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TAXATION LAW
TAXATION LAW 1
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PURPOSE OF TAXATION
1. Revenue-raising Jurisdiction Over Subject and Objects
Primary purpose of taxation is to provide funds The limited powers of sovereignty are confined
or property with which to promote the general to objects within the respective spheres of
welfare and protection it its citizens. governmental control. These objects are the
proper subjects or objects of taxation and none
2. Non-revenue/Special or Regulatory else.
Taxation is often employed as a device for
regulation by means of which certain effects or DOCTRINES IN TAXATION
conditions envisioned by governments may be Prospectivity of Tax Laws
achieved. These regulatory purposes are also General rule - Tax laws are prospective in
known as Sumptuary. operation. Reason: Nature and amount of the
tax could not be foreseen and understood by
PRINCIPLES OF SOUND TAX SYSTEM the taxpayer at the time the transaction.
(1) fiscal adequacy Exception - Tax laws may be applied
(2) administrative feasibility retroactively provided it is expressly declared
or clearly the legislative intent.(e.g increase
(3) theoretical justice or equality
taxes on income already earned)
Note: The non-observance of the above when retroactive application would be so
principles will not necessarily render the tax harsh and oppressive [Republic v. Fernandez,
imposed invalid except to the extent those G.R. No. L-9141. September 25, 1956].
specific constitutional limitations are violated. Exception to the exception - Collection of
(De Leon) interest in tax cases is not penal in nature; it is
but a just compensation to the State. The
THEORY AND BASIS OF TAXATION constitutional prohibition against ex post facto
Lifeblood Theory laws is not applicable to the collection of
Taxes are the lifeblood of the government and interest on back taxes. [Central Azucarera
their prompt and certain availability is an v.CTA]
imperious need. [CIR v. Pineda]
Non-retroactivity of Rulings (sec. 246)
General rule - Any revocation, modification or
Necessity Theory
reversal of rules and regulations promulgated
The power of taxation proceeds upon theory
in accordance with Sections 244 and 245 of
that the existence of government is a necessity;
the Tax Code and rulings or circulars
that is cannot continue without means to pay
promulgated by the CIR, that is prejudicial to
its expenses; and that for those means it has
the taxpayer, shall NOT be given retroactive
the right to compel all citizens and property
effect.
within its limits to contribute.
Exceptions:
(1) Where the taxpayer deliberately misstates
Benefits-Protection Theory (Symbiotic
or omits material facts from his return or
Relationship)
any document required of him by BIR;
This principle serves as the basis of taxation
(2) Where the facts subsequently gathered by
and is founded on the reciprocal duties of
the BIR are materially different from the
protection and support between the State and
facts on which the ruling is based; OR
its inhabitants.
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(3) Where the taxpayer acted in bad faith. (Sec. concerned, the taxpayer, the subject of tax, is
246, NIRC) the person who must pay the tax to the
government.
Imprescriptibility
Unless otherwise provided by the tax itself, Incidence of taxation is that point on which the
taxes are imprescriptible. [CIR v. Ayala tax burden finally rests or settles down. It takes
Securities Corporation] place when shifting has been effected from the
statutory taxpayer to another.
Double Taxation
Means taxing twice the same taxpayer for the Tax Avoidance (Tax Minimization)
same tax period upon the same thing or The exploitation by the taxpayer of legally
activity, when it should be taxed but once, for permissible alternative tax rates or methods of
the same purpose and with the same kind of assessing taxable property or income in order
character of tax. to avoid or reduce tax liability. It is politely
called “tax minimization” and is not
Constitutionality of Double Taxation punishable by law.
There is no constitutional prohibition against
double taxation in the Philippines. It is Transformation
something not favored, but is permissible, Transformation – method of escape in taxation
provided some other constitutional whereby the manufacturer or producer upon
requirement is not thereby violated. [Villanueva whom the tax has been imposed pays the tax
v. City of Iloilo, G.R. No. L-26521, December 28, and endeavors to recoup himself by improving
1968] his process of production thereby turning out
his units of products at a lower cost. The
Double taxation in its narrow sense is taxpayer escapes by a transformation of the
undoubtedly unconstitutional but that in the tax into a gain through the medium of
broader sense is not necessarily so. [De Leon, production.
citing 26 R.C.L 264-265].Where double
taxation (in its narrow sense) occurs, the Tax Evasion (Tax Dodging)
taxpayer may seek relief under the uniformity Tax Evasion - is the use by the taxpayer of
rule or the equal protection guarantee. [De illegal or fraudulent means to defeat or lessen
Leon, citing 84 C.J.S.138]. the payment of a tax. It is also known as “tax
dodging.” It is punishable by law.
ESCAPE FROM TAXATION
Shifting of tax burden Elements of Tax Evasion
Shifting - the transfer of the burden of a tax by (1) The end to be achieved.
the original payer or the one on whom the tax (2) An accompanying state of mind described
was assessed or imposed to someone else. as being “evil,” “in bad faith,” “willful” or
“deliberate and not accidental.”
What is transferred is not the payment of the
(3) A course of action (or failure of action)
tax but the burden of the tax. which is unlawful.
All indirect taxes may be shifted; direct taxes EXEMPTION FROM TAXATION
cannot be shifted. Nature of tax exemption
(1) Mere personal privilege- cannot be
Impact of taxation is the point on which a tax is assigned or transferred without the
originally imposed. In so far as the law is
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consent of the Legislature. The legislative Articles 1279 and 1290 of the NCC, and both
consent to the transfer may be given either debts are extinguished to the concurrent
in the original act granting the exemption amount.[Domingo v. Garlitos, G.R. No. L-18994,
or in a subsequent law June 29, 1963]
(2) General rule: revocable by the government.
Exception: if founded on a contract which is
protected from impairment. But the COMPROMISE
contract must contain the essential (a) A contract whereby the parties, by making
elements of other contracts. An exemption reciprocal concessions avoid litigation or
provided for in a franchise, however, may put an end to one already commenced.
be repealed or amended pursuant to the (Art. 2028, Civil Code). It involves a
Constitution (see Sec. 11, Art. XII). A reduction of the taxpayer’s liability.
legislative franchise is in the nature of a (b) Requisites of a tax compromise:
contract. (1) The taxpayer must have a tax liability.
(3) Implies a waiver on the part of the (2) There must be an offer (by the taxpayer
government of its right to collect taxes due or Commissioner) of an amount to be
to it, and, in this sense, is prejudicial paid by the taxpayer.
thereto. Hence, it exists only by virtue of an (3) There must be acceptance (by the
express grant and must be strictly Commissioner or the taxpayer, as the
construed. case may be) of the offer in settlement
(4) Not necessarily discriminatory, provided it of the original claim.
has reasonable foundation or rational
basis. Where, however, no valid distinction TAX AMNESTY
exists, the exemption may be challenged A tax amnesty partakes of an absolute
as violative of the equal protection forgiveness or waiver by the Government of its
right to collect what otherwise would be due it,
REVOCATION OF TAX EXEMPTION and in this sense, prejudicial thereto,
General Rule - revocable by the government. particularly to give tax evaders, who wish to
Exception - Contractual tax exemptions may relent and are willing to reform a chance to do
not be unilaterally so revoked by the taxing so and become a part of the new society with a
authority without thereby violating the non- clean slate.[Republic v. IAC (1991)]
impairment clause of the Constitution.
Tax Amnesty is immunity from all criminal and
COMPENSATION AND SET-OFF civil obligations arising from non-payment of
General Rule - Internal revenue taxes cannot taxes. It is a general pardon given to all
be the subject of set-off or compensation taxpayers. It applies to past tax periods, hence
[Republic v. Mambulao Lumber, G.R. No. L- of retroactive application. [People v. Castañeda,
17725, February 28, 1962]. G.R. No. L-46881, September 15, 1988].
Exception - If the claims against the
government have been recognized and an Tax Exemption is an immunity from all civil
amount has already been appropriated for that liability only. It is an immunity or privilege, a
purpose. Where both claims have already freedom from a charge or burden of which
become due and demandable as well as fully others are subjected. [Greenfield v. Meer, 77 Phil.
liquidated, compensation takes place by 394 (1946)]. It is generally prospective in
operation of law under Art. 1200 in relation to application. [Dimaampao, 2005, p. 111]
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Exception - Tax laws may be applied now expressly given the power to create its
retroactively provided it is expressly declared own sources of revenue and to levy taxes,
or clearly the legislative intent. (Lorenzo v. fees and charges, subject to such
Posadas, 64 Phil. 353 [1937]). guidelines and limitations as the Congress
may provide which must be consistent with
Exception to the Exception - a tax law should the basic policy of local autonomy. [Art X,
not be given retroactive application when it Sec 5, 1987 Constitution]
would be so harsh and oppressive for in such
case, the constitutional limitation of due (2) Delegation to the President
process would be violated (Republic v. (a) to enter into Executive agreements,
Fernandez,[1956]). and
(b) to ratify treaties which grant tax
SCOPE AND LIMITATION OF exemption subject to Senate
TAXATION concurrence.
(c) The Congress may, by law, authorize
Inherent Limitations
the President to fix within specified
1. Public Purpose
limits, and subject to such limitations
The proceeds of the tax must be used (a) for
and restrictions as it may impose, tariff
the support of the State or (b) for some
rates, import and export quotas,
recognized objects of government or directly to
tonnage and wharfage dues, and other
promote the welfare of the community.
duties or imposts within the framework
2. Inherently Legislative of the national development program
Stated in another way, taxation may of the Government. [Art. 6, Sec. 28 (2),
exceptionally be delegated, subject to such 1987 Consti]
well-settled limitations as –
(3) Delegation to administrative agencies -
(1) The delegation shall not contravene any
Limited to the administrative
constitutional provision or the inherent
implementation that calls for some degree
limitations of taxation;
of discretionary powers under sufficient
(2) The delegation is effected either by the
standards expressed by law or implied
Constitution or by validly enacted
from the policy and purposes of the Act.
legislative measures or statute; and
(3) The delegated levy power, except when
3. Territorial
the delegation is by an express provision
Rule - A state may not tax property lying
of the Constitution itself, should only be in
outside its borders or lay an excise or privilege
favor of the local legislative body of the
tax upon the exercise or enjoyment of a right or
local or municipal government concerned.
privilege derived from the laws of another state
[Vitug and Acosta]
and therein exercise and enjoyed. (51 Am.Jur.
87-88).
General Rule - Delegata potestas non potest
delegari. The power to tax is exclusively vested
4. International Comity
in the legislative body and it may not be re-
Comity - respect accorded by nations to each
delegated.
other because they are sovereign equals. Thus,
Exceptions
the property or income of a foreign state or
(1) Delegation to local governments - Under
government may not be the subject of taxation
the new Constitution, however, LGUs are
by another state.
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Note:
(1) The LGU shall have the authority to grant (1) Due process (Art III, Sec 1, 1987 Constitution)
local tax exemption privileges. (Sec. 192,
LGC) (2) Equal protection (Art III, Sec 1, 1987
(2) The President may, when public interest so Constitution)
requires, condone or reduce real property
taxes and interest. (Sec. 277, LGC) (3) Religious freedom (Art III, Sec 5, 1987
Constitution )
(7) Prohibition on use of tax levied for special The Constitution, however, does not prohibit
purpose imposing a generally applicable tax on the sale
All money collected on any tax levied for a of religious materials by a religious
special purpose shall be treated as a special organization. (Tolentino v. Secretary of Finance,
fund and paid out for such purpose only. 235 SCRA 630 [1994])
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intention that he shall indemnify himself at As To Scope (Or Authority Imposing The
the expense of another, falling finally upon Tax)
the ultimate purchaser or consumer; taxes (1) National – taxes imposed by the national
levied upon transactions or activities before government (e.g. national internal revenue
the articles subject matter thereof, reach taxes, customs duties, and national taxes
the consumers who ultimately pay for them imposed by laws).
not as taxes but as part of the purchase (2) Municipal or Local – taxes imposed by local
price. (e.g., VAT, percentage tax; excise governments (e.g. business taxes that may
taxes on specified goods; customs duties). be imposed under the Local Government
Code; professional tax).
As To Tax Rates
(1) Specific Tax – a tax of a fixed amount As To Graduation
imposed by the head or number or by some (1) Proportionate – The rate of tax is based on a
other standard of weight or measurement fixed percentage of the amount of the
(e.g., taxes on distilled spirits, wines, and property, receipts or other basis to be taxed.
fermented liquors; cigars and cigarettes) Example: real estate tax, value added tax,
(2) Ad Valorem Tax – a tax of a fixed proportion and other percentage taxes.
of the value of the property with respect to (2) Progressive – The rate of tax increases as
which the tax is assessed (e.g. real estate the tax base or bracket increases.
tax, excise tax on automobiles, non- Example: income tax, estate tax, donor’s tax.
essential goods such as jewelry and (3) Digressive – A fixed rate is imposed on a
perfumes, customs duties (except on certain amount and diminishes gradually on
cinematographic films)). sums below it. The tax rate in this case is
(3) Mixed arbitrary because the increase in tax rate is
not proportionate to the increase of tax
As To Purposes base.
(1) General or Fiscal Tax –levied for the general (4) Regressive – The rate of tax decreases as the
or ordinary purposes of the Government tax base or bracket increases. There is no
(e.g. income tax, value added tax, and regressive tax in the Philippines.
almost all taxes).
(2) Special/Regulatory/ Sumptuary Tax –levied Regressive/Progressive System Of Taxation
for special purposes (e.g. protective tariffs (1) A regressive tax, must not be confused
or customs duties on imported goods to with regressive system of taxation.
enable similar products manufactured (2) A progressive tax is also different from
locally to compete with such imports in the a progressive system of taxation.
domestic market).
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not subject to withholding tax on wages [RA the collection of compensation income of EEs,
9504] the State requires the ER to withhold the tax
upon payment of the compensation income.
Forms Of Compensation And How They Are
Assessed Fringe Benefits
(a) Cash – If compensation is paid in cash, the Persons liable: The Employer (as a withholding
full amount received is the measure of the agent), whether individual, professional
income subject to tax. partnership or a corporation, regardless of
whether the corporation is taxable or not, or
(b) Medium other than money - If services are the government and its instrumentalities, is
paid for in a medium other than money the liable to remit the fringe benefit tax to the BIR
fair market value (FMV) of the thing taken in once fringe benefit is given to a managerial or
payment is the amount to be included as supervisory employee.
compensation subject to tax.
If the services are rendered at a stipulated The fringe benefit tax (FBT) is a final tax on the
price, in the absence of evidence to the employee’s income to be withheld by the
contrary, such price will be presumed to be employer. The withholding and remittance of
the FMV of the remuneration received. FBT shall be made on a calendar quarterly
basis.
(c) Living quarters or meals -
General Rule - The value to the employee of Tax Rate and Tax Base
the living quarters and meals given by the (a) Tax base is based on the grossed-up
employer shall be added to his monetary value (GMV) of fringe benefits.
compensation subject to withholding. (b) Rate is generally 32%
Exception - If living quarters/meals are (c) GMV is determined by dividing the actual
furnished to an employee for the monetary value of the fringe benefit by 68%
convenience of the employer the value [100% - tax rate of 32%].
needed NOT be included as part of
compensation income. Special Cases:
Recepient Of Fb Tax Rate Tax Base
(d) Facilities and privileges of a relatively small 25% FBT Monetary
value - Facilities and privileges otherwise on the value of FB
known as “de minimis benefits” furnished NRA-NETB
GMV of divided by
or offered by an employer to his employees FB 75%
generally, are NOT considered as Alien individual
compensation subject to income tax and employed by
therefore withholding tax if such facilities regional or area HQs
are offered or furnished by the employer of MNCs or by ROHs
merely as means of promoting the health, 15% FBT Monetary
of MNCs
goodwill, contentment, or efficiency of his on the value of FB
Alien individual
employees. GMV of divided by
employed by OBUs
FB 85%
of a foreign bank
Withholding Tax on Compensation Income established in
The income recipient (i.e., EE) is the person Philippines
liable to pay the tax on income, yet to improve Alien individual
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Part of Allowable capital loss from the net capital gain of the
Deductions from Net Capital Loss subsequent taxable year; provided that the
Gross Income following conditions shall be observed:
(5) The taxpayer is other than a corporation;
(6) The amount of loss does not exceed the
Types of Gains from dealings in property income before exemptions at the year when
(1) Ordinary income vis-à-vis Capital gain. – the loss was sustained; and
If the asset involved is classified as ordinary, (7) The holding period should not exceed 12
the entire amount of the gain from the months. (Valencia)
transaction shall be included in the
computation of gross income [Sec 32(A)], and When a capital gain or capital loss is sustained
the entire amount of the loss shall be by a corporation, the following rules shall be
deductible from gross income. [Sec 34(D)]. (See observed:
Allowable Deductions from Gross Income - (2) There is no holding period; hence, there is
Losses) no net capital loss carry-over.
(3) Capital gains and losses are recognized to
If the asset involved is a capital asset, the rules the extent of their full amount.
on capital gains and losses apply in the (4) Capital losses are deductible only to the
determination of the amount to be included in extent of capital gains.
gross income. (See Capital Gains and Losses). (5) Net capital losses are not deductible from
ordinary gain or income but ordinary losses
These rules do not apply to: are deductible from net capital gains.
(a) real property with a capital gains tax (final
tax), or (2) Actual gain vis-à-vis Presumed gain
(b) shares of stock of a domestic corporation Presumed Gain: In the sale of real property
with a capital gains tax (final tax). located in the Philippines, classified as capital
(c) Also, sale of shares of stock of a domestic asset, the tax base is the gross selling price or
corporation, held as capital assets, through the fair market value, whichever is higher. The law
stock exchange by either individual or presumes that the seller makes a gain from
corporate taxpayers, is subject to ½ of 1% such sale.
percentage tax based on gross selling price.
Actual Gain: The tax base in the sale of real
The tax rules for the gains or losses from sales property classified as an ordinary asset is the
or exchanges of capital assets over ordinary actual gain. If the seller incurs a loss from the
assets are as follows: sale, such loss may be deducted from his gross
(1) Net capital gain is added to ordinary gain income during the taxable year. The ordinary
but net capital loss is not deductible from gain shall be added to the operating income
ordinary gain. and the net taxable income shall be subject to
(2) Net ordinary loss is deductible from the graduated rates from 5% to 32% (if an
ordinary gain. individual) or to 30% corporate tax or to 2%
(3) Capital losses are deductible only to the MCIT (if a corporation).
extent of the capital gain.
(4) There is a net capital loss carry-over on the Computation of the amount of gain or loss
net capital asset’s loss in a taxable year Amount realized from sale or other
which may be deducted as a short-term disposition of property
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Less: Basis or Adjusted Basis (1) Cost or basis of the property sold: In
NET GAIN (LOSS) computing the gain or loss from the sale or
other disposition of property, the BASIS shall
Note: Amount realized from sale or other be as follows:
disposition of property = sum of money (a) Property acquired by purchase – its
received + fair market value of the property acquisition cost, i.e., the purchase price plus
(other than money) received expenses of acquisition.
(b) Property which should be included in the
Note: When a taxpayer sells a real or personal inventory – its latest inventory value [RR-2
property, he should deduct its cost from its sec 136]
selling price to measure the gain or loss from (c) Property acquired by devise, bequest or
the sales transaction (Sec. 40, NIRC). inheritance – its fair market price or value as
of the date of acquisition (inheritance)
(3) Long term capital gain vis-à-vis Short term (d) Property acquired by gift or donation – the
capital gain basis is the same as it would be in the hands
Long-term capital gain: Capital asset is held for of the donor or at the last preceding owner
more than twelve month before it is sold. Only by whom it was not acquired by gift, or the
50% of the gain is recognized. fair market value at the time the gift was
made, whichever is lower
Short-term capital Gain: Capital asset is held (e) Property acquired for less than an adequate
for less than 12 months. 100% of the gain is consideration in money’s worth – the amount
subject to tax. paid by the transferee for the property
(4) Net Capital Gain vis-à-vis Net Capital Loss (6) Cost or basis of the property exchanged in
corporate reorganizations: Sales or
Net Capital Gain is the excess of the gains over exchanges resulting in non-recognition of
the losses on sales or exchange of capital gains or losses:
assets during the taxable year.
Exchange Solely in Kind -
Net Capital Loss means the excess of the losses (1) If in pursuance of a plan of merger or
over the gains on sales or exchanges of capital consolidation, exchanges:
assets during the taxable year. [Sec. 39A, (a) Between the corporations which are
NIRC] parties to the merger or consolidation
(property solely for stocks);
(5) Computation of the amount of Gain or Loss (b) Between a stockholder of a corporation
party to a merger or consolidation and
For income tax purposes the following rules the other corporation, which is a party to
should be observed regarding the cost and the merger or consolidation (stock in a
expenses of the capital assets: corporation solely for the stock of
(1) the costs and expenses of the acquisition another corporation);
are to be capitalized, and (c) Between a security holder of a
(2) the expenses of disposition are to be corporation party to a merger or
treated as reduction from the selling price. consolidation and the other corporation,
(Valencia) which is a party to the merger or
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Exchange Not Solely in Kind -Gain, but not the The gain shall be recognized in an
loss, shall be recognized if, in connection with amount not in excess of the sum of such
an exchange described in the above money and the fair market value of such
exceptions: other property so received, which is not
(a) An individual, a shareholder, a security distributed (Sec. 40 (C) (3) (b), NIRC).
holder or a corporation receives not only
stock or securities permitted to be received If an individual, stockholder, security holder or
without the recognition of gain or loss, but corporation receives on the exchange not only
also money and/or property. stock or securities but also money and/ or
property (boot), the gain but not the loss shall
The gain, if any, but not the loss, shall be be recognized, in an amount not exceeding the
recognized but in an amount not in excess sum of the money and fair market value of the
of the sum of the money and the fair market property received.
value of such other property received.
If the money or other property received has the
As to the shareholder, if the money and/or effect of a distribution of a taxable dividend,
other property received has the effect of a there shall be taxed as dividend to the
distribution of a taxable dividend, there stockholder an amount of the gain recognized
shall be taxed as dividend to the not in excess of his proportionate share of the
shareholder an amount of the gain undistributed earnings and profits of the
recognized not in excess of his corporation.
proportionate share of the undistributed
earnings and profits of the corporation. The remainder, if any, of the gain recognized
shall be treated as a capital gain.
The remainder, if any, of the gain
recognized shall be treated as a capital gain SUBSTITUTED BASIS OF STOCK OR
(Sec. 40 (C) (3) (a), NIRC). SECURITIES RECEIVED BY TRANSFEROR
UPON THE EXCHANGE:
(b) The transferor corporation receives not only
stock permitted to be received without the Original basis (cost) of the property, stock or
recognition of gain or loss but also money securities exchanged/transferred
and/or other property, then - LESS: (a) money received, if any; and
(i) if the corporation receiving such money (b) FMV of the other property received.
and/or other property distributes it in Balance
pursuance of the plan of merger or ADD: (a) the amount treated as dividend of the
consolidation, no gain to the corporation shareholder; and
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(b) the amount of any gain that was recognized which is a party to the merger or
on the exchange. consolidation;
Basis (Cost) of the stock received (b) A shareholder exchanges stock in a
corporation, which is a party to a merger
Notes: or consolidation, solely for the stock of
(a) The property received as “boot” shall have another corporation also a party to the
as basis its FMV merger or consolidation; or
(b) If as part of the consideration to the (c) A security holder of a corporation, which
transferor, the transferee of property is a party to the merger or consolidation,
assumes a liability of the transferor or exchanges his securities in such
acquires from the latter property subject to corporation, solely for stock or securities
a liability, such assumption or acquisition in another corporation, a party to the
(in the amount of liability), shall be treated merger or consolidation.
as money received by the transferor on the (2) If property is transferred to a corporation by
exchange a person in exchange for stock or unit of
(c) If the transferor receives several kinds of participation in such a corporation, of which
stocks or securities, the Commissioner is as a result of such exchange, said person,
authorized to allocate the basis among the alone or together with others not exceeding
several classes of stocks or securities 4 persons, gains control of the corporation.
received. - Stocks issued for services shall not be
considered as issued in property.
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(b) Net loss carry-over rule (applicable only to (b) Investor in shares of stock in a mutual fund
individuals) company
If an individual sustains in any taxable year a (c) All other persons who are specifically
net capital loss, such loss (in an amount not in exempt from national internal revenue
excess of the net income for the year) shall be taxes under existing investment incentives
treated in the succeeding taxable year as a loss and other special laws.
from the sale or exchange of a capital asset
held for not more than 12 months (Sec. 39(D), Shares listed and traded through the stock
NIRC). exchange other than sale by a dealer in securities.
–
(8) Dealings in real property situated in the (1) ½ of 1% of the gross selling price of the
Philippines stock or gross value in money of the shares
of stock sold, bartered, exchanged or
Persons Liable and Transactions Affected otherwise disposed which shall be assumed
(a) Individual taxpayers, estates and trusts and paid by the seller or transferor through
(1) Sale or exchange or other disposition of the remittance of the stock transaction tax
real property considered as capital assets. by the seller or transferor’s broker.
(2) Includes "pacto de retro sale" and other (2) Note: In the nature of percentage tax and
conditional sale. not income tax; exempt from income tax per
(b) Domestic Corporation Section 127 (d):
Sale or exchange or disposition of lands
and/or building which are not actually used “Any gain derived from the sale, barter,
in business and are treated as capital asset. exchange or other disposition of share of
stock under this section shall be exempt
Rate and Basis of Tax from taxes imposed in Sections 24(C),
A final withholding tax of 6% is based on the 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this
gross selling price or fair market value or zonal Code and from the regular individual or
value whichever is higher. corporate income tax.”
(3) Note: Percentage tax under Sec. 127 is NOT
Note: Gain or loss is immaterial, there being a DEDUCTIBLE for income tax purposes.
conclusive presumption of gain.
Shares not listed and traded through the stock
(9) Dealings in shares of stock of Philippine exchange
corporations Net capital gains derived during the taxable
year from sale, exchange, or transfer shall be
Persons Liable to the Tax taxed as follows (on a per transaction basis):
(a) Individual taxpayer, whether citizen or alien;
(b) Corporate taxpayer, whether domestic or Amount of Capital Gain
foreign; and 1. Not over P 100,000 = Tax Rate of 5%
(c) Other taxpayers not falling under (a) and (b) 2. On any amount in excess of P 100,000 =
above, such as estate, trust, trust funds and 10%
pension funds, among others.
(10) Sale of principal residence
Persons not liable Principal residence: the family home of the
(a) Dealers in securities individual taxpayer (RR 14-2000)
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Citizen
Resident Alien Net taxable income
Non-resident alien shall be subject to the
engaged in trade or graduated income tax
business in the rates
Philippines
Non-resident alienRental income from
not engaged in trade real property located
(c) Royalty Income or business in the in the Philippines
Royalty is a valuable property that can be Philippines shall be subject to
developed and sold on a regular basis for a 25% final
consideration; in which case, any gain withholding tax
derived therefrom is considered as an unless a lower rate is
active business income subject to the imposed pursuant to
normal corporate tax. an effective tax treaty
Domestic Corporation Net taxable income
(d) Rental Income Resident Foreign shall be subject to
Refers to earnings derived from leasing Corporation 30% corporate
real estate as well as personal property. income tax or its
Aside from the regular amount of payment gross income will be
for using the property, it also includes all subject to 2% MCIT
other obligations assumed to be paid by Non-resident Foreign Gross rental income
the lessee to the third party in behalf of the Corporation from real property
lessor (e.g., interest, taxes, loans, located in the
insurance premiums, etc.) [RR 19-86] Philippines shall be
subject to 30%
(1) Lease of personal property corporate income tax,
Rental income on the lease of personal such tax to be
property located in the Philippines and withheld and
paid to a non-resident taxpayer shall be remitted by the lessee
taxed as follows: in the Philippines
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Income Situs
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sums subsequently paid by the transferee moral damages for taxable damages
are exempt from taxation. out-of-court above
settlement,
(d) Value of property acquired by gift, including attorney’s
bequest, devise or descent. fees
Gifts, bequests and devises (which are (4) Alienation of (4) Any damages as
subject to estate or gift taxes) are excluded affection, or breach compensation for
from gross income, BUT not the income of promise to marry unrealized income
from such property. (5) Any amount
received as a return
If the amount received is on account of of capital or
services rendered, whether constituting a reimbursement of
demandable debt or not, or the use or expenses
opportunity to use of capital, the receipt is
income (Pirovano v. Commissioner G.R. No. (f) Income exempt under tax treaty.
