4. All real property owned by duly registered Cooperatives as provided for under
RA 6938.
5. Machinery and equipment used for Pollution control and environmental
protection.
Q: How is a real property appraised?
A: All real property, whether taxable or exempt, appraised at the current and fair
market value prevailing in the locality where the property is situated.
taxable value = assessed value = FMV X Assessment level
Q: Give the steps in the assessment and collection of real property tax?
1. Declaration of real property.
2. Listing of real property in the assessment rolls.
3. Appraisal and valuation of real property.
4. Determination of assessed value and RPT.
5. Payment and collection of tax.
Declaration of Real Property
Q: Who shall declare the real property?
A: It shall be the duty of all persons, natural or juridical, owning or administering
real property, including the improvements therein, within a city or municipality, or
their duly authorized representative, to prepare, or cause to be prepared, and file
with the provincial, city or municipal assessor, a sworn statement declaring the
true value of their property, whether previously declared or undeclared, taxable
COMMIT TO MEMORY_TAXATION LAW
or exempt, which shall be the current and fair market value of the property, as
determined by the declarant.
Q: When is real property declared?
A: Once every 3 years during the period from January 1 to June 30 commencing
with the calendar year 1992.
Listing of Real Property in Assessment Rolls
Q: What is an assessment roll?
A: It is a listing of all real property, whether taxable or exempt, located within the
territorial jurisdiction of the local government unit concerned prepared and
maintained by the provincial, city or municipal assessor.
Note: Real property shall be listed, valued and assessed in the name of the owner
or administrator, or anyone having legal interest in the property.
Preparation of Schedules of Fair Market Value
a. A schedule of fair market values (SMV) is prepared by the provincial, city and
municipal assessor of the municipalities within the Metropolitan Manila Area for
the different classes of real property situated in their respective local government
units.
b. Respective sanggunians enact ordinance adopting the SMV.
c. The schedule of fair market values shall be published in a newspaper of general
circulation in the province, city or municipality concerned or in the absence
thereof, shall be posted in the provincial capitol, city or municipal hall and in two
other conspicuous public places therein.
Q: What are the classes of real property for assessment purposes?
1. Residential
2. Agricultural
3. Commercial
4. Industrial
5. Mineral
6. Timberland
7. Special
Q: What are the special classes of real property? - lower assessment level
A: Lands, buildings, and other improvements thereon which are:
1. Actually, directly and exclusively used for hospitals, cultural, or scientific
purposes;
2. Owned and used by local water districts;
Page 45 of 55 TATEL, ME
3. Owned and used by Governmentowned or controlled corporations rendering
essential public services in the supply and distribution of water and/or generation
and transmission of electric power.
Determining the assessed value - To determine the assessed value, the fair market
value of the property is multiplied by the assessed level as determined from an
ordinance promulgated by the sanggunian concerned.
Determining the real property tax - Real property tax is computed by multiplying
the with the applicable RPT rate.
Actual Use of Property as Basis of Assessment
Q: Define “actual use”.
A: Actual use refers to the purpose for which the property is principally or
predominantly utilized by the person in possession thereof
Q: What is the basis of real property taxation?
A: The basis of taxing real property is actual use, even if the user is not the owner.
Real property shall be classified, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it, and whoever uses it.
Q: What are the instances when the assessor oshall make classification, appraisal
and assessment of real property irrespective of any previous assessment or
taxpayers’ valuation thereon?
A:1st GR
1. Real property is declared and listed for taxation purposes for the 1st time;
2. There is an ongoing General revision of property classification and assessment;
3. A Request is made by the person in whose name the property is declared
assessor shall make a classification, appraisal and assessment or taxpayer's
valuation.
Q: What is the duty of the Assessor after assessment or reassessment?
A: The provincial, city or municipal assessor shall prepare and submit to the
treasurer of the local government unit, on or before the thirty-first (31st) day of
December each year, an assessment roll containing a list of all persons whose real
properties have been newly assessed or reassessed and the values of such
properties
Q: When is the time for collection of tax?
A: Treasurer shall post the notice of the dates when the tax may be paid without
interest in a publicly accessible place at the city or municipal hall.
COMMIT TO MEMORY_TAXATION LAW
Q: What is the period of collection of real property tax?
GR: Within five (5) years from the date taxes become due.
XPN: In case of fraud or intent to evade payment - within ten (10) years from
discovery of fraud or intent.
Q: When is the prescriptive period to collect suspended? PRO
1. The local treasurer is legally Prevented from collecting the tax;
