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Marshall Dictum: “The power to tax is the Tax exemptions (including tax amnesties
power to destroy.” and tax condonation) are not presumed
and, when granted, are strictly construed
Due to the inherent and unlimited nature against the taxpayers and liberally in favor
of the power to tax, it includes the power of the taxing authority. (Principle of
to regulate even to the extent of Strictissimi Juris)
prohibition or destruction.
Reason: Lifeblood Doctrine
It applies when power to tax is used
validly as an implement of police power in PURPOSES OF TAXATION
discouraging and prohibiting certain Secondary or Non-Revenue
Primary Purpose
things or enterprises inimical to the public Purposes
welfare. To raise revenues 1. Regulation
a. To implement police
Oliver Windell Holmes Dictum: he power to power of the State;
tax is not the power to destroy while this Court b. For promotion of
sits” general welfare
2. Reduction of social
The power to tax is unlimited except when inequality
it runs counter to constitutional provisions. 3. Encouragement of
In such case, the court may declare and economic growth.
hold such act as unconstitutional. 4. Protection for local
industries against unfair
Reconciliation of the Marshall and Holmes competition.
Dictums:
Police Power – a power of the Sovereign Eminent Domain – the power of the State or
State to legislate for the protection of the those to whom the power has been
health, welfare and morals of the delegated to take private property for
community. public purpose upon payment of just
compensation to be ascertained
according to law.
Note: Taxation maybe used to implement an object of police power. (Luis vs. Araneta, 98 Phil 148) Taxation
maybe used as an implement of eminent domain (Commissioner v. Central Luzon Drug, 456 SCRA 414)
SIMILARITIES AMONG THE 3 INHERENT 4. They constitute the 3 methods by which the
POWERS State interferes with private rights and
property.
1. They are inherent in the State. 5. They presuppose equivalent compensation.
2. They all exist independently of the 6. They are legislative in nature and character.
Constitution.
3. All are necessary attributes of the sovereign Taxes – enforced proportional contribution from
state. properties and persons levied by the State by
virtue of its sovereignty for the support of the
government and for public feeds. (1 Cooley 62)
CHARACTERISTICS OF TAXES:
Reasons:
1. Generally payable in money 1. Taxes are not in the nature of contracts
2. Imprescriptible between the parties but grow out of duty
XPN: when the law provides for to the government. (Republic vs.
prescription. Mambulao Lumber Co., 4 SCRA 622).
3. Levied for public purpose
4. Legislative in character 2. The government and the taxpayers are
5. Taxes are enforced contributions not mutually creditors and debtors to each
6. Not assignable other. (Cordero vs. Gonda, 18 SCRA
7. Not subject to set-off unless it falls under 311).]
the exceptions
8. Imposed at regular intervals XPNs:
9. Imposed under the taxing power of the
State 1. Domingo vs. Garlitos, (8 SCRA 443.)
10. Money for government purposes When both the claim of the
Government for taxes and the claim of the
LIABILITY INVOLVED taxpayer for services rendered have
already become overdue and
GR: Taxes are personal to the taxpayer. demandable as well as fully liquidated,
Corporations tax delinquency cannot be enforced compensation therefore, takes place by
on the stockholder nor transfer taxes of the estate operation of law.
be assessed against the heirs.
2. Republic vs. Ericta (172 SCRA 623)
XPNs:
The taxes due from the taxpayer
1. Stockholders may be held liable for were considered paid through the delivery
unpaid taxes of a dissolved corporation if of certificates of indebtedness.
the corporate assets have already passed
into their hands (Piercing the Corporate
Veil); DOCTRINE OF EQUITABLE RECOUPMENT – a
2. Heirs may be held liable for the transfer claim for refund barred by prescription may be
taxes on the estate if prior to the payment allowed to offset unsettled tax liabilities arising
of the same, the properties of the from the same transaction.
decedent have been distributed to the
heirs.
The SC, REJECTED this doctrine in
COMPENSATION OR SET-OFF Collector vs. UST (104 Phil 1062) since it
may work to tempt both parties to delay
GR: No set-off is admissible against demands for and neglect their respective pursuits of
taxes levied for general or local government legal action within the period set by law.
purposes.
TAX TOLL
1. An enforced proportional contribution from 1. A consideration paid for the use of a road, bridge
persons and property for public purpose/s. or the like, of a public nature.
2. Demand of sovereignty 2. Demand of proprietorship
3. Generally the amount is unlimited 3. Amount is limited to the cost and maintenance of
4. For the support of the government public improvement
5. May be imposed by the State only 4. For the use of another’s property
5. May be imposed by private individuals or entities.
TAX SPECIAL ASSESSMENT
1. Imposed on persons, property rights or 1. Levied only on land
transactions. 2. Not a personal liability of the person assessed.
2. A personal liability of the taxpayer 3. Contribution to the cost of public improvement
3. For the support of the government 4. Exceptional as to time and locality.
4. Regular exaction
TAX LICENSE FEE
1. Imposed to raise revenue 1. For regulation and control
2. Collected under the power of government 2. Collected under police power
3. Generally, amount is unlimited 3. Limited to the necessary expenses of regulation
4. Imposed on persons, property, rights or and control
transaction 4. Imposed on the exercise of a right or privilege
5. Non-payment does not make the business 5. Non-payment makes the business illegal
illegal.
TAX PENALTY
1. Imposed to raise revenue 1. To regulate conduct
2. Maybe imposed by the State only 2. Maybe imposed by private entity
TAX CUSTOM’S DUTY
1. Imposed on persons, property, rights or 1. Imposed on imported or exported goods
transactions 2. It is also a tax
2. Broader than custom’s duty
TAX DEBT
1. Based on law 1. Based on contract express or implied
2. Not assignable 2. Assignable
3. Payable in money 3. Payable in kind or in money
4. Not subject to set-off 4. Subject to set-off
5. Non-payment may result to imprisonment 5. No imprisonment (except when debt arises from
6. Bears interest only if delinquent crime)
7. Governed by the special prescriptive periods 6. Interest depend upon the stipulation of the
provided for in the NIRC. parties
7. Governed by the ordinary periods of prescription.
CLASSIFICATION OF TAXES
As to 1. Personal/Poll or Capitation
Subject matter tax- a fixed amount upon all
persons, or upon all persons of a
Community tax
certain class, residents within a
specified territory, without regard
to their property of occupation.
2. Property tax-imposed on
property, whether real or
personal, in proportion either to
Real Estate tax
its value, or in accordance with
some other reasonable method
of apportionment.
3. Excise tax – a charge upon the
performance of an act, the
enjoyment of a privilege, or the
engaging in an occupation. An 1. Income tax
excise tax is a tax that does not 2. Estate tax
fall as personal or property. 3. Donor’s tax
4. VAT
Note: This is different from the 5. Other percentage taxes
excise tax which is a business
tax imposed on item such as
cigars, cigarettes, wines, liquors,
frameworks, mineral products,
etc.
Excise tax on cigar, cigarettes and
1. Specific-tax of a fixed amount
As to determination of liquors.
imposed by the head or number,
the amount
or by some standard of weight or
measurement.
1. General/Fiscal or Revenue –
As to purpose tax imposed solely for the 1. Income Tax
general purpose of the 2. Donor’s Tax
government 3. Estate Tax
2. Special/Regulatory – tax levied
for specific purpose, i.e. To Tariff and certain duties on imports
achieve some social or
economic ends
1. Income tax
As to who 1. Direct – one that is demanded 2. Estate tax
bears the from the person who also 3. Donor’s tax
burden shoulders the burden of tax.