L-19865, July 31, 1965). Income of any kind, to the extent required
by any treaty obligation binding upon the
(e) Amount received through accident or Government of the Philippines.
health insurance (Compensation for
damages). (g) Retirement benefits, pensions,
As a rule, amounts received through gratuities, etc.
accident or health insurance or under These are
workmen’s compensation acts, as (1) Retirement benefits under RA 7641, RA
compensation for personal injuries or 4917, and Section 60(B) of the NIRC
sickness, plus the amount of any damages (2) Terminal pay
received, whether by suit or agreement, on (3) Retirement Benefits from foreign
account of such injuries or sickness are government agencies
excluded from gross income. (4) Veterans benefits
(5) Benefits under the Social Security Act
Examples of nontaxable and taxable (6) GSIS benefits
damages recoveries are:
Retirement benefits received under RA
Nontaxable – Taxable – 7641(The Retirement Pay Law) and those
compensation for compensation for received by officials and employees of
damages on account of damages on account private firms under a reasonable private
of benefit plan (RPBP) maintained by the
(1) Personal (physical) (1) Actual damages employer under RA 4917 (now Section
injuries or sickness for loss of 32(B)(6)(a) of NIRC) are excluded from gross
anticipated profits income subject to income tax.
(2) Any other (2) .Moral and
damages recovered exemplary
on account of damages awarded RA 7641 RPBP
personal injuries or as a result of
sickness break of contract Retiring employee Retiring official or
(3) Exemplary and (3) Interest for non- must be in the service employee must have
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The “terminal leave pay” (amount paid for (h) Winnings, prizes and award, including
the commutation of leave credits) of those in sports competitions.
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(a) All prizes and awards granted to deductions from gross income
athletes: Deductions are items or amounts which the law
(1) in local and international sports allows to be deducted from the gross of
competitions and tournaments income of a taxpayer in order to arrive at
whether held in the Philippines or taxable income.
abroad, AND
(2) sanctioned by their national sports Deductions are in the nature of an exemption
associations from taxation; they are strictly construed
shall not be included in gross against the claimant, who must point to a
income and shall be tax exempt. specific provision allowing them and who has
[Sec. 32 B7d, NIRC] the burden of proving that they falls within the
purview of such provision. Thus, all deductions
(b) Prizes and awards made primarily in must be substantiated, except when the law
recognition of charitable, literary, dispenses with the records, documents or
educational, artistic, religious, scientific, receipts to support the deductions.
or civic achievement are not taxable,
provided: Types of deductions
(1) Recipient was selected without any There are three (3) types of deductions from
action on his part to enter the gross income:
contest or proceeding; and (a) itemized deductions in Section 34(A) to (J)
(2) Recipient is not required to render and (M) available to all kinds of taxpayers
substantial future services as a engaged in trade or business or practice of
condition to receiving the prize or profession in the Philippines;
award (b) optional standard deduction in Section 34(L)
available only to individual taxpayers
deriving business, professional, capital
gains and passive income not subject to
final tax, or other income; and
(c) the special deductions in Sections 37 and 38
of the NIRC, and in special laws like the BOI
law (E.O. 226).
Itemized deductions
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These are enumerated in Section 34 of the (4) The interest must be legally due.
NIRC. (5) The interest must be stipulated in writing.
(6) The taxpayer is LIABLE to pay interest on
(1) Expenses the indebtedness.
Business expenses deductible from gross (7) The indebtedness must have been paid or
income include the ordinary and necessary accrued during the taxable year.
expenditures directly connected with or (8) The interest payment arrangement must
pertaining to the taxpayer’s trade or business. not be between related taxpayers
The cost of goods purchased for resale, with (9) The interest must not be incurred to
proper adjustment for opening and closing finance petroleum operations.
inventories, is deducted from gross sales in (10) In case of interest incurred to acquire
computing gross income. property used in trade, business or exercise
of profession, the same was not treated as
Requisites for deductibility of business a capital expenditure,
expenses.—
(a) Ordinary AND necessary; Limitation: The taxpayer's allowable deduction
(b) Paid or incurred during the taxable year; for interest expense shall be reduced by an
(c) Others: (not in the SC syllabus) amount equal to 33% of the interest income
(1) Paid or incurred in carrying on or which subjected to final tax (see chapter on taxation
are directly attributable to the of passive income for interest income); effective
development, management, operation January 1, 2009.
and/or conduct of the trade, business or
exercise of profession; Non-deductible interest expense.—
(2) Substantiated by adequate proof – (a) Interest paid in advance by the taxpayer
documented by official receipts or who reports income on cash basis shall only
adequate records, which reflect the be allowed as deduction in the year the
amount of expense deducted and the indebtedness is paid.
connection or relation of the expense to (b) If the indebtedness is payable in periodic
the business/trade of the taxpayer); amortizations, only the amount of interest
(3) Legitimately paid (not a BRIBE, kickback, which corresponds to the amount of the
or otherwise contrary to law, morals, principal amortized or paid during the year
public policy); shall be allowed as deduction in such
(4) If subject to withholding tax, the tax taxable year.
required to be withheld on the expense (c) Interest payments made between related
paid or payable is shown to have been taxpayers.
properly withheld and remitted to the (d) Interest on indebtedness incurred to finance
BIR on time; petroleum exploration.
(5) Amount must be reasonable.
Related Taxpayers
(2) Interest (a) Between members of the family, i.e. brothers
Requisites for deductibility.— and sisters (whether by the whole or half-
(1) There is an indebtedness. blood), spouse, ancestor, and lineal
(2) The indebtedness is that of the taxpayer descendants; or
(3) The indebtedness is connected with the (b) Except in case of distributions in liquidation,
taxpayer‘s trade, profession, or business. between an individual and a corporation,
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where the individual owns directly or (2) A capital expenditure for which the taxpayer
indirectly more than 50% of the may claim only as a deduction the periodic
outstanding stock of the corporation amortization of such expenditure.
(c) Except in the case of distributions in
liquidation, between two corporations Reduction of interest expense/interest arbitrage
where: The taxpayer's allowable deduction for interest
(1) Either one is a personal holding company expense shall be reduced by an amount equal
of a foreign personal holding company to 33% of the interest income subjected to final
with respect to the taxable year tax; effective January 1, 2009. (RA 9337)
preceding the date of the sale of
exchange; and (3) Taxes
(2) More than 50% of the outstanding stock Taxes Proper: Refers to national and local
of each is owned, directly or indirectly, by taxes;
or for the same individual; or
(d) Between parties to a trust- Requisites for deductibility.—
(1) Grantor and Fiduciary; or Such tax must be:
(2) Fiduciary of a trust and fiduciary of (a) Paid or incurred within the taxable year;
another trust if the same person is a (b) Paid or incurred in connection with the
grantor with respect to each trust; or taxpayer‘s trade, profession or business;
(3) Fiduciary and Beneficiary (c) Imposed directly on the taxpayer.
(d) Not specifically excluded by law from being
Interest subject to special rules.— deducted from the taxpayer‘s gross income.
1. Interest paid in advance
(a) No deduction shall be allowed if within the Non-deductible taxes.—
taxable year an individual taxpayer (1) Philippine income tax, except Fringe Benefit
reporting income on cash basis incurs an Taxes;
indebtedness on which an interest is paid in (2) Income tax imposed by authority of any
advance through discount or otherwise. foreign country, if taxpayer avails of the
(b) But the deduction shall be allowed in the Foreign Tax Credit (FTC)
year the indebtedness is paid (a) Exception to exception: When the
taxpayer does NOT signify his desire to
2. Interest periodically amortized - If the avail of the tax credit for taxes of foreign
indebtedness is payable in periodic countries, the amount may be allowed as
amortizations, the amount of interest which a deduction from gross income of citizens
corresponds to the amount of the principal and domestic corporations subject to the
amortized or paid during the year shall be limitations set forth by law.
allowed as deduction in such taxable year (3) Estate and donor‘s taxes
(4) Percentage tax on stock transaction;
3. Interest expense incurred to acquire property (5) Taxes assessed against local benefits of a
for use in trade/business/profession - At the kind tending to increase the value of the
option of the taxpayer, interest expense on a property assessed (Special Assessments)
capital expenditure may be allowed as: (6) Value Added Tax
(1) A deduction in full in the year when (7) Fines and penalties
incurred; (8) Final taxes
(9) Capital Gains Tax
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(3) For taxes paid to 2 or more foreign countries except for banks and trust companies
under conditions in Sec. 39 of NIRC
(4) Losses where loss from such sale is not
subject to the foregoing limitation);
Requisites for deductibility.—
(1) Loss must be that of the taxpayer (e.g., b. Securities becoming worthless - Loss in
losses of the parent corp. cannot be shrinkage in value of stock through
deducted by its subsidiary); fluctuation in the market is not
(2) Actually sustained and charged off within deductible from gross income.
the taxable year;
(3) Incurred in trade, business or profession; Exception: If the stock of the corporation
(4) Of property connected with the trade, becomes worthless, the cost or other basis may
business, or profession, if the loss arises be deducted by its owner in the taxable year in
from fires, storms, shipwreck or other which the stock became worthless, provided a
casualties, or from robbery, theft, or satisfactory showing of its worthlessness be
embezzlement; made, as in the case of bad debts.
(5) Sustained in a closed and completed
transaction; c. Losses on wash sales of stocks or
(6) Not compensated for by insurance or other securities
form of indemnity;
(7) Not claimed as a deduction for estate tax Wash Sale - a sale or other disposition of stock
purposes; or securities where substantially identical
(8) In case of casualty loss, filing of notice of securities (substantially the same as those
loss with the BIR within 45 days from the disposed of) are acquired or purchased (or
date of the event that gave rise to the there was an option to acquire, and the
casualty; and acquisition or option should be by purchase or
(9) The taxpayer must prove the elements of exchange upon which gain or loss is
the loss claimed, such as the actual nature recognized under the income tax law) within a
and occurrence of the event and amount of 61-day period, beginning 30 days before the
the loss. sale and ending 30 days after the sale
No loss is recognized in the following.— General rule: Not deductible from gross income
(1) Merger, consolidation, or control securities Exception: If by a dealer in securities in the
(where no gains are recognized either); course of ordinary business, it is deductible.
(2) Exchanges not solely in kind;
(3) Related taxpayers (see above – (c) Interest d. Wagering losses - Losses from
expense incurred to acquire property for use wagering (gambling) are deductible
in trade/business/profession) only to the extent of gains from such
(4) Wash sales; transactions. A wager is made when
(5) Illegal transactions the outcome depends upon CHANCE.
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(1) The taxpayer was not exempt from income (2) Losses due to voluntary removal of building
tax the year the loss was incurred; incident to renewal or replacements are
(2) There has been no substantial change in the deductible from gross income.
ownership of the business or enterprise (3) Loss of useful value of capital assets due to
wherein: charges in business conditions is deductible
(a) AT LEAST 75% of nominal value of only to the extent of actual loss sustained
outstanding issued shares is held by or (after adjustment for improvement,
on behalf of the same persons; or depreciation and salvage value)
(b) AT LEAST 75% of the paid up capital of (4) Losses from sales or exchanges of property
the corporation is held by or on behalf of between related taxpayers are not
the same persons. recognized, but the gains are taxable.
(5) Losses of farmers incurred in the operation
Taxpayers Entitled to NOLCO of farm business are deductible.
(1) Individuals engaged in trade or business or
in the exercise of his profession (including (5) Bad debts
estates and trusts); Requisites for deductibility.—
Note:An individual who avails of 40% OSD (1) Valid and legally demandable debt due to
shall not simultaneously claim deduction of the taxpayer
NOLCO. However, the three-year (2) Debt is connected with the taxpayer's trade,
reglementary period shall continue to run business or practice of profession;
during such period notwithstanding the fact (3) Debt was not sustained in a transaction
that the aforesaid taxpayer availed of OSD entered into between related parties;
during the said period. (4) Actually ascertained to be worthless and
uncollectible as of the end of the taxable
(2) Domestic and resident foreign corporations year (taxpayer had determined with
subject to the normal income tax (e.g., reasonably degree of certainty that the
manufacturers and traders) or preferential claim could not be collected despite the fact
tax rates under the Code (e.g., private that the creditor took reasonable steps to
educational institutions, hospitals, and collect); and
regional operating headquarters) or under (5) Actually charged off the books of accounts
special laws (e.g., PEZA-registered of the taxpayer as of the end of the taxable
companies) year
Note: Domestic and resident foreign General rule: Taxpayer must ascertain and
corporations taxed during the taxable year demonstrate with reasonable certainty the
with Minimum Corporate uncollectibility of debt
Income Tax cannot enjoy the benefit of
NOLCO. However, the three-year period for Exceptions:
the expiry of he NOLCO is not interrupted by (1) Banks as creditors – BSP Monetary Board
the fact that the corporation is subject to shall ascertain the worthlessness and
MCIT during such three-year period. uncollectibility of the debt and shall
approve the writing off
Other Losses: (2) Receivables from an insurance or surety
(1) Abandonment losses in petroleum operation company (as debtor) may be written off as
and producing well. bad debts only when such company is
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declared closed due to insolvency or similar (2) in accordance with a National Priority
reason Plan determined by NEDA (otherwise,
subject to statutory limit)
(6) Depreciation (b) Donations to Certain Foreign Institutions or
Requisites for Deductibility. – International Organizations which are fully
1. It must be reasonable. deductible in compliance with agreements,
2. It must be charged off during the year. treaties or commitments entered into by
3. The asset must be used in profession, trade the Government of the Philippines and the
or business. foreign institutions or international
4. The asset must have a limited useful life. organizations or in pursuance of special
5. The depreciable asset must be located in laws
the Philippines if the taxpayer is a (c) Donations to Accredited Non-government
nonresident alien or a foreign corporation. Organizations subject to conditions set forth
[Valencia and Roxas] in RR No. 13-98 – NGO means a non-stock
non-profit domestic corporation or
(7) Charitable and other contributions organization:
Requisites for deductibility.— (1) Organized and operated exclusively for:
(1) Actually PAID or made to the ENTITIES or (a) scientific,
institutions specified by law; (b) research,
(2) Made within the TAXABLE year. (c) educational,
(3) It must be EVIDENCED by adequate receipts (d) character-building and youth and
or records. sports development,
(4) For Contributions Other than Money: The (e) health,
amount shall be BASED on the acquisition (f) social welfare,
cost of the property (i.e., not the fair market (g) cultural or
value at the time of the contribution). (h) charitable purposes, or
(5) For Contributions subject to the statutory (i) a combination thereof,
limitation: It must NOT EXCEED 10% (2) No part of the net income of which
(individual) or 5% (corporation) of the inures to the benefit of any private
taxpayer‘s taxable income before charitable individual
contributions (3) Directly utilizes contributions for the
active conduct of the activities
Contributions Deductible in Full: constituting the purpose or function for
(a) Donations to the Government of the which it is organized, not later than 15th
Philippines, or to any of its agencies, or day of the month following the close of
political subdivisions, including fully owned its taxable year in which contributions
government corporations – are received, unless an extended period
(1) Exclusively to finance, provide for, or to be is granted by the Secretary of Finance,
used in undertaking priority activities in upon recommendation of the CIR
(a) Education (4) Administrative expense ,on an annual
(b) Health basis, must not exceed 30% of total
(c) Youth and sports development expenses for the taxable year
(d) Human settlements (5) Upon dissolution, its assets would be
(e) Science and culture, and distributed to another accredited NGO
(f) Economic development organized for a similar purpose or
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purposes, OR to the State for public deductible in year the contribution is made,
purpose, OR would be distributed by a the remaining balance will be amortized
competent court of justice to another equally over nine consecutive years
accredited NGO to be used in such
manner as in the judgment of said court Requisites for deductibility of payments to
shall best accomplish the general pension trusts.—
purpose for which the dissolved (1) There must be a pension or retirement plan
organization was organized. established to provide for the payment of
reasonable pensions to employees;
Contributions subject to the Statutory Limit (2) The pension plan is reasonable and
(a) Government or any of its agencies or actuarially sound;
political subdivisions exclusively for public (3) It must be funded by the employer;
purposes (contributions for non-priority (4) The amount contributed must no longer be
activities) subject to the employer’s control or
(b) Accredited domestic corporation or disposition; and
associations organized exclusively for (5) The payment has not theretofore been
(1) religious allowed before as a deduction.
(2) charitable
(3) scientific Deductions under special laws.
(4) youth and sports development (1) Special deductions for productivity bonus
(5) cultural and manpower training under the
(6) educational purposes or Productivity Incentives Act of 1990
(7) rehabilitation of veterans (2) Deductions for training expenses of
(c) Social welfare institutions qualified jewelry enterprises (Jewelry
(d) Non-government organizations: No part of Industry Development Act of 1998)
the net income of which inures to the (3) Deductions under the Adopt-a-School Act of
benefit of any private stockholder or 1998
individual (4) Deductions under the Expanded Senior
Citizens Act of 2003. (Domondon)
Statutory Limit:
(a) 10% in the case of an individual (individual
donor), and Optional standard deduction.
(b) 5% in the case of a corporation (corporate
donor), Individuals, except non-resident aliens
of the taxpayer's/donor’s income derived from (1) May be taken by an individual in lieu of
trade, business or profession computed before itemized deductions except those earning
the deduction for contributions and donations purely compensation income.
(2) If an individual opted to use OSD, he is no
(8) Contributions to pension trusts longer allowed to deduct cost of sales or
Contribution to a pension trust may be claimed cost of services.
as deduction as follows: (3) Amount: 40% of gross sales or gross
(1) Amount contributed for the present/normal receipts(under RA 9504, effective July 6,
service cost – 100% deductible 2008)
(2) Amount contributed for the past service cost
– 1/10 of the amount contributed is Requisites:
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(1) Taxpayer is a citizen or resident alien; OSD is a proxy for all the items of
(2) Taxpayer’s income is not entirely from deductions allowed in arriving at
compensation; taxable income. This means that the
(3) Taxpayer signifies in his return his OSD is in lieu of the items of
intention to elect this deduction; deductions claimed by the GPP and the
otherwise he is considered as having items of deduction claimed by the
availed of the itemized deductions. partners.
(4) Election is irrevocable for the year in c. If the GPP avails of OSD in computing
which made; however, he can change to its net income, the partners comprising
itemized deductions in succeeding years. it can no longer claim further
deduction from their share in the said
Corporations, except non-resident foreign net income.
corporations d. The type of deduction chosen by the
The option to elect Optional Standard GPP must be the same type of
Deduction granted is now granted to deduction that can be availed of by the
corporations (domestic and resident foreign partners. (RR 2-2010)
corporations) by virtue of RA 9504.
(1) The OSD is 40% of its gross income. PERSONAL AND ADDITIONAL EXEMPTION (R.A. NO.
(2) The domestic and resident foreign 9504, MINIMUM WAGE EARNER LAW).—
corporation shall keep such records
pertaining to his gross income as defined Basic personal exemptions
in Section 32 of the NIRC during the Basic personal exemption is Fifty thousand
taxable year, as may be required by the pesos (P50,000) for each individual taxpayer,
rules and regulations promulgated by the regardless of status, i.e., whether single,
Secretary of Finance upon married or head of the family.
recommendation of the CIR.
(3) Corporations availing of OSD are still But note Sec 35(A) of NIRC - In the case of
required to submit their financial married individuals where only one of the
statements when they file their annual ITR spouses is deriving gross income, only such
and to keep such records pertaining to its spouse shall be allowed the personal
gross income. (RR 2-2010). exemption.
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Others
The following organizations shall not be taxed
in respect to income received by them as such:
(1) Labor,agricultural or horticultural
organization not organized principally for
profit
(2) Mutual savings bank not having a capital
stock represented by shares, and
cooperative bank without capital stock
organized and operated for mutual
purposes and without profit
(3) A Beneficiary society, order or association,
operating for the exclusive benefit of the
members such as a fraternal organization
operating under the lodge system, or
mutual aid association or a non-stock
corporation organized by employees
providing for the payment of life, sickness,
accident, or other benefits exclusively to the
members of such society, order, or
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Note:
(a) Notwithstanding the exemptions,
income of whatever kind and character
of the enumerated organizations from
any of their properties, real or personal,
or from any of their activities conducted
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Summary Table for Taxation of Individuals (all individual taxpayers, including non-resident aliens)
General rule that resident citizens are taxable on (2) Leaves the Philippines during the taxable
income from all sources within and without the year to reside abroad (as immigrant or
Philippines for employment on a permanent basis)
(3) Works and derives income from abroad
General rule: A Filipino resident citizen is and whose employment requires him to
taxable on income from all sources (within and be present abroad most of the time
without the Philippines) during the taxable year
Exception: A non-resident citizen is taxable (4) Has been previously considered as a non-
only on income derived from sources within the resident and arrives in the Philippines at
Philippines. any time during the taxable year to
reside here permanently (only with
A non-resident citizen is a Filipino citizen who: respect to his income from sources
(1) Establishes to the satisfaction of the CIR abroad until the date of his arrival in the
the fact of his physical presence abroad country)
with a definite intention to reside therein
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Tax rate
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Resident Non-Resident
CITIZEN ALIEN CITIZEN NRAETB NRANETB
Category of Income Within the Within the Within the Within the
All sources Philippine Philippine Philippine Philippine
s s s s
(1) Compensation / Business / GIW –
Profession 25%
Based on Taxable (i.e, Net) Income
(2) Prizes of P10,000 or less Schedular Income Tax Rates (Sec. 24, NIRC) Not
(i.e, 5% to 32%) Applicabl
e
(3) Interest from any currency bank
deposit , etc., Royalties (other
than from books, literary works
Gross Income Within the Philippines (GIW) – 20%
and musical compositions),
Final Withholding Tax
Winnings / Prizes (except prizes
P10,000 and below)
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Resident Non-Resident
CITIZEN ALIEN CITIZEN NRAETB NRANETB
Category of Income Within the Within the Within the Within the
All sources Philippine Philippine Philippine Philippine
s s s s
domestic stock exchange) Amount in Excess of P100,000 – plus 10% Final Tax on the
excess
(10) Capital Gains on Sale of Real
Gross Selling Price or FMV, whichever is higher –
Property in the Philippines
6% Final Withholding Tax
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Tax Rate and Base - 15% of gross income exemptions granted under international
received as salaries, wages, annuities, agreements (sec. 32(b))
compensation, remuneration and other See RMC No, 31-2013, April 12, 2013 – taxation
emoluments, such as honoraria and of compensation income of Philippine
allowances.
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Regular Tax
Normal Corporate Income Tax Rate: 30%of
Taxable Income (effective January 1, 2009)
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Carry forward of excess minimum tax Corporations exempt from the MCIT:
( BIPTENG)
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(1) Banks and other non-bank financial (b) But by virtue of RA 9504, it now also
intermediaries; applies to corporations, except non-resident
(2) Insurance companies; foreign corporation.
(3) Publicly-held corporations; (c) Moreover, the rate was increased from 10%
(4) Taxable partnerships; to 40%.
(5) General professional partnerships;
(6) Non- taxable joint ventures; and
(7) Enterprises that are registered:
(a) with the Philippine Economic Zone
Authority (PEZA) under R.A. 7916;
(b) pursuant to the Bases Conversion and
Development Act of 1992 under R.A. 7227;
and
(c) under special economic zones declared by
law which enjoy payment of special tax
rate on their registered operations or
activities in lieu of other taxes, national or
local.
allowable deductions
Itemized deductions
(1) Bad debts
(2) Expenses
(3) Losses
(4) Taxes
(5) Depreciation
(6) Interest
(7) Depletion of oil and gas wells and mines
(8) Charitable and other contributions
(9) Research and development
(10) Pension trusts
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general rule
A resident foreign corporation is a corporation
tax on government-owned or organized under the laws of a foreign country,
controlled corporations, agencies or which is engaged in trade or business in the
Philippines.
instrumentalities
(a) A Philippine branch of a foreign corporation
duly licensed by the SEC is considered a
For GOCCs:
resident foreign corporation. Thus, only the
General rule:GOCCs are taxable as any other
income of the Philippine branch from sources
corporation engaged in similar business,
within the Philippines is subject to Philippine
industry or activity, except:
income tax.
(a) Government Service Insurance System
(b) Marubeni v. Commissioner: As general rule,
(GSIS)
the head office of a foreign corporation is
(b) Social Security System (SSS)
the same juridical entity as its branch in the
(c) Philippine Health Insurance Corporation
Philippines following the single entity
(PHIC)
concept. Thus, the income from sources
(d) Local water districts (LWDs)
within the Phils. of the foreign head office
(e) Philippine Charity Sweepstakes Office
shall thus be taxable to the Philippine
(PCSO)
branch.
(Sec. 27(C), NIRC)
with respect to their income from sources
For instrumentalities and agencies of
within the philippines
government:
Resident foreign corporations are subject to
General Rule: The government is exempt from
any or some of the following:
tax.
(1) Capital Gains Tax
Exception: When it chooses to tax itself.