2. The owner of the property or the person having legal interest therein Requests
for reinvestigation and executes a waiver in writing before the expiration of the
period within which to collect; and
3. The owner of the property or the person having legal interest therein is Out of
the country or otherwise cannot be located.
REMEDIES OF LGUs FOR COLLECTION OF REAL PROPERTY TAX
Issuance of Notice of Delinquency for Real Property Tax Payment
Q: What happens when the taxpayer fails to pay tax on time?
A: When real property tax or other tax imposed becomes delinquent, the local
treasurer shall immediately cause a notice of the delinquency to be posted at the
main hall and in a publicly accessible and conspicuous place in each barangay of
the local government unit concerned. Notice of delinquency shall also be
published once a week for two (2) consecutive weeks, in a newspaper of general
circulation in the province, city, or municipality.
Q: What are the remedies of the local government units for the collection of real
property tax?
1. Administrative action
a. Exercise of lien on the property subject to tax
b. Levy on the real property subject of the tax
c. Distraint of personal property
2. Judicial action
PROCEDURE FOR CLAIM FOR REFUND OR CREDIT
Taxpayer files a written claim for refund or credit with the treasurer within 2
years from the date the taxpayer is entitled to such reduction or adjustment
Provincial or City Treasurer should decide the claim within 60 days from receipt
of the claim.
In case of denial, appeal to the LBAA within 30 days as in protest case.
Page 46 of 55 TATEL, ME
Appeal to CBAA within 30 days if LBAA gives and adverse decision.
Q: What are the guidelines in paying tax under protest?
1. No protest shall be entertained unless the taxpayer first pays the tax. There shall
be annotated on the tax receipts the words "paid under protest" The protest in
writing must be filed within thirty (30) days from payment of the tax to treasurer
who shall decide the protest within sixty (60) days from receipt.
2. The tax or a portion paid under protest shall be held in trust by the treasurer
concerned.
3. In the event that the protest is finally decided in favor of the taxpayer, the
amount or portion of the tax protested shall be refunded to the protestant, or
applied as tax credit against his existing or future tax liability.
4. In the event that the protest is denied or upon the lapse of the sixty day period,
the taxpayer may avail appeal the assessment before the Local Board of
Assessment Appeals. (Sec. 252, LGC)
5. In case there is adverse decision by the LBAA, the taxpayer may appeal with the
CBAA within 30 from receipt of the adverse decision by the LBAA.
Note: The protest contemplated in Section 252 of the LGC is needed when there
is a question as to the reasonableness of the amount assessed, not where the
question raised is on the very authority and power of the assessor to impose the
assessment and of the treasurer to collect the tax.
Q: Give the rules as to the necessity of paying real property tax prior to protest.
GR: The taxpayer must pay the real property tax assessed prior to protesting a real
property tax assessment. (Sec. 252, LGC)
XPN: The payment of the tax prior to protest is not necessary where the taxpayer
questions the authority and power of the assessor to impose the assessment and
of the treasurer to collect the tax.
What are the remedies available to the taxpayer under real property taxation?
1. Dispute assessment (Protest)
a. Any owner or person having legal interest in the property who is not
satisfied with the action of the assessor in the assessment of his property;
or
b. Any owner of real property affected by a special levy or any person
having legal interest therein may PROTEST the assessment by filing an
appeal to the LBAA within 60 days from receipt of notice of the
assessment.
2. Claim for refund or tax credit
COMMIT TO MEMORY_TAXATION LAW
3. Judicial refunded or applied as tax sixty (60) days from the LBAA who shall decide
A. Court Action credit receipt the appeal within 120 days
i. Appeal to the CTA en banc within 15 days from receipt in case of adverse from receipt
decision by the CBAA ii. Appeal by certiorari with the SC within 15 days If the LBAA rejects the
protest, the owner may
from notice in case of adverse decision by the CTA.
appeal to CBAA within 30
B. Suit assailing the validity of the tax sale days from receipt of
a. Deposit of amount for which the real property was sold together with decision of the LBAA
interest of 2% per month from date of sale to the time of institution of Appeal with the CTA if the
action. taxpayer is not satisfied
with the decision of the
Q: What is the composition of the Local Board of Assessment Appeals (LBAA) ? CBAA
1. The Registrar of Deeds, as Chairman; Appeal with the Supreme
2. The provincial or city prosecutor as member; Court within 15 days.
3. The provincial or city engineer as a member.
Q: What is the jurisdiction of the LBAA?
A: Jurisdiction to hear appeals of owners or persons having legal interest of TARIFF AND CUSTOMS TAXATION
owners having legal interest in a property who are not satisfied with the action of
the assessor on an assessment. Q: What is tariff?
A: It includes:
Appeal to the Central Board of Assessment Appeals (CBAA) 1. Customs duties, toll or tribute payable upon merchandise to the
Q: What is the composition of the CBAA? general government;
A: It shall be composed of:
2. Rate of customs; or
1. A Chairman; and
2. Two (2) members.
3. List of articles liable to duties.

