Memaid Buo

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES 6. levied for a public purpose.
REQUISITES OF A VALID TAX

1. should be for a public purpose
POWER OF TAXATION
2. the rule of taxation shall be uniform
TAXATION – power by which the
3. that either the person or property
sovereign through its law-making body
taxed be within the jurisdiction of
raises revenue to defray the necessary
the taxing authority
expenses of government from among
4. that the assessment and collection
those who in some measure are
of certain kinds of taxes guarantees
privileged to enjoy its benefits and must
against injustice to individuals,
bear its burdens.
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
6. Subject to be taxed, provided it is The power to tax is an attribute of
within its jurisdiction sovereignty emanating from necessity. It
7. Situs of taxation is a necessary burden to preserve the
State's sovereignty and a means to give
TAXES – enforced proportional the citizenry an army to resist an
contributions from the persons and aggression, a navy to defend its shores
property levied by the law-making body from invasion, a corps of civil servants to
of the State by virtue of its sovereignty serve, public improvements designed for
in support of government and for public the enjoyment of the citizenry and those
needs. which come within the State's territory,
and facilities and protection which a
CHARACTERISTICS OF TAXES government is supposed to provide.
1. forced charge; (Phil. Guaranty Co., Inc. v. CIR)
2. pecuniary burden payable in money;
3. levied by the legislature; 3. Benefits-Protection / Reciprocity
4. assessed with some reasonable rule Theory
of apportionment; (see theoretical Taxation is described as a symbiotic
justice) relationship whereby in exchange of the
5. imposed by the State within its benefits and protection that the citizens
jurisdiction; get from the Government, taxes are
paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE

 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
Guillermo
2 2005 CENTRALIZED BAR OPERATIONS
Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court’s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. “Power to tax is the power to
destroy” (Marshall Dictum) – refers to ASPECTS OF TAXATION
the unlimitedness and the degree or 1. Levy or imposition of the tax (tax
vigor with which the taxing power may legislation)
be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy – sufficiency to
meet government expenditures and
2. “Power to tax is not the power to other public needs.
destroy while the Supreme Court sits” 2. Administrative Feasibility/
(Holmes Dictum) – the power to tax Convenience – capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the State’s
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue – basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public
2. Non-Revenue (Key: PR2EP) purpose
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
3. Benefits Received
e. Protectionism
No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
As long as the legislature, in received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
merely society is property
restrictions, it is not within the province
general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
1
registration fees are regulatory

4. Non-impairment of Contracts exactions and not revenue measures.
Contracts Contracts Contracts may
may not be may be be impaired
impaired impaired
b. The tax imposed on videogram
establishments is not only regulatory but
5. Transfer of Property Rights
a revenue measure because the earnings
Taxes paid No transfer Transfer is
become part but only effected in
of such establishments have not been
of public restraint in favor of the subject to tax depriving the government
funds its exercise State of an additional source of income. (Tio
6. Scope v. Videogram Regulatory Board, 151
All persons, All persons, Only upon a SCRA 208)
property and property, particular
excises rights and property c. The “coconut levy funds” were
privileges all raised under the state’s taxing and
police powers.
SYSTEMS OF TAXATION The state’s concern to make it a
Global System Schedular System strong and secure source not only in the
livelihood of the significant segment of
A system A system employed the population, but also of export
employed where where the income tax
earnings, the sustained growth of which
the tax system treatment varies and
views is made to depend on
is one of the imperatives of the
indifferently the the kind or category economic growth.” Philippine Coconut
tax base and of taxable income of Producers Federation, Inc. Cocofed v.
generally treats in the taxpayer. Presidential Commission on Good
common all Government (178 SCRA 236, 252)
categories of
taxable income of CONSTRUCTION OF TAX LAWS
the individual. 1. Public purpose is always presumed.
A system which A system which 2. If the law is clear, apply the law in
taxes all itemizes the different
accordance to its plain and simple
categories of incomes and provides
income except for varied percentages tenor.
certain passive of taxes, to be 3. A statute will not be construed as
incomes and applied thereto. imposing a tax unless it does so
capital gains. It clearly, expressly and
prescribes a unambiguously.
unitary but 4. In case of doubt, it is construed most
progressive rate strongly against the Government,
for the taxable and liberally in favor of the
aggregate incomes
taxpayer.
and flat rates for
certain passive 5. Provisions of a taxing act are not to
incomes derived be extended by implication.
by individuals. 6. Tax laws operate prospectively
unless the purpose of the legislature
EXAMPLES OF TAXES LEVIED WITH A to give retrospective effect is
REGULATORY PURPOSE, OR COMBINED expressly declared or may be
EXERCISE OF POLICE POWER AND THE POWER implied from the language used.
OF TAXATION. 7. Tax laws are special laws and
prevail over a general law.
a. Motor vehicle registration fees
are now considered revenue or tax NATURE OF TAX LAWS
measures.(Pal v. Edu, G.R No. L-41383, 1. Not political in character
August 15,1988) 2. Civil in nature, not subject to ex
This case reversed the doctrine post facto law prohibitions
previously held in Republic v. Philippine 3. Not penal in character
Rabbit Bus Lines, Inc., 32 SCRA 211, to
the effect that motor vehicle

Cabrera, Jhundee
Guillermo
TAXES ARE PERSONAL TO THE TAXPAYER the tax falls on one person but
1. A corporation’s tax delinquency the burden thereof can be
cannot be enforced against its shifted or passed on to another.
stockholders. (Corporate Entity 3. As to purpose:
Doctrine) a. General Tax – levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax – levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax – the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax – tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax – levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax – levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax – rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax – tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax – based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax – taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll – amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax – assessed on used.
property of a certain class 2. Penalty – punishment for the
c. Excise Tax – imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty – amount
d. Customs Duties – duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment – levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax – both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee – regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
CHAIRPERSONS
1
6. Margin Fee – exaction designed to

stabilize the currency. Normally paid after Normally paid
7. Debt – a sum of money due upon the start of a before
contract or one which is evidenced business commencement of
business
by judgment.
8. Subsidy – a legislative grant of Taxes, being the License fee may be
money in aid of a private enterprise lifeblood of the with or without
deemed to promote the public State, cannot be consideration
welfare. surrendered except
9. Customs duties and fees – duties for lawful
charged upon commodities on their consideration
being transported into or exported
from a country. Non-payment does Non-payment
10. Revenue – a broad term that not make the makes the business
business illegal but illegal
includes taxes and income from
maybe a ground for
other sources as well. criminal
11. Impost – in its general sense, it prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on TEST IN DETERMINING IF THE IMPOSITION IS A
imported goods and merchandise. TAX OR A LICENSE FEE
If the purpose is primarily revenue
Tax Special or if revenue is, at least, one of the real
Assessment and substantial purposes, then the
exaction is a tax. If the purpose is
Imposed on persons, Levied only on land
property and excises
regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit Due to the May be due to the
benefit
government in its government but in
sovereign capacity its corporate
Levied and paid Exceptional both as
capacity
annually to time and locality
Payable in money Payable in money,
Exemption granted Exemption does not
property or services
is applicable (Art. apply.
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee Not subject to Subject to
compensation or compensation or
Based on the power Emanates from set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory punished by case of non-payment
revenue imprisonment (Art. III, Sec. 20
except in poll tax 1987 Constitution)
Amount is unlimited Amount is limited
to the cost of (1) Imposed only by Can be imposed by
issuing the license, public authority private individual
and (2) inspection
and surveillance

Cabrera, Jhundee
Guillermo
TEST IN DETERMINING IF THE IMPOSITION IS A compensation takes place by operation

TAX OR A LICENSE FEE of law. (Domingo v. Garlitos)
If the purpose is primarily revenue or
if revenue is, at least, one of the real DOCTRINE OF EQUITABLE RECOUPMENT NOT
and substantial purposes, then the FOLLOWED IN THE PHILIPPINES
exaction is a tax. If the purpose is A tax presently being assessed
regulatory in nature, it is a license. against a taxpayer which has prescribed
(PAL v. Edu) may not be recouped or set-off against
an overpaid tax the refund of which is
Tax Debt also barred by prescription. It is against
public policy since both parties are
An obligation Created by contract guilty of negligence.
imposed by law
Tax Toll
Due to the May be due to the
government in its government but in Enforced A sum of money for
sovereign capacity its corporate proportional the use of
capacity contributions from something, a
persons and property consideration which
Payable in money Payable in money, is paid for the use of
property or services a property which is
of a public nature;
Does not draw Draws interest if e.g. road, bridge
interest except in stipulated or
case of delinquency delayed A demand of A demand of
sovereignty proprietorship
Not assignable Assignable
No limit as to the Amount of toll
amount of tax depends upon the
Not subject to Subject to
cost of construction
compensation or compensation or or maintenance of
set-off set-off the public
improvement used
Non-payment is No imprisonment in
punished by case of non- Imposed only by the May be imposed by:
imprisonment payment (Art. III, State (1) Government
except in poll tax Sec. 20 1987 (2) Private
Constitution) individuals or
entities
Imposed only by Can be imposed by
public authority private individual Tax Penalty
COMPENSATION OR SET-OFF Enforced Sanction imposed as

General Rule: Taxes cannot be the proportional a punishment for
subject of compensation or set-off. contributions from violation of a law
persons and or acts deemed
Reasons:
property injurious; violation
1. lifeblood theory of tax laws may give
2. taxes are not contractual rise to imposition of
obligation but arise out of duty penalty
to the government
3. the government and the Intended to raise Designed to regulate
taxpayer are not mutually revenue conduct
creditors and debtors of each
other. (Francia v. IAC) May be imposed May be imposed by:
Exception: When both obligations are only by the (1) Government
government (2) Private
due and demandable as well as fully
individuals or
liquidated and all the requisites for a entities
valid compensation are present,

CHAIRPERSONS
1
Tax Tariff (2) NON-DELEGABILITY OF THE TAXING

POWER
All embracing term A kind of tax General Rule: The power of taxation is
to include various imposed on articles peculiarly and exclusively exercised by
kinds of enforced which are traded the legislature. (See Scope of
contributions upon internationally Legislative Taxing Power, supra)
persons for the
attainment of
- refers to tax legislation
public purposes Exceptions to Non-delegability:
1. Flexible Tariff Clause: Authority of
TAXPAYERS’ SUIT the President to fix tariff rates,
A case where the act complained of import and export quotas, tonnage
directly involves the illegal disbursement and wharfage dues, and other duties
of public funds derive from taxation or imposts. (Art. VI, Sec.28(2), 1987
(Justice Melo, dissenting in Kilosbayan, Constitution)
Inc vs Guingona, Jr.) 2. Power of local government units to
levy taxes, fees, and charges. (Art.
TAXPAYERS AND PUBLIC OFFCIALS HAVE X, Sec. 5, 1987 Constitution)
LOCUS STANDI 3. Delegation to administrative
REQUISITES FOR TAXPAYERS’ SUIT agencies for implementation and
a. The tax money is being collection.
extracted and spent in violation of - merely refers to tax administration
specific constitutional protections or implementation
against abuses of legislative power.
b. That public money is being (3) SITUS OR TERRITORIALITY OF TAXATION
deflected to any improper purpose The power to tax is limited only to
(Pascual vs Secretary of Public persons, property or businesses within
Works) the jurisdiction or territory of the taxing
c. That the petitioner seeks to power.
restrain respondents from wasting
public funds through the enforcement FACTORS THAT DETERMINE THE SITUS:
of an invalid or unconstitutional law a. Kind or classification of the tax
being levied
LIMITATIONS ON THE TAXING b. Situs of the thing or property
taxed
POWER
c. Citizenship of the taxpayer
d. Residence of the taxpayer
A. INHERENT LIMITATIONS (KEY: SPINE) e. Source of the income taxed
1. Territoriality or Situs of taxation f. Situs of the excise, privilege,
2. Public purpose of taxes business or occupation being taxed
3. International comity
4. Non-delegability of the taxing power APPLICATION OF SITUS OF TAXATION
5. Tax Exemption of the government Kind of Tax Situs
(1) TESTS IN DETERMINING PUBLIC PURPOSE Personal or Residence or
a. Duty Test – whether the thing to be Community tax domicile of the
furthered by the appropriation of taxpayer
public revenue is something, which
is the duty of the State, as a Real property tax Location of property
government, to provide. (Lex rei sitae)
Personal property -tangible: where it

b. Promotion of General Welfare Test
tax is physically located
– whether the proceeds of the tax or permanently kept
will directly promote the welfare of (Lex rei sitae)
the community in equal measure. -intangible: subject
to Sec. 104 of the
NIRC and the

Cabrera, Jhundee
Guillermo
principle of mobilia bonds have acquired a business

sequuntur personam situs in the Philippines; and
(5) shares or rights in any
partnership, business or industry
Business tax Place of business established in the Philippines.
(Sec. 104, 1997 NIRC).
Excise or Privilege Where the act is
tax performed or where
occupation is (4) EXEMPTION OF THE GOVERNMENT
pursued As a matter of public policy,
property of the State and of its
Sales tax Where the sale is municipal subdivisions devoted to
consummated government uses and purposes is
deemed to be exempt from taxation
Income Tax Consider although no express provision in the law
(1) citizenship, is made therefor.
(2) residence, and
(3) source of income
(Sec. 42, 1997 NIRC) General Rule: The Government is tax
exempt.
Transfer tax Residence or - However, it can also tax itself.
citizenship of the
taxpayer or location RULES:
of property 1. Administrative Agencies
a. Governmental function - tax
Franchise Tax State which granted exempt unless when the law
the franchise expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL b. Proprietary function – taxable
PROPERTY unless exempted by law. (Sec.
General Rule: Domicile of the owner 27C)
pursuant to the principle of the mobilia 2. GOCCs
sequuntur personam or movables follow General Rule: Income is taxable at
the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax –
and donor’s taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes – exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function
CHAIRPERSONS
1
accruing to the Government of the instrumentalities, as well as on its

Philippines or to any political property held and activities undertaken
subdivision thereof is not included in in that capacity. Even where one enters
gross income and exempt from the territory of another, there is an
taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
5. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for a. The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity b. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donor’s tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose
taxes on a sovereign state and its

Cabrera, Jhundee
Guillermo
4. Non-Infringement Of Religious due conferred and rate. There

Freedom And Worship (Art. III, Sec. process of liabilities should
5, 1987 Constitution) law. imposed. therefore,
A license tax or fee constitutes a Notice be no direct
must, double
curtailment of religious freedom if
therefore taxation
imposed as a condition for its , be given
exercise. (American Bible Society in case of
vs. City of Manila, GR No. L-9637, failure to
April 30, 1957) pay taxes
5. Non-Impairment Of Contracts (Art. B. SPECIFIC OR DIRECT

III, Sec. 10, 1987 Constitution) CONSTITUTIONAL LIMITATIONS
No law impairing the obligation
of contract shall be passed. (Sec. 1. Non-Imprisonment For Debt Or Non-
10, Art. III, 1987 Constitution) Payment Of Poll Tax (Art. III, Sec.
The rule, however, does not 20, 1987 Constitution)
apply to public utility franchises or
right since they are subject to 2. Rule Requiring That Appropriations,
amendment, alteration or repeal by Revenue And Tariff Bills Shall
the Congress when the public Originate Exclusively From The
interest so requires. (Cagayan House Of Representatives (Art. VI,
Electric & Light Co., Inc. v. Sec. 24, 1987 Constitution)
Commissioner, GR No. 60216,
September 25, 1985) 3. Uniformity, Equitability And
Progressivity Of Taxation (Art. VI,
RULES: Sec. 28(1), 1987 Constitution)
a. When the exemption is bilaterally Uniformity – all taxable articles or
agreed upon between the kinds of property of the same class
government and the taxpayer – it are taxed at the same rate.
cannot be withdrawn without Equitability – the burden falls to
violating the non-impairment those who are more capable to pay.
clause. Progressivity – rate increases as the
b. When it is unilaterally granted by tax base increases.
law, and the same is withdrawn by
virtue of another law – no violation. Q: Is a tax law adopting a regressive
c. When the exemption is granted system of taxation valid?
under a franchise – it may be A: Yes. The Constitution does not
withdrawn at any time thus, not a really prohibit the imposition of indirect
violation of the non-impairment of taxes which, like the VAT, are
contracts regressive. The Constitutional provision
means simply that indirect taxes shall be
6. Presidential power to grant minimized. The mandate to Congress is
reprieves, commutations and not to prescribe, but to evolve, a
pardons and remit fines and progressive tax system. (EVAT En Banc
forfeitures after conviction (ART. Resolution, Tolentino, et al vs Secretary
VII, SEC. 19, 1987 CONSTITUTION) of Finance, October 30, 1995)
Due Equal
Uniformity
Process Protection 4. Limitations On The Congressional
Taxpayer Taxpayers Taxable Power To Delegate To The
may not shall be articles, or
President The Authority To Fix
be treated alike kinds of
deprived under like property of
Tariff Rates, Import And Export
of life, circumstances the same Quotas, Etc. (Art. VI, Sec. 28(2),
liberty or and conditions class, shall 1987 Constitution)
property both in the be taxed at
without privileges the same

CHAIRPERSONS
1
5. Tax Exemption Of Properties

Actually, Directly And Exclusively 6. Voting Requirement In Connection
Used For Religious, Charitable And With The Legislative Grant Of Tax
Educational Purposes. (Art. VI, Exemption (Art. VI, Sec. 28(4),
Sec. 28(3) 7, 1987 Constitution) 1987 Constitution)
The constitutional provision 7. Non-Impairment Of The
(above cited) which grants tax Jurisdiction Of The Supreme Court
exemption applies only to property In Tax Cases (Art. VIII, Sec. 2 And
or realty taxes assessed on such 5(2)(B), 1987 Constitution)
properties used actually, directly
exclusively for religious, charitable 8. Exemption From Taxes Of The
and educational purposes. (Lladoc Revenues And Assets Of
vs. Commissioner, GR No. L-19201, Educational Institutions, Including
June 16, 1965) Grants, Endowments, Donations
The present Constitution And Contributions. (Art. XIV, Sec.
required that for the exemption of 4(3) And (4), 1987 Constitution)
“lands, buildings and
improvements”, they should not only OTHER SPECIFIC TAX PROVISIONS IN
be “exclusively” but also “actually” THE CONSTITUTION
and “directly” used for religious and 1. Power of the President to veto any
charitable purposes. (Province of particular item or items in an
Abra vs. Hernando, GR No. L-49336, appropriation, revenue, or tariff bill.
August 31, 1981) (Art VI, Sec. 27(2), 1987
The test of exemption from Constitution)
taxation is the use of the property 2. Necessity of an appropriation before
for the purposes mentioned in the money may be paid out of the public
Constitution. (Abra Valley College treasury. (Art. VI, Sec. 29 (1), 1987
Inc. vs. Aquino, GR No. L-39086, Constitution)
June 15, 1988) 3. Non-appropriation of public money
or property for the use, benefit, or
EXCLUSIVE BUT NOT ABSOLUTE USE support of any sect, church, or
The term “ exclusively used” does system of religion. (Art. VI, Sec. 29
not necessarily mean total or absolute (2), 1987 Constitution)
use for religious, charitable and 4. Treatment of taxes levied for a
educational purposes. If the property is special purpose. (Art. VI, Sec. 29
incidentally used for said purposes, the (3), 1987 Constitution)
tax exemption may still subsist. (Abra 5. Internal revenue allotments to local
Valley College Inc. vs. Aquino, Gr No. L- government units. (Art. X, Sec. 6,
39086, June 15, 1988) 1987 Constitution)
Corollarily, if a property, although
actually owned by a religious, charitable
and educational institution is used for a DOUBLE TAXATION
non- exempt purpose, the exemption
from tax shall not attach DOUBLE TAXATION – taxing the same
property twice when it should be taxed
ART. XIV, ART. VI, but once.
SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious, IS DOUBLE TAXATION PROHIBITED IN THE
non profit educational,
PHILIPPINES?
educational charitable
institution institutions
No. There is no constitutional
Taxes Income tax Property tax prohibition against double taxation. It is
covered Custom not favored but permissible. (Pepsi Cola
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187)

Cabrera, Jhundee
Guillermo
(1) Direct Duplicate Taxation / manufacture of finished products

Obnoxious – double taxation in the (which are eventually sold) may be
objectionable or prohibited sense. credited against or deducted from
This constitutes a violation of the output tax or tax on the finished
substantive due process. product.
 Foreign income taxes may be
Elements: credited against the Phil. Income
a. the same property or subject tax, subject to certain limitations,
matter is taxed twice when it should by citizens, including members of
be taxed only once. general professional partnerships or
b. both taxes are levied for the beneficiaries of estates or trusts
same purpose (pro rata), as well as domestic
c. imposed by the same taxing corporations.
authority  A tax credit is granted for estate
d. within the same jurisdiction taxes paid to a foreign country on
e. during the same taxing period the estate of citizens and resident
f. covering the same kind or aliens subject to certain limitations.
character of tax.  The donor’s tax imposed upon a
(Villanueva vs. City of Iloilo) citizen or a resident shall be
credited with the amount of any
(2) Indirect Duplicate Taxation – not donor’s tax imposed by the authority
legally objectionable. The absence of a foreign country, subject to
of one or more of the above- certain limitations.
mentioned elements makes the 4. Tax Exemptions
double taxation indirect. 5. Principle of Reciprocity
6. Treaties with other states
(3) Domestic- this arises when the taxes
are imposed by the local or national METHODS RESORTED TO BY A TAX TREATY IN
government (within the same state) ORDER TO ELIMINATE DOUBLE TAXATION
(4) International- refers to the
imposition of comparable taxes in FIRST METHOD: The tax treaty sets out
two or more states on the same the respective rights to tax by the state
taxpayer in respect of the same of source or situs and by the state of
subject matter and for identical residence with regard to certain classes
periods. of income or capital. In some cases, an
exclusive right to tax is conferred in one
REMEDIES OF DOUBLE TAXATION of the contracting states; however, for
1. Tax Sparing Rule – same dividend other items of income or capital, both
earned by a NRFC within the Phil. is states are given the right to tax although
reduced by imposing a lower rate of the amount of tax that may be imposed
15% (in lieu of the 35%), on the by the state of source is limited.
condition that the country to which SECOND METHOD: The state of source is
the NRFC is domiliced shall allow a given a full or limited right to tax
credit against the tax due from the together with the state of residence. In
NRFC, taxes deemed to have been this case, the treaty makes it incumbent
paid in the Phil. (Sec.28 B 5b) (CIR upon the state of residence to allow
vs Procter & Gamble) (GR No. relief in order to avoid double taxation.
66838, Dec. 2, 1991)
2. Tax deductions TWO METHODS OF RELIEF ARE USED UNDER THE
Example: vanishing deduction under SECOND METHOD:
Section 86(A)(2), NIRC
3. Tax credits 1. The exemption method- the income
Instances under the NIRC: or capital which is taxable in the state
 For VAT purposes, the tax on of source or situs is exempted in the
inputs or items that go into the state of residence, although in some
CHAIRPERSONS
1
instances it may be taken into account

in determining the rate of tax applicable IMPACT OF TAXATION – point on which tax
to the tax payer’s remaining income or is originally imposed.
capital.(This may be done using the tax
deduction method which allows foreign INCIDENCE OF TAXATION – point on which
income taxes to be deducted from gross the tax burden finally rests or settles
income, in effect exempting the down.
payment from being further taxed.) Illustration: Value added tax. The
2. The credit method- although the seller is required by law to pay tax, but
income or capital which is taxed in the the burden is actually shifted or passed
state of source is still taxable in the on to the buyer.
state of residence. The tax paid in the
former is credited against the tax, levied KINDS OF SHIFTING
in the latter.(Commissioner of Internal a. Forward shifting- when burden of
Revenue v. S.C Johnson and Son, Inc. et tax is transferred from a factor of
al., G.R No. 127105, June 25, 1999) production through the factors of
distribution until it finally settles on
Exemption the ultimate purchaser or consumer
Credit Method b. Backward shifting- when burden is
Method
Focus is on the Focus is on the tax transferred from consumer through
income or capital factors of distribution to the factors
itself of production
c. Onward shifting- when the tax is
NOTE: Computational illustration shifted 2 or more times either
between a tax deduction and a tax forward or backward
credit:
(2) CAPITALIZATION – a mere increase in
Tax deduction method the value of the property is not income
Gross income but merely an unrealized increase in
Less: allowable deductions capital. No income until after the
including actual sale or other disposition of the
foreign taxes paid property in excess of its original cost.
Income subject to tax EXCEPT: if by reason of appraisal, the
Multiplied by rate cost basis of property increased and the
Income tax due resultant basis is used as the new tax
base for purposes of computing the
Tax credit method allowable depreciation expense, the net
Gross income difference between the original cost
Less: allowable deductions basis and new basis is taxable under the
excluding economic benefit principle. (BIR Ruling
foreign taxes paid No. 029, March 19, 1998)
Income subject to tax
Multiplied by rate (3) TRANSFORMATION – the manufacturer
Income tax due or producer upon whom the tax has been
Less: foreign taxes paid imposed, fearing the loss of his market if
Net income tax due he should add the tax to the price, pays
the tax and endeavors to recoup himself
by improving his process of production,
FORMS OF ESCAPE thereby turning out his units at a lower
FROM TAXATION cost.
(4) TAX AVOIDANCE – the exploitation by

(1) SHIFTING – the process by which the
the taxpayer of legally permissible
tax burden is transferred from the
alternative tax rates or methods of
statutory taxpayer (impact of taxation)
assessing taxable property or income, in
to another (incident of taxation) without
order to avoid or reduce tax liability.
violating the law.

Cabrera, Jhundee
Guillermo
Example: “estate planning” a. Constitutional – immunities from

(conveyance of property to a family taxation that originate from the
corporation for shares) (Delpher Trades constitution.
Corp. vs. IAC, 157 SCRA 349) b. Statutory – those which emanate
(5) TAX EVASION – use by the taxpayer of from legislation
illegal or fraudulent means to defeat or Examples of Statutory Exemptions
lessen the payment of the tax. Sec. 27, NIRC
Sec. 105 Tariff and Customs
FACTORS IN TAX EVASION Code
1. the end to be achieved, i.e. payment Sec. 234 Local Government Code
of less than that known by the taxpayer Special Laws, such as the
to be legally due, or paying no tax when Omnibus Investment Code of 1987
it is shown that the tax is due; (EO 226), Philippine Overseas
2. an accompanying state of mind Shipping Act (RA 1407 as amended),
which is described as being evil, in bad Fertilizer Industry Act (RA 3050, as
faith, willful, or deliberate and not amended), Mineral Resources
coincidental; and Development Decree of 1974 (PD 463
3. a course of action which is unlawful. as amended), Cottage Industry Act
(RA 318, as amended) and
INDICIA OF FRAUD IN TAX EVASION exemptions in “Housing for Low
1. Failure to declare for taxation Income Group” (PD 1205, as
purposes true and actual income derived amended)
from business for 2 consecutive years c. Contractual- agreed to by the
(Republic vs Gonzales, L-17962) taxing authority in contracts
2. Substantial under-declaration of lawfully entered into by them
income tax returns of the taxpayer for 4 under enabling laws
consecutive years coupled with d. Treaty
intentional overstatement of deductions e. Licensing Ordinance
(CIR vs Reyes, 104 PHIL 1061) 2. As to form
(1) Express – expressly granted by
TAX TAX organic or statute law
AVOIDANCE EVASION (2) Implied – when particular
persons, property or excises are
Validity Legal and not Illegal and deemed exempt as they fall
subject to subject to outside the scope of the taxing
criminal penalty criminal provision itself.
penalty
3. As to extent
Effect Minimization of Almost (1) Total – absolute immunity
taxes always (2) Partial – one where a collection
results in of a part of the tax is dispensed
absence of with
tax payments 4. As to object
(1) Personal – granted directly in
(6) TAX EXEMPTION – a grant of favor of certain persons
immunity to particular persons or (2) Impersonal – granted directly in
corporations from the obligation to pay favor of a certain class of
taxes. property
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be
CHAIRPERSONS
1
mistaken. If ambiguous, there is no parties based on material

exemption. consideration of a mutual nature,
c. He who claims exemption should which then becomes contractual and
prove by convincing proof that he is covered by the non-impairment
is exempted. clause of the Constitution.
d. Taxation is the rule; tax exemption b. Adherence to form- if the tax
is the exception. exemption is granted by the
e. Tax exemption must be strictly Constitution, its revocation may be
construed against the taxpayer and effected through Constitutional
liberally in favor of the taxing amendment only
authority. c. Where the tax exemption grant is in
f. Tax exemptions are not presumed. the form of a special law and not by
g. Constitutional grants of tax a general law even if the terms of
exemption are self-executing. the general act are broad enough to
h. Tax exemptions are personal. include the codes in the general law
unless there is manifest intent to
THE FOLLOWING PARTAKE THE NATURE OF repeal or alter the special law
TAX EXEMPTION (Province of Misamis Oriental vs
1. Deductions for income tax purposes Cagayan Electric Power and Light
2. Claims for refund Co. Inc)
3. Tax amnesty
4. Condonation of unpaid tax liabilities NATURE OF TAX AMNESTY
NOTE: must be strictly construed 1. General or intentional overlooking by
against the taxpayer the state of its authority to impose
penalties on persons otherwise guilty
WHEN EXEMPTIONS ARE CONSTRUED of evasion or violation of a revenue
LIBERALLY IN FAVOR OF GRANTEE or tax law.
1. When the law so provides for such 2. Partakes of an absolute forgiveness of
liberal construction. waiver of the government of its right
2. Exemptions from certain taxes, to collect.
granted under special circumstances 3. To give tax evaders, who wish to
to special classes of persons. relent and are willing to reform a
3. Exemptions in favor of the chance to do so.
government, its political subdivisions
or instrumentalities. RULES ON TAX AMNESTY
4. Exemptions to traditional 1. Tax amnesty
exemptees, such as those in favor of a) like tax exemption, it is never
religious and charitable institutions. favored nor presumed
5. If exemptions refer to the public b) construed strictly against the
property taxpayer (must show complete
compliance with the law)
Q: May a tax exemption be revoked?
A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
a. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.

Cabrera, Jhundee
Guillermo
Reason: Relates to the circumstances fraud or protest, be final and conclusive

of a particular accused and not the upon all parties, unless the liquidation
character of the acts charged in the of import entry was merely tentative.”
information. (Sec 1603,TCC)
Tax amnesty Tax exemption c.) Local Government Code

Local Taxes, fees, or charges shall
Immunity from all Immunity from civil be assessed within five (5) years from
criminal, civil and liability only the date they became due. In case of
administrative fraud or intent to evade the payment of
liabilities arising taxes, fees or charges the same may be
from non payment
of taxes
assessed within ten (10) years from
discovery of the fraud or intent to
Applies only to past Prospective evade payment. They shall also be
tax periods, hence application collected either by administrative or
retroactive judicial action within five (5) years
application from date of assessment (Sec. 194. LGC)
DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

As a rule, taxes are imprescriptible ADMINISTRATION
as they are the lifeblood of the
government. However, tax statutes may SOURCES OF TAX LAWS (Key: SPEC2TRA
provide for statute of limitations. BLT)
The rules that have been adopted 1. Statutes
are as follows: 2. Presidential Decrees
a.) National Internal Revenue Code 3. Executive Orders
The statute of limitation for 4. Constitution
assessment of tax if a return is filed is 5. Court Decisions
within three (3) years from the last day 6. Tax Codes
prescribed by law for the filling of the 7. Revenue Regulations
return or if filed after the last day, 8. Administrative Issuances
within three years from date of actual 9. BIR Rulings
filling. If no return is filed or the return 10. Local Tax Ordinance
filed is false or fraudulent, the period to 11. Tax Treaties and Conventions
assess is within ten years from discovery
of the omission, fraud or falsity. REQUISITES OF TAX REGULATIONS
The period to collect tax is within 1. Reasonable
three years from date of assessment. In 2. Within the authority conferred
the case, however, of omission to file or 3. Not contrary to law
if the return filed is false or fraudulent, 4. Must be published
the period to collect is within ten years
from discovery without need of an NOTE: Administrative regulations must
assessment. always be in harmony with the
provisions of the law. In case of
b.) Tariff and customs code discrepancy between the basic law and
It does not express any general the implementing rule or regulation, the
statute of limitation; it provided, former prevails.
however, that ‘’ when articles have
entered and passed free of duty or final NON-RETROACTIVITY OF BIR RULINGS
adjustment of duties made, with General Rule: Rulings are not
subsequent delivery, such entry and retroactive if they are prejudicial to the
passage free of duty or settlement of taxpayer. (Sec. 246, NIRC)
duties will, after the expiration of one Exceptions:
(1) year, from the date of the final
payment of duties, in the absence of
CHAIRPERSONS
1
1. Where the taxpayer deliberately

misstates or omits material facts ORGANIZATION AND FUNCTION OF THE
from his return or any document BUREAU OF INTERNAL REVENUE (BIR)
required of him by the BIR. BIR shall be under the supervision
2. Where the facts subsequently and control of the Dept. of Finance (Sec.
gathered by the BIR is materially 2, NIRC)
different from the facts on which
the ruling is based. POWERS AND DUTIES OF THE BIR
3. Where the taxpayer acted in bad Assessment and collection of all
faith. national internal revenue taxes, fees,
and charges
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,
ADMINISTRATIVE INTERPRETATION THROUGH penalties, and fines connected
REENACTMENT therewith
Where a statute is susceptible of the 2. Execution of judgments in all cases
meaning placed upon it by a ruling of decided in its favor by the Court of
the government agency charged with its Tax Appeals (CTA) and the ordinary
enforcement and the legislature courts
thereafter reenacts the provision 3. Give effect to and administer the
without substantial change, such action supervisory and police powers
is to some extent confirmatory that the conferred to it by the Code or other
ruling carries out the legislative laws
purpose.
ASSESSMENT – a finding by the taxing
RULE OF NO ESTOPPEL AGAINST THE authority that the taxpayer has not paid
GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
fair play, as where injustice will result Exceptions:
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
– internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate a. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs – customs law interests,
enforcement b. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers – local and c. In the establishment of tax liens,
real property taxes and

Cabrera, Jhundee
Guillermo
d. In estimating the revenues that may 2. It should be based on actual facts.

be collected by government in the 3. It is discretionary on the part of the
coming year. (Mamalateo, Commissioner.
Victorino. Reviewer on Taxation,
2004)
KINDS 4. The authority of the Commissioner

1. SELF- ASSESSMENT- one in which the to assess taxes may be delegated,
tax is assessed by the taxpayer except the power to make final
himself assessments.
2. DEFICIENCY ASSESSMENT- made by the 5. It must be directed to the right
tax assessor himself whereby the party.
correct amount of the tax is
determined after an examination or Authority of a Revenue Officer -
investigation is conducted. The pursuant to a Letter of Authority issued
liability is determined and assessed by the Regional Director
for the following reason: a. To examine taxpayers within
a. amount ascertained exceeds that the jurisdiction of the district in
which is shown as the tax by the order to collect the correct
taxpayer in his return amount of tax;
b. no amount of tax is shown in the b. To recommend the assessment of
return any deficiency tax due in the
c. taxpayer did not file any return same manner that the said acts
at all could have been performed by the
3. ILLEGAL AND VOID ASSESSMENT- Revenue Regional Director.
assessment wherein tax assessor has General Rule: income tax returns are
no power to assess at all confidential.
4. ERRONEOUS ASSESSMENT- assessor has Exception: inquiry into income tax
power to assess but errs in the returns may be authorized-
exercise thereof
1. inspection is authorized upon
BURDEN OF PROOF IN PRE-ASSESSMENT written order of the President of the
PROCEEDINGS Philippines;
There is a presumption of 2. inspection is authorized under
correctness and good faith on the part of Finance Regulations No. 33 of the
the CIR; thus, the burden lies on the Secretary of Finance;
taxpayer. Otherwise, the finding of the 3. production of the tax return is
CIR will be conclusive and he will assess material evidence in a criminal case
the taxpayer. The same is true even if wherein the government is
the CIR is wrong, if the taxpayer does interested in the result; or
not controvert. (Cagayan Robina Sugar 4. production or inspection thereof is
Milling Co. vs. Court of Appeals, GR. authorized by the taxpayer himself.
No. 122451, October 12, 2000)
Reasons: a. lifeblood theory Networth Method- inventory method of
b. presumption of regularity in income tax verification.
performance of public
functions  Applies the accounting principle:
NOTE: Assessments by the BIR must have assets – liabilities = networth
on its face the law and facts upon which Condition for its use:
the presumption is made. 1. taxpayer’s books do not clearly
reflect his income or the taxpayer
PRINCIPLES GOVERNING TAX ASSESSMENTS has no books, or if he has books, he
1. Assessments are prima facie refuses to produce them;
presumed correct and made in good
faith.
CHAIRPERSONS
1
2. there is evidence of possible source controlled corporations) (e.g. LTO,

or sources of income to account for Register of Deeds)
increases in networth; 3. to Summon
3. there is a fixed starting point or i. the person liable for tax or
opening networth; and required to file a return or
4. there must be proper adjustments to ii. any officer or employee of such
conform with the income tax laws. person or
iii. any person having in his
possession/custody/care
POWERS AND DUTIES OF THE COMMISSIONER -- the books of accounts,
I. SECTION 4 (power to interpret tax law -- accounting records of entries
and decide tax cases) relating to the business of the
person liable for tax or any other
1. Interpret provisions of this Code and person
other tax laws subject to review of the -- to produce such books,
Secretary of Finance papers, records, and other data
(Quasi-legislative) and to give testimony
2. Decide: (Quasi-judicial) 4. to take the Testimony of the person
a) disputed assessment concerned, under oath as may be
b) refunds of internal relevant to the inquiry
revenue taxes, fees and charges 5. to cause revenue officers and
c) penalties imposed in employees to make a Canvass of any
relation thereto revenue district or region
d) other matters arising
from this Code or other laws or Nothing in Section 5 shall be
portions thereof administered by construed as granting the Commissioner
the BIR subject to the exclusive the authority to inquire into bank
appellate jurisdiction of the CTA deposits other than as provided for
(Sec. 4) under sec. 6 (F) of the Code.
II. SECTION 5 (power to obtain III. SECTION 6 (power to make

information, summon, examine and take assessments, prescribe additional
testimony of persons) requirements for tax administration
and enforcement)
3. For the Commissioner to ascertain:
(a) correctness of any return or in 4. Examination of returns and
making a return where none has determination of tax due
been made A. After a return has been filed the
(b) liability of any person for any Commissioner or his
internal revenue tax or in representative may authorize
correcting such liability i.
(c) tax compliance the Examination of any taxpayer
and
The Commissioner is authorized: ii.
1. to Examine any relevant Book, paper, the Assessment of the correct
record or other data amount of tax;
2. to Obtain any information (costs, B. F
volume of production, receipts, sales, ailure to file a return shall not
gross income, etc), on a regular basis prevent the commissioner from
from: authorizing the examination of
i. any person other than the person any taxpayer;
under investigation or * Any tax or deficiency tax so
ii. any office or officer of the assessed shall be paid upon
national/local government, gov’t notice and demand from the
agencies and instrumentalities Commissioner or his
(Bangko Sentral, gov’t owned and representative

