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TAX ALERT

LATEST SUPREME COURT DECISIONS


as published in the SGV Tax Bulletin and The Lawyers Review

1. Commissioner of Internal Revenue vs. Petron Corporation


G.R. No. 185568 promulgated March 21, 2012

Facts: From 1995 to 1998, Respondent Petron Corporation (Petron) used several
TCCs assigned to it by various BOI-registered entities for the payment of its excise tax
liabilities. The transfers to Petron of the TCCs were approved by the Department of
Finance’s One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOFOSS),
which is composed of representatives from the DOF, the BOI, the BOC and the BIR. In
2002, Petitioner CIR assessed Petron deficiency excise taxes for taxable years 1995 to
1998 on the ground that the TCCs utilized by Petron in payment of its excise tax liabilities
have been cancelled by the DOF for having been fraudulently issued and transferred.
Petron filed its protest against the BIR’s assessment. After the CIR served a warrant of
distraint and/or levy against Petron to enforce payment of the tax deficiencies, Petron
filed a Petition for Review with the CTA. The CIR argued that in a post-audit, the DOF-OSS
found that the TCCs were fraudulently obtained and transferred to Petron. Hence, the
DOF’s cancellation of the TCCs and related Tax Debit Memos (TDMs) used by Petron to
settle its tax liabilities was tantamount to non-payment of the excise taxes. The CTA
Second Division agreed with the CIR and found Petron liable for deficiency excise taxes
but, on appeal, the CTA En Banc reversed the CTA Second Division’s decision. The CIR
appealed to the Supreme Court.

Issue: Is Petron liable for the deficiency excise taxes?

Ruling: No. Petron is not liable as it is an innocent transferee for value of the
TCCs. A TCC undergoes a stringent process of verification by various specialized
government agencies before it is accepted as payment for an assignee’s tax liability. TCCs
are valid and effective from their issuance, and an innocent transferee for value has the
right to rely on the validity and effectivity of the TCCs assigned to it. An assignee of a
TCC is liable if proven to have been a party to the fraud or to have had knowledge of
the fraudulent issuance of the TCCs. Although the principle of estoppel generally does
not apply to the government, especially on matters of taxation, this general rule cannot
be applied if it would work injustice against an innocent party. Petron was not proven to
have had any participation in or knowledge of the CIR’s allegation of the fraudulent
transfer and utilization of the subject TCCs. It is a transferee in good faith and for value
of the TCCs.

2. Lascona Land Co., Inc. vs. Commissioner of Internal Revenue


G.R. No. 171251 promulgated March 5, 2012

Facts: On March 27, 1998, Respondent Commissioner of Internal Revenue (CIR)


assessed Petitioner Lascona Land Co., Inc. (Lascona) deficiency income tax for the year
1993. On April 20, 1998, Lascona filed its protest. On March 12, 1999, the BIR informed
Lascona that while it agrees with the arguments raised in the protest, the BIR cannot
cancel the assessment since the case was not elevated to the CTA, as required under
Section 228 of the Tax Code. This, according to the BIR, rendered the assessment final,
executory and demandable. Lascona appealed the BIR’s decision to the CTA, which ruled
that in case of inaction by the CIR on a protested assessment, Section 228 of the Tax
Code provides two options for the taxpayer, namely: (1) appeal to the CTA within 30
days from the lapse of the 180-day period given to the BIR to decide on the protest, or
(2) wait until the CIR decides on the protest before elevating the case to the CTA.

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On further appeal, the Court of Appeals (CA) reversed the CTA decision and confirmed
the BIR’s position that the assessment has become final, executory and demandable for
failure by Lascona to promptly appeal the case to the CTA. Lascona appealed to the
Supreme Court.

Issue: Did the assessment become final, executory and demandable because of
Lascona’s failure to appeal to the CTA within 30 days from the lapse of the 180- day
period?

Ruling: No. A taxpayer has two options in case the CIR fails to act on a disputed
assessment within 180 days from submission by the taxpayer of relevant documents in
support of its protest, namely: (1) file a petition for review with the CTA within 30 days
from the expiration of the 180-day period, or (2) wait for the final decision of the CIR
on the disputed assessment and appeal such final decision to the CTA within 30 days
from receipt.

3. Commissioner of Customs and the District Collector of the Port of Subic vs. Hypermix
Feeds Corporation
G.R. No. 179579 promulgated February 1, 2012

Facts: On November 7, 2003, petitioner Commissioner of Customs issued CMO No. 27-
2003 where, for tariff purposes, wheat was classified into either food grade or feed
grade depending on the following: 1) importer or consignee; 2) country of origin; and 3)
port of discharge. The CMO provides an exclusive list of corporate flour millers, ports of
discharge, commodity descriptions and countries of origin, and depending on whether
the importer is enumerated on the list and its importation meets the information (as to
port of discharge, commodity description and country of origin), the wheat importation
would be classified either as food grade or feed grade, subject to a 3% or 7% tariff,
respectively. On December 19, 2003, respondent Hypermix Feeds Corporation
(Hypermix) filed with the Regional Trial Court (RTC) a Petition for Declaratory Relief, as it
anticipated the implementation of CMO on its imported and perishable Chinese milling
wheat in transit from China. Hypermix argued that the order violates the equal
protection clause of the Constitution when it treats non-flour millers differently from
flour millers for no justifiable reason. Hypermix also argued that the order summarily
adjudges it to be a feed grade supplier without the benefit of prior assessment and
examination. Thus, despite having imported food grade wheat, it would be subject to
the 7% tariff upon arrival of its shipment. The RTC and, on appeal, the Court of Appeals
(CA) both ruled in favor of Hypermix.

Issues:

1. Does CMO No. 27-2003 violate the equal protection clause of the Constitution?

2. Did the Commissioner of Customs go beyond his powers of delegated authority


when he issued the order?

Ruling:

1. Yes, CMO No. 27-2003 violates the equal protection clause. The equal protection
clause means that no person or class of persons shall be deprived of the same
protection of laws enjoyed by other persons or other classes in the same place in
similar circumstances. Thus, the guarantee of the equal protection of laws is not
violated if there is a reasonable classification.

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For a classification to be reasonable, it must be shown that (1) it rests on
substantial distinctions; (2) it is germane to the purpose of the law; (3) it is not
limited to existing conditions only; and (4) it applies equally to all members of the
same class. CMO No. 27-2003 does not meet these requirements as it is not
shown how the quality of wheat is affected by who imports it, where it is
discharged, or which country it came from. Thus, on the one hand, even if other
millers excluded from CMO No. 27-2003 have imported food grade wheat, the
product would still be declared as feed grade wheat, a classification subjecting
them to 7% tariff. On the other hand, even if the importers listed under CMO No.
27-2003 have imported feed grade wheat, they would only be made to pay 3%
tariff.

2. Yes, the Commissioner of Customs went beyond his powers of delegated


authority. Section 1403 of the Tariff and Customs Code, as amended, mandates
that the customs officer must first assess and determine the classification of the
imported article before tariff may be imposed. Unfortunately, CMO No. 23- 2007
has already classified the article even before the customs officer has had the
chance to examine it. Instead, the order provided for wheat classification, for
tariff purposes, on the basis of information on the importer or consignee,
country of origin and port of discharge.

4. Bureau of Customs Employees Association (BOCEA) vs. Hon. Margarito B. Teves, et.al.
G.R. No. 181704 December 6, 2011 (EN BANC)

Facts : RA No. 9335, otherwise known as the Attrition Act of 2005, took effect on
February 11, 2005, while its implementing rules and regulations (IRR) became effective
in June 2006. Enacted to optimize the revenue-generation capability and collection of
the BIR and the BOC, the law intends to encourage BIR and BOC officials and employees
to exceed their revenue targets by providing a system of rewards and sanctions,
through the creation of a Rewards and Incentives Fund (Fund) and a Revenue
Performance Evaluation Board (Board). It covers all BIR and BOC officials and employees
with at least 6 months of service, regardless of employment status.

BOCEA argues that RA No. 9335 and its IRR are unconstitutional because:
(1) There is undue delegation of legislative power to the Board;
(2) The law and its IRR violate the rights of BOCEA’s members to equal protection of
the laws, security of tenure and due process; and
(3) The law is a bill of attainder (i.e., a legislative act which inflicts punishment on
individuals or members of a particular group without a judicial trial).

Issues:

1. Is there undue delegation of legislative power to the Board?

2. Do the law and its IRR violate the rights of BOCEA’s members to equal protection
of the laws, security of tenure and due process?

3. Is RA No. 9335 a bill of attainder?

Ruling:

1. No. An exception to the principle of non-delegation of powers is the delegation of


legislative power to various specialized administrative agencies like the Boards in
this case. The two tests to determine the validity of the delegation of legislative
power, i.e., the completeness test and the sufficient standard test, were fully
satisfied.

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2. No, the law and its IRR do not violate the rights of BOCEA’s members to equal
protection of the laws, security of tenure and due process.

On the matter of equal protection, since the subject of the law is the revenue
generation capability and collection of the BIR and the BOC, agencies which have
the distinct primary function of generating revenues for the government, the
incentives and/or sanctions provided under the law pertain only to the said
agencies.

On the guarantee of security of tenure, an employee cannot be dismissed from


the service for causes other than those provided by law and only after due
process is accorded the employee. RA No. 9335 lays down a reasonable yardstick
for removal (when the revenue collection falls short of the target by at least
7.5%) with due consideration for all relevant factors affecting the level of
collection. This standard is analogous to inefficiency and incompetence in the
performance of official duties, which is a ground for disciplinary action under civil
service laws.