(2) Final Tax on Passive Income
Nothing can prevent Congress from decreeing
that even instrumentalities or agencies of the
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(3) Normal Tax [OR] Minimum Corporate Capital gain from sale of shares of stock not
Income Tax (MCIT) [OR] Gross Income Tax traded in the stock exchange
(GIT) On sale, barter, exchange or other disposition
(4) Branch Profit Remittance Tax of shares of stock ofstockof a domestic
corporation not listed and traded through a
minimum corporate income tax local stock exchange, held as a capital asset:
The discussion with respect to this topic
(income subject to normal tax, MCIT, or GIT) On the net capital gain:
under the subheading of domestic (a) First P100,000: Final Tax of 5%
corporations is equally applicable to resident (b) On any amount in excess of P100,000: plus
foreign corporations, both as to concepts and 10% Final tax on the excess
computations, except that RFCs are taxed only
on income from sources within the Philippines. Intercorporate dividends
(a) Normal Corporate Income Tax Rate30% of Dividends received from a domestic corporation
net taxable income from sources within the liable to tax under the NIRC- exempt
Philippines [RA 9337]
(b) Minimum Corporate Income Tax (MCIT)2%
of MCIT Gross Income from sources within Taxation of Non-Resident Foreign
the Philippines. The MCIT is imposed on Corporations
RFCs underRFCsunder the same conditions
as domestic corporations. [Sec. 28(A)(2)] general rule
(c) Gross Income Tax (GIT) The President, Except as otherwise provided, the tax is 30% of
upon the recommendation of the Secretary the gross income (except certain passive
of Finance, may allow resident foreign income)received during each taxable year from
corporations the option to be taxed at all sources within the Philippines, such as
fifteen percent (15%) of gross income within interests (except interests on foreign loans,
the Philippines, under the same conditions dividends, rents, royalties, salaries, premiums
as domestic corporations. [Sec. 28(A)(1)] (except reinsurance premiums), annuities,
emoluments or other fixed or determinable
tax on certain income annual, periodic or casual gains, profits and
income, and capital gains EXCEPT capital gains
Interest from deposits and yield or any other on the sale of shares of stock (not listed and
monetary benefit from deposit substitutes, trust traded through a local stock exchange), of a
funds and similar arrangements and royalties domestic corporation which are subject to the
On any currency bank deposit, yield or any tax rates prescribed for individuals and resident
other monetary benefit from deposit foreign corporations.
substitutes, trust funds and similar
arrangements – Final tax of 20%
tax on certain income
Income derived from a depository bank under the
Interest on foreign loans
expanded foreign currency deposit system
(a) on foreign loans contracted on or after
Under the expanded foreign currency deposit
August 1, 1986 – 20%
system (EFCDS) – Final tax of 7.5%
(b) under the expanded foreign currency
deposit system (EFCDS) - exempt
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Tax
Type of Corporation Tax Base
Rate
Domestic Corporations
Proprietary Educational Institutions and Hospitals
Taxable Income from all sources 10%
(Non-profit)
Depository Banks (Foreign Currency Deposit Units)
(1) With respect to income derived under the Exempt (except that net income
expanded foreign currency deposit system from from such transactions is subject -
certain foreign currency transactions to the regular income tax payable
(2) With respect to interest income from foreign by banks)
currency loans to residents other than offshore
units in the Philippines or other depository banks Amount of interest income 10%
under the expanded system
Resident Foreign Corporations
International Carriers (Preferential Rate/Exempt subj Gross Philippine Billings
2.5%
to reciprocity RA 10378)
Offshore Banking Units
(1) With respect to income derived by offshore Exempt (except that net income
banking units from certain foreign currency from such transactions is subject -
transactions to the regular income tax payable
(2) With respect to interest income derived from by banks)
foreign currency loans granted to residents other
than offshore banking units or local commercial Amount of interest income 10%
banks
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Tax
Type of Corporation Tax Base
Rate
Resident Depository Bank (Foreign Currency Deposit
Units) Exempt (except that net income
(1) With respect to income derived under the from such transactions is subject -
expanded foreign currency deposit system from to the regular income tax payable
certain foreign currency transactions by banks)
(2) With respect to interest income from foreign
currency loans to residents other than offshore
Amount of interest income 10%
units in the Philippines or other depository banks
under the expanded system
Regional or Area Headquarters Exempt -
Regional Operating Headquarters of Multinational Taxable Income from within the
10%
Companies Philippines
Non-resident Foreign Corporations [EXCLUDED]
Non-resident cinematographic film owners, lessors or Gross Income from the
25%
distributors Philippines
Non-resident Owner or Lessor of Vessels Chartered by Gross Rentals, Lease and Charter
4.5%
Philippine Nationals Fees from the Philippines
Non-resident Owner or Lessor of Aircraft, Machineries Gross Rentals, Charges and Fees
7.5%
and Other Equipment from the Philippines
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What is meant by “reasonable needs of the Other Partnerships (or general co-partnerships)
business” is determined by the immediacy test. Rules:
It states that the “reasonable needs of the (1) The partnership is subject to the same rules
business are the on corporations (capital gains tax, final tax
(1) immediate needs of the business; and on passive income, normal tax, minimum
corporate income tax [MCIT] and gross
Covered Corporations income tax [GIT]), but is not subject to the
Only domestic corporations classified as closely- improperly accumulated earnings tax [IAET].
held corporations are liable for IAET. The partnership must file quarterly and
year-end income tax returns.
(2) The taxable income of the partnership, less
the normal corporate income tax (30%)
thereon, is the distributable net income of
the partnership.
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individual capacity, whether actually the joint venture partners will be taxed on their
distributed or not. [Sec. 73(D)] Such share will respective shares in the income of the joint
be subjected to a final tax of 10% to be ventures.
withheld by the partnership. [Sec. 24(B)(2)]
Two elements necessary to exempt a joint
Co-ownership venture or consortium from tax
When Co-ownership is not subject to tax (a) The joint venture must be an
When the co-ownership’s activities are limited unincorporated entity formed by two or
merely to the preservation of the co-owned more persons
property and to the collection of the income (b) The joint venture was formed for the
from the property. The income derived by a co- purpose of undertaking a construction
owner from the property shall be reported in project, or engaging in the petroleum and
his individual tax return regardless of whether other energy operations with operating
such income is actually or constructively contract with the government.
received.
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Kinds
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Withholding of final tax of certain incomes corporation, where the principal office is
Subject to rules and regulations the Secretary located; or
of Finance may promulgate, upon the (4) As Commissioner otherwise permits.
recommendation of the Commissioner,
requiring the filing of income tax return by Period for filing and payment:
certain income payees, the tax imposed or (a) The return shall be filed and the payment
prescribed by specific section of the NIRC on made within twenty-five (25) days from the
specified items of income shall be withheld by close of each calendar quarter.
payor-corporation and/or person and paid in (b) The Commissioner may, with the approval
the same manner and subject to the same of the Secretary of Finance, require the
conditions as provided in Section 58 of the employers to pay or deposit the taxes
NIRC. deducted and withheld at more frequent
intervals, in cases where such requirement is
Withholding of creditable tax at source deemed necessary to protect the interest of
The Secretary of Finance may, upon the the Government.
recommendation of the Commissioner, require
the withholding of a tax on the items of income final withholding tax at source
payable to natural or juridical persons, residing Under the final withholding tax system, the
in the Philippines, by payor- amount of income tax withheld by the
corporation/persons as provided for by law, at withholding agent is constituted as a full and
the rate of not less than one percent (1%) but final payment of the income tax due from
not more than thirty-two percent(32%), which payee on the said income (e.g., interest on
shall be credited against the income tax deposits, royalties, etc.). The liability for
liability of the taxpayer for the taxable year. payment of the tax rests primarily on the payor
as a withholding agent. Thus, in case of the
withholding of vat withholding agent’s failure to withhold the tax
(1) On gross payments for the purchase of or in case of under-withholding, the deficiency
goods tax shall be collected from him. The payee is
(2) On gross payments for the purchase of not required to file an income tax return for the
services particular income, nor is he liable for the
(3) Payments made to government public payment of the tax. (Sec. 2.57, RR No. 2-98)
works contractors
(4) Payments for lease or use of property or The finality of the withholding tax is limited
property rights to non-resident owners only to the payee’s income tax liability on the
particular income. It does not extend to the
filing of return and payment of taxes payee’s other tax liability on said income, such
withheld as when the said income is further subject to a
percentage tax, such as gross receipts tax in
Where to file and pay: the case of a bank.
(1) Authorized agent bank;
(2) Collection Agent; Income payments subject to Final Withholding
(3) the duly authorized Treasurer of the city or Tax:
municipality where the employer has his (1) Income Payments to a Citizen or to a
legal residence or principal place of Resident Alien Individual
business, or in case the employer is a (a) Interest on any peso bank deposit
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(1) Professional fees / talent fees for services pesos (P2,000) per month,
rendered by the following individuals: regardless of the number of
(a) Those individually engaged in the shipments during the month
practice of profession or callings (2) Filling, demolition and salvage
(b) Professional entertainers such as but work contractors and operators of
not limited to actors and actresses, mine drilling apparatus
singers and emcees (3) Operators of dockyards
(c) Professional athletes including (4) Persons engaged in the installation
basketball players, pelotaris and of water system, and gas or electric
jockeys light, hear or power
(d) Directors involved in movies, stage, (5) Operators of stevedoring,
radio, television and musical directors warehousing or forwarding
(e) Insurance agents and insurance establishments
adjusters (6) Printers, bookbinders,
(f) Management and technical lithographers and publishers,
consultants except those principally engaged in
(g) Bookkeeping agents and agencies the publication or printing of any
(h) Other recipient of talent fees newspaper, magazine, review or
(i) Fees of directors who are not bulletin which appears at regular
employees of the company paying such intervals, with fixed prices for
fees whose duties are confined to subscription and sale
attendance art and participation in the (7) Advertising agencies, exclusive of
meetings of the Board of Directors payments to media
(2) Professional fees, talent fees, etc for (8) Independent producers of
services of taxable juridical persons television, radio and stage
(3) Rental of real property used in business performances or shows
(4) Rental of personal properties in excess of P (9) Independent producers of "jingles"
10,000 annually (10) Labor recruiting agencies
(5) Rental of poles, satellites and transmission (11) Persons engaged in the installation
facilities of elevators, central air
(6) Rental of billboards conditioning units, computer
(7) Cinematographic film rentals and other machines and other equipment
payments and machineries and the
(8) Income payments to certain contractors maintenance services thereon
(a) General engineering contractors (12) Messengerial, janitorial, security,
(b) General building contractors private detective and other
(c) Specialty contractors business agencies
(d) Other contractors like: (13) Persons engaged in landscaping
(1) Transportation contractors which services
include common carriers for the (14) Persons engaged in the collection
carriage of goods and merchandise and disposal of garbage
of whatever kind by land, air or (15) TV and radio station operators on
water, where the gross payments sale of TV and radio airtime, and
by the payor to the same payee (16) TV and radio blocktimers on sale of
amounts to at least two thousand TV and radio commercial spots
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(17) Persons engaged in the sale of (21) Payments made by pre-need companies to
computer services, computer funeral parlors
programmers, software (22) Payments made to embalmers by
developer/designer, etc. funeral parlors
(9) Income distribution to the beneficiaries of (23)Income payments made to suppliers of
estates and trusts agricultural products
(10) Gross commission or service fees of (24) Income payments on purchases of
customs, insurance, stock, real estate, mineral, mineral products and quarry
immigration and commercial brokers and resources
fees of agents of professional entertainers
(11) Commission, rebates, discounts and other
similar considerations paid/granted to
independent and exclusive distributors,
medical/technical and sales Withholding tax on compensation
representatives and marketing agents and The tax withheld from income payments to
sub-agents of multi level marketing individuals arising from an employer-
companies employee relationship.
(12) Income payments to partners of general
professional partnerships Compensation is any remuneration received for
(13) Payments made to medical practitioners services performed by an employee from his
through a duly registered professional employer under an employee-employer
partnership relationship.
(14) Payments for medical/dental/veterinary
services thru hospitals/clinics/health The different kinds of compensation are:
maintenance organizations, including (1) Regular compensation - includes basic
direct payments to service providers salary, fixed allowances for representation,
(15) Gross selling price or total amount of transportation and others paid to an
consideration or its equivalent paid to the employee
seller/owner for the sale, exchange or (2) Supplemental compensation - includes
transfer of real property payments to an employee in addition to
(16) Additional income payments to the regular compensation such as but not
government personnel from importers, limited to the following:
shipping and airline companies or their (a) Overtime Pay
agents (b) Fees, including director's fees
(17) Certain income payments made by credit (c) Commission
card companies (d) Profit Sharing
(18) Income payments made by the top 10,000 (e) Monetized Vacation and Sick Leave
private corporations to their purchase of (f) Fringe benefits received by rank & file
goods and services from their employees
local/resident suppliers other than those (g) Hazard Pay
covered by other rates of withholding (h) Taxable 13th month pay and other
(19) Income payments by government offices benefits
on their purchase of goods and services, (i) Other remunerations received from an
from local/resident suppliers employee-employer relationship
(20) Tolling fees paid to refineries
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timing of withholding
The obligation of the payor to deduct and
withhold the tax arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense
or asset, whichever is applicable, in the payor’s
books, whichever comes first. The term
“payable” refers to the date the obligation
becomes due, demandable or legally
enforceable.
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TAXATION LAW
TAXATION LAW 2
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RC/NRC/RA NRA
Ordinary deductions Ordinary deductions2
(1) Expenses, losses, indebtedness, taxes. (ELIT) (1) Proportionate deductions for expenses, losses,
Funeral expenses indebtedness, taxes. (ELIT)3
Judicial expenses Funeral expenses
Claims against the estate Judicial expenses
Claims against insolvent persons Claims against the estate
Unpaid mortgage and debt Claims against insolvent persons
Taxes Unpaid mortgage and debt
Losses Taxes
Losses
(2) Vanishing deductions (2) Vanishing deductions
(3) Transfers for public use (3) Transfers for public use
(4) Amounts received under R.A. 4917 No Amounts received under R.A. 4917
Special deductions
(a) Family home No special deductions
(b) Standard deduction
(c) Medical expenses
2 No deduction shall be allowed for NRA, if the executor, administrator, or anyone of the heirs, DID NOT include in the return
required to be filed under Section 90 of the Code the value at the time of the decedent’s death of that part of his gross estate NOT
situated in the Philippines. [Sec. 86 (D), NIRC; Sec 7, RR 2-2003]
𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒 𝑃ℎ𝑖𝑙
3 Formula for Proportionate Deductions of NRA: Allowable Deduction = 𝑥 ELIT
𝐺𝑟𝑜𝑠𝑠 𝐸𝑠𝑡𝑎𝑡𝑒 𝑊𝑜𝑟𝑙𝑑
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VALUATION OF GROSS ESTATE (SEC 88) (1) Property owned by the decedent actually and
General Rule: Gross Estate = FMV at the time of physically present in his estate at the time of
the decedent’s death his death;
(2) Decedent’s interest;
Real Property (3) Properties not physically in the estate, such
Appraised value, whichever is higher between: as:
(a) FMV, as determined by the (4) Transfers in contemplation of death [Sec.
Commissioner (zonal value) or 85(B), NIRC];
(b) FMV, as shown in the schedule of values (5) Transfers with retention or reservation of
fixed by the Provincial or City Assessor. certain rights [Sec. 85(B), NIRC];
If there is no zonal value, the taxable base is the (6) Revocable transfers [Sec. 85(C), NIRC];
FMV that appears in the latest tax declaration. (7) Property passing under general power of
If there is an improvement, the value of appointment [Sec. 85(D), NIRC];
improvement is the construction cost per (8) Transfers for insufficient consideration [Sec.
building permit or the fair market value per latest 85(G), NIRC];
tax declaration. (9) Proceeds of life insurance [Sec. 85(E), NIRC];
(10) Claims against insolvent persons; and
Personal Property (11) Capital of the surviving spouse [Sec. 85(H),
FMV at the time of death. If none, acquisition cost NIRC].
for recently acquired properties or the current
market price for the previously acquired
properties. (Sec 40(B) DEDUCTIONS FROM ESTATE
Stocks, bonds, and other securities.
ORDINARY DEDUCTIONS
If listed and traded stocks = value is the mean
(1) Expenses, Losses, Indebtedness and Taxes,
between the highest and lowest quoted selling
Etc. (ELIT)
prices at the date of death; if none, nearest the
(2) Funeral Expenses (Sec. 86 (A)(1)(a))
date of death (Sec 5 RR02-2003)
Actual funeral expenses shall mean (i) those
If unlisted stocks = (ordinary common shares)
which are actually incurred (ii) in connection
book value at time of death or (preferred shares)
with, and before the interment or burial of
par value
the deceased and (iii) must be paid out of the
estate and not by another person or out of
NB: Bonds, mortgages, and Certificates of Stocks
contributions from friends and relatives.
are taxable at the place where they are physically
These must be (iv) duly supported by receipts
located.
or invoices or other evidence to show that
they were actually incurred.
Proceeds of Life Insurance with Revocable
Beneficiary: face value of policy (not cash
Limitation: Allowable deduction is not to exceed
surrender value)
P200,000 and whichever is lower of:
(a) The actual funeral expenses (whether or not
Right to Usufruct use or habitation, and annuity
paid) up to the time of interment, or
Probable life of the beneficiary in accordance
(b) An amount equal to 5% of the gross estate.
with the latest basic standard mortality table
The unpaid portion of the funeral expenses
shall be taken into account.
incurred which is in excess of the P200,000
threshold is NOT allowed to be claimed as a
ITEMS TO BE INCLUDED IN GROSS ESTATE
deduction under “claims against the estate”.
[SEC. 85, NIRC] (Sec. 6(A)(1), RR 02-2003)
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collect from the decedent must not have therein, should always form part of the taxable
prescribed. gross estate. (RR 2-2003)
(e) They must be reasonably certain in amount,
and substantiated. UNPAID TAXES
Requisites for Deductibility
(a) Taxes which have accrued as of or before the
CLAIMS AGAINST INSOLVENT PERSONS death of the decedent (if it was incurred after,
(SEC. 86 (A)(1)(D)) it is chargeable to the income of the estate),
These are claims of the estate (i) against and
insolvent persons (ii) which are not collectible. To (b) Unpaid as of the time of his death, regardless
be deductible from the gross estate: of whether or not it was incurred in
Additional Requirements: connection with trade or business
(a) The incapacity of the debtor to pay his
obligation should be proven, although a Not included:
judicial declaration of insolvency is not (a) Income tax upon income received after death,
required; or
(b) The full amount owed by the insolvent must (b) Property taxes not accrued before his death,
first be included in the decedent’s gross or
estate; and (c) The estate tax due from the transmission of
(c) If the insolvent could only pay a partial his estate
amount, the full amount owed shall be
included in the gross estate, and the amount CASUALTY LOSSES
uncollectible shall be allowed as a deduction. Requisites for Deductibility
(a) Incurred during the settlement of the estate
UNPAID MORTGAGES, LOSSES AND (b) Arising from fires, storms, shipwreck, or other
TAXES (SEC. 86(A)(1)(E)) casualties from robbery, theft, or
embezzlement
UNPAID MORTGAGES (c) Not compensated by insurance or otherwise
Requisites for Deductibility [Sec. 6-A5(a), RR 2- (d) At the filing of the estate tax return, such
2003] losses have not been claimed as a deduction
(a) The value of the decedent’s interest therein, for income tax purposes in an income tax
undiminished by such mortgage or return
indebtedness, is included in the value of the (e) Incurred not later than the last day for the
gross estates. payment of the estate tax as prescribed by
(b) The mortgages were contracted bona fide law.
and for an adequate and full consideration in
money or money’s worth. Casualty loss can be allowed as deduction in one
instance only, either for income tax purposes or
In case the loan of the decedent is only an estate tax purposes. (Sec. 6(A)(5)), Rev. Reg 2-
accommodation loan where the loan proceeds 2003)
went to another person, the value of the unpaid
loan must be included as a receivable of the NOTE: See Formula for computing Ordinary
estate. If there is a legal impediment to recognize Deductions of NRA above.
the same as a receivable of the estate, the said
unpaid obligation shall not be allowed as a B. PROPERTY PREVIOUSLY TAXED/PPT
deduction. In all instances, the mortgaged (SEC. 86(A)(2)) ALSO CALLED AS
property, to the extent of the decedent’s interest VANISHING DEDUCTIONS
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This is an amount allowed to reduce the taxable the aggregate value of such property if more
estate of a decedent where property: than one item, as finally determined for the
(1) Received by him from a prior decedent by gift, purpose of the prior estate tax (or gift tax) or
bequest, device, or inheritance the value of such property in present
(2) Transferred to him by gift, has been the decedent’s gross estate, whichever is lower.
object of previous transfer transaction (2) Deduction for mortgage or lien – The initial
value (in number 1 above) shall be reduced by
Conditions the total amount paid, if any, by the present
(1) There must be 2 deceased persons and the decedent on any mortgage or other lien on
first one is the donor the property where a deduction was allowed,
(2) The second decedent dies within 5 years after by reason of the payment, of such mortgage
the death of a prior decedent, or in case of or other lien from the gross estate of the prior
gift, the decedent-donee dies within the decedent, or gift or donor, in determining the
same period after the date of the gift. estate tax of the prior decedent or the
donor’s tax.
Requisites (3) Deductions for expenses, etc. – The value as
(1) Death – The present decedent died within 5 reduced in #2 shall be further reduced by an
years from the date of the prior decedent OR amount which bears the same ratio to the
date of gift. amounts allowed as deductions for:
(2) Identity of the property– The property with (a) Expenses, losses, indebtedness, and taxes
respect to which deduction is sought can be (ordinary deductions), and
identified as the one who received from prior (b) Transfers for public use as the amount
decedent, or from the donor, or as the otherwise deductible for property previously
property acquired in exchange for the taxed bears to the value of the decedent’s
original property so received. gross estate; and
(3) Inclusion of the property – The property must (4) Percentage of deductions – The vanishing
have formed part of the gross estate situated deduction shall be the value (final basis) in
in the Philippines of the prior decedent, or #3 multiplied by the ff. percentages:
have been included in the total amount of
the gifts of the donor made within 5 years
prior to the present decedent’s death. VD If received by inheritance or gift
(4) Previous taxation of property – The estate tax Rate
on the prior succession, or the donor’s tax on 100% Within one (1) year prior to the death of
the gift must have been finally determined the present decedent
and paid by the prior decedent or by the 80% More than one year but not more than
donor, as the case may be. two years prior to the death of the
(5) No previous vanishing deduction on the decedent
property – No such deduction on the property, 60% More than two years but not more than
or the property given in exchange therefor, three years
was allowed in determining the value of the
net estate of the prior decedent. This is 40% More than three years but not more than
intended to preclude the application of the four years prior to the death of the
vanishing deduction on the same property decedent
more than once. 20% More than four years but not more than
five years prior to the death of the
Limitations decedent
(1) Value of property – The deduction is limited
by the value of property previously taxed or
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FORMULA FOR VANISHING DEDUCTIONS:
(please take note of the limitations above) death of the decedent-employee in accordance
with RA 4917, provided that such amount is
Value Taken of Property included in the gross estate of the decedent.
Less: Mortgage debt paid, if any These include:
(1) Retirement benefits from private firms with
= Initial Basis private benefit plan, if the retiring employee
Less: Proportionate Deduction** is 50 years old or older. This can only be once
availed.
= Final Basis (2) Benefits granted in case of separation
Multiplied by Deduction Rate beyond the control of the employee.
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Exempt: If net taxable estate ≤ 200,000 NB: If donor is RC/NRC/RA = liable for donor’s
tax REGARDLESS of where the gift was made or
where property is located
NRA = liable for donor’s tax only if the
property donated is w/in the Phil.
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(2) Condonation or remission of debt where the the residence/domicile of owner thereof. Situs is
debtor did not render service in favor of the the domicile or residence of the owner. (Collector
creditor v Fisher)
(3) Renunciation in favor of other heirs (Sec 11, Exceptions:
RR 2-2003) (1) When it is inconsistent with express
(a) Renunciation by the surviving spouse of their provisions of law
share in the ACP/CPG after the dissolution of (2) When justice does not demand that it should
the marriage in favor of heirs of the deceased be, as where the property in fact has a situs
spouse or any other person/s elsewhere
(b) Renunciation by an heir, specifically and
categorically in favor of identified heir/s to Intangible Properties which are considered
the exclusion or disadvantage of the other situated in the Philippines (Sec 104)
co-heirs in the hereditary estate (1) Franchise which must be exercised in the
(c) However, general renunciation by an heir, Philippines
including the surviving spouse, of their share (2) Shares, obligations or bonds issued by any
in the hereditary estate left by the decedent corporation or sociedad anonima organized
is NOT subject to DT or constituted in the Philippines in
accordance with its laws
TRANSFER FOR LESS THAN ADEQUATE (3) Shares, obligations or bonds issued by any
AND FULL CONSIDERATION foreign corporation 85% of the business of
which is located in the Philippines
In order for the rule to apply, there must be 1) a (4) Shares, obligations or bonds issued by any
transfer of property, other than real property foreign corporation if such shares,
classified as a capital asset and subject to capital obligations or bonds have acquired a
gains tax under Sec. 24 (D) and 2) the transfer business situs in the Philippines
was for less than an adequate and full (5) Shares or rights in any partnership, business
consideration in money or money’s worth. or industry established in the Philippines
In this case, the amount by which the fair market Rule of Reciprocity
value of the property exceed the value of the There is reciprocity if the foreign country of which
consideration shall be considered a gift. the decedent was a citizen and resident at the
time of his death:
CLASSIFICATION OF DONOR (a) Did not impose a transfer tax of any
character, in respect of intangible personal
Donor’s Tax applies to individuals and property of citizens of the Philippines not
corporations (in their secondary purpose). They residing in that foreign country; OR
may be classified into: (b) Allowed a similar exemption from transfer
Residents (RC/RA/DC/RFC) tax in respect of intangible personal property
Non-Residents (NRC/NRA/NRFC) owned by citizens of the Philippines not
Such classification is important in determining residing in that country
the deductions from the gross gift of the donor, If there is reciprocity, the intangible personal
and in filing the return. property of an NRA shall not be included in his
gross estate. If there is no reciprocity, such
Situs of Intangible Personal Properties intangible personal property will be included.
General Rule: Mobilia Sequuntur Personam
Principle: Taxation of intangible personal
properties (such as credits, bills, bank deposits
promissory notes, and corporate stocks) follows
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(3) (iii) Onerous Donations or Donations in are adjusted to fair market values. The net of
exchange for goods/services (since they are adjusted asset minus the adjusted liability value
subject to income tax) is the indicated value of the equity.
Under Section 24(d), the fair market value itself, if 2. Worldwide Limit
higher than the gross selling price, is the basis
for computing the capital gains tax imposed 𝐷𝑒𝑐𝑒𝑑𝑒𝑛𝑡 ′ 𝑠 𝑁𝑒𝑡 𝐸𝑠𝑡𝑎𝑡𝑒 (𝐴𝑙𝑙 𝐶𝑜𝑢𝑛𝑡𝑟𝑖𝑒𝑠)
𝑥 𝑃ℎ𝑖𝑙𝑖𝑝𝑝𝑖𝑛𝑒 𝐷𝑜𝑛𝑜𝑟′𝑠 𝑇𝑎𝑥
upon the sale of such capital assets. 𝐸𝑛𝑡𝑖𝑟𝑒 𝑁𝑒𝑡 𝐺𝑖𝑓𝑡
Thus, what the seller avoids in the payment of EXEMPTIONS OF GIFTS FROM DONOR’S
the donor’s tax, it pays for in the capital gains tax. TAX
(See table above)
If there is an improvement = construction cost (1) Encumbrances on the property donated if
(based on the building permit and/or occupancy assumed by the donee in the deed of
permit ) + 10% per year after the year of donation.
construction; or the FMV based on the latest tax (2) Donations made to entities exempted under
declaration. special laws.
If unlisted stocks = Adjusted Net Asset Method Aquaculture Department of the Southeast Asian
shall be used whereby all assets and liabilities Fisheries Development Center of the Philippines
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PAID: before the delivery of the distributive share in the FILED: within thirty (30) days after the gift
inheritance to any heir or beneficiary; upon filing of return. (donation) is made
E: extension (when payment on the due date would impose
undue hardship) not to exceed In case of donation to relatives, only one
1. 5 years, in case the estate is settled through the courts; or return shall be filed for several gifts by the
2. 2 years in case the estate is settled extra-judicially. donor to the different donees on the same
date.
NB: when extension is granted, a bond may be required by
CIR ≤ 2x amount of tax If the gift involves CPG, each spouse shall
file separate return wrt his/her respective
share in the CPG.
