GENERAL PRINCIPLES

GENERAL PRINCIPLES “Without taxes, the government would be paralyzed for lack of motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s earned income to the taxing authorities, every person who is able must contribute his share in the running of the government.” (CIR v. Algue, G.R. No. L-28896, February 17, 1988)
Manifestations: 1. Imposition even in the absence of constitutional grant 2. State’s right to select objects and subjects of taxation 3. No injunction to enjoin collection of taxes. 4. Taxes could not be the subject of compensation and set-off. 5. A valid tax may result in destruction of property.

DEFINTION AND CONCEPT OF TAXATION Q: Define taxation. A: It is an inherent power by which the sovereign: 1. through its law-making body 2. raises income to defray the necessary expenses of government 3. by apportioning the cost among those who, in some measure are privileged to enjoy its benefits and, therefore, must bear its burdens. (51 Am.Jur. 34)
Note: Simply stated, the power of taxation is the power to impose burdens on subject and objects within its jurisdiction.

NATURE OF TAXATION Q: What is the nature of the power to tax? A: The nature of the power to tax is two-fold: 1. inherent and 2. legislative.

Q: May a legislative body enact laws to raise revenues in the absence of constitutional provisions granting said body the power of tax? Explain. A: Yes. It must be noted that Constitutional provision relating to the power of taxation do not operate as grants of the power of taxation to the government, but instead merely constitute a limitation upon a power which would otherwise be practically without limit. (2005 Bar Question) Q: Distinguish National Government from Local Government Unit as regards the exercise of power of taxation. A:

Inherent Attribute of Sovereignty Q: Why is the power of taxation considered inherent in nature? A: It is inherent in character because its exercise is guaranteed by the mere existence of the state. It could be exercised even in the absence of a constitutional grant. The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government (Pepsi-Cola Bottling Co. of the Philippines V. Municipality of Tanauan, Leyte, G.R. No. L-31156, February 27, 1976). No sovereign state can continue to exist without the means to pay its expenses; and that for those means, it has the right to compel all citizens and property within its limits to contribute, hence, the emergence of the power to tax. (51 Am. Jur. 42) The moment a state exists, the power to tax automatically exists. Basis: The Life-blood Doctrine.

1. 2.

National Government – inherent Local Government Unit – not inherent since it is merely an agency instituted by the State for the purpose of carrying out in detail the objects of the government; can only impose taxes when there is: a. Constitutionally mandated grant b. Legislative grant, derived from the 1987 Constitution, Section 5, Article X.

Legislative in Character Q: Why is the power of taxation legislative in nature? A: It is legislative in nature since it involves promulgation of laws. It is the Legislature which determines the coverage, object, nature, extent and situs of the tax to be imposed.

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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Q: May the power of taxation be delegated? A: GR: No, since it is essentially a legislative function.
This is based upon the principle that “taxes are a grant of the people who are taxed, and the grant must be made by the immediate representatives of the people. And where the people have laid the power, there it must be exercised.” (Cooley)

c.

d.

Purposes for which taxes shall be levied provided they are public purposes Method of collection
Note: This is not exclusive to Congress.

e.

XPNs: 1. To local governments in respect of matters of local concern to be exercised by the local legislative bodies thereof. (Sec. 5, Art. X, 1987 Constitution) 2. When allowed by the Constitution.
Note: The Congress may, by law, authorize the President to fix within specified limits, subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues and other duties or imposts within the framework of the national development program of the government. (Sec. 28 [2], Art. VI, 1987 Constitution)

2. 3.

Apportionment of the tax (whether the tax shall be of general application or limited to a particular locality, or partly general and partly local) f. Kind of tax to be collected g. Situs of taxation The grant tax exemptions and condonations. The power to specify or provide for administrative as well as judicial remedies (Philippines Petroleum Corporation v. Municipality of Pililla, G.R. No.85318, June 3, 1991).

3.

When the delegation relates merely to administrative implementation that may call for some degree of discretionary powers under a set of sufficient standard expressed by law (Cervantes v. Auditor General, G.R. No. L-4043, May 26, 1952) or implied from the policy and purpose of the act. (Maceda v. Macaraig, G.R. No. 88291, June 8, 1993)
Note: Technically, this does not amount to a delegation of the power to tax because the questions which should be determined by Congress are already answered by Congress before the tax law leaves Congress.

Q: In order to raise revenue for the repair and maintenance of the newly constructed City Hall of Makati, the City Mayor ordered the collection of P1.00, called “elevator tax”, every time a person rides any of the high-tech elevators in the City Hall during the hours of 8am to 10am and 4pm to 6pm. Is the elevator tax a valid imposition? A: No. The imposition of a tax, fee or charge or the generation of revenue under the Local Government Code, shall be exercised by the Sanggunian of the local government unit concerned through an appropriate ordinance [Sec. 132, LGC]. The city mayor alone could not order the collection of the tax; as such, the “elevator tax” is an invalid imposition. (2003 Bar Question) Q: Discuss the Marshall dictum “The power to tax is the power to destroy” in the Philippine setting. A: The power to tax includes the power to destroy. Taxation is 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. (McCulloch vs. Maryland, 4 Wheat, 316 4 L ed. 579, 607)
Note: It is more reasonable to say that the maxim “the power to tax is the power to destroy” is to describe not the purposes for which the taxing power may be used but the degree of vigor with

Q: What is the scope of legislative power in taxation? A: The following are the scope of legislative power in taxation: 1. The determination of: [SAP-MAKS] a. Subjects of taxation (persons, property, occupation, excises or privileges to be taxed, provided they are within the taxing jurisdiction) b. Amount or Rate of tax

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

GENERAL PRINCIPLES
which the taxing power may be empoloyed in order to raise revenue. (Cooley).

command, then the court must declare and adjudge it null. (Sison Jr. v. Ancheta, G.R. No. L59431, July 25, 1984)
Note: Marshall’s view refers to a valid tax while Holmes’ view refers to an invalid tax.

Q: Justice Holmes once said: “The power to Tax is not the power to destroy while this court (Supreme Court) sits”. Explain. A: While taxation is said to be the power to destroy, it is by no means unlimited. When a legislative body having the power to tax a certain subject matter actually imposes such a burdensome tax as effectually to destroy the right to perform the act or to use the property subject to the tax, the validity of the enactment depends upon the nature and character of the right destroyed. If so great an abuse is manifested as to destroy natural and fundamental rights which no free government consistently violate, it is the duty of the judiciary to hold such an act unconstitutional. Q: How will you reconcile the two dicta? A: The power to tax involves the power to destroy since the power to tax includes the power to regulate even to the extent of prohibition or destruction, as when the power to tax is used validly as an implement of police power in discouraging and prohibiting certain things or enterprises inimical to the public welfare. While the power to tax is so unlimited in force and so searching in extent that the courts scarcely venture to declare that it is subject to any restrictions whatever, it is subject to the inherent and constitutional limitations which are intended to prevent abuse on the exercise of the otherwise plenary and unlimited powers. It is the court’s role to see to it that the exercise of the power does not transgress these limitations. The power to tax therefore, must not be exercised in an arbitrary manner. It should be exercised with caution to minimize injury to proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the hen that lays the golden egg. (Roxas et. al vs. CTA et. al, L-25043, April 26, 1968) Taxpayers may seek redress before the courts in case of illegal imposition of taxes and irregularities. The Constitution, as the fundamental law, overrides any legislative or executive act that runs counter to it. In any case, therefore, where it can be demonstrated that the challenged statutory provision fails to abide by its

Q: Is taxation subject to judicial review? A: GR: Courts have no power to inquire or interfere in the wisdom, objective, motive or expediency in the passage of a tax law, this being purely legislative in character. (Tolentino v. Sec. of Finance, G.R. No.115455, August 25, 1994) XPN: The courts may examine legislative acts if they violate applicable constitutional limitations or restrictions. Q: The NIRC was amended by BP 135, effectively broadening the rates of tax on individual income taxes. Sison brought a taxpayer’s suit alleging that the amendatory provision was arbitrary, amounting to class legislation, oppressive and capricious in character. He concludes that both the equal protection and due process clauses had been transgressed, as well as the rule requiring uniformity in taxation. In response thereto, the Solicitor General stated in his answer that BP 135 is a valid exercise of the State’s power to tax. Decide. A: Being an attribute of sovereignty, the power to tax is the strongest of all the powers of government. So powerful that Chief Justice Marshall once said that, “the power to tax involves the power to destroy.” However, the power to tax is restricted by the equal protection and due process clauses of the Constitution. Hence, Justice Frankfurter could rightfully conclude: “The web of unreality spun from Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen stating that “The power to tax is not the power to destroy while this court sits.” So it is in the Philippines.

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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CHARACTERISTICS OF TAXATION Q: What are the characteristics of the power to tax? A: CUPS 1. Comprehensive - It covers persons, businesses, activities, professions, rights and privileges. 2. Unlimited - It is so unlimited in force and searching in extent that courts scarcely venture to declare that it is subject to any restrictions, except those that such rests in the discretion of the authority which exercises it. (Tio v. Videogram Regulatory Board, G.R. No. 75697, June 18, 1987) 3. Plenary - It is complete. Under the NIRC, the BIR may avail of certain remedies to ensure the collection of taxes. 4. Supreme - It is supreme insofar as the selection of the subject of taxation is concerned. Q: Explain “wide spectrum of taxation”. A: It means that taxation is one that extends to every business, trade or occupation; to every object of industry; use or enjoyment; to every specie of possession. It imposes a burden which in case of failure to discharge the same may be followed by the seizure and confiscation of property after the observance of due process.
individuals individuals property

Amount of monetary imposition No ceiling Limited to the No imposition, except inherent cost of the owner is limitations regulation, paid the fair issuance of market value of license or his property surveillance

Benefits received Protection of a Maintenance of The person secured healthy receives the fair organized economic market value of society, benefits standard of the property received from society/ No taken from him/ government/ No direct benefit direct benefit direct benefit results Non-Impairment of contracts Tax laws Contracts may Contracts may generally do not be impaired be impaired impair contracts, unless: government is party to contract granting exemption for a consideration

Q: What are the similarities between taxation, eminent domain and police power? A: 1. 2. 3. 4. They are inherent powers of the State. All are necessary attributes of the sovereign. They exist independently of the Constitution. They constitute the 3 methods by which the State interferes with private rights and property. They presuppose equivalent compensation. The Legislature can exercise all 3 powers.
Note: It is incorrect to state that the 3 powers are all exercised by the legislature because there are other entities which can exercise the said powers.

POWER OF TAXATION COMPARED WITH OTHER POWERS OF THE STATE 5. Q: What are the distinctions among the three inherent powers of the State? A:
POLICE EMINENT POWER DOMAIN Authority who exercises the power Government or Government or Government or its political its political public service subdivision subdivision companies and public utilities Purpose To raise revenue Promotion of To facilitate the in order to general welfare taking of private support of the through property for Government regulations public purpose Persons affected Upon the Upon On an individual community or community or as the owner of class of class of a particular TAXATION

6.

PURPOSE OF TAXATION Q: What are the purposes of taxation? A: 1. Revenue – to raise funds or property to enable the State to promote the general welfare and protection of the people.

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

GENERAL PRINCIPLES
2. Non-revenue [PR2EP] a. Promotion of general welfare – taxation may be used as an implement of police power to promote the general welfare of the people. b. Regulation of activities/industries c. Reduction of Social inequality – a progressive system of taxation prevents the undue concentration of wealth in the hands of few individuals. Progressivity is based on the principle that those who are able to pay more should shoulder the bigger portion of the tax burden. d. Encourage economic growth – the grant of incentives or exemptions encourage investment thereby stimulating economic activity. e. Protectionism – In case of foreign importations, protective tariffs and customs are imposed to protect local industries. PRINCIPLES OF SOUND TAX SYSTEM Q: What arethe basic principles of a sound tax system (Canons of Taxation)? A: FAT 1.

2.

3.

Q: Central Luzon Drug (CLD) operated 6 drugstores under the name and style “Mercury Drug”. CLD granted 20% sales discount to senior citizens pursuant to RA 7432 and its Implementing Rules. CLD filed with petitioner a claim for tax refund/credit in the amount allegedly arising from the 20% sales discount. CIR was ordered to issue a tax credit certificate in favor of CLD. Can taxation be used as an implement for the exercise of the power of eminent domain? A: Yes. Tax measures are but “enforced contributions exacted on pain of penal sanctions” and “clearly imposed for a public purpose.” The 20% discount given to senior citizens on pharmacy products was considered a property, in the form of a supposed profit, taken from the drugstore and used for public use, by means of giving it directly to individual senior citizen. Be it stressed that the privilege enjoyed by senior citizens does not come directly from the State, but rather from the private establishments concerned. Accordingly, the tax credit benefit granted to these establishments can be deemed as their just compensation for private property taken by the State for public use. (CIR v. Central Luzon Drug, G.R. No. 159647, Apr. 15, 2005)

Fiscal adequacy a. Revenue raised must be sufficient to meet government/public expenditures and other public needs. (Chavez v. Ongpin, G.R. No. 76778, June 6, 1990) Administrative feasibility a. Tax laws must be clear and concise. b. Capable of effective and efficient enforcement. c. Convenient as to time and manner of payment; must not obstruct business growth and economic development. Theoretical justice a. Must take into consideration the taxpayer’s ability to pay (Ability to Pay Theory). b. Art. VI, Sec. 28(1), 1987 Constitution mandates that the rule on taxation must be uniform and equitable and that the State must evolve a progressive system of taxation.

Q: What are the distinctions among the basic principles of a sound tax system? A:
Fiscal Adequacy Administrative Feasibility Meaning The enforcement should be effective and efficient Theoretical Justice Impsition must be based on the taxpayer’s ability to pay

Sources of revenues must be adequate to meet government expenditures and their variations -

Constitutional Basis Art. VI, Sec. 28[1] Benefits No need to Conducive to Proportionate incur loans; no economic share in the more budgetary growth and burden of deficit development; a paying taxes simplified tax system

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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Q: Frank Chavez, as taxpayer, and Realty Owners Association of the Philippines, Inc. (ROAP), alleged that E.O.73 providing for the collection of real property taxes as provided for under Section 21 of P.D.464 (Real Property Tax Code) is unconstitutional because it accelerated the application of the general revision of assessments to January 1, 1987 thereby increasing real property taxes by 100% to 400% on improvements, and up to 100% on land which would necessarily lead to confiscation of property. Is the contention of the Chavez and ROAP correct? A: No. To continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenues must be adequate to meet government expenditures and their variations. (Chavez v. Ongpin, G.R. No. 76778, June 6, 1990) Q: Is the VAT law violative of the administrative feasibility principle? A: No. The VAT law is principally aimed to rationalize the system of taxes on goods and services. Thus, simplifying tax administration and making the system more equitable to enable the country to attain economic recovery. (Kapatiran ng Mga Naglilingkod sa Pamahalaan v. Tan, G.R.No.81311, June 30, 1988) indeed, without taxation, a government can neither exist nor endure. Taxation is a principal attribute of sovereignty. The exercise of the taxing power derives its source from the very existence of the State whose social contract with its citizens obliges it to promote public interest and the public good. In the case of Valley Trading Co. v. CFI G.R. No. 495529, March 31, 1989, the Supreme Court ruled that the damages that may be caused a taxpayer by being made to pay the taxes cannot be said to be as irreparable as it would negate the Government ability to collect taxes. (1991 Bar Question)

Benefits-Protection Theory/ Symbiotic Relationship Doctrine Q: What is the Benefits-Protection Theory (Symbiotic Relationship Doctrine) in taxation? A: It involves the power of the State to demand and receive taxes based on the reciprocal duties of support and protection between the State and its citizen. Every person who is able must contribute his share in the burden of running the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their material and moral values. (CIR v. Algue, G.R. No. L-28896, February 17, 1988) Special benefits to taxpayers are not required. A person cannot object to or resist the payment of taxes solely because no personal benefit to him can be pointed out arising from the tax. (Lorenzo v. Posadas, 64 Phil. 353) Q: What are the principles involving the doctrine of symbiotic relationship/benefits protection? A: It is a legal duty on the part of the citizen to pay taxes to support the Government. On the other hand, it is a reciprocal duty on the part of the Government to provide protection and benefits.

THEORY AND BASIS OF TAXATION Q: What are the theories in taxation? A: The theories underlying the power of taxation are the following: 1. Lifeblood theory (Necessity theory) 2. Benefits-protection theory (Doctrine of Symbiotic Relationship)

Lifeblood Theory/Necessity Theory Q: Discuss the meaning and the implications of the statement: “Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need.” A: The phrase expresses the underlying basis of taxation which is governmental necessity, for

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

Ltd. Retroactive application of revenue laws may be allowed if it will not amount to denial of due process.Double taxation in the objectionable or prohibited sense since it violates the equal protection clause of the Constitution. if said reversal will be prejudicial to the taxpayer. A: Otherwise described as “direct duplicate taxation”. tax statutes may provide for statute of limitations. G. Double Taxation Q: Define double taxation. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. June 19. A: No. MASACAYAN & THEENA C. CIR (GR 112024). A: Taxes are imprescriptible as they are the lifeblood of the government. The regulation is inconsistent with the law and the government is not estopped from the mistake of its agents. for the same purpose.GENERAL PRINCIPLES DOCTRINES IN TAXATION Prospectivity of Tax laws Q: What is the Doctrine of Prospectivity of tax laws? A: GR: Taxes must only be imposed prospectively. ACADEMICS CHAIR: LESTER JAY ALAN E. such prescriptive period will only be applicable to those taxes that were returnable. 181845.R. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 2009) Q: What are the kinds of double taxation? A: 1. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C.. tax laws may be applied retroactively unless it produces harsh and oppressive consequences which violate the taxpayer’s constitutional rights regarding equity and due process. No. MARTINEZ SANTO TOMAS de Derecho Civil 7 .. (City of Manila v.R. Doctrine of Imprescriptibility Q: Discuss the Doctrine of Imprescriptibility. 28 January 1999. XPN: If the law expressly provides for retroactive imposition. NIRC. Note: Although the NIRC provides for the limitation in the assessment and collection of taxes imposed. or c. Could the BIR now assess DEF Printers for back taxes corresponding to the years before the new ruling? Reason briefly. L66653. Coca Cola Bottlers Philippines. Aug. during the same taxing period. The prescriptive period shall start from the time the taxpayer files the tax return and declares his liability. Rulings promulgated by the CIR shall be retroactive in the following cases: a. the two taxes must be imposed on the same subject matter. however. Note: When it comes to civil penalties like fines and forfeiture (except interest). The reversal of the ruling shall not be given a retroactive application. 4. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR. the BIR cannot assess DEF Printers for back taxes because it would be violative of the principle of nonretroactivity of rulings and doing so would result to grave injustice to the taxpayer who relied on the first ruling in good faith. (Collector v. DEF Printers submitted a legal query to the BIR on that issue. within the same jurisdiction. The BIR issued a ruling that printing companies are not covered by the new law. As to validity – a. Burroughs. Bisaya Land Transportaion Co. However. DEF Printers did not pay said tax. G. and the taxes must be of the same kind or character. Direct Double Taxation (Obnoxious) . the BIR reversed the ruling and issued a new one stating that the tax covers printing companies. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based. The prohibition against ex post facto laws applies only to criminal matters and not to laws which are civil in nature. Subsequently. Q: Is the prohibition against ex post facto law applicable in taxation? A: No. (Sec. by the same taxing authority. Commissioner v. 1958) Q: Due to an uncertainty whether or not a new tax law is applicable to printing companies. Relying on this ruling. No. Where the taxpayer acted in bad faith. 246. b. But criminal penalties may arising from tax violations may not be given retroactive effect. 1986) (2004 Bar Question) Note: PBCom v. Therefore.

. ANG JR.R. Dec. LACSINA. CLARABEL ANNE R. City of Manila. Q: BB Municipality has an ordinance which requires that all stores.. 2. patents and technology owned by the SC Johnson and Son-USA for the use of trademark and technology. KASALA. pursuant to which SC Johnson Philippines was granted the right to use the trademark. No. The same: a. VALCOS . 4. As to scope a. A: No. there is no Constitutional prohibition against double taxation. A: There is no double taxation. Imposition of a rate lower than the normal domestic rate Q: SC Johnson and Son.000. These taxes are imposed by different taxing authorities and are essentially of different kind and character. Q: Is double taxation prohibited? A: No. Inc. 1968) (1996 Bar Question) 8 TAXATION LAW TEAM: ADVISER: ATTY. the real estate dealer’s tax is a tax on the privilege to engage in business. or for selling the same article and this is not in violation of the rule against double taxation. Indirect Double Taxation . 28. i. G. Tax exemption – a grant of immunity to particular persons or entities from the obligation to pay taxes. The real estate tax is a tax on property. ii. object or property is taxed twice b. is a domestic corporation entered into an agreement with SC Johnson and Son-USA. a real estate dealer’s tax based on rental receipts and income tax on the rentals. 3. refused to sign the ordinance on the ground that it would constitute double taxation. HERNANDEZ. Inc was obliged to pay SC Johnson and Son-USA royalties and subjected the same to 25% withholding tax on royalty payments. and other establishments selling liquor should pay an annual fee of P20.” a lessor of a property. (Compania General de Tabacos de Filipinas v. Both license fee and tax may be imposed on the same business or occupation. SUBJECT HEADS: EDISON U. The fixed annual fee is in the nature of a license fee imposed through the exercise of police power. SUBJECT HEAD: RODOLFO N. Domestic Double Taxation . KEITH S. restaurants and other establishments. direct double taxation is unconstitutional as it results in violation of substantive due process and equal protection clause. However. L-16619. while the 5% tax on purchase or consumption is a local tax imposed through the exercise of taxing powers.Not repugnant to the Constitution. within the same tax period Taxing all the objects or property for the first time without taxing all of them for the second time. PRUDENCE ANGELITA A. GRANTOZA. June 29. for the same taxing purpose d. it extends to all cases when one or more elements of direct taxation are not present. 2. ASST. (Villanueva v. Decide. Subsequently. TEE. ORTIZ & VANNESSA ROSE S. GR L-26521. restaurants. MEMBERS: JOSE DUKE BAGULAYA. The impositions are of different nature and character. This is allowed if the taxes are of different nature or character imposed by different taxing authorities.00. Q: “X. CHARLES L. CHRISTINE L. while the income tax is a tax on the privilege to earn an income. SC Johnson and Son. Generally. CC. He claims that this is double taxation. by the same taxing authority c. Tax credit – an amount subtracted from taxpayer’s tax liability in order to arrive at the net tax due. Is the refusal of the mayor justified? Reason briefly. Q: What are the elements of direct double taxation? A: 1. a non-resident foreign corporation. GUTIERREZ. The municipal mayor. International Double Taxation occurs when there is an imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. Will the royalty payments be subject to 10% withholding tax pursuant to the most favored nation clause as claimed by SC Johnson Philippines? 2. b.UST GOLDEN NOTES 2011 b. 1963) (2004 Bar Question) Q: What are the methods to ease the burden of double taxation? A: Local legislation and tax treaties may provide for: 1. pays real estate tax on the premises. the municipal board proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in stores. Iloilo. DIVINE C.When the taxes are imposed by the local and national government within the same State. Tax deduction – an amount subtracted from the gross amount on which a tax is calculated.

Shifting 2. MASACAYAN & THEENA C. Is the ordinance unconstitutional on the ground of double taxation since there is payment of both real estate tax and the tenement tax? A: No. and at the same time impose a license tax on that calling. This is an important clause in treaties. Evasion 6. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. MARTINEZ SANTO TOMAS de Derecho Civil 9 . MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. in this case. specially with the passage of time. Transformation 5. Q: What are the kinds of shifting? A: 1.1968) Escape from Taxation Q: What are the basic forms of escape from taxation? A: SCATE2 1. Inc. (Villanueva v. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 13 of the RP-US Tax Treaty and Art. The two taxes are not the same kind or character. SC Johnson and Son. 127105. royalty income. Avoidance 4. Forward shifting – When the burden of tax is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer.GENERAL PRINCIPLES A: No. since the RP-US Tax Treaty does not give a matching credit of 20% for the taxes paid to the Philippines on royalties as allowed under the RPWest Germany Tax Treaty. (Commissioner v. The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines have entered into for the avoidance of double taxation. the imposition of the latter kind of tax being in no sense a double tax. Exemption Q: What is shifting? A: The transfer of the burden of tax by the original payer or the one on whom the tax was assessed or imposed to another or someone else without violating the law. respondent cannot be deemed entitled to the 10% rate granted under the latter treaty for the reason that there is no payment of taxes on royalties under similar circumstances. is the same as that in the tax treaty under which the taxpayer is liable. The State may collect an ad valorem tax on property used in a calling. Capitalization 3. and technology. Both Art. 2. Backward shifting – When the burden is transferred from the consumer through the factors of distribution to the factors of production. It is to grant to the contracting parties treatment not less favorable than that which has been or may be granted to the “most favored” among other countries.R. The entitlement of the 10% rate by US firms despite the absence of matching credit (20% for royalties) would derogate from the design behind the most favored nation clause to grant equality of international treatment since the tax burden laid upon the income of the investor is not the same in the two countries. June 25. The similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored nation treatment precisely to underscore the need for equality of treatment. Q: Upon the passage of the Local Autonomy Act (RA 2264). SABUGO & JOHN HENRY C. The purpose of these international agreements is to reconcile the national fiscal legislation of the contracting parties in order to help the taxpayer avoid international juridical double taxation. Dec. patents. ACADEMICS CHAIR: LESTER JAY ALAN E. the City of Iloilo Board passed an ordinance imposing municipal license tax on persons engaged in the business of operating tenement houses.. G. GR L-26521. It is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations to enjoy the privileges accorded by either party to those of the most favored nation. No. 12(2) of the RP-West Germany Tax Treaty speak of tax on royalties for the use of trademark. 28. Iloilo. 1999) Q: What is the purpose of the most-favored nation clause? A: The most favored nation clause in a bilateral tax treaty is meant to ensure that the treaty partner will always enjoy the same privileges as that another party which is granted more favorable treatment. The essence of the principle is to allow the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party provided that the subject matter of taxation.

1983) 2. 28. i. 30554. The impact of taxation may fall on another person not statutorily liable to pay the tax. Gonzales. Altonaga paid capital gains tax in the amount of P10 million. ANG JR. Q: In what kind of taxes does it apply? A: It applies to indirect taxes since the law allows the burden of the tax to be transferred. Failure of taxpayer to declare for taxation purposes his true and actual income derived from business for two (2) consecutive years. willful or deliberate and not accidental. Accompanying State of mind which is described as being evil. In case of direct tax. in bad faith. CLARABEL ANNE R. PRUDENCE ANGELITA A. Feb 28. the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased. Q: What is tax evasion? A: It is the scheme where the taxpayer uses illegal or fraudulent means to defeat or lessen payment of a tax. MEMBERS: JOSE DUKE BAGULAYA. (Perez v. For the sale of the property to RMI. G. DIVINE C. GRANTOZA. ASST. in order to avoid or reduce tax liability. No. the shifting of burden can only be via a contractual provision. Q: What is incidence of taxation? A: The incidence of taxation is upon the person statutorily liable to pay the tax. 1958) Q: What is tax avoidance? A: It is the scheme where the taxpayer uses legally permissible alternative method of assessing taxable property or income. 2. Onward shifting – When the tax is shifted two or more times either forward or backward. ORTIZ & VANNESSA ROSE S. VALCOS . Note: Where the burden of the tax is shifted to the purchaser. No. Estate of Benigno Toda Jr.R.R. Note: Tax evasion is a scheme used outside of those lawful means and when availed of. End to be achieved. (Republic v. TAX EVASION Validity Legal and not subject to Illegal and subject to criminal penalty criminal penalty Effect Almost always results in Minimization of taxes absence of tax payment.. GUTIERREZ. in turn. Toda purportedly sold the property for P100 million to Altonaga. ad valorem tax that oil company pays to BIR upon removal of petroleum products from its refinery. or non-payment of tax when it is shown that the tax is due. and Course of action which is unlawful.UST GOLDEN NOTES 2011 3. (Commissioner v. SUBJECT HEAD: RODOLFO N. LACSINA. Tax evasion is somestimes referred to as Tax Dodging. KASALA. (RMI) for P200 million evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. HERNANDEZ.R. No. it is the economic cost of the tax. its President to sell the Cibeles Building and the two parcels of land on which the building stands. excise tax on excisable articles. Q: Distinguish tax avoidance from tax evasion? Q: What is impact of taxation? A: A: Otherwise known as the burden of taxation. Estate of Q: CIC entered into an alleged simulated sale of a 16-storey commercial building. CTA. L-17744.. This method should be used by the taxpayer in good faith and at arms length... who. CHARLES L. G. TEE. Note: Examples of taxes when shifting may apply are VAT. No. L10507. Jr. 1983). it usually subjects the taxpayer to further or additional civil or criminal liabilities (Commissioner v. Feb. payment of less than that known by the taxpayer to be legally due. sold the same property on the same day to Royal Match Inc. Note: Also known as Tax Minimization. tax avoidance is the tax saving device within the means sanctioned by law. 10 TAXATION LAW TEAM: ADVISER: ATTY. SUBJECT HEADS: EDISON U.e. Q: What are the elements to be considered in determining that there is tax evasion? A: ESC 1. May 30. KEITH S. 30554. TAX AVOIDANCE Q: What may be used as evidence to prove tax evasion? A: 1. percentage tax. CIC authorized Benigno Toda.R. which constitutes a part of the purchase price. G. 3. April 30. CHRISTINE L. G. 1965) Substantial under declaration of income in the income tax return for four (4) consecutive years coupled intentional overstatement of deductions. Benigno Toda Jr.

Q: Mr. Note: It cannot be transferred or assigned by the person to whom it is given without the consent of the State. Pascual has exploited a legally permissive alternative method to reduce his income by transferring part of his rental income to a tax exempt entity through a donation of ½ of the income producing property. Q: What is transformation? A: It is the scheme where the manufacturer or producer upon whom the tax has been imposed. Partial – One where a collection of a part of the tax is dispensed with. 1. Sec. it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the income to only 5% individual capital gains tax and not the 35% corporate income tax. 5. non-profit educational institution whose income and assets are actually. MASACAYAN & THEENA C.. A: Yes. to particular persons or corporations. Contractual – Agreed to by the taxing authority in contracts lawfully entered into by them under enabling laws. Is the scheme perpetuated by Toda a case of tax evasion or tax avoidance? A: It is a tax evasion scheme. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties. 2. As to extent Total – Connotes absolute immunity. express or implied. from CIC to Altonaga. the exception.e. MARTINEZ SANTO TOMAS de Derecho Civil 11 . 147188. Pascual succeeded in paying a lesser tax on the rental income derived from his property. (2000 Bar Question) Exemption from Taxation Q: What is meant by tax exemption? A: It is the grant of immunity. directly. 2. thereby turning out his units of products at a lower cost. As to object Personal – Granted directly in favor of certain persons. and then from Altonaga to RMI cannot be considered a legitimate tax planning (one way of tax avoidance). Statutory – Those which emanate from legislation.GENERAL PRINCIPLES The BIR sent an assessed deficiency income tax arising from the sale alleging that CIC evaded the payment of higher corporate income tax of 35% with regard to the resulting gain. exemption is the rule. Benigno Toda Jr. The donation is likewise exempt from donor’s tax. Q: What are the kinds of tax exemptions? A: 1. Such scheme is tainted with fraud. Exemptions are not presumed.. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 3 (h) of the Tax Code. 2004) Q: What is capitalization? A: It is the reduction in the price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay. 4 (3) of the Constitution and Sec. pays the tax and endeavors to recoup himself by improving his process of production. The donation is the legal means employed to transfer the incidence of income tax on the rental income. A: 1. and therefore qualified for tax exemption under Art. 3. i. Pascual’s income from leasing his property reaches the maximum rate of tax under the law. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. He donated ½ of his said property to a non-stock. 1. Personal in nature and covers only taxes for which the grantee is directly liable.XIV. 4. 14. properties or excises are deemed exempt as they fall outside the scope of the taxing provision. In the case. Strictly construed against the taxpayer. 2. Mr. SABUGO & JOHN HENRY C. ACADEMICS CHAIR: LESTER JAY ALAN E. Mr. As to basis Constitutional – Immunities from taxation which originate from the Constitution. from a tax upon property or an excise tax which persons or corporations generally within the same taxing districts are obliged to pay. (Commissioner v. 1. and taxation. Is there tax avoidance or tax evasion? Explain. and exclusively used for educational purposes. Having thus transferred a portion of his said asset. But when public property is involved. 3. 2. GR No. Q: Discuss the nature of tax exemptions. Treaty Licensing ordinance As to form Express – Expressly granted by organic or statute law. Implied – When particular persons. Sept. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. fearing the loss of his market if he should add the tax to the price.

the government must have appropriated the amount thereto. and are positive acts of the government to the making and enforcing of which. 9.M. which the government is not exempt from its application and has the duty to refund without any unreasonable delay what it has erroneously collected. while the money judgment against the government is an obligation. GRANTOZA. 2. KASALA. Tax exemptions are personal and nontransferable. whether express or implied. MEMBERS: JOSE DUKE BAGULAYA. XPN: Where both of the claims of the government and the taxpayer against each other have already become due. 1988) 6. CLARABEL ANNE R. but on the legal principle of quasi-contracts against a person’s unjust enrichment at the expense of another. 7. Note: Deductions for income tax purposes partake of the nature of tax exemptions. 8. HERNANDEZ. 3180. Q: What are the rules governing compensation or set-off as applied in taxation? A: GR: No set-off is admissible against the demands for taxes levied for general or local governmental purposes. In the case of the taxpayer’s claim against the government. Q: What are the principles governing tax exemptions? A: 1. Impersonal – Granted directly in favor of a certain class of property.R. Taxes and debts are of different nature and character. 5. June 29. Tax refunds or tax credits are not founded principally on legislative grace. Revocation are constitutional even though the corporate do not have to perform a reciprocal duty for them to avail of tax exemptions. GUTIERREZ. and fully liquidated. Note: Taxes are not in the nature of contracts between the parties but grow out of duty to. arising from contract. SUBJECT HEAD: RODOLFO N.UST GOLDEN NOTES 2011 2. He must convincingly prove that he is exempted. Note: The erroneous payment of tax as a basis for a claim of refund may be considered as a case of solutio indebiti. no set-off or compensation between the two different classes of obligations is allowed. 1963) Q: Can an assessment for a local tax be the subject of set-off or compensation against a final judgment for a sum of money obtained by a taxpayer against the local government that made the assessment? A: No. No. 4. DIVINE C. Inasmuch as taxes are not debts. TEE. Tax exemptions are highly disfavored in law. demandable. CHARLES L. it follows that the two obligations are not 12 TAXATION LAW TEAM: ADVISER: ATTY. It must be strictly construed against the taxpayer. Tax amnesties 2. (Domingo vs. The congressional power to grant an exemption necessarily carries with it the consequent power to revoke the same. Tax refunds Q: Are all refunds in the nature of tax exemptions? A: No. L-18849. In order to be irrevocable. ORTIZ & VANNESSA ROSE S. Hence. Tax condonations 3. they are also be strictly construed against the taxpayer. He who claims an exemption must justify that the legislature intended to exempt him by words too plain to be mistaken. SUBJECT HEADS: EDISON U. Garlitos. June 29. CHRISTINE L. No. Civil Code). PRUDENCE ANGELITA A. A. ASST. The taxes assessed or the obligation of the taxpayer arising from law. ANG JR.. the personal consent of the individual taxpayer is not required. Compensation or Set-Off Q: When does compensation or set-off take place? A: Compensation or set-off take place when two persons. the tax exemption must be founded on a contract or granted by the Constitution. Tax exemption is generally revocable. G. hence. 3. VALCOS . compensation takes place by operation of law and both obligations are extinguished to their concurrent amounts. KEITH S. A tax refund may only be considered as a tax exemption when it is based either on a taxexemption statute or a tax-refund statute. are creditors and debtors of each other (Article 1278. in their own right. LACSINA. Constitutional grants of tax exemptions are self-executing. (Francia v. IAC. Q: What other grants are in the nature of tax exemptions? A: The following are also in the nature of tax exemptions: 1.

amicably settle their differences on such terms and conditions as they may agree on.R. 165 SCRA 327[1988]) ACADEMICS CHAIR: LESTER JAY ALAN E. TCC) 3. civil and liability only administrative obligations arising from nonpayment of taxes Grantee General pardon given to A freedom from a charge all erring taxpayers or burden to which others are subjected How applied Applied retroactively Applied prospectively Presence of actual revenue loss There is revenue loss None. (People v. partakes of an absolute forgiveness or waiver by the government of its right to collect what otherwise would be due to it. by reciprocal concessions avoid litigation or put an end to one already commenced. surcharges. in cases involving the imposition of fines. being a general pardon 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. 28. (Sec. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. subject to the approval of the Secretary of Finance. and forfeitures. rejected this doctrine in Collector v. MARTINEZ SANTO TOMAS de Derecho Civil 13 . It implies the mutual agreement by the parties in regard to the thing or subject matter which is to be compromised. with respect to customs duties limited to cases where the Q: Does the mere filing of tax amnesty return shield the taxpayer from immunity against prosecution? A: No. or b. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. The taxpayer must have voluntarily disclosed his previously untaxed income and must have paid the corresponding tax on such previously untaxed income. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 709. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. since it may work to tempt both parties to delay and neglect their respective pursuits of legal action within the period set by law. TCC) A: It is a principle which allows a taxpayer. BIR Commissioner. IAC. L-11274. Q: When is compromise allowed? A: 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. 1991) Q: Distinguish tax amnesty from tax exemption. It is a contract whereby the parties. Note: The Supreme Court. 1958). to avoid lawsuit. (Republic v. No. SABUGO & JOHN HENRY C. the taxpayer is allowed to credit such refund to his existing tax liability. who wish to relent or are willing to reform a chance to do so and become a part of the new society with a clean slate. and in this sense. Tax Amnesty Q: Define tax amnesty? A: A tax amnesty. Collector of Customs. NIRC) 2. prejudicial thereto. A: TAX AMNESTY TAX EXEMPTION Scope of immunity Immunity from all Immunity from civil criminal. Customs Commissioner. and subject to the following conditions: a. Nov.2316. as expressly authorized by the NIRC.GENERAL PRINCIPLES susceptible to set-off or legal compensation. Q: Who are the persons allowed to enter into compromise of tax obligations? A: The law allows the following persons to do compromise in behalf of the government: 1. (2005 BarQuestion) Q: What is Recoupment? the Doctrine of Equitable legitimate authority is specifically granted such as in the remission of duties (Sec. (Sec. whose claim for refund has been barred due to prescription. MASACAYAN & THEENA C. to recover said tax by setting off the prescribed refund against a tax that may be due and collectible from him.204[A]. Compromise Q: What is meant by compromise? A: It is an agreement between two or more persons who. When a reasonable doubt as to validity of the claim against the taxpayer exists. UST (G. Under this doctrine. Judge Castañeda. because there was since there was actually no actual taxes due as the taxes due but collection person or transaction is was waived by the protected by tax government exemption. particularly to give tax evaders.

no person or property is subject to tax unless within the terms or plain import of a taxing statute.R. in favor of non-taxability of such agencies. GUTIERREZ. MEMBERS: JOSE DUKE BAGULAYA. being burdens. When there is doubt. Not political 2. It simply means that if. Tax laws are special laws and prevail over general laws. the practical effect of an exemption is merely to reduce the amount that has to be handled by government in the course of its operations. KASALA. Exemptions are never presumed. Exemption by clear legislative intent. ORTIZ & VANNESSA ROSE S. Note: Taxes. They only issue upon query by a taxpayer. Q: Are the tax exemptions strictly construed against government political subdivision or instrumentality? A: No. ASST. the words employed are to be given their ordinary meaning. 2. Tax laws are generally prospective in nature. A: GR: Strict construction of tax exemptions against grantee.UST GOLDEN NOTES 2011 CONSTRUCTION AND INTERPRETATION OF TAX LAWS Q: What is the nature of tax laws? A: Tax laws are: 1. 5. No. SUBJECT HEADS: EDISON U. CHRISTINE L. Q: State the rule on construction of tax exemptions. ANG JR. In such a case. 3. 3. Not penal in character Q: How are tax laws construed? A: 1. DIVINE C. 6. then the ambiguity occurs which may be settled by the rule of strict construction. Where the language is clear and categorical. Exemptions in favor of the government. The burden of 14 TAXATION LAW TEAM: ADVISER: ATTY. TEE. Note: Moreover. (Maceda vs. Macaraig. Note: The intent of the legislature to grant tax exemption must be in clear and unmistakable terms. provisions granting exemptions to government agencies may be construed liberally. In case of exemptions of public property. SUBJECT HEAD: RODOLFO N. after the application of all the rules of interpretation for the purpose of ascertaining the intention of the legislature. (RP v. are not to be presumed beyond what the statute expressly and clearly provides. 197 SCRA 771) Q: How are tax rules and regulations construed? A: 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. LACSINA. CHARLES L. 1980) Q: What is meant by the strict construction rule? A: When it is said that exemptions must be strictly construed in favor of the taxing power. Martin. May 16. In case of special taxes (relating to special cases affecting special persons).. establishing right to an exemption is upon the claimant. rulings are not the same as laws or rules and regulations. It is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or instrumentality. VALCOS . If the statute granting exemption expressly provides for liberal interpretation. this does not mean that if there is a possibility of a doubt it is to be at once resolved against the exemption. Those granted to traditional exemptees. HERNANDEZ. CLARABEL ANNE R. GRANTOZA. a well founded doubt exists. KEITH S. G. PRUDENCE ANGELITA A. 2. tax laws are strictly construed against the Government and liberally in favor of the taxpayer. 6. 4. For these reasons. XPN: 1. 4. Q: How are penal provisions of tax laws construed? A: Penal provisions are given strict construction so as not to extend the plain terms thereof that might createoffenses by mere implication not so intended by the legislative body. L-38019. The reason for the strict interpretation does not apply in the case of exemptions running to the benefit of the government itself or its agencies. 5. Civil in nature 3. Generally. Provisions of the taxing act are not to be extended by implication.

Constitution] No use of public money or property for religious purposes [Par. Constitution] v. parsonages. Art. Inherent limitations – proceeds from the very nature of the taxing power itself. Constitution] iii. nonprofit educational institutions. VII. Constitution] iii. [Par. 4. Art. Art. Art. Art. 1. [Sec. donations or contributions used actually. Presidential power to grant reprieves. MASACAYAN & THEENA C. 28. Origin of revenue and tariff bills [Sec.GENERAL PRINCIPLES SCOPE AND LIMITATION OF TAXATION Q: What are the limitations on the power to tax? A: 1. They are otherwise known as “elements or characteristics of taxation”. Due process clause [Sec. VI. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. VI. proprietary or cooperative educational institutions [Sec. Constitution] ii. pardons and remit fines and forfeitures after conviction by final judgment. Art. VI. Sec. MARTINEZ SANTO TOMAS de Derecho Civil 15 . Art. Sec. Specific or Direct i. tonnage and wharfage dues [Par. Art. III. VI. Art. VI. 1. SABUGO & JOHN HENRY C. endowments. Sec. Progressive system of taxation [Sec. Non-impairment clause [Sec. III. 28. exclusively and directly for educational purposes. Art. Constitution] v. 10. iv. Constitution] Special assessments [Par. Art XIV. 9. Art. International comity d. commutations. Equal protection clause [Sec. 29. 5(b). xiii. III. all lands. Situs or territoriality b. Non-delegability of the taxing power itself e. Constitution] Supreme Court’s power to review judgments or orders of lower courts [Sec. [Sec. 3. Constitution] Tax exemption granted to non-stock. VI. Tax Law and Jurisprudence. Law-making process [Sec. p. citing Pepsi Cola vs. Constitutional Limitations – restrictions imposed by the Constitution. xi. Taxation shall be uniform and equitable [Sec. Constitution] vi. Art. X. 27(2). 3. 4.5 & 6. Art. 4. Freedom of the press [Sec. General or Indirect i. 28(1). 2. Constitution] Voting requirement for tax exemption [Par. convents. (Vitug and Acosta. xii. 5. Constitution] ii. Art. INHERENT LIMITATIONS Public Purpose Q: When is tax considered for a public purpose? A: When it: ACADEMICS CHAIR: LESTER JAY ALAN E. 28. import and export quotas. III. Constitution] ix. vii. Art. Sec. 24. churches. xiv. III. 69 SCRA 460) viii. 28. Note: A violation of the inherent limitations constitutes taking without due process of law. directly or exclusively used. Art. Art. Non-imprisonment for nonpayment of poll tax [Sec. Eminent domain [Sec. 20. III. Public purpose c. VI. Art.19. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. a. 2. Constitution] Veto power of the President [Sec. 28(1). buildings and improvements actually. Art VI. III. VIII. III. VI. VI. Sec. Constitution] vii. 26.4. Religious freedom [Sec. 3. Constitution] Tax exemption of grants. Exemption of the Government vi. Constitution] Tax exemption of charitable institutions. Constitution] viii. Constitution] b. Constitution] Delegated authority of the President to impose tariff rates. Municipality of Tanauan. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Art XIV. x. [SPINE] a. 4. Constitution] iv. Art. Constitution] Grant of autonomy to local government units [Secs. Art.

Jurisprudence states that “public purpose” should be given a broad interpretation. Secretary of Public Works. L-7859. Promotion of general welfare test Whether the proceeds of the tax will directly promote the welfare of the community in equal measure. MEMBERS: JOSE DUKE BAGULAYA. G. alleging such tax as unconstitutional and void for not being levied for a public purpose but for the aid and support of the sugar industry exclusively. Public purpose is continually expanding. Areas formerly left to private initiative now lose their boundaries and may be undertaken by the government if it is to meet the increasing social challenges of the times.Whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the State as a government to provide. 29 December 1960) 2.A. low-cost housing and urban agrarian reform (Planters Products. 166006. Araneta. PRUDENCE ANGELITA A. this will not prevent the court from questioning the propriety of such statute on the ground that the law enacted is not for a public purpose. The public purpose of the tax law must exist at the time of its enactment. No. The legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. 1955) Q: Is the tax imposed on the sale. No. Taxation may be made to implement the State’s police power. KEITH S. Fertiphil Corporation. 4. December 22. G. If objective and methods alike are constitutionally valid. VALCOS . CHRISTINE L. the flagrant violation of intellectual property rights. G. but once it is settled that the law is for a public purpose. 3. is designed to support the services of the government for some of its recognized objects. Is the tax law increasing the existing tax on the manufacture of sugar valid? A: Yes. CLARABEL ANNE R. ASST. No. L-10405. but also includes those purposes designed to promote social justice. Tax revenue must not be used for purely private purposes or for the exclusive benefit of private persons. the act amounts to confiscation of property. subject only to the test of reasonableness. It does not only pertain to those purposes which are traditionally viewed as essentially government functions. is for the welfare of the nation and/or for greater portion of the population. While the direct beneficiary of said imposition is the movie industry. and the proliferation of pornographic videotapes. Thus. G. Inequalities resulting from the singling out of one particular class for taxation or exemption infringe no constitutional limitation because the legislature is free to select the subjects of taxation.R. GUTIERREZ. GRANTOZA. It is an elastic concept that can be hammered to fit modern standards. (Lutz v. LACSINA. Duty test . No.R.R. Legislative discretion must be allowed full play. Note: If the tax measure is not for public purpose. 567. However. KASALA. Such tax is imposed primarily for answering the need for regulating the video industry. (Lutz v. Inc. there is no reason why the State may not levy taxes to raise funds for their prosecution and attainment. affects the area as a community rather than as individuals. Araneta. Q: What are the principles relative to public purpose? A: 1. ORTIZ & VANNESSA ROSE S. 14. which provided for an increase of the existing tax on the manufacture of sugar. 16 TAXATION LAW TEAM: ADVISER: ATTY. l-7859. CHARLES L. Mar. HERNANDEZ. SUBJECT HEADS: EDISON U. lease or disposition of videograms for a public purpose? A: Yes. Note: The term “public purpose” is not defined. DIVINE C.. 2. expediency or necessity of such tax measure. TEE. Q: Lutz assailed the constitutionality of Section 2 and 3. ANG JR. An individual taxpayer need not derive direct benefits from the tax. The protection and promotion of the sugar industry is a matter of public concern. the citizens are held to be its indirect Q: Who determines the public purpose for which a tax law is enacted? A: Congress. the court may no longer inquire into the wisdom.R. SUBJECT HEAD: RODOLFO N. particularly because of the rampant film piracy. 2. 2008) 5. v. 3. public money may now be used for the relocation of illegal settlers. C.UST GOLDEN NOTES 2011 1. Note: Legislature is not required to adopt a policy of “all or none” for the Congress has the power to select the object of taxation. such as building roads and delivery of basic services. 22 December 1955) Q: What are the tests in determining public purpose? A: 1. (Pascual vs.

R.R. upon the recommendation of the Secretary of Finance. hence. 5. “X” sold a parcel of land in Malolos which he inherited from his deceased parents and refused to pay the aforesaid tax. (Delegata potestas non potest delegari) XPNs: 1. upon the recommendation of the Commissioner. Delegation to the President – The authority of the President to fix tariff rates. 8424) Note: As discussed earlier. R. G. SABUGO & JOHN HENRY C. (Art. VI. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. this is technically not an exception to the non delegability rule as the questions have already been answered by Congress (See page 2). “(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). Local Government Code) Municipalities are prohibited from imposing said tax that provinces are specifically authorized to levy. 1987 Constitution) 3. 5. it may not be delegated. Videogram Regulatory Board. MARTINEZ SANTO TOMAS de Derecho Civil 17 .” Was there an invalid delegation of legislative power? Q: What are the non-delegable legislative powers? A: SuPuR2 1. (Secs. Resolve the controversy. the President. each local government is vested with the power to create its own sources of revenue and to levy taxes. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Sec.A. 1987 Constitution) 2. (Sec. (Sec. 1987 Constitution) (1991 Bar) Q: R. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. No. 9337 (The Value Added Tax Reform Act) provides that. require the withholding of a tax on the items of income payable. Delegation to Local Government – Refers to the power of local government units to create its own sources of revenue and to levy taxes. 5. Art. Q: The Municipality of Malolos passed an ordinance imposing a tax on any sale or transfer of real property located within the municipality at a rate of ¼ of 1% of the total consideration of the transaction. A: The ordinance passed by the Municipality of Malolos imposing a tax on the sale or transfer of real property is void. A: GR: The power to tax is exclusively vested in the legislative body. Authority of the Secretary of Finance to promulgate the necessary rules and regulations for the effective enforcement of the provisions of the law. Sec. 135 and 151. effective January 1. The Secretary of Finance may.A. as in fact he has paid the BIR the required capital gains tax. He instead filed appropriate case asking that the ordinance be declared null and void since such a tax can only be collected by the national government. import or export quotas. (Tio v.A. Selection of Subject to be taxed 2. (Sec. Delegation to administrative agencies – When the delegation relates merely to administrative implementation that calls for some degree of discretionary powers under sufficient standards expressed by law or implied from the policy and purposes of the Act. 1987) 3. fees and charges. and it imposed the subject tax in the exercise of said Constitution authority. MASACAYAN & THEENA C. 57. The Local Government Code only allows provinces and cities to impose a tax on the transfer of ownership of real property. 75697. however. 4. shall. 2006.GENERAL PRINCIPLES beneficiaries. is subject to such limitations as may be provided by law. While it is true that the Constitution has given broad powers of taxation to LGUs. X. this delegation. tonnage and wharfage dues or other duties and imposts.8424) b. a. raise the rate of value-added tax to twelve percent (12%) after any of the following conditions have been satisfied. 244. X. June 18. Fixing of the Rate/amount of taxation Situs of tax Kind of Tax No Improper Delegation of the Power to Tax Q: Explain the concept of non-delegation as a limitation on the power to tax. Determination of Purposes for which taxes shall be levied ACADEMICS CHAIR: LESTER JAY ALAN E. (Art. The Municipality countered that under the Constitution. 28(2).

Personal Property XPNs: 1. The President cannot set aside the findings of the Secretary of Finance. ANG JR. G. HERNANDEZ. hence the property or its owner should support the government of that place. CHRISTINE L. A: GR: The taxing power of a country is limited to persons and property within and subject to its jurisdiction. (Commissioner v. Taxation is an act of sovereignty which could only be exercised within a country’s territorial limits. A: OBJECT INCOME TAX Nationality – applied to RC.. KASALA. Where tax laws operate outside territorial jurisdiction – i. etc. The Secretary of Finance. DIVINE C. No. or b.UST GOLDEN NOTES 2011 A: No. 467) GR: Situs of intangible personal property is the domicile of the owner Intangible personal property 18 TAXATION LAW TEAM: ADVISER: ATTY. Reasons: 1.e. The taxing authority has control because of the stationary and fixed character of the property. CHARLES L. (Abakada Guro Party List v. who is not under the conditions acting as her alter ego or subordinate. 2. 2. Tangible personal property Where the property is physically located although the owner resides in another jurisdiction (51 Am Jur.. SUBJECT HEADS: EDISON U. and what is the scope of his authority. This is constitutionally permissible. a. ORTIZ & VANNESSA ROSE S. LACSINA. GUTIERREZ. becomes merely the agent of the legislative department. September 1. 137377. Subject matter of the tax 5. Congress did not abdicate its functions or unduly delegate power when it describes what job must be done. ASST. 2001) Q: Explain territoriality as a limitation on the power to tax. Nature of the tax 4. Taxation of resident citizens on their incomes derived abroad. R. CLARABEL ANNE R. Residence – applied to RA. Q: What are the factors that determine the situs of taxation? Domicile of the owner (mobilia sequuntur personam) Rationale: The place where the tangible personal property is found gives its protection. DC SITUS Upon sources of income derived within and without the Philippines Upon sources of income derived within the Philippines Upon sources of income derived within the Philippines Place – applied to NRC. NRFC Territoriality / Situs Q: What is meant by situs of taxation? A: It is the place or authority that has the right to impose and collect taxes. 168056. VALCOS . This is based on the theory that taxes are paid for the protection and services provided by the taxing authority which could not be provided outside the territorial boundaries of the taxing State. Source of income. in this case. When exempted by international comity. Q: State the rules in fixing the tax situs. Marubeni. 2005) A: ReCiNS2 1. Citizenship of the taxpayer 3. Where tax laws do not operate within the territorial jurisdiction of the State. Residence of the taxpayer 2. KEITH S. MEMBERS: JOSE DUKE BAGULAYA. Dec. Ermita. et al. to determine and declare the even upon which its expressed will takes place. who must do it. RFC PROPERTY TAX Real Property Location of the property (lex rei sitae / lex situs) Rationale: 1. SUBJECT HEAD: RODOLFO N. NRA. There is no undue delegation of legislative power but only of the discretion as to the execution of the law.R. No. 2. PRUDENCE ANGELITA A. TEE.. GRANTOZA.18. When exempted by treaty obligations. G. The place where the real property is situated gives protection to the real property.

June 28. the actual situs of the shares of stock is in the Philippines.R. Are the questioned shares of stocks subject to the Philippine inheritance tax? A: Yes. therefore. their transmission by death necessarily takes place under his domiciliary 3. SABUGO & JOHN HENRY C. ACADEMICS CHAIR: LESTER JAY ALAN E. Collector. the place of her alleged last residence and domicile. Franchise which must be exercised in the Philippines. business or industry Established in the Philippines (Sec. 4. obligations or bonds by any foreign corporation 85% of its business is located in the Philippines.. Shares. was duly appointed trustee of the trust created by the said will. Originally. And besides. 2. She left a will which was duly admitted to probate in California where her estate was administered and settled. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. to which petitioner objected contending that as to intangibles. their situs is in the domicile of the owner thereof. 104. 5. Shares. When the property has acquired a business situs in another jurisdiction. the certificates of stock have remained in this country up to the time when the deceased died in California and that one Syrena McKee. property or services are destined. In other words. obligations or bonds issued by any Foreign corporation if such shares. such doctrine has been decreed as a mere "fiction of law having its origin in considerations of general convenience and public policy. When an express provision of the statute provide for another rule. obligations or bonds have acquired a business Situs in the Philippines. (Wells Fargo Bank and Union Trust v." and must "yield to established fact of legal ownership. it means “Movable follows the person/owner”. the settled law is that intangibles have only the domicile of the decedent at the time of his death as the situs for the purpose of inheritance tax (mobilia sequuntur personam). California.000 shares of stock with Benguet Consolidated Mining Company. a tangible property may acquire situs elsewhere provided it has a definite location there with some degree of permanency. 2. used or consumed laws. and. Respondent sought to subject anew the aforesaid shares of stock to the Philippines inheritance tax." In the instant case. the corporation being domiciled therein. Wells Fargo Bank & Union Trust Co. L46720. 1940) Q: For purposes of estate and donor’s taxes. NIRC) Residence – applied to RA BUSINESS TAX VAT Q: What is meant by the doctrine of mobilia sequuntur personam? A: Literally. MASACAYAN & THEENA C. Q: Birdie Lillian Eye. what are the intangible properties with situs in the Philippines? A: Fran-Sha4 (Organized-Established-85-Foreign Situs) 1. NRC Place – applied to NRA Taxed upon their properties wherever situated Taxed on properties situated within the Philippines Taxed upon their properties wherever situated Place where the act/ business is performed or occupation is engaged in Where the goods. but upon transmission by inheritance. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. and cannot be applied if to do so would result in inescapable and patent injustice. Shares. obligations or bonds issued by any corporation or sociedad anonimaOrganized or constituted in the Philippines in accordance with its laws. XPN: 1. Among the properties left was her one-half conjugal share in 70. However. has the legal title to the certificates of stock held in trust for the true owner thereof. the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Shares or rights in any partnership. EXCISE TAX / DONOR’S TAX / ESTATE TAX Nationality– applied to RC. actual presence and control elsewhere. died at Los Angeles. like shares of stock.GENERAL PRINCIPLES pursuant to the principle of the mobilia sequntur personam. G. The Federal and State of California's inheritance taxes due on said shares have been duly paid. No. and cannot be applied to limit or control the right of the state to tax property within its jurisdiction. MARTINEZ SANTO TOMAS de Derecho Civil 19 . secretary of the Benguet Consolidated Mining Company. However. inheritance tax is not a tax on property.

SUBJECT HEADS: EDISON U. KASALA. (Doctrine of Sovereign Equality) 2. Exemption from Taxation of Government Entities Q: May the government tax itself? A: Yes.UST GOLDEN NOTES 2011 foreign taxation under the principle of reciprocity. with underlying transaction More than one place of business. it is possible that certain properties be subject to tax in several taxing jurisdictions. As between equals there is no sovereign. TEE. SUBJECT HEAD: RODOLFO N. The rule of international law that a foreign government may not be sued without its consent so that it is useless to impose a tax which could not be collected. 4. 3. Reasons: 1. Exempt foreign nationals from local taxation and local nationals from 20 TAXATION LAW TEAM: ADVISER: ATTY. This is premised on the concept that with respect to the government. Credit foreign taxes paid from local taxes due. LACSINA. or Reduce the Philippine income tax rate. A: The Philippine Constitution expressly adopted the generally accepted principles of international law as part of the law of the land. Unless otherwise agreed upon by the parties. the following rules shall apply in determining the place of dispatch or receipt of electronic data message or document: Factual Situation: originator or addressee has: Only one place of business More than one place of business. CHARLES L. CHRISTINE L. VALCOS . MEMBERS: JOSE DUKE BAGULAYA. But since sovereignty is absolute and Q: What are the remedies available against multiplicity of situs? A: Tax laws and treaties with other States may: 1. an electronic data message or electronic document is deemed to be dispatched at the place where the originator has its place of business and received at the place where the addressee has its place of business. Note: These are considered located in the Philippines. without underlying transaction Place of Dispatch (originator) or receipt (addressee) Place of business Place which has closest relationship to the underlying transaction Principal place of business If originator or addressee is a natural person – Habitual residence If body corporate – usual place of residence (place where it is incorporated or otherwise legally constituted) International Comity Q: What is international comity? A: It refers to the respect accorded by nations to each other because they are sovereign equals. 3. 2. Allow foreign taxes as deduction from gross income. regardless of the residence of the owner. 2. No place of business Note: Section 23 only creates a rebuttable presumption and applies even if the originator or addressee has used a laptop or other portable device to transmit or receive his electronic data message or electronic document. GUTIERREZ. GRANTOZA.A. ORTIZ & VANNESSA ROSE S. 8792). One of the inherent limitations on the power of taxation is recognition of tax exemptions in favor of the government. the property or income of a foreign state may not be the subject of taxation by another state. The concept that when a foreign sovereign enters the territorial jurisdiction of another. DIVINE C. This rules shall also apply to determine the tax situs of such transaction. Thus. ASST. 1987 Constitution) Thus. exemption is the rule and taxation is the exception in order to reduce administrative costs. a State must recognize such generally accepted tenets of International Law that limit the authority of the government to effectively impose taxes upon a sovereign State and its instrumentalities. Art. HERNANDEZ. (Sec.. CLARABEL ANNE R. II. PRUDENCE ANGELITA A. KEITH S. it does not subject itself to the jurisdiction of the other. Q: What is the situs of taxation in electronic transactions? A: As provided for under Section 23 of the ECommerce Act (R. In par in parem non habet imperium. If the income or property has acquired multiple situs. ANG JR. Q: Explain international comity as a limitation on the power to tax.

G. Q: Will the mere fact that an entity is an agency or instrumentality of the national government make it exempt from local or national tax? A: It depends: 1. The RTC of Iloilo held PPA liable for the payment of real property taxes and for business taxes. Nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing government functions may be subject to tax. is subject to tax. Considering the warehouse’s separable nature as an improvement upon the port.R. stevedoring services. Is the income from the lease of PPA’s property subject to tax? A: 1. G. leasing of real estate. 1996) Q: What is the rationale for government to tax itself notwithstanding that it only incurs administrative cost in the process? A: Taxes. even those coming from the government. as these form part of PPA’s governmental functions. L18125. we would be “taking money from one pocket and putting it in another. Thus. However. G. From these. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 11. However.” (Board of Assessment Appeals of Laguna v. (MCIAA v. ACADEMICS CHAIR: LESTER JAY ALAN E.R. in the absence of any proof of exemption therefrom. No. No. seeking to collect real property taxes as well as business taxes. Yes. including its political subdivisions. its agencies and instrumentalities and other LGUs. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. in case of dividends. Agencies performing governmental functions are tax exempt unless expressly taxed. and the fact that it is not open for use by everyone and freely accessible to the public. which. Is the warehouse subject to local taxes? 2. GOCCs are only required to remit 50% of their profits. CTA. The admission that PPA leases out to private persons for convenience and not necessarily as part of its governmental function of administering port operations is an admission that the act was a corporate power.GENERAL PRINCIPLES taxationis an act of high sovereignty. Reason: Otherwise. On the other hand. It was alleged that the PPA is engaged in the business of arrastre services. (Maceda v. MASACAYAN & THEENA C. it held that the City of Iloilo may not collect business taxes on PPA’s arrastre and stevedoring services. no one can doubt its wisdom. Macaraeg. 88291. the increased income arising from the tax exemption translates to more revenues or dividends to the national government. SABUGO & JOHN HENRY C. 120082. Sept. PPA was alleged to be obligated to pay business taxes and real property taxes. What matters is the established fact that PPA leased out it’s building to private entities from which it regularly earned substantial income. Agencies performing proprietary functions are subject to tax unless expressly exempted. 2. These revenues need not be shared with the local government units. GR: The government is exempt from tax. Marcos. are shared with the local government units through the internal revenue allocation.R. computed from the last quarter of 1984 to the fourth quarter of 1988. The exemption of public property from taxation does not extend to improvements made thereon by homesteaders or occupants at their own expense. No. If the taxing authority is the National Government: 2. RA 7160 expressly prohibits local government units from levyin tax on the National Government. PPA is declared liable for 2. the state if so minded could tax itself. MARTINEZ SANTO TOMAS de Derecho Civil 21 . and a registered owner of a warehouse which is used in the operation of its business. it is not part of the port as stated in Article 420 of the Civil Code. although located within the port is distinct from the port itself. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Any income or profit generated by a corporation. If the taxing authority is the local government unit. May 31. even if organized without any intention of realizing profit in the conduct of its activities. June 8. 1. 1963) XPN: When it chooses to tax itself. PPA’s warehouse. Where it is done precisely to fulfill a constitutional mandate and national policy. 1993) Q: What are the rules on tax exemptions of government agencies or instrumentalities? A: 1. Q: The City of Iloilo filed an action for recovery of sum of money against Philippine Ports Authority (PPA).

UST GOLDEN NOTES 2011 the assessed business taxes.20. 30 [1]. NIRC) Q: What about the constitutional tax exemption for non-stock non-profit educational institutions? A: All revenues and assets of non-stock. 1987 Constitution) Q: What is a poll tax? Note: The Constitution requires uniformity. Q: Explain the requirement of uniformity as a limitation in the imposition and/or collection of taxes. No. 1987 Constitution) Q: Explain the following concepts in taxation: 1. 32[B][7][b]. CLARABEL ANNE R. HERNANDEZ. such as income tax as well as other taxes that are not poll taxes if expressly provided by law. Upon the dissolution or cessation of the corporate existence of such institutions. XPN: The income of whatever kind and character: 1. KEITH S. not equality in taxation. VALCOS . SUBJECT HEAD: RODOLFO N. Basis: “No person shall be imprisoned for debt or non-payment of a poll tax. TEE. Art. 2003) Q: Are government educational institutions exempt from taxes? A: GR: They shall not be taxed with respect to their income. G. the revenue remain tax exempt. from any of their properties. Uniformity 2. real or personal. Equitability A: 1. ANG JR. or 2.28[1]. The Constitution provides that as long as the revenue is used ADE for educational purposes. directly. It is a tax imposed on a per head basis. Prohibition Against Imprisonment for NonPayment of Poll Tax. from any of their activities conducted for profit.. Art. without regard to their property or occupation. City of Iloilo. 2. GRANTOZA. GUTIERREZ. July 14. Uniformity – It means all taxable articles or kinds of property of the same class shall be taxed at the same rate. KASALA. Constitution should still prevail. ORTIZ & VANNESSA ROSE S. NIRC) A: It is a fixed amount upon all persons. XPN: A person cannot be sent to prison for failure to pay the community tax. Equity – When its burden falls on those better able to pay. 109791. 22 TAXATION LAW TEAM: ADVISER: ATTY. nonprofit educational institutions used actually. The present poll tax is the community tax. MEMBERS: JOSE DUKE BAGULAYA. their assets shall be disposed of in the manner provided by law. ASST. residents within a specified territory. or upon all persons of a certain class. regardless of the disposition made of such income. SUBJECT HEADS: EDISON U.” (Sec. (Sec. (Sec. with all people at all times.III.R. Note: Tax is uniform when it operates with the same force and effect in every place where the subject is found. Equality – When the burden of the tax falls equally and impartially upon all the persons and property subject to it. The Congress shall evolve a progressive system of taxation. It appears that Section 30 of the NIRC is inconsistent with the Constitution. CHRISTINE L. shall be subject to tax imposed (Sec. Different articles may be taxed at different amounts provided that the rate is uniform on the same class everywhere. Uniformity and Equality of Taxation Basis: “The rule of taxation shall be uniform and equitable. CONSTITUTIONAL LIMITATIONS Provisions Directly Affecting Taxation 3. and exclusively for educational purposes shall be exempt from taxes and duties. DIVINE C. Equality 3. PRUDENCE ANGELITA A. LACSINA. (Philippine Ports Authority v. VI. Q: May a person be imprisoned for nonpayment of tax? A: GR: A person may be imprisoned for nonpayment of internal revenue taxes. CHARLES L. (See page 26 for the illustrative case) Note: Income derived from any public utility or from the exercise of any essential governmental function accruing to the government or to any political subdivision thereof is exempt from income tax.

Q: Does the Constitution prohibit regressive taxes? A: No. MARTINEZ SANTO TOMAS de Derecho Civil 23 . the petitioner must prove that: it is any of the above entities/institutions and that its real properties are ACADEMICS CHAIR: LESTER JAY ALAN E. Q: What does the Constitution mean when it used the term “evolve”? A: The Constitution mandates to Congress not to prescribe but to evolve a progressive tax system. 1995) Q: Is VAT regressive? A: Yes. (Ibid. G. Uniformity in taxation also refers to geographical uniformity. the conditions not being different. Secretary of Finance. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. All persons are treated in the same manner. VI. MASACAYAN & THEENA C. Charitable institutions Churches and parsonages or convents appurtenant thereto. buildings and improvements actually. No. Art. directly and exclusively used for religious. mosques Non-profit cemeteries and All lands. 2. not a justiciable right or a legally enforceable one. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Directly. (Sec. buildings and improvements actually. Oct. Favoritism and preference is not allowed. charitable and educational purposes refer to? A: It pertains to exemption from real property taxes only. what the Constitution simply provides is that Congress shall evolve a progressive system of taxation. 115455. tonnage and wharfage dues and other duties or imposts within the framework of the national development program of the Government. and Exclusively Used For Religious. To whom much is given. Exemption of Properties Actually. much is required. both in privileges conferred and liabilities imposed. it is regressive inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. by law. c. Q: Why must taxation be progressive? A: It is built on the principle of the taxpayer’s ability to pay and in implementation of the social justice principle that the more affluent should contribute more to the community’s benefit. Charitable and. 1987 Constitution) Note: To be entitled to the exemption. directly and exclusively used for religious.GENERAL PRINCIPLES President’s Power To Tax A: The criterion is met when the tax laws operate equally and uniformly on all persons under similar circumstances. 4. authorize the President to fix within specified limits and subject to such limitations and restrictions at it may impose. tonnage and wharfage dues? A: a. By its very nature.R. This is a mere directive upon Congress. import and export quotas.) Note: Not regressive as defined in such a manner that the tax rate decreases as the amount subject to taxation increases. (1998 Bar Question) Note: Singling out one particular class for taxation purposes does not infringe the requirements of uniformity. We cannot avoid regressive taxes but only minimize them. 28 [2].al. Q: What are the properties exempt under the Constitution from the payment of property taxes? A: 1. 28(3). Delegated by Congress through a law Subject to Congressional limits and restrictions Within the framework of national development program. charitable or educational purposes shall be exempt from taxation.Educational Purposes Q: To what exemption does the constitutional exemption of all lands. 1987 Constitution) Q: What are the requisites in order for the President to validly impose tariff rates. Q: When is taxation progressive? A: Taxation is progressive when tax rate increases as the income of the taxpayer increases. SABUGO & JOHN HENRY C. 3. import and export quotas. VI. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.. Art. v. (Tolentino et. Q: What is the authority of the President in imposing tax? A: The Congress may. tariff rates. 30. (Sec. b.

in the case of The Roman Catholic Bishop of Nueva Segovia v. churches. It was stressed that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. DIVINE C. Q: What is meant by “actual. the Court said: The exemption in favor of property used exclusively for charitable or educational purposes is not limited to property indispensable therefore. PRUDENCE ANGELITA A.. ASST. that in view of the substantial amendments in the Constitution. KASALA. ANG JR. debarred from participation or enjoyment. 24 TAXATION LAW TEAM: ADVISER: ATTY. 1927). It must be duly taken into consideration. and all lands." they should not only be "exclusively" but also "actually" and "directly" used for religious or charitable purposes. personages or convents appurtenant thereto. the Court clarified that the term “used exclusively” considers incidental use.UST GOLDEN NOTES 2011 actually. Aquino (June 15. The words "dominant use" or "principal use" cannot be substituted by the words "used exclusively" without doing violence to the Constitution and the law. The Provincial Board of Ilocos Norte (December 31. the Court ruled: The exemption in favor of the convent in the payment of the land tax. and all lands. in the aforementioned cases. and exclusively used for religious or charitable purposes shall be exempt from taxation. The Constitution is worded differently. LACSINA. buildings. SUBJECT HEADS: EDISON U. Therefore. Hence in the case of Province of Abra v. ORTIZ & VANNESSA ROSE S. Section 17(3). which were all decided in the light of the 1935 Constitution. but extends to facilities which are incidental to and reasonably necessary for the accomplishment of such purposes. mosques. Art VI of the 1935 Philippine Constitution: (3) Cemeteries. which constitutes an incidental use in religious functions. as enjoying a privilege exclusively. churches. Q: Is exclusivity synonymous with dominant use? A: No. charitable and educational purposes”? A: It is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. The change should not be ignored. and parsonages or convents appurtenant thereto. comes under the exemption. mosques and nonprofit cemeteries. and non-profit cemeteries" and required that for the exemption of "lands. it was further held in the case of Abra Valley College Inc. charitable. Thus. KEITH S. and all lands. TEE. "in a manner to exclude.” Note: If real property is used for one or more commercial purposes. Art VIII of the 1973 Philippine Constitution now read as follows: (3) Charitable institutions. In a much later case of Herrera v. VALCOS . QC-BAA (September 30. buildings and improvements actually. and improvements used exclusively for religious. also comes within the exemption. neither is it used for commercial purposes and. GUTIERREZ. directly. 1988) that: The exemption from taxation is the use of the property for purposes mentioned in the Constitution. in regard to the lot which formerly was the cemetery. directly and exclusively used for charitable purposes. buildings. and improvements for religious or charitable purposes to be exempt from taxation. HERNANDEZ. SUBJECT HEAD: RODOLFO N. MEMBERS: JOSE DUKE BAGULAYA. and parsonages or convents appurtenant thereto. There must be proof therefore of the actual and direct use of the lands. Solely is synonymous with exclusively. include not only the land actually occupied by the church. GRANTOZA. Reliance on past decisions would have sufficed were the words "actually" as well as "directly" not added. Note: Under Section 22(3). Moreover. it is not exclusively used for the exempted purposes but is subject to taxation. or educational purposes shall be exempt from taxation. CHARLES L. Following the previous ruling of the Supreme Court. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. Hernando: xxx Under the 1935 Constitution: "Cemeteries. and improvements used exclusively for religious. 1961). xxx Q: What is meant by the term “exclusive”? A: It is defined as possessed and enjoyed to the exclusion of others. direct and exclusive use of the property for religious. while it is no longer used as such. churches. buildings. as being covered by the exemption. but also the adjacent ground (which is being used for a vegetable garden) destined to the ordinary incidental uses of man. CHRISTINE L. and “exclusively” is defined. CLARABEL ANNE R. Note however. and improvements." The present Constitution added "charitable institutions. charitable. is now being used as a lodging house by the people who participate in religious festivities. v. or educational purposes shall be exempt from taxation. buildings.

As Chief Justice Hilario G. and (b) its real properties are ACTUALLY. devise. however. and improvements" of the charitable institution to be considered exempt. as enjoying a privilege exclusively." However. charitable or educational purposes. (Sec. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Imelda gave her parents a Christmas gift of P100.(Sec. of the taxpayer’s taxable income derived from trade or business or profession. The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law. buildings.34[H]. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. For purposes of income taxation a. the Court reexamined the intent of the constitutional provision granting tax exemptions and made the following ruling: The tax exemption under this constitutional provision covers property taxes only. what is exempted is not the institution itself . In resolving the issue on whether or not the portions of the real property of Lung Center is exempt from real property taxes. the income of whatever kind and nature from any of their properties.donations in favor of religious and charitable institutions are generally not subject to tax provided. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. that (a) it is a charitable institution.. 000. buildings and improvements actually. and improvements used “exclusively” for religious and charitable purposes shall be exempt from taxation. debarred from participation or enjoyment.00 and a donation of P80. On the part of the donor. NIRC). Article VI of the 1987 Philippine Constitution (as implemented by Section 234(b) of Republic Act No. explained: "." Under the 1935 Constitution. 7160). shall be exempt from tax. 87[D] and 101. such donations are deductible expense provided that no part of the income of which inures to the benefit of any private stockholder or individual in an amount not exceeding 10% in case of individual. For purposes of donor’s and estate taxation . SABUGO & JOHN HENRY C. Act No. directly and exclusively used for religious. However. "Exclusive" is defined as possessed and enjoyed to the exclusion of others. Davide. NIRC). Q: In 1991.. by clear and unequivocal proof. . organizer or officer or any specific person. under the 1973 and the 1987 Constitutions. MARTINEZ SANTO TOMAS de Derecho Civil 25 . it is required that such property be used "actually" and "directly" for such purposes. b. 2. no part of which inures to the benefit of any member. the petitioner is burdened to prove. Jr. 7160 in order to be entitled to the exemption. and 5% in case of a corporation. Q: Give the rules on taxation of non-stock corporations for charitable and religious purposes. What is meant by actual. . and educational institutions are considered as income but not taxable income as they are items of exclusion. buildings. the same should not only be "exclusively" used for charitable purposes.GENERAL PRINCIPLES This same provision is reproduced under Section 28(3). The income of non-stock corporations operating exclusively for charitable and religious purposes. Under the 1973 and 1987 Constitutions and Rep. . real or personal or from any of their activities for profit regardless of the disposition made of such income shall be subject to tax. "in a manner to exclude. NIRC). She also donated a parcel of land for the construction of a building to the PUP ACADEMICS CHAIR: LESTER JAY ALAN E. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. and "exclusively" is defined. "all lands. or legacy or transfer shall be used for administration purposes (Secs. 30 [E] and last par. A: 1. it is not exclusively used for the exempted purposes but is subject to taxation. that not more than 30% of the said bequest. MASACAYAN & THEENA C.000 to the parish church. charitable. DIRECTLY and EXCLUSIVELY used for charitable purposes. Donations received by religious. then a member of the 1986 Constitutional Commission. for "lands. Solely is synonymous with exclusively. City Assessor of Quezon City.. THE PREVAILING RULE: The term “exclusively” does not cover incidental use." If real property is used for one or more commercial purposes. . those exempted from real estate taxes are lands. and was applied in the recent case of Lung Center of the Philippines v.

which is idle. parsonages. 1. corporation. MEMBERS: JOSE DUKE BAGULAYA. Court of Appeals. What is exempted is not the institution itself but the lands. 000. VALCOS . and exclusively used for religious.R. charitable. G. CHRISTINE L. directly and exclusively used for religious. The school was assessed for taxes because it was not exclusively used for educational purposes. or convents appurtenant thereto. Is the Christmas gift of P100. To what kind of taxes does this exemption apply? 26 TAXATION LAW TEAM: ADVISER: ATTY. DIVINE C. However. directly. Oct. churches. and non-profit cemeteries and lands. ASST. SUBJECT HEAD: RODOLFO N.00 to Imelda’s Parents subject to tax? 2. PRUDENCE ANGELITA A. The ground floor of said building was leased to various commercial establishments. LACSINA. No. HERNANDEZ.UST GOLDEN NOTES 2011 Alumni Association a non-stock. 1998) (2000 Bar Question) Q: The Roman Catholic Church owns a 2 hectare lot in a town in Tarlac province. ANG JR. The use of the second floor of the main building in the case at bar for residential purposes The Christmas gift of P100. convent and school run by the church are exempt from real property taxes while the portion of the land occupied by commercial establishments and the portion. Can said hospital claim exemption from taxation under the provision? A: Yes. (1996 Bar Question) Q: Article VI. buildings and improvements actually. Portions of the Building shall be leased to generate income for the association. in particular. Q: The Constitution exempts from taxation charitable institutions. and exclusively used for religious. Quezon City. mosques. KEITH S. The test for exemption from taxation is the use of the property for purposes mentioned in the Constitution.000. (1994 Bar Question) 2. the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. are subject to real property taxes.00 to the parish church even is tax exempt provided that not more than 30% of the said bequest shall be used by such institutions for administration purposes. 144104. Mercy hospital can claim exemption from taxation under the provision of the Constitution. KASALA. (Section 87[D]. the northwestern side. June 29. institution. and improvements actually. (Lung Center of the Philippines v. charitable or educational purposes. et al. mosques. How about the donation to the parish church? 3. the eastern side by the school run by the church itself. together with his family.R. while the rest of the property. non-profit organization. directly. foundation or trust. TEE. but only with respect to real property taxes provided that such real properties are used actually. May the church claim tax exemption on the entire land? A: No. CLARABEL ANNE R. The portion of the land occupied and used by the church. is idle or unoccupied. SUBJECT HEADS: EDISON U. churches and parsonages or covenants appurtenant thereto. and educational purposes. How about the donation to the PUP alumni association? A: 1. directly. occupies the second floor of the school building as their residence. The south eastern side by some commercial establishments. The donation of P80. 14. Section 28(3) of the 1987 Philippine Constitution provides that charitable institutions. nonprofit cemeteries and all lands. GUTIERREZ. GRANTOZA. G. 3. The “usage” of the property and not the “ownership” is the determining factor whether or not the property is taxable. Are the parts of the school building used as residence and leased to commercial establishments tax-exempt? A: The answer must be qualified. (Commissioner of Internal Revenue v. and exclusively for charitable purposes. The Director of the Abra Valley College. A: This exemption applies only to property taxes.000 are exempt. Mercy hospital is a 100 bed hospital organized for charity patients. NIRC). net gifts not exceeding P100. 2004) (2005 Bar Question) Q: Abra Valley College. No. buildings and improvements actually. 124043.000 given by Imelda to her parents is not taxable because under the law (Section 99[A]. an educational corporation and institution of higher learning duly incorporated with the SEC failed to pay its real estate taxes and penalties as a result thereof a Notice of Seizure and Notice of Sale of the lot and building was served against the college. ORTIZ & VANNESSA ROSE S. The southern side and middle part are occupied by the church and a convent. buildings.. CHARLES L. charitable or educational purposes shall be exempt from taxation. NIRC) The donation to the PUP alumni association does not also qualify for exemption both under the Constitution and the aforecited law because it is not an educational or research organization.

While the use of the school building or lot for commercial purposes is neither contemplated by law. Where the Constitution does not distinguish with respect to source or origin. EDUCATIONAL AND CHARITABLE PURPOSES Covers Real Property tax only. directly. The income derived from dormitories. L49336 Aug. not the ownership thereof Extends to facilities which are actual. Consequently. non-profit educational Q: What are the taxes covered? ACADEMICS CHAIR: LESTER JAY ALAN E. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Property must be “actually. The lease of the ground floor to the Northern Marketing Corporation cannot by any stretch of imagination be considered incidental to the purpose of education (Abra Valley College v. nor by jurisprudence therefore not tax exempt. No. (2000 Bar Question) Voting Requirement for Statutes Granting Tax Exemptions Q: What is the constitutional provision as regards the grant of tax exemptions? A: No law granting tax exemption shall be passed without the concurrence of a majority vote of all Coverage of this Constitutional Provision Requisite to avail of this exemption Test for the grant of this Exemption Extent of this Exemption Tax Exemptions Granted To Non-stock. directly and exclusively used” by religious. The distinction is with respect to the use which should be actual. MASACAYAN & THEENA C.GENERAL PRINCIPLES of the Director and his family may find justification under the concept of incidental use. real or personal or from any of their activities for profit regardless of the disposition made of such income shall be subject to tax. L-39086. 1987 Constitution) Note: Incomes which are unrelated to school operations are taxable. MARTINEZ SANTO TOMAS de Derecho Civil 27 . which is complimentary to the main or primary purpose – educational. 31.profit educational institutions. Non-Profit Educational Institutions Q: What are the entities covered by this provision? A: Only non-stock. Section 4(3) of the 1987 Constitution. G. directly and exclusively for educational purposes. charitable and educational institutions. Are income derived from dormitories. used actually. 4[3]. No. The income of whatever kind and nature from any of their properties. Hernando. 1981) Use of the property for such purposes. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. nonprofit educational institutions used actually. (Sec. SABUGO & JOHN HENRY C. direct and exclusive for educational purposes. A: All revenues and assets of non-stock. all revenues and assets of nonstock. There is still a requirement for evidence to show actual. Aquino. the Tax Code should not make distinctions. institutions. direct and exclusive use for educational purposes. and exclusively for educational purposes. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. June 15. the provision of Section 30 of the NIRC of 1997. EXCLUSIVELY AND DIRECTLY USED FOR RELIGIOUS. G. Q: Under Article XIV. incidental to or reasonably necessary for the accomplishment of the main purposes. 1988) SUMMARY RULES ON EXEMPTION OF PROPERTIES ACTUALLY. are exempt from taxes and duties. It is to be noted that the 1987 Constitution does not distinguish with respect to the source or origin of the income.R. Article XIV. and exclusively for educational purposes shall be exempt from taxes and duties.R. that a non-stock and non-profit educational institution is exempt from taxation only “in respect to income received by them as such” could not affect the constitutional tax exemption. There must be a showing that the incomes are used actually. non. canteens and bookstores as well as interest income on bank deposits and yields from deposit substitutes automatically exempt from taxation? A: No. canteens and bookstores are not also automatically exempt from taxation. The interest income on bank deposits and yields from deposit substitutes are not automatically exempt from taxation. directly. (Province of Abra v.

consistent with the basic policy of local autonomy. if any. revenue or tariff bill but the veto shall not affect the item or items which he does not object. VI. questions on tax laws are usually filed direct with the Supreme Court as these are imporessed with paramount public interest. ASST.. DIVINE C.28[4]. KEITH S. However. CLARABEL ANNE R. shall be transferred to the general funds of the government. VI. TEE. VALCOS . Art VI of the Constitution that “no law shall be passed increasing the appellate jurisdiction of the Supreme Court without its advice and concurrence. (Article X. Art. the petition should generally be filed with the RTC following the hierarchy of courts. If the purpose for which a special fund was created has been fulfilled or abandoned. 1987 Constitution) GR: The courts cannot inquire into the wisdom of a taxing act. CHARLES L. Q: How are exemptions granted? A: Exemptions may be created: 1. By statute. GRANTOZA. Art. b. MEMBERS: JOSE DUKE BAGULAYA. the absolute majority vote of all the members of Congress is required. that is. ANG JR. (Sec. fees and charges subject to such guidelines and limitations as the Congress may provide. PRUDENCE ANGELITA A. 1987 Constitution) Non-Impairment Of Jurisdiction Of The Supreme Court Q: What does the Constitution provide with respect to the jurisdiction of the Supreme Court? A: The Supreme Court can review judgments or orders of lower courts in all cases involving: a. fees. Such taxes. 1987 Constitution) Note: These jusridiction are concurrent with the Regional Trial Courts. By the Constitution or 2. Municipal Taxation Q: What justifies the delegation of legislative taxing power to local governments? A: Each local government unit shall have the power to create its own sources of revenues and to levy taxes. or toll.” Prohibition on Use of Tax Levied for Special Purpose Q: How does the constitution treat all money collected on any tax levied for a special purpose? A: It is treated as a special fund and paid out for such purpose only. HERNANDEZ. The legality of any penalty imposed in relation thereto (Sec. Section 5. 30.28[4]. Art. ORTIZ & VANNESSA ROSE S. GUTIERREZ. subject to limitations as the Constitution may provide. assessment. Art. (Sec. LACSINA. 29[3]. Q: What is the vote required for such grant of tax exemption? A: In granting tax exemptions. CHRISTINE L. and charges shall accrue exclusively to the local governments. 1987 Constitution) Veto Power Of The President Q: What is the rule as regards the veto power of the President? 28 TAXATION LAW TEAM: ADVISER: ATTY. (Sec.UST GOLDEN NOTES 2011 the Members of the Congress. 1987 Constitution) Q: Why separate vote for Senate and Congress? A: Because the sheer number of Congressmen would dilute the vote of the Senators. SUBJECT HEAD: RODOLFO N. impost. VI. VIII. thus. the balance. VI. It is also provided under Sec. (Sec. 1987 Constitution) Basis: The inherent power of the State to impose taxes carries with it the power to grant tax exemptions. 27(2). KASALA. 5[2][b]. A: GR: The President may not veto a bill in part and approve it in part. majority of a quorum. It means at least 50% plus 1 of all the members voting separately. SUBJECT HEADS: EDISON U. XPN: The President shall have the power to veto any particular item or items in an appropriation. XPN: There is an allegation of violation of constitutional limitations or restrictions. The legality of any tax. Art. Q: What is the vote required for withdrawal of such grant of tax exemption? A: A relative majority or plurality of votes is sufficient.

28[3]. No. 1987 Constitution) A: 1. R. The Senate may not only concur with amendments but also propose amendments. Secretary of Finance. 1950 amending corporate income taxes. It was HB Nos. among others.GENERAL PRINCIPLES increased emoluments for health workers. Q: Mounting budget deficit. Section 24 of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House revenue bill. 1950 proposing amendments not only to NIRC provisions on the VAT but also amendments to NIRC provisions on other kinds of taxes. XPN: If a priest is assigned to the armed forces. MASACAYAN & THEENA C. MARTINEZ SANTO TOMAS de Derecho Civil 29 .29[2]. No.R. the members of the House of Representatives can be expected to be more sensitive to the local needs and problems. No. Art VI. No. (Sec. Upon transmittal of said House bills to the Senate. Art. Article VI. elected as they are from the districts. G. inadequate fiscal allocation for education. No. revenue generation. 1992) Note: This authority. 115873. the amendments made are germane to the purpose of the house bills which is to raise revenues for the government. the Senate acted within its power to propose those amendments. Section 24 of the Constitution on exclusive origination of revenue bills? Does R. government orphanages or leprosarium.A. and wider coverage for full VAT benefits are the reasons why R. 1987 Constitution). excise and franchise taxes. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 9337 is a consolidation of three legislative bills namely. G.A. which the Senate and the House of the Representatives did. 3555 and 3705. 1. No. The “no-amendment rule” refers only to the procedure to be followed by each house ACADEMICS CHAIR: LESTER JAY ALAN E.R. (Tolentino v. Section 26(2) of the Constitution on the “No-Amendment Rule”? Flexible Tariff Clause Q: What is the “Flexible Tariff Clause”? A: This clause provides the authority given to the President to adjust tariff rates under Section 401 of the Tariff and Customs Code. is subject to limitations and restrictions indicated within the law itself. 101273. Aug.A No. Q: What is required to originate in the House of Representatives? A: It is not the law but the revenue bill which must “originate exclusively” in the House of Representatives. the Senate was acting within its Constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. and SB No. No Appropriation or Use of Public Money for Religious Purposes Q: Can public money be used for a religious purpose? A: GR: No. (Garcia v. the Senate agreed to the request of the House of Representatives for a committee conference. The Senate can propose amendments and in fact. SABUGO & JOHN HENRY C. however. which is to supplement our country’s fiscal deficit. Because of the conflicting provisions of the proposed bills. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. *See President’s Taxing Power on page 23 2. 1994] Q: Why must appropriation. Thus. HB Nos. The bill may undergo such extensive changes that the result may be a rewriting of the whole. public money or property cannot be used for a religious purpose (Sec. 2. 9337 violate Article VI. 9337 violate Article VI. revenue or tariff bills originate from the Congress? A: On the theory that. The Conference Committee on the Disagreeing Provisions of House Bill recommended the approval of its report. The sections introduced by the Senate are germane to the subject matter and purposes of the house bills. penal institutions.VI. July 3. No. 1950. Since there is no question that the revenue bill exclusively originated in the House of Representatives. percentage. the Senate came out with SB No. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.A. Executive Secretary. Does R. 3555 and 3705 that initiated the move for amending provisions of the NIRC dealing mainly with the VAT. 9337 was enacted. Verily. 25. Origin of Revenue and Tariff Bills.

as where it can be shown to amount to a confiscation of property. G. L-29646.. (1 Cooley 824-825. No arbitrariness or oppression either in the assessment or collection. 168463 and 168730. Thus. VALCOS . L-49839-46 April 26. This guarantee includes the means of livelihood. Dec.R. under like circumstances and conditions. 1984) The power to select subjects of taxation and apportion the public burden among them includes the power to make classifications. Araneta. v. (Abakada Guro v. 2.R. Sept. 2. SUBJECT HEAD: RODOLFO N. KEITH S. once an alien is admitted. L-7859. (Reyes v. The inequalities which result in the singling out of one particular class for taxation or exemption infringe no Constitutional limitation (Lutz v. G. ASST. to construe said provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would mean that the other house of Congress would be deprived of its Constitution power to amend or introduce changes to said bill. 59431.R.UST GOLDEN NOTES 2011 of Congress with regard to bills initiated in each of said respective houses. ORTIZ & VANNESSA ROSE S. Hiu Chiong Tsai Pao Ho. G. 10. Q: When is deprivation of life. he cannot be deprived of life without due process of law. 168056. 1955) Q: What are the requisites for a valid classification? Tax amounting to confiscation of property Subject of confiscation is outside the jurisdiction of the taxing authority Law is imposed for a purpose other than a public purpose Law which is applied retroactively imposes unjust and oppressive taxes The law is in violation of inherent limitations. Almanzor. Ancheta. Due Process Clause 4. 1991) While it is true that the Philippines as a State is not obliged to admit aliens within its territory. ANG JR. No. It must be imposed within territorial jurisdiction. before said bill is transmitted to the other house for its concurrence or amendment. A: 1. liberty. liberty and property by the government done in compliance with due process? A: If the act is done: 1. nor shall any person be denied the equal protection of the laws. 1987 Constitution) Q: What is meant by equal protection of the law? A: It means that all persons subjected to such legislation shall be treated alike. KASALA. both aliens and citizens. (Sec. Nos. LACSINA. both in the privileges conferred and in theliabilities imposed. DIVINE C. CHARLES L. Art. HERNANDEZ. Sec. G. (Villegas v. Q: When may violation of due process be invoked by the taxpayer? A: The due process clause may be invoked where a taxing statute is so arbitrary that it finds no 30 TAXATION LAW TEAM: ADVISER: ATTY. 1978) Q: Give illustrative cases of violations of the due process clause. 26 (2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments and modifications to disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited. After compliance with fair and reasonable methods of procedure prescribed by law (procedural due process). 168461. July 25. G. 1. Equal Protection Clause Basis: No person shall be deprived of life. MEMBERS: JOSE DUKE BAGULAYA. Provisions Indirectly Affecting Taxation 3. Under authority of a law that is valid or the Constitution itself (substantive due process). GUTIERREZ. SUBJECT HEADS: EDISON U. Sison Jr. CHRISTINE L. 2005) support in the Constitution. or property without due process of law. PRUDENCE ANGELITA A. No. VI.1. 168207. The shelter of protection under the due process and equal protection clause is given to all persons. 22. TEE. Verily. and 2. GRANTOZA. III. Tax must be for public purpose. Q: What does due process in taxation require? 5. Procedural Due Process 3. Art. Nov. CLARABEL ANNE R. No.R.R. A: Substantive Due Process 1. No. Executive Secretary.

v. v. There are substantial differences between big investors being enticed to the “secured area” and the business operators outside that are in accord with the equal protection clause that does not require territorial uniformity of laws.. of the same class as Ormoc Sugar Co.O. was the only sugar central in Ormoc. 1999) (2000 Bar Question) Q: The City Council of Ormoc enacted Ordinance No. Must be Germane to the purposes of the law. was issued pursuant to law. G. Series of 1964 taxing the production and exportation of only centrifugal sugar. Nov. (Juan Luna Subdivision. City Treasurer of Ormoc City. granting tax and duty incentives only to businesses and residents within the “secured area” of the Subic Economic Special Zone. 1994) Q: What is the Principle of Equality? A: It admits of classification or distinctions as long as they are based upon real and substantial differences between the persons. Must be based on Substantial distinction. L-23794. The former produce and sell copra. plaintiff Ormoc Sugar Co.. L3538. are not categorized further. It is not violative and not discriminatory because there is a material or substantial difference between coconut farmers and copra producers. G. The Constitution does not forbid the differential treatment of persons. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. The taxing ordinance should not be singular and exclusive as to exclude any substantially established sugar central.R. to be reasonable. Apply Equally to all members of the same class. 20. the latter merely sells copra. and denying said incentives to those who live within the zone but outside such “secured area:” Is the Constitutional right to equal protection of the law violated by the Executive Order? A: No. on one hand. Court of Appeals. Secretary of Finance. G. 47-91 classifying copra as an agricultural non-food product discriminatory and violative of the equal protection clause? A: No. At the time of the enactment. Inc. RC files suit to declare the ordinance void on the ground that it is a class legislation. equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation. Feb. The classification.R. 4. Q: Is Revenue Memorandum Circular No. Jan. being in like circumstances to contributing directly to the achievement of the end purpose of the law. should be in terms applicable to future conditions as well. 10.R. Q: RC is a law abiding citizen who pays his real estate taxes promptly. SABUGO & JOHN HENRY C. 3. 1968) A: PEGS 1. The municipal attorney rendered an opinion that RC cannot be reimbursed because the ordinance did not provide for such reimbursements. or privileges and those not taxed must bear some reasonable relation to the object or purpose of legislation or to some permissible government policy or legitimate end of the government.. (Misamis Oriental Association of Coco Traders Inc. from the coverage of the tax. on the other. The remission or condonation of taxes due and payable to the exclusion of taxes already collected does not constitute unfair discrimination. 4. Petitioner alleged that said Ordinance is unconstitutional for being violative of the equal protection clause. (Tiu. (Ormoc Sugar Industry v. RC demands that he be refunded an amount equivalent to ½ of the real taxes he paid. No. v. 17.R. 108524. 1952) (2004 Bar Question) Q: An E. MARTINEZ SANTO TOMAS de Derecho Civil 31 . Each set of taxes is a class by itself and the law would be open to attack as class legislation only if all taxpayers belonging to one class were not treated alike. No. Due to a series of typhoons and adverse economic conditions. they are similarly treated both in privileges granted and obligation required. Arguing that the ordinance rewards delinquent taxpayers and discriminates against prompt ones. May 28. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 127410. 2. an ordinance is passed by MM City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. and copra traders and dealers. Is the Ordinance valid? A: No. Instead. G. et al. Apply both to Present and future conditions. The classification applies equally to all the resident individuals and businesses within the secured area the residents. so long as there is reasonable basis for classifying them differently. Will a suit prosper? ACADEMICS CHAIR: LESTER JAY ALAN E.GENERAL PRINCIPLES A: The suit will not prosper. MASACAYAN & THEENA C. property. No. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Sarmiento.

