TAXATION LAW BAR REVIEWER

FACULTY ADVISERS ACADEMICS HEAD SUBJECT HEADS ATTY. MICHAEL DANA MONTERO ATTY. FRANCISCO GONZALES PIERRE MARTIN REYES SHERYL CHRISTINE LAGROSAS ELLIE CHRIS NAVARRA

ATENEO CENTRAL BAR OPERATIONS 2012 ACADEMICS COMMITTEE Academics Head: Pierre Martin Reyes; Understudy: Clariesse Jami Mari Chan REVIEW COMMITTEE Head: Yla Gloria Marie Paras; Understudy: Ken Koga; Members: Catherine Dela Rosa, Eric Lavadia, Le Iris Lucido, Pearl Charisse Baustista; Mina Reyes TAXATION LAW COMMITTEE Heads: Sheryl Christine Lagrosas; Ellie Chris Navarra Understudies: Abigail Bernandino; Philip Marion Ortal; Hailin Quintos

TAXATION LAW
Table of Contents
I. GENERAL PRINCIPLES OF TAXATION......................... 5 A. Definition and concept of Taxation ...................5 B. Nature and Characteristics of Taxation ..............5 D. Purpose of Taxation ...........................................6 E. Principles of Sound Tax System (FAT) ................6 F. Theory and Basis of Taxation (JBL) .....................7 G. Doctrines in Taxation .........................................7 1. Prospectivity of tax laws ................................. 7 2. Imprescriptibility ............................................ 7 3. Double Taxation (DT)...................................... 7 4. Escape from Taxation ..................................... 8 5. Exemption from taxation ............................... 8 6. Compensation and Set-off.............................. 9 7. Compromise ................................................... 9 8. Tax Amnesty ................................................... 9 9. Construction and Interpretation of: ............. 10 H. Scope and Limitation of Taxation ....................11 1. Inherent Limitations ..................................... 11 2. Constitutional Limitations ............................. 12 I. Stages of Taxation (LAPR) .................................14 K. Requisites of a valid tax ....................................14 a. Must be for a public purpose........................14 b. It should be uniform and equitable ..............14 c. That either the person or property taxed is within the jurisdiction of the taxing authority ...14 d. That it complies with the requirements of due process ...............................................................14 e. That it does not infringe any constitutional limitations ..........................................................14 L. Tax as distinguished from other forms of exactions ...............................................................14 M. Kinds of Taxes .................................................15 II. NATIONAL INTERNAL REVENUE CODE ................... 17 A. Income Taxation ...............................................17 1. Income Tax Systems .................................... 17 2. Features of the Philippine Income Tax Law .. 17 3. Criteria in Imposing Philippine Tax Law .........18 4. Types of Philippine Income Tax .................... 18 5. Taxable Period ............................................. 18 6. Kinds of Taxpayers........................................ 18 7. Income Taxation .......................................... 21 8. Income.......................................................... 21 9. Gross Income ................................................. 23 10. Taxation of Resident Citizens, Non-resident Citizens and Resident Aliens ...............................51 11. Taxation of Non-resident Aliens Engaged in Trade or Business ...............................................54 12. Exclude Non-resident Aliens Not Engaged in Trade or Business ...............................................54 13. Individual Taxpayers Exempt from Income Tax54 14. Taxation of Domestic Corporations .............54 15. Taxation of Resident Foreign Corporations57 16. Taxation of Non-resident Foreign Corporations.......................................................59 17. Improperly Accumulated Earnings Tax ....60 18. Exemption from Tax on Corporations ......61 19. Taxation of Partnerships ..........................61 20. Taxation of General Professional Partnership (GPP) ...............................................61 21. Taxation of Estates and Trusts.................62 22. Withholding Tax ......................................63 B. Estate Tax..........................................................68 C. Donor’s Tax .......................................................74 D. Value-Added Tax ..............................................78 1. NATURE AND CHARACTERISTIC ..................... 78 2. IMPACT OF TAX ............................................. 78 3. INCIDENCE OF TAX ........................................ 78 4. DESTINATION PRINCIPLE ............................... 78 5. PERSONS LIABLE (Sec. 105) ........................... 79 6. VAT ON SALE OF GOOD OR PROPERTIES (Sec. 106) ................................................................... 79 7. ZERO-RATED SALES OF GOODS OR PROPERTIES, AND EFFECTIVELY ZERO RATED SALES OF GOODS OR PROPERTIES..................... 80 8. TRANSACTIONS DEEMED SALE (IN EFFECT SUBJECT TO 12% VAT) ....................................... 81 9. CHANGES IN OR CESSATION OF STATUS OF A VAT .................................................................... 82 10. VAT ON IMPORTATION OF GOODS (Sec. 107) ........................................................................... 82 11. VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES.................................................. 83 12. ZERO-RATED SALES OF SERVICE .................. 83 13. VAT EXEMPT TRANSACTIONS (Sec. 109) ..... 84 14. INPUT VAT AND OUTPUT VAT DEFINED ...... 87 15. SOURCES OF INPUT TAX .............................. 87 16. PERSONS WHO CAN AVAIL OF THE INPUT TAX ........................................................................... 87 17. DETERMINATION OF THE INPUT/OUTPUT TAX; VAT ............................................................ 88 Credits for Input Tax .......................................... 88 18. SUBSTANTIATION REQUIREMENTS OF INPUT TAX CREDITS ...................................................... 89

TAXATION LAW REVIEWER

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.... Taxpayer’s Remedies ................ 144 I................... 195.........133 Actual Use of Property as Basis for Assessment (LGC Sec..................... Goods Conditionally-free from Tariff and Customs Duties .. FILING OF RETURN AND PAYMENT ....... 134 6. Local Taxing Authority ................. 143 2............................... 122 4.................. Collection of Business Taxes ......... 129 a) Periods of assessment and collection of local taxes..................139 H............. Residual Taxing Powers of the LGU (Sec....................................... WITHHOLDING OF VAT ........137 D........135 IV........ 121 2.......150 C..... TAX PAYER’S SUIT .............. General Rule .. 128 8. 131 2............. Percentage Tax..................................138 E....................................................................135 7. Flexible Tariff ............... 133 Types of Real Property Tax .............. Judicial action for collection of taxes . 129 b) Protest of assessment (Sec........ 128 7............................................. 133 Remedies of LGUs for the Collection of Real Property Tax .............................................. Republic Act 1125 The Act that Created the Court of Tax Appeals (CTA)............... Appraisal and Assessment of Real Property Tax ... DISTINGUISHED FROM CITIZEN’S SUIT ... CLAIMS FOR REFUND/TAX CREDIT CERTIFICATE OF INPUT TAX ... 131 3.....................................................................150 B.....................................138 F............................. as amended ................................................................................................ TAXATION LAW REVIEWER Page 4 of 165 .......... TARIFF AND CUSTOMS CODE OF 1978................................. 152 2.. Definitions .................. 153 ......... LOCAL GOVERNMENT CODE OF 1991..... Common Limitations on the Taxing Powers of LGUs and common revenue ............... Collection of Real Property Tax ........................ 145 2.................137 B..................................... Tax Remedies under the TCC ......................... Taxpayer’s Remedies . 129 1........ 137 A........... Purpose for Imposition ................. Ordinary/ Regular Duties .............................. Nature and Source of Taxing Power (CITE LAW) 121 3. Tax remedies under the NIRC .... 123 6.. LGC) . 133 5.......... Judicial Procedures ............. Government ......... 90 21...................................................... 91 E...........................98 G... Civil Remedies by the LGU for the Collection of Revenues ................................ Classification of Duties ............. Compliance Requirements .... Importation in Violation of TCC.................................................. Drawback .. 145 V.......................................... INVOICING REQUIREMENTS ......... 129 c) Claim for refund of tax credit for erroneously or illegally collected tax...............133 Steps in the Assessment and Collection of RPT ............... Taxpayer’s Suit Impugning the Validity of Tax Measures ......... Nature of Real Property Tax ..................................139 G............ Jurisdiction of the Court of Tax Appeals ........... as amended ......... Taxpayer ......................................... Special Duties ....150 1......... 217) ............................... Judicial Remedies........ 186 LGC) ................ as amended...................... 122 5.... and the Revised Rules of the Court of Tax Appeals..............................95 F... 198) [CUANE] ... Fundamental Principles ........................... fees or charges ...............152 1..... Requirements for Importation ........ Claim for Tax Refund or Credit (LGC Sec 253) ....145 J................... 129 9..............143 1...........19..................... 90 20.........145 1...137 C.......... 150 A....108 III................137 LIABILITY FOR CUSTOMS DUTIES ............................. 121 1.......... 132 4............ free or charge ............................................................................................. Imposition of Real Property Tax ....................................................... Specific Taxing Power of Local Government Unit (LGU) ..................................................... 91 22........................................ Fundamental Principles in Assessment of Real Property Taxes (Sec......

CA. 5. It is generally not delegated to executive or judicial department. X. [2004]           TAXATION LAW REVIEWER Page 5 of 165 . Definition and concept of Taxation ======================================  Power inherent in every sovereign State to impose a charge or burden upon persons.TAXATION LAW I. Power of Taxation Compared with Other Powers D. Scope and Limitation of Taxation I. [130 SCRA 654]. Ancheta. or rights to raise revenues for the use and support of the government to enable it to discharge its appropriate functions. When allowed by the Constitution [Sec. GENERAL PRINCIPLES B. Art. It is an enforced charge and contribution. Inc. and Characteristics of Taxes K. [71 AM JUR 2ND 342] Taxation is described as a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. Palomar. through its lawmaking body. [197 SCRA 771]. GENERAL PRINCIPLES A. Exceptions: i. ii. Art. It is the strongest of all the inherent powers of the government Sison v. or implied from the policy and purpose of the Act Maceda v. properties. 359]. *Black’s Law Dictionary] Taxation is merely a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. [13 SCRA 775]. Definition and concept of Taxation B. Generally pecuniary in nature (payable in money). Kinds of Taxes ====================================== ====================================== TOPIC UNDER THE SYLLABUS: I. Paseo Realty & Development Corporation v. Definition. [51 AM JUR 341] Process or act of imposing a charge by governmental authority on property. Purpose of Taxation E. Doctrines in Taxation H. Nature and Characteristics of Taxation ======================================  The power of taxation is inherent in sovereignty as an incident or attribute thereof. Requisites of a valid tax L. being essential to the existence of independent government. VI. It must be used for public purposes – It has been held that tax has been utilized for public purpose if the welfare of the nation or the greater portion of its population has benefited for use Gomez v. Stages of Taxation (LAPR) J. Principles of Sound Tax System (FAT) F. Macaraig. except when there exists privity of relationship between the taxing State and the object of tax. GENERAL PRINCIPLES OF TAXATION ====================================== ====================================== TOPICS UNDER THE SYLLABUS: I. Phil Guaranty Co. To LGUs in respect to matters of local concern to be exercised by the LG bodies thereof [Sec. It is legislative in character. 1987 Constitution]. [25 SCRA 827]. individuals or transactions to raise money for public purposes. Tax as distinguished from other forms of exactions M. v. 28[2]. When the delegation relates merely to admin implementation that may call for some degree of discretionary powers under a set of sufficient standards expressed by law Cervantes v. 1987 Constitution]. [91 Phil. Commissioner. Nature. raises and accumulates revenue from its inhabitants to pay the necessary expenses of the government.. Auditor General. Nature and Characteristics of Taxation C. It is subject to constitutional and inherent limitations. GENERAL PRINCIPLES A.    TOPIC UNDER THE SYLLABUS: I. iii. The right to tax exists apart from Constitutions and without being expressly conferred by the people. Power by which an Independent State. Theory and Basis of Taxation (JBL) G. It is territorial in operation – The power to tax can only be exercised within the territorial jurisdiction of a taxing authority [51 Am Jur 88].

should be based issuance of on the market license. Principles of Sound Tax System (FAT) ====================================== 1. Non-revenue/special or regulatory Taxation is also used for regulatory purposes. Power of Taxation Compared with Other Powers ====================================== POLICE POWER (in the form of a FEE) Concept Power to make and implement laws for the general welfare Scope Broader in application General power to make and implement laws Exercising Authority Government or political subdivisions EMINENT DOMAIN TAX granting exemption.   Purpose Raise revenue Exercise to The taking of promote public property for welfare through public use regulation Amount of Imposition No limit Limited to the No limit imposed. GENERAL PRINCIPLES C. it is used to attain non-revenue objectives and pursue policy decisions.====================================== TOPIC UNDER THE SYLLABUS: I. It is raised to serve as a means to provide public improvements designed for the enjoyment of the citizenry within the State’s territory. or (b) involves franchise POLICE POWER (in the form of a FEE) EMINENT DOMAIN TAX Power to enforce contribution to raise government funds Power to take private property for public use with just compensation Merely a power to take private property for public use Plenary. GENERAL PRINCIPLES E.the sources of tax revenue should coincide with and approximate the needs of the government expenditures TAXATION LAW REVIEWER Page 6 of 165 . Purpose of Taxation ======================================== 1. It is to provide funds or property with which to promote the general welfare and protection of the whole citizenry. comprehensive and supreme Benefits Received No direct or Market Value of immediate the property benefit but only such as may arise from the maintenance of a healthy economic standard of society Relationship to Constitution Subject to certain Relatively free Subject to certain constitutional from constitutional limitations constitutional limitations limitations Protection and general benefits from the government Government or political subdivisions Maybe granted to public service companies or public utilities ====================================== TOPIC UNDER THE SYLLABUS: I. 2. property property is and excises that and excises that comprehended may be subject may be subject thereto thereto Superiority of Contracts Contracts may be Contracts may be impaired unless (a) impaired government is party to contract  Revenue-raising Taxation is the power by which the sovereign raises revenue to defray the necessary expenses of government. property persons.  ====================================== TOPIC UNDER THE SYLLABUS: I. or value of the surveillance property Effect Becomes part of Restraint on the Transfer of right public funds injurious use of to the property property Persons Affected Applies to all Applies to all Only particular persons. GENERAL PRINCIPLES D. cost of but the amount regulation. Fiscal Adequacy .

25.  Imprescriptibility Unless otherwise provided by the tax law itself. taxing authorities must be applied prospectively.the tax system should be fair to the average taxpayer and based upon the ability to pay  ======================================  TOPIC UNDER THE SYLLABUS: I. [26 SCRA 578]. [26 SCRA 578] iv. GENERAL PRINCIPLES G. Lifeblood/Necessity Theory . 2. Both taxes must be imposed: On the same property or subject matter. and that for those means it has the right to compel all citizens and property within its limits to contribute. iii. There is no double taxation in the following cases: By taxing corporate income and stockholders’ dividends from the same corporation ii. 934]. therefore it is not a valid defense against the validity of a tax measure Pepsi Cola v. that it cannot continue without means to pay its expenses.The power of taxation proceeds upon the theory that the existence of government is a necessity. [99 Phil. In return for this contribution. NIRC]. during the same period. Indirect Duplicate Taxation (Broad sense) – It means indirect duplicate taxation. It extends to all cases in w/c there are two or more pecuniary impositions.. Bisaya Land Transportation Co. Ablaza. For the same purpose. except by express provision of the law. [1958] As to IAET. City of Iloilo. 3.the tax system should be capable of being properly and efficiently administered by the government and enforced with the least inconvenience to the taxpayer Theoretical Justice . taxes in general are not cancelable Commissioner v. Commissioner v. Within the same jurisdiction or taxing district. However when it comes to civil penalties like fines and forfeiture (except interest). City of Iloilo. tax laws may be applied retroactively unless it produces harsh and oppressive consequences w/c violate the taxpayer’s constitutional rights regarding equity and due process Fernandez v. i. Constitutionality of DT – The SC held that there is no constitutional prohibition against double taxation in the Phils.2. [108 Phil 1105] 3. City of Iloilo. Republic vs. the court held that there is no time limit on the right of the BIR Commissioner to assess this type of tax [Sec. such prescriptive period will only be applicable to those taxes that were returnable. [69 SCRA 460]. The same property must be taxed twice when it should be taxed once. vi. TAXATION LAW REVIEWER Page 7 of 165 . The law on prescription being a remedial measure should be interpreted liberally in order to protect the taxpayer.    Prospectivity of tax laws This principle provides that a tax bill must only be applicable and operative after becoming a law. i. Jurisdiction over subject & objects Benefits-Protection Theory (Symbiotic relationship) – The basis of taxation is found in the reciprocal duties of protection and support between the state and its inhabitants. [26 SCRA 578] 3. Fernandez. Taxes are imposed on taxpayer’s final product and the storage of raw materials used in the 2. Direct Duplicate Taxation (Strict sense) – To constitute double taxation in the objectionable or prohibited sense:   i. [101 SCRA 231]. Tanauan. and they must be the same kind or character of tax Villanueva v. iv. Ex post facto is not applicable for tax purposes. ====================================== TOPIC UNDER THE SYLLABUS: I.  Although the NIRC provides for the limitation in the assessment and collection of taxes imposed. Doctrines in Taxation ====================================== 1. Administrative Feasibility . v. Double Taxation (DT) a. Tax imposed by the State and the local government upon the same occupation. The prescriptive period shall start from the time the taxpayer files the tax return and declares his liability Collector v. Villanueva vs. [107 Phil. The Constitution does not prohibit the imposition of double taxation in the broad sense c. the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. Villanueva v. b. Ayala Securities Corporation. By the same State Government or taxing authority. ii. Filipinas Cia de Seguros. calling or activity iii. Real estate tax and income tax collected on the same real estate property leased for earning purposes. 1055]. GENERAL PRINCIPLES F. As a general rule. Theory and Basis of Taxation (JBL) ====================================== 1.

R. iii. Vera. iv.  Accompanying state of mind which is described as being "evil. Procter and Gamble Philippines vs. Incidence of Taxation – point on which the tax burden finally rests or settles down. i. Forward shifting – the transfer of burden from the producer to distributor until it finally reaches the ultimate purchasers or consumers ii. the exception. Onward shifting – the tax burden is shifted twice or more either forward or backward (2) i. and taxation. Benigno vs. [G. (1) Ways of shifting the tax burden (FBO) i. the manufacturer has agreed to buy the supplier’s product only if the price is reduced by the amount of tax. Modes of eliminating DT (1) Provide for exemptions or allowance of deduction or tax credit for foreign taxes (2) Enter into treaties with other states [like the former Phil-Am Military Bases Agreements as to income tax] (3) Application of the Principle of Reciprocity It connotes the integration of three factors:  End to be achieved. Backward shifting – the reverse of forward shifting. it cannot be transferred or assigned by the person to whom it is given without the consent of the State. [67 SCRA 351]. either entirely or in part.g. 78583-4 March 26. one partial and the other total. Taxes that can be shifted VAT Percentage tax Excise tax on excisable articles Ad valorem taxes that oil companies pay to BIR upon removal of petroleum products from its refinery Other Name Means Penalty Object 5." or "deliberate and not accidental".  Tax exemptions are strictly construed against the taxpayer because such provisions are highly disfavored and may almost be said to be odious to the law Manila Electric Company v. by express provision.  There can be no simultaneous exemptions under 2 laws. must be willful and intentional c.. e. i. Meer. [94 SCRA 894] d. Greenfield v. Tax evasion – connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. Kinds (ICE) (1) Express (or affirmative) – when certain persons. ii." "willful. b. exempted from all or certain taxes. b. but when public property is involved. but the burden is actually shifted or passed on to the buyer. Shifting of tax burden – The imposition of tax is transferred from the statutory taxpayer to another without violating the law. or the non-payment of tax when it is shown that a tax is due. it is freedom from a financial charge or burden to which others are subjected. In any case. Toda. (3) Meaning of impact and incidence of taxation i. Municipality of Jana. ii." in "bad faith. 1990] TAX EVASION Tax Dodging Use illegal means Punishable by law To entirely escape payment of taxes TAX AVOIDANCE Tax Minimization Use legal means Not punishable by law To merely minimize payment of taxes 4.  Exemptions are not presumed. Exemption from taxation Meaning – The grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. exemption is the rule. [77 Phil 394] Nature  Exemption from taxes is personal in nature and covers only taxes for which the taxpayer-grantee is directly liable. iii. the payment of less than that known by the taxpayer to be legally due. and  Course of action or failure of action which is unlawful. Impact of Taxation – point on which the tax is originally imposed or the one on whom the tax is formally assessed. property or transactions are. tax saving device that is legally permissible c. a.e. It is an immunity or privilege. Nos. Escape from Taxation a. Example: VAT is originally assessed against the seller who is required to pay the said tax.production of the final product. Tax avoidance – also called Tax Minimization. TAXATION LAW REVIEWER Page 8 of 165 .

and iii. Grant of exemption rests upon that such will benefit the body of the people and not upon any idea of lessening the burden of the individual owners of property. not necessarily common.  Not subject to set-off or compensation for the following reasons: i. to each. The collection of a tax cannot await the results of a lawsuit against the government. Tax Amnesty Meaning – It is the 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. ii. A person cannot refuse to pay tax on the basis that the government owes him an amount equal to or greater than the tax being collected. Philex Mining Corp. The applicable laws and principles governing each are peculiar. Intermediate Court. TCC].  Created in a treaty on grounds of reciprocity or to lessen the rigors of the international double or multiple taxation. COA. V. the tax exemption must be founded on a contract or granted by the Constitution. 6. Taxes are of distinct kind.  Compensation and Set-off This doctrine states that taxes are not subject to set-off or legal compensation because the government and the taxpayer are not mutual creditor and debtor of TAXATION LAW REVIEWER Page 9 of 165 . NIRC]. [208 SCRA 726]. a. and forfeitures [Sec. Domingo v. Mambulao Lumber Co. BIR Commissioner as expressly authorized by the NIRC subject to certain conditions [Sec. essence and nature. and these impositions cannot be classed in merely the same category as ordinary obligations. ii. Section 234 of the Local Government Code iv.. Cagayan Electronic Co. which the law-making body considers sufficient to offset the monetary loss entailed in the grant of exemptions. [1998]. In this case. Every tax statute makes exemptions since all those not mentioned are deemed exempted. The omission may either be accidental or intentional. each other Republic v.  e.  Compromise Compromises are generally allowed and enforceable when the subject matter thereof is not prohibited from being compromised and the person entering such compromise is duly authorized to do so.  It partakes of an absolute forgiveness or waiver of the Government of its right to collect.  The congressional power to grant an exemption necessarily carries with it the consequent power to revoke the same. Section 105 of the Tariff and Customs Code iii. v. 8.. [8 SCRA 443]   7. 2316.  Revocations are constitutional even though the corporate do not have to perform a reciprocal duty for them to avail of tax exemptions. compensation takes place by operation of law and both obligations are extinguished to their concurrent amounts. Rationale/grounds for exemption  A presumption that the public interest will be subserved by the exemption allowed. 709. NIRC] ii. [162 SCRA 753] An exception to the rule is where both the claims of the government and the taxpayer against each other have already become due. Commissioner. properties or transactions without mentioning the other classes. Commissioner.  Equity is not a ground for tax exemption Revocation  Tax exemption is generally revocable. surcharges. These exemptions must not be confused with the tax exemptions granted under franchises. demandable and fully liquidated. [6 SCRA 622]. Customs Commissioner subject to the approval of the Secretary of Finance. Public policy is better subserved if the integrity and independence of taxes are maintained Republic v. in cases involving the imposition of fines. Garlitos. TCC]. 27 D [4]. and iii. v. The law allows the ff: persons to do compromise in behalf of the government: i. which are not contracts within the context of nonimpairment clause of the Constitution. Other special laws such as Omnibus Investment Code of 1987. Collector of Customs with respect to customs duties limited to cases where the legitimate authority is specifically granted such as in the remission of duties [Sec. Mambulao Lumber Co. Francia v. Examples of Statutory Tax Exemptions: i. Caltex Phils. [6 SCRA 622]. 204. [138 SCRA 629] d.  Purpose is some public benefit or interest. (3) Contractual – those lawfully entered into by the government in contracts under existing laws. Inter-corporate dividends by a domestic corporation from another domestic corporation [Sec. Philippine Overseas Shipping Act (2) Implied (or by omission) – when a tax is levied on certain classes of person.  In order to be irrevocable.

c. there is revenue loss since there was actually taxes due but collection was waived by the government A freedom from a charge or burden to which others are subjected Generally.  An exemption from the common burden cannot be permitted to exist upon vague implication or inference  The fundamental theory is that all taxable property should bear its share of the cost and expense of government. prospective in application None. Scope of immunity To whom granted Application Presence of Actual Revenue Loss Applies only to past tax periods hence retroactive application Yes.  Therefore. it must at least be within its purview by clear legislative intent. Tax Rules and Regulations (1) General rule only – The construction placed by the office charged with implementing and enforcing the provisions of a Code should be given controlling weight unless such interpretation is clearly erroneous. a.  Claims for refund partake of the nature of tax exemptions and will not be allowed unless granted in the most explicit and categorical language. because there was no actual taxes due as the person or transaction is protected by tax exemption 9. It is a way to give tax evaders. In such case.  Tax statutes offering rewards are liberally construed in favor of informers.  Applying the rule of strict construction to statutory provisions granting tax exemptions [or deductions] would minimize differential treatment and foster fairness and equality of treatment among taxpayers.  When the exemption refers to religious. Distinguished from tax exemption: AMNESTY Immunity from all criminal.  Taxes being burdens. that is. in case of doubt. rule is that they are exempt from tax. by a grant expressed in terms “too plain to be mistaken and too categorical to be misinterpreted. Thus.  A tax statute should be construed to avoid the possibilities of tax evasion. Construction and Interpretation of: Tax Laws (1) General rule:  No person or property is subject to taxation unless within the terms or plain import of a taxing statute. b.  In case of doubt. whoever claims exemption must be able to justify his claim or right thereto. who wish to relent & are willing to reform a chance to do so. good faith of the taxpayer is TAXATION LAW REVIEWER Page 10 of 165 . the exception. (2) Exception:  The rule of strict construction as against the government is not applicable where the language of the tax statute is plain and there is no doubt as to the legislative intent.”  If not expressly mentioned by law. it shall be resolved in favor of exemption  When the exemption is in favor of the government itself or its agencies because the gen. b.  Taxation is the rule and exemption. Tax Exemption and Exclusion (1) General rule:  Exemptions are not favored and are construed strictissimi juris [by the most strict right or law] against the taxpayer. tax statutes are construed strictly against the government and liberally in favor of the taxpayer. They should not be construed as to permit the taxpayer to easily evade the payment of tax. the rule on strict construction does not apply. the words employed are to be given their ordinary meaning.  If there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent. (2) Exception:  When the law itself expressly provides for a liberal construction. they are not to be presumed beyond what the statute expressly and clearly declares.  Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent. charitable and educational institutions. civil and administrative liabilities from nonpayment of taxes General pardon given to all taxpayers EXEMPTION Immunity from civil liability only not a sufficient justification for exemption from the payment of surcharges imposed by the law for failing to pay tax within the period required.

November 16. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue. a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent. EXCEPT where privity of relationship exists. unless it is expressly provided to apply retroactively.R. Inherent Limitations a. (c) Delegation to administrative agencies – They are authorized to fix within specified limits. Martin. 1955] A special benefit to specific individual does not diminish the nature of tax being for public purpose as long as it is incidental. Secretary of Public Works. 159991. and situs of tax.  time of its enactment. No. Penal provisions of tax laws  Strict construction so as not to extend the plain terms thereof that might create offenses by mere implication not so intended by the legislative body RP v. (1) Exceptions:  While it is not favored. Where the taxpayer acted in bad faith. December 29. For instance: the universal practice of increasing taxes on income already earned. It is established that tax laws are prospective in application. No. 244 and 255 or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation. ii. modification or reversal of any of the rules and regulations promulgated in accordance with Secs. 246 of the NIRC provides that any revocation. No. c. [G. Scope and Limitation of Taxation ====================================== 1. Non-retroactive application to taxpayers  The (tax) law cannot be given retroactive effect. Carmelino F. CIR. coverage. L7859. Tariff rates. [G.R. Pansacola v.  Distinguish from power to assess and collect (2) Exceptions: (a) Delegation to local governments – It is in line with the principle that the power to create municipal corporations for purposes of local selfgovernment carries with it the power to confer the power to tax on such local governments.  Sec. 1960] Legislature is not required to adopt a policy of “all or none” for the Congress has the power to select the object of taxation. patents. May 16. L-10405. Inherently Legislative (1) General rule – power of taxation cannot be delegated. [G.  e.R. copyrights and other like ====================================== TOPIC UNDER THE SYLLABUS: I.d. December 22. object. extent. power to tax is limited to the territorial jurisdiction of the taxing state. import or export quotas. L-38019. the State can exercise its taxing powers over its citizen outside its territory. Public Purpose Test: whether the proceeds will be used for something which is the duty of the State to provide. GENERAL PRINCIPLES H.R. tonnage and wharfage dues and other duties or imposts. 2006]  A tax law should not be given retroactive application when it would be harsh and oppressive. Lutz v. modification or reversal will be prejudicial to the taxpayers. Pascual v. the constitutional limitation of due process would be violated.  The public purpose of the tax law must exist at the TAXATION LAW REVIEWER Page 11 of 165 . or iii. amount. (b) Situs of Income Tax (1) From sources within the Philippines  Interests derived from sources within the Philippines  Dividends from domestic and foreign corporations  Compensation for services performed within the Philippines  Rentals and royalties from properties located in the Philippines or any interest in such property including rentals or royalties for the use of or for the privilege of using within the Philippines. 1980]. Territorial (1) Situs of Taxation (a) Meaning – place of taxation. [G.  Contemplates the power to determine kind. No. b. Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. for in such case.  The rules and regulations promulgated by the CIR shall be retroactive in the following cases: i. Araneta. (b) Delegation to the President – Certain aspects of the taxing process that are not legislative in character may be vested to him.

regardless where the said shares are sold. or from the purchase without and its sale within shall be treated as derived entirely from sources within the country in which the personal property is sold. 20. Art. Agencies. SUMMARY: OBJECT Person SITUS RULE Residence. and income derived from the purchase within and its sale without the Phil. profit. e. Citizenship Location of the property Physical location although the owner resides in another jurisdiction Domicile of the owner (mobilia sequntur personam) Citizenship Residence Source of Income Citizenship Residence Location of Property Where the act/business/occupation is performed/exercised Real Property Tangible Personal Property Intangible Personal Property Income (2) From sources without the Philippines  Interest other than those derived from sources within the Philippines  Dividends other than those derived from sources within the Philippines  Compensation for services performed without the Philippines  Rentals and royalties from property located without the Philippines or from any interest in such property including rentals or royalties for the use of or for the privilege of using without the Philippines. Exemption of Government Entities. (2) Uniformity and equality of taxation [Sec.  However. (3) Income partly within and partly without the Philippines  Items other than those specified above in i. Provisions Directly Affecting Taxation (1) Prohibition against imprisonment of non-payment of poll tax [Sec. it can tax itself if there is a statutory authority to do so and no express provision against such act. patents. and Instrumentalities  Taking money from one pocket to the other. 28 (1). Sale of Real property located in the Philippines Sale of Personal property – Gains.  Applies only to entities exercising sovereign functions (acta jure imperii). Intangible – Domicile of the owner Transfer of property Business or Occupation d. shall be allocated or apportioned to sources within or without the Philippines (c) Situs of Property Taxes (1) Taxes on Real Property – Location of the property (2) Taxes on Personal Property i. Domicile. International Comity  Property of a foreign State of government may not be taxed by another. Tangible – Location of the property ii. III]  Can still be made to pay fines and penalties for non-payment.  Taxpayer may be imprisoned for non-payment of other kinds of taxes where the law so expressly provides. and ii. Constitutional Limitations a. 2.  properties. Except: the gain from the sale of shares of stock in a domestic corporation shall be treated as derived entirely from sources within the Phils. copyrights and other like properties. Art VI]  Uniform: all articles or properties of the same class taxed at the same rate  Equity: apportionment must be more or less just in the light of taxpayer’s ability to shoulder tax burden  The equal protection clause refers more to like (d) Situs of Excise Tax (1) Estate Tax – Domicile of the decedent at the time of his death (2) Donor’s Tax – Domicile of the donor at the time of the transfer (e) Situs of Business Tax – Place where the taxpayer is registered or required to register (1) Sale of Real Property (2) Sale of Personal Property (3) VAT TAXATION LAW REVIEWER Page 12 of 165 .

VI]  Includes amnesties. 1. Art. TCC]  Subject to Congressional limits and restrictions  Within the framework of national development program (4) Prohibition against taxation of religious. VI]  Includes import and export quotas. charitable and educational entities/Exemption from real property taxes [Sec. Art. churches. Sison. X] (11) No appropriation or use of public money for religious purposes [Sec.R. 1981] (2) Equal protection [Sec. 29 (2). Art. Province of Abra v. Art. 28 (4). [G. VIII] (10) Grant of power to the local government units to create its own sources of revenue [Sec. No. 28 (2). VI of the Constitution]  Covers charitable institutions. (8) President’s veto power on appropriation. No. 27 (2). mosques and non-profit cemeteries and all lands. Art. tonnage and wharfage dues aside from tariff rates  Delegated by Congress  Through a law. Art. v.  The exemption is strictly personal. condonations and refunds  Involves majority of all members voting separately  Relative majority (majority of quorum) is sufficient to withdraw exemption. DIRECTLY and EXCLUSIVELY USED for charitable. Provisions Indirectly Affecting Taxation (1) Due process [Sec. real estate. revenue.treatment in like circumstances  The uniformity and equity clause refers to the proper relative treatment for tax purposes of persons in unlike circumstances (3) Grant by Congress of authority to the President to impose tariff rates/Flexible tariff clause [Sec.R. VI] b. not ownership (5) Prohibition against taxation of non-stock. 5(2)(b). and parsonages or convents appurtenant thereto. Art. religious and educational purposes  Pertains only to real estate tax  Test of exemption: actual use of the property. III]  All persons subject to legislation shall be treated alike. ex. oppressive.  Once the purpose is achieved. 29 (3). Hernando. L-49336 August 31. Jr. the Tariff and Customs Code has provided for what has been termed as “the flexible tariff clause” authorizing the President to modify import duties [Sec. ii. the balance. (7) Prohibition on use of tax levied for special purpose [Sec. Proprietary educational institutions (Preferential Tax of 10%). [G. Art. 4(3&4). 5. XIV]  Exempts from taxes all revenues and assets of nonstock. is to be transferred to the general funds of the government. 28 (3). non-profit educational institutions used ACTUALLY. (nontransferable)  Distinguish from tax treatment of i. Government educational institutions (exempt. Art. VI]  Revenues derived for a special fund shall be administered for the purpose intended only. Art. buildings and improvements ACTUALLY. UP) (6) Majority vote of Congress for grant of tax exemption [Sec. VI] (9) Non impairment of jurisdiction of the SC [Sec. or confiscatory (reasonableness) By authority of valid law Must be for a public purpose Imposed within territorial jurisdiction  It can also be invoked by the government. nonprofit [educational] institutions [Sec. and tariff bills [Sec. 401. and customs duties (distinguish from the previous which pertains only to real estate tax)  Income exempt provided it is used for maintenance or improvement of institution (indispensable or essential). III] PROCEDURAL No arbitrariness in assessment and collection Right to notice and hearing SUBSTANTIVE Should not be harsh. L-59431. 25 July 1984] TAXATION LAW REVIEWER Page 13 of 165 . Ancheta. under like circumstances and conditions both in privileges conferred and liabilities imposed. if any. Art. DIRECTLY AND EXCLUSIVELY for educational purposes  Exemption covers income. 1. donor’s tax.

or of any sum alleged to have been excessively. No. 5. Tax as distinguished from other forms of exactions ====================================== 1. Customs Duty/Tariff TAX Coverage More comprehensive than customs duty Object Persons. Be germane to the purpose of the law iii. Definition. express or implied. including such options. or the payment of public expenses. It should be uniform and equitable c. of the person taxed. is taxable (4) Non-impairment of obligations [Sec. classification to be valid must: i. GENERAL PRINCIPLES L. Art III]  The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. imposition or contribution assessed in accordance with some reasonable rule of apportionment by authority of the sovereign state upon the persons or property within its jurisdiction. alteration. Requisites of a valid tax ====================================== a. or of any penalty claimed to have been collected without authority. where the special benefits derived from the performance is merged in the general benefit. the administration of the law. ====================================== TOPIC UNDER THE SYLLABUS: I. or in any manner wrongfully.  Taxes operate in INVITUM and are in no way dependent upon the will or contractual assent. GENERAL PRINCIPLES I. That it complies with the requirements of due process e. 10. ====================================== TOPIC UNDER THE SYLLABUS: I. Rest on substantial distinctions ii. 1957]. That it does not infringe any constitutional limitations ====================================== TOPIC UNDER THE SYLLABUS: I. and iv. [G. etc CUSTOMS DUTY Kind of tax Goods imported or exported TAXATION LAW REVIEWER Page 14 of 165 . Levy – Refers to the enactment of a law by Congress. imposing a tax. Must be for a public purpose b. III]  Applies only when government is party to the contract granting exemption  EXCEPT if Franchise tax-exemption  The Constitution provides that franchise is subject to amendment. regardless of disposition of such income. Apply equally to all members of the same class (3) Religious freedom [Sec. Not be limited to existing conditions only.  Tax is unconstitutional if it operates as a prior restraint on exercise of religion or favors a certain religion (non-establishment of religion)  Income of religious organizations from any activity conducted for profit or from any of their property. real or personal. Nature. That either the person or property taxed is within the jurisdiction of the taxing authority d. to provide public revenue for the support of the government. Stages of Taxation (LAPR) ====================================== 1. Art. GENERAL PRINCIPLES K. and Characteristics of Taxes ======================================  A burden.R. L-9637. collected. City of Manila. ====================================== TOPIC UNDER THE SYLLABUS: I. GENERAL PRINCIPLES J. Payment – Act of compliance by the taxpayer. 4. April 30. or repeal by Congress.  (1) Enforced (2) proportional and (3) pecuniary contributions (4) from persons and property (5) levied by law-making body of (6) the state having jurisdiction over the subject of the burden (7) for the support of the government and all public needs. [71 AM JUR 2ND 343-346]  Any payment exacted by the State or its municipal subdivisions as a contribution toward the cost of maintaining governmental functions. Assessment – The act of administration and implementation of the tax law by the executive department through the administrative agencies 3. schemes or remedies as may be legally available to him. American Bible Society v. prop. charge. 2. No violation of equal protection when there is proper classification made. Refund – Recovery of any tax alleged to have been erroneously or illegally assessed or collected.  Activities simply and purely for propagation of faith are exempt. exaction.

 Purpose of distinction: limitations and exemptions apply only to one and not to the other (ex. length or volume Ex. Income tax.   Property tax – Imposed on property. weight. cigars b. properties. customs duties 3. the enjoyment of a privilege or the engaging in an occupation. License Fee TAX Exercise of Taxing power Raise revenue Persons. or at least one of the real and substantial purposes is to raise revenue. Direct – the tax is imposed on the person who also bears the burden thereof Ex. As to subject matter or object a. Income tax. specific tax. Ad Valorem .tax of a fixed proportion of the value of property with respect to which the tax is assessed.  If amount is too high for regulation.  Tax’s primary purpose. Kinds of Taxes ====================================== 1. 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 Effect off Imprisonment is sanction for nonpayment No imprisonment for non-payment Kind of demand Purpose Amount ====================================== 3. VAT. Why Regardless of public imposed improvement Purpose Support of government When Regular exaction imposed Basis Necessity 5. legal obligation Personal Generally not subject to compensation/ set- 2. unless imposed on non-useful occupations or businesses. GENERAL PRINCIPLES M. Specific – tax imposed and based on a physical unit of measurement. community tax. Tax on distilled spirits. Special Assessment TAX Imposed Persons. Exemption from taxation does not include exemption from fee) c. Debt TAX Law. SPECIAL ASSESSMENT Only on land Public improvement that benefits the land Contribution to cost of public improvement Exceptional as to time and locality Benefits obtained As to who bears the burden or incidence a.(different from the excise tax of Title VI of the NIRC) Imposed upon performance of an act. percentage tax. TAXATION LAW REVIEWER Page 15 of 165 . poll. Real estate tax Excise/Privilege tax . property and privilege no limit LICENSE FEE Emanate from the police power of the State Regulation Right to exercise a privilege TOPIC UNDER THE SYLLABUS: I. requires intervention of assessor. profession or business Ex. estate tax b. as by head. estate tax. fermented liquors. occupation or business Ex. capitation tax –  Fixed amount  Individuals residing within specified territory  Without regard to their property.2. VAT. Source Nature Right to set-off DEBT Based on contract Assignable May be the subject of compensation/ set-off As to tax rates or determination of amount a. Indirect – imposed on the taxpayer who shifts the burden of the tax to another Ex. donor’s tax Source Purpose Object Amount only necessary to carry out regulation Distinction lies in the primary purpose:  License fee primary purpose is to regulate and the excess of the amount collected from the cost to carry out the regulation is minimal and incidental. number. real or personal In proportion to its value or other reasonable method of apportionment Ex. Community Tax (Cedula) b. Personal. on etc.  4. it would be a tax.

imposed for a special purpose. As to purposes a. Real estate tax. As to scope or authority to impose a.imposed for the general purpose of supporting the government Ex. As to graduation of rate (Three systems of taxation) a. Municipal or local . fiscal or revenue . National internal revenue taxes. TAXATION LAW REVIEWER Page 16 of 165 . Progressive or graduated . nonessential goods c. to achieve some social or economic objectives Ex. income or other basis to be taxed Ex. percentage tax b.based on a fixed percentage of the amount of the property.tax rate increases as the tax base or bracket increases Ex. VAT. occupation tax 6. Proportionate . General. percentage tax b. Real estate tax.tax rate decreases as the tax base increases c.imposed by the municipal corporations or local governments Ex. Mixed 4. National . Protective tariffs or customs duties 5. Income tax.Ex. donor’s tax Regressive . excise tax on cars. Income tax. custom duties b. estate tax. Special or regulatory .imposed by the national government Ex. Real estate tax.

residence principle and the source principle Semi-schedular or semi-global tax system – certain passive incomes and capital gains are subject to final taxes at preferential rates while all other income are b. Tolentino v. the computation of income is global while the scheduler tax system applied to the capital gains and passive income subject to final tax at preferential tax rates. October 30. 1995] Comprehensive system – adopts the citizenship principle. and other income are added together to arrive at the gross income and after deducting the sum of allowable deductions. capital gains tax) Semi-Schedular or Semi-Global Tax System – the compensation income. d. as well as personal and additional exemptions. Value-Added Tax (VAT) E. Income Taxation B. or the total allowable deductions only. deductions. Progressive tax – tax rate increases as the tax base increases. The applicable tax rates will depend on the classification of the taxable income and the basis could be gross income or net income (i. compensation income. GLOBAL SYSTEM A system which imposes a personal tax upon the total income of the taxpayer Emphasizes the burden allocation aspects Most equitable in distributing tax burden. c. in the case of corporations. Tax Remedies under the NIRC G. capital gain and passive income not subject to final tax. Income Taxation ======================================== 1. are deducted from the gross income (i. All items of gross income. Schedular Tax System – different types of incomes are subjected to different sets of graduated or flat income tax rates. 115455. indirect taxes should be minimized.NATIONAL INTERNAL REVENUE CODE ====================================== of graduated tax rates for an individual or normal corporate income tax rate for corporations. Estate Tax C. c. in the case of qualified individuals. Donor’s Tax D. in the case of individuals. profit and gain) to arrive at the net taxable income subject to the graduated income tax rates. NOTE: Philippine income taxation is a combination of both system but is more schedular for individual while more global for corporation. direct taxes are to be preferred and as much as possible. net income from business. [G. or to the corporate income tax rate. Administration is simple being confined to each transaction or activity Features of the Philippine Income Tax Law Direct tax – tax burden us borne by the income tax recipient upon whom the tax is imposed.e. b. Global (unitary) Tax System – the total allowable deductions.II. the tax burden of a person does not respond to his income but rather fall fortuitously on the type of his income This function is alien to schedular system where in times of plenty or in times of need. Compliance Requirements (Internal Revenue Taxes) F. people pay the same fixed tax on their income Schedular system cannot perform these functions TOPICS UNDER THE SYLLABUS: A. Secretary of Finance. With respect to the income.R. business or professional income. the taxable income is subjected to one set It serves as a supplementary devise to accomplish nonfiscal goals of the government Administration is not quite as easy as schedular because one has to consider all income from whatever sources 2. personal and additional exemptions are reported in one income tax return and a single tax is imposed on all income received or earned by a person irrespective of the activities which produced the income (i. Income Tax Systems a.e. in the case of corporations. TAXATION LAW REVIEWER Page 17 of 165 . trade or profession). as burden of an individual is closely related to his resources and his ability to pay It serves as a means for redistributing income and wealth SCHEDULAR SYSTEM A system which imposes various types of tax on income producing activities Emphasizes on revenue and administrative aspects Because of its multiple rates. a.e. sum of all items of taxable income. No. Organization and Function of the Bureau of Internal Revenue ======================================== ====================================== TOPIC UNDER THE SYLLABUS: A.

a. if estate. Source principle – a non-resident alien is subject to Philippine income tax because he derives income from sources within the Philippines such as dividend. i. b. interest. Fiscal Year – accounting period of twelve (12) months ending on the last day of any month other than December which is allowed ONLY to corporations. the taxable income is subjected to one set of graduated tax rates for an individual or normal corporate income tax rate for corporations. Domestic Corporation Resident Foreign Corporation Non-resident Foreign corporation a. or (b) only on his income from sources within the Philippines. trustor. Kinds of Taxpayers TAXPAYER TAX BASE Resident Citizen Taxable Income Nonresident Taxable Citizen Income Taxable Resident Alien Income Nonresident Alien engaged in trade Taxable or business (more Income than 180 days) Nonresident Alien not engaged in Gross trade or business Income (180 days or less) General Professional Partnership Taxable Income TAXABLE ON INCOME Within and without the Philippines Within the Philippines Within the Philippines Within the Philippines Within the Philippines GPP itself not taxable. j. Residence principle – a resident alien is liable to pay income tax on his income from sources within the Philippines but exempt from tax on his income from sources outside the Philippines. c.added together to arrive at the gross income and after deducting the sum of allowable deductions. (b) Nonresident Citizen – citizen of the Philippines who are taxable only on his income from sources within the Philippines if he: i. b. individual partners will be taxed depending on classification Same basis as an individual (depending on classification of decedent. Individual Taxpayers (1) Citizens (a) Resident Citizen – citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. if trust) Within and Without the Philippines Within the Philippines Within the Philippines e. Types of Philippine Income Tax Net Income Tax/Taxable Income (GI – Deductions – Exemptions) Gross Income Tax Final Income Tax (On passive income and capital gains) Fringe Benefits Tax (amount of benefits to Managerial and Supervisory Employee paid by Employer. Criteria in Imposing Philippine Tax Law Citizenship principle – a citizen taxpayer is subject to income tax: (a) on his worldwide income if he resides in the Philippines. Calendar Year – accounting period from January 1 to December 31 which is allowed if the:  Taxpayer is an individual  Taxpayer is a partnership  Accounting period is other than a fiscal year  Taxpayer has no accounting period  Taxpayer does not keep books. b. TAXATION LAW REVIEWER Page 18 of 165 . 6. Short Period – a taxpayer may have a taxable period of less than twelve (12) months when:  Taxpayer dies  Corporation is newly organized  Corporation changes its accounting period  Corporation is dissolved. however. a. if he qualifies as non-resident citizen. Establishes the fact of his physical presence abroad with a definite intention to reside therein. a. c. Estate and Trust Taxable Income Taxable Income Taxable Income Gross Income 5. rent or royalty. Taxable Period GENERAL RULE: The accounting period of a taxpayer is a period of twelve (12) months. h. d. g. 3. 4. employee is taxed but burden is on employer) Capital Gains Tax (Real property and stocks not traded in stock market) Optional Corporate Income Tax Minimum Corporate Income Tax (2% of gross income) Improperly Accumulated Earnings Tax Preferential Rates (for special corporations) Branch Profit Remittance Tax c. f.

not less than 183 days) during the taxable year. 5-2001] For Overseas Contract Worker. and makes his home temporarily in the country becomes a resident alien Length of stay is indicative of intention An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of the income tax. (3) Special Class of Individual Employees (a) Aliens employed by regional or area headquarters and regional operating headquarters of multinational companies in the Philippines. Permanent employee – one who leaves the Philippines on a more or less permanent basis c. v. (b) Aliens employed by offshore banking units. [RR No. No.  One who comes to the Philippines for a definite purposes which in its nature would require an extended stay. TAXATION LAW REVIEWER Page 19 of 165 . Contract Worker – one who leaves the Philippines on account of a contract of employment which is renewed from time to time under such circumstance as to require him to be physically present abroad most of the time (not less than 183 days)       NOTE: The taxpayer shall submit proof to the CIR to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be. (c) Aliens employed by petroleum contractors and subcontractors. [Sec. An alien who has acquired a residence is taxable as a resident for the remainder of his stay in the Philippines. iv. A mere floating intention indefinite as to time. 2] (b) Nonresident Alien – an individual whose residence is not within the Philippines and who is not a citizen thereof but dong business therein is taxable only on income from sources within. though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. he is a resident.ii. Non-resident citizens who are exempt from tax with respect to income derived from sources outside the Philippines shall no longer be required to file information returns from sources outside the Philippines beginning 2001 [RR No. Immigrant – one who leaves the Philippines to reside abroad as an immigrant for which a foreign visa has been secured b. Was previously considered as nonresident citizen & arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines. (2) Not engaged in trade or business – an alien whose stay in the Philippines is 180 days or less. 6. Examples of non-resident citizens: a. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient. If he lives in the Philippines and has no definite intention as to his stay. he becomes a resident. Leaves the Philippines during the taxable year to reside abroad. to return to another country is not sufficient to constitute him a transient. and to that end the alien makes his home temporarily in the Philippines. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. RR. iii. All that is required is for the worker’s employment contract to pass through and be registered with the POEA [BIR Ruling 33-2000] (2) Aliens (a) Resident Alien – an individual whose residence is within the Philippines and who is not a citizen thereof is taxable only on income derived from sources within the Philippines. 2] Loss of Residence by alien An alien who has acquired residence in the Philippines retains his status until he abandons the same and actually departs from the Philippines A mere intention to change his residence does not change hid status. Works & derives income from abroad & whose employment requires him to be physically present abroad most of the time (i. as immigrant or for employment on a permanent basis. (1) Engaged in trade or business – an alien who comes and stays in the Philippines for an aggregate period of more than 180 days during any calendar year.e. But if his purpose is of such a nature that an extended stay may be necessary for its accomplishment. the time spent abroad is not material for tax exemption purposes.

ii. iii. Corporations  A corporation shall include partnerships. thus subject to final income tax on their gross distributive share. the Court held that there is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. it is not subject to income tax. and in progressive prosecution of commercial gain or for the purpose and object of the business organization. L-65773-74. Partners are considered stockholders. 35% 2006 . to be taxable as a TAXATION LAW REVIEWER Page 20 of 165 .  Taxable/Business/Ordinary/General Partnership i. and not one of a temporary character. General professional partnerships ii.(d) Minimum Wage Earner  A worker in the private sector paid the statutory minimum wage.  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. No. coal. Individual partners are subject to regular income tax rate on their taxable income. which includes: (a) Resident foreign corporation – foreign corporation engaged in trade or business within the Philippines and is liable from sources within. and contemplates. April 30. overtime. In the case of CIR v.  His earnings (i. (2) Foreign Corporation – organized and existing under the laws of a foreign country. joint accounts. and insurance companies  But does not include. their distributive share is taxed as dividends. may be regarded as doing business within a State. no matter how created or organized. General Professional Partnerships  Established solely for purpose of exercising common profession and no part of income derived from engaging in trade or business. general or special.  As an entity. All other partnerships no matter how created or organized. Each case must be judged in the light of its peculiar environmental circumstances. v. ii. or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned. Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. Includes unregistered joint ventures and business partnerships. 1987]. Estate and Trusts  Estate: property. coal and other energy operation under a service contract with the government. i. Taxable as an entity  ordinary corporate income tax. b) engaged in petroleum. rights and obligations of a person which are not extinguished by his death and those that accrues thereto. [G.R.2008) corporate income tax: i. therefore. (b) Nonresident foreign corporation – foreign corporation not engaged in trade or business within the Philippines b. The term implies a continuity of commercial dealings and arrangements. 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. Partners are liable for income tax on their distributive share (computed by dividing net income of GPP). In order that a foreign corporation e. d. taxed in the same way as an individual provided it is irrevocable and earns income. iii. Joint ventures are not taxable as corporations when its purpose is: a) undertaking construction projects. SMW. associations. Partnerships.e. such as the appointment of a local agent. (1) Domestic Corporation – created or organized in the Philippines or under its laws and is liable for income derived from sources within and without. Each partner shall report his distributive share as part of his gross income. night shift differential and hazard pay) are exempt from income tax pursuant to the provisions of this Code and other laws. holiday. there must be continuity of conduct and intention to establish a continuous business. Taxed as a corporation. to that extent. British Overseas Airways Corp. iv. Joint stock companies. for the purpose of imposing ordinary 30% (starting 2009. the performance of acts or works or the exercise of some of the functions normally incident to. geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with the government c.