Where to file and to whom paid
GR: to the Authorized Agent Bank (AAB), Revenue Resident
Collection Officer (RCO) or duly authorized Treasurer of the GR: to AAB of the RDO having jurisdiction
city or municipality in the Revenue District Office having over the place of the domicile of the donor
jurisdiction over the place of domicile of the decedent at the at the time of the transfer.
time of his death
E:
E: if NRA/NRC, 1.If no AAB = to the RCO or duly Authorized
If w/ Aor, Eor in Phil = to the AAB of the RDO where such City or Municipal Treasurer where the donor
Aor,Eor is registered/domiciled, if not yet registered with the was domiciled at the time of the transfer,
BIR.
if w/o Aor,Eor in Phil = to AAB under the jurisdiction of RDO 2. if no legal residence in Phil or NRA = with
No. 39 Revenue District No. 39 - South Quezon
City or with the Philippine Embassy or
Consulate in the country where donor is
domiciled at the time of the transfer.
Non-resident
The Philippine Embassy or Consulate in the
country where he is domiciled at the time of
the transfer, or
Directly with the Office of the
Commissioner.
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The Eor/Aor or any of the legal heirs of the decedent, Any person, natural or juridical, resident or
whether resident or non-resident of the Philippines, under non-resident, who transfers or causes to
any of the following situations: transfer property by gift, whether in trust or
In all cases of transfers subject to estate tax; otherwise, whether the gift is direct or
Where though exempt from estate tax, the gross value of indirect and whether the property is real or
the estate exceeds two hundred thousand (P200,000) personal, tangible or intangible.
pesos; or
Regardless of the gross value of the estate, where the said
estate consists of registered or registrable property such as
real property, motor vehicle, shares of stock or other similar
property for which a clearance from the BIR is required as a
condition precedent for the transfer of ownership therof in
the name of the transferee; or
2. If there is no executor or administrator appointed,
qualified, and acting within the Philippines, then any person
in actual or constructive possession of any property of the
decedent.
NB: Eor/Aor has the primary obligation to pay the estate tax
but the heir or beneficiary has subsidiary liability for the
payment of that portion of the estate which his distributive
share bears to the value of the total net estate. The extent of
his liability, however, shall in no case exceed the value of his
share in the inheritance.
partnership’s profit earned on/before and received after, accrued interest and rents on/before and collected after death
7 Beneficiary must be the estate of the decedent, Eor/Aor or a third person. If premiums are paid using conjugal funds, part of
conjugal funds.
8 Full amount of the receivable. However, the uncollectible amount may be deducted from GE under ELIT.
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Vanishing Deductions
Transfers for Public Use
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ON FIRST DONATION
Net Estate
Less: (Special Deductions10) Gross Gift xxx
Standard Deduction Less: Deductions (those not beneficial
Family Home to the done e.g. mortgage)
Medical Expenses xxx
Amounts received by heirs
Net Gift xxx
Net Taxable Estate (before share of surviving Less: Exemptions, if applicable
spouse) xxx
Less: Share of Surviving Spouse
Net Taxable Gift
xxx
Net Taxable Estate Multiply by Tax Rate
Multiply by Tax Rate xx%
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ESTATE TAX
Transfer
Prepare the LIST of assets properties to
NOTICE OF DEATH to RDO Get TIN for ESTATE and liabilities and their the heirs
by Eor/Aor supporting documents
Liable
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properties or services as part of the purchase (1) Seller (w/n natural) executes contract to
price. SBE of RP
Excise Tax - a tax on the privilege of engaging (2) RP is in the Phil
in the business of selling goods or services, or (3) Seller is engaged in sale or exchange of RP
in the importation of goods but unlike excise, it or real estate (dealer, developer, lessor)
is not applied only to a few selected goods (4) RP is held primarily for sale/lease ICT/B or
an ordinary asset used in T/B as an
Transactions Covered and their elements incident to his vatable activity (NOT a
(summary): capital asset)
General Requirements (5) not exempt from VAT (NIRC, special law,
Done in the course of trade or business (ICT/B) special agreement)
w/n profit-oriented: rule of regularity +
incidental thereto (inc isolated) Sale of Services16
Exception: (1) for a valuable consideration
(a) NRC/NRA who perform services in Phil, (actually/constructively received)
even if no regularity (2) performed ICTB in the Phil.
(b) Importation of Goods may be for business (3) not exempt from VAT (NIRC, special law,
or non-business use special agreement)
Gross sales or receipts for the past 12 months (4) person rendering service is VAT-liable
or the next 12 months > 1,919,500php (5) no ee-er relationship
OR there are reasonable grounds to believe (6) Importation of Goods
that gross sales or receipts for the past 12
months or the next 12 months will exceed The transfer must be made in the Philippines.
1,919,500php. If the title to the goods were transferred
outside the Philippines, then the same is not
Taxable Transactions and Specific subject to VAT.
Requirements
Sale, Barter, Exchange or Lease (SBEL) of TAX CREDIT METHOD
Goods or Properties14
A VAT-registered person is entitled to credit
Goods/Personal Properties input taxes evidenced by VAT invoice or official
(1) Actual/deemed sale for a valuable receipt against the output tax payable. The tax
consideration
(2) for use or consumption in the Phil Commercial Subject to 12% VAT
Property
(regardless of the payment arrangements) (Sale/Lease
(3) not exempt from VAT (NIRC, special law, )
special agreement) Residential If monthly rental ≤ 12,800 = VAT and
Units OPT-exempt
(Lease) If monthly rental > 12,800 but
Real Properties (RP) 15: aggregate annual rentals ≤1,919,500
= subject to OPT
If monthly rental > 12,800 and
aggregate annual rentals > 1,919,500
14 Sec 106 = subject to VAT
15 Residential If SP > 1,919,500.00 = subject to VAT
Lot IF SP ≤ 1,919,500.00 = VAT-exempt
Casual Sale Subject to CGT (6%)
(Capital Residential If SP > 3,199,200.00 = subject to VAT
Assets) House and IF SP ≤ 3,199,200.00 = VAT-exempt
Regular Sales Lot
(Ordinary
Assets) 16 Sec 108
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Input tax – the VAT due on or paid by a VAT- As a general rule, the value-added tax (VAT)
registered person on importation of goods or system uses the destination principle.
local purchases of goods, properties, or However, our VAT law itself provides for a clear
services, including lease or use of properties, in exception, under which the supply of service
the course of his trade or business. shall be zero-rated when the following
Output tax – the VAT due on the sale or lease requirements are met:
of taxable goods or properties or services by the service is performed in the Philippines;
any person registered or required to register the service falls under any of the categories
under Section 236 of the Code. provided in Section 102(b) of the Tax Code; and
If at the end of any taxable month or quarter: it is paid for in acceptable foreign currency that
The output tax exceeds the input tax, the is accounted for in accordance with the
excess shall be paid by the VAT-registered regulations of the BSP.
person
The input tax exceeds the output tax, the PERSONS LIABLE
excess shall be carried over to the succeeding
quarter or quarters Persons Liable:
Any persons who sells, barters, exchanges, or
DESTINATION PRINCIPLE leases goods or properties, or who renders
services, in the course of trade or buesiness,
This provides that the destination of goods and any person who imports goods, whether or
determines the taxation or exemption from not in the course of business, is liable to pay
VAT. either VAT or 3% percentage tax.
CIR v. American Express International (2005): The term “person” refers to any individual,
As a general rule, goods and services are taxed trust, estate, partnership, corporation, joint
only in the country where they are consumed. venture, cooperative or association (Sec. 4.105-
(Deoferio Jr. and Mamalateo. The Value Added 1, RR 16-2005).
Tax in the Philippines, p. 43)
The following are liable to pay VAT:
Corollarily, the Cross Border Doctrine (1) any person who sell, barters, exchange or
mandates that no VAT shall be imposed to leases goods or properties
form part of the cost of the goods destined for (2) if real property: persons engaged in real
consumption outside the territorial border of estate business:
the taxing authority.
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(a) Any person who SBE of real properties General Rule: VAT and Percentage Tax cannot
ICT/B be charged together. It’s either the transaction
(b) Real estate lessors/ sub-lessors is under VAT or Other Percentage Tax.
(c) NRA/NRC lessors when RP is in Phil
(d) non-stock, non-profit corp engaged in Exception: When one erroneously declares
SBE of real properties ICT/B, himself to VAT registered.
regardless of disposition of income
(e) Gov’t inc GOCCs in SBEL of RP ICT/B VAT ON SALE OF GOODS OR
(3) who renders services PROPERTIES
(4) who imports goods
(5) if importer is tax-exempt/VAT-exempt Rate: 12% VAT beginning 1 February 2006
AND goods are subsequently SBE to non- [RMC No. 7-06]
exempt persons,
(6) purchasers/recipients will be deemed the Transactions: Every sale, barter or exchange, or
importer transactions “deemed sale” of taxable goods or
(7) if the Philippine branch of an NRFC properties (RR 16-2005)
“imported”, first local buyer will be
deemed the importer Basis: Gross selling price or gross value in
money of the goods or properties sold,
Additional Requirements to be subject to VAT: bartered or exchanged.
(1) As regards person who sells, barters or
exchanges goods or properties, or sale of Who Pays: Paid by SELLER/TRANSFEROR.
services, is required to register for VAT (Sec. 106, NIRC)
when: (i)such act is done in the course of
trade or business, and (ii) if his gross sales Goods or properties – all tangible and
or receipts for the past 12 months or the intangible objects which are capable of
next 12 months exceed P1,919,500; pecuniary estimation, including:
(2) As regards person who imports, it is not (1) Real properties held primarily for sale to
necessary that such importation is made in customers or held for lease in the ordinary
the course of trade or business. course of trade or business;
(3) Any person who elects to register for VAT (2) The right or the privilege to use patent,
(cf Optional VAT Registration) copyright, design, or model, plan, secret
formula or process, goodwill, trademark,
Persons NOT LIABLE to pay VAT: trade brand or other like property or right;
(1) Any person whose gross sales or receipts (3) The right or the privilege to use in the
are less than P,1919,500 AND is not VAT Philippines of any industrial, commercial or
registered. (subject to OPT) scientific equipment;
(2) Is exempt under Section 109; (4) The right or the privilege to use motion
(3) Marginal income earners are not subject to picture films, films tapes and discs;
business taxes because they are not (5) Radio, television, satellite transmission
considered as engaged in trade or business. and cable television time.
A marginal income earner is an individual
deriving gross sales or receipts of not Requirements
exceeding P100,000 during any 12-month (1) Done in the course of trade or business (w/n
period (Rev. Reg. 11-2000) profit-oriented): rule of regularity +
incidental thereto (including isolated
transactions)
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(2) Gross sales or receipts for the past 12 incident to his vatable activity (NOT a
months or the next 12 months > capital asset)
1,919,500php (5) not exempt from VAT (NIRC, special law,
(3) OR there are reasonable grounds to special agreement)
believe that gross sales or receipts for the
past 12 months or the next 12 months will Gross (Sales) Selling Price (GSP): total amount
exceed 1,919,500php. of money or its equivalent which the purchaser
pays or is obligated to pay to the seller in
Additional Requirements depending on the consideration of the sale, barter or exchange of
nature of property: the goods or properties, excluding the VAT.
The excise tax, if any, on such goods or
Goods/Personal Properties properties shall form part of the gross selling
(1) Actual/deemed sale for a valuable price.
consideration
(2) for use or consumption in the Phil General Rule: GSP is the total amount of
(regardless of the payment arrangements) money paid in consideration of SBEL
(3) not exempt from VAT (NIRC, special law, Excludes: VAT, sales discounts 18 and,
special agreement) allowances and returns
Includes: Excise tax paid, initial payments 19 ,
Real Properties (RP) 17: interests and penalties (if instalment),
(1) Seller (w/n natural) executes contract to commission income (if exported), purchase
SBE of RP price, charges for packing, delivery and
(2) RP is in the Phil insurance
(3) Seller is engaged in sale or exchange of RP
or real estate (dealer, developer, lessor) If goods/personal properties
(4) RP is held primarily for sale/lease ICT/B or GSP = amount paid in consideration
an ordinary asset used in T/B as an
IF DEEMED SALE: FMV at the time of the
17
transaction
Casual Sale Subject to CGT (6%)
NB: in retirement/cessation, inventory (raw
(Capital materials, finished goods, machinery,
Assets) equipment, furniture, fixture), tax base =
Regular Sales
(Ordinary whichever is lower,
Assets) (1) acquisition cost
Commercial Subject to 12% VAT
Property
(2) current market price of goods
(Sale/Lease
) If real property,
Residential If monthly rental ≤ 12,800 = VAT and
Units OPT-exempt GSP = amount higher:
(Lease) If monthly rental > 12,800 but (1) consideration stated in the sales document
aggregate annual rentals ≤1,919,500
= subject to OPT
If monthly rental > 12,800 and 18 It should be determined at the time of the sale,
aggregate annual rentals > 1,919,500 indicated in the invoice and granting does not depend on
= subject to VAT
the happening of a future event
Residential If SP > 1,919,500.00 = subject to VAT 19 Initial payments does not include the amount of
Lot IF SP ≤ 1,919,500.00 = VAT-exempt
Residential If SP > 3,199,200.00 = subject to VAT mortgage on RP sold (except excess when mortgage
House and IF SP ≤ 3,199,200.00 = VAT-exempt exceeds the cost of the property), notes and other
Lot evidence on=f indebtedness issued by the purchaser at
the time of the sale
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(2) FMV, whichever is higher of: and 2) when GSP is unreasonably lower than
(a) Zonal value: FMV as determined by CIR AMV22
(b) Real Property Tax Value: FMV as
determined by provincial & city AS REGARDS SALE OF REAL PROPERTY
assessors
Taxable:
IF ON INSTALLMENT (RR16-2005) : 20 (1) On installment plan
GSP = down payments received + interests + (2) Pre-selling by real estate dealers
penalties + other charges – amount of (3) Sale of residential lot >P1,919,500 ; or
mortgage (paid) house and lot/other residential dwelling
Note: >P3,199,200
If zonal/FMV, tax base = (4) Lease of residential units (rental per unit >
𝐴𝑐𝑡𝑢𝑎𝑙 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 (𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑉𝐴𝑇)
𝐴𝑔𝑟𝑒𝑒𝑑 𝐶𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 (𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒 𝑉𝐴𝑇)
𝑥 𝑧𝑜𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑜𝑟 𝐹𝑀𝑉, ℎ𝑖𝑔ℎ𝑒𝑟 12,800/month OR total rental from ALL
units>P1,919,500/year)
20Considered instalment when the initial payment is less GR: Transmission of property to a trustee shall
than or equal to 25% of GSP. Taxable only on the NOT be subject to VAT if the property is to be
payment actually or constructively received. merely held in trust for the trustor and/or
Initial payments – payment/payments which the seller beneficiary.
receives before or upon execution of the instrument of
sale and payments which he expects or is scheduled to
Exception: However, if the property transferred
receive in cash or property during the year when the sale is originally intended for sale, lease or use in
or disposition of the real property was made. the ordinary course of trade or business AND
the transfer constitutes a completed gift, the
constructively received during the year of sale.
transfer is subject to VAT as a deemed sale
property sold (except as to the excess when such transaction. The transfer is a completed gift if
mortgage exceeds the cost or other basis of the property the transferor divests himself absolutely of
to the seller) and notes or other evidence of indebtedness
issued by the purchaser to the seller at the time of the
sale. 22 GSP is unreasonably lower than the actual market
21 Considered deferred payment when the initial payment
value if it is lower than 30% of AMV of the same goods of
is more than 25% of GSP. Treated as cash sale and the the same quantity or quality sold in the immediate
entire selling price is taxable on the month of sale locality or the nearest date of sale.
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a. (i) Sale of raw materials or (2) Net selling price of export products sold by
packaging materials (ii) to export- a registered export producer to another
oriented enterprise (iii) whose export producer, or to an export trader that
export sales exceed seventy subsequently exports the same (only when
percent (70%) of total annual actually exported by the latter) evidenced
production. by landing certificates.
(3) Any enterprise whose export sales exceed
70% of the total annual production of the Constructive Exports (without actual
preceding taxable year shall be considered exportation):
an export-oriented enterprise upon (1) Sales to bonded manufacturing
accreditation under the rules & regulations warehouses of export-oriented
of Export Development Act, RA 7844 (RR manufacturers;
7-95) (2) Sales to export processing zones (RA
7916);
a. Sale of gold to the Bangko Sentral (3) Sales to registered export traders
ng Pilipinas (BSP) operating bonded trading warehouses
supplying raw materials in the
b. The sale of goods, supplies, manufacture of export products (RA 7227)
equipment and fuel to persons (4) Sales to diplomatic missions and other
engaged in international shipping agencies and/or instrumentalities granted
or international air transport tax immunities, of locally manufactured,
operations (RA 9337) assembled or repacked products, whether
c. Limited to goods, supplies, paid for in foreign currency or not.
equipment and fuel pertaining to (5) Sales by a VAT-registered supplier to a
or attributable to the transport of manufacturer/producer whose products
goods and passengers from a port are 100% exported are considered export
in the Phil. directly to a foreign port sales. A certification to this effect must be
without docking or stopping at any issued by the Board of Investment which
other port in the Phil. shall be good for 1 year unless
d. If any portion of such fuel, goods, subsequently re-issued. (RR 16-2005)
or supplies is used for purposes
other than that mentioned, such Export sales of registered export traders shall
portion of fuel, goods, and supplies include commission income, and that
shall be subject to 12% VAT. (RR exportation of goods on consignment shall not
16-2005) be deemed export sales until the export
products consigned are in fact sold by the
e. Those considered export sales consignee.
under the Omnibus Investment
Code of 1987, and other special Foreign Currency Denominated Sale (FCDS)
laws (ex. Bases Conversion & (1) (i) Sale to a nonresident of goods (except
Development Act of 1992) those mentioned in Sections 149 and 150
i.e.automobiles and non-essential goods
Under Omnibus Investment Code (EO 226): like jewelry, perfume, and yachts), (ii)
Considered Export Sales assembled or manufactured in the
(1) Phil. port FOB value of export products Philippines (iii) for delivery to a resident in
exported directly by a registered export the Philippines (iv) paid for in acceptable
producer; OR foreign currency AND (v) accounted for in
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accordance with the rules and regulations from the Customs Territory** to any
of the BSP. registered enterprise operating in the
(2) (i) Sales of locally manufactured or ecozone, REGARDLESS of the class or
assembled goods (ii) for household and type of the latter’s PEZA registration, is
personal use (iii) to Filipinos abroad and actually qualified and thus LEGALLY
other non-residents of the Philippines as ENTITLED TO THE 0% VAT.
well as returning Overseas Filipinos under (2) Customs Territory shall mean the national
the Internal Export Program of the territory of the Philippines outside of the
government (iv) paid for in convertible proclaimed boundaries of the ECOZONES
foreign currency AND (v) accounted for in except those areas specifically declared by
accordance with the rules and regulations other laws and/or presidential
of the BSP shall also be considered export proclamations to have the status of special
sales. (RR 16-2005) economic zones and/or free ports. [Sec.
2(g), Rule 1, Part I, RA 7916-IRR]
Effectively Zero-Rated Sales (a) By a VAT-Exempt Supplier from the
(1) Sales to persons or entities whose Customs Territory to a PEZA registered
exemption under special laws or enterprise
international agreements to which the (3) Sale of goods, property and services by
Philippines is a signatory effectively VAT-Exempt supplier from the Customs
subjects such sales to zero rate. Territory to a PEZA registered enterprise
(2) (i) The local sale of goods and properties shall be treated EXEMPT FROM VAT,
(ii) by a VAT-registered person (iii) to a regardless of whether or not the PEZA
person or entity who was granted indirect registered buyer is subject to taxes under
tax exemption under special laws or the NIRC or enjoying the 5% special tax
international agreement. (RR 16-2005) regime.
(a) By a PEZA Registered Enterprise
ECOZONES (b) Sale of Goods by a PEZA registered
enterprise to a buyer from the Customs
CIR v. Seagate Technology (2005): The Territory (ie domestic sales) -- this case
ECOZONES shall be managed and operated by shall be treated as a technical
the PEZA as separate customs territory. (Sec. 8, IMPORTATION made by the buyer.
RA 7916 “Special Economic Zone Act of 1995”) Such buyer shall be treated as an
This means that in such zone is created the IMPORTER thereof and shall be
legal fiction of foreign territory. (Deoferio Jr. imposed with the corresponding VAT.
and Mamalateo, p. 227) Consequently, sales (c) Sale of Services by a PEZA registered
made by a person in the customs territory to a enterprise to a buyer from the Customs
PEZA-registered entity are considered exports Territory – this is NOT embraced by the
to a foreign country and thus, zero-rated. 5% special tax regime, hence, such
Conversely, sales by a PEZA-registered entity seller shall be SUBJECT TO 12% VAT.
to a person in the customs territory are (d) Sale of Goods by a PEZA registered
deemed imports from a foreign country. enterprise to Another PEZA registered
enterprise (ie Intra-ECOZONE Sales of
(1) Tax treatment of sales to & by PEZA- Goods) – this shall be EXEMPT from
registered enterprise within & without the VAT.
ecozone [rmc 74-99]: (e) Sale of Services by ECOZONE
(a) Any sale of goods, property or services enterprise, to Another ECOZONE
made by a VAT registered supplier
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Landed Cost - invoice amount including costs Deposit in banks which are made available to
of loading, shipping and unloading, customs the seller of services without restrictions
duties, freight, insurance, other charges, excise Issuance by the debtor of a notice to offset any
tax (if any) debt or obligation and acceptance thereof by
the seller as payment for services rendered
Expenses incurred after the release of the Transfer of the amounts retained by the
goods such as those incurred in delivering contractee to the account of the contractor.
goods do not form part of the landed cost. (RR 16-2005)
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EXCEPT crop insurance, life and disability (8) The lease or the use of or the right to use
insurance, and health and accident radio, television, satellite transmission and
insurance cable television time
(16) Insurance and reinsurance commissions,
as opposed to premiums, whether life or Additional services subject to VAT:
non-life, are subject to VAT while non-life (1) Services performed in the exercise or
insurance premiums are subject to VAT. practice of profession or calling by
(17) Similar services regardless of whether or individuals subject to professional tax
not the performance thereof calls for the under the LGC, and professional services
exercise or use of the physical or mental rendered by general professional
faculties partnerships (GPPs);
(2) Services performed by actors/actresses,
Lease of Properties: subject to the VAT talents, singers, emcees, radio/television
imposed irrespective of the place where the broadcasters, choreographers,
contract of lease or licensing agreement was musical/radio/movie/television/stage
executed if the property is leased or used in the directors, and professional athletes;
Philippines. (3) Services rendered by customs, real estate,
(1) The lease or the use of or the right or stock, immigration and commercial
privilege to use any copyright, patent, brokers;
design or model, plan secret, formula or (4) Services rendered by doctors, and lawyers.
process, goodwill, trademark, trade brand (5) Association dues or membership fees and
or other like property or right other assessment or charges for the
(2) The lease of the use of, or the right to use beneficial services of the homeowner’s
of any industrial, commercial or scientific association (RMC No. 9-2013)
equipment (6) Lease/use of sports facilities and
(3) The supply of scientific, technical, equipment (RA 6847)
industrial or commercial knowledge or
information The performance of the services should not be
(4) The supply of any assistance that is in pursuit of an employer-employee
ancillary and subsidiary to and is furnished relationship between the service-provider and
as a means of enabling the application or the service-recipient.
enjoyment of any such property, or right as
is mentioned in #2 or any such knowledge ZERO-RATED SALE OF SERVICES
or information as is mentioned in #3
(5) The supply of services by a nonresident A zero-rated sale by a VAT-registered person is
person or his employee in connection with a taxable transaction for VAT purposes, but
the use of property or rights belonging to, shall not result in any output tax. However, the
or the installation or operation of any input tax on purchases of goods, properties or
brand, machinery or other apparatus services related to such zero-rated sale shall
purchased from such nonresident person be available as tax credit or refund.
(6) The supply of technical advice, assistance
or services rendered in connection with The following services performed in the
technical management or administration Philippines by VAT-registered persons
of any scientific, industrial or commercial areeffectively 0% VAT sales of services:
undertaking, venture, project or scheme (1) Processing, manufacturing or repacking
(7) The lease of motion picture films, films, goods for other persons doing business
tapes and discs outside the Philippines which goods are
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subsequently exported, where the services seventy percent (70%) of total annual
are paid for in acceptable foreign currency production.
AND accounted for in accordance with the (7) Transport of passengers and cargo by air
rules and regulations of the BSP or sea vessels from the Philippines to a
(2) Services other than those mentioned in the foreign country (as added by RA 9337) and;
preceding paragraph rendered to a person (8) Sale of power or fuel generated through
engaged in business conducted outside the renewable sources of energy such as, but
Philippines or a nonresident person not not limited to, biomass, solar, wind,
engaged in business who is outside the hydropower, geothermal, ocean energy,
Philippines when the services are and other emerging energy sources using
performed, the consideration for which is technologies such as fuel cells and
paid for in acceptable foreign currency hydrogen fuels. (as added by RA 9337)
AND accounted for in accordance with the
rules and regulations of the BSP Zero-rating shall apply strictly to the sale of
(3) The services referring to ‘processing, power or fuel generated through renewable
manufacturing, repacking’ and ‘services sources of energy, and shall not extend to the
other than those in (1)’ both require (i) sale of services related to the maintenance or
payment in foreign currency; (ii) inward operation of plants generating said power.
remittance; (iii) accounted for by the BSP;
AND (iv) that the service recipient is doing Effectively zero-rated sale of service – a local
business outside the Philippines. If this is sale of services by a VAT-registered person to a
not the case, taxpayers can circumvent just person or entity granted indirect tax exemption
by stipulating payment in foreign currency. under special laws or international agreement.