Q: What is the jurisdiction of the CBAA? Q: What are customs duties?

A: Jurisdiction to hear appeals from the decision of Local Board of Assessment
Appeals
Q: Does the CBAA have the authority to hear purely legal issues? No.
Taxpayer’s Remedies Involving Collection of Real Property Tax – LGC
Assessor submits assessment roll to Local Treasurer on or before the 31st of December
each year. (Sec. 248, LGC)
Posting of notice of deadline for payment at a conspicuous place at the LGU once a week
for two consecutive weeks. (Sec. 249, LGC)
Protest decided in favour Taxpayer pays the tax then Protest is denied or upon
of the taxpayer, the files a protest within thirty the lapse of sixty (60) day
amount or portion of the (30) days from payment of period in which the
tax protested shall be the tax with the treasurer treasurer must decide,
who shall decide within taxpayer may appeal with
A: It is the name given to taxes on the importation and exportation of
commodities, the tariff or tax assessed upon merchandise imported from,
or exported to, a foreign country.
Q: What are the kinds of tariffs or customs duties?
1. Regular tariff or customs duties - these are taxes imposed or assessed
upon merchandise from, or exported to, a foreign country for the purpose
of raising revenues.
2. Special tariffs or custom duties - these are additional import duties
imposed on specific kinds of imported articles under certain conditions.
They are imposed for the protection of consumers and manufacturers, as
well as Philippine products from undue competition posed by foreign
made products.

