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PART I – GENERAL PRINCIPLES TAXATION – power inherent in every sovereign State to impose a charge or burden upon persons, properties, or rights to raise revenues for the use and support of the government to enable it to discharge its appropriate functions SCOPE OF TAXATION TAXATION IS: Unlimited, Far-reaching, Plenary Comprehensive Supreme STAGES OF TAXATION: (LAP) 1. Levy 2. Assessment 3. Payment Basic Principles of a Sound Tax System 1. Fiscal Adequacy 2. Theoretical Justice 3. Administrative Feasibility INHERENT LIMITATIONS (SPING) 1) Situs or territoriality of taxation 2) Must be for a Public purpose • Test is whether proceeds will be used for something which is the duty of the State to provide. • Legislature is not required to adopt a policy of “all or none.” • Incidental benefit to individual does not defeat exemption 3) International comity • Property of a foreign State of government may not be taxed by another 4) Non-delegability of the taxing power • Contemplates power to QuickTime™ and a TIFF (Uncompressed) decompressor determine kind,thisobject, extent, are needed to see picture. amount, coverage, and situs of tax; • Distinguish from power to assess and collect • Exemptions: (a) presidential taxing powers; (b) local governments 5) Exemptions of Government agencies • Taking money from one pocket • to the other Applies only to entities exercising government functions (acta jure imperii)
CONSTITUTIONAL LIMITATIONS A. Direct 1) Due process • Should not be harsh, oppressive, or confiscatory (Substantive) • By authority of valid law (Substantive) • Must be for a public purpose (Substantive) • Imposed within territorial jurisdiction (Substantive) • No arbitrariness in assessment and collection (Procedural) • Right to notice and hearing (Procedural) 2) Equal protection • All persons subject to legislation shall be treated alike, under like circumstances and conditions both in privileges conferred and liabilities imposed. • Power to tax includes power to classify provided: (a) Based on substantial distinction (b) Apply to present and future conditions (c) Germane to purpose of law (d) Apply equally to all members of the same class 3) Non-impairment clause • Rules (a) When government is party to contract granting exemption cannot be withdrawn without violating nonimpairment clause (b) When exemption generally granted by law withdrawal does not violate (c) When exemption granted under a franchise may be revoked; Consti provides that franchise is subject to amendment, alteration, or repeal by Congress. 4) Must be uniform and equitable
—Advisers: Atty. Serafin Salvador, Atty. Michael Dana Montero, Atty. Gaudencio Mendoza; Head: Julie Ann B. Domino, Juan J. P. Enriquez III; Understudies: Rachelle T. Sy, Aldwin Mendoza, Timothy John Batan—
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Uniform: all articles or properties of the same class taxed at same rate • Equity: apportionment must be more or less just in the light of taxpayer’s ability to shoulder tax burden Non-imprisonment for non-payment of poll tax • Taxpayer may be imprisoned for non-payment of other kinds of taxes where the law so expressly provides. Congress shall evolve a progressive system of taxation • As resources of the taxpayer becomes higher, his tax rate likewise increases (ex. Income tax) • Constitution does not prohibit regressive taxes; this is a directive upon Congress, not a justiciable right. All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments • It is the bill, not the law, that must originate from House; bill may undergo extensive changes in Senate • Rationale: members of House are more sensitive to local needs. Freedom of religion • Activities simply and purely for propagation of faith are exempt (e.g. sale of bibles and religious articles by nonstock, non-profit organization at minimal profit). • Tax is unconstitutional if it operates as a prior restraint on exercise of religion • Income even of religious organizations from any activity conducted for profil or from any of their property, real or personal, regardless of disposition of such income, is taxable Freedom of press/expression QuickTime™ and a TIFF (Uncompressed) decompressor • Tax thatareoperatesthisas a prior restraint needed to see picture. invalid. • If fee is only for purpose of defraying cost of registration and not for exercise of privilege, no violation. Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries and all lands, buildings and improvements • ACTUALLY, DIRECTLY and EXCLUSIVELY USED for charitable, religious and educational purposes shall be exempt from taxation • Pertains only to real estate tax. • Test of exemption: actual use of the property, not ownership • Use of word “exclusively” means “primarily” rather than “solely.” • Exemption extends to property incidental to or reasonably necessary for the accomplishment of the purposes mentioned. Tax exemption of all revenues and assets of (a) non-stock, non-profit educational institutions (b) used ACTUALLY, DIRECTLY AND for educational EXCLUSIVELY purposes • Exemption covers income, property, donor’s tax, and customs duties (distinguish from previous which pertains only to property tax) • Revenue must both be (a) derived from an activity in pursuance of educational purpose; and (b) proceeds must be used for the same purpose (ex. hospital adjunct to medical school tax exempt) (ex. Interest income not exempt). • Income exempt provided it is used for maintenance or improvement of institution. • Distinguish from tax treatment of (a) proprietary educational institutions (Preferential Tax); and (b) government educational institutions (exempt, ex. UP) Delegated authority of President to impose tariff rates, import and export quotas, tonnage and wharfage dues • delegated by Congress • through a law • subject to Congressional limits and restrictions • within the framework of national development program Law granting tax exemption (includes amnesties, condonations and refunds) shall be passed with concurrence of Congress majority of all members voting separately • Relative majority (majority of quorum) is sufficient to withdraw exemption. No use of public money or property for religious purposes except if priest is assigned to armed forces, penal institutions, government orphanage or leprosarium Page 2 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
15) Special purpose - special fund for said purpose, balance goes to general funds 16) Veto power of the President - revenue/tariff bill 17) Power of review of the SC 18) Power of Local Government to create their own sources and levy taxes, fees, charges 19) Just share of local government in national revenue which shall be automatically released. 20) Tax exemption of all revenues and assets of (a) proprietary or cooperative educational institutions (b) subject to limitations provided by law 21) Tax exemption of grants, endowments, donations or contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY for educational purposes CIR v. CA (298 SCRA 85) Facts: YMCA is a non-stock, non-profit institution, which conducts various programs and activities beneficial to the public pursuant to its religious, educational and charitable objective. In 1980, YMCA earned an income of more than P600K from leasing out a portion of its premises to small shop owners and P47K from parking fees. Issue: Is the rental income from real property owned by the YMCA subject to income tax? Held: YES, the exemption claimed by YMCA is expressly disallowed by the last paragraph of then §27 of the NIRC. Furthermore, Art. XIV, §4 (3) of the Constitution only exempts YMCA from property taxes NOT income tax. YMCA cannot be considered as an “educational institution” within the purview of the above-cited article. The term “educational institution” under the Education Act of 1982 refers to schools. The school system is synonymous with formal education, which refers to hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through grades or more to higher levels. QuickTime™ and a Nothing in the Articles(Uncompressed) decompressor or By-Laws of TIFF of Incorporation are needed to see this picture. the YMCA suggests that it is an educational institution. Classification of Taxes A. As to subject matter of object 1) personal, poll, capitation tax – (a) fixed amount (b) individuals residing within specified territory C. (c) without regard to their property, occupation or business Ex. Community Tax (Cedula) 2) property tax – (a) imposed on property, real or personal (b) in proportion to its value or other reasonable method of apportionment Ex. Real estate tax 3) excise, privilege tax - (different from the excise tax in Taxation II) (a) imposed upon performance of an act, the enjoyment of a privilege or the engaging in an occupation, profession or business Ex. Income tax, VAT, estate tax, donor’s tax As to who bears the burden 1) Direct – the tax is imposed on the person who also bears the burden thereof Ex. Income tax, community tax, estate tax 2) Indirect – imposed on the taxpayer who shifts the burden of the tax to another Ex. VAT, specific tax, percentage tax, customs duties As to determination of amount 1) Specific – tax imposed and based on a physical unit of measurement, as by head, number, weight, length or volume Ex. Tax on distilled spirits, fermented liquors, cigars 2) Ad Valorem - tax of a fixed proportion of the value of property with respect to which the tax is assessed; requires intervention of assessor. Ex. Real estate tax, excise tax on cars, nonessential goods As to purpose 1) General, fiscal or revenue - imposed for the general purpose of supporting the government Ex. Income tax, percentage tax 2) Special or regulatory - imposed for a special purpose, to achieve some social or economic objectives Ex. Protective tariffs or customs duties on imported goods intended to protect local industries As to authority imposing the tax 1) National - imposed by the national government Ex. National internal revenue taxes, custom duties 2) Municipal or local - imposed by the municipal corporations or local governments Ex. Real estate tax, occupation tax
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Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 F. donor’s tax 3) Regressive . Real estate tax. estate tax.tax rate increases as the tax base or bracket increases Ex. it would be a tax. Purpose of distinction: limitations and exemptions apply only to one and not to the other (ex. Exemption from taxation does not include exemption from fee) • Allows merely the restraint on the exercise of property rights TAX DISTINGUISHED FROM DEBT TAX Source Law.the place of taxation. Income tax. the country that has the power to levy and collect the tax. percentage tax 2) Progressive or graduated . unless imposed on non-useful occupations or businesses. taxes accrue to the general benefit of the citizens of the taxing State Applies to all persons. • If amount is too high for regulation. As to graduation of rate (Three systems of taxation) 1) Proportional . VAT. issuance of license.based on a fixed percentage of the amount of the property. or at least one of the real and substantial purposes is to raise revenue. or (b) involves franchise Taxes paid form part of the public funds Distinction lies in the primary purpose: • License fee if primary purpose is to regulate and the excess of the amount collected from the cost to carry out the regulation is minimal and incidental. property and privilege no limit LICENSE FEE Emanate from the police power of the State Regulation Right to exercise a privilege only necessary to carry out regulation Source Purpose Object TAX DISTINGUISHED FROM POLICE POWER TAX Purpose Raise revenue POLICE POWER (in the form of a FEE) Exercise to promote public welfare through regulation Limited to the cost of regulation. TAX DISTNGUISHED FROM EMINENT DOMAIN TAX Raise revenue Payment of EMINENT DOMAIN The taking of property for public use Just compensation Purpose Compensation Page 4 of 145 . property and excises that may be subject thereto is given the owner of the expropriated property Persons affected Only particular property is comprehended TAX DISTINGUISHED FROM LICENSE FEE TAX Exercise of Taxing power Raise revenue Persons. income or other basis to be taxed Ex. • Tax if primary purpose. or surveillance Contracts may be impaired Amount Amount of exaction No limit • Superiority of contracts Transfer of property rights Contracts may be impaired unless (a) government is party to contract granting exemption. legal obligation Personal DEBT Based on contract Assignable QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.tax rate decreases as the tax base increases 4) Degressive .increase of rate is not proportionate to the increase of tax base • SITUS OF TAXATION .
DIRECT DUPLICATE • taxing same person. properties. However. INDIRECT DUPLICATE • Exists if any of the elements for Direct taxation is not present • No constitutional prohibition on double taxation.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Generally not subject to compensation/setoff Imprisonment is sanction for nonpayment May be the subject of compensation/setoff No imprisonment for non-payment TAX DISTINGUISHED FROM TOLL TAX Demand of sovereignty support of government no limit – depends on need of the government TOLL Demand of ownership Collection for the use of property Fair return of the cost of the property or improvement Kind of demand Purpose Amount GENERAL RULE: Taxes cannot be the subject of compensation or set-off * A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. 2) Tax overpayment (BIR’s obligation to refund or set-off arises from time tax was paid) 3) If the case involves local government taxes TAX DISTINGUISHED ASSESSMENT TAX Imposed on Why imposed Purpose FROM SPECIAL TAX DISTINGUISHED FROM CUSTOMS DUTY TAX Coverage Object More comprehensive than customs duty Persons. where there is direct duplicate taxation then there may be violation of the constitutional precepts of equal protection and uniformity in taxation. prop. reason . The collection of tax cannot await the results of a lawsuit against the government. etc. property or right twice • for the same purpose • by the same taxing authority • within the same jurisdiction or taxing district • within the same taxable period • and they must be of the same kind or character of tax B. When imposed Basis persons. Reasons: a) lifeblood theory b) taxes are not contractual obligation (absence of consent of taxpayer) c) taxpayer and government are not mutual debtors and creditors of each other EXCEPTIONS: 1) Both claims already became overdue and demandable as well as fully liquidated there must have already been an act of appropriation by the government (legislative) of funds for payment of the debt. regardless of Public improvement public that benefits the land improvement QuickTime™ and a TIFF (Uncompressed) decompressor Support are needed to see this picture.LIFE BLOOD CONCEPT OF DOUBLE TAXATION Kinds of Double Taxation A. of Contribution to cost government of public improvement Regular exaction Exceptional as to time and locality Necessity Benefits obtained SPECIAL ASSESSMENT Only on land Page 5 of 145 . etc CUSTOMS DUTY kind of tax goods imported or exported DOCTRINE OF EQUITABLE RECOUPMENT 1) refund of a tax illegally or erroneously collected or overpaid by a taxpayer 2) such tax refund is barred by prescription 3) tax presently being assessed against a taxpayer 4) may be recouped or set-off against the tax barred by prescription not allowed in Philippines.
McCullough v. The Estate of Benigno Toda. 112675.999. who. 1999) Petitioners are local non-life insurance corps. These 2 transactions were evidenced by Deeds of Absolute Sale. said power can be a power to destroy. the ceding cos. The BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79. 2004 Facts: This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax evasion that would justify an assessment of deficiency income tax. both the due process and equal protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. its work was indispensable to the business of the ceding companies and the German Co. even if the pool itself did not issue any policies on its own. in turn. 4 L. President and owner of 99. Which formed a “pool” in order to enter into a Reinsurance Treaty with a German company. 147188. purportedly sold the property for P100 M to Rafael Altonaga. Almanzor (1991). representing the tax. Tax Sparing Credit scheme) 2) CREDIT METHOD – the tax paid in the state of source is credited against the tax levied in the state of residence Afisco Insurance Corp v. Jan. the pool is included within the definition of “domestic corps. In this case.” Which comprises even unregistered partnerships and associations. later.728.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 TAX TREATY AS A MODE OF ELIMINATING DOUBLE TAXATION: 1) EXEMPTION METHOD – the income or capital which is taxable in the state of source or situs is exempted in the state of residence.22. Issue (1) : Is the Pool Taxable as a Corp? Held (1): YES. CIR (1985)]. CA (G. As long as the power to tax does not violate any constitutional or statutory provisions. It has a common fund and an executive board to manage its affairs. although in some instances it may taken into account in determining the rate of tax applicable to the tax payer’s remaining income or capital (ex. Altonaga paid capital gains tax in the amount of P10M.” “So it is in the Philippines.. Toda sold all his shares. CIC authorized Toda.021. different from the tax on the dividends received by the said companies. there would be truth to the dictum that “the power to tax involves the power to destroy. CIR vs. He died 3 yrs. there being no risk undertaken by the pool. Tax Avoidance (Tax Minimization) – tax saving device that is legally permissible Tax Evasion (Tax Dodging) – connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. Maryland. Double taxation means taxing the same person twice by the same jurisdiction for the same thing. the power to tax is not unconfined as there are restrictions. The TIFF (Uncompressed) decompressor is obviously tax on its income are needed to see this picture. not acting on its own and therefore. thus: “The power to tax is not the power to destroy while this Court sits. sold the same property on the same day to RMI for P200M. declaring.099.991% of its issued and outstanding capital stock. cannot be taxed as a corp. Power to Tax Involves Power to Destroy [Chief Justice Marshall. CIC filed its corporate annual ITR for the year 1989. Jr. & interest on the Page 6 of 145 . Issue (2): Is there double taxation? Held(2): NO. The pool is a taxable entity distinct from the individual corporate entities of the ceding QuickTime™ and a companies. among other things.” [Reyes v. citing Sison v. Entered into an association that would handle all business under the Treaty. to sell the Cibeles Building and the two parcels of land on which the building stands for an Toda then amount of not less than P90M. 25. GR No. No. Obillos v. 579 (1819)] The imposition of a valid tax could not be judicially restrained merely because it would prejudice a taxpayer’s property.. Sept. For the sale of the property to RMI. surcharge. But for all its plenitude.” The web or unreality spun from Justice Marshall’s famous dictum was brushed away by one stroke of Mr. Pursuant to §24 of the NIRC. Moreover.R. BIR assessed deficiency taxes against the “pool” on the ground that it is considered a partnership taxable as a corp. Ancheta (1984). Justice Holmes’ pen. Adversely effecting as it does property rights. Petitioners insist that the pool is a mere agent. If it were otherwise. its gain from the sale of real property in the amount of P75.Ed. no common fund and no control exercised by its board in the management of its fund. 14. must be willful and intentional.
Page 7 of 145 .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
Commissioner of Internal Revenue (Commissioner) 2) four assistant chiefs . (Sec. 2) Officials of the BIR 1) one chief . fees and charges (c) penalties imposed in relation thereto (d) other matters arising from NIRC or other Page 8 of 145 NATURE OF TAX AMNESTY 1) general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law 2) partakes of an absolute forgiveness or waiver of the Government of its right to collect 3) to give tax evaders.O.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 particular accused and not the character of the acts charged in the information PART II – THE NATIONAL INTERNAL REVENUE CODE OF 1997 TITLE I. ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE (BIR) POWERS AND DUTIES OF THE BIR (ACEEGA) 1) Assessment and Collection of national internal revenue: (a) taxes (b) fees (c) charges 2) Enforcement of all (a) forfeitures (b) fines and (c) penalties connected therewith 3) Execution of all judgments decided in BIR’s favor by (a) the Court of Tax Appeals (CTA) and (b) the ordinary courts 4) Give effect to and Administer the supervisory and police powers conferred to it by NIRC or by other laws. who wish to relent & are willing to reform a chance to do so RULES ON TAX AMNESTY 1) Tax amnesty (a) like tax exemption. Reason: Relates to the circumstances of a . Power to interpret tax law and decide tax cases (Sec 4) 1) Interpret provisions of NIRC and other tax laws subject to review by the Secretary of Finance 2) Decide: (a) disputed assessments (b) refunds of internal revenue taxes. Basis: Lifeblood Theory 3) Defense of Tax amnesty. is a personal defense. never favored nor presumed (b) construed strictly against the taxpayer (must show complete compliance with the law) 2) Government not estopped from questioning the tax liability even if amnesty tax payments were already received QuickTime™ and a TIFF (Uncompressed) decompressor Reason: Erroneous this picture.Deputy Commissioners (Sec. 430 (July 28. like insanity. The government is never estopped by mistakes or errors of its agents. 3) *E. application and are needed to see enforcement of the law by public officers do not block subsequent correct application of the statute. 1997) designates each of the 4 Deputy Commissioners to head the following functional groups: (a) Operations group (b) Legal Enforcement Group (c) Information Systems Group (d) Resource Management Group Powers of the Commissioner A.
may place the business operations of any person (natural/juridical) under Observation or Surveillance if there is reason to believe that such person is not declaring his correct income. 6) 1) Examination of returns and determination of tax due (a) After a return has been filed the Commissioner or his representative may authorize i. Presumptive Gross Sales (a) Commissioner may. record or other data 3) to Obtain any Information (costs. the Assessment of the correct amount of tax. government agencies and instrumentalities (Bangko Sentral. Power to make assessments. examine and take testimony of persons (Sec. receipts. gross income. summon. The Commissioner shall Make or Amend the return from (a) his own knowledge or (b) from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes 3) Inventory-taking.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 laws or portions thereof administered by the BIR subject to the exclusive appellate jurisdiction of the CTA B. on a regular basis from: (a) any person other than the person under investigation or (b) any office or officer of the national/local government. sales or receipts for tax purposes. order the Inventory taking of goods of any taxpayer. The findings may be used as basis for assessing the taxes and shall be deemed prima facie correct. Any tax or deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or his representative. at any time during the taxable year 1. etc). has in the meantime. (b) Failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. and ii. papers. paper. 2) Failure to submit required returns and other documents If a person (a) fails to file a required return or report at the time prescribed or (b) Willfully or otherwise files a false or fraudulent return. but within THREE YEARS from date of filing. the Examination of any taxpayer. 5) 1) For the Commissioner to ascertain: (a) correctness of any return or in making a return where none has been made (b) liability of any person for any internal revenue tax or in correcting such liability (c) tax compliance The Commissioner is authorized: 2) to Examine any relevant Book. under oath as may be relevant to the inquiry 7) To cause revenue officers and employees to make a Canvass of any revenue district or region nothing in Section QuickTime™ andbe construed as 5 shall a TIFF (Uncompressed) decompressor are needed to see this granting the Commissionerpicture. the same may be modified. sales. records and other data and to give testimony 6) to take the Testimony of the person concerned. authority to the inquire into bank deposits other than as provided for under Sec. prescribe additional requirements for tax administration and enforcement (Sec. volume of production. Power to obtain information. or 2. GOCCs) 4) To Summon (a) the person liable for tax or required to file a return or (b) any officer or employee of such person or (c) any person having in his possession/custody/ care 1. Any return. 6 (F) of the Code (authority to inquire into bank deposits). Surveillance. the books of accounts 2. been actually served upon the taxpayer. statement or declaration filed in any authorized office shall not be withdrawn. changed or amended. Page 9 of 145 • C. provided that no notice for audit or investigation of such return. accounting records of entries relating to the business of the person liable for tax or any other person 5) to Produce such books. .
7) Authority to Register tax agents (a) The Commissioner shall Accredit and Register. individuals and general professional partnerships and their rep.000 or less. of Finance 2) power to Issue rulings of first impression or to Reverse. Authority to delegate power (Sec. such minimum amount shall be prima facie correct 4) Terminate taxable period Commissioner shall declare the tax period of a taxpayer terminated and send notice to the taxpayer of such decision with a request for immediate payment of the tax. and (b) minor criminal violations as may be Page 10 of 145 . when it has come to the knowledge of the Commissioner: (RIRHO) (a) that a taxpayer is Retiring from business subject to tax or (b) is Intending to leave the Philippines or (c) to Remove his property therefrom or (d) to Hide or conceal his property or (e) is performing any act tending to Obstruct the proceedings for the collection of tax 5) Prescribe Real Property Values The Commissioner is authorized to: (a) divide the Philippines into different zones or areas and (b) determine the fair market value of real properties located in each zone or area For tax purposes. 237 (Issuance of Receipts or Commercial Invoices). 8) Authority to Prescribe Additional RequirementsThe Commissioner may prescribe the manner of compliance with any documentary or procedural requirement for the submission or preparation of financial statements accompanying tax returns. or 2. Failure of the Sec. subject to limitations/restrictions imposed under the rules and regulations EXCEPT. of Finance who shall rule on the appeal within 60 days from receipt of such appeal. When the books of accounts or records do not correctly reflect the declarations made or required to be made in a return.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 (b) Commissioner may prescribe a Minimum amount of gross receipts. modify any existing rule of the BIR 3) power to Compromise or Abate any tax liability EXCEPT. who prepare and file tax returns and other papers or who appear before the BIR (b) The Commissioner shall create national and regional accreditation boards Those who are denied accreditation may appeal the same to the Sec. or (b) Fair market value as shown in the schedule of values of the provincial and city assessors. 113 (Invoice requirements for VATregistered persons) and Sec.Deposit Notwithstanding R. the regional evaluation board may compromise: (a) assessments issued by regional offices involving deficiency taxes of P500. sales and taxable base (taking into account the sales and income of other persons engaged in similar business) : 1. Such waiver shall authorize the Commissioner to inquire into his bank deposits. 7) The Commissioner may delegate the powers vested in him to subordinate officials with rank equivalent to Division Chief or higher. 1405 (Bank Secrecy Law) the Commissioner is authorized to inquire into the Bank deposits of: (a) a decedent to determine his gross estate (b) a taxpayer who has filed an application to compromise payment of tax liability by reason of financial incapacity QuickTime™ and a TIFF (Uncompressed) decompressor The taxpayer’s application for compromise shall not be considered unless he waives in writing his privilege under RA 1405 and other general or special laws. When a person has failed to issue receipts as required by Sec. the value of the property shall be whichever is higher of: (a) Fair market value as determined by the Commissioner. revoke.A. D. are needed into Bank 6) Authority to Inquire to see this picture. (the following powers shall NOT be delegated): (RIR CoA A) 1) power to Recommend the promulgation of rules and regulations by the Sec. of Finance to rule on the appeal within the said period shall be deemed as approval for accreditation.
on the exercise of his powers of abatement and compromise of taxes (Sec. Heads of the Legal.. but not be limited to: (a) industry audits (b) collection performance data (c) status reports in criminal actions initiated against persons (d) taxpayer’s returns provided.. to other or special duties connected with the enforcement and administration of internal revenue laws as the exigencies of the service may require.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 determined by the rules 3) To Submit reports to the appropriate committee of Congress upon its request and in aid of legislation. provide and distribute to the proper officials the requisiteQuickTime™ and a internal revenue licenses. 204) every 6 months of each calendar year. Asst. joint ventures taxable as corp. Assessment and Collection Div. 9) The Commissioner. shall divide the Philippines into such number of revenue districts for administrative purposes. estate or corp. Assignment of Internal Revenue Officers (Secs. professional partnership). invoices. Regional Director as Chairman ii. areall other picture. TAX ON INCOME DEFINITION OF TERMS 1) Person – an individual. unless the taxpayer consents in writing to such disclosure 4) Submit reports to the Oversight Committee through the Chairman of the Committee on Ways and Means of the Senate and House of Representatives. joint accounts. 20) NATIONAL INTERNAL REVENUE TAXES: (Sec. 2) Corporation – include partnerships (distinguish between ordinary and general professional partnership) 3) General professional partnership – partnerships formed for the sole purpose of exercising their common profession. warrants & options to purchase shares of stock. of Finance. stamps. iv. provided that officers assigned to perform assessment or collection functions shall not remain in the same assignment for more than 3 years. records. no part of its income being derived from engaging in any trade or business 4) Shares of stock – includes shares of stock of a corp. instruments and appliances used in administering laws falling within the jurisdiction of BIR 2) To Acknowledge payment of any tax under this Code expressing a) the amount paid and b) the particular account for which payment was made (Sec. books. 16 &17) The Commissioner may assign/ reassign internal revenue officers: 1) involved in excise tax functions as often as the exigencies of revenue service may require. (Sec. labels. 17) F. joint stock companies. Regional Director iii. Revenue District Officer having jurisdiction over the taxpayer 4) power to Assign or reassign internal revenue officers to establishments where articles subject to excise tax are kept E. a trust. Duties of the Commissioner: (PASO) 1) To Prescribe. assignment of officers and employees to special duties shall not exceed 1 year (Sec. TIFF (Uncompressed) decompressor needed to see this forms. 16) 2) without change in rank and salary. 21) (I VEE DOO) 1) Income tax 2) Estate and Donor’s tax 3) Value-Added tax 4) Other percentage tax 5) Excise tax 6) Documentary stamp tax 7) Such Other taxes as are or hereafter may be imposed and collected by the BIR Regional Evaluation Board is composed of: i. receipts. 8) TITLE II. Each district shall be under the supervision of a Revenue District Officer. as well as units of participation in a partnership (except gen. bonds. provided that he shall in no case stay in his assignment for more than 2 years (Sec. associations & recreation or amusement clubs & mutual fund certificates Page 11 of 145 . certificates. directly or indirectly a particular taxpayer. shall be furnished to the appropriate committee of Congress only when sitting in Executive Session. any return or information which can be associated with or identifies. Internal Revenue Districts (Sec. which information or report shall include. with approval of the Sec.
In a debt/loan situation it is important to determine whether there was an original intention to pay/consensual recognition of an obligation to repay. SOURCES OF INCOME Page 12 of 145 Note: • • • • • Not recognized as income . Marubeni Corp). whether individual or corporation (domestic or FC doing business) Gross Revenue/Sales less: Cost of Sales equals: Gross Income less : Allowable Deductions equals: Taxable Income for individuals. A constructively received income in December and is taxable in that taxable period. this only constitutes an unrealized increase which becomes taxable income only upon disposition and realization of gains. Increase in the value of property is not recognized as income. The situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question. COMPUTATION OF TAXABLE INCOME 1) Taxpayer earning purely compensatory income Gross Compensation less : Personal Exemption premium payments on health and/or hospital insurance amounting to P2. recipient must have complete dominion 3) The gain must not be excluded by law or treaty from taxation • Income can be realized actually and constructively. A did not get the check until January 30. • If no (as in the case of a swindler/estafa). there is no flow of wealth. therefore. Ex. an additional deduction for personal exemptions is allowed Situs of Taxation is the place or authority that has the right to impose and collect taxes (CIR v. then the liability that QuickTime™ and a TIFF (Uncompressed) decompressor results just offsets the increase in are needed to see this picture. or the fiscal year 7) Fiscal Year – an accounting period of 12 months ending on the last day of any month other than December (ex. A constructively received income (because he was able to assign thus has complete control/dominion over it) and B actually received it. both A and B realize income. The state where the subject to be taxed has a situs may rightfully levy and collect the tax. Feb 1 to Jan 31) 8) Paid or incurred (cash method) or Paid or accrued (accrual method) – payment actually made or if not paid. Creditor lends debtor x amount. . The income is taxable in the hands of both A and B. Debtor repays x amount plus y interest. Creditor does not have income on x amount as this is merely return on capital. actually or constructively. In this case. • If yes. the proceeds will be considered as income and therefore taxable in the hands of the borrower swindler. actually liable for the expense TAXABLE INCOME REQUISITES FOR INCOME TO BE TAXABLE: 1) There must be a gain or addition to net worth 2) The gain must be realized or received. • Doctrine of Constructive Receipt – Ex: A was informed that his check dated December 16 is already available and he can get it anytime. In this case. no increase in net worth and no income derived from the debt/loan. Same situation for stocks and stock dividends.400 per year equals: Taxable income 2) Taxpayer doing business.when funds were merely entrusted/held money in trust (with obligation to return) to taxpayer because taxpayer acquires no control and does not receive economic benefit from it. he has income only with respect to the amount of y interest. assets of the taxpayer borrower. Proceeds of embezzlement/swindling are income because embezzler/swindler already has complete dominion over them and can use such for his economic benefit.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 5) Taxpayer – any person subject to tax 6) Taxable Year – can either be calendar year (Jan 1 to Dec 31). • Assignment of Income Doctrine – Ex: A is entitled to his salary of P10m but assigns it to B for unknown reasons. Deposit with no interest does not produce income for the depositary. • Not recognized as income if proceeds are merely a return of capital.
sources Allocation of Unallocated Deductions (partly Phil. Philippines GI.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Taxpayer ITEM Interest Compensation for personal services Rent and royalty Gain from sale of real property Gain from sale of personal property Gain from sale of shares of stock of domestic corporation Dividend income SOURCE Residence of the debtor Place of performance Location of property Location of property Place of sale Philippine source Resident Citizen Tax Base Taxable Income Taxable Income Taxable Income Taxable Income Gross Income Taxable Income Taxable on income Within and without the Philippines Within the Philippines Within the Philippines Within the Philippines Within the Philippines Within or/and without the Philippines (depending on classification of individual partner) Same basis as an individual (depending on classification of decedent. Domestic Corporation Gain from sale of personal property produced in whole or in part in one country and sold in another country. where one of the countries is the Philippines is income derived from sources partly within and partly outside the Philippines. trustor. Worldwide x x Unallocated = Phil deductions deductions Unallocated = Foreign deductions deductions Estate and Trust Taxable Income Income from sale of personal property derived from sources partly within and partly without the Phils. Outside Phil GI. Taxable Income Taxable Income Gross Income Resident Foreign Corporation Non-resident Foreign corporation *Taxable Income = Gross income (less) Deductions (less) Personal and additional exemptions *Gross Income = all income derived from whatever source TYPES OF INCOME TAXATION UNDER THE NIRC 1) Net Income Tax/Taxable Income (GI – Deductions – Exemptions) 2) Gross Income Tax (All income from whatever source) 3) Final Income Tax (On passive income and capital Page 13 of 145 GENERAL PRINCIPLES OF INCOME TAXATION IN THE PHILIPPINES . if estate.’s worldwide income is not derived from Phil. entirely from treated as derived sources within the country in which it was sold. Worldwide GI. – deemed income from without provided more than 50% of the corp. partly foreign) GI. – deemed income from within Phil. if trust) Within and Without the Philippines Within the Philippines Within the Philippines Nonresident Citizen Resident Alien Nonresident Alien engaged in trade or business Nonresident Alien not engaged in trade or business General Professional Partnership (a) From a domestic corp. Gains from the purchase of personal property within and sold without the Philippines or the purchase of personal property without and and a sale within the QuickTime™ its TIFF (Uncompressed) decompressor Philippines shall be are needed to see this picture. (b) From a foreign corp.
no matter how created or organized. rights and obligations of a person which are not extinguished by his death and those that accrues thereto. which include nonresident aliens whose stay in the Philippines is QuickTime™ and a less 180 days or TIFF (Uncompressed) decompressor are needed to see by regional or area c) Aliens employed this picture. joint accounts. Trust: arrangement created by agreement under which title to property is passed to another for conservation or investment with the income and the corpus/principal distributed in accordance with the directions of the creator.e. subject to 532%) a) Compensation Income b) Income from Business c) Income from Exercise of Profession 2) Special Types of Income (not part of gross income. and insurance companies • But does not include. Corporation A corporation shall include partnerships. Joint stock companies. headquarters and regional operating headquarters of multinational companies in the Philippines d) Aliens employed by offshore banking units e) Aliens employed by petroleum contractors and subcontractors . to be taxable as a separate entity. Ee is taxed but burden is on Er) 5) Capital Gains Tax (Real property and stocks not traded in stock market) 6) Optional Corporate Income Tax 7) Minimum Corporate Income Tax (2% of GI) 8) Improperly Accumulated Earnings Tax 9) Preferential Rates (for special corporations) 10) Branch Profit Remittance Tax TYPES OF INCOME 1) General (part of gross income.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 gains) 4) Fringe Benefits Tax (amount of benefits to Managerial and Supervisory Employee paid by Employer. Estates and Trusts Estate: property. what is taxed is not the property that constitutes the trust (this was already subject to donor’s tax) but the income of such property. prizes and other winnings subject to final tax (Passive Income) b) Cash & property dividends (does not include stock dividends. coal. as immigrant or for employment on a permanent basis (c) Works & derives income from abroad & whose employment requires him to be physically present abroad most of the time (i. subject to final tax) a) Interests. royalties. taxed in the same way as an individual provided it is irrevocable and earns income. C. geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with Page 14 of 145 TYPES OF TAXPAYERS A. these are realized only upon their subsequent sale) (Passive Income) c) Capital gains from sale of real property d) Capital gains from sales of shares of stock not listed in the stock exchange e) Capital gains from sale of shares of stock listed in stock exchange (subject to percentage tax B. not less than 183 days) during the taxable year (d) Previously considered as nonresident citizen & arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines 3) Resident Alien 4) Nonresident Alien a) Those engaged in trade or business in the Philippines who come and stay in the Philippines for an aggregate period of more than 180 days during any calendar year b) Those not engaged in trade or business in the Philippines. Individuals Kinds of Individuals 1) Resident Citizen 2) Nonresident Citizen = citizen of the Philippines who: (a) Establishes the fact of his physical presence abroad with a definite intention to reside therein (b) Leaves the Philippines during the taxable year to reside abroad. associations. grantor must have absolutely and irrevocably given up control and benefit over the trust. for the purpose of imposing ordinary 35% corporate income tax: o general professional partnerships o joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum.
B. not engaged in trade or business within the Philippines D.) Cost of goods sold Cost of Goods Sold Trading and Merchandising Concern • Invoice cost plus import duties and freight in transporting goods to the place where actually sold. • As an entity. DOMESTIC CORPORATIONS A. Optional Gross Income Taxation Effective Jan.) Sales returns. • Includes unregistered joint ventures and business partnerships. conditions are satisfied: Tax effort ratio Ratio of IT collection to total tax revenue VAT tax effort Ratio of Consolidated Public Sector Financial Position (CPSFP) to GNP Ratio of Cost of Sales to Gross Sales from all sources 20% of GNP 40% 4% of GNP 0. including insurance while in transit Manufacturing concern • Cost of production of finished goods (raw materials. it is not subject to income tax. b) engaged in petroleum. Partnerships Kinds of Partnerships 1) General Professional Partnerships • Established solely for purpose of exercising common profession and not part of income derived from engaging in trade or business. 2) Taxable/Business/Ordinary Partnership • All other partnerships no matter how created or organized. 1. coal and other energy operation under a service contract with the government. business or activity.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 the govt. • Joint ventures are not taxable as corporations when its purpose if a) undertaking construction projects. 35% (2006) if total gross income from On taxable income from all sources within and without the Philippines 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards) Page 15 of 145 . freight cost. is qualified under the scheme Gross Income = Gross Sales ( . insurance premiums. therefore. Each partner shall report his distributive share as part of his gross income. • Partners are considered stockholders. Partners are liable for income tax on their distributive share (computed by dividing net income of GPP). • Taxable as an entity ordinary corporate income tax. Special Types of Domestic Corporations Proprietary educational institutions and hospital which are 10% On related trade. In general QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. engaged in trade or business within the Philippines (b) Nonresident foreign corporation – foreign corp. their distributive share is taxed as dividends. direct labor and manufacturing overhead.) Sales returns. allowances and discounts C.9% Does not exceed 55% The election of the option shall be irrevocable for 3 consecutive taxable years during which the corp. 2000: the President (upon recommendation of the Sec of Finance) may allow corporation an option to be taxed at 15% of gross income after the ff. discounts and allowances ( . and other costs to bring the raw materials to the factory) If taxpayer is engaged in sale of service: Gross Income = Gross receipts ( . General Types: 1) Domestic Corporation is created or organized in the Philippines or under its laws 2) Foreign Corporation is organized and existing under the laws of a foreign country (a) Resident foreign corporation – foreign corp. TAX ON CORPORATIONS I.
Carry Forward of Excess Minimum Tax Page 16 of 145 • GOCCs QuickTime™ and a General Rule:TIFF (Uncompressed) decompressor agencies. • Ex. except on certain passive income (which are subject to final tax) Predominance Test: if GI from unrelated trade/business/other activity > 50% of the total GI from all sources. • Ex. Minimum Corporate Income Tax (MCIT) 1. MCIT Rate = 2% of gross income (GI) When to begin/apply MCIT? Beginning on the th 4 taxable year immediately following the year in which such corporation commenced its business operation (Commencement of Business Operation: Upon Issuance of BIR Certificate of Registration) Imposed when on the 4th taxable year. or all corporations. • • E. GOCC. Agencies and Intrumentalities. the proceeds. instrumentalities owned or controlled by the govt.000 2% of GI = P10. real or personal. including PAGCOR GSIS/ SSS / PHIC / PCSO Depository Banks 32% (20002005) 35% (2006) Exempt 10% On interest income from foreign currency transactions including interest income from foreign loans Proprietary Educational Institutions & Hospitals (non-profit) • Proprietary educational institution – any private school maintained & administered by private individuals or groups with an issued permit to operate from DECS. or activity exceed 50% of total income Same tax rate upon their taxable income in a similar business. are needed to see this picture. Rule for Corporations Exempt from Taxation General Rule: those enumerated under section 30 are exempt.000 Rationale: This is designed to prevent corporations from escaping being taxed by including frivolous expenses in their statement of income (Ex. ENTIRE taxable income shall be subject to the REGULAR corporate tax rate (35% Effective 2006) Distinguish from non-profit non-stock educational institutions which are exempt from tax on revenues and assets Actually. non-profit religious organization is exempt from 35% ordinary income tax on corporations (by virtue of section 30 which uses “as such”) and from all property tax (by virtue of Constitution. However.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 nonprofit unrelated trade. or from any activities conducted for profit regardless of the disposition made of such income. Over statement of depreciation expense) 2. Exceptions: 1) GSIS 2) SSS 3) PHIC 4) PCSO . are taxable. provided ADE use for its religious purpose). Exception: exempted corporations are subject to income tax on their income from any of their properties.450 2006 IT = P10. Example: for 2006 calendar year GI = P500. For educational institutions. business. to be exempt. 2% of the corporations GI is greater than 35% of its TI. industry. Non-stock. Directly and Exclusively used for educational purposes (See above for discussion). or CHED or TESDA Taxable at 10% on taxable income.000 TI = P27.000 35% of TI = P9. if it derives income from its property or conducts an activity that is for profit (even if the proceeds will be used for the religious purpose). or activity D. the proceeds will be taxable. must be both a) realized from educational activities and b) used for educational activities.
) On taxable income from all the sources within Philippines. other offshore banking units.000 2% of GI = P10. RESIDENT FOREIGN CORPORATION A.) Sales returns. MCIT . 3. you may deduct 3. b) costs of facilities directly utilized in providing the service such as depreciation or rental of equipment used and costs of supplies II. Gross Income (for purposes of applying MCIT) Gross Income = Gross Sales ( .5% On Gross Philippine carriers Billings (see case of Air Canada vs. 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards) Income Tax payable for 2007 = 17.550 (550 from 2006 and 3.000 35% of TI = P7. Relief from MCIT MCIT may be suspended by the Sec of Finance when corporation’s losses are due to: (a) prolonged labor dispute (b) force majeure (c) legitimate business reverses 4.5% On Gross Philippine Shipping Billings Offshore 10% Any interest income banking units derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks.500 (Regular Income Tax) – 550 (MCIT Carry Forward from 2006: 10.) Cost of Services *means all direct costs and expenses necessarily incurred to provide the services required by the customers including: a) salaries and employee benefits of personnel.000 2% of GI = P10. including Page 17 of 145 Income Tax payable for 2007 = 10. from foreign currency transactions with nonresidents. discounts & allowances ( .000 35% of TI = P17. .000 B.000 from 2007). So if in 2008. Special types of resident foreign corporations: International Air 2.550 from payable Regular Income Tax. including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units Offshore Exempt Income derived by banking units offshore banking units authorized by the BSP.000 TI = P50. Regular Income Tax is already greater than MCIT.950 NOTE: You can deduct MCIT Carry Forward only if Regular Income Tax is greater than MCITY Situation B: If regular income tax is less than MCIT Pay MCIT For 2007 calendar year: GI = P500.500 ( . C.) Cost of Goods sold If taxpayer is engaged in sale of service: Gross Income = Gross Receipts QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. discounts and allowances ( . In General (the rest is the same as domestic corp.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Excess of MCIT over the normal income tax shall be carried forward & credited against normal income tax for the 3 succeeding years Example: (proceeding from above example) Situation A: If regular income tax (35% of taxable income) is greater than MCIT (2% of GI) Pay Regular Income Tax For 2007 calendar year: GI = P500. consultants and specialists directly rendering the service.000 TI = P20.same as domestic corp. CIR infra) International 2.) Sales returns.000 NOTE: MCIT carry forward as of 2007 is already 3.000-9450) = 16. local commercial banks.
‘To originate’ would mean ‘to cause the beginning of. as authorized to operate by the CAB and having no flights originating from the Philippines in a continuous and uninterrupted flight. tickets revalidated. refers to gross revenue derived from carriage of persons. petitioner. to start (a person or thing) on a course or journey. the flights carrying the passengers must have originated or started from the Philippines. o Note: Transfer of airline company. start’. However. it is still liable to pay income tax as a resident foreign corporation. the term ‘resident foreign corporation’ applies to a foreign corporation engaged in trade or business within the Philippines. Under Section 22 of the 1997 Tax Code. then it will be subject to 35% tax on GI as non-resident alien corporation. and mail originating from the Philippines in a continuous and uninterrupted flight. while the term ‘non-resident foreign corporation’ applies to a foreign corporation not engaged in trade or business within the Philippines. Regional/Area Headquarters Regional Operating Headquarters of Multinational companies Exempt 10% On taxable income o Off line carriers: those without landing rights but may nevertheless be selling tickets in the Phil subject to tax treatment of ordinary resident foreign corporation What’s controlling is the amount stated in the ticket and not the actual purchase value. vs. for a flight which orginates in the Philippines but transshipment (transfer) of passenger takes place at any port outside the Philippine on another airline. only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the GPB. the performance of acts or works or the exercise of some of the functions normally incident to. being an off-line international carrier. cargo.” Page 18 of 145 Gross Philippine Billings • For international air carriers. passenger/cargo must QuickTime™ and a TIFF the Philippines decompressor originate from(Uncompressed) this picture. Inc. CTA Case No. and contemplates. et al. irrespective of the place of sale or issue and the place of payment of the ticket or passage document Provided. cargo and mail ‘originating from the Philippines in a continuous and uninterrupted flight’ irrespective of the place or sale or issue and the place of payment of the ticket or passage document.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units. In other words.” However. exchanged and/or indorsed to another international airline form part of the GPB if the passenger boards a plane in a port or point in the Philippines o If the ticket is indorsed to another airline. the Honorable Supreme Court had thoroughly and clearly explained the term in this way: “…There is no specific criterion as to what constitutes ‘doing’ or ‘engaging in’ or ‘transacting’ business. 6572.. 2004 It is evident that the definition of ‘Gross Philippine Billings’ under Section 28(A)(3)(a) of the 1997 Tax Code covers the gross revenue derived from the carriage of persons. not transfer of aircraft GPB rule in the NIRC is a departure from the old rule which emphasized where tickets were bought.. Dec. Does not apply to offline carriers o On line carriers: those with landing rights in the Philippines • • • • • • • . the GPB will be charged to the transferee/indorsee Provided. Billings). with regard to the term ‘doing’ or ‘engaged in’ business. to that extent. CIR. • Air Canada vs. are needed to see Does not apply to domestic corporations (Ex. and in progressive prosecution of commercial gain or for the purpose and object of the business organization. Mangiliman. Now we adopt the originating rule meaning to form part of GPB.. et al. 22. excess baggage. PAL) Carrier must be an alien resident corporation. to begin. that is. if its not. The term implies continuity of commercial dealings and arrangements. excess baggage. although petitioner Air Canada is not liable to pay the tax as an international air carrier (2. cannot be taxed pursuant to Section 28(A)(3)(a) of the 1997 Tax Code.5% on gross Phil. 72 PHIL 524. Each case must be judged in the light of its peculiar environmental circumstances. based on their Gross Philippine Billings. there is no fixed or specific criterion as what constitutes ‘doing’ or ‘engaging’ in business. Verily. In the case of The Mentholatum Co.