3. No, the law is not a bill of attainder. Instead, the law merely lays down the
grounds for the termination of a BIR or BOC official or employee and provides for
the consequences. The democratic processes are still followed and the
constitutional rights of the concerned employee are amply protected.

5. Philippine National Bank vs. Commissioner of Internal Revenue


G.R. 172458 promulgated December 14, 2011

Facts: The Philippine National Bank (PNB) filed with the Commissioner of Internal
Revenue (CIR) a claim for refund of overpaid income tax for calendar year 1998. When
the BIR did not act on the claim, PNB filed a Petition for Review with the Court of Tax
Appeals (CTA). The CTA Division partially granted the claim and Petitioner PNB moved
for a reconsideration to the extent of the denial. After the CTA Division affirmed its
decision, PNB appealed to the CTA En Banc, which denied the appeal for having been
filed 4 days beyond the additional 15 days granted to PNB to file its petition. PNB argued
that the petition was filed in a timely manner, via LBC Express, on the last day of the
additional 15-day period granted by CTA En Banc.

Issue: Is the date of delivery of a pleading to a private letter-forwarding agency


considered the date of filing with the court?

Ruling: No. What constitutes the date of filing of a pleading is the date of actual receipt
by the court. The rules provide that a pleading shall be filed by presenting the
original copy personally to the clerk of court or by sending it through registered
mail. Service by ordinary mail is allowed only in instances where no registry
service exists. So, the date on which the court actually received the pleadings
delivered through a private letter-forwarding agency is considered the date of
filing in court, and not the date of delivery to the agency.

6. Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue


G.R. No. 170257 promulgated September 7, 2011

TAXPAYER ESTOPPED FROM QUESTIONING VALIDITY OF WAIVER ON ACCOUNT OF


PARTIAL PAYMENTS OR REVISED ASSESSMENTS ISSUED WITHIN EXTENDED PERIOD AS
PROVIDED FOR IN THE QUESTIONED WAIVERS.

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UNDER THE WITHHOLDING TAX SYSTEM, THE PAYOR IS THE TAXPAYER UPON WHOM
THE TAX IS IMPOSED, WHILE THE WITHHOLDING AGENT SIMPLY ACTS AS AGENT OR
COLLECTOR OF THE GOVERNMENT TO ENSURE THE COLLECTION OF TAXES.

Facts: During the investigation of its book of accounts for taxable year 1994 and 1995,
RCBC executed two waivers of the defense of prescription under the Statute of
Limitations of the NIRC. After receiving a Formal Letter of Demand together with
Assessment Notices (FAN) from the BIR, RCBC filed its protest. Due to the inaction of the
CIR on its protest, RCBC appealed to the CTA. While the appeal was pending, RCBC
received another FAN from the CIR with a reduced amount of deficiency taxes
assessment. On the same day, RCBC paid the deficiency taxes assessed, except for the
deficiency Foreign Currency Deposit Unit (FCDU onshore tax. RCBC argued that the
waivers it had previously executed were invalid since they were not executed under the
Tax Code. It also argued that the FCDU onshore tax was collected in the form of FWT,
and it was the borrower, as the withholding agent constituted by law, which was
primarily liable for the remittance of the said tax. Hence, RCBC argued that it is not
liable for the tax.

Issues:

1. Is RCBC precluded from questioning the validity of waivers?

2. Is RCBC liable for deficiency FCDU onshore tax?

Ruling:

1. YES. By making a partial payment on the revised assessments issued within the
extended period provided for in the questioned waivers, RCBC impliedly admitted,
and therefore cannot question, the validity of waivers.

2. YES. Under the FWT system, the payor is the taxpayer upon whom the tax is
imposed, while the withholding agent simply acts as an agent or a collector of the
government to ensure collection of taxes. The liability of the withholding agent is
independent from that of the taxpayer. It can be held liable for failure to perform its
duty to withhold the tax and remit the same to the government. However, it cannot
be made liable for the tax due because the one liable is the taxpayer who earned the
income subject to WT. The liability for the tax remains with the taxpayer, RCBC,
because the gain was realized and received by the said bank.

7. Commissioner of Internal Revenue vs. Fortune Tobacco Corporation


G.R. No. 180006 promulgated on September 28, 2011

Facts: Prior to January 1, 1997, excise taxes on cigarette products were in the form of
ad valorem taxes imposed pursuant to Section 142 of the 1977 Tax Code. The 1977 Tax
Code was amended by RA No. 8240, effective January 1, 1997, and provided for a shif
from ad valorem to specific taxes. Section 142(c) on excise taxes on cigarettes packed by
machine provided that, during a 3-year transition period, the specific tax from any brand
of cigarettes “shall not be lower than the tax which is due from each brand on October 1,
1996.” It also provided for a 12% increase in the excise tax rates for cigarettes packed by
machine effective January 1, 2000. The implementing RR No. 1-97 echoed Section 142
of the Tax Code. The 1977 Tax Code was later repealed by RA No. 8424 (or the 1997 Tax
Code), effective January 1, 1998. Section 145(c) of the Code provides for specific tax
rates of cigarettes packed by machine and a 12% increase on these rates on January 1,
2000.

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To implement the 12% increase in the rates, RR No. 17-99 was issued, which provided
that “the new specific tax rate for any existing brand of cigars and cigarettes packed by
machine, distilled spirits, wines and fermented liquors shall not be lower than the excise
tax that is actually being paid prior to January 1, 2000.”

Respondent Fortune Tobacco Corporation (FTC), a domestic manufacturer of various


cigarette brands, filed an administrative claim for refund with the CIR for taxes for 2003
and 2004 which were erroneously and/or illegally collected pursuant to RR No. 17-99.
FTC argued that Section 145(c) of the 1997 Tax Code imposes a 12% increase on the
rates of excise taxes for cigarettes packed by machine, but does not state that the tax to
be paid shall be the higher of the new tax rate (as increased by 12% on January 1, 2000)
and the tax actually being paid prior to January 1, 2000, as erroneously provided for in
RR No. 17-99.

The CIR argued otherwise and stated that the inclusion of the proviso in Section 1 of RR
No. 17-99 was made to carry into effect the law’s intent to increase the collection of
excise taxes and is well within the scope of his delegated legislative authority. The
implementing rules issued by the Department of Finance (DOF) should not go beyond
the law which the rules seek to implement. The CIR additionally pointed out that
Section 145(c) of the 1997 Tax Code categorically declares that the excise tax from any
brand of cigarettes within the 3-year transition period (January 1, 1997 to December 31,
1999) shall not be lower than the tax which is due from each brand on October 1, 1996.
Thus, there is no reason why the new specific tax rates due beginning January 1, 2000
should not be subject to the same “higher tax rule,” i.e., the new tax shall not be lower
than the tax which is being paid prior to January 1, 2000.

Issue: Did the Secretary of Finance err when he required in RR No. 17-99 that
effective January 1, 2000, the new specific tax rate for any existing brand of cigars,
cigarettes packed by machine, distilled spirits, wines and fermented liquor shall not be
lower than the excise tax actually being paid prior to January 1, 2000?

Ruling: Yes. The Secretary of Finance went beyond the allowable limits of
legislative delegation. Section 145 states that during the transition period, i.e., within the
next 3 years from the effectivity of the Tax Code, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on October 1, 1996. This
qualification, however, is conspicuously absent with respect to the 12% increase which is
to be applied on cigars and cigarettes packed by machine, effective on January 1, 2000.
Clearly, Section 145 mandates a 12% increase in excise tax effective on January 1, 2000
without regard to whether the revenue collection starting from this period may turn out
to be lower than that collected prior to this date. By adding the qualification that the tax
due after the 12% increase becomes effective shall not be lower than the tax actually
paid prior to January 1, 2000, RR No. 17-99 effectively imposes a tax which is the higher
amount between the ad valorem tax being paid at the end of the 3-year transition
period and the specific tax for cigarettes packed by machine, as increased by 12% – a
situation not supported by the plain wording of Section 145 of the Tax Code.

8. City of Pasig vs. Republic of the Philippines


G.R. No. 185023 promulgated August 24, 2011

REAL PROPERTIES THOUGH OWNED BY THE REPUBLIC OF THE PHILIPPINES ARE NOT
EXEMPT FROM REAL PROPERTY TAX IF LEASED TO PRIVATE ENTITIES.

Facts: Following the ouster of President Ferdinand Marcos in 1986, Jose


Campos, Jr. voluntarily surrendered to the Republic of the Philippines properties,

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assets and corporations which he had held in trust for the deposed president. These
included Mid-Pasig Land Development Corporation (MLDC) which was the registered
owner of two parcels of land located in Pasig City. In 2005, the Pasig City Assessor’s
Office assessed MLDC delinquency real property taxes (RPT) on the properties for the
period 1987 to 2005, despite claims that the properties are exempt from RPT by virtue
of the States’ ownership of the parcels of land. While MLDC paid a portion of the tax
assessed under protest, it received two warrants of levy on the properties. The Republic
filed a case with the Regional Trial Court (RTC) to question Pasig City’s levy. Pending
disposition of the case, Pasig City sold the properties at public auction.