(CIR v. Burmeister) The taxpayer must seek prior approval or prior
(4) Services rendered to persons or entities confirmation from the appropriate offices of
whose exemption under special laws or the BIR so that a transaction is qualified for
international agreements to which the effective zero-rating except in export sales and
Philippines is a signatory effectively foreign denominated sales.
subjects the supply of such services to zero RR 4-2007 removed the distinction between
percent (0%) rate (as amended by RA automatic and effectively zero-rated
9337) transactions found in prior Revenue
(5) Services rendered to persons engaged in Regulations (inc. RR 16-2005) with respect to
international shipping or international air prior application from the BIR.
transport operations, including leases of
property for use thereof [as amended by VAT EXEMPT TRANSACTIONS
RA 9337];
Provided, however, that the services Vat Exempt Transactions, in general
referred to herein shall not pertain to those Sale of goods or properties and/or services and
made to common carriers by air and sea the use or lease of properties that is NOT
relative to their transport of passengers, subject to VAT (output tax) and the seller is not
goods or cargoes from one place in the Phil. allowed any tax credit of VAT (input tax) on
to another place in the Phil. (the same purchases.
being subject to 12% VAT under Sec. 108) The person making the exempt sale of goods,
(6) Services performed by subcontractors properties or services shall not bill any output
and/or contractors in processing, tax to his customers. (RR 16-2005)
converting, or manufacturing goods for an But, the VAT-registered person may elect that
enterprise whose export sales exceed the exemption not apply to its sale of goods or
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1992" and other related laws, such as (d) Sale of residential lot valued at
RA No. 7835 and RA No. 8763. P1,919,500 and below, or house & lot
“Low-cost housing" refers to housing and other residential dwellings valued
projects intended for homeless low- at P3,199,200 and below
income family beneficiaries, If two or more adjacent residential
undertaken by the Government or lots are sold or disposed in favor of
private developers, which may either one buyer, for the purpose of utilizing
be a subdivision or a condominium the lots as one residential lot, the sale
registered and licensed by the shall be exempt from VAT only if the
Housing and Land Use Regulatory aggregate value of the lots does not
Board/Housing (HLURB) under BP exceed P1,919,500. [RR 13-2012]
Blg. 220, PD No. 957 or any other Adjacent residential lots, although
similar law, wherein the unit selling covered by separate titles and/or
price is within the selling price ceiling separate tax declarations, when sold
per unit of P750,000.00 under RA No. or disposed to one and the same
7279, and other laws, such as RA No. buyer, whether covered by one or
7835 and RA No. 8763. separate Deed of Conveyance, shall
(c) Sale of real properties utilized for be presumed as a sale of one
socialized housing as defined under residential lot. [RR 16-2005]
RA No. 7279, and other related laws, Sale, transfer or disposal within a 12-
such as RA No. 7835 and RA No. 8763, month period of 2 or more adjacent
wherein the price ceiling per unit is residential lots, house and lots or
P225,000.00 or as may from time to other residential dwellings to one
time be determined by the HUDCC buyer, whether from the same or from
and the NEDA and other related laws. different sellers shall be considered
"Socialized housing" refers to housing one single transaction. Hence, the
programs and projects covering sale of the adjacent lots shall be
houses and lots or home lots only subject to VAT if the aggregate value
undertaken by the Government or the exceeds P1,919,500 for residential lots
private sector for the underprivileged and P3,199,200 for residential house
and homeless citizens which shall lots or residential dwellings,
include sites and services notwithstanding that the value of the
development, long-term financing, individual properties do not exceed
liberated terms on interest payments, the VAT exemption thresholds.
and such other benefits in accordance Sale/purchase of parking lots shall
with the provisions of RA No. 7279 not be considered a sale of residential
and RA No. 7835 and RA No. 8763. lot/dwelling. Hence, it shall be
"Socialized housing" shall also refer to subject to VAT regardless of its selling
projects intended for the price. [RR 13-2012]
underprivileged and homeless (17) Lease of residential units with a monthly
wherein the housing package selling rental per unit not exceeding P12,800,
price is within the lowest interest rates regardless of the amount of aggregate
under the Unified Home Lending rentals received by the lessor during the
Program (UHLP) or any equivalent year.
housing program of the Government, Lease of residential units where the
the private sector or non-government monthly rental per unit exceeds P12,800
organizations. but the aggregate of such rentals of the
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lessor during the year do not exceed One (19) Transport of passengers by international
Million Five Hundred Pesos P1,919,500 carriers (Added by RA 10378)
shall likewise be exempt from VAT, (20) Sale, importation or lease of passenger
however, the same shall be subjected to or cargo vessels and aircraft, including
three percent (3%) percentage tax. engine, equipment and spare parts thereof
In cases where a lessor has several for domestic or international transport
residential units for lease, some are leased operations [added by RA 9337];
out for a monthly rental per unit of not The exemption from VAT on the
exceeding P12,800 while others are leased importation and local purchase of
out for more than P12,800 per unit, his tax passenger and/or cargo vessels shall be
liability will be as follows: limited to those of 150 tons and above,
(a) The gross receipts from rentals not including engine and spare parts of said
exceeding P12,800 per month per unit vessels;
shall be exempt from VAT regardless Provided, further, that the vessels to be
of the aggregate annual gross receipts. imported shall comply with the age limit
(b) The gross receipts from rentals requirement, at the time of acquisition
exceeding P12,800 per month per unit counted from the date of the vessel's
shall be subject to VAT IF the original commissioning, as follows:
aggregate annual gross receipts from (a) for passenger and/or cargo vessels,
said units only (not including the gross the age limit is 15 years old,
receipts from units leased for not more (b) for tankers, the age limit is 10 years old,
than P12,800 ) exceeds P1,919,500 . and
Otherwise, the gross receipts will be (c) for high-speed passenger crafts, the
subject to the 3% tax imposed under age limit is 5 years old [RR 16-2005]
Section 116 of the Tax Code. (21) Importation of fuel, goods, and supplies by
The term 'residential units' shall refer persons engaged in international shipping
to apartments and houses & lots used or air transport operations; [added by RA
for residential purposes, and buildings 9337]
or parts or units thereof used solely as The said fuel, goods and supplies shall be
dwelling places (e.g., dormitories, used exclusively or shall pertain to the
rooms and bed spaces) except motels, transport of goods and/or passenger from
motel rooms, hotels and hotel rooms. a port in the Philippines directly to a
The term 'unit' shall mean an foreign port without stopping at any other
apartment unit in the case of port in the Philippines;
apartments, house in the case of If any portion of such fuel, goods or
residential houses; per person in the supplies is used for purposes other than
case of dormitories, boarding houses that mentioned in this paragraph, such
and bed spaces; and per room in case portion of fuel, goods and supplies shall be
of rooms for rent. [RR 16-2005] subject to 12% VAT starting Feb. 1, 2006.
(18) Sale, importation, printing or publication [RR 16-2005]
of books and any newspaper, magazine (22) Services of banks, non-bank financial
review or bulletin which appears at regular intermediaries performing quasi-banking
intervals with fixed prices for subscription functions and other non-bank financial
and sale and which is not devoted intermediaries; and
principally to the publication of paid (23)Sale or lease of goods or properties or the
advertisements; performance of services other than the
transactions mentioned in the preceding
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paragraphs, the gross annual sales and/or day clubs, boxing exhibitions, professional
receipts do not exceed the amount of basketball games, jai-alai and race tracks;
P1,919,500 and
For purposes of the threshold of (8) Receipts on sale, barter for exchange of
P1,919,500, the husband and the wife shall shares of stock listed and traded through
be considered separate taxpayers. the local stock exchange or through initial
However, the aggregation rule for each public offering.
taxpayer shall apply.
For instance, if a professional, aside from INPUT TAX AND OUTPUT TAX, DEFINED
the practice of his profession, also derives
revenue from other lines of business which Output tax – the VAT due on the sale or lease
are otherwise subject to VAT, the same of taxable goods or properties or services by
shall be combined for purposes of any person registered or required to register
determining whether the threshold has under Section 236 of the Code. (Sec 110 A)
been exceeded. Input tax – the VAT due on or paid by a VAT-
The VAT-exempt sales shall NOT be registered person on importation of goods or
included in determining the threshold. [RR local purchases of goods, properties, or
16-2005] services, including lease or use of properties, in
the course of his trade or business.
Other Services Exempt from VAT – such
services are those subject to percentage tax (1) It includes the transitional input tax and
(infra) the presumptive input tax as determined in
(1) Services rendered by domestic common accordance with Section 111 of the Code.
carriers by land for the transport of (2) It includes input taxes which can be
passengers and keepers of garages; directly attributed to transactions subject
(2) Services rendered by international to the VAT plus a ratable portion of any
air/shipping carriers; input tax which cannot be directly
(3) Services rendered by franchise grantees of attributed to either the taxable or exempt
radio and/or television broadcasting activity.
whose annual gross receipts of the (3) Input tax must be evidenced by a VAT
preceeding year do not exceed invoice or official receipt issued by a VAT-
P10,000,000 and by franchise grantees of registered person in accordance with Secs.
gas and water utilities; 113 and 237 of the Code. [RR 16-2005]
(4) Services rendered for overseas dispatch,
message, by franchise grantees or SOURCES OF INPUT TAX
conversation originating from the
Philippines; (1) Purchase or importation of goods
(5) Services by any person, company or (evidenced by VAT invoice/receipt)
corporation (except purley cooperative (a) For sale; or
companies or associations) doing life (b) For conversion into or intended to form
insurance business of any sort in the part of a finished product for sale
Philippines; including packaging materials; or
(6) Services rendered by fire, marine or (c) For use as supplies in the course of
miscellaneous insurance agents of foreign business; or
insurance companies; (d) For use as materials supplied in the
(7) Services rendered by proprietors, lessees or sale of service; or
operators of cockpits, cabarets, night or
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(e) For use in trade or business for which Who may avail: (i) By a person who becomes
deduction for depreciation or VAT-liable for the 1st time, or (ii) any person
amortization is allowed under the Code. who elects to be a VAT-registered person
(2) Purchase of real properties for which VAT Rate: 2% Input VAT of the value of the
has actually been paid beginning inventory on hand or actual VAT
(3) Purchase of services in which VAT has paid on such, goods, materials and supplies,
actually been paid whichever is HIGHER, which amount shall be
(4) Transactions deemed sale creditable against the output tax of VAT-
(5) Presumptive Input Tax registered person.
(6) Transitional Input Tax Tax base: The value allowed for income tax
purposes on inventories shall be the basis for
Presumptive Input Tax (Sec. 111(B)) the computation of the 2% transitional input
tax, EXCLUDING goods that are exempt from
Persons or firms engaged in the processing of VAT under Sec. 109 of the Tax Code. (RR 16-
sardines, mackerel and milk, and in 2005)
manufacturing refined sugar and cooking oil
and packed noodle based instant meals, shall Note: A real estate dealer is entitled to claim
be allowed a presumptive input tax, creditable transitional input VAT based on the value of
against the output tax, equivalent to FOUR the entire (including the value of the land and
PERCENT (4%) of the gross value in money of the improvements thereon) real property sold
their purchases of primary agricultural regardless of whether there was in fact actual
products which are used as inputs to their payment of VAT on the purchase of the real
production. property. At the time the purchase was made,
there was still no VAT imposed. (Fort Bonifacio
“Processing” means pasteurization, canning Development Corp. v. CIR)
and activities which through physical or
chemical process alter the exterior texture or PERSONS WHO CAN AVAIL OF INPUT
form or inner substance of a product in such TAX CREDIT
manner as to prepare it for special use to which
it could not have been put in its original form Input tax on domestic purchase or importation
or condition. of goods or properties shall be creditable:
(1) To the purchaser upon consummation of
Claiming of input Tax on motor vehicles sale and on importation of goods or
subject to the ff conditions: properties; and
(1) Purchase of vehicle must be substantiated (2) To the importer upon payment of the VAT
with official receipts and other records; prior to the release of the goods from the
(2) Taxpayer has to prove the direct custody of the Bureau of Customs.
connection of the motor vehicle to the (a) The input tax on goods purchased or
business; imported in a calendar month for use
(3) Only one vehicle for land transport is in trade or business for which
allowed for the use of an official/employee deduction for depreciation is allowed
with value not exceeding P2.4 million; under the Code, shall be spread evenly
(4) No depreciation shall be allowed for yachts, over the month of acquisition and the
helicopters, airplanes fifty-nine (59) succeeding months if the
aggregate acquisition cost for such
Transitional Input Tax (Sec 111) goods, excluding the VAT component
thereof, exceeds One million pesos
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25 Please refer below for the example. 26 Please refer below for the example
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There are four possible transactions a VAT- comprised of the gross selling price/gross
registered person may enter into: (i) VAT receipts plus the correct amount of VAT. Hence,
taxable, (ii) VAT-exempt, (iii) zero-rated VAT the output tax shall be computed by
and (iv) sale to governments. multiplying the total invoice amount by a
fraction using the rate of VAT as numerator
and one hundred percent (100%) plus rate of
A VAT-registered person who is also engaged VAT as the denominator. Accordingly, the
in transactions not subject to VAT shall be input tax that can be claimed by the buyer
allowed to recognize input tax credit on shall be the corrected amount of VAT
transactions subject to VAT as follows: computed in accordance with the formula
(1) All the input taxes that can be directly herein prescribed.
attributed to transactions subject to VAT
may be recognized for input tax credit. There shall be allowed as a deduction from the
Input taxes that can be directly output tax the amount of input tax deductible
attributable to VAT taxable sales of goods to arrive at VAT payable on the monthly VAT
and services to the Government or any of declaration and the quarterly VAT returns.
its political subdivisions, instrumentalities
or agencies, including GOCCs shall not be
credited against output taxes arising from SUBSTANTIATION OF INPUT TAX
sales to non-Government entities CREDITS
(2) If any input tax cannot be directly
attributed to either a VAT taxable or VAT- (1) INPUT TAXES must be substantiated and
exempt transaction, the input tax shall be supported by the following documents,
pro-rated to the VAT taxable and VAT- and must be reported in the information
exempt transactions and ONLY the ratable returns required to be submitted to the
portion pertaining to transactions subject Bureau:
to VAT may be recognized for input tax (a) the importation of goods = Import
credit. entry or other equivalent document
showing actual payment of VAT on the
d) Determination of the output tax and VAT imported goods.
payable and computation of VAT payable or (b) For the domestic purchase of goods
excess tax credits and properties = Invoice showing the
information required under Secs. 113
If at the end of any taxable month or quarter: (Invoicing and Accounting
The output tax exceeds the input tax, the Requirements for VAT-Registered
excess shall be paid by the VAT-registered Persons) and 237 (Issuance of Receipts
person or Sales or Commercial Invoices) of the
Tax Code.
The input tax exceeds the output tax, the
(c) For the purchase of real property =
excess shall be carried over to the
public instrument i.e., deed of absolute
succeeding quarter or quarters
sale, deed of conditional sale,
contract/agreement to sell, etc.,
In all cases where the basis for computing the
together with VAT invoice issued by the
output tax is either the gross selling price or
seller.
the gross receipts, but the amount of VAT is
(d) For the purchase of services = official
erroneously billed in the invoice, the total
receipt showing the information
invoice amount shall be presumed to be
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required under Secs. 113 and 237 of the (e) The claimed input tax are directly
Tax Code. attributable to 0%-rated transactions.
(2) A cash register machine tape issued to a (f) Acceptable foreign currency exchange
registered buyer shall constitute valid proceeds must have been duly accounted
proof of substantiation of tax credit only if for
it shows the information required under (g) Claimed input tax must be duly supported
Secs. 113 and 237 of the Tax Code. by VAT invoices/receipts.
(3) TRANSITIONAL INPUT TAX shall be (h) VAT returns for the succeeding quarters
supported by an inventory of goods as must have been submitted.
shown in a detailed list to be submitted to
the BIR. (2) Cancellation of VAT Registration.
Input tax on "deemed sale" transactions (a) A person whose registration has been
shall be substantiated with the invoice cancelled due to (i) retirement from or
required. cessation of business, or due to
Input tax from payments made to non- changes in or (ii) cessation of status
residents (such as for services, rentals and under Section 106(C) of the Code may,
royalties) shall be supported by a copy of within two (2) years from the date of
the Monthly Remittance Return of Value cancellation, apply for the issuance of
Added Tax Withheld (BIR Form 1600) filed a tax credit certificate for any unused
by the resident payor in behalf of the non- input tax which may be used in
resident evidencing remittance of VAT due payment of his other internal revenue
which was withheld by the payor. taxes.
Advance VAT on sugar shall be supported (b) He shall be entitled to a refund if he
by the Payment Order showing payment of has no internal revenue tax liabilities
the advance VAT. against which the tax credit certificate
may be utilized.
REFUND OR TAX CREDIT OF EXCESS
INPUT TAX (CF REFUND OF Period to file claim/apply for issuance of tax
ERRONEOUSLY PAID TAXES) credit certificate – this periods must be
distinguished from normal tax refunds for
Who may claim for refund/apply for issuance of erroneous payments where an administrative
tax credit certificate claim and judicial claim may be made together,
(1) Zero-Rated Sales (Sec. 112(A), NIRC) and the reckoning point of the 2 years is from
the date of the erroneous payment.
Requirements:(Summary) (1) Application for issuance of tax credit
(a) The claimant should be a VAT-registered certificate or refund of creditable input tax
person (except transitional input tax)
(b) There should be an application filed with w/in 2 years after the close of the
the BIR or DOF center, as the case may be, taxable quarter when the sale was
within 2yrs after close of taxable quarter. made.
(c) The claimed input tax must not have been If the VAT registration has been
applied to any output tax during the period cancelled due to retirment or cessation
covered and subsequent periods covered of business, or change of status, the 2
by the claim. year period shall be after the date of
(d) The claimed input tax must have been cancellation
deducted from the VAT quarterly return. (2) Administrative Claim
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If a VAT-registered person issues a VAT invoice (a) Failure to issue receipts and invoices.
or VAT official receipt for a VAT-exempt (b) Failure to file VAT return as required
transaction, but fails to display prominently on under the provisions of Sec. 114 of the
the invoice or receipt the term "VAT-exempt Tax Code.
Sale: (c) Understatement of taxable sales or
(1) the transaction shall become taxable and receipts by 30% or more of his correct
the taxable sales or receipt for the taxable
(2) issuer shall be liable to pay VAT thereon. quarter.
(3) The purchaser shall be entitled to claim an (d) Failure of any person to register as
input tax credit on his purchase. [RR 16- required under the provisions of Sec.
05] 236 of the Tax Code.
(2) Surcharge, interest and other penalties.
FILING OF RETURN AND PAYMENT(SEC The interest on unpaid amount of tax, civil
114) penalties and criminal penalties imposed
in Title XI of the Tax Code shall also apply
VAT returns - VAT paid on a monthly basis. to violations of the provisions of Title IV of
Payments in the monthly VAT declarations the Tax Code (VAT).
shall be credited in the quarterly VAT return to
arrive at the net VAT payable or excess input WITHHOLDING OF FINAL VAT ON SALES
tax/over-payment as of the end of a quarter. TO GOVERNMENT (RR 16-2005)
(1) Filed by person liable to pay the VAT
(2) Quarterly return of the amount of his gross General Rule: Withholding tax does not apply
sales or receipts within twenty-five (25) on transactions subject to VAT. The exceptions
days after the close of each taxable quarter are:
prescribed for each taxpayer. Gross payments by the government shall be
(3) The monthly VAT Declarations of taxpayers subject to the 5% final withholding tax;
whether large or non-large shall be filed Gross payments by resident VAT-taxpayers to
and the taxes paid not later than the 20th non-resident foreign persons of rentals,
day following the end of each month. royalties, reinsurance premiums, and services
done in the Philippines—12% (Sec. 114(c),
Note: VAT paid on a monthly basis. Payments NIRC)
in the monthly VAT declarations shall be
credited in the quarterly VAT return to arrive at Beginning Nov. 1, 2005, when R.A. 9337
the net VAT payable or excess input tax/over- became effective, all sales of goods, properties,
payment as of the end of a quarter. or services to the government shall be subject
to the 5% final withholding tax. The
Administrative and Penal Provisions (Sec 115) government shall, before making payment on
(1) Suspension of business operations. In account of each purchase of goods and/or
addition to other administrative and penal services taxed at 12% VAT (Sec. 106 and 108)
sanctions provided for in the Tax Code and deduct and withhold a final VAT due at the
implementing regulations, the rate of 5% of the gross payment thereof.
Commissioner of Internal Revenue or his (Mamalateo, Reviewer on Taxation, 2008)
duly authorized representative may order
suspension or closure of a business Sales to Government
establishment for a period of not less than (1) The Government or any of its political
five (5) days for any of the following subdivisions, instrumentalities or agencies,
violations: including GOCCs shall, before making
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payment on account of each purchase of On the other hand, if actual input VAT is less
goods and services which are subject to the than 7% of gross payment, the difference must
VAT (Secs. 106 and 108, NIRC), deduct and be closed to expense or cost, in effect reducing
withhold a final VAT due at the rate of five it.
percent (5%) of the gross payment thereof.
(a) The payment for lease or use of However, 12% final VAT shall be withheld with
properties or property rights to respect to the following:
nonresident owners shall be subject to (a) Lease or use of properties or property
12% withholding tax at the time of rights owned by non-residents;
payment. (b) Services rendered to local insurance
(b) The payor or person in control of the companies, with respect to reinsurance
payment is considered as the premiums payable to non-residents; and;
withholding agent. Other services rendered in the Philippines by
(c) The VAT withheld shall be remitted non-residents.
within ten (10) days following the end
of the month the withholding was
made.
(2) The 5% final VAT shall represent the net
VAT payable of the seller. The remaining
7% effectively accounts for the standard
input VAT, in lieu of the actual input VAT
directly attributable or ratably apportioned
to such sales.
(This means that where the 5% final VAT
applies, the basic formula of output tax
less input tax does not apply.)
Should actual input VAT exceed 7% of the
gross payments, the excess may form part
of the sellers’ expense or cost.
On the other hand, if actual input VAT is
less than 7% of gross payment, the
difference must be closed to expense or
cost, in effect reducing it.
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mortgage on RP sold (except excess when mortgage 32 GSP is unreasonably lower than the actual market
exceeds the cost of the property), notes and other value if it is lower than 30% of AMV of the same goods of
evidence on=f indebtedness issued by the purchaser at the same quantity or quality sold in the immediate
the time of the sale locality or the nearest date of sale.
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SALE OF SERVICES
VAT-Exempt 0% VAT
NB: There are 31 VAT-exempt sales of Processing, manufacturing, repacking goods to non-
services (Sec 109 and special laws) resident (5)
Processing, manufacturing, repacking goods to
export-oriented (3)
Services other than processing, manufacturing,
repacking (4)
Services to exempted persons (3): effectively 0-rate
Sale of power/fuel-generated through renewable
wrt lease of property =exempt resources (3)
if advance payment = loan, option money, Services rendered to int’l shipping/air transport (2)
security deposit Transport of passengers and cargo by air from Phil to
NB: if security deposit is applied to rental = Foreign (3)
VAT Transactions of VAT-reg person to foreign embassies
wrt persons engaged in milling, processing, (2)
manufacturing or repacking goods = exempt
if palay rice; corn corn grits; sugar cane
raw sugar
wrt franchise grantees of electric utilities,
telephone and telegraph, radio and/or
television broadcasting = exempt
if annual gross receipts <= 10M;
franchise grantees of gas and water
utilities;
of telephone & telegraph services,
amounts received for overseas dispatch from
Phil.
wrt PREMIUMS of non-life insurance
companies = exempt
if life and disability insurance;
crop insurance;
health and accident insurance
(included are only those with exceptions) Exceptions to the Exemptions (Subject to VAT)
5. sale/import of agricultural & marine food wrt livestock and poultry DOES NOT INCLUDE
products in their original state; livestock and fighting cocks, race horses, zoo animals and pets
poultry (used/yield for human consumption);
breeding stock and genetic materials DOES NOT INCLUDE vehicles, vessels, aircrafts,
6. import of professional instruments, machineries, and other goods for use in
implements, wearing apparel, domestic manufacturing in commercial quantities
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animals, and personal household effects DOES NOT INCLUDE those under Petroleum
7. Transactions exempt pursuant to special Exploration Concessionaires under Petroleum Act of
laws 1949
Wrt sale by agricultural coops to non-members, if
8. Cooperatives seller is the member = VAT
Wrt sale by non-agri, non-electric and non-credit,
importation of machineries and equipment = VAT
9. Residential lots ≥ 1,919,500 & lot & DOES NOT INCLUDE parking lot
dwellings ≥ 3,199,200
10. lease of residential units, if ≤
12,800/unit/month (regardless of aggregate
amount); if ≥ 12,800/unit/month (AND If any portion of such goods are used for purposes
aggregate amount is ≥ 1,919,500) other than those stated = VAT
11. importation of fuels, goods, supplies by
international shipping or air transport
Importation of Services
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SALE OF GOODS
VAT-Exempt 0% VAT
Real Property Actual Export Sales (3)
Not primarily held ICT/B
Low-cost or socialized housing Deemed Export Sales
Residential lot <= 1,919,500 Internal or constructive export sales
House and/or other residential dwellings <= Raw/Packaging materials to non-resident buyer (5)
3,199,200 Raw/Packaging materials to export-oriented (3)
Lease (12,800/unit/year or total Phil. Port FOB value of export products (2)33
1,919,500/year) Net selling price of export products (4)34
Transmission to a trustee sales to bonded manufacturing warehouses (2)35
E: if transmission is deemed sale sales to export processing zones36
Transfer to corporation in exchange of SoS sales to enterprises duly accredited by Subic Bay
Advance payments/Security Deposits in Metropolitan Authority (2)
lease sales to registered export traders (3)
E: if applied to the rent sales to diplomatic missions etc. (2)
sale by VAT-supplier to manufacturer/producer whose
products are 100% exported (3)
Sale of gold to BSP
Sale of goods/supplies/equipment/fuel to persons
engaged in int’l shipping/air transport (4)
Docking/Undocking services to foreign vessels
36 RA 7916
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Before start of business or
VAT-Exempt Person within 10d before the VAT-registered
(cannot be cancelled w/in beginning of taxable quarter
Person
3years; franchise of
(w/ TIN)
radios/tv broadcasting,
Optional Registration
VAT AND NON-VAT REGISTRATION
irrevocable)
Compliance activities after registration:
Certificate of 1. Registration of books of accounts (3) of the
Registration Fee (500php) to Registration business/occupation/calling including practice
Before start of business Register to authorized bank agent, of profession, before using the same.
and every year RDO for every RDOfficer, Rev Collection 2. Registration of sales invoices and official
thereafter (on/before
separate and Officer, authorized receipts (If there are transactions not subject to
Jan 31)
distinct city/municipal treasurer VAT, registration of non-VAT invoices or non-
Person APPROVE VAT official receipts)
establishment
Liable for 3. Annual Registration: Pay registration fee for
EXEMPT from 500php every place of business that generates sales
VAT 1. if aggregate gross after updating the registration records.
sales/receipts ≤ 100,000; 4. Filing of the Monthly VAT Declaration and
Did not register: 2. cooperative; Quarterly VAT Return to be submitted to
Still liable for VAT 3. individuals earning pure DENY RTO/LTDO
No input credit compensation income;
4. overseas workers CANCELLATION/UPDATE OF VAT REGISTRATION
(registration of a taxpayer of a franchise grantee of radio and/or tv
broadcasting whose gross annual receipts≤ 10,000,000 =
irrevocable)
VAT- registered
cancelling their
w/in 2 years after close registration (regardless of
of the taxable quarter the source of input tax)
when sales are made
Input Tax wrt Zero-rated and Application for w/in 2 years after
Effectively zero-rated Sales refund or TCC to close of the
Direct Tax CIR + taxable quarter
Credit supporting docs when sales are
VAT-registered made
Taxpayer Presumptive Input Tax
w/in 120 days
Transitional Input Tax w/in 120 days
Carry-over from
If VAT-exempt Actual Input Tax not related from submission
Tax Credit
changes his to zero-rated sales submission
status to VAT-
registered =
GRANTED
transitional
VAT-exempt Transactions DENIED INACTION
input tax
DENIED GRANTED
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VI. Tax Remedies under amount of tax to be paid [84 C.J.S 74-750]
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(c) Unit and Value Method The determination present his books of accounts and/or pertinent
of gross receipts may be computed by records or ii.) substantiate all or any of the
applying price and profit figures to the deductions, exemptions or credits claimed in
known ascertainable quality of business his return.
done by taxpayer
It is usually issued when statutory prescriptive
Inventory method for income determination periods for the assessment or collection of
(Net Worth Method) taxes are about to lapse due principally to the
Holland v US: In a typical net worth taxpayer’s fault.
prosecution, the Government, having Tax Delinquency v. Tax Deficiency
concluded that the taxpayer's records are Tax Delinquency Tax Deficiency
inadequate as a basis for determining income It is when: It is when:
tax liability, attempts to establish an "opening a. Self-assessed a. The amount of tax
net worth" or total net value of the taxpayer's taxpayer filed his imposed by law is
assets at the beginning of a given year. It then tax return but did greater than the
proves increases in the taxpayer's net worth for not pay or only amount shown in
each succeeding year during the period under partially paid the the tax return
examination, and calculates the difference tax b.If no amount is
between the adjusted net values of the b.Deficiency Tax shown in the
taxpayer's assets at the beginning and end of assessed by the BIR return, or if there is
each of the years involved. The taxpayer's became final and no return, amount
nondeductible expenditures, including living executory by which the tax as
expenses, are added to these increases, and if determined by the
the resulting figure for any year is substantially CIR exceeds the
greater than the taxable income reported by amount previously
the taxpayer for that year, the Government assessed as a
claims the excess represents unreported deficiency
taxable income. CAN be collected CANNOT be
IMMEDIATELY immediately
Formula: through collected. CAN be
Increase in Net worth
1. Administrative collected only AFTER
Add: Non-deductible Item
Actions (warrant of the process of protest
Less: Non-taxable income or receipts subjected
to final tax transfer taxes
distraint or levy)
Taxable Net Income 2. Judicial Actions Thus, a civil action for
Less: Personal and additional exemptions collection to ordinary
NET INCOME SUBJECT TO TAX Thus, civil action for courts pending
collection to ordinary protest may be
JEOPARDY ASSESSMENT courts is the proper subject to Motion to
A tax assessment made by an authorized remedy. Dissmiss
Revenue Officer (RO) without the benefit of SUBJECT to SUBJECT to
complete or partial audit, in light of the RO’s administrative administrative
belief that the assessment and collection of penalties of: penalties of:
the deficiency tax will be jeopardized by delay 1. 25% surcharge 1. interest
caused by the taxpayer’s failure to: i) comply 2. interest 2. compromise
with audit and investigation requirements to 3. compromise penalty
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Rates of Surcharge:
There shall be imposed a penalty equivalent to (B) INTEREST [SEC 249, NIRC]
twenty-five percent (25%) of the amount due, In General
in the following cases: 20% per annum on any unpaid amount of tax,
(1) FAILURE TO FILE ANY RETURN and PAY from the date prescribed for payment until the
THE TAX DUE THEREON on the date amount is fully paid.
prescribed; or
(2) Filing a return with an internal revenue Deficiency Interest – the interest due on any
officer than those with whom the return is amount of tax due or installment thereof which
required to be filed (except when authorized is not paid on or before the date prescribed for
by the Commissioner); or its payment [Mamalateo, 2008]
(3) FAILURE TO PAY THE DEFICIENCY TAX
within the time prescribed for its payment Delinquency Interest- the interest required to be
(4) FAILURE TO PAY THE FULL OR PART of the paid in case of failure to pay:
amount of tax shown on any return required (a) the amount of tax due on any return
to be filed, or the full amount of tax due for required to be filed, or
which no return is required to be filed, on or (b) amount of tax due for which no return is
before the date prescribed for its payment. required, or
(c) a deficiency tax, or any surcharge or
The penalty shall be fifty percent (50%) of the interest thereon on the due date
tax or of the deficiency tax, in the following appearing in the notice and demand of
cases: the Commissioner, there shall be
(1) WILLFUL NEGLECT to FILE THE RETURN assessed and collected on the unpaid
within the period prescribed amount, interest at the rate prescribed
(2) A FALSE OR FRAUDULENT RETURN is until the amount is fully paid, which
wilfully made interest shall form part of the tax
Prima-facie evidence of false or fraudulent
return: i.) substantial under declaration of The delinquency interest is in addition to the
taxable sales, receipts or income (failure to interest in the FAN as a result of failure to pay
report sales, receipts or income in an amount the deficiency tax assessed within the time
exceeding 30% of that declared per return) or prescribed for its payment.
ii)substantial overstatement of deductions (a [First Lepanto Taisho Insurance Corp. v. CIR,
claim of deduction in an amount exceeding 2013]
30% of actual deductions)
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ASSESSMENT PROCESS [SEC. 228, The PAN shall show in detail the facts and the
NIRC; RR 12-99] law, rules and regulations, or jurisprudence on
which the proposed assessment is based.