The dividend received shall only be taxed at 15% in the Phils (instead of 35%) if Brazil will reduce/credit at least 20% of the tax imposed in the Phils. then the Phils will tax the dividend at 35% (ordinary income tax). Ex. has both regional headquarters and branch in Philippines. machineries and other equipment • TAX SPARING CREDIT • Tax reduced by the Philippines should be fully applied or credited to the tax on dividend income received by the non-resident foreign corporation imposed by the country of its domicile. X foreign corp. cannot give more than 15% tax credit because the law only allows such. such as the appointment of a local agent. In General Gross Income from all sources within the Philippines (except Capital Gains on sale of domestic shares subject to final tax) 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards) • reducing their tax liability in the Philippines and in their residence countries. as in the case at bar. • • • Gross Income includes interest. annuities.5% On gross income of aircraft. subject to BPRT o If subsidiary amounts received by non-resident foreign corporation would be treated as dividends it becomes part of its Gross Income from within taxable at 35% Branch will first be subjected to ordinary corporate tax as a resident foreign corporation (35%). In other words. a foreign airline company selling tickets in the Philippines through their local agents. there must be continuity of conduct and intention to establish a continuous business. branch pays amount to regional headquarters supposedly for administrative support services The amount paid for the services will still be subject to BPRT because the tax is imposed on “any form QuickTime™ and a TIFF (Uncompressed) decompressor of remittance. Domestic corporation paid cash dividend to non-resident foreign corporation (NRFC) organized in Brazil. INDIVIDUALS A. This shall form part of NRFC’s income therefore taxable also in Brazil. rents. (Because branch assumes personality of an RFC and is therefore taxable as such) Any remittance.” are needed to see this picture. NONRESIDENT FOREIGN CORPORATION A. from its tax imposed in Brazil. direct or indirect.5% On gross income of vessel charted by Philippine nationals Owner or lessors 7. royalties. Capital Gains (not subject to FT) NON-RESIDENT FOREIGN CORPORATION Cinematographic 25% On gross income Film owner. the profits for remittance shall then be subject to 15% BPRT. Phils.” Branch Profit Remittance Tax • • BPRT shall be imposed on any profit remitted by a branch to its head office. [See Section 28(5)(b)] If Brazil will credit/reduce less than 20% or will not credit any amount. Afterwards. and not one of a temporary character. shall be considered as resident foreign corporation engaged in trade or business in that country for such activities show continuity of commercial dealings or arrangements and performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of commercial gain or for the purpose and object of the business organization. III.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 “In order that a foreign corporation may be regarded as doing business.). emoluments or other fixed/determinable annual. premiums (except reinsurance prem. lessor or distributor Owner or lessors 4. whether liaison offices. agencies or branches. In general Page 19 of 145 . salaries. periodic/casual gains. This serves as an incentive by INCOME TAX RATES I. Distinguish between a branch and a subsidiary o If branch. dividends. Instead of remitting straight to X. so long as you can trace it from a branch to the foreign parent corporation subject to BPRT o Ex.
In general 2006-2008 – 35% 2009-onwards – 30% B. • Rule for Exchange o FMV of the property exchanged/given up shall be basis of CGT. hence. Includes disposition by judicial order and other forms of forced disposition. • Refers to real property held as capital asset (not used for business/investment) as opposed to ordinary asset (used in ordinary course of business). B. law does not talk about the net gain. Tax rate for Resident Foreign Corporation – Please see exhibit D. Rule There is imposed for each taxable year. Exemption does not include exchange of principal residence for a new principal residence subject to rules on exchange above. the difference will be subject to CGT. • Law presumes a gain. Reg. or other disposition of real property located in the Philippines. It is a tax in the nature of a penalty to the corporation for the improper accumulation of its earnings. as implemented by Rev. • Imposed upon capital gains presumed to have been realized from the sale. not voluntary). the shareholders would then be liable for income tax. transaction is not subject to CGT. Rationale If the earnings and profits were distributed. CORPORATIONS A. are needed to from sale or disposition of principal residence. Tax rate for special types of Resident Foreign Corporation – Please see exhibit IMPROPERLY ACCUMULATED EARNINGS TAX (“IAET”) (Sec. it only considers gross selling price/FMV whichever is higher. o If second option is chosen: 6% final tax shall be based on actual consideration and not FMV since the former is usually lower than FMV (BIR Ruling). and a deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends Page 20 of 145 . in addition to other taxes. CGT will still be imposed on entire proceeds of the disposition. CGT on B will be based on 2M) • Exception on Principal Residence QuickTime™ and a o Gains TIFF (Uncompressed) this have been realized presumedsee decompressor to picture. o If the disposition took nature of expropriation (no meeting of the minds. 2-2001 which prescribes rules governing the imposition of IAET) A. B. Holding company). a tax equal to 10% of the improperly accumulated taxable income of domestic and closely-held corporations formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation. the proceeds of which is fully utilized in acquiring new principal residence within 18 months from disposition shall be exempt from CGT. • Special Rule for disposition to government o Taxpayer has option of treating the proceeds as (a) taxable income (5-32% on net gain) or as capital gains (6% final tax on FMV/gross selling price).Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Graduated rates of 5 to 32%. o Can be availed only once every 10 years. A exchanges property worth 1M for B’s property worth 2M CGT on A will be based on 1M. even if the sale was at a loss (bought for 2M. sold for 1M). including pacto de retro sales and other forms of conditional sales. whichever is higher. Net gain (if any) will be treated as part of GI. (Ex. Passive Income – Please see exhibit Capital Gains from Sale of Real Property • Final tax on gross selling price or current fair market value. by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders (Ex. exchange. they would incur no tax in respect to the undistributed earnings and profits of the corporation. 29. Passive Income and other income – Please see exhibit C. if the distribution were not made to them. Special Tax Rates for Aliens – Please see exhibit II. o If the new principal residence is cheaper than old (meaning there is no full C. o utilization of the proceeds).
Covered Corporations: Only domestic and closely-held corporations are liable for IAET. 2) Insurance companies. if any. Immediacy Test – It states that the “reasonable needs of the business” are the 1) immediate needs of the business. 5) Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is legal QuickTime™ and a prohibition TIFF (Uncompressed) decompressor against its distribution. or b) at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than 20 individuals.A. G. inclusive of accumulations taken from other years. 6) Non. publicly-held corporations. 3) Earnings reserved for building. D. Exception The use of undistributed earnings and profits for the reasonable needs of the business would not generally make the accumulated or undistributed earnings subject to the tax. Expansion) How to prove the “reasonable needs of the business”: The corporation should prove that there is 1) an immediate need for the accumulation of the earnings and profits. 1. otherwise. or 2) a direct correlation of anticipated needs to such accumulation of profits. and 2) where the earnings or profits of a corporation are permitted to accumulate beyond the Page 21 of 145 . F. 6) In the case needed tosubsidiaries of foreign corporations in the Philippines. plants or equipment acquisition as approved by the Board of Directors or equivalent body. 4) Taxable partnerships. are of see this picture. Composition: The following constitute accumulation of earnings for the reasonable needs of the business: (ILL ABE) 1) Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the corporation as of Balance Sheet date. Period for Payment of Dividend/IAET: The dividends must be declared and paid or issued not later than one year following the close of the taxable year.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 tax on the earnings distributed to them. national or local. 7227. 2) Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditure as approved by the Board of Directors or equivalent body. H. should be paid within fifteen (15) days thereafter. therefore. and 2) reasonably anticipated needs (Ex. all undistributed earnings intended or reserved for investments within the Philippines as can be proven by corporate records and/or relevant documentary evidence. Exempt Corporations: The IAET shall not apply to the following corporations: (BIG-PEN-T) 1) Banks and other non-bank financial intermediaries. and (c) under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes. the IAET.taxable joint ventures. 4) Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement. 7916. C. Domestic corporations not falling under the aforesaid definition are. and 7) Enterprises that are registered: (a) with the Philippine Economic Zone Authority (PEZA) under R. Closely-held corporations are those: a) at least 50% in value of the outstanding capital stock. and collecting the income therefrom or investing the same. 3) Publicly-held corporations. E. Determination of Purpose to Avoid Income Tax 1) The fact that a corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members A “holding or investment company” is a corporation having practically no activities except holding property. 5) General professional partnerships. (b) pursuant to the Bases Conversion and Development Act of 1992 under R.A. What is meant by “reasonable needs of the business” is determined by the Immediacy Test.
GROSS INCOME All income derived from whatever source. vs. 20. commissions & similar items 6) Annuities 7) Royalties 8) Dividend Income 9) Gains derived from dealings in property 10) Pensions 11) Partner’s distributive share from the net income of the GPP (distributive share from ordinary .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 reasonable needs of the business. GR No. Bequests & devises • But. A Debt-to-Equity ratio (Current Assets over Current Liabilites) of 2:1 is indicative of the liquidity of a corporation. II. partnerships is taxable as dividends. not otherwise intended for the reasonable needs of the business. received either during the term or at the maturity of the terms or upon surrender Page 22 of 145 I. 2) Investment in bonds and other long-term securities. income from such property shall be included in GI • Must be characterized by disinterested generosity and pure liberality • Difficult to establish gift situations if there is an Er-Ee relationship (A bonus/assistance as recognition of service rendered is not exempt) • If given under a) constraining force of any moral or legal duty or b) from the incentive of c) an anticipated benefit of an economic nature or where it is a return for services rendered. 2000 Ideally. whichever is higher. endowment. including (but not limited to the following items) (GRIP CARD GPP) 1) Gross income derived from the conduct of trade or business or the exercise of a profession 2) Rent Income 3) Interest Income 4) Prizes & winnings QuickTime™ whatever form paid. limited to fees. A speculative and indefinite purpose will not suffice. 3) Amount Received by Insured as Return of Premium • Under life insurance. Cyanamid Phils. proceeds cannot qualify as a gift. • Most critical consideration is the giver’s intention or motive. and further accumulation would expose it to the IAET. hence the socalled "2 to 1" rule.salaries. EXCLUSIONS FROM GROSS INCOME (GIRL CRM) 1) Gifts. the working capital should equal the current liabilities and there must be 2 units of current assets for every unit of current liability. 108067. from tortious acts) taxable Recovery of items previously deducted Taxable from gross income (return of capital) Forgiveness of indebtedness (if effect of Not entire transaction is a reduction of Taxable purchase price of property acquired in prior year) Income derived form illegal business Taxable (gain) Recovery of lost earnings Taxable BIR Ruling #017-2003 The transfer of land made by a person to another in payment of services rendered in the form of attorneys fees shall be considered as part of the gross income of the latter valued at either the fair market value or the zonal valuation. Definiteness of plan/s coupled with action/s taken towards its consummation is essential. in this case. for services decompressor 5) Compensation TIFF (Uncompressed) in and a including. Jan. Prima facie instances of accumulation of profits beyond the reasonable needs of a business and indicative of purpose to avoid income tax upon shareholders 1) Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business. CA. or annuity contracts. the ordinary partnership has already been subject to ordinary corporate income tax) All income from whatever source derived Recovery of damages (compensation for Not injury. and 3) Accumulation of earnings in excess of 100% of paid-up capital. 2) Income Exempt under Treaty • To the extent required by any treaty obligation binding upon the Phil govt. wages. The mere recognition of a future problem or the discussion of possible and alternative solutions is not sufficient. I. but notare needed to see this picture. The controlling intention of the taxpayer is that which is manifested at the time of accumulation. in the taxable year received. • Can be a gift if given on account of filial relationship.
sickness or other physical disability) o Sickness must be job threatening must render taxpayer incapable of working (Ex. 6) Retirement Benefits. there/s only partial exemption to the extent that the proceeds constitute return of capital (total amount of premiums paid). if damages only amount to return of capital. damages for car wreckage will only be exempt to the extent of the amount of the actual damage return of capital) • Must be physical injury. reason that he was separated for reasons beyond his control. If no personal injury. (ii) in the service of same employer for at least 10 years at time of retirement o Must be approved by BIR o A pension. c) Benefits received from a foreign government by resident of non resident citizens or aliens who reside permanently in the Philippines d) Veterans benefits e) Benefits under SSS f) Benefits received from GSIS • 2 Options under paragraph (a). wherein contributions are made by such ER for the officials/employees. Employee can claim exemption under RPBP then later claim on the ground that the amount he received is a consequence of his separation in a subsequent job for any cause beyond his control Page 23 of 145 • • . 5) Compensation for Injuries or Sickness • Received through Accident/Health Insurance or Workmen’s Compensation Act. Pensions. & provided in the plan that no part of the income shall be used for/be diverted to any purpose other than for the exclusive benefit of the said officials & employees Service must be continuous.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 of the contract 4) Life Insurance • Proceeds of life insurance policies paid to the heirs/beneficiaries upon the death of the insured • If such amounts are held by the insurer under an agreement to pay interest. h) Reasonable Private Benefit Plan o Conditions: (i) at least 50 yrs old. (ii) 5 years of service at time of retirement o Availed if there is no reasonable private benefit plan (benefits under this option is less) o Limted exemption: ½ month salary for every year of service. it is exempt (Ex. but you can avail of exemption under another ground o Ex. the interest payments shall be included in the GI • Insured must die to avail of total exemption. however. stock bonus or profit-sharing plan maintained by an ER for the benefit of some or all of his officials/employees. he cannot are needed to see this picture. If he survives. you cannot avail of another RPBP). all is excludable. Section 32(B)(6) g) RA 7641 o Conditions: (i) at least 60 years old. as compensation for personal injuries/sickness + amount of damages received on account of such injuries/sickness • Damages will be exempt only if they arise together with personal injury. Gratuities • Forms a) RA 7641 or Reasonable Private Benefit Plan o See below for rules b) Amount received as a consequence of separation for any cause beyond control (death. not injury to rights. but if the Ee avails of an optional QuickTime™ and a TIFF (Uncompressed) decompressor early retirement plan. Damages from car accident exempt only if claim includes compensation for personal injury. for the purpose of distributing to such officials & employees the earnings & principal of the fund thus accumulated. A government employee can claim exemption for retirement benefits received from the GSIS even after availing of RPBP taxpayer can claim RPBP after qualifying as a private employee then under GSIS proceeds exemption after qualifying as a government employee o Ex. he cannot claim exemption of the benefits on this ground but he can claim under other grounds such as RPBP or RA 7641. Does not include STD) o Benefits from separation due to retrenchment come under exemption (no choice/option. therefore. gratuity. In RPBP. or both. You can “avail of the benefits only once” (once you’ve availed of RPBP.
take note of 7 categories.e.000 (f) GSIS. but only if: recipient was selected without any action on his part recipient not required to render substantial future services as a condition of receiving the prize/award Example: Nobel prize award • Construed strictly.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 • Terminal Leave Pay: amount paid for the commutation of leave credits o Excludable only for government employees (this exemption does not find support in NIRC but is backed by SC decision and BIR Ruling #143-98) BIR Ruling #125-98 The phrase “shall not have availed of the privilege under a retirement benefit plan of the same or another ER” found in Sec./its political subdivisions (from public utility or exercise essential governmental function) • Key: Income should accrue to government. artistic. Fringe Benefit Any good. QuickTime™ and a th TIFF pay month (Uncompressed) decompressor benefits (i. • Contemplates a rational selection process. income is taxable. not a cumulative achievement (Ex. It does not include athletic achievement. SSS. productivity incentives & Christmas bonus) Total exclusion shall not > P30. 32(B) of the CTRP. stocks. it is not exempt look at charter of political subdivision/GOCC to determine whether its income accrues to the government or not. but not limited to the ff: 1) housing 2) expense account 3) vehicle of any kind 4) household personnel (such as maid. driver & others) 5) interest on loan at less than market rate to the extent of the difference between the market rate & actual rate granted 6) membership fees. cannot just be randomly selected. dues & other expenses borne by the employer for the employee in social & athletic clubs or other similar organizations 7) expenses for foreign travel 8) holiday & vacation expenses 9) educational assistance to the employee or his dependents 10) life or health insurance & other non-life insurance premiums or similar amounts in excess of what the law allows B. literary or civic achievement. (b) income derived by govt. charitable. debentures or other certificates of indebtedness with a maturity of more than 5 years (h) Gains from redemption of shares in mutual fund SPECIAL TREATMENT OF FRINGE BENEFIT A. BIR Ruling #143-98 The terminal leave pay of government employees whose employment is coterminous is exempt since it falls within the meaning of the phrase “for any cause beyond the control of the said official or EE” found in Sec. educational. (payable by the employer) Effective 1/1/98 34% Page 24 of 145 . Sportsman of the year award does not qualify for exemption) (d) prizes & awards in recognition of religious. (c) prizes. if the income is retained by the public utility. whether an individual or corp. Pag-ibig contributions & union dues of individuals (g) Gains form the sale of bonds. & other (e) 13 are needed to see this picture. bonds or other domestic securities) • Refers only to passive income. scientific. Nature of FBT Final tax imposed on the grossed-up monetary value of fringe benefit furnished/granted to the EE by the ER. If the foreign government engages in trade. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees) such as. 32 (B) (6) (a) of the Tax Code means that the retiring official or EE must not have previously received retirement benefits from the same or another employer who has a qualified retirement benefit plan. 7) Miscellaneous Items (a) income derived by foreign government (from investments in Philippines in loans. Medicare. awards in sports competition sanctioned by national sports associations whether held in Philippines or abroad • Contemplates a particular competition.
DEDUCTION FROM GROSS INCOME • • • Defined as: Items or amounts which the law allow to be deducted from gross income in order to arrive at the taxable income. The deduction claimed must have been subjected to withholding tax. He must be able to prove that he is entitled to the deduction authorized or allowed.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 1/1/99 1/1/00 33% 32% CONVENIENCE OF THE EMPLOYER RULE • When a fringe benefit is given solely for the convenience of the employer. However. whether granted under a CBA or not (d) De minimis benefits De Minimis benefits a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year and monetized value of leave credits paid to government officials and employees b) Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month c) Rice subsidy of P1. If employee is given housing allowance in cash.000 f) Laundry allowance of P300 per month g) Employee achievement awards.000 per year e) Actual yearly medical benefits not exceeding P10. • Exception: If the nature of the Er’s business is hazardous to health of Ee. fruits. the fringe benefit is exempt from FBT because the employee does not recognize income from the benefit. Fringe benefits are only for corporate officers/management. if it qualifies as a Fringe Benefit. Burden on Er) Fringe benefit is an income of the employee subject to Fringe Benefit Tax but is payable by the Employer. Fringe Benefits not subject to FBT (a) FB authorized & exempted from tax under special laws (b) Contributions of ER for the benefit of the employee to retirement. then it will be subject to FBT and the burden is shifted to Er (Tax on Ee. CIR. marriage. (Atlas Consolidated Mining & Dev’t.000 per employee per annum i) Flowers. • Ex. C. Er can deduct FBT from its taxable income. For rank and file. • Ex.000 or 1 sack of 50 kg rice amounting to not more than P1. major anniversary celebrations not exceeding P5. housing can be located outside the factory without being subject to FBT. books or similar items given to employees under special circumstances on account of illness. 1981) • • • • WHO MAY AVAIL OF THE DEDUCTIONS? 1) Individuals Page 25 of 145 .000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees QuickTime™ and a TIFF (Uncompressed) decompressor needed h) Christmas are and to see this picture. etc j) Daily meal allowance of overtime work not exceeding 25% of basic minimum wage III. Because deductions are strictly construed against the taxpayer. Adequate records should be kept to support the deductions.000 d) Uniform and clothing allowance not exceeding P3. January 12. Expenditure on housing of engineer within factory premises is not subject to FBT • General Rule: If housing is located outside. Corp. vs. hence. this will constitute compensation of the employee (income from whatever source). insurance & hospitalizations benefit plan (c) Benefits given to the rank & file employees. then it follows that deductions must be STRICTLY construed. birth of a baby. it is subject to FBT. it is called an allowance. with an annual monetary value not exceeding P10. Deductions for income tax purposes partake of the nature of tax exemptions. if tax exemptions are to be strictly construed. Allowances (benefits to rank and file) are not subject to FBT. for length of service or safety achievement in the form of tangible personal property other than cash or gift certificate. The basic principle governing deductions from gross income apply to all taxpayers. if required. one seeking a deduction must point to some specific provisions of the statute in which that deduction is authorized & must be able to prove that he is entitled to the deduction which the law allows.
Amount must be substantiated. (RR No. business or professional expenses only REQUISITIES FOR DEDUCTIBILITY: a. 2. management. (b) resident foreign corp. Must be paid or incurred in carrying on or which are directly attributable to. mgt. operation and or conduct of the trade. EXPENSES (SEC 34A) 1) Ordinary & necessary trade. Individuals with gross income from business or practice of profession: o Optional Standard Deduction (OSD) OR Itemized deductions o Optional Standard Deductions – 10% of the gross income. including reasonable allowance for: 1. Must be ordinary AND necessary (both must be complied with) b. including exercise of profession and use or lease of properties. Citizens and resident aliens whose income is purely compensation income (except for premium payments on health and/or hospitalization insurance). amusement & recreation expenses directly connected to the devt. Estates and Trusts Section 62 of the NIRC ITEMIZED DEDUCTIONS/ ALLOWABLE DEDUCTIONS SEC. public policy or morals. rentals &/or other payments as lessee. . (c) proprietary educational institutions & hospitals (d) GOCCs WHO CANNOT AVAIL OF DEDUCTIONS FROM GROSS INCOME: 1. Corporations QuickTime™ and a o Itemized Deductions decompressor TIFF (Uncompressed) are needed to see this picture. the development. entertainment. business/ profession 3. business or exercise of a profession.Amount must be reasonable. Individuals with gross income from employeeemployer relationship only (gross income only): o Premium payments on health and/or hospital insurance (if requisites are complied with) o Personal exemptions and additional exemptions 2. Non-resident aliens not engaged in trade or business in the Philippines. 10-02) EXPENSES TO BE DEDUCTIBLE: . & operation & conduct of trade.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 (a) citizen (b) resident alien (c) non-resident alien doing business in the Philippines (d) member of GPP 2) Corporations (a) domestic corp.It is not contrary to law. Non-resident foreign corporation THE FOLLOWING ARE THE ALLOWABLE DEDUCTIONS FROM GROSS INCOME BASED ON CLASSES OF TAXPAYER: 1. wages & other forms of compensation for personal services actually rendered (including grossedup monetary value of FB). business/ profession > The Regulations impose a limit of 0. Must be paid or incurred during the taxable year c. and 3. user or possessor 4. . 4) 5) 6) 7) 8) 9) 10) Taxes Depreciation Interest Depletion of oil & gas wells & mines Charitable & other contributions Research & Development Pension trusts 1. but the final tax should have been paid 2. May be availed only by individuals (except nonresident aliens) who are not purely compensation income earners.. travel expenses in pursuit of trade. This is in lieu of the itemized deductions. . or 1% of net revenue (gross revenue less discounts) for those engaged in sale of services.Tax required to be withheld must have been paid to the BIR 2) Substantiation sufficient 4.50% of net sales (gross sales less sales returns/allowances & sales discounts) for taxpayers engaged in sale of goods or properties. o Premium payments on health and/or hospital insurance (if requisites are complied with) o Personal and additional exemptions 3. salaries. 34 (BELT DID CRP) 1) Bad Debts 2) Expenses 3) Losses Requirements: Page 26 of 145 .
in the same taxable year. the proceeds of which are invested in income earning interest that is subject to 20% final tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 evidence (i.(P1. financial statements or other adequate records) to substantiate: (a) amt. exp. While illegal income will form part of the income of the taxpayer. 13-2000 TIFF (Uncompressed) decompressor are be an indebtedness (a) there must needed to see this picture. business. or exercise of profession shall be allowed as a deduction from the taxpayer’s gross income.000 . LIMITATION ON DEDUCTION Interest expense shall be reduced by an amt. business or profession of the taxpayer 3) Bribes.500 Deduct as int. business or exercise of profession. official receipts. management operation &/or conduct of the trade. as implemented QuickTime™ and a by Rev. = P2. Kickbacks & Other Similar Payments: not deductible Ordinary expense – normal or usual in relation to the taxpayer’s business and the surrounding circumstance.e.is a method of borrowing without entering into a debtor/creditor relationship. These are the day to day expenses. kickback. business or exercise of profession (e) interest expense must have been paid or incurred during the taxable year (f) interest must have been stipulated in writing (g) interest must be legally due (h) interest payment arrangement must not be between related taxpayers (i) interest must not be incurred to finance petroleum operations (j) in case of interest incurred to acquire property used in trade. Expenses allowable to private educational institutions: In addition to the expenses allowable as deductions. equal to the ff.370 The objective of the limitation is to discourage tax arbitrage on back to back loans. In tax cases. Not immediately deductible. (b) there should be an interest expense paid or incurred upon such indebtedness (c) indebtedness must be that of the taxpayer (d) indebtedness must be connected with the taxpayer’s trade. of expense deducted (b) direct connection/relation of the expense to the development. expenses which constitute bribe. a private educational institution has the option to elect either: (a) to deduct as expense those otherwise considered as capital outlays of depreciable assets for the expansion of school facilities (b) to capitalize asset & deduct allowance for depreciation 2. It is deductible over time.000 Int. and other similar payment. Capital expense – expenditure that improves or adds to the value of your property or equipment. GENERAL RULE ON DEDUCTION . Reg. exp. Necessary expense – appropriate and helpful in the development of taxpayer’s business and are intended to minimize losses or to increase profits. % of interest income subjected to FT: 1/1/00 38% 1/1/06 42% (RA9337) 1/1/09 33% Example: Year 2006 Int. income subjected to FT = P1. 34A1c). often to resolve financing and exchange control problems. DEDUCTIBLE INTEREST EXPENSE: Page 27 of 145 . INTEREST Requisites for deductibility.500 x 42%) = P1. being against law and public policy are not deductible from gross income (Sec. such as in the form of depreciation. Business expense – expenditure related to the business that is deductible in the year incurred. back-to-back loan is used to take advantage of the lower rate of tax on interest income and a higher rate of tax on interest expense deduction. the same was not treated as a capital expenditure (k) the interest id not expressly disallowed by law to be deducted from gross income of the taxpayer.: P2. Tax arbitrage.The amount of interest expense paid or incurred within a taxable year of indebtedness in connection with the taxpayer’s trade.
except in the case of income tax). surcharges o c. Interest paid by a corporation on scrip dividends. if it is shown that the tax on such interest was withheld. more than 50% in value of outstanding stock owned by same individual. and means TAXES PROPER. 4. ancestors. is deducted in proportion of the amt. interest on taxes. Reg. 8. and surcharges on account of taxes are not deductible. it must be paid or incurred within the taxable year b. between Fiduciary & a beneficiary of a trust 7. 2) DEDUCTIBLE TAXES . hence. penalties or fines incident to delinquency (sec. interest on preferred stock which in reality is dividend 9. NON-DEDUCTIBLE INTEREST (a) interest paid in advance through discount or otherwise(in case of cash basis taxpayer) allowed as deduction in the year the debt is paid if indebtedness is payable in periodic amortizations. 2. int. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) 3. TAXES -the term “taxes” refers to national and local taxes. between members of a family (include only brothers & sisters. if either one is a personal holding co. Interests o b. or local. interest paid when there is no stipulation for the payment thereof OPTIONAL EXPENSE TREATMENT OF INTEREST . Interest paid by a corporate taxpayer who is liable on a mortgage upon real property of which the said corporation is the legal or equitable owner. interest on unpaid salaries and bonuses 10. such as those paid for deficiency or delinquency. trade or business. since taxes are considered indebtedness (provided that the tax is a deductible tax. or a foreign holding co. no deductions are allowed for: o a. However. spouse. between QuickTime™ and a fiduciary of any grantor & TIFF (Uncompressed) decompressor trust are needed to see this picture.All taxes. preceding the date of sale/exchange 4. paid or incurred during the taxable year in connection with the taxpayer’s profession. fines. 5. REQUISITES FOR DEDUCTIBILITY: a. 80. even though it is not directly liable for the indebtedness. (b) payments made: 1. interest incurred to acquire property used in trade or business may be allowed as: (a) as expense (deduction) (b) as capital expenditure 3.at the option of taxpayer. The interest on unpaid business tax shall not be subjected to the limitation on deduction. Rev. during the taxable yr. 3. indebtedness is incurred by a service contractor to finance petroleum corp. of the principal paid. national. interest calculated for cost keeping on account of capital or surplus invested in business which does not represent charges arising under interest-bearing obligation 11. it must be paid or incurred in connection with the taxpayer’s trade. profession or business c. are deductible from gross income. it must not be specifically excluded by law from being deducted from the taxpayer’s gross income NON-DEDUCTIBLE TAXES (a) Philippine income tax (but FBT can be deducted from gross income RR 8-98)) (b) income tax imposed by authority of any foreign country (except when the taxpayer signifies his desire to avail of the tax credit for taxes of foreign countries) (c) estate & donor’s taxes (d) taxes assessed against local benefits of Page 28 of 145 . between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust 6. it must be imposed directly on the taxpayer d. between 2 corps. penalties. & lineal descendants) 2. between an individual & a corp.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 1. Interest on deposits paid by authorized banks of the BSP to depositors.
A corporation paying the tax for the holder its bonds or other obligation containing a tax-free covenant clause cannot claim deduction for such taxes paid by it pursuant to such covenant. when refunded or credited. Exceptions to the rule that only such persons on whom the tax is imposed by law can claim deduction thereof: a. Divided by total income from ALL sources Subtotal Multiplied by Philippine Income Global Limitation WHEN CREDIT FOR TAXES MAY BE TAKEN: The credit for taxes provided by Section 34(C)(3) to (7) may ordinarily be taken either in the return for the year in which the taxes accrued or on which the taxes were paid. Citizen 2. if there is reciprocity) 2. WHO CAN CLAIM? 1. The total amount of the income derived from sources without the Philippines. such amount to be determined under rules and regulations prescribed by the Secretary of Finance. can be claimed by the corporation as deduction. Foreign Corp. Domestic Corp QuickTime™ 3. The amount of income derived from each country. or trust WHO CANNOT CLAIM? 1. Alien individual (except resident aliens deriving income from within & without the Phils. taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the Philippines. shall be included as part of GI in the year of receipt to the extent of income tax benefit of said deduction. taxes of shareholder upon his interest as such and paid by the corporation without reimbursement from him. dependent upon whether the accounts of the taxpayer are kept and his returns filed upon the accrual basis or upon cash receipts and disbursements. b. Member of GPP and a TIFF (Uncompressed) decompressor are needed of this estate 4. All other information necessary for the verification and computation of such credits. b. and c.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 a kind tending to increase the value of the property assessed (e) final taxes.. the tax paid or incurred to which is claimed as a credit under said paragraph. being in the nature of income tax (f) special assessments Taxes. Income Subtotal Multiplied by: TOTAL income from ALL sources Limitation per country Global Limitation – Total amount of credit shall not exceed same proportion of tax which such credit is taken Total income from OUTSIDE the Phils. taxes to be deducted shall be allowed only if & to the extent that they are connected with income from sources w/in the Philippines Tax Credit: a right of an income taxpayer to deduct from income tax payable the foreign income tax he has paid to his foreign country subject to limitation. (Tax Benefit Rule) For NRAETB and RFC. Beneficiary to seean picture. LIMITATIONS ON DEDUCTIONS In case of a nonresident alien individual engaged in trade/business in the Philippines. Page 29 of 145 . Limitation of Credit (Substantiation Requirements) -The tax credit shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner the following: a. What amount may be taken as tax credit: The amount of tax credit allowed is equivalent to the tax paid or incurred to a foreign country during the taxable year but NOT TO EXCEED THE FOLLOWING LIMITS: Per Country Limitation – Amount of credit to tax paid/incurred to any country shall not exceed same proportion of the tax against which such credit is taken Income from outside the Phils (per country) Divided by Phil.
hence.000 P200. (City Lumber Vs. TIFF (Uncompressed) decompressor are needed to see this picture. Domingo and CA. Country A.the 3 year period shall continue to run notwithstanding that the corporation paid its taxes under Page 30 of 145 Computation of Allowable tax credit Tax Due on P200.000 Phil Income Tax due at 32% (d) incurred in trade.800 = Category and Types of Losses 1. Comparing the total of limitation A vs. is held by same persons (a) Net operating loss of a business shall be carried over as deduction from GI for the next 3 consecutive taxable yrs.000 x 64. theft or embezzlement • No loss shall be allowed as a deduction for income tax purposes if such loss has been claimed as a deduction for estate tax purposes.000/200.000 at 32% Less: Allowable Foreign Tax Credit Country A P16. REQUIREMENTS: 1. the loss was not incurred in a taxable year during which the taxpayer was exempt from income tax. there has been no substantial change in the ownership of the business or enterprise.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 DIFFERENCES: Deduction: included in the gross income but later deducted.000 27. the yr.000 Actual Foreign Tax Paid in Philippine Peso P18. Tax Credit: paid beforehand and is deducted from the tax liability of the taxpayer. For limitation B. Country A Country B Philsource income Total NI – all • P29. 4. There is no substantial change in the ownership of the business when: a. the former is the lower amount so that is the allowable tax QuickTime™ and a credit.000 110. business or profession OR property connected w/ trade. 2.000 Country B : [(40. storm. 1964).800 ** maximum tax credit limit B. GLOBAL LIMITATION [(90.000/200. or practice of profession NET OPERATING LOSS CARRY-OVER (NOLCO) .000/200. or other casualties OR from robbery.000 A. B. January 30. LOSSES Requisites for deductibility of ordinary loss (a) loss must be of the taxpayer (b) actually sustained during the taxable year (c) not compensated for by insurance or other forms of indemnity . 11K (actual) is the lower amount.000 40. Ordinary Losses a. Country B. PER COUNTRY LIMITATION Country A : [(50. Example: Particulars Net Income P50. Refers to income received or earned but is not taxable as income because of exemption by virtue of a law or treaty. the taxpayer was not exempt from income tax in the year of such net operating loss. The taxpayer’s failure to record in his books the alleged loss proves that the loss had not been suffered. not < 75% in nominal value of outstanding issued shares is held by same persons b.000 ** Cannot exceed maximum tax credit limit NOTE: For limitation A. not < 75% of paid up capital of corp. not deductible.000 x 64. 28. theft or embezzlement (e) evidenced by a completed transaction (f) not claimed as a deduction for estate tax purposes (g) notice of loss must be filed with the BIR within 45 days from the date of discovery of the casualty or robbery. and 3. 16K is lower than the actual. Exclusion: not included in the computation of gross income.000 Country B 11. shipwreck. of such loss .000)] P28. which has not been previously offset as deduction from gross income.000 P64.000)] = 12. incurred in trade or business.8K is lower than the total of the actual amount.000 x 64. business or profession lost through fires.000 Tax Still Due P37.000 P11.000)] = 16.000 P64. immediately ff. get the total of all per country amounts.Refers to the excess of allowable deductions over gross income of the business for any taxable year.
storms. or from robbery. and salvage value) (h) Losses from sales or exchanges of property between related taxpayers – Not deductible as provided under Section 36 of the NIRC but the gains are taxable (i) Losses of Farmers – deductible if incurred in the operation of farm business (j) Loss in shrinkage in value of stock – if the stocks of the corporation become worthless. losses from sale or exchange of capital assets b. or profession. depreciation. notice of abandonment shall be filed with Commissioner In case of abandoned producing well. subject to depreciation over the remaining useful life of the property. allowed as deduction in the yr. accumulated expenditures incurred prior to 1/1/79 allowed as deduction only from income derived from same contract area. the sale. b. of abandonment (e) Losses from Illegal Transactions . losses from short sales of property d. theft or embezzlement Total Destruction. BAD DEBTS . the cost or other basis may be deducted by the owner in the taxable year in which the stocks became worthless. business. “Actually ascertained to be worthless”Worthlessness is not determined by an inflexible formula or slide rule calculation but upon the exercise of sound business judgment. the taxpayer has acquired or has entered into a contract or option so as to acquire. Any amount claimed as a loss on account of shrinkage in value of the stock through fluctuation in the market or otherwise cannot be deducted from gross income 5. Partial Destruction. Special Types of Losses (a) Capital Losses – deductions allowed only to the extent of the gains from such sales or exchanges of capital assets (does not apply to banks and trust companies) a.not deductible (f) Losses due to voluntary removal of building incident to renewal or replacements – deductible expense from gross income (g) Loss of useful value of capital assets due to charges in business conditions – deductible expense only to the extent of actual loss sustained (after adjustment for improvement.the excess over the net book value immediately before the casualty should be capitalized. shipwreck or other casualties. The determination of worthlessness must depend upon the Page 31 of 145 (c) For mines other than oil & gas wells. losses due to failure to exercise privilege or option to buy or sell property (b) Losses from wash sales of stock or securities QuickTime™ and a 30 TIFF (Uncompressed) decompressor the date of days before and after are needed to see this picture.allowed only to the . of operation.debts due to the taxpayer actually ascertained to be worthless and charged off during the year. unamortized cost & undepreciated costs of equipment directly used. 2. or that the individual availed of the 10% Optional Standard Deduction (b) Net Operating Loss = excess allowable deduction over the GI of extent of the gains from such losses (d) Abandonment Losses In case of abandoned petroleum operations. of property connected with the trade. substantially identical stock/securities General rule: not deductible unless claim is made by a dealer in stock/securities & made in ordinary course of business (c) Wagering Losses . carry-over for the next 5 yrs.the replacement cost to restore the property to its normal operating condition. if the loss arises from fires. if loss incurred in any of the 1st 10 yrs. immediately before casualty.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 MCIT. but in no case shall the deductible loss be more than the net book value of the property as a whole. losses resulting from securities becoming worthless and which are capital assets c.
5.000) = 2..000.000 ..333. 21 SCRA 1336) absolute owner of the property & allowed to life tenant (b) In case of property held in trust.15.000 . est.000 . to cause plant elements or the plant as a whole to suffer diminution in value (a) In case of property held by one person for life w/ remainder to another person. he may not be unduly pessimistic cost . The allowance must be charged off. b. Recovery of bad debts previously allowed as deduction in the preceding yrs. SV=5000.000 .000 5 years (b) declining balance method = x rate REQUISITES FOR DEDUCTIBILITY: 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 particular facts and circumstances of the case.000 = 3. A reasonable allowance for the exhaustion. wear and tear and normal obsolescence. wear & tear of property used in the trade or business.6000 x 200% 5 (c) sum of years digits method 6.666.33 year 2 . of recovery to the extent of the income tax benefit of such deduction (Tax Benefit Rule) Ascertainment of Worthlessness: Proof of two facts: a. It must be for property used for employment in trade or business or out of its not being used temporarily during the year. Schedule on the allowance must be attached to the return.5. Depreciation of all properties directly related to production of petroleum shall be allowed under straight-line or declining-balance (DB) method ii. 1967) depends upon the facts and the circumstances of the case good faith does not require that the taxpayer be an incorrigible optimist but on the other hand. 3. May shift from DB method to SL Page 32 of 145 . DEPRECIATION . c.also applies to amortization of intangible QuickTime™ in assets.000) = 3. business or practice of profession.5/15 x (15. Must not be sustained in a transaction entered into between related parties.15. Connected with the taxpayer’s trade. he acted in good faith (Collector Vs. Goodrich. . (Collector v. that in so doing. b.5.000 .4/15 x (15.salvage value) sum of the years digits example: SYD: 5+4+3+2+1 = 15 year 1 -. Goodrich International Rubber Co.Existing indebtedness due to the taxpayer which must be valid and legally demandable.salvage value estimated life example: cost=15. and 5. Actually ascertained to be worthless and uncollectible as of the end of the taxable year. life=5 years = 2. Actually charged off in the books of accounts of the taxpayer as of the end of the taxable year. deduction is computed as if the life tenant were the = nth period x (cost . see this picture. December 22.600 year 2 -. deduction apportioned between the income beneficiaries & trustees REQUISITES FOR DEDUCTIBILITY: a. The allowance for depreciation must be reasonable. taxpayer did in fact ascertain the debt to be worthless in the year for which the deduction was sought. 2. d.0 5 x 200% = 6. It must be uncollectible even in the future. shall be included as part of gross income in the yr.000 15.accumulated depreciation estimated life example: rate 200% year 1 -.gradual diminution in the service or useful value of tangible property due from exhaustion. theTIFF (Uncompressed) decompressor or business use of which and atrade are needed to is of limited duration. 4.67 2) Special Types of Depreciation (a) Petroleum operations i. 1) Methods of Depreciation (a) straight-line method = cost .
location. or. to accredited domestic corps.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 method iii. depreciate over any no. 7.. The change shall not be effective before the taxable year on which notice in writing by certified mail or registered mail is served by the party initiating. exclusively for public purpose iii. until fully deducted exploration expenditures = pd/incurred for the purpose of ascertaining the existence. 8. if expected life is > 10 yrs. total amt. bet. of yrs. – to finance. or its agencies or any political subdivision. (3) Election to deduct exploration & development expenditures for mining corps. Useful life of prop. human settlements. The agreed rate may be modified if justified by facts or circumstances. no part of NI inures to the benefit of any private stockholder or individual for individual: not > 10% of taxable income before deducting the charitable contributions for corporation: not > 5 % of taxable income before deducting the charitable contributions (b) Contributions deductible in full i. ii. or to be used in undertaking priority activities in education. DEPLETION OF OIL & GAS WELLS & MINES The reduction of cost or value of natural resources such as oil & gas wells. & mines as the resources are converted into inventories. (a) deduct as cost (b) deduct as adjusted basis provided. Useful life: 10 yrs. extent. under straight-line method (b) Mining operations i. science & culture & in economic development Page 33 of 145 . deductible shall not exceed 25% of NI actual exploration & development expenditures net of 25% of NI shall be carried forward to succeeding yrs.: ii. or shorter life as may be permitted by Commissioner iv. health. to provide for. to or for the use of the govt. & the expected life Depreciation deductible by non-resident aliens engaged in trade/business or non-resident corporation only when such property is located in the Philippines The BIR and the taxpayer may agree in writing on the useful life of the property to be depreciated. Contributions or gifts actually paid or made w/in the taxable yr. or quality of any deposit of ore/other mineral & pd/incurred before the beginning of the development stage of the mine/deposit development expenditures = paid/incurred during development stage of the mine or other natural deposits (4) Depletion of Oil and Gas wells and mines deductible by a non-resident alien or foreign corporation only in respect of oil and gas wells or mines located in the Phils. incurred if incurred for non-producing wells & mines b) deduct in full OR capitalize & amortize of incurred for producing wells & mines in same contract area (2) Intangible costs in petroleum operations: no salvage value & incidental to & necessary for dwelling of wells & QuickTime™ and preparation of wells for athe production of TIFF (Uncompressed) decompressor are petroleum needed to see this picture. youth & sports development. 5 yrs. depreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is 10 yrs or less. not used directly: 5 yrs. No further allowance is granted if the allowance for depletion = the capital invested (1) Intangible exploration & development drilling costs: a) deduct in the yr./associations organized & operated exclusively for: (1) religious (2) charitable (3) scientific (4) youth & sports development (5) cultural or educational purposes (6) for the rehabilitation of veterans (7) to social welfare institutions (8) to NGOs iv. Donations to the govt. CHARITABLE & OTHER CONTRIBUTIONS (a) Contributions subject to limitations i.
extent. ordinary and necessary expenses in connection with trade business or profession c. when pd. or commitments entered into by Phil.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 according to National Priority Plan determined by NEDA If not in accordance w/ annual priority plan.. or for the important of prop. 34(A)(1) as “expenses in general”.in pursuance or compliance with agreements. makes utilization directly for the active conduct of activities constituting the purpose/function of the org. allowed as deduction during the taxable yr. not chargeable to capital account Requisites for amortization of certain R&D expenditures (treated as deferred expenses): (1) paid/incurred by the taxpayer in connection w/ his trade/business (2) not treated as expense (3) chargeable to capital acct. including oil or gas (exploration exp. REQUISITES FOR DEDUCTIBILITY: a. TIFF (Uncompressed) are needed to necessary profession as ordinary & see this picture. allowed as deduction only if: (a) such amount not been allowed as a deduction (b) apportioned in equal parts over 10 consecutive years beginning w/ the yr. 34[J]) REQUISITES FOR DEDUCTIBILITY: a. but not chargeable to property of a character w/c is subject to depreciation/depletion (4) amortized over a period of not < 60 months as may be elected by the taxpayer LIMITATIONS ON DEDUCTIONS – not applicable to. The employer must have established a Page 34 of 145 . or quality of any deposit of ore or other mineral. it must be given to the organizations specified in the code. character-building & youth & sports development. organized for similar purpose or to the state for public purpose or to another org./incurred REQUISITES FOR DEDUCTIBILITY AS EXPENSE: a. b. This deduction is purely business in character. Established or maintained by employer to provide for the payment of reasonable pensions to his employees. expenses w/c are not chargeable to capital account. paid or incurred during the taxable year b. c. & foreign institutions/international organizations iii. social welfare. assets would be distributed to another nonprofit domestic corp. treaties. educational. to be used in same purpose as the dissolved corp. EXCLUSIONS: (1) Any expenditure for the acquisition or improvement of land. Donations to certain foreign institutions or international organizations . unless pd. • Past Service Cost – amount in excess of the above contribution (covering pension liability pertaining to old employees which accrued during the years previous to the establishment of the pension trust). govt. cultural or charitable purposes or combination thereof (no part of NI inures to the benefit of any private individual) W/in 15th of the 3rd month after the close of the taxable yr. to be used in connection w/ R&D of a character subject to depreciation & depletion (2) Any expenditure paid/ incurred for the purpose of ascertaining the existence. donation is subject to limitations in (1) above ii. health.) 10. PENSION TRUSTS (past service cost) Pension Trust Contributions – a deduction applicable only to the employer on account of its contribution to a private pension plan for the benefit of its employee. in connection w/ hisdecompressor business or trade. RESEARCH AND DEVELOPMENT Paid or incurred by a taxpayer during the taxable QuickTime™ and a yr. Donations to accredited NGOs Organized & operated exclusively for scientific. the net income of the institution must not inure to the benefit of any private stockholder or individual. • Normal Cost – the contributions during the taxable year to cover the pension liability accruing during the taxable year. (c) VALUATION of property donated other than money: acquisition cost 9. the contribution or gift must be actually paid. Allowed as a deduction under Sec.. is extended Administrative expense should not be > 30% of total expenses Upon dissolution. in w/c the transfer/payment is made (Sec. location.
only the . No deduction shall be allowed in Losses from Sales or Exchanges of Property directly/indirectly: a) between members of a family (include only brothers & sisters. 60(B) 2. Amounts paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate (not applicable to intangible drilling & development costs incurred in petroleum operation) 3. The amount contributed must be no longer subject to the control and disposition of the employer. amounts contributed by the employer during the taxable year into the pension plan to cover the pension liability accruing during the year – considered as ordinary and necessary expenses under Sec. DEDUCTION FROM GROSS INCOME – a. 32(B)(6) 3. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) c) between 2 corps. A. Insurance(Uncompressed) have actually been must decompressor TIFF taken. REQUISITES FOR DEDUCTIBILITY: QuickTime™ and a a. more than 50% in value of outstanding stock owned by same individual. 12. d. That said family had a gross income of not more than P250. 1/10 of the reasonable amount paid by the employer to cover pension liability applicable to the years prior to the taxable year. 34(A)(1). Page 35 of 145 11. are needed to see this picture. OPTIONAL STANDARD DEDUCTION (OSD) a. Personal. b. Summary rules on Retirement Benefits Plan/ Pension Trust 1. e. The amount of premium deductible from gross income does not exceed P2400 per family or P200 per month during the taxable year. Amounts expended in restoring property or in making good the exhaustion thereof for w/c an allowance is or has been made 4. PREMIUM PAYMENTS ON HEALTH AND/OR HOSPITALIZATION INSURANCEan amount of premium on health and or hospitalization paid by an individual taxpayer (head of family or married). b. & lineal descendants) b) between an individual & a corp. c. and The deduction is apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer of payment is made. spouse. ancestors. EXCLUSION FROM GROSS INCOME – amount received by the employee from the fund upon compliance of certain conditions under Sec. d. Such election should be signified in his return & shall be irrevocable for the taxable year for which the return was made Individual is not required to submit his financial statements b. Applicable to any individual. It must be funded by the employer. 34 (J). In case of married individuals. Individual taxpayers earning business income or in practice of his profession whether availing of itemized or optional standard deductions during the year. EXEMPT FROM INCOME TAX – employees’ trust under Sec. f. The payment has not yet been allowed as a deduction. ADDITIONAL REQUIREMENT FOR DEDUCTIBILITY OF CERTAIN PAYMENTS tax required to be deducted/withheld has been paid to BIR B. 2. or so paid to place the trust in a sound financial basis – deductible under Sec. for himself and members of his family during the taxable year. Premiums on life insurance policy when the taxpayer is directly/indirectly a beneficiary under such policy 5. The pension plan is reasonable and actuarially sound. Taxpayer may elect to pay a standard deduction in an amount not exceeding 10% of GI a. NON-DEDUCTIBLE ITEMS Specific Items Under Section 36: 1. Individual taxpayers earning purely compensation income during the year. c. except a nonresident alien b. living or family expenses 2.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 pension or retirement plan to provide for the payment of reasonable pensions to his employees. Who may Avail of this deduction: 1.000 for the taxable year. spouse claiming additional exemption shall be entitled to this deduction.