1. VAT
2. Indirect – one which is shifted 2. Other percentage taxes
by the taxpayer to someone
else.
1. Inequalities resulting from the singling out On the absence of the “requisite
of one particular class for taxation or pecuniary or monetary interest”, a
exemption infringe no constitutional taxpayer’s suit will not prosper.
limitation because the legislature is free to Moreover, even on the assumption
select the subjects of taxation. that public funds raised by taxation
were involved, it does not necessarily
follow that such kind of an action to
2. An individual taxpayer need not derive assail the validity of a legislative or
direct benefits from the tax. The executive act has to be passed upon.
paramount consideration is the welfare of The Court is not devoid of discretion
the greater portion of the population. as to whether or not it should be
entertained. (Gonzales vs. Marcos, 65
SCRA 624)
3. A tax may be imposed, not so much for
revenue purposes, but under police power
for the general welfare of the community.
However, the SC has discretion as to
whether or not entertain a taxpayer’s
4. Public purpose is continually expending. suit and could brush aside the lack of
Areas formerly left to private initiative now locus standi where the issues are of
lose their boundaries and may be transcendental importance in keeping
undertaken by the government if it is to with the court’s duty to determine that
meet the increasing social challenges of public offices have not abused the
the times. discretion given to them. (Kilosbayan
vs. Guingona, 232 SCRA 110)
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
10
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
- Under Art XII, Sec. 11 of the 1987 It is not the law but the revenue bill which
Constitution, no public utility must originate exclusively in the House of
franchise or right shall be granted Representatives. It may undergo such
“except under the condition that it extensive changes that the result may be a
shall be subject to amendment, rewriting of the while. (Tolentino vs. Secretary
alteration or repeal by the Congress of Finance 235 SCRA 630.)
when the common good so requires”
(Cagayan Electric Power and Light The Senate may not only concur with
Co vs. CIR, Sept. 25, 1985). amendments but also propose amendments.
7. ORIGIN OF APPROPRIATION, REVENUE The press is not immune from the general
AND TARIFF BILLS regulation by the State. The publisher of a
Art. VI, Sec. 24: “All appropriation, revenue and newspaper has no immunity from the
tariff bills, bills authorizing the increase of public application of general laws. (Tolentino vs.
debt, bills of local application and private bills, Secretary of Finance)
shall originate exclusively in the House of
Representatives, but the Senate may propose of Thus, withdrawal of exemption previously
concur with amendments.” granted to the press does not amount to
violation of press freedom.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
15
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
which inures to the benefit of any private Exemptions may be created by the
stockholders or individual in an amount Constitution or by statute subject to
not exceeding 10% in case of individual, limitations as the Constitutions may place.
and 5% in case of a corporation, of the
taxpayer’s taxable income derived from In granting tax exemptions, absolute
trade or business or profession. (Sec. 34 majority vote of the members of Congress
(H), NIRC). is required. However, in withdrawal of
such exemptions, a relative majority is
c. For purposes of donor’s and state sufficient.
taxation donations in favor of religious
and charitable institutions are generally The following are in the NATURE OF TAX
not subject to tax provided, however that EXEMPTIONS:
not more than 30% of the said bequest, 1. Tax amnesties;
device or legacy or transfer shall be used 2. Tax condonations;
for administration purposes (Sec. 87 and 3. Tax refunds.
101, NIRC)
Rule on Construction of Exemption:
13. TAX EXEMPTIONS GRANTED TO NON- a. The intent of the legislature to
STOCK, NON-PROFIT EDUCATIONAL grant tax exemption must be in
INSTITUTIONS. clear and unmistakable terms.
Art. XIV, Sec. 4(3): “All revenue and assets of b. Exemptions are never presumed.
non-stock, non-profit, educational institutions used c. The burden of establishing right to
actually directly and exclusively for educational an exemption is upon the claimant.
purposes shall be exempt from taxes and duties. d. GR: Strict construction of tax
Upon the dissolution and cessation of the exemptions
corporate existence of such institutions, their
assets shall be disposed of in the manner XPNs:
provided by law. Subject to the conditions 1. If the statute granting exemption
prescribed by law, all grants, endowments, expressly provides for liberal
donations or contributions used actually, directly interpretation;
and exclusively for educational purposes shall be 2. In case of special taxes (relating to
exempt from tax.” special cases affecting special
persons);
Entities Covered – ONLY non-stock, 3. In case of exemptions of public
non-profit educational institutions. property
4. Those granted to traditional
Taxes Covered – internal revenue taxes exemptees;
and custom duties on all revenues and 5. Exemptions in favor of the
assets of such institutions. government;
6. Exemption by clear legislative
However, incomes which are unrelated to intent.
school operations are taxable.
TAX AMNESTY TAX EXEMPTION
14. GRANT OF TAX EXEMPTIONS Immunity from al Immunity from
Art. VI, Sec 28 (4): “No law granting tax exemption criminal and civil civil liability
shall be passed without the concurrence of a obligations arising only
majority of all the members of Congress.” from non-payment of
tax given to all
taxpayers
Applied retroactively Prospectively
The inherent power of the state to impose applied
taxes carries with it the power to grant tax 15. MUNICIPAL TAXATION
exemptions. (See discussion on Local Taxation.)
Elements:
a. The same property is taxed twice XPN: If the law expressly provides for
when it should be taxed only once; retroactive imposition.
b. Imposed on the same property or
subject matter;
c. For the same purpose;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
18
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The “ex post facto” rule is inapplicable method of assessing taxable property of
since tax laws are neither political nor income; in order to avoid or reduce tax
penal in nature. liability.
XPN: If the tax law provides for statute of 1. Failure of taxpayer to declare for
limitations. taxation purposes his true and actual
income derived from business for 2
Purpose of Statute of Limitations: To consecutive years (Republic vs.
safeguard taxpayers from any Gonzales, 13 SCRA 633);
unreasonable examination, investigation 2. Substantial under – declaration of
or assessment. income in the LTR for 4 consecutive
years coupted with intentional
IV. ESCAPE FROM TAXATION overstatement of deductions (Perez
Basic forms of escape from taxation: vs. CTA, May 30, 1958).
1. Shifting;
2. Capitalization; 6. EXEMPTIONS – grant of immunity, express or
3. Transformation; implied, to particular persons or corporations,
4. Avoidance; form the obligation to pay taxes.
5. Evasion;
6. Exemption. KINDS OF TAX EXEMPTIONS
Such other taxes as are or hereafter may III. REQUISITES FOR INCOME TO BE TAXABLE
be imposed by law and collected by the 1. There must be gain or profit;
BIR. 2. The gain must be realized or received,
actually or constructively; AND
II. NATIONAL TAXES IMPOSED BY SPECIAL
LAWS:
DOCTRINE OF CONSTRUCTIVE
RECEIPT OF INCOME – income
1. Customs duties (P.D. No. 1464);
which is credited to the account of
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
22
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
and set apart for a taxpayer and excess of specified amounts and less
which may be drawn by him at any certain deductions and/or specific
time I subject to tax for the year exemptions in cases permitted by law.
during which it was so credited
although not yet then actually erected
or reduced to his possession. To VI. TAXABLE INCOME
constitute receipt in such case, the - The pertinent items of gross income
income must be credited to the specified in the Tax Code, less the
taxpayer without any substantial deductions and/or personal and
payment is to be made. additional exemptions, if any,
authorized for such types of income by
Purpose: to prevent the taxpayer the Tax Code or other special laws.
using the cash basis from
deferring or postponing the actual Taxable income = GI – D and /or E
receipt of taxable income.