Issues:

1. Are the properties exempt from RPT?


2. Can the properties be sold at public auction?

Ruling:

1. No. Section 234(a) of RA No. 7160 (the Local Government Code) states that
properties owned by the Republic are exempt from RPT “except when the beneficial
use has been granted, for consideration or otherwise, to a taxable person.” Thus,
the portions of the properties not leased to taxable entities are exempt from RPT
while those leased to taxable entities are subject to RPT. The law imposes the liability
to pay RPT on the Republic.

2. Yes. Properties classified as part of the public dominion under Article


420 of the Civil Code are beyond the commerce of man and, consequently, exempt
from sale at public auction. However, the subject properties are not properties of
public dominion. The parcels of land are neither “intended for public use, such as
roads, canals, rivers, torrents, ports and bridges constructed by the State, banks,
shores, roadsteads,” nor are these “intended for some public service or for the
development of the national wealth.”

9. Philippine Veterans Bank vs. Justina Callangan, in her capacity as Director of the
Corporation Finance Department of the Securities and Exchange Commission and/or
the Securities and Exchange Commission
G.R. No. 191995 Resolution promulgated August 3, 2011

Facts: Respondent Justina F. Callangan, the Director of the SEC’s Corporation


Finance Department, wrote to inform the Philippine Veterans Bank (PVB) that it qualifies
as a “public company” under Section 17.2 of the SRC, in relation to Rule 3(1) (m) of the
Amended Implementing Rules and Regulations of the SRC. PVB is thus required to
comply with the SRC’s reportorial requirements. PVB argued that it should not be
considered a “public company” because it is a private company whose shares of stock
are available only to a limited class or sector, i.e., to World War II veterans, and not to
the general public. Director Callangan rejected the explanation and assessed PVB
penalty for failing to comply with the SRC reportorial requirements from 2001 to 2003.

Issue: Is PVB a “public company” subject to reportorial requirements set forth in


Section 17.1 of the SRC?

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Ruling: Yes. The SRC rules define a “public company” as “any corporation with a
class of equity securities listed on an Exchange or with assets in excess of P50,000,000
and having 200 or more holders, at least 200 of which are holding at least 100 shares of
a class of its equity securities.” The records establish, and PVB does not dispute, that PVB
has assets exceeding P50,000,000 and has 395,998 shareholders. Thus, it is considered
a public company that must comply with the reportorial requirements of Section 17.1 of
SRC. Subsection 17.1 of the SRC provides that every issuer satisfying the requirements in
Subsection 17.2 shall file with the SEC: (i) an annual report which shall include, among
others, a balance sheet, profit and loss statement and statement of cash flows, for such
last fiscal year, certified by an independent certified public accountant, and a
management discussion and analysis of results of operations, and (ii) b) other periodical
reports for interim fiscal periods and current reports on significant developments of the
issuer as the SEC may prescribe.

10. Commissioner of Internal Revenue vs. Manila Bankers’ Life Insurance Corporation
G.R. No. 169103 promulgated March 16, 2011

Facts: The BIR assessed Manila Bankers’ Life Insurance Corporation (Manila Bankers), a
domestic corporation primarily engaged in the life insurance business, deficiency DST for
taxable year 1997 on the increases in the life insurance coverage of two of its policies,
namely, the “Money Plus Plan,” which is an ordinary term life insurance policy, and the
group life insurance policy. Upon denial by the BIR of its protest, Manila Bankers
appealed to the CTA, which ruled in its favor. The Court of Appeals (CA) affirmed the
decision on appeal. Hence, the CIR appealed to the Supreme Court.The DST on life
insurance policies is levied on every document which establishes that insurance was
either made or renewed upon a life.

Issue: Is Manila Bankers liable to pay deficiency DST on the increases in life insurance
coverage even without the issuance of new policies?

Ruling: Yes. Under the Tax Code of 1977 which was in place in 1997, DST shall be
imposed “on all policies of insurance or other instruments by whatever name the same
may be called, whereby any insurance shall be made or renewed upon any life or lives,”
and the DST is based on the amount insured by any such policy. The Money Plus Plan is a
20-year term ordinary life insurance plan with a “Guaranteed Continuity Clause” which
allowed the policy holder to continue the policy after the 20-year term, subject to
certain conditions. Under the policy, Manila Bankers was actually offering the option to
renew the policy after the expiration of its original term. Consequently, the acceptance
of this offer would give rise to the renewal of the original policy, and additional premium
payments made pursuant to the availment of the option would be subject to DST.

11. PAGCOR v. The Bureau of Internal Revenue, et al.,


G.R. No. 172087 promulgated March 15, 2011

Under Section 1 of RA 9337, amending Section 27© of the NIRC, PAGCOR is no


longer exempt from corporate income tax as it has been effectively omitted from the list
of government-owned and controlled corporations (GOCCs) that are exempt from it.
Thus, the express mention of the GOCCs exempted from payment of corporate income
tax excludes all others. Not being excepted, PAGCOR must be regarded as coming within
the purview of the general rule that GOCCs shall pay corporate income tax.

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On the other hand, the Supreme Court holds that the provision subjecting
PAGCOR to 10% VAT under RR No. 16-2005 is INVALID for being contrary to RA 9337.
Nowhere in RA 9337 is it provided that PAGCOR can be subjected to VAT. RA 9337 is
clear only as to the removal of PAGCOR’s exemption from the payment of corporate
income tax. PAGCOR is exempt from the payment of VAT because PAGCOR’s charter, P.D.
No. 1869, is a special law that grants petitioner exemption from taxes.

12. SILKAIR SINGAPORE Pte. Ltd. v. CIR


G.R. No. 166482 promulgated January 25, 2012

In the refund of INDIRECT TAXES such as excise taxes, the statutory taxpayer is
the proper party who can claim the refund. Silkair, as the purchaser and end consumer,
ultimately bears the tax burden but this does not transform its status into a statutory
taxpayer. The statutory taxpayer is the proper party who can claim the refund of indirect
taxes.

13. PRINTING OF WORD “ZERO RATED” REQUIRED TO BE PLACED ON VAT INVOCIES OR


RECEIPTS COVERING ZERO RATED SALES IN ORSER TO BE ENTITLED TO CLAIM FOR TAX
CREDIT OR REFUND.

MICROSOFT PHIL., INC. v. CIR.


G.R. No. 180173 promulgated April 6, 2011

Here, both the CTA Second Division and CTA En Banc found that the taxpayer’s
receipts did not indicate the word “ZERO RATED” on its official receipts. Taxpayer thus
failed to comply with the invoicing requirements of the 1997 NIRC and existing rules and
regulations to claim a tax credit

SILICON PHILIPPINES, INC. v. CIR


G.R. No. 172378 promulgated January 17, 2011
KEPCO PHILIPPINES CORPORATION v. CIR
G.R. No. 179961 promulgated January 31, 2011

Failure to indicate the word “ZERO RATED” in invoices/receipts is fatal to a claim


for credit/refund of input VAT on zero rated sales. BUT A MERE FAILURE TO INDICATE
AUTHORITY TO PRINT (ATP) IN INVOICES /RECEIPTS IS NOT FATAL TO CLAIM FOR
CREDIT/REFUND OF INPUT VAT.

SOUTHERN PHIL. POWER CORP. v. CIR.


G.R. No. 179632 promulgated October 20, 2011

Before the amendment introduced by RA 9337, input tax subject of Tax Refund
can be evidenced by a VAT invoice OR official receipt and the word zero rated is required
to be printed only of VAT invoices,

14. HABAWEL v. CTA


G.R. No. 174759 promulgated September 12, 2011

COURT OF TAX APPEALS (CTA) HAS NO APPELLATE JURISDICTION OVER DECISIONS OF


THE REGIONAL TRIAL COURT (RTC) INVOLVING REAL PROPERTY TAXES.

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Real property tax, being an ad valorem tax, could not be treated as a local tax.
Hence, Section 7(a)(3) of RA 9282 giving the CTA jurisdiction over decision, orders, or
resolutions of the RTC in cases involving local taxes does not apply.
15. DIAZ v. Secretary of Finance
G.R. No. 193007 promulgated July 19, 2011

TOLL FEES ARE SUBJECT TO VALUE-ADDED TAX (VAT)

The Court held that the law imposes VAT on all kind of services rendered in the
Philippines for a fee. When a tollway operator takes a toll fee from a motorist, the fee is
in effect for the latter’s use of the tollway facilities over which the operator enjoys
private propriety rights that its contract and the law recognize. Tollway operators also
come under specific class described in Sec. 108 of the NIRC of 1997 as “all other
franchise grantees” that are subject to VAT.

16. CIR v. FILINVEST DEVELOPMENT CORP.


G.R. No. 167689 promulgated July 19, 2011

COMMISSIONER OF INTERNAL REVENUE’S (CIR) POWER OF DISTRIBUTION,


APPORTIONMENT OR ALLOCATION OF GROSS INCOME AND DEDUCTIONS UNDER THE
TAX CODE DOES NOT INCLUDE THE POWER TO IMPUTE “THEORETICAL INTERESTS” TO
THE CONTROLLED TAXPAYER’S TRANSACTIONS.