UST GOLDEN NOTES 2011 A: When the State grants an exemption on the basis of a contract. a private person. or 2. CHRISTINE L. Neither the purpose nor the effect of the exemption is the advancement or the inhibition of religion. Dispenses with the conditions expressed therein. still the tax must be paid unless prohibited by the Constitution. ORTIZ & VANNESSA ROSE S. TEE. consideration is presumed to be paid to the State and the public is supposed to receive the whole equivalent therefore. DIVINE C.. Note: This applies only where one party is the government and the other party. Q: Is the imposition of fixed license fee a prior restraint on the freedom of the press and religious freedom? A: Yes. Q: What is the rationale for the non-impairment clause in relation to contractual tax exemption? 32 TAXATION LAW TEAM: ADVISER: ATTY. any tax exemptions unilaterally granted can be withdrawn at the Non-Impairment Clause Q: What are the instances when there is impairment of the obligations of contract? A: When the law changes the terms of the contract by: 1. 28[3]. (Tolentino v. or 3. (Ibid. PRUDENCE ANGELITA A. the exception. Art VI. LACSINA.) Q: X Corporation was the recipient in 1990 of two tax exemptions both from Congress. As a license fee is fixed in the amount and unrelated to the receipts of the taxpayer. (Sec. Art.) 3. one law exempting the company’s bond issues from taxes and the other exempting the company from taxes in the operation of its public utilities. If the grant of the exemption is merely a spontaneous concession by the legislature. Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to defeat the authority. CHARLES L. SUBJECT HEADS: EDISON U. Aug. 1987 Constitution). SUBJECT HEAD: RODOLFO N. Secretary of Finance. the license fee. HERNANDEZ. ibid. (franchise) However. GRANTOZA. G. KEITH S. Were the revocations Constitutional? A: Yes. nor hostility to religion. Freedom Of Religion Q: Is the real property tax exemption of religious organizations violative of the nonestablishment clause? A: No. (bilaterally agreed upon) 2. if the tax exemption constitutes a binding contract and for valuable consideration. nor can it be said that it impairs the obligations of any existing contract in its true and legal sense. (Tolentino v. Making new conditions. Except. KASALA. penal institutions. The VAT registration fee although fixed in amount is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. The exempting statutes are both granted unilaterally by Congress in the exercise of taxing powers. government orphanages or leprosarium. (Walz v. Tax Commission. ASST. 397 US 664) Note: Public money or property cannot be used for a religious purpose (Sec. Since taxation is the rule and tax exemption. Secretary of Finance. such exemption may be revoked. it is a mere gratuity. when applied to a religious sect. 115873. is actually being imposed as a condition for the exercise of the sect’s right under the Constitution. and it constitutes neither personal sponsorship of. 25. (unilaterally granted by law) If it is without payment of any consideration or the assumption of any new burden by the grantee. Changing conditions in the contract. No. VALCOS . if a priest is assigned to the armed forces. MEMBERS: JOSE DUKE BAGULAYA. 1987 Constitution) Q: What are the rules regarding non-impairment of obligation and contract with respect to the grant of tax exemptions? A: 1. Even if such taxation may affect particular contracts. or may impose additional burdens upon one class and release the burdens of another. as it may increase the debt of one person and lessen the security of another. 1994) Q: Is VAT registration restrictive of religious and press freedom? A: No.29[2]. ANG JR. the government cannot unilaterally revoke the tax exemption.R. GUTIERREZ. CLARABEL ANNE R. The two laws extending the tax exemptions were revoked by Congress before their expiry dates.VI. Q: Does RA 7716 (E-VAT Law) violate the nonimpairment clause? A: No.

having made their investments in full reliance with the period of exemption granted by the law. Payment – The act of compliance by the taxpayer. He must answer for libel. (Dimaampao. No. 120082. The PPI questions the law insofar as it has withdrawn the exemption previously granted to the press under Section 103 (f) the NIRC. SABUGO & JOHN HENRY C. The act of assessing and collecting taxes is administrative in character. PPI presses its claim because of the possibility that the exemption may still be removed by mere revocation of the regulation of the Secretary of Finance. 11. p. Art. the delegation is invalid. or of any penalty claimed to have been collected without authority. its repeal violated their Constitutional right against the impairment of the obligations and contracts. v. Tax Administration (Assessment and Collection) – This is the act of administration and implementation of the tax law by executive through its administrative agencies. MASACAYAN & THEENA C. Is RA 7716 unconstitutional for it violates the freedom of the press under Sec.R. 2008. MARTINEZ SANTO TOMAS de Derecho Civil 33 . Manila Railroad Co. and therefore can be delegated. Tax Principles and Remedies 3rd Ed. Freedom Of The Press Q: RA 7716 was enacted to widen the tax base of the existing VAT system and enhance its administration by amending the NIRC. he must pay equitable and nondiscriminatory taxes on his business. 1987 Constituion? 4. schemes or remedies as may be legally available. Sept. it may be revoked by will by the legislature (Christ Church v. Refund – The recovery of any tax alleged to have been erroneously or illegally assessed or collected. 2. With the repeal. 25. (Then there is no delegation to speak of. Secretary of Finance. the exemptions were considered revoked by the BIR. purpose for which the tax shall be levied.III. Note: If what is delegated is tax legislation. 1994) STAGES/ASPECTS OF TAXATION Q: What are the stages/aspects of a system of taxation? A: The stages/aspects of a system of taxation are as follows: [LAcPR] 1. Insular Collector of Customs [1915]) (2004 Bar Question) A: No. Like others. (Mactan Cebu International Airport Authority v. What constitutes an impairment of the obligation of contracts is the revocation of an exemption which is founded on a valuable consideration because it takes the form and essence of a contract. or of any sum alleged to have been excessively. Aug. Is the contention of the company tenable or not? A: The contention is not tenable. 8 Phil.R. Even with due recognition of its high estate and its importance in a democratic society. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 115873. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Casanovas v. or in any manner wrongfully collected. 12 . fixing the rate of taxation and the rules of taxation in general. the delegation is valid. Although the exemption was subsequently restored by administrative regulation with respect to the circulation of income of newspapers. which assessed the investing companies for unpaid taxes effective on the date of the repeal of the law.21) 3. Since the exemption given is spontaneous on the part of the legislature and no service or duty or other remunerative conditions have been imposed on the taxpayer receiving the exemption. He has no special privilege to invade the rights and liberty of others. G.GENERAL PRINCIPLES pleasure of the taxing authority without violating the Constitution. G. He may be punished for contempt of court. 24 How 300 [1860]). Marcos. however the press is not immune from general regulation by the State. The exemption granted is in the nature of a unilateral exemption. Hord. 1996) (1997 Bar Question) Q: A law was passed granting tax exemptions to certain industries and investments for a period of 5 years but 3 years later. the law was repealed. No.[1907].4. It has been held that the publisher of a newspaper has no immunity from the application of general laws. It further contemplates the determination of the subject of taxation. Philadelphia. Tax Legislation (Levy or Imposition) – This refers to the enactment of a law by Congress authorizing the imposition of tax. including such options. If what is delegated is tax administration. because tax ACADEMICS CHAIR: LESTER JAY ALAN E. (Tolentino v. NPC and KTR companies questioned the assessments on the ground that. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.

The circulars or regulations must be in accordance with the tax measures imposed by Congress. HERNANDEZ. SUBJECT HEADS: EDISON U. It is an Enforced contribution not dependent on the will of the person taxed. 87479. 2. KEITH S. Q: What are the requisites of a valid tax? A: 1. 4. and 34 TAXATION LAW TEAM: ADVISER: ATTY. taxes are not levied by the executive branch of government. ORTIZ & VANNESSA ROSE S. sitting as probate or estate settlement court. This statement is erroneous because levy refers to the act of imposition by the legislature which is done through the enactment of a tax law. CLARABEL ANNE R. unless a certification from the Commissioner of the Internal Revenue that the estate tax has been paid is shown. Q: What are the characteristics of taxes? A: SLEP4 1. That either the person or property being taxed be within the jurisdiction of the taxing authority. Taxes are enforced charges and contributions. Q: Taxes are assessed for the purpose of generating revenue to be used for public needs. Interpretative rule – issuance of guidelines and procedures to enhance the administration of tax laws by the Secretary of Finance. under Section 94 of the NIRC. The approval of the court.UST GOLDEN NOTES 2011 administration pertains administrative agencies) to the executive or Q: Is the approval of the court. ANG JR. Clearly. VALCOS . PRUDENCE ANGELITA A. Levy or the imposition of tax cannot be delegated since it is exclusively conferred with the Congress. G.. It is levied by the State through its Lawmaking body 3. A jurist said that a tax is what we pay for civilization. It is levied for a Public purpose. GUTIERREZ.120880. No.R. in our jurisdiction. Taxes are pecuniary in nature. (NPC v. Levy is an exercise of the power to tax which is exclusively legislative in nature and character. June 5. and 2. LACSINA. TAXES CONCEPT AND NATURE Q: Define taxes. On the contrary. DIVINE C. Legislative rule – subordinate legislation by the Secretary of Finance. It is levied on Persons and property 7. It should be uniform. Q: What are the kinds of rules relative to the imposition of tax? A: 1. No. G. (Marcos II v. It is Proportionate in character 6. levied by the State by virtue of its sovereignty for the support of the government and for all its public needs. Note: Assessment and collection may be delegated but not levy. Taxation itself is the power by which the State raises revenue to defray the expenses of government. is not a mandatory requirement in the collection of estate tax. SUBJECT HEAD: RODOLFO N. A: These are enforced proportional contributions from persons and properties. TEE. Taxes are imposed on persons and property within the territorial jurisdiction of a State. Albay. sitting in probate. KASALA. 3. 2. 1997) (2005 Bar Question) *Further discussed under Remedies of the Taxpayer. CHARLES L. 4. which of the following statements may be erroneous: 1. The tax law must designate which agency will collect. ASST. Taxes are assessed according to a reasonable rule of apportionment. June 4. 5.R. MEMBERS: JOSE DUKE BAGULAYA. it is the probate or settlement court which is forbidden to authorize the executor or judicial administrator of the decedent’s estate. GRANTOZA. to deliver any distributive share to any party interested in the estate. required in the enforcement of the estate tax? A: No. Court of Appeals. CHRISTINE L. It should be for a public purpose. A: (4) Taxes are levied by the executive branch of government. It is generally Payable in money 5. 1990) (2004 Bar Question) Q: Can assessment and collection be delegated? A: Yes. 2. (1Cooley 62). Taxes are levied by the executive branch of the government. 3. It is levied by the State which has jurisdiction over the person or property 2. provided that: 1.

express or implied Assignability Not assignable Assignable Mode of Payment Payable in money or in Payable in kind or in kind money Set-off Not subject to set-off Subject to set-off Effect of non-payment May result to No imprisonment (except imprisonment when debt arises from crime) Interest Bears interest only if Interest depends upon delinquent the written stipulation of the parties Prescription Governed by the special Governed by the prescriptive periods ordinary periods of provided for in the NIRC prescription TAX PENALTY Definition An enforced Sanction imposed as a proportional punishment for a contribution from violation of the law or persons and property for acts deemed injurious. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. are peculiarly benefited by public improvements Subject Imposed on persons.GENERAL PRINCIPLES 4. SPECIAL ASSESSMENT Nature An enforced An enforced proportional proportional contribution from contribution from owners of lands persons and property especially those who for public purpose/s. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Imposed on the exercise property. bridge or the like. violation of tax laws may give rise to imposition of penalty. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. amount is Limited to the necessary unlimited expenses of regulation and control Subject Imposed on persons. property. TOLL A consideration paid for the use of a road. TAX AS DISTINGUISHED FROM OTHER CHARGES AND FEES CUSTOMS DUTY Coverage More comprehensive Only a kind of tax than customs duty therefore limited coverage Object Goods imported or Persons. rights or of a right or privilege transaction Effect of Non-Payment Non-payment does not Non-payment makes the make the business illegal business illegal Time of Payment Normally paid after the Normally paid before the start of business commencement of the business TAX DEBT Basis Obligation created by Obligation based on law contract. etc. exported TAX TAX Definition An enforced proportional contribution from persons and property for public purpose/s. Levied only on land property rights or transactions Person Liable A personal liability of Not a personal liability the taxpayer of the person assessed Purpose For the support of the Contribution to the cost government of public improvement Scope Regular exaction Exceptional as to time and locality TAX Basis Demand of Demand of sovereignty proprietorship Amount Generally the amount is Amount is limited to unlimited the cost and maintenance of public improvement Purpose For the support of the For the use of another’s government property Authority May be imposed by the May be imposed by State only private individuals or entities LICENSE FEE Purpose Imposed to raise revenue For regulation and control Basis Collected under the Collected under police power of taxation power Amount Generally. MARTINEZ SANTO TOMAS de Derecho Civil 35 . Purpose To raise revenue To regulate conduct TAX ACADEMICS CHAIR: LESTER JAY ALAN E. The tax must not impinge on the inherent and constitutional limitations on the power of taxation. SABUGO & JOHN HENRY C. of a public nature. public purpose/s.

whether real or personal. VAT and Other Percentage taxes As to Tax Base: Gross Taxation – does not admit of any deductions. GRANTOZA. frameworks. CLASSIFICATION OF TAXES Q: What are the classifications of taxes? Give examples. An excise tax is a tax that does not fall as personal or property. It requires the intervention of assessors or appraisers to estimate the value of such property before the amount due can be determined. i. Estate tax. E.g. c. Excise tax on cigar. VAT Note: This is different from the excise tax under the NIRC which is a business tax imposed on items such as cigars. Property tax – Tax imposed on property. As to object / subject matter a. PRUDENCE ANGELITA A. MEMBERS: JOSE DUKE BAGULAYA. to achieve some social or economic ends E.g. E. Excise / Privilege tax – a charge upon the performance of an act. Indirect – one which is shifted by the taxpayer to someone else. Local or Municipal – A tax levied by a local government. Special / Regulatory or Sumptuary – tax levied for specific purpose. residents within a specified territory. or by some standard of weight or measurement. Net Taxation – admits of deductions in arriving at the taxable base. 5.g. 6. TEE. Real Property tax c. Personal/Poll or Capitation tax – A fixed amount imposed upon all persons. cigarettes. Income tax.) E. 7. VALCOS .g. Regressive – The tax rate decreases as the tax base or bracket increases. or in accordance with some other reasonable method of apportionment. E. Tariff and certain duties on imports As to scope/ or authority to impose: a. liquors. KASALA.g. E. A.. CHRISTINE L. wines. Income tax. Real Estate tax and Community tax As to proportionality or graduation: a. E. Income tax. cigarettes and liquors 3. ANG JR.g. 36 TAXATION LAW TEAM: ADVISER: ATTY.g.g. or upon all persons of a certain class. etc. b. VAT. without regard to their property or occupation. E. E. Other Percentage taxes and Documentary Stamp taxes b. Specific – tax of a fixed amount imposed by the head or number. E. CHARLES L. Proportional – A tax of a fixed percentage of amount of the base (value of the property. Donor’s tax. CLARABEL ANNE R. Ad valorem – tax based on the value of the property with respect to which the tax is assessed. SUBJECT HEADS: EDISON U. KEITH S. Income tax. As to purpose: a. Donor’s tax. DIVINE C. or the engaging in an occupation. a. E. GUTIERREZ. Income tax and Donor’s tax b. E. Income tax. HERNANDEZ. in proportion either to its value. As to who bears the burden: a. Direct – one that is demanded from the person who also shoulders the burden of tax. mineral products.e. 2. E.g. Estate tax and Donor’s tax b. ORTIZ & VANNESSA ROSE S. Estate tax. General/Fiscal or Revenue – tax imposed solely for the general purpose of the government. SUBJECT HEAD: RODOLFO N. the enjoyment of a privilege. Estate tax and Donor’s tax b. Progressive – A tax rate which increases as the tax base or bracket increases.g.g. LACSINA. Value added tax.UST GOLDEN NOTES 2011 Authority Maybe imposed by the Maybe imposed by State only private entities b.g. 1. or amount of gross receipts etc.g. Community tax b. VAT and Other percentage taxes As to determination of the amount / tax rates: a. Donor’s tax and Estate tax 4. ASST. National tax – Tax levied by the National Government.

in the case of corporations. if he qualifies as non-resident citizen. without any distinction as to the type or nature of the income. business or professional income. Since these types of income are treated separately. Under the global system. It has retained a more schedular than global features with respect to individual taxpayers but has maintained a more global treatment on corporations. 3. ACADEMICS CHAIR: LESTER JAY ALAN E. professional income. 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. and after deducting therefrom expenses and other allowable deductions. MASACAYAN & THEENA C. Source Principle – a non-resident alien is subject to Philippine income tax because he derives income from such sources within the Philippines such as dividend. (1994 Bar Question) Q: What is a semi-schedular or semi-global tax system? A: A system where the compensation. the allowable deductions shall likewise vary for each type of income. Under Sec. (1996 Bar Question) 4. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. the rules are uniform as far as domestic corporations are concerned subject to certain exceptions. capital gain and passive income not subject to final tax. the taxable income is subjected to one set of graduated tax rates. in accordance with schedules characterized by graduated tax rates. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. are subjected to tax at a fixed rate. or capital gain derived from the sale of real property. 2. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. business or professional income) are classified accordingly and are accorded different tax treatments. Only on his income from sources within the Philippines. business income. Under Sec. The individual income tax system is mainly progressive in nature in that it provides graduated rates of income tax. Citizenship Principle – A citizen taxpayer is subject to income tax: a. rent or royalty. in the case of individual taxpayers. the income of an individual taxpayer that is subject to tax may be classified into compensation income. as well as personal and additional exemptions. the various types or items of income (compensation. Note: Corporations in general are taxed at a flat rate of 30% of net income. Q: What system is adopted in corporate income taxation? A: Global system of taxation. 3. Direct Tax – tax burden is borne by the income tax receipient upon whom the tax is imposed. interest. On his worldwide income. residence. 24 to 26 of the NIRC. method of taxation under the law. b. passive income. A: Under a scheduler system.NATIONAL INTERNAL REVENUE CODE OF 1997 NATIONAL INTERNAL REVENUE CODE OF 1997 AS AMENDED INCOME TAXATION Q: What are the basic features of the present income tax system? A: Our present income tax system has the following basic features: 1. all income received by the taxpayer are grouped together. and source rules. Therefore. different income classification would subject it to different tax treatment with different tax rates. 2. Q: Distinguish global system from schedular system of income taxation. 27 and 28 of the NIRC. It has adopted a comprehensive tax situs by using the nationality. and other income are added together to arrive at the gross income. and other income. if he resides in the Philippines. MARTINEZ SANTO TOMAS de Derecho Civil 37 . SABUGO & JOHN HENRY C. and after deducting the sum of allowable Basis of Taxability of Income Q: What are the criteria in imposing Philippine income tax? 1. In case of resident and non resident foreign corporations the rules applied are also uniform. Q: What system is employed in case of individual income taxation? A: The schedular system is followed. deductions from business or professional income. capital income derived from the sale of shares of stock. capital gain and passive income not subject to final tax.

A: Except when otherwise provided in the NIRC: 1. Presumptive Income Tax – A scale of income taxes is imposed in relation to a group of person’s actual expenditure and the presumed income. Composite Tax – A tax consisting of a series of separate quasi-personal taxes. A foreign corporation. Income from sources within the Philippines. Income from sources partly within and partly without the Philippines. 5.e. Interests – source of income which rests on the residence of the debtor 2. KEITH S. The separate items are added together and the rate applied to the resulting total income. CLARABEL ANNE R. VALCOS . Personal Income Tax on individuals 2. Final withholding income tax on certain income from sources within the Philippines payable to resident (i. KASALA. Capital gains tax on sale of shares of stocks of a domestic corporation outside an exchange by a person who is not a dealer in securities and capital gains tax on sale of real property classified as a capital asset by a person who is not a real estate dealer or developer 5. ANG JR. LACSINA. 2. interests on bank deposits) or non resident persons (i. TEE. GRANTOZA. ORTIZ & VANNESSA ROSE S. 23 of the NIRC.e. Q: What are the factors in determining the source of income? . A citizen of the Philippines who is working and deriving income from abroad as an OFW is taxable only on income derived from sources within the Philippines: Provided.UST GOLDEN NOTES 2011 Q: Give the general principles of income taxation in the Philippines under Sec. interests on foreign loans or management fees paid to non resident foreign corporation). Q: What are the different types of income taxes under the NIRC? A: The types of Income Tax under the NIRC includes: 1. PEZA or SMBA-registered enterprises. 3. 4. Fringe benefit tax 7. assessed on the particular source of income with a superimposed personal tax on the income as a whole. or to certain special persons (i. whether a resident or not of the Philippines. Income from sources without the Philippines. and royalty. OBU. HERNANDEZ. A non-resident citizen is taxable only on income derived from sources within the Philippines. PRUDENCE ANGELITA A. An alien individual. is taxable only on income derived from sources within the Philippines. GUTIERREZ. CHRISTINE L. ASST. Tax on improperly accumulated earnings tax of corporations 9. 2. That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an OFW. A resident citizen is taxable on all income derived from sources within and without the Philippines. ROHQ. 6. 3. NIRC) Types of Philippine Income Tax Q: What are the types of income tax? A: 1. SUBJECT HEAD: RODOLFO N. Regular corporate income tax on corporations 3. and 6. DIVINE C. is taxable only on income derived from sources within the Philippines. whether engaged or not in trade or business in the Philippines. such as interest.e. Dividends – residence of the corporation declaring the dividends 38 TAXATION LAW TEAM: ADVISER: ATTY. A domestic corporation is taxable on all income derived from sources within and without the Philippines. 42.) Q: What are the classifications of sources of income? A: 1. Branch profit remittance tax on Philippine branches of foreign corporations 8. CHARLES L. Minimum corporate income tax on corporations 4. MEMBERS: JOSE DUKE BAGULAYA. dividend. SUBJECT HEADS: EDISON U. 3.. Unitary Income Tax – Incomes are arranged according to source. Tax on passive investment income. 2. A: 1. (Sec.

(Sec. 47. Corporations a. NIRC) 3. 6. 2. 31. Q: Who can adopt fiscal year period or calendar year? A: Corporate taxpayers have the option whether to adopt fiscal year or calendar year period. Exclusions from gross income 4. 5. 4. and 5. an individual taxpayer can only adopt calendar year period. Special Class Individual Employee 2. Corporation is Dissolved Q: What is the treatment in case a corporation changes its accounting period? A: If a corporate taxpayer. Taxable Period Q: What are the two periods that may be used by the taxpayer in the computation of taxable income? A: 1. Individual Taxpayers Q: What are the classifications of individual taxpayers? ACADEMICS CHAIR: LESTER JAY ALAN E. the net income shall. (Sec. Q: What is the importance of knowing the classification of taxpayers? A: In order to determine the applicable: GREED 1. be computed on the basis of such new accounting period. Q: Can there be a taxable period of less than 12 months? A: A taxpayer may have a taxable period of less than 12 months where: DiNe-ChaD 1. Corporation Changes its accounting period 4. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Fiscal year period – accounting period of 12 months ending on the last day of any month other than Dec. Domestic b. subject to the provisions of Sec. 5. from calendar year to fiscal year. changes its accounting period from fiscal year to calendar year. Resident Alien (RA) ii. Calendar year period – accounting period from Jan. NIRC) Kinds of Taxpayer Q: What are the classes of taxpayers? A: ICP-GET-Co 1. MARTINEZ SANTO TOMAS de Derecho Civil 39 . 47. or from one fiscal year to another. Resident foreign corporation (RFC) ii. 46. Aliens i.NATIONAL INTERNAL REVENUE CODE OF 1997 3. Non-resident citizen (NRC) b. Non resident aliens (NRA)  NRA-ETB (engaged in trade or business)  NRA-NETB (not engaged in trade or business) c. 6. Exemptions. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MASACAYAN & THEENA C. 7. 1 to Dec. Non-resident foreign Corporation (NRFC) Partnerships (considered as corporations under the NIRC) General Professional Partnerships Estates Trusts Co – Ownerships ( either treated as a continuation of the separate interest of the different owners or as unregistered partnership) Note: The sale of shares of stock in a domestic corporation shall be treated as derived entirely from sources within the Philippines regardless of where said shares are sold. Gross income base. Income tax Rates 3. with the approval of the CIR. Resident citizen (RC) ii. 2. Deductions. Foreign i. Services – place of performance of the service Rentals and Royalties – location of property or interest in such property Sale of Real Property – location of the property Sale of Personal Property – country in which it is sold Note: A separate adjustment or final return shall be made for the period not covered by the old accounting period and the new accounting period. 4. Individuals a. SABUGO & JOHN HENRY C. Corporation is Newly organized 3. Taxpayer Dies 2. Citizen i. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. On the other hand.

NIRC) Q: What is the test to determine whether a citizen is a resident of the Philippines? Note: Except in the case of NRA-ETB. DIVINE C. NIRC) Non-resident alien not engaged in trade or business (NRA-NETB) – An alien who stays in the Philippines for 180 days or less.UST GOLDEN NOTES 2011 A: 1. A citizen who has been previously considered as NRC and who arrives in the Philippines at any time during the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. 22 [E]. either as an immigrant or for employment on a permanent basis. to June 2009 he is considered as RC but upon his arrival in Japan sometime in July to Dec. (Sec. MEMBERS: JOSE DUKE BAGULAYA. Non-resident Citizen (NRC) – a. GRANTOZA. if a citizen departs for Japan in July 1.. A citizen of the Philippines who establishes to the satisfaction of the CIR the fact of his physical presence abroad with a definite intention to reside therein. GUTIERREZ. PRUDENCE ANGELITA A. ASST. ANG JR. Q: What is the Doctrine of Personal Jurisdiction for income tax purposes? A: The law of the country which you are a citizen of follows you for the protection of the government follows you. NIRC) Note: He is one who is actually present in the Philippines and not a mere transient or sojourner. TEE. VALCOS . 22 [F]. A: Jurisprudence have stated that residence is a permanent place to which a person whenever absent for business or pleasure has the intention to return to. 3. Q: What are the classifications of NRA? A: 1. CHARLES L. Q: What is the significance of classifying an alien as a resident or a non-resident? A: RA Tax treatment Personal and additional exemption 5 – 32% schedular rate Entitled NRA ETB NETB 5 – 32% 25% final schedular tax rate Entitled subject to Not the rule on entittled reciporcity 4. A citizen of the Philippines who leaves the Philippines during a taxable year to reside abroad. they can claim such exemption subject to the rule on reciprocity that he must prove that his country grants exemption to Filipinos engage in trade or business in their country. Non-resident alien engaged in trade or business (NRA – ETB) – An alien who stays in the Philippines for more than 180 days. CLARABEL ANNE R. 25 [B]. NIRC) Resident Alien (RA) – An individual whose residence is within the Philippines but who is not a citizen thereof. (Sec. 25 [A]. e. HERNANDEZ. NIRC) 2. 2. CHRISTINE L. SUBJECT HEAD: RODOLFO N. c. d.. LACSINA. KASALA. Non-resident Alien (NRA) – an individual whose residence is not within the Philippines and who is not a citizen thereof. 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 for purposes of this section. ORTIZ & VANNESSA ROSE S. Note: It is the length of stay in the Philippines that determines whether or not he is engaged in trade or business.e. The number of transaction he entered into is immaterial. Residence does not mean mere physical presence. (Sec. i. KEITH S. SUBJECT HEADS: EDISON U. from Jan. b. Resident Citizen (RC) – Citizens of the Philippines who are residing therein. A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. he shall be taxed as a NRC. Q: Can a citizen be considered a RC and a NRC during a taxable year? A: Yes. (Sec. 22 [G]. 2009. an alien is considered a resident or non-resident depending on his intention with regard to the length and nature of his stay. (Sec. Q: Are individual taxpayers deriving income from trade or business entitled to deductions? 40 TAXATION LAW TEAM: ADVISER: ATTY.

whether Filipino or alien employed by: a. annuities. (Sec. No. it shall be subject to the applicable income tax. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Petroleum Q: Who is a minimum wage earner? A: The term “minimum wage earner” shall refer to a worker in the private sector paid the statutory minimum wage. wages. is that valid? A: No. capital gains depending whether a citizen or an alien. Foreign service contractor or subcontractor engaged in petroleum operations in the Philippines (Sec. 25[C]. NIRC). final tax on passive income. In order for a regulation to be valid such must be in harmony with law. graduated rates. c. no matter how created b. SPECIAL CLASSES OF.INDIVIDUAL EMPLOYEES Q: Who are the special individual employees? A: 1. 24 A [2].A. A: Except for NRA-NETB whose tax base is his gross income (therefore deductions are not allowed) an individual taxpayer can claim deductions because their tax base is taxable income. as added by RA 9504) Q: What is meant by statutory minimum wage? A: It is the rate fixed by the Regional Tripartite Wage and Productivity Board. NIRC). ACADEMICS CHAIR: LESTER JAY ALAN E. it is no longer taxable applying the rule that in case of NRC.” (Sec. Joint stock companies c. the BIR cannot go beyond the sources of the law. MARTINEZ SANTO TOMAS de Derecho Civil 41 . Minimum Wage Earner Individuals. Corporations Q: What is a corporation for tax purposes? A: 1. 25[D]. The term “corporation” shall include: a. Joint accounts (cuentas en participacion) d. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Partnerships. NIRC). NIRC as added by R. Q: Is the income of an overseas worker derived abroad taxable? A: No. 22 [HH]. MASACAYAN & THEENA C. compensation. NIRC. Q: Assuming the BIR changed the tax base of a RC from taxable income to gross income. offshore banking units and petroleum service contractors and subcontractor received as salaries. that is. such regulation is contrary to law in particular the NIRC. Insurance companies It does not include: a. or to an employee in the public sector with compensation income of not more than the statutory minimum wage in 2. such as honoraria and allowances. Offshore banking units established in the Philippines (Sec. only income derived from sources within the Philippines is taxable. Is it valid? A: No. SABUGO & JOHN HENRY C. NIRC as amended by RA 9504) Q: How are the individuals in number 2 taxed? A: There shall be levied. remuneration and other emoluments. 9504) Q: What is the tax treatment with Minimum Wage Earners? A: The earnings of Minimum Wage Earners are exempt from income tax. as defined by the Bureau of Labor and Employment Statistics of the Department of Labor and Employment. 25. collected and paid for each taxable year upon the gross income received by these individuals employed by multinational companies.NATIONAL INTERNAL REVENUE CODE OF 1997 the non-agricultural sector where he/she is assigned. NIRC) Note: For other income of said individuals sourced within the Philippines. 25[D]. as the case may be. Regional or area headquarters (RAHQ) and regional operating headquarters (ROHQ) of multinational companies in the Philippines (Sec. (Sec. (Sec. a tax equal to 15% of such gross income. General professional partnerships and b. b. 2. 22 [GG]. Q: A regulation was passed by the BIR exempting or excluding income of a RC derived from sources outside the Philippines. Associations e. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. A joint venture or consortium formed for purposes of undertaking construction projects engaging in: i.

CHRISTINE L. Q: What are the kinds of corporation under the NIRC? A: 1. KASALA. BOAC. iii. Apr. a FC should obtain first a license from the Philippine Government to operate business in the Philippines through establishment of a branch or a representative office. machinery and other equipments Q: What is the test in determining the status of corporations? A: Under the “law of incorporation test”. Proprietary educational institutions and non-profit hospitals b. Note: In order that a foreign corporation may be regarded as doing business within a State there must be continuity of conduct and intention to establish a continuous business. lessors or distributors g.22 [I]. SUBJECT HEAD: RODOLFO N. The foreign company upon acquiring a license to do business through a branch or representative office becomes a resident foreign corporation with respect to the transactions that are effectively connected with its business in the Philippines.. 3. Non-Resident Foreign Corporation (NRFC) – a corporation which is not domestic and not engaged in trade or business in the Philippines is liable for income from sources within. VALCOS . 30. Coal Geothermal Other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Setting up a Domestic Subsidiary – This involves incorporation under Philippine laws. Domestic depositary bank (foreign currency deposit units) c. it shall be considered a nonresident foreign corporation with respect to transactions that are not effectively connected with its business here. CHARLES L. GR L-65773-74. LACSINA. Regional or Area Headquarters and Regional operating Headquarters of multinational companies f. MEMBERS: JOSE DUKE BAGULAYA. ANG JR. KEITH S. International carriers d. (Sec. GRANTOZA. a. DIVINE C. PRUDENCE ANGELITA A. such as the appointment of a local agent and not one of a temporary character. (CIR v.UST GOLDEN NOTES 2011 ii. Q: What are the modes by which a foreign corporation seeking to do business in the Philippines may adopt? A: 1. Offshore banking units e. Doing Business Through a Branch or Representative Office – This mode requires acquisition by the foreign corporation of a license to do business in the Philippines. Non-resident cinematographic film owners. a corporation is considered: 1. 42 TAXATION LAW TEAM: ADVISER: ATTY. HERNANDEZ. SUBJECT HEADS: EDISON U. otherwise they are considered as non-resident foreign corporation. Domestic Corporation (DC) – a corporation created or organized in the Philippines or under its laws and liable for income from sources within and without the Phillipines (Sec 22[C]. GUTIERREZ. CLARABEL ANNE R. 2. 1987) 2. ASST. iv. TEE. Q: What is the test to determine whether a FC is a resident or non-resident? A: To be a resident foreign corporation. ORTIZ & VANNESSA ROSE S. Domestic Corporation – If organized or created in accordance with or under the laws of the Philippines. h. Note: For tax purposes. The branch office does not obtain a separate juridical personality but becomes merely an extension of its parent company unlike a domestic subsidiary. Foreign Corporation – Organized or created in accordance with or under the laws other than the Philippines. Otherwise. NIRC) Special Types of Corporation – those corporations subject to different tax rates. the subsidiary becomes a domestic corporation while the parent company remains a non-resident foreign corporation. 2. Non-resident lessors of aircraft. Non-resident owners or lessors of vessels chartered by Philippine nationals 4. NIRC) Resident Foreign Corporation (RFC) – a corporation which is not domestic and not engaged in trade or business in the Philippines is liable for income from sources within.

Partnerships and General Professional Partnerships Q: What are the classifications of partnerships in so far as tax is concerned? A: 1. Trusts Q: What is a trust? A: It is a right to the property. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. if the estate is under administration or judicial settlement. machinery and equipment Note: They are only considered special because different tax rates are applicable to them. 2. to the time of death. Q: What are the special NRFC? A: 1. (Sec. A: These are partnerships. Thus. lessor. SABUGO & JOHN HENRY C. NIRC) Q: Is GPP subject to income tax? A: No. or industry to a common fund. Taxable and tax-exempt trust Irrevocable trust and revocable trust (pass through entity) ACADEMICS CHAIR: LESTER JAY ALAN E. distributor of cinematographic film NR owner or lessor of vessels chartered by Philippines nationals NR owner or lessor of aircraft. NIRC) Q: What is a co-partnership or business partnership? 2. MARTINEZ SANTO TOMAS de Derecho Civil 43 . and 2. They are considered as corporations and therefore are taxed as corporation. 5. Business Partnership. 3. Q: When a person who owns property dies. International carriers Offshore banking unit Foreign currency deposit unit Regional or area headquarters of multinational corporations Regional operating headquarters of multinational corporations Q: What is a GPP? A: A GPP is a partnership formed by persons for the sole purpose of exercising their common profession. Partners shall be liable for income tax in their separate and individual capacities. General Professional Partnership (GPP). 2. 22 [B]. A: Estate refers to the mass of properties left by a deceased person. to contribute money. Q: What are the classifications of trust for tax purposes? A: TIP 1. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. property. whether or not the share has been distributed. 2. 24 and 25. 3. held by one person for the benefit of another. There is an Intention to divide the profits. 4. There is an Agreement. Note: Partners are considered as stockholders and profits distributed to them are considered as dividends subject to final tax. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. 60. Q: Is it necessary that the partnership be registered? A: Registration of a partnership is immaterial for income tax purposes. It is taxable as long as the following requisites concur: AI 1. whether real or personal. (Sec. 2. they are not subject to income tax but are required to file information returns for its income for the purpose of furnishing information as to the share in net income of the partnership which each partner should include in his individual return. whether registered or not. Estate Q: Define estate.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What are the special RFC? A: 1. The share in thepartnership income is taxable to the individual partners. because the GPP itself is not taxable. Income tax for individuals from Jan. oral or writing. there is a constructive receipt of income in case of GPPs. other than GPP. NIRC) Income tax of the estate. what are the taxes payable under the income tax law? A: 1. NR owner.

MEMBERS: JOSE DUKE BAGULAYA. Co-Ownerships Q: What are examples of co-ownership? A: 1. Oct. Q: Is co-ownership subject to income tax? A: GR: It shall not be subject to income tax if the activities of the co-owners are limited to the preservation of the property and the collection of income therefrom. no matter how created or organized. Q: What is the significance in determining whether the trust is a trust administered in the Philippines or in a foreign country? A: Only trusts adsministered in the Philippines is subject to Philippine taxes. Q: What is the significance of determining whether the trust is revocable or irrevocable? A: The income of a revocable trust is included in computing the taxable income of the grantor without any of the deductions allowed for estates while the income of an irrevocable trust is a separate taxable entity subject to tax as income of the trust after deducting the allowable deductions Q: What is trust administered in the Philippines and trust administered in a foreign country? A: 1. either alone or in conjunction with any person not having a substantial adverse interest in the disposition of the corpus or the income therefrom. When two or more heirs inherit an undivided property from a decedent. GUTIERREZ. Q: Brothers A. B and C seek to reverse the letter of demand and be absolved from the payment of the taxes in question. As defined in the NIRC "the term corporation includes partnership. A: 1. GRANTOZA. and corporation residence tax. 2. Q: Define revocable and irrevocable trust. there are deductions allowed for trusts administered in the Philippines which are not allowed for those administered in a foreign country. A. the co-owners shall be taxed individually on their distributive share in the income of the co-ownership. The real properties they bought were leased to various tenants. The BIR demanded the payment of income tax on corporations. In the grantor. CHRISTINE L. HERNANDEZ. or b. ORTIZ & VANNESSA ROSE S. (Evangelista v. or conformity with the usual requirements of the law on partnerships. KEITH S. 15. 2. in order that one could be deemed constituted for the purposes of the tax on corporations. 1957) 2. B and C borrowed a sum of money from their father which amount together with their personal monies was used by them for the purpose of buying real properties. GR L-9996. XPN: If the co-owners invest the income in a business for profit they would constitute themselves into a partnership and such shall be taxable as a corporation. CLARABEL ANNE R. Trust administered in the Philippines and trust administered in a foreign country. real estate dealer’s tax. However. KASALA. Revocable Trust – a kind of trust where the power to revert (return) to grantor title to any part of the corpus (body) of the trust is vested: a. CIR. Trust Administered in the Philippines – a kind of trust where the administrator of the trust is located in the Philippines. ASST. When the NIRC includes "partnerships" among the entities subject to the tax on "corporations". SUBJECT HEAD: RODOLFO N. ANG JR. it must allude to organizations which are not necessarily "partnerships" in the technical sense of the term. PRUDENCE ANGELITA A. In any person not having a substantial adverse interest in the disposition of the corpus or the income therefrom. Irrevocable Trust – a kind of trust which cannot be altered without the consent of the beneficiary." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standards form. Thus. In such case. Trust administered in a Foreign Country – a kind of trust where the administrator is located outside of the Philippines. Are they subject to tax on corporations? A: Yes.UST GOLDEN NOTES 2011 3. TEE. 44 TAXATION LAW TEAM: ADVISER: ATTY.. LACSINA. SUBJECT HEADS: EDISON U. When a donor makes a gift of undivided property in favor of two or more donees. DIVINE C. "Corporations" strictly speaking are distinct and different from "partnerships". VALCOS . CHARLES L.

Jr. SABUGO & JOHN HENRY C. sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. property. (Art. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. The CIR contended that they formed an unregistered partnership or joint venture taxable as a corporation under the Code and its income is subject to the NIRC. there can be no doubt that. NCC) In the present case. Are they liable for corporate income tax? A: No. (Pascual and Dragon v. each heir allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share. Joe transferred his rights under contract with Ortigas Co. 2. CIR. The 2 isolated transactions where they purchased properties and sold the same a few years thereafter did not thereby make them partners. Instead. while as a rule. the first 2 were sold to Meirenir Development and 3 to Reyes and Samson. Are the heirs of the decedent subject to corporate income tax? A: Yes. there was no attempt made to divide the properties listed. (Obillos. 29. CIR. even if no document or instrument were executed for the purpose. at least. Thereafter. GR L-19030. They divided the profits between the 2 of them. The BIR decided that the heirs formed an unregistered partnership and therefore subject to corporate income tax. Oct.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: Julia died leaving as heirs her surviving spouse. GR L19342. CIR. They protested the assessment and asked for reconsideration alleging that they are co-owners of the properties inherited and the profits derived from the transactions. or a tax on person’s income. Trinidad. 20. 1972) Q: Pascual and Dragon bought 2 parcels of land from Bernardino and 3 from Roque. It is not levied upon persons. It appears that they decided to sell it after they found it expensive to build houses. MASACAYAN & THEENA C. 1973. MARTINEZ SANTO TOMAS de Derecho Civil 45 . Q: What are the purposes of income tax? A: To: 1. GR 78133. (Oña. (Fisher v. Decide. either gross or net. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Instead of building houses. et al v. Provide large amounts of revenue Offset regressive sales and consumption taxes ACADEMICS CHAIR: LESTER JAY ALAN E. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. The BIR required the children to pay corporate income tax under the theory that they formed an unregistered partnership or joint venture. Q: What is the nature of income tax? A: It is generally regarded as an excise tax. the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment said common properties and/or the income derived therefrom are used as common fund with intent to produce profits. It is an isolated act which shows no intention to form a partnership. 1985) INCOME TAXATION Q: What is income tax? A: A tax on all yearly profits arising from property. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. To regard the children as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. emoluments. trade or business. Lorenzo and her five children. May 25. co-ownership is tax exempt. The transactions were isolated. TCTs were issued. profits and the like. The character of habituality peculiar to business transactions for the purpose of gain was not present. Oct. realized in one taxable year. A settlement of the estate was instituted in the CFI. profession. funds or profits but on the privilege of receiving said income or profit. v. From said investments and properties. the heirs derived income. to his 4 children to enable them to build residences on the lots. Oct. 18. the properties remained under the management of Lorenzo who used said properties by leasing or selling them and investing the income derived therefrom. There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. for tax purposes. A: No. 1922) Q: What is the basis of income tax? A: Income tax is based on income. the children are co-owners since they did not form a partnership. If after such partition. his children sold them to Walled City Securities Corporation and Olga Cruz Canda. 1769. 1988) Q: On 2 Mar. The project partition was approved by the court however. GR L-68118. an unregistered partnership is formed and therefore subject to corporate income tax. there is clear evidence of coownership between the petitioners.

is it income? A: No. Q: What kinds of income are subject to graduated rates? A: 1. dividend income. SUBJECT HEAD: RODOLFO N. property itself. lawyers.UST GOLDEN NOTES 2011 3. whether as payment for services. Passive Income – income in which the taxpayer merely waits for the amount to come in. Who pays the tax Income tax is paid by the Property tax is paid by the earner. Rafferty. It emanates from its partnership in the production of income by providing the protection. by a progressive scheme of taxation (Madrigal v. July 31. but not limited to. (Madrigal v. but not limited to interest income. Compensation income Business and professional income Capital gains not subject to capital gains tax Passive income not subject to final tax Other income Q: Assuming Mr. interest or profit from investment. HERNANDEZ. MEMBERS: JOSE DUKE BAGULAYA. 4. L-18169. Aug. GRANTOZA. RR No. 1992) Q: How does “income” differ from “capital”? A: Capital Constitutes the investment which is the source of income Is the wealth Is the tree Fund Income Any wealth which flows into the taxpayer other than a mere return of capital Is the service of wealth Is the fuit Flow Q: What is the State Partnership Theory? A: It is the basis of the government in taxing income. 8. winnings prizes. GR 48532. Aug. G. ANG JR. KEITH S. which includes. Q: Is payment by mistake considered income for tax purposes? 46 TAXATION LAW TEAM: ADVISER: ATTY. owner of the property. ORTIZ & VANNESSA ROSE S. farming and long-term contracts. selling merchandise. Capital Gain – gain from dealings in capital assets. 31. which includes. 1918) An income is an amount of money coming to a person or corporation within a specified time. SUBJECT HEADS: EDISON U. (Sec. 8. Aug. 1918) specified. Definition of Income Q: What is income? A: It refers to all wealth which flows into the taxpayer other than as mere return of capital. CHRISTINE L. a recurrent basis. 4. Frequency of taxation Income is taxed only Property may be taxed on once. GR 12287. the fees of CPAs. manufacturing products. L18262 & L-21434. Lednicky.2) Income is a flow of service rendered by capital by payment of money from it or any benefit rendered by a fund of capital in relation to such fund through a period of time. DIVINE C. 2. CLARABEL ANNE R. (CIR v. GUTIERREZ. income means cash or its equivalent.. because income is other than a mere return of capital. TEE. royalty income. INCOME TAX (Madrigal v. Compensation Income – income derived from rendering of services under an employer-employee relationship Professional Income – fees derived from engaging in an endeavor requiring special training as professional as a means of livelihood. Business Income – gains or profits derived from rendering services. Rafferty. PRUDENCE ANGELITA A. It includes the forms of income specifically described as gains and profits. resources. 3. 2. 38 Phil. ASST. 1964) Q: Distinguish income tax from property tax. GR 12287. 5. How measured Income tax is measured Property tax is measured by the amount of income by the value of the received over a period of property at a particular time date. R withdraws money from his bank account. 414) Q: What are the types of taxable income? A: 1. 3. A: PROPERTY TAX Incidence The incidence of an The incidence of a income tax falls on the property tax is on the earner. Rafferty. Unless otherwise 5. LACSINA. including gains derived from the sale or other disposition of capital assets. KASALA. 36. (Conwi v. VALCOS .R. Nos. Mitigate the evils arising from the inequality in the distribution of income and wealth which are considered deterrents to social progress. CHARLES L. engineers and the like. incentive and proper climate for such production. CIR.

FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. and b. Jan. CIR) 3. (Manila Mandarin Hotels. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Burnet. Flow of Wealth Test – The determining factor for the imposition of income tax is whether or not any gain or profit was derived from the transaction. and 4. v. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Javier. payment by mistake is not taxable except if the recipient received material benefit out of the erroneous payment. There must be Gain or profit. MASACAYAN & THEENA C. A: No. ACADEMICS CHAIR: LESTER JAY ALAN E. Inc. CIR. Apr. Macomber. Aug. (CIR v. stock and other form. 1991) Note: In CIR v. 32 A [1] compensation for services can be in whatever form paid. Administratix of the Estate of Echarri. whether in cash or its equivalent. The gain must be Realized or received. (CIR v. since it is an unrealized increase in capital. July 31. Q: Is the mere increase in the value of property considered income? 7. 417 [1932]) Q: Are security advances and security deposits paid by a lessee to a lessor considered income for tax purposes? A: No. property. the amount received by the lessor as security advances or deposits will eventually be returned to the lessees. Javier the issue raised was the imposition of the 50% fraud penalty and not the income taxation of money received through mistake. not the form. can we not consider it as taxable gain? A: Under Sec. 286 U. 252 US 189 [1920]) Net Effect Test – The substance of the whole transaction. 25. GR L-28398. such is taxable. Economic-benefit Principle – Taking into consideration the pertinent provisions of law. 2. (Collector v. A: As a general rule. 4806. 6. 6. SABUGO & JOHN HENRY C. XPN: If the income under trust may be disposed of by the trustee without limitation or restriction such amount is taxable.S. 1939) Realization Test – Unless income is deemed realized. MARTINEZ SANTO TOMAS de Derecho Civil 47 . usually controls the tax consequences. hence the lessor did not earn gain or profit therefrom. (Eisner v. Revenue is generally recognized when both conditions are met: a. The gain must not be Excluded by law or treaty from taxation. 19. Claim of Right Doctrine – A taxable gain is conditioned upon the presence of a claim of right to the alleged gain and the absence of a definite unconditional obligation to return or repay. kind. 1996) Q: Suppose the gain or profit is in the nature of property or in kind. Manning. Q: Is income held in trust for another taxable? A: GR: It is not taxable since the trustee has no free disposal of the amount thereof 2. The earning process is complete or virtually complete. GR 78953. then there is no taxable income. GR 45544. (Tourist Trade and Travel v. 1975) Q: What are the tests in determining whether income is earned for tax purposes? A: 1. income realized is taxable only to the extent that the taxpayer is economically benefited.NATIONAL INTERNAL REVENUE CODE OF 1997 3. Q: What are the requisites for income to be taxable? A: REG 1. CTA Case No. although not then actually reduced to possession. Severance Test – Income is recognized when there is separation of something which is of exchangeable value. Principle of Constructive Receipt of Income – Income which is credited to the account of or set apart for a taxpayer and which may be drawn upon by him at any time is subject to tax for the year during which so credited or set apart. Therefore whether paid in cash. (North American Consolidated v. 5. An exchange has taken place. Q: What then is the tax basis? A: It is the value of the property in cash under the doctrine of cash equivalent in taxation.

Q: What are the methods for determining the percentage for completion of a contract? A: 1. Cash Method – recognition of income and expense dependent on inflow or outflow of cash. (Sec. CHRISTINE L. Issuance by the debtor of a notice to offset any debt or obligation and acceptance therepf by the seller as payment for services rendered c. Actual receipt – income may be actual receipt or physical receipt. It is the right to receive and not the actual A: In case of long-term contracts. CIR) Q: Distinguish Actual and Constructive Receipt A: 1. and expenses are allowed as deductions when incurred. If no such method has been so employed by the taxpayer. PRUDENCE ANGELITA A. Inc. Deposit in banks which are made available to the seller of services without restrictions b. The earning process is complete or virtually complete 2. XPN: Computation shall be made in such method as in the opinion of CIR clearly reflects the income: 1. v. The costs incurred under the contract as of the end of the tax year are compared with the estimated total contract costs. Interest coupons that have matured and are payable but have not been encashed e. CLARABEL ANNE R. KASALA. 2. DIVINE C. or The work performed on the contract as of the end of the year is compared with the estimated work to be performed. LACSINA. Q: What is percentage of completion? Methods of Accounting Q: What are the methods of accounting in computing net income? A: 1. revenue is generally recognized when both of the following conditions are met: 1. Q: What is Deferred Payment? A: Initial payments exceed 25% of the gross selling price and such transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale. GRANTOZA.108-A.UST GOLDEN NOTES 2011 Q: What are the conditions in the realization of income? A: Under the realization principle. An exchange has taken place (Manila Mandarin Hotels. Constructive receipt – occurs when money consideration or its equivalent is placed at the control of the person who rendered the service without restriction by the payor. 2. SUBJECT HEADS: EDISON U. although not yet paid. KEITH S. 4. ASST. installation or construction contracts covering a period in excess of one year. ORTIZ & VANNESSA ROSE S. Undistributed share of a partner in the profits of a general partnership receipt that determines the inclusion of the amount in the gross income. NIRC) Q: When is installment payment used? A: Installment method is appropriate when collections extend over relatively long periods of time and there is a strong possibility that full collection will not be made. persons whose gross income is derived from such contracts shall report such income upon the basis of percentage of completion. SUBJECT HEAD: RODOLFO N. HERNANDEZ. RR 16-2005) Examples of income constructively received: a. MEMBERS: JOSE DUKE BAGULAYA. Accrual Method – gains and profits are included in gross income when earned whether received or not. 43. Q: How is the income of a taxpayer computed? A: GR: Net income shall be computed in accordance with the method of accounting regularly employed in the books of the taxpayer.. GUTIERREZ. 2. Q: What are long-term contracts? A: Long-term contract means building. (Sec. Transfer of the amounts retained by the payor to the account of the contractor d. CHARLES L. 48 TAXATION LAW TEAM: ADVISER: ATTY. If the method of accounting employed does not clearly reflect the income. ANG JR. VALCOS . 2. TEE.

Punitive damages representing profit lost. 5. Annuities 9. the fees of CPAs. lawyers. Compensation for services in whatever form paid. Compensation Income . which includes. 8. Salaries and employee benefits of personnel. Prizes and winnings. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Gross income derived from the conduct of trade or business or the exercise of a profession. consultants. Therefore the source is immaterial – whether derived from illegal. 6. royalty Q: What comprises cost of services? A: All direct costs and expenses necessarily incurred to provide the service required by the customers and clients including: 1. salaries.NATIONAL INTERNAL REVENUE CODE OF 1997 GROSS INCOME Q: What is gross income taxation? A: It is a system of taxation where the income is taxed at gross. which means Gross Sales less Sales Returns. 4. CTA case) Q: What comprises cost of goods sold? A: It includes all business expenses directly incurred to produce the merchandise and bring them to their present location such as direct labor. 3.R2DAP3] 1. Partner’s distributive share from the net income of the general professional partnership. Amount received by mistake. materials and overhead expenses. Discounts. NIRC) The above enumeration can be simplified into 5 categories: 1. 2. and specialists directly rendering the service 2. Gains from Dealings in Property – It includes all income derived from the disposition of property whether real. under Sec.income derived from rendering of services under an employer-employee relationship. (Gutierrez v. wages. farming and long-term contracts. 6. Interests. gross income means all income derived from whatever source. As such. Cost of facilities directly utilized in providing the service (Sec. Q: What is income from whatever source? A: All income not expressly excluded or exempted from the class of taxable income. (Sec. 32 (A) of the NIRC. Royalties. NIRC) Note: Gross income under Sec. legal. Passive Income . and Allowances and Cost of Goods Sold. including. irrespective of the voluntary or involuntary action of the taxpayer in producing the income. and 11. Treasure found. 7. Receipt of usurious interest. but not limited to. personal or mixed. 8. (Sec. income. Taxes paid and claimed as deduction subsequently refunded. 3.fees derived from engaging in an endeavor requiring special training as professional as a means of livelihood. Q: What is the definition of “gross income” under the NIRC? A: Except when otherwise provided. Rents. Gains derived from dealings in property. 5. commissions and similar items. 27 E [4]. MASACAYAN & THEENA C. but not limited to fees. income includes the following among others: 1. 2. gross income means all income derived from whatever source. Professional Income . Bad debt recovery. The taxpayer under this system is not entitled to any deduction. 32 [A]. 5. 2. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Q: Is the enumeration exclusive? A: No. Business Income . Cancellation of the taxpayer’s indebtedness. including (but not limited to) to the following items: [CG2I. which includes. dividend income. Pensions. 4. it is taxable. 3. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. NIRC) ACADEMICS CHAIR: LESTER JAY ALAN E. engineers and the like. CIR. prizes and winnings.income in which the taxpayer merely waits for the amount to come in. 7. 4. selling merchandise. 27 [A]. but not limited to interest income. 10. manufacturing products. or immoral sources. Illegal gains. Dividends. MARTINEZ SANTO TOMAS de Derecho Civil 49 . 32 is different from the limited meaning of Gross Income for purpose of Minimum Corporate Income Tax (MCIT).gains or profits derived from rendering services. SABUGO & JOHN HENRY C.

. gambling winnings. Thus. under the “claim of right doctrine. the income may proceed from a legal or illegal source such as from jueteng. the amount withheld is paid to the government on its behalf. Gain on the sale of a car used for personal purposes. June 8. Q: Congress enacted a law imposing a 5% tax on the gross receipts of common carriers. exemptions and tax credit Does away with wastage Tax audit minimizes of manpower and fraud supplies Q: Explain briefly whether the following items are taxable or non-taxable: 1. the same forms part of its gross receipts. CIR. Bank of Commerce. A: GROSS INCOME NET INCOME As to deductions Allows no deductions Allows deductions As to exemptions Grants no exemptions Grants exemptions As to tax base Gross Income Net Income Advantages/Disadvantages Confusing and complex Simplifies the income tax process of filing income system tax return Substantial reduction in corruption and tax Vulnerable to corruption evasion as the exercise on account of margin of of discretion. KEITH S. is deductions dispensed with Provides equitable More administratively releifs in the form of feasible deductions. Manning. A: 1.UST GOLDEN NOTES 2011 Q: Is money received under payment by mistake. exchange or other disposition of property to the government of real property is taxable. 32 [A]. authorized for such types of income by the NIRC or other special laws. CHARLES L. After all. (CIR v. 1975) Taxable.GR 149636. 1965) Q: Define “gross receipts. Unlawful gains. NIRC) interpreted as all income not expressly excluded or exempted from the class of taxable income. 2. Moreover. Q: What is taxable income or net income? A: All pertinent items of gross income specified in the NIRC. Income from jueteng. income subject to income tax? A: Income paid or received through mistake may be considered as “income from whatever source derived” irrespective of the voluntary or involuntary action of the taxpayer in producing income. 2005) (2006 Bar Question) Q:What is net income taxation? A: It is a system of taxation where the income subject to tax may be reduced by allowable deductions. 3. 65. HERNANDEZ. In 2007. after deducting the 20% final withholding tax from its time deposits with the bank. ORTIZ & VANNESSA ROSE S. (CIR v. ASST. Gain arising from expropriation of property. LACSINA. 6. if any. Taxable. GR L-28398. GRANTOZA. irrespective of the voluntary or involuntary action of the taxpayer in producing the income. Taxes paid and subsequently refunded 4. PRUDENCE ANGELITA A. SUBJECT HEADS: EDISON U. for gross income includes "all income derived from whatever source. DIVINE C. etc. Express Transport earned P1 Million interest. The fact that it did not actually receive the amount does not alter the fact that it is remitted for its benefit in satisfaction of its tax obligations. in satisfaction of its withholding taxes. MEMBERS: JOSE DUKE BAGULAYA. ANG JR. SUBJECT HEAD: RODOLFO N. GUTIERREZ. It includes taking by the government through condemnation proceedings. TEE. The NIRC stands as an indifferent neutral party on the matter of where the income comes from. less the deductions and/or personal and additional exemptions. CHRISTINE L. CTA Case No. to allow or discretion in the grant of disallow deductions. Aug. The term “gross receipts” is broad enough to include income not physically rendered but constructively received by the taxpayer. CLARABEL ANNE R.” Express Transport a bus company has time deposits with ABC Bank. are subject to income tax. 2.” the recipient even if he has the obligation to return the same has a voidable title to the money received through mistake.” A: The term includes all income whether actually or constructively received. (Guttierez v. The law does not define the term “gross receipts. Q: Distinguish gross income from net income. Recovery of bad debts previously charged off. 5. VALCOS . KASALA. for sale. 31. The BIR wants to collect a 5% gross receipts tax on the interest income of Express Transport without deducting the 20% final withholding tax." (Sec. Since the income is withheld is an income owned by Express Transport. 50 TAXATION LAW TEAM: ADVISER: ATTY. Is the BIR correct? A: Yes. Aug.

his receipt from swindling was similar to a loan. SABUGO & JOHN HENRY C. The income tax applies only to legal income. Recovery of bad debts previously allowed as deduction in the preceeding years shall be included as part of the gross income in the year of recovery to the extent of the income tax benefit of said deduction. Lao’s liability to pay the tax is based on his having realized a taxable income from his swindling activities and will not affect his obligation to make restitution. Sec. Q: Lao is a big-time swindler. 5.78. (Sec. the CIR assessed him a deficiency income tax for such income.NATIONAL INTERNAL REVENUE CODE OF 1997 (Gonzales v. 34 E [1]. (James v. (1995 Bar Question) 3. If he has to pay the deficiency income tax assessment there will be hardly anything left to return to the victims of the swindling. It will not necessarily be paid out of the same income that was subjected to the tax. NIRC) This is sometimes referred as the Recapture Rules. 1. Taxable. because for every peso borrowed he has a corresponding liability to pay one peso.1. Payment of the tax is a civil obligation imposed by law while restitution is a civil liability arising from a crime. May 26. it is considered as a capital asset hence the gain is considered income. hence. Taxable. even though it may still be claimed that he is not entitled to retain the money. since the car is used for personal purposes. MASACAYAN & THEENA C. 32 A [3] and Sec. The lawyer of Lao protested the assessment on the following grounds: 1. 4. express or implied. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. he has received taxable income. 39 A [1]. When the CIR discovered his income from swindling. 2. lawfully or unlawfully. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. of an obligation to repay and without restriction as to their disposition. which is not income. and 3. 32 of the NIRC includes within the purview of gross income all Income from whatever source derived. In one year he was able to earn P1 Million from his swindling activities. RR 2-98) ACADEMICS CHAIR: LESTER JAY ALAN E. by embezzlement.. MARTINEZ SANTO TOMAS de Derecho Civil 51 . 34 C [1]. 1965) 2. How will you rule on each of the three grounds for the protest? A: 1. (Sec.S. Hence. not to illegal income. (Sec. It shall be included as part of gross income in the year of the receipt to the extent of the income tax benefit of said deduction. 3. Lao's receipts from his swindling did not constitute income because he was under obligation to return the amount he had swindled. 2. When a taxpayer acquires earnings. Taxable under the tax benefit rule. CTA. Income from sources within the Philippines Income from sources without the Philippines Income from sources partly within or partly without the Philippines Compensation Income Q: What is compensation income? A: It includes all remuneration for services rendered by an employee for his employer unless specifically excluded under the NIRC. GR L-14532. (Sec. To treat the embezzled funds as not taxable income would perpetuate injustice by relieving embezzlers of the duty of paying income taxes on the money they enrich themselves with. while honest people pay their taxes on every conceivable type of income. 202 US 401 [1906]) The deficiency income tax assessment is a direct tax imposed on the owner which is an excise on the privilege to earn an income. NIRC) Not taxable if the taxes refunded were not originally claimed as deductions. and even though he may still be adjudged to restore its equivalent. 2. 3. NIRC) (2005 Bar Question) tax thereon. the illegality of the income will not preclude the imposition of the income Q. U. if the taxes were paid and subsequently claimed as deduction and which are subsequently refunded or credited. without the consensual recognition. What are the classifications of income as to source? A.

1. to an individual employee. taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax.33 [B]. The general partner rendered services and the payment is in the form of a share in the profits is not within the meaning of compensation income because it is derived from the exercise of profession classified as professional income. Payment is for such Services rendered. and other income of a similar nature constitute compensation income. DIVINE C. RR 2-98) Q: What is the test to determine whether an income is compensation or not? A: The test is whether such income is received by virtue of an employer-employee relationship.UST GOLDEN NOTES 2011 The name by which the renumeration for services is designated is immaterial. LACSINA. at the same time. salaries. (Sec. an employee of the employer/ corporation. Q: Give an instance that payment is made for services rendered yet it may not qualify as compensation income. VALCOS . Expense account 3. A: Fringe benefit is any good. entertainment and the like). Thus. representation. honoraria. Holiday and vacation expenses. Q: Is the payment for the services rendered by an independent contractor considered as compensation income? A: No. XPN: When given to rank and file employees. if the director is.78. GUTIERREZ. Payment is Reasonable. 9. CHRISTINE L. (Sec. Household personnel such as maid. NIRC. commissions (i. Expenses for foreign travel 8. such as but not limited to: HEV-HIM-HEEL 1. taxable pensions and retirement pay. emoluments.e. service or other benefit furnished or granted by an employer in cash or in kind in addition to basic salaries. ANG JR. Life or health insurance and other nonlife insurance premiums or similar amounts in excess of what the law allows (Sec. since there is no employer-employee relationship. dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations 7. Membership fees. CHARLES L. NIRC) 52 TAXATION LAW TEAM: ADVISER: ATTY. Personal services actually rendered. SUBJECT HEADS: EDISON U. Interest on loans at less than market rate to the extent of the difference between the market rate and the actual rate granted 6. MEMBERS: JOSE DUKE BAGULAYA. The test of control is absent. The income of the independent contractor is derived from the conduct of his trade or business which is considered as business income and not compensation income. CLARABEL ANNE R. Vehicle of any kind 4. TEE. 2. 2. 2. A: The share of a partner in a general professional partnership. driver and others 5. RR 3-98) Q: What are the notable distinctions between compensation income and fringe benefit? A: COMPENSATION INCOME FRINGE BENEFIT As part of gross income of an employee GR: Not reported as part of the gross income of an employee Part of the gross income of XPN: Fringe benefits an employee given to rank and file employees are included in his gross income As to who is liable to pay the tax Employer liable to pay Employee liable to pay the the fringe benefits tax tax on his income earned and can be deducted as business expense As to treatment Subject to creditable withholding tax – the employer withholds the Subject to Final Tax tax upon the payment of the compensation income Q: What is the treatment of fringe benefit? A: GR: Subject to final tax on the grossed-up monetary value of fringe benefits furnished or granted to the employee to be paid by the employer. Sec. except a rank and file employee. 33 [B]. GRANTOZA. KEITH S. wages. SUBJECT HEAD: RODOLFO N. Q: Define fringe benefit. Housing 2. 33. KASALA. transportation. ORTIZ & VANNESSA ROSE S. Q: What are the requisites for taxability of compensation income? A: PSR 1. and 3. ASST.. allowances. HERNANDEZ. PRUDENCE ANGELITA A. fees including director’s fees. it becomes part of their compensation income. Educational assistance to the employee or his dependents 10.

MASACAYAN & THEENA C. Note: Business is any activity that entails time and effort of an individual or group of individuals for purposes of livelihood or profit. Business/Trade/Professional Income Q: What comprises business income? A: It refers to income derived from merchandising. mining. NIRC) (2005 Bar Question) 3. manufacturing and farming operations. RR 3-98) Q: What does “gains derived from dealings in property” mean? A: It means all income derived from the disposition of property whether real. Note: Gain from sale or exchange of capital assets other than (1) real property and (2) shares of stock or securities not traded in the stock exchange are likewise included in the gross income. insurance and hospitalization benefit plans. personal or mixed for: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. (Sec.) What are to be reported in the annual income tax return are the capital gains derived from the disposition of capital assets other than real property or shares of stocks in domestic corporations which are not subject to final tax. Property. (Sec. Fringe benefits which are authorized and exempted from tax under special laws Contributions of the employer for the benefit of the employee to retirement. 2. 4. 33 [A]. A: A Fringe Benefit Tax (FBT) is imposed on the grossed-up monetary value of the fringe benefit furnished. business or profession of the employer When the fringe benefit is for the convenience of the employer. income realized from the sale of capital assets are not reported in the income tax return as they are already subject to final taxes (capital gains tax on real property and shares of stocks. upon recommendation of the CIR When the fringe benefit is required by the nature of. Benefits given to the rank and file employees. Sec. whether granted under a collective bargaining agreement or not. NIRC) Q: What are the kinds of fringe benefits that are not subject to the FBT? A: 1. and (2) ordinary assets. granted or paid by the employer to managerial and supervisory employees. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. included in the Income Tax Return. NIRC. 5. the profits or losses on the sale or the exchange of which are treated as capital gains or capital Q: What is professional income? A: It refers to the fees received by a professional from the practice of his profession. CAPITAL GAINS TAX Principles Q: Distinguish "capital asset" from "ordinary asset". Money. MARTINEZ SANTO TOMAS de Derecho Civil 53 .33 [C]. Q: State with reason the tax treatment of the following in the preparation of annual income tax returns: Income realized from sale of: (1) capital assets. 32. Generally. in case of sale 2. (Sec. 2. which results in gain Note: Gain is the difference between the proceeds of the sale or exchange and the acquisition value of the property disposed by the taxpayer. in case of exchange 3. 2. or necessary to the trade. 6. SABUGO & JOHN HENRY C. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance. those properties not specifically excluded in the statutory definition constitutes capital assets. This is known as Employer’s Convenience Rule. Income realized from sale of ordinary assets is part of Gross Income. 32 A [3]. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C.NATIONAL INTERNAL REVENUE CODE OF 1997 Gains Derived from Dealings in Property Q: Give the rule on taxation of fringe benefits received by different employees. Combination of both sales and exchange. ACADEMICS CHAIR: LESTER JAY ALAN E. A: The term capital asset is defined by an exclusion of all ordinary assets. provided that there is no employer-employee relationship between him and his clients. A: 1. Thus.

Naval bought a lot for P1 million in a subdivision with the intention of building his residence on it. SUBJECT HEADS: EDISON U. 3. A: Ordinary gain is a gain derived from the sale or exchange of ordinary assets such as SOUR while Capital gain is a gain derived from the sale or exchange of capital assets or property not Q: What are examples of ordinary assets? A: 1. Property held by the taxpayer primarily for sale to customers in the Ordinary course of trade or business 3. the units of which are for rent or for sale Machinery and equipment of a manufacturing concern subject to depreciation The motor vehicles of a person engaged in transportation business 2. HERNANDEZ. all those properties specifically excluded are considered as ordinary assets and the profits or losses realized must have to be treated as ordinary gains or ordinary losses. Alpha Corporation acquired the property in 2007 for P9 million. SUBJECT HEAD: RODOLFO N. CHRISTINE L. GRANTOZA. NIRC. RR 7-03) (2008 Bar Question) Q: Distinguish ordinary gain from capital gain. The condominium building owned by a realty company. Note: Properties classified as ordinary assets for being used in business other than real estate business are automatically converted into capital assets upon showing that the same have been used in business for more than two years prior to the consummation of the taxable transactions involving said properties. Q: May capital asset be reclassified as ordinary asset? 54 TAXATION LAW TEAM: ADVISER: ATTY. Juan agreed to exchange his agricultural lot in Laguna for a onehalf hectare residential property located in Batangas. What is the nature of the real properties exchanged for tax purposes . a domestic corporation engaged in the purchase and sale of real property.000. 2.000. ASST. (Sec. NIRC) (1995 Bar Question) Q: In Jan. ORTIZ & VANNESSA ROSE S. CLARABEL ANNE R. The one-half hectare residential property owned by Alpha Corporation is an ordinary asset because the owner is engaged in the purchase and sale of real property. Conversely. the zonal value was P500. Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year 2. "Capital assets" includes property held by the taxpayer whether or not connected with his trade or business. This property has a current fair market value of P10 million in view of the construction of a concrete road traversing the property. Real property used in trade or business of the taxpayer The statutory definition of "capital assets" practically excludes from its scope. CHARLES L. DIVINE C. with a fair market value of P10 million. At the time of the sale. (2003 Bar Question) Q: What are examples of capital asset? A: 1. 1970. 39 [A]. he abandoned his plan because the surrounding area became a depressed area and land values in the subdivision went down. 4. 39. Q: In 1990. KEITH S. (Sec. MEMBERS: JOSE DUKE BAGULAYA. PRUDENCE ANGELITA A. property initially classified as capital asset may thereafter be treated as an ordinary asset if a combination of the factors indubitably tends to show that the activity was in furtherance of or in the course of the taxpayer’s trade or business. Property Used in the trade or business of a character which is subject to the allowance for depreciation provided in the NIRC 4. KASALA. VALCOS . ANG JR. Accordingly. Juan bought 1 hectare of agricultural land in Laguna for P100. In 1994. Jewelries not used for trade or business Residential houses and lands owned and used as such Automobiles not used in trade or business Stock and securities held by taxpayers other than dealers in securities A: Yes. he sold it for P800.000.capital or ordinary asset? A: The one hectare agricultural land owned by Juan is a capital asset because it is not a real property used in trade or business. but the term does not include any of the following. owned by Alpha Corporation. Is the land a capital asset or an ordinary asset? A: The land is a capital asset because it is neither for sale in the ordinary course of business nor a property used in the trade or business of the taxpayer. 3.. GUTIERREZ. which are consequently considered as "ordinary assets": [SOUR] 1. all property held by the taxpayer if used in connection with his trade or business. LACSINA. instead.UST GOLDEN NOTES 2011 losses. TEE.

From Sale of Other Capital Assets . 2. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Shares of stock that are not traded through the stock exchange Capital Gains Included in Gross Income for Income Tax Purposes . not traded in the stock exchange or thru initial public offering As to Net Loss Carry Over Not allowed. From Sale of Stocks of Corporations – a. or ACADEMICS CHAIR: LESTER JAY ALAN E. 3. Could be availed. Stocks Not Traded in the Stock Exchange – subject to capital gains tax From Sale of Real Properties in the Philippines – capital gain derived is subject to capital gains tax but no loss is recognized because gain is presumed. Capital Loss is the loss that may be sustained from the sale or exchange of an asset not connected with the trade or business. Real property b. Q: Distinguish Actual Gain from Presumed Gain? A: Actual Gain – excess of the cost from a sale of asset. A: SUBJECT TO REPORTED IN FINAL TAX THE ITR As to deductions The capital gains are There is a fixed rate for aggregated with other the tax income to constitute Sale or Other Disposition of Real Property Q: Explain the tax treatment of sale or disposition of real property treated as capital asset.includes sale and other disposition of capital assets other than those enumerated above. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MARTINEZ SANTO TOMAS de Derecho Civil 55 . Capital loss may not exceed capital gains when used as a deduction to income. The gain is included in the gross income of the taxpayer.the rules on capital gains and losses apply in the determination of the amount to be included in gross income and not subject to capital gains tax. which is taxed at 6% of the selling price or fair market value. MASACAYAN & THEENA C. Capital Gains Subject to Final Tax usually imposed upon the sale. Q: Differentiate capital gain from capital loss. Stocks Traded in the Stock Exchange – subject to stock transaction tax of ½ of 1% on its gross selling price b. exchange or other disposition of: a. whichever is higher. Q: What are the kinds of capital gain under the provisions of the NIRC? A: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. SABUGO & JOHN HENRY C.NATIONAL INTERNAL REVENUE CODE OF 1997 connected with the trade or business of the taxpayer other than SOUR. Q: Distinguish capital gains subject to final tax from capital gains reported in the income tax return. The gross selling price. Presumed Gain – pressumtion of law that the seller realized gains. A: A final tax of 6% shall be imposed based on the higher amount between: 1. Q: Distinguish ordinary income from ordinary loss? A: Ordinary Income includes the gain derived from the sale or exchange of ordinary asset while Ordinary Loss is the loss that may be sustained from the sale or exchange of ordinary asset. A: Capital Gain includes the gain derived from the sale or exchange of an asset not connected with the trade or business. Q: What is the treatment of capital gains and losses? A: 1. 2. gross income subject to deductions As to actual gains GR: It does not matter whether or not capital gains are actually earned (presumed gains) There must be actual capital gains earned XPN:Disposition of shares not traded in the stock exchange or thru initial public offering As to holding period GR: Holding period is immaterial Holding period is XPN:Disposition of shares considered.

24 [D]. Other disposition. owned by Alpha Corporation. Effective Januray 1.. Note: Actual gain or loss is immaterial since there is a conclusive presumption of gain. A: Q: How is the tax treatment of disposition of real property deemed capital asset as to taxpayers liable therefrom? A: For individuals and corporations – The capital gains presumed to have been realized from the sale. Is Juan subject to income tax on the exchange of property? If so what is the tax base and what is the tax rate? Is Alpha Corporation subject to income tax on the exchange of property? If so what is the tax base and rate? 2. Q: What is the coverage of capital gains and losses in real estate property? A: It involves the sale or other disposition of real property classified as capital asset located in the Philippines by a non-dealer in real estate. NIRC) Yes. 2. SUBJECT HEAD: RODOLFO N.UST GOLDEN NOTES 2011 2. executed deeds of sale on various 56 TAXATION LAW TEAM: ADVISER: ATTY. MEMBERS: JOSE DUKE BAGULAYA. Q: What transactions are covered by the “presumed” capital gains tax on real property? A: It covers: 1. Sale. HERNANDEZ. and being a business income. Q: What is the tax treatment if property is not located in the Philippines? A: Gains realized from the sale. PRUDENCE ANGELITA A. Yes. ASST. 1970. (Sec. RR 7-2003) but subject to foreign tax credits. CHARLES L.f. (Sec. not located in the Philippines by resident citizens or domestic corporations shall be subject to ordinary income taxation (Sec. 4. CLARABEL ANNE R. ORTIZ & VANNESSA ROSE S. LACSINA. 24 D [1]. alien individuals and foreign corporations. 4. KASALA. (Sec. 24 D [1]. GUTIERREZ. 1. the gain from the exchange constitutes an item of gross income. it must be reported in the annual ITR of Alpha Corporation. 2009. RR 7-2003) Q: In Jan. deductions allowed by law from gross income can be claimed to arrive at the net income which is the tax base for the corporate income tax rate of 35%. NIRC) Batangas. Such income may be exempt in case of nonresident citizens.f. exchange or other disposition of real property. or b. the NIRC speaks of real property with respect to individual taxpayers. Zonal Value – prescribed zonal value of real properties as determined by the CIR. the said market value should be taken as the tax base which is P10million and the income tax rate is 6%. ANG JR. KEITH S. CHRISTINE L. including pacto de retro and other forms of conditional sales. estate and trust but only speaks of land and building with respect to domestic and resident foreign corporation. the corporate income tax rate is 30%. SUBJECT HEADS: EDISON U. Alpha Corporation acquired the property in 2007 for P9 million. or 3. (Sec. exchange or other disposition” includes taking by the government through expropriation proceedings. a domestic corporation engaged in the purchase and sale of real property. DIVINE C. 1. GRANTOZA. 27 D [5]. NIRC) (2008 Bar Question) 2. in a taxable disposition of a real property classified as capital asset the tax base is the higher between: the fair market value of the property received in exchange and the fair market value of the property exchanged. Assessed Value – the fair market value as shown in the schedule of values of the Provincial and City assessors (Sec. From the pertinent items of gross income. Q: A corporation. Juan agreed to exchange his agricultural lot in Laguna for a onehalf hectare residential property located in Note: The applicable tax rate to the case at bar is still 35% since it was taxed on 2007. This property has a current fair market value of P10 million in view of the construction of a concrete road traversing the property. with a fair market value of P10 million. (Sec. Whichever is higher between the current fair market value as determined by: a. Juan bought 1 hectare of agricultural land in Laguna for P100. NIRC) Note: As regards transactions affected by the 6% capital gain tax. engaged in real estate development. 24 D [1]. VALCOS . TEE. Since the fair market value of the two properties are the same.000. 27 [A] and Sec 31. NIRC) Note: “Sale. exchange or other disposition of real property located in the Philippines classified as capital assets. Exchange.

whichever is higher. bought a corner lot with a good view of the surrounding terrain. the realty company exchanged his lot with another corner lot with an equal area but affording a better view. Real property transactions subject to capital gains tax are not limited to sales but also exchanges of property unless exempted by a specific provision of law. Upon inspection. after going around the subdivision. 4. Is the buyer liable for capital gains tax on the exchange of the lots? A: Yes. 21 [e]. and the title to the property was issued. 3. the portion of the gains presumed to have been realized shall be subject to capital gains tax. is the transaction subject to capital gains tax? A: Yes. whichever is higher (Sec. (2001 Bar Question) Q: What is the treatment of gains from sale to the government of real property classified as capital asset? A: The taxpayer has the option to either: 1. He claims that he should not be made to pay the 6% final tax because he did not have any actual gain on the sale.000 which was then the fair market value of the land. By a citizen or resident alien. the buyer is subject to capital gains tax on the exchange of lots on the basis of prevailing fair market value of the property transferred at the time of the exchange or the fair market value of the property received. 24 [D]. (RR No. 5. He paid P1. the said individual intends to return. 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. where the individual and members of his family reside. Q: If the taxpayer constructed a new residence and then sold his old house. certification from Barangay Chairman or Building Administrator (for Condominium units) shall suffice.2 million. sold in the year 2000 a parcel of land which he bought as a form of investment in 1990 for P1 million. or 2. Notify the CIR within 30 days from the date of sale or disposition through a prescribed return of his intention to avail the tax exemption. Proceeds from which is utilized in acquiring or constructing a new principal residence within 18 calendar months from the date of sale or disposition. MASACAYAN & THEENA C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. When he complained. his colleague and at a time when the real estate prices had gone down. 6. Actual occupancy is not considered interrupted or abandoned by reason of temporary absence due to travel or studies or work abroad or such other similar circumstances. the value of the lot appreciated to a market value of P1. however. and the buyer decided to build his house thereon. he discovered that a huge tower antenna had been erected on the lot frontage totally blocking his view. 24 [D]. One buyer. The historical cost or adjusted basis of his old principal residence shall be carried over to the cost basis of his new principal residence. If there is no full utilization. Is his contention correct? A: No. 14-00) Q: What is a principal residence? A: It refers to the dwelling house. sale of principal residence by an individual is exempt provided the following requisites are present: 1. the 6% capital gains tax on sale of a real property held as capital asset is imposed on the income presumed to have been realized from the sale which is the fair market value or selling price thereof. 2. NIRC). for only P800. 7. exemption from capital gains tax does not find application since the law is clear that the proceeds should be used in acquiring or constructing a new principal residence. A year later. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. (RR No. NIRC) Q: Is the sale of principal residence by an individual subject to capital gain tax? A: No.6 million. Can be availed of once every 10 years. Thus. the ACADEMICS CHAIR: LESTER JAY ALAN E. He used the proceeds to finance his trip to the United States. including the land on which it is situated. then subject to the schedular tax. a doctor by profession.NATIONAL INTERNAL REVENUE CODE OF 1997 subdivided lots. The land was sold to B. If the taxpayer is not required to file a return. (Sec. and whenever absent. and 8. 14-00) Note: The address shown in the ITR is conclusively presumed as the principal residence. (1997 Bar Question) Q: A. SABUGO & JOHN HENRY C. Sale or disposition of the old actual principal residence. MARTINEZ SANTO TOMAS de Derecho Civil 57 . NIRC) Actual gain is not required for the imposition of the tax but it is the gain by fiction of law which is taxable. (Sec. Include as part of gross income subject allowable deductions and personal exemptions. Subject to final tax of 6% on capital gains. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C.

Q: What is Holding Period? A: The length of time property is held by the taxpayer and it is from acquisition to alienation. Non-deductibility of losses on wash sales and short sales. LACSINA. 24 [C]. ASST. 1994) Note: If the stock is traded in the stock exchange. ORTIZ & VANNESSA ROSE S. 4. A: The holding period notwithstanding. (Sec. CTA Case No. The entire amount of capital gains and capital loss (not listed and traded in a local stock exchange) shall be considered without taking into account the holding period irrespective of the type/kind of taxpayer.the excess of the fair market value of the shares of stock SBE over the amount of money and the fair market value of the property. 4. bartered or exchanged is greater than the amount of money and/or fair market value . Q: Explain the tax treatment of sale of shares of stock considered as capital assets which are not traded in the stock exchange. In case the fair market value of the shares of stock sold. NIRC) Not over P100. Q: How is selling price determined? A: The following rules shall apply in determining the selling price: 1.the selling price shall be the sum of money and the fair market value of the property received. DIVINE C. ANG JR. 58 TAXATION LAW TEAM: ADVISER: ATTY. Dec.. if any. received as consideration shall be deemed a gift subject to the donor’s tax under the NIRC. (RR 6-2008) Q: What are the important features as regards capital gains from sale of shares of stock? A: 1. HERNANDEZ. 3. CHARLES L. 2. 2. 2. barter or exchange or other disposition of shares of stock in a domestic corporation which are not traded in the stock exchange. VALCOS . GRANTOZA. (Del Rosario v. Individuals – both citizens and aliens Corporations – both domestic and foreign Estates and Trusts Q: What is the controlling factor in sale of shares of stock? A: What is controlling is whether or not the shares of stock are traded in the local stock exchange and not where the actual sale happened.UST GOLDEN NOTES 2011 old residence should first be sold before acquiring or constructing the new residence. it is not subject to capital gain tax but to stock transaction tax of ½ of 1% on its gross selling price. 1. SUBJECT HEAD: RODOLFO N. CLARABEL ANNE R. TEE. PRUDENCE ANGELITA A. No capital loss carry-over for capital losses sustained during the year (not listed and traded in a local stock exchange) shall be allowed but capital losses may be deducted on the same taxable year only. MEMBERS: JOSE DUKE BAGULAYA. CIR.the selling price shall be the fair market value of the property received. Q: What is net capital gain? A: It is the excess of gains from the sales or exchanges of capital assets over the losses from such sales or exchanges.the selling price shall be the total consideration per deed of sale. KEITH S. Gain from sale of shares of stock in a foreign corporation are not subject to Sale of Shares of Stock of Domestic Corporation Q: What kind of shares of stock is subject to capital gains tax? A: Only those sales of shares of stock of a domestic corporation which is not listed or not traded in the stock exchange by a non-dealer in securities. GUTIERREZ. If the total consideration is partly in money and in kind . In the case of exchange . Q: What is the effect if the sale is made by a dealer in securities? A: The resulting gain or loss is considered as ordinary gain subject to graduated rates (5-32%) for individual and normal corporate income tax (30%) for corporations. SUBJECT HEADS: EDISON U. Q: Who are liable to pay capital gains tax on the sale of shares of stock not traded in the stock exchange? A: 1.000 …10% 3. a final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale.000 ……………………… 5% On any amount in excess of P100. CHRISTINE L. 3. KASALA. 4796. In the case of cash sale .

32% for individuals and the normal corporate income tax of 30% for corporations. is he liable for Philippine income tax? If so what is the tax base and rate? A: 1. he sold the shares of stock through his favorite Makati stockbroker at a gain of P200. 127 [A]. Q: What is the tax treatment of sale or exchange of other capital assets? A: The gains or losses shall be subject to the holding period. bought shares of stock in a domestic corporation whose shares are listed and traded in the Philippine Stock Exchange at the price of P2 Million. Consequently. the gain derived therefrom is taxable only to the extent of 50%. SABUGO & JOHN HENRY C. NIRC) Q: What is the significance in determining whether the asset is ordinary asset or capital asset? A: They are subject to different rules. MARTINEZ SANTO TOMAS de Derecho Civil 59 . the sale of shares of stocks of a domestic corporation held as capital. The net capital gain (excess of the gains from sales or exchanges of capital assets over the loss from such sales/exchanges) are included in the gross income of the taxpayer subject to the graduated rates of 5 . the seller is subject to the A: Where the capital asset sold has been held by the taxpayer for more than 12 months. The tax due would be P15. 1.NATIONAL INTERNAL REVENUE CODE OF 1997 capital gains tax but to graduated rates either as capital gain or ordinary income depending on the nature of the trade of business of the taxpayer. No. Owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange 4. and 2. Q: What is a Short Sale? A: Any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by. that a person shall be deemed to own securities only to the extent he has a net long position in such securities. There are special rules that apply only to capital transactions. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. or for the account of the seller. Net capital loss carry over (NELCO) Q: What is the holding period rule? percentage tax of ½ of 1% of the gross selling price. NIRC). Has purchased or entered into an unconditional contract binding on both parties thereto. (2008 Bar Question) ACADEMICS CHAIR: LESTER JAY ALAN E. 24 [D]. the whole gain shall be taxable. 2. NIRC). Has rights or warrant to subscribe to it and has exercised such rights or warrants provided however. at a gain of 200. (Sec.000 and 10% for any excess.000. Holding period rule 2. if the taxpayer held the capital asset sold for a year or less.000. to purchase it and has not yet received it 3. Real property located in the Philippines. Has an option to purchase or acquire it and has exercised such option 5. Or his agent has title to it 2. to wit: 1. the gain on the sale or disposition of shares of sock of a domestic corporation held as capital assets will not be subjected to income tax if these shares sold are listed and traded in the stock exchange (Sec. It is a form of tax avoidance Other Capital Assets Q: What are other capital assets? A: These include capital assets other than those: 1. US citizen residing in Makati City. a US citizen residing in Makati.000. Shares of stock of a domestic corporation which is not listed and not traded in the stock exchange. The tax rate is 5% for a net capital gain not exceeding P100. If John directly sold the shares to his best friend. A day after. after which the net capital gain is determined. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Q: When can one be said to own a security? A: A person shall be deemed the owner of a security if he: 1. Capital and loss limitation 3. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MASACAYAN & THEENA C. Yes. is subject to capital gains tax based on the net capital gain during the taxable year. 24 [C]. not through a trading in the local stock exchange. (Sec. However. Q: John. Is John subject to Philippine income tax on the sale of his shares through his stockbroker? Is he liable for any other tax? 2.

capital loss is deductible only to the extent of capital gain. It is not allowed to corporations. Q: What is the Rule on Matching Cost? A: Under this rule only ordinary and necessary expense are deductible from gross income or ordinary Income. Capital loss is a non-business connected expense as it can be sustained only from capital transactions. NIRC) Q: What is the Capital and Loss Limitation Rule? A: Under this rule. Net capital gain is the excess of capital gain over the capital loss. MEMBERS: JOSE DUKE BAGULAYA. sustains in any taxable year a net capital loss. the rate of income tax used is the corporate income tax although the taxpayer is an individual. Q: Can you deduct ordinary loss from ordinary gain and from capital gain? A: Yes for both cases. If there’s no capital gain. SUBJECT HEAD: RODOLFO N. 39 [b]. KASALA. another Filipino residing in Quezon City for P20 million. 2006. 10. ANG JR. On Feb. GRANTOZA. only 50% of the gain is recognized. (Sec. ORTIZ & VANNESSA ROSE S. The capital asset having been held for more than 12 months.UST GOLDEN NOTES 2011 since the taxpayer can exploit it in order to reduce his tax due. NIRC) Q: Who can avail the holding period rule? A: Only individual taxpayers can avail. LACSINA. other than a corporation.75 million. the BIR officer assessed Manalo for deficiency income tax computed as follows: P5 million (P20million less P15 million) x 35%= P1. 39 (D). the computation of the gain recognized from the sale did not consider the holding period of the asset. 39 [B]. Is the BIR officer’s tax assessment correct? A: No. Manalo filed the capital gains return and paid P1. SUBJECT HEADS: EDISON U. which he acquired in 2000 for P15 million. CHRISTINE L. KEITH S.2 million representing 6% capital gains tax. without the capital gains tax paid being allowed as tax credit. CLARABEL ANNE R. TEE. what does this mean? A: This means that you can only deduct capital loss from capital gain. NIRC) Q: What are the notable distinctions between NELCO and NOLCO? A: NET CAPITAL LOSS CARRY OVER (NELCO) NET OPERATING LOSS CARRY OVER (NOLCO) As to source Arises from capital Arises from ordinary transactions meaning transactions meaning involving capital asset involving ordinary asset As to who can avail Can be availed of by Can be availed of by individual and corporate individual taxpayer only taxpayer As to period of carry-over May be carried over only in the next succeeding taxable year Allows carry over of operating loss in 3 succeeding taxable years or in case of mining companies 5 years Q: What is net capital loss and net capital gain? A: Net capital loss is the excess of capital losses from capital gains. Filipino citizen residing in Makati City. HERNANDEZ. no income tax return was filed by him for 2006.75 million deficiency income tax. Q: Capital loss is deductible to the extent of capital gain. On Jan. no deduction is allowed because you cannot deduct capital loss from ordinary gain. owns a vacation house and lot in California. 60 TAXATION LAW TEAM: ADVISER: ATTY.. Q: What is the rule regarding expenses that may include losses? A: GR: Expenses that may include losses must be paid and claimed in the year the same is paid or incurred. (Sec. Q: What is the treatment of net capital loss carry-over (NELCO)? A: If any taxpayer. such loss (in an amount not in excess of the net income for such year) shall be treated in the succeeding taxable year as a loss from the sale or exchange of a capital asset held for not more than 12 months. VALCOS . DIVINE C. ASST. Second. (Sec. 2006. 9. GUTIERREZ. After the tax audit conducted in 2007. CHARLES L. Q: Manalo. PRUDENCE ANGELITA A. To allow that capital loss as a deduction from ordinary income would run counter to the rule on matching cost against revenue. first. Since Manalo did not derive any ordinary income. Manalo consulted a real estate broker who said that the P1. he sold said real property to Mayaman.2 million capital gains tax should be credited from the P1.

or extent of 100% less. 3. 4. MARTINEZ SANTO TOMAS de Derecho Civil 61 . no loss shall be recognized” means that if there is a gain it shall not be subject to tax and if there is a loss it shall not be allowed as a deduction. Instances where no gain or loss is recognized: 1.if the capital asset has been held for more than 12 months Deductibilty of capital losses Non-deductibility of Net Non-deductibility of Net Capital losses Capital losses Capital losses are allowed only to the extent of the capital gains. or 2. b. the net capital loss is not deductible. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. as a result of such exchange said person gains control of said corporation. 4. a party to the merger or consolidation. Transactions between related taxpayer – if there is a gain such is taxable while the loss is not deductible. 100% . Q: What is the exception? A: “No gain. note or certificate or other evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision) Q: What is the rule on the recognition of gain or loss in exchange of property? A: Upon the sale or exchange of property. A shareholder exchanges stock in a corporation which is a party to the merger or consolidation solely for the stock of a nother corporation. cash is also given in the transfer. and 2.NATIONAL INTERNAL REVENUE CODE OF 1997 XPN: In NELCO wherein such loss can be carried over in the next succeeding taxable year. The acquisition by one corporation of all or substantially all the properties of another corporation solely for stock provided that: a. sells any bond. In determining whether a bona fide business purpose exists each and every step of the transaction shall be considered and the whole transaction or series of Availability of NELCO NELCO allowed NELCO Not allowed Q: When is the rule “gain recognized. hence. Ordinary merger or consolidation. A corporation which is a party to a merger or consolidation exchanges property solely for stock in a corporation which is a party to the merger or consolidation. SABUGO & JOHN HENRY C. A: INDIVIDUAL CORPORATION Availability of holding period Holding period No holding period available Extent of recognition The percentages of gain or loss to be taken into account shall be the ff.if the capital assets Capital gains and losses have been held are recognized to the for 12 mos. debenture. If property is transferred to a corporation by a person in exchange for stock or unit of participation in such a corporation. A merger or consolidation must be undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation. When the transaction is not solely in kind that if aside from the property. 2. provided that stocks issued for services shall not be considered as issued in return for property. the entire amount of the gain or loss shall be recognized. also a party to the merger or consolidation. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C.one of the illegal trading services. Illegal transactions – illegal gain is taxable but illegal loss is not deductible. XPN: If any domestic bank or trust company. A security holder of a corporation which is aparty to the merger or consolidation exchanges his securities in such corporation solely for stock securities in another corporation. 50% .: 1. Q: Distinguish the treatment of capital gains and losses between individuals and corporations. Q: What is merger or consolidation for purposes of taxation? A: Merger or consolidation means: 1. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. ACADEMICS CHAIR: LESTER JAY ALAN E. loss not recognized” made applicable? A: 1. 2. 3. a substantial part of whose business is the receipt of deposits. Wash sale .

securities. Q: What is meant by Foreign Currency Deposit System? A: This “shall refer to the conduct of banking transactions whereby any person whether natural or judicial may deposit foreign currencies forming part of the Philippine international reserves. (Y). In determining whether the property transferred constitutes a substantial portion of the property of the transferor. Subject to final tax. MEMBERS: JOSE DUKE BAGULAYA. NIRC) Q: What is a deposit substitute? A: Under Sec. Certain passive income: a. or 2. NIRC) c. Subject to scheduler rates. A: Income subject to final tax refers to an income wherein the tax due is fully collected through the withholding tax system. CHARLES L. Q: What may be the subject of wash sale? A: It may be shares of stocks. 3. in Passive Income Subject to Final Tax Q: Define “passive income. LACSINA. Under this procedure. Cash and/or property dividends Capital gains from sale of shares of stock not traded in the stock exchange Capital gains from sales of real property (Sec. Q: What is the significance in determining whether a transaction is a wash sale or not? A: If the transaction is a wash sale. royalties. the gain is taxable and the loss is not deductible. Note: Loss from wash sales is merely an artificial loss and not actually sustained. VALCOS . 22. Q: What is control for recognition of gain or loss? A: It means ownership of stocks in a corporation possessing at least 51% of the total voting power of all classes of stocks entitled to vote. The seller can recover this loss through the subsequent sale of the same. ANG JR. Q: What is wash sales? A: It is a sale or other disposition of stock or securities where substantially identical securities are acquired or purchased within 61-day period. Interests. including stock options. beginning 30 days before the sale and ending 30 days after the sale. XPN: When the sale was made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the business of such dealer. GRANTOZA. the loss can be recovered. DIVINE C. ORTIZ & VANNESSA ROSE S. 24. ASST. SUBJECT HEADS: EDISON U. losses from such sale is deductible. Q: What are the classifications of passive income? A: Passive income may either be: 1. 2. Q: What is meant by “income subject to final tax?” Give at least two examples of income of resident individuals that is subject to the final tax. KEITH S. (Sec.UST GOLDEN NOTES 2011 transactions shall be treated as a single unit. CHRISTINE L. deposit substitute shall mean an alternative form of obtaining funds from the public (20 or more lenders) other than deposits. PRUDENCE ANGELITA A. The recipient is no longer required to include the item of income subjected to "final tax" as part of his gross income in his income tax returns. 38. royalties. Examples of income subject to final tax are dividend income. prizes and other winnings b. the payor of the income withholds the tax and remits it to the government as a final settlement of the income tax due on said income. SUBJECT HEAD: RODOLFO N. GUTIERREZ. In effect. interest from bank deposits. HERNANDEZ. (2001 Bar Question) Q: What are the passive incomes that are subject to final tax under the NIRC? A: 1. CLARABEL ANNE R. KASALA. So there is really no loss incurred or sustained as it is a mere artificial loss.” 62 TAXATION LAW TEAM: ADVISER: ATTY.. A: Passive income refers to income derived from any activity on which the taxpayer has no active participation or involvement. Q: How are losses from wash sales treated? A: GR: Losses from wash sales are not deductible. the term “property” shall be taken to include the cash assets of the transferor. TEE.

NATIONAL INTERNAL REVENUE CODE OF 1997
accordance with the provisions of RA 6426, An Act Instituting a Foreign Currency Deposit System in the Philippines, and for other purposes.” Q: What is the tax treatment of the following interest on deposits with: 1. BPI Family Bank? 2. A local offshore banking unit of a foreign bank? A: 1. 2. It is a passive income subject to a withholding tax rate of 20%. It is a passive income subject to final withholding tax rate of 7.5%. (Sec. 24 B [1], NIRC) Both interests are not to be decalred as part of gross income in the income tax return. (2005 Bar Question) Q: Is tax on income and dividends amount to double taxation? A: No, tax on income is different from tax on dividend because they have different tax basis. (Afisco Insurance Companies v. CA, GR 1123675, Jan. 25, 1999)
Note: Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholders whether individual or corporate, is a taxable income or deductible loss, as the case may be. (Sec. 73 [A], NIRC)

Q: When is the reckoning point in taxing the dividend? A: The reckoning point is the time of declaration and not the time of payment of dividends as it is taxable whether actually or constructively received. Q: Is the receipt of stock dividend taxable?

Q: Distinguish the 20% final withholding tax on interest income from the 5% gross receipts tax on banks. A:
20% FWT on Interest Income It is an income tax under Title II of the NIRC (Tax on Income) 5% Gross Receipts Tax on Banks It is a percentage tax under Title V (Other Percentage Taxes) GRT is measured by a certain percentage of the gross selling price or gross value of money of goods sold, bartered or imported; or the gross receipts or earnings derived by any person engaged in the sale of services GRT is not subject to withholding

A: GR: No, stock dividends, strictly speaking, represent capital and do not constitute income to its recipient. So that the mere issuance thereof is not subject to income tax as they are nothing but enrichment through increase in value of capital investment. XPNs: 1. These shares are later redeemed for consideration by the corporation or otherwise conveyed by the stockholder to the extent of such corporation. 2. The recipient is other than the shareholder. 3. If the stock dividend issuance resulted in a change in the shareholders’ equity. 4. Stock dividends equivalent to cash or property resulting in a change of ownership and interest of the shareholders. (Sec. 24 B [2]; 25 A, B; 28 B [5] b, NIRC) Q: What are disguised dividends in income taxation? A: Disguised dividends are those income payments made by a domestic corporation, which is a subsidiary of a non-resident foreign corporation, to the latter ostensibly for services rendered by the latter to the former, but which payments are disproportionately larger than the actual value of the services rendered. In such case, the amount over and above the true value

FWT is imposed on the net income or gross income realized in a taxable year

FWT is subject to withholding

Q: Maribel, a retired public school teacher, relies on her pension from the GSIS and the Interest Income from a time deposit of P500,000 with ABC Bank. Is Maribel liable to pay any tax on her income? A: Maribel is exempt from tax on the pension from the GSIS (Sec. 28 b [7] F, NRC). However, with her time deposit, the interest she receives thereon is subject to 20% final withholding tax. Q: Define dividend. A: Dividend is any distribution made by a corporation to its shareholders out of its earnings or profits and payable to its shareholders, whether in money or in other property.

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

SANTO TOMAS de Derecho Civil

63

UST GOLDEN NOTES 2011
of the service rendered shall be treated as a dividend, and shall be subjected to the corresponding tax of 35% on Philippine sourced gross income, or such other preferential rate as may be provided under a corresponding Tax Treaty. E.g., Royalty payments under a corresponding licensing agreement. (1994 Bar Question).

Q: Give the summary rules on the tax treatment of certain passive income as applied to individuals. A:
RC Sources Of Income NATURE OF INCOME INTEREST On interest on currency bank deposits, yield or other monetary benefits from deposit substitutes, trust funds & similar arrangements. XPN: If the depositor has an employee trust fund or accredited retirement plan, such interest income, yield or other monetary benefit is exempt from final withholding tax. Interest income under the Expanded Foreign Currency Deposit System. Note: If the loan is granted by a foreign government, or an International or regional financing institution established by governments, the interest income of the lender shall not be subject to the final withholding tax. Interest Income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the BSP 20% 20% 20% 20% 25% Within and without NRC Within RA Within TAX RATE NRAETB Within NRA NETB Within

7.5%

Exempt

7.5%

Exempt

Exempt

Held for: 5 years or more – exempt 4 years to less than 5 years – 5% 3 years to less than 4 years – 12% Less than 3 years – 20%

25%

DIVIDEND Dividend from a DC or from a joint stock company, insurance or mutual fund company and regional operating headquarters of a multinational company; or on the share of an individual in the distributable net income after tax of partnership (except that of a GPP) of which he is a partner, or on the share of an individual in 10% the net income after tax of an association, a joint account or joint venture or consortium taxable as a corporation of which he is a member of co-venturer. ROYALTY INCOME Royalties on books, literary works and musical composition. 10% Other royalties (e.g. patents and franchises) 20% PRIZES AND WINNINGS Prizes exceeding P10,000 20% Winnings 20% Winnings from Philippines Charity sweepstakes and lotto Exempt winnings

10%

10%

20%

25%

10% 20% 20% 20% Exempt

10% 20% 20% 20% Exempt

10% 20% 20% 20% Exempt

25% 25% 25% 25% Exempt

Note: For corporations, the tax rate is also 20% without any distinction as to royalties. Thus, even books and other literary works and musical compositions shall be subject to 20% tax. Moreover, prizes and other winnings (except Philippine Charity Sweepstakes and Lotto winnings) of corporations are not subject to final tax but included as part of their gross income.