3. The gain must not be excluded by law or VII. NATURE OF INCOME TAX
treaty from taxation. It is generally regarded as an excise
(privilege) tax. It is not levied upon
IV. TESTS ON TAXABILITY OF INCOME persons, property, funds or profits as
such but upon the right of the person to
1. Flow of Wealth Test – The determining receive income or profits.
factor for the imposition of income tax is
whether any gain or profit was derived from VIII. INCOME TAX BASE
the transaction. (CIR vs. Administration of Income tax is based on income, either
the Estate of Echerri.) gross or net, realized in one taxable
year.
2. Realization Test – Unless the income is
deemed realized, there is no taxable IX. FUNCTIONS OF INCOME TAX
income. 1. To provide large amount of revenues.
2. To offset regressive sales and
Revenue is generally recognized consumption taxes.
when both of the following conditions 3. To mitigate the evils arising from the
are met: inequalities in the distribution of income
1. The earning process is and wealth.
complete or virtually
complete; AND Partnership Theory – the basis of the
2. An exchange has taken right of the government to tax emanates
place. from its partnership in the production of
3. Economic Benefit Principle – Income income by providing resources, incentive
realized is taxable only to the extent that and proper climate for such production.
the taxpayer is, taking into consideration
the pertinent provisions of law,
economically benefited. X. SOURCES OF INCOME
4. Net Effect Test – The substance of the The property, activity or service that
whole transaction, not the form, usually produced the income, if the income is
controls the tax consequences. derived from:
Tax on the net income or the entire income c. Sale or exchange of capital assets
realized in one taxable year. It is levied – source is the place where the sale
upon corporate and individual income in or transaction occurs.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
23
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
8. Foreign Currency Deposit Unit – The unit of relationship unless specifically excluded by
a local bank or a local branch of a foreign the Code.
bank authorized by BSP to engage in foreign If a taxpayer is receiving compensation
currency –denominated transactions, income from 2 more employers, he must
pursuant to R.A. No. 6426. combine all compensation income
received from all employers for a
Foreign Currency Deposit System – particular calendar year.
the conduct of banking transactions
whereby any person, whether natural Taxed at graduated rates of 5% to 32%
or juridical, may deposit foreign
currencies forming part of the 2. Business income – rises from self-
Philippine International reserves. employment or practice of profession.
9. Overseas Contract Worker – An individual
citizen of the Philippines who is working and Taxed at graduated rates of 5% to
deriving income from abroad as an OCW. 32%
- Taxable only on income from sources 3. Passive income. Those subject to a separate
within the Philippines. As long as the and final tax.
qualifications as an OCW are met,
they shall be taxed as non-resident It is assumed that passive incomes
citizen. are all gross of withholding taxes.
Final withholding taxes on passive
Seaman – considered an OCW if: income are remitted by the payer who
a. He is a citizen of the Philippines; serves as withholding agent to the
b. He receives compensation for BIR.
services rendered abroad as a Taxed at fixed rates ranging from 5%
member of the complement of a to 25%
vessel; AND
c. Such vessel is engaged 4. Capital gains from sale of shares of stock
exclusively in international trade. not traded through a local stock exchange
This rule shall apply to all individual
10. Special Individual Taxpayers – Alien taxpayers.
individuals employed by regional or are
headquarters or regional operating Requisites:
headquarters of multinational companies,
offshore banking units and petroleum service a. The transaction is a sale of
contractors shall be subject to final tax of 15% shares of stock of a domestic
of gross income provided that the same tax corporation.
treatment shall apply to Filipinos employed by b. The stock is not listed and traded
the same companies with the same position thru a local stock exchange;
(Filipino counterparts). c. The stock is held by the taxpayer
as capital asset.
6. Foreign Corporation
Carry-forward provision under the NOTE: This optional tax is available only to
MCIT firms whose ratio of cost of sales to gross
Any excess of the MCIT over the sales/receipts from all sources does not
normal income tax may be carried exceed 55%.
forward on an annual basis and be
credited against the normal income 12. Manufacturing, Merchandising or Mining –
tax for the 3 immediately succeeding gross income means Total Sales less Cost of
taxable years. Goods Sold plus any income from
investments and from incidental or outside
Relief from MCIT , Secretary of Finance operations.
may suspend imposition of MCIT on any
corporation which suffers losses – 13. Farming – Gross income includes gains or
1. On account of prolonged labor profits derived from the operation of farms,
dispute; such as stock, dairy, poultry, fruits and truck
2. Because of force majeure; farms, plantations, etc. Income may be
3. Because of legitimate business reported using either:
reverses; Cash basis
Accrual basis
Conditions for the Relief from MCIT; Crop Year basis
1. Upon recommendation of the
Commissioner, the Secretary of CATEGORIES OF INCOME [BPC2]
Finance, may suspend imposition
of the MCIT. 1. Business Income. Generally, business income
2. Upon submission of proof by the earned by a corporation is taxed as follows:
applicant corporation, duly 34% (1998); 33% (1999) 32% (2000-2005 and
verified by the Commissioner’s thereafter);
authorized representative, that
the corporation sustained - The rates apply to a domestic
substantial losses on account of corporation on income from within
the ff.: and without the Philippines AND to
a. Prolonged labor dispute; resident foreign corporations on
b. Force majeure; or income from within.
c. Legitimate business reverses.
2. Passive Income – Subject to separate and
Note: In the case of a domestic final tax.
corporation whose operations or activities
are partly covered by the regular income
tax system and partly covered under a - Taxed at fixed rates ranging from 5-
special income tax system, the MCIT shall 20%
apply on operations covered by the - Not to be included in the computation
regular income tax system. of gross income
If there is a price stipulated, such price 7. Vacation and Sick Leave Allowances.
will be followed in the absence of contrary Constitute compensation subject to income
evidence. tax.
GR: Interests received by a taxpayer Involves not only the use of the property
is taxable. but also its exhaustion. Royalties for
properties, which produce coal, gas, oil,
XPN: If exempted by law (such as copper, timber or other similar product
passive income subject to final tax). shall form part of gross income.
1. Advance rentals received during the Cash and property dividends declared
taxable year, including rentals actually and distributed by domestic corporation to
earned but uncollected as of the end of individual, stockholders who are residents
the period of the Philippines on or after January 1,
1998 but forming part of retained earnings
a. Prepaid rents where there is no as of December 31, 1997 shall not be
restriction as to its disposal by the subject to income tax.
lessor is taxable in the year received
regardless of the accounting method Forms of Dividends and Income Tax Treatment
employed.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
37
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
c. Income from sources within the Philippines on interest under the EFCDS
d. Income from sources within the Philippines on interest on currency bank deposits, yield or other monetary benefits
from deposit substitutes, trust friends and similar arrangements.
e. Income from sources within the Philippines, interest on long-term deposit or investment in banks (with maturity of 5
years or more).
f. Income from sources within the Philippines on royalties on books literary works and musical composition.
g. Income from sources within the Philippines, on royalties other than (f).
h. Income from sources within the Philippines, prizes exceeding P10,000
i. Income from sources within the Philippines, other winnings except PCSO and lotto winnings.
j. Income from sources within the Philippines, dividend from a domestic corporation or form a joint stock company,
insurance or mutual fund company and regional operating headquarters of a multinational company.
k. Share in distributable net income of partnership (except that of a GPP), joint account or joint venture or consortium
TAXABLE as a corporation.
l. Gross income from within the Philippines, cinematographic films and similar works.
f. GSIS, SSS, Medicare and PAG-IBIG more than five years) bonds,
contributions and union dues of debentures or other certificate of
individuals. indebtedness.
g. Gains realized from sale or exchange h. Gains from redemption of shares in a
on retirement (those with maturity of mutual fund company.
