REVIEW NOTES FOR TAXATION 2
TRANSFER TAXATION a “passive and silent partner” in the accumulation
Transfer Taxes
 those imposed upon the gratuitous disposition of
private property
 Under our law, they are taxes levied on the
transmission of private properties from a prior
decedent to his heirs in the case of estate tax, or
from a donor to a donee in the case of donor’s tax.
Kinds of Transfer Taxes
1. Death / Estate taxes
- those levied on the gratuitous transfers of property upon
one’s death, formerly comprised of the estate and
inheritance taxes: Both taxes are now integrated into one
estate tax.
2. Gift Taxes
- Are imposed on the gratuitous transfers of property
during one’s lifetime, formerly comprised of the donor’s
and donee’s gift taxes; both taxes are now integrated into a
donor’s tax.
I. DEATH / ESTATE TAX
Estate tax
 graduated tax imposed on the privilege of the
decedent to transmit property at death and is base
on the entire net estate, regardless of the number
heirs and relations to the decedent.
 a “transfer” tax not a property tax.
 tax on the right to transmit property at death and
on certain transfers which are made by the statute
the equivalent of testamentary dispositions.
Nature of Estate Tax
 It is not a direct tax on property nor is it a
capitation tax, that is, the tax is laid neither on the
property, nor on the transferee or transferor, but
on the right of the decedent to transmit his estate.
 It is not a property tax but an excise tax.
Purpose and justification of estate tax:
The following theories have been advanced to justify death
taxation: (BRAP)
a.) Benefit-Received Theory
For the performance of services rendered by the
government in the distribution of the estate of the
decedent and other benefits that accrue to the
estate and the heirs, the state collects the tax.
b.) Redistribution of Wealth Theory
Estate tax is a contributing factor to the
inequalities in wealth and income. The imposition
of death tax reduces the property received by the
successor bringing about a more equitable
distribution of wealth in society.
c.) Ability to pay theory
The receipt of inheritance places assets in the
hands of the heirs and beneficiaries thereby
creating an ability to pay the tax and thus, ability
to contribute to governmental income; and
d.) Privilege theory or State Partnership theory
Inheritance is not a right but a privilege granted
by the state and large estates have been acquired
only with the protection of the state. The State, as
of property has the right to collect the share which
is properly due to it.
Incidence or burden of estate of tax
Three views on who is the taxpayer in estate
taxation:
1. PREDECESSOR – the object of the tax is the
property which has been held or accumulated by
the deceased and the tax has fallen upon him in
the sense it has affected the amount of the
property which he could dispose.
2. SUCCESSOR – the tax is not paid by the
predecessor who has no liability till he dies and
who is free to ignore the duty if he wishes, while
the successor comes into less than he would have,
and has no kind of redress.
3. No Personal Incidence - the estate tax has no
personal incidence at all, merely falling upon the
estate as such.
Law applicable
Estate taxation is governed by the statute in force
at the time of the death of the decedent.
Reciprocity
There is reciprocity if the foreign country of which
the decedent was a citizen or resident at the time of his
death:
1.) Did not impose an estate tax; or
2.) Allowed a similar exemption from estate tax with
respect
to intangible personal property owned by Filipino
citizens
residing in that foreign country.
Note:
1. Reciprocity applies only when:
a.) The property is an intangible; and
b.) The decedent is a nonresident alien
2. The following intangibles are deemed located in the
Philippines: (an exception to the principle of Res Mobilia
Sequuntur Personam and Situs of Taxation)
a.) Franchises which must be exercised in the Philippines;
b.) Shares, obligations or bonds issued by any corporation
or
sociedad anonima organized or constituted in the
Philippines in accordance with its laws;
c.) Shares, obligations or bonds issued by any foreign
corporation 85% of the business of which is located in
the Philippines;
d.) Shares, obligations or bonds issued by any foreign
corporation if such shares obligations or bonds have
acquired a business situs in the Philippines; and
e.) Shares or rights in any partnership, business, or
industry
established in the Philippines.
GROSS ESTATE
 the total value of all property, whether real or
personal, tangible or intangible belonging to the
decedent at the time of his death, situated within
or outside the Philippines, where such decedent
was a resident or citizen of the Philippines.
 In the case of a nonresident alien decedent, it shall
include only property situated in the Philippines.
Property Included in the Gross Estate (INCLUSIONS):
 REVIEW NOTES FOR TAXATION 2
A. In case of resident citizens, nonresident citizens and
resident aliens:
1. Real Property within and without the Philippines;
2. Tangible personal property within and without the
Philippines; and
3. Intangible personal property within and without the
Philippines.
B. In cases of nonresident aliens:
1. Real property within the Philippines;
2. Tangible personal property within the Philippines and;
3. Intangible personal property within the Philippines,
unless there is reciprocity in which case, it is not taxable.
Note: These are either:
A) Properties actually owned at the time of death
B) Properties deemed by law to be owned by the decedent
under Sec. 85
Inter Vivos Transfers Subject to Estate Tax
The gross estate extends to gratuitous transfers
made by the decedent during his lifetime which are
treated by the law as substitutes for testamentary
dispositions. They are transfers inter vivos in form
but mortis causa in substance.
Rationale for taxability:
To reach such transfers which are really
substitutes for testamentary dispositions and thus
prevent the evasion of the estate tax.
These transfers are:
a.) transfers in contemplation of death (sec.85 b);
b.) transfers with retention or reservation of certain
rights (sec.85 b);
c.) revocable transfers (sec.85 c)
d.) transfers of property arising under a general
power of appointment ( sec.85 d); and
e.) transfers for insufficient consideration (sec.85 g)
Note:
Transfers by virtue of a bona fide sale of property
for an adequate and full consideration in money or
money’s worth are excluded and not taxable.
INCLUSIONS IN THE GROSS ESTATE (CR2IG DIP)
1) Decedent’s interest at a specific property
- To the extent of the interest therein of the decedent at
the time of his death. (Sec. 85 A)
- Ex: partnership interest, dividends
2) Transfer in contemplation of death
- A transfer with the thought of death.
- The term “in contemplation of death” means that the
impelling or controlling motive is the thought of death,
regardless of whether the transferor is near the
possibility of death or not, which induces the
disposition of the property for the purpose of avoiding
the tax.
- Example: donation was made concurrently with the
execution of a will (Vidal de Rocs vs. Posadas, 58 Phil
108)
 Circumstances taken into account in determining in
whether the transfer was made in contemplation of
death:
A.) Age and state of health of the decedent at the time
of the gift;
B.) Length of time between the gift and the date of
death; and
C.) Concurrent making of a will or making a will within
a short time after the transfer.
Note: Check the factual settings before and at time of death
because proximity to death is not always conclusive.
 Examples of motives precluding the category of a
transfer in contemplation of death:
a.) To relieve the donor from the burden of
management;
b.) To save income or property taxes;
c.) To settle family litigated and unlitigated disputes;
d.) To provide independent income for dependents;
e.) To see the children enjoy the property while the
donor is alive;
f.) To protect the family from hazards of business
operations;
g.) To reward services rendered
Note:
The THREE (3) YEAR PRESUMPTION provides that any
transfer of a material part of his property in the nature of a
final disposition or distribution thereof made by the
decedent within three years prior to his death without
such adequate and full consideration shall, unless shown
to the contrary, be deemed to be have been made in
contemplation of death.
This provision, however, has been already deleted in Sec.
100 (b) now sec. 85 (B) of the Tax Code by PD No. 1705.
Under BIR Ruling No. 261 September 2, 1987, the law does
not specify the number of years prior to a decedent’s death
within which a transfer can be considered in
contemplation of death.
Note: In relation to transfers with retention of rights
which are made in contemplation of death – if the right of
retention by the Decedent is co-terminous with his
lifetime.
- Ex: X has a house and lot which he transferred to Y
a) with the condition that X will use it while X lives
- Effect: Still part of estate of X as he has control over it
b) with the condition that X will use it only for 10 years
and then X dies before 10 years
- Effect: Not part of the estate of X as he is not the actual
owner
3.) Transfer with retention or reservation of certain
rights
- This contemplates the instances where the owner
transfers his property during his lifetime but still retains
economic benefits (the possession or enjoyment of the
property or the power to designate the person who may
exercise such rights).
- It includes:
A. Transfer without retention of interest but intended to
take
effect at or after the decedents death.
- Example: donations mortis causa.
B. Transfer with retention of interest in respect to:
- 1. The possession or enjoyment of or the right to the
income from the property; or
2. The right either alone or in conjunction with any
person, to designate the person who shall possess or
enjoy the property or the income therefrom. And such
interest is retained by the decedent for his life or for
any period which does not in fact end before his death.
C. Transfer with reversionary interest, wherein there is a
possibility that the transferred property may return to
 REVIEW NOTES FOR TAXATION 2
the decedent or his estate or that it may become subject
to a power of disposition by the decedent.
- Ex: A transfers his property to B in naked ownership and
to C in usufruct throughout C’s lifetime subject to the
condition that if C predeceases A, the property shall return
to A. If A dies during C’s lifetime, the value of the
reversionary interest of A at death is included in his gross
estate.
3.) Revocable transfer
- the decedent has full control of disposition of property
- even if the control is not exercised, it is enough that it is
exists
- A transfer where:
a.) The decedent or in conjunction with any other person
has reserved the right to alter, amend, revoke, or
terminate; or
b.) Any such power is relinquished in contemplation of
the decedent’s death.
The power to alter, amend or revoke shall be considered to
exist on the date of the decedent’s death even though:
a.) the exercise of the power is subject to a precedent
giving of notice; or
b.) The alteration, amendment or revocation takes
effect only upon the expiration of a stated period
after the exercise of the power.
If the notice has not been given or the
power has not been exercised on or before the
decedent’s death, such notice or the power shall
be considered to have been given or exercised on
the date of the decedent’s death.
4.) Transfer of property under a general power of
appointment
- A transfer where the donor of the power of appointment
authorizes the donee of such power to designate any
person he chooses to be given the right over the appointed
property.
- The transferee may choose freely any person who will
own the property after he dies
- Rationale: the will of the transferee is followed; hence,
part of transferee’s estate
* Note: the decedent is the transferee in this provision
General power of appointment vs. special power of
appointment:
A.) A power is general, when it authorizes the donee
of the power to appoint any person he pleases
including himself, thus having a full dominion
over the property as if he owned it.
B.) It is special when, the donee can appoint only
among a restricted or designated class of persons
other than himself.
Note:
If the power of appointment is general, it makes
the appointed property a part of the donee’s property.
Under a general power of appointment, title to
the property is legally transferred to the donee.
Therefore the property shall form part of the gross
estate of the donee.
5.) Transfer for insufficient consideration
- A transfer that is not a bona fide sale of property for an
adequate and full consideration in money or money’s
worth. The excess of the fair market value at the time
of death over the value of the consideration received
by the decedent shall form part of his gross estate.
- However, if the purported absolute sale inter vivos by
the decedent is shown to be fictitious, then the total
value of the property transferred is subject to
inclusion in the taxable estate.
- Ex: X owns a house and lot, he wants to help Y so he sells
his house worth P5M for only P1M. At the time of X’s
death, his house and lot is worth P10M.
How much is included in the gross estatre of X? 10-1 =
9M
- Ex: X bought a car worth P1.3M. X needed money so he
sells his car to Y for only P1M. This is not a transfer for
insufficient consideration as this is a bona fide transfer at
arm’s length; hence, a valid transfer.
6.) Proceeds of life insurance
- Proceeds of life insurance taken by the decedent on his
own life shall be included in the gross estate if the
beneficiary:
A.) Is the estate of the decedent, his executor, or
administrator (regardless whether the
designation is revocable or irrevocable); or
B.) Third person other than the estate, executor,
administrator but the designation of the
beneficiary is revocable.
- Presumption: proceeds are revocable
- include in the estate only if it is revocable as the decedent
retained control over the proceeds
7.) Prior Interest
- Except as otherwise specifically provided therein,
subsections (B), (C), (E) of Section 85 referring to
transfer in contemplation of death, revocable transfer
and proceeds of life insurance respectively shall apply to
the transfers, trusts, estates, interests, rights, powers
and relinquishment of powers as severally enumerated
and described therein, whether made, created, arising,
existing, exercised or relinquished before or after the
effectivity of the CTRP.
NOTE:
In most of these transfers the property remains
substantially that of the transferor during his lifetime
notwithstanding the transfer since he still retains either
the “beneficial ownership” or “naked title” to the property.
EXCLUSIONS FROM THE GROSS ESTATE
1. Merger of usufruct in the owner of the naked title
- ex: X has a house and lot. X gave the title to Z.
X also allows Y to use the same and that in case Y dies, the
use goes to Z. What are the effects?
a) If X dies – include the house and lot in X’s estate
b) If Y dies – exclude from the estate of Y as the will of X is
being followed, there is a merger of usufruct in Z (the
owner of the naked title).
2. Fideicommisary and transmissions from the first
heir, legatee, or donee in favor of another beneficiary,
in accordance with the desire of the predecessor
- ex: X has a house and lot. In the will of X, Y may have the
title to the house and lot but in case Y dies, the property
will go to Z. What are the effects?
a) If X dies – include as part of X’s estate as he actually
owns it
b) If Y dies – excluded from the estate of Y as he has no
control over its disposition
- Ex: X has a house and lot which he wants to give to Y but
Y is a minor at the moment so that X institutes T to hold
the property in trust for Y until Y reaches the age of
 REVIEW NOTES FOR TAXATION 2

majority. X died. The property passed to T. T died. Y
reached the age of majority. Effect if T dies: Not part of
estate of T.
Note: Common reasons for 1 and 2 – the will of the first
decedent is followed, the second decedent has no control
over the disposition.
3. Transfers to social welfare, cultural, and charitable
institutions
- Requisites:
a) Qualified organization
b) Not more than 30% will be used for administrative
purposes
- Reason: to encourage such transfers
b) Identify the provision granting the deduction.
The provision must be clear and definite.
RESIDENT DECEDENT
A. Ordinary Deductions (ELIT):
1) Funeral Expenses
- The amount deductible is equal to 5% of the gross estate
or the amount of the actual funeral expenses whichever is
lower, but in no case to exceed P200,000;
- “Actual funeral expenses” are those which were actually
incurred in connection with the interment or burial of the
deceased and paid for from the estate of said deceased.

4. Proceeds of insurance not includible in the gross

estate of the decedent - Funeral expenses include:
a) Amount receivable by any beneficiary irrevocably a) Costs of coffin, tombstone, mausoleum, and burial
designated in the policy of insurance by the insured. lot;
b) Proceeds of a group insurance policy taken out by a b) Funeral parlor fees;
company for its employees. c) Mourning clothing of the surviving spouse and the
c) Proceeds of insurance policies issued by the GSIS to unmarried minor children;
government officials and employees. d) Costs of obituary notices; and
d) Benefits accruing under the Social Security Act. e) Expenses during the wake.
e) Proceeds of life insurance payable to the heirs of
deceased members of the military personnel of the United - The following cannot be deducted under funeral
States Army or Philippine Army under laws administered expenses:
by the United States Veterans Administration. a) Cash advances of the surviving spouse and the heirs;
f) Accident insurance proceeds. b) Expenses paid by the relatives and friends; and
c) Expenses after the burial.
5. Separate property of the surviving spouse.
- Requisites:
Note: a) The expenses must be due to the interment, wake
In the determination of the gross estate, the nature of and burial; hence, expenses on the death
the property, whether common property of the anniversary are not included
spouses, separate or exclusive property either of the b) The expenses must have been shouldered by the
deceased or of the surviving spouse, becomes of vital estate and not by other people
importance.
2) Judicial expenses of the testamentary or intestate
What regime of property relations shall govern the proceedings
spouses? - Requisite: “administration expenses” to those actually
incurred in the administration of the estate.
Under the Civil Code, the husband and wife who
got married before August 3, 1988 are governed by the - Examples:
Conjugal Partnership of Gains, while those who got a) fees of the executor or administrator;
married on or after August 3, 1988 are governed by b) attorney’s fees;
the Absolute Community of Property, unless a c) accountant’s fees;
different regime was agreed upon in the marriage d) court fees;
settlement. e) salaries of employees; and
f) All other expense related to the
EXEMPTION FROM ESTATE TAX administration of the estate.