64

TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

NATIONAL INTERNAL REVENUE CODE OF 1997
Interests Q: What is interest income? A: It is the amount of compensation paid for the use of money or forbearance from such use. Q: How is interest income taxed? A: Interest income is considered as passive income subject to final tax.
Note: Tax rate is seen on the table provided.

Dividend Income Q: What is dividend income? A: Dividend income is a corporate profit set aside, declared and distributed by the board of director of a corporation to be paid to stockholders on demand or at a fixed time. Q: How is dividend income taxed? A: Dividend income is considered as passive income subject to final tax.
Note: Tax rate is seen on the table provided.

Q: As a rule, interest income is taxable. What are the exceptions? A: Interest Income: [FIL2D] 1. On bank deposit maintained under the expanded Foreign currency deposit. 2. On bonds, debentures, and other certificate of Indebtedness received by any of the above mentioned entities. 3. On Loans extended by any of the above mentioned entities. 4. From Long term investment or deposit. 5. From bank Deposits. The recipient must be any following tax exempts recipients: a. Foreign government; b. Financing institutions owned, controlled or financed by foreign government; or c. Regional or international financing institutions established by foreign government. (Sec. 25 A [2], NIRC)
Note: In order to avail exemption under item no. 4, the recipient must be a non-resident alien or non-resident foreign corporation. Otherwise, it is subject to final tax of 7 ½ %. Item no. 5 applies only to individual taxpayers.

Q: Are stock dividends taxable? A: GR: No, stock dividends are considered unrealized gain since there is a mere transfer of surplus to the capital account. Thus, it is not subject to income tax until that gain has been realized. A stock dividend, when declared is merely a certificate of stock which shows the interest of the stockholder in the increased capital of the corporation. XPN: A stock dividend constitutes taxable income if it gives the shareholder a higher interest compared with what his former stockholdings represented.
Note: A stock dividend does not constitute taxable income if the new shares did not confer new rights nor interests than those previously existing, and that the recipient owns the same proportionate interest in the net assets of the corporation (Sec. 252, RR No. 2)

Q: What is the tax treatment of the following in the preparation of annual income tax returns: Interest on deposits with: (i) BPI Family Bank; and (ii) a local offshore banking unit of a foreign bank. A: Both items are excluded from the income tax return: (i) Interest income from any currency bank deposit is considered passive income from sources within the Philippines and subject to final tax. Since it is subject to final tax it is not included in the annual ITR. (Sec. 24 B [1], NIRC) (ii) Same as No. (i) (2005 Bar Question)

Q: Fred, was a stockholder in the Philippine American Drug Company. Said corporation declared a stock dividend and that a proportionate share of stock dividend was issued to the Fred. The CIR, demanded payment of income tax on the aforesaid dividends. Fred protested the assessment made against him and claimed that the stock dividends in question are not income but are capital and are, therefore, not subject to tax. Are stock dividends income? A: No, stock dividends are not income and are therefore not taxable as such. A stock dividend, when declared, is merely a certificate of stock which evidences the interest of the stockholder in the increased capital of the corporation. A declaration of stock dividend by a corporation

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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involves no disbursement to the stockholder of accumulated earnings and the corporation parts with nothing to its stockholder. The property represented by a stock dividend is still that of the corporation and not of the stockholder. The stockholder has received nothing but a representation of an interest in the property of the corporation and as a matter of fact, he may never receive anything, depending upon the final outcome of the business of the corporation. (Fisher v. Trinidad, GR L-21186, Feb. 27, 1924) Q: Suppose the creditor is a corporation and the debtor is its stockholder, what is the tax implication in case the debt is condoned by the corporation? A: This may take the form of indirect distribution of dividends by a corporation. On the part of the stockholder whose indebtedness has been condoned he is subject to 10% final tax, on the masked dividend payment. On the part of the corporation, said amount cannot be claimed as deduction. When the corporation declares dividends, it can be considered as interest on capital therefore not deductible. Q: Is the redemption of stocks of a corporation from its stockholders as well as the exchange of common with preferred shares considered as “essentially equivalent to the distribution of taxable dividend" making the proceeds thereof taxable? A: Yes, the general rule states that a stock dividend representing the transfer of surplus to capital account shall not be subject to tax. However, 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, in whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated. The redemption converts into money the stock dividends which becomes a realized profit or gain and consequently, the stockholder's separate property. Profits derived from the capital invested cannot escape income tax. As realized income, the proceeds of the redeemed stock dividends can be reached by income taxation regardless of the existence of any business purpose for the redemption (CIR v. CA, GR 108576, Jan. 20, 1999) Q: What are the dividends exempt from taxation?

A: 1. 2. 3. 4. 5. Those earned before Jan. 1, 1998 Dividends received by a DC from another DC Dividends received by a RFC from a DC A stock dividend representing the transfer of surplus to capital account Dividends received by a NRFC from a DC, although subject to withholding tax because foreign taxes paid on such dividends are allowed as a tax credit

Q: What is the tax treatment of cash or property dividend? A: The cash or property dividend received by an individual from a DC is subject to a final tax of 10%. Q: What are property dividends? A: Property dividends are those paid in corporate property such as bonds, securities or stock investments held by the corporation. They are taxable to the extent of the fair market value of the property received at the time of distribution. Q: What is Liquidating Dividend? A: Return of investment to the stockholders by a dissolving corporation upon its asset distribution. Where a corporation distributes all of its assets in complete liquidation or dissolution, the gain realized or loss sustained by the stockholder, whether individual or corporate, is a taxable income or a deductible loss.
Note: Gains are subject to Income Tax under Sec. 24, NIRC. Only 50% of the aforementioned capital gain is reportable for Income Tax purposes if the shares were held by the individual stockholders for more than 12 months, and 100% of the capital gains if the shares were held for less than 12 months. If the stockholders sell the asset received by them as liquidating dividends immediately after title thereto is transferred to their names and after the lease thereon shall have been terminated, the stockholders shall be subject to the 6% CGT based on the gross selling price or the FMV, whichever is higher.

Royalty Income Q: What are royalties? A: Royalties are sums of money paid to a creator or a participant in an artistic work, based on individual sales of the work. In order to receive royalties, the work must generally have a copyright or patent.

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

NATIONAL INTERNAL REVENUE CODE OF 1997
b. Q: Distinguish rent from royalty. c. A:
RENT As to reporting Must be reported as Need not be reported since part of gross income subject to final tax. As to tax rate Regular progressive tax Final tax if individual ROYALTY

d.

Insurance premiums paid by lessee on property Dividends paid by lessee to stockholders of lessor-corporation Interest paid by lessee to holder of bonds issued by lessor-corporation

2.

Value of permanent improvement made by lessee on leased property of the lessor upon expiration of the lease.

Q: What are the recognized methods in reporting the value of permanent improvement? Rents A: Q: What is rental income and what is its scope? A: Rental income is a fixed sum, either in cash or in property equivalent, to be paid at a definite period for the use or enjoyment of a thing or right. All rentals derived from lease of real estate or personal property, of copyrights, trademarks, patents and natural resources under lease. Q: When is prepaid rent taxable? A: Prepaid or advance rental is taxable income to the lessor in the year received, if received under a claim of right and without restriction as to its use, regardless of method of accounting employed.
Note: Security deposit applied to the rental of terminal month or period of contract must be recognized as income at the time it is applied. Security deposit is to ensure contract compliance, it is not income to the lessor until the lessee violates any provision of the contract.

1.

2.

Outright Method - the fair market value of the building or improvement shall be reported as additional rent income; Spread Out Method – allocate the depreciated value over the remaining term of the lease contract. Every year, an aliquot part of the depreciated value should be reported as additional rent in addition to the regular rent income.

Note: With the outright method it would only be counted for 1 rental payment unlike with the spread out method it would be distributed to the remaining term of the lease contract. Q: What is the tax treatment of VAT added to rental/paid by the lessee? A: Any additional amount paid, directly or indirectly, by the lessee in consideration for the lease is considered rental. Therefore, taxes paid by the lessee on leased property are part of rental income of the landlord.

Q: What rent is subject to special rate? A: 1. Those paid to non-resident owner or lessor of vessels chartered by Philippine national – 4.5% of gross rentals (Sec. 28 B [3], NIRC) Those paid to non-resident owner or lessor of aircraft, machineries and other equipment – 7.5% of gross rental or fees. (Sec. 28 B [4], NIRC)

Annuities Q: What is an annuity? A: It refers to the periodic installment payments of income or pension by insurance companies during the life of a person or for a guaranteed fixed period of time, whichever is longer, in consideration of capital paid by him. The portion representing return of premium is not taxable while that portion that represents interest is taxable.
Note: Annuities are part of the gross income.

2.

Q: What are those items that are likewise considered as additional rent income? A: Additional rent income may be grouped into 2: 1. Obligations of Lessors to 3rd parties assumed by the lessee: a. Real estate taxes on leased premises

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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Prizes and Winnings Q: What is the meaning of prizes and winnings for the purposes of income taxation? A: It refers to amount of money in cash or in kind received by chance or through luck and are generally taxable except if specifically mentioned under the exclusion from computation of gross income under Sec. 32[B] of NIRC. shall be computed in the same manner as a corporation. (Sec. 26, NIRC) Each partner shall report as gross income in his return, his distributive share in the net income of the GPP, whether actually or constructively received.

Q: Suppose the result of GGP operation is a loss? A: The loss will be divided as agreed upon by the partners, which may be taken by the individual partners in their respective returns.

Q: What prizes and winning are subject to Philippine income tax? A: 1. Prizes derived from sources within the Philippines not exceeding P10,000 is included in the gross income; if over P10,000, it is subject to final tax on passive income. Winning from sources within is subject to final tax on passive income except PCSO and lotto winnings which are tax exempt; Prizes and winnings from sources outside the Philippines.

Income from any Source Whatever Q: What are examples of income from any source whatever? A: 1. 2. 3. Forgiveness of indebtedness Recovery of accounts previously written off Receipt of tax refunds or credit

2.

3.

Q: What is the general rule on taxation of debts? Pensions Q: What is pension? A: It refers to amount of money received in lump sum or on staggered basis in consideration of services rendered given after an individual reaches the age of retirement. Q: When is pension taxable? A: A: Pension being part of gross income is taxable to the extent of the amount received except if there is a BIR approved pension plan. (Sec. 32 B [6], NIRC) 1. When cancellation of debt is income. If an individual performs services for a creditor, who in consideration thereof, cancels the debt, it is income to the extent of the amount realized by the debtor as compensation for his services. 2. When cancellation of debt is a gift. If a creditor merely desires to benefit a debtor and without any consideration therefore cancels the amount of the debt, it is a gift from the creditor to the debtor and need not be included in the latter’s income. 3. When cancellation of debt is a capital transaction. If a corporation to which a stockholder is indebted forgives the debt, the transaction has the effect of payment of a dividend. (Sec. 50, RR No. 2) A: Borrowed money is not part of taxable income because it has to be repaid by the debtor. On the other hand, the creditor does not receive any income upon payment because it is merely a return of the investment. Q: What is the tax treatment of forgiveness of indebtedness?

Partner’s Distributive Share in the Net Income of General Professional Partnership Q: Is the income of GPP taxable? A: GPP is not taxable as an entity but the partner’s share in the net income of GPP is included in his gross income. Q: How do we compute the distributive share of each partner in the net income of a GPP? A: For purposes of computing the distributive share of each partner, the net income of the partnership

68

TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

if the source of the income is from any public utility or from the exercise of any essential governmental functions. Tax treaty.) 5. Nationality – DC A: Exclusions and exemptions must be strictly construed against the taxpayer and liberally in favor of the Government. Are not income. An insolvent debtor does not realize taxable income from the cancellation or forgiveness. It is exempted by the fundamental law 2. To provide incentives for certain socially desirable activities Pertains to the computation of net income Something spent or paid in earning gross income Example of a deduction is business rental Under the Constitution Income Derived by the Government or its Political Subdivision Q: Is the income derived by the Government or its political subdivision exempt from gross income? A: Yes. aliens. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. CIR 36 BTA 289 [1937]) Q: What is the situs of income taxation? A: Individual Income Taxation: 1. 4. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Place – NRFC 3. estates. Residence – RFC 2. NRC 3. A: Exclusion from Gross Income Refer to a flow of wealth to the taxpayer which are not treated as part of gross income. Citizenship – RC Corporate Income Taxation: 1. Place – NRA. (Lakeland Grocery Co. SABUGO & JOHN HENRY C. A: It refers to an immunity or privilege. Q: Who may avail of the exclusions? A: All kinds of taxpayers – individuals. RR No. Q: How are exclusions and exemptions construed? Q: Are GOCCs exempt from tax? A: GOCCs performing: 1. due to the following reasons: 1. v. for purposes of computing the taxpayer’s taxable income. 2. freedom from charge or burden to which other persons are subject to tax.NATIONAL INTERNAL REVENUE CODE OF 1997 4. Gin Co. It does not come within the definition of income (Sec. 3. which the law allows to be deducted from gross income in order to arrive at net income EXCLUSIONS FROM GROSS INCOME Q: What are exclusions from gross income? A: Exclusions from gross income refer to the removal of otherwise taxable items from the reach of taxation either because they: 1. It is exempted by statute 3. RC 2. MASACAYAN & THEENA C. Tax Code. Are income. gain or profit that are expressly exempt from income tax under the Constitution. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. gain or profit. whether citizens.000 which is an income not recognized for tax purposes Deduction from Gross Income The amounts. To avoid the effects of double taxation 2. Q: Define exemption. 61. trusts and corporations. (CIR v. Residence – RA. Note: Exclusions are not subject to tax because of policy considerations such as: 1. Represent return of capital. Q: Distinguish “Exclusion from Gross Income” from “Deductions from Gross Income”. MARTINEZ SANTO TOMAS de Derecho Civil 69 . The insolvent debtor realizes income resulting from the cancellation or forgiveness of indebtedness when he becomes solvent. Governmental Function: GR: Government agencies performing governmental functions are tax exempt. Are subject to another kind of internal revenue tax. ACADEMICS CHAIR: LESTER JAY ALAN E. 2) Pertains to the computation of gross income Something received or earned by the taxpayer which do not form part of gross income Example of an exclusion from gross income is proceeds of life insurance received by the beneficiary upon the death of the insured which is not an income or 13th month pay of an employee not exceeding P30. or general or a special law. whether residents or non-residents may avail of the exclusions.

Where the life insurance policy was transferred for a Valuable consideration 4. Paid to the Heirs or beneficiaries. Government Service Insurance System 2. debentures or other certificate of indebtedness h. Compensation for injuries or sickness 7. Income exempt under treaty 6. ASST. Prizes and awards in sports competitions d.. 32 [B]. 179. CHRISTINE L. The recipient of the life insurance proceeds is a Corporation in which the insured was an employee or officer. 62. Prizes and awards c. Gifts. KEITH S. 3. GUTIERREZ. PRUDENCE ANGELITA A. Where the life insurance policy is used to Secure a money obligation 3. A: ProHeDS 1. DIVINE C. Income derived by the government or its political subdivisions f. 27 (c) of RA 8424 the following corporations have been granted exemptions: 1. NIRC) 2. 2) Q: Who may be the recipient of the life insurance policy proceeds? A: The designation of the beneficiary is immaterial provided he is not disqualified to be a beneficiary under the law for purposes of exclusions from gross income. MEMBERS: JOSE DUKE BAGULAYA. Proceeds of life insurance policies. 5. ORTIZ & VANNESSA ROSE S. SUBJECT HEAD: RODOLFO N. Retirement benefits. CLARABEL ANNE R. It has been ruled that the amount received shall be excluded in the computation of gross income if the accident or health insurance has the characteristic of a life insurance policy. Proprietary Functions: subject to taxation. pensions. TEE. Q: When is the designation or name of the beneficiary material? Q: What are those items that are excluded in gross income and shall be exempt from gross income taxation? A: These are: [GLAM-RIC] 1.UST GOLDEN NOTES 2011 XPN: Unless expressly taxed while government agencies performing proprietary functions are taxable XPN to XPN: Unless expressly exempted. Philippine Health Insurance Corporation 4. 2. RR No. the interest held by the insurer pursuant to that agreement is the one taxable but not the principal amount (Sec. Under the NIRC Q: Is the rule that the amount of the proceeds of life insurance excluded from the gross income absolute? A: No. LACSINA.NIRC) Life Insurance Q: What is life insurance? A: Life insurance is insurance on human life and insurance appertaining thereto or connected therewith. KASALA. 4. Note: Under Sec. Gains from the sale of bonds. Amount received by insured as return of premium 4. Whether in a single Sum or otherwise. CHARLES L. Medicare and other contributions g. 2. 32 B [1]. Social Security System 3. etc. The recipient of the insurance proceeds is a business Partner of the deceased and the insurance was taken to compensate the partner-beneficiary for any loss in income that may result as the death of the insured partner 5. (Sec. Miscellaneous items. Income derived by foreign government e. HERNANDEZ. Upon the Death of the insured. If there is an Agreement between the insured and the insurer to the effect that the amount shall be withheld by the insurer under an agreement to pay interest thereon. b. Philippines Charity Sweepstakes Office Note: It merely represents an indemnification for the loss of life and not a gain or profit. Life insurance proceeds 3. GSIS. SSS. bequests and devises 2. ANG JR. Insurance Code) Q: What are the conditions for the exclusion of life insurance proceeds from gross income? 70 TAXATION LAW TEAM: ADVISER: ATTY. The recipient of the insurance proceeds is a Partnership in which the insured is a partner and the insurance was taken to compensate the partnership for any loss in income that may result from the dissolution of the partnership caused by the death of the insured partner 6. GRANTOZA. VALCOS . (Sec. gratuities. SUBJECT HEADS: EDISON U. 13thmonth pay and other Benefits. The exceptions are: [ASV-PPC] 1. (13P2I2G3) a. Gains from redemption of shares in mutual fund (Sec.

the proceeds of life insurance policies are paid to the heirs or beneficiaries upon the death of the insured are not included as part of the gross income of the recipient. If the designation is irrevocable. Yes. Will the proceeds of the ACADEMICS CHAIR: LESTER JAY ALAN E. the capital being the life of the insured. He was hired by HP. but the excess shall be considered part of his gross income. administrator or executor is designated as beneficiary. If the person designated is a 3 person (which includes the employer. To entice him to accept the the job. the general rule that the designation is revocable shall apply. Amount received by insured. If the employee dies: 1. Assuming the designation of the 3rd person in the policy is silent whether his designation is revocable or irrevocable. If the policy is silent.) the proceeds form part of the estate if the designation is revocable. Either : a. endowment or annuity contract. the insured has the right to change the beneficiary he designated in the policy. the manner of designation or the name of the beneficiary is immaterial. The amount of the proceeds is excluded from the gross income. unless he has expressly waived this right in said policy. the proceeds will not be included in the gross estate. As a return of premium paid by him. 2. 3. or b. (2007 Bar Question) A: It is material in determining whether the amount shall form part of the gross estate of the decedent. MARTINEZ SANTO TOMAS de Derecho Civil 71 . Under Sec. It depends. During the term. SABUGO & JOHN HENRY C.NATIONAL INTERNAL REVENUE CODE OF 1997 insurance form part of the income of the parents of Noel and be subject to income tax? A: No. A: The insurer agrees to pay a sum certain to the insured if he outlives a designated period. what is the rule? A: 1. If the insured does not die and survives the designated period. rd Amount Received by Insured. Endowment Q. MASACAYAN & THEENA C. Will the proceeds form part of the estate of the decedent and therefore subject to estate tax? 3. Are the proceeds of the life insurance policy excluded from the gross income? 2. Q: Suppose Al obtained an endowment policy valued at P1 million. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Q: Suppose the employer insures the life of his employee and the one paying the premiums on that life insurance policy is the employer. As Return of Premium Q: What are the conditions for its exclusion from gross income? A: 1. these are not taxable income because they are excluded from gross income. estate. He paid premiums amounting Q: Noel is a bright computer science graduate. 2. Define endowment. Note: The amount returned is not income but mere return of capital. There is only irrevocable designation if the policy expressly provides. Under a life insurance. If the heirs. the proceeds are to be paid to the designated beneficiary. The parents of Noel are made the beneficiaries of the insurance policy. Upon surrender of the contract. Q: What is the tax treatment of proceeds received under endowment policies? A: If the insured dies. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. and the beneficiary receives the life insurance proceeds. There is no income realized because nothing flows to Noel’s parents other than a mere return of capital. 11 of the Insurance Code of the Philippines. the amount pertaining to the premiums he paid are excluded from gross income. At the maturity of the term mentioned in the contract. or c. It shall be considered as revocably designated. 3. If he dies before that date. he was offered the arrangement that part of his compensation package would be an insurance policy with a face value of P20 million. the proceeds form part of the estate whether the designation is revocable or irrevocable. 4.

Moreover. The value of the bequest and/or the devise received by the heirs or beneficiary/ies is not included in the computation of their gross income since gifts. GRANTOZA. 30. also matured. CLARABEL ANNE R. the donor is subject to donor’s tax while Ms. PRUDENCE ANGELITA A. bequest and devises are excluded from gross income. Gorgeous is not included in the computation of gross income pursuant to Sec. After working for more than 2 years in X Corporation. The Board of Directors of the hospital felt that the hospital should give Quiroz more than what was provided for in the hospital's retirement plan in view of his loyalty and invaluable services for 45 years. gifts.UST GOLDEN NOTES 2011 to P800. The giver is either known as the testator or decedent while the recipient may be the heirs or beneficiary/ies. However. 1985. (Sec. LACSINA. Gifts. Gorgeous the donee is not subject to 72 TAXATION LAW TEAM: ADVISER: ATTY. The giver is called the donor and the recipient is called the donee. GUTIERREZ. Bequests and Devises Q: What gratuitous transfers are excluded from gross income? A: When a person gives a thing or right to another and it is not a “legally demandable obligation” then it is treated as a gift and excluded from gross income. Mario decided to retire and avail of the benefits under the very reasonable retirement plan maintained by his employer. Furthermore. (P1. is included as part of gross income and is subject to tax. He was then paid the face value of his insurance policy in the amount of P50.000 insurance proceeds is not totally exempt from income tax. what amount is taxable? A: The amount of P200. HERNANDEZ. The income from said property. Generous gave a gift to Ms. Q: Quiroz worked as chief accountant of a hospital for 45 years. the property is already subject to donor’s or estate taxes as the case may be. DIVINE C. When he retired at 65 he received retirement pay equivalent to 2 months' salary for every year of service as provided in the hospital BIR approved retirement plan.000. Hence. VALCOS .520 since 1965. Q: If Mr. he received his endowment insurance policy.520 x 20 years). Q: What is a gift? A: A gift is any transfer not in the ordinary course of business which is not made for full and adequate consideration in money or money’s worth. Q: What are the tax implications of a Bequest and Device? A: The estate of the testator or the decedent is subject to estate tax. 32 [B]. KASALA. if there is a legally demandable obligation to give such as for services rendered by one to the donor or due to his merits. Q: Mario worked his way through college. Gorgeous what are the tax implications? A: Mr. TEE. SUBJECT HEAD: RODOLFO N. there is no income. MEMBERS: JOSE DUKE BAGULAYA. it is excluded from gross income for it is not product of capital nor industry. Note: The consideration is based on pure liberality and is already subject to donor’s or estate tax as the case may be. Upon maturity. it resolved to pay him a gratuity of P1 million over and above his retirement pay. NIRC. ANG JR. he wil be subject to report as taxable income the amount of P19. NIRC) Q: Is donation inter vivos and mortis causa subject to income tax? A: Whether the donation is inter vivos or mortis causa.520 per year multiplied by twenty (20) years which was the period of the policy. Q: What is a Bequest and a Devise? A: Bequest is a gift of personal property and devise is a gift of real property. ORTIZ & VANNESSA ROSE S. ASST. however. bequest or devise is excluded from gross income.000 insurance proceeds exempt from income taxation? A: The P50. the amount received is taxable income to the recipient. Accordingly. Generous. 32 B (3). KEITH S. The difference between the value of the insurance and the actual premiums paid forms part of Al’s gross income.000. SUBJECT HEADS: EDISON U. On the day of his retirement on Apr.600. Both are donations mortis causa. (Sec. he must have paid a total of P30. The value of the gift received by Ms. while the heirs or beneficiary/ies are not required to pay donee’s tax as the same was already abolished.. Q: What is the “Gift Tax Test”? A: The value of property acquired by gift.000 is taxable. for which he was paying an annual premium of P1. CHARLES L. Donee’s tax has been abolished by PD 69.400. Is his P50. NIRC) donee’s tax. At the rate of P1. bequest and devises are excluded from gross income. he received P1 million. CHRISTINE L. 28. The excluded amount is that portion which corresponds to the premiums that he had paid since 1965.

gratuities. and (b) it was a gift. amending the Labor Code with regards to the retirement pay of qualified employees in the absence of any retirement plan? 2. pensions and other similar benefits received by resident or nonresident citizens or resident alien from Foreign government agencies and other institutions. SSS 7. (Sec. 32 B [5]. Compensation for Injuries or Sickness Q: What are the kinds of compensation for injuries or sickness that may be excluded from gross income? A: 1.. excluded from gross income? A: 7FRUGS2 1. Separation pay Q: What are the salient features of RA 7641.000 representing the cash equivalent of his earned vacation and sick leaves. P300. (Sec. 2. pensions. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.NATIONAL INTERNAL REVENUE CODE OF 1997 The CIR taxed the P1 million as part of the gross compensation income of Quiroz who protested that it was excluded from income because (a) it was a retirement pay. the amount received was in consideration of his loyalty and invaluable services to the company which is clearly a compensation income received on account of employment. whether individual or corporate. except the ACADEMICS CHAIR: LESTER JAY ALAN E. etc. Which if any. Benefits from the US Veterans Administration 5. Q: JR was a passenger of an airline that crashed. retirement gratuities.. P250. JR received from his employer the amount of P200. 186 F.' emphasis should be placed on the value of Quiroz services to the company as the compelling reason for giving him the gratuity. The payment would only qualify as a gift if there is nothing but 'good will. GSIS benefits 6. private or public 3. Social security benefits. in accordance with a Reasonable private benefit plan maintained by the employer 4. In addition. Q: What are the retirement benefits.000 for his hospitalization. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 393) money equivalent of 10 days unutilized vacation leave credits which is not taxable. U.Gratuities. Is Quiroz correct in claiming that the additional P1 Million was gift and therefore excluded from income? A: No. 32 B [4]. (Sec. esteem and kindness' which motivated the employer to give the gratuity. Pensions.S.000 that JR received from his employer is subject to income tax. MARTINEZ SANTO TOMAS de Derecho Civil 73 . Supp. (Stonton v. Retirement benefits under RA 7641 2. SABUGO & JOHN HENRY C. Under the employer's 'motivation test. Amounts of vacation allowances or sick leave credits which are paid to an employee constitute compensation. NIRC) Note: Public policy recognizes the principles of reciprocity and comity among nations. hence it should constitute a taxable income. NIRC) (2005 Bar Question) Income Exempt Under Treaty Q: What are income exempt under treaty? A: Income of any kind. to the extent required by any treaty obligation binding upon the Government of the Philippines. Following negotiations with the airline and its insurer. Etc.000 as moral damages. (Sec. Amounts received through Accident or Health Insurance or Workmen’s Compensation Act as compensation for personal injuries or sickness Amounts of any damages received whether by suit or agreement on account of such injuries or sickness. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. RR 2-98. MASACAYAN & THEENA C.000 for loss of income during the period of his treatment and recuperation. NIRC) Retirement Benefits.78 A [7]. 32 B [4]. It is intended to make the injured party whole as before the injury. Note: They are mere compensation for injuries or sickness suffered and not income. as amended by RR 10-2000) The amounts that JR received from the airline are excluded from gross income and not subject to income tax because they are compensation for personal injuries suffered from an accident as well as damages received as a result of an agreement on account of such injuries. an agreement was reached under the terms of which JR was paid the following amounts: P500. Retirement received by officials and employees of private firms. of the amounts are subject to income tax? A: The amount of P200.

for purposes of determining the taxability of retirement benefits received by retiring employees. GUTIERREZ. (RA 7641. P20. Thus. VALCOS . CHRISTINE L. a fraction of at least 6 months being considered as one whole year. LACSINA. 22. In case of retirement. On the other hand. Retirement Pay Law) exclusive benefit of the said employees. In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment a. from withholding tax: the retiring employee (1) has been in the service of the same employer for at least 10 years. This may be availed of only once. and (2) is not less than 50 years of age at the time of his retirement. Q: Mel received from his first employer. gratuity. ii. consequently. An employee upon reaching the age of beyond 65 years which is the compulsory retirement age. An employee upon reaching the age of 60 years or more. the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any CBA and other agreements: Provided. iii. 32 B [6] a. if the CBA or other applicable employment contract does not provide for a retirement age. under RA 7641. stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all his officials or employees. that an employee's retirement benefits under any collective bargaining and other agreements shall not be less than those provided by the law. Payment was made under a BIR approved retirement plan. (Sec. KASALA.Any employee may be retired upon reaching the retirement age established in the CBA or other applicable employment contract. KEITH S.000. of the 1997 NIRC. 2. Is the said amount taxable or not? Q: What is a Reasonable Private Benefit Plan (RPBP)? A: Pension. wherein contributions are made by such employer for the officials or employees. ii. HERNANDEZ. the retirement age is that age established in the CBA or other applicable employment contract. SB [041] 603-2009. the actual retirement age may even be lower than 50 years of age. SUBJECT HEAD: RODOLFO N. May retire and shall be entitled to retirement pay equivalent to ½ month salary for every year of service. any part of which shall not be used or diverted to any purpose other than for the 74 TAXATION LAW TEAM: ADVISER: ATTY. ASST. 2. SUBJECT HEADS: EDISON U. or both.UST GOLDEN NOTES 2011 A: 1. Optional – the conditions are: i. Sec. ORTIZ & VANNESSA ROSE S. the agreed age of retirement shall become the basis in determining the taxability of retirement benefits of retiring employees. 32 B [6] A of the NIRC provides for two conditions in order for retirement benefits to be exempt from income tax and.. as amended. Q: Are retirement benefits paid by an employer which does not have a private benefit plan but has an existing CBA providing for retirement benefits of employees excluded from income tax? A: Yes. There must be Reasonable private benefit plan approved by the BIR. Who has served at least 5 years in the said establishment. Mandatory – the conditions are: i. MEMBERS: JOSE DUKE BAGULAYA. CLARABEL ANNE R. 4. (BIR Ruling No. TEE. iii. NIRC) officials and Q: What are the conditions in order to avail the exemption under a RPBP? A: Reasonble-10-50-once 1. 2009). DIVINE C. Where the retirement plan is established in the CBA or other applicable employment contract . ANG JR. Mel retired from his second employer and received P50. After rendering 10 years.000 as retirement benefit and was subsequently employed by another employer. b. the minimum requirement of 50 years provided for under Section 32 B [6] a. but since the CBA or other applicable employment contract is deemed the law between the parties. and 3. shall apply in order to qualify for the exemption granted therein. GRANTOZA. CHARLES L. He must have rendered at least 10 years of service to the employer at the time of retirement. Who has served at least 5 years in the said establishment. Sept. May retire and shall be entitled to retirement pay equivalent to ½ month salary for every year of service. a fraction of at least 6 months being considered as one whole year. however. The private employee or official must be at least 50 years old at the time of his retirement. provided that the minimum age requirement and the length of service prerequisite are met. PRUDENCE ANGELITA A. However. for the purpose of distributing the earnings and principal of the fund thus accumulated.

the estate unless there is a designated beneficiary. Because of death. number of benefits received or the recipient thereof. To be exempt. 2. including retirement gratuity. compulsory retirement benefit. From the employer. On his retirement. he received P400. 1. hence not subject to income tax. and As a consequence of separation of such official or employee from the service of the employer: a.000 as retirement benefit. Q: Mario worked his way through college. Q: Assuming it does not form part of the terminal leave pay. The amount cannot be considered as separation pay that would have exempted benefits from income tax since it was Mario who had decided to retire instead of being required to do so. SABUGO & JOHN HENRY C. the employee is the recipient of the separation pay. Mario decided to retire and avail of the benefits under the very reasonable retirement plan maintained by his employer. wherein the vacation or sick leave may be converted into cash. physical disability or sickness? ACADEMICS CHAIR: LESTER JAY ALAN E. Q: What are the conditions in order that separation pay may be excluded from gross income? A: 1. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. sickness or other physical disability. For government employees – both vacation and sick leaves are tax exempt irrespective of the number of days. A: Separation pay is not taxable irrespective of the age of the employee. In case of death. length of service. 2.000 retirement benefit subject to income tax? A: Mario’s 400.502 which were deducted from his terminal leave pay as withholding tax.NATIONAL INTERNAL REVENUE CODE OF 1997 A: Yes. as when it is given annually to the employee. (Sec 32 B [6] b. the retirement pay must have been extended to an employee who is at least 10 years with the employer. 32 B [6] b. 2. RR 2-98) Q: Who will be the recipient of separation pay if the cause of separation is death. according to RA 8291 (The GSIS Act of 1997) all benefits he received are tax exempt. NIRC) A: 1. For any cause beyond the control of the official or employee. Q: Bernardo. It is applied for by an employee who is no longer working. that is. NIRC) Q: What is terminal leave pay? A: Terminal Leave Pay is the amount received arising from the accumulation of sick leave or vacation leave credits. 3. This applies if the sick or vacation leave credits do not form part of the compulsory retirement benefit. 2 b [2]. In case of physical disability or sickness. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. After working for more than 2 years in X Corporation. For private employees – vacation leaves are exempt from tax up to 10 days while sick leaves are always taxable. (Commutation of leave credits) Q: Is terminal pay excluded from gross income? A: Yes.) would your answer be the same? A: No. What is the tax treatment of the cash equivalent of such vacation leave credits? A: It depends. Retrenchment Cessation of business Redundancy (Sec. 3. (Sec. The Court said that the terminal leave pay of Bernardo. MASACAYAN & THEENA C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Amount received by an official. Is Mario’s P400. MARTINEZ SANTO TOMAS de Derecho Civil 75 . employee or by his heirs. a retired employee of the SC filed a request with the SC for the refund of the amount of P59. Q: If the second employer is a Government entity (assuming Mel was employed by the DPWH. or b. 2. it is no longer compensation for services rendered. which he Q: What are causes beyond the control of the employee? A: 1. Q: What is the tax treatment of sick leave credits? A: They are taxable irrespective of the number of days.000 retirement benefit is subject to income tax. it is taxable because the benefit of exemption can only be availed of once. because it is received on account of a cause beyond the control of the employee. Q: State the tax treatment for separation pay.

GUTIERREZ. (1995 Bar Question) Q: Z. ANG JR. 13th month pay and other Benefits 2. amounting US$1. SUBJECT HEADS: EDISON U. He regularly receives a pension from his former employer in the United States. As a result. because his separation from employment is due to causes beyond his control.000 as separation pay. Gains from redemption of shares in mutual fund. the law provides that pensions received by resident or non-resident citizens of the Philippines from foreign government agencies and other institutions. TEE. HERNANDEZ. Under the program an employee who offered to resign would be given separation pay equivalent to his 3 month's basic salary for every year of service. DIVINE C. Kintanar was separated from the service.UST GOLDEN NOTES 2011 received by virtue of his compulsory retirement. 4. The separation was involuntary as it was a consequence of the closure of various unprofitable departments Income Derived by Foreign Government Q: What are the conditions in order for the income derived by foreign government from investments in the Philippines be exempted from tax? A: 1. What is excluded from gross income is any amount received by an official or employee as a consequence of separation of such official or employee from the service of the employer for any cause beyond the control of the said official or employee. (Sec 32 [B]. Bernardo’s request was granted. [BOLDSI] and The recipient of such income from investment in the Philippines must be a: a. 1990) Q: Jacobo worked for a manufacturing firm. PRUDENCE ANGELITA A. Bernardo Zialcita. Hence. foreign government. (Re: Request of Atty. it necessarily follows that the terminal leave pay or its cash equivalent is no longer compensation for services rendered. a Filipino immigrant living in the United States for more than 10 years. Stocks or Interests on deposits in banks. can never be considered as part of his salary subject to income tax. Did Jacobo derive income when he received his separation pay? Did Kintanar derive income when he received his separation pay? pursuant to the redundancy program. Every time he comes to the Philippines. (Sec. CHARLES L. Oct. NIRC) A: 1. he stays here for about a month. Loans or other Domestic securities. ORTIZ & VANNESSA ROSE S.. AM 90-6-015-SC. Due to business reverses the firm offered voluntary redundancy program to reduce overhead expenses. He is retired and came back to the Philippines a balikbayan. private or public. Income derived by foreign government 5. Income derived by the government or its political subdivisions 6. because his separation from employment was voluntary on his part in view of his offer to resign. 2. CHRISTINE L. are excluded from gross income. the firm found its overhead is still excessive.000 pension become taxable because he is now residing in the Philippines? A: No. 1. It must be derived from BOnds. 76 TAXATION LAW TEAM: ADVISER: ATTY. Hence it adopted another redundancy program. 2. 18. VALCOS . Is terminal leave pay subject to income tax? A: No. ASST. Yes. Various unprofitable departments were closed. GSIS. GRANTOZA. NIRC) (2007 Bar Question) Miscellaneous Items Q: What are the miscellaneous items excluded from gross income? A: 13P2I2G3 1.000 a month. It is one of those excluded from gross income and is therefore not subject to tax. KASALA.000 as separation pay under the program After all the employees who accepted the offer were paid. Prizes and awards 3. SSS. Jacobo accepted the offer and received P400. LACSINA. KEITH S. NIRC) No. since terminal leave pay is applied for by an officer or employee who has already severed his connection with his employer and who is no longer working. (Sec 28. Does the US$1. He also received P400. 3. 32 B [6] c. It must be an income derived from investments in the Philippines. SUBJECT HEAD: RODOLFO N. Gains from the sale of bonds. Therefore. it cannot be received by the said employee as salary. debentures or other certificate of indebtedness 8. 2. Medicare and other contributions 7. MEMBERS: JOSE DUKE BAGULAYA. CLARABEL ANNE R. Prizes and awards in sports competitions.

FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. or Charitable achievement [SCAR-CEL] 2. excluded from her income as she was selected therefore without any action on her part and the same was given to her in recognition of literary and educational achievement. She was also named MVP of the Varsity volleyball team and was given a trophy and P10.000 for winning the on-the-spot peace poster contest sponsored by the Lions Club. Finally. 2. Note: The exclusion may be premised either on the principle of comity or upon the principle of reciprocity. Decide. Artistic. However.NATIONAL INTERNAL REVENUE CODE OF 1997 b.000 as his prize which was donated by Ayala Land Corporation. (Sec. 28 B *8+ e. Educational. or civic achievement” The fellowship award of $10. she received a Fellowship Award from the University of California to pursue a master's degree in American literature.000. and 3. literary. The BIR tried to collect income tax on the amount received by Onyoc who refuses to pay. A: As to the recipient of the award. the recognition in the field of sports is not among those stated under Sec. (Sec. Should Q include these awards and fellowship in her gross income? A: The first award granted to Q. The recipient was selected without any action on his part to join. Onyoc received the amount of P500. Literary. this is included in the gross income because it fails to meet the legal requirement that the recipient was selected without any action on his part to enter the contest or proceeding. Q: Onyoc. Contributor/Donor is allowed to claim it as a deduction from gross income based on RA 7549. 32 B [7].500 as part of the Palanca Award for an outstanding short story. it is exempt from donor’s tax not based on the NIRC but on RA 7549. and 4. (Sec.000 is however. it is exempt from income tax. controlled or financed by foreign government. 32 B [7] c. MASACAYAN & THEENA C. Granted to Athletes. Sanctioned by their national sports associations. NIRC) Prizes and Awards in Sports Competition Q: What are the requisites for the exclusion of prizes and awards in competition from gross income? A: PATS 1. 24 B [1]. presumably without her being required to render future services for the grantor. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Q: A won P100. Q: Q won P2. As to the contributor/donor of the award. ACADEMICS CHAIR: LESTER JAY ALAN E. an amateur boxer.000. The fellowship is for $10. MARTINEZ SANTO TOMAS de Derecho Civil 77 . Civic. Religious. It is subject to a final tax of 20% for the amount is in excess of P10. In local and international sports Tournaments and competitions. Primarily in recognition of Scientific. scientific. Q: JM. otherwise it would be included in his gross income and subjected to a scheduler rate (Sec. NIRC) (2000 Bar Question) Note: The prize constitutes a taxable income for it was made primarily in recognition of his artistic achievement which he won due to an action on his part to enter the contest. 32 B [7] d. The award was given to her in recognition for her outstanding performance in the field of sports. 3. Prizes and Awards Q: What are the requisites in order for prizes and awards made be exempted from tax? A: 1. Q did not file any application to enter into any contest.000 plus free board and lodging. received a prize of P100. NIRC) In the second award. SABUGO & JOHN HENRY C. a Palanca award. requires submission of literary works. NIRC) Note: National sports associations are those duly accredited by the Philippine Olympic Committee. All Prizes and awards. educational. He is not required to render substantial future services as condition to receiving the prize or award. or regional or international financing institutions established by foreign government. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Is the award included in the gross income of JM for tax purposes? A: No. to wit: “Prizes and awards made primarily in recognition of religious charitable. (1993 Bar Question) c. artistic.000 in a competition sanctioned by the national sports association. won in a boxing competition sponsored by the Gold Cup Boxing Council. a sports association duly accredited by the Philippine Boxing Association. Hence. it is not included. Give the tax implication/s as to the recipient as well as to the donor/contributor. financing institutions owned.

hence the BIR is not correct in imposing the income tax.. Jewelry Industry Development Act of 1998 RA 8282. ASST. GR 127105. 8241 and 8424 RA 7482. SUBJECT HEADS: EDISON U. GRANTOZA. ANG JR. 9. NIRC) 4. CHRISTINE L. KASALA. (Sec. It allows the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the country of residence of such taxpayer is also a party. SC Johnson and Son Inc. Senior Citizens Act as amended by RA 9257 RA 7929. 2.” Neither is the BIR correct in collecting the donor’s tax from Ayala Land corporation. 5. Q: What is the basis of income being exempted under a treaty? A: Among the income excluded from gross income. the exemption of salaries paid in dollars to non-Filipino citizens for services rendered to the Ford Foundation RA 6938. as amended RA 3538.” (1996 Bar Question) 13th Month Pay and Other Benefits Q: How much is the maximum amount allowed for 13th month pay and other benefits to be excluded from gross income? A: Gross benefits received by officials and employees of public and private entities may be excluded from gross income provided that the total exclusion shall not exceed P30. Urban Development and Housing Act of 1992 RA 8502. LACSINA. SUBJECT HEAD: RODOLFO N. CLARABEL ANNE R. PRUDENCE ANGELITA A. 4. Note: The bonds. which exempts income of the SSS form income taxation RA 8479. HERNANDEZ.000. 32 B [7] e.UST GOLDEN NOTES 2011 A: The prize will not constitute a taxable income to Onyoc. 6. NIRC) Q: What are the reasons for granting tax exemption through a treaty? A: 1. as amended by PD 1354 EO 226. exchanged or retired must be with a maturity of more than five years. Cooperative Code of the Philippines. (Sec. The excess would be considered as part of the compensation income of the employee where it is subject on a scheduler rate. 32 B [5]. Under a Tax Treaty 7. An Act Deregulating the Downstrean Oil Industry and For Other Purposes Gains from the Sale of Bonds. DIVINE C. CHARLES L. 5. TEE. hence exempt form income taxation is “income of any kind to the extent required by any treaty 8. June 25. (CIR v. as amended by RA 1176. 3. provided that the subject matter of taxation is the same as that in the tax treaty under which the taxpayer is liable. debentures or other certificate of indebtedness sold. Reciprocity To lessen the rigors of international juridical double taxation Q: What are some tax treaties entered into by the Philippines? A: 1. RA 7549 explicitly provides that “All prizes and awards granted to athletes in local and international sports tournaments and competitions in the Philippines or abroad and sanctioned by their respective national sports association shall be exempt from income tax. MEMBERS: JOSE DUKE BAGULAYA. Gains from Redemption of Shares in a Mutual Fund Company Q: What is a mutual fund company? A: The term “mutual fund company” shall mean an open-end and close-end investment company as defined under the Investment Company Act. Debentures or Other Certificate of Indebtedness.22 [BB]. 2. 78 TAXATION LAW TEAM: ADVISER: ATTY.. 2. RP-Japan Tax Treaty RP-US Tax Treaty RP-France Tax Treaty RP-Switzerland Tax Treaty RP-Netherlands Tax Treaty Q: What is the “Most Favored Nation Clause”? A: This grants to the contracting party treatment not less favorable than which has been or may be granted to the most favored among other countries. 1999) Q: What are the statutory income tax exemptions? A: 1. GUTIERREZ. PD 87. ORTIZ & VANNESSA ROSE S. NIRC) obligation binding upon the Government of the Philippines. KEITH S. The Omnibus Investment Code of 1987. 3. VALCOS . (Sec. Oil Exploration and Development Act. The law is clear when it categorically stated “That the donors of said prizes and awards shall be exempt from the payment of the donor’s tax.

but are. A: EXEMPTION exemption from allowable ALLOWABLE DEDUCTION A subtraction from gross income Not receipts. it does not come within the definition of income Material to arrive at gross income Something earned or received which do not form part of the gross income ALLOWABLE DEDUCTIONS Refer to amounts which the law allows as deductions from gross income order to arrive at net income or taxable income Necessary to arrive at net or taxable income Something paid or incurred in earning gross income Q: Distinguish deduction. Note: A RC. Point to some specific provisions of the statute authorizing the deduction. a freedom from a charge or burden to which others are subjected. A: Deductions from gross income refer to items or amounts authorized by law to be subtracted from pertinent items of gross income to arrive at the taxable income. 3. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Deductions for income tax purposes partake of the nature of tax exemptions hence. (Sec. 2. if tax exemptions are to be strictly construed. Reduction of wealth which helped earn the income subject to tax. 2. NRA. expenditures which are permitted to be subtracted from income to determine the amount subject to tax. then it follows that deductions must also be strictly construed. business or the personal expenses ALLOWABLE DEDUCTIONS A: EXCLUSION Refers to a flow of wealth which does not form part of the gross income because: 1. business or profession Deductions must be supported by adequate receipts or invoices (except standard deduction) Q: Distinguish allowable deductions from gross income from personal exemptions. The Special Purpose Vehicle Act ALLOWABLE DEDUCTIONS FROM GROSS INCOME Q: Define deductions from gross income. Q: What are the conditions in order that the taxpayer can claim deductions? A: The taxpayer must: 1. Q: Who are not allowed to claim deductions? A: NRA-NETB and NRFC are not allowed since their tax base is gross income. Q: What are the rules in claiming deductions? A: 1. Deductions must be paid or incurred in connection with the taxpayer’s trade. Able to prove that he is entitled to the deduction authorized or allowed. 34. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. it is exempted by the statute. NRC.NATIONAL INTERNAL REVENUE CODE OF 1997 10. An immunity or privilege. shall be allowed as deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the BIR. cost of doing business living and family expenses paid or incurred during the taxable year As to claimant May be claimed by Are granted only to individual and corporate individual taxpayer taxpayer’s XPN: 1. Generally receipts which are excluded from taxable income. MASACAYAN & THEENA C. NIRC) and 4. Any amount paid or payable which is otherwise deductible from. NRFC As to amount The actual expenses paid Arbitrary amounts or incurred in the conduct granted to approximate of trade.NETB 2. ACADEMICS CHAIR: LESTER JAY ALAN E. family and living expenses of an individual. it is exempted by the fundamental law. The theoretical personal. A: PERSONAL EXEMPTIONS As to nature In the nature of business In the nature of personal. and RA whose income is purely compensation income are also not entitled such deductions except for premium payments on health and/or hospitalization insurance) Q: Distinguish exclusion from gross income from allowable deductions from gross income.NETB XPN: NRA. RA 9182. expenses living or family expenses As to purpose To recover or recoup the To recover the personal. 3. SABUGO & JOHN HENRY C. or taken into account in computing gross income or for which depreciation/amortization may be allowed. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 2. MARTINEZ SANTO TOMAS de Derecho Civil 79 .

and or conduct of trade or business of the taxpayer. 3. g. 6. GRANTOZA. Itemized Deductions: BaD2-TRIP-C-O’NEL a. 4. The Withholding and payment of the tax required must be shown. public moral or law such as bribes. b. There must be a specific Provision of law allowing the deductions. VALCOS . Itemized deductions. i. ANG JR. The Requirements for deductibility must be met. Entertainment. Paid or incurred During the taxable year.. HERNANDEZ. Charitable and other contributions. wages and other compensation for personal services actually rendered. SUBJECT HEADS: EDISON U. or in the exercise of the taxpayer’s profession. including gross monetary value of fringe benefits 2. (Ibid. DIVINE C. The expense must be Ordinary and necessary. d. Depreciation. v. management. July 14. CHRISTINE L.) Q: What is the test to determine whether or not an expense is ordinary and necessary? A: If they are directly attributable to the development. If subject to Withholding taxes. LACSINA. 2. CLARABEL ANNE R. There must be Proof of entitlement to the deductions.] Inc. KEITH S. Depletion. Reasonable allowances for salaries. MEMBERS: JOSE DUKE BAGULAYA. since deductions do not exist by implication. 1963) Q: What is necessary expense? A: Necessary expense is one which is appropriate and helpful in the development of taxpayer’s business and is intended to minimize losses or to increase profits. ASST. j.I. Q: What are the requisites for deductibility in general? A: WaR-With-Pro2 1. Corporation legitimate. operation. Interest. The expense must be Reasonable. c. CTA Case 1117. Pension trust contribution. amusement and recreation expenses during the taxable year Q: What are the kinds of allowable deductions from gross income? A: 1. proof of payment to BIR. Bad debts. kickbacks. f. Research and development costs. recognized 40% of gross illegitimate child or income children not more than 4 profession ITEMIZED DEDUCTION ORDINARY AND NECESSARY EXPENSES Q: What are the requisites for deductibility of expenses (in general)? A: D-STROWN 1. classified into: 2. The expense must be incurred in Trade or business carried on by the taxpayer. Individual 2. for the purpose of trade.UST GOLDEN NOTES 2011 that may be incurred by individual taxpayer As to kinds of deductions or exemptions Classified into: Exemption may be 1. TEE. Additional personal 40% of gross exemption of P25k for sales or every qualified receipts dependent. 2. Collector. h. Optional Standard Deduction (OSD) Special Deductions 2. Ordinary and Necessary Expenses. a. business or profession 4. ("No deduction without documentation. 3. ORTIZ & VANNESSA ROSE S. for immoral purposes. Q: What is ordinary expense? A: It is any expense that is normal or usual in relation to the taxpayer’s business and the surrounding circumstances. including: 1. The expense must be Substantiated by proof. SUBJECT HEAD: RODOLFO N. b. PRUDENCE ANGELITA A. Losses. KASALA. 4. e.") and 5. CHARLES L. Taxes. Note: The burden of proof is with the taxpayer for it to be deductible 80 TAXATION LAW TEAM: ADVISER: ATTY. Rental and other payments for the continued use or possession of property. 5. Optional Standard 1. (substantation rule) 3. GUTIERREZ. Expenses must Not be against public policy. and 7. Travel expenses in pursuit of trade or business 3. Basic personal Deductions: exemption. The deductions must not have been Waived. (General Electric [P.

ADD proposed to obtain a policy of insurance on his life. Commissioner. Du Pont. (Basilan Estates v.? A: No. The term "ordinary" is used in the income tax law in its common significance and it has the connotation of being normal. 39 F (2d) 540) It is the use of estimates or approximations of the amount of cash and other assets where the taxpayer lacks adequate records. the BIR will make an estimate of deduction that may be allowable in computing the taxpayer's taxable income bearing heavily against the taxpayer whose inexactitude is of his own making. operation and/or conduct of the trade. MARTINEZ SANTO TOMAS de Derecho Civil 81 . the provision which requires the preservation of the books of accounts and other accounting records for a period of 3 years from the date of last entry. Note: If there is showing that expenses have been incurred but the exact amount thereof cannot be ascertained due to the absence of receipts and vouchers of the expenditures involved. amusement and recreation Advertising and promotional expenses Cost of materials and supplies Repairs 2. Believing that its business outlook. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. The amount of the expense being deducted. Inc. a contractor who won the bid for the construction of a public highway. they can prove that they had made a deductible expenditure but just cannot prove how much that expenditure was. and other documentary proof however may be excused under Sec. SABUGO & JOHN HENRY C.000. and 2. management. Sept. GR L022492. Inc. Another reason for its non-deductibility is the fact that it can be considered as an illegal compensation made to a government employee. OXY objected to the insurance purchase but ADD purchased the policy anyway. the premium is not deductible because it is not an ordinary business expense. Q: How is the substantiation rule complied with? A: The taxpayer shall substantiate the expense being deducted with sufficient evidence such as official receipts or other adequate records showing: 1. capital expenditures are those incurred to improve assets and benefits for more than 1 taxable year. Its annual premium amounted to P100. he took a leave of absence from ADD. 1967) Q: What is the Cohan Rule Principle? A: Under this principle. A: Ordinary expenses are those which are common to incur in trade or business. his estate or heirs were made as the beneficiary (because of the ACADEMICS CHAIR: LESTER JAY ALAN E. Are these expenses allowable as deduction from gross income? A: No. MASACAYAN & THEENA C. On ethical grounds. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Q: When there are no receipts to prove a deduction. That disallowance of 50% of the taxpayer’s claimed deduction is valid. On the other hand. 3. The direct connection or relation of the expense being deducted to the development. CIR. Q: MC. When OXY was asked to join the government service as director of a bureau under the Department of Trade and Industry. (Sec. 7. 5. 235 of the NIRC. (RMC 23-2000) Q: What are included as ordinary and necessary expenses? A: 1. wages and other forms of compensation for personal services actually rendered Travelling expenses Rental expenses Entertainment. the lack of supporting vouchers. the alleged facilitation fees which they claims as standard operating procedure in transactions with the government comes in the form of bribes or “kickback” which are not allowed as deductions from gross income as they are illegal. Salaries.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: Distinguish ordinary expenses from capital expenditures. 6. 308 US 488 [1940]) Paying premiums for the insurance of a person not connected to the company is not normal. business or profession of the taxpayer. Is said premium deductible by ADD Computers. This is so because if the insured. 5. 4. (Cohan v. receipts. Ordinary expenses are usually incurred during a taxable year and benefits such taxable year. claims as expense. facilities fees which according to them is standard operating procedure in transactions with the government. can the taxpayer still claim it as a deduction? A: Yes. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. taxpayers may use estimates when they can show that there is some factual foundation on which to base a reasonable approximation of the expense. usual or customary. goodwill and opportunities improved with OXY in the government. usual or customary. NIRC) Q: OXY is the president and CEO of ADD Computers. 34 A [1] c. (Deputy v.

3. commissions. The character of the taxpayer’s business 3. DIVINE C. and other compensation Bonuses in good faith Pensions and compensation for injuries if not compensated for by insurance or otherwise Grossed-up monetary value of fringe benefit provided for. GR L-24059. Reasonable and necessary expenses. SUBJECT HEAD: RODOLFO N. 2. and Reasonable. 36 A [4]. retirement pay. how will you resolve the issue? A: I will rule against the deductibility of the bonus. 34 A [l] c. 28. he was offered the arrangement that part of is compensation would be an insurance policy with a face value of P20 million. 2. NIRC) On the other hand. The extra bonus is not normal to the business and unreasonable. They are allowed as a deduction from gross income so long as the employer is not a direct or indirect beneficiary under the policy of insurance. The type and extent of the services rendered 6. Since the parents of the employee were made the beneficiaries. if the company was made the beneficiary. the premiums paid are ordinary and necessary business expenses of the company. 2. and 82 TAXATION LAW TEAM: ADVISER: ATTY.M. The volume and amount of its net earnings 4. there is no fixed test for determining the reasonableness of a bonus as an additional compensation. Services actually rendered. vacation-leave pay. To entice him to accept the job. NIRC) Q: What are included in compensation for services which are allowed as deductions from gross income? A: 1. When the income tax return of the corporation was reviewed by the BIR the following year. 3. Giving an extra bonus at a time that the company suffers operating losses is not a payment done in good faith and is not normal to the business. KEITH S. The size of the particular business Travelling Expenses Q: What are the requisites for its deductibility? A: RAP 1. hence unreasonable and would not qualify as ordinary and necessary expense. 4. Hoskins & Co. If you were the CIR. CHARLES L. salaries. Inc. Its locality 5. Compensation is for such rendered. SUBJECT HEADS: EDISON U. whether directly or indirectly. GUTIERREZ. MEMBERS: JOSE DUKE BAGULAYA. VALCOS . Can the company deduct from its gross income the amount of the premium? A: Yes. the payment of premium will constitute bribes which are not allowed as deduction from gross income. otherwise it cannot be availed as deduction.. v. the prohibition for their deduction does not exist.UST GOLDEN NOTES 2011 requirement of insurable interest). The parents of Noel are made the beneficiaries of the insurance policy. ASST. The corporation claimed that the bonus is an ordinary and necessary expense that should be allowed. professional fees. CIR. Wages.. as long as the final tax imposed has been paid. The fringe benefit must have been granted to managerial and supervisory employees. Nov. KASALA. He was hired by Hewlett Packard. 1969) (2006 Bar Question) Compensation for Services. the corporation declared a net operating loss. The following conditions may be taken into consideration: 1. Q: What are the conditions for its deductibility? A: 1. Incurred or paid while Away from home. PRUDENCE ANGELITA A. TEE. CHRISTINE L. the premium is not allowed as a deduction from gross income (2004 Bar Question) 8. The payment must be made in good faith 2. services Q: Gold and Silver Corporation gave extra 14th month bonus to all its officials and employees in the total amount of P75 million. CLARABEL ANNE R. (Sec. GRANTOZA. it disallowed as item of deduction the P75 million bonus the corporation gave its officials and employees on the ground of unreasonableness. HERNANDEZ. LACSINA. When it filed its corporate income tax return the following year. The salary policy of the corporation 7. 9. (Sec. (2006 Bar Question) Q: Noel is a bright computer science graduate. The employees’ qualification and contributions to the business venture General economic conditions (C. ANG JR. Q: What are the conditions for deductibility of bonus? A: Although. ORTIZ & VANNESSA ROSE S.

theater. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. concert. 2. partners or directors ACADEMICS CHAIR: LESTER JAY ALAN E. 2. meals and lodging. or meeting with. country club. sporting event and similar events or places. Q: What expenses are entertainment. Reasonable. 4. Aliquot part of the amount used to acquire leasehold over the number of years the lease will run Taxes and other obligations of the lessor paid by the lessee Annual depreciation of the cost of the leasehold improvements introduced by the lessee over the remaining period of the lease. 2. 2) A: Repairs are allowed as deduction when it is minor and ordinary. or over the life of the improvements. Amusementand Recreation Q: What are the requisites for deductibility? A: SPuNDR. amusement and recreation expenses? A: They include representation expenses and/or depreciation or rental expense relating to entertainment facilities. (RR No. amusement expenses? A: 1.NATIONAL INTERNAL REVENUE CODE OF 1997 3. Taxpayer has not taken or is not taking title to the property or has no equity other than that of a lessee. MASACAYAN & THEENA C. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. or recreation of guests or employees. user or possessor. in entertaining.B 1. whichever period is shorter. Entertainment. Property must be used in the trade or business. 3. Not contrary to laws. Paid or incurred During the taxable year. SABUGO & JOHN HENRY C. not and considered recreation 2. Q: What does the term “away from home” mean? A: The term “away from home” means away from the location of the employee’s principal place of employment regardless of where the family residence is maintained. RR 102002) Rental Expense Q: What are the requisites for its deductibility? A: 1. Q: What are included as travelling expense? A: It includes transportation. In Pursuit of trade or business. kickback or other similar payments. place of amusement. Note: “Entertainment facilities” shall refer to a yacht. amusement. 5. Paid or incurred in the Pursuit of trade or business . Q: What are included as entertainment. play. Repairs Q: When is repair expense allowed as a deduction from gross income? Expenses which are treated as compensation or fringe benefits for services rendered under an employeremployee relationship Expenses for charitable or fund-raising events Expenses for bonafide business meeting of stockholders. a guest or guests at a dining place. vacation home or condominium. Does not constitute Bribe.000 subject to 5% tax. 2. and Subject to withholding tax (5%) if business property the rental must be at least P500 in case of non-business or residential property the rental is at least P10. Major and extraordinary repairs are capitalized and included in determining depreciation expense. business or exercise of profession. Note: “Representation expenses” shall refer to expenses incurred by a taxpayer in connection with the conduct of his trade. Q: What are included as rental expense? A: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Payment was made as a condition to the continuous use of or possession of the property. and any other similar item of real or personal property used by the taxpayer primarily for the entertainment. 4. 3. providing amusement and recreation to. 3. MARTINEZ SANTO TOMAS de Derecho Civil 83 . 3. Note: It is not the cost of the leasehold improvements but only its annual depreciation that is considered as rental expense. (Sec. Substantiated with sufficient evidence. and 6. morals and public policy or public order.

CLARABEL ANNE R. amusement and recreation expense shall be allowed as a deduction from gross income but in no case shall exceed: 1. Q: Is there any ceiling on the amount allowed as entertainment. GRANTOZA. the promotional expense paid by PSEDC to Algue amounting to P75. RR 10-2002) advertising expense or know-how must be subjected to withholding tax. and other similar events Other expenses of similar nature. workshops. For taxpayers engaged in sale of goods or properties – 0.e. Expenses for attending or sponsoring an employee to a business league or professional organization meeting Expenses for events organized for promotion. 2. Substantiated with sufficient evidence. provided the net income is clearly reflected by direct purchase method. Actual consumption method inventory method Direct purchase method or Advertising and Promotional Expenses Q: What are the requisites for the deductibility of advertising and promotional expenses? A: 1. RR 10-2002) Apportionment Formula: Net sales/net revenue x Actual Expense Total Net sales and revenue Costs of Materials and Supplies Q: Are all materials and supplies deductible whether or not they are used? A: No.. (CIR v. GUTIERREZ.. Is the promotional expense deductible? A: Yes. CHRISTINE L. All payments for the purchase of promotional give-aways.. including exercise of profession and use or lease of properties – 1. (Sec. talent fees. but which in no case shall exceed the maximum percentage ceiling provided (Sec. seminars. 2. ANG JR.00% of net revenue (i. amusement and recreation expense? A: Yes. KASALA.50% of net sales (i. 3. construction and other allied activities. SUBJECT HEAD: RODOLFO N. PRUDENCE ANGELITA A. Inc.000 and from this commission the P75. marketing and advertising including concerts.UST GOLDEN NOTES 2011 4. Q: Algue. ORTIZ & VANNESSA ROSE S. Pursuant to said authority and through the joint efforts of the officers of Algue. and All payments for services such as radio and TV time. 17.000 promotional fees were paid to the officers of Algue. Algue. CHARLES L. inducing other persons to invest in it. Q: What are the methods utilized to determine materials used? A: 1. conferences. conventions. gross revenue less discounts) 3. authorizing it to sell its land. contest prizes or similar material must be properly receipted. entertainment. SUBJECT HEADS: EDISON U. 6. 84 TAXATION LAW TEAM: ADVISER: ATTY. LACSINA. For taxpayers engaged in sale of services. Philippine Sugar Estate Development Company (PSEDC) appointed Algue as its agent. Algue proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise (Vegetable Oil Investment Corporation) and involve themselves in a new business requiring millions of pesos. For this sale. Algue received as an agent a commission of P125. GR L-28896 Feb. MEMBERS: JOSE DUKE BAGULAYA. 5.000 is deductible for it was reasonable and not excessive. Q: Assuming the taxpayer purchases materials but has no record of consumption. gross sales less sales returns or allowances and sales discounts) 2. 3. is it deductible? A: Yes. factories and oil manufacturing processes. is a domestic corporation engaged in engineering. print ads. ASST. KEITH S. This new corporation later purchased the PSEDC properties. TEE. HERNANDEZ. VALCOS . For taxpayers deriving income from both sale of goods and services – the allowable deduction shall in all cases be determined based on an apportionment formula taking into consideration the percentage of the net sales/net revenue to the total net sales/net revenue. materials and supplies are deductible only to the amount actually consumed or used in the operation during the taxable year. 1988) 5. they formed the Vegetable Oil Investment Corporation. DIVINE C.e.

except in case of distribution in liquidation Corporation and another corporation. The interest on unpaid business tax shall not be subjected to the limitation on deduction Paid by a corporation on scrip dividends On deposits paid by authorized banks of the BSP to depositors. regardless of the name it is called or denominated. which in reality is dividend Interest on unpaid salaries and bonuses Interest calculated for cost keeping Interest paid where parties provide no stipulation in writing to pay interest If the indebtedness is incurred to finance petroleum exploration Interest paid on indebtedness between related taxpayers Interest on indebtedness paid in advance through discount or otherwise and the taxpayer reports income on cash basis Note: Interest is allowed as a deduction in the year the indebtedness is paid. brothers and sisters. ancestors and lineal descendants Stockholders and a corporation. Q: What is tax arbitrage? A: It is a strategy which takes advantage of the difference in tax rates or tax systems as the basis for profit. Incurred in connection with the taxpayer’s trade or business. with interlocking stockholders Grantor and fiduciary in a trust Fiduciary of a trust and fiduciary in another trust. Q: What are the deductible interest expenses? A: Interest: 6. Q: Who are related taxpayers? A: 1. Thus under the 30% NCIT. liable on a mortgage upon real property of which the said corporation is the legal or equitable owner. (Sec.33%. if the same person is a grantor with respect to each trust Fiduciary of a trust and beneficiary of such trust 2. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. whether in full or half blood. Indebtedness must be that of the taxpayer. 3. such as those paid for deficiency or delinquency. (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 Interests Q: How is interest as a deduction from gross income defined? A: Interest shall refer to the payment for the use or forbearance or detention of money. Interest is stipulated in writing. MASACAYAN & THEENA C. when he holds more than 50% in value of its outstanding capital stock. 2. and 5. since taxes are considered indebtedness (provided that the tax is a deductible tax. 3.) However. 34 B [1]. spouse. 2. as well as for his detention of money after the due date for its repayment. 4. rounded off. ACADEMICS CHAIR: LESTER JAY ALAN E. Interest on preferred stock. not when the interest was paid in advance. Note: The rate of interest limitation is actually the difference between the normal corporate income tax and the 20% final tax as a percentage of the NCIT rate. 7. MARTINEZ SANTO TOMAS de Derecho Civil 85 . There must be an indebtedness. fines. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. This limitation on the deductibility of interest expense was legislated to specifically address the tax arbitrage arising from the difference between the 20% final tax on interest income and the normal corporate income tax rate under which interest expense can be claimed as a deduction. It includes the amount paid for the borrower’s use of money during the term of the loan. 2. 2 [a]. 4. 5. even though it is not directly liable for the indebtedness are the non-deductible interest Q: What expenses? A: 1. and surcharges on account of taxes are not deductible. 5. 1. On taxes. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. NIRC) Note: This is to safeguard from tax arbitrage schemes. 6. if shown that the tax on such interest was withheld Paid by a corporate taxpayer. 3. penalties. 3. Interest expense was incurred or paid during the taxable year. Members of the same family. 4. (30%-20%) / 30% = 33. RR 13-2000) Q: What are the requirements under the NIRC for interest to be deductible? A: The following requirements must be met for interest to be deductible: 1. SABUGO & JOHN HENRY C. 4. (1992 Bar Question) Q: Is there any limitation on the amount of deductible interest expense? A: The taxpayer’s otherwise allowable deduction for interest expense shall be reduced by an amount equal to 33% of the interest income subject to final tax.

Import duties Business licenses. (1999 Bar Question) A: GR: Taxes may be deducted only on the year it was paid or incurred.UST GOLDEN NOTES 2011 4. if the taxpayer makes use of tax credit Final taxes. Q: What is the treatment to income taxes paid in foreign countries? A: The taxpayer may either claim it as: 1. VALCOS . (Sec. GUTIERREZ. ANG JR. KEITH S. because: 1. interest periodically amortized and interest incurred to acquire property used in trade or business is also treated the same. 5. and Taxes are not specifically excluded by law from being deducted from the taxpayer’s gross income. 34 B [2]. the obligation to deduct arises only when the liability is finally determined. franchise taxes and other similar impositions. when? Q: Is the interest on loans used to acquire capital equipment or machinery deductible from gross income? A: Yes. 3. it forms part of the cost of the asset. Q: Deduction for taxes may be claimed. Q: What are the requisites for deductibility of taxes? A: 1. 3. Income tax 2. i. Paid or incurred during the taxable year in connection with taxpayer’s trade. DIVINE C..e. Foreign tax credits against Philippine income tax due of citizens and domestic corporations. A deduction from gross income of citizens and domestic corporations. 2. LACSINA. CLARABEL ANNE R. It does not arise from interest bearing obligation. 2. CHRISTINE L. amusement taxes. professional taxes. PRUDENCE ANGELITA A. Q: What are the examples of taxes which are deductible? A: 1. 2. SUBJECT HEAD: RODOLFO N. business or profession. or 2. It is not paid or incurred for it is merely computed or calculated. As a deduction. Treated as capital expenditure. Tax must be imposed by law on. HERNANDEZ. business or exercise of a profession. MEMBERS: JOSE DUKE BAGULAYA. and payable by the taxpayer. business or profession may be allowed either: 1. ORTIZ & VANNESSA ROSE S. XPNs: (ISE2F2) 1. license taxes. being in the nature of income taxes Q: What is the Arm’s Length Interest Rate? A: It is the rate of interest which was charged or would have been charged at the time the indebtedness arose in independent transaction with or between unrelated parties under similar circumstances. NIRC) Note: Interest paid in advance. KASALA. ASST. Estate and donor’s taxes 2. Payments must be for taxes. Taxes Q: Are all taxes deductible? A: GR: Taxes paid or incurred during the taxable year in connection with trade. Excess electric consumption tax Foreign income tax. 4.. business or profession of the taxpayer shall be allowed as deduction. SUBJECT HEADS: EDISON U. CHARLES L. Q: What is foreign tax credit? A: It is the right of an income taxpayer to deduct from income tax payable the foreign income tax he has paid to a foreign country subject to certain 86 TAXATION LAW TEAM: ADVISER: ATTY. the taxpayer can deduct it as an outright deduction or capital expenditure. XPN: In the case of contingent tax liability. GRANTOZA. Special assessments 3. 6. Q: Is theoretical interest deductible? A: No. the law gives the taxpayer the option to claim it as a deduction or treat it as capital expenditure interest incurred to acquire property used in trade. excise and stamp taxes Local government taxes such as real property taxes. Q: What is the optional treatment of interest expense on capital expenditure? A: Interest incurred to acquire property used in trade. TEE.

Alien individuals. (Sec. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 34 C [3] b. Q: In 2006. Q: What is Tax Benefit Rule? ACADEMICS CHAIR: LESTER JAY ALAN E. MARTINEZ SANTO TOMAS de Derecho Civil 87 . 3. taxes allowed as deductions.000 in 2008. Resident citizens Domestic corporations (Sec. NIRC) 2. 2. although not prohibited by the Constitution for being violative of the due process. 34 C [2].000 in 2008. (Sec. This is to avoid the rigors of indirect double taxation. 34 C [3] a. Maintenance or repair of local benefits. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. When she received the refund of P50.NATIONAL INTERNAL REVENUE CODE OF 1997 limitations. A: TAX DEDUCTION Subtracted from: Tax due Income before tax Reduces: The taxpayer’s tax liability Income upon which tax peso for peso liability is computed TAX CREDIT A: Taxes allowed as deductions. whether resident or non-residents Non-resident citizen including overseas contracted workers and seamen Q: What are the limitations in when claiming tax credit? A: 1. NIRC) Q: What are non-deductible taxes? A: Taxes not allowed as deduction from gross income to arrive at taxable income: 1. Income tax provided unded the NIRC 2. NIRC) Q: Who are not entitled to claim tax credit? A: 1. which the taxpayer’s taxable income from sources within such country bears to his entire taxable income.000 in 2006? A: Sally should have deducted the total P75. the deductions for taxes shall be allowed only if and to the extent that they are connected with income from sources within the Philippines. Because of the assurances from her retained CPA that she stands a good chance of being able to secure a refund of P50. NIRC). she paid the same under protest. and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. Constructing local benefits tending to increase the value of the property assessd. She deducted only the P25. which the taxpayer’s income from sources without the Philippines taxable under Title II of the NIRC (Tax on Income) bears to his entire taxable income for the same taxable year. SABUGO & JOHN HENRY C.000 she did not deduct the same anymore from her income tax return. (Sec. The amount of the credit in respect to the tax paid or incurred to any country shall not exceed the same proportion of the tax against which such credit is taken. 34 C [1]. she should have included the amount as part of her income. the payments are in the nature of capital expenditures Q: Who are entitled to claim tax credit? A: 1. Q: Distinguish tax credit from tax deduction. Sally. 3.000 which she believed was due from her.000 customs duties in 2006. 34 C [4]. a fruit market operator received an assessment for customs duties for her imported market equipment in the amount of P75. Under the tax benefit rule. when refunded or credited shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. 4.000. results to a tax being paid twice on the same subject matter or transaction. business or profession 2. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. NIRC) Members of a GPP Beneficiary of an estate or trust (Sec. Believing that the amount is excessive. Q: What is the limitation on such deduction? A: In the case of non-resident alien individual engaged in trade or business in the Philippines and a resident foreign corporation. MASACAYAN & THEENA C. whether resident or non-residents Foreign corporation. Income taxes imposed by authority of any foreign country Q: What is the tax treatment of special assessment? A: Special assessments are deductible as taxes where these are made for the purpose of: 1. She received the refund amounting to P50. 2. if the payment of such assessment is ordinary and necessary in the conduct of trade. when refunded or credited shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction. What should have been the proper tax treatment of the payment of P75.

88 TAXATION LAW TEAM: ADVISER: ATTY. ii. Loss belongs to the Taxpayer. Incurred in trade or business. Total Destruction – the basis of the loss is the net book value immediately preceding the casualty to be reduced by the amount of insurance or compensation received. Losses on wash sales of stocks – not deductible since these are considered as artificial loss c. Net Operating Loss Carry-over (NOLCO) Capital Losses – losses from sale or exchange of capital assets. Q: What are considered “losses” for purposes of deductions from gross income? A: Losses actually sustained during the taxable year and not compensated for by insurance or other forms of indemnity. If it is Casualty loss. it is evidenced by a declaration of loss file within 45 days with the BIR. as well as the undepreciated cost of equipment directly used therein. ASST. Abandonment losses in petroleum operation – all accumulated exploration and development expenditures pertaining thereto shall be allowed as a deduction d. 5. fires or other casualties. DIVINE C. Losses from sales or exchanges of property between related taxpayers – losses are not deductible but gains are taxable. Evidenced by a closed and completed transaction. (Casualty loss) i. Losses of farmers – If incurred in the operation of farm business. NIRC) b. it is deductible h. Deductible to the extent of capital gains only. GUTIERREZ. but in no case shall the deductible loss be more than the net book value of the property as a whole. 34 D [1]. VALCOS . theft or embezzlement. CHRISTINE L. subject to depreciation over the remaining useful life of the property. equipment or facility is abandoned e. shipwreck. business or profession. SUBJECT HEAD: RODOLFO N. 2. Partial Destruction – the replacement cost to restore the property to its normal operating condition. CLARABEL ANNE R. HERNANDEZ. Ordinary Losses: a. GRANTOZA. KEITH S. Not claimed as a deduction for Estate tax purposes in case of individual taxpayers. Losses due to voluntary removal of building incident to renewal or replacements – deductible expense from gross income f. (1998 Bar Question) Q: What are the types of losses? A: 1. Wagering losses – deductible only to the extent of gain or winnings deemed to only apply to individuals (Sec. ORTIZ & VANNESSA ROSE S. KASALA. shall be allowed as deduction in the year the well. NIRC) Q: Give the requisites for the deductibility of a loss. or practice of profession. g. PRUDENCE ANGELITA A. 3. A: The requisites for deductibility of a loss are: TAEIE-C45 1. and 6. Of property connected with trade. 34 D [6]. The excess over the net book value immediately before the casualty should be capitalized. Special Losses: a. MEMBERS: JOSE DUKE BAGULAYA. Not compensated by Insurance or other forms of indemnity. Loss in shrinkage in value of stock – If the stock of the corporation becomes worthless (not mere market fluctuations.) the cost or other basis may be deducted by the owner in the taxable year in which the stock becomes worthless Note: The burden is on the taxpayer to show the allocation of the amounts assessed to the different purposes. SUBJECT HEADS: EDISON U. Abandonment losses in producing well – the unamortized cost thereof. 2. immediately before 3. if the loss arises from storms. Losses 4. (Sec. TEE. b.UST GOLDEN NOTES 2011 casualty. Actually sustained and charged off during the taxable year. CHARLES L.. LACSINA. or from robbery. 4. ANG JR. Q: What is NOLCO? A: It is the excess of allowable deductions over gross income of business for any taxable year which had not been previously offset as deduction from gross income.

(Sec. There has been no substantial change in the ownership of the business or enterprise. The taxpayer was not exempt from income tax in the year of such net operating loss. Due to removal of buildings purchased (not existing and not incident to renewal) Note: It shall be carried over as deduction from gross income for the next 3 consecutive years following the year of such loss. or combination with another person. consolidation or combination. Q: What is the meaning of “substantial change in ownership of the business or enterprise”? A: The 75% equity rule (or ownership or interest rule) shall only apply to transfer or assignment of the taxpayer’s net operating losses as a result of or arising from the said taxpayer’s merger or consolidation or business combination with another person. RR 14-2001) Q: In case of mines other than oil and gas wells. The next day. the shareholders of the transferor/assignor. (1993 Bar Question) Q: Are worthless securities deductible from gross income for income tax purposes? A: Worthless securities. or the transferor gains control of: 1. deductible to the extent of capital gains. if not a corporation (75% equity rule) (Sec. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. he cannot deduct the losses incurred since an individual taxpayer who derives income from compensation is allowed only personal and additional deductions and the reasonable premiums for health and hospitalization insurance. are not allowed as deduction from gross income because the loss is not realized. 2. and that it is not compensated by insurance or otherwise. he can deduct the value of the car from his gross income provided he can recover only up to the amount of the casualty loss that does not exceed its book value. In dealings between related taxpayers. If X is engaged in trade or business. NOLCO shall be allowed for what period? A: A net operating loss during the first ten years of operation shall be allowed as NOLCO for the next 5 years. SABUGO & JOHN HENRY C. At least 75% or more interest in the business of the transferee/assignee. (Sec. The transferee or assignee shall not be entitled to claim the same as a deduction from gross income except when as a result of the said merger. a band of MNLF seized his car by force and used it to kidnap a foreign missionary. MASACAYAN & THEENA C. of amount due to the taxpayer by others. the military and the MNLF band had a chance encounter which caused X’s car to be a total wreck. If X is an employee of a company. Can X deduct the value of his car from his income as casualty loss? A: It depends.1. in whole or in part. 5. This deduction. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 2. consolidation. and 2. However.NATIONAL INTERNAL REVENUE CODE OF 1997 1. (Sec. the owner is considered to have incurred a capital loss as of the last day of the taxable year and therefore. 2. however. NIRC) (1999 Bar Question) Bad Debts Q: What are bad debts? A: Bad debts refer to debts resulting from the worthlessness or uncollectibility. At least 75% or more in nominal value of the outstanding issued shares or paid up capital of the transferee/assignee. From wash sales of stocks. a travelling salesman in Sulu. is not allowed to a bank or trust company. In the course of his travel. RR 14-2001) Q: How do you determine whether or not substantial change in ownership occurred? A: Substantial change in ownership shall be determined on the basis of any change in the ownership in said business or enterprise arising from or incident to its merger. Q: When do you determine whether there is substantial change in ownership? A: The substantial change in the ownership of the business or enterprise shall be determined as of the end of the taxable year when NOLCO is to be claimed as deduction. if these worthless securities are capital assets. arising from money lent or from uncollectible amounts of income from goods sold or services rendered. which are ordinary assets.4. 34 E [2]. Q: What are the non-deductible losses? A: Losses: Q: X. if a corporation 2. MARTINEZ SANTO TOMAS de Derecho Civil 89 . 3. Provided that: 1. RR 5-99) These are debts due to the taxpayer actually ascertained to be worthless and charged off in the books of the taxpayer within the taxable year except those: ACADEMICS CHAIR: LESTER JAY ALAN E. 34 D [4].

3. 2. in lieu of requisite No. and Must not be sustained in a transaction entered into between Related parties. Actually Charged off in the books of accounts of the taxpayer as of the end of the taxable year. shall approve the writing off of said indebtedness from the banks’ books of accounts at the end of the taxable year. In order that debts be considered as bad debts because they have become worthless. 2. (Philippine Refining Co. NIRC) Q: What is the tax benefit rule as applied to bad debts recovered? A: This states that the taxpayer is obliged to declare as taxable income subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written off and claimed as deduction from gross income. ORTIZ & VANNESSA ROSE S. 4. Giving the account to a lawyer for collection. Note: 1. but upon the exercise of sound business judgment. Ascertain the debt to be worthless in the year for which the deduction is sought. the BSP. DIVINE C. thru its Monetary Board. 1967). Connected with the taxpayer’s Trade. There are numerous debtors with small amounts of debts and further action on the accounts would entail expenses exceeding the amounts sought to be collected. Mere allegations cannot prove the worthlessness of such debts. 6. 5. Goodrich International Rubber Co.. The debts are Uncollectible despite diligent effort exerted by the taxpayer. The mere setting up of reserves will not give rise to any deduction. Act in good faith in ascertaining the debt to be worthless (CIR v. The debtor has no property nor visible income. HERNANDEZ. 34 [E]. hence. 3.UST GOLDEN NOTES 2011 1. GR 118794. and 4. Filing a collection case in court. (2004 Bar Question) Note: A mere recording in the taxpayer’s books of account estimated uncollectible accounts does not constitute a write-off of the said receivable. The debt can no longer be collected even in the future. LACSINA. 5 above. 2. 2. Dec. A: USTCAR 1. 22. ANG JR. CA. Sending of collection letters. In no case may a receivable from an insurance or surety company be written off from the taxpayer’s books and claimed as bad debts deduction unless such company has been declared closed due to insolvency or for any such similar reason by the Insurance Commissioner. business or profession. ASST. Sending of statement of accounts. and Collateral shares have become worthless. SUBJECT HEAD: RODOLFO N. VALCOS . SUBJECT HEADS: EDISON U. Actually Ascertained to be worthless and uncollectible as of the end of the taxable year. TEE. the taxpayer should: 1. KASALA. KEITH S. Q: What are the general deductibility of bad debts? requisites for 4. May 8. CLARABEL ANNE R. Q: Is the testimony of a CPA sufficient as substantial evidence for the deductibility of a claimed worthless debt? A: No. and Between related taxpayers 1. 1996) Q: What factors will determine whether or not the debts are bad debts? Depreciation A: The factors to be considered include. the following: Q: What is depreciation? 90 TAXATION LAW TEAM: ADVISER: ATTY. Q: Are “reserves for bad debts” deductible from gross income for income tax purposes? A: No. Note: "Worthless" is not determined by an inflexible formula or slide rule calculation. bad debts must be charged off during the taxable year to be allowed as deduction from gross income. Not connected with trade. The debtor has been adjudged bankrupt or insolvent. Note: To prove that the taxpayer exerted diligent efforts to collect the debts: 1. 2. 3. 5. Existing indebtedness Subsisting due to the taxpayer which must be valid and legally demandable. business or practice of profession. In the case of banks.. but are not limited to. it shall not be a valid basis for its deduction as a bad debt expense. v. GR L-22265. MEMBERS: JOSE DUKE BAGULAYA. GUTIERREZ. CHRISTINE L. GRANTOZA. CHARLES L. 2. mere testimony of a CPA explaining the worthlessness of said debts is seen as nothing more than as a self-serving exercise which lacks probative value. PRUDENCE ANGELITA A. (Sec.

34 [F]. 2.000 in his income tax return. as allowed by the CIR. 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. Is the deduction proper. 2. Depreciable Assets: a. or Depreciated over any number of years between 5 years and the expected life if the latter is more than 10 years and the depreciation thereon is allowed as deduction from taxable income. NIRC) Q: How is the useful life determined on which depreciation rate is based? A: The BIR and the taxpayer may agree in writing on the useful life of the property to be depreciated subject to modification if justified by facts or circumstances. wear and tear and obsolescence.NATIONAL INTERNAL REVENUE CODE OF 1997 A: Depreciation is the gradual diminution in the useful (service) value of tangible property used in trade. However. 34 [F]. SABUGO & JOHN HENRY C. Inventories or stock b. that the contractor notifies the CIR at the beginning of the depreciation period which depreciation rate allowed will be used. (Sec. depreciation is for 5 years using straight line method. and 4. Bodies of minerals subject to depletion d. the starting point for the computation of the deductions for depreciation is the reasonable cost of acquiring the asset and its economic life. Q: What method shall be used in depreciation of properties used in mining operations other than petroleum operations? A: 1. 2. Z assigned to the machineries an economic life of 5 years. Straight line method Declining balance method Sum of the years digit method Any other method which may be prescribed by Department of Finance upon recommendation of the CIR. Note: If the property is not directly related to production. wear and tear (including reasonable allowance for obsolescence) of the machineries which he is using in his trade or business. (Sec. Z is allowed a depreciation allowance for the exhaustion. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MARTINEZ SANTO TOMAS de Derecho Civil 91 . 3. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. The fact that the machineries were already depreciated by its original owner does not matter. 4. NIRC) Q: What are depreciable assets and nondepreciable assets for tax purposes? A: 1. Land c. the same shall be binding. or exercise of a profession. Intangible property like patent copyrights and franchises Non-depreciable Assets: a. 2. Based on the independent appraisal and engineering report. b. Tangible property used in trade or business Provided. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. (Sec. Adopting the straightline method. Non-resident aliens and foreign corporations are allowed to deduct only when the property is located within the Philippines. The allowance must be Charged off within the taxable year. Q: What are the methods of depreciation under the NIRC? A: 1. Property Used in trade. profession or business resulting from exhaustion. Personal effects and clothing Q: What method shall be used in depreciation of properties used in petroleum operations? A: It may either be straight line or declining balance method with a useful life of 10 years or shorter. Z claimed a depreciation deduction of P24. At the normal rate of depreciation if the expected life is less 10 years or less. considering that in the hands of the original owner. 34 F [4]. Schedule on the allowance must be Attached to the return. business. Q: Z purchased fully depreciated machineries and entered the machineries in his books at P120. 3. MASACAYAN & THEENA C. NIRC) (1983 Bar Question) ACADEMICS CHAIR: LESTER JAY ALAN E. Q: Who is entitled to claim depreciation expense? A: The person who sustains an economic loss from the decrease in property value due to depreciation which is usually the owner.000. Reasonable. the said machineries were already fully depreciated? A: Yes. Q: What are the requisites for its deductibility? A: RUCA 1. if there is no agreement and the BIR does not object to the rate and useful life being used by the taxpayer.

assets shall be transferred to another non-profit domestic corporation or to the State. 4. it is only allowed to those intangibles whose use in the business or trade is definitely limited in duration. Health c. Health iv. Youth and Sports development 2. Donations to the Government of the Philippines. Any Combination of the above b.000] then [90. The contribution or gift must be Actually paid. (1999 Bar Question) 1. Charitable and Other Contributions Q: What are the requisites for its deductibility? 4. or political subdivisions including fully-owned government corporation to be used exclusively in undertaking priority activities in: [CHEESHY] a. SUBJECT HEADS: EDISON U. ANG JR. the goodwill is allowed to be amortized over its useful life. ASST.000 and an estimated useful life of 20 years under the straight line method? A: The annual depreciation is P4. Q: What contributions are deductible in full? A: These are: [GAFA] 1. KEITH S. Research ix. from the extraction of mineral. HERNANDEZ. d.500 computed as follows: Acquisition cost less salvage value. KASALA. (Sec. TEE. CHARLES L.000 / 20 = 4. It must be given to the organization Specified by law. Social welfare vii.UST GOLDEN NOTES 2011 Q: What is the annual depreciation of a depreciable fixed asset with a cost of P100. GUTIERREZ. CHRISTINE L.000 = 90. It must be paid Within the taxable year. LACSINA.000 having a salvage value of P10. 2. 3. CLARABEL ANNE R. Such is not the case in goodwill. It must be Evidenced by adequate receipts or records. Culture b. GRANTOZA. Educational v. Education e. DIVINE C. 107. Donation must be utilized not later than the 15th day of the 3rd month following the close of taxable year. Character building & Youth and Sports Development viii. c. Science f. Upon dissolution. 1. 3. XPN: If the goodwill is acquired through capital outlay and is known from experience to be of value to the business for only a limited period. 2) In such case. Economic Development d. Human Settlement g. Q: Who may avail of deduction for depletion? A: Annual depletion deductions are allowed only to mining entities which own an economic interest in mineral deposits. Administrative expense must not exceed 30% of the total expenses. RA 7549) Depletion Q: What is depletion? A: It is the exhaustion of natural resources like mines and oil and gas wells as a result of production or severance from such mines or wells. 3. Scientific vi. ORTIZ & VANNESSA ROSE S. [100. Charitable iii. and The amount of charitable contribution of property other than money shall be based on the Acquisition cost of said property. MEMBERS: JOSE DUKE BAGULAYA. then divide the difference by its useful life. VALCOS . Cultural ii.500] Q: Is depreciation of goodwill deductible from gross income? A: GR: No. A: AW-SEA 92 TAXATION LAW TEAM: ADVISER: ATTY. and return of capital expected. Donations of prizes and awards to Athletes (Sec..000 – 10. 5. SUBJECT HEAD: RODOLFO N. Donations to Accredited NGO’s a. Exclusively for: C2HES2Y-RC i. while intangibles may be allowed to be depreciated or amortized. (Sec. RR No. RR 5-76) Q: What is economic interest? A: It means interest in minerals in the place of investment therein or secured by operating or contract agreement for which income is derived. PRUDENCE ANGELITA A. Donations to Foreign institutions and international organizations in compliance with treaties and agreements with the Government.

No.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What donations are subject to limitation? A: 1. (1968 Bar Question) 4. donated a piece of vacant lot situated in Mandaluyong City to an accredited and duly registered non-stock. Q: On Dec. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Donations to domestic corporations organized exclusively for: a. NIRC) No part of net income of donee inures to the benefit of any private stockholders or individual.000 and the 5. 34 H [1]. X visited the hospital and gave P100.10% of taxable income before contributions. For corporations . he could not deduct either the P100. under No. 2. management and/or operation and/or conduct of trade or business or profession. b. X wants to exclude both the P100. 34 [H]. For individuals . 3. Donations that are not in accordance with the priority plan. Discuss.000 if the hospital is accredited as a donee institution. (1998 Bar Question) Q: What are the limitations? A: 1.000 because to qualify for exemption. No. Charitable e. (Sec.000 and the P5. 27 RAMO 1-87 subject to the condition that the contribution does not exceed ½ month’s basic salary of all the employees. Rehabilitation of veteran g.000. NIRC) (2002 Bar Question) Q: The Filipinas Hospital for Crippled Children is a charitable organization. It is part of the ordinary and necessary expenses.5% of taxable income before contributions. However. May the donor claim in full as deduction from its gross income for the taxable year 2001 the amount of the donated lot equivalent to its fair market value/zonal value at the time of the donation? A: No. 4. MASACAYAN & THEENA C. nonprofit educational institution to be used by the latter in building a sports complex for students. 34 H [1]. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. If he is earning from trade or business. donations and/or contributions made to qualified donee institutions consisting of property other than money shall be based on the acquisition cost of the property. the charitable contribution must be given to accredited organizations or associations. for the beneficiary is the employer (Sec. Donations to the Government of the Philippines or political subdivision exclusive for public purposes. Social Welfare 3. contributions to a newspaper fund for needy families are not deductible for the reason that the income inures to the benefit of the private stockholder of the printing company. 2. NIRC) 2. (Sec. he could deduct the P100. MARTINEZ SANTO TOMAS de Derecho Civil 93 . The donor is not entitled to claim as full deduction the fair market value/zonal value of the lot donated. 36 A [4]. (Sec. LVN Corp. 34 [H]. (Sec.000 to a crippled girl whom he particularly pitied. are contributions to a candidate in an election allowable as a deduction from gross income? A: The contributor is not allowed to deduct the contributions because the said expense is not directly attributable to the development. then no deduction is allowed. Cultural d. NIRC) (1993 Bar Question) Q: On the part of the contributor. 2001. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. he could not deduct the P5. A: If X is earning from compensation income. Donations whose conditions are not complied with. A crippled son of X is in the hospital as one of its patients. Amount deductible shall not exceed: a. SABUGO & JOHN HENRY C. Educational c. If not. NIRC) No. ACADEMICS CHAIR: LESTER JAY ALAN E. 06. Scientific b. part of the net income of the university inures to the benefit of its private stockholders. A: 1. Religious f. Yes.000 to the hospital and P5. Q: Are the following expenses deductible from gross income: 1) Employer’s contribution to the Christmas fund of his employees 2) Contribution to the construction of a chapel of a university that declares dividends to its stockholders 3) Premiums paid by the employer for the life insurance of his employees 4) Contribution to a newspaper fund for needy families when such newspaper organizes a group of civic spirited citizens solely for charitable purposes.000 from his gross income.

the 10% OSD allowed to an individual taxpayer engaged in business and practice of profession was increased to 40% of gross sales or receipts. 3. and 2. LACSINA. Individuals a. CLARABEL ANNE R. (Sec. NIRC) Note: It should be emphasized that the “cost of sales” in case of individual seller of goods. 27 A and 28 A [1] of the NIRC are now given the option to avail the OSD at 40% of gross income. ORTIZ & VANNESSA ROSE S. For the acquisition or improvement of land or for the improvement of property to be used in connection with research and development subject to depreciation and depletion. (Sec. GRANTOZA. Deferred Expense – allowed as deduction ratably distributed over a period of at least 60 months starting from the month benefits are received from such expenditure. (Sec. The deduction is Apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer or payment is made. Resident citizens b. 4. SUBJECT HEAD: RODOLFO N. KEITH S. NIRC) OPTIONAL STANDARD DEDUCTION Q: What is optional standard deduction (OSD)? A: The OSD is a scheme whereby a taxpayer is given the option to deduct from his gross revenue or gross income a lump sum equivalent to a percentage of such gross revenue or gross income for purposes of computing the net taxable income on which the income tax rate will be applied. The amount contributed must no longer be subject to the Control and disposition of the employer. Resident foreign corporations Estates 2. 34 I [3]. DIVINE C. 40% of the gross sales or gross receipts of a qualified individual taxpayer. or the “cost of service” in case of individual seller of services. 40% of the gross income of a qualified corporation. Furthermore. PRUDENCE ANGELITA A. 34 [L]. CHARLES L. Q: How much is allowed as OSD? A: The optional standard deduction is an amount not exceeding: 1. Q: Who may elect an OSD? A: 1. 162008) Note: Under RA 9504. Pension Trust Contributions Q: When can an employer claim as deduction the payment of reasonable pension? A: If the employer contributes to a private pension plan for the benefit of its employee. A: Itemized Deduction must be substantiated by receipts while OSD requires no proof of expenses incurred because the allowable deduction is 40% of gross sales or receipts or gross income as the case may be. MEMBERS: JOSE DUKE BAGULAYA. The payment has Not yet been allowed as a deduction. 94 TAXATION LAW TEAM: ADVISER: ATTY. NIRC) Q: What are those research and development expenditures which are not deductible? A: Any expenditure: 1. The pension plan is Reasonable and actuarially sound. Non-resident citizens c. or 2. 2. VALCOS . KASALA.. Resident aliens Corporations a. Note: This is in lieu of the itemized deduction where the taxpayer lists down all his expenses and the corresponding amounts incurred to determine the amount of allowable deductions. It must be Funded by the employer. is not allowed to be deducted for purposes of determining the basis of the OSD pursuant to RA 9504 (RR No. 3. 34 I [1 and 2].UST GOLDEN NOTES 2011 Research and Development Expenditure Q: How may a taxpayer treat research and development costs? A: Taxpayer may either treat it as: 1. HERNANDEZ. GUTIERREZ. The employer must have established a Pension or retirement plan to provide for the payment of reasonable pensions to his employees. CHRISTINE L. SUBJECT HEADS: EDISON U. Q: What are the requisites for its deductibility? A: P-FRANC 1. extent or quality of any deposit of ore or other mineral including oil or gas. 5. Paid or incurred for the purpose of ascertaining the existence. Q: Differentiate itemized deduction from OSD. TEE. location. and 6. corporations subject to the regular corporate income tax under Secs. ASST. Revenue Expenditure – it will be wholly deducted as ordinary and necessary expense in the year it is paid or incurred 2. Domestic b. ANG JR.

The partners. Non-resident aliens whether or not engaged in trade or business in the Philippines. whether single or married individual judicially decreed as legally separated with no qualified dependents or head of the family. A: 1. family. 2-2010) 2. 4. (RR No. The election to claim either the OSD or itemized deductions must be signified in the income tax return filed for the first quarter of the taxable year. 2. 3. or married. His foreign country allows personal exemptions to citizens of the Philippines not residing therein. once the election is made. Note: RA 9504 increased the basic personal exemptions to P50. Note: The taxpayer must signify his intention in his income tax return which shall be irrevocable for the taxable year for which the return is made. 1. living or family expenses of the taxpayer. PERSONAL AND ADDITIONAL EXEMPTIONS Q: What are personal exemptions? A: These are arbitrary amounts allowed as deductions from gross income of an individual ACADEMICS CHAIR: LESTER JAY ALAN E. business.000 irrespective of whether the individual is single. If the GPP avails of itemized deductions under Sec. Trusts representing personal. Q: How is OSD determined with respect to GPP and the partners thereof? 2. If the GPP avails of OSD in computing net income. SABUGO & JOHN HENRY C. the same type of deduction must be consistently applied for all succeeding quarters and in the annual income tax return. or in the exercise of a profession in the Philippines (NRA-ETB) entitled to personal and additional exemptions? A: GR: No.NATIONAL INTERNAL REVENUE CODE OF 1997 4. 3. and living expenses of an individual taxpayer regardless of status.resident foreign corporations. MASACAYAN & THEENA C. Resident citizen Non-resident citizen Resident alien 5. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. whether itemized or OSD. Basic Personal Exemption – the amount subtracted from gross income which is allowed for the theoretical personal. and A taxpayer who is required but fails to file the quarterly income tax return for the first quarter shall be deemed to have elected to avail of itemized deductions for the taxable year.000 for each child provided not more than 4. XPN: Can be entitled to personal and additional exemption subject to the rule on reciprocity: 1. Q: What are the kinds of personal exemptions? A: Q: Who may not avail of the OSD? A: 1. the partners may no longer claim further deductions from their net distributive share. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Additional Exemptions – these are exemptions in addition to the basic personal exemptions that are granted to certain individual who have dependents that qualify them for this exemption. head of the family. Q: Is a non-resident alien engaged in trade. the partners may still claim itemized deductions on their net distributive share that have not been claimed by the GPP. Q: Who among the individual taxpayer’s are entitled to personal and additional exemptions? A: 1. living and family expenses of the taxpayer. Q: What is the Wisconsin Plan? A: It is a system which allows the deduction from gross income of arbitrary amounts for personal. are not allowed to claim OSD on their share of net income because the OSD is a proxy for all items of deductions allowed in arriving at taxable income. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 2. however. MARTINEZ SANTO TOMAS de Derecho Civil 95 . It also increased the additional personal exemptions to P25. and Non. 34 of the NIRC in computing net income.