C. ALLOWABLE DEDUCTIONS
DEDUCTION EXCLUSION
1. A subtraction from Gross Income 1. An immunity or privilege, a freedom from a
change or burden to which others are subjected.
2. Not receipt, but are, generally expenditures 2. Generally receipts which are excluded from
which are permitted to be subtracted from taxable income.
income to determine the amount subject to
tax.
3. Reduction of wealth which helped earns the 3. The theoretical personal, family and living
income subject to tax. expenses of an individual
DEDUCTION EXCLUSION
1. Subtraction from gross income. 1. Not treated as part of gross income
2. Pertain to the computation of net income. 2. Pertain to the computation of gross income.
3. Something spent or paid in earning gross 3. Something received or
income.
2. For individuals with gross income 1. The taxpayer seeking a deduction must
from business or practice of point to some specific provisions of the
profession (except NRA-NETBP). statute authorizing the deduction;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
42
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Taxpayer shall signify in the income tax return a. Reasonable allowances for
his intention to elect OSD. salaries, wages and other
compensation for personal
10% of the gross income from business or services actually rendered
practice of profession of the taxpayer including gross monetary value
The election of OSD is irrevocable for the of fringe benefits;
taxable year for which the choice is made. b. Travel expenses in the pursuit of
trade or business;
He who claims OSD is not required to submit c. Rental and other payments for the
with his ITR any financial statement. continued use or possession of
property, for the purpose of trade,
business or profession;
II. ITEMIZED DEDUCTIONS d. Entertainment, amusement and
(OIITaLBaDDChaRP) recreating expenses during the
taxable year.
1. Ordinary and necessary expenses;
2. Interest;
3. Taxes; (2) Necessary Expense – appropriate and
4. Losses; helpful in the development of taxpayer’s
5. Bad debts; business and are intended to minimize
6. Depreciation; losses or to increase profits.
7. Depletion;
8. Charitable and other contributions;
9. Research and development costs;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
43
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
(3) Ordinary Expense – normal or usual in Costs of Materials and Supplies – actually
relation to the taxpayer’s business and consumed or used in the operation during the
the surrounding circumstances. year.
3. Property must be used in the trade or 4. Premiums paid on any life insurance
business; policy covering the life of any officer or
employee in any trade or business carried
4. Subject to withholding tax (5%). on by the taxpayer, individual or
corporate, when the taxpayer is directly or
Entertainment, Amusement and indirectly beneficiary under such policy.
Recreation: 5. Losses from sales or exchanges property
1. Expense is directly connected to the between related taxpayers.
development, management and operation
of TBP; 2. Interest
2. Expense is directly related to or in Amount of compensation paid for the use
furtherance of the conduct of TBP; of money or forbearance for such use
3. Reasonable;
4. Not contrary to laws, morals and public Requisites for Deductibility of Interests
policy or public order; 1. There must be an indebtedness;
5. Substantiated with sufficient evidences.
6. Appropriate amount of withholding tax, if 2. Interest expense was paid or incurred
applicable, is withheld and paid to the upon such indebtedness;
BIR.
- In case of mines other than oil and - Losses due to Voluntary Removal
gas wells, a net operating loss during of Building incident to
the first ten years of operation shall replacement Deductible. (Rev.
be allowed as NOLCO for ht next five Reg. No. 2 Sec. 87)
(5) years. - Loss of Useful Value of Capital
Assets Deductible to the extent of
2. Capital Losses actual loss sustained.
- Losses of Farmers deductible as
- Deductible only to the extent of capital long as incurred in the operation
gains. It includes the following: of the farm.
- Loss on sale or exchange of
property between Related
Taxpayers. NOT deductible
1. Loss arising from failure to (though gains are taxable.)
exercise privilege to sell or buy
property; - Loss due to removal of building if
2. Worthless securities; purchased (not incidental to
3. Abandonment losses in the renewal): NOT deductible.
case of natural resources;
4. Loss from wash sales; 5. BAD DEBTS
Deductible in Full:
Tax Benefit Rule – recovery of bad debts
previously allowed as deduction shall be a. Recipient –Government of the
included as part of gross income in the Philippines, or any of its agencies or
year of recovery to the extent of the political subdivisions, fully-owned
benefit of such deduction (tax benefit rule) government corporations
6. Depreciation
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
48
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Amount Allowed:
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
50
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Dependent
Senior Citizen:
- Any resident of the Philippines of at
least 60 years old, including those
who have retired from both
government offices and private
enterprise and has an income of not
more than P60,000 per annum,
subject to review by NEDA every
three years.
Individual Corporation
Holding period No holding period
The percentages of gain or loss to be taken Capital gains and losses are recognized to
into account shall be the ff.: the extent of 100%
a. 100% - if the capital assets has been for
12 mos. Or less; and
b. 50% - if the capital asset has been held
for more than 12 months
Non-deductibility of Net Capital Losses SAME
Capital losses are allowed only to the extent
of the capital gains; hence, the net capital EXCEPTION:
loss is not deductible. If any domestic bank or trust company, a
substantial part of whose business is the receipt of
deposits, sells any bond, debenture, note or
certificate or other evidence of indebtedness issued
by any corporation (including one issued by a
government of political subdivision)
Net Capital loss Carry-Over Not allowed
The net capital loss (in an amount not in
excess of the taxable income before
personal exemption for such year) shall be
treated in the succeeding year (but not
beyond 12 months) as a deduction as short-
term capital loss (at 100%) from the net
capital gains.
1. Capital Gain – gain derived from sale or d. Non-resident alien engaged in trade
exchange or capital assets. or business;
2. Capital Loss – The loss incurred from the e. Individuals deriving income from
sale or exchange of capital assets. business or practice of profession,
3. Net Capital Gain – The excess of gains regardless or amount of income;
form sale or exchange of capital assets f. Individuals deriving compensation
over the losses from such sale or income from two or more employers
exchange. during the taxable year;
4. Net Capital Loss – The excess of losses g. Individuals whose pure compensation
from sale or exchange of capital assets income exceeds P60,000
over the gains from such sale or
exchange. 2. Taxable Estates and Trusts
5. Holding Period – The duration for which
the taxpayer held the capital asset. 3. General Professional Partnerships
1.) Subject to final tax of ½ of 1 % of the In the following cases, inquiry into
gross selling price of the stock. the income tax returns of taxpayers
2.) Stockbroker shall turn over the tax to may be authorized:
the BIR within 5 banking days from
date of collection. 1. When the inspection of the return
is authorized upon the written
Capital Gains and Losses on Sale of Real order of the President of the
Property Philippines;
2. When inspection is authorized
Subject to final tax of 6% based on the gross under Finance Regulation No. 33
selling price or fair market value of zonal of the Sec. of Finance.
value, whichever is higher. 3. When the production of the tax
return is material evidence in a
G. ADMINISTRATIVE PROVISIONS criminal case wherein the
government is interested in the
I. WHO ARE REQUIRED TO FILE INCOME TAX result;
RETURN 4. When the production or
inspection thereof is authorized
1. Individual by the taxpayer himself.
a. Resident citizen;
b. Non-resident citizen; II. WHERE TO FILE
c. Resident alien;
Net Gifts
Add: All prior net gifts within the year
c. The value as recued in letter (b) shall be If the Family Home is conjugal or
further reduced by an amount equal to: community property, the entire value shall
be included in the gross estate but only ½
Value after letter (b) X Ordinary deductions shall be deductible as Family Home.