[G. General Principles TAXPAYER TAX BASE Resident Citizen Taxable Income Nonresident Citizen Taxable Income Taxable Resident Alien Income Nonresident Alien engaged in trade or Taxable business (more than Income 180 days) Nonresident Alien not engaged in trade Gross or business (180 days Income or less) General Professional Partnership Taxable Income TAXABLE ON INCOME Within and without the Philippines Within the Philippines Within the Philippines Within the Philippines Within the Philippines GPP itself not taxable. Income Definition and Nature  Income. (2) Progressive Tax – tax rate increases as the tax base increases. a. f. October 30. grantor must have absolutely and irrevocably given up control and benefit over the trust. TAXATION LAW REVIEWER Page 21 of 165 . For income tax purposes. emoluments. b. if trust) Within and Without the Philippines Within the Philippines Within the Philippines   Estate and Trust Taxable Income Taxable Income Taxable Income Gross Income 7. No. profits and the life. professions. means all wealth which flows into the taxpayer other than as a mere return of capital. A donor makes a gift of an undivided property in favor of two or more donees. or as a tax on a person’s income. the individual co-owners are liable for the taxes due on their respective shares and the co-ownership itself is not considered as a separate taxable entity. Tolentino v. a.  There is co-ownership in the following instances: i. gain or profit is necessary – where there is an exchange of value received in the form of cash or its equivalent as a result of rendition of service or b. Income cannot be determined merely by reckoning cash receipts. direct taxes are to be preferred and as much as possible. individual partners will be taxed depending on classification Same basis as an individual (depending on classification of decedent. trustor. It is not taxable when the activities are limited merely to preservation of the co-owned property but the co-owners are liable for income tax in their separate and individual capacities. and accounts payable for expenses incurred. 115455. in the broad sense. the taxable income is subjected to one set of graduated tax rates for an individual or normal corporate income tax rate for corporations. Income Taxation Definition – A tax on all yearly profits arising from property. Two or more heirs inherit an undivided property from a decedent.separate entity. accounts receivable. among which are inventories. ii. Income tax is a direct tax Nature (same as Features of Philippine Income Tax Law) (1) Direct Tax – tax burden us borne by the income tax recipient upon whom the tax is imposed. RR No. including gains derived from the sale or other disposition of capital assets. residence principle and the source principle (4) Semi-Schedular or Semi-Global Tax System – certain passive incomes and capital gains are subject to final taxes at preferential rates while all other income are added together to arrive at the gross income and after deducting the sum of allowable deductions. 36. property exhaustion. 1995] (3) Comprehensive System – adopts the citizenship principle. or offices. Co-ownerships  Exists whenever the ownership of an undivided thing or right belongs to different persons. [Sec. trades. Secretary of Finance. indirect taxes should be minimized. 0240 dated 10 February 1940] When income is taxable (1) Existence of income  For a taxable income to exist. It is taxable when the income of the co-ownership is invested by the co-owners in business creating a partnership. if estate. Domestic Corporation Resident Foreign Corporation Non-resident Foreign corporation 8. however. c. for the statute recognizes as income determining factor other items. It includes the forms of income specifically described as gains and profits.R.

(3) Recognition of income (4) Methods of accounting (a) Cash method v. 2009  (2) Realization of income (a) Tests of Realization  Under the REALIZATION PRINCIPLE. Generally. and you recognize the expense when you actually pay cash for the expense). you recognize the income when you actually receive the cash payment Tests in determining whether income is earned for tax purposes (1) Under the REALIZATION PRINCIPLE. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered. 5046. RR No. (b) Installment payment v. This method requires recognition of income based on the progress of work. the income derived on installment sale is the proportion of installment collection actually received during the year in relation to the gross profit and contract price. and iii. revenue is generally recognized when both of the following conditions are met: (a) the earning is complete or virtually complete. [Sec. Amounts received in advance are not treated as revenue of the period in which they are received. These amounts are carried as unearned revenue. (b) Actual v. [CTA Case No. 24. and (b) an exchange has taken place.  This principle requires that revenues must be earned before they are received.  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. Amounts received in advance are not treated as revenue of the period in which they are received. liabilities to transfer goods or render services in the future — until the earning process is complete. Deferred payment v.  DEFERRED PAYMENT METHOD – where the initial payments on installment sale exceed 25% of the selling price but they may only be realized in the subsequent year. 263-92 dated September 16. and expenses are allowed as deductions when incurred. 16-2005]  c. BIR Ruling [DA-(C-335) 815-09] dated December 22. and  An exchange has taken place. gains and profits are included in gross income when earned whether received or not. although not yet paid. ACCRUAL METHOD – method under which income. ii. Deposit in banks which are made available to the seller of service without restrictions. but as revenue of the future period or period or periods in which they are earned. Accrual method  CASH METHOD – recognition of income and expense dependent on inflow or outflow of cash (meaning. 1992] PERCENTAGE OF COMPLETION METHOD – a method of recognizing the earnings derived from long-term construction contracts.earnings in excess of capital invested. 2 as cited in BIR Ruling No. Constructive Receipt  ACTUAL RECEIPT occurs when there is a physical transfer of the money consideration or its equivalent to a person. Commissioner. For example: i. Percentage of completion  INSTALLMENT METHOD – the taxpayer may report income over the several taxable years in which collections are made based on the terms of payment. revenue is generally recognized when both of the following conditions are met:  The earning is complete or virtually complete. 1997] for the sale. March. but as revenue of the future period or period or periods TAXATION LAW REVIEWER Page 22 of 165 . [Section 4. Manila Mandarin Hotels v. Transfer of amounts retained by the payor to the account of the contractor.108-411 of RR No. 177. that is. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income. the taxpayer is allowed to defer reporting income for accounting purposes but such sale is to be considered as the equivalent of "cash" which will be considered as taxable in the month of sale. This principle requires that revenues must be earned before they are received.

1997] General Rule: in this jurisdiction. 2008] (3) The ECONOMIC BENEFIT THEORY provides that anything which benefits a person materially or economically in whatever way is taxable under the law. 49(A)  Casual sale if personal property on installment basis where the selling price exceeds P1. income is recognized when there is a separation of something which is of exchangeable value. [BIR Ruling No.in which they are earned. Sec. the cost basis of property is increased and the resultant basis is used as the new tax base for purposes of computing the allowable depreciation expense. liabilities to transfer goods or render services in the future — until the earning process is complete. 206-90 dated October 30. mere increase in the value of property without actual realization. in this case. 422-4. 5046. considered as initial payments are the down payments and all other payments received by the seller during the year of sale. The increase in value i. but not limited to fees. Surre Warren. 1990] To compute the reportable income: Installment collection received Gross profit Contract Price Reportable Income = x When Installment Method Allowed (a) Installment sale of personal property  Personal property is regularly sold on an installment basis by a dealer. including excess mortgage assumed by the buyer over the basis or cost of the property sold. Burnet as cited in [BIR Ruling DA-(C-168) 519-08 dated December 12. he has received income even though one may claim he is not entitled to the money. pp. 49(B)  Sale by individuals of real property considered as capital asset. the gain. Hence. Federal Income Taxation. is not taxable. including (but not limited to the following items) (GRIP CARD GPP)  Gross income derived from the conduct of trade or business or the exercise of a profession  Rent Income  Interest Income  Prizes & winnings  Compensation for services in whatever form paid. wages. the only exception being that even without sale or other disposition. if by reason of appraisal. Commissioner. TAXATION LAW REVIEWER Page 23 of 165 . either through sale or other disposition. commissions & similar items  Annuities  Royalties  Dividend Income  Gains derived from dealings in property  Pensions  Partner’s distributive share from the net income of the GPP (distributive share from ordinary partnerships is taxable as dividends. [BIR Ruling No. a severance of the gain from the original capital invested in the property. Manila Mandarin Hotels v. Sec. Sec. if initial payments do not exceed 25% of the selling price. the net difference between the original cost basis and new basis due to appraisal is taxable under the economic-benefit principle. including. that is. March 24. The same conclusion obtains as to losses. 1997] (2) The "CLAIM-OF-RIGHT" DOCTRINE provides that if a taxpayer receives earnings under a claim of right and without restriction as to its disposition. (b) Installment sale of real property  Sale of realty (inventory) where the initial payments do not exceed 25% of the selling price. 49(B) NOTE: if the initial payment exceeds 25% of selling price. Gross Income a. 123-97 dated November 10. salaries. that is. Should it later appear that the taxpayer was not entitled to keep the money. 32. as cited in [BIR Ruling No. Sec. the transaction is considered cash sales. the ordinary partnership has already been subject to ordinary corporate income tax) Sec. Macomber. [CTA Case No. These amounts are carried as unearned revenue. 029-98] (4) Under the SEVERANCE TEST THEORY.e. to be allowable the loss must be realized. could only be taxed when a disposition of the property occurred which was of such a nature as to constitute a realization of such gain. The annual decline in the value of property is not normally allowable as a deduction. Eisner v. 1950. 49(C) 9. the taxpayer would be entitled to a deduction in the year of repayment. [252 US 189] The annual increase in value of an asset is not taxable income because such increase has not yet been realized. Definition All income derived from whatever source. North American Oil Consolidated v..000 and the initial payments do not exceed 25% of the selling price.

theft or seizure. Inc. pensions. July 7. It is referred to as “Taxable Income” under the NIRC. Gross income v. Helvering) and was adopted by the BIR in several of its rulings.. extortion. and whether derived from legal or illegal sources. whichever is higher. 32 of the Tax Code as cited in Commissioner of Internal Revenue v. if any. authorized for such types of income by this Code or other special laws. [Sec. kidnapping. but in an amount not in excess of the money so expended. less the deductions and/or personal and additional exemptions. net income v. Inc. prizes and winnings. 2009] NET INCOME means gross income less statutory deductions and exemptions. no gain or loss shall be recognized.Recovery of damages (compensation for injury. 31 of the Tax Code as cited in Commissioner of Internal Revenue v. No. Herver vs. including compensation for services. 2009] BIR Ruling No. in the taxable year received Doctrine of Involuntary Conversion of Property This is a doctrine provided for in US Jurisprudence (i. For example.R.   d. Classification of Income as to Source (1) Gross income and taxable income from sources within the Philippines (a) GROSS Income from Sources within the Philippines INCOME Interests Dividends TEST OF SOURCE OF INCOME Residence of Debtor a) From domestic corporation – income within b) From foreign corporation: Income within if more than 50% of the gross income of such foreign corp. No. rents. period ending with the close of the taxable year 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 TAXATION LAW REVIEWER Page 24 of 165 . Concept of income from whatever source derived Income from whatever sources derived means inclusion of all income not expressly exempted within the class of taxable income under the laws irrespective of the voluntary or involuntary action of the taxpayer in producing the gains. in whole or in part. from tortuous acts) Recovery of damages pertaining to recovery or return of loss income or profit Recovery of items previously deducted from gross income (tax benefit rule) Forgiveness of indebtedness (if effect of entire transaction is a reduction of purchase price of property acquired in prior year) Forgiveness of indebtedness (of a stockholder is equivalent to dividend distribution) Forgiveness of indebtedness in exchange of a service performed Income derived from illegal business (gain) Recovery of lost earnings Not taxable Taxable Taxable Not Taxable Taxable Taxable Taxable Taxable EXAMPLES OF INCOME FROM LEGAL SOURCES Employee’s salary. which is forthwith in good faith expended in the acquisition of other property. dividends.e. or an exercise of the power of requisition or condemnation or the threat or imminence thereof) is compulsorily or involuntarily converted into property similar to the property so converted. or in the establishment of a replacement fund. b. 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. the conduct of trade or business or the exercise of profession. G. This doctrine states that if property (as a result of its destruction. 180066. [Sec.R. embezzlement c. If any part of the money is not so expended. July 7. interests. PAL. for the 3-yr. bonus. 180066. Any excess of the proceeds over the replacement asset will be considered taxable gain.. annuities. if a taxpayer uses the proceeds received from a property expropriated by the government to purchase another similar asset as replacement. and a partner's distributive share in the net income of a general professional partnership. taxable income  GROSS INCOME is described as income from whatever source. PAL. TAXABLE INCOME means the pertinent items of gross income specified in this Code.. royalties. G. then the excess of the proceeds over the cost of the expropriated property will not be considered taxable income. and commissions/rebates EXAMPLES OF INCOME FROM ILLEGAL SOURCES Gambling. the gain shall be recognized. dealings in property. or into money. smuggling.

it will not grant more favorable terms to other treaty countries without granting the same concession to the treaty partner involved. but the rate may be reduced to 10% for certain royalty payments or under the most-favored-nation-clause of the tax treaty. nothing of such dividends forms part of income within Place of performance of service Services (Compensation for labor/personal services) Rentals Royalties (d) Supply of any assistance that is ancillary & subsidiary to. 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. For instance. for the 3-yr.INCOME TEST OF SOURCE OF INCOME Philippines Extent: Phil GI x Dividend = Income within Total GI Income without. of any scientific. & is furnished as a means of enabling the application or enjoyment of. any such property/right in (a) above. and sells shoes in the US. 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. trademarks. industrial or commercial undertaking.. plan. (b) TAXABLE Income from Sources within the Philippines General Rule: Gross Income (within the Philippines) ( . assistance or services rendered in connection with technical mgt. if less than 50% of the gross income of such foreign corp. technical. Therefore. tapes for use in connection with radio broadcasting  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. venture or project (g) The use of or the right to use: i. commercial or scientific equipment (c) Supply of scientific.) giving rise to royalties Location of property Place of Sale Philippines regardless of where sold NOTE:  ROYALTIES (from property or use of property located in Philippines). secret formula or process. or the installation or operation of any brand. machinery or other apparatus purchased from such nonresident person (f) Technical advice. trademark./rights belonging to. includes: (a) Use of/the right/privilege to use in the Philippines any copyright. if ABC Corp. goodwill. period ending with the close of the taxable year prior to the declaration of dividends was derived from sources w/in the Philippines./admin. patent. The cost of manufacturing the clothes are 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 Gain on sale of shares of stock in a domestic corporation Location of the property/interest in such property Place of use or location of intangibles (such as patents. such as the Philippines-US Tax Treaty.) Deductions (attributable to GI within) Taxable Income  By “attributable” is meant that the expense can be identified as the expense that generated the income. i. trade brand or other like property or right (b) Use of/the right to use in the Philippines any industrial. 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. ii. etc. motion picture films ii. design or model. manufactures clothes and sells it in the Phils. films or video tapes for use in connection with TV iii. industrial or commercial knowledge or information TAXATION LAW REVIEWER Page 25 of 165 . that is.

losses & other deductions properly allocated thereto and a ratable part of expenses. it is specifically attributable to income without. all else are income without. losses & other deductions properly apportioned/ allocated thereto and a ratable part of expenses. then the expense for manufacturing them must be deducted from gross income within. Income from services rendered partly within and partly without. trade brands. trademarks. Income from sale of personal property produced (in whole or in part) without and sold within the Philippines. PERSONAL PROPERTY Manufacturing Business Produced here and sold without Produced here and sold here Produced abroad and sold here Trading Business Purchased without and sold within Purchased within and sold without Purchased within and sold within Taxpayer sells it abroad through a sales office INCOME Income partly within. goodwill. Income from sale of personal property produced (in whole or in part) within and sold without the Philippines. copyrights.attributable to the income generated from selling the clothes. losses and other deductions effectively connected with the business conducted exclusively within 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  Exceptions: 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 v. Rather. d. interests. e. so long as you know which income are considered as income within. partly without (2) Gross income and taxable income from sources without the Philippines (a) GROSS Income Philippines from sources without the i.  Deductions: Expenses. losses and other deductions which cannot definitely be allocated to some items or class of gross income a. b.) Deductions (attributable to GI without Taxable Income  Deductions: Expenses. secret processes & formulas. profits & income from the sale of real property located without the Philippines Tip: The foregoing enumeration is merely the reverse of the enumeration of gross income from sources within the Philippines. partly without Income within Income without Income within Income partly within. iii. the cost of selling the shoes may not be deducted from income within since it is not attributable to income within. Hence. (b) TAXABLE Income from Sources Without the Philippines General Rule Gross Income (without the Philippines) ( . (3) Income partly within or partly without the Philippines These are: i. However. c. Since the income from the sale of clothes is income within. Gains. Interests (other than those derived from sources within the Philippines) ii. ii.Rentals or royalties from property located without 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. partly without Income within Income partly within.Compensation for labor or personal services performed without the Philippines iv. franchises & other like properties TAXATION LAW REVIEWER Page 26 of 165 . patents. interests. Dividends (other than those derived from sources within the Philippines) iii.

Allowances (benefits to rank and file) are not subject to FBT but rather compensation subject to income tax. it is called an allowance.000 per employee per annum x = Income within Worldwide Income x Unallocated Expense = Deductions from Income Within e.000 per year (f) Actual yearly medical benefits not exceeding P10. 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 TAXATION LAW REVIEWER Page 27 of 165 .  Included only when the taxpayer is subject to Net Income Tax. unless specifically excluded by the Code. whether granted under a CBA or not (d) De minimis benefits (e) If the grant of fringe benefits to the employee is required by the nature of. 5-2011) (a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year (b) Monetized value of vacation and sick leave credits paid to government officials and employees (c) Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month (d) Rice subsidy of P1. the term "compensation" means all remuneration for services performed by an employee for his employer under an employeremployee relationship. with an annual monetary value not exceeding P10. or (f) If the grant of the fringe benefit is for the convenience or advantage of the employer.As for unallocated expenses. Fringe benefit is an income of the employee subject to FBT but is payable by the Employer. 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. insurance & hospitalizations benefit plan (c) Benefits given to the rank & file employees.500 or 1 sack of 50 kg rice amounting to not more than P1. Nature of FBT Final tax of 32% imposed on the grossed-up monetary value of fringe benefit furnished/granted to the Employee by the Employer. (2) Fringe Benefits Any good.000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees (i) Gifts given during Christmas and major anniversary celebrations not exceeding P5. De Minimis Benefits (Last amended by RR No. driver & others) (5) Interest on loan at less than market rate to the extent of the difference between the market rate & actual rate (6) Membership fees. for length of service or safety achievement in the form of tangible personal property other than cash or gift certificate. whether an individual or corp. 13. For rank and file. meaning those which are not entirely attributable to either income within or without. Employer can deduct FBT from its taxable income. or necessary to the trade. Fringe Benefits not subject to FBT (a) Fringe benefit authorized & exempted from tax under special laws (b) Contributions of employer for the benefit of the employee to retirement. Sources of income subject to tax (1) Compensation Income  In general.000 (g) Laundry allowance of P300 per month (h) Employee achievement awards. Fringe benefits are only for corporate officers / management. 14. such expenses shall be allocated using the following formula: Income without Worldwide Income Unallocated Expense Deductions from Income Without Special Rules on Fringe Benefit Tax 12. business or profession of the employer.500 (e) Uniform and clothing allowance not exceeding P4. but not limited to the following: (1) Housing (2) Expense account (3) Vehicle of any kind (4) Household personnel (such as maid.

Exception: If the nature of the employer’s business is hazardous to health of employee. their gross income is computed by deducting all direct costs and expenses as prescribed in RMC Nos.  Profession is primarily any endeavor or work requiring specialized training in the field of learning. expenses and losses over the business income of the taxpayer derived from the sale or exchange of ordinary assets. or science engaged in as a means of livelihood or profit of an individual or group of individuals. this will constitute compensation of the employee (income from whatever source). deductible from gross income. deductions should not be made for depreciation. if on hand  Merchandise inventory  Depreciable assets used in the trade/business  Real property used in trade/business ii. If employee is given housing allowance in cash. The following are the rules on the taxability of capital gains: o Sale of Stocks of a domestic corporation – subject to CGT o Gain derived from sale of real property in the Philippines – subject to CGT o Other Capital Assets – excess of the gains from sales or exchanges of other capital assets over the losses from such sales or exchanges. “gross income” means the total sales. depletion. housing can be located outside the factory without being subject to FBT. Expenditure on housing of engineer within factory premises is not subject to FBT General Rule: If housing is located outside. plus any income from investments and from incidental or outside operations or sources. Ordinary gain (loss) v. However. if it qualifies as a Fringe Benefit. selling expenses or losses. it is subject to FBT. Convenience of the Employee Rule When a fringe benefit is given solely for the convenience of the employer. art.  Ordinary loss is the excess of business Professional Income  Income earned from the practice of profession provided there is no employer-employee relationship between him and his clients.  In the case of manufacturing. Ex. deductible only from capital gains. such as  Stock and securities held by taxpayers other than dealers in securities  Interest in partnership and joint venture  Goodwill  Real property not used in trade or business like residential house and lot  Investment property (b) Types of Gains from Dealings in Property i. (3) i. less cost of goods sold. included in the gross income  Capital Loss is the excess of the losses from (5) Income from Dealings in Property sales or exchanges of other capital assets over the gains from such sales or exchanges. (a) Types of Properties TAXATION LAW REVIEWER Page 28 of 165 . Capital gain (loss)  Ordinary gain is derived from the sale or exchange of ordinary assets including gains from performance of services and business. or mining business. 04-03 and 3008. or for items not ordinarily used in computing the cost of goods sold. such as  Stock in trade of taxpayer  Property which would properly be included in an inventory of the taxpayer. Ordinary assets – assets that are used primarily in the ordinary course of trade or business.  Capital gain is the excess of value received (4) Income from Business over the determined cost from the sale or exchange of capital asset.(j) Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis 15. Capital Assets – properties of a taxpayer other than ordinary assets. then it will be subject to FBT and the burden is shifted to employer.  In the case of sellers of services. the fringe benefit is exempt from FBT because the employee does not recognize income from the benefit. Ex. merchandising. included in the gross income. In determining gross income.

(both corps. Long term capital gain v. or [b] A shareholder exchanges stock in a corp. are parties to the merger/consolidation). for the stock of another corp. Short term capital gain In case of individuals.  Net capital loss is not deductible from Acquired for less than adequate consideration Property acquired where gain or loss is not recognized (tax-free exchanges) Basis of stock or securities received by transferor: Same as the basis of property. (both parties to merger/consolidation). the holding period is not applicable. the capital gain and loss are to be reported in full amount regardless of the number of years the capital asset is held.ii. iv. BUT. the percentages of gain or loss to be taken into account shall be:  100% if the capital asset has been held for 12 months or less. v. ordinary gain. and  50% if the capital asset has been held for more than 12 months In case of a corporation. if any) received [2] Cost or basis of the property exchanged in corporate readjustment Non-recognition of gain or loss if exchange of property is solely in kind: [a] A corporation exchanges property solely for stocks in a corp. Actual gain v. or [c] A security holder of a corp.  Presumed gain is the presumption of the [1] Cost or basis of property sold: MODE OF ACQUISITION Purchase Inheritance Gift 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. iii. Net capital gain. Presumed gain  Actual gain is the amount realized from the sale of the asset in excess of the cost to the taxpayer. Computation of the amount of gain or loss  GAIN = excess of the amount realized over the basis/adjusted basis (selling price > cost)  LOSS = excess of the basis/adjusted basis over amount realized (cost > selling price)  AMOUNT REALIZED = money received + fair market value of the property (other than money. if such basis > FMV at the time of the gift. the basis shall be such FMV for the purpose of determining the loss Amount paid by the transferee law of the existence of a gain from sale of real property which subjects the said sale to CGT of 6% based on the selling price or FMV whichever is HIGHER. exchanges TAXATION LAW REVIEWER Page 29 of 165 . stock/ securities exchanged (1) increased by:  dividends  amount of any gain recognized by the exchange (2) decreased by:  money received  fair market value of the other property received  liability assumed by the transferee Basis of the property transferred in the hands of the transferee: Same as it would be in the hands of the transferor increased by the amount of the gain recognized to the transferor on the transfer. net capital loss  Net capital gain is added to ordinary gain.

gains control of said corporation 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. Note that the allowable capital loss to be deducted in 2012 (i. not exceeding 4 persons. (both corps. o Net income should be understood as TAXABLE income according E. with interest coupons or in registered form (including one issued by the government or political subdivision) [2] Net Capital Loss Carry-over  Corporations cannot carry over a net capital loss  If net capital loss is sustained in any taxable year. or  A shareholder exchanges stock in a corp. are parties to the merger/consolidation) [d] If property is transferred to a corporation by a person in exchange for stock/unit of participation in such corporation of which as a result of such exchange such person. vi. for the stock of another corp. solely for stock or securities in another corp.e. note or certificate or other evidence of indebtedness issued by any corporation. gains control of said corporation [3] Recognition of gain or loss in exchange of property [a] General Rule: the entire amount of the gain or loss shall be recognized upon the sale or exchange of property [b] Exception: no gain or loss is recognized (tax-free exchanges) If in pursuance to a plan of merger or consolidation.000 only since it should not exceed the net income of the taxable year where the loss was incurred. the resulting gain or loss will be considered as ordinary income. Dealings in Real Property situated in the Philippines  Involves the sale or other disposition of real property classified as capital asset located in the Philippines by a non-dealer in real estate. (100% deduction)  Such net capital loss that should be carried over should not exceed the net income for the year Incurred (prior year’s net income)  Example: Net income in 2011 = P6.000 o Amount deductible in 2012 is P6. TAXATION LAW REVIEWER Page 30 of 165 . debenture.  If the sale is made by a dealer in securities or if the real property is an ordinary asset. solely for stock or securities in another corp.000 Net capital loss in 2011 = 10.  a corporation exchanges property solely for stocks in a corp. (both corps. P6. exchanges his securities in such corp. not exceeding 4 persons. the net capital loss is not deductible from ordinary income. alone/together with others. 37 vii.his securities in such corp. (both parties to merger/consolidation). hence. both [b] Exception: Losses from such sale incurred by a domestic bank/trust company substantial part of business is receipt of deposits. sell any bond.000) is only to the extent of the capital gain for 2012. such loss is treated in the succeeding taxable year as a loss from the sale/exchange of a capital asset held for not more than 12 mos. are parties to the merger/consolidation). applicable to corporations and individuals. or  A security holder of a corp. are parties to the merger/consolidation) If property is transferred to a corporation by a person in exchange for stock/unit of participation in such corporation of which as a result of such exchange such person. (both corps.O. Income tax treatment of capital loss [1] Limitation on Capital Loss [a] General rule: Allowed only to the extent of the gains from such sales or exchanges. alone/together with others.

including the land on which it is situated. Tax Base: the higher between o Gross selling price o Prescribed zonal value of real properties determined by the Commissioner o Fair Market Value as determined by the Provincial and City Assessors NOTE: Gain or loss is immaterial since there is a conclusive presumption of gain. Sale of principal residence  The term "Principal Residence" shall refer to the dwelling house. ix.000 Tax Rate 5% 10%  NOTE:  The capital losses realized from the sale or disposition of stocks not listed and traded during the taxable year are deductible only to the extent of capital gains from the same type of transaction during the same period. Requisites: i.  Non-deductibility of losses on wash sales and short sales  Gains from sale of shares of stock in a foreign corporation are not subject to capital gains tax but to graduated rates either as capital gain or ordinary income depending on the nature of the trade or business of the taxpayer. exchange or disposition of shares of stock not listed and not traded in the stock exchange. Actual occupancy of such principal residence shall not be considered interrupted or abandoned by reason of the individual's temporary absence therefrom due to travel or studies or work abroad or such other similar circumstances.  [3] Dealer in securities (Ordinary Income) The gain on this type of transaction shall be considered as ordinary income subject to 5%-32% for individuals and 30% for corporations. Exception: If the taxpayer is not required to file a return. [2] Not listed and not traded in the stock exchange (Capital Gains Tax) Amount of Capital Gain: Not over Php100. An individual taxpayer has the option to treat the capital gain as subject to 6% CGT or 5-32% graduated tax IF the buyer of the real property is the Government or any of its political subdivision. certification from Barangay Chairman or Building Administrator shall suffice. exchanged or otherwise disposed which shall be assumed and paid by the seller or transferor through the remittance of the stock transaction tax by the seller or transferor's broker.000 On any amount in excess of Php100. the said individual intends to return.  General Rule: The address shown in the ITR is conclusively presumed as the principal residence. where the husband and wife or an unmarried individual. bartered. whenever absent. By a citizen or resident alien iii. barter. Such principal residence must be characterized by permanency in that it must be the dwelling house in which. Proceeds of which is utilized in acquiring or constructing a new principal residence within 18 calendar months from date of sale or disposition Tax Base – net capital gains realized during the taxable year from the sale. Dealings in shares of stock of Philippine Corporations [1] Listed and traded in the stock exchange (Stock Transaction Tax) Tax Rate — one-half of one percent (1/2 of 1%) Tax Base — Gross selling price or gross value in money of the shares of stock sold. and members of his family reside. TAXATION LAW REVIEWER Page 31 of 165 . Sale or disposition of the old actual principal residence ii. whether or not qualified as head of family.  If the transferor of the shares is an individual. or GOCC Tax Rate: 6% viii. the rule on holding period and capital loss carry-over will not apply.

If in a bank account in the joint names 50% exempt/ of an OCW and spouse (resident) 50% final withholding tax of 7. 10% [20% for nonresident aliens engaged in trade or business] Interest income from long term deposit or investment in the form of savings. If deposited by an OCW or seaman or Exempt nonresident citizen 3. Interest income actually received by a 7. literary works. deposit substitutes. 10-98] 1. 24 (a) tax table  Resident aliens – not taxable (income derived from abroad) 10% 20% 20% Interest Income received by an individual (except a nonresident individual) from a depositary bank under the expanded foreign currency deposit system Final Tax Rate – 7. Prize exceeding P10. & regional operating headquarters of multinational company or share in the distributive net income after tax of a partnership (except a general professional partnership). NRC. passive income subjected to final tax is no longer included in the computation of the annual taxable income.5% final resident citizen or resident alien from FCD withholding tax 2.5% [Exempt for nonresident aliens engaged in trade or business] 20% 25% 2. NRA-ETB NRA-NETB i. As a rule. or from a joint stock company. investment management accounts & other investments evidenced by certification in such form prescribed by the BSP Final Tax Rate: For RC.computed under Sec. Royalty other than above 4. and viii. Other winnings.5% (RC. the portion of the gains presumed to have been realized shall be subject to capital gains tax. trust fund & similar arrangement 5. NRC. Royalty from books.The 6% capital gains tax due shall be deposited with an authorized agent bank subject to release upon certification by the RDO that the proceeds of the sale have been utilized (6) Passive Investment Income 8. joint stock or joint venture or consortium taxable as a corporation Note: Dividends from foreign corporation  Citizens . TAX RATE ON CERTAIN PASSIVE INCOME ON CITIZENS AND RESIDENT ALIENS 1. insurance or mutual fund company. Interest on long-term deposit or investment in banks (with maturity of 5 years or more) Exempt TAX RATE ON INTEREST INCOME FROM FOREIGN CURRENCY DEPOSIT [RR No.iv. Interest under the expanded foreign currency deposit system [Nonresident citizens: Exempt] FINAL TAX 7. Can be availed of only once every 10 years vi. Notify the Commissioner within 30 days from the date of sale or disposition through a prescribed return of his intention to avail tax exemption v. RA. NRA-ETB Held for 5 years or more 4 years to less than 5 years 3 years to less than 4 years less than 3 years For NRA-NETB – 25% Exempt 5% 12% 20% TAXATION LAW REVIEWER Page 32 of 165 .5% final domestic corporation or resident foreign withholding corporation from FCD tax (a) Interest Income  Interest income – earned on currency bank deposits & yield or any other monetary benefit from deposit substitutes & from trust funds & similar arrangement Final Tax Rate RC. Interest income actually received by a 7. yield or other monetary benefits from deposit substitute.000 6. except Phil Charity Sweepstakes & Lotto 7. The historical cost or adjusted basis of his old principal residence shall be carried over to the cost basis of his new principal residence vii. Dividend from a domestic corporation. common or individual trust fund. RA. RA) 20% 20% ii. & musical compositions 3. If there is no full utilization. Interest on any current bank deposit.5% 4.

taxable to the extent of its fair market value and in the year when the warrant was issued. from its tax imposed in Brazil. is a taxable income or a deductible loss. i. Tax Exempt:  Received from a Domestic Corporation   ii. RA 10% NRA-ETB 20% NRA-NETB 25% Non-resident Foreign 15% subject to the rule on (d) Rental income  Amount or compensation paid for the use or enjoyment of a thing or a right and implies a fixed sum or property amounting to a fixed sum to be paid at a stated time for the use of property. i.  Corporation tax credit for tax actually paid and tax deemed paid. NRA-ETB NRA-NETB  Tax Rules: i. whether individual or corporate. as the case may be. This serves as an incentive by reducing their tax liability in the Philippines and in their residence countries. valued and taxable to the extent of fair market value of the property received at the time of declaration. which will become the property of the lessor upon the expiration of the lease. pure stock dividends are tax-exempt except if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption. Otherwise. Stock Dividend – generally. NRC. 28(B)(5)(b)] (c) Royalty income A payment or a portion of proceeds paid to the owner of a right for the use of such right. 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. the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent that it represents a distribution of earnings or profits. NRA-ETB NRA-NETB ii. Liquidating Dividend – return of stockholders investment in the form of asset distribution upon corporate dissolution. the value of the improvements should be reported as income of the lessor either through: o Outright method – the income shall be recognized when the TAXATION LAW REVIEWER Page 33 of 165 . From books. literary works and musical sources RC. [See Sec. 10% 25% Other royalties 20% 25% RC. Ex. essentially equivalent to the distribution of a taxable dividend. v. ii. This shall form part of NRFC’s income therefore taxable also in Brazil. Domestic corporation paid cash dividend to non-resident foreign corporation (NRFC) organized in Brazil. subject to regular income tax rate of 30% (35% for 2006-2008) Types of Dividends: Cash Dividend – valued and taxable to the extent of amount of money received by the stockholder. in whole or in part. iii.(b) Dividend Income  Any distribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders.  Tax Treatment: [1] Income from Leasehold Improvements – when the lessee erected or built permanent improvements on the leased property. Script Dividend – in the form of promissory notes. the gain realized or loss sustained by the stockholder. NRC. NOTE: 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. NRC. Property Dividend – property of an issuing corporation distributed as a dividend. whether in money or in other property. iv. generally. by: Another domestic corporation Resident Foreign Corporation Pure Stock Dividend Pure Liquidating Dividend Subject to Final Tax (if received from a Domestic Corporation) RC. RA. RA.

or for a guaranteed fixed period of time. Contemplates a rational selection process. whichever is longer. it is not subject to VAT. Example: Nobel prize award iv. charitable. the interest payments shall be included in the gross income [2] VAT added to rental/paid by the lessee  All forms of property for lease.  PCSO and Lotto Winnings Exempt Exempt Exempt If the advance payment is a security deposit which restricts the lessor as to its use.000 20% 25% 30% [3] Advance Payment/Long term lease  If the advance payment is a prepaid rental without restriction as to use. or option money for the property or a security deposit to insure the faithful performance of certain obligations of the lessee. If advance payments are received for the faithful performance of certain obligations of the lessee. but only if: i. Proceeds of life insurance policies paid to the heirs/beneficiaries upon the death of the insured.  If the prizes are derived from sources within:  Taxpayer RC. iii. whether real or personal. Proceeds from Life Insurance or Other Types of Insurance  Annuity – installment payments for life. such amount shall not be taxable to the lessor unless the lessee violates the terms of the contract.  NOTE: The insured must die to avail of total exemption. If such amounts are held by the insurer under an agreement to pay interest. It does not include athletic achievement. Amount received by insured as return of religious. scientific. Spread-out method – the estimated book value of the leasehold improvement at the end of the lease is spread out over the term of the lease and is reported as income for each year of the lease. artistic. RA. Contemplates a particular competition. take note of 7 categories. NRA-ETB NRA-NETB Corporation P10. NRC. v. such amount shall be taxable only at the time it is applied. Recipient not required to render substantial future services as a condition of receiving the prize/award iii.  Amounts Excluded from Gross Income: i. educational. If he survives. Recipient was selected without any action on his part ii.improvement is completed at its fair market value. o ii.000 or less 5-32% 25% 30% More than P10. not a cumulative achievement (Ex.  Prizes.  If the prizes are derived from sources without – the said amount is included in the gross income for taxpayers who are taxable within and without the Philippines. Sportsman of the year award does not qualify for exemption) TAXATION LAW REVIEWER Page 34 of 165 . are liable to VAT. Construed strictly. If the advance payment is a loan deposit. the entire amount is taxable in the year it is received. awards in sports competition sanctioned by premium received either during the term or at the maturity of the terms or upon surrender of the contract national sports associations whether held in Philippines or abroad vi. there/s only partial exemption  to the extent that the proceeds constitute return of capital (total amount of premiums previously paid). an aliquot part thereof. cannot just be randomly selected.  Prizes and awards made primarily in recognition of  (7) Annuities. literary or civic achievement. A security deposit that is applied to rental shall be subject to VAT at the time of its application (8) Prizes and Awards  Amount in cash or in kind received by chance or through luck are generally taxable unless otherwise provided.

shall be included as part of gross income in the year of receipt to the extent of income tax benefit of said deduction. (Tax Benefit Rule)  The following are non-taxable tax refunds: (non-deductible taxes) i.  Amounts Excluded from Gross Income (for further iii. for the 3yr. please see Exclusions from Gross Income) i. period ending with the close of the taxable year 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 GI x Dividend = Income within Total GI Income without. being in the nature of income tax Special assessments (a) Forgiveness of Indebtedness A GIFT – if effect of entire transaction is a reduction of purchase price of property acquired in prior year) A CAPITAL TRANSACTION – if the forgiveness of a stockholder is equivalent to dividend distribution A TAXABLE INCOME – in exchange of a service performed Not Taxable Taxable f. Veterans benefits vi. for the 3yr. Retirement benefits received under a Reasonable Private Benefit Plan iii. iv. Philippine income tax (but FBT can be deducted from gross income as provided for in RR 8-98)) TAXATION LAW REVIEWER Page 35 of 165 .(9) Pensions. (Tax Benefit Rule) (c) Receipt of Tax Refund or Tax Credit  Taxes. vi. Benefits received from a foreign government by resident of nonresident citizens or aliens who reside permanently in the Philippines v. retirement benefit or separation pay  Pension – lump sum payment or on a staggered ii. Amount received as a consequence of separation for any cause beyond control (death. 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) Estate & donor’s taxes Taxes assessed against local benefits of a kind tending to increase the value of the property assessed Final taxes. (d) Income from any source whatever  “Income from whatever sources derived” means inclusion of all income not expressly exempted within the class of taxable income under the laws irrespective of the voluntary or involuntary action of the taxpayer in producing the gains. Retirement benefits received under RA 7641 (Labor Code of the Philippines) ii. Benefits under SSS vii. sickness or other physical disability) iv. if less than 50% of the gross income of such foreign corp. such as: (a) Gains from expropriation of property (b) Income derived from illegal sources (c) Compensation for damages if it represents payment for loss of expected profits Source rules in determining income from within and without INCOME Interests Dividends TEST OF SOURCE OF INCOME Residence of Debtor c) From domestic corporation – income within d) From foreign corporation: Income within if more than 50% of the gross income of such foreign corp. Benefits received from GSIS (10) Income from any source whatever v. discussion. when refunded or credited. period ending with the Taxable (b) Recovery of amounts previously written off  Recovery of bad debts previously allowed as deduction in the preceding years shall be included as part of gross income in the year of recovery to the extent of the income tax benefit of such deduction. basis in consideration of services rendered given after an individual reaches the age of retirement. and whether derived from legal or illegal sources.

(c) Tax Credit: paid beforehand and is deducted from the tax liability of the taxpayer. patents. or from the purchase without and its sale within shall be treated as derived entirely from sources within the country in which the personal property is sold. TAXATION LAW REVIEWER Page 36 of 165 .) giving rise to royalties Location of property Place of Sale Philippines regardless of where sold Situs of Income Taxation (See page 9 under Inherent Limitations. Deductions v. income derived from the purchase within and its sale without the Phil.  Sale of Real property located in the Philippines  Sale of Personal property – Gains. gain or profit that is expressly exempt from income tax. copyrights and other like properties. (3) Income partly within and partly without the Philippines  Items other than those specified above in 1) and 2) shall be allocated or apportioned to sources within or without the Philippines h. Exclusions from Gross Income (1) Rationale: it refers to items that are not included in the determination of gross income either because: (a) They represent return of capital or are not income. trademarks. (c) They are income. (2) Exclusions v. (b) They are subject to another kind of internal revenue tax. Except: the gain from the sale of shares of stock in a domestic corporation Sec. (2) From sources without the Philippines  Interest other than those derived from sources within the Philippines  Dividends other than those derived from sources within the Philippines  Compensation for services performed without the Philippines  Rentals and royalties from property located without the Philippines or from any interest in such property including rentals or royalties for the use of or for the privilege of using without the Philippines. etc. XIV of the 1987 Constitution provides that all assets and revenues of a nonstock. Location of the property/interest in such property Place of use or location of intangibles (such as patents. non-profit educational institution used directly.INCOME Services (Compensation for labor/personal services) Rentals Royalties TEST OF SOURCE OF INCOME close of the taxable year prior to the declaration of dividends was derived from sources w/in the Philippines. gain or profit. profit. Refers to income received or earned but is not taxable as income because of exemption by virtue of a law or treaty. actually and exclusively for private educational purposes shall be exempt from taxation. Territorial) (1) From sources within the Philippines  Interests derived from sources within the Philippines  Dividends from domestic and foreign corporations Compensation for services performed within the Philippines  Rentals and royalties from properties located in the Philippines or any interest in such property including rentals or royalties for the use of or for the privilege of using within the Philippines. Therefore. Tax Credit (a) Deduction: included in the gross income but later deducted (b) Exclusion: not included in the computation of gross income. 4(3) Art. copyrights and other like properties. nothing of such dividends forms part of income within Place of performance of service shall be treated as derived entirely from sources within the Phils regardless where the said shares are sold. (3) Under the Constitution  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 Gain on sale of shares of stock in a domestic corporation g. patents.

or both. TAXATION LAW REVIEWER Page 37 of 165 . Gratuities  Retirement benefits receive under R.  Can be a gift if given on account of filial relationship. (2) Reasonable Private Benefit Plan (RPBP)  Conditions: (i) at least 50 yrs old.A.(4) Under the Tax Code (GIRL CRM) (a) Gifts. received either during the term or at the maturity of the terms or upon surrender of the contract (d) 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. (c) Amount Received by Insured as Return of Premium  Under life insurance. but you can avail of exemption under another ground such as SSS or GSIS benefits. If no personal injury. Pensions. proceeds cannot qualify as a gift. In RPBP. endowment. 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. 7641  Conditions: (i) at least 60 years old. you cannot avail of another RPBP). 32(B)(6)(a) of the Tax Code means that the retiring official must not have previously received retirement benefits from the same or another employer who has a qualified retirement benefit plan. (ii) in the service of same employer for at least 10 years at time of retirement  Must be approved by BIR  A pension. If he survives. the interest payments shall be included in the gross income  Insured must die to avail of total exemption. all is excludable. & 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  You can “avail of the benefits only once” (once you’ve availed of RPBP. for the purpose of distributing to such officials & employees the earnings & principal of the fund thus accumulated. stock bonus or profitsharing plan maintained by an employer for the benefit of some or all of his officials/employees. 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. (ii) 5 years of service at time of retirement  Availed if there is no reasonable private benefit plan (benefits under this option is less)  Limited exemption: ½ month salary for every year of service. gratuity. income from such property shall be included in gross income  Must be characterized by disinterested generosity and pure liberality  Difficult to establish gift situations if there is an Employer-Employee relationship (A bonus/assistance in 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. or annuity contracts.  Most critical is the giver’s intention or motive. however. Bequests & devises  But. 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. 7641 (Labor Code of the Philippines) and those received in accordance with a Reasonable Private Benefit Plan (1) R. wherein contributions are made by such employer for the officials/employees. not injury to rights. it is exempt (Ex. (b) Income Exempt under Treaty  To the extent required by any treaty obligation binding upon the Phil govt. there/s only partial exemption  to the extent that the proceeds constitute return of capital (total amount of premiums previously paid).A. (e) Compensation for Injuries or Sickness  Received through Accident/Health Insurance or Workmen’s Compensation Act. (f) Retirement Benefits. Damages from car accident exempt only if claim includes compensation for personal injury. BIR Ruling No.

 Contemplates a rational selection process.000. educational. unless such profits are attributable to a permanent establishment of the foreign corporation created or deemed created in the Philippines. but if the Employee avails of an optional early retirement plan. Does not include STD)  Benefits from separation due to retrenchment come under exemption (no choice/option. scientific. charitable. SSS. 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. artistic.  TAXATION LAW REVIEWER Page 38 of 165 . productivity incentives & Christmas bonus) the total of which does not exceed P30.000 If the benefit exceeds P30. Medicare. to the extent required by any treaty obligation binding upon the Government of the Philippines. 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.e. therefore. literary or civic achievement. is exempt from income tax. awards in sports competition sanctioned by national sports associations whether held in Philippines or abroad  Contemplates a particular competition. debentures or other certificates of indebtedness with a maturity of more than 5 years (8) Gains from redemption of shares in mutual fund (6) Under a Tax Treaty Income of any kind. he cannot claim exemption of the benefits on this ground  but he can claim under other grounds such as RPBP or RA 7641. he cannot reason that he was separated for reasons beyond his control. not a cumulative achievement (Ex. if the income is retained by the public utility. stocks. Sportsman of the year award does not qualify for exemption) (4) Prizes & Awards  in recognition of religious. cannot just be randomly selected. It does not include athletic achievement. bonds or other domestic securities) Refers only to passive income. BIR Ruling No. it is not exempt  look at charter of political subdivision/GOCC to determine whether its income accrues to the government or not. Pag-ibig contributions & union dues of individuals (7) Gains from the sale of bonds. (3) prizes. (2) income derived by govt/its political subdivisions (from public utility or exercise essential governmental function) Key: Income should accrue to government. (6) GSIS. (5) 13th month pay & other benefits (i. take note of 7 categories. income is taxable. Business profits of a foreign corporation organized under the laws of a treaty country from sources within the Philippines are not subject to Philippine income tax. 32(B) of the CTRP. only the excess will be taxable. (4) Benefits received from a foreign government by resident of nonresident citizens or aliens who reside permanently in the Philippines (5) Veterans benefits (6) Benefits under SSS (7) Benefits received from GSIS (g) Miscellaneous Items (1) income derived by foreign government (from investments in Philippines in loans. If the foreign government engages in trade. sickness or other physical disability)  Sickness must be job threatening  must render taxpayer incapable of working (Ex.(3) Amount received as a consequence of separation for any cause beyond control (death.

A. Bad Debts Expenses Losses Taxes Depreciation Interest Depletion of oil & gas wells & mines Charitable & other contributions Research & Development Pension trusts (a) Expenses i. business or professional expenses only [2] Must be paid or incurred during the taxable year [3] Must be paid or incurred in carrying on or which are directly attributable to.  There is yet to be a clear-cut criteria or a fixed test for determining the reasonableness of an advertising expense. (d) The expense must be substantially proved by evidence or records the deductions claimed under the law. the return of capital are not allowed to be deducted from the gross sales. otherwise. 7916 PEZA Law (as amended) PEZA-registered enterprises are given income tax holidays of 6 or 4 years from the date of commercial operations if their activities are considered pioneer and non-pioneer.A. v. [G. July 7. vi. (d) R. management. (b) It must be paid or incurred within the taxable year. iv.R. v. Requisites for deductibility [1] Must be ordinary AND necessary (both must be complied with) trade. Inc. ii. the same will be disallowed. vii. ix. operation and or conduct of the trade. (c) Sale of services – not allowed to deduct any return of capital.A. 7279 Urban Development Housing Act of 1992 The National Housing Authority is exempt from all fees and charges of any kind. It is exempt from DST under RA 9243. Rather. and (c) It must be paid or incurred in carrying on a trade or business. respectively. There being no hard and TAXATION LAW REVIEWER Page 39 of 165 . 1989] NOTE: Any income payment which is otherwise deductible under the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the income tax required to be withheld has been paid. (e) R. 7653 New Central Bank Act (as amended by R. viii. the development. (c) R. 8791) The BSP is exempt from all national. (b) Sale of stock in trade by a real estate dealer and dealer in securities – generally. they are required to deduct the total cost specifically identifiable to the real property or shares of stock sold or exchanged. 6938 Cooperative Code of the Philippines Agricultural multi-purpose cooperative registered with the Cooperative Development Authority is exempt from ordinary income tax on its transactions with members and non-members for a period of ten (10) years from the date of registration. thus the entire gross receipts are treated as part of income.A. municipal and city taxes for a period of five years. whether local or national. the income tax exemption shall be limited to business transactions with members only. (b) R. while the private sector participating in socialized housing shall be exempt from taxes on project-related income directly realized from the development and capital gains tax on sale of raw lands for use in socialized housing. x.A. Commissioner of Internal Revenue. i. L-28508-9. Nos. business or exercise of a profession. 9178 Barangay Micro Business Enterprises (BMBE) Act of 2002 BMBE shall be exempt from income tax from income arising from the operation of the enterprise.(7) Under Special Laws (a) R. Deductions from Gross Income (1) General Rules To be deductible as a business expense: (a) The expense must be ordinary and necessary. provincial.A. Esso Standard Eastern. Thereafter. (2) Return of capital (cost of sales or services) (a) Sale of inventory of goods by manufacturers and dealers of properties – the portion of the receipt representing the cost of goods manufacture and sold (manufacturers) and cost of sales (dealers) are deducted from the gross sales. iii. (3) Itemized Deductions (BELT DID CRP) i.