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Q: What do you understand by the term "flexible tariff clause" as used in
the Tariff and Customs Code?
A: The term "flexible tariff clause" refers to the authority given to the
President to adjust tariff rates under Section 401 of the Tariff and Customs
Code, which is the enabling law that made effective the delegation of the
taxing power to the President under the Constitution.
Q: What is provided for under Section 401 of the Tcc?
A: In the interest of national economy, general welfare and/or national
security, and subject to the limitations provided in the TCC, the President,
upon recommendation of the National Economic and Development
Authority (NEDA), is empowered to:
1. Increase, reduce or remove existing protective rates of import duty
(including any necessary change in classification). The existing rates may
be increased or decreased to any level, in one or several stages but in no
case shall the increased rate of import duty be higher than a maximum of
one hundred (100) per cent ad valorem;
2. Establish import quota or to ban imports of any commodity, as may be
necessary;
3. Impose an additional duty on all imports not exceeding ten (10%) per
cent ad valorem whenever necessary.
Q: What are the limitations imposed on the flexible tariff clause?
1. Conduct by the Tariff Commission of an investigation in a public hearing
- The Commission shall also hear the views and recommendations of any
government office, agency or instrumentality concerned. The Commission
shall submit their findings and recommendations to the NEDA within thirty
(30) days after the termination of the public hearings. The NEDA thereafter
submits its recommendation to the PresidENT.
2. The power of the President to increase or decrease the rates of import
duty within the abovementioned limits fixed in the Code shall include the
modification in the form of duty. In such a case, the corresponding ad
valorem or specific equivalents of the duty with respect to the imports
from the principal competing foreign country for the most recent
representative period shall be used as bases
Page 48 of 55 TATEL, ME
Q: What are the agencies of the Government tasked to enforce,
implement and administer customs law?
1. Bureau of Customs (BOC); and
2. Tariff Commission (TC)
Q: When are tariff and customs law applicable?
A: After importation has begun but before importation is terminated.
Q: When does importation begin and when does it end?
1. Importation begins when the conveying vessel or aircraft enters the
jurisdiction of the Philippines with intention to unload therein.
2. Importation is deemed terminated upon payment of duties, taxes and
other charges due upon the articles, or secured to be paid, at the port of
entry; and upon grant of the legal permit for withdrawal; In case the
articles are free of duties, taxes and other charges, until they have legally
left the jurisdiction of the customs.
Note: Intention to unload is essential. Even if the cargo is not yet unloaded
and there is unmanifested cargo, forfeiture may take place because
importation has already begun.
Q: What is meant by the term “entry” in Customs Law?
A: It has a three-fold meaning:
1. The documents filed at the Customs house;
2. The submission and acceptance of the documents; and 3.
Customs declaration forms or customs entry forms required to be
accomplished by passengers of incoming vessels or passenger
planes as envisaged under Sec. 2505 of the TCCP (Failure to declare
baggage).
Q: What is the classification of articles subject to tariff and customs laws?
1. Articles subject to duty
2. Articles of prohibited importation
3. Articles free from duties subject to conditions prescribed by law
(conditionally-free importation)
COMMIT TO MEMORY_TAXATION LAW
4. Duty free articles- Enterprises located in special economic zones are
allowed to import capital equipment and raw materials free from duties,
taxes and other import restrictions.
Q: What are conditionally-free importations?
A: These are imported articles that are allowed to enter the Philippines free
of duties and taxes after the compliance with certain conditions as
imposed in the Tariff and Customs Code and other Customs regulation.
Q: What articles are subject to customs duty?
A: All articles imported from any country into the Philippines, shall be
subject to duty upon each importation, even though previously exported
from the Philippines, except as otherwise specifically provided for in the
Tariff and Customs Code or in other laws.
Q: What is the concept of Preferential Tariffs?
A: It is the imposition of high customs duties which results to making the
foreign goods more expensive compared with locally produced articles.
This is to protect Philippine manufacturers from competition posed by
foreign manufacturers.
Q: Are there instances where there could be exemptions from customs
duties?
GR: There shall be no exemptions from the payment of customs duties.
XPNS:
1. Those provided under the Tariffs and Customs Code (e.g. conditionally-