Gross Estate and transfers for
d. In summary, letter (a) less letter (b) and Reason: The Family Home deduction
(c) shall constitute the computed basis of as a separate item of deduction after the
Vanishing Deductions. share of the surviving spouse from the
gross estate has been deducted.
2. On the computed basis of Vanishing
Deductions in the first step, apply the rate of
deduction as indicated in the table above with If the Family Home is separate or
the corresponding period of death or transfer. exclusive property of the decedent, the
entire value shall be included in the gross
NOTE: The Vanishing Deduction shall be estate and shall also be entirely deducted
a deduction from the exclusive properties as a separate item of deduction after the
of the decedent. share of the surviving spouse from the
gross estate has been first deducted.
4. Family Home
The dwelling house where a married Reason: The gross estate is only
person or an unmarried head of the family composed of the common property and
and his family resides, and the land on separate property of the decedent. It does
which it is situated. not include the separate property of the
surviving spouse, therefore not subject to
Within the meaning of “family” are the estate tax.
spouse, parents, ascendants,
descendants, brothers and sisters, who
are living in the family home and who
depend upon the head of the family for
support.
5. Standard Deduction
REQUISITES FOR DEDUCTIBILITY Represents a fixed amount of P1m that
maybe claimed as a deduction from the
1. The family home must be the actual gross estate, without need of any
residential home of the decedent and his substantiation.
family at the time of his death as certified by
the Barangay Captain of the locality where the 6. Medical Expenses
family home is situated.
Incurred within 1 year prior to the
2. The total value the family home must be decedent’s death; must be substantiated
included as part of the gross estate of the with receipts, provided it shall not exceed
decedent; and P500,00 whether paid or unpaid.
3. Allowable – deduction must be in the amount Any amount of medical expenses incurred
equivalent to the current FMV of the family within 1 year from the decedent’s death in
home as declared or included in the gross excess of P500,000 shall no longer be
estate, or to the extent of the decedent’s allowed as a deduction. Neither can any
interest (whether conjugal/community or unpaid amount thereof in excess of the
exclusive property), whichever is lower, but no P500,000 threshold nor any unpaid
exceeding P1,000,000. amount for medical expenses incurred
prior to the 1 year period from date of
death shall be allowed to be deducted
NOTE: from the gross estate as claim against the
estate;
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
63
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
2. To tax the wealthy and reduce certain other Where property, other than real property
excise taxes. subject to capital gains tax is transferred
for less than an adequate and full
3. To discourage inter vivos transfers of property consideration in money or money’s worth,
which could reduce the mortis causa transfers then the amount by which the FMV of the
on which a higher tax, the estate tax, would property exceeded the value of the
be collected. consideration shall, for the purpose of the
donor’s tax be deemed a gift and shall be
included in computing the amount of gifts
4. It will tend to reduce the incentive to make made during the calendar year. Donative
gifts in order that distribution of future income intent therefore, is not always essential to
from the donated property may be to a constitute a gift.
number of persons with the result that the
taxes imposed by the higher brackets of the A Transfer becomes complete and taxable
income tax are avoided. only when, the donor has divested himself
of all beneficial interests in the property
LAW THAT GOVERNS IMPOSITION OF transferred and has no power to revest
DONOR’S TAX any such interest in himself or his estate.
A gift that is incomplete because of
The law in force at the time of the reserved powers, becomes complete
perfection/completion of the donation. when either:
1. The donor renounces the power; or
2. His right to exercise the reserved
WHEN DONOR’S TAX APPLIES power ceases because of the
happening of some event or
The donor’s tax shall not apply unless and contingency or the fulfillment of
until there is a completed gift. some condition, other than because
of the donor’s death.
The transfer of property by gift is perfected Renunciation by the surviving spouse of
from the moment the donor knows of the his/her share in the conjugal partnership
acceptance by the donee. or absolute community after the
dissolution of the marriage in favor of the
heirs of the deceased spouse or any other INCLUSIONS IN THE GROSS GIFTS:
person/s is subject to donor’s tax. 1. Resident Citizen, Non-Resident Citizen,
However, general renunciation by an heir, and Resident Alien (WHEREVER)
including the surviving spouse, of his/her
share in the hereditary estate left by the (1) Rea property wherever situated
decedent is not subject to donor’s tax, (within * without the Phils.)
unless specifically and categorically done (2) Personal property wherever situated,
in favor of identified heir/s to the exclusion tangible or intangible
or disadvantage of the other co-heirs in
the hereditary estate. 2. Non-Resident Alien (only WITHIN)
NOTE: A corporation, domestic or foreign is not 1. Franchise which must be exercised in the
liable to pay estate tax, but liable to pay Donor’s Philippines
tax.
2. Shares, obligations or bonds issued by
GROSS GIFTS any corporation or sociedad anonima
organized or constituted in the Philippines
This refers to all property, real or in accordance with its laws.
personal, tangible or intangible, that are
given by the donor to the donee by way of 3. Shares , Obligations or bonds by any
gift, without the benefit of any deduction foreign corporation 85% of its business is
(Sec 104 NIRC) located in the Philippines.
AAB, RDO, RCO, or duly authorized It is deemed made when released mailed
treasurer of the City or municipality where the or sent to the taxpayer within the three-
donor was domiciled at the time of the transfer or year or ten-year period, as the case may
with the Office of the CIR. be . (CIR vs. Pascor, 309 SCRA 402)
4. The authority vested in the Commissioner 2. Official Assessment – issued by the BIR
TO ASSESS taxes may be delegated in case the taxpayer fails to respond to
the proposed assessment, or his
5. Assessments must be directed to the right explanation is not satisfactory to the
party. Commissioner.
RETURN FILED WAS NOT FALSE OR NO RETURN WAS FILED, OR THE RETURN FILED
FRAUDULENT WAS FALSE OR FRAUDULENT
Assessment should be made within 3 years from Assessment should be made within ten (10) years
the date of filing of the return (or from the last day from the date of discovery of the failure to file the
required by law for filing, if the return was filed before return, or the falsity or fraud in the return.
such last day).
Collection should be made within five (5) years from
Collection should be made within five (5) years the date of assessment, either by:
from the date of assessment, either by:
(c) Summary proceedings; or
(a) Summary proceedings; or
(b) Judicial proceedings Judicial proceedings.
Assessment should be made within 3 years from Assessment should be made within ten (10) years
the date of filing of the return( or from the last day from the date of discovery of the failure to file the
required by law for filing, if the return was filed before return, or the falsity or fraud in the return.
such last day).
Collection should be by judicial proceedings only.
Collection should be by judicial proceedings only
3. AUDIT PROPER. The BIR shall make a 5. PREASSESSMENT NOTICE – the letter
report and present the same to the sent by BIR to the taxpayer asking him to
taxpayer who shall either agree or explain within 15 days from receipt why
disagree with the report. he should not be subject of an
assessment notice. It must show facts,
a. If the taxpayer is not liable for
deficiency, ASSESSMENT ENDS a. If taxpayer responds – Commissioner
receives position paper of taxpayer. If
(1) Service of warrant of distraint upon Deficiency – taxpayer shall not be liable.
taxpayer or upon any person, in
possession of the property; If proceeds are insufficient, CIR may
purchase in behalf of the government.
By? Distraining officer
CONSTRUCTIVE DISTRAINT (Sec 206),
Contents NIRC; RMC 5-2001) –the owner is merely
a. An account of the property prohibited from disposing of his personal
distrained. property.
b. Signed by the officer;
c. The sum demanded; How effected?
d. Time and place of sale;
By requiring the taxpayer or any
To whom served? [TSDB] person having possession of the property:
[SON]
1. Tangible goods 1. To sign a receipt covering the
Owner or person in property distrained;
possession; OR 2. To obligate himself to preserve it
Someone of suitable age and intact and unaltered; AND
discretion at the dwelling or 3. Not to dispose of it without express
place of business of such authority of the CIR.
person.