The Court held that there must be proof of the actual or, at the very least,
probable receipt or realization by the controlled taxpayer of the item of gross income
sought to be distributed, apportioned, or allocated by the CIR. A perusal of the record
yielded no evidence of actual or possible showing that the advances that the taxpayer
extended to its affiliates had resulted to the interests subsequently assessed by the CIR.
While the CIR asserted that the taxpayer had resorted to borrowings from commercial
banks, it had adduced no concrete proof that said funds were, indeed, the source of
advances the former provided its affiliates. Moreover, even if the taxpayer had deducted
substantial interest expense from its gross income, there would still be no factual basis
for the imputation of theoretical interests on the subject advances, more so, when it is
borne in mind that, pursuant to Article 1956 of the Civil Code of the Philippines, no
interest shall be due unless it has been expressly stipulated in writing.

17. CIR v. PL MGT. INT’L. PHIL. INC.


G.R. No. 160949 promulgated April 4, 2011

CARRY-OVER OPTION, ONCE ACTUALLY OR CONTRUCTIVELY CHOSEN BY CORPORATE


TAXPAYER, BECOMES IRREVOCABLE.

In as much as the taxpayer already opted to carry over its unutilized creditable
withholding tax to taxable year 1998, the election to carry-over could no longer be
converted into a claim for tax refund because of the irrevocability rule provided in
Section 76 NIRC of 1997. Thereby, the taxpayer became barred from claiming refund.

Page 10

18. BUREAU OF CUSTOMS v. PETER SHERMAN, ET AL.,


G.R. No. 190487 promulgated April 13, 2011
DIRECTION OF CRIMINAL CASE LODGED WITH PUBLIC PROSECUTOR ONCE
INFORMATION IS FILED; BUREAU OF CUSTOMS MERE PRIVATE COMPLAINANT.

As the BOC’s motion for reconsideration of the challenged CTA Resolution did not
bear the imprimatur of the public prosecutor to which the control of the prosecution of
the case belongs, the present petition for certiorari fails.

19. CIR v. METRO STAR SUPERAMA, INC.


G.R. No. 185371 promulgated December 8, 2010

FAILURE TO ISSUE A PRELIMINARY ASSESSMENT NOTICE (PAN), AS REQUIRED BY SEC.


228 OF THE NIRC OF 1997, RENDERS FINAL ASSESSMENT NULL AND VOID.

The sending of a PAN to a taxpayer to inform him of the assessment made is but
part of the “due process requirement in the issuance of a deficiency tax assessment,”
the absence of which renders nugatory any assessment made by the tax authorities. The
use of the word “shall” in subsections 3.1.2 of Revenue Regulations No. 12-99 describes
the mandatory nature of the service of a PAN. The persuasiveness of the right to due
process reaches both substantial and procedural rights and the failure of the
Commissioner to strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Star’s right to due process.

RELEVANT BIR REVENUE REGULATIONS FOR 2011-2012


1. RR NO. 1-2012---effectivity: January 1, 2012

There will be MANDATORY SUBMISSION OF QUARTERLY SUMMARY LIST OF


SALES and PURCHASES by all VAT registered taxpayer and shall be submitted
through Compact Disk Recordable (CDR).

2. RR NO. 2-2012---effectivity: January 1, 2012

Tax Administration Treatment of Petroleum Products imported into the


Philippines including those coming in through Freeport Zones and Economic
Zones and Registration of All Storage Tanks, Facilities, Depots and Terminals.

- VAT and Excise Taxes shall be paid by the IMPORTER to the Bureau of
Customs.

- The subsequent sale/delivery of these petroleum products to registered


enterprises enjoying tax privileges within the Freeport Zones, as well as the
sale of said goods to persons engaged in international shipping or
international air transport operations, shall be subject to 0% VAT.

- With respect to the VAT paid by the importer on account of 0% VAT


transactions and the Excise Taxes paid on account of:

Page 11

o sales to international carriers of Philippine or Foreign registry for use


or consumption outside the Philippines;
o exempt entities or agencies covered by tax treaties, conventions or
international agreements for their use (with CERTIFICATION in such
entity’s favor);

o entities which are by law exempt from indirect taxes

The IMPORTER may file a claim for credit or refund with the Bureau of
Customs, which shall process the claim but subject to the favorable
indorsement of the BIR.

- In case of sale to a Freeport Economic zone registered enterprise not


enjoying tax privileges, or any sale to an entity not enjoying 0% VAT rate, the
seller shall be liable for 12% VAT. So, no refund for VAT shall be allowed the
importer. And if refund has already been granted, an assessment for VAT
shall be made against the seller.

3. RR NO. 3-2012---effectivity: January 1, 2012 in relation of RR No. 16-2011.

Effectivity of Threshold Amounts for Sale of Residential Lot, Sale of House and
Lot, Lease of Residential Unit and Sale or Lease of goods or Properties or
Performance of Services covered by Section 109 (P0, (Q), and (V) of the Tax Code.

Using the Consumer Price Index as published by the NSO, the threshold amounts
has been adjusted as follows

Amount in Pesos ADJUSTED


(2005) TRESHOLD
Sale of Residential Lot 1,500,000 1,919,500
Sale of Residential House and Lot 2,500,000 3,199,200
Lease of Residential Unit 10,000 12,800
Sale or Lease of Goods or Properties or 1,500,000 1,919,500
Performance of Services (VAT
Threshold)

In excess of the threshold amount, it shall be subject to 12% output VAT.

4. RR NO. 4-2012, amending RR No. 13-2001

Regarding ABATEMENT OR CANCELLATION OF PENALTIES and/or INTEREST of


internal revenue taxes.

RR 13-2001: “penalties and or interest iposed on the taxpayer may be abated or


cancelled on the ground of one day late filing and remittance due to failure to
beat the ban cut-off time.” (now deleted in RR No. 4-2012)

Page 12

AMENDMENT in RR No. 4-2012: “penalties and/ or interest imposed on the


taxpayer may be abated or cancelled on the ground that the imposition thereof is
UNJUST or EXCESSIVE; LATE PAYMENT OF THE TAX UNDER MERITORIOUS CASES:
“use of wrong tax form but correct amount of tax was remitted;”

5. RR NO. 5-2012---take effect immediately.

BINDING EFFECT of RULINGS prior to Tax Reform Act of 1997.

So, ALL rulings prior to January 1, 1998 will no longer have any binding effect and
cannot be invoke as basis for any current business transactions. Neither can
these rulings be used as basis for securing legal tax opinions/rulings.

6. RR NO. 8-2012---effectivity: January 1, 2012


Amendments with respect to “De Minimis Benefits”
UNIFORM AND CLOTHING ALLOWANCE NOT EXCEEDING P5,000 PER ANNUM;

Take note also that RR No. 5-2011 dated March 16, 2011 deleted from the list of
De Minimis Benefits ----“FLOWERS, FRUITS, BOOKS, OR SIMILAR ITEMS GIVEN TO
EMPLOYEES UNDER SPECIAL CIRCUMSTANCES, E.G. on account of illness,
marriage, birth of a baby, etc”.

7. EXECUTIVE ORDER NO. 68: “MONETIZATION PROGRAM OF OUTSTANDING VALUE-


ADDED TAX (VAT) TAX CREDIT CERTIFICATES (TCCs)
In order to give qualified VAT-registered taxpayers the cash equivalent of their
outstanding TCCs.
For revalidated and unexpired TCCs issued in the years 2002 and 2003, THE
MONETIZATION WILL BE FROM JULY 17, 2012 TO SEPTEMBER 1, 2012.
For revalidated and unexpired TCCs issued in the years 2004 to April 11, 2012,
THE MONETIZATION WILL BE FROM JULY 17, 2012 TO OCTOBER 17, 2012.
Under RR No. 5-2000 July 29, 2011, it says that: “ALL TAX CREDIT CERTIFICATES
(TCC’S) ISSUED BY THE BIR SHALL NOT BE ALLOWED TO BE TRANSFERRED OR
ASSIGNED TO ANY PERSON.”
8. RR NO. 1-2011 February 24, 2011 with immediate effectivity.
TAX TREATMENT OF INCOME EARNINGS AND MONEY REMITTANCES OF AN
OVERSEAS CONTRACT WORKER (OCW) OR OVERSEAS FILIPINO WORKER (OFW)
Exemption from 7.5% Final Tax on interest income from a depository bank under
the expanded foreign currency deposit system upon presentation of proof of
non-residency such as OEC (overseas exit clearance) or Seaman’s Book.
However, if the account is jointly in the name of the overseas contract worker or
a Filipino seaman, and an individual (spouse or dependent) who is living in the
Philippines, fifty percent (50%) of the interest income from such bank deposit will
be treated as exempt while the other fifty percent (50%) shall be subject to a
final withholding tax of 7.5%.
9. RR NO. 7-2011 February 16, 2011
TAX TREATMENT OF EXCESS CAMPAIGN FUNDS
Unutilized or excess campaign funds, that is, campaign contributions net of
candidate’s campaign expenditures, shall be considered as subject to income
tax, and as such, must be included in the candidate’s taxable income.
Page 13

10. RMC No. 27-2011 (undated)


PAG-IBIG, GSIS AND SSS CONTRIBUTIONS IN EXCESS OF THE MANDATORY
MONTHLY CONTRIBUTION REQUIRED BY LAW SHOULD NOT BE EXCLUDED FROM
GROSS INCOME FOR PURPOSES OF COMPUTATION OF INCOME TAX.
11. RMC No. 38-2011 September 1, 2011
APPLICATION OF EXPANDED WITHHOLDING TAX ON PAYMENTS OF PHILIPPINE
HEALTH INSURANCE CORP. TO MEDICAL PRACTITIONERS AND/OR HOSPITALS
PERTAINING TO PHIC MEMBER’S BENEFITS.
Payments by PHIC to medical practitioners who rendered services to PHIC
members are subject to either 10%, if the gross income of the professional does
not exceed P720,000 in a year, OR 15%, if the professional’s gross income
exceeds P720,000 in a year. On the other hand, payments by PHIC to hospitals or
clinics for facility fees shall be subject to 2% expanded withholding tax.