3. Tax required to be withheld must have been paid to the BIR iv. it cannot be considered an ordinary expense deductible under the Tax Code. but the final tax should have been paid  Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. vi. in the same taxable year. Therefore. even if it is necessary. in fact.  If the materials or supplies are used directly or indirectly in the production of the product. Not immediately deductible. expenses which constitute bribe. TAXATION LAW REVIEWER Page 40 of 165 . official receipts. [3] Business expense – expenditure related to the business that is deductible in the year incurred. Travel expenses in pursuit of trade.] ii. Cost of materials  In general. such as in the form of depreciation. These are the day to day expenses. Substantiation Requirements: sufficient evidence (i. and other similar payment. business or profession of the taxpayer Classification of Expenses: [1] Ordinary expense – normal or usual in relation to the taxpayer’s business and the surrounding circumstance. Amount must be substantiated. payments purely for service. [CIR v. 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 EXPENSES TO BE DEDUCTIBLE: 1. Salaries. public policy or morals. the cost of materials or supplies is deductible as expense when consumed or used in business operation during the taxable period. the right to a deduction depends on a number of factors such as but not limited to: the type and size of business in which the taxpayer is engaged. that will yield a proper evaluation. It is the interplay of these. While illegal income will form part of the income of the taxpayer. The test of deductibility in the case of compensation payments is whether they are reasonable and are.fast rule on the matter. the intention of the taxpayer and the general economic conditions. financial statements or other adequate records) to substantiate: o Amount of expense deducted o Direct connection/relation of the expense to the development. It is deductible over time. v.e. the volume and amount of its net earnings. Unused supplies and supplies not used for business operation are not allowable deductions. the nature of the expenditure itself. Amount must be reasonable. It is not contrary to law. wages & other forms of compensation for personal services actually rendered (including grossed-up monetary value of FB). iii. NOTE: Expenses allowable to private educational institutions: In addition to the expenses allowable as deductions. [2] Necessary expense – appropriate and helpful in the development of taxpayer’s business and are intended to minimize losses or to increase profits. management operation &/or conduct of the trade. [4] Capital expense – expenditure that improves or adds to the value of your property or equipment. among other factors and properly weighed. We find the subject expense for the advertisement of a single product to be inordinately large. business/ profession  Traveling expenses include transportation expenses and meals and lodging incurred solely on business. General Foods Phils. 4. kickback. 2. the related cost shall for part of the cost of the product and will be deductible as such when the products are sold. being against law and public policy are not deductible from gross income.

as implemented by Rev. etc.  Major repairs (replacement) – not deductible since it prolongs the life of the asset. amusement & recreation expenses directly connected to the devt. light. should be capitalized. Rentals &/or other payments as lessee.vii.  Expenses for professionals The cost of supplies in the practice of his profession. telephone.50% of net sales (gross sales less sales returns/allowances & sales discounts) for taxpayers engaged in sale of goods or properties. expenses paid in the operation and repair of transportation equipment used in making professional calls. Political campaign expenses xiii. While on cash basis. and professional instruments and equipment. dues to professional societies and subscriptions to professional journals. business of profession of the taxpayer. used in such offices. 13-2000: [1] There must be an indebtedness [2] There should be an interest expense paid or incurred upon such indebtedness [3] Indebtedness must be that of the taxpayer [4] Indebtedness must be connected with the taxpayer’s trade. rent is deductible when incurred and paid. & operation & conduct of trade. 0. Repairs and maintenance  Incidental (minor) repairs – deductible from gross income. or exercise of profession shall be allowed as a deduction from the taxpayer’s gross income. business or exercise of profession [5] Interest expense must have been paid or incurred during the taxable year [6] Interest must have been stipulated in writing [7] Interest must be legally due [8] Interest payment arrangement must not be between related taxpayers [9] Interest must not be incurred to finance petroleum operations [10] In case of interest incurred to acquire property used in trade. NOTE: General Rule On Deduction The amount of interest expense paid or incurred within a taxable year of indebtedness in connection with the taxpayer’s trade. may be deducted. business or exercise of profession. furniture. 10-02] xii. But amounts expended for books. Entertainment. rent is deductible as expense when liability is incurred during the period of use. and the hire of office assistants. mgt. Reg.. does not materially add to the value of the property nor appreciably prolong its life. Amounts currently expended for books. management and operation of the trade. water. furniture. Expenses under lease agreements x. the rent paid for office rooms. the useful life of which is short. business/ profession  Directly connected to the development.  Subject to a limit of TAXATION LAW REVIEWER Page 41 of 165 . business. the expenses of the fuel.  o o An advance payment is not deductible expense of the lessee until the period is used. ix. 1% of net revenue (gross revenue less discounts) for those engaged in sale of services. Training expenses (b) Interest i. [RR No.   xi. including exercise of profession and use or lease of properties. user or possessor  On the accrual basis. the same was not treated as a capital expenditure [11] The interest is not expressly disallowed by law to be deducted from gross income of the taxpayer. and professional instruments and equipment of a permanent character are not allowable as deductions. although the lessor may be required to report the amount when received. Requisites for deductibility. but keep it in an ordinarily efficient operating condition.. viii.

or a foreign holding co. ii.is a method of borrowing without entering into a debtor/creditor relationship. In tax cases.  Interest on preferred stock which in reality is dividend  Interest on unpaid salaries and bonuses  Interest calculated for cost keeping on account of capital or surplus invested in business which does not represent charges arising under interest-bearing obligation  Interest paid when there is no stipulation for the payment thereof iv. such as those paid for deficiency or delinquency. no deductions are allowed for: Example: Year 2012 Interest expense = P2. the interest may be allowed as:  as expense (outright deduction)  as capital expenditure (subject to depreciation) (c) Taxes The term “taxes” refers to national and local taxes. However. even though it is not directly liable for the indebtedness. Non-deductible Interest Expense: [1] Interest paid in advance through discount or otherwise (in case of cash basis taxpayer)  Allowed as deduction in the year the debt is paid iii. is deducted in proportion of the amt. spouse. More than 50% in value of outstanding stock owned by same individual.500 Deductible interest expense = P1. [2] Payments made:  Between members of a family (include only brothers & sisters. hence.LIMITATION ON DEDUCTION Interest expense shall be reduced by an amount equal to the following % of interest income subjected to final tax: 1/1/00 1/1/06 1/1/09 38% 42% 33%  If indebtedness is payable in periodic amortizations. back-toback 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.500 x 33%)] The objective of the limitation is to discourage tax arbitrage on back-to-back loans.505 [P2. [4] 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. often to resolve financing and exchange control problems. int. except in the case of income tax). & lineal descendants)  Between an individual & a corp. of the principal paid. since taxes are considered indebtedness (provided that the tax is a deductible tax. if either one is a personal holding co. TAXATION LAW REVIEWER Page 42 of 165 . Interest subject to special rules [1] Interest paid in advance [2] Interest periodically amortized [3] Interest incurred to acquire property used in trade or business At the option of taxpayer. [3] Interest on deposits paid by authorized banks of the BSP to depositors.000 – (P1. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation)  Between 2 corps. and means TAXES PROPER. The interest on unpaid business tax shall not be subjected to the limitation on deduction of 42%/33%. [2] Interest paid by a corporation on scrip dividends. and surcharges on account of taxes are not deductible. preceding the date of sale/exchange  Between grantor & fiduciary of any trust  Between fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust  Between fiduciary & a beneficiary of a trust  Indebtedness is incurred by a service contractor to finance petroleum corp. ancestors. the proceeds of which are invested in income earning interest that is subject to 20% final tax. penalties. Deductible Interest Expense: [1] Interest on taxes.000 Interest income subject to final tax = P1. TAX ARBITRAGE . if it is shown that the tax on such interest was withheld. fines. during the taxable yr.

Reg. 13-00) i. iii. Rev. (b) 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. such amount to be determined under rules and regulations prescribed by the Secretary of Finance. 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. trade or business. Taxes. v. national.  TAXATION LAW REVIEWER Page 43 of 165 .. if there is reciprocity) [b] Foreign Corporation [3] Substantiation Requirements – The tax credit shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner the following: [a] The total amount of the income derived from sources without the Philippines. (sec. Deductible Taxes All taxes. Limitations on Deductions In case of a nonresident alien individual engaged in trade/business in the Philippines. the tax paid or incurred to which is claimed as a credit under said paragraph. 4(c) Rev. profession or business [3] It must be imposed directly on the taxpayer [4] 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 as provided for in 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 a kind tending to increase the value of the property assessed [e] Final taxes. ii. Reg. 2) * Interest incurred or paid by a taxpayer on all unpaid business-related taxes shall be fully deductible from gross income and shall not be subject to the limitation on deduction of 42%/33% of interest income. shall be included as part of gross income in the year of receipt to the extent of income tax benefit of said deduction. taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the Philippines. and [c] All other information necessary for the verification and computation of such credits. when refunded or credited. Requisites for Deductibility [1] It must be paid or incurred within the taxable year [2] It must be paid or incurred in connection with the taxpayer’s trade. 80. [b] The amount of income derived from each country. being in the nature of income tax [f] Special assessments   Exceptions to the rule that only such persons on whom the tax is imposed by law can claim deduction thereof: (a) Taxes of shareholder upon his interest as such and paid by the corporation without reimbursement from him. paid or incurred during the taxable year in connection with the taxpayer’s profession. are deductible from gross income. [1] Who can Claim? [a] Citizen [b] Domestic Corporation [c] Member of GPP [d] Beneficiary of an estate or trust [2] Who cannot claim? [a] Alien individual (except resident aliens deriving income from within & without the Phils.[1] Interests* [2] Surcharges [3] Penalties or fines incident to delinquency (Sec. iv. or local. (Tax Benefit Rule) For NRAETB and RFC. can be claimed by the corporation as deduction.

business or profession lost through fires.000 P11.000 Country B : [(40. dependent upon whether the accounts of the taxpayer are kept and his returns filed upon the accrual basis or upon cash receipts and disbursements.[4] 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: [a] 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 Country Limit = TI per country (outside) TI from all sources x Philippine Income Tax EXAMPLE: Particulars Net Income P50.000 P200. PER COUNTRY LIMITATION Country A : [(50. Deduction Deduction: included in the gross income but later deducted.000)] = 12. GLOBAL LIMITATION [(90.700 Computation of Allowable tax credit Tax Due on P200.000 x 60. shipwreck.000 x 60. 15K is lower than the actual.000 ** Cannot exceed maximum tax credit limit NOTE: For limitation A. storm.000 Phil Income Tax due at 30% Country A Country B Phil-source income Tot NI – all P29.000/200.000 Tax Still Due P34. For limitation B. (d) Losses i.000 Country B 11.000 40. B. theft or embezzlement NOTE: Allowable Tax Credit shall be the LOWER of the actual tax paid to the foreign country. or other casualties OR from robbery.000 x 60.000/200.000 Actual Foreign Tax Paid in Philippine Peso P18. theft or embezzlement [5] Evidenced by a completed transaction [6] Not claimed as a deduction for estate tax purposes [7] Notice of loss must be filed with the BIR within 30 days but not more than 45 days from the date of discovery of the casualty or robbery.000)] = P27. Comparing the total of limitation A vs.000 P60.000 ** maximum tax credit limit B.7K is lower than the total of the actual amount.000/200. 11K (actual) is the lower amount. Country A.000 Less: Allowable Foreign Tax Credit Country A P15.000 110. 27. the former is the lower amount so that is the allowable tax credit. Tax Credit: paid beforehand and is deducted from the tax liability of the taxpayer. business or profession OR property connected w/ trade. Country B.  TAXATION LAW REVIEWER Page 44 of 165 .000 P60.000 26. [5] 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. Requisites for deductibility of ordinary loss [1] Loss must be of the taxpayer [2] Actually sustained during the taxable year [3] Not compensated for by insurance or other forms of indemnity [4] Incurred in trade. get the total of all per country amounts.000 [b] Global Limitation – Total amount of credit shall not exceed same proportion of tax which such credit is taken Global Limit = Total TI from outside TI from all sources x Philippine Income Tax A.000)] = 15. vi. per country limitation and global limitation.  Tax Credit v.

Category and Types of Losses [1] Ordinary Losses   There is no substantial change in the ownership of the business when: not < 75% in nominal value of outstanding issued shares is held by same persons not < 75% of paid up capital of corp.allowed only to the extent of the gains from such losses [d] Abandonment Losses  In case of abandoned petroleum operations. which has not been previously offset as deduction from gross income. business. is held by same persons NOTE: No actual change in ownership is involved in when: (1) in case the transfer involves change from direct ownership to indirect ownership (2) merger of the subsidiary into the parent company. etc.  The net operating loss of a business shall be carried over as deduction from gross income for the next 3 consecutive taxable years immediately following the year of such loss.    TAXATION LAW REVIEWER Page 45 of 165 . Requirements: [a] the taxpayer was not exempt from income tax in the year of such net operating loss. carry-over for the next 5 yrs. and [c] there has been no substantial change in the ownership of the business or enterprise. if loss incurred in any of the 1st 10 yrs. of abandonment incurred in trade or business. 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 .The taxpayer’s failure to record in his books the alleged loss proves that the loss had not been suffered. notice of abandonment shall be filed with Commissioner  In case of abandoned producing well. unamortized cost & undepreciated costs of equipment directly used. robbery. [b] the loss was not incurred in a taxable year during which the taxpayer was exempt from income tax. accumulated expenditures incurred prior to 1/1/79 allowed as deduction only from income derived from same contract area. or from robbery. The 3 year period shall continue to run notwithstanding that the corporation paid its taxes under MCIT. of operation. 12-77 requires that a declaration of loss should be filed with the BIR within 45 days after the occurrence of the casualty. if the loss arises from fires. [City Lumber vs. storms. the taxpayer has acquired or has entered into a contract or option so as to acquire. allowed as deduction in the yr. or profession. For mines other than oil & gas wells. Failure to submit the declaration within 45 days will result in the disallowance of the loss. or practice of profession of property connected with the trade. No. not deductible. Reg. Domingo] ii. hence. [3] 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)  losses from sale or exchange of capital assets  losses resulting from securities becoming worthless and which are capital assets  losses from short sales of property  losses due to failure to exercise privilege or option to buy or sell property [b] Losses from wash sales of stock or securities  30 days before and after the date of the sale. [2] Net Operating Loss Carry-over  Refers to the excess of allowable deductions over gross income of the business for any taxable year. shipwreck or other casualties. or that the individual availed of the Optional Standard Deduction. theft or embezzlement NOTE: Rev.

of recovery to the extent of the income tax benefit of such deduction cost=15. [3] Must not be sustained in a transaction entered into between related parties. The determination of worthlessness must depend upon the particular facts and circumstances of the case. Requisites for Deductibility: [1] The allowance for depreciation must be reasonable. he acted in good faith [Collector v. Requisites for Deductibility: [1] Existing indebtedness due to the taxpayer which must be valid and legally demandable. NOTE: Tax Benefit Rule . [2] It must be for property used for employment in trade or business or out of its not being used temporarily during the year.000.000 5 years = 2.000 [2] Declining balance method: cost . [Collector v. shall be included as part of gross income in the yr.salvage value estimated life Example: years = Depreciation Expense “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 use of which in trade or business is of limited duration. wear and tear and normal obsolescence.. Ascertainment of Worthlessness (proof of two facts):  Taxpayer did in fact ascertain the debt to be worthless in the year for which the deduction was sought. [21 SCRA 1336] i. depreciation. Collector v. estimated life x Rate = Depreciation Expense Example: cost = 15.Recovery of bad debts previously allowed as deduction in the preceding yrs.000. est. est. Goodrich]  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. depreciation rate 200% TAXATION LAW REVIEWER Page 46 of 165 . business or practice of profession.000 . life = 5 years. Goodrich]  That in so doing. Goodrich International Rubber Co.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. [3] The allowance must be charged off. [4] Schedule on the allowance must be attached to the return. ii. Methods of Depreciation [1] Straight-line method: cost .  ii.000. [4] Actually ascertained to be worthless and uncollectible as of the end of the taxable year. Also applies to amortization of intangible assets. he may not be unduly pessimistic (f) Depreciation Gradual diminution in the service or useful value of tangible property due from exhaustion. dep. SV=5.5. SV = 5. and [5] Actually charged off in the books of accounts of the taxpayer as of the end of the taxable year.000. i. 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 (e) Bad Debts  Debts due to the taxpayer actually ascertained to be worthless and charged off during the year may be claimed as deduction.[e] Losses from Illegal Transactions . [2] Connected with the taxpayer’s trade.accum. It must be uncollectible even in the future. life=5 15.

The agreed rate may be modified if justified by facts or circumstances. total amt.600 The BIR and the taxpayer may agree in writing on the useful life of the property to be depreciated. Special Types of Depreciation [1] Petroleum operations  Depreciation of all properties directly related to production of petroleum shall be allowed under straight-line or declining-balance (DB) method  May shift from DB method to SL method  Useful life: 10 yrs. TAXATION LAW REVIEWER Page 47 of 165 . 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. incurred if incurred for non-producing wells & mines  deduct in full OR capitalize & amortize if incurred for producing wells & mines in same contract area ii. location.  No further allowance is granted if the allowance for depletion = the capital invested i. (g) Depletion of oil and gas wells and mines The reduction of cost or value of natural resources such as oil & gas wells. 5 yrs. or quality of any deposit of ore/other mineral & pd/incurred before the beginning of the development stage of the mine/deposit  development expenditures = incurred during development stage of the mine or other natural deposits NOTE: 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.000 = 3. depreciate over any no. deductible shall not exceed 25% of net income  actual exploration & development expenditures net of 25% of NI shall be carried forward to succeeding yrs. life = 5 years Sum of years = 5 + 4 + 3 + 2 + 1 = 15 Year 1: 5 15 x Year 2: 4 15 x 15.000 5.000 = 2. SV = 5.000 . of yrs.33 iii. bet.5.000 5 x 200% = 6.  if expected life is > 10 yrs.0 5 Year 2: 15. & mines as the resources are converted into inventories.000 x 200% = 3. extent. or shorter life as may be permitted by Commissioner  Useful life of prop. Intangible exploration & development drilling cost:  deduct in the yr.Year 1: 15. Election to deduct exploration & development expenditures for mining operations: [1] deduct as cost [2] deduct as adjusted basis provided.000 . until fully deducted  exploration expenditures = incurred for the [3] Sum of years digits method: nth period x cost .sv* sum of year *sv = salvage value = Depreciation Expense Example: cost = 15.000.000.666. est. not used directly: 5 yrs. under straight-line method [2] Mining operations  depreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is 10 yrs or less.333.000 . & the expected life NOTE: Depreciation is deductible by non-resident aliens engaged in trade/business or non-resident corporation only when such property is located in the Philippines purpose of ascertaining the existence..67 15.6.

to provide for. – to finance. health. donation is subject to limitations in (a) above [2] Donations to certain foreign institutions or international organizations .in compliance with agreements. science & culture & in economic development according to National Priority Plan determined by NEDA  If not in accordance w/ annual priority plan. Limitation [1] For individual: not more than 10% of taxable income before deducting the charitable contributions [2] For corporation: not more than 5 % of taxable income before deducting the charitable contributions v. cultural or charitable purposes or combination thereof (no part of net income inures to the benefit of any private individual)  Must be utilized within 15th of the 3rd month after the close of the taxable year.(h) Charitable & other contributions i. iii. 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. or [3] To accredited domestic corps. business or profession as ordinary & necessary expenses which are not chargeable to capital account. unless period is extended  Administrative expense should not be greater than 30% of total expenses  Upon dissolution. Contributions deductible in full [1] Donations to the govt. in connection with his trade. Valuation The amount of any charitable contribution of property other than money shall be based on the acquisition cost of said property. (i) Research and Development Paid or incurred by a taxpayer during the taxable yr. or to be used in undertaking priority activities in education. youth & sports development. educational. exclusively for public purpose. directly for the active conduct of activities constituting the purpose of the organization. assets would be distributed to another nonprofit domestic corp. social welfare. government and foreign institutions/international organizations [3] Donations to accredited NGOs  Organized & operated exclusively for scientific. but not chargeable to property of a character w/c is subject to depreciation/depletion TAXATION LAW REVIEWER Page 48 of 165 . Requisites for Deductibility (as an Expense) [1] Paid or incurred during the taxable year [2] Ordinary and necessary expenses in connection with trade business or profession [3] Not chargeable to capital account ii./associations organized and operated exclusively for: [a] Religious [b] Charitable [c] Scientific [d] Youth & sports development [e] Cultural or educational purposes [f] For the rehabilitation of veterans [g] To social welfare institutions [4] To NGOs  No part of NI inures to the benefit of any private stockholder or individual iv. allowed as deduction during the taxable year when paid/incurred. human settlements. to be used in same purpose as the dissolved corp. Requisites for Deductibility: [1] The contribution or gift must be actually paid [2] It must be given to the organizations specified in the code [3] The net income of the institution must not inure to the benefit of any private stockholder or individual ii. character-building & youth & sports development. treaties. i. Contributions subject to limitations: [1] Contributions or gifts actually paid or made w/in the taxable year [2] To or for the use of the government or its agencies or any political subdivision. organized for similar purpose or to the state for public purpose or to another org. or commitments entered into by Phil. health.

and [6] 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. including oil or gas (exploration exp. Allowed as a deduction under Sec. This subsection on research and development cost is not applicable to: [1] Any expenditure for the acquisition or improvement of land.000 for the taxable year. i. location. [3] That said family had a gross income of not more than P250. [2] Individual taxpayers earning business income or in practice of his profession whether availing of itemized or optional (j) 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. [3] It must be funded by the employer. 34(A)(1) as “expenses in general”.400 per family or P200 per month during the taxable year. ii. (k) Premium payments on health and/or hospitalization insurance An amount of premium on health and or hospitalization paid by an individual taxpayer (head of family or married). or quality of any deposit of ore or other mineral. Summary rules on Retirement Benefits Plan/Pension Trust:  EXEMPT FROM INCOME TAX – employees’ trust under Sec.[4] amortized over a period of not < 60 months as may be elected by the taxpayer iii. Who may avail of this deduction? [1] Individual taxpayers earning purely compensation income during the year. [2] The pension plan is reasonable and actuarially sound.) subject to the control and disposition of the employer. or so paid to place the trust in a sound financial basis – deductible under Sec. This deduction is purely business in character. ii. allowed as deduction only if: o such amount not been allowed as a deduction o apportioned in equal parts over 10 consecutive years beginning with the year in which the payment is made.  Normal Cost – the contributions during the taxable year to cover the pension liability accruing during the taxable year. to be used in connection with R&D of a character subject to depreciation and depletion [2] Any expenditure paid/incurred for the purpose of ascertaining the existence.  Established or maintained by employer to provide for the payment of reasonable pensions to his employees. for himself and members of his family during the taxable year. [4] In case of married individuals. or for the important of prop. 34(A)(1).  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). [2] The amount of premium deductible from gross income does not exceed P2. i. Requisites for Deductibility: [1] Insurance must have actually been taken. 1/10 of the reasonable amount paid by the employer to cover pension liability applicable to the years prior to the taxable year. 34 (J). [4] The amount contributed must be no longer TAXATION LAW REVIEWER Page 49 of 165 . extent. 60(B)  EXCLUSION FROM GROSS INCOME – amount received by the employee from the fund upon compliance of certain conditions under Sec. [5] The payment has not yet been allowed as a deduction. only the spouse claiming additional exemption shall be entitled to this deduction. 32(B)(6)  DEDUCTION FROM GROSS INCOME NOTE: 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. Requisites for Deductibility of Past Service Cost [1] The employer must have established a pension or retirement plan to provide for the payment of reasonable pensions to his employees.

(prior to RA 9504. The country from which he is a citizen has an income tax law. additional exemption amounted to only P8.A. P25. may elect a standard deduction of 40% of his gross sales or gross receipts. it may elect s standard deduction of 40% of its gross income as defined in Section 32 of the Tax Code. rate is 10% of gross income) (b) In the case of a corporation.Alien Individual employed by Offshore Banking Units iv. the additional exemption may be claimed only by the spouse who has custody of the child.  Note: Prior to R.  A “dependent” means: o A legitimate.A.  Non-resident aliens engaged in trade or business (NRAETB) may be entitled to personal exemptions (but not additional exemption) subject to reciprocity such that: i. is incapable of self-support because of mental or physical defect. there shall be allowed personal exemptions amounting to P50.000. (b) Additional Exemptions for Taxpayers with Dependents  There shall also be allowed an additional exemption of P25. Non-resident alien NOT engaged in trade or business ii. personal exemptions are P20. the total amount of additional exemption that may be claimed by both shall not exceed 4.  The proper claimant of the exemption would generally be the husband. whichever is LOWER. Note: Prior to R. 9504. NOTE: Parents.  However.000 for each “dependent” not exceeding four. o 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.  In case of married individuals. not gainfully employed. or the amount provided in the NIRC. 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. head of the family or married. brothers. 9504. 2008] (a) An individual. as if he died at the end of such year ii. regardless of age. 9504 which took effect July 6. If the taxpayer got married or should have TAXATION LAW REVIEWER Page 50 of 165 .A. The death of the taxpayer during the taxable year shall not affect the amount of personal and additional exemptions his estate can claim.  For legally separated spouses.000 for each individual taxpayer regardless of whether he is single. (c) Individuals not entitled to personal and additional exemptions: i. except if the husband is (1) unemployed (2) working abroad like an OFW or seaman (3) husband waived his right to the exemption. illegitimate or legally adopted child o Chiefly dependent upon and living with the taxpayer o Not married. other than a nonresident alien. (4) Optional standard deduction (OSD) [As amended by R. NOTE: Non-resident aliens not engaged in trade or business cannot claim any personal or additional exemption. the additional exemption shall be claimed by only one of the spouses.standard deductions during the year.000 for each Married individual. (prior to RA 9504.000 each dependent. no OSD benefit for corporation)  Such election should be signified in his return & shall be irrevocable for the taxable year for which the return was made (5) Personal and Additional Exemption (a) Basic Personal Exemption Pursuant to amendments under RA No. Alien individual employed by Regional or Area Headquarters of Multinational Companies iii.000 for Head of the Family and P32. not more than 21 years of age o Except: If such dependent. and ii.000 for Single. and sisters may not entitle the taxpayer to the additional exemption of P25.Alien Individual employed by Petroleum Service Contractor and Subcontractor (d) Status-at-the-end-of-the-year-rule i. 9504.

Personal. provided that no individual person owns its assets or no individual person receives benefit on its earnings (7) Non-stock/non-profit mutual savings bank or nonstock/non-profit cooperative bank (8) Non-profit civic league or organization operating exclusively for the benefit of its members (9) Cemetery company owned and operated exclusively for the benefit of its members (10) Non-profit business league. scientific. ancestors. & lineal descendants) [2] Between an individual and a corporation more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) [3] Between 2 corporations more than 50% in value of outstanding stock owned by same individual. (3) Resident Alien – an individual whose residence is within the Philippines and who is not a citizen thereof is taxable only on income derived from sources within the Philippines. No deduction shall be allowed in Losses from Sales or Exchanges of Property directly/indirectly: [1] Between members of a family (include only brothers and sisters. the taxpayer may still claim the same exemptions as if he/she died. or board of trade (11) Associations. or became twenty one years old or became gainfully employed at the close of such year. if either one is a personal holding company or a foreign holding company during the taxable year preceding the date of sale/exchange [4] Between grantor & fiduciary of any trust [5] Between fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust j. fruit growers. Amounts expended in restoring property or in making good the exhaustion thereof for w/c an allowance is or has been made iv. 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 and development costs incurred in petroleum operation) iii. (2) Nonresident Citizen – citizen of the Philippines who are taxable only on his income from sources within the Philippines if he qualifies as a nonresident citizen.If the spouse should die or any of the dependents become twenty one years of age. dues and fees collected from their members to meet operational expenses (6) Non-stock corporation or association organized and operated exclusively for religious. General Rule (1) Resident Citizen – citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. spouse. living or family expenses ii. Exempt Corporations Income received by the following corporations shall be exempted from tax: (1) Government educational institutions (2) Non-stock non-profit educational institutions (3) Non-profit labor. charitable. he may claim the corresponding personal exemptions in full for such year iii. or for the rehabilitation of veterans. or become gainfully employed during the taxable year.additional dependent (child born within the year) during the taxable year. athletic or cultural purposes. and the like whose primary function is to market the product of their members (5) Organizations with a purely local operation whose income is derived only from assessments. Non-resident Citizens and Resident Aliens a. orders. beneficiary societies operating for the exclusive benefits of their members 10. Premiums on life insurance policy when the taxpayer is directly/indirectly a beneficiary under such policy v. (6) Items not deductible (a) General Rules: An expense will only be allowed as deduction only if the tax required to be deducted and withheld therefrom has been remitted to the BIR. chamber of commerce. Taxation of Resident Citizens. b. (b) Specific Items enumerated under Section 36: i. agricultural or horticultural organizations (4) Association of farmers. Taxation on Compensation Income (1) Inclusions (a) Monetary benefits TAXATION LAW REVIEWER Page 51 of 165 .

iv. allowances. (3) Deductions (a) Personal exemptions i. representation. the additional exemption can be claimed only by one of the spouses. v. Resident aliens are qualified to deduct additional exemptions ONLY if the qualified dependent children are living with him in the Philippines. iii. productivity incentives & Christmas bonus) the total of which does not exceed P30. As a rule. service. (2) Exclusions (a) Fringe Benefit Subject to FBT  Any good. transportation.400 per family or P200 per month whichever is LOWER during the year.000 ii. i.000 for every qualified dependent children not to exceed 4 NOTE: A dependent means a [1] Legitimate.g. at the same time. 05-11.000  If the benefit exceeds P30. regardless of age. [2] Chiefly dependent upon. or other benefit furnished or granted by an employer in cash or in kind. the spouse who has custody of the dependent can claim the additional exemption. except if the husband [1] Expressly waives in favor of the wife [2] Has no income [3] Works abroad If legally separated. entertainment and the like). contentment. In the case of married individuals. illegitimate or legally adopted child. (c) Taxation of Compensation Income of a Minimum Wage Earner (MWE) Compensation income of MWEs shall be exempt from income tax and consequently from the withholding tax on compensation if they work:  In the private sector and being paid the SMW  In the public sector being paid compensation of not more than the SMW in the nonagricultural sector ii. is incapable of self-support because of mental or physical defect. the husband claims the exemption.e. Additional Exemption – P25. Other income of a similar nature (b) Non-monetary i. TAXATION LAW REVIEWER Page 52 of 165 . 33 of the Code. wages. Salaries. in general. not more than 21 years old Except: If such dependent. goodwill. Requisites: [1] Amount deductible should not exceed P2. emoluments and honoraria. be limited to facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health. ii. NOTE: The spouse claiming the additional exemptions for dependents shall be the one to claim the deduction for premium payments. to a managerial or a supervisory employee  Subject to a final tax of 32% based on the grossed-up monetary value of the benefit given withheld by the employer (b) De minimis benefits Benefits which are exempt from the fringe benefit tax shall. an employee of the employer/corporation. Fees including director's fees. which are not included in the enumeration under RR No. [2] The gross family income does not exceed P250.000. if the director is. Taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Sec. only the excess will be taxable. (b) Health and Hospitalization Insurance The actual premium payments for health and hospital insurance taken by an individual for himself or for his family are allowed as deduction. and [4] Not married.i. shall not be considered “de minimis” benefits. commissions (e. [3] Living with the taxpayer. (c) 13th month pay and other benefits 13th month pay & other benefits (i. Basic Exemption – P50. All other benefits given by the employers. iv. iii. or efficiency of his employees. not gainfully employed. in addition to basic salaries. Taxable pensions and retirement pay. vi.000 for the calendar year.

Taxation of Capital Gains TAX BASE Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange Net Capital Gains: Not over P100. Holiday pay. Trust Funds and Similar Arrangements and Royalties TAX RATE 20% 20% NOTE:  Capital gains from sale/disposition of principal residence by natural persons may be EXEMPT provided that: i. night shift differential pay and hazard pay shall still be EXEMPT FROM WITHHOLDING TAX. ii. The RTWPB of each region shall determine the wage rates in the different regions based on established criteria and shall be the basis of exemption from income tax for this purpose. overtime pay. If no full utilization of proceeds of sale.  MWEs who receives/earns additional compensation such as commissions. The reportable capital gain would be: i. fringe benefits. taxable allowances and other taxable income other than the SMW. c. Taxation of Passive Income TAX BASE Royalties.00. 50% if the asset was held for more than one year. from date of sale. FROM WITHHOLDING TAX. holiday pay. Exempt 5% 12% 20% TAXATION LAW REVIEWER Page 53 of 165 . overtime pay. in addition to compensation income are NOT exempted from income tax on their entire income earned during the taxable year BUR the SMW.  MWEs receiving other income. THEREFORE. benefits in excess of the allowable statutory amount of P30. except on books. Taxation of Business Income/Income from Practice of Profession Please refer to the discussion under Gross Income. EXCEPT income subject to final tax. overtime pay.  There is a net capital loss carryover on the net capital loss provided that the amount of loss does not exceed the income before exemptions at the year the loss was sustained to be recognized immediately succeeding the year it was sustained.000. night shift differential pay and hazard pay earned by MWE shall likewise be covered by the above exemption. or practice of profession.000 Sale of shares of stocks traded in the Local Stock Exchange (Stock Transaction Tax) Selling price Capital gains on sale of Real Property situated in the Philippines Selling Price or FMV whichever is HIGHER Income from the sale.Tax exemption can only be availed once every 10 years v.STATUTORY MINIMUM WAGE (SMW) Refers to the rate fixed by the Regional Tripartite Wage and Productivity Board (RTWPB). Proceeds were fully utilized in acquiring/constructing a new principal residence within 18 mos.Commissioner duly notified within 30 days from sale iv.000 On any amount in excess of P100. AND CONSEQUENTLY. hazard pay and night shift differential pay SHALL NOT ENJOY THE PRIVILEGE OF BEING A MWE AND. honoraria.000 Interest Income from Long-Term Deposit or investment (held for 5 years or more) In case of pre-termination: if held for 4 years to less than 5 years 3 years to less than 4 years Less than 3 years Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes. such portion shall be subject to CGT  Capital gains from other capital assets are subject to the holding period. exchange or other disposition of capital assets TAX RATE 20% 7. HIS/HER ENTIRE EARNINGS ARE NOT EXEMPT FORM INCOME TAX. Note:  Holiday pay. such as income from the conduct of trade. other literary works and musical composition Prizes and other Winnings more than P10. business. 100% if the asset was held for one year or less. TAX BASE Interest income earned from deposit NOT FCDU Interest income earned from deposit FCDU Cash and/or Property Dividends e.5% 10% TAX RATE Final tax of 5% 10% ½ of 1% Final tax of 6% Graduated Income Tax Rate d. as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). Historical cost/adjusted basis of sold prop be carried to the new principal residence built/acquired iii. ii.

the income is exempt If the aggregate amount of gross income during the taxable year does not exceed the amount of basic and additional exemptions The said exemption does not extend to income subject to Final Tax (i. INCOME EARNED Cash and/or Property Dividends Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange Net Capital Gains: Not over P100. Position and Function Test – must occupy a managerial position or technical position AND must actually exercise such function. Senior citizens (SCs) (1) A Senior Citizen is (a) Any resident of the Philippines (b) At least 60 years old Generally. Exemptions granted under international agreements 14. Tax payable (1) Regular Corporate Income Tax (RCIT) The use of regular domestic tax rates: YEAR APPLICABLE 2009 onwards 2006-2008 Before 2006 TAX RATE 30% 35% 32% TAXATION LAW REVIEWER Page 54 of 165 .  To qualify for the preferential 15% rate. (2) Compliance Requirements: (a) SCs must be qualified as such by the CIR of the RDO by submitting a certified true copy of his OSCA ID. Compensation Threshold Test – must have received or is due to receive a gross annual taxable compensation of at least P975.e. (b) Must file a Sworn Statement on or before January 31 of every year that his annual taxable income does not exceed the poverty level. General rule: Taxable at a rate of 25% on his GROSS INCOME WITHIN Except: TAXPAYER Alien Individual Employed by Offshore Banking Units Alien Individual Employed by Petroleum Service Contractor and Subcontractor Alien Individual Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies b. income earned from other sources (i. General rules (1) A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than 180 days during any calendar year. TAX RATE 15% of gross income earned as such employee 15% of gross income earned as such employee 15% of gross income earned as such employee NOTE:  The same tax treatment shall also apply to Filipinos employed and occupying the same positions as those of the alien employees mentioned above. (3) Except Cinematographic Film owner – Taxable at 25% of Gross Income. Taxation of Domestic Corporations a. iii. the Filipinos must satisfy 3 tests: (RR 11-2010) i. in the same manner as an individual citizen or a resident alien. Individual Taxpayers Exempt from Income Tax a.000 TAX RATE 20% the regular income tax rate on its taxable compensation income. Exclusivity Test – must be exclusively working for the RHQ or ROHQ as a regular employee and not just a consultant or contractual personnel. (2) Shall be taxed on income earned within the Philippines.  Filipinos employed by ROHQs or RHQs in a managerial or technical position shall have the option to be taxed at either 15% of their gross income OR b.  Only the income earned as an employee of the said entities is subject to the preferential 15% rate. share from partnership) and Capital Gains Tax. qualified Senior Citizens deriving income during the taxable year are required to file and pay their income tax returns.e. 13. Interest income from deposit. Exclude Non-resident Aliens Not Engaged in Trade or Business a. ii. rent) shall be taxable in the same manner as a Resident Alien or NRA-ETB.000.000 On any amount in excess of P100.11. Taxation of Non-resident Aliens Engaged in Trade or Business a. except If the income earned is from compensation income qualified as a MWE. dividends. 5% 10% 12.

000 30% P 30.000 Excess of MCIT over RCIT P 10. force majeure iii.000 Operating 1.000 Payable [4] Determination of Excess of MCIT over RCIT 2009 MCIT P 40. NOTE: Pursuant to RR No.000 2. Rationale: This is designed to prevent corporations from escaping being taxed by including frivolous expenses in their statement of income (Ex. discounts and allowances (–) cost of services  Cost of services shall mean all direct costs and expenses necessarily incurred to provide the services required by the customers and clients.000 P 400.500.000 MCIT Rate 2% 2% MCIT P 40. Determination of Tax Due and Payable 2008 2009 2010 RCIT or MCIT (whichever is P 17. prolonged labor dispute ii.000 2. TAXATION LAW REVIEWER Page 55 of 165 . 2005 January 1.000 2010 P 5.000 30% P 120.000.500 P 40.900.000 Expenses Net Taxable P 50.000. (b) Relief from MCIT MCIT may be suspended by the Sec of Finance when corporation’s losses are due to: i.100.000 HIGHER) Less: Excess of 10.500 [2] Computation of MCIT [1] 2009 P 4.000 NOTE: The MCIT is not applicable in 2008 since it has not yet reached the “fourth taxable year” requirement. 2006 The MCIT will be imposed on X Corp starting taxable year 2009.500. [3] b.000.000 P 50.000 Income RCIT Rate 35% RCIT P 17.000 P 2.000 P 2. legitimate business reverses (c) Gross Income (for purposes of applying MCIT)  Gross income shall mean gross sales (–) sales returns.  For taxpayers engaged in the sale of services.000 2009 2010 Gross Income P 2.500.000 1.000 P 100. 12-07.450.000 2. Computation of RCIT 2008 Gross Sales P 3.000 P 120.000 Less: 2009 RCIT 30.500.000 MCIT over RCIT Tax Due and P 17.500 P 30.000 Allowable deductions (1) Itemized Deductions Items under Sec.000 Cost of Goods 1. MCIT shall apply at the time of the filing of the quarterly corporate income tax. gross income shall mean gross receipts (–) sales returns.(2) Minimum Corporate Income Tax (MCIT) MCIT Rate = 2% of gross income (GI) When to begin/apply MCIT? Beginning on the 4th taxable year immediately following the year in which such corporation commenced its business operation NOTE: Commencement of Business Operation: Upon Issuance of BIR Certificate of Registration  When will a corporation be liable for MCIT? If 2% of the corporation’s gross income is greater than 35% of its taxable income.000.000.500.000 Sold Gross Income P 1. 34 of the NIRC as discussed under Deductions from Gross Income.000 P 2. Over statement of depreciation expense) (a) Carry Forward of Excess Minimum Tax Excess of MCIT over the normal income tax shall be carried forward & credited against normal income tax for the 3 succeeding years NOTE: You can deduct MCIT Carry Forward only if Regular Income Tax is greater than MCIT. discounts and allowances (–) cost of goods sold. 2004 January 4.000 P 110.  Cost of goods sold shall mean all business expenses directly incurred to product the merchandise to bring them to their present location and use.000. Example: The following dates are available for X Corp: SEC Registration BIR Registration Start of operations December 17.

RMC 762003). Taxation of capital gains TAX BASE Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange Net Capital Gains: Not over P100. Trust Funds and Similar Arrangements and Royalties Interest income earned from deposit NOT FCDU Interest income earned from deposit FCDU Income Derived under the Expanded Foreign Currency Deposit System Income derived by a depository bank under the FCDU system from foreign currency transactions with local commercial banks (i. Intercorporate Dividends Exempt e. business or activity. Tax (30%) TAX RATE 20% 7. f. discounts and allowances and cost of goods sold.2006-2008)  Distinguish from non-profit non-stock educational institutions which are exempt from tax on revenues and assets Actually. c.  A taxpayer who elected to avail of the OSD shall signify in his/its return such intention.5% TAXATION LAW REVIEWER Page 56 of 165 . agencies and instrumentalities TAX RATE BASIS 30% (2009 Same tax rate upon their onwards) taxable income in a similar 35% (2006-2008) business. industry.(2) Optional Standard Deduction  An amount not exceeding forty percent (40%) of gross income. or instrumentalities owned or controlled by the govt. Tax on GOCCs.e. Taxation of Other Passive Income TAX BASE Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes. or activity exceed 50% of total income  Proprietary educational institution – any private school maintained & administered by private individuals or groups with an issued permit to operate from DECS. are taxable. 10% (2) Exceptions: (a) GSIS (b) SSS (c) PHIC (d) PCSO Final Tax 6% Regular Corp.000 On any amount in excess of P100. except on certain passive income (which are subject to final tax) Final Tax 5% 10% ½ of 1%  Predominance Test: if gross income from unrelated trade/business/other activity > 50% of the total gross income from all sources. or activity (1) General Rule: all corporations. it shall be irrevocable for the taxable year for which the return is made. branches of foreign banks authorized by the BSP to transact business with FCDU).000 Sale of shares of stocks traded in the local stock exchange (Stock Transaction Tax) Selling price Capital gains on sale or exchange of lands and or buildings located in the Philippines Selling Price or FMV whichever is HIGHER Net Capital gains on sales or exchange or disposition of other capital assets d.  Gross Income shall mean the gross sales less sales returns.  Once the election to avail the OSD is signified in the return. business. TAX RATE Tax on proprietary-educational institutions and hospitals which are non-profit TAX RATE BASIS 10% On related trade. otherwise he/it shall be considered as having availed himself of the itemized deductions. 30% (2009 onwards) IF total gross income from 35% (2006-2008) unrelated trade. Directly and Exclusively used for educational purposes (Sec 30 (H). NIRC. agencies. ENTIRE taxable income shall be subject to the REGULAR corporate tax rate of 30% (35% . Interest income from foreign currency loans granted by depository banks under the FCDU system to residents. or CHED or TESDA  Taxable at 10% on TAXABLE INCOME.

branches of foreign banks authorized by the BSP to transact business with FCDU). PAL)  Carrier must be an alien resident corporation.  Now we adopt the originating rule meaning to form part of GPB. Exclude: (1) International Carrier Doing business in the Philippines shall pay a tax of 2 1/2% on its Gross Philippine Billings defined as: (a) International Air Carrier  Refers to gross revenue derived from carriage of persons. 30% (2009 onwards) 35% (2006-2008) originating from the Philippines in a continuous and uninterrupted flight. 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. excess baggage. Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange Net Capital Gains: Not over P100.  Provided. Taxation of Resident Foreign Corporations a. Interest income from foreign currency loans granted by depository banks under the FCDU system to residents. General rules The rest is the same rules as Domestic Corporation On taxable income from all sources within the Philippines.  Does not apply to offline carriers o Online carriers: those with landing rights in the Philippines o Offline carriers: those without landing rights but may nevertheless be selling tickets in the Phil  sale of tickets 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. d. cargo. not transfer of aircraft  GPB rule in the NIRC is a departure from the old rule which emphasized where tickets were bought. then it will be subject to 30% (35% 2006-2008) tax on gross income as nonresident alien corporation. for a flight which originates in the Philippines but transshipment (transfer) of passenger takes place at any port outside the Philippine on another airline. passenger/cargo must originate from the Philippines  Does not apply to domestic corporations (Ex. In order that a foreign corporation may be regarded as doing business. 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. b. if it’s not.15. tickets revalidated.000 On any amount in excess of P100. and mail TAXATION LAW REVIEWER Page 57 of 165 . there must be Minimum corporate income tax Same rules as Domestic Corporation c. irrespective of the place of sale or issue and the place of payment of the ticket or passage document  Provided.5% 10% 5% 10% Exempt NOTE: Any income of nonresidents. Trust Funds and Similar Arrangements and Royalties (from sources within) Interest income earned from deposit NOT FCDU Interest income earned from deposit FCDU Income Derived under the Expanded Foreign Currency Deposit System Income derived by a depository bank under the FCDU system from foreign currency transactions with local commercial banks (i.000 Intercorporate Dividends TAX RATE 20% 7. whether individuals or corporations.e. o NOTE: Transfer of airline company. Tax on certain income TAX BASE Interest from Deposits and Yield or any other Monetary Benefit from Deposit Substitutes. from transactions with depository banks under the expanded system shall be exempt from income tax. the GPB will be charged to the indorsee.

periodic or casual gains. 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. and not one of a temporary character. dividends. 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 of remittance. X foreign corp. profits. as in the case at bar. income and capital gains received by a foreign corporation from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines. In other words. (Because branch assumes personality of an RFC and is therefore taxable as such) o Any remittance. direct or indirect. regardless of the place of sale or payments of the passage or freight documents. 2004] (b) International Shipping Gross revenue whether for passenger. salaries. 10% Difference between Home Office (HO) – Branch relationship and Parent – Subsidiary relationship HO-BRANCH Branch is classified as a Resident Foreign Corporation HO is classified as a resident Foreign Corporation HO and Branch are taxed on taxable income within the Philippines PARENT-SUBSIDIARY Subsidiary is classified as a Domestic Corporation Parent Company is classified as a Non-Resident Foreign Corporation Subsidiary is taxed on taxable income within and without the Philippines while Parent Company is taxed on gross income within the Philippines Income repatriation by a Subsidiary to Parent Company is referred to as dividends Exempt (3) Branch Profit Remittance (BPRT) BPRT shall be imposed on any profit remitted by a branch to its head office. such as the appointment of a local agent. (2) Offshore Banking Units TAX RATE BASIS Any interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks. annuities. including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units Income derived by offshore banking units authorized by the BSP. agencies or branches. royalties. wages. subject to BPRT o If subsidiary  amounts received by nonresident foreign corporation would be treated as dividends  it becomes part of Income repatriation by Branch to HO is referred to as Branch profit remittances TAXATION LAW REVIEWER Page 58 of 165 . emoluments or other fixed or determinable annual. its gross income from within taxable at 30% (35% 2006-2008) Branch will first be subjected to ordinary corporate tax as a resident foreign corporation (35%).” o Exception: Interest. a foreign airline company selling tickets in the Philippines through their local agents.continuity of conduct and intention to establish a continuous business. Instead of remitting straight to X. including branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units. rents. 6572. including remuneration for technical services. Distinguish between a branch and a subsidiary o If branch. whether liaison offices. the profits for remittance shall then be subject to 15% BPRT. CIR [CTA Case No. has both regional headquarters and branch in Philippines. Afterwards. Air Canada v. cargo or mail originating from the Philippines up to final destination. premiums. local commercial banks. other offshore banking units. December 22. so long as you can trace it from a branch to the foreign parent corporation subject to BPRT Ex. from foreign currency transactions with nonresidents.

Sourcing and procurement of raw materials and components. Tax on certain income (1) Interest on Foreign Loans A final tax at the rate of 20% is imposed on the amount of interest on foreign loans contracted on or after August 1. (4) Regional or Area Headquarters and Regional TAXPAYER TAX RATE BASIS Regional/Area Exempt Headquarters Regional Operating 10% On taxable income Headquarters of Multinational companies Operating Headquarters of multinational companies (RHQ and ROHQ)  Regional or area headquarters – A branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines Act as supervisory. vi. ix. Research and development services and product development. Consequently. v. Technical support and maintenance. CIR [G.R. 76573] The general rule is that a foreign corporation is the same juridical entity as its branch office in the Philippines cannot apply here. Taxation of Non-resident Foreign Corporations a. So that when the foreign corporation transacts business in the Philippines independently of its branch. viii.  Regional operating headquarters – A branch established in the Philippines by multinational 5% 10% TAXATION LAW REVIEWER Page 59 of 165 . Data processing and communication. 16. not the branch or the resident foreign corporation. or branches in the Asia-Pacific Region and other foreign markets. Reciprocity rule: The country in which the nonresident foreign corporation is domiciled. Business development.000 On any amount in excess of P100. following the principal-agent relationship theory. ii. (3) Capital gains from shares of stock not traded through the Local Stock Exchange A final tax on the NET CAPITAL GAINS realized during the taxable year from the sale of shares of stock in a domestic corporation NOT through the stock exchange: Rates of tax on the net capital gains: Not over P100. Logistic services. General rule A foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 30% (2009 onwards. General administration and planning. Marketing control and sales promotion. 32% . xi.2006-2008. iii. not of the branch. subsidiaries.2000 to 2005) of the gross income received from all sources within the Philippines.000 Marubeni v. the taxpayer is the foreign corporation. the principal-agent relationship is set aside. vii. b. No. It is understood that the branch becomes its agent here. 35% . Corporate finance advisory services. Training and personnel management. This rule is based on the premise that the business of the foreign corporation is conducted through its branch office. Business planning and coordination. (2) Intercorporate Dividends A final tax at the rate of 15% is imposed on the amount of cash and/or property dividends received from a domestic corporation subject to reciprocity. communications and coordinating center for their affiliates. 1986. iv. shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the regular income tax on corporations and the 15% tax on dividends.Branch profit remittances are subject to 15% tax on remittance of branch profits effectively connected to the conduct of Branch’s trade or business in the Philippines HO and Branch are considered as one and the same corporate entity Tax and other liability of the Branch in the Philippines can be collected from the HO in foreign country as they are one and the same Dividends paid by Domestic Corporation to a NonResident Foreign Corporation is subject to the preferential rate of 15% subject to the tax sparing condition Parent Company and Subsidiary are two separate legal entities Tax and other liability of the Subsidiary cannot be collected from the Parent Company in a foreign country as they are considered separate legal entities companies engaged in any of the following services: i. The transaction becomes one of the foreign corporation. x.

Composition The following constitute accumulation of earnings for the reasonable needs of the business: (ILL ABE)  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.  Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditure as approved by the Board of Directors or equivalent body. e. Equipment. Domestic corporations not falling under the aforesaid definition are. and (7) Enterprises that are registered: o With the Philippine Economic Zone Authority (PEZA) under R. and a deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them. d. Exempt corporations The IAET shall not apply to the following corporations: (BIG-PEN-T) (1) Banks and other non-bank financial intermediaries. (4) Taxable partnerships. Rule There is imposed for each taxable year. or  A direct correlation of anticipated needs to such accumulation of profits.c. What is meant by “reasonable needs of the business” is determined by the Immediacy Test. (5) General professional partnerships. or o 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. Holding company). publicly-held corporations. Exclude special nonresident foreign corporations APPLICABLE TAX – INCOME CLASSIFICATION WITHIN Cinematographic Film 25% Gross Income Owner. Aircraft and 7 ½ % Gross Income Others Lessor of Vessels chartered 4 ½ % Gross Income by Philippine Nationals 17. Expansion) How to prove the “reasonable needs of the business” : The corporation should prove that there is  An immediate need for the accumulation of the earnings and profits. TAXATION LAW REVIEWER Page 60 of 165 . a tax equal to 10% of the improperly accumulated taxable income of domestic and closelyheld 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. in addition to other taxes. 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. Rationale If the earnings and profits were distributed. b. It is a tax in the nature of a penalty to the corporation for the improper accumulation of its earnings.  Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is legal prohibition against its distribution. inclusive of accumulations taken from other years.  Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement. Distributor Lessor of Machinery. therefore. (3) Publicly-held corporations. 7916. and  Reasonably anticipated needs (Ex. plants or equipment acquisition as approved by the Board of Directors or equivalent body. f. they would incur no tax in respect to the undistributed earnings and profits of the corporation. all undistributed earnings intended or reserved for investments within the Philippines as can be proven by corporate records and/or relevant documentary evidence.  Closely-held corporations are those: o At least 50% in value of the outstanding capital stock. by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders (Ex. Improperly Accumulated Earnings Tax (Implemented by RR 2-2001 which prescribes rules governing the imposition of IAET) a. if the distribution were not made to them.  Earnings reserved for building. Immediacy Test – It states that the “reasonable needs of the business” are the  Immediate needs of the business. c.A.taxable joint ventures. (6) Non. Lessor. Covered corporations  Only domestic AND closely-held corporations are liable for IAET.  In the case of subsidiaries of foreign corporations in the Philippines. (2) Insurance companies. the shareholders would then be liable for income tax.

o

o

Pursuant to the Bases Conversion and Development Act of 1992 under R.A. 7227; and Under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes, national or local.

