TABLE OF CONTENTS

GENERAL PRINCIPLES INCOME TAXATION TRANSFER TAXES

1 26 116

Annexes to Income Tax............................................................................................................................. 99

Estate Taxes ........................................................................................................................................... 116 Donor’s Taxes ......................................................................................................................................... 129

VALUE-ADDED TAX TARIFF AND CUSTOMS CODE TAX REMEDIES UNDER THE NIRC LOCAL TAXATION COURT OF TAX APPEALS

133 147 164 205 226

Amendments to Value-Added Tax (Annex)........................................................................................... 144

Annexes to Tariff and Customs .............................................................................................................. 159

Related Revenue Regulations (Annex)...................................................................................................... 195

Specific Provisions on The Taxing and Other Revenue-Raising Powers of Local Government Units ......... 223

Taxpayer Bill of Rights (Annex)............................................................................................................ 234

This is the Intellectual Property of the San Beda College of Law 2008 Centralized Bar Operations. Unauthorized use and reproduction of this material is not allowed.

San Beda College of Law

1 2008 CENTRALIZED BAR OPERATIONS

TAXATION LAW GENERAL PRINCIPLES
GENERAL PRINCIPLES

Power of Taxation

TAXATION. defined. – power by which the sovereign through its law-making body raises revenue to defray the necessary expenses of the government. It is a way of apportioning the costs

of the government among those who in some measure are privileged to enjoy its benefits and must bear its burdens.

Nature of the Taxing Power (ILL)
1. It is an inherent attribute of sovereignty – the power of taxation is inherent in sovereignty as an incident or attribute thereof, being essential to the existence of every government. It exists apart from the constitution and without being expressly conferred by the people. BASIS OF TAXATION (Lifeblood Theory) The power of taxation is essential because the government can neither exist nor endure without taxation. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need (Bull vs. United States G.R. No.5270, Jan.15, 1910). The collection of taxes must be made without hindrance if the state is to maintain its orderly existence. The government’s ability to serve and protect the people depends largely upon taxes. Taxes are what we pay for a civilized society (CIR vs. Algue, G.R.No 28896 Feb. 17, 1988). POWER OF TAXATION EXERCISED The power of taxation is sometimes called the power to destroy. Therefore it should be exercised with caution to minimize injury to the propriety rights of a taxpayer. It must be exercised fairly, equally, and uniformly, lest the tax collector kill the “hen that lays the golden egg.” And in order to maintain the general public’s trust and confidence in the Government this power must be used justly and not treacherously. It does not conform to the sense of justice for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call. THEORIES ON TAXATION Necessity Theory Taxes proceed upon the theory that the existence of the government is a necessity; that it cannot continue without the means to pay its expenses; and that for those means, it

EXECUTIVE COMMITTEE

VISMARCK UY over-all chair, APRIL CABEZA chair academics operations, ALDEAN LIM chair hotel operations, AYN SARSABA vice chair for operations, ANTHONY PURGANAN vice chair for academics, RONALD JOHN DECANO vice chair for secretariat, KARLA FUNTILA vice chair for finance, JEFFREY GALLARDO vice chair for edp, ULYSSES GONZALES vice chair for logistics

TAXATION LAW

IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. UNTAYAO edp MARIEL MAILOM general principles, MAUREEN ROSE OBON income taxation, MARK JULIUS ESTUR estate taxation, MINERVA JIMENEZ donor’s tax and court of tax appeals, MARK ANTHONY DIZON, value added tax, ARLENE ALDAY and NELSON SALVA JR. tax remedies, MAUREEN SEYMOUR JAVIER local taxation and real property taxation, JULIUS BABALCON tariff and customs code, ROWENA MUTIA tables and annexes

MEMBERS:

Maria Evitha Abante, Aldren Abrigo, Herbert Abugan, Julian Adarlo, James Agustin, Karren Amparo, Mary Joy Aquino, Aileen Artificio, Ray John Bangi, Jennifer Bautista, Vincent Cablao, Raul Canon, Jay Martin Celzo, John Ray Concepcion, Maureen De Castro, Ramon Alfredo Dela Cruz, Karla Funtila, Kathryn Joy Hautea, Irene May Junio, Erwin Legaspi, Precious Angela Lledo, Micael Ortiz Luis, Katherine Jane Manarang, Masha Mariano, Leonardo Mendoza II, Joanne Mosquera, Sol Pejo, Ryan Pingol, Donelle Jay Quilates, Diana Rabanal, Mariflor Reyes, Deepee Salazar, Ralph Jerome Salvador, John Zernan Sambahon, Lauren Rose Tanyag, Maria Joy Toledo, Jan Reiner Uy, Jennylyn Valencia, Cristiellane Valerio and Sherwin P. Pascua

2 General Principles has a right to compel all citizens and property within its limits to contribute. Taxation is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide. (Phil. Guaranty Co., Inc. vs. CIR G.R. No.22074, Apr. 30, 1965) Benefits-Protection/Reciprocity Theory The power of the State to demand and receive taxes is based on the reciprocal duties of support and protection. The citizen supports the State by paying the portion from his property that is demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of an organized society. This theory spawned the Doctrine of Symbiotic Relationship (CIR vs. Algue, G.R. No. 28896 Feb. 17, 1988) – 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. 2. It is legislative in character – such power is exclusively vested in the legislature except when the Constitution provides otherwise. 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) SCOPE OF LEGISLATIVE TAXING POWER (PAPKASM) 1. Person, property, occupation, excises or privileges to be taxed provided they are within the taxing jurisdiction. The taxing authority can select the subjects of taxation. Amount or rate of tax Purposes for which taxes shall be levied provided they are for public purposes Kind of tax to be collected Apportionment of the tax (whether the tax shall be general or limited to a particular locality or partly general and partly local) Situs of taxation 3. 7.

MEMORY AID IN TAXATION LAW

Method of collection

IS THE POWER TO TAX THE POWER TO DESTROY? Marshall laid down the rule that the “Power to tax is the power to destroy”. According to Cooley, this is because such power includes the power to regulate even to the extent of prohibition or destruction. Cooley also emphasized that this should be used to describe not the purposes for which the taxing power may be utilized but the degree of vigor with which the taxing power may be employed in order to raise revenue. According to Justice Cruz, the power to tax includes the power to destroy if it is used validly as an implement of the police power in discouraging and in effect, ultimately prohibiting certain things or enterprises inimical to the public welfare. But where the power to tax is used solely for the purpose of raising revenues, the modern view is that it cannot be allowed to confiscate or destroy. According to Holmes, the “Power to tax is not the power to destroy while the Supreme Court sits” because of the constitutional restraints placed on a taxing power that violate fundamental rights. Although the power to tax is almost unlimited, it must not be exercised in an arbitrary manner. If the abuse is so great so as to destroy the natural and fundamental rights of the people, it is the duty of the judiciary to hold such an act unconstitutional. POWER OF JUDICIAL REVIEW IN TAXATION As long as the legislature, in imposing a tax, does not violate applicable constitutional limitations or restrictions, it is not within the province of the courts to inquire into the wisdom or policy of the exaction, the motives behind it, the amount to be raised or the persons, property or other privileges to be taxed. The court’s power in taxation is limited only to the application and interpretation of the law. It is subject to constitutional and inherent limitations.

2. 3. 4. 5.

6.

property or excises to be taxed. 2. Benefits received d. Our laws mandate that taxes must be reasonable. c. 2. Promotion of general welfare Regulation Reduction of social inequality – possible through progressive system of taxation where the object is to prevent the undue concentration of wealth in the hands of a few individuals. Levy or imposition of the tax (tax legislation) – enactment of tax laws or statutes. The Constitution provides that taxation must be uniform and equitable and that the State must evolve a progressive system of taxation. a healthy economic standard of society is attained Contracts may be impaired No transfer but only restraint in its exercise Scope All persons. the sum or sums to be raised. Administrative Feasibility – tax laws must be capable of being effectively enforced. 3. just.San Beda College of Law 3 2008 CENTRALIZED BAR OPERATIONS Purposes and Objectives of Taxation 1. Collection (including assessment) consists of the manner of enforcement of the obligation on the part of those who are taxed. property and excises Amount of Exaction No limit Limited to the cost of regulation. Revenue – to raise funds or property to enable the State to promote the general welfare and protection of its citizens. E ncourage economic growth – by granting incentives or exemptions in order to encourage investments Protectionism – taxes sometimes provide protection to local industries like protective tariffs and custom duties No special or direct benefit is received by the taxpayer merely general benefit of protection Contracts may not be impaired Taxes paid become part of public funds All persons. Theoretical Justice – a sound tax system must be based on the taxpayers’ ability to pay (Ability to Pay Theory). and conscionable. Fiscal Adequacy – sources of government r e v e n u e m u s t b e s u ff i c i e n t t o m e e t government expenditures and other public needs. Non-impairment of Contracts Contracts may be impaired Taxation distinguished from Police Power and Eminent Domain TAXATION POLICE POWER Purpose To raise revenue To promote public welfare through regulations To facilitate the taking of private property for public use EMINENT DOMAIN Transfer of Property Rights Transfer is effected in favor of the State Aspects of Taxation 1. e. b. Enforcement or tax administration (tax administration) – collection of taxes already levied. fair. issuance of the license or surveillance No direct benefit is received. property. . Basic Principles of A Sound Tax System /Canons of Taxation (FAT) 1. the due date thereof and the time and manner of levying and collecting taxes. includes the determination of the persons. rights and privileges Only upon a particular property No exaction but private property is taken by the State for public purpose A direct benefit results in the form of just compensation to the property owner 2. Non-Revenue (PR2EP) a.

fiscal or revenue – tax imposed for the general or ordinary purposes of the Government. 2. Excise or Privilege – charge imposed upon the performance of an act. 4. It is levied by the state which has jurisdiction over the person or property It is levied by the law making (legislative) body of the state It is an enforced contribution – not dependent on the will of the person taxed. VAT). whether real or personal. to achieve some social or economic ends irrespective of whether revenue is actually raised or not (ex. the enjoyment of a privilege or engaging in an occupation. in proportion either to its value or some other reasonable rule of apportionment (ex. 2.4 General Principles MEMORY AID IN TAXATION LAW Taxes DEFINITION: enforced proportional contributions from the persons and property levied by the lawmaking body of the State by virtue of its sovereignty for the support of government and for public needs. 4. 2. it requires no valuation other than a listing or classification of the objects to be taxed.e. CLASSIFICATION OF TAXES 1. whether citizens or not. ESSENTIAL CHARACTERISTICS (ATTRIBUTES) OF A TAX (SLEP4) 1. Personal. to raise revenue for governmental needs (ex. Both the incidence (liability) for the payment of the tax as well as the impact (burden) of the tax falls on the same person. 6. 4. That either the person or property taxed be within the jurisdiction of the taxing authority That the assessment and collection of certain kinds of taxes guarantee against injustice to individuals. 6. General. 7. As to rate: a. As to taxing authority: a. Donor’s tax). income tax) Special or regulatory– tax imposed for a special purpose. As to subject matter or object: a. As to determination of amount: a. As to who bears the burden: a. poll or capitation – tax of a fixed amount imposed upon persons residing within a specified territory. Regressive – taxes whereby the tax rate decreases as the tax base increases. c. As to purpose: a. especially by providing notice and opportunity for hearing Should be for a public purpose The rule of taxation shall be uniform The tax must not impinge on the inherent and Constitutional limitations on the power of taxation b. 3. Property – tax imposed on property. 5. National – levied by the National Government Local – levied by the local government Progressive or graduated – taxes whereby the tax rate increases as the tax base or bracket increases. Indirect – tax wherein the incidence or liability for the payment falls on one person but the burden can be shifted or passed on to another (ex. not a contract but a positive act of the government It is generally payable in money It is proportionate in character – taxes must be based on ability to pay in accordance with the constitutional mandate to Congress to evolve a progressive system of taxation It is levied on persons and property It is levied for public purpose/s b. Income tax). 5. occupation or business in which they may be engaged (ex. 3. . b. Community tax). 3. b. Direct – tax which is demanded from the person who also shoulders the burden of the tax. Real estate tax). profession or business (ex. without regard to their property. 5. it requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. Ad Valorem (Value) – tax of a fixed portion of the value of the property with respect to which the tax is assessed. b. b. customs duties) Specific – tax of a fixed amount imposed by the head or number or by some standard of weight or measurement. (i. the taxpayer is directly or primarily liable which he cannot shift to another. REQUISITES OF A VALID TAX (JAPUL) 1.

Government 2. Proportionate – based on a fixed percentage of the amount of the property. Private individuals or entities Tax and Penalty Enforced proportional Sanction imposed as a contributions from punishment for violation of a persons and property law or acts deemed injurious. A source of revenue of the government. bridge A demand of sovereignty No limit as to the amount of tax A demand of proprietorship Amount of toll depends upon the cost of construction or maintenance of the public improvement used TAXES DISTINGUISHED FROM OTHER IMPOSITIONS Tax and Special Assessment Imposed on persons. rules or regulations. . property or services Draws interest if stipulated or delayed Assignable Subject to compensation or set-off Tax and Revenue A broad term that includes not only taxes but income from other sources as well. and (2) inspection and surveillance Tax and License Fee Based on the power of taxation The purpose is to generate revenue Amount is unlimited Imposed only by the May be imposed by: State 1. Sec 28 (3) of the 1987 Constitution is applicable Levied only on land Cannot be made a personal liability of the person assessed Based wholly on benefit Exceptional both as to time and locality Exemption does not apply. property and in cases involving violations excises of the Tax Code. violation of tax laws may give rise to imposition of penalty Intended to raise revenue Designed to regulate conduct Normally paid after Normally paid before the start of a business commencement of business Taxes. 5 2008 CENTRALIZED BAR OPERATIONS TAXES DISTINGUISHED FROM OTHER IMPOSITIONS Non-payment is No imprisonment in case of punished by non-payment (Art. Tax and Debt An obligation imposed Created by contract by law Due to the government in its sovereign capacity Payable in money Does not draw interest except in case of delinquency Not assignable Not subject to compensation or setoff May be due to the government but in its corporate capacity Payable in money. a persons and property consideration which is paid for the use of a property which is of a public nature.B. Sec. III. Emanates from police power The purpose is regulatory Amount is limited to the cost of (1) issuing the license.San Beda College of Law c. If property is exempt from Real Property Tax. it is also exempt from Special Assessment. imprisonment except 20 1987 Constitution) in poll tax Imposed only by public authority Can be imposed by private individual Tax and Toll Enforced proportional A sum of money for the use contributions from of something. being the License fee may be with or lifeblood of the State. e. property and excises Personal liability attaches on the person assessed in case of non-payment Not based on any special or direct benefit Levied and paid annually Exemption granted by Art. receipts or other basis to be taxed. VI. without consideration cannot be surrendered except for lawful consideration Non-payment does not make the business illegal but may be a ground for criminal prosecution Non-payment makes the business illegal May be imposed only May be imposed by: by the government (1) Government (2) Private individuals or entities Tax and Tariff All embracing term to A kind of tax imposed on include various kinds articles which are traded of enforced internationally contributions upon persons for the attainment of public purposes Tax and Compromise Penalty Basic imposition on Collected as a compromise persons.g. Tax and Subsidy Levied by the lawmaking body of the State for the support of the government and for public needs. N. road. A legislative grant of money in aid of a private enterprise deemed to promote the public welfare.

R. 2. 1994) Taxpayers have locus standi for they are parties in interest to be prejudiced or benefited by the avails of the suit but not if executive acts do not involve the use of public funds. These are: (SPINE) 1. June 29. c. 29.21. No. Doctrine of Equitable Recoupment – where the refund of a tax illegally or erroneously collected or overpaid by a taxpayer is barred by prescription. Reasons: a. The state where the subject to be taxed has a situs may rightfully levy and collect the tax. f.R. 87-88). This is in consequence of Articles 1278 and 1279 of the Civil Code. No. Garlitos G. Jr. 4. CIR CTA Case No. G. 1960). Tax a. dissenting in Kilosbayan. and That the petitioner seeks to restrain respondents from wasting public funds through the enforcement of an invalid or unconstitutional law. 22. No. business or occupation being taxed Situs of the Subject of Tax . General Rule: A state may not tax property lying outside its borders or lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercised or enjoyed (51 Am. No. territoriality or situs of taxation public purpose international comity non-delegability of the taxing power and tax exemptions of the government.No. Taxation is an act of sovereignty which could only be exercised within a country’s territorial limits. b. d. TERRITORIALITY OR SITUS OF TAXATION Situs of taxation – is the place or authority that has the right to impose and collect taxes (CIR vs. Obligations in the nature of debts are due to the government in its corporate capacity while taxes are due to the government in its sovereign capacity. the plaintiff is affected by the expenditure of public funds. May 5. e. 1963) If the case involves local government taxes. Guingona. (UST vs. 137377 Dec. G. Factors that determine the situs Kind or classification of the tax being levied Situs of the thing or property taxed Citizenship of the taxpayer Residence of the taxpayer Source of the income taxed Situs of the excise. a tax presently being assessed against a taxpayer may be recouped or set–off against the tax whose refund is now barred by prescription. and that the debts are both due and demandable. That public money is being deflected to any improper purpose (Pascual vs. Jur. Marubeni Corp.R.R. 1963) The plaintiff in a taxpayer’s suit is in a different category from the plaintiff in a citizen’s suit. while in the latter.R.No. The tax money is being extracted and spent in violation of specific Constitutional protections against abuses of legislative power. 1953) The doctrine is NOT followed in the Philippines because of the lifeblood theory. where the government and the taxpayer are in their own right reciprocally debtors and creditors of each other. Macapagal-Arroyo 489 SCRA 160) REQUISITES FOR TAXPAYER’S SUIT 1. The situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question. Inherent Limitations These proceed from the very nature of the taxing power itself.6 General Principles COMPENSATION OR SET–OFF OF TAXES General Rule: Taxes cannot be the subject of compensation or set-off because the government and the taxpayer are not creditors and debtors of each other. plaintiff is but the mere instrument of the public concern. laws do not operate beyond the jurisdictional limits of a country. 1. (Gonzales vs. Inc vs. 3. This is the result of the concept 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. 2.R. 3. In the former. Solutio Indebiti – Compensation takes place by operation of law. b. 570 June 23. (Domingo vs. (Philex Mining vs. 18. 21897 Oct. 5. 1998) Exceptions: 1. Collector G. (Justice Melo. Marcos G. MEMORY AID IN TAXATION LAW TAXPAYER’S SUIT A case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.5200 Aug. (David vs. 2. privilege. 18994.10405 Dec. 2001). 113375. Secretary of Public Works G.

obligations or bonds have acquired a business situs in the Philippines. c. Jur. 104. (b) Shares. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. where it is physically located although the owner resides in another jurisdiction (51 Am. Reasons: a) The taxing authority has control because of the stationary and fixed character of the property. The place where the real property is situated gives protection to the real property. 7 2008 CENTRALIZED BAR OPERATIONS the business of which is located in the Philippines. An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines: Provided. Source of the income General Principles of Income Taxation in the Philippines – Except when otherwise provided in this Code: a. capitation or community taxes are based upon the residence of the taxpayer. whether engaged or not in trade or 2) Tangible personal property – the modern rule is that it is taxable in the state where it has actual situs. Property 1) Real property – Real estate is subject to taxation only in the state where it is located whether the owner is a resident or non-resident (51 Am. Persons – poll. 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 overseas contract worker. regardless of the source of income or location of the property of the taxpayer. b) b. obligations or bonds issued by any corporation organized or constituted in the Philippines in accordance with its laws. Example: For purposes of estate and donor’s taxes. b. (d) Shares. .San Beda College of Law a. This is in accordance with the principle of mobilia sequuntur personam or “movables follow the person. An alien individual. and A foreign corporation. f. Nationality or citizenship of the taxpayer. business or industry established in the Philippines (Sec. (c) Shares. Reason: The place where the tangible personal property is found gives it protection. 467). NIRC) 4) Income – Factors that determine the situs of income tax: a. hence the property or its owner should support the government of that place. 458). or b. Jur. whether a resident or not of the Philippines. the following intangible properties are deemed to have a situs in the Philippines: (a) Franchise which must be exercised in the Philippines.” Exceptions: a) When the property has acquired a business situs in another jurisdiction. d. Residence or domicile of the taxpayer. b) When the law provides for the situs of the subject of tax. and c. This is the principle of lex rei sitei. obligations or bonds by any foreign corporation eighty-five percent (85%) of e. A nonresident citizen is taxable only on income derived from sources within the Philippines. A domestic corporation is taxable on all income derived from sources within and without the Philippines. obligations or bonds issued by any foreign corporation if such shares. is taxable only on income derived from sources within the Philippines. 3) Intangible Personal Property – General Rule: The situs is at the domicile of the owner. and (e) Shares or rights in any partnership.

4. As between equals there is no sovereign. 23825 Dec.R. Auditor General G. PUBLIC OR GOVERNMENTAL PURPOSE purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals and is designed to support the services of government for some of the recognized objects of the country. Such taxes. it does not subject itself to the jurisdiction of the other. Non-delegable legislative powers (cannot be delegated to administrative agencies): 1. No. c. Exceptions: a. X. (Sec. City Mayor of Manila G. This limitation arises from the doctrine of separation of powers among the three branches of government.8 General Principles business in the Philippines. 21. or where the property is located. (Doctrine of Sovereign Equality) 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. 3. 4. import or export quotas.40296 Nov. but depends upon the place wherein the act is performed or occupation engaged in (Allied Thread vs. consistent with the basic policy of local autonomy. INTERNATIONAL COMITY The property or income of a foreign state or government may not be the subject of taxation by another. AN UNDUE DELEGATION OF POWER? NO. 23 NIRC) 5) Excise or Privilege – the power to levy an excise upon the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the excise nor upon the physical location of the property and in connection with the act or occupation taxed. Duty Test – 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. No. tonnage and wharfage dues and other duties or imposts. 1987 Constitution) Delegation to administrative agencies – also known as the power of subordinate legislation. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. Reasons: a. fees and charges shall accrue exclusively to the local government (Sec. Delegation to the President – The Constitution expressly allows Congress to authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose. Thus. The concept that when a foreign sovereign enters the territorial jurisdiction of another. The delegation must comply with the completeness test and the existence of sufficiently determinate standards test (Pelaez vs. tariff rates. Tests in Determining Public Purpose a. 1984) 6) G r a t u i t o u s T r a n s f e r – t h e transmission of property from a donor to a donee or from a decedent to his heirs may be subject to taxation in the state where the transferor is (was) a citizen or resident. 28 [2] Art. In par parem non habet imperium. Promotion of General Welfare Test – whether the proceeds of the tax will directly promote the welfare of the community in equal measure. 2. 3. 2. Congress cannot delegate the power to others. is taxable only on income derived from sources within the Philippines. b. 1965. fees and charges subject to such guidelines and limitations as the Congress may provide. .R. It is not a delegation of legislative power. VI) Delegation to local governments – Each local government unit shall have the power to create its own sources of revenues and to levy taxes. (Sec. No discretion will be exercised by the president. it is a ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by the c. IS THE POWER GRANTED TO THE PRESIDENT TO INCREASE THE VAT RATE TO 12% under RA 9337. MEMORY AID IN TAXATION LAW NON-DELEGABILITY OF THE TAXING POWER General Rule: The power of taxation being purely legislative. 24. b. Selection of the property to be taxed Determination of the purposes for which taxes shall be levied Fixing of the rate of taxation Rules of taxation in general (1 Cooley 196) b.) It should only be for tax administration or implementation. 5 Art.

No.R. the government would be taxing itself to raise money to pay over to itself. This is Substantive Due Process which limits . Government-owned and -controlled corporations General Rule: Since they are performing proprietary functions. 27(C)] b. 1976: Due process in taxation requires: 1) 2) Tax must be for public purpose Imposed within territorial jurisdiction 1. Under the authority of a law that is valid or of the Constitution itself. Their income is taxable at the rate imposed upon corporations or associations engaged in similar business. 32(B)(7)] 2) Proprietary functions – taxable unless exempted by law [Sec. No. 88291 June 8. Other Reasons: a. To levy a tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus. After compliance with fair and reasonable methods of procedure prescribed by law.R. real or personal. 1987 Constitution) Any deprivation is with due process if it is done: a. NIRC) 2) Income received by them as such is exempt from taxes. the tax statute is within the Constitutional authority of Congress to pass. Macaraig G. 30. It is an inherent power of the Sate. PHIC and PCSO [Sec. 27(C). 33403 Sept. Sec. or activity. 550-51) To reduce the amount of money that has to be handled by the government in the course of its operations (Maceda vs.. So that the functions of the government shall not be unduly impeded (51 Am. 2005. fair and just. last par. regardless of the disposition. DUE PROCESS OF LAW (Art. industry. RA 9337 removed the exemption. last par. No. their income from any of their activities conducted for profit regardless of the disposition is taxable (Sec. Constitutional Limitations Note: Constitutional grant is not necessary in the exercise of the power of taxation. Posadas G. EXEMPTION OF THE GOVERNMENT Properties of the national government as well as those of the local government units are not subject to tax. 1. the exemption applies only to government entities through which the government immediately and directly exercises its government powers.31156 Feb. The 12% VAT rate was made effective by Congress on February 1. Government Educational Institutions 1) Property actually. b. Mun. However. c.R. c. 1996) Unless otherwise provided by law. III. Except: GSIS. Marcos G. However. 2006. directly and exclusively used for educational purposes – exempt from property or real estate tax but income of whatever kind and character from any of their properties. NIRC as amended by RA 9337] NOTE: PAGCOR used to be exempt but effective July 1. Jur. is taxable (Sec. In addition as held in Pepsi Cola vs. Constitutional provisions are mere limitations of the power. 1993) 9 2008 CENTRALIZED BAR OPERATIONS (Infantry Post Exchange vs. 1930) Rules: a.San Beda College of Law Congress. of Tanauan G. nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. Therefore. otherwise it will result in the absurd situation of the government “taking money from one pocket and putting it in another” (Cooley as cited in Board of Assessment Appeals of Laguna vs. 120082 Sep. CTA). NIRC) b. they are subject to taxation. with notice or hearing or at least an opportunity to be heard whenever necessary . 5. This is Procedural Due Process which limits the actions of judicial and quasi-judicial bodies. 27. the government’s law and rule making powers. the Constitution is silent on whether Congress is prohibited from taxing the properties of the agencies of the government. SSS.. 4. Administrative Agencies performing: 1) Governmental functions – tax exempt unless the law expressly provides otherwise [Sec. 30. and that it must be reasonable. 11. No. (MCIAA vs.R.

R. 1968) 5. not a justiciable right. 1984) The power to select subjects of taxation and apportion the public burden among them includes the power to make classifications. both in the privileges conferred and in the liabilities imposed (Cooley as cited in Sison. (Edwards vs. Taxation may be uniform but inequitable where the amount is excessive or unreasonable. Sec. NON-IMPAIRMENT CLAUSE (Art. indirect taxes should be minimized. 23794 Feb. it is an antithesis of progressive taxation. it is regressive. 10. No. G. 1987 Constitution) Progressive System of Taxation means that as the resources of the taxpayer become higher. When the exemption is bilaterally agreed upon between the government and the taxpayer – it cannot be withdrawn without violating the non-impairment clause. De Leon G. this cannot be impaired without violating the Constitution. Rationale: When the State grants an exemption on the basis of a contract. The Constitution does not really prohibit regressive taxes. The Constitutional provision has been interpreted to mean simply that direct taxes are to be preferred and as much as possible. UNIFORMITY AND EQUITABILITY (Art.10 General Principles 3) No arbitrariness or oppression in a) b) 1) assessment collection MEMORY AID IN TAXATION LAW 4. nor prohibits unequal taxation so long as the inequality is not based upon arbitrary classification. his tax rate likewise increases. the Constitution does not prohibit the imposition of indirect taxes like the VAT. 1987 Constitution) The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other. Ancheta G. 31. Hord GR No. 1968) Different articles or other subjects may be taxed at different rates provided that the rate is uniform on the same class everywhere. Sec. The principle of progressive taxation has no relation with the VAT System inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. When a tax exemption based on a contract is revoked by a later taxing statute (Cassanova vs. Standley G. Due process in taxation does NOT require: Determination through judicial inquiry of a) b) 2) a) b) Property subject to tax Amount of tax to be imposed Amount of tax Manner of apportionment Notice and hearing as to 2. A taxpayer enters into a compromise with the BIR. (De Villata vs.R. b. 96 US 607) Examples: a. No. Jr. vs. if warranted. 8154 December 20. thereby weakening the position or rights of the latter. EQUAL PROTECTION (Art. This is exemplified by the income tax rate which increases as the net taxable income increases. Nevertheless. and It must apply equally to all members of the same class. It merely requires that all persons subjected to such legislation shall be treated alike. Kearney. 1987 Constitution) Equal protection neither requires equal rates of taxation on different classes of property. Sec. c. on the basis of the benefits he receive from the government. No. 59431 July 25. 28 [1]. I t m u s t b e b a s e d o n s u b s ta n ti a l distinctions. No. PROGRESSIVE SYSTEM OF TAXATION (Art.1. 1907). consideration is presumed to be paid to the State. Rules: a. 3. Secretary of Finance. For the classification to be valid. under like circumstances and conditions. 28 [1]. 1915) Equity – requires that such apportionment be more or less just in the light of the taxpayer’s ability to shoulder the tax burden. 3473 March 22. the following requisites must concur: a. August 25.R. By its very nature.R. d. (Ormoc Sugar Company vs.17. (City of Baguio vs. . 115455. III. This is a mere directive upon Congress.R. VI. usually measured in terms of wealth. III. (Tolentino vs.No. Treasurer of Ormoc G. Sec. 24756 Oct. and. It must apply both to present and future conditions. It is based on the ability to pay and in implementation of the social justice principle that the more affluent should contribute more for the community’s benefit. 1994) In case of VAT. and the public is supposed to receive the whole equivalent therefrom. 1987 Constitution) Uniformity – all taxable articles or properties of the same class shall be taxed at the same rate. VI. b. It must be germane to the purposes of the law. What it simply provides is that Congress shall evolve a progressive system of taxation.