TAX REMEDIES
DURING ASSESSMENT OF INTERNAL REVENUE TAXES
REMEDIES AVAILABLE TO THE TAXPAYER

THERE MUST BE EXHAUSTION OF ADMINISTRATIVE REMEDIES


BEFORE SEEKING JUDICIAL REMEDIES

ADMINISTRATIVE REMEDIES JUDICIAL REMEDIES


Issuance of Pre-Assessment Notice CTA in Division denies petition
(PAN). Taxpayer can file a motion for reconsideration
PAN is a requirement of due process except in to the same CTA in Division within 15 days
those instances where PAN is not necessary. from receipt of denial.
PAN will never attain finality.
No motion for reconsideration, FAN becomes
Taxpayer will have to respond within 15 days final.
from receipt.

Take note that there are also instances


wherein PAN is not necessary.
Issuance of Final Assessment CTA denies the motion for
Notice (FAN) reconsideration.
Taxpayer will file a protest within 30 days from Taxpayer will have to file a petition for review
receipt of assessment. And within 60 days to the CTA En Banc within 15 days from receipt
from filing of protest, submit proofs. of denial

No protest, FAN becomes final.


BIR denies the protest. CTA denies petition
Taxpayer can appeal to the CTA in DIVISION via Taxpayer files Petition for Review on Certiorari
Petition for Review within 30 days from receipt to the Supreme Court within 15 days from
of denial. receipt of denial.

No appeal, FAN becomes final. No petition, FAN becomes final.


BIR takes no action on the protest. Supreme Court denies petition
Taxpayer has TWO (2) OPTIONS: FAN becomes final.
Taxpayer will have to pay the tax assessed.
- For early resolution, file an appeal to the CTA
in Division via Petition for Review within 30
days from the lapse of the 180 day period.

- Await for the decision of the BIR before filing


an appeal to the CTA in Division via Petition for
Review.

No appeal, FAN becomes final.


Page 14

DURING COLLECTION OF INTERNAL REVENUE TAXES


REMEDIES AVAILABLE TO THE TAXPAYER
ADMINISTRATIVE REMEDIES JUDICIAL REMEDIES
ENTER INTO A COMPROMISE with the File an action for damages against
Government Revenue Officers by reason of any act
There are those cases that are not subject to done in the performance of official
compromise and cases may be compromise. duty.

MINIMUM Compromise Rate


on Tax Settlement:

FOR FINANCIAL INCAPACITY:


1. 10% of the basic tax assessed for
individuals and non operating
companies for a period of 3 years or
more.
2. 20%of the basic tax assessed for
corporations and non operating
companies for a period of less than 3
years.
3. 40% of the basic tax assessed for
surplus or earning deficit resulting
impairment in the original capital; by at
least 50%.
4. For Large Taxpayers, they cannot enter
into a compromise below 50% of the
basic tax assessed. If below 50%
compromise tax rate, there should be
approval by the Secretary of Finance.

FOR DOUBFUL VALIDITY OF


CLAIM/ASESSMENT
1. 40% of the basic tax assessed.

If the amount of the basic tax involved exceeds


P1,000,000 or if the settlement offered is less
than the prescribed minimum rates, the
compromise shall be subject ot the approval of
the Evaluation Board. (Commission and the 4
Deputy Commissioners.)

File claim for Tax Credit File an action to Contest Forfeiture of


Chattel at any time before the sale or
Claim will be filed within 2 years from date of destruction of property. OR if afer the
payment and must be in writing. sale, and within 6 months afer, file an
action to recover the net proceeds
realized at the sale.
File claim for Tax Refund

On 2 grounds: ERRONEOUS PAYMENT and


ILLEGAL COLLECTION.

There must be a categorical demand for


reimbursement. Claim must be filed within 2
years from date of payment and must be a
written claim.

The 2 year prescriptive period is called the


TWIN PRESCRIPTIVE PERIOD because it is also
used as a limitation in the judicial level. (CTA)

Page 15

Continuation….Tax refund example: 2 years twin prescriptive period.


From date of payment, file a claim with the BIR
within 2 years. If BIR denies the claim, within
that same 2 year period, file a Petition for
Review within 30 days before the CTA in
Division.
Date of Payment: March 12, 2001 with
Judicial Remedy for claiming tax refund: erroneous payment. Within 10 months, filed a
claim before the BIR. BIR denied the claim on
If CTA in Division denies petition, file Motion February 27, 2003. He can only appeal to the
for Reconsideration to the same CTA in
Division within 15 days from receipt of denial. CTA up to March 12, 2003. Beyond this date,
appeal is not anymore filed on time.
If same CTA in Division denies MR, file Petition
for Review with the CTA En Banc. Within 15 Granting that BIR denied the claim January 10,
days from receipt of denial. 2003, then taxpayer can only appeal to the
If CTA En Banc denies petition, file Petition for CTA until February 9, 2003 (within 30 days).
Review on Certiorari with the Supreme Court Beyond this date, appeal is already filed out of
within 15 days from receipt of denial. time, though within the 2 year period but
beyond already the 30 days prescriptive
period.
Demand for the Letter of Authority in
cases Revenue Officers will inspect
taxpayer’s books of accounts.

Valid only for 30 days from its date of issue.

Apply for NO AUDIT PROGRAM

Requisites:

1. Income tax payment for the current


year must exceed the income tax
payment for the previous year by at
least 20%
2. Ration of income tax payment as to
Gross Sales/Receipts for the current
year must at least equal the ration of
income tax payment as to Gross
Sales/Receipts for the previous year.

DURING COLLECTION OF INTERNAL REVENUE TAXES


REMEDIES AVAILABLE TO THE GOVERNEMNT

The law provides the government various remedies to enforce effective collection of internal
revenue taxes, fees, and charges and increments thereto where the taxpayer is delinquent. The
taxes may be collected by the government by DISTRAINT or LEVY, or BY PROCEEDING in COURT
WITHIN 5 YEARS FOLLOWING THE ASSESSMENT OF TAX.
1. DISTRAINT OF PERSONAL PROPERTY
2. CONSTRUCTIVE DISTRAINT OF PERSONAL PROPERTY
3. LEVY OF REAL PROPERTY
4. FILING OF CIVIL and CRIMINAL ACTION

Either or both of these remedies may be pursued simultaneously in the collection of taxes once
to assessment becomes FINAL and DEMANDABLE.

When the amount of the tax liability is NOT MORE THAN P100 PESOS, the remedies of distraint
and levy SHALL NOT BE AVAILABLE.

Page 16

No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or
forfeiture under the Tax Code shall be filed in court without the approval of the BIR
Commissioner.
5. OTHER COLLECTION REMEDIES AVAILABLE TO THE GOVERNMENT.
Enforcement of tax lien;

Enforcement of forfeiture;

Entering into compromise of tax case;


Possible at any stage of litigation, even during appeal. For criminal cases, can be
subject to compromise other that those already filed in court and those
involving tax fraud cases.
Requiring the filing of bonds;

Requiring proof of filing of income tax returns;

Giving of rewards to informers;


10% of the amount recovered OR P1,000,000 whichever is LOWER, and subject
to 10% withholding tax.

Making arrest, search and seizure;

Deportation of aliens;

Inspection of books of accounts;

Use of national tax register;

Imposition of Surcharges
Surcharge for Simple Neglect-25% for each violation
Surcharge for Willful Neglect-50% for each violation

Imposition of Interest
Deficiency interest – 20% or higher rate
Delinquency interest-20% or higher rate

TAX REMEDIES-LOCAL TAXES


REMEDIES AVAILABLE TO THE TAXPAYER
1. CHALLENGE THE CONSTITUTIONALITY OF THE LOCAL TAX ORDINANCE FROM THE DATE OF ITS
EFFECTIVITY.

Page 17
2. PROTEST ON THE ASSESSMENT OF LOCAL TAX

Page 18

TAX REMEDIES-REAL PROPERTY TAXES


ON THE ASSESSMENT OF LAND VALUE
REMEDIES AVAILABLE TO THE TAXPAYER

Local Assessor makes an appraisal on the real property based on the current market value and
classifies the property according to actual use. Local Assessor applies the assessment level and
fixes the assessed value of the real property.