Q: What if Taxpayer Refuses or Fails to
2. Stocks and/or Securities Sign?
Upon the taxpayer AND
President, manager, treasurer A: Officer shall:
or other responsible officer of 1. Prepare all list of such
the corporation. property; AND
2. Leave a copy of such list in
3. Debts/credits the premises where the
Upon the person owing the property is located, in the
debt; OR presence of 2 witnesses.
The person having control
over the credit or his agent. GROUNDS FOR CONSTRUCTIVE
DISTRAINT (Sec. 206, NIRC)
4. Bank accounts –
Service of Warrant of - Same as the ground to terminate tax
Garnishment upon the period under Sec 6(D), NIRC.
taxpayer AND
The president, manager, SPECIFIC CASES WHEN NOTICE OR
treasurer or other responsible WARRANT OF CONSTRUCTIVE DISTRAINT
officer of the bank. OVER THE PROPERTY OF TAXPAYER MAY BE
ISSUED [LRTABUC]
(2) Posting of notice in not less than 2 public
places in the municipality or city and 1. Taxpayer has a record of leaving
Notice to taxpayer specifying the time and the Philippines at least twice a year,
place of sale and the articles distrained. unless such business is justified
and/or connected.
(3) Sale at public auction;
distrained
3. Taxpayer has record of transferring OR Leaving a list of
his bank deposits and other Service of such property
personal properties in the Philippine warrant
to any foreign country (except if Effect on Merely to prevent the
taxpayer is a banking institution); Immediate
collection taxpayer from
step to
disposing his
collect
property
4. Taxpayer uses aliases in bank
accounts other than the name for Note: Property levied upon by the order
which he is legally and/or popularly of a competent court may, with
known; consent thereof, be subsequently
distrianed, subject to the prior lien
of the attachment creditor.
5. Taxpayers keep bank deposits and (Collector of Internal Revenue vs.
other properties under the name of Roberta Flores Vda. De Conidera
other persons, whether or not et. Al No. L-9675, September 28,
related to him, and the same are 1957)
not under any lawful fiduciary or
trust capacity; Levy on Real Property (Sec. 207(B), 213-
215, NIRC)
EFFECT OF FORFEITURE
- Upon?
- To transfer the title to the specific thing The entire property and rights to
form the owner to the government property of the taxpayer.
- Applies when?
3. Criminal violations already filed in courts, (1) The delinquent account or disputed
(DF2E) assessment is one resulting from a
jeopardy assessment.
a. Delinquent accounts with duly
approved schedule of installment JEOPARDY ASSESSMENT – a tax
payments; assessment which was assessed
without the benefit of complete or
b. Cases where final reports of partial audit by an authorized revenue
reinvestigation or reconsideration officer, who has reason to believe that
have been issued, resulting to the assessment and collection of a
reduction in the original assessment deficiency tax will be jeopardized by
and the taxpayer is agreeable to such delay because of the taxpayer’s
decision by signing the required failure to comply with the audit and
agreement form for the purpose. investigation requirements to present
On the other hand, other protested his books of accounts and/or pertinent
cases shall be handled by the records, or to substantiate all or any
Regional Evaluation Board (REB) or of the deductions, exemptions, or
the National Evaluation Board (NEB) credits claimed in his return.
on a case to case basis.
(2) Assessment seems to be arbitrary;
c. Cases which become final and
executor after final judgment of a - Appearing to be based on
court where compromise is requested presumptions and there is reason to
on the ground of doubtful validity of believe that it is lacking in legal and/or
the assessment; and factual basis.
d. Estate tax cases where compromise (3) Failure to file administrative protest (due
is requested on the ground of final to receive PAN or AN and there is reason
incapacity of the taxpayer. to believe that it is lacking in legal and/or
factual basis);
BASIS FOR ACCEPTANCE OF COMPROMISE
SETTLEMENT – (Sec. 3 Rev. Reg. 30-2002) (4) Failure to file a request for
reconsideration or request for
1. Doubtful validity of assessment; reinvestigation within 30 days from receipt
of final assessment notice (and there is
- There must be reasonable doubt as to reason to believe that it is lacking in legal
the validity of the assessment. and/or factual basis);
(7) Assessments made based on the “Best (3) Taxpayer is suffering from net worth
Evidence Obtainable Rule” and there is deficit (total liabilities exceed total assets)
reason to believe that the same can be
disputed by sufficient and competent
evidence; Provided that in the case of an
individual taxpayer, he has no other
leviable properties under the law
(8) The assessment was issued within the other than his family home;
prescriptive period for assessment as
extended by the taxpayer’s execution of
Waiver of the Statute of Limitations the (4) Taxpayer is a compensation income
validity or authenticity of which is being earner;
questioned or at issue and there is strong
reason to believe and evidence to prove (a) With no other source of income and
that it is not authentic. the family’s gross monthly
compensation income provided for
under Se. 4.1.1 of these Regulations.
2. Financial Incapacity
In instances where the CIR is not authorized 2. Filing a return with an internal revenue
the COMPROMISE shall be subject to the officer other than those with whom return
approval of the Evaluation Board composed of is required to be filed unless otherwise
the CIR and the 4 Deputy Commissioners. authorized by CIR;
3. When the taxpayer who opted against the stockholders who have
to claim refund or tax credited received the assets of the corporation.
or excess creditable
withholding tax have carried REMEDY: The dissolving corporation
over and automatically must secure a certificate of tax clearance
applied the same for the from BIR to be submitted to SEC. the
taxable quarters of the purpose of tax clearance is to ensure
succeeding taxable year; payment of all tax liabilities of the
corporation to the government.
4. When the excise tax due on
excisable articles as not been b. CLAIMS FOR REFUND
paid. (Sec. 299, NIRC.)
CTA division shall hear the appeal and a In this case, collection may be suspended
party adversely affected by the decision of at any stage of the proceeding BUT
division may file a Motion for taxpayer shall be required either
Reconsideration or New Trial.
1. To deposit (with the court) the amount
2. PETITION FOR REVIEW (RULE 43_ claimed; OR
- CTA en banc shall hear the case involving
the decisions or rulings of: 2. To file a surely bond (with the court)
for not more than double the amount
a. Central Board of Assessments Appeal of the tax due.
b. RTC in the exercise of its appellate
jurisdiction IMPORTANT!!
c. Resolution of a CTA Division on
Motion for Reconsideration and New The 30-day prescriptive period is
Trial jurisdictional. Beyond such period, CTA
cannot acquire jurisdiction anymore.
3. PETITION FOR REVIEW ON CERTIORARI
(RULE 45) It starts to run from the date of receipt of
the appealable decision.
- Filed by a party adversely affected by a
decision or ruling of CTA en banc before IF there is a request or motion for
SC. reconsideration, the appealable decision
is the decision denying the request or
A party adversely affected by a ruling, order or motion.
decision of a Division of the CTA may file a
motion for reconsideration or new trial before The filing of a civil action in court to collect
the same Division of the CTA within 15 days a tax which was the subject of a pending
from notice thereof. Provided that in criminal protest in the BIR was a justifiable basis
cases, the general rule applicable in regular for the taxpayer to appeal to the CTA and
Courts on matters of prosecution and appeal to move for the dismissal in the trial court
shall likewise apply. of the Government’s action to collect the
tax under dispute. (Yebes vs. Plojo, 15
No civil proceeding involving matters arising SCRA 278.)
under the NIRC, TCC or the LGC shall be
maintained, except as those provided until IMPORTANT!! – Ordinary courts, not the
and unless appeal has been previously filed CTA, have jurisdiction over UNDISPUTED
with the CTA and disposed of in accordance ASSESMENTS depending on the
with the provisions of this Act. jurisdictional amount, unless the amount
exceeds P1M in which CTA would have
exclusive Orig. Jurisdiction.