1” rule. A Debt-to-Equity ratio (Current Assets over Current Liabilites) of 2:1 is indicative of the liquidity of a corporation, and further accumulation would expose it to the IAET. Cyanamid Phils. v. CA, [G.R. No. 108067, January 20, 2000] 18. Exemption from Tax on Corporations Please see page 48 on the discussion of Exempt Corporations. 19. Taxation of Partnerships  A general co-partnership is a partnership wherein part or all of its income is derived from the conduct of trade or business.  Guidelines of the tax liability of a general partnership: (1) For taxation purposes, the general partnership is considered as a corporation liable to pay the corporate income tax. (2) A general partnership is also subject to MCIT like a corporation. (3) The profit distribution to the partners is treated as distribution subject to a final tax of 10% since the partners are considered as stockholders. 20. Taxation of General Professional Partnership (GPP)  A GPP is one formed by two or several persons for the sole purpose of exercising their common profession of which no part of income is derived from engaging in any trade or business.  The GPP is not a taxable entity for income tax purposes since it is only acting as a "pass-through" entity where its income is ultimately taxed to the partners comprising it. RR 02-10  Guidelines of the tax liability of GPP a. Who is Liable? o A GPP, as an entity, shall not be subject to the income tax. o The partners in a GPP shall be liable for income tax only in their separate and individual capacities. Each partner shall report his distributive share, actually or constructively received in the net income of the partnership as gross income. The share of the partner shall be subject to creditable withholding tax at 10%/15%.

g.

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, otherwise, the IAET, if any, should be paid within fifteen (15) days thereafter. Determination of purpose to avoid income tax 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, and collecting the income therefrom or investing the same; and Where the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business.

h.

i.

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; (2) Investment in securities; and bonds and other long-term

(3) Accumulation of earnings in excess of 100% of paid-up capital, not otherwise intended for the reasonable needs of the business. The controlling intention of the taxpayer is that which is manifested at the time of accumulation. A speculative and indefinite purpose will not suffice. The mere recognition of a future problem or the discussion of possible and alternative solutions is not sufficient. Definiteness of plan/s coupled with action/s taken towards its consummation is essential. Ideally, the working capital should equal the current liabilities and there must be 2 units of current assets for every unit of current liability, hence the so-called “2 to

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b. How computed? o For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. o All expenses, which are ordinary and necessary, incurred or paid for the practice of profession, are allowed as deductions. o Since the taxable income is in the hands of the partner, apart from the expenses claimed by the GPP in determining its net income, the individual partner can still claim deductions incurred or paid by him that contributed to the earning of the income taxable to him. o If the GPP availed of the itemized deduction = the partners may still claim itemized deductions from said share, however, they cannot claim the same expenses already claimed by the GPP. o If the GPP availed of itemized deductions, the partners are not allowed to claim the OSD from their share in the net income. o If the GPP avails of OSD in computing its net income, the partners comprising it can NO longer claim further deduction from their share in the said net income. i. The partners' distributive share in the GPP is treated as his gross income not his gross sales/receipts and the 40% OSD allowed to individuals is specifically mandated to be deducted not from his gross income but from his gross sales/receipts; ii. The OSD being in lieu of the itemized deductions allowed in computing taxable income, it will answer for both the items of deduction allowed to the GPP and its partners.  Compliance requirements Every GPP shall file in duplicate, a return of its income (except items excluded from gross income and shall set forth the following: o The items of gross income and of deductions allowed o The names, TIN, addresses and shares of each of the partners. 21. Taxation of Estates and Trusts a. Application Applies to income of estates or of any kind of property held in trust (separate taxable entities), including: (1) Income accumulated in trust: (a) For the benefit of unborn/ unascertained person(s) w/ contingent interests (b) Held for future distribution under the terms of

the will or trust (2) Income: (a) To be distributed currently by the fiduciary to the beneficiaries (b) Collected by a guardian of an infant to be held or distributed as the court may direct (3) Income received by estates of deceased persons during the period of administration or settlement of the estate (4) Income which, in the discretion of the fiduciary, may be either distributed to beneficiaries or accumulated b. Exception Employee’s trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of all or some of his employees: (1) If contributions are made to the trust by the employer/employees, or both for the purpose of distributing to such employees the earnings plus principal of the fund accumulated by the trust in accordance with such plan (2) If under the trust instrument, it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of income to be used for/diverted to, purposes other than for the exclusive benefit of his employees (any amount distributed to employees shall be taxable in the yr. so distributed) Determination of tax (1) Consolidation of income of two or more trusts (a) Requisites: Two or more trusts where:  The creator of each of the trust is the same person.  The beneficiary of each of the trust is the same. (b) Effects:  The taxable income of all the trusts shall be consolidated.  The tax provided shall be computed on such consolidated income.  The proportion of said tax shall be assessed and collected from each trustee based on the taxable income of the trust administered by him.

c.

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(2) Taxable income Computed in same manner & on the same basis as in the case of an ‘individual’, EXCEPT: (a) Deduction allowed: i. Amount of income of the estate/trust for the taxable year which is to be distributed currently by the fiduciary to the beneficiaries & the amt. of the income collected by a guardian of an infant which is to be held/distributed as the court may direct ii. Amount allowed as deduction is included in computing the taxable income of the beneficiaries, whether distributed or not iii. Amount allowed as deduction under this subsection will not be allowed as deduction under (2) hereof (b) Additional deduction: i. Amount of the income of the estate/trust for its taxable year, properly paid/credited during such year to any legatee, heir or beneficiary may be claimed as deduction. This applies in cases of:  Income received by estates of deceased person during the period of administration or settlement of the estate  Income w/c, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated ii. Amount paid/credited will be included in the taxable income of the legatee, heir or beneficiary NOTE: For trust administered in a foreign country, the deductions in (1) and (2) above is not allowed provided that the amount of income included in the return of said trust shall not be included in computing the income of the beneficiaries (c) Exemption Allowed to Estates and Trusts: P20,000 (3) Revocable Trusts 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 or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus/income (b) In any person not having a substantial adverse interest in the disposition of such part of the corpus/income Effect: the income of such trust shall be included in computing the taxable income of the grantor

In short, it is a trust where the title can revert back to the grantor anytime. It is not taxable as a separate 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. This is because the grantor has absolutely given up the corpus and any incidents thereto. In this case, the grantor has no control over the corpus of the trust. The grantor has transferred the income earning property to a beneficiary. If there is a condition that provides that a portion shall be reserved for the grantor’s medical expenses (for example), this condition does not convert the irrevocable trust to a revocable trust. But that portion is taxable income of the grantor.  If the transfer is revocable, the entire income shall be taxable in the hands of the grantor. (4) Income for the benefit of the grantor Requisites: where any part of the income of a trust is, 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 Effect: such part of the income be included in computing the taxable income of the grantor (5) Meaning of “in the discretion of the grantor”  In the discretion of the grantor, with regard to the “Income for the benefit of the grantor”: Exercised either alone or in conjunction with any person not having a substantial adverse interest in the disposition of the part of the income in question. 22. Withholding Tax a. Concepts  Withholding tax is a method of collecting income tax in advance from the taxable income of the recipient of income.

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of Large and Non-Large Taxpayers who files through the Electronic Filing and Payment System (EFPS). [234 SCRA 320] Timing of Withholding Withholding tax shall be deducted and withheld by the withholding agent when the income payment is paid or payable or accrued or the income payment is accrued or recorded as an expense or asset. as such. [G. an authorized agent bank. Note that the payment of taxes is simultaneous with the filing of the returns (pay-as-you-file) except in cases TAXATION LAW REVIEWER Page 64 of 165 . except in cases where the Commissioner otherwise permits. 58(A) of the NIRC] Taxes deducted and withheld by withholding agents shall be covered by a return and paid to. CIR v. The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers. Withholding Agent (WA) A separate entity acting no more than an agent of the government for the collection of tax in order to ensure its payments. talent fees  Fringe benefit  Informer’s reward  Income payments to partners of GPP to persons instrumental to the discovery of violations of the NIRC and the discovery and seizure of smuggled goods    Returns and Payments of Taxes Withheld at Source [Sec. Individual. NOT a taxpayer. or where the withholding agent is a corporation. whichever is EARLIER. although not engaged in trade or business b. the person on whom the tax is imposed. If a withholding agent was assessed for deficiency withholding tax under the Code. Commissioner. In the operation of the withholding tax system. Any income payment which is otherwise deductible from the payor’s gross income will not be allowed it is shown that the income tax required to be withheld is not paid to the BIR. Collection Agent. the payee is the taxpayer. EWT [RR 2-98] passive income. Bank of America v. with respect to payments made n connection with his trade or business iii. No. acts no more than an agent of the government for the collection of the tax in order to ensure its payment.R. He is merely a tax collector. a separate entity. whether or not engage in trade or business ii. 251 of the NIRC] iii. or transfer of real property.58. where the principal office is located. ii. [Sec. CA.e. Individual buyers with regard to taxable sale.  Consequences for Failure to Withhold Liable for surcharge or penalties Liable upon conviction to a penalty equal to the total amount of the tax not withheld or not accounted for and remitted [Sec. exchange. or duly authorized Treasurer of the city or municipality where the withholding agent has his legal residence or principal place of business. 104151 March 10. Juridical persons. while the payor. Revenue District Officer. 2.5 of RR 2-98] i. 1995] The following persons are constituted as withholding agents: i. it is being held liable in its capacity as a withholding agent and not its personality as a taxpayer. Examples: gross income of NRA-NETB)  Professional fees. Kinds FINAL WITHHOLDING CREDITABLE TAX WITHHOLDING TAX Amount of Tax Collected Intended to equal or at Full and final payment least approximate the of the income due tax due from the said from the payee on the payee on the said said income income Who is Primarily Liable Liability rests primarily Liability rests primarily on the withholding on the taxpayer agent Need to File a Return Income recipient is still required to file an Payee is not required income tax return to file an income tax and/or pay the return for the difference between particular income the tax withheld and the tax due on the income. Coverage  All income subject Those income payments covered by to final taxes (i.

Thus. which shall be withheld and paid by the employer on a calendar quarterly basis (3) Creditable Withholding Tax  Taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. deriving income from compensation for services rendered in the Philippines.00 other than the SMW the entire amount. (2) Fringe benefit tax  A final withholding tax is imposed on the grossedup monetary value of fringe benefit furnished.  The payee is not required to file an income tax return for the particular income. Formula: Gross Income P xxx Multiply by: Final Tax Rate xx Final Tax P xxx NOTE: Deductions and/or personal exemptions are NOT allowed.(1) Final withholding tax  The amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. Withholding on wages A method of collecting the income tax at source upon receipt of the income.  No withholding of tax shall be required on payments to employees who are classified as Minimum Wage Earners [earning only the Statutory Minimum Wage (SMW)]. business or profession of the employer.  The liability for payment of the tax rests primarily on the payor as a withholding agent.  An employee who receives additional compensation and benefits in excess of the allowable statutory amount of P30. 33 of the NIRC shall be treated as a final income tax on the employee. including the SMW shall be subject to withholding tax (2) Tax paid by recipient  Every person who is required to withhold the tax from the compensation of an employee is liable for the payment of such tax to the BIR. the deficiency tax shall be collected from the payor/withholding agent. granted or paid by the employer to the non-rank and file employees except when: (1) the fringe benefit is required by the nature of or necessary to the trade. It does not extend to the payee's other tax liability on said income. The employer is constituted as the withholding agent. Such liability stays even if the employee subsequently pays the tax. the excess shall be credited or refunded to the employee not later than January 25 of the following year. It applies to all employed individuals whether citizens or aliens. TAXATION LAW REVIEWER Page 65 of 165 .  The finality of the withholding tax is limited only to the payee’s income tax liability on the particular income. (1) Requirement for Withholding  Every employer must withhold from compensation paid to its employees.  The tax imposed under Sec. in case of his failure to withhold the tax or in case of under withholding. such as when the said income is further subject to a percentage tax. (3) Refunds or credits  When the total amount withheld exceeds the annual tax due for the employee.  The following are creditable withholding taxes: o Expanded Withholding Tax (EWT) on certain income payments o Withholding Tax on Wages (WTW) o Withholding Tax on money payments to the Government c. or (2) when the fringe benefit is for the convenience or advantage of the employer.000.  The employer will not be relieved of his liability for payment of the tax required to be withheld unless he can show that the tax has been paid by the employee.  The income recipient is still required to file an income tax return to report the income and/or pay the difference between the tax withheld and the tax due on the income.  The payment of the tax by the employee does not relieve the employer from the liability for penalties and/or additions to the tax for failure to deduct and withhold within the time prescribed by law or regulations.

 Employee Where an employee fails or refuses to file the Application of Registration or Certificate of Update of Exemption and of Employer's and Employee's Information (BIR Form No. The VAT shall be based on the contract price.  The taxable fringe benefits received by non-rank and file employees shall be subject to a final fringe benefits tax. d. the employer shall determine the sum of the taxable regular and supplementary compensation paid to each employee for the entire year. Withholding value-added tax (1) ON PAYMENTS TO NONRESIDENTS (creditable withholding VAT)  Payments to non-residents. (4) Year-end Adjustment [Sec. (2) ON PAYMENTS BY GOVERNMENT (Final Withholding VAT)  The Government or any of its political subdivisions. (5) Liability for Tax  Employer The employer shall be responsible for the withholding and remittance of the correct amount of tax required to be deducted and withheld from the compensation income of his employees. 2.6 of RR 2-98]  On or before the end of the calendar year. 2305) together with the attachments or willfully supplies false or inaccurate information thereunder after due written notice by the employer.  The employer is entitled to deduct the amount refunded from the remittable amount of taxes withheld from compensation income in the current month in which the refund was made. the tax otherwise to be withheld by the employer shall be collected from him including penalties or additions to the tax from the due date of remittance until the date of payment.  The payor shall claim this as input tax upon filing of his own VAT return.  The VAT is passed on to the resident withholding agent. the excess taxes withheld by the employer. before making payment on account of its purchase of goods and/or services taxed at 12% shall deduct and withhold a final VAT of 5% of the gross payment. including government owned or controlled corporations (GOCCs) shall. are subject to withholding VAT. In case of termination of employment before December.79. if any.  The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. including the last compensation to be paid and compute for the amount of income tax on the annualized gross compensation income. Failure to refund excess withholding tax not later than January 25 of the succeeding year. such tax shall be collected from the employer together plus penalties. shall make the employer liable to a penalty equal to the total amount of refund which was not refunded to the employee plus penalties.  The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions. regardless of whether or not he is VATregistered. with respect to lease or use of property or property rights in the Philippines owned by such non-residents. If the employer fails to withhold and remit the correct amount of tax.  Other services rendered in the Philippines by non-residents General guidelines for Creditable WVAT:  The party required to withhold is the payor. shall not be refunded to the employee but shall be forfeited in favor of the government. in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. TAXATION LAW REVIEWER Page 66 of 165 . instrumentalities or agencies. instrumentalities or agencies including GOCCs. the refund shall be given to the employee at the payment of the last compensation during the year. and prior to the payment of the compensation for the last payroll period.  The duly filed BIR Form 1600 is the proof or documentary substantiation for the claimed input tax. subject to the rule of allocation of input tax. For failure or refusal to file the said BIR Form 2305. and in the succeeding months thereafter until the amount refunded by the employer is fully repaid.

e. Fringe Benefit Tax (FBT) On or before the 10th day of the month following the calendar quarter in which the fringe benefits were granted. On or before the tenth (10th) day of the month following the month in which withholding was made. Withholding Tax on Wages On or before the tenth (WTW) (10th) day of the month following the month in which withholding was made. Expanded Withholding Tax Withholding Value-Added Tax (WVAT) TAXATION LAW REVIEWER Page 67 of 165 . Except for taxes withheld for December which shall be filed/paid on or before January 15 of the succeeding year. On or before the tenth (10th) day of the month following the month in which withholding was made. Except for taxes withheld for December which shall be filed/paid on or before January 15 of the succeeding year. Deadline of filing of return and payment of taxes withheld FILING AND PAYMENT TYPE OF WITHHOLDING TAX DEADLINE Final Withholding Tax (FWT) On or before the tenth (10th) day of the month following the month in which withholding was made.

 In the case of nonresident citizen. Determination of gross estate and net estate VALUATION  Real Property FMV as determined by the Commissioner OR the FMV shown in schedule of values fixed by the assessors. real or personal. [Art. No zonal value: use the FMV in the latest tax declaration. its inclusion in the gross estate is subject to the rule of reciprocity. GOVERNING LAW Estate taxation is governed by the statute in force at the time of death of the decedent. NON-RESIDENT ALIENS The gross estate of a decedent shall be comprised only of properties situated in the Philippines provided. 84) ---------------------------------------------------------Estate Tax due Less: Tax Credit (if any) Sec. 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. succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death. 86 [E] or 110 [B] ---------------------------------------------------------Estate Tax Due. 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. Nature A tax imposed upon the privilege to transmit property at the time of death. 2002]  TAXATION LAW REVIEWER Page 68 of 165 . RESIDENCE For estate tax purposes. if no quotation is available at the time of death) TOPIC UNDER THE SYLLABUS: II. Tan Corre. wherever situated and interest therein at the time of his death. 85) Less: (1) Deduction (Sec. Purpose or Object 5. Classification of decedent/Composition of gross estate RESIDENTS AND CITIZENS The gross estate of a decedent shall be comprised of the all properties. [RR 24-02 dated November 15.====================================== 6. if any GROSS ESTATE OF THE DECEDENT (Sec. for business or pleasure. Time and transfer of properties The properties and rights are transferred to the successors at the time of death. the Register of Deeds shall not transfer the title to the properties without the Certificate of Authority to Register (CAR) issued by the RDO evidencing the filing and payment of the estate tax. 7. only that part of the gross estate which is situated in the Philippines shall be included in his taxable estate. in the sense that they disclose intent. tangible or intangible. wherever situated. Basic principles ACCRUAL OF ESTATE TAX The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. whichever is HIGHER a. residence refers to the permanent home. 86) (2) Net share of the surviving spouse ---------------------------------------------------------Net Taxable Estate X Tax rate (Sec. Upon the death of the decedent. one intends to return. real or personal. that. and depends on facts and circumstances. Gross estate vis-à-vis net estate ESTATE TAX FORMULA Gross Estate (Sec. 4. 8. NATIONAL INTERNAL REVENUE CODE B. [100 Phil 321] 2. Estate Tax ====================================== 1. the place to which whenever absent. with respect to intangible personal property. 3. 85)  Includes the value at the time of his death of all property. Corre v. tangible or intangible. the tax should not be construed as a direct tax on the property of the decedent although the tax is based thereon. 777 of the Civil Code] However. including revocable transfers and transfers for insufficient consideration.

amend or revoke shall be considered to exist at the date of the decedent’s death even if: – The exercise is subject to the requirement of giving prior notice – The alteration. a. b.  Personal Property  Valued at FMV Revocable Transfer Property Passing Under General Power Appointment Proceeds of Life Insurance Prior Interests Transfers for Insufficient Consideration of SPECIAL RULES ON INTANGIBLE PROPERTIES Intangible personal properties with situs in the Philippines (Section 104)   Franchise. without regard of the state of health of the transferor. Unlisted Shares – – Common stocks: use BOOK VALUE – Preferred stocks: use PAR VALUE c. the motivating factor or controlling motive is the thought of death).   9. Transfers made before the decedent’s death wherein decedent retained: a. which must be exercised in the Philippines. NOTE: The capital of the surviving spouse of the decedent shall not be deemed part of his gross estate. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. The decedent at that time of his death was a citizen and resident of a foreign country which at the time of his death a. Did not impose a transfer tax or death tax of any character b. or terminate. with a situs in the Philippines (Section 104) The intangibles shall not form part of the gross estate if: 1.  Transfer in Contemplation of Death Transfers impelled by the thought of an impending death (i. The law of the foreign country of which the decedent was a citizen and resident at the time of his death: Allow a similar exemptions from transfer taxes or death taxes of every character In respect of the intangible personal property owned by citizens of the Philippines not residing in that foreign country. b. Transfer in Contemplation of Death  TAXATION LAW REVIEWER Page 69 of 165 .     RECIPROCITY CLAUSE Intangible personal property of a decedent who is nonresident alien. revoke. g. To the extent of the interest therein of the decedent at the time of his death. or 2. Items to be included in the gross estate ITEMS OF GROSS ESTATE: a. d. Shares. obligations or bonds issued by any foreign corporation. the right either alone or in conjunction with any person. rights in any partnership business or industry established in the Phil.. or where any such power is relinquished in contemplation of the decedent’s death. or the right to the income of the property. amend. e. 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 Transfers made by the decedent by trust or otherwise.e. b. where the enjoyment was subject at the date of his death to any change through the exercise of a power by the decedent alone or in conjunction with any other person. Shares. In respect of the intangible personal property of citizens of the Philippines not residing in that foreign country. a. Decedent's Interest b. if such shares. Does not include bona fide sales for an adequate and full consideration in money or money’s worth. the possession or enjoyment of. c. amendment or revocation takes effect only on the expiration of a stated period after the exercise of the power. Shares. obligations or bonds have acquired a business situs in the Philippines. obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines. to alter. Decedent’s Interest i. Shares. f. Composition of the gross estate 10. The power to alter.

possess or enjoy the property or its income received from the estate of a prior decedent. executor or administrator and the designation is revocable. and Taxes (ELIT): (a) Actual funeral expenses or five percent (5%) of the gross estate whichever is lower (not exceeding P200.  Interment and/or cremation fees and charges. whether the designation is revocable or irrevocable. or the right to the income from. monument or mausoleum but not their upkeep. The beneficiary is other than the estate. including food and drinks.000 Standard Deduction -.  Telecommunication expenses incurred in informing relatives of the deceased.000) TAXATION LAW REVIEWER Page 70 of 165 . Examples of DEDUCTIBLE funeral expenses:  The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial. the provisions on (1) transfer in contemplation of death. Indebtedness.P1.d. the property or The right.  g.Fair value but not to exceed P1. such as for prayers. trusts.  Publication charges for death notices.. f.  11.000 Medical Expenses – Not to exceed P500. without restrictions. i.  (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 Transfers for Public Use-to the government of the Republic of the Philippines or any political subdivision thereof. Losses. masses.000 Amount Received by Heirs under RA 4917 Net Share of the surviving spouse in the Conjugal Property Ordinary Deductions Funeral expenses    The GPA is exercised by: a.000.000. entertainment. whether made before or after the effectivity of the Tax Code. and  All other expenses incurred for the performance of the rites and ceremonies incident to interment. FUNERAL EXPENSES are costs which are actually incurred in connection with the interment or burial of the deceased.       a. succeed to. Deductions from estate DEDUCTIONS FOR ESTATE OF A CITIZEN OR A RESIDENT [Revenue Regulations 2-2003 and Sec. Examples of NON-DEDUCTIBLE funeral expenses:  Expenses incurred after the interment. (2) revocable transfers and (3) proceeds of life insurance shall apply to the transfers. Transfers for Insufficient Consideration The amount includible in the gross estate is the excess of the FMV at the time of death over the value of the consideration received. 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. In case the deceased owns a family estate or several burial lots.  Expenses for the deceased’s wake. etc. tombstones. the persons who shall receive. exclusively for public purposes Vanishing deductions Family Home . Deed executed in contemplation of death c. Property Passing Appointment (GPA)  Under General Power of GPA is the power to designate. whichever is lower. only the value corresponding to the plot where he is buried is deductible. Prior Interests Except as otherwise provided.  Actual funeral expenses or in amount equal to 5% of the gross estate. 86]:  Expenses. e. but in no case to exceed P200. executor or administrator. or the like are not deductible. Will b.000.  Cost of burial plot. 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 or money’s worth Proceeds of Life Insurance Proceeds from life insurance form part of the gross estate only when: The beneficiary is the estate.

(6) Clerk hire. or the extension thereof. Judicial Expenses Judicial Expenses are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law. then balance of loan considered as receivable from that person and part of gross estate  If there is a legal impediment to recognize the same as receivable of the estate. Requisites for DEDUCTIBILITY:  A personal obligation of the deceased existing a the time of his death except 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. Claims against the Estate Claims against the Estate are 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. (7) Cost of preserving and distributing the estate. (5) Appraiser’s fee. Duly substantiated Substantiation REQUIREMENTS: The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred [RR 2-2003] ii. v. vi.  Contracted in good faith and for adequate and full consideration in money or money's worth.   Must not have been condoned by the creditors or the action must not have prescribed. the unpaid obligation shall not be allowed as a deduction from the gross estate. Judicial Expenses should be supported by a sworn statement of account issued and signed by the creditor. Expenses incurred in the extrajudicial settlement of the estate must be necessary costs toward the settlement of the case. for the filing of the estate tax return. Attorney’s fees to be deductible should essential to the collection of assets. CA [328 SCRA 666] iii. CIR v.  If merely an accommodation made by decedent in favor of another person.  Must be a debt or claim which is valid in law and enforceable in court. payment of debts or the distribution of the estate. Claims against Insolvent Persons Condition for DEDUCTIBILITY: The claim against the insolvent person should be included as part of the gross estate of the decedent. real estate or property taxes due at the time of death which were unpaid as of the time of death Taxes NOT DEDUCTIBLE:  Estate taxes  Income tax on income received after death  Property taxes not accrued before death TAXATION LAW REVIEWER Page 71 of 165 . Examples of judicial expenses (1) Fees of executor or administrator (2) Attorney’s fees (3) Court fees. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. except loans from financial institutions where notarization not part of business practice or policy  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 iv. Unpaid Mortgage Conditions for DEDUCTIBILITY:  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 Other Rules  Determine who is the recipient or beneficiary of the loan which must be verified. Taxes What taxes are deductible? Income taxes. (4) Accountant’s fee. Substantiation REQUIREMENTS:  notarized at the time incurred. (8) Brokerage fees for selling property of the estate.

AND that  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) b. Conditions for the allowance of FAMILY HOME as DEDUCTION from the gross estate The family home must be the actual residential home of the decedent and his family at the time of his death.g. robbery. storm. depending upon the classification of the property (family home). where the husband and wife.. but not exceeding P1. or the extent of the decedent’s interest (whether conjugal/community or exclusive property).000. Transfer for Public Use d. Requisites for DEDUCTIBILITY:  Present decedent acquired the property by inheritance or donation within 5 yrs prior to his death  The property must have formed part of the gross estate of previous decedent or the taxable gift of the donor  Estate tax on the prior estate or the donor’s tax must have been paid  It must be the same property received from previous decedent or donor  Estate of previous decedent or donor have not previously availed of vanishing deduction TAXATION LAW REVIEWER Page 72 of 165 . estate and donor’s tax).vii.  For purposes of availing of a family home deduction to the extent allowable. a person may constitute only one family home. The family home is generally characterized by permanency.000. It may also be constituted by an unmarried head of a family on his or her own property. 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. and the property relations prevailing on the properties of the husband and wife. theft or embezzlement. 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. NOTE:  The family home must be part of the properties of the absolute community or of the conjugal partnership. that is. one still intends to return.  The losses should occur during the settlement of the estate. cultural and charitable institutions c. Family Home FMV of the family home but not to exceed P1. etc. Vanishing Deductions (Property Previously Taxed) Nature and Purpose VANISHING DEDUCTIONS are deductions allowed for properties which were already subjected to transfer taxes (e. Requisites for DEDUCTIBILITY:  the disposition is in the last will and testament  to take effect after death  in favor of the government of the Philippines or any political subdivision thereof  exclusive for public purpose  the value of property given is included in the gross estate The transfer also contemplates bequests. the place to which. or a head of the family. whichever is lower.000.  The total value of the family home must be included as part of the gross estate of the decedent. shipwreck. devices. as certified by the Barangay Captain of the locality where the family home is situated. whenever absent for business or pleasure. including the land on which it is situated. Family Home is the dwelling house. 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. Losses Requisites for DEDUCTIBILITY:  Losses should arise from fire.000.  Losses should not be compensated by insurance or otherwise. or other casualty. or of the exclusive properties of either spouse. and members of their family reside as certified by Barangay Captain of the locality. and  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.  Losses should not be claimed as deduction in the income tax return of the taxable estate. or transfers to social welfare.

foreign x Phil. b. Losses.000 cannot be reclassified and deducted as claims against the estate  It must be duly substantiated with official receipts for services rendered g.e. or transfers to social welfare. of credit Net estate. 4917 h. Tax credit for estate taxes paid in a foreign country 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? 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 WHAT AMOUNT OF TAX CREDIT MAY BE CLAIMED? The estate tax imposed by the Philippines shall be credited with the amounts of any estate tax imposed by the authority of a foreign country. not more than 30% of the value given is used for administrative purposes Proceeds from life insurance where the beneficiary is other than estate.000. Exemption of certain acquisitions and transmissions [Sec. legatees or donees in TAXATION LAW REVIEWER Page 73 of 165 . Estate Tax = max amt. subject to the following limitations: PER COUNTRY LIMITATION – net estate within a foreign country Net estate. world The final allowable amount shall be the lower of the country and global limitation amounts.000. cultural or charitable institutions Provided. Property Previously Taxed Transfers for Public Use Net Share of the surviving spouse in the Conjugal Property    NOTE: To be allowed deductions for a non-resident alien. Net Share of the surviving spouse in the Conjugal Property DEDUCTIONS FOR NONRESIDENT ALIENS (for property situated in the Philippines)  Expenses. the value of the gross estate not situated in the Philippines 12.000. whichever is lower  Any excess over P500. Estate tax = max amt. Standard Deduction   A deduction in the amount of P1. world GLOBAL LIMITATION Total net estate outside X Phil. 14. Exclusions from GROSS estate Acquisitions and transfers expressly declared as exempt:  Merger of the usufruct in the owner of the naked title  Transmission or delivery of the inheritance or legacy by the fiduciary heirs or legatee to the fiduciary  Transmission from the first heirs.A. devises.00 value of the net estate Merger of usufruct in the owner of the naked title Amount received by the heirs from the decedent’s employer as a consequence of death of the decedent employee in accordance with R. legacies.000 shall be allowed as additional deductions without need of substantiation Full amount shall be allowed as deduction for the benefit of the decedent f. Medical Expenses  Requisites for DEDUCTIBILITY  Medical cost incurred within the one year  Up to a maximum amount of P500.A. executor/administrator/any heir must include in the return to be filed. Indebtedness and Taxes (ELIT) Only the proportion of the total expenses. 4917     favor of another beneficiary in accordance with the desire of the testator All bequests. 84 and 87 of the NIRC] a. losses indebtedness and taxes which the value of such part bears to the value of his entire GE wherever situated. First P200. Amount Received by Heirs under R. of credit Net estate. 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 13.

or  His right to exercise ceased because of the happening of some event or contingency or the fulfillment of some condition. 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  knows of the acceptance of the donee (exception: donations of immovable1 properties). Compliance requirements) ====================================== TOPIC UNDER THE SYLLABUS: II. being the owner. either actual or constructively. NATIONAL INTERNAL REVENUE CODE C.Example: A died leaving a fishpond. in accordance with the desire of the predecessor Bequests. becomes complete when either:  The donor renounces the power. subject to estate tax APPLICABILITY OF LAWS GOVERNING THE IMPOSITION OF DONOR’S TAX The donor’s tax applies to a completed gift. Upon the death of C. SPECIAL RULES ON HUSBAND AND WIFE Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s tax. C died a year later. The transfer is perfected from the moment the donors knows of the acceptance by the donee. The transfer from A to B is subject to estate tax. if what was donated is a conjugal or community property and only the husband signed the deed of donation. Accordingly. another son. Definition Donor’s Tax is a tax on the privilege of transmitting one’s property or property rights to another or others without adequate and full valuable consideration. Compliance requirements) 16. and usufruct to C. it is completed by the delivery. the usufruct will be merged into the owner of the naked title B who shall become the absolute owner thereof. 2. for life. his son. 15. legatee or donee in favor of another beneficiary. devises. subject to donor’s tax Donation mortis causa: a donation which takes effect upon the death of the donor. there is only one donor for donor’s tax purposes. Transmission from the first heir. but imposing upon the donee the obligation to pay the mortgage liability. c. legacies or transfers to  social welfare. then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed.  no part of the net income of which inures to the benefit of any individual:  Provided not more than 30% of the transfers shall be used by such institutions for administration purposes e. Estate tax return (see F. B is the fiduciary heir and C is the fideicommissary. 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. other than the death of the donor. of the donated property to the donee. Donor’s Tax ====================================== 1. cultural and charitable institutions. Filing of notice of death (see F. Basic principles KINDS OF DONATIONS:  Donation inter vivos: a donation made between living persons. But the transmission or delivery to C upon reaching legal age shall be exempt from estate tax. a son of A when A reaches legal age. d. 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. if a mortgaged property is transferred as a gift. perfection is at the moment when the donor TAXATION LAW REVIEWER Page 74 of 165 . The fishpond will be included in the gross estate of A. NET GIFT The net economic benefit from the transfer that accrues to the donee. However. 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. naked title to B. The transfer from C to B is exempt from estate tax. A gift that is incomplete because of reserved powers.

Transfers for less than adequate and full consideration Where property. the FMV itself. Purpose or object The purpose of donor’s tax is to complement estate tax by preventing tax-free depletion of the transferor’s estate during his lifetime It is also to prevent avoidance of income tax through the device of splitting income among numerous donees. 50 of RR 02-40] If a creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt. Transfers which may be constituted as donation a.” 4. 2006 where the repudiation by the heirs of an inheritance was held not to be a donation. 7. if higher than the gross selling price. NOTE: In the case of real properties considered as capital assets. without the benefit of any deductions. is the base for the computation of capital gains tax. of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax. 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. Debt condoned or remitted [Sec. the difference between the FMV and the actual value received in transfers for less than the adequate or full consideration shall not be subject to donor’s tax. is transferred for less than an adequate and full consideration in money or money’s worth. 22003]     Resident citizen Non-resident citizen Resident alien Non-resident alien 9. it pays for the capital gains tax. 11. what the seller avoids in the payment of donor’s tax. Requisites of valid gift or donation (CIDA)     Capacity of the donor Intent to donate Delivery of the subject gift. other than a real property that has been subjected to the final capital gains tax. b. whether actual or constructive Acceptance by the donee See Estate of Fidel Reyes. 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. unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. 10. who are usually members of a family or into many trusts. Reg.3. that is given by the donor to the donee by way of gift. 8. Classification of donor 6.Nature The subject of donor’s tax is the gift or donation. the amount of the debt is a gift from the creditor to the debtor and need not be included in the latter's gross income. In essence. [Sec. The rationale is that under Section 24 (d). with the donor thereby escaping the effect of the progressive rates of income tax. real or personal. However. including the surviving spouse. a general renunciation by an heir. and shall be included in computing the amount of gifts made during the calendar year. January 16. 5. 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. c. CTA Case No. Rev. Determination of gross Gift Gross gift refers to all property. Composition of Gross Gift RESIDENT CITIZEN/NON-RESIDENT CITIZEN/RESIDENT ALIEN  Real property within and without the Philippines  Tangible personal property within and without the Philippines  Intangible personal property within and without the Philippines NON-RESIDENT ALIEN  Real property within the Philippines  Tangible personal property within the Philippines  Intangible personal property within the Philippines TAXATION LAW REVIEWER Page 75 of 165 . 6747. tangible or intangible.

whichever is HIGHER 12. This has the effect of splitting the value of the gift into half for both spouses so each spouse can claim the exemption. world  13. Shares. both spouses must file separate returns because the husband and wife are considered as distinct entities for purposes of donor’s tax. FORMULA Limitation A (per country): Net gifts.000 NOTE: Both parents may make dowries and gifts made on account of marriage. or to any political subdivision of the said Government (c) Gifts in favor of a non-profit educational and/or charitable. not more than 30% shall be used by such donee for administration purposes. donor’s tax Net gifts. 11. The law of the foreign country of which the donor was a citizen and resident at the time of his death: a. provided. However. governed by trustees who received no compensation. rights in any partnership business or industry established in the Phil. 101) The exemptions are not to be treated as exclusions from the gross gifts of the donor. recognized natural. They partake the nature of deductions and are therefore. NON-PROFIT EDUCATIONAL AND/OR CHARITABLE CORPORATION is one which is incorporated as a non-stock entity paying no dividends. In respect of the intangible personal property owned by citizens of the Philippines not residing in that foreign country. obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines. Each parent shall be entitled to the exemption above. world Limitation B (by total): Net gifts. The donor at that time of his death was a citizen and resident of a foreign country which at the time of his death a. (b) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit. donor’s tax Net gifts. Shares. Shares. if such shares. with a situs in the Philippines (Section 104) The intangibles shall not form part of the gross gift if: 1. obligations or bonds issued by any foreign corporation. In respect of the intangible personal property of citizens of the Philippines not residing in that foreign country. deductible from the gross gift in order to arrive at the net taxable gift. and devoting all its income to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation   RECIPROCITY CLAUSE Intangible personal property of a decedent who is nonresident alien. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. obligations or bonds have acquired a business situs in the Philippines. which must be exercised in the Philippines. cultural or social welfare corporation. or 2. or adopted children to the extent of the first P10. institution accredited non-government organization. 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. Tax credit for donor’s taxes paid in foreign country WHO ARE ENTITLED TO CLAIM CREDITS: Only resident or citizen donors TAXATION LAW REVIEWER Page 76 of 165 . religious. Shares. foreign country X Phil. foreign country X Phil. Allow a similar exemptions from transfer taxes or death taxes of every character c.SPECIAL RULES ON INTANGIBLE PROPERTIES Intangible personal properties with situs in the Philippines (Section 104)   Franchise. Did not impose a transfer tax or death tax of any character b. trust or philanthropic organization or research institution or organization. Valuation of gifts made in property   Personal property: FMV at the time of donation Real Property: FMV as determined by the Commissioner or the FMV in the latest schedule of values of the provincial or city assessor. Exemption of gifts from donor’s tax (Sec.

institution accredited non-government organization. Inc. the donor engaged in business shall give a notice of donation on every donation worth at least Fifty Thousand Pesos (P50. The Court was not convinced that since the purpose of the contribution was to help elect a candidate. there was no donative intent. 23. religious. 15. donative intent is not negated when the person donating has other intentions. 120721. This being the case. donation to him shall not be considered as donation made to stranger.  Donative intent is a creature of the mind.(PCNC). 2005] COMPUTATION OF TAX AND PERSON LIABLE (Applicable only on donations made to a person who is not a stranger. Abello v. It cannot be perceived except by the material and tangible acts which manifest its presence. not more than 30% shall be used by such donee for   TAXATION LAW REVIEWER Page 77 of 165 . or to any political subdivision of the said Government (b) Gifts in favor of an non-profit educational and/or charitable. spouse. and therefore. CIR. provided. Petitioners’ contribution of money without any material consideration evinces animus donandi. ancestor and lineal descendant 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. Person liable Any person.(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. Feb. Tax Basis NOTE: 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. stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such qualified-donee institution for administration purposes pursuant to the provisions of Section 101(A)(3)and (B)(2) of the Code [RR 2-2003]. Gross Gift Less: deductions Net gift Multiply by: tax rate Donor’s tax MADE BY A NONRESIDENT ALIEN (a) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit.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. resident or nonresident. Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger.) On the 1st donation of the year xx xx xx xx xx ========== On subsequent donation during the year Gross Gift Less: deductions Net gift Add: prior net gift Aggregate net gifts Multiply by: 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 ========== TAX RATES 1. transferring the property by gift. cultural or social welfare corporation. Mother/Father-in-laws are considered strangers. Donee is a Stranger to the Donor Rate: 30% A Stranger is a person who is not a: 1) Brother. 99[A]) administration purposes 14. [GR No. Second. which shall be attached to the said Notice of Donation. trust or philanthropic organization or research institution or organization. The fact that their purpose for donating was to aid in the election of the donee does not negate the presence of donative intent. (f) Donations not exceeding P100. motives or purposes which do not contradict donative intent.000 per year (Sec. sister (whether by whole or half-blood). donative intent is presumed present when one gives a part of one’s patrimony to another without consideration.

G. G. properties or services. No. exchange of goods or property. The term “in the course of trade or business” requires the regular conduct or pursuit of a commercial or an economic activity. Neither was there an exchange of service. 3. transferee or lessee of the goods. barter or exchange of goods or properties from the questioned transaction. without realizing profit. Sony Philippines v. No. NATIONAL INTERNAL REVENUE CODE D. even in the absence of profit attributable thereto. DESTINATION PRINCIPLE DESTINATION PRINCIPLE: VAT is imposed in the country in which the products or services are actually consumed or used. NATURE AND CHARACTERISTIC  VAT is a tax on consumption levied on the sale. American Express. barter. IMPACT OF TAX  Originally. then the service rendered is subject to VAT. Donee is NOT a Stranger to the Donor Rate: Graduated Rates ====================================== TOPIC UNDER THE SYLLABUS: II. Hence. The CIR’s reliance on the case of CIR v. the tax is imposed against the seller of goods properties or services.R. Exports exempt. What was being taxed were these services rendered to its affiliates. the importer is the one liable for the VAT [CIR v. for purposes of determining liability for VAT on services rendered. ORIGIN PRINCIPLE: only national taxpayers would be exposed to the tax. CIR. in order that VAT may be imposed. Goods and services are taxed only in the country where they are consumed. However. There was no sale. TAXATION LAW REVIEWER Page 78 of 165 . the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. [CIR v. it is immaterial whether the primary purpose of a corporation indicates that it receives payment for services rendered to its affiliates on a reimbursement-on-cost basis only. without distinguishing between transactions “consumed” locally or abroad. INCIDENCE OF TAX  The tax is shifted to the buyer of the goods. Situs: country of production CROSS-BORDER DOCTRINE: No VAT shall be imposed to form part of the cost of goods sold destined for consumption outside of the territorial border of the taxing authority. June 29. In the case of importation. 6185. properties or services. Exports taxable. As long as the entity provides service for a fee. 2005] As a general rule.  VAT is an indirect tax levied on goods and services. In the above ruling. remuneration or consideration.) 2. there must be the existence of a transaction that is subject to VAT. 2000] VAT is a tax on transactions. 1. COMASERCO rendered services to its affiliates. March 30. under which the supply of service shall be zero-rated when the following requirements are met: (1) the service is performed in the Philippines. 2007] The fact that the advertising expense is subsidized or reimbursed by Sony International does not render the same automatically subject to output VAT. imposed at every stage of the distribution process on the sale. 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. and ultimately paid by consumers in the form of higher prices 4. regardless of whether or not the entity is profit-oriented. imports exempt. 125355. 152609. Thus. [CTA EB Case No. not on persons. imports taxable. (NOTE: Basically.R. COMASERCO.2. and (3) it is paid for in acceptable foreign currency that is accounted for in accordance with BSP rules. the SC held that COMASERCO is liable for output VAT. exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines  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. COMASERCO is misplaced. and in the performance of services. Value-Added Tax ====================================== Considering that there are no sale. our VAT law itself provides for a clear exception. May 17. 90 CTA Case No. barter. (2) the service falls under any of the categories provided in Section 102(b) of the Tax Code. the imposition of output VAT on subsidized advertising expense has no leg to stand on. barter or exchange of goods or properties in the instant case.

barter or exchange of the goods or properties. Hence. should still be higher than the consideration in the document of sale. CS Garments v. The excise tax. the sale of motor vehicle used by its officers is an incidental transaction because the said vehicle was purchased in the furtherance of petitioner’s business.5. trade brand or other like property or right  the right or the privilege to use in the Philippines of any industrial. the zonal/market value. by any person regardless of whether or not the person engaged therein is a non-stock. goodwill. including transactions incidental thereto. excluding the VAT. whichever is higher NOTE:  If the VAT is not billed separately. nonprofit private organization or government entity  Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business. July 28. [CTA case no. 6520. television. barter or exchange of goods or properties shall be subject to 12% VAT based on the gross selling price or gross value in money of the goods or properties sold. even if the performance of services is not regular CIR v. or depending upon another. film tapes and disc  radio. whether or not made in the course of trade or business Definition of “in the course of trade or business” (Rule of Regularity)  The regular conduct or pursuit of a commercial or an economic activity. and (2) undertaken in pursuit of a commercial or economic activity are considered as entered into in the course of trade or business. 146984. barters. secret formula or process. of such goods or properties shall form part of the gross selling price. something necessary. the zonal or market value shall be deemed exclusive of VAT. or exchanges goods or properties (seller or transferor)  Leases goods or properties (lessor)  Renders services (service provider)  Imports goods (importer). Sale of Real Properties  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  sale of real properties may either be on an installment basis or deferred-payment basis. 105] Any person who. TAXATION LAW REVIEWER Page 79 of 165 . exclusive of the VAT. commercial or scientific equipment  the right or the privilege to use motion picture films. 2006] The term “course of business” or “doing business” connotes regularity of activity. satellite transmission and cable television time 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. Goods: all tangible and intangible objects which are capable of pecuniary estimation. which is termed the principal. appertaining to. plan.  The consideration stated in the sales document. Magsaysay Lines. VAT ON SALE OF GOOD OR PROPERTIES [Sec. Therefore. trademark. Exceptions to the rule of regularity  Any business where the gross sales or receipt do not exceed P100. PERSONS LIABLE [Sec.R. 4 January 2007] A transaction will be characterized as having been entered into by a person in the course of trade or business if it is (1) regularly conducted. design or model. Includes:  Real properties held primarily for sale to customers or held for lease in the ordinary course of business  the right or the privilege to use patent. barter. 6. in the course of trade or business  Sells. Thus. net of the output VAT.000 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business  Services rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business. the selling price stated in the sales document shall be deemed to be inclusive of VAT  If the gross selling price is based on the zonal value or market value of the property. 106] Every sale. [G. CIR. an isolated transaction is not necessarily disqualified from being made incidentally in the course of trade or business. No. exchange of goods or services not in the course of trade or business in not subject to VAT. copyright. if any. or  The fair market value (FMV) as determined by the Commissioner (zonal value) or FMV as shown in the schedule of values of the Provincial and City Assessors. “Incidental” means something else as primary. Any sale.

inward letters of credit. the price needs only to exceed P1 million of the installment sale of residential house and lot or other residential dwellings to be subject to 10% VAT 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. sales to bonded manufacturing warehouses of export-oriented manufacturers. Accounted for in accordance with the rules and regulations of the BSP c. Paid for in acceptable foreign currency or its equivalent in goods or services iii. AND EFFECTIVELY ZERO RATED SALES OF GOODS OR PROPERTIES (a) The following sales by VAT-REGISTERED persons shall be subject to 0% rate: Export Sales a. bills of lading. The sale and actual shipment of goods from the Philippines to a foreign country i. the net selling price of export products sold by a registered export producer to another export producer.B. 2005. Correspondingly. or ii. sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227.a. Those considered export sales under the Omnibus Investment Code of 1987 and other special laws Under Omnibus Investment Code: i. landing certificates. the transfer is subject to VAT as a deemed sale transaction. the VAT shall be collected on the installment payments. sale on the deferred-payment 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. Provided. where the instrument (whether the instrument is nominated as a deed of absolute sale. repacking in the Philippines of the said buyer’s goods iii. for delivery to a resident local export-oriented enterprise ii. of export products exported directly by a registered export producer. the Philippine port F. packing. TAXATION LAW REVIEWER Page 80 of 165 . 2005 shall be subject to 12% VAT (10% VAT prior to February 1. sales to export processing zones iii. Accounted for in accordance with the rules and regulations of the BSP b.    The real estate dealer shall be subject to VAT on the installment payments. Constructive Exports: i. iii. the buyer can claim the input tax in the same period that the seller recognized the output tax. It also excludes notes or other evidence of indebtedness issued by the purchaser to the seller at the time of the sale. However. In this case. ii. and other commercial documents. in which case the excess shall be considered part if the initial payments. value determined from invoices. sale of real property on installment plan: sale of real property by a real-estate dealer. is the property transferred is one for sale. It excludes amount of mortgage on the real property sold except when such mortgage exceeds the cost or other basis of the property to the seller.5 million. the initial payments of which in the year of sale do not exceed 25% of the gross selling price. ZERO-RATED SALES OF GOODS OR PROPERTIES. developing. Where the instrument of sale was executed prior to November 1. “Real estate dealer” includes any person engaged in the business of buying. Paid for in acceptable foreign currency iv. 7. deed of conditional sale. residential house and lot or other dwellings with gross selling price exceeding P2. Irrespective of any shipping arrangement ii. Sale of gold to the BSP e. Sale of residential lot with gross selling price exceeding P1. lease or use in the ordinary course of trade or business and the transfer constitutes a complete gift. Sale of raw materials or packaging materials by a VATregistered entity to a nonresident buyer i.5 million. actually and/or constructively received by the seller. or otherwise) is executed on or after November 1.O. Sale of raw materials or packaging materials to exportoriented enterprise whose export sales exceed 70% of total annual production d. including interest and penalties. 2006). exchanging real properties as principal and holding himself out as a full or part-time dealer in real estate. selling. Initial payments: Covers any down payment made and includes all payments actually or constructively received during the year of sale. that sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter. processing. Used in the manufacturing. as evidenced by landing certificates or similar commercial documents. or to an export trader that subsequently exports the same. b.

NOTE:  For purposes of zero-rating export sales of registered export traders shall include commission income. except those mentioned in Section 149 (automobiles) and 150 (nonessential goods)  Assembled or manufactured in the Philippines  For delivery to a resident in the Philippines  Paid for in acceptable foreign currency and accounted for in accordance with BSP regulations. the output tax shall be based on the market value of goods deemed sold as of the time of the occurrence of the transaction. 2005]   8. v.  Refer to exemptions granted under special laws or treaties which are extended not only to the grantee but also to its supplier (b) Automatic vs. that sales of goods. sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). properties or services made by a VAT-registered supplier to a BOIregistered manufacturer/ producer whose products are 100% exported are considered export sales. Since the buyer is exempt from indirect tax.  Exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee. [G.  Provided. such rate obviously results in no tax chargeable against the purchaser. NOTE: The gross selling price is “unreasonably lower” than the fair market value if it is lower by more than 30% of the TAXATION LAW REVIEWER Page 81 of 165 . however. as applied to the tax base. When applied to the tax base. the actual market value shall be the tax base. Again.  An automatically zero-rated sale refers to a sale of goods. the seller cannot pass on the VAT and therefore. [RMC 50-2007] An effectively zero-rated sale. February 11. but can claim a refund of tax credit certificate for the VAT previously charged by supplier.  The sale of goods. of locally manufactured. finally. properties and services by a VAT-registered person to an entity that was granted indirect tax exemption under special laws or international agreements. such rate does not yield any tax chargeable against the purchaser. Effectively zero-rated transactions. refers to the local sale of goods.R. The tax rate is set at zero. [RMC 50-2007] Automatic zero-rated transactions generally refer to the export sale of goods and supply of services. equipment and fuel to persons engaged in international shipping or international air transport operations NOTE: Limited to goods. supplies. supplies. refer to sale of goods or supply of services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transactions to zero-rate. sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities. assembled or repacked products whether paid for in foreign currency or not. on the other hand.  A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI. automatic zero-rated transactions differ from effectively zero-rated transactions as to their source.iv. making the sale effectively zerorated. properties and services by a VAT-registered seller/supplier that is regarded as either an export sale or a foreign currency denominated sale under Section 106 of the Tax Code of 1997. CIR v. Seagate. 153866. Effectively Zero-Rated Sale Although both are taxed similarly. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate. The seller of such transactions charges no output tax. In the case of a sale where the gross selling price is unreasonably lower than the fair market value. the exemption enjoyed by the buyer shall extend to the seller. TRANSACTIONS DEEMED SALE (IN EFFECT SUBJECT TO 12% VAT) For transactions deemed sales. The seller who charges output tax on such transactions can also claim a refund or tax credit certificate for VAT previously charged by suppliers. No. 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 Foreign Currency Denominated Sale (internal exports)  Sale to a non-resident of goods.