free importations)
2. Those granted to government agencies, instrumentalities or
government-owned or controlled corporation with existing contracts,
commitments, agreements, or obligations (requiring such exemptions)
with foreign countries;
3. International institutions, associations or organization entitled to
exemption pursuant to agreements or special laws;
4. Those that may be granted by the President of the National Economic
Development Authority in the interest of national economic development.
Q: Is the Government exempt from customs duties, taxes, fees and other
charges?
Page 49 of 55 TATEL, ME
GR: All importations by the government for its own use or that of its
subordinate branches or instrumentalities, or corporations, agencies or
instrumentalities owned or controlled by the government shall be subject
to the duties, taxes, fee and other charges provided for in the Tariff and
Customs Code.
XPNs:
1. If expressly exempted under a special law;
2. If imported as conditionally-free importations.
3. Those granted to government agencies, instrumentalities or
government-owned or controlled corporations with existing contracts,
commitments, agreements or obligations (requiring such exemptions)
with foreign countries.
Q: What are the kinds of tariffs or customs duties?
1. Regular tariff or customs duties - these are imposed and collected
merely as a source of revenue.
2. Special tariffs or custom duties - Those imposed in addition to the
ordinary customs duties usually to protect local industries against foreign
competition.
Q: What are the kinds of regular customs duties?
1. Ad valorem duty – Customs duties that are computed on the basis of
value of imported article
2. Specific duty – Customs duties that are computed on the basis of
dutiable weight of goodi.e. a unit of measure such as per kilogram, per
liter, etc.
3. Compound duty – Customs duties that impose both ad valorem and
specific customs duties.
4. Alternating duty – alternates between ad valorem and specific
Q: What are the kinds of special customs duties?
1. Under the Tariff and Customs Code (Dump-DisCo-Mark)
a. Anti-Dumping duty;
b. Countervailing duty;
c. Marking duty; and
d. Discriminatory duty.
COMMIT TO MEMORY_TAXATION LAW
2. Additional tariff imposed as a safeguard measure under the Safeguard
Measure Act
Q: What is customs valuation?
A: Customs valuation is a procedure for determining the customs value of
imported goods. If the rate of duty is ad valorem, the customs value is
essential to determine the duty to be paid on an imported good.
Q: What are the methods in assessing the dutiable value of an imported
article subject to an ad valorem rate of duty?
A: 1. TRANSACTION VALUE – the dutiable value of an imported article
subject to an ad valorem rate of duty shall be the transaction value, which
shall be the PRICE ACTUALLY PAID OR PAYABLE FOR THE GOODS when
sold for export to the Philippines
2. TRANSACTION VALUE OF IDENTICAL GOODS – the dutiable value shall
be the transaction value of identical goods SOLD FOR EXPORT TO THE
PHILIPPINES AND EXPORTED AT OR ABOUT THE SAME TIME AS THE
GOODS BEING VALUED.
3. TRANSACTION VALUE OF SIMILAR GOODS – where the dutiable value
cannot be determined under the preceding method, the dutiable value
shall be the transaction value of similar goods SOLD FOR EXPORT TO THE
PHILIPPINES AND EXPORTED AT OR ABOUT THE SAME TIME AS THE
GOODS BEING VALUED.
4. DEDUCTIVE VALUE – the dutiable value of the imported goods under this
method shall be the deductive value which shall be based on the UNIT
PRICE AT WHICH THE IMPORTED GOODS OR IDENTICAL OR SIMILAR
IMPORTED GOODS ARE SOLD IN THE PHILIPPINES, in the same condition
as when imported, in the greatest aggregate quantity, at or about the time
of the importation of the goods being valued, to persons not related to the
persons from whom they buy such goods
5. COMPUTED VALUE – the dutiable value of this method shall be the
computed value which shall be the SUM of: a. The COST OR THE VALUE OF
MATERIALS and fabrication of other processing employed in producing
the imported goods; b. The AMOUNT FOR PROFIT AND GENERAL
EXPENSES equal to that usually reflected in the sale of
6. FALLBACK VALUE – if the dutiable value cannot be determined under
the preceding methods described above, it shall be determined by using
Page 50 of 55 TATEL, ME
REASONABLE MEANS consistent with the principles and general
provisions of the Agreement on Tariffs and Trade of 1994 and of Article VII
of GATT of 1994 and on the basis of data available in the country of
importation.
Q: What is import entry?
A: It is a declaration to the Bureau of Customs showing the description,
value, tariff classification and other particulars of the imported article to
enable the customs authorities to determine the correct customs duties
and internal revenue taxes due on the importation
Q: When is import entry required?
GR: All imported articles shall be subject to formal or informal entry.
XPN: Except containers for re-export subject to conditionally free-