A. The first P200, 000.00 value of the estate (sec. 84 NIRC)
B. The merger of the usufruct in the owner of the naked
title.
C. The transmission from the first heir, legatee, or donee in
favor of another beneficiary in accordance with the
desire of the predecessor.
D. All bequest, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of
the net income of which inured to the benefit of any
individual and provided that not more than 30% of the
said bequest, etc shall be used by such institution for
administration purposes.
E. Intangible personal property of non-resident aliens
under the principle of reciprocity.
F. Retirement benefits of employees of private firms from
private pension plans approved by the BIR.
G. Amount received for war damages.
H. Grants and donations to the Intramuros administration.
ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE
- Granted by mere legislative grace
- Construed strictly against the taxpayer
- Requisites:
a) Substantiate the claim for deduction
Note:
This includes “all expenses necessary to settle or
preserve the estate” hence, extrajudicial expenses are
included.
Expenses not essential to the proper settlement of
the estate but incurred for the individual benefit of the
heirs, legatees, or devisees are not allowed as
deductions.
- ex: expenses to be declared as administrator vs. an
oppositor is a personal expense
3) Claims against the decedent’s estate
- Debts or obligations of the decedent that is enforceable
against the estate provided that the following requisites
are
met:
a) They were contracted in good faith and for an
adequate and full consideration in money or
money’s worth.
 REVIEW NOTES FOR TAXATION 2
b) They must be existing against the estate.
c) They must be legally enforceable obligations of the
decedent and ought to be enforced by the
claimants.
d) They must be reasonably certain in amount; and;
e) At the time the indebtedness was incurred, the debt
instrument was duly notarized and if the loan was
contracted within three (3) years before the death
of the decedent, the administrator or executor
shall submit a statement showing the disposition
of the proceeds of the loan.
4) Claims against the insolvent persons
- Requisites for deductibility:
a) The amount of said claims has been initially
included as part of the gross estate; and
b) The incapacity of the debtors to pay their
obligations is proven and not merely alleged.
5) Unpaid mortgages indebtedness
- Requisites for deductibility:
a) The fair market value of the property mortgaged
without deducting the mortgage indebtedness has
been initially included as part of his gross estate;
b) The mortgage indebtedness was contracted in
good faith and for an adequate and full consideration
in money or money’s worth.
- ex: X obtained a 3M loan from Y and executed a Real
Estate Mortgage over his house and lot worth 5M. X paid
1M. X died.
Effect: in the estate of X, include the 5M in the gross estate
of X and claim as deduction the unpaid 2M.
 Accommodated Loan
- Ex: X owns a house and lot worth 5M. Y obtained a 3M
loan from Z with X’s house and lot as collateral. Y paid 1M.
Z died. X died.
Effect: Include in the gross estate of X the 5M as receivable
from Y (reason: right of reimbursement); and claim as
deduction the unpaid 2M.
6) Casualty Losses (TRECUSO)
- They include all losses incurred during the settlement of
the estate arising from fires, storms, shipwreck or other
casualties or from robbery, theft or embezzlement.
- Requisites for deductibility:
a) Losses not compensated by an insurance or
otherwise;
b) Losses that were not claimed as a deduction for
income tax purposes; and
c) Losses incurred not later than the last day for
payment of the estate tax (6 months from death).
d) Include the worth of the property in the gross estate
e) File a sworn declaration of the fact of loss within 45
days from its occurrence
7) Unpaid Taxes
- Unpaid income tax on income due or received before
death of the decedent, and real property taxes, which
have accrued prior to the death of the decedent (real
property taxes accrued at the beginning of the year but
may be paid before or at the end of each quarter) are
deductible.
- Income taxes upon income received after the death of
the decedent, or property taxes not accrued before his
death, or any estate tax cannot be deducted because
they are chargeable to the income of the estate.
- except: estate tax because estate tax liability is
determined at the time of death
B. Vanishing / Alternating Deduction Or Property
Previously Taxed
- an amount allowed to reduce the taxable estate of a
decedent where the property was:
a. received by him from prior decedent by gift,
bequest, devise or inheritance, or
b. transferred to him by gift, has been the object of
previous transfer deduction.
- VANISHING DEDUCTION: because the rate of
deduction gradually diminishes and entirely vanishes
depending upon the time interval between the two (2)
successive transfers.
- ALTERNATING DEDUCTION: because the present
decedent’s estate cannot claim it if the prior
decedent’s estate claimed it
- Factors necessary in vanishing deduction, these are;
a. There are two (2) deceased persons and the first is
the donor; and
b. The second decedent dies within five (5) years after
the death of the prior decedent or in the case of gifts
the decedent – donee dies within the same period after
the date of the gift.
- Rationale:
The deduction operates to ease the harshness of
successive taxation of the same property within a
relatively short period of time.
Requisites for deductibility:
1. The present decedent must have acquired the property
by inheritance or by donation.
2. The property must have been acquired within five (5)
years prior to the death of the present decedent
3. The property must have formed part of the gross
estate of the prior decedent if acquired by inheritance, or
the taxable gift of the donor if acquired by donation.
4. The estate tax or the donor’s tax, as the case may be,
must have been paid on the previous transfer.
5. The property must be identified as the one received
from the prior decedent or from the donor, as the case may
be.
6. The estate of the prior decedent must not have
previously availed of the vanishing deduction on the
subject property.
Procedure in computing vanishing deductions:
1. Value taken of property previously taxed
Less:Mortgage paid by the present decedent on
property previously mortgaged by prior decedent /
donor, if any (Ist deduction)
= Initial basis
2. Initial basis divided by the value of the gross estate of
present decedent X Expenses, and transfer for public
purpose
=2nddeduction
3. Initial Basis
Less: 2nd deduction
Final Basis
Multiplied by rate deduction (sec.86 (A.2), NIRC)
Vanishing Deduction
C. Transfers For Public Use
- Requisites:
1. The disposition must be testamentary in character.
2. To take effect after death.
3. In favor of the government of the Philippines, or
any
political subdivision thereof.
4. Exclusively for public purpose.
5. Included in the gross estate
 REVIEW NOTES FOR TAXATION 2
Query: If in a will the property was bequeathed to a city
and an NGO, are the tax effects the same? No.
a) City - included in the gross estate and claimed as
deduction
b) NGO – excluded from the gross estate and subject to the
limitation that not more than 30% must be used for
administrative purposes
D. Family Home
- Refers to the dwelling house, including the land on
which it is situated, where the husband and wife, or an
unmarried person who is the head of the family and
members of their immediate family resides as certified
by the Barangay Captain of the locality.
- For the purpose of availing of a family home deduction
to the extent provided by law, a person may constitute
only one family home.
- The amount deductible is equivalent to the current fair
market value of the decedent’s family home if said
current fair market value exceeds P1,000,000, the
excess shall be subject to estate tax.
- Requisites to be deductible:
a. The family home must be the actual residential home of
the decedent and his family at the time of his death.
(Decedent is married and has dependents or is a head
of family with dependents.)
b. Such fact must be certified by the Barangay Captain of
the locality where the family is situated.
c. The total value of the family home must be included in
the gross estate of the decedent.
d. The allowable deduction must be in an amount
equivalent to the current fair market value of the family
home as declared or included in the gross estate not
exceeding
P1, 000,000.
E. Standard Deduction Of P1, 000,000.00
- on top of other deductions, unlike the optional standard
deduction which is in lieu of other deductions; hence, it
does not include the P 200,000 exemption
F. Medical Expenses
- Requisites:
a. Must be incurred by the decedent within one (1) year
prior to his death
b. Must be duly substantiated by receipts; and
c. Must not exceed P500, 000
*Opinion of JB: medical expense must be related to the
cause of death as it is the estate that is being settled.
Otherwise, if not related, it is a personal expense.
G. Amounts Received By Heirs Under RA 4917 From
The Decedent’s Employer As A Consequence Of The
Death Of The Decedent–Employee, Provided That Such
Amount Is Included In The Gross Estate Of The
Decedent.
- retirement benefits
- Requisite: include in gross estate
H. NET SHARE OF THE SURVIVING SPOUSE IN THE
CONJUGAL / COMMUNITY PROPERTY.
- Requisite: Include the entire amount in the gross estate
then deduct the share of the surviving spouse
- Ex: H owns a car worth 1M and a house and lot worth
5M
W owns a truck worth 2M and jewelry worth 10M
H and W owns a conjugal lot worth 20M
H died.
Gross estate of H:
Exclusive Conjugal
5 M house and lot 20 M lot
1M car _________ _______
6M 20 M
Total gross estate = 26 M
Then claim as deduction the 10M, which is the ½ share
of the surviving spouse in the conjugal lot.
- Ex: H and W died simultaneously. In computing the gross
estate of H and W, their shares ½ shares as to the conjugal
lot may immediately be split as there is no surviving
spouse left.
I) Tax Credit For Estate Tax Paid To A Foreign Country
- The estate tax imposed by the tax code shall be credited
with the amount of any estate tax paid to a foreign country.
- Concept: if a property located in the Philippines was
already subjected to estate tax abroad and the same
property is also subjected to estate tax in the Philippines,
the foreign tax paid is allowed to reduce his Philippine
estate tax
- Purpose: minimize the effect of international double
taxation
- applicable only to residents and citizens, not to NRA since
he is taxed only on his properties within the Philippines;
hence, the NRA will not be made to pay estate taxes twice
for his property located abroad = no international double
taxation = no tax credit. (Sec. 86 (E)(2))
- Requisites:
1. Prove that the foreign estate tax has been paid
2. Prove reciprocity : that in the decedent’s foreign
country, a similar tax credit is given to Filipinos
Limitations on tax credit:
A.)The tax credit limit for estate taxes paid to one foreign
country is determined by the following:
TAX CREDIT LIMIT=
Decedent’s Net Estate situated in a foreign country x Phil.
Estate tax of the Entire net estate
B.) The tax credit limit for estate taxes paid to two or more
countries is determined as follows:
TAX CREDIT LIMIT =
Decedent’s net estate situated outside of the Phil X Phil.
Estate tax of Entire net Estate
Note:
1.) Under limitation A the allowable tax credit is the lower
amount between the tax credit limit and the estate tax
paid to the foreign country.
2.) Under limitation B the allowable tax credit is the lower
amount between the tax credit limit computed under
(A) and that computed under (B)
B.) IF DECEDENT IS A NON – RESIDENT ALIEN
The deductions allowed to citizens or residents of
the Philippines are also extended to a non-resident alien
decedent with respect to his estates situated in the
Philippines at the time of his death.
In case of deductions for expenses, losses,
indebtedness and taxes, the amount of the allowable
deduction is limited only to the proportion of such
deductions with the value of such part of his gross estate
which at the time of his death, is situated in the
 REVIEW NOTES FOR TAXATION 2
Philippines, bears to the value of his entire gross estate
wherever situated. (Sec. 86 (B))
Formula:
Allowable deduction of non-resident estate =
Philippine Gross Estate x Deductions Claimed
Entire Gross estate
As a prerequisite to the deduction, it must be
included in the return required to be filed the value at the
time of his death, of that part of the gross estate of the non-
resident not situated in the Philippines, to determine the
ratable portion of the deduction for expenses allowable.
Valuation of Property
The estate shall be appraised at its fair market value (FMV)
at the time of death of the decedent (Sec.88, NIRC). This is
regardless of any subsequent contingency affecting the
estate. (Lorenzo vs. Posadas, 64 Phil. 353)
1. Real Property
- higher amount of :
a) FMV as determined by the Commissioner
- This is the zonal value (of the land) as fixed by the
CIR, and can be obtained from the BIR website or
regional office
b) FMV fixed by the provincial or city assessor
- This is the value as shown in the tax declaration of
the property
- Use this amount for real properties with no zonal
values (i.e. real properties other than land such as
buildings and improvements)
* Note : The law does not state that the prevailing market
rate or the consideration as a basis for determining the
FMV
* Note: If there are no improvements in the property, get a
Certificate of No-improvement, (which you can get only
after obtaining a Certificate of Non-tax delinquency) and
attach these to the estate tax return.
2. Personal Properties
a) Shares of Stock
- book or par value at the time of death, and can be
obtained by writing a letter of inquiry, asking for a formal
certification from the corporation which issued the shares
of stock as to the value of such stock at the time of death of
the decedent
b) Inventories
- value as stated in the invoices (i.e.: price at purchase); or
the prevailing market rate (ask for the value from those
engaged in the same business); or if value cannot be
definitely ascertained, state the approximate reasonable
value (but this will be subject to the discretion of the BIR
inspector)
c) Motor vehicles
- these depreciate 20% per year from purchase
- Hence, motor vehicles are fully liquidated and has no
estate tax liability after 5 years but include in the gross
estate placing zero as the amount (to secure a tax
clearance therefor)
3. Right to Usufruct, use or habitation; or annuity
- probable life of the beneficiary shall be taken into
account, in accordance with the latest basic mortality table,
to be approved by the Sec. of Finance, upon
recommendation of the Insurance Commissioner
Filing of Notice of Death
Where the gross value of the estate exceeds P 20,000
although exempt, the executor, administrator, or any of the
legal heirs shall give, within 2 months after the decedent’s
death or within like period after the executor or
administrator qualifies as such, a written notice thereof, to
the Commissioner of Internal Revenue. (Sec. 89, NIRC)
- Contents of the letter:
1. The fact that the decedent died
2. Residence of the decedent
3. Date of death
- Effect of failure to file notice: subject to penalty not lower
than P1,000
* Note: Filing with the nearest Revenue District Office is
sufficient compliance.
Filing of Return and Payment of Tax
1.) By whom?
 An estate tax return under oath is required by law
to be filed by the executor, administrator, or any
of the legal heirs:
a.) Where the gross value of the estate exceeds
P200,000 though exempt from the estate tax;
or
b.) Regardless of the gross value of the estate,
where the said estate consists of registered or
registrable real property, such as real
property (land, bank accounts, others with
definite records), motor vehicle, shares of
stock or other similar property for which a
clearance from the Bureau of Internal
Revenue is required as a condition precedent
for the transfer of ownership thereof in the
name of the transferee.
2.) When to file?
 The return shall be filed within 6 months from
the decedent’s death.
 The Commissioner shall have the authority to
grant, in meritorious cases, a reasonable
extension not exceeding 30 days for filing the
return.
3.) Where to file?
Except in cases where the Commissioner otherwise
permits, the return shall be filed with:
* if the decedent is a resident
a) an authorized agent bank
b) Revenue District Officer
c) Revenue Collection Officer
d) duly authorized treasurer of the city or
municipality where the decedent was
domiciled at the time of his death, or
* if the decedent is a non-resident
a) with the Revenue District Office where his
executor/administrator is registered
b) with the Revenue District Office having
jurisdiction over the residence of the
executor/administrator
e) with the Office of the Commissioner if the
decedent has no executor or administrator
4.) Copies:
The return shall be filed in triplicate, two (2) for the
BIR and one (1) copy for the taxpayer.
 REVIEW NOTES FOR TAXATION 2
5.) When to Pay
Pay the estate tax at the time you will file your estate
tax return. (Pay as you file system)
6.) Extension for Payment:
- allowed in meritorious cases when the Commisioner
finds that the payment of the esate tax on the due date
would impose undue hardships upon the estate or any
heir :
At most 2 years – if estate extrajudicially settled
At most 5 years – if estate judicially settled
- NOTE: The taxpayer must not be guilty of
a) negligence
b) intentional disregard of the rules and regulations, or
c) fraud
- the taxpayer may also be required to pay a bond not
exceeding double the amount of tax and with such sureties,
as the Commissioner deems necessary
* Note: The filing of the estate tax return is not sufficient to
obtain a tax clearance, the administrator/executor/heir
must submit additional documents to determine the
correctness of the values stated by him in the estate tax
return.
- such as the title of the land, tax declaration of the land
and its improvements or Certificate of No-improvement,
vicinity map to fix the exact location and zonal value, etc.
(Read: Revenue Memorandum Order 15-2003)
* Note: To avoid the imposition of penalties while there is
no extra/judicial settlement yet, any heir may file a sworn
declaration to the BIR stating the fact of death, that the
estate has not yet been settled and the list of the
properties included in the estate, as basis for payment of
estate tax.
If Gross Estate >2M, additional requirement:
- must submit a certificate of an independent CPA
stating:
1. itemized assets of the decedent with
corresponding gross value at the time of his death;
or if NRA, that part of his gross estate situated in
the Philippines
2. itemized deductions from the gross estate
3. amount of tax due, whether paid or still due and
outstanding
Liability for Payment of Estate Tax
 Primarily Liable : Executor or administrator - before
delivery to any beneficiary of his distributive shares.
After due payment, the executor or administrator shall
be discharged from personal liability.
 Subsidiarily Liable : Beneficiary - to the extent of his
distributive share, liable for the portion of the estate
tax as his distributive share bears to the value of the
total net estate.
NOTE: There are two ways the government may enforce
collection of estate taxes from the decedent’s heirs:
1. It can collect from all the heirs the amount of the estate
tax proportionate to the inheritance they received.
2. It can subject properties of the estate which are in the
hands of the heirs/transferees to the payment of the tax.
(CIR vs. Pineda, 21 SCRA 105)
NOTE: The heirs have a solidary obligation to settle the
estate. Hence, the BIR can collect from or sue any of the
heirs, but only up to the amount of that heir’s share in the
hereditary estate. This is without prejudice to such heir’s
right of reimbursement from his co-heirs of their share in
the payment of the estate tax. (CIR vs. Pineda, 21 SCRA
105)
Measures to Insure Payment of Estate Tax
a. No judge shall authorize the executor or judicial
administrator to deliver a distributive share to any party
interested in the estate unless a certification from the
Commissioner that the estate tax has been paid as shown.
(Sec.94)
- by the court requiring the executor/administrator to
submit an inventory of properties of the estate, these
properties are to be distributed only after payment of
estate taxes and receipt of clearance by the Commissioner
or his duly authorized representative
- NOTE: The approval of the probate court is not required
before estate taxes may be collected. The enforcement and
collection of taxes are executive in nature. (Marcos II vs.
CA, 273 SCRA 47)
b. Registers of Deeds shall not register in the
Registry of Property any document transferring real
property any document transferring real property or real
right therein or any chattel mortgage, by way of gift inter
vivos or mortis causa, legacy or inheritance, unless
certification from the commissioner that the tax has been
paid and the y shall immediately notify the Commissioner,
Regional Director, Revenue District Officer, or Revenue
collection Officer or treasurer of the city or municipality
where their officer are located, of the non-payment of the
tax discovered by them. (Sec. 95)
- before the properties are transferred in the name of the
heirs, a Certificate Authorizing Registration (CAR) must be
shown
c. Any lawyer notary public, or any Government
Officer who, by reason of his official duties, intervenes in
the preparation or acknowledgement of documents
regarding partition or disposal of donation inter vivos or
mortis causa, legacy or inheritance, shall have the duty of
furnishing the Commissioner, etc., with copies of such
documents and any information whatsoever, which may
facilitate the collection of the aforementioned tax. (Sec. 95)
- ex: deed of extrajudicial settlement, deed of donation
d. Neither shall a debtor of a deceased pay his
debts to the heirs, legatees, executor or administrator of
his creditor, unless a certification of the Commissioner that
the tax fixed has been paid is shown; but he may pay the
executor or judicial administrator without said
certification if the credit is included in the inventory of the
estate of the deceased. (Sec. 95)
- else: debtor may be personally liable for the payment of
the lost tax, like a withholding agent who fails to withhold
taxes
e. Corporations, sociedad anonima, partnerships,
business or industry organized in the Philippines shall not
transfer in their books any shares obligations, bonds or
rights by way of gift inter vivos or mortis causa, legacy or
inheritance to the new owner unless a certification from
the Commissioner that the taxes fixed and due thereon
have been is shown; (Sec. 97)
- obligation of corporate secretary
f. If a bank has knowledge of the death of a person
who maintained a bank deposit account alone or jointly
with another, it shall not allow any withdrawal from the
said joint deposit account unless the Commissioner has
certified that the estate taxes imposed thereon have been
paid. However, the administrator of the estate or any of
the heirs of the decedent may, upon authorization by the
Commissioner of Internal Revenue withdraw an amount
not exceeding P 20,00 without the said certification .
(Sec. 97)
 REVIEW NOTES FOR TAXATION 2

- For this purpose, all withdrawal slips shall contain a

statement to the effect that all of the joint depositors are
still living at the time of withdrawal by any one of the joint
depositors and such statement shall be under oath.
Otherwise, the joint depositor will be liable for perjury
(Sec. 267).

- joint accounts covered by this rule include “and” and DISTINCTION BETWEEN DONOR’S AND ESTATE TAX
“and/or” accounts, but do not include an account subject to
a Survivorship Agreement with a survivor-take-all feature DONOR’S TAX ESTATE TAX
(because there is an automatic transfer of right to the Tax on the privilege to Tax on the privilege to
survivor; hence, not included in gross estate of the joint transmit property during transmit property upon
depositor who died – tax avoidance scheme) the lifetime of the donor one’s death
Tax rates are lower (2 to Tax rates are higher (5
g. The estate tax together with interest, penalties, 15) to20)
and costs that may accrue in addition thereto constitutes a Exemption is only P Tax exemption is
lien upon all property and rights to property belonging to 100,000.00 P200,000.00
the taxpayer. The lien attaches when the taxpayer neglects Notice of donation is Notice of death is required
or refuses to pay after demand. (Sec. 219) generally not required
Extension of payment is Extension of payment may
h. In judicial settlement of estates, the court is not provided be granted by the
required to furnish the commissioner of Internal Revenue Commissioner of Internal
a certified copy of the schedule of participation and the Revenue
court order approving the same within 30 days after its Payable within 30 days Payable within 6 months
promulgation. (Sec. 91(b)); from the date of gift from the date of death
Imposed on the net gift Imposed on the net estate
i. The estate tax shall be paid by the executor or
administrator before delivery to any beneficiary his II. DONOR’S TAX / GIFT TAX
distributive share of the estate (Sec. 91 (c)). He may be
discharged from personal liability for deficiency in the A. NATURE
estate tax only after written application to the - It is an excise (privilege) tax, imposed on the privilege of
commissioner and upon determination that no such the donor to give or on the privilege of the done to receive.
deficiency appears. (Sec. 92) It is not a tax on the property as such because its
imposition does not rest upon general ownership.
NOTE: Additional Readings
1. Revenue Regulation 2-2003 - The tax is imposed without reference to the death of the
2. Revenue Memorandum Order 15-2003 donor unlike in the case of estate tax.