[Revenue Regulations 16-2005. Includes non-exempt persons or entities who acquire tax-free imported goods from exempt persons.500.  Creditors in payment of debt or obligation 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 Retirement from or cessation of business. plus custom duties. subject to 12% output VAT (1) change of business activity from VAT taxable status to VAT-exempt status (2) approval of a request for cancellation of registration due to reversion to exempt status (3) 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 (4) approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipt exceeding P1. shall be absorbed by the surviving or new corporation. 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. 107]  VAT is imposed on goods brought into the Philippines. Importer: refers to any person who brings goods into the Philippines.actual market value. whichever is LOWER. as of the date of merger or consolidation. c. VAT ON IMPORTATION OF GOODS [Sec.000 but who failed to exceed this amount during the first 12 months of operations b. with respect to inventories of taxable goods existing as of such retirement or cessation. b. d. and if any. Transfer. The VAT shall be paid by the importer prior to the release of such goods from customs custody.  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 NOTE: For retirement or cessation of business. The unused input tax of the dissolved corporation.1.  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 Distribution or transfer to:  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 Retained Earnings on or after Jan. 9. not subject to 12% output VAT (1) change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders i. bartered or exchanged despite the change in the ownership interest of the corporation. entities or agencies Tax base = total value used by BOC in determining tariff and customs duties. whether for use in business or not. 10. excise tax. prior to the release of the goods from customs custody If the valuation used is based on volume or quantity of the imported goods. [Revenue Regulations 10-2011] ii. and similar charges. Landed cost = invoice amount. customs duties. freight. Exchange of property by corporation acquiring control for the shares of stocks of the target corporation is subject to VAT. (2) change in the trade or corporate name of the business (3) merger or consolidation of corporations i. having a change in corporate control. commission. The goods or properties used in business or those comprising the stock-in-trade of the corporation. 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. CHANGES IN OR CESSATION OF STATUS OF A VAT REGISTERED PERSON a. Revenue Regulations 4-2007] a. the tax base shall be the acquisition cost or the current market price of the goods or properties. whichever is applicable. the landed cost shall be the basis for computing VAT. whether or not made in the course of his trade or business. other charges (postage. insurance and other charges (excise tax shall form part of the tax base)    TAXATION LAW REVIEWER Page 82 of 165 . will not be considered sold.

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. or the right to use.  Deposit in banks which are made available to the seller of service without restrictions  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 Advance payments made by lessee for lease of property: Advance payments may be in the form of: i. or exchange of imported goods by taxexempt persons: In the case of goods imported by VATexempt persons. Sale or Exchange of Service: the performance of all kind of services in the Philippines for others for a fee. assistance or services rendered in connection with technical management or administration of any scientific. service fee. VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES Sale or exchange of service. trademark. design or model. The supply of technical advise. are liable to VAT TAXATION LAW REVIEWER Page 83 of 165 . Pre-paid rental  If the advance payment is for the faithful performance of certain obligations of the lessee. technical. or iii. trade brand. which goods are subsequently exported ii. ZERO-RATED SALES OF SERVICE The following services performed in the Philippines by a VAT-REGISTERED person shall be subject to 0% VAT rate: a. whether in cash or in kind. or the installation or operation of any brand. The lease or use of. venture. manufacturing. commercial or scientific equipment iii. or right as is mentioned in subparagraph (b) hereof or any such knowledge or information as is mentioned in subparagraph (c) hereof v. and amounts received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. satellite transmission and cable television time b. and discs viii. or iv. 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.a. then such payment is taxable to the lessor in the month when received. television. The supply of scientific. whether real or personal. irrespective of the accounting method employed by the lessor 12. Gross Receipts: total amount of money or its equivalent representing the contract price. where the services are paid for in acceptable foreign currency 11. or the right to use any industrial. radio. plan. Lease or the use of or the right or privilege to use any copyright. industrial or commercial undertaking. or other like property or right ii. superior to all charges/liens. remuneration or consideration. The lease or the use of. The lease of motion picture films. 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. A loan to the lessor from the lessee. or other apparatus purchased from such nonresident person vi. transfer. machinery. An option money for the property. or ii. the latter shall be considered the importers thereof and shall be liable for VAT due on such importation. patent. transferred or exchange in the Philippines to non-exempt persons or entities. irrespective of the possessor of said goods. processing. i. The tax due on such importation shall constitute a lien on the goods. Sale or exchange of service shall also include: i. industrial or commercial knowledge or information iv. rental or royalty. or repacking goods for other persons doing business outside the Philippines. excluding VAT. as well as the use or lease of properties shall be subject to 12% VAT a. secret formula or process. it is not subject to VAT  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 pre-paid rental. The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to. entities or agencies which are subsequently sold. film tapes. Sale. Gross Receipts exclude amounts earmarked for payment to unrelated third (3rd) party. project or scheme vii. goodwill. A security deposit to insure the faithful performance of certain obligations of the lessee to the lessor. Lessors of property – all forms of property for lease. compensation.

prawn. b. pigs. d. and shall not extend to the sale of services related to the maintenance or operation of plants generating said power c. wind. January 22. or repacking i. vacuum packing. salting. NOTE: Zero rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy. fruit. sale of power or fuel generated through renewable sources of energy such as.R. aquarium fishes. livestock and poultry of a kind generally used as. sheep. prawns. TAXATION LAW REVIEWER Page 84 of 165 . ducks. corn grits and raw cane sugar and molasses. [G. NOTE: Gross receipts of international air carriers doing business in the Philippines and international sea carriers doing business in the Philippines are still liable to percentage tax. hydropower. seedlings and fingerlings. converting. geese and turkey  Does not include fighting cocks. zoo animals and other animals generally considered as pets  Marine food products: fish and crustaceans. livestock and poultry feeds. 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. 109] (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) The following are VAT-exempt transactions: a. Busmeirter. shrimps. e. 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. manufacturing. mussels and clams  Meat. 153205. accounted for in accordance with the rules and regulations of the BSP services other than processing. seeds. rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed CIR v. in the dry state: parameter reading of 99. and other similar packaging methods  Polished and/or husked rice. No. zoo animals and other animals generally considered as pets) 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 from customs duties under the Tariff and Customs Code of the Philippines Importation of professional instruments and implements.5 and above are presumed to be refined sugar  Bagasse is not included in the exemption provided for under this section sale or importation of fertilizers. fish. shrink wrappings in plastic. g. f. c. smoking or stripping. iii. broiling. solar. goats and rabbits  Poultry: fowls. geothermal and steam. race horses. including ingredients. roasting. ocean energy. such as but not limited to. trout. biomass. and other emerging sources using technologies such as fuel cells and hydrogen fuels. tetra-pack. 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. and breeding stock and genetic materials thereof  Livestock: cows. services performed by subcontractors and/or contractors in processing.] ii. The consideration of which is paid for in acceptable foreign currency iii. eels. ordinary salt and copra shall be considered as agricultural product in their original state  Sugar whose content of sucrose by weight. whether locally produced or imported. 2007 require performance of services to nonresident to qualify as zero-rated.b. goods or cargoes from one place in the Philippines to another place in the Philippines (subject to 12% VAT) 13. et al. including leases of property for use thereof NOTE: shall not pertain to those made to common carriers by air and sea relative to their transport of passengers. domestic animals. d. lobster. VAT EXEMPT TRANSACTIONS [Sec. or yielding or producing foods for human consumption. fighting cocks. wearing apparel. bulls and calves. used in the manufacture of finished feeds (except specialty feeds for race horses. and personal household effects (except any vehicle. oysters. vessel. sale or importation of agricultural and marine food products in their original state. but not limited to. drying.

pertain to toll processing services for clients from which growing of animals were contracted. except those rendered by professionals  Laboratory services are exempted  If the hospital or clinic operates a pharmacy or drug store. 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  Utilized for socialized housing  Residential lot valued at 1. f. Services rendered by individuals pursuant to an employer-employee relationship j. in-service training. machinery and other goods for use in the manufacture and merchandise of any kind in commercial quantity)  Belonging to persons coming to settle in the Philippines  For their own use and not for sale. dental. 97-2010. machineries and equipment. the activity of preparing and packaging hogs/chicken ready for delivery after producing or growing is considered within the purview of agricultural contract growing. which are covered by the VAT exemption of services by agricultural contract growers under Section 109(F) of the Tax Code of 1997. if the toll processing/toll dressing/toll manufacturing service is performed independently from growing poultry. or other agricultural and marine food products. the sale of drugs and merchandise is subject to VAT. However. which are exempt from VAT. If the cooperative is not the producer (e. 2010] medical. communications and coordinating centers for their affiliates. hospital and veterinary services. Educational services rendered by private educational institutions duly accredited by the DepED. including spare parts thereof. 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.  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. However. CHED and TESDA and those rendered by government educational institutions  Does not include seminars.g. to non-members their importation of direct farm inputs.  However. which is exempt from VAT under Section 109(F) of the Tax Code of 1997. g. corn into grits and sugar into raw sugar  BIR has clarified that toll processing or toll dressing.. the sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer m.5M and below TAXATION LAW REVIEWER Page 85 of 165 .5M and below. Services rendered by regional or area HQ established in the RP by multinational corporations which act as supervisory. sales by agricultural cooperatives duly registered and in good standing with the CDA to their members. Thus. whether in its original state or processed form. or house and lot and other residential dwellings valued at 2. h. the activity is not covered by the agricultural contract growing and therefore subject to VAT under Section 108 of the Tax Code of 1997. [Revenue Memorandum Circular No. to be used by them are subject to VAT o. as amended. Sales by non-agricultural. sales of drugs to inpatients of hospitals are considered part of hospital services. to be used directly and exclusively in the production and/or processing of their produce  Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. then only those sales to its members shall be exempted from VAT. trader). Transactions which are exempt under international agreements to which the Philippines is a signatory. livestock. Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the CDA n. Export sales by persons who are not VAT-registered p. subsidiaries or branches in the Asia Pacific Region and do not earn or derive income from the Philippines k. as amended. barter or exchange. aircraft. including spare parts thereof. review classes and other similar services rendered by persons who are not accredited by the DepED. as well as sale for their produce. the CHED and/or TESDA i.000 and regardless of the aggregate capital and net surplus ratably distributed among the members  Importation of machineries and equipment. December 21.e. except those under PD 529 [Petroleum Exploration Concessionaires under the Petroleum Act of 1949] l.

9295. machinery. the same shall be combined for purposes of determining whether the threshold has been exceeded.  The aggregation rule for each taxpayer shall apply  For instance.000 per month per unit shall be subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than P10. 149073. review. – Provided.5M. aside from the practice of his profession. from VAT-exempt b. including engine. No.5M. the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed 1.000) exceeds 1. Importation of fuel. the husband and wife shall be considered separate taxpayer. VAT-Exempt Transaction CIR v. that the exemption shall be subject to the provisions of Section 4 of Republic Act No. 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 Sale. subject to 3% percentage tax Sale. otherwise known as 'The Domestic Shipping Development Act of 2004'. February 16. 9295. otherwise known as ‘The Domestic Shipping Development Act of 2004'. Cebu Toyo Corporation. Provided. renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade. Otherwise. the VAT-exempt sales shall not be included in determining the threshold. 2005] A zero-rated transaction differs transaction on the following points: a. a zero-rated sale is a taxable transaction but does not result in an output tax while an exempted transaction is not subject to output tax. importation. s. and other nonbank financial intermediaries subject to percentage tax such as money changers and pawnshops x.5M. or lease of passenger or cargo vessels and aircraft. Instrument must be executed on or after July 1. steel plates and other metal plates including marine-grade aluminum plates. non-bank financial intermediaries performing quasi-banking functions. Provided. That not later than January 31. r. 2005. Thus. if a professional. [G. A VAT-registered person may. steel – plates and other metal plates including marine-grade aluminum plates to be used in the construction.q. Sale or lease of goods or properties or the performance of services other than the transaction mentioned in the preceding paragraphs. v. for the purpose of utilizing the lots as one residential lot. t. – If two or more adjacent residential lots are sold or disposed in favor of one buyer. 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. printing or publication of books and any newspaper. that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year. 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 w. The input tax on purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt. importation. life-saving and navigational equipment. safety and rescue equipment and communication and navigational safety equipment. repair. the gross annual sales and/or receipts do not exceed 1. that the exemption shall be subject to the provisions of Section 19 of Republic Act No.5M Lease of residential units  Monthly RENTAL: not exceeding P10. Services of banks. spare parts. u. further. Importation of capital equipment. at the time of acquisition counted from the date of he vessel’s original commissioning – Passenger/cargo vessel: 15 years old – Tankers: 10 years old – High-speed passenger crafts: 5 years old  Exemption shall be subject to the provisions of “The Domestic Shipping Development Act” Importation of life-saving equipment. including engine and spare parts of said vessels  Comply with the age limit requirement. Zero-Rated vs. magazine. the amounts stated herein shall be adjusted to its present value using the Consumer Price Index. Provided. TAXATION LAW REVIEWER Page 86 of 165 . as published by the National Statistics Office (NSO). equipment and spare parts thereof for domestic or international transport operations  Limited to 150 tons and above. 2009 and every three (3) years thereafter.R. used for shipping transport operations.000  Gross receipts from rentals exceeding P10. also derives revenue from other lines of business which are otherwise subject to VAT.  For purposes of the threshold of 1.

[Sec. 2009. including packaging materials. or TAXPAYER To the importer TIME TO CLAIM INPUT TAX Upon payment of VAT prior to the release of goods from customs custody Upon consummation of the sale Upon payment of the compensation. 7716. It shall also include the transitional input tax determined in accordance with Section 111 of the Tax Code. c. are specifically listed and expressly exempted from the VAT under the Tax Code. Such party is also not subject to VAT. CIR v. PERSONS WHO CAN AVAIL OF THE INPUT TAX 15. 158885 and 170680. 2005] 14. or iv) For use as raw materials supplied in the sale of services. but the seller is not allowed any tax refund of or credit for any input taxes paid. e. SOURCES OF INPUT TAX a. CIR. 153866. by their nature. [G. Persons engaged in transactions which are zero-rated.R. or ii) For conversion into or intended to form part of a finished product for sale. or iii) For use as supplies I the course of business. depending on its registration as a VAT or nonVAT taxpayer. being subject to VAT. Corp. Purchase or impartation of goods i) For sale. as amended by R. Such transaction is not subject to VAT. a special law or an international agreement to which the Philippines is a signatory. For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code Purchase of real properties for which a VAT has actually been paid Purchases of services in which a VAT has actually been paid Transactions deemed sale Transitional input tax  A person who becomes liable to VAT or any person who elects to be a VAT-registered person shall be allowed to claim input tax on his beginning inventory of goods. To the purchaser of the domestic goods or properties To the purchaser of services or the lessee or licensee TAXATION LAW REVIEWER Page 87 of 165 . v) b. v. Rate: 4% of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production Transitional input tax credits allowed under the transitory and other provisions of these Regulations Creditable Withholding VAT on payments to nonresidents d.R. lease or exchange of taxable goods or properties or services by any person registered or required to register under section 236 of the Tax Code. without regard to the tax status (VAT exempt or not) of the party to the transaction. on the one hand. but may be entitled to a tax refund or credit for input taxes paid. mackerel. are required to register while registration is optional for VAT-exempt persons. materials and supplies. Presumptive input tax Covered: Persons or firms engaged in the processing of sardines. Fort Bonifacio Devt. BIR Website] Output tax means the VAT due on the sale. is a person or entity granted VAT exemption under the Tax Code. 16. February 11. Nos. An exempt transaction. 104 now 105. involves goods or services which.c. f. on the other hand. Exempt Party The object of exemption from the VAT may either be the transaction itself or the parties to the transaction. including lease or use of property. canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. INPUT VAT AND OUTPUT VAT DEFINED Input tax means the VAT paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services. rental. h. cooking oil and packed noodle-based instant meals The term “processing” shall mean pasteurization. April 2. [BIR Website] g. materials and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on such goods. Seagate Technology. Exempt Transaction vs. and milk and in the manufacturing refined sugar. whichever is higher. and by virtue of which its taxable transactions become exempt from VAT.A. from a VAT-registered person. No. An exempt party. G.

the input tax cannot be claimed outright but should be subject to amortization over a period of 5 years or useful life of the capital goods. the input taxes may not be claimed. amount thereof should form part of gross sales duly recorded in the books. whichever is lower. 17. properties. DETERMINATION OF THE INPUT/OUTPUT TAX. Computation of output tax i. the Department of Finance. VAT PAYABLE. such as purchase returns or allowances. and the granting of the discount does not depend on the happening of the future event) (2) 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 ii. Goods or properties: Gross selling price x VAT rate Allowable deductions from gross selling price (1) discounts determined and granted at the time of sale (expressly indicated in the invoice. To the purchaser of real property under: Cash/Deferred Payment Basis Installment Basis  Upon consummation of sale Upon every installment payment NOTE: Even if the said events have already transpired but the required documents are not on hand. EXCESS INPUT TAX CREDIT a. Manner of claiming input tax of more than P1 million (1) estimated useful life of a capital good is 5 years or more:  input tax spread evenly over a period of 60 months Determination of input tax credit 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/quarter (claim for VAT refund or tax credit certificate) (other adjustments – purchase returns) (input tax attributable to exempt sales) (input tax on capital goods purchased during the month/quarter subject to amortization) +/(difference between standard input and actual input on government sales) + (creditable VAT withheld on payments to nonresidents) = Input Tax Credit   NOTE: Adjustments to Input Tax Addition to Creditable Input Tax TAXATION LAW REVIEWER Page 88 of 165 . Sellers of service: Gross receipts x VAT rate Input tax arising from qualified transactions in the current month or quarter  Input tax carried-over from the preceding month or quarter Reduction in Creditable Input Tax  Amount of claim for VAT refund or Tax Credit Certificate (whether filed with the BIR. the input tax may be claimed outright as credit against output tax. input tax attributable to exempt sales and input tax attributable to sales subject to final VAT withholding. ii. 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 Claim for Input Tax on Depreciable Goods i.royalty or fee. If the aggregate acquisition cost of all capital goods in a calendar month does not exceed P1 million. including lease or use of properties.  Requisites: A VAT-registered person purchases or imports capital goods (which are depreciable goods for income tax purposes) If aggregate acquisition cost of all capital goods (exclusive of VAT) in a calendar month exceeds P1 million. Credits for Input Tax  The VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods. b. Aggregate acquisition cost refers to the total price agreed upon for one or more assets acquired and not the payments actually made during the calendar month. the Board of Investments or the BOC)  Other adjustments. or services.

Input Tax VAT payable VAT Payable (Excess Output) or Excess Input Tax  If at the end of any taxable quarter the output tax exceeds the input tax. SUBSTANTIATION REQUIREMENTS OF INPUT TAX CREDITS Required Supporting Documents for claiming Input VAT TRANSACTIONS REQUIRED SUPPORT On domestic purchases of VAT Invoice goods or properties made in the course of trade or business On purchases of real property Public Instrument (i. contract/agreement to sell.  If the input tax exceeds the output tax.  Any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or credited against other internal revenue taxes subject to provisions of Section 112.. instrumentalities or agencies. deed Cash/Deferred Payment of absolute sale. commenced in the calendar month when the capital good is acquired (2) estimated useful life is less than 5 years:  input tax spread evenly on monthly basis by the actual number of months comprising the estimated useful life of the capital good  commenced in the calendar month when the capital good is acquired 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. the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions  only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit ii. the aggregate input taxes shall be allocated ratably between the zero-rated sale and nonzero-rated sale d. all the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit  input taxes which are directly attributable to VAT taxable sales of goods and services from the Government or any of its political subdivisions. can be claimed as input tax credit during the month or quarter when the sale or transfer was made but subject to limitation c. 18.e. the excess shall be carried over to the succeeding quarter or quarters. Allocation of input tax on mixed transactions VAT payable computation: Output Tax .) together with the VAT Invoice for the entire selling price and Non-VAT ORs for the initial and succeeding payments Installment Basis On domestic purchase of services On importation of goods Public Instrument and VAT OR for every payment VAT OR Import entry or other equivalent document showing actual payment of VAT on the imported goods and BOC OR. the excess shall be paid by the VAT-registered person. Required invoices Monthly Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of 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: i. deed of Basis conditional sale. including GOCCs shall not be credited against output taxes arising from sales to nongovernment entities if any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction. NOTE:  input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of cost of goods sold  for persons engaged in both zero-rated sales and nonzero rated sales. etc. Determination of the output tax and VAT payable and computation of VAT payable or excess tax credits On transitional input tax On “deemed sale” transactions On payments made to nonresidents TAXATION LAW REVIEWER Page 89 of 165 . Inventory of goods as shown in a detailed list to be submitted to the BIR.

000 or more. unit cost and description of the goods or properties or the nature of service  For sale of VAT-registered persons amounting to P1. quantity. Hence. the issuer shall. the taxpayer . No. if filed with CTA before the 120-day period expires. Payment order showing payment of the advance VAT A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the information required under Sec. followed by the word “VAT”. the CIR fails to act on the application for tax refund/credit. Otherwise. 184823. from the date of the submission of the complete documents within which to grant or deny the claim for refund/credit d. CIR v. If filed with CTA after the 150-day (120 + 30 days). and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions. it shall be allocated proportionately on the basis of the volume of sales. the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days. [G. the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. indicate the name. in addition to any liability for other percentage taxes. Cancellation of VAT registration  A person whose VAT registration has been cancelled due to retirement from or cessation of business. In case of full or partial denial by the CIR.  The creditable input tax allowed to be refunded does not include transitional input tax. This only applies to credit input tax refunds. b. business style.R. INVOICING REQUIREMENTS a. The following information shall appear in the VAT Invoice or VAT Official Receipt:  A statement that the seller is a VAT-registered person followed by the TIN  The amount of tax shown as a separate item  The word “VAT-Exempt Sale” written or printed prominently if sale is VAT-exempt  The word “Zero-Rated Sale” written or printed prominently if sale is VAT-exempt.  TAXATION LAW REVIEWER Page 90 of 165 . CTA will dismiss for prematurity. Aichi Forging Company. October 6. Consequences of issuing erroneous VAT invoice or VAT official receipt If a person who is not a VAT-registered person issues an invoice or receipt showing his Tax Identification Number (TIN). properties or services  Any VAT-registered person whose sales are zerorated or effectively zero-rated may within 2 years after the close of the taxable quarter when the sales were made.  In case the taxpayer is engaged in zero-rated and also in taxable or exempt sale.Advance VAT on Sugar the non-resident evidencing remittance of VAT due which was withheld by the payor.may appeal to the CTA within 30 days from the laps of the 120-day period  The CIR has 120 days. may within 2 years from the date of cancellation. 113 and 237 of the Tax Code (invoicing requirements) 19. Zero-rated and effectively zero-rated sales of goods. 2011] 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 20. of input VAT. address and TIN of the purchaser. CLAIMS FOR REFUND/TAX CREDIT CERTIFICATE OF INPUT TAX a. be liable to: b. Period within which refund or TCC of input taxes shall be made  The Commissioner 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. apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid attributable to such sale. A VAT-registered person shall issue:  A VAT Invoice for sale of goods or properties  A VAT Official Receipt for sale of services or lease of goods or properties ii. or due to changes in or cessation of status. c. if after the 120-day period. CTA will dismiss for being late.  Date of transaction. apply for the issuance of tax credit certificate for any unused input tax. Invoicing requirements in general i.

subject to the rule of allocation of input tax. 2010] NOTE: For the electronic payment of tax for returns required to be filed earlier under the staggered filing system. the SC clarified that the VAT invoice is the seller’s best proof of sale of goods or services to the buyer while the VAT receipt is the buyer’s best evidence of the payment of goods or services received from the seller. The purchaser shall be entitled to claim an input tax credit on his purchase. the SC held that a VAT invoice and VAT receipt should not be confused as referring to one and the same thing. The VAT shall be based on the contract price. whether large or non-large taxpayers) i. including GOCCs. instrumentalities or agencies. individuals.R. the transactions shall become taxable and the issuer shall be liable to pay the VAT thereon. shall be subject to the 12% withholding VAT.  The VAT is passed on to the resident withholding agent. as well as private corporations. with respect to lease or use of property or property rights in the Philippines owned by such non-residents. Manila Mining Corporation. On Payments to Nonresidents (creditable withholding VAT) (Rule applies to payments by government or any of its political subdivisions. still using the facilities of EFPS. b.  If a VAT-registered person issues a VAT invoice or official receipt for a VAT-exempt transaction. 2550M) Refers to first 2 months of taxpayer’s quarters Filing and Payment Deadline: 20 days from the end of the month. Kepco Philippines Corporation v. regardless of whether or not he is VAT-registered.      22. such as providing assistance in establishing tender price of a project and designing materials. Citing the case of CIR v. where an invoice is distinguished from a receipt.  The payor shall claim this as input tax upon filing of his own VAT return. WITHHOLDING OF VAT a. are subject to withholding VAT. by a nonresident. upon e-filing. taken collectively. but fails to display prominently on the invoice or receipt the words “VAT-EXEMPT SALE”. November 24. 181858. ii.i. the VAT invoices and receipts. 21. and ii. estates and trusts. except for Electronic Filing and Payment System (EFPS) taxpayers Filing Deadline for EFPS: Deadline depends on the industry classification of the taxpayer but applicable only for filing the monthly VAT return Payment Deadline for EFPS: 25 days from the end of the month   TAXATION LAW REVIEWER Page 91 of 165 . VAT invoices and official receipts cannot be used interchangeably for purposes of substantiating input VAT. and the best means to prove the payments of input VAT (proof of payments). FILING OF RETURN AND PAYMENT a. even though VAT invoices and receipts are normally issued by the supplier/seller alone. likewise give instructions to the Authorized Agent Bank (AAB) to debit its account for the amount of tax on or before the due date for payment thereof as prescribed under the prevailing/applicable laws/regulations. In supporting claims for input VAT on purchase of goods or properties. purchaser shall be allowed to recognize an input tax credit. output tax and input tax for the 3 months of the applicable quarter The VAT payable (Output Tax less Input Tax) for each quarter shall be reduced by the total amount of the tax previously paud for the preceding months. Hence. shall. As explained by the SC. NOTE:  The party required to withhold is the payor. A 50% surcharge on the VAT payable iii. Other services rendered in the Philippines by nonresidents Services rendered in the Philippines. EFPS: same deadline c. purchases.   Monthly VAT Declarations (BIR Form No. the law requires that a VAT invoice be presented while a VAT official receipt is necessary to substantiate claims for input VAT involving the purchase of services. Payments to non-residents.  Withholding VAT Return (BIR Form 1600) Filing and Payment Deadline: 10 days from the end of the month Quarterly VAT Return (BIR Form 2550Q) Filing and Payment Deadline: 25 days following the close of each taxable quarter The quarterly returns shall reflect the cumulative totals of the sales. If the invoice/receipts contain the required information. the taxpayer. Commissioner of Internal Revenue. the two should not be used interchangeably. [G. are necessary to substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction). VAT without the benefit of any input tax credit.

(6) LGUs. If the resident withholding agent is a non-VAT taxpayer. TAXATION LAW REVIEWER Page 92 of 165 .g. registered for income tax is not registered for VAT)  Generally. (7) Tax exempt persons such as those enumerated under Section 30 of the Code. (5) Marginal Income Earners. instrumentalities or agencies including GOCCs.  The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions. which VAT is passed on to the resident withholding agent by the non-resident recipient of the income. shall form part of the cost of purchased services. said passed-on VAT by the non-resident recipient of the income. in the discharge of their governmental functions. it shall be the responsibility of the RDO having jurisdiction of the new employer to effect the transfer of employee's registration.  The old RDO can still institute collection on concluded audit cases at the time of transfer of registration. may be claimed as input tax by said VAT-registered withholding agent upon filing his own VAT return.  The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller. (4) GAIs.  The following are exempt from the Annual RF: (1) Cooperatives duly registered with the CDA. and update such record of any changes in the registration information. including government owned or controlled corporations (GOCCs) shall. and (h) Annual registration fee. The old RDO shall terminate audit cases that are prescribing b. the excess may form part of the sellers’ expense or cost. (b) VAT and/or percentage tax.   VAT withheld and paid for the non-resident recipient. (g) Excise tax. as amended. (3) Overseas Workers. of the resident withholding agent. in the discharge of their governmental functions. VAT withheld shall be remitted within 10 days following the end of the month the withholding was made. (c) Withholding tax on compensation.  The Government or any of its political subdivisions. zero-rated sales and exempt sales.  In case of transfer of registration of individuals earning purely compensation income due to change of employer. On Payments by Government (final withholding VAT) (2) Individuals earning purely compensation income whether locally or abroad. the difference must be closed to expense or cost Registration Requirements 1. registration of tax types/fees by a business entity would consist of the following internal revenue taxes/fees: (a) Income tax. (9) Persons subject to tax under one-time transactions. (8) Non-stock/non-profit organizations not engaged in business.  Note that the registration of one tax type does not automatically register the other type of taxes (e. ADMINISTRATIVE REQUIREMENTS a. If actual input VAT attributable to sale to government is less than 7% of gross payment. Registration Requirements (see RR 11-08) Annual Registration Fee (RF)  Fee of (P500. in pursuance of tax-exempt activities. (d) Creditable withholding tax at source on certain income payments.  It shall be the duty of the old RDO to transfer the accountabilities of the taxpayer to the new RDO where he is transferring. Transfer of Registration  It shall be duty of the taxpayer to inform the RDO where he is registered by filing the prescribed BIR Form specifying the RDO where he is intending to transfer. before making payment on account of its purchase of goods and/or services taxed at 12% shall deduct and withhold a final VAT of 5% of the gross payment. pay taxes due thereon. subject to the rule on allocation of input tax among taxable sales.” whichever is applicable. which may be treated either as an “asset” or “expense. and (10) Facility/ies where no sales transactions occur. in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. instrumentalities or agencies.  Should actual input VAT attributable to sale to government exceed seven percent (7%) of gross payments. (e) Final withholding tax on certain income payments.00) for every separate or distinct establishment or place of business shall be paid upon registration and every year thereafter on or before January 31 by every person subject to any internal revenue tax. Registration of Each Type of Internal Revenue Tax  Every person who is required to register with the BIR shall register each type of internal revenue tax for which he/it is obligated to OR is expected to periodically file a return. (f) Documentary stamp tax.

whenever applicable. d) Death of an individual. administrator or executor or upon full settlement of the tax liabilities of the estate. Other Updates  Any person registered shall. Both the new and the old RDO shall be responsible in notifying the taxpayer concerned that the transfer of registration has already been effected. will exceed P1. c) Merger/Consolidation.00. Persons Required to Register for VAT Mandatory VAT registration  Any person who. however. merger or consolidation of juridical person.e. which has no registered tax types in the RDO where it is registered. 109(1)(A) to (U) of the Tax Code. b) Dissolution. d) A VAT-registered person whose gross sales or receipts for three consecutive years did not exceed P1. His gross sales or receipts for the past 12 months. Registration of employees of the transferring employers shall simultaneously be transferred to the new RDO once the transfer of registration of the employer is effected. shall immediately be effected by the concerned old RDO. TAXATION LAW REVIEWER Page 93 of 165 . Upon updating his registration. whose gross annual receipt for the preceding taxable year exceeded P10 million. i.00 shall be irrevocable.  Franchise grantees of radio and television broadcasting.5 million. d) Payment of estate tax by the heirs. Transfer of head office of taxpayers engaged in business during the interim period shall only be officially effected in the records of the BIR by the end of the year. other than those that are exempt under Sec. The filing of tax returns and payment of taxes to the new RDO shall commence at the time the transfer is effected by the old RDO. The taxpayer may be allowed to physically transfer its business to the intended RDO. e) Any other changes/updates in registration information previously supplied. in the course of trade or business. the filing of its returns and payment of taxes in the new RDO shall still bear the RDO Code of the old RDO until the end of the year and without imposition of any surcharge for "wrong-venue filing of return" Request for transfer of registration of branch/facility. 236 of the Tax Code b. other than those that are exempt under Sec. or ii.000. including cancellation or change in any tax types.000.5 million. Cancellation of Registration  Either cancellation of business registration and/or TIN. The cancellation of business registration may be granted on the following instances: a) Closure/Cessation of business operation. shall register within thirty (30) days from the end of the taxable year. have exceeded P1. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months. c) Discovery of a taxpayer having multiple TINs. update his registration information with the RDO where he is registered under any of the following instances: a) A person's business has become exempt b) A change in the nature of the business itself.  The cancellation of business registration shall not automatically cancel the TIN of the person.000. the CIR or his duly authorized representative may order suspension or closure of a business establishment for a period of not less than 5 days for any of the following violations: a) Failure to issue receipts and invoices b) Failure to file VAT return as required under the provisions of Sec.  a) Death of an individual. barters or exchanges goods or properties or engages in the sale or exchange of services shall be liable to register if: i.  TIN is cancelled upon: Power of Commissioner to suspend the business operations of any person who fails to register  Suspension of business operations: In addition to other administrative and penal sanctions provided for in the Tax Code and implementing regulations.      within six (6) months from the date of transfer. 109 (1)(A) to (U) of the Tax Code. 114 of the Tax Code c) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the taxable quarter d) Failure of any person to register as required under the provisions of Sec. b) Dissolution of corporation/partnership. from sale of taxable goods and services to exempt c) A person whose transactions are exempt from VAT but voluntarily registered under VAT system applies for cancellation of his VAT registration after the lapse of 3 years after his registration NOTE: optional registration as a VAT taxpayer of a franchise grantee of radio and/or television broadcasting whose gross receipts for the preceding year did not exceed P10.500. sells. the taxpayer shall become liable to the percentage tax.

In case a registered taxpayer dies. customer or client.000).    d.  All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. (c) If the sale is subject to zero percent (0%) VAT. the invoice or receipt shall clearly indicate the break-down of the sale price between its taxable. the administrator or executor shall register the estate of the decedent a new TIN.  In the case of sales of P1. Cancellation of VAT Registration  If he makes a written application and can demonstrate to the commissioner’s satisfaction that his gross sales or receipts for the following twelve (12) months. and the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt. Issuance of Receipts or sales or commercial invoices from the BIR an authority to print receipts or sales or commercial invoices before a printer can print the same.00 or more where the sale or transfer is made to a VAT-registered person.  Optional VAT Registration  Taxpayers may apply for VAT registration not later than 10 days before the beginning of the taxable quarter and shall pay the P500 registration fee. statement or other document shall be supplied with or assigned a Taxpayer Identification Number (TIN) which he shall indicated in such return statement or document filed with the BIR for his proper identification for tax purposes. NOTE: The seller has the option to issue separate invoices or receipts for the taxable. Information contained in the VAT invoice  A statement that the seller is a VAT-registered person.000.500. other than those that are exempt under Section 109 (A) to (U). exempt. the name. the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt. and does not expect to recommence any trade or business within the next twelve (12) months.  Once registered as a VAT person. In case of a nonresident decedent. will not exceed one million five hundred thousand pesos (P1. unless they have already paid at the beginning of the calendar year. Only one TIN shall be assigned to a taxpayer. the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration. or  If he has ceased to carry on his trade or business. Printing of receipts or sales or commercial invoices  All persons who are engaged in business shall secure TAXATION LAW REVIEWER Page 94 of 165 . the term "VATexempt sale" shall be written or printed prominently on the invoice or receipt. properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt. NOTE: The cancellation for registration will be effective from the first day of the following month the cancellation was approved. and b) A VAT official receipt for every lease of goods or properties. No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show: a) the name b) business style c) Taxpayer Identification Number (TIN) d) business address of the person or entity to use the same. barter or exchange of goods or properties.  The Commissioner of Internal Revenue may.NOTE: If he fails to register. he is liable to output VAT but cannot claim input VAT. and zero-rated components of the sale. business style. followed by his TIN.  The total amount to be paid with the indication that such amount includes the VAT. the executor or administrator of the estate shall register the estate with the RDO where he is registered BUT if the executor or administrator is not registered. render or file a return. That: (a) The amount of tax shall be a separate item (b) If the sale is exempt from VAT.  Supplying TIN Any person required to make. and for every sale.  Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or official receipts. if any. for the period in which not properly registered. exempt and zerorated components. e) other information that may be required Invoicing requirements for VAT  A VAT-registered person shall issue: a) A VAT invoice for every sale. shall be indicated in addition to the information required. (d) If the sale involves goods. registration shall be made with the RDO having jurisdiction over his legal residence. barter or exchange of services. for administrative reason deny any application for registration. Provided. c. address and TIN of the purchaser.

However. 1995] Continuation of business of deceased person If during the year.Consequences of issuing erroneous VAT invoice or ORs (Please refer to 22.600 Passengers More than 30 but not 6.000 Without chauffer 1.    g. for the transport of passengers. and the annual registration fee has been duly paid.  Cooperatives shall be exempt from the 3% gross receipts tax (GRT)  Those earning less than P100.600 cities Provincial 2. Invoicing Requirements under the VAT Section for further discussion) e. a list of the inventories of goods or stocks of the business at the time of death.400 cities Provincial 1. upon recommendation of the Commissioner. 39-95 dated December 1. Percentage Tax ====================================== I.  ====================================== TOPIC UNDER THE SYLLABUS: II. including persons who transport passengers for hire. the persons interested in the estate of the deceased owner shall submit to the BIR. air or water. TAX ON DOMESTIC CARRIERS AND KEEPERS OF GARAGES  3% of quarterly gross receipts A. Removal of Business to another location Any business for which the annual registration fee has been paid may be removed and continued in any other place without the payment of additional tax during the term for which the payment was made subject to the rules and regulations prescribed by the Secretary of Finance.400 Cars for hire With chauffer P 3. Covers cars for rent or hire driven by the lessee. – Those who gross annual sales and receipts does not exceed P1.000 which is neither covered by percentage tax nor VAT B. TAX LIABILITY A. NO ADDITIONAL PAYMENT shall be required for the remainder of the year. the business is continued. TAX ON PERSONS EXEMPT FROM VAT  3% of gross quarterly sales or receipts  Any person who is exempt from VAT and who is not a VAT-registered person. transportation contractors. within 30 days from the death. storage place or place of production.200 Passengers Taxis Manila and other P 3. branch office.  Exhibition of certificate of payment at place of business The original copy of Certificate of Registration and the duly validated Annual Registration Fee Return are required to be displayed in any conspicuous place in the head office. TAX ON INTERNATIONAL CARRIERS  3% of their quarterly gross receipts  Covers International air carriers and shipping carriers doing business in the Philippines TRANSPORTING Persons KIND OF CARRIER Domestic TAX LIABILITY 3% Percentage Tax 12% VAT Domestic Trip – 12% VAT International Trip – Zerorated 3% Percentage Tax Domestic COMMON CARRIER By Land By Sea Goods/cargo Whether transporting person or goods/cargo Domestic Domestic International By Air Domestic TAXATION LAW REVIEWER Page 95 of 165 .5 million are exempted from VAT.    Gross receipts of common carriers derived from incoming and outgoing freight is not subject to local taxes under the Local Government Code (LGC). This shall also apply in the case of transfer of ownership or change of name of the business establishment. the owner of a business dies.000 more than 50 passengers More than 50 7.200 Public Utility Bus Not exceeding 30 P 3.800 f. [RMC No. and keepers of garages Does not cover owners of bancas and owners of animal-drawn two-wheeled vehicles MINIMUM QUARTERLY GROSS RECEIPTS: Jeepneys Manila and other P 2. NATIONAL INTERNAL REVENUE CODE E. and other domestic carriers by land.

Diplomatic services c. profits from exchange and all other items treated as gross income under Section 32 Net trading gains on foreign currency. wireless and either communication equipment services  10% on the amount paid for services rendered  Paid by the person paying for the services rendered to the person rendering the services  Exemptions: a. message or conversation transmitted from the Philippines by telephone. rentals of property (real/personal). and all other items treated as gross income Based on the remaining maturities of the instruments from which the receipts are derived MATURITY 5 years or less More than 5 years RATE 5% 1%  TAXATION LAW REVIEWER Page 96 of 165 . income from financial leasing. doing business in the Philippines. Government and any of its political subdivisions and instrumentalities b. TAX ON FRANCHISES 1. as amended – General Banking Law of 2000] 2. “Quasi-bank” refers to a non-bank financial institution authorized by BSP to engage in quasi-banking functions and to borrow funds from more than 19 lenders through the issuance. TAX ON OTHER NON-BANK FINANCE INTERMEDIARIES  Tax on gross receipts derived by other non-bank finance intermediaries. commissions. International organizations (based in the Philippines and enjoying privileges. The 20% final withholding tax on a bank’s passive income forms part of the taxable gross receipts for the purpose of computing the gross receipts tax (GRT). discounts from lending activities and financial leasing bases on remaining maturities of instruments  Maturity period is 5 years or less  Maturity period is more than 5 years Dividends and equity shares in net income of subsidiaries Royalties. Franchises on radio and broadcasting companies whose annual gross receipts of the preceding year does not exceed P10 million  3% tax on the gross receipts derived from the business covered by law granting the franchise  Radio and television broadcasting has an irrevocable option to be registered as a VAT taxpayer and pay the corresponding VAT 2 Gas and water utilities  2% tax on the gross receipts derived from the business covered by the law granting the franchise RECEIPTS Interest. News services (which messages deal exclusively with the collection of news for dissemination) D. OVERSEAS COMMUNICATIONS TAX  Covers every overseas dispatch. 3. commission. derivatives. from interest. telegraph. exemptions and immunities pursuant to an international agreement) d. telewriter exchange. and other similar financial instruments RATE 5% 1% 0% 7% 7% NOTE: Electric companies are now subject to VAT and not percentage tax C. endorsement or assignment with recourse or acceptance of deposit substitutes.International flight – 12% VAT International flight – Zerorated 3% Percentage Tax  Tax on gross receipts derived from sources within the Philippines by all banks and non-banks financial intermediaries B. TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS E. [RA 337. debt securities. NOTE: 1. discounts from lending activities. The term “banks” refer to entities engaged in the lending of funds obtained in the form of deposits.

lessee or TAXATION LAW REVIEWER Page 97 of 165 . firm or association doing business outside the Philippines on account of any life insurance of the insured who is a non-resident. income from television. Premiums refunded within 6 months after payment on account of rejection of risks 2. marine or miscellaneous insurance agent authorized to procure policies of insurance as he may have previously been legally authorized to transact on risks located in the Philippines for companies not authorized to transact business in the Philippines Does not cover premiums paid on reinsurance In cases where owners or property obtain insurance directly with foreign companies. BERTER. Through Local Stock Exchange  ½ of 1% of the Gross Selling Price or Gross Value in Money of the shares of stocks sold. OR EXCHANGE OF SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING (IPO) A. night or day clubs Boxing exhibitions Professional basketball games (in lieu of all other percentage taxes) Jai-alai and racetracks (whether or not they charge for admissions)  RATE 18% 18% 10% 15% 30% Boxing exhibitions.F. TAX ON AGENTS OF FOREIGN INSURANCE COMPANIES  10% of total premiums collected by every fire. wherein World or Oriental Championships in any division is at stake having at least one (1) Filipino contender and that I. gross receipts include all receipts of the proprietor. resides outside the Philippines. AMUSEMENT TAXES  For purposes of amusement tax. the owners shall pay a tax of 5% on the premiums paid J. TAX ON LIFE INSURANCE PREMIUMS  5% of total premiums collected (whether paid in money. Premiums collected or received by any branch of a domestic corporation. Portions of premiums collected or received by insurance companies on variable contracts in excess of the amount necessary to insure the lives of variable contract owners operator of the amusement place. company or corporation doing life insurance business of any sort in the Philippines. exchanged or otherwise disposed of through the local stock exchange other than the sale by a dealer in securities  The tax shall be paid by the seller or transferor   H. Premiums paid upon reinsurance by a company that has already paid the tax 3. TAX ON WINNINGS SOURCE Winnings or dividends based on the actual amount paid to winner for every winning ticket after deducting the cost of the ticket Winnings from double. if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected 5. if the insured of a personal insurance. if any tax on such premiums is imposed by the foreign country where the branch is established 4. notes. radio and motion picture rights  SOURCE Cockpits Cabarets. manager or person in charge of the horse races before paying the dividends or prizes TAX ON SALE. Premiums collected or received on account of any reinsurance. 10% Owner of winning race horses NOTE: The tax shall be withheld by the operator. bartered. forecast/quinella and trifecta bets Prizes of owners of winning horses RATE 10% PERSON LIABLE Every person who wins in horse races 4% NOTE: “Cooperative companies or associations” are such as are conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit G. except purely cooperative companies or associations Premiums not included in the taxable receipts: 1. credits or any substitute for money) by every person.

 The following are exempt from the Annual RF: (11) Cooperatives duly registered with the CDA. (13) Overseas Workers. and (20) Facility/ies where no sales transactions occur. Through Initial Public Offering (IPO)  Imposed on the sale. (n) Documentary stamp tax. in pursuance of tax-exempt activities.   TAXATION LAW REVIEWER Page 98 of 165 . (19) Persons subject to tax under one-time transactions. Compliance Requirements ====================================== 1. pay taxes due thereon. Return on Capital Gains Realized from Shares of Stocks  Includes both return on capital gains realized from sale of shares of stock listed and traded in the local stock exchange and return on public offerings of shares of stocks II. file a separate return for each branch or place of business or a consolidated return for all branches or places of business with the authorized agent bank. at his option. by rules and regulations. and a minimum amount of gross receipts. Registration of Each Type of Internal Revenue Tax  Every person who is required to register with the BIR shall register each type of internal revenue tax for which he/it is obligated to OR is expected to periodically file a return. NATIONAL INTERNAL REVENUE CODE F. sales and taxable base when it is found that a person has failed to issue receipts or invoices.  Note that the registration of one tax type does not automatically register the other type of taxes (e. (15) Marginal Income Earners. as amended. and update such record of any changes in the registration information.B. (17) Tax exempt persons such as those enumerated under Section 30 of the Code. (18) Non-stock/non-profit organizations not engaged in business. the tax shall accrue from the date of cancellation Persons retiring from business subject to percentage tax shall file his return and pay the tax due within 20 days after closing the business Every person liable may. (12) Individuals earning purely compensation income whether locally or abroad. or when no return is filed. revenue district officer.g. in the discharge of their governmental functions. in the discharge of their governmental functions. Registration Requirements (see RR 11-08) C. (16) LGUs. registration of tax types/fees by a business entity would consist of the following internal revenue taxes/fees: (i) Income tax. registered for income tax is not registered for VAT)  Generally. (j) VAT and/or percentage tax. (m) Final withholding tax on certain income payments. (k) Withholding tax on compensation. exchange of shares of stock of closely held corporations in proportion to the total outstanding shares after the listing in the local stock exchange  Tax based on the Gross Selling Price or Gross Value in Money shall be paid by the issuing corporation in the primary offering of it by the seller in the secondary offering NUMBER OF SHARES Up to 25% of all shares Over 25% but not over 33 ⅓% Over 33 ⅓% RATES 4% 2% 1% ====================================== TOPIC UNDER THE SYLLABUS: II. (l) Creditable withholding tax at source on certain income payments. or when there is a reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return   Annual Registration Fee (RF)  Fee of (P500. Administrative Requirements h. receipts or earnings and pay the tax due within 25 days after the end of each taxable quarter In case of a person whose VAT registration is cancelled and who becomes liable to percentage tax. prescribe the time for filing the return and manner of payment. barter.00) for every separate or distinct establishment or place of business shall be paid upon registration and every year thereafter on or before January 31 by every person subject to any internal revenue tax. collection agent or duly authorized treasurer of the city or municipality where the said business or principal place of business is located The Commissioner may. PAYMENT OF PERCENTAGE TAX  Persons subject to percentage tax shall file a quarterly return of the amount of his gross sales. (14) GAIs.

(o) Excise tax; and (p) Annual registration fee. Transfer of Registration  It shall be duty of the taxpayer to inform the RDO where he is registered by filing the prescribed BIR Form specifying the RDO where he is intending to transfer.  In case of transfer of registration of individuals earning purely compensation income due to change of employer, it shall be the responsibility of the RDO having jurisdiction of the new employer to effect the transfer of employee's registration.  It shall be the duty of the old RDO to transfer the accountabilities of the taxpayer to the new RDO where he is transferring.  The old RDO can still institute collection on concluded audit cases at the time of transfer of registration. The old RDO shall terminate audit cases that are prescribing within six (6) months from the date of transfer.  The filing of tax returns and payment of taxes to the new RDO shall commence at the time the transfer is effected by the old RDO.  Both the new and the old RDO shall be responsible in notifying the taxpayer concerned that the transfer of registration has already been effected.  Transfer of head office of taxpayers engaged in business during the interim period shall only be officially effected in the records of the BIR by the end of the year.  The taxpayer may be allowed to physically transfer its business to the intended RDO, however, the filing of its returns and payment of taxes in the new RDO shall still bear the RDO Code of the old RDO until the end of the year and without imposition of any surcharge for "wrong-venue filing of return"  Request for transfer of registration of branch/facility, which has no registered tax types in the RDO where it is registered, shall immediately be effected by the concerned old RDO.  Registration of employees of the transferring employers shall simultaneously be transferred to the new RDO once the transfer of registration of the employer is effected. Other Updates  Any person registered shall, whenever applicable, update his registration information with the RDO where he is registered under any of the following instances: f) A person's business has become exempt g) A change in the nature of the business itself, i.e. from sale of taxable goods and services to exempt h) A person whose transactions are exempt from VAT but voluntarily registered under VAT system applies for cancellation of his VAT registration after

i)

j)

the lapse of 3 years after his registration NOTE: optional registration as a VAT taxpayer of a franchise grantee of radio and/or television broadcasting whose gross receipts for the preceding year did not exceed P10,000,000.00 shall be irrevocable; A VAT-registered person whose gross sales or receipts for three consecutive years did not exceed P1,500,000.00. Upon updating his registration, the taxpayer shall become liable to the percentage tax. Any other changes/updates in registration information previously supplied, including cancellation or change in any tax types.

Cancellation of Registration  Either cancellation of business registration and/or TIN.  The cancellation of business registration shall not automatically cancel the TIN of the person.  TIN is cancelled upon: e) Death of an individual; f) Dissolution, merger or consolidation of juridical person; g) Discovery of a taxpayer having multiple TINs; h) Payment of estate tax by the heirs, administrator or executor or upon full settlement of the tax liabilities of the estate.  The cancellation of business registration may be granted on the following instances: e) Closure/Cessation of business operation; f) Dissolution of corporation/partnership; g) Merger/Consolidation; h) Death of an individual. Power of Commissioner to suspend the business operations of any person who fails to register  Suspension of business operations: In addition to other administrative and penal sanctions provided for in the Tax Code and implementing regulations, the CIR or his duly authorized representative may order suspension or closure of a business establishment for a period of not less than 5 days for any of the following violations: e) Failure to issue receipts and invoices f) Failure to file VAT return as required under the provisions of Sec. 114 of the Tax Code g) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the taxable quarter h) Failure of any person to register as required under the provisions of Sec. 236 of the Tax Code i. Persons Required to Register for VAT

Mandatory VAT registration  Any person who, in the course of trade or business, sells, barters or exchanges goods or properties or

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engages in the sale or exchange of services shall be liable to register if: iii. His gross sales or receipts for the past 12 months, other than those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code, have exceeded P1.5 million; or iv. There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12) months, other than those that are exempt under Sec. 109(1)(A) to (U) of the Tax Code, will exceed P1.5 million.  Franchise grantees of radio and television broadcasting, whose gross annual receipt for the preceding taxable year exceeded P10 million, shall register within thirty (30) days from the end of the taxable year.

 k.

document filed with the BIR for his proper identification for tax purposes. In case a registered taxpayer dies, the administrator or executor shall register the estate of the decedent a new TIN. In case of a nonresident decedent, the executor or administrator of the estate shall register the estate with the RDO where he is registered BUT if the executor or administrator is not registered, registration shall be made with the RDO having jurisdiction over his legal residence. Only one TIN shall be assigned to a taxpayer. Issuance of Receipts or sales or commercial invoices

NOTE: If he fails to register, he is liable to output VAT but cannot claim input VAT, for the period in which not properly registered. Optional VAT Registration  Taxpayers may apply for VAT registration not later than 10 days before the beginning of the taxable quarter and shall pay the P500 registration fee, unless they have already paid at the beginning of the calendar year.  The Commissioner of Internal Revenue may, for administrative reason deny any application for registration.  Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration. Cancellation of VAT Registration  If he makes a written application and can demonstrate to the commissioner’s satisfaction that his gross sales or receipts for the following twelve (12) months, other than those that are exempt under Section 109 (A) to (U), will not exceed one million five hundred thousand pesos (P1,500,000); or  If he has ceased to carry on his trade or business, and does not expect to recommence any trade or business within the next twelve (12) months. NOTE: The cancellation for registration will be effective from the first day of the following month the cancellation was approved. j.  Supplying TIN Any person required to make, render or file a return, statement or other document shall be supplied with or assigned a Taxpayer Identification Number (TIN) which he shall indicated in such return statement or

Printing of receipts or sales or commercial invoices  All persons who are engaged in business shall secure from the BIR an authority to print receipts or sales or commercial invoices before a printer can print the same.  No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show: f) the name g) business style h) Taxpayer Identification Number (TIN) i) business address of the person or entity to use the same, j) other information that may be required Invoicing requirements for VAT  A VAT-registered person shall issue: c) A VAT invoice for every sale, barter or exchange of goods or properties; and d) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.  Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or official receipts.  All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. Information contained in the VAT invoice  A statement that the seller is a VAT-registered person, followed by his TIN;  The total amount to be paid with the indication that such amount includes the VAT; Provided, That: (e) The amount of tax shall be a separate item (f) If the sale is exempt from VAT, the term "VATexempt sale" shall be written or printed prominently on the invoice or receipt;

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(g) If the sale is subject to zero percent (0%) VAT, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt; (h) If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the break-down of the sale price between its taxable, exempt and zerorated components, and the calculation of the VAT on each portion of the sale shall be shown on the invoice or receipt. NOTE: The seller has the option to issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale. In the case of sales of P1,000.00 or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser, customer or client, shall be indicated in addition to the information required.