importation.
Q: What are the kinds of import entry and what articles do they cover?
1. Informal entry – a. Articles of a commercial nature intended for sale,
barter or hire, the dutiable value of which is P2,000 or less b. Personal
household effects or articles, not in commercial quantity, imported in
passenger’s baggage, mail or otherwise, for personal use
2. Formal entry – The TCC does not provide for a listing of articles that are
required to be cleared on a formal entry. The Customs Commissioner may,
upon instruction for the protection of the Finance Secretary, for the
protection of domestic industry, require articles regardless of value to be
cleared by a formal entry.
Customs Protest
Q: In case there is a dispute between the importer and the Collector as to
the correct determination of duties, taxes and other charges, what is
required from the importer?
A: The law requires the importer to file a protest at the time when payment
of the amount claimed to be due the government is made or within 15 days
thereafter.
Liquidation
COMMIT TO MEMORY_TAXATION LAW
Q: What is meant by liquidation?
A: Liquidation is the final computation and ascertainment by the Collector
of Customs of the duties due on imported merchandise based on official
reports as to the quantity, character and value thereof, and the Collector
of Customs' own finding as to the applicable rate of duty. It is akin to an
assessment of internal revenue taxes under the NIRC where the tax liability
of the taxpayer is definitely determined.
A liquidation is considered to have been made when the entry is officially
stamped “liquidated.”
Q: When is liquidation deemed final?
A: An assessment or liquidation by the Bureau of Customs attains finality
and conclusiveness three (3) years from the date of the final payment of
duties except when:
1. There was fraud;
2. There is a pending protest; or
3. The liquidation of import entry was merely tentative.
Q: When is there tentative liquidation?
A: If to determine the exact amount due under the law in part some future
action is required, the liquidation shall be deemed to be tentative as to the
item or items affected and shall to that extent be subject to future and final
readjustment and settlement within a six (6) months from date of
tentative liquidation.
Q: What are the proceedings before the Bureau of Customs?
1. Customs protest; and
2. Customs seizure and forfeiture.
Q: What are the requirements for protest?
A: SamPoWL-15G
1. In Writing;
2. Points out the particular decision or ruling by the Collector of
Customs to which exception is taken or objection is made;
3. States the Grounds relied upon for relief;
4. Limited to the subject matter of a single adjustment;
Page 51 of 55 TATEL, ME
5. Filed when the amount claimed is paid or within 15 days after
payment;
6. Sample of goods under protest must be furnished by the
protestant, when required.
SMUGGLING
Q: What is smuggling?
A: Any act of a person who shall:
1. fraudulently import or bring into the Philippines, any article,
contrary to law; or
2. assist in so doing; or
3. receive, conceal, buy, sell or in any manner facilitate the
transportation, concealment, or sale of such article after
importation, knowing the same to have been imported contrary to
law.
Note: The Philippines is divided into various ports of entry. Entry in
any place other than those ports will be considered smuggling.
Q: What are the elements of smuggling or illegal importation?
1. That the merchandise must have been fraudulently or knowingly
imported contrary to law;
2. That the defendant, if he is not the importer himself, must have
received, concealed, bought, sold or in any manner facilitated the
transportation, concealment or sale of the merchandise; and
3. That the defendant must be shown to have knowledge that the
merchandise has been illegally imported.
Q: What properties are not subject to forfeiture in the absence of prima
facie evidence?
A: The forfeiture of a vehicle, vessel or aircraft shall not be effected if it is
established that the owner thereof or his agent in charge of the means of
conveyance used has no knowledge of or participation in an unlawful act.
Q: When is there prima facie presumption of knowledge of or
participation in the unlawful act?
1. If the conveyance has been used for smuggling at least twice before.
COMMIT TO MEMORY_TAXATION LAW
2. If the owner is not in the business for which the conveyance is generally 2. Taxpayer - within 15 days from assessment. Payment under protest is
used. necessary.
3. If the owner is financially not in the position to own such conveyance.
Q: What is duty drawback?
REMEDIES UNDER TCC A: A device resorted to for enabling a commodity affected by taxes to be
exported and sold in foreign markets upon the same terms as if it had not
Remedies of the Government been taxed at all.
Q: What are the remedies of the government?
1. Administrative a
A. Tax lien
b. Compromise/reduction of customs duties
c. Seizure, search and arrest
d. Administrative fines and forfeiture