Additional Exemptions Q: What are the conditions for an individual to be entitled to additional exemptions? A: An individual: 1. the child gets married. as well as brothers or sisters and other collateral relatives are not qualified dependents to be claimed as additional exemptions under RA 9504. Only individual taxpayers are entitled to personal and additional exemptions.UST GOLDEN NOTES 2011 2. GRANTOZA. Regional or area headquarter or regional operating headquarters of multinational corporation established in the Philippines. DIVINE C. NIRC) d. c. and Amount allowable is not to exceed our maximum allowable personal exemption. Q: In case of legally separated spouses. Q: Who among the individual taxpayers are not entitled to personal and additional exemptions? A: 1. 35 [B]. Q: In case of married individuals and both are working.. Not more than 21 years old. Will she be entitled to personal additional exemption? A: Yes. (Sec. 2. Sec. Is incapable of self-support. ii. HERNANDEZ. NIRC) Q: Who are qualified dependents for purposes of additional exemption? A: 1. ANG JR. RR 298 as amended by RR 10-2008. legally separated has 1 child who is 15 years of age. who is entitled to additional exemptions? A: Additional exemptions may be claimed only by the spouse who has custody of the child or children.) a senior citizen may qualify as dependents Note: Parents. CLARABEL ANNE R. Whether single or married. Non-resident alien not engaged in business Residents aliens and Filipinos employed by and who receive compensation from: a. 35 [B]. Regardless of age. KASALA. 2. Provided. on time. because of mental or physical defect. Unmarried. giving support does not necessarily mean actual and physical dwelling together at all times and under all circumstances. ASST. 4. iii. (Sec. 2. 2. SUBJECT HEAD: RODOLFO N. 35 [b].79 I [1] b. Petroleum service contractors and subcontractors in the Philippines. 96 TAXATION LAW TEAM: ADVISER: ATTY. KEITH S. CHARLES L. PRUDENCE ANGELITA A. GUTIERREZ. Corporations are not entitled to such exemptions. Offshore banking units established in the Philippines. Q: Assuming. CHRISTINE L. b. MEMBERS: JOSE DUKE BAGULAYA. LACSINA. File an accurate return of his income from all sources within the Philippines. the employed spouse within the Philippines shall be automatically entitled to claim the additional exemptions for their children. who is entitled to additional exemptions? A: Additional exemption for dependents shall only be allowed to one of the spouses. A dependent means a. Note: The above individual taxpayers are not allowed to enjoy personal exemptions since they are taxed based on gross incomes. For each qualified dependent child. (Sec. If such dependent is: i. Shall be allowed an additional exemption of P 25. that the total number of dependents for which additional exemptions may be claimed as long as it shall not exceed 4 dependents. ORTIZ & VANNESSA ROSE S. NIRC) Q: W. is W still entitled to personal exemption? A: No. NIRC) Note: Where the spouse is unemployed or is a nonresident citizen deriving income from foreign sources. ii. 35 [B]. Not gainfully employed or If such dependent: i. Chiefly dependent upon and living with the taxpayer. Legitimate.000. the additional exemption applies even if a child or other dependent is away at school or on a visit. SUBJECT HEADS: EDISON U. illegitimate or legally adopted child. The husband shall be the proper claimant unless he explicitly waives his right in favor of the wife in the Application for Registration (Sec. VALCOS . Thus. c. 3. 3. Q: What does “living with the taxpayer” mean? A: Living with the person. Under RA 7432 (Senior Citizens Law. b. TEE.

who is incapable of self-support because of mental or physical defect may qualify as a dependent. (2006 Bar Question) Change of Status Q: What are the rules in case of change of status during the taxable year? A: CHANGE OF STATUS Death of the taxpayer Death of the dependent Additional dependent Dependent becoming more than 21 years of age Marriage of the taxpayer Death of spouse Marriage of Dependent Gainful employment of dependent TREATMENT Estate may claim the personal exemption of P50.000. 1992. the BPE is fixed at P50.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: Supposed the child was gainfully employed at the age of 15. is W still entitled to personal exemption? A: It depends. The children are all minors and not gainfully employed. 1.000 for each dependent. and a second child was born on 07 Nov. The spouses were both employed in 1991 by the same company.000. if apart from being minor and not gainfully employed. Charlie may claim the basic personal exemption (BPE) of P50.000 from her parents. Charlie lives with Jane who is legally married to Mario. 2. they sold the condominium unit and bought a new unit. However. Under RA 9504. and In the ITR. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Q: Who is a benefactor? A: Any person whether related to the senior citizen or not. what were the events in the life of the spouses that had income tax incidence? ACADEMICS CHAIR: LESTER JAY ALAN E. Under the foregoing facts. The senior citizen whose annual taxable income does not exceed the poverty level must be dependent upon the benefactor for chief support. but with regard to marriage and gainful employment. a senior citizen is any resident Filipino citizen aged 60 years old and above. birthday and OSCA ID number of the senior citizen.000 Taxpayer can still claim him or her as dependent for the particular taxable year Taxpayer can still claim him or her as dependent for the particular taxable year Q: Who is a senior citizen? A: Under Sec 2. Registered by the benefactor as his dependent and himself/herself as benefactor. Under RA Q: Mar and Joy got married in 1990. They have a child named Jill. as a rule. a widower. a condominium unit worth P750.000. Q: Charlie. the NIRC provides no exception. After the marriage. MARTINEZ SANTO TOMAS de Derecho Civil 97 . regardless of age. who takes care of him/her as a dependent. what are the conditions? A: 1. How much personal exemption can Charlie claim? 2. MASACAYAN & THEENA C. some renovations were made at a cost of P150. the child must not be more than 21 years old. their first child was born. is W still entitled to personal exemption? 2. His children from his previous marriage who are legitimate children and his illegitimate child with Jane will all entitle him to additional personal exemption of P25. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. How much additional exemption can Charlie claim? A: 1.000 irrespective of status of the taxpayer Taxpayer is still entitled to additional exemption Taxpayer is still entitled to additional exemption Taxpayer can still claim him or her as dependent Taxpayer entitled to full exemption for the particular taxable year Surviving spouse may still claim the full amount of P50. A: No. Note: In case of age requirement there is an exception. they are unmarried. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Joy received. 9504. the benefactor must indicate the name. On 30 Dec. an individual taxpayer may claim the BPE irrespective of status. In 1994. has two sons by his previous marriage. RR 4-2006. 1993. A week before their marriage. implementing the tax provisions of RA 9257 (Expanded Seniors Citizen Act of 2003). Q: In order that a benefactor may claim a senior citizen as a dependent.b. Q: The child reached the age of 22. SABUGO & JOHN HENRY C. 3. a dependent. living with and dependent upon Charlie for their chief support. by way of donation.

GRANTOZA. 98 TAXATION LAW TEAM: ADVISER: ATTY. (Sec. or may be allowed for all but are not provided for under the provisions of the NIRC but under special laws. CHRISTINE L. NIRC) Insurance Companies can Deduct: Mutual insurance – mutual fire and mutual employer’s liability and mutual workmen’s compensation and mutual casualty insurance Assessment Insurance Q: What are the deductions from gross income available under RA 9257 or the “Expanded Senior Citizens Act of 2003?” A: 1. derived from sources within the Philippines.. NIRC) Amount actually deposited with officers of the Government of the Philippines pursuant to law as addition to guarantee or reserve funds. Deductions from gross income of private establishments for the 20% sales discounts granted to senior citizens on the sale of goods and/or services Additional deduction from gross income of private establishments for compensation paid to senior citizens 2. Portion of the premium deposits retained for the payment of losses. 3[A]. DIVINE C. SUBJECT HEADS: EDISON U. 37[C].000 for 1993. 61. ANG JR. Their marriage in 1990 had no effect on their entitlement to the basic personal exemption of P50. 2. HERNANDEZ. Portion of the premium deposits returned to the policy holders. 2. required by law to be made within the year to reserve funds. CLARABEL ANNE R. or b. and Non-resident citizens. 2. Resident citizens and domestic corporations. Mar and Joy. aliens (whether residents or not) and foreign corporations. Q: What are the special deductions allowable under the NIRC? A: 1. CHARLES L. (Sec. 2. Outright expense (the entire amount is deducted from gross income). 37[D]. Private Proprietary Educational Institutions – In addition to the expenses allowed as deduction. Birth of their second child in 1993 would likewise entitle them to claim additional exemption of P25. KASALA.000 which may be enjoyed irrespective of the individual taxpayer’s status. expenses and reinsurance reserve. Net additions. Sum paid on the policy within the year and annuity contracts other than dividends provided that the released reserve be treated as income for the year of release. 2. Amount applied for the benefit of the grantor. NIRC) 1. PRUDENCE ANGELITA A. VALCOS . Their employment in 1991 by the same company will make them liable to the income tax imposed on gross compensation income. 3. MEMBERS: JOSE DUKE BAGULAYA. credited or distributed to the heirs/ beneficiaries. ASST. (Sec. TEE. 37 [B]. from their income arising from their profession. Amount of income paid. Q: Who could avail of the deduction for the 20% senior citizens’ discount? A: 1. GUTIERREZ. NIRC) Estates and Trusts can deduct the: a. ORTIZ & VANNESSA ROSE S.UST GOLDEN NOTES 2011 A: The events in the life of spouses. NIRC) Non-Life Mutual marine insurance Special Deductions Q: What are special deductions? A: These are deductions usually allowed only for particular business or enterprises and not to others.000 for taxable year 1992. Interest paid upon those amounts between the date of ascertainment and the date of its payment. NIRC) 1. (1997 Bar Question) TYPE OF INSURANCE SPECIAL DEDUCTIONS 1. 34 A [2]. 3. (Sec. it has the option to treat the amount utilized for the acquisition of depreciable assets for expansion of school facilities as: a. Capital asset and deduct only from the gross income an amount equivalent to its depreciation every year. KEITH S. trade or business. 4. Amounts repaid to policy holders on account of premiums previously paid by them. SUBJECT HEAD: RODOLFO N. Birth of their first child in 1992 would give rise to an additional exemption of P25. if any. and b. which have income tax incidence are: 1. (Sec. LACSINA. (Sec. 2.

carnivals and other similar places of culture. (Sec. Employment shall have to continue for a period of at least 6 months. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 8 [1] to [5]. SABUGO & JOHN HENRY C. ACADEMICS CHAIR: LESTER JAY ALAN E. 8. and from gross sales or gross receipts of the business enterprise concerned. Annual taxable income of the senior citizen does not exceed the poverty level as may be determined by the NEDA thru the National Statistical Coordination Board (NSCB). The discount can only be allowed as deduction from gross income for the same taxable year that the discount is granted. MARTINEZ SANTO TOMAS de Derecho Civil 99 . and The business establishment giving sale discounts to qualified senior citizens is required to keep separate and accurate record of sales. Q: What are the conditions in order for establishments to avail the 20% sales discounts as deduction from gross income? A: 1. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. The gross selling price and the sales discount must be separately indicated in the official receipt or sales invoice issued by the establishment from the sale of goods or services to the senior citizen. RR 4-2006) Note: Poverty Level/treshold is the the minimum income/expenditure required for a family/individual to meet the basic food and non-food requirements as defined by the NSCB. issued by the SC. gross sales/receipts. *See discussion on Exempt Corporations. OSCA ID. Hotels and similar lodging establishments Restaurants Recreation centers Theaters. For this purpose.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What are the establishments that can claim the discounts granted as deduction? A: 1. 5.017 as of the year 2009) Q: When may the additional deduction from gross income of private establishments for compensation paid to senior citizens be availed? 5. as defined by the SC. 9. pharmacies. Q: What deduction may be availed of under RA 9999. 6. MASACAYAN & THEENA C. otherwise known “Free Legal Assistance Act of 2010?” A: A lawyer or professional partnerships rendering actual free legal services. Q: What is the condition for it to be availed of as a deduction from gross income? A: It shall be deductible provided that the actual free legal services contemplated shall be exclusive of the minimum 60-hour mandatory legal aid services rendered to indigent litigants as required under the Rule on Mandatory Legal Aid Services for Practicing Lawyers.403 while for a family it is P4. for VAT or other percentage tax purposes. which shall include the name of the senior citizen. medical ad optical clinics and similar establishments dispensing medicines Medical and dental services in private facilities Domestic air and sea transportation companies Public land transportation utilities Funeral parlors and similar establishments A: Private establishments employing senior citizens shall be entitled to additional deduction from their gross income equivalent to 15% of the total amount paid as salaries and wages to senior citizens provided the following are present: 1. leisure and amusement Drug stores. Only the actual amount of the discount on a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income. 2. shall be entitled to an allowable deduction from the gross income. circuses. 4. under BAR Matter No. dates of transaction and invoice number for every sale transaction to senior citizen. 2. Note: Deduction would be the amount that could have been collected for the actual free legal services rendered or up to 10% of the gross income derived from the actual performance of the legal profession. whichever is lower. 9. (Sec. (for an individual it is P974 and P1. sales discounts granted.869 and P7. concert halls. cinema houses. consumed or enjoyed by the senior citizen shall be eligible for the deductible sales discount. 4-2006) 2. 3. the senior citizen shall submit to his employer a sworn certification that his annual taxable income does not exceed the poverty level. 3. RR No. 4. net of value-added tax. for income tax purposes. 2012. hospitals. if applicable. Only that portion of the gross sales exclusively used. 7. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.

no deduction shall in any case be allowed in respect to: 1. NIRC) INCOME DERIVED FROM SOURCES Within the Outside the Philippines Philippines √ √ x √ x √ 3. INDIVIDUAL TAXPAYER IS A: Resident Citizen Non-resident Citizen Alien (whether resident or not) 6. SUBJECT HEADS: EDISON U. VALCOS . Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made Premiums paid on any life insurance policy covering the life of any officer or employee. or betterments made to increase the value of any property or estate – these are capital expenditures added to the cost of the property and the periodic depreciation is the amount that is considered as deductible expense Note: Shall not apply to intangible drilling and development costs incurred in petroleum operations which are deductible under Subsection (G) (1) of Sec. LACSINA. HERNANDEZ. 4. A: Except when otherwise provided in the NIRC: 1. INCOME TAXATION ON INDIVIDUALS Q: Give the general principles of income taxation on individuals. 3. 36 [B]. SUBJECT HEAD: RODOLFO N. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. whether a resident or not of the Philippines. ORTIZ & VANNESSA ROSE S. MEMBERS: JOSE DUKE BAGULAYA. living or family expenses – these are personal expenses and not related to the conduct of trade or business 2. 10. is taxable only on income derived from sources within the Philippines (Sec. 8. KASALA. KEITH S. Q: How are individuals taxed? 7. b. CLARABEL ANNE R. that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an OFW An alien individual. CHARLES L. Losses form wash sales of stock or securities Q: When is a person financially interested in the taxpayer’s business? Taxable income subject to graduated Rates .applies to: a. bad debts.ETB) 100 TAXATION LAW TEAM: ADVISER: ATTY. TEE. NIRC) Losses from sales or exchanges of property between related parties (Sec.UST GOLDEN NOTES 2011 Items not Deductible Q: What items are not deductible? A: In computing net income. 34 of the NIRC A: If he is a stockholder thereof or he receives as compensation his share of the profits of the business. when the taxpayer is directly or indirectly a beneficiary under such policy (Sec. A non-resident citizen is only taxable on income derived from sources within the Philippines An individual citizen of the Philippines who is working and deriving income from abroad as an OFW is taxable only on income derived from sources within the Philippines: Provided. 9. Personal. ASST. individual or corporate. 36 [A]. GUTIERREZ. CHRISTINE L. NIRC) Interest expense. ANG JR. Resident alien (RA) d. GRANTOZA. 4. and losses from sales of property between related parties Non-deductible interest A: Non-deductible taxes Non-deductible losses 1. PRUDENCE ANGELITA A. Non-resident citizens (NRC) including OCW c. Non-resident alien engaged in trade or business (NRA. 23.. 5. Any amount paid out for new buildings of for permanent improvements. Resident citizens (RC). or of any person financially interested in any trade or business carried on by the taxpayer. DIVINE C. 2.

000 but not Over over P250.000 Over P500. MASACAYAN & THEENA C.000 x 30%) INCOME TAX PAYABLE P50.000 but not Over over P30.500 P22.000 xxx (xxx) (xxx) xxx xxx xxx xxx xxx Note: Premium payment on health and/or hospitalization insurance cannot be availed since the family gross income is more than P250. Non-monetary Compensation: fringe benefit not subject to tax Business and Professional Income Capital Gain not subject to capital gain tax Passive Income not subject to final tax Other Income + + (Sec.000 Less: Basic Personal exemptions (50.000 P30.000+30% of the excess over P250. director’s fees. the applicable rate is: Over P250.000 P500. He earned gross income in the amount of P1.000 but not Over over P10. How much will he pay as income tax? ACADEMICS CHAIR: LESTER JAY ALAN E. married and has 4 qualified dependents. 13th month pay and other benefits not exempt. if any. Monetary Compensation: regular salary or wage. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.000 30% of the excess over P250. Q: What are the incomes subject to graduated rates? A: 1.000 Thus.000) Premium payment on health and/or Hospitalization insurance -----------Net Compensation Income Add: Net business income Taxable income subject to graduated rates 150. 5.000. 3.000) Additional Exemption (25K x 4) (100. separation pay or retirement benefit not otherwise exempt. b. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C.000 Q: Assume that X is a non-resident alien not engaged in trade or business.000 but not over P500.000 Excess x 30% (50.00 0 P125. Compensation Income: a.000 computed as follows: Gross Income (P25. NIRC) Q: Assuming X. bonuses. 24 A [2]. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.000 32% P8. MARTINEZ SANTO TOMAS de Derecho Civil 101 . SABUGO & JOHN HENRY C.000 Q: What are the graduated rates applicable to the income of individuals? A: Income Bracket Not over P10. the income tax payable is: Over 250.000 x 12) P300.000 20% of the excess over P70.000 P65.000 2.000 15.000 25% of the excess over P140.000 P50. 4.000 15% of the P2.NATIONAL INTERNAL REVENUE CODE OF 1997 2.000 P70.000.50 0 P50. a resident citizen.000 150. he earned P150.0 00 + + Q: What is taxable income? A: The term taxable income means the pertinent items of gross income specified in the NIRC.500 + excess over P30. authorized for such types of income by the NIRC or other special laws. How much is his taxable income for the year 2009? A: X’s taxable income for the year 2009 is P300. less the deductions and/or personal and additional exemptions.000 but not Over over P140. In 2009. Q: How much is his income tax payable? A: From the taxable income of P300. He earns a monthly compensation income of P25.000 Applicable Tax Rate + 5% 10% of the P500 + excess over P10. Gross income Subject to final tax rate of 25% .000 P250.000 Over P70.000 for the taxable year.5 million from his onenight concert in the Philippines. Q: What is the formula in determining taxable income? A: Gross Compensation Income Less: Personal exemptions Premium payment on health and/or Hospitalization insurance Net Compensation Income Add: Net business income or Net professional income Other income Taxable income subject to graduated rates P300.applies only to non-resident not alien engaged in trade or business (NRANETB) but not over P140.000 as net income from his retail business.

there are specific guidelines for the valuation of real property and automobiles. CHARLES L. SUBJECT HEADS: EDISON U. GUTIERREZ. The grossed up divisor is the difference between 100% and the applicable rates. RR 3-98) Note: GMV represents the whole amount of income realized by the employee which includes the net amount of money or net monetary value of property which has been received plus the amount of FBT thereon otherwise due from the employee but paid by the employer for and in behalf of his employee.UST GOLDEN NOTES 2011 A: Since X is a non-resident alien not engaged in trade or business. Property or other than money BUT ownership is NOT transferred to the employee – the value of fringe benefit is equal to the depreciation value of the property. dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations 7. except a rank and file employee. to an individual employee. RR 3-98) Individual employed by: RHQ or RAHQ. 2. Thus: EMPLOYEE Citizen.500. Vehicle of any kind 4. Determining the proportion or percentage of the benefit which is subject to the FBT. Holiday and vacation expenses 8.33 [A]. MEMBERS: JOSE DUKE BAGULAYA. service or other benefit furnished or granted by an employer in cash or in kind in addition to basic salaries. except rank and file employees. Q: Discuss the valuation of fringe benefits. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. DIVINE C. Money or is directly paid by the employer – the value is the amount granted or paid. ORTIZ & VANNESSA ROSE S.33. Expense account 3. A: If the fringe benefit is granted or furnished in: 1.) 3. Interest on loans at less than market rate to the extent of the difference between the market rate and the actual rate granted 6.33. 2. (Sec.000 (1. Educational assistance to the employee or his dependents 10. 33 [B]. TEE. CHRISTINE L. 2. SUBJECT HEAD: RODOLFO N. OBU. VALCOS . RA.. 2. (Sec. CLARABEL ANNE R. (Sec. and 2. Q: How is the GMV determined? A: It shall be determined by dividing the monetary value of the fringe benefit by the grossed-up 102 TAXATION LAW TEAM: ADVISER: ATTY. Sec. RR 3-98) Q: What is fringe benefit tax (FBT)? A: It is a final withholding tax imposed on the grossed-up monetary value (GMV) of fringe benefit furnished. Property or other than money and ownership is transferred to the employee – the value of the fringe benefit shall be equal to the fair market value of the property as determined in accordance with the authority of the BIR to prescribe real property values (zonal valuation. his gross income within the Philippines is subject to 25% final tax and is not allowed any deductions. HERNANDEZ. LACSINA. A rank and file employee – the value of such fringe benefit shall be considered as part of the compensation income of such employee subject to tax payable by the employee. such as but not limited to: [HEV-HIM-HEEL] 1. Housing 2. driver and others 5. KASALA. A: Fringe benefit is any good. Accordingly he must pay P375.000 x 25%) divisor. Evaluating the benefit granted. Household personnel such as maid. GRANTOZA. For example. Foreign service contractor or foreign service sub-contractor engaged in petroleum operations in the Philippines 85% 15% FBT Q: How is the monetary value of a fringe benefit computed? A: The computation of the FBT is done by: 1. Membership fees. (Sec 2. ASST.33 [B]. granted or paid by the employer to the employee. ANG JR. PRUDENCE ANGELITA A. Expenses for foreign travel 9. KEITH S. RR 3-98) Note: These guidelines are only used in instances where there are no specific guidelines. NIRC.NRA-ETB NRA-NETB GROSSED UP DIVISOR 68% 75% RATE 32% FBT 25% FBT Fringe Benefits Tax Q: Define fringe benefit. Q: What is the tax treatment of fringe benefits? A: If the benefit is not tax-exempt and the recipient is: 1.

it may still fall under a different tax under another law. MASACAYAN & THEENA C.000. 2. RR 3-98) Fringe benefits tax is deductible from the gross income of the employer As to treatment Subject to creditable withholding tax – the employer withholds the Subject to final tax tax upon the payment of the compensation income Employee liable to pay the tax on his income earned.33 [A]. (Sec. or necessary to the trade. 2. Sec. 32. Part of the gross income of an employee XPN: Fringe benefits given to rank and file employee is included in his gross income As to who is liable to pay the tax Note: The person who is legally required to pay (same as statutory incidence as distinguished from economic incidence) is that person who. Note: Although a fringe benefit may be exempted from the FBT. such as the compensation income tax or the like. 2. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 2. NIRC. 3. whether granted under a collective bargaining agreement or not. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. upon recommendation of the CIR. which he could use as his residence in the fishponds. Even assuming that he is a managerial or supervisory employee. 4. (Sec. Fringe benefits which are authorized and exempted from tax under special laws. NIRC) Benefits given to the rank and file employees. RR 3-98) 4. Where the recipient is not a rank and file employee – the value shall not be included in the compensation income of such employee subject to tax. Fringe benefits given to rank and file employees (whether under a CBA or not) is not subject to FBT. Contributions of the employer for the benefit of the employee to retirement. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance. MARTINEZ SANTO TOMAS de Derecho Civil 103 . can be legally demanded to pay the tax. business or profession of the employer. Is the fair market value of the use of the small hut by X a “fringe benefit” that is subject to the 32% tax imposed by Sec. Note: The FBT shall be treated as a final tax on the employee which shall be withheld and paid by the employer on a calendar quarterly basis. 33. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. The fringe benefits given to rank and file employees are treated as part of his compensation income subject to income tax. NIRC) (2001 Bar Question) Q: Are salaries and wages of managerial or supervisory employee subject to FBT? A: No. Employer liable to pay the fringe benefits tax and can be deducted as business expense. hence does not constitute a taxable fringe benefit. whether given to rank and file employees or to supervisory Q: What are the kinds of fringe benefits that are not subject to the FBT? A: 1. the small hut is provided for the convenience of the employer. The fringe benefit tax is instead levied upon the employer who is required to pay. ACADEMICS CHAIR: LESTER JAY ALAN E. When the fringe benefit is required by the nature of. Q: What are the notable distinctions between compensation income and fringe benefit? A: COMPENSATION INCOME FRINGE BENEFIT As part of gross income of an employee GR: Not reported as part of the gross income of an employee. When the fringe benefit is for the convenience of the employer (Employer’s Convenience Rule) (Sec. X is neither a managerial nor a supervisory employee. De minimis benefit.NATIONAL INTERNAL REVENUE CODE OF 1997 3. in case of non-payment. 33 of the NIRC? A: No. Only managerial or supervisory employees are entitled to a fringe benefit subject to the FBT. basic salary is excluded because it is part of compensation income. 33. 6. A: 1. Q: X was hired by Y to watch over Y’s fishponds with a salary of P10. 5. (Sec. 2. he was also provided a small hut. To enable him to perform his duties well. SABUGO & JOHN HENRY C. insurance and hospitalization benefit plans. Q: Give the basic rules on FBT. Fringe benefits given to supervisory or managerial employees are subject to the FBT.33 [C].

2. CLARABEL ANNE R. Employer purchases a residential property on installment basis and allows use by the employee. (Sec. GUTIERREZ. GRANTOZA.33 D [1] f. Owns and maintains a fleet of motor vehicle for use of business and employees 6. (Sec.33 D [4]. 2. representation and other allowances are subject to FBT. MEMBERS: JOSE DUKE BAGULAYA.33 D [5]. LACSINA. or 2. such as salaries of household help. A: 2. 2. HERNANDEZ. Duly receipted for and in the name of the employer. The rule shall apply to installment payments or loans with interest rate lower than 12%. NIRC) Note: Benefit to said officials shall not be treated as taxable fringe benefit in accordance with the existing doctrine that the State shall provide its soldier with necessary quarters which are within or accessible from the military camp so that they can readily be on call to meet the exigencies of their military service. laundry expenses. 5. ORTIZ & VANNESSA ROSE S. Purchases car on installment in name of employee 4. DIVINE C.33 D [1] g. personal driver of the employee. Employer owns a residential property and assigns the same for the use by the employee. RR 3-98) Q: Give the rules on “expenses for foreign travel” as taxable fringe benefit. Employee purchases a residential property and transfers ownership to the employee. 104 TAXATION LAW TEAM: ADVISER: ATTY. RR 3-98) 3. (Sec. Leases and maintains a fleet of motor vehicles for the use of the business and employees Q: What household expenses subject to FBT? A: 1. RR 3-98) Q: Give the rules on “interest on loan at less than market rate” as taxable fringe benefit. SUBJECT HEADS: EDISON U. RR 3-98) Note: A housing unit is considered adjacent to the premises if it is located within the maximum 50 meters from the perimeter of the business premises. Housing privilege of military officials of the Armed Forces of the Philippines consisting of officials of the Philippine Army. A: If the employer lends money to his employees: 1. ASST. (Sec. VALCOS . 1.33 D [2] b. XPNs: When the expenditures are: GR: Fixed and variable transportation. Q: What are the situations whereby motor vehicle or use thereof may be subject to FBT? A: Employer: 1. KEITH S. 2. PRUDENCE ANGELITA A. CHRISTINE L. 4. and Philippine Air Force. CHARLES L. Employer leases residential property for use of the employee. or other similar personal expenses (garbage dues. etc. Q: What are the situations whereby housing privilege may be subject to the FBT? A: 1. such interest foregone by the employer or the difference of the interest assumed by the employee and the rate of 12% shall be treated as fringe benefit. ANG JR. TEE. 2. KASALA. Shoulders a portion of purchase price 5. 2.UST GOLDEN NOTES 2011 or managerial employees is not subject to FBT. Purchases vehicle in employee’s name 2. Philippine Navy. 2.) shall be treated as taxable fringe benefits. Rate lower than 12%. A housing unit which is situated inside or adjacent to the premises of a business of factory. Q: When is an expense account treated as taxable fringe benefit? A: GR: Expenses incurred by the employee but which are paid by his employer shall be treated as taxable fringe benefits. Free of interest.. and The expenditures do not partake the nature of personal expense attributable to the said employee. (Sec. The employee provides a monthly fixed amount for the employee to pay his landlord. Provides employee cash for vehicle purchase 3. Q: What are the housing privileges not treated as taxable fringe benefit? A: Expenses of the employee which are borne by the employer for household personnel. SUBJECT HEAD: RODOLFO N.

A housing unit is considered adjacent to the premises if it is located within the maximum 50 meters from the perimeter of the business premises. (Sec 2. A: GR: The cost of the educational assistance to the employee which is borne by the employer shall be treated as taxable fringe benefit. A: GR: The cost of life or health Insurance and other non-life insurance premiums borne by the employer are taxable fringe benefits. Housing privilege of military officials of the Armed Forces of the Philippines consisting of officials of the Philippine Army. and 2. RR 3-98) Q: Give the rules on “educational assistance to the employee or dependents” treated as taxable fringe benefit. XPN: A scholarship grant shall not be treated as taxable fringe benefit if: 1. SABUGO & JOHN HENRY C. 9. The cost of premiums borne by the employer for the group of insurance of employees. (Sec. (Sec.33 [D] 10. 2. Reasonable business expenses which are paid for by the employer for the foreign travel of his employee for the purpose of attending business or conventions. Philippine Navy. 6. 7. or similar contributions arising from provisions of any existing law. 8. RR 3-98) Q: Give the rules on “life or health insurance” treated as taxable fringe benefit. Liquidated or substantiated by receipts or other adequate documentation. delivery service and other non-personal uses. GSIS. Contributions of the employer for the benefit of employee to the SSS. MASACAYAN & THEENA C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Q: What are de minimis benefits? A: These are facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and are offered or ACADEMICS CHAIR: LESTER JAY ALAN E. MARTINEZ SANTO TOMAS de Derecho Civil 105 . 2. Q: What are those benefits which are considered necessary to the business of the employer or are granted for the convenience of the employer? A: 1.33 D [9] b. 3. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. A housing unit which is situated inside or adjacent to the premises of a business of factory. and there is a written contract between them that the employee is under obligation to remain in the employ of the employer for period of time that they have mutually agreed upon. Education/study is directly connected with employer’s trade.33 D [7] c. XPNs: 1. Cost of premiums borne by the employer for the group insurance of his employees. business or profession. A scholarship grant to the employee by the employer if the education or study involved is directly connected with the employer’s trade. There is written contract that the employee shall remain employed with the employer for a period of time mutually agreed upon by the parties. business or profession. freight. 5. 2. 4. Expenses of the employee which are reimbursed if they are supported by receipts in the name of the employer and do not partake the nature of a personal expense of the employee Motor vehicles used for sales. and Philippine Air Force. Ordinary and necessary in the pursuit of employer’s business and paid or incurred by employee. Temporary housing for an employee who stays in a housing unit for 3 months or less. and 2. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Note: Employees receive stock options as part of their payment for the services they rendered to their employer. The use of aircraft (including helicopters) owned and maintained by the employer. the basis is the difference between the fair market value and the exercise price at the time of exercise. RR 3-98) Q: Are Stock Options subject to FBT? A: Yes. (RR 3-98) 2. which entitles them to buy their employer’s shares of stock at an agreed price.NATIONAL INTERNAL REVENUE CODE OF 1997 XPN: If incurred or reasonably expected to be incurred by employee in the performance of his duties subject to the following conditions: 1.

000. including his family. Note: Under Sec.000 for the taxable year.UST GOLDEN NOTES 2011 furnished by the employer merely as a means of promoting the health. night shift differential pay and hazard pay received by such minimum wage earners shall be exempt from 106 TAXATION LAW TEAM: ADVISER: ATTY.000 per annum Not exceeding P300 per month In the form of tangible personal property other than cash or gift certificate with an annual monetary value not exceeding P10. Reasonable value –depending on the employer’s capacity Not exceeding 25% of the basic minimum wage 2. XPN: If the total amount of de minimis benefits exceed the P30.000 employee per annum per Q: What are the conditions in order to avail said deduction? A: 1. NIRC) Q: How much is the amount allowed? A: The amount of premiums not to exceed P2. SUBJECT HEADS: EDISON U. overtime pay. of days. KEITH S. ASST. Private employees: a.g. Minimum Wage Earners Note: The holiday pay. shall be allowed as deduction from gross income. 34 [M]. 34 [M]. MEMBERS: JOSE DUKE BAGULAYA. HERNANDEZ. de minimis benefits include: Qualify: 1. VALCOS . goodwill. TEE. Q: What are included as de minimis fringe benefits and give their respective ceiling amounts? A: As per RR 5-2008. Monetized unused vacation leave credits of employees Premiun Payments on Health and Hospitalization Q: Who may avail of the deduction? A: Only an individual taxpayer may claim said deduction. DIVINE C. Individual taxpayers whether earning purely compensation income during the year or earning business income or in practice of his profession whether availing of itemized or optional standard deductions during the year.. Q: What is the treatment in case of excess of the de minimis benefits over their respective ceilings prescribed by the revenue regulation? A: It shall be considered as part of “other benefits” under Sec. contentment and efficiency of his employees. CLARABEL ANNE R. SUBJECT HEAD: RODOLFO N. ANG JR. Government employees: Vacation and sick leave are always tax exempt regardless of the no. the excess shall be considered as part of the compensation income. NIRC) Medical allowance dependents employees Rice subsidy cash to of Uniforms and clothing allowances Actual medical benefits Laundry allowance Employee achievement awards e.000 limit. GRANTOZA. ORTIZ & VANNESSA ROSE S. Sick leave – always taxable 2. 13th month pay and other benefits are excluded from gross income provided that they do not exceed P30. including his family. In the case of married taxpayers. (Sec. Any excess thereof is considered part of the compensation income of an individual. CHARLES L.000 per Q: How de minimis benefits are taxed? A: GR: De minimis benefits are not taxable.500 or one sack of 50-kg rice per month amounting to not more than P1. CHRISTINE L. LACSINA. Not exceeding P750 per semester or P125 per month P1.exempt up to 10 days b.000 Not exceeding P5. and That said family has a gross income of not more than P250.500 Not exceeding annum P4. for length of service or safety achievement Gifts given during Christmas and major anniversary celebrations Flowers. Vacation leave . 32 B [7] e of the NIRC.400 per family or P200 a month paid during the taxable year for health and/or hospitalization insurance taken by the taxpayer for himself. KASALA. 32 B [7] e of the NIRC. GUTIERREZ. The health and/or hospitalization was taken by the taxpayer for himself. (Sec. only the spouse claiming the additional exemption for dependents shall be entitled to this deduction. fruits and books or similar items given to employees under certain circumstances Daily meal allowance for overtime work Not exceeding P10. PRUDENCE ANGELITA A. Tax Exempt Individuals Q: Who are exempted from the payment of income tax on their taxable income? A: 1.

(RA 9527. Expanded Senior Citizens Act) Normal Corporate Income Tax Q: How are corporations treated under normal corporate income tax (NCIT)? A: Under the normal income tax. Note: The reason for MCIT is to forestall the prevailing practice of corporations of overstating deductions. Q: What are the instances when the MCIT is imposed? A: The MCIT shall be imposed: 1. Whenever the amount of the minimum corporate income tax is greater than the normal tax of 30% due on the taxable income due from the corporation. tax is imposed on a corporation at the rate of 2% based on gross income. 2. 3. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Philippine Airlines is exempt from the MCIT. A: It is applicable to domestic and resident foreign corporations. 2. INCOME TAXATION ON CORPORATIONS Income Taxation of Domestic Corporations Q: What is the treatment under the MCIT? Q: What are the different taxes imposed on domestic corporations? A: 1.A. business and other income received by a resident senior citizen during each year from all sources as defined in Sec. He must be qualified as such by the CIR or RDO of the place of his residence. Inter-corporate dividends e. 27 D [4]. A: Under the MCIT. He must file an Annual Information Return indicating that his annual taxable income does not exceed the poverty level. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 5. Capital gains from sale of shares not traded in the stock exchange c. Note: The resulting amount should then be compared with the income tax payable using the MCIT. When there is zero or negative taxable income. Philippine Airlines. Senior Citizens – Provided. Q: What are the limitations on the applicability of MCIT? ACADEMICS CHAIR: LESTER JAY ALAN E. and If qualified. Normal corporate income tax (NCIT) Minimum corporate income tax (MCIT) Gross income tax (Optional corporate income Tax) Improperly accumulated income tax Final tax on passive incomes: a. Inc. exchange or disposition of lands/ or buildings. Note: Under its charter. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Exemptions granted under international agreements Q: To what corporations is the NCIT applicable? Q: How may a senior citizen avail tax exemption? A: 1. NIRC) 2. 24(A)(2). July 7. MARTINEZ SANTO TOMAS de Derecho Civil 107 . 4. that their annual taxable income does not exceed the poverty level as determined by the National Economic Development Authority (NEDA) for that year. his name shall be recorded by the RDO in the Master List of Tax Exempt Senior Citizens. MASACAYAN & THEENA C. GR 180066.. (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 income tax. Whichever is higher between the two shall be the tax due. 31 of the NIRC. (Sec. Minimum Corporate Income Tax Q: To what corporations is the minimum corporate income tax (MCIT) applicable? A: It is applicable to domestic and resident foreign corporations which are subject to regular income tax. Interest from deposits and yields and royalties b. Capital gains realized from the sale. Note: Annual taxable income shall refer to the annual gross compensation. the taxable income of a corporation during each taxable year is multiplied with the applicable rate of 30%. (CIR v. 9504) Note: Intercorporate Dividends are not subject to tax. NIRC as amended by R. SABUGO & JOHN HENRY C. or 2. in order to reduce their income tax payments. Income derived under the expanded foreign currency deposit system d. 3. 2009) 3.

KASALA. Those engaged in business as offshore banking unit. GUTIERREZ. (Sec. respectively). The Secretary of Finance. Those engaged in hospital operations which are non-profit subject to tax at 10% on their taxable income. (Sec.. 2.27 E [8]. As to sale of services – it shall mean gross receipts less sales returns. d. only the gross income sources within the Philippines shall be considered. earthquake. 2. 2. Q: What is gross income for purposes of MCIT? A: 1. Prolonged Labor Dispute – arising from a strike staged by the employees which lasted for more than 6 months within a taxable period and which has caused the temporary shutdown of business operations. MCIT does not apply if the domestic or resident corporation is not subject to NCIT. (the PEZA law and the Bases Conversion Development Act. On Domestic Corporations: a. TEE. CHARLES L. Q: When is MCIT reported and paid? A: MCIT shall likewise apply to the quarterly corporate income tax but the final comparison between the NCIT due and the MCIT shall be made at the end of the taxable year taking into consideration quarterly tax payment made. 4. For resident foreign corporation. ASST. c. KEITH S. Force Majeure – a cause due to an irresistible force as by ‘Act of God’ like lightning. Firms that are taxed under a special income tax regime such as those in accordance with RA 7916 and 7227 2. In the case of a domestic corporation whose operations or activities are partly covered by the regular income tax system and partly covered under a special income tax system. LACSINA. allowances. DIVINE C. discounts and allowances and cost of goods sold. upon recommendation of the BIR. storm. It shall also include armed conflicts like war or insurgency. Note: MCIT does not apply to the foregoing since they are not subject to the NCIT. 27 E [1]. 27 E [3]. ORTIZ & VANNESSA ROSE S.UST GOLDEN NOTES 2011 A: 1. 3. c. ANG JR. MCIT does not apply on the first 3 years of business operation of a corporation. SUBJECT HEAD: RODOLFO N. theft or embezzlement or for other economic reason as determined by the Secretary of Finance. which is the year when the corporation registers with the BIR and not when the corporation started its commercial operation. (RR 122007) 108 TAXATION LAW TEAM: ADVISER: ATTY. CHRISTINE L. SUBJECT HEADS: EDISON U. respectively) (Sec. b. discounts and cost of services. the MCIT shall apply on operations covered by the regular income tax system. 3. GRANTOZA. may suspend the imposition of MCIT on any corporation which suffers loss on account of: [PFL] 1. d. NIRC) Q: What are those corporations which do not fall within the coverage of MCIT? A: 1. Q: When does MCIT commence? A: MCIT is imposed beginning the fourth taxable year in which such corporation commenced its business operations. PRUDENCE ANGELITA A. NIRC) Q: Can the payment of MCIT be suspended? A: Yes. Those operating as proprietary educational institutions subject to tax at 10% on their taxable income. flood and the like. RR 998) On Foreign Corporations: a. CLARABEL ANNE R. Legitimate Business Reverses – include substantial losses due to fire. As to sale of goods – it shall mean gross sales less sales returns. Firms that are taxed under a special income tax regime such as those in accordance with RA 7916 and 7227 (the PEZA Law and the Bases Conversion Development Act. MEMBERS: JOSE DUKE BAGULAYA. Those engaged in business as depositary banks under the expanded foreign currency deposit system subject to final income tax at 10% of such income. Those engaged in business as regional operating headquarters subject to tax at 10% of their taxable income. VALCOS . HERNANDEZ. 2. Those engaged in business as “international carrier” subject to tax at 2½% of their “Gross Philippine Billings”. b.

A tax effort ratio of 20% of GNP. the corporation will pay the MCIT of P100. 5. P100. Inc. the corporation will pay the normal income tax of P100.. it is not arbitrary or confiscatory. 1. allow domestic corporations the option to be taxed at 15% of gross income subject to the following conditions: 1.000 120. v.000 as its income tax payable since it is greater than the normal income tax.000 MCIT TAX PAYABLE (whichever is higher) 100.000 2008 excess MCIT: 40. the imposition of MCIT is not violative of due process for the following reasons: 1.000 100. Q: What are the rules on carry-forward of the excess MCIT? ACADEMICS CHAIR: LESTER JAY ALAN E. Thus. Gross Income Tax (Optional Corporate Income Tax) Q: What is “optional corporate income tax”? A: The President. 4.000. 3. MARTINEZ SANTO TOMAS de Derecho Civil 109 . effective Jan. A ratio of 40% of income tax to total tax revenue.000 A: 1. 2. NIRC) Q: Illustrate the carry-forward provision under the MCIT. at the same time.000 Less: 2007 excess MCIT: 15. Mar. The maximum amount that can be credited is only up to the amount of the NCIT. since MCIT is an estimate of the normal income tax.000 50. et al.000 100. 2010) 07 08 09 100. Romulo.000. In the year 2008.000. i.e.000 less P55. A VAT tax effort of 4% of GNP. However.000. for a total of P55. upon recommendation by the Secretary of Finance may. MCIT is imposed on gross income and not capital. 2000. Carry forward (annually or quarterly) is possible only if MCIT is greater than NCIT. Q: What is the carry-forward provision under the MCIT? A: Any excess of MCIT over normal tax (NT) may be carried forward on an annual basis and be credited against the NT for the 3 immediately succeeding years (Sec.000 55. A: YR Normal Income Tax 85. the amount of net income tax payable for the year 2009 is P45.000 40.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: Can the company claim the MCIT it paid as a deduction from gross income? A: No. 27 E [2]. Computation of the Net Amount for the year 2009: Tax Payable 100. the corporation can credit the MCIT carry-forward of P15.000 and P40.000 for the years 2007 and 2008 respectively. (CREBA. GR 160756. The excess can be credited against the NCIT due in the next 3 immediately succeeding taxable years.000 Note: A corporation shall pay the NT or MCIT whichever is higher. In the year 2009. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C.000 120. In the year 2007. there can be no negative NCIT. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. It is not an additional tax imposition but is imposed in lieu of normal net income tax and only if said tax is suspiciously low. SABUGO & JOHN HENRY C. Thus.000 EXCESS of MCIT over the Normal Tax 15. 9. There is no legal objection to a broader tax base or taxable income resulting from the elimination of all deductible items and. MASACAYAN & THEENA C. 3. limit or deny deductions from gross income in order to arrive at the net that it chooses to tax. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.000 80. In as much as deductions are a matter of legislative grace. The excess of MCIT over the NCIT can be carried forward on an annual or quarterly basis. Q: CREBA assails the constitutionality of MCIT on the contention that it violates due process. 3. reduction of the applicable tax rate. Is the imposition of MCIT unconstitutional? A: No. Any excess not credited in the next 3 years shall be forfeited.. The excess of MCIT over the normal tax shall be carried over and shall be credited against the normal tax for 3 immediately succeeding years. Congress has the power to condition.000 2.000 Net amount of tax payable: 45. the corporation will also pay the MCIT for it is greater than the normal tax. 2.

110 TAXATION LAW TEAM: ADVISER: ATTY. NIRC) A: It is any private school maintained and administered by private individuals or groups with an issued permit to operate from the DepEd. SUBJECT HEADS: EDISON U. 2. 3. The election of the gross income tax option by the corporation shall be irrevocable for 3 consecutive taxable years during which the corporation is qualified under the scheme.. NIRC) A: Special deductions are allowed to insurance companies under Sec. ASST. to residents other than offshore units in the Philippines or other depositary banks under the expanded system. (Sec. KEITH S. (Sec. Final tax of 10% on interest income from foreign currency loans granted by such depositary banks under the expanded foreign currency deposit system. GRANTOZA.9% ratio of Consolidated Public Sector Finance Position to GNP. VALCOS . Income derived under the Expanded Foreign Currency Deposit System d. 2. Normal corporate income tax Minimum corporate income tax Gross income tax Final tax on passive Income a. MEMBERS: JOSE DUKE BAGULAYA. Among such special domestic corporations are: 1. the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. 4. 27 [A]. Capital gains from sale of shares not traded in the stock exchange c. HERNANDEZ. Net income from such transactions as may be specified by the Monetary Board to be subject to the regular income tax payable by banks. GOCCs. PRUDENCE ANGELITA A. Q: How are depositary banks under the expanded foreign currency deposit system taxed? A: GR: They are exempt from all taxes. Q: What is a proprietary educational institution? Income Taxation of Resident Foreign Corporations Q: What are the classes of taxes imposed on a resident foreign corporation? A: 1. Proprietary educational institutions 2. GUTIERREZ. Q: How are insurance companies treated? Q: When is it available? A: This optional tax is available only to firms whose ratio of cost of sales to gross sales/receipts from all sources does not exceed 55%. 27 [A]. Note: No authority yet has been given by the President. CHRISTINE L. XPNs: 1. ANG JR. SUBJECT HEAD: RODOLFO N. NIRC) XPN: They shall pay 30% corporate income tax if the gross income from unrelated trade. Q: What does the phrase “unrelated trade. 27 [B]. business or other activity. Branch Profit Remittance Tax Q: What are branch profits? A: Branch profits are gains or profits which are effectively connected with the conduct of trade or business of a branch in the Philippines. Inter-corporate dividends Branch profit remittance tax 5. CHED or TESDA as the case may be. Income Taxation of Special Domestic Corporations Q: What are the special domestic corporations under the NIRC? A: These are the domestic corporations that are subject to concessionary tax rates that are lower than those imposed upon ordinary domestic corporations. TEE. government instrumentalities or agencies 6. LACSINA. business or other activity exceeds 50% of the total gross income derived from all sources. 27 [D] of the NIRC. Non-profit hospitals 3. CLARABEL ANNE R. Insurance companies 4. Depositary banks 5. Franchise holders Q: How are proprietary educational institutions and non-profit hospitals treated? A: GR: They shall pay a 10% tax on their taxable income except those passive income covered by Sec. ORTIZ & VANNESSA ROSE S. A 0. KASALA. Interest from deposits and yields and royalties b. 37 of the NIRC. CHARLES L.UST GOLDEN NOTES 2011 4. DIVINE C. business or other activity” means? A: It means any trade. (Sec.

Q: What is the Single Entity concept? A: It is the concept where the head office of a foreign corporation is the same juridical entity as its branch in the Philippines. cargo and mail originating from the Philippines in a continuous and uninterrupted flight. on the one hand. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. irrespective of the place of sale or issue and the place of payment of the ticket or passage document: Provided: a. NIRC) Q: When are they considered as branch profits? A: They shall be considered as branch profit when they are effectively connected with the conduct of branch’s trade or business in the Philippines. That tickets revalidated. Offshore banking units 3. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. dividends. Q: What is the rule in imposing BPRT? A: GR: Any branch remitting profits to its head office shall be subject to a tax of 15% which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof provided that interest dividends received by a corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits. premiums. RR 15-2002) Q: How is an international carrier taxed? A: An international carrier doing business in the Philippines shall pay a tax of 2½% on its Gross Philippine Billings. 2. profits. local branch offices and on the other hand. SABUGO & JOHN HENRY C. A: 1. As to International Air Carrier – It refers to the amount of gross revenue derived from carriage of persons. It shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof. salaries. Income Taxation of Special Resident Foreign Corporation Q: What are the special resident foreign corporations? A: 1. income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated branch profits. wages. 2 A [5]. royalties including remuneration for technical services. (Sec 28 A [3]. (Sec. (Sec. 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 Gross Philippine Billings. Regional or area headquarters of multinational corporations 5. b. Resident depositary banks 4. but transshipment of passenger takes place at any port outside the Philippines on another airline. International carriers 2. NIRC) Q: Define Gross Philippine Billings. rents. subsidiary domestic corporations where at least majority of all the latter’s shares of stock are owned by such foreign corporation.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What is branch profit remittance tax (BPRT)? A: It is a 15% tax imposed on the profit remitted by the Philippine branch to its head office. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. periodic or casual gains. annuities. excess baggage. (Sec. exchanged and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port or point in the Philippines. That for a flight which originates from the Philippines. Q: What remittances are not considered as branch profits? A: Interests. NIRC) Note: To equalize the tax burden on a foreign corporation maintaining. XPN: It does not find application to activities registered with the Philippine Economic Zone Authority. ACADEMICS CHAIR: LESTER JAY ALAN E. Regional operating headquarters of multinational corporations Q: What is an international air carrier? A: It is a foreign airline corporation doing business in the Philippines having been granted landing rights in any Philippine port to perform international air transportation service/activities or flight operations anywhere in the world. emoluments or other fixed or determinable annual. RR 2-98 also exempts enterprises registered with the Subic Bay Metropolitan Authority (SBMA) and the Clark Development Authority (CDA) which are covered under RA 7227. 28 A [5]. MARTINEZ SANTO TOMAS de Derecho Civil 111 .

VALCOS . Logistic services 8. (Sec. HERNANDEZ. General administration and planning 2. 2010) Q: Define (ROHQ). a foreign airline company selling tickets in the Philippines through their local agents shall be considered as resident foreign corporation engaged in trade or business in the country. NIRC) Offshore banking units 10% Resident depositary banks 10% RAHQ ROHQ 10% 112 TAXATION LAW TEAM: ADVISER: ATTY. Note: RAHQs are not subject to income tax for they do not earn or derive income. 2004) Note: If an international air carrier maintains flights to and from the Philippines. it shall be taxed at the rate of 2½% of its Gross Philippine Billings. 28 A [4]. ASST. cargo or mail originating from the Philippines up to final destination. including any interest income derived from foreign currency loans granted to residents. KEITH S. KASALA. and the source is that activity which produced the income. 6572. Research and development services and product development 9. CIR. Feb. Q: Does the absence of flight operations within the Philippine territory render the income received by an international air carrier income outside the Philippines? A: No. subsidiaries. GRANTOZA.UST GOLDEN NOTES 2011 2. Business planning and coordination 3. They only act as supervisory. ANG JR. ORTIZ & VANNESSA ROSE S. 22. they are subject to real property tax on land improvements and equipment. Corporate finance advisory services 5.. (Sec. or branches in the AsiaPacific Region and other foreign markets. communications and coordinating center for their affiliates. subsidiaries. CLARABEL ANNE R. CHARLES L. GR 180356. while international air carriers that do not have flights to and from the Philippines but nonetheless earn income from other activities in the country will be taxed at the normal rate of 30% of such income. CHRISTINE L. SUBJECT HEADS: EDISON U. MEMBERS: JOSE DUKE BAGULAYA. Dec. Data processing and communications 11. The test of taxability is the source. PRUDENCE ANGELITA A. Q: How are they taxed? A: They shall not be subject to income tax. LACSINA. Technical support and maintenance 10. NIRC) Q: Define regional or area headquarters (RAHQ). Business development Q: How are ROHQ taxed? A: They shall pay a tax of 10% of their taxable income within the Philippines. DIVINE C. communications and coordinating center for their affiliates. Sourcing and procurement of raw materials and components 4. The absence of flight operations within the Philippines cannot alter the fact that the income received was derived from activities within the Philippines. A: It is a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory. However. shall be subject to a 10% final income tax. (Air Canada v. 28 A [6] a. As to International Shipping – It means gross revenue whether for passenger. or branches in the Asia-Pacific Region and other foreign markets. CTA Case No. Q: What are the special resident foreign corporations and how are they taxed? A: SPECIAL RFC International Carriers TAX BASE Gross Philippine Billings Interest income derived from foreign currency loans granted to residents other than OBU or local commercial banks including local branches of foreign banks authorized by the BSP to transact w/ OBUs Interest income derived from foreign currency loans granted to residents other than offshore units in the Philippines or other banks under the expanded system Not subject to income tax Taxable income within the Philippines TAX RATE 2½% Q: How are offshore banking units (OBU) taxed? A: Income derived by offshore banking units authorized by the BSP to transact business with offshore banking units. SUBJECT HEAD: RODOLFO N. 16. regional operating headquarters A: It is a branch established in the Philippines by multinational companies which are engaged in any of the following services: 1. TEE. CIR. (South African Airways v. Marketing control and sales promotion 6. GUTIERREZ. regardless of the place of sale or payments of the passage or freight documents. Training and personnel management 7.

Marubeni. GR L-68375. 18.... SABUGO & JOHN HENRY C.. Since it is a FT. Subsequently.. 15. Gross Income Tax – A foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 30% of the gross income during such taxable year from all sources within the Philippines except capital gains from sale of shares of stock not traded in the stock exchange (Sec... LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. but certainly not of the branch in the Philippines. 28 B [1].. Maru claimed for the refund or issuance of a tax credit representing profit tax remittance erroneously paid on the dividends remitted by AGP. Tax Sparing Rule for NRFC Q: What is the Tax Sparing Rule for NRFC? A: When a NRFC receives dividend from a DC. 1. Wander Philippines. 28 B [5] c. Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange – A final tax at the rates prescribed below from the sale. MARTINEZ SANTO TOMAS de Derecho Civil 113 . Atlantic Gulf and Pacific Co.. the dividend income is taxable. Wander remits dividends to its parent company out of which Wander withholds 35% and pays the same to the BIR. is a DC owned by Glaro Ltd.. contends that it is a resident foreign corporation subject only to the 10% intercorporate final tax on dividends received from a domestic corporation in accordance with Sec. 24 c [1] of the NIRC. of Manila (AGP) declared and paid cash dividends to petitioner and withheld the corresponding final dividend tax thereon..000. NIRC) Interest on Foreign Loans – A final withholding tax of 20% on the amount of interest on foreign loans contracted on or after Aug.000 ……. 1988) Q: If it is taxable... NIRC) Intercorporate Dividends – A final withholding tax on intercorporate dividends at the rate of 15% on the amount of cash and/or property dividends received from a domestic corporation (Sec. contending that it is liable only for 15% withholding tax and not 35% as provided in the NIRC... (CIR v. GR 137377. exchange or other disposition of shares of stock not traded in the stock exchange (Sec. 28 B [5] a. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.... MASACAYAN & THEENA C. Is the contention of Maru correct? A: No. Maru Q: Wander Inc... barter.. 2001) 2... 10% Q: Maru Corp...NATIONAL INTERNAL REVENUE CODE OF 1997 Income Tax on Non-resident Foreign Corporation Q: What are the taxes imposed on a non-resident foreign corporation (NRFC)? A: 1.. 5% On any amount in excess of P100.. (Switzerland) . (CIR v. the dividend income remitted to Maru arising from its equity investments in AGP of Manila is considered separate and distinct income from the branch office in the Philippines.. 3. Q: Does the phrase “deemed paid” tax credit mean tax credit actually granted by the foreign corporation? A: There is no statutory provision or revenue regulation requiring actual grant as long as the foreign government allows such tax credit... Apr. Note: This is to encourage foreign investments and to attract foreign investors.. NIRC) Not over P100. is a foreign corporation duly organized and existing under the laws of Japan and duly licensed to engage in business under Philippine laws. The 30% corporate income tax goes down to 15% if the foreign government shall allow a credit against the tax due from the foreign corporation taxes deemed to have been paid. is it subject to corporate final tax (FT) or regular corporate rate? A: The tax rate is in the nature of a FT. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. which represents the difference between the regular income tax of 30% and the 15% tax on dividends.a foreign service corporation not engaged in trade or business in the Philippines. Dec.. 28 B [5] b. the source which is the DC is considered as the withholding agent of the Government therefore it is the one who is legally obliged to pay the tax... 1986 (Sec.. Is Wander entitled to the preferential rate of ACADEMICS CHAIR: LESTER JAY ALAN E. There can be no other logical conclusion that the investment was made for purposes peculiarly germane to the conduct of the corporate affairs to Maru.. NIRC) Note: The 15% tax on intercorporate dividends shall be collected and paid subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 15%... 4. Wander filed a claim for refund.

As a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earning distributed to them by the corporation Q: To whom is it imposed? A: Upon a domestic corporation and closely-held corporations which is formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate instead of dividing or distributing it. GUTIERREZ. Enterprises duly registered with the Philippine Economic Zone Authority under R. GR L-68375. NIRC) 2. Note: IAET does not apply to the following: 1. charters and other fees derived from lease of aircraft. other non-bank financial intermediaries 3. they would incur no tax with respect to the undistributed earnings of the corporation. Insurance companies 4.. Wander Philippines Inc. (CIR v.A. under the NIRC. ANG JR. lease or charter fees from leases or charters to Filipino citizens or corporations. 15. TAX BASE Gross income from all sources within the Philippines Gross rentals. (Sec. HERNANDEZ. 4. Hence. General professional partnerships 7. should be considered as a full satisfaction of the given conditions. 7227. the tax rate shall be 15% of the dividends remitted. the shareholders would be liable for income tax. DIVINE C. 4. Non. In the nature of a penalty to the corporation for the improper accumulation of its earnings. Switzerland did not impose any tax on dividends received by Glaro. Publicly-held corporations 5.A. SUBJECT HEAD: RODOLFO N. 1988) Note: The NCIT rate at the time the case was decided was still 35% now it is 30%. ORTIZ & VANNESSA ROSE S.. CHARLES L. Taxable partnerships 6. Apr. RR 22001) Improperly Accumulated Earnings Tax Q: What is an improperly accumulated earnings tax (IAET)? 114 TAXATION LAW TEAM: ADVISER: ATTY. ASST. TEE. Publicly-held corporations (Sec. SUBJECT HEADS: EDISON U. Note: If the earnings and profits were distributed.taxable joint ventures 8. subject to the condition that the country in which the nonresident corporation shall allow a credit against the tax due from the non-resident corporation taxes deemed to be paid in the Philippines equivalent to 20% which represents the difference between the regular tax of 35% on corporations and 15% tax on dividends. KASALA. VALCOS . Banks. To deny Wander to withhold the 15% tax would run counter to the very spirit and intent of said law. dividends received from a domestic corporation is liable to tax. national or local. machineries and other equipment. Such fact. whereas if there is no distribution. RR 2-2001) Income Taxation of Special NRFC Q: What are the special NRFC and how are they taxed? A: SPECIAL NFRC Non-resident cinematographic film owner. In the instant case. and 2. machineries and other equipment TAX RATE 25% 4½% 7½% Q: What are closely-held corporations? A: A corporation where at least 50% of the outstanding capital stock in value or 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. 29 [A]. 29 B [2]. IAET is imposed: 1. (Sec. however. and enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under R. PRUDENCE ANGELITA A. CLARABEL ANNE R. CHRISTINE L. lessor or distributor Non-resident owner or lessor of vessels chartered by Philippine Nationals Non-resident owner or lessor of aircraft. KEITH S. 7916. as well as other enterprises duly registered 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. as approved by the Maritime Industry Authority Rentals. (Sec. A: A tax equivalent to 10% of improperly accumulated income. GRANTOZA.UST GOLDEN NOTES 2011 15% withholding tax on the dividends it remitted to Glaro? A: Yes. NIRC) Q: What is improperly accumulated income? A: Improperly accumulated earnings refer to profits of a corporation that are accumulated instead of distributing it to its shareholders for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of another corporation. MEMBERS: JOSE DUKE BAGULAYA. LACSINA.

considering all the circumstances of the case. 29 [E]. agricultural or horticultural organization not organized principally for profit. charitable. The earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business. Additional working capital Expansions. 2. MASACAYAN & THEENA C. A beneficiary society. NIRC) Q: What is the test in determining reasonable needs which is recognized by the BIR? A: Under the “Immediacy test” which is recognized by the BIR. scientific. the same shall no longer be subjected to IAET in later years even if not declared as dividend. sickness. 5. and cooperative bank without capital stock organized and operated for mutual purposes and without profit. SABUGO & JOHN HENRY C. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. or other 2. Q: What is a holding company and an Investment company? A: 1. The term “reasonable needs of the business” is construed to mean the immediate needs of the business. including reasonable anticipated needs. (Sec. athletic. MARTINEZ SANTO TOMAS de Derecho Civil 115 . 5. Investment company – When activities of the company further include or consist substantially of buying and selling stocks. Investment in bonds and other long term securities. 2. profits which have been subjected to IAET. or other benefits exclusively to the members of such society. no part of its net income or 2. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. ACADEMICS CHAIR: LESTER JAY ALAN E. the “reasonable needs of the business” are the immediate and reasonably anticipated needs supported by a direct correlation of anticipated needs to such accumulation of profits. Non-stock corporation or association organized and operated exclusively for religious. 3. RR 2-2001) EXEMPTIONS FROM TAX ON CORPORATIONS Q: What corporations are exempted from income tax under the NIRC? A: 1. order. securities. Any corporation is a mere (a) holding company or (b) investment (mutual fund) company. or association. 3. Q: When is the accumulation of earnings allowed? A: 1. Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities unrelated business. Q: What are prima facie evidence to show purpose of accumulation is tax evasion or determination of purpose to avoid the tax? A: The fact that: 1. or cultural purposes. not otherwise intended for the reasonable needs of the business. accident. or for the rehabilitation of veterans. or mutual aid association or a nonstock corporation organized by employees providing for the payment of life. real estate. (Sec. 4. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Mutual savings bank not having a capital stock represented by shares. Note: Once the profit has been subjected to IAET. Cemetery company owned and operated exclusively for the benefit of its members. Notwithstanding the imposition of the IAET. 4. 2.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: When is reasonable? an accumulation of earnings investment properties so that income is derived not only from investment yield but also from profits upon market fluctuations. 3. Holding company – One having practically no activities except holding property and collecting income therefrom or investing therein. when finally declared as dividends shall nevertheless be subject to tax on dividends imposed under the NIRC except in those instances where the recipient is not subject thereto. Labor. Q: What are the prima facie instances of accumulation of profits beyond the reasonable needs of a business? A: 1. or nonstock corporation or their dependents. improvements and repairs Debt retirement Acquisition of a related business or the purchase of stock of a related business where subsidiary relationship is established A: If it is necessary for the purpose of the business. order or association operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system. Accumulation of earnings in excess of 100% of paid up capital.

GUTIERREZ. Farmers' or other mutual typhoon or fire insurance company. or board of trade. Q: Explain Sec. GR 124043. MEMBERS: JOSE DUKE BAGULAYA. 30 of the NIRC are tax exempt. charitable or social welfare corporations derive income from their properties or any of their activities conducted for profit. and 4. or from any of their activities conducted for profit regardless of the disposition made of such income. real or personal. (CIR v. Coordinate. 2.” TAXATION OF PARTNERSHIPS Q: Is GPP subject to income tax? A: No. 8. A non-stock and non-profit educational institution. 3. and Intensify Scientific and Technological Research and Development and to Foster Invention Q: What are their common requisites for exemption? A: PrInSE 1. SUBJECT HEAD: RODOLFO N.UST GOLDEN NOTES 2011 asset shall belong to or inures to the benefit of any member. 3 of the 1987 Constitution. ORTIZ & VANNESSA ROSE S. KEITH S. or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. Cooperatives under RA 6938. 24 of RA 2067. and fees collected from members for the sole purpose of meeting its expenses. but it is required to file information returns for its income for the purpose of furnishing information as to the share in net income of the partnership which each partner should include in his individual return. fruit growers'. DIVINE C. the income of which consists solely of assessments. mutual or cooperative telephone company. VALCOS . CHRISTINE L. NIRC) Note: The income of whatever kind and character of the foregoing organizations from any of their properties. Partners shall be liable for income tax in their separate and individual capacities. or from any of their activities conducted for profit regardless of the disposition made of such income. Oct. Sec. GRANTOZA. XIV. There is an Agreement. Farmers'. and 116 TAXATION LAW TEAM: ADVISER: ATTY. shall be subject to tax imposed under this Code. Government educational institution. 10. or individual. and 11. Not organized and operated principally for Profit. 9. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare. oral or writing. Q: Is it necessary that the partnership be registered? A: Registration of a partnership is immaterial for income tax purposes. 30 of the NIRC which provides that “Notwithstanding the provision in the preceding paragraphs. or like organization of a purely local character. shall be subject to tax imposed under the NIRC. XPN: The moment they invest their income or receive income from their properties. non-profit educational institution as long as the income is actually. the income of whatever kind and character of the foregoing organizations from any of their properties. (Sec. CLARABEL ANNE R. Q: What other corporations are exempted from income tax under special laws? A: 1. mutual ditch or irrigation company. less the necessary selling expenses on the basis of the quantity of produce finished by themfs. property. to contribute money. Business league chamber of commerce. an Act to Integrate. 7. or industry to a common fund. 14.e. ANG JR. It is taxable as long as the following requisites concur: AI 1. No part of the net income Inures to the benefit of any member or individual. income tax shall be imposed on said items of income irrespective of their disposition. TEE. i. 1998) XPN to the XPN: In case of non-stock. the Cooperative Code of the Philippines Foundations created for scientific purposes under Sec. directly and exclusively used for educational purpose. HERNANDEZ. 6. dues. LACSINA. YMCA. real or personal. organizer. A: GR: Those corporations mentioned under Sec. Educational or instructive in character.. No capital is represented by Shares of stock. CHARLES L. 30. KASALA. officer or any specific person. such income is exempt as provided for in Art. not organized for profit and no part of the net income of which inures to the benefit of any private stock-holder.: If religious. SUBJECT HEADS: EDISON U. PRUDENCE ANGELITA A. real or personal conducted for profit the income derived from those properties is subject to tax. 2. ASST.

NIRC) XPNs: 1. XPN: 1. the income of the trust will be returned to the grantor. There is an Intention to divide the profits. NIRC) 2. Deduction is allowed only when the distribution is made during the taxable year when the income is earned. administered by any amount distributed to the beneficiaries shall be taxed to the trustee. (Sec. Q: What is the treatment in case the GPP incurred losses? A: Results of operation of a partnership shall be treated in the same way as a corporation. TAXATION OF TRUSTS Q: Explain how trusts are taxed. (Sec. Q: How will the partners treat the loss if the operation of the partnership resulted in a loss? A: If the partnership operation resulted to a loss. 3. (BIR Ruling 233-86) Note: 1. 2. SABUGO & JOHN HENRY C. NIRC) Each partner shall report his distributive share in the net income of the partnership as gross income in his return whether actually or constructively received. 3. the beneficiaries shall file and pay the tax. MARTINEZ SANTO TOMAS de Derecho Civil 117 . Personal exemption is limited to only P20. A: GR: Subject to income tax in the same manner as individuals. Personal exemption is limited to only P20. 2. Q: How do we compute the net income of GPP? A: For purposes of computing the distributive share of each partner. Note: In a business partnership. 61 [A]. (Sec. the partners shall be entitled to deduct their respective shares in the net operating loss from their individual gross income. 26. XPNs: 1. 2. (Sec. the trustee or beneficiary shall file and pay the tax. the net income of the partnership shall be computed in the same manner as a corporation. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. (Sec. Q: What is the distributive share of a partner in the net income of a business partnership? A: It is equal to each partner’s distributive share of the net income declared by the partnership for a taxable year after deducting the corresponding corporate income tax. deductible from the taxable income of the estate. MASACAYAN & THEENA C.000.000. 63. there is no constructive receipt of distributive share in the net income. In a revocable trust. No additional exemption is allowed. 3. 62. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. NIRC) TAXATION OF ESTATES Q: How is income tax applied to estates? A: GR: Subject to income tax in the same manner as individuals. the income of the trust becomes income of the grantor. No additional exemption is allowed. 64. NIRC) In a trust administered in a foreign country. the income of the trust. Distribution to the beneficiaries during the taxable year of trust income is deductible from the taxable income of the trust. In a trust where the income is held for the benefit of the grantor. it will be divided as agreed upon by the partners and shall be taken by the individual partners in their respective returns. NIRC) 2. NIRC) Q: Who shall file and pay the income tax? A: GR: If the income: 1. Is to be accumulated or held for future distribution. (Sec. Deduction is allowed only when the distribution is made during the taxable year when the income is earned. Distribution to the heirs during the taxable year of estate income is Q: Is an “employee’s trust” tax-exempt? ACADEMICS CHAIR: LESTER JAY ALAN E. In case of loss. The distributed income shall form part of the respective heir’s taxable income. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 61 [C]. 60 [A]. Is distributed to beneficiaries. (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 2.

VALCOS . SUBJECT HEADS: EDISON U. tax exemption is likewise to be enjoyed by the income of the pension trust. and 4. taxes imposed or prescribed by the NIRC are to be deducted and withheld by the payor-corporations and/or persons for the former to pay the same directly to the BIR. DIVINE C. Rentals 2. 2. Cinematographic film 118 TAXATION LAW TEAM: ADVISER: ATTY.UST GOLDEN NOTES 2011 having a substantial adverse interest in the disposition of such part of the income may be: 1. thus resulting in amore efficient tax collection system. provided: 1. It is taxation at source. Withholding of Business Tax (VAT and Percentage) 2. taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. CLARABEL ANNE R. (See 60[B]. KASALA. Mar.. MEMBERS: JOSE DUKE BAGULAYA. Expanded Withholding Tax c. Employee’s trust must be part of a pension. These are: 1. Q: What is the income of trust not subject to tax but considered as income of grantor subject to tax? A: Any part of the income of a trust which in the discretion of the grantor or of any person not WITHHOLDING TAX SYSTEMS Q: What is the “withholding tax system?” A: Under this system. Contributions are made to the trust by such employer. ASST. 3. Held or accumulated for future distribution to the grantor 2. Q: What is the tax treatment in case of consolidation of income of two or more trusts? A: The tax computed on consolidated income. It is merely a means of collecting taxes in advance payment of tax due. HERNANDEZ. (CIR v. The trust instrument makes it impossible of any part of the trust corpus or income to be used for or diverted to. 1992) Any amount received by an employee as retirement benefits shall be excluded from gross income subject to conditions setforth under Sec. otherwise. Provide the taxpayer a convenient manner to meet his probable income tax liability. Fringe benefits 4. Withholding Tax on Compensation b. Professional/talent fees 1. 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. Applied to the payment of premium upon policies of insurance on the life of the grantor A: Yes. CHRISTINE L. NIRC) Q: Is “pension trust” taxable? A: No. A: CREDITABLE WITHHOLDING FINAL WITHHOLDING TAX TAX As to income subject of the system 1. Q: What does “in the discretion of the grantor” mean? A: In the discretion of the grantor. CA. Minimize tax evasion. GR 95022. Distributed to the grantor 3. GUTIERREZ. PRUDENCE ANGELITA A. CHARLES L. Passive incomes 3. Ensure the collection of the income tax which would otherwise be lost or substantially reduced through the failure to file the corresponding returns. or such employees or both. Improve the government’s cash flow. Hence. GRANTOZA. the taxes are collected practically at the same time the transaction is made or when the taxable transaction occurs. Q: Is withholding tax a tax? A: No. 23. ANG JR. 32 [B] of the NIRC. ORTIZ & VANNESSA ROSE S. 4. TEE. Note: Purpose of the withholding tax system is to: 1. Compensation Income 2. 3. and such proportion of said tax shall be assessed and collected from each trustee which the taxable income of the trust administered by him bears to the consolidated income of the several trusts. Creditable Withholding Tax a. stock bonus or profit sharing plan of the employer for the benefit of some or all of his employees. LACSINA. SUBJECT HEAD: RODOLFO N. it is not a tax. purposes other than the exclusive benefit of such employees. Final Withholding Tax Q: Distinguish creditable withholding tax from final withholding tax. KEITH S. Such contributions are made for the purpose of distributing to such employees both the earnings and principal of the fund accumulated by the trust. 2. Q: What are the types of withholding taxes? A: There are two main classifications or types of withholding tax.

demandable or legally enforceable. in applications for refund. 1999) Q: May a withholding agent bring a claim for refund or tax credit of erroneously withheld tax? A: Yes. GR L-66838. where the principal office is located. 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. MASACAYAN & THEENA C. surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. an authorized Treasurer of the municipality or city where the withholding agent has his legal residence or principal place of business. GR 160756. the withholding agent is considered a taxpayer because if he does not pay. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Q: Is the imposition of creditable withholding tax amount to deprivation of property without due process and thus unconstitutional? A: No. In effect. 2. Issue Withholding Tax Certificates – To furnish Withholding Tax Certificates to recipient of income payments subject to withholding. Oct. Q: How are withholding taxes withheld and remitted? A: Taxes deducted and withheld by withholding agents shall be covered by a return and paid to. Remit the Tax Withheld – To remit tax withheld at the time prescribed by law and regulations. (Sec. 251. 5. 3. The withholding agent is. MARTINEZ SANTO TOMAS de Derecho Civil 119 . whichever comes first. 9. File Annual Return – To file the corresponding Annual Information Return at the time prescribed by law and regulations. NIRC) Q: Who is a withholding agent? A: A withholding agent is a separate entity acting no more than an agent of the government for the collection of tax in order to ensure its payments. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 4. (Sec. Procter & Gamble Philippine Manufacturing Corporation. 2010) Q: When does the obligation to deduct and withhold arise? A: At the time the income is paid or payable or accrued or recorded as an expense or asset whichever is applicable in the payor’s books. GR 118498 & 124377. 4 of RR 12-2001) It is payable when the obligation becomes due. 12. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.4 of RR 2-98 as amended by Sec. Dec. a withholding agent can validly claim for tax refund. (Filipinas Synthetic Fiber Corporation v. or where the withholding agent is a corporation. 2. et al. (CIR v. Given this responsibility. SABUGO & JOHN HENRY C. except in cases where the CIR otherwise permits. the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. 1991) The withholding agent is liable for the correct amount of the tax that should be withheld. subject to and liable for deficiency assessments. Income payments to certain contractors As to whether or not income should be reported as part of the gross income The recipient may not report the said income The employee is required to in his gross income include the income in his because the tax gross income withheld constitutes final and full settlement of the tax liability As to the effect of the tax withheld The tax withheld can be claimed as a tax credit or The tax withheld cannot may be deducted from the be claimed as tax credit tax due or payable As to filing of ITR If the only source of income is subject to final There is a necessity to file on tax. moreover.. Deduct and Withhold – To deduct tax from all money payments subject to withholding tax. Note: A withholding agent is explicitly made personally liable under Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 rentals and other payments 5. NIRC for the payment of the tax required to be withheld. no need to file an the earner ITR on the part of the earner the withholding agent to withhold the tax under any and all circumstances. the seller may claim tax refund if net income is less than the taxes withheld (CREBA v. Romulo. CA. Register – To register within 10 days after acquiring such status with the RDO having jurisdiction over the place where the business is located. in order to compel ACADEMICS CHAIR: LESTER JAY ALAN E.57. Mar. 2. 58{A]. the tax shall be collected from him. Q: What are the duties and obligations of the withholding agent? A: The following are the duties and obligations of the withholding agent to: 1.

3. HERNANDEZ. sickness or other physical disability or for any cause beyond the control of the said official or employee such as retrenchment. a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance. CHARLES L. night shift differential and hazard pay.. 4. 79 [A]. A payroll period. government or an international organization Payment for damages Proceeds of Life Insurance Amount received by the insured as a return of premium Compensation for injuries or sickness Income exempt under Treaty 13th month pay and other benefits not to exceed P 30. Payment of benefits made under the SSS Act of 1954. Depending on the violation. 12. 9. Q: What are exempted from Withholding Tax on Compensation? A: 1. Retirement benefits received under RA 7641 b. Any amount received by an official or employee or by his heirs from the employer due to death. Late Remittance – when employer remits the correct amount withheld beyond the prescribed due date. Medicare and other contributions Compensation Income of Minimum Wage Earners (MWEs) with respect to their Statutory Minimum Wage (SMW) as fixed by Regional Tripartite Wage and Productivity Board (RTWPB) or National Wage and Productivity Commission (NWPC). holiday pay. as amended f. 13. compromise penalty in lieu of criminal liability. GRANTOZA. Payment of benefits due or to become due to any person residing in the Philippines under the law of the US administered US Veterans Administration e. pensions and other similar benefits d. 11.UST GOLDEN NOTES 2011 Q: Give the rule on withholding tax on compensation. and the retirement gratuity received by the government employee Remuneration paid for agricultural labor Remuneration for domestic services Remuneration for casual labor not in the course of an employer's trade or business Compensation for services by a citizen or resident of the Philippines for a foreign 14. upon recommendation of the CIR. Non-withholding – when there is failure to withhold tax on the taxable income of the employee. Q: What are the violations resulting from noncompliance of obligations under the withholding tax system? A: Non-compliance with these obligations would result in the following violations: 1. 10. as fixed by RTWPB or NWPC. Remuneration as an incident of employment: a. KEITH S. SSS. 6. 2. MEMBERS: JOSE DUKE BAGULAYA. and 3. 7. LACSINA. Failure to refund excess taxes withheld – when employer fails or refuses to refund excess taxes withheld to its employees. 4. (Sec. 8. XPN: In the case of a minimum wage earner. Non-remittance – when employer fails to remit total amount withheld. ANG JR. including overtime pay. as amended. An employer-employee relationship. 3. Social security benefits. night shift differential and hazard pay. redundancy or cessation of business c. CHRISTINE L. 2. interest and in certain cases. ASST. the penalties may vary from collection of surcharge. Payment of compensation or wages for services rendered. holiday pay. applicable to the place where he/she is assigned. 5. 2. retirement gratuities. VALCOS . GUTIERREZ. including overtime pay. KASALA.000 GSIS. Underwithholding – when employer fails to correctly withhold the tax which should be equal to the tax due. ORTIZ & VANNESSA ROSE S. (RMC 21-2010) 120 TAXATION LAW TEAM: ADVISER: ATTY. SUBJECT HEADS: EDISON U. Compensation Income of employees in the public sector if the same is equivalent to or not more than the SMW in the nonagricultural sector. 5. A: GR: Every employer making payment of wages shall deduct and withhold upon such wages. TEE. CLARABEL ANNE R. applicable to the place where he/she is assigned. NIRC) Q: What are the elements of withholding on compensation? A: There must be: 1. Benefits received from the GSIS Act of 1937. SUBJECT HEAD: RODOLFO N. DIVINE C. PRUDENCE ANGELITA A.

Individuals deriving non-business. the income tax due. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. the income tax withheld. SANTO TOMAS de Derecho Civil 121 . Individuals receiving purely compensation income from a single employer. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Failure or refusal to file the withholding exemption certificate False and inaccurate information *See discussion on Withholding of VAT RETURNS AND PAYMENT Q: What is a tax return? A: A tax return is a report made by the taxpayer to the BIR on all gross income received during the taxable year. Q: In what instances shall the excess taxes withheld be forfeited in favor of the Government? A: The employer’s: ACADEMICS CHAIR: LESTER JAY ALAN E. Non-resident citizens receiving income from sources within the Philippines. the net taxable income.professional related income in addition to compensation income not otherwise subject to a final tax. whether from a single or several employers during the calendar year. ii. the income tax of which has not been withheld correctly resulting to collectible or refundable return. SABUGO & JOHN HENRY C. Q: Who are required to file Income Tax Returns (ITR)? A: 1. v. Citizens working abroad receiving income from sources within the Philippines. MASACAYAN & THEENA C. Employees deriving compensation income regardless of the amount. 2. although the income of which has been correctly withheld. Resident citizens receiving income from sources within or outside the Philippines: i. c. Q: What if an employee fails or refuses to file the withholding exemption certificate or willfully supplies false or inaccurate information? A: The tax required to be withheld by the employer shall be collected from the employee including penalty or additions to the tax from the due date of remittance until the date of payment. Q: What if the employer failed to withhold and remit the correct amount of tax? A: The tax shall be collected from the employer together with the penalties and additions to the tax. Q: What is the liability for tax of the employer? A: The employer shall be liable for the withholding and remittance of the correct amount of tax required to be deducted and withheld. iv. and opted for non-withholding of tax on said income. MARTINEZ 1. the employer shall determine the tax due from each employee on taxable compensation income for the entire taxable year. Individuals deriving compensation income from 2 or more employers. but whose spouse is not entitled to substituted filling. whichever is higher. b.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What is the effect if the employer fails to deduct and withhold the tax and thereafter the tax against which such tax may be credited is paid by the recipient? A: The tax so required to be deducted and withheld shall not be collected from the employer but it will not relieve the employer from liability for any penalty or addition to the tax.000 or the statutory minimum wage. and the income tax still to be paid or refundable. Q: What is its effect to the employee? A: The amount deductedand withheld during any calendar year shall be allowed as a credit to the recipient of such income against the tax imposed. Individuals a. Q: What if there is overpayment of tax by the employer? A: Refund or credit shall be made to the employer only to the extent that the amount of such overpayment was not deducted and withheld by the employer. the income tax rate. non. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. iii. concurrently or successively at anytime during the taxable year. Q: How is the year-end adjustment done? A: On or before the end of the calendar year but prior to the payment of the compensation for the last payroll period. the allowable deduction including exemptions. Employees whose monthly gross compensation income does not exceed 5. if any.

77 [B]. 4. a quarterly tax return for the first 3-quarters shall be required on a strictly 60-day basis.UST GOLDEN NOTES 2011 d. NIRC) 2. Note: For conviction of each act or omission. If impractical to file only one return. KEITH S. Collection agent or duly authorized Treasurer of the municipality or city where such person has legal residence or principal place of business or with the CIR. CLARABEL ANNE R. 71 of the NIRC provides that the tax returns shall constitute public records. b. Production or inspection thereof is authorized by the taxpayer himself. Third Quarter . 51 [C]. ASST. 51 A [4].000 or imprisonment of not less than 2 years but not more than 5 years. 270 of the NIRC. 51 [B]. TEE.Nov. it is necessary to know that these are confidential in nature and may not be inquired into in unauthorized cases under the pain of penalty provided for in Sec. LACSINA. Inspection of the return is authorized upon the written order of the President of the Philippines. 2. NIRC) For non-resident citizens. 3. KASALA. With respect to pure compensation derived from sources within the Philippines. SUBJECT HEAD: RODOLFO N. Under RA 9504. Corporations no matter how created or organized including GPPs: a.Aug. Revenue District Officer. 3. VALCOS . 33 of the Secretary of Finance. ANG JR. Foreign Corporations receiving income from sources within the Philippines. (Sec. DIVINE C. MEMBERS: JOSE DUKE BAGULAYA. First Quarter . NIRC) Individuals who are self-employed or in practice of a profession are required to file and pay estimated income tax every quarter as follows: 1. Q: Where to file the ITR? A: With any authorized agent bank. GUTIERREZ. Q: What is the Confidentiality Rule with respect to tax returns filed with the BIR? A: Although Sec. ORTIZ & VANNESSA ROSE S. Domestic corporations receiving income from sources within and outside the Philippines. (Sec. HERNANDEZ. 15 2. NIRC) Q: Who are the individuals exempt from filing an ITR? A: Individuals: 1. Q: When to file the ITR? A: On or before Apr. 15 4. Production of the tax return is material evidence in a criminal case wherein the Government is interested in the result. Whose sole income have been subjected to final withholding income tax 4. (Sec. 51 [D]. 15 of the following year For corporations. Estates and Trusts engaged in trade or business Q: How should married individuals file an ITR? A: They file only one return for the taxable year if they are married and do not derive income purely from compensation. 15 of each year covering income of the preceding taxable year for individual taxpayers. Whose gross income do not exceed the total personal and additional exemptions 2. CHRISTINE L. with the Philippine Embassy or nearest Philippine Consulate or mailed directly to CIR. the penalty of fine of not less than P50. Who are exempt from income tax. 122 TAXATION LAW TEAM: ADVISER: ATTY. 15 3. PRUDENCE ANGELITA A. Final Quarter .000 but not more than P100.Apr. the income tax on which has been correctly withheld 3. The final adjusted return shall be on the 15th day of the 4th month following the close of either fiscal or calendar year (Sec. whether resident or not. SUBJECT HEADS: EDISON U. Second Quarter . NIRC) Q: What is substituted filing? A: It is when the employer’s annual return may be considered as the “substitute” ITR of an employee inasmuch as the information provided in his income tax return would exactly be the same information contained in the employer’s annual return. Note: Individuals not required to file an ITR may nevertheless be required to file an information return. Inspection is authorized under Finance Regulation No. minimum wage earners are granted full tax exemption from paying income tax. Aliens.. each spouse shall file a separate return of income but the return so filed shall be consolidated by the BIR. GRANTOZA.Apr. receiving income from sources within the Philippines. Q: What are those instances wherein inquiry into the ITR of taxpayers may be authorized? A: When: 1. (Sec. CHARLES L.

and Employer filed information return showing the income tax withheld on employees compensation income.2% to 15% or 30% Exemptions Lesser exemptions More exemptions 2. MASACAYAN & THEENA C. Estate tax Donor’s tax Q: What are the conditions under the substitute filing of ITR? Q: Differentiate transfer tax from income tax. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. (RR 32002) 1.000 Rate of tax 2-15% 5-20% Grant of exemption Sec. 2. 3. Donations to NGO worth at least P50. Q: Distinguish donor’s tax from estate tax. XPN: Individuals may pay in two equal installments if the income tax due on the annual return exceeds P2. NIRC Yes. Donation to any candidate. These are levied on the transmission of properties from a decedent to his heirs or from a donor to a donee. He receives the income only from one employer. when filed Within 2 months after the decedent’s death or after qualifying as executor or ACADEMICS CHAIR: LESTER JAY ALAN E. Notice.5% to taxes are higher . together with the delinquency penalties.the income tax shown on the return should be paid at the time the return is filed. 4. the whole amount of the tax unpaid becomes due and payable. Provided. 2. Donor’s Tax . Estate tax . during the taxable year. 101. Q: How is the return and payment of tax in case of government employees? A: The return of the amount deducted and withheld upon any wage shall be made by the officer or employee having control of the payment of such wage.000. political party.000 in which case: (1) the first installment shall be paid at the time the return is filed and (2) the second installment. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What are the kinds of transfer tax under the NIRC? A: A: 1. or coalition of parties 1. Transaction exempt from estate tax but exceeds P20. Transaction subject to estate tax 2. A: TRANSFER TAX INCOME TAX Upon What Imposed Tax on transfer of property Tax on income Rates Applicable Rates are lower Rates of individual income 1. NIRC Grant of deductions None Yes. 000. Sec . MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MARTINEZ SANTO TOMAS de Derecho Civil 123 . ESTATE TAX Basic Principles Q: What are transfer taxes? A: They are imposed upon the privilege of disposing gratuitously private properties. on or before July 15 following the close of the calendar year. If any installment is not paid on or before the date fixed for its payment. SABUGO & JOHN HENRY C.000 P200. Q: What is the manner of paying income tax? A: GR: “Pay-as-you-file system”.87. A: DONOR’S TAX ESTATE TAX Nature of transfer During the lifetime of the After death of decedent donor Transfer takes place only May take place between between natural persons natural and juridical persons Amount exempt P100. or by any officer or employee duly designated for the purpose. NIRC Notice requirement GR: Notice of donation is Notice of death required not required in the following cases: XPNs: 1. Sec 86.5% to 20% 32% 2. not more than 30% of which will be used for administration purposes. Income tax withheld is equal to income tax due. regardless of amount. Employee receives purely compensation income.

Intentional disregard of rules and regulations 3. 3. Tax Code) may be taxed for estate tax purposes. TEE. ASST. actually constituting taxable lifetime like transfers in contemplation of death or revocable transfers (Sec. tax due. donations inter vivos. Value of the gross the calendar year estate which is to be included 2. GRANTOZA. ANG JR. the theory being that the transferor's control thereon extends up to the time of his death. Who pays the tax Paid by the estate Paid by the recipients of represented by the the properties of the administrator or executor estate. regardless of value of gross estate Contents of return 1. CHARLES L. Each gift made during 1. Such further information as may be required by rules and regulations made pursuant to law Time of filing Return Within 30 days after Within 6 months from donation was made death of decedent Extension for filing return None 30 days in meritorious cases Payment of tax due Pay as you file Pay as you file Extension of payment GR: Extension of payment is not allowed XPN: When it would impose undue hardship upon the estate or any of the heirs. XPN to XPN: When taxpayer is guilty of: 1. 4. A: ESTATE TAX Basis Tax on the privilege to Tax on the privilege to transfer property upon receive property from the one’s death. Only estate taxes are imposed. Definition Q: Define estate tax. (1994 Bar Question). 1973 due to administrative difficulty in its collection. If Gross estate exceeds made during the same P2M. Q: Define inheritance tax. Estate consists of registered or registrable property. effective January 1. Other pertinent claimed and allowable information 3. Note: The tax should not be construed as a direct tax on the property of the decedent although the tax is based thereon. HERNANDEZ.D. Exempt from tax but the gross estate A transfer subject to exceeds P200. in computing net gifts 86. there is no inheritance tax imposed by law. DIVINE C. A transfer subject to estate tax 2. Any previous net gifts 4. 69 passed on November 24. ORTIZ & VANNESSA ROSE S. (1969 Bar Question) INHERITANCE TAX None Requirement for grant of extension of payment Bond not exceeding double the amount of the tax and with such sureties as the Q: What is “estate planning”? 124 TAXATION LAW TEAM: ADVISER: ATTY. Tax Code). CLARABEL ANNE R. A: It is an excise tax imposed upon the privilege 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. Deductions under Sec. KASALA. VALCOS . decreased. Note: Presently. certified by a calendar year CPA as to assets. KEITH S. The name of the deductions. extension may be allowed but not to exceed 5 years in case of judicial settlement or 2years in case of extrajudicial settlement. NIRC 2. SUBJECT HEAD: RODOLFO N. MEMBERS: JOSE DUKE BAGULAYA. Q: Distinguish estate from inheritance tax. PRUDENCE ANGELITA A. However.. 91 (a) Tax Code)] while donations mortis causa are subject to estate tax (Sec. A: It is the tax on the privilege to receive property from a deceased person. GUTIERREZ. Fraud commissioner necessary deems Q: Are donations inter vivos and donations mortis causa subject to estate taxes? A: Donations inter vivos are subject to donor's gift tax [Sec. 77. This has been abolished by P.UST GOLDEN NOTES 2011 administrator Filing of return 1. The deductions 3. donee whether paid or not 5.000 donor’s tax. LACSINA. 1972. 78 [b] and [c]. CHRISTINE L. Negligence 2. SUBJECT HEADS: EDISON U.

NATIONAL INTERNAL REVENUE CODE OF 1997
A: The manner by which a person takes step to conserve the property to be transmitted to his heirs by decreasing the amount of estate taxes to be paid upon his death. It is considered as lawful because, “the legal right of a taxpayer to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits, cannot be doubted.”(Delpher Trades Corporation v. IAC, et al. G.R. No. 73584, Jan. 28, 1988) Q: A law was passed by Congress abolishing estate tax. Is the law valid? A: Yes, it is in the nature of a tax exemption. Settled is the rule that the power to tax includes the power to grant an exemption. 2. Nature of Transfer Tax Q: What is the nature of transfer taxes? A: They are excise taxes; not property taxes.
Note: They are not property taxes because their imposition does not rest upon general ownershipbut rather they are privilege tax since they are imposed on the act of passing ownershipof property.

5.

General – to raise revenue for the government to be used for general purpose Progressive – the rate increases as the tax base increases. (Sec. 84, NIRC)

6.

Q: What are the bases for the imposition of estate tax? A: 1. Benefits-protection theory – based on the power of the State to demand and receive taxes on the reciprocal duties of support and protection i.e. distribution of the estate of the decedent; Privilege theory/State-partnership theory – the State, as a passive and silent partner in the privilege of accumulating property, has the right to collect the share which is properly due it; Ability to pay – the receipt of inheritance is in the nature of unearned wealth which creates the ability to pay the tax Redistribution of wealth – receipt of inheritance contributes to the widening inequalities in wealth. By imposing estate tax, the value received by the successor is thereby reduced and brings said value into the coffers of the government

3.

4.

Q: What are the characteristics of estate tax? A: 1. Excise tax – it is a tax imposed upon the privilege of transferring property or shifting of economic benefits and enjoyment of the property from the dead to the living; Ad valorem tax – it is based on the fair market value as of the time of death. However, the appraised value of real property as of the time of death shall be, whichever is higher of the fair market value a. As determined by the Commissioner (zonal value), or b. As shown in the schedule of values fixed by the Provincial and City Assessors. (Sec. 88, NIRC) Indirect tax – amount may be shifted or passed on to the transferee National – imposed by the National government. It cannot be imposed by LGU’s pursuant to Sec. 133 of the Local Government Code

Q: What are the requisites for the imposition of Estate Tax? A: DSD 1. 2. 3.

2.

Death of decedent; Successor is alive at the time of decedent’s death; and Successor is not Disqualified to inherit.

Purpose/Object of Transfer Tax Q: Give the purposes in imposing the estate tax. A: To: 1. 2. 3. 4.

3.

4.

Generate additional revenue for the government Reduce the concentration of wealth Provide for an equal distribution of wealth Compensate the government for the protection given to the decedent that

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

SANTO TOMAS de Derecho Civil

125

UST GOLDEN NOTES 2011
enabled him to prosper and accumulate wealth
Note: Generally, the purpose of the estate tax is to tax the shifting of economic benefits and enjoyment of property from the dead to the living.

Less: Tax credit (if any) (Sec. 86(E) or 110(B)) Estate Tax Due, if any E

Determination of Gross and Net Estate Q: How is the gross estate determined?

Time and Transfer of Properties Q: When are the properties and rights transferred to successors? A: The properties and rights are transferred to the successors at the time of death. (Art. 777, Civil Code) Q: What law governs the imposition of the estate tax? A: The statute in force at the time of death of the decedent. Q: When does estate tax accrue?

A: 1. If the decedent is a resident or nonresident citizen, or a resident alien – All properties, real or personal, tangible or intangible, wherever situated. If the decedent is a non-resident alien – Only properties situated in the Philippines provided that, intangible personal property is subject to the rule of reciprocity provided for under Section 104 of the NIRC. (Section 85, NIRC)

2.

Q: What is the basis for the valuation of gross estate? A:

A: The estate tax accrues as of the death of the decedent. The accrual of the tax is distinct from the obligation to pay the same which is 6 months after the death of the decedent.

As to real property

Classification of Decedent Q: Who are the taxpayers liable to pay estate tax? A: Only individuals 1. Resident citizen 2. Non-resident citizen 3. Resident alien 4. Non-resident alien
Note: Domestic and foreign corporations are subject only to donor’s tax and not to estate tax because it is not capable of death but may enter into a contract of donation.
As to personal property As to shares of stock

GROSS ESTATE vis-a-vis NET ESTATE Q: What is the estate tax formula? A: Gross estate( Sec. 85) Less: (1) Deductions (Sec 86) ____ (2) Net share of the surviving spouse Net Estate x Tax rate(Sec. 84)__________________ Estate tax due

As to right to usufruct, use or habitation, as well as that of annuity

PROPERTY VALUATION Whichever is higher between the fair market value: 1. as determined by the Commissioner (zonal value) or 2. as shown in the schedule of values fixed by the provincial and city assessors * if there is no zonal value, use the FMV in the latest tax declaration. Whether tangible or intangible, appraised at FMV. “Sentimental value” is practically disregarded. 1. Unlisted a. unlisted common - book value b. unlisted preferred - par value 2. Listed Arithmetic mean between the highest and lowest quotation at a date nearest the date of death, if none is available on the date of death itself. Shall be taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.

Note: In determining the book value of common shares, the following shall not be considered:  Appraisal surplus  The value assigned to preferred shares, if there are any.

126

TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

NATIONAL INTERNAL REVENUE CODE OF 1997
personal wherever situated shall form part of the gross estate.

If there is an improvement, the value of improvement is the construction cost per building pernit or the fair market value per latest tax declaration.

Q: Is there an exception to the above exceptions? A: Yes, on the basis of reciprocity. No donor’s or estate tax shall be collected in respect of intangible personal property: 1. Total exemption - If the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or Partial exemption - If the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. (Sec. 104, NIRC)

Composition of Gross Estate Q: What does gross estate include? A:
If the decedent is a resident citizen, nonresident citizen, or resident alien Value at the time of death of all: 1. Real property wherever situated 2. Personal property, tangible or intangible, wherever situated 3. To the extent of the interest therein of the decedent at the time of his death. If the decedent is a nonresident alien Value at the time of death of all: 1. Tangible personal property situated in the Philippines 2. Intangible personal property with situs in the Philippines unless exempted on the basis of reciprocity

2.

Q: What are the intangible properties of a nonresident alien decedent which are consider as situated in the Philippines, hence treated as part of the gross estate? A: FranSha4- (Organized-Established-85- Foreign situs) 1. 2. Franchise which must be exercised in the Philippines; Shares, obligations or bonds issued by any corporation or sociedad anonima Organized or constituted in the Philippines in accordance with its laws; (domestic corporation) Shares, obligations or bonds by any foreign corporation 85% of its business is located in the Philippines; Shares, obligations or bonds issued by any Foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; Shares or rights in any partnership, business or industry Established in the Philippines (Sec. 104, NIRC)

Q: Will shares of stock issued by a foreign corporation in favor of a non-resident form part of the gross estate? A: Yes, if 85% of the business of the foreign corporation who issued the stocks is located in the Philippines. It is considered to have obtained business situs in the Philippines, thus the issued shares of stock shall form part of the gross estate of the nonresident. (Section 104, NIRC) Q: Is there a need to disclose properties outside the Philippines? A: Yes, whether resident or non-resident. A resident decedent is taxed on properties within or without. A non-resident is required to disclose properties outside the Philippines under Sec. 86 (D), NIRC. Q: Discuss the rule on situs of taxation with respect to the imposition of the estate tax on property left behind by a non-resident decedent. A: The value of the gross estate of a non-resident decedent who is a Filipino citizen at the time of his death shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated

3.

4.

5.

Note: This enumeration of intangible properties are significant only for non-resident alien and for foreign corporation because they are the only set of taxpayers where the situs of the property is considered in determining whether their property shall form part of the gross estate or not. Remember that in case of Filipino citizens (whether resident or non-resident) and resident aliens all of their properties whether real or

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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to the extent of the interest therein of the decedent at the time of his death (Sec. 85 [A], NIRC). These properties shall have a situs of taxation in the Philippines hence subject to Philippines estate taxes. On the other hand, in the case of a non-resident decedent who at the time of his death was not a citizen of the Philippines, only that part of the entire gross estate which is situated in the Philippines to the extent of the interest therein of the decedent at the time of his death shall be included in his taxable estate. Provided, that, with respect to intangible personal property, we apply the rule of reciprocity. (Ibid ) (2000 Bar Question) Q: Ralph Donald, an American citizen, was a top executive of a U.S company in the Philippines until he retired in 1999. He came to like the Philippines so much that following his retirement, he decided to spend the rest of his life in the country. He applied for and was granted permanent resident status the following year. In the spring of 2004, while vacationing in Orlando Florida USA, he suffered a heart attack and died. At the time of his death he left the following properties: a. Bank deposits with Citibank Makati and Citibank Orlando Florida; b. Rest house in Orlando, Florida; c. A condominium unit in Makati; d. Shares of stock in the Phil subsidiary of the U.S company where he worked; e. Shares of stock in San Miguel Corporation and PLDT f. Shares of stock in Disney World in Florida g. U.S treasury bonds h. Proceeds from a life insurance policy issued by a US corporation. Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. A: All of the properties enumerated except (h), the proceeds from life insurance, are included in the taxable gross estate in the Philippines. Ralph Donald is considered a resident alien for tax purposes since he is an Aerican citizen and was a permanent resident of the Philippines at the time of his death. The value of the gross estate of a resident alien decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated. (Sec. 85, NIRC) The other item, (h) proceeds from a life insurance policy, may also be included on the assumption that it was Ralph Donald who took out the insurance upon his own life, payable upon his death to his estate. (Sec. 85[E], NIRC). (2005 Bar Question) Q: What is the meaning of fair market value? A: The price at which any seller will sell and any buyer will buy both willingly without any force or intimidation.