 Donation / Gift
TAX TIPS: Avoidance of Estate Tax Liability
- an act of liberality whereby a person disposes
1. Maximize your claims for deductions such as the use of
gratuitously of a thing or right in favor of another who
the transfers falling under the exclusions from gross
accepts it.
estate.
- For tax purposes, the term has a much wider meaning, it
2. Donate properties to your relatives as the tax rates for
includes:
donor’s taxes are lower than for estate taxes.
a. any transfer in trust or otherwise, whether the gift is
3. Estate Planning (Section 40 (c), NIRC)
direct or indirect, and whether the property is real
- execute a Deed of Exchange; the properties of at most 5
or personal, tangible or intangible. (Sec. 98)
persons in exchange for shares of stock in order to
obtain control of the corporation (more than 51%
b. any transfer of property by gift, except in forced
ownership)
sales and in the sale of real property which is a
- this exchange is not taxable for income tax purposes
capital asset, for less than and adequate and full
- more tax savings if real properties are exchanged
consideration in money or money’s worth. (Sec.
- the properties in the deed will no longer be part of the
100)
gross estate as it is now owned by the corporation
- the stock shares will be included in the gross estate but
c. Condonation or remission of debt, where the
the tax would be lower as the value at time of death
creditor merely desires to benefit a debtor and
might still be the same original value at the time of
without any consideration therefore cancels the
exchange; on the other hand, if there was no exchange
debt.
the estate tax for the land would be higher as the value
of the land at time of death will be higher than at the
Requisites Of A Taxable Gift:
time of the acquisition.
1.) CAPACITY of the donor to make the donation;
2.) DONATIVE INTENT or INTENT on the part of the
4. Set up a living trust
donor to make a gift;
- Trust: obligation imposed by a person regarding his
3.) DELIVERY, whether actual or constructive, of the
property
gift; and
- Create an irrevocable trust over your properties so that
4.) ACCEPTANCE of the gift by the donee.
they will not form part of your gross estate when you
die. This is because the Irrevocable Trust is a new
Note:
taxpayer created.
A. The donee, unlike the donor need not be capacitated.
- Ex: grandfather (Grantor) during his lifetime would like
B. donor’s tax applies now to both natural and juridical
to give certain properties to his grandchild. Until he
persons.
reaches the age of maturity, the properties will be held
in trust by X (trustee) for the grandchild (Beneficiary).
 REVIEW NOTES FOR TAXATION 2
C. donative intent must be present in direct gift but with
respect to indirect gift, e.g. transfer of property for less
than an adequate and full consideration, donative
intent is superfluous. Thus, donative intent is not
always essential to constitute a gift.
D. In Abello vs. CIR (Feb. 25, 2005), donative intent is
evidenced by a reduction of patrimony of one and an
increase in patrimony to the other.
Purposes Of Gift Tax
1.) The gift tax was enacted originally to supplement the
estate and inheritance taxes by preventing their
avoidance through the taxation of gifts inter vivos.
2.) The donor’s tax is also intended to prevent the
avoidance of income tax through the device of splitting
income among numerous/different donees with the
donor thereby escaping the effect of the progressive
rates of income taxation.
Kinds Of Gift Taxes:
1. Donor’s tax or tax levied on the act of giving; it
supplements the estate tax; and
2. Donee’s tax or tax levied on the act of receiving; it was
formerly the counterpart of the inheritance tax, which
has been integrated into an estate tax.
*Both taxes have now been integrated into a donor’s tax.
Parties To A Donation:
1. Donor - the Person who disposes of his property or
right.
2. Donee - the Person who receives the property or right.
Properties Included In The Term “Gift”
(A). In the case of resident citizens, non-resident
citizens and resident aliens:
1. Real property within and without the Philippines.
2. Tangible personal property within and without the
Philippines; and
3. Intangible personal property within and without the
Philippines.
(B.) In the case of non-resident aliens:
1. Real property within the Philippines.
2. Tangible personal property within the Philippines.
3. Intangible personal property within the Philippines,
unless there is reciprocity in which case, it is not
taxable.
Note:
The specific items includible in the “gross estate” are
applicable to and are embraced by the term “gift”.
B. FACTORS AFFECTING LIABILITY FOR GIFT TAXES
1. Relationship of the donor and the donee
a) when the donee is considered a stranger to the
donor, the donor’s tax shall be 30% of the net gifts.
b) when the donee is a relative of the donor, the tax
shall be based on the 2-15% table under Sec. 99(A).
 Stranger
1.) one who is not a :
(a) brother/sister (whole or half blood), spouse,
ancestor and lineal descendant
(b) relative by consanguinity in the collateral line
within the fourth degree of relationship
2.) donations made between individuals and business
organizations are considered donations to
strangers
3.) donations made between business organizations
are considered donations made to strangers
(RR 2-2003)
Note: Donees who have no blood relation to the donor are
considered strangers to the donor, such as those made to
one’s in-laws or to juridical persons.
2. Value of the Gift
- the higher the value of the gift, the higher the gift taxes
C. DEDUCTIONS / EXEMPTIONS FROM GIFT TAX
1. Gifts Made by a Resident:
a.) Dowries or gifts made on account of marriage before its
celebration or within one year thereafter by parents to
each of their legitimate, illegitimate or adopted children to
the extent of the first P10,000.00.
Requisites:
1. The donation must be given on account of
marriage.
2. The parent must give it to his child.
3. The child must be either the legitimate, recognized
natural or legally adopted child of the donor, and;
4. It must be given before or one year after the
celebration of the marriage.
b.) Gifts made to or for the use of the National Government
or any of its agencies which is not conducted for profit, or
to any political subdivision of the said government.
c.) Gifts in favor of educational, charitable, religious,
cultural or social welfare corporation, institutions,
foundations, trust or philanthropic organization, research
institution or organization, or accredited non-government
organization. Provided, that no more than 30% of said gifts
shall be used by such donee for administration purposes.
Note:
For purposes of exemption, a non-profit
educational and/or charitable corporation, institution,
accredited non-government organization, trust or
philanthropic organization is defined as:
 school, trust or university and/ or charitable
corporation, foundation trust or philanthropic
organization and/ or research institution or
organization incorporated as a non-stock entity:
 paying no dividends.
 governed by trustees who receive no
compensation; and
 devoting all its income to the accomplishment and
promotion of the purposes enumerated in its
articles of incorporation.
Note:
Only donations made to non-stock, non-profit educational
institutions are exempt from gift taxes as although Article
14 of the Constitution states that proprietary educational
institutions may be given the same privileges subject to a
guideline; as a guideline, the NIRC does not provide for
such exemption to them.
2. Gifts made by a Non-Resident Alien
a.) Gifts made to or for the use of the National
Government or any entity created by of its agencies
which is not conducted for profit, or to any political
subdivision of the said government.
b.) Gifts in favor of educational, charitable, religious,
cultural or social welfare corporation, institution,
foundations trust or philanthropic organization,
research organization or institution; Provided, that
no more than 30% of said gifts shall be used by such
donee for administration purposes.
 REVIEW NOTES FOR TAXATION 2
Note: doesn’t include accredited NGO
Note:
1. Intangible personal property in the gross gift of a NON-
RESIDENT ALIEN donor shall be taxable in the Philippines,
if the PRINCIPLE OF RECIPROCITY is not cognizable.
2. Intangible personal properties considered situated in
the Philippines.
 Franchise which must be exercised in the
Philippines
 Shares of stocks issued by any corporation or
sociedad anonima organized or constituted in the
Philippines in accordance with its laws.
 Shares of stocks issued by any foreign corporation
85% of the business of which is situated in the
Philippines.
 Shares of stock issued by a foreign corporation, if
such shares, obligations, or bonds, have acquired a
business situs in the Philippines; and
 Shares or rights in any partnership, business or
industry established in the Philippines.
D. TAX TREATMENT OF PROPERTIES TRANSFERRED
FOR LESS THAN FULL / ADEQUATE CONSIDERATION
General Rule: The amount by which the FMV of the
property exceeded the value of the consideration shall be
deemed a gift
Exception: real properties classified as capital assets (not
used in business) as there were already subjected to
Capital Gains Tax
E. TAX TREATMENT OF POLITICAL CONTRIBUTIONS
- any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes shall be governed by the Election Code; hence,
this is not subject to gift tax (report to COMELEC?)
F. TAX CREDIT FOR DONOR’S TAXES PAID TO A
FOREIGN COUNTRY
1. Donor was a Filipino citizen or resident alien, at the time
of foreign donation
2. Donor’s taxes of any character and description are
imposed and paid by the authority of a foreign country.
Limitations:
A.) For donor’s tax paid to one foreign country;
The amount of tax credit in respect to the tax paid
to any country shall not exceed the same proportion of
the tax against which credit is taken which the net
gifts situated within such country taxable under the
National Internal Revenue Code bears to his entire net
gift, and
B.) For donor’s tax paid to two or more foreign
countries:
The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the donor’s net gift situated outside the
Philippines taxable under the National Internal
Revenue Code bears to his entire net gift.
Formula:
1. Donor’s Tax Paid to 1 Foreign Country
Tax Credit Limit =
Net gift situated in a foreign country X Phil. Donor’s Tax
Entire net gifts
2. Donor’s Taxes paid to 2 or more Foreign Countries
Tax Credit Limit =
Net gifts outside the Philippines X Phil. Donor’s
Tax
Entire net gifts
Note:
 Under limitation A the allowable tax credit limit is
the LOWER AMOUNT between the tax credit limit
and the gift tax paid to the foreign country.
 Under limitation B the allowable tax credit is the
LOWER AMOUNT between the tax credits; limit
computed under A and that computed Under B.
Note: Void Donations Are Not Subject To Donor’s Tax
Such as:
 Between husband and wife, even if the relationship
has not been solemnized.
 Between persons guilty of adultery or concubinage.
 Between those found guilty of the same criminal
offenses.
 Between those made to a public officer or his wife,
descendants, ascendants by reason of his office.
Note: Effects Of General And Specific Renunciation
- An heir’s general renunciation of inheritance in favor of a
co-heir is not subject to donor’s tax, but if it is specifically
renounced in favor of a co-heir to the exclusion of others, it
shall be subject to donor’s tax.
Note: Renunciation of a surviving spouse of his/her
share in the conjugal partnership or absolute
community after dissolution of marriage
- whether made in favor of the heirs of the deceased
spouse or in favor of a third person, the same is subject to
donor’s tax
G. NET GIFT
- the total amount of gifts less the allowable deductions
and specific exemptions.
- the total net gifts made during the SAME calendar year is
used as basis for computing the donor’s tax
H. VALUATION
- the gift tax is based on the fair market value of the gift at
the time it was given
I. LAW APPLICABLE
- the law in force at the time of the perfection / completion
of the donation shall govern the imposition of donor’s tax.
A donation is considered as completed FOR TAX
PURPOSES at the time the donee accepts the gift.
J. ADMINISTRATIVE PROVISIONS
1. Filing of notice of donation
 REVIEW NOTES FOR TAXATION 2
General Rule: Filing of notice of donation is not required
Exception: if the donor wishes to claim exemption from tax
and the donee is an organization under Sec.101(A3) and
Sec. 101 (B2)
Requisites to be exempt from gift tax :
1. Donor is engaged in business
2. Donee is any of the organizations mentioned under
Sec. 101(A3) and Sec. 101 (B2)
3. Donor must give notice to the RDO on every donation
worth at least P50,000.
4. The notice must be given within 30 days from the
issuance by the donee of a Certificate of Donation.
5. The certificate of Donation must be attached to the
notice.
2. Filing of Donor’s Tax Return
- within 30 days after the completion of the gift
- donation is completed FOR TAX PURPOSES at the time
the donee accepts the gift
- Contents:
1. Gifts made during the calendar year
2. Deductions claimed and allowed
3. Previous net gifts made during the year
4. Name of the done
5. Relationship of the donor and the done
6. Other information as may be required
3. Payment of Donor’s Tax
- pay as you file the tax return
- Note: if the donor’s tax was paid for the transfer, there is
no more need to subject the transfer again to estate tax.
Applying the Back Tax Theory, there is no tax that
remained unpaid regarding this transfer.
4. Extensions For Payment Of Donor’s Tax
- the NIRC does not provide for any extension for payment
of gift tax, as it is presumed that if you can donate, you still
have sufficient properties to pay for the tax. Unlike in
estate tax where extension is granted, because the
payment of the tax may cause undue hardship on the heirs
specifically for non-liquid properties which requires time
to be sold first to be converted into cash for payment of the
estate tax.
TAX TIPS : Avoidance of Gift Taxes
Execute a Deed of Extra-judicial Settlement with
simultaneous general renunciation of all inheritance
(by operation of law, the renounced inheritance will go to
the co-heirs anyway).
PROBLEMS ON DOWRY DEDUCTION
1. A is the child of H and W
January – A got married, H and W gave him P2,000
March – H and W gave A P2,000
April – H and W gave A another P2,000
Can the parents claim dowry deduction even if these were
made on a staggered basis?
- Yes, provided these were made on account of marriage,
before the marriage or 1 year thereafter.
2. January - A married B and was given dowry
February – B died
December – A married C and was given dowry
Can the parents of A still claim dowry deduction even if it
was claimed already for the January dowry?
- There is no rule on the matter yet but it is submitted that
as it was made on account of 2 different marriages, the
deduction for the December dowry may be made.
3. A and C are the children of H and W
January - A married B, given dowry
February – C married D, given dowry
Can H and W claim dowry deduction for both?
-Yes, as the dowries were given to different children
4. H and W jointly donated to their child A 1M on account
of his marriage to B. Show computation.
For each of H and W the computation is:
500,000 – to A 250,000
- to B 250,000
A B
250,000 250,000
-10,000 _______
240,000 250,000
*2 to 15% * 30%
3, 600 75,000
Note: Do not deduct the first 100,000 in case of donee-
relatives as this is incorporated already in the table under
Section 99.
General Rule: H and W are considered separate and
distinct taxpayers for purposes of donor’s tax.
Exception: What was donated is a conjugal property and
only H signed. There is only one donor, without
prejudice to the right of W to question the validity of
the donation without her consent.
PROBLEMS
1. Donations made by X
January – 300,000 to his brother
April – 400,000 to his sister
August – 500,000 to his mother
Compute donor’s tax:
a) For January donation
= 300,000 * (percentage in the 2 to 15% table) = tax
b) For April Donation
= (300,000 + 400,000) * (2 to 15% table) = tax
c) For August Donation
= (300,000 + 400,000 + 700,000) * (2 to 15% table)
= tax less tax paid for January and April
2. X wants to give Y 200,000, will there be tax savings to X
if he will donate one time the amount of 200,000 or should
he split by donating 100,000 on December 2007 and
100,000 on January 2008?
- It depends if X and Y are relative or not.
a) relatives – yes, there will be savings as under the table
in Section 99, the first 100,000 is exempt from Donor’s tax.
No donor’s tax will then be paid for both donations.
b) strangers – nom there will be no tax savings. A flat rate
if 30% is imposed on donations made between strangers;
hence, the same amount of P60,000 donor’s tax will be
paid whether made one time or split.
3. X died and left 1M each to his heirs A, B, C. The heirs
agreed to settle extrajudicially.
a) A renounced his inheritance in favor of B. Is there
liability for donor’s tax?
- Yes, this is a case of waiver. A is deemed to have accepted
the property before he gave it to B as one cannot give what
one does not own. A specific renunciation is taxable.
b) A renounced his share without specifying a co-heir who
will receive the same. Is there liability for donor’s tax?
- No donor’s tax because as if A never inherited anything
from X and the transfer was made directly from X to B and
C.
 REVIEW NOTES FOR TAXATION 2

VALUE ADDED TAX b. Presumptive Input Tax Credits (Sec. 111(B),

NIRC, as amended by RA 9337)
A. Value Added Tax
- Indirect Tax
- It is not the tax itself which is shifted or passed but it is the
burden to pay the tax TAX ADMINISTRATION AND ENFORCEMENT
 Why? Tax is Personal. Seller is still liable, only that
the economic burden is shouldered by the buyer. A. Tax Administration: Its general concepts
- is the power of the Bureau of Internal
Revenue (BIR) to enforced and
B. Transactions Subject to VAT (ISBEL) administer taxes.
a. Importation – whether or not in the regular course of
business B. Government agencies involved in tax
b. Sale conducted in the administration
c. Barter regular course - the BIR and Bureau of Customs are
d. Exchange of business tasked to implement revenues laws as
e. Lease the case may be.

* The phrase “in the course of business” means the regular C. The Bureau of Internal Revenue
conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto, by any person a. Composition Functions
regardless of whether or not the person engaged therein is a - The Bureau of Internal Revenue shall
non-stock, non-profit private organization (irrespective of the have a chief to be known as
disposition of its net income and whether or not it sells Commissioner of Internal Revenue,
exclusively to members or their guests), or government entity. hereinafter referred to as the
Commissioner and four (4) assistant
* VAT becomes due when the following conditioned concur: chiefs to be known as Deputy
Commissioners. (Sec. 3, NIRC)
a. There is sale, barter, exchange, transfer or similar
transactions, either for nominal or valuable consideration, b. Powers and Duties
intended to transfer ownership of, or title to, articles i. In general
imported, milled, produced or manufactured; and
- The Bureau of Internal Revenue shall be
b. The sale is consummated, not merely perfected, in the under the supervision and control of the
Philippines. The place where the title to the thing passes Department of Finance and its powers
determines the place of delivery or tax situs. and duties shall comprehend the
assessment and collection of all national
C. Specific Characteristics of VAT internal revenue taxes, fees, and
charges, and the enforcement of all
a. Consumption Based Tax forfeitures, penalties, and fines
- the person who last consumes the product connected therewith, including the
absorbs the effect of VAT execution of judgments in all cases
decided in its favor by the Court of Tax
1. Destination Principle Appeals and the ordinary courts. The
- Goods are destined to be consumed in the Bureau shall give effect to and
Philippines administer the supervisory and police
powers conferred to it by this Code or
2. Cross-border principle other laws. (Sec. 2, NIRC)
- Goods going out of the Philippines shall not be
subjected to tax since these goods are not ii. Specific
destined to be consumed in the Phils. 1. Interpret tax laws and
decide cases (Sec.4, NIRC)
*VAT is imposed only on whatever value was added.
- The power to interpret the provisions of
D. Exempt Transactions (Sec. 109, NIRC, as amended this Code and other tax laws shall be
by RA 9337) under the exclusive and original
jurisdiction of the Commissioner, subject
E. Zero rating vs. Exemption to review by the Secretary of Finance.