FIRST STEP: TAX AUDIT
In a tax audit, revenue officers examine the
books of account and other accounting records
THIRD STEP: REPLY TO PAN
of taxpayers to determine the correct tax Taxpayer is given time to respond: 15 days from
liability. This is through the issuance of a Letter date of receipt of PAN
of Authority. (a) If he/she fails to respond: taxpayer is
considered in default; a formal letter of
Letter of Authority: An official document that demand and assessment notice shall be
empowers a Revenue Officer to examine and issued to the taxpayer
scrutinize a taxpayer’s books of accounts and (b) The regulations use the term “reply” to
other accounting records, in order to determine distinguish the written objection(s) against
the taxpayer’s correct internal revenue tax a FAN issued by the BIR, where the generic
liabilities. term “protest” or the specific term “request
for reconsideration” or “request for
Cases which need not be covered by a valid LA: reinvestigation” is utilized.
(1) Cases involving civil/criminal tax fraud
which fall under the jurisdiction of the tax The PAN shall not be required in any of the ff
fraud division of the Enforcement Services, cases, in which case, issuance of the Formal
and Assessment Notice (FAN) shall be sufficient:
(2) Policy cases under audit by the special (a) The finding for any deficiency tax is the
teams in national offices result of MATHEMATICAL ERROR in the
computation of the tax as appearing on the
Section 3 of RR 12-99 is hereby amended by face of the return; or
deleting Section 3.1.1 thereof which provides (b) A DISCREPANCY has been determined
for the preparation of a Notice of Informal between the TAX WITHHELD and the
Conference, thereby renumbering other amount ACTUALLY REMITTED by the
provisions thereof, and prescribing other withholding agent; or
provisions for the assessment of tax liabilities (c) A taxpayer who opted to claim a refund or
(RR No. 18-2013). Thus, there is no Informal tax credit of excess creditable withholding
Conference needed in an assessment process. tax for a taxable period was determined to
have carried over and automatically applied
the same amount claimed against the
SECOND STEP: ISSUANCE OF
estimated tax liabilities for the taxable
PRELIMINARY ASSESSMENT NOTICE
quarter or quarters of the succeeding
(PAN) [SEC. 228, NIRC; RR18-2013] taxable year; or
If after review and evaluation by the (d) The EXCISE TAX due on excisable articles
Commissioner or his duly authorized has not been paid; or
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(e) An article locally purchased or imported by date of receipt. The taxpayer may either file a
an exempt person, such as, but not limited reconsideration or reinvestigation.
to, vehicles, capital equipment, machineries
and spare parts, has been sold, traded or Note: Failure to file protest within 30 days
transferred to a non-exempt person. [Sec. shall make the assessment become final,
228, NIRC] executor and demandable.
In the above-cited cases, a FLD/FAN shall be Protesting Assessment [Sec 228, NIRC; RR 12-
issued outright. 99]
(a) Protest of assessment by taxpayer
FOURTH STEP: ISSUANCE OF FORMAL (1) Made within thirty (30) days from receipt
LETTER OF DEMAND AND FINAL of the assessment.
ASSESSMENT NOTICE (2) Protest is either a request for
(a) A Final Assessment Notice (FAN) is a reconsideration or a request for
reinvestigation, or both
declaration of deficiency taxes issued to a
taxpayer who: (3) A protest is considered validly made if it
(1) fails to respond to a pre-assessment satisfies the following conditions:
notice within the prescribed period of i. it is made in writing, and
time, or addressed to the Commissioner of
Internal Revenue,
(2) whose reply to the PAN was found to be
ii. it contains the information
without merit.
(b) Sec 228: The taxpayer shall be informed in required by the rule,
writing of the law and the facts on which the iii. It states the FACTS, applicable
assessment is made; otherwise the LAW, RULES and REGULATIONS
assessment shall be void or JURISPRUDENCE on which his
(c) An assessment contains not only a protest is based, otherwise the
computation of tax liabilities, but also a protest shall be considered void
demand for payment within a prescribed and without force and effect and
iv. It is filed within the period
period.
prescribed by law
(b) In case of a request for reinvestigation,
Effects of Issuance of FAN and LD
1. Creation of Tax Liabilities submission of documents within 60 days
2. Taxpayer does not have to pay deficiency tax from filing of protest
(1) Within sixty (60) days from filing of the
assessment yet BUT 20% deficiency interest
per annum starts protest, all relevant supporting
documents must be submitted,
3. Business of the taxpayer does not become
illegal by reason of non-payment. (as opposed otherwise the assessment shall
too non-payment of local business deficient become final. [Sec. 228] This will toll
taxes, where the business becomes illegal) the prescriptive period for assessment
or collection.
(2) In case of a request for reconsideration,
FIFTH STEP: DISPUTED ASSESSMENT
no additional documents need be
The taxpayer or his duly authorized
submitted. Further, the prescriptive
representative may protest administratively
period will not be suspended. (See the
against the formal letter of demand and
difference between the two above)
assessment notice within thirty days (30) from
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(c) Effect of failure to protest: the assessment If the CIR or his authorized agent DENIES THE
shall become final, executory and PROTEST filed by the taxpayer, the latter may
demandable. either:
(d) Period provided for protest to be acted upon: 1. appeal to the CTA within 30 days from
Protest should be acted upon within 180 receipt of the decision denying the protest
days from submission of documents. (Sec. 228, NIRC)
The 30-day period starts when the
SIXTH STEP: ADMINISTRATIVE taxpayer receives the decision of the
DECISION ON A DISPUTED ASSESSMENT Commissioner denying the protest.
The power to decide disputed assessments, The decision of the Commissioner must
refunds of internal revenue taxes, fees or other categorically state that his action on
charges, penalties imposed in relation thereto, the disputed assessment is final,
or other matters is vested in the Commissioner, otherwise period to appeal will not
subject to the exclusive appellate jurisdiction commence to run. (Advertising
of the Court of Tax Appeals. The CIR may deny, Associates Vs. CA)
approve or not act upon the protest. 2. File a motion for reconsideration to CIR, if
decided by CIR; OR elevate his protest
DENIAL through a request for reconsideration to the
The CIR must state the facts and laws upon CIR, if the denial is made by the authorized
which such protest was denied. Denial may be representative. Within 30 days from receipt of
made by the CIR or any of his authorized the decision denying the protest.
representatives.
Note that a Motion for Reconsideration on the
Rendition of Decision by Commissioner CIR’s denial of the protest or administrative
CIR’s actions deemed equivalent to denial of appeal shall not toll the 30-day period to
protest: appeal to the CTA [RR 18-2013]
(a) Filing of collection suit against taxpayer
[CIR v. Union Shipping] Note: A Division of the CTA shall hear the
(b) Issuing a warrant of distraint and levy appeal. [Sec. 11, RA 1125 as amended by
[Commissioner v. Algue] RA 9282 (2004)]
(c) Where there is a request for reconsideration,
final demand letter from BIR [CIR v. Isabela
(b) In case of inaction by Commissioner within
Cultural Corp]
180 days from submission of documents
(d) Notice of delinquency [CIR v. Ayala
If the Commissioner or his duly authorized
Securities]
representative did NOT ACT UPON THE
(e) Inaction by Commissioner - If the protest is
PROTEST within 180 days from the time the
not acted upon within one hundred eighty
documents were submitted, the taxpayer may
(180) days from submission of documents,
either:
the inaction by the Commissioner is
(1) Appeal to the CTA within (30) thirty days
considered as a denial of protest.
from the lapse of the 180-day period OR
(f) Referral of case for collection.
(2) Wait until the Commissioner or his duly
authorized representative decides before
REMEDIES OF TAXPAYER TO ACTION BY
he elevates the case to the CTA.
COMMISSIONER
(a) In case of denial of protest
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RCBC v. CIR (2007): In case the Commissioner When the government may avail of the
failed to act on the disputed assessment within remedies of collection:
the 180-day period from date of submission of General Rule: When the assessment shall have
documents, a taxpayer can either: become final, executory and demandable.
(1) file a petition for review with the Court of
Tax Appeals within 30 days after the Exception: In case of false or fraudulent return
expiration of the 180-day period; OR with intent to evade tax or of failure to file a
(2) await the final decision of the return, a proceeding in court for collection may
Commissioner on the disputed be filed without assessment within 10 years
assessments and appeal such final from discovery of falsity, fraud or omission.
decision to the Court of Tax Appeals [Sec. 222(a), NIRC]
within 30 days after receipt of a copy of
such decision. Injunction not available
However, these options are mutually No court may grant injunction to restrain the
exclusive, and resort to one bars the collection of any national internal revenue tax,
application of the other. fee or charge. [Sec. 218, NIRC]
Remedy if the taxpayer is not satisfied with the Requisite before availing of injunction
decision of the CTA en banc: (1) Taxpayer has to deposit the amount
A party adversely affected by a decision or claimed; OR
ruling of the CTA en banc may file with the (2) File an injunction bond with the Court for
Supreme Court a verified petition for review on not more double the amount [R.A. 1125]
certiorari pursuant to Rule 45 of the 1997 Rules
of Court. (Sec. 19, RA 1125 as amended by RA Prescriptive periods
9282 [2004]) Where no
Where return
return filed, or
filed was
(c) Effect of failure to appeal the return was
NOT false or
If the taxpayer fails to file an appeal, the false or
fraudulent:
assessment shall become final, executory and fraudulent:
demandable. Collection should be should be
with prior made within made within 5
COLLECTION assessment 5 years from years from the
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Where no
Where return Administrative
return filed, or
filed was (1) Distraint of Personal Property including
the return was garnishment deposit
NOT false or
false or (2) Summary remedy of levy on real property
fraudulent: (3) Forfeiture to the government for want of
fraudulent:
bidder
the date of date of
(4) Further Distraint or Levy
assessment assessment (5) Tax Lien
of the tax. (based on Sec. (6) Compromise and Abatement
(Sec. 203 in 222(c), NIRC) (7) Penalties and Fines
relation to
Judicial
Sec. 222,
(1) Civil
NIRC) by distraint or (2) Criminal
levy, or by
by distraint or judicial
levy, or by proceedings DISTRAINT OF PERSONAL
judicial PROPERTY
proceedings Distraint – remedy enforced on the goods,
Collection should be should be chattels, or effects, and other personal
without prior made within made within property of whatever character including
assessment 3 years from ten years after stocks and other securities, debts, credits,
the date of the discovery bank accounts, and interest in and rights to
filing of of the falsity, personal property [Sec. 205(a), NIRC]. When
return or date fraud or the distraint proceedings validly begins, the
return is due, omission to prescription of collection is suspended.
whichever is file a return.
LATER
(based on by judicial
Sec. 203, proceedings Kinds of Distraint:
NIRC) (1) Constructive Distraint
(2) Actual Distraint
by judicial
proceedings Constructive Distraint - may be placed by the
Commissioner on any taxpayer to safeguard
Waiver of prescriptive period the interest of the Government [Sec. 206,
If tax was assessed within the different period NIRC]. Delinquency of the taxpayer is not
agreed upon by the Commissioner and the necessary.
taxpayer, it may be collected by distraint or
levy or by a proceeding in court within the Grounds for Constructive Distraint:
period agreed upon in writing before the When in the opinion of the Commissioner,
expiration of the 5-yr period. [Sec. 222d, NIRC] (1) the taxpayer is retiring from any business
subject to tax; or
Remedies of the Government in Collection (2) the taxpayer is intending to leave the
Philippines; or
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expenses of distraint and the cost of the shall be limited to actual expenses of
subsequent sale. [Sec. 207(A), NIRC] SEIZURE and PRESERVATION of the
property pending the sale, no charge shall
(C) Report on the Distraint be imposed for the services of the local
A report shall be submitted by the distraining internal revenue officer or his deputy. [Sec.
officer to the Revenue District Officer, and to 209, NIRC]
the Revenue Regional Director. (3) If the proceeds from the sale of the
distrained properties are not sufficient to
(D) Power of the CIR or proper officer to lift the satisfy the tax delinquency, the
order of distraint Commissioner or his duly authorized
The taxpayer may request that the warrant be representative shall within thirty (30) days
lifted. The commissioner may, in his discretion, after execution of the distraint, proceed with
allow the lifting of the order of distraint. He the levy on the taxpayer’s real property. [Sec.
may ask for a bond as a condition for the 207(B), NIRC]
cancellation of the warrant. [Sec. 207(A),
NIRC] (G) Release of the Properties from Distraint
If at any time prior to the consummation of the
(E)Notice of Sale of Distrained Properties sale all proper charges are paid to the officer
(1) The Revenue District Officer or his duly conducting the sale, the goods or effects
authorized representative (not the officer distrained shall be restored to the owner. [Sec.
who served the warrant), shall cause a 210, NIRC]
notification of the public sale to be posted in
not less than two (2) public places in the (H) Purchase by the government at sale upon
municipality or city (one of which is the distraint
Office of the Mayor) where the distraint was If the amount offered by the highest bidder is
made. not equal to the amount of the tax or is very
(2) The notice shall specify the time and place much less than the actual market value of the
of the sale. The time of sale shall not be articles offered for sale, the Commissioner or
less than twenty (20) days after notice to his deputy may purchase the same in behalf of
the owner and the publication or posting of the National Government for the amount of
such notice. [Sec. 209, NIRC] taxes, penalties and costs due. The property
(F)Sale at Public Auction so purchased may be resold by the
(1) At the time of the public sale, the revenue Commissioner or his deputy. [Sec. 212, NIRC]
officer shall sell the goods, chattels, or
effects, or other personal property, (I) Report of sale to BIR
including stocks and other securities so Within two (2) days after the sale, the officer
distrained at a PUBLIC AUCTION, to the making the same shall make a report of his
HIGHEST BIDDER for CASHor with the proceedings in writing to the Commissioner
approval of the Commissioner, through a and shall himself preserve a copy of such
DULY LICENSED COMMODITY or STOCK report as an official record. [Sec. 211, NIRC]
EXCHANGES.
(2) Any residue over and above what is required SUMMARY REMEDY OF LEVY ON
to pay the entire claim, including expenses REAL PROPERTY
of sale and distraint, shall be RETURNED to
Levy– seizure of real property, an interest in or
the owner of the property sold. Expenses
rights to such property in order to enforce the
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payment of taxes. [Sec. 205, NIRC] The real city where the property is located and
property under levy shall be sold in a public upon the taxpayer (If he is absent from
sale, if the taxes involved are not voluntarily the Philippines: to his agent or
paid following such levy. manager of business in respect to
which the liability arose or to the
When levy may be effected: after the expiration occupant of the property in question).
of time required to pay the delinquent tax, real [Sec. 207(B), NIRC]
property may be levied upon, before,
simultaneously or after the distraint of (C) Advertisement of the Sale
personal property belonging to the delinquent. (1) Within twenty (20) days after the levy,
[Sec. 207(B), NIRC] the officer conducting the proceedings
shall proceed to advertise for SALE the
In case the warrant of levy is NOT issued before property or a portion as may be
or simultaneously with the warrant of distraint necessary to satisfy the claim and costs
on the personal property AND the personal of sale. Such advertisement shall cover
property of the taxpayer is not sufficient to a period of at least thirty (30) days.
satisfy his tax delinquency: the CIR or his duly The notice shall be posted at the main
authorized representative shall within 30 days entrance of the city or municipal all
after execution of the distraint, proceed with AND in a public and conspicuous place
the levy on the taxpayer’s real property. [Sec. in the barrio or district where the real
207(B), NIRC] property lies. The notice must also be
published in a newspaper of general
PROCEDURE FOR LEVY circulation in the place where the
(A) Issuance of Warrant of Levy property is located, once a week for
(1) The IR officer designated by the three (3) weeks.
Commissioner or his duly authorized (2) CONTENTS of notice: statement of
representative shall prepare a DULY amount of taxes, and penalties due,
AUTHENTICATED CERTIFICATE time and place of sale, name of
showing the name of the taxpayer and taxpayer, short description of property.
the amounts of tax and penalty due [Sec. 213, NIRC]
from him.
(2) This certificate shall operate with the (D) Sale
force of LEGAL EXECUTION The sale shall be held either at the main
throughout the Philippines. entrance of the municipal or city hall or on the
(3) The certificate shall contain a premises to be sold. Property will be awarded
description of the property upon which to the highest bidder. In case the proceeds of
levy is made. (Sec. 207(B), NIRC) the sale exceeds the claim and costs of sale,
the excess shall be turned over to the owner of
(B) Service of the Warrant the property. [Sec. 213, NIRC]
(1) Levy shall be effected by writing upon
said certificate a description of the (E) Forfeiture in Favor of the Government
property upon which levy is made. If there is no bidder for the real property OR if
(2) At the same time, written notice of the the highest bid is not sufficient to pay the taxes,
levy shall be mailed to or served upon penalties and costs, the IR Officer conducting
the Register of Deeds of the province or the sale shall declare the property FORFEITED
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to the GOVERNMENT in satisfaction of the (1) All chattels, machinery, and removable
claim. [Sec. 215, NIRC] fixtures of any sort used in the unlicensed
production of articles (Sec. 268, NIRC)
(F) Redemption of Property Sold (2) Dies and other equipment used for the
(1) At any time before the day fixed for the sale, printing or making of any internal revenue
the taxpayer may discontinue all proceeding stamp, label or tag which is in imitation of
by paying the taxes, penalties and interest. or purports to be a lawful stamp, label or
[Sec. 213, NIRC] tag. (Sec. 268, NIRC)
(2) Within one (1) year from the date of sale, the (3) Liquor or tobacco shipped under a false
taxpayer or anyone for him, may pay to the name or brand (Sec. 262, NIRC)
Revenue District Officer the total amount of
the following: public taxes + penalties + Remedy of enforcement of forfeitures
interest from the date of delinquency to the (1) Forfeiture of chattels and removable
date of sale + interest on said purchase fixtures: enforced by the seizure, sale or
price at the rate of fifteen percent (15%) per destruction of the specific forfeited property.
annum from the date of sale to the date of (2) Forfeiture of real property: enforced by a
redemption. [Sec. 214, NIRC] judgment of condemnation and sale in a
legal action or proceeding civil or criminal
Note:If the property was forfeited in favor of as the case may require (Sec. 224, NIRC)
the government, the redemption price shall
include only the taxes, penalties and interest When property to be sold or destroyed
plus costs of sale – no interest on purchase (1) Forfeited chattels and removable fixtures –
price since the Government did not sold in the same manner and under the
“purchase” the property anyway, it was same conditions as the public notice and
forfeited) the time and manner of sale as are
prescribed for sales of personal property
Note:The taxpayer-owner shall not be distrained for the non-payment of taxes
deprived of possession of the said property (2) Distilled spirits, liquors, cigars, cigarettes,
and shall be entitled to rents and other other manufactured products of tobacco
income until the expiration of the period for and all apparatus used in or about the illicit
redemption [Sec. 214, NIRC] production of such articles – destroyed by
the order of the Commissioner when the
(G) Final Deed of Purchaser sale or use would be injurious to public
After the period of redemption, a final deed of health pr prejudicial to the enforcement of
sale is issued in favor of the purchaser. the law
(3) All other articles subject to excise tax
Forfeiture to Government for Want of Bidder manufactured or removed in violation of the
Forfeiture implies a divestiture of property Code, dies for the printing or making of
without compensation in consequence of a internal revenue stamps and labels – sold
default or offense. The effect of forfeiture is to or destroyed in the discretion of the
transfer the title of the specific thing from the Commissioner
owner to the government. (De Leon, NIRC (4) Forfeited property shall not be destroyed
Annotated, p. 412) until at least 20 days after seizure. (Sec.
225, NIRC)
Instances when forfeiture is appropriate
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Resale of real estate taken for taxes [RR No. 22- (8) All taxes and expenses relative to the
2002] issuance of title shall be borne by the
(1) All acquired/forfeited properties winning bidder.
transferred in the name of the Republic of (9) The winning bidder shall be responsible at
the Philippines, having passed the one- his own expense for the ejectment of
year redemption period, shall be converted squatters and/or occupants, if any, of the
into cash from the date of acquisition or auctioned property.
forfeiture. (10) Negotiated or private sale shall be resorted
(2) The sale of acquired/forfeited real to as a consequence of failed public
properties shall be by sealed bids in a bidding for two consecutive times.
public auction to be witnessed by a (11) Negotiated or private sale shall in all cases
representative of the COA. be approved by the Secretary of Finance.
(3) The Notice of Sale of the acquired real (12) Public auction sale shall be approved by
properties shall be published once a week the Commissioner or his authorized
for two (2) consecutive weeks in a representative.
newspaper of general circulation in the (13) The Government reserves the right to reject
Philippines which must be completed at or cancel any or all bids.
least 20 days prior to the date of such
public auction. Disposition of funds recovered in legal
(4) Unless the Commissioner of Internal proceedings or obtained from forfeiture
Revenue provides otherwise, the Minimum All judgments and monies recovered and
Bid Price/Floor Price shall be the latest fair received for taxes, costs, forfeitures, fines and
market value as determined by the penalties shall be paid to the Commissioner or
Commissioner or the fair market value his authorized deputies as the taxes
shown in the latest tax declaration issued themselves are required to be paid, and except
by the provincial, city or municipal assessor, as specially provided, shall be accounted for
whichever is higher, pursuant to Sec. 6(E) and dealt within the same way. (Sec. 226,
of the Tax Code. NIRC)
(5) Anyone could bid except foreign nationals,
corporate or otherwise, and those qualified Further distraint or levy
under existing laws, rules and regulations, The remedy by distraint of personal property
including employees of the Bureau of and levy on realty may be repeated if necessary
Internal Revenue. until the full amount due, including all
(6) Bidders shall be required to post a bond in expenses, is collected. [Sec. 217, NIRC]
cash or manager’s check in an amount
representing 10% of the minimum bid price TAX LIEN
at least one day before the scheduled Tax Lien is a legal claim or charge on the
public auction. property, real or personal, as security for the
(7) Unless the Commissioner allows extension payment of same debt or obligation. It
of time to pay, in meritorious cases, the attaches from the time the tax became due
winning bidder shall pay the full amount of and payable.
his bid cash or manager’s check within two
days after receipt of notice of award. (1) When a taxpayer neglects or refuses to pay
his internal revenue tax liability after
demand, the amount so demanded shall be
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a lien in favor of the government from the (1) A REASONABLE DOUBT as to the validity of
time the assessment was made by the CIR the claim against the taxpayer exists; or
until paid with interest, penalties, and costs (2) The financial position of the taxpayer
that may accrue in addition thereto upon demonstrates a clear inability to pay the
ALL PROPERTY AND RIGHTS TO assessed tax. (FINANCIAL INCAPACITY)
PROPERTY BELONGING to the taxpayer.
(2) HOWEVER, the lien shall not be valid Limits of the Commissioner’s power to
against any mortgagee, purchaser or compromise:
judgment creditor until NOTICE of such lien (1) For cases of financial incapacity: a
shall be filed by the Commissioner in the minimum compromise rate equivalent to
Office of the Register of Deeds of the ten percent (10%) of the basic assessed tax
province or city where the property of the (2) For other cases: a minimum compromise
taxpayer is situated or located. (Sec. 219, rate equivalent to forty percent (40%) of the
NIRC) basic assessed tax
Seizure under forfeiture vs. Seizure to enforce a Note: When the basic tax involved exceeds
tax lien One Million Pesos (P1,000,000), or where the
In the former all the proceeds derived from the settlement offered is less than the prescribed
sale of the thing forfeited are turned over to minimum rates, the compromise must be
the Collector of Internal Revenue; in the latter, approved by the Evaluation Board (composed
the residue of such proceeds over and above of the Commissioner and 4 deputy
what is required to pay the tax sought to be commissioners)
realized, including expenses, is returned to the
owner of the property. (BPI v. Trinidad) All criminal cases may be compromised
except: (i) those already filed in court and (ii)
COMPROMISE those involving fraud.