Cabrera, Jhundee
Guillermo
* Any return, statement or i. When a person has failed to

declaration filed in any issue receipts as required by
authorized office shall not be sec.113 (Invoice requirements
withdrawn; but within three for VAT-registered persons)
years from date of filing, the and Sec. 237 (Issuance of
same may be modified, Receipts or Commercial
changed or amended; Invoices) or
provided that no notice for ii. When the books of accounts
audit or investigation of such or records do not correctly
return, has in the meantime, reflect the declarations made
been actually served upon the or required to be made in a
taxpayer. return,
Such minimum amount shall
5.Failure to submit required returns and be considered correct.
other documents 7. Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such b) is intending to leave the Phils.
information as he can obtain or
through testimony or otherwise c) to remove his property
which shall be prima facie therefrom or
correct and sufficient for all d) to hide or conceal his property
legal purposes or
e) is performing any act tending to
6.Inventory-taking, Surveillance, obstruct the proceedings for
Presumptive Gross Sales the collection of tax
A. Commissioner may, at any time
during the taxable year 8. Prescribe Real Property Values
(a) order the inventory taking of The Commissioner is authorized to:
goods of any taxpayer or a. Divide the Phils. into different
(b) may place the business zones or areas and
operations of any person b. Determine the fair market value
(natural/juridical) under of real properties located in each
observation or Surveillance, zone or area
if there is reason to
believe that such is not For tax purposes, the value of
declaring his correct income, the property shall be whichever is
sales or receipts for tax higher of:
purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business):
CHAIRPERSONS
1
authorized to inquire into the Bank a) power to Recommend the

deposits of: promulgation of rules and
(a) a decedent to determine his gross regulations by the Sec. of
estate Finance
(b) a taxpayer who has filed an b) power to Issue rulings of first
application to compromise impression or to Reverse, revoke
payment of tax liability by reason modify any existing rule of the
of financial incapacity BIR
c) power to Compromise or Abate
The taxpayer’s application for any tax liability
compromise shall not be considered
unless he waives in writing his
privilege under RA 1405 and other
general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
10. Authority to Register tax agents provided however that the
(a) The Commissioner shall accredit regional evaluation board may
and Register, individuals and compromise:
general professional partnerships 1. assessments issued by
and their rep. who prepare and regional offices involving
file tax returns and other papers deficiency taxes of P500,000
or who appear before the BIR or less and
(b) The Commissioner shall create 2. minor criminal violations as
national and regional may be determined by the
accreditation boards. rules and regulations
3. discovered by regional and
Those who are denied district officials
accreditation may appeal the same
to the Sec. Of Finance who shall Regional Evaluation Board is
rule on the appeal within 60 days composed of:
from receipt of such appeal. Failure i. Regional Director as Chairman
to do so within the prescribed ii. Asst. Regional Director
period shall be deemed as approval iii. Heads of the Legal, Assessment
for accreditation. and Collection Div.
iv. Revenue District Officer having
11. Authority to Prescribe Additional jurisdiction over the taxpayer
Requirements
The Commissioner may prescribe d) power to Assign or reassign
the manner of compliance with any internal revenue officers to
documentary or procedural establishments where
Requirement for the submission or articles subject to excise tax
preparation of financial statements are kept.
accompanying tax returns.
V. SECTIONS 8, 14, 15, 16, 17 (Other
IV. SECTION 7 (Authority to Delegate Powers)
Power ) 13. Duty to ensure the provision and
12. The Commissioner may delegate the distribution of forms, receipts,
powers vested in him to certificates, and appliances, and
- subordinate officials with rank the acknowledgment of payment of
equivalent to Division Chief or taxes (Sec. 8)
higher, subject to
limitations/restrictions imposed 14. Authority to administer oaths and to
under the rules and regulations take testimony (Sec. 14)
EXCEPT, (the following powers
shall NOT be delegated)

Cabrera, Jhundee
Guillermo
15. Authority to make arrests and DEFINITIONS

seizures (Sec. 15) INCOME TAX – tax on all yearly profits
arising from property, possessions,
16. Authority to employ, assign or trade or business, or as a tax on a
reassign internal revenue officers person’s income, emoluments,
involved in excise tax functions to profits and the like (61 CJS 1559)
establishments where articles – tax on income,
subject to excise tax are produced whether gross or net. (27 Am. Jur.
or kept (Sec. 16) 308)
17. Authority to assign or reassign INCOME – all wealth, which flows into the
internal revenue officers and taxpayer other than as a mere
employees of the BIR to other or return of capital.
special duties connected with the
enforcement or administration of CAPITAL – resource of person, which
the revenue laws (Sec. 17) can be used in producing goods
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
and services.
TO INSTITUTE APPEAL PROCEEDINGS WITHOUT Income Capital
THE PARTICIPATION OF THE SOLICITOR
GENERAL? All wealth, which Fund or property
flows into the which can be used
NO. The institution or
taxpayer other than in producing goods
commencement before a proper court of as a mere return of or services
civil and criminal actions and capital.
proceedings arising under the Tax
Reform Act which shall be conducted by Flow of Wealth Fund or property
legal officers of the BIR is not in dispute.
An appeal from such court, however, is Source of wealth Wealth
not a matter of right. It is still the
Solicitor General who has the primary REQUISITES FOR INCOME TO BE TAXABLE
responsibility to appear for the 1. There must be a gain or profit.
government in appellate proceedings. 2. The gain must be realized or
(Commissioner vs. La Suerte Cigar and received.
Cigarette Factory, GR No. 144942, July 3. The gain must not be excluded by
4, 2002) law or treaty from taxation.
SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

The following taxes, fees and 1. Flow of Wealth Test – The
charges are deemed to be national determining factor for the
internal revenue taxes. (Sec. 21, NIRC) imposition of income tax is
1. Income tax whether any gain was derived
2. Estate and donor's taxes from the transaction.
3. Value-added tax 1. Realization Test - unless the
4. Other percentage taxes income is deemed "realized,"
5. Excise taxes there is no taxable income.
6. Documentary stamp taxes 2. Economic-Benefit Principle
7. Such other taxes as are or hereafter Test
may be imposed and collected by -flow of wealth realized is
the Bureau of Internal Revenue. taxable only to the extent that
the taxpayer is economically
benefited.
II. NATIONAL TAXATION
CRITERIA IN IMPOSING INCOME TAX
A. INCOME TAXATION 1. Citizenship Principle – A citizen of
the Philippines is subject to Philippine
CHAIRPERSONS
1
income tax (a.) on his worldwide the fact of his physical presence
income, if he resides in the Philippines, abroad with a definite intention
or (b.) only on his income from sources to reside therein;
within the Philippines, if he qualifies as b. who leaves the Philippines
nonresident citizen. during the taxable year to reside
2. Residence Principle – resident alien abroad, either as an immigrant
is liable to pay income tax on his income or for employment on a
from sources within the Philippines but permanent basis;
exempt from tax on his income from c. who works and derives income
sources outside the Philippines. from abroad and whose
3. Source Principle – An alien is subject employment thereat requires
to Philippine income tax because he him to be physically present
derives income from sources within the abroad most of the time during
Philippines. Thus, a nonresident alien is the taxable year;
liable to pay Philippine income tax on d. who is previously considered as a
his income from sources within the non-resident and who arrives in
Philippines such as dividend, interest, the Philippines at anytime during
rent, or royalty, despite the fact that he the taxable year to reside
has not set foot in the Philippines. thereat permanently shall be
CLASSIFICATION OF TAXPAYERS considered non-resident for the
taxable year in which he arrives
Individuals in the Philippines with respect to
a. citizens his income derived from sources
(1) resident citizens (RC) abroad until the date of his
(2) non-resident citizens (NRC) arrival [Sec.22 (E), NIRC]
b. aliens
(1) resident aliens (RA) NOTE: An overseas contract worker
(2) non-resident aliens (NRA) (OCW) is taxable only on income
(a) engaged in trade or derived from sources within the
business within the Philippines. [Sec. 23 (B)(C)]
Phils. (NRAETB) A seaman is considered as an
(b) not engaged in trade or OCW provided the following
business within the requirements are met:
Philippines (NRANETB) 1. receives compensation for services
rendered abroad as a member of
Corporations the complement of a vessel; and
a. Domestic (DC) 2. such vessel is engaged exclusively
b. Foreign in international trade.
(1) resident foreign corporation
(RFC) Based on the above provisions,
(2) non-resident foreign there are three (3) types of
corporation (NRFC) nonresident citizens, namely: (1)
Estates immigrants; (2) employees of a foreign
Trusts entity on a permanent basis; and
Partnerships (3) overseas contract workers.
Immigrants and employees of a foreign
entity on a permanent basis are
A. INDIVIDUALS treated as nonresident citizens from
the time they depart from the
WHO ARE TAXABLE? Philippines. However, overseas
1. Resident Citizen contract workers must be physically
2. Non-resident Citizen present abroad most of the time
A non-resident citizen means, a during the calendar year to qualify as
Filipino citizen: nonresident citizens.
a. who establishes to the 3. Resident alien - means an individual
satisfaction of the Commissioner whose residence is within the

Cabrera, Jhundee
Guillermo
Philippines and who is not a citizen 2. Joint-stock companies;

thereof. [Sec.22 (F, NIRC)] 3. Joint accounts (cuentas en
4. Non-resident alien engaged in participacion)
trade or business within the 4. Associations; or
Philippines. (NRAETB) 5. Insurance companies [Sec. 22(B),
A non-resident alien means an NIRC].
individual whose residence is not
within the Philippines and who is not Excludes:
a citizen thereof. [Sec.22 (G)] 1. General professional
The term trade or business partnerships;
includes the performance of the 2. Joint venture or consortium
functions of a public office. [Sec. 22 formed for the purpose of
(S)] undertaking construction projects or
The term trade, business or engaging in petroleum, coal,
profession shall not include geothermal and other energy
performance of services by the operations pursuant to an operating
taxpayer as an employee. [Sec. 22 or consortium agreement under a
(CC)] service contract with the
A non-resident alien individual Government.
who shall come to the Philippines
and stay therein for an aggregate CORPORATIONS EXEMPT FROM INCOME
period of more than 180 days during TAXATION (FOR INCOME REALIZED AS SUCH)
any calendar year shall be deemed a UNDER NIRC
non-resident alien doing business in 1. Those enumerated under Sec.
the Philippines Section 22(G) 30.
notwithstanding [Sec. 25(A)(1)] Exempt corporations are subject
5. Non-resident alien not engaged in to income tax on their income from
trade or business within the any of their properties, real or
Philippines. (NRANETB) personal, or from any other activities
conducted for profit, regardless of
ONLY RESIDENT CITIZENS are taxable the disposition made of such income.
for income derived from sources within 2. With respect to GOCCs, the
and without the Philippines. All other general rule is that these
individual income taxpayers are taxable corporations are taxable as any
only for income derived from sources other corporation except:
within the Philippines. a. GSIS
b. SSS
 Tax Rates: Please refer to Annex A. c. PHIC
d. PCSO
B. CORPORATIONS e. PAGCOR [Sec. 27 (C)]
3. Regional or Area Headquarters
WHO ARE TAXABLE? under Sec. 22 (DD) – not subject to
1. Domestic Corporation – created or income tax
organized in the Phils. or under its
law [Sec. 22(C), NIRC] Regional operating headquarters
2. Resident Foreign Corporation – under Sec. 22(EE) shall pay a tax of
engaged in trade or business within 10% of their taxable income.
the Philippines [Sec. 22(H), NIRC]
3. Non-resident Foreign Corporation – ONLY DOMESTIC CORPORATIONS are
not engaged in trade or business taxable for income derived from sources
within the Philippines [Sec. 22(I), within and without the Philippines. All
NIRC] other corporate income taxpayers are
A Corporation Includes: taxable only for income derived from
1. Partnerships, no matter how sources within the Philippines.
created or organized;
 Tax Rates: Please refer to Annex B.
CHAIRPERSONS
1
1. If the heirs contribute to the

C. ESTATES AND TRUSTS estate money, property, or
industry with intention to divide
ESTATE – refers to the mass of properties the profits between/among
left by a deceased person. themselves, an unregistered
partnership is created and the
RULES ON TAXABILITY OF ESTATE estate becomes liable for the
When a person who owns property payment of corporate income
dies, the following taxes are payable tax. (Evangelista vs. Collector,
under the provisions of the income tax GR No. L-9996, October 15,
law: 1957; Oña vs. Commissioner, GR
1. Income tax for individual under Sec. No. L-19342, May 25, 1972)
24 and 25 (to cover the period 2. If the heirs, without contributing
beginning January to the time of money, property or industry to
death); improve the estate, simply
2. Estate income tax under Sec. 60 if divide the fruits thereof
the estate is under administration or between/among themselves, a
judicial settlement. co-ownership is created, and
individual income tax is imposed
on the income received by each
of the heirs, payable in their
ESTATES UNDER JUDICIAL SETTLEMENT separate and individual
A. During the Pendency of the capacity. (Pascual vs.
Settlement Commissioner, GR No. L-78133,
General Rule: An estate under October 18, 1988; Obillos vs.
judicial settlement is subject to Commissioner, GR No. L-68118,
income tax in the same manner as October 29, 1985)
individuals. Its status is the same as
the status of the decedent prior to ESTATES NOT UNDER JUDICIAL SETTLEMENT
his death. Pending the extrajudicial
Exceptions: settlement, either of the following
1. The entitlement to personal situations may arise:
exemption is limited only to 1. If the heirs contribute money,
P20,000. property, or industry to the estate
2. No additional exemption is with the intention of dividing the
allowed. profits between/among themselves,
3. The distribution to the heirs an unregistered partnership is
during the taxable year of estate created and the estate becomes
income is deductible from the liable for the payment of corporate
taxable income of the estate. income tax; or
Such distributed income shall 2. If the heirs, without contributing
form part of the respective money, property or industry to the
heirs’ taxable income. estate, simply divide the fruits
Where no such thereof between/among themselves,
distribution to the heirs is made a co-ownership is created and
during the taxable year that the income tax is imposed on the income
income is earned, and such received by each of the heirs,
income is subjected to income payable in their separate and
tax payment by the estate, the individual capacity.
subsequent distribution thereof
is no longer taxable on the part TRUST – A right to the property, whether
of the recipient. real or personal, held by one person for
the benefit of another.
B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL WHEN TRUSTS ARE TAXABLE ENTITIES
DO NOT DIVIDE THE PROPERTY)

Cabrera, Jhundee
Guillermo
1. A trust, the income of which is to be EXEMPTION OF EMPLOYEES’ TRUST

accumulated Provided:
2. A trust in which the fiduciary may, at 1. the employee’s trust must be part of
his discretion, either distribute or a pension, stock bonus or profit
accumulate the income. sharing plan of the employer for the
benefit of some or all of his
RULES ON TAXABILITY OF THE INCOME OF A employees;
TRUST 2. contributions are made to the trust
1. The income of the trust for the by such employer, or such
taxable year which is to be employees, or both;
distributed to the beneficiaries – 3. such contributions are made for the
filing and payment of tax lie on the purpose of distributing to such
beneficiaries. employees both the earnings and
2. The income of the trust which is to principal of the fund accumulated by
be accumulated or held for future the trust, and
distribution whether consisting of 4. that the trust instrument makes it
ordinary income or gain from the impossible for any part of the trust
sale of assets included in the corpus or income to be used for, or
"corpus" of the estate – filing of diverted to, purposes other than the
return and payment of tax become exclusive benefit of such employees.
the burden of the trustee or (Sec. 60B, NIRC)
fiduciary.
Exceptions: Tax exemption is likewise to be
a. In the case of a revocable trust, enjoyed by the income of the pension
the income of the trust will be trust; otherwise, taxation of those
returned by the grantor. earnings would result in a diminution of
b. In a trust where the income is accumulated income and reduce
held for the benefit of the whatever the trust beneficiaries would
grantor, the income of the trust receive out of the trust fund.
becomes income to the grantor. (Commissioner vs. Court of Appeals,
c. In the case of trust Court of Tax Appeals and GCL
administered in a foreign Retirement Plans, GR No. 95022, March
country, the income of the trust; 23, 1992)
undiminished by any amount
distributed to the beneficiaries D. PARTNERSHIPS
shall be taxed to the trustee.
KINDS OF PARTNERSHIP FOR TAX PURPOSES
IRREVOCABLE TRUSTS (irrevocable both as UNDER THE NIRC
to corpus and as to income) – 1. General Professional Partnerships
(GPP) - formed by persons for:
Trust itself, through the trustee or a. the sole purpose of exercising a
fiduciary, is liable for the payment of common profession and
income tax. Taxed exactly in the same b. no part of the income of which is
way as estates under judicial settlement derived from engaging in any
and its status as an individual is that of trade or business. [Sec. 22(B),
the trustor. It is entitled to the NIRC].
minimum personal exemption (P20,000) 2. Taxable or Business Partnership –
and distribution of trust income during All other partnerships except
the taxable year to the beneficiaries is general professional partnerships no
deductible from the trust’s taxable matter, how created or organized.
income. It includes unregistered joint
ventures and business partnerships.
REVOCABLE TRUSTS – the trustor, not the However, joint ventures are not
trust itself, is subject to the payment of taxables as corporations when it is;
income tax on the trust income. (a) undertaking construction projects
CHAIRPERSONS
1
(b) engaged in petroleum, coal and 1. Share of a partner in general

other energy operation under a professional Partnership
service contract with the a. Each partner shall report as
government gross income (business income)
General co-partnerships (GCP) his distributed share actually or
are partnerships, which are by law constructively received in the
assimilated to be within the context net income of the partnership.
of, and so legally contemplated as, (Sec. 26, NIRC) [The same share
corporations. The partnership itself shall be subject to creditable
is subject to corporate taxation. The withholding tax of 10%.] They
individual partners are considered are liable in their separate and
stockholders and, therefore, profits individual capacity.
distributed to them by the
partnership are taxable as dividends. b. Share of a partner in the loss
The taxable income for a taxable of a general professional
year, after deducting the corporate partnership may be taken by the
income tax imposed therein, shall be individual partner in his return
deemed to have been actually or of income.
constructively received by the
partners in the same taxable year
and shall be taxed to them in their c. Each partner in a general
individual capacity whether actually professional partnership shall,
distributed or not. [Sec. 73(D), report as gross income his
NIRC] distributed share in the net
income of the GPP, based on his
LIABILITY OF A PARTNERSHIP agreed ratio, whether he, avails
1. General Professional Partnership .- of itemized or optional standard
They are not subject to income tax, deduction.
but are required to file returns of
their income for the purpose of d. Payments made to a partner of
furnishing information as to the a GPP for services rendered shall
share of each partner in the net gain be considered as ordinary
or profit, which each partner shall business income subject to Sec.
include in his individual return. The 24A (Effective January 1, 1982)
partnership shall act as the
withholding agent. 2. Share of a partner in Taxable or
The net income (income for Business partnership
distribution) shall be computed in a. Share of a partner in the net
the same manner as a corporation. income of a taxable or business
Date of filing of the return is April partnership (dividend) shall be
15 of each year. subject to a final tax as follows.
2. Taxable or Business Partnership -  Resident Citizen, Non-
The income tax of this type of resident Citizen and
Partnership is computed and taxed Resident Alien (2000 and
like that of a corporation. This kind onward) – 10% (Sec. 24B2)
of partnership, like a regular  Non-resident Alien engaged
corporation, is also required to file a in trade or business – 20%
quarterly corporate income tax (Sec. 25 A2)
return. Filing and payment of  Non-resident alien not
quarterly return is within 60 days engaged in trade or business
after the end of each quarter while – 25% (Sec. 25B)
the annual return is on or before b. Share of a partner in the loss
April 15 of the following year. of a taxable or business
partnership maybe taken by the
LIABILITY OF A PARTNER individual partner in his return
Rules: of income.

Cabrera, Jhundee
Guillermo
c. Payments made to a partner of i. Prizes and winnings;

a business or taxable partnership j. Pensions;
for services rendered shall be k. Partner’s share in the net income of
considered as compensation the general professional partnership
income subject to sec. 24A.
 See Annex D for detailed discussion
KINDS OF INCOME TAXES of items.
UNDER THE NIRC KINDS OF DIVIDENDS
1. Cash and Property Dividends
1. Net Income Tax Individual Taxpayer
2. Optional Corporate Income tax a. From Domestic Corporations
3. Minimum Corporate Income Tax  RC, NRC, RA – 10% (Sec.
4. Improperly Accumulated Earnings 24A)
Tax  NRAETB – 20% (Sec. 25A2)
5. Preferential Rates or Special Rates  NRANETB – 25% on gross
of Income Tax income (Sec. 25B)
6. Gross Income Tax b. From Foreign Corporations
7. Final Income Tax  RC, NRC, RA, NRAETB – 5-
8. Fringe Benefits Tax 32% (Sec. 24, 25A1)
9. Capital Gains Tax
 NRANETB – 25% on gross
(1) NET INCOME TAX income (Sec. 25B)
DEFINITION: Means gross income less Corporate Taxpayer

deductions and/or personal and a. Foreign to Domestic Corp. – 32%
additional exemptions (Sec. 31, NIRC) (Sec. 32A)
b. Domestic to Domestic Corp. –
NET INCOME TAX FORMULA Exempt; intercorporate
Entire Income dividends (Sec. 27D)
Less: Exclusions and Income subject c. Domestic to Foreign Corp. -
to Final Tax (e.g. Passive  Resident Foreign Corp. –
Income) Exempt (Sec. 28 [A] 7d)
Gross Income  Nonresident Foreign Corp. –
Less: Deductions (and/or additional 15% subject to the condition
exemptions, if applicable) stated in Sec. 28 [B] 5.
Net Taxable Income Otherwise, it shall be taxed
Multiply by: Tax Rate (%) at 32%. (See Commissioner
Net Income Tax Due vs. Procter and Gamble, GR
Less: Tax Credit, if any No. 66838, December 2,
Tax Still due, if any 1991)
GROSS INCOME 2. Stock Dividends

General rule: Not subject to tax
because it does not constitute
DEFINITION: Means all income derived
income; it represents transfer of
from whatever source, including but not
surplus to capital account. (Sec.
limited to the following (Sec. 32)
73B, 1997 NIRC)
a. Compensation;
Exceptions:
b. Gross income from profession, trade
a. Sec. 73B, 1997 NIRC
or business;
(1) there is redemption or
c. Gains form dealings in property;
cancellation
d. Interests;
(2) the transaction involves
e. Rents;
stock dividends, and
f. Royalties;
(3) the “time and manner” of
g. Dividends;
the transaction makes it
h. Annuities;
CHAIRPERSONS
1
“essentially equivalent to a 2. Return of insurance premium;

distribution of taxable NOTE: if such amounts (when added
dividends”. (see to amounts already received before
Commissioner vs. Court of the taxable year under such
Appeals, Court of Tax contracts) exceed the aggregate
Appeals & ANSCOR, GR No. premiums or considerations paid
108576, Jan. 30, 1999) (whether or not paid during the
b. the recipient is other than the taxable year), then the excess shall
shareholder (Bachrach vs. be included in the gross income.
Seifert, GR No. L-2659, October However, in the case of a transfer for
12, 1950) a valuable consideration, by
c. change in the stockholder’s assignment or otherwise, of a life
equity results by virtue of the insurance, endowment or annuity
stock dividend issuance. contract, or any interest therein,
only the actual value of such
3. Liquidating Dividends – When a consideration and the amount of the
corporation distributes all of its premiums and other sums
assets in complete liquidation or subsequently paid by the transferee
dissolution, the gain realized or are exempt from taxation. No loss is
loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or deductible loss, as the
case may be. (Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the use of capital, the receipt is income
term “exclusions” refers to items that (Pirovano vs. Commissioner, 14
are not included in the determination of SCRA 832)
gross income either because:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase “personal
(c) they are income, gain or profit injuries” should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of
(individual, partnership, or compensation for such loss was
corporation, but not a transferee for voluntary does not change its
a valuable consideration), directly or exempt status. It was in fact
in trust. compensation for a loss, which
NOTE: if the proceeds are impaired petitioner’s capital.
retained by the insurer, the interest
thereon is taxable; 5. Income exempt under Treaty;

Cabrera, Jhundee
Guillermo
6. Retirement benefits, pension, (3) International or regional

gratuities, etc. financial institutions
a. those derived under R.A. 7641 established by foreign
(pertains to private firms governments
without retirement trust fund); b. Income derived from any
b. those received by officials and public utility or from the
employees of private employers exercise of any governmental
in accordance with a reasonable function;
private benefit plan; c. Prizes and awards made
Requisites: primarily in recognition of
(1) in the service of the same religious, charitable, scientific,
employer for at least 10 educational, artistic, literary, or
years; civic achievement
(2) at least 50 years old; Requisites:
(3) must be availed of only once (1) recipient was selected
(4) plan approved by the BIR without any action on his
(R.R.2-98); part; and
c. separation pay because of (2) recipient is not required to
death, sickness, or other render substantial future
physical disability or for any services.
cause beyond the control of the d. Prizes and awards granted to
official or employee (e.g. athletes in sports competitions
retrenchment, redundancy or and sanctioned by their national
cessation of business); sports association ;
“for any cause beyond the e. 13th month pay and other
control of said official or benefits up to P30,000.00;
employee” – connotes f. GSIS,SSS, Medicare and union
involuntariness on the part of dues of individuals;
the official or employee; g. Gains derived from debt
separation must not be asked or securities with a maturity of
initiated by the official or more than 5 years;
employee. h. Gains from redemption of shares
d. social security benefits, in Mutual Fund.
retirement gratuities, pensions
and other similar benefits EXCLUSIONS VS. DEDUCTIONS
received by citizens and aliens
who come to reside permanently Exclusions Deductions
here from foreign sources [Sec. 32(B)] [Sec. 34]
private or public;
e. benefits due to residents under Refer to flow of Refer to the
the laws of the U.S. wealth which are not amounts which the
administered by the U.S. treated as part of law allows to be
Veterans Administration gross income subtracted from
because: gross income in
f. SSS benefits; and
(1) exempted by the order to arrive at
g. GSIS benefits. fundamental law; (2) net income
exempted by statute;
7. Miscellaneous items (3) do not come
a. Passive income derived in the within the definition
Philippines by: of income
(1) Foreign governments;
(2) Financing institutions Pertain to the Pertain to the
owned, controlled or computation of gross computation of the
income net income
enjoying refinancing from
foreign governments Something earned or Something spent or
received by the paid in earning of
CHAIRPERSONS
1
Exclusions Deductions 1. Individuals

[Sec. 32(B)] [Sec. 34] a. with gross compensation income
taxpayer which do gross income from employer-employee
not form part of gross relationship only
income (1) premium payments on health
and/or hospitalization
insurance
DEDUCTIONS (2) personal additional
exemptions
DEFINITION: Items or amounts which the b. gross income from business or
law allows to be deducted from gross practice of profession
income in order to arrive at the taxable (1) Optional Standard Deduction
income. (OSD)
(2) Itemized deductions
BASIC PRINCIPLES GOVERNING DEDUCTIONS (3) premium payments on health
a. The taxpayer seeking a deduction and/or hospitalization
must point to some specific insurance
provisions of the statute authorizing (4) personal additional
the deduction; and exemptions
b. He must be able to prove that he is 2. Corporations
entitled to the deduction authorized  Itemized Deductions
or allowed. (Atlas Consolidated
Mining & Dev. Corp. vs.
Commissioner, GR No. L-26911, KINDS OF DEDUCTIONS
January 21, 1981) a. Optional standard deductions (OSD)
c. Any amount paid or payable which is –10% of the gross income.
otherwise deductible from, or taken The OSD may be availed of
into account in computing gross only by individuals (except
income or for which depreciation or nonresident alien) who are not
amortization may be allowed, shall purely compensation income
be allowed as deduction only if it is earners.
shown that the tax required to be b. Personal and additional exemptions
deducted and withheld therefrom Available only to individuals
has been paid to the BIR. [Sec. (business income and compensation
34(K), NIRC] income earners).
NOTE: Deductions for income tax NRAETB may be entitled to

purposes partake of the nature of tax personal exemptions (only) subject
exemptions; hence, if tax exemptions to reciprocity, i.e.,
are to be strictly construed, then it a. the country of which he is a
follows that deductions must also be subject or citizen has an income
strictly construed. tax law; and
b. the income tax law of his
TAXPAYERS WHO CANNOT AVAIL OF country allows personal
DEDUCTIONS FROM GROSS INCOME exemption to citizens of the
1. Citizens and resident aliens whose Philippines not residing therein,
income is purely compensation but deriving income therefrom
income (except for premium and not to exceed the amount
payments on health and/or allowed in NIRC.
hospitalization insurance);
2. Non-resident aliens not engaged in The personal exemption shall be
trade or business in the Philippines; equal to that allowed by the income
and tax law of his country to a citizen of
3. Non-resident foreign corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.

Cabrera, Jhundee
Guillermo
with qualified dependent

Individuals not entitled to these children.
exemptions: 3. P 32,000 – For each legally
a. Non-resident Alien not engaged married individual.
in trade or business
b. Alien individual employed by Head of the Family
Regional or Area Headquarters 1. Unmarried or legally separated
of Multinational Companies person with one or both parents,
c. Alien individual employed by or one or more brothers or
Offshore Banking Units sisters, or one or more
d. Alien individual employed by legitimate, recognized natural or
Petroleum Service Contractor legally adopted children living
and Subcontractor with and dependent upon the
taxpayer for their chief support;
c. Itemized deductions and
a. ordinary and necessary “Chief support” means more
expenses than one-half of the
b. interests requirements for support.
c. taxes 2. Where such brother / sister or
d. losses children are not more than 21
e. bad debts years of age, unmarried and not
f. depreciation of property; gainfully employed, or where
g. depletion of oil and gas wells such dependents regardless of
and mines; age, are incapable of self –
h. charitable and other support because of mental or
contributions; physical defect.
i. research and development;
j. pension trust contributions of Parents, brothers, sisters and senior
employees; and citizen with the tax payer, whether
k. premium payments on health relative or not, may qualify the
and/or hospitalization insurance. taxpayer, to the personal exemption of
(This is the only deduction which P25,000 as head of the family but not to
a compensation income earner the additional exemption of P8,000.
may claim as a deduction.)
B. Additional Exemption for
d. Special deductions Dependents [Sec. 35, NIRC]
a. private proprietary educational P 8,000 – For each of the qualified
institutions and hospitals that dependent children not
are non-profit (Sec. 34 A, 2) exceeding four (4) in
b. insurance companies (Sec. 37) number.
c. estates and trusts (Sec. 61) The additional exemption refers
only to qualified dependent children
PERSONAL EXEMPTIONS such as legitimate, recognized natural,
illegitimate and legally adopted.
A. Amounts of Personal Exemptions The proper claimant of the
[Sec. 35, NIRC] additional exemption is the husband
1. P 20,000 – Single individual or being the head of the family except
married individual judicially under the following cases:
decreed legally separated 1. Husband is unemployed
without qualified dependent 2. Husband is working abroad like
children. an OFW or a seaman
2. P 25,000 – Head of the family or 3. Husband explicitly waived his
married individual judicially right of the exemption in favor
decreed legally separated of his wife in the withholding
exemption certificate.

CHAIRPERSONS
1
A Senior Citizen is: became gainfully employed at

1. any the close of such year.
resident citizen of the 4. For any other event and for
Philippines which there are no specific rules
2. at least applicable from the above-
sixty 60 years old, including mentioned, the status of the
those who have retired from taxpayer at the end of the year
both government offices and shall determine his exemptions.
private enterprises, and (strictly construed against the
3. has an taxpayer)
income of not more than Sixty Examples:
thousand pesos (60,000) per  became legally separated –
annum subject to the review of can only claim P 20,000
the National Economic  25 years old child became
Development Authority (NEDA) incapacitated – cannot claim
every three years. additional exemption
Parents and dependents qualify ITEMIZED DEDUCTIONS

the taxpayer, to the personal
exemption of P25,000 as head of the A. ORDINARY AND NECESSARY
family but not to the additional
EXPENSES
exemption of P8,000.
NECESSARY EXPENSE – appropriate and
NOTE: NRAETB may deduct personal
helpful in the development of taxpayer's
exemption (not additional
business and are intended to minimize
exemption), but only to the extent
losses or to increase profits. These are
allowed by his country to Filipinos
the day-to-day expenses.
not residing therein, and shall not
ORDINARY EXPENSE – normal or usual in
exceed the aforementioned
relation to the taxpayer’s business and
amounts. NRANETB cannot claim
the surrounding circumstance.
any personal or additional
exemptions.
REQUISITES OF BUSINESS EXPENSE TO BE
DEDUCTIBLE
C. Change of Status [Sec. 35, NIRC]
1. ordinary and necessary;
1. If the taxpayer should marry or
2. paid or incurred w/in the taxable
should have additional
year;
dependents during the taxable
3. paid or incurred in carrying on a
year, he may claim the
trade or business;
corresponding exemptions in full
4. substantiated with official receipts
for such year.
or other adequate records.
2. If the taxpayer should die during
5. if subject to withholding taxes proof
the taxable year, his estate may
of payment to the Bureau of Internal
claim the corresponding
Revenue must be shown.
exemptions as if he died at the
6. must be reasonable (when the
close of such year.
expense is not lavish, extravagant or
3. If the spouse or any dependent
excessive under the circumstances)
should die or any dependent
7. must not be contrary to law, public
should marry or become twenty-
policy or morals.
one years old during the year, or
should become gainfully
NOTE: While illegal income will form
employed, the taxpayer may
part of income of the taxpayer,
claim the exemptions as if the
expenses which constitute bribe,
spouse or dependent died or as
kickback and other similar payment,
if such dependent married,
being against law and public policy are
became twenty one years old or

Cabrera, Jhundee
Guillermo
not deductible from gross income. 11. The interest is not expressly
(Subsec. A, 1, c) disallowed by law to be deducted
from gross income of the taxpayer.
CAPITAL EXPENDITURE – An expenditure
that benefits not only the current period RULES ON DEDUCTIBILITY OF INTEREST
but also future periods. It is not EXPENSE
deductible but depreciable, except, if General Rule - In general, the amount of
the taxpayer is a non-profit proprietary interest expense paid or incurred within
educational institution which may elect a taxable year of indebtedness in
either to deduct the capital expense or connection with the taxpayer's trade
depreciate it. business or exercise of profession, shall
be allowed as a deduction from the
 See Annex E – Business Expenses taxpayer's gross income.
 See Annex F – Ceiling on Limitation - The amount of interest

“Entertainment, Amusement and expense paid incurred by a taxpayer in
Recreational Expenses” connection with his trade, business or
exercise of a profession from an existing
B. INTEREST indebtedness shall be reduced by an
amount equal the following percentages
INTEREST – shall refer to the payment for of interest income earned which had
the use or forbearance or detention of been subjected to final withholding
money, regardless of the name it is depending on the year when the interest
called or denominated. It includes the income earned, viz:
amount paid for the borrower's use of, 38% - beginning January 1, 2000 and
money during the term of the loan, as thereafter
well as for his detention of money after
the due date for its repayment. Aim of Limitation: To discourage so-
called “back-to-back” loans where a
REQUISITES FOR DEDUCTIBILITY (REV. REG. taxpayer secures a loan from a bank,
NO. 13-2000) turns around and invests the loan
1. There must be an indebtedness; proceeds in money market placements.
2. There should be an interest By imposing a limit as to the amount of
expense paid or incurred upon interest expense that can be deducted
such indebtedness; from gross income, the previous practice
3. The indebtedness must be that of of tax arbitrage was absolutely nullified.
the taxpayer;
4. The indebtedness must be connected Tax Arbitrage – is a method of
with the taxpayer's trade, business borrowing without entering into a
or exercise of profession; debtor/creditor relationship, often to
5. The interest expense must have been resolve financing and exchange control
paid or incurred during the taxable problems. In tax cases, back-to-back
year; loan is used to take advantage of the
6. The interest must have been lower of tax on interest income and a
stipulated in writing; higher rate of tax on interest expense
7. The interest must be legally due; deduction.
8. The interest arrangement must not
be between related taxpayers; Illustration:
9. The interest must not be incurred to On June 1, 2000 Company X has:
finance petroleum operations; and 1. Obtained a loan from ABC Financing
10. In case of interest incurred to Corporation in connection with the
acquire property used in trade, operation of its business and its
business or exercise of profession, interest expense on the loan
the same, was not treated as a amounted to P 120,000.
capital expenditure. 2. Deposit account in DEF Bank and
derived interest income thereof
CHAIRPERSONS
1
amounting to P200,000 on which the  allowed as a deduction in the

final tax of P40,000 has been year the indebtedness is paid
withheld.  if the indebtedness is payable
Assume that Company X’s net periodic amortization on, the
income before the deduction of amount of interest which
interest expense is P500,000. corresponds to the amount of
the principal amortized or paid
The deductible expense shall be during the year shall be allowed
computed as follows: as deduction in such taxable
year.
Year 2000 2. Interest paid on indebtedness
between related taxpayer
Net Income before 3. If the indebtedness is incurred to
interest expense P500,000 finance petroleum exploration
Less: Interest Expense P120,000 4. Interest on preferred stock, which
Less: 38% of interest in reality is dividend
income from deposit 5. Interest on unpaid salaries and
(38% x P200,000) 76,000 bonuses
Deductible Interest 6. Interest calculated for cost keeping
Expense 44,000 on account of capital or surplus
Taxable Income P456,000 invested in business which does not
represent charges arising under
interest-bearing obligation.
Deductible Interest Expense 7. Interest paid when there is no
1. Interest on taxes, such as those paid stipulation for the payment thereof.
for deficiency or delinquency, since
taxes are considered indebtedness OPTIONAL TREATMENT OF INTEREST EXPENSE
(provided that the tax is a At the option of the taxpayer,
deductible tax, except in the case of interest incurred to acquire property
income tax). However, fines, used in trade or business may be
penalties, and surcharges on account allowed as a deduction or treated as
of taxes are not deductible. The capital expenditure. [Sec 34 (B)(3),
interest on unpaid business tax shall NIRC]
not be subjected to the limitation
on deduction. C. TAXES
2. Interest paid by a corporation on
scrip dividends Taxes mean TAXES PROPER, and
3. Interest-on deposits paid by therefore no deductions are allowed for:
authorized banks of the Bangko 1. interest
Sentral ng Pilipinas to depositors, 2. surcharges
if it is shown that the tax on such 3. penalties or fines incident to
interest was withheld. delinquency (Sec. 80, Rev. Reg. 2)
4. Interest paid by a corporate taxpayer
who is liable on a mortgage upon real REQUISITES FOR DEDUCTIBILITY
property of which the said 1. must be in connection with
corporation is the legal or equitable taxpayer’s business;
owner, even though it is not directly 2. tax must be imposed by law on, and
liable for the indebtedness. payable by taxpayer (direct tax);
and
NON-DEDUCTIBLE INTEREST EXPENSE 3. paid or incurred during the taxable
1. An individual taxpayer reporting year.
income on the cash basis incurs an
indebtedness on which an interest is TAXES NOT DEDUCTIBLE
paid in advance through discount or 1. income tax;
otherwise: 2. estate and donor’s tax;
3. special assessments;

Cabrera, Jhundee
Guillermo
4. excess electric consumption tax; 2. resident aliens, if without