a. A zero-rated scale is taxable transaction, but does The power to decide disputed
not result in an output tax while an exempted assessments, refunds of internal revenue
transaction is not subject to the output tax; taxes, fees or other charges, penalties
b. The input VAT on the purchases of VAT-registered imposed in relation thereto, or other
person with zero-rated sales may be allowed as matters arising under this Code or other
tax credits or refunded while the seller in an laws or portions thereof administered by
exempt transaction is not entitled to any input tax the Bureau of Internal Revenue is vested
on his purchases despite the issuance of a VAT in the Commissioner, subject to the
invoice or receipt; and exclusive appellate jurisdiction of the
c. Persons engaged in transactions which are zero- Court of Tax Appeals.
rated, being subject to VAT, are required to
register while registration is option for VAT- a. BIR Issuances and rules
exempt persons. relevant thereto
F. Tax Credits
a. Transitional Input Tax Credits (Sec. 111(A), The power to issue regulations is
NIRC, as amended by RA 9337) expressly conferred in the Tax
 REVIEW NOTES FOR TAXATION 2
Code. Thus, the Secretary of
Finance, upon the
recommendation of the
Commissioner, shall promulgate
all needful rules and regulations
for the effective enforcement of
the provisions of the Tax Code.
(see Sec.244, NIRC). The rules
and regulations of the Bureau
shall contain, among others,
provisions specifying, prescribing
or defining the time and manner
of canvassing revenue regions,
form of labels, conditions to be
observed by revenue officers
respecting the institutions and
conduct of legal actions. (see
Sec.245, NIRC)
- the Bureau has the power to issue rules
and issuances as the case may be but
subject to the following rule:
SEC. 246. Non-Retroactivity of Rulings. -
Any revocation, modification or reversal of any of
the rules and regulations promulgated in
accordance with the preceding Sections or any of
the rulings or circulars promulgated by the
Commissioner shall not be given retroactive
application if the revocation, modification or
reversal will be prejudicial to the taxpayers,
except in the following cases:
(a) Where the taxpayer deliberately misstates or
omits material facts from his return or any
document required of him by the Bureau of
Internal Revenue;
(b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially
different from the facts on which the ruling is
based; or
(c) Where the taxpayer acted in bad faith.
2. Examination of Books of Accounts
(Sec. 5, NIRC)
- the Bureau has the power to examine
books of accounts of every person
(taxpayer) engaged in a business
a. however before a tax official
could inquire into said books of
accounts a letter of authority is
required.
b. What is “third-party verification
rule”?
- In ascertaining the correctness of any
return, or in making a return when none has
been made, or in determining the liability of
any person for any internal revenue tax, or in
collecting any such liability, or in evaluating
tax compliance, the Commissioner is
authorized to obtain on a regular basis from
any person other than the person whose
internal revenue tax liability is subject to
audit or investigation, or from any office or
officer of the national and local governments,
government agencies and instrumentalities,
including the Bangko Sentral ng Pilipinas and
government-owned or -controlled
corporations, any information such as, but
not limited to, costs and volume of
production, receipts or sales and gross
incomes of taxpayers, and the names,
addresses, and financial statements of
corporations, mutual fund companies,
insurance companies, regional operating
headquarters of multinational companies,
joint accounts, associations, joint ventures of
consortia and registered partnerships, and
their members;
c. Inquiry into bank deposits (Sec 6 {f}),
NIRC)
General Rule:
The Bureau of Internal Revenue has no
power to inquire into the bank deposits of a
person or taxpayer.
Exceptions:
Notwithstanding any contrary provision
of Republic Act No. 1405 and other general or
special laws, the Commissioner is hereby
authorized to inquire into the bank deposits of:
1) a decedent to determine his gross
estate; and
(2) any taxpayer who has filed an
application for compromise of his tax liability
under Sec. 204 (A) (2) of this Code by reason of
financial incapacity to pay his tax liability.
In case a taxpayer files an application to
compromise the payment of his tax liabilities on his claim
that his financial position demonstrates a clear inability to
pay the tax assessed, his application shall not be
considered unless and until he waives in writing his
privilege under Republic Act No. 1405 or under other
general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the bank
deposits of the taxpayer.
Such limited power of the Commissioner does not
conflict with R.A 1405 or the Secrecy of Bank Deposits Law
because the provisions of the Tax Code granting this power
are an exception to the said legislation.
If the bank has knowledge of the death of a
person, who maintained a bank deposit account either
alone or jointly with another, it shall not allow any
withdrawal from the said deposit account, unless the
Commissioner has certified that the transfer taxes imposed
thereon have been paid. However the administrator of the
estate or any one of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount
not exceeding twenty thousand pesos (P20, 000.00)
without the certification. For this purpose all withdrawal
slips shall contain a statement to the effect that all of the
joint depositors are still living at the time of withdrawal by
any one of the joint depositors and such statement shall be
under oath by the said depositors.
d. Summons persons, take testimony
In ascertaining the correctness of any return, or in
making a return when none has been made, or in
determining the liability of any person for any internal
revenue tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is
authorized:
1. To summon the person liable for tax or required
to file a return, or any officer or employee of such person,
or any person having possession, custody, or care of the
 REVIEW NOTES FOR TAXATION 2
books of accounts and other accounting records containing
entries relating to the business of the person liable for tax,
or any other person, to appear before the Commissioner or
his duly authorized representative at a time and place
specified in the summons and to produce such books,
papers, records, or other data, and to give testimony (Sec.5
{c}, NIRC)
2. To take such testimony of the person
concerned, under oath, as may be relevant or material to
such inquiry (Sec.5 {d}, NIRC)
- To summon the person liable for tax or
required to file a return, or any officer or employee of
such person, or any person having possession, custody, or
care of the books of accounts and other accounting records
containing entries relating to the business of the person
liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a
time and place specified in the summons and to produce
such books, papers, records, or other data, and to give
testimony.
3. Power to assess and prescribe requirements for
tax administration
a. Power to examine returns (Sec. 6
{a}, NIRC)
- After a return has been filed as
required under the provisions of this
Code, the Commissioner or his duly
authorized representative may authorize
the examination of any taxpayer and the
assessment of the correct amount of tax:
Provided, however; That failure to file a
return shall not prevent the
Commissioner from authorizing the
examination of any taxpayer.
Any return, statement of
declaration filed in any office authorized
to receive the same shall not be
withdrawn: Provided, That within three
(3) years from the date of such filing, the
same may be modified, changed, or
amended: Provided, further, That no
notice for audit or investigation of such
return, statement or declaration has in
the meantime been actually served upon
the taxpayer.
i. Amendment of Returns
When a report required by law as
a basis for the assessment of any national
internal revenue tax shall not be
forthcoming within the time fixed by laws
or rules and regulations or when there is
reason to believe that any such report is
false, incomplete or erroneous, the
Commissioner shall assess the proper tax
on the best evidence obtainable.
In case a person fails to file a
required return or other document at the
time prescribed by law, or willfully or
otherwise files a false or fraudulent
return or other document, the
Commissioner shall make or amend the
return from his own knowledge and
from such information as he can obtain
through testimony or otherwise, which
shall be prima facie correct and sufficient
for all legal purposes. (Sec. 6 {b}, NIRC)
ii. Rule on confidentiality of tax
returns and exceptions thereto
(Sec.71 and 270, NIRC)
- After the assessment shall have
been made, as provided in this Title, the
returns, together with any corrections
thereof which may have been made by the
Commissioner, shall be filed in the Office
of the Commissioner and shall constitute
public records and be open to inspection
as such upon the order of the President of
the Philippines, under rules and
regulations to be prescribed by the
Secretary of Finance, upon
recommendation of the Commissioner.
The Commissioner may, in each
year, cause to be prepared and published
in any newspaper the lists containing the
names and addresses of persons who
have filed income tax returns. (see Sec.71,
NIRC)
Any internal revenue officer who
is or shall become interested, directly or
indirectly, in the manufacture, sale or
importation of any article subject to
excise tax under Title VI of this Code or in
the manufacture or repair or sale, of any
die for printing, or making of stamps, or
labels shall upon conviction for each act
or omission, be punished by a fine of not
less than Five thousand pesos (P5,000)
but not more than Ten thousand pesos
(P10,000), or suffer imprisonment of not
less than two (2) years and one (1) day
but not more than four (4) years, or both.
(see Sec.270, NIRC)
b. Power to make a returns (Sec.6 {b},
NIRC)
What is “Best Evidence
Obtainable Rule”?
- In case a person fails to file a required
return or other document at the time
prescribed by law, or willfully or
otherwise files a false or fraudulent
return or other document, the
Commissioner shall make or amend the
return from his own knowledge and
from such information as he can obtain
through testimony or otherwise, which
shall be prima facie correct and
sufficient for all legal purposes.
c. Power to conduct inventory taking,
surveillance and to issue
presumptive gross sales/receipts
(see Sec.6 {c}, NIRC)
- The Commissioner may, at any time
during the taxable year, order inventory-taking of
goods of any taxpayer as a basis for determining
his internal revenue tax liabilities, or may place
the business operations of any person, natural or
juridical, under observation or surveillance if
there is reason to believe that such person is
not declaring his correct income, sales or receipts
for internal revenue tax purposes. The findings
may be used as the basis for assessing the taxes
 REVIEW NOTES FOR TAXATION 2
for the other months or quarters of the same or
different taxable years and such assessment shall
be deemed prima facie correct.
When it is found that a person has failed
to issue receipts and invoices in violation of the
requirements of Sections 113 and 237 of the Tax
Code, or when there is reason to believe that the
books of accounts or other records do not
correctly reflect the declarations made or to be
made in a return required to be filed under the
provisions of this Code, the Commissioner, after
taking into account the sales, receipts, income or
other taxable base of other persons engaged in
similar businesses under similar situations or
circumstances or after considering other relevant
information may prescribe a minimum amount of
such gross receipts, sales and taxable base, and
such amount so prescribed shall be prima facie
correct for purposes of determining the internal
revenue tax liabilities of such person.
d. Power to terminate tax period (see
Sec. 6 {d}), NIRC)
- When it shall come to the knowledge of
the Commissioner that a taxpayer is
retiring from business subject to tax, or
is intending to leave the Philippines or
to remove his property therefore or to
hide or conceal his property, or is
performing any act tending to obstruct
the proceedings for the collection of the
tax for the past or current quarter or
year or to render the same totally or
partly ineffective unless such
proceedings are begun immediately, the
Commissioner shall declare the tax
period of such taxpayer terminated at
any time and shall send the taxpayer a
notice of such decision, together with a
request for the immediate payment of
the tax for the period so declared
terminated and the tax for the preceding
year or quarter, or such portion thereof
as may be unpaid, and said taxes shall be
due and payable immediately and shall
be subject to all the penalties hereafter
prescribed, unless paid within the time
fixed in the demand made by the
Commissioner.
- the BIR has the power to terminate tax
period under the following instances:
 when the taxpayer conceals his
properties with the intention to
evade taxes
 when the taxpayer is leaving the
Philippines with the intention to
evade taxes
 when the taxpayer is obstructing
proceedings for the collection of
taxes
 when the taxpayer is removing
properties with the intention of
evading taxes
 when the taxpayer is retiring form
business
e. Power to fix real property values
(see Sec.6 {e}, NIRC)
- The Commissioner is authorized to divide
the Philippines into different zones or
areas and shall, upon consultation with
competent appraisers both from the
private and public sectors, determine the
fair market value of real properties
located in each zone or area. For purposes
of computing any internal revenue tax,
the value of the property shall be
whichever the higher is of:
(1) The fair market value as
determined by the Commissioner, or
(2) The fair market value as
shown in the schedule of values
of the Provincial and City
Assessors.
f. Power to accredit tax agents (see
Sec.6 {g}, NIRC)
- The Commissioner shall accredit and
register, based on their professional
competence, integrity and moral fitness,
individuals and general professional
partnerships and their representatives
who prepare and file tax returns,
statements, reports, protests, and other
papers with or who appear before, the
Bureau for taxpayers. Within one
hundred twenty (120) days from
January 1, 1998, the Commissioner shall
create national and regional
accreditation boards, the members of
which shall serve for three (3) years,
and shall designate from among the
senior officials of the Bureau, one (1)
chairman and two (2) members for each
board, subject to such rules and
regulations as the Secretary of Finance
shall promulgate upon the
recommendation of the Commissioner.
Individuals and general professional
partnerships and their representatives
who are denied accreditation by the
Commissioner and/or the national and
regional accreditation boards may
appeal such denial to the Secretary of
Finance, who shall rule on the appeal
within sixty (60) days from receipt of
such appeal. Failure of the Secretary of
Finance to rule on the Appeal within the
prescribed period shall be deemed as
approval of the application for
accreditation of the appellant.
g. Power to prescribe
procedural/documentary requirements
- the BIR has the power to prescribe the
manner of filing of a returns
h. Power to delegate (see Sec.7, NIRC)
- The Commissioner may delegate the
powers vested in him under the
pertinent provisions of the Tax Code to
any or such subordinate officials with
the rank equivalent to a division chief or
higher, subject to such limitations and
restrictions as may be imposed under
rules and regulations to be promulgated
by the Secretary of finance, upon
recommendation of the Commissioner:
Provided, however, That the following
powers of the Commissioner shall not be
delegated:
 REVIEW NOTES FOR TAXATION 2
(a) The power to recommend the
promulgation of rules and regulations by
the Secretary of Finance;
(b) The power to issue rulings of first
impression or to reverse, revoke or
modify any existing ruling of the Bureau;
(c) The power to compromise or abate,
under Sec. 204 (A) and (B) of this Code,
any tax liability: Provided, however, That
assessments issued by the regional offices
involving basic deficiency taxes of Five
hundred thousand pesos (P500,000) or
less, and minor criminal violations, as
may be determined by rules and
regulations to be promulgated by the
Secretary of finance, upon
recommendation of the Commissioner,
discovered by regional and district
officials, may be compromised by a
regional evaluation board which shall be
composed of the Regional Director as
Chairman, the Assistant Regional
Director, the heads of the Legal,
Assessment and Collection Divisions and
the Revenue District Officer having
jurisdiction over the taxpayer, as
members;
(d) The power to assign or reassign
internal revenue officers to
establishments where articles subject to
excise tax are produced or kept.
i. Non-delegable powers in relation to
Section 16 of NIRC
- the following are the powers which the
Bureau of Internal Revenue cannot
delegate:
a. the power to compromise
- as a general rule the power of the BIR to
compromise cannot be delegated to
other administrative agencies unless in
the following grounds:
1. a reasonable doubt as
to the validity of the
claim against the
taxpayer exists
2. financial inability to
pay
The compromise settlement of any tax liability
shall be subject to the following minimum
accounts:
a. For cases of financial inability to pay, a
minimum compromise rate equivalent to
ten per cent (10%) of the basic tax
assessed
b. For other cases, a minimum compromise
rate equivalent to forty percent (40%) of
the basic tax assessed.
Where the basic tax involved exceeds One million
pesos (P 1,000,000.00) or where the settlement
offered is less than the prescribed minimum rates,
the compromise shall be subject to the approval of
the Evaluation Board which shall be composed of
the Commissioner and the Deputy Commissioners.
All criminal violations may be compromised
except those
a. those already filed in court
b. those involving fraud (see
Sec. 204 {a}, NIRC)
The taxpayer’s offer to compromise shall
not be considered, unless and until he
waives in writing his privilege under RA
1405 or under other general or special
laws, and such waiver shall constitute the
authority of the Commissioner to inquire
into his bank deposits. (see Sec. 6 {f},
NIRC)
b. power to abate
The BIR may abate or cancel tax liability
when:
a. the tax or any portion
thereof appears to be
unjustly or excessively
assessed
b. the administration and
collection costs involved do
not justify the collection of
the amount due
The power to compromise or abate shall not be
delegated by the Commissioner, except in the
following cases;
a. assessments issued by the
regional offices involving
basic taxes of
P 500,000.00 or less
b. Minor criminal violations.
These cases may be
compromised by the regional
evaluation board. (see Sec.7,
NIRC)
i. Enforcement of police power (see
Sec.15, NIRC)
The Commissioner, the Deputy Commissioners,
the Revenue Regional Directors, the Revenue
District Officers and other internal revenue
officers shall have authority to make arrests and
seizures for the violation of any penal law, rule or
regulation administered by the Bureau of Internal
Revenue. Any person so arrested shall be
forthwith brought before a court, there to be dealt
with according to law.
j. Authority to Abate and Compromise
Tax Liabilities (see Sec.6 {f}{2}, 204 in
relation to Rev. Regs.30-2002 as
amended by RR No.8-2004)
SEC. 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit Taxes.
- The Commissioner may -
(A) Compromise the Payment of any Internal
Revenue Tax, when:
(1) A reasonable doubt as to the validity
of the claim against the taxpayer exists;
or
 REVIEW NOTES FOR TAXATION 2
(2) The financial position of the
taxpayer demonstrates a clear inability
to pay the assessed tax.
The compromise settlement of any tax
liability shall be subject to the following
minimum amounts:
 For cases of financial incapacity,
a minimum compromise rate
equivalent to ten percent (10%)
of the basic assessed tax; and
 For other cases, a minimum
compromise rate equivalent to
forty percent (40%) of the basic
assessed tax.
Where the basic tax involved exceeds One million pesos
(P1,000.000) or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall
be composed of the Commissioner and the four (4) Deputy
Commissioners.
(B) Abate or Cancel a Tax Liability, when:
(1) The tax or any portion thereof
appears to be unjustly or excessively
assessed; or
(2) The administration and collection
costs involved do not justify the
collection of the
amount due.
All criminal violations may be
compromised except: (a) those already
filed in court, or (b) those involving
fraud.
D. The rule on estoppel in relation to tax
administration
a. Against the government
The error made by a tax official in the assessment of his tax
liabilities does not have the effect of relieving the taxpayer
from the obligation to pay the full amount of his tax
liability, for taxes are fixed by law and the government is
never estopped to collect the legitimate taxes because of
the errors committed by its agents. However, like other
principles, the principle of estoppel also admits exceptions
in the interest of justice and fair play. The Commissioner
is precluded from adopting a position inconsistent with
one previously taken where in justice would result
therefore or where there has been a misrepresentation.
Any mistakes committed by the
agents of the sovereign, namely government officials and
employees are their own and cannot bind the government,
which cannot be placed on estoppel on account of the
mistakes of its agents.
b. Against the taxpayer
E. Assessments and its governing principles
a. Definition
The notice and demand for payment of a tax
liability should not be confused with assessment
relative to real property taxation which refers to
the listing and evaluation of taxable real property.
b. What constitutes an assessment
i. CIR v. Pascor Realty, 29 June 1999
Neither the NIRC nor the revenue regulations
governing the protest of assessments provide a
specific definition of form of an assessment
however the NIRC defines the specific function
and effects of an assessment:
 An assessment must be sent to and received by
a tax payer, and must demand payment of the
taxes described therein within a specific period.
 Issuance of an assessment is vital in
determining the period of limitation regarding
its proper issuance and the period within which
to protest.
 An assessment is deemed made only when the
collector of Internal Revenue releases or mails
or sends such notice to the tax payer.
 An assessment is not necessary before acriminal
charge can be filed.
 Before an assessment is issued, there is by
practice, a pre-assessment notice sent to the tax
payer.The tax Payer is then given a chance to
submit position papers and documents to prove
that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment
signed by him/her is then sent to the tax payer
informing the latter specifically and clearly that
an assessment has been made against him/her.
In contrast, the criminal charge need not go
through all this.
ii. CIR v. Reyes, G.R. No. 159694, January 27,
2006
Tax payers shall be informed in writing of the law
and the facts on which the assessment and the
assessment is made; otherwise the assessment
shall be void. (2nd paragraph of section 228 is clear
and mandatory)
c. Kinds of Assessment
d. Statute of Limitation on Assessment of Internal
Revenue Taxes (Sections 203, 222, NIRC)
General rule (sec203)
Internal revenue taxes shall be assessed within
three years after the last day prescribed for the
filing of the return, and no proceeding in court
without assessment for the collection of sluch
taxes shall begun after the expiration of such
period.
Exceptions (sec.222)
In the case of a false of fraudulent return with
intent to evade tax or of failure to file a return, the
tax collection may be filed without an assessment
at any time within ten years after the discovery of
the falsity, fraud or omission:
If before the expiration of the time prescribed in
the tax codes for the assessment of the tax, both
the commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax
may be assessed within the period agreed upon.
i. RMO 20-90, Philippine Journalist Inc., v. CIR,
G.R. No. 162852, 16 December 2004
Appellate Jurisdiction of the CTA is not limited to
cases which involve decisions of the CIR on
matters relating to assessments or refunds. The
second part of the provision covers other cases
that arise out of the NIRC or related laws and
administered by the BIR. The wording of the
provision is clear and simple. It gives the CTA the
Jurisdiction to determine if the warrant of
 REVIEW NOTES FOR TAXATION 2
distraint and levy issued by the BIR is valid and to
rule if the waiver of stature of limitations was
validly effected.
A waiver of the statute of limitations under the
NIRC, to a certain extent, is a derogation of the
taxpayer’s right to security against prolonged and
unscrupulous investigations and must therefore
be carefully and strictly construed. The waiver of
the statute of limitations is not a waiver of the
right to invoke the defense of prescription as
erroneously held by the CA. It is an agreement
between the taxpayer and the BIR that the period
to issue an assessment and collect the taxes due id
extended to a date certain.
The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription
unequivocally particularly where the language of
the document is equivocal. For the purpose of
safeguarding taxpayers from any unreasonable
examination, investigation or assessment, out tax
law provides a statute of limitation in collection of
taxes. Thus the law on prescription, being a
remedial measure should be liberally construed in
order to afford such protection/
ii. CIR v. CA and Carnation, G. R. No. 115712, 25
February 1999
Finality of findings of facts as a matter of principle,
this court will not set aside the conclusion reached
by an agency such as the CTA unless there has
been an abuse or improvident exercise of
authority. By the very nature of its function,
dedicated exclusively to the study and
consideration of tax problems and has necessarily
developed an expertise of the subject.
e. Instances where the running of the prescriptive
period is suspended (section 223)
i. Republic v. Hizon, 13 December 1999
Sec. 229 of the code mandates that a request for
reconsideration must be made within thirty (30)
days from the tax payer’s receipt of tax deficiency
assessment, otherwise the assessment becomes
final, unappealable and, therefore, demandable.
The notice of assessment for respondent’s tax
deficiency was issued by petitioner on July 18,
1986. On the other hand, respondent made her
request for reconsideration thereof only on
November 3. 1992, without stating when she
received the notice of tax assessment. She
explained that she was constrained to ask for a
reconsideration in order to avoid the harrrasment
of BIR collectors. In all likelihood, she must have
been referring to the distraint and levy of her
properties by petitioner’s agents which took place
of January 12, 1989. Even assuming that she first
learned of the deficiency assessment on this date
her request for reconsideration was nonetheless
filed late since she made it more than 30 days
thereafter. Hence, her request for reconsideration
did not suspend the running for the prescriptive
period provided under section 223. Although the
commissioner acted on her request by eventually
denying it on August 11, 1994, this is of no
moment and does not distract from the fact that
the assessment had become demandable
ii. BPI v. CIR, G.R. No. 139736, 17 October 2005
The court had consistently ruled in a number of
cases that a request for reconsideration by the tax
payer without a valid waiver of the prescriptive
period for the assessment and collection of tax, as
required by the tax code and implementing rules,
will not suspend the running thereof. (Exception:
section 224)
Wherein the statute of limitations on assessment
and collection of taxes is considered suspended,
when the tax payer request for a reinvestigation
which is granted by the commissioner.
f. Procedure in the process of assessment (Section
228)
i. Estate of the Late Juliana Diez Vda. De
Gabriel v. CIR, G.R. No. 155541, January 27, 2004
The rule that an assessment is deemed made for
the purpose of giving effect to such assessment
when the notice is released, mailed or sent to the
taxpayer to effectuate the assessment requires
that the notice must be sent to the taxpayer, and
not merely to a disinterested party. Although
there is no specific requirement that the taxpayer
should receive that notice within the said period,
due process requires at the very least that such
notice actually be received.
When an estate is under administration, notice
must be sent to the administrator of the estate.
ii. CIR v. Reyes, G.R. No. 159694, January 27,
2006
The tax payers shall be informed in writing of the
law and facts on which the assessment is made
otherwise the assessment itself is void.
iii. CIR v. BPI, G.R. No. 134062, 17, April 2007
The inevitable conclusion is that BPI’s failure to
protest the assessments within the 30-day period
provided in the former section 270 meant that
they became final and unappealable. Thus, the
CTA correctly dismissed BPI’s appeal for lack of
jurisdiction. BPI was, from then on barred from
disputing the correctness of the assessments or
invoking any defense that would reopen the
question of its liability on the merits. Not only
that. There arose a presumption of correctness
when BPI failed to protest the assessments: Tax
assessments by tax examiners are presumed
correct and made in good faith. The taxpayer has
the duty to prove otherwise. In the absence of
proof of any irregularities in the performance of
duties, an assessment duly made by a BIR
examiner and approved by his superior offices
will not be disturbed. All presumptions are in
favor of the correctness of tax assessments.
iv. PNOC v. Court of Appeals, G.R. No., 109976,
April 26, 2005
The defense of prescription of the period for the
assessment and collection of tax liabilities shall be
deemed waived when such defense was not
properly pleaded and the facts alleged and
evidenced submitted by the parties were not
sufficient to support a finding by the supreme
court on the matter – prescription, being a matter
of defense, imposes the burden on the taxpayer to
prove that the full period of the limitation has
expired, and this requires him to positively
establish the date when the period started
running and when the same was fully
accomplished.
 REVIEW NOTES FOR TAXATION 2
g. Instances when pre-assessment is not required
(Section 228)
A preassessment notice shall not be required in
the following cases:
 When any tax deficiency is the result of
mathematical error in the computation of
the tax as appearing on the face of the
return.
 When a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent.
 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.
 When the excise tax due on exciseable
articles has not been paid.
 When the article locally purchased or
imported by an exempt person has been
sold, traded, or transferred to non-exempt
persons.
h. Governing principles concerning assessment
Injunction is not available to restrain the
collection of internal revenue taxes.
Exception: the Court of Appeals may issue
injunctions against administrative collection,
when collection could jeopardize the interest of
the Government or taxpayer.
i. When do we reckon the period when the
assessment was made?
Internal revenue taxes shall be assessed within
three years after the last day prescribed by law for
the filing of the return.
In case where a return is filed beyond the three
year period shall be counted form the day the
return was filed.
j. Is assessment necessary before a taxpayer could
be prosecuted for violation of the NIRC?
i. Ungab v. Cusi, May 30, 1980
What is involved here is not collection of taxes
where the assessment of the commissioner of
internal revenue may be reviewed by the court of
tax appeals, but a criminal prosecution for
violations of the NIRC which is within the
recognizance of the CFI. While there can be no
civil action to enforce collection before the
assessment procedures provided in the code have
been followed, there is no requirement for the
precise computation and assessment of the tax
before there can be a criminal prosecution under
the code.
ii. CIR v. CA, G.R. No. 119322, 4 June 1996
Reading Ungab carefully, the pronouncement
therein that deficiency assessment is not
necessary prior to prosecution is pointedly and
deliberately qualified by the Court with following
statement quoted form Guzik v. U. S.: “the crime is
complete when the violator has knowingly and
willfully filed a fraudulent return with intent to
evade and defeat a part or all of the tax.” In plain
words, for criminal prosecution to proceed before
assessment, there must be a prima facie showing
of willful attempt to evade taxes. There was willful
attempt to evade tax in Ungab because of the
taxpayer’s failure to declare in his income tax
return “his income derived from banana saplings.”
In the mind of the trial court and the Court of
Appeals, Fortune’s situation is quite apart
factually since the registered wholesale price of
the goods. Approved by the BIR, is presumed to be
the actual wholesale price, therefore, not
fraudulent and unless and until the BIR has made
a final determination of what is supposed to be
the correct taxes, the taxpayer should not be
placed in the crucible of criminal prosecution.
Herein lies a whale of difference between Ungab
and the case at bar.
iii. CIR v. Pascor Realty, 29 June 1999
The issuance of an assessment is vital in
determining the period of limitation regarding its
proper issuance and the period within which to
protest it. Section 203 of NIRC provides that
internal revenue taxes must be assessed within
three years from the last day within which to file
the return. Section 222, on the other hand,
specifies a period of ten years in case a fraudulent
return with intent to evade was submitted or in
case of failure to file a return. Also, Section 228 of
the same law states that said assessment may be
protested only within thirty days from receipt
thereof. Necessarily, the taxpayer must be certain
that a specific document constitutes an
assessment. Otherwise, confusion would arise
regarding the period within which t make an
assessment or to protest the same, or whether
interest and penalty may accrue thereon.
k. Are the procedures outlined in Section 228 of the
NIRC retroactive?
i. CIR v. Reyes, G.R. No. 159694, January 27,
2006
The general rule is that statutes are prospective.
However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall
under the general rule against the retroactive
operation of statutes. Clearly, Section 228
provides for the procedure in case an assessment
is protested. The provision does not create new or
take away vested rights. In both instances, it can
surely be applied retroactively. Moreover, RA
8424 does not state, either expressly or by
necessary implication, that pending actions are
excepted from the operation of section 228, or
that applying it to pending proceedings would
impair vested rights.
INTERNAL REVENUE TAX REMEDIES
Tax Remedies: Its general concepts
Importance: They exist to enhance the
Government’s tax collection efforts, they, too, come in as
safeguards against arbitrary action. While taxes are the
lifeblood of the Government and should be collected
without unnecessary hindrance, such collection must
nevertheless be made in accordance with law as any
arbitrariness will negate the very reason or the
Government itself.
Classification:
1. Remedies in favor of the taxpayer
 REVIEW NOTES FOR TAXATION 2
A. Administrative
(1) Before Payment
a. Filing of a petition or request for
reconsideration or reinvestigation
(Administrative Protest);
b. Entering into compromise
(2) After Payment
a. Filing of claim for tax refund; and
b. Filing of claim for tax credit
B. Judicial
(1) Civil action
a. Appeal to the Court of Tax Appeals
b. Action to contest forfeiture of chattel;
and
c. Action for Damages
(2) Criminal Action
Filing of complaint against erring Bureau
of Internal Revenue officials and
employees
2. Remedies available to the government
Applicability of the Doctrine Exhaustion of
Administrative Remedies
- No civil or criminal action for the
recovery of taxes shall be filed in court
without the approval of the
Commissioner. (Sec. 220, NIRC)
Remedies Available to Taxpayers
A. Before Payment
1. Protest (Section 228, NIRC)
Protest is a vital document which is a
formal declaration of resistance of the taxpayer. It
is a repository of all arguments. It can be used in
court in case administrative remedies have been
exhausted. It is also the formal act of the taxpayer
questioning the official actuation of the CIR. This is
equivalent to a pleading. It may be a:
Request for reconsideration- a plea for
the re-evaluation of an assessment on the basis of
existing records without need of additional
evidence. It may involve a question of fact or law
or both.
Request for reinvestigation- a plea for
reinvestigation of an assessment on the basis of
newly-discovered or additional evidence that a
taxpayer intends to present in the reinvestigation.
It may also involve question of fact or law or both.
Requirements of a valid protest
1. In writing;
2. Addressed to the CIR;
3. Must be accompanied by a waiver of the Statute
of Limitations in favor of the government;
4. States the Facts, applicable law rules and
regulations and jurisprudence on which his
protest is based; otherwise, his protest shall be
considered void and without force and effect on
the event the letter of protest submitted by the
taxpayer is accepted;
5. Contains the following:
1. Name of the taxpayer and address for the
immediate past three taxable years;
2. Nature of request whether reinvestigation
or reconsideration specifying newly
discovered evidence that he intends to
present it is a request for reinvestigation;
3. Taxable periods covered by the assessment;
4. Amounts and kind/s of tax involved, and
Assessment Notice Number;
5. Date of receipt of assessment notice or letter of
demand;
6. Itemized statement of the findings to which the
taxpayer agrees, if any, as a basis for computing the
tax due, which amount should be paid immediately
upon the filing of the protest. For this purpose, the
protest shall not be deemed validly filed unless
payment of the agreed portion of the tax is paid first;
7. Itemized schedule of the adjustments with which the
taxpayer does not agree;
8. Statement of facts and/or law in support of the
protest; and
9. Documentary evidence as it may deem necessary
and relevant to support its protest to be submitted
within sixty (60) days from the filing of the protest.
If the taxpayer fails to comply with this requirement,
the assessment shall become final. (Revenue
Regulation No. 12-85, dated Nov. 27, 1985.)
Effect of a protest on the period to collect deficiency taxes:
The prescriptive period is arrested by the taxpayer's
request for re-examination or reinvestigation even if he
has not previously waived it (CIR vs. Wyeth, G.R. No.
76281,Sep 30, 1991)
Failure of the BIR to act within the 180-day period.
If the Commissioner or his duly authorized representative
fails to act on the taxpayer’s protest within 180 days from
the date of submission by the taxpayer of the required
documents in support of his protest, the taxpayer may
appeal to the CA within 30 days from the lapse of the 180-
day period.
Administrative actions taken during the 180-day
period.
1. Grant of the Protest
2. Denial of Protest:
A. Direct Denial
The decision of the Commissioner or his duly rep shall (a)
state the facts, applicable law, rules and regulations or
jurisprudence on which his protest is based, otherwise the
protest shall be considered void and without force and
effect, in which case the same shall not be considered a
decision a disputed assessment and (b) that the same is his
final decision. (sec. 3.1.5, RR 12-99)
B.Indirect Denial
a. Commissioner did not rule on the taxpayer’s MR of the
assessment – it was only when respondent received
summons on the civil action for the collection of deficiency
income tax that the period to appeal commenced to run.
(CIR vs. Union Shipping
b. Referral by the Commissioner of request for
reinvestigation to the Solicitor General (Republic vs.Lim
Tian Teng Sons)
c. Reiterating the demand for immediate payment of the
deficiency tax due to taxpayer’s continued refusal to
execute waiver (CIR vs. Ayala Securities Corp.)
d. Preliminary collection letter may serve as assessment
notice (United Int’l Pictures vs. CIR)
Acts of BIR Commissioner Considered as Denial of
Protest which serves as a Basis for Appeal to CTA:
1. Filing by the BIR of a civil suit for collection of
the deficiency tax (CIR v. Union Shipping Corp . 185 SCRA
547)
 REVIEW NOTES FOR TAXATION 2
2. Indication to the taxpayer by the Commissioner
in clear and unequivocal language of his final denial. (CIR v.
Union Shipping Corp)
3. BIR demand letter reiterating his previous
demand to pay, sent to taxpayer after his protest of the
assessment (Surigao Electric Co. Inc. v. CTA, 57 SCRA 523)
4. The actual issuance of a warrant of distraint and
levy in certain cases cannot be considered as final decision
on a disputed settlement (CIR v. Union Shipping Corp)
b. Effect of protest filed out of time
The pendency of the taxpayer's appeal in the Court of Tax
Appeals and in the Supreme Court had the effect of
temporarily staying the hands of the said Commissioner. If
the taxpayer's stand that the pendency of the appeal did
not stop the running of the period because the Court of Tax
Appeals did not have jurisdiction over the case of taxes is
upheld, taxpayers would be encouraged to delay the
payment of taxes in the hope of ultimately avoiding the
same. Under the circumstances, the running of the
prescriptive period was suspended. Deficiency Percentage
Taxes must be imposed.(PROTECTOR'S SERVICES, INC.,
petitioner, vs. CA, G.R. No. 118176, 2000 Apr 12)
Remedies from a denial of protest
1. Motion for reconsideration
2. Appeal to the Court of Tax Appeals(RA 1125, as
amended by RA 9282)
2. Compromise
B. After Payment
1. Refund (Section 229, NIRC)
The Legal Principle of quasi-contracts or solutio
indebiti (see Art. 2142 & 2154 of the Civil Code). The
Government is within the scope of the principle of solutio
indebiti. (CIR vs. Fireman’s Fund Insurance Co.)
a. Must be strictly construed against taxpayer
Grounds for filing a claim for refund:
Erroneously or illegally assessed or collected internal
revenue taxes;
Taxpayer pays under the mistake of fact, as for instance in
a case where he is not aware of the existing exemption in
his favor at the time payments were made.
A tax is illegally collected if payments are made under
duress.
1.Penalties imposed without authority; and
2.Any sum alleged to have been excessive or in any manner
wrongfully collected.
The value of internal revenue stamps when they are
returned in good condition by the purchaser may also be
redeemed.
b. Period within which to file a claim for refund
1.General Rule is two years from the date of payment
The two-year prescriptive period provided in Section 292
(now Section 230 of the Tax Code should be computed
from the time of filing the Adjustment Return or Annual
Income Tax Return and final payment of income tax.(CIR
vs. TMX SALES, G.R. No. 83736, 1992 Jan 15,)
The rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim
for refund from the time it filed its final adjustment return
is the fact that it was only then that ACCRAIN could
ascertain whether it made profits or incurred losses in its
business operations. The "date of payment", therefore, in
ACCRAIN's case was when its tax liability, if any, fell due
upon its filing of its final adjustment return. (ACCRA vs CA,
G.R. No. 96322, 1991 Dec 20)
The two-year period for prescription should be counted from
the date of payment of the tax, which for actions for refund
of corporate income tax should be computed from the time
of actual filing of the adjustment return or annual income
tax return. This is so because at that point, it can already be
determined whether there has been an overpayment by
the taxpayer. Moreover, under Sec. 49 (a) by the NIRC
(now Sec. 56(a), 1997 NIRC), payment is made at the time
the return is filed. (CIR V CA, CTA, BPI, GR No. 117254.
January 21, 1999)
There is some likelihood that the above rule could apply
also to individuals who are self employed (i.e., in business
and professional practice) as well as estates and trusts,
which are likewise required to file quarterly returns.
The prescriptive period of two years should commence to
run only from the time that the refund is ascertained, which
can only be determined after a final adjustment return is
accomplished.(CIR V PHILAMLIFE, 244 SCRA 446. May 29,
1995)
2. In case of Amended Returns
3. In case of taxpayers contemplating dissolution
c. Who has the personality to file a claim for refund?
The duty of the withholding agent to withhold the
corresponding tax arises at the time of such accrual. The
withholding agent/corporation is then obliged to remit the
tax to the Government since it already and properly belongs
to the Government. If a withholding agent who is personally
liable for income tax withheld at source fails to pay said
withholding tax, an assessment for said deficiency
withholding tax would, therefore, be legal and proper.
(FILIPINAS SYNTHETIC FIBER CORP. V CA, GR No.113347.
June 14, 1996)
d. Is setting-off of taxes against a pending claim for refund
allowed?
e. Is automatic application of excess tax credits allowed?
f. Effect of existing tax liability on a pending claim for refund
g. Period of validity of a tax refund/credit
1. Returns are not actionable documents for purposes of the
rules on civil procedure and evidence
h. Refund and Protest are mutually exclusive remedies
i. Is the taxpayer entitled to claim interest on the
refunded tax?
General Rule: The Government cannot be required to pay
interest on taxes refunded to the taxpayer, unless:
1. The Commissioner acted with patent arbitrariness
Arbitrariness presupposes inexcusable or obstinate
disregard of legal provisions. (CIR vs. Victorias Milling
Corp., Inc. L-19607, Nov. 29, 1966.)
2. In case of Income Tax withheld on the wages of
employees
Any excess of the taxes withheld over the tax due from the
taxpayer shall be returned or credited within 3 months
from the fifteenth (15th) day of April. Refund or credit after
such time earn interest at the rate of 6% per annum,
starting after the lapse of the 3-month period to the date
the refund or credit is made (Sec 79 (c) (2) 1997 NIRC
b. Other Remedies
 REVIEW NOTES FOR TAXATION 2
1. Action to Contest Forfeiture of Chattel (Sec.
231)
In case of seizure of personal property under claim for
forfeiture, the owner desiring to contest the validity of the
forfeiture may bring an action:
a. Before sale or destruction of the property
to recover the property from the person seizing the
property or in possession thereof upon filing of the proper
bond to enjoin the sale.
b. After the sale and within 6 months to
recover the net proceeds realized at the sale (see. Sec. 231,
1997 NIRC)
Action partakes the nature of an ordinary civil action for
recovery of personal property or the net proceeds of its
sale which must be brought in the ordinary courts and not
the CTA
2. Redemption of Property Sold (Sec. 214)
Remedies available to the Government
A. No Injunction to restrain collection of
taxes ( Sec. 218, NIRC)
G.R. No Court shall have the authority to grant an
injunction to restrain the collection of any national
internal revenue tax, fee, or charge imposed by the
NIRC.
EXC: CTA may enjoin the collection of Internal
Revenue taxes.
REQUISITES:
1. there is a pending case before the CTA
(ancillary remedy, not a main cause of action)
2. identify that the collection of tax is
prejudicial to the interest of either the TP or
government.
B. Period within which the government could collect
( Secs. 203, 222, NIRC)
Assessment of Tax Liability
 Three (3)years from the following,
whichever comes later:
1. The last day prescribed by law for
filing the return
2. The day when the return was actually
filed
 Ten (10) years after the discovery of the
falsity, fraud or omission in case of:
1. False or fraudulent return with intent
to evade tax, or
2. Failure to file a return
 Within the period agreed upon, when
both the TP and the Commissioner have
agreed in writing, before the expiration of
the period in Sec. 203 for the assessment
of the tax.
CASES:
REPUBLIC V. HIZON, DEC. 13, 1999
 Revenue Adm. Order No. 10-95
specifically authorizes the Litigation and
Prosecution section of the Legal Division
of regional district offices to institute the
necessary civil and criminal actions for
tax collection. As the complaint filed in
this case was signed by the BIR’s Chief of
Legal Division for Region 4 and verified
by the Regional Director, there was,
therefore, compliance with the law.
 Sec. 7 of NIRC, authorizes the BIR
Commissioner to delegate the powers
vested in him under the pertinent
provision of the Code to any subordinate
official with the rank equivalent to a
division chief or higher.
CIR V. JAVIER, JULY 31, 1991
 There was no actual intentional fraud in
filing the return. Private respondent’s
notation on the tax return was at most an
error or mistake of fact or law not
constituting fraud, an invitation for
investigation and private respondent had
literally” laid his cards on the table.
PNOC V. CA, APRIL 26, 2005
C. OVERVIEW OF REMEDIES (SECTION 205)
1. Tax Lien (Sec 219, NIRC)
 When a taxpayer neglects or refuses to
pay his internal revenue tax liability after
demand, the amount so demanded shall
be a lien in favor of the government from
the time the assessment was made by the
Commissioner until paid with interest,
penalties, and costs that may secure in
addition thereto, upon all property and
rights to property belonging to the
taxpayer.
 Lien shall not be valid against any
mortgagee, purchaser or judgment
creditor until notice of such lien shall be
filed by the Commissioner in the Register
of Deeds of the province or city where the
property of the taxpayer is located.
 A tax lien created in favor of the
government is superior to all other claims
and preferences, even to that of a private
litigant predicated on a court judgment.
Extinguishment of Tax Lien
1. Payment or remission of the tax
2. Prescription of the right of the government to
assess or collect.
3. Failure to file notice of such lien in the office of
register of Deeds, purchases or judgment creditor.
4. Destruction of the property subject to the lien.
NOTE: In Nos. 1 and 2, there is no more tax liability while
under nos. 3 and 4, the taxpayer is still liable.
CASE: CIR V. NLRC, NOV. 09, 1994
 A tax lien created in favor of the
government is superior to all other claims
and preferences, even to that of a private
litigant predicated on a court judgment.
The tax lien attaches not only from the
service of the warrant of distraint of
personal property but from the time the
tax became due and payable.
2. Compromise
 CIR may compromise both civil and
criminal liability of the taxpayer.
REQUISITES:
1. The taxpayer have a tax liability
2. There must be an offer by the
taxpayer of an amount to be paid by
the taxpayer
3. There must be an acceptance by the
Commissioner or the taxpayer as the
case may be of the offer in the
settlement of the original claim
 REVIEW NOTES FOR TAXATION 2