GR: Appeal to CTA (from decision of the CIR,
GR: CTA has jurisdiction only IF there is a
COC, SOF, STI, SOA, CBAA or the RTC) shall
decision of the Commissioner of Internal
not suspend payment, levy, distraint and/or
Revenue or Commissioner of Customs.
sale of any property of taxpayer for the
satisfaction of his liability.
XPNs:
XPN: IF in the opinion of the court, the
1. If Commissioner of Customs has not
collection by aforementioned government
rendered a decision and the suit is
agencies may jeopardize the interest of the
about to prescribe
government and/or the taxpayer.
REASON : If the taxpayer waits, then
his right of action prescribes.
REASONS:
3. Decisions, order or resolutions of the Regional Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their original or appellate jurisdiction.
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided
by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions involving the assessment of Customs which are adverse to the
Government under Section 2315 of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under Sections 301 and 302,
respectively of the Tariff and Customs Code, and safeguard measures under RA 8800, where
either party may appeal the decision to impose or not to impose said duties.
Provided that no service charge shall be 2. Taxes, fees, charges and other impositions
based on capital investments or gross shall be equitable and based as much as
sales or receipts of the person or possible on the taxpayer’s ability to pay;
business liable therefore. [Art. 244(a),
Rules and Regulations Implementing the 3. They shall be levied and collected only for
LGC of 1991] public purposes;
4. They shall not be unjust, excessive,
2. Public Utility Charges oppressive or confiscatory;
Collect charges for services rendered by 5. They shall not be contrary to law, public
LGU’s in connection with the operation of policy, national economic policy or in restraint
public utilities owned, operated, and of trade;
maintained within their jurisdiction (Sec.
154, LGC) at rates to be fixed by 6. The collection of local taxes, fees, charges
Sanggunian concerned [Art. 244 (b), and other impositions shall in no case be let to
Rules and Regulations Imp., LGC of a private person;
1991]
7. The revenue collection under the Code shall
3. Toll Fees or Charges inure solely to the benefit of and subject to
disposition by the LGU levying the tax or fee
May prescribe the terms and conditions, or charge or other imposition unless otherwise
through an appropriate Ordinance specifically provided therein; and
enacted by the Sanggunian for the use of
any public road, pier or wharf, waterway 8. Each LGU shall as far as practicable, evolve a
bridge, ferry or telecommunication progressive system of taxation.
system, funded and constructed by the
LGU. [Sec. 155, Art. 244 (c)]
LIMITATIONS ON THETAXING POWER OF
EXEMPTION from tolls, fees or other LGU’S IMPOSED BY CONGRESS
charges
1. Fundamental principles of local taxation
a. Officers and enlisted men of the 2. Common Limitations
Armed Forces of the Philippines and 3. Express Authorization Limitation (Doctrine of
members of PNP on mission; Preemption and Exclusion)
b. Post Office personnel delivering mail; 4. Basic Principles of Local Autonomy
c. Physically handicapped and disabled
citizens, 65 years or older. (Sec. 115
LGC) Common Limitations on the Taxing Powers
of LGU’s
ASPECTS OF LOCAL TAXING POWER
Unless otherwise provided in the Local
1. Levy of taxes, fees, charges and other Government Code, the exercise of taxing
impositions; and power of provinces, cities, municipalities
and barangays shall not extend to the
2. Real property taxation. imposition of the following:
1. Taxation shall be uniform in each local sub- 3. Estate and Donor’s Taxes
unit; XPN: if otherwise provided in the
Code;
4. Customs duties.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
93
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
Where the National Government elects to tax 4. If plantation is a place other than where
a particular area it impliedly withholds from the factory is located.
the local government the delegated power to
tax the same field. - The 70% (in item 3) shall be divided
as follows:
EXCLUDED IMPOSITIONS: 60% to the city or municipality
where the factory is;
1. Taxes which are levied under the NIRC, 40% to the city or municipality
except if otherwise provided by the where the plantation is
LGCode;
5. If manufacturer, assembler, contractor,
2. Taxes, fees and charges imposed under producer or exporter has two or more
the Tariff and Customs Code; factories, project offices, plants or
plantations located in different localities.
3. Taxes, fees and charges the imposition of
which contravenes existing government - The 70% shall be prorated among the
policies or which are violative of the localities such factories, project
fundamental principles of taxation; offices, plants and plantations are
located abed on their respective
volumes of production.
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
94
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
3. Local Tax: it is the local government nit that I. REAL PROPERTY TAXES:
levies the real property tax; Rates of Basic Real Property Tax
b. Lands other than agricultural 5. Machinery and equipment used for pollution
located in a city or control and environmental protection.
municipality more than one
thousand square meters in
area one half of which Mactan Cebu International Airport Authority
remain unutilized or vs. Marcos [G.R. No. 120082, September 11,
unimproved by the owner of 1996]
the property or person having
legal interest therein. Section 234 of the LGC provides for the
exemptions from payment of real property
II. SPECIAL LEVY BY LOCAL GOVERNMENT taxes and withdraws previous exemptions
UNITS (Sec. 240, LGC) thereform granted to natural and juridical
persons, including government-owned and
Also known as a “special assessment”, it is controlled corporations, exception as provided
NOT a tax but an imposition to recover at therein. These exemptions are based on the
least 60% of the public works expenditures of ownership, character and use of the property.
a local government unit.
Exemptions: 1. ADMINISTRATIVE
1. Lands exempt from basic real
property tax (1) Real Property tax lien (Secs. 246 and
2. Remainder of land donated to local 251, LGC) – superior to all liens, charges
government unit for the construction or encumbrances;
of the project. (2) Distraint (Sec. 254 [B], LGC);
(3) Levy (Sec. 254 [A], LGC);
(4) Purchase of property by local treasurer for
PROPERTIES EXEMPT FORM REAL want of bidder (Sec. 263, LGC)
PROPERTY TAXES
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
97
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
A tax declaration does not bind the 1. Assessment and collection of the lawful
assessor. It only enables the revenues from imported articles and all other
assessor identify the property for dues, fees, charges, fines and penalties
purposes of determining the accruing under the tariff and customs laws;
assessment level. Real property shall
be classified, valued and assessed on 2. Prevention and suppression of smuggling and
the basis of its ACTUAL USE, other frauds upon the customs;
regardless of where located, whoever
owns it and whoever uses it. (Sec.