5. foreign income tax, war profits and reciprocity
excess profits tax, if the taxpayer 3. resident aliens whose income is
makes use of tax credit; and derived solely from sources within
6. final taxes, being in the nature of the Philippines
income tax. 4. foreign corporations (resident and
non-resident)
NOTE: Taxes allowed as deductions,
when refunded or credited, shall be FORMULA FOR COMPUTING LIMITATION
included as part of gross income in the 1. Per country limitation
year of receipt to the extent of the Taxable
income tax benefit of said deduction. income from
(Tax Benefit Rule) foreign country X Phil. = Tax Credit
Taxable income income tax Limit
For NRAETB and RFC, taxes paid or from all sources
incurred are allowed as deductions only
if and to the extent that they are 2. Over-all limitation
connected from income within the Taxable
income from
Philippines. outside sources X Phil. = Tax Credit
Taxable income income tax Limit
EXCEPTIONS to requirement that only from all sources
such persons on whom the tax is
imposed by law can claim deduction The allowable tax credit is the “lower
thereof: amount” between the tax credit
1. Taxes of shareholder upon his computed under No. 1 and No. 2.
interest as such and paid by the
corporation without reimbursement WHEN CREDIT FOR TAXES MAY BE TAKEN
from him, can be claimed by the The credit for taxes provided by
corporation as deduction. Section 30(C)(3) to (9) may ordinarily be
2. A corporation paying the tax for the taken either in the return for the year in
holder its bonds or other obligation which the taxes accrued or on which the
containing a tax-free covenant taxes were paid, dependent upon
clause cannot claim deduction for whether the accounts of the taxpayer
such taxes paid by it pursuant to are kept and his returns filed upon the
such covenant. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer 1) The amount of credit in respect to
to deduct from income tax payable the the taxes paid or accrued to any
foreign income tax he has paid to his country shall not exceed the same
foreign country subject to limitation. proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT taxpayer’s net income from sources
1. resident citizens of the Philippines within such country taxable under
2. resident aliens under the principle of Title II (income Tax) bears to his
reciprocity entire net income for the same
3. domestic corporations which include taxable year; and
partnerships except general 2) The total amount of the credit shall
professional partnership not exceed the same proportion of
4. beneficiaries of estates and trusts the tax against which such credit is
5. members of beneficiaries of local taken, which the taxpayer’s net
partnerships income from sources without the
Philippines taxable under Title II
WHO ARE NOT ENTITLED TO TAX CREDIT
1. non-resident citizens
CHAIRPERSONS
1
(Income Tax) bears to his entire net carried over for the next 5
income for the same taxable year. years.
D. LOSSES
 Requirements:
LOSSES – refer to such losses which do (1) The taxpayer was not
not come under the category of bad exempt from income tax in
debts, inventory losses, depreciation, the year of such net
etc., and which arise in taxpayer's operating loss;
profession, trade or business. (2) The loss was not incurred in
a taxable year during the
REQUISITES FOR DEDUCTIBILITY taxpayer was exempt from
1. Actually sustained during the taxable income tax; and
year (3) There has been no
2. Connected with the trade, business substantial change in the
or profession ownership of the business or
3. Evidenced by a close and completed enterprise.
transaction There is no substantial
4. Not compensated for by insurance or change in the ownership of
other form of indemnity the business when:
5. Not claimed as a deduction for (a) not less than 75% in
estate tax purposes nominal value of the
6. Notice of loss must be filed with the outstanding issued shares
Bureau of Internal Revenue within is held by or on behalf of
45 days from the date of discovery the same persons; or
of the casualty or robbery, theft or (b) not less than 75% of the
embezzlement. paid up capital is held by
or on behalf of the same
NOTE: The taxpayer’s failure to record person.
in his books the alleged loss proves that
the loss had not been suffered, hence, NOTE: The 3 year period shall
not deductible. (City Lumber vs. continue to run notwithstanding
Domingo and Court of Tax Appeals, GR that the corporation paid its taxes
No. L-18611, January 30, 1964) under MCIT, or that the individual
availed the 10% OSD.
CATEGORY AND TYPES OF LOSSES
1. ORDINARY LOSSES See Annex S for illustration.
A. Incurred in trade or business, or
practice of profession B. Of property connected, with the
 Net operating loss carry-over trade, business or profession, if
(NOLCO)
the loss arises from fires,
 Refers to the excess of storms, shipwreck or other
allowable deductions over gross casualties, or from robbery,
income of the business for any theft, or embezzlement.
taxable year, which had not (1) Total destruction
been previously offset as The replacement cost to
deduction from gross income. restore the property to its
 Can be carried over as a normal operating condition,
deduction from gross income for but in no case shall the
the next 3 consecutive years deductible loss be more than
immediately following the year the net book value of the
of such loss. property as a whole,
 For mines, other that oil and immediately before
gas well, net operating loss casualty.
incurred in any of the first ten (2) Partial Destruction
years of operation may be

Cabrera, Jhundee
Guillermo
The excess over the net (3) The stock or securities sold were
book value immediately substantially the same as those
before the casualty should acquired within the 61-day
be capitalized, subject to period.
depreciation over the
remaining useful life of the c. Abandonment losses
property. in petroleum operation and producing
well.
2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE (1) In case a contract area where
ONLY TO THE EXTENT OF CAPITAL petroleum operations are
GAINS) undertaken is partially or wholly
a. Losses from sale or exchange of abandoned, all accumulated
capital assets exploration and development
b. Losses resulting from securities expenditures pertaining thereto
becoming worthless and which shall be allowed as a deduction.
are capital assets. (2) In case a producing well is
c. Losses from short sales of abandoned, the unamortized cost
property. thereof, as well as the
d. Losses due to failure to exercise undepreciated cost of equipment
privilege or option to buy or sell directly used therein, shall be
property. allowed as deduction in the year
the well, equipment or facility is
3. SPECIAL KINDS OF LOSSES abandoned.
a. Wagering losses - deductible only to
the extent of gain or winnings. [Sec. d. Losses due to voluntary removal of
34 (D)(6)]; deemed to apply only to building incident to renewal or
individuals replacements - deductible expense
b. Losses on wash sales of stocks - not from gross income.
deductible because these are
considered to be artificial loss. e. Loss of useful value of capital
assets due to charges in business
Wash sales – a sale or other conditions - deductible expense only
disposition of stock or securities to the extent of actual loss sustained
where substantially identical (after adjustment for improvement,
securities are acquired or purchased depreciation and salvage value)
within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38]
General rule: Losses from wash sales f. Losses from sales or exchanges of
are not deductible. property between related
Exception: When the sale is made by taxpayers -losses of this nature is not
a dealer in stock or securities and deductible but gains are taxable.
with respect to a transaction made in
the ordinary course of the business of g. Losses of farmers - if incurred in the
such dealer, losses from such sale is operation of farm business, it is
deductible. deductible.
Elements of Wash Sales:
(1) The sale or other disposition of h. Loss in shrinkage in value of stock –
stock resulted to a loss; if the stock of the corporation becomes
(2) There was an acquisition or worthless, the cost or other basis may be
contract or option for acquisition deducted by the owner in the taxable
of stock or securities within 30 year in which the stock of its
days before the sale or 30 days worthlessness is made. Any amount
after the sale; and claimed as a loss on account of shrinkage
in value of the stock through fluctuation
CHAIRPERSONS
1
in the market or otherwise cannot be quent year 3,000 2, 000 6, 000

TAXABLE
deducted from gross income.
INCOME
upon the
E. BAD DEBTS bad debt
recovery P3,000 P -0- P5,000
BAD DEBTS – shall refer to those debts
resulting from the worthlessness or ASCERTAINMENT OF WORTHLESSNESS
uncollectibility, in whole or in part, of  Proof of Two Facts:
amounts due the taxpayer by others, 1. taxpayer did in fact ascertain the
arising from money lent or from debt to be worthless, in the year
uncollectible amounts of income from for which deduction is sought,
goods sold or services rendered. 2. that in so doing, he acted in good
faith. (Collector vs. Goodrich
REQUISITES FOR DEDUCTIBILITY International Rubber, GR No. L-
1. Existing indebtedness due to the 22265, Dec. 22, 1967)
taxpayer which must be valid and  Depends upon the particular facts and
legally demandable; the circumstances of the case.
2. Connected with the taxpayer's  Good faith does not require that the
trade, business or practice of taxpayer be an “incorrigible optimist”
profession; but on the other hand, he may not be
3. Must not be sustained in a unduly pessimistic.
transaction entered into between
related parties; F. DEPRECIATION
4. Actually ascertained to be worthless
and uncollectible as of the end of DEPRECIATION – the gradual diminution in
the taxable year.; and the service or useful value of tangible
5. Actually charged off in the books of property due from exhaustion, wear and
accounts of the taxpayer as of the tear and normal obsolescence.
end of the taxable year. The term also applies to
amortization of intangible assets, the
EQUITABLE DOCTRINE OF TAX BENEFIT use of which in trade or business i s of
A recovery of bad debts previously limited duration.
deducted from gross income constitutes
taxable income if in the year the REQUISITES FOR DEDUCTIBILITY
account was written off, the deduction 1. The allowance for depreciation
resulted in a tax benefit. (Tax Benefit must be reasonable.
Rule) 2. It must be for property use or
employment in trade or business or
out of its not being used
Illustration: temporarily during the year.
Case A Case B Case C 3. The allowance must be charged off
Net within the taxable, year.
income 4. Schedule on the allowance must be
(loss) attached to the return.
before
write off
for bad P10,000 (P 9,000) P 5,000 PROPERTY HELD BY ONE PERSON FOR LIFE
debts WITH THE REMAINDER TO ANOTHER PERSON
Less: The deduction shall be computed as
Accounts
written off if the life tenant was the absolute owner
as bad of the property and, as such the expense
debts 3,000 2,000 6,000 shall accrue to him.
Final Net
Income
(Loss) P 7,000 (P11,000) (P1,000) PROPERTY HELD IN TRUST
Bad debts Allowable deduction shall be
recovery apportioned between the income
in a subse- beneficiaries, and the trustees in

Cabrera, Jhundee
Guillermo
accordance with the pertinent provisions

of the instrument creating or in the AGREEMENT AS TO USEFUL LIFE ON WHICH
absence of such provisions, on the basis DEPRECIATION RATE IS BASED
of the trust income allowable to each. The Bureau of Internal Revenue and
the taxpayer may agree in writing on the
METHODS OF DEPRECIATION useful life of the property to be
The term "reasonable allowance" depreciated. The agreed rate may be
shall include (but not limited to) an modified if justified by facts or
allowance computed in accordance, circumstances. The change shall not be
with the regulations prescribed by the effective before the taxable year on
Department of Finance, under any of the which notice in writing by certified mail
following methods. or registered mail is served by the party
1. Straight-line method initiating.
2. Declining-balance method SPECIAL TYPES OF DEPRECIATION
3. Sum of the years-digit method 1. Petroleum Operations
4. Any other method which may be  Depreciation of all properties
prescribed by the Department of directly related to production of
Finance upon recommendation of petroleum shall be allowed
the Commissioner of Internal under straight-line (SL) or
Revenue. declining balance (DB) method
 May shift from DB to SL method
METHODS OF DEPRECIATION  Useful life: 10 years or shorter
Kind Formula life as allowed by the
1)Straight-line cost- salvage value Commissioner
estimated life
2)Declining cost – depreciation x Rate
 Useful life of property not
balance estimated life directly related to production: 5
3)Sum of the years nth period x cost- salvage years under straight line method
digits (SYD) SYD 2. Mining Operations
 Depreciation on all properties in
Illustration: A machine is used in the mining operations other than
manufacturing department of petroleum operations at the
Corporation A, compute the depreciation normal rate if expected life is
per annum with the following facts: less than 10 years.
Cost = P15,000 Salvage  If expected life is more than 10
Value= P5,000 years, depreciation shall be any
number of years between 5
years and the expected life.
1. Straight Line Method with estimated 3. Depreciation deductible by non-

life = 5 years resident aliens engaged in
15,000 – 5,000 = P2,000 trade/business or non-resident
5 years corporation
a. Only when such property is
2. Declining balance with rate of 200% located in the Philippines.
Year 1: 15,000 – 0 x 200% = P6,000
5 G. DEPLETION OF OIL AND GAS
Year 2:15,000–6,000 x 200% =P3,600 WELLS AND MINES
5
DEPLETION - exhaustion of natural
3. Sum of the years digits
resources as in mines, oil, and gas
SYD for 5 years = 5+4+3+2+1 or 15
wells. The natural resources are called
Year 1: 5/15 x (15,000 – 5,000)
“wasting assets”. As the physical units
= P3,333.33
representing such resources are
Year 2: 4/15 x (15,000 – 5,000)
extracted and sold, such assets move
= P2,666.67
towards exhaustion.
CHAIRPERSONS
1
Known as cost of depletion

allowance for mines, oil gas wells and 1) Recipient is: 1) Recipient is:
other natural deposits starting calendar (a) Government (a) Government
year 1976 and fiscal year beginning July of the of the
Philippines; Philippines;
1,1975
(b) Any of its (b) Any of its
agencies or agencies or
political political
TO WHOM ALLOWED subdivisions; subdivisions
Only mining entities owning or
economic interest in mineral deposits. (c) Any fully- For a non-priority
Economic interest means interest in owned activity in any of the
minerals in place investment therein or government areas mentioned in
secured by operating or contract corporation A, and exclusively for
a public purpose.
agreement for which income is derived,
For priority
and return of capital expected, from the activity in:
extraction of mineral. 1. Science;
Mere economic or pecuniary 2. Education
advantage to be derived by production 3. Culture
by one who has no capital investment in 4. Health
the mineral deposit does not amount to 5. Economic
economic interest. Development
6. Human
Settlement
FEATURES
7. Youth and
1. Intangible Exploration and Sports
development drilling cost in Development
petroleum exploration shall be
treated either as: 2) Recipient is a 2) Non-government
a. revenue expenditures; or foreign or organizations
b. capital expenditures international
2. The total amount deductible for organization
exploration and development with an
expenditures shall not exceed 50% of agreement with
the Philippine
net income from mining operation.
Government on
The excess shall be carried forward deductibility, or
to the succeeding year until fully in accordance
deducted. with special law.
H. CHARITABLE AND OTHER

CONTRIBUTIONS 3) Recipient is an 3) Recipient is an
accredited non- accredited
government domestic
TAX TREATMENT organization, corporation or
organized/ operated association
A. Deductible B. Deductible for (purposes): organized/opera
In Full Subject To ted for
Limitation (purposes):

Cabrera, Jhundee
Guillermo
I. RESEARCH AND DEVELOPMENT

(a) Scientific; (a) Scientific (R&D)
(b) Educational; (b) Educational;
(c) Cultural; (c) Cultural;
(d) Character (d) Youth and TAX TREATMENT
building/you sports Either as:
th and sports development 1. Revenue Expenditures
development (e) Charitable Requisites:
(e) Charitable (f) Social a. Paid or incurred during
(f) Social welfare the taxable year
welfare (g) Religious b. Ordinary and necessary
(g) Health (h) Rehabilitatio expenses in connection with
(h) Research n of Veterans
trade business or profession
And satisfying If the conditions c. Not chargeable to
the following in Table A is not capital account
conditions: complied with: 2. Deferred Expenses
1. The donation Requisites:
must be Subject to limitation: a. Paid or incurred in
utilized not (a) Individual - connection with trade, business,
later than the 10% taxable or profession
15th day of income from b. Not treated as expense
the 3rd month trade
c. Chargeable to capital
following the business or
close of its profession account but not chargeable to
taxable year. before property subject to depreciation
2. The contribution or depletion.
administrativ (b) Corporation -
e expense 5% taxable Amount deductible:
must not income from Amount ratably distributed over
exceed 30% of trade a period of 60 months beginning with
total business or the month taxpayer realized
expenses. profession benefits from such expenditures.
3. Upon before
dissolution, contribution
assets must EXCLUSION FROM RESEARCH AND
be distributed DEVELOPMENT EXPENDITURES
to another 1. Any expenditure for the acquisition
non-profit or improvement of land or for the
domestic improvement of property to be used
corporation in connection with research and
or to the development subject to depreciation
state. and depletion.
2. Any expenditure paid or incurred for
the purpose of ascertaining the
REQUISITES FOR DEDUCTIBILITY
existence, location, extent or
1. The contribution or gift must be
quality of any deposit of ore or other
actually paid.
mineral including oil or gas.
2. It must be given to the organizations
specified in the code.
3. The net income of the institution
J. PENSION TRUST CONTRIBUTIONS
must not inure to the benefit of any
PENSION TRUST CONTRIBUTIONS – a
private stockholder or individual.
deduction applicable only to the
employer on account of its contribution
VALUATION
to a private pension plan for the benefit
Charitable contribution of property
of its employee. This deduction is purely
other than money shall be based on the
business in character.
acquisition cost of said property.

CHAIRPERSONS
1
REQUISITES FOR DEDUCTIBILITY REQUISITES FOR DEDUCTIBILITY

1. The employer must have established 1. Insurance must have actually been
a pension or retirement plan to taken
provide for the payment of 2. The amount of premium deductible
reasonable pensions to his does not exceed P2,400 per family
employees; or P200 per month during the
2. The pension plan is reasonable and taxable ear.
actuarially sound; 3. That said family has a gross income
3. It must be funded by the employer; of not more than P250,000 for the
4. The amount contributed must be no taxable year.
longer subject to the control and 4. In case of married individual, only
disposition of the employer; the spouse claiming additional
5. The payment has not yet been exemption shall be entitled to this -
allowed as a deduction; and deduction.
6. The deduction is apportioned in
equal parts over a period of 10 WHO MAY AVAIL OF THE DEDUCTION
consecutive years beginning with the 1. Individual taxpayers earning purely
year in which the transfer or compensation income during the
payment is made. year.
2. Individual taxpayer earning business
SUMMARY OF RULES ON RETIREMENT BENEFITS income or in practice of his
PLAN / PENSION TRUST profession whether availing of
1. Exempt from Income Tax – itemized or optional standard
employees’ trust under Sec. 60(B) deductions during the year.
2. Exclusion from Gross Income – 3. Individual taxpayer earning both
amount received by the employee compensation, and business or
from the fund upon compliance of practice of profession during the
certain conditions under Sec. 32(B) year.
(6)
3. Deduction from Gross Income – NON-DEDUCTIBLE EXPENSES
a. Amounts contributed by the
employer during the taxable REASONS FOR NON-DEDUCTIBILITY
year into the pension plan to 1. Personal expenses
cover the pension liability 2. Capital expenditures
accruing during the year – 3. Items not normally subject to
considered as ordinary and income tax and therefore are not
necessary expenses under Sec. deductible.
34(A)(1) 4. Items taken advantage of by the
b. 1/10 of the reasonable amount taxpayer to avoid payment of
paid by the employer to cover income tax.
pension liability applicable to
the years prior to the taxable SPECIFIC ITEMS (SECTION 36)
year, or so paid to place the 1. Personal, living or family expenses;
trust in a sound financial basis – 2. Amount paid out for new buildings or
deductible under Sec. 34(J) for permanent improvements, or
betterment made to increase the
K. PREMIUM PAYMENTS value of any property or estate,
ON HEALTH AND/OR Except that intangible drilling
HOSPITALIZATION INSURANCE and development cost incurred in
petroleum operations are
DEFINITION: It is an amount of premium deductible;
on health and/or hospitalization paid by 3. Amount expended in restoring
an individual taxpayer (head of family or property or in making good the
married), for himself and members of his exhaustion thereof for which an
family during the taxable year. allowance has been made;

Cabrera, Jhundee
Guillermo
4. Premiums paid on any life insurance (2) OPTIONAL CORPORATE

policy covering the life of any officer INCOME TAX
or employee, or of any person SECTION 27 (A)
financially interested in any trade or
business carried on by the taxpayer, APPLIES TO:
individual or corporate, when the 1. Domestic corporations (DC)
taxpayer is directly or indirectly a 2. Resident foreign corporations (RFC)
beneficiary under such policy. [Sec.
36] RATE OF TAX AND DATE OF EFFECTIVITY
5. Losses from sales or exchanges of 15% of the Gross Income effective
property between related January 1, 2000
taxpayers. [S ec. 36]
CONDITIONS OR REQUIREMENTS
TRANSACTIONS BETWEEN RELATED PARTIES 1. A tax effort ratio of 20% of Gross
1. Between members of the family; National Product
“Family” includes only the 2. A ratio of 40% income tax collection
brothers, sisters (whether by the to total tax revenues
whole or half blood), spouse, 3. A VAT tax effort of 4% of GNP
ancestors, and lineal 4. A 0.9% ratio of Consolidated Public
descendants of the taxpayer. Sector Financial Position (CPSFP) to
2. Except in the case of distributions in GNP
liquidation:
a. between an individual and a OTHER FEATURES
corporation more than 50% in 1. Available only to firms whose
value of the outstanding stock of ratio of:
which is owned, directly or
indirectly, by or for such Cost of sales
individual; <=55%
b. between two corporations more Gross sales or receipts from all
than 50% in value of the sources
outstanding stock of each of
which is owned, directly or 2. The election shall be irrevocable
indirectly, by or for the same for three (3) consecutive years
individual, if either one of such
corporations, with respect to the MEANING OF GROSS INCOME
taxable year of the corporation General concept –
preceding the date of the sale of Gross sales
exchange was a personal holding Less:
company or a foreign personal (1) Sales Return;
holding company; or (2) Discount and allowances
3. Between the grantor and a fiduciary (3) Cost of goods sold - means
of any trust; all business expenses
4. Between the fiduciary of a trust and directly incurred to produce
the fiduciary of another trust if the the merchandise to bring
same person is a grantor with them to their present
respect to each trust; location and use.
5. Between a fiduciary of a trust and a
beneficiary of such trust. (3) MINIMUM CORPORATE
INCOME TAX (MCIT)
TAX CONSEQUENCES SECTION 27 (E)
The following are not deductible:
1. Interest expense [Sec. 34 (B)(2)]
WHO ARE COVERED?
2. Bad debts [Sec. 34 (E)(1)]
MCIT is imposed on domestic and
3. Losses from sales or exchanges of
resident foreign corporations
property [Sec 36 (B)]

CHAIRPERSONS
1
1. Whenever such corporation has zero

or negative taxable income; or RELIEF FROM MCIT
2. Whenever the amount of
MCIT is greater than the normal The Secretary of Finance is
income tax due from such authorized to suspend the imposition of
corporation determined under the MCIT on any corporation which
Section 27[A]. suffers losses because of:
a. prolonged labor dispute;
LIMITATIONS b. force majeure; or
c. legitimate business reverses.
1. The MCIT shall apply only to
domestic and resident foreign “Substantial losses from a prolonged
corporations subject to the normal labor dispute" means losses arising from a
corporate income tax (income tax strike staged by the employees which
rates under Sec 27[A] of the CTRP). lasted for more than six (6) months
2. In the case of a domestic within a taxable period and which has
corporation whose operations or caused the temporary shutdown of
activities are partly covered by the business operations.
regular income tax system and partly “Force majeure" means a cause due
covered under a special income tax to an irresistible force as by "Act of God"
system, the MCIT shall apply on like lightning, earthquake, storm, flood
operations covered by the regular and the like. This term shall also
corporate income tax system. include armed conflicts like war and
3. In computing for the MCIT due from insurgency.
a resident foreign corporation, only “Legitimate business reverses" shall
the gross income from sources within include substantial losses sustained due
the Philippines shall be considered to fire, robbery, theft, or
for such purpose. embezzlement, or for other economic
reason as determined by the Secretary
WHEN DOES A CORPORATION BECOME of Finance.
LIABLE UNDER THE MCIT?
TAX RATE: 2% of gross income or
MCIT is imposed beginning on taxable base pertinent to a
the fourth taxable year immediately trading/merchandising concern or a
following the year in which such service entity
corporation commenced its business.
The taxable year in which the business TAX BASE: Gross Income
operations commenced shall be the year MEANING OF GROSS INOME
when the corporation registers with the
BIR. General concept - gross income means:
Gross sales
CARRY FORWARD OF THE EXCESS Less:
MINIMUM TAX (1) Sales Return;
(2) Discount and allowances
 Any excess of MCIT over the normal (3) Cost of goods sold - means
income tax can be carried forward all business expenses
on an annual basis. directly incurred to produce
 The excess can be credited against the merchandise to bring
the normal income tax due in the them to their present
next 3 immediately succeeding location and use.
taxable years.
 Any amount of the excess MCIT KINDS OF BUSINESS
which cannot be credited against the
normal income tax due in the next A. Trading or Merchandising Concern
3-year period shall be forfeited. Gross Income = Cost of Sales =
gross sales/ 1.Invoice cost of the

Cabrera, Jhundee
Guillermo
receipts less sales goods sold;  Other income and Extraordinary

returns, discounts 2.import duties; Income are included since RR 9-98
and allowances and 3.freight in provides that gross sales include
cost of goods sold transporting the sales contributory to income taxable
goods to the place under the regular corporate tax.
where the goods
are actually sold;  See Annex T for interplay of normal
4.insurance while tax, optional corporate income tax
the goods are in and MCIT.
transit.
B. Manufacturing Cost of Sales = All
Gross Income cost of production of (4) IMPROPERLY ACCUMULATED
(Same) finished goods, such EARNINGS (IAE) TAX
as
1.raw materials
SECTION 29
used;
2.direct labor; (REVENUE REGULATIONS NO. 2 – 2001)
3.manufacturing
overhead; DEFINITION: “Improperly accumulated
4.freight cost; earnings (IAE)” are the profits of a
5.insurance corporation that are permitted to
premiums; accumulate instead of being distributed
6.other costs by a corporation to its shareholders for
incurred to bring the purpose of avoiding the income tax
the raw materials with respect to its shareholders or the
to the factory or shareholders of another corporation.
warehouse.
C. Services Cost of Services = All TAX RATE: 10% of the Improperly
Gross Income = direct costs and Accumulated Taxable Income (in
Gross receipts less expenses necessarily addition to other taxes).
sales returns, incurred to provide Rationale behind IAET
allowances, the services required If the earnings and profits were
discounts and costs by the customers and distributed, the shareholders would then
of services clients including: be liable to income tax thereon,
a. Salaries and whereas if the distribution were not
employee benefits made to them, they would incur no tax
of personnel, in respect to the undistributed earnings
consultants and and profits of the corporation. Thus, a
specialists directly tax is being imposed;
rendering the a. in the nature of a penalty to the
service; corporation for the improper
b. Cost of facilities accumulation of its earnings, and
directly utilized in b. as a form of deterrent to the
providing the avoidance of tax upon
service. shareholders who are supposed
It shall not to pay dividends tax on the
include interest earnings distributed to them by
expense except for the corporation.
banks and other
financial “IMPROPERLY ACCUMULATED TAXABLE
institutions. INCOME”
 Gross income excludes passive Taxable income for the year

income subject to final tax. Add:
Income exempt from tax;
Income excluded from gross income;
CHAIRPERSONS
1
Income subject to final tax;  Domestic corporations not

Net operating loss carry-over (NOLCO) falling under the aforesaid
Total definition are, therefore,
Less: publicly-held corporations.
Income tax paid/payable for the taxable
year Exception: The said tax shall not apply
Dividends actually or constructively to:
paid/issued from the applicable year’s 1. Publicly held corporations (Sec. 29)
taxable income 2. Banks and other non-banks Financial
Amount reserved for the reasonable intermediaries (Sec. 29)
needs of the business as defined in the 3. Insurance companies (Sec. 29)
Regulations 4. Taxable partnerships (deemed to
Tax base of improperly accumulated have actually or constructively
earnings tax received the taxable income under
Sec. 73D)
EXCLUSIONS 5. General professional partnerships
(exempt; taxable against the
 For corporations using the calendar partners)
basis the accumulated earnings tax 6. Non- taxable joint ventures and
shall not apply on IAE as of Dec. 31, 7. Enterprises duly registered with the
1997. Philippine Economic Zone Authority
 For fiscal year basis, the tax shall (PEZA) under R.A. 7916, and
not apply to the 12-month period of enterprises registered pursuant to
fiscal year 1997-1998. the Bases Conversion and
Development Act of 1992 under R.A.
IAE as of the end of a calendar 7227, as well as other enterprises
or fiscal year period on or after Dec. duly registered under special
31, 1998 shall be subject to the 10% economic zones declared by law
tax. which enjoy payment of special tax
rate on their registered operations
WHO ARE COVERED? or activities in lieu of other taxes,
national or local.
General Rule: The IAE tax shall apply to 8. Foreign corporations [RR No. 02-
every corporation formed or availed 2001]
for the purpose of avoiding the
income tax with respect to its EVIDENCE OF PURPOSE TO AVOID
shareholders or the shareholders of INCOME TAX
any other corporation, by permitting
earnings and profits to accumulate 1. The fact that any corporation is a
instead of being divided or mere holding company or investment
distributed. These are: company shall be prima facie
1. Domestic corporations as evidence of a purpose to avoid the
defined under the Tax Code; tax upon its shareholders or
2. Corporations which are classified members.
as closely-held corporations.
• those corporations at least Instances indicative of purpose to
fifty percent (50%) in value avoid income tax upon
of the outstanding capital shareholders:
stock or at least fifty 1. Investment of substantial
percent (50%) of the total earnings and profits of the
combined voting power of all corporation in unrelated
classes of stock entitled to business or in stock or
vote is owned directly or securities of unrelated
indirectly by or for not more business;
than twenty (20) individuals.

Cabrera, Jhundee
Guillermo
2. Investment in bonds and other corporate records and/or

long-term securities; relevant documentary evidence.
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.
A speculative and indefinite purpose will
2. The fact that the earnings or profits not suffice.
of a corporation are permitted to Definiteness of plan/s coupled with
accumulate beyond the reasonable action/s taken towards its
needs of the business shall be consummation is essential.
determinative of the purpose to
avoid the tax upon its shareholders PERIOD FOR PAYMENT OF DIVIDEND/
or members unless the corporation, PAYMENT OF IAET
by the clear preponderance of Dividends must be declared and paid
evidence, shall prove the contrary. or issued not later than one year
following the close of the taxable year,
“Reasonable needs of the otherwise, the IAET, if any, should be
business” includes the reasonably paid within fifteen (15) days thereafter.
anticipated needs of the business
such as:
a. Allowance for the increase in the (5) INCOME SUBJECT TO
accumulation of earnings up to
PREFERENTIAL OR SPECIAL
100% of the paid-up capital of
the corporation as of Balance RATES
Sheet date, inclusive of
accumulations taken from other Pertains to income derived by a
years; particular individual or corporation
b. Earnings reserved for definite belonging to a class of income taxpayer
corporate expansion projects or that is subject to either a preferential or
programs as approved by the special rate.
Board of Directors or equivalent
body;  Tax Rates: Please refer to Annex C.
c. Reserved for building, plants or
equipment acquisition as (6) GROSS INCOME TAX (GIT)
approved by the Board of
Directors or equivalent body; GROSS INCOME TAX (GIT) FORMULA
d. Reserved for compliance with
any loan covenant or pre- Entire Income
existing obligation established Less: Exclusions and Income subject
under a legitimate business to Final Tax (e.g. Passive
agreement; Income)
e. Earnings required by law or Gross Income
applicable regulations to be Multiply by: Tax Rates (%)
retained by the corporation or in
respect of which there is legal Net Income Tax Due
prohibition against its
distribution; GIT APPLIES TO
f. In the case of subsidiaries of
foreign corporations in the 1. Non-resident alien not engaged in
Philippines, all undistributed trade or business (25%); and
earnings intended or reserved 2. Non-resident foreign corporation.
for investments within the (32%)
Philippines as can be proven by
CHAIRPERSONS
1
5. Interest on loan at less than market

 Tax Rates: Please refer to Annex A rate to the extent of the difference
and B. between the market rate and actual
rate granted.
(7) FINAL INCOME TAX 6. Membership fees, dues and other
expenses borne by the employer for
GENERAL PRINCIPLES the employee in social and athletic
clubs and similar organizations
1. It is constituted as a full and final 7. Expenses for foreign travel
payment of the income tax due from 8. Holiday and vacation expenses
the payee on a particular type of 9. Educational assistance to the
income subject to final withholding employee or his dependents; and
tax (FWT). 10. Life or health insurance and other
The finality of the withholding non-lire insurance premiums or
tax is limited only to the payee’s similar amounts on excess of what
income tax liability and does not the law allows.
extend to other taxes that may be
imposed on said income. PERSONS LIABLE
2. The income subjected to final
income tax is no longer subject to The EMPLOYER (as a withholding
the net income tax; otherwise, there agent), whether individual, professional
would be a violation of prohibited partnership or a corporation, regardless
double taxation. of whether the corporation is taxable or
3. The liability for the payment of the not, or the government and its
tax rests primarily on the payor as instrumentalities
withholding agent.
4. The payee is not required to file an TAX RATE: 32% (from January 1, 2000
income tax return for the particular onwards) of the Grossed up Monetary
income subjected to FWT. It is the Value (GMV) of fringe benefits.
withholding agent who files the In the case of aliens, the tax rates to
return. be applied on fringe benefit shall be as
5. The rate of the final tax is follows:
multiplied to the gross income. 1. NRANEBT 25%
Thus, deductions and/or personal 2. Aliens employed by regional HO
and additional exemptions are not 15 %
allowed. 3. Aliens employed by OBU 15%
4. Aliens employed by Petroleum
(8) FRINGE BENEFIT TAX (FBT) Service Contractors and
Subcontractors 15%
FRINGE BENEFIT TAX is a final income
tax on the employee which shall be “GMV” OF THE FRINGE BENEFIT
withheld and paid by the employer on a REPRESENTS
quarterly basis.
1. The whole amount of income
FRINGE BENEFIT means any good, realized by the employee which
service, or other benefit furnished or includes the net amount of money or
granted by an employer, in cash or in net monetary value of property
kind, in addition to basic salaries, to an which has been received; plus
individual employee (except rank and 2. The amount of fringe benefit tax
file employees) such as, but not limited thereon otherwise due from the
to the following: employee but paid by the employer
1. Housing for and in behalf of the employee.
2. Expense Account
3. Vehicle of any kind “GMV” of the fringe benefit
4. Household personnel, such as maid, shall be determined by dividing the
driver and others monetary value of the fringe benefit by

Cabrera, Jhundee
Guillermo
the Grossed up divisor. The Grossed up under the individual normal tax
divisor is the difference between 100% rate.
and the applicable rates. DEDUCTIBILITY TO THE TAXABLE
INCOME OF THE EMPLOYER
GROSSED UP
YEAR RATE
DIVISOR General Rule: The amount of taxable
1998 66% 34% FWT fringe benefit and the fringe benefits tax
1999 67% 33% FWT shall constitute allowable deductions
2000 from gross income of the employer.
68% 32% FWT
onwards Exception:
If the basis for computation of the
FRINGE BENEFITS NOT SUBJECT TO FBT fringe benefits tax is the depreciation
value, the zonal value or the fair market
1. Fringe benefits not considered as value, only the actual fringe benefits tax
gross income – paid shall constitute a deductible
a. if it is required or necessary to expense for the employer. The value of
the business of employer the fringe benefit shall not be
b. if it is for the convenience or deductible and shall be presumed to
advantage of employer have been tacked on or actually claimed
2. Fringe Benefit that is not taxable as depreciation expense by the
under Sec. 32 (B) – Exclusions from employer. Provided, however, that if the
Gross Income aforesaid zonal value or fair market
3. Fringe benefits not taxable under value of the said property is greater
Sec. 33 Fringe Benefit Tax: than its cost subject to depreciation, the
a. Fringe Benefits which are excess amount shall be allowed as a
authorized and exempted under deduction from the employer's gross
special laws, such as the 13th income as fringe benefit expense. (Sec.
month Pay and Other Benefits 2.33[D], Rev. Reg. No. 3-98)
with the ceiling of P30,000.
b. Contributions of the employer EXAMPLE OF DE MINIMIS BENEFITS NOT
for the benefit of the employee SUBJECT TO FBT (RR NO. 8-2000 AND
to retirement, insurance and 10-2000)
hospitalization benefit plans;
c. Benefits given to the Rank and 1. Monetized unused vacation leave
File Employees, whether granted credits of PRIVATE employees not
under a collective bargaining exceeding (10) days during the year
agreement or not; and and the monetized value of leave
d. The De minimis benefits – credits paid to government officials
benefits which are relatively and employees
small in value offered by the 2. Medical cash allowance to
employer as a means of dependents of employees not
promoting goodwill, exceeding P750.00 per employee per
contentment, efficiency of semester or P125 per month;
Employees 3. Rice subsidy of P1,000.00 or one (1)
The term “Rank and File sack of 50kg. rice per month
Employees” shall mean all amounting to not more than
employees who are holding P1,000:00,
neither managerial nor 4. Uniform and clothing allowance not
supervisory position as defined exceeding P3,000 per annum;
in the Labor Code 5. Actual yearly medical benefits not
In the case of rank and file exceeding P10,000 per annum;
employees, fringe benefits other 6. Laundry allowance not exceeding
than those excluded from gross P300 per month;
income under the Tax Code and 7. Employees achievement awards e. g.
other special laws, are taxable for length of service or safety
achievement, which must be in the
CHAIRPERSONS
1
form of a tangible personal property and traded thru a local stock

other than cash or gift certificate, exchange, held as capital asset
with an annual monetary value of On the Net Capital Gain –
not exceeding P10,000 received by Not over P100,000 – FT of
the employee under an established 5%
written plan which does not Amount in excess
of P100,000 – FT of 10%
discriminate in favor paid
b. On sale of land/building held as
employees;
capital asset
8. Gifts given during Christmas and On the gross selling price, or the
major anniversary celebrations not current fair market value at the
exceeding P3, 000 per employee per time of sale, whichever is higher
annum; – FT of 6%
9. Flowers, fruits, books or similar (Reyes, Virgilio. Income Tax Law and
items given to employees under Accounting – A New Approach, 2002)
special circumstances
10. Daily meal allowance for overtime CAPITAL GAINS AND LOSSES –
work not exceeding 25% of the basic IN GENERAL
minimum wage.
CONCEPT OF CAPITAL ASSETS
Time for filing of quarterly remittance
return of final income taxes withheld Under the tax code, there is no
The tax imposed under Sec. 33 shall definition for the term "capital assets".
be treated as a final income tax on the What it gives is the meaning of ordinary
employee that shall be withheld and assets:
paid by the employer, whether a large
taxpayer or non-large taxpayer, on or a. Ordinary assets (Sec. 39, NIRC)
before the 10th day of the month a. Stock in trade of the taxpayer or
following the calendar quarter in which other properties of a kind which
the fringe benefits were granted (RR 04- would properly be included in
2002). the inventory of the taxpayer;
 For Additional Rules on Fringe b. Property held by the taxpayer

Benefits, refer to Annex H. primarily for sale to customers in
the ordinary course of business;
(9) CAPITAL GAINS TAX
c. Property used in trade or
SUMMARY OF TAX RATES business and subject to
depreciation; and
1. Individuals
a. On sale of shares of stock of a d. Real property used in trade or
domestic corporation not listed business.
and traded thru a local stock
exchange, held as capital asset b. Capital Assets include all property
On the Net Capital Gain held by the taxpayer whether or not
Not over P100,000 – FT connected in trade or business but
of 5% not including those enumerated
Amount in excess of P100,000 – FT above (#1) as ordinary assets.
of 10%
b. On sale of real property in the
Philippines held as capital asset CAPITAL GAIN CAPITAL LOSS
On the gross selling price, or the
current fair market value at the The gain derived The loss incurred
time of sale, whichever is higher – from the sale or from the sale or
FT of 6% exchange of capital exchange of capital
2. Corporations assets. assets.
a. On sale of shares of stock of a
domestic corporation not listed