City of Manila G. 101273 July 3. VETO POWER OF THE PRESIDENT (Art. alteration. CHARITABLE AND EDUCATIONAL PURPOSES (Art. VI. A bill originating in the House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole. supra) However. Executive Secretary GR No. Quezon City. 1987 Constitution) The foregoing provision exempts religious and educational institutions from real estate tax. (Garcia vs. Sec. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitution’s and the law. if the fee imposed is not for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. VI. it cannot be imposed compulsorily upon taxpayers. Sec. the Constitution is not violated. N O N – I M P R I S O N M E N T F O R N O N – PAYMENT OF POLL TAX (Art. 1987 Constitution) 11 2008 CENTRALIZED BAR OPERATIONS 10. 1987 Constitution) A poll tax is imposed on persons without any qualification. on the theory that. 20. 1988. No. elected as they are from the districts. 1987 Constitution) It is not the law but the revenue bill which is required by the Constitution to originate exclusively in the House of Representatives. 1987 Constitution) The president may increase tariff rates as authorized by law even for revenue purposes only. June 29. the members of the House can be expected to be more sensitive to the local needs and problems. No. 144104. is taxable. When it is unilaterally granted by law and the same is withdrawn by virtue of another law – no violation. 1987 Constitution) 9. regardless of the disposition made of such income. 162 of the LGC which provides that a person or corporation which does not own any real property. L-9637 April 30. “in a manner to exclude. (Art. When the exemption is granted under a franchise – may be revoked because under the Constitution. An example is the community tax under Sec.” If real property is used for one or more commercial purposes. DIRECTLY AND EXCLUSIVELY USED FOR RELIGIOUS. nonprofit missionary organization at minimal profit constitutes curtailment of religious freedom and worship which is guaranteed by the Constitution. 27 [2]. Sec. Nature of Use: The properties must be actually. TA X E X E M P T I O N O F P R O P E R T I E S ACTUALLY. 6. charitable or educational purpose. The Constitution simply means that the initiative for filing the bills must come from the House. 12. 2004) Scope of Exemption: The exemption is not limited to property actually indispensable for religious. or repeal” by Congress when the common good so requires. 28 [3]. It extends to facilities which are incidental to or reasonably necessary for the accomplishment of said purposes. XII. PRESIDENT’S POWER TO TAX (Art. does not receive any income. directly and exclusively used for the purposes mentioned. Sec. (Tolentino vs. 1994) 8. a franchise is “subject to amendment. 1987 Constitution) There is curtailment of press freedom and freedom of thought and expression if a tax is levied in order to suppress this basic right and impose a prior restraint. G. 11. “Exclusive” is defined as possessed and enjoyed to the exclusion of others. debarred from participation or enjoyment.R. 4.R.San Beda College of Law b. he may be imprisoned for non-payment of other kinds of taxes where the law so expressly so provides. 1957) Income of such organizations from any activity conducted for profit or from any of their property. 11. III. Aquino G. BILLS TO ORIGINATE FROM THE HOUSE OF REPRESENTATIVES (Art. Payment is merely permissive. Sec. VI. L-39086 June 15. Test of Exemption: It is the use of the property and not ownership. III. it is not exclusively used for the exempted purposes but is subject to taxation. real or personal. Secretary of Finance. TAXATION AND FREEDOM OF THE PRESS (Art. III. VI. No. 28 [2]. 24. While a person may not be imprisoned for non-payment of poll tax. or even a minor may be permitted to pay basic community tax and be issued a community tax certificate. August 25. c. Secretary of Finance G. (Lung Center of the Philippines vs. 115455. (Tolentino vs. One cannot be imprisoned for non-payment of poll tax because payment thereof is not mandatory. (Abra Valley College vs. 1987 Constitution) A Municipal license tax on the sale of bibles and religious articles by a non-stock.) 7. Sec. 1992) .R. No. 5. Sec. Solely is synonymous with exclusively. TAXATION AND FREEDOM OF RELIGION (Art.R. as enjoying a privilege exclusively. (American Bible Society vs. Sec. and “exclusively” is defined.

while in cases of withdrawal of such tax exemption.R. 29[2]. CTA G. Tax amnesties. and must not transgress any constitutional provision or be repugnant to a .R. In consonance with the inviolable principle of separation of the Church and State. [4]. an absolute majority of the members of Congress is required.. the Constitution has not made any distinction with respect to the source of the revenues. Sec. 1987 Constitution) Delegation of legislative taxing power to local governments is justified by the necessary implication that the power to create political corporations for purposes of local selfgovernment carries with it the power to confer on such local government agencies the authority to tax. MUNICIPAL TAXATION (Art. 1960) Note: Section 30 of the NIRC speaks of the source of income while the 1987 Constitution refers to the use of the income. 30). and donor’s taxes and custom duties. General Rule: To be exempt. judicial admonition is given to the effect that the tax so levied must be for a public purpose. VOTING REQUIREMENT ON GRANT OF TAX EXEMPTIONS (Art. The phrase “a majority of all the members of the Congress” means at least ½ plus 1 of all the members voting separately. Where a Constitutional provision granting an exemption is self-executing. VI. Sec. a law granting them requires the vote of an absolute majority. 1976) Despite the grant of taxing power. the exemption still applies. Sec. VI. etc. 1987 Constitution) NOTE: Congress is authorized to grant similar exemptions to proprietary educational institutions subject to limitations provided by law. the legislature can neither add nor detract from it. 1987 Constitution) Reason: The requirement is obviously intended to prevent indiscriminate grant of tax exemptions. prescribe a procedure to determine whether a claimant is entitled to the Constitutional exemption. No. Thus. X. XIV. 2005). Mary’s College of Quezon City. APPROPRIATION OF PUBLIC MONEY (Art. 5. It may. 28[4]. Sec. b. March 2007. such being the case. the NIRC provision (last par. (Manila Polo Club vs. Sec. deposit substitutes. the revenue and assets must be used actually. 1987 Constitution) Reasons: a. Municipality of Tanauan G. it merely distinguished with respect to the utilization. However. 30) must yield to the former. Requirement that taxes can only be levied for a public purpose. Sec. No.12 General Principles MEMORY AID IN TAXATION LAW 13. When so employed in the armed forces. The exemption covers income. June 17. directly and exclusively used for educational purposes. the exemption does not extend to income derived by these educational institutions from their property or activities conducted by them for profit regardless of the disposition made of such income because of the provision in the NIRC holding such income taxable (Last par. b. According to the majority view. there are different views: a. Exemption also covers interest income of Non-stock Non-profit Educational Institution from bank deposits. a relative majority is sufficient. 14. or government orphanage or leprosarium.. And as the Constitution is the basic and paramount law to which all laws must conform. directly and exclusively for educational purposes. 15. 4 [3]. any penal institution. even if the income does not proceed from any school related activity it may be subject to exemption so long as it is actually. L-31156 Feb. L-10854 January 27. A constitutional grant of exemption may be self–executing or may require an act of Congress for its operation. What the Constitution prohibits is the use of public money or property for the benefit of any priest. directly and exclusively for educational purposes. In granting tax exemptions. they may receive their corresponding compensations for services rendered in their non-religious capacity without violating the Constitutional prohibition. TAX EXEMPTION GRANTED TO NONSTOCK NON-PROFIT EDUCATIONAL INSTITUTIONS (Art. property.27. 16. uniform. St. however. (Pepsi Cola vs. (San Beda Law Journal. According to the minority view. These are exempted from the 20% final withholding tax without need of certificate of tax exemption provided that the interest income is used actually. as such. condonations and refunds are in the nature of tax exemptions. as to income derived from activities conducted by them for profit. But where the transaction is an isolated one. treasury bills and other government bonds and foreign currency deposits.

The same property or subject matter is taxed twice when it should be taxed only once Both taxes are levied for the same purpose Imposed by the same taxing authority Within the same jurisdiction During the same taxing period Covering the same kind or character of tax (Villanueva vs. City of Iloilo. 1987 Constitution) 18. City of Iloilo G. b. PROVISIONS REGARDING ALLOTMENTS TO LOCAL GOVERNMENTS (Art. hence prohibited. 6. 26 [1].R. Solid Bank Corp. No. NO PROHIBITION AGAINST DOUBLE TAXATION. No 148191 Nov. VI.R. The rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital. (Villanueva vs. 25. 1968) there is no constitutional prohibition against double taxation in the Philippines. Inc. but is nevertheless permissible. Sec. 2 and 5. SPECIAL FUND (Art. G. 29 [1]. The dividend being remitted to him is taxed in the United States and at the same time taxed in the Philippines. 28. It is something not favored. INTERNATIONAL JURIDICAL DOUBLE TAXATION This is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. No. c. Direct Duplicate Taxation / Obnoxious – double taxation in the objectionable or prohibited sense. According to the Supreme Court (Villanueva vs. KINDS OF DOUBLE TAXATION 1. of Victoria. Tax credits shall mean credits against taxes and/or duties equal to those actually paid on raw materials used in manufacturing the export products. Negros Occidental G. Sec.San Beda College of Law controlling statute. 1968) 13 2008 CENTRALIZED BAR OPERATIONS THE PUBLIC TREASURY (Art. 1968).127105.R.C. Johnson and Son. No. Sec. e. The absence of one or more of the abovementioned elements makes the double taxation indirect. 1987 Constitution) 17. Tax credit is an alternative remedy to a refund of overpaid taxes which may be applied to offset tax liabilities. 1987 Constitution) 20. Generally. 2. CONSTITUTIONAL REQUIREMENT ON THE SUBJECT AND TITLE OF BILLS (Art. 1987 Constitution) 21. NON–IMPAIRMENT OF THE SUPREME COURT’S JURISDICTION OVER TAX CASES (Art. Indirect Duplicate Taxation – is permissible double taxation. L-26521 Dec. No. L-26521 December 28. 29 [3]. This is allowed if the taxes are of different nature or character imposed by different taxing authorities. S. G. 1987 Constitution) 19. f. d. 1999) METHODS OF REDUCING THE RIGORS OF DOUBLE TAXATION (CD – RET) 1. NECESSITY OF AN APPROPRIATION BEFORE MONEY MAY BE PAID OUT OF Double Taxation DOUBLE TAXATION (DUPLICATE TAXATION) – means taxing the same property twice when it should be taxed only once (CIR vs. VI. June 25. 2003) It has also been defined as taxing the same person twice by the same jurisdiction over the same thing (Victoria Milling vs. 27. conditions deemed vital in creating robust and dynamic economies. Sec.R. (Commissioner of Internal Revenue vs. . A reward or incentive granted to certain taxpayers for satisfying certain requirements prescribed by an incentive law. G. Mun. L-21183 Sept. VIII. VI. c. supra) Example: A Filipino citizen who received dividend income from the United States. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate. There is double taxation but it is not prohibited because the taxes are imposed by different taxing authorities. City of Iloilo. b.R. This violates the equal protection clause of the Constitution. X. technology and persons between countries. Sec. it extends to all cases in which there is burden of two or more pecuniary impositions. Elements: a. Tax credits – There is no exact legal definition of tax credits however it can be defined by its ordinary usage based on existing laws to wit: a.

and the recipient (present decedent). The most favored nation clause is intended to establish the principle of equality of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation. in effect exempting the payment from being further taxed. 86 [A] [2]. 1991) 4.14 General Principles In Black’s Legal Dictionary. Tax Credit is defined as an amount subtracted from an individual’s or entity’s tax liability to arrive at the total tax liability. (Sec.1999) The focus is on the tax. 127105. on the condition that the country to which the NRFC is domiciled shall allow a credit against the tax due from the NRFC. an exclusive right to tax is conferred in one of the contracting states. the treaty makes it incumbent upon the state of residence to allow relief in order to avoid double taxation. dies within 5 years. both states are given the right to tax although the amount of tax that may be imposed by the state of source is limited. is reduced by imposing a lower rate of 15% (in lieu of the 35%).28 [B] [5] b) (CIR vs. Example: In income taxation.) The focus here is on the income or capital itself. or 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 2) b. Tax deductions – tax write-off or reduction in the gross amount on which a tax is calculated Example: Our estate tax law provides for the so-called “vanishing deduction” (Sec. No. in respect of intangible personal property of citizens of the Philippines not residing in that foreign country. for other items of income or capital. 34 [C] [4] [a] and [b]. There are 2 ways under the 2nd method: 1) The exemption method – the income or capital which is taxable in the state of source or situs is exempted in the state of residence. which taxes are deemed to have been paid in the Phil. (Sec.R. No 66838 December 2. (CIR v. (This may be done using the tax deduction method which allows foreign income taxes to be deducted from gross income. NIRC). The tax treaty sets out the respective rights to tax by the state of source or situs and by the state of residence with regard to certain classes of income or capital. Tax Credit Certificates are given in lieu of cash which in turn can be used by the holder thereof to settle his or her obligation with the government. The credit method – although the income or capital which is taxed in the state of source is still taxable in the state of residence. although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer’s remaining income or capital. In some cases. Reduction of the Philippine income tax rate Example: Tax Sparing Rule – the dividend earned by a NRFC within the Phil.C Johnson and Son G. Methods resorted to by a tax treaty in order to eliminate double taxation: a. foreign taxes imposed and paid on income earned by a resident citizen or domestic corporation from sources within a foreign country may. however. Tax treaties – Agreement between two countries specifying what items of income will be taxed by the authorities of the country where the income is earned. This involves property previously taxed upon transfer from a prior decedent. MEMORY AID IN TAXATION LAW the Philippines not residing in that foreign country. who then transfers the same property to another. Tax Credits are granted in lieu of the inability of the government to give cash refund to its taxpayers. Procter & Gamble G.R. . MOST FAVORED NATION CLAUSE IN TAX TREATIES The purpose of the most favored nation clause is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the “MOST FAVORED” among other countries. Deduction is therefore allowed on the subsequent transfer. In this case. (Sec 104 NIRC) 5. 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. Tax Exemptions – a grant of immunity to particular persons or corporations from the obligation to pay taxes. the tax paid in the former is credited against the tax levied in the latter. be claimed as tax credit against the Philippine tax on the same income. NIRC) 2. S. b. Example: Exempt transfers under estate and donor’s taxation: a. June 25. The state of source is given a full or limited right to tax together with the state of residence. 3. under certain limitations.

Estate of Benigno Toda Jr. it usually subjects the taxpayer to further or additional civil or criminal liabilities. or deliberate and not coincidental. c. b. Reyes. As to manner of creation: 1) Express or affirmative exemption – expressly granted by organic or statute law 2) Implied or exemption by omission – when particular persons. (Yutivo Sons Hardware vs. 78583 March 26. GR No. 104 PHIL 1061) TAX AVOIDANCE Validity Legal and not subject to criminal penalty Effect Minimization of taxes TAX EVASION Illegal and subject to criminal penalty Almost always results in absence of tax payments b. Jur. i. (CIR vs. No. but the burden is actually shifted or passed on to the buyer. 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 Backward shifting – when the burden is transferred from the consumer through the factors of distribution to the factors of production Onward shifting – when the tax is shifted 2 or more times either forward or backward b. willful. property or excises are deemed exempt as they fall outside the scope of the taxing provision itself As to extent: 1) Total – absolute immunity 2) Partial – one where a collection of a part of the tax is dispensed with c. in bad faith. An accompanying state of mind which is described as being evil. Kinds of shifting a. Incidence of Taxation – point on which the tax burden finally rests or settles down. (Republic vs. . The end to be achieved. 2. TAX EVASION – A term that connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. (Schultz and Harris.R. As to source: 1) Constitutional – immunities from taxation that originate from the Constitution 2) Statutory – those which emanate from legislation b.e. TAX EXEMPTION – is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons or corporations generally within the same state or taxing district are obliged to pay. 503) Kinds of Tax Exemption a. 3. 1961) A scheme used outside of those lawful means and when availed of. Failure to declare for taxation purposes true and actual income derived from business for 2 consecutive years. Illustration: Value added tax. The seller is required by law to pay tax. A course of action which is unlawful. As to object: 1) Personal – granted directly in favor of certain persons 2) Impersonal – granted directly in favor of a certain class of property d.) Factors of Tax Evasion: a. (CIR vs. CTA GRN L-13203 January 28. Gonzales. American Public Finance) Impact of Taxation – point on which tax is originally imposed or the one on whom the tax is formally assessed. G. 1990. SHIFTING The transfer of the burden of tax by the original payer or the one on whom the tax was assessed (impact of taxation/statutory taxpayer) or imposed to another or someone else (incidence of taxation). c. (51 Am.San Beda College of Law 15 2008 CENTRALIZED BAR OPERATIONS Forms of Escape From Taxation There are 6 basic forms of escape: (SE2CAT) 1. Proof of tax evasion: a. or paying no tax when it is shown that the tax is due. L-17962) Substantial under-declaration of income in the tax returns of the taxpayer for 4 consecutive years coupled with intentional overstatement of deductions. Direct tax cannot be shifted – a tax cannot be shifted when it is purely personal or when it has no relation to any business dealings of the taxpayer. payment of less than that known by the taxpayer to be legally due.

Taxation is the rule and exemption Since taxation is the rule and exemption is the exception. Municipal corporations have no inherent power to tax. No 58897 Dec. c. Where the tax exemption grant is in the form of a special law and not by a general law even if the terms of the general act are broad enough to include the codes in the general law unless there is manifest intent to repeal or alter the special law.) CONSTRUCTION OF TAX EXEMPTIONS General Rule: Exemptions are not favored and are construed strictissimi juris (by the most strict right or law) against the taxpayer. (Comm. MEMORY AID IN TAXATION LAW is the exception. No. It is generally revocable by the government unless the exemption is founded on a contract which is protected from impairment.R. The law does not look with favor on tax exemptions and that he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. NATURE OF TAX EXEMPTION a. Bothelo Shipping G. b. it then becomes contractual and is covered by the nonimpairment clause of the Constitution. Macaraig) Taxation is a high prerogative of sovereignty whose relinquishment is never presumed (Luzon Stevedoring vs. Tax Exempt persons are still required to keep books of accounts for examination for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives (Sec. No. But the moment the power to impose tax is granted.R. Acetylene G. (Mactan Cebu Int’l Airport Authority vs. . c. d. Marcos. Non–impairment clause – Where the exemption was granted to private parties based on material consideration of a mutual nature. Jan.216330. b. (Province of Misamis Oriental vs.16 General Principles 3) Contractual – agreed to by the taxing authority in contracts lawfully entered into by them under enabling laws 4) Treaty 5) Licensing Ordinance EFFECTS/ BENEFITS OF TAX EXEMPTIONS: a. It implies a waiver on the part of the Government of its right to collect what otherwise would be due to it and prejudicial thereto. Cagayan Electric Power and Light Co. its political subdivisions or instrumentalities REVOCATION OF TAX EXEMPTIONS a. Deduction for income tax purposes Claims for refund Tax amnesty Condonation of unpaid tax liabilities NATURE OF THE POWER TO GRANT TAX EXEMPTION Like the inherent power to tax.B. 1999) PRINCIPLE OF STRICTISSIMI JURIS Laws granting tax exemption are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing power.R. (SeaLand Service vs. 45355 Jan.R. No. last par. Adherence to form – If the tax exemption is granted by the Constitution. 3. 235 NIRC. CA G. N. L-22443 May 29. e. 57828 June 14. the power to exempt is an attribute of sovereignty for the power to prescribe who or what property shall be taxed implies the power to prescribe who or what property shall not be taxed. No. 25. Lifeblood theory To minimize differential treatment and foster impartiality. b. supra) RESTRICTIONS ON REVOCATION a. G. b. (Commissioner vs. 1993) REASONS FOR THE APPLICATION OF STRICTISSIMI JURIS a.R. 12. 1971) Exemptions are highly disfavored in law and he who claims tax exemption must be able to justify his claim or fight (Afisco Insurance Corporation vs. 1967) c. 1987) EXCEPTIONS TO STRICTISSIMI JURIS When the statute granting exemption provides for liberal construction thereof In case of special taxes relating to special cases and affecting only special classes of persons If exemptions refer to the public property In cases of exemptions granted to religious. c. fairness and equality of treatment among taxpayers (Maceda vs. d. the exemption may thus be withdrawn at the pleasure of the taxing authority. 1990) b. June 29. An exemption from taxation is a mere personal privilege of the grantee. Court of Appeals. Inc GRN No. its revocation may be effected through constitutional amendment only. Phil. CA G. they also have the power to grant exemption unless forbidden by the Constitution or law. c. 112675. of Customs vs. charitable and educational institutions or their property In cases of exemptions in favor of the government.

No. 2008. Defense of tax amnesty. like tax exemption. 1995) NATURE OF TAX AMNESTY 1. with subsequent delivery. Government not estopped from questioning the tax liability even if amnesty tax payments were already received. G. 2008 to avail of the said tax amnesty program. However. Partakes of an absolute forgiveness or waiver of the government of its right to collect. Effectivity of DOF Department Order 29-07 commenced on November 7.R. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic or statute law (Commissioner of Internal Revenue vs. Basis: Lifeblood Theory COLLECTION If a Tax return is filed No return is filed or the return filed is false or fraudulent Within three (5) yrs from receipt of notice of assessment. tax statutes may provide for statute of limitations. General or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. b. that ‘’when articles have entered and passed free of duty or final adjustment of duties made. Within ten (10) yrs from discovery of the failure to file the return or the filing of false or fraudulent return without need of an assessment. 11-08. 2007. The rules that have been adopted are as follows: a) National Internal Revenue Code ASSESSMENT If a Tax return is Within three (3) yrs filed on or before from due date the due date If a Tax return is Within three (3) yrs filed after due from date of actual date filing No return is filed or the return filed is false or fraudulent Within ten (10) yrs from discovery of the failure to file the return or the filing of false or fraudulent return. Prospective hence retroactive application application . after the expiration of one (1) year. The said order became effective last September 6. otherwise known as Tax Amnesty Act of 2007. It provides.4 of Department Order No. Reason: Relates to the circumstances of a particular accused and not the character of the acts charged in the information. 2. it is never favored nor presumed construed strictly against the taxpayer (must show complete compliance with the law) 17 2008 CENTRALIZED BAR OPERATIONS Rule III Section 6. 104151 March 10. 3. however. it is clarified that the last day of availing benefits under RA 9480. Thus. 3. Reason: Erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute. taxes are imprescriptible as they are the lifeblood of the government. They are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. qualified taxpayers have until March 6. such entry and passage free of duty or settlement of duties will. like insanity. liabilities and networth) and the payment of the tax amnesty within six (6) months from the effectivity of said order. civil and administrative liabilities arising from non– payment of taxes Applies only to past tax periods. 2007 or on May 5. is a personal defense. in the Immunity from all criminal. RULES ON TAX AMNESTY 1. Note: Under RMC 29-2008 and Department Order No. who wish to relent and are willing to reform a chance to do so. Court of Appeals.San Beda College of Law NATURE OF TAX REFUNDS Tax refunds are in the nature of tax exemptions. from the date of the final payment of duties. 2007. 2. Tax amnesty a. DOCTRINE OF IMPRESCRIPTIBLY As a rule. To give tax evaders. The government is never estopped by mistakes or errors of its agents. shall be 6 months from November 7. 29-07 provides for the filing of the tax amnesty return together with the SALN (statement of assets. Tax amnesty Tax exemption Immunity from civil liability only b) Tariff and Customs Code It does not express any general statute of limitation.

fees. No. Taxes. Jur.R. Legislative intention must be considered – Tax statutes are to receive a reasonable construction with a view to carrying out their purpose and intent (51 Am. unless the liquidation of import entry was merely tentative. Public purpose is always presumed. G. In case of fraud or intent to evade the payment of taxes. laws are construed strictly against the government and liberally in favor of the taxpayer (Manila.18 General Principles absence of fraud or protest. 1965). Where taxpayer claims exemption – Exemptions are construed strictly against the one who asserts the claim of exemption.” (Sec 1603. 30554 Feb. Railroad vs. Estate of Benigno Toda Jr. 2. The words employed are to be given their ordinary meaning. fees or charges the same may be assessed within ten (10) years from discovery of the fraud or intent to evade payment. in order to avoid or reduce tax liability. Directory – those provisions designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings. Exception: While it is not favored.R. 361). They shall also be collected either by administrative or judicial action within five (5) years from date of assessment (Sec. being burdens. 26. TRANSFORMATION – The manufacturer or producer upon whom the tax has been imposed. Coll. G. This method should be used by the taxpayer in good faith and at arms length. General Rule: Tax laws are prospective in operation.28. Provisions of the taxing act are not to be extended by implication.R. Mandatory – those provisions intended for the security of the citizens or which are designed to insure equality of taxation or certainty as to the nature and amount of each person’s tax. or charges shall be assessed within five (5) years from the date they become due. fearing the loss of his market if he should add the tax to the price. Tax laws are special laws and prevail over general laws. Feb. be final and conclusive upon all parties. Tax Laws NATURE OF TAX LAWS 1. 5. Tax avoidance is the tax saving device within the means sanctioned by law. 6. LGC) 4. KINDS OF PROVISIONS OF TAX LAWS 1. 1988) Example: Availing of all deductions allowed by law or refraining from engaging in activities subject to tax.1983. Not political in character Civil in nature. Collector of Customs G. not subject to ex post facto law prohibitions Not penal in character APPLICATION OF TAX LAWS CONSTRUCTION OF TAX LAWS 1. IAC G. a statute may nevertheless operate retroactively provided it is expressly declared or is clearly the legislative intent (Cebu Portland Cement vs. 18649. 2. 3. Where language is plain – Rule of strict construction against the government does not apply where the language of the tax law is plain and there is no doubt as to the legislative intent (51 Am. 368). 10214 Nov. 5. TAX AVOIDANCE – The exploitation by the taxpayer of legally permissible alternative tax MEMORY AID IN TAXATION LAW rates or methods of assessing taxable property or income. No.R. thereby producing his units at a lower cost. Where there is doubt – In every case of doubt. . are not to be presumed beyond what the statute expressly and clearly declares. pays the tax and endeavors to recoup himself by improving his process of production. (CIR vs. CAPITALIZATION – 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. 1915). 194. Jur. No. (Delpher Trades vs. 2.) A taxpayer has legal right to decrease the amount of what would otherwise be his taxes or altogether avoid them by means which the law permits. Importance of Distinction The omission to follow mandatory provisions renders invalid the act or proceeding to which it 6. No. 27.4. 69259 Jan. in tax statutes imposing payment of tax. 3. 4. TCC) c) Local Government Code Local taxes.

rulings and opinions of tax officials particularly the CIR. Lontok G. 4. 1975). NIRC). They must not be contrary to law and the Constitution (Art. repeal or abrogate the acts of his predecessors in office. Judicial Decisions – decisions of the Supreme Court applying or interpreting existing tax laws are binding on all subordinate courts and have the force and effect of law. Interpretative regulations and those which are merely internal in nature need not be published. presidential decrees and executive orders and administrative rules and regulations if their purpose is to enforce or implement existing law. 2. They form part of the legal system of the Philippines (Art. . modification or reversal of any of the rules and regulations or any of the 19 2008 CENTRALIZED BAR OPERATIONS rulings or circulars promulgated by the CIR cannot be given retroactive effect when such will be prejudicial to the taxpayer but it shall be retroactive in the following cases: a. Licera G. Adm. 3. including opinions of the Secretary of Justice Authority of the Secretary of Finance to promulgate rules and regulations The Secretary of Finance. Administrative Rulings and Opinions Rulings – are less general interpretations of tax laws at the administrative level which are issued by tax officials in the performance of their assessment functions. No. including those of local application and private laws. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based. No. information on the taxable income and/or activities of any of their nationals or residents. in the BIR. upon recommendation of the Commissioner. Requisites for validity and effectivity of regulation a.R. The statute that is being administered may not be altered or added to by the exercise of a power to make regulations thereunder. These rulings may be revoked by the Secretary of Finance if the latter finds them not in accordance with law. SOURCES OF TAX LAWS 1. Force and Effect of Regulations Such regulations once established and found to be in consonance with the general purposes and objects of the law have the force and effect of law and so they must be applied and enforced (De Guzman vs. 246. Central Bank. 1939). They must be published in the official Gazette (Lim vs. 5.R. They are usually rendered by the CIR on request of taxpayers to clarify certain provisions of a tax law. The following require publication as a condition for their effectivity: statues. Revenue Memorandum Orders Revenue Memorandum Circulars Revenue Administrative Orders BIR rulings Tax Treatises and conventions with foreign countries – tax treatises comprehend two objectives: (a) to avoid double taxation in cases where the income is taxed twice and (b) to eliminate or minimize tax evasion through the adoption of exchange of information scheme whereby the signatory countries undertake to furnish each other. b. Constitution Legislation or statutes. 45958 July 22. 4. Tuvera GR. tax treaties and conventions with foreign countries Administrative rules and regulations . The Secretary of Finance has the power to revoke. Consequently. The construction of the statute by those administering it is not binding on their successors if thereafter the latter becomes satisfied that a different construction should be given. NIRC). 8 Civil Code). Not all sources of tax laws require publication in the Official Gazette. Sec. 3. L-63915. the following do not require publication for purposes of effectivity: 1. 1985). or Where the taxpayer acted in bad faith (Sec. including presidential decrees and executive orders on taxation and tax ordinances. Civil Code). pursuant to a valid delegation (Tañada vs. April 24. Where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the BIR. They constitute evidence of what the law means (People vs. 7. No. L-39990 July 22. Opinions – they have the character of substantive rules and are generally binding and effective if not otherwise contrary to law and the Constitution. Non–Retroactivity of Repeal Any revocation.San Beda College of Law relates while the omission to follow directory provisions does not involve such consequence. 244. on a mutual basis. These are also given by the Secretary of Justice. shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC (Sec. 2. c. Code). b. 79-B and 551 Rev.