2. Judicial
a. Civil action
b. Criminal action

REMEDIES OF THE TAXPAYER

Q: What are the remedies of the taxpayer?
1. Administrative
a. Protest;
b. Refund, drawback, abatement;
c. Payment of fine or redemption;
d. Abandonment
e. Appeal to the Customs Commissioner

2. Judicial
a. Appeal to the CTA;
b. Action to question the legality of seizure;

Q: Who can make a protest and how is protest made?

1. Any importer or interested party - if dissatisfied with published value
within 15 days from date of publication or within 5 days from date the
importer is entitled to refund in case payment is rendered erroneous or
illegal by events occurring after the payment.
Page 52 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW
 1. EXCISE TAX RATES:

A. ALCOHOL PRODUCTS
NEW TAX RATES based on Republic Act No. 10351 Remarks
PARTICULARS 2018
onwards
2013 2014 2015 2016 2017

A. DISTILLED SPIRITS, AD VALOREM & SPECIFIC TAX

1) AD VALOREM TAX RATE - Based on the 15% 15% 20% 20% 20% 20%
Net Retail Price (NRP) per proof (excluding
the excise and value-added taxes);And
2) SPECIFIC TAX - Per proof liter Php20 Php20 Php20 Php20.80 Php21.63 Effective 1/1/2016, the specific tax rate shall be increased
by 4% every year thereafter
B. WINES, per liter of volume capacity
B. WINES, per liter of volume capacity
1) Sparkling wines/ champagnes, where
the NRP (excluding the excise and VAT)
per bottle of 750ml volume capacity,
regardless of proof is:
Php500.00 or less Php250 Php260 Php270.40 Php281.22 Php292.47
Effective 1/1/2014, the specific tax rate shall be
More than Php500.00 Php700 Php728 Php757.12 Php787.40 Php818.90 increased by 4% every year thereafter
2) Still wines and carbonated wines Php30.0 Php31.20 Php32.45 Php33.75 Php35.10
containing 14% of alcohol by volume or less 0
3) Still wines and carbonated wines Php60.0 Php62.40 Php64.90 Php67.50 Php70.20
containing more than 14% (of alcohol by 0
volume) but not more 25% of alcohol by
volume
4) Fortified wines containing more than Taxed as distilled spirits
25% of alcohol by volume
C. FERMENTED LIQUORS , per liter of volume capacity
1) If the NRP (excluding excise and VAT)
per liter of volume capacity is:
Php 50.60 and below Php15.0 Php17.00 Php19.00 Php21.00 Php23.50 Effective 1/1/2018, the specific tax rate shall be
0 increased by 4% every year thereafter
More than Php 50.60 Php20.0 Php21.00 Php22.00 Php23.00 Php23.50
0
2) If brewed and sold at microbreweries or
Php28.0 Php29.12 Php30.28 Php31.50 Php32.76 Effective 1/1/2014, the specific tax rate shall be
small establishments such as pubs and
0 increased by 4% every year thereafter
restaurants, regardless of the NRP
NOTE: IN CASE OF FERMENTED LIQUORS AFFECTED BY THE "NO DOWNWARD RECLASSIFICATION " PROVISION, THE 4% INCREASE SHALL APPLY TO THEIR RESPECTIVE APPLICABLE TAX
RATES

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B. TOBACCO PRODUCTS
NEW TAX RATES based on Republic Act No. 10351 Remarks
PARTICULARS 2013 2014 2015 2016 2017 2018
Onwards
A. TOBACCO PRODUCTS, per kilogram
1. Tobacco Products
(a) Tobacco twisted by hand or reduced into a condition to be consumed in any manner Php1.75 Php1.82 Php1.89 Php1.97 Php2.05
other than the ordinary mode of drying and curing;
(b) Tobacco prepared or partially prepared with or without the use of any machine or Php1.75 Php1.82 Php1.89 Php1.97 Php2.05
instrument or without being pressed or sweetened; and
(c) Fine-cut shorts and refuse, scraps, clippings, cuttings, stems, midribs and sweepings Php1.75 Php1.82 Php1.89 Php1.97 Php2.05
of tobacco; Effective 1/1/2014,
2. Chewing tobacco unsuitable for use in any other manner Php1.50 Php1.56 Php1.62 Php1.68 Php1.75 the specific tax rate
shall be increased
B. CIGARS, per cigar by 4% every year
3. Cigars thereafter
(a) Based on the NRP per cigar (excluding the excise and value-added taxes), and 20% 20% 20% 20% 20%