Cabrera, Jhundee
Guillermo
been held for

more than 12
mos.
NET CAPITAL NET CAPITAL
GAIN LOSS
 Non-  Capital losses
The excess of the The excess of the deductibility of are allowed only
gains from sales/ losses from sales or Net Capital to extent of the
exchanges of capital exchanges of capital losses capital gains;
assets over the assets over the gains  Capital losses hence, the net
gains from such from such sales or are allowed only capital loss is
sales/ exchanges. exchanges. to extent of the not deductible.
capital gains; Exception: If any
hence, the net domestic bank or
capital loss is trust company, a
 TRANSACTION RESULTING IN TAXABLE not deductible. substantial part of
GAINS BUT NON-RECOGNITION OF LOSSES whose business is
a. Sale or exchange between the receipt of
related parties; deposits, sells any
b. Wash sales by non-dealers of bond, debenture,
note or certificate
securities and when not subject
or other evidence
to the stock transfer tax; of indebtedness
c. Exchanges not solely in kind in issued by any
merger and consolidation; and corporation
d. Sales or exchanges that are not (including one
at arms length. issued by a
government or
REQUISITES FOR RECOGNITION OF political
CAPITAL GAIN/LOSS subdivision)
 Net Capital Loss  Not allowed

1. The transaction must involve
Carry –Over
property classified as capital  Allowed
asset; and The net capital loss
(in an amount not in
2. The transaction must be a sale excess of the taxable
or exchange or one considered as income before
equivalent to a sale or exchange. personal exemption for
such year) shall be
RULES ON THE RECOGNITION OF treated in the
succeeding year (but
CAPITAL GAINS OR LOSSES
not beyond 12 months)
as a deduction as
short-term capital loss
INDIVIDUAL CORPORATION (at 100%) from the net
 capital gains.
 Holding Capital gains and
Period losses are
The percentages recognized to the  See Annex U for illustration.
of gain or loss to be extent of 100%.
taken into account (There is no SALE OR EXCHANGE OF CAPITAL ASSETS
shall be the holding period)
following: The following are considered as sale
a.100% - if the orexchange of capital assets:
capital assets has 1. Retirement of bonds
been held for 12
2. Short sales of property
mos. or less; and
3. Failure to exercise privilege or
b.50% - if the
capital asset has option to buy or sell property
4. Securities becoming worthless
CHAIRPERSONS
1
5. Distribution in liquidation of 1. Transactions where gains and losses

corporations are not recognized –
6. Readjustment of interest in a a. Exchange solely in kind in
general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation
Sales or exchanges resulting in non- b. Transfer to a controlled
recognition of gains or losses: corporation [Sec. 40(C, 2)]
1. Exchange solely in kind in legitimate 1. Transactions where
mergers and consolidation; gain is recognized
includes: but not the loss –
a. Between the corporations which a. Transactions between related
are parties to the merger or taxpayers [Sec. 36]
consolidation (property for b. Illegal transactions [Sec. 96,
stocks); Rev. Reg. 2]
b. Between a stockholder of a c. Exchanges of property, not
corporation party to a merger or solely in kind, in pursuance of
consolidation and the other corporate mergers and
party corporation (stock for consolidations [Sec. 40, (C, 3)]
stock);
c. Between a security holder of a IMPORTANT DISTINCTION
corporation party to a merger or If it is an ordinary asset, the
consolidation and the other ordinary gains and losses are considered
party corporation (securities for in determining income or loss from
securities) trade, business or profession. (See Secs.
32A, 34D)
2. Transfer to a controlled corporation If it is a capital asset, determine
– exchange of property for stocks further whether or not it is a real
resulting in acquisition of corporate property located in the Philippines. If it
control by a person, alone or is, then it is subject to capital gains tax.
together with others not exceeding (See Secs. 24D, 27D5) (See also Sec s.
four. 24C, 27D2) If not, the capital gains and
“Control” means ownership of losses are considered in determining the
stocks in a corporation amounting to taxable income. (Sec. 39)
at least 51% of the total voting
power of all classes of stocks CAPITAL GAINS AND LOSSES –
entitled to vote. SHARES OF STOCK
SALE OR EXCHANGE OF ORDINARY ASSETS The taxation of shares of stock

whether or not listed and traded in the
General rules of income taxation stock exchange is subject to final tax.
apply to both gain and loss.
WHO ARE LIABLE TO THE TAX
 See Annex D (Gross Income – Gains 1. Individual taxpayer, citizen or alien
from dealings in property) 2. Corporate taxpayer, domestic or
foreign
SUMMARY OF TAX TREATMENT OF 3. Other taxpayers such as estate,
GAINS/LOSSES IN THE EXCHANGE OF trust, trust funds and pension among
PROPERTIES others.
General Rule: Upon the sale or RATES OF TAX

exchange of property, the entire gain or
loss, as the case may be, shall be 1. Shares of stock not traded through
recognized. [Sec. 40 (C, 1)] a local stock exchange – Net capital
gains derived during the taxable
Exceptions: year from sale, exchange, or

Cabrera, Jhundee
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transfer shall be taxed as follows (on 4. Non-deductibility of losses on wash

a per transaction basis): sales.
Not over P 100,000 - 5%
Over P 100,000 - 10% FILING AND PAYMENT OF TAX
2. Shares of stock listed through a
local stock exchange – ½ of 1% of 1. Listed and Traded in the Stock
the gross selling price of the stock. Exchange - The stockbroker shall
EXCEPTIONS TO THE TAX turn over the tax collected to the
1. Gains derived by dealers in B.I.R. within five (5) banking days
securities. from the date of collection.
2. All other gains which are specifically
exempt from income tax under 2. Not traded through the stock exchange
existing investment incentives and - It shall be paid by the seller on a per
other special laws. transaction basis upon filing of the
required return within 30 days
BASIS FOR COMPUTING GAIN OR LOSS (BIR following each sale or other
RULING 146-98) disposition of shares of stock.
 The fair market value (FMV) of the CAPITAL GAINS AND LOSSES
sale of shares not traded but listed
in the stock exchange is the highest
(REAL PROPERTY)
closing price on the day the shares
PERSONS LIABLE AND TRANSACTIONS
were sold, transferred or exchanged.
AFFECTED
 When no sale is made in the stock
exchange, the FMV shall be the
1. Individual taxpayers, estates and
highest selling price on the day
trusts
nearest to the day of sale, transfer
Sale or exchange or other
or exchange.
disposition of real property
 For shares not listed in the
considered as capital assets.
exchange, the FMV shall be the book
The said sale shall include "pacto
value nearest the valuation date
de retro sale" and other conditional
sale.
The above rules shall be used in
2. Domestic Corporation
computing for the net capital gain/loss
Sale or exchange or disposition
for disposition of shares.
of lands and/or building which are
not actually used in business and are
IMPORTANT FEATURES
treated as capital asset.
1. Sale of shares of stock of a domestic
 EXCEPTIONS TO THE TAX
corporation listed and traded in a
1. Gains derived by dealers in real
local stock exchange and that of
estate
initial public offering shall be subject
to Percentage tax (Business Tax)
RATE AND BASIS OF TAX
2. Capital losses sustained during the
A final tax of 6% is based on the
year (not listed and traded in a local
gross selling price or fair market value
stock exchange) shall be allowed as
or zonal value whichever is higher.
a capital loss deductible on the same
Note: Gain or loss is immaterial,
taxable year only (no carry-over)
there being a conclusive presumption of
3. The entire amount of capital gain
gain.
and capital loss (not listed and
traded in a local stock exchange)
 See Annex G – Guidelines in
shall be considered without taking
Determining Whether a Real
into account holding period
Property is a Capital or an Ordinary
irrespective of who is the taxpayer
Asset.
(all 100%)

CHAIRPERSONS
1
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE the opinion of the Commissioner

CAPITAL GAINS TAX ON THE SALE OR clearly reflects the income.
DISPOSITION OF A PRINCIPAL RESIDENCE  Taxable income is computed
based on calendar year if:
Conditions: 1. accounting period is other
a. Sale or disposition of the old than a fiscal year
principal residence; 2. taxpayer has no accounting
b. By natural persons - citizens or aliens period
provided that they are residents 3. taxpayer does not keep
taxable under Sec. 24 of the Code books
(does not include an estate or a 4. taxpayer is an individual
trust);  Fiscal year: accounting period of
c. The proceeds of which is fully 12 months ending on the last day
utilized in (a) acquiring or (b) of any month other than
constructing a new principal December
residence within eighteen (18)  Calendar year: accounting period
calendar months from date of sale or from January 1 to December 31
disposition;
d. Notify the Commissioner within B. Periods in which items of gross
thirty (30) days from the date of sale income included (Sec. 44)
or disposition through a prescribed  Amount of all items of gross
return of his intention to avail the income shall be included in the
tax exemption; gross income for the taxable
e. Can only be availed of only once year in which received by the
every ten (10) years; taxpayer, unless, any such
f. The historical cost or adjusted basis amounts are to be properly
of his old principal residence sold, accounted for in a different
exchanged or disposed shall be period under methods of
carried over to the cost basis of his accounting permitted
new principal residence  In case of death of taxpayer:
g. If there is no full utilization, the include for the taxable year in
portion of the gains presumed to which falls the date of his death,
have been realized shall be subject all amounts which accrued up to
to capital gains tax. the date of his death; if not
otherwise properly includible in
GROSS INCOME FROM DIFFERENT SOURCES respect of such period or a prior
(SEC. 42) period
 Please refer to Annex I.
C. Period for which deduction and
ACCOUNTNG PERIODS AND METHODS OF credits taken (Sec. 45)
ACCOUNTING  Deductions provided in this Title
shall be taken for the taxable
I. ACCOUNTING PERIODS year in which ‘paid or incurred,
A. General rule (Sec. 43) dependent upon the method of
Taxable income is computed accounting upon the basis of
upon the basis of taxpayer’s which the net income is
annual accounting period (fiscal or computed, unless, in order to
calendar year) in accordance with reflect the income, deductions
the method of accounting should be taken as of a different
employed. period.
 If no method of accounting  In case of death of taxpayer:
employed or method does not deductions allowed for the
clearly reflect the income, taxable period in which falls the
computation shall be made in date of his death, amounts
accordance w/ such method as accrued up to the date of his
death if not otherwise properly

Cabrera, Jhundee
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allowable in respect of such a. Where a separate final or

period or a prior period. adjustment return is made
on account of a change in
D. Change of accounting period accounting period
(Sec.46) b. In all other cases where a
 Kinds of changes: separate final or
- from fiscal year to calendar adjustment return is
year require or permitted by
- from calendar year to fiscal R&R prescribed by Sec. of
year Finance. upon
- from one fiscal year to recommendation of
another Commissioner
 Effect of change: Net income,  Both shall be made for a
shall, with the approval of the fractional part of a year.
Commissioner, be computed on  Then income is computed on the
the basis of the new accounting basis of the short period for
period, subject to Sec. 47. which separate final or
adjustment return is made.
E. Final or adjustment returns for a
period of less than 12 months II. METHODS OF ACCOUNTING
(1) Returns for short period
resulting from change of A. Cash method
accounting period Recognition of income
 taxpayer is other than an and expense dependent on
individual inflow or outflow of cash.
 with the approval of the
Commissioner 1. Accrual method
 If change is from fiscal year to Method under which
calendar year: income, gains and profits are
- separate final or adjustment included in gross income when
return be made for the earned whether received or not,
period between the close of and expenses are allowed as
the last fiscal year for which deductions when incurred:
return was made and the although not yet paid. It is the
following December 31 right to receive and not the
 If change is from calendar year actual receipt that determines
to fiscal year: the inclusion of the amount in
- separate final or adjustment gross income
return be made for the  Examples
period between the close of :
the last calendar for which 1. interest or rent income
return was made and the earned but not yet
date designated as the close received
of the fiscal year 2. rent expense accrued
 If change is from one fiscal year but not yet paid
to another: 3. wages due to workers
- separate final or adjustment but remaining unpaid
return be made for the
period between the close of 2. Accounting for
the former fiscal year and long-term contracts
the date designated as the  Long-term contracts:
close of the new fiscal year building, installation or
(2) Income computed on basis of construction contracts
short period covering a period in excess
 In what cases? of 1 yr
CHAIRPERSONS
1
 Persons whose gross income (installments

is derived in whole or in part receivable) P200, 000
from such contracts shall Cost 150,000
report such income upon the Gross profit (GP) 50,000
basis of percentage of
completion Installments payable in 2
 The return is accompanied equal annual installments
by a return certificate of GP/CP ratio
architects or engineers = 50,000/200,000 = 25%
showing the percentage of Collections in 2000=P100,000
completion during the Income for 2000
taxable year of the entire = P100,000 x 25% = P25,000
work performed under the
contract (2) Sales of realty and casual
 Deductions from gross sales of Personalty
income: all expenditures  In cases of:
made during the taxable a. casual sale or other
year on account of the casual disposition of
contract: account being personal property
taken of the material and (other than
supplies on hand at the inventory on hand of
beginning and end of the the taxpayer at the
taxable period for use in close of the taxable
connection with the work year) for a price >
under the contract but not P1,000, or
yet so applied. b. sale or other
 Amended return may be disposition of real
permitted /required by the property, if in either
Commissioner: if upon case the initial
completion of contract, payments do not
taxable income has not been exceed 25% of the
clearly reflected for any selling price
year(s).  How may income be
returned: same as in
3. Installment sales of dealer in
basis personal property above
(1) Sales of dealers in personal  Initial payments:
property payments received in
Under rules and cash or property other
regulations prescribed by than evidences of
the Sec. of Finance, a person indebtedness of the
who regularly sells or purchaser during the
otherwise disposes of taxable period in which
personal property on the the sale or other
installment plan may return disposition is made.
as income there from in any
taxable year that proportion (3) Sales of real
of the installment payments property considered as
actually received in that capital asset by individuals
year, which the gross profit  Individual who sells of
realized or to be realized disposes of real
when payment is completed, property, considered as
bears to the contract price. capital asset and is
otherwise qualified to
Example: Sale in 2000 report the gain under (2)
Contract price (CP) above may pay the

Cabrera, Jhundee
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capital gains tax in year, the allowable deductions including

installments under rules exemptions, the net taxable income, the
and regulations to be income tax rate, the income tax due,
promulgated by the Sec. the income tax withheld, if any, and the
of Finance. income tax still to be paid or
refundable.
(4) Change from accrual to
installment basis
 taxpayer must be PERSONS REQUIRED TO FILE INCOME TAX

entitled to benefits RETURN
under (1) hereof sales of
dealers in personal a. Individual
property 1. Resident citizen;
 in computing income for 2. Non-resident citizen on income
the year of change or from within the Phil.;
any subsequent year: 3. Resident alien on income from
amounts actually within the Phil.;
received during any such 4. NRAETB on income from within
year on account of sales the Phil.
or other dispositions of 5. An individual (citizens / aliens)
property made in any engaged in business or practice
prior year shall not be of a profession within the Phil.
excluded. regardless of the amount of
gross income;
4. Allocation of 6. Individual deriving compensation
income and deductions income concurrently from two or
 Applicable to: cases of 2 or more employers at any time
more organizations, trades during the taxable year;
or businesses (incorporated 7. Individual whose pure
and organized within the compensation income derived
Philippines) owned or from sources within the Phil.
controlled directly exceeds P60,000.
/indirectly by the same b. Taxable Estate and Trust
interest c. General Professional Partnership
 Commissioner is authorized d. Corporation
to distribute, apportion or 1. Not exempt from income tax;
allocate gross income or 2. Exempt from income tax under
deductions between or Sec. 30 of NIRC but has not
among such organization, shown proof of exemption.
trade or business, if he
determines that such INDIVIDUALS EXEMPT FROM FILING INCOME TAX
distribution, apportionment RETURN
or allocation is necessary in
order to prevent evasion of 1. Individual whose gross income does
taxes or to clearly reflect not exceed total personal and
the income of any such additional exemptions;
organization, trade or 2. Individual with respect to pure
business. compensation income derived from
sources within the Philippines, the
FILING OF TAX RETURN AND PAYMENT OF TAX income tax on which has been
correctly withheld;
TAX RETURN – This is a report made by 3. Individual whose sole income has
the taxpayer to the BIR of all gross been subjected to final withholding
income received during the taxable income tax;

CHAIRPERSONS
1
4. Individual who is exempt from equals the amount of tax withheld

income tax. by the employer.
4. The employee's spouse also complies
SUBSTITUTED FILING – is when the with all three (3) conditions stated
employer’s annual return may be above.
considered as the “substitute” Income 5. The employer files the annual
Tax Return (ITR) of employee inasmuch information return (BIR Form No.
as the information provided in his 1604-CF)
income tax return would exactly be the 6. The employer issues BIR Form 2316
same information contained in the (Oct 2002 ENCS) version to each
employer’s annual return. employee
HOW IS “SUBSTITUTED FILING” DIFFERENT INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED

FROM “NON-FILING”? FILING (STILL REQUIRED TO FILE)
 Substituted Filing – an individual 1. Individuals deriving compensation

taxpayer although required from two or more employers
under the law to file his income concurrently or successively during
tax return, will no longer have the taxable year.
to personally file his own income 2. Employees deriving compensation
tax return. income, regardless of the amount,
– but instead the whether from a single or several
employer’s annual information employers during the calendar year,
return filed is the considered the income tax of which has not
“substitute” income tax return been withheld correctly (i.e. tax due
of the employee inasmuch as the is not equal to the tax withheld)
information in the employer’s resulting to collectible or refundable
return is exactly the same return.
information contained in the 3. Employees whose monthly gross
employee’s return. compensation income does not
exceed P5,000 or the statutory
 Non-filing – applicable to certain minimum wage, whichever is higher,
types of individual taxpayers and opted for non-withholding of tax
who are not required under the on said income.
law to file an income tax return. 4. Individuals deriving other non-
Example: employee whose business, non-profession-related
pure compensation income does income in addition to compensation
not exceed P60,000 and has only income not otherwise subject to
one employer for the taxable final tax.
year and whose tax withheld is 5. Individuals receiving purely
equivalent to his tax due. compensation income from a single
employer although the income tax of
SUBSTITUTED FILING OF INCOME TAX RETURNS which has been correctly withheld,
BY EMPLOYEES RECEIVING PURELY but whose spouse falls under 1 to 4
COMPENSATION INCOME. [SECTION 4, RR 3- above.
2002; RMC 01-03] 6. Non-resident aliens engaged in trade
or business in the Philippines
Requisites: deriving purely compensation
1. The employee receives purely income, or compensation income
compensation income (regardless of and other non-business, non-
amount) during the taxable year. profession-related income.
2. The employee receives the income
only from one employer during the NOTE: Non-filing of ITR, for employees
taxable year. who are qualified for the substituted
3. The amount of tax due from the filing shall be OPTIONAL for the taxable
employee at the end of the year year 2001, the returns for which shall be

Cabrera, Jhundee
Guillermo
filed on or before April 15, 2002. Collection agent or duly authorized

Thereafter, substituted filing where treasurer
applicable shall be MANDATORY. [Sec 5 2. Principal place of business
RR 3-2002) 3. With the Office of the Commissioner
REQUIREMENT OF BANKS FOR SUBMISSION OF

AN ITR FOR LOAN O R CREDIT CARD Time For Filing (Pay as you file system)
APPLICATIONS
April 15 – for those earning sole
Banks may require the submission of compensation income or solely business,
BIR Form No. 1700 (for employees not practice of profession or combination of
entitled to substituted filing of ITR). business and compensation.
However, for employees entitled to
substituted filing of ITR, the submission RETURN AND PAYMENT OF ESTIMATED INCOME
of the Joint Certification will suffice. TAX BY INDIVIDUAL (SELF-EMPLOYED OR
PRACTICE OF PROFESSION)
JOINT CERTIFICATION - It is a sworn
statement made by the employer and 1. First quarter - April 15 of current year
employee, which serve the following 2. Second quarter -August 15 of current
purposes: year
1. It contains the employee's consent 3. Third quarter – November 15 of current
that BIR Form No. 1604CF may be year
considered his substituted return, in 4. Final quarter - April 15 of the following
lieu of BIR Form No. 1700, which the year.
employee no longer filed.
2. It contains the employer's Note: When the tax due is in excess of P2,
certification that he has reported 000 - the taxpayer may elect to pay in two
the employee's income to the BIR (2) equal installments:
and that he has remitted the taxes 1st installment - April 15
on the employee's income, as 2nd installment - on or before July 15
indicated in BIR Form No. 1604-CF.
3. It serves as proof of financial EXTENSION OF TIME TO FILE RETURN
capacity in case the employee
decides to apply for a bank loan or a The Commissioner may on
credit-card, or for any other meritorious cases grant a reasonable
purpose, as if he had in fact filed a extension of time for filing income tax
BIR Form No. 1700. return and may subject the imposition of
twenty (20) percent interest per annum
INDIVIDUALS REQUIRED TO FILE AN from the original due date.
INFORMATION RETURN
Return Of Husband And Wife
Individuals not required to file an
income tax return may nevertheless be  File one (1) return for the taxpayer
required to file an information return year if following requisites
pursuant to rules and, regulations complied;
prescribed by the Secretary of Finance a. Married individuals (citizens,
upon recommendation of the resident or nonresident aliens)
Commissioner. b. Do not derived income purely
from compensation.
PLACE OF FILING  If impracticable to file one return:
each spouse file a separate return of
1. Legal residence - authorized agent income but the return so filed shall
bank; Revenue District Officer; be consolidated by the Bureau for

CHAIRPERSONS
1
the purposes of verification for the 2. Corporation in the process of

year. liquidation or receivership.
3. Insurance company doing business in
UNMARRIED MINOR the Philippines or deriving income
therein
 Income of unmarried minors derived 4. Foreign corporation having income
from property received by the living from within the Philippines
parent shall be included in the Filing of return (Pay as you file system)
return of the parent, except: Quarterly returns for the first three
a. when donor’s tax has been paid (3) quarters on a strictly sixty (60) day
on such property, or basis and the final or adjusted return on
b. when transfer of such property is the 15th day of the fourth (4th) month
exempt from donor’s tax following the close of either a-fiscal on
calendar year.
PERSONS UNDER DISABILITY
 See Annex V for Illustration.
If a taxpayer is unable to make his
own return, it may be made by his Who shall file?
1. duly authorized agents; The return shall be filed by the
2. representative; president, vice-president, or other
3. by guardian; principal officer, and shall be sworn to by
4. other person charged with the care such officer and by the treasurer or
of his person or property; assistant treasurer.
 who will assume the responsibility of
making the return and incurring WITHHOLDING TAXES
penalties provided for erroneous,
false or fraudulent return. Withholding Taxes
Kinds:
RETURN OF ESTATE, TRUST AND PARTNESHIP 1. Withholding Tax at Source:
a. Final Withholding Tax
Estate and Trust with gross income b. Creditable Withholding Tax
of P20,000 or more and partnership (Expanded withholding tax)
(whether professional or business) shall 2. Withholding Tax on Compensation
file their income tax return on or before (Wages)
April 15. 3. Withholding Tax on Creditable
Value-Added Tax
TAX RETURNS OF GENERAL PROFESSIONAL 4. Withholding of Percentage Tax
PARTNERSHIPS (GPP)
 Each GPP shall file in duplicate, a FINAL CREDITABLE
return of its income (except those WITHHOLDING WITHHOLDING
income exempt) TAX SYSTEM TAX SYSTEM
 Shall set forth:
a. items of gross income and The amount of Taxes withheld on
deductions allowed income tax withheld certain income
b. names of partners by the withholding payments are
agent is constituted intended to equal or
c. TIN
as a full and final at least approximate
d. address and share of each payment of the the tax due from the
partner income due from the payee on the said
payee on the said income.
Tax Return of a Corporation income. [Sec. 2.57
Those required to file: (a), Rev. Reg. 2-98]
1. Corporation subject to tax having
existed during the taxable year,
whether with income or not.

Cabrera, Jhundee
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1. Does not exceed the statutory

The liability for The income minimum wages; or
payment of the tax recipient is still 2. Five thousand (P5,000) monthly
rests primarily on required to file an (P60,000 a year)
the payor or the income tax return
withholding agent. and/or pay the
 whichever is higher.
The payee is not difference between
required to file an the tax withheld and ELEMENTS OF WITHHOLDING ON
income tax return the tax due on the COMPENSATION
for the particular income. [Sec. 1. There must be an employer-
income. 2.57(B), Rev. Regs. employee relationship
2-98] 2. There must be payment of
compensation or wages for services
Time to Withhold Tax at Source rendered
3. There must be a payroll period.
- arises at the time an income is paid COMPENSATION EXEMPTED
or payable, whichever comes first. The
term “payable” refers to the date the 1. Remunerations received as an
obligation becomes due, demandable or incident of employment
legally enforceable. (Sec. 2.54.4 Rev. 2. Remunerations paid for agriculture
Regs. 2.98) labor
3. Remunerations paid for domestic
Nature of Withholding Agent’s Liability services
The withholding agent is directly 4. Remunerations for casual not in the
and independently liable for the correct course of an employer's trade or
amount of the tax that should be business.
withheld from the dividend remittance. 5. Compensation for services of a
(Commissioner vs. Procter and Gamble, citizen, resident of the Philippines,
GR No. 66838, December 2, 1991) for a foreign government or an
international organization
CONSEQUENCES FOR FAILURE TO WITHHOLD: 6. Damages
1. liable for surcharges and 7. Life insurance
penalties; 8. Amount received by the insured as
2. liable upon conviction to a penalty return of premium
equal to the total amount of the 9. Compensation for injuries and
tax not withheld, or not accounted sickness
for and remitted. (Sec. 251, 1997 10. Income exempt under treaty
NIRC) 11. Thirteenth (13th) month pay and
3. any income payment which is other benefits
otherwise deductible from the 12. GSIS; SSS; Philhealth and other
payor’s gross income will not be contributions,
allowed as a deduction if it is
shown that the income tax Tax-Free Covenant BOND [Sec. 57(C)]
required to be withheld is not paid
to the BIR. (Sec. 2.58.5, Rev. Reg. COVENANT BONDS – bonds, mortgages,
2-98) deeds of trust and other similar
obligations of domestic/resident foreign
Withholding Tax On Compensation corporation, which contain a
Every employer must withhold contract/provision by which the obligor
from compensation paid, an amount agrees;
computed in accordance with the 1. to pay any portion of the tax
regulations. imposed upon the obligee;
2. to reimburse the obligee for any
Exception: portion of the tax; or
Where such compensation 3. to pay the interest without
income of an individual: deduction for any tax which the
CHAIRPERSONS
1
obligor may be required/permitted (1) ESTATE TAXES

to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
 Obligor shall deduct and withhold a transmitting property at the time of
tax = 30% of the interest and other death and on the privilege that a person
payments whether interest or other is given in controlling to a certain extent
payments are payable annually or at the disposition of his property to take
a shorter period; whether bonds, effect upon death.
securities, obligations had been/will
be issued/ marketed and the Estate Tax Formula
interest and other payments paid
within and without the Philippines if Gross Estate (Sec. 85)
the interest or other payment is Less: (1) Deductions (Sec. 86)
payable to a non-resident alien or a (2)Net share of the SS in the CPP
citizen or resident of the Philippines Net Taxable Estate
Income of Recipient [Sec. 58 (d)] Multiply by: Tax rate (Sec. 84)
Estate Tax due
 Income which any creditable tax is
Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source
110[B]
shall be included in the return of its
recipient. Estate Tax Due, if any
 The excess of the amount of tax
withheld over the tax due on his
return shall be refunded to him, GROSS ESTATE
subject to Section 204 (abatement,
refund/credit taxes). A decedent’s gross estate includes
 If amount withheld at source is less (Sec. 85)
than the tax due on his return, the
difference is paid in accordance with RESIDENT & NON-
Section 56 (payment and assessment RESIDENT
NON-RESIDENT
of income tax). CITIZEN,
ALIEN DECEDENT
 All taxes withheld shall be RESIDENT ALIEN
considered as trust funds and DECEDENT
maintained in a separate account
1. Real property 1. Real property
and not commingled with any other
wherever situated in the
funds of the withholding agent. situated Philippines.
B. TRANSFER TAXES 2. Personal 2. Personal property

property a) Tangible
wherever property
situated situated in the
TRANSFER TAX INCOME TAX a) Tangible, Philippines
and b) Intangible
Tax on transfer of Tax on income b) Intangible personal
property. property with
a situs in the
Rates are lower Rates are higher Philippines
--5% to 20% - -- 5% to 32% unless
estate tax exempted on
-- 2% to 15 % or the basis of
30% - donor’s reciprocity.
tax
The law that governs the imposition of
Lesser exemptions More exemptions
estate tax

Cabrera, Jhundee
Guillermo
The statute in force at the time of that foreign country

death of the decedent shall govern (Reciprocity).
estate taxation.
Valuation of the gross estate
Intangible personal properties with a
situs in the Phil. (Sec. 104, 1997 The properties comprising the gross
NIRC) estate shall be valued based on their fair
market value as of the time of death.
1. Franchise which must be exercised
in the Philippines; PROPERTY VALUATION
2. Shares, obligations or bonds issued
by any corporation or sociedad 1) Real Property - fair market value
anonima organized or constituted in a) as determined by the
the Philippines in accordance with Commissioner or
its laws; b) as shown in the
schedule of values
3. Shares, obligations or bonds issued
fixed by the
by any foreign corporation eighty- provincial and city
five per centum (85%) of the assessors
business of which is located in the WHICHEVER IS HIGHER
Philippines;
4. Shares, obligations or bonds issued 2) Shares of Stock
by any foreign corporation, if such Unlisted
shares, obligations or bonds have Common Shares -book value
acquired a business situs in the Preferred -par value
Philippines; Shares -arithmetic mean
between the highest and
5. Shares or rights in any partnership, Listed lowest quotation at a
business or industry established in date nearest the date of
the Philippines. death, if none is
available on the date of
death itself.
Intangible personal property, with a
situs in the Philippines, of a decedent 3)Right to - shall be taken into
who is a non-resident alien shall not usufruct, use or account the probable
form part of the gross estate if habitation, as life of the beneficiary in
well as that of accordance with the
(reciprocity clause) (Sec. 104)
annuity latest basic standard
mortality table, to be
1. the decedent at the time of his approved by the
death was a citizen and resident of a Secretary of Finance,
foreign country which at the time of upon recommendation of
his death the Insurance
a. did not impose a transfer tax or Commissioner.
death tax of any character
1. in respect of intangible personal 4) Personal - whether tangible or
property of citizens of the property intangible, appraised at
FMV. “Sentimental
Philippines not residing in that
value” is practically
foreign country; or disregarded.
2. the laws of the foreign country of
which the decedent was a citizen
and resident at the time of his death Inclusions in the Gross Estate (Sec. 85)
a. allow a similar exemption from
transfer taxes or death taxes of 1. DECEDENT’S INTEREST
every character To the extent of the interest in
b. in respect of intangible personal property of the decedent at the time of
property owned by citizens of his death.
the Philippines not residing in

CHAIRPERSONS
1
2. TRANSFER IN CONTEMPLATION OF a. the possession or enjoyment of,

DEATH or the right to the income from
1. A transfer motivated by the thought the property; or
of impending death although death b. the right, either alone or in
may not be imminent; or conjunction with any person, to
designate the persons who shall
2. A transfer by which the decedent possess or enjoy the property or
retained for his life or for any period the income therefrom.
which does not in fact end before his
death: Exception: bona fide sale for an
a. the possession or enjoyment of, adequate and full consideration in
or the right to the income from money or money’s worth.
the property, or
b. the right, either alone or in 5. PROCEEDS OF LIFE INSURANCE
conjunction with any person, to Proceeds of life insurance taken by
designate the person who shall the decedent on his own life shall be
possess or enjoy the property or included in the gross estate if the
the income therefrom. beneficiary is:
a. the estate of the decedent, his
Exception: bona fide sale for an executor or administrator
adequate and full consideration in (regardless whether the designation
money or money’s worth. is revocable or irrevocable); or
b. a third person other than the estate,
3. REVOCABLE TRANSFER executor or administrator where the
A transfer whereby the terms of designation of the beneficiary is
enjoyment of the property may be revocable.
altered, amended, revoked or
terminated by the decedent alone or in 6. TRANSFERS FOR INSUFFICIENT
conjunction with any other person, or CONSIDERATION
where any such power is relinquished in The value to be included in the gross
contemplation of the decedent’s death. estate is the excess of the fair market
It is enough that the decedent had the value of the property at the time of the
power to alter, amend or revoke though decedent’s death over the consideration
he did not exercise such power. received. This is applicable in cases of
transfer in contemplation of death,
Exception: bona fide sale for an revocable transfer and transfer under
adequate and full consideration in general power of appointment made for
money or money’s worth. a consideration but is not a bona fide
sale for an adequate and full
4. TRANSFER UNDER GENERAL POWER consideration in money or money’s
OF APPOINTMENT worth.
A power of appointment is the right
to designate the person or persons who 7. PRIOR INTERESTS
will succeed to the property of the prior All transfers, trusts, estates,
decedent. interests, rights, powers and
The general power of appointment relinquishment of powers made,
may be exercised by the decedent: created, arising, existing, exercised or
1. by will; or relinquished before or after the
2. by deed executed in contemplation effectivity of the NIRC.
of his death; or
3. by deed under which he has retained Property relations between Husband
for his life or for any period not and Wife
ascertainable without reference to The property relations between the
his death or for any period which spouses shall be governed by contract
does not in fact end before his (marriage settlement) executed before
death: the marriage.