20 General Principles PRINCIPLE OF LEGISLATIVE APPROVAL OF AN ADMINISTRATIVE INTERPRETATION THROUGH REENACTMENT Where a statute is susceptible of the meaning placed upon it by a ruling of the government agency charged with its enforcement and the legislature thereafter reenacts the provision without substantial change. activities. Rodriguez. relevant tax laws and other issuances for the guidance of the public. otherwise. (Sec. 1969). 1997. 6. prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions. notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code. NIRC) Recommend to the Secretary of Finance all needful rules and regulations for the effective enforcement of the provisions of the NIRC. BIR Rulings. as well as amplifications. of laws. 117982.R. with or without established precedents. 1999). Feb. G. except auditing. as applied to a specific set of facts. plans and programs of the Bureau in all areas of operations. No. 2. L-23041. rules. No. 245. CA. opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws. the Rulings are null and void ab initio Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions. prescribe guidelines. (Sec. Exception: In the interest of justice and fair play. and outline processes. such action is to some extent confirmatory that the ruling carries out the legislative purpose. therefore. Agencies Involved in Tax Administration and Enforcement Tax administration – refers to the manner and procedure of assessing and collecting or enforcing tax liabilities. erroneous application and enforcement of law by public officers do not bar the subsequent correct application of statutes (E. e. G. and fines connected therewith. For administrative purposes. NIRC) RMRs. Revenue Bulletins (RB) refer to periodic issuances. BUREAU OF INTERNAL REVENUE – It is the administrative agency of the government charged with the primary function of administration of the national internal revenue laws and regulations. regulations and precedents issued by the BIR and other agencies/offices. BIR Rulings are official positions of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws Powers and Duties of the BIR a. operations. upon recommendation of the Commissioner of Internal Revenue. and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. penalties.R. No. July 31.R. CA. vs. workflows. . Revenue Memorandum Rulings (RMRs) are rulings. 3. fees. that specify. 2. as where injustice will result to the taxpayer (See CIR vs. Assessment and collection of all national internal revenue taxes. MEMORY AID IN TAXATION LAW RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT General Rule: The Government is not estopped by the mistakes or errors of its agents. and charges. objectives. cannot contravene duly issued d. CIR vs. b. Feb. NIRC) Organization of the BIR The BIR is under one (1) chief known as the COMMISSIONER OF INTERNAL REVENUE and CONCEPT OF BUREAU OF INTERNAL REVENUE ISSUANCES Revenue Regulations (RRs) are issuances signed by the Secretary of Finance. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. 107135. methods and procedures necessary in the implementation of stated policies. Enforcement of all forfeitures. goals. Giving effect to and administering the supervisory and police powers conferred to it by this Code or other laws. the BIR is under the executive supervision and control of the Department of Finance which oversees the administration of national taxes in the Philippines. (Sec. Inc. G. Collector. c.

and take testimony of persons in ascertaining the correctness of any return. i n c o m p e t e n c y. o r malfeasance in office of any internal revenue officer of which he may obtain knowledge with a statement of all the facts and any evidence sustaining each case. rules and regulations affecting national internal revenue are faithfully executed and complied with. (2) Revenue District Offices (RDO) . coordinate with local government units in the area g. Field Service. or in collecting any such 2. examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax b. b. rules and regulations. National Office. issue letters of authority for the examination of taxpayers within the region d. a. rules and regulations of the department or agencies in the regional area b.its function is confined to general direction. and economical. policies. Authority of Revenue District Officers (RDO) a. examine. guidance and control of the entire operations of internal revenue service. NIRC) Obtain information. coordinate with regional offices or the departments. penalties imposed in relation thereto. provide economical. and to summon. and to report in writing to the Commissioner through the Regional D i r e c t o r. 3. 4. fees or other charges. or in determining the liability of any person for any internal revenue tax.San Beda College of Law four (4) assistant chiefs known respectively as the Deputy Commissioners. (1) Regional offices (RO) . programs. detection and punishment of frauds or delinquencies in connection therewith b. Field men and examiners performing assessment work b. refunds of internal revenue taxes. NIRC) Decide disputed assessments. 21 2008 CENTRALIZED BAR OPERATIONS assessment and collection of internal revenue taxes in the revenue district. including the assessment and collection of all internal revenue taxes. national policy formulation and program planning for efficient and effective implementation of internal revenue law and regulations. Collection agents and clerks performing collection work Duties of Revenue District Officers and other Internal Revenue Officers a. and to aid in the prevention. d e l i n q u e n c y. administer and enforce internal revenue laws. bureaus and agencies in the area f. Examine the efficiency of all officers and employees of the BIR under his supervision. the Philippines has been divided into Regional offices which directly execute and implement the national policies and programs prescribed by the National Office for the enforcement of internal revenue laws. It consists of the Commissioner and four (4) Deputy Commissioners. charges and fees c. plans. methods and procedures necessary for efficient.for effective administration and control. implement laws. exercise control and supervision over the officers and employees within the region h. perform such other functions as may be provided by law and may be delegated by the Commissioner. Powers and duties of Regional Director a. Exclusive and original jurisdiction to interpret the provisions of the NIRC and other tax laws subject to review by the Secretary of Finance (Sec. ensure that all laws. or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue subject to exclusive appellate jurisdiction of the CTA (Sec. effective. recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself (Section 13 NIRC) POWERS OF THE COMMISSIONER: 1. The Bureau consists of National Office and Field Service. 4. or in making a return when none has been made. These offices implement programs. Composition of RDO’s a.under the RO’s and headed by revenue district officers who are under the direct control and supervision of the Regional Director.the BIR operates under a decentralized system through which is primarily charged with the operational activities of the Bureau. Each office is headed by a Regional Director. . a n y n e g l e c t o f d u t y. efficient and effective service to the people in the area e.

Pending appeal. or in evaluating tax compliance (Sec.R. Cause revenue officers and employees to make a canvass from time to time of any revenue district or region. (Section 6(A) NIRC) 2. record or other data which may be relevant or material to such inquiry. NIRC) MEMORY AID IN TAXATION LAW made. Summon the person liable for tax or required to file a return. CA.22 General Principles liability. NIRC) Disputed Assessment – refers to a tax assessment that is administratively protested within 30 days from the date the taxpayer received the assessment. addresses and financial statements of corporations. Authority to examine returns and determine tax due. The opinion or ruling of the Commissioner of Internal Revenue. or b. 3. paper. its agencies and instrumentalities including BSP and GOCC’s any information such as but not limited to. or from any office or officer of the government. or any person having possession. or care of the books of accounts to appear before the Commissioner and to produce such books and to give testimony. L-19392. refunds of internal revenue taxes. Examine any book. or in evaluating tax compliance. NIRC). IV. 4. V. et al v.. costs and volumes of production. Power to decide tax cases – The Commissioner shall decide disputed assessments. Obtain on a regular basis information from any person other than the person whose internal revenue tax liability is subject to audit or investigation. By the use of this method. Collector of Internal Rev. and take testimony of persons – In ascertaining the correctness of any return. and the Court of Appeals (Afisco Insurance Corp. 1999) Rulings which merely embody administrative opinions on queries submitted do not have the force and effect of laws (Alexander Howden and Co. The Commissioner shall have: 1. 6. names. G. such assessments shall continue to be considered as a disputed assessment. changed or amended within three 3 years from the date of such filing PROVIDED that no notice for audit of such return. or in determining the liability of any person for any internal revenue tax. 5. any return. penalties imposed in relation thereto. and to summon. NIRC) I. 4. 5. 112675. and the taxpayer adversely affected by the decision or inaction appealed the same to the CTA within 30 days from receipt of the decision. is accorded much weight and even finality where there is no showing that it is patently wrong. NIRC) II. Jan. he is authorized to: 1. Ltd. 25. if a person fails to file a return or other document at the time prescribed by law. or is not acted upon by the BIR within 180 days from the submission of all the required documentary evidence. Authority to make assessment based on the Best Evidence Obtainable in the following cases: a. custody. examine. or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue subject to exclusive appellate jurisdiction of the Court Tax Appeals (Sec. However. statement or declaration filed in any office authorized to receive the same shall not be withdrawn but the same may be modified. fees or other charges. NIRC) 4. 4. receipts or sales and gross income of taxpayers. a specialized body created for the exclusive purpose of reviewing tax cases. subject to review by the Secretary of Finance. April 14. Power to make assessments and prescribe additional requirements for tax administration and enforcement (Sec.R. Power to interpret the provisions of the NIRC and other tax laws This power shall be the exclusive and original jurisdiction of the Commissioner. Power to obtain information. It includes protested assessments wherein the administrative protest is denied in whole or in part. Make assessments and prescribe additional requirements for tax administration and enforcement (Sec. G. or from the lapse of the 180-day period. statement or declaration has in the meantime been actually served upon the taxpayer. he willfully or otherwise files a false or fraudulent return or other document. or any officer or employee of such person. Take testimony of the person concerned. the Commissioner makes or amends the return from his own knowledge and from such information as he can obtain . No. under oath. or in collecting any such liability. (Sec.. or in making a return when none has been 2.. particularly in a case where the findings and conclusions of the internal revenue commissioner were subsequently affirmed by the CTA. 6. 5. (Sec. 1965) III. the agency tasked with the enforcement of tax laws. No.

Except with the following powers: a. Authority to prescribe Real property Values Commissioner is authorized to divide the Philippines into different zones or areas and shall upon consultation with competent appraisers. receipts. surveillance and prescribe presumptive gross sales and receipts INVENTORY TAKING – may be made at any time during the taxable year as a basis for assessment. SURVEILLANCE – conducted if there is reason to believe that a person is not declaring his correct income. (Sec 6(H) NIRC) Authority of the Commissioner to Delegate Power Commissioner may delegate powers vested in him to any or such subordinate officials with the rank equivalent to a division chief or higher. individuals and general professional partnerships and their representatives who prepare and file tax returns. or modify any existing ruling of the Bureau power to compromise or abate any tax liability power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. (Sec 6(E) NIRC) 6. revoke. determining the gross estate of a decedent b. Commissioner is not allowed. intending to leave the Philippines c. d. sales and taxable base.San Beda College of Law through testimony or otherwise. in case of taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity. and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. intending to remove his property therefrom d. or who appear before the BIR for taxpayers. Authority to accredit and register tax agents Commissioner shall accredit and register based on their professional competence. (Sec 6(F) NIRC) 7. c. after taking into account the sales. Such assessment shall be deemed prima facie correct. (Sec 6(C) NIRC) 4. may prescribe a minimum amount of such gross receipts. intending to hide or conceal his property e. Authority to inquire into bank deposits As a rule. The findings may be used as a basis for assessing the taxes for other months or quarters of the same or different taxable years. Authority to prescribe additional procedure or documentary requirements. sales or receipts for internal revenue tax purposes. PRESUMPTIVE GROSS SALES AND RECEIPTS – if it is found that a person has failed to issue receipts and invoices or when there is reason to believe that the books of accounts do not correctly reflect the declarations made or to be made in the return. the Commissioner. (Section 6(B) NIRC) 3. power to recommend the promulgation of rules and regulations power to issue rulings of first impression or to reverse. (Sec 6(D) NIRC) 5. determine the fair market value 23 2008 CENTRALIZED BAR OPERATIONS (FMV) of real properties located in each zone or area. Authority to terminate taxable period Commissioner has the authority to terminate the period in the any of the following cases: a. retiring from business subject to tax b. performing any act tending to obstruct the proceedings for the collection of tax for the past or current quarter or year f. (Sec 6(G) NIRC) 8. For purposes of computing any internal revenue tax. upon recommendation of the Commissioner. Provided that an internal revenue officer: • . Assessments made as such are deemed prima facie correct and sufficient for all legal purposes. income or other taxable base of other persons engaged in similar business under similar situations or after considering other relevant information. Performing any act tending to render the same totally or partly ineffective unless such proceedings are begun immediately. b. except: a. Authority to conduct inventory-taking. integrity and moral fitness. the value of the property shall be whichever is higher of: (1) the FMV as determined by the Commissioner OR (2) the FMV as shown in the schedule of values of the Provincial and City Assessors. subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance. (Sec 7 NIRC) Assigned to any establishment where articles subject to excise tax are produced or kept. reports and other papers with.

5. 1125 as amended by R. The ordinary courts have jurisdiction over non-disputed assessments. Sangguniang Panlungsod in the case of cities. as the case may be. For the collection of national internal revenue on imported articles. that power shall be exercised by the: a. b. airports. MEMORY AID IN TAXATION LAW • Assigned to perform assessment or collection functions shall not remain in the same assignment for more than 3 years. 3. a pursuit of such vessel begun within the jurisdictional waters may continue beyond the maritime zone and the vessel may be seized on the high seas. The enforcement of tariff and customs laws and other laws. S a n g g u n i a n g B a y a n i n t h e c a s e o f municipalities. Composition of the CTA – The CTA consists of a presiding Justice and 5 Associate Justices each of whom shall be appointed by the President upon nomination of the Judicial and Bar Council. and Jurisdiction of the BOC: 1. bays. Agents and Deputies for Collection of National Internal Revenue Taxes a. . (Section 12 NIRC) BUREAU OF CUSTOMS – It is the administrative agency of the government charged with the administration of the tariff and customs laws and regulations.24 General Principles shall in no case stay in his assignment for more than 2 years. for the purpose of the collection of the lawful duty on the dutiable articles thus imported and the prevention of smuggling through the medium of such mails The supervision and control over all import and export cargoes. LOCAL GOVERNMENT – it is primarily in charge of the assessment and collection of the taxes it imposed within its jurisdiction (local and real property taxes). landed or stored in piers. 601. b. General Duties. a. They are also given jurisdiction over cases involving local taxes and special taxes not administered by the BIR and the BOC. Exclusive jurisdiction over seizure and forfeiture cases under the tariff and customs laws. airports. fines and penalties accruing under the tariff and customs laws. rules. b. (R. 9282) 2. The assessment and collection of the lawful revenues from imported articles and all other dues. The supervision and control over the handling of foreign mails arriving in the Philippines. 7. together with the heads of appropriate government offices and their subordinates and duly authorized banks are constituted agents of the Commissioner of Internal Revenue. c. The supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce.A. charges. harbors. Sangguniang Barangay in the case of barangays through an appropriate ordinance. It is also under the supervision of the Secretary of Finance. The prevention and suppression of smuggling and other frauds upon the customs. 6. the Commissioner of Customs and his subordinates. (Sec. rivers and inland waters whether navigable from the sea or not. the Commissioner of Customs and his subordinates with respect to the collection of national internal revenue taxes on imported goods the head of the appropriate government office and his subordinates with respect to the collection of energy tax Banks duly accredited by the Commissioner with respect to the receipt of payments of internal revenue taxes authorized to be made through banks.A. Whenever the power to impose and collect a tax or other revenue is exercised under the Local Government Code. (Sec. terminal facilities. including container yards and freight stations for the protection of government revenue. TCC) Territorial Jurisdiction of the BOC Extent – The BOC has the right of supervision and police authority over all seas within the jurisdiction of the Philippines. fees. 4. ports. ORDINARY COURTS – The Regional Trial Courts or the Metropolitan and Municipal Trial Courts. Powers. 603 TCC) Exception – When a vessel becomes subject to seizure by reason of an act done in Philippine waters in violation of the tariff and customs laws. and regulations relating to tariff and customs administration. c. are given jurisdiction over civil and criminal actions for the collection of internal revenue taxes and customs duties in cases which are not within the appellate jurisdiction of the Court of Tax Appeals. Sangguniang Panlalawigan in the case of provinces. and over all coasts. or d. COURT OF TAX APPEALS – It was created by Congress as a centralized court specializing in tax cases.

assessment or toll. Constitution). 5 [2]. as in other cases. 05-11-07CTA) SUPREME COURT – In tax cases. who shall be the Chairman of its First Division.M. or those involving the legality of any tax. 1. including the presiding justice. the Court shall sit en banc. or in two Divisions of three (3) justices each. the SC has exclusive appellate jurisdiction in all cases involving the constitutionality or validity of any law. order or decision of the CA. (A. or any penalty imposed in relation thereto (Secs. CTA or RTC. No.  END OF GENERAL PRINCIPLES  . impost. Furthermore.San Beda College of Law In appropriate cases. it is the court of last resort to which an appeal or petition for review may be taken by the party adversely affected by 25 2008 CENTRALIZED BAR OPERATIONS a ruling.

Tests in Determining Income 1. U. 4. ARLENE ALDAY and NELSON SALVA JR. Erwin Legaspi. Flow of Wealth Test – The determining factor for the imposition of income tax is whether any gain was derived from the transaction. Vincent Cablao. EXECUTIVE COMMITTEE VISMARCK UY over-all chair. Irene May Junio. without consensual recognition. Jay Martin Celzo. Lauren Rose Tanyag.S. MARK ANTHONY DIZON. 3. thereby supplying the realization or transmutation which would result in the receipt of income. Maria Joy Toledo. Mary Joy Aquino. Ramon Alfredo Dela Cruz.S. ANTHONY PURGANAN vice chair for academics. KARLA FUNTILA vice chair for finance. Karren Amparo. Aldren Abrigo. MAUREEN ROSE OBON income taxation. James Agustin. Donelle Jay Quilates. Masha Mariano. Raul Canon. Income includes earnings. 2. Joanne Mosquera. value added tax. UNTAYAO edp MARIEL MAILOM general principles. JEFFREY GALLARDO vice chair for edp. JULIUS BABALCON tariff and customs code. Maureen De Castro. Jennylyn Valencia. John Zernan Sambahon. Diana Rabanal. Cristiellane Valerio and Sherwin P. is taxable. Sol Pejo.R. Precious Angela Lledo.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. 366 U. 8. ROWENA MUTIA tables and annexes MEMBERS: Maria Evitha Abante. No. An income is an amount of money coming to a person or corporation within a specified time. Katherine Jane Manarang. AYN SARSABA vice chair for operations. Aileen Artificio. G. MINERVA JIMENEZ donor’s tax and court of tax appeals. APRIL CABEZA chair academics operations.. MAUREEN SEYMOUR JAVIER local taxation and real property taxation. Ray John Bangi. Economic-Benefit Principle Test – any economic benefit to the employee that increases his net worth. of an obligation to repay and without restriction as to their disposition (James vs. Ryan Pingol. Rafferty. income means cash or its equivalent (Conwi vs. although not then actually reduced to possession. 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 that which would otherwise constitute a gain. Jennifer Bautista. whatever may have been the mode by which it is effected. Deepee Salazar. Herbert Abugan. John Ray Concepcion. 1992). 1918).R. Leonardo Mendoza II. Mariflor Reyes. Kathryn Joy Hautea. Principle of Constructive Receipt of Income . 48532 August 31. Unless otherwise specified. Commissioner. Julian Adarlo. G. Pascua . No. Jan Reiner Uy. lawfully or unlawfully acquired.26 Income Taxation MEMORY AID IN TAXATION LAW TAXATION LAW INCOME TAXATION INCOME TAXATION Definitions and Principles Definitions and Principles Income – It is a flow of service rendered by capital by the payment of money from it or any benefit rendered by a fund of capital in a relation to such fund through a period of time (Madrigal vs. whether as payment for services. MARK JULIUS ESTUR estate taxation. express or implied. ALDEAN LIM chair hotel operations. interest or profit from investment. 12287. tax remedies. Micael Ortiz Luis. ULYSSES GONZALES vice chair for logistics TAXATION LAW IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. Ralph Jerome Salvador. Aug. RONALD JOHN DECANO vice chair for secretariat. Karla Funtila. Realization Test – there is no taxable income until there is a separation from capital of something of exchangeable value. 213).

which includes. possessions. whether gross or net (27 Am.A. . It is a direct tax – tax burden is borne by the income tax recipient upon whom the tax is imposed. Jur. 3. Separate return is filed for the appropriat e type of income received. GLOBAL as to compensation income. farming and longterm construction contracts Passive Income – income in which the taxpayer merely waits for the amount to come in. Income (Madrigal vs. trade or business. but is not limited to. business or professional income. authorized for such types of income by this Code or other special laws. engineers and the like. One income R tax return E T U R N S 5. One income tax return for global tax items. 5. Based on the ability to pay principle. 3. Professional Income – fees derived from engaging in an endeavor requiring special training as professional as a means of livelihood. winnings and prizes. Characteristics of Philippine Income Tax Law 1. selling merchandise. There must be a gain or profit The gain must be realized or received The gain must not be excluded by law or treaty from taxation 3. Flow of Wealth Service of wealth Fruit Income is subject to tax Capital Fund or property. Capital Gain – gain from dealings in capital assets N A T U R E 2. This is the system adopted by R. and the source principle. Income from sources within the Philippines Income from sources without the Philippines Income from sources partly within and partly without the Philippines 4. Income Classified as to Source 1. 308). less the deductions and/or personal and additional exemptions. or as a tax on a person’s income. the fees of CPAs. Adopted by the Philippines by virtue of BP. royalty income. Comprehensive system – adopts the citizenship principle. emoluments. if any. dividend income. interest income. 4. – Tax on income. 3.) Income All wealth. Types of Taxable Income 1. 2. 135. but is not limited to. and other income. Semi-schedular or semi-global American in origin Income Tax Systems GLOBAL TAX SYSTEM SCHEDULAR TAX SYSTEM SEMI-SCHEDULAR SEMIGLOBAL TAX SYSTEM REQUISITES FOR INCOME TO BE TAXABLE 1. which can be used in producing goods or services Fund or property Wealth Tree Return of capital is not subject to tax 27 2008 CENTRALIZED BAR OPERATIONS INCOME TAX – tax on all yearly profits arising from property. capital gain and passive income not subject to final tax. 2.San Beda College of Law Capital vs. Different sets of returns for scheduler tax items. Taxable Income . SCHEDULAR as to passive income subject to final tax.The term taxable income means the pertinent items of gross income specified in this Code. It includes. All items of deductions and personal and additional exemptions if any are deducted from all items of gross income. manufacturing products. doctors. 2. capital gains from sale and transfer of shares of domestic corporations and sale of real properties. the residence principle. profits and the like (61 CJS 1559) – It is the tax on income. Compensation Income – income which is derived from the rendering of services under an employer-employee relationship. Income is classified into different types upon which the tax rate applicable is based. or that which increases the net worth of the taxpayer from sources other than the mere return of capital. 8424. No. Progressive tax – tax rate increases as the tax base increases. Rafferty supra. No classificatio n of income. existing at an instant of time. lawyers. Business Income – gains or profits derived from rendering services. which flows into the taxpayer other than as a mere return of capital.

2. 1. b. Source Principle – an alien is subject to Philippine income tax because he derives income from sources within the Philippines. 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. alien individual employed by offshore banking units v. Corporations a. b. a nonresident alien is liable to pay Philippine income tax on his income from sources within the Philippines such as dividend. Domestic (DC) Foreign 1. Trusts E. resident citizens (RC) non-resident citizens (NRC) resident aliens (RA) non-resident aliens (NRA) i. interest. Summary: A. or (b) only on his income from sources within the Philippines. (a) on his worldwide income. rent.28 Income Taxation GLOBAL TAX SYSTEM SCHEDULAR TAX SYSTEM SEMI-SCHEDULAR SEMIGLOBAL TAX SYSTEM MEMORY AID IN TAXATION LAW R One set of A tax rates T E S T A X B A S E Graduated or flat income tax rate. Estates D. if he qualifies as nonresident citizen. despite the fact that he has not set foot in the Philippines. 2. Engaged in trade or business within the Phils. alien individual employed by petroleum service contractor and subcontractor . Thus. citizens 1. Gross Income Either Either gross or net gross income or net income 3. Citizenship Principle – A citizen of the Philippines is subject to Philippine income tax: Classification of Taxpayers Classification of Taxpayers TAXPAYER The term "taxpayer" means any person subject to tax imposed by this Title. Individuals a. General Professional Partnership General Co-partnership B. 2. (NRAETB) not engaged in trade or business within the Philippines (NRANETB) C. Partnerships a. Final tax at preferential rates for scheduler tax items. or royalty. if he resides in the Philippines. 2. ii. alien individual employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies iv. Graduated tax rates for global tax items. resident foreign corporation (RFC) non-resident foreign corporation (NRFC) aliens iii. Criteria in Imposing Philippine Income Tax 1. b.