ON THE ASSESSMENT AND COLLECTION OF REAL PROPERTY TAXES


REMEDIES AVAILABLE TO THE TAXPAYER

Page 19
TAX REMEDIES-TARIFF and CUSTOMS CODE
STEPS INVOLVED IN PROTEST CASES
UNDER THE TARIFF AND CUSTOMS CODE

Page 20
Page 21
STEPS INVOLVED IN SEIZURE and FORFEITURE CASES
UNDER THE TARIFF AND CUSTOMS CODE

The imported articles are seized and a warrant for detention of the property is
issued by the Collector of Customs. The Collector of Customs makes a report of
the seizure to the Commissioner of Customs. The Collector of Customs gives
notification to the importer/owner;

Page 22
Page 23
Page 24

INCOME TAXATION
Q and A

INDIVIDUAL INCOME TAXATION

1. What is the situs of income taxation for individual taxpayer


TAXABLE TAXABLE
INCOME INCOME
WITHOUT
OR
INDIVIDUAL WITHIN OUTSIDE
TAXPAYERS
One who stayed permanently here in the
Philippines or stays outside the Philippines
Resident Citizen during the taxable year of less than 183 YES YES
days or stayed in the Philippines during the
taxable year for exactly 183 days or more. Used Tax Used Tax
Table Rates Table Rates
CITIZEN OF THE PHILIPPINES IF: 5% to 32% 5% to 32%
Filipino citizens by birth
Acquired Filipino citizenship after birth
through naturalization

One who stayed outside the Philippines


during the taxable year for exactly 183
days or more or stayed in the Philippines
for less than 183 days
YES NO
A Filipino citizen who was previously a Non
Non Resident Resident Citizen and who arrives and Used Tax
Citizen resides permanently in the Philippines at Table Rates
ANYTIME during the taxable year shall 5% to 32%
likewise be treated as NON RESIDENT
CITIZEN for the same taxable year with
respect to his income DERIVED FROM
SOURCES ABROAD until the date of his
arrival to the Philippines
Are foreign individuals whose residences YES NO
are not within the Philippines but earning
Resident Alien business income in the Philippines. Used Tax
Table Rates
5% to 32%
Non Resident Alien Non Resident Foreign Individuals
Engaged in Trade
or Business or DEEMED DOING BUSINESS or ENGAGED in YES NO
Doing Business in BUSINESS IF:
the Philippines Used Tax
stayed within the Philippines for MORE Table Rates
THAN 180 days during the taxable year. 5% to 32%

Page 25

Non Resident Alien Non Resident Foreign Individuals YES NO


NOT Engaged in
Trade or Business NOT DOING BUSINESS or NOT ENGAGED However,
in BUSINESS IF: the tax base
or NOT Doing stayed within the Philippines for ONLY or is now on
Business in the EXACTLY 180 days OR LESS during the GROSS
Philippines INCOME
and NOT
TAXABLE
INCOME
so, it can
not claim
any
deductions
The tax rate
is based
on the Gross
Income.
DO NOT
USED THE
TAX TABLE.

Overseas Contract An individual citizen of the Philippines who YES NO


Worker is working and deriving income from
abroad as Overseas Contract Worker Used Tax
Table Rates
5% to 32%

Seaman A citizen of the Philippines and who YES NO


receives compensation for services
(treated as an rendered abroad as a member of the Used Tax
Overseas Contract complement of a vessel engaged Table Rates
Worker) EXCLUSIVELY in INTERNATIONAL TRADE. 5% to 32%

Note: For Individual Taxpayers, EXCEPT PURE COMPENSATION


EARNER, deductions can be claimed to arrive at the Taxable Income or
(Net Income). It can be itemized deductions or Optional Standard
Deductions (OSD) at the rate of 40%. If OSD, it should be 40% of the
GROSS RECEIPTS, NOT GROSS INCOME.

2. Who are considered Resident citizens of the Philippines?


Resident citizen, one who stayed permanently in the Philippines or stayed
outside the Philippines during the taxable year for less than 183 days

3. How should husband And wife file their income tax return?
Husband and wife should file their taxable income in a consolidated return.
If the tax due is more than P2,000, the taxpayer has the option to pay the tax in
two equal installment, the second installment falling due July 15

The tax due on the respective income earned by husband and wife should be
computed separately

Page 26

4. What is the tax return form to be accomplished for individual earning


purely compensation income for the taxable year?
Purely Compensation is reported in Form 1700.
i. Filed in three copies
ii. Filed on or before April 15 of the year following the taxable year
5. When could the individual taxpayer opt for installment payment of his tax
due?
If the tax due is more than P2,000, the taxpayer has the option to pay the tax in
two equal installment, the second installment falling due July 15.

6. Aside for personal exemptions, what other item of deductions could


individual claim against his reportable compensation income?
Hospitalization insurance premium of not more than P2,400/year, if combined
income of husband and wife is not exceeding P250,000.

7. With respect to additional personal exemption for each child, who is the
legal claimant between husband and wife?
The husband is the legal claimant of additional personal exemption and hospitalization
insurance premium.

8. Where are the tax return for individual being filed?

To be filed and paid to AUTHORIZED AGENT BANKS and to BIR Revenue District
Office if no amount of tax is to be paid

9. What could be claimed as tax credit on tax due of individual taxpayer,


earning pure compensation income?
Creditable withholding taxes deducted by employer from monthly or periodic
earnings of the employee.

10. How could the taxpayer prove his entitlement for tax credit?
The taxpayer must attach to the return form 2316 accomplished by the employer
declaring the withholding tax taken from the compensation of the employee.

11. Who are exempted from filing individual income tax return?
a. Those whose gross compensation income does not exceed his total personal
exemption
b. The gross compensation income does not exceed P60,000 and the amount is
correctly withheld with amount of tax
c. The following employees whose compensation income was withheld final
income tax of 15% on compensation income;
 Employed by regional or area headquarter of multinational
 Employed by Petroleum service contractor and sub-contractor
 Employed by an Offshore banking unit

12. Are there cases that taxpayer is allowed not to file his 1700 in lieu of an
alternative option?
Yes, we called this the Substituted Filing of Income Tax Return. In lieu of BIR
form 1700, the Annual Information Return of income taxes withheld on
compensation and final withholding taxes form 1604CF filed by the employer
shall tantamount to filing of regular income tax returns.

13. In what tax returns are business and mixed income of individual
reported?
Business Income and Mixed Income are reported in Form 1701
i. 1701Q for the first 3 quarters
ii. 1701 for the final return at the end of the year.

Page 27

14. What is the tax treatment of income earned by minor from property
received of parents?
Income of unmarried minors derived from property received from a living
parent shall be included in the return of the parent, except when donor’s tax
has been paid on the transfer of such property

15. When are tax returns needed to be certified by an accredited CPA?


If the quarterly gross receipts exceed P150,000,it must be certified b a CPA.

16.Are professional income, of those practicing their profession subject to


creditable withholding tax?
Professional income of individual is subject to creditable withholding tax of 10%
if not exceeding P720,000 and 15% if exceeding P720,000.

17.What are the New personal exemptions of individual taxpayers, under


RA9504, Rev.Reg 10-2008?
Basic, P50,000, (single, married and head of the family)
Additional, P25,000/child, maximum of 4 QUALIFIED children

18.Are personal exemptions available to all individual taxpayers?


NO, Personal exemptions are available only to citizens and residents,
including estate and trust.
Non-resident alien engaged in business in the Philippines is allowed with
personal exemption based on reciprocity;
(NOTE: other authors mentioned that reciprocity is only to the extent of basic personal
exemption. However, Section 35(D) of NIRC does not qualify…remember, there are two (2) kinds
of personal exemption: basic and additional.

19. What are allowed as deductions from reportable business income?


For Residents or Citizens, Itemized Deductions or standard optional deduction
under RA 9504 is 40% of sales or gross receipts, effective July 6, 2008

INCOME TAXATION for CORPORATIONS

20. What are the major classification of corporate taxpayers?

CORPORATE INCOME INCOME TAX BASE TAX RATE


TAXPAYERS SOURCE- SOURCE-
WITHIN WITHOUT
DOMESTIC One organized and Taxable 30%
CORPORATIONS existing under YES YES Income NORMAL
(DC) Philippine laws TAX
It can claim meaning, it
The term “domestic deduction must file its
corporation” (itemized or Income Tax
includes OSD 40%. Return--- 3
Government- If OSD—it quarterly
Owned and should be 40% returns and the
Controlled of the Gross Final
Corporations Income from Adjustment
(GOCCs) since they Income Source Return to be
are now subject to WITHIN and filed on April 15
the corporate WITHOUT, of the following
income tax like NOT Gross year following
ordinary Receipts. the close of the
corporations taxable year.

Page 28

RESIDENT FOREIGN A foreign Taxable 30%


CORPORATIONS corporation that is Income NORMAL
(RFC) engaged in trade or TAX
business or trade in It can claim (meaning, it
Foreign Corporation is the Philippines. It YES NO deduction must file its
one organized and establishes a (itemized or Income Tax
existing under the laws branch or an office OSD 40%. Return-- 3
of foreign country for the purpose of If OSD—it quarterly
irrespective of the doing business or should be 40% returns and the
nationality of its trade. of the Gross Final
stockholders Income from Adjustment
income source Return to be
WITHIN ONLY, filed April 15 of
NOT Gross the following
Receipts. year following
the close of the
taxable year,
especially that
there is a
branch office
here in the
Philippines

NON RESIDENT A foreign


FOREIGN corporation not Gross 30%
CORPORATATIONS engage in business YES NO Income FINAL TAX.
(NRFC) or trade in the (meaning ,it
Philippines. (meaning, it must be
Foreign Corporation is CAN NOT withheld by the
one organized and CLAIM one giving the
existing under the laws DEDUCTIONS.) income earned
of foreign country by the NRFC
irrespective of the and remit the
nationality of its same to the
stockholders BIR.

21.For income taxation, what are entities that are considered as


corporations?
For income taxation purposes, corporation includes joint stock companies, joint
accounts, association, insurance companies or partnerships no matter how they
are created or organized, except professional partnership.