Grounds for compromise Effect: Transfer the title to the specific thing from the
1. A reasonable doubt as to the validity of owner to the government.
the claim against the taxpayer exists; or
2. The financial position of the taxpayer When available:
demonstrates a clear inability to pay the a. No bidder for the real property exposed
assessed tax for sale.
b. If highest bid is for an amount insufficient
to pay the taxes, penalties and costs.
Cases that may be compromised With in two days thereafter, a return of the
proceeding is duly made.
1. Delinquent accounts
2. Cases under administrative protest How enforced:
3. Cases disputed before the courts a. In case of personal property – by seizure
4. Cases for collection already filed in courts and sale or destruction of the specific
5. Criminal violations except those already filed, and forfeited property.
those involving fraud. b. In case of real property – by a judgment of
condemnation and sale in a legal action or
Cases that cannot be compromised proceeding, civil or criminal, as the case
may require.
1. Withholding tax cases
2. Criminal tax fraud cases When forfeited property to be destroyed or sold:
3. Criminal cases already filed in court a. To be destroyed – by order of the CIR
4. Delinquent accounts with duly approved schedule when the sale for consumption or use of
of installment payments the following would be injurious to the
5. Cases where reduction of payments had already public health or prejudicial to the
been granted. enforcement of the law: (at least 20 days
6. cases already decided and are final and executory after seizure)
1. distilled spirits
2. liquors
Compromise of criminal violation 3. cigars
4. cigarettes, and other
 In criminal violations, the compromise manufactured products of
 must be made prior to the filing of the information tobacco
in court. 5. playing cards
 All criminal violations may be compromised 6. All apparatus used in or about
except: the illicit production of such
articles.
1. those already filed in court; and b. To be sold or destroyed – depends upon
2. those involved in fraud. the discretion of CIR
1. All other articles subject to
Limitations: exercise tax, (wine, automobile,
1. Minimum compromise rate: mineral products, manufactured
a. 10% of the basic tax assessed – in case of oils, miscellaneous products,
financial incapacity. non-essential items a petroleum
b. 40% of basic tax assessed – other cases. products) manufactured or
2. Subject to approval of the Evaluation Board removed in violation of the Tax
a. When basic tax involved exceeds Code.
P1,000,000.00 or 2. Dies for printing or making IR
b. Where settlement offered is less than the stamps, labels and tags, in
prescribed minimum rates. imitation of or purport to be
lawful stamps, labels or tags.
Delegation of Power to Compromise
General Rule: The power to compromise or abate shall Where to be sold:
not be delegated by the commissioner. a. Public sale: provided, there is notice given
Exception: The Regional Evaluation Board may not less than 20 days.
compromise the assessment issued by the regional offices b. Private sale: provided, it is with the
involving basic taxes of P 500,000.00 or less. approval of the Secretary of Finance.
Remedy in case of failure to comply:
The CIR may either: Right of Redemption:
a. Enforce the compromise, or a. Personal entitled – taxpayer or anyone for
b. Regard it as rescinded and insists upon the original him
demand. b. Time to redeem – within one (1) year
from forfeiture
3. Distraint and/or Levy c. Amount to be paid – full amount of the
4. Civil Action taxes and penalties, plus interest and cost
5. Criminal Action of the sale
6. Forfeiture d. To whom paid – Commissioner or the
 Implies a divestiture of property Revenue Collection Officer
without compensation, in consequence e. Effect of failure to redeem – forfeiture
shall become absolute.
of a default or offense.
NOTE:
 It includes the idea of not only losing but
The Register of Deeds is duty bound to transfer
also having the property transferred to the title of property forfeited to the government
another with out the consent of the with out necessity of an order from a competent
owner and wrongdoer. court.
 REVIEW NOTES FOR TAXATION 2
7. Suspension of Business Operations
8. Enforcement of Administrative Fines
D. ADMINISTRATIVE REMEDIES IN DETAIL (SECS.
206-217, NIRC)
A. DISTRAINT - Seizure by the government of
personal property, tangible or intangible, to enforce the
payment of faces, to be followed by its public sale, if the
taxes are not voluntarily paid.
KINDS
a. Actual – There is taking of possession of personal
property out of the taxpayer into that of the government.
In case of intangible property, taxpayer is also diverted of
the power of control over the property.
b. Constructive – The owner is merely prohibited from
disposing of his personal property.
Difference between Actual and Constructive Distraint
Actual Constructive
Made on the property only of May be made on the
a delinquent taxpayer. property of any taxpayer
whether delinquent or not
There is actual taking or Taxpayer is merely
possession of the property. prohibited from disposing
of his property.
Effected by having a list of Effected by requiring the
the distraint property or by taxpayer to sign a receipt
service or warrant of of the property or by
distraint or garnishment. leaving a list of same
An immediate step for Such immediate step is not
collection of taxes where necessary; tax due may not
amount due is definite. be definite or it is being
questioned.
Requisites:
1. Taxpayer is delinquent in the payment of tax.
2. Subsequent demand for its payment.
3. Taxpayer must fail to pay delinquent tax at time
required.
4. Period with in to assess or collect has not yet
prescribed.
When remedy not available:
Where amount involved does not exceed P100.
In keeping with the provision on the abatement of
the collection of tax as the cost of same might even be
more than P100.
Procedure:
1. Service of warrant of distraint upon taxpayer or
upon person in possession of taxpayer’s personal
property.
2. Posting of notice is not less than two places in the
municipality or city and notice to the taxpayer
specifying time and place of sale and the articles
distrained.
3. Sale at public auction to highest bidder
4. Disposition of proceeds of the sale.
Who may effect distraint Amount Involved
1. Commissioner or his duly In excess of
authorized representative P1,000,000.00
2. Revenue District Officer P1,000,000.00 or
(RDO) less
How Actual Distraint Effected
1. In case of Tangible Property:
a. Copy of an account of the property
distrained, signed by the officer, left
either with the owner or person from
whom property was taken, at the dwelling
or place of business and with someone of
suitable age and discretion
b. Statement of the sum demanded.
c. Time and place of sale.
2. In case of intangible property:
a. Stocks and other securities
Serving a copy of the warrant
upon taxpayer and upon president,
manager, treasurer or other responsible
officer of the issuing corporation,
company or association.
b. Debts and credits
1. Leaving a copy of the warrant with
the person owing the debts or having
in his possession such credits or his
agent.
2. Warrant shall be sufficient authority
for such person to pay CIR his credits
or debts.
c. Bank Accounts – garnishment
1. Serve warrant upon taxpayer and
president, manager, treasurer or
responsible officer of the bank.
2. Bank shall turn over to CIR so much
of the bank accounts as may be
sufficient.
How constructive Distraint Effected
1. Require taxpayer or person in possession to:
- Sign a receipt covering property
distrained
- Obligate him to preserve the same
properties.
- Prohibit him from disposing the property
from disposing the property in any
manner, with out the authority of the CIR.
2. Where Taxpayer or person in possession refuses
to sign:
- Officer shall prepare list of the property
distrained.
- In the presence of two witnesses of
sufficient age and discretion, leave a copy
in the premises where property is located.
Grounds of Constructive Distraint
1. Taxpayer is retiring from any business subject to
tax.
2. Taxpayer is intending to leave the Philippines; or
3. To remove his property there from.
4. Taxpayer hides or conceals his property.
5. Taxpayer acts tending to obstruct collection
proceedings.
NOTE:
1. Bank accounts may be distrained without
violating the confidential nature of bank accounts
for no inquiry is made. BIR simply seizes so much
of the deposit with out having to know how much
the deposits are or where the money or any part
of it came from.
2. If at any time prior to the consummation of the
sale, all proper charges are paid to the officer
conducting the same, the goods distrained shall be
restored to the owner.
3. When the amount of the bid for the property
under distraint is not equal to the amount of the
tax or is very much less than the actual market
value of articles, the CIR or his deputy may
purchase the distrained property on behalf of the
national government.
 REVIEW NOTES FOR TAXATION 2
B. LEVY OF REAL PROPERTY - an act of seizure
of real property in order to enforce the payment of taxes.
The property may be sold at public sale, if after seizure the
taxes are not voluntarily paid.
NOTE: The requisites are the same as that of
distraint.
Procedure:
1. International Revenue officer shall prepare a duly
authenticated certificate showing
a. Name of taxpayer
b. Amount of tax and
c. Penalty due.
- enforceable throughout the Philippines
2. Officer shall write upon the certificate a
description of the property upon which levy is
made.
3. Service of written notice to:
a. The taxpayer, and
b. RD where property is located.
4. Advertisement of the time and place of sale.
5. Sale at public auction to the highest bidder.
6. Disposition of proceeds of sale.
NOTE: The excess shall be turned over to owner.
Redemption of property sold or forfeited
a. Person entitled: Taxpayer or anyone for him
b. Time to redeem: one year from date of sale or
forfeiture
- Begins from registration of the deed of sale or
declaration of forfeiture.
- Cannot be extended by the courts.
c. Possession pending redemption: owner not
deprived of possession
d. Price: Amount of taxes, penalties and interest
thereon from date of delinquency to the date of
sale together with interest on said purchase price
at 15% per annum from date of purchase to date
of redemption.
Difference between Distraint and Levy
Distraint Levy
personal property real property
forfeiture by government, forfeiture by government
not provided authorized where there is
no bidder or the highest bid
is not sufficient to pay the
taxes, penalties and costs.
Taxpayer no given the right Taxpayer can redeem
of redemption properties levied upon and
sold/forfeited to the
government.
1. Both are summary remedies for collection of
taxes.
2. Both cannot be availed of where amount involved
is not more than P100.
NOTE:
1. It is the duty of the Register of Deeds concerned
upon registration of the declaration of forfeiture,
to transfer the title to the property with out of an
order from a competent court
2. The remedy of distraint or levy may be repeated if
necessary until the full amount, including all
expenses, is collected.
C. GARNISHMENT
Bank Accounts – garnishment
1. Serve warrant upon taxpayer and president, manager,
treasurer or responsible officer of the bank.
2. Bank shall turn over to CIR so much of the bank
accounts as may be sufficient.
E. JUDICIAL REMEDIES IN DETAIL (SEC 220, NIRC)
1. Period within which the action may be filed
Civil and Criminal Actions:
1. Brought in the name of the Government of
the Philippines.
2. Conducted by Legal Officer of BIR
3. Must be with the approval of the CIR, in
case of action, for recovery of taxes, or
enforcement of a fine, penalty or
forfeiture.
A. CIVIL CASES (SECS 203,222,NIRC)
 Three (3)years from the following,
whichever comes later:
3. The last day prescribed by law for
filing the return
4. The day when the return was actually
filed
 Ten (10) years after the discovery of the
falsity, fraud or omission in case of:
3. False or fraudulent return with intent
to evade tax, or
4. Failure to file a return
 Within the period agreed upon, when
both the TP and the Commissioner have
agreed in writing, before the expiration of
the period in Sec. 203 for the assessment
of the tax.
Where to File
1) Court of Tax Appeals- where the principal amount of
taxes and fees exclusive of charges and penalties claimed is
one million pesos and above
2) RTC, Mun. TC, Metro TC- where the principal amount of
taxes and fees, exclusive of charges and penalties claimed
is less thanP1,000,000.00 (Sec 7[c], RA 9282)
 The approval of the CIR is essential in
civil cases (Sec. 220). However under Sec.
7 of
NIRC, the Commissioner may delegate
suchpower to a Regional Director.
 Actions instituted by the government to collect
internal revenue taxes in regular courts (RTC or
MTCs, depending on the amount involved). It
includes filing by the government with the
probate court claims against the deceased
taxpayer.
 Resorted to when the tax liability becomes final
and unappealable, or when the decision of the
Commissioner becomes final or executory. When:
 A tax is assessed and the assessment becomes
final and unappealable because the taxpayer
fails to file an administrative protest with the BIR
within 30 days from the receipt of the assessment.
 When an administrative protest filed by the
taxpayer against the assessment is denied, in
whole and in part or Is not acted upon within 180
days from submission of the documents, and
 The taxpayer adversely affected by the decision or
inaction fails to file an appeal with the CTA within
30 days from receipt of said decision or from the
lapse of the180 day period.
B. CRIMINAL CASES ( TITLE X, NIRC; SEC. 281,
NIRC)
 All violations of any provision of the tax code shall
prescribe after five (5) years.
NOTE:
 When should it commence: The five (5) year
prescriptive period shall begin to run from the
a. If known, day of the commission of the
violation.
 REVIEW NOTES FOR TAXATION 2
b. If not known, from the time of discovery and
the institution of judicial proceeding for its
investigation and punishment.
 When is it interrupted:
a. When a proceeding is instituted against the
guilty person
b. When the offender is absent from the
Philippines.
 When should it run again: When the proceeding
is dismissed for reason not constituting jeopardy.
Where to file
1) Court of Tax Appeals- on criminal offenses arising from
violations of the NIRC or TCC and other laws administered
by the BIR and the BOC, where the principal amount of
taxes and fees, exclusive of charges and penalties claimed
is P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on criminal offenses arising
from violations of the NIRC or TCC and
other laws administered by the BIR and the BOC, where
the principal amount of taxes and fess
exclusive of charges and penalties claimed is less than
P1,000,000.00 or where there is no specified amount
claimed (Sec 7[b], RA 9282)
CASES:
REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval of filing
of civil and criminal actions)
 Revenue Adm. Order No. 10-95 specifically
authorizes the Litigation and Prosecution section
of the Legal Division of regional district offices to
institute the necessary civil and criminal actions
for tax collection. As the complaint filed in this
case was signed by the BIR’s Chief of Legal
Division for Region 4 and verified by the Regional
Director, there was, therefore, compliance with
the law.
 Sec. 7 of NIRC, authorizes the BIR Commissioner
to delegate the powers vested in him under the
pertinent provision of the Code to any subordinate
official with the rank equivalent to a division chief
or higher.
 date prescribed for its payment.
CIR V. LA SUERTE CIGAR, JULY 04, 1992 (re: participation
of the Office of the Solicitor General)
 The institution or commencement before a proper
court of civil and criminal actions and proceedings
arising under the Tax Reform Act which "shall be
conducted by legal officers of the Bureau of
Internal Revenue" is not in dispute. An appeal
from such court, however, is not a matter of right.
Section 220 of the Tax Reform Act must not be
understood as overturning the long established
procedure before this Court in requiring the
Solicitor General to represent the interest of the
Republic. This Court continues to maintain that it
is the Solicitor General who has the primary
responsibility to appear for the government in
appellate proceedings.
 PNOC V. CA, APRIL 26, 2005
 LIM V. CA, OCT. 18, 1990 ( re: prescription of
criminal actions, Sec, 281, NIRC)
 should be filed 5 years from the (1) day of the
commission of the violation of the law, and if the
same shall be not known, from the (2) discovery
thereof and the institution of the judicial
proceedings for its investigation and punishment.
MARCOS II V. CA, JUNE 5, 1997 (re: enforcement of tax
liability during pendency of probate proceedings)
 The BIR is authorized to collect estate tax
deficiency through the summary remedy of the
levying upon and sale of properties of a decedent,
without the cognition and authority of the court
sitting in probate over the supposed will of the
deceased, because the collection of estate tax is
executive in character. As such the estate tax is
exempted from the application of the statute of
the non – claims, and this is justified by the
necessity of the government finding, immortalized
in the maxim that taxes are the lifeblood of the
government
E. EFFECTS OF FAILURE TO PAY THE TAX ON TIME:
ADDITIONS TO THE TAX (CHAPTER I, TITLE X, NIRC)
1. SURCHARGES- a civil penalty imposed by law as
an addition to the main tax required to be paid. It is not a
criminal penalty but a civil administrative sanction
provided primarily as safeguard for the protection of
the State revenue and to reimburse the government for the
expenses of investigation and the loss resulting
from the taxpayer’s fraud. A surcharge added to the
main tax is subject to interest.
a. ORDINARY (SEC. 248A, NIRC)
Penalty: 25% of the amount due, in addition to the tax
required to be paid
a. Failure to file any return and to pay the
tax due thereon as required by the NIRC
or rules.
b. Filing a return with an internal revenue
officer other than those with whom the
return is required to be fired. Not
authorized officer.
c. Failure to pay the deficiency tax within
the time prescribed for its payment in the
notice of assessment.
d. Failure to pay the full or part of the
amount of tax shown on any return, or the
full amount of tax due for which no return
is required to be filed, on or before the
b. FRAUD PENALTY (SEC. 248B, NIRC)
Penalty: 50% of the amount due, in addition to the tax
required to be paid
a. In case of willful neglect to file the return
within the period prescribed by the NIRC
or rule.
b. In case a false or fraudulent return is
willfully made.
CASE: CIR V. JAVIER, JULY 31, 1991
 There was no actual intentional fraud in
filing the return. Private respondent’s
notation on the tax return was at most an
error or mistake of fact or law not
constituting fraud, an invitation for
investigation and private respondent had
literally” laid his cards on the table.
2. INTEREST- This is an increment on any unpaid
amount of tax assessed at the rate of 20% per annum
or such higher rate as may be prescribed by the
regulations from the date prescribed for payment until
the amount is fully paid.
Classes of interest
1. Deficiency interest
2. Delinquency interest
3. Interest on extended payment
 REVIEW NOTES FOR TAXATION 2
Deficiency interest
 Any deficiency in the tax due shall be subject to
the interest of 20% per annum which shall be
assessed and collected from the date prescribed
for its payment until the full payment thereof.
When delinquency interest imposed?
 Delinquency interest is imposed in case of failure
to pay:
1. The amount of the tax due on any return
required to be filed; or
2. The amount of tax due for which no return is
required; or
3. A deficiency tax or any surcharge or interest
thereon on the issue date appearing in the
notice and demand of the Commissioner.
 Rate is 20% per annum until the amount is fully
paid which interest shall form part of the tax.
Interest on Extended Payment.
1) any person who is qualified and elects to pay the tax on
installment but fails to pay the tax, or any installment, or
any part on or before the date prescribed; or
2) where the Commissioner has authorized an extension of
time within which to pay a tax or a deficiency tax or any
part thereof,
3) from the date of notice and demand until it is paid.
Compromise Penalty
1. It is a certain amount of money which the
taxpayer pays to compromise a tax violation.
2. It is pain in lieu of a criminal prosecution.
3. Since it is voluntary in character, the same may be
collected only if the taxpayer is willing to pay
them.
Failure to File Certain Information Returns (Sec. 250,
NIRC)
A) Penalty: P 1,000 for each failure
B) The aggregate amount for all such failure shall not
exceed P 25,000 during a calendar year
C) Upon notice and demand by the Commissioner
D) Unless it is shown that such failure is due to reasonable
cause and not to willful neglect.
In the case of each failure to file:
1) information return;
2) statement or list;
3) keep any record;
4) supply any information
E) required by this Code or by the Commissioner on the
date prescribed thereof.
LOCAL TAXATION
A. Local Taxation: General Concepts
1. Nature of Local Taxing Power
a. Constitutional Provision (Section 5, Article X)
“Each local government unit shall have the
power to create its own sources of revenues
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
governments.”
b. Delegated Power
i. City of San Pablo Laguna vs. Reyes, March
25, 1999
“The power to tax is primarily vested in
Congress. However, in our jurisdiction, it
may be exercised by local legislative
bodies, no longer merely by virtue of a
valid delegation as before, but pursuant to
direct authority conferred by Section 5,
Article X of the Constitution. The
important legal effect of Section 5 is that
henceforth, in interpreting statutory
provisions on municipal fiscal powers,
doubts will have to resolved in favor of
municipal corporations.”
ii. Meralco vs. Province of Laguna, May 5,
1999
“Prefatorily, it might be well to recall that
local governments do not have the
inherent power to tax except to the extent
that such power might be delegated to
them either by the basic law or by statute.
Presently, under Article X of the 1987
Constitution, a general delegation of that
power has been given in favor of local
government units. The 1987 Constitution
has a counterpart provision in the 1973
Constitution, which did come out with a
similar delegation of revenue making
powers to local governments. Under the
regime of the 1935 Constitution no
similar delegation of tax powers was
provided, and local government units
instead derived their tax powers under a
limited statutory authority. Whereas,
then, the delegation of tax powers
granted at that time by statute to local
governments was confined and defined
(outside of which the power was deemed
withheld), the present constitutional rule
(starting with the 1973 Constitution),
however, would broadly confer such tax
powers subject only to specific exceptions
that the law might prescribe. Under the
now prevailing Constitution, where there
is neither a grant nor a prohibition by
statute, the tax power must be deemed to
exist although Congress may provide
statutory limitations and guidelines. The
basic rationale for the current rule is to
safeguard the viability and self-sufficiency
of local government units by directly
granting them general and broad tax
powers. Nevertheless, the fundamental
law did not intend the delegation to be
absolute and unconditional; the
constitutional objective obviously is to
ensure that, while the local government
units are being strengthened and made
more autonomous, the legislature must
still see to it that (a) the taxpayer will not
be over-burdened or saddled with
multiple and unreasonable impositions;
(b) each local government unit will have
its fair share of available resources, (c)
the resources of the national government
will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just.”
iii. Mactan Cebu International Airport
Authority vs. Marcos, September 11, 1996
“The taxing powers of local government
units cannot extend to the levy of, inter
alia, “taxes, fees and charges of any kind
on the National Government, its agencies
and instrumentalities, and local
 REVIEW NOTES FOR TAXATION 2
government units”; however, pursuant to
Section 232, provinces, cities, and
municipalities in the Metropolitan Manila
Area may impose the real property tax
except on, inter alia, “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,” as provided in item
(a) of the first paragraph of Section 234.”
iv. NAPOCOR vs. City of Cabanatuan, April 9,
2003
“In recent years, the increasing social
challenges of the times expanded the
scope of state activity, and taxation has
become a tool to realize social justice and
the equitable distribution of wealth,
economic progress and the protection of
local industries as well as public welfare
and similar objectives. Taxation assumes
even greater significance with the
ratification of the 1987 Constitution.
Thenceforth, 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 Article X, section 5 of
the 1987 Constitution.
This paradigm shift results from the
realization that genuine development can
be achieved only by strengthening local
autonomy and promoting
decentralization of governance. For a
long time, the country’s highly centralized