Items to be Included in Gross Estate Q: What are included in the gross estate? A: 1. 2. 3. 4. 5. 6. 7. Decedent's interest Transfer in contemplation of death Revocable transfer Property passing under general power of appointment Proceeds of life insurance Prior interests Transfers of insufficient consideration

Note: Nos. 2, 3, 4 and 7- properties not physically in the estate (these have already been transferred during the lifetime of the decedent but are still subject to payment of estate tax) - are transfers inter-vivos which are considered part of gross estate.

Decedent’s Interest. Q: What does the decedent’s interest include? A: It includes any interest having value or capable of being valued, transferred by the decedent at his death. Q: Jose Ortiz owns 100 hectares of agricultural land planted with coconut trees. He died on May 30, 1994. Prior to his death, the government, by operation of law, acquired under the Comprehensive Agrarian Reform Law all his agricultural lands except five (5) hectares. Upon the death of Ortiz, his widow asked you how she will consider the 100 hectares of agricultural land in the preparation of the estate tax return. What advice will you give her? A: The 100 hectares of land that Jose Ortiz owned but which prior to his death on May 30, 1994 were acquired by the government under CARP are no longer part of his taxable gross estate, with the exception of the remaining five (5) hectares which under Sec. 78{a) of the Tax Code still forms part of "decedent's interest". (1994 Bar Question)

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

NATIONAL INTERNAL REVENUE CODE OF 1997
Transfer In Contemplation of Death. Q: Define “transfer in contemplation of death”. A: This is a transfer motivated by the thought of impending death although death may not be imminent: 1. When the decedent has, at any time, made a transfer in contemplation of or intended to take effect in possession or enjoyment at or after death;or When decedent has, at any time, made a transfer under which he has retained for his life or for a period not ascertainable without reference to his death or any period which does not in fact end before his death: a. Possession, enjoyment or right to income from the property; or b. The right alone or in conjunction with any other person to designate the person who will possess or enjoy the property or income there from. (Sec. 85[B], NIRC) making the inter-vivos gifts is to avoid the imposition of the estate tax and since the donees are likewise his forced heirs who are called upon to inherit, it will create a presumption juris tantum that said donations were made mortis causa, hence, the properties donated shall be included as part of A's gross estate. (2001 Bar Question) Q: What is the 3-year Presumption Rule? Give an example. A: The 3-year presumption rule states that any transfer made within 3 years before one’s death is considered one in contemplation of death. Q: Is the said rule (3-year Presumption Rule) still applicable? A: No. It was deleted by P.D. 1705. Q: What are the circumstances to be taken into account in determining whether the transfer is one in contemplation of death? A: 1. Age of the decedent at the time the transfers were made 2. Decedent’s health, as he knew it at or before the time of the transfers 3. The interval between the transfers and the decedent’s death 4. The amount of property transferred in proportion to the amount of property retained 5. The nature and disposition of the decedent 6. The existence of a general testamentary scheme of which the transfers were a part 7. The relationship of the donee(s) to the decedent 8. The existence of a desire on the part of the decedent to escape the burden of managing property by transferring the property to others 9. The existence of a long established giftmaking policy on the part of the decedent 10. The existence of a desire on the part of the decedent to vicariously enjoy the enjoyment of the donees for the property transferred 11. The existence of the desire by the decedent of avoiding estate taxes by means of making inter vivos transfers of property. (Estate of Oliver Johnson v. Commissioner, 10 T.C. 680).

2.

Note: The concept of transfer in contemplation of death has a technical meaning. This does not constitute any transfers made by a dying person. It is not the mere transfer that constitutes a transfer in contemplation of death but the retention of some type of control over the property transferred. In effect, there is no full transfer of all interests in the property inter vivos.

Q: What are the transfers not considered in contemplation of death and not part of the gross estate? A: 1. 2. A bonafide sale Sale for adequate and full consideration in money or in money’s worth.(Ibid.)

Q: A, aged 90 years and suffering from incurable cancer, on August 1, 2001 wrote a will and, on the same day, made several inter-vivos gifts to his children. Ten days later, he died. In your opinion, are the inter-vivos gifts considered transfers in contemplation of death for purposes of determining properties to be included in his gross estate? A: Yes. When the donor makes his will within a short time of, or simultaneously with, the making of gifts, the gifts are considered as having been made in contemplation of death. (Roces v. Posadas, 58 Phil. 108). Obviously, the intention of the donor in

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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Revocable Transfer. Q: Define revocable transfer. A: A revocable transfer is a transfer by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power to alter or amend or revoke or terminate such transfer by: 1. 2. Decedent alone; By the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power, to alter, amend, revoke or terminate; or Where any such power is relinquished in contemplation of the decedent’s death other than a bone fide sale for an adequate and full consideration in money or money’s worth. (Sec. 85(C)(1), NIRC) A: GR: No. It is sufficient that the decedent has the power to revoke, though he did not exercise such power. XPN: In case of a bona fide sale for an adequate & full consideration in money and money’s worth. Q: When is a transfer not revocable, thereby not subject to estate tax? A: 1. If the decedent’s power could only be exercised with the consent of all parties having an interest in the transferred property and if the power adds nothing to the rights the parties possess under local law. (Lober v. United States, 346 US 335) When the decedent has been completely divested of the power at the time of his death (ibid.) Where the exercise of the power by the decedent was subject to a contingency beyond the decedent’s control which did not occur before his death. (Hurd v. Commissioner 160F(2)610) The mere right to name trustees. Neither is the grantor’s limited power to appoint himself as trustee under conditions which did not exist at his death. (24 Am Jur. 2d, p 790)

3.

2.

Q: When is the power to alter, amend or revoke considered existing on date of decedent’s death? A: The power to alter, amend or revoke shall be considered to exist on date of decedent’s death even though: 1. The exercise of the power is subject to a precedent giving of notice; or 2. The alteration, amendment or revocation takes effect only on the expiration of a stated period for the exercise of the power, whether or not on or before the date of the decedent’s death a. Notice has been given b. The power has been exercised In such cases, proper adjustment shall be made representing the interest which would have been excluded from the power if the decedent had lived, and for such purpose if notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised on the date of his death. (Sec. 85(C)(2), NIRC)
Note: Revocable transfer is part of the gross estate of the decedent because the transferor can revoke the transfer any time, such person wields tremendous amount of power such that he can revoke the transfer as if none was actually made.

3.

4.

Property Passing Under a General Power of Appointment Q: Define general power of appointment (GPA). A: It is the right to designate the person who will succeed to the property of the prior decedent, in favor of anybody, including himself, his estate, his creditors, or the creditors of his estate. If the donation contains a provision of reversion to the donor, this is similar to a revocable transfer.
Note: A power is not general (specific) if it can be exercised only in favor of one or more designated person or classes of persons exclusive of the decedent, his estate, his creditors and creditors of his estate, or if it expressly not exercisable in favor of the decedent, his estate, his creditors, or creditors of his estate.

Q: Is it necessary that the decedent should have exercised such right?

Q: What properties passing under a GPA is includible as part of a decedent’s estate? A: Those properties passed by the decedent under a GPA by: 1. Will

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

SABUGO & JOHN HENRY C. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Edgardo was her only heir. or the right to designate the person who will possess or enjoy the property or income therefrom. Edgardo is a lawyer and he negotiated with the airline company and insurance company and they were able to agree to settlement of P10 million. Neither will it be included in the gross income of the employee-beneficiary based on Sec. Proceeds receivable by a beneficiary designated as irrevocable provided that the beneficiary is not the decedent’s estate. 30 years old. Deed executed in contemplation of death. it will not form part of his gross estate. Is the P10 million subject to estate tax? Should Edgardo report the 10 million as his income being Antonia’s only heir? Q: What properties passing under GPA are not included as part of a decedent’s gross estate? A: Those properties transferred: 1. and b. (Section 85(E). 2. gainfully employed. 32(B)(1). MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. will it still form part of the gross estate? A: No. the life insurance proceeds will form part of the gross estate of the decedent employee if his designation is revocable. She died in an airplane crash. executor and administrator. This is what Antonia would have earned as somebody who was gainfully employed. b. A: TRANSFER IN GENERAL POWER OF CONTEMPLATION OF APPOINTMENT (GPA) DEATH Effectivity For his life or any period not ascertainable without reference to his death or for any period which does not in fact end before his death At or after death Means Property passed under GPA By trust or otherwise and by will or by deed Proceeds Of Life Insurance. what are its tax implications? A: The premiums paid by the employer will not be deductible from its employer’s gross income (Sec. it will be considered as a receivable of the estate. Not part of the gross estate when: a. MASACAYAN & THEENA C. However. executor. 1. Q: Suppose an employer takes a life insurance policy on the life of an employee where the employer is designated as the beneficiary. NIRC). LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. is the sister of Eduardo Santos. For an adequate and full consideration in money or money’s worth (Ibid. NIRC) 2. NIRC. NIRC) Q: Who is a third person? A: It is one other than the estate. the possession. Under a bona fide sale 2. executor. Q: What if the beneficiary who was irrevocably designated caused the death of the insured? A: Considered revocable unless he acted in selfdefense. (Sec. his executor or administrator regardless of whether the designation is revocable or irrevocable. or after his death Deed under which he has retained for hislife or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death: a. executor. other than the decedent’s estate. or intended to take effect in possession or enjoyment at. Q: When are the proceeds of insurance policy considered as part or not of the gross estate? A: 1.) Q: Differentiate “transfer in contemplation of death” from “general power of appointment”. 36 [A][4]. Part of the gross estate when the beneficiary is: a. or administrator provided that the designation is revocable. Where the insurance was not taken by the decedent upon his own life and the beneficiary is not the decedent’s estate. MARTINEZ SANTO TOMAS de Derecho Civil 131 . and administrator. if the designation is irrevocable. or administrator. Q: Antonia Santos. Conversely. ACADEMICS CHAIR: LESTER JAY ALAN E. 3. 85[D]. A third person. The estate of the decedent. enjoyment or right to income from the property.NATIONAL INTERNAL REVENUE CODE OF 1997 2. and b. Q: If the property insured was destroyed after the taxpayer’s death.

Q: When is this applicable? A: This is applicable to: 1. CLARABEL ANNE R..000. A: 1. powers and relinquishment of powers made. which is beyond the scope of income taxation (Sec. On September 1. HERNANDEZ. MEMBERS: JOSE DUKE BAGULAYA. GRANTOZA. Note: It is subject to estate tax if the 3 instances mentioned are present.UST GOLDEN NOTES 2011 gross estate of the decedent to the extent of the amount receivable by the beneficiary designated in the policy of the insurance except when it is expressly stipulated that the designation of the beneficiary is irrevocable.000. TEE. Are the proceeds of the insurance to form part of the gross estate of X? Explain. DIVINE C. 85(E). Y. as irrevocable beneficiary to P1. 100 in relation to Sec 85[B]. to the balance of P1. No. 2. arising existing. trusts. He designated his wife. rights.000 and his son Z. PRUDENCE ANGELITA A. 2000. VALCOS . created. No. Transfers under general power of appointment which are not bona fide sale for an adequate and full consideration in money and money’s worth. As stated in the problem. Under the Tax Code. Transfers for Insufficient Consideration Q: What shall be included in the gross estate if a transfer is for insufficient consideration? A: Only the excess of the fair market value of the property at the time of the decedent’s death over the consideration received shall be included in the gross estate. ANG JR. Accordingly. estates. Revocable transfer 2. Q: Can this transfer be subjected to donor’s tax? A: It is subject to donor’s tax if there is no reference to: 1. KASALA. the estate tax cannot be imposed thereon. which is excluded from the gross income of the recipient. hence a return of capital. The amount received in a settlement agreement with the airline company and insurance company is an amount received from the accident insurance covering the passenger of the airline company and is in the nature of compensation for personal injuries and for damages sustained on account of such injuries. Revocable transfers 3. X took out a life insurance policy on his own life in the amount of P2. CHARLES L. NIRC) Q: On June 30.000. CHRISTINE L. but in the latter designation. 132 TAXATION LAW TEAM: ADVISER: ATTY. Z. Are the proceeds of the insurance subject to income tax on the part of Y and Z for their respective shares? Explain. (Sec.00 given to the son. (Sec. only the designation of Y is irrevocable while the insured/decedent reserved the right to substitute Z as beneficiary for another person. NIRC) Only the proceeds of 1. NIRC) (2003 Bar Question) A: 1. Contemplation of death 3.000. interests.000. Prior Interest Q: What is the meaning of “prior interest”? A: All transfers. 2003 X died and his wife and son went to the insurer to collect the proceeds of X’s life insurance policy. reserving his right to substitute him for another. (Sec. KEITH S. The law explicitly provides that the proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured are excluded from gross income and is exempt from taxation. exercised or relinquished before or after the effectivity of the Tax Code.000. General power of appointment. Transfers in contemplation of death 2. proceeds of life insurance shall form part of the 2. 1. 85. NIRC). shall form part of the Gross Estate of X. (2007 Bar Question) 2. ORTIZ & VANNESSA ROSE S. Since the privilege to transmit property is not exercised by the decedent. hence it cannot be said that she exercised control over its disposition. 32 B (1). SUBJECT HEADS: EDISON U. No. the proceeds received by Y shall be excluded while the proceeds received by Z shall be included in the gross estate of X. The P10 million is not a property existing at the time of the decedent’s death. The estate tax is a tax on the privilege enjoyed by an individual in controlling the disposition of her properties to take effect upon her death. SUBJECT HEAD: RODOLFO N.000. The proceeds of life insurance received upon the death of the insured constitute a compensation for the loss of life. ASST. LACSINA. GUTIERREZ.

non-resident citizen. Standard deduction 3. The transmission from the first heir. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Amount received by heirs under R. legacies or transfers to social welfare. Transfers for public use 4. cClaims against insolvent persons included in the gross estate e. SABUGO & JOHN HENRY C.A. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. cClaims against the estate d. and taxes (ELIT): a. legatee or donee in favor of Another beneficiary. Property Previously Taxed 3. Note: Section 86(A)(1) refers to the Expenses. Medical expenses 7. conjugal or community property Q: What are the acquisitions and transfers which are not included in the gross estate? A: FAMI-30% 1. 86(A)(1) of the NIRC which the value of such part bears to the value of his entire gross estate wherever situated. Q: What is the amount of funeral expenses deductible from the gross estate of a Filipino decedent (whether resident or non-resident) or of a resident alien decedent? A: The amount deductible is the lower between: 1. lLosses incurred during the settlement of the estate 2. in accordance with the desire of the predecessor 4. fFuneral expenses b. uUnpaid mortgages or indebtedness upon the property f.000. INDEBTEDNESS. cultural and charitable Institutions no part of the net income of which inures to the benefit of any individual: provided that not more than 30% of the value given is used for administrative purposes [Sec. 4917 If the decedent is a nonresident alien (EPTraN) 1. Net share of the surviving spouse in the Q: What is the formula for computing ELIT deductible from the gross estate of a nonresident alien decedent? A: Philippine Gross Estate World Gross Estate x Expenses. Property previously taxed 3. AND TAXES (ELIT) Q: What is the difference in the treatment of ELIT as deduction allowed to nonresident estates? A: In the case of a nonresident not a citizen of the Philippines. indebtedness. jJudicial expenses for testamentary or intestate proceeding c. and taxes (ELIT): a. No. uUnpaid mortgages or indebtedness upon the property f. uUnpaid taxes g. LOSSES. cClaims against insolvent persons included in the gross estate e. ELIT is allowed as a deduction in proportion of the deductions specified in Sec. uUnpaid taxes g. The transmission or the delivery of the inheritance or legacy by the fiduciary heir or legate to the Fideicommissary 3. Losses. lLosses incurred during the settlement of the estate 2. Family home 2. indebtedness. fFuneral expenses b. 5% of the gross estate But not exceeding P200. jJudicial expenses for testamentary or intestate proceedings c. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. ACADEMICS CHAIR: LESTER JAY ALAN E. MASACAYAN & THEENA C. 87. The Family home 5. losses. Retirement pay EXPENSES. devises. Net share of the surviving spouse in the conjugal or community property. Standard deduction 6. or resident alien (EPTran-FS-MAN) 1. losses. MARTINEZ SANTO TOMAS de Derecho Civil 133 . NIRC] Note: The following expenses are not allowed as deductions to non-resident aliens: 1. Indebtedness and Taxes (ELIT) DEDUCTIONS FROM ESTATE Q: What may be deducted from the gross estate? A: If the decedent is a resident citizen. actual funeral expenses or 2. EExpenses. Hospitalization expenses 4. Indebtedness and Taxes (ELIT) = Allowable Deductions from Gross Income Actual Funeral Expenses (whether paid or unpaid). The Merger of the usufruct in the owner of the naked title 2. Transfers for Public Use 4.NATIONAL INTERNAL REVENUE CODE OF 1997 (Retirement Benefits of Employees of Private Firms) 8. All the bequests. Losses. cClaims against the estate d. EExpenses.

CLARABEL ANNE R. deduction is limited to such administration expenses as are actually and necessarily incurred in the collection of the assets of the estate. ANG JR. The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred (RR2-2003). appraiser's fees. LACSINA. tombstone monument or mausoleum but not their upkeep. Mourning apparel of the surviving spouse and unmarried minor children of the deceased. HERNANDEZ.resident alien decedent? A: The proportion which actual funeral expenses or amount equal to 5% of the gross income whichever is lower but not to exceed P20.UST GOLDEN NOTES 2011 Q: What is the amount of funeral expenses deductible from the gross estate of a non." there is no reason why expenses incurred in the administration and settlement of an estate in extrajudicial proceedings should not be allowed. KEITH S. CHARLES L. It includes: 1. 134 TAXATION LAW TEAM: ADVISER: ATTY. KASALA. Interment and/or cremation fees and charges. Attorney's fees. and distribution of the remainder among those entitled thereto. are allowed only if incurred by the decedent within one year prior to his death. 7. TEE. 3. Note: These deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law. Deductible attorney's fees are those incurred by the executor or administrator in the settlement of the estate or in defending or prosecuting claims against or due the estate. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. 3. Expenditures incurred for the individual benefit of the heirs. Note: Expenses incurred after the interment are not deductible. the attorney's fees incurred in the guardianship proceedings should be allowed as a deduction from the gross estate of the decedent. on the other hand.R No. Publication charges for death notices. costs of preserving and distributing the estate and storing or maintaining it. Telecommunication expenses in informing relatives of the deceased. and the like. Q: What are included as funeral expense? A: The term is not confined to its ordinary or usual meaning. 4. PRUDENCE ANGELITA A. devisees. Q: What are included? A: Expenses allowed as deduction under this category are those incurred in the: 1. ASST. Expenses of the wake preceding the burial including food and drinks. Administration. 2. only the value corresponding to the plot where he is buried is deductible. Distribution of the estate among the heirs. 4. legatees Compensation paid to a trustee of the decedent’s estate when it appeared that such trustee was appointed for the purpose of managing the decedent’s real property for the benefit of the testamentary heir Judicial Expenses Off Testamentary Or Intestate Proceedings. Hence. in order to be deductible from the gross estate must be essential to the settlement of the estate.. 86[A][6].0000 bears to the value of the entire gross estate whichever situated. GUTIERREZ. 2. clerk hire. 6. All other expenses incurred for the performance of the ritual and ceremonies incident to the interment. NIRC). Attorney's fees incurred in the guardianship proceeding were essential to the distribution of the property to the persons entitled thereto. SUBJECT HEAD: RODOLFO N. Mar. MEMBERS: JOSE DUKE BAGULAYA. payment of the debts. 22. for the filing of the estate tax return. GRANTOZA. (Sec. In case deceased owns a family estate or several burial lots. Q: May the notarial fee paid for the extrajudicial settlement and the attorney's fees in the guardianship proceedings be allowed as deductions from the gross estate of decedent in order to arrive at the value of the net estate? A: Although the Tax Code specifies "judicial expenses of the testamentary or intestate proceedings. 123206. However. brokerage fees or commissions for selling or disposing of the estate. 2. Such expenses may include executor's or administrator's fees. CHRISTINE L. Payment of debts of the estate. court fees and charges. or the extension thereof. G. CA. Inventory-taking of assets comprising the gross estate. ORTIZ & VANNESSA ROSE S. bought and used in the occasion of the burial. Note: Medical expenses. attorney's fees. on the other hand. SUBJECT HEADS: EDISON U. (CIR v. DIVINE C. 5. VALCOS . 2000) Q: What items are not included as judicial expenses of the testamentary and judicial proceedings? A: 1. Cost of burial plot.

4. there is no more claim against the estate which may be allowed as a deduction. Q: What are the sources of these claims? A: They may arise out of: CTO 1. Note: Substantiation Requirements (if a claim arose out of a debt instrument) : a. Must be a debt or claim must be Valid and enforceable in court. the administrator. 140944. for the purpose of paying its creditors. (Dizon. al v. MASACAYAN & THEENA C. 2008) Claims of Deceased Against Insolvent Q: What are the requisites for deductibility? A: This is deductible provided that: 1. The debt instrument was duly notarized at the time the indebtedness was incurred. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec 86[A][1][c]. requested the probate court's authority to sell several properties forming part of the estate. et. and 2. Premiums paid on the bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a qualification for the office and not necessary for the settlement of the estate Attorney’s fees incident to litigation incurred by the heirs in asserting their respective rights (ibid). LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. NIRC) Q: What are the requisites for its deductibility? A: TiG-VaC 1. The full amount of the receivables be included first in the gross estate. 5. Contract 2. Q: During the proceeding for the probate of Jose Fernandez’s estate. An indebtedness that has been condoned is in legal effect no indebtedness at all. no estate tax was due. CA. G. The indebtedness must not have been Condoned by the creditor or the action to b. At the time the indebtedness was incurred the debt instrument was duly notarized. MARTINEZ SANTO TOMAS de Derecho Civil 135 . ACADEMICS CHAIR: LESTER JAY ALAN E. or of a resident alien decedent? A: Claims against the estate may be claimed as a deduction provided that: 1. The claims against the estate which the law allows as deduction from the gross estate are existing claims against the estate. 3. If there is no more indebtedness by reason of the condonation. 2. collect from the decedent must not have prescribed (RR 2-2003. No. whether resident or not. The incapacity of the debtors to pay their obligation is proven not merely alleged.R. However. Tort 3. By Operation of law Q: When may it be allowed as a deduction from the gross estate of a Filipino citizen. A: 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. SABUGO & JOHN HENRY C. May the actual claims of the creditors be fully allowed as deductions from the gross estate of Jose despite the fact that the claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors A: No. Apr. except loans from financial institutions where notarization is not part of business practice or policy. and It must be duly substantiated. and 2. Dizon claims that in as much as the valid claims of creditors against the estate are in excess of the gross estate. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Claims Against The Estate Q: Define “claims”. The liability represents a personal obligation of the deceased existing at the Time of his death except unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid medical expenses. the BIR issued an Estate Tax Assessment Notice demanding payment of the deficiency estate tax.NATIONAL INTERNAL REVENUE CODE OF 1997 3. The liability was contracted in Good faith and for adequate and full consideration in money or money’s worth. 4. the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan. CTA ordered that the estate should pay the estate tax liability with interest. 30. and 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 (3) years prior to the death of the decedent. Dizon. If the loan was contracted within three (3) years before the death of the decedent.

2. HERNANDEZ. Arise from fire. GRANTOZA. 2. theft or embezzlement. KEITH S. Property Previously Taxed (Vanishing Deductions). undiminished by such mortgage or indebtedness is included in the gross estate. storm. resident aliens and non resident estates for properties which were previously subject to donors or estate taxes. GUTIERREZ. (Section 86(A)(1))(e). NIRC) Q: If the decedent is a non-resident alien decedent. Note: Casualty loss can be allowed as deduction in one instance only.UST GOLDEN NOTES 2011 Note: Judicial declaration of insolvency is not necessary. the value of the unpaid loan must be included as a receivable of the estate. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person. Were incurred during the settlement of the estate. ASST. Q: What is the rate of deduction? Q: What taxes are not deductible? A: Those accruing after death. Note: The purpose of vanishing deduction is to lessen the harsh effects of double taxation. as follows: PERIOD Within 1 year or less More than 1 year but not more than 2 years More than 2 years but not more than 3 years More than 3 years but not more than 4 years More than 4 years but not more than 5 years DEDUCTION 100% 80% 60% 40% 20% Losses Q: What are the requisites for its deductibility? A: Losses are allowed as deductions from the gross estate of a Filipino citizen whether resident or non 136 TAXATION LAW TEAM: ADVISER: ATTY. Are not compensated by insurance or otherwise. 4. said unpaid obligation/ mortgage payable shall not be allowed as a deduction from the gross estate. would the rule be the same? A: The same items herein shall be allowed as deduction but only the proportion of such deductions which the value of his gross estate in the Philippines bears to the value of his entire gross estate. A: The rate of deduction depends on the period from the date of transfer to the death of the decedent. or other casualties. SUBJECT HEAD: RODOLFO N. CLARABEL ANNE R. 86[A][1][e]. (Sec. PRUDENCE ANGELITA A.. In case unpaid mortgage payable is being claimed by the estate. The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or money’s worth. Q: What is Vanishing Deduction? A: It is the deduction allowed from the gross estate of citizens. Income tax on income received after death 2. The value of the property. and b. ANG JR. or robbery. TEE. shipwreck. If there is a legal impediment to recognize the same as receivable of the estate. CHARLES L. Are not claimed as deduction in the ITR of the estate at the time of the filing of the return. wherever situated shall be deducted. NIRC) Taxes Q: What are deductible taxes? A: 1. such as: 1. and 4. 2. SUBJECT HEADS: EDISON U. VALCOS . 3. In all instances: a. either for income tax purposes or estate tax purposes. ORTIZ & VANNESSA ROSE S. DIVINE C. MEMBERS: JOSE DUKE BAGULAYA. 3. CHRISTINE L. verification must be made as to who was the beneficiary of the loan proceeds. Unpaid Mortgage Q: What are the requisites for deductibility? A: This is deductible provided that: 1. Estate tax. Income taxes upon income received before the decedent’s death Property taxes which accrue before the decedent’s death resident and resident alien are allowed provided that they: 1. It is enough that the debtor’s liabilities exceeded his assets. Property tax not accrued before death 3. and 5. Occur not later than the last day for payment of the estate tax (last day to pay: six months after the decedent’s death). KASALA. LACSINA.

The property on which vanishing deduction is being claimed is located within the Philippines. Only if in determining the value of the estate of the prior decedent. 7. then the deduction allowable for property previously taxed shall be reduced by the amount so paid. Within a period of 5 years. For exclusive Public purposes. 5. Transfer for Public Use Q:What are the requisites for deductibility? A: WIG-PD 1. The present decedent died within 5 years from receipt of the property from the prior decedent or donor. no deduction was allowed for property previously taxed in respect of the property of properties given in exchange therefore. ACADEMICS CHAIR: LESTER JAY ALAN E. Q: What if the decedent is a non-resident alien? A: In case of a non-resident alien decedent. 6. The deduction allowed is only in the amount finally determined as the value of such property in determining the value of the gift. the aggregate value of such items shall be used for the purpose of computing the deduction. and 5. 4.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What are the conditions for deductibility? Note: In property previously taxed. or the estate tax of the prior decedent. The property on which the vanishing deduction is taken must be Identified as the one received or acquired. taxes and transfers for public use as the amount otherwise deductible for property previously taxed bears to the value of the decedent’s estate. The value of the property given is Included in the gross estate. and Where the property referred to consists of two or more items. and 6. SABUGO & JOHN HENRY C. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. the first transfer has been subject to a transfer tax. indebtedness. The property formed Part of the taxable estate of the prior decedent or of the taxable gift of the donor. 4. the same property has been transferred from the first to the second decedent or from a donor to the decedent. Q: What are the requisites for its deductibility? A: 5-P2INT 1. Only to the extent that the value of such property is included in the decedent’s gross estate. there are two (2) transfers of property. the property involved must be located within the Philippines and is included in the gross estate. The second transfer would now be subject to a vanishing deduction as provided in the code. The gift tax or estate tax imposed were finally determined and paid by or on behalf of such donor or estate of such prior decedent. which were paid in whole or in part prior to the decedent’s death. A: 1. In such case. 80%. The disposition is in a last Will and testament. or the gross estate of such prior decedent. if any (first deductions) -------------------------------------------------------------First basis Value of gross estate of the present decedent LESS: Expenses --------------------------------------------------------------Second deduction First basis LESS: Second deduction ------------------------------------Second basis Multiplied by 100%. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. The estate Tax on the prior succession or donor’s tax on the gift must have been finally determined and paid. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 2. 3. (as the case may be) ------------------------------------------------Vanishing deduction 3. MARTINEZ SANTO TOMAS de Derecho Civil 137 . Q: What is the formula for computing the vanishing deductions? A: Value of property previously taxed LESS: Mortgage debt paid. To take effect after Death. 5. 2. losses. MASACAYAN & THEENA C. etc. 2. 4. Where a deduction was allowed of any mortgage or lien in determining the gift tax. In favor of the Government of the Philippines or any political subdivision thereof. 3. No vanishing deduction was allowed on the same property on the prior decedent’s estate. Such deduction allowable shall be reduced by an amount which bears the same ratio to the amounts allowable as deductions for expenses.

GRANTOZA. and Allowable deduction must be in the amount equivalent to: Q: What is the difference between standard deduction in estate tax (Sec. 34 [L])? A: OPTIONAL STANDARD DEDUCTION in INCOME TAX (Sec. including the land where it is situated where the married person or an unmarried head of the family and his family resides. Note: The transfer also contemplates bequests. Family Home Q: Define family home. one still intends to return. 86(A)(3) from Sec.000 40% of gross income or gross sales/receipts as the case may be As to availability Available to resident Applies to all individual citizens. ASST. non-resident taxpayers except noncitizens and resident aliens resident aliens. A: The dwelling house. PRUDENCE ANGELITA A. cultural and charitable institutions which are exempted from estate tax. that is. ORTIZ & VANNESSA ROSE S. A: Sec. Q: When is family home deemed constituted? A: Family home is deemed constituted on the house and lot from the time that it is constituted as a family residence and is considered as such so long as any of the beneficiaries actually resides therein. 86[A][5]) and optional standard deduction in income taxation(Sec. whenever absent for business or pleasure. CLARABEL ANNE R. 86(A)(3) It contemplates transfers by a citizen or resident of the Philippines in favor of the Government of the Philippines or any political subdivision thereof. HERNANDEZ. TEE. DIVINE C. Q:What are the requisites for its deductibility? A: 1. or the extent of the decedent’s interest (whether conjugal/community or exclusive property).000. 3.UST GOLDEN NOTES 2011 a. VALCOS . (Sec. 138 TAXATION LAW TEAM: ADVISER: ATTY. the property transferred must be located within the Philippines and included in the gross estate. the current FMV of the family home as declared or included in the gross estate. cultural and charitable institutions. Note: 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. as certified by the Barangay Captain of the locality where the family home is situated. GUTIERREZ. 000. b.000. but not exceeding P1. 87(D) of the NIRC. 86 (A)(5)) Note: Nonresident estates are not entitled to standard deduction because it is not among those enumerated under Sec. 87(D) It contemplates transfers to social welfare. For purposes of availing the family home deduction to the extent allowable a person may constitute only one family home. the place to which. Note: The estates of non-resident decedents are not allowed to avail the family home deduction because they do not have a family home in the Philippines since they are non residents. CHARLES L. 34 [L]) As to nature Deduction in addition to Deduction in lieu of the other deductions itemized deductions As to amount of deduction Fixed at P1. without need of any substantiation. The total value of the family home must be included as part of the gross estate of the decedent. LACSINA. CHRISTINE L. Q: What if the decedent is a non-resident alien? A: In case of a non-resident alien decedent. 86 (b) of the NIRC. KEITH S. for public purpose which are deducted from the gross estate Sec. 86 [A][5]) 2. The family home is generally characterized by permanency. whichever is lower. Standard Deduction Q: What is the amount of the standard deduction? A: P1 Million.. The family home must be the actual residential home of the decedent and his family at the time of his death. SUBJECT HEAD: RODOLFO N. devices or transfers to social welfare. SUBJECT HEADS: EDISON U. KASALA. as well as to corporations STANDARD DEDUCTION in ESTATE TAX (Sec. etc. MEMBERS: JOSE DUKE BAGULAYA. Q: Differentiate Sec. ANG JR.

86(C)) Q: Is the capital of the surviving spouse considered part of the gross estate? A: Under Section 85 (H) of the NIRC capital pertains to the property of the spouses brought into the marriage. includes in the estate return required to be filed the value at the time of the death. 86[A][7]. as amended) by reason of death Amounts received from the Philippine and United States governments for damages suffered during the last war (RA 227) Benefits received by beneficiaries residing in the Philippines under laws administered by the U.A. Must be substantiated with receipts. ACADEMICS CHAIR: LESTER JAY ALAN E. Under the Civil Law capital means property brought by the husband to the marriage while the properties brought into the marriage by the wife is called paraphernal property. MASACAYAN & THEENA C. 4. Incurred within one (1) year prior to the decedent’s death. 3. 3. Benefits received by members from the Government Service Insurance System (PD 1146) and the Social Security System (RA 1161. 2. The said capital or paraphernal property of the surviving spouse is deducted from the gross estate of the decedent.S.000 threshold nor any unpaid amount for medical expenses incurred prior to the 1 year period from date of death shall be allowed to be deducted from the gross estate as claim against the estate. execution. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. A: No. (Sec. as the case may be. (Sec. It provides that retirement benefits received by officials and employees of private firms. MARTINEZ SANTO TOMAS de Derecho Civil 139 .NATIONAL INTERNAL REVENUE CODE OF 1997 Medical Expenses. administrator. or anyone of the heirs. and Amount is included in the gross estate of the decedent. or any tax whatsoever. in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment. SABUGO & JOHN HENRY C. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.000 whether paid or unpaid. 86 (A)(6)) Amounts Received Under RA 4917 Q: What is R. whether individual or corporate. After deducting the allowable deductions pertaining to the conjugal or community properties included in the gross estate. (Sec. 4917? A: It is an Act providing that the retirement benefits of employees of private firms shall not be subject to attachment. Veterans Administration (RA 360) 2. the net share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed.000 shall no longer be allowed as a deduction. NIRC) Q: What are the requirements for the estate of a non-resident alien decedent to avail of the deductions? A: No deduction shall be allowed in case of nonresident not citizen of the Philippines unless the executor. 2. levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action. Amounts received by the heirs from the decedent’s employer. Exclusions From Estate Q: What are the exclusions from estate under special laws? A: 1. of that part of the gross state of the nonresident not situated in the Philippines. Medical expenses incurred by the decedent. Net Share of Surviving Spouse Q: Is the net share of the surviving spouse included in the gross estate of the decedent? Note: Any amount of medical expenses incurred within 1 year from the decedent’s death in excess of P500. garnishment. Q: What are the requisites for deductibility? A: 1. Neither can any unpaid amount thereof in excess of the P500. 3. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. levy. Q: What are the requisites for deductibility? A: 1. and Shall not exceed 500. Received as a consequence of the death of the decedent-employee.

Provided: a. legacies or transfers shall be used by such institutions for administration purposes. Net estates not in excess of P200. devises. Not more than thirty percent (30%) of the said bequests. 5. Q: What are the limitations in estate tax credit? A: 1. Y died leaving a condominium unit. when Z reaches legal age. (Sec. or charitable organizations (PD 307). 1975) Grants and donations to the Intramuros Administration (PD 1616). who is entrusted with the obligation to transfer the lot to Z. HERNANDEZ. cultural and charitable institutions. Tax Credit for Estate Taxes Paid in a Foreign Country Q: What is Estate Tax Credit? A: It is a remedy against international double taxation to minimize the onerous effect of taxing the same property twice. the fiduciary or the first heir must be both living at the time of death of the testator. and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. TEE. E.g. legacies or donations moris causa to social welfare. Provided that: a. MEMBERS: JOSE DUKE BAGULAYA. (Sec. 89. ORTIZ & VANNESSA ROSE S. 15. DIVINE C. But the transmission or delivery to Z upon reaching legal age shall be exempt from estate tax. Q: Who can avail estate tax credit? A: Only the estate of a citizen or a resident alien at the time of death can claim tax credit for any estate taxes paid in a foreign country. legacies or transfers to social welfare. devises. 2.000 A: The merger of usufruct in the owner of the naked title 1. CLARABEL ANNE R. Upon the death of F. ANG JR. ASST. The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken. Exemption of Certain acquisitions and Transmissions Q: What are exempted from estate tax? A: 1. VALCOS . CHARLES L. in accordance with the desire of the predecessor All bequests. The transfer from F to W is exempt from estate tax. KEITH S. cultural. but bequests to religious and educational institutions are not exempt. 87. the substitution must not go beyond one degree from the heir originally instituted b. Filing of Notice of Death Q: In what cases is notice of death required? Transfers subject to tax Even if exempt from tax. if gross value of estate exceeds P20. which the decedent’s net estate situated within such country taxable under the NIRC bears to his entire net estate (per country basis). Reviewer in Taxation. Y is the fiduciary heir and Z is the fideicommissary. Jan. 2008 pp. GRANTOZA. a son of X. ( BIR Ruling 75-001. Bequests. NIRC) 5. GUTIERREZ.UST GOLDEN NOTES 2011 4. PRUDENCE ANGELITA A. 2. NIRC) 140 TAXATION LAW TEAM: ADVISER: ATTY. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary.. Y. SUBJECT HEAD: RODOLFO N. 4. then F died after two years. legatee or donee in favor of another beneficiary. the usufruct will merge into the owner of the naked title W who shall become the absolute owner of the said condominium unit.000. LACSINA. no part of the net income of which inures to the benefit of any individual. and b. The transmission from the first heir. CHRISTINE L. (Mamalateo. 2. X dies and leaves in his will a lot to his brother. SUBJECT HEADS: EDISON U. which the decedent’s net estate situated outside the Philippines taxable under the NIRC bears to his entire net estate (overall basis) E.g. the naked title belongs to W and usufruct to F. 288-289) 3. The transfer from X to Y is subject to estate tax. KASALA.

MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. If it is a non-resident decedent . NIRC) Q: Who shall file the estate tax return? A: 1. Estate Tax Return Q: When is estate tax return required? A: In cases of: 1. 3. 2.To an authorized agent bank. SABUGO & JOHN HENRY C. MARTINEZ SANTO TOMAS de Derecho Civil 141 . LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. not a citizen of the Phil. NIRC) Q: Is an extension to file an estate tax return allowed? A: In meritorious cases but not to exceed 30 days.000. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.000 without the certification that estate taxes have been paid. (Sec.) Q: To whom must notice of death be filed? A: To the CIR. If it is a resident decedent . the part of his gross estate situated in the Philippines. Such part of the information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes. it shall not allow any withdrawal from said deposit account unless the CIR has certified that estate taxes have been paid. (ibid.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: When must notice of death be filed? A: Within 2 months (60 days) after the decedent’s death or within the same period after qualifying as executor or administrator. The value of the gross state of the decent at the time of his death or in case of a non-resident. administrator. 90[B].) Q: Who must file the notice of death? A: The executor. Transfers subject to tax 2. MASACAYAN & THEENA C. RDO. Collection Officer.To the RDO or to the Office of the CIR. 3. 90[C]. (Sec. Itemized assets of the decedent with its corresponding gross value at the time of his death. (Ibid. (Sec. death or in case of a nonresident. The amount of the tax due whether paid or still due and outstanding. 90[D]. not a citizen of the Philippines. Executor Administrator Any legal heir Q: Before whom must the estate tax return be filed? A: 1.000? A: The estate tax return shall be accompanied by a statement which is certified by an independent CPA which shall contain the following: 1. Itemized deduction from the gross estate. and 3. 2. regardless of amount (Sec. (Sec. NIRC) Q: What are the requirements in case the gross estate exceeds 2. Where gross value of estate exceeds P200. 90[A]. (Ibid. the part of his gross estate situated in the Philippines. NIRC) Q: Within what period must the estate tax return be filed? A: Within 6 months from the decedent’s death. Where estate consists of registered or registrable property. or to the Office of the CIR. NIRC) Q: What are the contents of estate tax return? A: Must be under oath and shall contain the following: 1. 90[A]. or duly authorized Treasurer in the city or municipality where the decedent was domiciled at the time of his death. 90[A]. ACADEMICS CHAIR: LESTER JAY ALAN E.) 2. The deductions allowed from the gross estate in determining the estate. or any legal heir. (Sec. NIRC) Q: Is there any prohibition from withdrawing funds in the bank account of a deceased depositor? A: GR: If the bank has knowledge of the death of the person who maintains a bank deposit alone or jointly with another. 97.000 3. NIRC) XPN: The CIR may allow the administrator or anyone of the heirs to withdraw an amount not exceeding 20. 2.

value of the estate 2. SUBJECT HEAD: RODOLFO N. Duly authorized City or Municipal treasurer of the place of the decedent’s domicile at the time of his death or any other place where the CIR permits the estate tax return to be filed (Sec 90 D of Commissioner of Internal the NIRC) Revenue 2. CHRISTINE L. 2. Period of filing Within 6 months from the Within 2 months (60 days) decedent’s death. regardless of amount. Executor 2. and The Commissioner may require the posting of a bond in an amount not 2. of registered or registrable property. KASALA. Resident decedent a. In all cases of transfers 1. except in after the decedent’s death meritorious cases where or within the same period the Commissioner may after qualifying as executor grant reasonable extension or administrator. DIVINE C. In the absence of an executor or administrator in the Phil the ETR together with the TIN shall be filed before RDO No. d. Not exceed 2 years in case of extrajudicial settlement. 39South Quezon City. Q: Distinguish “notice of death” from “estate tax return”. 3.. Q: May an extension to pay estate tax be granted? A: Yes. KEITH S. VALCOS . ORTIZ & VANNESSA ROSE S. not exceeding 30 days. SUBJECT HEADS: EDISON U. ANG JR. Revenue District Officer c. Any of the legal heirs Where to file 1. Any other place where the CIR permits the estate tax return to be filed (Sec 90[D].with the Commissioner of Internal Revenue: a. ASST. The extension must be for a period not exceeding 5 years if the estate is settled judicially or 2 years if settled extrajudicially.UST GOLDEN NOTES 2011 Q: What shall be the liability of a co-depositor who was able to withdraw funds from the account of a deceased depositor without paying the estate tax? A: They shall be held liable for perjury because all withdrawal slips contain a statement to the effect that their co-depositors are still living at the time of the withdrawal by any one of the joint depositors and such statements are deemed under oath. the gross P200. under the “Pay as you file system”. Transfers subject to tax subject to tax. GUTIERREZ. where gross value of 2. b. if the Commissioner finds that such payment would impose undue hardships upon the estate or any heir and shall: 1. Authorize agent bank b. TEE. HERNANDEZ. CHARLES L. In case of nonresident citizen or non-resident alien with executor or administrator in the Phil the ETR together with TIN is filed with the RDO. There must be a finding that the payment on the due date of the estate tax would impose undue hardship upon the estate or any of the heirs. Q: When must the taxpayer pay the estate tax? A: Upon filing. PRUDENCE ANGELITA A.000. Where though exempt estate exceeds from tax. Not exceed 5 years in case of judicial settlement. GRANTOZA. c. NIRC). Q: What are the requisites for the granting of extension to pay the estate tax? A: 1. Where estate consists exceeds P20.000. The request for extension must be filed before the expiration of the original period to pay which is within 6 months from death. LACSINA. A: ESTATE TAX RETURNS (ETR) Conditions required for its application 1. Administrator 3. CLARABEL ANNE R. MEMBERS: JOSE DUKE BAGULAYA. Non-Resident decedent. 4. In case the executor or administrator is not registered the ETR together with NOTICE OF DEATH TIN filed with the RDO having jurisdiction over the executor or administrator’s legal residence. 142 TAXATION LAW TEAM: ADVISER: ATTY. Who files 1.

The CIR may allow an extension of time to pay the estate tax if the payment on the due date would impose undue hardship upon the estate or any of the heirs. The extension in any case. 91[B]. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa. MARTINEZ SANTO TOMAS de Derecho Civil 143 . 2. SABUGO & JOHN HENRY C. 3. Does CIR have the power to extend the payment of estate tax? Does the condition that the basis of the estate tax will be the value at the time of the payment have legal basis? Q: What are the instances where the request for extension of time to pay estate tax should be denied? A: No extension if there is: 1. shall be subject to interest but not to surcharge. but within the extension period. Intentional disregard regulations 3. Q: Remedios. Rodolfo was her only heir. The CIR may require a bond not exceeding double the amount of the tax and with such sureties as the CIR deems necessary when the extension of payment is granted. died on November 10. shall be subsidiarily liable for the payment of such portion of the estate tax as his distributive share bears to the value of the total net estate. Because she needed to sell one unit of the condominium to pay for the estate tax she asked the CIR to give her one year to pay the estate tax due. The executor or administrator.NATIONAL INTERNAL REVENUE CODE OF 1997 exceeding double the amount of tax to secure the payment thereof. Any amount paid after the statutory due date of the tax. 88. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa. 2006. by reason of his official duties. to the extent of his distributive share in the estate. legacy or inheritance. Negligence 2. He reported her death on December 6. by reason of his official duties. The CIR approved the request of extension of time provided that the estate tax be computed on the basis of the value of property at the time of payment of tax. NIRC) No. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa. legacy or inheritance When a lawyer. a resident citizen. MASACAYAN & THEENA C. The valuation of properties comprising the estate of a decedent is the fair market as of the time of death. 2. 5. by reason of his official duties. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Fraud. 2. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. She died leaving three condominium units in Quezon City valued at 5 million each. No other valuation date is allowed by law. 2007. NIRC) (2007 Bar Question) Q: What are the instances when a Certificate of Payment of Tax from the Commissioner is required? A: 1. Q: What are the effects for granting an extension of time to pay estate taxes? A: 1. will not exceed 2 years if the estate is not under judicial settlement of 5 years if it is under judicial settlement. legacy or inheritance When a government officer. A: 1. of rules and 2. 2006 and filed the estate tax return on March 30. 2. Yes. ACADEMICS CHAIR: LESTER JAY ALAN E. legacy or inheritance When a notary public. The amount 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 of such extension. Before a judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate Before the Register of Deeds shall register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage. 1. by way of gifts inter vivos or mortis causa. 91(B)) 4. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. The beneficiary. (Sec. Q: Who shall pay the estate tax? A: 1. 3. (Sec. The CIR may require the posting of a bond to secure the payment of the tax. before delivery to any beneficiary of his distributive share.

CHARLES L. CHRISTINE L. partnership. Pending said action. GUTIERREZ. ASST. (Art. PRUDENCE ANGELITA A. ORTIZ & VANNESSA ROSE S. Before a debtor of the deceased pay his debts to the heirs. the clearance shall be released only with respect to the property the corresponding tax of which has been paid. VALCOS 1. Q: Differentiate deficiency estate tax (Sec. A return was filed but paid less than the amount of tax due. or industry organized or established in the Philippines any share. bond or right by way of gift inter vivos or mortis causa. LACSINA. taxpayer died. HERNANDEZ. Q: Enumerate the three situations when deficiency occurs. GRANTOZA. SUBJECT HEADS: EDISON U. TEE. it will not be included. KEITH S. shall allow any withdrawal from the said deposit account 3. The estate clearance tax issued by the CIR or the RDO having jurisdiction over the estate will serve as the authority to distribute the remaining/distributive properties/share in the inheritance of the heir or beneficiary. KASALA. executor or administrator of his creditor Before a transfer to any new owner in the books of any corporation.a donation made between living persons. legatee. The subject of donor’s tax is the gift or donation. Q: May estate tax be paid in installment? Q: What is donor’s tax? A: Yes.” Q: What law governs the imposition of donor’s tax? 144 . Will the tax refund form part of his gross estate? A: It depends. DIVINE C. Definition A: It is an excise tax imposed on the privilege of transferring property by way of a gift inter vivos based on pure act of liberality without any or less than adequate consideration and without any legal compulsion to give. ANG JR. What is the subject of donor’s tax? A. Has been authorized by the Commissioner 2. no tax was paid. Otherwise. 2. It is subject to estate tax. therefore. In case the available cash of the estate is not sufficient to pay the total estate tax liability and the clearance shall be released with respect to the property the corresponding/computed tax on which has been paid. Donation inter vivos . 725. If there is a legal and factual basis. or jointly with another. sociedad anonima. which has knowledge of the death of a person who maintained a bank deposit account alone. No return was filed. It is subject to donor’s tax. MEMBERS: JOSE DUKE BAGULAYA. Q: When can the estate be distributed? A: A: Upon payment of the estate tax. legacy or inheritance Before a bank. 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. NIRC). A return was filed but did not pay any tax. Its perfection is at the moment when the donor knows the acceptance of the donee. Q. Q: A tax refund was filed by a taxpayer.. A: 1. CLARABEL ANNE R. A: Deficiency arises when tax paid is less than the amount due while delinquency arises when there is either failure to pay amount due or refusal to pay the tax due.000. TAXATION LAW TEAM: ADVISER: ATTY. 8. the administrator shall deliver the distributive share in the inheritance to any heir or beneficiary. 2. DONOR’S TAX Q: What is donation? A: Donation is an act of liberality whereby a person (donor) disposes gratuitously of a thing or right in favor of another (donee) who accepts it.UST GOLDEN NOTES 2011 6. (Section 94. it will. business. 7. obligation. Donation moris causa – a donation which takes effect upon the death of the donor. 93) from delinquency estate tax (Title X). In case of installment payments. SUBJECT HEAD: RODOLFO N. The amount does not exceed P20. Civil Code) Q: What are the kinds of donations? Q: When is said certification not required? A: In cases when withdrawalof bank deposit: 1.

Acceptance by the donee 4. be deemed a gift. Raise revenues Tax the wealthy and to reduce certain other excise taxes Discourage inter vivos transfers of property which could reduce mortis causa transfers on which a higher tax (estate tax) can be collected Prevent avoidance of income tax through the device of splitting income among numerous donees who are usually members of a family or into many trusts. SABUGO & JOHN HENRY C. is not always essential to constitute a gift.NATIONAL INTERNAL REVENUE CODE OF 1997 A: The law in force at the time of the perfection/completion of the donation. 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. 100. then the amount by which the FMV of the property exceeded the value of the consideration shall. for the purpose of the donor’s tax. whether the gift is direct or indirect and whether the property is real or personal. However. Purpose/Object of Donor’s Tax Q: What are the purposes of imposing donor’s tax? A: To: 1. other than real property subject to capital gains tax. Donative intent therefore. 2. 3. Capacity of donor to donate Note: The donor’s capacity shall be determined as of the time of the making of the donation (Art. 3. if what was donated is a conjugal or community property and only the husband signed the deed of donation. NIRC). ACADEMICS CHAIR: LESTER JAY ALAN E. tangible or intangible. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. R. RR 2-2003) Q: What are the transfers subject to donor’s tax? A: Nature of Donor’s Tax Q: What is the nature of donor’s tax? A: It is an excise tax on the privilege of the donor to give or on the transfer of property by way of gift inter vivos. MASACAYAN & THEENA C. Donative intent 5. Where property. exchange or other transfer of property as contemplated in cases of transfers for less than adequate and full consideration (Sec. 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/s is subject to donor’s tax. is transferred for less than an adequate and full consideration in money or money’s worth. (1st Par.R. It is not a property tax. of his/her share in the hereditary estate left by the decedent is not subject to donor’s tax. not always essential to constitute a gift. there is only one donor for donor’s tax purposes. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. and shall be included in computing the amount of gifts made during the calendar year. NCC) 4. general renunciation by an heir. (Sec. 4. Note: Donative intent is necessary only in cases of direct gift. 11. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 2-2003) Q: What is the tax treatment in case of donations made by spouses? A: Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s tax. 2. Actual or constructive delivery of gift Note: All donations made in one year are taxed at the same rate as if they had been made at one time. but less than title. 12. Requisites of Valid Donation Q: What are the requisites for a gift to be taxable? A: CaDonAcAct 1. with the donor thereby escaping the effect of the progressive rates of income taxation 1. including the surviving spouse. Include not only the transfer of ownership in the fullest sense but also the transfer of any right or interest in property. MARTINEZ SANTO TOMAS de Derecho Civil 145 . 2. Transfer in trust or otherwise. However. 3. A new computation of donor’s tax is made for gifts given at each succeeding year. If the gift is indirectly taking place by way of sale.. unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other coheirs in the hereditary estate. 737. Sec.

11. SUBJECT HEADS: EDISON U. (Sec. B is financially capable of buying the lot. KEITH S.000.. A also owns X Co. A's cost in the shares sold is P1. 2002. sold to B. 99. Explain if the above transactions are subject to donor's tax. or 2. The selling price is P3. (Ibid. or 2. LACSINA. On account of the latter’s merit or services rendered by him to the donor. Note: The excess of the fair market value of the property over the actual value of the consideration shall be subject to donor’s tax. 000. CHRISTINE L. MEMBERS: JOSE DUKE BAGULAYA. 000 donation in the graduated brackets is exempt (Sec. Q: When does an incomplete gift become a complete one.000. her sister-in-law. 100.00 on Christmas 2001 or to give P100. ANG JR. NIRC). 3. which is the book value of the shares sold but with a market value of P5.000. The gift imposes upon the donee a burden which is less than the value of the thing given. the excess of the fair market value over the 146 TAXATION LAW TEAM: ADVISER: ATTY.000. While the donor’s tax is computed on the cumulative donations. However. HERNANDEZ. 2-2003) Q: When does a transfer become complete and therefore taxable? A: A transfer becomes complete and taxable only when. ASST. on whether it is better for him to give all of the P200. Thus. A sold some of her shares of stock in X Co. the donor has divested himself of all beneficial interests in the property transferred and has no power to recover any such interest in himself or his estate. VALCOS . CLARABEL ANNE R. (2001 Bar Question) Q: When will donor’s tax apply? A: The donor’s tax shall not apply unless and until there is a completed gift. to her key executives in X Co. A: The first transaction where a lot was sold by A to her sister-in-law for a price below its fair market value will not be subject to donor's tax if the lot qualifies as a capital asset. which gives rise to a deemed gift. These executives are not related to A.000.000. his lot with a market value of P1. He seeks your advice. KASALA. R. Past services rendered without relying on a promise express or implied that such services would be paid for in the future do not constitute a demandable debt.. The purpose of A in selling the shares is to enable her key executives to acquire a propriety interest in the business and have a personal stake in its business. since there is no gratuitous disposal. for purposes of reducing if not eliminating the donor's tax on the gift. The donor renounces the power to recover. which has a fast growing business. TEE. GRANTOZA. Where the transfer is for less than an adequate and full consideration in money or money’s worth.000. The transfer for less than adequate and full consideration. A: I would advise him to split the donation. 2. PRUDENCE ANGELITA A.00 on January 1. A's cost in the lot is P100.UST GOLDEN NOTES 2011 Q: Your bachelor client. Q: A. SUBJECT HEAD: RODOLFO N.000 as a one-time donation would mean that it will be subject to a higher tax bracket under the graduated tax structure thereby necessitating the payment of donor's tax. Giving the P200. 000. an individual. other than because of the donor’s death. wants to give his sister a gift of P200. the aggregation of all donations made by a donor is allowed only over one calendar year. CHARLES L. the amount given by the corporation to the heirs of the deceased officer of the corporation as gratitude for past services rendered by the officer is subject to donor’s tax. a Filipino residing in Quezon City.) Q: What are the elements of remuneratory donation? A: 1.000.00 on Christmas 2001 and the other P100. XPNs: 1. A person gives to another a thing or right. Please explain your advice.000. does not apply to a sale of property subject to capital gains tax (Sec. and The giving does not constitute a demandable debt. Q: Are onerous donations subject to donor’s tax? A: GR: No. DIVINE C. GUTIERREZ. NIRC). if the lot sold is an ordinary asset. On the other hand.R. Note: Donations made by a corporation to its deceased officer out of gratitude for past services are subject to donor’s tax.000 given on two different years will totally relieve the donor from the donor’s tax because the first Pl00. splitting the donation into two equal amounts of P100. subject to donor’s tax? A: A gift that is incomplete because of reserved powers becomes complete when either: 1. ORTIZ & VANNESSA ROSE S.000. His right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition. 000.000 for P600.

It is as if the property was donated but in order to avoid paying donor’s tax. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. SABUGO & JOHN HENRY C. Q: When the donee or beneficiary is a stranger. Between business organizations II. NIRC. the donor opted to transfer the property for inadequate consideration. whichever is higher. the tax payable by the donor shall be 30% of the net gifts. Non-resident aliens b. ancestor and lineal descendant.the tax payable by the donor shall be thirty percent (30%) of the net gifts. it is taxable gift and not a taxable income.000 204. spouse. Under said section. Resident alien Domestic corporation Taxable only within the Philippines: a. Taxable within and outside Philippines: a. 2. but may be liable to pay donor’s tax. Non-resident citizen Determination of Gross Gift Q: Define gross gifts. RR 02-03) CLASSIFICATION OF DONOR Q: Who are liable to pay donor’s tax? A: 1. the donor’s tax is not applicable but the final income tax of 6% of the fair market value or gross selling price. domestic or foreign. d. XPN: Where property transferred is real property located in the Philippines considered as capital asset.004. Foreign corporation TRANSFERS WHICH MAY BE CONSTITUTED AS DONATION Condonation/remission of debt Note: A corporation. When the donee or beneficiary is stranger .000 404. the tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the following schedule: But not over 100K 200K 500K 1M 3M 5M 10M The tax shall be exempt 0 2. MARTINEZ SANTO TOMAS de Derecho Civil 147 . NIRC)(2000 Bar Question) Note: A donation is considered made to a stranger when it is: I. For purposes of this tax. If no services were rendered but the creditor simply condones the debt. 1. 2. Between an individual and a business organization (Sec 10B. the amount by which the FMV exceeds the consideration shall be deemed a gift and be included in computing the amount of gifts made during the year. The excess of the fair market value over the selling price is a deemed gift.000 Plus 2% 4% 6% 8% 10% 12% 15% of excess over 100K 200K 500K 1M 3M 5M 10M Over 100K 200K 500K 1M 3M 5M 10M Transfer for Less Than Adequate and Full Consideration Q: What is the rule regarding transfer for less than adequate and full consideration? A: GR: The property is transferred for less than adequate and full consideration in money or money’s worth. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 98. or a relative by consanguinity in the collateral line within the 4th civil degree of the donee. The sale of shares of stock below the fair market value thereof is subject to the donor's tax pursuant to the provisions of Section 100 of the Tax Code. 2. Resident citizen b. Q: What are the rates of tax payable by the donor? A: Q: What is the rule regarding forgiveness/ condonation of indebtedness? A: If the creditor condones the indebtedness of the debtor the following rules apply: 1. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. sister. MASACAYAN & THEENA C.000 1. On account of debtor’s services to the creditor the same is in taxable income to the debtor. Where the donee is a relative – The donor is taxed according to graduated tax rates in Section 99 (A).000 44. (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 consideration received shall be considered as a gift subject to the donor's tax.000 14. (1999 Bar Question) c. ACADEMICS CHAIR: LESTER JAY ALAN E. cannot be made liable to pay estate tax. who is a stranger? A: A stranger is the one who is not a brother.

CHARLES L. It will not amount to double taxation because the tax paid for the previous methods will be considered as tax credit for succeeding donations. 4. without the benefit of any deduction. MEMBERS: JOSE DUKE BAGULAYA. 104. ANG JR. 2. Q: What is the significance of the two methods mentioned? 148 TAXATION LAW TEAM: ADVISER: ATTY. There is no legal justification for treating two gifts effected in two separate calendar years as one gift. Suppose. Since the property was acquired by gift. that was given by the donor to the donee by way of gift. or (b) the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. She donates one-half pro-indiviso interest in the land to her son Dino on 31 December 1994. DIVINE C. It is now worth P20 Million although the zonal value is only P15 Million. LACSINA.5million in 1994 and P7. The stepped-up basis of P15 million which is the value for estate tax purposes is the basis for determining the gain. SUBJECT HEADS: EDISON U. Q: Kenneth Yusoph owns a commercial lot which she bought many years ago for P1 Million. Dino gained an income of 19 million from the sale. A: Net gift is the net economic benefit from the transfer that accrues to the donee. real or personal. The value of the gifts for purposes of computing the gift tax shall be P7. CLARABEL ANNE R. TEE. (Sec. SUBJECT HEAD: RODOLFO N. 1. Dino received it by inheritance.5million in 1995. NIRC)(1995 Bar Question) A: All property. He says that since there were only two (2) days separating the two donations they should be treated as one. (Sec. the gain is computed by deducting the basis of P1 million from the amount realized which is P20 million. How much is the value of the gifts in 1994 and 1995 for purposes of computing the gift tax? Explain. HERNANDEZ. The Revenue District Officer questions the splitting of the donations into 1994 and 1995. 4. 3. Note: If a mortgaged property is transferred as a gift. Splitting The donor makes two or more donations during different calendar years. the gain from the sale for P20 million is P5 million because the basis is the fair market value as of the date of acquisition. KASALA. 2. Is he correct? Explain. The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain [Sec. having been made within one year. then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed. GUTIERREZ. it is required that the said donations be included in the return for the last donation. NIRC]. 3. Q: What is the difference between cumulative and splitting method? A: A: 1. ORTIZ & VANNESSA ROSE S. CHRISTINE L. What would be his gain on the sale of the lot for P20 Million? Explain. How much did Dino gain on the sale? Explain. NIRC) Q: Define net gift. the basis for determining gain shall be the same as if it would be in the hands of the donor or the last preceding owner by whom the property was not acquired by gift. The fact that the property is worth P20 million as of the time of donation is immaterial unless it Cumulative When the donor makes two or more donations within the same calendar year. Hence. 81 of the Tax Code. No because the computation of the gift tax is cumulative but only insofar as gifts made within the same calendar year. VALCOS . and the other one-half proindiviso interest to the same son on 2 January 1995. KEITH S. but imposing upon the donee the obligation to pay the mortgage liability. If the commercial lot was received by inheritance. Dino acquires a carry-over basis which is the basis of the property in the hands of the donor or P1 million. tangible or intangible. PRUDENCE ANGELITA A.UST GOLDEN NOTES 2011 can be shown that this value is one of the two values mentioned as provided under Sec. ASST. instead of receiving the lot by way of donation.. GRANTOZA. 34(b)(2). Dino subsequently sold the land to a buyer for P 20 Million. In valuing a real property for gift tax purposes the property should be appraised at the higher of two values as of the time of donation which are (a) the fair market value as determined by the Commissioner (which is the zonal value fixed pursuant to Section 16(e) of the Tax Code). 34(a).

MARTINEZ SANTO TOMAS de Derecho Civil 149 . (Sec. Q: What are the limitations to the tax credit? A: The following are the limitations to the tax credit: 1. non-resident citizen.NATIONAL INTERNAL REVENUE CODE OF 1997 A: The donor’s tax imposed by the Tax Code upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor’s taxes of any character and description imposed by the authority of a foreign country. XPN: When the amount of donation is P10. Q: Enumerate the transactions exempt from donor’s tax. and resident alien(wherever situated). Personal property . the cumulative method is no longer relevant since in that case. it is as if the rate is fixed.hence. b. b. Valuation of Gifts Made in Property Q: How are gross gifts valued? A: If the gift is: 1. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Donation for political campaign purposes (Sec. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. For relatives. Real property . SABUGO & JOHN HENRY C.000 or above. Real property situated within the Philippines. The amount of the tax credit shall not exceed the same proportion of the tax against such credit is taken. 102) EXEMPTIONS OF GIFTS FROM DONOR’S TAX Q: What are the deductions from donor’s tax? A: 1. The amount of credit shall not exceed the same proportion of the tax against such credit is taken. Donor’s tax Net gifts (world) A: The significance is in relation to donees. NIRC ACADEMICS CHAIR: LESTER JAY ALAN E.the fair market valueof the property given at the time of the gift shall be the value of the gross gift. 2. Intangible personal property with situs in the Philippines unless exempted on the basis of reciprocity 2. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Personal property wherever situated. Composition of Gross Gift Q: What are included in the gross gifts? A: 1. the graduated tax rates are applicable while for strangers. Tax Credit for Donor’s Taxes Paid in a Foreign Country Q: Discuss Donor’s Tax Credit. Encumbrances on the property donated. whichever is higher. if assumed by the donee.the fair market value at the time of donation or the value fixed by the assessor. 2. For non-resident alien (only within). Amount specifically provided by the donor as a diminution of the property donated.000. MASACAYAN & THEENA C. which the donor’s net gifts situated outside the Philippines taxable under donor’s tax bears to his entire net gifts (Overall basis) Q: What is the formula in computing the donor’s tax credit? A: Limitation A (per country): Net gifts (foreign country) X Phil. a. tangible or intangible. a fixed rate of 30% is applicable. it is immaterial since any donation made to them is subject to a fixed rate of 30%. Tangible property situated within the Philippines ii. For resident citizen. Real property wherever situated (within & without the Philippines). A: 1. 99[C]. Donor’s tax Net gifts (world) Limitation B (by total) Net gifts (outside Philippines) X Phil. Q: Who are entitled to claim tax credit? A: Only donors who are citizens or residents at the time of the donation. Note: For strangers. the rate applicable is 15%. which the net gifts situated within such country taxable under donor’s tax bears to the entire net gifts (Per country basis) 2. a. Personal property: i. whether the method to be used is cumulative or splitting.

5. VALCOS . 3. the Commission on Elections as required under the Omnibus Election Code. 101[B]. HERNANDEZ. 99(C). Furthermore. ANG JR.000 to the RDO which has jurisdiction over his place of business within 30 days after the receipt of the qualified donee institution’s duly issued Certificate of Donation. CLARABEL ANNE R. What would your answer be? Will your answer be the same if she were to donate to Political Party Z instead of to Y directly? A: The donation to Y. NIRC. SUBJECT HEADS: EDISON U. h. or adopted children to the extent of the first Ten thousand pesos (P10. NIRC) Donation of intangibles subject to reciprocity (Sec. Inc.000 or less are exempt. Political Campaign Purposes. 000. KEITH S. business or profession. operation and/or conduct of a trade. Taxation Reviewer . 7549) Donation under the “Adopt-a-School Program” (R.). (1998 Bar Question) Q: X is a friend of Y. The answer would be the same if X had donated the amount to Political Party Z instead of to Y directly because the law places in equal footing any contribution to any candidate. Note: In order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified donee institution duly accredited by the Philippline Council for NGO certification. provided the recipient candidate had complied with the requirement for filing of returns of contributions with the Commission on Elections as required under the Omnibus Election Code.00 for her campaign. 4. non-profit corporation/NGO institution for administration purposes (Domondon. political party or coalition of parties for campaign purposes. d. The contributor is not allowed to deduct the contributions because the said expense is not directly attributable to. Gifts in favor of: CARTER CPS Charitable Accredited NGOs Religious Trust foundations Educational institutions Research institutions Cultural foundations Philanthropic organizations Social welfare corporations Donations For. 8525) Exemption under other special laws. SUBJECT HEAD: RODOLFO N. NIRC) (2003 Bar Question) Certain Gifts made By Residents. who wants to run for President in the 2004 elections. NIRC) Donation for athlete’s prizes and awards (R. 7. it may even be considered as a bribe or a kickback. b. A: Any contribution in cash or in kind to any candidate. 101[A]. ASST. g. MEMBERS: JOSE DUKE BAGULAYA. Q: Are donations for political campaign purposes exempted from donor’s tax? 3. Certain gifts made by residents (Sec. a. 6. the development. recognized natural.net gifts of the amount of P100. once she becomes a candidate for an elective post. i. if the candidate is an incumbent Government official or employee. or coalition of parties for campaign purposes. 99[C].UST GOLDEN NOTES 2011 2.A. management. RR 2-2003) Q: Are contributions to a candidate in an election subject to donor's tax? On the part of the contributor.Volume 1. KASALA. c. 104.000). Dowries or gifts made on account of marriage and before its celebration or made within one year thereafter by parents to each of their legitimate. f. 2008 ed. ORTIZ & VANNESSA ROSE S. LACSINA. Knowing that Y needs funds for posters and streamers. 150 TAXATION LAW TEAM: ADVISER: ATTY. 4. CHRISTINE L. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit. PRUDENCE ANGELITA A. DIVINE C. Specific exemption . e. the chairman of Political Party Z.A.. is not subject to donor's tax provided that she complies with the requirement of filing returns of contributions with 2. She asks you whether her intended donation to Y will be subject to the donor's tax. the donor engaged in business shall give a notice of donation on every donation worth at least 50. (Sec. NIRC) Certain gifts made by non-residents Sec. CHARLES L. GRANTOZA. TEE. which shall be attached to the said Notice of Donation. is it allowable as a deduction from gross income? A: No. stating that not more than 30% of said donations/gifts for the taxable year shall be used by such accredited non-stock. Q: What are the gifts made by a resident citizen/alien that is considered exempt from donor’s tax? A: 1. (PCNC). political party. or to any political subdivision of the said Government. GUTIERREZ. X is thinking of donating to Y P150. reported to COMELEC shall not be subject to payment of any gift tax (Sec.

donations. non-profit private educational institutions may be exempt from the donor's tax under Sec. Governed by trustees. MARTINEZ SANTO TOMAS de Derecho Civil 151 . to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. in favor of Sisters of the Holy Cross. not a citizen of the Philippines are exempt from donor’s tax? A: 1.NATIONAL INTERNAL REVENUE CODE OF 1997 Note: A non-profit educational and/or charitable corporation is one which is incorporated as a non-stock entity paying no dividends. and Maximum amount of the exemption is P10. 4. 4. religious. or to any political subdivision of the said Government. governed by trustees who receive no compensation. subsidies or other forms of philanthropy. (Sec. Is the donation subject to donor’s tax? A: No. Q: What conditions must occur in order that all grants. both spouses must file separate returns because the husband and the wife are considered as distinct entities for purposes of donor’s tax (Sec. 2. However.000 for each child that may be claimed by each parent. and Devoting all its income. Each parent is entitled to the exemption. no more than 30% of the gifts are used for administration purposes. religious. Note: Both parents may give dowries and gifts on account of marriage. 12. However where there is failure to prove that the donation was actually made by both spouses. 101[A][3]. A: 1. 101[B]. Donor is the parent or both parents. recognized natural or legally adopted child of the donor. Trustees receive no compensation. 3. Gifts in favor of an educational and/or charitable. without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the provisions of the Civil Code. RR 2003). 101 (a) of the Tax Code? ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 101[A][3]. 3. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit. Q: What gifts made by a non-resident. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MASACAYAN & THEENA C. donations and contributions to non-stock. 5. NIRC) (2000 Bar Question) 2. The gift is given before the celebration of marriage or within 1 year thereafter. That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. paying no dividends. Certain Gifts Made By Non-Residents. Not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. governed by trustees who received no compensation. Donee is the legitimate. whether students' fees or gifts. The gift is given on account of marriage. to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. the donation is taxable as the exclusive act of the husband. provided. Gifts in favor of educational and/or charitable. This has the effect of splitting the value of the gift into half for both spouses so each spouse can claim the exemption. trust or philanthropic organization or research institution or organization: Provided. 2. donation. Q: The Congregation of Mary Immaculate donated a parcel of land and a dormitory building located along Espana St. foundation. (Sec. NIRC) 2. SABUGO & JOHN HENRY C. that. Donee is incorporated as a non-stock. a group of nuns operating a free clinic and high school teaching basic spiritual values. NIRC) (2007 Bar Question) Q: What are the requisites for the exemption of gifts made to the CARTER CuPS? A: 1. institution. and devoting all its income to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. 5. 5. and Not more than 30% of the donation is used for administrative purposes. The donation being in the nature of real property complies with the utilization requirement. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 4. Donee devotes all its income. subsidies or other forms of philanthropy. non-profit entity.(Sec. Q: What are the requisites for exemption of dowries? A: 1. accredited non-government organization. whether students' fees or gifts. cultural or social welfare corporation. trust or philanthropic organization or research institution or organization are exempt from donor’s tax. The educational institution is incorporated as a non-stock entity. however. 3. social welfare corporation or cultural institution.

whether elementary. which the net gifts situated within such country taxable under this Title bears to his entire net gifts. 7. GRANTOZA.“Adopt-A-School” Program. but not limited to infrastructure. 9. held in the Philippines or abroad. b. The assistance may be in the form of. which the donor's net gifts situated outside the Philippines taxable under this title bears to his entire net gifts. any aid. teaching. b.The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country. Limitations on credit . (Sec. secondary or tertiary are exempt from donor’s taxes. 2. learning. Q: What are the requirements for exemption from donor’s tax of athlete’s prizes and awards? A: 1. 8525. 2. VALCOS . if not more than 30% of the donation shall be used by the donee for administration purposes Donation to Aquaculture Department of the Southeast Asian Fisheries Development Center of the Philippines Donation to the National Museum Donation to the National Library Q: What are the requisites before reciprocity clause applies? A: 1. no part of the net income of which inures to the benefit of any individual. computer and science laboratories and food and nutrition. and skills development. GUTIERREZ. R. ANG JR. ORTIZ & VANNESSA ROSE S. TEE. 8. Q: What are exempted from donor’s tax under other special laws? A: 1. Donation to International Rice Research Institute (IRRI) Donation to Ramon Magsaysay Award Foundation Donation to Philippines Inventors Convention (PIC) Donation to Integrated Bar of the Philippines (IBP) Donation to the Development Academy of the Philippines Donation to social welfare. Allowed a similar exemption from donor’s tax with respect to intangible personal property owned by Filipino citizens not residing in that foreign country. Subject to Reciprocity Q: Give the rules on tax credit for donor's taxes paid to a foreign country.The amount of the credit taken under this Section shall be subject to each of the following limitations: a. LACSINA. KASALA. Donations Under. help. 6. The property is an intangible. DIVINE C. 5.A. cultural or charitable institution. A: 1. KEITH S. and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken.A. Q: What is the exemption provided under adopt-aschool program? A: Under R. 104. 3. The foreign country of which the donor is a citizen and resident at the time of the gift: a. and sanctioned by their respective sports association. CHRISTINE L. 7549) 2.. CHARLES L. SUBJECT HEADS: EDISON U. and The donor is a non-resident of the Philippines. (Sec. PRUDENCE ANGELITA A. 3. HERNANDEZ. ASST. Exemption Under Other Special Law. support. MEMBERS: JOSE DUKE BAGULAYA. contribution or donation provided by an adopting private entity to a government school. 3. In general . 1. The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken. 152 TAXATION LAW TEAM: ADVISER: ATTY. NIRC) Donation of Athletes Prizes and Awards. 2. SUBJECT HEAD: RODOLFO N. Did not impose a donor’s tax. CLARABEL ANNE R. 4. The donation must be prizes and awards given to athletes in local and international tournaments and competitions.UST GOLDEN NOTES 2011 Donation of Intangible.

It is the final purchaser or consumer of such goods or services who. Donation to the National Social Action Council 11. such as the income tax. On the first donation of the year Gross Gift Less: deductions/exemption -----------------------------------------Net gift x Tax rate -----------------------------------------Donor’s tax 2. MARTINEZ SANTO TOMAS de Derecho Civil 153 . is a tax on consumption of goods. A: The amount of tax paid on the goods. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. by law. (Sec. or leased may be shifted or passed on by the seller. NIRC) It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution. is required for every donation to accomplish under oath a donor’s tax return in duplicate.105-2 RR 16-2005) Q: Explain VAT as an indirect tax. the amount of tax paid may be shifted or passed on by the seller to the buyer. forms a substantial portion of consumer expenditures. be shifted or passed on to the buyer. Q: What is the formula in computing taxable donation? A: 1. in the case of importation. transferee or lessee of the goods. Unlike a direct tax. materials. 105. However. such as the VAT. Stated differently. Donation to Task Force on Human Settlement on the donation of equipment. the seller remains the person primarily and legally liable for the payment of the tax.NATIONAL INTERNAL REVENUE CODE OF 1997 10. Further. properties or services. or lessor to the buyer. and services VALUE-ADDED TAX Q: What is value-added tax (VAT)? A: It is an indirect tax and the amount of tax may. although PERSON LIABLE FOR DONOR’S TAX Q: Who are required to file donor’s tax return? A: Any person making a donation unless the donation is specifically exempted under NIRC or other special laws. such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. SABUGO & JOHN HENRY C. transferor. ultimately passed on to the consumer. the importer is the one liable for the VAT. In adding or including the VAT due to the selling price. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. VAT is a tax on consumption levied on the sale. As earlier pointed out. The VAT. or certain transactions involving the same. barter. Donation to the Philippine American Cultural Foundation 12. thus. there is a need to distinguish between the liability for the tax and the burden of the tax. properties or services. but the tax burden. transferee or lessee of the goods. services. a seller who is directly and legally liable for payment of an indirect tax. which primarily taxes an individual’s ability to pay based on his income or net wealth. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. What is transferred in such instances is not the liability for the tax. exchange. properties or services bought. MASACAYAN & THEENA C. or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines The 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. an indirect tax. (Sec 4. Q: What is the nature of VAT? A: It is an indirect tax. On subsequent donation during the year Gross gift Less: Deductions/exemptions ------------------------------------------Net gift Net gift Add: Prior net gifts ----------------------Aggregate net gifts x Applicable tax rate -----------------------------Donor’s tax on aggregate gifts Less: prior donor’s tax paid -------------------------------------------Donor’s tax paid on this date ACADEMICS CHAIR: LESTER JAY ALAN E. in indirect taxation. transferee or lessee. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. transferred.

Q: Define taxable transactions under the VAT law. Lily’s Q: Is the VAT law violative of the administrative feasibility principle? A: No. 2004) Q: What is the effect of VAT being an indirect tax on exemptions? A: If a special law merely exempts a party as a seller from its direct liability for payment of the VAT. Economic growth Simplified tax administration Promote honesty Higher governmental revenues 2. it is regressive inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. the purchase transaction is not exempt. CLARABEL ANNE R. G. Is Mr. is not a taxpayer in so far as the passed-on tax is concerned and therefore. shifted to it. it purchased various supplies and materials necessary in the conduct of its manufacturing business. filed with the BIR a claim for refund for the input tax shifted to it by the suppliers. VAT rate was increase from 10-12%) or 0%. CHARLES L. Only taxpayers are allowed to file a claim for refund.UST GOLDEN NOTES 2011 not directly and legally liable for the payment thereof. Q: Lily’s Fashion Inc is a garment manufacturer located and registered as a Subic Bay Freeport Enterprise under R. No. GRANTOZA. it cannot claim for a refund of a tax merely. VALCOS . there can be no tax on the tax itself. A. Feb. Cebu Toyo Corporation. the amount of which may be shifted or passed on by the seller to the purchaser of the goods. Seagate Technology. VAT taxable transactions a. (2006 Bar Question) Q: What is Tax Cascading? A: An item is taxed more than once as it makes its way from production to final retail sale. 11. GUTIERREZ. Tan. June 30. Q: What are the advantages in imposing VAT? A: 1. The seller is still exempt because it could pass on the burden of paying the tax to the purchaser. CIR. O.R.No. 151135. It is usually regressive because lower income people generally spend a higher percentage of their income and save less than higher income people. PRUDENCE ANGELITA A. The exemption of Lily’s Fashion Inc. 2005) Q: How are transactions classified under the VAT system? A: 1.R. July 2. O liable to pay VAT on the transaction? A: Yes. LACSINA. DIVINE C. 7227 and a non-VAT taxpayer. G. HERNANDEZ.000. By its very nature. simplifying tax administration and making the system more equitable to enable the country to attain economic recovery. The VAT law is principally aimed to rationalize the system of taxes on goods and services. 149073. is only for taxes which it is directly liable. 4. the 10% VAT on the purchased items amounting to P500.R. properties or services. It is because VAT is a tax on consumption. A: Taxable transactions are those transactions which are subject to VAT either at the rate of 12% (effective January 1. February 16. Thus. a non-VAT exempt purchaser. 3. ORTIZ & VANNESSA ROSE S. MEMBERS: JOSE DUKE BAGULAYA. If you were the CIR will you allow the refund? A: No. KASALA. it cannot claim exemption for tax shifted to it. but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers. the VAT paid eats the same portion of an income. (Kapatiran ng Mga Naglilingkod sa Pamahalaan v. 1988) Q: Is VAT regressive? A: Yes. And as such. SUBJECT HEADS: EDISON U.. Inc.A. During its operations. which is not at all considered a tax to the buyer but part of the purchase price. Lily’s Fashion Inc. No. 154 TAXATION LAW TEAM: ADVISER: ATTY. Subject to 12% VAT rate b. 2. In other words. Zero-rated transactions Exempt transactions Fashion Inc. KEITH S. ANG JR. whether big or small. ASST. properties or services (Commissioner v. 2005) Q: Mr. The purchaser is subject to VAT because it is merely added as part of the purchase price and not as a tax because the burden is merely shifted. and the seller shall be entitled to tax credit for the VAT paid on purchases and leases of goods.81311. The supplier of these goods shifted to Lily’s Fashion. TEE. ultimately bears the burden of the tax. it is exempt from payment of all local and national internal revenue taxes. 153866. CHRISTINE L. hence. The VAT taxes you on how much you spend rather than how much you make. SUBJECT HEAD: RODOLFO N. (Contex v. G. 2006. Q: Explain how VAT is not a cascading tax? A: VAT is merely added as part of the purchase price and not as a tax because the burden is merely shifted. (CIR v. Thus. GR No. a VAT-exempt retailer sells to Mr.

MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. or services. those destined for use or consumption within the Philippines shall be imposed the twelve percent (12%) VAT. 2006) Q: Define “in the course of trade or business” (Rule of Regularity) as used under the VAT law. any sale. Q: How is the regressive effect of VAT minimized? A: In the case of VAT. actual or constructive export of goods and services from the Philippines to a foreign country must be zero-rated for VAT. by any person regardless of whether or not the person engaged therein is a non-stock. barter or exchange of goods or services not in the course of trade or business is not subject to VAT. leases goods or properties. while. barters. The transactions which are subject to VAT are those which involve goods and services which are used or availed of mainly by higher income groups. 2. The law clearly provides for an exception to the destination principle. 4. 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. "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. 2. goods and services are taxed only in the country where they are consumed. the law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions while granting exemptions to other transactions. 3. Imports goods shall be subject to VAT imposed in Sections 106 to 108 of the NIRC. July 28. non-profit private organization (irrespective of the disposition of its Incidence of Tax Q: Who bears the incidence of tax (VAT)? A: It is on the final consumer. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MARTINEZ SANTO TOMAS de Derecho Civil 155 . 4. the place at which the tax comes to rest. No.105-1. exchanges..R. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Q: Is there any exception to the destination principle? A: Yes. The tax is shifted to the buyer of the goods. while imports are taxed. (1996 Bar Question) Impact of Tax PERSONS LIABLE FOR VAT Q: Who bears the impact of tax (VAT)? Q: Who are liable to pay VAT? A: It is on the seller upon whom the tax has been imposed.NATIONAL INTERNAL REVENUE CODE OF 1997 A: Under this doctrine. for a zero percent VAT rate for services that are performed in the Philippines. (Ibid. Sells. Renders services. Thus. 146984. 5. properties or services.) Characteristics of VAT Q: What are the characteristics of VAT? A: 1." Hence. Q: What is the “Destination Principle” or the “Cross Border Doctrine” as used in VAT? ACADEMICS CHAIR: LESTER JAY ALAN E. No VAT shall be imposed to form part of the cost of goods destined outside the territorial border of the taxing authority. SABUGO & JOHN HENRY C. It is an indirect tax where tax shifting is always presumed It is consumption-based It is imposed on the value-added in each stage of distribution It is a credit-invoice method value-added tax It is not a cascading tax. Tax Credit Method Q: Explain the Tax Credit Method (also called “invoice method”) of collecting VAT? A: The input tax shifted by the seller to the buyer is credited against the buyer’s output taxes when he in turn sells the taxable goods. G. A: Any person who in the course of trade or business: 1. Magsaysay Lines Inc. RR 16-2005) Consequently. A: It means the regular conduct or pursuit of a commercial or an economic activity. MASACAYAN & THEENA C. (Commissioner v. that is. and 3. including transactions incidental thereto. exports are zero-rated. properties.

Q: Who are the persons required to register for VAT? A: Every person who in the course of trade of business. (CIR v. while "doing business" conveys the idea of business being done. Q: Who is a VAT-registered person? A: A VAT-registered person refers to any person who is registered as a VAT taxpayer under Sec. whether registered or registrable in accordance with Sec. KASALA. DIVINE C. VALCOS . GR: If the disposition of goods or services is not in the course of trade or business then it is not subject to VAT XPN: Importation is subject to VAT regardless of whether or not it is in the course of trade or business. VAT is a tax levied only on the sale. PRUDENCE ANGELITA A. not from time to time. "Course of business" is what is usually done in the management of trade or business. SUBJECT HEAD: RODOLFO N. Any business where the gross sales or receipts or do not exceed P100. deemed performing service in the Philippines? A: Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business. but all the time. NIRC) Q: Who is a VAT-exempt person? A: A person who is not liable to pay VAT. 2. CHRISTINE L. Services rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business. Is Magsaysay lines liable to pay VAT on such sale? A: No.R. services subject to VAT if: 1. even if the performance of services is not regular.UST GOLDEN NOTES 2011 net income and whether or not it sells exclusively to members or their guests). or engages in the sale or exchange of goods. 236 of the Tax Code. ORTIZ & VANNESSA ROSE S.105-3.5 million. TEE. or exchanges goods or properties. CLARABEL ANNE R. ASST. (Section 105. The Gross sale or gross receipts have exceeded 1. sells. The CTA reversed the same on the ground that it was not done in the ordinary course of business of NDC.. Magsaysay asked BIR for a formal request for a ruling whether said purchaser should pay VAT on account of such sale. No. In the sales contract it provides that VAT shall be paid by the purchaser Magsaysay Lines. (Magsaysay). GRANTOZA. Magsaysay Lines Inc. HERNANDEZ. KEITH S. ANG JR. 2006) Q: What are the exemptions to the rule of regularity? A: 1. His status as a VAT registered person shall continue until the cancellation of the registration. In fact the sale was effected only because of the privatization program of the government thus the sale was not subject to VAT. CHARLES L. The act of NDC in selling the vessels was not done in the regular manner. (Section 236(G). MEMBERS: JOSE DUKE BAGULAYA. National Development Company (NDC) sold five of its vessels to Magsaysay Lines Inc. SUBJECT HEADS: EDISON U. RR 16-2005). GUTIERREZ. (Section 236(G). 236 of the Tax code or a person who opted to be registered as VAT taxpayer. NIRC) Q: What is the penalty for failure to register as VAT taxpayer? A: He shall be held liable to pay the tax as if he is a VAT registered person but he cannot avail of the input tax credit for the period that he has not properly registered.NIRC) Q: When is a non-resident. (Sec 4. Reason: This is to protect our local or domestic goods or articles and to regulate the entry or introduction of foreign articles to our local market. not in the ordinary course of trade or business. but means conducting. 156 TAXATION LAW TEAM: ADVISER: ATTY. 146984. The "carrying on business" does not mean the performance of a single disconnected act. or 2. in the course of trade or business. Engages only on VAT-exempt transactions under Section 109(1) (A to U) of NIRC. Q: Who are taxable persons? A: Taxable persons refer to any person liable for the payment of VAT.5 million. or government entity. BIR held that it is liable to pay VAT. barter. barter or exchange of goods or services by persons who engage in such activities. LACSINA.. Q: Pursuant to the privatization program of the government. He either: 1.000 during the 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business. G. July 28. prosecuting and continuing business by performing progressively all the acts normally incident thereof. There are reasonable grounds to believe that his gross receipts or gross sales in the next 12 month shall exceed 1.

The sale is in the course of trade or business or exercise of profession in the Philippines.. NIRC). Q: What are the requisites for taxability of sale or exchange of real property? ACADEMICS CHAIR: LESTER JAY ALAN E. films. 2. NIRC) VAT ON SALE OF GOODS OR PROPERTIES Requisites of taxability of sale of goods or properties Q: What are the requisites for taxability of sale of goods and personal properties? A: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 2. design or model. 106[A][1]. The goods or proerties are located in the Philippines and are for use or consumption therein. Note: Real estate seller of residential house and lot valued at P2. or A: 1.000 (specific threshold) but whose annual gross rentals do not exceed P1. The seller or transferor is a real estate dealer The real property is an ordinary asset held primarily for sale or for lease in the ordinary course of business The sale is not exempt from VAT under Section 109 of NIRC. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MASACAYAN & THEENA C. or international agreement binding upon the government of the Philippines The threshold amount set by law should be met. There is an actual or deemed sale. (1st par. the specific threshold set by law should not be exceeded). RR 16-2005) Note: Absence of any of the above requisites EXEMPTS the transaction from VAT. assignment. or conveyance. barter or exchange of goods or personal properties for valuable consideration. However. including dacion en pago. plan secret formula or process. Q: What are the goods or properties which are subject to VAT? A: The term goods or properties shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include: 1.5M or less shall NOT pay VAT nether percentage tax (Sec. percentage taxes may apply (Section 116. 5. MARTINEZ SANTO TOMAS de Derecho Civil 157 . commercial or scientific equipment The right or the privilege to use motion picture films. NIRC). 109(1)(P). he shall pay percentage tax under Section 116. special law. 4.5M (general threshold) shall NOT pay VAT but shall pay percentage tax (Sec 109(1)(Q). or merely contract to sell involving real property The real property is located within the Philippines. 5. satellite transmission and cable television time (Sec. (Sec. NIRC). 4. Note: A residential unit lessor with a monthly rental exceeding P10. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. NIRC). television. international agreement binding upon the government of the Philippines. trademark. 3. SABUGO & JOHN HENRY C. He should register as a VAT-exempt person unless he opts to register as VAT under Section 109(2) of NIRC. 4. 4. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business The right or the privilege to use patent. barter or exchange. 4. special law. copyright. percentage taxes may apply under Section 116 of NIRC. and The sale is not exempt from VAT under Section 109 of NIRC.16-3. Sec. He is exempted from VAT and Percentage tax under Section 116 of NIRC. Q: Are all intangible properties subject to VAT? A: No.106-2. only those capable of pecuniary estimation. Note: Absence of any of the above requisites EXEMPTS the transaction from VAT. The seller executes a deed of sale. 2.5M (Sec 109(1)(V). Engages in transactions liable to VAT but becomes exempted from VAT because his annual gross sales do not exceed P1. 3. transfer. Though VAT exempt. trade brand or other like property or right The right or the privilege to use in the Philippines of any industrial. 3. 2.NATIONAL INTERNAL REVENUE CODE OF 1997 regardless of their annual gross sales (but in sale of residential real property or lease of residential property. However. tapes and discs Radio. goodwill. RR 16-2005) Q: Is the sale of real properties subject to VAT? A: Sale of real properties 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. 6.

ORTIZ & VANNESSA ROSE S. including the interests and penalties for late payment.. exchange and/or lease of goods or properties. Residential house and lot or other residential dwellings with gross selling price exceeding P2. ANG JR. (Ibid. Q: When is the sale of real property subject to VAT? A: 1. barter or exchange of the goods or properties. the input tax on the purchases of goods. Payments that are subsequent to “initial payments” shall be subject to output VAT Deferred Plan Initial payments exceed 25% of the gross selling price Transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale. on such goods or properties shall form part of the gross selling price. capital transactions of individuals are not subject to VAT. deed of conditional sale or otherwise. The buyer of the property can claim the input tax in the same period as the seller recognized the output tax. KASALA. Q: Define initial payments. GRANTOZA. 2.) Q: What are the allowable deductions from the gross selling price? A: 1. Discounts determined and granted at the time of the sale Sales returns and allowances for which proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. 158 TAXATION LAW TEAM: ADVISER: ATTY. actually and/or constructively received. Residential lot with gross selling price exceeding P1. properties or services related to such zero-rated sale shall be available as tax credit or refund. Q: What is gross selling price (in case of sale or exchange of real property)? A: It is the consideration stated in the sales document or the fair market value whichever is higher. KEITH S. DIVINE C. ASST. TEE. In VATexempt transactions there is no input tax credit allowed. Only real estate dealers are subject to VAT. Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of sale. Q: What is the difference between “zero-rated” and “VAT-exempt” transactions? A. CHARLES L. Q: What is gross selling price? A: It means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale. LACSINA.5 million.5 million. SUBJECT HEAD: RODOLFO N. GUTIERREZ. MEMBERS: JOSE DUKE BAGULAYA. SUBJECT HEADS: EDISON U. If the VAT is not billed separately in the document of sale. Payments that are subsequent to “initial payments” shall no longer be subject to output VAT ZERO-RATED SALES OF GOODS OR PROPERTIES. including transactions deemed sale and the performance of service for consideration. In the case of 0% rated transaction of a Note: Whether the instrument is denominated as a deed of absolute sale. The difference lies in the input tax. Q: What are taxable sales? A: Taxable sales refers to the sale. Q: What are the distinctions between sale on installment plan and sale on a deferred payment basis? A: Installment Plan Initial payments do not exceed 25% of the gross selling price Seller shall be subject to output VAT on the installment payments received. if any. However. Zero-rated sale of goods or properties by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. AND EFFECTIVELY ZERO-RATED SALES OF GOODS OR PROPERTIES Q: What is the meaning of zero-rated transaction? A: The gross selling price of goods or properties is multiplied by 0% VAT rate. VALCOS . HERNANDEZ. CHRISTINE L. CLARABEL ANNE R. The excise tax. excluding the VAT. PRUDENCE ANGELITA A. whether in cash or in kind. A: Payment/s which the seller receives before or upon execution of the instrument of sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the year when the sale or disposition of real property was made. 2. barter.UST GOLDEN NOTES 2011 As such. the selling price or the consideration stated therein shall be deemed to be inclusive of VAT.

000. used in the manufacturing.: Output tax -------------------Less: Input tax ------------------VAT Creditable EXEMPT c. E. it is deemed a separate customs territory and is regarded in law as foreign soil. Export sales Foreign currency denominated sale 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 sale of goods or properties is multiplied by 0% thus his output tax is P 0.00 P 5. c. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. Q: What are the zero-rated sales of goods by a VAT-registered person? A: 1. NIRC). processing.O. The sale and actual shipment of goods from the Philippines to a foreign country: a. inward letters of credit. (Sec. or to an export trader that subsequently export the same. paid for in acceptable foreign currency. SABUGO & JOHN HENRY C. RR 16-2005). 4. On the other hand.g. repacking Q: When is export sale exempt and when is it zerorated? A: Export sale is exempt if made by a non-VAT person (Sec. irrespective of any shipping arrangement. as evidenced by landing certificates or similar commercial documents Q: What is meant by export sales? A: The term export sales means: 1. 226 (Omnibus Investment Code of 1987) The sale of goods. 2.Made by a VAT-registered registered person person Tax Credit/Refund Cannot avail of tax credit Can claim or enjoy tax or refund. removes VAT Transaction is taxable for at the exempt stage VAT purposes although the tax levied is 0% By whom made Need not be a VAT. accounted for in accordance with the rules and regulations of BSP.00 3. such as PEZA. considered as export sale? A: Yes. of export products exported directly by a registered export producer. 106. (Sec. in the Philippines of the said buyer’s goods. Notably. paid for in acceptable foreign currency or its equivalent in goods or services.NATIONAL INTERNAL REVENUE CODE OF 1997 VAT registered person. packing. NIRC as amended by RA 9337) 4. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 000. bills of lading. MASACAYAN & THEENA C. he can claim input tax for purchases made from VATregistered entities. value determined from invoices. Q: Is the sale of goods to ecozone. 109. b. or ii. 2. The Philippine port F. accounted in accordance with the rules of BSP. MARTINEZ SANTO TOMAS de Derecho Civil 159 . d. equipment and fuel to persons engaged in international shipping or international air transport operations. iii. NIRC) Note: Under Omnibus Investment Code: i.O. Since the person is VAT-registered. supplies. 3. 106[A][2][a].00 5. that sales of export products to another producer or to an export trader shall only be deemed expoert sales when actually exported by the latter. ZERO-RATED Nature of transaction Not taxable. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. it is zero-rated if made by VAT-registered person (Sec. Thus. for delivery to a non resident local export-oriented enterprise. The net selling price of export products sold by a registered export producer to another export producer. landing certificates. may credit/refund result in increased prices (Total Relief) (Partial Relief) Sale of raw material or packaging materials to export oriented enterprise whose export sales exceed 70% of total annual production Sale of gold to BSP Those considered as export sales under the E. P 0. ACADEMICS CHAIR: LESTER JAY ALAN E. while an ecozone is geographically within the Philippines. Sale of raw materials or packaging materials by a VAT-registered entity to a non-resident buyer: a. 6. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Provided. 5.106-5.B. b. and other commercial documents.00.