2. Tax Returns a. Income tax returns

Consequences of issuing erroneous VAT invoice or ORs (Please refer to 22. Invoicing Requirements under the VAT Section for further discussion) l.  Exhibition of certificate of payment at place of business The original copy of Certificate of Registration and the duly validated Annual Registration Fee Return are required to be displayed in any conspicuous place in the head office, branch office, storage place or place of production. [RMC No. 39-95 dated December 1, 1995]

(1) Individual Tax Returns (a) Filing of individual tax returns i. Who are required to file Husband and Wife  Married individuals shall file a return for the taxable year to include the income of both spouses, computing separately their individual income tax based on their respective total taxable income.  Where it is impracticable for the spouses to file one return, each spouse may file a separate return of income.  If any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. Return of Parent to include income of Children  The income of unmarried minors derived from property received from a living parent shall be included in the return of the parent  EXCEPT: (i) when the donor’s tax has been paid on such property, (ii) when the transfer of such property is exempt from donor’s tax. Return of persons with disability  If the taxpayer is unable to make his own return, the return may be made: (i) by his duly authorized agent or representative or (ii) by the guardian or other person charged with the care (iii) of his person or property,  Where the principal and his representative or guardian assuming the responsibility of making the return and incurring penalties provided for erroneous, false or fraudulent returns. ii.  Who are not required to file An individual whose gross income does not exceed his total personal and additional exemptions for dependents However, a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax return, regardless of the amount of gross income;

m. Continuation of business of deceased person  If during the year, the owner of a business dies, the business is continued, and the annual registration fee has been duly paid, NO ADDITIONAL PAYMENT shall be required for the remainder of the year.  However, the persons interested in the estate of the deceased owner shall submit to the BIR, within 30 days from the death, a list of the inventories of goods or stocks of the business at the time of death.  This shall also apply in the case of transfer of ownership or change of name of the business establishment. n.  Removal of Business to another location Any business for which the annual registration fee has been paid may be removed and continued in any other place without the payment of additional tax during the term for which the payment was made subject to the rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

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Time of filing Within sixty (60) days following the close of each of the first three (3) quarters of the taxable year whether calendar or fiscal year. the returns shall be filed with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer of the Revenue District Office where the taxpayer is required to register/where the taxpayer has his legal residence or place of business in the Philippines. in meritorious cases. Extension of time to file return The Commissioner may. Final adjustment return Place of filing  Any Authorized Agent Bank (AAB) located within the territorial jurisdiction of the Revenue District Office where the taxpayer is required to register/which has jurisdiction over the location of the principal office of the “CORPORATION” filing the return.  In places where there are no AABs – with the Revenue Collection Officer or Duly Authorized City or Municipal Treasurer of the municipality or city under the jurisdiction of the Revenue District Office where the taxpayer is required to register/which has jurisdiction over the location of the principal office of the “CORPORATION” filing the return. A minimum wage earner  Office where the taxpayer is required to register/which has jurisdiction over the location of the principal office of the “CORPORATION” filing the return. ii. Declaration of quarterly corporate income tax Place of filing  Any Authorized Agent Bank (AAB) located within the territorial jurisdiction of the Revenue District TAXATION LAW REVIEWER Page 102 of 165 .     An individual with respect to pure compensation income derived from sources within the Philippines and the income tax has been correctly withheld However. South Quezon City. Time of filing On or before the 15th day of the fourth month following the close of the taxpayer's taxable year.  In case taxpayer has no legal residence or place of business in the Philippines. Taxable year of corporations  A corporation may employ either calendar year or fiscal year as a basis for filing its annual income tax return. iii. subject to the provisions of Section 56 of this Code. (2) Corporate Returns (a) Requirement for filing returns i. In places where there are no AABs – with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer within the Revenue District Office where the taxpayer is required to register/which has jurisdiction over the location of the principal office of the “CORPORATION” filing the return. if an individual derives compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return An individual whose sole income has been subjected to final withholding tax pursuant to Section 57(A) of this Code. (c) When to file  For the quarterly income tax return: First Quarter – On or before April 15 of the current taxable year Second Quarter – On or before August 15 of the current taxable year Third Quarter – On or before November 15 of the current taxable year  For the annual income tax return: On or before April 15 of the next succeeding year.  The corporation shall not change the accounting period employed without prior approval from the Commissioner in accordance with the provisions of Section 47 of this Code. the return shall be filed with the Office of the Commissioner or Revenue District Office No. grant a reasonable extension of time for filing returns of income.  In places where there are no AABs. general or special. An individual who is exempt from income tax pursuant to the provisions of this Code and other laws. iv. 39. NOTE: Any individual not required to file an income tax return may be required to file an information return (b) Where to file  With any Authorized Agent Bank (AAB) located within the territorial jurisdiction of the Revenue District Office where the taxpayer is required to register/where the taxpayer has his legal residence or place of business in the Philippines.

regardless of the gross value. Authorized agent bank ii. in the same manner and form as required from the organization  Any tax due on the income as returned by receivers. in meritorious cases. all of them are severally liable for the payment of tax. (5) Fiduciary returns b. 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. administrator or any of the legal heirs. addresses and shares of each of the partners. trustees or assignees shall make returns of net income as and for such corporation. and the names. such receivers. upon recommendation of the Commissioner. secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission. by rules and regulations. including a corporation which has been notified of possible involuntary dissolution by the Securities and Exchange Commission. file a final consolidated return of all transactions during the taxable year on or before the fifteenth (15th) day of the fourth (4th) month following the close of the taxable year. however. (4) Returns of general partnerships  Every general professional partnership shall file a return of its income. When there are 2 or more executors or administrators. Revenue district officer TAXATION LAW REVIEWER Page 103 of 165 . where the gross value of the estate exceeds P200. setting forth the terms of such resolution or plan and such other information as the Secretary of Finance.  The dissolving or reorganizing corporation shall.000 iii. (c) Return on capital gains realized from sale of shares of stock not traded in the local stock exchange  Every corporation deriving capital gains from the sale or exchange of shares of stock not traded thru a local stock exchange shall: i. trustees or assignees shall be assessed and collected in the same manner as if assessed directly against the organizations of whose businesses or properties they have custody or control. prior to the issuance by the Securities and Exchange Commission of the Certificate of Dissolution or Reorganization. grants a reasonable extension not exceeding 30 days for filing the return MANDATORY filing of estate tax returns in all cases of: i. subject to the tax imposed by this Title. transfers though exempt from tax. Trustees in Bankruptcy or Assignees  In cases wherein receivers. except exempt income setting forth the items of gross income and of deductions allowed by this Title. upon recommendation of the Commissioner. transfers subject to the tax imposed herein ii. (1) Notice of death to be filed WHO files: the executor. verified under oath. file a return within thirty (30) days after each transaction ii. or for its reorganization. except. render a correct return to the Commissioner. trustees in bankruptcy or assignees are operating the property or business of a corporation. Taxpayer Identification Numbers (TIN). shall. The extent of his liability shall not. (3) Returns of Receivers. Estate tax returns Persons liable to pay estate tax The person primarily liable is the estate itself. or for the liquidation of the whole or any part of its capital stock. prescribe. the Commissioner. 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: i. through the executor and administrator. WHEN to file: within 2 months after the decedent's death. exceed the value of his share in the inheritance. as may be defined by rules and regulations prescribed by the Secretary of Finance.(b) Return of corporation contemplating dissolution or reorganization  Every corporation shall. or within a like period after qualifying as such executor or administrator TO WHOM filed: Commissioner. within thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution. (2) Estate tax returns WHEN to file: within six (6) months from the decedent's death.

or if the application is made before the return is filed. 39 . refunded or otherwise repaid in respect of such tax. iv. (2) Time and place filing  The donor’s tax return shall be filed within 30 days after the date the gift is made  Filed with any Authorized Agent Bank (AAB) of the RDO having jurisdiction over the place of the domicile of the donor at the time of the transfer. upon payment of the amount of which he is notified. Monthly VAT Declaration (BIR Form No. and v. but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the amounts previously abated. with Revenue District No. Donor’s Tax Return Who are liable to file donor’s tax return? Every person. administrator or any of the heirs upon his return. the return will be filed directly with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer where the donor was domiciled at the time of the transfer. The deductions claimed and allowable. refunded or otherwise repaid in respect of such tax. (a) Definition of deficiency  The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the executor.South Quezon City. In the case of gifts made by a non-resident alien. the Commissioner as soon as possible. or  If no amount is shown as the tax by the executor. In case of installment payments.iii. 2550M) and Payment of VAT • Refers to first 2 months of taxpayer’s quarters • Filing and Payment Deadline: 20 days from the end of the month. c. Such further information as may be required by rules and regulations made pursuant to law.  The executor or administrator. 39 – South Quezon City. administrator or any of the heirs upon his return. likewise give instruction to the TAXATION LAW REVIEWER Page 104 of 165 . for the purpose of the said tax. who transfers or causes to transfer property by gift (1) Requirements  Any individual who makes any transfer by gift (except those which are exempt shall. with the Commissioner (3) Discharge of liabilities  If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge from personal liability. and in any event within one (1) year after the making of such application. then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency. The name of the donee. then within one (1) year after the return is filed. d. the administrator shall deliver the distributive share in the inheritance to any heir or beneficiary. the clearance shall be released only with respect to the property the corresponding tax has been paid. or if no return is made by the executor. but not after the expiration of the period prescribed for the assessment of the tax shall notify the executor or administrator of the amount of the tax. NOTE: For the electronic payment of tax for the returns required to be filed earlier under the staggered filing system. resident or nonresident. If there is no legal residence in the country. administrator. ii. The return shall set forth: i. whether natural or juridical. except for Electronic Filing and Payment System (EFPS) taxpayers • Filing deadline for EFPS: Deadline depends on the industry classification of the taxpayer – but applicable only for filing of the monthly VAT return. make a return under oath in duplicate. the taxpayer upon e-filing shall. VAT Return (1) In General a. Distribution of Estate Upon payment. Each gift made during the calendar year which is to be included in computing net gifts. or with the Philippine Embassy or Consulate in the country where donor is domiciled at the time of the transfer. shall be discharged from personal liability for any deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. still using the facilities of EFPS. Any previous net gifts made during the same calendar year. the return may be filed with Revenue District No. but such amounts previously assessed or collected without assessment shall first be decreased by the amounts previously abated. iii. Duly authorized city or municipal treasurer of the place of decedent’s domicile iv. In places where there are no AAB. or if there is no legal residence in the Philippines. or any heir. The estate tax clearance issued by the Commissioner or the Revenue District Officer having jurisdiction over the estate will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary.

e. showing among others the following information: i.  If the payor is the Government of the Philippines or any political subdivision or agency thereof. 1604). Withholding Tax Returns (1) Quarterly returns and payment of taxes withheld  Taxes deducted and withheld by withholding agents shall be covered by a return and paid to. where the principal office is located.  On or before January 31 of the following year in which payments were made. or duly authorized Treasurer of the city or municipality where the withholding agent has his legal residence or principal place of business. • • • • (2) Where to file the return  The returns/declarations must be filed with any Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office where the taxpayer is required to register. Revenue District Officer. Payment deadline for EFPS: 25 days from the end of the month Withholding VAT Return (BIR Form 1600) Deadline of filing and payment: 10th day of the following month Quarterly VAT Return (BIR Form No. (Sec. In places where there are no Authorized Agent Bank (AAB). 2550Q) Deadline for filing and payment: Should be filed within 25 days following the close of each taxable quarter. an authorized agent bank. and in their absence. address and taxpayer's. The VAT payable (output tax less input tax) for each quarter shall be reduced by the total amount of the tax previously paid for the preceding 2 months EFPS: same deadline.  Taxpayers with branches shall file only one consolidated return/declaration for his principal place of business or head office and all branches. 114 [A]) iii. Collection Agent in the city or municipality where the payor has his legal residence or principal place of business. Within ten (10) days after the end of each month except for taxes withheld for December which shall be filed on or before January 25 of the following year. gross amount and amount of tax withheld from each payee and such other information as may be required by the Commissioner. Collection Agent. b. • twenty five (25) days after the end of each month. or any government-owned or controlled corporation. c. Upon failure of the said agents or captains to file the return and pay the tax. Name.• Authorized Agent Bank (AAB) to debit its account for the amount of tax on or before the due date for payment thereof as prescribed under the prevailing/applicable laws/regulations. purchases. the shipping agents and/or the husbanding agents. Nature of income payments. Revenue Regional Director. and ii. the captains thereof are required to file the return herein provided and pay the tax due thereon before their departure. (ii) Installment payment  When the tax due is in excess of Two thousand pesos (P2. an Annual Information Return of Income Tax Withheld at Source (Form No.  The return for final withholding tax shall be filed and the payment made: i. the Bureau of Customs is hereby authorized to hold the vessel and prevent its departure until proof of payment of the tax is presented or a sufficient bond is filed to answer for the tax due. The return for final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements shall be filed and the payment made within twenty five (25) days from the close of each calendar quarter. output tax and input tax for the three (3) months of the applicable quarter. Revenue District Officer. 3. Tax Payments a. For large taxpayers. where the government office is located in the case of a government agency.000). The quarterly return shall reflect the cumulative totals of the sales. (i) Income Taxes Payment. the return shall be made by the officer or employee having control of the payments or by any designated officer or employee. the filing of the return and the payment of tax shall be made within (2) Annual Information Return  The payor is required to file with the Commissioner. time of payment  Pay as you file  In the case of tramp vessels. except in cases where the Commissioner otherwise permits. identification number (TIN). in general. ii. the returns/declarations shall be filed with the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the revenue district where the taxpayer is required to register. the taxpayer OTHER THAN A TAXATION LAW REVIEWER Page 105 of 165 . or where the withholding agent is a corporation.

the Commissioner as soon as possible. no such payments shall be required: In case of failure to qualify for exemption under such special laws and implementing rules and regulations. The second installment. if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws. the clearance shall be released only with respect to the property the corresponding tax has been paid. Restrictions as to Extension of Time to Pay: No extension shall be allowed when taxes are assessed by reason of: i. then within one (1) year after the return is filed. i. shall be discharged from personal liability for any deficiency in the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge. and in any event within one (1) year after the making of such application. upon payment of the amount of which he is notified. the tax due on the gains realized from the original transaction shall immediately become due and payable.    b. and subject to the penalties prescribed under applicable provisions of this Code: If the seller. administrator or the heirs but before delivery of the distributive share in the inheritance to any heir or beneficiary. Distribution of Estate Upon payment. and the tax herein imposed. having paid the tax. the whole amount of the tax unpaid becomes due and payable. (iii) Payment of capital gains tax  Pay as you file  However. CORPORATION may elect to pay the tax in two (2) equal installments: in which case. together with the delinquency penalties. he may extend the time for payment of such tax: TAXATION LAW REVIEWER Page 106 of 165 . In case the taxpayer elects and is qualified to report the gain by installments. but not after the expiration of the period prescribed for the assessment of the tax shall notify the executor or administrator of the amount of the tax. negligence ii. has been paid. if any.   not to exceed 5 years. submits such proof of intent within six (6) months from the registration of the document transferring the real property. The estate tax clearance issued by the Commissioner or the Revenue District Officer having jurisdiction over the estate will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. fraud on the part of the taxpayer (2) Liability for payment Discharge of liabilities  If the executor or administrator makes a written application to the Commissioner for determination of the amount of the estate tax and discharge from personal liability. The first installment shall be paid at the time the return is filed ii. on or before July 15 following the close of the calendar year. the administrator shall deliver the distributive share in the inheritance to any heir or beneficiary. in case the estate is settled through the courts. intentional disregard of rules and regulations iii. or if the application is made before the return is filed. EXCEPTION: when the Commissioner finds that payment on due date would impose undue hardship upon the estate or any of the heirs. In case of installment payments. Estate Taxes (1) Payment of Tax: Time of Payment GENERAL RULE: at the time the return is filed by the executor. 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. No registration of any document transferring real property shall be effected by the Register of Deeds unless the Commissioner or his duly authorized representative has certified that such transfer has been reported.  The executor or administrator. or 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. the tax due from each installment payment shall be paid within thirty (30) days from the receipt of such payments. he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for such exemption. If any installment is not paid on or before the date fixed for its payment.

or any heir. but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased. and they shall immediately notify the Commissioner. who maintained a bank deposit account alone. refunded or otherwise repaid in respect of such tax.  If a bank has knowledge of the death of a person. Provided. or industry organized or established in the Philippines any share. it shall not allow any withdrawal from the said deposit account. administrator. however. administrator or any of the heirs upon his return. withdraw an amount not exceeding Twenty thousand pesos (P20. legatee. or if no return is made by the executor. refunded or otherwise repaid in respect of such tax.000) without the said certification. unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. legacy or inheritance. administrator or any of the heirs upon his return. Payment of tax antecedent to the transfer of shares.Definition of deficiency  The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the executor. then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency. business. they shall have a right to the restitution of the proportional part of the tax paid. For this purpose. This rule will also apply in the case of co-ownership over the property. Revenue District Officer or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located. and the persons interested shall have satisfied them by order of the court. That the administrator of the estate or any one (1) of the heirs of the decedent may. bond or right by way of gift inter vivos or mortis causa. c. but the amount so shown on the return shall first be increased by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the amounts previously abated. (3) Payment before delivery by executor or administrator  No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid is shown. 4. legacy or inheritance. Regional Director. but such amounts previously assessed or collected without assessment shall first be decreased by the amounts previously abated. unless the Commissioner has certified that the taxes imposed thereon by this Title have been paid. VAT (Please see discussion under Tax Returns)  d. new obligations of the decedent shall appear. A separate return will be filed for each gift (donation) made on the different dates during the year reflecting therein any previous net gifts made during the same calendar year. (4) Duties of certain officers and debtors  Registers of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage. obligation. (5) Restitution of tax upon satisfaction of outstanding obligations  If. bonds or rights  There shall not be transferred to any new owner in the books of any corporation. upon authorization by the Commissioner. sociedad anonima. or jointly with another. unless the certification of the Commissioner that the tax fixed in this Chapter had been paid is shown. the Commissioner of TAXATION LAW REVIEWER Page 107 of 165 . or  If no amount is shown as the tax by the executor. after the payment of the estate tax. all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors. by way of gifts inter vivos or mortis causa. unless a certification from the Commissioner that the tax fixed in this Title and actually due thereon had been paid is shown.   Donor’s Taxes Within thirty days (30) after the date the gift (donation) is made. partnership. of the nonpayment of the tax discovered by them.  A debtor of the deceased shall not pay his debts to the heirs. If the gift (donation) involves conjugal/community/property. executor or administrator of his creditor. each spouse will file separate returns corresponding to his/ her respective share in the conjugal/community property. Penalties Suspension of business operations: In addition to other administrative and penal sanctions provided for in the Tax Code and implementing regulations.

Internal Revenue or his duly authorized representative may order suspension or closure of a business establishment for a period of not less than five (5) days for any of the following violations: i. Failure to issue receipts and invoices ii. Failure to file VAT return as required under the provisions of Sec. 114 of the Tax Code iii. Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the taxable quarter iv. Failure of any person to register as required under the provisions of Sec. 236 of the Tax Code Surcharge, interest and other penalties: The interest on unpaid amount of tax, civil penalties and criminal penalties imposed in Title XI of the Tax Code shall also apply to violations of the provisions of Title IV of the Tax Code.

companies and regional operating headquarters of multinational companies, or on the share of an individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is a partner, or on the share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of which he is a member or co-venturer. [Sec. 24 B] Each partner shall report as gross income his distributive share constructively received in the net income of the partnership. (Sec. 26) Assignment of Income Doctrine – Ex: A is entitled to his salary of P10 Million but assigns it to B for unknown reasons. In this case, both A and B realized income. A constructively received income (because he was able to assign and thus has complete control/dominion over it) and B actually received it. The income is taxable in the hands of both A and B. c. Inventory method for income determination i. Basis: Revenue Memorandum Circular No. 43-74 ii. The taxpayer’s net worth is determined both at the beginning and end of the taxable year. iii. The increase or decrease in the net worth is adjusted by adding all non-deductible items and subtracting therefrom non-taxable receipts. iv. The general theory is that the taxpayer’s money and other assets in excess of liabilities after accurate and proper adjustment of non-deductible and non-taxable items not accounted for in his tax return is deemed to be unreported income. Conditions of the Net Worth Method: 1. Inadequate records as prerequisite - The taxpayer’s books of account do not clearly reflect his income or he has no books, or if he has books, he refuses to produce them; 2. Need for evidence of source of income - That there is evidence of possible source/ sources of income to account for the increases in the net worth or expenditures; 3. A definite starting point or opening net worth - That there is a fixed starting point or opening net worth (date beginning with a taxable year or prior to it when his financial condition can be established with definiteness); 4. Proper adjustments to conform with income tax laws That the circumstances are such that the method does not reflect his income with accuracy and certainty and proper and just additions of personal expenses and non-deductible expenditures were made and correct, fair and equitable credit were given by way of eliminating non-taxable items.

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TOPIC UNDER THE SYLLABUS: II. NATIONAL INTERNAL REVENUE CODE G. Tax remedies under the NIRC
====================================== 1. CONCEPT OF ASSESSMENT What Constitutes an Assessment? – An assessment contains not only a computation of tax liabilities but also a demand for payment within the prescriptive period. – There is no form for an assessment. It can be written anywhere as long as it is signed by the BIR. Any notice sent to the taxpayer demanding the tax liability is an assessment. a. Requisites for valid assessment The law requires that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. [Sec. 228]

b. Constructive methods of income determination Doctrine of Constructive Receipt – an income is constructively received when it is credited, or segregated in favor of a person. The person may withdraw the said account anytime without any substantial limitations or conditions upon which payment or enjoyment is to be made or exercised. Examples: Cash and/or property dividends constructively received by an individual from a domestic corporation or from a joint stock company, insurance or mutual fund

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d. Jeopardy assessment 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 Revenue Officer’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, deductions or credits in his return. e. Tax delinquency and tax deficiency  Delinquency means: Failure to pay: 1. tax due on any return required to be filed, or 2. tax due for which no return is required, or 3. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner.  Deficiency means: The amount by which the tax imposed exceeds the amount shown as tax by the taxpayer on his return. The amount shown on the return shall be increased by the amounts previously assessed as a deficiency, and decreased by the amount previously abated, credited, return or repaid. If no amount is shown as tax by the taxpayer on his return, or if no return is made, then the amount by which the tax exceeds the amount previously assessed (or collected without assessment) as a deficiency, but such previously assessed or collected without assessment shall first be decreased by the amounts previously abated, credited, return or repaid.

3)

4) 5) 6)

regular basis from: (a) Any person other than the person under investigation or (b) Any office or officer of the national/local government, government agencies and instrumentalities (Bangko Sentral, GOCCs) 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. The books of accounts 2. Accounting records of entries relating to the business of the person liable for tax or any other person To Produce such books, papers, records and other data and to give testimony To take the Testimony of the person concerned, under oath as may be relevant to the inquiry To cause revenue officers and employees to make a Canvass of any revenue district or region  Nothing in Section 5 shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for under Sec. 6 (F) of the Code (authority to inquire into bank deposits).

Power to make assessments, prescribe requirements for tax administration and enforcement (Sec. 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. Examination of any taxpayer; and ii. Assessment of the correct amount of tax; (b) Failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer; Any tax or deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or his representative. Any return, statement or declaration filed in any authorized office shall not be withdrawn; but within THREE YEARS from date of filing, the same may be modified, changed or amended; provided that no notice for audit or investigation of such return, has in the meantime, been actually served upon the taxpayer. Failure to submit required returns and other documents (a) If a person: i. Fails to file a required return or report at the time prescribed or ii. Willfully or otherwise files a false or fraudulent return,

2. POWER OF COMMISSIONER TO MAKE ASSESSMENTS AND PRESCRIBE ADDITIONAL REQUIREMENTS FOR TAX ADMINISTRATION AND ENFORCEMENT. a. Power to obtain information, summon, examine and take testimony of persons (Sec. 5) 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: 1) To Examine any relevant Book, paper, record or other data 2) To Obtain any Information (costs, volume of production, receipts, sales, gross income, etc), on a

2)

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(b) The Commissioner shall Make or Amend the return from: i. His own knowledge or ii. From such information as he can obtain through testimony or otherwise iii. Which shall be prima facie correct and sufficient for all legal purposes 3) Inventory-taking, Surveillance, Presumptive Gross Sales (a) The Commissioner may, at any time during the taxable year v. Order the inventory taking of goods of any taxpayer; or vi. May place the business operations of any person (natural/juridical) under observation or surveillance vii. If there is reason to believe that such person is not declaring his correct income, sales or receipts for tax purposes. viii. The findings may be used as basis for assessing the taxes and shall be deemed prima facie correct. (b) Commissioner may prescribe a minimum amount of gross receipts, sales and taxable base (taking into account the sales and income of other persons engaged in similar business) : i. When a person has failed to issue receipts as required by Sec. 113 (Invoice requirements for VAT-registered persons) and Sec. 237 (Issuance of Receipts or Commercial Invoices); or ii. When the books of accounts or records do not correctly reflect the declarations made or required to be made in a return, iii. Such minimum amount shall be prima facie correct 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, 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 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, the value of the property shall be whichever is higher of: (a) Fair market value as determined by the Commissioner; or (b) Fair market value as shown in the schedule of values of the provincial and city assessors. 6) Authority to Inquire into Bank Deposit – Notwithstanding R.A. 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 (c) A taxpayer subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of: Provided, That the information obtained from banks and financial institutions may be used by the BIR for tax assessment, verification, audit and enforcement purposes. The taxpayer’s application for compromise shall not be considered unless he waives in writing his privilege under R.A. 1405 and other general or special laws. Such waiver shall authorize the Commissioner to inquire into his bank deposits. The Commissioner shall provide the tax information obtained from banks and financial institutions pursuant to a convention or agreement upon request of the foreign tax authority when such requesting foreign tax authority has provided information to demonstrate the relevance of the information under R.A. 10021. RMC No. 29-2010 publishes R.A. 10021 entitled “An Act to Allow the Exchange of Information by the Bureau of Internal Revenue on Tax Matters Pursuant to Internationally-Agreed Tax Standards, Amending Section (F), and 270 of the National Internal Revenue Code (NIRC) of 1997, as Amended, and for Other Purposes”. The following are specified in the RA: (a) Authority of the Commissioner of Internal Revenue to inquire into bank deposit accounts and related information held by financial institutions (b) Allowing a Foreign Tax Authority to examine Income Tax Returns of taxpayers in the Philippines (c) Authority of the Commissioner of Internal Revenue to supply information to a Foreign Tax Authority which is at his disposal

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2004] Rules on Prescription 1. 162852. Notice of the assessment must be released. b.False. Falsity constitutes a deviation from the truth due to mistake. mailed or sent to the taxpayer within the 3 year period. NOTE: 1. “Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period.” Phil. 2010] 2. 8) Authority to Prescribe Additional Requirements – a. It may be established by the: – intentional and substantial understatement of the tax liability by the taxpayer (substantial under declaration of income. 248]) – intentional and substantial overstatement of deductions of exemptions (>30% of the actual deductions [Sec. September 5.R.(d) Penalties. CIR. Failure of the Sec.R. As was held in Republic of the Phils. Kudos Metal Corp. The waiver should be duly notarized. 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. December 16. whichever is later (Sec 203) Note: A return filed before the last day prescribed by law for filing shall be considered as filed on the last day. WHEN ASSESSMENT IS MADE Sections 203 and 222 of the NIRC provide for a statute of limitations on the assessment and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against unreasonable investigation. 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. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. L-22492. of Finance to rule on the appeal within the said period shall be deemed as approval for accreditation.R. But the sending of the notice must clearly be proven. Prescriptive period for assessment GENERAL RULE – 3 years after the date the return is due or filed. fraudulent. the tax is imprescriptible 2. 178087.“ CIR v. v. . May 5. It is not required that the notice be received by the taxpayer within the prescribed period. The waiver must be signed by the taxpayer himself or his duly authorized representative. Basilan Estate v. When the tax law itself is silent on prescription. 1967] The Commissioner may prescribe the manner of compliance with any documentary or procedural requirement for the submission or preparation of financial statements accompanying tax returns. Inc. and non-filing of returns EXCEPTIONS: 1. No. of Finance who shall rule on the appeal within 60 days from receipt of such appeal.. In case the authority is delegated by the taxpayer to a representative. In the case of a corporation. 248]) c. 222A) 2. [G. 3. >30% of that declared [Sec. CIR. Journalists. [G. Failure to file return: 10 years from date of discovery of the omission to file the return (Sec. individuals and general professional partnerships and their representatives 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. vs. Ablaza: “…The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. [G. for willful refusal to supply information (e) Obligation to maintain confidentiality of information received (f) Notice to taxpayers regarding respect for exchange of information 7) Authority to Register tax agents (a) The Commissioner shall Accredit and Register. such delegation should be in writing and duly notarized. It must be the product of a deliberate intent to evade taxes. tax is imprescriptible NOTE: Remedy of taxpayer is to file a return TAXATION LAW REVIEWER Page 111 of 165 . When no return is required. the waiver must be signed by any of its responsible officials.. 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) a. Fraud must be alleged and proved as a fact. carelessness or ignorance.

tax due for which no return is required. receipts or income – failure to report sales. [L-19727. or d) Failure to pay on or before the date prescribed for its payment: 1. 019-03] E) Interest on extended payment. Jamora v. B) Penalty: 50% of the tax or of the deficiency tax. NOTE: Pursuant to Section 249 of the Tax Code. or any part on or before the date prescribed. 1965] b. or 6. the full amount of tax due for which no return is required to be filed. Meer. the full or part of the amount of Tax shown on any return required to be filed. and for the concomitant use by the taxpayer of funds that rightfully should be in the government's hands. from the date of notice and demand until it is paid. 4. unless he informs the CIR of any change in his address when the warrant of distraint or levy is duly served and no property is located when the taxpayer is out of the Philippines (Sec. a.. or b) Filing a return with an Internal revenue officer other than those with whom the return is required to be filed. the imposition of interest on delinquency is mandatory. in addition to the tax required to be paid in case of the following: RIDT (let’s get RID of Tax) a) Failure to file any Return and pay the tax on the date prescribed.Amendment of Return If the amended return is substantially different from the original return. tax due on any return required to be filed. receipts or income in an amount exceeding 30% of that declared per return 2. 2. Interest 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. CIR v. any person who is qualified and elects to pay the tax on installment but fails to pay the tax. or c) Failure to pay the Deficiency tax within the time prescribed for its payment in the notice of assessment. or b. or 5. A deficiency tax. or any installment. May 20. Civil penalties A) Penalty: 25% of the amount due. 4. of Finance: 1. and for 60 days thereafter when the taxpayer requests for a reinvestigation which is granted by the CIR when the taxpayer cannot be located in the address given by him in the return. Phoenix Assurance Co. where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof. when the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court. C) FROM the date prescribed for its payment until the full payment. GENERAL PROVISIONS ON ADDITIONS TO THE TAX a. or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. 5. 3. unless otherwise authorized by the Commissioner. 223)  Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to the rules and regulations promulgated by the Sec. the prescriptive period shall be counted from the filing of the amended return. In case of: [ FiFa ] a) Willful neglect to File the return within the period prescribed. a) Deficiency Interest in the tax due b) Delinquency Interest – In case of failure to pay: 4. Suspension of running of statute of limitations 1. in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. 22] The imposition of interest is but a just compensation to the state for the delay in the payment of the tax. in case any payment has been made on the basis of a return before the discovery of the falsity or fraud. [74 Phil. substantial overstatement of deductions – claim of deductions in an amount exceeding 30% of actual deductions b. 2. c. or b) False or fraudulent return is willfully made.[BIR Ruling No. TAXATION LAW REVIEWER Page 112 of 165 . D) Interest shall form part of the tax. substantial under declaration of taxable sales.

From the provision [of RR 12-99] it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment. The assessment shall be in writing. if the taxpayer does not controvert it. or – Discrepancy is determined between the tax withheld and the amount actually remitted by the withholding agent – a taxpayer who opted to claim a refund or tax credit was determined to have Carried over and applied the amount against succeeding tax liabilities – Excise tax has not been paid – an article locally purchased or imported by an exempt person has been sold. c. h. a revenue officer recommends the imposition of deficiency tax assessment. No. Tax audit b.that taxpayers should be able to present their case and adduce supporting evidence. December 8. Protest of assessment by taxpayer . Issuance of preliminary assessment notice – Communication issued by the BIR informing a taxpayer who has been audited of the findings by the BIR. 185371. He must be informed of the facts and the law upon which the assessment is made. 122451. after the culmination of an audit. The same is true even if the CIR is wrong. Exceptions to issuance of preliminary assessment notice Instances where a pre-assessment notice NEED NOT be given: MET DC – when the finding for deficiency tax is a result of Mathematical error in the computation of tax appearing on the face of the return. It is a repository of all arguments. the assessment is void. the finding of the CIR will be conclusive and he will assess the taxpayer. 2010] d. Cagayan Robina Sugar Milling v.5. otherwise. Disputed assessment j. ASSESSMENT PROCESS a. 2000] Indeed. – If. Administrative decision on a disputed assessment 6." the absence of which renders nugatory any assessment made by the tax authorities. this recommendation is communicated by the BIR to the taxpayer during an informal conference. and should inform the taxpayer of the law and the facts on which the assessment is made. This is commonly known as the final assessment notice. CA. PROTESTING ASSESSMENT a. Reply to preliminary assessment notice – If the taxpayer disagrees with the PAN. thus.R. Notice of informal conference (see above) e. [G. The law imposes a substantive. It is also the formal act of the taxpayer questioning the TAXATION LAW REVIEWER Page 113 of 165 . Notice of informal conference – A written notice informing a taxpayer that the findings of the audit conducted on his accounting records indicate that additional taxes or deficiency assessment has to be paid. the burden lies on the taxpayer. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations . October 12. i. It can be used in court in case of administrative remedies have been exhausted. CIR v. Otherwise. or whose reply to the PAN was found to be without merit. traded or Transferred to non-exempt persons g.Protested assessment A protest is a vital document which is a formal declaration of resistance of the taxpayer.R. Issuance of formal letter of demand and assessment notice/final assessment notice – A 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 preassessment notice within the prescribed period of time. requirement. not merely a formal. – There is a presumption of correctness and good faith on the part of the CIR. The taxpayer shall have 15 days from the receipt of the notice of informal conference to explain his side. Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. METRO STAR SUPERAMA. he has 15 days to file a written reply to contest the proposed assessment. Issuance of preliminary assessment notice (see above) f. [G.

CTA. 128315. This is equivalent to a pleading. – An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. Provided. 1996). Effect of failure to protest Within 60 days from filing of protest. b. which provides that in case the protest is not acted upon within 180-days from the submission of the documents.R.When to file a protest File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment . May 30. request for reconsideration – a plea for reevaluation of the assessment on the basis of existing records without need of additional evidence. CA. 2001] After the company submitted its letter-reply stating that it would not comply with the presentation of the proof of DST payment. . 2009] c. which reached the same conclusion as in Ungab. CIR v. REMEDIES OF TAXPAYER TO ACTION BY COMMISSIONER Appeal of Protest to the CTA (Judicial Relief) Grounds: a. June 16. Ungab v. RENDITION OF DECISION BY COMMISSIONER a. the CIR held a contrary position b. In case of denial of protest b. (Sec. No. In case of inaction by commissioner within 180 days from submission of documents Period to appeal: a. Cusi. [CTA Case No. [G. the tax assessment cannot be considered as final. 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. 5696. all relevant supporting documents should have been submitted. the taxpayer adversely affected may appeal to the CTA within 30days from the lapse of the 180-day period. however. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax. executory and demandable. 30 days from the lapse of 180 day period TAXATION LAW REVIEWER Page 114 of 165 . CTA. the assessment shall become FINAL (cannot be appealed). Denial of protest .Forms of protest a. No.Inaction by commissioner 8. elevate the matter with the CIR within 30 days from receipt of the decision of the CIR’s duly authorized representative. b. August 29. in the case of CIR v. Pascor Realty. First Express Pawnshop Company.official actuations of the CIR. (a) Filing of criminal action against taxpayer 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.R. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return. since what is involved in the criminal action is not the collection of tax but a criminal prosecution for the violation of the NIRC. Involves a question of fact or law or both. otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce.1999]. [G. 119761. No. & Fortune Tobacco [G. Submission of documents within 60 days from filing of protest Submission of documents within the 60 days period is optional to the taxpayer. The company has complied with the requisites in disputing an assessment. [L-41919-24. Involves a question of fact or law or both. within 30 days from receipt of decision denying the protest or b. 228) 7. Standard Chartered Bank v. Issuing a warrant of distraint and levy .R. no reply was then heard from the CIR. 1980] – See also CIR v. August 16. otherwise.Commissioner’s actions equivalent to denial of protest If protest is denied. and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. request for reinvestigation – a plea for reevaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation.. that there is a prima facie showing of a willful attempt to evade taxes. June 29. Inc. HOWEVER. Thus. 172045-46.

fees or charges – ten (10) years from discovery of fraud or intent to evade payment (sec. fees or charges may be collected within five years from the date of assessment by administrative or judicial action.a consolidated report. LGC) serving a copy of the warrant upon the taxpayer AND upon the president. leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent. LGC] 3. 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. company. association (c) Debts and Credits 1. Procedures with respect to: (a) Goods. (b) The posting shall be made in not less than 2 public places in the city or municipality where the distraint is made. posting a notice at the main entrance of the - Local taxes. Summary remedy of distraint of personal property .208] 3) Posting of Notice [Sec. DISTRAINT OF PERSONAL PROPERTY INCLUDING GARNISHMENT a. Effect of failure to appeal The decision shall be final. and also a note of the time and place of sale (b) Stocks and other Securities TAXATION LAW REVIEWER Page 115 of 165 . 207(a)] 2) Service of warrant of distraint. 2. COLLECTION 1. Short description of the property to be sold The advertisement shall be made within 20 days after the levy. Local taxes.Procedure for distraint and garnishment 1) Report on the distraint (Commencement of distraint proceedings) (a) by the distraining officer – submitted within 10 days from receipt of the warrant to the Revenue District Officer or Revenue Regional Officer. LGC) When there is fraud or intent to evade the payment of taxes. signed by the officer.Sale of property distrained and disposition of proceeds (a) Release of distrained property upon payment prior to sale . No such action shall be instituted after the expiration of such period. Advertisement and sale Advertisement of the time and place of sale.) B. bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient [Sec. manager. together with a statement of the sum demanded 3. treasurer or other responsible officer of the issuing corporation. 209] (a) Notice specifying the time and place of sale and the articles disdained. It shall be effected by: i. 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 amount of tax and penalties due b. [Sec.Constructive distraint to protect the interest of the government – There may be no actual delinquency. as may be required by the Commissioner The order of distraint may be lifted by the Commissioner or his representative [Sec.Report of sale to the BIR . PRESCRIPTIVE PERIODS 1. 194. 194. a copy of an account of the property distrained. SUMMARY REMEDY ON REAL PROPERTY a.c. Name of the taxpayer c. which shall contain: a. chattels and other personal property 1. (b) by the Revenue Regional Director . fees or charges – five (5) years from the date they became due (sec. 4) Sale of Property Distrained . 2. and the same shall be for a period of at least 30 days. executory and demandable (NOTE: See the CTA case of Lascona which gives the taxpayer the option either to appeal to the CTA after 180 days or to await the decision of the CIR. serve a warrant of garnishment upon the taxpayer AND upon the president. REQUISITES 2.Purchase by the government at sale upon distraint . (c) One of the places for posting of such notice is the Office of the Mayor of such city or municipality. 194. manager. – Taxpayer is prohibited from disposing of the property and must preserve the same 4. effects. treasurer or other responsible officer of the bank 2.

other than the officer referred to in Section 208 of this Code shall. or other personal property. Disposition of funds recovered in legal proceedings or obtained from forfeiture The Revenue District Officer or his duly authorized representative. 213] an accounting of the same shall rendered to the Chairman of the Commission on Audit. [Sec. the property may be redeemed by the delinquent taxpayer or any one from him. transfer the stocks or other securities sold in the name of the buyer. to the highest bidder for cash. Redemption of property sold Within 1 year from the date of sale. specifying. if required to do so. At the time and place fixed in such notice. company or association which issued the stocks or other securities. and no charge shall be imposed for the services of the local internal revenue officer or his deputy. 209] b. at any time before sale or destruction of the property. shall be returned to the owner of the property sold. bring an action against the person seizing the property or having possession thereof to recover the same. and a copy thereof furnished the corporation. In the case of stocks and other securities. he may bring an action to recover the net proceeds realized at the sale. penalties or costs arising under this Code or in compromise or adjustment of any claim therefore. the officer making the sale shall execute a bill of sale which he shall deliver to the buyer. municipal building or the city hall and in public and conspicuous place in the barrio or district where the property is located 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. a final deed of sale shall be issued to the purchaser. The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending. the said revenue officer shall sell the goods. the owner desiring to contest the validity of the forfeiture may. and upon giving proper bond. through duly licensed commodity or stock exchanges. [Sec. sell and dispose of the same of public auction or with prior approval of the Secretary of Finance. or with the approval of the Commissioner. FORFEITURE TO THE GOVERNMENT FOR WANT OF BIDDER Forfeiture is the divestiture of property without compensation. 214] The owner shall not be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. including expenses. and issue. company or association shall make the corresponding entry in its books. Any residue over and above what is required to pay the entire claim. Remedy of enforcement of forfeitures . 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. the corporation. chattels. Final deed of purchaser If the property is not redeemed. a. at public auction. upon the payment of the taxes. In either case. Upon receipt of the copy of the bill of sale. according to rules and regulations prescribed by the Secretary of Finance. in consequence of a default or offense. The time of sale shall not be less than twenty (20) days after notice. may enjoin the sale. 5.ii. dispose of the same at private sale. 216] c. upon the giving of not less than twenty (20) days notice. One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained. When property to be sold or destroyed – Forfeited property shall not be destroyed until at least 20 days from seizure. or after the sale and within six (6) months. Resale of real estate taken for taxes The Commissioner shall have charge of any real estate obtained by the Government of the Philippines in payment or satisfaction of taxes. upon recommendation of the Commissioner. and TAXATION LAW REVIEWER Page 116 of 165 . and said Commissioner may. the sale. [Sec. or effects. including stocks and other securities so distrained. [Sec. c. the proceeds of the sale shall be deposited with the National Treasury. d. the corresponding certificates of stock or other securities. forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made.Action to contest forfeiture of chattel In case of the seizure of personal property under claim of forfeiture. 231] b. the time and place of sale and the articles distrained.

L-16235. FURTHER DISTRAINT OR 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. 219].R. As a mere agent of the Government. receipts or income – failure to report sales. COMPROMISE a. Magdaluyo. [RR No. either real or personal. receipts or income in an amount exceeding 30% of that declared per return b) substantial overstatement of deductions – claim of deductions in an amount exceeding 30% of actual deductions C. 3. penalty or forfeiture. 219] with or without the consent of the Prosecutor People v.  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. the government has already acquired a vested rights. Before the complaint is filed with the prosecutor’s office: the CIR has full discretion to compromise except those involving fraud After the complaint is filed 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 After information is filed with the court: the CIR is no longer permitted to compromise a. the Commissioner is not authorized to accept anything less than what is adjudicated in favor of the government by virtue of such final judgment. of Finance: a) substantial under declaration of taxable sales. No. established by law as a security in default of the payment of taxes [51 AmJur 881]. penalties and costs that may accrue in addition thereto Extent: upon all property and rights to property belonging to the taxpayer Effectivity against third persons: 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.6. 217] Otherwise.  The BIR Commissioner may compromise the payment of tax liabilities on the basis of the doubtful validity of the assessment if the assessment is based on a decision by the Supreme Court which is adverse to BIR. 8. 1. [G. REFUND 1. it attaches to the property irrespective of ownership or transfer thereof  Nature: 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: lien exists from the time assessment is made by the Commissioner until paid. 220]    NOTE:  A tax lien is superior to judgment claim of private person. Authority of the commissioner to compromise and abate taxes BIR Commissioner as expressly authorized by the NIRC subject to certain conditions [Sec. GROUNDS AND REQUISITE FOR REFUND a) taxpayer files in writing with the Commissioner a claim for credit or refund for:  Taxes erroneously or illegally received  Penalties imposed without authority  Any sum alleged to have been excessively or in any manner wrongfully collected  Refund the value of internal revenue stamps when returned in good condition by the purchaser 2. 30-02 as amended by RR No. must be filed with the approval of the Commissioner [Sec. TAX LIEN Tax Lien is a legal claim or charge on property. 3. 08-04] 9. 2. 1961]  This is more so when the court has rendered a final judgment. 7. TAXATION LAW REVIEWER Page 117 of 165 . Must be brought in the name of the Government of the Philippines Conducted by legal officers of the BIR In case of actions for recovery of taxes or enforcement of a fine. 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. with interests. April 20. [Sec. Generally. Suit to recover tax based on false or fraudulent returns Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to the rules and regulations promulgated by the Sec. 204. CIVIL AND CRIMINAL ACTION 1. NIRC].

Legal basis of tax refunds Broadly speaking. Nature of erroneously paid tax/illegally assessed collected Taxes are erroneously paid when a taxpayer pays under a mistake of fact. Statutory basis for tax refund under the tax code a. Requirements for refund as laid down by cases a. or of any sum alleged to have been excessively or in any manner wrongfully collected. Burden of proof for claim of refund The burden of proof is on the taxpayer claiming the refund that he is entitled to the same CIR v. in the discretion of the Commissioner application must be 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 that may arise after the payment) a return filed showing an overpayment shall be considered a written claim for credit or refund wrongfully collected without authority. d. 2142 and 2154 of the Civil Code: Art. Tax Credit Certificate: a) may be applied against any internal TAXATION LAW REVIEWER Page 118 of 165 . Tokyo Shipping Ltd. 204 C. Necessity of proof for claim or refund It partakes of the nature of an exemption and is strictly construed against the claimant. that a return filed showing an overpayment shall be considered as a written claim for credit or refund. or sum has been paid under protest or duress. e. CIR v. TAX CREDIT The government issues a Tax Credit Certificate covering the amount determined to be reimbursable. whether or not such tax. he is not aware of an existing exemption in his favor at the time that payment is made. however. penalty. Tokyo Shipping Ltd. of any sum alleged to have been excessively or in any manner b. voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. 2142. Necessity of written claim for refund b.. Certain lawful. 2154. and. Credit or refund taxes erroneously or illegally received or penalties imposed without authority. Taxes are illegally collected when payments are made under duress. xxx 4. Claim containing a categorical demand for reimbursement c. c. in the discretion of the Commissioner 2. in his discretion. but such suit or proceeding may be maintained. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided. 229. Art. If something is received when there is no right to demand it. b) a) Redeem or change unused stamps rendered unfit for use and refund their value upon proof of destruction. until a claim for refund or credit has been duly filed with the Commissioner. and it was unduly delivered through mistake. Scope of claims for refund  Taxes erroneously or illegally received  Penalties imposed without authority  Any sum alleged to have been excessively or in any manner wrongfully collected  Refund the value of internal revenue stamps when returned in good condition by the purchaser  Redeem or change unused stamps rendered unfit for use and refund their value upon proof of destruction. Tax refund vis-à-vis tax credit TAX REFUND Tax refund takes place when there is actually a reimbursement of tax. Sec. The pertinent rules are found in Arts. redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. tax refunds are based on the legal principle of quasi-contracts or solutio indebiti.. or of any penalty claimed to have been collected without authority. which is applied after proper verification against any sum that may be due to the taxpayer. Particular references in the NIRC: Sec. such as. refund the value of internal revenue stamps when they are returned in good condition by the purchaser. [244 SCRA 332]. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected. [244 SCRA 332]. the obligation to return it arises. Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause 3.

204 C. [G. No. Prieto. [Sec. No.R. 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. WHO MAY CLAIM/APPLY FOR TAX REFUND/TAX CREDIT a. CA] From the date the taxpayer becomes entitled to refund and not from the date of payment CIR v. [G. from date of issue. No. 230] f. there is absolutely no basis to file a claim with the CIR or commence a suit in court If tax has been withheld from source (through the withholding tax system) Corporate taxpayer If tax was not erroneously or illegally paid but the taxpayer became entitled to refund because of supervening circumstances From date it falls due at the end of the taxable year Gibbs v. Essential requisites for claim of 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.b) c) revenue tax. It is only then that the corporation can ascertain whether it made profits or incurred losses. and b) that there is a legal basis for granting the refund or credit including the verification of compliance with the statutory requirements relative to the filing of the claims within the reglamentary two-year period. where on the face of the return upon which payment was made. L17406. L13912. Before the right to refund or credit arises.R. 204 C) The following must be established: a) that there was an actual collection and receipt of the government of the tax to be recovered and this requires actual proof.R. [G. 1973] TAXATION LAW REVIEWER Page 119 of 165 . from date of payment of the tax/penalty regardless of any supervening cause that may arise after payment d) the Commissioner may. 229] 5. [Sec. Taxpayer/withholding agents of non-resident foreign corporation 6. Coll] NOTES There is no payment until the whole/entire tax liability is fully paid Merely making a deposit is not equivalent to payment until the amount is actually applied to the 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. PRESCRIPTIVE PERIOD FOR RECOVERY OF TAX ERRONEOULSY OR ILLEGALLY COLLECTED Commencement of 2-year period CASE 2-YEAR PERIOD STARTS FROM If the tax sought From date tax to be refunded is was paid [CIR v. L28467 February 28. payment appears to be erroneous. from date of mailing or delivery b) Forfeiture of Tax Credit – a tax credit certificate which remains unutilized after 5 yrs. on the date of the filing of the adjusted final return [ACCPA v. 1960] If the taxpayer merely made a deposit From conversion of the deposit to payment [Union Garment v. Don Pedro Central Azucarera. suit must be filed in court within 2 yrs. shall be invalid. 1965] At the earliest. September 30. illegally or Victorias erroneously Milling] collected If the tax is paid From date of in installment or the last or final only in part installment or CIR v. November 29. CIR. EXCEPT withholding taxes original copy is surrendered to the revenue officer no tax refund will be given resulting from availment of incentives granted by law where no actual payment was made (Sec. even without a written claim. UNLESS revalidated. refund or credit a tax.