Authority of the Commissioner to compromise
and abate taxes The taxpayer’s offer to compromise shall not
Compromise - to reduce the amount of tax be considered until (RR 9 – 2013)
payable. This should not be taken similarly i. He waives in writing his privilege under
with compromise penalty. RA 1405 or other special laws
ii. He gave authority to CIR to inquire into
The CIR has authority to compromise and his bank accounts
abate tax. However, the CIR is not authorized iii. There is payment of compromise offer.
to accept anything less than what is
adjudicated in favor of the Government. Abatement- to cancel the entire amount of tax
payable
It should be noted that there should be
consent of BOTH the taxpayer and the CIR, When the Commissioner may abate or cancel a
otherwise it will be void. tax liability:
(1) The tax or any portion thereof appears to be
Grounds for a compromise: UNJUSTLY or EXCESSIVELY ASSESSED; or
The Commissioner may compromise the (2) The ADMINISTRATION and COLLECTION
payment of any internal revenue tax in the COSTS do not justify the collection of the
following cases: amount due. (e.g. when the costs of
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collection are greater than the amount of A false returns is due to mistakes, carelessness
tax due) or ignorance and a fraudulent return is filed
with intent to evade taxes.
CIVIL AND CRIMINAL ACTIONS
Form and Mode of Proceeding: The fraud contemplated by law is actual and
Civil and criminal action and proceedings not constructive, and must amount to
instituted in behalf of the Government under intentional wrongdoing with the sole object of
the authority of this Code or other law enforced avoiding the tax. [Aznar v. CTA, 1974]
by the BIR:
(1) shall be BROUGHT IN THE NAME OF THE Payment of tax is not a valid defense.
GOVERNMENT of the Philippines; and [Sec .253A]
(2) shall be CONDUCTED BY LEGAL OFFICERS
OF THE BIR REFUND
(3) shall be filed in court with the approval of Nature of a claim for refund: It partakes of the
the Commissioner. [Sec. 220, NIRC] nature of an exemption and is strictly
construed against the claimant. The burden of
Criminal action as a collection remedy: proof is on the taxpayer claiming the refund
The judgment in the criminal case shall impose that he is entitled to the same. (CIR v. Tokyo
the penalty; and order payment of the taxes Shipping, 1995)
subject of the criminal case as finally decided Please note that Sections 229 and 204
by the Commissioner. [Sec. 205, NIRC] appeared several times in previous Bar
examinations.
Assessment not necessary before filing a
criminal charge for tax evasion Grounds for Refund:
An assessment is not necessary before a (1) Tax erroneously or illegally assessed or
criminal charge can be filed. The criminal collected [Sec. 229, NIRC]
charge need only be proved by a prima facie (2) Penalty claimed to have collected without
showing of a wilful attempt to file taxes, such authority [Sec. 229, NIRC]
as failure to file a required tax return. [CIR v. (3) Any sum alleged to have been excessively or
Pascor Realty, June 29, 1999] in any manner wrongfully collected [Sec.
229, NIRC]
Suit to recover tax based on false or fraudulent (4) Value of internal revenue Stamps when they
returns are returned in good condition by the
A proceeding in court for the collection of the purchaser [Sec. 204, NIRC]
tax assessed may be filed without assessment (5) Unused stamps that have been rendered
at any time within ten (10) years after the unfit for use (Commissioner may redeem,
discovery of the falsity, fraud or omission. change or refund their value upon proof of
Provided, that in a fraud assessment which has destruction) [Sec. 204, NIRC]
become final and executor, the fact of fraud
shall be judicially taken cognizance of in the Requirements for refund as laid down by cases:
civil or criminal action for the collection thereof. (1) Necessity of written claim for refund
[Sec. 222, NIRC] (2) Claim containing a categorical demand for
reimbursement
False Return v. Fraudulent Return (3) Filing of administrative claim for refund and
the suit/proceeding before the CTA within 2
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years from date of payment regardless of found in Art. 2142 and Art. 2154 of the NCC.
any supervening cause When money is paid to another under the
influence of a mistake of fact, on the
General Rule:The taxpayer must file a written mistaken supposition of the existence of a
claim for refund stating a categorical demand specific fact, where it would not have been
for reimbursement before the Commissioner known that the fact was otherwise, it may
within two years from the date of payment. be recovered. The ground upon which the
[Sec. 229, NIRC] right of recovery rests is that money paid
through misapprehension of facts belongs
When it comes to recovery of unutilized input in equity and in good conscience to the
VAT, Section 112, and not Section 229 of the person who paid it.
1997 Tax Code, is the governing law. Second, (b) The government comes within the scope of
prior to 8 June 2007, the applicable rule is solutio indebiti principle, where that:
neither Atlas nor Mirant, but Section 112(A). “enshrined in the basic legal principles is
The Atlas doctrine, which held that claims for the time honoured doctrine that no person
refund or credit of input VAT must comply with shall unjustly enrich himself at the expense
the two-year prescriptive period under Section of another. It goes without saying that the
229, should be effective only from its Government is not exempt from the
promulgation on 8 June 2007 until its application of this doctrine.
abandonment on 12 September 2008 in Mirant.
[CIR v. San Roque] Statutory Basis for Tax Refund
Scope of Claims for Refund [Sec. 204, NIRC]
The Commissioner may:
(a) Credit or refund taxes erroneously or
illegally received or penalties imposed
without authority;
(b) Refund the value of internal revenue
Exceptions to requirement of a written claim: stamps when they are returned in good
(1) When on the face of the return upon which condition by the purchaser; and
payment was made, such payment appears (c) In the Commissioner’s discretion, redeem or
clearly to have been erroneously paid (e.g. change unused stamps that have been
mathematical errors), the Commissioner rendered unfit for use and refund their value
may refund or credit the tax even without a upon proof of destruction.
written claim therefore. (Sec. 229, NIRC)
(2) A return filed showing an overpayment shall Necessity of Proof for Claim or Refund
be considered as a written claim for credit (1) No credit or refund of taxes or penalties
or refund. (Sec. 204(C), NIRC) shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for
Note: Under Sec. 229, there is no exception to credit or refund within two (2) years after the
the 2-year prescriptive period. payment of the tax or penalty. [Sec. 204,
NIRC]
Legal Basis of Tax Refunds (2) A return filed showing an overpayment shall
(a) Tax refunds are based on the principle of be considered as a written claim for credit
quasi-contract or solutio indebiti and the or refund.[Sec. 204, NIRC]
pertinent laws governing this principle are
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Burden of Proof for Claim of Refund of the falsity, fraud or omission in the false or
Tax refunds, like tax exemptions, are construed fraudulent return involved.
strictly against the taxpayer and liberally in
favor of the taxing authority. [United Airlines, Who may claim/apply for tax refund/tax credit
Inc. v. CIR, G.R. No. 178788, Sept. 29, 2010] The proper person to claim refund or tax credit
is the person on whom the tax is imposed by
Nature of erroneously paid tax/illegally the statute.
assessed collected
Taxes are erroneously paid when a taxpayer Taxpayer/withholding agents of non-resident
pays under a mistake of fact, such as, he is not foreign corporation - the withholding agent is
aware of an existing exemption in his favor at directly and independently liable for the
the time that payment is made. Taxes are correct amount of tax that should be withheld
illegally collected when payments are made and for deficiency assessments, surcharges
under duress. and penalties.
Tax refund vis-à-vis tax credit Prescriptive Period for Recovery of Tax
REFUND takes place when there is actual Erroneously or Illegally Collected
reimbursement while TAX CREDIT takes place Two-year period when counted: From the date
upon the issuance of a tax certificate or tax that tax was paid.
credit memo, which can be applied against any
sum that may be due and collected from the How date of payment determined:
taxpayer. (1) If the income tax is withheld at source –
payment is at the end of the taxable year.
Essential requisites for claim of refund (2) If the income is paid on a quarterly basis –
[Comm. v. CA and Citytrust, cited in United payment is from the time of filing the final
Airlines Inc. v. CIR, 2010]: The grant of a refund adjustment return.
is founded on the assumption that the tax
return is valid, that is, the facts stated therein [CIR vs. TMX Sales, January 16, 199]: When a
are true and correct. The deficiency tax is paid in installments, the prescriptive
assessment, although not yet final, created a period should be counted from the date of final
doubt as to and constitutes a challenge payment or the last installment. This rule
against the truth and accuracy of the facts proceeds from the theory that there is no
stated in said return which, by itself and payment until the entire tax liability is
without unquestionable evidence, cannot be completely paid. Installments should be
the basis for the grant of the refund…To grant treated as advances or portions of the annual
the refund without determination of the proper tax due.
assessment and the tax due would inevitably
result in multiplicity of proceedings or suits. If Other Consideration Affecting Tax Refunds
the deficiency assessment should
subsequently be upheld, the Government will Remedy of the taxpayer upon denial or
be forced to institute anew a proceeding for inaction on the claim for refund:
the recovery of erroneously refunded taxes (1) CIR denies claim - appeal to the CTA within
which recourse must be filed within the thirty (30) days from the receipt of the
prescriptive period of ten years after discovery Commissioner’s decision and within two
years from the date of payment.
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(2) CIR does not act on the claim and the 2-year (5) Suspension of business operation
period is about to lapse - file a claim before
the CTA before the 2-year period lapses. The Commissioner or his authorized
Otherwise, he may no longer file a claim representative is empowered to suspend the
before the CTA in case the Commissioner business operations and temporarily close
renders an adverse decision beyond the 2- the business establishment of any person
year period. [Revised Rules of the CTA, as for any of the following violations:
amended] (a) In the case of a VAT-registered Person.
(1) Failure to issue receipts or invoices;
Period for claiming refund once granted: or
Within five years from the date such warrant or (2) Failure to file a value-added tax
check was mailed or delivered, otherwise it return as required under Section
shall be forfeited in favor of the government 114; or
and the amount thereof shall revert to the (3) Understatement of taxable sales or
general fund. [Sec. 230, NIRC] receipts by thirty percent (30%) or
more of his correct taxable sales or
Period for using the Tax Credit Certificate receipts for the taxable quarter.
(TCC):
Tax credit certificates (TCCs) can be applied (b) Failure of any Person to Register as
against all internal revenue taxes, excluding Required under Section 236.
withholding tax. TCCs which remain unutilized The temporary closure of the
after five years from the date of issue shall be establishment shall be for the duration
considered as invalid, unless revalidated. If of not less than five (5) days and shall be
not revalidated, the amount covered by the lifted only upon compliance with
TCC shall revert to the general fund. [Sec. 230, whatever requirements prescribed by the
NIRC] Commissioner in the closure order. [Sec.
115, NIRC]
GOVERNMENT REMEDIES (6) Non-availability of injunction to restrain
ADMINISTRATIVE REMEDIES collection of tax
No court shall have the authority to
(1) Tax lien grant an injunction to restrain the collection
(2) Levy and sale of real property of any national internal revenue tax, fee or
(3) Forfeiture of real property to the charge imposed by the National Internal
government for want of bidder Revenue Code. [Sec. 218, NIRC]
(4) Further distraint and levy
(5) Suspension of business operation JUDICIAL REMEDIES
(6) Non-availability of injunction to (1) Civil Action
restrain collection of tax (2) Criminal Action
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CRIMINAL OFFENSES
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but >P50,000
Fine: P50,000 -
P100,000
(4) AND V
alue of goods > P150,000 Imprisonment: 10-12 years
Failure or Refusal to Issue Any person who, being required Fine: P 1,000 - P50,000
Receipts or Sales or under Section 237 to issue AND
Commercial Invoices, receipts or sales or commercial Imprisonment: 2- 4 years
Violations Related to the invoices
Printing of Such Receipts or
Invoices and Other Violations
(Sec. 264)
Offenses Relating to Stamps Fine: P20,000 - P50,000
(Sec. 265) AND
Imprisonment: 4-8 years
Failure to Obey Summons (Sec. Any person who being duly Fine: P 5,000 - 10,000;
266) summoned to appear to testify, AND
or to appear and produce books Imprisonment:1-2 years
of accounts, records,
memoranda or other papers, or
to furnish information as
required under the pertinent
provisions of this Code.
Declaration under Penalties of Any person who willfully files a Penalty for Perjury under
Perjury (Sec. 267) declaration, return or statement the Revised Penal Code
containing information which is
not true and correct as to every
material matter
Misdeclaration or Any manufacturer subject to Summary cancellation or
Misrepresentation of excise tax withdrawal of the permit
Manufacturers Subject to to engage in business as a
Excise Tax (Sec. 268) manufacturer of articles
subject to excise tax
Use of Property in Unlicensed Any person who conducts an Forfeiture of property
Business or Use of Dies for unlicensed business or uses dies used
Printing False Stamps, Etc. for printing false stamps
(Sec. 268)
Illegal Storage or Removal of Any person subject to excise tax Forfeiture of goods
Goods (Sec. 268) who fails to store the goods in
proper place, or removes goods
without payment of excise tax
Penalty for Second and Maximum of the penalty
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more than fifteen years on every official, agent Informer’s Reward[Sec. 282, NIRC]
or employee of the BIR or of any agency or To whom given:
employee of the Government charged with the Persons instrumental in the discovery of
enforcement of the Tax Code, who shall: violations of the NIRC and in discovery and
(CONED- FRAP) seizure of smuggled goods.
(a) Extort or willfully oppress under color of
law; Amount of reward:
(b) knowingly Demand other or greater sums 10% of the revenues, surcharges or fees
than are authorized by law or receive any recovered and/or fine/penalty imposed, or
fee, compensation or reward, except as by P1,000,000, whichever is LOWER.
law prescribed, for the performance of any (a) The same amount shall be given if the
duty; offender offered to compromise and such
(c) willfully Neglect to give receipts, as by law offer has been accepted and collected by
required, for any sums collected in the the Commissioner.
performance of duty, or who willfully (b) If no revenue, surcharge or fees be actually
neglect to perform any of the duties collected, such person is not entitled to a
enjoined by law; reward
(d) Conspire or collude with another or others (c) For discovery and seizure of SMUGGLED
to defraud the revenues or otherwise violate GOODS: The cash reward is 10% of the FMV
the law; of the smuggled and confiscated goods, or
(e) willfully make Opportunity for any person to P1,000,000, whichever is LOWER.
defraud the revenues, or who do or omit to
do any act with intent to enable any other STATUTORY OFFENSES AND PENALTIES
person to defraud the revenues;
(f) negligently or by design Permit the violation Civil Penalties
of the law by any other person; (1) Surcharge
(g) make or sign any False certificate or return (2) Interest
in any case where the law requires the
making by them of such entry, certificate or SURCHARGE
return; Surcharge - penalty imposed in addition to the
(h) having knowledge or information of a tax required to be paid [Sec. 248(A), NIRC]
violation of any provision of the Code or of
any fraud committed on the revenues Rates of Surcharge (25% or 50%)
collectible by the BIR, fail to Report such (1) 25% of the amount due in the following
knowledge or information to their superior cases:
officer, or to report as otherwise required by (a) Failure to file any return and pay the tax
law; or due on the date prescribed; or
(i) without the authority of law, demand or (b) Filing a return with an internal revenue
Accept or attempt to collect, directly or officer other than those with whom the
indirectly, as payment or otherwise, any return is required to be filed unless the
sum of money or other thing of value for the Commissioner authorizes otherwise; or
compromise, adjustment or settlement of (c) Failure to pay the deficiency tax within
any charge or complaint for any violation or the time prescribed for its payment in the
alleged violation of law. notice of assessment; or
(d) Failure to pay the full or part of the
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amount of tax due on or before the date (c) A deficiency tax, or any surcharge or interest
prescribed for its payment [Sec. 246 (A), thereon on the due date appearing in the
NIRC] letter of demand and assessment notice
(Sec. 249(C), NIRC)
(2) 50% of the tax or of the deficiency tax in the
following cases: Interest on extended payment
(a) Willful neglect to file the return within 20% per annum on the tax or deficiency tax or
the period prescribed; or any part thereof unpaid from the date of notice
(b) A false or fraudulent return is willfully and demand until it is paid if any person
made [Sec. 248(B), NIRC] required to pay the tax is:
(a) Qualified and elects to pay the tax on
Prima facie evidence of a false or fraudulent installment but fails to pay the tax or any
return: Substantial underdeclaration of taxable installment or any part of such amount or
sales, receipts or income, or a substantial installment or before the date prescribed for
overstatement of deductions. Failure to report its payment; or
sales, receipts or income in an amount (b) Where the Commissioner has authorized an
exceeding thirty percent (30%) of that declared extension of time within which to pay a tax
per return, and a claim of deductions in an or a deficiency tax or any part thereof
amount exceeding (30%) of actual deductions, (249(D), NIRC)
shall render the taxpayer liable for substantial
underdeclaration or for overstatement. (Sec.
248(B), NIRC) COMPROMISE AND ABATEMENT OF
TAXES
INTEREST (see discussion under Remedies of the
In General Taxpayer)
20% per annum on the unpaid amount of tax,
interest at the rate of twenty percent (20%) per Cases which may be compromised: [Sec. 2, R.R.
annum from the date prescribed for payment 30-2002]
until the amount is fully paid. (Sec. 249(A), (1) Delinquent accounts
NIRC) (2) Cases under administrative protest after
issuance of the Final Assessment Notice to
Deficiency Interest the taxpayer which are still pending in the
20% per annum on any deficiency in the tax Regional Offices, Revenue District Offices,
due from the date prescribed for its payment Legal Service, Large Taxpayer Service (LTS),
until the full payment thereof. (Sec. 249(B), Collection Service, Enforcement Service and
NIRC) other offices in the National Office
(3) Civil tax cases being disputed before the
Delinquency interest courts
20% per annum on the unpaid amount in case (4) Collection cases filed in courts
of failure to pay: (5) Criminal violations, other than those
(a) The amount of the tax due on any return already filed in court or those involving
required to be filed; or criminal tax fraud
(b) The amount of the tax due for which no
return is required; or Cases which cannot be compromised: [Sec. 2,
R.R. 30-2002]
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(1) Withholding tax cases, unless the other hand, other protested cases shall be
applicant-taxpayer invokes provisions of law handled by the Regional Evaluation Board
that cast doubt on the taxpayer's obligation (REB) or the National Evaluation Board
to withhold (NEB) on a case to case basis
(2) Criminal tax fraud cases confirmed as such (6) Cases which become final and executory
by the CIR or his duly authorized after final judgment of a court, where
representative compromise is requested on the ground of
(3) Criminal violations already filed in court doubtful validity of the assessment; and
(4) Delinquent accounts with duly approved (7) Estate tax cases where compromise is
schedule of installment payments requested on the ground of financial
(5) Cases where final reports of reinvestigation incapacity of the taxpayer
ore reconsideration have been issued
resulting to reduction in the original
assessment and the taxpayer is agreeable
to such decision by signing the required
agreement form for the purpose. On the
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START
Regional
Send Formal Letter Assessment
Is response w/n Taxpayer
of demand and Final NO to Division issues a
15 days? Is it responds w/in
Assessment Notice either Preliminary
meritorious? 15 days
(FAN) is issued Assessment Notice
(PAN)
Yes to ASSESSMENT
both ENDS
Assessment becomes
NO to
Final, Warrant of Distraint
either
& Levy Issued
Decision Commissioner
YES favorable to YES decides w/n
taxpayer? 180 days?
ASSESSMENT
ENDS NO NO
If MR is denied, appeal to
the CTA within remainder
of the 30 days
Assessment
CTA decides on Appeal made becomes Final,
YES NO
the appeal on time? Warrant of Distraint
& Levy Issued
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W/in 5 days after sale, W/in 2 days after Excess of proceeds over the Officer sells the goods to the
distraining officer shall enter the sale, officer entire claim, shall be returned highest bidder for cash or
return of proceedings in the shall report to the to the owner. No charge shall with the Commissioner’s
records of RCO, RDO and Commissioner. be imposed for the services of approval, through commodity/
RRD (Sec. 213) (Sec. 211) the officer (Sec. 209) stock exchanges. (Sec. 209)
No, bid ok
W/n 1 year from sale, the W/n 5 days after the sale, Excess of proceeds
The Commissioner may, owner may redeem, by paying levying officer shall enter of the sale over claim
after 20 days notice, sell to the RDO the amount of the return of the proceedings and cost of sale shall
property at public auction taxes, penalties, and interest upon the records of the RCO, be turned over to the
or at private sale with thereon from the date of RDO and RRD (Sec. 213) owner (Sec. 213)
approval of the SoF. delinquency to the date of sale,
Proceeds shall be and 15% per annum interest on
deposited with the National purchase price from the date
Treasury (Sec. 216) Owner shall not be
of purchase to the date of Levy and distraint
deprived of the
redemption. (Sec. 214) may be repeated until
possession and shall
the full amount due,
be entitled to the
and all expenses are
fruits until 1 year
collected. (Sec. 217)
expires (Sec. 214)
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Exceptions:
(a) Where the taxpayer deliberately misstates
or omits material facts from his return or
any document required of him by the BIR;
(b) Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
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maintained by them within their jurisdiction. tolls for bridges or otherwise, or other
[Sec. 154, LGC] taxes, fees, or otherwise
(6) Taxes, fees or charges on Agricultural and
(3) Toll fees or charges aquatic products when sold by marginal
(a) The sanggunian may prescribe the terms farmers or fishermen;
and conditions and fix the rates for the (7) Taxes on business enterprises certified to
imposition of toll fees or charges for the by the Board of Investments as Pioneer or
use of any public road, pier, or wharf, non-pioneer for a period of 6 and 4 years,
waterway, bridge, ferry or respectively from the date of registration;
telecommunication system funded and (8) Excise taxes on articles enumerated under
constructed by the local government unit the NIRC, as amended, and taxes, fees or
concerned. charges on petroleum products;
(b) The sanggunian may also discontinue (9) Percentage or VAT on sales, barters or
the collection of the tolls when public exchanges or similar transactions on goods
safety and welfare requires. or services except as otherwise provided
(c) NO toll fees or charges shall be collected herein;
from: (10) Taxes on the Gross receipts of
(i) Officers and enlisted men of the AFP transportation contractors and persons
and members of the PNP on mission engaged in the transportation of
(ii) Post office personnel delivering mail passengers or freight by hire and common
(iii) Physically-handicapped carriers by air, land or water, except as
(iv) Disabled citizens who are sixty-five (65) provided in the Code;
years or older. [Sec. 155, LGC] (11) Taxes on premiums paid by way or
Reinsurance or retrocession;
Common limitations on the taxing powers of (12) Taxes, fees or charges for the Registration
LGUs of motor vehicles and for the issuance of all
Unless otherwise provided, the following kinds of licenses or permits for the driving
cannot be levied by the local governments: thereof, except tricycles;
(IDEC-GAPEP-GRR-ECN): (13) Taxes, fees, or other charges on Philippine
(1) Income tax, except when levied on banks products actually Exported, except as
and other financial institutions; otherwise provided;
(2) Documentary stamp tax; (14) Taxes, fees, or charges, on Countryside and
(3) Estate tax, inheritance, gifts, legacies and Barangay Business Enterprises and
other acquisitions mortis causa, except as Cooperatives duly registered under the
otherwise provided; Cooperative Code of the Philippines; and
(4) Customs duties, registration fees of vessel (15) Taxes, fees or charges of any kind on the
and wharfage on wharves, tonnage dues, National Government, its agencies and
and all other kinds of customs fees, instrumentalities, and local government
charges and dues except wharfage on units. [Sec. 133, LGC]
wharves constructed and maintained by
the LGU concerned;
(5) Taxes, fees or charges on Goods carried
into or out of, or passing through, the
territorial jurisdictions of local government TAXPAYER’S REMEDIES
units in the guise of charges for wharfage,
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(a) Periods of assessment and collection of local (a) Local government’s lien for delinquent taxes,
taxes, fees or charges fees or charges
(a) Assessment: Within 5 years from the (1) Non-payment of a tax, fee or charge
date they become due creates a lien superior to all liens or
(b) In case of Fraud or Intent to Evade Tax: encumbrances in favor of any other
Within 10 years from discovery of fraud or person, enforceable by administrative or
intent to evade payment. (Sec. 194, LGC) judicial action
(c) Collection: 5 years from the date of (2) The lien may only be extinguished upon
assessment by administrative or judicial full payment of the delinquent local
action. taxes, fees, and charges including
related surcharges and interests. [Sec.
Instances When Running of Prescription 173, LGC]
Periods is Suspended
(1) When the treasurer is legally prevented (b) Civil remedies, in general
from making the assessment or (1) Administrative action
collection (2) Judicial action
(2) When taxpayer requests for
reinvestigation and executes a waiver in (c) Procedure for administrative action
writing before lapse of the period for (1) Distraint of personal property
assessment or collection. Personal properties subject to distraint:
(3) When the taxpayer is out of the country goods, chattels or effects and other
or otherwise cannot be located (Sec. 194 personal property of whatever character,
(d), LGC) including stocks and other securities,
debts, credits, bank accounts, and
(b) Protest of assessment interest in and rights to personal
Within sixty (60) days from the receipt of the property
notice of assessment, the taxpayer may file
a written protest with the local treasurer PROCEDURE: [Sec. 175, LGC]
contesting the assessment; otherwise it (a) Seizure of personal property
shall become final and executory. (Sec. 195, (b) Accounting of distrained goods
LGC) (c) Publication of time and place of sale
and the articles distrained
(c) Claim for refund of tax credit for erroneously (d) Release of distrained property upon
or illegally collected tax, fee or charge payment prior to sale
(a) Requires a written claim for refund or (e) Procedure of sale
credit to be filed with local treasurer (f) Disposition of proceeds
before protest is entertained
(b) Must be brought within 2 years from (2) Levy of real property, procedure
payment of tax or from the date the Levy upon real property and interest in or
taxpayer became entitled to refund or rights to real property
credit (Sec. 196, LGC)
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(a) Any question on the constitutionality or party may file appropriate proceedings
legality of a tax ordinance may be raised with a court of competent jurisdiction.
on appeal within thirty (30) days from (Sec. 187, LGC)
effectivity to the Secretary of Justice who
shall render a decision within sixty (60) (2) Assailing the validity of a tax sale
days from the date of receipt of the No court shall entertain any action assailing
appeal. the validity of any sale at public auction
(b) The appeal shall not have the effect of until the taxpayer shall have deposited with
suspending the effectivity of the tax the court the amount for which the real
ordinance and the accrual and payment property was sold, together with interest of
of the tax. two percent (2%) per month from the date
(c) Within thirty (30) days after receipt of the of sale to the time of the institution of the
decision or the lapse of the sixty-day action. [Sec. 267, LGC]
period without the Secretary of Justice
acting upon the appeal, the aggrieved
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Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Gov’t Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Assessor prepares
Owner declares real Assessor declares
assessment rolls
property once every 3 real property if owner/
START wherein real property
years (sec. 202) w/n administrator fails to
shall be listed, valued
Jan 1 to June 30 do so (sec. 204)
and assessed (sec. 205)
Submit documents
Owner may claim
supporting exemption w/ Is real property
for tax exemption Yes
in 30 days from tax exempt?