Cabrera, Jhundee
Guillermo
The amount deductible is the lowest

In the absence of such contract, or if among the following:
the contract is void: 1. actual funeral expenses
a. On marriages contracted before 2. 5% of the gross estate
August 3, 1988, the system of 3. P200,000.
conjugal partnership of gains shall
govern; It includes the following:
b. On marriages contracted on or after 1. Mourning apparel of the surviving
August 3, 1988 (effectivity of the spouse and unmarried minor children
Family Code of the Philippines), the of the deceased, bought and used in
system of absolute community of the occasion of the burial.
property shall govern. 2. Expenses of the wake preceding the
burial including food and drinks.
Exempt Transmissions (Sec. 87) 3. Publication charges for death
1. The merger of usufruct in the owner notices.
of the naked title; 4. Telecommunication expenses in
2. Fideicommisary substitution; informing relatives of the deceased.
3. The transmission from the first heir, 5. Cost of burial plot. Tombstone
legatee or donee in favor of another monument or mausoleum but not
beneficiary, in accordance with the their upkeep. In case deceased
will of the predecessor; and owns a family estate or several
All bequests, devices, legacies or burial lots, only the value
transfers to social welfare, cultural and corresponding to the plot where he
charitable institutions no part of the net is buried is deductible.
income of which inures to the benefit of 6. Interment fees and charges.
any individual; Provided, that not more 7. All other expenses incurred for the
than 30% of the said bequests, legacies performance of the ritual and
or transfers shall be used by such ceremonies incident to the
institutions for administration purposes. interment.
Expenses incurred after the
DEDUCTIONS ON GROSS ESTATE interment, such as for prayers, masses,
APPLICABLE TO entertainment, or the like are not
RESIDENT ALIENS AND CITIZENS deductible.
(REVENUE REGULATIONS 2-2003) Any portion of the funeral and burial
expenses borne or defrayed by relatives
and friends of the deceased are not
The following are deductible from
deductible.
the gross estate of citizens and resident
aliens:
B. JUDICIAL EXPENSES OF THE
1. Expenses, losses, indebtedness,
TESTAMENTARY OR INTESTATE
taxes, etc. (ordinary deductions)
PROCEEDINGS
2. Transfer for public use
Expenses allowed as deduction under
3. Vanishing deduction
this category are those:
4. Family home
1. incurred in the inventory-taking
5. Standard deduction equivalent to
of assets comprising the gross
one million pesos (P1,000,000)
estate,
6. Medical expenses
2. administration,
7. Amounts received by heirs under RA
3. payment of debts of the estate,
4917 (Retirement Benefits)
as well as the distribution of the
8. Net share of the surviving spouse in
estate among the heirs.
the conjugal or community property
In short, these deductible items are
expenses incurred during the settlement
1. ORDINARY DEDUCTIONS of the estate but not beyond the last day
prescribed by law, or the extension
A. Funeral Expenses thereof, for the filing of the estate tax
return.
CHAIRPERSONS
1
C. UNPAID MORTGAGE
C. CLAIMS AGAINST THE ESTATE  In case unpaid mortgage payable is
The word "claims" is generally being claimed by the estate,
construed to mean debts or demands of verification must be made as to who
a pecuniary nature which could have was the beneficiary of the loan
been enforced against the deceased in proceeds.
his lifetime and could have been  If the loan is found to be merely an
reduced to simple money judgments. accommodation loan where the loan
proceeds went to another person,
Claims against the estate or the value of the unpaid loan must be
indebtedness in respect of property may included as a receivable of the
arise out of: estate.
1. Contract;  If there is a legal impediment to
2. Tort; or recognize the same as receivable of
3. Operation of Law. the estate, said unpaid obligation/
mortgage payable shall not be
allowed as a deduction from the
Requisites: gross estate.
1. The liability represents a  In all instances, the mortgaged
personal obligation of the property, to the extent of the
deceased existing at the time of decedent's interest therein, should
his death except unpaid always form part of the gross
obligations incurred incident to taxable estate.
his death such as unpaid funeral
expenses (i.e., expenses F. TAXES
incurred up to the time of Taxes which have accrued as of the
interment) and unpaid medical death of the decedent which were
expenses which are classified unpaid as of the time of death.
under a different category of
deductions; The following are not deductible:
2. The liability was contracted in 1. income tax on income received
good faith and for adequate and after death
full consideration in money or 2. property taxes not accrued
money's worth; before death
3. The claim must be a debt or 3. estate tax
claim which is valid in law and
enforceable in court; G. LOSSES
4. The indebtedness must not have Requisites:
been condoned by the creditor 1. It should arise from fire, storm,
or the action to collect from the shipwreck, or other casualty,
decedent must not have robbery, theft or embezzlement;
prescribed. 2. Not compensated by insurance
or otherwise;
D. CLAIMS AGAINST INSOLVENT PERSONS 3. Not claimed as deduction in an
income tax return of the taxable
Requisites: estate;
1. The amount thereof has been 4. Occurring during the settlement
initially included as part of his gross of the estate; and
estate (for otherwise they would 5. Occurring before the last day for
constitute double deductions if they the payment of the estate tax
were to be deducted) (last day to pay: six months after
2. The incapacity of the debtors to pay the decedent’s death).
their obligation is proven.
2. TRANSFER FOR PUBLIC USE
Requisites:

Cabrera, Jhundee
Guillermo
1. The disposition is in a last will and 1. The family home must be the actual
testament residential home of the decedent
2. To take effect after death and his family at the time of his
3. In favor of the government of the death, as certified by the Barangay
Phil., or any political subdivision Captain of the locality where the
thereof family home is situated;
4. For exclusive public purposes. 2. The total value of the family home
must be included as part of the gross
Note: This should also include bequests, estate of the decedent; and
devices, or transfers to social welfare, 3. Allowable deduction must be in an
cultural and charitable institutions. amount equivalent to
1. the current fair market value of
3. VANISHING DEDUCTION the family home as declared or
included in the gross estate, or
DEFINITION: The deduction allowed from 2. the extent of the decedent's
the gross estate for properties that were interest (whether
subject to donor’s or estate taxes. It is conjugal/community or exclusive
called vanishing deduction because the property), whichever is lower,
deduction allowed diminishes over a but not exceeding P1,000,000
period of five years. The rate of 5. STANDARD DEDUCTION
deduction depends on the period from
the date of transfer to the death of the A deduction in the amount of One
decedent, as follows: Million Pesos (P1,000,000) shall be
allowed as an additional deduction
PERIOD DEDUCTION without need of substantiation.
 1 year or less 100% The full amount of P1,000,000 shall
 1 year – 2 years 80% be allowed as deduction for the benefit
 2 years – 3 years 60% of the decedent.
 3 years – 4 years 40%
 4 years – 5 years 20% 6. MEDICAL EXPENSES
Requisites:  Any amount of medical expenses

1. the present decedent died within 5 incurred within one year from death
years from transfer of the property in excess of Five Hundred Thousand
from a prior decedent or donor. Pesos (P500,000) shall no longer be
2. The property must be located in the allowed as a deduction under this
Phils. subsection.
3. The property formed part of the  Neither can any unpaid amount
taxable estate of the prior decedent, thereof in excess of the P500,000
or of the taxable gift of the donor. threshold nor any unpaid amount for
4. The estate tax or donor’s tax on the medical expenses incurred prior to
gift must have been finally the one-year period from date of
determined and paid. death be allowed to be deducted
5. The property must be identified as from the gross estate as claim
the one received from the prior against the estate.
decedent, or something acquired in
exchange therefor. 7. AMOUNT RECEIVED BY HEIRS
6. No vanishing deduction on the UNDER REPUBLIC ACT NO.
property was allowable to the estate 4917
of the prior decedent.
Any amount received by the heirs
4. FAMILY HOME from the decedent's employer as a
consequence of the death of the
Conditions: decedent-employee in accordance with
CHAIRPERSONS
1
Republic Act No. 4917 is allowed as a 5. Tax Credit Limit =

deduction provided that the amount of NTE, foreign country X Phil. estate
the separation benefit is included as NTE, world Tax
part of the gross estate of the decedent.
(NTE - Net Taxable Estate)
8. NET SHARE OF THE
SURVIVING SPOUSE IN THE 2. More than one foreign country
CONJUGAL PARTNERSHIP OR The credit shall be that which is
COMMUNITY PROPERTY the lower amount between Limit A
and Limit B.
After deducting the allowable Limit A. Whichever is lower
deductions (only the ordinary between:
deductions) appertaining to the conjugal
 Estate tax paid to a foreign
or community properties included in the
country
gross estate, the share of the surviving
 Tax Credit Limit =
spouse must be removed to ensure that
NTE, foreign country X Phil. estate
only the decedent's interest in the
NTE, world Tax
estate is taxed.
Limit B. Whichever is lower
DEDUCTIONS ON GROSS between:
ESTATE APPLICABLE TO  Total of estate taxes paid to all
NON-RESIDENT ALIENS foreign countries
 Tax Credit Limit =
The following are deductible from the gross NTE outside Phil. X Phil. estate
estate of non-resident aliens: NTE, world Tax
1. Expenses, losses, indebtedness and
taxes (ELIT) (ordinary deductions)
SETTLEMENT OF THE
Formula: ESTATE TAX
Tax = Phil. Gross
Credit Estate X World A. FILING
Limit World Gross ELIT
Estate Notice Of Death To Be Filed
In all cases of transfers subject to
2. Transfer for public use tax, or where, though exempt from tax,
the gross value of the estate exceeds
3. Vanishing deduction on property in P20,000, the executor, administrator or
the Philippines. any of the legal heirs, within two
months after the decedent’s death, or
4. Conjugal share of the surviving within a like period after qualifying as
spouse such executor or administrator, shall
give a written notice thereof to the
ESTATE TAX CREDIT Commissioner. (Sec. 89)
A tax credit is granted for estate An Estate Tax Return Is Required To Be

taxes paid to a foreign country on the Filed
estate of citizens and resident aliens 1. when the estate is subject to estate
subject to the following limitations tax; or
2. when the estate is not subject to
1. One foreign country only estate tax but the gross estate
The tax credit is whichever is exceeds P 200,000; or
lower between: 3. regardless of the amount of the
4. Estate tax paid to the foreign gross estate, where the gross estate
country consists of registered or registrable

Cabrera, Jhundee
Guillermo
property such as motor vehicle or the executor’ or administrator’s

shares of stock or other similar residence
property for which clearance from c. no executor or administrator
the BIR is required as a condition - with the Office of the
precedent for the transfer of Commissioner (Sec. 9C, Rev. Reg.
ownership thereof in the name of 2-2003)
the transferee.
B. PAYMENT
Time for Filing of the estate tax return
The estate tax return shall be filed Payment of the estate tax due
within six (6) months after the death of The estate tax due shall paid at the
the decedent. time when the estate tax return is filed.
When the Commissioner finds that
Extension: The BIR may, in meritorious the payment of the estate tax on the
cases, grant an extension of not due date would impose undue hardships
exceeding thirty (30) days for the filing upon the estate or any heir:
of the estate tax return. a. the payment of the estate tax
may be extended for a period
When The Gross Estate Exceeds not to exceed five (5) years if
P2,000,000, The Estate Tax Return there is a judicial settlement of
Shall Be Accompanied By A Statement the estate; or
Which Is Certified By An Independent b. the payment of the estate tax
Certified Public Accountant Stating may be extended for a period
1. the itemized assets of the decedent not to exceed two (2) years if
with its corresponding gross value at there is an extra-judicial
the time of his death, or in the case settlement of the estate.
of a non-resident, not citizen of the NOTE: In case the available cash is not
Philippines, that part of his gross sufficient to pay its total estate tax
estate situated in the Philippines; liability, the estate may be allowed to
2. the itemized deductions from the pay tax by installment. (Sec. 9F, Rev.
gross estate; Reg. 2-2003)
3. the amount of tax due, whether paid
or still due and outstanding. Liability for Payment
The estate tax shall be paid by the
Place Where to File the Estate Tax executor or administrator before delivery
Return to any beneficiary of his distributive share
of the estate.
1. Resident Citizen Such beneficiary to the extent of his
- with the Accredited Agent Bank distributive share of the estate shall be
(AAB), Revenue District Officer, subsidiarily liable for the payment of
Collection Officer or duly authorized such portion of the estate tax as his
Treasurer of the city or municipality distributive share bears to the value of
where the decedent was domiciled at the total net estate. (Sec. 9G, Rev. Reg.
the time of his death. 2-2003)
No judge shall authorize the
2. Non-resident (citizen or alien) distribution of the estate unless a
a. has registered executor or certification from the Commissioner that
administrator tax has been paid is shown. (Sec. 94)
- with the Revenue District No shares or other forms of securities
Office where such executor or shall be transferred in the books of any
administrator is registered corporation, partnership, business or
b. executor or administrator is not industry organized in the Philippines,
registered unless a similar certification by the
- with the Revenue District Commissioner is shown. (Sec. 97)
Office having jurisdiction over

CHAIRPERSONS
1
When a bank has knowledge of the property belonging to the

death of a person who maintained a taxpayer for unpaid income tax,
joint account, it shall not allow any is by subjecting said property of
withdrawal by the surviving depositor the estate which is in the hands
without the above certification. (Sec. of an heir or transferee to the
97) payment of the tax due the
Provided: that the administrator of estate. (Commissioner of
the estate or any one (1) of the heirs of Internal Revenue vs. Pineda, GR
the decedent may, upon authorization No. L –22734, September 15,
by the Commissioner, withdraw an 1967)
amount not exceeding twenty thousand
pesos (P20,000) without the said
certification.
There is nothing in the Tax Code and (2) DONOR’S TAXES

in the pertinent remedial law that
implies the necessity of the probate DEFINITION: A tax on the privilege of
court or estate settlement of court’s transmitting one’s property or property
approval of the State’s claim for estate rights to another or others without
taxes before the same can be enforced adequate and full valuable
and collected by the BIR. On the consideration.
contrary, under Section 94, it is the
probate or settlement court which is Coverage Of The Tax (SEC. 104)
bidden not to authorize the delivery of
the distributive share to any interested
RESIDENT & NON-
party without a certification from the
RESIDENT CITIZEN, NON-RESIDENT
CIR showing the payment of the estate
RESIDENT ALIEN ALIEN DONOR
tax. (Marcos II vs. Court of Appeals, GR
DONOR
No. 120880, June 5, 1997)
1. Real property 1. Real property
COLLECTION OF TAX FROM THE HEIRS wherever situated situated in the
An estate or inheritance tax, Philippines.
whether assessed before or after the
death of the deceased, can be collected 2. Personal property 2. Personal property
from the heirs even after the wherever situated a. Tangible property
distribution of the properties of the a. Tangible, and situated in the
decedent. (Palanca vs. Commissioner of Intangible Philippines
b. Intangible
Internal Revenue, GR No. 16661,
personal property
January 31, 1962) with a situs in the
Philippines unless
The Government has two ways of exempted on the
collecting taxes due from the estate. basis of
a. By going after all the heirs and reciprocity.
collecting from each one of
them the amount of the tax Requisites
proportionate to the inheritance
received, or 1. Capacity of the donor
b. Pursuant to the lien created by 2. Donative Intent
Section 219 of the Tax Code 3. Delivery, whether actual or
upon all property and rights to constructive, of the subject gift

Cabrera, Jhundee
Guillermo
4. Acceptance by the donee  A legally adopted child is entitled to

all the rights and obligations
Law that governs the imposition of provided by law to legitimate
Donor’s Tax children, and therefore, donation to
him shall not be considered as
The donor’s tax shall not apply donation made to stranger.
unless and until there is a completed  Donation made between business
gift. The transfer is perfected from the organizations and those made
moment the donor knows of the between an individual and a business
acceptance by the donee; it is organization shall be considered as
completed by the deliver, either donation made to a stranger.
actually or constructively, of the
donated property to the donee. Thus, Valuation of gifts of property
the law in force at the time of the The fair market value of the
perfection/completion of the donation property given at the time of the gift
shall govern the imposition of the shall be the value of the gift.
donor’s tax.
A gift that is incomplete because of

reserved powers, becomes complete Intangible personal properties with a
when either: situs in the Phil. (same as in estate tax
1. the donor renounces the power; or subject to the reciprocity rule) (Sec.
2. his right to exercise the reserved 104)
power ceases because of the
happening of some event or Formula: (On a cumulative basis over a
contingency or the fulfillment of period of one calendar year)
some condition, other than because
of the donor's death. 1. On the 1st donation of a year
 Renunciation by the surviving
spouse of his/her share in the Gross gifts xxx
conjugal partnership or absolute Less: Deductions from gross xxx
community after the dissolution gifts
of the marriage in favor of the Net gifts xxx
heirs of the deceased spouse or Multiply by: Tax Rate xxx
any other person/s is subject to Donor’s tax on the net gifts xxx
donor's tax.
 Whereas general renunciation 2. On donation of a subsequent
by an heir, including the date during the year
surviving spouse, of his/her
share in the hereditary estate Gross gifts made on this date XX
left by the decedent is not Less: Deductions from gross gifts XX
subject to donor's tax, unless
Net gifts XX
specifically and categorically
Add: All prior net gifts within the XX
done in favor of identified heir/s
year
to the exclusion or disadvantage
Aggregate net gifts XX
of the other co-heirs in the
Multiply by: Tax Rate XX
hereditary estate. (Sec. 11, Rev.
Reg. 2-2003) Donor’s tax on aggregate net gifts XX
Less: Donor’s tax on all prior net XX
STRANGER - a person who is not a gifts
brother, sister, spouse, ancestor and Donor’s tax on the net gifts on this XX
lineal descendant, or of a relative by date
consanguinity in the collateral within the
4th civil degree. Exemption of certain gifts
1. Gifts made by a resident

CHAIRPERSONS
1
a. Dowries or gifts made on

account of marriage and before 1. Donor was a Filipino citizen or
its celebration or within one resident alien
year thereafter by parents to 2. At time of foreign donation
each of their legitimate, 3. Donor’s taxes of any character and
illegitimate or adopted children description
to the extent of the first P10, 4. Are imposed and paid by the
000. authority of a foreign country.
b. Gifts made to or for the use of
the National Government or any Limitations on tax credit
entity created by any of its
agencies which is not conducted 1. The amount of the credit in respect
for profit, or to any political to the tax paid to any country shall
subdivision of the said not exceed the same proportion of
government. the tax against which such credit is
c. Gifts in favor of educational, taken, which the decedent’s net
charitable, religious, cultural or gifts situated within such country
social welfare corporation, taxable under the NIRC bears to his
institutions, foundations, trust entire net gift; and
or philanthropic organization, 2. The total amount of the credit shall
research institution or not exceed the same proportion of
organization, accredited non- the tax against which such credit is
government organization (NGO). taken, which the decedent’s net gift
Provided, that no more than 30% situated outside the Philippines
of said gifts shall be used by taxable under the NIRC bears to his
such donee for administration entire net gift.
purposes.
2. Gifts made by a non-resident not Formula of Tax Credit Limit
a citizen of the Phil.
a. same as (b) 1. For donor’s taxes paid to one
b. same as (c) except accredited foreign country
non-government organization
(NGO) NG situated Tax
in a foreign country X PDT = Credit
A non-profit educational and/or Entire net gift Limit
charitable corporation, institution,
accredited non-government (NG - Net Gifts; PDT - Phil. Donor's Tax)
organization, trust or philantrophic
organization, research institution or 2. For donor’s taxes paid to two or
organization is more foreign country
1. one incorporated as a non-stock NG outside the Phil. X PDT = Tax

entity Entire net gifts Credit
2. paying no dividends Limit
3. governed by trustees who receive no
compensation, and The allowable tax credit is the
4. devoting all its income whether lower amount between the tax credit
students’ fees or gifts, donations, limit under (a) and (b).
subsidies or other forms of
philantrophy to the accomplishment
and promotion of the purposes SETTLEMENT OF THE DONOR’S TAX
enumerated in its Articles of
Incorporation. Time for Filing of Return and payment
of the Donor’s Tax
Tax credit for donor’s taxes paid to a
foreign country

Cabrera, Jhundee
Guillermo
The donor’s tax return is filed and UNDER THE NIRC

the donor’s tax due is paid within thirty
(30) days after the date the gift is made.
The return shall be under oath in I. TAX REMEDIES OF THE
duplicate setting forth: GOVERNMENT
1. Each gift made during the calendar
year which is to be included in
computing net gifts; Importance
2. The deductions claimed and
allowable; 1. They enhance and support the
3. Any previous net gifts made during government’s tax collection.
the same calendar year; 2. They are safeguards of taxpayer’s
4. The name of the donee; rights against arbitrary action.
5. Relationship of the donor to the
donee; and Tax collection cannot be restrained by
6. Such further information as may be court injunction (Sec. 218, 1997 NIRC)
required by rules and regulations
made pursuant to law. Justification: Lifeblood Theory
NOTE: The filing of a notice of donation Exception: Injunction may be issued by

is not required, unlike in estate tax the CTA in aid of its appellate
where notice of death is required. jurisdiction under RA 1125 (as amended
by RA 9282).
Place for Filing of Return and payment
of the Donor’s Tax Conditions for the Issuance of an
Injunction by the Court of Tax Appeals
1. Resident The CTA may enjoin collection of
 With an authorized agent bank, the taxes:
Revenue District Officer, Revenue a. If in its opinion the same may
Collection Officer or duly jeopardize the interest of the
authorized Treasurer of the city or government and/or the taxpayer.
municipality where the donor was b. In this instance, the court may
domiciled at the time of the require the taxpayer either to deposit
transfer, or if there be no legal the amount claimed or file a surety bond
residence in the Philippines, with for not more than double the amount
the Office of the Commissioner. with the court.
2. Non-resident
 Filed with the Philippine Embassy * Before enforcement of remedies,
or Consulate in the country where assessment is necessary to trigger the
he is domiciled at the time of the process. If no return is filed, the
transfer, or directly with the Commissioner is empowered to obtain
Office of the Commissioner. information, and to summon/examine,
and take testimony of persons to
Tax rate determine the amount of tax due. (Sec.
5, 1997 NIRC)
If the donee is a stranger, the rate of
tax shall be 30% of the net gifts. TAX REMEDIES UNDER THE 1997 TAX CODE:
If the donee is not a stranger,
the rate shall be from 2% to 15% of the 1. Summary – remedies at the
net gifts. administrative level or regulation that
are executed without ceremony or
 See Annex W - Donor’s Tax delay; short or concise
2. Substantive – remedies provided for
by law or regulation; an essential part or
C. TAX REMEDIES constituent or relating to what is
essential
CHAIRPERSONS
1
3. Procedural – remedies involving law of 1. The Commissioner of Internal

pleading, evidence, jurisdiction, etc. Revenue (CIR) with respect to
4. Administrative – remedies available at criminal and civil cases arising from
the administration (BIR) level violations of the Tax Code [Secs.
5. Judicial – remedies that are 7(C) and 204, 1997 NIRC]. This
enforced through judicial action, power of the CIR is discretionary and
which may be civil or criminal once exercised by him cannot be
reviewed or interfered with by the
tax remedies of the government to Courts. (Koppel, Philippines vs.
effect collection of taxes Commissioner, GR No. L-1977,
September 21, 1950)
1. Compromise (Sec. 204) 2. By the Regional Evaluation Board
2. Distraint (Actual and composed of:
Constructive) (Secs. 205-208) a. the Regional Director as
3. Levy (Sec. 207B) Chairman,
4. Tax Lien (Sec. 219) b. Assistant Regional Director,
5. Civil Action (Sec. 221) the heads of the Legal,
6. Criminal Action (Secs. 221, and Assessment and Collection
222) Divisions, and
7. Forfeiture of Property (Sec. c. the Revenue District Officer
224-225) having jurisdiction over the
8. Suspension of business taxpayer, as members;
operations in violation of VAT  on assessments issued by the
(Sec. 115) regional offices involving basic
9. Enforcement of Administrative taxes of P500,000 or less, and
Fine minor criminal violations.
The remedies of distraint and levy as Cases which may be compromised

well as collection by civil and criminal
actions may, in the discretion of the 1. Delinquent accounts
Commissioner, be pursued singly or 2. Cases under administrative protests
independently of each other, or all of 3. Civil tax cases being disputed before
them simultaneously. the courts
4. Collection cases filed in courts
5. Criminal violations, other than those
(1) COMPROMISE already filed in court or those
involving criminal tax fraud; and,
DEFINITION: A contract whereby the 6. Cases covered by pre-assessment
parties, by reciprocal concessions, avoid notices but taxpayer is not agreeable
litigation or put an end to one already to the findings of the audit office as
commenced (Art. 2028, New Civil Code). confirmed by the review office.
(Sec.2, Rev. Reg. 7-2001)
Requisites
1. The taxpayer must have a tax Exceptions
liability.
2. There must be an offer (by the 1. Withholding tax cases;
taxpayer of an amount to be paid by 2. Criminal tax fraud cases;
the taxpayer) 3. Criminal violations already filed in
3. There must be an acceptance (by court;
the Commissioner or taxpayer as the 4. Delinquent accounts with duly
case may be) of the offer in the approved schedule of installment
settlement of the original claim. payments;
5. Cases where final reports of
Officers authorized to compromise reinvestigation or reconsideration
have been issued resulting to
reduction in the original assessment

Cabrera, Jhundee
Guillermo
and the taxpayer is agreeable to f. The assessment were issued on

such decision. or after Jan. 1, 1998, where the
6. Cases which become final and demand notice allegedly failed
executory after final judgment of a to comply with the formalities
court, where compromise is prescribed under Sec. 228 of
requested on the ground of doubtful the 1997 NIRC; or
validity of the assessment (RR. 30– g. Assessments made based on the
2002); “Best Evidence Obtainable
7. Estate tax cases where compromise Rule” and there is reason to
is requested on the ground of believe that the same can be
financial incapacity of the taxpayer. disputed by sufficient and
(RR. 30–2002) competent evidence.
h. The assessment was issued
Commissioner may compromise the within the prescriptive period
payment of any internal revenue tax for assessment as extended by
when the taxpayer's execution of
Waiver of the Statute of
1. A reasonable doubt as to the Limitations the validity or
validity of the claim against the authenticity of which is being
taxpayer exists; or questioned or at issue and there
a. The delinquent account or is strong reason to believe and
disputed assessment is one evidence to prove that it is not
resulting from a jeopardy authentic. (RR. 30– 2002)
assessment. i. The assessment is based on an
b. The assessment seems to be issue where a court of
arbitrary in nature, appearing competent jurisdiction made an
to be based on presumptions, adverse decision against the
and there is reason to believe Bureau, but for which the
that its is lacking in legal Supreme Court has not decided
and/or factual basis; or upon with finality. (RR. 08-
c. The taxpayer failed to file an 2004).
administrative protest on
account of the alleged failure 2. The financial position of the
to receive notice of assessment taxpayer demonstrates a clear
or preliminary assessment and inability to pay the assessed tax
there is reason to believe that [Sec. 204(A), 1997 NIRC). In such
its is lacking in legal and/or case, the taxpayer should waive the
factual basis; or confidentiality privilege on bank
d. The taxpayer failed to file a deposits under RA No. 1405 [Sec.
request for 6(F)(2), NIRC].
reinvestigation/reconsideration Financial Incapacity. — The offer
within 30 days from receipt of to compromise based on financial
final assessment notice and incapacity may be accepted upon
there is reason to believe that showing that:
its is lacking in legal and/or a. The corporation ceased operation
factual basis; or or is already dissolved. Provided,
e. The taxpayer failed to elevate that tax liabilities corresponding
to the CTA an adverse decision to the Subscription Receivable or
of the Commissioner, or his Assets distributed/distributable to
authorized representative, in the stockholders representing
some cases, within 30 days from return of capital at the time of
receipt thereof and there is cessation of operation or
reason to believe that its is dissolution of business shall not be
lacking in legal and/or factual considered for compromise; or
basis; or

CHAIRPERSONS
1
b. The taxpayer, as reflected in its suspension of payments to

latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of bankrupt or insolvent. (Sec. 3, RR.
Internal Revenue, is suffering from 07-2001)
surplus or earnings deficit
resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1. The submission of all
which are properly includible in pertinent information, including
the regular "accounts payable" are but not limited to industry
by fiction of law considered as audits, collection performance
part of capital and not liability, data, status reports on criminal
and provided further that the actions initiated against
taxpayer has no sufficient liquid persons; and
asset to satisfy the tax liability; or 2. The submission of taxpayer
returns.
Minimum Compromise Rates (MCR) of

c. The taxpayer is suffering from a any tax liability
networth deficit (total liabilities a. In case of financial incapacity:
exceed total assets) computed by MCR = 10% of the basic assessed tax
deducting total liabilities (net of b. Other cases:
deferred credits and amounts MCR = 40% of the basic assessed tax
payable to stockholders/owners [Sec. 204(A), 1997 NIRC]
reflected as liabilities, except
business-related transactions) Approval of the compromise by the
from total assets (net of prepaid Evaluation Board is required when
expenses, deferred charges, pre- a. the basic tax involved exceeds
operating expenses, as well as P1,000,000.00, or
appraisal increases in fixed b. the settlement offered is less than
assets), taken from the latest the MCR.
audited financial statements,
provided that in the case of an NOTE: The MCR may be less than the
individual taxpayer, he has no prescribed rates of 10% or 40%, as the
other leviable properties under case may be, provided it is approved by
the law other than his family the Evaluation Board (composed of the
home; (Sec. 3, RR. 30–2002). BIR Commissioner and the four BIR
Deputy Commissioners).
c. The taxpayer is a compensation
earner with no other source of Compromise of Criminal Violations
income and the family’s gross General Rule: All criminal violations
monthly compensation does not under the CTRP may be compromised.
exceed (P10,500/month if single;
P21,000/month if married), and Exceptions:
that it appears that the taxpayer 1. Those already filed in court
possesses no other leviable/ 2. Those involving fraud [Sec. 204(B),
distrainable assets, other than his 1997 NIRC].
family home; or
Extent of the Commissioner’s
d. The taxpayer has been granted by Discretion to Compromise Criminal
the SEC or by any competent Violations
tribunal a moratorium or

Cabrera, Jhundee
Guillermo
1. Before the complaint is filed with b. Any other compromise is

the Prosecutor’s Office: The CIR extrajudicial and like any other
has full discretion to compromise contract can only be enforced by
except those involving fraud. court action.
2. Regard it as rescinded and insist
2. After the complaint is filed with upon original demand (Art. 2041,
the Prosecutor’s Office but before Civil Code).
the information is filed with the
court: The CIR can still compromise Compromise Penalty
provided the prosecutor must give
consent. It is an amount of money that the
taxpayer pays to compromise a tax
3. After information is filed with the violation. This is paid in lieu of criminal
court: The CIR is no longer prosecution. A taxpayer cannot be
permitted to compromise with or compelled to pay a compromise penalty.
without the consent of the If he does not want to pay, the CIR must
Prosecutor. (People vs. Magdaluyo, institute a criminal action.
GR No. L-16235, April 20, 1961)
This is more so, when the court COMPROMISE VS. ABATEMENT
has rendered a final judgment. As a
mere agent of the Government, the Compromise involves a reduction of
Commissioner is not authorized to the taxpayer’s liability, while
accept anything less than what is abatement means that the entire tax
adjudicated in favor of the liability of the taxpayer is cancelled.
Government. By virtue of such final ABATEMENT
judgment, the Government has
already acquired a vested right. The Commissioner may abate or cancel
a tax liability when
Nature of a Compromise in
Extrajudicial Settlement of the 1. The tax or any portion thereof
Taxpayer’s Criminal Liability for his appears to be unjustly or
Violation excessively assessed; [Sec. 204(B),
1997 NIRC].
It is consensual in character, hence, a. When the filing of the
may not be imposed on the taxpayer return/payment is made at the
without his consent. The BIR may only wrong venue;
suggest settlement of his tax liability b. When the taxpayer’s mistake in
through a compromise. The extra- payment of his tax is due to
judicial settlement and the amount of erroneous written official advice
the suggested compromise penalty of a revenue officer;
should conform with the schedule of c. When the taxpayer fails to file the
compromise penalties provided under return and pay the tax on time
the relevant BIR regulations or orders. due to substantial losses from
prolonged labor dispute, force
Remedy in case the taxpayer refuses majeure, legitimate business
or fails to abide the tax compromise reverses, provided, however, the
abatement shall only cover the
1. Enforce the compromise surcharge and the compromise
a. If it is a judicial compromise, it penalty and not the interest
can be enforced by mere imposed under Sec. 249 of the
execution. A judicial compromise Code;
is one where a decision based on d. When the assessment is brought
the compromise agreement is about or the result of taxpayer’s
rendered by the court on request non-compliance with the law due
of the parties.

CHAIRPERSONS
1
to a difficult interpretation of said offered in a public sale, if taxes are not

law. voluntarily paid. It is a summary remedy.
e. When the taxpayer fails to file the
return and pay the correct tax on Nature of the Warrant of Distraint or
time due to circumstances beyond Levy
his control, provided, however,
the abatement shall only cover The warrant is a summary procedure
the surcharge and the compromise “forcing” the taxpayer to pay. The
penalty and not the interest receipt of a warrant may or may not
imposed under Sec. 249 of the partake the character of a final decision.
Code; If it is an indication of a final decision,
f. Late payment of the tax under the taxpayer may appeal to the CTA
meritorious circumstances (ex. within 30 days from service of the
Failure to beat bank cut-off time, warrant.
surcharge erroneously imposed,
etc.) (Sec. 2, Rev. Reg. 13-2001)  Duties of the officer serving the
warrant of distraint:
2. The administration and collection 1. Make an account of the personal
costs involved do not justify the properties distrained;
collection of the amount due [Sec. 2. Sign the list of personal
204(B), 1997 NIRC]. properties distrained to which
a. Abatement of penalties on shall be added, a statement of
assessment confirmed by the the sum demanded and note of
lower court but appealed by the the time and place of sale;
taxpayer to a higher court 3. Leave either with the owner or
b. Abatement of penalties on person from whose possession
withholding tax assessment under such personal properties were
meritorious circumstances taken, or at the dwelling or
c. Abatement of penalties on place of business of such person
delayed installment payment with someone of suitable age
under meritorious circumstances and discretion (Sec. 208, CTRP)
d. Abatement of penalties on
assessment reduced after Two types of Distraint
reinvestigation but taxpayer is
still contesting reduced 1. Actual: there is taking of
assessment; and possession of the personal
e. Such other circumstances which property from the taxpayer by
the Commissioner may deem the government. Physical
analogous to the enumeration transfer of possession is not
above. (Sec. 3, Rev. Reg. 13-2001) always required. This is true in
the case of intangible property
3. The Commissioner may also, even such as stocks and credits.
without a claim therefor, refund or 2. Constructive: the owner is
credit any tax where on the face of merely prohibited from disposing
the return upon which payment was of his property.
made such payment appears clearly
to have been erroneously paid Actual vs. Constructive Distraint
(Sec. 229, 1997 NIRC)).
ACTUAL CONSTRUCTIVE
DISTRAINT DISTRAINT
(2) DISTRAINT
Made only on the Made on the property
DEFINITION: It is the seizure by the property of a of any taxpayer,
government of personal property, delinquent taxpayer whether delinquent
tangible or intangible, to enforce the or not
payment of taxes. The property may be

Cabrera, Jhundee
Guillermo
ACTUAL CONSTRUCTIVE AUTHORITY OF THE COMMISSIONER TO

DISTRAINT DISTRAINT INQUIRE INTO BANK DEPOSIT ACCOUNTS
There is taking of The taxpayer is
possession merely prohibited Distraint includes garnishment of
from disposing of his money even in bank deposits because RA
property 1405 (Bank Secrecy Law) covers only
divulging of information of deposits. No
Effected by leaving a Effected by requiring
inquiry is made on garnishment for it
list of distrained the taxpayer to sign
property or by a receipt of the only earmarks a portion of the deposits.
service of a warrant property or by the Notwithstanding any contrary
of distraint or revenue officer provision of RA 1405, the Commissioner
garnishment preparing and leaving is authorized to inquire into the bank
a list of such deposits of:
property 1. a decedent to determine his gross
estate
An immediate step Not necessarily so 2. a taxpayer who waives his right by
for collection of
reason of financial incapacity to pay his
taxes
tax liability (Sec.5, NIRC)
Procedures for the Actual Distraint or

Garnishment
Both
Are summary remedies for the collection of I
taxes; Commencement of distraint
NOTE: Refer only to personal property; and proceedings
cannot be availed of where the amount of
the tax involved is not more than P100
Either by the CIR or his duly authorized
representative; or by the Revenue
Requisites for the exercise of the District Officer
remedy of distraint
1. The taxpayer must be delinquent

(except in constructive distraint) in II
the payment of tax; Service of Warrant of Distraint
2. There must be a subsequent demand (Sec. 208)
for its payment (assessment);
3. The taxpayer must fail to pay the tax
at the time required; and With respect to:
4. The period within which to assess or 1. Personal property –
collect the tax has not yet (a) upon the owner of the goods,
prescribed. chattels, or other personal
property; or
Persons who shall seize and distraint (b) upon the person from whose
personal property (actual distraint) possession such properties are
taken.
1. Amount of delinquent tax is more 2. Stocks and other securities
than P1,000,000 – Commissioner or (a) upon the taxpayer; and
his duly authorized representatives. (b) upon the president, manager,
2. Amount of delinquent tax is treasurer or other responsible
P1,000,000 or less – Revenue District officer of the corporation,
Officer. (Sec. 207(A), 1997 NIRC) company or association which
issued the said stock and
securities.
CHAIRPERSONS
1
3. Bank accounts shall be garnished by IV

serving a warrant of distraint – Sale of Property Distrained
(a) upon the taxpayer; and
(b) upon the president, manager,
treasurer, or other responsible
officer of the bank. The taxpayer’s property may be placed
Note: Upon receipt of the warrant of under constructive distraint when he
distraint, the bank shall turn over to the
Commissioner so much of the bank 1. is retiring from any business subject
accounts as may be sufficient to satisfy to tax;
the claim of the government. 2. is intending to –
4. Debts and credits – a. leave the Philippines,
(a) persons owing or having in his b. remove his property therefrom,
possession the debts; c. hide or conceal his property,
(b) or under his control such credits; 3. is performing any act tending to
or obstruct the proceeding for
(c) upon his agent. collecting the tax due or which may
be due from him (Sec. 223, 1997
Note: The warrant of distraint shall be NIRC).
sufficient authority to the person owing
the debts or having in his possession or
under his control any credits belonging Procedure for the Constructive
to the taxpayer to pay to the Distraint of Personal Property
Commissioner the amount of such debts
or credits.
Taxpayer’s obligation to preserve
CIR shall require the taxpayer or any

person having possession or control of
Taxpayer must sign such property to
receipt (a) sign a receipt covering the property
distrained and
(b) obligate himself to
1. preserve the same intact and
unaltered and
2. not to dispose of the same in any
III manner whatsoever without the
Posting of Notice express authority of the
(Sec. 209, NIRC) Commissioner of Internal
Revenue.
Notice specifying the time and place
of sale and the articles distrained. The
posting shall be made in not less than
two (2) public places in the city or muni-
cipality where the distraint is made. Remedy when taxpayer didn’t sign
One place for posting of such notice is at receipt
the Office of the Mayor of such city or
municipality.
If the taxpayer or person in possession of
the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall
(a) proceed to prepare a list of such
property and

Cabrera, Jhundee
Guillermo
(b) in the presence of two (2) witnesses Service of written notice to:
leave a copy thereof in the premises (a) the delinquent taxpayer; or
where the property distrained is located, (b) if he is absent from the Philippines,
after which the said property shall be to his agent or manager of the business
deemed to have been placed under in respect to which the liability arose; or
constructive distraint. c. to the occupant of the property.
d. the proper Register of Deeds shall
(3) LEVY also be notified of the levy (Sec. 207B,
1997 NIRC).
DEFINITION: It refers to the act of seizure
of real property in order to enforce the
payment of taxes. The property may be
offered in a public sale, if after seizure,
the taxes are not voluntarily paid. III
Advertisement of the Time and
REQUISITES FOR THE EXERCISE OF THE REMEDY Place of Sale
OF LEVY
The advertisement shall contain:
Same as in the remedy of distraint. 1. the amount of tax and penalties due;
2. name of the taxpayer against whom
taxes are levied;
3. short description the property to be
When may Levy be Effected? sold.
Real property may be levied upon The advertisement shall be made
before, simultaneously, or after the within 20 days after the levy, and the
distraint of personal property belonging same shall be for a period of at least 30
to the delinquent [Sec. 207(B), 1997 NIRC]; days. It shall be effectuated by:
and the remedy by distraint and levy a. posting a notice at the main entrance
may be repeated if necessary until the of the municipal building or city hall
full amount, including all expenses, is and in a public and conspicuous
collected (Sec. 217, 1997 NIRC). place in the barrio or district in which
the real property lies; and
Procedure of Levy on Real Property b. by publication once a week for 3
weeks in a newspaper of general
I circulation in the municipality or city
Prepare Certificate of Levy where the property is located (Sec.
I 213, CTRP).
Preparation of a duly authen-ticated
certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due IV
from him. This certificate shall Sale
operate with the force of a legal
execution throughout the Philippines
(Sec. 207B, 1997 NIRC).
Distraint vs. Levy
DISTRAINT LEVY
II Refers to personal Refers to real

property property
Service of Notice
Forfeiture by the Forfeiture is

CHAIRPERSONS
1
DISTRAINT LEVY default of the payment of taxes (51

government is not authorized AmJur 881). Generally, it attaches to
provided the property irrespective of ownership
or transfer thereof.
The taxpayer is not The right of
given the right of redemption is Extent and nature
redemption with granted in case of
respect to distrained real property levied
personal property. upon and sold, or The tax, together with interests,
forfeited to the penalties, and costs that may accrue in
government. addition thereto is a lien upon all
property and rights to property
Both belonging to the taxpayer.
 Are summary remedies for the collection of
taxes; and The lien shall not be valid against
 Cannot be availed of where the amount of any mortgagee, purchaser, or judgment
the tax involved is not more than P100 creditor until notice of such lien shall be
filed by the Commissioner of Internal
Redemption of Property Sold Revenue in the Office of the Register of
Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
and interest thereon from the date of When does it Attach?
delinquency to the date of sale,
together with interest on purchase price Not only from the service of the
at 15% per annum from the date of sale warrant of distraint but from the time
to the date of redemption. (Sec. 214, tax became due and payable.
NIRC).
Lien vs. Distraint
Forfeiture to the Government
LIEN DISTRAINT
If there is no bidder in the public
sale or if the amount of the highest bid Directed against Need not be
is insufficient to pay the taxes, penalties the property directed against the
and costs, the real property shall be subject to the tax property subject to
forfeited to the Government. tax
Further Distraint and Levy Regardless of the Property seized

owner of the must be owned by
The remedy of distraint and levy property the taxpayer
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from (5) CIVIL ACTIONS
the taxpayer. Otherwise, a clever
taxpayer who is able to conceal most of DEFINITION: For tax remedy purposes,
the valuable part of his property would these are actions instituted by the
escape payment of his tax liability by government to collect internal revenue
sacrificing an insignificant portion of his taxes. It includes filing by the
holdings. government with the probate court
claims against the deceased taxpayer.
(4) TAX LIEN
When resorted to?
DEFINITION: It is a legal claim or charge
on property, either real or personal, 1. When a tax is assessed but the
established by law as a security in assessment becomes final and

Cabrera, Jhundee
Guillermo
unappealable because the taxpayer The judgment in the criminal case

fails to file an administrative shall not only impose the penalty but
protest with the CIR within 30 days shall also order the payment of taxes
from receipt; or subject of the criminal case as finally
2. When a protest against assessment is decided by the Commissioner (Sec. 205,
filed and a decision of the CIR was NIRC).
rendered but the said decision
becomes final, executory, and Where to file
demandable for failure of the
taxpayer to appeal the decision to 1. Court of Tax Appeals – on criminal
the CTA within 30 days from offenses arising from violations of
receipt of the decision. the NIRC or TCC and other laws
administered by the BIR and the
NOTE: Judicial action may be resorted BOC, where the principal amount of
to even before assessment although taxes and fees, exclusive of charges
impractical, as stated in Sec. 203, 1997 and penalties claimed is One million
NIRC, “… and no proceeding in court pesos and above.
without assessment for the collection of 2. Regional Trial Court, Municipal
such taxes shall be begun after the Trial Court, Metropolitan Trial
expiration of such (3year) period.” Court – on criminal offenses arising
It should be noted that no civil from violations of the NIRC or TCC
or criminal action for the recovery of and other laws administered by the
taxes shall be filed in court without the BIR and the BOC, where the principal
approval of the Commissioner. amount of taxes and fees, exclusive
of charges and penalties claimed is
Where to file less than One million pesos or where
there is no specified amount
1. Court of Tax Appeals – where the claimed. (Sec. 7, RA No. 9282)
principal amount of taxes and fees,
exclusive of charges and penalties IMPORTANT CONSIDERATIONS
claimed is One million pesos and
above. 1. No criminal action shall be
2. Regional Trial Court, Municipal begun without the approval of the
Trial Court, Metropolitan Trial Commissioner. (Sec. 220, 1997 NIRC)
Court – where the principal amount 2. It shall be brought in the
of taxes and fees, exclusive of name of the Government and shall
charges and penalties claimed is less be conducted by the legal officers of
than One million pesos. (Sec. 7, RA the BIR.
No. 9282)
EFFECT OF ACQUITTAL OF THE
THE APPROVAL OF THECIR IS ESSENTIAL IN TAXPAYER IN A CRIMINAL ACTION
CIVIL CASES. However,under Sec. 7, 1997
NIRC, the Commissioner may delegate It does not necessarily result in the
such power to a Regional Director. exoneration of said taxpayer from his
civil liability to pay taxes.
Defenses which are precluded by final Rationale: The duty to pay tax is
and executory assessments imposed by statute prior to and
independent of any attempt on the part
1. Invalidity or illegality of the of the taxpayer to evade payment. It is
assessment; and not a mere consequence of the felonious
2. Prescription of the government’s acts charged, nor is it a mere civil
right to assess. liability derived from a crime. (Republic
vs. Patanao, GR No. L-14142, May 30,
(6) CRIMINAL ACTIONS 1961)