Palanca [G. 1999] A suit or proceedings for tax refund may be maintained whether or not such tax. L-23912. [May 28. 1958] 7. payment appears to be erroneous. Sec. it shall be allocated proportionately on the basis of the volume of sales. L-11976. there is a pending litigation between the government and the taxpayer 2. penalty or sum has been paid under protest or duress [Sec. Section 230 of the NIRC provides for a 2-yr prescriptive period to be counted "from the date of payment of tax" for actions for refund of corporate income tax. No. January 21. No. 1968] If a Revenue Regulation provides for a prescriptive period different from the NIRC. refund or credit a tax. there being no appeal. 112 (A) Zero-Rated or Effectively Zero-Rated Sales. 1966] If a taxpayer had lost his right to dispute the validity of a tax assessment in view of his failure to appeal the Commissioner’s decision to CTA. That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services. where on the face of the return upon which payment was made. which had become conclusive and binding on the taxpayer. the twoyear period is counted from the payment of the last installment. CIR v. CIR. 1961] in case taxes are payable in installments. to the extent that such input tax has not been applied against output tax: Provided. CIR v.R. however. 2. The Commissioner in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto Panay Electric Co. v. [G. CTA & BIR [G. payment under protest is necessary is case of: (a) real property taxes [Sec.R. the 2-yr period should be reckoned from the actual filing of the Adjustment Return or Annual ITR. August 26. apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Collector. The expedient of an appeal from a denial of a tax request for cancellation of warrant of distraint and levy cannot be utilized for the purpose of testing the legality of an assessment. because at this point. (Sec. Thus. 204 C and 229) of the National Internal Revenue Code is not available to revive the right to contest the validity of an assessment once the same had been irretrievably lost not only by the failure to appeal but likewise by the lapse of the reglementary period within which to appeal could have been taken. That in the case of zero-rated sales under Section 106(A)(2)(a)(1). the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided. whose sales are zero-rated or effectively zero-rated may. it can be determined whether there has been an overpayment of tax. Concepcion [G. 229] Similarly. 112024. Prieto [G. October 29. 5. then the regulation is invalid and the NIRC period should be used. CIR v. January 28. payment under protest is not necessary in refund for local taxes. . 252 LGC] (b) custom duties [Sec 2308 TCC] 3.R. further. even without a written claim. CIR v. 1999] Suspension of the 2 yr Prescriptive Period 1. (2) and (B) and Section 108 (B)(1) and (2). however. Payment Under Protest is NOT Necessary under NIRC 4. 117254. except transitional input tax. and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions. may he be granted a refund? NO. [Sec. CA. L-16890. No. TAXATION LAW REVIEWER Page 120 of 165 . OTHER CONSIDERATION AFFECTING TAX REFUNDS 1.R. within two (2) years after the close of the taxable quarter when the sales were made.R. 196 LGC].any VAT-registered person. PBCom v. No. March 15. The Commissioner may. 229) The partial payment of a tax cannot be a basis for a tax refund. 6. the procedure set forth in Section 306 (now Sec.

A different interpretation would defeat the tax ordinance in question or encourage tax evasion by simply arranging for the delivery at the outskirts of the city. City of Cebu. uniformity is required only within the geographical limits of the taxing authority. G. 3. Power to Grant Local Exemptions (Sec. Local Government Taxation ====================================== 1. Such taxes. evolve a Progressive system of taxation. fees. 4) not be contrary to Law. (e) Each local government unit shall.III. 1978] 2. charge or other imposition unless otherwise specifically provided herein. public policy. Fundamental Principles The fundamental principles governing the exercise of the taxing and other revenue-raising powers of LGUs are [ULIP]: (a) Taxation shall be Uniform in each local government unit. Such taxes. G. consistent with the basic policy of local autonomy. [Punzalan v. 192 LGC) LGUs. 191 LGC) LGUs are authorized to adjust the tax rates as prescribed herein not oftener than once every 5 years. in no case shall fines be less than P1. The grant of taxing power to local government units is also embodied in the LGC: Section 129. In fine. 1954] A city can validly tax the sales to customers outside the city as long as the orders were booked and paid for in the company’s branch office in the city. (d) The revenue collected shall Inure solely to the benefit of the local government unit levying the tax. 2) be levied and collected only for Public purposes. 130]  Equality and uniformity in local taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate within the territorial jurisdiction of the taxing authority or local government unit and not necessarily in comparison with other units although belonging to the same political subdivision. or confiscatory. L-4817. Power to Adjust Local Tax Rate (Sec. [Sec.R. grant tax exemptions. No. The Sanggunian Barangay may prescribe a fine of not less than P100 nor more than P1000. charges and other impositions shall (EPuJuL): 1) be Equitable and based as far as practicable on the taxpayer's ability to pay. May 26. as they may deem necessary.R. fees. national economic policy.000 b. and charges shall accrue exclusively to the local government units. excessive. incentives or reliefs under such terms and conditions. Power to Create Sources of Revenue. Tax exemptions shall be conferred through the issuance of a non-transferable tax exemption certificate. oppressive. (b) Taxes. L-30745 January 18. and charges shall accrue exclusively to the local governments. as far as practicable. and in no case shall such adjustment exceed 10% of the rates fixed under the LGC. fees. TOPIC UNDER THE SYLLABUS: A. nor shall the imprisonment be less than one month nor more than six months Such fine or other penalty shall be imposed at the discretion of the court. No. charges and other impositions shall in no case be Let to any private person. fee. fees.  TAXATION LAW REVIEWER Page 121 of 165 .000 nor more than P5. and charges subject to the provisions herein. and. The Sanggunian is authorized to prescribe fines or other penalties for violations of tax ordinances a. fees. Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes. [Philippine Match Company v. 3) not be unJust. Power to Prescribe Penalties for Tax Violations and Limitations Thereon 1. may through ordinances duly approved. as amended ====================================== 2. Nature and Source of Taxing Power (CITE LAW) The 1987 Constitution provides that: Article X Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes. or in the restraint of trade. LOCAL GOVERNMENT CODE OF 1991. fees and charges subject to such guidelines and limitations as the Congress may provide. consistent with the basic policy of local autonomy. (c) The collection of local taxes. City of Manila.

or adverse economic conditions such as substantial decrease in prices or agricultural or agri-based products. create its own sources of revenue and levy taxes. Nature of the Taxing Power of Local Government Units (1987 Constitution Article X Section 5. general failure of crops. The ordinance levying such taxes. 1995] 3. Any exemption or relief granted to a type or kind of business shall apply to all business similarly situated. as amended other applicable laws 2. c. Marcos [G. b. The grant shall be for a definite period of not exceeding 1 calendar year. 1996] not absolute subject to limitations provided for by law Manila Electric Company v.R. 186 LGC) LGUs have the power to levy taxes. Conditions: a. NIRC of 1997) 4. No. May 5. Sources of Revenues 1. consistent with the basic policy of local autonomy. d. Local Taxing Authority Tax Exemptions not applicable to Regulatory Fees The power to grant tax exemptions. non-stock and non-profit hospitals and educational institutions. confiscatory or contrary to declared national policy. fees. e. whether natural or juridical. 1966] exercised only if delegated to them by law or Constitution Mactan Cebu International Airport v. b. 3. On the grant of tax incentives a. oppressive. Province of Laguna [G. or presently enjoyed by all persons.  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 TAXATION LAW REVIEWER Page 122 of 165 .R. Tax Incentives and Tax Reliefs (Art. excessive.LGC Sec. Guidelines for the Granting of Tax Exemptions. local water districts.Tax Exemptions existing before the Effectivity of the LGC: Unless otherwise provided by the LGC. specifically enumerated in LGC taxed under the provisions of the NIRC. and charges subject to the provisions herein. 1. On the grant of tax exemptions or tax reliefs: a. c. No. c. L-21191. See Title XI. b. 30 April 30. civil disturbance. 129] Such taxes. fees or charges shall not be enacted without any prior public hearing conducted for the purpose. tax incentives and tax reliefs shall not apply to regulatory fees which are levied under the police power of the LGU. [Sec. cooperatives duly registered under RA 6938. fees or charges on any base or subject NOT: a. Any grant to a type or kind of business shall apply to all businesses similarly situated. In the case of shared revenue. That the taxes. Residual Taxing Powers of the LGU (Sec. Municipality of Medina [G. 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. 2. September 11. fees or charges shall not be unjust. 2. No. v. not inherent Everett Steamship Corp.R. (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. a) Power to Create Sources of Revenue Each local government unit has the power to: 1. the same may be granted in cases of natural calamities. 120082. 2. Rules and Regulations Implementing the LGC) 1. 3. tax exemptions or incentives granted to. The grant shall be by ordinance passed prior to the 1st day of January of any year. The grant shall be through an ordinance. and charges shall accrue exclusively to the local government units. d. the exemption or relief shall only extend to the LGU granting such exemption or relief. 129) . b. 282 [B]. including GOCCs are hereby withdrawn upon the effectivity of the LGC except the ff: 1. fees. 131359. The same shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefore.

School texts or references. 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. or on any other mode of transferring ownership or title of real property. b. the tax shall not exceed 1/20 of 1% of the capital investment. LGC] 5. PROVINCES TYPE OF TAX Tax on Transfer of Real Property Ownership. No. 283. city or municipality. VAT on sale of goods or properties under Sec. 191. Tax on Business of Printing and Publication. LGC] Within 10 days after their approval. publication in full for 3 consecutive days in a newspaper of general circulation. the publication and affectivity Public hearings are required before any local tax ordinance is enacted [Sec. 3. 133 of LGC Fundamental principles governing the exercise of the taxing power of the LGUs prescribed under Sec. 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. NIRC a. In absence of such newspaper in the province. necessity of quorum submission for approval by the local chief executive c. 108. NIRC c. Residual taxing powers of local governments [Sec. donation. Power to prescribe penalties for tax violations and exemptions [Sec. NIRC b. handbills. 5. with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. otherwise known as the Local Government Code of 1991. otherwise known as the Local Government Code of 1991. LGC] Limitations of the Residual Power 1... Scope of Taxing Power 1. Grant of tax power under existing law [Sec. 187.  be available for the general purposes of the Government. The province may impose a tax on the sale. [Sec. then the ordinance may be posted in at least two conspicuous and publicly accessible places [Sec.. 7160. Specific Taxing Power of Local Government Unit (LGU) A. LGC] 4. The province may impose a tax on the business of persons engaged in the printing and/or publication of books. 516. The procedure applicable to local gov’t ordinances in general should be observed. 283. 4. [Sec. Newly started business. LGC] 2. whichever is higher Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. 55. 2. 116. 2. NIRC) a. 129. 132] 1. 3. VAT on sale of services and use or lease of properties under Sec. 7160. 187. and 59 LGC]: 4. transfer or other disposition of real property pursuant to R. 106. 284. Power to adjust local tax rates [Sec. 6657 (CARL) NOTES It shall be the duty of the seller. Percentage taxes under Sec. RATE Not more than 50% of the 1% of the total consideration or of the fair market value. barter. [Sec. Sec. 54. Constitutional limitations on taxing power Common limitations prescribed in Sec. 4. 189 LGC] 2. RA 7160] 50% share in collections for the ff: (2nd par. cards. donor. prescribed by the DECS TAXATION LAW REVIEWER Page 123 of 165 . leaflets. [Sec. Power to grant local tax exemptions [Sec. NIRC] 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. with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. 130 of the LGC The ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and The principle of preemption b) Procedure for approval and effectivity of tax ordinances The power to impose a tax. 283. 40%.A. 5. the matter of veto and overriding the same d. fee or charge or to generate revenue is exercised by the Sanggunian of the LGU concerned through an appropriate ordinance. posters. LGC] 3. 192. LGC] Procedural details [Secs. EXCEPTIONS Sale. 186. [Sec.

Notwithstanding any exemption granted by any law or other special law. manner. The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination. rivers. Wholesalers of. sand. Franchise Tax. wholesalers. or Retailers in. dramas. terms and conditions for the payment of tax. within the province. Proceeds distributed as follows: Province 30% Component City or Municipality where the quarry resources are extracted . Professional Tax. pursuant to the ordinance of the Sangguniang Panlalawigan. rock. interest and penalties. Sangguniang Panlalawigan may prescribe the time. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers. and others of similar nature.00.00. painting and art exhibitions. TAX LAW REVIEWER Page 124 of 162 . lakes. Newly started business.certificates. Any person first beginning to practice a profession after the month of January must. Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. w/out being subjected to any other national or local tax. Tax on Sand. license. flower shows. The province may levy an annual fixed tax for every truck or any vehicle used by manufacturers. except pop. The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located. Dealers.40%. The holding of operas. soft drinks. the province may impose a tax on businesses enjoying a franchise. Gravel and Other Quarry Resources. the Sangguniang Panlalawigan may impose surcharges. or operators of theaters. or fee for the practice of the profession. receipts. Professionals exclusively employed in the government shall be exempt from the payment of this tax. The permit to extract resources shall be issued exclusively by the provincial governor. In case of fraud or failure to pay. Certain Products. boxing stadia. cinemas. and other places of amusement At such amount and reasonable classification as the Sangguniang Panlalawigan may determine but shall in no case exceed P300. and other public waters within its territorial jurisdiction. literary and oratorical presentations. The province may levy an amusement tax to be collected from the proprietors. producers. recitals. earth. concert halls. Amusement Tax. The province may levy and collect taxes on ordinary stones. or similar concerts shall be exempt. st To be paid on or before the 31 day of January. pamphlets. After payment he/she shall be entitled to practice his/her profession in any part of the Phils. Not more than 10% of fair market value in the locality shall be exempt from the tax. 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 Provided. and other quarry resources extracted from public lands or from the beds of seas. lessees. circuses. or consumers. creeks. streams. cigars and cigarettes. within its territorial jurisdiction. concerts. the tax shall not exceed 1/20 of 1% of the capital investment. Not more than 30% of the gross receipts from admission fees. Amount not exceeding P500. and other products as may be determined by the Sanggunian. musical programs.30% Barangay where the quarry resources are extracted . to sales outlets. however. whether directly or indirectly. gravel. dealers or retailers in the delivery of distilled spirits. pay the full tax before engaging therein.

On manufacturers. [Sec. On wholesalers. assemblers. fees and charges not otherwise levied by provinces. the tax rate shall not exceed 2% of gross sales of the preceding calendar year. brewers. [Sec. millers. 5. and 8. 151] NOTES:  Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed for ah. wholesalers. which the Sanggunian concerned may deem proper to tax. dealers or retailers of the following essential commodities (where the rate prescribed is only ½ of the regular rate [Sec. and on manufacturers. b. III. Laundry soap. these could be valid. c. April 28. c. 143 par.B. whether in their original state or not. [Sec. marine. equipment and postharvest facilities. [Sec. fees and charges. the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. including the authority to grant fishery privileges within municipal waters. 149] b. Fees and Charges Municipalities may impose: a. The tax is payable for every separate or distinct establishment or place where business is conducted. 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. If these are subject to the same rate of tax. value-added or percentage tax. distilled spirits. On retailers On contractors and other independent contractors On banks and other financial institutions. distributors. Payment of Business Taxes: a. h. distributors. and charges which the province or municipality may impose. L-24813. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC. Serafica v. or dealers in any article of commerce of whatever kind or nature. Hinobangan]  C. 2. On peddlers engaged in the sale of any merchandise or article of commerce On any business. e. fees. [Sec. Treasurer of Ormoc City.  b. meat. salt and other agricultural. rectifiers. producers. 6. [Sec 147] Reasonable fees for the sealing and licensing of weights and measures. No. and fresh water products. and wines or manufacturers of any article of commerce of whatever kind or nature. 2. The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. 7. locally manufactured. 142]  I. Cooking oil and cooking gas. repackers. For businesses subject to the excise. 144] The Sanggunian concerned may prescribe a schedule of graduated tax rates but in no case shall exceed the rates prescribed in the LGC. and compounders of liquors. f. the tax shall be computed as follows: 1. processors. TAX LAW REVIEWER Page 125 of 165 . and medicine. c. the gross sales or receipts of each business shall be d. Cement. 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. distillers. dairy products. School supplies. II. as well as issue licenses for the operation of fishing vessels of three tons or less. [G. c. g. The tax on a business must be paid by the person conducting the same. MUNICIPALITIES SCOPE: Municipalities may levy taxes. 1969] However. detergents. such may not be imposed by the local government since these amounts to percentage tax on sales. 4. On exporters. fertilizers. 3. sugar. pesticides and other farm inputs. CITIES   The city may levy the taxes. Rice and corn. [MMIC v. Wheat or cassava flour. If these are subject to different rates of tax. processed or preserved food. Tax on Business The municipality may impose taxes on the following: a. Poultry feeds and other animal feeds. LGC] 1. if the tax is based on past quarterly sales.R. [Sec 148] Fishery rentals. Agricultural implements. 146] A tax that bears a direct relation to the volume of sales or when there is a set ration on the volume of sales and the amount of tax.

and not merely the place of the perfection of the contract.  Rule 4: Where the plantation located at a place other than the place where the factory is located. Camarines Sur. . but on the place in which the act is performed or the occupation is engaged in.. (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. Situs According to Section 150 of LGC Rule 1: For purposes of collection of the taxes under Section 143 (tax on business). plant.. Allied Thread Co. Rule 3: The following sales allocation for sales recorded in the principal office of businesses with factories. in the case of municipalities. b. and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. City Mayor of Manila. plants.The barangay may levy reasonable fees and charges: (CRB) 1. not upon the location of the office. Inc. 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.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. the above mentioned 70% shall be divided as follows:  60% to the city or municipality where the factory is located. Municipality of Sipocot.R. 153-155) [ SPT ] a. [G. plants.On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of P50. or plantations located in different localities. neon signs. Rule 2: In case there is no branch or sales outlet in the city or municipality where the sale is made. Situs According to the Cases: Rule 5: Where there are 2 or more factories. IV. 2. plants.separately reported for the purpose of computing the tax due from each business. COMMON REVENUE-RAISING POWERS OF LGUS (Secs. project offices. a branch. and  On Billboards. 1984] Sales Tax – it is the place of the consummation of the sale. v. operated and maintained by LGUs within their Excise Tax – not dependent on the domicile of the taxpayer. which shall exclusively accrue to them: [ TOBS ] (a) Taxes . the rule on the matter shall apply accordingly. Shell Co. [105 Phil 1263] b. or tobacco dryers. (c) Barangay Clearance. and outdoor ads.  TAX LAW REVIEWER Page 126 of 165 . factory. and 70% of all sales recorded in the principal office shall be taxable by the city or municipality where the factory.00 or less for cities and P30. November 21. On commercial breeding of fighting Cocks and cockpits. plant or plantation in which case. No. copra. . sales office.00 or less. the above mentioned 70% shall be prorated among the localities where the factories. Inc. Situs of Local Taxation a. Service Fees and Charges for services rendered Pubic Utility Charges for the operation of public utilities owned. and plantations:  30% of all sales recorded in the principal office shall be taxable by the city or municipality where the principal office is located. businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction. v.000. (b) Service Fees or Charges for services rendered in connection with the regulations or the use of barangayowned properties or service facilities such as palay. project offices. (Sec. signboards. 152) E. project office. On places of Recreation which charge admission fees. 150] NOTE: In case of manufacturers or producers which engage the services of an independent contractor to produce or manufacture some of their products. rate = not exceeding 1% on gross sales or receipts. L-4029.000. and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. project offices. (d) Other fees and Charges. BARANGAYS Scope of Taxing Powers: The barangays may levy the following taxes and charges. and 40% to the city or municipality where the plantation is located. the sale shall be recorded in the principal office and the taxes due shall accrue and be paid to such city or municipality. 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. (IRR) D. but the place where the place is perfected. [Sec. or warehouse. or plantation is located.

3. Diplomatic and consular representatives.00. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of P1.accrues on the 1st day of Jan. . Except: 1. A. [Sec. 3) Those exempt from the community tax are: 1. 6. transacts other official business. 157] 2) Presentation of Community Tax Certificate on Certain Occasions: (Sec.000. and For every P5.00. physically-handicapped. c. or who is engaged in business or occupation. which shall not exceed P10. Receives any money from any public fund. B. 162] 5) Individuals Liable to Community Tax –[IER] Inhabitant of the Philippines Eighteen years of age or over Regularly employed on a wage or salary basis for at least 30 consecutive working days during any calendar year. The dividends received by a corporation shall. jurisdiction. tax acknowledges any document before a notary public. 3.00 of gross receipts derived by it from its business in the Philippines during the preceding year . or 7. exercise of profession or from property which in no case shall exceed P5. For every P5.000. Takes the oath of office upon election or appointment to any position in the government service. 2. pier.00 in accordance with the following schedule: a. or who owns real property with an aggregate assessed value of P1. Receives any license. 160] Time for Payment .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 . certificate or permit from any public authority.00 of income regardless of whether from business. officers and enlisted men of the AFP and PNP on mission. Pays any tax or fee. or wharf.00. waterway. no matter how created or organized. 2. or in the place where the principal office of the juridical entity is located. COMMUNITY TAX   Cities or municipalities may levy a community tax (Sec. 5. When an individual subject to the comm. b. [Sec. The presentation of the CTC shall not be required in connection with the registration of a voter. bridge.   Rate: P5. and Transient visitors when their stay does not exceed 3 months. 2.00 and an annual additional tax of P1.P2. post office personnel delivering mail. or 4. certificate or permit from any public authority. be considered as part of the gross receipts or earnings of said corporation. of each year which shall be paid not later than the last day of Feb.P2. LGC) Juridical Personalities (Sec.place of residence of the individual.00 or more. 2. receives any money from any public fund. In the case of husband and wife. TAX LAW REVIEWER Page 127 of 165 . 4. of each year Penalties for Delinquency.An interest of 24% per annum from the due date until it is paid shall be added on the amount due.00 for every P1. b.00. [Sec.00 and an annual additional tax. 163. Individual 1. the tax imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. Transacts other official business. engaged in or doing business in the Philippines are also liable to pay an annual community tax. receives any license. and disabled citizens who are sixty-five (65) years or older.000.000. Corporation 1. 3. 4) Place and time of Payment F. or who is required by law to file an income tax return  a. Receives any salary or wage from any person or corporation. 158) Corporations. ferry or telecommunication system funded and constructed by the LGU concerned.c.000. for the purpose of the additional tax. whether domestic or resident foreign. Rate: P500. 156) 1) Place of Payment . pays any tax or fee.000. Toll Fees or Charges for the use of any public road.

A. Common Limitations on the Taxing Powers of LGUs and common revenue LGUs CANNOT LEVY: [ IDECTA_BEV_TRELEBI ] (a) Income tax. h. g. etc.R.  Excluded impositions pursuant to the doctrine of preemption 1. and local government units. (h) Excise taxes on articles enumerated under the national Internal Revenue Code. 1989] 4. Taxes. fees. on Countryside and Barangay Business Enterprises and cooperatives duly registered under R. it impliedly withholds from the local government the delegated power to tax the same field. [G. as amended.) (b) Documentary stamp tax. regardless of origin. fees and charges shall be the calendar year. The exception is referring to the percentage tax on banks’ specified income. which are imposed under the TCC (*d) Taxes. Taxes which are levied under the NIRC unless otherwise provided by the LGC (*a. and all other kinds of customs fees. fees or charges of any kind on the National Government. [G.6. No. (d) Customs duties. f. TAX LAW REVIEWER Page 128 of 165 . except wharfage on wharves constructed and maintained by the local government unit concerned. the territorial jurisdictions of local government units in the guise of charges for wharfage. (* l) The imposition of 5% tax on the gross receipts on rentals or lease of space in privately-owned public markets are not income tax. 3. 2. as the case may be. v. (l) Taxes.A. A province may not levy excise taxes on articles already taxed by the NIRC. Time of Payment – ALL local taxes. fees. k. Taxes. c. except on banks and other financial institutions. L-36081. LGUs cannot impose the same even on banks and other financial institutions. 1998] 7. and taxes. (c) Estate Tax. and charges and other impositions upon goods carried into or out of. unless otherwise provided in the Code. fees. (e) Taxes. and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter. 6938 (Cooperative Code of the Philippines). I. m.  Principle of Preemption or Exclusion Where the national government elects to tax a particular area. (NOTE: Since income tax is already imposed by the National Government under NIRC. fees. unless otherwise provided by LGC of 1991. This doctrine principally rests on the intention of Congress. charges and dues. legacies and other acquisitions mortis causa. or other charges on Philippine products actually Exported. November 27. fees and charges imposed under special laws. fees. except as provided in the Code. Collection of Business Taxes Taxable Period – The tax period of all local taxes. fees. (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. unless otherwise provided in the Code. n. except tricycles. and charges accrue on first day of January of each year. inheritance. except as otherwise provided. tonnage dues. the Province may no longer impose any additional amounts from Republic Cement. land or water. or charges. fees and charges where the imposition of which contravenes existing gov’tal policies or which are violative of the fundamental principles of taxation (*e. unless otherwise provided in the Code. Quezon City. fees or charges on petroleum products.R. fees or charges for the registration of motor vehicles and for the issuance of all kinds of Licenses or permits for the driving thereof. Accrual of Tax – All local taxes. which are imposed under the TCC. its agencies and Instrumentalities. The current Tax Code already imposes a tax on ALL quarry resources. fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen. (m) Taxes. 3. Province of Bulacan v. except as otherwise provided. CA. Taxes which are levied under the NIRC. tolls for bridges or otherwise. rather. these constitutes as valid license fees for the regulation of the business. (f) Taxes. or passing through. Progressive Development Corp. etc. hence. April 24. fees. No. j) Taxes. b. 126232. barters or exchanges or similar transactions on goods or services except as otherwise provided. registration fees of vessel and wharfage on wharves. 6810 and R. the imposition of which contravenes existing gov’tal policies or which violates the fundamental principles of taxation. 2. (n) Taxes. Classification of Common Limitations 1. fees. (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. s) Taxes. and (o) Taxes. etc. respectively from the date of registration. (k) Taxes on premiums paid by way of Reinsurance or retrocession. (i) Percentage or VAT on sales. gifts.

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. The claim must be filed within 2 years from the date the taxpayer is entitled to a refund or credit. fees or charges b). unlike in internal revenue taxes. After Assessment a. or charge. fee. on the amount unpaid. 195. i. Penalty on local treasurer for failure to b. interests and penalties. The provincial. LGC) Such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of tax. or Charges – The Sanggunian may impose a surcharge not exceeding twenty five percent (25%) of the unpaid taxes. free or charge 1. Civil Remedies by the LGU for the Collection of Revenues a) Local government’s lien for delinquent taxes. Distraint of personal property b. The Local Treasurer or his duly authorized representative shall issue a notice of assessment stating the nature of the tax. 2. 187. 8. [Sec. fees or charges I. Payment and subsequent refund or tax credit – within 2 years from payment of tax to local treasurer (Sec. the Local Treasurer shall DENY the protest wholly or partly with notice to the taxpayer. fees or charges not paid on time. The Local Treasurer shall decide the protest within 60 days from the time of filing of the written protest. 195. surcharges. city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes. Before assessment entitled to a tax credit. 196. 195. he shall issue a notice canceling wholly or partially the assessment. or charge erroneously or illegally collected. Levy of real property. Payment under protest is not necessary. the taxpayer MAY file a WRITTEN PROTEST with the Local Treasurer contesting the assessment (otherwise the assessment shall become FINAL and EXECUTORY). Protest – within 60 days from receipt of assessment (sec. b. in general i) By administrative action—through distraint of personal property and by levy upon real property a. 196. Taxpayer’s Remedies a) Periods of assessment and collection of local taxes. a. the amount of deficiency. IF the protest is found to be MERITORIOUS. TAX LAW REVIEWER Page 129 of 165 . municipal or barangay treasurer. LGUs are authorized to impose an interest of a maximum of 2% per month. LGC] c) Claim for refund of tax credit for erroneously or illegally collected tax. It is to be noted that. Civil Remedies. Exemption of personal property from distraint or levy e. the provincial city or municipal government shall pay premiums thereon in addition to the premiums of the bond that may be required under the Code. fees or charges including surcharges. Interest on other unpaid revenues – On any other source of revenue.Surcharges and Penalties on Unpaid Taxes. 3. The taxpayer has 30 days from the receipt of the denial of the protest or from the lapse of the sixty-day period prescribed herein within which to appeal with the court of competent jurisdiction (otherwise the assessment becomes CONCLUSIVE and UNAPPEALABLE). procedure c. Administrative 1. IF the assessment is found to be wholly or partly correct. They may impose interest at the rate not exceeding two percent (2%) per month of the unpaid taxes. maximum of 36 months. 2. A WRITTEN claim for refund or credit must be filed with the Local Treasurer for the recovery of any tax. or their duly authorized deputies. fees or charges. In case a bond is required for the purpose. fee. Collection of Revenues by the Local Treasurer – All local taxes. Further distraint or levy d. LGC). fees and charges shall be collected by the provincial. b) Protest of assessment (Sec. [Sec. Fees. the supervening cause applies in local taxation because the 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 9. city. LGC] 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. LGC). Within 60 days from the receipt of the notice of assessment. LGC) 1. 2.

Local treasurer shall prepare a duly authenticated certificate showing the name of the taxpayer and amount of tax. If property is not disposed of within 120 days from date of distraint. Local Government’s Lien – Local taxes. a certificate of redemption will be issued. If property redeemed.issue and execute warrant of distraint or levy ii) Judicial action (ii) Levy of real property. TAX LAW REVIEWER Page 130 of 165 . a final deed of sale shall be issued to the purchaser. (b) publication once a week for 3 consecutive weeks in a newspaper of general circulation in the province. c) Procedure for administrative action (i) Distraint of personal property Deficiency Report on levy within 10 days from levy by the levying officer. constitute a lien. register of deeds of the province or city where the property is located and the delinquent taxpayer. The local treasurer shall purchase the property on behalf of the LGU if: (a) there is no bidder for the real property (b) the highest bid is insufficient to pay the deficiency tax. Sale of levied property. charges or encumbrances in favor of any person. Disposition of the proceeds of the sale by application of such proceeds to the delinquency and expenses of sale and return of the balance to the owner. fees. enforceable by any appropriate administrative or judicial action. Accounting for distrained goods Posting of notices of the sale of distrained properties in not less than 3 public and conspicuous place. superior to all liens. procedure Deficiency NOTE: Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the LGU concerned. In this case. fee and penalty due him. Seizure or confiscation of personal property belonging to the person subject to tax or subject to lien in sufficient quantity to satisfy the liability Written notice of levy to the assessor. Levy of real property before. The advertisement shall be effected by: (a) posting a notice in the main entrance of the municipal building or city hall and a conspicuous place in the barangay where the real property is located. in the territory of the LGU concerned. city or municipality where the property is located. the property shall be considered sold to the LGU concerned for the amount of the assessment made thereon by the Committee on Appraisal. The tax delinquency shall be cancelled to the extent of such amount. The sale shall be scheduled in not less than 20 days after notice to the owner or possessor of the property and the publication and posting the property shall be sold to the highest bidder. The owner of the property has 1 year from date of sale to redeem. Advertisement of the sale of the property through sale or auction within 30 days after levy. If not redeemed. including the office of the chief executive. charges and other revenues. the owner also has 1 year to redeem. Issuance of the certificate of sale to the purchaser. The local treasurer shall make a report of the proceedings within 5 days from the sale. simultaneously or after distraint of personal property belonging to the delinquent taxpayer.

5. Court action a. appraisal. attachment or execution thereof for delinquency in the payment of any local tax. With the amendment brought by R. LOCAL GOVERNMENT CODE OF 1991 B.000. But it cannot negate the procedural rules and requirements under Rule 58 of the Rules of Court Valley Trading Co. 195. (e) Provisions. Fundamental Principles in Assessment of Real Property Taxes (Sec. Who is found guilty of abusing the exercise thereof by competent authority shall be automatically dismissed from the service after due notice and hearing without prejudice to criminal prosecution under the Revised Penal Code and other applicable laws. carabao. 198) [CUANE] 1. [Sec. although the value may vary in accordance with such factor. including the related surcharge and interest: (a) Tools and the implements necessarily used by the delinquent taxpayer in his trade or employment. including crops. 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. such as he may select. or other beast of burden. TAX LAW REVIEWER Page 131 of 165 . (Subject to the definition given by Art.e. speedy and adequate remedy.00). Real Property Tax is a direct tax on ownership of lands and buildings or other improvements thereon payable regardless of whether the property is used or not.A. Real Property Taxation covers the administration. Action for Declaratory Relief Injunction – if irreparable damage would be caused to the taxpayer and no adequate remedy is available. or 2. 415 of the Civil Code) b. fee or charge. 9282. CURRENT and fair market value is the basis of appraisal UNIFORMITY in classification in each local government unit should be observed ACTUAL USE of the property should be the basis of classification Appraisal. 177. Jurisdiction of Courts Over Local Taxation Cases 1. by the lawful use of which a fisherman earns his livelihood. c. and that of all his family. No. of a value not exceeding Ten thousand pesos (P10. 4. Real Property Taxation ====================================== 1. Regular judicial courts are not prohibited from enjoining the collection of local taxes. assessment. levy and collection of Real Property Tax. CFI of Isabela [1989] 2. 3. LGC] if no action is taken by the treasurer in refund cases and the two year period is about to lapse [Sec. (c) His necessary clothing. and (h) Any material or article forming part of a house or improvement of any real property.(iii) Further distraint or levy (iv) Exemption of personal property from distraint or levy The following property shall be exempt from distraint and the levy. LGC] within 30 days from receipt when protest of assessment is denied [Sec. engineers. Fails to issue or execute the warrant of distraint or levy after the expiration of the time prescribed. Nature of Real Property Tax 1. not exceeding the total value of Ten thousand pesos (P10. v. Such statutory lapse or intent may have allowed preliminary injunction where local taxes are involved. such as the delinquent taxpayer may select. LGC] if remedies available does not provide plain.00). actually provided for individual or family use sufficient for four (4) months. (d) Household furniture and utensils necessary for housekeeping and used for that purpose by the delinquent taxpayer. [Sec. lawyers and judges. i. (b) One (1) horse. (g) One fishing boat and net. LGC] (v) Penalty on local treasurer for failure to issue and execute warrant of distraint or levy The Local Treasurer who: 1. 187. cow. levy and collection should NOT BE LET to any private person.  ====================================== TOPIC UNDER THE SYLLABUS: III. including machineries. within 30 days after receipt of decision or lapse of 60 days of Secretary of Justice’s inaction [Sec. 185. IV. d. the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. assessment. NOTE: Unlike the NIRC.000. 2. tax on land and building and other structures and improvements on it. subject to Rule 58 (Preliminary Injunction) of the Rules of Court. 195. LGC] d) Procedure for judicial action 2. EQUITABLE appraisal and assessment 2. (f) The professional libraries of doctors. and necessarily used by him in his ordinary occupation.

Manila Electric Co.e. Power to Levy Real Property Tax Characteristic of Real Property Tax [LIPAD] 1.A. Special Properties Liable for Real Property Tax According to the Local Government Code. churches. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. Board of Assessment Appeals. and those not permanently attached to the real property which are actually. LGC] Machinery which are of general purpose use including but not limited to office equipment. Charitable institutions. 3. Cultural and scientific purposes 3. Timberland 7. Machinery & equipment for pollution control and Environment protection Exemptions previously granted. or necessary to its manufacturing. 3. It includes the physical facilities for production. early decisions of the Supreme Court in Mindanao Bus Co. articles of incorporation. 4. (not falling within the above enumeration) are withdrawn. breakable or easily damaged containers (glass or cartons). commercial. 2. cash dispensers. 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. furniture and fixtures. display cases or racks. mechanical contrivances. freezers. equipment. telex machine. Land Buildings Machinery and Other improvements not otherwise exempted under said code [Sec 232] Special Classes of Real Property (Sec. instruments. non-profit or religious cemeteries. 5. contracts. Direct tax on the ownership of real property Ad Valorem tax. [Sec. 3. etc. 2. affidavits. Owned by the REPUBLIC of the PHILS or its political subdivisions. Commercial Agricultural Residential Mineral Industrial 6. v. telephone equipment. fruit juice or beverage TAX LAW REVIEWER Page 132 of 165 .Improvement – valuable addition made to a property or amelioration in its condition amounting to more than a mere replacement of parts involving capital expenditures and labor.   Although powerless to grant RPT exemption. mining. parsonages. facsimile machines. Properties Exempt from Real Property Tax (Sec. seem to suggest that Art.the tax is calculated on the basis of a certain percentage of the value assessed Indivisible single obligation Local Tax automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry. business or activity shall not be considered within the definition of machinery. self-powered or selfpropelled. Except: when beneficial use has been granted to a taxable person 2. directly. 5. The value is based on the tax base Proportion . Imposition of Real Property Tax a. and exclusively used to meet the needs of the particular industry. IRR of RA 7160] Classification of Land for Purposes of Assessment . 234) 1. 4. 199 [o]. permanently or temporarily. charitable or educational purposes. business or activity and which by their very nature and purpose are designed for. city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (i. those which are mobile. LGUs (within and outside MM) may also grant condonation which actually partake of exemption. buildings and improvements actually directly and exclusively used for religious. mosques. Proof of Tax Exemption: Every person by or for whom real property is declared who shall claim the exemption shall file with the provincial. Hospitals 2. 290 [o]. corporate charters. 415 of the Civil Code could also be controlling. convents appurtenant thereto. typewriters. 6938 5. Machinery – embraces machines. 3. b. refrigerators. Real Property liable for Real Prop tax are: 1. Meralco. industrial or agricultural purposes. microcomputers. title of ownership. 2. 3. directly. v.Sec 218(a) [CARMITS] 1. 216) 1. 4. City Assessor of Cagayan de Oro. logging. owned and used by local water districts 4. Real property owned by duly registered Cooperatives under R. [Sec. LGU in MM can exempt the 5% ad valorem tax on idle lands. appliances or apparatus which may or may not be attached. the installations and appurtenant service facilities.) NOTE: Although the term real property has not been expressly defined in the LGC. Board of Assessment Appeals v. Machinery and Equipment actually. to the real property.

236. Special Education Fund (SEF) – 1% additional real estate tax to finance the SEF [Sec. What Are Considered as Idle Lands: (Sec. 238 of the LGC. The taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods. 2. in area if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein.000 sq. LGC] – within MM area only b. LGC)  This is done only when the person under Sec 202 refuses or fails to make the Declaration within the prescribed time. natural calamity or any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving the land 5. [G. 90639.R. LGC) 1. Estate of Lim v. TAX LAW REVIEWER Page 133 of 165 . February 21.4. idle lands may be exempt from tax by reason of force majeure. Declared by Provincial / City / Municipal Assessor (Sec. All declarations shall be kept and filed under a uniform classification system to be established by the provincial. Collection of Real Property Tax Steps in the Assessment and Collection of RPT STEP 1 . Additional Ad Valorem on the Lands – not exceeding 5% of the assessed value of the property [Sec. For Public Works – on lands specially benefited by public works. 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. and whoever uses it. 235. If the required evidence is not submitted within 30 days. No. 222 of LGC states that the property shall be assessed for back taxes for not mare than 10 years prior to the date of initial assessment. 204. No oath by the assessor is required. 206 of LGC. Sec. LGC) 1. m. civil disturbance. LGC] Under Sec. 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 Non-Agricultural Lands – More than 1. Declared by Owner or Administrator (Secs. 2. Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU. the person claiming exemptions must file with assessor sufficient documentary evidence to support claim within 30 days from the date of declaration of property. NOTE (2): If property is declared for the first time. Basic real property tax Special levies: a. LGC] c. valued and assessed on the basis of actual use regardless of where located. 240. Unpaid realty taxes attach to the property and are chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. 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 had been donated to the local government unit concerned for the construction of said projects. the property will be listed as taxable. Appraisal and Assessment of Real Property Tax Actual Use of Property as Basis for Assessment (LGC Sec. City of Manila. whoever owns it. STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS (Secs. 237. NOTE (1): If filing for exemption under Sec. 2. [Sec. 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. 217) Real property shall be classified. 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. 207.DECLARATION OF REAL PROPERTY 1. 1990] Types of Real Property Tax 1. 202-203. LGC)  If newly acquired property – file with the assessor within 60 days from date of transfer a sworn statement containing FMV and description of property  If improvement on real property – file w/in 60 days upon completion or occupation (whichever is earlier) a sworn statement of FMV and description of property 2. 205. city or municipal assessor.

charges or encumbrances and is enforceable by administrative or judicial action. Assessor prepares a schedule of FMV for different classes of properties 3. take the schedule of FMV 2. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect 3. life STEP 4: DETERMINE ASSESSED VALUE (Sec 218) Procedure 1. 2. It is extinguished only upon payment of tax and other expenses. PERIOD WITHIN WHICH TO COLLECT (LGC Sec 270): – within five (5) yrs from the date they become due – within ten (10) yrs. Assessed value = FMV X Assessment level 3. 257. Tax = Assessed value X Tax rate STEP 5: PAYMENT AND COLLECTION OF TAX WHEN: January 1 of every year (Sec 246) HOW a. – provided in no case shall the total interest exceed thirty-six (36) months NOTE (2): Advance and prompt payment – advance payment . Sep 30. The schedule of FMV is published in a newspaper of general circulation in the province. FOR MACHINERY 1. local treasurer is legally prevented to collect tax 2. special levy . shall be posted in the provincial capitol city or municipal hall places therein. amount. city. 212-214. Sanggunian enacts an ordinance 4. the owner is out of the country or cannot be located Remedies of LGUs for the Collection of Real Property Tax A. LGC For machineries: 224-225) How to determine Fair Market Value: FOR LAND 1. nature and value. Dec 31) b. city or municipality concerned or in the absence thereof. its ownership. LGC) – prompt payment .discount not exceeding 10% of annual tax due(Art 342 IRR) WHO COLLECTS The provincial.governed by ordinance NOTE (1): Interest for late payment – two percent (2%) each month on unpaid amt. municipal or barangay treasurer TAX LAW REVIEWER Page 134 of 165 . basic real prop tax in 4 equal installments (Mar 31. LGC) – superior to all liens. life X Replacement cost Estimated eco. until the delinquent amt is paid. Assessor of the province/city or municipality may summon the owners of the properties to be affected and may take depositions concerning the property. from discovery of fraud. For brand new machinery: FMV is equivalent to acquisition cost 2. in case there is fraud or intent to evade Period of prescription shall be SUSPENDED when: (LGC Sec 270) 1. Jun 30.discount not exceeding 20% of annual tax (Sec 251. Administrative A) Lien (Sec.STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY (Secs. In all other cases: FMV = Remaining eco.

File written protest with local treasurer (within 30 days from payment of tax) Treasurer decides (within 60 days from receipt of protest) Redemption (within 1 year from date of sale) Approved Issuance of Final Deed to purchaser (upon the delinquent taxpayer’s failure to redeem) Denied Apply for tax refund or tax credit Purchase of property by local treasurer for want of bidder in case there is no bidder for the real property advertised or if the  highest bid is insufficient to pay the RPT and other costs. 270. Protest Pay Pay the the tax tax under protest protest Sale Report of sale (within 30 days after sale). 258. Administrative 1. LGC) Issuance of warrant by the LGU treasurer (on or before or simultaneously with the institution of civil action for collection of delinquent tax) B. b. 7. Claim for Tax Refund or Credit (Sec 253. Distraint (Sec. 254. amount of delinquent tax and its interest. LGC) – filed by the local treasurer within 5 or 10 years as provided in Sec. Taxpayer’s Remedies Advertise sale or auction (within 30 days after service of warrant) by posting and publication A. expenses. 270 of the LGC. Provincial or city treasurer should decide the claim within 60 days from receipt of the claim. C. LGC) . Judicial Civil Action (Secs.  Appeal with the LBAA (in case of denial or inaction of the treasurer after the lapse of 60 days)  The proceeds of the sale in excess of the delinquent tax. Preparation of certificate of sale (containing the name of the purchaser. c. Appeal to SC (within 15 days from receipt of adverse decision of CTA) TAX LAW REVIEWER Page 135 of 165 . Personal property may be distrained to effect payment. In case of denial of refund or credit. 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. appeal to LBAA within 30 days as in protest case. 266. LGC) a.B) Levy (Sec. description of the property.with notice of delinquency posted and published. the interest due thereon and the expenses of the sale shall be remitted to the owner of real property or person having legal interest. Appeal with the CBAA (within 30 days from receipt of adverse decision of LBAA) Appeal to CTA (within 30 days from receipt of adverse decision of CBAA) 6.

or c. 83. 2. Recovery of refund of taxes paid [Sec. 3. b. B. Within 1 year from the date of sale. Court Action – appeal of CBAA’s decision to CTA en banc.when public interest so requires 2. and the certificate of sale issued to the purchaser shall be invalidated. 267. LGC] CONDONATION OF REAL PROPERTY TAXES 1. Suit assailing the validity of tax. Suit assailing the validity of tax sale [Sec. TAX LAW REVIEWER Page 136 of 165 . 64. shall have the right to redeem the property upon payment to the local treasurer the ff: – – – – Amount of delinquent tax Interest thereon Expenses of sale from date of delinquency to date of the sale Interest of not more than 2% per month on the purchase price from date of sale to date of redemption b. PD 464] Suit to declare invalidity of tax due to irregularity in assessment and collection. Redemption of Real Property (Sec. PD 464 and Sec. Judicial 1. There is calamity.2. 4. By the President of the Philippines . or person having legal interest or his representative. By Sanggunian – RPT may be condoned wholly or partially in a given LGU when: a. A certificate of redemption shall be issued. 261. 5. There is general failure of crops. the owner of the delinquent real property. There is substantial decrease in the price of agricultural or agri-based products. LGC) a.

taxes and other charges are paid thereon (Sec 1206) TOPIC UNDER THE SYLLABUS: A. Definitions ====================================== 1. 3. Purpose for Imposition ====================================== Tariff and customs duties are taxes constituting a significant portion of the public revenue which are the lifeblood that enables the government to carry out functions it has been instituted to perform. ====================================== TOPIC UNDER THE SYLLABUS: IV. 5. 3. including those granting franchises. rivers and inland waters whether navigable or not from the sea [Sec.Port Works Fund Berthing fee Harbor fee Tonnage due 3. General Rule ====================================== All imported articles are subject to duty. EXCEPTIONS: 1. Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce. [211 SCRA 227. terminal facilities including container yards and freight stations for the protection of government revenue.. taxes and other charges thereon Hold possession of all imported articles until the duties. harbors. charges. to the contrary notwithstanding. CUSTOMS DUTIES: Tax assessed upon merchandise from or exported to a foreign country Garcia v. 7. as amended ====================================== Jurisdiction of Collector of Customs over Importation of Articles 1. toll or tribute payable upon merchandise to government. bays. 4.] ====================================== TOPIC UNDER THE SYLLABUS: IV. Arrastre charge Wharfage due. Exemptions of international institutions. 101. Supervision and control over the handling of foreign mails arriving in the Phils. rules and regulations relating to the tariff and customs administration. Commissioner of Customs v. 2. associations or TAX LAW REVIEWER Page 137 of 165 .g. Exercise exclusive jurisdiction over seizure and forfeiture cases under the tariff and customs laws. LIABILITY FOR CUSTOMS DUTIES GENERAL RULE: No exemptions from customs duties  The provisions of general and special laws. agreements or obligations with foreign countries 3. TARIFF AND CUSTOMS CODE OF 1978. 6. there shall be no exemptions whatsoever from the payment of customs duties [Sec. 105. ports. Executive Sec.counterpart of license. 4. Assessment and collection of the lawful revenues from imported articles and all other dues. 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 Supervision and control all import and export cargoes. Makasiar. If provided under the TCC (e. airports. 1st par. 1992] Territorial Jurisdiction of the BOC 1. fees. Prevention and suppression of smuggling and other frauds upon the customs. 2. 2. landed or stored in piers. 2. [Sec.IV. Tariff and Customs Code (TCC) Sec. [177 SCRA 27] 2. TARIFF: Custom duties. BUREAU OF CUSTOMS Functions: 1. commitments. fines and penalties accruing under the tariff and customs laws. Importation by the government taxable. All coasts. conditionally-free importation) 2. 603. airports.] 5. 602] Other Types of Fees Charged by the BOC: 1. 4. charged not for the use of any wharf but for a special fund. All the seas within the jurisdiction of the Phils. last par. Cause all articles for importation to be entered in the customhouse Cause all such articles to be appraised and classified Assess and collect the duties. Exemptions granted to GOCCs with existing contracts. TARIFF AND CUSTOMS CODE OF 1987 B. TARIFF AND CUSTOMS CODE OF 1987 C. Enforcement of tariff and customs laws.

Mendoza v. 28. In case of forfeiture of the seized materials. except as otherwise specifically provided for in the TCC or other laws.4. ====================================== TOPIC UNDER THE SYLLABUS: IV. TARIFF AND CUSTOMS CODE OF 1987 E. even if cargo not yet unloaded. Beginning and Ending of Importation Application of the TCC  TCC applies only after importation has begun but before importation is terminated Importation Begins: when the conveying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein NOTE: If there is intention to unload. Requirements for Importation ====================================== 1. as may be necessary To impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary Liability of Importer for Customs Duties A personal debt due from the importer which can be discharged only by payment in full of all duties and taxes a lien upon imported articles which may be enforced while they are in custody or subject to the control of the government [Sec. ART VI of the 1987 Constitution and Sec. ====================================== TOPIC UNDER THE SYLLABUS: IV. 3514] All articles when imported from any country into the Philippines shall be subject to duty upon each importation. 1201] Port of entry means a domestic port open to both foreign and coastwise trade including “airport of entry”. 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 whom the property is consigned  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. the maximum civil penalty is the forfeiture itself. TARIFF AND CUSTOMS CODE OF 1987 D. 1201] 2. organizations pursuant to agreements and special laws Exemptions granted by the President of the Phils. Flexible Tariff ====================================== Import duties which are modified by the President upon investigation by the Tariff Commission and recommendation  TAX LAW REVIEWER Page 138 of 165 . 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 To establish import quota or to ban imports of any commodity. [Sec. The President may fix tariff rates. 401. TCC]  2. etc. along the coast or in any area in the Phils. David. TCC. under TCC 1. 1205] of the NEDA in the interest of national economy. To increase. The Commissioner shall also hear the views and recommendations of any government office. Conduct by the Tariff Commission of an investigation in a public hearing a. 401. Limitation Imposed Regarding the Flexible Tariff Clause 1. even though previously exported from the Phils. [1 SCRA 791] Imported Goods Must be Entered in the Customhouse  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. and there is unmanifested cargo. [Sec. general welfare and national security. Upon recommendation of NEDA in the interest of national economic development. agency or instrumentality concerned b. [Sec. [Sec. 1204] Extend of Importer’s Liability Limited to the value of the imported merchandise. Sec.  3. The NEDA thereafter shall submits its recommendation to the President 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. 3. import and export quotas. 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.

4. Goods Conditionally-free from Tariff and Customs Duties ====================================== Certain imported articles are exempt from import taxes upon compliance with certain requirements. Importation in Violation of TCC ====================================== TAX LAW REVIEWER Page 139 of 165 . business and computer systems and all customs commercial data including payment records relevant for the verification of the accuracy of the transaction value declared by the importers/customs brokers on the import entry. Those given to international institutions entitled to exemption by agreement or special law. Absolutely prohibited a. 9135) 2. In case the articles are free of duties. 2. 3. Where such conditions as to warrants a lawful importation do not exist. [59 SCRA 110] ====================================== TOPIC UNDER THE SYLLABUS: IV. ====================================== TOPIC UNDER THE SYLLABUS: IV. taxes and other charges until they have legally left the jurisdiction of customs [Sec. or secured to be paid at the port of entry and legal permit for withdrawal shall have been granted 2. 102.forfeiture may take place because importation has already begun. 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. d. the legal effects of the importation of qualifiedly prohibited articles are the same as those absolutely prohibited articles. 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.  Importation Terminates: 1. as amended by R. and other charges due upon the articles. Auyong Hian v. 3514 TCC. TARIFF AND CUSTOMS CODE OF 1987 G. and Those that may be granted by the President upon NEDA’s recommendation. Qualifiedly prohibited All importers are required to keep at their principal place of business. 1202] Goods prohibited from being Imported 1. Weapons of war Immoral/obscene or insidious articles Articles for treason Prohibited drugs/narcotics Gambling paraphernalia/devices Those prohibited under Special Laws [Sec. 105 of the TCC. Those granted to government agencies. all the records of their importations and/or books of accounts. TARIFF AND CUSTOMS CODE OF 1987 F. c. CTA.A. f. TCC] REQUIREMENT TO KEEP RECORDS (Sec. Upon payment of the duties. e. taxes. All brokers are required to keep at their principal place of business. b. These are 1. GOCC with agreements with foreign countries. Those provided for in Sec.