Need to apply for zero-rating An application for zero.R. 2005) Q: What are constructive exports? A: 1. recreational. G. GUTIERREZ. Sekisui Jushi Philippines.purposes. properties or services made by a VAT-registered supplier to a BOIregistered manufacturer/producer whose products are 100% exported are considered export sales 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.. ASST. Exportation of goods on consignment shall not be deemed export sales until the export products consigned are in facet sold the consignee. 150154. export sales of registered export traders shall include commission income.) Note: For purposes of zeo-rating. Q: What is the rationale for zero-rating exports sale? A: It is because the Philippine VAT system adheres to the cross border doctrine. according to which. but shall not registered person to a result in any output tax. LACSINA. export processing zones (EPZs). HERNANDEZ. ORTIZ & VANNESSA ROSE S. (CIR v. PRUDENCE ANGELITA A. The national territory of the Philippines outside of the proclaimed borders of the ecozone shall be referred to as the Customs Territory. (Sec. No. no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Provided. GRANTOZA.UST GOLDEN NOTES 2011 These sales are zero-rated or subject to a tax rate of zero percent. Q: What is a Foreign Currency Denominated sale? A: The phrase 'foreign currency denominated sale' means sale to a nonresident of goods. that sales of goods. not being is directly and legally directly and legally liable liable for the VAT. G. assembled or manufactured in the Philippines for delivery to a resident in the Philippines. Q: Differentiate effectively zero-rated transaction from automatic zero-rated transaction.. investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. Inc. exemption under special properties or services laws or international related to such zero-rated agreements. industrial. person. Nature Refers to the sale of Refers to taxable goods. properties or transaction for VAT services by a VAT. July 21. shall be available as tax credit or refund. banking. assembled or repacked products whether paid for in foreign currency or not. 2006) Q: What is an ecozone? A: An ecozone or a Special Economic Zone has been described as – selected areas with highly developed or which have the potential to be developed into agro-industrial. 2. KASALA. except those mentioned in Sections 149 and 150. (Ibid.. will ultimately bear competitive by allowing the burden of the tax 160 TAXATION LAW TEAM: ADVISER: ATTY. Inc. (CIR v. tourist. finally. MEMBERS: JOSE DUKE BAGULAYA. or entity who was However. ANG JR. August 9. SUBJECT HEADS: EDISON U. CLARABEL ANNE R. 149671. necessary before the transaction may be considered effectively zero-rated. 3.).Need not file an application rating must be filed and form and to secure BIR the BIR approval is approval before sale. TEE. NIRC) Note: Section 149 refers to excise tax on automobiles. CHARLES L. Section 150 refers to excise tax on non-essential goods. the input tax on granted indirect tax purchases of goods. Toshiba Information Equipment (Phils. 106[A][2][b]. of locally manufactured. DIVINE C. commercial. CHRISTINE L.. free trade zones and tourist/recreational centers. No. paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). KEITH S. SUBJECT HEAD: RODOLFO N. 5. For whose benefit is it intended Primarily intended to be Intended to benefit the enjoyed by the seller who purchaser who. VALCOS . A: EFFECTIVELY ZERO-RATED TRANSACTION AUTOMATIC ZERO-RATED TRANSACTION 4. An ecozone may contain any or all of the following: industrial estates (IEs).R. sale. Sales to bonded manufacturing warehouses of export-oriented manufacturers Sales to export processing zones Sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227 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) Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities. making for the payment of the such seller internationally VAT.

is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Seagate as a VAT-registered person. Seagate has the burden of proof that the taxes sought to be refunded were erroneously or illegally collected. 16. The CIR contended that since ‘taxes are presumed to have been collected in accordance with laws and regulations.to an ecozone. Since the purchases of Seagate are not exempt from the VAT.38 with supporting documents was filed with Revenue District Office in Cebu. is a subsidiary of a foreign corporation duly registered with the Philippine Economic Zone Authority pursuant to PD 66 and is also registered with the BIR as a VAT taxpayer. 11. enjoy all privileges. which is a taxable transaction for VAT purposes. MASACAYAN & THEENA C. An administrative claim for refund of VAT input taxes in the amount of P28. Is the grant of a refund representing unutilized input VAT to Cebu Toyo proper? A: Yes. An exemption means that the sale of goods. moreover. Is Seagate entitled to the refund or issuance of Tax Credit Certificate representing alleged unutilized input VAT paid on capital goods purchased? A: Yes. 153866. SABUGO & JOHN HENRY C. because the ecozone within which it is registered is managed and operated by the PEZA as a separate customs territory. Cebu Toyo Corporation. Effect Results in no tax chargeable against the purchaser. (CIR v. properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. Q: SEAGATE is a resident foreign corporation duly registered with the SEC to do business in the Philippines. properties or services that are VAT exempt. it is entitled to the fiscal incentives and benefits provided for in either PD 66 or EO 226 which would not subject respondent to internal revenue laws and regulations for raw materials. Under the cross-border principle of the VAT system being enforced by the BIR. advantages or exemptions under both Republic Act Nos. Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent (0%). shall not result in any output tax.R. Unfortunately. Feb. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Seagate enjoys preferential tax treatment. It is also registered with the PEZA to engage in the manufacture of recording components primarily used in computers for export. a zero rated sale by a VAT-registered person. additional deduction for labor expense. It sells 80% of its products to its mother corporation.R. properties or services. Under the system. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. it filed an application for tax credit/refund of VAT paid for the said period representing excess VAT input payments. The administrative claim for refund was not acted upon by the petitioner prompting the respondent to elevate the case to the CTA. Feb. This means that in such zone is created the legal fiction of foreign territory. but the input tax on his purchase of goods. SEAGATE is a VAT-registered entity. A VAT-registered purchaser of goods. Q: Cebu Toyo Corp. as amended. The VAT on capital goods is an internal revenue tax from which the entity is exempt.226. G. No. It shall. however. etc. is entitled to their credits. then the same rule holds for such exports from the national territory -. In taxable transactions. Seagate Technology (Philippines). No doubt. etc or would be entitled to income tax holiday. If exports of goods and services from the Philippines to a foreign country are free of the VAT. whether automatic or effectively zero-rated. G. the rate to be applied is zero. 2005). as a PEZA-registered enterprise within a special economic zone. Note: For zero-rated transactions. 2005) ACADEMICS CHAIR: LESTER JAY ALAN E. Cebu Toyo is engaged in taxable rather than exempt transactions. the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods. the word “ZERO-RATED” must be prominently stamped on the face of the VAT invoice or receipt issued by the seller (failure to comply will make the transaction VAT taxable).. The CIR belies the claim for refund. Inasmuch as both sales are considered export sales subject to VAT at 0% rate under the National Internal Revenue Code. 369. 149073.except specifically declared areas -. properties or services related to such zerorated sale shall be available as tax credit or refund (CIR v. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate. input taxes that are attributable to export sales.NATIONAL INTERNAL REVENUE CODE OF 1997 the refund or credit of shifted by the suppliers. MARTINEZ SANTO TOMAS de Derecho Civil 161 . Thus. No. The seller can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. Seagate failed to do so. 7227 (duty-free importation) and 7844 (tax credits). and the rest are sold to various enterprises doing business in the Mactan Export Processing Zone. benefits. an export enterprise. Although the transactions involving such tax are not exempt. no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. articles. supplies.

G. Retirement from or cessation of business. b. or exchange of real property or share of stocks under Sections 106 and 108.e.UST GOLDEN NOTES 2011 Transactions Deemed Sale Q: What are the transactions deemed sale and therefore subject to VAT? A: 1. it must first be determined whether the sale was in the ordinary course of trade or business.. whichever is lower. No. July 28. Dissolution of a partnership and creation of a new partnership which takes over the business. 2 and 3. 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 (i.R. GRANTOZA. SUBJECT HEAD: RODOLFO N. Change of business activity from VAT taxable status to VAT-exempt status Approval of a request for cancellation of registration due to reversion to exempt status Approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of 3 4. VALCOS . the actual market value shall be the tax base. 2. TEE. RR 16-2005) 2. (Sec. ORTIZ & VANNESSA ROSE S. in the case of retirement or cessation of business. DIVINE C. CHRISTINE L. MEMBERS: JOSE DUKE BAGULAYA. KEITH S. respectively. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. Q: What transactions considered retirement or cessation of business “deemed sale” subject to VAT? 3. but still the law provides that the following transactions are considered as sale and are thus subject to VAT. 106[B]. There is change in the ownership of the business when a single proprietorship incorporates. 146984. c. Transfer. In the case of a sale where the gross selling price is unreasonably lower than the fair market value.. Change or Cessation of Status as VAT-Registered Person Q: When is a change in or cessation of status of a VAT registered person subject to VAT? A: The following are subject to 12% output VAT: 1. NIRC) Note: The transactions are “deemed sale” because in reality there is no sale. Requisites: The VAT-registered person distributing or paying is a domestic corporation. CLARABEL ANNE R. the tax base shall be the acquisition cost or the current market price of the goods or properties. A: 1. LACSINA. Distribution or transfer to: a. and The domestic corporation is either a real estate dealer (in case of real property) or dealer in securities (in case of shares of stock) Note: Only real estate dealers and dealer in securities are liable for payment of VAT in case of sale. with respect to inventories of taxable goods existing as of such retirement or cessation. 4. (Sec. 2. Magsaysay Lines Inc. Change of ownership of the business. However. Shareholders or investors as share in the profits of the VAT-registered persons. Creditors in payment of debt.106-7. SUBJECT HEADS: EDISON U. barter. 162 TAXATION LAW TEAM: ADVISER: ATTY. a.. ANG JR. What is being declared or paid is either real property owned by the company or shares of stocks owned in another company. CHARLES L. or b. 3. Even if the transaction was “deemed sale” if it was not done in the ordinary course of trade or business still the transaction is not subject to VAT. (CIR v. XPN: if the consigned goods were physically returned by the consignee within the 60-day period. or the proprietor of a single proprietorship sells his entire business. GUTIERREZ. 2006) Q: What is the tax base of transactions deemed sale? A: The output tax shall be based on the market value of the goods deemed sold as of the time of the occurrence of the transactions enumerated above in numbers 1. KASALA. when a VATregistered person withdraws goods from his business for his personal use). PRUDENCE ANGELITA A. Q: What is necessary to consider in determining whether a transaction is “deemed sale”? A: Before considering whether the transaction is “deemed sale”. ASST. HERNANDEZ.

Q: Who is an importer? A: An importer is a person who brings goods into the Philippines. exchange of property by corporation acquiring control for the shares of stocks of the target corporation is subject to VAT. and other charges to be paid by the Q: Anshari. and other charges due upon the article. 107[B]) Note: The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods. an alien employee of Asian Development Bank (ADB) who is retiring soon has offered to sell his car to you. excise taxes. the VAT shall be based on the landed cost plus excise taxes.NATIONAL INTERNAL REVENUE CODE OF 1997 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. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. which he imported tax-free for his personal use. Q: What is “technical importation”? A: Sale of goods by a PEZA registered enterprise to a buyer from the customs territory shall be treated as a technical importation. entities or agencies. taxes. 2. The goods or properties used in the business or those comprising the stock-intrade of the corporation will not be considered sold. Q: What is the tax base of importation? A: GR: The tax base shall be based on the total value used by the BOC in determining tariff and customs duties plus customs duties. Change in the trade or corporate name of the business. irrespective of the possessor thereof. Change of control in the corporation of as corporation by the acquisition of controlling interest of the corporation by another stockholder or group of stockholders . importer prior to the release of such goods from customs custody. The unused input tax of the dissolved corporation. MARTINEZ SANTO TOMAS de Derecho Civil 163 . It includes non-exempt persons or entities who acquire tax free imported goods from exempt persons. Q: Who pays for the tax on imported goods? A: The importer shall pay the tax prior to the release of the imported goods. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. as of the date of merger or consolidation. VAT shall be assessed and collected upon goods brought into the Philippines whether for use in business or not. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. Transfer of Goods by Tax Exempt Persons Q: What is the consequence if a tax exempt person would transfer imported goods to a non-exempt person? A: The purchaser or transferee shall be considered as an importer and shall be held liable for VAT and other internal revenue tax due on such importation. 3. or to be paid at the port of entry and legal permit for withdrawal shall have been granted. Importation ends upon the payment of duties. whether or not made in the course of trade or business. Q: When is a change in or cessation of status of a VAT registered person not subject to VAT? A: The following are not subject to 12% output vat 1. MASACAYAN & THEENA C. shall be absorbed by the surviving or new corporation. if any. Q: When does importation begin and end? A: Importation begins when a vessel or aircraft enters the Philippine jurisdiction with the intention to unload goods/cargo. However. (Sec.500. bartered or exchanged despite the change in the ownership interest.000 but who failed to exceed this amount during the first 12 months of operations. Merger or consolidation of corporations. SABUGO & JOHN HENRY C. Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipt exceeding P1. The privilege of ACADEMICS CHAIR: LESTER JAY ALAN E. Such buyer shall be treated as an importer thereof and shall be imposed with the corresponding import taxes. if any.107[A]) XPN: Where the customs duties are determined on the basis of quantity or volume f the goods. VAT on Importation of Goods Q: Is importation subject to VAT? A: Yes.

American Express International. transferred or exchanged in the Philippines to nonexempt persons or entities. SUBJECT HEAD: RODOLFO N. ASST.R. remuneration or consideration. is the sale subject to tax? Explain. technical. CLARABEL ANNE R. CA. tapes and discs The lease or the use of or the right to use radio. (Section 108. GUTIERREZ. or the installation or operation of any brand. Q: What does the phrase “sale or exchange of services” likewise include? A: 1. CHRISTINE L. 2. Sec. Q: What is meant by “service”? VAT on Sale of Service and Use or Lease of Properties Q: What is meant by “sale or exchange of services” subject to VAT? A: It means the performance of all kinds of services in the Philippines for others for a fee. Note: Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines. remuneration or consideration. As long as the entity provides service for a fee. 107 (B) of the Tax Code provides that “In case of tax-free importation of goods into the Philippines by persons.. HERNANDEZ. The sale is subject to tax. 3. No. sold. (Commissioner v. 2000) Q: What is the tax rate? A: 12% of the gross receipts derived from the sale or exchange of service. Mar. transferees or recipients shall be considered a the importer thereof. (2005 Bar Question) 6. 4. entities or agencies exempt from tax. venture. VALCOS . goodwill. design or model plan. PRUDENCE ANGELITA A. television. or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3) The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to. project or scheme The lease of motion picture films. MEMBERS: JOSE DUKE BAGULAYA. satellite transmission and cable television time. 5. where the goods are subsequently. ANG JR. rental or royalty. CHARLES L.UST GOLDEN NOTES 2011 exemption from tax is recognized by tax authorities. commercial or. The lease or the use of or the right or privilege to use any copyright. Inc. G. 30. industrial or commercial undertaking. including the use or lease of properties. assistance or services rendered in connection with technical management or administration of any scientific. GRANTOZA. trade brand or other like property or right The lease or the use of. Professional/ technical consultancy Transfer of technology Lease or use of intangible property Lease or use of tangible property Note: Non-life insurance policies are subject to VAT while life insurance policies are VAT exempt but subject to 5% premium tax under Section 123 of NIRC. non-profit entities liable to pay VAT for sale of goods and services? A: Yes. 2005) Q: What are the categories of Services: A: 1. DIVINE C. TEE. 125355. then the service rendered is subject to VAT. scientific equipment The supply of scientific.) 7. 152609. the purchasers. service fee. A: Yes. The supply of technical advice. or the right to use of any industrial. 2. Q: Are non-stock. R.. 4. 164 TAXATION LAW TEAM: ADVISER: ATTY. 8. G. No. (CIR v. secret formula or process. ORTIZ & VANNESSA ROSE S. KEITH S. including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively 3. SUBJECT HEADS: EDISON U. machinery or other apparatus purchased from such nonresident person A: Service has been defined as “the art of doing something useful for a person or company for a fee” or “useful labor or work rendered or to be rendered another for a fee. patent. industrial or commercial knowledge or information The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property. trademark. LACSINA. If you decide to purchase the car. June 29. films. who shall be liable for any internal revenue tax on such importation. compensation. NIRC) Q: What is the meaning of gross receipts? A: It pertains to the total amount of money or its equivalent representing the contract price. (Ibid. KASALA.

G. medical professionals and then negotiates with them regarding payment schemes. NIRC) Q: What is the meaning of constructive receipt? A: 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. and that it enters into contract with clinics. After a Motion for Partial Reconsideration. 8424 (NIRC of 1997) took effect. that it then contracts the services of physicians. a corporation that establishes. R. the power to impose amusement tax on cinema/theater operators or proprietors remains with the local government. A: Yes. It merely provides and arranges for the provision of pre-need health care services to its members for a fixed prepaid fee for a specified period of time. it is not subject to VAT. CTA overruled its decision with respect to the payment of deficiency VAT and held that PHILHEALTH was entitled to the benefit of non-retroactivity of rulings guaranteed under Section 246 of the Tax Code. (CIR v. Since the imposition of a tax is a burden on the taxpayer. the BIR sent PHILHEALTH a Preliminary Assessment Notice for deficiency in its payment of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997 and a letter demanding payment of “deficiency VAT” and DST for taxable years 1996 to 1997. PHILHEALTH brought the matter to the CTA. Q: PHILHEALTH.R. Philippine Health Care Providers Inc. PHILHEALTH’s services are not VAT-exempt. No. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Meanwhile. financing and other procedures in the delivery of health services. hospital and veterinary services except those rendered by professionals. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. Consequently. A contrary ruling will subject cinema/theater operators or proprietors to a total of 40% tax. the 10% VAT being on top of the 30% amusement tax imposed by the Local Government Code of 1991. excluding VAT. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M.A. medical and dental practitioners. PHILHEALTH filed a protest with the Commissioner but the latter did not take action on its protest. MASACAYAN & THEENA C. are liable to VAT. 24. irrespective of the accounting method employed by the lessor. Q: Is a lease of property subject to VAT? Are the services of PHILHEALTH subject to VAT? A: All forms of property for lease. hospitals. Q: Are advance payments made by lessee for lease of property subject to VAT? A: If the advance payment is for the faithful performance of certain obligations of the lessee. whether real or personal.NATIONAL INTERNAL REVENUE CODE OF 1997 received during the taxable quarter for the services performed or to be performed for another person. 168129. Those exempted from VAT are those engaged in the performance of medical. amending further the NIRC of 1977. A security deposit that is applied to rental shall be subject to VAT at the time of its application. PHILHEALTH is not actually rendering medical service but merely acting as a conduit between the members and their accredited and recognized hospitals and clinics. then such payment is taxable to the lessor in the month when received. As it is. MARTINEZ SANTO TOMAS de Derecho Civil 165 . clinics and hospitals to perform such services to its enrolled members.. 273 on VAT and the E-VAT law. Republic Act 7716 (E-VAT Law) took effect. maintains. 108. conducts and operates a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan. but canceling the payment of DST.O. The Commissioner issued VAT Ruling 23188 stating that PHILHEALTH. The CTA declared that VAT Ruling 231-88 is void and without force and effect and ordered it to pay the VAT deficiency. The legislative intent is not to impose VAT on persons already covered by the amusement tax. ACADEMICS CHAIR: LESTER JAY ALAN E. dental. Apr. (Sec. it cannot be presumed nor can it be extended by implication. substantially adopting and reproducing the provisions of E. Subsequently. 2007) Q: Are gross receipts derived from sales of admission tickets in showing motion pictures subject to VAT? A: No. as a provider of medical services. With the passage of these laws. The repeal by the Local Government Code of 1991 of the Local Tax Code transferring the power to impose amusement tax on cinema/theater operators or proprietors to the local government did not grant nor restore the said power to the national government nor did it expand the coverage of VAT. If the advance payment constitutes a pre-paid rental. was exempt from the VAT coverage. in the absence of showing of bad faith on its part. inquired before the Commissioner of Internal Revenue (Commissioner) whether the services it provided to the participants in its health care program were exempt from the payment of VAT.

GUTIERREZ. wind.A. by their nature. CLARABEL ANNE R. PRUDENCE ANGELITA A. 7. The service is in the course of trade of taxpayer’s trade or business or profession. Q: Who is a VAT-exempt party? A: It is a person or entity granted VAT exemption under the Tax Code. 108. Q: Define exemption under the VAT law.”(CIR v. LACSINA. Note: VAT-exempt transactions shall not be included in determining the general threshold prescribed by law (P1. There is a sale or exchange of service or lease or use of property enumerated in the law or other similar services. 166 TAXATION LAW TEAM: ADVISER: ATTY. a special law or an international agreement to which the Philippines is a signatory. and Sale of power or fuel generated through renewable sources of energy such as. without regard to the tax status of the party to the transaction. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country.UST GOLDEN NOTES 2011 thereby killing the “*goose+ that lays the golden egg*s+. 26. No. A: An exemption means that the sale of goods. Inc. including leases of property for use thereof. CHARLES L. Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate. Services performed by subcontractors and/or contractors in processing. Processing. 185305. ORTIZ & VANNESSA ROSE S. 9337) 5. 5. and by virtue of which its taxable transactions become exempt from VAT. ASST.R. GRANTOZA. SUBJECT HEADS: EDISON U. converting. TEE. VALCOS . properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax). NIRC as amended by R. are specifically listed in and expressly exempted from VAT under the Tax Code. 3. SM Prime Holdings. biomass. KEITH S. Note: Absence of any of the requisites renders the transaction exempt from VAT but may be subject to other percentage tax under Title V of the Tax Code. or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. Services other than those mentioned in the preceding paragraph 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. and The service is not exempt under the Tax Code. 6. 2. where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (Sec. solar. Services rendered to persons or entities whose exemption under special laws or international agreements to which the VAT EXEMPT TRANSACTIONS Q: What are VAT-exempt transactions? A: It involves goods or services which. and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.. G. 4. MEMBERS: JOSE DUKE BAGULAYA. DIVINE C. HERNANDEZ. The service is for a valuable consideration actually or constructively received.5 million annual gross sales) 2. 3. but not limited to. ZERO-RATED Sale of Service Q: What are the zero-rated services? A: 1. ocean energy. the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. KASALA. hydropower. Feb. manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported. SUBJECT HEAD: RODOLFO N. special law or international agreement.. 2010) 4. ANG JR. geothermal. The service is performed or to be performed in the Philippines. Services rendered to persons engaged in international shipping or international air transport operations. CHRISTINE L. Requisites for Taxability Q: What are the requisites for the taxability of sale or exchange of services or lease or use of property? A: 1.

(Sec. without regard to the tax status of the parties in the transactions. Sale of agricultural products. 3. Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers. but may be allowed a tax refund or credit of input tax paid. Q: What are the distinctions between exempt transaction and exempt party? A: EXEMPT PARTY A person or entity granted VAT exemption under the Tax Code. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez. 5. or producing foods for human consumption is exempt from VAT. 106[A][1][a]. 109(1) of the NIRC. A: 1. 500). (Sec.106-5[A][6]. such as fresh vegetables. Services rendered by Jake's Construction Company.NATIONAL INTERNAL REVENUE CODE OF 1997 A: No longer exempt. real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business are exempt from VAT. by their nature are specifically listed in and expressly exempted from the VAT under the Tax Code. Note: The choice of the taxpayer is irrevocable for a period of 3 years from the quarter the election was made. EXEMPT TRANSACTION Involves goods or services which. or 2. Q: Will a VAT-registered purchaser of goods. depending on its registration as a VAT or non-VAT taxpayer. of a kind generally used as. in their original state. Q: Does a VAT-registered individual have the option to be subject to VAT rather than to avail of the above-mentioned exemptions? A: Yes. Fees for lodging paid by students to Bahay-Bahayan Dormitory. and by virtue of which its taxable transactions become exempt from the VAT. Note: The basis for the grant of VAT exemptions is equity Q: When is the sale of real properties subject to VAT? When is it exempt? A: Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business is subject to VAT. Transaction is not subject to VAT. Q: Are petroleum products exempt from VAT? 2. VAT exempt under Sec. in her dress shop and other outlets. Q: Why would a VAT-exempt person choose to be subject to VAT than to be VAT exempt? 4. NIRC) Whereas. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. fuel is zerorated when sold to persons engaged in international shipping or international air transport operations without docking or stopping at any other port in the Philippines. the taxpayer has the option to be: 1. special law or international agreement to which RP is a signatory. a Filipino dress designer. On the other hand. and when is it zero-rated? A: Fuel is exempt if imported by persons engaged in international shipping or air transport operations (Sec. Such party is not subject to the VAT. SABUGO & JOHN HENRY C. MASACAYAN & THEENA C. Thus a VAT-registered person may choose to be subjected to rather than exempt from payment of VAT. a contractor to the World Health Organization in the renovation of its offices in Manila. [1%] Sale of RTW by Cely's Boutique. 109. which is an entity exempted from taxation under ACADEMICS CHAIR: LESTER JAY ALAN E. (Sec 4. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. properties or services that are VAT-exempt be entitled to any input tax on such purchase? A: No. RR 16-2005] Q: State whether the following transactions are: a) VAT Exempt. b) subject to VAT at 12%. NIRC). (Sec. 1. a private entity operating a student dormitory (monthly fee PI. Be subject to VAT. Under Sec. 109[A]. but the seller is not allowed any tax refund or credit for any input taxes paid. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Since Jake's Construction Company has rendered services to the World Health Organization. 2. The input tax is deducted from the output tax thereby reducing his tax liabilities but a VAT-registered person who opted to be exempt there from cannot avail of the input tax credit. NIRC) Q: When is fuel exempt from tax. MARTINEZ SANTO TOMAS de Derecho Civil 167 . 109(2) of the Tax Code. NIRC) VAT at 0%. VAT exempt. A: A VAT-registered person who opted to be subject to VAT may avail of the input tax credit. or c) subject to VAT at 0%. 109 [T].

SUBJECT HEADS: EDISON U. the supply of services is subject to zero percent (0%) rate. (Sec. including spare parts thereof to be used directly and exclusively. raw cane sugar and molasses. non-electric and non-credit cooperatives duly registered with 168 TAXATION LAW TEAM: ADVISER: ATTY. ASST. HERNANDEZ. LACSINA. such as freezing. their importation of direct farm inputs. aquarium fish. salting.(1998 Bar Question) for the market. (Sec. NIRC]). CHRISTINE L. 106[A][1]. NIRC]).D. 4. NIRC). GRANTOZA. including ingredients. ORTIZ & VANNESSA ROSE S. 529 (Sec. KEITH S. Note: Unlike in paragraph A. whether in its original state or processed form. 109[Q]. TEE. VALCOS . RR No.UST GOLDEN NOTES 2011 international agreements to which the Philippines is a signatory. and copra shall be considered in their original state (Sec. Note: Fighting cocks. SUBJECT HEAD: RODOLFO N. Tractors and other agricultural implements fall under the definition of goods which include all tangible objects which are capable of pecuniary estimation. seeds. prawn. except cooperatives shall not be held liable to pay for three percent (3%) gross receipts tax. PRUDENCE ANGELITA A. whether locally produced or imported. 106[A][1]. Except specialty feeds for race horses. No. NIRC]). to non-members. boarding houses and bed spaces (Sec. Q: What are the VAT exempt transactions? A: 1. which is exempt from VAT regardless of the amount of aggregate rentals received by the lessor during the year. DIVINE C. KASALA. Q: What is the tax on persons who are exempt from VAT? A: Persons who are exempt from the payment of VAT and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts. fighting cocks. NIRC]). The monthly fee paid by each student falls under the lease of residential units with a monthly rental per unit not exceeding P10. corn grits. CLARABEL ANNE R. NIRC) VAT Exempt. Sale or importation of agricultural and marine food products in their original state. NIRC) This is subject to VAT at 12%. GUTIERREZ. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. machineries and equipment. seedlings and fingerlings. or yielding or producing foods for human consumption. b. CHARLES L. ordinary salt. zoo animals and other animals generally considered as pets (Sec. livestock and poultry feeds. 109[B]. MEMBERS: JOSE DUKE BAGULAYA. like the addition of preservatives or anti oxidants. 4. Sale of fertilizers. 108[B][3]. 7-95). 109[A]. This transaction also falls under the definition of goods which include all tangible objects which are capable of pecuniary estimation (Sec. broiling. ANG JR. e.. Note: PD 529 is Petroleum Exploration Concessionaires under the Petroleum Act of 1949 Exempt transactions.000. zoo animals and other animals generally considered as pets are not included in the term livestock and poultry. the sales made by agricultural cooperatives duly accredited by CDA may be in original state or processed form is exempt from VAT. It is not a simple process if it is a physical or chemical process which would alter the exterior or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. 109[K]. in the production and/or processing of their produce (Sec. Enumerated d. 5. Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce. (Sec. used in the manufacture of finished feeds. Sales by non-agricultural. Polished and/or husked rice. 3.103-1. Sale Of Goods And Property a. and breeding stock and genetic materials therefor. roasting. fish. livestock and poultry of a kind generally used as. smoking or stripping. NIRC) VAT at 12%. The term unit shall mean per person in the case of dormitories. drying. except those under P. race horses. 109[L]. c.

. Note: In this section for private educational institution to be exempt from VAT they must be duly accredited by DEPED. 109[I]. CHED. NIRC). Medical. Services subject to percentage tax under Title V (Sec. corn into grits and sugar cane into raw sugar (Sec. otherwise known as the Urban Development and Housing Act of 1992. NIRC). NIRC).000): Provided. magazine. II. dental. pp. MARTINEZ SANTO TOMAS de Derecho Civil 169 . house and lot. 109[N]. the amounts herein stated shall be adjusted to their present values using the Consumer Price Index.500. SABUGO & JOHN HENRY C. 109[R]. g. review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements (Sec.A. i. 109[V]. government educational institutions are exempt without the need of the said accreditation requirements. Export sales by persons who are not VATregistered (Sec. Vessels to be imported shall comply with the age limit requirements: Passenger and/or cargo-vessels15 years old Tanker-10 years old High speed passenger craft-5 years old Educational services rendered by private educational institutions. TESDA and those rendered by government educational institutions (Sec. or real property utilized for low-cost and socialized housing as defined by R. Sale of passenger or cargo vessels and aircraft.NATIONAL INTERNAL REVENUE CODE OF 1997 the Cooperative Development Authority: Provided that the share capital contribution of each member does not exceed Fifteen thousand pesos (P15. 109[F]. 000. j. e. VAT exempt. 109[O].000) and below: Provided. NIRC]). NIRC]). Exemption from VAT on the importation and local purchase of passenger and/or cargo vessel shall be limited to those of one hundred fifty tons (150) and above. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business.000) and below. f. NIRC). FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Note: Laboratory services are exempted because it is a hospital service. and other related laws. Sale of Services a. hospital and veterinary services except those rendered by professionals (Sec. 2009 and every three (3) years thereafter. 109[G]. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 109[E]. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the NSO (Sec. I. and other residential dwellings valued at Two million five hundred thousand pesos (P2. 2009 and every three (3) years thereafter. Services rendered by regional or area headquarters established in the Philippines by multinational corporations f. The sale of medicines by the pharmacy of a hospital or a clinic to its in-patients is considered hospital service hence. If the sale of medicine is made to an out-patient. NIRC). 109[P]. That not later than January 31. Sale of goods or properties other than the transactions mentioned in the preceding paragraphs. 109[S]. such sale is subject to VAT (Mamalateo. MASACAYAN & THEENA C. 7279. Sale of books and any newspaper. NIRC). duly accredited by the DEPED. d. Services rendered by individuals pursuant to an employer-employee relationship (Sec. residential lot valued at One million five hundred thousand pesos (P1.00) and regardless of the aggregate capital and net surplus ratably distributed among the members (Sec. NIRC). No. equipment and spare parts thereof for domestic or international transport operations and provided that (Sec. c. Value Added Tax. That not later than January 31. h. 109[H]. NIRC]). ACADEMICS CHAIR: LESTER JAY ALAN E. 163 and 274) b. including engine and spare parts of the said vessels. 2007 ed. as published by the National Statistics Office (NSO) (Sec. Services by agricultural contract growers and milling for others of palay into rice.500. including engine. 2. CHED and TESDA on there other hand. 500. NIRC). the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1.

upon the production of evidence satisfactory to the Commissioner. accompanying such persons. Exemption from VAT on the importation and local purchase of passenger and/or cargo vessel shall be limited to those of one hundred fifty tons (150) and above. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the NSO (Sec. c. That not later than January 31. Tanker-10 years old. 2009 and every three (3) years 3. SUBJECT HEADS: EDISON U. wearing apparel. NIRC). equipment and spare parts thereof for domestic or international transport operations and provided that (Sec. NIRC). barter or exchange. CHRISTINE L. HERNANDEZ. KEITH S. NIRC). PRUDENCE ANGELITA A. 109[Q]. NIRC). High speed passenger craft-5 years old e. b. the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1. including engine and spare parts of the said vessels II. that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide (Sec. 109[D]. 4. 109[C]. ANG JR.000): Provided. Importation of books and any newspaper. NIRC). NIRC). Vessels to be imported shall comply with the age limit requirements Passenger and/or cargo-vessels 15 years old. Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10. CHARLES L. 109[S]. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided. That not later than January 31. Lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority (Sec. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the NSO (Sec. NIRC). NIRC). and Performance of services other than the transactions mentioned in the preceding paragraphs. Importation of passenger or cargo vessels and aircraft. 109[K]. the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1.UST GOLDEN NOTES 2011 which act as supervisory..000): Provided. VALCOS . c. Importation of fuel. d. machinery. subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines (Sec. goods and supplies by persons engaged in international shipping or air transport operations (Sec. equipment and spare parts thereof for domestic or international transport operations (Sec. vessel. GRANTOZA. NIRC). MEMBERS: JOSE DUKE BAGULAYA. except those under P. for their own use and not for sale. 2009 and every three (3) years thereafter. b. h. NIRC). LACSINA. ORTIZ & VANNESSA ROSE S. DIVINE C. including engine. I. Services of banks. 109[U].000) Provided. GUTIERREZ. 529 (Sec. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines (Sec. NIRC). SUBJECT HEAD: RODOLFO N. other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines. 109[R]. 500. review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements (Sec. Importation of professional instruments and implements. 170 TAXATION LAW TEAM: ADVISER: ATTY. g. 2009 and every three (3) years thereafter. TEE. KASALA. 109[S]. including engine. i. and other non-bank financial intermediaries (Sec.D. communications and coordinating centers for their affiliates. magazine. That not later than January 31. 109[V]. and personal household effects (except any vehicle. non-bank financial intermediaries performing quasi-banking functions. CLARABEL ANNE R. 109[M]. 500. ASST. aircraft. 109[T]. Importation a. Lease Of Property a. Lease of passenger or cargo vessels and aircraft. 109[J]. domestic animals. NIRC). j. No. or arriving within ninety (90) days before or after their arrival.

110[A][3].000 and annual gross sales exceed P1. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. including lease or use of property. Monthly rental P10.5M = there shall be VAT.5M = VATexempt but shall pay 3% percentage tax under Section 116 of NIRC. It shall also include the transitional input tax determined in accordance with Section 111 of the NIRC. 236 of the NIRC. 110 [A][1]. 2.110 [A][3]. Purchase or importation of goods: a. For conversion into or intended to form part of a finished product for sale including packaging materials. or c. (Sec. A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege which may be limited or removed by law. Transactions deemed sale Transitional input tax credits Presumptive input tax credits Purchase of real properties for which a VAT has actually been paid 5. 109[V].000 or less regardless of annual gross sales = VAT exempt and no percentage tax ( VAT-exempt transactions shall pay no VAT neither 3% percentage tax under Section 116 of NIRC) b. 4. Transitional input tax credits allowed under the transitory and other provisions of the Regulations 6. Purchase of services on which a VAT has been actually paid. The actual value-added tax paid on such goods. There are 22 exemptions under the law but in this enumeration the said exemptions are classified into sale of goods.111[A]. NIRC) ACADEMICS CHAIR: LESTER JAY ALAN E. NIRC) Sources of Input Tax Q: What are creditable input taxes? Summary of rules: a. A: It means the value-added tax due from or 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. MASACAYAN & THEENA C. (Sec. (Sec. sale of services. Monthly rental above P10. 2. (Sec. 109 of theNIRC as amended by RA 9337. except automobiles. SABUGO & JOHN HENRY C. or e.or 2. Creditable Withholding VAT on payments to non-residents Q: What is transitional input tax credit? A: It is an input tax credit allowed to person who becomes liable to value-added tax or any person who elects to be a VAT-registered person. from a VAT-registered person.NATIONAL INTERNAL REVENUE CODE OF 1997 thereafter. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the NSO. A: It means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Sec. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Monthly rental above P10. Thus. The allowed input tax shall be whichever is higher between: 1. (Sec. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. or d. DEFINED Q: Define Input Tax. For use as supplies in the course of business. For use in trade or business for which deduction for depreciation or amortization is allowed under this Code. Q: Define Output Tax. NIRC) Q: Is input tax a property right within the Constitutional purview of the due process clause? A: No. For sale. c. aircraft and yachts. there are some repetitions in the enumeration as they were classified into four categories. NIRC) A: 1. 3. NIRC) Q: What are included as input tax credits? INPUT TAX AND OUTPUT TAX. For use as materials supplied in the sale of service. 2% of the value of the taxpayer’s beginning inventory of goods. Note: The foregoing enumerations are taken from Sec. MARTINEZ SANTO TOMAS de Derecho Civil 171 . or b.000 but annual gross sales do not exceed P1. materials and supplies. importation and lease of property. A: The input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 of the NIRC on the following transactions shall be creditable against the output tax: 1.

No. 2009) Q: Is the allowance for transitional input tax credit applicable to real property? A: Yes. MEMBERS: JOSE DUKE BAGULAYA. processing of: a. cooking oil c. TEE. The transitional input tax credit mitigates this initial diminution of the taxpayer’s income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments. 110 [A][2]. PRUDENCE ANGELITA A. With respect to real estate dealers. 158885. SUBJECT HEADS: EDISON U. Persons Who Can Avail of Input Tax Credit Q: To whom shall the input tax be creditable? A: 1. 111 [B].registered person who is also engaged in transactions not subject to VAT be allowed tax credit? 172 TAXATION LAW TEAM: ADVISER: ATTY. whether or not they previously paid taxes in the acquisition of their beginning inventory of goods. sardines b. However. manufacturing of: a. such as purchase returns or allowances and input tax attributable to exempt sale. CHARLES L. KEITH S. Such real properties are the operating assts of the real estate dealer. 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. 170680. such as the Board of Investments or the Bureau of Customs [Sec. GUTIERREZ. CIR. refer to the product which the VATregistered person offers for sale to the public. milk 2. At the very beginning. the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. (Sec. lessee or licensee upon payment of the compensation. HERNANDEZ. packed noodle based instant meals The allowed input tax shall be equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.R. materials. the beginning inventory of “goods” forms part of the valuation of the transitional input tax credit.R. To the purchaser upon consummation of sale and on importation of goods or properties. mackerel c. the input tax shall be creditable to the purchaser.. royalty or fee. (Fort Bonifacio Development Corporation v. ANG JR. VALCOS . LACSINA. it is the real properties themselves which constitute their “goods”. as commonly understood in the business sense. NIRC] Allocation of Input Tax on Mixed Transactions Q: May a VAT. DIVINE C. EXCESS INPUT TAX CREDITS Q: How is output tax determined? A: Sellers of goods or properties: Gross selling price (X) VAT rate Sellers of service: Gross receipts (X) VAT rate Determination of Input Tax Creditable Q: How is creditable input tax determined? A: The sum of the excess input tax carried over from the preceding month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit for VAT and other adjustments. rental.) Q: What is presumptive input tax credit? A: It is an input tax credit allowed to persons or firms engaged in the: 1. (Sec. GRANTOZA. Goods. NIRC) Note: The term 'processing' shall mean pasteurization. Apr. VAT PAYABLE. KASALA. No. lease or use of properties.UST GOLDEN NOTES 2011 Q: What is the purpose of transitional input tax credit? A: It operates to benefit newly VAT-registered persons. G. 110 [C]. ASST. Under Sec. 105 of the old NIRC (now Sec. and To the importer upon payment of the VAT prior to the release of the goods from the custody of the Bureau of Customs. CHRISTINE L. The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the BIR but also those filed with other goverment agencies. and supplies. in the case of purchase of services. During that period of transition from non-VAT to VAT status. (Ibid. CLARABEL ANNE R. 2. 2. G. NIRC) DETERMINATION OF OUTPUT/INPUT TAX. the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. refined sugar b. SUBJECT HEAD: RODOLFO N. ORTIZ & VANNESSA ROSE S. 111[A]).

e. Public instrument and VAT Official Receipt for every payment VAT Official Receipt 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. Input tax on purchases of real property a. Note: Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VATregistered person may at his option be refunded or credited against other internal revenue taxes. only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit Output tax LESS: Input tax__________ VAT payable/ ecess tax credits Q: What are the rules in computing VAT? A: 1. SUBSTANTIATION OF INPUT TAX CREDITS Q: What are the substantiation requirements for input tax credits? A: Transactions Input taxes on domestic purchases of goods or properties made in the course of trade or business Required Support VAT invoice 2. Cash/deferred basis Public instrument (i. A ratable portion of any input tax which cannot be directly attributed to either activity. Total input tax which can be directly attributed to transactions subject to value-added tax. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. contract/agreement to sell. NIRC) Q: How is input tax allocated on mixed transactions? A: 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: 1. subject to the provisions of Section 112. the aggregate input taxes shall be allocated ratably between the zero-rated and non-zero rated sales Determination of the output tax and VAT payable and computation of VAT payable or excess tax credits Q: How to compute the VAT payable? b. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.NATIONAL INTERNAL REVENUE CODE OF 1997 A: A: Yes. MARTINEZ SANTO TOMAS de Derecho Civil 173 . including GOCCs shall not be credited against output taxes arising from sales to non-government entities. A VAT-registered person who is also engaged in transactions not subject to the VAT shall be allowed tax credit as follows: 1. If the input tax exceeds the output tax– The excess shall be carried over to the succeeding quarter or quarters.) together with the VAT invoice for the entire selling price and non-VAT Official Receipt for the initial and succeeding payments. etc. 2. the input tax shall be pro-rated to the VAT taxable and VATexempt transactions. If any input tax cannot be directly attributed to either a VAT taxable or VATexempt transaction. SABUGO & JOHN HENRY C. (Sec. Installment basis Input tax on domestic purchases of service Input tax on importation of goods Import entry or other equivalent document showing actual payment ACADEMICS CHAIR: LESTER JAY ALAN E. If at the end of any taxable quarter the output tax exceeds the input tax – The excess shall be paid by the VAT-registered person. deed of absolute sale. deed of conditional sale. 110 [A][3].. instrumentalities or agencies. and 2. MASACAYAN & THEENA C. that input taxes which are directly attributable to VAT taxable sales of goods and services from the Government or any of its political subdivisions. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit: provided.

A VAT invoice for every sale. KASALA. 112[A]. Q: May a taxpayer who has pending claims for VAT input credit or refund. barter or exchange of services. 29.R. VALCOS . barter or exchange of goods or properties. Aug. for both cases. which must be in writing. or royalties) Period to File Claim/Apply for Issuance of TCC Q: When must the options be availed of? A: The claim. DIVINE C. 125704. (Sec. Payment order showing payment of the advance VAT v. a claim of the taxpayer for VAT refund is still pending and the amount has still to be determined. LACSINA. and for every sale. 113[A]. (Ibid. To claim for tax credit. Refund of creditable input tax due or paid attributable to such sales. Aug. or To claim for refund. In the instant case. what must the VAT-registered entity prove? A: The taxpayer must prove the following: 1. (Philex Mining Corp. 1998) (2001 Bar Question) Transitional input tax Input tax on “deemed sale transaction” Input tax from payments made to non-residents (such as for services. SUBJECT HEAD: RODOLFO N. (Sec. must be filed within 2 years after the close of the taxable quarter when the sales were made apply for: 1. No. PRUDENCE ANGELITA A. 153204. ORTIZ & VANNESSA ROSE S. 2. A fortiori. whose sales are zero-rated or effectively zero-rated? A: 1. (Sec 112( D) NIRC) Q: For a claim for tax refund to prosper. Manila Mining Corporation. and 2. It must substantiate the input VAT paid by purchase invoices or official receipts (Commissioner v.R. A VAT official receipt for every lease of goods or properties. NIRC) Q: What are the information contained in the VAT invoice or VAT official receipts? 174 TAXATION LAW TEAM: ADVISER: ATTY. rentals. CIR. ASST. CHARLES L. SUBJECT HEADS: EDISON U. G. 2005). No. G.UST GOLDEN NOTES 2011 of VAT on the imported goods Inventory of goods as shown in a detailed list to be submitted to the BIR Required invoices Monthly Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing remittance of VAT due which was withheld by the payor. Refund shall be subject to post audit by COA.) Note: The creditable input tax allowed to be refunded does not include transitional input tax In case the taxpayer is engaged in zero-rated and also in taxable or exempt sale. GUTIERREZ. The issuance of a tax credit certificate. Liquidated debts are those where the exact amounts have already been determined. INVOICING REQUIREMENTS Invoicing requirements in general Q: What is required from VAT-registered person to issue? A: A VAT-registered person shall issue: 1. CLARABEL ANNE R. therefore. NIRC) Manner of Giving Refund Q: What is the manner of giving refund? A: Refund shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman of Commission on Audit (COA). Set-off is available only if both obligations are liquidated and demandable. and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions. MEMBERS: JOSE DUKE BAGULAYA. GRANTOZA. TEE. 2. 31. set off said claims against his other tax liabilities? Explain your answer. 2. it shall be allocated proportionately on the basis of the volume of sales Advance VAT on sugar REFUND OR TAX CREDIT OF EXCESS INPUT TAX Who may claim for refund/apply for issuance of tax credit certificate (TCC) Q: What are the options available to a VATregistered person. A: No.. ANG JR. KEITH S. CHRISTINE L. That it is a VAT-registered entity. the liquidated obligation of the taxpayer to the government cannot. HERNANDEZ. be set-off against the unliquidated claim which the Taxpayer conceived to exist in his favor.

in addition to the regular accounting records required. address and taxpayer identification number (TIN) of the purchaser. quantity. 3.600 12. Quezon City TIN:478-808-000VAT Description Pad Paper 100pcs/box Poultry Product Eggs per dozen Native products for export Qty. (Sec. 000 448. If the sale is subject to zero percent (0%) value-added tax. 113[C].NATIONAL INTERNAL REVENUE CODE OF 1997 A: Sample Receipt 1. 113[B]. payment of percentage tax if applicable. c. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided that: a. payment of VAT without input tax. exempt and zero-rated components. maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. d. properties or services some of which are subject to and some of which are VAT zerorated or VAT-exempt. The date of transaction. NIRC) ABC CORPORATION 40 Katipunan Ave. 50% surcharge on tax due. If the sale involves goods. if any. 000) or more where the sale or transfer is made to a VATregistered person. In case of non-VAT registered person who issues a VAT invoice/receipt shall be held liable to: a. NIRC) Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt Q: What are the consequences of issuing an erroneous VAT invoice/VAT official receipt? A: 1. 2009 Sold To: Tommy Corporation Address: 44 Torro St. The amount of the tax shall be shown as a separate item in the invoice or receipt. 000 Zero-rated Vatable sales--------------------------------------Vat exempt sale-----------------------------------Zero-rated sale------------------------------------Total Sales-----------------------------------------12% Vat--------------------------------------------Total TAXPAYER Payable ----------------------- 100. and zero-rated components of the sale. and In the case of sales in the amount of one thousand pesos (P1. TIN:456-378-112-037-000 April 20. ACADEMICS CHAIR: LESTER JAY ALAN E. 2. the name. unit cost and description of the goods or properties or nature of the service. and d. the purchaser shall be allowed to recognize an input tax credit provided that the invoice/official receipt contains the required information. the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt. If the sale is exempt from valueadded tax. 106 and 108 shall. b. business style. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MASACAYAN & THEENA C.000 563. c. 600 56 8. Quezon City VAT Reg. customer or client. the term "VAT-exempt sale" shall be written or printed prominently on the invoice or receipt. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. A statement that the seller is a VATregistered person. SABUGO & JOHN HENRY C. b. MARTINEZ SANTO TOMAS de Derecho Civil 175 . MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C.000 551. the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable. 40 Unit Cost 2.000 Transaction Type VATable VAT exempt Sale 120 30 3. exempt. 500 Total 100.600 Q: What are the accounting requirements for VAT registered persons? A: All persons subject to the VAT under Sec. Project 8.000 3. and the calculation of the value-added tax on each portion of the sale shall be shown on the invoice or receipt: "Provided. (Sec. 600 448. That the seller may issue separate invoices or receipts for the taxable. 4. and the taxpayer's identification number (TIN).

. ANG JR. shall file a return: 1. KEITH S. in lieu of the actual Input VAT directly attributable or ratably apportioned to such sales. and does not expect to recommence any trade or business within the next twelve (12) months. GRANTOZA.500. A: GR: Every person liable to pay the VAT shall file a quarterly return of the amount of his gross sales or receipts within 25 days following the close of each taxable quarter prescribed for each taxpayer. XPN: Any person. A: The Government or any of its political subdivisions. 114[A]. The cancellation of registration will be effective from the first day of the following month. CHARLES L. (Sec. and services subject to VAT. (Section 114(C). Q: When should VAT be paid? 176 TAXATION LAW TEAM: ADVISER: ATTY. if the aggregate amount of actual gross sales or receipts exceed P1. NIRC) Note: VAT-registered shall pay the VAT on a monthly basis. He makes written application and can demonstrate to the commissioner’s satisfaction that his gross sales or receipts for the following twelve (12) months. Filing of Return and Payment Q: Who are required to file a VAT return? A: 1.000) or b. a VAT –registered person may cancel his registration for VAT if: a. LACSINA. instrumentalities or agencies.5 million for any twelve month period A person required to register as VAT taxpayer but failed to register Any person who imports goods Professional practitioners 2. 16-2005) WITHHOLDING OF FINAL VAT ON SALES TO GOVERNMENT Q: State the rule regarding the withholding of Final VAT on sales to government. 2. Provided. ASST.5 million for a 12-month period (Revenue Regulation No. properties. Within 25 days from the date of cancellation of registration. including government owned or controlled corporations (GOCCs) shall. TEE. CHRISTINE L. instrumentalities or agencies including GOCCs. MEMBERS: JOSE DUKE BAGULAYA. CLARABEL ANNE R. Every person or entity who in the course of trade or business. HERNANDEZ. SUBJECT HEADS: EDISON U. He has ceased to carry on his trade or business. 113[D]. NIRC) Note: The five percent (5%) final VAT withholding rate shall represent the net VAT payable to the seller 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. DIVINE C. (Sec. 4.UST GOLDEN NOTES 2011 2. 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. Note: Under Section 236 of NIRC. Note: Services of Professional Practitioners are subject to: VAT if the gross professional fees exceed P1. NIRC) A: GR: VAT-registered persons shall pay the VAT on a monthly basis XPN: Persons whose registration has been cancelled in accordance with Section 236 who shall pay the tax due thereon within 25 days from the date of cancellation of registration. the excess may form part of the seller’s expense or cost If actual input VAT attributable to sale to government is less than 7% of gross payment. sells or leases goods. will not exceed one million five hundred thousand pesos (P1. PRUDENCE ANGELITA A. SUBJECT HEAD: RODOLFO N. ORTIZ & VANNESSA ROSE S. whose registration has been cancelled in accordance with Section 236. 3. other than those that are exempt under Section 109(A) to (U). Should actual input VAT attributable to sale to government exceed seven percent (7%) of gross payments. that only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches. KASALA. the difference must be closed to expense or cost. In case of VAT-registered who issues a VAT invoice/official receipt for a VATexempt sale without the words “VAT Exempt Sale” shall be held liable to pay 12% VAT. VALCOS . Q: State the rules regarding filing of return.or 3% percentage tax if the gross professional fees does not exceed P1. The monthly return shall be filed not later than the 20th day following the end of each month.5 million for a 12-month period. GUTIERREZ.

2.5 million or There are reasonable grounds to believe that his gross sales in the next 12 month shall exceed 1. places of production. place of business. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. warehouses or storage places. shall be paid upon registration and every year thereafter on or before the last day of January. NIRC) Q: What shall the registration contain? A: It shall contain the taxpayer’s name. Within 10 days from date of employment. and such other information as may be required by the Commissioner. NIRC) Q: Who are exempted from the annual registration fee? A: The Commissioner has the power to suspend the business of any person who fails to register. Cooperatives. 236. The Gross sale or gross receipts have exceeded 1. NIRC) Q: What shall be registered? A: He shall register each type of internal revenue tax for which he is obligated. services subject to VAT if: 1. 236 F1) Q: What is the penalty for failure to register? A: The following are exempted from payment of annual registration fee: 1. branch or facility? A: He shall register with the Revenue District Officer who has jurisdiction over the head office. (Sec. or exchanges goods or properties. SABUGO & JOHN HENRY C. including facility types where sales transactions occur. barter. 2. or declaration as required in the code. 236. statement. or 3. Q: Who is a VAT-registered person? A: Any person who has registered VAT as a tax type in accordance with Subsection C shall be referred to ACADEMICS CHAIR: LESTER JAY ALAN E. Before payment of any tax. file a return and pay such taxes. Q: Where shall he register? A: With the appropriate Revenue District Officer. branch or facility. Upon filing of a return. MASACAYAN & THEENA C. (Sec. 3. (Sec. Q: What is a facility? A: Facility may include but not limited to sale outlets. Individuals earning purely compensation income (locally or abroad). He shall also update the registration information with the Revenue District Office where he is registered. Overseas workers. Q: What shall the BIR do after the taxpayer registers? A: The BIR shall assign a Taxpayer Identification Number (TIN) which the taxpayer shall indicate in every return. Q: When shall he register? A: One shall register: 1. statement and document filed with the BIR. or 4. Q: What is required of a person who maintains a head office. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. (Sec. NIRC) Persons Required To Register For VAT Q: Who are the persons required to register for VAT? A: Every person who in the course of trade of business sells. specifying any changes in tax type and other details. 236B. or engages in the sale or exchange of goods. or 2. On or before commencement of business. (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 COMPLIANCE REQUIREMENTS Administrative Requirements Registration Requirements Q: How many times should a person subject to any internal tax revenue register? A: Once. 236B. 236C. NIRC) Q: How much is the annual registration fee? A: An annual registration fee in the amount of P500 for every separate or distinct establishment or place of business.5 million. MARTINEZ SANTO TOMAS de Derecho Civil 177 . FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Q: What is the General Rule in the Cancellation of Registration? A: The registration of any person who ceases to be liable to a tax type shall be cancelled upon filing with RDO an application for registration information update. style.

NIRC) Note: Under RR-16-05 1. 236 [F2]. except a franchise grantee. The VAT-registered person makes written application and demonstrates to the Commissioner’s satisfaction that his gross sales or receipts for the following 12 months. CHARLES L. Registration is irrevocable. NIRC) Q: How many years should the issuer and purchaser keep the receipts? 2. A: Q: Who may optionally register for VAT? A: Any person who is not required to register for VAT under Subsection G may elect to register for VAT by registering with the RDO that has jurisdiction over the head office of that person. 237. (Sec. 4. Any person who secures more than one TIN shall be criminally liable. 236 H) Q: What is the effect of a franchise grantee of radio and TV broadcasting. and paying the annual registration fee in Subsection B. 3. Q: What is required for the cancellation of VAT registration? A: 1. A change of ownership. SUBJECT HEAD: RODOLFO N. ANG JR. GUTIERREZ. 3. NIRC) Q: What are the other instances where a VATregistered person may apply for cancellation of registration? 1. 178 TAXATION LAW TEAM: ADVISER: ATTY. issue duly registered receipts or sales or commercial invoices. who opts for VAT registration? A: The registration becomes irrevocable. CLARABEL ANNE R. Q: When is the cancellation effective? A: It is effective from the first day of the following month. Registration is irrevocable for three years.UST GOLDEN NOTES 2011 as a VAT-registered person who shall be assigned only one TIN. 109-1 (VAT. SUBJECT HEADS: EDISON U. 236H. KEITH S. NIRC) Issuance of Reciepts of Sales or Commercial Invoices Q: When are receipts or Sales or Commercial Invoices issued? A: All persons subject to an internal revenue tax shall. ASST. KASALA. PRUDENCE ANGELITA A. with gross receipts of 10 million and below. other than those that are exempt under Section 109 1A to U. DIVINE C. but failed to actually start his business Q: What is the tax on persons who are exempt from VAT? A: Persons who are exempt from the payment of VAT and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts. TEE. 236[F2]. unit cost and description of merchandise or nature of service. Any person who is VAT-registered but enters into transaction which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transaction which would have been exempt under Section 109 (2) of the Tax Code. GRANTOZA. will not exceed P1. for each sale or transfer of merchandise or for services rendered valued at 25 pesos or more. (Sec. Supplying Taxpayer Identification Number (TIN) Q: How many TI numbers shall a tax payer must have? A: Only one TIN. VALCOS . HERNANDEZ.. (Sec.exempt transactions) may elect to be Vat-registered. 4. whose annual gross receipts for the preceding year do not exceed ten million. Franchise grantees of radio and television broadcasting with annual gross receipts of the preceding year do not exceed 10 million may opt for VAT registration. He has ceased to carry on his trade or business and does not expect to recommence any trade or business within the next 12 months. 2. in case of a single proprietorship Dissolution of a partnership or corporation Merger or consolidation with respect to the dissolved corporation A person who has registered prior to commencement of a planned business. (Sec. NIRC) Q: What is the effect of optional registration? A: He shall not be entitled to cancel his registration under Subsection F 2 for the next 3 years. 2. Any person who is VAT-exempt under Sec. (Sec. showing the date of transaction.5 million. LACSINA. MEMBERS: JOSE DUKE BAGULAYA. quantity. (Sec. 236 [I]. prepared at least in duplicate. except cooperatives shall not be held liable to pay for three percent (3%) gross receipts tax. CHRISTINE L. ORTIZ & VANNESSA ROSE S. who opts for VAT registration.

customer or client. payment of percentage tax if applicable. Q: What are the consequences of issuing an erroneous VAT invoice/VAT official receipt? A: 1. 113[C]. ACADEMICS CHAIR: LESTER JAY ALAN E. 50% surcharge on tax due. NIRC) d. the name. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided that: a. That the seller may issue separate invoices or receipts for the taxable. address and taxpayer identification number (TIN) of the purchaser. (Sec. the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable. 238. 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. and the taxpayer's identification number (TIN). exempt. and the calculation of the valueadded tax on each portion of the sale shall be shown on the invoice or receipt: "Provided. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. NIRC) Q: What are required in the printing of receipts? A: Receipts must be serially numbered and shall show the name. if any. 237. 000) or more where the sale or transfer is made to a VATregistered person. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. the term "VAT-exempt sale" shall be written or printed prominently on the invoice or receipt. quantity. b. A: They shall keep the receipts for a period of three years from the close of the taxable year in which such invoice was issued.NATIONAL INTERNAL REVENUE CODE OF 1997 If the sale involves goods. 238. TIN and the business address of the person. (Sec. b. c. properties or services some of which are subject to and some of which are VAT zero-rated or VATexempt. and zerorated components of the sale. A: All persons subject to the VAT under Sec. 1. and In the case of sales in the amount of one thousand pesos (P1. In case of VAT-registered who issues a VAT invoice/official receipt for a VAT-exempt sale without the words “VAT Exempt Sale” shall be held liable to pay 12% VAT. The amount of the tax shall be shown as a separate item in the invoice or receipt. NIRC) Q: What are the accounting requirements for VAT registered persons? 3. the purchaser shall be allowed to recognize an input tax credit provided that the invoice/official receipt contains the required information. 106 and 108 shall. 113[D]. NIRC) Q: Is there a need for an authority to print receipts from the BIR? A: Yes. (Sec. The date of transaction. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. business style. unit cost and description of the goods or properties or nature of the service. and d. In case of non-VAT registered person who issues a VAT invoice/receipt shall be held liable to: a. If the sale is subject to zero percent (0%) value-added tax. style. MASACAYAN & THEENA C. the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt. in addition to the regular accounting records required. (Sec. exempt and zerorated components. NIRC) Q: What are the information contained in the VAT invoice or VAT official receipts? A: 4. maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. c. (Sec. A statement that the seller is a VATregistered person. If the sale is exempt from value-added tax. SABUGO & JOHN HENRY C. payment of VAT without input tax. NIRC) 3. 113[B]. (Sec. 2. MARTINEZ SANTO TOMAS de Derecho Civil 179 .

HERNANDEZ. whichever is higher. No additional payment shall be required for the residue of the term of which the tax was paid. GUTIERREZ. NIRC) TAX RETURNS Income Tax Return Q: What is a tax return? 180 TAXATION LAW TEAM: ADVISER: ATTY. ii. ASST.. Individuals deriving non-business. KEITH S. NIRC) Removal of business to other location Q: Is the taxpayer required to pay another annual registration fee in case his business is transferred to another place? A: 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 prescribed by the Secretary of Finance and upon recommendation of the Commissioner. Peddlers are required to show the certificate upon demand. PRUDENCE ANGELITA A. LACSINA. concurrently or successively at anytime during the taxable year. Employees whose monthly gross compensation income does not exceed 5. the income tax rate. Individuals deriving compensation income from 2 or more employers. and the income tax still to be paid or refundable. transfer or change of name. (Sec. ANG JR. CLARABEL ANNE R.UST GOLDEN NOTES 2011 Exhibition Of Certificate Of Payment At Place Of Business Q: Is the certificate of payment required to be exhibited? A: Yes. Individuals receiving purely compensation income from a single employer. the income tax of which has not been withheld correctly resulting to collectible or refundable return. the income tax due. ORTIZ & VANNESSA ROSE S. Resident citizens receiving income from sources within or outside the Philippines i. KASALA. The certificate or receipts showing payment of taxes issued to a person engaged in a business subject to an annual registration fee shall be kept conspicuously exhibited in plain view in or at the place where the business is conducted. (Sec.000 or the statutory minimum wage. the allowable deduction including exemptions. Individual Tax Return Q: Who are required to file an Income Tax Return (ITR)? A: The following individuals are required to file an income tax return: a. whether from a single or several employers during the calendar year. SUBJECT HEADS: EDISON U. 241. VALCOS . NIRC) Q: In case of continuing the business of a deceased person. 242. the net taxable income. 243. (Sec. CHARLES L. (Sec. if any. SUBJECT HEAD: RODOLFO N. TEE. is there an additional fee to be paid? A: None. iii. iv. although the Continuation Of Business Of Deceased Person Q: What is required in cases of continuation of business of a diseased person or transfer of ownership or change of name of business establishment? A: The person interested in the estate should submit to the BIR inventories of goods and stocks had at the time of such death. Employees deriving compensation income regardless of the amount. the income tax withheld. 242. MEMBERS: JOSE DUKE BAGULAYA. nonprofessional related income in addition to compensation income not otherwise subject to a final tax. and opted for nonwithholding of tax on said income. v. NIRC) A: A tax return is a report made by the taxpayer to the BIR on all gross income received during the taxable year. GRANTOZA. CHRISTINE L. DIVINE C.

Q: Who are the individuals not required to file an ITR? A: 1. whether citizens. 9504. receiving income from sources within the Philippines. ACADEMICS CHAIR: LESTER JAY ALAN E. If it is impracticable to file one return. c. each spouse may file a separate return of income but the returns so filed shall be consolidated by the Bureau for purposes of verification for the taxable year. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. the return shall be filed with any authorized agent bank. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. the income tax on which has been correctly withheld. NIRC) XPNs: 1. An individual whose gross income does not exceed the total personal and additional exemptions. (Sec. 51 [D]. who do not derive income purely from compensation. NIRC) Q: Where to file the ITR? A: Except in cases where the Commissioner otherwise permits. 51 [E].November 15 4. d. minimum wage earners are granted full tax exemption from paying income tax. but whose spouse is not entitled to substituted filing. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 3. 4. (Sec. Revenue District Officer. false or fraudulent returns. Citizens working abroad receiving income from sources within the Philippines. An individual whose sole income has been subjected to final withholding tax. Third Quarter . Collection agent or duly authorized Treasurer of the municipality or city where such person has his legal residence or principal place of business or if there be no legal residence or principal place of business. Non-resident citizens receiving income from sources within the Philippines. whether resident or not. NIRC) Q: Who may file a return for the disabled taxpayer? A: If the taxpayer is unable to make his own return. MASACAYAN & THEENA C. From the sale or exchange of shares of stock not traded thru a local stock exchange as prescribed under Section 24 (C) shall file a return 2.51. (Sec. when the donor’s tax has been paid on such property or when the transfer of such property is exempt from donor’s tax. individuals who are self-employed or in practice of a profession are required to file and pay estimated income tax every quarter as follows: 1. Final Quarter . or non-resident aliens. Aliens. Under R. MARTINEZ SANTO TOMAS de Derecho Civil 181 . Q: What is the rule on married individuals’ tax return? A: Married individuals. (Sec. resident. the return may be made by his duly authorized agent or representative or by the guardian or other person charged with the care of his person or property. with the Philippine Embassy or nearest Philippine Consulate or mailed directly to CIR.April 15 2. First Quarter . 2. Second Quarter .A. (Sec. An individual with respect o pure compensation derived from sources within the Philippines.NATIONAL INTERNAL REVENUE CODE OF 1997 income of which has been correctly withheld. NIRC) Q: What is the rule on income of unmarried minors / children? A: GR: The income of unmarried minors derived from property received from a living parent shall be included in the return of the parent.51 [B]. shall file a return for the taxable year to include the income of both spouses. Note: Individuals not required to file an income tax return may nevertheless be required to file an information return. NIRC) Q: When to file the ITR? A: The return of any individual required to file the same shall be filled on or before April 15th day of each year covering income for the preceding taxable year.August 15 3. the principal and the representative or guardian assuming the responsibility of making the return and incurring penalties provided for erroneous. 51[F]. However. b. SABUGO & JOHN HENRY C. For nonresident citizens. A minimum wage earner or who are exempt from income tax.April 15 of the following year Q: When do individuals subject to capital gains tax file a tax return? A: 1. with the Office of the Commissioner.

provided. the penalty of fine of not less than P50. vice-president or other principal officer. the inspection is authorized under Finance Regulation No.UST GOLDEN NOTES 2011 within 30 days after each transaction and a final consolidated return on or before April 15 of each year covering all stock transactions of the preceding taxable year. Q: What is substituted filing? A: It is when the employer‘s annual return may be considered as the ―substitute Income Tax Return (ITR) of an employee inasmuch as the information provided in his income tax return would exactly be the same information contained in the employer‘s annual return. and shall be sworn to by such officer and by the treasurer or assistant treasurer. 3. 4. the production or inspection thereof is authorized by the taxpayer himself. CLARABEL ANNE R. 33 of the Secretary of Finance. MEMBERS: JOSE DUKE BAGULAYA. within 30 days following each sale or other disposition. 51 [C][2]. (Sec. SUBJECT HEADS: EDISON U. NIRC) A: 1. ORTIZ & VANNESSA ROSE S. 3-2002) 2. a true and accurate quarterly income tax return and final or adjustment return. 2. and From the sale or disposition of real property under Section 24 (D) shall file a return. KEITH S. TEE. He receives the income only from one employer. NIRC) Q: What are the requirements for corporations in filing their returns? A: Every corporation subject to the tax under the code. the inspection of the return is authorized upon the written order of the President of the Philippines. 71 of the NIRC provides that the tax returns shall constitute public records. 52. NIRC) Q: What shall be the accounting period that a corporation may employ as its basis for filing its annual income tax return? A: A corporation may employ either a calendar year or fiscal year. GUTIERREZ. ANG JR. except foreign corporation not engaged in trade or business. SUBJECT HEAD: RODOLFO N. the production of the tax return is a material evidence in a criminal case where the Government is interested in the result. during the taxable year. 52. HERNANDEZ. 52 [B]) Q: What is the rule on the declaration of quarterly corporate income tax? A: Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax shall be levied. collected and paid. LACSINA. KASALA. DIVINE C. PRUDENCE ANGELITA A. ASST. (Sec. VALCOS . XPN: Foreign corporations not engaged in trade or business in the Philippines (Sec. Corporate Returns Q: Who are required to file a Corporate Tax Return? A: GR: Every corporation subject to tax under the NIRC shall file a corporate tax return. regardless of amount. Note: For conviction of each act or omission. 270 of the NIRC.. 2. induplicate. it is necessary to know that these are confidential in nature and may not be inquired into in unauthorized cases under the pain of penalty provided for in Sec. Employee receives purely compensation income.000 but not more than P100. 3. (RR No. (Sec. CHRISTINE L. shall render. CHARLES L. 4. that the corporation may not change the accounting period employed without prior approval from the Commissioner in accordance with the provisions os Section 47 of the NIRC. The returns shall be filed by the president.000 or imprisonment of not less than 2 years but not more than 5 years. Employer filed information return showing the income tax withheld on employees compensation income. Q: What are the conditions for the substitute filing of ITR? 182 TAXATION LAW TEAM: ADVISER: ATTY. Q: What is the confidentiality rule with respect to tax returns filed with the BIR? A: This means that although Sec. Income tax withheld is equal to income tax due. GRANTOZA. The tax so computed shall be decreased by the amount Q: What are the instances wherein inquiry into the income tax returns of taxpayers may be authorized? A: Inquiry into the ITR of taxpayers may be had when: 1.

subject to the provisions of Section 56 of the NIRC. (Sec. or on or before the 15th day of the fourth month following the close of the fiscal year. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. in meritorious cases. whether calendar or fiscal year.over exclusive? A: Yes. or for its reorganization. grant a reasonable extension of time for filing returns of income (or final and adjustment returns in case of corporations). Q: What is the rule as regards the declaration by a corporation of its income adopting a final adjustment return? A: Every corporation liable to tax under Section 27 shall file a final adjustment return covering the taxable income for the preceding calendar or fiscal year. (Sec. The quarterly tax payments are in the nature of advances or portions of the annual income tax due. the corporation shall file a return 30 days after each transaction and a final consolidated return of all transactions during the taxable year on or before the 15th day of the 4th month following the close of the taxable year. (Sec. MARTINEZ SANTO TOMAS de Derecho Civil 183 . such option shall be considered irrevocable for the taxable period and no application for cash refund or issuance of tax credit certificate shall be allowed. Pay the balance of tax still due. NIRC) Q: What is the Final Adjustment Return? A: It is a return that covers the total taxable income of a corporation for the preceding calendar or fiscal year. NIRC) Q: Is an extension of time allowed in the filing of return? A: Yes. (Sec. within 30 days after the adoption by the corporation of a resolution or plan for its dissolution.NATIONAL INTERNAL REVENUE CODE OF 1997 of tax previously paid or assessed during the preceding quarters and shall be paid not later than 60 days from the close of each of the 3 quarters of the taxable year. NIRC) Q: What is the importance of the Final Adjustment Return to the refund of erroneously paid taxes? A: The two year period shall be computed from the time of filing the adjustment return or annual income tax return and final payment of income tax. shall render a correct return to the ACADEMICS CHAIR: LESTER JAY ALAN E. as the case may be. or 2. NIRC) For return on capital gains realized from sale of shares of stocks not traded in the local stock exchange. 77[A]. June 8. (Sec. 3. as the case may be. or for the liquidation of the whole or any part of its capital stock. 2007) Q: When does a corporation file the income tax return? A: The corporate quarterly declaration shall be filed within sixty days (60) following the close of each of the first three quarters of the taxable year. They have to be adjusted at the end of the calendar or fiscal year through the Final Adjustment return. 75. SABUGO & JOHN HENRY C. Be credited or refunded with the excess amount paid. 76. may. (Sec. (Atlas Consolidated v. (Sec. 76. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. NIRC) Q: Is the option of carry. 52[D]. MASACAYAN & THEENA C. CIR. Q: What are the options of the corporation if the sum of the quarterly tax payments made during the taxable year is not equal to the total tax due on the entire taxable year? A: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. (Sec. The Commissioner. NIRC) Note: In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable quarters has been made. including a corporation which has been notified of possible involuntary dissolution by the SEC. NIRC) The final adjustment return shall be filed on or before the 15th day of April. 76. the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. NIRC) Q: What is required from a Corporation Contemplating Dissolution or Reorganization as regards the filing of return? A: Every corporation shall.53. Carry-over the excess credit. NIRC) Q: Where does a corporation file the tax returns? A: The quarterly income tax return and final adjustment return shall be filed with the authorized agent banks or Revenue District Officer or Collection agent or duly authorized treasurer of the city or municipality having jurisdiction over the location of the principal office of the corporation filing the return or place where its main books of accounts and other data from which the return is prepared are kept. 77[B]. 77[B]. (Sec.

secure a certificate of tax clearance from the BIR which shall be submitted to the SEC. TEE. shall be a sufficient compliance with the requirements of Sec. VALCOS . Furthermore. The individual partner is taxable on his distributive share of the net income of the partnership. (Sec. Even though exempt.000 pesos or over during the taxable year.UST GOLDEN NOTES 2011 Commissioner. 66. prescribe. estate has a gross income of 20. Even if exempt from tax. trust or estate for whom or which they act. if gross value of estate exceeds P20. administrators and other fiduciaries are indemnified against the claims or demands of every beneficiary for all payments of taxes which they shall be required to pay. NIRC) Q: What is the rule on returns of receivers. receivers.90. (Sec. (Sec. executors. 2 as amended). conservators and all persons or corporations. except income exempt under Section 32 B. 54. trustees in bankruptcy or assignees? A: In cases wherein receivers. NIRC) Q: When is an Estate Tax Return required? Q: What are the rules governing Fiduciary Returns? A: Guardians. No. NIRC) Q: Who shall file the notice of death? A: Notice of death must be filed by the executor. In all cases of transfers subject to tax. trust. a return of the income of the person. verified under oath. CLARABEL ANNE R. and the names. 65. shall render. GRANTOZA. and are required to include such distributive shares in their individual returns (Sec. in duplicate. 22. NIRC) Q: To whom shall the notice be filed? A: The notice shall be filed with the Commissioner. DIVINE C. (Sec. 52[C]. 89. NIRC) Note: The dissolving or reorganizing corporation. ASST. administrators.000. 52[C]. in case such person. or 2. and subject to the provisions applicable to individual taxpayers under Title II of the NIRC. KASALA. GUTIERREZ. (Sec. NIRC) Note: A GPP is not subject to income tax. setting forth the terms of such resolution or plan and such other information as the Secretary of Finance. ORTIZ & VANNESSA ROSE S. TIN. executors. Regs. PRUDENCE ANGELITA A. whether distributed or not. in duplicate. Estate Tax Return Q: When is a notice of death required to be filed? A: A notice of death is required to be filed: 1. LACSINA. ANG JR. Note: The return made by or for one or two or more joint fiduciaries filed in the province where such fiduciaries reside. SUBJECT HEAD: RODOLFO N. NIRC) Q: What is the rule on the returns of General Professional Partnership? A: Every general professional partnership shall file. addresses and shares of each of the partners. 2. 55. NIRC) 184 TAXATION LAW TEAM: ADVISER: ATTY. CHARLES L. MEMBERS: JOSE DUKE BAGULAYA. NIRC. NIRC) Q: When must the notice of death be filed? A: It shall be filed within two (2) months after decedent’s death or within the same period after qualifying as such executor or administrator. trustees. to the best of his knowledge and belief. administrator or any of the legal heirs. a return of its income. CHRISTINE L.000. (Sec. shall by rules and regulations. where gross value of estate exceeds P200. SUBJECT HEADS: EDISON U.. KEITH S. trustees. in the same manner and form as such organization is hereinbefore required to make returns.(Sec. 3. 89. and they shall have credit for the amount of such payments against the beneficiary or principal in any accounting which they make as such trustees or other fiduciaries. acting in any fiduciary capacity. they shall make returns of net income as and for such corporation. Any tax due on the income as returned by receivers. as the case may be. regardless of amount. 89. trustees or assignees are operating the property or business of a corporation. In all cases of transfers subject to tax. (Sec. (Sec. setting forth the items of gross income and of deductions allowed by this title. 89. shall take oath that he has sufficient knowledge of the affairs of such person. 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. (Sec. upon recommendation of the Commissioner. shall prior to the issuance by the SEC of the certificate of dissolution or Reorganization. A: An estate tax return is required: 1. When the gross estate consists of registered or registrable property. true and correct. NIRC) Such fiduciary or person filing the return for him or it. HERNANDEZ. but it is required to file a return of its income for the purpose of furnishing information as to the share in the gains or profits which each partner shall include in his individual return. trust or estate to enable him to make such return and that the same is.

Q: When must this return be filed? A: The return must be filed within six (6) months from the decedent's death. Any other place where the CIR permits the estate tax return to be filed VAT Return Q: What is the rule governing the filing of a VAT return? A: Every person liable to pay VAT shall file a quarterly return of the amount of his gross sales or receipts within 25 days following the close of each taxable quarter. (Sec. or any of the legal heirs of the decedent. unless the donation is specifically exempted under NIRC or other special laws. whether resident or non-resident of the Philippines 2. Philippine Embassy or Consulate in the country where decedent is residing at the time of his/her death iv. or iv. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. or duly authorized treasurer of the City or municipality where the donor was domiciled at the time of the transfer. not more than 30% of which will be used for administration purposes. Duly authorized Treasurer of the city or municipality in which the decedent was domiciled at the time of his death. or administrator. shall file a return and pay the tax due within 25 days from the date of cancellation of registration. RCO. that only one consolidated return shall be filed by the taxpayer for his principal place of business or head and all his branches. Donation to NGO worth at least P50. shares of stocks and other similar properties are considered registered or registrable property. political party. Revenue District Officer or iii.NATIONAL INTERNAL REVENUE CODE OF 1997 Note: Real property. MASACAYAN & THEENA C. Authorized Agent Bank (AAB) or ii. motor vehicle. (Sec. NIRC) Note: Extension of time for the filing of the return. 2. NIRC) XPN: 1. 90 [B]). NIRC) Q: Where must the return be filed? A: If it is a Resident Decedent – i. NIRC) If it is a Non-Resident Decedent – i. whose registration has been cancelled. ACADEMICS CHAIR: LESTER JAY ALAN E. NIRC) Q: When must this return be filed? A: Any person making a donation shall file a return within 30 days after the date the gift is made.103 [A]. MARTINEZ SANTO TOMAS de Derecho Civil 185 . If there is no legal residence in the Philippines. Any other place where the CIR permits the estate tax return to be filed (Sec. The executor. (Sec. SABUGO & JOHN HENRY C. Collection Officer. Q: Who shall file the Estate Tax Return? A: The return shall be filed by: 1. 3. with the office of the Commissioner. (Sec. a VAT-registered person shall pay the VAT on a monthly basis. NIRC) Q: Where to file the return? A: The return must be filed with: 1. For gifts made by non-residents. AAB. 114[A]. NIRC) Q: Where must the return be filed? Donor’s Tax Return Q: Is a notice of donation required? A: GR: Notice of donation is not required.103 [B]. or iii. Provided. 000 Provided. Donation to any candidate. The period of extension is limited to a period not exceeding thirty (30) days. 90 [C]). Revenue District Officer (RDO). However. on meritorious cases. Office of the CIR ii. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec.103 [B]. any person in actual or constructive possession of any property of the decedent. RDO. 2. Any person. may be allowed by the Commissioner. 90 [D]. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. (Sec. or coalition of parties Q: Who shall file the notice of donation? A: Any person making a donation shall file such notice. with the Phil embassy or Consulate in the country where he is domiciled at the time of the transfer or directly with the office of the Commissioner.

SUBJECT HEAD: RODOLFO N. (Sec. while the return for creditable withholding taxes shall be filed and payment made not later than the last day of the month following the close of the quarter during which the withholding was made. CHRISTINE L. an authorized agent bank. he shall be entitles to a refund of such tax upon verification of his compliance with the requirements for such exemption. that the Commissioner. ANG JR.49 of the NIRC. the tax due on the gains realized from the original transaction shall immediately become due and payable. or where the withholding agent is a corporation. NIRC) XPN: When the tax due is in excess of Two Thousand Pesos (P2. SUBJECT HEADS: EDISON U. DIVINE C.000. ASST. In case of tramp vessels. NIRC) Note: The taxes deducted and withheld by the withholding agent shall be held as special fund in trust for the government until paid to the collecting officers. NIRC) Withholding Tax Return Q: What is the rule as regards the filing of Withholding Tax Return? A: Taxes deducted and withheld under Sec. VALCOS . if any. (Sec. In case the taxpayer elects and is qualified to report the gin by installments under Sec.56 [A] [3]. MEMBERS: JOSE DUKE BAGULAYA. that if the seller submits proof of his intention to avail himself of the benefit of exemption of capital gains under existing special laws. has been paid. the tax due from each installment shall be paid within 30 days from receipt of such payments. KEITH S.58[B]. Provided. with the approval of the Secretary of Finance. together with the delinquency penalties. 56 [A][2]. the captains thereof are to file a return and pay the tax 186 TAXATION LAW TEAM: ADVISER: ATTY. NIRC) Note: 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 taxpayer other than a corporation may elect to pay in two (2) equal installments in which case: a.24[C]. In case of failure to qualify for exemption. and in their absence. the return shall be filed with the authorized agent bank. on or before July 15 following the close of the calendar year. revenue district officer. 27[E][2]. ORTIZ & VANNESSA ROSE S. GRANTOZA. Upon failure to file the return and pay the tax due. TEE. If the seller. except in cases where the Commissioner otherwise permits. Provided. no such payment shall be required. GUTIERREZ. the Bureau of Customs is 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. (Sec. LACSINA.56 [A] [3].UST GOLDEN NOTES 2011 A: Except as the Commissioner otherwise permits. the shipping agents and/or the husbanding agents. CHARLES L. 28[A][8][c].58. HERNANDEZ. revenue collection officer or duly authorized city or municipal treasurer in the Philippines located within the revenue district where the taxpayer is registered or required to register. (Sec. where the principal office is located. (Sec. NIRC) due thereon before their departure. The return for final withholding tax shall be filed and the payment made within 25 days from the close of each calendar quarter. (Sec. CLARABEL ANNE R. the second installment.57 by withholding agents shall be covered by a return and paid to. 114 [B]. NIRC) PAYMENT OF TAXES Income Tax Q: What is the manner of paying income tax? A: GR: Pay-as-you-file system. NIRC) Q: What is the rule as regards the payment of capital gains tax? A: The total amount of tax imposed and prescribed under Sec. the whole amount of the tax unpaid becomes due and payable. and subject to the penalties prescribed under the rules and the NIRC. and 28[B][5][c] shall be paid on the date the return is filed. Note: It is a system where the income tax shown on the return should be paid at the time the return is filed.00). having paid the tax. KASALA. collection agent or duly authorized treasurer of the city or municipality where the withholding agent has his legal residence or place of business. (Sec. submits such proof of intent within 6 months from the registration of the document transferring the real property. If any installment is not paid on or before the date fixed for its payment.. 24[D]. may require these withholding agents to pay or deposit the taxes deducted or withheld at more frequent intervals when necessary to protect the interest of the government. 56 [A][1]. and the tax imposed. the first installment shall be paid at the time the return is filed and b. PRUDENCE ANGELITA A.

(Sec. If there has been a Return filed . MARTINEZ SANTO TOMAS de Derecho Civil 187 . If Return has not been filed . the estate may be allowed to pay the tax by installment and a clearance shall be released only with respect to the property. the corresponding/computed tax on which has been paid. (Sec. shall in no case exceed the value of his share in the inheritance. But the heir or beneficiary has subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the total net estate. In case the available cash of the estate is not sufficient to pay its total estate tax liability. (Sec.within one (1) year after the making of such application ACADEMICS CHAIR: LESTER JAY ALAN E.91[C]. In case of judicial settlement of estate – not exceeding five (5) years 2. will serve as the authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary.91[B]. who shall pay the estate tax. An extension for the payment of the estate tax may be granted by the Commissioner on meritorious cases. Q: May the period of payment of estate tax be extended? A: Yes. The CIR may require a bond not exceeding double the amount of the tax and with such sureties as the CIR deems necessary when the extension of payment is granted. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. NIRC) Any amount paid after the statutory due date of the tax. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. File a written application to the Commissioner for the determination of the amount of the estate tax and further stating his desire to be absolved or to be discharged from the liability.91 [B]. NIRC ) Q: What are the effects of granting an extension of time to pay estate taxes? A: 1. The Commissioner must executor or administrator – notify the 2. A: Yes. Q: When does a corporation pay the income tax? A: The income tax due on the corporate quarterly returns and the final adjustment return shall be paid at the time the declaration or return is filed in a manner prescribed by the Commissioner. intentional disregard of rules and regulations or fraud. 2. In case of extra – judicial settlement of estate – not exceeding two (2) years (Sec. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. as the case may be.77[C]. of his distributive share of the estate. The primary obligation to pay the estate tax falls upon the executor or administrator of an estate. Q: What is the period of extension? A: 1. NIRC ) Note: There can be no extension of the period of payment if there is negligence. but within the extension period. The extent of his liability. he must: 1. NIRC) Q: When is the Estate Tax paid? A: At the time the return is filed and before delivery to any heir or beneficiary. Q: May estate taxes be paid in installment? Estate Tax Q: Who shall pay the estate tax due? A: It is the executor.within one (1) year after the return is filed b. administrator or any of the legal heirs. NIRC) Note: The estate tax clearance issued by the Commissioner or the Revenue District Officer (RDO) having jurisdiction over the estate. shall be subject to interest but not to surcharge. 89. a. Q: Who are the persons liable for the payment of estate tax? A: Where there are two or more executors or administrators. Q: What are the rules governing the discharge of executors’ and administrators’ personal liability? A: If one wants to be relieved from his liability as an executor or administrator. NIRC) Note: Philippines implement the “Pay as you file” system. all of them are severally liable for the payment of the tax. (Sec. MASACAYAN & THEENA C.NATIONAL INTERNAL REVENUE CODE OF 1997 3. SABUGO & JOHN HENRY C.91 [A]. (Sec. however. The amount 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 of such extension.

business. upon payment of the amount of which he is notified. CHARLES L. sociedad anonima. unless a certification from the Commissioner that the taxes fixed in this Title and due thereon have been paid is shown. (Sec. SUBJECT HEAD: RODOLFO N. 95. legacy or inheritance. (Sec. administrator or any of the heirs upon his return. sociedad anonima. refunded or otherwise repaid in respect of such tax. Q: May there be delivery of distributable share even before payment of estate tax? A: No. legacy or inheritance. Before a debtor of the deceased pay his debts to the heirs. NIRC) 5. by reason of his official duties. 95. 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. Q: What is meant by deficiency assessment? A: The term deficiency means – 1. legatee. but such amounts previously assessed or collected without assessment shall first be decreased by the amounts previously abated. KASALA.92. by reason of his official duties.. 95.UST GOLDEN NOTES 2011 But not after the expiration of the period prescribed for the assessment of the tax in Section 203. ANG JR. When a notary public. or jointly with another. legacy or inheritance. one files a return and pay the tax but the tax paid is less than the amount of tax due. LACSINA. (Sec. Before a transfer to any new owner in the books of any corporation. 94. NIRC) 6. or 2. NIRC) Note: Deficiency occurs when. 3. VALCOS . bond or right by way of gift inter vivos or mortis causa. business. (Sec. 2. DIVINE C. 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. or if no return is made by the executor. which has knowledge of the death of a person who maintained a bank deposit account alone. When a government officer. 97. NIRC) 188 TAXATION LAW TEAM: ADVISER: ATTY. KEITH S. by reason of his official duties. ORTIZ & VANNESSA ROSE S. (Sec. SUBJECT HEADS: EDISON U. obligation. legacy or inheritance. Before a bank. legacy or inheritance. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa. or if a return is filed but the taxpayer did not pay the tax. Under the Tax Code. refunded or otherwise repaid in respect of such tax. but the amounts 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 amount previously abated. or industry organized or established in the Philippines any share. or industry organized or established in the Philippines any share. obligation. GRANTOZA. partnership. When a lawyer. NIRC) Q: What are the instances where a Certificate of Payment from the Commissioner is required? A: The following are instances when a Certificate of Payment of Tax from the Commissioner is required: 1. TEE. CHRISTINE L. MEMBERS: JOSE DUKE BAGULAYA. or when one did not file the return nor paid the tax. HERNANDEZ. NIRC) 4. (Sec. CLARABEL ANNE R. ASST. administrator. administrator or any of the heirs upon his return. partnership. The executor or administrator. If no amount is shown as the tax by the executor. (Sec. 95. The amount by which the tax imposed by this Chapter exceeds the amount shown as the tax by the executor. by way of gifts inter vivos or mortis causa. Before a judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate. legacy or inheritance. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa. shall allow any withdrawal Note: The one year period shall be counted from the filing of the written application. NIRC) Note: There shall not be transferred to any new owner in the books of any corporation. NIRC) 3.93. GUTIERREZ. 95. or any heir. 8. (Sec. then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a deficiency. (Sec. NIRC) 7. Before the Register of Deeds shall register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage. bond or right by way of gift inter vivos or mortis causa. executor or administrator of his creditor. PRUDENCE ANGELITA A.

Q: What is the time of payment of donor’s tax? A: Donor’s tax is paid at the time the return is filed since the Philippine Tax system observes the “Pay as you file” system. TAX REMEDIES UNDER THE NIRC 1. Provided. that only one consolidated return shall be filed by the taxpayer for his principal place of business or head and all his branches. MASACAYAN & THEENA C. 2. 114 [C]. 5. If there is no legal residence in the Philippines. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 2.101 [B]. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. with the Phil embassy or Consulate in the country where he is domiciled at the time of the transfer or directly with the office of the Commissioner. Resident Citizen (Sec. including GOCCs shall. 3.101 [B]. Authorized agent bank. instrumentalities or agencies.101 [A]. NIRC) Resident Alien (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 from the said deposit account. and the persons interested shall have satisfied them by order of the court. the tax shall be paid to the authorized agent bank. NIRC) Q: Where must the return be filed? A: Except as the Commissioner otherwise permits. that the payment foe lease or use of properties or property rights to non – resident owners shall be subject to 12% withholding tax at the time of payment. NIRC) Domestic Alien (Sec. NIRC) Value Added Tax Q: How is VAT paid? A: Every person liable to pay VAT. 114 [C]. (Sec. a VAT-registered person shall pay the VAT on a monthly basis. The payor or person in control of the payment shall be considered as the withholding agent. as amended by RMC 7-2006) The VAT withheld shall be remitted within 10 days following the end of the month the withholding was made. NIRC) Q: What is the rule as regards the return covering withholding of VAT? A: The government or any of its political subdivisions. before making payment on account of each purchase of goods and services which are subject of VAT in Sections 106 and 108. revenue collection officer or duly authorized city or municipal treasurer in the Philippines located within the revenue district where the taxpayer is registered or required to register. 6. (Sec. Taxpayer’s Remedies Government Remedies ACADEMICS CHAIR: LESTER JAY ALAN E. new obligations of the decedent shall appear. 3. 2. Donor’s Tax Q: Who are required to pay donor’s tax? A: 1. they shall have a right to the restitution of the proportional part of the tax paid. For gifts made by non-residents. 4. NIRC) Foreign Corporation (Sec. upon filing a quarterly return of the amount of his gross sales or receipts within 25 days following the close of each taxable quarter. shall pay the same. SABUGO & JOHN HENRY C. However. NIRC) Q: What is the rule on restitution of tax upon satisfaction of outstanding obligations? A: If after the payment of the estate tax. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. whose registration has been cancelled. Provided. NIRC) Domestic Corporation (Sec. with the office of the Commissioner. NIRC and Sec. deduct and withhold the VAT due at the rate of 5% of the gross payment thereof. NIRC.86 [A]. shall file a return and pay the tax due within 25 days from the date of cancellation of registration. Revenue Collection Officer.101 [A]. Revenue district officer. NIRC) Note: Domestic and foreign corporation are subject only to donor’s tax and not to estate tax because it is not capable of death but may enter into contract of donation. MARTINEZ SANTO TOMAS de Derecho Civil 189 . 114 [B]. or duly authorized treasurer of the City or municipality where the donor was domiciled at the time of the transfer. (Sec.101 [A]. 97. 114[A]. Any person. NIRC and PD 1457) Non-Resident Corporation (Sec. (Sec. (Sec. Q: Where is the donor’s tax paid? A: Donor’s tax is paid with the– 1.101 [B].

Administrative a. In the establishment of tax liens.” (Sec. CLARABEL ANNE R. Request for reconsideration ii. “No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue. 2. Q: What is the importance of a tax assessment? A: TO THE GOVERNMENT 1. In estimating the revenues that may be collected by the government. HERNANDEZ. PRUDENCE ANGELITA A. 219. Q: State the “No injunction to restrain tax collection rule. Substantive a. Refund of internal revenue taxes 4. Dispute Assessment (Protest) i. ANG JR. ASST.” A: GR: Under this rule. Must be informed of the legal and factual bases of assessment d. a government can neither exist nor endure. SUBJECT HEAD: RODOLFO N. In this instance. R. It also signals the time when penalties and interests begin to accrue. Civil b. the court may require the taxpayer either to deposit the amount claimed or file a surety bond for not more than double the amount with the court.They are safeguards of the taxpayer’s rights against arbitrary action. fee or charge. without taxation.A. Criminal 3. KASALA. To inform the taxpayer of his liabilities. interests or surcharges. and 4. Q: What are the subjects of tax remedies in internal revenue taxation? A: They include the action of the BIR where there may be controversy between the taxpayer and the State such as: 1. KEITH S. Claim for Tax Refund 2. 3. To determine prescription of government claim.UST GOLDEN NOTES 2011 Taxpayer’s Remedies Q: What are the remedies available to the taxpayer? A: 1. SUBJECT HEADS: EDISON U. 8424) XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its opinion the same may jeopardize the interest of the government and/or the taxpayer. Preservation of books of accounts and examination once a year Q: What is the importance of tax remedies? A: 1. tax. 2. DIVINE C. TO THE TAXPAYER 1. penalties.For the regular collection of revenue necessary for the existence of the government.. Before payment of taxes: a. promulgation and/or enforcement of administrative rules and regulations for the effective and efficient enforcement of internal revenue laws 5. CHARLES L. To the taxpayer . CHRISTINE L. such as the imposition of surcharges and interests. Collection of internal revenue taxes 3. 2. It is a finding by the taxing agency that the taxpayer has not paid his correct taxes. In the application of the Statute of Limitations. Request for reinvestigation b. After payment of taxes: a. In the proper pursuit of judicial and extrajudicial remedies to enforce taxpayer liabilities and certain matters that relate to it. Imposition of administrative or civil fines. To the government . 3. To determine the period within which to protest. (RA 1125 as amended by RA 9282) Note: The Lifeblood doctrine requires that the collection of taxes cannot be enjoined. Note: A notice of assessment contains not only a computation of tax liabilities but also a demand for the payment within a prescribed period. Assessment Q: What is a notice of assessment? A: It is a written notice to a taxpayer to the effect that the amount stated therein is due as tax and containing a demand for the payment. Entering a compromise agreement b. LACSINA. Assessment of internal revenue taxes 2. Non-retroactivity of rulings c. Prosecution of criminal violations of internal revenue laws. ORTIZ & VANNESSA ROSE S. Question validity of tax statute/ regulation b. MEMBERS: JOSE DUKE BAGULAYA. GRANTOZA. TEE. GUTIERREZ. Q: What is the nature of an assessment? 190 TAXATION LAW TEAM: ADVISER: ATTY. Judicial a. VALCOS .

v. 56. NIRC) 2. Tax lien (Sec. MARTINEZ SANTO TOMAS de Derecho Civil 191 . Otherwise. Improperly Accumulated Earnings Tax (Sec. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Nov. MASACAYAN & THEENA C. the finding of the CIR will be conclusive and the CIR will assess the taxpayer. 28. Such methods as in the opinion of the BIR Commissioner clearly reflect the income (1969 Bar Question) Q: A Co.NATIONAL INTERNAL REVENUE CODE OF 1997 A: It is merely a notice to the effect that the amount stated therein is due as tax and containing a demand for the payment. d. even if the CIR is wrong. Surveillance and assessment method 8.000 and the taxpayer is not a corporation. Net worth method 2. 228. not the assessment itself. NIRC) 2. If the taxpayer does not controvert. GR L-23226. 1967) Q: Who has the burden of proof in pre-assessment proceedings? A: The burden of proof is on the taxpayer for there is a presumption of correctness on the part of the CIR. 2. First installment is when the return is filed and the second installment is on or before July 15 following the close of the calendar year. and 3. SABUGO & JOHN HENRY C. Must be DIrected to the right party. (Sec. NIRC) Constructive Method of Income Determination Q: If the taxpayer’s record or methods of accounting are not reflective of his true income. Percentage method 4. a DC. The BIR suspects that some of the suppliers are not properly reporting their income on their sales to A Co. for such power is discretionary. Third party information or access to records method 7. Bank deposit method 5. 52 [c]. Be in writing and signed by the BIR.. Dissolving corporation (Sec. he may elect to pay the tax in two equal installments. What may be the subject of a judicial review is the decision of the CIR on the protest against the assessment. In case of deficiency tax liability arising from a tax audit conducted by the BIR (Sec. 56 [B]. Co. The authority vested in the Commissioner to assess taxes may be Delegated Q: Is the assessment made by the CIR subject to judicial review? A: No. NIRC) 3. Contain the law and the facts on which the assessment is made. b. Pay-as-you-file system – Income for individuals and corporation shall be paid by the person subject thereto at the time the return is filed. 2. Contain a demand for payment within the prescribed period. (Sec. (Alhambra Cigar Mfg. 56 A [2]. (Sec. The CIR therefore: 1) Issued an access ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. NIRC) Concept of Assessment Requisites for Valid Assessment Q: What are the requisites for a valid assessment? A: The assessment must: 1. Unit and value method 6. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Discretionary on the part of the Commissioner. 219. Cash expenditure method 3. is a big manufacturer of consumer goods and has several suppliers of raw materials. (estimates can also be a basis given that it is not arrived at arbitrarily or capriciously) c. NIRC) 5. what methods may be utilized by the CIR to determine the correct taxable income of the taxpayer? A: NCPBUTTS 1. Prima facie presumed correct and made in good faith. 6 [D]. XPNs: 1. NIRC) 4. CIR. Q: Are taxes self-assessing? A: GR: Taxes are generally self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer. NIRC) Installment payment – When income tax due is in excess of P2. Q: What are the different ways of paying taxes? A: 1. Should be based on Actual facts. such finding is conclusive. When the taxable period of a taxpayer is terminated (Sec. 29. Assessments: a. Q: What are the principles governing tax assessments? A: PAD3 1.

paid royalties to a NRFC in 1997 but failed to pay VAT thereon. PRUDENCE ANGELITA A. v. and X Bank believe that the BIR is on a "fishing expedition" and come to you for counsel. the BIR failed to secure certified true copies of the subject Consumption Entries from the Bureau of Customs since. 1998. Q: What is Specific Identification? A: A meticulous method wherein each item in inventory can be identified with a specific purchase Standard 192 TAXATION LAW TEAM: ADVISER: ATTY. B Corp. Notwithstanding the absence of an Audit Notice to conduct a tax investigation for the year 1997. that the audit conducted regarding the 1997 royalty payment is beyond the authority of the auditing officers under the Audit Notice and the right to assess VAT on such royalty payment has prescribed. Mar. Oct. the taxpayer understated its importations. cannot be made to rest on another presumption. the originals had been eaten by termites. KEITH S. Weighted Average 4. What is your advice? A: I will advise A Co. CIR. being a mere presumption. among others. 2008) Inventory Method for Income Determination Q: What are the Inventory methods for income determination? A: The International Accounting enumerated the following: 1. B Corp.. Under the aforesaid Audit Notice. mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. received an Audit Notice authorizing the examination of its books of accounts and other accounting records for all internal revenue taxes for the period Jan. 31. ANG JR. CTA Case No. CLARABEL ANNE R. However. Inc. equals the cost of goods available for sale divided by the units available. 6832. on the basis of Sec. Thus. this power shall not be construed as granting the CIR the authority to inquire into bank deposits. 7. the CTA ruled. Last In – First Out (LIFO) 2. was assessed deficiency VAT on payments made in 1997 to a nonresident foreign corporation. Inc. GUTIERREZ. First In – First Out (FIFO) 3. CHARLES L. Q: What is Weighted Average? A: A method of assigning cost which requires that we compute the weighted average cost per unit at the time of each sale. GR 136975. 31. 5. 2005) Q: B Corp. MEMBERS: JOSE DUKE BAGULAYA. on the alleged ground that the suppliers are committing tax evasion. The best evidence obtainable provided under the Tax Code does not include mere photocopies of records or documents. NIRC) (1999 Bar Question) Q: BIR assessed the taxpayer for alleged deficiency taxes. and X Bank that the BIR is justified only in getting information from the former but not from the latter. GRANTOZA. Hence.. The BIR is authorized to obtain information from other persons other than those whose internal revenue tax liability is subject to audit or investigation. (Sec. For filing false returns. The assessment was based on photocopies of 77 Consumption Entries furnished by an informer.UST GOLDEN NOTES 2011 letter to A Co. CHRISTINE L. A Co. A Co. The CTA further ruled that the power of the government to assess deficiency VAT has not prescribed since the royalty payment was not reflected in the 1997 and 1998 VAT returns of B Corp. the ten year prescriptive period for the assessment of deficiency taxes applies. 31. to furnish the BIR information on sales and payments to its suppliers. The presumption of the correctness of an assessment. TEE. Can the BIR base its assessment on mere photocopies of records/documents? A: No. according to the custodian. protested the assessment alleging. the cost of goods sold would be dependent on the average acquisition cost of the inventory currently available when a sale is done. HERNANDEZ. 2) Issued an access letter to X Bank to furnish the BIR on deposits of some suppliers of A Co. While it is true that under the Tax Code. 6 (A) and (B). that the power of the CIR to assess B Corp. (Business One. KASALA. DIVINE C. B Corp’s VAT liability is incontrovertible. the BIR can assess taxpayers based on the “best evidence obtainable” and that tax assessments are presumed correct and made in good faith. Specific identification Q: What is LIFO and FIFO? A: A method of assigning costs to both inventory and cost of goods sold. SUBJECT HEADS: EDISON U. VALCOS . With regard to LIFO the assumption is that the most recent inventory is the one sold first as compared to FIFO wherein the inventory items are sold in the order they are acquired.. X Bank and the suppliers have not been issued by the BIR letter of authority to examine. (CIR v. Is the assessment made on the royalty payment outside the scope of the Audit Notice and has the right of the government to assess deficiency VAT thereon prescribed? A: B Corp. SUBJECT HEAD: RODOLFO N. ASST. ORTIZ & VANNESSA ROSE S. Hantex Trading Co.. deficiency VAT is valid. LACSINA. 1998 to Dec. However. it is elementary that the assessment must be based on actual facts. NIRC.