Required (sec. 206)
declaration (sec. 206)
Documents
submitted w/in
30 days? Property shall be
Property dropped from
Yes proven as tax Yes
assessment roll
No exempt? (sec. 206)
Property shall be
listed as taxable in
No
the assessment
roll (sec. 206) END
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Amount of tax
LT must decide w/
protested shall be
LT grants LT decides w/in in 60 days from
refunded or Yes Yes
protest? 60 days? receipt of protest
applied as tax
(sec. 252)
credit (Sec. 252)
No
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For purposes of this flowchart owner means owner or administrator of real property or any
START person having legal interest thereto
LT returns to the
Sanggunian concerned
purchaser/bidder the
may, by ordinance sell
price paid + interest
and dispose of the real
of 2% per month
LT shall deliver to property acquired under
(sec. 261)
purchaser certificate the preceding section at
of sale public auction. (sec. 264)
If property is not
redeemed, the local Levy may be repeated
Proceeds of sale in treasurer shall until the full amount due,
excess of delinquent execute a deed of including all expenses, is
tax, interest & conveyance to the collected. (sec. 265)
expenses of sale purchaser (sec. 262)
remitted to the owner
(sec. 260)
END
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Note: export tariff had been abolished Note: The payment of the duties, taxes,
except upon logs [Sec. 1, EO 26]. fees and other charges must be in full.
[Papa v. Mago, G.R. No. L-27360,
(2) Import tariff – articles, when imported February 28, 1968]
from any foreign country, shall be subject
to duty upon each importation, even
Import entry
though previously exported from the Imported articles must be entered in the
Philippines, except as otherwise customhouse at the port of entry within fifteen
specifically provided under the Code or days from date of discharge of the last package
special laws [Sec. 100, TCC] from the vessel either (a) by the importer, being
holder of the bill of lading, (b) by any other
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holder of the bill of lading in due course, (c) by to duty upon each importation, even though
a customs broker acting under authority from a previously exported from the Philippines,
holder of the bill, or (d) by a person duly except as otherwise specifically provided for
empowered to act as agent or attorney-in-fact in this Code or in other laws. [Sec. 100, TCC]
for such holder. The Collector may grant an
extension of not more than fifteen days. [Sec. (2) Prohibited importation [Sec. 101,
1301, TCC] TCC](POPP-LAW-DING)
(a) Dynamite, gunpowder, ammunitions and
All imported articles, except importation other explosives, firearm and weapons of
admitted free of duty, shall be subject to a war, and detached parts thereof, except
formal or informal entry. when authorized by law.
(b) Written or printed article in any form
Kinds of Import Entry: containing:
(1) Formal Entry (1) any matter advocating or inciting
(2) Informal Entry treason, rebellion, insurrection or
sedition against the Government of
Types of Formal Entry [Sec. 1302, as amended]: the Philippines
(2) forcible resistance to any law of the
A formal entry may be: Philippines
(a) for immediate consumption, or (3) containing any threat to take the life
(b) under irrevocable domestic letter of of or inflict bodily harm upon any
credit, bank guarantee or bond for: person in the Philippines.
(1) placing the article in customs bonded (c) Written or printed articles, photographs,
warehouse; engravings, lithographs, objects,
(2) Constructive warehousing and paintings, drawings or other
immediate transportation to other representation of an obscene or Immoral
ports of the Philippines upon proper character.
examination and appraisal; or (d) Articles, instruments, drugs and
(3) Constructive warehousing and substances designed, intended or
immediate exportation. adapted for preventing human
conception or producing unlawful
Note: Import entries under irrevocable abortion, or any printed matter which
domestic letter of credit, bank guarantee or advertises or describes or gives directly
bond shall be subject to the provisions of Title or indirectly information where, how or
V, Book 11 of this Code. All importations by whom human conception is prevented
entered under formal entry shall be covered by or unlawful abortion produced.
a letter of credit or any other verifiable (e) Roulette wheels, Gambling outfits,
document evidencing payment." [R.A. 9135, loaded dice, marked cards, machines,
April 27, 2001] apparatus or mechanical devices used in
gambling, or in the distribution of money,
cigars, cigarettes or other articles when
CLASSIFICATION OF GOODS such distribution is dependent upon
(1) Taxable importation chance, including jackpot and pinball
All articles, when imported from any foreign machines or similar contrivances.
country into the Philippines, shall be subject
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(f) Lottery and sweepstakes tickets, (a) Aquatic products (e.g., fishes,
advertisements thereof and lists of crustaceans, mollusks, marine animals,
drawings therein. seaweeds, fish oil, roe), caught or
gathered by fishing vessels of Philippine
Except those authorized by the registry: Provided, That they are
Philippine Government imported in such vessels or in crafts
attached thereto: And provided, further,
(g) Any article manufactured in whole or in That they have not been landed in any
part of gold silver or other Precious foreign territory or, if so landed, they
metal, or alloys thereof, the stamps have been landed solely for
brands or marks of which do not indicate transshipment without having been
the actual fineness or quality of said advanced in condition;
metals or alloys.
(h) Any Adulterated or misbranded article of (b) Equipment for use in the salvage of
food or any adulterated or misbranded vessels or aircrafts, not available locally,
drug in violation of the provisions of the upon identification and the giving of a
"Food and Drugs Act." bond in an amount equal to one and
(i) Marijuana, opium poppies, coca leaves, one-half times the ascertained duties,
or any other Narcotics or synthetic drugs taxes and other charges thereon,
which are or may hereafter be declared conditioned for the exportation thereof
habit forming by the President of the or payment of the corresponding duties,
Philippines, any compound, taxes and other charges within six (6)
manufactured salt, derivative, or months from the date of acceptance of
preparation thereof, the import entry: Provided, That the
Collector of Customs may extend the
Except when imported by the time for exportation or payment of duties,
Government of the Philippines or any taxes and other charges for a term not
person duly authorized by the Collector exceeding six (6) months from the
of Internal Revenue for medicinal expiration of the original period;
purposes only.
(c) Cost of repairs, excluding the value of the
(j) Opium pipes and parts thereof, of article used, made in foreign countries
whatever material. upon vessels or aircraft documented,
(k) All other articles the importation of registered or licensed in the Philippines,
which is Prohibited by law. upon proof satisfactory to the Collector
of Customs (1) that adequate facilities for
Conditionally-free importation [Sec. 105, TCC] such repairs are not afforded in the
The following articles shall be exempt from the Philippines, or (2) that such vessels or
payment of import duties upon compliance aircrafts, while in the regular course of
with the formalities prescribed in, or with, the her voyage or flight was compelled by
regulations which shall be promulgated by the stress of weather or other casualty to put
Commissioner of Customs with the approval of into a foreign port to make such repairs
the Secretary of Finance: in order to secure the safety,
seaworthiness or airworthiness of the
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vessel or aircraft to enable her to reach to the Collector of Customs that same
her port of destination; have been in their use abroad for more
than six (6) months and accompanying
(d) Articles brought into the Philippines for them on their return, or arriving within a
repair, processing or reconditioning to be reasonable time which, barring
re-exported upon completion of the unforeseen circumstances, in no case
repair, processing or reconditioning: shall exceed ninety (90) days before or
Provided, That the Collector of Customs after the owners' return: Provided, That
shall require the giving of a bond in an the personal and household effects shall
amount equal to one and one-half times neither be in commercial quantities nor
the ascertained duties, taxes and other intended for barter, sale or hire and that
charges thereon, conditioned for the the total dutiable value of which shall
exportation thereof or payment of the not exceed two thousand pesos
corresponding duties, taxes and other (P2,000.00): Provided further, That the
charges within six (6) months from the returning residents have not previously
date of acceptance of the import entry; received the benefit under this section
within one year from and after the last
(e) Medals, badges, cups and other small exemption granted: Provided
articles bestowed as trophies or prizes, or furthermore, That a fifty (50) per cent ad
those received or accepted as honorary valorem duty across the board shall be
distinction; levied and collected on the personal and
household effects (except luxury items)
(f) Personal and household effects in excess of two thousand pesos
belonging to residents of the Philippines (P2,000.00): And provided, finally, That
returning from abroad including jewelry, the personal and household effects
precious stones and other articles of (except luxury items) of a returning
luxury which were formally declared and resident who has not stayed abroad for
listed before departure and identified six (6) months shall be subject to fifty
under oath before the Collector of (50)per cent ad valorem duty across the
Customs when exported from the board, the total dutiable value of which
Philippines by such returning residents does not exceed two thousand pesos
upon their departure therefrom and (P2,000.00); any excess shall be subject
during their stay abroad; personal and to the corresponding duty provided in
household effects including wearing this Code;
apparel, articles of personal adornment
(except luxury items), toilet articles, (g) Wearing apparel, articles of personal
portable appliances and instruments and adornment, toilet articles, portable tools
similar personal effects, excluding and instruments, theatrical costumes
vehicles, watercrafts, aircrafts, and and similar effects accompanying
animals purchased in foreign countries travelers, or tourists. or arriving within a
by residents of the Philippines which reasonable time before and after their
were necessary, appropriate and arrival in the Philippines, which are
normally used for the comfort and necessary and appropriate for the wear
convenience in their journey and during and use of such persons according to the
their stay abroad upon proof satisfactory nature of the journey, their comfort and
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convenience: Provided, That this Customs may extend the time for
exemption shall not apply to articles exportation or payment of duties, taxes
intended for other persons or for barter, and other charges for term not exceeding
sale or hire: Provided, further, That the six (6) months from the expiration of the
Collector of Customs may, in his original period;
discretion, require either a written
commitment or a bond in an amount (h) Professional instruments and
equal to one and one-half times the implements, tools of trade, occupation or
ascertained duties, taxes and other employment, wearing apparel, domestic
charges conditioned for the exportation animals, and personal and household
thereof or payment of the corresponding effects belonging to persons coming to
duties, taxes and other charges within settle in the Philippines or Filipinos
three (3) months from the date of and/or their families and descendants
acceptance of the import entry: And who are now residents or citizens of
Provided finally, That the Collector of other countries, such parties hereinafter
Customs may extend the time for referred to as Overseas Filipinos, in
exportation or payment of duties, taxes quantities and of the class suitable to the
and other charges for a term not profession, rank or position of the
exceeding three (3) months from the persons importing them, for their own
expiration of the original period; use and not for barter or sale,
accompanying such persons, or arriving
(g-1) Personal and household effects and within a reasonable time, in the
vehicles belonging to foreign consultants discretion of the Collector of Customs,
and experts hired by, and/or rendering before or after the arrival of their owners,
service to, the government, and their which shall not be later than February 28,
staff or personnel and families, 1979 upon the production of evidence
accompanying them or arriving within a satisfactory to the Collector of Customs
reasonable time before or after their that such persons are actually coming to
arrival in the Philippines, in quantities settle in the Philippines, that change of
and of the kind necessary and suitable to residence was bona fide and that the
the profession, rank or position of the privilege of free entry was never granted
person importing them, for their own use to them before or that such person
and not for barter, sale or hire provided qualifies under the provisions of Letters
that, the Collector of Customs may in his of Instructions 105, 163 and 210, and that
discretion require either a written the articles are brought from their former
commitment or a bond in an amount place of abode, shall be exempt from the
equal to one and one-half times the payment of customs duties and taxes:
ascertained duties, taxes and other Provided, That vehicles, vessels, aircrafts,
charges upon the articles classified machineries and other similar articles for
under this subsection; conditioned for use in manufacture, shall not be
the exportation thereof or payment of the classified hereunder;
corresponding duties, taxes and other
charges within six (6) months after the (i) Articles used exclusively for public
expiration of their term or contract; And entertainment, and for display in public
Provided, finally, That the Collector of expositions, or for exhibition or
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competition for prizes, and devices for undeveloped, exposed outside the
projecting pictures and parts and Philippines by resident Filipino citizens
appurtenances thereof, upon or by producing companies of Philippine
identification, examination, and registry where the principal actors and
appraisal and the giving of a bond in an artists employed for the production are
amount equal to one and one-half times Filipinos, upon affidavit by the importer
the ascertained duties, taxes and other and identification that such exposed
charges thereon, conditioned for films are the same films previously
exportation thereof or payment of the exported from the Philippines. As used in
corresponding duties, taxes and other this paragraph, the terms "actors" and
charges within six (6) months from the "artists" include the persons operating
date of acceptance of the import entry; the photographic cameras or other
Provided, That the Collector of Customs photographic and sound recording
may extend the time for exportation or apparatus by which the film is made;
payment of duties, taxes and other
charges for a term not exceeding six (6) (k) Importations for the official use of
months from the expiration of the foreign embassies, legations, and other
original period; and technical and agencies of foreign governments:
scientific films when imported by Provided, That those foreign countries
technical, cultural and scientific accord like privileges to corresponding
institutions, and not to be exhibited for agencies of the Philippines;
profit: Provided, further, That if any of
the said films is exhibited for profit, the Articles imported for the personal or
proceeds therefrom shall be subject to family use of the members and attaches
confiscation, in addition to the penalty of foreign embassies, legations, consular
provided under Section Thirty-six officers and other representatives of
hundred and ten as amended, of this foreign governments: Provided, That
Code; such privilege shall be accorded under
special agreements between the
(j) Articles brought by foreign film Philippines and the countries which they
producers directly and exclusively used represent: And Provided, further, That
for making or recording motion picture the privilege may be granted only upon
films on location in the Philippines, upon specific instructions of the Secretary of
their identification, examination and Finance in each instance which will be
appraisal and the giving of a bond in an issued only upon request of the
amount equal to one and one-half times Department of Foreign Affairs;
the ascertained duties, taxes and other
charges thereon, conditioned for (l) Imported articles donated to, or for the
exportation thereof or payment of the account of, any duly registered relief
corresponding duties, taxes and other organization, not operated for profit, for
charges within six (6) months from the free distribution among the needy, upon
date of acceptance of the import entry, certification by the Department of Social
unless extended by the Collector of Services and Development or the
Customs for another six (6) months; Department of Education, Culture and
photographic and cinematographic films, Sports, as the case may be;
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one year from the date of acceptance of for expenses and profits. [Sec. 201,
the entry, which period for meritorious TCC]
reasons may be extended by the
Commissioner of Customs from year to General Rule: The following methods are
year, subject to the following conditions: sequentially applied
(1) That they shall be properly identified Exception: (CAO 4-2004) Methods 4 and 5
and registered with the Land may be reversed at the request of the
Transportation Commission; importer, subject to the approval of the
(2) That they shall be subject to customs Commissioner.
supervision fee to be fixed by the
Collector of Customs and subject to Ground to refuse the request: if the
the approval of the Commissioner of Commissioner deems that he will
Customs; experience real difficulties in determining
(3) That they shall be deposited in the the dutiable value using Method 5
Customs zone when not in use; and
(4) That upon the expiration of the period (Basis for all Methods of Valuation: Sec. 201,
prescribed above, duties and taxes TCC and CAO 4-2004)
shall be paid, unless otherwise re- (1) Transaction value
exported Price actually paid or payable for goods
when sold for export to Philippines
CLASSIFICATION OF DUTIES (a) commissions & brokerage fees
(1)ORDINARY/REGULAR DUTIES (b) cost of containers
Ordinary or regular duties refer to those (c) cost of packing (labor, materials)
that, as a matter of course, are imposed on (d) assists (value of goods and services
dutiable articles [Sec. 104, TCC] supplied by the buyer free of charge or at
a reduced price for use in connection
(a) Ad valorem; Methods of valuation with the production and sale for export of
The tax rates are based on the cost the good)
(FMV) or price of the imported articles, (e) royalties & license fees
in wholesale quantities in the principal (f) value of any part of the proceeds of
market of the exporting country or the subsequent resale, disposal or use of
country of origin, including expenses imported goods that accrue directly or
connected with the importation, such as indirectly to seller
insurance, freight, packaging, loading (g) cost of transport
and unloading charges, but excluding (h) loading, unloading, handling
internal excise taxes to be remitted or (i) insurance
rebated; or
(a) In case such value is not Dutiable Value (DV) must NOT include:
ascertainable, the reports of the (a) charges for construction, erection,
Revenue or commercial attaches; or assembly maintenance or technical
(b) If still not ascertainable, the assistance undertaken after importation
domestic wholesale market price in (b) cost of transport after importation
the ordinary course of trade less (c) duties and taxes of Phil
import duty and not more than 25%
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(d) other permissible deduction under WTO Similar goods must be same commercial
Valuation Agreement level and substantially same quantity as the
goods being valued.
Transaction Value of Identical Goods
The DV shall be the transaction value Similar goods
of identical goods sold for export to the Phil (a) like characteristics and like component
and exported at or about the same time as the materials
goods being valued. Identical goods must be (b) capable of performing same functions
same commercial level and substantially same (c) commercially interchangeable
quantity as the goods being valued. (d) produced in same country
(e) produced by same producer
Identical goods
(a) Same in all respects (physical Excludes: imported goods for which
characteristics, quality and reputation) engineering, development, artwork, design
(b) Produced in the same country as the goods work, plans and sketches is undertaken in the
being valued Phil and provided by the buyer to the producer
(c) Produced by producer of the goods being free of charge or at a reduced rate
valued
When no similar goods produced by the same
Excludes: imported goods for which person:
engineering, development, artwork, design similar goods produced by different producer
work, plans and sketches is undertaken in the in the same country
Phil and provided by the buyer to the producer
free of charge or at a reduced rate If NO similar goods at same commercial level
and same quantity,
When no identical goods produced by the same (a) TV of similar goods at a different
person: commercial level and different quantity may
Identical goods produced by different producer be utilized
in the same country (b) TV shall be adjusted upward or downward
to account for the difference
If NO identical goods at same commercial level
and same quantity, Deductive value
(a) TV of identical goods at a different DV is determined on the basis of sales in the
commercial level and different quantity may Phil of goods being valued of identical or
be utilized similar imported goods less certain expenses
(b) TV shall be adjusted upward or downward resulting from importation and sale of goods.
to account for the difference
Deductive Value is determined by making a
Transaction value of similar goods deduction from the established price per unit
The DV shall be the transaction value of for the aggregate of the ff elements:
similar goods sold for export to the Phil and (a) Commissions OR
exported at or about the same time as the (b) additions made in connection with profit
goods being valued. and general expenses AND
(c) transport, insurance and associated
costs
(d) customs duties and other national taxes
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START
Collector’s Amount
decision favorable Automatic review* by Customs
Yes involved less Yes
to taxpayer/ Commisioner (Sec. 2313)
than 5M?
adverse to gov’t?
Is
Does
No Commissioner’s
commissioner
Yes decision favorable
decide w/in 30
Taxpayer appeals to taxpayer/
days?
to Customs adverse to gov’t?
Commissioner 15
days from receipt No
of notice
Inaction construed as affirmation
of Collector’s decision
Does
Commissioner
Yes No, amount is at least
decide w/n 30
Is 5M
days?
Commissioner’s Yes
Automatic Review* by
decision
the Secretary of
favorable to Yes
Finance (SOF) (Sec.
taxpayer/
2313, CMO 3-2002)
adverse to
gov’t?
Is SOF’s
decision Does SOF
No favorable to Yes decide within
No No taxpayer/adverse 30 days?
to gov’t?
No
Yes
Inaction construed as
affirmation of
Decision becomes
commissioner’s decision No
END final &
(or of collector’s decision Appeal
unappealable
in case of inaction by to CTA
commissioner)
Appeal to the
Inaction construed
Court of Tax
as affirmation of
Appeals within 30
Collector’s
days from notice
decision
of decision
Appeal to CTA en
MR within 15 days
banc 15 days from Appeal to the
from receipt of END
receipt of decision Supreme Court
decision
denying MR
*Automatic review is intended to protect the interest of the Government. W/o auto review, the Commissioner and SoF would not know
about the decision laid down by the Collector favoring the taxpayer. Automatic review is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the taxpayer & adverse to the Government. (Yaokasin v. Commissioner 180 SCTA 591
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For b),
compute as
follows:
(a) 0 - if price
difference
is at most
10% of the
trigger
price
(b) 30% of the
amount by
which the
price
difference
exceeds
10% of the
trigger
price
(c) 50% - if it
exceeds
40% but
less than
60%
(d) 70% - if it
exceeds 60
but at most
75%
(e) 90% - if it
exceeds
75%
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appeal within 30 days from the receipt of the trial pursuant to Section 2, Rule 53 and
copy of the decision. Section 12, Rule 124 of the Rules of
Court. [Sec. 2, Rule 12, A.M. No. 05-11-
Mode of Appeal: Rule 43 07]
(ii) Taking of evidence by:
(1) Suspension of collection of tax (a) Justice—
The Court may, motu proprio or upon
General Rule: No appeal taken to the Court proper motion, direct that a case, or
shall suspend the payment, levy, distraint, any issue therein, be assigned to one of
or sale of any property of the taxpayer for its members for the taking of evidence,
the satisfaction of his tax liability as when the determination of a question
provided under existing laws. of fact arises at any stage of the
proceedings, or when the taking of an
Exception: Where the collection of the account is necessary, or when the
amount of the taxpayer’s liability, sought by determination of an issue of fact
means of a demand for payment, by levy, requires the examination of a long
distraint or sale of any property of the account. The hearing before such
taxpayer, or by whatever means, as justice shall proceed in all respects as
provided under existing laws, may though the same had been made
jeopardize the interest of the Government or before the Court.
the taxpayer, an interested party may file a
motion for the suspension of the collection Upon the completion of such hearing,
of the tax liability the justice concerned shall promptly
submit to the Court a written report
(i) Injunction not available to restrain thereon, stating therein his findings
collection and conclusions. Thereafter, the Court
No court shall have authority to grant an shall render its decision on the case,
injunction to restrain the collection of adopting, modifying, or rejecting the
any national internal revenue tax, fee or report in whole or in part, or, the Court
charge imposed by the Code. [Sec. 217, may, in its discretion, recommit it to
NIRC] the justice with instructions, or receive
further evidence. (Sec. 12, RA No. 1125,
Note: The Local Government Code does as amended; also Sec. 3, Rule 12, A.M.
not have a provision prohibiting No. 05-11-07)
injunction in the collection of tax.
(b) Court Official –
(2) Taking of evidence In default or ex parte hearings, or in
(i) The Court may receive evidence in the any case where the parties agree in
following cases: writing, the Court may delegate the
(a) In all cases falling within the original reception of evidence to the Clerk of
jurisdiction of the Court in Division Court, the Division Clerks of Court,
pursuant to Section 3, Rule 4 of these their assistants who are members of
Rules; and the Philippine bar, or any Court
(b) In appeals in both civil and criminal attorney. The reception of documentary
cases where the Court grants a new evidence by a Court official shall be for
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Maybe opposed by: The adverse party may file Grounds: A motion for new trial may be based
an opposition to the motion for reconsideration on one or more of the following causes
or new trial within ten days after his receipt of materially affecting the substantial rights of
a copy of the motion for reconsideration or new the movant:
trial of a decision, resolution or order of the (a) Fraud, accident, mistake or excusable
Court. negligence which ordinary prudence
could not have guarded against and by
When: He shall file a motion for reason of which such aggrieved party
reconsideration or new trial within fifteen days has probably been impaired in his rights;
from the date he received notice of the decision, or
resolution or order of the Court in question. (b) Newly discovered evidence, which he
could not, with reasonable diligence,
The Court shall resolve the motion for have discovered and produced at the
reconsideration or new trial within three trial and, which, if presented, would
months from the time it is deemed submitted probably alter the result.
for resolution.
A motion for new trial shall include all grounds
How: The motion shall be in writing stating its then available and those not included shall be
grounds, a written notice of which shall be deemed waived.
served by the movant on the adverse party.
Restrictions: No party shall be allowed to file a
A motion for new trial shall be proved in the second motion for reconsideration of a decision,
manner provided for proof of motions. A final resolution or order; or for new trial.
motion for the cause mentioned in
subparagraph (a) of the preceding section Appeal to the CTA, en banc
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No civil proceeding involving matter arising (b) Those involving violations of the tariff and
under the National Internal Revenue Code, the Customs Code and other laws enforced by
Tariff and Customs Code or the Local the Bureau of Customs- Must be approved
Government Code shall be maintained, except by the Commissioner of Customs
as herein provided, until and unless an appeal Shall interrupt the running of the period of
has been previously filed with the CTA and prescription
disposed of in accordance with the provisions
of this Act. (2) Prosecution of criminal action
(a) Conducted and prosecuted under the
A party adversely affected by a resolution of a direction and control of the public
Division of the CTA on a motion for prosecutor
reconsideration or new trial, may file a petition (b) Those involving violations of the NIRC
for review with the CTA en banc. (Sec. 18, RA and other laws enforced by the BIR or
No. 1125 as amended) violations of the tariff and Customs Code
and other laws enforced by the Bureau of
Petition for review on certiorari to the Supreme Customs - The prosecution may be
Court [Rule 16, A.M. No. 05-11-07] conducted by their respective duly
A party adversely affected by a decision or deputized legal officers.
ruling of the Court en banc may appeal by
filing with the Supreme Court a verified (3) Institution on civil action in criminal action
petition for review on certiorari within fifteen In cases within the jurisdiction of the
days from receipt of a copy of the decision or Court, the criminal action and the
resolution, as provided in Rule 45 of the Rules corresponding civil action for the
of Court. If such party has filed a motion for recovery of civil liability for taxes and
reconsideration or for new trial, the period penalties shall be deemed jointly
herein fixed shall run from the party’s receipt instituted in the same proceeding. The
of a copy of the resolution denying the motion filing of the criminal action shall
for reconsideration or for new trial. necessarily carry with it the filing of the
civil action. No right to reserve the filing
The motion for reconsideration or for new trial of such civil action separately from the
filed before the Court shall be deemed criminal action shall be allowed or
abandoned if, during its pendency, the movant recognized.
shall appeal to the Supreme Court.
Appeal and period to appeal criminal cases
CRIMINAL CASES Deciding Period to Mode of
Institution and prosecution of criminal actions Body Appeal Appeal
Regional 15 days from Appeal
(1) Institution of criminal action Trial Court in receipt of pursuant to
Instituted by the filing an information in the the exercise decision Sec. 3(a) and
name of the People of the Philippines of its original 6, Rule 122 of
(a) Those involving violations of the NIRC and jurisdiction the Rules of
other laws enforced by the BIR - Must be (to CTA Court
approved by the Commissioner of Internal Division)
Revenue CTA Division 15 days from Petition for
(to CTA En receipt of review as
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importantly, the use of taxes for public adequate relief available in any other form
purpose. Former President Marcos issued or proceeding.
LOI No. 1465 with the intention of
rehabilitating an ailing private company. CJH Development Corp. v. BIR (GR No.
This is clear from the text of the LOI. PPI is 172457, Dec. 24, 2008) However, CJH is not
expressly named in the LOI as the direct left without recourse. The Tariff and
beneficiary of the levy. Worse, the levy was Customs Code (TCC) provides for the
made dependent and conditional upon PPI administrative and judicial remedies
becoming financially viable. The LOI available to a taxpayer who is minded to
provided that "the capital contribution shall contest an assessment, subject of course to
be collected until adequate capital is raised certain reglementary periods. The TCC
to make PPI viable." provides that a protest can be raised
provided that payment first be made of the
The constitutionality of the levy is already in amount due.The decision of the Collector
doubt on a plain reading of the statute. It is can be reviewed by the Commissioner of
Our constitutional duty to squarely resolve Customs who can approve, modify or
the issue as the final arbiter of all justiciable reverse the decision or action of the
controversies. The doctrine of standing, Collector. If the party is not satisfied with
being a mere procedural technicality, the ruling of the Commissioner, he may file
should be waived, if at all, to adequately the necessary appeal to the Court of Tax
thresh out an important constitutional Appeals. Afterwards, the decision of the
issue. Court of Tax Appeals can be appealed to
this Court.
(3) Ripeness for judicial determination
“Ripeness for judicial determination” means
that litigation is inevitable or there is no
216