government structure has bred a culture
of dependence among local government
leaders upon the national leadership. It
has also “dampened the spirit of initiative,
innovation and imaginative resilience in
matters of local development on the part
of local government leaders.” The only
way to shatter this culture of dependence
is to give the LGUs a wider role in the
delivery of basic services, and confer
them sufficient powers to generate their
own sources for the purpose. To achieve
this goal, section 3 of Article X of the 1987
Constitution mandates Congress to enact
a local government code that will,
consistent with the basic policy of local
autonomy, set the guidelines and
limitations to this grant of taxing powers.”
- Extent of the Power of Congress in Local
Taxation
- City Govt. of Quezon City vs. Bayantel, March
6, 2006
“The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may
be exercised by local legislative bodies, no
longer merely be virtue of a valid delegation
as before, but pursuant to direct authority
conferred by Section 5, Article X of the
Constitution. Under the latter, the exercise of
the power may be subject to such guidelines
and limitations as the Congress may provide
which, however, must be consistent with the
basic policy of local autonomy.
Clearly then, while a new slant on the subject
of local taxation now prevails in the sense that
the former doctrine of local government units
delegated power to tax had been effectively
modified with Article X, Section 5 of the 1987
Constitution now in place, .the basic doctrine
on local taxation remains essentially the same.
For as the Court stressed in Mactan, "the
power to tax is [still] primarily vested in the
Congress."
In net effect, the controversy presently before
the Court involves, at bottom, a clash between
the inherent taxing power of the legislature,
which necessarily includes the power to
exempt, and the local government’s delegated
power to tax under the aegis of the 1987
Constitution.”
2. Fundamental Principles in the exercise of Local
Taxing Power (Sec. 130, LGC)
3. Exercise of Local Taxing Power
B. Common Limitations on the Exercise of Local Taxing
Power
1. The Principle of Preemption / Exclusionary Rule
(Sec. 133, LGC)
- If the national government elects to tax a
particular subject within a Local Government
Unit, it is impliedly withholding the power of
LGU to tax the same.
- Adopted in the Philippines despite non-
prohibition of double taxation unless
expressly allowed by Congress.
2. Cases:
a. Province of Bulacan vs. CA, November 27,
1998
A province may not levy excise taxes on
articles already taxed by the National Internal
Revenue Code. It is clearly apparent from
Section 151 of the National Internal Revenue
Code levies a tax on all quarry resources,
regardless of origin, whether extracted from
public or private land. Thus, a province may
not ordinarily impose taxes on stones, sand,
gravel, earth and other quarry resources, as
the same are already taxed under the National
Internal Revenue Code. The province can,
however, impose a tax on stones, sand, gravel,
earth and other quarry resources extracted
from public land because it is expressly
empowered to do so under the Local
Government Code. As to stones, sand, gravel,
earth and other quarry resources extracted
from private land, however, it may not do so,
because of the limitation provided by Section
133 of the Code in relation to Section 151 of
the National Internal Revenue Code.
b. First Philippine Industrial Corp. vs. CA,
December 9, 1998 (Section 133j; Local Tax on
Common Carriers)
There is no doubt that petitioner is a
"common carrier" and, therefore, exempt
from the business tax as provided for in
Section 133 (j), of the Local Government Code,
to wit:
"Section 133. Common Limitations on the
Taxing Powers of Local Government Units. –
Unless otherwise provided herein, the
exercise of the taxing powers of provinces,
 REVIEW NOTES FOR TAXATION 2
cities, municipalities, and barangays shall not
extend to the levy of the following :
xxx xxx xxx
(j) 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."
It is clear that the legislative intent in
excluding from the taxing power of the local
government unit the imposition of business
tax against common carriers is to prevent a
duplication of the so-called "common carrier's
tax."
Petitioner is already paying three (3%)
percent common carrier's tax on its gross
sales/earnings under the National Internal
Revenue Code.[19] To tax petitioner again on
its gross receipts in its transportation of
petroleum business would defeat the purpose
of the Local Government Code.
c. Palma Development Corp. vs. Municipality of
Malangas, October 16, 2003 (Sec. 133e)
By express language of Sections 153 and 155
of RA No. 7160, local government units,
through their Sanggunian, may prescribe the
terms and conditions for the imposition of toll
fees or charges for the use of any public road,
pier or wharf funded and constructed by
them. A service fee imposed on vehicles using
municipal roads leading to the wharf is thus
valid. However, Section 133(e) of RA No.
7160 prohibits the imposition, in the guise of
wharfage, of fees -- as well as all other taxes or
charges in any form whatsoever -- on goods or
merchandise. It is therefore irrelevant if the
fees imposed are actually for police
surveillance on the goods, because any other
form of imposition on goods passing through
the territorial jurisdiction of the municipality
is clearly prohibited by Section 133(e).
d. Batangas Power Corp. vs. Batangas City, April
28, 2004 (Section 133g)
Sec. 133 (g) of the LGC, which proscribes local
government units (LGUs) from levying taxes
on BOI-certified pioneer enterprises for a
period of six years from the date of
registration, applies specifically to taxes
imposed by the local government, like the
business tax imposed by Batangas City on BPC
in the case at bar. Reliance of BPC on the
provision of Executive Order No. 226,[18]
specifically Section 1, Article 39, Title III, is
clearly misplaced as the six-year tax holiday
provided therein which commences from the
date of commercial operation refers to income
taxes imposed by the national government on
BOI-registered pioneer firms. Clearly, it is the
provision of the Local Government Code that
should apply to the tax claim of Batangas City
against the BPC. The 6-year tax exemption of
BPC should thus commence from the date of
BPC’s registration with the BOI on July 16,
1993 and end on July 15, 1999.
3. Local Taxing Power cannot extend to:
- Those already covered by the National
Internal Revenue Code, i.e. Income tax,
Transfer tax, VAT, percentage tax, Excise
Tax, Documentary Stamp Tax;
- Those already covered by the Tariff and
Customs Code;
- Duties upon products about to
be exported and goods passing
through territorial jurisdiction
cannot be taxed by LGUs.
- Taxation of the National Government,
including its agencies and
instrumentalities as we as local
government units;
- Those subjects not within the ambit of
real taxation by reason of public policy,
i.e. Cooperatives registered under RA
6938 (CDA);
- Those enjoying privileges as granted by
the Board of Investments (Investments
Priorities Plan);
- Both pioneer and non-pioneer
enterprises enjoy such kind of
privileges under the Omnibus
Investments Code.
- Taxes on agricultural or aquatic products
sold by marginal enterprises;
- 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.
- LTO vs. Butuan – Congress has no
intention to delegate issuance of permits
to LGUs. The intention of the law is to
centralize issuance of permits to drive
motor vehicles including tricycles is to
monitor the operation of the same.
Section 133(l) is only for franchise where
to grant the same is within the discretion
of LGUs. The permit to drive is issued by
LTO.
4. Time of Payment (Section 167, LGC)
Unless otherwise provided in LGC, all local taxes,
fees, and charges shall be paid within the first
twenty (20) days of January or of each subsequent
quarter, as the case may be. The Sanggunian
concerned may, for a justifiable reason or cause,
extend the time for payment of such taxes, fees, or
charges without surcharges or penalties, but only
for a period not exceeding six (6) months.
5. Surcharges, Interests and Penalties
C. Residual Power to Tax (Sec. 186)
- The power of LGU to tax even of not expressly
granted by the LGC provided that there is no
express prohibition.
D. Specific Taxing Units
1. Provinces may tax:
i. Transfer of Real Property ownership
- Onerous or gratuitous
- Preemption rule is not applicable
- ½ of 1%
ii. Printing and Publication
 REVIEW NOTES FOR TAXATION 2
iii. Franchise Tax
- Government franchise, whether primary or
secondary, i.e. public utility companies
- If the franchise grants tax exemption and
the same was executed prior to 1991 LGC, it
is deemed revoked by reason of the law’s
blanket revocation.
- At a rate not exceeding ½ of 1% of the Gross
Amount receipt of the preceding calendar
year
iv. Professional Tax
- Those who have passed government
licensure examinations are the ones liable
- Amount – not exceeding Php 300.00
- Imposed by the city or province where the
taxpayer’s principal office is located
- With employer-employee relationship –
liability to PTR depends on the extent of
services provided. If services provided is
exclusive to the employer, PTR is not
necessary, otherwise, the employee is liable.
v. Sand and Gravel Tax
- Imposed on extraction of sand, gravel and
other quarry resources
- Not more than 10% of the FMV of what was
extracted
- Case: Province of Bulacan vs. CA
vi. Amusement Tax
- As high as 30%
- Applies to theaters, cinemas, concert halls,
boxing stadiums, circuses and other places
of amusements.
vii. Taxes on Delivery trucks
2. Cities may tax those that may be taxed by a
province and a municipality. They may impose a
tax rate which is 50% higher than the rates being
imposed by provinces and municipalities.
3. Municipalities
i. Business permit
ii. Community Taxes
iii. May levy taxes, fees, and charges not otherwise
levied by provinces (Sec. 142)
REMEDIES IN LOCAL TAXATION
A. REMEDIES OF THE GOVERNMENT
a. ADMINISTRATIVE
1) Local Government’s Lien (Sec 173, LGC)
2) Assessment by the Local Treasurer
3) Distraint of goods, chattels or effect and
other personal properties of whatever
character (Sec. 174 and 175, LGC)
a. Seizure
b. Accounting of distrained goods
c. Publication
d. Release of distrained property upon
payment prior to sale
e. Procedure of sale
f. Disposition of proceeds
4) Levy (Sec. 174 and 176,. LGC)
 Contents of assessment:
1. Meralco vs. Barlis (Feb. 1, 2002) - A notice of
assessment as provided for in the Real
Property Tax Code should effectively inform
the taxpayer of the value of a specific property,
or proportion thereof subject to tax, including
the discovery, listing, classification, and
appraisal of properties. The petitioner is also
correct in pointing out that the last paragraph
of the said notices that inform the taxpayer
that in case payment has already been made,
the notices may be disregarded is an indication
that it is in fact a notice of collection. It could
only qualify as a notice of collection if there is
an unmistakable demand for payment of back
taxes.
 Who is entitled to the notice of assessment
1. Talusan vs. Tayag, (April 04, 2001) - Cases
involving an auction sale of land for the
collection of delinquent taxes are in personam.
Thus, notice by publication, though sufficient in
proceedings in rem, does not as a rule satisfy
the requirement of proceedings in personam.
As such, mere publication of the notice of
delinquency would not suffice, considering that
the procedure in tax sales is in personam. It
was, therefore, still incumbent upon the city
treasurer to send the notice of tax delinquency
directly to the taxpayer in order to protect the
interests of the latter.
In the present case, the notice of
delinquency was sent by registered mail to the
permanent address of the registered owner in
Manila. In that notice, the city treasurer of
Baguio City directed him to settle the charges
immediately and to protect his interest in the
property. Under the circumstances, we hold
that the notice sent by registered mail
adequately protected the rights of the taxpayer,
who was the registered owner of the
condominium unit.
For purposes of the real property tax,
the registered owner of the property is deemed
the taxpayer. Hence, only the registered owner
is entitled to a notice of tax delinquency and
other proceedings relative to the tax sale. Not
being registered owners of the property,
petitioners cannot claim to have been deprived
of such notice. In fact, they were not entitled to
it.
b. JUDICIAL (Sec. 174, LGC)
1) Civil Action in the court
2) Filed by Local Treasurer
3) Within 5 years from the date the
taxes, fees or charges became due
 REVIEW NOTES FOR TAXATION 2
 Period within which to collect
– within 5 years from the date of
assessment by administrative or
judicial action
c. OTHER PROVISIONS
 Accrual of the tax – (Sec. 166, LGC)
- General rule: All local taxes, fees, and charges
shall accrue on the 1st day of January of each
year.
- Except:
i. Unless otherwise provided in the LGC,
ii. New taxes, fees or charges, or changes in the
rates thereof, shall accrue on the 1st day of the
quarter next following the effectivity of the
ordinance imposing such new levies or rates
Time of payment – (Sec. 167, LGC)
- General Rule: All local taxes, fees and charges
shall be paid within the first 20 days of January
or of each subsequent quarter, as the case may
be.
- Except:
i. Unless otherwise provided by the LGC
ii. The Sanggunian concerned may, for a
justifiable reason or cause, extend the time for
payment of such taxes, fees, or charges or
penalties, but only for a period not exceeding 6
months.
 Surcharges, Interests and Penalties – (Sec.
168, LGC)
- Sanggunian may impose:
i. Surcharge – not exceeding 25% of the amount
of taxes, fees or charges not paid on time and
ii. Interest – not exceeding 2% per month of the
unpaid taxes, fees or charges, including
surcharges, until such amount is fully paid,
BUT in no case shall the total interest on the
unpaid amount or portion thereof exceed 36
months.
B. REMEDIES OF THE TAXPAYER
a. ADMINISTRATIVE
 Appeal to the Secretary of Justice; Re:
newly enacted tax ordinance (Sec.
187, LGC) – Any question on the
constitutionality or legality of tax
ordinances or revenue measures; Within
30 days from its effectivity.
1. Drilon vs. Lim, (August 4, 1994) -
Section 187 authorizes the Secretary of
Justice to review only the
constitutionality or legality of the tax
ordinance and, if warranted, to revoke it
on either or both of these grounds. When
he alters or modifies or sets aside a tax
ordinance, he is not also permitted to
substitute his own judgment for the
judgment of the local government that
enacted the measure. Secretary Drilon
did set aside the Manila Revenue Code,
but he did not replace it with his own
version of what the Code should be. He
did not pronounce the ordinance unwise
or unreasonable as a basis for its
annulment. He did not say that in his
judgment it was a bad law. What he
found only was that it was illegal. All he
did in reviewing the said measure was
determine if the petitioners were
performing their functions is accordance
with law, that is, with the prescribed
procedure for the enactment of tax
ordinances and the grant of powers to
the city government under the Local
Government Code. As we see it, that was
an act not of control but of mere
supervision.
2. Hagonoy Market Vednors Assn. vs.
Municipality of Hagonoy. Bulacan,
(February 6, 2002) - Sec. 187, LGC
requires that an appeal of a tax
ordinance or revenue measure should be
made to the Secretary of Justice within
30 days from effectivity of the ordinance
and even during its pendency, the
effectivity of the assailed ordinance shall
not be suspended. In the case at bar,
Municipal Ordinance No. 28 took effect
in October 1996. Petitioner filed its
appeal only in December 1997, more
than a year after the effectivity of the
ordinance in 1996. Clearly, the Secretary
of Justice correctly dismissed it for being
time-barred. At this point, it is apropos
to state that the timeframe fixed by law
for parties to avail of their legal
remedies before competent court is not a
"mere technicality" that can be easily
brushed aside. The periods stated in the
section are mandatory. Ordinance No.
28 is a revenue measure adopted by the
municipality of Hagonoy to fix and
collect public market stall rentals. Being
its lifeblood, collection of revenues by
the government is of paramount
importance. The funds for the operation
of its agencies and provision of basic
services to its inhabitants are largely
derived from its revenues and
collections. Thus, it is essential that the
validity of revenue measures is not left
uncertain for a considerable length of
time. Hence, the law provided a time
limit for an aggrieved party to assail the
legality of revenue measures and tax
ordinances.
3. Ty vs. Trampe, (December 1, 1995) –
Petitioners failed to appeal the
assessment of their properties to the
Board of Assessment Appeal within sixty
(60) days from the date of receipt of the
written Notice of Assessment, and if it is
true that petitioner, as alleged in their
pleadings, was not afforded the
opportunity to appeal to the board of
assessment appeal, then they could have
availed of the provisions of Section 252,
of the same R.A. 7160 by paying the real
estate tax under protest. Because of
petitioner’s failure to avail of either
Sections 226 or 252 of R.A. 7160, they
failed to exhaust administrative
remedies provided for by law before
 REVIEW NOTES FOR TAXATION 2
bringing the case to Court. Therefore the
filing of this case before this Court is
premature, the same not falling under
the exception because the issue involved
is not a question of law but of fact.
 Appeal to the Board of Assessment
Appeals (Secs. 226 and 252, LGC) –
- Sec. 226, LGC – Any owner or person
who is not satisfied with the action of the
provincial, city or municipal assessor in
the assessment of his property; Within
60 days from receipt of the written
notice of assessment; Appeal to the BAA
of the province or city by filing a petition
under oath and copies of the tax
declarations and affidavits or documents
in support of appeal.
- Sec. 252 (d), LGC – In the event that the
protest is denied or upon the lapse of the
60-day period to decide, the taxpayer
may appeal to the BAA.
 Protest of the assessment (Sec. 226
and 252, LGC)
- Pay under protest and such shall be
annotated in the tax receipt
- Protest in writing must be filed within
30 days from payment of the tax to the
provincial, city or municipal treasurer,
who shall decide the protest within 60
days from receipt.
- The tax or a portion thereof paid under
protest shall be held in trust by the
treasurer concerned.
- Protest decided in favor of 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.
- Protest denied or upon lapse of the
period to decide - appeal to the BAA.
 Claim for refund (Sec. 253, LGC)
- When an assessment of basic real
property tax, or any other tax levied is
found to be illegal or erroneous and the
tax is accordingly reduced or adjusted,
- The taxpayer may file a written claim for
refund or credit of taxes and interests
- With the provincial or city treasurer
- Within 2 years from the date the
taxpayer is entitled to such reduction or
adjustment.
- The provincial or city treasurer shall
decide the claim for refund or credit
within 60 days from receipt
- In case the claim is denied, the taxpayer
may appeal to the BAA.
 Remedies from a denial of the protest
and refund
- It should not only be the written claim
before the treasurer that must be filed
in 2 years but the taxpayer must also be
able to file a case in court before the
expiration of the 2 year period.
- There is no appellate remedy from the
denial of the treasurer before the regular
court but an independent and original
action for refund.
b. JUDICIAL
 Questioning Tax Sale
REAL PROPERTY TAXATION
Real Property Tax, defined
A direct tax on ownership of lands and buildings
or other improvements thereon
Payable regardless of whether the
property is used or not,
although the value may vary in
accordance with such factor.
A. Governing Law
Historical Background:
1. Commonwealth Act No. 470 – Old
Assessment Law
- since 1920
2. Real Property Tax Code (Presidential Decree
No. 464, as amended)
- June 1, 1974
3. Local Government Code (Republic Act No.
7160)
- January 1, 1992
- The changes however were only on the
tax rate ceilings and assessment levels.
The Local Government Code covers the
administration, appraisal, assessment, levy and
collection of Real Property Tax, i.e. tax on land and
building and other structures and improvements on
it, including machineries. (Subject to the definition
given by Art. 415 of the New Civil Code)
B. Nature of Real Property Tax – National or Local?
 Hybrid of national and local tax
 Provisions of LGC are applied nationwide
but rates imposed are different per LGU
ordinance
The real property tax has been considered and
held to be national, despite the fact that in practice it is
local in its imposition and utilization.
Justice Vitug points out that: “The real property
tax has been considered and held to be a national, not a
local tax in Meralco Securities Industrial Corp v. CBAA, 114
SCRA 260. The Court said that realty tax has always been
imposed by the national law-making body. The real estate
tax is enforced throughout the Philippines and not in a
particular political subdivision, although the bulk of the tax
proceeds accrue to the various local government units
where the property is located. Under the Local
Government Code, local government units are mandated to
fix a uniform rate of basic real property tax applicable to
their respective localities, the proceeds of which
exclusively accrue to them. (See Secs. 233 and 271, LGC)”,
[Page 479, Tax Law and Jurisprudence, 2000 Edition by
Justice Vitug and Judge Acosta].
CHARACTERISTIC OF REAL PROPERTY TAX:
1. Direct tax on the ownership of real property
2. Ad Valorem tax. The value is based on the tax
base
 REVIEW NOTES FOR TAXATION 2
3. Proportion - the tax is calculated on the basis of
a certain percentage of the value
assessed
4. Indivisible single obligation
5. Local Tax
C. Fundamental Principles Governing Appraisal and
Assessment of Real Property (Section 198,
LGC)
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 standard within each
local government unit.
4. The appraisal, assessment, and collection
of real property tax shall not be let to any
private person; and
5. The appraisal and assessment of real
property shall be equitable.
D. Properties Covered (Sec. 232, LGC)
1. Land,
2. Buildings
3. Machinery and
4. Other improvements not otherwise
exempted under said code (Sec 232, LGC)
Machinery – embraces machines, equipment,
mechanical contrivances, instruments, appliances
or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It
includes the physical facilities for production, the
installations and appurtenant service facilities,
those which are mobile, selfpowered or self-
propelled, and those not permanently attached to
the real property which are actually, directly, and
exclusively used to meet the needs of the particular
industry, business or activity and which by their
very nature and purpose are designed for, or
necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes.
(Sec. 199 [o], LGC)
Machinery which are of general purpose use
including but not limited to office equipment,
typewriters, telephone equipment, breakable or
easily damaged containers (glass or cartons),
microcomputers, facsimile machines, telex
machine, cash dispensers, furnitures and fixtures,
freezers, refrigerators, display cases or racks, fruit
juice or beverage automatic dispensing machines
which are not directly and exclusively used to
meet the needs of a particular industry, business
or activity shall not be considered within the
definition of machinery. (Sec. 290 [o], IRR of
RA 7160)
Improvements include valuable additions made
to a property or an amelioration in its condition,
amounting to more than a mere repair or
replacement of parts involving capital
expenditures and labor, which is intended to
enhance its value, beauty or utility or to adopt it
for new or further purposes.
Note: Although the term real property has not been
expressly defined in the LGC, early decisions of the Supreme
Court in Mindanao Bus Co. v City Assessor of Cagayan de
Oro, 6 SCRA `97; Board of Assessment Appeals v
Meralco, 119 PHIL 328; Manila Electric Co. v Board of
Assessment Appeals,10 SCRA 68) seem to suggest that Art.
415 of the Civil Code could also be controlling, to wit:.
“Art. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all
kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they
are attached to the land or form an integral part of
an immovable;
(3) Everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated
therefrom without breaking the material or
deterioration of the object;
(4) Statues, reliefs, paintings or other objects for
use or ornamentation, placed in buildings or on
lands by the owner of the immovable in such a
manner that it reveals the intention to attach them
permanently to the tenements;
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which may be
carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said
industry or works;
(6) Animal houses, pigeon-houses, beehives, fish
ponds or breeding places of similar nature, in case
their owner has placed them or preserves them
with the intention to have them permanently
attached to the land, and forming a permanent