Citizen a. • 2. 2. a Filipino citizen: a. c. there are three (3) types of nonresident citizens. 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.For income derived from sources within the Philippines. However. overseas contract workers must be physically present abroad most of the time during the calendar year to qualify as nonresident citizens. is taxable only on income derived from sources within the Philippines. One who comes to the Philippines for a definite purpose which in its nature would require an extended stay. d. Means an individual whose residence is not within the Philippines and who is not a citizen thereof [Sec. • abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines 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 overseas contract worker. An individual citizen of the Philippines who is working and deriving income from Non-resident alien engaged in trade or business within the Philippines. . A nonresident citizen is taxable only on income derived from sources within the Philippines. receives compensation for services rendered abroad as a member of the complement of a vessel. The taxpayer shall submit proof to the Commissioner 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 purpose of this Section. whether a resident or not of the Philippines. namely: (1) immigrants. Non-Resident Non-resident Citizen – They are taxed for income derived from sources within the Philippines. • NOTE: An overseas contract worker (OCW) is taxable only on income derived from sources within the Philippines [Sec. Alien An alien individual. who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. who leaves the Philippines during the taxable year to reside abroad. Means an individual whose residence is within the Philippines and who is not a citizen thereof [Sec. Based on the above provisions. and (3) overseas contract workers.22 (E). NIRC].San Beda College of Law 29 2008 CENTRALIZED BAR OPERATIONS Individuals 1. An alien who shall have stayed in the Philippines for more than one year by the end of the calendar year is a resident alien. Immigrants and employees of a foreign entity on a permanent basis are treated as nonresident citizens from the time they depart from the Philippines. NIRC] b. and makes his home temporarily in the country becomes a resident alien. 1.22 (G)].22 (F). 23 (B) (C)]. who is previously considered as a non-resident and who arrives in the Philippines at anytime during the taxable year to reside thereat permanently shall be considered non-resident for 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 [Sec. either as an immigrant or for employment on a permanent basis. Length of stay is indicative of intention. 2. Resident alien – for income derived from sources within the Philippines • Means. (NRAETB) . Resident A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines b. A seaman is considered as an OCW provided the following requirements are met: 1. (2) employees of a foreign entity on a permanent basis. and Such vessel is engaged exclusively in international trade.

when applied to a corporation. 3. machinery and other equipment. 5. Resident Foreign Corporation – engaged in trade or business within the Philippines [Sec. NIRC] It is taxable for income derived from sources within and without the Philippines. Joint accounts (cuentas en participacion) Associations. RESIDENT NATIONALITY Used to describe a corporation organized under the laws of a foreign country. h. 22 (CC)]. Foreign The term "foreign". no matter how created or organized. 1. Offshore banking units established in the Philippines Foreign Service contractor or subcontractor engaged in petroleum operations in the Philippines. means created or organized in the Philippines or under its laws. or under its laws [Sec. Non-resident lessors of aircraft. shall be understood to be the place where their legal representation is established or where they exercise their principal functions. Non-resident alien not engaged in trade or business within the MEMORY AID IN TAXATION LAW Philippines (NRANETB). Regional or area headquarters and regional operating headquarters of multinational companies in the Philippines. means a corporation which is not domestic. A CORPORATION INCLUDES: 1. 25(A)(1)] 3. 22(C). Special Individuals – Individuals whether Filipino or alien employed by: a. which is engaged in trade or business in the Philippines. e. A non-resident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than 180 days during any calendar year shall be deemed a non-resident alien doing business in the Philippines Section 22(G) notwithstanding [Sec. a. 22 (S)]. lessors or distributors Non-resident owners or lessors of vessels chartered by Philippine nationals. b. and which. 3. g. NIRC] It is taxable for income derived from sources within the Philippines. Joint venture or consortium formed for the purpose of undertaking construction projects . f. when applied to a corporation. 22(H). DOMICILE Place fixed by the law creating or recognizing them. NIRC] 2. 22 (B). 2. Special types of Corporations Proprietary educational institutions and nonprofit hospitals Domestic depositary bank (foreign currency deposit units) Resident international carriers Offshore banking units Regional or Area Headquarters and Regional Operating Headquarters of multinational companies Non-resident cinematographic film owners. Determined by the application of control test – nationality of a corporation is dependent on the nationality of its controlling shareholders or members. – For income derived from sources within the Philippines. c. Non-resident Foreign Corporation – not engaged in trade or business within the Philippines [Sec. or Insurance companies [Sec.30 Income Taxation Engaged in trade or business The term trade or business includes the performance of the functions of a public office [Sec. in the absence thereof. 22(I). Partnerships. 4. It shall not include performance of services by the taxpayer as an employee [Sec. Corporation WHO ARE TAXABLE AND FOR WHAT? Domestic The term "domestic". 2. c. Domestic Corporation – created or organized in the Phils. A CORPORATION EXCLUDES: 1. d. Joint-stock companies. General professional partnerships. NIRC] It is taxable for income derived from sources within the Philippines. b.

Those enumerated under Sec. 9337. 22(EE) shall pay a tax of 10% of their taxable income. ESTATES UNDER JUDICIAL SETTLEMENT A. and such income is subjected to income tax payment by the B. Obillos vs. If the heirs contribute to the estate money. a coownership is created. Income tax for individuals under Sec. Commissioner. payable in their separate and individual capacity (Pascual vs.San Beda College of Law or engaging in petroleum.R. Exceptions: 1. Termination of The Judicial Settlement (Where The Heirs Still Do Not Divide The Property) 1. GR No. an unregistered partnership is created and the estate becomes liable for the payment of corporate income tax (Evangelista vs. 1972). No. 000. During the Pendency of the Settlement General Rule: An estate under judicial settlement is subject to income tax in the same manner as individuals. and individual income tax is imposed on the income received by each of the heirs. Where no such distribution to the heirs is made during the taxable year when the income is earned. L-68118. Except: a. property.R. G. No. coal. Commissioner. If the heirs. G. Such distributed income shall form part of the respective heirs’ taxable income. 1988. simply divide the fruits thereof between/among themselves. d. 22 (DD) – not subject to income tax • Regional operating headquarters under Sec. No additional exemption is allowed. 1957. . Collector. Oña vs. They are only exempt for income realized “as such. 2. 3. CORPORATIONS EXEMPT FROM INCOME TAXATION UNDER THE NIRC: 1. 60 if the estate is under administration or judicial settlement. or from any other activities conducted for profit. geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. Estate income tax under Sec. Estates and Trusts ESTATE – refers to the mass of properties left by a deceased person. Exempt corporations are subject to income tax on their income from any of their properties. 31 2008 CENTRALIZED BAR OPERATIONS With respect to GOCCs: General Rule: these corporations are taxable as any other corporation. The entitlement to personal exemption is limited only to P20. the following taxes are payable under the provisions of the income tax law: 1. estate.A. The distribution to the heirs during the taxable year of estate income is deductible from the taxable income of the estate. 30. L-19342. without contributing money. real or personal. October 18. 3. c. b. regardless of the disposition made of such income. 2. Regional or Area Headquarters under Sec. October 15. SUMMARY TAXPAYER Distribution in the current year out of the corpus of the estate Distribution in current year out of income in the previous year Distribution in current year out of income of the current year Retention by the estate of the income of 2008 NONE NONE HEIR ESTATE 2. L-9996. the subsequent distribution thereof is no longer taxable on the part of the recipient. GSIS SSS PHIC PCSO NOTE: PAGCOR is now subject to tax under R.” 2. RULES ON TAXABILITY OF ESTATE When a person who owns property dies. 24 and 25 (to cover the period beginning January to the time of death). 1985). May 25. Commissioner. L-78133. Its status is the same as the status of the decedent prior to his death. GR No. property or industry to improve the estate. October 29. No. or industry with intention to divide the profits between/among them.

either distribute or accumulate the income. Exceptions: a. MEMORY AID IN TAXATION LAW In the case of trust administered in a foreign country. at his discretion.32 Income Taxation c. which is to be distributed to the beneficiaries – filing and payment of tax lie on the beneficiaries. . payable in their separate and individual capacity. Income collected by a guardian of an infant which is to be held or distributed as the court may direct A trust in which the fiduciary may. an unregistered partnership is created and the estate becomes liable for the payment of corporate income tax. is liable for the payment of income tax. TAXABLE TRUST The taxable income shall be determined in the same way as that of individuals. 2. or industry to the estate with the intention of dividing the profits between/among themselves. Taxed exactly in the same way as estates under judicial settlement and its status as an individual is that of the trustor. There is a creditable withholding tax on the heir of 15%. In a trust where the income is held for the benefit of the grantor. In the case of a revocable trust.  A special deduction for any amount of the income applied fro the benefit of the grantor. It is entitled to the minimum personal exemption (P20. 3. either of the following situations may arise: 1. the income of the trust becomes income to the grantor. the income of the trust will be returned by the grantor. credited or distributed to the heirs.000 or more) and the tax paid by the executor or administrator. property. The exemption is 20. not the trust itself. The income of a trust. Income of the trust which is to be distributed currently by the fiduciary to the beneficiaries. but with  A special deduction for any amount of income paid. RULES ON TAXABILITY OF THE INCOME OF A TRUST 1. • REVOCABLE TRUSTS – the trustor. but with  a special deduction for any amount of income paid. If the heirs contribute money. simply divide the fruits thereof between/among themselves. WHEN TRUSTS ARE TAXABLE ENTITIES: 1. is subject to the payment of income tax on the trust income. property or industry to the estate.000 The income tax rates for individuals apply.000 The income tax rates for individuals apply. The income of the trust for the taxable year. held by one person for the benefit of another. whether real or personal. b.000 or more) and the tax paid by the executor or administrator. ESTATES NOT UNDER JUDICIAL SETTLEMENT Pending the extrajudicial settlement. TRUSTS TRUST – A right to the property. The income of the trust which is to be accumulated or held for future distribution whether consisting of ordinary income or gain from the sale of assets included in the "corpus" of the estate – filing of return and payment of tax become the burden of the trustee or fiduciary. SUMMARY OF TAX RULES TAXABLE ESTATE The taxable income shall be determined in the same way as that of individuals. the income of the trust. credited or distributed to the heirs.000) and distribution of trust income during the taxable year to the beneficiaries is deductible from the trust’s taxable income. through the trustee or fiduciary. 2. without contributing money. IRREVOCABLE TRUSTS (irrevocable both as to corpus and as to income) • • Trust itself. or If the heirs. 2. There is a creditable withholding tax on the heir of 15%. which is to be accumulated. SUMMARY INCOME IS… For the benefit of the grantor Retained by the trust Distributed to beneficiary TAXPAYER GRANTOR FIDUCIARY BENEFICIARY 4. The exemption is 20. undiminished by any amount distributed to the beneficiaries shall be taxed to the trustee. a co-ownership is created and income tax is imposed on the income received by each of the heirs. The income tax return shall be filed (if the gross income is P20. The income tax return shall be filed(if the gross income is P20.

3. by the partners in the same taxable year and shall be taxed to them in their individual capacity whether actually distributed or not [Sec. General Professional Partnerships (GPP) formed by persons for: a. therefore. [Sec. purposes other 33 2008 CENTRALIZED BAR OPERATIONS than the exclusive benefit of such employees (Sec. which each partner shall include in his individual return. engaged in petroleum. coal and other energy operation under a service contract with the government. and so legally contemplated as corporations. 60B. Court of Appeals. General Professional Partnership They are not subject to income tax. and That the trust instrument makes it impossible for any part of the trust corpus or income to be used for or diverted to. 1992). 22 (B). NIRC]. the employee’s trust must be part of a pension. the sole purpose of exercising a common profession and No part of the income of which is derived from engaging in any trade or business. 73(D). 3. undertaking construction projects. March 23. General co-partnerships (GCP) • They are partnerships. 2. 2. Partnership and Co-ownership KINDS OF PARTNERSHIP FOR TAX PURPOSES UNDER THE NIRC 1. like a regular corporation. profits distributed to them by the partnership are taxable as dividends. such contributions are made for the purpose of distributing to such employees both the earnings and principal of the fund accumulated by the trust. The net income (income for distribution) shall be computed in the same manner as a corporation. However. Court of Tax Appeals and GCL Retirement Plans.San Beda College of Law EXEMPTION OF EMPLOYEES’ TRUST Provided: 1. or both. NIRC]. shall be deemed to have been actually or constructively received • • LIABILITY OF A PARTNER: 1. stock bonus or profit sharing plan of the employer for the benefit of some or all of his employees. otherwise. Each partner shall report as gross income (business income) his distributed share actually or constructively received in the • . Filing and payment of quarterly return is within 60 days after the end of each quarter while the annual return is on or before April 15 of the following year. which are by law assimilated to be within the context of. LIABILITY OF A PARTNERSHIP: 1. All other partnerships no matter how created or organized. • 4. Share of a partner in general professional Partnership a. contributions are made to the trust by such employer. The partnership itself is subject to corporate taxation. after deducting the corporate income tax imposed therein. 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 (Commissioner vs. NIRC). Date of filing of the return is April 15 of each year. b. The taxable income for a taxable year. 2. Taxable OR Business Partnership: • • • • • The partnership shall act as the withholding agent. joint ventures are not taxable as corporations when: a. but are required to file returns of their income for the purpose of furnishing information as to the share of each partner in the net gain or profit. 95022. • Tax exemption is likewise to be enjoyed by the income of the pension trust. b. The individual partners are considered stockholders and. is also required to file a quarterly corporate income tax return. This kind of partnership. GR No. or such employees. Any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that it exceeds the amount contributed by such employee or distributee. Taxable or Business Partnership The income tax of this type of Partnership is computed and taxed like that of a corporation. It includes unregistered joint ventures and business partnerships.

Share of a partner in Taxable or Business partnership a. Payments made to a partner of a GPP for services rendered shall be considered as ordinary business income subject to Sec. In such a case. the co-owners have in effect constituted themselves into a partnership. Share of a partner in the loss of a taxable or business partnership maybe taken by the individual partner in his return of income. 6. d. Share of a partner in the loss of a general professional partnership may be taken by the individual partner in his return of income. Kinds of Income Taxes Under The NIRC Kinds of Income Taxes Under The NIRC SUMMARY: 1. 5. 3. b. 25 A2) Non-resident alien not engaged in trade or business – 25% (Sec. the co-ownership. as such. in the net income of the partnership. When two or more heirs inherit an undivided property from a decedent. When Co-ownership is subject to tax When the income of the co-ownership is invested by the co-owners in business. the co-ownership shall be subject to tax as a corporation. b. whether he. CO-OWNERSHIP There is co-ownership: a. When Co-ownership is not subject to tax a. 26. Improperly Accumulated Earnings Tax Preferential Rates or Special Rates of Income Tax Withholding Taxes . The co-owners are liable for income tax in their separate and individual capacities. 24(A). (Sec. report as gross income his distributed share in the net income of the GPP. A general professional partnership is not subject to income tax. Net Income Tax Gross Income Tax Capital Gains Tax Optional Corporate Income tax Minimum Corporate Income Tax 8. • Resident Citizen.] They are liable in their separate and individual capacity. When the co-ownership’s activities are limited merely to the preservation of the co-owned property. 2. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities. NIRC) [The same share shall be subject to creditable withholding tax of 10%. c. Share of a partner in the net income of a taxable or business partnership (dividend) shall be subject to a final tax as follows. In such a case. 4. Each partner in a general professional partnership shall. For purposes of computing the distributive share of the partners. Payments made to a partner of a business or taxable partnership for services rendered shall be considered as compensation income subject to Sec. the net income of the partnership shall be computed in the same manner as corporation.34 Income Taxation net income of the partnership. based on his agreed ratio. 2. 25B) • • b. Each partner shall report as gross income his distributive share. c. b. 2. MEMORY AID IN TAXATION LAW Partnerships are not subject to Improperly Accumulated Earnings Tax because the partners therein are taxed whether or not the income is distributed to them. 24A (Effective January 1. Non-resident Citizen and Resident Alien (2000 and onward) – 10% (Sec. 1982) Notes: 1. avails of itemized or optional standard deduction. 24B2) Non-resident Alien engaged in trade or business – 20% (Sec. is not subject to tax. actually or constructively received. 7. When a donor makes a gift of an undivided property in favor of two or more donees.

000 500. such interest income. or acceptance of debt instruments for the borrowers own account. non-resident alien engaged in trade or business from sources within the Philippines.000 500. RESIDENT ALIENS 1.000 250. INCOME SUBJECTED TO GRADUATED RATES On the taxable income.000 140. NON-RESIDENT CITIZEN. Non-Resident Citizen. yield or other monetary benefit is exempt from the final withholding tax.500 8.000 OF PLUS EXCESS OVER 10% 15% 20% 25% 30% 32% 10.000 Resident Citizen.000 30.000 10.refers to pertinent items of gross income specified in the NIRC. From any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements. a non-resident citizen including overseas contract workers from all sources within the Philippines c. 4.000 250.000 70.000 250. top marginal rate shall be 33% and effective January 1. resident citizen from all sources within and without the Philippines b. for the purpose of relending or purchasing of receivables and other obligations. or financing their own needs or the needs of their agent or dealer. • • PASSIVE INCOME APPLICABLE TO RESIDENT CITIZEN. Interest income a. 2.000 70. other than passive income and capital gains which are subject to final tax.000 30. Compensation income Business and professional income Capital gains not subject to final tax Passive income not subject to final tax Other income Graduated Tax Table . authorized to such types of income by the national internal revenue code or other special laws. if any.000 125. “deposit substitutes" shall mean an alternative form of obtaining funds . Tax Formula Gross Compensation Income Less: Personal Exemptions Premium Payments on Health and/ or Hospitalization Insurance (if qualified) NET COMPENSATION INCOME Add: Net Business Income or Net Professional Income Other income TAXABLE INCOME SUBJECT TO GRADUATED RATES Net Business Income and Net Professional Income Gross Business/Professional Income Less: Itemized deduction or optional standard deduction NET BUSINESS OR PROFESSIONAL INCOME Sources of Income subject to graduated rate 1. 1999. endorsement. a resident alien from all sources within the Philippines d.500 50.000 140.500 22.000 30. through the issuance.000 500. • Tax Rate: 20% EXCEPTION: if the depositor has an employee trust fund or accredited retirement plan. Resident Aliens The following are income subject to tax: • • • Income subject to Graduated Rates Passive Income Capital Gains Tax from the public [the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time] other than deposits.000 140. 2000 the rate shall be 32%. 3. INCOME OVER BUT LESS THAN TAX 5% 500 2. less deduction and/or personal and additional exemptions. 5.000 10. derived for each taxable year by: a.000 70.San Beda College of Law 35 2008 CENTRALIZED BAR OPERATIONS Taxation on Individuals Taxable Income .Effective January 1.

Income forming part of retained earnings as of December 31. • c. In case of doubt.Tax Rate: 20% Prizes exceeding 10. patents and franchises) . or a joint venture or consortium taxable as a corporation of which he is a member or co-venturer. . Winnings from horse races are subject to 10% tax. A game of chance is that which depends more on chance or hazard than on skill or ability.dividends received from a foreign corporation considered gross income from sources within the Philippines unless less than 50% of the gross income of such FC for the 3 year period ending with the close of its taxable year preceding the declaration of such dividends was derived from sources within the Philippines.000 or less (Prize exempt from final tax but subject to graduated tax rate) Prizes are results of efforts while winnings are products of chances and luck. 3.Tax Rate: 10% Other royalties (e. or an international or regional financing institution established by governments.are distributions 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. Royalties a. 1998 (effectivity of NIRC). as the case may be. 4.exempt See Section 42 (A) (2) NIRC.D. From books. 1998 be subject to this tax. 2000 Note: The tax on dividends shall apply on income earned on or after beginning January 1.36 Income Taxation • MEMORY AID IN TAXATION LAW Under P. 1998 8% beginning January 1. To be subject to final tax of 20%. For RC: 5-32% For NRC and RA: If considered sources within . 4. is a taxable income or deductible loss. b. a game is deemed to be one of a chance. • Tax Rate: 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% 2. even if declared or distributed on or after January 1. From a depository bank under the expanded foreign currency deposit system except non-resident individuals • Tax Rate: RC and RA – 7½% NRC and NRA-ETB – exempt If the loan is granted by a foreign government. common or individual trust funds. the interest income of the lender shall not be subject to the final withholding tax. the gain realized or loss sustained by the stockholders whether individual or corporate. Cash and/or Property Dividends Dividends .5%-32% If without . 1997 shall not. 27 on land reform. income and not in the actual pursuit and performance of primary purpose. 1999 10% beginning January 1. or on the share of an individual in the net income after tax of an association. the landowner is exempt from income tax on the interest on the price of the land which the tenant-purchaser pays him. Where a corporation distributes all of its assets in complete liquidation or dissolution. insurance or mutual fund companies and regional operating headquarters of multinational companies. b. (Section 126 NIRC) Winnings from jueteng and other illegal gambling are subject to 20% final tax. a joint account. From long-term deposit or investment in the form of savings. b. 2. literary works and musical compositions . the royalties must be in the nature of passive 3. From foreign corporations TAX RATE 6% beginning January 1. (Cor r elate Section 42 with Section 23) • • Notes: 1. or on the share of an individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is a partner.000 shall be subject to tax -Tax rate: 20% Exempt from/not subjected to final tax: Philippine charity sweepstakes and lotto winnings Prizes amounting to P10. Prizes and other winnings a. investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP). deposit substitutes. (Section 73(A) NIRC) SOURCE OF DIVIDEND from a domestic corporation or from a joint stock company.g.

1994). Under the NIRC. (CIR vs.refers the transfer of surplus to capital account. Note: If traded in the stock exchange . and continues in business as before. all transactions for the taxable year must be taken into account including the capital losses in arriving at the taxable gain. If the stocks are listed and traded in a local stock exchange. Said shares may be sold independently of the original shares. No L-1592 Sept. ARE PROCEEDS FROM REDEMPTION OF SHARES SUBJECT TO TAX? It depends on what source of dividend. which are listed may be traded in the local stock exchange. Moreover. dividends are already considered in determining the selling price of stocks. 1995). the proceeds of redemption is additional wealth . 2. Commissioner. If its source is the original capital subscription upon establishment of the corporation or from initial capital investment in an existing enterprise. the net capital gain from disposition of shares. Thus.San Beda College of Law Notes: 1. If from stock dividend declarations other than as initial capital investment. G.r e p u r c h a s e . This is to prevent Improperly Accumulated Earnings tax by declaring dividends but delaying the payment.000 10% for the amount in excess of P100. December 1. 2. They may be sold outside the local stock exchange. just as the offspring of a domestic animal may be sold independently of its mother.R. CAPITAL GAINS 1. it does not necessarily follow that listed shares may only be traded in the local stock exchange. 1949) Notes: 37 2008 CENTRALIZED BAR OPERATIONS 1. Tax Rate: 5% for the first P100. (Bachrach vs.112675. 20. They represent profits. . Jan. Therefore. distributes cash or property to the shareholder in payment for the stock.R. 2. 104151 March 10. no corporation may make or declare any dividend except from the surplus profits arising from its business. 4. the corporation gets back some of its stock.subject to stock transaction tax (percentage tax) 3.R. its redemption to the concurrent value of acquisition may not invite the application of final tax on dividends. it is still unrealized until disposed since it has been converted to capital. 4796. STOCK DIVIDEND . 25. Thus. What is controlling is whether or not the shares of stock are traded in the local stock exchange (Del Rosario vs. and the delivery of the certificate of stock covering said dividend is equivalent to payment of said profits. from sale of shares of stock Not listed or listed but not traded in the stock exchange. Court of Appeals G. reacquisition of stock by corporation which issued the stock is exchange for property whether or not the acquired stock in cancelled retired or held in the treasury. Tax on income is different from tax on the dividends therefore there is no double taxation (Afisco Insurance Corporation vs. such redemption is subject to capital gains tax. No. whether cash or stock. Even if a stock dividend is a profit. Seifert and Elianoff. CTA Case No. Any dividend therefore.not a income but a mere return of capital b. Essentially.a gain and therefore taxable. if the redemption of stock is not subject to final tax on dividends. Court of Appeals G. represents surplus profits. The previously accumulated profits not declared as dividends may be subjected to improperly accumulated earnings tax if accumulation was done to evade taxation. upon declaration. It is taxable whether actually or constructively received. While it is true that only those shares of stock. it is subject to stock transaction tax of ½ of 1% on its gross selling price. • • • shares of stock of a domestic corporation sold by a non-dealer in securities Tax Base: net capital gains (the higher of the gross selling price or consideration less cost or adjusted basis). 3. The law speaks of net capital gains for the taxable year. No. a. the gains derived therefrom are subject to capital gains. 1999) Under Section 16 of the Corporation Law. The reckoning point of the tax is the time of declaration and not the time of payment of dividends. it is already income on the part of the stockholder Dividends declared are considered to have been made from the recently accumulated profits. R e d e m p t i o n o f s h a r e s .000 Notes: 1.

38 Income Taxation 3. Gains from sale of shares of stock in a foreign corporation are NOT subject to the final tax but to graduated rates either as capital gain or ordinary income depending on the nature of the trade or business of the taxpayer. On August 30, 2005, BIR issued RMC No. 43-2005. Accordingly, sale of shares of stock through the stock exchange (1) where the sale is prearranged or (2) the buyer/s is predetermined or (3) where public is in effect excluded by any means from taking part in the trading is subject to capital gains tax (5% or 10%) and not to stock transaction tax (1/2 of 1%). It is submitted by complaining industries that this RMC lacks legal basis. This RMC was revoked with finality.

MEMORY AID IN TAXATION LAW

4.

B. By natural persons, citizens or aliens. However, under the Constitution, aliens are prohibited from acquiring real property located in the Philippines but if they own condominium units, they may avail of the exemption upon sale of such property; C. The proceeds of which is utilized in (a) acquiring or (b) constructing a new principal residence within eighteen (18) calendar months from date of sale or disposition; D. Notify the Commissioner within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail the tax exemption; E. Can be availed of only once every ten (10) years; F. The historical cost or adjusted basis of his old principal residence sold, exchanged or disposed shall be carried over to the cost basis of his new principal residence; and

Note: Recently, BIR again issued same contents in a recent RMC and DOF suspended the same and is still subject to the legality of BIR’s RMC taking into consideration the complaints of industries but BIR proposed that this tax concept will increase revenue for the government. 2. From sale of real property

G. If there is no full utilization, the portion of the gains presumed to have been realized shall be subject to capital gains tax. Notes: 1. If the buyer of real property classified as capital asset is the government or any of its political subdivisions or agencies, or to government owned or controlled corporations, the tax liability shall be subject either to the graduated rates (5-32%) or 6% final tax at the option of the taxpayer. In case of sale of real property which is subject to the right of redemption such as extrajudicial foreclosure sale of capital assets initiated by banks, finance and insurance companies, the final tax is due upon the expiration of the redemption period. In relation to definition of capital asset, the real property that is subject to capital gains tax is one which is not used in trade or business or not connected thereto. If the taxpayer constructed a new residence and then sold its old house, is this still exempted from capital gains tax? The law is clear that the proceeds should be used in acquiring and constructing a new principal residence. Therefore, the old residence should first be sold before acquiring or constructing the new residence and not vice-versa. (Dizon Tax reviewer)

• • • • • •

Classified as capital asset Located in the Philippines Not sold by a dealer in real estate Gain or loss is immaterial, there being a conclusive presumption of gain Tax Base: The higher between the gross selling price and current fair market value as determined by the Commissioner. Tax Rate: 6% of the tax base.

2.

EXCEPTION: Sale of the principal residence by an individual Principal Residence – refer to the dwelling house, including the land on which it is situated, where the husband or wife or an unmarried individual, whether or not qualified as head of the family, and members of his family reside. Actual occupancy of such principal residence shall not be considered interrupted or abandoned by reason of the individual’s temporary absence therefrom due to travel or studies or work abroad or such other similar circumstances. Such principal residence must be the dwelling house in which whenever absent, the said individual intends to return (RR No. 14-00; November 20, 2000). Requisites: A. Sale or disposition of the old actual principal residence;

3.

4.

San Beda College of Law
ALIENS MAY ACQUIRE REAL PROPERTIES IN THE PHILIPPINES under the following instances: a. An alien who is a legal or compulsory heir may acquire land through succession. Ascendants, spouse and children whether legitimate or illegitimate are legal heirs.

39 2008 CENTRALIZED BAR OPERATIONS b. Aliens may have acquired real properties before adoption of the 1935 constitution c. aliens may acquire condominium units subject to 60-40% limit d. Former natural born Filipino citizens may acquire real properties under BP. 185 and R.A. 8179.

Non-Resident Engaged in Trade or Business
1. Dividends -

• If from a foreign corporation - Tax rate
5-32% (Section 24, Section 25A1 NIRC) if sources within the Philippines.

• Tax Rate 20%
A. For cash or property dividends from Domestic Corporation, or from a joint stock company, or from an insurance or mutual fund company or from a regional operating headquarter of a mutual fund company or from a regional operating headquarter of multinational company B. For share of a non-resident alien individual in the distributable net income after tax of a partnership except general professional partnership, of which he is a partner. C. share of a non-resident alien individual in the net income after tax of an association, joint account, or joint venture taxable as corporation of which he is a member or co-venturer

See Section 42 (A) (2) NIRC- dividends received from a foreign corporation considered gross income from sources within the Philippines unless less than 50% of the gross income of such FC for the 3 year period ending with the close of its taxable year preceding the declaration of such dividends was derived from sources within the Philippines. 2. S u b j e c t t o f i n a l t a x o f 2 5 % - f o r cinematographic films and similar works. 3. Royalties, Prizes, other winnings, interest income, capital gains, and interest on long term deposit or investment in banks - see rules as to resident citizen, non-resident citizen, resident alien.

Non-Resident Alien Not Engaged in Trade or Business
A non-resident alien not engaged in trade or business is taxed at the rate of 25% of the gross income. No deductions are allowed. Capital gain rules are applicable to nonresident alien not engaged in trade or business. - see capital gains topic to resident citizen, non-resident citizen, resident alien. Subject to 5-10% capital gains tax on sale of stocks of domestic corporations not listed and traded in the local stock exchange. Subject to 6% final tax on the sale of real property in the Philippines All other income from within the Philippines is subject to a final tax of 25% on its gross amount.