271, LGC) 3. Enforcement of tariff and customs law s and
all other laws, rules and regulations relating to
Tax declaration is NOT title to the tariff and customs administration.
property. (Sapuan vs. CA, 214 SCRA
701) 4. Supervision and control over the entrance and
clearance of vessels and aircraft engaged in
foreign commerce;
VIII. TARIFF AND CUSTOMS CODE
5. Supervision and control over the handling of
Definition of Terms foreign mails arriving in the Philippines (for the
purpose of collection of lawful duty on the
Tariff and Customs Laws. Include: dutiable articles thus imported and the
(1) Provisions of Tariff and Customs prevention of smuggling through the medium
Code and regulations pursuant of such mails);
thereto;
(2) Other laws and regulations subject to 6. Supervision and control of import and export
the enforcement by the Bureau of cargoes landed or stored in piers, airports,
Customs or otherwise within its terminal facilities including container yards
jurisdiction. (Sec. 3514, TCC). and freight stations (for the protection of
government revenue);
Tariff. Include:
(1) Customs duties, toll or tribute payable 7. Exercise exclusive original jurisdiction over
upon seizure and forfeiture cases under the tariff
(2) Rate of customs; or and customs laws. (Sec. 602, TCC)
(3) List of articles liable to duties;
TERRITORIAL JURISDICTION OF BOC
Customs Duties. Include: 1. All seas within the jurisdiction of the
1. Taxes on importation and exportation Philippines;
of commodities; 2. All coasts, ports, airports, harbors, bays,
2. Tariff or tax assessed upon rivers and inland waters, whether
merchandise from or exported to a navigable or not form the sea.
foreign country (Garcia vs. Executive (Sec. 603, TCC)
Secretary, 211 SCRA 227)
JURISDICTION OF COLLECTOR OF CUSTOMS
Note: Customs and tariffs are synonyms OVER IMPORTED ARTICLES
with one another because they both refer 1. Cause all articles for importation to be
to axes imposed on imported and entered into the custom-house;
exported wares, articles or merchandise. 2. Cause all such articles to be appraised
and classified;
3. Assessed and collect the duties, taxes,
fees and other charges thereon;
BUREAU OF CUSTOMS 4. Hold possession of all imported articles
until the duties, taxes , fees and other
FUNCTIONS OF THE BUREAU OF charges are paid.
CUSTOMS [APE2S3] (Sec. 1206, TCC)
Under the Tariff and Customs Code Sec. A written claim for refund may be
401 - In the interest of national economy, submitted by the importer in
general welfare and/or national security, the abatement cases on missing
President upon recommendation by NEDA, is packages, deficiencies in the
empowered: contents of the packages or
shortages before arrival of the
2007 UST TEAM BAR-OPS CIVIL LAW COMMITTEE
Academics Committee Chairperson: Dominique Jose S. Puzon
Taxation Law Committee Chairperson: Tina Maria Eloisa B. Guerrero/ Vice-Chairman: Joy F. Dungca
Members: Mary Avon Q. Prochina, Louise A. Tompoc
102
TAXATION LAW NOTES ADVISER: JUSTICE JAPAR B. DIMAAMPAO
The rule that the RTC has no power of 3. Officials of the BIR in cases falling within
review over such proceedings is anchored the regular performance of their duties,
upon: when payment of internal revenue taxes
are involved;
1. Officials of the Bureau, district collectors, 1. Damage incurred during the voyage;
police officers, agents, inspectors and 2. Deficiency in contents packages;
guests of the Bureau; 3. Loss or destruction of articles after
arrival;
4. Death or injury to animals.
2. Officers of the Philippine Navy and other
members of the AFP and national law
enforcement agencies, when authorized
by the Commissioner of Customs;
JURIDICAL PERSONS
- Resident Citizen within and without
- Nonresident Citizen within Every corp no matter how created or organized
- OCW/Seaman within whether domestic or resident foreign engaged in
- Resident Alien within or doing business in the Phils shall pay an annual
community tax
DONOR’S TAX
- Resident Citizen within and without
- Non Resident Citizen within and without
- Resident Alien within and without
- Non Resident Alien within
C. Inclusions
INCOME TAX – Gross Income
Articles subject to duty
ESTATE TAX – Gross Estate GR: All articles when imported form a foreign
country including those previously exported from
DONOR’S TAX – Gross Donations the Philippines are subject to duty UNLESS
otherwise specifically provided for in TCC or
other laws (Sec 100 TCC)
D. Exclusions
INCOME TAX
a. Exclusions from Gross Income TARIFF AND CUSTOM DUTIES COMMUNITY TAX
- Proceeds of life insurance 1. Conditionally free from tariff and The ff. are exempt
- Return of insurance premium custom duties – certain conditions must 1. Diplomatic and Consular representatives
- Gift, bequests, or devise be complied with before goods shall be 2. Transient visitors when their stay in the Phils
- Compensation for personal injuries or exempt from tariff and custom duties does not exceed 3 mons.
sickness whether by suit or agreement 2. Free from tariff and custom duties.
- Income exempt under treaty REAL PROPERTY TAX
- Retirement benefits, pension, gratuities - Exemptions granted to government Real property exempt from real property tax:
- Miscellaneous agencies., instrumentalities, GOCCs 1. Real property owned by the government
with existing contracts, agreements or except when the beneficial use thereof has
b. Exemptions (for individuals ) obligations with foreign countries been granted to a taxable person.
- Personal exemptions - Exemptions of international 2. Real property owned by charitable institutions
- Additional exemptions organizations pursuant to agreements , etc and all lands, buildings and
or special laws improvements actually, directly and
ESTATE TAX - Exemptions granted by the President of exclusively used for religious, charitable and
Exempt Transmissions the Philippines upon recommendations educational purposes .
of NEDA
Merger of usufruct in the owner of the marked title 3. Machineries and equipments that are
IF commissary substitution actually, directly and exclusively used by local
The transmission from the first heir, legatee water utilities and GOCCs engaged in the
Or done in favor of another beneficiary, in accordance supply and distribution of water and/or
with the wall of the predecessor electric power
Bequests, devices, legacies or transfers to social 4. Real property owned by duly registered
welfare cultural and charitable institutions. cooperatives
5. Machinery and equipment used for pollution
DONOR’S TAX control and environment protection
donation of gifts made by resident/citizen
Dowries or gifts made on account of
Marriage and before its celebration or within Idle lands exempt from tax by reason of:
one year thereafter by parents to each of
their legitimate, illegitimate or adopted - Force majeure
children to the extent of the first P10k - Civil disturbance
gifts made to or for the use of National - Natural calamity
government or any entity created by any - Or any other cause which physically or legally
of its agencies which is not conducted for profit. prevents the owner of the property or person
Gifts in favor of educational, charitable, having legal interest therein from improving
religious, cultural, social welfare utilizing or cultivating the same.
corporation, institutions, foundations, etc
provided that no more than 30% of said
gifts shall be used by such done for
admin purposes
RATES
INCOME TAX
Valuation is based either on dutiable value ad COMMUNITY TAX
Individuals – 5% to 32% valorem duties and dutiable weight for specific
Corporation – 35% duties
a. INDIVIDUALS –P500 and annual additional tax of
ESTATE TAX P100 for every P1,000 income regardless of
5-20% whether from business , exercise of a profession
or from property which in no case shall exceed
DONOR’S TAX P5,000
Donee is not a stranger – 2% to 15%
- In case of husband and wife, the additional
tax herein imposed shall be based upon the
total gross receipts or earnings denied by
them.
INCOME TAX – the total amount of tax Tariff and Custom Duties must be paid COMMUNITY TAX
shall be paid by the person subject before the goods are released from the
thereto at the time the return is filed Custom’s custody Place of payment – place of residence of the
individual or in the place where the principal office
ESTATE TAX – shall be paid at the time of the juridical entity is located
the estate tax return is filed by the
executor, administrator or the heirs Time of payment – accrues on the 1st day of
January of each year which shall be paid not later
DONOR’S TAX – shall be paid at the than the last day of February of each year
time of the filing of the return
Penalty for Delinquency – an interest of 24$ per
annum from the due date until it is paid shall be
added to the amount due
III. TAX REMEDIES
A. Government
1. To effect collection of taxes 1. To effect collection of taxes 1. LOCAL TAX