part of it; the animals in these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the
matter thereof forms part of the bed, and waters
either running or stagnant;
(9) Docks and structures which, though floating,
are intended by their nature and object to remain
at a fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes
and other real rights over immovable property. “
In Caltex vs. CBAA, May 31, 1982:
Machinery and equipment, consisting of
underground tanks, elevated tanks, water tanks,
gasoline pumps, computing pumps, water pumps,
car washer, car and truck hoists, air compressors
and similar articles, installed by Caltex
(Philippines) Inc. in its gasoline stations, located
on leased land, have been held to be real property
subject to the tax. (real properties which have
characteristics of permanency, the lease is for a
long period of time)
2001 BAR QUESTION: Under Article 415 of
the Civil Code, in order for machinery and
equipment to be considered real property,
they must be placed by the owner of the
land and, in addition, must tend to directly
meet the needs of the industry or works
carried on by the owner. Oil companies,
such as Caltex and Shell, install
underground tanks in the gasoline stations
located in land leased by the oil companies
from others. Are those underground tanks,
which were not placed there by the owner
of the land but by the lessee, considered
 REVIEW NOTES FOR TAXATION 2
real property for purposes of real property
taxation under the LGC?
SUGGESTED ANSWER FROM UP LAW
CENTER: Yes. The underground tanks
although installed by the lessee, Shell and
Caltex, are considered as real property for
purposes of the imposition of real property
taxes. It is only for purposes of executing a
final judgment that these machinery and
equipment, installed by the lessee on a
leased land, would not be considered as
real property. But in the imposition of real
property tax, the underground tanks are
taxable as necessary fixtures of the gasoline
station without which the gasoline station
would not be operational. (Caltex v. CBAA,
114 SCRA 296).
SPECIAL CLASSES OF REAL PROPERTY (Sec. 216, LGC)
1. HOSPITALS
2. CULTURAL and SCIENTIFIC purposes
3. owned and used by LOCAL WATER
DISTRICTS
4. GOCCs rendering essential public services
in the supply and distribution of water and/or
generation or transmission of electric power.
E. Properties Exempt
1. Section 234, LGC
a. 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;
- except: when beneficial use
thereof is granted to a taxable person
- cases of MIAA and MCAA:
GOCCs are not automatically exempt from
real property tax, depending on its
charter giving it exemption
- charter enacted after LGC so
that the exemption is not revoked
b. 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.
- traditional exemptees
c. All pieces of machinery and equipment
that are actually, directly, and
exclusively used by local water districts,
and government – owned or controlled
corporations engaged in the supply and
distribution of water and/or generation
and transmission of electric power.
d. All real property owned by duly
registered cooperatives as provided for
under RA 6938, and
e. Machinery and equipment used for
pollution control and environmental
protection.
2. Section 238, LGC
Idle Lands Exempt From Tax:
By reason of:
a. force majeure
b. civil disturbance
c. natural calamity
d. any cause which
legally/physically prevents the owner of the
property or person
having legal interest therein from
improving, utilizing, or
cultivating the same
What Are Considered as Idle Lands: (Sec. 237,
LGC)
1. Agricultural lands – More than 1 hectare if
more than ½ of which remain uncultivated or unimproved
by the owner of the property or person having legal
interest therein.
Not Idle Lands:
􀂾 Agricultural lands planted to permanent or
perennial crops with at least 50 trees to a hectare
􀂾 Lands actually used for grazing purposes
2. Non-Agricultural Lands – More than 1,000 sq.
m. in area if more than ½ of which remain uncultivated or
unimproved by the owner of the property or person
having legal interest therein.
Proof of Tax Exemption:
Every person by or for whom real property is
declared who shall claim the exemption shall file with
the provincial, city or municipal assessor within 30 days
from date of declaration of real property sufficient
documentary evidence in support of such claim (i.e.
corporate charters, title of ownership,articles of
incorporation, contracts, affidavits, etc.)
3. Constitutional Exemptions
- actually, directly, exclusively used for
religious, educational and charitable
purposes are exempt from real property
tax
Query: To where does the exemption attach? To
the property or to the entity?
Case: X owns a parcel of land, leased by church.
May X claim exemption from Real Property
Taxation? Yes, exemption attaches on property as
long as exclusively used for religious purchases.
Case: School - not subject to Real Property Tax if
directly used for educational purposes.
A. Has a mansion near the school where
the president of the school resides and where
guests may be accommodated - incidental,
president has to live near school
B. Near the school is a hospital where
medical students are trained - incidental to
operation of the school (Herrera vs. CBAA –
use as trainee students)
C. Near the school is a men’s dorm, a
student center
– exempt, incidental to operation of the school
D. Near the school is another school
building with 2 floors used as classrooms
while 2 floors are for commercial stores.
- incidental to operation of school (Bishop of
Neva Segovia Case – vegetable garden near
convent is incidental to convent operation)
- that part not used for educational purpose is
subject to real property tax
- As to the land, pro-rate according to use,
one-half taxed pursuant to Abra Valley
College Case
 REVIEW NOTES FOR TAXATION 2
Note:
Incidental exemptions
promulgated prior to 1987 Constitution –
meant, primarily used for the purposes even
if not solely.
CASES:
1. In MIAA v. Paranaque, July 20,
2006, the Court declared the Airport
Lands and Buildings of the Manila
International Airport Authority exempt
from the real estate tax imposed by the
City of Parañaque. The Court declared
void all the real estate tax assessments
issued by the City of Parañaque on the
Airport Lands and Buildings of the MIAA,
except for the portions that the MIAA has
leased to private parties. The Court based
its ruling under Section 2(10) and (13) of
the Introductory Provisions of the
Administrative Code, which governs the
legal relation and status of government
units, agencies and offices within the
entire government machinery, under
which MIAA is a government
instrumentality and not a government-
owned or controlled corporation. Under
Section 133(o) of the Local Government
Code, MIAA as a government
instrumentality is not a taxable person
because it is not subject to "[t]axes, fees
or charges of any kind" by local
governments. The only exception is when
MIAA leases its real property to a "taxable
person" as provided in Section 234(a) of
the Local Government Code, in which case
the specific real property leased becomes
subject to real estate tax. Thus, only
portions of the Airport Lands and
Buildings leased to taxable persons like
private parties are subject to real estate
tax by the City of Parañaque.
Under Article 420 of the Civil
Code, the Airport Lands and Buildings of
MIAA, being devoted to public use, are
properties of public dominion and thus
owned by the State or the Republic of the
Philippines. Article 420 specifically
mentions "ports x x x constructed by the
State," which includes public airports and
seaports, as properties of public dominion
and owned by the Republic. As properties
of public dominion owned by the
Republic, there is no doubt that the
Airport Lands and Buildings are expressly
exempt from real estate tax under Section
234(a) of the Local Government Code.
Furthermore, the Court made a
distinction between a GOCC and an
instrumentality. Thus:
Government-owned or controlled
corporation refers to any agency
organized as a stock or non-stock
corporation, vested with functions
relating to public needs whether
governmental or proprietary in nature,
and owned by the Government directly or
through its instrumentalities either
wholly, or, where applicable as in the case
of stock corporations, to the extent of at
least fifty-one (51) percent of its capital
stock: x x x
A government-owned or controlled
corporation must be "organized as a stock
or non-stock corporation." MIAA is not
organized as a stock or non-stock
corporation. MIAA is not a stock
corporation because it has no capital
stock divided into shares. MIAA has no
stockholders or voting shares.
MIAA is also not a non-stock corporation
because it has no members.
Since MIAA is neither a stock nor a non-
stock corporation, MIAA does not qualify
as a government-owned or controlled
corporation.
Thus, for an entity to be considered as a
GOCC, it must either be organized as a
stock or non-stock corporation. Two
requisites must concur before one may be
classified as a stock corporation, namely:
(1) that it has capital stock divided into
shares, and (2) that it is authorized to
distribute dividends and allotments of
surplus and profits to its stockholders. If
only one requisite is present, it cannot be
properly classified as a stock corporation.
As for non-stock corporations, they must
have members and must not distribute
any part of their income to said members.
2. In Lung Center of the Philippines
vs. Quezon City, June 29, 2004, the Court
held that Lung Center of the Philipines, a
charitable institution does not lose its
character as such and its exemption from
taxes simply because it derives income
from paying patients, whether out-
patient, or confined in the hospital, or
receives subsidies from the government,
so long as the money received is devoted
or used altogether to the charitable object
which it is intended to achieve; and no
money inures to the private benefit of the
persons managing or operating the
institution. However, those portions of its
real property that are leased to private
entities are not exempt from real
property taxes as these are not actually,
directly and exclusively used for
charitable purposes.
“Under the 1973 and 1987
Constitutions and Rep. Act No. 7160 in
order to be entitled to the exemption, the
petitioner is burdened to prove, by clear
and unequivocal proof, that (a) it is a
charitable institution; and (b) its real
properties are ACTUALLY, DIRECTLY
and EXCLUSIVELY used for charitable
purposes. "Exclusive" is defined as
possessed and enjoyed to the exclusion of
others; debarred from participation or
enjoyment; and "exclusively" is defined,
"in a manner to exclude; as enjoying a
privilege exclusively." If real property is
used for one or more commercial
purposes, it is not exclusively used for the
exempted purposes but is subject to
taxation. The words "dominant use" or
"principal use" cannot be substituted for
 REVIEW NOTES FOR TAXATION 2
the words "used exclusively" without
doing violence to the Constitutions and
the law. Solely is synonymous with
exclusively.
What is meant by actual, direct
and exclusive use of the property for
charitable purposes is the direct and
immediate and actual application of the
property itself to the purposes for which
the charitable institution is organized. It
is not the use of the income from the real
property that is determinative of whether
the property is used for tax-exempt
purposes.
The petitioner failed to discharge
its burden to prove that the entirety of its
real property is actually, directly and
exclusively used for charitable purposes.
While portions of the hospital are used
for the treatment of patients and the
dispensation of medical services to them,
whether paying or non-paying, other
portions thereof are being leased to
private individuals for their clinics and a
canteen. Further, a portion of the land is
being leased to a private individual for
her business enterprise under the
business name "Elliptical Orchids and
Garden Center."
Accordingly, the Court held that
the portions of the land leased to private
entities as well as those parts of the
hospital leased to private individuals are
not exempt from such taxes. On the other
hand, the portions of the land occupied by
the hospital and portions of the hospital
used for its patients, whether paying or
non-paying, are exempt from real
property taxes.”
Analysis:
Is Lung Center liable for Real Property Tax?
Yes.
a. exclusively used means
solely used for charitable
purposes
b. exemption in its charter
revoked by new LGC
c. incidental exemption no
longer recognized
d. taxed on orchidarium,
canteen, private clinics
Query: are the older cases now not
applicable so that they are
now taxable?
- not clear as to the extent
of Lung Center case as to
areas which used to be
considered as real
property tax exempted
as incidental
- If city decides to tax SLU
on its hospital, parking
lot, etc., use as ground
that they should be
exempt due to necessity,
do not use the word
“incidental”
3. In LRTA vs. CBAA, October 12, 2000,
though the creation of the LRTA was
impelled by public service – to provide
mass transportation in MM- its operations
undeniably partakes of ordinary business.
. . Given that it is engage in a service-
oriented commercial endeavour, its
carriage ways and terminal stations are
patrimonial property subject to tax,
notwithstanding its claim of being a
GOCC.
Under its charter, LRT is not
exempt from real property tax. Taxation
is the rule and exemption is the exception.
4. In DIGITEL vs. Province of Pangasinan,
February 23, 2007, the Court ruled that in
view of the unequivocal intent of
Congress to exempt from real property
tax those real properties actually, directly
and exclusively used by petitioner
DIGITEL in the pursuit of its franchise,
respondent Province of Pangasinan can
only levy real property tax on the
remaining real properties of the grantee
located within its territorial jurisdiction
not part of the above-stated classification.
Said exemption, however, merely applies
from the time of the effectivity of
petitioner DIGITEL’s legislative franchise
and not a moment sooner.
5. In Philippine Fisheries Development
Authority vs. Court of Appeals, July 31,
2007, the Court reversed the Court of
Appeal’s decision which held that
petitioner Philippine Fisheries
Development Authority is liable to pay
real property taxes on the land and
buildings of the Iloilo Fishing Port
Complex which are owned by the
Republic of the Philippines but operated
and governed by the Authority.
The Court ruled that the
Authority is not a GOCC but an
instrumentality of the national
government which is generally exempt
from payment of real property tax.
However, said exemption does not apply
to the portions of the IFPC which the
Authority leased to private entities. With
respect to these properties, the Authority
is liable to pay real property tax.
The Authority should be
classified as an instrumentality of the
national government. As such, it is
generally exempt from payment of real
property tax, except those portions which
have been leased to private entities.
F. May LGUs grant exemption? Yes
Power to Grant Local Exemptions (Sec. 192 LGC)
- LGUs, may through ordinances duly approved, grant tax
exemptions, incentives or reliefs under such terms and
conditions, as they may deem necessary.
- Although powerless to grant RPT exemption, LGU in MM
can exempt the 5% ad valorem
tax on idle lands.
- LGUs (within and outside MM) may also grant
condonation which actually partake of
exemption.
 REVIEW NOTES FOR TAXATION 2
G. Who are liable for the Real Property Taxes
1. Ownership vs. Use
Doctrine of Ownership
- owner is liable
Doctrine of Use
- property is exempt due to Use
(REC-religious, educational,
charitable)
Actual Use of Property as Basis for
Assessment (Sec. 217, LGC)
Real property shall be classified, valued
and assessed on the basis of actual use
regardless of where located, whoever owns it,
and whoever uses it.
Beneficial User May Be Liable if:
* he leased property from the
government
* he leased property from an
exempt owner
* use is not exempt from real
property tax
2. In Testate Estate of Concordia Lim vs. Manila,
February 21, 1990, GSIS foreclosed the property
mortgaged by Lim and for failure to redeem, owned by
GSIS for the years 1977 to 1978. In 1979, heirs of
Lim repurchased the property. Manila sought to levy
real property tax on heirs for back taxes covering 1977
and 1978.
Who is lible for the back taxes?
a. not the heirs because they were not the owners
nor beneficial owners at the time
b. not GSIS because at the time it was exempt
c. beneficial users or those using the property for
commercial use must pay
however not made liable since not impleaded
H. Procedure in Real Property Taxation
In Lopez vs. City of Manila, February 19, 1999, the
Court discussed the steps to be followed for the mandatory
conduct of General Revision of Real Property assessments,
pursuant to the provision of Sec. 219, of R.A. No. 7160
which are as follows:
1. The preparation of Schedule of Fair Market
Values.
2. The enactment of Ordinances:
a) levying an annual "ad valorem" tax on
real property and an additional tax
accruing to the SEF.
b) fixing the assessment levels to be
applied to the market values of real
properties;
c) providing necessary appropriation to
defray expenses incident to general revision
of real property assessments; and
d) adopting the Schedule of Fair Market
Values prepared by the assessors.
The preparation of fair market values as a preliminary step
in the conduct of general revision was set forth in Section
212 of R.A. 7160, to wit: (1) The city or municipal assessor
shall prepare a schedule of fair market values for the
different classes of real property situated in their
respective Local Government Units for the enactment of an
ordinance by the sanggunian concerned. (2) The schedule
of fair market values shall be published in a newspaper of
general circulation in the province, city or municipality
concerned or the posting in the provincial capitol or other
places as required by law.
The Court also laid down the procedure in
computing the real property tax. With the introduction of
assessment levels, tax rates could be maintained, although
tax payments can be made either higher or lower
depending on their percentage (assessment level) applied
to the fair market value of property to derive its assessed
value which is subject to tax. Moreover, classes and values
of real properties can be given proper consideration, like
assigning lower assessment levels to residential properties
and higher levels to properties used in business. The
procedural steps in computing the real property tax are as
follows:
1) Ascertain the assessment level of the property
2) Multiply the market value by the applicable
assessment level of the property
3) Find the tax rate which corresponds to the class
(use) of the property and multiply the assessed value
by the applicable tax rates.
The computation of real property tax is cited below:
Market Value
Pxxx
Multiplied by Assessment Level (x %)
Assessed Value Pxxx
Multiplied by Rate of Tax
(x %)
Real Property Tax
Pxx
1. Declaration of Real Properties – whose duty?
DECLARATION OF REAL PROPERTY
It shall be the responsibility of the owner,
administrator or their representatives to
declare, under oath, the true value of real
property, taxable or exempt, within 60 days
after the acquisition. The sworn
declaration shall be filed once every 3 years
before June 30th of the year commencing
1992. The failure or refusal to make that
declaration within the prescribed period
would authorize the provincial or city
assessor to declare the property in the
name of the defaulting owner, if known, or
against an unknown owner as the case may
be, and to assess the property for taxation.
(Secs. 201-204 LGC).
In the case of Testate Estate of Concordia Lim V.
City of Manila, February 21, 1990, it was held that
the unpaid tax attaches to the property and is chargeable
against the person who had actual or beneficial use
and possession of it regardless of whether or not he
is the owner. To impose the real property tax on the
subsequent owner who was neither the owner nor
the beneficial user of the property during the designated
periods would not only be contrary to law but also unjust.
 REVIEW NOTES FOR TAXATION 2
a. Owner or Administrator (Secs. 202-203,
LGC)
When: once every 3 years during the
period from January 1 to June 30
What: file a sworn declaration with the
assessor with description of the
property
􀂾 IF newly acquired property -
a. files with assessor within 60 DAYS from
date of transfer a
b. SWORN statement containing FMV and
description of property
􀂾 IF improvement on real property
a. file w/in 60 DAYS upon completion or
occupation (whichever is earlier)
b. SWORN statement containing FMV and
description of property
b. Provincial / City / Municipal Assessor
(Sec. 204)
WHEN only when the person under Sec 202
refuses or fails to make the
declaration within the prescribed time. No oath
by assessor is required
• NOTE: IF FILING FOR EXEMPTION (Sec. 206)
WHAT person claiming exemptions must file with
assessor sufficient documentary
evidence to support claim
WHEN within 30 days from the date of
DECLARATION of property
• IF required evidence is not submittedwithin 30
days, the property will be listed as taxable in the roll
• IF proven to be tax-exempt, property will be
dropped from the roll
• NOTE: IF PROPERTY DECLARED FOR THE
FIRST TIME (Sec. 222)
If declared for 1st time, real property shall be
assessed for back taxes
a) for not more than ten (10) years prior
to the date of initial assessment
b) taxes shall be computed on the basis of
applicable schedule of values in force during the
corresponding periods
*Assessor will compare the entry on file with the
Registry of Deeds and the assessment roll in his office.
c. building officials
Prior to construction of building, as required in
procuring building permit.
Permit transmitted by building officials to
Registry of Deeds.
d. Geodetic engineers - For lands surveyed
e. Notaries Public - For document notarization,
must furnish the assessors a copy
2. Valuation by Assessors
Assessment
- the act or process of determining the value of a property,
or proportion thereof subject to tax, including the
discovery, listing, classification, and appraisal of
properties.
Appraisal
- the act or process of determining the value of property as
of a specific date for a specific purpose.
LISTING OF REAL PROPERTY IN THE
ASSESSMENT ROLLS
(Secs. 205, 207)
􀂾 Listing of all Real Property whether taxable or exempt
within the jurisdiction of LGU in the assessment roll.
o Undivided real property – in the name of the estate or
heirs or devisees
o Corporation, partnership and association – same as
individuals
o Owned by the Republic of the Philippines, its
instrumentalities, political subdivisions, beneficial use
is transferred to a taxable person – in the name of the
possessor
􀂾 All declarations shall be kept and filed under a uniform
classification system to be established by the provincial,
city or municipal assessor.
Steps in assessment of Real Property :
1. Listing of all properties subject to the tax; and
2. The valuation of such properties.
In Callanta vs. Ombudsman, January 30, 1998,
where the issue was whether officials and employees of
the Office of the City Assessor may reduce the new
assessed values of real properties upon requests of the
affected property owners, the Court ruled that forestall the
practice of initially setting unreasonably high
reassessment values only to eventually change them to
unreasonably lower values upon "requests" of property
owners, the law gives no such authority to the city
assessor or his subalterns.. . Thus, petitioners'
unauthorized reduction of the assessed values ineluctably
resulted in the local government's deprivation of the
corresponding revenues. Lost or reduced revenues
undeniably translate into damages or injury within the
contemplation of the law. The city government of Cebu,
therefore, had every legal right to feel aggrieved and to
institute the proceeding against petitioners.
3. Preparation of Schedule of Fair Market Values
APPRAISAL AND VALUATION OF REAL
PROPERTY
(Sec 212-214, 224-225)
How to determine Fair Market Value:
For Land
1. Assessor of the province/city or municipality may
summon the owners of the properties to be affected and
may take depositions concerning the property, its
ownership amount, nature and value. (sec. 213,LGC)
2. Assessor prepares a schedule of FMV for different
classes of properties.
3. Sanggunian enacts an ordinance.
4. The schedule of FMV is 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 places therein (Sec.
212, LGC)
Classification of Land for purposes of assessment - Sec
218, LGC
1. Commercial – land devoted principally for the object of
profit and is not classified as agricultural, industrial,
mineral, timber, or residential land
2. Agricultural – land devoted principally to the planting of
trees, raising of crops, livestock and poultry, dairying,
salt making, inland fishing and similar aquacultural
activities, and other agricultural activities
3. Residential – land principally devoted to habitation
4.Mineral- lands which minerals, metallic or non-metallic,
exist in sufficient quantity or grade to justify the
necessary expenditures to extract and utilize such
materials
5. Industrial-land devoted principally to industrial activity
as capital investment and is not classified as agricultural,
commercial, timber, mineral or residential land
6. Timberland
 REVIEW NOTES FOR TAXATION 2