CHAIRPERSONS
1
EFFECT OF SUBSEQUENT SATISFACTION enforced by a judgment of

OF CIVIL LIABILITY condemnation and sale in a legal
action or proceeding, civil or
The subsequent satisfaction of civil criminal, as the case may require.
liability by payment or prescription does c. In case of distilled spirits, liquors,
not extinguish the taxpayer’s criminal cigars, cigarettes manufactured,
liability. products of tobacco and apparatus
used for their production – Upon
NO SUBSIDIARY IMPRISONMENT forfeiture, may be destroyed by
order of the Commissioner where the
In case of insolvency on the part of sale may be injurious to public
the taxpayer, subsidiary imprisonment health or prejudicial to law
cannot be imposed as regards the tax enforcement.
which he is sentenced to pay.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)
CRIMINAL ACTION MAY BE FILED d. Other articles subject to excise tax

DURING THE PENDENCY OF AN which have been manufactured or
ADMINISTRATIVE PROTEST IN THE BIR removed in violation of the Code,
dies for printing or making fake
It is not a requirement for the revenue stamps and labels – Upon
filing thereof that there be a precise forfeiture may be sold or destroyed
computation and assessment of the tax, at the discretion of the
since what is involved in the criminal Commissioner. Forfeited property
action is not the collection of tax but a shall not be destroyed until at least
criminal prosecution for the violation 20 days from seizure.
of the NIRC. Provided, however, that
there is a prima facie showing of a EFFECT OF THE FORFEITURE OF
willful attempt to evade taxes. (See PROPERTY
Ungab vs. Cusi, GR Nos. L-41919-24, May
30, 1980 in relation to Commissioner vs. The effect is to transfer the title to
Court of Appeals, GR No. 119322, June the specific thing from the owner to the
4, 1996) government. All the proceeds in case of
a sale go to the coffers of the
(7) FORFEITURE government (U.S. vs. Surla, GR No.
6536, September 2, 1911). In seizure for
DEFINITION: divestiture of property the enforcement of a tax lien, the
without compensation, in consequence residue, after deducting the tax liability
of a default or offense. and expenses will go to the taxpayer
(Bank of the Phil. Island vs. Trinidad,
ENFORCEMENT OF THE REMEDY OF GR No. 16014, October 4, 1941).
FORFEITURE
INFORMER’S REWARD (Sec 282)
a. In case of personal property – The A. For violations of the NIRC, a reward
forfeiture of chattels and removable of 10% of the revenues, surcharges,
fixtures of any sort is enforced by or fees recovered and/or fine or
seizure and sale or destruction of penalty imposed and collected or P 1
the specific forfeited property. M per case, whichever is lower shall
b. In case of real property – The be given to:
forfeiture of real property is

Cabrera, Jhundee
Guillermo
1. any person who voluntarily gives 1. When the tax law itself is silent
definite and sworn information on prescription, the tax is
not yet in the possession of the imprescriptible;
BIR leading to the discovery of 2. When no return is required, tax
fraud upon the Internal Revenue is imprescriptible;
Laws and/or any violations thereof Note: Remedy of taxpayer is to file a
2. an informer where the offender return.
has offered to compromise the 3. Defense of prescription is
violation of law comiited by him waivable;
and his offer has been accepted
and collected by the CIR . This WHAT CONSTITUTES ASSESSMENT?
excludes an Internal Revenue
Officer/employee or other public An assessment contains not only
official/employee, or his relative a computation of tax liabilities but also
within the sixth degree a demand for payment within a
prescribed period.
* This shall not refer to a case already
pending or examined by the CIR
PRESCRIPTIVE PERIOD FOR THE
B. For the discovery and seizure of ASSESSMENT OF TAXES
smuggled goods
- a reward of 10% of the FMV of the General Rule:
smuggled and confiscated goods or Three (3) years after the date
P 1 M per case, whichever is the return is due or filed, whichever is
lower, shall be given to persons later (Sec. 203, 1997 NIRC).
instrumental in the discovery and
seizure of such smuggled goods. Exceptions:
1. Failure to file a return: ten (10)
* This does not apply to all public years from the date of the
officials whether incumbent or retired, discovery of the omission to file
who acquired the information in the the return (Sec.222[A]);
course of performance of their duties 2. False or fraudulent return with
during their incumbency. intention to evade the tax: ten
(10) years from the date of the
discovery of the falsity or fraud
PRESCRIPTIVE PERIODS FOR (Sec.222 [A]);
Note: Nothing in Section 222(A)
THE ASSESSMENT AND shall be construed to authorize the
COLLECTION OF TAXES examination and investigation or
inquiry into any tax return filed in
accordance with the provisions of
RATIONALE OF PRESCRIPTIVE PERIODS any tax amnesty law or decree.
Such periods are designated to  Fraud must be alleged and

secure the taxpayers against proved as a fact. It must be the
unreasonable investigation after the product of a deliberate intent to
lapse of the period prescribed. They are evade taxes. It may be
also beneficial to the government established by the:
because tax officers will be obliged to a. Intentional and substantial
act promptly. understatement of tax
liability by the taxpayer;
RULES ON PRESCRIPTION b. Intentional and substantial
overstatement of deductions
of exemptions; and/or

CHAIRPERSONS
1
c. Recurrence of the above extended period agreed upon

circumstances can further be extended by a
 Falsity constitutes a deviation subsequent written agreement
from the truth due to mistake, made before the expiration of
carelessness or ignorance. the extended period previously
agreed upon (Sec. 222[b]).
There is fraud in the following decided 4. Written waiver of renunciation
cases: of the original three (3) year
1. Fraud must be the product of a limitation, signed by the
deliberate intent to evade taxes taxpayer (Sambrano vs. Court of
(Jalandoni vs. Republic) Tax Appeals, GR No. L-8652,
2. Simple statement that return filed March 30, 1957).
was not fraudulent does not disprove
existence of fraud (Tayengco vs. Note: Notice of the assessment is
Collector) released, mailed or sent to the taxpayer
3. Substantial under-declarations of also within the 3 year period. It is not
income for six consecutive five years required that the notice be received by
demonstrate fraudulence of return the taxpayer within the prescribed
(Perez vs. CTA) period. But the sending of the notice
4. Presence of fictitious expenses, with must clearly be proven. (Basilan Estate,
no evidence presented, proves Inc. vs. Commissioner, GR No. L-22492,
existence of fraud (Tan Guan vs. September 5, 1967)
Commissioner)
AMENDMENT OF RETURN
However, the courts did not consider
the tax returns filed as false or If the amended return is
fraudulent with intent to evade payment substantially different from the original
of tax in the following cases: return, the prescriptive period shall be
a. Mere understatement in the tax counted from the filing of the amended
return will not necessarily imply return. But the said period shall run
fraud (Jalandoni vs. Republic) from the filing of the original return if
b. Sale of a real property for a price the same is sufficiently complete to
less than its fair market value is enable the Commissioner to make a
not necessarily a false return proper assessment. (Commissioner vs.
(Commissioner vs. Ayala Phoenix Assurance Co., GR No. L-19727,
Securities) May 20, 1965)
c. Fraud is a question of fact and the When Substantive:
circumstances constituting fraud a. substantial under declaration
must be alleged and proved in the (exceeding 30% of that
trial court (Commissioner vs. declared) of taxable sales,
Ayala Securities) receipts or income,
d. Fraud is never imputed and the b. or a substantial overstatement
courts never sustain findings of (exceeding 30% of deductions)
fraud upon circumstances that (Sec. 248)
only create suspicion
(Commissioner vs. Javier) PRESCRIPTIVE PERIOD FOR THE
e. Mistakes of revenue officers on COLLECTION OF TAXES
three different occasions remove
element of fraud (Aznar vs. CTA General Periods:
and Collector) Five (5) years – from assessment
or within period for collection agreed
3. Agreement in writing to the upon in writing before expiration of the
extension of the period to assess 5-year period (Sec. 222, 1997 NIRC).
between the CIR and the Ten (10) years – without
taxpayer before the expiration assessment in case of false or fraudulent
of the 3-year period. NB: The

Cabrera, Jhundee
Guillermo
return with intent to evade or failure to Note: A defective tax return is the
file return (Sec. 222, 1997 NIRC). same as if no return was filed at all.
WHAT IS THE PRESCRIPTIVE PERIOD

WHERE THE GOVERNMENT’S ACTION IS PRESCRIPTIVE PERIOD FOR THE
ON A BOND WHICH THE TAXPAYER VIOLATION OF ANY PROVISION OF THE
EXECUTES IN ORDER TO SECURE THE TAX CODE (SEC. 281, 1997 NIRC)
PAYMENT OF HIS TAX OBLIGATION?
1. Should be filed within five (5) years
Ten (10) years under Art. from the (a) day of the commission
1144(1) of the Civil Code and not three of the violation of the law, and if
(3) years under the NIRC. In this case, the same be not known, from the (b)
the Government proceeds by court discovery thereof and the
action to forfeit a bond. The action is institution of the judicial
for the enforcement of a contractual proceedings for its investigation and
obligation. (Republic vs. Araneta, GR punishment.
No. L-14142, May 30, 1961)
2. Illustrative case: (Lim vs. Court of
GROUNDS FOR SUSPENSION OF THE Appeals GR Nos. 48134-37, Ocober
RUNNING OF THE STATUTE OF 18 , 1990)
LIMITATIONS a. charge is failure or refusal to
pay deficiency income tax –
a. When the CIR is prohibited from committed only after the finality
making the assessment or of the assessment coupled with
beginning the distraint or levy or the taxpayer’s willful refusal to
a proceeding in court, and for pay the taxes within the allotted
sixty (60) days thereafter; period. (i.e. cannot be
b. When the taxpayer requests for committed upon filing the
a reconsideration which is return)
granted by the CIR; b. charge is filing of false or
c. When the taxpayer cannot be fraudulent return with intent
located in the address given by to evade the assessment – in
him in the return, unless he addition to the fact of discovery,
informs the CIR of any change in there must be a judicial
his address. proceeding for the investigation
d. When the warrant of distraint or and punishment of the tax
levy is duly served, and no offense before the 5 year
property is located; and prescriptive period begins to
e. When the taxpayer is out of the run.
Philippines (Sec. 223, 1997
NIRC).
II. TAX REMEDIES OF THE
A TAX RETURN IS CONSIDERED FILED
FOR PURPOSES OF STARTING THE TAXPAYER
RUNNING OF THE PERIOD OF
LIMITATIONS IF
General Remedies
a. The return is valid – it has complied
substantially with the requirements A. ADMINISTRATIVE
of the law; and Before Payment
a. Protest – filing a petition for
b. The return is appropriate – it is a reconsideration or
return for the particular tax required reinvestigation within 30
by law. days from receipt of
assessment Within 60 days

CHAIRPERSONS
1
from filing of protest, all or from the lapse of 180 days due
relevant supporting to inaction of the Commissioner
documents should have been (Sec. 228, 1997 NIRC).
submitted, otherwise, the b.Action to contest forfeiture of
assessment shall become chattel, at any time before the
final – cannot be appealed sale or destruction thereof, to
(Sec. 228, 1997 NIRC). recover the same, and upon giving
proper bond, enjoin the sale; or
Note: Submission of documents after the sale and within 6
within the 60 day period is months, an action to recover the
optional to the taxpayer. net proceeds realized at the sale
(Sec. 231, 1997 NIRC); and
"That the relevant c. Action for damages against a
supporting documents revenue officer by reason of any
mentioned in the law refers act done in the performance of
to such documents which the official duty (Sec. 227, 1997
taxpayer feels would be NIRC).
necessary to support his Criminal Action
protest and not what the a. Filing of criminal complaint
Commissioner feels should against erring BIR officials and
be submitted, otherwise, employees.
taxpayer would always be at b. Injunction – when the CTA in its
the mercy of the BIR which opinion, the collection by the BIR
may require production of may jeopardize taxpayer.
such documents which
taxpayer could not produce." Note: With the enactment of the new
(Standard Chartered Bank CTA law (RA No. 9282) amending RA No.
vs. CIR, CTA Case No. 5696, 1125, CTA now has jurisdiction over
August 16, 2001) criminal cases. (See Chapter VI - Court
A protest is a vital of Tax Appeals.)
document which is a formal
declaration of resistance of Substantive Remedies
the taxpayer. It is a 1. Questioning the constitutionality or
repository of all arguments. validity of tax statutes or regulations
It can be used in court in 2. Non-retroactivity of rulings (Sec.246,
case administrative remedies NIRC)
have been exhausted. It is 3. Failure to inform the taxpayer in
also the formal act of the writing of the legal and factual bases
taxpayer questioning the of assessment makes it void (Sec.
official actuation of the CIR. 228, NIRC)
This is equivalent to a 4. Preservation of books of accounts and
pleading. once a year examination (Sec. 235,
b. Entering into a compromise NIRC)
(Sec. 204, 1997 NIRC).
After Payment ASSESSMENT AND PROTEST
Filing of claim for refund  Assessment
or tax credit within 2 years from General rule: Taxes are self assessing
date of payment regardless of and thus, do not require the issuance of
any supervening cause (Sec. 229, an assessment notice in order to
1997 NIRC). establish the tax liability of a taxpayer.
Exceptions:
B. JUDICIAL 1. Tax period of a taxpayer is
Civil Action terminated (Sec. 6(D), NIRC)
a.Appeal to the Court of Tax 2. Deficiency tax liability arising
Appeals – within 30 days from from a tax audit conducted by
receipt of decision on the protest the BIR (Sec. 56(B), NIRC)

Cabrera, Jhundee
Guillermo
3. Tax lien (Sec. 219, NIRC) Corporation, GR No. 66160, May 21,
4. Dissolving Corporation (Sec. 1990)
52(c), NIRC) 2. indication to the taxpayer by the
Commissioner “in clear and
 Protest unequivocal language” of his final
1. Direct denial of protest denial. (Commissioner vs. Union
Admnistrative decision on a disputed Shipping Corporation, GR No. 66160,
assessment - The decision of the May 21, 1990)
Commissioner or his duly authorized 3. BIR demand letter reiterating his
representative shall (a) state the facts, previous demand to pay, sent to the
the applicable law, rules and regulation taxpayer after his protest of the
or jurisprudence on which such decision assessment. (Surigao Electric Co.,
is based otherwise, the decision shall be Inc. vs. CTA, GR No. L-25289, June
void, in which case the same shall not be 28, 1974; Commissioner vs. Ayala
considered a decision a disputed Securities Corporation, GR No. L-
assessment and (b) that the same is his 29485, March 31, 1976)
final decision (Sec. 3.1.5, Rev. Regs. No. 4. The actual issuance of a warrant of
12-99) distraint and levy in certain cases
cannot be considered a final decision
2. Indirect denial of protest on a disputed settlement.
a. Commissioner did not rule on the (Commissioner vs. Union Shipping
taxpayer’s motion for Corporation, GR No. 66160, May 21,
reconsideration of the 1990)
assessment – it was only when
respondent received the
summons on
the civil action for the FILING OF CLAIM FOR

collection of deficiency income TAX REFUND OR TAX CREDIT
tax that the period to appeal
commenced to run GROUNDS FOR FILING A CLAIM FOR TAX
(Commissioner vs. Union REFUND OR TAX CREDIT
Shipping Corp.)
b. Referral by the Commissioner of 1. Tax is collected erroneously or
request for reinvestigation to illegally.
the Solicitor General (Republic 2. Penalty is collected without
vs Lim Tian Teng Sons) authority.
c. Reiterating the demand for 3. Sum collected is excessive.
immediate payment of the
deficiency tax due to taxpayer’s TAX REFUND VS. TAX CREDIT
continued refusal to execute
waiver (Commissioner vs. Ayala TAX REFUND TAX CREDIT
Securities Corp.)
d. Preliminary collection letter may The taxpayer asks for The taxpayer asks
serve as assessment notice restitution of the that the money so
(United International Pictures money paid as tax paid be applied to his
existing tax liability
vs. Commissioner)
Two-year period to Two-year period
ACTS OF BIR COMMISSIONER file claim with the starts from the date
CONSIDERED AS DENIAL OF PROTEST CIR starts after the such credit was
WHICH SERVE AS A BASIS FOR APPEAL payment of the tax allowed (in case
TO THE COURT OF TAX APPEALS or penalty credit is wrongly
made).
1. filing by the BIR of a civil suit for
collection of the deficiency tax REQUISITES OF TAX REFUND OR TAX
(Commissioner vs. Union Shipping CREDIT
CHAIRPERSONS
1
- the rationale in computing this

1. Claim must be in writing; period is the fact that it is only then
2. It must be filed with the the corporation can ascertain
Commissioner within two (2) years whether it made profits or incurred
after the payment of the tax or losses in its business operations.
penalty. (ACCRA Investments vs. Court of
Note: No suit or proceeding shall be Appeals, GR No. 96322, December
begun after the expiration of the 20, 1991)
said two (2) years regardless of any 6. Date when quarterly income tax
supervening cause that may arise was paid vs. date when final
after payment. adjusted return was filed
3. Show proof of payment. - from the date when final adjusted
return was filed
COMMENCEMENT OF THE TWO (2) YEAR - The filing of the quarterly income
PERIOD (JURISPRUDENCE) tax return (Sec. 68) and payment of
quarterly income tax should only be
1. Tax sought to be refunded is considered mere installments of the
illegally or erroneously collected annual tax due. (Commissioner vs.
- from the date the tax was paid. TMX Sales, GR No. 83736, January
(Commissioner vs. Victorias Milling, 15, 1992)
GR No. L-24108, January 31, 1968) 7. Date when the final adjustment
2. Tax is paid only in installments or return was actually filed (ex. Apr.
only in part 2) vs. Last day when the
- from the date the last or final adjustment return could still be
installment or payment because for filed (ex. Apr. 15)
tax purposes, there is no payment - from the date the final adjustment
until the whole or entire tax liability return was actually filed.
is fully paid. (Collector vs. Prieto, (Commissioner vs. Court of Appeals,
GR No. L-11976, August 29, 1961) GR No 117254, January 21, 1999)
3. Taxpayer merely made a deposit 8. Tax was not erroneously or illegally
- counted from the conversion of paid but the taxpayer became
the deposit to payment (Union entitled to refund because of
Garment vs. Collector, CTA Case No. supervening circumstances
416, November 17, 1958) - from the date the taxpayer
- Merely making a deposit is not becomes entitled to refund and not
equivalent to payment until the from the date of payment.
amount is actually applied to the (Commissioner vs. Don Pedro
specific purpose for which it was Central Azucarera, GR No. L-28467,
deposited. Feb. 28, 1973)
4. Tax has been withheld from source PAYMENT UNDER PROTEST IS NOT
(through the withholding tax NECESSARY UNDER NIRC
system)
- counted from the date it falls due A suit or proceeding for tax refund
at the end of the taxable year may be maintained “whether or not such
- A taxpayer who contributes to the tax, penalty or sum has been paid under
withholding tax system does not protest or duress” (Sec. 229, NIRC).
really deposit an amount to the
government, but in truth, performs Note: Similarly, payment under protest
and extinguishes his tax obligation is not necessary in refund for local
for the year concerned. (Gibbs vs. taxes. (See Sec. 196, LGC).
Commissioner, GR No. L-17406,
November 29, 1965) However, payment under protest is
5. End of taxable year vs. date of the necessary in claim for refund for real
filing of the final adjusted return property taxes (Sec. 252, LGC) and for
- from the date when the final customs duties (Sec. 2308, TCC).
adjusted return was filed.

Cabrera, Jhundee
Guillermo
SUSPENSION OF THE TWO-YEAR 2. Forfeiture of Tax Credit – a tax

PRESCRIPTIVE PERIOD credit certificate which remains
unutilized after five (5) years from
1. There is a pending litigation date of issue, shall be invalid, unless
between the Government and the revalidated (Sec. 230, 1997 NIRC).
taxpayer; and
2. CIR in that litigated case agreed to
abide by the decision of the SC as to REGLEMENTARY PERIODS
the collection of taxes relative IN INCOME TAX IMPOSED
thereto (Panay Electric Co. vs.
Collector, GR No. L-10574, May 28, BY LAW UPON THE TAXPAYER
1958). (PURSUANT TO REV. REG. NO. 12-99,
SEC. 228 OF THE 1997 NIRC, AND RA
INTEREST ON TAX REFUNDS NO. 1125 AS AMENDED BY RA NO.
9282)
General Rule:
Government cannot be required BIR makes a tax assessment
to pay interest on taxes refunded to the 
taxpayer in the absence of a statutory If taxpayer is not satisfied with the
provision clearly or expressly directing assessment file a protest within 30 days
or authorizing such payment. from receipt thereof
(Commissioner vs. Sweeney, GR No. L- 
12178, August 29, 1959) Submit supporting documents within
60 days from date of the filing of the
protest
Exceptions:
1. When the CIR acted with patent 
arbitrariness. Arbitrariness If protest is denied, elevate the matter
presupposes inexcusable or obstinate to the Commissioner of Internal Revenue
disregard of legal provisions. (CIR) within 30 days from receipt of the
(Commissioner vs. Victorias Milling, decision of the CIR’s duly authorized
GR No. L-19667, Nov. 29, 1966) representative officer
2. Under Sec. 79(C)(2) with respect to 
income taxes withheld on the wages Appeal to the Division of the Court of
of the employees. Tax Appeals (CTA) within 30 days from
receipt of final decision of CIR or his
TAX CREDIT CERTIFICATE duly authorized representative (the
taxpayer has the option to appeal
1. May be applied against any internal straight to the CTA upon receipt of the
revenue tax except withholding decision of the CIR’s duly authorized
taxes, representative)
2. Original copy is surrendered to the 
revenue office, If the CIR or his duly authorized
3. No tax refund will be given resulting representative fails to act on the
from availment of incentives granted protest within 180 days from date of
by law where no actual payment was submission by taxpayer, the latter may
made (Sec. 204C, 1997 NIRC). appeal within 30 days from lapse of the
180-day period with the CTA Division
FORFEITURE OF CASH REFUND/TAX
CREDIT 
The Party adversely affected by the CTA
1. Forfeiture of refund in favor of the Division’s decision may file one motion
government when a refund check or for reconsideration/new trial within 15
warrant remains unclaimed or days from receipt of decision. If the MR
uncashed within five (5) years from is denied file a petition for review with
date of mailing or delivery. the CTA en banc
CHAIRPERSONS
1
 payment appears clearly to

Appeal to the Supreme Court within 15 have been erroneously paid.
days from receipt of the CTA en banc  In case of the CIR’s final
decision under Rule 45 of the Rules of denial of the claim for
Court refund, the 30-day period to
appeal with the CTA must be
Pre-Assessment Notice, When Not within the 2-year peremptory
Required (Sec. 228, NIRC) period for instituting judicial
action.
1. When the finding for any
deficiency tax is the result of  See Annex N – Assessment
mathematical error in the Process and Appeal
computation of the tax as
appearing on the face of the
return; or ADDITIONS TO THE TAX
2. When a discrepancy has been (SECS. 247-252 NIRC)
determined between the tax
withheld and the amount DEFINITION: increments to the basic tax
actually remitted by the incident due to the taxpayer’s non-
withholding agent; or compliance with certain legal
3. When a taxpayer who opted to requirements.
claim a refund or tax credit of 1. CIVIL PENALTY / SURCHARGE
excess creditable withholding 1. 25% surcharge
tax for a taxable period was a. Failure to file any return and
determined to have carried over pay the tax due thereon as
and automatically applied the required under the
same amount claimed against provisions of this Code or
the estimated tax liabilities for rules and regulations on the
the taxable quarter or quarters date prescribed; or
of the succeeding taxable year; b. Unless otherwise authorized
or by the Commissioner, filing a
4. When the excise tax due on return with an internal
excisable articles has not been revenue officer other than
paid; those with whom the return
5. When an article locally is required to be filed; or
purchased or imported by an c. Failure to pay the deficiency
exempt person, such as, but not tax within the time
limited to, vehicles, capital prescribed for its payment in
equipment, machineries and the notice of assessment; or
spare parts, has been sold, d. Failure to pay the full or
traded or transferred to non- part of the amount of tax
exempt persons. shown on any return
required to be filed under
Notes: the provisions of this Code
 As a general rule, payment or rules and regulations, or
under protest is not required the full amount of tax due
under the NIRC, except when for which no return is
partial payment of required to be filed, on or
uncontroverted taxes is before the date prescribed
required under RR 12-99. for its payment. (Sec. 248)
The Commissioner may, even 2. 50% surcharge
without a written claim a. in case of willful neglect to
therefor, refund or credit file the return within the
any tax, where on the face period prescribed by the
of the return upon which Code, or
payment was made, such

Cabrera, Jhundee
Guillermo
 will not apply in case a

taxpayer, without notice
III. LOCAL TAXATION
from the Commissioner,
POWERS AND LIMITATIONS
or his duly authorized
representative,
NATURE AND SOURCE OF LOCAL
voluntarily files the said
TAXING POWER (SEE. SEC 5, ART. X,
return (only 25% shall be
1987 CONSTITUTION AND SEC. 129,
imposed)
LGC)
 50% surcharge shall be
imposed in case the
The Local Government Unit has the
taxpayer files the return
power:
only after prior notice in
a. to create its own sources of
writing from the
revenue and
Commissioner or his duly
b. to levy taxes, fees and charges.
authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)
b. in case a false or fraudulent

Congress cannot enact laws
return is willfully made
depriving LGU from exercising such
Prima Facie evidence
power to tax but it may set guidelines
 substantial underdeclaration and limitations for the exercise.
(exceeding 30% of that Such taxes, fees, and charges
declared) of taxable sales, shall accrue exclusively to the local
receipts or income, government units.
 or a substantial
overstatement (exceeding Nature of the Taxing Power
30% of actual deductions) of a. Not inherent;
deductions (Sec. 248) b. Exercised only if delegated to
them by law or Constitution;
2. INTEREST c. Not absolute; subject to
- 20% per annum or such higher rate limitations provided for by law.
as may be prescribed by the rules
and regulations Under the present constitutional
rule, “where there is neither a grant nor
a. Deficiency interest (Sec. 249B) a prohibition by statute, the tax power
b. Delinquency interest (Sec. 249C) must be deemed to exist although
c. Interest on Extended Payment Congress may provide statutory
(Sec. 249D) limitations and guidelines. The basic
rationale for the current rule is to
3. OTHER CIVIL PENALTIES OR safeguard the viability and self-
ADMINISTRATIVE FINES sufficiency of local government units by
directly granting them general and broad
a. Failure to file certain tax powers.” (Manila Electric Co. vs.
information returns (Sec. 250) Province of Laguna, G.R. No. 131359)
b. Failure of a withholding agent to
collect and remit tax (Sec. 251) Aspects of Local Taxing Power
c. Failure of a withholding agent of a. local taxation
refund excess withholding tax b. real property taxation
(Sec. 252)
Fundamental Principles governing
Local Taxation (Sec. 130, lgc)
CHAIRPERSONS
1
a. Shall be uniform in each local percent (10%) of the rates fixed under
sub-unit the LGC.
b. Shall be equitable and based as
much as possible on the Power to Grant Local Tax Exemptions
taxpayer’s ability to pay (Sec. 192, lgc)
c. Levied for public purposes Local government units may,
d. Shall not be unjust, excessive, through ordinances duly approved,
oppressive, or confiscatory grant tax exemptions, incentives or
e. Shall not be contrary to law, reliefs under such terms and conditions,
public policy, national as they may deem necessary.
economic policy, or in restraint
of trade Tax Exemptions Existing Before the
f. Collection of local taxes and Effectivity of the LGC has been
other impositions shall not be Abolished (Sec. 193, lgc)
let to any person Unless otherwise provided in this
g. The revenues collected under Code, tax exemptions or incentives
the Code shall inure solely to granted to, or presently enjoyed by all
the benefit of, and subject to persons, whether natural or juridical,
disposition by, the LGU levying including government-owned or
the tax or other imposition controlled corporations are hereby
unless otherwise specifically withdrawn upon the effectively of the
provided therein LGC
h. Each LGU shall, as far as except the following:
practicable, evolve a 8. local water districts,
progressive system of taxation. 9. cooperatives duly registered under
R.A. No. 6938, non-stock and non-
Local Taxing Authority (Sec. 132, lgc) profit hospitals and
Shall be exercised by the Sanggunian 10. educational institutions.
of the LGU concerned through an
appropriate ordinance. The power to grant tax exemptions,
tax incentives and tax reliefs shall not
Power to prescribe Penalties for Tax apply to regulatory fees which are
Violations and Limitations thereon levied under the police power of the
(Sec. 516, lgc) LGU.
1. The Sanggunian is authorized to Tax exemptions shall be conferred
prescribe fines or other penalties through the issuance of a non-
for violations of tax ordinances. transferable tax exemption certificate.
a. in no case shall fines be less
than P1,000 nor more than Guidelines for the Granting of Tax
P5,000 Exemptions, Tax Incentives and Tax
b. nor shall the imprisonment be Reliefs (Art. 282[b], Rules and
less than one (1) month nor Regulations Implementing the Lgc)
more than six (6) month.
2. Such fine or other penalty shall be 1. On the grant of tax exemptions or
imposed at the discretion of the tax reliefs:
court. a. the same may be granted in
3. The Sangguniang Barangay may cases of natural calamities, civil
prescribe a fine of not less than disturbance, general failure of
P100 nor more than P1,000. crops, or adverse economic
conditions such as substantial
Power to Adjust Local Tax Rate (Sec. decrease in prices of agricultural
191, lgc) or agri-based products.
Adjustment of the tax rates as b. The grant shall be through an
prescribed herein should not be oftener ordinance.
than once every five (5) years, and in no c. Any exemption or relief granted
case shall such adjustment exceed ten to a type or kind of business shall

Cabrera, Jhundee
Guillermo
apply to all business similarly To levy taxes, fees or charges on any

situated. base or subject NOT:
d. The same shall take effect only 1. Specifically enumerated in LGC
during the next calendar year for 2. Taxed under the provisions of
a period not exceeding 12 the NIRC, as amended, and
months as may be provided in 3. Other applicable laws
the ordinance.
e. In the case of shared revenues, Conditions:
the exemption or relief shall only 1. That the taxes, fees, or charges shall
extend to the LGU granting such not be unjust, excessive, oppressive,
exemption or relief. confiscatory or contrary to declared
2. On the grant of tax incentives: national policy
a. The same shall be granted only
to new investments in the 2. The ordinance levying such taxes,
locality and the ordinance shall fees or charges shall not be enacted
prescribe the terms and without any prior public hearing
conditions therefore. conducted for the purpose.
b. The grant shall be for a definite
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance LIMITATIONS OF THE RESIDUAL POWER
passed prior to the 1 st day of 1. Constitutional limitations on
January of any year. taxing power
d. Any grant to a type or kind of 2. Common limitations prescribed
business shall apply to all in Sec. 133 of the LGC
businesses similarly situated. 3. Fundamental principles
governing the exercise of the
LEVYING OF LOCAL TAXES (LOCAL TAX taxing power of the LGUs
ORDINANCE) prescribed under Sec. 130 of
Requisites: the LGC
1. The procedure applicable to local 4. The ordinance levying such
government ordinances in general residual taxes shall not be
should be observed (Sec. 187, LGC) enacted without any prior
2. Procedural details (Secs. 54, 55, and public hearing conducted for
59, LGC): the purpose and
a. necessity of a quorum 5. The principle of preemption.
b. submission for approval by the
local chief executive Principle of Preemption or
c. he matter of veto and overriding Exclusionary doctrine
the same Where the National Government
d. the publication and affectivity elects to tax a particular area, it
3. Public hearings are required before impliedly withholds from the local
any local tax ordinance is enacted government the delegated power to tax
(Sec.187, LGC) the same field. This doctrine principally
4. Within 10 days after their approval, rests on the intention of the Congress.
publication in full for 3 consecutive
days in a newspaper of general Excluded impositions (pursuant to the
circulation. In absence of such doctrine of preemption):
newspaper in the province, city or a. Taxes which are levied under the
municipality, then the ordinances NIRC, unless otherwise provided
may be posted in at least 2 by LGC of 1991;
conspicuous and publicly accessible b. Taxes, fees, etc. which are
places (Sec. 189, LGC) imposed under the Tariffs and
Customs Code;
Residual Taxing Powers of the Local c. Taxes, fees, etc., the imposition
government units (Sec. 186, lgc) of which contravenes existing
CHAIRPERSONS
1
governmental policies or which freight by hire and common

violates the fundamental carriers by air, land or water,
principles of taxation; except as provided in the Code;
d. Taxes, fees and other charges 11. Taxes on premiums paid by way
imposed under special law. of Reinsurance or retrocession;
12. Taxes, fees or charges for the
COMMON LIMITATIONS ON LOCAL registration of motor vehicles
TAXING POWER (SEC. 133, LGC) and for the issuance of all kinds
Local government units cannot levy: of licenses or permits for the
1. Income tax, except on banks and driving thereof, except tricycle;
other financial institutions; 13. Taxes, fees or other charges on
2. Documentary stamp tax; Philippine products actually
3. Estate tax, inheritance, gifts, exported, except as otherwise
legacies and other acquisitions provided in the Code;
mortis causa except as 14. Taxes, fees or charges on
otherwise provided Countryside and barangay
4. Customs duties, registration fees business enterprises and
of vessels and wharfage on cooperatives duly registered
wharves, tonnage dues and all under R.A. 6810 and R.A. 6938,
other kinds of customs fees, (Cooperatives Code of the
charges and dues except Philippines) ; and
wharfage on wharves 15. Taxes, fees or charges of any
constructed and maintained by kind on the National
the local government unit Government, its agencies and
concerned; instrumentalities, and local
5. Taxes, fees, charges and other government units.
impositions upon goods carried
into or out of, or passing CLASSIFICATION OF COMMON
through, the territorial LIMITATIONS
jurisdictions of local government 1. Taxes which are levied under the
units in the guise of charges for NIRC unless otherwise provided by
wharfage, tolls for bridges or the LGC
otherwise.  Numbers 1, 2, 3, 8, 9, 10
6. Taxes, fees or charges on 2. Taxes, fees, etc. which are imposed
agricultural and aquatic products under the Tariffs and Customs Code
when sold by marginal farmers  Number 4
or fishermen; 3. Taxes, fees and charges where the
7. Taxes on business enterprises imposition of which contravenes
certified by the Board of existing governmental policies or
Investments as pioneer or which are violative of the
non-pioneer for a period of 6 fundamental principles of taxation
and 4 years, respectively, from  Numbers 5, 6, 7, 11, 13, 14, 15
the date of registration; 4. Taxes, fees, and charges imposed
8. Excise taxes on articles under special laws.
enumerated under the NIRC, as  Number 12
amended, and taxes, fees or
charges on petroleum products; TAXES AND OTHER IMPOSITIONS THAT
9. Percentage or value-added tax THE LOCAL GOVERNMENT MAY LEVY
(VAT) on sales, barters or
exchanges or similar transactions (A) PROVINCES
on goods or services except as (SECS. 134-141, LGC)
otherwise provided herein; 1. Tax on Transfer of Real Property
10. Taxes on the gross receipts of 2. Tax on Business of Printing and
transportation contractors and Publication
persons engaged in the 3. Franchise Tax
transportation of passengers or

Cabrera, Jhundee
Guillermo
4. Tax on Sand, Gravel and other charges on business and occupation

Quarry Resources extracted from except professional taxes reserved for
Public Land provinces. (Sec. 147. LGC)
5. Professional Tax
6. Amusement Tax Rates of Tax within the Metropolitan
7. Annual Fixed Tax for every Manila Area (sec. 144, lgc)
Delivery Truck or Van of
Manufacturers or Producers, - Not to exceed by 50% the
Wholesalers of, Dealers, or maximum rates prescribed in the
Retailers in, certain products preceding Section.
 See Annex J for the rates and

details.
(B) MUNICIPALITIES Payment of Business Taxes

(SEC. 143, LGC) a. It shall be payable for every
separate or distinct
1. Municipal Taxes- taxes on the establishment or place where
businesses of the following: business subject to the tax is
a. On manufacturers, assemblers, conducted and one line of
repackers, processors, brewers, business does not become
distillers, rectifiers, and exempt by being conducted with
compounders of liquors, distilled some other business for which
spirits, and wines or such tax has been paid.
manufacturers of any article of b. The tax on a business must be
commerce of whatever kind or paid by the person conducting
b. On wholesalers, distributors, or the same.
dealers in any article of c. In cases where a person
commerce of whatever kind or conducts or operates 2 or more
c. On exporters, and on of the businesses mentioned in
manufacturers, millers, Section 143 of LGC
producers, wholesalers, - which are subject to the
distributors, dealers or retailers same rate of tax, the tax shall be
of essential commodities computed on the combined total
d. On retailers gross sales or receipts of the said 2
e. On contractors and other or more related businesses.
independent - which are subject to
f. On banks and other financial different rates of tax, the gross
g. On peddlers engaged in the sale sales or receipts of each business
of any merchandise or article of shall be separately reported for the
commerce purpose of computing the tax due
h. On any business, not otherwise from each business.
specified in the preceding
paragraphs, which the  See Annex K for the rates and
sanggunian concerned may deem details.
proper to tax.
(C) CITIES
2. Municipal non-revenue fees and (SEC. 151, LGC)
charges
The municipality may impose
and collect such reasonable fees and
CHAIRPERSONS
1
 The city may levy the taxes, fees,

and charges which the province or A. Situs According to the Cases
municipality may impose. With respect to excise tax, the
 The tax rates that the city may levy tax is upon the performance of an act,
may exceed the maximum rates enjoyment of a privilege or the engaging
allowed for the province or in an occupation. The power to levy such
municipality by not more than 50% tax is not dependent on the domicile of
except the rates of professional and the taxpayer, but on the place in which
amusement taxes. the act is performed or the occupation is
engaged in; not upon the location of the
(D) BARANGAYS office, but the place where the sale is
(SEC. 152, LGC) perfected. (Allied Thread Co., Inc. v.
City Mayor of Manila, L-40296)
Barangays may levy the following taxes,
fees, and charges which shall accrue With respect to sale, it is the
exclusively to them: place of the consummation of the sale,
associated with the delivery of the
things which are the subject matter of
a. Taxes – On stores or retailers the contract that determines the situs of
with fixed business the contract for purposes of taxation,
establishments with the gross and not merely the place of the
sales or receipts for the perfection of the contract. (Shell Co.,
preceding calendar year of Inc. v. Municipality of Sipocot,
P50,000 or less (for barangays in Camarines Sur 105 Phil 1263)
the cities) and P30,000 or less
(for barangays in municipalities) B. Situs According to Sec. 150, LGC
b. Rate = not exceeding 1% of such
gross sales or receipts. Branch or sales office – a fixed place in
c. Service Fees or Charges – For the locality which conducts the
services rendered in connection operation of the business as an extension
with the regulation or the use of of the principal office
barangay-owned properties or
service facilities such as palay, Principal office- the head or the main
copra or tobacco dryers office of the business; the city or the
d. Barangay Clearance – No city or municipality specifically mentioned in
municipality may issue any the Articles of Incorporation or official
license or permit fee for any registration papers as being the official
business or activity unless a address of said principal office shall be
clearance is first obtained from considered the situs thereof.
the barangay where such
business or activity is located or 1. Place of sale (with branch or sales
conducted. outlet therein):
e. Other Fees and Charges – The  Municipality or city where the
barangay may levy reasonable branch or outlet is located.
fees and charges: 2. Place of sale (no branch or sales
1. On Commercial breeding of outlet):
fighting cocks, cockfights
 Municipality or city of principal
and cockpits;
office (not in the place of sale)
2. On places of Recreation
3. If manufacturer, assembler,
which charge admission fees;
contractor, producer, or exporter
and
(MACPE) with factory, project office,
3. On Billboards, signboards,
plant or plantation (FPPP)
neon signs and outdoor
4. 30% of recorded sales in the principal
advertisements.
office: city or municipality where
the principal office is located
SITUS OF LOCAL TAXATION