000 Head of Family 1) an unmarried/legally separated man/woman with (a) One or both parent (b) One or more brothers or sister (c) One or more legitimate. brothers/sister. who are qualified dependents may entitle the taxpayer to the personal exemption of P25. lliving with the taxpayer or not. whether relative or not. recognized natural. term “dependents. Qualified dependent children – legitimate. during the taxable yr. husband explicitly waived his right of the exemption in favor of his wife in the withholding exemption certificate. ADDITIONAL EXEMPTION P8.” • A senior citizen. and (c) Not gainfully employed QuickTime™ a (d) Or. husband is working abroad like an OFW or a seaman 3. or a foreign holding co. the personal exemption shall be equal to that allowed by the income tax law of the country to a citizen of the Philippines not residing therein. Senior Citizen is: 1. country from which he is a citizen has an income tax law. illegitimate and legally adopted The proper claimant of the additional exemption would be the husband. are needed to see picture.” • Under the provision on additional exemption for dependents.000 25. > Non-resident aliens engaged in trade or business (NRAETB) may be entitled to personal exemptions subject to reciprocity: 1.000. thisregardless of age. and sisters. • Parents. • Note: • Personal and additional exemptions are available only to business income and compensation income earners.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 if either one is a personal holding co.000 8. where only 1 of the spouses is deriving gross income. • Chief support means more than one half of the requirements for support. preceding the date of sale/exchange d) between grantor & fiduciary of any trust e) between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust f) between Fiduciary & a beneficiary of a trust A person is said to be “financially interested” in the taxpayer’s business if he is a stockholder thereof or he is to receive as his compensation a share of the profits of the business. recognized natural/legally adopted children 2) Who are living with & dependent upon him for their chief support 3) Where such brothers/sisters/children are: (a) Not more than 21 years old (b) Unmarried. whichever is LOWER.TIFF (Uncompressed) decompressor where and such children. and 2. being the head of the family except under the following cases: 1. 3. PERSONAL EXEMPTION AND STANDARD DEDUCTION (OSD) Personal Exemption OPTIONAL Single Married Individual (or judicially declared as legally separated without any dependent) Head of Family (unmarried or legally separated with qualified dependent/s) Each married individual Each dependent (not exceeding 4) P20. brothers. or the amount provided in the NIRC. husband is unemployed 2.000 as head of the family but not to the additional exemption of P8.000 for EACH of the qualified dependent children not exceeding 4 in number. illegitimate children are specifically included under the . are incapable of self support because of mental or physical defect • An illegitimate child is within the meaning of a “recognized natural child. any resident citizen of the PHilippines Page 36 of 145 C. the income tax law of his country allows personal exemption to citizens of the Philippines not residing therein but deriving income therefrom and not to exceed the amount allowed in NIRC.000 32. can be classified as a dependent to make a taxpayer a head of a family not exceeding 4 (RA 7432) • In case of married individuals. only such spouse shall be allowed additional exemption.
include as deductions amounts repaid to policyholders on account of premiums previously paid by them & interest paid upon those amounts between the ascertainment & payment thereof d. Alien Individual employed by Pertroleum Service Contractor and Subcontractor Deduction for Estate or Trust . during the taxable year. or became twenty one years old or became gainfully employed at the close of such year. but only to the extent allowed by his country to Filipinos not residing therein. Alien individual employed by Regional or Area Headquarters of Multinational Companies f. gross premiums collected & received by them less amounts paid for reinsurance. Definitions . If the spouse should die or any of the dependents become twenty one years of QuickTime™ and a age. claimed only by the spouse who has custody of the children. he may claim the corresponding personal exemptions in full for such year iii.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 2. Alien Individual employed by Offshore Banking Units g. NOTE: Individuals not entitled to personal and additional exemptions: d. SPECIAL RULES COMPANIES ON INSURANCE 1.P20. has an income of not more than sixty thousand pesos per annum subject to the review of the National Economic Development Authority(NEDA) every three years. CAPITAL GAINS & LOSSES 1. and shall not exceed the aforementioned amounts. Special deductions: net additions required by law to reserve funds & the sums other than dividends paid w/in the yr. Mutual Insurance Companies Shall not report as income premium deposits returned to policyholder Report income received from all other sources plus such portion of premium deposits retained by the companies for purposes other than payment of losses & expenses & reinsurance reserves c. including those who have retired from both government offices and private enterprises. For married individuals. Change of Status i.No definition in the Code for capital assets. the taxpayer may still claim the same exemptions as if he/she died. If the taxpayer got married or should have additional dependent (child born within the year) during the taxable year. For legally separated spouses. or (Uncompressed) decompressor gainfully employed TIFF become are needed to see this picture. ORDINARY ASSETS: (a) stock in trade of taxpayer (b) property which would properly be Page 37 of 145 . and 3. on policy & annuity contracts. released reserve treated as income for the yr. governmentt as additions to guarantee or reserve funds G.000 F. may be claimed by both as long as they have custody of the children but total amount claimed by both shall not exceed the maximum allowed b. Only Ordinary assets are defined a. unmarried & not gainfully employed OR if such dependent regardless of age is incapable of self-support because of mental/physical defect i. Dependent = legitimate/illegitimate/legally adopted child chiefly dependent upon & living with the taxpayer if such dependent is not > 21 years old. at least sixty 60 years old. Assessment Insurance Companies Deduct from gross income the actual deposit of sums w/ the officers of the Phil. of release b. claimed by only 1 of the spouses ii. The death of the taxpayer during the taxable year shall not affect the amount of personal and additional exemptions his estate can claim. Mutual Marine Insurance Companies Include in gross income. Non-resident alien NOT engaged in trade or business e. NRAETB may deduct personal exemption (but NOT additional exemption). as if he died at the end of such year ii. a. NRANETB cannot claim any personal or additional exemption. Income & Deductions of Insurance Companies a.
Y gives X Inc. Section 39 (F) or the provision on the failure to exercise privilege will not apply. CAPITAL ASSETS – property held by the taxpayer (whether or not connected with his trade or business) Hence. the actual holding period is taken into account.000 NCL in 1996 = 10.000 NCL QuickTime™ and a P10.000 only since it should not exceed the net income of the taxable yr. the loss resulting therefrom shall be considered as a loss from the sale or exchange. owns real property worth Php 10 M. cannot himself supply the securities for delivery. coupons or in registered form (including one issued by government or political subdivision) the 4. Corporations cannot carry over a net capital loss b. Considered as gains & losses from sales/exchanges of capital assets b.50% if the capital asset is held for less than 12 months Note: GR: for purposes of computing capital loss and capital gain. Net Capital Loss Carry-over a. NET CAPITAL GAIN – gains > loss from sales/ exchanges of capital assets d. capital assets are property of a taxpayer other than ordinary assets. w/ int. substantial part of business is receipt of deposits. w/c the loss was incurred • Net income should be understood as TAXABLE income according E. debenture. Notes or Certificates or other evidences of indebtedness Tax Base: Amount received by the holder for such transaction These transactions result in capital gain or loss although there is no sale of capital assets 6. Example: NI in 1996 = P6. hence. note or certificate or other evidence of indebtedness issued by any corp. such loss is treated in the succeeding taxable yr. Gain or Loss from Short Sales of Property a.000 can deduction (to the extent of the gain) Exception: Losses from such sale incurred by a domestic bank/trust co. are needed to see this picture. (100% deduction) c. 37 5. estates and trusts) . Retirement of Bonds. the net capital loss is not deductible. NET CAPITAL LOSS – loss > gains from sales/ exchanges of capital assets 2. Debentures.100% if the capital asset is held for more than 12 months .000 TIFF (Uncompressed) decompressor In this case. Option to buy or sell property: Example: Suppose X Inc.O. What will the tax treatment? It will be subject to 6% capital gains tax under Section 27 (D) (5). Exception: If securities become worthless during the taxable year and are capital assets. Such net capital loss that should be carried over should not exceed the net income for the year Incurred (prior year’s net income) d. in expectation of the decline in their price. therefore.. Before the 2 year period ends. Example: Gains P 5. Percentage taken into account Taxpayer other than a corporation (Individuals. Y exercised the option and bought the property. 3. of capital assets. Suppose the same situation above but Y fails to Page 38 of 145 . sell any bond. Php 2M as option money for a 2-year option period. If net capital loss is sustained in any taxable yr. on the last day of such taxable year.000 Losses 15.000 • treated as a loss in 1997(100%) = P6. if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business b. c. be claimed as only P5. Gains & Losses attributable to failure to exercise privileges or options to buy or sell property = capital gains/losses Note: Short sale is a transaction in which the seller sells securities which he does not own and.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 included in an inventory of the taxpayer. Limitation on Capital Loss Allowed only to the extent of the gains from such sales or exchanges. as a loss from the sale/exchange of a capital asset held for not more than 12 mos.
GAIN = amt. solely for stock or securities in another corp. are parties to the merger/consolidation) (2) If property is transferred to a corp. (both corps. for the stock of another corp. (both parties to merger/consolidation) (b) shareholder exchanges stock in a corp. if any) received Mode of Acquisition Purchase Inheritance Basis for determining gain/loss from sale/disposition of property cost of property acquired on/after 3/1/1913 fair market value as of the date of acquisition (at the time of death) the cost to the donor or to the previous owner who did not acquire it by gift. (stocks issued for services shall not be considered as issued in return for property) o Control is ownership of stocks in a corporation possessing at least 51% of the total voting power of all classes of stocks entitled to vote. It only says “attributable to a property. the basis shall be such FMV for the purpose of determining the loss amount paid by the transferee Gift Acquired for less than adequate consideration if property acquired where G/L is not recognized QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. stock/securities exchanged (a) decreased by: • money received • fair market value of the other property received (b) increased by: • amount treated as dividend • amount of any gain recognized by the exchange Page 39 of 145 • other property received liability assumed by the transferee H. the option money will be a capital gain for X and a capital loss for Y.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 exercise his option. stock/securities exchanged (1) increased by: • dividends • amt. What will be the tax treatment? In that case. The law does not say if it should be an ordinary or capital asset. are parties to the merger/consolidation) (c) security holder of a corp. Same as the basis of property. selling price or proceeds > cost) b. LOSS = basis/adjusted basis for determining loss > amt. Computation of Gain or Loss a. realized (cost > selling price/proceeds) c. BUT. DETERMINATION OF AMOUNT RECOGNITION OF GAIN OR LOSS & 1. Exchange of property a. BASIS: same as the basis of property. if such basis > FMV at the time of the gift. gains control of said corp.” 2. alone/together w/ others. by a person in exchange for stock/unit of participation in such corp. EXCEPTION: no gain or loss is recognized (tax-free exchanges) (1) If in pursuance to a plan of merger or consolidation (a) a corporation exchanges property solely for stocks in a corp. exchanges his securities in such corp. not exceeding 4 persons. Note: the property subject of option need not be a capital asset. AMOUNT REALIZED = money received + fair market value of the property (other than money. (both corps. of any gain recognized by the exchange (2) decreased by: • money received • fair market value of the . realized > basis/adjusted basis for determining gain (in other words. of w/c as a result of such exchange such person. GENERAL RULE: the entire amount of the gain or loss shall be recognized upon the sale or exchange of property b.
income within. if : > 50% of the Gross Income of such foreign corp. Commissioner is authorized to allocate the basis among the several classes of stocks/securities basis of the prop. Therefore. period ending w/ the close of the taxable yr. are taxed on worldwide income. for the 3yr. transferred in the hands of the transferee: same as would be in the hands of the transferor increased by the amt. .When there is no boot. the basis is the same as transferor’s basis minus boot increased by the recognized gain. the basis is the transferor’s property given up because the rules provided that the basis would be the same basis as the property given up by the transferor. such assumption shall be treated as money received by the transferor on the exchange if transferor receives several kinds of stock/securities. . nothing of such dividends forms part of income within Place of performance of service Services (Compensation for labor/personal services) Rentals Royalties IV. GROSS INCOME FROM SOURCES WITHIN THE PHILIPPINES Income Interests Test of Source of Income Residence of Debtor Gain on sale of Real property Gain on sale of Personal Property other than shares of stock in a domestic corporation purchased in one country and sold in another Location of the property/interest in such property Place of use or location of intangibles (such as patents. Hence. the rule is always the transferor’s basis.Boot is any cash or property given in addition to the shares of stock received by a transferor in a tax-free exchange. SOURCES OF INCOME * The need to identify the situs of the income arises only when the taxable entity is merely taxed on income within. the transferee of property assumes a liability of the transferor/acquires from the latter property subject to a liability. . etc. for the 3yr. if < 50% of the Gross Income of such foreign corp. period ending w/ the close of the taxable yr.– income within b) from foreign corp. In this kind of transaction. trademarks.) giving rise to royalties Location of property Place of Sale Page 40 of 145 .Transferor’s basis is Section 40 (C) (5) (a) while transferee’s basis is Section 40 (C) (5) (b).When there is boot. of the gain recognized to the transferor on the transfer Note: . when the taxable entity is an individual resident TIFF (Uncompressed) decompressor corporation. citizenQuickTime™ and a or a domestic are needed to since they the situs becomes irrelevant see this picture. Dividends a) from domestic corp. A.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 property received as ‘boot’ shall have the FMV as basis if part of the consideration to the transferor. prior to the declaration of dividends (or for such part of such period as the corporation has been in existence) was derived from sources w/in the Philippines Extent: Phil Gross Income x Dividend =Income Total Gross Income within Income without. prior to the declaration of dividends was derived from sources w/in the Philippines.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Gain on sale of shares of stock in a domestic corporation Philippines regardless of where sold gross income within. However, the cost of selling the shoes may not be deducted from income within since it is not attributable to income within. Rather, it is specifically attributable to income without. 2. Deductions: expenses, losses & other deductions properly allocated thereto & a ratable part of expenses, interests, losses & other deductions effectively connected w/ the business/trade conducted exclusively w/in the Philippines which cannot definitely be allocated to some items or class of gross income Such deductions shall be allowed only if fully substantiated by all info necessary for its calculation 3. EXCEPTION: no deduction for interest paid/incurred abroad shall be allowed unless • Indebtedness was actually incurred • Indebtedness must be that of the taxpayer • Interest must be legally due and stipulated in writing • Interest must be paid or incurred during the taxable year • Indebtedness must be in connection w/ the conduct or operation of trade/business in the Philippines B. GROSS INCOME FROM SOURCES WITHOUT THE PHILIPPINES 1) Interests (other than those derived from sources within the Philippines) 2) Dividends (other than those derived from sources within the Philippines) 3) Compensation for labor or personal services performed w/o the Philippines 4) Rentals or royalties from property located w/o the Philippines or from any interest in such property including rentals/royalties for the use of or for the privilege of using w/o the Philippines, patents, copyrights, secret processes & formulas, goodwill, trademarks, trade brands, franchises & other like properties 5) Gains, profits & income from the sale of real property located w/o the Philippines Tip: The foregoing enumeration is merely the reverse of the enumeration of gross income from sources within the Philippines. Hence, so long as you know which income are considered as income within, all else are income without. Taxable Income from Sources Without the
ROYALTIES (from property or use of property located in Philippines), includes: (a) use of/the right/privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right (b) use of/the right to use in the Philippines any industrial, commercial or scientific equipment (c) supply of scientific, technical, industrial or commercial knowledge or information (d) supply of any assistance that is ancillary & subsidiary to, & is furnished as a means of enabling the application or enjoyment of, any such property/right in (a) above, such equipment in (b) above or knowledge/info in (c) above (e) supply of services by a nonresident person/his employees in connection with the use of prop./rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person (f) technical advice, assistance or services rendered in connection with technical mgt./admin. Of any scientific, industrial or commercial undertaking, venture, project or scheme (g) the use of or the right to use: i. motion picture films ii. films or video tapes for use in connection with TV iii. tapes for use in connection with radio broadcasting Taxable Income from Sources Within the Phils. 1. General Rule Gross Income [GI] (within the Philippines) ( - ) Deductions (attributable to GI within) = Taxable Income •
TIFF is meant decompressor by “attributable”(Uncompressed) this picture. expense can that the are needed to see be identified as the expense that generated the income. For instance, if ABC Corp. manufactures clothes and sells it in the Phils., and sells shoes in the US. The cost of manufacturing the clothes are attributable to the income generated from selling the clothes. Since the income from the sale of clothes is income within, then the expense for manufacturing them must be deducted from QuickTime™ and a
Page 41 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Income Deductions without --------------- x Unallocated = from -----------expense Worldwide income Income without Philippines 1. General Rule Gross Income (without the Philippines) ( - ) Deductions (attributable to GI without) = Taxable Income 2. Deductions: expenses, losses & other deductions properly apportioned/allocated thereto & a ratable part of expenses, interests, losses & other deductions w/c cannot definitely be allocated to some items or class of gross income C. INCOME FROM SOURCES PARTLY WITHIN AND PARTLY WITHOUT THE PHILIPPINES. These are: 1. Income from services rendered partly within and partly without; 2. Income from sale of personal property produced (in whole or in part) within and sold without the Philippines; and 3. Income from sale of personal property produced (in whole or in part) without and sold within the Philippines. Personal Property Income Produced here and sold party within, without without Produced here and sold Income within here Produced abroad and Income partly sold here partly without Purchased without and Income within sold within Purchased within and Income without sold without Purchased within and Income wiithin sold within QuickTime™ and a decompressor Taxpayer sells it TIFF (Uncompressed) this picture. partly abroad toIncome are needed see through a sales office partly without Income within -------------------------Worldwide Income Deductions x Unallocated expense = from income within
A. ACCOUNTING PERIODS 1. General Rule (Sec. 43): Taxable income is computed upon the basis of taxpayer’s annual accounting period (fiscal or calendar year) in accordance with the method of accounting employed 2. If no method of accounting employed or method does not clearly reflect the income, computation shall be made in accordance w/ such method as the opinion of the Commissioner clearly reflects the income. 3. taxable income is computed based on calendar year if: (a) accounting period is other than a fiscal year (b) taxpayer has no accounting period (c) taxpayer does not keep books (d) taxpayer is an individual 4. fiscal year: accounting period of 12 months ending on the last day of any month other than December 5. calendar year: accounting period from January 1 to December 31 B. PERIODS IN WHICH ITEMS OF GROSS INCOME INCLUDED (Sec. 44) 1. Amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, any such amounts are to be properly accounted for in a different period under methods of accounting permitted 2. In case of death of taxpayer include for the taxable year in which falls the date of his death, all amounts which accrued up to the date of his death, if not otherwise properly includible in respect of such period or a prior period C. PERIOD FOR WHICH DEDUCTION CREDITS TAKEN (Sec. 45) Page 42 of 145 AND
As for unallocated expenses, meaning those which are not entirely attributable to either income within or without, such expenses shall be allocated using the following formula:
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
1. Deductions provided in this Title shall be taken for the taxable year in which ‘paid or accrued’ or ‘paid or incurred’, dependent upon the method of accounting upon the basis of which the net income is computed, unless, in order to reflect the income, deductions should be taken as of a different period. 2. In case of death of taxpayer: deductions allowed for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise properly allowable in respect of such period or a prior period D. CHANGE OF ACCOUNTING PERIOD (Sec. 46) 1. Kinds of changes: (a) from fiscal year to calendar year (b) from calendar year to fiscal year (c) from one fiscal year to another fiscal year 2. effect of change: net income shall, with the approval of the Commissioner, be computed on the basis of the new accounting period, subject to Sec. 47 on Final or Adjustment Returns for a Period of Less Than 12 Months (as discussed below) E. METHODS OF ACCOUNTING 1. CASH METHOD - recognition of income and expense dependent on inflow or outflow of cash (meaning, you recognize the income when you actually receive the cash payment for the sale, and you recognize the expense when you actually pay cash for the expense) 2. ACCRUAL METHOD - method under which income, gains and profits are included in gross income when earned whether received or not, and expenses are allowed as deductions when incurred, although not yet paid. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income
are needed to see this picture. Examples: (a) interest or rent income earned but not yet received (b) rent exp. accrued but not yet paid (c) wages/salaries due but remaining unpaid QuickTime™ and a TIFF (Uncompressed) decompressor
lease payments are made on a yearly basis and are due every January 5. A leased out the space to X on January 1, 2004. However, X will only pay rent for one year on January 5, 2005. For the year 2004, A should recognize income of P1M as of December 31, even if he will receive payment only on January 5 because the he is considered to have earned the P1M already for allowing X to actually use the space for the year 2004. F. ACCOUNTING FOR LONG-TERM CONTRACTS 1. Long-term contracts: building, installation or construction contracts covering a period in excess of 1 yr 2. Persons whose gross income is derived in whole or in part from such contracts shall report such income upon the basis of percentage of completion 3. The return should be accompanied by a return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under the contract 4. Deductions from gross income: all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. 5. Amended return may be permitted/required by the Commissioner: if upon completion of contract, taxable income has not been clearly reflected for any year(s) • This provision takes into account that certain businesses, like construction, takes more than a year for a project to be completed. As such, it is not practical (from the point of view of the government) to wait until the project is finished before the income arising therefrom is actually reported and taxed. Hence, income is spread over the years where the construction is in progress, and the allocation is made on the basis of percentage of completion.
Illustration: ABC Corp. entered into a contract with X whereby the former agreed construct a condominium for the latter to be completed in 5 years for a fee of P10M. For the first year of construction, ABC Corp was able to construct 30% of the condominium. It will therefore Page 43 of 145
Illustration: A leases an office space at P1M per year and
or (b) sale or other disposition of real property. initial payments: payments received in cash or property other than evidence of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made SALES OF REAL PROPERTY CONSIDERED AS CAPITAL ASSET BY INDIVIDUALS 1) individual who sells of disposes of real property. if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business 4. of Finance. of Finance.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 declare a gross income of P3M computed as follows: P 10 M x 30% P 3M INSTALLMENT BASIS 1.500 2. How to compute for income: Contract Price/ Installments Receivable Cost (GP) P100. taxpayer at the close of the taxable year) for a price > P1.000. if in either case the initial payments do not exceed 25% of the selling price 2) how may income be returned: same as in sales of dealer in personal property above 1) taxpayer must be entitled to benefits under 1 (sales of dealers in personal property) 2) in computing income for the year of change or any subsequent year: amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded G. Example: Sale in 1997 payable in 2 equal annual installments. bears to the contract price. ALLOCATION OF INCOME AND DEDUCTIONS 1) Applicable to: cases of 2 or more organizations.000 75. SALES OF DEALERS IN PERSONAL PROPERTY • Under Rules and Regulations (R&R) prescribed by the Sec.000 P 25. SALES OF REALTY AND CASUAL SALES OF PERSONALTY 1) in cases of: (a) casual sale or other casual disposition of personal property QuickTime™ and a (other(Uncompressed) decompressor hand of the TIFF than inventory on are needed to see this picture. considered as capital asset & is otherwise qualified to report the gain under (2) above may pay the capital gains tax in installments under R&R to be promulgated by the Sec. if he determines that such distribution. upon recommendation of the Commissioner 2) capital asset: property held by the taxpayer (whether or not connected with his trade or business) but does not include: (a) stock in trade of taxpayer (b) property which would properly included in inventory. apportion or allocate gross income or deductions between or among such organization. apportionment or allocation is necessary in Page 44 of 145 .000 3. which the gross profit realized or to be realized when payment is completed. upon recommendation of the Commissioner: a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year. trade or business. trades or businesses (w/n incorporated & w/n organized in the Philippines) owned or controlled directly/indirectly by the same interest 2) Commissioner is authorized to distribute. CHANGE FROM INSTALLMENT BASIS ACCRUAL TO * installments payable in 2 equal annual installments GP/Contract Price ratio = 25T/100T = 25% Collections in 1997 = P50T Income for 1997 = P50T x 25% = P12.
The employee receives the income only from one employer during the taxable year. substituted filing applies only if all of the following requirements are present the employee received purely compensation income (regardless of amount) during the taxable year the employee received the income from only one employer in the Philippines during the taxable year the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer the employee’s spouse also complies with all 3 conditions stated above the employer files the annual information return (BIR Form No. on income derived from sources within the Philippines 4) Nonresident alien engaged in trade or business or in the exercise of profession in the Philippines 5) An individual (citizen/alien) engaged in business or practice of a profession within the Philippines regardless of the amount of gross income 6) Individual deriving compensation income concurrently at any time during the taxable year 7) Individual whose pure compensation income derived from sources within the Philippines exceeds P60. General Professional Partnership IV.This is a report made by the taxpayer to the BIR of all gross income received during the taxable year. Exempt from income tax under Section 30 of the NIRC but has not shown proof of exemption. of Finance. 3. WHO ARE REQUIRED TO FILE AN ITR: I. INDIVIDUAL RETURN A. the income tax rate. on his income from sources within the Philippines 3) Alien residing in the Philippines. Taxable Estate and Trust III. the allowable deductions including exemptions.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 order to prevent evasion of taxes or clearly to reflect the income of any such organization.000 and the income tax on which has been correctly withheld An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies. trade or business RETURNS AND PAYMENT OF TAX Tax Return.000. 2316 (Oct 2002 ENCS version ) to each employee. the income tax withheld. REQUISITES: 1. non-resident aliens not engaged in trade or business) Those who are qualified under “substituted filing”. 4.is when the employer’s annual return may be considered as he “substitute” Income Tax Return of employee inasmuch as the information provided in his income tax return would exactly be the same information contained in the employer’s annual return. 6. However. • I. II. SUBSTITUTED FILING OF INCOME TAX RETURNS BY EMPLOYEES RECEIVING PURELY COMPENSATION INCOME. The employee receives purely compensation income (regardless of amount) during the taxable year. and the income tax still to be paid or refundable. petroleum service contractors and sub-contractors and offshore-banking units. The employee’s spouse also complies with all 3 conditions stated above. upon recommendation of the Commissioner) • An individual whose gross income does not exceed his total personal and additional exemptions • An individual whose compensation income derived from one employer does not exceed • • • • • • P 60. Not exempt from Income tax 2. the income tax due. Individual 1) Filipino citizen residing in the Philippines 2) Filipino citizen residing outside the Philippines. B. The employer files the annual information return. • SUBSTITUTED FILING . 2. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer. Corporation 1. 1604-CF) the employer issues BIR Form No. The employer issues BIR form 2316 Page 45 of 145 . the net taxable income. WHO ARE NOT REQUIRED TO FILE AN ITR: (but TIFF (Uncompressed) decompressor to file an may QuickTime™ and a be required are needed see this picture. 5. if any. information return topursuant to Rules and Regulations prescribed by the Sec.
Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income. if there be no legal residence/ place of business in the Philippines D.. non-profession-related income. or 5) Office of Commissioner. except: 1) when donor’s tax has been pd. Individuals deriving compensation from two or more employers concurrently or successively during the taxable year. Employees whose monthly gross compensation income does not exceed P5. fact filed a BIR Form are needed to see this picture. the returns fro which shall be filed on or before April 15.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED FILING: 1. Non-filing of ITR. in lieu of BIR Form No 1700. the income tax of which has not been withheld correctly resulting to collectible or refundable return 3. business. Employees deriving compensation income regardless of the amount. WHEN TO FILE: 1) for any individual (compensation. It serves as a proof of financial capacity in case the employee decides to apply for a bank loan QuickTime™ and a or credit car. 2. professional income) • on or before April 15 of each year covering income for preceding taxable year • example: individual’s income from Jan.It is a sworn statement made by the employer and employee. resident or nonresident aliens) 2) Do not derive income purely from compensation • If impracticable to file 1 return: each spouse may file a separate return but the returns shall be consolidated by the Bureau for purposes of verification for the taxable yr.000 or the statutory minimum wage. C. 2. It contains the employee’s consent that BIR form 1604CF may be considered his substituted return. whether from a single or several employers during the calendar year. WHERE TO FILE • Except in cases where the Commissioner otherwise permits: 1) Authorized agent bank 2) Revenue District Officer 3) Collection Agent 4) Duly authorized Treasurer of the city/municipality in w/c such person has his legal residence/principal place of business in the Philippines. if ff. 4. 1997. requisites complied : 1) Married individuals (citizens. and opted for non-withholding of tax on said income. Individuals receiving purely compensation income from a single employer although the income tax of which has been correctly withheld. which serve the following purposes: 1. as indicated in BIR Form 1604-CF. Thereafter. whichever is higher. which the employee no longer filed. or compensation income and other nonbusiness. or for TIFF (Uncompressed) decompressoras if he had in any other purpose. or 2) when transfer of such property is exempt from donor’s tax Page 46 of 145 . nonprofession-related income in addition to compensation income not otherwise subject to final tax. substituted filing where applicable shall be MANDATORY. on such property. UNMARRIED MINOR • Income of unmarried minors derived from property received by the living parent shall be included in the return of the parent. It contains the employer’s certification that he has reported the employee’s income to the BIR and that he has remitted the taxes on the employee’s income. for employees who are qualified for the substituted filing shall be OPTIONAL for the taxable year 2001. but whose spouse falls under 1 to 4 above. Individuals required to file an information return: Individuals not required to file an income tax return may nevertheless be required to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance upon recommendation of the Commissioner. 6. shall be filed on or before April 15. 1998 2) individual subject to capital gains tax (a) sale/exchange of shares of stock not traded thru a local stock exchange: • within 30 days after each transaction (b) sale/disposition of real property • within 30 days following each sale or other disposition HUSBAND AND WIFE • File 1 return for the taxable yr. to Dec. 1700. 2002. Joint Certification. 5. 3. Individuals deriving other non-business.
a return of its income (except items under exclusions from gross income) • set forth: 1) items of gross income & of deductions allowed 2) names of partners 3) TIN 4) Share of each partner F. PAYMENT OF TAX 1) IN GENERAL: Who shall pay? (a) Total amount of tax shall be paid • by the person subject thereto • at the time the return is filed (b) For tramp vessels: • Filed & paid before departure by: the shipping agents &/ or the husbanding agents. RETURN OF CORPORATION CONTEMPLATING DISSOLUTION/ REORGANIZATION • Which corporation? Every corporation. April 14. 2000 It was held that the 30-day period is counted from the approval of the SEC of the corporation’s adopted authority to dissolve. or 3) other person charged w/ the care of his person/property • principal & his rep.000. not engaged in trade/business in the Philippines. or guardian assumes responsibility of making the return & incurs penalty for erroneous. RETURNS OF GENERAL PROFESSIONAL PARTNERSHIPS • each GPP shall file in duplicate. GR No.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 PERSONS UNDER DISABILITY • If unable to make a return. RETURN ON CAPITAL GAINS REALIZED FROM SALE OF SHARES OF STOCK NOT TRADED IN PSE • File a return within 30 days after each transaction • AND. including a corporation w/c has been notified of possible involuntary dissolution by the SEC. WHO IS REQUIRED TO FILE AN ITR: • Every corporation subject to tax.. EXTENSION OF TIME TO FILE RETURNS • Commissioner may. shall not change accounting period w/o prior approval by the Commissioner) B. this picture. may elect to pay in 2 equal installments: Page 47 of 145 . in their absence. prescribe • prior to issuance by the SEC of Certificate of Dissolution/Reorganization: dissolving/reorganizing corporation shall secure a certificate of tax clearance from BIR to be submitted to the SEC BPI vs. by Rules and shall. CORPORATION RETURNS A. 38504. the taxpayer. of Finance. captains • failure to do so: Bureau of Customs is authorized to hold the vessel & prevent departure until proof of payment of tax is presented or a sufficient bond is filed to answer for the tax due 2) INSTALLMENT PAYMENT (for individuals only) • If tax due > P2. C. in meritorious cases. false/fraudulent returns • an individual’s name signed in the return is prima facie evidence for all purposes that the return was actually signed by such individual II. CIR. upon recommendation of the QuickTime™ and a TIFF (Uncompressed) decompressor Commissioner. • REQUIREMENTS: File in duplicate a true & accurate quarterly income tax return & final/adjustment return • Taxable year: fiscal or calendar (corp. of a resolution/plan for its dissolution or for the liquidation of the whole/any part of its capital stock: 1) render a correct return 2) verified under oath 3) set forth the terms of such resolution/plan & such other information as the Sec. E. except foreign corp.) This is exceptional and in case of calamity only based on precedents. grant a reasonable extension of time for filing returns of income (or final & adjustment returns in case of corps. a final consolidated return of all transactions must be filed on or before 15th day of the fourth month following the close of the taxable yr. D. other than a corp. are needed to see Regulations. return may be made by: 1) duly authorized agent or representative 2) guardian. or for its reorganization • within 30 days after the adoption by the corp.
Trusts where the income may be either accumulated or distributed at the discretion of the fiduciary. whole amount of the tax unpaid becomes due & payable + delinquency penalties 1. OF DEFICIENCY TAX • After return is filed.. but such amounts previously assessed/collected w/o assessment shall first be decreased by the amts. 3. at rate of not more than 1% but not more than 32%. returned/ otherwise repaid b. credited. the tax due shall immediately become due & payable + penalties • If tax has been paid. of Finance may require the w/holding of a tax by payor-corp. which shall be credited against the income tax liability for the taxable year • Most favored nation clause – Royalty income paid by a domestic corporation to a non-resident foreign corporation which is a resident of a Contracting State with which the Philippines has an effective tax treaty is generally subject to 15% final withholding tax. it will not grant more favorable terms to other treaty countries without granting the same concession to the treaty partner involved. if: ESTATES AND TRUSTS SEPARATE TAXABLE ENTITIES Sec. at the time the return is filed 2nd inst. of tax • Any deficiency shall be paid upon notice & demand of Commissioner • Deficiency means: a. no return is made. paid on/before July 15 ff. previously assessed as a deficiency.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 (a) (b) (c) 1st inst. Trusts where the income is to be accumulated or held for future distribution by the fiduciary. that is. pd. then: • the amt. 2. he shall be entitled to a refund upon verification of his compliance with requirements for such exemption • If taxpayer elects to report gain by installments. Commissioner shall examine & assess the correct amt. by w/c tax exceeds the amts. such as the Philippines-US Tax Treaty. If any inst. tax imposed > amount shown by QuickTime™ and a theTIFF (Uncompressed) this picture. returned or otherwise repaid in respect of such tax • Withholding of Creditable Tax at Source: Sec. is not pd. → It means each party to the treaty pledges that any tax concession given to any other treaty country will also be extended to the other party to the treaty. previously abated. the close of calendar yr. is shown upon the return as the tax. Unless Commissioner/duly authorized representative certified that such transfer has been reported & tax due has been paid 4) ASSESSMENT & PAYT. but the rate may be reduced to 10% for certain royalty payments or under the most-favored-nation-clause of the tax treaty. and 4. residing in the Philippines. no amt. on income payable to natural/juridical persons. 3) PAYMENT OF CAPITAL GAINS TAX • Paid on the date the return is filed • No payment is required if the seller submits proof of his intention to avail of exemption provided by law • In case of failure to qualify for exemption. Estates of deceased persons under administration or settlement. tax due shall be paid w/in 30 days from such receipt of payments • No registration of document transferring real prop. or 2. credited. return taxpayer see decompressor upon his are needed to • amount shown in the return shall be increased by amount previously assessed as a deficiency & decreased by amounts previously abated. → The purpose of the clause in a tax treaty is to grant to the other Contracting State a tax treatment that is no less favorable than that which is granted to the “most favored” among other countries. and seller submits proof of intent w/in 6 mos. Trusts where the income which is to be distributed Page 48 of 145 . on fixed date. From the registration of the document transferring real property. 60 (A): 1.
depending upon the amounts which are property paid or credited Fiduciary or beneficiary. tax must be imposed on the income of the trust. REQUISITIES FOR THE TAXABILITY OF TRUST: 1. In this case. He has absolutely given up the incidents of it. If it is a TIFF (Uncompressed) decompressor are needed to the picture. to be distributed currently by the fiduciary to the beneficiaries 2. it should be an irrevocable trust. If there is a condition that provides that a portion shall be reserved for the grantor’s medical expenses (for example). If the transfer is revocable. Income Liable for Tax Page 49 of 145 Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interest.not taxable as an entity because the income forms part of the income of the grantor NOTE: An estate is taxable as a separate entity when it is already subject to a judicial proceeding A trust is taxable as a separate entity if the trust is irrevocable.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 currently by the fiduciary or is collected by a guardian of an infant to be held or distributed as the court may direct. this condition does not convert the irrevocable trust to a revocable trust. or the income therefore. This is because the grantor has absolutely given up the corpus and any incidents thereto. the power to revest in the grantor title to the property transferred to the trust or any part of the corpus of such trust is vested: a. and income collected by a guardian of an infant which is to be held or distributed as the court may direct Income received by estates of deceased persons during the period of administration or settlement of estates Estate or Trust Beneficiary Incom which. 2. collected by a guardian of an infant to be held or distributed as the court may direct (c) income received by estates of deceased persons during the period of administration or settlement of the estate (d) income which. in the grantor. it is a trust where the title can revest back to the grantor anytime . then see this whole income or he property is taxable on the part of the grantor.in short. the trust retains the income REVOCABLE TRUST A revocable trust is one where. the entire income shall be taxable in the hands of the grantor. depending upon the amounts which are property paid or credited Grantor Grantor IMPOSITION OF TAX A. under the trust treatment. An irrevocable trust is where the grantor has unconditionally parted with all the incidents of ownership. The benefits of the trust will not to go the grantor. for the benefit of unborn/ unascertained person(s) w/ contingent interests 2. The grantor has transferred the income earning property to a beneficiary. or b. held for future distribution under the terms of the will or trust (b) income: 1. may be either distributed to the beneficiaries or accumulated Revocable trusts Income for the benefit of the grantor Fiduciary or Beneficiary. and 3. including: (a) income accumulated in trust: 1. and income accumulated or held for future distribution under the terms of the will or trust Income to be distributed currently by the fiduciary to the beneficiaries. in the discretion of the fiduciary. may be either distributed to beneficiaries or accumulated . in the discretion of the fiduciary. revocable trust. But that portion is taxable income QuickTime™ and a of the grantor. in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom . the grantor has no control over the corpus of the trust. either alone or in conjunction with any person not having substantial adverse interest in the disposition of such part of the corpus. Application of tax: 1) Applies to income of estates or of any kind of property held in trust.
stock bonus or profit-sharing plan of an employer for the benefit of all or some of his employees: (a) if contributions are made to the trust by the employer/employees. at any time prior to the satisfaction of all liabilities w/ respect to employees under the trust. it is impossible. income received by estates of deceased person during the . so distributed) B. heir or beneficiary applies to cases of : 1. Income for Benefit of Grantor 1) Requisites: where any part of the income of a trust is. of the income collected by a guardian of an infant w/c is to be held. deducted is included in TI of the legatee. w/c is to be distributed currently by the fiduciary to the beneficiaries & the amt. heir or beneficiary 2) for trust administered in a foreign country: deductions in a) and b) not allowed provided. in the discretion of the fiduciary./distributed as the court may direct 1. income w/c. amt. or both for the purpose of distributing to such employees the earnings + principal of the fund accumulated by the trust in accordance w/ such plan (b) if under the trust instrument.. Exemption Allowed to Estates and Trusts: P20. of income included in the return of said trust shall not be included in computing the income of the beneficiaries D. to any legatee. whether distributed or not 2.000 E. Revocable Trusts 1) Requisites: the power to re-vest in the grantor title to any part of the corpus of the trust is vested(a) in the grantor either alone/ in conjunction w/ any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom (b) in any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom 2) effect: the income of such trust shall be included in computing the taxable income of the grantor F. EXCEPT: (a) deduction allowed: amount of income of the estate/trust for the taxable yr. properly paid/credited during such yr. allowed as deduction is included as TI of the beneficiaries. or in the discretion of the grantor/any person not having a substantial adverse interest in the disposition of such part of the income (a) may be held/accumulated for future distribution to the grantor (b) may be distributed to the grantor (c) may be applied to the payment of premiums upon policies of insurance on the life of the grantor 2) Effect: such part of the income be included in computing the taxable income of the grantor G. Consolidation of Income of 2/more trusts: 1) Requisites: (a) 2/more trusts exist (b) creator of the trust in each instance is the same person (c) beneficiary in each instance is the same 2) tax computed on such consolidated income 3) proportion of each tax be assessed & collected from each trustee period of administration or settlement of the estate 2. for any part of income to be used for/diverted to. amt. amt. may be either distributed to the beneficiary or accumulated 3. the amt. not be allowed are needed to see as deduction under (b) hereof (b) additional deduction: amt. Taxable Income 1) Computed in same manner & on the same basis as in the case of an ‘individual’. allowed as a deduction under QuickTime™ and TIFF subsection will decompressor this(Uncompressed) this picture.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 2) Exception: Employee’s trust which forms part of a pension. of the income of the estate/trust for its taxable yr. Fiduciary Returns 1) Who shall make the return? (a) Guardians (b) Trustees (c) Executors (d) Administrators Page 50 of 145 C. purposes other than for the exclusive benefit of his employees (any amount distributed to employees shall be taxable in the yr.
copartnership. whether in money or in other property 1. minus the sum of the Page 51 of 145 . trust. Gain/loss sustained by SH for any liquidating dividends received is a taxable income or a deductible loss (as the case may be) 2. in duplicate. it cannot be recovered by any suit unless it is proved that the said list. financial institution or other person. SUIT TO RECOVER BASED ON FALSE/FRAUDULENT RETURNS 1) If tax is collectedQuickTime™ and a assessment that under an TIFF (Uncompressed) decompressor needed to see this the list. the returns. bank. accountant. or estate for whom or which they act in case such person. when final adjusted income tax is due to be filed • Estimated Tax means the amt. has transacted any business.. wages & same taxable other fixed/ determinable income yr. the formation./gen. NONRESIDENT CITIZEN for: Not required Income from w/in the Philippines. PUBLICATION OF LISTS OF TAXPAYERS & FILERS 1) After the assessment. who aids. a return of the income of the person. corp. Net income of a partnership after deducting the corporate income tax shall be deemed to have been actually or constructively received by the partners in the same taxable yr. to publish the lists containing the names & addresses of such persons who have filed IT returns D. organization or reorganization of any foreign corp. w/ such details as to the profits.: INDIVIDUAL receiving: Income from On/before self-employment (as sole source) or April 15 of Combined w/ salaries. 4) 4th installment: paid on/before Apr. whether actually distributed or not DECLARATION INDIVIDUALS A. shall be filed in the Office of the Commissioner & shall constitute public records & be open to inspection as such upon order of the Pres. distributed in redemption or cancellation of stock is taxable income to the extent that it represents a distribution of earnings/profits 4. 15 of current yr. statement or return was not false nor fraudulent & did not contain any understatement or undervaluation 2) Not applicable to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells & mines E. 2) Commissioner may cause. counsels or advises in. assists. Amt. trust.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 (e) Receivers (f) Conservators (g) All persons/corp. RETURN OF INFORMATION OF BROKERS • Brokers(individual/corp. 3.000 or over during the taxable yr. to file NONRESIDENT ALIEN not engaged in trade/business in the Philippines. arestatement picture. & shall be taxed to them in their individual capacity. or return is false/fraudulently made. B. each yr. DISPOSITION OF IT RETURNS.. calendar yr. 15 & Nov. fiduciary. RETURN & PAYMENT OF ESTIMATED INCOME TAX BY INDIVIDUALS 1) Paid in 4 installments 2) 1st installment: paid at the time of declaration 3) 2nd & 3rd installment: paid on Aug. showing names of customers for whom such person. w/ the corrections made by the Commissioner. Stock Dividends representing the transfer of surplus to capital account shall not be subject to tax. to the full extent of the info w/in the possession or knowledge or under the control of the person required to file the return C. to its SH out of its earnings or profits & payable to its SH. RETURN OF FOREIGN CORPORATIONS 1) Any attorney. • Dividends = any distribution made by a corp. In general: OF INCOME TAX BY Filing of declaration of estimated income for current taxable yr. trust co. or w/ respect to. 2) File. losses or other info B. which the individual declared as income tax in his final adjusted & annual income tax return for the preceding taxable yr.. pawnshop) shall render a correct return duly verified under oath. OTHER INCOME TAX REQUIREMENTS A. 15 of the ff. or estate has a gross income = P20. or duly registered gen. DISTRIBUTION OF DIVIDENDS/ASSETS BY CORPS. shall file a return w/in 30 days 2) Such return shall be in the form prescribe & set forth under oath.
or annual period 3) Employee refers to any individual who is the recipient of wages & includes an officer.) C. domestic service in a private home 3. he shall file an amended declaration during any interval of installment payment dates the corp.000 700.. the taxpayer reasonably expects to pay a bigger IT. 2) If sum of the quarterly tax payments is not equal to the total tax due on the entire taxable income of that yr. 1) Wages means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer. quarterly declaration Final adjustment return W/in 60 days ff.000 (final adjustment return) Tax @35%: 105.000 Q4: P 2. filing the return (b) or place where its main books of accounts & other data from w/c the return is prepared are kept 3) Time of Filing of IT Return Corp.500. employee or elected official of the Philippine Page 52 of 145 E. On/before the 15th day of April (calendar yr.000. after the close of the taxable yr. by such employer to such employee for such period shall be deemed to be wages 2) Payroll period means a period for which payment of wages is ordinarily made to the employee by his employer. (sum of TI of Q1 & Q2). FINAL ADJUSTMENT RETURN 1) Every corp. miscellaneous payroll period means a payroll period other than a daily. paid. semi-annual. Q3:P 2. then all remuneration pd./ assessed during the preceding quarters & shall be paid not less than 60 days from the close of each of the first 3 quarters of the taxable yr.000 875. Q2: P 1. DEFINITIONS. semi-monthly.000 Payable (each Q) 105. biweekly. PLACE & TIME OF FILING & PAYMENT OF QUARTERLY CORPORATE INCOME TAX QuickTime™ and a 1) The quarterly(Uncompressed) tax declaration & the TIFF income decompressor are needed to see this picture.000 245.) On/before the 15th day of the 4th mo. the close of the first 3 quarters of the taxable yr. casual labor not in the course of the employer’s trade or business 4. of tax previously pd.000 350. DECLARATION OF QUARTERLY INCOME TAX 1) Every corp. monthly. quarterly. agricultural labor paid entirely in products of the farm where the labor is performed 2. (a) shall not include remuneration paid for: 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 • credits allowed against the said tax If during the current taxable yr. collected & paid 2) The tax shall be decreased by the amt. weekly. shall either: (a) pay the balance of tax still due (b) carry-over the excess credit (c) be credited or refunded w/ the excess amt. as the case may be Example: 1997 Cumulative Taxable Income Q1: P300..000. D. including the cash value of all remuneration paid in any medium other than cash.000.000 175. shall file in duplicate a quarterly summary declaration of its GI and deductions on a cumulative basis for the preceding quarter(s) upon w/c the IT shall be levied. services by a citizen or resident of the Philippines for a foreign government or an international organization (b) if remuneration paid by an employer to an employee for services performed during ½ or more of any payroll period of not more than 31 consecutive days constitutes wages. the corp. whether calendar/fiscal yr. (fiscal yr.000 4) Time of Payment of IT: Income tax is paid at the time of the filing of the declaration or return WITHHOLDING TAX ON WAGES A..000.000 350. final adjustment return shall be filed with: (a) authorized agent banks (b) Revenue District Officer (c) Collection Agent (d) Duly authorized Treasurer 2) Where? (a) of the city/municipality having jurisdiction over the location of the principal office of . liable to tax shall file a final adjustment return covering the total taxable income for the preceding calendar/fiscal yr.
resident of the Philippines.whichever is higher Elements of Withholding on Compensation: 1. There must be payment of compensation or wages for services rendered 3. Remunerations received as an incident of employment 2. 13 month pay and other benefits 12. Exception: Where such compensation income of an individual: 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Government. foreign partnership/corp. Annual Information Returns (b) employer shall submit an annual information return to the Commissioner containing: 1. includes an officer of a corp. to pay the interest without deduction for any tax which the obligor may be required/permitted to pay or to retain therefrom. which contain a contract/provision by which the obligor agrees: 1. Compensation for injuries and sickness 10. There must be a payroll period Compensation Exempted: 1. GSIS. for a foreign government or an international organization 6. securities. employer is liable for the tax + penalties & additions to the tax 2) EMPLOYEE: (a) If fails to file withholding exemption cert. mortgages. 31 of the succeeding yr.000 a year) . or 2. failure or refusal to file the w/holding exemption certificate 2. Philhealth and other contributions Tax Free Covenant Bonds Covenant Bonds – bonds. Remunerations for casual not in the course of an employer’s trade or business 5. Remunerations paid for domestic services 4. SSS. Income exempt under treaty th 11.000) monthly (60. total amt. Obligor shall deduct and withhold a tax = 30% of the interest and other payments whether interest or other payments are payable annually or at a shorter period. With copies of statement referred to in (A) above 2) Extension of Time • Commissioner may grant the ER a reasonable extension of time to furnish & submit the statements & returns required Withholding Tax on Compensation: Every employer must withhold from compensation paid. Remunerations paid for agriculture labor 3. Five thousand pesos (5. deeds of trust and other similar obligations of domestic/resident foreign corporation. to pay any portion of the tax imposed upon the obligee. or on the same day of last payment made (if employment is terminated). of tax (b) if failed to withhold & remit. the tax shall be collected from him + penalties or additions to the tax (b) Excess taxes w/held by the employer shall not be refunded if due to: 1. as the employee of such person (b) the person having control of the payment of such wages (c) person paying wages on behalf of a nonresident alien individual. whether bonds. of whatever nature. obligations had been/will be issued/ marketed and the Page 53 of 145 . total amt. false & inaccurate information C. Does not exceed the statutory minimum wages. or 3. Compensation for services of a citizen. or supplies inaccurate/false info. Damages 7. to reimburse the obligee for any portion of the tax. There must be an employer-employee relationship 2. an amount computed in accordance with the regulations. are needed to see this picture. of compensation income of each EE 3. B. a list of employees 2. 4. STATEMENTS & RETURNS 1) Requirements (a) employer shall furnish EE on/before Jan. 4) Employer (a) the person for whom an individual performs or performed any service. Life insurance 8. LIABILITY FOR TAX 1) EMPLOYER: (a) liable for withholding & remittance of the correct amt. 2. QuickTime™ and w/held during the of taxes a TIFF (Uncompressed) decompressor yr. An amount received by the insured as return of premium 9. a written statement confirming the wages paid by the employer to employee 1.