Individuals Especially Employed
Special Individuals – Individuals whether Filipino or alien employed by: a. Regional or area headquarters and regional operating headquarters of multinational companies in the Philippines. Offshore banking units established in the Philippines Foreign Service contractor or sub-contractor engaged in petroleum operations in the Philippines. Multinational Company - a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets. Tax Rate: 15% Tax Base: Gross income received as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances. The same tax treatment shall apply to Filipinos employed and occupying the same positions as those of aliens employed by these multinational

b. c.

40 Income Taxation companies, offshore banking units and petroleum service contractors and subcontractors. For other sources within the Philippines, income shall be subject to pertinent income tax

MEMORY AID IN TAXATION LAW

(graduated tax rates, final tax on passive income, capital gains depending whether a citizen or an alien), as the case may be.

Allowable Deductions to Individuals
Allowable Deductions to Individuals
DEDUCTIONS 1. Business Expenses and Expenses from Practice of Profession – deductible only from gross business income and professional income, respectively but not from compensation income. The expenses to be deducted may either be itemized deductions OR the optional standard deduction. Special deduction for actual premium payments for health and/or hospitalization insurance taken by an individual taxpayer provided that the following requisites are met: a. The taxpayer’s family gross income does not exceed P250,000 in a taxable year. b. The amount deductible should only be limited to P2,400 per family or P200 per month. In case of a married taxpayer, this can only be claimed by the spouse claiming the additional exemption. c.

3.

2.

Personal Exemptions – are fixed at arbitrary amounts intended to substitute for personal and living expenses. They are roughly the equivalent of the taxpayer ’s minimum subsistence and those of his dependents (Madrigal vs. Rafferty, supra).

Kinds of Personal Exemptions
a. Personal Exemptions Single P20,000 – Single individual or married individual, judicially decreed legally separated without qualified independent children. Head of the Family P25,000 – Head of the family or married individual judicially decreed legally separated with qualified dependent children. Head of the Family is an unmarried or legally separated person with one or both parents, or one or more brothers or sisters, or one or more legitimate, recognized natural or legally adopted children living with and dependent upon the taxpayer for their chief support; and “Chief support” means more than one-half of the requirements for support. a. Where such brother/sister or children are not more than 21 years of age, unmarried and not gainfully employed, or where such dependents regardless of age, are incapable of self–support because of mental or physical defect. Parents, brothers, sisters and senior citizen living/dependent upon the taxpayer, whether relative or not, may b. qualify the taxpayer, to the personal exemption of P25,000 as head of the family but not to the additional exemption of P8,000. Married P32,000 – For each legally married individual. Additional Exemption for Dependents

• •

P8,000 – For each of the qualified dependent children not exceeding four (4) in number. The additional exemption refers only to qualified dependent children such as legitimate, recognized natural, illegitimate and legally adopted. The proper claimant of the additional exemption is the husband, being the head of the family except under the following cases: 1. 2. 3. Husband is unemployed; Husband is working abroad like an OFW or a seaman; or Husband explicitly waived his right of the exemption in favor of his wife in the withholding exemption certificate.

b.

San Beda College of Law

Parents and dependents qualify the taxpayer to the personal exemption of P25,000 as head of the family but not to the additional exemption of P8,000.

41 2008 CENTRALIZED BAR OPERATIONS b. Gross selling price and sales discount must be separately indicated in the official receipt or sales invoice issued by the establishment for the sale of goods or services to the senior citizen Only the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income, net of value added tax, if applicable, for income tax purposes, and from gross sales or gross receipts of the business enterprise concerned, for VAT or other percentage tax purposes. The discount can only be allowed as deduction from gross income for same taxable year that the discount is granted The business establishment giving the sales discounts qualified senior citizen Only selected establishments mentioned in R.R. No. 4-2006 may claim the said discount granted as deduction from gross income Employment shall have to continue for a period of at least 6 months Annual taxable income of the senior citizen does not exceed the poverty level as may be determined by the NEDA thru the NSCB. Senior Citizen to submit sworn certification that his annual taxable income does not exceed poverty level. In addition, expenses otherwise deductible may be allowed as a deduction only if the tax required to be deducted and withheld therefrom has been paid to the BIR.

N OTE : NRAETB may deduct personal exemption (not additional exemption), but only to the extent allowed by his country to Filipinos not residing therein, and shall not e x c e e d the aforementioned am ounts (reciprocity rule). NRANETB cannot claim any personal or additional exemptions. RECIPROCITY RULE Requisites: a. b. The country of which he is a subject or citizen has an income tax law; and The income tax law of his country allows personal exemptions to citizens of the Philippines not residing therein, but deriving income therefrom; The personal exemption shall be equal to that allowed by the income tax law of his country to a citizen of the Philippines not residing therein but deriving income therefrom, or the amount provided in the National Internal Revenue Code to citizens of the Philippines, whichever is lower.

c.

d.

e.

c.

f.

Requisites: a. b.

A SENIOR CITIZEN is: a. b. any resident citizen of the Philippines at least sixty 60 years old, including those who have retired from both government offices and private enterprises, and Has an income of not more than Sixty thousand pesos (P60,000) per annum subject to the review of the National Economic Development Authority (NEDA) every three years.

c.

c.

SENIOR CITIZEN’S DISCOUNT (R.A. 9257) R.A. 9257 (Expanded Senior’s Act) in February 2004, which specifically provides that the 20% discount shall be allowed only as a deduction from gross income of the establishment for the taxable year the discount is granted. 1.

DOCTRINES The term “cost” in Section 4(A) of RA 7432 refers to the amount of the 20% discount extended by private establishments to senior citizens in their purchase of medicines. [Bicolandia Drug Corporation (Formerly Elmas Drug Corp. vs. CIR, 492 SCRA 159] There is a difference between the treatment of the 20% discount; it is considered as tax credit under the Old Senior Citizen’s Act and Tax Deduction under the Expanded Senior Citizen’s Act. (Carlos Superdrug Corp vs. DSWD, DOF, and DOJ G.R. No. 166494 June 29, 2007)

• •

Tax deduction based on the net cost of the goods sold or services rendered (Section 4 of R.A. 9257) Availment of establishments of sales discounts as deduction from gross income: a. Only portion of gross sales exclusively used, consumed or enjoyed by the senior citizen shall be eligible for the deductible sales discounts.

2.

sales discount granted. 2005 provides for the following conditions before establishments may deduct the said sales discounts from their gross income: (1) Only that portion of the gross sales EXCLUSIVELY USED. for VAT or other percentage tax purposes. That the total amount of the claimed tax deduction net of VAT if applicable. (b) Restaurants. (f) Medical and dental services in private facilities. (2) The gross selling price and the sales discount MUST BE SEPARATELY INDICATED IN THE OFFICIAL RECEIPT OR SALES INVOICE issued by the establishment for the sale of goods or services to the senior citizen. cinema houses and concert halls. his estate may claim the corresponding exemptions as if he died at the close of such year. 04-06 dated December 12. leisure. (d) Theaters. circuses. shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the Tax Code. RA 9257 (Expanded Senior Citizens Act of 2003). gross sales/receipts. (h) Public land transportation utilities. (4) The discount can only be allowed as deduction from gross income for the same taxable year that the discount is granted. 4. hospital pharmacies. medical and optical clinics and similar establishments dispensing medicines. which shall include the name of the senior citizen. (5) The business establishment giving sales discounts to qualified senior citizens is required to keep separate and accurate record of sales. . (3) Only the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income. if applicable. If the taxpayer should marry or should have additional dependents during the t a x a b l e y e a r. and from gross sales or gross receipts of the business enterprise concerned. If the taxpayer should die during the taxable year. If the spouse or any dependent should die or any dependent should marry or become twenty-one years old during the year. and amusement. the status of the taxpayer at the end of the year shall determine his exemptions (strictly construed against the taxpayer). OSCA ID. net of value added tax.000 25 years old child became incapacitated – cannot claim additional exemption 2. the taxpayer may claim the exemptions as if the spouse or dependent died or as if such dependent married. Provided. and (i) F u n e r a l p a r l o r s a n d s i m i l a r establishments. dates of transactions and invoice number for every sale transaction to senior citizen. For any other event and for which there are no specific rules applicable from the above-mentioned.42 Income Taxation NOTE: Under Section 4 of the new law. c. further. TIN (removed by BIR Revenue Regulations No. or should become gainfully employed. h e m a y c l a i m t h e corresponding exemptions in FULL for such year. 01-07 dated December 4. (6) Only the following business establishments which granted sales discount to senior citizens on their sale of goods and/or services may claim the MEMORY AID IN TAXATION LAW said discount granted as deduction from gross income. Revenue Regulations No. (e) Drug stores. (c) Recreation centers. the 20% sales discount granted to senior citizens may be claimed as a TAX DEDUCTION based on the net cost of the goods sold or services rendered: Provided. Change of Status 1. namely: (a) H o t e l s a n d s i m i l a r l o d g i n g establishments. became twenty one years old or became gainfully employed at the close of such year. That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. CONSUMED OR ENJOYED BY THE SENIOR CITIZEN shall be eligible for the deductible sales discount. for income tax purposes. 2006). 3. Examples: • • became legally separated – can only claim P 20. (g) Domestic air and sea transportation companies. carnivals and other similar places of culture.

and Joint venture or consortium for engaging in petroleum. .400 per family or P200 per month during the taxable year. 9337 amended the income tax rate of corporations from 32% to 35% effective July 1.A.San Beda College of Law 43 2008 CENTRALIZED BAR OPERATIONS Premium Payments on Health and/or Hospitalization Insurance Amount of premium on health and/or hospitalization paid by an individual taxpayer (head of family or married). In case of married individual. 2. 2005 but will be reduced to 30% on January 1.000 for the taxable year. The amount of premium deductible from gross income does not exceed P2. 4. That said family has a gross income of not more than P250. 3. Who May Avail Of The Deduction? 1. 4. Partnerships. no matter how created or organized. Individual taxpayers earning purely compensation income during the year. Insurance must have actually been taken. General professional partnerships. 6. 22 (B). 2. 4. as amended Tax Base: Net Taxable Income NET INCOME TAX FORMULA: Gross Sales Less: Sales Returns Sales Allowances Sales Discounts NET SALES Less: Cost of Goods Sold GROSS INCOME FROM SALES Add: Incidental income/ Other Income NORMAL TAX GROSS INCOME Less: Allowable deductions NET TAXABLE INCOME x Applicable tax rate INCOME TAX PAYABLE R. Domestic Corporation Classes of taxes imposed on a domestic Corporation 1. Corporations Corporations A CORPORATION INCLUDES: 1. 5. 2. 1. 2. coal. 2009. A CORPORATION EXCLUDES: 1. only the spouse claiming additional exemption shall be entitled to this deduction. Joint venture or consortium formed for the purpose of undertaking construction projects. 3. or Insurance companies [Sec. 2. 5. Joint-stock companies. 3. NIRC]. Normal Tax Capital Gains Tax Final Tax Minimum Corporate Income Tax Gross Income Tax Improperly Accumulated Earnings Tax Net Income Tax Formula (Normal Tax) Tax Rates: 35%. Requisites for Deductibility: 1. for himself and members of his family during the taxable year. 3. geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Philippine Government. Joint accounts (cuentas en participacion) Associations. Individual taxpayer earning business income or in practice of his profession whether availing of itemized or optional standard deductions during the year.

Gross income . except income exempt from income tax and income subject to final withholding tax described (RR. Capital Gains Tax Same rules as those imposed on individuals Final Tax Same rules as those imposed on individuals Minimum Corporate Income Tax MINIMUM CORPORATE INCOME TAX [Section 27 (E)] MCIT is imposed on domestic and resident foreign corporations: a) Whenever such corporation has zero or negative taxable income.If apart from deriving income from these core business activities there are other items of gross income realized or earned by the taxpayer during the taxable period which are subject to the normal corporate income tax.44 Income Taxation 2. . the same items must be included as part of the taxpayer’s gross income for computing MCIT. as amended. No. This means that the term “gross income” will also include all items of gross income enumerated under Section 32(A) of the Tax Code. The MCIT shall apply only to domestic and resident foreign corporations subject to the normal corporate income tax (income tax rates under Sec 27[A] of the CTRP). or b) Whenever the amount of MCIT is greater than the normal income tax due from such corporation determined under Section 27[A]. The taxable year in which business operations commenced shall be the year when the corporation registers with the BIR not when the corporation started commercial operation. Tax Rate: 2% Tax Base: Gross income except income exempt from income tax and income subject to final withholding tax LIMITATIONS: 1. 12-2007). 4. Cost of Goods Sold – shall include all business expenses directly incurred to produce the merchandise to bring them to their present location. 3. In 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. the MCIT shall apply on operations covered by the regular corporate income tax system. MEMORY AID IN TAXATION LAW FORMULA FOR QUARTERLY INCOME TAX DUE (as amended) NORMAL TAX HIGHER Normal Income tax MCIT HIGHER Minimum Corporate Income tax Less: Quarterly MCIT Less: Quarterly payments of MCIT the current payments of taxable year the current taxable year Quarterly Income tax payments of the current Taxable year Expanded Withholding taxes in the current year Expanded Withholding taxes in the prior year Excess in the MCIT in the prior year/s (subject to the prescriptive period allowed for its creditability) QUARTERLY INCOME TAX DUE • QUARTERLY INCOME TAX DUE Quarterly Income tax payments of the current Taxable year Expanded Withholding taxes in the current year Expanded Withholding taxes in the prior year 2. • In computing for the MCIT due from a resident foreign corporation. only the gross income from sources within the Philippines shall be considered for such purpose MCIT FORMULA: Gross Sales Less: Sales Returns Sales Allowances Sales Discounts NET SALES Less: Cost of Goods Sold MCIT GROSS INCOME x 2% MCIT PAYABLE When does MCIT commence? MCIT is imposed upon any domestic corporation beginning the fourth taxable year in which such corporation commenced its business operations.

2. AMENDMENTS TO MCIT (RR No. Resident foreign corporations engaged in business of international carrier. The excess can be credited against the normal income tax due in the next 3 immediately succeeding taxable years. . 6.San Beda College of Law How much tax is payable by a corporation on its fourth taxable year? The higher between the normal tax and the minimum corporate income tax. the normal tax should be higher than the MCIT. Bases Conversion Act and firms enjoying income tax holiday incentives. It shall be covered by a tax return designed for the purpose which will be 4. as amended. 4. 5. • “Substantial losses from a prolonged labor dispute" means losses arising from a strike staged by the employees which lasted for more than six (6) months within a taxable period and which has caused the temporary shutdown of business operations. 45 2008 CENTRALIZED BAR OPERATIONS Domestic corporations engaged in hospital operations which are non-profit. Resident foreign corporations engaged in business as regional operating headquarters. This means that the term “gross income” will also include all items of gross income enumerated under Section 32(A) of the Tax Code. 3. flood and the like. b. as amended. or for other economic reasons as determined by the Secretary of Finance. In the year to which the excess is carried forward. prolonged labor dispute. 3. • • ENTITIES EXEMPT FROM MCIT: 1. and Firms that are under special income tax rate system such as PEZA law. earthquake. MEANING OF “GROSS INCOME” EXPANDED If apart from deriving income from these core business activities there are other items of gross income realized or earned by the taxpayer during the taxable period which are subject to the normal corporate income tax. Domestic corporations engaged in business as depository banks under the expanded foreign currency deposit system. RELIEF FROM MCIT: The Secretary of Finance is authorized to suspend the imposition of the MCIT upon submission of proof by the applicant – corporation that the corporation sustained substantial losses on account of the following (Memorandum No. “ Legitimate business reverses " shall include substantial losses sustained due to fire. 2. Any amount of the excess MCIT which cannot be credited against the normal income tax due in the next 3-year period shall be forfeited. shall likewise apply at the time of filing the quarterly corporate income tax as prescribed under Section 75 and Section 77 of the Tax Code. or embezzlement. Any excess of MCIT over the normal income tax can be carried forward on an annual and quarterly basis. force majeure. Domestic corporations engaged in proprietary educational institutions. This term shall also include armed conflicts like war and insurgency. “Force majeure" means a cause due to an irresistible force as by "Act of God" like lightning. storm. 5. The maximum amount that can be deducted is the amount of the normal tax for the year in which the excess MCIT is claimed as credit. the same items must be included as part of the taxpayer’s gross income for computing MCIT. robbery. or legitimate business reverses. CARRY FORWARD OF THE EXCESS MINIMUM TAX: 1. c. 6-2002): a. 12-2007) MCIT APPLIES TO QUARTERLY INCOME TAX RETURNS The computation and the payment of MCIT. except income exempt from income tax and income subject to final withholding tax described MANNER OF FILING AND PAYMENT The minimum corporate income tax (MCIT) shall be paid in the same manner prescribed for the payment of the normal corporate income tax which is on a quarterly and on a yearly basis. The final comparison between the normal income tax payable by the corporation and the MCIT shall be made at the end of the taxable year and the payable or excess payment in the Annual Income Tax Return shall be computed taking into consideration corporate income tax payment made at the time of filing of quarterly corporate income tax returns whether this be MCIT or normal income tax. Resident foreign corporations engaged in business as offshore banking units. theft. 7.

Coverage: 1. 5. as amended. Publicly–held corporations (Sec. Option to Acquire Stocks Each one of a series of option shall be considered option to acquire such stock.GIFT) 1. a tax is being imposed: Corporations exempted from the coverage (B. . by or for his family. • MEMORY AID IN TAXATION LAW to pay dividends tax on the earnings distributed to them by the corporation. imposed on improperly accumulated taxable income earned starting January 1. as a form of deterrent to the avoidance of tax upon shareholders who are supposed 5. estate or trust shall be considered as owned proportionately by its shareholders. 2000 Tax Base: Gross Income Available only to firms whose ratio of cost of sales to gross sales or receipts from all sources does not exceed fifty-five percent (55%). IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) RR NO. or by or for his partner For this purpose. a. they would incur no tax in respect to the undistributed earnings and profits of the corporation. ancestors. partners or beneficiaries Family and partnership ownership An individual shall be deemed to own the stock directly or indirectly. 29) Banks and other non-banks financial intermediaries (Sec. Shall be irrevocable for three (3) consecutive years during which the corporation is qualified under the scheme. pursuant to the provisions of Sec. the family of an individual includes his brothers or sisters whether of the whole or half blood. 3. Rules for determining whether a corporation is closely held in stock ownership basis: 1. Stock ownership by individuals: Stock owned directly or indirectly by or for a corporation. Insurance companies (Sec.PEN. Taxable partnerships [deemed to have actually or constructively received the taxable income under Sec. 4. G eneral professional partnerships (exempt. and lineal descendants. 77 of the Code in relation to Section 245 of the same Code. spouse. Domestic corporations not falling under the aforesaid definition are. the shareholders would then be liable to income tax thereon. taxable against the partners).46 Income Taxation submitted together with the corporation's annual final adjustment income tax return. Those corporations at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (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 twenty (20) individuals. 29). 1998 Domestic corporations as defined under the Tax Code. and b. • 2. 3. 73(D)]. 4. Corporations which are classified as closely-held corporations. 2. whereas if the distribution were not made to them. 75 and Sec. Constructive ownership as actual ownership.9% 2. partnership. Thus. in the nature of a penalty t o the corporation for the improper accumulation of its earnings. Domestic corporations shall be required to pay the minimum corporate income tax on a quarterly basis. Rationale behind IAET: If the earnings and profits were distributed. therefore. Tax Rate: 10% Tax Base: Improperly Accumulated Taxable Income (in addition to other taxes). 3. publicly-held corporations. 29). 2-2001 DEFINITION: “Improperly accumulated earnings (IAE)” are the profits of a corporation that are permitted to accumulate instead of being distributed by a corporation to its shareholders for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of another corporation. GROSS INCOME TAX Tax Rate : 15% optional rate beginning January 1. Authorized by the President upon recommendation by the Secretary of Finance (Note: The President has not given any authority yet) Conditions precedent to grant of President’s authority: a) b) c) d) Tax effort ratio of 20% of GNP Income tax collection/total revenues is equal to 40% VAT tax effort of 4% of GNP Consolidated public sector financial position/GNP is equal to 0.

f. and Reasonably anticipated needs An immediate need for the accumulation of the earnings and profits. 1. c.The reasonable needs of the business are the: a. by the clear preponderance of evidence. investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business. (PLACES) a. c. and Accumulation of earnings in excess of 100% of paid–up capital. not otherwise intended for the reasonable needs of business. investment in bonds and other long-term contracts. Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the corporation as of Balance Sheet date. inclusive of accumulations taken from other years. b. Proof Required: IAET FORMULA Taxable Income for the current year Add: Income exempt from tax Income excluded from gross income Income subject to final tax Amount of net operating loss carry- . plants or equipment acquisition as approved by the Board of Directors or equivalent body.A. Investment in bonds and other longterm securities. 02-2001] The fact that any corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members. which are merely the product of afterthought. Non. 47 2008 CENTRALIZED BAR OPERATIONS The following constitutes “reasonable needs of the business”. Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is legal prohibition against its distribution. The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the tax upon its shareholders or members unless the corporation.taxable joint ventures. c. 7. A speculative and indefinite purpose will not suffice. a. Reserved for building. all undistributed earnings intended or reserved for investments within the Philippines as can be proven by corporate records and/or relevant documentary evidence. 7916. Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business. not subsequently declared intentions. and Foreign corporations [RR No. 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. e. 8. Definiteness of plan/s coupled with action/s taken towards its consummation is essential. and enterprises registered pursuant to the Bases Conversion and Development Act of 1992 under R. shall prove the contrary. In the case of subsidiaries of foreign corporations in the Philippines. Evidence of purpose to avoid income tax: d. IMMEDIACY TEST . b. national or local.San Beda College of Law 6. b. or A direct correlation of anticipated needs to such accumulation of profits. 2. The accumulated or undistributed earnings shall not be subject to IAET if it is necessary to meet the reasonable needs of the business. b. PRIMA FACIE INSTANCES of “beyond reasonable needs of a business” a. Reasonable Needs of the Business The controlling intention of the taxpayer is that which is manifested at the time of accumulation. Instances indicative of purpose to avoid income tax upon shareholders (UBE) a. not otherwise intended for the reasonable needs of the business as defined in these Regulations. Accumulation of earnings in excess of 100% of paid-up capital. Reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement.A. b. Earnings reserved for definite corporate e xpansion projects or programs as approved by the Board of Directors or equivalent body. 7227. Immediate needs of the business. E nterprises duly registered with the Philippine Economic Zone Authority (PEZA) under R.

No. or activity. when declared as dividends.if from sources within subject to 35% tax If from sources outside . d. INTERCORPORATE DIVIDENDS • • Dividends received from a domestic corporation – exempt Dividends received from a foreign corporation .R.dividends received from a foreign corporation considered gross income from sources within the Philippines unless less than 50% of the gross income of such FC for the 3 year period ending with the close of its taxable year preceding the declaration of such dividends was derived from sources within the Philippines but only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. such as the appointment of a local agent. 6. shall be subject to tax on dividends except in those MEMORY AID IN TAXATION LAW instances where the recipient is not subject thereto. (Correlate Section 42 with Section 23 NIRC) 1. and not one of a temporary character (CIR vs. c. 1987. 3. b. b. e. Branch Profit Remittance Tax Any profit remitted by a branch to its head office Tax Rate: 15% . d. EXCEPTIONS: a. there must be continuity of conduct and intention to establish a continuous business.exempt Section 42 (A)(2) NIRC. Capital Gains Tax – Same rules on domestic corporations Final Tax on Passive Income – Same rules on domestic corporations.48 Income Taxation over (NOLCO) deducted TOTAL Less: Income tax paid/payable for the taxable year Dividends actually or constructively paid Amount reserved fro the reasonable needs of the business IMPROPERLY ACCUMULATED TAXABLE INCOME x IAET RATE (10%) I M P R O P E R LY A C C U M U L AT E D EARNINGS TAX (IAET) Limitation The profit that has been subjected to IAET shall no longer be subjected to IAET in later years even if not declared as dividend. However. 1. Tax Rate: 35% Tax Base: Net Taxable income In order that a foreign corporation may be regarded as doing business within a S t a t e . 2. agencies. f. c. L-65773-74 April 30. British Overseas Airways Corporation. 3. profits which have been subjected to IAET. or instrumentalities owned or controlled by the GOVERNMENT are capitalize and shall pay such rate of tax upon their taxable income as are imposed on domestic corporations engaged in a similar business.) 2. Government Owned and Controlled Corporations GENERAL RULE: All corporations. industry. Normal Tax Capital Gains Tax Final Tax on Passive Income Minimum Corporate Income Tax Gross Income Tax Branch Profit Remittance Tax Normal Tax Same rules with domestic corporations but the income taxable must be from within the Philippines. Minimum Corporate Income Tax Same rules on domestic corporations Gross Income Tax A resident foreign corporation is granted the privilege to opt to be taxed at 15% on gross income under the same conditions as domestic corporations. G. Government Service Insurance System (GSIS) Social Security System (SSS) Philippine Health Insurance Corporation (PHIC) Philippine Charity Sweepstakes Office (PCSO) Resident Corporations Classes of Taxes imposed upon a resident corporation a.

such as 1. 3. Commissioner. b. and organizing. annuities. March 11. a subsidiary domestic corporation where at least a majority of all the latter’s shares of stock are owned by such foreign corporations. CTA Case No.” The income from sources within the Philippines of the foreign head office shall thus be taxable to the Philippine branch. Capital Gains Tax Final Tax on Passive Income Final Tax on (other) Gross Income from sources within the Philippines Capital Gains Tax allows a tax credit for taxes “deemed paid” in the Philippines equivalent to 20% or does not impose tax on dividends.T. 1994). 49 2008 CENTRALIZED BAR OPERATIONS SINGLE ENTITY CONCEPT It is stated as a general rule. profits. and S. It is the amount of tax forgone by the Philippine government in favor of the non-resident corporation. The non-resident foreign corporation cannot own real properties in the Philippines. Income treated as branch profit Interests. 20% represents the difference between the regular income tax of 35% on corporations and the 15% tax on dividends. local branch offices. 2. wages premiums. Court of Appeals et.San Beda College of Law Tax Base: Total profit applied or earmarked for remittance without any deduction for the tax component thereof. No.R. • Same rules on resident foreign corporation. including remuneration for technical services.. vs. INTERCORPORATE DIVIDENDS (cash and/ or property) Received from a domestic corporation 15%. 6071. 2002]. Final Tax on Passive Income • • Interest on foreign loans – 20% on or after August 1. TAX SPARING CREDIT A credit granted by the residence country for foreign taxes that for some reason was not actually paid to the source country but that would have been paid under the country’s normal tax rules. 177 SCRA 500). THIS IS THE TAX SPARING RULE If the country within which the NRFC is domiciled does NOT allow a tax credit. rents. which is the reason why there is no provision for capital gains tax on sale or disposition of real properties. royalties. emoluments or other fixed or determinable annual. the 15% branch profit remittance tax is imposed on the profit actually remitted by the Philippine branch to its head office (Bank of America N. periodic or casual gains. al. the taxpayer with respect to the tax on dividend income would be the non-resident foreign corporation itself and the dividend income shall be subject to the tax similarly imposed on non-resident foreign corporation (Marubeni Corporation vs. EXCEPTION : those activities which are registered with the Philippine Economic Zone Authority (PEZA). income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines. c.A. Commissioner. a final withholding tax at the rate of 35% is imposed on the dividends received from a domestic corporation. that the head office of a foreign corporation is the same juridical entity as its branch in the Philippines following the “single entity concept. as long as the country in which the nonresident foreign corporation is domiciled . on one hand. on the other hand. Final Tax on (other) Gross Income from sources within the Philippines Tax Rate: 35% Tax Base: gross income received from all sources within the Philippines. Non-Resident Corporations Classes of taxes imposed on a non-resident corporation a. FORM: Applies whether remitted actually or constructively [ING Bank (Manila Branch) vs. For the purpose of encouraging foreign investors to conduct business in the country. 1986 Any interest income from transactions with depositary banks under FCDs shall be exempt from income tax. G. salaries. Rationale To equalize the tax burden on foreign corporations maintaining. dividends. But when the head office of a foreign corporation independently and directly invested in a domestic corporation without the funds passing through the Philippine branch. 103106 July 21.