7. Special c. cost spent

- Classification of lands made by respective sanggunian in d. metes and bounds
accordance with zoning ordinances.
-It is based on actual use. Actual use refers to the purpose What may be done:
for which the property is principally or i. levy ad valorem taxes (see above)
predominantly utilized by the person in ii. Fix Assessment levels
possession thereof. Assessment level – is the percentage applied to
the fair market value to determine the taxable or
For Machinery taxation value of the property.
1. For Brand New machinery : FMV is acquisition cost
2. In all other cases: In City Assessor of Cebu City vs. Association of
FMV = Remaining economic life x Replacement Benevola de Cebu, June 8, 2007, applying Secs. 215-216, of
cost LGC, in line with City Tax Ordinance LXX of Cebu City, the
10% special assessment should be imposed for the Chong
DETERMINE ASSESSED VALUE (Sec. 218) Hua Hospital Medical Arts Center (CHHMAC) building
which should be classified as “special”. Sec. 216, LGC states
Procedure that:
1. take the schedule of FMV (Fair Market Value)
2. Assessed value = FMV x Assessment level SEC. 216. Special Classes of Real
3. Real Property Tax = Assessed value x Allowable Real Property.––All lands, buildings, and
Property Tax rate other improvements thereon
actually, directly and exclusively
4.Enactment of a Real Property Tax Ordinance used for hospitals, cultural or
scientific purposes, and those
Barangays cannot impose realty taxes. owned and used by local water
Municipalities cannot fix real estate tax rates. districts, and government-owned
or controlled corporations
Procedure: rendering essential public services
a.hearing and modification of prepared schedule in the supply and distribution of
b.publication water and/or generation and
c.adoption of the schedule transmission of electric power
d.adoption of real property ordinance with shall be classified as special.
assessment levels
iii. Provide for appropriations
Coverage / Types of Real Property Tax: iv. Adopt Schedule of Fair Market Values
1. Basic real property tax / Annual Ad Valorem Tax
For real property not specifically exempted Fair Market Value and Assessed Value – What’s the
a.Provinces – not more than 1% of assessed value; difference?
b.Cities, Municipalities in MM – not more than 2% Fair Market Value (FMV)
of assessed value - price at which a property may be sold by
a seller who is not compelled to sell and bought by
2. Special levies: a buyer who is not compelled to buy
a. Special Education Fund (SEF)
- 1% additional real estate tax to finance the SEF Assessed Value or Assessment Value (AV)
(Sec.236) – within MM area only - fair market value of the real property
multiplied by the assessment level. It is
b. Additional Ad Valorem on the Lands synonymous with taxable value.
– not exceeding 5% of the assessed value of the
property (Sec. 236, LGC)
Payment of Tax

c. Special Assessments/ For Public Works When: January 1 of every year (Sec 246)
- on lands specially benefited by public works, The tax shall constitute as superior lien (Sec. 246)
projects or improvements funded by the LGU
- May be imposed even by municipalities outside How:
MM provided: a. basic real prop tax in 4 equal installments (Mar 31,Jun
- Special levy shall not exceed 60% of the 30,Sep 30, Dec 31)
actual cost of such projects and improvements, including b. special levy - governed by ordinance
the costs of acquiring land and such other real property in
connection therewith not apply to lands exempt from basic Interest for Late Payment
real property tax and the remainder of the land have been - two percent (2%) each month on unpaid amount until
donated to the local government unit concerned for the the delinquent amt is paid.
construction of said projects. (Sec. 240, LGC). - provided in no case shall the total interest exceed
thirty-six (36) months
Special Levy
Requirements for validity: Advance and Prompt Payment
1. infrastructure project financed by a) advance payment - discount not exceeding 20% of
government whereby real property owners annual tax (Sec 251, LGC)
benefit from it b) prompt payment - discount not exceeding 10% of
2. not more than 60% of actual cost of annual tax due(Art 342 IRR)
project
3. not less than five but not more than ten Collection of Tax (Sec.247, LGC)
years The collection of the real property tax with
4. thru an ordinance interest thereon and related expenses and the
a. nature of project enforcement of the remedies provided by the LGC or any
b. extent of project
 REVIEW NOTES FOR TAXATION 2

applicable laws shall be the responsibility of the city or

municipal treasurer concerned.
The city or municipal treasurer my deputize the
barangay treasurer to collect all taxes on real property
located in the barangay provided the barangay treasurer is
properly bonded.

Who Collects:
The provincial, city, municipal or barangay treasurer

Period Within Which To Collect (Sec 270):

Within five (5) yrs from the date they become due within
ten (10) yrs. from discovery of fraud, in case there is fraud
or intent to evade

Period of prescription shall be SUSPENDED when: (Sec

270, LGC)
1. local treasurer is legally prevented to collect tax
2. the owner of prop requests for reinvestigation and
writes a waiver before expiration of period to
collect
3. the owner of the property is out of the country or
cannot be located