All properties. Transfers impelled by the thought of an impending death (i. 84) ----------------------------------------------------------------------Estate Tax due QuickTime™ and Less: Tax Credit (if TIFF (Uncompressed) decompressor any) Sec. Transfers made before the decedent’s death wherein decedent retained: a. ESTATE TAX AND DONOR’S TAX CHAPTER I. tangible or intangible. without regard of the state of health of the transferor • Transfers deemed in contemplation of death: transfers involving retention or reservation of certain rights. the possession or enjoyment of. subject to Section 204 (abatement.ESTATE TAX Nature and Definition An EXCISE TAX on the rights of transmitting property at the time of death and on the privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon death A tax imposed upon the privilege to transmit property at the time of death. 85) Less: (1) Deduction (Sec. real or personal.. resident alien decedent Non-Resident Alien Decedent . or the right to the income of the property. the tax should not be construed as a direct tax on the property of the decedent although the tax is based thereon ITEMS OF GROSS ESTATE: (DT RALIC) 1) Decedent's Interest 2) Transfer in Contemplation of Death 3) Revocable Transfer 4) Property Passing Under General Power of Appointment 5) Proceeds of Life Insurance 6) Prior Interests 7) Transfers for Insufficient Consideration DECEDENT’S INTEREST • To the extent of the interest in property of the decedent at the time of his death Transfer in Contemplation of Death • TRANSFER IN CONTEMPLATION OF DEATH. with respect to the intangible personal property. b. GROSS ESTATE includes (Sec. ---------------------------------------------------------------------Estate Tax Due. to designate the person who shall possess or enjoy the property or its income EXCEPT bona fide sales for an adequate and full consideration in money or money’s worth REVOCABLE TRANSFER A transfer whereby the terms of enjoyment of Page 54 of 145 ESTATE TAX FORMULA Gross Estate (Sec. 86) (2) Net share of the surviving spouse in the CP ---------------------------------------------------------------------Net Taxable Estate X Tax rate (Sec. refund/credit taxes) TITLE III. 85) Residents and Nonresident citizen. wherever situated Only properties situated in the Philippines provided that. 86 [E]aor 110 [B] are needed to see this picture.e. if any A. the right either alone or in conjunction with any person. the motivating factor or controlling motive is the thought of death). The excess of the amount of tax withheld over the tax due on his return shall be refunded to him.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 interest and other payments paid within and without the Philippines if the interest or other payment is payable to a non-resident alien or a citizen or resident of the Philippines. its inclusion in the gross estate is subject to the rule of reciprocity provided for under Sec 104 of the NIRC Income of Recipient Income which any creditable tax is required to be withheld at source shall be included in the return of its recipient.
arising. or where any such power is relinquished in the contemplation of the decedent’s death. It is enough that the decedent had the power to alter. trusts. executor or administrator AND the designation is irrevocable SSS death benefits Properties held in trust by the decedent Benefits received by beneficiaries residing in the Philippines under laws administered by the US Veterans Administration Separate or exclusive properties of the surviving spouse Page 55 of 145 • PRIOR INTERESTS All transfers.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 the property may be altered. or the right to the income from. amend or revoke though he did not exercise such power EXCEPT bona fide sales for an adequate and full consideration in money or money’s worth Property Passing Under General Power of Appointment What is a GENERAL POWER OF APPOINTMENT? The power to designate. cultural or charitable institutions → Provided. created. the persons who shall receive. existing. revoked or terminated by the decedent alone or in conjunction with any other person. interests. exercised or relinquished before or after the effectivity of the NIRC. not more than 30% of the value given is used for administrative purposes Proceeds from life insurance where the beneficiary is other than estate. amended. either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom EXCEPT bona fide sales for an adequate and full consideration in money QuickTime™ and a or money’s worth TIFF (Uncompressed) decompressor are needed to see this picture. whether the designation is revocable or irrevocable o the beneficiary is other than the estate. without restrictions. rights. estates. possess or enjoy the property or its income received from the estate of a prior decedent • How is a general power of appointment exercised? The GPA is exercised by: a) will b) deed executed in contemplation of death c) deed under which he has retained for his life or for any period which does not in fact end before his death → The possession or enjoyment of. legatees or donees in favor of another beneficiary in accordance with the desire of the testator o All bequests. executor or administrator. or transfers to social welfare. • • • • . executor or administrator AND the designation is revocable TRANSFERS FOR INSUFFICIENT CONSIDERATION Amount includible in the gross estate is the excess of the FMV at the time of death over the value of consideration received Exclusions from the Gross Estate • ACQUISITIONS AND TRANSFERS EXPRESSLY DECLARED AS EXEMPT: o Merger of the usufruct in the owner of the naked title o Transmission or delivery of the inheritance or legacy by the fiduciary heirs or legatee to the fiduciary o Transmission from the first heirs. devises. powers and relinquishment of powers made. legacies. succeed to. Proceeds of Life Insurance PROCEEDS FROM LIFE INSURANCE FORM PART OF THE GROSS ESTATE ONLY WHEN: o the beneficiary is the estate. the property or → The right.
WITH A SITUS IN THE PHILIPPINES (SECTION 104). 86): 1) Expenses. 2. exclusively for public purposes 3) Vanishing deductions 4) Family Home 5) Standard Deduction -. THE INTANGIBLES SHALL NOT • . Shares. rightsthisin any partnership are needed to see picture. in respect of the intangible personal property of citizens of the Philippines not residing in that foreign country. Indebtedness. Shares of Stock • Listed shares: average of the highest and lowest quotation at date of death (or the date nearest to the date of death. QuickTime™ and a TIFF (Uncompressed) decompressor 5. business or industry established in the Phil. 3. if such shares.000 6) Medical Expenses Page 56 of 145 Special Rules on Intangible Properties • INTANGIBLE PERSONAL PROPERTIES WITH SITUS IN THE PHILIPPINES (SECTION 104) 1. FORM PART OF THE GROSS ESTATE IF: • The decedent at that time of his death was a citizen and resident of a foreign country which at the time of his death 1. Personal Property • Valued at FMV B. Losses. obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines. RECIPROCITY CLAUSE ON INTANGIBLE PERSONAL PROPERTY OF A DECEDENT WHO IS NON-RESIDENT ALIEN.000. did not impose a transfer tax or death tax of any character 2. Shares. and Taxes: (a) actual funeral expenses or five percent (5%) of the gross estate whichever is lower (not exceeding P200.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Valuation 1. whichever is HIGHER No zonal value: use the FMV in the latest tax declaration. obligations or bonds have acquired a business situs in the Philippines. Franchise which must be exercised in the Philippines.P1. DEDUCTIONS FOR ESTATE OF A CITIZEN OR A RESIDENT (Revenue Regulations 2-2003 and Sec.000) (b) judicial expenses of the testamentary or intestate proceedings (c) claims against the estate (d) claims against insolvent persons included in the gross estate (e) unpaid mortgages or indebtedness upon property (f) unpaid taxes (g) losses incurred during the settlement of the estate 2) Transfers for Public Use-to the government of the Republic of the Philippines or any political subdivision thereof. or • The law of the foreign country of which the decedent was a citizen and resident a the time of his death: 1. allow a similar exemptions from transfer taxes or death taxes of every character 2. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. 2. Real Property • • FMV as determined by the Commissioner OR the FMV shown in schedule of values fixed by the assessors. if no quotation is available at the time of death) Unlisted Shares – • Common stocks: use BOOK VALUE • Preferred stocks: use PAR VALUE • 3. Shares. Shares. 4. obligations or bonds issued by any foreign corporation. in respect of the intangible personal property owned by citizens of the Philippines not residing in that foreign country.
• CIR v. 2) Tort. Claims against the Estate Debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 7) Amount Received by Heirs under RA 4917 8) Net Share of the surviving spouse in the Conjugal Property (1) ORDINARY DEDUCTIONS A. EXAMPLES OF JUDICIAL EXPENSES (1) (2) (3) (4) (5) (6) (7) Fees of executor or administrator Attorney’s fees Court fees. for the filing of the estate tax return. Cost of preserving and distributing the estate. only the value corresponding to the plot where he is buried is deductible. CA 328 SCRA 666 • Expenses incurred in the extrajudicial settlement of the estate must be necessary costs toward the settlement of the case • Attorney’s fees to be deductible should essential to the collection of assets. including food and drinks. (8) Brokerage fees for selling property of the estate. e) Cost of burial plot. payment of debts or the distribution of the estate C. Funeral expenses FUNERAL EXPENSES are costs which are actually incurred in connection with the interment or burial of the deceased. • EXAMPLES OF NON-DEDUCTIBLE FUNERAL EXPENSES: a) Expenses incurred after the interment. and g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. f) Interment and/or cremation fees and charges. d) Telecommunication expenses incurred in informing relatives of the deceased. b) Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. or the extension thereof. c) Publication charges for death notices. • • EXAMPLES OF FUNERAL EXPENSES: a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial. Clerk hire. QuickTime™ and a • TIFF (Uncompressed) decompressor are needed to see this picture. masses. Judicial Expenses • What are JUDICIAL EXPENSES for estate taxation? o These deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law. or 3) Operation of Law AGAINST THE Substantiation Requirements: o The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred (RR 2-2003) • REQUISITES FOR DEDUCTIBILITY: a) A personal obligation of the deceased existing a the time of his death except Page 57 of 145 . monument or mausoleum but not their upkeep. Accountant’s fee. entertainment. Judicial Expenses should be supported by a sworn statement of account issued and signed by the creditor. such as for prayers. or the like are not deductible. B. In case the deceased owns a family estate or several burial lots. b) Expenses for the deceased’s wake. tombstones. • SOURCES OF CLAIMS ESTATE: 1) Contract. Appraiser’s fee.
The losses should occur during the settlement of the estate. Losses should not be compensated by insurance or otherwise. then balance of loan considered as receivable and part of GE If there is a legal impediment to recognize the same as receivable of the estate. robbery. theft or embezzlement. e) Duly substantiated • Substantiation in case of Loans or other Similar Indebtedness: a) notarized at the time incurred. except loans from financial institutions where notarization not part of business practice or policy b) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent D. storm. shipwreck. or transfers to social welfare. allowed as a deduction from the GE F. estate taxes 2. income tax on income received after death 3. or other casualty. REQUISITES FOR DEDUCTIBILITY: 1) the disposition is in the last will and testament 2) to take effect after death 3) in favor of the government of the Philippines or any political subdivision thereof 4) exclusive for public purpose 5) the value of property given is included in the gross estate 3. devices. Losses should arise from fire. The losses should occur before the last day for the payment of the estate tax (last day to pay 6 months after the decedent’s death) (2) TRANSFER FOR PUBLIC USE 2. c) Must be a debt or claim which is valid in law and enforceable in court. 2.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid medical expenses which are classified under a different category of deductions. b) Contracted in good faith and for adequate and full consideration in money or money's worth. Unpaid Mortgage • CONDITIONS FOR DEDUCTIBILITY: o The value of the decedent’s interest over the property encumbered is included as part of the gross estate undiminished by the amount of mortgage The deduction shall be limited to the extent that the mortgage was contracted bona fide and for an adequate consideration are needed to see this picture. AND that 5. Claims against Insolvent Persons • Condition for deductibility: The value of decedent’s interest in the claim is included in the gross estate and the incapacity of the debtors to pay their obligation is proven. o • QuickTime™ and a Other Rules in TIFF (Uncompressed) decompressor Respect to Unpaid Mortgage o o o Determine the recipient or beneficiary of the loan which must be verified. REQUISITES FOR DEDUCTIBILITY: 1. Losses should not be claimed as deduction in the income tax return of the taxable estate. Losses 1. 4. The transfer also contemplates bequests. the unpaid obligation shall not be Nature and Purpose Page 58 of 145 . d) Must not have been condoned by the creditors or the action must not have prescribed. Taxes • What taxes are deductible? Income taxes. 3. cultural and charitable institutions (3) VANISHING Previously Taxed) • DEDUCTIONS (Property E. property taxes not accrued before death G. If merely an accommodation made by decedent. real estate or property taxes due at the time of death which were unpaid as of the time of death • TAXES NOT DEDUCTIBLE: 1.
where the husband and wife. Present decedent acquired the property by inheritance or donation within 5 yrs prior to his death 2..000. The property must be located in the Philippines (4) FAMILY HOME It is the dwelling house. as certified by the Barangay Captain of the locality where the family home is situated. estate and donor’s tax). It may also be constituted by an unmarried head of a family on his or her own property.g. whichever is lower. but not exceeding 1 Million. or the extent of the decedent’s interest (whether conjugal/community or exclusive property).000) shall be allowed as an additional deductions without need of substantiation Full amount shall be allowed as deduction for the benefit of the decedent • (6) MEDICAL EXPENSES • REQUISITES FOR DEDUCTIBILITY: o Medical cost incurred within the one year prior to the death of the decedent o Up to a maximum amount of 500. and members of their family reside as certified by Barangay Captain of the locality.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 VANISHING DEDUCTIONS are deductions allowed for properties which were already subjected to transfer taxes (e.000. (5) STANDARD DEDUCTIONS • A deduction in the amount of One million pesos (1. Estate tax on the prior estate or the donor’s tax must have been paid 4. The family home is generally characterized by permanency. whenever absent for business or pleasure. 1) The family home must be the actual residential home of the decedent and his family at the time of his death. one still intends to return. o Actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad. or of the exclusive properties of either spouse. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. depending upon the classification of the property (family home). and the property relations prevailing on the properties of the husband and wife. o For purposes of availing of a family home deduction to the extent allowable. • REQUISITES FOR DEDUCTIBILITY: 1. The purpose is to minimize the effect of double taxation within a short period of time since the same property will be again subjected to tax in the form of estate tax. that is. Estate of previous decedent or donor have not previously availed of vanishing deduction 6. The property must have formed part of the GE of previous decedent or the taxable gift of the donor 3. 2) The total value of the family home must be included as part of the gross estate of the decedent. etc. It must be the same property received from previous decedent or donor 5. a person may constitute only one family home. the place to which. QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. and 3) Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate. whichever is lower o Any excess over 500.000 cannot be deductible as claims against the estate o It must be duly substantiated with official receipts for services rendered Page 59 of 145 o • CONDITIONS FOR THE ALLOWANCE OF FAMILY HOME AS DEDUCTION FROM THE GROSS ESTATE- . including the land on which it is situated. • Note that: o The family home must be part of the properties of the absolute community or of the conjugal partnership. or a head of the family.
Transfers for Public Use OTHER CONSIDERATIONS • • QuickTime™ and a Net ShareTIFF (Uncompressed) decompressor of the surviving spouse in the are needed to see this picture. Indebtedness and Taxes • Only the proportion of the total expenses. losses indebtedness and taxes which the value of such part bears to the value of his entire GE wherever situated: Estate situated in the Phils Total estate everywhere X expenses. foreign country x Phils. Limitation B (by total): . world • EXEMPTION FROM ESTATE TAX (Sec. Limitation A (per country): . Property Previously Taxed (vanishing deductions in the properties in the Philippines) C. and b. includes in the return required to be filed under Section 90 the value at the time of his death of that part of the gross estate of the nonresident not situated in the Philippines. Tax actually paid to the foreign country. administrator. ESTATE TAX CREDIT ESTATE TAX CREDIT is a remedy against international double taxation to minimize the onerous effect of taxing the same property twice • Who may avail of tax credits? o Only the estate of a citizen or resident alien at the time of the death can claim tax credit for any estate taxes paid to a foreign country (7) Amount Received by Heirs under RA 4917 o Amount received by the heirs from the decedent’s employer as a consequence of death of the decedent employee in accordance with RA4917 Provided. Losses. SPECIAL RULES FOR NONRESIDENT ALIENS (for property situated in the Philippines) ALLOWABLE DEDUCTIONS: A. Conjugal Property-deducted from the net estate of the decedent To be allowed deductions for a non-resident alien. world B. 84 and Page 60 of 145 .taxes deduction • What amount of tax credit may be claimed? Formulas: Limitation A: For estate taxes paid to one foreign country Allowable Final Tax Credit = The lower amount between: a. estate tax Net gifts. foreign country x Phil.” unless the executor. a. or anyone of the heirs. estate tax Net gifts. foreign country x Phils. world For estate taxes paid to 2 or more foreign countries the lower amount between limitation A and limitation B. estate tax Net gifts. Expenses. such amount is included in the gross estate of the decedent. b.000 CANNOT be claimed as a deduction under “claims against estate. executor/administrator/ any heir must include in the return to be filed. the share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 o Any amount incurred within one year from death in excess of P500. as the case may be.the lower amount between the actual foreign taxes paid to each country and the amount derived from the forumula below: Net gifts. the amount derived from this formula: Net gifts. the value of the gross estate not situated in the Philippines No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines. o (8) Net Share of the surviving spouse in the Conjugal Property After deducting the allowable deductions (only the ordinary deductions) appertaining to the conjugal or community properties included in the gross estate.the lower amount between the sum of the actual taxes paid to ALL foreign countries and the answer to the formula below: Net gifts. losses = allowable indebtedness.
another son. The transfer from C to B is exempt from estate tax. The transfer from A to B is subject to estate tax. C died a year later.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 87): 1) First P200. or within a like period after qualifying as such executor or administrator (c) To whom filed: Commissioner. in accordance with the desire of the predecessor 5) Bequests. (2) Procedures 1) Filing of Notice of death (a) Who files: the executor. grants a reasonable extension not exceeding 30 days for filing the return • Mandatory filing of estate tax returns in all cases of: o transfers subject to the tax imposed herein o transfers though exempt from tax. administrator or any of the legal heirs. to the benefit of any individual: • Provided not more than 30% of the transfers shall be used by such institutions for administration purposes J. exceed the value of his share in the inheritance. But the transmission or delivery to C upon reaching legal age shall be exempt from estate tax. 3) Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary • • The substitution must not go beyond one degree from the heir originally instituted The fiduciary or first heir must be both living at the time of the testator’s death Example A dies and leaves in his will a lot to his brother B who is entrusted with the obligation to transfer the lot to C. where the gross value of the estate exceeds P200. except. the Commissioner.00 value of the net estate 2) Merger of usufruct in the owner of the naked title • Example A died leaving a fishpond. 2) Filing of Estate Tax Returns • When to file: within six (6) months from the decedent's death. Upon the death of C. his son. a son of A when A reaches legal age. COMPLIANCE REQUIREMENTS (1) Persons liable to pay estate tax • The person primarily liable is the estate itself. naked title to B. in meritorious cases. 4) Transmission from the first heir. cultural and charitable institutions. with the Commissioner Page 61 of 145 • . through the executor and administrator. the estate consists of registered or registrable property for which a clearance from the Bureau of Internal Revenue is required for the transfer of ownership in the name of the transferee Where to file: o Authorized agent bank o Revenue district officer o Duly authorized city or municipal treasurer of the place of decedent’s domicile o If there is no legal residence in the country. When there are 2 or more executors or administrators. legacies or transfers to • social welfare.000. The extent of his liability shall not. however. and usufruct to C. (b) When to file: within 2 months after the decedent's death. B is the fiduciary heir and C is the fideicommissary. all of them are severally liable for the payment of tax. The heir or beneficiary has a subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the net estate. QuickTime™ and a • no part of(Uncompressed) decompressor which inures TIFF the net income of are needed to see this picture.000 o regardless of the gross value. for life. the usufruct will be merged into the owner of the naked title B who shall become the absolute owner thereof. legatee or donee in favor of another beneficiary. being the owner. devises. The fishpond will be included in the gross estate of A.
the clearance shall be released only with respect to the property the corresponding tax has been paid.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 CHAPTER II. Intent to donate 3. Delivery of the subject gift. (b) Exception: when the Commissioner finds that payment on due date would impose undue hardship upon the estate or any of the heirs. Page 62 of 145 . and this step shall be noted in both instruments. If the acceptance is made in a separate instrument. or 2. ( Sec 11 RR 2-2003 ) Note: Any contribution in cash or in kind to any candidate. or coalition of 1 Must be in a public document specifying therein the property donated. administrator or the heirs but before delivery of the distributive share in the inheritance to any heir or beneficiary. 2 years in case the estate is settled extrajudicially In which case it shall be paid on or before expiration of the extension and running of the Statute of Limitations for assessment shall be suspended for the period of any such extension. Acceptance by the donee THERE ARE DONATIONS: TWO (2) KINDS OF 1. subject to estate tax The law in force at the time of the perfection or completion of the donation shall govern the imposition of the donor’s tax. (c) Restrictions as to Extension of Time to Pay: o no extension shall be allowed when taxes are assessed by reason of : 1) negligence. Capacity of the donor 2. the donor shall be notified thereof in an authentic form. Donation mortis causa: a donation which takes effect upon the death of the donor. in case the estate is settled through the courts. Article 725 of the Civil Code defines a gift or donation as “an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. properties/share in the inheritance to the heir or beneficiary. The acceptance may be made in the same Deed of Donation or in a separate public document. whether actual or constructive 4. The estate tax clearance issued by the Commissioner or the Revenue District Officer having jurisdiction over the estate QuickTime™ and a will serve as the authority to distribute the TIFF (Uncompressed) decompressor are needed to see this remaining/distributable picture. political party. • In case of installment payments. The subject of donor’s tax is the gift or donation. not to exceed 5 years. he may extend the time for payment of such tax: 1.DONOR'S TAX 3) Payment of Tax: Time of Payment (a) General Rule: at the time the return is filed by the executor. Donation inter vivos: a donation made between living persons. 3) fraud on the part of the taxpayer 4) Distribution of Estate • Upon payment. the following are the REQUISITES OF VALID GIFT OR DONATION SUBJECT TO DONOR’S TAX: 1. the administrator shall deliver the distributive share in the inheritance to any heir or beneficiary. The Commissioner may require a bond not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary when an extension for payment is granted. subject to donor’s tax 2. but it shall not take effect unless it is done during the lifetime of the donor.” Thus. Definition and Subject A tax on the privilege of transmitting one’s property or property rights to another or others without adequate and full valuable consideration. perfection is at the moment when the donor knows of the acceptance of the donee (exception: donations of immovable 1 properties). 2) intentional disregard of rules and regulations.
unless categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift. 6747. if higher than the gross selling price. .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 parties for campaign purposes shall be governed by the Election Code as amended. The rationale is that under Section 24 (d). other than a real 2 property that has been subjected to QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. of his/her share in the hereditary estate left by the decedent is not subject to donor’s specifically and tax. unless there is reciprocity. intangible or mixed. a general renunciation by an heir. Rev. In essence.See reciprocity rules in the estate taxes for intangible properties (Section 104 NIRC) Applicability of Laws Governing the Imposition of Donor’s Tax The donor’s tax applies to a completed gift. 100 in relation to Sec. subject to donor’s tax. what the seller avoids in the payment of donor’s tax. The transfer is perfected from the moment the donors knows of the acceptance by the donee. 2006 where the repudiation by the heirs of an inheritance was held not to be a donation. and intangible personal property. CTA Case No. including the surviving spouse. BECOMES COMPLETE WHEN EITHER: • the donor renounces the power. A. (Sec. 2-2003) See Estate of Fidel Reyes. Page 63 of 145 o • 2 Note that in the case of real properties considered as capital assets. A GIFT THAT IS INCOMPLETE BECAUSE OF RESERVED POWERS. Personal properties may be tangible. in which case it is not taxable. Gross Gifts • Gifts may be real or personal properties. it is completed by the delivery. it pays for the capital gains tax. 24 (D) NIRC). citizens or residents of the Philippines – all properties located not only within the Philippines but also in foreign countries 2. is the base for the computation of capital gains tax. 11. the difference between the FMV and the actual value received in transfers for less than the adequate or full consideration shall not be . the final capital gains tax. (Sec 99 C of the NIRC). 16. o o Debt condoned or remitted Transfers made in trust for another person Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person. is transferred for less than an adequate and full consideration in money or money’s worth. or • his right to exercise ceased because of the happening of some event or contingency or the fulfillment of some condition. Real property considered capital assets under the Tax Code are exempted from this rule (Sec. non-resident alien – all real and tangible properties within the Philippines. PROPERTIES INCLUDED: 1. The law in force at the time of the perfection/completion of the donation shall govern the imposition of donor’s tax based on the FMV of the property. the FMV itself. other than the death of the donor. • ITEMS DEEMED GIFTS OR DONATIONS: o Where property. Reg. Jan. of the donated property to the donee. and shall be included in computing the amount of gifts made during the calendar year. whereas. either actual or constructively.
000 Note: Both parents may make dowries and gifts made on account of marriage. The computation of donor’s tax is on a cumulative basis over a period of one calendar year. and therefore. whether the gift is direct or indirect. whether the transfer is in trust or otherwise. ancestor and lineal descendant . donation to him shall not be considered as donation made to stranger. However. Donee is NOT a Stranger to the Donor B. Donee is a Stranger to the Donor • Rate: 30% • Who is a stranger: A STRANGER IS A PERSON WHO IS NOT A: 1) Brother. Rates of Tax QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Computation of Tax st 1. and whether the property is real or personal. both spouses must file separate returns because the husband and wife are considered as distinct entities for purposes of donor’s tax. Each parent shall be entitled to the exemption above. 1. Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. Gross Gift Less: deductions/exemptions Net gift X tax rate Donor’s tax xx xx___ xx xx___ xx EXEMPTION FROM GIFT TAX (SEC. (Sec. therefore. 12 RR-2-2003) However. tangible or intangible. 101) Exemptions are not to be treated as exclusions from the gross gifts of the donor. On the 1 donation of the year OBJECT OF TAXATION: The donor’s tax shall be imposed to the transfer of property by gift. They partake the nature of deductions and are. the donation is taxable as an exclusive act of the husband. 1) Made by a Resident (a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate. • Rate: Graduated Rates D. This has the effect of splitting the value of the gift into half for both spouses so each spouse can claim the exemption. where there is failure to prove that the donation was actually made by both spouses. recognized natural. deductible from gross gifts in order to arrive at the taxable net gifts. 2. spouse. or adopted children to the extent of the first P10. On subsequent donation during the year Gross Gift Less: deductions/exemptions Net gift Add: prior net gift Aggregate net gifts X tax rate Donor’s tax on aggregate gift Less: prior donor’s tax paid Donor’s tax on this date =========== xx xx___ xx xx___ xx xx___ xx xx___ xx C. sister (whether by whole or half-blood). without prejudice to the right of the wife to question the validity of the donation Page 64 of 145 =========== 2.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 • Valuation: o Personal property: FMV at the time of donation o Real Property: FMV as determined by the Commissioner or the FMV in the latest schedule of values of the provincial or city assessor. whichever is HIGHER 2) Relative by consanguinity in the collateral line within the 4th degree of relationship A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children.
99[A]) In order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified donee institutions duly accredited by the Philippine Council for NGO Certification. and that. they are not liable for donor’s tax. cultural or social welfare corporation. and paid upon the transfer by any person. the CTA ordered the Commissioner to desist from collecting donor’s taxes from the petitioners. a) There shall be levied. whether the gift is direct or indirect. and devoting all its income to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation (d) Encumbrances on the property donated if assumed by the donee in the deed of donation (e) Donations made to entities as exempted under special laws. a tax. is subject to donor’s or gift tax. (f) Donations to persons not strangers of not more than P100.000) to the Revenue District Office(RDO) which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee institution’s duly issued Certificate of Donation. the transfer of property by gift. and whether the property is real or personal. Hence.661.31 each to the campaign funds of Senator Edgardo Angara. whether the transfer is in trust or otherwise. of the property by gift. assessed.(PCNC). computed as provided in Section 92. without considerations therefor. Imposition of Tax. b) The tax shall apply whether the transfer is in trust or otherwise. governed by trustees who received no compensation. reasoning as follows: The NIRC. In the instant case. tangible or intangible. contributed P882. CIR. not more than 30% shall be used by such donee for administration purposes. they squarely fall under the definition of donation or gift.000 per year (Sec. 91. resident. stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such accredited non-stock. Feb. the donor engaged in business shall give a notice of donation QuickTime™ and a TIFF (Uncompressed) decompressor on every donation are needed to see this picture. petitioners. As correctly pointed out by the Solicitor General: The fact that the contributions were given to be used as campaign funds of Sen. therefore. There was simply an indication of the purpose for which they were to be used. trust or philanthropic organization or research institution or organization. whether the gift is direct or indirect. 2005 Facts: During the 1987 national elections. who are partners in the ACCRA law firm. On appeal. WHAT IS A NON-PROFIT EDUCATIONAL AND/OR CHARITABLE CORPORATION? It is one which is incorporated as a non-stock entity paying no dividends. For as long as the contributions Page 65 of 145 . Angara does not affect the character of the fund transfers as donation or gift. The BIR assessed each of the petitioners for their contributions. A gift is generally defined as a voluntary transfer of property by one to another without any consideration or compensation therefore. tangible or intangible. claiming that political or electoral contributions are not considered gifts under the NIRC. 23.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 without her consent pursuant to the provisions of the Civl Code and the Family Code. the contributions are voluntary transfers of property in the form of money from private respondents to Sen. Abello vs. or to any political subdivision of the said Government (c) Gifts in favor of an non profit educational and/or charitable. There was thereby no retention of control over the disposition of the contributions. Pursuant to the above-quoted provisions of law. religious. 120721. Angara. The CA reversed and set aside the CTA decision. collected. The claim for exemption was denied by the Commissioner. ordering the petitioners to pay donor’s tax. then running for the Senate. (b) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit. Fifty Thousand worth at least Pesos (P50. which shall be attached to the said Notice of Donation. Petitioners questioned the assessment. GR No. or non-resident. provides: Sec. Inc. institution accredited non-government organization. as amended. provided. and whether the property is real or personal. nonprofit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3)and (B)(2) of the Code (RR 2-2003).
who accepts it.31 to the campaign funds of Senator Angara. Held2: Untenable. He was fully entitled to the economic benefits of the contributions. there was contribution was to help elect athis picture. their deficiency shall be supplied by the provisions of this Code. Petitioners each gave P882.31 each. The present case falls squarely within the definition of a donation. donative intent is presumed present when one gives a part of ones patrimony to another without consideration. Senator Angara’s patrimony correspondingly increased by P3. It shall also include the use of facilities voluntarily donated by other persons. cannot be considered as a material consideration so as to negate a donation.661. There was intent to do an act of liberality or animus donandi was present since each of the petitioners gave their contributions without any consideration. All three elements of a donation are present. the money value of which can be assessed based on the rates prevailing in the area. motives or purposes which do not contradict donative intent. . whether or not legally enforceable.24. no donative intent.” Since the purpose of an electoral contribution is to influence the results of the election. which was to fund the campaign of Senator Angara in his bid for a senatorial seat. including the giver himself. 2) Made by a Nonresident Alien Page 66 of 145 . (b) the increase in the patrimony of the donee.530. made for the purpose of influencing the results of the elections but shall not include services rendered without compensation by individuals volunteering a portion or all of their time in behalf of a candidate or political party. The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute. Section 94(a) of the said Code defines electoral contribution as follows: “The term ‘contribution’ includes a gift. an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another. without any material consideration. an Issue3: Petitioners maintain that the definition of “electoral contribution” under the Omnibus Election Code is essential to appreciate how a political contribution differs from a taxable gift. donative intent is a creature of the mind. Angara had complete and absolute power to dispose of the contributions. In fine. The patrimony of the four petitioners were reduced by P882. or a contract. The Court was not convinced that QuickTime™ the purpose of the since and a TIFF (Uncompressed) decompressor are needed to see candidate. would influence the shaping of government policies that would promote the general welfare and economic well-being of the electorate. It cannot be perceived except by the material and tangible acts which manifest its presence. The proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received. Petitioners would distinguish a gift from a political donation by saying that the consideration for a gift is the liberality of the donor. reference may be made to the definition of a donation in the Civil Code. Article 725 of said Code defines donation as: “. (c) the intent to do an act of liberality or animus donandi. in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a donation. the purpose for which the sums of money were given. advance or deposit of money or anything of value. . donation. The fact that their purpose for donating was to aid in the election of the donee does not negate the presence of donative intent. Second. However. Issue1: What is the definition of a transfer of property by gift? Held1: The NIRC does not define transfer of property by gift. petitioners again claim that donative intent is not present.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 were used for the purpose for which they were intended. while the consideration for a political contribution is the desire of the giver to influence the result of an election by supporting candidates who. Article 18 of the Civil Code.661. Held3: Petitioners attempt to place the barrier of mutual exclusivity between donative intent and the purpose of political contributions. First of all. loan. states: “In matters which are governed by the Code of Commerce and special laws. he may even be called to enact laws that are contrary to the interests of his benefactors.” Donation has the following elements: (a) the reduction of the patrimony of the donor. motives or purposes which do not contradict donative intent. for the benefit of the greater good.” Thus. Senator Angara was under no obligation to benefit the petitioners. petitioners argue that it is important to look into the intention of the giver to determine if a political contribution is a gift. promise or agreement to contribute. Sen. subscription. in the perception of the giver. The Court reiterated that donative intent is not negated by the presence of other intentions. Issue2: Since animus donandi or the intention to do an act of liberality is an essential element of a donation. and. In fact. donative intent is not negated when the person donating has other intentions. Petitioners’ attempt is strained. This being the case.645. as a public servant. Petitioners’ contribution of money without any material consideration evinces animus donandi.
the amount derived from this formula: Net gifts. Accordingly.the lower amount between the actual foreign taxes paid to each country and the amount derived from the forumula below: Net gifts. donor’s tax Net gifts. trust or philanthropic organization or research institution or organization. whether natural or juridical. 103) 1) Who are liable to file donor’s tax return? • Every person. then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed. if a mortgaged property is transferred as a gift. who transfers or causes to transfer property Page 67 of 145 . but imposing upon the donee the obligation to pay the mortgage liability. However. which the decedent’s net gifts situated within such country taxable QuickTime™ and a under the TIFF (Uncompressed) decompressorentire net gift. Compliance Requirements (Sec. religious. Limitation B (by total): . institution accredited non-government organization. world F. world For donor’s taxes paid to 2 or more foreign countries the lower amount between limitation a and limitation b. and b. provided. • H. which the decedent’s net gift situated outside the Philippines taxable under the NIRC bears to his entire net gift. Limitation A (per country): . there is only one donor for donor’s tax purposes. a. if what was donated is a conjugal or community property and only the husband signed the deed of donation.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 (a) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit. b. NIRC bears to his are needed to see this picture. Net Gift • • The net economic benefit from the transfer that accrues to the donee. donor’s tax Net gifts. foreign countryx Phil. cultural or social welfare corporation. foreign country x Phils. world G. Formulas: Limitation A: For donor’s taxes paid to one foreign country Allowable Final Tax Credit = The lower amount between: a. donor’s tax Net gifts. foreign country x Phils. not more than 30% shall be used by such donee for administration purposes E. and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. Who are entitled to claim credits: only resident or citizen donors (resident citizens. non-resident citizens. Special Rules on Husband and Wife • Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s tax. or to any political subdivision of the said Government (b) Gifts in favor of an non profit educational and/or charitable. resident or non-resident. without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provisions of the Civil Code of the Philippines and the Family Code of the Philippines.the lower amount between the sum of the actual taxes paid to ALL foreign countries and the answer to the formula below: Net gifts. Donor’s Tax Credit A situation may arise when the property given as a gift is located in a foreign country and the donor may be subject to donor’s tax twice on the same property – by the Philippine government and by the foreign government where the property is situated. and resident aliens) Limitations on Tax Credit: The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken. Tax actually paid to the foreign country.
Levy (Sec. 203): • false return-filed with no intent to evade tax • fraudulent return-filed with intent to evade tax within the period agreed upon. false or fraudulent return with intent to evade tax. 219) 5. opinion of the Court the collection … may jeopardize the interest of the Government and/or the taxpayer.actual and constructive (Sec. whichever comes later (Sec. 203 for the assessment of tax.) Prescription SUSPENSION OF PRESCRIPTIVE PERIODS: (Sec. 205208) 3.222 b) • In General 1. 218) • Justification: lifeblood theory EXCEPTION: Injunction may be issued by the CTA in aid of its appellate jurisdiction under Sec. except if the taxpayer Page 68 of 145 . Compromise (Sec. 221) 6. 11 of RA QuickTime™ and a TIFF (Uncompressed) decompressor 1125. the day when the return was actually filed (when filed after the last day prescribed). or 2. 2) When to file donor’s tax • The donor’s tax return shall be filed within 30 days after the date the gift is made 3) When to pay the tax • Pay at the time of filing (pay-as-you-file system) TITLE VIII – REMEDIES PART I. No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax. (Sec. the Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. be pursued singly or independently of each other. the last day prescribed by law for filing the return (when filed on or before such date). 204) 2. or all of them simultaneously. whether the gift is direct or indirect and whether the property is real or personal. to an assessment after such time. 115) 9. Tax lien (Sec. Suspension of business operations in violations of VAT (Sec. tangible or intangible. Civil Action (Sec. Enforcement of administrative fine the remedies of disraint and levy as well as collection by civil and criminal actions may in the discretion of the Commissioner. before the expiration of the period in Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 by gift. failure to file a return (Sec. REMEDIES GOVERNMENT AVAILABLE TO THE • Prescriptive Periods 1) Assessment of Tax Liability 3 years from the following. 222 a) The following are covered by the general rule (Sec. 203): 1. 224-225) 8. Criminal Action (Sec. or charge imposed by the NIRC (Sec. fraud or omission in case of: 1. Such period agreed upon may be extended by written agreement before the expiration of such agreed upon period. whether in trust or otherwise. when both the Commissioner and the taxpayer have agreed in writing. fee . Forfeiture of Property (Sec. or 2. 221-222) 7. 203 and 222 (b) beginning of distraint or levy (c) proceeding in court for collection 2) Grounds for suspension of prescriptive periods: [ PLORP ] a) Commissioner is Prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter b) Taxpayer requests for Reinvestigation which is granted c) Taxpayer cannot be Located in the address given in the return filed. 10 years after the discovery of the falsity. Distraint . 207b) 4. 223) 1) Periods suspended: (a) periods for assessment in Sec. as amended are needed to see9282 (…when in the by RA this picture.
the taxpayer's criminal liability arising from his violation of the pertinent provision of the Code may be settled extrajudicially instead of the BIR instituting against the taxpayer a criminal action in Court. hence. The corporation ceased operation or is already dissolved. Delinquent accounts with duly approved Page 69 of 145 . Hence. Withholding tax cases 2. P 21. The taxpayer has been granted by the SEC or by any competent tribunals a moratorium or suspension of payments to creditors or otherwise declared bankrupt or insolvent (Sec 3. or The assessment seems to be arbitrary in nature. (Art. avoid litigation or put an end to one already commenced. may not be imposed on the taxpayer without his consent. The taxpayer is suffering from earning deficit resulting to an impairment in the original capital by at least 50% The taxpayer is suffering from a net worth deficit computed by deducting total liabilities form total assets. appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character. New Civil Code) REQUISITES: o The taxpayer have a tax liability o There must be an offer (by the taxpayer of an amount to be paid by the taxpayer) o There must be an acceptance (by the Commissioner or the taxpayer as the case may be) of the offer in the settlement of the original claim When may taxes be compromised? 1. the BIR may only suggest settlement of the taxpayer's liability through a compromise.000/month if married) and that it appears that the taxpayer possesses no other leviable/distrainable assets. taken from the latest audited financial statements The taxpayer is a compensation earner with no other sources of income and the family’s gross monthly compensation does not exceed (P 10. by reciprocal concessions. Criminal tax fraud cases 3. the taxpayer should waive the confidentiality privilege on bank deposits under RA 1405 (Sec 6 (F)(2) NIRC). 2028. RR 7-2001). • CASES NOT SUBJECT TO COMPROMISE: 1. (RR 012-99) • 3 A jeopardy assessment is a tax assessment made by an authorized Revenue Officer without the benefit of complete or partial trial in light of the RO’s belief that assessment and collection of tax will be jeopardized by the delay caused by the taxpayer’s failure to 1) comply with audit and investigation requirements and 2) substantiate any or all claims.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 informs the Commissioner of a change in address the prescriptive period will not be suspended d) When the warrant is duly served upon the taxpayer and no Property could be located e) When the taxpayer is Out of the Phils. (Sec. deductions or credits in his return. 204 A) in such case. The financial position of the taxpayer demonstrates a clear Inability to pay the assessed tax. A reasonable doubt as to the validity of the claim against the taxpayer exists: The delinquent account or disputed assessment is one resulting from a jeopardy assessment 3. 2. other than his family home. Compromise Definition A contract whereby the parties.500/month if single. criminal violations already filed in court 4. • In general.