22.What are the entities that are excluded from the tax definition of
corporations?
For income tax purposes, a corporation does not include general professional
partnerships. It does not also include a joint venture or consortium formed to
undertake construction projects or engage in petroleum, coal, geothermal and
other energy related operation, pursuant to an operating or consortium
agreement with the Government (Sec. 22A, NIRC).

Page 29

23.Are there CORPORATIONS which are exempt from income tax?


i. Non-stock and non-profit educational institutions.
ii. Government educational institutions.
iii. Non-profit labor, agricultural or horticultural organizations.
iv. Associations of farmers, fruit growers, and the like whose primary
function is to market the product of their members.
v. Organizations with a purely local operation whose income is derived only
from assessments, dues, and fees collected from their members to meet
operational expenses such as fire insurance company, farmers’ or other
mutual typhoon associations, mutual ditch or irrigation company and
mutual or cooperative telephone company.
vi. Non-stock Corporation or association organized and operated exclusively
for religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans; provided that no individual person owns its
assets or no individual person receives benefit on its earnings.
vii. Non-stock/ non-profit mutual savings bank or non-stock/ non-profit
cooperative bank.
viii. Non-profit civic league or organization operating exclusively for the
promotion of social welfare.
ix. Cemetery company owned and operated exclusively for the benefit of its
members.
x. Non-profit business league, chamber of commerce, or board of trade.
xi. Associations, orders, beneficiary societies operating for the exclusive
benefits of their members. (Sec. 30, NIRC.)

24.What are the income tax rates for corporations?


a. Normal Corporate Income Tax (NCIT) – 32% in year 2000, and 35% effective
2005; 30% effective 2009
b. Minimum Corporate Income Tax (MCIT) – 2% of gross income;
c. Gross Income Tax (GIT)15% – upon compliance with the economic
conditions as required by law;
d. Capital Gains Tax – on sale of real property or on sale of shares of stock; and
e. Final Tax on Passive Income.
f.
25.What is MINIMUM CORPORATE INCOME TAX (MCIT)?
Section 27(E) and Sec. 28 (A2) of the NIRC, domestic and resident foreign
corporations shall be taxed with 2% based on gross income and not on taxable
income after operating expenses if they have been in their:
i. 4th year of operation
ii. have incurred a net loss or zero taxable income, or
iii. a normal income tax that is lesser than minimum income tax.
iv.
26.Are there exemptions on the minimum corporate income tax?
YES. The Secretary of Finance is authorized to suspend the imposition of the
minimum corporate income tax on a corporation that
(A) suffers losses on account of prolonged labor dispute, or
(B) because of force majeure, or
(C) because of legitimate business reverses (Sec. 27(E3), NIRC).

27.What is the tax treatment of Excess of MCIT over normal tax?


Any excess of the minimum corporate income tax (MCIT) over the normal tax
shall be carried forward and credited against the normal tax for the three (3)
immediately succeeding taxable years (Sec. 27E2, NIRC).
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28. Are Expanded Withholding Tax allowed as Deduction from MCIT?


A taxpayer who is liable to MCIT and at the same time has an expanded
withholding tax (EWT) may deduct the EWT from MCIT and if there is still an
excess EWT, he may request for tax credit or refund of tax withheld (BIR Ruling
001-99).
29. Are MCIT allowed as deductions from taxable income?
MCIT account is not allowed as deduction from gross income, it being an income
tax (Rev.Reg.9-98). Remember that: Taxes formed part in the statutory
classification of ITEMIZED DEDUCTIONS, but there are taxes that cannot be
deducted from the Gross Income like Income Tax, Estate and Donor’s Taxes,
Foreign Income Tax, if claimed as tax credit, Percentage Tax on stock
transaction and Value-Added Tax.

30. Are government owned and controlled corporations also subject to


MCIT?
Domestic corporation includes Government-Owned and Controlled Corporations
(GOCC) since they are now subject to the corporate income tax like ordinary
corporations. Therefore, MCIT shall also be imposed on the gross income of
GOCCs beginning the 4th taxable year in which such GOCC commenced its
business operations even though it has a zero or negative taxable income or
whenever the amount of MCIT is greater than the normal income tax (BIR Ruling
041-2000).
31.What are the domestic corporations which are subject to special
corporate tax rates OR What are the SPECIAL DOMESTIC CORPORATIONS?
Proprietary Domestic Educational Institution (Private Educational Institution) and
Proprietary Domestic Hospitals (Non Profit Hospitals).
The special corporate tax rate is 10% on the Taxable Income if the Gross Income
from unrelated trade, business or other activity not more than 50% of the Total
Gross Income. Otherwise, imposed the 30% normal or regular corporate tax
rate.

32.Are proprietary educational and hospitals subject to MCIT?


Yes, if their other business income is its income from unrelated trade or business
EXCEEDS 50% of the Total Gross Income. Here, the SPECIAL DOMESTIC
Corporations will be treated as a regular domestic corporation subject to MCIT
on its 4th year of operation or the 30% normal tax whichever is higher.

33.Are there resident foreign corporations which are not subject to normal
corporate tax rate of 30% on their taxable income?
Yes,
1. International carrier, 2.5% of gross receipts within
2. Offshore banking unit, 10% of income transacted with the residents
3. Branch profit remittance by local branch .= 15% of remittance to H.O.
4. Regional operating headquarters of Multi-national companies = 10% of gross
income within

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34.Are there non-resident foreign corporations which are not subject to Final
corporate tax rate of 30% on their Gross Income?
Yes,
1. Cinema film owner, lessor/distributor = 25% of gross income within
2. Lessor of machinery, equipment, aircraft to resident = 7.5% of gross income
within
3. Lessor of vessels chartered by Philippine Nationals = 4.5% of gross income
within

35.What are the tax treatment of cash/property dividend earned by


corporations and individuals?
1. received by domestic FROM another domestic corporation=====TAX EXEMPT
2. received by resident foreign corporation from domestic corporation=====TAX
EXEMPT
3. received by non resident foreign corporation from domestic
corporation=====If with reciprocity 15% of Gross Income
==== If WITHOUT RECIPROCITY 30% of Gross Income
4. received by DOMESTIC corporation from a FOREIGN Corporation=====subject
now to NORMAL TAX of 30% (so, it should be included in the Gross Income.)
5. If received by individual (RC,NRC and RA)===10% Final Tax
6. If received by individual (NRA-ETB)=====20% Final Tax
7. If received by individual (NRA-NETB)=====25% Final Tax

36.Are corporations allowed to claim NOLCO (Net Operating Loss Carry Over)
as item of deduction from their reportable income?
Yes, for the next 3 succeeding taxable years. But if the corporation opted for OSD,
then it could not anymore claim NOLCO because in each taxable year, it is either
ITEMIZED or OSD and one OSD is elected, such is irrevocable for that taxable
year.

37. Are corporations allowed to deduct their Net Capital Loss incurred for the
taxable year, against their reportable income for the same year?
No, capital losses are deductible only up to the extent of capital gain.

38.Are corporations allowed to carry over their capital loss for the next
period as deduction from their capital gain?
NO. Net Capital Loss Carry Over (NCLC) IS ALLOWED ONLY FOR INDIVIDUAL
TAXPAYER.
39.Are capital gains or losses arising from merger or consolidation recognized
for tax purposes?
No, If it is TRANSACTIONS SOLELY IN KIND. (No Gain, No Loss will be recognized
which means Gain is not taxable and Loss is not deductible).
BUT, if aside from the exchange of securities, money or property is given, then
GAIN is RECOGNIZED, meaning it will be taxable. For the losses, it is not
recognize, it is not deductible.

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40.What is an improperly accumulated earning tax?


It is a 10% surtax imposed on improperly accumulated earnings of corporations
(domestic and resident) IF it is determined that a corporation has an
unreasonable accumulated income.
Note: only if the accumulation of earnings or income is UNREASONABLE that
IAET will apply. If the accumulation is REASONABLE, IAET will not apply. The
accumulation must be for the reasonable needs of the business like:
Up to 100% of the paid up capital of the corporation for reserve purposes
It is for definite corporate expansion projects as approved by the Board of
Directors.
For the acquisition of buildings, plants and equipment as approved by the
BOD.

41.When is the earnings considered as improperly accumulated?


The following profits are assumed as improperly accumulated :
 When the corporation is a mere holding company
 When the corporation is an investment company
 When the corporation permits its profit to accumulate beyond
its reasonable needs (unreasonbable)

42.Are all domestic and resident foreign corporations subject to IAE tax?
No, only holding companies and investment companies, closely held or
family corporations are subject to IAE tax
43.What corporations are exempt from IAE tax?
 Publicly-owned corporations
 Banks and other non-bank financial intermediaries
 Insurance companies

44.What is the effect of 10% IAET, if the earnings collected with IAE tax is
till undeclared the succeeding year/s?
Once the profit has been subjected to IAET, the same shall no longer be
subjected to IAET in later years, even if not declared as dividend.

45.What are the CLASSFICATION OF PARTNERSHIP for tax purposes and


their distinctions?
For purposes of taxation, partnership is classified into two major
categories, namely:
 General professional partnership, and
 General co-partnership.