(b) Per cigar Php5.00 Php5.20 Php5.41 Php5.62 Php5.85

C. CIGARETTES , per pack

1. Cigarettes packed by hand Php12.00 Php15.00 Php18.00 Php21.00 Php30.00 Effective 1/1/2018,
the specific tax rate
shall be increased
by 4% every year
thereafter
2. Cigarettes packed by machine, where the NRP (excluding excise and VAT) per pack is:

(a) Php11.50 and below Php12.00 Php17.00 Php21.00 Php25.00 Php30.00

(b) More than Php11.50 Php25.00 Php27 Php28 Php29 Php30

C. PETROLEUM PRODUCTS
PRODUCT TYPE TAX RATES
Lubricating oils and greases, including but not limited to base stock for lube oils and greases, high vacuum distillates, aromatic extracts and other similar
preparations, and additives for lubricating oils and greases, whether such additives are petroleum based or not P 4.50 per liter
Processed gas P 0.05 per liter
Waxes and petrolatum P 3.50 per kilogram
Denatured alcohol, if used for motive power [i.e. one hundred eighty (180) proof ninety percent (90%) absolute alcohol]. Provided, that unless otherwise P 0.05 per liter
provided by special laws, if the denatured alcohol is mixed with gasoline, the excise tax which has already been paid, only the alcohol content shall be subject
to tax
Naphtha, regular gasoline and other similar products of distillation P 4.35 per liter

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 Naphtha used as raw material in the production of petrochemical products or as replacement fuel for natural gas-fired combined cycle power plant, in lieu of P 0.00 per liter
locally-extracted natural gas during the non-availability thereof
Leaded premium gasoline P 5.35 per liter
Unleaded premium gasoline P 4.35 per liter
Aviation turbo jet fuel P 3.67 per liter
Kerosene P 0.00 per liter
Kerosene used as aviation fuel P 3.67 per liter
Diesel fuel oil, and on similar fuel oils having more or less the same generating power P 0.00 per liter
Liquefied Petroleum Gas ; Provided, that if used for motive power, it shall be taxed at the equivalent rate as the Excise Tax on diesel fuel oil P 0.00 per liter
Asphalt P 0.56 per kilogram
Bunker fuel oil, and on similar fuel oils having more or less the same generating power P 0.00 per liter

D. MINERALS AND MINERAL PRODUCTS

PRODUCT TYPE TAX RATES
On coal and coke Ten Pesos (P10.00) per metric ton
All mineral and mineral products (non-metallic), quarry resources

Two percent (2%) bases on the actual market value, in the case of those locally-extracted or produced; and, in the
case of importation or the value used by the Bureau of Customs in determining tariff and customs duties, net of
Excise Tax and Value-Added Tax.
P0.00

On locally-extracted natural gas and liquefied natural gas

On indigenous petroleum Three percent (3%) of the fair international market price thereof
NOTE:
In the case of mineral concentrates not traded in commodity exchanges in the Philippines or abroad, such as copper concentrate, the actual market value shall be the world price
quotations of the refined mineral products content thereof prevailing in the said commodity exchanges, after deducting the smelting, refining and other charges incurred in the process of
converting the mineral concentrates into refined metal traded in those commodity exchanges.

On minerals and mineral products sold or consigned abroad, the actual cost of ocean freight and insurance shall be deducted from the tax base.

E. AUTOMOBILES AND OTHER MOTOR VEHICLES

OVER UP TO RATE
0 P 600,000 2%
P 600,000 P 1,100,000 P 12,000 + 20% in excess of P 600,000
P 1,100,000 P 2,100,000 P112,000+ 40% in excess of P1,100,000
P 2,100,000 over P512,000 + 60% in excess of P2,100,000

F. NON-ESSENTIAL GOODS
Twenty percent (20%) based on the wholesale price or the value of importation used by the Bureau of Customs in determining Tariff and Customs Duties,
net of Excise and Value-Added taxes.

Page 55 of 55 TATEL, ME COMMIT TO MEMORY_TAXATION LAW