40% of basic assessed tax 2. The NIRC allows the Commissioner of Internal Revenue to compromise the civil as well as criminal cases arising thereunder. 204A) 1.000. The CIR should file a criminal action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to enforce a penalty. Cases which become final and executory after final judgment of a court (Sec 2 RR 7-2001). June 27. If an offer of compromise is rejected by the taxpayer. No similar provision exists. 1961) This is more so when the court has rendered a final judgment. o LIMITATIONS FOR COMPROMISE OF TAX LIABILITY: (Sec. Enforce the Compromise If it is a judicial compromise. in regard to violations of the Tariff and Customs Code. cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision 6. the government has already acquired a vested rights. it can be enforced by mere execution.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 schedule of installment payments 5. Minimum QuickTime™ and a rate: compromise TIFF (Uncompressed) decompressor are a) In needed to see thisfinancial incapacity. A Page 70 of 145 . hence. Before the complaint is filed with the prosecutor’s office: the CIR has full discretion to compromise except those involving fraud 2. 1965). Desiderio L-20805. Magdaluyo. November 29. the Commissioner is not authorized to accept anything less than what is adjucated in favor of the government by virtue of such final judgment. the compromise penalty cannot be enforced thru an action in court or by distraint and levy. Abad. • P1. The extra-judicial settlement and the amount of the suggested compromise penalty should conform with the schedule of compromise penalties provided under the relevant BIR regulations or orders.000 or b) where the settlement offered is less than the prescribed minimum rates o Extent of the Commissioner’s Discretion to Compromise Criminal Violations 1. 1968). case of picture. After the complaint is filled with the prosecutor’s office but before the information is filed with the court: the CIR can still compromise provided the prosecutor must give consent 3. (Commissioner vs. (People vs. may not be imposed on the taxpayer without his consent. o Nature of a Compromise in Extrajudicial Settlement of the Taxpayer’s Criminal Liability for his Violation It is consensual in character. Power to Compromise o Who has the Power to Compromise? The Commissioner of Internal Revenue with respect to criminal and civil cases arising from violations of the tax code (Sec 7c and 204). L-19627. 10% of basic assessed tax b) In other cases. The power to compromise is vested in the CIR. April 20. The BIR may only suggest settlement of his tax liability through a compromise. After information is filed with the court: the CIR is no longer permitted to compromise with or without the consent of the Prosecutor (People vs. Compromise subject to approval of Evaluation Board (composed of Commissioner and 4 Deputy Commissioners): a) when basic tax involved exceeds • Remedy in Case the Taxpayer Refuses or Fails to Abide the Tax Compromise 1. vis-a-vis the Collector or Commissioner of Customs. As a mere agent of the Government.
2. in which case the CIR must institute a criminal action. chattels or effects of the taxpayer including other personal property of whatever character. 204 B) Abatement vs. 249 o when the assessment is brought about or the result of taxpayer’s non-compliance with the law due to a difficult interpretation of said law o when the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control. or 2. the abatement shall only cover the surcharges and the compromise penalty and not the interest imposed under Sec. This is paid in lieu of criminal prosecution. the abatement shall cover only the surcharges and the compromise penalty and not the interest imposed under Sec 249 o late payment of the tax under meritorious circumstances (Sec. RR 13-2001) the admission and collection costs involved do not justify the collection of the amount due (Sec 204 (b) Abatement of penalties on assessment confirmed by the lower court but appealed by the taxpayer to a higher court Abatement of penalties on withholding tax assessment under meritorious circumstances Abatement of penalties on delayed installment payment under meritorious circumstances abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment such other circumstances which the Commissioner may deem analogous to the enumerations above (Sec. It is a summary remedy. The administration and collection costs involved do not Justify the collection of the amount due (Sec. A taxpayer cannot be compelled to pay a compromise penalty if he does not want to pay. 7. Regard it as rescinded and insist upon original demand (Art 2041. The property may be offered in a public sale if taxes are not voluntarily paid. Page 71 of 145 . Abatement • THE COMMISSIONER MAY ABATE OR CANCEL A TAX LIABILITY WHEN: 1. RR 13-2001) 2. Distraint (Only For Personal Property) O Definition and Nature It is the seizure by the government of personal property. force majure. provided. The tax or any portion thereof appears to be Unjustly or excessively assessed. Civil Code) • Other Consideration on Compromise Agreements o Compromise Penalty It is the amount of money which the taxpayer pays to compromise tax violations. 3.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 judicial compromise is one where a decision based on the compromise agreement is rendered by the court on request of the parties Any other compromise is extrajudicial and like any other contract can only be enforced by court action 2. Compromise In Abatement. the tax or any portion thereof appears to be unjustly or excessively assessed (Sec 204 (b)) o when the filing of the return/payment is made at the wrong venue o whenQuickTime™ and a the taxpayer’s mistake in TIFF (Uncompressed) decompressor paymentseeof picture. 5. 4. tangible or intangible to enforce the payment of taxes on the goods. provided. 6. tax is due to his are needed to this erroneous written official advice of a revenue officer o when the taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute. there’s a cancellation of the entire tax liability. legitimate business reverses. while compromise involves a mere reduction of the tax. 3. o When may taxes be abated or cancelled? [ UJ ] 1.
• Resorted to only when the taxpayer becomes delinquent. Constructive Distraint • There may be no actual delinquency. together with a statement of the sum demanded Page 72 of 145 Are summary remedies for the collection of taxes Refer only to personal property Cannot be availed of where the amount of the tax involved is not more than P 100 REQUISITES FOR THE EXERCISE OF THE TIFF (Uncompressed) decompressor are needed to see this picture. 207(a)) AMOUNT INVOLVED In excess P1. and The period within which to assess or collect the tax has not yet prescribed. 207 A) 2) Service of Warrant of Distraint Procedure with respect to: (a) Goods. effects. Types of Distraint A.000. chattels. as may be required by the Commissioner The order of Distraint may be lifted by the Commissioner or his representative (Sec. bank accounts.000. . • There is actual seizure of the property of the delinquent taxpayer. Physical transfer of possession is not always required. the taxpayer may appeal to the CTA within 30 days from service of the warrant. submitted to the Revenue District Officer and to the Revenue Regional Director b) by the Revenue Regional Director . If it is an indication of a final decision. shall be left either with the owner or the person from whom the property was taken or at the dwelling or place of business of such person and with someone of suitable age and discretion 2. The receipt of a warrant may or may not partake the character of a final decision. signed by the officer. submitted within 10 days from receipt of the warrant 2. effects and other personal property b) including stocks and other securities. • Taxpayer is prohibited from disposing of the property and must preserve the same ACTUAL DISTRAINT Made only on the property of a delinquent taxpayer there is taking or possession Effected by leaving a list of distrained property or by service of a warrant of distraint or garnishment an immediate step for collection of taxes Both CONSTRUCTIVE DISTRAINT made on the property of any taxpayer. interests in and rights to personal property PROCEDURE FOR THE ACTUAL DISTRAINT OR GARNISHMENT 1) Report on the Distraint (Commencement of distraint proceedings) a) by the distraining officer 1. • Resorted to when there is actual delinquency in tax payment.a consolidated report. debts. B. chattels and other personal property 1. Actual Distraint There is taking of possession of the personal property from the taxpayer by the government. This is true in case of intangible property such as stocks and credits. Distraint of Personal Property (Actual Distraint) WHO MAY EFFECT DISTRAINT Commissioner or his duly authorized representative Revenue District Officer (Sec. credits.000 P1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 The warrant is a summary procedure forcing the taxpayer to pay.000 less of or PROPERTY SEIZED OR DISTRAINED: a) goods. whether delinquent or not the taxpayer is merely prohibited from disposing of his property Effected by requiring the taxpayer to sign a receipt of the property or by the revenue officer preparing and leaving a list of such property not necessarily an immediate step for collection of taxes QuickTime™ and a REMEDY OF DISTRAINT: The taxpayer must be delinquent (except in constructive distraint) in the payment of taxes There must be a subsequent demand for its payment The taxpayer must have failed to pay the tax at the time required. a copy of an account of the property distrained.
Sale of Property Distrained 3. serving a copy of the warrant upon the taxpayer AND upon the president.Constructive distraint is an additional remedy because the government can resort to it while the remedy of actual distraint is not yet available. treasurer or other responsible officer of the bank 2. leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent the warrant shall be sufficient authority to the person served to pay to the Commissioner the amount of such debts or credits (d) Bank accounts (garnishment) 1. the delinquent taxpayer. association (c) Debts and Credits 1. When exercised: before. When may Levy be effected? It is effected by issuing a warrant of levy and giving a written notice to the taxpayer and the Register of Deeds. if after seizure. company. LEVY (ONLY ON REAL PROPERTY) The seizure of real property of the taxpayer and interests or rights to such property for the satisfaction of taxes due from the delinquent taxpayer to enforce the payment thereof. the taxes are not voluntarily paid. The posting shall be made in not less than 2 public places in the city or municipality where the distraint is made. simultaneously or after the distraint of personal property belonging to the taxpayer Procedure of Levy on Real Property Prepare Certificate of Levy (a) Internal revenue officer shall prepare a duly authenticated certificate showing: the name of taxpayer amounts of tax and penalty due (b) Enforceable as a legal execution throughout the Philippines (c) officer shall write upon the certificate a description of the property upon which levy is made written notice of levy shall be mailed or served upon 1. serve a warrant of garnishment upon the taxpayer AND upon the president. and also a note of the time and place of sale (b) Stocks and other Securities 1. after which the real property shall be sold at a public sale to satisfy the tax obligation of the taxpayer.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 3. meaning the assessment process is still to be done. 206) a) taxpayer is Delinquent b) taxpayer is Retiring from any business subject to tax c) taxpayer is Intending to leave the Phil. and . manager. tax due 2) Procedure (a) Require the taxpayer or any person having possession/control of the property to 1. and 2. bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient (Sec. (b) Where taxpayer or person in possession refuses to sign: distraining officer shall prepare a list of the property distrained in the presence of 2 witnesses leave a copy in the premises where the property is located = after which the said property shall be deemed to have been placed under constructive distraint (Sec. without the express authority of the Commissioner. to his Page 73 of 145 4) CONSTRUCTIVE DISTRAINT 1) When may this occur? [ HORRID ] (Sec. obligate himself to preserve the same intact and unaltered. One of the places for posting of such notice is the Office of the Mayor of such city or municipality. treasurer or other responsible officer of the issuing corporation. 206) Note: .208) 3) Posting of Notice (Sec. or if he is absent from the Philippines. 209) Notice specifying the time and place of sale and the articles distrained. or to Remove his property therefrom d) taxpayer Hides or conceals his property e) taxpayer performs any act tending to QuickTime™ for Obstruct the proceedingsand a collection of any TIFF (Uncompressed) decompressor are needed to see this picture. sign a receipt covering property distrained. The property may be offered in a public sale. manager. not to dispose of the property in any manner.
(Sec. and the same shall be for a period of at least 30 days. with interests.a lien in favor of the Government of the Philippines when a person liable to pay a tax neglects or refuses to do so upon demand Duration. penalties and costs that may accrue in addition thereto Extent. TAX LIEN It is a legal claim or charge on property. penalties and interest thereon from the date of delinquency to the date of sale together with interest on purchase price at 15% per annum from the date of sale to the date of redemption. Within 1 year from the date of sale. the Register of Deeds where the property is located (Sec. It shall be effected by: a) posting a notice at the main entrance of the municipal building or the city hall and in public and conspicuous place in the barrio or district where the property is located b) by publication once a week for 3 consecutive weeks in newspaper of general circulation in the municipality or city where the property is located (Sec. either real or personal. and sold or forfeited to the government Both: summary remedies for collection cannot be availed of where amount involved do not exceed P100 Redemption of Property Sold o o o • Page 74 of 145 . 214) The taxpayer-owner shall not be deprived of possession of said property and shall be entitled to rents and other income until the expiration of the period for redemption. 213) Sale Awarded to the highest bidder In case the proceeds of the sale exceeds the claim and costs of sale. upon the payment of the taxes. 2. the real property shall be forfeited to the Government (Sec. Generally. penalties and costs There is no right of There is a right of redemption on the redemption in case of QuickTime™ and a personal property TIFF (Uncompressed) decompressor levied upon real property are needed to see this picture. Forfeiture to the Government If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes. o Nature. 219) Superior to judgment claim of private • DISTRAINT VS. penalties. and interests. the excess shall be turned over to the owner of the property. At any time before the day fixed for the sale. 207[B]) Advertisement of the time and place of sale. to the occupant of the property.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 agent or manager if the business in respect to which the liability arose. a clever taxpayer who is also able to conceal most of the valuable part of his property would escape payment of his tax liability by sacrificing an insignificant portion of his holdings.only when notice of such lien is filed by the Commissioner in the Register of Deeds in the province/city where the property is situated (Sec. (Sec 217) Otherwise. LEVY DISTRAINT refers to personal property forfeiture of the property in favor of the government is not provided LEVY involves real property Forfeiture authorized if (§ 215): There is no bidder or If the highest bid is insufficient to pay the taxes. the taxpayer may discontinue all proceedings by paying the taxes. established by law as a security in default of the payment of taxes (51 AmJur 881). which shall contain a) The amount of tax and penalties due b) Name of the taxpayer c) Short description of the property to be sold the advertisement shall be made within 20 days after the levy. 215) Further Distraint and Levy The remedy of distraint and levy may be repeated if necessary until the full amount of the tax delinquency due including all expenses is collected from the taxpayer. or if there be no agent. penalties and costs.upon all property and rights to property belonging to the taxpayer Effectivity against third persons. the property may be redeemed by the delinquent taxpayer or anyone from him. it attaches to the property irrespective of ownership or transfer thereof.lien exists from the time assessment is made by the Commissioner until paid.
(Ungab vs. TC. 219]). there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. for instance.00 (Sec 7[c]. 220).000. TC. and not because of any criminal act committed by him. fees. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. Metro aTC. It includes filing by the government with the probate court claims against the deceased taxpayer. The situation under the income tax law is the exact opposite. 97 SCRA 877) Page 75 of 145 LIEN Directed against the property subject to the tax Regardless of the owner of the property CIVIL ACTIONS For tax remedy purposes. RA 9282) The approval of the CIR is essential in civil cases (Sec. 7 of NIRC. DISTRAINT Need not be directed against the property subject to tax Property seized must be owned by the taxpayer Executory Assessment Invalidity or illegality of the assessment and Prescription of the government’s right to assess CRIMINAL ACTIONS The judgment in the criminal cases shall not only impose the penalty but shall also order the payment of taxes subject of the criminal case as finally decided by the Commissioner (Sec 205) Resorted not only for the collection of the taxes but also for the enforcement of statutory penalties of all sorts.000. Where to file 1) Court of Tax Appeals.where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above 2) RTC.000. Patanao). exclusive are needed taxes and of charges and penalties claimed is less than P1. Civil liability to pay taxes arises from the fact. When: • A tax is assessed and the assessment becomes final and unappealable because the taxpayer fails to file an administrative protest with the BIR within 30 days from the receipt of the assessment.where the QuickTime™ and TIFF (Uncompressed) decompressor principal amount of to see this picture. 2) RTC.000. the criminal liability gives birth to the civil obligation such that generally. that one has engaged himself in business. • When an administrative protest filed by the taxpayer against the assessment is o denied. where the principal amount of taxes and fees.000.00 and above. Mun. exclusive of charges and penalties claimed is P1. and o The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the 180 day period. 30 May 1980. Stated differently. Resorted to when the tax liability becomes final and unappealable. or when the decision of the Commissioner becomes final or executory. Mun.on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC. the Commissioner may delegate such power to a Regional Director.00 or where there is no specified amount claimed (Sec 7[b].on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 • property Attaches not only from the time the warrant was served BUT from the time tax was due and demandable (from the time when the assessment was made [Sec. Cusi L41919-24. Defenses which are Precluded by Final and . Metro TC. he cannot become civilly liable thereunder. if one is not criminally liable under the Penal Code. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed. these are actions instituted by the government to collect internal revenue taxes. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. where the principal amount of taxes and fess exclusive of charges and penalties claimed is less than P1. (Republic vs. in whole and in part or o Is not acted upon within 180 days from submission of the documents. Where to File 1) Court of Tax Appeals. However under Sec.000. RA 9282) Acquittal of the taxpayer in criminal case does not exonerate him from liability to pay Taxes Under the Penal Code the civil liability is incurred by reason of the offender's criminal act.
(Bank of Phil. Conducted by legalneeded to see this picture. removed in violation of Forfeited property shall the Code. Trinidad. 1999. Provided. HOWEVER. CA. that there is a prima facie showing of a willful attempt to evade taxes. & Fortune Tobacco (GR No. in the case of CIR vs. 30 May 1980. L-41919-24. In case of actions for recovery of taxes or enforcement of a fine. In the former all the proceeds derived from the sale of the thing forfeited are turned over to the Collector of Internal Revenue. is returned to the owner of the property. 119761. 1996). Pascor Realty. may be cigars. penalty or forfeiture. 97 SCRA 877) See also CIR vs. CTA.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Effect of Subsequent Satisfaction of Civil Liability The subsequent satisfaction of civil liability by payment or prescription does not extinguish the taxpayer’s criminal liability. June 29. BIR 3. 42 Phil 220). the CIR held a contrary position CIVIL AND CRIMINAL ACTIONS: 1. (Ungab v. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. which reached the same conclusion as in Ungab. No Subsidiary Imprisonment In case of insolvency on the part of the taxpayer subsidiary imprisonment cannot be imposed as regards the tax which he is sentenced to pay. Cusi. products CIR where the sale may of tobacco and apparatus be injurious to public used for their production health or prejudicial to law enforcement Other articles subject to Upon forfeiture may be excise tax which have sold or destroyed at the been manufactured or discretion of the CIR. Must be brought in the name of the Government QuickTime™ and a of the Philippines (Uncompressed) decompressor TIFF are officers of the 2. forfeited property shall not be destroyed until at least 20 days from seizure ENFORCEMENT OF REMEDY OF FORFEITURE: Personal Property Seizure and sale or destruction of specific forfeited property Real Property Judgment of condemnation and sale Distille spirits. in the latter the residue of such proceeds over and above what is required to pay the tax sought to be realized. (US v. it may be imposed in cases of failure to pay the fine imposed. 29. in consequence of a default or offense. since what is involved in the criminal action is not the collection of tax but a criminal prosecution for the violation of the NIRC. 20 Phil 163). Island v. All the proceeds in case of a sale goes to the coffers of the government. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return. 224-225) ASSESSMENT AND COLLECTION Page 76 of 145 Divestiture of property without compensation. dies for not be destroyed until at printing or making fake least 20 days from revenue stamps and seizure labels Effect of the Forfeiture of Property The effect is to transfer the title to the specific thing from the owner to the government. and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. however. There is a great difference between a seizure under forfeiture and a seizure to enforce a tax lien. Upon forfeiture. cigarettes destroyed by order of the manufactured. GR No. including expenses. It relates solely to the sale of property distrained to pay taxes of delinquents and the disposition of the proceeds thereof. However. The provisions in the Code which entitles the taxpayer to the balance of the proceeds in excess of the tax liability is entirely inapplicable to forfeited property. liquors. 220) FORFEITURE: (SEC. Aug. must be filed with the approval of the Commissioner (Sec. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. (Sec 280) Criminal Action May be Filed during the Pendency of an Administrative Protest in the BIR It is not a requirement for the filing thereof that there be a precise computation and assessment of the tax. Surla. 128315. .
the assessment is void. . Taxpayer to advise the examiner if position paper JEOPARDY ASSESSMENT: a tax assessment made by an authorized revenue officer without the benefit of a complete or partial audit if the officer believes that the assessment and collection will be jeopardized by the delay caused by the taxpayer’s failure to: a.If.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Letter of Authority The letter of authority is an official document that empowers a Revenue Officer to examine and scrutinize a taxpayer’s books of accounts and other accounting records. this recommendation is communicated by the Bureau to the taxpayer concerned during an informal conference called for this purpose.If the taxpayer disagrees with the findings in the PAN. WHERE NO LETTER OF AUTHORITY NEEDED: . If the CIR has already issued an LA to investigate a particular taxpayer. exemptions or credits claimed in his return. otherwise. WHEN PAN NO LONGER REQUIRED: a. a Revenue Officer recommends the imposition of deficiency tax assessments. after the culmination of an audit. the taxpayer shall have 15 days from receipt of the notice of informal conference to explain his side. when a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. and . TAKEN to see decompressor UP: are needed 1. in order to determine the taxpayer’s correct internal revenue tax liabilities WHO ISSUES LOA: o CIR – for those units reporting directly under him o Regional Directors – for taxpayers covered by his particular region. the Regional Director shall desist from issuing another LA for the same taxpayer. comply with audit and investigation requirements to present his books of accounts and or pertinent records b. or e. The assessment shall be in writing. it is usually when statutory prescriptive periods for the assessment or collection of taxes are about to lapse due to taxpayer’s fault. Attempt of taxpayer to convince the examiner to conduct a re-investigation and or re-examination 3.Cases involving civil/criminal tax fraud which fall under the jurisdiction of the tax fraud division of the enforcement services. informing a taxpayer who has been audited of the findings of the Revenue Officer. Discussion on the merits of the assessment 2.a written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency assessments have to be paid . Evaluate if the submission of the waiver of the SOL is necessary – evaluation may extend beyond 3 years STEP 3: Issuance of Pre-Assessment Notice (PAN) . or d. mathematical errors b. when the excise tax due has not been paid. following the review of these findings. - - - PRE-ASSESSMENT STAGE STEP 1: Notice of Informal Conference . and should inform the taxpayer of the law and the facts on which the assessment is made. STEP 2: Informal Conference a QuickTime™ and MATTERS TIFF (Uncompressed) this picture. when an article locally purchased or imported by an exempt person Page 77 of 145 . substantiate all or any of the deductions.Communication issued by the Regional Assessment Division or any other concerned BIR office.policy cases under audit by the special teams in national offices 4. discrepancy has been determined between tax withheld and amount actually remitted by the withholding agent c. he has 15 days to file a written reply contesting the proposed assessment.
NIRC) 2. Otherwise. CTA. Deficiency tax liability arisinf from a tax audit conducted by a BIR (sec 56b. Tax period of a taxpayer is terminated (sec. (GR L-24213 March 13. receipts or income.The state cannot be estopped by the QuickTime™ and a TIFF agents and officers. The same is true even if the CIR is wrong. estoppel cannot be invoked by the taxpayer in order to preclude the collection of taxes that is rightfully due the government.Failure to report sales. where the assessment is merely erroneous. the remedy of a taxpayer. 23. What Constitutes an Assessment? There is no form for an assessment. which is the primary responsibility of the executive branch of the government. if the taxpayer does not controvert it (Cagayan Robina Sugar Milling V. his recourse is to file an appeal in the Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. OR a substantial overstatement of deductions . receipts. NIRC) 3. NIRC) Requisites of a valid assessment: 1. Tax lien (sec. CA) Reasons: > lifeblood theory > presumption of regularity in the performance of public functions Note: assessments by the BIR must have on its face the law and facts upon which the presumption is made. 1988. 52c. in writing 2. . GRN L81446 August 18. FORMAL ASSESSMENT STAGE Notice of Assessment is a formal letter of demand where a declaration of deficiency taxes is issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time. Any notice sent to the taxpayer demanding the tax liability is an assessment. Illegal Assessment An assessment is illegal and void when the assessor has no power to act at all. GENERAL RULE: Taxes are self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 has been sold. 219. Dissolving Corporation (sec. The taxpayer has the duty to prove otherwise. mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. Exceptions: 1.There is a presumption of correctness and good faith on the part of the CIR. On the other hand. The rule of (Uncompressed) decompressor neglect of itsare needed to see this picture. thus. or transferred to a non-exempt person BURDEN OF PROOF: . 1968) Page 78 of 145 . It is erroneous when the assessor has the power but errs in the exercise of that power. and a claim of deductions exceeding 30% of actual deductions constitute substantial under declaration or over declaration. the finding of the CIR will be conclusive and he will assess the taxpayer.) Assessment Discretionary on the part of Commissioner Since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws. (Sy Po v. must state the facts and law upon which it is based (Sec. NIRC) 4. Oct. It is settled in our jurisdiction that where an assessment is illegal and void. who has already paid the realty tax under protest. Void vs. traded. Savellano. 1992). An assessment contains not only a computation of under declaration of taxable sales. 6d. L-36181 and L-36748. (Meralco Securities vs. it can be written anywhere as long as it is signed by the BIR. is to sue for refund in the competent court. the burden lies on the taxpayer. or whose reply to the PAN was found to be without merit. This is commonly known as the Final Assessment Notice. or income in an amount exceeding 30% of that declared per return. 228) Assessments Prima facie correct Tax assessments by tax examiners are presumed correct and made in good faith.
CTA and Collector) Agreement in writing to the extension of the period to assess between the CIR and the taxpayer before the expiration of the 3 year period. Fraud must be the product of a deliberate intent to evade taxes (Jalandoni V. Republic) Simple statement that return filed was not fraudulent does not disprove existence of fraud (Tayengco V. CTA) Presence of fictitious expenses. It is not required that the notice be received by the taxpayer within the prescribed period. (Sec.B. Remedy of taxpayer is to file a return Defense of prescription is waivable Prescriptive Period for the Assessment of Taxes a) General Rule: 3 years after the date the return is due or filed. Javier) Mistakes of revenue officers on three different occasions remove element of fraud ( Aznar V.Ayala Securities) Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in the trial court (CIR v. Notice of the assessment is released.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND COLLECTION OF TAXES Rationale The periods are designated to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. Ayala Securities) Farud is never imputed and the courts never sustain findings of fraud upon circumstances that only create suspicion ( CIR v. intentional and substantial understatement of the tax liability by the taxpayer (substantial underdeclaration of income. 248]) 2. CIR) No Fraud in the following cases: mere understatement in the tax return will not necessarily imply fraud (Jalandoni V. tax is imprescriptible N. 222(b)) Written waiver or renunciation of the original 3 years limitation. But the Rules on Prescription When the tax law itself is silent on prescription. of the actual (>30% deductions [Sec. It must be the product of a deliberate intent to evade taxes. 248]) 3. the tax is imprescriptible When no return is required. mailed or sent to the taxpayer also within the 3 year period. Collector) Substantial underdeclarations of income for six consecutive years demonstrate fraudulence of returns (Perez V. whichever is later (Sec 203) b) Exceptions: failure to file return: 10 years from date of discovery of the omission to file the return (Sec 222A) False or fraudulent return with intention to evade the tax: 10 years from the date of the discovery of the falsity or fraud (Sec 222A) Nothing in Sec 222A shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree Fraud must be alleged and proved as a fact. proves existence of fraud (Tan Guan V. with no evidence presented. carelessness or ignorance. The extension period agreed upon can further be extended by a subsequent written agreement made before the expiration of the extended period previously agreed upon. recurrence of the above circumstances Falsity constitutes a deviation from the truth due to mistake. signed by the taxpayer. >30% of that declared [Sec. intentional and substantial QuickTime™ and a deductions overstatement decompressor of of TIFF (Uncompressed) are needed exemptionsto see this picture. They are also beneficial to the government because tax officers will be obligated to act promptly. There is fraud in the following cases: Page 79 of 145 . Republic) Sale of real property for less than FMV is not necessarily a false return ( CIR v. It may be established by the: 1.
when the taxpayer is out of the Philippines (Sec. By judicial remedies – by filing a complaint through the proper court Note: if the decision of the CIR on protested assessment is appealed to the CTA. 1144(1) of the Civil Code and not 3 years under the NIRC. provided that no notice for audit or investigation of such return. Phoenix Assurance Co. (Republic v. the same may be modified. the prescriptive period shall be counted from the filing of the amended return. Charge is filing of false or fraudulent return with intent to evade the assessment. CA 190 SCRA 616) 1. The action is for the enforcement of a contractual obligation. Prescriptive Period for the Violation of Any Provision of the Tax Code (Sec. Charge is failure or refusal to pay deficiency income-committed only after the finality of the assessment coupled with the taxpayer’s willful refusal to pay the taxes within the allotted period 2.) Within 3 years from the date of such filing. changed or amended. and for 60 days thereafter 2. when the taxpayer requests for a reconsideration which is granted by the CIR 3. from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment (Lim v. when the taxpayer cannot be located in the address given by him in the return. CIR. when the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court. 21 SCRA 17).Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 sending of the notice must clearly be proven. May 30.it has complied substantially with the requirements of the law • The return is appropriate. GR No. or declaration has in the meantime been actually served upon the taxpayer. unless he informs the CIR of any change in his address 4. By summary remedies – when the Government avails of the summary method of distraint and levy procedure 2. 223) A Tax Return is Considered Filed for Purposes of Starting the Running of the Period of Limitation • The return is valid. In this case the taxpayers failed to pay the installments due despite demand.in addition to the fact of discovery. Amendment of Return If the amended return is substantially different from the original return. L-14142. 1961) Grounds for Suspension of the Running of the QuickTime™ and a Statute of Limitation (Uncompressed) decompressor TIFF are needed to see this picture. Effect of filing a wrong return: the 10 year prescriptive period for cases where returns are not filed applies. (Basilan Estate v. WHEN TAX DEEMED COLLECTED: 1. if the same is sufficiently complete to enable the CIR to make proper assessment ( CIR v. Prescriptive Period for the Collection of Taxes • 5 years – from assessment or within period for collection agreed upon in writing before expiration of the 5 year period (Sec 222) • 10 years – after discovery in case of false or fraudulent return with intent to evade or failure to file return. without need for an assessment (Sec 222) Prescriptive Period where the Government’s Action is on a Bond which the Taxpayer Executes in order to Secure the Payment of his Tax Obligation • 10 years under Art. But the said period shall run from the filing of the original return. and if the same shall be not known. (Fernandez Hermanos v. when the warrant of distraint or levy is duly served and no property is located 5. the Government sued on the bond which is a separate and distinct obligation of the parties thereto. Araneta. statement. 281) should be filed 5 years from the (1) day of the commission of the violation of the law. 1. • a defective tax return is the same as if no return was filed at all. the collection of tax is considered begun when the Government filed its answer to the taxpayer’s petition for review.it is a return for the particular tax required by law. CIR) INFORMER’S REWARD -Persons instrumental in the discovery of violations of the NIRC and in the discovery and seizure of smuggled goods REQUISITES TO QUALIFY FOR THE REWARD: Page 80 of 145 . there must be a judicial proceedings for the investigation and punishment of the tax offense before the 5 year prescriptive period begins to run. Hence.
REMEDIES AVAILABLE TAXPAYER General Remedies TO THE 1. whichever is lower. or P1. rules and regulations or jurisprudence on which his protest is based. 228) • Within the 30 day period to appeal. applicable law. such person is not entitled to a reward For discovery and seizure of SMUGGLED GOODS -> the cash reward is 10% of the FMV of the smuggled and confiscated goods.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 1. It can be used in court in case of administrative remedies have been exhausted.000. • Within 60 days from filing. (Standard Chartered Bank v.000. It contains information as specified in RR12-85 3.000. . It states the facts. 4. surcharges and fees. B. After payment of taxes a) Claim for refund or tax credit • Within 2 years from the date of payment regardless of any supervening cause (Sec. public official. or P1. with mere technicality yielding to the substantive purpose of the law Same amount shall be given if the offerender offered to compromise and such offer has been accepted and collected by the CIR If no revenue. all relevant documents should be filed. Aug. not yet in the possession of the BIR b. not refer to a case already pending or previously investigated or examined by the CIR or his agents or the SOF or his agents Amount of Reward . or fees be actually collected. He then only has the remainder of the Page 81 of 145 period is optional to the taxpayer. and/or. 16.10% of the revenues. 2001) A protest is a vital document which is a formal declaration of resistance of the taxpayer. CTA. the taxpayer mat file several motions for reconsideration with the Commissioner instead of at once filing his petition for review before the CTA. The subsequent motion for reconsideration tolls the running of the prescriptive period. 228) 2. and addressed to the Commissioner of Internal Revenue 2. surcharges or fees recovered and/or fine/penalty imposed. otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. otherwise assessment becomes FINAL and cannot be appealed (Sec 228) Submission of documents within the 60 days . CHARACTERISTICS OF A VALID PROTEST: 1. It is filed within the period prescribed by law.000. conviction of the guilty party d. surcharge. The prescriptive period begins to run again when the taxpayer receives the letter denying its request/motion for recon. It is made in writing. Judicial Relief A. Before payment TIFF taxes of (Uncompressed) decompressor are needed to see a) protest of assessment this picture. • Filing a petition for reconsideration or reinvestigation within 30 days from receipt of assessment. The relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted. This is equivalent to a pleading. b) Entering into a compromise (Sec. Administrative QuickTime™ and a A. otherwise the protest shall be considered void and without force and effect. Civil Action a) Appeal to the CTA • within 30 days from receipt of the decision on the protest or from the lapse of the 180 days inaction of the Commissioner (Sec. whichever is LOWER. or employee or relative within the 6th degree of consanguinity 2. 204) PART II. It is also the formal act of the taxpayer questioning the official actuations of the CIR. It is a repository of all arguments. leading to discovery of frauds c.the cash rewards shall be subject to income tax at the rate of 1-% Note: Status offering rewards must be liberally construed in favor of informers and with regard to the purpose for which they are intended. resulting in the discovery of revenue. Case No. Voluntarily gives definite and sworn information: a. Person is not an internal revenue official or employee. 5696.
Appellate Court: Court of Tax Appeals 3. Commissioner did not rule on the taxpayer’s MR of the assessment – it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run. CA. Direct Denial The decision of the Commissioner or his duly rep shall (a) state the facts. 1974) • A division of the CTA shall hear the appeal. Union Shipping Corp. 185 SCRA 547) indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial. Grounds: a) if the protest is denied in whole or in part or b) is not acted upon within 180 days from submission of documents 2. otherwise the protest shall be considered void and without force and effect. Involves a question of fact or law or both.1. Preliminary collection letter may serve as assessment notice (United Int’l Pictures vs. (Revenue Regulation No. (Surigao Electric Co. to recover the same. enjoin the sale. the assessment shall become FINAL (cannot be appealed). otherwise. Union Shipping Corp. Union Shipping Corp) BIR demand letter reiterating his previous demand to pay. (sec. an action to recover the net proceeds realized at the sale (Sec 231) c) Action for damages • against a revenue officer by reason of any act done in the performance of official duty (Sec 227) 3. reinvestigation to the Solicitor General (Republic vs. Within 60 days from filing of protest.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 original 30-day period to appeal to the CTA. all relevant supporting documents should have been submitted. 228) Appeal of Protest to the CTA (Judicial Relief): (Sec. rules and regulations or jurisprudence on which his protest is based. applicable law. CIR) Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA filing by the BIR of a civil suit for collection of the deficiency tax (CIR v. Court may require deposit of an amount or surety bond for not more than double the amount with the enactment of RA 9282. 11. Effect of failure to appeal: the decision shall be final. the CTA has now jurisdiction over criminal cases Denial of Protest: 1. 12-85) 2. Ayala Securities Corp. executory and demandable (NOTE: See Lascona doctrine which gives the taxpayer the Page 82 of 145 . RA 1125) b) Action to contest forfeiture of chattel • at any time before the sale or destruction thereof. 228) 1. (Sec. (CIR v. sent to taxpayer after his protest of the assessment (Surigao Electric Co.5. Involves a question of fact or law or both. Reiterating the demand for immediate payment of the deficiency tax due to taxpayer’s continued refusal to execute waiver (CIR vs. Union Shipping Corp) Protest of Assessment: 1. vs. or • after the sale and within 6 months. Lim Tian Teng Sons) c. Criminal Action a) Against erring BIR officials and employees b) Injunction • When the CTA in its opinion the collection by the BIR may jeopardize the taxpayer. Referral by the (Uncompressed) decompressor request for TIFF Commissioner of are needed to see this picture. and upon giving proper bond. (CIR vs. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment • request for reinvestigation• a plea for re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. Inc. Period to appeal: a) within 30 days from receipt of decision denying the protest or b) 30 days from the lapse of 180 day period 4. RR 12-99) 2. (sec. 57 SCRA 523) The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v. • request for reconsideration• a plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. Indirect Denial a.) d. in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision.) QuickTime™ and a b. v. 3. CTA.
) If taxpayer is not satisfied with the CTA Division’s ruling. (sec. the seller must hold the refunded taxes in trust for the individual purchasers who advanced payment thereof and whose name must appear on his records If the CIR or his rep fails to act on the protest within 180 days from date of submission by taxpayer. theater owners who paid illegal municipal taxes billed to and collected from theater goers) Where payer is withholding agent Appeal to the SC within 15 days from the receipt of the CTA en banc decision FILING OF CLAIM FOR TAX REFUND OR TAX CREDIT Parties Entitled to Refund GR: The person entitled to ask for a refund is the taxpayer who paid the same Exceptions: Case Where tax has been shifted If protest is denied. (sec. elevate the matter to the CIR within 30 days from the receipt of the decision of the CIRs duly authorized representative Appeal to the Division of CTA within 30 days from the receipt of the final decision of CIR or his duly authorized representative (taxpayer has the option to appeal straight to CTA upon receipt of the decision of CIR [Lascona doctrine]) QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. RA 1125) If the taxpayer is not satisfied with the decision of the CTA en banc. American Rubber) Theater goers are not entitled to claim refund of such taxes (Medina vs. City of Baguio) Reason Because the sales tax is imposed directly on the seller as an occupation tax for selling Once recovered. the latter may appeal within 30 days from Appeal to the CTA en banc from receipt of the decision of CTA division (after denial by CTA division of motion for reconsideration) Withholding agent (CIR vs. a party adversely affected may file with the SC a verified petition for review on certiorari pursuant to Rule 45 of the Rules of Court. Sec 228 and Rules of Court) BIR makes a tax assessment If taxpayer is not satisfied with the assessment file a protest within 30 days from the receipt thereof Submit supporting documents within 60 days from date of the filing of the protest Where payer is not the taxpayer (e. Who is entitled to ask for refund The taxpayer (even if tax has been actually shifted by the taxpayer to his customers as in sales tax and even if the tax has been billed as a separate item in the invoice) (CIR vs. 18. Procter & Gamble) "Taxpayer" is any person subject to tax imposed by this title (income tax). 11. He may first file a motion for recon before the same division of the CTA within 15 days from notice thereof. 19. RA 1125) REGLEMENTARY PERIODS IN INCOME TAX IMPOSED BY LAW UPON THE TAXPAYER (Pursuant to RR 12-99.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 option either to appeal to the CTA or to await the decision of the CIR. The withholding agent is Page 83 of 145 . a party adversely affected by a resolution of a division of the CTA on a motion for recon may file a petition for review with the CTA en banc. Then. 1. RA1125) 2. (sec.g.
from date of mailing or delivery b) Forfeiture of Tax Credit-a tax credit certificate which remains unutilized after 5 yrs. from date of issue. Forfeiture of cash refund/tax credit a) Forfeiture of refund in favor of the government when a refund check or warrant remains unclaimed or uncashed within 5 yrs. Grounds for Tax refunded or credited: [EPWroSUn] a) Taxes erroneously or illegally received b) Penalties imposed without authority c) Any sum alleged to have been excessively or in any manner wrongfully collected d) Refund the value of internal revenue stamps when returned in good condition by the purchaser e) Redeem or change unused stamps rendered unfit for use and refund their value upon proof ofand a destruction. Tokyo). (Sec. Procedure for credit/refund a) taxpayer files in writing with the Commissioner a claim for credit or refund b) filed within 2 yrs after the payment of the tax or penalty no suit or proceeding shall begun after the expiration of the said 2 yrs regardless of any supervening cause If the tax sought to be refunded is illegally or erroneously collected If the tax is paid in installment or only in part There is no payment until the whole/entire . (Sec. 204(3) and 229 Case 2-year period starts from From date tax was paid (CIR v Victorias Milling) From date of the last or final Page 84 of 145 Notes What is the nature of as a claim for refund? It partakes of the nature of an exemption and is strictly construed against the claimant. Tax Credit Certificate a) may be applied against any internal revenue tax. 230) Commencement of 2-year period under Sec. refund or credit a tax. in the QuickTime™ TIFF decompressor discretion (Uncompressed) this picture. and of deficiency assessments. Suit or proceeding for refund a) a claim for refund or credit has been filed with the Commissioner b) the suit may be maintained whether or not such tax/penalty/sum has been paid under protest c) in any case. When are there erroneously paid. 229) 4. e) where on the face of the return upon which payment was made.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 directly and independently liable for the correct amount of tax that should be withheld. UNLESS revalidated. he is not aware of an existing exemption in his favor at the time that payment is made. of the Commissioner are needed to see 2. He burden of proof is on the taxpayer claiming the refund that he is entitled to the same (CIR v. payment appears to be erroneous. or illegally assessed or collected taxes? Taxes are erroneously paid when a taxpayer pays under a mistake of fact. 204 C. shall be invalid. When may taxes be refunded or credited? 1. from date of payment of the tax/penalty regardless of any supervening cause that may arise after payment d) the Commissioner may. surcharges and penalties Where donor's tax was assumed by donee Donee is the proper party to claim refund of the donor's tax (even if the tax was advanced by the donor) that may arise after the payment c) a return filed showing an overpayment shall be considered a written claim for credit or refund 3. Taxes are illegally collected when payments are made under duress. even without a written claim. suit must be filed within 2 yrs. EXCEPT withholding taxes b) original copy is surrendered to the revenue officer c) no tax refund will be given resulting from availment of incentives granted by law where no actual payment was made (Sec. such as. 204 C) 5.
CA) operations The 2-yr period provided in Sec QuickTime™ and a 229 TIFF (Uncompressed) decompressor should be are needed to see this picture. there is absolutely no basis to file a claim with the CIR or commence a suit in court Payment Under Protest is NOT Necessary under NIRC A suit or proceedings for tax refund may be maintained whether or not such tax. TMX Sales) From conversion of the deposit to payment (Union Garment v Coll) tax liability fully paid is income tax (CIR vs. In other words. however. computed from the time of filing of the Adjusted Return or Annual ITR and final payment of Merely making a deposit is not equivalent to payment until the amount is actually applied to the specific purpose for which it was deposited A taxpayer who contributes to the withholding tax system performs and extinguishes his tax obligation for the year concerned. v. 229) Similarly. 79 (c)(2) with respect to income taxes withheld on the wages of the EEs In case of the CIRs final denial of the claim for refund. 106 Phil 59) Exception 1) When the CIR acted with patent arbitrariness. he is paying his tax liabilities for that year. under protest is necessary to claim for (a) real property taxes (Sec. TMX Sales) From the date the taxpayer becomes entitled to refund and not from the date of payment (CIR vs. on that the the date of corporation can the filing of ascertain the adjusted whether it final return made profits or (ACCPA incurred losses Investment in its business vs. 252 LGC) (b) custom duties (Sec 2308 TCC) Suspension of the 2 yr Prescriptive Period 1) there is a pending litigation between the gov’t & the taxpayer 2) CIR in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto (Panay Electric Co. CA) At the It is only then earliest. Victoria Milling. 1858) Interest on Tax Refunds General Rule Government cannot be required to pay interest on taxes refunded to the taxpayer in the absence of a statutory provision clearly or expressly directing or authorizing such payment. (CIR v. L-19667. (CIR v. If tax was not erroneously or illegally paid but the taxpayer became entitled to refund because of supervening circumstances Before the right to refund or credit arises. Collector. 1966) 2) Under Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 installment or payment (CIR vs. Prieto. Don Pedro Central Azucarera) If the taxpayer merely made a deposit If tax has been withheld from source (through the withholding tax system) Corporate taxpayer From date it falls due at the end of the taxable year (Gibbs vs CIR) He is deemed to have paid his tax liability when the same falls due at the end of the taxable year (Aguilar vs. 196 LGC). the 30 days period to appeal with the CTA must be within the 2 yr preemptory Page 85 of 145 . Nov. penalty or sum has been paid under protest or duress (Sec. CIR v. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. (Sec. payment under protest is not necessary in refund for local taxes. CIR v Palanca. Sweeney. 29. May 28.
or a government-owned or controlled corporation. • In case of the following: RIDT (lets get RID of Tax) a) Failure to file any Return and pay the tax on the date prescribed. in case any payment has been made on the Page 86 of 145 Definitions • Increments to the basic tax incident due to the taxpayer’s non-compliance with certain legal requirements. (sec. 2)The amount so added to the tax shall be collected at the same time. The taxpayer requests reinvestigation. statement or declaration as required under the Code (sec. TITLE X. or Before payment of any tax due. 235) Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer: Within ten days from date of employment. 3)If the withholding agent is the Government or any of its agencies. the employee responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax. General Provisions 1)The additions to the tax or deficiency tax apply to all taxes. political subdivisions or instrumentalities. in addition to the tax required to be paid. 236) Non-Retroactivity of Rulings (Sec. Verification of compliance with withholding tax laws and regulations 4. 2. except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR. in the same manner and as part of the tax. • Surcharge. 3. In the exercise of the Commissioner’s power to issue an access letter. A surcharge added to the main tax is subject to interest. A surcharge is a civil penalty imposed by law as an addition to the . as determined by the Commissioner 2. includes an officer or employee of a corporation who as such officer. EXCEPT: 1. B) Penalty: 50% of the tax or of the deficiency tax. the full or part of the amount of Tax shown on any return required to be filed. or (c) Where the taxpayer acted in bad faith.ADDITIONS TO THE TAX (Sec. 246. irregularity or mistakes. or Upon filing of a return. 4)The term ‘person’. NIRC) Any revocation. 248) A) Penalty: 25% of the amount due. unless otherwise authorized by the Commissioner.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 period for instituting a judicial action TITLE IX. employee or member is under a duty to perform the act in respect of which the violation occurs. Civil Penalties (Sec. the full amount of tax due for which no return is required to be filed. STATUTORY OFFENSES & PENALTIES are needed to see this picture. modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation. modification or reversal will be prejudicial to the taxpayers. Additions to Tax 1. or b) Filing a return with an Internal revenue officer other than those with whom the return is required to be filed. fees and charges imposed in this Code. defined. Fraud. 247-252) QuickTime™ and a TIFF (Uncompressed) decompressor main tax required to be paid. or c) Failure to pay the Deficiency tax within the time prescribed for its payment in the notice of assessment. Verification of capital gains tax liabilities 5. (b) Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based. COMPLIANCE REQUIREMENTS Examination and inspection of all books and records shall be made only once in a taxable year. or d) Failure to pay on or before the date prescribed for its payment: 1. CHAPTER I. It is not a criminal penalty but a civil administrative sanction provided primarily as safeguard for the protection of the State revenue and to reimburse the government for the expenses of investigation and the loss resulting from the taxpayer’s fraud. or On or before the commencement of business.