Cabrera, Jhundee
Guillermo
5. 70% of recorded sales in the c. under any of the following

principal office: city or municipality instances:
where the FPPP is located d. who has been regularly
 pro rata if FPPP are located in employed on a wage or salary
different municipalities or cities basis for at least thirty (30)
in proportion to their respective consecutive working days
volumes of production. during any calendar year; or
6. If plantation is located in some other e. who is engaged in business or
place than where the factory is occupation; or
located, the foregoing 70% shall be f. who owns real property with
subdivided as follows: an aggregate assessed value
 60% to the city or municipality of P1,000 or more; or
where the factory is located g. who is required by law to file
 40% to the city or municipality an income tax return
where the plantation is located.
Tax Rate = P5.00 and an annual
COMMON REVENUE-RAISING POWERS additional tax of P1.00 for every
OF LGUs (SEC. 153 TO 155) P1,000 of income regardless of
1. Service fees and charges for services whether from business, exercise of
rendered profession or from property which in
2. Public Utility Charges for the no case shall exceed P5,000.
operation of public utilities owned, In case of husband and wife,
operated and maintained by LGUs the additional tax herein imposed
within their jurisdiction. shall be based upon the total
3. Toll fees or charges for the use of property owned by them and the
any public road, pier or wharf, total gross receipts or earnings
waterway, bridge, ferry or derived by them.
telecommunication system funded
and constructed by the local B. Juridical Persons (Sec. 158)
government unit concerned Every corporation no matter how
Exceptions: created or organized, whether
a. Officers and enlisted men of the domestic or resident foreign,
AFP and PNP; engaged in or doing business in the
b. Post office personnel delivering Philippines shall pay an annual
mail; and community tax.
c. Physically handicapped and
disabled citizens who are Tax Rate = P500 and an annual
sixty-five (65) years or older. additional tax which in no case shall
(Sec. 152, LGC) exceed P10,000 in accordance with the
following schedule:
When public safety and welfare so 1. For every P5,000 worth of real
requires, the sanggunian concerned may property owned by it during the
discontinue the collection of the tolls, preceding year based on the
and thereafter the said facility shall be valuation used for the payment
free and open for public use. of the real property tax - P2.00;
and
COMMUNITY TAX 2. For every P5,000 of gross
Cities or municipalities may levy a receipts or earnings derived by
community tax. it from its business in the
Philippines during the preceding
A. Individuals Liable (Sec. 157) year - P2.00.
a. every inhabitant of the
Philippines; The dividends received by a
b. eighteen (18) years of age or corporation shall, for the purpose of the
over; additional tax, be considered as part of

CHAIRPERSONS
1
the gross receipts or earnings of said The presentation of the community tax
corporation. certificate shall not be required in
connection with the registration of a
THE FOLLOWING ARE EXEMPT FROM voter.
THE COMMUNITY TAX (SEC. 159)
1. Diplomatic and consular B. Corporation
representatives; and 1. receives any license, certificate
2. Transient visitors when their stay in or permit from any public
the Philippines does not exceed authority;
three (3) months. 2. pays any tax or fee;
3. receives money from public
PLACE OF PAYMENT: place of residence funds; or
of the individual, or in the place where 4. transacts other official business.
the principal office of the juridical The city of municipal treasurer
entity is located. deputizes the barangay treasurer to
collect the community tax in their
TIME OF PAYMENT: accrues on the 1st respective jurisdictions. (Sec. 164, LCG)
day of January of each year which shall
be paid not later than the last day of The proceeds of the community tax
February of each year. actually and directly collected by the
city or municipal treasurer shall accrue
PENALTIES FOR DELINQUENCY: an entirely to the general fund of the city or
interest of 24% per annum from the due municipality concerned.
date until it is paid shall be added to the
Proceeds of the community tax
amount due.
collected through the barangay
treasurers shall be apportioned as
A community tax certificate may
follows:
also be issued to any person or
corporation not subject to the  50% accrues to the general fund
community tax upon payment of P1.00 of the city or municipality
(Sec. 162, LGC). concerned; and
 50% accrues to the barangay
Presentation of Community Tax where the tax is collected.
Certificate on Certain Occasions – (Sec.
163) Collection Of Local Taxes
A. Individual
1. When an individual subject to Tax Period and Manner of Payment –
the community tax (Sec. 165, LGC)
acknowledges any document Unless otherwise provided, the
before a notary public; tax period shall be the calendar
2. takes the oath of office upon year.
election or appointment to Such taxes, fees, and charges
any position in the may be paid in quarterly
government service; installments.
3. receives any license,
certificate or permit from any Accrual of Tax – (Sec. 166, LGC)
public authority; pays any tax Unless otherwise provided, shall
or fee; accrue on the first day of January of
4. receives any money from any each year.
public fund; However, new taxes, fees or
5. transacts other official charges, or changes in the rates
business; or thereof, shall accrue on the first
6. receives any salary or wage day of the quarter next following
from any person or the effectivity of the ordinance
corporation. imposing such new levies or rates.

Cabrera, Jhundee
Guillermo
Time of Payment – (Sec. 167, LGC) 1. TAX REMEDIES OF THE

Unless otherwise provided shall LOCAL GOVERNMENT UNITS (LGUs)
be paid within the first twenty (20)
days of January or of each Civil Remedies Of The Local
subsequent quarter as the case may Government Units (LGU) To Effect
be. Collection Of Taxes
May, for a justifiable reason or (1) Local Government’s Lien – Local
cause, be extended without taxes, fees, charges and other
surcharges or penalties, but only for revenues constitute a lien, superior
a period not exceeding six (6) to all liens, charges or
months. encumbrances in favor of any
person, enforceable by any
Surcharges and Penalties on Unpaid appropriate administrative or
Taxes, Fees or Charges – (Sec. 168, judicial action.
LGC)
Surcharge not exceeding 25% of (2) Civil Remedies
the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.
Interests on Other Unpaid Revenues – Either of these remedies or all may

(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.
date it is due until it is paid, but in no
case shall the total interest on the JURISDICTION OF COURTS OVER LOCAL
unpaid amount or portion thereof TAXATION CASES
exceed thirty-six (36) months.
a. With the amendment brought by
Collection of Local Revenues by the RA No. 9282, the Court of Tax
Treasurer – (Sec. 170 LGC) Appeals now has appellate
All local taxes, fees and charges jurisdiction over local taxation
shall be collected by the provincial, city, cases decided by the Regional
municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal
b. Regular judicial courts are not
treasurer may designate the barangay
prohibited from enjoining the
treasurer or his deputy to collect local
collection of local taxes, subject
taxes, fees or charges.
to Rule 58 (Preliminary
In case a bond is required for the
Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the
premiums thereon in addition to the Note: Unlike the NIRC, the Local Tax
premiums of the bond that may be Code does not contain any specific
required under the Code. provision prohibiting courts from
enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
UNDER THE LGC negate the procedural rules and
requirements under Rule 58 of the Rules

CHAIRPERSONS
1
of Courts. (Valley Trading Co. vs. CFI of

Isabela, GR No. 49529, March 31, 1989) After assessment
a. Protest – within 60 days from receipt
of assessment (Sec. 195 LGC).
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT Payment under protest is not
AND COLLECTION necessary.
OF LOCAL TAXES
PRESCRIPTIVE PERIODS OF ASSESSMENT b. Payment & subsequent refund or
1. Local taxes, fees, or charges – five tax credit – within 2 years from
(5) years from the date they became payment of tax to local treasurer
due. (Sec. 194, LGC). (Sec. 196 LGC). It is to be noted
2. When there is fraud or intent to that, unlike in internal revenue
evade the payment of taxes, fees taxes, the supervening cause applies
or charges – ten (10) years from in local taxation because the period
discovery of the fraud or intent to for the filing of claims for refund or
evade the payment (Sec. 194, LGC). credit of local taxes is counted not
necessarily from the date of
PRESCRIPTIVE PERIOD OF COLLECTION payment but from the date the
Local taxes, fees, or charges taxpayer is entitled to a refund or
may be collected within five (5) years credit.
from the date of assessment by
administrative or judicial action. No c. Right of redemption – 1 year from
such action shall be instituted after the the date of sale or from the date of
expiration of such period (Sec. 194, forfeiture (Sec. 179, LGC).
LGC).
GROUNDS FOR THE SUSPENSION OF B. JUDICIAL
THE RUNNING OF THE PRESCRIPTIVE 1. Court action
PERIODS  within 30 days after receipt of
a. The treasurer is legally decision or lapse of 60 days of
prevented from the assessment Secretary of Justice’s inaction
or collection of the tax; (Sec. 187 LGC)
b. The taxpayer requests for a  within 30 days from receipt
reinvestigation and executes a when protest of assessment is
waiver in writing before the denied (Sec. 195 LGC)
expiration of the period within  if no action is taken by the
which to assess or collect; and treasurer in refund cases and the
c. The taxpayer is out of the two year period is about to lapse
country or otherwise cannot be (Sec. 195 LGC)
located (Sec. 194, LGC).  if remedies available does not
provide plain, speedy and
2. TAX REMEDIES OF adequate remedy.
THE TAXPAYER 2. Action for declaratory relief
3. Injunction – if irreparable damage
Remedies Of The Taxpayer In Local would be caused to the taxpayer and
Taxation no adequate remedy is available.
A. ADMINISTRATIVE
Before assessment IV. REAL PROPERTY
a. Appeal – any question on
constitutionality or legality of tax
TAXATION
ordinance within 30 days from
effectivity thereof to Secretary of
Definitions:
Justice (Sec. 187 LGC)
REAL PROPERTY TAXATION – A direct
b. Declaratory relief whenever
tax on ownership of lands and
applicable.
buildings or other improvements

Cabrera, Jhundee
Guillermo
thereon payable regardless of FUNDAMENTAL PRINCIPLES GOVERNING

whether the property is used or REAL PROPERTY TAXATION (SEC. 198,
not, although the value may vary LGC)
in accordance with such factor. 1. Real property shall be appraised at
Under the LGC, it covers its current and Fair market value;
the administration, appraisal, 2. Real property shall be classified for
assessment, levy and collection assessment purposes on the basis of
of Real Property Tax, i.e. tax on actual Use.
land and building and other 3. Real property shall be assessed on
structures and improvements on the basis of Uniform classification
it, including machineries. within each LGU
4. The appraisal, assessment, levy and
REAL PROPERTY – subject to the collection of RP Tax shall not be let
definition given by Art. 415 of to any Private person
the Civil Code. 5. The appraisal and assessment of real
property shall be Equitable.
IMPROVEMENT – valuable addition made
to a property or amelioration in EXTENT OF THE POWER TO LEVY
its condition amounting to more  Basic real property tax;
than a mere replacement of  1% additional real estate tax to
parts involving capital finance the Special Education
expenditures and labor. Fund; (Sec. 236)
 5% additional ad valorem tax on
Idle lands; (Sec. 236, LGC) and
 Special levy or special
NATURE AND CLASSES assessments (may be imposed
even by municipalities outside
CHARACTERISTICS OF REAL PROPERTY Metro Manila) on lands comprised
TAX within its territorial jurisdiction
1. Direct tax on the Ownership of specially benefited by public
real property works, projects or improvements
2. Ad valorem tax. The value is funded by the local government
based on the tax base. unit concerned.
3. Proportionate – the tax is Provided:
calculated on the basis of a  Special levy shall not exceed
certain percentage of the value 60% of the actual cost of
assessed. such projects and
4. Indivisible single obligation improvements, including the
5. Local tax costs of acquiring land and
such other real property in
TAXING AUTHORITIES (SEC. 233, LGC) connection therewith
 not apply to lands exempt
Rate of Basic Real from basic real property tax
LGU and the remainder of the
Property Tax
land have been donated to
1. Province not exceeding 1% of the local government unit
assessed value concerned for the
construction of said
2. City not exceeding 2% projects. (Sec. 240, LGC).
3. Municipality not exceeding 2%. FOR PURPOSES OF REAL PROPERTY

within Metro TAXATION IDLE LANDS SHALL INCLUDE:
Manila
(SEC. 237, LGC)
1. Agricultural lands more than one
hectare in area one-half of which

CHAIRPERSONS
1
remain uncultivated or unimproved by PROPERTIES EXEMPT FROM REAL

the owner of the property or person PROPERTY TAX (SEC. 234, LGC)
having legal interest therein. Exemption is limited only to the
Agricultural lands planted to following:
permanent or perennial crops with 1. Real property owned by the
at least 50 trees to a hectare shall government except when the
not be considered idle lands. beneficial use thereof has been
Lands actually used for grazing granted to a taxable person;
purposes shall likewise not be 2. Charitable institutions,
considered idle lands; and churches, personages or
2. Lands other than agricultural convents appurtenant thereto,
located in a city or municipality mosques, non-profit or religious
more than one thousand square meters cemeteries and all lands,
in area one-half of which remain buildings and improvements
unutilized or unimproved by the actually, directly and
owner of the property or person exclusively used for religious,
having legal interest therein. charitable or educational
purposes (Art. VI, Sec. 28,
IDLE LANDS EXEMPT FROM TAX (SEC. Constitution);
238, LGC) 3. Machineries and equipment that
are actually, directly and
By reason of: exclusively used by local water
1. force majeure utilities and GOCC’s engaged in
1. civil disturbance the supply and distribution of
2. natural calamity water and/or electric power;
3. or any cause which physically or 4. Real property owned by duly
legally prevents the owner of registered cooperatives as
the property or person having provided for in RA 6938; and
legal interest therein from 5. Machinery and equipment used
improving, utilizing or for pollution control and
cultivating the same. environmental protection.
CLASSIFICATION OF LANDS FOR PURPOSES ACTUAL USE OF PROPERTY AS BASIS

OF ASSESSMENT SEC. 218 (A) FOR ASSESSMENT (SEC. 217 LGC)
a. Commercial Real property shall be classified,
b. Agricultural valued and assessed on the basis of
c. Residential actual use regardless of where located,
d. Mineral whoever owns it, and whoever uses it.
e. Industrial
f. Timberland Unpaid realty taxes attach to the
g. Special property and is chargeable against the
person who had actual or beneficial use
SPECIAL CLASSES OF REAL PROPERTY and possession of it regardless of
(SEC. 216, LGC) whether or not he is the owner. To
impose the real property tax on the
1. Hospitals subsequent owner which was neither the
2. Cultural and Scientific purposes owner nor the beneficial user of the
3. owned and used by Local water property during the designated periods
districts would not only be contrary to law but
4. GOCCs rendering essential public also unjust. (Estate of Lim vs. City of
services in the supply and Manila, GR No. 90639, February 21,
distribution of water and/or 1990)
generation or transmission of
electric power.
PROCEDURE

Cabrera, Jhundee
Guillermo
STEP 1: DECLARATION OF REAL Taxes shall be computed on the basis

PROPERTY of applicable schedule of values in force
during the corresponding period.
DECLARATION BY OWNER OR ADMINISTRATOR
(SEC. 202-203) STEP 2: LISTING OF REAL
 File a sworn declaration with the PROPERTY IN THE ASSESSMENT
assessor ROLLS (SECS. 205, 207)
- once every 3 years during
the period from January 1  All declarations shall be kept and
to June 30. filed under a uniform
 For newly acquired property – classification system to be
WHEN: Must file with the assessor within established by the provincial, city
60 days from date of transfer or municipal assessor.
WHAT: Sworn statement containing the
fair market value and description of the STEP 3: APPRAISAL AND
property. VALUATION OF REAL PROPERTY
 For improvement on property (SECS. 212-214, 224-225)
WHEN: Must file within 60 days upon
completion or occupation (whichever
Determination of fair market value
comes earlier)
(FMV)
WHAT: Sworn statement containing the
For land
fair market value and description of the
 Assessor of the province/city or
property.
municipality may summon the
owners of the properties to be
DECLARATION BY PROVINCIAL / CITY /
affected and may take depositions
MUNICIPAL ASSESSOR (SEC. 204)
concerning the property, its
ownership, amount, nature and
WHEN: Only when the person under Sec.
value (Sec. 213, LGC)
202 refuses or fails to make a
 Assessor prepares a schedule of
declaration within the prescribed time.
FMV for different classes of
properties.
No oath by the assessor is required.
 Sanggunian enacts an ordinance
Notes: Proof of Exemption of Real  The schedule of FMV is
Property from Taxation - (Sec. 206) published in a newspaper of
general circulation in the
WHO: By any person or for whom real province, city or municipality
property is declared. concerned or in the absence
thereof, shall be posted in the
provincial capitol, city or
 Claim for exemption must be filed
municipal hall and in two other
with the assessor together with
conspicuous public places
sufficient documentary evidence to
therein (Sec. 212, LGC)
support claim
For machinery
WHEN: within 30 days from the date of
1. For Brand new machinery: FMV is the
declaration of property.
acquisition cost
IF PROPERTY IS DECLARED FOR THE FIRST 2. In all other cases: FMV
= Remaining eco. life X Replacement
TIME – (SEC.222)
Estimated Eco.Life Cost
If Declared for the first time, real
property shall be assessed for back
taxes: STEP 4: DETERMINE ASSESSED
For not more than 10 years prior to VALUE (SEC. 218)
date of initial assessment
Determine Assessed Value
CHAIRPERSONS
1
Procedure 1. local treasurer is legally

1. Take the schedule of FMV prevented to collect tax.
2. Assessed Value = FMV x 2. the owner or property requests
Assessment level for reinvestigation and writes a
3. Tax = Assessed value x Tax rate waiver before expiration of
period to collect.
STEP 5: PAYMENT AND COLLECTION 3. the owner of property is out of
OF TAX the country or cannot be
located.
(a) Accrual of Tax: January of every
year and such will constitute as REAL PROPERTY TAX
a superior lien. (Sec. 246) REMEDIES UNDER THE LGC
(b) Time and Manner of Payment: 1. TAX REMEDIES OF THE LOCAL
(Sec. 250) GOVERNMENT TO EFFECT
1. basic real property tax in 4 equal COLLECTION OF TAXES
installments (March 31, June 30,
September 30, December 30) A. ADMINISTRATIVE
2. special levy – governed by 1. Real Property tax lien (Secs. 257,
ordinance LGC) – superior to all liens, charges
or encumbrances;
(c) Interest for Late Payment (Sec. 255)
2. Distraint (Sec. 254[B], LGC);
1. two percent (2%) for each month
3. Levy (Sec. 254[A], 258 LGC);
on unpaid amount until the
4. Purchase of property by local
delinquent amount is paid
treasurer for want of bidder (Sec.
2. provided in no case shall the
263, LGC).
total interest exceed thirty-six
B. JUDICIAL
(36) months.
Civil Action ( Sec. 266, 270 LGC)
(d) For Advance and Prompt Payment
1. Advance payment – discount not PRESCRIPTIVE PERIODS FOR THE
exceeding 20% of annual tax (Sec. COLLECTION OF REAL
251, LCG) PROPERTY TAXES
2. Prompt payment – discount not
exceeding 10% of annual tax due
1. Basic real property tax and any
(Art 342 IRR)
other tax levied under the title on
Real Property Taxation– five (5)
Collection of Tax (Sec. 247)
years from the date they became
It shall be the responsibility of the
due. (Sec. 270, LGC).
city or municipal treasurer concerned.
The city or municipal treasurer may 2. When there is fraud or intent to
deputize the barangay treasurer to evade the payment of taxes – ten
collect all taxes on real property located (10) years from discovery of the
in the barangay; provided, the barangay fraud or intent to evade the
treasurer is properly bonded. payment (Sec. 270, LGC).
Period to Collect (Sec. 270) GROUNDS FOR THE SUSPENSION OF

1. within five (5) years from the THE RUNNING OF THE PRESCRIPTIVE
date they become due PERIODS
2. within ten (10) years from
discovery of fraud, in case there 1. The treasurer is legally prevented
is fraud or intent to evade from the assessment or collection of
the tax;
Suspension of Prescriptive Period (Sec. 2. The taxpayer requests for a
270) reinvestigation and executes a
waiver in writing before the

Cabrera, Jhundee
Guillermo
expiration of the period within within 60 days

which to assess or collect; and Owner/Person with legal interest
3. The taxpayer is out of the country or must file:
otherwise cannot be located (Sec. 1) Written Petition under Oath
270, LGC). 2) With Supporting Documents
2. TAX REMEDIES OF THE LOCAL BOARD OF ASSESSMENT APPEALS

TAXPAYER (LBAA should decide within 120 days
from receipt of petition)
A. ADMINISTRATIVE
within 30 days
Protest – payment under protest is
required within 30 days to provincial,
city, or municipal treasurer. No protest CENTRAL BOARD OF ASSESSMENT
shall be entertained unless the tax is APPEALS
first paid. (Sec. 252 LGC)
within 30 days
Claim for Tax Refund or Credit (Sec.
253)
a) the taxpayer may file a written COURT OF TAX APPEALS (EN BANC)
claim for refund or credit with
the provincial or city treasurer
within two years from the date within 15 days
the taxpayer is entitled to such
reduction or adjustment.
SUPREME COURT
b) in case of denial of refund or
credit, appeal to LBAA as in B. JUDICIAL
protest case. 1. Court Action – appeal of CBAA’s
decision to Court of Tax Appeals en
Redemption of real property (Sec. 261 banc.
LGC) 2. Suit assailing validity of tax;
recovery of refund of taxes paid
Remedy against the Assessment/Appeal (Sec. 64 PD 464).
1st: within 60 days from notice of 3. Suit to declare invalidity of tax due
assessment of provincial, city or to irregularity in assessment and
municipal assessor to LBAA (Sec. 226 collection (Sec. 64 PD 464)
LGC) 4. Suit assailing the validity of tax sale
2nd: within 30 days from receipt of (Sec. 83 PD 464) (Sec. 267 LGC)
decision of LBAA to CBAA (Sec. 230
LGC) Condonation of Real Property Taxes
3rd: within 30 days from receipt of 1. By the Sanggunian
decision of CBAA to Court of Tax Real property taxes may be
Appeals en banc condoned wholly or partially in a
4th: within 15 days from receipt of given local government unit when:
decision of Court of Tax Appeals en a. There is general failure of crops;
banc to the Supreme Court b. There is substantial decrease in
the price of agricultural or agri-
APPEALS IN REAL PROPERTY based products; or
TAXATION c. There is calamity.
2. By the President of the Philippines
 when public interest so requires.
PROVINCIAL, CITY OR MUNICIPAL
ASSESSOR
V. TARIFF AND
CHAIRPERSONS
1
CUSTOMS CODE 2. Control smuggling and related

frauds;
3. Supervision and control over the
DEFINITIONS entrance and clearance of vessels
TARIFF: Customs duties, toll or tribute and aircraft engaged in foreign
payable upon merchandise to the commerce;
Government. 4. Enforcement of TCC and related
laws;
CUSTOM DUTIES: Tax assessed upon 5. Supervision and control over the
merchandise from or exported to, a handling of foreign mails arriving in
foreign country. (Garcia v. Executive the Philippines;
Sec., GR No. 101273, July3, 1992)) 6. Supervise and control all import and
export cargoes for the protection of
Note: Customs and tariffs are government revenue;
synonymous with one another. They 7. Exclusive original jurisdiction over
both refer to the taxes imposed on seizure and forfeiture cases under
imported or exported wares, articles, or the tariff and customs laws.
merchandise.
JURISDICTION OF COLLECTOR OF
Other Types of Fees Charged by the CUSTOMS OVER IMPORTATION OF
Bureau of Customs ARTICLES
1. Cause all articles for importation to
1. Arrastre charge be entered in the customhouse,
2. Wharfage due – counterpart of 2. Cause all such articles to be
license, charged not for the use of appraised and classified,
any wharf but for a special fund 3. Assess and collect the duties, taxes
known as the Port Works Fund. and other charges thereon, and
3. Berthing fee 4. Hold possession of all imported
4. Harbor fee articles until the duties, taxes and
5. Tonnage due other charges are paid thereon.
(Sec. 1206, TCC)
Meaning and Scope of the Tariff and
Customs Laws TERRITORIAL JURISDICTION OF THE
Include not only the provisions of the BOC
Tariff and Customs Code (TCC) and 1. All seas within the jurisdiction of the
regulations pursuant thereto, but all Philippines
other laws and regulations that are 2. All coasts, ports, airports, harbors,
subject to the Bureau of Customs (BOC) bays, rivers and inland waters
or otherwise within its jurisdiction. whether navigable or not from the
As to its scope, therefore, tariff and sea. (1st par, Sec. 603, TCC)
customs laws extend not only to the
provisions of the TCC but to all other CUSTOMS DUTIES
laws as well, the enforcement of which
is entrusted to the BOC. WHEN TARIFF AND CUSTOMS APPLIED
Only after importation has begun but
THE BUREAU OF CUSTOMS before importation is terminated.
FUNCTIONS OF THE BUREAU OF Importation begins:

CUSTOMS 1) when the conveying vessel or
aircraft
1. Assessment and collection of 2) enters the jurisdiction of the
revenues from imported articles and Phil.
all other impositions under the tariff 3) with intention to unload therein
and customs laws;
Importation is deemed terminated:

Cabrera, Jhundee
Guillermo
r. Optical, photographic, medical,

(a) upon payment of the duties, taxes surgical instruments, etc.;
and other charges due upon the articles. s. Arms, ammunition, parts and
accessories;
(b) and legal permit for withdrawal t. Miscellaneous manufactured
shall have been granted. articles; and
u. Works of art, collector's pieces
 In case the articles are free of arid antiques (Sec. 104, Title 1,
duties, taxes and other charges, until TCC).
they have legally left the jurisdiction of
the customs (Sec. 1202, TCC) 2. Prohibited from being imported
(Prohibited importation)
INTENTION TO UNLOAD a. Absolutely prohibited such as:
Even if not yet unloaded, and there is weapons of war; gambling
unmanifested cargo, forfeiture may take devices; narcotics or prohibited
place because importation has already drugs; immoral, obscene or
begun. insidious articles; and those
prohibited under special laws
ARTICLES UNDER TCC (Sec.102, TCC).
May either be: b. Qualifiedly prohibited
1. Subject to duty – Where such conditions as to
a. Live animals and animal warrant a lawful importation do
products; not exist, the legal effects of the
b. Vegetable products; importation of qualifiedly
c. Animal or vegetable fats; oils prohibited articles are the same
and their cleavage products; as those of absolutely prohibited
prepared edible fats; animal or articles. (Auyong Hian vs. CTA,
vegetable waxes; GR No. L-28782, September 12,
d. Prepared foodstuffs; beverages, 1974)
spirits and vinegar; tobacco and
manufactured tobacco 3. Conditionally-free from tariff and
substitutes; customs duties (conditionally-free
e. Mineral products; importation)
f. Products of chemical or allied  Those provided in Sec. 105, TCC;
industries;  Those granted to government
g. Plastics and articles thereof; agencies, GOCCs with
rubber and articles thereof; agreements with foreign
h. Raw hides and skins; leather, countries;
etc.;  Those given to international
i. Wood and articles of wood, etc.; institutions entitled to
j. Pulp of wood, etc.; exemption by agreement or
k. Textiles and textile articles; special laws; and
l. Articles of stone; plaster,  Those that may be granted by
cement, etc.; the President upon NEDA’s
m. Footwear, headgear, etc.; recommendation.
n. Natural or cultured pearls
precious/semi-precious stones; 4. Free from TC duties (duty-free)
o. Base metals and articles of base Imported goods must be
metals; entered in a customhouse at their
p. Machinery and mechanical port of entry otherwise they shall be
appliances; electric equipment; considered as contraband and the
sound recorders, etc; importer is liable for smuggling (See
q. Vehicles, aircraft, vessels and Sec. 101, TCC).
associated transport equipment; All articles when imported from
any country into the Philippines shall
CHAIRPERSONS
1
be subject to duty upon each It is a declaration to the BOC

importation, even though previously showing particulars of the imported
exported from the Philippines, article that will enable the customs
except as otherwise specifically authorities to determine the correct
provided for in the TCC or other duties. An importer is required to file an
laws. import entry. It must be accomplished
from disembarking of last cargo from
Liability for Customs Duties vessel.
General Rule: All importations /
exportations of goods are subject to Transaction value under RA NO. 8181
customs duties (Sec. 105, TCC). It is the invoice value of the
goods plus freight, insurance, costs,
Exceptions: expenses and other necessary expenses.
(1) Exemptions under the TCC; This replaces the Home Consumption
(2) Exemptions granted to Value as basis of valuation of goods.
government agencies,
instrumentalities or GOCCs with CLASSIFICATION OF CUSTOM DUTIES
existing contracts, A. Regular Duties – those which are
commitments, agreements, or imposed and collected merely as a
obligations with foreign source of revenue.
countries; 1. Ad valorem duty: This is a duty
(3) Exemptions of international based on the value of the
organizations pursuant to imported article.
agreements or special laws; and 2. Specific duty: This is a duty
(4) Exemptions granted by the Pres. based on the dutiable weight of
of the Phil. upon goods (either the gross weight,
recommendation of NEDA (Sec. legal weight, or net weight).
105, TCC). 3. Alternating duties: This is a
LIABILITY OF IMPORTER FOR CUSTOM DUTIES duty which alternates ad
 A personal debt which can be valorem and specific.
discharged only by payment in 4. Compound Duty: This is a duty
full thereof; consisting of ad valorem and
 A lien upon the imported articles specific duties.
while they are in custody or
subject to the control of the B. Special duties – those which are
government. (Sec. 1204, TCC). imposed and collected in addition to
the ordinary customs duties usually
Extent Of Importer’s Liability to protect local industries against
The liability of an importer is foreign competition.
limited to the value of the imported
merchandise. In case of forfeiture of 1. Dumping duty
the seized material, the maximum civil 2. Countervailing duty
penalty is the forfeiture itself. 3. Marking duty
(Mendoza vs. David, GR No. L-9452, 4. Discriminatory duty
March 27, 1961)
NATURE OF SPECIAL CUSTOMS DUTIES
Drawback Special customs duties are
A device resorted to for enabling a additional import duties imposed on
commodity affected by taxes to be specific kinds of imported articles under
exported and sold in foreign markets certain conditions.
upon the same terms as if it had not
been taxed at all. (Uy Chaco Sons vs. PURPOSE OF SPECIAL CUSTOMS DUTIES
Collector of Customs, GR No. 7618, The special customs duties are
March 27, 1913) imposed for the protection of consumers
and manufacturers, as well as Phil.
Import Entry

Cabrera, Jhundee
Guillermo
products from undue competition posed

by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.
2. Amount/Rate Equivalent to the 5% ad valorem Any amount not

Difference between bounty, subsidy, or of articles exceeding 100%
the actual price subvention. ad valorem of the
and the normal subject articles
value of the article.
3. Imposing Authority Secretary of Finance Commissioner of President of the

Special committee Customs Philippines
on Anti-Dumping
(composed of the
Secretary of Finance
as Chairman;
Members: the
Secretary of DTI,
and either the
Secretary of
Agriculture if article
in question is
agricultural product
or the Secretary of
labor if non-
agricultural product