Exempt articles under Sec. That the personal and household effects shall neither be in commercial quantities nor intended for barter. processing or reconditioning  Bond = 1 ½ x of ascertained duties. aircraft and animals. badges.      models not adopted for practical use. 105 ARTICLE Animals and plants Aquatic products CONDITIONS  For scientific. sale or hire and that the total dutiable value of which shall not exceed P10.  Accompany them or arrive at a reasonable time Personal and household effects of returning Phil residents Wearing apparel.000  arriving within a reasonable time. or if landed. appropriate and normally used for their comfort and convenience during their stay abroad. 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. botanical. prizes (medals. experimental. solely for transshipment  Bond= 1 ½ x of ascertained duties. vehicles of foreign TAX LAW REVIEWER Page 140 of 165 . portable tools and instruments. subject however to the following provisions: 1. That a 50% ad valorem duty across the board shall be levied and collected on the personal and household effects in excess of P10. instruments related to one’s profession and analogous personal or household effects. zoological and national defense purposes  caught or gathered by vessels of Philippine registry  Not have landed in foreign territory.000 2. That the returning resident has not previously availed of the privilege under this section within 365 days prior to his arrival 3. or reconditioning Trophies. accompanying them on their return or arriving within a reasonable time which. breeding. before or after the owners. in no case shall exceed 60 days after the owner’s return.  in use of and necessary and appropriate for the wear or use of such persons according to their profession or position  for the immediate purposes of their journey and their present comfort and convenient. theatrical costumes and similar personal effects accompanying travelers or tourists in their baggage Personal and household effects. articles of personal adornment (except luxury items) toilet articles. excluding vehicles. taxes and charges  Must be exported within 6 months  Phil must not have adequate facilities to make repair  Vessel was compelled by weather or casualty to go to a foreign port of repair  Excludes value of article used for repair  to be re-exported upon completion of the repair. watercraft. propagation. processing. toilet articles. taxes and charges 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. barring unforeseen and fortuitous events. articles of personal adornment. and samples not for sale marked sample sale punishable by law for purpose of introducing new product imported by person duly registered and identified to be engaged in that trade  Importations authorized by Sec of Finance  formally declared and listed before departure and identified under oath before the Collector of Customs when exported from the Phil by such returning residents upon their departure therefrom or during their stay abroad  personal and household effects including wearing apparel. purchased in foreign countries by residents of the Philippines which were necessary.

scientific. devices for projecting picture  In quantities and kind necessary and suitable to the profession. tools for production.consultants and experts hired or rendering service to gov’t. Foreign articles 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. tools of trade. hire  Collector may require: written commitment or bond  In quantities and kind necessary and suitable to the profession. equipments. supplies. producing companies Importations used by foreign embassies. 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. and cultural books and publications Phil articles previously exported and returned without increasing value or improved condition. exposed outside Phil by resident Filipinos or Phil. rank or position  For their own use. 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. consular officers and other reps of foreign gov’t Articles donated to or for account of relief organization Containers. explosives. historical. bones ashes. legations. vocational. materials. Photographic and cinematographic films. philosophical. confiscation +penalty  Must file a bond  Exported within 6 months (unless extended by the Collector for another 6 months)  Principal actors are Filipinos  Affidavit by importer that the exposed films are same films previously exported  Reciprocity: such foreign country must grant same privilege to Phil. quality and price  Necessary or incidental to proper operations  Used in their agri and industrial operations TAX LAW REVIEWER Page 141 of 165 . legations. agencies of foreign gov’t Articles for personal or family use of members and attaches of foreign embassies. chemicals. upon re-importation article shall be subject to duty equal to the bounty or drawback  Such articles are not available locally in reasonable quantity. domestic animals. wearing apparel. Personal and household effects of deceased except vehicles Economic. barter. display in public expos. plants to convert mineral ores into saleable form. transpo and communications  Note that if a drawback or bounty was allowed to any Phil article under this subsection. 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. rank or position  For their own use. technical. exhibition or competition for prizes. NOT for sale. quality and price  Necessary or incidental to proper operations  Such articles are not available locally in reasonable quantity. barter. 210  Must file bond  Exported within 6 months  Not exhibited for profit  Otherwise. personal and household effects belonging to persons coming to settle in the Phil and OFW Articles used exclusively for public entertainment. 163. including staff and families Professional instruments. holders and similar receptacles Supplies of vessel or aircraft Articles and salvage after 2 years from filing protest Coffins or urns containing human remains. spare parts. accessories.000 Brought by foreign film producers for making or recording motion pictures on location in Phil. undeveloped.

spare parts and accessories Spare parts of vessels or aircrafts of foreign registry engaged in foreign trade Articles for easy identification exported from Phil for repair and subsequently reimported Trailer chassis imported by shipping companies for handling containerized cargo  Brought to Phil as replacement or for emergency repair  Spare parts utilized to secure safety. resigns or retires TAX LAW REVIEWER Page 142 of 165 . enable it to continue voyage or flight  Cannot be repaired locally  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. seaworthiness. AFP military personnel accorded diplomatic rank on duty abroad = returning from regular assignment.facilities imported by and used by new mines and old mines Aircrafts imported by agro industrial companies. reassignment. attaché. dies. or airworthiness. staff assigned to Phil diplomatic mission abroad. Personal and household effects (including one car) officer or employee of DFA. AFP military personnel in SEATO. personnel of Reparations Missions in Tokyo.

Loading. adjusted by adding: 1. Classification of Duties ====================================== 1. and The cost of insurance. All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable data.  Limit the geographical area in which the goods may be resold. The value of any part of the proceeds of any subsequent resale. design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the production of imported goods. of the following goods and services: materials. disposal or use of the imported goods that accrues directly or indirectly to the seller. The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines. 201 TCC. tools. become dutiable from the entry of the vessel or aircraft into the Philippine jurisdiction until the payment of duties. controls or holds five percent (5%) or more of the outstanding voting stock or shares of both seller and buyer. 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. and other charges and the issuance of the permit for the withdrawal of said goods from the custom houses. dies. and engineering. d.====================================== TOPIC UNDER THE SYLLABUS: IV. Commissions and brokerage fees (except buying commissions). TARIFF AND CUSTOMS CODE OF 1987 H. The cost of packing. development.this is a duty based on the value of the imported article Dutiable Importation Articles although previously exported from the Philippines. moulds and similar items used in the production of imported goods. Methods of Valuation/ Basis of Dutiable Value (Sec.  There exists an employer-employee relationship between them. 3. 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: a.The dutiable value of an imported article subject to an ad valorem rate of duty shall be the transaction value. or  Do not substantially affect the value of the goods.  Both of them are directly or indirectly controlled by a third person. as a condition of sale of the goods to the buyer. The amount of royalties and license fees related to the goods being valued that the buyer must pay. or b) c) d) TAX LAW REVIEWER Page 143 of 165 . 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. b. unless an appropriate adjustment can be made in accordance with the provisions hereof. or The buyer and the seller are related to one another. 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.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. 4. as amended by RA 9135) (A) Method One. materials consumed in the production of the imported goods. Part of the proceeds of any subsequent resale. either directly or indirectly.  Any person directly or indirectly owns. parts and similar items incorporated in the imported goods. .  They are legally recognized partners in business. – Transaction Value. e. which shall be the price actually paid or payable for the goods when sold for export to the Philippines. whether for labor or materials. c. Cost of containers. apportioned as appropriate. 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. Ordinary/ Regular Duties . artwork. 5. No additions shall be made to the price actually paid or payable in determining the customs value except as provided in this Section: Provided. and such relationship influenced the price of the goods.  One of them directly or indirectly controls the other.  Together they directly or indirectly control a third person. taxes. 2. Ad Valorem . disposal or use of the goods by the buyer will accrue directly or indirectly to the seller. Such persons shall be deemed related if:  They are officers or directors of one another’s businesses. components. The value.

sold or is likely to be sold in the Phils. of Agriculture/ Sec. sole distributor or sole concessionaire. of DTI. of Labor) Imposed on foreign articles: a. members: Sec. 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. except that. b. 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. (E) Method Five. their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. "Similar goods" shall mean goods which. subsidy thus allowing subsidy or them to sell at lower subvention prices to the detriment of local products similarly situated MARKING Imposed upon those 5% ad valorem not properly marked of articles as to the place of origin of the goods DISCRIMINATORY Imposed upon goods coming from countries that discriminate against Philippine products Secretary of Finance Commissioner of Customs President of the Philippines TAX LAW REVIEWER Page 144 of 165 . Being imported into. –– the computed value which is the sum of: (1) cost or the value of materials and fabrication or other processing employed. (4) any assist. xxx (D) Method Four. quality and reputation. (B) Method Two. however. – Fallback Value. If the dutiable value still cannot be determined through the successive application of the two immediately preceding methods. – Where the dutiable value cannot be determined under the preceding method. the order of application of methods four and five shall be reversed: Provided. (5) cost of containers and packing. That if the Commissioner of Customs deems that he will experience real difficulties in determining the dutiable value using method five. including physical characteristics. They are members of the same family. the dutiable value shall be determined under method four or. – Computed Value. – Where the dutiable value cannot be determined under method one. if it can be so determined. if their values are not included under (1). the Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under method four. COUNTERVAILING Imposed upon foreign Equivalent to goods enjoying the bounty. – Transaction Value of Identical Goods. At a price less than its normal value The importation or sale of which might injure an industry producing like goods in the Phils.this is duty based on the dutiable weight of goods (either the gross weight. under method five. (3) freight. Sec. however described. (2) amount for profit and general expenses. "Identical goods" shall mean goods which are the same in all respects. The quality of the goods. although not alike in all respects. at the request of the importer. – Transaction Value of Similar Goods. – determined by using other reasonable means and on the basis of data available in the Philippines. Specific . legal weight or the net weight) 2. of Financechairman. Special Duties . insurance fees and other transportation expenses for the importation of the goods. including those related by affinity or consanguinity up to the fourth civil degree. if its value is not included under (1).those which are imposed and collected in addition to ordinary duties usually to protect local industries against foreign competition: SPECIAL DUTIES are: NATURE Persons who are associated in business with one another in that one is the sole agent. have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. b. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical. 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. (C) Method Three. when the dutiable value still cannot be determined under that method. and AMOUNT /RATE DUMPING Difference between the actual price and the normal value of the article (extent of the underpricing) IMPOSING AUTHORITY Special Committee on Anti-dumping (Sec.

Administrative/Extrajudicial 1. Conditions for Grant of Drawback 1. while still in the custody or control of the Gov’t. 2531 & 2530 TCC]  Under Sec. Every application for drawback must pay P500 filing. TARIFF AND CUSTOMS CODE OF 1987 I. 2. These cannot be imposed without regular duties because the law says that it is to be “in addition to such”. ====================================== TOPIC UNDER THE SYLLABUS: IV. or within 5 days from the date the importer is entitled to refund if payment is TAX LAW REVIEWER Page 145 of 165 . 1508. Administrative Fines and Forfeitures  Applied when the importation in unlawful. Tax Lien (Sec. Arrest [Secs. 709.  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 [Secs. 2316 TCC] Seizure. Products from undue competition posed by foreign made products. Tax Remedies under the TCC ====================================== 1. 2530 (a) of the TCC. 1204 TCC] Criminal action 5. Civil action [Sec. Collector of Customs. apportionment shall be made. Comm. Uy Chiaco Sons v. II. regardless of ownership. These are additional import duties imposed on specific kinds of imported articles under certain conditions 2. 2. 4. Administrative 1. 6. 3. 7. TCC)  Attaches on the goods. Refund or credit shall not exceed 100% of duties paid on the imported material No determination by NEDA of the requirement for certification on non-availability of locally produced or manufactured competitive substitutes for the imported material (no local substitute for the materials) 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 When 2 or more result from the used of same imported material. 2. Search. Drawback ====================================== DRAWBACK: It is a device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it had not been taxed at all. of Customs. it is not necessary that the vessel or aircraft must itself carry the contraband. TARIFF AND CUSTOMS CODE OF 1987 J. 3. Taxpayer I. [24 Phil 562] 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. in order to warrant forfeiture. It must be accomplished at the moment the last cargo is disembarked from the vessel. An importer is required to file an import entry. Government I. processing. Protest Any importer or interested party dissatisfied with published value within 15 days from date of publication. 2211 TCC] ====================================== TOPIC UNDER THE SYLLABUS: IV. [122 SCRA 118] Reduction of customs duties/compromise: Subject to approval of Sec. These are imposed for the protection of consumers and manufacturers as well as Phil. Judicial This remedy is normally availed of when the tax lien is lost by the release of the goods 1. 4. 2210.Nature and Purpose of Special Customs Duties 1. 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. 2205.  Availed of when the importation is neither prohibited nor improperly made. Imported material was actually used in the production of article to be exported. and supervision fees Claims shall be paid by BoC within 60 days after receipt of properly accomplished claims 2. 3. of finance [Secs.

Appeal Within 15 days to Commissioner after notification by collector of his decision [Sec. 4. [Secs. as amended by R. Must be in writing Must point out the particular decision or ruling of the Collector of Customs to which to which exception is taken or objection made. deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines. fees. fees and other charges is determined and the taxpayer disputes said liability. 9 R. Must be filed when the amount claimed is paid or within 15 days after the payment. 2. 3. 4. 6. When Customs Protest Applicable The customs protest is required to be filed only in case the liability of the taxpayer for duties. and other charges. Action to question the legality of seizure Abandonment (Sec. 2. Procedure on Customs Protest Cases 1. Payment under protest is necessary [Secs. 3. 11 of RA 1125. 2. 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. 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) Hearing within 15 days from receipt of the duly presented protest. dead or injured animals. 9282] Since Sec. 5. Requirements for Making a Protest 4. Appeal Within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA [Sec.- rendered erroneous or illegal by events occurring after the payment.A. the Collector shall decide on the same within 30 days 2. 1701-1708 TCC] 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 state the grounds relied upon for relief. [Sec. 3. 2403. 2313. Before filing a protest there must first be a payment under protest. TCC] II. failure to file an import entry within 30 days from the discharge of goods or ii. 1801. TCC] 3. The Collector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse.A. 2307. as amended by Sec. and for manifest clerical errors and Drawback cases where the goods are reexported. 1125. Upon termination of the hearing. TCC. Must be limited to the subject matter of a single adjustment. it would appear than an importer may appeal without first paying the duties. 2210 TCC] These are cases which are solely with liability for customs duties. liquidate. 2308. When Customs Protest NOT Required When there is no dispute. Customs Protest Cases TAX LAW REVIEWER Page 146 of 165 . 7651] 1. as amended by Sec. and collect the duties thereon. The Collector shall assess.A. 9 RA 9282 empowers the tax court to issue injunctions. taxes. having filed an entry.within 15 days from assessment. such as in seizure but not in protest cases. Two Kinds of Proceedings in the BOC A. Refund A written claim for refund may be submitted by the importer in abatement cases on missing packages. Taxpayer . or detain the said goods if the party liable does not pay the same. Sec. Protestant must furnish samples of goods under protest when required. articles lost or destroyed after such arrival. 1801 TCC) Expressly impliedly i. 7 R. Judicial 1. fails to claim within 15 days but it shall not be so effective until so declared by the collector.

plane. vessel or aircraft shall not be effected if it is established that the owner thereof or his agent in charge of the means of conveyance used as aforesaid has no knowledge of or participation in the unlawful act: ENTRY in Customs law means 1. [248 SCRA 288] - Appeal by certiorari to the SC within 15 days from notice B.  Things Subject to Confiscation in Smuggling Cases Anything that was used for smuggling is subject to confiscation. he may appeal to the CTA and SC under the same procedure on the left. Manila Starr Ferry. It is thus subject to forfeiture and lack of personal knowledge of the owner or carrier is not a defense to forfeiture. May exercise such powers only in conformity with the laws and provisions of the TCC [Sec. it may also be forfeited.  Port of Entry: A domestic port open to both foreign and coastwise trade including “airport of entry”. CA. 3601. 3514. If a motor vehicle is hired to carry smuggled goods but it has no Certificate of Public Convenience (CPC). Of Customs v. like the vessel. of Finance If decision of Commissioner or Sec. of Customs.     B. 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. 1995] 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.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 banc IF DECISION IS ADVERSE TO THE GOVERNMENT Automatic review by Commissioner Automatic review by Sec. TCC] Export contrary to law [Sec. [September 18. facilitate or transport such article knowing its illegal importation [Sec. Inc. or Receive.. The procedure of passing goods through the customs house Rodriguez v. These actions are in rem. animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under tariff and customs laws. It is civil and administrative in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. 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. 2. It is not a common carrier. etc. 3601. TCC] Payment of the tax due after apprehension is not a valid defense Rodriguez v. 3. The documents filed at the Customs house The submission and acceptance of the documents TAX LAW REVIEWER Page 147 of 165 . Contraband: Articles of prohibited importations or exportations. is adverse to the protestant. An act of any person who shall: Fraudulently import any article contrary to law. Properties Not Subject to Forfeiture in the Absence of Prima Facie Evidence –  The forfeiture of the vehicle. cargo. [227 SCRA 317] Smuggling A. buy. [Sec. rules and regulations. Comm. CA. 2205] Common Carriers – 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. [1983] Exception: Common carriers that are not privately chartered cannot be confiscated. TCC] Right of Customs Officers to Effect Seizure & Arrest  May seize any vessel. article. Seizure and Forfeiture Cases These refer to matters involving smuggling. sell. Comm. conceal. 3514. TCC] The Philippines is divided into various ports of entry entry other than thru port of entry will be SMUGGLING. Aircraft. Llamado v. TCC]  ALL articles imported into the Philippines whether subject to duty or not shall be entered through a customs house at a port of entry. 3514. [Sec. or Assist in so doing. Thus.

Seizures and Arrests 1. The wrongful making by the owner. 2. 3. Notification to owner or importer. Report of seizure to Comm. Over Imported Articles a. Goods in Customs Custody Beyond Reach of Attachment  Goods in the customs custody pending payments of customs duties are beyond the reach of attachment. Comm. and ii. As long as the importation has not been terminated. Navy and other members of the AFP and national law enforcement agencies when authorized by the Comm. 1995] IF DECISION IS NOT FAVORABLE TO THE AGGRIEVED OWNER OR IMPORTER Appeal by aggrieved owner or importer Requirements for Customs Forfeiture 1. when the payment of internal taxes are involved Officers generally empowered by law to effect arrests and execute processes of courts. the imported goods remain under the jurisdiction of the Bureau of Customs. A pursuit of such vessel began within the jurisdictional waters which i. affidavit. The vessel may be seized on the high seas. Viduya v. Rationale: Doctrine of Primary Jurisdiction. Over Vessels a. Officials of the BOC. [Sec. With jurisdiction over them at any place therein for the enforcement of the law. Issuance by the Collector of warrant of detention. exporter or consignee of any declaration or affidavit. [Sec. letter or paper is false. invoice. 8. An act is done in Phil. TCC] Administrative and Judicial Procedures Relative to Customs Seizures and Forfeitures 1. appraisal and classification of seized property. 2. Formal hearing. Farolan. CA. beasts or persons persons arriving from foreign countries TAX LAW REVIEWER Page 148 of 165 . 4. Requisites: 1. No petitions for certiorari. Enclosures dwelling house (there must be search warrant issued by a judge) vessels or aircrafts and persons or articles conveyed therein vehicles. Listing of description. prohibition or mandamus filed with the RTC will lie because these are in reality attempt to review the Commissioner’s actuations.[73 SCRA 553] Places Where Searches and Seizures May Be Conducted 1. Determination of probable cause and issuance of warrant. If the owner is not in the business for which the conveyance is generally used. As a consequence. Even if a Customs seizure is illegal. vehicle or aircraft under any of the following circumstances: 1. and 3. IF DECISION IS NOT FAVORABLE TO THE GOVERNMENT Automatic review by Comm. Doctrine of Hot Pursuit 4. however. If the owner is financially not in the position to own such conveyance. that a prima facie presumption shall exist against the vessel. On Audit. inspectors and guests of the BOC. Officers of the Phil. letter or paper . TCC] 3. 6.all touching on the importation or exportation of merchandise. 4. police officers. or the wrongful making or delivery by the same persons of any invoice. 5. c. 3. 2nd par. [217 SCRA 298]   2.. Of Customs. Provided. b. 7. district collectors. Berdiago. when acting under the direction of the Collector. Neither replevin filed with the RTC will issue. b. If the conveyance has been used for smuggling at least twice before. and That such declaration. There is a violation of the tariff and customs laws. Waters which constitute a violation of the tariff and custom laws. District collector renders his decisions. agents. Officials of the BIR on all cases falling within the regular performances of their duties. 2. Actual seizure of the articles. CTA. Jurisdiction of RTC over seizure and forfeiture proceedings  The RTC do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC and to interfere with these proceedings. Jao v. importer. 603. Persons Having Police Authority to Enforce the Tariff and Customs Laws and Effect Searches. [October 6. v. 2. may continue beyond the maritime zone. exclusive jurisdiction (to the exclusion of regular courts) still belongs to the Bureau of Customs. 5. they may be pursued in the Phils. The Collector of Customs has exclusive jurisdiction over all questions touching on the seizure and forfeiture of dutiable goods. Jr. Of Customs and the Chairman. 2. 2203.

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. Manifests are also required of articles found on vessels or aircrafts engaged in coastwise trade Rigor v. to another is required when one or both of such places is a port of entry. [Nov. Entry of imported or exported article by means of any false or fraudulent practices. 1005. Desiderio.Burden of Proof in Seizure or Forfeiture   claimant [Sec. TCC] Query: Is Manifest Required Only for Imported Goods? No. Settlement of Forfeiture Cases General Rule: Settlement of cases by payment of fine or redemption of forfeited property is allowed. 26. declaration. 2. TCC] Manifests are also required of vessels from a foreign port. affidavit or other documents. Entry of goods at less than their true weights or measures or upon a classification as to quality or value. invoice. TCC] Abatement TAX LAW REVIEWER Page 149 of 165 . 1965] At any time prior to the sale. 2535. [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. [Sec. – Loss or destruction of articles after arrival. Requirements for Manifest A manifest in coastwise trade for cargo and passengers transported from one place or port in the Phils. TCC] The reduction or non-imposition of customs duties on certain imported materials as a result of. 3. Customs compromise does not extinguish criminal liability Pp. [Sec. 1508. or Where there is fraud [Sec. 906. TCC] Fraudulent Practices Considered As Criminal Offences Against Customs Revenue Laws 1. – Deficiency in contents package. 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. Articles subject to seizure do not have to be imported goods. The importation is absolutely prohibited or The surrender of the property to the person offering to redeem would be contrary to law. Exceptions: 1. Robles. 4. 3. 2. – Death or injury of animals. v. 2307. 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. Payment of less than the amount due. Unlawful importation. – Damage incurred during voyage. [Sec.

Judicial Remedies.000 or more. 9282. 9282) 1. Decisions of CIR 2. – Over petitions for review of the decisions of the RTC in exercise of their appellate jurisdiction over tax collection cases originally decided by MTC. exclusive of charges and penalties. ====================================== TOPIC UNDER THE SYLLABUS: V. Decisions of RTC on local tax cases 4. Jurisdiction of the Court of Tax Appeals ====================================== What is the APPELLATE JURISDICTION OF THE CTA?  The CTA shall exercise exclusive appellate jurisdiction to review by appeal: 1. exclusive of charges and penalties claimed. Decisions of DOF on customs cases elevated to him on automatic review due to adverse decision versus the government 7. 9. TAX LAW REVIEWER Page 150 of 165 . the Presiding Justice shall designate any Justice of other Divisions of the court to sit temporarily therein – – – Original jurisdiction over all criminal offenses arising from violation of the NIRC and TCC and other laws administered by BIR and BOC where the principal amount of taxes and fees. ====================================== TOPIC UNDER THE SYLLABUS: V. – Appellate jurisdiction over appeals from the judgment. JUDICIAL REMEDIES A. Generally.V. Inaction of CIR 3. File MR with same Division within 15 days from notice thereof In case resolution of Division on the MR or new trial is still adverse: a. resolutions or orders of the RTC in tax collection cases originally decided by them within their respective jurisdiction. En banc 2.A. Appeal within 30 days from receipt of decision or period of inaction of CIR.A. R. Decisions of DTI (on non-agricultural products) and Department of Agriculture (on agricultural products) involving dumping and countervailing duties What is the Procedure? (Sec. fees. Decisions of CBAA (on exercise of appellate jurisdiction over RPT tax cases decided by LBAA) 6.000. Sitting in 2 divisions. the CTA have jurisdiction over the following cases involving criminal offenses: 3. 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. Secretary of Finance. resolutions or order of the RTC in their original jurisdiction in criminal offenses arising from violation of NIRC and TCC and other laws administered by BIR and BOC where the principal amount is less than P1. Decisions of Commissioner of Customs 5. appeal will be to a Division b.000 or there is no specified amount.000.000. COC. Judicial Procedures ====================================== 1. Does the CTA have jurisdiction over criminal cases?  Yes.000 or more. or the CBAA or the RTC: a. Appellate jurisdiction over appeals from the judgments. and the Revised Rules of the Court of Tax Appeals ====================================== What is the new law governing the CTA?  R. is P1. as amended. claimed is P1. Secretary of Trade and Industry or Secretary of Agriculture. Over petitions for review of the decisions of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the MTC. charges and penalties where the principal amount of taxes and fees. an act expanding the jurisdiction of the CTA. 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 the rendition of a decision or resolution  When the required quorum cannot be constituted. JUDICIAL REMEDIES B. Republic Act 1125 The Act that Created the Court of Tax Appeals (CTA). 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 In case the decision of the Division is adverse: a. File petition for review with CTA En Banc 2. Judicial action for collection of taxes  The CTA have jurisdiction over the following cases involving tax collection: – Original jurisdiction in tax collection cases involving final and executory assessments for taxes.

TAX LAW REVIEWER Page 151 of 165 .  Sir asks. municipal treasurer. a taxpayer can either: 1. In case the decision of the CTA En Banc is adverse. 9282)    To the Central Board of Assessment Appeals (CBAA) and not yet to the CTA. the act of issuance of the demand letter by a subordinate officer is an order that is appealable to the CTA. The object is to avoid repeated requests for reconsideration by the taxpayer. the collection of the taxes due.   General rule: No injunction to restrain collection of taxes. However. and 2.constitutes the order appealable to the CTA. 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? (Sec. and consequently. [CIR v. 9.A. [CIR v. the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or taxpayer In case of suspension. Isabela Cultural] o Demand letter of the CIR . COC or the RTC. or 2.which states a warning that in the event the taxpayer fails to pay. these options are mutually exclusive.  Doctrine discussion  The jurisdiction of the CTA is to review by appeal decisions of the CIR on disputed assessments. o Since the power to make an assessment may be delegated to subordinate officers. what if the CIR himself starts the investigation. [Surigao Electric v. provincial. as the case may be. the taxpayer can file an appeal with the CTA. o Now. Exception: Suspension is allowed when the following conditions concur: 1. Await the final decision of the Commissioner or the disputed assessments and appeal such final decision to the CTA within 30 days after receipt of a copy of such decision. It is only after the CBAA has ruled that an appeal may be made to the CTA In which case. File a petition for review with the CTA within 30 days after the expiration of the 180-day period. [RCBC v CIR] o In case the CIR fails to act on the disputed assessment within the 180-day period from date of submission of documents. or the Secretary of Finance. Secretary of Trade and Industry or Secretary of Agriculture. collection will be enforced . thereby delaying the finality of the assessment. his appeal is premature. and 3. When a taxpayer does not protest an assessment.4. 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. CIR. the collection by the government agencies may jeopardize the interest of the Government and/or the taxpayer. and resort to one bars the application of the other. 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 R. Villa]  A final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment. (Oceanic v. wherein the taxpayer failed to appeal to the CTA within 30 days of receipt of the demand letter made by the Chief of the Accounts Receivable and Billing Division of the BIR)  In this case.A. Thus. speculating as to which communication or action of the BIR may be the decision appealable to the CTA. the BIR should make it clear to the taxpayer that he can appeal if not satisfied with the assessment. 9282. and – In the opinion of the Court. In the opinion of the court. There is an appeal to the CTA. Taxpayer either to deposit the amount claimed or to file a surety bond for not more than the double the amount with the Court. R. and then delegates it to his deputy. and appeals the assessment itself to the CTA. suspension is allowed when the following conditions concur: – It is an appeal to the CTA from a decision of CIR. the investigation was started and concluded by the same division. o This would also prevent the taxpayer from groping in the dark. do you appeal it to the CIR or straight to the CTA? The jurisdiction of the CTA has been expanded to include not only decisions or rulings but inaction as well of the CIR. CIR] o The BIR should always indicate to the taxpayer in clear and unequivocal language what constitutes final action on a disputed assessment.

Coca-Cola [2009]. a taxpayer cannot successfully resort to the second option (awaiting the final decision of the CIR and appealing the same to the CTA. the taxpayer must allege that the supporting documents were submitted along with the protest. we learn that the 60-day period is given for the benefit of the taxpayer. The question is. which may require the production of documents that a taxpayer cannot submit. since the 60-day period is given for the benefit of the taxpayer. First Express Pawnshop. If he submits the additional documents after the 60-day period and there is no decision yet. a taxpayer will be at the mercy of the BIR. But what if the taxpayer submits the documents with the protest? This is what happened in CIR v. In that case. Taxpayer’s Suit Impugning the Validity of Tax Measures ====================================== 1. the CIR was contending that First Express did not submit the relevant documents. The taxpayer has a choice of not utilizing the period. CIR] Compare this to asking for a reinvestigation and it being granted by the CIR. given that First Express submitted their documents along with their protest. what is being tolled is the time for the CIR to collect. the CTA may dismiss the case because it was filed still within the 180-day period. then the 180-day period should start from the time he submitted the initial documents. by immediately submitting the documents. how does the taxpayer know if the documents are in fact. the same should be applicable in petitions for review with the CTA. Because of CIR v. prematurely filed. Since in the Rules of Court. If not. After availing the first option. not the period to appeal to the CTA. but filing it out of time. But can the period to appeal to the CTA be extended? Yes. You can’t have your cake and eat it too. The 180-day period will start from the time he submitted the first documents. He can take up the entire 60 days or not. If he does submit more documents within the 60-day period. the 30-day original period for filing a Petition for Review with the CTA may be extended for a period of 15 days. Rule 42 allows extensions to file petitions for review to be filed with Court of Appeals. From the time he submits the documents. and it is his choice whether or not to use the whole period or not. JUDICIAL REMEDIES C. the 180-day period for the CIR to act on the protest starts. the Rules of Court are applicable. First Express Pawnshop. In City of Manila v. A taxpayer's suit can prosper only if the governmental acts being questioned involve disbursement of public funds upon the theory that the expenditure of public funds by an officer of the state for the purpose of administering an unconstitutional act constitutes a misapplication of such TAX LAW REVIEWER Page 152 of 165 . In that case. Hence. effectively starting the 180-day period of the BIR to act much earlier. No further extension shall be allowed thereafter. except only for the most compelling reasons. on the pretext that there is yet no final decision on the disputed assessment because of the CIR’s inaction). the Court said that the BIR cannot demand what type of supporting documents should be submitted. the BIR can’t demand for the specific documents. [Fishwealth Canning Corp v. Remember that when a taxpayer protests an assessment. ====================================== TOPIC UNDER THE SYLLABUS: V. The legal implication of this is when the taxpayer appeals to the CTA because of the expiration of the 180-day period. TAX PAYER’S SUIT Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government. From the case. The 30-day period to appeal to the CTA is still reckoned from the date the taxpayer is notified of the denial of the CIR. However. and thus. since it is mandatory that the supporting documents have to be given within the 60-day period. in which case the extended period shall not exceed 15 days. Otherwise. then the 180-day period should start from the time he submitted the additional documents. he is given 60 days to submit supporting documents.  Filing a motion for reconsideration of a decision of the CIR denying a protest does not toll or suspend the period to appeal to the CTA. the Court stated that in appeals to the CTA. complete? What if the BIR asks him to submit additional documents to substantiate his claim? If he doesn’t submit any more documents.

San Juan [G. two requisites must be met. and (3) the injury is likely to be redressed by the remedy being sought Oliver Lozano v. No. 187883. Concerned citizens can bring suits if the constitutional question they raise is of "transcendental importance" which must be settled early. citing Senate of the Philippines vs. of every citizen to interfere and see that a public offence be properly pursued and punished. 155-157.R.R. 488 SCRA 1. Automotive Industry Workers Alliance v. April 20. No. 160261. G. namely. Guingona. Ermita. 415 SCRA 44.R. [G. June 16. DISTINGUISHED FROM CITIZEN’S SUIT Taxpayers are allowed to sue. January 18. G. while in the latter. No. 97787. he is but the mere instrument of the public concern. if not the duty. and that a public grievance be remedied. November 10. for example. (2) the presence of a clear case of disregard of a constitutional or statutory prohibition by the public respondent agency or instrumentality of the government. KILOSBAYAN v. (2) the injury is fairly traceable to the challenged action. With respect to taxpayer's suits. that: (1) Public funds are disbursed by a political subdivision or instrumentality and in doing so. De Castro v. 1993] A taxpayer’s suit is properly brought only when there is an exercise of the spending or taxing power of Congress. No. 8 July 2010. [Dean Jose Coya v.R. and Francisco v. Anti-Graft League v. courts are centrally concerned with whether a case involves uncertain contingent future events that may not occur as anticipated. a party will be allowed to litigate only when he can demonstrate that: (1) he has personally suffered some actual or threatened injury because of the allegedly illegal conduct of the government. the people are the real parties…It is at least the right. Voters are allowed to question the validity of election laws because of their obvious interest in the validity of such laws. November 16. 96541.R. Morato. JBC. 174697. where there is a claim of illegal disbursement of public funds or where a tax measure is assailed as unconstitutional. No.R. G. PCCG G. generally. As held by the New York Supreme Court in People ex rel Case v. Jordan held that:  The right of a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use of public funds to his injury cannot be denied. Thus. Legislators are allowed to sue to question the validity of any official action which they claim infringes their prerogatives qua legislators. August 24.. March 17.R. ERC and Meralco.R. In the former. Another approach is the evaluation of the twofold aspect of ripeness: Case law in most jurisdictions now allows both "citizen" and "taxpayer" standing in public actions. 2003. 169777. No. 232 SCRA 110. 2006. Silk:   The plaintiff in a taxpayer's suit is in a different category from the plaintiff in a citizen's suit. [G. 113375. G. Speaker Nograles. 118910. 1996] CONCEPT OF LOCUS STANDI Another requisite rooted in the very nature of judicial power is locus standi or standing to sue. No. citing Kilosbayan v. Romulo [G. 1994. or indeed may not occur at all. 2005] 2. the plaintiff is affected by the expenditure of public funds. REQUISITES To constitute a taxpayer's suit. 2010] The distinction was first laid down in Beauchamp v."  In the United States. August 1. Inc. Collins:  In matter of mere public right. 157509. which may be enjoined at the request of a taxpayer. Nagmamalasakit na mga Manggagawang Pilipino. 2009] DOCTRINE TRANSCENDETAL IMPORTANCE Determinants whether a matter is of transcendental importance: (1) the character of the funds or other assets involved in the case.funds.R. [G. 3. 1995] (2) Petitioner is directly affected by the alleged ultra vires act. No. and (3) the lack of any other party with a more direct and specific interest in the questions being raised. 191002. a law is violated or some irregularity is committed. May 5. 139. (CREBA v. Terr v.R.) RIPENESS An aspect of the "case-or-controversy" requirement is the requisite of "ripeness. No. and  TAX LAW REVIEWER Page 153 of 165 . 39-40. No.

June 16. [G. the hardship to the parties entailed by withholding court consideration. 187883. Oliver Lozano v. No.R. a question is ripe for adjudication when the act being challenged has had a direct adverse effect on the individual challenging it. 2009] TAX LAW REVIEWER Page 154 of 165 . Speaker Nograles. Hence. and (2). the issue of ripeness is generally treated in terms of actual injury to the plaintiff.(1) the fitness of the issues for judicial decision. In our jurisdiction.

TAX ON INDIVIDUALS **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 RATE FOR RESIDENT CITIZEN 20% Final Tax RATE FOR NONRESIDENT CITIZEN (INCL.e. insurance or mutual fund companies & regional operating headquarters of multinational companies.000 Winnings from PCSO & Lotto Interest Income received by an individual (except a nonresident individual) from a depositary bank under the expanded foreign currency deposit system Interest income from long term deposit or investment in the form of savings. or from a joint stock co. 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 TYPE OF INCOME 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. 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. investment management accounts & other investments evidenced by certification in such form prescribed by the BSP Pre-termination of such certificate before the 5th year (i.5% Final Tax Final Tax of 10% Schedular rate exempt exempt Final Tax of 10% Schedular rate Exempt 7..5% Final Tax Final Tax of 10% Schedular rate Exempt Exempt 25% Final tax 25% Final tax 25% Final tax Exempt Exempt from tax Exempt from tax Exempt from tax Exempt from tax 25% Final tax 5% Final tax on the entire income 12% 20% 10% Final Tax 5% Final tax on the entire income 12% 20% 10% Final Tax 5% Final tax on the entire income 12% 20% 10% Final Tax 5% Final tax on the entire income 12% 20% 20% Final Tax N/A N/A N/A 25% Final tax TAX LAW REVIEWER Page 155 of 165 . Share of an individual in the distributable net income after tax of a partnership (except GPP). Share of an individual in the net income after tax Final Tax of 10% Schedular rate exempt 7. deposit substitutes.000 Other winnings except PCSO & Lotto Royalties on books & other literary works & musical compositions Prizes < P10. common or individual trust fund.

exchange or other disposition of shares of stock (of domestic corp.. provided historical cost/adjusted basis of sold prop be carried to the new principal residence built/acquired Commissioner. of w/c he is a member/co-venturer Capital gains from sale. from date of sale. 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.000 On any amount in excess of P100.) not traded in the stock exchange For the first P100.TYPE OF INCOME of an assn. exchange or other disposition of real property located in Philippines.000 Capital gains from sale. a joint account or a joint venture or consortium taxable as a corp. the proceeds of which is fully utilized in acquiring/constructing a new principal residence w/in 18 mos. OCW) TAX RATE FOR RESIDENT ALIEN NON-RESIDENT ALIEN ENGAGED IN TRADE / BUSINESS NON-RESIDENT ALIEN NOT ENGAGED IN TRADE / BUSINESS 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: 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 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher CG from sale/disposition of principal residence by natural persons. barter. classified as capital assets. including pacto de retro sales & other forms of conditional sales TAX RATE FOR RESIDENT CITIZEN RATE FOR NONRESIDENT CITIZEN (INCL. such portion shall be subject to CG tax Exempt from CG tax Exempt from CG tax Exempt from CG tax Exempt from CG tax Exempt from CG tax TAX LAW REVIEWER Page 156 of 165 .

& are treated as capital assets 6% Final tax on gross selling price or FMV or zonal value.) not traded in the stock exchange For the first P100. barter. subject to regular income tax rate of 35%/30% 35%/30% income tax CG from sale.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10% Exempt from Final tax – Part of gross income subject to 35%/30% corp. exchange or other disposition of shares of stock (of domestic corp.) DOMESTIC CORP 20% Final Tax RESIDENT FOREIGN CORP 20% Final Tax NON-RESIDENT FOREIGN 35%/30% Income Tax 7. whichever is higher 35%/30% income tax TAX LAW REVIEWER Page 157 of 165 .l gains realized during the taxable yr: 10% N/A N/A 15% Final Tax * subject to the rule on tax credit for tax actually paid and tax deemed paid. income tax (RA 9294) 10% Final Tax Exempt from tax 7.TAX ON CORPORATIONS TYPE OF INCOME Interest on currency bank deposits & yield or any other monetary benefit from deposit substitutes & from trust funds & similar arrangement Royalties (similar within the Philippines) Interest income from a depositary bank under the expanded foreign currency deposit system (EFCDS) CG from sale. Otherwise. 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 from foreign currency loans granted by such depository banks under said EFCDS to RESIDENTS Inter-corporate dividends (from a domestic corp. exchange or other disposition of lands and/or buildings which are not used in the business of a corp.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10% Exempt from Final tax – Part of gross income subject to 35%/30% corp. offshore banking unites in the Philippines. income tax (RA 9294) 10% Final Tax Exempt from tax Exempt from tax 5% Final tax on net cap.000 On any amount in excess of P100.000 Income derived by depositary bank under the EFCDS from foreign currency transactions with non-residents.

up to final destination. communication & coordinating center for their affiliates. Marketing control & sales promotion f. g. & w/c act as supervisory. regardless of the place of sale/ payments of passage of freight documents Offshore Banking Units Branch Profits remitted (connected with the conduct of its trade/business in the Philippines. Business development d. = do not earn/derive income from the Philippines. Logistic services h. For a flight which originates from the Philippines but transshipment of passenger takes place at any port outside the Philippines on another airline. Training & personnel mgt. Research & development i. Billings = amount of gross revenue derived from carriage of persons.) = based on the total profits applied/earmarked for remittance without any deduction for the tax component thereof (except the PEZA-registered) Regional/Area Headquarters of Multinational Cos. cargo & mail originating from the Philippines in a continuous & uninterrupted flight. excess baggage. 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. 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 International Shipping Gross Phil Billings = gross revenue whether for passenger. cargo or mail originating from the Philippines. Data processing & communication c. Sourcing & procurement of raw materials & components l. Technical support & maintenance b. Services & product development TAX RATE 2 ½% on Gross Phil Billings Final Tax of 10% on gross income from transactions with residents 15% on branch profits remittance Exempt from tax 10% of taxable income TAX LAW REVIEWER Page 158 of 165 . irrespective of the place of sale/issue & the place of payment of the ticket or passage document. Includes tickets revalidated. exchanges &/or indorsed to another int’l airline if the passenger boards a plane in a port/poi nt in the Philippines. Business planning & coordination k.TYPE OF CORPORATE TAXPAYER International Air Carrier Gross Phil. Corporate finance advisory services e. General Administration & planning j.

same tax treatment shall apply to Filipinos abroad employed & occupying same positions in these companies Other income (that is income other than compensation from being employed by a RHQ/ROHQ. Annuities. lease or charter fees 7. Wages. honoraria & allowances) received from such cos.e. Nationals Nonresident owner or lessor of aircraft. lessor or distributor (NOTE: Even to individuals) Nonresident owner or lessor of vessels chartered by the Phil. Provided. OBU or Petroleum Service Contractor & Subcontractor) TAX RATE FOR ALIEN INDIVIDUAL EMPLOYED BY Regional Or Area Headquarters Offshore Banking Units Petroleum Service Contractor & & Regional Operating Subcontractor Headquarters of Multinational Cos. 15% of gross income 15% of gross income 15% of gross income Subject to regular graduated tax rate Subject to regular graduated tax rate Subject to regular graduated tax rate ** Multinational company = a foreign firm/entity engaged in international trade with affiliates/subsidiaries/branch offices in the Asia Pacific Region & other foreign markets.TYPE OF TAXPAYER Nonresident cinematographic film owner. Remuneration and Other Emoluments (i. TAX LAW REVIEWER Page 159 of 165 . machineries & other equipment TAX RATE 25% of gross income 4. Compensation.5% of gross rentals.5% of gross rentals or fees TYPE OF INCOME Gross Income = Salaries.

2303.PROCEDURE TO PROTEST CUSTOM COLLECTORS ASSESSMENT Articles enter customs house Articles appraised. taxes. RA 1125) CTA decides w/in 30 days Appeal to SC w/in 15 days from notice (Rule 43. of Finance Assessment final Assessment final If unfavorable. classified and assessed Taxpayer agrees with assessment Taxpayer disagrees with assessment Pays duties. 2313. appeal to CTA w/in 30 days from receipt of decision (Sec. etc. 7. Files written protest with ruling of Collector (Sec. TCC) Appeal to Customs Commissioner w/in 15 days from notice (Sec. TCC) Commissioner of Customs fails to render decision w/in 30 days Protest Affirmed Protest Denied Protest Affirmed Protest Denied Automatic appeal to Sec. 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. 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 TAX LAW REVIEWER Page 160 of 165 . 2313.

REMEDIES OF GOVERNMENT AND TAXPAYER UNDER NIRC, TCC and LGC NIRC GOVERNMENT REMEDIES A. TO EFFECT TAX COLLECTION: 1. Compromise (Sec. 204) 2. Distraint (actual and constructive) (Sec. 205208) and Levy (Sec. 207-B) 3. Tax Lien (Sec. 219) 4. Civil Action (Sec. 220, 205-B) 5. Criminal Action (Sec. 220, 221, 205-B) 6. Forfeiture of Property (Sec. 224-225) 7. Suspension of Business Operations in Violation of VAT (Sec. 115) 8. Enforcement of Administrative Fine B. TO CANCEL TAX LIABILITY: 1. Abatement (Sec. 204-B) TCC GOVERNMENT REMEDIES A. TO EFFECT TAX COLLECTION: 1. Tax Lien (Sec. 1204) 2. Administrative Fines and Forfeitures (Sec. 2530, 2531) 3. Reduction of customs duties/compromise – subject to approval of Sec. of Finance (Sec. 709, 2316) 4. Seizure, Search, Arrest (Sec. 2205, 2210, 2211) 5. Civil Action (Sec. 1204) 6. Criminal Action B. TO CANCEL TAX LIABILITY: 1. Abatement – reduction or non-imposition of customs duties on certain imported materials (Sec. 1701-1708) POWER/AUTHORITY TO ASSESS AND COLLECT ALL LAWFUL
REVENUE FROM IMPORTED ARTICLES AND ALL OTHER DUTIES, FEES, CHARGES, FINES AND PENALTIES ACCRUING UNDER TCC IS WITH COMMISSIONER OF CUSTOMS. (Sec. 602)

LGC GOVERNMENT REMEDIES LOCAL TAX A. TO EFFECT TAX COLLECTION: 1. Tax Lien (Sec. 173) 2. Distraint and Levy (Sec. 174, 175) 3. Civil Action (Sec. 183) 4. Purchase of property by local government units for want of bidder (Sec. 181) Property distrained not disposed within 120 days from date of distraint – considered sold to the local government for the amount of assessment made and to that extent, the tax delinquency shall be cancelled. (Sec. 175) B. TO CANCEL TAX LIABILITY: May grant tax exemptions but may not condone or remit taxes (Sec. 192) REAL PROPERTY TAX A. TO EFFECT TAX COLLECTION: 1. Tax Lien (Sec. 246, 251) 2. Distraint and Levy (Sec. 254) 3. Civil Action – formal demand not required (Sec. 266) 4. Purchase of property by local treasurer for want of bidder (Sec. 263) B. TO CANCEL TAX LIABILITY: Condonation or reduction of real property tax by the President when public interest requires or by the Sanggunian concerned in cases of general failure of crops, or substantial decrease in the price of agricultural/ agri-based products or calamity (Sec. 277, 276)

C.

NOTE: Automatic Appeal – if the collector renders decision adverse to the government, it will be automatically elevated to the Commissioner. If affirmed by the latter, decision shall be reviewed automatically by the Secretary of Finance.

PRESCRIPTIVE PERIOD OF ASSESSMENT AND COLLECTION 1. Power/Authority to assess tax: Commissioner of Internal Revenue a. 3 yrs – from filing of return or date prescribed by law, whichever is later date

PRESCRIPTIVE PERIOD OF ASSESSMENT AND COLLECTION LOCAL TAX 1. Assessment: a. 5 yrs – from the day they become due (Sec. 194)

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2.

3.

NIRC (Sec. 203) b. 10 yrs – when (1) no return is filed, (2) the return is false or fraudulent with intent to evade tax (from date of discovery) (Sec. 222) Collection of tax: a. 5 yrs – from assessment or within the period for collection agreed upon in writing before expiration of the 5 yr. Period (Sec. 222) Criminal Liability a. 5 yrs – from commission or discovery of violation, whichever of later (Sec. 281)

TCC

2.

LGC 10 yrs – in case of fraud or intent to evade payment of taxes from discovery of fraud or intent to evade payment (Sec. 194) Collection a. 5 yrs – from day of assessment by administrative or judicial action (Sec. 194) b. Local government may appeal to courts from adverse decision of Sanggunian on purely legal issue.

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS: 1. When the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court, and for sixty (60) days thereafter; 2. When the taxpayer requests for a reconsideration which is granted by the CIR; 3. When the taxpayer cannot be located in the address given by him in the return, unless he informs the CIR of any change in his address; 4. When the warrant of distraint or levy is duly served and no property is located; 5. When the taxpayer is out of the Philippines. (Sec. 223)

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE PERIODS OF PRESCRIPTION: 1. When the treasurer is legally prevented from making the assessment or collection; 2. When the taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect; and 3. When the taxpayer is out of the country or otherwise cannot be located. REAL PROPERTY TAX 1. Collection: a. 5 yrs – from the date they become due (Sec. 270) b. 10 yrs – in case of fraud or with intent to evade payment from the discovery of fraud or intent to evade payment

GROUNDS FOR SUSPENSION OF THE RUNNING OF THE PERIODS OF PRESCRIPTION WITHIN WHICH TO COLLECT: 1. When the local treasurer is legally prevented from collecting the tax 2. When the owner of the property of the person having the legal interest therein requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect; and 3. When the owner of the property or the person

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NIRC

TCC

LGC having legal interest therein is out of the country or otherwise cannot be located. TAXPAYER REMEDIES LOCAL TAX A. ADMINISTRATIVE: 1. Before Payment a. Appeal – any question on constitutionality or legality of tax ordinance within 30 days from effectivity thereof to Secretary of Justice (Sec. 187) b. Declaratory relief whenever applicable 2. After assessment a. Protest – within 60 days from receipt of assessment (Sec. 195). Payment under protest not necessary. b. Payment and subsequent refund or tax credit – within 2 yrs from payment of tax to local treasurer (Sec. 196) c. Right of redemption – 1 yr from the date of forfeiture (Sec. 181) Real Property Tax 1. Protest – payment under protest is required. Filed within 30 days (From date of payment) to provincial, city or municipal treasurer 2. Refund or tax credit – within 2 years from the date the taxpayer is entitled thereto (Sec. 253) 3. Redemption of real property within 1 yr from date of sale (Sec. 261) 4. Appeal – within 60 days from assessment of provincial, city or municipal assessor to LBAA (Sec. 226) Within 30 days from receipt of decision of LBAA to CBAA In case of denial of refund or credit, appeal to BAA as in protest case LOCAL TAX B. JUDICIAL: 1. Court action – within 30 days after receipt of decision or lapse of 60 days of Secretary of Justice’s inaction (Sec. 187) Within 30 days from receipt when

TAXPAYER REMEDIES A. ADMINISTRATIVE: 1. Before Payment a. Protest – filing a petition for reconsideration or reinvestigation within 30 days from receipt of assessment (Sec. 228) b. Entering into a compromise (Sec. 204) 2. After Payment a. Filing a claim for refund or tax credit – within 2 years from date of payment regardless of any supervening cause (Sec. 229)    Note the suspension of the 2-year period (Panay Electric Co. v. Collector; May 28, 1958) Note that payment under protest is not necessary Note that the taxpayer is given the right of redemption within 1 year from the date of sale or forfeiture (Sec. 215)

B.

JUDICIAL: 1. Civil Action a. Appeal – within 30 days from receipt of decision on the protest or from the lapse of 180 days inaction of the Commissioner to the CTA (Sec. 228) b. Action to contest forfeiture of chattel (Sec. 231) c. Action for damages (Sec. 227) 2. Criminal Action 1. Against erring BIR officials and employees 2. Injunction – when the CTA in its opinion the collection by BIR may jeopardize taxpayer. Court may require deposit of an amount or surety bond for not more than double the amount. (Sec. 1, RA 1125)

TAXPAYER REMEDIES A. ADMINISTRATIVE: 1. Protest a. Any importer or interested party if dissatisfied with published value within 15 days from date of publication 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 b. Taxpayer – within 15 days from assessment. Payment under protest is necessary (Sec. 2308, 2210) 2. Refund a. A written claim for refund may be submitted by the importer in abatement cases on missing packages, deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines, articles lost or destroyed after such arrival, dead or injured animals, and for manifest clerical errors; and b. Drawback cases where the goods are reexported. (Sec. 1701-1708) 3. 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. 2307) 4. Appeal – within 15 days to Commissioner after notification by collector of his decision (Sec. 2313) B. Judicial 1. Appeal to the CTA division – within 30 days from receipt of decision of the Commissioner of Secretary of Finance (Sec. 2403 TCC, Sec. 7 RA 1125) 2. Action to question the legality of seizure

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64 PD 464) 3. recovery of refund of taxes paid (Sec. Action for declaratory relief 3.NIRC 3. Suit assailing the validity of tax sale TAX LAW REVIEWER Page 164 of 165 . Injunction – if irreparable damage would be caused to the taxpayer and no adequate remedy is available. 195) If remedies available do not provide plain. REAL PROPERTY TAX 1. 2. speedy and adequate remedy. 64 PD 464) 4. Suit assailing validity of tax. Suit to declare invalidity of tax due to irregularity in assessment and collection (Sec. Court Action – appeal of CBAA’s decision to CTA 2. TCC Abandonment (Sec. 1801) LGC protest of assessment is denied If no action is taken by the treasurer in refund cases and the two year period is about to lapse (Sec.

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