In the case of each failure to file: 1) information return. or b)False or fraudulent return is willfully made. 1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax. 250) A) Penalty: P 1. or 2. the imposition of interest on delinquency is mandatory. • Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to the rules and regulations promulgated by the Sec. Failure to File Certain Information Returns (Sec. or any installment. 2) statement or list.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 basis of a return before the discovery of the falsity or fraud. (a) Deficiency Interest in the tax due (b) Delinquency Interest. Failure of a Withholding Agent to Refund Excess Withholding Tax. 251) A) Penalty: Amount of the tax not withheld. or 2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof. 3.failure to report sales. or 2. or account for and remit such tax. tax due for which no return is required. 249) A) There shall be assessed and collected an Interest at 20% per annum on any unpaid amount of tax B) OR higher rate prescribed by rules and regulations from the date prescribed for payment until the amount is fully paid. or not accounted for and remitted plus other penalties.252) Penalty: Amount of refund which was not Page 87 of 145 . D) Interest shall formQuickTime™ and a tax. Aids or abets in any manner to evade any such tax or the payment thereof.claim of deductions in an amount exceeding 30% of actual deductions 2. of funds that rightfully government's hands should be in the Interest on Extended Payment. receipts or income . (Jamora vs. Any person required to withhold. and remit any tax. or any part on or before the date prescribed. C) FROM the date prescribed for its payment until the full payment. tax due on any return required to be filed. or 3. account for.In case of failure to pay: 1. 4) supply any information E) required by this Code or by the Commissioner on the date prescribed thereof. Bureau of Internal Revenue Ruling #019-2003 • Pursuant to Section 249 of the 1997 Tax Code. 3) from the date of notice and demand until it is paid. of Finance: 1.000 for each failure B) The aggregate amount for all such failure shall not exceed P 25. . or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. Meer. Interest (Sec. (Sec. substantial overstatement of deductions . in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. part decompressor TIFF (Uncompressed)of the are needed to see this picture. 74 Phil. receipts or income in an amount exceeding 30% of that declared per return 2. and for the concomitant use by the taxpayer 4. Who willfully fails to withhold such tax. A deficiency tax. substantial under declaration of taxable sales.000 during a calendar year C) Upon notice and demand by the Commissioner D) Unless it is shown that such failure is due to reasonable cause and not to willful neglect. B) Liable only upon conviction • In case of the following: 1. 5. • In case of: [ FiFa ] a)Willful neglect to File the return within the period prescribed. 22) The imposition of interest is but a just compensation to the state for the delay in the payment of the tax. or 3. 3) keep any record. Failure of a Withholding Agent to Collect and Remit Tax (Sec.
Crimes 1. and Imprisonment . A person is liable in the same manner as the principal when he: a) willfully aids or abets in the commission of a crime penalized herein or b) causes the commission of any such offense by another. 3. officer-in-charge. Failure to obey summons. records. treasurer. Failure to file return. pay tax. TIFF (Uncompressed) decompressor 8. supply correct and accurate information.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return plus other penalties in case any employer/withholding agent fails or refuses to refund excess withholding tax. OTHER OFFENSES AND FORFEITURES A. 6. Forfeiture of property used in unlicensed business or dies used for printing false stamps. be automatically revoked or cancelled. Penal liability of corporation. 4. 2. 2. 3. D. president.P30. 5. branch manager. Payment of the tax due after apprehension is not a valid defense in any prosecution for violation of any provision of this Code or in any action for the forfeiture of untaxed articles. Offenses relating to stamps. 264) Crime 1: Willful Omission of Filing and Payment Page 88 of 145 .CRIMES. In the case of associations. Supply Correct and Accurate Information. general manager. violations related to the printing of such receipts or invoices and other violations. Any person convicted of a crime under this Code is liable for the payment of the tax and is subject to the penalties imposed herein. upon conviction: Fine . 14. Shipment or removal of liquor or tobacco products under false name or brand or as an imitation of any existing or otherwise known product name or brand. CHAPTER II.000. Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. any violation of be imposed for the provisions of this Code shall: a) not be lower than the fines imposed herein or b) twice the amount of taxes. withhold and remit tax and refund excess taxes withheld on compensation. Failure or refusal to issue receipts or sales or commercial invoices. Illegal collection of foreign payments. • The conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes. or reports. General Provisions (Sec. The fines to are needed to see this picture. 4. 3. 10. upon conviction. Misdeclaration or misrepresentation of manufacturers subject to excise tax. the penalty shall be imposed on the partner. to vote and to participate in any election. C. his certificate as a Certified Public Accountant shall. Unlawful pursuit of business. Attempt to Evade or Defeat Tax. partnerships or corporations. Unlawful possession or removal of articles subject to excise tax without payment of the tax. and b) Deported immediately after serving the sentence without further proceedings for deportation. 8. etc. Declarations under penalties of perjury. Plus other penalties • Who is liable: Any person who willfully attempts in any manner to evade or defeat any tax or the payment thereof. If the offender is not a citizen of the Philippines: a) he shall serve the sentence. 7. 254) • Penalty. 253) 1.000 or 100. 11. Failure to File Return. 7. 9. Unlawful use of denatured alcohol. 12. Unlawful possession of cigarette paper in bobbins or rolls. interests and surcharges due from the taxpayer.2 to 4 years. 5. 6. 13. whichever is higher. 2. or using falsified or fake accountable forms. QuickTime™ and and employees responsible afor the violation. Pay Tax. Penal liability for making false entries. Forfeiture of goods illegally stored or removed. (Sec. and b) he shall be dismissed from the public service and perpetually disqualified from holding any public office. Other crimes and offenses 1. If the offender is a Certified Public Accountant. Willful attempt to evade or defeat tax. If he is a public officer or employee: a) the maximum penalty prescribed for the offense shall be imposed. (Sec. etc.
000 o In addition to the penalties imposed upon the responsible corporate officers.232 (A) • Any person under his direction. deduction and exemption of his client.1 to 10 years. or 4. his certificate shall be automatically revoked or cancelled upon conviction. supply correct and accurate information. make a return. keep the record.20.000 . and o Imprisonment . or QuickTime™ and a employees.000 or more. • Special Penalties 1) If Offender is a Certified Public Accountant. 3. 2) In the case of foreigners. without further proceedings for deportation. conviction under this Code shall result in his immediate deportation after serving sentence. or o actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed. supply such correct and accurate information. to pay any tax. schedules or other forms of accountancy work which has not been Verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices. or Using Falsified or Fake . corporation.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Obligations • Penalty. upon conviction: o Fine . partners.P10.P10. general co-partnerships Accountable Forms (Sec.000. Penal Liability of Corporations (Sec 256) • Penalty. • Offense: FVC 1) Willfully Falsifies any report or statement bearing on any examination or audit 2) Renders a report. 4. pay tax. Crime 2: Withdrawal of Returns Filed • Penalty.100. 5. make a return. • Nature of Offense: Willful failure to 1. and • Imprisonment . refund taxes withheld on compensation.1 to 3 years. 2.000 100. 6. Records or Reports. Who is liable: Any of the following liable for any of the acts or omissions penalized under this Code. 257) • Penalty.000 . o Plus other penalties Person liable: Any person who: o attempts to make it appear for any reason that he or another has in fact filed a return or statement.000. 3. Prescription of Actions • All violations of any provision of the Code shall prescribe after five (5) years CHAPTER III – OTHER PENAL PROVISIONS Page 89 of 145 Penal Liability for Making False Entries.P50. 2. statements. and o Imprisonment . upon conviction: o Fine . upon conviction: Fine . 2. 1. or • E. keep any record.P50. at the time or times required.2 to 6 years. or 3) Certifies financial statements of a business enterprise containing an essential misstatement of facts or omission in respect of the transactions. withhold or remit taxes withheld. • Who is liable: • Any financial officer or • Independent Certified Public Accountant engaged to examine and audit books of accounts of taxpayers under Sec. association or 3. TIFF (Uncompressed) decompressor are needed to see this picture. upon conviction for each act or omission: • Fine . o Plus other penalties • Person liable: Any person required: 1. taxable income. including exhibits.
LOCAL GOVERNMENT CODE OF 1991 (RA 7160-Effectivity: January 1. agents or examiners or the Secretary of Finance or any of his deputies or agents. with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. 283. 2. NIRC) Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows… (c) On the third year and thereafter. except an internal revenue official or employee. 7160. When is a Person Instrumental . 40%.. surcharges or fees recovered and/or fine or penalty imposed and collected or P1M per case. surcharges or fees actually recovered or collected: NO REWARD • A person is instrumental in the discovery and in collection or seizure when he voluntarily gives definite and sworn 4 information : o not yet in the possession of the Bureau of Internal Revenue. Internal Revenue Allotment (IRA) National internal revenue collected and not applied as hereinabove provided or otherwise specially disposed of by law shall accrue to the National Treasury and shall be available for the general purposes of the Government. collected as a final withholding tax. (Sec. or his relative within the sixth degree of consanguinity. surcharges and fees and/or the conviction of the guilty party and/or the imposition of any fine or penalty. o No revenue. Book II Local Taxation and Fiscal Matters Title I LOCAL GOVERNMENT TAXATION CHAPTER 1 . the same amount of reward shall be given to the informer. 284. 282) 1. at the rate of 10%. whether incumbent or retired. o leading to the discovery of frauds upon the internal revenue laws and violations of any of the provisions thereof. otherwise known as the Local Government Code of 1991. o thereby resulting in the recovery of revenues. whichever is lower. For Discovery and Seizure of Smuggled Goods o Persons instrumental in the discovery and seizure of QuickTime™ and a smuggled goods EXCEPT: TIFF (Uncompressed) decompressor are needed to see this picture.GENERAL PROVISIONS Sources of Revenues: 1. whichever is lower. Page 90 of 145 4 3. all public officials. Note that where the offender has offered to compromise and his offer has been accepted. 1992) • For Discovery and Seizure of Smuggled Goods o 10% of the FMV of the smuggled and confiscated goods or P1M per case..Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in Discovery and Seizure of Smuggled Goods (Sec. who acquired information in the course of the performance of their duties during their incumbency • Information shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his deputies. PART III . (Sec. Persons Entitled to Reward • For Violations of Internal Revenue Code o Any person. RA 7160) • The cash rewards of informers subject to income tax. Amount of Reward • For Violations of Internal Revenue Code o 10% of the revenues.
NIRC I. 191 LGC) . (e) Each local government unit shall. fees. thereby making the ordinance effective even without the approval of the local chief executive concerned. incentives or reliefs under such terms and conditions. (Sec. NIRC of 1997) II. 50% share in collections for the ff: (2nd par. Power to Adjust Local Tax Rate (Sec. levy taxes. (NOTE: As distinguished from internal revenue taxes which do not accrue exclusively to the national government but are shared to the local governments in the form of internal revenue allotments. 3) not be unJust. fee or charge or to generate revenue is exercised by the Sanggunian of the LGU concerned through an appropriate ordinance. exercised only if delegated to them by law or Constitution 3. excessive. 3. fees. Page 91 of 145 . The Sanggunian is authorized to prescribe fines or other penalties for violations of tax ordinances a. not inherent 2. (Sec. evolve a Progressive system of taxation. (d) The revenue collected shall Inure solely to the benefit of the local government unit levying the tax. oppressive.LGUs. Power to Grant Local Exemptions (Sec.000 b. not absolute subject to limitations provided for by law III. public policy.000 nor more than P5. Such fine or other penalty shall be imposed at the discretion of the court. or confiscatory. charges and other impositions shall in no case be Left to any private person. create its own sources of revenue and 2. except punong barangay. 130) IV. 132) The local chief executive may veto any ordinance of the sangguniang panlalawigan. charge or other imposition unless otherwise specifically provided herein. Local Taxing Authority The power to impose a tax. Fundamental Principles The fundamental principles governing the exercise of the taxing and other revenue-raising powers of LGUs are [ U(EPuJul)LIP ]: (a) Taxation shall be Uniform in each local government unit. fees. 129) Such taxes.. V. 116. The sanggunian may override his veto by twothirds vote of all its members. (b) Taxes. and.LGUs are authorized to adjust the tax rates as prescribed herein not oftener than once every 5 years. 106. 4) not be contrary to Law. are needed to see 2) be levied and collected only for Public purposes. as they may deem necessary. NIRC b) VAT on sale of services and use or lease or properties under Sec. panlungsod or bayan on the ground that it is ultra vires or prejudicial to the public welfare. and charges shall accrue exclusively to the local government units. charges and other impositions shall (EPuJuL): 1) be Equitable and based as far as practicable on the taxpayer's ability to QuickTime™ and a decompressor pay. Power to Create Sources of Revenue EACH LOCAL GOVERNMENT UNIT HAS THE POWER TO: 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 2. 283. NIRC c) Percentage taxes under Sec. may through ordinances duly approved. The local chief executive. 108. The Sanggunian Barangay may prescribe a fine of not less than P100 nor more than P1000. consistent with the basic policy of local autonomy. (Sec. stating his reasons therefore in writing. 192 LGC) . or in the restraint of trade. 132 LGC) He may only veto an ordinance or resolution only once. as far as practicable. Power to Prescribe Penalties for Tax Violations and Limitations Thereon 1. (sec. Nature of the Taxing Power of Local Government Units (LGUs) 1. and charges subject to the provisions herein. See Title XI. Sec. nor shall the imprisonment be less than one month nor more than six months 2. TIFF (Uncompressed) this picture. fee. grant tax exemptions. and in no case shall such adjustment exceed 10% of the rates fixed under the LGC. fees. may veto any particular item of an appropriations ordinance. in no case shall fines be less than P1. national economic policy. (c) The collection of local taxes. NIRC) a) VAT on sale of goods or properties under Sec.
fees or charges shall not be unjust. 187. or presently enjoyed by all persons. general failure of crops. That the taxes. The grant shall be through an ordinance. 133 of LGC 3. Page 92 of 145 . 282 [B]. local water districts. LGC) Within 10 days after their approval. tax incentives and tax reliefs shall not apply to regulatory fees which are levied under the police power of the LGU. excessive. then the ordinance may be posted in at least two conspicuous and publicly accessible places (Sec. The grant shall be by ordinance passed st prior to the 1 day of January of any year. Any exemption or relief granted to a type or kind of business shall apply to all business similarly situated. (Sec. the same may be granted in cases of natural calamities. Limitations of the Residual Power 1. c. In absence of such newspaper in the province. cooperatives duly registered under RA 6938. b. Constitutional limitations on taxing power 2. Common limitations prescribed in Sec. On the grant of tax incentives picture. Conditions: a. taxed under the provisions of the NIRC. and 59 LGC): a. LGC) 2. tax exemptions or incentives granted to. submission for approval by the local chief executive c. Tax Exemptions not applicable to Regulatory Fees The power to grant tax exemptions. e. 187. fees or charges on any base or subject NOT a. 2. city or municipality. QuickTime™ and a TIFF (Uncompressed) decompressor d. The ordinance levying such taxes. d. The principle of preemption. specifically enumerated in LGC b. Fundamental principles governing the exercise of the taxing power of the LGUs prescribed under Sec. as amended c.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Tax Exemptions existing before the Effectivity of the LGC: Unless otherwise provided by the LGC. Rules and Regulations Implementing the LGC) 1. Tax Exemption Certificate: Tax exemptions shall be conferred through the issuance of a non-transferable tax exemption certificate. the exemption or relief shall only extend to the LGU granting such exemption or relief. In the case of shared revenue. 55. Public hearings are required before any local tax ordinance is enacted (Sec. 130 of the LGC 4. including GOCCs are hereby withdrawn upon the effectivity of the LGC except the ff: 1. whether natural or juridical. necessity of quorum b. 189 LGC) Residual Taxing Powers of the LGU (Sec. The same shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefore. On the grant of tax exemptions or tax reliefs: a. Levying of Local Taxes (Local Tax Ordinance) REQUISITES: 1. oppressive. Tax Incentives and Tax Reliefs (Art. The grant shall be for a definite period of not exceeding 1 calendar year. non-stock and non-profit hospitals and 3. or adverse economic conditions such as substantial decrease in prices or agricultural or agri-based products. the procedure applicable to local gov’t ordinances in general should be observed. Guidelines for the Granting of Tax Exemptions. The same shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided by the ordinance. Procedural details (Secs. 186 LGC) To levy taxes. The ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and 5. b. are needed to see this 2. civil disturbance. c. confiscatory or contrary to declared national policy. 54. the matter of veto and overriding the same d. Any grant to a type or kind of business shall apply to all businesses similarly situated. other applicable laws. publication in full for 3 consecutive days in a newspaper of general circulation. educational institutions. fees or charges shall not be enacted without any prior public hearing conducted for the purpose. b. the publication and affectivity 3. a.
3. k. Taxes. s 4. 2. Taxes. fees or charges on petroleum products. fees and charges where the imposition of which contravenes existing gov’tal policies or which are violative of the fundamental principles of taxation *e. fees. (i) Percentage or VAT on sales. or other charges on Philippine products actually Exported. barters or exchanges or similar transactions on goods or services except as otherwise provided. I. g. or passing through.togifts. acquisitions mortis causa. fees.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Principle of Preemption or Exclusion Where the national gov’t elects to tax a particular area. (f) Taxes. respectively from the date of registration. and local government units. as amended. Classification of Common Limitations 1. m. 2.A. (n) Taxes. etc. (k) Taxes on premiums paid by way of Reinsurance or retrocession. Taxes which are levied under the NIRC. on Countryside and Barangay Business Enterprises and cooperatives duly registered under R. inheritance. Taxes. Taxes. fees. etc. its agencies and Instrumentalities. (h) Excise taxes on articles enumerated under the national Internal Revenue Code. n. charges and dues. land or water. Satisfy the requirements of procedural and substantive due process. and taxes. 6810 and R. and all other kinds of customs fees. except wharfage on wharves constructed and maintained by the local government unit concerned. voting and approval and/or veto requirements complied with. LGUs cannot impose the same even on banks and other financial institutions. the imposition of which contravenes existing gov’tal policies or which violates the fundamental principles of taxation. fees. c. VI. (NOTE: Since income tax is already imposed by the National Government under NIRC.) QuickTime™ and a (b) Documentary stamp tax. tolls for bridges or otherwise. This doctrine principally rests on the intention of Congress. (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of 6 and 4 years. 3. and charges and other impositions upon goods carried into or out of. it impliedly withholds from the local gov’t the delegated power to tax the same field. the territorial jurisdictions of local government units in the guise of charges for wharfage. etc. COMMON LIMITATIONS ON THE TAXING POWERS OF LGUS LGUs CANNOT LEVY: [ IDECTA_BEV_TRELEBI ] or CADET-VIBE-LIBERTE' (a) Income tax. except as otherwise provided. *l Provinces (see chart) Page 93 of 145 Excluded impositions pursuant to the doctrine of preemption) 1. except tricycles. The exception is referring to the percentage tax on banks’ specified income. (j) Taxes on the gross receipts of Transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air. . except as provided in the Code. (e) Taxes. registration fees of vessel and wharfage on wharves. b. picture. tonnage dues. 6938 (Cooperative Code of the Philippines). 4. fees. (l) Taxes. j 2. or charges. Taxes. Publication of ordinance within 10 days from approval for 3 consecutive days in a newspaper of general circulation and/or posting in at least 2 conspicuous and publicly accessible places. except as otherwise provided. fees or charges of any kind on the National Government. Local Tax Ordinance: Requirements 1. (d) Customs duties. (m) Taxes. which are imposed under the TCC. except on banks and other financial institutions. fees. decompressor TIFF (Uncompressed) are needed see this legacies and other (c) Estate Tax. unless otherwise provided by LGC of 1991. fees and charges imposed under special laws.A. Taxes. Public hearing is required with quorum. f. and (o) Taxes. fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen. fees or charges for the registration of motor vehicles and for the issuance of all kinds of Licenses or permits for the driving thereof. fees and other charges imposed under special law. which are imposed under the TCC *d 3. Taxes which are levied under the NIRC unless otherwise provided by the LGC *a. h.
Page 94 of 145 .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Provinces (refers to Local Govt. Provisions on Tax) QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
certificates. sand. Newly started business. the tax shall not exceed 1/20 of 1% of the capital investment. Not more than 10% of fair market value in the locality At such amount and reasonable classification as the sangguniang Professionals exclusively employed in the government shall be exempt from the payment Page 95 of 145 . The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession Rate Not more than 50% of the 1% of the total consideration or of the fair market value. gravel. Proceeds distributed as follows: Province -30% Component City or Municipality where the quarry resources are extracted . Exceptions Sale. No. Notwithstanding any exemption granted by any law or other special law. barter. and other quarry resources extracted from public lands or from QuickTime™ andof the beds a TIFF (Uncompressed) decompressor are needed to creeks. or on any other mode of transferring ownership or title of real property. within its territorial jurisdiction. rivers. PROVINCES Type of Tax Tax on Transfer of Real Property Ownership. whichever is higher Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. Newly started business.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 SPECIFIC PROVISION ON THE TAXING AND OTHER REVENUE RAISING POWERS OF THE LGU A. the tax shall not exceed 1/20 of 1% of the capital investment. posters. Tax on Business of Printing and Publication. Gravel and Other Quarry Resources. transferor or administrator to pay the tax imposed within 60 days from the date of the execution of the deed or from the date of the decedent's death. pursuant to the ordinance of the sangguniang panlalawigan. The permit to extract resources shall be issued exclusively by the provincial governor. The province may impose a tax on the business of persons engaged in the printing and/or publication of books. seas. transfer or other disposition of real property pursuant to R. lakes. and other public waters within its territorial jurisdiction. pamphlets. Tax on Sand. To be paid to the province where he/she practices his/her profession or where he/she maintains principal office in case the practice is in several places Notes It shall be the duty of the seller.30% Barangay where the quarry resources are extracted . receipts. The province may levy and collect taxes on ordinary stones. Franchise Tax. Professional Tax. donor. leaflets. streams. cards. earth. prescribed by the DECS shall be exempt from the tax. donation. the province may impose a tax on businesses enjoying a franchise. and others of similar nature.40%. School texts or references.see this picture. The province may impose a tax on the sale. 6657 (CARL).A. Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. handbills.
within the province. To be paid on or before the 31st day of January. manner. The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located. or consumers. recitals. producers. musical programs. Provided. Sangguniang panlalawigan may prescribe the time. this picture.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 requiring government examination. wholesalers. to sales outlets. of this tax. concert halls. concerts. flower shows. are needed to see Page 96 of 145 . soft drinks. dealers or retailers in the delivery of distilled spirits. Dealers. pay the full tax before engaging therein. Wholesalers of. cinemas. dramas. The holding of operas. however. circuses. rock. terms and conditions for the payment of tax. whether directly andor QuickTime™ a TIFF (Uncompressed) decompressor indirectly. boxing stadia. After payment he/she shall be entitled to practice his/her profession in any part of the Phils. w/out being subjected to any other national or local tax. Amusement Tax. The province may levy an annual fixed tax for every truck or any vehicle used by manufacturers. or Retailers in. The province may levy an amusement tax to be collected from the proprietors. Annual Fixed Tax For Every Delivery Amount not exceeding Truck or Van of Manufacturers or P500. license. painting and art exhibitions. Not more than 30% of the gross receipts from admission fees.00. or fee for the practice of the profession. the sangguniang panlalawigan may impose surcharges. or operators of theaters. Producers. and other products as may be determined by the sanggunian. literary and oratorical presentations. cigars and cigarettes. Certain Products. Any person first beginning to practice a profession after the month of January must. and other places of amusement panlalawigan may determine but shall in no case exceed P300. In case of fraud or failure to pay. lessees. except pop.00. interest and penalties. or similar concerts shall be exempt.
wholesalers.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 B. On exporters. sugar. processed or preserved food. b. • The tax is payable for every separate or distinct establishment or place where business is conducted. whether in their original state or not. locally manufactured. Agricultural implements. c. 2. (sec. and medicine. or other aquatic beds or bangus fry areas 1. prawn fry or fry of other species and fish from the municipal waters by nets or other fishing gears to marginal fishermen free of rental or fee c) Issue licenses for the operation of fishing vessels of three (3) tons or less. assemblers. On retailers On contractors and other independent contractors On banks and other financial institutions. distributors. 5. repackers. LGC]) (RW CLAPS C): 1. 4. marine. Rice and corn. or dealers in any article of commerce of whatever kind or nature. equipment and post-harvest facilities. fees and charges not otherwise levied by provinces. 144) The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case shall exceed the rates prescribed in the LGC. 143 par. and on manufacturers. other parties may participate in the public bidding b) Grant the privilege to gather. dairy products. 6. e. fertilizers. pesticides and other farm inputs. the tax rate shall not exceed 2% of gross sales of the preceding calendar year. (Sec. Duly registered organizations and cooperatives of marginal fishermen shall have the preferential right. distillers. and 8. meat. and coops or their failure to exercise their preferential right. • Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters. 142. The tax on a business must be paid by the person conducting the same. rectifiers. On manufacturers. f. The sanggunian may require a public bidding pursuant to an ordinance for the grant of such privilege. Cement. MUNICIPALITIES SCOPE: Municipalities may levy taxes. Poultry feeds and other animal feeds. (Sec 147) • SPECIFIC: • Municipalities may im pose such reasonable rates for the sealing and licensing of weights and measures as shall be prescribed by the sangguniang bayan. It shall be payable for every separate or distinct establishment or place where the business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. dealers or retailers of the following essential commodities (where the rate prescribed is only ½ of the regular rate [Sec. • Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed for a-h. School supplies. distributors. (Sec. distilled spirits. salt and other agricultural. LGC) Tax on Business The municipality may impose taxes on the following: a. brewers. 146) The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. oysters. b. Wheat or cassava flour. The sanggunian may: a) Grant fishery privileges to erect fish corrals. detergents. millers. 2. 7. and fresh water products. Laundry soap. and compounders of liquors. deem proper to For TIFF are to the this picture. 3. businesses subjectneeded to seeexcise. take or catch bangus fry. • . g. 149) Payment of Business Taxes: a. value-added or percentage tax. On wholesalers. producers. 3. (Sec. Page 97 of 145 d. c. and wines or manufacturers of any article of commerce of whatever kind or nature. processors. Cooking oil and cooking gas. h. Absent of such orgs. On peddlers engaged in the sale of any merchandise or article of commerce On any business. which the sanggunian QuickTime™ and a concerned may (Uncompressed) decompressor tax.
and plantations: • 30% of all sales recorded in the principal office shall be taxable by the city or Rule 4: Where the plantation located at a place other than the place where the factory is located. Situs of Local Taxation Situs According to the Cases: Excise Tax – not dependent on the domicile of the taxpayer. Rule 3: The following sales allocation for sales recorded in the principal office of businesses with factories. businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction. the above mentioned 70% shall be prorated among the localities where the factories. taxes due shall accrue and see thispaid to such city or municipality. plants. municipality where the principal office is located. v. associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation. project offices. Which are subject to different rates of tax. plants. factory. project offices. (IRR) The city or municipality where the port of loading is located shall not levy and collect reasonable fees unless the exporter maintains in said city or municipality its principal office. Inc. and charges which the province or municipality may impose. the above mentioned 70% shall be divided as follows: 60% to the city or municipality where the factory is located. or plantation is located. plant or plantation in which case. The tax rates that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of professional and amusement taxes. the sale shall be recorded in QuickTime™ and a office and the the principal TIFF (Uncompressed) decompressor are needed to be picture. these rules shall apply except that the factory or plant and warehouse of the contractor utilized for the production and storage of the manufacturers’ products shall be considered as the factory or plant and warehouse of the manufacturer. the rule on the matter shall apply accordingly. Rule 5: Where there are 2 or more factories. but the place where the place is perfected. Which are subject to the same rate of tax. LGC Rule 1: For purposes of collection of the taxes under Section 143 (tax on business).. (Allied Thread Co. and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. VII. and not merely the place of the perfection of the contract. fees. (Shell Co. plants. the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. and • 70% of all sales recorded in the principal office shall be taxable by the city or municipality where the factory. but on the place in which the act is performed or the occupation is engaged in. (Sec. 150) NOTE: In case of manufacturers or producers which engage the services of an independent contractor to produce or manufacture some of their products. and 40% to the city or municipality where the plantation is located. CITIES The city may levy the taxes. or warehouse. plant.. (Sec. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC a. Inc. a branch. 105 Phil 1263) SITUS ACCORDING TO SECTION 150. City Mayor of Manila. L-40296) Sales Tax – it is the place of the consummation of the sale. b. 151) IRR: The cities may levy and collect a percentage Page 98 of 145 . Rule 2: In case there is no branch or sales outlet in the city or municipality where the sale is made.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 c. Camarines Sur. (IRR) C. not upon the location of the office. project offices. v. or plantations located in different localities. the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. sales office. project office. Municipality of Sipocot. and plantations are located in proportion to their respective volumes of production during the period for which the tax is due.
BARANGAYS Scope of Taxing Powers. Those exempt from the community tax are: 1. bridge. 153-155) [ SPT ] a.000. Toll Fees or Charges for the use of any public road. ferry or telecommunication system funded and constructed by the LGU concerned.000. Community Tax D.00 worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax . be considered as part of the gross receipts or earnings of said corporation. QuickTime™ and a Exceptions: TIFF (Uncompressed) decompressor are needed to see this picture. post office personnel delivering mail. physically-handicapped. C. (c) Barangay Clearance.00 for every P1. whether domestic or resident foreign. 2. Regularly employed on a wage or salary basis for at least 30 consecutive working days during any calendar year. Juridical Personalities (Sec.00 of income regardless of whether from business. engaged in or doing business in the Philippines are also liable to pay an annual community tax. 158) Corporations. or who is required by law to file an income tax return Rate = P5. Pubic Utility Charges for the operation of public utilities owned. the sanggunian concerned may discontinue the collection • Cities or municipalities may levy a community tax (Sec.P2. On commercial breeding of fighting Cocks and cockpits. at rates not exceeding 3% of the gross sales or recipts of the preceding calendar year. Diplomatic and consular representatives.000.00 or more. (Sec. Rate = P500. and outdoor ads. Individuals Liable to Community Tax . which shall exclusively accrue to them: [ TOBS ] (a) Taxes . 2. neon signs. (Sec. no matter how created or organized. in the case of municipalities.00 in accordance with the following schedule: a. and disabled citizens who are sixty-five (65) years or older. For every P5.000.The barangays may levy the following taxes and charges.00 and an annual additional tax. When public safety and welfare so requires.000.00.00 or less for cities and P30.000.No city or municipality may issue any license or permit for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. or tobacco dryers. copra. for the purpose of the additional tax. which shall not exceed P10. 152) VIII.00. Inhabitant of the Philippines b. and b.000. The dividends received by a corporation shall.00 and an annual additional tax of P1. or who owns real property with an aggregate assessed value of P1. officers and enlisted men of the AFP and PNP on mission. .P2. the tax imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. 156) A. On Billboards.On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of P50. or who is engaged in business or occupation.The barangay may levy reasonable fees and charges: (CRB) 1. operated and maintained by LGUs within their jurisdiction. COMMON REVENUE-RAISING POWERS OF LGUS (Secs. Transient visitors when their stay does not exceed 3 months. (d) Other fees and Charges. . c.00. and 2. and thereafter the said facility shall be free and open for public use. and 3. Eighteen years of age or over c. Service Fees and Charges for services rendered b. IX. 3. On places of Recreation which charge admission fees. rate = not exceeding 1% on gross sales or receipts. 157) B. signboards.00 or less.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 tax on ANY business not otherwise specified in the LGC or the IRR. (b) Service Fees or Charges for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay. Page 99 of 145 . or wharf.00 of gross receipts derived by it from its business in the Philippines during the preceding year . In the case of husband and wife. of the tolls. . waterway. exercise of profession or from property which in no case shall exceed P5.[ IER ] a.000. For every P5. pier. 1.
CA (299 SCRA 442) Facts: The Province passed an Ordinance imposing a 10% tax on the value of stones. 2. or 7. Receives any salary or wage from any person or corporation. 160) Time for Payment . of each year which shall be paid not later than the last day of Feb. 6. or their duly authorized deputies. city.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 D. .place of residence of the individual. and 50% accrues to the barangay where the tax is collected. 170.An interest of 24% per annum from the due date until it is paid shall be added on the amount due. Receives any license. The Provincial Treasurer levied upon Republic Cement P2. unless otherwise provided in the Code. receives any license.accrues on the 1st day of Jan. regardless of origin. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of P1. CHAPTER 3 . Although §186 of the LGC authorizes municipal corps. 164. hence. (Sec. articles already taxed by the NIRC. The provincial. to levy taxes other than those specifically enumerated therein. pays any tax or fee.COLLECTION OF TAXES Taxable Period – The tax period of ALL local taxes. tax is actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. fees or charges. tax collected through the barangay treasurers shall be apportioned as follows: 50% accrues to the general fund of the city or municipality concerned. tax acknowledges any document before a notary public. and charges accrue on first day of January of each hear. 162) Collection of Local Revenues by the Treasurer: (Sec. 5. Pays any tax or fee. or 4. 2. 4. receives any money from any public fund. as the Page 100 of 145 . Takes the oath of office upon election or appointment to any position in the government service. 163. LGC) A. 3. fees. When an individual subject to the comm. 3. PROVINCE OF BULACAN vs. or in the place where the principal office of the juridical entity is located. (Sec.00. fees and charges shall be the calendar year. unless otherwise provided in the Code. city or municipal government shall pay the premiums thereon in addition to the premiums of the bond that may be required under the Code. LGC) All local taxes. The presentation of the CTC shall not be required in connection with the registration of a voter. LGC) The proceeds of the comm. fees and charges shall be collected by the provincial. Individual 1. Presentation of Community Tax Certificate on Certain Occasions: (Sec. fees. Transacts other official business. The current Tax Code already imposes a tax on ALL quarry resources. (Sec. Time of Payment – ALL local taxes. city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes. transacts other official business. In case a bond is required for the purpose. the Province may no longer impose any additional amounts from Republic Cement. Place and time of Payment Place of Payment . certificate or permit from any public authority. The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions. sand and other quarry resources from public lands. certificate or permit from any public authority. Corporation 1. and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter.5M for its extraction of resources from private land. the provincial. the subject ordinance was quite specific about the fact that the taxable articles TIFF (Uncompressed) decompressor public land. Accrual of Tax – ALL local taxes. a provinceneeded to see thislevy excise taxes on may not picture. Issue: Does the province have authority to levy the tax? Held: NO. must QuickTime™ and a come from are Moreover. Receives any money from any public fund. municipal or barangay treasurer. of each year Penalties for Delinquency. Proceeds of the comm. B.
ii. Manner of Payment – Such taxes. fees. 9282. superior to all liens. LOCAL TAX REMEDIES UNDER THE LGC TAX REMEDIES OF THE LGUs CIVIL REMEDIES OF THE LGU TO EFFECT COLLECTION OF TAXES 1. Interest on other unpaid revenues – On any other source of revenue. the provincial. or their duly authorized deputies. fees or charges may be paid in quarterly installments. other properties may be distrained. unless otherwise provided in the Code. COLLECTION OF LOCAL REVENUES BY THE TREASURER (sec. Levy delinquency levy of real property before.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 case may be. city or municipal government shall pay premiums thereon in addition to the premiums of the bond that may be required under the Code. charges and other revenues constitute a lien. b. Jurisdiction of courts over local taxation cases: a. fee and penalty due to him NOTE: Levy shall be effected by writing upon said certificate the description of the property upon which levy is made. With the amendment brought by RA No. until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion thereof exceed thirty six (36) months. In case a bond is required for the purpose. on the amount unpaid. by judicial action Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the LGU concerned. Surcharges and Penalties on Unpaid Taxes. through distraint of personal property and by levy upon real property i. Distraint seizure or confiscation of assets in sufficient quantity to satisfy the liability accounting of distrained goods publication of the sale of distrained properties sale disposition of the proceeds of the sale by application of such proceeds to the delinquency and expenses of sale return of balance to the owner NOTE: Where the proceeds of the sale are insufficient to satisfy the claim. LGUs are authorized to imposed an interest of a maximum of 2% per month. The provincial. maximum of 36 months. QuickTime™ and a 2. the Court of Tax Appeals now has appellate jurisdiction over local taxation cases decided by the RTC in the exercise of its appellate or original jurisdiction. fees and charges shall be collected by the provincisl. by administrative needed to see this picture. city. Civil Remedies TIFF (Uncompressed) decompressor are action a. charges or encumbrances in favor of any person. city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes. Page 101 of 145 . enforceable by any appropriate administrative or judicial action. municipal or barangay treasurer. LGC) All local taxes. fees or charges. 170. simultaneous or after distraint of personal property belonging to delinquent taxpayer local treasurer shall prepare a duly authenticated certificate showing the name of taxpayer and amount of tax. Fees. fees or charges not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes. Local Government’s Lien – Local taxes. or Charges – The sanggunian may impose a surcharge not exceeding twenty five percent (25%) per month of the unpaid taxes. fees or charges including surcharges.
LGC). Grounds for the Suspension of the Running of the Prescriptive Periods a. b. speedy and adequate remedy. It is to be noted that. 194. 195. LGC) B. 187. When there is fraud or intent to evade the payment of taxes. Action for Declaratory Relief 3. (Valley Trading Co. 1989) PRESCRIPTIVE PERIODS OF ASSESSMENT 1. LGC) 2. Payment & subsequent refund or tax credit – within 2 years from payment of taxto local treasurer (sec. b. fees or charges – five (5) years from the date they became due (sec. The taxpayer is out of the country or otherwise cannot be located. 194. 194. ADMINISTRATIVE QuickTime™ and a Before assessmentTIFF (Uncompressed) decompressor are needed to see this picture. Payment under protest is not necessary. JUDICIAL 1. The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect.REAL PROPERTY TAXATION (LGC of 1991) Definition: A direct tax on ownership of lands and buildings or other improvements thereon payable regardless of whether the property is used or not. PART IV . 195. (sec. Regular judicial courts are not prohibited from enjoining the collection of local taxes. a. Declaratory relief whenever applicable . CFI of Isabela. 187. 194.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 b.within 30 days from receipt when protest of assessment is denied (sec. Protest against a newly enacted ordinance – any question on constitutionality or legality of tax ordinance within 30 days from effectivity thereof to Secretary of Justice (sec. the supervening cause applies in local taxation because th period for the filing of the claims for refund or credit of local taxes is counted not necessarily from the date of payment but from the date of taxpayer is entitled to a tax credit. Local taxes. LGC) Such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of tax. Right of redemption – 1 year from the date of sale or from the date of forfeiture (sec. and c.within 30 days after receipt of decision or lapse of 60 days of Secretary of Justice’s inaction (sec. subject to Rule 58 (preliminary injunction) of the Rules of Court. The treasurer is legally prevented from the assessment or collection of the tax. 179. 195. Court action . fees or charges may be collected within five years from the date of assessment by administrative or judicial action.if no action is taken by the treasurer in refund cases and the two year period is about to lapse (sec. LGC) PRESCRIPTIVE PERIOD OF COLLECTION Local taxes. it covers the administration. assessment. But it cannot negate the procedural rules and requirements under Rule 58 of the Rules of Court. including machineries. vs. although the value may vary in accordance with such factor. i. levy and collection of Real Property Tax. LGC) TAX REMEDIES OF THE TAXPAYER REMEDIES OF THE TAXPAYER IN LOCAL TAXATION A. LGC) . LGC) After Assessment a. Injunction – if irreparable damage would be caused to the taxpayer and no adequate remedy is available. 2. unlike in internal revenue taxes.e. Under the LGC. appraisal.if remedies available does not provide plain. LGC) . Protest – within 60 days from receipt of assessment (sec. 415 of the Civil Code) Improvement – valuable addition made to a property or amelioration in its condition amounting to more Page 102 of 145 b. the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. LGC). fees or charges – ten (10) years from discovery of fraud or intent to evade payment (sec. Such statutory lapse or intent may have allowed preliminary injunction where local taxes are involved. NOTE: Unlike the NIRC. c. No such action shall be instituted after the expiration of such period. (sec. 196. tax on land and building and other structures and improvements on it. (Subject to the definition given by Art. LGC) .
fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry. (Sec. 2. business or activity shall not be considered within the definition of machinery. LGC) [HCS LG] 1. and exclusively used by local Water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power 4. 119 PHIL 328. permanently or temporarily. Board of Assessment Appeals v Meralco. directly. CHARACTERISTIC OF REAL PROPERTY TAX: [LIPAD] 1. Machinery and Equipment actually. instruments. equipment. SPECIAL CLASSES OF REAL PROPERTY (Sec 216. 6 SCRA `97. Indivisible single obligation 5. LGC) Machinery which are of general purpose use including but not limited to office equipment. 10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling. display cases or racks. or are needed necessary to its manufacturing.Sec 218 (a) [CARMITS] 1. and exclusively used to meet the needs of the particular industry. logging. Industrial 6. (Sec. Timberland 7. telex machine. v City Assessor of Cagayan de Oro. breakable or easily damaged containers (glass or cartons). Buildings 3. CULTURAL and SCIENTIFIC purposes 3.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 than a mere replacement of parts involving capital expenditures and labor. Charitable parsonages. 290 [o]. those which are mobile. facsimile machines. freezers. 3. Machinery & equipment for pollution control and Environment protection Page 103 of 145 . non-profit or religious cemeteries. buildings and improvements actually directly and exclusively used for religious. early decisions of the Supreme Court in Mindanao Bus Co. industrial or agricultural purposes. Owned by the REPUBLIC of the PHILS or its political subdivisions except: when beneficial use has been granted to a taxable person institutions. Real Property liable for Real Prop tax are: 1. furnitures and fixtures. mosques. Land. mining. IRR of RA 7160) III. and those not permanently attached to the real property which are actually. Machinery and 4. churches. Special Classification of lands made by respective sanggunian in accordance with zoning ordinances and It is based on actual use. 234) [CWERC] 1. business or activity QuickTime™ and a by their very and which TIFF (Uncompressed) decompressor nature and purpose to see this picture. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. refrigerators. mechanical contrivances. Real property includes machinery as defined by the LGC. HOSPITALS 2. PROPERTIES EXEMPT from real property tax (Sec. charitable or educational purposes. LGC) Note: Although the term real property has not been expressly defined in the LGC. to the real property. Real property owned by duly registered Cooperatives under RA 6938 5. Commercial 2. Local Tax II. Ad Valorem tax. Mineral 5. IV. Manila Electric Co. microcomputers. are designed for. typewriters. cash dispensers. commercial.the tax is calculated on the basis of a certain percentage of the value assessed 4. The value is based on the tax base 3. Residential 4. V. CLASSIFICATION OF LAND for purposes of assessment . Direct tax on the ownership of real property 2. Other improvements not otherwise exempted under said code (Sec 232. It includes the physical facilities for production. the installations and appurtenant service facilities. PROPERTIES LIABLE UNDER REAL PROPERTY TAX According to the Local Government Code. I. directly. 199 [o]. 2. owned and used by LOCAL WATER DISTRICTS 4. Proportion . appliances or apparatus which may or may not be attached. selfpowered or self-propelled. Agricultural 3. convents thereto. Machinery – embraces machines. v Board of Assessment Appeals. telephone equipment.