. Nonresidents Offshore banking units in the Philippines Local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units Other depository banks under the expanded foreign currency deposit system. b. – refers to a foreign airline corporation doing business in the Philippines having been granted landing rights in any Philippine port to perform international air transportation services/activities or flight operations anywhere in the world.A. profits and income. business or other activity. or t h e Te c h n i c a l E d u c a t i o n a n d S k i l l s Development Authority (TESDA). c. 2 R. "Proprietary educational institution" is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education. Offline carrier refers to an international air carrier having no flight operations to and from the Philippines (Sec. and capital gains MEMORY AID IN TAXATION LAW EXCEPT capital gains resulting from the sale of shares of stock of a domestic corporation not listed and traded through a local stock exchange.5% Tax Base: Gross Philippine Billings International Air Carrier. excess baggage. periodic or casual gains. 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. 2. rents. except net income from such transactions as may be specified by the Secretary of Finance. Special Resident Corporations 1. If the gross income from unrelated trade. gross revenue derived from carriage of persons. Depository Banks (Foreign Currency Deposit Units) [Sec. as the case may be. or the Commission on Higher Education (CHED). Proprietary Educational Institutions and Non-profit Hospitals. emoluments or other fixed or determinable annual. dividends. Special Corporations 1. d. cargo and mail originating from the Philippines in a continuous and uninterrupted flight. business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources. “ Unrelated trade. irrespective of the place of sale or issue and the place of payment of the ticket or passage document gross revenue from tickets revalidated. 27 (D) (3) as amended by R. 9294 (2004)] Tax Rate: Exempt from all taxes. the tax of 35% shall be imposed on the entire taxable income. royalties. Tax coverage: ONLY income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with: a. upon recommendation by the Monetary Board to be subject to the regular income tax payable by banks. held as a capital asset.50 Income Taxation interests.R. premiums (except reinsurance premiums). Tax Rate: 10% Tax Base: on net income except on income subject to capital gains tax and passive income subject to final tax within and without the Philippines. No. in accordance with existing laws and regulations. annuities. Culture and Sports (DECS). International Carriers Tax Rate: 2. salaries. 15-2002) "Gross Philippine Billings" refers to the amount of: 1. business or other activity”' means any trade. 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 2. EXCEPTION: Interest income from foreign currency loans granted by such depository banks under said expanded system to residents other than offshore units in the Philippines or other depository banks under the expanded system shall be subject to a final tax at the rate of 10%.

b. except net income from such transactions as may be specified by the Secretary of Finance. shall be subject only to a final tax at the rate of 10%. 28 (D)(7)(b) as amended by RA 9294 (2004)] Tax Rate: Exempt from all taxes. except net income from such transactions as may be specified by the Secretary of Finance. International Shipping – “Gross Philippine Billings" means Gross revenue whether for passenger. That for a flight which originates from the Philippines. 28 (A) (4) as amended by RA 9294 (2004)] Tax Rate: Exempt from all taxes. The absence of flight operations within the Philippine territory cannot alter the fact that the income received was derived from activities within the Philippines. cargo or mail originating from the Philippines up to final destination. EXCEPTION: Interest income derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks. including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units. but transshipment of passenger takes place at any port outside the Philippines on another airline. branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not ear or derive income in the Philippines. 2. upon . Tax Rate: 10% Tax Base: Taxable income from within the Philippines ROHQ may engage in the following activities: a. upon recommendation of the Monetary Board to be subject to the regular income tax payable by banks. fees. subsidiaries or branches in the Philippines. • • • Nonresidents Offshore banking units in the Philippines Local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with foreign currency deposit system units Other depository banks under the expanded foreign currency deposit system • Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies Exempt from all kinds of local taxes. Tax Coverage: ONLY income derived by offshore banking units from foreign currency transactions with: 1. d. Offshore Banking Units authorized by the Bangko Sentral ng Pilipinas (BSP) [Sec. 51 2008 CENTRALIZED BAR OPERATIONS recommendation of the Monetary Board to be subject to the regular income tax payable by banks. c. CIR CTA Case No.San Beda College of Law 3. The test of taxability is the source. Not subject to income tax Regional Operating Headquarters (ROHQ) Foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates. in the AsiaPacific Region and in other foreign markets. general administration and planning business planning and coordination sourcing and procurement of raw materials and components 3. regardless of the place of sale or payments of the passage or freight documents. Nonresidents Other offshore banking units Local commercial banks including branches of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore banking units 4. communications and coordination center for its subsidiaries. and the source is that activity which produced the income (Air Canada vs. 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 (RHQ) An office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally serves as a supervision. EXCEPTION: Interest income from foreign currency loans granted by such depository banks under said expanded system to residents other than offshore units in the Philippines or other depository banks under the expanded system shall be subject to a final tax at the rate of 10%. 3. or charges imposed by a local government unit except real property tax on land improvements and equipment. 2. 6572). Resident Depository Bank (Foreign Currency Deposit Units) [Sec. Tax Coverage: ONLY income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with: 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.

or like organization of a purely local character. chamber of commerce. MEMORY AID IN TAXATION LAW development technical support and maintenance data processing and communications. 6. corporate finance advisory services marketing control and sales promotion training and personnel management logistic services research and development services and product j. or a mutual aid association or a non-stock corporation organized by employees providing for the payment for life. agricultural or horticultural organization not organized principally for profit. Business league. h. sickness. no part of its net income or asset shall belong to or inure to the benefit of any member. 4. Machineries and Other Equipment Tax Rate: 7. real or personal. 124043. A beneficiary society. organizer. 9. officer or any specific person. regardless of how that income is used – whether for profit or for lofty nonprofit purposes [CIR vs. f. order or association. 2. business development. Non-stock corporations or association organized and operated exclusively for religious. EXCEPTION: Exempt corporations are subject to income tax on their income from any of their properties. Oct. scientific. lease or charter fees from leases or charters to Filipino citizens or corporations. mutual ditch or irrigation company. charitable. 3. 8. Mutual savings bank not having a capital stock represented by shares and cooperative bank without capital stock organized and operated for mutual purposes and without profit. regardless of the disposition made of such income. athletic or cultural purposes. 14. order or association. Government educational institution. This makes income from the property of the organization taxable. and 11. The phrase” any of their activities conducted for profit” does not qualify the word “properties”. Cemetery company owned and operated exclusively for the benefit of its members. Farmers. k. fruit growers 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. Non-resident cinematographic film owners. or board of trade. not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual. 5. 7. . lessors or distributors Tax Rate: 25% Tax Base: Gross income from all sources within the Philippines 2. less the necessary selling expenses on the basis of the quantity of produce finished by them. 30 NIRC) 1. Labor. the income of which consists solely of assessments. l. i. accident. or from any of their activities conducted for profit. Court of Appeals.5% Tax Base: Gross rentals or fees Exempt Corporations (Sec. 1998]. Tax Base: Gross rentals. as approved by the Maritime Authority Nonresident Owner or Lessor of Aircraft. A non-stock and non-profit educational institution. 10. Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals Tax Rate: 4. mutual or cooperative telephone company. Farmers or other mutual typhoon or fire insurance company. dues or fees collected from members for the sole purpose of meeting its expenses.R.52 Income Taxation e. and m. g. operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system. Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare. G. Special Non-Resident Foreign Corporations 1. or non-stock corporation or their dependents.5% 3. No. or for the rehabilitation of veterans. or other benefits exclusively to the members of such society.

including but not limited to the following (Sec. For money in case of sale. provided that there is employee relationship between clients. in which case the gain or loss will be determined by comparing the sale price with the cost or other basis of assets. b. payment was made for such services. Royalties. which results in gain because of the difference between the taxpayer’s investments of what he disposed of and the amount or value of what he received. Gains from Profession. Requisites: 1. or Business – “business” is any activity that entails time and effort of an individual or group of individuals for purposes of livelihood or profit. or c. but the burden of proof is on the taxpayer to establish the cost or fair market value of the goodwill sold (Sec. Prizes and winnings. h. d. j. Items of Inclusions (Sec. g. Rev. personal services were actually rendered. For property in case of exchange. From a combination of both sale and exchange. mining. manufacturing. and Allowances and Cost of Goods Sold. Reg. to which the goodwill attaches is sold. which means Gross Sales less Sales Returns. and farming operations. Dividends. including goodwill. c. and Partner’s share in the net income of the general professional partnership The definition provided in Sec. 47. Annuities. Pensions. 2). Sale of Goodwill – Gain or loss from a sale of goodwill results only when the business. Discounts. Interests. Professional income – refers received by a professional from the profession. e. and payment was reasonable Gains from Dealings in Property (Ordinary Assets Only) These include all income derived from the disposition of property (real. It is immaterial that goodwill may never have been carried on the books as an asset. Rents. 32 is different from the limited meaning of Gross Income for purposes of Gross Income Tax. 3. Gross income from profession. personal or mixed) a. Business income refers to income derived from merchandising. i. 32): (CART-DRIP-GPP) a. Compensation. f. • b. trade or business. Trade. It is included ONLY when the taxpayer is subject to Net Income Tax. 32A) The enumeration is not exclusive: Compensation – means all remunerations for services performed by an employee for his employer under an employer-employee relationship unless specifically excluded by the Code.San Beda College of Law 53 2008 CENTRALIZED BAR OPERATIONS Gross Income Gross Income GROSS INCOME Means all income derived from whatever source (except those excluded or exempted by law). Gains from dealings in property. 2. k. to the fees practice of his no employerhim and his . or part of it.

CAPITAL ASSETS Include all property held by the taxpayer whether or not connected in trade or business but not including those enumerated above as ordinary assets. b. The property received in exchange is essentially different from the property disposed of. ORDINARY ASSETS Under the Tax Code. The excess of the losses from sales or exchanges of capital assets over the gains from such sales or exchanges. d. the rules on capital gains and losses apply in the determination of the amount to be included in gross income. there is no definition for the term "capital assets. Property held by the taxpayer primarily for sale to customers in the ordinary course of business.  . For other capital assets. b. NET CAPITAL GAIN NET CAPITAL LOSS The excess of the gains from sales/ exchanges of capital assets over the gains from such sales/ exchanges. Stock in trade of the taxpayer or other properties of a kind which would properly be included in the inventory of the taxpayer. The property received has a market value. c. and Real property used in trade or business. SALE OR EXCHANGE The sale or exchange of property must be consummated not just perfected SALE OF EXCHANGE OF PROPERTY PROPERTY Delivery of goods for money Tax Formula: Selling price (in terms of money) Less: Cost GAIN OR LOSS Delivery of goods for goods received Tax Formula: Fair market value of the property received in exchange Less: Cost GAIN OR LOSS Requisites: a." The Tax Code only provides for the meaning of ordinary assets: ORDINARY ASSETS a. Definition COST BASIS MODE OF ACQUISITION Purchase Inheritance Gift Less than full and adequate consideration CAPITAL GAIN The gain derived from the sale or exchange of capital assets. CAPITAL ASSETS vs. Treatment of Gains and Losses   Ordinary gains  are included in the gross income Ordinary losses are deductible from gross income  Capital gains derived from sale of stocks of a domestic corporation are subject to capital gains tax. Property used in trade or business and subject to depreciation. No loss is recognized because gain is presumed. B.54 Income Taxation MEMORY AID IN TAXATION LAW Dealings in Property A. COST BASIS Purchase price Fair market value as of the date of acquisition Value in the hands of the donor Amount paid by the transferee CAPITAL LOSS The loss incurred from the sale or exchange of capital assets. Capital gains derived from sale of real property in the Philippines is subject to capital gains tax.

2. BASIS FOR 146-98): • (BIR Ruling The fair market value (FMV) of the sale of shares not traded but listed in the stock exchange is the highest closing price on the  Stock treated  Subject to  Stock as ordinary capital treated as asset gains tax ordinary asset  Ordinary  Tax Rate: gain is 6%  Ordinary subject to gain is  Tax Base: graduated the higher subject to income tax between graduated rates for an the gross income tax individual selling rates for an OR to price or individual normal fair market OR to corporate value normal income tax in corporate case of a income tax corporate in case of a seller or corporate transferor seller or transferor . trust. the FMV shall be the book value nearest the valuation date RULES ON SHARES OF STOCKS OF A DOMESTIC CORPORATION SELLER IS NOT A DEALER IN SECURITIES SELLER IS A DEALER IN SECURITIES LISTED AND TRADED IN THE STOCK EXCHANGE NOT LISTED OR LISTED BUT NOT TRADED IN STOCK EXCHANGE The above rules shall be used in computing for the net capital gain/loss for disposition of shares. rates for an selling price 000 individual OR or gross . the FMV shall be the highest selling price on the day nearest to the day of sale. 3. IMPORTANT FEATURES: 1.San Beda College of Law C.5% for  Tax Rate: subject to ½ of 1% gains not graduated exceeding  Tax Base: income tax Gross P 100. SELLER IS A REAL ESTATE DEALER WHO ARE LIABLE FOR CAPITAL GAINS TAX? 1.10% on to normal value in any corporate money of amount income tax in the shares exceeding case of a of stock P 100. Reflected in the Tax is withheld annual income by the tax return stockbroker who effected the sale Reflected in the annual capital gains tax return. 3. All other gains which are specifically exempt from income tax under existing investment incentives and other special laws. 4. 2. Sale of shares of stock of a domestic corporation listed and traded in a local stock exchange and that of initial public offering shall be subject to Percentage Tax (Business Tax) Capital losses sustained during the year (not listed and traded in a local stock exchange) shall be allowed as a capital loss deductible on the same taxable year only (no carry-over) The entire amount of capital gain 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 (all 100%) Non-deductibility of losses on wash sales.000 corporate sold or  Tax Base: seller or transferred Net capital transferor gains. Individual taxpayer. RULES ON REAL PROPERTY LOCATED IN THE PHILIPPINES SELLER IS NOT A REAL ESTATE DEALER PROPERTY PROPERTY IS IS TREATED AN AS CAPITAL ORDINARY ASSET ASSET 2. For shares not listed in the exchange. • • 55 2008 CENTRALIZED BAR OPERATIONS day the shares were sold. trust funds and pension among others Gains derived by dealers in securities. citizen or alien Corporate taxpayer. transferred or exchanged. COMPUTING GAIN OR LOSS EXCEPTIONS TO THE TAX: 1. When no sale is made in the stock exchange. domestic or foreign Other taxpayers such as estate.  Stock treated  Subject to  Subject to as ordinary stock final capital asset transaction gains tax tax  Ordinary  Tax Rate: gain is . transfer or exchange. Other capital assets. KINDS OF CAPITAL ASSETS • • • Shares of stocks of a domestic corporation Real property in the Philippines not falling under the enumeration of ordinary assets.

4. SALE OR EXCHANGE OF CAPITAL ASSETS: The following are considered as sale or exchange of capital assets: 1. hence. a substantial part of whose business is the receipt of deposits. 2. Securities becoming worthless. 3. or less. hence. 100% – if the capital assets has been held for 12 mos. Short sales of property.56 Income Taxation OTHER CAPITAL ASSETS REQUISITES LOSS: 1. Net Capital Loss Carry –Over Allowed If any taxpayer. The transaction must be a sale or exchange or one considered as equivalent to a sale or exchange. 5. Distribution in liquidation of corporations. the net capital loss is not deductible. and b. Capital losses are allowed only to extent of the capital gains. debenture. 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 twelve (12) months. Retirement of bonds. FOR RECOGNITION OF MEMORY AID IN TAXATION LAW CAPITAL GAIN/ The transaction must involve property classified as capital asset except: • • 2. (There is no holding period) . note or certificate or other evidence of indebtedness issued by any corporation (including one issued by a government or political subdivision) Not allowed Rules on Capital Gains and Losses INDIVIDUAL Holding Period The percentages of gain or loss to be taken into account shall be the following: a. Exception: If any domestic bank or trust company. sustains in any taxable year a net capital loss. 50% – if the capital asset has been held for more than 12 mos. Failure to exercise privilege or option to buy or sell property. Real property in the Philippines held as capital asset Shares of a domestic corporation Non-deductibility of Net Capital losses Capital losses are allowed only to extent of the capital gains. other than a corporation. 6. and Readjustment of interest in a general professional partnership. the net capital loss is not deductible. sells any bond. CORPORATION Capital gains and losses are recognized to the extent of 100%.

2. exempt from VAT as the transaction is not engaged in trade or business. Transfer to a controlled corporation – exchange of property for stocks resulting in acquisition of corporate control by a person. “Control” means ownership of stocks in a corporation amounting to at least 51% of the total voting power of all classes of stocks entitled to vote. the term “property” shall be taken to include the cash assets of the transferor. each and every step of the transaction shall be considered and the whole transaction or series of transaction shall be treated as a single unit: Transfer of substantial portion In determining whether the property transferred constitutes a substantial portion of the property of the transferor.R. as the case may be. shall be recognized. shall be understood to mean: a) b) the ordinary merger or consolidation.  Transactions between related taxpayers (Sec. Between the corporations which are parties to the merger or consolidation (property for stocks).San Beda College of Law 57 2008 CENTRALIZED BAR OPERATIONS Tax-Free Exchanges and Other Exempt Transactions SUMMARY OF TAX TREATMENT OF GAINS/ LOSSES IN THE EXCHANGE OF PROPERTIES: GENERAL RULE: Upon the sale or exchange of property. 40 (C) 1] EXCEPTIONS: GAINS AND LOSSES GAIN IS RECOGNIZED ARE NOT LOSS IS NOT RECOGNIZED  Exchange of property solely in kind in pursuance of corporate mergers and consolidations. [Sec. .36)  Illegal transactions (Sec. EXCHANGE NOT SOLELY IN KIND Exchange not solely in kind – this means that there are other considerations given other than those mentioned under transactions solely in kind.  Sales and exchanges that are not arms-length  Exchanges of property. the entire gain or loss. Exchange solely in kind in legitimate mergers and consolidation includes: a.  Exchange by a person of his property for stocks in a corporation as a result of which said person. 96 R. TAX FREE EXCHANGES: Tax consequence: Exempt donor’s tax as there is no intent to gain. consolidation and the other party corporation (securities for securities). Sales or exchanges resulting in non-recognition of gains or losses: 1. undertaken for a bona fide business purpose and not solely for the purpose of escaping the burden of taxation: Bona fide purpose In determining whether a bona fide business purpose exists. c. in pursuance of corporate mergers and consolidation. In this case. alone or together with others not exceeding four. Between a stockholder of a corporation party to a merger or consolidation and the other party corporation (stock for stock). gains control of said corporation. Between a security holder of a corporation party to a merger or b. alone or together with others not exceeding four (4) persons. 2. not solely in kind. when used in this Section. "Merger" or "consolidation". 2)  Wash sales by nondealers of securities and when not subject to the stock transfer tax. or the acquisition by one corporation of all or substantially all the properties of another corporation solely for stock: Requisites: 1. gain is recognized but not the loss. exempt from capital gains tax.

• If in the nature of prepaid rentals (advance rental).4. goods. iv. it is not income to the lessor. common or individual trust funds. the estimated • 20% NRFC • EXEMPT For nonresidents whether individuals or corporations Rental Income – amount or compensation paid for the use or enjoyment of a thing or a right and implies a fixed sum or property amounting to a b. Interest paid by lessee to holder of bonds issued by lessor-corporation. If in the nature of security deposit for compliance by the lessee of the terms of the contract.5% of gross rentals or fees. whether used in business or not. Dividends paid by lessee to stockholders of lessor-corporation. Citizens and RA Residentswhether individuals or corporations iii. 5% . the entire amount thereof is taxable income to the lessor in the year received. Real estate taxes on leased premises paid by the lessee to the government. Obligations of lessor to third parties which the lessee undertakes to pay as further consideration of the lease. including branches of foreign banks that may be authorized by BSP to transact business with OBUs Interest income on foreign loans contracted on or after August 1.5% of gross rentals. than 5 years NRAETB 12%. Value of permanent improvements made by lessee on leased property that will become the property of the lessor upon the expiration of the lease. Insurance premiums paid by lessee on policy covering leased property. 1986 Any interest income from transactions with depositary banks under FCDs TAX RATE 20% PAYEE DC. Rent income excluded from gross income 1. substitutes. At the time when such buildings improvements are completed. no taxable income to the lessor when received. in lieu of rent. RFC. Items considered as rental income a. INCOME PAYMENT Interest from any currency deposit. and whether the lessor is on the cash or accrual method of accounting. the fair market value thereof. if so received under a claim of right and without restriction as to its use. Income will only be realized in the event that the lessee violates any provision of the contract. 10% 10% Residentswhether individuals or corporations • • If in the nature of a loan. Security deposit applied to the rental of the terminal month or period of contract must be recognized as income at the time it is applied. RA.less Citizens.less than 3 years (depends on the number of years of the holding period) 7. (Outright Method). RFC. ii. NRAETB fixed sum to be paid at a stated time for the use of the property. Those paid to nonresident owner or lessor of vessels chartered by Philippine nationals 4. Scope: All amount or property received from lease contract.58 Income Taxation MEMORY AID IN TAXATION LAW For The Other Items of Gross Income Interest Income – amount of compensation paid for the use of money. or credit or forbearance from such use. . 2. Citizens. Interest income from FCDU deposits Interest from foreign currency loans granted by FCDUs to residents other than OBUs banks or other depositary under the expanded system Interest from foreign currency loans granted by OBUs to residents other than OBUs or local commercial banks. b. machineries and other equipment – 7. instead of rent. or He may spread over the life (or remaining period) of the lease. such as: i.3 to less than 4 years 20%.5% DC. Those paid to nonresident owner or lessor of aircraft. Agreed amount per month or per year. investment management accounts and other investments evidenced by certificates in such form prescribed by BSP. RA. The lessor shall report this income under any of the following methods: a. yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements derived from Philippine sources Interest from long term deposit or investment in the form of savings.

It includes earnings from copyrights. FORMS and TREATMENT: 1. Only dividend issued by a foreign corporation to an individual taxpayer (citizen or alien) is included in the computation of gross income. out of its earnings and profits that accrued since March 1. hence. Dividend received from a domestic corporation by resident citizen.San Beda College of Law depreciated value of such buildings or improvements at the termination of the lease and report as income for each year of the lease. that is. an aliquot part thereof. 2. Are the tax rates imposed on royalties absolute? NO. trademarks. Under the Tax Code. Cash.5-32% NRC 10% Source withoutEXEMPT Note: Section 42(A) NIRC in correlation with Section 23 NIRC. . do not constitute passive income. It involves not only the use of the property but also its exhaustion. property. declared and ordered by the directors of a corporation to be paid to stockholders on demand or at a fixed time. 1913.5-32% NRAETB 20% Source withoutEXEMPT Note: Section 42(A) NIRC in correlation with Section 23 NIRC. Includes: 1. any gain derived therefrom is considered as and active business income subject to normal corporate income tax (BIR Ruling No. 59 2008 CENTRALIZED BAR OPERATIONS Excluded from gross income for purposes of income taxation: Dividends considered as passive income and those exempt from tax: 1. it means any distribution made by a corporation to its stockholders. When are royalties included in the gross income? It is included in the gross income if the royalties are derived from sources outside the Philippines. Royalty is a valuable property that can be developed and sold on a regular basis for a consideration. Source within. a lower tax rate may be allowed under an existing treaty. Dividends – A corporate profit set aside. When are royalties excluded from the gross income? It is excluded if it is derived from all sources within the Philippines because it is subject to final withholding tax. or stocks. (Spread-out Method) Royalties – Like rent. What is the “most-favored nation clause” in tax treaties? It means that each party to the treaty pledges that any tax concession given to any other treaty country will also be extended to the other party to the treaty. If the recipient of the royalty paid by a domestic corporation is either a non-resident alien not engaged in trade or business or a nonresident corporation. in which case. patents. 57-2000). whether in money. property and scrip dividends SUMMARY RULES ON DIVIDENDS DIVIDEND PAID BY A DIVIDEND PAID BY A TAXPA DOMESTIC FOREIGN YER CORPORA CORPORATION TION RC 10% 5. it will not grant more favorable terms to other treaty countries without granting the same concession to the treaty partner involved.32% Source within. 4. under certain conditions – Final tax of 15% 3. Source within. royalties are payments for the use of property. 2. non-resident citizen and resident alien: 1998 – 6% Final tax 1999 – 8% Final tax 2000 – 10% Final tax Dividend received from a domestic corporation by a non-resident alien engaged in business in the Philippines – Final tax of 20% Dividend received from a domestic corporation by another domestic corporation and resident foreign corporation ( Intercorporate dividends) – Income tax exempt Dividend received from a domestic corporation by a non-resident foreign corporation. Dividends that do not constitute passive income. formulas and natural resources under lease.5-32% RA 10% Source withoutEXEMPT Note: Section 42(A) NIRC in correlation with Section 23 NIRC.

G. 1950) Change in the stockholder’s equity results by virtue of the stock dividend issuance. The transaction is considered a sale or exchange of property between the corporation and the stockholder. 32 (B). which provide installment payments for life.then we follow the tax code rate as provided. the tax treaty rates under the existing tax treaty between Philippines and country of residence of the payee will apply. is taxable income or deductible loss. then it is not to be included in the computation of gross income.use the tax treaty rates subject to application for tax treaty relief. 73[B]. 30.000 2. DC Notes: 1. 1999) • • The recipient is other than the shareholder (Bachrach vs. Indirect dividend (i. But if it fails to comply with the requirements of a tax-exempt annuity. Prizes and winnings – amount of money in cash or in kind received by chance or through luck and are generally taxable except if specifically mentioned under the exclusions from the computation of gross income under Sec. NRAETB PRIZES & WINNINGS AMOUNTING TO 10. If an annuity is exclusion. RAMO 1-2000 covers applications for tax treaty relief and includes claims or requests for tax exemption. whether individual or corporation. Stock dividends General Rule: NOT taxable because this is only paper profit Exceptions (Sec.R.e.w/ Source withouttax sparing EXEMPT 35% .” (see 5-32% EXEMPT 20% . there is redemption or cancellation. the transaction involves stock dividends. Court of Appeals. as the case may be. the gain realized or loss sustained by the stockholder.w/o Note: Section 42(A) tax sparing NIRC in correlation with Section 23 NIRC.60 Income Taxation DIVIDEND PAID BY A DIVIDEND PAID BY A TAXPA DOMESTIC FOREIGN YER CORPORA CORPORATION TION Source within-25% NRANETB 25% Source withoutEXEMPT Note: Section 42(A) NIRC in correlation with Section 23 NIRC. Jan. renunciation of dividend) – same as cash dividend a. EXEMPT *35% Source within. No. 1997 NIRC): a. Court of Tax Appeals and ANSCOR. General rule: For payments that are made to foreign corporations and alien individuals in case: Annuities – These refer to annuity policies sold by insurance companies. There is no tax treaty. refund. 108576. preferential tax treaty rate.000 OR LESS ALL OTHER PCSO & PRIZES AND LOTTO WINNINGS WINMORE THAN NINGS 10. b. There is tax treaty. or for a guaranteed fixed period of time whichever is longer. not a dividend income . No. • • 2. or credit of taxes for the following income or to be derived from tax treaties and one of which covers dividends.R.35% RC EXEMPT Source withoutEXEMPT Note: Section 42(A) NIRC in correlation with Section 23 NIRC. G. Seifert. Liquidating dividends – when a corporation distributes all of its assets in complete liquidation or dissolution. The portion of each annuity payment that represents return of premium is not taxable while that portion that represents interest is taxable. 73[A]). NRC. b. (Sec. October 12. then the same is taxable and included in the computation of gross income. • • Annuities which are not exempt from tax are included in the computation of gross income. SUMMARY RULES FOR PRIZES AND WINNINGS FROM SOURCES WITHIN TAX PAYER RC. and • The “time and manner” of the transaction makes it “essentially equivalent to a distribution of taxable dividends. If resident of tax treaty country. MEMORY AID IN TAXATION LAW Commissioner vs. RA. Source within-35% NRC 15% . L-2659.