MASACAYAN & THEENA C. or his explanation is not satisfactory to the CIR. or b. Q: Distinguish Delinquency Tax from Deficiency Tax? A: Deficiency Tax Collection Can immediately be Can be collected through collected administrative and/or judicial administratively remedies but has to go through the issuance through the process of filling of a warrant of the protest by the taxpayer distraint and levy. b. Self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or only partially paid. Illegal and Void Assessment – tax assessor has no power to assess at all. Note: This is issued when the revenue officer finds himself without enough time to conduct an appropriate or thorough examination in view of the impending expiration of the prescriptive period for assessment. 4. If no amount is shown as tax by the taxpayer upon his return is made by the taxpayer. exemptions or credits claimed in his return. required to execute a waiver of the statute of limitations. Erroneous Assessment – assessor has power to assess but errs in the exercise thereof. or Substantiate all or any of the deductions. then the amount by which the tax as determined by the CIR or his authorized representative exceeds the amounts previously assessed or collected without assessment as deficiency. 6. Delinquency Tax – a taxpayer is considered delinquent in the payment of taxes when: a. Tax Delinquency and Tax Deficiency Jeopardy Assessment Q: What are the different kinds of assessments and what is jeopardy assessment? A: 1. 5. Self-Assessment – one in which the tax is assessed by the taxpayer himself. To prevent the issuance of a jeopardy assessment. 3. Deficiency Tax – a. SABUGO & JOHN HENRY C.NATIONAL INTERNAL REVENUE CODE OF 1997 and invoice. Jeopardy Assessment – a delinquency tax assessment made without the benefit of a complete or partial investigation by a belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to: a. Thus the cost of goods sold would depend on which item was sold for that particular sale. the taxpayer may be ACADEMICS CHAIR: LESTER JAY ALAN E. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Pre-Assessment – informs the taxpayer of the findings of the examiner who recommends a deficiency assessment. The taxpayer is usually given 10 days from notice within which to explain his side. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. when each item is sold the sales record should also contain the same. Deficiency tax assessed by the BIR becomes final and executory. 2. Comply with audit and investigation requirements to present his books of accounts and/or pertinent records. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. against the assessment and and/or judicial action the denial of such protest by the BIR Civil Action The filing of a civil The filling of a civil action at action for the the ordinary court for collection of the collection during the delinquent tax in the pendency of protest may be ordinary court is a the subject of a motion to proper remedy dismiss. In addition to a motion to dismiss. MARTINEZ SANTO TOMAS de Derecho Civil 193 . the taxpayer must file a petition for review with the CTA to toll the running of the prescriptive period Penalties A delinquent tax is A deficiency tax is generally subject to not subject to the 25% Delinquency Tax 2. Official Assessment – issued by the BIR in case the taxpayer fails to respond to the pre-assessment. The amount by which the tax imposed by law as determined by the CIR or his authorized representative exceeds the amount shown as tax by the taxpayer upon his return. or b. Q: What is Delinquency Tax and Deficiency Tax? A: 1.

(Sec. A decedent to determine his gross estate. CLARABEL ANNE R. 2. 5. HERNANDEZ. ANG JR. KASALA. SUBJECT HEAD: RODOLFO N. Authority to terminate taxable period in the following instances: a. record. SUBJECT HEADS: EDISON U. although subject to interest and compromise penalty d. lessees. RA 10021) Where the taxpayer has signed a waiver authorizing the Commissioner or his duly authorized representative to inquire into the bank deposits. papers. MEMBERS: JOSE DUKE BAGULAYA. patients. DIVINE C. KEITH S.UST GOLDEN NOTES 2011 administrative penalties such as 25% surcharge. c. Q: When may the CIR assess the tax on best obtainable evidence? A: FINE 1. (1998 Bar Question) 194 TAXATION LAW TEAM: ADVISER: ATTY. in case a taxpayer applies for an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed. ORTIZ & VANNESSA ROSE S. 6. Use of the best evidence available 3. clients. and such waiver shall constitute the authority of the CIR to inquire into the bank deposits of the taxpayer. Q: What is the Best Evidence Obtainable? A: Any data. surveillance and prescribe gross sales and receipts if there is reason to believe that the taxpayer is not declaring his correct income. Taxpayer is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property and c. LACSINA. documents or any evidence gathered by internal revenue officers from government offices/agencies. Authority to inquire into bank deposits accounts in the following instances: a. PRUDENCE ANGELITA A. CHRISTINE L. ASST. NIRC) 1. b. Secrecy of Bank Deposits Law? A: The limited power of the CIR does not conflict with RA 1405 because the provisions of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law as embodied in a later legislation. employees.. b. vendees and from all other sources with whom the taxpayer had previous transactions or from whom he received any income. Examination of return and determination of tax due 2. tenants. his application shall not be considered unless and until he waives in writing his privilege under RA 1405. Taxpayer is retiring from business subject to tax. Authority to conduct inventory taking. or Any return which is False. corporations. 8. CHARLES L. interest. Taxpayer is performing any act tending to obstruct the proceedings for the collection of taxes. sales or receipts for internal revenue purposes 4. Authority to prescribe real property values 6. 7. VALCOS . 3 & 8. 6. TEE. Incomplete or Erroneous. When a return is required by law as a basis for assessment of internal revenue tax shall not be forthcoming within the time fixed by law or regulation (No return filed). NIRC) Q: Does the power of the CIR to inquire into bank deposits of a taxpayer conflict with RA 1405. Authority to accredit and register tax agents Authority to prescribe additional procedural or documentary requirements. (Sec. A specific taxpayer/s is subject of a request for the supply of tax information a foreign tax authority pursuant to an intentional convention or agreement on tax matters to which the Philippines is a signatory or a party of. Provided that the requesting foreign tax authority is able to demonstrate the foreseeable relevance of certain information required to be given to the request. and compromise penalty surcharge. Any taxpayter who has filed an application for compromise of his tax liability by reason of financial incapability to pay. GUTIERREZ. Furthermore. GRANTOZA. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement Q: What are the powers of the Commissioner in the assessment of taxes? A: The CIR or his duly authorized representative is authorized to use the following powers: (Sec.

any information such as. (Sec. If the notice is sent through registered mail. the running of the prescriptive period is “stopped”. government agencies and instrumentalities. When no return is required. examine and take testimony of persons? A: This power is for ascertaining the correctness of any return. for when such period have lapsed their right to assess and collect would be barred by the statute of limitations. Was there a valid assessment? A: Yes. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. or other data. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. as the case may be. record. NIRC) When is Assessment Made Q: When is an assessment deemed made? A: When it is released. associations. to appear before the CIR or his duly authorized representative at a time and place specified in the summons and to produce such books. and to give testimony. Q: State the basic rules on prescription. or any officer or employee of such person. or in determining the liability of any person for any internal revenue tax. June 29. and To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. There was an assessment made within the period. or any other person. 203 and 222. and their members. including the BSP and GOCCs. but not limited to. tax is imprescriptible and tax may be assessed at any time as the prescriptive periods provided in Sec. 5. Sept. GR 128315. A: 1. receipts or sales and gross incomes of taxpayers. and to Summon/ Examine. 1999) Q: A notice of assessment was mailed within the period prescribed by law but the same was received by the taxpayer beyond the period. records. 5. To summon the person liable for tax or required to file a return. management or possession of any object with respect to which a tax is imposed. joint ventures of consortia and registered partnerships. or from any office or officer of the national and local governments. or other data which may be relevant or material to such inquiry. addresses. 4. Remedy of the taxpayer is to file a return for the prescriptive period to commence. mailed or sent by the collector of internal revenueto the taxpayer within the three-year or ten-year period. joint accounts. insurance companies. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. as may be relevant or material to such inquiry. Prescriptive Periods Q: What is the rationale of prescriptive periods? A: To secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. (Basilan v. papers. When the tax law itself is silent on prescription. or in collecting any such liability. Note: Limitation on the right of the government to assess and collect taxes will 3. the tax is imprescriptible. (CIR v. GR L-22492. MARTINEZ SANTO TOMAS de Derecho Civil 195 . SABUGO & JOHN HENRY C. costs and volume of production. Pascor.NATIONAL INTERNAL REVENUE CODE OF 1997 Power of the Commissioner to Obtain Information. 5. 1967) 2. ACADEMICS CHAIR: LESTER JAY ALAN E. or in evaluating tax compliance. or in making a return when none has been made. and Take Testimony of Persons Q: What is the power of the CIR to obtain information. or any person having possession. under oath. To take such testimony of the person concerned. What matters is the sending of the notice is made within the period of prescription. To examine any book. and financial statements of corporations. It is the sending of the notice and not the receipt that tolls the prescriptive period. MASACAYAN & THEENA C. custody. CIR. They are beneficial to the government because tax officers will be obliged to act promptly in the assessment and collection of the taxes. and the names. mutual fund companies. regional operating headquarters of multinational companies. paper. the Commissioner is authorized: 1. 2. and to summon. NIRC are not applicable. and all persons owning or having the care.

Under the Administrative Code of 1987. 2007) Q: Compare Secs. CHRISTINE L. GUTIERREZ. the right of the government to collect will be barred. 203 covers tax returns which is neither false nor fraudulent whereas. 196 TAXATION LAW TEAM: ADVISER: ATTY. 1. 222 (A) 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. Under the Civil Code. 203 and 222 of the NIRC. HERNANDEZ. DIVINE C. b. VALCOS . XPNS: a. SUBJECT HEAD: RODOLFO N. ANG JR. KEITH S. the period is 10 years from the date of discovery of the falsity or fraud. being a remedial measure. and it must be proved or established by the party (taxpayer) relying upon it. If the last day of the period falls on a Saturday. Prescriptive Period for Assessment Q: What are the prescriptive periods for the assessment of taxes? A: 1. SUBJECT HEADS: EDISON U. such defense is not jurisdictional and must be raised seasonably. Defense of prescription is waivable. otherwise. 28. The law on prescription. GR 162155. Where there is a written waiver or renunciation of the original 3-year limitation signed by the taxpayer. however. (CIR v. (Sec. Note: Nothing in Sec. Both Article 13 of the Civil Code and Sec. Aug. Prescription is a matter of defense. KASALA. MEMBERS: JOSE DUKE BAGULAYA. Inc. should be interpreted liberally in order to protect the taxpayer. must be accompanied by a waiver of statute of limitations accomplished by the taxpayer. being the more recent law governs the computation of legal periods. 222 covers: 1. Note: Assessment and collection by the government of the tax due must be made within the prescribed period as provided by the Tax Code. otherwise it is deemed waived. 3. as required by the BIR. 2. Fraudulent returns. Primetown Property Group. Sec. If there is failure to file the required return. before the expiration of the 3-year period have agreed in writing to the extension of the period. Rules of Court) 4. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987.UST GOLDEN NOTES 2011 not be presumed in the absence of a clear legislation to the contrary. GRANTOZA. Book I of the Administrative Code of 1987. 5. Failure to file a return. Q: How should the prescriptive period be computed? A: It is computed based on the Administrative Code. Note: Requests for reconsideration of tax assessments. a year is composed of 12 calendar months and the number of days is irrelevant. A: Sec. d. CHARLES L.. Chapter VIII. 31. Where the CIR and taxpayer. ORTIZ & VANNESSA ROSE S. If the return is filed but it is false or fraudulent and made with intent to evade the tax. Note: Date of discovery must be made within the three-year period following the general rule. the period is within 10 years after the date of discovery of the omission to file the return. LACSINA. Sec. a Sunday or a legal holiday in the place where the Court sits. the time shall not run until the next working day.. For this reason. 31 of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. 31 of the Administrative Code of 1987 provides that a “year” shall be understood to be 12 calendar months. Where a return was filed: GR: The period for assessment is within 3 years after the date the return was due or if the return is filed after the due date prescription will start on the date the return was filed. a year is equivalent to 365 days whether it be a regular year or a leap year. Sec. Rule 22. False returns and. CLARABEL ANNE R. 6. 3. the period so agreed upon may thereafter be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. ASST. PRUDENCE ANGELITA A. TEE. c.

v. Q: Is it necessary that the notice of assessment be received by the taxpayer within the prescriptive period? A: No. There is an omission when the taxpayer failed to file a return for the particular tax required by law. protested the assessment on the ground that it has prescribed. It may be established by the: 1. 30. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. as an False. 2005. CIR. (1999 Bar Question) Q: Mr. 2. The return was amended substantially – The prescriptive period shall be counted from the filing of the amended return.. MASACAYAN & THEENA C. carelessness or ignorance. On Dec. Fraudulent and Non-filing of Returns Q: What is the prescriptive period where the return was false. putting A Co. There is under declaration (exceeding 30% of that declared) of taxable sales. the BIR disallowed certain deductions claimed by A Co. MARTINEZ SANTO TOMAS de Derecho Civil 197 . 1967) Q: A Co. which can only be done either in reducing gross income or in increasing the items of deduction. Reyes. A Co. 203. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. receipts or income. 1. 1999. 15. Thus. filed his 2004 ITR on Mar. NIRC) However if the return originally filed is amended substantially. GR L-20601. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Inc. Q: When does the taxpayer’s liability attach? A: Only after receipt of the letter-assessment was coupled with the willful refusal to pay the taxes due within the allotted period. 1966) 2. The corollary prescription will be 10 years from and after the discovery of the failure or omission and not the 3 year prescriptive period. SABUGO & JOHN HENRY C. 2005. Intentional and substantial overstatement of deductions of exemptions. he left the Phil. the counting of the 3-year period starts from the date the amended return was filed. (Butuan Sawmill v. A: The right of the BIR to issue an assessment has not yet prescribed since the return was amended. (Aznar v. A: False Return A deviation from the truth or fact whether intentional or not Fraudulent Return Intentional and deceitful with the sole aim of evading the correct tax due ACADEMICS CHAIR: LESTER JAY ALAN E. CTA. (Basilan Estate. 1996 showing a net loss. Appropriate – When it is a return for the particular tax required by law. 1996. notice of the assessment must be released. It is not required that the notice be received by the taxpayer within the prescribed period. After an investigation.. the BIR issued a deficiency income assessment against A Co. a DC filed its 1995 ITR on Apr. Sept. or There is overstatement (exceeding 30% of deductions) (Sec. on Aug. it is as if no return was filed. 30. 23. There is substantial amendment in this case because a new return was filed declaring more losses. Intentional and substantial understatement of tax liability by the taxpayer. a Filipino citizen engaged in the real estate business. fraud or from the omission to file the return. As a result. (Sec. fraudulent or there was no return filed? A: The prescription period is 10 years from the discovery of the falsity. GR L-20569. Aug. 28. CIR. in a net income position. Q: What is the effect of filing a defective return? A: If the return was defective. 2. 222. NIRC) Q: When is a return considered filed for purposes of prescription? A: When the return is valid and appropriate. NIRC) Q: When is a return considered fraudulent? A: Fraud is never presumed and the circumstances constituting it must be alleged and proved to exist by clear and convincing evidence. 10. The rule is that internal revenue taxes shall be assessed within 3 years after the last day prescribed by law for the filing of the return. and/or 3.. 5. (Sec. 1999. Valid – When it has complied substantially with the requirements of law. On Nov. 248. GR L-22492. Feb. 10. but the sending of the notice must clearly be proven. it amended its 1995 ITR to show more losses. 5.NATIONAL INTERNAL REVENUE CODE OF 1997 2. Recurrence of the above circumstances Q: When is a return considered false? A: When there is a deviation from the truth due to mistake.. mailed or sent to the taxpayer within the 3 year period. 1974) Q: When is an amendment considered substantial? A: 1. the period within which to assess shall prescribe on Nov. Q: Distinguish a false return from a fraudulent return.

He and his wife.. 2001. ANG JR. 1969) where the court justified this by saying that in the answer filed by the BIR. 223. his authorized representative or a member of his household with sufficient discretion and no property is located (proper only for suspension of the period to collect). After investigation of said return. Sebastian. 20. PRUDENCE ANGELITA A. 6. 15. 203. he filed a protest against the assessment on the ground that he did not receive a notice of assessment and the assessment had prescribed. GR 162852. 15. MEMBERS: JOSE DUKE BAGULAYA. 16. Will the protest prosper? A: No. who manages their business. NIRC) When the Warrant of distraint and levy is duly served upon the taxpayer. Mr. Sept. the tax may be assessed within the period so agreed upon (Sec. The assessment issued on Apr. TEE. the BIR issued on Apr. Q: What is the nature of such waiver? A: It is to a certain extent a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations and must be carefully and strictly construed. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged exclusively in international shipping. When the taxpayer Requests for reinvestigation which is granted by the Commissioner (Collector v. Suyoc Consolidated Mining Co. Q: What is a waiver of statute of limitations? A: It is an agreement between the taxpayer and the BIR that a period to issue an assessment and collect taxes due is extended to a date certain. For failure of Mr. 2008. Sebastian to pay the tax within the period stated in the notice of assessment. L-24972. 25. 2004) Suspension of Running of Statute of Limitations Q: What are the grounds for suspension of the prescriptive periods? A: LOW-PARA 1. SUBJECT HEAD: RODOLFO N. the BIR issued on Aug. unless he informs the CIR of any change in his address thru a written notice to the BIR. CIR. DIVINE C. GRANTOZA. 2008 is within the 3 year prescriptive period. 15. Ker & Co. Where the CIR is prohibited from making the assessment or beginning distraint or levy or a proceeding in court for 60 days thereafter. GR. 15. 222 [b]. GUTIERREZ. 15. 1998. VALCOS . Finding his name to be in the list of delinquent taxpayers. the assessment has not yet prescribed since the BIR has a period of 3 years from the last day prescribed by law for the filing of the return. After an audit of the return. what possible defenses will you raise in behalf of your clients against the action of the BIR in enforcing collection of the tax? A: I will raise the defense of prescription. 30. it prayed for the collection of taxes. When there is an Answer filed by the BIR to the petition for review in the CTA (Hermanos v. CLARABEL ANNE R. and Mrs. CHARLES L. KASALA. Waiver of Statute of Limitations. the BIR's right to assess has already prescribed.. NIRC) The last day for filing the 1997 income tax return is Apr.000 inclusive of interest and penalty. The right of the BIR to assess prescribes after three years counted from the last day prescribed by law for the filing of the income tax returns when the said return is filed on time. When the taxpayer is Out of the Philippines (Sec. the BIR issued a notice of deficiency income tax assessment on Apr. CHRISTINE L. KEITH S. Note: A request for reconsideration alone does not suspend the period to assess/collect. (2000 Bar Question) Q: Mr. Inc. 2001 a deficiency income tax assessment for the sum of P250. CIR. When taxpayer cannot be Located in the address given by him in the return.. NIRC). GR L21609). GR L-11527. 7. 2008. (2002 Bar Question) 2. 1958). Dec. No. 1998. v. 198 TAXATION LAW TEAM: ADVISER: ATTY. such as where there is a Pending petition for review in the CTA from the decision on the protested assessment (Republic v. SUBJECT HEADS: EDISON U. 2005. 4. and Mrs. Where CIR and the taxpayer Agreed in writing for the extension of the assessment. Nov. 3. (Sec. ASST. If you are the lawyer of Mr. Since the assessment was issued only on Apr. 8. LACSINA. 2001 warrants of distraint and levy to enforce collection of the tax. filed a joint ITR for 1997 on Mar.. ORTIZ & VANNESSA ROSE S. The return was filed on Mar. 30. 2005 with a due date of Apr. 5. as a balikbayan on Dec.UST GOLDEN NOTES 2011 immigrant to join his family in Canada. 19. Reyes returned to the Phil. 20. HERNANDEZ. (Philippine Journalists.

otherwise. and Policy cases under audit by the Special Teams in the National Office (RMO 36-99) 2. MASACAYAN & THEENA C. It can be revalidated only once. 4. he must then submit a Progress Report to his Head of Office. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. (RMC 06-05) A: Revalidated through the issuance of a new LA. 2. Signed by the taxpayer. If the RO is unable to submit his final report of investigation within the 120-day period. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. SABUGO & JOHN HENRY C. When there is a need to verify the taxpayer’s Compliance with withholding and other internal revenue taxes as prescribed in a Revenue Memorandum Order issued by the Commissioner. Signed and accepted by the CIR or his duly authorized representative. unless the LA is revalidated. 5 and 235. and surrender the LA for revalidation.NATIONAL INTERNAL REVENUE CODE OF 1997 null and void. Cases involving civil or criminal tax fraud which fall under the jurisdiction of the tax fraud division of the Enforcement Services. In writing. 3. The taxpayer shall then have the right to refuse the service of this LA. (RMO 38-88) Q: What are the requisites of an agreement waiving the statute of limitations? A: 5. twice. Q: Within what period should a RO conduct an audit? A: A RO is allowed only 120 days to conduct the audit and submit the required report of investigation from the date of receipt of a LA by the taxpayer. 3. When the taxpayer’s Capital gains tax liabilities must be verified. Q: What are the cases which need not be covered by a valid LA? A: 1. or mistakes were committed by the taxpayer. 4. When the CIR determines that Fraud. When the taxpayer himself requests for the Re-investigation or re-examination of his books of accounts and it was granted by the commissioner. 2. Must specify a definite date agreed upon between the parties within which to assess and collect taxes. 2. if issued by the CIR. if issued by the Regional Director. and 5. Q: How many times can a taxpayer be subjected to examination and inspection for the same taxable year? A: GR: Only once per taxable year. 5. 3. it shall become Q: What is a Notice for Informal Conference (NIC)? ACADEMICS CHAIR: LESTER JAY ALAN E. Audit Stage. The suspended LA(s) must be attached to the new issued LA. NIRC) Q: When must a LA be served? Issuance of Notice of Informal Conference. 6. Issuance of a letter of authority Audit stage Issuance of notice of informal conference Informal conference Issuance of preliminary assessment notice Issuance of formal letter of demand and assessment notice Issuance of a Letter Of Authority Q: What is a Letter of Authority (LA)? A: It is an official document that empowers a Revenue Officer (RO) to examine and scrutinize a taxpayer’s books of accounts and other accounting records. 4. in order to determine the taxpayer’s correct internal revenue tax liabilities. *See discussion on General provision on Addition to the Tax Assessment Process 1. 6. When the Commissioner chooses to exercise his power to obtain information relative to the examination of other taxpayers (Secs. and Date of acceptance must be indicated. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Q: How is LA revalidated? How often can it be revalidated? 1. XPNs: FRC3 1. irregularities. A: It must be served to the taxpayer within 30 days from its date of issuance. Entered before the expiration of the 3 year period for assessment of the tax. MARTINEZ SANTO TOMAS de Derecho Civil 199 .

KASALA. SUBJECT HEADS: EDISON U. a RO recommends the imposition of deficiency assessments. When an article locally purchased or imported by an Exempt person. DIVINE C. (Sec 3. traded or transferred to non-exempt persons. Q: Within how many days must the taxpayer respond to the NIC? A: The taxpayer have 15 days from the date of his receipt to explain his side. MEMBERS: JOSE DUKE BAGULAYA. GRANTOZA. Q: Within what period must the taxpayer respond to PAN? 200 TAXATION LAW TEAM: ADVISER: ATTY. When a Discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. HERNANDEZ. LACSINA. Q: What are the requirements of a valid PAN? A: 1.1. if warranted. NIRC) Note: This is to give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed explanation regarding the assessments. 228.3. or the Chief of Division in the National Office. 4. PRUDENCE ANGELITA A. such as. CHRISTINE L. machineries and spare parts. ASST. informing a taxpayer who has been audited of the findings of the RO. or 5. The absence of any of the requirements shall render the assessment void. VALCOS . KEITH S.1. as the case may be. 2. RR 12-99) A: It is a written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency assessments have to be paid. capital equipment. Issuance of Preliminary Assessment Notice Q: What is a Pre-Assessment Notice (PAN)? A: It is a communication issued by the Regional Assessment Division. Q: What matters are taken up during the Informal Conference? A: 1. in which case. ANG JR. or any other concerned BIR Office. ORTIZ & VANNESSA ROSE S. CHARLES L. In writing. (Sec 3.. If. Q: What is the effect if taxpayer fails to respond to the NIC? A: If the taxpayer fails to respond within 15 days from date of receipt of the NIC. this is communicated by the Bureau to the taxpayer concerned during an informal conference called for this purpose. he shall be considered in default. shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the CIR or his duly authorized representative. When the finding for any deficiency tax is the result of Mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer. vehicles. RR 12-99) Q: What are the instances where NIC may be dispensed with? A: NIC can be dispensed with: MEDEC 1. after the culmination of an audit. for appropriate review and issuance of a deficiency tax assessment. When the Excise tax due on excisable articles has not been paid. CLARABEL ANNE R.1. but not limited to. SUBJECT HEAD: RODOLFO N.UST GOLDEN NOTES 2011 determined to have Carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. and Should inform the taxpayer of the law and the facts on which the assessment is made (Sec. or 2. following the review of these findings. TEE. Discussion on the merits of the assessment Attempt of the taxpayer to convince the examiner to conduct a reinvestigation and/or re-examination Evaluate if submission of the waiver of the statute of limitations is necessarybecause evaluation may extend beyond 3 years Taxpayer to advise the examiner if position paper will be submitted 3. or 3. GUTIERREZ. has been sold. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was Informal Conference Q: What is the purpose of Informal Conference? A: It is to afford the taxpayer the opportunity to present his case. 2. or 4. the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office. as the case may be.

or 3. However no liability for additional or deficiency tax arises from such failure. (Sec. 3. rules and regulations. the BIR issued an assessment and a demand letter calling for the immediate payment of the deficiency withholding taxes in the total amount of Q: What is a reply? A: A reply is the answer of the taxpayer in contesting the findings of the revenue officers contained in a PAN and must be filed within 15 days from receipt of the PAN.000.2. RR 12-99) P250. but not limited to. to wit: MEDEC 1. or 5. the BIR is correct in issuing the assessment and demand letter calling for the immediate payment of the deficiency withholding taxes. (Sec. traded or transferred to non-exempt persons.2. Issuance of Formal Letter of Demand and Assessment Notice. Accordingly. SABUGO & JOHN HENRY C. capital equipment. has been sold. Sec. to file a written reply contesting the proposed assessment. MASACAYAN & THEENA C. (2002 Bar Question) Exceptions to Issuance of PAN Q: Under what instances is PAN no longer required? Reply to PAN A: Same as the instances where NIC may be dispensed with. Q: In what form shall the FAN be and what should it contain? A: 1.00. Shall state the facts.1. and 2. Counsel for AZ protested the assessment for being null and void on the ground that no pre-assessment notice had been issued. or jurisprudence on which the assessment is based.NATIONAL INTERNAL REVENUE CODE OF 1997 A: If the taxpayer disagrees with the findings stated in the PAN. such as. he have 15 days from receipt of the PAN. or 2. When an article locally purchased or imported by an Exempt person. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have Carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year. When the finding for any deficiency tax is the result of Mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer. a discrepancy between the taxes withheld from its employees and the amounts actually remitted to the government was found. 228. or 4. RR 12-99) Q: In the investigation of the withholding tax returns of AZ Medina Security Agency (AZ) for the taxable years 1997 and 1998. vehicles. 3.3. RR 12-99) Q: What is the effect of taxpayer’s failure to respond within 15 days? A: The taxpayer shall be considered in default. Since the amount assessed relates to deficiency withholding taxes. Is the contention of the counsel tenable? A: No. or whose reply to the PAN was found to be without merit. Q: What is a Notice of Assessment/Formal Letter of Demand (FAN)? A: It is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a PAN within the prescribed period of time. Q: Who issues the FAN? A: It shall be issued by the Commissioner or his duly authorized representative. MARTINEZ SANTO TOMAS de Derecho Civil 201 . before the period of prescription commenced to run. The tax code used the term “reply” to distinguish it from a protest. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. otherwise. the FAN ACADEMICS CHAIR: LESTER JAY ALAN E. the contention of the counsel is untenable. (Sec 3.1. When a Discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. Failure of the taxpayer to file a reply would now enable the RO to issue a FAN. the law. NIRC expressly provides that no preassessment notice is required when a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. In writing. machineries and spare parts. When the Excise tax due on excisable articles has not been paid. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. in which case a formal letter of demand and assessment notice shall be issued by the BIR.1.

GR 135210. or their equivalent. GUTIERREZ.1. (Sec. KASALA. July 11. CTA Case 6211. Was there a valid assessment? Is the notice requirement satisfied when the BIR advised the taxpayer’s representative of the tax deficiency during the pre-assessment stage. 9. 3. (Oceanic Network Wireless Inc. typewriting. 3. a duly registered Subic Bay Freeport Zone enterprise received a FAN from the CIR despite filing its protest letter to the preliminary five-day letter. NIRC. The CIR then elevated the case to the SC claiming that Enron was informed of the legal and factual bases of the deficiency assessment against it. The CIR merely issued a formal assessment and indicated therein the supposed tax.4. Q: Enron. 19. Note: The authority to make tax assessments may be delegated to subordinate officers. indicates its protest against the delinquent assessment of the RO and requests for reconsideration. CLARABEL ANNE R. The CIR did not bother to explain how it arrived at such an assessment. executory. interest and compromise penalty due thereon.. (CIR v. Disputed Assessment Q: When is an assessment considered disputed? A: When the taxpayer. photographing. TEE. LACSINA. Said assessment has the same force and effect as that issued by the CIR if not revised or reviewed by the latter. MEMBERS: JOSE DUKE BAGULAYA. as well as the preliminary five-day letter. Enron alleged that the BIR failed to provide the legal and factual basis of the assessment in violation of Sec. (CIR v. Otherwise. “Writing” consists of letters. were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. surcharge. Enron Subic Power Corp. et. ANG JR. After the request is filed and received by the BIR. then there is no reason why it should be automatically rejected as inadequate compliance with the law. RR 12-99. 228. The advice of tax deficiency given to the taxpayer’s employee during the preassessment stage. (Sevilla.1. ASST. Dec. the CTA held that the FAN sent to the Company failed to comply with the requirements of a written notice set by the law as there was no mention of the applicable law and facts. ORTIZ & VANNESSA ROSE S.. demandable and not appealable to the CTA. GRANTOZA. it becomes final and appeal to the CTA may be taken. the taxpayer may elevate the protest to the CIR within 30 days from receipt of the decision for a request for reconsideration and that his case is referred to the Bureau’s Appellate Division. Oct. 2005) Protesting Assessment Q: What is a protest? A: It is the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the notice of assessment and letter of demand.UST GOLDEN NOTES 2011 shall be void. 4. V. A: 1. DIVINE C. CHARLES L. KEITH S. magnetic impulse. he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron. photostating. Indubitably. Enron filed a Petition for Review with the CTA since the CIR failed to resolve its protest against the FAN within the mandated 180day period. word. CHRISTINE L. 2009) 2. Jan. numbers. Isabela Cultural Corp. set down by handwriting. the assessment becomes a disputed assessment. printing. mechanical or electronic recording. figures are also “writings” and if the numerical presentation is understandable enough. PRUDENCE ANGELITA A. SUBJECT HEADS: EDISON U. through a letter. 2. GR 166387. or other form of data compilation. There was no valid assessment made. SUBJECT HEAD: RODOLFO N. Finding for Enron.4 RR 12-99) Q: What does the phrase “in writing” under Sec. GR 148380. HERNANDEZ. 228 mean? A: It does not exclusively mean written words. and furnished the taxpayer of a copy of the audit working papers? FAN did not provide Enron with the written bases of the law and facts on which the subject assessment is based. 1. The ROs in the issuance of the 202 TAXATION LAW TEAM: ADVISER: ATTY. al. 2004) Q: What are the remedies of the taxpayer after the issuance of a FAN? A: The taxpayer may protest the assessment within 30 days from receipt otherwise the assessment becomes final... VALCOS . 2001) Administrative Decision on a Disputed Assessment Q: Can a taxpayer go to the CIR when a protest is denied by the CIR’s authorized Representative? A: Yes. Furthermore. CIR. v. Sec. CIR.

where he does not intend to file a protest. 21. In case the resolution of a Division of the CTA on a motion for reconsideration or new trial is adverse to the taxpayer. 6. Itemized schedule of the adjustments to which the taxpayer does not agree. CIR. one for Net Income Tax (NIT) and one for VAT.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What are the requisites of a protest? A: 1. d. Apr. (RR 12-99) Protested Assessment Q: What is the effect of a protest against an assessment? ACADEMICS CHAIR: LESTER JAY ALAN E. (Fishwealth Canning Corporation v. 2. Jan. MASACAYAN & THEENA C. Itemized statement of the finding to which the taxpayer agrees (if any) as basis for the computation of the tax due. GR 168498. Note: This is not payment under protest for this is neither a tax under the TCC nor a Real Property Tax. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 5. and i. b. In writing. rules and regulations or jurisprudence on which the protest is based otherwise the protest would be void. Statements of facts or law in support of the protest. Without the waiver the prescriptive period will not be tolled. The ruling or decision of the CTA en banc may be appealed with the Supreme Court through a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of Civil Procedure. 17. A: Prescriptive period provided by law to make collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer protests the assessment and requests for its cancellation. GR 139736. All relevant documents must be submitted within 60 days from filing of protest. Such protest may either be a request for reconsideration or for reinvestigation. what should he do to file a protest for the NIT? A: The taxpayer should first pay the tax due under the VAT. 2010) Q: A taxpayer receives two final assessments. 2007) If the decision is adverse to the taxpayer. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 2. In case the CIR decides adversely or if no decision yet at the lapse of 180 days. SABUGO & JOHN HENRY C. Accompanied by a waiver of the Statute of Limitations in favor of the Government. The protest must be filed within 30 days from receipt of assessment. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. (BPI v. f. c. The taxpayer files an administrative protest against the assessment. 24. Addressed to the CIR. the taxpayer may appeal to the CTA Division. 3. g. executory and demandable. BIR issues assessment notice. 2005) State the facts. (RCBC v. Date of receipt of the assessment notice or letter of demand. 7. which have not been raised in that request for reconsideration or reinvestigation. 4. If the taxpayer would only like to protest the one for NIT and not the one for VAT. 3. GR 179343. the assessment shall become final and unappealable. Name of the taxpayer and address for the immediate past 3 taxable years. and Must contain the following: a. Q: What must a motion for reconsideration raise? A: It must raise new grounds. Nature of the request. 5. When to File Protest Q: What is the procedure to be followed in protesting an assessment? A: 1. 4. he may file a petition for review with the CTA en banc. e. 30 days from the receipt of the decision or from the lapse of the 180 days otherwise the decision shall become final. specifying the newly discovered evidence to be presented. CIR. applicable law. MARTINEZ SANTO TOMAS de Derecho Civil 203 . which must be paid upon filing of the protest. Amount and kind of tax involved and the assessment notice number. otherwise. Oct. Taxable periods covered by the assessment. CIR. h. he may file a motion for reconsideration or new trial before the same Division of the CTA within 15 days from notice thereof. Note: A motion for reconsideration of the denial of the administrative protest does not toll the 30-day period to appeal to the CTA. Documentary evidence as it may deem necessary and relevant to support its protest to be submitted 60 days from the filing thereof.

and the taxpayer loses his right to contest the assessment.UST GOLDEN NOTES 2011 A: It makes the FAN final and executory. DIVINE C. CIR. Effect of Failure to Protest Q: What is the effect of failure to protest a FAN? Issuance of warrant of distraint and levy to enforce collection of deficiency assessment is outright denial of the request for reconsideration (Hilado v. the period to appeal will only start when the respondent would receive the summons for the civil action for collection of deficiency tax (BIR v.a claim for re-evaluation of the assessment based on newly-discovered or additional evidence. MEMBERS: JOSE DUKE BAGULAYA. Aug. VALCOS . It does not toll the statute of limitations. Request for reinvestigation . CIR. KASALA. ANG JR. LACSINA. the decision shall be void in which case the same shall not be considered a decision on a disputed assessment and that the same is his final decision. rules and regulations or jurisprudence on which such decision is based otherwise. CTA case 1256. SUBJECT HEADS: EDISON U. b. at the administrative and judicial levels. (Standard Chartered Bank v. stating the facts. 223. Aug. May 21. SUBJECT HEAD: RODOLFO N. Non-submission of the documents renders the assessment final. 1990) c. (RR 12-99) Indirect Denial of Protest: a. d.a claim for re-evaluation of the assessment based on existing records without need of additional evidence. Request for reconsideration . Union Shipping Corp. GR 66160. not a request for reconsideration. the running of the prescriptive period can only be suspended by a request for reinvestigation. It may also involve a question of fact or law or both. Note: Under Sec. GR 66160. It does not toll the Statute of Limitations. CHRISTINE L. Forms of Protest Q: What are the kinds of protest to an assessment? A: 1. the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. 1990) Note: Preliminary collection letter may serve as assessment notice. CIR. executory and demandable. Direct Denial of Protest – By an administrative decision on a disputed assessment. ASST. Formal and final letter of demand from the BIR to the taxpayer. GUTIERREZ. 25. ORTIZ & VANNESSA ROSE S. PRUDENCE ANGELITA A. 16. applicable law.. otherwise. KEITH S. Feb. Rendition of Decision by Commissioner Denial of Protest Q: What are the forms of denial of the protest? A: 1. GRANTOZA. CTA case No. HERNANDEZ. It tolls the Statute of Limitations. The 60 day period is counted from the filling of the protest. NIRC. 2001) 1. 5696. CHARLES L. 28. 1964) 204 TAXATION LAW TEAM: ADVISER: ATTY. (United International Pictures v. Submission of Documents within 60 Days from Filing of Protest Q: What is a supporting document? A: These are documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted. 1996) 2. It tolls the the statute of limitations. CLARABEL ANNE R. Civil collection can also be considered as denial of protest of assessment (BIR v. 2. It may involve a question of fact or law or both. Commissioner did not rule on the taxpayer’s motion for reconsideration of the assessment.. RECONSIDERATION Involves re-evaluation of assessment based on existing records. REINVESTIGATION Involves presentation of newly-discovered or additional evidence.. May 21. Union Shipping Corp. Thus the filing of the protest within 30 days from the receipt of the assessment would be mandatory for the taxpayer to use the other administrative and judicial remedies. 2. TEE. GR 110318.

One Million Pesos (P1. executor and demandable. MARTINEZ SANTO TOMAS de Derecho Civil 205 . and The information must result to collections of revenues and/or fines and penalties (Sec.a cash reward equivalent to whichever is lower between: a. The decision or assessment becomes final and executory. surcharges or fees recovered and/or fine/penalty imposed. 282. the taxpayer’s defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 000. SABUGO & JOHN HENRY C. Voluntarily file a confidential information under oath with the Law Division of the BIR alleging therein the specific violations constituting fraud. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Wait for the final decision of the CIR on the disputed assessment and appeal the final decision to the CTA within 30 days from the receipt of the decision. The assessment is considered correct which may be enforced by summary or judicial remedies. 4. Informer’s Reward Q: To whom is the informer’s reward given? A: To persons instrumental: 1.000) Note: The same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted by the CIR and collected from the offender. 3. 000. 2. One should not be a government employee or a relative of a government employee within the sixth degree of consanguinity. In the discovery and seizure of smuggled goods. 2. or 2. A: 1. The assessment which has become final and executor cannot be superseded by a new assessment.000) ACADEMICS CHAIR: LESTER JAY ALAN E. In a proceeding for collection of tax by judicial action. 10% of the fair market value of the smuggled and confiscated goods. the assessment will become final. or refer to a case already pending or previously investigated by the BIR. such decision will not be final and executory. NIRC) (2002 Bar Question) Q: How much is the amount of the reward? Effect of Failure to Appeal Q: What is the effect of the failure to appeal by a taxpayer? A: 1. 5. Note: If the taxpayer elevates his protest to the CIR within 30 days from date of receipt of the final decision of the CIR’s duly authorized representative.NATIONAL INTERNAL REVENUE CODE OF 1997 Remedies of Taxpayer to Action by Commissioner In Case of Denial of Protest Q: What is the remedy available to the taxpayer if the CIR denies his protest in whole or in part? A: The remedy is to appeal such decision to the CTA within 30 days from receipt of the decision otherwise. 1. For discovery and seizure of smuggled goods . 10% of the revenues. 4. The information must not yet be in the possession of the BIR. In the discovery of violations of the NIRC. or b. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. File a petition for review with the CTA within 30 days after the expiration of the 180-day period. One Million Pesos (P1. the taxpayer is barred from re-opening the question already decided. Q: What are the legal requirement/s must be complied with to claim the reward? A: In Case of Inaction by Commissioner within 180 days from Submission of Documents Q: What are the options given to the taxpayer if there would be inaction by the CIR within 180 days from submission of the documents? A: The taxpayer has two alternative options: 1. or b. In an action for the collection of the tax by the government. For discovery of violations of the NIRC The amount of reward shall be whichever is lower between: a. and 2. 2. MASACAYAN & THEENA C. 3.

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without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission. (Sec.222 [a], NIRC) XPNs: 1. The same exceptions relative to the prescriptive periods for assessment are also applicable. 2. If the government makes another assessment or the assessment made is revised, the prescriptive period for collection of such tax should be counted from the date the last or revised assessment was made. 3. Where an action is brought to enforce a compromise, the prescriptive period is 10 years from the time the right of action accrues as fixed in the Civil Code. (Art. 1144 [1], NCC)
Note: When it comes to self-assessed taxes where a return is filed by the taxpayer. The taxpayer is the one to assess himself and such assessment is deemed to be adopted by the government. Thus, the filing of the return would also be the date of the assessment.

Note: The informer shall not be entitled to a reward where no revenue, surcharges or fees be actually recovered or collected.

COLLECTION Q: What is the method used in the collection of taxes? A: The legislature may adopt any reasonable method for the effective enforcement of the collection of taxes, subject to: 1. The right of the person to notice; and 2. The opportunity to be heard.
Note: The power to impose taxes is clothed with the implied authority to devise ways and means to accomplish collection in the most effective manner. Without this implied power, the ends of government may fail. (CIR v. Pineda, GR L-22734, Sept. 15, 1967)

Requisites Q: What is the requirement before collection can be made? A: Collection is only allowed when there is already a final assessment made for the determination of the tax due. Assessments are deemed final when: 1. The taxpayer failes to file a protest 30 days from receipt of the assessment 2. After the 180 day period and the CIR has not yet acted on the protest the taxpayer fails to appeal it 3. After 30 days from the receipt of the decision of the CIR the taxpayer fails to appeal.

Q: How is judicial action for the collection of tax commences? A: 1. By the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the CTA; or By filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for. (Fernandez Hermanos, Inc. v. CIR, GR L-21551, Sept. 30, 1969)

2.

Prescriptive Period for Collection of Tax Q: What are the prescriptive periods for the collection of tax? A: GR: 1. Where an assessment was made - period for collection (by distraint or levy or by a proceeding in court) is within 3 years following the assessment has been released, mailed, or sent. (BPI v. CIR, GR 139736, Oct. 17, 2005) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, a proceeding in court for the collection of such tax may be filed

Q: When is collection by judicial action deemed instituted? A: Upon filing of the corresponding complaint in the court of competent jurisdiction. In administrative remedies, upon service of the distraint and levy on the taxpayer or persons or entity authorized to receive the same. (Diluangco v. CIR, GR L-16661, Jan. 31, 1962) Q: What is the prescriptive period where the government action is on a bond which the taxpayer executes in order to secure the payment of his tax obligation? A: 10 years under Art. 1144 (1) of the Civil Code and not 3 years under the NIRC. In this case, the Government proceeds by court action to forfeit a

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

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bond. The action is for the enforcement of a contractual obligation. (Republic v. Araneta, GR L14142, May 30, 1961) Q: On Aug. 5, 1997, Adam filed a request for reconsideration of the deficiency withholding tax assessment on July 10, 1997, covering the taxable year 1994. After administrative hearings, the original assessment of P150,000 was reduced to P75,000. A modified assessment was thereafter issued on Aug. 5, 1999. Despite repeated demands, Adam failed and refused to pay the modified assessment. Consequently, the BIR brought an action for collection in the RTC on Sept. 15, 2000. Adam moved to dismiss the action on the ground that the government right to collect the tax by judicial action has prescribed. Decide. A: The right of the Government to collect by judicial action has not prescribed. The filing of the request for reconsideration which was acted upon by the CIR suspended the running of the 3-year prescriptive period for collection and commenced to run again when a decision on the protest was made on Aug. 5, 1999. (2002 Bar Question) Q: Explain the rules on assessment and collection. A:
NO RETURN WAS FILED, OR THE RETURN FILED WAS FALSE OR FRAUDULENT Collection With Prior Assessment Assessment should be Assessment should be made within 3 years from made within 10 years from the date of filing of the the date of discovery of the return or from the last day failure to file the return, or required by law for filing, the falsity or fraud in the whichever is later (Sec. return (Sec.222 [a], NIRC) 203, NIRC) Collection should be made within 3 years from the date of assessment or from the filing of the return, either by: 1. Summary proceedings; or 2. Judicial proceedings (Sec.222 [c], NIRC) Collection Without Prior Assessment RETURN FILED WAS NOT FALSE OR FRAUDULENT Assessment should be made within 3 years from the date of filing of the return or from the last day required by law for filing, whichever is later (Sec. 203, NIRC) Assessment should be made within 10 years from the date of discovery of the failure to file the return, or the falsity or fraud in the return (Sec.222 [a], NIRC)

Judicial Remedies of a Taxpayer Civil Action. Q: What are the civil actions available to the taxpayer? A: 1. Appeal to the CTA in devision – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the CIR. (Sec. 228, NIRC) Appeal to the CTA en banc – the party adversely affected by the decision of a CTA division may file a motion for reconsideration or new trial within 15 days from receipt of the decision with the CTA division. If the MR is denied file a petition for review with the CTA en banc. Appeal to the SC – within 15 days from the receipt of the decision of the CTA. By way of special civil action – Petition for certiorari, prohibition and mandamus to the SC in cases of grave abuse of discretion, lack or excess of jurisdiction. Action to contest forfeiture of chattel, at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at the sale (Sec. 231, 1997 NIRC); and Action for damages against a RO by reason of any act done in the performance of official duty. (Sec. 227, 1997 NIRC) Injunction – when the CTA is in the opinion that the collection by the BIR may jeopardize taxpayer.

2.

3. 4.

5.

6.

7.

Q: What may the CTA review in case of an appeal to them? A: CTA may review the decision of the CIR on the disputed assessments. (CIR v. Villa, GR L-23988, Jan. 2, 1968) Q: May the CIR still modify its assessment despite the CTA has already acquired jurisdiction? A: Yes, provided it would be done before an answer is filed with the court. Q: Is protest at the time of payment of taxes and duties a requirement to preserve the taxpayer's right to claim a refund?

Collection should be made within 10 years after the discovery of falsity or fraud or non-filing and it should only be by judicial proceeding (Sec. 222 [a], NIRC)

*See discussion on Distraint, Levy, Forfeiture, Tax Lien, Compromise and Abatement

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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Claim For Refund A: 1. For taxes imposed under the NIRC protest at the time of payment is not required to preserve the taxpayer’s right to claim refund. This is clear under Sec. 230 of the NIRC which provides that a suit or proceeding maybe maintained for the recovery of national internal revenue tax or penalty alleged to have been erroneously assessed or collected, whether such tax or penalty has been paid under protest or not. For duties imposed under the Tariff and Customs Code (TCC) - a protest at the time of payment is required to preserve the taxpayers' claim for refund. The procedure under the TCC is to the effect that when a ruling or decision of the Collector of Customs is made whereby liability for duties is determined, the party adversely affected may protest such ruling or decision by presenting to the Collector, at the time when payment is made, or within 15 days thereafter, a written protest setting forth his objections to the ruling or decision in question. (Sec. 2308, TCC) (1996 Bar Question) Q: What is a tax refund? A: It is an actual reimbursement of tax. Q: When may this be availed of? A: This is a remedy after the payment of tax liability. Q: What are the distinctions between tax refund and tax credit? A:
TAX REFUND The taxpayer asks for restitution of the money paid as tax 2-yr period to file the claim with the CIR starts after the payment of the tax or penalty TAX CREDIT The taxpayer asks that the money paid be applied to his existing tax liability 2-yr period starts from the date such credit was allowed – in case credit is wrongly made

2.

Q: Who may claim a tax refund? A: GR: The taxpayer who paid the same XPN:
Case The one entitled for the refund The taxpayer (even if the tax was shifted by the taxpayer to his customers as in sales tax and even if the tax has been billed as a separate item in the invoice) (CIR v. American Rubber GR L19667, Nov. 29, 1966) Theater goers are not entitled to claim the refund of such taxes (Medina v. Baguio, GR L4060, Aug. 29, 1952) The withholding agent (CIR v. Proter and Gamble, GR L66838, Apr. 15, Reason

Criminal Action. Q: What are the criminal actions available for the taxpayer? A: Filing of criminal complaint against erring BIR officials and employees.
Note: With the enactment of the new CTA law (RA 9282) amending RA No. 1125, CTA now has jurisdiction over criminal cases.
Where the tax has been shifted

SUBSTANTIVE REMEDIES 1. 2. 3. Questioning the constitutionality or validity of tax statutes or regulations Non-retroactivity of rulings (Sec.246, NIRC) Failure to inform the taxpayer in writing of the legal and factual bases of assessment makes it void (Sec. 228, NIRC) Preservation of books of accounts and once a year examination (Sec. 235, NIRC)
Where the payer is not the taxpayer (i.e. theater owners who paid illegal municipal taxes billed and collected from theater goers) Where the payer is the withholding agent

The sales tax is imposed directly on the seller as an occupation tax. Once recovered, the seller must hold the refunded taxes in trust for the individual purchasers who advanced payment thereof and whose name must appear on his record

4.

The withholding agent is directly and independently liable for the

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

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1988) correct amount of tax that should be withheld of deficiency assessments surcharges and penalties.

Q: How are claims for refund construed? A: Tax refunds, condonations and amnesties, being in the nature of tax exemptions, must be strictly construed against the taxpayer and liberally in favor of the government. Q: Are claims for refund always construed strictly against the taxpayer? A: No, not all claims for tax refunds are in the nature of tax exemptions. A tax refund may only be considered as a tax exemption when it is based on a tax-exemption statute or a tax-refund statute. In such cases, the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption. Tax refunds or tax credits are not founded principally on legislative grace, but on the legal principle of quasicontracts against a person’s unjust enrichment at the expense of another. The erroneous payment of tax as a basis for a claim of refund may be considered as a case of solutio indebiti, which the government is not exempt from its application and has the duty to refund without any unreasonable delay what it has erroneously collected. (CIR v. Fortune Tobacco Corp., GR 167274, July 21, 2008) Q: What is the Irrevocability Rule? A: The exercise of the option to carry over excess tax credits bars a taxpayer from claiming the same excess tax credits for refund in the succeeding taxable year. Sec. 76 of the NIRC provides that once the option to carry over and apply the excess quarterly income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of tax credit certificate shall be allowed. These remedies are in the alternative and the choice of one precludes the other. The phrase “such option shall be considered irrevocable for that taxable period” in Sec. 76 of the NIRC means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. (SYSTRA Phil., Inc. v. CIR, GR 176290, Sept. 21, 2007) Q: What is a Tax Credit Certificate? A: It is validly issued under the provisions of the NIRC and may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. (Sec. 204 [C], NIRC)

Where the donor’s tax was assumed by the donee

Donee is the proper party to claim the refund of the donor’s tax (even if the tax was advanced by the donor)

Q: What are the requisites for a tax refund or tax credit? A: 1. There must be a written claim with the CIR, as it would enable the CIR to correct the errors of his subordinate and to notify the government; Must be a categorical claim for refund or credit; Must be filed within 2 years after the payment of the tax or penalty otherwise no refund or credit could be taken. No suit or proceeding shall be instituted after the expiration of the 2 year period regardless of any supervening cause that may arise after payment; and Present proof of payment of the tax.

2. 3.

4.

Q: What are the grounds for filing a claim for tax refund or tax credits? A: EEW 1. 2. 3.

Tax is Erroneously or illegally collected. Sum collected is Excessive or in any manner wrongfully collected. Penalty is collected Without authority.

Q: Distinguish between illegally collected tax and erroneously collected tax? A:
Erroneously collected tax Definition There is a violation of No violation of the law but certain provisions of tax there is a mistake in law or statute. collection. On the part of the Taxpayer The tax was paid by him The payment was made under under duress. a mistake of fact. On the part of the Government The tax was collected in The collection was made patent disregard of the based on a misapplication of law. the law. Illegaly Collected Tax

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

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Q: Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? A: Yes, the deficiency tax assessment is a bar to a tax refund or credit. The taxpayer cannot be entitled to a refund and at the same time liable for a tax deficiency assessment for the same year. The deficiency assessment creates a doubt as to the truth and accuracy of the Tax Return. Said Return cannot therefore be the basis of the refund. ( CIR v. CA, GR 106611, July 21, 1994) (2005 Bar Question) Q: Is the government liable for interests on tax refunds? A: GR: There can be no interest on refund of tax. XPNs: 1. If interest is authorized by law. 2. Arbitrariness in the collection of tax. 3. Under Sec. 79 C [2] with respect to income taxes withheld on the wages of the employees.
Note: An action is not arbitrary when exercised honestly and upon due consideration where there is room for two opinions, however much it may be believed that an erroneous conclusion was reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. (Philex Mining Corp. v. CIR, GR 120324, Apr. 21, 1999)

2.

3.

Payments effected through the withholding tax system – It is from the end of the taxable year or when the tax liability falls due that the 2 year prescriptive starts to run. In corporate dissolution – The 2-year prescriptive period should be counted from 30 days after the approval by the SEC of its plan of dissolution.

Q: What are the conditions for the grant of tax refund when the creditable withholding tax is in excess of the amount of the tax due? A: 1. The claim is filed with the CIR within the 2-year period from the date of payment of the tax or from the date of the filing of the Final Adjustment Return; It must be shown in the return of the recipient that the income payment received was declared as part of the gross income; and The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount of the tax withheld therefrom. (Citytrust Finance Corp. v. CTA and CIR, CA GR. SP No. 28239)

2.

3.

Q: What should be done within the the 2-year prescriptive period for tax refund? A: It is necessary that the: 1. Claim for refund in the BIR; and 2. Proceeding in the CTA Is commenced within the 2-year prescriptive period counted from the date of full payment of the tax or penalty regarless of any supervening event. (Sec. 229, NIRC)
Note: This 2-year prescriptive period applies only for the recovery of taxes or penalties erroneously, excessively, illegally or wrongfully collected. Accordingly, an ordinary claim for tax credit would prescribe in 10 years under Art 1144 NCC.

Q: Distinguish between a taxpayer’s remedies in connection with his tax assessment and/or demand and his claim for refund of taxes alleged to have been erroneously or illegally collected? A:
Against an Assessment A tax assessment becomes final unless it is disputed or contested within 30 days from receipt thereof by the taxpayer. If the action taken by the CIR on the request for reconsideration is unacceptable to the taxpayer, the latter must then appeal, by way of Petition for Review to the CTA within 30 days from receipt of the decision of the CIR. The taxpayer may also opt to pay the tax before the finality of the assessment (e.g., within 30 days from receipt of the assessment) and then file within 2 years a written claim for the refund of the tax. Claim for Refund A denial by the CIR of a claim for refund must be appealed to the CTA within 30 days from receipt of notice of denial and within 2 years from the day of full and final payment. Continued inaction by the CIR on claims for refund may thus be taken as a denial appealable to the CTA, in order to permit the appeal to be considered or having been made within the two-year mandatory period.

Q: State the reckoning of the 2-year prescriptive periods for tax refunds. A: 1. Tax is paid in installments – 2 years should be counted from the date of the final payment.

Q: XCEL Corp. filed its quarterly income tax return for the first quarter of 1985 and paid P500.000 on May 15, 1985. In the subsequent quarters, XCEL suffered losses. On Apr. 15, 1986 it declared a net

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TAXATION LAW TEAM: ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.; ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ; MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS

NATIONAL INTERNAL REVENUE CODE OF 1997
loss of P1,000,000 in its annual income tax return. After failing to get a refund, XCEL filed on Mar. 1, 1988 a case with the CTA to recover the P500.000 in taxes paid on May 15, 1985. Is the action to recover the taxes filed timely? A: The action for refund was filed in the CTA on time. In the case of CIR v. TMX Sales, Inc., GR 83736, Jan. 15, 1992, which is similar to this case, the SC ruled that in the case of overpaid quarterly corporate income tax, the two-year period for filing claims for refund in the BIR as well as in the institution of an action for refund in the CTA, the two-year prescriptive period for tax refunds is counted from the filing of the final, adjustment return under Sec. 67 of the NIRC, and not from the filing of the quarterly return and payment of the quarterly tax. The CTA action on Mar. 1, 1988 was clearly within the reglementary 2-year period from the filing of the final adjustment return of the corporation on Apr. 15, 1986. (1994 Bar Question) Q: A Corp. files its income tax return on a calendar year basis. For the first quarter of 1993, it paid on May 30, 1993 its quarterly income tax of P3 million. On Aug. 20, 1993, it paid the second quarterly income tax of P0.5 million. The third quarter resulted in a net loss, and no tax was paid. For the fourth and final return for 1993, the company reported a net loss for the year, and the taxpayer indicated in the income tax return that it opted to claim a refund of the quarterly income tax payments. On Jan. 10, 1994, the corporation filed with the BIR a written claim for the refund of P3.5 million. BIR failed to act on the claim for refund; hence, on Mar. 2, 1996, the A Corp. filed a petition for review with the CTA on its claim for refund of the overpayment of its 1993 quarterly income tax. BIR, in its answer to the petition, alleged that the claim for refund was filed beyond the reglementary period. Did the claim for refund prescribe? A: Yes, the counting of the two-year prescriptive period for filing a claim for refund is counted not from the date when the quarterly income taxes were paid but on the date when the final adjustment return or annual income tax return was filed. (CIR v. PhilAm Life Insurance Co., Inc., GR 105208, May 29, 1995) It is obvious that the annual income tax return was filed before Jan. 10, 1994 because the written claim for refund was filed with the BIR on Jan. 10, 1994. Since the 2-year prescriptive period is not only a limitation of action in the administrative stage but also for bringing the case to the judicial stage, the petition for review filed with the CTA on Mar. 02, 1996 is beyond the reglementary period. (1997 Bar Question) Q: On Mar. 12, 2001, REN paid his taxes. Ten months later, he realized that he had overpaid and immediately filed a claim for refund with the CIR. On Feb. 27, 2003, he received the decision of the CIR denying REN's claim for refund. On Mar. 24, 2003, REN filed an appeal with the CTA. Was his appeal filed on time or not? A: No, his appeal was not filed on time. The 2-year period for filing a claim for refund is not only a limitation for pursuing the claim at the administrative level but also for appealing the case to the CTA. The law provides that "no suit or proceeding shall be filed after the expiration of 2 years from the date of the payment of the tax or penalty regardless of any supervening cause that may arise after payment. Since the appeal was only made on Mar. 24, 2003, more than two years had already elapsed from the time the taxes were paid on Mar. 12, 2003. Accordingly, REN had lost his judicial remedy because of prescription. (2004 Bar Question) Q: When must an appeal to CTA be filed if the claim for refund was denied by the CIR? A: It must be filed within 30 days from receipt of the decision of the CIR but not to exceed the 2-year period from date of payment of the tax or penalty regardless of any supervening cause that may arise after payment.
Note: If the decision of the CIR takes too long and the 2-year period is about to end, proceedings in the CTA must be commenced and there would no longer be any need to wait for the decision of the CIR. Q: Alyanna has a pending claim for refund with the CIR. The 2-year period is about to end and the CIR has yet to decide on the claim. What must Alyanna do to pursue her claim for refund? A: A claim for refund must be filed with the BIR and the commencement of the proceedings in the CTA must be done within the 2-year period from the date of full payment of the tax or penalty regarless of any supervening event. Thus, Alyanna must commence the proceedings with the CTA before the end of the 2-year period without waiting for the decision of the CIR.

Q: Who is the proper party to question/seek a tax refund in indirect taxes? A: In indirect taxes, the proper party who can question or seek a refund of the tax is the person on whom the tax is imposed by law and who paid

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ

SANTO TOMAS de Derecho Civil

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defenses against the tax’s legality. the tax becomes a part of the price of the commodity. 14. SUBJECT HEADS: EDISON U. Gonzales. KASALA. TCC. PRUDENCE ANGELITA A. GR L-20563. The CIR denied the claim contending that since the liability for the excise tax payment is imposed by law on Petron as the manufacturer of the petroleum products. GR L-19495. 1. What is the proper remedy of the Silkair? Q: Does a withholding agent or a subsidiary corporation have the personality to file a written claim for refund? A: Yes. GUTIERREZ. Although the burden to pay an indirect tax can be passed on to the purchaser of the goods. Silkair. Silkair claims that it is exempt from the payment of excise tax under the NIRC. GRANTOZA. filed a formal claim for refund with the CIR. (Cebu Portland Cement Co. and under Art. Q: Is payment under protest a requirement? A: No. Q: PERF filed an administrative claim with the appellate division of the BIR for refund of overpaid income taxes. 24. 212 TAXATION LAW TEAM: ADVISER: ATTY. It has therefore the personality to file a written claim for refund. 2. Thus. Is the failure of PERF to indicate its choice to avail of either the tax refund or the tax credit in the annual ITR fatal to its claim for refund? Is the failure of PERF to present in evidence the 1998 ITR fatal to its claim for refund? 2. or seek a refund of an indirect tax is the statutory taxpayer. the withholding agent is not considered as the taxpayer. 2008) Whether or not Silkair is the proper party to claim a refund for the excise taxes paid. 135. Silkair thus filed this Petition for Review. ORTIZ & VANNESSA ROSE S.. Note: However. Collector. NIRC) Note: The taxpayer’s willingness to pay the tax is no waiver to raise. Withholding agent is not only an agent of the taxpayer but also an agent of the government. 204 [3]. specifically Sec. it is ipso facto authorized to file a written claim for refund. The SC held that “the proper party to question. 252. On appeal. 76. A suit or proceeding for tax refund may be maintained “whether or not such tax. When the manufacturer or seller decides to shift the burden of the excise tax to the taxexempt purchaser. CLARABEL ANNE R. the CTA resolved to deny the claim. the petroleum manufacturer who is the statutory taxpayer is the proper party to claim the refund. KEITH S. HERNANDEZ. LGC and for customs duties under Sec. The CTA denied the petition of PERF on the ground of insufficiency of evidence. penalty or sum has been paid under protest or duress.UST GOLDEN NOTES 2011 the tax even when he shifts the burden thereof to another. 1. VALCOS . 4 of the Air Transport Agreement between the Governments of the Republic of the Philippines and the Republic of Singapore (Air Agreement). Oct. The exempt entity’s remedy is to invoke its tax exemption before buying the petroleum so that the petroleum manufacturer would not pass on the excise taxes as part of the purchase price. GR 171383 & 172379. 2. 29. DIVINE C. Ltd. Nov. v.” (Sec. as a rule. The CTA noted that PERF did not indicate in its 1997 ITR the option to either claim the excess income tax as a refund or tax credit pursuant to Sec. in this case.” Excise tax on petroleum is an indirect tax. TEE. MEMBERS: JOSE DUKE BAGULAYA. CHRISTINE L. A: 1. It held that the failure of PERF to signify its option on whether to claim for refund or opt for an automatic tax credit and to present its 1998 ITR left the Court with no way to determine with certainty whether or not PERF has applied or credited the refundable amount sought for in its administrative and judicial claims for refund. So the withholding agent is liable for the tax. CHARLES L. NIRC. PERF filed a petition for review with the CTA seeking for the said refund. 1966) Q: When is payment under protest required? A: Payment under protest is necessary in claims for refund for real property taxes under Sec. a withholding agent is technically a taxpayer because it is required to deduct and withhold the tax. CIR. (CIR v. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. LACSINA. SUBJECT HEAD: RODOLFO N. ASST. Since it is an agent of the taxpayer. hence he is not entitled to a tax amnesty due for the taxpayer’s account. contending that it is exempt from the payment of excise taxes. and the obligation to remit the same to the government. Due to the inaction of the BIR. 1968) Q: Silkair purchased aviation jet fuel from Petron for use on Silkair international flights. (Silkair Singapore PTE. v. ANG JR. 2308. Nov. the liability to pay the indirect tax remains with the petroleum manufacturer or seller. any claim for refund should only be made by Petron as the statutory taxpayer.

(Sec. NIRC) The denial of the claim by the CIR is the one which will vest the CTA jurisdiction over the refund case should the taxpayer decide to appeal on time. 1997. A tax refund may only be considered as a tax exemption when it is based either on a tax-exemption statute or a tax-refund statute. the Executor was made to pay the deficiency assessment on Oct. 1950) (2000 Bar Question) 2. GR 167274-75 July 21. PERF Realty Corp. Yes. what is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of taxes. and b. inclusive of surcharge. The tax refund is being re-claimed by the BIR in a petition before the SC. MASACAYAN & THEENA C.NATIONAL INTERNAL REVENUE CODE OF 1997 defense in its answer to the petition for review. Thus. GR L-3028. July 29.) Q: When is there waiver of prescription in an action for refund? A: GR: If the government failed to plead prescription in a motion to dismiss or as a A: 1. The BIR argued that tax refund partakes of the nature of a tax exemption and should be construed against the claimant. was granted a tax refund representing excise taxes erroneously collected from its tobacco products. Q: On June 16. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. the BIR issued against the Estate of Mott a notice of deficiency estate tax assessment.. 1997.. and not the doctrine as applied to tax exemptions. Collector. 2008. but is premised on either an erroneous payment of tax or the government’s exaction in the absence of a law. (CIR v. the Executor filed a Petition with the CTA praying for the refund of the surcharge. CTA. Note: A return filed showing an overpayment shall be considered as a written claim for credit or refund. As burdens. 10. The protest was denied by the CIR with finality on Sept. 204. GR 14532. Conversely. To afford the CIR an opportunity to consider the claim and to have a chance to correct the errors of subordinate officers (Gonzales v. July 4. not all claims for tax refunds are in the nature of tax exemptions. (Bermejo v. taxes should not be unduly exacted nor assumed beyond the plain meaning of the tax laws. NIRC) A: XPN: Taxpayer amends his petition for review alleging therein a new cause of action and the government pleads prescription in his answer to the amended petition for review. The Executor of the Estate of Mott filed a timely protest against the assessment and requested for waiver of the surcharge. MARTINEZ SANTO TOMAS de Derecho Civil 213 . interest and penalty. interest and compromise penalty. While a taxpayer is required to mark its choice in the form provided by the BIR. 2. this requirement is only for the purpose of facilitating tax collection. 13. To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating the revenue available for expenditures. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. SABUGO & JOHN HENRY C. 1997. ACADEMICS CHAIR: LESTER JAY ALAN E. The company’s claim for tax refund is not based on either a tax-exemption statute or a taxrefund statute. Is the BIR correct? A: No. 1. GR 163345. Fortune Tobacco Corp. (CIR v. May 26. Is the stand of the CIR correct? Why is the filing of an administrative claim with the BIR necessary? 2. The CIR filed a Petition for Review with the CA assailing the jurisdiction of the CTA and the Order to make refund to the Estate on the ground that no claim for refund was filed with the BIR. failure to formally offer the 1998 ITR is not fatal to a claim for refund where the said document is attached to a subsequent motion for reconsideration and has become part of the records of the case. The CTA took cognizance of the case and ordered the CIR to make a refund. Consequently. 229. 2008) Q: Fortune Tobacco Corp. for there was no claim for refund or credit that has been duly filed with the CIR which is required before a suit or proceeding can be filed in any court. The following day. a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. No. The filing of an administrative claim for refund with the BIR is necessary in order: a. interest and compromise penalty. failure to indicate a choice to avail of either the tax refund or the tax credit in the annual ITR is not fatal to a claim for refund and should not bar the availment of such remedy. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 1. 1965). (Sec. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. No.

shall be invalid. 207 [A]. NIRC) Government Remedies Q: What are the administrative remedies of the government for collection of delinquent taxes under the NIRC? A: CELCED 1. GR 159647. taxpayer may question NIRC). SUBJECT HEADS: EDISON U. can the bookstore claim from the BIR a tax refund in lieu of tax credit? Can the BIR require the bookstores to deduct the amount of the discount from their gross income? If a bookstore closes its business due to losses without being able to recoup the discount. a Tax Credit Certificate which remains unutilized after 5 years from date of issue. Compromise and Abatement 6. Bicolandia Drug Corporation. GR 148083. No. when a refund check or warrant remains unclaimed or uncashed within 5 years from date of mailing or delivery. Since the law allowed the bookstores to claim the discount in full as a tax credit. July 21. Enforcement of tax lien 5. Apr. executory and demandable. ORTIZ & VANNESSA ROSE S. PRUDENCE ANGELITA A. you may appeal the final decision within 30 days from receipt hereof. KEITH S. 15. Levy of real property 3. the BIR issued a FAN to the taxpayer. before the property (Sec. LACSINA. ANG JR. the taxpayer filed a petition for review with the CTA. this case is an exception to the rule on exhaustion of administrative remedies on the ground that the BIR is in estoppel.” Instead of filing a protest on the assessment. SUBJECT HEAD: RODOLFO N. for distraint of personal Thus. otherwise said deficiency tax assessment shall become final. GOVERNMENT 2.g. CHRISTINE L.UST GOLDEN NOTES 2011 Q: Congress enacts a law granting grade school and high school students a 10% discount on all school-prescribed textbooks purchased from any bookstore. CHARLES L. HERNANDEZ. (CIR v. Should the motion be granted? A: No. Central Luzon Drug. If you disagree. KASALA. Central Luzon Drug. A: A: TAXPAYER If Express Must observe the legal Must observe the parameters set forth in doctrine of exhaustion of the law (e. GRANTOZA. Distraint of personal property 2. can it claim reimbursement of the discount from the government on the ground that without such reimbursement. the credit can never be applied and will be lost altogether. the doubt should be resolved in strictissimi juris against the claimant. 15. Unless revalidated (Sec. the law constitutes taking of private property for public use without just compensation? 1. Subsequently. procedure administrative remedies. tax credit which reduces the tax liability is different from a tax deduction which merely reduces the tax base. 1. The demand letter states: “This is our final decision based on investigation. Q: Can Tax Refunds / Tax Credit be Forfeited to the Government? A: 1. Civil penalties Q: What are the guidelines that must be observed with respect to administrative remedies? 2. 219) before the BIR. Tax Refund – Yes. the BIR is not allowed to expand or contract the legislative mandate (CIR v. Apr. Q: Taxpayer duly protested a PAN it received from the BIR. he must first file an enforcement of tax lien administrative protest (Sec. (2006 Bar Question) 2. there is nothing in the law that grants a refund when the bookstore has no tax liability against which the tax credit can be used. 2005) No. The taxpayer 214 TAXATION LAW TEAM: ADVISER: ATTY. MEMBERS: JOSE DUKE BAGULAYA. 2006) No. (CIR v. 230. ASST. Tax Credit – Yes. If in a taxable year a bookstore has no tax due on which to apply the tax credits. 2005) The grant of the discount to the taxpayer is a mere privilege and can be revoked anytime.. TEE. thus compelling it to close shop. The law allows bookstores to claim the discount in full as a tax credit. The BIR filed a motion to dismiss on the ground that the taxpayer failed to exhaust administrative remedies by filing a protest on the assessment. GUTIERREZ. A tax credit is in the nature of a tax exemption and in case of doubt. 207 B) and CTA. VALCOS . CLARABEL ANNE R. (Same is true with claims for refunds) If Implied Both may avail of the usual remedies for convenience and expediency. GR 159647. for levy on real an assessment before the property (Sec. Enforcement of forfeiture 4. 3. 3. if the business continues to operate at a loss and no other taxes are due. DIVINE C.

including expenses. 2. debts. the proper officer shall seize and distraint any goods. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Taxpayer Failed to pay delinquent tax on time. 6. and 4. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. shall be returned to the owner of the property sold 3. 5. CIR or his duly authorized representative – if the amount involved is in excess of P1 million. including stocks and other securities. A: It is a summary remedy whereby the collection of tax is enforced on the goods. GR 175097. NIRC) Administrative Remedies Distraint Q: Define distraint. 4. and the personal property. or effects. Someone of suitable age and discretion at the dwelling or place of business of such person. chattels. As to tangible goods: a. ACADEMICS CHAIR: LESTER JAY ALAN E. 2. Commencement of distraint proceedings by the CIR or his duly authorized representatives or by the revenue district officer as the case may be Service of warrant of distraint upon taxpayer or upon any person in possession of the property Posting of notice in not less than 2 public places in the municipality or city and notice to taxpayer specifying the time and place of sale and the articles distrained Sale at public auction to be held not less than 20 days after notice to the owner or possessor of the property and publication or posting of such notice Disposition of proceeds of the sale Residue over and above what is required to pay the entire claim. Actual – resorted to when there is actual delinquency in tax payment. 2. or Revenue District Officer – if the amount involved is P1 million or less. 207 [A]. Q: What is the procedure that must be observed in effecting actual distraint? A: 1. v. Q: What are the requisites for the exercise of distraint (and levy)? 2. bank accounts and interests in and rights to personal property of the taxpayer in sufficient quantity to satisfy the tax. Q: Who is authorized to issue the warrant of distraint? A: 1. 3. credits. The owner or person in possession. As to stocks and/or securities: Actual Distraint Q: How is actual distraint of personal property effected? 2. (Allied Banking Corp. credits.) The property may be offered in a public sale. debts. SABUGO & JOHN HENRY C. Taxpayer is Delinquent in payment of tax. (Sec. 5.NATIONAL INTERNAL REVENUE CODE OF 1997 cannot be blamed for not filing a protest against the FAN since the language used and the tenor of the demand letter indicate that it is the final decision of the CIR on the matter. or b. whether its action on a disputed assessment constitutes its final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. expenses of distraint and the cost of the subsequent sale. Hence. Q: What are the kinds of distraint? A: 1. Q: To whom is the warrant of distraint served? A: 1. Thus. in a clear and unequivocal language. MARTINEZ SANTO TOMAS de Derecho Civil 215 . Period within which to assess and collect the tax due has not yet prescribed. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Feb. chattels or effects of the taxpayer (including other personal property of whatever character as well as stocks and other securities. if taxes are not voluntarily paid. MASACAYAN & THEENA C. the CIR is now estopped from claiming that t did not intend the FAN to be a final decision. no actual delinquency in payment is necessary. bank accounts and interest in or rights to personal property. The court reminded the CIR to indicate. A: DeF–DeP 1. CIR. Constructive – a preventive remedy which aims at forestalling a possible dissipation of the taxpayer’s assets when delinquency sets in. There must be subsequent Demand to pay. 2010) A: Upon failure to pay the delinquent tax at the time required.

(Sec.. LACSINA. the CIR or his deputies may purchase the property in behalf of the National Government for the amount of taxes. NIRC) Q: May the government purchase the property under distraint? A: Yes. NIRC) Q: May the taxpayer recover his property prior to consummation of the sale? A: Yes. Very much less than the actual market value of the property offered for sale (Sec. CHARLES L. (Sec. KEITH S. company or association which issued the stocks or other securities. Upon the person owing the debt. SUBJECT HEADS: EDISON U. and b. 212. if at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale. KASALA. CLARABEL ANNE R. or b. ORTIZ & VANNESSA ROSE S. in his discretion. or 2. GRANTOZA. The net proceeds shall be remitted to the National Treasury and accounted as internal revenue. Upon the taxpayer. the officer making the sale shall execute a bill of sale. which shall be delivered to the buyer and to the corporation. He may ask for a bond as a condition for the cancellation of the warrant. Upon the taxpayer and b. 210. Any residue over and above what is required to pay the entire claim including expenses shall be returned to the owner of the property sold. If the sale is through a licensed commodity or stock exchange. Upon receipt of the copy of the bill of sale. 2. The sale must be held at the time and place stated in the notice. 4. it must be a public auction and the property shall be sold to the highest bidder for cash. treasurer or other responsible officer of the corporation. Note: Distraint of bank accounts is called garnishment. President. If the sale is conducted by the Revenue Officer. ANG JR. and 3. Not to dispose of it without the express authority of the CIR. Q: What are the rules governing the sale? A: 1. Constructive Distraint Q: How is constructive distraint effected? A: It is effected by requiring the taxpayer or any person having possession of the property: 1. GUTIERREZ. NIRC) 3. In case of stocks and other securities. As to debts/credits: a. 6. treasurer or other responsible officer of the bank. pending the sale and does not include services of the Revenue Officer. Not equal to the amount of tax. manager. NIRC) Note: Property so purchased may be resold by the CIR or his deputy. HERNANDEZ. As to bank accounts: a. The CIR may. DIVINE C. 7.UST GOLDEN NOTES 2011 a. MEMBERS: JOSE DUKE BAGULAYA. the goods or effects distrained shall be restored to the owner. The person having control over the credit or his agent. 211. SUBJECT HEAD: RODOLFO N. allow the lifting of the order of distraint. TEE. 3. 207. Q: What is the remedy of the taxpayer once the CIR or other proper officer issues the warrant of distraint? A: The taxpayer may request that the warrant be lifted. Note: Expenses chargeable upon seizure shall include only those actual expenses of seizure and preservation of the property 2. 5. it must be with the approval of the CIR. an entry of transfer should be made in the company or association’s book and a corresponding certificate of stock shall be issued if required. ASST. The president. 4. penalties and cost due thereon when the bid amount for the property under distraint is: 1. It may be conducted by the Revenue Officer or through a licensed commodity or stock exchange. The officer making the sale shall make a written report of the proceedings to the CIR within 2 days after the sale (Sec. To obligate himself to preserve it intact and unaltered. PRUDENCE ANGELITA A. Q: What if a taxpayer or person having possession of property refuses or fails to sign? 216 TAXATION LAW TEAM: ADVISER: ATTY. CHRISTINE L. manager. To sign a receipt covering the property distrained. VALCOS .

ACADEMICS CHAIR: LESTER JAY ALAN E. or other responsible officer of the bank. Service of the written notice to the: 2. in the presence of 2 witnesses. MASACAYAN & THEENA C. and 2. 6. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Name of the taxpayer. MARTINEZ SANTO TOMAS de Derecho Civil 217 . Taxpayer uses Aliases in bank accounts other than the name for which he is legally and/or popularly known. bank accounts. Q: How is levy on real property effected? A: It may be effected by serving upon the taxpayer a written notice of levy in the form of a duly authenticated certificate prepared by Revenue District Officer containing: [DNA] 1. (CIR v. manager. to any foreign country except if taxpayer is a banking institution. Floresl. To whom made Delinquent taxpayer Any taxpayer (delinquent or not) How made Taking of possession Mere prohibition from or transfer of control disposing the property How effected ACTUAL Q: Can property levied upon by the order of a competent court be subsequently distrained? A: Yes. unless such business is justified and/or connected with his trade. SABUGO & JOHN HENRY C.) Bank accounts are garnished by serving a warrant upon the taxpayer and upon the president. 2.NATIONAL INTERNAL REVENUE CODE OF 1997 Leaving a list of property Requiring taxpayer to sign distrained or service of a receipt or leaving a list warrant of such property Effect on collection Merely to prevent the Immediate step to collect taxpayer from disposing his property A: The officer shall: 1. There is big amount of Undeclared income known to the public and to the BIR and there is a strong reason to believe that the taxpayer will hide or conceal his property. Q: When may property of the taxpayer be placed under constructive distraint? A: LRT-ABUC 1. Leave a copy of such list in the premises where the property is located. Levy Q: Define levy. Sept. A: It is the seizure of real property and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer.e. Taxpayer applying for Retirement from business has a huge amount of assessment pending with the BIR. GR L. Taxpayer has record of Transferring his bank deposits and other personal properties in the Phil. subject to the prior lien of the attachment creditor. Prepare a list of such property. treasurer. Preparation of a duly authenticated certificate which shall operate with force of a legal execution throughout the Philippines. 2. 3. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. cash or sums of money owned by a delinquent taxpayer which is in the possession of a third party (i. 3. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 5. 1957) Q: What is Garnishment? A: It is the taking of personal properties. Q: When may levy on real property be made? A: It may be made before. and the same are not under any lawful fiduciary or trust capacity. Taxpayer has a record of Leaving the Philippines at least twice a year. Q: Distinguish actual from constructive distraint. whether or not related to him. business or profession.9675. simultaneously or after the distraint of personal property of the same taxpayer. with the consent of such court. Q: What is the procedure that must be observed in levy of real property? A: 1. 28. A: CONSTRUCTIVE Nature Summary remedy Subject matter Personal property Availability Cannot be availed of if tax is not more than P100. Description of the property upon which levy is made. 7. such property may. Amount of tax and penalty due. be subsequently distrained. Taxpayer keeps Bank deposits and other properties under the name of other persons. BIR receives Complaint or information pertaining to undeclared income (of big amount) and such is supported by substantial and credible evidence. 4.

the taxpayer may discontinue all proceeding by paying the taxes. Delinquent taxpayer. 1999) Q: Suppose an auction sale of land for the collection of delinquent taxes was held. levy and garnishment? 218 TAXATION LAW TEAM: ADVISER: ATTY. the delivery of the certificate issued to the purchaser and a certificate from the Revenue District Officer that he has redeemed the property. Q: May the taxpayer recover his property prior to consummation of the sale? Q: Who is entitled to the possession of the property levied? A: The owner shall not be deprived of the property until the expiration of the redemption period and shall be entitled to rents and other income until the expiration of the period for redemption. to his agent or the manager of the business in respect to which the liability arose. Dec. PRUDENCE ANGELITA A. The Registry of Deeds of the place where the property is located shall also be notified. is notice by publication enough or must there be personal service of notice? A: Notice by publication is not enough there must be a personal notice to the registered owner of the property for cases involving an auction sale of land for the collection of delinquent taxes are in personam. 2. penalties and interest plus costs of sale – no interest on purchase price since the Government did not “purchase” the property. NIRC) Q: What is the effect of the redemption to the property sold? A: It shall entitle the taxpayer. 6. ANG JR. VALCOS . (Sec. the taxpayer or anyone for him.. 4. In those cases. at any time before the day fixed for the sale.UST GOLDEN NOTES 2011 a. forfeiture is allowed if: 1. KASALA. 214. Public taxes. GR 133698. MEMBERS: JOSE DUKE BAGULAYA. for it was forfeited. 213. Apr. and 4. HERNANDEZ. the enforcement of tax collection through summary proceedings may still be carried out as the service of warrant of distraint or levy suspends the prescriptive period for collection. SUBJECT HEADS: EDISON U. 5. the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. or If he is absent from the Philippines. (Talusan v. GUTIERREZ. Note: If the property was forfeited in favor of the government. Interest on said purchase price at the rate of 15% per annum from the date of sale to the date of redemption. the redemption price shall include only the taxes. The Revenue District Officer shall pay the purchaser the amount by which such property has been redeemed and said property shall be free from lien of such taxes and penalties. (Sec. If there be none. 4. SUBJECT HEAD: RODOLFO N. penalties and interest. A: Yes. DIVINE C. Residue to be returned to the owner. Hizon. Tayag. ASST. 214. 13. CLARABEL ANNE R. NIRC) Q: What are the similarities between distraint and levy? A: 1. bid amount is insufficient. (Sec. Disposition of proceeds of sale. TEE. or 2. CHRISTINE L. GRANTOZA. (Sec. Penalties. 2. CHARLES L. Advertisement of the time and place of sale within 20 days after the levy by posting of notice and by publication for three consecutive weeks. 214. the occupant of the property. within 1 year from the date of sale. d. 3. there is no bidder. Summary in nature Requires notice of sale May not be resorted to if the amount involved is less than P100 Q: What are the distinctions among warrants of distraint. (RP v. Interest from the date of delinquency to the date of sale. Thus. LACSINA. NIRC) Q: May the taxpayer redeem his property after the consummation of the sale? A: Yes. may pay to the Revenue District Officer the total amount of the following: 1. 2001) Q: May the BIR forfeit the property subject to levy? A: Yes. extending even after the lapse of the statutory period for collections. 3. b. Q: What is the effect of service of warrant of distraint or levy? A: Its timely service suspends the running of the prescriptive period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish. NIRC) 3. Sale at a public auction. GR 130430. or c. ORTIZ & VANNESSA ROSE S. KEITH S.

Flojo. GR L-46954 July 20. If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes. Advertisement of Sale The sale of realty subject to levy is required to be published once a week for 3 consecutive No newspaper No newspaper weeks in a publication publication newspaper of required required general circulation in the municipality or city where the property is located. NIRC) Q: What is the difference between forfeiture and seizure to enforce a tax lien? A: SEIZURE Ownership Ownership is transferred Taxpayer retains to the Government ownership of property seized Disposition of the proceeds of sale Excess not returned to Excess returned to the taxpayer taxpayer FORFEITURE Q: Is the BIR authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency of taxpayer’s protest against the assessment with the BIR or appeal with the CTA? A: Yes. penalties and costs. Q: How is forfeiture enforced? A: 1. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. upon payment of taxes. 1982) Nowhere in the Tax Code is the CIR required to first. 224 and 225. Forfeiture Q: Define forfeiture. (Yabes v. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MARTINEZ SANTO TOMAS de Derecho Civil 219 . the BIR is authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency of protest. A: It is the divestiture of property without compensation. Q: What is the effect of forfeiture? A: Forfeiture transfers the title to the specific thing from the owner to the government. NIRC) In case of real property – By judgment of condemnation and sale in a legal action or proceeding (Sec. rule on the protest before he can institute collection proceedings on the tax assessed. 3. 215. penalties and interest thereon and cost of sale. the forfeiture shall become absolute. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. SABUGO & JOHN HENRY C. MASACAYAN & THEENA C. the real property shall be forfeited to the government. if not redeemed within said period. NIRC) 2. 2. (Sec. in consequence of a default or offense. the property may be redeemed by the delinquent taxpayer or any one for him. Q: What is done with the forfeited property? ACADEMICS CHAIR: LESTER JAY ALAN E. In case of personal property – By seizure and sale or destruction of property (Secs. NIRC) Personal Personal property Real property property owned owned by the owned and in by and in taxpayer but in the possession possession of the possession of of the taxpayer the taxpayer the third party Acquisition by the Government Personal Real property Personal property property subject to levy is garnished are distrained are forfeited to the purchased by the purchased by Government Government and the Government then sold to resold to meet and resold to meet the deficiency meet deficiency deficiency. The legislative policy is to give the CIR much latitude in the speedy and prompt collection of taxes because it is in taxation that the Government depends to obtain the means to carry on its operations. The Register of Deeds shall transfer the title of forfeited property to the Government without necessity of a court order. (Sec 215. Within 1 year from the date of sale. 224. Also there would no longer be any further levy for such would be for the total satisfaction of the tax due.NATIONAL INTERNAL REVENUE CODE OF 1997 A: DISTRAINT LEVY Subject matter GARNISHMENT A: Property forfeited is transferred to another without consent of the defaulting taxpayer or wrongdoer. (1998 Bar Question) Q: What are the rules governing forfeiture? A: 1.

Enforcement of Tax Lien A: Q: What is meant by tax lien? A: It is a legal claim or charge on property. costs upon the entire property and rights to property of the taxpayer. CHRISTINE L. SUBJECT HEAD: RODOLFO N. CLARABEL ANNE R. 2. By payment orremission of the tax By prescription of the right of government to assess or collect By failure to file notice of such tax lien in the office of Register of Deeds By destruction of property subject to tax lien By replacing it with a bond Note: A buyer in an execution sale acquires only the rights of the judgment creditor. NIRC) Otherwise. unless expressly made so by statute.. purchaser or judgment creditor. NIRC) With respect to real property – from time of registration with the register of deeds. It is a contract whereby the parties. A: 1. Q: When must compromise be made? Q: When is tax lien applied? A: 1. 3. KEITH S. GUTIERREZ. 217. interest. Criminal cases – Compromise must be made prior to the filing of the information in court. SUBJECT HEADS: EDISON U. a clever taxpayer who is 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. KASALA. 4. (Sec. 5. DIVINE C. Q:What is the nature of tax lien? A: It is enforced as payment of tax. VALCOS . DISTRAINT Directed against what? Need not be directed The property subject to against the property the tax subject to tax To whom directed? The property itself regardless of the present owner of the property The property should be presently owned by the taxpayer LIEN Compromise and Abatement Q: What is meant by compromise? A: It is an agreement between two or more persons who.UST GOLDEN NOTES 2011 Further Distraint and Levy Q: Can there be further distraint? Q: When is the tax lien extinguished? A: 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. personal or real. A: 1. penalties. HERNANDEZ. 2. LACSINA. NIRC) A: It goes back to the taxpayer or owner of the property. TEE. Civil cases – Before litigation or at any stage of the litigation. Q: What happens to the residue? 220 TAXATION LAW TEAM: ADVISER: ATTY. established by law as a sort of security for the payment of tax obligations. ORTIZ & VANNESSA ROSE S. PRUDENCE ANGELITA A. ASST. However. CHARLES L. With respect to personal property – Tax lien attaches when the taxpayer neglects or refuses to pay tax after demand and not from the time the warrant is served (Sec. 219. (Sec 215. even during appeal. MEMBERS: JOSE DUKE BAGULAYA. notice of such lien has to be filed by CIR with the Registry of Deeds. Q: Distinguish lien from distraint. GRANTOZA. by reciprocal concessions avoid litigation or put an end to one already commenced. to be valid against any mortgagee. although legal propriety demands that prior leave of court should be obtained. 219. (Sec. 2. NIRC) Note: A valid assessment is reuired to be issued before a tax lien shall be annotated at the proper registry of property. Note: Further distraint and levy does not apply when the real property was forfeited to the government for it is in satisfaction of the claim in question. It implies the mutual agreement by the parties in regard to the thing or subject matter which is to be compromised. Q: Is tax itself a lien? A: Tax is not a lien even upon the property against which it is assessed. amicably settle their differences on such terms and conditions as they may agree on to avoid any lawsuit between them. ANG JR.

2. 6 [F]. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Those already filed in courts. Criminal violations except: a. The assessment seems to be arbitrary in nature. the compromise penalty cannot be enforced thru an action in court. MASACAYAN & THEENA C. where compromise is requested on the ground of doubtful validity of the assessment. 3. Enforcement Service. 2. Civil tax cases disputed before the courts 4. 3. Those involving criminal tax fraud. or his authorized representative. The taxpayer failed to elevate to the CTA an adverse decision of the CIR. and The taxpayer must waive in writing his privilege of the secrecy of bank deposit under RA 1405 or other general or special laws. Doubtful validity of assessment. If the CIR wants to enforce a penalty he must file a criminal action in the courts. Collection Service. confirmed as such by the CIR or his duly authorized representative. Collection cases filed in courts 5. 2. Abad GR L-19627. Delinquent accounts with duly approved schedule of installment payments. MARTINEZ SANTO TOMAS de Derecho Civil 221 . SABUGO & JOHN HENRY C. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 1968) Note: The CTA may issue an injunction to prevent the government from collecting taxes under a compromise agreement when such would be prejudicial to the government. The delinquent account or disputed assessment is one resulting from a jeopardy assessment. 2. 4. Criminal tax Fraud cases. Note: If the offer to compromise was rejected by the taxpayer. June 27. (Sec. 5. and The acceptance (the CIR or the taxpayer) of the offer in the settlement of the claim 6. Cases under Administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the RO. RDO. Tax liability of the taxpayer. Q: What are the grounds for a compromise? A: 1. 7. 3. 5. Large Taxpayer Service. unless the applicant – taxpayer invokes provisions of Q: When may an offer to compromise a delinquent account or disputed assessment on the ground of reasonable doubt as to the validity of the assessment be accepted? A: When: 1. The taxpayer failed to file a request for reinvestigation/reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis. Cases where Final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose.NATIONAL INTERNAL REVENUE CODE OF 1997 Q: What are the requisites for Compromise: A: 1. which shall constitute as the CIR’s authority to inquire into said bank deposits (Sec. and other offices in the National Office 3.3. RR 30-2002) Q: What are the cases which cannot be compromised? A: F3EW-CD 1. and b. Delinquent accounts 2. Criminal violations already filed in courts. law that cast doubt on the taxpayer’s obligation to withhold. An offer of the taxpayer of an amount to be paid by him. (CIR v. Withholding tax cases. in some cases. or by distraint or levy. appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis. The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. NIRC) Q: What are compromised? the cases which may be A: DAC3 1. 4. Legal Service. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. or 2. ACADEMICS CHAIR: LESTER JAY ALAN E. Financial incapacity Q: What are the requisites in order that compromise settlement on the ground of financial incapacity may be allowed? A: 1. Cases which become Final and executory after final judgment of a court. Clear inability to pay the tax.

CHARLES L. RR 302002) 2. KEITH S. ANG JR.000 or less. GUTIERREZ.. ORTIZ & VANNESSA ROSE S. CLARABEL ANNE R. Apr. (People v. 7. the assessed tax provided that the minimum compromise entered into is equivalent to 10% of the basic assessed tax. L. Legal Division. A compromise can never be entered into after final judgment because by virtue of such final judgment the Government had already acquired a vested right. Apr. HERNANDEZ. Magdaluyo. GR L-1595. After the information is filed with the court – no longer permitted to compromise with or without the consent of the Prosecutor. DIVINE C. TEE. NIRC) If the basic tax involves exceeds P1 million or when the settlement offered is less than the prescribed minimum rates the approval of the Evaluation Board is needed. (People v. A preliminary compromise may be entered into by subordinate officials subject to review by the CIR. The CIR may compromise with respect to criminal and civil cases arising from violations of the NIRC as well as the payment of any internal revenue tax when: a. (Roviro v. the the can the Q: Who may compromise tax cases? A: 1. b. Before the complaint is filed with the Prosecutor’s Office – full discretion to compromise except those involving fraud.1. SUBJECT HEAD: RODOLFO N. Assessment Division. SUBJECT HEADS: EDISON U. 222 TAXATION LAW TEAM: ADVISER: ATTY. KASALA. 6. Chief. The Regional Director as Chairman. 1961) Q: Can the court compel the CIR to compromise in cases when such is allowed? b. ASST. CHRISTINE L. Tax assessments by revenue officers involving basic deficiency taxes of P500. Magdaluyo. 204 [A]. The Assistant Regional Director.5482. (Sec. 3. VALCOS . (Sec. GRANTOZA. 1982) Note: A compromise validly entered into between the CIR and the taxpayer prior to the institution of the corresponding criminal action arising out of a violation of the provisions of the Tax Code becomes a bar to such criminal action.UST GOLDEN NOTES 2011 within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis. Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe that the same can be disputed by sufficient and competent evidence. G. 20. c. Chief. May 5. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to 40% of the basic tax. GR L16235. Q: When must compromise be entered into? A: It must be entered into prior to the institution of the corresponding criminal action arising out of a violation of the provisions of the Tax Code. LACSINA. MEMBERS: JOSE DUKE BAGULAYA. the CIR is allowed to enter into a compromise only if the basic tax involved does not exceed P1M and the settlement offered is not less than the prescribed percentages.R. PRUDENCE ANGELITA A. Note: In these instances. Revenue District Officer having jurisdiction over the taxpayer-applicant Q: What is the extent of Commissioner’s power to compromise criminal violations? A: 1.1965) The Regional Evaluation Board (REB) may compromise: a. and b. e. After the complaint is filed with Prosecutor’s Office but before information is filed with the court – still compromise provided that prosecutor gives his consent. Q: Define compromise penalty. 3. and f. d. Chief. Collection Division. 20. or The financial position of the taxpayer demonstrates a clear inability to pay 2. Assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s execution of waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic. A: It is a certain amount of money paid in lieu of criminal prosecution and cannot be imposed in the absence of a showing that the taxpayer consented thereto. For minor criminal violations (RR 72001) Note: The REB shall becomposed of: a. Amparo.

) The assessment is brought about or resulted from taxpayer’s non-compliance with the law due to a difficult Interpretation of said law. penalties and/or interest imposed on the taxpayer may be abated on the ground that the imposition thereof is unjust or excessive? A: When: [W-SLICE] 1. NIRC) c. 10% of basic assessed tax b. Failure to beat bank cut-off time. by reciprocal concessions. There is Late payment of the tax under meritorious circumstances (i. 204. Any other compromise is extrajudicial and like any other contract can only be enforced by court action. 6. Legitimate business reverses. or The administration and collection costs involved do not justify the collection of the amount due. 40% of basic assessed tax Subject to approval of Evaluation Board: a. b.NATIONAL INTERNAL REVENUE CODE OF 1997 A: No. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. a taxpayer enters into a compromise with the BIR. A: As a rule. Q: What are the limitations on the power to compromise a tax liability? A: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Q: When is the CIR authorized to abate or cancel a tax liability? A: 1. 2041. The tax or any portion thereof appears to be unjustly or excessively assessed. The taxpayer’s mistake in payment of his tax is due to Erroneous written official 4. The taxpayer fails to file the return and pay the correct tax on time due to Circumstances beyond his control. Where the settlement offered is less than the prescribed minimum rates. 2. it can be enforced by mere execution. 204[B]. Note: The minimum compromise rate may be less than the prescribed rates. When the CIR is not authorized to compromise A: Compromise involves a reduction of the taxpayer’s liability. surcharge erroneously imposed. ACADEMICS CHAIR: LESTER JAY ALAN E. while abatement means that the entire tax liability of the taxpayer is cancelled. In other cases. If it is a judicial compromise. Minimum compromise rate: a. 5. MASACAYAN & THEENA C. 2028 NCC) Since it is a contract. A judicial compromise is one where a decision based on the compromise agreement is rendered by the court on request of the parties. Q: Differentiate compromise from abatement. provided it is approved by the Evaluation Board.000 b. But when. The filing of the return/payment is made at the Wrong venue. NIRC (also applicable in number 5) Q: What are the remedies in case the taxpayer refuses or fails to follow the tax compromise? A: 1. (Sec. Regard it as rescinded and insist upon original demand (Art. (Sec.e. the obligation of the taxpayer becomes one based on contract. c. The taxpayer fails to file the return and pay the tax on time due to: a. the obligation to pay tax is based on law. 2. Compromise is a contract whereby the parties. 2. MARTINEZ SANTO TOMAS de Derecho Civil 223 . b. avoid litigation or put an end to one already commenced. 1144 NCC reckoned from the time the cause of action accrued. for instance. SABUGO & JOHN HENRY C. 249. Note: The abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Sec. the prescriptive period to enforce the same is 10 years based on Art. Enforce the compromise a. Civil Code) Q: What is the prescriptive period to enforce compromises? 3. to assure that no improper compromise is made to the prejudice of the Government. Q: What are the instances when the tax liabilities. NIRC) Q: What is meant by abatement of tax liability? A: It is the cancellation of a tax liability. When basic tax involved exceeds P1. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Art. Substantial losses from prolonged labor dispute. In case of financial incapacity.000. 2. as the case may be. Force majeure.