LGC) For Public Works – on lands specially benefited by public works. LGUs (within and outside MM) may also grant condonation which actually partake of exemption. 5. EQUITABLE appraisal and assessment are needed to see Types of Real Property Tax: this picture. CURRENT and fair market value is the basis of appraisal 2. assessment. in area if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein. Cities 3. (not falling within the above enumeration) are withdrawn. valued and assessed on the basis of actual use regardless of where located. city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (i. 238. or any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving the land WHO ADMINISTER REAL PROPERTY TAX 1. and whoever uses it. Special levies: a. LGC) – within MM area only b. LGC) What Are Considered as Idle Lands: (Sec. 1. force majeure 2. To impose the RPT on the subsequent owner which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. Although powerless to grant RPT exemption. LGU in MM can exempt the 5% ad valorem tax on idle lands. Unpaid realty taxes attach to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. City of Manila. Idle Lands Exempt From Tax: (Sec. LGC) Real property shall be classified. m. FUNDAMENTAL PRINCIPLES IN Assessment of REAL PROPERTY TAXES (Sec. ACTUAL USE of the property should be the basis of classification 4. 237. 1990) value of the property (Sec. (Estate of Lim v. Proof of Tax Exemption: Every person by or for whom real property is declared who shall claim the exemption shall file with the provincial.e.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Exemptions previously granted. 236. affidavits. Feb 21. including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects. 236. c. levy and collection should NOT BE LET to any private person. title of ownership. GR No. appraisal. etc. LGC) 1. Special Education Fund (SEF) – 1% additional real estate tax to finance the SEF (Sec. 240. whoever owns it.) Actual Use of Property as Basis for Assessment (Sec. articles of incorporation. Provinces 2. Not Idle Lands: Agricultural lands planted to permanent or perennial crops with at least 50 trees to a hectare Lands actually used for grazing purposes shall likewise not be considered idle lands 2. corporate charters. Agricultural lands – More than 1 hectare if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein. Municipalities within Metropolitan Manila Page 104 of 145 VI. contracts. (Sec. Additional Ad Valorem on the Lands – not exceeding 5% of the assessed QuickTime™ and a TIFF (Uncompressed) decompressor . projects or improvements funded by the LGU May be imposed even by municipalities outside MM provided: Special levy shall not exceed 60% of the actual cost of such projects and improvements. LGC) By reason of: 1. Basic real property tax 2. UNIFORMITY in classification in each local gov’t unit should be observed 3. civil disturbance 3. 198) [CUANE] 1. natural calamity 4. 217.000 sq. Non-Agricultural Lands – More than 1. 90639.
its instrumentalities. file w/in 60 DAYS upon completion or occupation (whichever is earlier) b. 207) Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU o Undivided real property – in the name of the estate or heirs or devisees o Corporation. political subdivisions. the property will be listed as taxable in the roll IF proven to be tax-exempt. 224-225) How to determine Fair Market Value: FOR LAND 1. life X Replacement cost Estimated eco. Assessor of the province/city or municipality may summon the owners of the properties to be affected and may take depositions concerning the property. 213. to see this picture. In all other cases: FMV = Remaining eco.212. SWORN statement containing FMV and description of property IF improvement on real property a. LGC) 2. nature and value. property will be dropped from the roll • STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENTROLLS (Sec 205. For Brand New machinery : FMV is acquisition cost 2. its ownership amount. real property shall be needed assessed for back taxes a) for not more than 10 yrs prior to the date of initial assessment b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods . beneficial use is transferred to a taxable person – in the name of the possessor All declarations shall be kept and filed under a uniform classification system to be established by the provincial. SWORN statement containing FMV and description of property 2. Declared by Owner or Administrator (Sec 202203) When: once every 3 years during the period from January 1 to June 30 What: file a sworn declaration with the assessor with description of the property IF newly acquired property a. LGC) FOR MACHINERY 1. files with assessor within 60 DAYS from date of transfer a b. Sanggunian enacts an ordinance 4. life STEP 4: DETERMINE ASSESSED VALUE (Sec 218) Page 105 of 145 NOTE: IF PROPERTY DECLARED FOR THE FIRST TIMEQuickTime™222) (Sec. (sec. Assessor prepares a schedule of FMV for different classes of properties 3. partnership and association – same as individuals o Owned by the Republic of the Philippines. city or municipal assessor. Declared by Provincial / City / Municipal Assessor (Sec 204) WHEN only when the person under Sec 202 refuses or fails to make the Declaration within the prescribed time No oath by assessor is required NOTE: IF FILING FOR EXEMPTION (Sec 206) WHAT person claiming exemptions must file with assessor sufficient documentary evidence to support claim WHEN within 30 days from the date of DECLARATION of property • • • IF required evidence is not submitted within 30 days.DECLARATION OF REAL PROPERTY 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 STEP 1 . and a TIFF (Uncompressed) decompressor If declared for 1st aretime. STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY (Sec 212-214. The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (sec.
until the delinquent amt is paid. LGC) . 257.Jun 30. LGC) b) prompt payment . Administrative 1. LGC) – superior to all liens. municipal or barangay treasurer • PERIOD WITHIN WHICH TO COLLECT (Sec 270): QuickTime™ and a within five (5) yrsTIFF (Uncompressed) decompressor from the date they become due are needed to see this picture. STEP 5: PAYMENT AND COLLECTION OF TAX WHEN January 1 of every year (Sec 246) tax shall constitute as superior lien (Sec 246) HOW a. city. take the schedule of FMV 2. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect Page 106 of 145 . description of the property. 3. within ten (10) yrs. WHO COLLECTS The provincial. special levy . charges or encumbrances and is enforceable by administrative or judicial action. basic real prop tax in 4 equal installments (Mar 31.247. the interest due thereon and the expenses of sale shall be remitted to the owner of real property or person having legal interest. Dec 31) b. Levy (Sec. Lien (Sec. expenses) Redemption (within 1 year from date of sale) Issuance of Final Deed to Purchaser (upon the delinquent taxpayer’s failure to redeem) The proceeds of the sale in excess of the delinquent tax. Distraint (Sec.provided in no case shall the total interest exceed thirty-six (36) months NOTE: FOR ADVANCE and PROMPT PAYMENT a) advance payment . local treasurer is legally prevented to collect tax 2. LGC) The collection of the real property tax with interest thereon and related expenses and the enforcement if the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned. LGC) 1. Tax = Assessed value X Tax rate 3.governed by ordinance • NOTE: INTEREST for LATE PAYMENT .Sep 30.discount not exceeding 20% of annual tax (Sec 251. 254. the owner of the prop is out of the country or cannot be located REMEDIES IN REAL PROPERTY TAXATION Tax Remedies of the Local Government to Effect Collection of Taxes A. Assessed value = FMV X Assessment level 3.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Procedure 1.two percent (2%) each month on unpaid amt. 2. LGC) Issuance of Warrant by the LGU treasurer (on or before or simultaneously with the institution of civil action for collection of delinquent tax) Advertise Sale or Auction (within 30 days after service of warrant) by posting and publication Sale Report of Sale (within 30 days after sale) Preparation of Certificate of Sale (containing the name of the purchaser. in case there is fraud or intent to evade Period of prescription shall be SUSPENDED when: (Sec 270. Personal property may be distrained to effect payment. 258. . The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded. It is extinguished only upon payment of tax and other expenses.discount not exceeding 10% of annual tax due(Art 342 IRR) Collection of Tax (Sec.with notice of delinquency posted and published. from discovery of fraud. amount of delinquent tax and its interests.
Claim for Tax Refund or Credit (Sec. 270 of the LGC. LGC) – in case there is no bidder for the real property advertised or if the highest bid for an amount insufficient to pay the RPT and other costs. The taxpayer may file a written claim for refund or credit with the provincial or city treasurer within 2 years from the date the taxpayer is entitled to such reduction or adjustment.270. The taxpayer is out of the country or otherwise cannot be located (Sec. Redemption of Real Property (Sec. When there is fraud or intent to evade the payment of taxes – ten years from discovery of the fraud or intent to evade payment. Within 1 year from the date of sale. Judicial Civil Action (Sec. Amount of delinquent tax b. LGC) 2. Basic RPT and any other tax levied under the title on RPT – five years from the date they became due. Provincial or city treasurer should decide the claim within 60 days from receipt of the claim. In case of denial of refund or credit. (Sec. shall have the right to redeem the property upon payment to the local treasurer the ff: a. city or municipal assessor to LBAA (Sec. 263. Remedy against the Assessment/Appeal 1st: within 60 days from notice of assessment of provincial. LGC) a. The taxpayer requests for a reinvestigation expiration of the executes a waiver in writing before the expiration of the period within which to assess or collect. and 3. 270. A certificate of redemption shall be issued. LGC) within 30 days from receipt of decision of 3rd: CBAA to CTA en banc or inaction of the treasurer after the lapse of 60 days) Appeal with the CBAA (w/in 30 days from receipt of adverse decision by LBAA) Appeal to CTA (within 30 days from receipt of adverse decision rendered by CBAA) Tax Remedies of the Taxpayer A. the owner of the delinquent real property. LGC) a. 253. or person having legal interest or his representative. 261. GROUNDS FOR THE SUSPENSION OF THE RUNNING OF THE PRESCRIPTIVE PERIODS: 1. LGC) 2. 2. Interest thereon c. 230. Protest Pay the Tax under Protest File Written Protest with Local Treasurer (within 30 days from payment of tax) QuickTime™ and Treasurer Decidesa TIFF (Uncompressed) decompressor are from see this picture. Purchase of property by local treasurer for want of bidder (Sec. Prescriptive Periods for the Collection of RPT 1. Interest of not more than 2% per month on the purchase price from date of sale to date of redemption b. Expenses of sale from date of delinquency to date of the sale d. LGC) within 30 days from receipt of decision of 2nd: LBAA to CBAA (sec. appeal to LBAA within 30 days as in protest case. 226. 266. and the certificate of sale issued to the purchaser shall be invalidated. LGC) – filed by the local treasurer within 5 or 10 years as provided in Sec. (within 60 days needed toreceipt of protest) Approved Denied Apply for Tax Refund Appeal with the LBAA or Tax Credit (in case of denial of protest Page 107 of 145 . B.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 4. b. 270. The treasurer is legally prevented from the assessment or collection of the tax. 3. c. Administrative 1.
whether registered or registrable in accordance with Sec. transferee or lessee of the goods. Judicial . PD 464 and Sec. trust. dissatisfied party may appeal to CBAA Central Board of Assessment Appeals Party adversely affected by LBAA’s decision may appeal with CTA within 30 days from receipt of decision. • In the case of importation. b. 1. corporation. Suit to declare invalidity of tax due to irregularity in assessment and collection. CTA (En BANC) Within 15 days VALUE-ADDED TAX Nature and Characteristics • Value added is the value that a producer adds to his raw materials or purchases (other than labor) before selling the new or improved product or service • VAT is an indirect tax levied on goods and services. There is substantial decrease in the price of agricultural or agri-based products. There is general failure of crops. City or Municipal Assessor Within 60 days Owner/Person with legal interest must file: 1. properties or services at the time of effectivity of RA No. Person refers to any individual. the importer is the one liable for the VAT • Apply to existing contracts of sale or lease of goods. LGC) Appeals in Real Property Taxation Provincial. 7716 (9337). 267. 83. joint venture. properties or services. estate. 3. Suit assailing the validity of tax sale (Sec. including Page 108 of 145 Supreme Court Condonation Real Property Taxes 1. 64. Taxable sale refers to the sale. With Supporting Documents Local Board of Assessment Appeals (LBAA should decide within 120 days from receipt of petition) Within 30 days from receipt of decision from LBAA. Written Petition under Oath 2. By Sanggunian RPT may be condoned wholly or partially in a given LGU when: a. 236 of the Tax Code VAT-registered person refers to any person who is registered as a VAT taxpayer under Sec. Suit assailing validity of tax. cooperative or association Taxable person refers to any person liable for payment of VAT. 236 of the Tax Code. • Seller is the one statutorily liable for the payment of the tax but the amount of the tax may be shifted or passed on to the buyer. partnership. QuickTime™ and a or TIFF (Uncompressed) decompressor are needed to see this c. 2. barter. 2. There is calamity. barter. Recovery of refund of taxes paid (Sec.picture. exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. His status shall continue until the cancellation of such registration. By the President of the Philippines When public interest so requires B. Court Action – appeal of CBAA’s decision to CTA en banc.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 4th: within 15 days from receipt of decision of CTA en banc to SC. not on persons. PD 464) 4. and ultimately paid by consumers in the form of higher prices • VAT is a tax on consumption levied on the sale. 5. exchange and/or lease of goods or properties.
commercial or scientific equipment o the right or the privilege to use motion picture films. trademark. appertaining to. Persons liable 1. DOCTRINE: Any sale. something incident to the main purpose.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 transactions deemed sale and the performance of service for a consideration. whether in cash or in kind Definition of “in the course of trade or business” (Rule of Regularity) o The regular conduct or pursuit of a commercial or an economic activity. VAT on Sale of Goods or Properties • Goods: all tangible and intangible objects which are capable of pecuniary estimation. secret formula or process. QuickTime™ and a Inc. if any. (2006) FACTS: Pursuant to a government program of privatization. • Includes: o Real properties held primarily for sale to customers or held for lease in the ordinary course of business o the right or the privilege to use patent. trade brand or other like property or right o the right or the privilege to use in the Philippines of any industrial. excluding the VAT. ISSUE: Whether or not the sale of the five vessels is subject to VAT? HELD: The court ruled that the sale was not in the ordinary course of the trade or business of NDC and is sufficient to declare the sale as outside the coverage of VAT. The NDC sold in one lot its NMC shares and five of its ships. or exchanges goods or properties (seller or transferor) o Leases goods or properties (lessor) o Renders services (service provider) 2. goodwill. by any person regardless of whether or not the person engaged therein is a non-stock. Any business where the gross sales or receipt do not exceed P100. barter or exchange of the goods or properties. film tapes and disc o radio. Zero-rated transactions 1.Magsaysay TIFF (Uncompressed) decompressor No. barters. are needed to see this picture. barter or exchange of goods or services not in the course of trade or business is not subject to VAT. plan. Export sales • The sale and actual shipment of goods from the Philippines to a foreign country Page 109 of 145 . including transactions incidental thereto. imports goods (importer) Sec 106. Exceptions to the rule of regularity 1. nonprofit private organization or government entity o Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business. copyright. even if the performance of services is not regular Incidental to the principal business o Something necessary. Any person who. television. of such goods or properties shall form part of the gross selling price. Gross Selling Price: the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of sale. NDC decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation(NMC).000 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business 2. 146984 Lines. in the course of trade or business o Sells. or depending upon another which is termed the principal. Section 105. Services rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business. satellite transmission and cable television time CIR v. The excise tax. et al Gr. design or model.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
i. Irrespective of any shipping arrangement ii. Paid for in acceptable foreign currency or its equivalent in goods or services iii. Accounted for in accordance with the rules and regulations of the BSP Sale of raw materials or packaging materials by a VAT-registered entity to a nonresident buyer i. for delivery to a resident local export-oriented enterprise ii. Used in the manufacturing, processing, packing, repacking in the Philippines of the said buyer’s goods iii. Paid for in acceptable foreign currency iv. Accounted for in accordance with the rules and regulations of the BSP Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production Sale of gold to the BSP Those considered export sales under the Omnibus Investment Code of 1987 The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations i. Limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other ports in the Philippines exempt, imports taxable. Situs: country of consumption Cross boarder doctrine: No VAT shall be imposed to form part of the cost of goods sold destined for consumption outside of the territorial boarder of the taxing authority. Actual shipment of the goods from the Philippines to a foreign country is a precondition of an export sale following the destination principle being adhered to by our VAT system
• • •
• CIR v. American Express International, Inc. GR. No. 152609 (2006) The Supreme Court voided the Cross boarder doctrine. The court mentioned that the law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to have “a substantial connection” to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the place where the output of the service will be further or ultimately used. Sales to export-oriented enterprise • Seller complies with other requirements like registration with the BOI and the PEZA • The entirety of the sales to such enterprise that is to be zero-rated, not only a proportion to the actual exports made by such enterprise Omnibus Investment Code: following sales, without actual exportation are considered constructively exported: • Sales to bonded manufacturing warehouses of export-oriented manufacturers • Sales to registered PEZA enterprises • Sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products • Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assemble, or repacked products, whether paid for in foreign currency or not RMO No. 9-2000 • Sales of goods, properties, or services made by a VAT-registered supplier to a BOI-
Export sales • Zero-rated if made by VAT-registered persons • Exempt sales if made by person not VATQuickTime™ and a decompressor registered TIFF (Uncompressed) this picture. are needed to see • Origin Principle: only national taxpayers would be exposed to the tax, without distinguishing between transactions “consumed” locally or abroad. Export taxable, imports exempt. Situs: country of production • Destination Principle: VAT is imposed in the country in which the products or services are actually consumed or used. Exports
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Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
registered exported shall be accorded automatic zero-rating RMC No. 74-99 • Sales made by a VAT-registered supplier to a PEZA-registered enterprise is subject to zero-percent VAT. • However, if the VAT registration of the PEZAregistered enterprise is an erroneous registration, it is not entitled to input taxes on its purchases from its supplier 2. Foreign Currency Denominated Sale (Internal Exports) • Sale to a nonresident of goods, except those mentioned in Section 149(automobiles) and 150 (non-essential goods), • Assembled or manufactured in the Philippines • For delivery to a resident in the Philippines • Paid for in acceptable foreign currency • Accounted for in accordance with the rules and regulations of the BSP • Sale of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program paid for in convertible foreign currency, and accounted for in accordance with the rules and regulations of the BSP shall be considered export sales 3. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory • Refer to exemptions granted under special laws or treaties which are extended not only to the grantee but also to its supplier of goods • Effectively zero-rated sale of goods and properties: refer to the local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or QuickTime™ and a TIFF (Uncompressed) decompressor international are needed to see this picture. agreement • Transactions which, although not involving actual export, are considered as constructive export shall be entitled to the benefit of zerorating Transactions deemed sale 1. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business. • Transfer of goods or properties not in the course of business can take place when VAT-registered person withdraws goods from his business for personal use 2. Distribution or transfer to: i. Shareholders or investors share in the profits of VAT-registered person • Property dividends which constitute stocks in trade or property primarily held for sale or lease declared out of RE on or after Jan.1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or fair market value at the time of distribution, whichever is applicable. ii. Creditors in payment of debt or obligation 3. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned • Consigned goods returned by the consignee within the 60-day period are not deemed sold 4. Retirement from or cessation of business with respect to inventories of taxable goods existing as of such retirement or cessation • Change of ownership of the business (when a single proprietorship incorporates or the proprietor of a single proprietorship sells his entire business • Dissolution of a partnership and creation of a new partnership which takes over the business Not subject to output VAT The VAT shall not apply to goods or properties existing as of the occurrence of the following: 1. Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. 2. Change in the trade or corporate name of the business 3. Merger or consolidation of corporations. Changes in or Cessation of Status of a VAT registered Person 1. subject to output VAT a. change of business activity from VAT taxable status to VAT-exempt status
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Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
b. approval of a request for cancellation of registration due to reversion to exempt status c. approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of 3 consecutive years from the time of registration by a person who voluntarily registered despite being exempt under Sec 109 (2) of the Tax Code d. approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipt exceeding P1,500,000 but who failed to exceed this amount during the first 12 months of operations 2. not subject to output VAT a. change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders b. change in the trade or corporate name of the business c. merger or consolidation of corporations Allowable deductions from gross selling price a) discounts determined and granted at the time of sale (expressly indicated in the invoice) b) sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales Sale of Real Properties o sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT o real estate dealer shall be subject to VAT on the installment payments, including penalties and interest (real properties on the installment plan) o sale of residential lot exceeding P1,500,000, residential house and lot or other residential dwellings exceeding P2,500,000, where the instrument of sale was executed on or after QuickTime™ and a July 1, 2005, (Uncompressed) decompressor VAT (house shall be subject to TIFF are needed to see this picture. and lot is taxable though not in the ordinary course of business) o installment sale of residential house and lot or other residential dwellings exceeding P1,000,000 where the instrument was executed prior to July 1, 2005, shall be subject to VAT o sale of real property on installment plan: sale of real property by a real-estate dealer, the initial payments of which in the year of sale do not exceed 25% of the gross selling price. In the case of sale on the deferredpayment basis, the transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale (sale of real property where the initial payment exceeds 25% of the gross selling price. Initial payments: covers any down payment made and includes all payments actually or constructively received during the year of sale Real estate dealer: includes any person engaged in the business of buying, developing, selling, exchanging real properties as principal and holding himself out as a full or part-time dealer in real estate Transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for the trustor and/or beneficiary
SEC. 107 VAT ON IMPORTATION OF GOODS VAT is imposed on goods brought into the Philippines, whether for use in business or not Tax base = total value used by BOC in determining tariff and customs duties + custom duties + excise tax + other charges (postage, commission, and similar charges, prior to the release of the goods from customs custody If the valuation used is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost = invoice amount + customs duties + freight + insurance + other charges (excise tax shall form part of the tax base) the said tax shall be paid by the importer prior to the release of such goods from customs custody. Importer: refers to any person who brings goods into the Philippines, whether or not made in the course of his trade or business. Includes non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies Sale, transfer, or exchange of imported goods by tax-exempt persons: In the case of goods imported by VAT-exempt persons, entities or agencies which are subsequently sold, transferred or exchange in the Philippines to non-exempt persons or entities, the latter shall be considered the Page 112 of 145
or keepers of hotels. industrial or commercial knowledge or information iv. trade brand. Lessors or distributors of cinematographic film vi. The supply of any assistance that is ancillary and subsidiary to and furnished as a means of enabling the application or enjoyment of any such property. indemnity and bonding companies xvi. Lending investor xi. whether in cash or in kind i. whether personal or real iv. including QuickTime™ and a transport persons who TIFF (Uncompressed) decompressor are needed to see this for goods or cargoespicture. transmission. theaters. patent. remuneration or consideration. goodwill. including surety. Stock. . rest houses. fidelity.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 importers thereof and shall be liable for VAT due on such importation.000. The lease or the use of. telephone and telegraph. The supply of scientific. Sale or Exchange of Service: the performance of all kind of services in the Philippines for others for a fee. or the installation or operation of any brand. refreshment parlors. resorts. including clubs and caterers ix. plan. inns. goods. or other like property or right ii. and/or distribution companies xiv.000 and franchise grantees of gas and water utilities xv. The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to. Persons engaged in warehouse services v.hire and other domestic common carriers by land relative to their transport of goods or cargoes xii. Persons engaged in milling. or repacking goods for others vii. real estate. Non-life insurance companies (except their crop insurances). processing. Common carriers by air and sea relative to their transport of passenger. as well as the use or lease of properties shall be subject to 12% VAT 2. Franchise grantees of electric utilities. or the right to use any industrial. motels. and movie houses viii. operators. secret formula or process. Transportation contractors on their transport of goods or cargoes. Sale or exchange of service. or cargoes from one place in the Philippines to another place in the Philippines Sales of electricity by generation. Proprietors or operators of restaurants. Construction and service contract ii. cafes and other eating places. commercial or scientific equipment iii. manufacturing. or secured to be paid. at the port of entry and the legal permit for withdrawal shall have been granted SEC 108. radio and/or broadcasting television and all other franchise grantees except franchise grantees of radio and/or television broadcasting whose annual gross receipt of the preceding year do not exceed P10. assistance or services rendered in connection with technical management or administration of any Page 113 of 145 xiii. Proprietors. machinery. Lease or the use of or the right or privilege to use any copyright. pension houses. Lessors of property. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein Importation is deemed terminated upon payment of the duties. or right as is mentioned in subparagraph (b) hereof or any such knowledge or information as is mentioned in subparagraph (c) hereof v. trademark. VAT ON SALE OF SERVICE AND USE OR LEASE OF PROPERTIES 1. The supply of technical advise. Sale or exchange of service shall also include: i. Dealers in securities x. commercial. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties 3. or other apparatus purchased from such nonresident person vi. design or model. technical. customs and immigration brokers iii. taxes and other charges due upon the articles.
7. located in the Philippines Advance payment: i. project or scheme vii. radio. real or personal. all receipts from service. corporations.TIFFis not subject to VAT it (Uncompressed) decompressor are needed to see this picture. are liable to VAT real estate lessor: includes any person engaged in the business of leasing or subleasing real property i. or ii. offering services to the public and shall include transportation contractors 12. goods or cargoes from one place in the Philippines to another place in the Philippines 14. wind. natural or juridical. sale of electricity by generation. The lease or use of. • Cash: VAT shall be based on his gross receipts for the month or quarter • Receives a share of the milled products instead of cash: VAT shall be based on the actual market value of his share • Sale by the owner or miller of his share of the milled product (except rice. keeping and storing goods for others. Pre-paid rental • If the advance payment is for the faithful performance of certain obligations of the QuickTime™ and a lessee. or iv. The lease of motion picture films. hydropower. receiving goods and merchandise to be stored in his warehouse for hire. whether real or personal. by land. A security deposit to insure the faithful performance of certain obligations of the lessee to the lessor. solar. engaging in the business of receiving and storing goods for compensation ii. . geothermal. 6. firms or associations engaged in the business of carrying or transporting passengers or goods or both. transmission. or operating lease of transportation equipment not subject to the percentage tax on domestic carriers and keepers of garages shall be subject to VAT 11. hire. VAT on rental and/or royalties payable to non-resident foreign corp or owners for the sale of services and use or lease of properties in the Philippines shall be based upon on the contract price agreed upon by the licensor and the licensee non –resident lessor/owner: any person. whether tangible or intangible. • A security deposit that is applied to rental shall be subject to VAT at the time of its application • If the advance payment constitutes a prepaid rental. water or air for compensation. or iii. or the right to use. 5. ocean energy. or iii. domestic common carriers by air and sea are subject to 12% VAT on their gross receipts from their transport of passengers. A loan to the lessor from the lessee. regardless of the place where the contract of lease or licensing agreements was executed if the property leased or used is located in the Philippines ii. venture. film tapes. then such payment is taxable to the lessor in the month when received. and tourist buses used for the transport of passengers shall be subject to percentage tax 13. common carries: refers to persons. an alien. common carriers by land with respect to their gross receipts from the transport of passengers including operators of taxicabs. or a citizen who establishes to the satisfaction of the CIR the fact of physical presence abroad with definite intention to reside therein.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 scientific. corn grits and raw sugar) shall be subject to VAT) 10. as a business and for use 9. industrial or commercial undertaking. television. An option money for the property. and distribution companies shall be subject to 12% vat on their gross receipts (sale of power or fuel generated through renewable sources of energy such as biomass. utility cars for rent or hire driven by the lessees. and sugarcane into raw sugar) is subject to VAT on sale of services. and other emerging energy sources using technologies such as fuel cells and Page 114 of 145 4. irrespective of the accounting method employed by the lessor 8. satellite transmission and cable television time Lessors of property – all forms of property for lease. miller: a person engaged in milling for others (except palay into rice and corn into corn grits. and who owns/leases properties. and discs viii. warehousing service: rendering personal service of a warehouseman such as i.
manufacturing. originating from the Philippines are subject to percentage tax and hence exempt from VAT non-life insurance companies: including surety.(Uncompressed) decompressor TIFF message. credits or any substitute for money • non-life reinsurance premiums are subject to VAT • insurance and reinsurance commissions. • Gas and water utilities: subject to 2% franchise tax on their gross receipts • Telephone and telegraph: subject to VAT on their gross receipts derived from their telephone. For dealer in securities. Page 115 of 145 . • Deposit in banks which are made available to the seller of service without restrictios • Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered • Transfer of amounts retained by the payor to the account of the contractor Zero-rated sales of service The following services performed in the Philippines by a VAT-registered person shall be subject to 0% VAT rate: 1. whether paid in money. • 15. telegraph. 17. are subject to VAT • Vat due from the foreign reinsurance company is to be withheld by the local insurance company and to be remitted to the BIR 20. toll road operations and all other franchise grantees. Gross receipts (sale of electricity): i. or repacking goods for other persons doing business outside the Philippines. the term gross receipts means gross selling price less cost of the securities sold service of franchise grantees of telephone and telegraph. compensation. except gas and water utilities. 18. excluding VAT Gross Receipts: total amount of money or its equivalent representing the contract price. Total amount charged by generation companies for the sale of electricity and related ancillary services. fidelity. and/or. telewriter exchange. 23 (percentage tax) of the Tax Code gross receipts: total premiums collected. excluding VAT. including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person. iii. health maintenance organizations (HMO) • gross receipts: total amount of money or its equivalent representing the service fee actually or constructively received during the taxable period for the services performed or to be performed . rental or royalty. pre-need companies: the compensation for their services is the premiums or payments received from the plan holders 21. Total amount charged by transmission companies for transmission of electricity and related ancillary services. indemnity and bonding companies are subject to VAT • not liable to premium tax under Sec.000 shall not be subject to VAT but 3% percentage tax. Constructive receipt: occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without restrictions by the payor.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 hydrogen fuels shall be subject to 0% VAT) generation companies: refers to persons or entities authorized by the ERC to operate facilities used in the generation of electricity. Total amount charged by distribution companies and electric cooperatives for distribution and supply of electricity and related electric services. processing. whether life or non-life. or conversion are needed to see this picture.000. and/or ii. shall be subject to VAT • radio and/or television broadcasting: annual gross receipt of the preceding year do not exceed P10. 19. service fee. radio and/or television broadcasting. 16. The universal charged passed on and collected by distribution companies and electric cooperatives shall be excluded from the computation of the GR dealers in securities and lending investors: subject to VAT on the basis of their gross receipts. wireless and other communication equipment services • Amounts received for overseas QuickTime™ and a dispatch. notes.
7. QuickTime™ and a • Gross receipts of international air carriers TIFF (Uncompressed) decompressor are needed to see this picture. including leases of property for use thereof • shall not pertain to those made to common carriers by air and sea relative to their transport of passengers. 5) • Concerned taxpayer must seek prior approval or prior confirmation from the appropriate offices to the BIR so that a transaction is qualified for effectively zero-rating • Without an approved application for effective zero-rating. or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country. accounted for in accordance with the rules and regulations of the BSP services other than processing. hydropower. shrimps. biomass. the transaction otherwise entitled to zero-rating shall be considered exempt SEC 109. broiling. VAT EXEMPT TRANSACTIONS • Refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT and the seller is not allowed any tax credit of VAT on purchases Exempt transactions: 1. solar. or yielding or producing foods for human consumption.] b. and other emerging sources using technologies such as fuel cells and hydrogen fuels. which goods are subsequently exported b. rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed [CIR v. The consideration of which is paid for in acceptable foreign currency c. 5. such as but not limited to. geothermal and steam. sale or importation of agricultural and marine food products in their original state. 153205 (2007) require performance of services to nonresident to qualify as zero-rated. • Zero rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy. 6. livestock and poultry of a kind generally used as. salting. 4. smoking or stripping. drying. ocean energy. race horses. geese and turkey • Does not include fighting cocks. and shall not extend to the sale of services related to the maintenance or operation of plants generating said power Effectively Zero-Rated Sale of Services: refer to the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement (limited to 3. Page 116 of 145 2. vegetables and other agricultural and marine food products are considered in their original state even if hey undergone the simple process of preparation or preservation for the market : freezing. wind. pigs. and breeding stock and genetic materials thereof • Livestock: cows. Busmeirter. doing business in the Philippines and international sea carriers doing business in the Philippines are still liable to percentage tax sale of power or fuel generated through renewable sources of energy such as. mussels and clams • Meat. ducks. lobster. vacuum packing. GR No. eels. shrink wrappings in plastic. roasting.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 a. accounted for in accordance with the rules and regulations of the BSP services rendered to persons or entities whose exemptions under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent rate services rendered to persons engaged in international shipping or air transport operations. sheep. . oysters. 3. bulls and calves. converting. goats and rabbits • Poultry: fowls. manufacturing. goods or cargoes from one place in the Philippines to another place in the Philippines (subject to 12% VAT) services performed by subcontractors and/or contractors in processing. et al. 4. where the services are paid for in acceptable foreign currency c. prawns. zoo animals and other animals generally considered as pets • Marine food products: fish and crustaceans. or repacking a. trout. fruit. but not limited to.
the CHED and/or TESDA Services rendered by individuals pursuant to an employer-employee relationship Services rendered by regional or area HQ established in the RP by multinational corporations which act as supervisory. and personal household effects (except any vehicle. domestic animals. 11. seedlings and fingerlings. fighting cocks. except those rendered by professionals • laboratory services are exempted • if the hospital or clinic operates a pharmacy or drug store. Importation of professional instruments and implements. wearing apparel. • Accompanying such persons or arriving within 90 days before or after their arrival Upon the production of evidence satisfactory to the CIR that such persons are actually coming to settle in the Philippines • The change of residence is bonafide services subject to percentage tax services by agricultural contract growers and milling for others of palay into rice. review classes and other similar services rendered by persons who are not accredited by the DepED. corn grits and raw cane sugar and molasses. machinery and other goods for use in the manufacture and merchandise of any QuickTime™ and a TIFF (Uncompressed) decompressor kind in commercial quantity) are needed to see this picture. whether in its original state or processed form.5 and above are presumed to be refined sugar • Cane sugar produced from the following shall be presumed to be refined sugar: o Product of a refining process o Products of sugar refinery o Product of a production line of a sugar mill accredited by the BIR to be producing and/or capable of producing sugar with polarmeter reading of 99. zoo animals and other animals generally considered as pets) 3. seeds. corn into grits and sugar into raw sugar medical. the sale of drugs and merchandise is subject to VAT Educational services rendered by private educational institutions duly accredited by the DepED.5 • Bagasse is not included in the exemption provided for under this section 2. CHED and TESDA and those rendered by government educational institutions • Does not include seminars. ordinary salt and copra shall be considered as agricultural product in their original state • Sugar whose content of sucrose by weight. to be used directly and exclusively in the production and/or processing of their produce Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the CDA Page 117 of 145 • 5. 7. 13. hospital and veterinary services. in the dry state : parameter reading of 99. whether locally produced or imported. . livestock and poultry feeds. importation of personal and household effects • belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines • such goods are exempt fro customs duties under the Tariff and Customs Code of the Philippines 4.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 tetra-pack. fish. sale or importation of fertilizers. inservice training. barter or exchange. aquarium fishes. to non-members • their importation of direct farm inputs. subsidiaries or branches in the Asia Pacific Region and do not earn or derive income from the RP Transactions which are exempt under international agreements to which the RP is a signatory sales by agricultural cooperatives duly registered and in good standing with the CDA to their members. as well as sale for their produce. vessel. used in the manufacture of finished feeds (except specialty feeds for race horses. communications and coordinating centers for their affiliates. prawn. including ingredients. machineries and equipment. dental. 9. • Belonging to persons coming to settle in the Philippines • For their own use and not for sale. 10. aircraft. and other similar packaging methods • Polished and/or husked rice. including spare parts thereof. 6. 12. 8.
Importation of fuel. non-bank financial intermediaries performing quasi-banking functions.: exempt from VAT but subject to 3% percentage tax • GR from rentals exceeding 10T per month per unit shall be subject to VAT if the aggregate annual GR from said units only (not including the GR from units leased for not more than 10T) exceeds 1. Lease of residential units • Monthly RENTAL: notaexceeding QuickTime™ and TIFF (Uncompressed) decompressor P10. are • If the aggregate of such rentals of the lessor during the year do not exceed 1. • For purposes of the threshold of 1.000 needed to see this picture.5M. importation. at the time of acquisition counted from the date of he vessel’s original commissioning o Passenger/cargo vessel: 15 years old o Tankers: 10 years old o High-speed passenger crafts: 5 years old Exemption shall be subject to the provisions of “The Domestic Shipping Development Act” 20. including engine. review. • The aggregation rule for each taxpayer shall apply • Page 118 of 145 . or lease of passenger or cargo vessels and aircraft. magazine. the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed 1.000 • Utilized for socialized housing • Price ceiling per unit: P225.5M.5M.5M and below • Instrument must be executed on or after July 1. or bulletin • which appears at regular intervals • with fixed prices for subscription and sale • which is not devoted principally to the publication of paid advertisements 19. importation. or house and lot and other residential dwellings valued at 2. 2005 • If two or more adjacent residential lots are sold or disposed in favor of one buyer. Export sales by persons who are not VATregistered 16. for the purpose of utilizing the lots as one residential lot. Sale. Sale.5M and below. the gross annual sales and/or receipts do not exceed 1. the husband and wife shall be considered separate taxpayer. Otherwise. subject to 3% percentage tax 18.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 14. The following sales of real properties are exempt from VAT: • Not primarily held for sale to customers or held for lease in the ordinary course of trade or business • Sale of real properties utilized for low-cost housing • A subdivision or a condominium registered and licensed by the HLURB • Undertaken by the gov’t or private developers • Unit selling price ceiling: P750. non-electric and non-credit cooperatives duly registered with and in good standing with the CDA • Share capital contribution of each member does not exceed 15. Sale or lease of goods or properties or the performance of services other than the transaction mentioned in the preceding paragraphs. including spare parts thereof. equipment and spare parts thereof for domestic or international transport operations • Limited to 150 tons and above. Sales by non-agricultural.000 and regardless of the aggregate capital and net surplus ratably distributed among the members • Importation of machineries and equipment.5M. including engine and spare parts of said vessels • Comply with the age limit requirement. to be used by them are subject to VAT 15. printing or publication of books and any newspaper. and other non-bank financial intermediaries subject to percentage tax such as money changers and pawnshops 22. Services of banks.000 • Residential lot valued at 1. goods and supplies by persons engaged in international shipping or air transport operations • Shall be used exclusively or shall pertain to the transport of goods and/or passengers from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines 21.5M 17.
including packaging materials.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 A VAT-registered person may. input tax spread evenly on monthly basis by the actual number of months comprising the estimated useful life of the capital good b. including GOCC shall not be credited against output taxes Page 119 of 145 Claim for Input Tax on Depreciable Goods . to the importer upon payment of VAT prior to the release of goods from customs custody 2. royalty or fee Requisites: • A VAT-registered person purchases or imports capital goods (which are depreciable goods for income tax purposes) • Aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceed 1M Manner of claiming input tax 1. or e) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code 2. Transitional input tax credits allowed under the transitory and other provisions of these Regulations QuickTime™ and a Persons who Can TIFF (Uncompressed) decompressor Avail of the Input Tax Credit are needed to see this picture. or b) For conversion into or intended to form part of a finished product for sale. 1. instrumentalities or agencies. input tax spread evenly over a period of 60 months b. or d) For use as raw materials supplied in the sale of services. rental. To the purchaser of the domestic goods or properties upon consummation of the sale. Purchase of real properties for which a VAT has actually been paid 3. or services. estimated useful life of a capital good is 5 years or more: a. Transitional input tax 6. or c) For use as supplies I the course of business. Credits for Input Tax Input Tax • The VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods. estimated useful life is less than 5 years: a. Transactions deemed sale 5. Presumptive input tax 7. If the depreciable capital good is sold/transferred within the period of 5 years or prior to the exhaustion of the amortizable input tax thereon: entire unamortized input tax on the capital goods sold. commenced in the calendar month when the capital good is acquired Aggregate acquisition cost does not exceed 1M: total input taxes will be allowable as credit against output tax in the month of acquisition Aggregate acquisition cost of a depreciable asset in any calendar month: refers to the total price agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. including lease or use of properties. in the course of trade or business • Include the transitional and the presumptive input tax • Includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input taxes which cannot be directly attributed to either the taxable or exempt activity • Evidenced by a VAT invoice or official receipt issued by a VAT-registered person 1. elect that that the exemption shall not apply to his sales of goods or services or properties which is irrevocable for a period of 3 years. Purchases of services in which a Vat has actually been paid. 4. can be claimed as input tax credit during the month or quarter when the sale or transfer was made but subject to limitation Apportionment of Input Tax on Mixed Transactions A vat-registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: • all the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit o input taxes which are directly attributable to Vat taxable sales of goods and services from the Government or any of its political subdivisions. Purchase or impartation of goods a) For sale . To the purchaser of services or the lessee or licensee upon payment of the compensation. properties. commenced in the calendar month when the capital good is acquired 2. or 3.
Sellers of service: Gross receipts x VAT rate VAT payable computation: Output Tax .Input Tax Vat payable are VAT Payable (Excess needed to see this picture. but which have not yet undergone processing. the aggregate input taxes shall be allocated ratably between the zero-rated sale and non-zero-rated sale A. materials and supplies. Materials purchased for further processing.(input tax attributable to exempt sales) . mackerel. excluding goods that are exempt from VAT Determination of Input Tax Credit during a taxable month or quarter All creditable input taxes during the month or quarter + any amount of input taxes carried-over from preceding month/qtr . Properties or services Transitional/Presumptive Input Tax Credits Page 120 of 145 . Output) or Excess Input Tax If at the end of any taxable quarter the output tax > the input tax: the excess shall be paid by the VATregistered person Ex. canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition Claims for Refund/Tax Credit Certificate of Input Tax 1. Presumptive Input Tax Credits (4%) Covered: Persons or firms engaged in the processing of sardines.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 • arising from sales to non-government entities if any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction. Zero-rated and Effectively Zero-rated Sales of goods.(claim for VAT refund or tax credit certificate) . 5. Transitional Input Tax Credits on Beginning Inventories (2%) o Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of 1. whichever is higher o such amount shall be creditable against the output tax of VAT-registered person o value allowed for income tax purposes on inventories shall be the basis for the computation of the 2% TIT. 4. 3. goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person TIT = 2% of the value of the beginning inventory on hand or actual VAT paid on such goods.5M (except franchise grantees of radio and television broadcasting whose threshold is 10M. the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions o only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of CGS for persons engaged in both zero-rated sales and non-zero rated sales. goods which have been manufactured by the taxpayer.(input tax attributable to sales subject to final VAT withholding) Input Tax Credit Determination of the Output Tax and VAT payable and Computation of VAT Payable or Excess Tax Credit Computation of output tax 1.5M in any 12-month period o Voluntarily register even if their turnover does not exceed 1. Goods or properties: Gross selling price x VAT rate 2. Output tax 100 Input tax (80) VAT Payable 20 QuickTime™ and a TIFF (Uncompressed) decompressor B. goods in process for sale. Entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration 1. goods purchase for resale in their present condition. and milk and in the manufacturing refined sugar. cooking oil and packed noodle-based instant meals Rate: 4% of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production Creditable: against the output tax Processing: pasteurization.(other adjustments – purchase returns or allowances) . 2.
the Presiding Justice shall designate any Justice of other Divisions of the court to sit temporarily therein What is the APPELLATE JURISDICTION OF THE CTA? • The CTA shall exercise exclusive appellate jurisdiction to review by appeal: 1. En banc 2. Cancellation of VAT registration Why: due to retirement from or cessation of business. Where to file the claim for refund/TCC o Filed with the appropriate BIR office (LTS or RDO) having jurisdiction over the QuickTime™ and a principal place of business of the TIFF (Uncompressed) decompressor taxpayer are needed to see this picture. or due to changes in or cessation of status under Sec 106(c) of the TAX Code When: within 2 years from the date of cancellation What: apply for the issuance of a TCC for any unused input tax which he may use in payment of his other internal revenue taxes However: shall only be entitled to a refund if he has no internal revenue tax liabilities against which the TCC may be utilized 3. Sitting in 2 divisions. Decisions of CIR 2. o Direct exporters: may file their claim for TCC with the One Stop Shop Center of the DOF o Filing of the claim with one office shall preclude the filing of the same claim with another office 4. Period within which refund or TCC of input taxes shall be made o CIR shall grant a TCC/refund for creditable input taxes within 120 days from the date of submission of complete documents in support of the application • Taxpayer may appeal to the CTA within 30 days from receipt of said denial • If no action on the claim for refund has been taken by the CIR after the 120 day period from the date of submission of the application with complete documents. Inaction of CIR • Page 121 of 145 . an act expanding the jurisdiction of the CTA.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Vat-registered person may apply for the issuance of a TCC/refund of input tax attributable to such sales o Input tax that may be subject of the claim shall exclude the portion of input tax that has been applied against the output tax o Application should be filed within 2 years after the close of the taxable quarter when such sales were made o In case of zero-rated sales: the payments for the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations o Taxpayer is engaged in both zerorated or effectively zero-rated sales and in taxable or exempt transactions and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions: only the proportionate share of input taxes allocated to zerorated or effectively zero-rated sales can be claimed for refund or issuance of a TCC o A person engaged in the transport of passenger and cargo by air or sea vessels from the Philippines to a foreign country: input taxes shall be allocated ratably between his zero-rated sales and non-zero-rated sales. Manner of giving refund • Refund shall be made upon warrants drawn by the CIR or by his duly authorized representative without the necessity of being countersigned by the Chairman of COA • Refunds under this paragraph shall be subject to post audit by the COA COURT OF TAX APPEALS What is the new law governing the CTA? • RA 9282. each division with 3 justices each What is the quorum? • The affirmative votes of 4 Justices for sessions En Banc and 2 Justices for sessions of a Division shall be necessary for he rendition of a decision or resolution • When the required quorum cannot be constituted.may appeal to the CTA within 30 days from the laps of the 120-day period 5. the taxpayer . and elevating it to the level of the Court of Appeals What is the composition of the CTA and how may the CTA rule? • CTA shall consist of a Presiding Justice and five (5) Associate Justice • They may rule as follows: 1. 2.
Secretary of Finance. File petition for review with CTA En Banc 4. Over petitions for review of the decision of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the MTC Does the CTA have jurisdiction over tax collection cases? • Yes. COC or the RTC. Over appeals from Decision of RTC in tax collection cases 2. municipal treasurer. COC. as the case may be. In case resolution of Division on the MR or new trial is still adverse: a. ORIGINAL – 1M OR ABOVE • Exclusive appellate jurisdiction in tax collection cases: 1. Generally. suspension is allowed when the following conditions concur: o It is an appeal to the CTA from a decision of CIR. Decisions of Commissioner of Customs 5. Except: appeal by filing a petition for review to En Banc in case of decisions of CBAA or RTC in the exercise of its appellate jurisdiction 2. Secretary of Trade and Industry or Secretary of Agriculture. Decisions of DTI (on nonagricultural products) and Department of Agriculture (on agricultural products) involving dumping and countervailing duties Does the CTA have jurisdiction over criminal cases? • Yes.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 3. • It is only after the CBAA has ruled that an appeal may be made to the CTA • In which case. Secretary of Trade and Industry or Secretary of Agriculture. In case the decision of the Division is adverse: a. or the CBAA or the RTC: a. appeal will be to a Division QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. File MR with same Division within 15 days from notice thereof 3. the CTA have jurisdiction over the following cases involving tax collection: 1. what is the taxpayer required to do? • The taxpayer will be required to either deposit the amount claimed or file a surety bond for not more than double the amount with the Court. the CTA have jurisdiction over the following cases involving criminal offenses: 1. ORIGINAL . Decisions of DOF on customs cases elevated to him on automatic review due to adverse decision versus the government 7. the appeal shall be by petition for review to the CTA En Banc What is the rule on suspension of collection? • General Rule: no injunction to restrain collection of taxes • Exception: Under Section 9 of RA 9282. Decisions of RTC on local tax cases 4. PART VI . b. Appeal within 30 days from receipt of decision or period of inaction of CIR. Over petitions for review of the decision of the RTC in the exercise of their appellate jurisdiction over tax collection cases originally decided by the MTC What is the Procedure? 1.FOR CRIMINAL ACTS UNDER NIRC AND CUSTOMS CODE 1M OR ABOVE • Over appeals from the decision of RTC in tax cases 1. or the Secretary of Finance. provincial. IN case the decision of the CTA En Banc is adverse. the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or taxpayer In case of suspension. file a review on certiorari with the SC pursuant to Rule 45 of Rules of Court Where can you appeal a decision of a local assessment board? • To the Central Board of Assessment Appeals (CBAA) and not yet to the CTA.TARIFF AND CUSTOMS CODE DEFINITIONS Page 122 of 145 . and o In the opinion of the Court. Decisions of CBAA (on exercise of appellate jurisdiction over RPT tax cases decided by LBAA) 6.