of service and 50 yrs.. (damages to compensate property are not taxable because they are treated as a mere return of capital). except fringe benefit tax Estate or donor’s tax Special assessment Exempt subject to the following conditions: o • • The recipient was selected without any action on his part to enter the contest or proceeding. R. c. 65 yrs. 61 2008 CENTRALIZED BAR OPERATIONS Optional retirement (10 yrs. Gains arising from expropriation of property which constitute income from dealings in property. d. 3. b. Excluded from gross income for purposes of income taxation: b. Income from other sources – Embraces all income not expressly exempted within the class of taxable income under the law. 2. c. The share of a partner in the distributable net income after tax of an ordinary partnership of which he is a partner is subject to final income tax and is not included in the computation of gross income. o Contest awards and prizes for commercial or non-commercial contests. This is given after the individual reaches the age of retirement. TAX BENEFIT RULE Bad debts claimed as deduction in the preceding year(s) but subsequently recovered shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction. and The recipient is not required to render substantial future services as a condition to receiving the prize or award o All prizes and awards granted to athletes in local and international sports competitions and tournaments whether held in the Philippines or abroad and sanctioned by their national sports associations (Sec. Amount received by employee or heirs as a consequence of separation due to circumstances beyond the control of the employee (Sec. Winnings derived within the Phils except PCSO and lotto winnings (Sec.A. such as: a. of age) –retirement and monetized value of accumulated VL up to 10 days only (excess of VL and all SL is taxable) 4.000. 24 [B] [1]) Prizes and awards made primarily in recognition of religious. Bad debts previously charged-off but afterwards recovered. 70 yrs. R. 32 [6] [b]) Partner’s share in the net income of a GPP: a. b. of age d. theft. Pension – amount of money received in lump sum or on staggered basis in consideration of services rendered. and smuggling. by same employer At least 50 yrs. Philippine Income tax. Retiree has been employed for at least 10 yrs. or civic achievement but only if: b. 3.A. literary. embezzlement. Nontaxable tax refunds 1. Compulsory retirement (60 yrs. 4917 – Requisites: a. 7641 – Requisites: a. and Taxes previously deducted as an expense and subsequently refunded. It is taxable to the extent of the amount received except if there is an approved pension plan by the Bureau of Internal Revenue. artistic. irrespective of the voluntary or involuntary action of the taxpayer in producing the gains. It is only the partner’s share in the net income of GPP which is included in the gross income because the GPP is not taxable as an entity.. old at the time of retirement Avails of the benefit only once The private benefit plan is approved by the BIR (RR 2-98) Firm has no private retirement trust plan Retiree is at least 60 yrs. ii.32 [B]). b. Income derived from illegal sources. for Judiciary) – retirement and monetized value of accumulated VL and SL o . 2. 1.San Beda College of Law Excluded from gross income for purposes of income taxation: Those considered passive income and exempt from income tax: i. scientific educational. charitable. Also EXCLUDED are monetized value of retiree’s accumulated vacation leave (VL) and sick leave (SL) subject to the following rules: a. and whether derived from legal or illegal sources. for Government. Compensation for damages if it represents payment for loss of expected profits such as damages from patent infringement suit. Prizes derived within the Philippines and is over P 10. for private corp. such as gambling.

or corporation. bequests. Income tax paid or incurred to a foreign country. Note: If such amounts are held by the insurer under an agreement to pay interest thereon. gain or profit. or c) they are income. Return of insurance premium – if such amounts (when added to amounts already received before the taxable year under such contracts) exceed the aggregate premiums or considerations paid (whether or not paid during the taxable year). A capital transaction – if the corporation forgives the debt of its stockholder. b) they are subject to another kind of internal revenue tax. Life Insurance 2. but not a transferee for a valuable consideration). pensions. if any required by law to be made within the year to reserve funds and sums other than dividends paid within the year on policy and annuity contracts may be deducted from gross income. gain or profits that are expressly exempt from income tax under the Constitution. only the actual value of such consideration and the amount of the premiums and other sums subsequently paid by the transferee are exempt from taxation. Exclusions Exclusions Under the 1997 Tax Code.62 Income Taxation 4. Gifts. However. of a life insurance. and devises 4. ITEMS OF EXCLUSIONS (Sec. The refund of these taxes is not taxable because such taxes are not deductible from the gross income. Income exempt under treaty 6. A gift – if the creditor cancels the debt without any consideration. . or any interest therein. released reserve shall be treated as income for the year of release. if the taxpayer claimed a credit for such tax in the year it was paid or incurred. Mutual insurance companies (fire and mutual employer’s liability) – in case of these companies requiring members to make premium deposits to provide for losses and expenses. MEMORY AID IN TAXATION LAW Cancellation of indebtedness • Taxable income – if the creditor cancels the debt as a consideration of the services performed by the debtor to the creditor. endowment or annuity contract. Miscellaneous items 1. then the excess shall be included in the gross income. in the case of a transfer for a valuable consideration. Tax Code. Compensation for injuries or sickness 5. gratuities 7. ON THE PART OF THE INSURANCE COMPANIES The net additions. However. This is considered as indemnity rather than as gain or profit. Amount received by insured as return of premium 3. the interest payments shall be included in gross income. said companies shall not return as income any portion of the premium deposit returned to their policyholders but (MAC-GIRL) 1. No loss is realized on surrender of a life insurance policy for its surrender value. directly or in trust. Retirement benefits. the term “exclusions” refer to items that are not included in the determination of gross income either because: a) they represent return of capital or are not income. 5. Stock transaction tax • • e. partnership. 32[B]) 2. by assignment or otherwise. it has the effect of payment of an indirect dividend. tax treaty. What are excluded in case of a transfer for a valuable consideration? a) Actual value of consideration b) Premiums and other sums subsequently paid by the transferee. or a general or special law. Proceeds of life insurance – paid by reason of the death of the insured to his estate or to any beneficiary (individual.

separation must not be asked or initiated by the official or employee. 63 2008 CENTRALIZED BAR OPERATIONS official or employee (e. artistic. retirement gratuities. or other physical disability or for any cause beyond the control of the Prizes and awards granted to athletes in sports competitions and sanctioned by their national sports association: a. operate or manage farms for gain or profit. 15865 July 31. Foreign governments and foreign government controlled financing institutions. Note: The phrase “personal injuries” should be given a restrictive meaning to refer only to physical injuries. educational. d. scientific. social security benefits. or other certificate of indebtedness with a maturity of more than 5 years. Gift. a. gratuities. the receipt is income. Requisites: a. partnerships or corporations that cultivate. b.000. are included as return of gross income.R. since it is not derived from capital. If the amount received is on account of services rendered. or the use of the opportunity to use capital. and Gains from redemption of shares in Mutual Fund. GSIS.A. whether constituting a demandable debt or not. those received by officials and employees of private employers in accordance with a reasonable private benefit plan. (3) must be availed of only once. sickness. and (4) plan approved by the BIR (RR 2-98).00. (2) at least 50 years old. retrenchment. (Pirovano vs. Gains derived from bonds. recipient was selected without any action on his part. private or public. d.g. No. 5. 7. 1. c. from labor or from both combined. Assessment Insurance Companies – may deduct from their gross income the actual deposit of sums with officers of the Government of the Philippines pursuant to law. which impaired petitioner’s capital. and GSIS benefits. etc. a. debentures. administered by the U. Prizes and awards made primarily in recognition of religious. b. and Recipient is not required to render substantial future services. 13th month pay and other benefits up to P30. separation pay because of death. c. • Mutual marine insurance – gross premiums collected and received by them. Who are farmers? All individuals. pension. as additions to guarantee or reserve funds. Compensation for personal injuries or sickness.S. 1965) They are subject to estate and donor’s tax. G. • b. b.S. c. pensions and other similar benefits received by citizens and aliens who come to reside permanently here from foreign government agencies and other institutions. bequest or devise – are excluded but not the income from such property. Miscellaneous items Passive income derived in the Philippines by: a. c. Income exempt under Treaty Retirement benefits. redundancy or cessation of business). d. Commissioner. benefits due to residents under the laws of the U. Income derived from Philippine government and its subdivisions. 3. those derived under R. whether by suit or agreement 4.SSS. or civic achievement. either as owners or tenants are farmers. 7641 (pertains to private firms without retirement trust fund).San Beda College of Law shall return as taxable income all income received by them from all sources plus portion of the premium deposits as are retained by companies for purposes other than the payments of losses and expenses and reinsurance reserves. SSS benefits. 6. . And the fact that the payment of compensation for such loss was voluntary does not change its exempt status. The phrase “for any cause beyond the control of said official or employee connotes involuntariness on the part of the official or employee. literary. Medicare and union dues of individuals. RULES ON FARMING b. less amount paid for reinsurance. It was in fact compensation for a loss. Requisites: (1) in the service of the same employer for at least 10 years. The theory for this is that recoupment on account of such losses is not income. charitable. Veterans Administration.

L-26911. [Sec. A farmer distinguishes between livestock and farm products raised and sold. or taken into account in computing gross income or for which depreciation or amortization may be allowed. c. b. G. tax rules provide that the withholding agent must first withhold to the income payment in order to be allowed as deduction to the gross income.R. b. c. NIRC] Deductions for income tax purposes partake of the nature of tax exemptions. (See discussion on withholding taxes and itemized deduction topics) . Note: For applicable expenses that are subjected to withholding taxes.64 Income Taxation Method of Accounting Used a) Cash method b) Accrual method Rules on computation of taxable income from farming a. then it follows that deductions must also be strictly construed. Citizens and resident aliens whose income is purely compensation income (except for premium payments on health and/or hospitalization insurance). 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. Non-resident foreign corporation SUMMARY RULES ON CLAIMABLE DEDUCTIONS 1. 2. Deductions Deductions DEDUCTIONS IN GENERAL What are Deductions? Items or amounts which the law allows to be deducted from gross income in order to arrive at the taxable income. 34(K). January 21. d. Corp. the measure of gross income is the selling price. • For livestock and farm products purchased and sold. The taxpayer seeking a deduction must point to some specific provisions of the statute authorizing the deduction. MEMORY AID IN TAXATION LAW • For livestock and farm products raised and sold. the measure of gross income is the profit from the sale. 1981) Any amount paid or payable which is otherwise deductible from. Taxpayers Who Cannot Avail Of Deductions from Gross Income a. vs. and livestock and farm products purchased and sold. hence. No. and c. He must be able to prove that he is entitled to the deduction authorized or allowed. with gross compensation income from employer-employee relationship only (1) premium payments on health and/or hospitalization insurance (2) personal and additional exemptions b. Individuals a. BASIC PRINCIPLES a. d. if tax exemptions are to be strictly construed. gross income from business or practice of profession (1) Optional Standard Deduction (OSD) (2) Itemized deductions (3) Premium payments on health and/or hospitalization insurance (4) Personal and additional exemptions Corporations Itemized Deductions b. Commissioner. (Atlas Consolidated Mining and Dev’t. Non-resident aliens not engaged in trade or business in the Philippines. Expenses of raising livestock and farm products are deductions from gross income Proceeds of crop or livestock insurance constitute gross income A farmer on the accrual method of accounting considers inventories at the beginning and at end of the taxable year.

DEDUCTION vs. in lieu of the itemized deductions. a freedom of charge or burden to which other are subjected. the Optional Standard Deduction or Itemized Deductions is against the gross income of the year.. OSD is not available against compensation income arising out of an employer-employee relationship. Something spent or paid in earning gross income It is an immunity or privilege. The amount of standard deduction is limited to ten percent (10%) of the taxpayer’s gross income. but the taxpayer should keep records pertaining to his gross income Since an individual in business or in the practice of profession is required to file quarterly income tax returns. he can change to itemized deductions in succeeding years. Pertains to the computation of net income. is irrevocable for the year in which made. unless the taxpayer signifies in his return his intention to elect this deduction. he is considered as having availed of the itemized deductions. (3) do at net income not come within the definition of income Something earned or received by the taxpayer which do not form part of gross income Theoretical provision of law for the personal and living expenses of the individual. Such election. 3. can he choose the Optional Standard Deduction in his quarterly returns and then choose the itemized deductions in his annual income tax return. REFER TO FLOW OF Refer to the WEALTH WHICH ARE amounts NOT TREATED AS which the law PART OF GROSS allows to be INCOME BECAUSE: subtracted (1) exempted by from gross the fundamental income in law. when made by the qualified taxpayer. Quarterly income tax returns are only interim computations on the taxable income for the year. or  to deduct allowance for depreciation thereof e) f) . Rules: a) OSD is available only to citizens or resident aliens. TAX FORMULA FROM MANUFACTURING OR MERCHANDISING CONCERN Gross Sales Less: Cost of Sales Add: Incidental Income if any GROSS INCOME FOR OSD FROM SALE OF SERVICES Gross Receipts Less: Direct Cost of services Add: Incidental Income if any GROSS INCOME FOR OSD b) c) d) SPECIAL DEDUCTIONS Private proprietary educational institutions [Sec. Kinds of Deduction 1. or vice versa? YES. PERSONAL EXEMPTION EXCLUSION DEDUCTION PERSONAL EXEMPTION Are arbitrary amounts allowed by law to an individual taxpayer. thus non-resident aliens are not entitled to claim the optional standard deduction The standard deduction is optional. i. theoretically to provide for personal and living expenses 65 2008 CENTRALIZED BAR OPERATIONS Generally a receipt which is excluded from taxable income. however. 2. Proof of actual expenses is not required. Pertains to the computation of gross income Is not a receipt but is generally an expenditure which is permitted to be subtracted from income to determine the amount subject to tax. 34 (A) (2)] – in addition to the expenses allowed as deduction:  to deduct expenditures otherwise considered as capital outlays of depreciable assets incurred during the taxable year for the expansion of school facilities.San Beda College of Law EXCLUSION vs. (2) exempted order to arrive by statute.e. is merely a privilege that may be enjoyed by certain individual taxpayers. Optional Standard Deductions (OSD) Special Deductions Itemized Deductions OPTIONAL STANDARD DEDUCTION Deduction.

34)] Itemized Deductions Ordinary and Necessary Trade. paid or incurred in carrying on a trade or business. [Allowable Deductions (Sec. Business and Professional Expenses being deducted and connection or relation of expense to business/trade. or of any person financially interested in any trade or business carried on by the taxpayer.66 Income Taxation Insurance companies (Sec. have been properly withheld and remitted on time to the BIR. Amount applied for the benefit of the grantor. taxes. charitable and other contributions. no deduction shall in any case be allowed for: a. MEMORY AID IN TAXATION LAW those earning purely compensation income non-resident alien not engaged in trade or business non-resident foreign corporation Estates and trusts (Sec. b. public policy or morals Requisites Of Business Expense To Be Deductible: a) b) c) d) ordinary and necessary. bad debts Where the transaction is between related taxpayers Note: 1. losses. interests. paid or incurred within the taxable year. bad debts. research and development. living and family expenses any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate 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. pension trust contributions of employees. e) if subject to withholding taxes. 37) can deduct the following:   Net additions required by law to be made within the year to reserve funds. individual or corporate when the taxpayer is directly or indirectly a beneficiary under such policy and no deduction shall be allowed for i. and premium payments on health and/or hospitalization insurance. Amount of income paid. c. iii. depletion of oil and gas wells and mines. ITEMIZED DEDUCTIONS (D-BIRD-CLEPTD) a) b) c) d) e) f) g) h) i) j) k) ordinary and necessary expenses. personal.) The above enumeration are not allowed deductions from gross income of: ii. substantiated with official receipts or other adequate records which reflect the amount f) . Sums other than dividends paid within the year on policy and annuity contracts. losses from sales or exchanges of property interest expense c. 2. 34)] Itemized Deductions [Allowable Deductions (Sec. Not contrary to law. 61):   In computing taxable income. a. d. b. (This is the only deduction which a compensation income earner may claim as a deduction. depreciation of property. credited or distributed to the heirs/beneficiaries.

In the pursuit of trade or business. These are the day-to-day expenses. cannot avail of this deduction. if not compensated for by insurance or otherwise. Traveling Expenses Requisites for deductibility: a. d. Bonuses are deductible expenses if paid in good faith as additional compensation for services rendered. . The size of the part icular business. The volume and amount of its net earnings.granted to - b. 65. rank-and-file on account of foreign trip final tax must be paid . 9. 6187 dated August 9. 2) Test of reasonableness: If same amount will be paid for similar services by similar enterprise under similar circumstance Deductible expenses under compensation for personal services a. Includes transportation. 5. 6. Commissioner of Internal Revenue – CTA Case No. user or possessor. ( ING Bank N. 3. The character of the taxpayer’s business. • What constitute traveling expenses? • TRAVELING TRAVELING EXPENSE EXPENSE AS AS BUSINESS FRINGE BENEFIT EXPENSE . The payment must be made in good faith.San Beda College of Law g) Must be reasonable (when the expense is not lavish. ORDINARY AND NECESSARY Necessary Expense – appropriate and helpful in the development of taxpayer's business and are intended to minimize losses or to increase profits. 66. b. Property must be used in trade or business. v. The type and extent of the services rendered. wages. Made as a condition to the continued use of. KINDS OF BUSINESS EXPENSES 1. retirement pay and other compensation. commissions. extravagant or excessive under the circumstances. The salary policy of the corporation. Manila Branch vs. meals and lodging (Sec. RR No. 67 2008 CENTRALIZED BAR OPERATIONS 8. professional fees.V. c. b. vacation-leave pay. Must be reasonable 2. Personal services actually rendered Compensation paid is for such services rendered. 7.must be incurred When is a traveling expense deductible? • • • Transportation from Office to Home and Home to Office – NOT deductible Transportation from Main Office to Branch Office – DEDUCTIBLE If trip is combined pleasure and business. Grossed-up monetary value (GMV) of fringe benefit provided for. the same should be disallowed. 2004) TEST FOR DEDUCTIBILITY OF BONUS (2006 BAR) 1. as where the fringe benefit is granted to a rank-and-file.covers trip in the employee Philippines or abroad away from home in pursuit of trade or business . The employees’ qualification and contributions to the business venture. then the employer.granted to any . Pensions and compensation for injuries. 3. Incurred or paid while away from home. c. and General economic conditions (CM Hoskins & Co. b. Its locality. Taxpayer has not taken or is not taking title to the property or has no equity other than that of a lessee. as taxpayer. Compensation for Personal Services Requisites for deductibility: a. d. CIR 30 SCRA 434 1969). or possession of property. 4. as long as the final tax imposed has been paid. Bonuses not subjected to withholding tax during the year they were claimed as an expense. Salaries. expenses should be allocate Rentals Requisites for deductibility: a. c. If final income tax thereon had not been paid. Ordinary Expense – normal or usual in relation to the taxpayer’s business and the surrounding circumstances. and It is subjected to withholding tax of 5% otherwise it shall be disallowed as a deduction. 2.

Exclusions from EAR expenses: 3. or to a private individual. Expense is not contrary to laws. or profession of the taxpayer. 4. conventions and other similar events. conferences. or a similar entity. or over the life of the improvements. whichever is shorter. do not qualify as rental deduction because they are in the nature of capital advance to secure the lease of the premise it is similar to a purchased goodwill. or profession. The deduction shall not exceed such ceilings as the Sec. Where leasehold is acquired for business purposes for a specified sum. expenses for attending or sponsoring e. kickbacks or other similar payments. Major or extraordinary repairs . 34 (A)(2)]: 1.are not deductible since major repairs tend to prolong the life of the asset Expenses Allowed to Private Educational Institutions Purpose: To achieve improvements in educational activities and expansion of school facilities. professional or business relationship of expense. - Amounts paid for the "right of occupancy" sometimes called "goodwill". date and place of expense. by Rules and Regulations.50% of net sales For taxpayers engaged in sale of services . seminars. or any local government unit or any GOCC or of a foreign government. Taxes and other obligations of the lessor paid by the lessee under the contract of lease. and It must be substantiated with sufficient evidences such as official receipts or adequate records indicating the amount of expense. Cost of Materials and Supplies Nature: Deductible only to the amount actually consumed or used in operation during the year. Leasehold Improvements made by lessee If lessee makes permanent improvement (i. either [Sec.1% of net revenues For taxpayers engaged in both sale of goods/properties and services . of Finance may. and f. or general professional partnership. The cost of leasehold improvements may be recovered by the lessee over the remaining term of the lease. marketing and advertising including concerts. b.e. Other expenses of similar nature. business. morals and public policy or public order. constitutes additional rent expense which the lessee corporation may deduct from gross income. expenses which are treated as compensation or fringe benefits. expenses for charitable or fund raising events. - For taxpayers engaged in sale of goods/properties – 0. workshops. management and operation of the trade. an employee to a business league or professional organization meeting. if it constitutes a bribe. whichever period is shorter. expenses for events organized for promotion. business. • MEMORY AID IN TAXATION LAW purpose of expense. Deduct expenditures otherwise considered as capital outlays of c. c.deductible from gross income because it keeps the assets in its ordinary working condition. b. Entertainment. e. Expense is directly related to or in furtherance of the conduct of trade. Repairs Minor or ordinary repairs .68 Income Taxation Items considered as rental expense (Lease Agreements) 1. f. a. 5. Expense is directly connected to the development. or corporation. Option. and name of person or company entertained with contact details. 6. partners or directors. 7. d. expenses for bona fide business meeting of stockholders.net sales or net revenues / total net sales and net revenues x EAR expenses. prescribe upon the recommendation of the CIR 2. Expense is reasonable. d. . Amusement and Recreation Requisites for deductibility: a. building) on land being leased. which shall be in lieu of depreciation expense. the purchaser may take deduction for an aliquot part of such sum each year based on the number of years the lease will run. cost is held to be a capital investment and NOT deducted as a business expense. An annual deduction may be made from Gross Income of an amount equals to cost divided by number of years remaining in the term of lease or useful life of improvement. Not paid directly or indirectly to an official or employee of the national government.

Collector. It includes the amount paid for the borrower's use of money during the term of the loan as well as for his detention of money after the due date for its repayment (R.4 of RR 2-98 as amended by Section 4 of R. or operation of the trade business or profession. are deductible when the claim is adjudicated and paid. 13-2000) a) There must be an indebtedness.San Beda College of Law depreciable assets incurred for the expansion of school facilities. SUBSTANTIATED WITH RECEIPTS Lack of receipts excused – the lack of supporting vouchers. No.R. Organization costs are amortized over the life of the corporation. or attributable to the development. although it is paid at a later period Prepaid – only the amount corresponding to the current period may be deducted from gross income. 69 2008 CENTRALIZED BAR OPERATIONS PAID OR INCURRED IN CARRYING ON A TRADE OR BUSINESS Must be paid in connection with the conduct of trade or business.R. business or exercise of profession. Cost of defending a civil suit affecting the business is deductible. being against law and public policy are not deductible from gross income [Sec 34 (A) (1)(c)]. 1961). 8. deduction of a portion of expenses incurred might be allowed even if there are no receipts or vouchers. WITHHOLDING TAXES HAVE BEEN PAID The obligation of the payor to deduct or withhold the tax arises at the time an income payment is PAID or PAYABLE or ACCRUED or recorded as an expense or asset whichever is applicable in the payor’s books. 1907). may be excused under Sec. personal injuries. 13325 Apr. receipts and other documentary proof. The interest must be legally due The interest must be stipulated in writing. or other causes. 13-2000). on account of damages for patent infringement. PUBLIC POLICY OR MORALS While illegal income will form part of income of the taxpayer. The interest expense must have been paid or incurred during the taxable year. however. In such a situation. 235) of the Tax Code. Miscellaneous a. Taxpayer must show that the economic performance test has been met. though not itemized. receipts or vouchers. PAID OR INCURRED DURING THE TAXABLE YEAR Cash basis – expense is deductible in the year paid Accrual – upon accrual thereof. Requisites for Deductibility (R. The indebtedness must be connected with the taxpayer's trade.R. 20. particularly lack of proof of items constituting the expense is fatal to the allowance of deduction (Gancayco vs. Commissioner G. Absence of invoices. . or 2. When expense deemed accrued: • • • all events have occurred which determine the liability The amount of liability can be determined with reasonable accuracy. 337 (now Sec. regardless of the name it is called or denominated. Deduct allowance for depreciation thereof. WHICHEVER COMES FIRST (Section 2.R. This provision requires the preservation of the books of accounts and other accounting records for a period of three (3) years from the date of last entry (Basilan Estates vs. expenses which constitute bribe. Judgment or other binding adjudication. there being evidence to show the amounts spent and the persons entertained. 12-2001). kickback and other similar payment. NOT CONTRARY TO LAW. COHAN RULE Applies only if the taxpayer has successfully shown that it is usual and necessary in the trade to entertain and to incur similar kinds of expenditures. or the exercise of profession by the taxpayer. L-22492 September 5. Interest This refers to the payment for the use or forbearance or detention of money. No. irrespective of the success of the defense.57. G.R. b. No. b) c) d) e) f) The indebtedness must be that of the taxpayer. management.

CTA Case No. Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned. The fact that the President of one corporation is the Chairman of the Board of another does not mean that he has controlling ownership of such corporations. The amount of interest deducted from gross income does not exceed the limit set forth in the law The taxpayer is liable to pay interest on the indebtedness Must not be incurred to finance petroleum operations In case of interest incurred to acquire property used in trade. 109 Phil. with respect to the taxable year of the corporation preceding the date of the sale of exchange was a personal holding company or a foreign personal holding company. 5200. even though the taxpayer is not directly liable upon the bond or not secured by such mortgage. 592) c. Prieto. a fact and circumstances approach which examines the substantive nature of the relationship on a case-to-case basis is employed (Philex Mining Corporation vs. Evidence must be adduced to show the percentage of ownership of the common officer on the outstanding capital stock of such corporations (Oranbo Realty Corp. may be deducted as interest on his indebtedness. vs. directly or indirectly. Collector. and lineal descendants of the taxpayer. 5222. The basic test of the existence of a debtor-creditor relationship is whether the debtor is under unconditional obligation to repay the creditor. 1998). MEMORY AID IN TAXATION LAW THE INTEREST MUST BE STIPULATED IN WRITING The interest must have been stipulated in writing. interest is properly denied (Limpan Investment Corporation vs. the amount of interest which . 1397. f. 13-2000) THE DEBT MUST BE THAT OF THE TAXPAYER Interest on real estate mortgage – interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner. Reg. Rule on interest on Business Taxes Interest incurred or paid by the taxpayer on all unpaid business related taxes shall be fully deductible from gross income and shall not be subject to limitation on deduction heretofore mentioned. Between members of the family. Where there is absence of stipulation in writing concerning interest. An obligation is an unconditional and legally enforceable obligation for the payment of money (Collector vs. if either one of such corporations. between two corporations more than 50% in value of the outstanding stock of each of which is owned. spouse. interest paid thereon is not deductible. d. CTA Case No. e. “Family” includes only the brothers. THERE MUST BE AN INDEBTEDNESS A bona fide debt is one which arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. THE INTEREST MUST BE LEGALLY DUE If there exists no obligation or where the obligation is unenforceable. business or exercise of profession. by or for the same individual. ancestors. April 7. 1967) NOT BETWEEN RELATED TAXPAYERS Who are related taxpayers? a. August 21. h) i) j) k) l) b. Between the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust.70 Income Taxation g) The interest arrangement must not be between related taxpayers as provided under Sec. the same was not treated as capital expenditure. Commissioner. CTA Case No. sisters (whether by the whole or half blood). In deciding whether a relationship represents a bona fide debt. directly or indirectly. The interest is not expressly disallowed by law to be deducted from gross income of the taxpayer. Dec. such interest expense incurred or paid shall not be diminished by the percentage of interest income earned which had been subjected to final withholding tax (Rev. 36(B) of the NIRC. Thus. CIR. No. NOT EXPRESSLY DISALLOWED BY LAW An individual taxpayer reporting income on the cash basis incurs an indebtedness on which an interest is paid in advance through discount or otherwise [Sec. 11.34(B)2a]: • • allowed as a deduction in the year the indebtedness is paid If the indebtedness is payable in periodic amortization. Between a fiduciary of a trust and a beneficiary of such trust. Between the grantor and a fiduciary of any trust. by or for such individual. 1997) Arm’s length interest rate – 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.