. VALCOS . CIR. the CIR has the power to accept the offer of compromise if the financial position of the taxpayer clearly demonstrates a clear inability to pay the tax. MEMBERS: JOSE DUKE BAGULAYA. 204. PRUDENCE ANGELITA A. ANG JR. the CIR initiated the filing of a civil action to collect the tax due from NX. RR 13-2001) Q: Explain the extent of the authority of the CIR to compromise and abate taxes? A: The authority of the CIR to compromise encompasses both civil and criminal liabilities of the taxpayer. After several years. Abatement of penalties on assessment reduced after Reinvestigation but taxpayer is still contesting reduced assessment. 58 [D]. KASALA. A compromise of a tax liability is possible at any stage of litigation.UST GOLDEN NOTES 2011 advice of a revenue officer (Sec. NX offered the CIR a compromise settlement of 50% of the judgment award. This is an offer for compromise based on financial Q: What are the instances when the tax liabilities. Other similar or analogous cases. 2.e. Does the CIR have the power to accept the compromise offer? Is it legal and ethical? A: Yes. NIRC) and is obligated to remit them to the BIR. 204. Such Other circumstances which the CIR may deem analogous to the enumeration above (Sec. 4. (1998 Bar Question) Q: May the tax liability of a taxpayer be compromised during the pendency of an appeal? A: Yes. ORTIZ & VANNESSA ROSE S. or (2) the administrative and collection costs involved do not justify collection of the amount due. Abatement of penalties on Withholding tax assessment under meritorious circumstances. or (2) those involving fraud. penalties and/or interest imposed on the taxpayer may be abated on the ground that tax administration and collection costs are more than the amount sought to be collected? A: A-WORD 1. The civil compromise is allowed only in cases: (1) where the tax assessment is of doubtful validity. Abatement of penalties on assessment confirmed by the lower court but Appealed by the taxpayer to a higher court. as long as any of the grounds for a compromise i. and (2) forty percent (40%) of the basic assessed tax in other cases. when: (1) the tax or any portion thereof appears to have been unjustly or excessively assessed. GR L-39387. Subsequently. ASST. TEE. NIRC) As represented by NX in his offer. LACSINA. although legal propriety demands that prior leave of court should be obtained. The subsequent inability of the withholding agent to pay/remit the taxes withheld is not a ground for compromise because the withholding tax is not a tax upon the withholding agent but it is only a procedure for the collection of a tax. The compromise settlement of any tax liability shall be subject to the following minimum amounts: (1) ten percent (10%) of the basic assessed tax in case of financial capacity. even during appeal. CHRISTINE L. SUBJECT HEAD: RODOLFO N. or (2) when the financial position of the taxpayer demonstrates a clear inability to pay the tax. (Sec. All criminal violations may be compromised except: (1) those already filed in court.. NIRC) (1996 Bar Question) Q: May the CIR compromise the payment of withholding tax where the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax? A: No. a decision was rendered by the court ordering NX to pay the tax due plus penalties and surcharges. RR 132001) 7. DIVINE C. 2. The CIR may also abate or cancel a tax liability 224 TAXATION LAW TEAM: ADVISER: ATTY. (Pasudeco v. CHARLES L. GRANTOZA. 1982) (1996 Bar Question) Q: After the tax assessment had become final and unappealable. SUBJECT HEADS: EDISON U. HERNANDEZ. GUTIERREZ. The judgment became final and executory. KEITH S. a taxpayer who is constituted as withholding agent who has deducted and withheld at source the tax on the income payment made by him holds the taxes in trust for the government (Sec. Where the basic tax involved exceeds P1 million or where the settlement offered is less than the prescribed minimum rates. only 50% of the judgment award is all he could really afford. doubtful validity of assessment and financial incapacity of taxpayer is present. 3. 3. but attempts to execute the judgment award were futile. representing that this amount is all he could really afford. June 29. CLARABEL ANNE R. Abatement of penalties on Delayed installment payment under meritorious circumstances. the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the CIR and the four (4) Deputy Commissioners. (Sec. 5.

Must follow and observe the legal parameters set forth in the law. NIRC) JUDICIAL REMEDIES Q: What are the judicial remedies available to the government? A: 1. penalties and/or interest: CIR Grounds: 1. although the inquiry need not be limited only to the bank deposits of the taxpayer but also as to his financial position as reflected in his financial statements or other records upon which his property holdings can be ascertained. 6 [F]. (Sec. The tax or any portion thereof appears to be unjustly or excessively assessed. (2004 Bar Question) Q: Distinguish Compromise from Abatement. 222. Financial incapacity of the taxpayer Abatement Involves the cancellation of the entire tax liability of a taxpayer. The administration and collection costs involved do not justify the collection of the amount due. 7. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 220 NIRC) Regional Directors may approve the filing of such if this power is expressly delegated to him by the CIR. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 2. An action for collection by the BIR (Sec. MARTINEZ SANTO TOMAS de Derecho Civil 225 . 220. however. these are actions instituted by the government to collect internal revenue taxes in the regular courts after assessment by CIR has become final and executory. the acceptance of the offer is legal and ethical for the ground upon which the compromise was anchored is within the context of the law and the rate of compromise is well within and far exceeds the minimum prescribed by law which is only 10% of the basic tax assessed. Officer authorized to abate or cancel tax. Ordinary civil action Criminal action Civil Action. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. SABUGO & JOHN HENRY C. the CIR decision must be appealed to the CTA and the CTA en banc decision must be appealed to the SC. 3. Q: What are the two ways to enforce civil liability through civil actions? Q: What are the guidelines that must be observed with respect to judicial remedies? A: GOVERNMENT If express TAXPAYER ACADEMICS CHAIR: LESTER JAY ALAN E. Officers authorized to compromise: CIR and Regional Evaluation Board Grounds: 2. 205. NIRC) Judicial remedies are “exclusive.” Thus. penalty or forfeiture under the NIRC shall be filed in court without the approval of the CIR. Reasonable doubt as to the validity of assessment. Q: Define civil action. It includes. a declaratory relief may be availed of if the law does not provide for judicial remedies. 1. (e. May avail of the usual judicial remedies for convenience and expediency. A: Compromise Involves a reduction of the taxpayer’s liability. NIRC) The waiver will enable the CIR to ascertain the financial position of the taxpayer. (Sec. A: For tax remedy purposes. Must be approved by the CIR (Sec. NIRC). the filing by the government of claims against the deceased taxpayer with the probate court. If indeed.g. NIRC) must be filed within the prescriptive period (Sec. (Sec.NATIONAL INTERNAL REVENUE CODE OF 1997 incapacity which the CIR shall not accept unless accompanied by a waiver of the secrecy of bank deposits. or 2. the financial position of NX as determined by the CIR demonstrates a clear inability to pay the tax. If implied May resort to the laws of general application. Q: Whose approval is needed for the filing of the judicial remedies in court? A: No civil or criminal action for the recovery of taxes or the enforcement of any fine. 2. MASACAYAN & THEENA C. Thus.

it was shown that Valera had been transferring its properties to other persons. May 21. (Sec. CTA . (Sec. 222 [a].999 400. a proceeding in court for the collection of such tax may be filed without assessment. R. When the protest is not acted upon by the CIR within 180 days from the submission of the documents and the taxpayer failed to appeal with the CTA within 30 days from the lapse of the 180 days period.. 1990) Q: What is the form and mode of proceeding? A: 1. MEMBERS: JOSE DUKE BAGULAYA.UST GOLDEN NOTES 2011 A: 1. ASST. HERNANDEZ. CHRISTINE L.001 to 999. 7. 3. TEE. Provided that a copy of the complaint is furnished to the Solicitor General. KEITH S. (Sec. Counsel for Valera protested the assessment and requested a reinvestigation of the case. The Solicitor General must file a notice of appearance in the court where it was filed. fraud or omission. It shall be conducted by legal officers of the BIR. (Sec. (CIR v. because there is no prohibition for this procedure considering that the filing of a civil action for collection during the pendency of an administrative protest constitutes the final decision of the CIR on the protest in denying the same.000 Amount does not exceed 400. what action would you take in order to protect the interest of your client? A: 1.000 300. Yes.999 2. the taxpayer can no longer assail the validity or legality of assessment.where the principal amount of taxes and fees. executory and demandable for failure of the tax payer to appeal the decision to the CTA within 30 days from the receipt of the decision. Civil actions shall be brought in the name of the Government of the Philippines. As no additional evidence to dispute the assessment had been presented. DIVINE C. 220 NIRC) Note: BIR legal officers deputized as Special Attorneys who are stationed outside Metro Manila may file verified complaints with the approval of the Solicitor General. 1. SUBJECT HEADS: EDISON U. When tax is assessed and the assessment became final and executory because the taxpayer fails to file a protest with the CIR within 30 days from receipt. pending decision on the administrative protest? 2. 228.A. Q: On Mar.001 to 999. or 2. VALCOS . Q: What is the effect of filing a civil action? A: Once an action is filed with the regular courts. KASALA. Q: Where to file civil actions? 226 TAXATION LAW TEAM: ADVISER: ATTY. ANG JR. During the investigation. the BIR issued on June 16. NIRC) Note: In the case of a false or fraudulent return with intent to evade tax or of failure to file a return. Union Shipping Corp. MeTC . 9282) COURTS Municipal Trial Courts outside Metro Manila Municipal Trial Courts within Metro Manila Regional Trial Courts outside Metro Manila Regional Trial Courts within Metro Manila AMOUNT OF TAXES INVOLVED Amount does not exceed 300. GUTIERREZ. Can the BIR file the civil action for collection. RTC. at any time within 10 years after the discovery of the falsity. 15. Counsel for Valera filed an injunctive suit in the RTC to compel the BIR to hold the collection of the tax in abeyance until the decision on the protest was rendered. It is collectible: 1. SUBJECT HEAD: RODOLFO N.. NIRC) A: 1. ORTIZ & VANNESSA ROSE S. 2000. 3. 2. CHARLES L. As counsel for Valera.where the principal amount of taxes and fees. GR 66160. By filing an answer to the petition for review filed by taxpayer with CTA Q: When is civil action resorted to? A: It is resorted to when a tax liability becomes collectible. CLARABEL ANNE R. GRANTOZA. The approval by the Solicitor General together with the approval of the CIR for civil actions for collection of delinquent taxes is required before they are filed. PRUDENCE ANGELITA A. By filing a civil case for collection of a sum of money with the proper regular court. 2000 warrants of distraint and levy on the properties and ordered the filing of an action in the RTC for the collection of the tax. exclusive of charges and penalties claimed is less than P1 million. exclusive of charges and penalties claimed is P1 million and above. MTC. the BIR issued a deficiency income tax assessment for the taxable year 1997 against the Valera in the amount of P10 million. 2. When a protest against assessment is filed and a decision of the CIR was rendered but the said decision became final. LACSINA.

MeTC . the CTA has exclusive jurisdiction over the case. The basis of the civil liability is not from the criminal liability but from the act of not paying the tax. exclusive of charges and penalties claimed is less than P1 million. Injunctive suit is not an available remedy. (Yabes v. (Sec. pay tax. the exoneration from criminal action will not exonerate the taxpayer from its civil liability. provided that the criminal action is instituted within 5 years from the commission of the violation or from the discovery thereof. NIRC) Failure to file return. Generally it is the criminal liability that would give rise to the civil liability. exclusive of charges and penalties claimed is P1 million and above. 280. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. subsidiary imprisonment cannot be imposed as regards the tax which he is sentenced to pay. Thus. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. 2. ACADEMICS CHAIR: LESTER JAY ALAN E. GR L-22356. However. Q: What is the nature of this remedy? A: Criminal action is resorted to not only for collection of taxes but also for enforcement of statutory penalties of all sorts. RA 9282) Q: Does acquittal in the criminal action on tax liability exonerate the taxpayer from payment of civil liability to pay tax? A: No. July 21. Patanao. 1967) Q: What is the effect of the subsequent satisfaction of civil liability? A: The subsequent satisfaction of civil liability by payment or prescription does not extinguish the taxpayer’s criminal liability. whichever is later. provided there is a prima facie showing of a willful attempt to evade taxes as in the taxpayer’s failure to declare a specific item of taxable income in his income tax returns.on criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and fees. A crime is complete when the violator has knowingly and willfully filed a Criminal Action Q: What is the purpose for filing a criminal complaint? A: Criminal complaint is instituted not to demand payment but to penalize taxpayer for the violation of the NIRC. 254. it may be imposed in cases of failure to pay the fine imposed. CTA . supply correct and accurate information. MASACAYAN & THEENA C. I will wait for the filing of the civil action for collection and consider the same as an appealable decision. but in tax cases the criminal liability arises from the act of not paying the tax due which occurred first. 7. Once the appeal to the CTA is filed on time. NIRC) Q: May a criminal action be filed despite the lapse of the period to file a civil action for collection of taxes? A: Yes. July 20. SABUGO & JOHN HENRY C.on criminal offenses arising from violations of the NIRC or 2. I would then appeal the case to the CTA and move for the dismissal of the collection case with the RTC. MARTINEZ SANTO TOMAS de Derecho Civil 227 . NIRC) Q: Where is it filed? A: The criminal charge is filed directly with the Department of Justice with the approval of the CIR. Q: Where should the information be filed? A: 1. Willful attempt to evade or defeat tax (Sec. 1982) Tariff and Customs Code and other laws administered by the BIR and the BOC where the principal amount of taxes and fees. GR L-46954.NATIONAL INTERNAL REVENUE CODE OF 1997 2. Q: Is assessment necessary before a taxpayer may be prosecuted for willfully attempting in any manner to evade or defeat any tax imposed by the NIRC? A: No. Hence. Also the two have different prescriptive periods and such period would run independently from each other. (Republic v. withhold and remit tax and refund excess taxes withheld on compensation (Sec. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. MTC. Q: What are the two common crimes punishable under the NIRC? A: 1. 255. Flojo. (Sec. Q: Can there be subsidiary imprisonment in case the taxpayer is insolvent? A: In case of insolvency on the part of the taxpayer. RTC. the collection case in the RTC should be dismissed.

All criminal violations of the NIRC may be compromised except those already filed in court or those involving fraud. GR 128315. SUBJECT HEAD: RODOLFO N. 1980) (1998 Bar Question) Q: Mr. the civil liability for taxes may be dealt with independently of the criminal violations. Despite the subpoena duces tecum issued to him. ORTIZ & VANNESSA ROSE S. (Ungab v. (Sec.000. as a result of which the assessment became final and executory. Minolta did not file its final corporate income tax return for the taxable year 1998. because of financial difficulty. he refused to submit his books of accounts and allied records. But the civil liability for taxes may also be compromised if the financial position of the taxpayer demonstrates a clear inability to pay the tax. Will the BIR's action for collection prosper? As counsel of Minolta. BIR's action for collection will prosper because the assessment is already final and executory. in violation of the provisions of the NIRC. Is the ruling of the DOJ correct? A: No. it can already be enforced through judicial action. However. if Minolta makes a voluntary offer to compromise the criminal violations for non-filing and nonpayment of taxes for the year 1998. Cusi. Pascor Realty and Development Corp. GRANTOZA. How will you resolve Mr. CHARLES L. KEITH S. ASST. June 29. raided his factory and seized several bundles of manufactured garments. LACSINA. may the CIR accept the offer? A: 1.. because it allegedly incurred net loss from its operations. was investigated for failure to file tax returns and to pay taxes. KASALA. the deficiency tax remained unpaid. mails or sends such notice to the taxpayer. VALCOS . 2002. May 30. The compromise settlement of the criminal violations will not relieve the taxpayer from its civil liability. Yes. CLARABEL ANNE R. what action will you take? 2. NIRC) Accordingly. Mr. the DOJ is incorrect when it ruled that the joint affidavit of the BIR examiners may be considered as an assessment of the tax liability of the corporation. if it can be established that a tax has not been paid as a consequence of non-filing of the return. 2. The joint affidavit showing the computation of the tax liabilities of the erring taxpayer is not a tax assessment for it was not sent to the taxpayer and does not demand payment of the tax within a certain period of time. ANG JR. As counsel of Minolta. On May 17. It was then that he paid the taxes. The complaint was supported by a sworn statement of the BIR examiners showing the computation of the tax liabilities of the erring taxpayer. MEMBERS: JOSE DUKE BAGULAYA.. GUTIERREZ. (2002 Bar Question) 228 TAXATION LAW TEAM: ADVISER: ATTY. GR L-41919-24. The BIR also found that. Action was instituted against him in the RTC for violation of the NIRC. 1999) (2005 Bar Question) Q: Minolta is an EPZA-registered enterprise enjoying preferential tax treatment under a special law. the BIR issued a deficiency withholding tax assessment in the amount of P150. TEE. Chan's motion? A: The garments and materials seized from the factory should be ordered returned because the payment of the tax had released them from any lien that the Government has over them. Chan. the BIR filed with the RTC an action for collection of the deficiency withholding tax for 1997. the CIR may accept the offer which is allowed by law. May criminal violations of the NIRC be compromised? If Minolta makes a voluntary offer to compromise the criminal violations for nonfiling and non-payment of taxes for the year 1998. An assessment is deemed made only when the BIR releases. SUBJECT HEADS: EDISON U. deficiency income and business taxes were assessed against Mr. (2002 Bar Question) Q: The BIR filed before the DOJ a criminal complaint against a corporation and its officers for alleged evasion of taxes. Investigators. a manufacturer of garments. 204. supplies and unpaid imported textile materials. (CIR v. 1999. The DOJ denied the motion on the ground that the joint affidavit of the BIR examiners may be considered as an assessment of the tax liability of the corporation. 1.UST GOLDEN NOTES 2011 fraudulent return with intent to evade and defeat the tax. Chan demanded the return of the garments and materials seized from his factory on the ground that he had already paid the taxes assessed against him. CHRISTINE L. The corporation filed a motion to dismiss the criminal complaint on the ground that no assessment of its tax liability has been done. After his apprehension and based on the testimony of a former employee. After investigation of its withholding tax returns for the taxable year 1997. Chan. DIVINE C. On May 15. PRUDENCE ANGELITA A. I will introduce evidence that the income payment was reported by the payee and the income tax was paid thereon in 1997 so that my client may only be allowed to pay the civil penalties for non-withholding pursuant to RMO 38-83. HERNANDEZ.

the Information having been filed beyond the 5-year reglementary period. 1996 is not a final Surcharge Q: What is a surcharge or surtax? A: It is a civil penalty imposed by law as an addition to the main tax required to be paid.” (Lim. in this case. Oct. (Sec. filed its final adjusted income tax return for 1993 on Apr. GR 48134-37. (Tupaz v. 1996 when the pre-assessment was issued. After investigation. 15. 18. 12. warrants of distraint and levy on its properties were issued and served upon it. If you were the judge. and the nature and extent of the fraud have been definitely ascertained. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Oct. Oct. Ulep. Note: In addition to the fact of discovery of the filing of a fraudulent return. Gerry filed a motion to quash the Information on the ground of prescription. 2002. the BIR issued a preassessment notice on Mar. It is the issuance of the final notice and demand letter dated Apr. 1999. the period commenced to run on Mar. The company moved to dismiss the criminal complaint on the ground that an act for violation of any provision of the NIRC prescribes after 5 years and. CA.NATIONAL INTERNAL REVENUE CODE OF 1997 Prescriptive Period for the Filing of Criminal Action Q: What is the prescriptive period for filing of a criminal action? A: The period is 5 years from commission or discovery of the violation. 1996. 1997 was issued. On Jan. Sr. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. The crime of filing false returns can be considered "discovered" only after the manner of commission. the same was timely filed. 10. MARTINEZ SANTO TOMAS de Derecho Civil 229 . 1997 and since the criminal charge was instituted on Jan. Since the information was filed in June 2006. The 5-year prescriptive period commences to run only after receipt of the final notice and demand and the taxpayer refuses to pay. The Information was filed with the RTC only last June 2006. (2002 Bar Question) Q: Gerry was being prosecuted by the BIR for failure to pay his income tax liability for calendar year 1999 despite several demands by the BIR in 2002. A final notice and demand letter dated Apr. 1997 and the failure of the taxpayer to protest within 30 days from receipt thereof that made the assessment final and unappealable. It is only when the assessment has become final and unappealable that the 5-year period to file a criminal action commences to run. Q: What are surcharges? the corresponding rates of ACADEMICS CHAIR: LESTER JAY ALAN E. to pay the tax. the criminal case was instituted within the five-year period required by law. The earliest date that the assessment has become final is May 16. 1. NIRC) The cause of action for willful failure to pay deficiency tax occurs when the final notice and demand for the payment thereof is served upon the taxpayer. It is a civil administrative sanction provided as a safeguard for the protection of the State revenue and to reimburse the government for the expenses of investigation and the loss resulting from the taxpayer’s fraud. 1994 showing a net loss. A surcharge added to the main tax is subject to interest. the trial court can exercise jurisdiction. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. v. 281. Sec. (Tupaz v. Note the conjunctive word “and” between the phrases “the discovery thereof” and “the institution of judicial proceedings for its investigation and proceedings. there must be a judicial proceeding for the investigation and punishment of the tax offense before the 5-year limiting period to institute a criminal action for filing a fraudulent return begins to run. 30. 30. Prescription of a criminal action begins to run from the day of the violation of the law. 30. GR 127777. The crime was committed when Gerry willfully refused to pay despite repeated demands in 2002. Ulep. MASACAYAN & THEENA C. SABUGO & JOHN HENRY C. NIRC) (2006 Bar Question) Statutory Offenses and Penalties Civil Penalties Q: What is the nature of civil penalties? A: They are imposed in addition to the tax required to be paid. will you dismiss the Information? A: No. a criminal charge for violation of the NIRC was instituted in the RTC with the approval of the CIR. 1. 281. 1999) The pre-assessment notice issued on Mar. 1990) assessment which is enforceable by the BIR. 2002. personally delivered to and received by the company's chief accountant. whichever is later. 15. Q: TY Corp. GR 127777. For willful refusal and failure of TY Corp. How will you resolve the motion? A: The motion to dismiss should not be granted. 10.

2. A substantial under declaration of taxable sales. In the examination of his 1993 return the BIR examiner found that Lincoln failed to report this item of P50. False or fraudulent return is willfully made (Sec.000 in his 1994 return? In case your remedy fails. A substantial overstatement of deductions (Sec. receipts or income? A: When there is failure to report sales.000 income. filing a return with an internal revenue officer Other than those with whom the return is required to be filed Failure to Pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the NIRC or rules and regulations.000. in the following cases: a. (Sec.000 as 1993 income to avoid the fraud surcharge? Considering that Lincoln had already been assessed a deficiency income tax for 1993 for his failure to report the P50. KEITH S. Failure to File any return and pay the tax due thereon as required under the provisions of the NIRC or rules and regulations on the date prescribed Failure to pay the deficiency tax within the Time prescribed for its payment in the notice of assessment Unless otherwise authorized by the CIR. Willful neglect to file the return within the period prescribed. Is the examiner correct? If you were the lawyer of Lincoln. TEE. 4. Q: When is there a substantial overstatement of deductions? A: There is a substantial overstatement of deductions where a claim of deduction exceeds 30% of actual deductions. 248.000 income during the taxable period it was realized. 3. CHARLES L. SUBJECT HEAD: RODOLFO N. NIRC) A: 1. 2. SUBJECT HEADS: EDISON U. what would you have advised your client before he included in his 1994 return the amount of P50. GRANTOZA. NIRC) The fact that Lincoln included it in his 1994 return belies any claim of willfulness but is rather indicative of an honest mistake which was sought to be rectified by a subsequent act that is the filing of the 1994 return. 3. Lincoln should file a protest questioning the 50% surcharge and ask for the abatement thereof. 230 TAXATION LAW TEAM: ADVISER: ATTY. what is your other recourse? b. he included this income in his return for 1994 and paid the corresponding income tax thereon. d.000.000 on which he paid an income tax of P61. or b. receipts or income in an amount exceeding 30% of that declared per return. VALCOS . Twenty-five percent (25%) of the amount due. KASALA. DIVINE C. The penalty shall be fifty percent (50%) of the tax or of the deficiency tax. After filing the return he realized that he forgot to include an item of business income in 1993 for P50. HERNANDEZ. or the full amount of tax due for which no return is required to be filed. ORTIZ & VANNESSA ROSE S.248. c.UST GOLDEN NOTES 2011 A: 1. 248 [B]. receipts or income. or 2. The amount of all items of gross income must be included in gross income during the year in which received or realized. Lincoln should file a written claim for Q: When is a return deemed false or fraudulent? A: A prima facie evidence of false or fraudulent return arises when there is: under-over 1. NIRC) Q: When is there a substantial underdeclaration of taxable sales. 1. NIRC) Q: Businessman Lincoln filed an income tax return for 1993 showing business net income of P350. on or before the date prescribed for its payment (Sec 248 [A]. Being an honest taxpayer. CLARABEL ANNE R. The examiner is correct in assessing a deficiency income tax for taxable year 1993 but not in imposing the 50% fraud surcharge.. (Sec.000 and assessed him a deficiency income tax on this item. 4. in the following cases: F-TOP a. ANG JR. LACSINA. GUTIERREZ. 2. Lincoln should have amended his 1993 income tax return to allow for the inclusion of the P50. what would you advise him to do to avoid the penalties for tax delinquency? What would you advise Lincoln to do with regard to the income tax he paid for the P50. plus a 50% fraud surcharge. PRUDENCE ANGELITA A. 38. MEMBERS: JOSE DUKE BAGULAYA. CHRISTINE L. NIRC) The 50% fraud surcharge attaches only if a false or fraudulent return is willfully made by Lincoln. ASST.

A hereof. or 2. NIRC) A: If any person required to pay the tax is qualified and elects to pay the tax on installment under the provisions of the NIRC. there shall be assessed and collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid. fees and charges. shall be subject to the interest prescribed in subsec. The amount of the tax due for which no return is required. (Sec. SABUGO & JOHN HENRY C. A hereof until the amount is fully paid. 204 [3] of the NIRC. Execution of judgments in all cases decided in its favor (by the CTA and regular courts). 249. The amount of the tax due on any return required to be filed. from the date prescribed for payment until the amount is fully paid. Assessment and collection of all national internal revenue taxes. (1995 Bar Question) Interest Q: Are there interests to be paid in addition to the tax? A: Yes. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. but fails to pay the tax or any installment hereof. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. or 3. NIRC) 5. Q: What are the powers and duties of the BIR? A: Any deficiency in the tax due. As such the estate tax is Interest on Extended Payment Q: What is interest on extended payment? ACADEMICS CHAIR: LESTER JAY ALAN E. interest at the rate prescribed in subsec. MASACAYAN & THEENA C. Q: Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy upon and sale of real properties of the decedent without first securing the authority of the court sitting in probate over the supposed will of the decedent? A:Yes. A deficiency tax. penalties and fines. or any surcharge or interest thereon on the due date appearing in the notice and demand of the CIR. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Q: What is Delinquency Interest? A: In case of failure to pay: 1. 2. which interest shall form part of the tax. interest at the rate of 20% per annum. 3. Recommend to the Secretary of Finance all needful rules and regulations for the effective enforcement of the provision of the NIRC. 249. Delinquency Interest 4. Enforcement of all forfeitures. 249. or any part of such amount or installment on or before the date prescribed for its payment. Give effect and administer the supervisory and police powers conferred to it by the NIRC and other laws. a judicial claim for refund can be instituted before the expiration of the 2 year period. there shall be assessed and collected on any unpaid amount of tax.000 income included in 1994 within 2 years from payment pursuant to Sec. as the term is defined in the NIRC.NATIONAL INTERNAL REVENUE CODE OF 1997 refund with the CIR of the taxes paid on the P50. (Sec. or where the CIR has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof. There shall be assessed and collected on the unpaid amount. which interest shall be assessed and collected from the date prescribed for payment until the amount is fully paid (Sec. Should this remedy fail in the administrative level. or such higher rate as may be prescribed by rules and regulations. the BIR is authorized to collect estate tax deficiency through the summary remedy of levying upon and sale of real properties of a decedent without the cognition and authority of the court sitting in probate over the supposed will of the deceased because of the collection of estate tax is executive in character. MARTINEZ SANTO TOMAS de Derecho Civil 231 . *See discussion on Compromise and Abatement Organization and Function of the BIR Tax Administration Q: What is tax administration? Deficiency Interest Q: What is Deficiency Interest? A: It refers to the manner and procedure of assessing and collecting or enforcing tax liabilities. NIRC) A: 1.

12. CLARABEL ANNE R. 2. and place any business under observation or surveillance IF there is reason to believe that such is not declaring his correct income. DIVINE C. To Delegate powers vested upon him to subordinate officials with rank equivalent to Division Chief or higher. To make a return when none has been made. 6. RAID PIA 1. 5. To examine any book. To make Assessments. sales. Decedent to determine his gross income. 11. MEMBERS: JOSE DUKE BAGULAYA. 10. ORTIZ & VANNESSA ROSE S. A taxpayer who filed application to compromise payment of tax liability by reason of financial incapacity. Information Systems Group 5. To evaluate tax compliance. PRUDENCE ANGELITA A. 3. audit and enforcement purposes. refunds of internal revenue taxes. To prescribe any additional Requirements for the submission or preparation of financial statements accompanying tax returns. sales or receipts for tax purposes. To Examine returns and determine tax due. c. SUBJECT HEAD: RODOLFO N. verification. LACSINA. receipts. 8. 13. To determine liability of any person for any internal revenue tax. To Inquire into bank deposits of a. 9. That the information obtained from the banks and other financial institutions may be used by the BIR for tax assessment. Q: What is the scope of such powers? A: 1.. KEITH S. 2. fees. Decide disputed assessments. Note: RR 12-99 . CHARLES L. Provided. To ascertain correctness of the return.UST GOLDEN NOTES 2011 exempted from the application of the statute of non-claims. CIR. 4. ANG JR. prescribe additional requirements for tax administration and purposes. HERNANDEZ. 3. Resource and Management Group 4. VALCOS . 1997) (1998 Bar Question) Q: Who are the Chief Officials of the BIR? A: The BIR is headed by the CIR and 6 Deputy Commissioners. KASALA. 4. GR 120880. gross income) on a regular basis. To obtain any information (costs. charges and penalties in relation thereto or other matters related to it subject to the exclusive appellate jurisdiction of the CTA. Q: What are the purposes of these powers? A: 1. paper. examine and take testimony of persons. and this is justified by the necessity of government funding. To Prescribe real property values. volume of production. Special Concerns Group Q: What are the powers of the Commissioner? A: DO TIRE. June 5. To Terminate taxable period for reasons provided in the NIRC.Power to decide disputed assessments may also be exercised by Regional Directors. b. SUBJECT HEADS: EDISON U. summon. from any person other than the person under 7. 232 TAXATION LAW TEAM: ADVISER: ATTY. To collect such liability. To make or amend Return in case taxpayer fails to file a return or files a false or fraudulent return. 5. Legal Inspection Group 3. To take Inventory of goods of any taxpayer. GUTIERREZ. CHRISTINE L. who lead the following divisions: 1. 2. subject to limitations and restrictions imposed under the rules and regulations. To Interpret provisions of the NIRC and other tax laws subject to review by the Secretary of Finance. Prosecution Group 6. ASST. immortalized in the maxim that taxes are the lifeblood of the government. TEE. record or other data which may be relevant or material to such inquiry. (Marcos v. A specific taxpayer or taxpayers 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. To Obtain information. To register tax Agents. Operations group 2. GRANTOZA.

While in Goodrich. Thus. The time and manner in which Revenue Regional Director shall canvass their respective Revenue Regions to discover persons and property liable to national internal revenue taxes.1994) XPN: For the purpose of safeguarding taxpayers from any unreasonable examination.. shall be labelled. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 1999) Note: In the Citytrust case. The forms of labels. July 21 . Rule-making Authority of the Secretary of Finance Authority of Secretary of Finance to Promulgate Rules and Regulations Q: What law provides for the authority of the Secretary of Finance to promulgate rules and regulations? A: Sec. To summon the following to produce records and to give testimony: a. which involves a claim for refund. 245. NIRC. our tax law provides a statute of limitations in the collection of taxes. the Secretary of Finance shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. revoke or modify any existing rule of the BIR. 3. the error or neglect was the failure of the Solicitor General to present its evidence. Any person having in his possession. 3. exceptions to the law on prescription should perforce be strictly construed. 4. GR106611. GR 104171. c. The condition and manner for goods intended for export. The conditions to be observed by revenue officers respecting the institutions and conduct of legal actions and proceedings. b. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. brands or marks to be required on goods subject to excise tax. 2. Q: Will errors or mistakes of administrative officials bind the government as to the collection of taxes? A: GR: Errors or mistakes of administrative officials (including the BIR) should never be allowed to jeopardize the financial position of the government since taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. prompting the Solicitor to submit the case for decision without presenting any evidence. Specific Provisions to be Contained in Rules and Regulations Q: What are the Provisions that need to be in the Rules and Regulations? A: It must contain provisions specifying. Any officer or employee of such person. 24. 4. (CIR v. as counsel for the CIR. due to the unavailability of the necessary records from BIR. upon recommendation of the CIR. and the manner their lists and records of taxable persons and taxable objects shall be made and kept. NIRC) 1. custody and care the books of accounts.NATIONAL INTERNAL REVENUE CODE OF 1997 investigation and any office or officer of the national/local government. and the manner how the labelling. which if not exported would be subject to an excise tax. 203. accounting records of entries related to the business of such taxpayer. Feb. Q: What are the powers of the BIR which cannot be delegated? A: RICA 1. Citytrust and CTA. (CIR v. As a corollary. To Recommend promulgation of rules and regulations by the Secretary of Finance. the error committed refers to the neglect of the BIR to make assessment within the 3year period as required in Sec. To Issue rulings of first impression or to reverse. 3. branding or marking shall be effected. MARTINEZ SANTO TOMAS de Derecho Civil 233 . investigation or assessment. being a remedial measure. the law on prescription. branded or marked. To Compromise or abate any tax liability. MASACAYAN & THEENA C. To Assign or reassign internal revenue officers to establishments where articles subject to excise tax are kept. Goodrich Philippines Inc. the ACADEMICS CHAIR: LESTER JAY ALAN E. SABUGO & JOHN HENRY C. It states. should be liberally construed in order to afford such protection. or defining: (Sec. prescribing. XPN: The Regional Evaluation Board may compromise assessments involving deficiency taxes of P500.000 or less and minor crime violations. The person liable for tax or required to file a return. 2. 244 of the NIRC provides the authority for the Secretary of Finance.

further. as well as the conditions under which evidence of payment shall be furnished the taxpayer. value-added tax. KEITH S. For Corporate Income Tax . including withholding tax. Visayas and Mindanao areas may be designated for the filing of tax returns and payment of taxes by said large taxpayers. 234 TAXATION LAW TEAM: ADVISER: ATTY. records. 9. 8. Q: What is a large taxpayer? A: A taxpayer who satisfies any of the following criteria: 1. 3. KASALA. 2. SUBJECT HEAD: RODOLFO N. and the signs to be displayed in the business ort by the person for whom such denaturing is done or by whom. upon recommendation of the CIR. The conditions to be observed by revenue officers respecting the enforcement of Title III imposing a tax on estate of a decedent. may modify or add to the above criteria for determining a large taxpayer after considering such factors as inflation. their manner of storage and method of keeping entries and records. the mode of cancellation. TEE. other percentage taxes. ORTIZ & VANNESSA ROSE S. The manner tax returns. 10. however.Business establishment with annual income tax paid or payable of at least P1 million for the preceding taxable year. invoices and other papers shall be kept and entries therein made by the person subject to the tax. however. information and reports shall be prepared and reported and the tax collected and paid. so as to render the alcohol suitably denatured and unfit for oral intake. ASST. the reports to be made to the CIR. 4. whichever comes earlier: Provided. That the CIR can exercise this power within 6 years from the approval of RA 7646 or the completion of its comprehensive computerization program.. 6. document or object to which revenue stamps shall be affixed. HERNANDEZ. The conditions under which goods intended for storage in bonded warehouses shall be conveyed thither. estate and donor's taxes.Business establishment with VAT paid or payable of at least P100. Provided. papers and statements that may be filed by the taxpayers in connection with the payment of the tax: Provided. the character and quantity of the denaturing material to be used. finally. CHRISTINE L. That the Secretary of Finance. For Excise Tax . the manner in which the process of denaturing shall be effected. such alcohol is dealt in. the CIR may. CHARLES L.000 for any quarter of the preceding taxable year. VALCOS . ANG JR. by rules and regulations require that the tax returns. MEMBERS: JOSE DUKE BAGULAYA. The penalties prescribed under Sec. GUTIERREZ. excise taxes and documentary stamp taxes shall be paid through the collection officers of the BIR or through duly authorized agent banks which are hereby deputized to receive payments of such taxes and the returns. also the books to be kept by Revenue Inspectors and the reports to be made by them in connection with their supervision of such houses.Business establishment with withholding tax payment or remittance of at least P1 million for the preceding taxable year. DIVINE C. wage and employment levels.UST GOLDEN NOTES 2011 5. The conditions under which denatured alcohol may be removed and dealt in. as well as the manner in which licenses and stamps shall be gathered up and returned after serving their purposes. LACSINA. GRANTOZA. the manner in which the proper books. CLARABEL ANNE R. volume of business. as well as on gifts and such other rules and regulations which the CIR may consider suitable for the enforcement of the said Title III. and other transfers mortis causa. and the preparation and publication of tax statistics. such as income tax. respectively. 248 of the NIRC shall be imposed on any violation of the rules and regulations issued by the Secretary of Finance. The manner in which internal revenue taxes. and For Withholding Tax . through collection officers or through duly authorized agent banks: Provided. the entries to be made therein. That separate venues for the Luzon. papers and statements and taxes of large taxpayers be filed and paid.Business establishment with excise tax paid or payable of at least P1 million for the preceding taxable year. SUBJECT HEADS: EDISON U. For VAT . 7. The manner in which revenue shall be collected and paid. and similar economic factors. that notwithstanding the other provisions of the NIRC prescribing the place of filing of returns and payment of taxes. PRUDENCE ANGELITA A. the instrument. the books and records to be kept. the bonds to be given.

MARTINEZ SANTO TOMAS de Derecho Civil 235 . Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based. b. NIRC) Suspension of Business Operation Q: When can the CIR suspend the business operation of a taxpayer? A: 1. ACADEMICS CHAIR: LESTER JAY ALAN E. Where the taxpayer acted in bad faith. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR. prescribing the place of filing of returns and payments of taxes by large taxpayers. Any revocation. 245. 246. 236: The temporary closure of the establishment shall be for the duration of not less than 5 days and shall be lifted only upon compliance with whatever requirements prescribed by the CIR in the closure order. modification or reversal of any of the rules and regulations promulgated or any of the rulings or circulars promulgated by the CIR shall not be given retroactive application if it will be prejudicial to the taxpayers. or 3. (Sec. Failure of any person to Register as required under Sec. or c.NATIONAL INTERNAL REVENUE CODE OF 1997 upon recommendation of the CIR. Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter. SABUGO & JOHN HENRY C. 2. (Sec. NIRC) Non-Retroactivity of Rulings Q: How are the rulings of the BIR applied? A: The rulings of the BIR are not retroactive. Failure to issue receipts or invoices. In the case of VAT-registered person: a. 115 NIRC) 2. 114. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. (Sec. except in the following cases: 1. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Failure to file a VAT return as required under Sec. MASACAYAN & THEENA C.

m. G. No. The ordinance is. HERNANDEZ. b. and 5. as amended LOCAL TAXATION Q: What are local taxes? A: Taxes that are imposed and collected by the local government units in order to raise revenues to enable them to perform the functions for which they have been organized. not be contrary to law. KEITH S. oppressive. SUBJECT HEAD: RODOLFO N. GRANTOZA. Furthermore. similarly situated must be treated in equal footing and must not classify the subjects in an arbitrary manner. KASALA. There exists no substantial standard used in the classification by the City of Makati. which requires that all subjects or objects of taxation. charge or other imposition unless otherwise specifically provided herein. X. ANG JR. fees and charges shall accrue exclusively to the local government. c. Q: What are the fundamental principles of local taxation? A: The following fundamental principles shall govern the exercise of the taxing and other revenue-raising powers of local government units: UE-LIP 1. Taxes.UST GOLDEN NOTES 2011 LOCAL GOVERNMENT CODE OF 1991. but exempts those cars carrying more than two occupants. from Mondays to Fridays.R. therefore. CHRISTINE L. the ordinance only imposes the tax on private cars and exempts public vehicles from the imposition of the tax. 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. CLARABEL ANNE R. DIVINE C. decided to impose a tax. 2. The collection of local taxes. to be paid by the driver. to 9:00 a. d. Sec 5 of the 1987 Constitution “Each local government unit shall have the power to create their own sources of revenue and to levy taxes. or in the restraint of trade. CHARLES L. ASST. 236 TAXATION LAW TEAM: ADVISER: ATTY. TEE. fees. evolve a Progressive system of taxation. invalid for violating the rule of uniformity and equality as well as for being unjust. (Philippine Match Company vs. the local government unit levying the tax. 3. fees and charges subject to such guidelines and limitations as the Congress may provide consistent with the basic policy of local autonomy. 1978) NATURE OF LOCAL TAXING POWER Grant of Local Taxing Power Under the Local Government Code Q: What are the sources of local taxing power? A: 1. excluding the driver. January 18. be levied and collected only for public purposes. The revenue collected pursuant to the provisions of the LGC shall Inure solely to the benefit of. MEMBERS: JOSE DUKE BAGULAYA. The tax does not only violate the requirement of uniformity. be equitable and based as far as practicable on the taxpayer's ability to pay. charges and other impositions shall in no case be Let to any private person. fees. In the case at bar. excessive. in order to solve the traffic problem in its business districts. GUTIERREZ. public policy. Art. Each local government unit shall. SUBJECT HEADS: EDISON U. fee. L-30745. as far as practicable. the ordinance exempts cars carrying more than two occupants from coverage of the ordinance. Such taxes. on all private cars entering the city during peak hours from 8:00 a.“Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes. LACSINA. and be subject to the disposition by. but the same is also unjust because it places the burden on someone who has no control over the route of the vehicle. (2003 Bar Question) 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. or confiscatory. 129 of the Local Government Code (LGC) . Another issue is the fact that the tax is imposed on the driver of the vehicle and not on the registered owner.. not be unjust. PRUDENCE ANGELITA A. Q: The City of Makati. (Sec.m. VALCOS . national economic policy. Taxation shall be Uniform in each local government unit. LGC) Note: The fundamental principles of taxation are also known as the requisites of municipal taxation. charges and other impositions shall: EPUC a. 4. A: The ordinance is in violation of the Rule of Uniformity and Equality. Is the ordinance valid? 2.” Sec. 130. City of Cebu. although both contribute to the traffic problem. ORTIZ & VANNESSA ROSE S.

Apr. Local legislative bodies are now given direct authority to levy taxes. including community tax. (NaPoCor v. The LGUs derive their power to tax from Sec. Note: The LGU’s power to tax is subject to such guidelines and limitations as Congress may proved while the Autonomous Region’s power to tax is based on the Organic Act which the Constitution authorizes Congress to pass. (2007 Bar Question) Q: May Congress. municipalities and cities is directly conferred by the Constitution by giving them the authority to create their own sources of revenue. Art. G. X. consistent with the basic policy of local autonomy. SABUGO & JOHN HENRY C. No. 2003) Q: What is the reason for the paradigm shift? A: The paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. 1987 Constitution) (2003 Bar Question) Note: The authority to tax of LGUs within the Autonomous Regions (Muslim Mindanao and the Cordilleras) is not delegated by the Constitution. 5. 9. local governments to vary the rates of taxation Q: What is the “paradigm shift” in local government taxation? A: The power to tax is no longer vested exclusively on Congress. MASACAYAN & THEENA C. Such taxes. Congress cannot abolish what is expressly granted by the fundamental law. The constitutional provision is self-executing. The only authority conferred to Congress is to provide the guidelines and limitations on the local government's exercise of the power to tax (Sec. Q: What are the aspects of local taxation? A: 1. the same is subject to limitations as may be set by Congress. 149110. 5 of the Constitution. Sec. City of Cabanatuan. to a limited extent and within certain parameters. MARTINEZ SANTO TOMAS de Derecho Civil 237 . Local Government Taxation Imposition of license.” Q: Does the ARMM have the same source of power as the LGUs? A: No. Local Government Taxation (Sections 128-196. direct authority conferred by the Constitution. Direct grant from the Constitution – While a direct grant. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LGC) Real Property Taxation (Sections 197283. abolish the power to tax of local governments? A: No.R. 2. 3. This is applicable only to LGUs outside the Autonomous Region namely the Muslim Mindanao and the Cordilleras since the authority to tax the LGUs within their region is delegated by the Organic Act creating them. (Ibid. taxes. Article X of the 1987 Constitution. X. ACADEMICS CHAIR: LESTER JAY ALAN E. 5.) Q: What is the nature of the taxing power of the provinces. Sec. 20. but by the Organic Act creating them. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. but pursuant to a 2. 5. Exercised by the sanggunian of the LGU concerned through an appropriate Ordinance. The local government units do not exercise the power to tax as an inherent power or by a valid delegation of the power by Congress. Not inherent –May only be exercised if delegated to them by national legislature or conferred by the Constitution itself. LGC) Real Property Taxation System of levy on real property imposed on a country-wide basis but authorizing. 5. fees and other charges pursuant to Art. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Q: What are the characteristics of the taxing power of LGUs? A: DON2G 1. fees and other impositions. municipalities and cities? A: The taxing power of the provinces. under the 1987 Constitution. Article X of the 1987 Constitution authorizes the Congress to pass the Organic Act which shall provide for legislative powers over creation of sources of revenues. Not absolute –Subject to limitations and guidelines as may be provided by law such as progressivity etc. Article X of the Constitution.Local Government Code of 1991 fees and charges subject to the provisions herein. fees and charges shall accrue exclusively to the local government units. This provision is not self-executing unlike Sec. 4. Its application is bounded by the Geographical limits of the LGU that imposes the tax.

c. MEMBERS: JOSE DUKE BAGULAYA. Tax Exemptions and Reliefs a. Is the ordinance valid? Are PLDT. 192. (Article 283. within its territorial jurisdiction. LGC) Authority to Grant Local Tax Exemptions Q: May LGUs grant exemptions? A: Yes. PLDT’s legislative franchise was granted sometime before 1992. SUBJECT HEAD: RODOLFO N. d. incentives and reliefs? (Rules and Regulations Implementing the LGC. Such fine or other penalty shall be imposed at the discretion of the court. Shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefore. The Province of Zamboanga del Norte passed an ordinance in 1997 that imposes a local franchise tax on all telecommunications companies operating within the province. In case of shared revenues. KASALA. grant tax exemptions. the relief or exemption shall only extend to the LGU granting such. Smart and Globe liable to pay franchise taxes? Reason briefly. VALCOS . or receipts realized. 3. 1992. The tax is 50% of 1% of the gross annual receipts of the preceding calendar year based on the incoming receipts. through ordinances duly approved. to impose a tax on business enjoying a franchise at the rate of 50% of 1% based on the gross annual receipts during the preceding year within the province. ANG JR. The same may take effect only during the calendar year not 238 TAXATION LAW TEAM: ADVISER: ATTY. KEITH S. LACSINA. (Sec. 516. and d. 4. May be granted in cases of natural calamities. incentives or reliefs under such terms and conditions as they may deem necessary. Its franchise provides that PLDT will pay only 3% franchise tax in lieu of all taxes. A: 1. LGC) exceeding 12 months as may be provided in the ordinance. SUBJECT HEADS: EDISON U. b. The grant shall be through an ordinance passed prior to the 1st day of January of any year. Their legislative franchises state that they will pay only 5% franchise tax in lieu of all taxes. CLARABEL ANNE R. Q: What are the guidelines for granting tax exemptions. The grant shall be for a definite period not exceeding 1 calendar year. Q: When is tax exemption conferred? A: Tax exemptions shall be conferred through the issuance of a non-transferable tax exemption certificate. Tax incentive granted to a type or kind of business shall apply to all businesses similarly situated. The Sanggunian is authorized to prescribe fines or other penalties for violations of tax ordinances. Any exemption or relief granted to a type or kind of business shall apply to all business similarly situated. 2. The legislative franchise of Smart and Globe Telecoms were granted in 1998. b. civil disturbance. TEE. general failure of crops or adverse economic conditions such as substantial decrease in prices of agricultural or agri-based products. A: The ordinance is valid. ORTIZ & VANNESSA ROSE S.UST GOLDEN NOTES 2011 Authority to Prescribe Penalties for Tax Violations Q: What are the powers to prescribe penalties for tax violations of the LGU? 2. Sec.000 nor more than P5. (Sec. CHARLES L. IRR of LGC) Q: The Local Government Code took effect on January 1. GUTIERREZ. notwithstanding any law or other special law. DIVINE C. The grant shall be through an ordinance. Limited as to the amount of imposable fine as well as the length or period of imprisonment. GRANTOZA.000 nor shall the imprisonment be less than one (1) month nor more than six (6) months. The Local Government Code explicitly authorizes provincial governments.000. LGC) The power to grant tax exemptions. c. PRUDENCE ANGELITA A. ASST.. 282[b]) A: 1. (Section 137. Tax incentives: a. CHRISTINE L. and e. tax incentives and tax reliefs shall not apply to regulatory fees which are levied under the police power of the LGU. Local government units may. The Sangguniang Barangay may prescribe a fine of not less than P100 nor more than P1. HERNANDEZ. but in no case shall fines be less than P1.

7925 (Public Telecommunications Act). 167260. 3. No. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. Laguna v. Necessity of Reenactment: The person claiming the exemption has the burden of proving its claim by clear grant of exemption after the enactment of the LGC (NAPOCOR v. No.R. Non-stock and non-profit hospitals and educational institutions. including government-owned or controlled corporations are hereby withdrawn upon the effectivity of the Local Government Code. The said provision thus cannot be considered as having amended petitioner’s franchise so as to entitle it to exemption from the imposition of local franchise taxes. Feb. the exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing authority. Jul. 193. G. The thrust of the Public Telecommunications Act is to promote the gradual deregulation of entry. March 25. SABUGO & JOHN HENRY C.. whether natural or juridical. 22. Aug. Moreover. the term “exemption” is too general to include tax exemption and runs counter to the requirement that the grant of tax exemption should be stated in clear and unequivocal language too plain to be beyond doubt or mistake. 143867. City of Cabanatuan.R. City of Davao. G. MASACAYAN & THEENA C. rather.R. (The City of Iloilo v.A. Accordingly. G. No. the latest will of the legislature to grant tax exemption must be respected. The legislative franchises of Smart and Globe were granted in 1998. No. No. The City of Davao. The language of Section 23 and the proceedings of both Houses of Congress are bereft of anything that would signify the grant of tax exemptions to all telecommunications entities. withdrawal of tax exemption is not to be construed as prohibiting future grants of tax exemptions. and operations of all public telecommunications entities. Section 23 of the Public Telecommunications Act does not provide legal basis for Smart’s exemption from local business and franchises taxes. Congress. (2007 Bar Question) Q: Is Smart Communications. Local water districts 2. The grant of taxing powers to LGU’s under the LGC does not affect the power of Congress to grant exemptions to certain persons. (Sec. did not intend it to operate as a blanket exemption to all telecommunications entities. however. v.R. Inc. (SMART) exempt from local taxation? A: Under its franchise.A. Congress is deemed to have been aware of the provisions of the earlier law when it granted the exemption. XPNS: Those exemptions or incentives conferred to: 1. 2003) The rule that special law must prevail over the provisions of a later general law does not apply as the legislative purpose to withdraw tax privileges enjoyed under existing laws or charters is apparent from the express provisions of the LGC (City of San Pablo. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. it refers to exemption from certain regulatory or reporting requirements imposed by government agencies such as the National Telecommunications Commission. pursuant to a declared national policy. 2002) Smart and Globe.Local Government Code of 1991 PLDT is liable to the franchise tax levied by the province of Zamboanga del Norte. 149110. The tax exemption privileges on franchises granted before the passage of the Local Government Code are effectively repealed by the latter law. 127780. MARTINEZ SANTO TOMAS de Derecho Civil 239 . in approving Section 23 of R. (Smart Communications. otherwise. long after the Local Government Code took effect. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 21. No. Smart Communications Inc. 6938. Cooperatives duly registered under R. What privileges were withdrawn upon the effectivity of the LGC? A: GR: Tax exemptions or incentives granted to or enjoyed by all persons. G. LGC) Note: However. are not liable to the franchise tax imposed on the provincial ordinance. Intent to grant tax exemption cannot therefore be discerned from the law.R.. The term “exemption” in Section 23 of the Public Telecommunications Act does not mean tax exemption. SMART is not exempt from local business and franchise taxes. pricing. April 9. 27. G. (Philippine Rural Electric ACADEMICS CHAIR: LESTER JAY ALAN E. (PLDT v. Reyes. 155491. 2009) The “in lieu of all taxes” clause in a legislative franchise should categorically state that the exemption applies to both local and national taxes. 1999) Q: What is the rationale for the withdrawal of tax exemptions? A: The intention of the law in withdrawing the tax exemptions is to broaden the tax base of local government units to assure them of substantial sources of revenue. Inc. 2009) Withdrawal of Exemptions Q. and thus to level the playing field in the telecommunications industry.

Mar. TEE. MEMBERS: JOSE DUKE BAGULAYA. 2.UST GOLDEN NOTES 2011 Cooperatives Association v. PRUDENCE ANGELITA A. its agencies and instrumentalities. The Secretary of DILG. VALCOS . (Sec. KEITH S. National Internal Revenue Code. ANG JR. Q: What are the limitations of the residual power? A: 1. Laguna v. June 10. No. XPN: When specific provisions of the LGC authorize the LGUs to impose taxes. and That the ordinance levying such taxes. and in no case shall such adjustment exceed ten percent (10%) of the rates fixed under the LGC. HERNANDEZ. Local Government Code. oppressive.. GRANTOZA. (Ibid. LGC) The requirement prescribed in Section 186 of the LGC.R. However. 1999) Authority to Issue Local Tax Ordinances Q: What are the kinds of Local Tax Ordinances? A: 1. GUTIERREZ. 25. 186. Authority to Adjust Local Tax Rates Q: Does the LGU have power to adjust local tax rates? 5. CHARLES L. Constitutional limitations on taxing power Common limitations on the taxing power of local government units as prescribed in Section 133 of the Local Government Code Fundamental principles governing the exercise of the taxing power by local governments as prescribed under Section 130 of the LGC. (Sec. 2. 191. fees or charges of any kind on the National Government. LACSINA. excessive. Other applicable laws. fees. Q: How shall the sanggunian levy local taxes? A: It shall be exercised through an appropriate ordinance. SUBJECT HEAD: RODOLFO N. LGC) confiscatory.) GR: LGUs cannot impose taxes. Those imposing a fee or tax specifically authorized by the Local Government Code for the local government units to impose. 2003) 4. confiscatory or contrary to declared national policy. fees or charges shall not be enacted without any prior hearing conducted for the purpose. SUBJECT HEADS: EDISON U. A: Yes. ASST. particularly the requirement that they must not be “unjust. fees or charges on any base or subject NOT otherwise specifically enumerated herein or taxed under the 1. 55 of LGC. That the taxes. 2. No. 240 TAXATION LAW TEAM: ADVISER: ATTY. or contrary to declared national policy” (Sec. or charges shall not be unjust. Reyes. ORTIZ & VANNESSA ROSE S. G. KASALA. LGC) Q: What are the conditions in the exercise of the residual power of taxation? A: 1.R. fees or charges on the aforementioned entities (City Government of San Pablo. Those imposing a fee or tax not specifically enumerated under the LGC or taxed under the provisions of the NIRC or other applicable laws (Sec. Q: Can LGUs tax the National Government? A: Residual taxing power of local governments Q: What is the so-called “Residual Taxing Power of the LGU”? A: LGUs may exercise the power to levy taxes. LGC) 2. which directs that the ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose Principle of Pre-emption Note: See discussion under Common Limitations of the Taxing Powers of LGUs. oppressive. CLARABEL ANNE R. 186. 186. 127708. or 3. the local chief executive (except the punong barangay) possesses veto powers as laid down in Sec. DIVINE C. LOCAL TAXING AUTHORITY Power to Create Revenues Exercised thru LGUs Q: What is the taxing power of the LGU? A: Each local government unit has the power to: 3. G. provided that the adjustment of the tax rates as prescribed herein should not be oftener than once every five (5) years. 143076. excessive. CHRISTINE L.

confiscatory or contrary to a declared national economic policy. publication in full for 3 consecutive days in a newspaper of general circulation. (Sec. as amended. and charges shall exclusively accrue to it. 2. 4. (Coca-Cola v. The matter of veto and overriding the same d. LGC) All local government units are granted general powers to levy taxes. (Sec. 192. fees. 129. 191. or other applicable laws. ACADEMICS CHAIR: LESTER JAY ALAN E. LGC) No such taxes. fees.(Sec. then the ordinance may be posted in at least two conspicuous and publicly accessible places (Sec. Note: Such taxes. (Sec.Local Government Code of 1991 1. LGC) 2. LGC) Power to grant local exemptions– LGUs may through ordinances duly approved. excessive. (Sec. oppressive. (Sec. The procedure applicable to local government ordinances in general should be observed. and in no case shall such adjustment exceed 10% of the rates fixed under the LGC. Public hearings are required before any local tax ordinance is enacted (Sec. 2. The levy must not be unjust. (Sec. as they may deem necessary. LGC) 3. (Ibid.R. fees. Such taxes. fees. LGC) 3. G. In the absence of such newspaper in the province. Power to adjust local tax rate– LGUs are authorized to adjust the tax rates as prescribed under the LGC not oftener than once every 5 years. 187. consistent with the basic policy of local autonomy. SABUGO & JOHN HENRY C. MASACAYAN & THEENA C. or charge or to generate revenue under the LGC shall be exercised by the sanggunian of the local government unit concerned through an appropriate ordinance. and charges subject to the provisions herein. incentives or reliefs under such terms and conditions. and 59. 129. City of Manila. city. LGC) 3. LGC) Copies of the provincial. 54. LGC) Within 10 days after their approval. The tax ordinance will be null and void if it fails to comply with such publication requirement. Procedure for Approval and Effectivity of Tax Ordinances Q: What are the requisites of a valid tax ordinance? A: 1. 161893 June 27. grant tax exemptions. fee. (Sec. Power to prescribe penalties for tax violations and limitations thereon. Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes. 188 & 189. (Sec. 55. 2. LGC) The following procedural details must be complied with: a. Publication and effectivity (Secs. and Levy taxes. Necessity of quorum b. LGC) Q: What are the powers incidental to local taxation? A: 1. fees or charges shall be imposed without a public hearing having been held prior to the enactment of the ordinance. 187. 2006) Scope of Taxing Power Q: What is the scope of the taxing power of LGUs? A: 1. city or municipality. Submission for approval by the local chief executive c. 188. No. 132. 187. Create its own sources of revenue.) Q: Who shall exercise local taxing authority? A: The power to impose a tax. consistent with the basic policy of local autonomy. fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the NIRC. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. and charges shall accrue exclusively to the local government units. 186. and charges. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MARTINEZ SANTO TOMAS de Derecho Civil 241 . LGC) Note: The requirement of publication in full for 3 consecutive days is mandatory for a tax ordinance to be valid. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. and municipal tax ordinances or revenue measures shall be published in full for three consecutive days in a newspaper of local circulation or posted in at least two conspicuous and publicly accessible places.

4. TEE. 137. 135. 5. HERNANDEZ. fees and charges which a province or a city may levy? A: 1. GRANTOZA. LGC) Amusement tax (Sec. LGC) Franchise Tax (Sec. 138. LACSINA. DIVINE C.. wholesalers of. ANG JR. LGC) Tax on business of printing and publication (Sec. 7. CHRISTINE L. 6. LGC) Tax on sand. VALCOS . SUBJECT HEADS: EDISON U. CHARLES L. LGC) Professional tax (Sec. PRUDENCE ANGELITA A. 2. LGC) Annual fixed tax for every delivery truck or van of manufacturer or producers. 3. 140. SUBJECT HEAD: RODOLFO N. KASALA. MEMBERS: JOSE DUKE BAGULAYA. gravel and other quarry resources (Sec. KEITH S. CLARABEL ANNE R. 139. LGC) 242 TAXATION LAW TEAM: ADVISER: ATTY. 136. ORTIZ & VANNESSA ROSE S. dealers. or retailer in certain products (Sec. ASST.UST GOLDEN NOTES 2011 Specific Taxing Power of Local Government Unit (LGUs) Taxing power of provinces Q: What are the taxes. Tax on transfer of real property ownership (Sec. 141. GUTIERREZ.

and others of similar nature Not exceeding fifty percent (50%) of one percent (1%) In the case of a newly started business. receipts. leaflets. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. L-30159. and other public waters within its territorial jurisdiction Not more than ten percent (10%) Who issues permit: issued exclusively by the provincial governor pursuant to the ordinance of the Sangguniang Panlalawigan Distribution of Tax Proceeds: a. 126232) ACADEMICS CHAIR: LESTER JAY ALAN E. streams.Local Government Code of 1991 SUMMARY RULES ON THE TAXING POWER OF A PROVINCE TRANSACTION SUBJECT TO TAX TAX BASE TAX RATE Tax on transfer of real property ownership Whichever is higher between: 1. and not to the municipality where they are found. rivers. G. Business of printing and publication of books. March 31. the tax Capital investment. within its territorial jurisdiction. barter. MARTINEZ SANTO TOMAS de Derecho Civil 243 . gravel and other quarry resources Fair market value in the locality per cubic meter of ordinary stones. transferor. certificates. or 2. or administrator Time of Payment: within 60 days from the date of the execution of the deed or from the date of the decedent’s death Tax on the business of printing and publication Gross annual receipts for the preceding calendar year. and other quarry resources Sand. SABUGO & JOHN HENRY C. No. (Province of Bulacan vs. No. the tax shall not exceed one-twentieth (1/20) of one percent (1%) Not exceeding fifty percent (50%) of one percent (1%) Capital Investment School texts or references. handbills. earth. 1998) Regalian Doctrine is not applicable. pamphlets. poster. shall not exceed one-twentieth (1/20) of one percent (1%) Tax on sand. total consideration involved in the acquisition of the property. creeks. Province – 30% b. Component city or municipality – 30% c. the fair market value in case the monetary consideration involved in the transfer is not substantial EXCEPTION Sale .R. (Municipality of San Fernando La Union vs. CA. Romana. prescribed by the DepEd shall be exempt from tax. lakes. gravel and other resources extracted from public lands or from the beds of seas. or realized. sand.R. Barangay where resources were extracted 40% Note: the authority to impose taxes and fees for extraction of sand and gravel belongs to the province. donation. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Businesses enjoying a franchise In the case of a newly started business. G. Sta. executor. cards. Franchise tax Gross annual receipts for the preceding calendar year based on the incoming receipt. Rationale: tax statutes are construed strictissimi juris against the government. or on any other mode of transferring ownership or title of real property Not more than fifty percent (50%) of the one percent (1%) Transfer under the Comprehensive Agrarian Reform Program Person Liable to Pay: Seller. gravel. MASACAYAN & THEENA C. donor. Province may not invoke the doctrine to extend the coverage of its ordinance to quarry resources extracted from private lands.

or fee for the practice of such profession Amusement tax Gross receipts from admission GR: The holding of fees. Exempt from tax on fermented liquors. or similar concerts shall be subject to amusement tax. and other municipalities products as may be determined by the sangguniang panlalawigan. Thus. cinemas. VALCOS . 183505. SUBJECT HEADS: EDISON U. literary Ownership. flower withheld by their proprietors. No. 2009) amusement tax. DIVINE C. dramas. TEE. GUTIERREZ. Feb 26. (CIR v SM Prime Holdings Inc. Annual fixed tax for every delivery truck or van of manufacturer or producers. boxing stadium and said proprietors. CHARLES L. films or movies are subjected to the Amusement Tax and not to value-added tax under the NIRC. payment of the cinematographic films. van or vehicle Not exceeding P500 peddlers imposed by cigars and cigarettes. license. No. XPN: Holding of pop. GRANTOZA.UST GOLDEN NOTES 2011 Professional tax Professionals exclusively employed in the government shall be exempt from the payment of this tax Exercise or practice of profession requiring government licensure examination At such amount and reasonable classification as the sanggunian panlalawigan may impose Not to exceed P300 Date of Payment: payable annually on or before January 31 or before beginning the practice of the profession Place of Payment: Province where he practices his profession or where the principal office is located Note: TAX TO BE PAID ONLY ONCE. musical lessees. Every truck. operas. van or any vehicle in the delivery or distribution of distilled spirits. to sales outlets. CLARABEL ANNE R. recitals. KEITH S. CHRISTINE L. G. whether directly or indirectly. or operators and paid to Not more than 10% programs. gross receipts are divided between from admission presentation shall be circuses.A. dealers. PRUDENCE ANGELITA A. May 21. ORTIZ & VANNESSA ROSE S.. concert halls. lease or operation of the provincial treasurer before the of gross receipts and oratorical theaters. 9640. producers. dealers or retailers of truck. soft drinks. ASST. Note: The Supreme Court held that it is the intent of the Legislature not to impose VAT on persons already covered by the amusement tax. or consumers. Person who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected to any other national or local tax. the painting and art tax shall first be deducted and exhibitions. shows. or fees (as amended exempt from the other places of amusement operators and the distributors of by R. ANG JR. 244 TAXATION LAW TEAM: ADVISER: ATTY. lessees..R. the gross receipts derived by respondents from admission tickets in showing motion pictures. or retailer in certain products Use by manufacturers. SUBJECT HEAD: RODOLFO N. wholesalers. In case of theaters or cinemas. MEMBERS: JOSE DUKE BAGULAYA. KASALA. LACSINA. concerts. wholesalers of. HERNANDEZ. 2010) Distribution of Proceeds: Tax shall be shared equally by the province and municipality where such amusement places are located. rock.

circuses and other places of amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances. Fermin pays his professional tax as a CPA in Makati City and his professional tax as a lawyer in Pasig City. Such tax is a tax upon the performance. or any board or examinations conducted by the Professional Regulation Commission (PRC). Amusement is a pleasurable diversion and entertainment. no such tax is due.. He has his main office in Makati City and maintains a branch office in Pasig City. Fermin has the option of paying his professional tax as a lawyer in Pasig City Note: There can be no imposition of amusement taxes on the above amusement places since the NIRC already imposes amusement taxes on them under Section 125 thereof. but on its exercise of the rights or privileges granted to it by the government. the situs of the professional tax is the city where the professional practices his profession or where he maintains his principal office in case he practices his profession in several places. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. hence an excise tax upon an activity already being taxed under the NIRC. 2. 139[b]. It is synonymous to relaxation. a resident of Quezon City. (Sec. 1998) Q: What is amusement and amusement places as defined under the LGC? A: 1. Cockpits Cabarets Night or day clubs Boxing exhibitions Professional basketball games Jai-Alai Racetracks A: 1. May Quezon City. if the buyer is a foreign government. LGC) 2.R. No. Q: Who are the professionals subject to professional tax? A: They are those who have passed the bar examinations. Q: Mr. et. or fun. Q: What is meant by “franchise” in the phrase “tax on business enjoying a franchise under Sec. Mr. or exercise of an activity. 137 of the Local Government Code? A: The Congress defined it in the sense of a secondary or special franchise. Mr. Fermin has his main office may not require him to pay his professional tax as a lawyer. The local government of Quezon City has no right to collect the professional tax from Mr. 27. May Makati City. upon its property or income. go after him for the payment of his professional tax as a CPA and a lawyer? Explain. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. concert halls. LGC) 2. 2. where he has his main office. (2005 Bar Question) Q: Has the province authority to impose taxes on sand. is a Certified Public Accountant-Lawyer engaged in the practice of his two professions. It is not levied on the corporation simply for existing as a corporation. A province is not expressly authorized to do so. However. cinemas. gravel and other quarry resources extracted on private lands? A: No. where he practices law or in Makati City where he maintains his principal office. pastime. Note: Municipalities cannot impose professional tax since such power is reserved only to provinces and cities. if he is to practice both professions. Q: What are the amusement places upon which provinces or cities cannot impose amusement taxes? A: 1. v. Amusement places include theaters. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. (Province of Bulacan. e. ACADEMICS CHAIR: LESTER JAY ALAN E. 126232. SABUGO & JOHN HENRY C. 131[b] and [c]. avocation. where he has his residence and where he also practices his two professions. Nov. CA G. 6. No. Fermin as the place of residence of the taxpayer is not the proper situs in the collection of the professional tax. MASACAYAN & THEENA C. 5. A lawyer who is also a Certified Public Accountant (CPA) must pay the professional tax imposed on lawyer and that fixed for CPAs.g. MARTINEZ SANTO TOMAS de Derecho Civil 245 . 7. Makati City where Mr. 1. 4. 3. Fermin.Local Government Code of 1991 Q: To whom is the tax on transfer of real property ownership due? A: It is due from the seller of the property. carrying on.No. al. Sec. require him to pay his professional tax as a lawyer? Explain.

CLARABEL ANNE R. He stands immediately between the producer or manufacturer and the consumer and depends for his profit not upon the labor he bestows upon his commodities but upon the skill and foresight with Taxing Powers of Cities Q: What is the scope of the taxing power of a city? A: The city. 142. producers. 2000) Q: What are the taxes that a municipality may impose under the LGC? A: 1. TEE. LACSINA. 119122. rectifiers.UST GOLDEN NOTES 2011 Q: May LGUs collect amusement taxes on admission tickets to the Philippine Basketball Association (PBA) games? A: No. fees. ICCs and HUCs are independent of the province (Sec. repackers. fees and charges levied and collected by ICCs and HUCs accrue solely to them.) Cities have the broadest taxing powers. wholesalers. distilled spirits. 451-452. This means that taxes. 2. 151. processors. goods. VALCOS . distillers. CHRISTINE L. Tax on business (Sec. 6. CA. Professional basketball games are within the ambit of national taxation as it is presently being taxed under the provisions of the NIRC. 3. and charges which the province or municipality may impose. GRANTOZA. Other business not specified which the sanggunian concerned my deem proper to tax. embracing both specific and general powers as provinces and municipalities may impose. Under the LGC. On Manufacturers. MEMBERS: JOSE DUKE BAGULAYA. 8. LGC). SUBJECT HEADS: EDISON U. Peddlers. and on manufacturers. brewers. 8. and wines or manufacturers of any article of commerce of whatever kind or nature. distributors. 143. Those levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of LGC. LGC) Q: What are the businesses under Section 143 of the Local Government Code upon which municipalities may impose business taxes? A: ManWhoRE-COP-B 1. GUTIERREZ. No. On Contractors. KASALA. Q: What is Wholesale? A: A sale where the purchaser buys or imports the commodities for resale to persons other than the end user regardless of the quantity of the transaction. LGC) Fees and charges on business and occupation (Sec. assemblers. 5. (Sec. DIVINE C. 148. G. HERNANDEZ. ASST. Independent Component Cities and Highly Urbanized Cities. 3. 151. (Philippine Basketball Association v. Component Cities. distributors. Q: Who are Dealers? A: One whose business is to buy and sell merchandise. lessee or operator of the amusement place. LGC) Taxing Powers of Municipalities Q: What is the scope of the taxing power of a municipality? A: Municipalities may levy taxes. 7. and compounders of liquors. LGC) Note: The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. the income from cession of streamers and advertising spaces is subject to amusement taxes under the NIRC because the definition under the Tax Code is broad enough to include the cession of streamers and advertising spaces as the same includes all the receipts of the proprietor.. Banks and other financial institutions. (Sec. dealers or retailers of Essential commodities. or dealers in any article of commerce of whatever kind or nature. On Wholesalers. CHARLES L. 2. 147. there are three types of cities. PRUDENCE ANGELITA A. Furthermore. KEITH S. except as otherwise provided in the LGC. On Retailers. Aug. ANG JR. 4. LGC) 246 TAXATION LAW TEAM: ADVISER: ATTY. may levy the taxes. On exporters. LGC) Fees for sealing and licensing of weights and measures (Sec. (Ibid. SUBJECT HEAD: RODOLFO N. ORTIZ & VANNESSA ROSE S. except as otherwise provided in the LGC. LGC) Fishery rentals. fees and charges (Sec. fees. millers. 149. 4.R. and chattels as a merchant. (Sec. and charges not otherwise levied by provinces.

181845. etc. detergents. processed or preserved food. Q: What are the conditions to which other businesses not specified may the sanggunian concerned deem proper to tax? A: 1. Rice and corn Wheat or cassava flour. Inc. LGC). etc. 7. irrespective of the quantity of the commodity sold Q: Who is a Contractor? A: Includes persons. travels from place to place and sells his goods or offers to sell and deliver the same. to a business tax under section 143(h) of the same Code. 5. and 2. (Sec. herbicides. salt and other agricultural. VAT. meat. either for himself or on commission. or percentage tax under the NIRC. natural or juridical. distilled spirits. No. Business not subject to Vat or percentage tax under the NIRC. Q: What are considered Essential Commodities? A: 1. and medicine Agricultural implements. locally manufactured. G. marine and fresh water products. wines. whether in their original state or not Cooking oil and cooking gas Laundry soap. Tax rate not to exceed 2% of the gross sales/receipts of the preceding calendar year. 2009) Q: Who is a peddler? A: Peddler means any person who. 2. Note: “When a municipality or city has already imposed a business tax on manufacturers. insecticides. fertilizers. August 4. said municipality or city may no longer subject the same manufacturers. and other farm inputs Poultry. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C.” (Coca-Cola Bottlers Phils.R. 8. whose activity consists essentially of the sale of all kinds of services for a fee.. SABUGO & JOHN HENRY C. 131[t]. ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. of liquors. feeds and other animal feeds School supplies Cement 3. dairy products.Local Government Code of 1991 Q: What is Retail? A: A sale where the purchaser buys the commodity for his own consumption. regardless of whether or not the performance of the service calls for the exercise of the use of the physical or mental faculties of such contractor or his employees. and that are not otherwise specified in preceding paragraphs. pesticides. not subject to professional tax under Section 139 of the Code. MARTINEZ SANTO TOMAS de Derecho Civil 247 . Section 143(h) may be imposed only on businesses that are subject to excise tax. 4. and any other article of commerce pursuant to Section 143(a) of the LGC. 6. MASACAYAN & THEENA C. equipment and post-harvest facilities. sugar.

LGC) Gross receipts for the preceding calendar year Gross receipts amounting to P2. ASST. 143.. 147. TEE. (Sec. 143[h]. processors. 143[a]) Wholesalers. KASALA. except in case of professional tax. (w/c only provinces & cities may levy) on the practice of any profession or calling commensurate w/ the cost of regulation.000 ANNUAL PERCENTAGE TAX of 1% TAX BASE Tax on Business Based on the taxpayer’s gross sales or receipts for the preceding calendar year. LGC) Gross sales or receipts for the preceding calendar year P400. LACSINA.000. distributors or dealers in any article of commerce of whatever kind or nature. MEMBERS: JOSE DUKE BAGULAYA. LGC. Gross sales or receipts in cities P50.5% of 1% is imposed.000 or less Retailers (Sec.000. dividends.000 or less b. millers. instead a PERCENTAGE TAX of 37.000 or less Note: taxed by barangays Contractors and other independent contractors (Sec. PRUDENCE ANGELITA A. GUTIERREZ. dealers or retailers of the following essential commodities. producers wholesalers. 143[g].000 or more for the preceding calendar year Based on the gross sales or receipts for the preceding calendar year Gross sales or receipts amounting to P2. LGC) 248 TAXATION LAW TEAM: ADVISER: ATTY. 143[b]. LGC) Exporters and manufacturers. CHRISTINE L. HERNANDEZ. Gross sales or receipts in municipalities P30. repackers. SUBJECT HEAD: RODOLFO N. ORTIZ & VANNESSA ROSE S. Gross sales or receipts amount to P6. LGC) Sales or receipts exceeding P400. and compounders of liquors. 143[e]. 143[f]. brewers. but in no case to specified above (Sec. assemblers. 143[d]. distributors. (Sec. DIVINE C. distilled spirits and wines or manufacturers of any article of commerce of whatever kind or nature.500.000 or more GRADUATED ANNUAL FIXED TAX TAX RATE EXCEPTION Ceases to be a fixed tax. income from financial leasing. distillers.UST GOLDEN NOTES 2011 Tax on Various Types of Businesses PERSON/ENTITIES SUBJECT TO TAX Manufacturers. (b) and (d) of this Section ANNUAL PERCENTAGE TAX of 2% a. Municipal Non-Revenue Fees & Charges Municipalities may impose & collect reasonable fees & charges on business & occupation and. GRANTOZA. GRADUATED ANNUAL FIXED TAX Tax becomes a PERCENTAGE TAX at the rate of 50% of 1% Not exceeding one-half (1/2) of the rates prescribed under subsections (a). CHARLES L. KEITH S. LGC) exceed the rates prescribed in Sec. rectifiers. (Sec.000 or more Gross receipts of the preceding calendar year derived from interests. CLARABEL ANNE R. LGC) Banks and other financial institutions (Sec. inspection & licensing before any person may engage in such business/occupation/practice of such profession or calling. rentals on property and profit from exchange or sale of property insurance premium Per peddler GRADUATED ANNUAL FIXED TAX PERCENTAGE TAX of 50% of 1% 50% of 1% Peddlers engaged in the sale of any merchandise or article of commerce. (Sec. LGC) Not exceeding P50 Graduated schedule imposed by the Sanggunian On any business not otherwise concerned. 143[c]. SUBJECT HEADS: EDISON U. (Sec. VALCOS . commission and discounts from lending activities. ANG JR.

submit a sworn statement of its gross sales or receipts for the current year. 145. muro –ami. 147. ACADEMICS CHAIR: LESTER JAY ALAN E. 2. Tax on Retirement of Business Q: When is a business considered officially retired? A: 1. Rules on Payment of Business Tax Q: How is conducted? Payment of Business Taxes A: 1. SABUGO & JOHN HENRY C. LGC) b. The sanggunian may penalize the use of explosives. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. 149. Fees for Sealing and Licensing of Weights and Measures (Sec. LGC) 2. (Sec. Fees and Charges. or other appropriate agencies. upon termination thereof. (Sec. Fishery Rentals. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 148. 144. LGC) 2.(Sec. A business subject to tax shall. noxious or poisonous substances.Local Government Code of 1991 Ceiling on business tax imposable on municipalities within Metro Manila Q: What are the rates of business within the Metropolitan Manila Area? A: The municipalities in Metro Manila may levy taxes at rates which shall not exceed by 50% the maximum rates prescribed in Section 143. including the authority to grant fishery privileges within municipal waters. 3. LGC) Note: Principal is the head or main office of the business appearing in the pertinent documents submitted to the SEC. or DTI. and other deleterious methods of fishing and prescribe a criminal penalty therefore. Same rate of tax – the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related business. 3. as well as issue licenses for the operation of fishing vessels of three tons or less. Fees and Charges for Regulation and Licensing Q: What are the fees and charges that a municipality may impose? A: The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces (Sec. LGC) 1. the difference shall be paid before the business is considered officially retired. LGC. Different rates of tax – the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. The tax on a business must be paid by the person conducting the same. Taxes shall be payable for every separate or distinct establishment or place where 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. as the case may be. electricity. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. MASACAYAN & THEENA C. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC which are subject to: a. MARTINEZ SANTO TOMAS de Derecho Civil 249 . If the tax paid during the year be less than the tax due on said gross sales of receipts of the current year.

All sales shall be recorded in the principal office. v. project Of all sales recorded in the principal office: All sales shall be recorded in the office. Camarines Sur. Where there is a factory. KEITH S. CHRISTINE L. project offices. v. contractor. enjoyment of a privilege. HERNANDEZ. Principal office – head or main office of the business appearing in pertinent documents submitted to the SEC and specifically mentioned in the Articles of Incorporation. 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..UST GOLDEN NOTES 2011 Situs of Tax Collected Q: What is the situs of business tax? A: RECOGNITION OF SALE PAYMENT OF TAX All sales made in the locality With branch or sales office or The tax shall be payable to the city or where the branch or office or warehouse municipality where the same is located. L-40296. ASST. (IRR) Situs according to Jurisprudence: Excise tax – Tax is imposed on the performance of an act or occupation. DIVINE C. Municipality of Sipocot. 30% taxable to the city or municipality principal office. plant or plantation in which case. The 70% shall be prorated among the localities where such factories. 70% taxable to the city or municipality where the factory. ANG JR. etc. etc. VALCOS . the sales made by said principal office Branch office – a fixed place in a locality which conducts operations of the business as an extension of the principal office. business where the principal office is located. (Allied Thread Co.. GRANTOZA. the rule on the matter shall apply accordingly. warehouse is located The municipality where the sale or transaction is made. 40% to the city or municipality where the plantation is located. or warehouse. November 21. TEE. plant or plantation in pursuit of 1. If plantation is at a place other than All sales shall be recorded in the 2. where the factory is located principal office. plants and plantations are located based on their respective volumes of production. Inc. (Shell Co. has two or more factories. Note: in case of manufacturers or producers which engage the services of an independent contractor to produce or manufacture some of their products. SUBJECT HEADS: EDISON U. Inc. sales office. CLARABEL ANNE R. factory. plant. 60% to the city or municipality where the factory is. GUTIERREZ.. SITUATION If manufacturer. 2. it is the place of the consummation of the sale. 105 Phil 1263) 250 TAXATION LAW TEAM: ADVISER: ATTY. project offices. City Mayor of Manila. is located. 1984) Sales Tax – With respect to sale. not upon the location of the office. ORTIZ & VANNESSA ROSE S. The 70% (above) shall be divided as follows: 1. (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. SUBJECT HEAD: RODOLFO N. and not merely the place of the perfection of the contract. 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. The tax shall accrue to the city or Where there is no branch or sales The sale shall be recorded in municipality where said principal office is office or warehouse the principal office along with located. a branch. CHARLES L. KASALA. MEMBERS: JOSE DUKE BAGULAYA. The power to levy such tax depends on the place in which the act is performed or the occupation is engaged in. PRUDENCE ANGELITA A. plants or plantations located in different localities. LACSINA.

or Service facilities such as palay. 2. (Sec. 153. 154. 2. cockfights and cockpits b. service or user charges – LGUs may impose and collect such reasonable fees and charges for services rendered.) Q: May LGUs discontinue the collection of tolls? A: The sanggunian concerned may discontinue the collection of the tolls when public safety and welfare so requires. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. Public Utility Charges. the said facility 3. and P30. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. LGC) Public utility charges – may fix the rates for the operation of public utilities owned. waterway. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Fees. SABUGO & JOHN HENRY C. Common Revenue Raising Powers Service Fees and Charges. Places of recreation which charge admission fees c. neon signs and outdoor advertisements Reasonable fee as the Sanggunian Barangay may impose Reasonable fees and charges as the barangay may levy. LGC) Toll fees or charges – The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road. ferry or telecommunication system funded and constructed by the local government unit concerned. fees or other charges? A: HOP 1. Officers and enlisted men of the Armed Forces of the Philippines and members of PNP on mission Post office personnel delivering mail Physically Handicapped and disabled citizens. (Sec. Note: The enumeration shall accrue EXCLUSIVELY to them.000 or less (for barangay in the cities). Thereafter. or wharf. Billboards. pier. MASACAYAN & THEENA C. Toll Fees or Charges Q: What are the common revenue raising powers of LGUs? A: 1. LGC) Q: Who are exempted from payment of tolls. (Ibid. bridge. 155. copra. ACADEMICS CHAIR: LESTER JAY ALAN E.000 or less (for barangay and municipalities Services rendered in connection with the regulation or the use of barangay-owned properties. operated and maintained by them within their jurisdiction. SERVICE FEES OR CHARGES Reasonable Fees or charges BARANGAY CLEARNCE OTHER FEES AND CHARGES a. 65 years or older. 3. signboards.Local Government Code of 1991 Taxing Powers of Barangays Q: What is the scope of the taxing power of a barangay? A: SOURCES OF REVENUE TAX BASE Gross sales receipts for preceding calendar year of P50. MARTINEZ SANTO TOMAS de Derecho Civil 251 . (Sec. Commercial breeding of fighting cocks. or tobacco dryers TAX RATE FEES AND CHARGES BARANGAY TAXES – On stores or retailers with fixed business establishments Not exceeding 1% of such gross sales or receipts.

000. Basic: Five pesos (P5. exercise of profession or from property which in no case shall exceed Five thousand pesos (P5. LGC) Q: When is the payment of community tax required? A: Accrues on the 1st day of January of each year which shall be paid not later than the last day of February of each year.00) b. who is required by law to file an income tax return. (Sec. c. 161.00) for every One thousand pesos (P1. It replaced the former residence tax. ASST.000. It may also be issued to any person or corporation NOT subject to the community tax upon payment of P1. or b. SUBJECT HEADS: EDISON U. LGC) 2. VALCOS . (Sec.000. which. GRANTOZA. engaged in or doing business in the Philippines.00) of income regardless of whether from business. Diplomatic and consular representatives Transient visitors when their stay in the Philippines does not exceed three (3) months. or who owns real property with an aggregate assessed value of P1. 162. 161. TEE. KASALA. KEITH S.00 (Sec. CHARLES L.000. LGC) 252 TAXATION LAW TEAM: ADVISER: ATTY. LACSINA.000. 159. Q: How much are they liable to pay? A: 1. 157 & 158. Q: Who levies community tax? A: It may be levied by a city or municipality but not a province. 157. the additional tax shall be based on the total property. GUTIERREZ.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 under existing laws. LGC) Juridical Persons –Every corporation no matter how created or organized. ORTIZ & VANNESSA ROSE S. PRUDENCE ANGELITA A. (Sec.00). LGC) Q: Who are exempted from paying community tax? 2. HERNANDEZ. LGC) Community Tax Q: What is the nature of community tax? A: The community is a poll or capitation tax imposed upon residents of a city or municipality.00) in accordance with the following schedule: a. CHRISTINE L.. found in the assessment rolls of the city or municipality where the real property is situated . LGC) Q: Where is community tax paid? A: Residence of the individual. 2. ANG JR. SUBJECT HEAD: RODOLFO N.Two pesos (P2. who is engaged in business or occupation. Individuals –Every inhabitant of the Philippines eighteen (18) years of age or over: a. LGC) Q: What is the penalty for delinquency? A: An interest of 24% per annum from the due date until it is paid shall be added to the amount due (Sec. gross receipts or earnings owned or derived by them. Individuals – a. (Sec. or in the place where the principal office of the juridical entity is located. For every Five thousand pesos (P5. shall exceed Ten thousand pesos (P10. LGC) Q: What is a Community Tax Certificate? A: It is issued to every person or corporation upon payment of the community tax. Q: Who are liable to pay community tax? A: 1.00).000. in no case. Note: In case of husband and wife. DIVINE C. and b. Additional: Additional tax of One peso (P1. 158.00). (Sec.00 or more. or d. who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year. 155. CLARABEL ANNE R. (Sec. A: 1. Juridical persons – additional tax. 160. whether domestic or resident foreign. For every Five thousand pesos (P5. (Sec.UST GOLDEN NOTES 2011 shall be free and open for public use.Two pesos (P2. MEMBERS: JOSE DUKE BAGULAYA.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year .

registration fees of vessel and wharfage on wharves. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. Percentage or value-added tax (VAT) on sales. 3. fees or charges on petroleum products. except as otherwise provided under the LGC. gifts. (Sec. Note: LGUs may impose tax on a petroleum business. and barangays shall not extend to the levy of the following: IDE-C3AP3MENT 1. For a period of three (3) years from COMMERCIAL OPERATION. except when levied on banks and other financial institutions. and taxes. the grant of the Income Tax Holiday for registered enterprises under EO 226 is subject to the following rules: a. Taxes. June 3. Taxes. and all other kinds of Excise taxes on articles enumerated under the NIRC. LGC) Proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows: 1. legacies and other acquisitions mortis causa. SABUGO & JOHN HENRY C. 163. cities. Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of six (6) and four (4) years. Taking an oath of office upon election or appointment to any position in the government service. 4. or permit from any public authority. fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen. MARTINEZ SANTO TOMAS de Derecho Civil 253 . LGC) 5. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. For six (6) years from COMMERCIAL OPERATION for pioneer firms and for four (4) years for non-pioneer firms – fully exempt. Taxes on estates. Article 39) The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions and shall accrue entirely to the general fund of the city or municipality concerned. Receiving any money from any public fund. Customs duties. MASACAYAN & THEENA C. Income tax. No. 10. COMMON LIMITATIONS ON THE TAXING POWERS OF LGUS 8. Conditions: bonded in accordance with law (Sec. 2. inheritance. and charges and other impositions upon goods carried into or out of. municipalities. tonnage dues. (EO 226. tolls for bridges or otherwise. 90776. and 2. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and ACADEMICS CHAIR: LESTER JAY ALAN E. respectively from the date of registration. 50% accrues to the barangay where the tax is collected Q: When is the presentation of community tax certificate required? A: 1. LGC) 4. or charges in any form whatsoever upon such goods or merchandise. Receiving any license. fees. 5. 3. charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned. Documentary stamp tax. A tax on business is distinct from a tax on the article itself (Phil.Local Government Code of 1991 customs fees. 50% accrues to the general fund of the city or municipality concerned. 7. Note: However. A: The exercise of the taxing powers of provinces. G. 2. 6. Transacting other official business. Acknowledgment of any document before a notary public. 164. fees. 135. Title III. registered expanding firms shall be entitled to exemption from income tax levied by the National Government proportionate to their expansion under such terms and conditions as the Board may determine. Paying any tax or fee. 1991) 9. exception: tax on transfer of real property (Sec. or other taxes. 6. Petroleum Corporation vs Municipality of Pililia Rizal. and b. 7. Q: Give the common limitations on the taxing powers of the LGUs. barters or exchanges or similar transactions on goods or services except as otherwise provided herein. or passing through. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.R. the territorial jurisdictions of local government units in the guise of charges for wharfage. as amended. certificate. or Receiving any salary or wage from any person or corporation.

8. Thus. Hence. SUBJECT HEADS: EDISON U. except as otherwise provided in the LGC. KASALA. No. 133(a). CHARLES L. fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof. 4. Conversely. estate taxes. fees. Sept. fees and charges imposed under special laws .A. LGC) 11. LGC) Q: What is wharfage? A: It is a fee assessed against the cargo of a vessel engaged in foreign or domestic trade based on quantity. 13. (Sec. or charges. 6. fees. and charges which are imposed under the Tariffs and Customs Code . it impliedly withholds form the local government the delegated power to tax the same field. Taxes which are levied under the NIRC unless otherwise provided by the LGC Items 1. However. the LGUs cannot exercise taxing powers reserved to the National Government. vs.Item 12 2. documentary stamps taxes.e. a province could not exercise the powers granted to municipality and vice-versa. 14. 133. This doctrine principally rests on the intention of the congress. CLARABEL ANNE R. TEE.R. LACSINA. Taxes levied under the NIRC 2. Taxes under special laws..(i. fees or charges of any kind on the National Government. 1968) Q: When does the principle apply? A: The principle applies to the following: 1. 3. Taxes. KEITH S. and Taxes.UST GOLDEN NOTES 2011 common carriers by air. should the Congress allow municipal corporations to cover fields of taxation it already occupies then the doctrine of pre-emption will NOT apply (Victorias Milling Co. 12.A. VALCOS . LGC. GRANTOZA. Taxes. it is also called the “reservation rule” or the “exclusionary rule” Q: What is the Principle of Pre-emption or Exclusionary Doctrine? A: Where the National Government elects to tax a particular area. No. Municipality of Victorias Negros Occidental. 143(c). 14 and 15 Taxes.3. Taxes on premiums paid by way or reinsurance or retrocession. No. GUTIERREZ. regulatory purposes and professions. Taxes imposed under the Tariff and Customs Code 3. 15. or other charges on Philippine products actually exported. 7. fees and charges where the imposition of which contravenes existing governmental policies or which are violative of the fundamental principles of taxation . 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R. Collection of Business Tax Q: Distinguish business tax from income tax. (Sec. fees. 13. 11. 27. Q: Can LGUs levy income taxes? A: GR: The exercise of the taxing authority of LGUs shall not extend to the levy of income tax.Items 5. except as provided in this Code.. income tax may be levied on banks and other financial institutions. on Countryside and Barangay Business Enterprises and cooperatives duly registered under R.9 and 10. trades or BUSINESS TAX 254 TAXATION LAW TEAM: ADVISER: ATTY.municipalities may impose taxes on exporters) Taxes. except tricycles. each local government unit could not exercise the taxing powers granted to others. Inc. A: INCOME TAX As to nature Imposed in the exercise of A tax on all yearly profits police power for arising from property. SUBJECT HEAD: RODOLFO N. MEMBERS: JOSE DUKE BAGULAYA. a city could exercise the taxing powers of both a province and a municipality. land or water. ASST. L-21183. donor’s taxes.Item 4 Taxes. weight. ANG JR. CHRISTINE L.2. Simply stated. Note: An examination of the above enumeration reveals that those taxes. Taxes. its agencies and instrumentalities. XPN: However. HERNANDEZ. Q: How do you classify these common limitations / excluded impositions? A: 1. Q: What is the Authorization Limitation? A: With the exception of cities. PRUDENCE ANGELITA A. and local government units. or measure received and/ or discharged by the vessel. charges and fees already imposed and collected by the National Government such as income taxes. G. DIVINE C. 6938) otherwise known as the "Cooperative Code of the Philippines" respectively. Sec. ORTIZ & VANNESSA ROSE S.

July 20. LGC) Authority of Treasurer in Collection and Inspection of Books Q: Who has the authority to collect such taxes. Inc. SABUGO & JOHN HENRY C. Oct. Fees or Charges Q: What are the penalties for unpaid taxes. or as a tax on a person’s income. v. exchanged or leased. G. etc. LGC) Penalties on Unpaid Taxes. 20).. 25.e. LGC) ACADEMICS CHAIR: LESTER JAY ALAN E. (Sec. or changes in the rates thereof which shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates. and Interest not exceeding 2% per month of the unpaid taxes. 165 LGC) Q: What is the manner of payment of the taxes? A: It may be paid in quarterly instalments. Extension cannot exceed 6 months (Sec. and Oct. Nov. sold. fees or charges? A: 1. 167. municipal. hence it may not be the subject of business taxes. G. As a prerequisite to the conduct of business It is a prerequisite to the Not a prerequisite conduct of business Accrual of Tax Q: When does business tax accrue? A: It accrues on the 1st day of January of each year.. 170. 166. fees or charges. a city or municipality is authorized to impose a tax on business.R. (Sec. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. April 20. which is defined under the LGC as “trade or commercial activity regularly engaged as a means of livelihood or with view of profit. city. 2007) Q: Are condominium corporations liable to pay business taxes under the Local Government Code? A: As a rule. No. MASACAYAN & THEENA C. (Sec. No. or their duly authorized deputies. 168.” By its very nature. LGC) Q: Who has the authority to inspect the books of persons or association? A: The local treasurer or his deputy duly authorized in writing. As to date of payment th Paid at the beginning of Due on or before the 15 th the year as a fee to allow day of the 4 month the business to operate following the close of the for the rest of the year.Local Government Code of 1991 paid for the privilege of carrying on a business in the year the tax was paid. fees or charges including surcharges. 22. BA Lepanto Condominium Corporation. It may be extended by the sanggunian for justifiable reasons. (Yamane. accounts and other pertinent records of any Tax Period and Manner of Payment Q: What is tax period for the collection of taxes? A: It is based on calendar year.154993. fees and charges? A: Provincial. MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. without surcharges or penalties. 2. To tax on gross revenue rather than gross receipts will amount to double taxation inasmuch as the revenue or income for a taxable year includes gross receipts already reported during the previous year for which local business taxes had already been paid. Jan. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G.. Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles. unless otherwise provided (Sec. LGC) Q: What should be the basis of business tax gross receipts or gross revenue? Time of Payment A: It must be based on gross receipts as the law is clear. 20. In no case shall the total interest exceed 36 months. Surcharge of 25% on taxes. emoluments. v. 176667. or barangay treasurer. City of Pasig. and any profit it derives is merely incidental. 165. et. may examine the books. (Ericsson Telecommunications. (Sec. whether actual or constructive. taxpayer’s taxable year. etc.R. profits and the like. 2005) Q: When should the tax be paid? A: Within 20 days of January or of each subsequent quarter (i. al. a condominium corporation is not engaged in business. MARTINEZ SANTO TOMAS de Derecho Civil 255 . offices. fees or charges not paid on time. XPN: New taxes. until the amount is fully paid.

UST GOLDEN NOTES 2011 person. aggrieved party may file appropriate proceedings with a court of competent jurisdiction. the surcharges. (Sec. the Local Treasurer shall issue a notice of assessment within the applicable prescriptive period. TEE. GUTIERREZ. PRUDENCE ANGELITA A. (Sec. If no action is taken by the treasurer in refund cases and the two year period is about to lapse (Sec. Action for declaratory relief B. VALCOS . Action for refund i. 195. (Sec. CHRISTINE L. LGC) ii. ii. LACSINA. The taxpayer may file a written protest of the assessment with the Judicial Remedies 1. LGC) 256 TAXATION LAW TEAM: ADVISER: ATTY. ASST. DIVINE C. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable. 3. HERNANDEZ. Within 30 days after receipt of decision or lapse of 60 days in case of Secretary of Justice’s inaction (Sec. iii. A: 1. CLARABEL ANNE R. 187. fee. 2. ANG JR. LGC) stating the nature of the levy. or from the date the taxpayer is entitled to a refund or credit. ii. Administrative appeal to the Secretary of Justice questioning the constitutionality or legality within 30 days from the effectivity of the tax ordinance or revenue measure. and shall be certified to by the examining official. (Sec. Administrative appeal to the Secretary of Justice i. Secretary of Justice shall render a decision within sixty (60) days from date of receipt of the appeal iii. Within 300 days from receipt when protest of assessment is denied or lapse of 60 days in case of local treasurer’s inaction (Sec. LGC) Note: The filing of a written claim for refund with the local treasurer is a condition precedent for maintaining a court action. MEMBERS: JOSE DUKE BAGULAYA. Protest of the assessment i. LGC) iii. A written claim for refund or credit is filed with the local treasurer. 195. The local treasurer shall decide the protest within sixty (60) days from the time of its filing. GRANTOZA. fee or charge is not paid. If the local treasurer finds the assessment to be wholly or partly correct. A. Note: such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual of the payment of the tax. SUBJECT HEADS: EDISON U. he shall deny the protest wholly or partly with notice to the taxpayer.. 195. 187. C. Taxpayer’s Remedies Q: What are the remedies available to the taxpayer under local government taxation? iv. 196. Protest assessment Claim for refund or tax credit Judicial action Prior to assessment 1. fee. only once for every tax period. or charge. KEITH S. 184. the amount of deficiency. LGC) local treasurer contesting the assessment. ORTIZ & VANNESSA ROSE S. SUBJECT HEAD: RODOLFO N. After an assessment 1. 2. 2. interests and penalties. or association to ascertain and collect the correct amount of tax. CHARLES L. Within thirty (30) days after receipt of the decision or the lapse of sixty day period without action from the Secretary of Justice. ii. Examination shall be made during the regular business hours. When the correct tax. 171. or charge levied therein (Sec. otherwise the assessment shall become final and executory. A claim or proceeding is then filed with the court of competent jurisdiction (depending upon the jurisdictional amount) within two (2) years from the date of the payment of such tax. KASALA. LGC) The competent court referred to is the Regional Trial Court (RTC) which acts in the exercise of its original jurisdiction. LGC) v. Court Action i.

fees. or charges. 2. SABUGO & JOHN HENRY C. 195[d]. whether administrative or judicial. fees. or charges shall be assessed within five (5) years from the date they became due. speedy and adequate remedy. Action for declaratory relief Q: When is the running of the prescriptive period suspended? A: The running of the periods of prescription provided in the preceding paragraphs shall be suspended for the time during which: Pre-Req-OC 1. The taxpayer Requests for a reinvestigation and executes a waiver in writing before expiration of the period within which to assess or collect. the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment. (Sec. LGC) Q: What is the period of collection of local taxes? A: Local taxes.Local Government Code of 1991 iv. Fees or Charges Q: What is the period of assessment of local taxes? A: GR: Local taxes. LEE VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. 194(c). MENDOZA Facultad VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. XPN: In case of fraud or intent to evade the payment of taxes. fees. (Sec. and The taxpayer is Out of the Country or otherwise cannot be located. LGC) 3. 2. ACADEMICS CHAIR: LESTER JAY ALAN E. MARTINEZ SANTO TOMAS de Derecho Civil 257 . fees. or charges. shall be instituted after the expiration of such period. 184 [a] and [b]. FLORES II UNIVERSITY OF VICE CHAIRS FOR ACADEMICS: KAREN JOY G. (Sec. LGC) Periods of Assessment and Collection of Local Taxes. If remedies available does not provide plain. No action for the collection of such taxes. The treasurer is legally Prevented from making the assessment of collection. or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. MASACAYAN & THEENA C.

TEE. GRANTOZA. CLARABEL ANNE R. CHRISTINE L. ORTIZ & VANNESSA ROSE S. KASALA. CHARLES L. SUBJECT HEADS: EDISON U. ASST. 258 TAXATION LAW TEAM: ADVISER: ATTY. LACSINA. DIVINE C. PRUDENCE ANGELITA A. 195. VALCOS .UST GOLDEN NOTES 2011 Protest of Assessment Q: Discuss the procedure for the protest of assessment? A: Assessment is made by local treasurer Assessment is final and executory Receipt by the Taxpayer Taxpayer has 60 days to file a written protest with treasurer Local Treasurer finds protest wholly or partly meritorious The Local Treasurer shall decide the protest within 60 days from the time of its filing Local Treasurer issues a notice cancelling wholly or partially the assessment Local Treasurer finds the assessment wholly or partly correct Taxpayer does not appeal Local Treasurer denies the protest wholly or partly with notice to the taxpayer Assessment becomes conclusive an