Commercial
Professional Partnership
Partnership

Nature of Income Professional Fees Trading Income

Requirement as to the Filing of YES YES


Income Tax Return

Subject to Income Taxation EXEMPT SAME AS CORPORATION

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DISTRIBUTIVE SHARE OF Treated as Business It is treated as DIVIDEND


PARTNERS Income and must be INCOME, so subject to
included in the Final Tax
computation of Gross
Income

Distributive Amount It is not reduced by any It is reduced by the


amount of tax income tax which is 30%

Withholding Tax on the Creditable Withholding Tax Final Withholding Tax


Distributive Share
P720,000 and below=10%
10% Final Tax
More than P720,000=15%

46.Are professional partnerships required to file its annual tax returns?


Yes, although it is exempt from income tax, IT IS REQUIRED TO FILE ITS
INCOME TAX RETURN.

47.What is a joint venture under the Tax Code?


A business activity that is organized or established only, for temporary or
short-period of time.
PARTNERSHIP : INDIVIDUAL
JOINT VENTURE : CORPORATIONS

48.What are the two types of joint ventures?


1. Un-incorporated joint venture in general
- like general commercial partnership, it is taxed in the same manner
as a regular corporation. The share of the joint venture partners will
no longer be taxable, because dividends payable to another
corporations are tax exempt.

2. Un-incorporated joint venture formed for specific purpose of engaging in


petroleum operations pursuant to the consortium agreement with the
Philippine Government
-It is not subject to income tax. Only the joint venture partners, like in
professional partnership will be taxed on their respective shares in the
income of joint venture.

49.What are CO-OWNERSHIP?


Co-ownership exists when more than one person acquired the right to own a
piece of property or mass of properties.

50.What are the co-ownership which are exempt from income tax?
Co-ownership that exists as INHERITANCE and DONATION.
Although co-ownership is tax exempt because the activities of the co-
owners are usually intended to preserve the property and to collect the
income from the property, the income derived by a co-owner from the
property shall be reported in his individual tax return regardless of
whether such income is actually or constructively received.
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51. When are co-ownerships become taxable?


1. When a co-ownership is formed or established voluntarily, or upon
agreement of the parties.
2. When the individual co-owner reinvested his share in the co-ownership to
produce another income-generating activity.
3. Where the inherited property remained undivided for more than ten
years, and no attempt was ever made to divide the same among the co-
heirs, nor was the property under administration proceedings nor held in
trust, the property should be considered as owned by an unregistered
partnership (BIR Ruling August 18, 1959).

52.How are income of ESTATE AND TRUST being taxed?


1. The taxable income of the estate/ trust shall be determined in the same
manner and basis as in the case of individual taxpayers (Sec.60, NIRC.).
2. The items of gross income of the estate are the same items as the items
of gross income of individual taxpayers (Sec. 32A, NIRC).
3. Deductions from the gross income of the estates/trusts are the same as
the items of deduction allowed to individual taxpayer (Section 34 and Sec.
61, NIRC).
4. In addition to the allowable deductions under Section 34 of the Tax
Code, the estate is also allowed to deduct the amount of income of the
estate during the taxable year that is paid or credited to the legatee,
heir or beneficiary, subject to a creditable withholding tax of fifeen
percent (15%) (Sec. 2.57- 1[h], Rev. Regs. 2 – 98).
5. The amount so allowed as a deduction shall be a part of the taxable
income of the legatee, heir or beneficiary.
6. The income from estate/trusts is allowed for a personal exemption of
P20,000 (Sec.62, NIRC).
7. If the taxpayer dies during the taxable year, his estate may still claim the
personal and additional exemptions for himself and his dependent(s) as
if he died at the close of the year.” (Sec.35C, NIRC)
8. The tax rate applicable is the tax rate prescribed for individual taxpayers
(Sec. 24A, NIRC). USE THE TAX TABLE.
9. The beneficiary of an estate engaged in business has the status of self-
employed individual taxpayer. It follows, therefore, that such beneficiary
can claim the itemized deduction or optional deduction in the
computation of his net taxable income.
53.What is a Trust?
This is a legal institution used to administer funds in behalf of individuals
or organizations. Trust device is used frequently to transfer property from
one generation to another. And when a trust is created, a new entity
comes into being for which returns must be filed and taxes must be paid.
54.What are the two types of Trusts?
REVOCABLE ands IRREVOCABLE TRUSTS

55.What are REVOCABLE TRUSTS?


Generally, revocable trusts exist when the trustor (grantor) e power to
change at any time any part of the terms of the trust. For tax purposes,
the rule is that the grantor is liable for the income of a revocable trust.
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56.How are IRREVOCABLE TRUSTS being taxed?


It is taxable as a SEPARATE ENTITY from the grantor. The
computation of the net taxable income of trust shall be in the
same manner as that of the net taxable income of an estate.
57.What are WITHHOLDING TAXES?
Withholding of taxes is a systematic way of collecting taxes at source. It is an
indispensable method for collecting taxes in order that the government can
obtain adequate revenue.

58.What are the Classification of Withholding Tax at Source


Two major categories:
1. Final Withholding Tax, and
2. Creditable Withholding Tax

59.What are FINAL WITHHOLDING TAXES?


Under the final withholding tax system the amount of income tax withheld by
the withholding agent is constituted as a full and final payment of the income
tax due from the payee on the said income. The finality of the withholding tax is
limited only to the payee or recipient’s income tax liability on the particular
income. It does not extend to the payee’s other tax liability on said income, such
as when the said income is further subject to a percentage tax (Sec. 2.57 (A) Rev.
Reg. No. 2-98).
The payee is not required to file an income tax return for the particular income,
the final tax on which has been withheld (Sec.79B, NIRC.).

60.What are creditable withholding taxes?


Under the creditable withholding tax system, taxes withheld on certain
payments are intended to equal or at least approximate the tax due of the
payee on said income.
The income recipient is still required to file his income tax return as prescribed in
the Section 51 of the NIRC, either to report the income and/or pay the difference
between the tax withheld and the tax due on the income. A tax withheld on
income payments covering the expanded withholding tax from compensation
income is creditable in nature (Sec.57B, NIRC).

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61. What are the rate withholding tax for the onerous transfer of real
property other than capital assets, meaning REAL PROPERTY classified
as ordinary assets?
62.When is the required Time of Withholding?
The obligation of the payor to deduct and withhold the tax under Section
25.7 of these regulations arises at the time an income is paid or payable,
whichever comes first.

The term “payable” refers to the date the obligation becomes due,
demandable or legally enforceable (Sec. 2.47.4, NIRC).

63.Are there Exemptions from Withholding taxes?


• The withholding of creditable withholding tax prescribed in these Regulations
shall not apply to income payments made to the following:
• The National government and its instrumentalities, including provincial, city
or municipal governments;
• Persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special such as but not limited to the
following:
• Sales of real property by a corporation which is registered and certified by the
Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in
socialized housing project where the selling price of the house and lot or only
the lot does not exceed one hundred eighty thousand pesos P180,000) in
Metro Manila and other highly urbanized areas and one hundred fifty
thousand pesos (P150,000) in other areas or such adjusted amount of selling
price for socialized housing as may later be determined and adopted by the
HLURB, as provided under Republic Act No. 7279 and its implementing
regulations;
• Corporations registered with the Board of Investments and enjoying
exemption from the income tax provided by republic Act No. 7916 and the
Omnibus Investment Code of 1987.

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• Corporations which are exempt from the income tax under Section 10 of
NIRC, to wit: the Government Service Insurance System (GSIS), the Social
Security System (SSS), the Philippine Health Insurance Corporation (PHIC),
the Philippine Charity Sweepstakes Office (PCSO) and the Philippine
Amusement and Gaming Corporation (PAGCOR); However, the income
payments arising from any activity which is conducted for profit or income
derived from real or personal property shall be subject to a withholding tax
as prescribed in these regulations.
• (Sec. 2.57.5, NIRC.)

64.Where are withholding tax remittances being Filed?


Creditable and final withholding taxes deducted and withheld by the withholding
agent shall be paid upon filing a return in duplicate with the authorized agent
banks located within the Revenue District Office (RDO) having jurisdiction over
the residence or principal place of business of the withholding agent. In places
where there is no authorized agent banks, the return shall be filed directly with
the Revenue District Officer, Collection Officer or the duly authorized Treasurer of
the city or municipality where the withholding agent’s residence or principal
place of business is located, or where the withholding agent is a corporation,
where the principal office is located except in cases where the Commissioner
otherwise permits.
(Sec.81, NIRC.)
65.When are withholding taxes being Filed?
For both large and non-large taxpayers, the tax return, whether creditable or
final (including final withholding taxes on interest from any currency bank
deposit and yield or any other monetary benefit from deposit substitutes and
from trust funds and similar arrangements) shall be filed and payments should
be made within 10 days afer the end of each month.
But for taxes withheld for the months of December of each year, it shall be filed
on or before January 15 of the following year.
(Revenue Regulations No. 6 – 2001, as amended effective September 2001.)

66.Who are considered as Large Taxpayer?


• A taxpayer who satisfies any of the following criteria is a large taxpayer:
• Value-Added Tax (VAT) – Business establishment with VAT paid or payable of
at least one hundred thousand pesos (P100,000) for any quarter of the
preceding taxable year;
• Excise Tax – Business establishment with excise tax paid or payable of at
least one million pesos (P1,000,000) for the preceding taxable year;
• Corporate Income Tax – Business establishment with annual income tax paid
or payable of at least one million pesos (P1,000,000) for the preceding
taxable year; and
• Withholding Tax – Business establishment with withholding tax payment or
remittance of at least one million pesos (P1,000,000) for the preceding
taxable year.

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