CHAIRPERSONS
FLEXIBLE necessary; The FUNCTIONS OF
TARIFF CLAUSE and NEDA THE TARIFF
The 3. to impose thereafter COMMISSION
President may an submits its 1. Investigativ
fix tariff rates, additional recommend e Powers
import and duty on all ation to the (Sec. 505,
export quotas, imports not President. TCC)
etc. under TCC exceeding 1. The power a. the
(See Sec. 28, ten (10%) of the administ
Art. VI, per cent ad President to ration of
Constitution valorem increase or and the
and Sec. 401, whenever decrease fiscal
TCC) necessary: the rates of and
1. to increase, import duty industri
reduce or LIMITATIONS within the al
remove IMPOSED abovementi effects
existing REGARDING oned limits of the
protective THE FLEXIBLE fixed in the tariff
rates of TARIFF CLAUSE Code shall and
import duty include the customs
(including a. Conduct by modificatio laws of
any the Tariff n in the this
necessary Commission form of country
change in of an duty. now in
classificatio investigation In such force or
n). in a public a case the which
The hearing. correspondi may
existing The ng ad hereafte
rates may Commission valorem or r be
be shall also specific enacted
increased or hear the equivalents ;
decreased views and of the duty b. the
to any recommend with respect relation
level, on ations of to the s
one or any imports between
several government from the the
stages but office, principal rates of
in no case agency or competing duty on
shall the instrumenta foreign raw
increased lity country for material
rate of concerned. the most s and
import duty The recent the
be higher Commission representati finished
than a shall submit ve period or partly
maximum of their shall be finished
one hundred findings and used as products
(100%) per recommend bases (Sec. ;
cent ad ations to 401, TCC). c. the
valorem the NEDA effects
2. to establish within thirty of ad
import (30) days valorem
quota or to after the
THE TARIFF and
ban imports termination COMMISSI specific
of any of the ON (TC) duties
commodity, public and of
as may be hearings. com-
pound f. the upon regar
specific volume the dless
and ad of industri of
valorem importa es and owner
duties; tions, labor of ship,
d. all compare the while
question d with country still in
s domesti and to the
relative c pro- submit custo
to the duction reports dy or
arrange and of its contr
ment of consum investig ol of
schedul ption; ation as the
es and g. conditio pro- Gover
classific ns, vided. nmen
ation of causes, t
articles and 2. Administrat  availe
in the effects ive d of
several relating Assistance when
schedul to to the the
es of competi President impor
the tion of and tation
tariff foreign Congress is
law; industri (Sec. 506, neith
e. the es with TCC) er
tariff those of prohi
relation the bited
s Philippi nor
between nes, impro
the includ- perly
Philippi ing TAX made
nes and dumping REMEDIES 2. Adminis
foreign and cost UNDER THE trative
countrie of TARIFF AND Fines
s, producti CUSTOMS and
commer on; and Forfeitu
cial h. in CODE (TCC) res
treaties, general,  appl
preferen to TAX REMEDIES ied
tial investig OF THE whe
provisio ate the GOVERNMENT n
ns, operatio the
economi n of A. imp
c customs ADMINISTRATIV orta
alliance and E tion
s, the tariff 1. Tax is
effect laws, Lien unla
of includin (Sec. wful
export g their 1204 ,
bounties relation TCC)  and
and to the  attac it
pref- national hes may
erential rev- on be
transpor enues, the exer
tation their goods cise
rates; effect , d
eve or in raba 09,
n the nd. May
whe han The 16,
re ds com 198
the of a ple 3)
artic pers men 3. Reducti
les on tary on of
are who if customs
not is coll duties /
or awa ater compro
no re al mise
long ther use  subj
er in eof of ect
Cust (Sec the to
om’ . Cess appr
s 253 na oval
cust 1 & plan of
ody 253 e Sec.
- 0, for of
unle TCC smu Fina
ss ) ggli nce
the  und ng (Sec
imp er oper .
orta Sec. atio 709,
tion 253 n is 231
is 0(a) suffi 6
mer of cien TCC
ely the t for )
atte TCC it to
mpt , in be 4. Seizure,
ed orde dee Search,
in r to med Arrest
whic warr to (Sec.
h ant hav 2205,
case forf e 2210,
it eitu bee 2211
may re, n TCC)
be it is used
effe not in B. JUDICIAL
cted nec smu 1. this
only essa ggli rem
whil ry ng. edy
e that (Lla is
the the mad nor
goo vess o mall
ds el or vs. y
are aircr Com avai
still aft miss led
with mus ione of
in t r of whe
the itsel Cust n
Cust f oms the
oms carr , GR tax
juris y No. lien
dicti the L- is
on cont 288 lost
by A. neo nd
the ADMINISTRATIV us may
rele E or be
ase 1. Protest illeg sub
of a. Any al mitt
the imp by ed
goo orte eve by
ds r or nts the
 C inte occu imp
i rest rrin orte
v ed g r in
i part afte abat
l y if r eme
A diss the nt
c atisf pay case
t ied men s on
i with t. miss
o publ b. Tax ing
n ishe pay pack
d er – ages
( valu with ,
S e in defi
e with 15 cien
c in days cies
. 15 fro in
days m the
1 fro asse cont
2 m ssm ents
0 date ent. of
4 of Pay pack
, publ men ages
icati t or
T on, und shor
C or er tage
C with prot s
) in 5 est befo
 C days is re
r fro nec arriv
i m essa al of
m the ry. the
i date (Sec goo
n the . ds in
a imp 230 the
l orte 8, Phili
A r is 221 ppin
c enti 0 es,
t tled TCC artic
i to ) les
o refu 2. Refund lost
n nd if a. A or
pay writ dest
TAX REMEDIES men ten roye
OF THE t is clai d
TAXPAYER rend m afte
ered for r
erro refu such
arriv allo Com 240
al, wed miss 3
dea in ione TCC
d or any r ,
inju case afte Sec.
red whe r 7
ani re noti RA
mals imp ficat 112
, orta ion 5,
and tion by as
for is Coll ame
man abso ecto nde
ifest lutel r of d by
cleri y his Sec.
cal proh deci 9
erro ibite sion RA
rs; d, (Sec 928
and or . 2)
b. Dra the 231  Sinc
wba rele 3 e
ck ase TCC Sec.
case wou ). 11
s ld of
whe be B. JUDICIAL RA
re cont 1. Appeal 1125
the rary  With as
goo to in ame
ds law, 30 nde
are or days d by
re- whe fro RA
exp n m 9282
orte ther rece emp
d e is ipt owe
(Sec an of rs
. actu deci the
170 al sion Tax
1- and of Cour
170 inte the t to
8 ntio Com issu
TCC nal miss e
). frau ione inju
3. Settlem d r or ncti
ent of (Sec Secr ons,
any . etar it
seizure 230 y of wou
by 7 Fina ld
paymen TCC nce app
t of fine ). to ear
or the that
redemp 4. Appeal divis an
tion  With ion imp
 But in of orte
this 15 the r
shall days CTA may
not to (Sec app
be the . eal
with l g
out e o d
first o a
payi a d y
ng n s s
the
duti i o b
es, m r u
such p d. h t
as in o a
seiz r v
i
ure, t i
t
but n
not e g
in n s
prot t h
f
est r a
i
case y l
l
s. l
e
2. Action w n
d
to i o
questio t t
a
n the h n
legality i b
of n e
e
seizure
n
3. Abando 3 s
t
nment 0 o
r
(Sec.
y
1801 d e
TCC) a f
a. expr y f
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essl s a
e
y i
c
(Sec f l
t
. r s
i
180 o v
1 m t e
TCC o
) t
u
b. impl h c n
iedl e l t
y– a i
c. f d i l
a i m s
i s
o
l c w
u h i
r a d
t e
e r h
g c
i l
t e n
o a
o r
1 e
f f
5 d
i
TWO KINDS OF when the raw
b PROCEEDINGS material PROCEDURE IN
y IN THE imported is CUSTOMS
BUREAU OF utilized in the PROTEST CASES
t production of
CUSTOMS
h finished The Collector
(BOC) products acting within his
e
subsequently jurisdiction shall
A. CUSTOMS exported and a cause the
c PROTEST CASES duty drawback imported goods
o is claimed. to be entered at
l DEFINITION: the
l These are cases Requirements customhouse
e which deal for making a 
c solely with protest The Collector
t liability for
o customs duties, shall assess,
1. Must be in liquidate, and
r fees, and other writing collect the
. charges. 2. Must point duties thereon,
out the or detain the
( Note: Before particular
S filing a protest, said goods if the
decision or party liable
e there must first ruling of the
c be a payment does not pay the
Collector of same
. under protest. Customs to
which 
1 When customs exception is The party
8 protest taken or adversely
0 applicable objection affected (the
1 made; protestant) may
, The customs 3. Must state file a written
protest is the grounds protest on his
required to be relied upon foregoing
a
filed only in for relief; liability with the
s
case the liability 4. Must be Collector within
of the taxpayer limited to 15 days after
a for duties, paying the
m the subject
taxes, fees and matter of a liquidated
e other charges is amount (the
n single
determined and adjustment; payment under
d the taxpayer protest rule
e 5. Must be
disputes said filed when applies)
d liability. the amount 
claimed is Hearing within
b When Customs paid or 15 days from
y protest NOT within 15 receipt of the
required days after duly presented
R the protest. Upon
A Where there payment; termination of
is no dispute, 6. Protestant the hearing, the
7 but the claim must furnish Collector shall
6 for refund arises samples of decide on the
5 by reason of the goods under same within 30
1 happening of protest days
) supervening when
events such as required.
 appeal Ferry, Inc., GR
his own Nos. 31776-78, 2. The
If decision is adverse to If decision is adverse to
decision October 21, Philippines
the protestant
. 1993) is divided
 3. Lifebloo into various
Appeal with the d SMUGGLING ports of
Commissioner within Theory 1. An act of entry –
15 days from notice any entry other
B. SEIZURE AND person than port of
 FORFEITURE who entry, will
Appeal with the Court CASES shall: be
of Tax Appeals Division a. Fraudul SMUGGLING
within 30 days from DEFINITION: ently .
notice These refer to import
matters any PORT OF ENTRY
 involving article A
Appeal with the smuggling. It isis contrar domestic port
CTA en banc Secretary of Finance
administrative y to open to both
 and civil in law, or foreign and
Appeal by certiorari nature and
appeal to the CTA and is b. Assist in coastwise trade
with the Supreme directed against so including
Court within 15 days the on
procedure resthe left.
or doing, “airport of
from notice imported or entry”. (Sec.
articles and c. Receive 3514, TCC)
entails a , ALL
determination conceal articles
of the legality , buy, imported into
Reasons for the of their sell, the Philippines
automatic importation. facilitat whether subject
review of These are e, to duty or not
decisions actions in rem. transpor shall be entered
adverse to the Thus, It t, through a
Government is of no defense conceal customshouse at
that the owner or sell a port of entry.
1. To of the vessel such ENTRY:
protect sought to be article in
the forfeited had no knowing Customs
interest actual its law
of the knowledge that illegal means-
Govern his property was importa 1.
ment used illegally. tion the
2. A The absence or (Sec. doc
favorabl lack of actual 3601, um
e knowledge of TCC) ent
decision such use is a d. Export s
will not defense contrar file
be personal to the y to d at
appeale owner himself, law. the
d by the which cannot in (Sec. Cus
taxpaye any way absolve 3514, tom
r and the vessel from TCC) s
certainl the liability of hou
y a forfeiture. se
Collecto (Commissioner 2.
r will of Customs vs. the
not Manila Star sub
mis (Sec. 3514, chartered and was a
sion TCC) cannot be consenting
and confiscated. party, it
acc may also be
ept RIGHT OF forfeited.
anc EVIDENCE FOR CUSTOMS 2. If a motor
e of CONVICTION IN OFFICERS TO vehicle is
the SMUGGLING EFFECT hired to
doc CASES SEIZURE & carry
um Mere ARREST (SEC. smuggled
ent possession of 2205) goods but it
s the article in 1. May seize has no
3. question - any vessel, Certificate
the unless aircraft, of Public
pro defendant could cargo, Convenience
ced explain that his article, (CPC), it is
ure possession is animal or not a
of lawful to the other common
pas satisfaction of movable carrier. It is
sing the court (Sec. property thus subject
goo 3601, TCC). when the to
ds Payment of the same is forfeiture,
thro tax due after subject to and lack of
ugh apprehension is forfeiture or personal
the not a valid liable for knowledge
cust defense any time as of the
oms (Rodriguez vs. imposed owner or
hou Court of under tariff the carrier
se Appeals, GR No. and customs is not a
(Ro 115218, laws, rules defense to
drig September 18, & forfeiture.
uez 1995) regulations
vs. 2. May PROPERTIES
Cou THINGS exercise NOT SUBJECT
rt SUBJECT TO such powers TO FORFEITURE
of CONFISCATION only in IN THE
App IN SMUGGLING conformity ABSENCE OF
eals CASES with the PRIMA FACIE
, laws and EVIDENCE
GR Anything that provisions of The
No. was used for the TCC forfeiture of the
115 smuggling is vehicle, vessel
218 subject to COMMON or aircraft shall
, confiscation, CARRIERS; not be effected
Sep like the vessel, FORFEITURE if it is
tem plane, etc. 1. Common established that
ber (Llamado vs. carriers are the owner
18, Commissioner generally thereof or his
199 of Customs, GR not subject agent in charge
5) No. L-28809, to forfeiture of the means of
May 16, 1983). although if conveyance
CONTRABAND: the owner used as
Articles of Exception: has aforesaid has no
prohibited Common knowledge knowledge of
importations or carriers that are of its use in or
exportations. not privately smuggling participation
in the unlawful which b. As a dutiable
act: constitu consequ goods.
Provided, tes a ence  No petitions
however, that a violation they for
prima facie of the may be certiorari,
presumption tariff pursued prohibition
shall exist and in the or
against the customs Phil. mandamus
vessel, vehicle laws c. With filed with
or aircraft under b. a jurisdict the RTC will
any of the pursuit ion over lie because
following of such them at these are in
circumstances: vessel any reality
1. If the began place attempts to
conveya within therein review the
nce has the for the Commission
been jurisdict enforce er's
used for ional ment of actuations.
smuggli waters the law. Neither
ng at which (2nd par. replevin
least (i) may Sec. filed with
twice cont 603, the RTC will
before; inue TCC) issue.
2. If the bey Rationale:
owner is ond Doctrine of
not in the REGIONAL Primary
the mari TRIAL COURTS Jurisdiction
business time (RTC) .
for zone VS.  Even if a
which , BUREAU OF Customs
the and CUSTOMS (BOC) seizure is
conveya (ii) the illegal,
nce is vess  The RTCs do exclusive
generall el not have jurisdiction
y used; may jurisdiction (to the
and be over seizure exclusion of
3. If the seiz and regular
owner is ed forfeiture courts) still
financial on proceedings belongs to
ly not in the conducted the Bureau
a high by the BOC of Customs
position seas and to (Jao v.
to own . interfere Court of
such with these Appeals, GR
conveya 2. Over proceedings No. 104604,
nce. Imported . The October 6,
Articles Collector of 1995).
DOCTRINE OF a. There is Customs has
HOT PURSUIT a exclusive GOODS IN
Requisites: violation jurisdiction CUSTOM’S
1. Over of the over all CUSTODY
Vessels tariff questions BEYOND REACH
a. An act is and touching on OF
done in customs the seizure ATTACHMENT
Phil. laws and Goods in
Waters forfeiture of the custom’s
custody pending Comm. on and other the
payment of Audit members of the importation
customs duties  AFP and or
are beyond the Issuance by national law exportation
reach of the enforcement of
attachment. As Collector of agencies when merchandis
long as the a warrant of authorized by e.; and
importation has detention the 2. That such
not been Commissioner of declaration,
terminated, the  Customs affidavit,
imported goods Notification 3) officials of invoice,
remain under to owner or the BIR on all letter or
the jurisdiction importer cases falling paper is
of the Bureau of  within the false.
Customs. Formal regular (Farolan,
(Viduya vs. hearing performances of Jr. vs.
Berdiago, GR  their duties, Court of
No. L-29218, District when the Tax
October 29, collector payment of Appeals, GR
1976) renders his internal taxes No. 42204,
decisions are involved; January 21,
ADMINISTRATIV 4) officers 1993)
E AND JUDICIAL generally
PROCEDURES  empowered by PLACES WHERE
RELATIVE TO If decision is not law to effect SEARCHES &
CUSTOMS favorable to the arrests and SEIZURES MAY
SEIZURES AND aggrieved owner or execute BE CONDUCTED
FORFEITURES importer processes of (a) enclosur
 courts, when es
Determinati Appeal by the acting under the (b) dwelling
on of aggrieved owner or direction of the house
probable importer Collector. (there
cause and must be
issuance of REQUIREMENTS search
warrant PERSONS FOR CUSTOMS warrant
 HAVING POLICE FORFEITURE issued
Actual AUTHORITY TO 1. The by a
seizure of ENFORCE THE wrongful judge)
the articles TARIFF & making by (c) vessels
CUSTOMS LAWS the owner, or
 AND EFFECT importer, aircrafts
Listing of SEARCHES, exporter or and
description, SEIZURES AND consignee of persons
appraisal ARRESTS (SEC. any or
and 2203, TCC) declaration articles
classificatio 1) officials of or affidavit, conveye
n of seized the BOC, or the d
property district wrongful therein
 collectors, making or (d) vehicles,
Report of police officers, delivery by beasts
seizure to agents, the same and
the Comm. inspectors, and persons of persons
of Customs guests of the any invoice, (e) persons
and the BOC; letter or arriving
Chairman, 2) officers of paper - all from
the Phil. Navy touching on foreign
countrie to law, payment of the
s. UNMANIFESTED or corresponding
CARGO IS 3. when duties and taxes
Note: Burden SUBJECT TO there is and compliance
of proof in FORFEITURE fraud. with all other
seizure or whether the act (Sec. legal
forfeiture is on of smuggling is 2307, requirements
the claimant. established or TCC) (Sec. 1508,
(Sec. 2535, not under the TCC)
TCC) principle of res
ipsa loquitur. It ABATEMENT
REQUIREMENTS is enough that The
FOR MANIFEST the cargo was ACQUITTAL IN reduction or
A unmanifested CRIMINAL non-imposition
manifest in and that there CHARGE NOT of customs
coastwise trade was no showing RES JUDICATA duties on
for cargo and that payment of IN SEIZURE OR certain
passengers duties thereon FORFEITURE imported
transported had been made PROCEEDINGS materials as a
from one place for it to be Reasons: result of:
or port in the subject to 1) Criminal 1) Damage
Philippines to forfeiture. proceedings incurred
another is are actions during
required when SETTLEMENT in personam voyage;
one or both of OF FORFEITURE while 2) Deficien
such places is a CASES seizure or cy in
port of entry General Rule: forfeiture contents
(Sec. 906, TCC). Settlement of proceedings package
Manifests are cases by are actions s
also required of payment of fine in rem. 3) Loss or
vessel from a or redemption 2) Customs destruct
foreign port of forfeited compromise ion of
(Sec. 1005, property is does not articles
TCC). allowed. extinguish after
criminal arrival
IS MANIFEST Exceptions: liability. 4) Death or
REQUIRED 1. the (People vs. injury of
ONLY FOR importa Desiderio, animals
IMPORTED tion is GR No. L-
GOODS? absolute 208005, FRAUDULENT
NO. ly November PRACTICES
Articles subject prohibit 26, 1965) CONSIDERED AS
to seizure do ed or CRIMINAL
not have to be 2. the Note: At any OFFENSES
imported goods. surrend time prior to AGAINST
Manifests are er of the sale, the CUSTOMS
also required for the delinquent REVENUE LAWS
articles found property importer may 1) Unlawful
on vessels or to the settle his importation;
aircraft engaged person obligations with 2) Entry of
in coastwise offering the Bureau of imported or
trade. (Rigor to Customs, in exported
vs. Rosales, GR redeem which case the article by
No. L-33756, would aforesaid means of
October 23, be articles may be any false or
1982) contrary delivered upon fraudulent
practices, consisting of 3. to
invoice, VI. COUR three (3) summon
declaration, Justices. witnesse
affidavit, or T OF The s by
other TAX Presiding subpoen
documents; Justice and a;
3) Entry of
APPEALS the most 4. to
goods at less (RA 1125 Senior require
than their as Associate producti
true weights Justice shall on or
or measures amended serve as papers
or upon a by RA chairmen of or
classificatio the two docume
n as to
9282) divisions nts by
quality or subpoen
value;  See ANNEX QUORUM a duces
4) Payment of O for  Four (4) tecum;
less than the comparison Justices 5. to
amount due; of CTA as shall punish
5) Filing any created by constitute a contem
false or RA No. 1125 quorum for pt;
fraudulent and the sessions EN 6. to
claim for amendment BANC. promulg
the payment s made by  Two (2) ate
of drawback RA No. Justices for rules
or refund of 9282. sessions of a and
duties upon DIVISION. regulati
the PROVIDED: in ons for
exportation NATURE AND case the the
of POWERS required conduct
merchandise quorum cannot of its
; or ELEVATION OF be had due to business
6) Filing any RANK any vacancy, ;
affidavit, shall be of disqualification 7. to
certificate the same level , inhibition, assess
or other as the Court of disability, or damage
document to Appeals, any other against
secure to possessing all lawful cause, appellan
himself or the inherent the Presiding t if
others the powers of a Justice shall appeal
payment of Court of Justice designate any to CTA
any Justice of other is found
drawback, COMPOSITION Divisions of the to be
allowance or Court to sit frivolous
 Consists of a
refund of temporarily or
Presiding
duties on therein. dilatory;
Justice and
the 8. to
five (5)
exportation POWERS suspend
Associate
of mdse. 1. to the
Justices
greater than administ collectio
 May sit en
that legally er n of the
banc or in
due oaths; tax
two (2)
thereon. 2. to pending
Divisions,
(Sec. 3602, receive appeal;
each
TCC) evidenc and
Division
e;
9. to to personal uted 1. in
render property asse case
decision and/or ssm s
s on 2. levy the ents invo
cases real , lvin
brought property of refu g
before such nds disp
it persons in of uted
10. to issue sufficient inte asse
order quantity to rnal ssm
authoriz satisfy the reve ents
ing tax or nue ,
distraint charge taxe refu
of together s, nds
personal with any fees of
property increment or inte
and levy thereto othe rnal
of real incident to r reve
property delinquency char nue
. ges, taxe
DISTRAINT OF pen s,
PERSONAL This remedy altie fees
PROPERTY AND shall not be s in or
LEVY OF REAL exclusive and rela othe
PROPERTY shall not tion r
Upon the preclude the ther char
issuance of any Court from eto, ges,
ruling, order or availing of other 2. or pen
decision by the means under othe altie
CTA favorable the Rules of r s in
to the national Court. mat rela
government, the ters tion
CTA shall issue JURISDICTIO arisi ther
an order N ng eto,
authorizing the und 2. or
BIR, through the I. EXCLUSIVE er othe
Commissioner: APPELLATE the r
JURISDICTION NIRC mat
1. to seize and TO REVIEW or ters
distraint BY APPEAL othe arisi
any goods, r ng
chattels, or (a) Decision laws und
effects and s of the adm er
the personal Commis inist the
property, sioner ered NIRC
including of by or
stocks and Internal the othe
other Revenu BIR; r
securities, e (b) Inaction laws
debts, 1. in by the adm
credits, case Commis inist
bank s sioner ered
accounts, invo of by
and lvin Internal the
interests in g Revenu BIR,
and rights disp e whe
re Custom 2. or decided
the s oth by the
NIRC 1. in er provinci
prov cas mat al or
ides es ters city
a invo arisi board of
spec lvin ng assessm
ific g und ent
peri liab er appeals;
od ility the (f) Decision
for for Cus s of the
acti cust tom Secreta
on, oms s ry of
in duti Law Finance
whic es, or – on
h fees oth customs
case or er cases
the oth law elevate
inac er s d to him
tion mo ad automat
shall ney min ically
be cha iste for
dee rges red review
med , by from
a seiz the decision
deni ure, Bur s of the
al; det eau Commiss
(c) Decision enti of ioner of
s, orders on Cus Customs
or or tom which
resoluti rele s; are
ons of ase (e) Decision adverse
the RTC of s of the to the
– in pro Central Govern
local tax pert Board ment
cases y of under
originall affe Assess Section
y cte ment 2315 of
decided d, Appeals the
or fine – in the Tariff
resolved s, exercise and
by them forf of its Customs
in the eitu appellat Code;
exercise res e (g) Decision
of their or jurisdict s of the
original oth ion over Secreta
or er cases ry of
appellat pen involvin Trade
e alti g the and
jurisdict es assessm Industr
ion; in ent and y in the
(d) Decision rela taxation case of
s of the tion of real nonagric
Commis ther property ultural
sioner eto, originall product,
of y commod
ity or 000, times
article, II. 000. 00) be
and the or simulta
Secretar JURISDICTI where neously
y of ON OVER there is institut
Agricult CASES no ed with,
ure in INVOLVING specifie and
the case CRIMINAL d jointly
of CASES amount determi
agricult claimed ned in
ural (a) Exclusive - the the
product, original offenses same
commod jurisdicti or proceed
ity or on over penaltie ing by
article, all s shall the
– criminal be tried CTA,
cases by the the
involvin arising regular filing of
g from courts the
dumping violations and the criminal
and of the jurisdict action
counter NIRC or ion of being
vailing Tariff and the CTA deemed
duties Customs shall be to
under Code and appellat necessa
Secs. other laws e. rily
301and administe  Any carry
302, red by the provisio with it
respecti BIR or the n of law the
vely, of Bureau of or the filing of
the Customs Rules of the civil
Tariff  Provide Court to action,
and d the and no
Customs howeve contrar right to
Code, r, y reserve
and where notwith the
safeguar the standin filing of
d principa g, the such
measure l criminal civil
s under amount action action
RA No, of taxes and the separat
8800, and corresp ely
where fees, onding from
either exclusiv civil the
party e of action criminal
may charges for the action
appeal and recover will be
the penaltie y of recogni
decision s civil zed.
to claimed liability
impose is less for (b) Exclusive
or not than taxes appellate
to one and jurisdiction
impose million penaltie in criminal
said pesos s shall offenses
duties. (P1, at all
 Over Courts, charges them,
appeals and and in their
from Municip penaltie respecti
the al s, ve
judgme Circuit claimed territori
nts, Trial is less al
resoluti Courts than jurisdict
ons or in their one ion.
orders respecti million  Over
of the ve pesos (P petition
RTC in jurisdict 1, 000, s for
tax ion. 000. 00) review
cases – shall of the
originall III. be tried judgem
y by the ents,
decided JURISDICTI proper resoluti
by ON OVER Municip ons or
them, TAX al Trial orders
in their COLLECTIO Court, of the
respecti N CASES Metrop RTC in
ve (a) olitan the
territori Exclusi Trial exercise
al ve Court, of their
jurisdict origina and appellat
ion. l Regiona e
 Over jurisdic l Trial jurisdict
petition tion in Court. ion over
s for tax tax
review collecti (b) collecti
of the on cases Exclusi on cases
judgme involvin ve originall
nts, g final appella y
resoluti and te decided
ons, or executo jurisdic by the
orders ry tion in Metropo
of the assessm tax litan
RTC in ents for collecti Trial
the taxes, on Courts,
exercise fees, cases Municip
of their charges  Over al Trial
appellat and appeals Courts
e penaltie from and
jurisdict s. the Municip
ion over  In judgme al
tax collecti nts, Circuit
cases on cases resoluti Trial
originall where ons or Courts,
y the orders in their
decided principa of RTC respecti
by the l in tax ve
Metropo amount collecti jurisdict
litan of taxes on cases ion.
Trial and originall
Courts, fees, y  In criminal
Municip exclusiv decided and
al Trial e of by collection
cases, the fixed by law for by a for
Government action. Division reconsiderat
may directly of the ion or new
file the said Modes of CTA trial before
cases with Appeal (2) By filing a the same
the CTA (1) By filing a petition for Division
covering petition for review within 15
amounts review under a days from
within its under a procedure notice
exclusive procedure analogous
and original analogous to to that
jurisdiction. that provided
provided for for under
 See ANNEX under Rule Rule 43 of B. Any party
P – 42 of 1997 1997 Rules adversely
Comparativ Rules on on Civil affected by
e Diagrams Civil Procedure a resolution
on CTA Procedure  decision of a Division
jurisdiction.  decision s or of the CTA
, ruling, rulings on a motion
or of the for
inaction Central reconsiderat
of the Board ion or new
“Other Commis of trial may
Matters” sioner Assessm file a
Those of ents petition for
controversies Internal Appeals review with
which can be Revenue and the the CTA en
considered , Regiona banc.
within the scope Commis l Trial
of the function sioner Courts C. Any party
of the BIR / BOC of in the adversely
under ejusdem Customs exercise affected by
generis rule , the of its a decision
(e.g. action for Secretar appellat or ruling of
the nullity of y of e the CTA en
distraint and Finance, jurisdict banc may
levy; the ion file with the
questioning the Secretar  this Supreme
propriety of the y of appeal Court a
assessment; Trade shall be verified
collection of and heard petition for
compromise Industry by the review on
penalties). or the CTA en certiorari
Secretar banc. pursuant to
APPEAL y of Rule 45 of
Agricult Procedure the 1997
When ure or A. Any party Rules on
Within 30 the adversely Civil
days after the Regiona affected by Procedure.
receipt of such l Trial a ruling,
decision or Courts order or Thirty (30) day
ruling or after  this decision of a Prescriptive
the expiration appeal Division of Period for
of the period shall be the CTA may Appeal
heard file a motion
Starts to run reporting after a must follow the
from the date notices and request for same rules of
the taxpayer pre- reconsiderat procedure which
receives the assessment ion. bind private
appealable notices are GENERAL RULE: parties.”
decision. If the not New issues (Commissioner
taxpayer’s appealable, cannot be raised vs. Procter and
request for because for the first Gamble, GR No.
reconsideration they are not time on appeal. 66838,
(i.e., the the final December 2,
protest is decision of EXCEPTIONS: 1991,
denied or the the a. Defense of Resolution)
original Commission prescription
assessment is er. Reason: This Tax collection
maintained, the  An is a Not Suspended
appealable assessment statutory during Appeal
decision is the can be right.
decision denying appealed if (Visayan General Rule:
the request for taxpayer Land No
reconsideration. does not Transportat appeal taken to
The said seek a ion vs. the CTA shall
period is reconsiderat Collector) suspend the
jurisdictional ion. b. Errors of payment, levy
and non-  At times administrati or distraint,
extendible. there is an ve officials and/or sale of
Requests or exchange of Reason: any property of
motions for communicati State can the taxpayer.
reconsideration, ons between never be in
however, taxpayer estoppel Exception: The
operate to and and CTA is
suspend the Commission lifeblood empowered to
running of the er states theory. suspend the
period to that his (Commissio collection of
appeal. A pro action is ner vs. internal revenue
forma request final, then, Procter and taxes and
for period for Gamble custom duties
reconsideration appeal Phils. Mfg. only when there
or one which is begins to Corp, GR was a –
directed to the run. No. 66838, c) showing
Secretary of  Commission April 15, that
Finance does er must 1988) collection
not suspend the state that of the tax
running of the his decision NOTE: However, may
30-day is final, for this was jeopardiz
reglementary period of reversed in e the
period. appeal to Supreme Court’s interest
run. subsequent of the
Only A Final  Final resolution governme
Decision Is decision wherein it was nt and /
Appealable To cannot be held that “in or the
The Court Of implied from the absence of taxpayer;
Tax Appeals issuance of explicit d) deposit of
warrant of statutory the
 Preliminary distraint and provisions to the amount
collection levy, unless contrary, the claimed
letters, post it is issued Government or file a
surety of any tax, the tax or  The
bond for fee or penalty, or from Supreme
not more charge the approval of Court will
than imposed by the application not set
double Tax Code. for credit. aside
the  The conclusions
amount of provision in Observation: If reached by
tax with Tax Code we are not Tax Court
the Court refers to going to allow which by
when courts other the taxpayer to the very
required; than the file a refund nature of its
and CTA. before the CTA function, is
e) showing (Blaquera and let him wait dedicated
by vs. for the CIR’s exclusively
taxpayer Rodriguez, decision, and to the
that GR No. L- the latter failed consideratio
appeal is 11295, to render a n of tax
not March 29, decision within problems
frivolous 1958) the 2-year and has
nor  Appeal to period, the said developed
dilatory. the CTA taxpayer can no an expertise
does not longer file a on the
Can The CTA automatical refund before subject,
Enjoin ly suspend the CTA because unless there
Collection of collection his right to has been an
Taxes? unless CTA appeal has abuse or an
issues prescribed. improvident
 Sec. 11 of suspension exercise of
RA No. 1125 order at any Weight of authority on
as amended stage of Decision of CTA its part.
by Sec. 9 of proceedings (Commissio
RA No. 9282 .  Decisions of ner vs.
grants CTA Tax Court Court of
power to Simultaneous have Appeals &
suspend filing of an persuasive Atlas
collection application for effect and Consolidate
of tax if refund or may serve d, GR No.
such credit and as judicial 86785,
collection institution of a guides. November
works to case before the They have 21, 1991)
serious CTA allowed more
prejudice of persuasive VII.VALU
either The law value than
taxpayer or fixes the same BIR Rulings. E–ADDED
government period of two  CTA’s TAX
. (2) years for findings of
 However, filing a claim for fact are
(VAT)
Sec. 218 of refund with the entitled to TITLE IV
the Tax Commissioner the highest OF NIRC
Code and for filing a respect.
provides no case with the (Raymundo DEFINITION: The
court may CTA. The two- vs. de Joya, value-added tax
grant year period for GR No. L- is an indirect
injunction both starts from 27733, tax and the
to restrain the date after December amount of tax
collection the payment of 3, 1980)
may be shifted or TRADE OR shall be
or passed on to business BUSINESS” considered as
the buyer, only) The regular being course of
transferee or 2. Sale of conduct or trade or
lessee of the Services pursuit of a business.
goods, (in the commercial or Importation is
properties or course an economic subject to VAT
services. This of trade activity, regardless of
rule shall or including whether or not
likewise apply business transactions it is in the
to existing only) incidental course of trade
contracts of sale 3. Exportat thereto, by any or business
or lease of ion (in person
goods, the regardless of The reason
properties or course whether or not for the rule is to
services at the of trade the person protect our
time of the or engaged therein local or
effectivity of business is a non-stock, domestic goods
Republic Act No. only) nonprofit or articles and
7716. 4. Importa private to regulate the
tion organization entry or
VAT replaced (whethe (irrespective of introduction of
Sales Tax as r or not the disposition foreign articles
imposed by in the of its net to our local
previous Tax course income and market.
Laws. of trade whether or not Regulation is
or it sells one of the
HISTORY: business exclusively to purposes of
a. Executiv ) members or Taxation.
e Order their guests), or
No. 273 PERSONS LIABLE government Tax Rates:
b. Republic FOR VAT entity. 1. 10% - the
Act No. Any person rate used in
Therefore if
7716 who, in the sale of
the disposition
c. Republic course of trade commoditie
of goods or
Act No. or business, s and goods,
services is NOT
8241 sells barters, sale of
in the course of
d. Republic exchanges, services,
trade or
Act No. leases goods or and
business then it
8424 properties, importation.
is not subject to
(took renders 2. Zero-rated
VAT; with the
effect services, and (0%) - the
exception of
on 1 any person who rate used in
importation of
January imports goods exportation.
course.
1998) shall be subject
to the value- The rule of
TRANSACTIONS added tax (VAT) regularity, to MANNER OF
COVERED BY imposed in the contrary COMPUTING
VAT: Sections 106 to notwithstanding THE VAT:
1. Sale of 108 of the , services as A. 10% rate of
Commod National defined in this Tax
ities or Internal Code rendered
Goods Revenue Code. in the 1. In sale of
(in the Philippines by commoditie
course “IN THE non-resident s and goods,
of trade COURSE OF foreign persons 10% is
multiplied cost plus register is or
with the excise subject to preservation
Gross Selling taxes, If temporary for the
Price. any. closure of the market such
2. In sale of customs establishment as freezing,
services, duties. for 5 days as drying,
10% is provided in salting,
multiplied B. Zero-rated Section 115(b). broiling,
with the (0%) rate of roasting,
Gross tax Exception: It smoking, or
Receipts. does not apply stripping
3. In 1. Export Sales to an exporter does not
importation, as provided who fails to remove the
10% is in Section register. The product
multiplied 106(A)(2)(a) effect is, from its
with the 2. Foreign instead of category of
rates used Currency treating the being in its
by the Denominate transaction as original
Bureau of d Sale as zero-rated (0%), state.
Customs in provided in it is treated as  However,
imposing Section 106 an exempt even if the
tariff and (A)(2)(b) transaction. products
customs 3. Sale to were no
duties plus persons or What is the longer in its
customs entities difference? In original
duties, which is VAT zero-rated (0%) state, it can
excise exempt transactions, still be VAT-
taxes, if under tax credit is exempt
any, and special laws available. under
other or However, in Section
charges, internationa exempt 109(r), if
such tax to l transactions, sold by
be paid by agreements tax credit is not agricultural
the to which the available. cooperative
importer Philippines s duly
prior to the is a registered
release of signatory as EXEMPT by
such goods provided in TRANSACTIONS Cooperative
from Section 106 (SECTION 109): Developmen
customs (A)(2)(c) 1. In Section t Authority.
custody: 4. Transactions 109(a) and 2. Under
Provided, subject to (c), food Section
That where zero-rated and non- 109(m),
the customs (0%) as food private
duties are provided in products educational
determined Section are VAT- institutions
on the basis 108(B) exempt as are exempt
of the long as from VAT if
quantity or REGISTRATION these duly
volume of UNDER THE VAT products accredited
the goods, SYSTEM are in its by the DECS
the value- (SECTION 236 original or by the
added tax OF THE NIRC) state. The CHED. In
shall be simple case of
based on General Rule: process of government
the landed Failure to preparation educational
institution, business. It those transferees
no complement mentioned or
accreditatio s Section in the recipients
n is 106(A)(1)(a) preceding shall be
required. where it paragraphs considered
states that are VAT the
3. in order for exempt if importers
the sale or the Gross thereof,
Transaction lease of real Annual who shall be
s in the property to Receipts do liable for
field of Arts be covered not exceed any internal
are VAT- by VAT, it P550,000.00 revenue tax
exempt must be . However, on such
only, as made in the the importation
provided in ordinary limitation of . The tax
Section course of P550,000.00 due on such
109(n), if trade or does apply importation
the seller is business. for those shall
the artist transactions constitute a
himself or 6. Revenue from lien on the
the artist’s Regulations Section goods
services No. 6-97 109(a) to superior to
performed adds a (y), except all charges
for the requirement (x) because or liens on
production in order for Revenue the goods,
of such the lease of Regulations irrespective
works. residential No. 6-97 of the
units with a imposes a possessor
4. Section monthly P550,000.00 thereof.
109(p) rental of limitation.
makes not more TRANSACTIONS
Regional or than  In cases of DEEMED SALE:
Area P8,000.00, tax-free
Headquarter as provided importation The
s exempt in Section of goods following
from VAT. 109(x), to into the transactions
be VAT Philippines shall be deemed
5. Under exempt, by persons, sale therefore
Section that the entities or making them
109(w) in annual gross agencies covered by VAT:
order for receipts exempt
the sale or must not from tax (1) Transfer,
lease of real exceed where such use or
property to P550,000.00 goods are consumption not
be . subsequentl in the course of
exempted y sold, business of
from VAT, 7. Section transferred goods or
the 109(z) or properties
transaction provides exchanged originally
must NOT that the in the intended for
be sale or lease Philippines sale or for use
conducted of goods or to non- in the course of
in the performanc exempt business;
ordinary es of persons or (2) Distribution
course of services entities, the or transfer to:
trade or other than purchasers,
(a) Shar Less:  If at the end 1. to claim for
eholders or Input of any tax credit;
investors as VAT taxable or
share in the due. quarter the 2. to claim for
profits of the output tax refund
VAT-registered  If Input exceeds the
persons; or is greater input tax, The claim,
(b) Cred than the excess which must be
itors in payment Output, Tax shall be in writing, for
of debt; Credit is paid by the both cases,
(3) Consignment available. VAT- must be filed
of goods if registered within 2 years
actual sale is person. If after the close
not made within "INPUT TAX" the input of the taxable
sixty (60) days means the tax exceeds quarter when
following the value-added tax the output the sales were
date such goods due from or tax, the made for: a) the
were consigned; paid by a VAT- excess shall issuance of a
and registered be carried tax credit
(4) Retirement person in the over to the certificate; b)
from or course of his succeeding refund of
cessation of trade or quarter or creditable input
business, with business on quarters. tax due or paid
respect to importation of Any input attributable to
inventories of goods or local tax such sales.
taxable goods purchase of attributable
existing as of goods or to the HOW TO
such retirement services, purchase of DETERMINE
or cessation. including lease capital CREDITABLE
or use of goods or to INPUT TAX
How to property, from a zero-rated The sum of
determine the VAT-registered sales by a the excess input
VAT: The tax person. It shall VAT- tax carried over
shall be also include the registered from the
computed by transitional person may preceding
multiplying the input tax at his option month or
total amount determined in be refunded quarter and the
indicated in the accordance with or credited input tax
invoice by one- Section 111 of against creditable to a
eleventh (1/11). the NIRC. other VAT-registered
internal person during
Example: the "OUTPUT TAX" revenue the taxable
total amount means the taxes, month or
indicated in the value-added tax subject to quarter shall be
invoice is P110. due on the sale the reduced
P110/11 = P10. or lease of provisions
P10 is the taxable goods or of Section
amount of VAT. properties or 112. reduced by the
services by any amount of claim
TAX CREDIT person for refund or
AND REFUND registered or OPTIONS OF A tax credit for
required to TAXPAYER AS value-added tax
Formula for register under PROVIDED IN and other
Tax Credit: Section 236 of SECTION 112: adjustments,
Output the NIRC. such as
purchase
returns or (30) days from registration:
allowances and the receipt of Provided, That
input tax the decision only one
attributable to denying the consolidated
exempt sale. claim or after return shall be
the expiration filed by the
The claim of the one taxpayer for his
for tax credit hundred twenty principal place
referred to in day-period, of business or
the foregoing appeal the head office and
paragraph shall decision or the all branches.
include not only unacted claim
those filed with with the Court
the Bureau of of Tax Appeals.
Internal
Revenue but RETURN AND
also those filed PAYMENT OF
with other VAT
government
agencies, such Every
as the Board of person liable to
Investments or pay the value-
the Bureau of added tax shall
Customs. file a quarterly
return of the
The amount of his
Commissioner gross sales or
within 120 days, receipts within
in proper cases, 25 days
from the date of following the
submission of close of each
complete taxable quarter
documents in prescribed for
support of the each taxpayer:
application shall Provided,
grant a refund however, That
or issue the tax VAT-registered
credit persons shall
certificate for pay the value-
creditable input added tax on a
taxes. monthly basis.
Remedy in Any person,

case of full, or whose
partial denial, registration has
or failure on the been cancelled
part of the in accordance
Commissioner to with Section
act upon the 236, shall file a
application for return and pay
tax credit or the tax due
refund: the thereon within
taxpayer 25 days from
affected may, the date of
within thirty cancellation of

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San Beda College of Law

MEMORY AID IN TAXATION LAW

I. GENERAL PRINCIPLES 6. levied for a public purpose.

REQUISITES OF A VALID TAX

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

registration fees are regulatory

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

6. Margin Fee – exaction designed to

TAXATION LAW COMMITTEE

TEST IN DETERMINING IF THE IMPOSITION IS A compensation takes place by operation

COMPENSATION OR SET-OFF Enforced Sanction imposed as

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN TAXATION LAW

Tax Tariff (2) NON-DELEGABILITY OF THE TAXING

Personal property -tangible: where it

TAXATION LAW COMMITTEE

principle of mobilia bonds have acquired a business

MEMORY AID IN TAXATION LAW

accruing to the Government of the instrumentalities, as well as on its

TAXATION LAW COMMITTEE

4. Non-Infringement Of Religious due conferred and rate. There

5. Non-Impairment Of Contracts (Art. B. SPECIFIC OR DIRECT

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN TAXATION LAW

5. Tax Exemption Of Properties

TAXATION LAW COMMITTEE

(1) Direct Duplicate Taxation / manufacture of finished products

MEMORY AID IN TAXATION LAW

instances it may be taken into account

(4) TAX AVOIDANCE – the exploitation by

TAXATION LAW COMMITTEE

Example: “estate planning” a. Constitutional – immunities from

MEMORY AID IN TAXATION LAW

mistaken. If ambiguous, there is no parties based on material

TAXATION LAW COMMITTEE

Reason: Relates to the circumstances fraud or protest, be final and conclusive

Tax amnesty Tax exemption c.) Local Government Code

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

MEMORY AID IN TAXATION LAW

1. Where the taxpayer deliberately

TAXATION LAW COMMITTEE

d. In estimating the revenues that may 2. It should be based on actual facts.

KINDS 4. The authority of the Commissioner

MEMORY AID IN TAXATION LAW

2. there is evidence of possible source controlled corporations) (e.g. LTO,

II. SECTION 5 (power to obtain III. SECTION 6 (power to make

TAXATION LAW COMMITTEE

* Any return, statement or i. When a person has failed to

MEMORY AID IN TAXATION LAW

authorized to inquire into the Bank a) power to Recommend the

TAXATION LAW COMMITTEE

15. Authority to make arrests and DEFINITIONS

SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

Philippines and who is not a citizen 2. Joint-stock companies;

MEMORY AID IN TAXATION LAW

1. If the heirs contribute to the

TAXATION LAW COMMITTEE

1. A trust, the income of which is to be EXEMPTION OF EMPLOYEES’ TRUST

MEMORY AID IN TAXATION LAW