Arrastre charge 2. of DTI and either the Sec. general welfare and national security. • The Commission shall also hear the views and recommendations of any gov’t office agency or instrumentality concerned. fines and penalties accruing under the Page 123 of 145 3. CUSTOMS DUTIES: Tax assessed upon merchandise from or exported to a foreign country (Garcia v. Wharfage due. (Uncompressed) decompressor reduce or remove existing TIFF are needed to see this picture.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 1. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. 401. charged not for the use of any wharf but for a special fund. To impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary. TCC) QuickTime™ and a 1. 211 SCRA 227 ) FLEXIBLE TARIFF: Import duties which are modified by the President upon investigation by the Tariff Commission and recommendation of the NEDA in the interest of national economy.Port Works Fund 3. TCC) OTHER TYPES OF FEES CHARGED BY THE BOC 1. LIMITATIONS IMPOSED REGARDING THE FLEXIBLE TARIFF CLAUSE 1. Conduct by the Tariff Commission of an investigation in public hearing. of Labor if non-agri. toll or tribute payable upon merchandise to gov’t.) FLEXIBLE TARIFF CLAUSE The President may fix tariff rates import and export quotas. the enforcement of which is entrusted to BOC. To establish import quota or to ban imports of any commodity. protective rates of import duty (including any necessary change in classification) The existing rates may be increased or decreased to any level on one or several stages but in no case shall the increased rate of import duty be higher than a maximum of 100% ad valorem. Art. BUREAU OF CUSTOMS FUNCTIONS: 1. • In such a case. Product or the Sec. Tonnage due Meaning and Scope of the Tariff and Customs Laws • Includes not only the provisions of the Tariff and Customs Code (TCC) and regulations pursuant thereto. Assessment and collection of the lawful revenues from imported articles and all other dues. 28. but all other laws and regulations which are subject to the Bureau of Customs (BOC) or otherwise within its jurisdiction. Dumping Duty Imposing Authority Special Committee on AntiDumping (compose d of Sec. . Harbor fee 5. Members: the Sec. • As to its scope: tariff and custom laws extend not only to the provisions of the TCC but to all other laws as well. Countervailing Duty Sec. Berthing fee 4. the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases (Sec. of Finance as Chairman. fees. 2. under TCC (See Sec. charges. etc. VI. of finance Marking Duty Commissi oner of Customs Discriminato ry Duty President of the Philippines 2. To increase. Executive Sec. as may be necessary and 3. • The NEDA thereafter submits its recommendation to the President. of Agriculture if article in question is agri..counterpart of license. TARRIF: Custom duties. Constitution and Sec 401. 2.
Sec. or secured to be paid at the port of entry and legal permit for withdrawal shall have been granted In case the articles are free of duties. Absolutely prohibited a. Prevention and suppression of smuggling and other frauds upon the customs. For the purpose of the collection of the lawful duty on dutiable articles thus imported and prevention of smuggling through the medium of such mails 6. (Auyong Hian v. the legal effects of the importation of qualifiedly prohibited articles are the same as those absolutely prohibited articles. 2. 105 • Article Conditions Animals and plants • For scientific. harbors. 602) JURISDICTION OF COLLECTOR OF CUSTOMS OVER IMPORTATION OF ARTICLES 1. Immoral/obscene or insidious articles c. Cause all articles for importation to be entered in the customhouse 2.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 tariff and customs laws. Those prohibited under Special Laws (Sec 102 TCC) 2. Supervision and control over the handling of foreign mails arriving in the Phils. breeding. bays. CTA. GOODS PROHIBITED FROM BEING IMPORTED 1. 603) APPLICATION OF THE TCC Only after importation has begun but before importation is terminated QuickTime™ DURATION OF IMPORTATION: and a TIFF (Uncompressed) decompressor are needed to see this picture. ports. 7. Prohibited drugs/narcotics e. All coasts. 5. Articles for treason d. Those provided for in Sec. (Sec. Those granted to government agencies. Cause all such articles to be appraised and classified 3. Those given to international institutions entitled to exemption by agreement or special law. Enforcement of tariff and customs laws. 1202) Intention to Unload • Even if not yet unloaded. Qualifiedly prohibited o Where such conditions as to warrants a lawful importation do not exist. GOCC with agreements with foreign countries. Supervision and control all import and export cargoes.. rules and regulations relating to the tariff and customs administration. taxes and other charges until they have legally left the jurisdiction of customs (Sec. terminal facilities including container yards and freight stations for the protection of government revenue. Exercise exclusive jurisdiction over seizure and forfeiture cases under the tariff and customs laws. 105 of the TCC. airports. botanical. BEGINNING When the conveying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein TERMINATION Upon payment of the duties. Gambling paraphernalia/devices f. taxes and other charges are paid thereon (Sec 1206) TERRITORIAL JURISIDICTION OF THE BOC 1. airports. taxes and other charges thereon 4. 2. 2. propagation. 4. 59 SCRA 110) Conditionally-free from tariff and customs duties • Certain imported articles are exempt from import taxes upon compliance with certain requirements. and other charges due upon the articles. These are 1. 3. Assess and collect the duties. experimental. zoological and national defense purposes Aquatic products o caught or gathered by vessels of Philippine registry o Not have landed in foreign Page 124 of 145 . Those that may be granted by the President upon Neda’s recommendation. Hold possession of all imported articles until the duties. rivers and inland waters whether navigable or not from the sea (1st par. 3. • Exempt articles under Sec. All the seas within the jurisdiction of the Phils. Weapons of war b. and there is unmanifested cargo forfeiture may take place because importation has already begun. and 4. Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce. landed or stored in piers. taxes.
instruments related to one’s profession and Wearing apparel. That the returning resident has not previously availed of the privilege under this section within 365 days prior to his arrival 3. theatrical costumes and similar personal effects Page 125 of 145 . cups) Those received as honorary distinction Samples in such quantity and of such dimensions or constructions as to render them unsaleable or of no appreciable commercial value. subject however to the following provisions: 1. • in use of and necessary and appropriate for the wear or use of such persons according to their profession or position • for the immediate Equipment used for the salvage of vessels or aircraft not available locally Costs of repair made in foreign country of Phil vessels or aircraft Articles brought into the Philippines for repair. badges.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 territory. solely for transshipment o Bond= 1 ½ x of ascertained duties. prizes ( medals.000 • arriving within a reasonable time. portable tools and instruments. taxes and charges analogous personal or household effects. watercraft. and o samples not for sale o marked sample sale punishable by law o for purpose of introducing new product o imported by person duly registered and identified to be engaged in that trade o Importations authorized by Sec of Finance Personal and o formally declared and household effects listed before departure of returning Phil and identified under residents oath before the Collector of Customs when exported from the Phil by such returning residents upon their departure therefrom or QuickTime™ and a during their stay abroad TIFF (Uncompressed) decompressor are needed to see this picture. sale or hire and that the total dutiable value of which shall not exceed P10. accompanying them on their return or arriving within a reasonable time which. processing or reconditioning o Bond = 1 ½ x of ascertained duties. articles of personal adornment (except luxury items) toilet articles. or if landed. before or after the owners. or reconditioning Trophies.000 2. That the personal and household effects shall neither be in commercial quantities nor intended for barter. taxes and charges o Must be exported within 6 months o Phil must not have adequate facilities to make repair o Vessel was compelled by weather or casualty to go to a foreign port of repair o Excludes value of article used for repair o to be re-exported upon completion of the repair. o models not adopted for practical use. toilet articles. appropriate and normally used for their comfort and convenience during their stay abroad. excluding vehicles. o personal and household effects including wearing apparel. barring unforeseen and fortuitous events. processing. articles of personal adornment. purchased in foreign countries by residents of the Philippines which were necessary. aircraft and animals. in no case shall exceed 60 days after the owner’s return. That a 50% ad valorem duty across the board shall be levied and collected on the personal and household effects in excess of P10.
163. 210 Must file bond Exported within 6 months Not exhibited for profit Otherwise. vocational. barter. that the exposed films undeveloped. rank or position For their own use. vehicles of foreign consultants and experts hired or rendering service to gov’t. NOT for sale. holders and similar receptacles Supplies of vessel or aircraft country must grant same privilege to Phil. display in public expos. wearing apparel. of Finance which will be given only upon request of the DFA • Org not for profit • For free distribution to the needy • Except those that are reusable for shipment or transportation of goods • For use or consumption of passengers on board • Any surplus or excess shall be dutiable • Vessels must have been wrecked or abandoned in Phil waters • Not exceed P10. domestic animals.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 accompanying travelers or tourists in their baggage Personal and household effects.000 • • • • Professional instruments. legations. • • • • Must file a bond Exported within 6 months (unless extended by the Collector for another 6 months) • Principal actors are Photographic and QuickTime™ and a Filipinos decompressor cinematographic TIFF (Uncompressed) this picture. philosophical. rank or position For their own use. historical. exhibition or competition for prizes. agencies of foreign gov’t Articles for personal or family use of members and attaches of foreign embassies. technical. barter. confiscation +penalty by foreign embassies. agencies Such privileges must be accorded in a special agreement between Phil and the foreign country Privilege may be granted only upon specific instructions of Sec. tools of trade. Accompany them or arrive at a reasonable time In quantities and kind necessary and suitable to the profession. producing companies Importations used Reciprocity: such foreign • • Articles and salvage after 2 years from filing protest Coffins or urns containing human remains. by importer are needed to see • Affidavit films. including staff and families purposes of their journey and their present comfort and convenient. hire Collector may require: written commitment or bond In quantities and kind necessary and suitable to the profession. Foreign articles Note that if a drawback or bounty was allowed to any Phil article under this subsection. devices for projecting picture Brought by foreign film producers for making or recording motion pictures on location in Phil. Personal and household effects of deceased except vehicles Economic. are same films exposed outside previously exported Phil by resident Filipinos or Phil. upon re-importation article shall be subject to duty equal to the bounty or drawback Page 126 of 145 . scientific. NOT for sale. hire Change of residence is bona fide Privilege of free entry was never granted to them before or qualifies under LOI 105. bones ashes. personal and household effects belonging to persons coming to settle in the Phil and OFW • • • • Articles used exclusively for public entertainment. and cultural books and publications Phil articles previously exported and returned without increasing value or improved condition. consular officers and other reps of foreign gov’t Articles donated to or for account of relief organization Containers. legations.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
previously exported when returned after having been exported and loaned for use temporarily abroad solely for exhibition Foreign container used in packing exported Phil products Articles and supplies imported by and for use of scheduled airlines operating under congressional franchise Machineries, equipments, tools for production, plants to convert mineral ores into saleable form, spare parts, supplies, materials, accessories, explosives, chemicals, transpo and communications facilities imported by and used by new mines and old mines exported from Phil for repair and subsequently reimported Trailer chassis imported by shipping companies for handling containerized cargo • Cost of repair made on article shall pay 30% ad valorem Bond (1 ½ x) to cover 1 year Must be properly identified and registered with the LTO Subject to customs supervision fee Deposited in Customs zone when not in use Upon expiration of period (1 year or as extended by Commissioner) duties and taxes shall be paid Car must have been purchased or ordered before the mission or consulate received his order of recall The value of personal and household effects shall not exceed 30% of his total salary.
• • • •
Such articles are not available locally in reasonable quantity, quality and price Necessary or incidental to proper operations Such articles are not available locally in reasonable quantity, quality and price Necessary or incidental to proper operations Used in their agri and industrial operations
Personal and household effects (including one car) officer or employee of DFA, attaché, staff assigned to Phil diplomatic mission abroad, personnel of Reparations Missions in Tokyo, AFP military personnel in SEATO, AFP military personnel accorded diplomatic rank on duty abroad = returning from regular assignment, reassignment, dies, resigns or retires
Aircrafts imported by agro industrial companies, spare parts and accessories Spare parts of • Brought to Phil as QuickTime™ and a vessels or aircraftsTIFF (Uncompressed) decompressor replacement or for are needed to see this picture. of foreign registry emergency repair engaged in foreign • Spare parts utilized to trade secure safety, seaworthiness, or airworthiness, enable it to continue voyage or flight Articles for easy • Cannot be repaired identification locally
Free from tariff and customs duties • Imported goods must be entered in the customhouse at their port of entry otherwise they shall be considered as contraband and the importer shall be liable for smuggling (sec 1201) • Port of entry means a domestic port open to both foreign and coastwise trade including “airport of entry”. (Sec. 3514) • All articles when imported from any country into the Philippines shall be subject to duty upon Page 127 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
each importation, even though previously exported from the Phils. except as otherwise specifically provided for in the TCC or other laws. (sec 1201) LIABILITY FOR CUSTOMS DUTIES General Rule: No exemptions from customs duties The provisions of general and special laws, including those granting franchises, to the contrary notwithstanding, there shall be no exemptions whatsoever from the payment of customs duties (Sec. 105, last par.) EXCEPTIONS: 1. If provided under the TCC (e.g. conditionallyfree importation) 2. Exemptions granted to GOCCs with existing contracts, commitments, agreements or obligations with foreign countries 3. Exemptions of international institutions, associations or organizations pursuant to agreements and special laws 4. Exemptions granted by the President of the Phils. Upon recommendation of NEDA in the interest of national economic development. (Sec. 1205) LIABILITY OF IMPORTER FOR CUSTOMS DUTIES 1. A personal debt due from the importer which can be discharged only by payment in full of all duties and taxes 2. a lien upon imported articles which may be enforced while they are in custody or subject to the control of the government (sec 1204) EXTENT OF IMPORTER’S LIABILITY limited to the value of the imported merchandise. In case of forfeiture of the seized materials, the maximum civil penalty is the forfeiture itself. (Mendoza v. David, 1 SCRA 791) PREFERENCE ON THE OWNER OF IMPORTED ARTICLES FOR CUSTOMS PURPOSES All articles imported into the Philippines shall be held to be the property of: • the person to QuickTime™ and a whom the property is decompressor consigned TIFF (Uncompressed) this picture. are needed to see • the holder of the bill of lading duly endorsed by the consignee therein named • the consignee if consigned to order by the consignor • the underwriters of the abandoned articles saved from a wreck at sea, along the coast or in any area in the Phils. DUTIABLE IMPORTATION Articles although previously exported from the Philippines, become dutiable from the entry of the vessel or aircraft into the Philippine jurisdiction until the payment of duties, taxes, and other charges and the issuance of the permit for the withdrawal of said goods from the custom houses. BASIS OF DUTIABLE VALUE (Sec. 201 TCC, as amended by RA 9135)
Sec. 201. Method One. – Transaction Value. - The dutiable value of an imported article subject to an ad valorem rate of duty shall be the transaction value, which shall be the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by adding: 1. The following to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods: • Commissions and brokerage fess (except buying commissions); • Cost of containers; • Cost of containers; • The cost of packing, whether for labor or materials; • The value, apportioned as appropriate, of the following goods and services: materials, components, parts and similar items incorporated in the imported goods; tools; dies; moulds and similar items used in the production of imported goods; materials consumed in the production of the imported goods; and engineering, development, artwork, design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the production of imported goods, where such goods and services are supplied directly or indirectly by the buyer free of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods; • The amount of royalties and license fees related to the goods being valued that the buyer must pay, either directly or indirectly, as a condition of sale of the goods to the buyer; 2. The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller; Page 128 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
3. The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines; 4. Loading, unloading and handling charges associated with the transport of the imported goods from the country of exportation to the port of entry in the Philippines; and 5. The cost of insurance. • Both of them are directly or indirectly controlled by a DRAWBACK: It is a device resorted to for third enabling a commodity affected by taxes to be pers exported and sold in foreign markets upon the on; same terms as if it had not been taxed at all. (Uy Tog Chiaco Sons vs. Collector of Customs, 24 Phil ethe 562) r they directly or indirectly control a third person; or They are members of the same family, including those related by affinity or consanguinity up to the fourth civil degree.
• All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable data. No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Section: Provided, That Method One shall not be used in determining the dutiable value of imported goods if: a) There are restrictions as to the disposition or use of the goods by the buyer other than restrictions which:€ • Are imposed or required by law or by Philippine authorities; • Limit the geographical area in which the goods may be resold; or • Do not substantially affect the value of the goods. b) The sale or price is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued; c) Part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions hereof; or d) The buyer and the seller are related to one another, and such relationship influenced the price of the goods. Such persons shall be deemed related if: • They are officers or directors of one another’s businesses; • They are legally recognized partners in business; QuickTime™ and a TIFF (Uncompressed) decompressor • There exists an are needed to see this picture. employer-employee relationship between them; • Any person directly or indirectly owns, controls or holds five percent (5%) or more of the outstanding voting stock or shares of both seller and buyer; • One of them directly or indirectly controls the other;
Persons who are associated in business with one another in that one is the sole agent, sole distributor or sole concessionaire, however described, of the other shall be deemed to be related for the purposes of this Act if they fall within any of the eight (8) cases above. (B) Method Two. – Transaction Value of Identical Goods. – Where the dutiable value cannot be determined under method one, the dutiable value shall be the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. "Identical goods" shall mean goods which are the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical. (C) Method Three. – Transaction Value of Similar Goods. – Where the dutiable value cannot be determined under the preceding method, the dutiable value shall be the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued. "Similar goods" shall mean goods which, although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. The quality of the goods, their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. If the dutiable value still cannot be determined through the successive application of the two immediately preceding methods, the dutiable value shall be determined under method four or, when the dutiable value still cannot be determined under that method, under method five, except that, at the request of the importer, the order of application of methods four and five shall be reversed: Provided, however, That if the Commissioner of Customs Page 129 of 145
2. disposal or use of good that accrues to the seller. Countervailing duty c. Products from undue competition posed by foreign made products. unloading and handling charges(arrastre) o insurance This replaces the Home Consumption Value as basis of valuation of goods. moment the last cargo is disembarked from the vessel.. o These cannot be imposed without regular duties because the law says that it is to be “in addition to such”. expenses. An importer is required to file an import It must be accomplished at the entry. costs. xxx Value of materials.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 deems that he will experience real difficulties in determining the dutiable value using method five. Imported material was actually used in the production of article to be exported. TRANSACTION VALUE UNDER RA 8181 QuickTime™ and a It is the invoice (Uncompressed)the goods plus freight. and supervision fees o Claims shall be paid by BoC within 60 days after receipt of properly accomplished claims IMPORT ENTRY: It is a declaration to the BOC showing particulars of the imported article that will enable the customs authorities to determine the correct duties.those which are imposed and collected in addition to ordinary duties usually to protect local industries against foreign competition: a. Refund or credit shall not exceed 100% of duties paid on the imported material 3. Being AMOUNT /RATE Difference between the actual price and the IMPOSING Authority Special Committee on Antidumping CONDITIONS FOR GRANT OF DRAWBACK 1. Special duties. Regular duties –those which are imposed ordinarily as a matter of course without order from the higher authorities and collected merely as a source of revenue a. These are imposed for the protection of consumers and manufacturers as well as Phil. Exportation must be made within 1 year after importation of material and claim for refund or credit must be made within 6 months from exportation 5. insurance. parts and item incorporated in the importer good o Royalties and license fees that buyer paid o Any part of the proceeds of a subsequent resale. The Dutiable value of an imported article shall be the transaction price. costs of packing Page 130 of 145 . Dumping Duty b. o Every application for drawback must pay P500 filing. When 2 or more result from the used of same imported material. adjusted by adding the ff to the extent that they are incurred by the buyer but not included in the price paid: o Commissions and brokerage fees. if it can be so determined.this is duty based on the dutiable weight of goods (either the gross weight. o Transportation cost from port of export to port of entry in Phil o Loading. These are additional import duties imposed on specific kinds of imported articles under certain conditions 2. apportionment shall be made. which shall be the price actually paid or payable for the goods when sold for export to the Phil. costs of containers. o CLASSIFICATION OF CUSTOMS DUTIES 1. Ad Valorem Duty – this is a duty based on the value of the imported article b. components. Marking duty d. TIFF value of decompressor are needed to see this picture. legal weight or the net weight) 2. No determination by NEDA of the requirement for certification on nonavailability of locally produced or manufactured competitive substitutes for the imported material (no local substitute for the materials) 4. processing. Specific Duty. SPECIAL DUTIES are: DUTIES Dumping Duty NATURE Imposed on foreign articles: a. the Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under method four. Discriminatory duty NATURE AND PURPOSE OF SPECIAL CUSTOMS DUTIES 1.
import and export quotas. goods subsidy or enjoying subvention subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated Imposed 5% ad upon those valorem of not articles properly marked as to the place of origin of QuickTime™ and a TIFF (Uncompressed) decompressor are the goods needed to see this picture. Imposed upon goods coming from countries that discriminat Sec of Finance Comm of Custom 1. reduce or remove existing protective rates of import duty (including any necessary change in classification) • the existing rates may be increased or decreased to any level on one or several stages but in no case shall be higher than a maximum of 100% as valorem 2. 3514 TCC. all the records of their importations and/or books of accounts. To increase. as may be necessary 3. In such a case the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing country for the most recent representative period shall be used as bases. etc. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. members: Sec of DTI. sold or is likely to be sold in the Phils. ART VI of the 1987 Constitution and Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 importe d into. To establish import quota or to ban imports of any commodity. To impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary LIMITATION IMPOSED REGARDING FLEXIBLE TARIFF CLAUSE THE b. 28. Of the Phil. under TCC 1. 401. Imposed Equivalent upon to the foreign bounty. At a price less than its normal value normal value of the article (extent of the underpricing ) (Sec. . Conduct by the Tariff Commission of an investigation in a public hearing The Commissioner shall also hear the views and recommendations of any government office. of Financechairman. Counterv ailing Duty Marking Duty Discrimin atory Duty The importation or sale of which might injure an industry producing like goods in the Phils. in the manner prescribed by regulations to be issued by the Commissioner of Customs and for a period three (3) years from the date of importation. The President may fix tariff rates. business and computer systems and all customs commercial data Page 131 of 145 Pres. (Sec 401 TCC) REQUIREMENT TO KEEP RECORDS (Sec. Sec. TCC. agency or instrumentality concerned The NEDA thereafter shall submits its recommendation to the President 2. of Agriculture/ Sec of Labor) e against Philippine products FLEXIBLE TARIFF CLAUSE Sec. as amended by RA 9135) All importers are required to keep at their principal place of business.
2531 & 2530 TCC) • Under Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 including payment records relevant for the verification of the accuracy of the transaction value declared by the importers/customs brokers on the import entry. Investigative Powers a) The administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted. TCC) Tax Remedies Under the Tariff and Customs Code (TCC) REMEDIES OF THE GOVERNMENT TO EFFECT COLLECTION OF TAXES I. of finance (Sec. including their relation to the national revenues. economic alliances. to investigate the operation of customs and tariff laws. Tax Lien (Sec. c) The effects of ad valorem and specific duties and of compound specific and ad valorem duties. regardless of ownership. it is not necessary that the vessel or aircraft must itself carry the contraband. Judicial • this remedy is normally availed of when the tax lien is lost by the release of the goods 1. Arrest (Sec. The complementary if collateral use of the Cessna plane for smuggling operations is sufficient for it to be deemed to have been used in smuggling (Llamado v. Search. preferential provisions. All brokers are required to keep at their principal place of business. b) The relations between the rates of duty on raw materials and the finished or partly finished products. f) The volume of importations compared with domestic production and consumption. 2308. QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Seizure. 2211 TCC) II. in order to warrant forfeiture. 2210. Payment under protest is necessary (Sec. 122 SCRA 118) 3. Administrative Fines and Forfeitures • Applied when the importation in unlawful. Administrative 1. 709. Civil action (Sec. 506. Reduction of customs duties/compromise: • Subject to approval of Sec. 2530 (a) of the TCC. TCC) • Attaches on the goods. TCC) II. Of Customs. • And it may be exercised even where the articles are not or no longer in Custom’s custody unless the importation is merely attempted in which case it may be effected only while the goods are still within the Custom’s jurisdiction or in the hands of a person who is aware thereof (Sec. 1508. in the manner prescribed by regulations to be issued by the Commissioner of Customs and for a period of three (3) years from the date of importation copies of the above mentioned records covering transactions that they handle. 2205. Comm. 1204 TCC) 2. 506. Refund • A written claim for refund may be submitted by the importer in abatement cases on missing packages. Administrative Assistance to the President and Congress (Sec. Criminal action REMEDIES OF THE TAXPAYER I. (Sec. 2210 TCC) 2. Administrative/Extrajudicial 1. or within 5 days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. Protest • Any importer or interested party dissatisfied with published value within 15 days from date of publication. e) The tariff relations between the Philippines and other foreign countries’ commercial treaties. deficiencies in the contents of packages or shortages before arrival of the goods in the Page 132 of 145 • . d) All questions relative to the arrangement of schedules and classification of articles in the several schedules in the tariff law. and g) In general. 2. • Taxpayer within 15 days from assessment. the effect of export bounties and preferential transportation rates. THE TARIFF COMMISSION FUNCTION OF THE TARIFF COMMISSIONS I. their effect upon the industries and labor of the country and to submit reports of its investigation as provided. while still in the custody or control of the Gov’t. Availed of when the importation is neither prohibited nor improperly made. 2316 TCC) 4.
liquidate. dead or injured animals. Action to question the legality of seizure 3. as amended by Sec. Must be filed when the amount claimed is paid or within 15 days after the payment. 2307 TCC) 4.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Philippines. and for manifest clerical errors and • Drawback cases where the goods are reexported. 6. Appeal • Within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA (Sec. and other charges. the Collector shall decide on the same within 30 days IF DECISION IS ADVERSE TO THE PROTESTANT Appeal with the Commissioner within 15 days from notice Appeal with CTA division within 30 days from notice Appeal with the CTA en IF DECISION IS ADVERSE TO THE GOVERNMENT Automatic review by Commissioner Automatic review by Sec. Must state the grounds relied upon for relief. but the claim for refund arises by reason of the happening of supervening events such as when the raw material imported is utilized in the production of finished products subsequently reported and a duty drawback is claimed. 9 RA 9282 empowers the tax court to issue injunctions. Protestant must furnish samples of goods under protest when required. Customs Protest Cases Definition: These are cases which are solely with liability for customs duties. The Collector shall assess. 2313 TCC) II. (Sec. 1801. Sec. 1801 TCC) i. of Finance If decision of Page 133 of 145 . Settlement of any seizure by payment of fine or redemption • BUT this shall not be allowed in any case where importation is absolutely prohibited or the release would be contrary to law or when there is an actual and intentional fraud (Sec. Must be limited to the subject matter of a single adjustment. 3. 2. Hearing within 15 days from receipt of the duly presented protest. 1701-1708 TCC) 3. such as in seizure but not in protest cases. 9 RA 9282) • Since Sec. 2. Judicial 1. 5. impliedly • failure to file an import entry within 30 days from the discharge of goods or • having filed an entry. are needed 2. Abandonment (Sec. Customs protest cases to see this picture. 4. When Customs Protest Applicable • The customs protest is required to be filed only in case the liability of the taxpayer for duties. (Sec. 11 of RA 1125. Customs seizure and forfeiture cases A. 7 RA 1125. 2403 TCC. 1801 TCC) ii. as amended by Sec. Must point out the particular decision or ruling of the Collector of Customs to which to which exception is taken or objection made. taxes. The Collector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse. REQUIREMENTS FOR MAKING A PROTEST 1. fails to claim within 15 days but it shall not be so effective until so declared by the collector. NOTE: Before filing a protest there must first be a payment under protest. Appeal • Within 15 days to Commissioner after notification by collector of his decision (Sec. The party adversely affected may file a written protest on his foregoing liability with the Collector within 15 days after the liquidated amount (the payment under protest rule applies) 4. fees and other charges is determined and the taxpayer disputes said liability. When Customs Protest NOT Required • When there is no dispute. it would appear than an importer may appeal without first paying the duties. 3. Upon termination of the hearing. and collect the duties thereon. as amended by RA 7651) TWO KINDS OF PROCEEDINGS IN THE BOC QuickTime™ and a TIFF (Uncompressed) decompressor 1. Must be in writing 2. articles lost or destroyed after such arrival. or detain the said goods if the party liable does not pay the same. PROCEDURE ON CUSTOMS PROTEST CASES 1. fees. expressly (Sec.
conceal. Aircraft. An act of any person who shall: • Fraudulently import any article contrary to law.entry other than port of entry will be SMUGGLING. • May exercise such powers only in conformity with the laws and provisions of the TCC (Sec. vessel or aircraft shall not be effected if it is established that the owner thereof or his agent in charge of Page 134 of 145 ENTRY in Customs law means • The documents filed at the Customs house • The submission and acceptance of the documents . like the vessel. rules and regulations. 3514 TCC) B. • Thus. It is not a common carrier. 3601 TCC) • Export contrary to law (Sec. Forfeiture • Common carriers are generally not subject to forfeiture although if the owner has knowledge of its use in smuggling and was a consenting party. Set.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 banc Commissioner or Sec. These actions are in rem. CA. (Llamado v. (Comm. he may appeal to the CTA and SC under the same procedure on the left.. The absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. article. 3514 TCC) Right of Customs Officers to Effect Seizure & Arrest • May seize any vessel. it may also be forfeited. 2205) Common Carriers. Evidence for Conviction in Smuggling Cases • Mere possession of the article in question UNLESS the defendant could explain that his possession is lawful to the satisfaction of the court (Sec. The Philippines is divided into various ports of entry . It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. 18. Manila Starr Ferry. sell. cargo. 3514 TCC) • ALL articles imported into the Philippines whether subject QuickTime™ and aor not shall be to duty TIFF (Uncompressed) decompressor are needed to see this picture. Contraband: Articles of prohibited importations or exportations. 227 SCRA 317) Smuggling A. Port of Entry: A domestic port open to both foreign and coastwise trade including “airport of entry”. plane. of Customs. animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under tariff and customs laws. CA. Inc. entered through a customs house at a port of entry. buy. Of Customs v. Properties Not Subject to Forfeiture In The Absence of Prima Facie Evidence • The forfeiture of the vehicle. (Sec. Seizure and Forfeiture Cases Definition: These refer to matters involving smuggling. • The procedure of passing goods through the customs house (Rodriguez v. 3601 TCC). it is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. It is thus subject to forfeiture and lack of personal knowledge of the owner or carrier is not a defense to forfeiture. facilitate or transport such article knowing its illegal importation (sec. (Sec. 248 SCRA 288) Things Subject to Confiscation in Smuggling Cases • Anything that was used for smuggling is subject to confiscation. is adverse to the protestant. • If a motor vehicle is hired to carry smuggled goods but it has no Certificate of Public Convenience (CPC). 1983). or • Receive. • Payment of the tax due after apprehension is not a valid defense (Rodriguez v. Exception: Common carriers that are not privately chartered cannot be confiscated. or • Assist in so doing. Comm. 1995) Appeal by certiorari to the SC within 15 days from notice B. etc.
3. Waters which constitutes a violation of the tariff and custom laws. inspectors and guests of the BOC. importer.all touching on the importation or exportation of merchandise. 73 SCRA 553) Persons Having Police Authority To Enforce The Tariff and Customs Laws and Effect Searches. that a prima facie presumption shall exist against the vessel. 5. The Collector of Customs has exclusive jurisdiction over all questions touching on the seizure and forfeiture of dutiable goods. As long as the importation has not been terminated. Officials of the BIR on all cases falling within the regular performances of their duties. If the owner is financially not in the position to own such conveyance. agents. exporter or consignee of any declaration or affidavit. exclusive jurisdiction (to the exclusion of regular courts) still belongs to the Bureau of Customs. Officers of the Phil. (Sec. Listing of description. With jurisdiction over them at any place therein for the enforcement of nd the law. when the payment of internal taxes are involved 4. Issuance by the Collector of warrant of detention. If the conveyance has been used for smuggling at least twice before. As a consequence. (Jao v. b. An act is done in Phil. A pursuit of such vessel began within the jurisdictional waters which i. when acting under the direction of the Collector. district collectors. 6. or the wrongful making or delivery by the same persons of any invoice. 1995) Goods in Customs Custody Beyond Reach of Attachment • Goods in the customs custody pending payments of customs duties are beyond the reach of attachment. The wrongful making by the owner. prohibition or mandamus filed with the RTC will lie because these are in reality attempt to review the QuickTime™ and Commissioner’s actuations. the imported goods remain under the jurisdiction of the Bureau of Customs. Comm. If decision is not favorable to the aggrieved owner or importer Appeal by aggrieved owner or importer If decision is favorable to government Automatic Comm. 2. Over Imported Articles a. There is a violation of the tariff and customs laws. b. Notification to owner or importer. 2203 TCC) Administrative and Judicial Procedures Relative to Customs Seizures and Forfeitures 1. On Audit. Officials of the BOC. 4. filed with the RTC will issue. Officers generally empowered by law to effect arrests and execute processes of courts. review not the by REQUIREMENTS FOR CUSTOMS FORFEITURE 1. 2. Of Customs and the Chairman. Seizures and Arrests 1. (Viduya v. 7. BOC • The RTCs do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC and to interfere with these proceedings. Formal hearing. 8. and Page 135 of 145 . the vessel may be seized on the high seas. Oct. Berdiago. 6. 3. Over Vessels a. and ii. Navy and other members of the AFP and national law enforcement agencies when authorized by the Comm.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 the means of conveyance used as aforesaid has no knowledge of or participation in the unlawful act: Provided. appraisal and classification of seized property. police officers. • No petitions for certiorari. 603 TCC) RTC v. Of Customs. they may be pursued in the Phils c. however. If the owner is not in the business for which the conveyance is generally used. (2 par. 2. Determination of probable cause and issuance of warrant. Even if a Customs seizure is illegal. Report of seizure to Comm. and 3. 2. may continue beyond the maritime zone. • Rationale: Doctrine of Primary Jurisdiction. letter or paper . District collector renders his decisions. Actual seizure of the articles. vehicle or aircraft under any of the following circumstances: 1. DOCTRINE OF HOT PURSUIT Requisites 1. CA.a Neither replevin TIFF (Uncompressed) decompressor are needed to see this picture. Sec.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 2. invoice. • Entry of goods at less than their true weights or measures or upon a classification as to quality or value. 2307 TCC) Acquittal in Criminal Charge Not Res Judicata in Seizure or Forfeiture Proceedings Reasons: • • Criminal proceedings are actions in personam while seizure or forfeiture proceedings are actions in rem. 1965) At any time prior to the sale. Where there is fraud (Sec. The surrender needed to seeproperty to the person of the this picture. invoice. o Damage incurred during voyage. 217 SCRA 298) Places Where Searches and Seizures May Be Conducted • Enclosures • dwelling house (there must be search warrant issued by a judge) • vessels or aircrafts and persons or articles conveyed therein • vehicles. It is enough that the cargo is unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. • Entry of imported or exported article by means of any false or fraudulent practices. affidavit. Customs compromise does not extinguish criminal liability (Pp. Manifests are also required of articles found on vessels or aircrafts engaged in coastwise trade (Rigor v. o Death or injury of animals. Articles subject to seizure do not have to be imported goods. or 3. Robles. Exceptions: 1. Settlement of Forfeiture Cases General Rule: Settlement of cases by payment of fine or redemption of forfeited property is allowed. (Farolan. declaration. Jr. 906 TCC) Manifests are also required of vessels from a foreign port. The importation isQuickTime™ and a prohibited or absolutely TIFF (Uncompressed) decompressor 2. o Deficiency in contents package. Fraudulent Practices Considered As Criminal Offences Against Customs Revenue Laws • Unlawful importation. letter or paper is false. 2535 TCC) Requirements for Manifest • A manifest in coastwise trade for cargo and passengers transported from one place or port in the Phils. v. 1508 TCC) Abatement • The reduction or non-imposition of customs duties on certain imported materials as a result of. Nov. beasts or persons • persons arriving from foreign countries Burden of Proof in Seizure or Forfeiture • claimant (Sec. 117 SCRA 780) Unmanifested Cargo is Subject to Forfeiture • Whether the act of smuggling is established or not under the principle of res ipsa loquitur. affidavit or other documents. Page 136 of 145 . That such declaration. v. (Sec. the delinquent importer may settle his obligations with the Bureau of Customs in which case the aforementioned articles may be delivered upon payment of the corresponding duties and taxes and compliance with all other legal requirements. o Loss or destruction of articles after arrival. Desiderio. (Sec. are offering to redeem would be contrary to law. 26. CTA. 1005 TCC) Query: Is Manifest Required Only for Imported Goods? No. (Sec. to another is required when one or both of such places is a port of entry. • Payment of less than the amount due.
Page 137 of 145 .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
etc. 2303. appeal to CTA w/in 30 days from receipt of decision (Sec. RA 1125) CTA decides w/in 30 days Appeal to SC w/in 15 days from notice (Rule 43. TCC) Appeal to Customs Commissioner w/in 15 days from notice (Sec. classified and assessed Taxpayer agrees with assessment Taxpayer disagrees with assessment Pays duties. of Finance QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. TCC) Commissioner of Customs fails to render decision w/in 30 days Protest Affirmed Protest Denied Protest Affirmed Protest Denied Automatic appeal to Sec. taxes. Files written protest with ruling of Collector (Sec. Assessment final Assessment final If unfavorable. 2313. of Finance reports elevated w/in 5 days from promulgation or after lapse of 30 days if no decision Assessment final Automatic appeal to Sec. 2313. TCC) Within 15 days from receipt of assessment No protest considered unless amount due is paid Goods released Collector schedules hearing of protest w/in 15 days from receipt of protest Collector renders decision w/in 30 days from termination of hearing Protest Granted Protest Denied Automatic appeal to Customs Commissioner (Sec. ROC) No appeal assessment final Page 138 of 145 . 7.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 PROCEDURE TO PROTEST CUSTOM COLLECTORS ASSESSMENT Articles enter customs house Articles appraised.
5% Final Tax Final Tax of 10% Schedular rate Exempt Exempt 25% Final tax 25% Final tax 25% Final tax Exempt Winnings from PCSO & Lotto exempt Interest Income received by an 7.000 Other winnings except PCSO & Lotto Royalties on books & other literary works & musical compositions Prizes < P10. common or individual trust fund.5% Final Tax individual (except a nonresident individual) from a depositary bank under the expanded foreign QuickTime™ and a currency deposit system TIFF (Uncompressed) decompressor are needed to see picture.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 EXHIBITS TAX ON INDIVIDUALS Type of Income Tax Rate For Resident Citizen 20% Final Tax Rate For NonResident Citizen (Incl. deposit substitutes. OCW) 20% Final Tax Tax Rate For Resident Alien 20% Final Tax Non-Resident Alien engaged in trade / business 20% Final Tax Non-Resident Alien NOT engaged in trade / business 25% Final tax Interest from any currency bank deposit & yield or any other monetary benefit from deposit substitutes & from trust funds & similar arrangements Royalties (except on books & other literary works & musical compositions) Prizes > P10.000 Final Tax of 10% Schedular rate Final Tax of 10% Schedular rate exempt exempt Final Tax of 10% Schedular rate Exempt 7. Interest income from long thisterm Exempt from tax deposit or investment in the form of savings. investment management accounts & other investments evidenced by certification in such form prescribed by the BSP Exempt from tax Exempt from tax Exempt from tax 25% Final tax Page 139 of 145 .
barter. of w/c he is a member/co-venturer Capital gains from sale.e. 4 years to less than 5 years) 3 years to less than 4 years less than 3 years Cash and/or Property Dividends from a domestic corp. insurance or mutual fund companies & regional operating headquarters of multinational companies.000 On any amount in excess of 10% QuickTime™ and a P100. exchange 6% Final Tax on or other disposition of real property the gross selling located in Philippines. including pacto de fair market value retro sales & other forms of or zonal value conditional sales whichever is higher Page 140 of 145 .) not traded in the stock exchange 5% Final tax on net capital gains realized during the taxable yr: 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher 5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher For the first P100. Capital gains from sale.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Type of Income Tax Rate For Resident Citizen 5% Final tax on the entire income 12% 20% 10% Final Tax Rate For NonResident Citizen (Incl. Share of an individual in the net income after tax of an assn. OCW) 5% Final tax on the entire income 12% 20% 10% Final Tax Tax Rate For Resident Alien 5% Final tax on the entire income 12% 20% 10% Final Tax Non-Resident Alien engaged in trade / business 5% Final tax on the entire income 12% 20% 20% Final Tax Non-Resident Alien NOT engaged in trade / business N/A N/A N/A 25% Final tax Pre-termination of such certificate before the 5th year (i. classified as price or current capital assets. a joint account or a joint venture or consortium taxable as a corp.. Share of an individual in the distributable net income after tax of a partnership (except GPP). or from a joint stock co..000 TIFF (Uncompressed) decompressor are needed to see this picture. exchange or other disposition of shares of stock (of domestic corp.
exchange or other disposition of shares of stock (of domestic corp. the proceeds of which is fully utilized in Exempt from CG Exempt from CG Exempt from CG Exempt from CG Exempt from CG tax tax tax tax acquiring/constructing a new tax principal residence w/in 18 mos. from date of sale.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Type of Income Tax Rate For Resident Citizen Rate For NonResident Citizen (Incl.l gains realized during the taxable yr: 10% Page 141 of 145 . Royalties (similar within the Philippines) Interest income from a depositary bank under the expanded foreign currency deposit system (EFCDS) CG from sale.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10% Exempt from tax 5% Final tax on net cap.000 On any amount in excess of P100.) not traded in the stock exchange For the first P100. such portion shall be subject to CG tax **a nonresident alien engaged in trade or business is an individual who shall come to the Philippines & stay therein for an aggregate period of more than 180 days during any calendar year TAX ON CORPORATIONS Type of Income Interest on currency bank deposits & yield or any other monetary benefit form deposit substitutes & from trust funds QuickTime™ and a & similar arrangement(Uncompressed) decompressor TIFF are needed to see this picture.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10% 7. provided historical cost/adjusted basis of sold prop be carried to the new principal residence built/acquired Commissioner.000 Domestic Corp 20% Final Tax Resident Foreign Corp 20% Final Tax Non-Resident Foreign 32%/35% Income Tax 7. barter. OCW) Tax Rate For Resident Alien Non-Resident Alien engaged in trade / business Non-Resident Alien NOT engaged in trade / business CG from sale/disposition of principal residence by natural persons. Duly notified w/in 30 days from sale Tax exemption can only be availed once every 10 years If no full utilization of proceeds of sale.
exchange or other disposition of lands and/or buildings which are not used in the business of a corp. up to final destination. income tax (RA 9294) 10% Final Tax Exempt form tax Exempt from Final tax – Part of gross income subject to 32%/35% corp.) Exempt from Final tax – Part of gross income subject to 32/%35% corp. Tax Rate 2 ½% on Gross Phil Billings International Shipping Gross Phil Billings = gross revenue whether for passenger. subject to regular income tax rate of 32%/35% 32%/35% income tax CG from sale. regardless of the place of sale/ payments of passage of freight documents Offshore Banking Units Final Tax of 10% on gross income from transactions with residents Page 142 of 145 . cargo or mail originating from the Philippines. cargo & mail originating form the Philippines in a continuous & uninterrupted flight. irrespective of the place of sale/issue & the place of payment of the ticket or passage document. whichever is higher 32%/35% income tax Type of Corporate Taxpayer International Air Carrier Gross Phil. & are treated as capital assets 6% Final tax on gross selling price or FMV or zonal value. income tax (RA 9294) 10% Final Tax Exempt form tax N/A N/A 15% Final Tax * subject to the rule on tax credit for tax actually paid and tax deemed paid. local commercial banks including branches of foreign banks that may be authorized by the BSP to transact business with FCDS units & other depositary banks under the EFCDS Interest income form foreign currency loans granted by such depository banks under said EFCDS to RESIDENTS Inter-corporate dividends (from a domestic corp.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Income derived by depositary bank under the EFCDS from foreign currency transactions with non-residents. offshore banking unites in the Philippines. Billings = amount of gross revenue derived from carriage of persons. only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the GPBQuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. For a flight which originates from the Philippines but transshipment of passenger takes place at any port outside the Philippines on another airline. Includes tickets revalidated. Otherwise. exchanges &/or indorsed to another int’l airline if the passenger boards a plane in a port/point in the Philippines. excess baggage.
machineries & other equipment Type of Income QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. General Administration & planning b. Wages. Other Emoluments (i. same tax Tax Rate For Alien Individual Employed By Regional Or Area Offshore Banking Units Headquarters & Regional Operating Headquarters of Multinational Cos. Training & personnel mgt.5% of gross rentals or fees Gross Income = Salaries. Nationals Nonresident owner or lessor of aircraft. honoraria & allowances) received from such cos. lease or charter fees 7. Business development Type of Taxpayer Nonresident cinematographic film owner. Logistic services h.e. & w/c act as supervisory. communication & coordinating center for their affiliates. 15% on branch profits remittance Exempt from tax 10% of taxable income Tax Rate 25% of gross income 4. = do not earn/derive income from the Philippines. Sourcing & procurement of raw materials & components d. Provided.) = based on the total profits applied/earmarked for remittance without any deduction for the tax component thereof (except those registered with the PEZA) Regional/Area Headquarters of Multinational Cos. 15% of gross income 15% of gross income Petroleum Contractor Subcontractor Service & 15% of gross income Page 143 of 145 . Compensation. lessor or distributor (NOTE: Even to individuals) Nonresident owner or lessor of vessels chartered by the Phil. Business planning & coordination c. subsidiaries or branches in the Asia-Pacific Region & other foreign markets Regional Operating Headquarters of Multinational Companies = engaged in any of the following services: a.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Branch Profits remitted (connected with the conduct of its trade/business in the Philippines. Annuities. Data processing & communication l. Services & product development j. Technical support & maintenance k. Research & development i. Marketing control & sales promotion f.5% of gross rentals. g. Remuneration. Corporate finance advisory services e.
Page 144 of 145 .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 treatment shall apply to Filipinos abroad employed & occupying same positions in these companies ** Multinational company = a foreign firm/entity engaged in international trade with affiliates/subsidiaries/branch offices in the Asia Pacific Region & other foreign markets QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
Serafin Salvador. Michael Dana Montero. Domino. P.ATENEO CENTRAL BAR OPERATIONS 2007 Taxation Law SUMMER REVIEWER QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Understudies: Rachelle T. Gaudencio Mendoza. Head: Julie Ann B. Sy. —Advisers: Atty. Enriquez III. Atty. Aldwin Mendoza. Atty. Timothy John Batan— . Juan J.