back-to-back loan is used to take advantage of the lower rate of tax on interest income and a higher rate of tax on interest expense deduction.34(B)2b] If the indebtedness is incurred to finance petroleum exploration [Sec. DOES NOT EXCEED THE LIMIT SET BY LAW Rules on Deductibility of Interest Expense General Rule: The entire amount of interest expense paid or incurred within a taxable year of indebtedness in connection with the taxpayer's trade. 34(B)(3). which in reality is dividend  Interest on unpaid salaries and bonuses  Interest calculated for cost keeping on account of capital or surplus invested in business which does not represent charges arising under interestbearing obligation  Interest paid when there is no stipulation for the payment thereof Optional Treatment of Interest Expense At the option of the taxpayer. fines. since taxes are considered indebtedness (provided that the tax is a deductible tax. 2009. When is the 42% limit not applicable? Interest fully deductible – interest incurred or paid on all unpaid BUSINESS-related taxes shall be fully deductible from gross income and shall not be subject to the limitation on deduction. penalties. and surcharges on account of taxes are not deductible. In tax cases. 13-2000). By imposing a limit as to the amount of interest expense that can be deducted from gross income. . business or exercise of profession. business. 2005) of interest income earned which had been subjected to final withholding tax. the same was not treated as capital expenditure (R. The interest on unpaid BUSINESS TAX shall not be subjected to the limitation on deduction. Limitation: The amount of deductible interest shall be reduced by an amount equal to 42% (effective November 1.  Interest paid by a corporation on scrip dividends  Interest on deposits paid by authorized banks of the Bangko Sentral ng Pilipinas to depositors. if it is shown that the tax on such interest was withheld  Interest paid by a corporate taxpayer who is liable on a mortgage upon real property of which the said corporation is the legal or equitable owner. provided rate shall be 33% effective January 1. Thus. the previous practice of tax arbitrage was absolutely nullified. such as those paid for deficiency or delinquency. provided the rate shall be 33% effective January 2009. Interest paid on indebtedness between related taxpayer [Sec. often to resolve financing and exchange control problems. the amount of interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year. an interest expense was incurred on one side and an interest earned on the other side which income was subjected to final tax.R. except in the case of income tax).  Interest paid on indebtedness between related taxpayer  If the indebtedness is incurred to finance petroleum exploration  Interest on preferred stock. such interest shall not form part of the expense that is to be diminished by 42% of interest income subjected to final tax. Tax Arbitrage – is a method of borrowing without entering into a debtor/creditor relationship. 71 2008 CENTRALIZED BAR OPERATIONS SUMMARY DEDUCTIBLE INTEREST EXPENSES  Interest on taxes.34(B)2c] In case of interest incurred to acquire property used in trade. However. or exercise of profession may be allowed as a deduction or treated as capital expenditure [Sec. even though it is not directly liable for the indebtedness NON-DEDUCTIBLE INTEREST EXPENSES  An individual taxpayer reporting income on the cash basis incurs an indebtedness on which an interest is paid in advance through discount or otherwise: o allowed as a deduction in the year the indebtedness is paid o If the indebtedness is payable in periodic amortization. interest incurred to acquire property used in trade. The limitation applies whether or not a tax arbitrage scheme was entered into by the taxpayer or regardless of the date of the interest-bearing loan and the date the investment was made for as long as during the taxable year.San Beda College of Law corresponds to the amount of the principal amortized or paid during the year shall be allowed as deduction in such taxable year. Aim of the Limitation: To discourage so-called “back-to-back” loans where a taxpayer secures a loan from a bank. business or exercise of profession shall be allowed as a deduction from the taxpayer's gross income. NIRC]. turns around and invests the loan proceeds in money market placements.

being in the nature of income tax. For NRAETB and RFC. A corporation paying the tax for the holder its bonds or other obligation containing a tax-free covenant clause cannot claim deduction for such taxes paid by it pursuant to such covenant. shall be included as part of gross income in the year of receipt to the extent of the income tax benefit of said deduction (Tax Benefit Rule). interest is deductible. Indirect taxes. taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the Philippines. 13-2000. passed on by sellers are not deductible by the buyers fro their gross income. e. 2. estate and donor’s tax. percentage). excise. and Taxes are not specifically excluded by law from being deducted from the taxpayer’s gross income. if taxpayer avails of the foreign tax credit. 1. 3. The express inclusion of interest income in taxable gross receipts creates a presumption that the entire amount of the interest income. If it is a business tax (e. If it is an interest on income tax delinquency. Taxes Requisites for Deductibility 1. foreign income tax. excess electric consumption tax. 2. No. resident citizens of the Philippines resident aliens under the principle of reciprocity domestic corporations which includ e partnerships except general professional partnership beneficiaries of estates and trusts members of general professional partnerships non-resident citizens 2. can be claimed by the corporation as deduction.g. the interest earned by a bank from deposits and similar arrangements are subjected to final withholding tax of 20%. when refunded or credited.the interest income it receives on the amounts that it lends are 2. Payments must be for taxes Tax must be imposed by law on. FOREIGN INCOME TAX CLAIMED AS TAX CREDIT Tax Credit – right of an income taxpayer to deduct from income tax payable the foreign income tax he has paid to his foreign country subject to limitation. 6. or penalties incident to delinquency. VAT. and payable by the taxpayer (direct tax) Paid or incurred during the taxable year must be in connection with taxpayer’s trade. Hence. INCOME TAX PAID IN FOREIGN COUNTRIES Alternative treatments for income taxes paid in foreign countries: a. interest is not deductible. b. 4. A domestic corporation. PAYMENTS MUST BE FOR TAXES The word “taxes” means taxes proper and no deduction should be allowed for amounts representing interest. determine first which kind of tax upon which an interest on delinquency is imposed. final taxes. Taxes of shareholder upon his interest as such and paid by the corporation without reimbursement from him. special assessments and taxes assessed against local benefits of a kind that tends to increase the value of the property assessed.4(c) of RR. 5. business or profession. Claim as foreign tax credits against Philippine income tax due of citizens and domestic corporations. interest paid on delinquent business related taxes is deductible from gross income. EXCEPTIONS to requirement that only such persons on whom the tax is imposed by law can claim deduction thereof: 1. Taxes allowed as deductions. NOT SPECIFICALLY EXCLUDED BY LAW Taxes Not Deductible Philippine income tax. a. Note: In Sec. d. without any deduction is subject to gross receipts. BPI 492 SCRA 551). surcharge. c. MEMORY AID IN TAXATION LAW always net of the 20% withheld tax (CIR vs. 4. like the VAT. IMPOSED BY LAW UPON THE TAXPAYER Taxes are deductible as such only by the persons upon whom they are imposed by law. b. Claim as deduction from gross income of citizens and domestic corporations. Who Can Claim Tax Credit: a.72 Income Taxation Doctrines 1. Who Are Not Entitled To Tax Credit: . 3.

2. etc. whether residents or non-residents foreign corporations. total amount of income derived from foreign sources. Casualty losses that arise from fire. Those incurred in a trade or business for profit 2. g) . or from theft or robbery. even though not connected with the trade or business of the taxpayer. In the case of individual. the amount of income derived from each country.San Beda College of Law b. whether residents or non-residents Rules: 73 2008 CENTRALIZED BAR OPERATIONS Reason: foreign tax credits are allowed for income derived from sources outside the Philippines. business or profession. LIMITATIONS ON CREDIT FOR FOREIGN TAXES: 1. shipwreck. the foreign tax paid or incurred. Losses by individual. Not claimed as a deduction for estate tax purposes. and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. Two or more foreign countries – determine first the lower between limit B and the total foreign income taxes paid. FORMULA FOR COMPUTING LIMITATION Limit A: Per country limitation Taxable income from foreign country x Phil. dependent upon whether the accounts of the taxpayer are kept and his returns filed upon the accrual basis or upon cash receipts and disbursements basis. BIR requirements include proof of: a. Income tax Losses Refer to such losses which are not compensated by insurance and do not come under the category of bad debts.. which as taxable in the Philippines. General Classifications REQUISITES FOR DEDUCTIBILITY 1. Those incurred in any transaction entered into for profit though not connected with his trade. x Phil. which is claimed as a credit. c. c. 3. business or profession or incurred in any transaction entered into for profit though not connected with his trade. which the taxpayer’s net income from sources within such country taxable under Title II (Income Tax) bears to his entire net income for the same taxable year. and All other information necessary for the verification and computation of such credit. aliens. Notice of loss must be filed with the BIR (i. which the taxpayer’s net income from sources without the Philippines taxable under Title II (Income Tax) bears to his entire net income for the same taxable year. when deductible: a) b) c) d) e) f) The loss must be that of the taxpayer Actually sustained and charged off during the taxable year. and which arise in taxpayer's profession. depreciation. or other casualty. trade or business. These taxpayers are subject to Philippine income tax only on income derived from sources within the Philippines. and Not compensated for by insurance or other form of indemnity. the loss must be connected with his trade. Income tax Taxable income from all sources Limit B: Over-all limitation Taxable income from outside sources Taxable income from all sources One foreign country – the allowed credit is the lower between limit A and the foreign income tax paid. WHEN CREDIT FOR TAXES MAY BE TAKEN: The credit for taxes provided by Section 34(C)(3) to (7) may ordinarily be taken either in the return for the year in which the taxes accrued or on which the taxes were paid.e. Evidenced by a close and completed transaction. inventory losses. the lower amount is the allowed credit. The amount of credit in respect to the taxes paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken. business or profession. storm. b. within 45 days) from the DATE OF 1. Then compare it with limit the result applying limit A.

2. Collector. 1964). hence. L. SUSTAINED AND CHARGED OFF DURING THE TAXABLE YEAR The taxpayer’s failure to record in his books the alleged loss proves that the loss had not been suffered. the consummation of the sale is the identifiable event which fixes the loss. when deductible: a) b) Losses sustained in business or trade conducted within the Philippines Losses of property within the Philippines arising from fires. if Evidence to support these items should be furnished. 1967). G. NOTICE OF LOSS FILED Substantiation requirement File a sworn declaration of loss with the nearest RDO. not deductible (City Lumber vs. The loss of predecessor partnership is not deductible by a successor corporation. the taxpayer must seek his redress and may not secure a loss deduction until he establishes that no recovery may be had. a description of the damaged property and its location. since the branch is only an extension of its head office and there is only a single entity. January 30. if the loss is compensated by insurance or otherwise. storms. NOT COMPENSATED BY INSURANCE As a general rule. No. There should be an identifiable event that fixes the loss thus: • When a loss results from a sale. vs. L-18611. But the loss of the branch within or outside the Philippines is deductible from the gross income of the head office located in the Philippines. although not connected with their trade or business. items needed to compute the loss. • A loss from theft is ordinarily deductible in the year of theft. the nature of the event giving rise to the loss and the time of its occurrence. In other words. • A loss from embezzlement is deductible in the year in which the embezzlement took place. if available (Manotok Realty Inc. when deductible: If such losses are actually sustained and charged off within the year and not compensated for by insurance or otherwise 3. A sale is consummated when there is delivery. or there is a remaining net loss (or there is no full compensation). The rule is that loss deduction will be denied. CIR. and Amount of insurance or other compensation received or receivable. So where there is reasonable ground for reimbursement. the loss is deductible in the year the loss happens. 2. G. Losses by non-resident aliens and foreign corporations. . Domingo and Court of Tax Appeals. and the deduction should be claimed in the year the sale was consummated. the taxpayer must first exhaust his remedies to recover or reduce his loss (Plaridel Surety and Insurance Co. He can only choose one. or other casualty and from robbery.R. The sworn declaration of loss shall contain the following: 1. with ultimate collection reasonably clear. 3. MEMORY AID IN TAXATION LAW the owner of the property cannot recover from the property anymore.74 Income Taxation OCCURRENCE OR DISCOVERY of the c a s u a l t y o r r o b b e r y. The loss of the parent company may not be deducted by its subsidiary.R. c) LOSS MUST BE OF THE TAXPAYER The loss is personal to the taxpayer and is not transferable or usable by another. 4. 5485. theft or embezzlement Losses actually sustained in transactions entered into for profit in the Philippines. if there is a measurable right to compensation for the loss. CTA Case No. shipwreck. t h e f t o r embezzlement. v. the loss is postponed to a subsequent year in which it appears that no compensation at all can be had. October 18. Losses by corporations. 21520 December 11. EVIDENCED BY CLOSED AND COMPLETED TRANSACTION A loss is actually sustained if it is evidenced by a completed transaction. NOT CLAIMED AS DEDUCTION FOR ESTATE TAX PURPOSES The taxpayer cannot claim double benefits arising from the same casualty loss for income tax and estate tax purposes. No. When is a loss non-deductible despite the concurrence of requisites? In case of related taxpayers. 1999). However.

as amended. otherwise known as the Bases Conversion and Development Act of 1992. No.A. The three-year reglementary period on the carry-over of NOLCO shall continue to run notwithstanding the fact that the corporation paid its income tax under the "Minimum Corporate Income Tax" computation. Taxpayers Entitled to Deduct NOLCO from Gross Income. SBMA-registered enterprises. 7916. if the business is in the name of a corporation. or Not less than 75% of the paid-up capital of the corporation. if held by or on behalf of the same persons.Corporations cannot enjoy the benefit of NOLCO for as long as it is subject to MCIT in any taxable year. I t s accumulated net operating losses incurred or sustained during the period of its PEZA registration shall not qualify for purposes of the NOLCO. and domestic and resident foreign corporations subject to the normal income tax (e. Not less than 75% in nominal value of outstanding issued shares.g. Any individual (including estates and trusts) engaged in trade or business or in the exercise of his profession. Further. An enterprise registered with the Philippine Economic Zone Authority (PEZA). An enterprise registered with the Board of Investments (BOI) with respect to its BOIregistered activity enjoying the Income Tax Holiday incentive. which had not been previously offset as deduction from gross income.San Beda College of Law CATEGORY AND TYPES OF LOSSES 1. and Foreign Currency Deposit Unit (FCDU) of a domestic or foreign banking corporation. hospitals. EXCEPTIONS (Who are not entitled to deduct NOLCO): 1. Three-year period General Rule: The net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year. if the business is in the name of a corporation. Special Rule in case taxpayer is a corporation . with respect to its PEZAr e g i s t e r e d b u s i n e s s a c t i v i t y.g. which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss. and 2. Its accumulated net operating losses incurred or sustained during the period of its said registered operation shall not qualify for purposes of the NOLCO. e. 7227. Ordinary Losses Incurred in trade or business. pursuant to R. Foreign corporations engaged in international shipping or air carriage business in the Philippines. etc. manufacturers and traders) or preferential tax rates under the 5. the three-year reglementary period shall continue to run notwithstanding the fact that the aforesaid individual availed of the 10% optional standard deduction during the said period. if due to casualty.g. Exception: any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction under NOLCO b. Its accumulated net operating losses incurred or sustained during the period of such Income Tax Holiday shall not qualify for purposes of the NOLCO. Net Operating Loss Carry–Over (NOLCO) This refers to the excess of allowable deductions over gross income of the business for any taxable year. or practice of profession and losses of property connected with trade or business or profession.A.An individual who claims the 10% optional standard deduction shall not simultaneously claim deduction of the NOLCO.. is held by or on behalf of the same person • 4. 3. with respect to its registered business activity. REQUISITES FOR DEDUCTIBILITY OF NOLCO a. private educational institutions. There is no substantial change in ownership NOLCO shall be allowed only if there has been no substantial change in the ownership of the business or enterprise in that: • 75 2008 CENTRALIZED BAR OPERATIONS Code (e. and regional operating headquarters) Special Rule in case taxpayer is an individual . An enterprise registered under R. It can be carried over as a deduction from gross income for the next 3 consecutive years immediately following the year of such loss. Offshore Banking Unit (OBU) of a foreign banking corporation. No. . duly authorized as such by the Bangko Sentral ng Pilipinas (BSP).

business or profession. 34 (D) (6)].deductible only to the extent of gain or winnings [Sec. (2) The loss was not incurred in a taxable year during the taxpayer was exempt from income tax. theft or embezzlement. Elements of Wash Sales: (1) The sale or other disposition of stock resulted to a loss. which exceeds the taxable income of such first year. 3. shall be deducted in like manner from taxable income of the next remaining 4 years. The entire amount of loss shall be carried over the first of the 5 taxable years following the loss. and any portion of such loss. If the taxpayer is a dealer in securities. • Total destruction The replacement cost to restore the property to its normal operating condition. Wash sales – a sale or other disposition of stock or securities where substantially identical securities are acquired or purchased within 61-day period.means 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. net operating loss incurred in any of the first ten years of operation may be carried over for the next 5 years immediately following the year of such loss. or from robbery. Capital Losses (Losses are deductible only to the extent of capital gains) a. or that the individual availed the 10% OSD. with respect to its operation during the period for which the aforesaid exemption is applicable. if the loss arises from fires. Of property connected with the trade. enjoying exemption from income tax. storms. pursuant to the provisions of the Code or any special law. Losses from sale or exchange of capital assets Losses resulting from securities becoming worthless and which are capital assets Losses from short sales of property Losses due to failure to exercise privilege or option to buy or sell property RULES FOR MINES OTHER THAN OIL AND GAS WELLS For mines other than oil and gas well. Losses on wash sales of stocks . d. but in no case shall the deductible loss be more than the net book value of the property as a whole. natural or juridical. Special Kinds Of Losses a. In general.76 Income Taxation 6. b.not deductible because these are considered to be artificial loss. beginning 30 days before the sale and ending 30 days after the sale (Sec. Its accumulated net operating losses incurred or sustained during the said period shall not qualify for purposes of the NOLCO. 2. b. and the transaction from which the loss resulted. was made in the ordinary course of the business of such dealer. and (3) The stock or securities sold were substantially the same as those acquired within the 61-day period. shipwreck or other casualties. . Requirements: (1) The taxpayer was not exempt from income tax in the year of such net operating loss. or for the account of the seller. deemed to apply only to individuals. Is there an exception to the rules on losses from wash sales? YES. the loss is deductible in full. (2) There was an acquisition or contract or option for acquisition of stock or securities within 30 days before the sale or 30 days after the sale. immediately before casualty. 38). and (3) There has been no substantial change in the ownership of the business or enterprise. A person shall be deemed to own a security if: (1) he or his agent has title to it (b) Note: The 3–year period shall continue to run notwithstanding that the corporation paid its taxes under MCIT. Wagering losses . or Not less than 75% of the paid up capital is held by or on behalf of the same person. c. There is no substantial change in the ownership of the business when: (a) not less than 75% in nominal value of the outstanding issued shares is held by or on behalf of the same persons. subject to depreciation over the remaining useful life of the property. MEMORY AID IN TAXATION LAW • Partial Destruction The excess over the net book value immediately before the casualty should be capitalized. What is a short sale? Short sale . any person.

San Beda College of Law (2) he has purchased or has entered into an unconditional contract. in whole or in part. The factors to be considered include. to purchase it and has not yet received it (3) he owns a security convertible into or exchangeable for it and has tendered such security for conversion or exchange (4) he has an option to purchase or acquire it and has exercised such option. The determination of worthlessness in a given case must depend upon the particular facts and the circumstances of the case. all accumulated exploration and development expenditures pertaining thereto shall be allowed as a deduction. Loss of useful value of capital assets due to charges in business conditions deductible expense only to the extent of actual loss sustained (after adjustment for improvement. it is deductible.R. e.R. c.deductible expense from gross income. arising from money lent or from uncollectible amounts of income from goods sold or services rendered. (2) I n c a s e a p r o d u c i n g w e l l i s abandoned. or (5) H e has ri ghts or w arrants to subscribe to it and has exercised such rights or warrants provided however. shall be allowed as deduction in the year the well. Worthlessness is not determined by an inflexible formula or slide rule calculation but upon the exercise of sound business judgment. of amounts due the taxpayer by others. binding on both parties thereto. 36 (B) of the NIRC. No. and d) 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 d) e) . Any amount claimed as a loss on account of shrinkage in value of the stock through fluctuation in the market or otherwise cannot be deducted from gross income. Connected with the taxpayer's trade. 25-2002 dated November 19. depreciation and salvage value) f. losses of this nature is not deductible but gains are taxable. d. but are not limited to the following: a) The debtor has no property nor visible income. Actually ascertained to be worthless and uncollectible as of the end of the taxable year. 5-99 as amended by R. b) The debtor has been adjudged bankrupt or insolvent. g. Losses of farmers–– if incurred in the operation of farm business. as well as the undepreciated cost of equipment directly used therein. Must not be sustained in a transaction entered into between related parties enumerated under Section 36(B) of Tax Code. and Actually charged off in the books of accounts of the taxpayer as of the end of the taxable year. ASCERTAINED TO BE WORTHLESS AND UNCOLLECTIBLE What does “actually ascertained to be worthless” means? In general. No. Losses from sales or exchanges of property between related taxpayers – as provided for under Sec. business or practice of profession. a debt is not worthless simply because it is of doubtful value or difficult to collect. the cost or other basis may be deducted by the owner in the taxable year in which the stock became worthless. Losses due to voluntary removal of building incident to renewal or replacements . the unamortized cost 77 2008 CENTRALIZED BAR OPERATIONS thereof. h. REQUISITES FOR DEDUCTIBILITY (R. that a person shall be deemed to own securities only to the extent he has a net long position in such securities (SEC Reg Code RA 8799) . Loss in shrinkage in value of stock – if the stock of the corporation becomes worthless. Abandonment losses in petroleum operation and producing well (1) In case a contract area where petroleum operations are undertaken is partially or wholly abandoned. 2002) a) b) c) Existing indebtedness due to the taxpayer which must be valid and legally demandable. c) Collateral shares have become worthless. equipment or facility is abandoned. Bad Debts Shall refer to those debts resulting from the worthlessness or uncollectibility.

He must show also that he had reasonably investigated the relevant facts and had drawn a reasonable inference from the information thus obtained by him. Where a taxpayer has failed to attach to his tax returns a statement showing the propriety of the deductions therein made for alleged bad debts. The allowance must be charged off within the taxable year. 21 SCRA 1336). c) d) . In no case may any bad debt deduction be allowed unless the facts pertaining to the money or property lent and its cancellation or write-off from the taxpayer's accounting records. that the said receivable has been cancelled and written-off from the said taxpayer's books of account. good faith on the part of the taxpayer is not enough. When is there good faith? There are two requisites before a taxpayer may charge off and deduct a debt. A mere recording in the taxpayer's books of account of estimated uncollectible accounts does not constitute a writeoff of the said receivable. There are two (2) requisites before a taxpayer may charge off and deduct a debt. 1967). RR 5-99 as amended by RR 25-02). Where a taxpayer has failed to attach to his tax returns a statement showing the propriety of the deductions therein made for alleged bad debts. or out of its not being used temporarily during the year. No. 34 (E) (2)]. What is the rule if the debts due to a taxpayer arise out of securities? The debts due a taxpayer may arise out of securities held. he acted in good faith. have been complied with by the taxpayer (Sec. and that in doing so. Schedule on the allowance must be attached to the return. the deduction resulted in a tax benefit (Tax Benefit Rule). No. b) It must be for property arising out of its use in the trade or business. 25-2002). the account written off will be disallowed (Collector vs.Without prejudice. • Depreciation The gradual diminution in the service or useful value of tangible property due from exhaustion. He must ascertain the debt to be worthless in the year for which the deduction is sought. In case of banks. and are capital assets. BUT in a case where securities are ascertained to be worthless and charged off within the taxable year. but as capital loss on the last day of the taxable year. No.R.. shall not be a valid basis for its deduction as a bad debt expense. He must show also that he had reasonably investigated the relevant facts and had drawn a reasonable inference from the information thus obtained by him. the use of which in trade or business is of limited duration. good faith on the part of the taxpayer is not enough. and that in doing so. L-22265 December 22. He must ascertain the debt to be worthless in the year for which the deduction is sought. the account written off will be disallowed (Collector vs.78 Income Taxation Is good faith enough? NO. he acted in good faith. after having been determined that the same has actually become worthless. Goodrich International Rubber Co. the Commissioner of Internal Revenue shall determine whether or not bad debts are worthless and uncollectible in the manner provided under RR 5-99. Requisites for Deductibility: a) The allowance for depreciation must be reasonable. the loss to the taxpayer (other than a bank or trust company incorporated under the laws of the Philippines a substantial part of whose business is the receipt of deposits) will not be treated as bad debts. trade or profession) to his debtor had been recorded in his books of account as a receivable has actually become worthless as of the end of the taxable year. ACTUALLY CHARGED OFF AT THE END OF TAXABLE YEAR This phrase means that the amount of money lent by the taxpayer (in the course of his business. 25-2002). General rule: The determination by the Commissioner of Internal Revenue as to the worthlessness of bad debt is adequate: Exceptions: • 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 (R. The date that the securities were written off is immaterial [Sec.R. However.R. the taxpayer shall MEMORY AID IN TAXATION LAW submit to the BSP/Monetary Board the written approval of the writing off of the indebtedness from bank’s books of accounts at the end of the taxable year (R. wear and tear and normal obsolescence. However. Equitable Doctrine of Tax Benefit A recovery of bad debts previously deducted from gross income constitutes taxable income if in the year the account was written off. hence. Goodrich International Rubber G. 2. The term also applies to amortization of intangible assets.

If expected life is more than 10 years. The agreed rate may be modified if justified by facts or circumstances. engaged in business as an importer. and is until now. business or profession of the taxpayer. He had only one car at . as such. on the basis of the trust income allowable to each. wear and tear (including reasonable allowance for obsolescence) of property used in the trade or business. November 28. Depreciation deductible by non-resident aliens engaged in trade/business or nonresident corporation – only when such property is located in the Philippines. Collector. but also on depreciable property that is not being used temporarily during the year (Conwell Bros. Collector. Property Held in Trust Allowable deduction shall be apportioned between the income beneficiaries and the trustees in accordance with the pertinent provisions of the instrument created or in the absence of such provisions. vs. while ¼ thereof represents nondeductible personal expense. Co. 79 2008 CENTRALIZED BAR OPERATIONS the time. From the evidence. the expense shall accrue to him.San Beda College of Law ALLOWANCE FOR DEPRECIATION MUST BE REASONABLE Agreement as To Useful Life on Which Depreciation Rate Is Based The Bureau of Internal Revenue and the taxpayer may agree in writing on the useful life of the property to be depreciated. ALLOWANCE CHARGED OFF DURING THE TAXABLE YEAR-SCHEDULE OF ALLOWANCE ATTACHED TO THE RETURN Who can claim depreciation expense? The person who sustains an economic loss from the decrease in property value due to depreciation gets the deduction. CTA Case No. a law practitioner. PROPERTY USED IN TRADE OR BUSINESS There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion. 1959). during the year in question. What if the property is used in business and for personal purposes? The depreciation expense must be pro-rated. 443. • • • 2. Ordinarily. Special Types of Depreciation: 1. shall be permitted only when such property is located within the Philippines. What if the property was not being used temporarily during the year? Depreciation is allowed not only on depreciable property that is used in the trade. Methods of Depreciation The term "reasonable allowance" shall include (but not limited to) an allowance computed in accordance with the regulations prescribed by the Department of Finance under any of the following methods: a) b) c) d) Straight-line method Declining-balance method Sum of the years-digit method Any other method which may be prescribed by the Department of Finance upon recommendation of the Commissioner of Internal Revenue. 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. Nonresident alien or Foreign Corporation A reasonable allowance for the deterioration of property arising out of its use or employment. CTA Case No. Consequently. The same is true as regards the salary of petitioner’s driver (Jamir vs. this is the person who owns and has a capital investment in the property. Mining Operations • • 3. a law professor in two law schools and was. only the portion attributable to business use is deductible. He was. ¾ of the value of the depreciation of the car may be considered as business related. The rationale for this is that property gradually approaches a point where its usefulness is exhausted. Petroleum Operations • Depreciation of all properties directly related to production of petroleum shall be allowed under straight-line (SL) or declining balance (DB) method May shift from DB to SL method Useful life: 10 years or shorter life as allowed by the Commissioner Useful life of property not directly related to production: 5 years under straight–line method Depreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is less than 10 years. it appears that the car of the petitioner was used more for business than for personal purposes. depreciation shall be any number of years between 5 years and the expected life. 411). Property Held by One Person for Life with the Remainder to another Person The deduction shall be computed as if the life tenant was the absolute owner of the property and. in trade or business.

. Economic interest means interest in minerals in the place of investment therein or secured by operating or contract agreement for which income is derived. Cultural d. Youth and sports development e. As the physical units representing such resources are extracted and sold. Charitable g. and return of capital expected. To Whom Allowed: Only mining entities owning economic interest in mineral deposits. Rehabilitation of Veterans If the conditions in Table A is not complied with: Subject to limitation: a. oil. The total amount deductible for exploration and development expenditures shall not exceed 50% of net income from mining operation. It must be evidenced by adequate receipts or records The amount of charitable contribution of property other than money shall be based on the acquisition cost of said property. such assets move towards exhaustion. Educational c. revenue expenditures. or any of the accredited domestic corporation or association specified in the Tax Code. Scientific b. Intangible exploration and development drilling cost in petroleum exploration shall be treated either as: a. Scientific b. Character e. Corporation . Charitable f. but subject to limitations. Research Deductible Subject To Limitation Recipient is an accredited domestic corporation or association organized/operated for (purposes): a. Cultural d. oil gas wells and other natural deposits starting calendar year 1976 and fiscal year beginning July. Religious h. Known as cost of depletion allowance for mines.5% taxable income from trade business or profession before contribution b) c) d) e) 2 And satisfying the following conditions: The donation must be utilized not later than the 15th day of the 3rd month following the close of its taxable year The administrative expense must not exceed 30% of total expenses. Mere economic or pecuniary advantage to be derived by production by one who has no capital investment in the mineral deposit does not amount to economic interest. Features: 1. from the extraction of mineral. The excess shall be carried forward to the succeeding year until fully deducted. and gas wells. Requisites for Deductibility: a) The contribution or gift must be actually paid or made to the Philippine government or any political subdivision thereof exclusively for public purposes. or deductible. assets must be distributed to another non-profit domestic corporation or to the state. organized/ operated for (purposes): a. Upon dissolution. Educational c. Social welfare h. The natural resources are called “wasting assets”. or in accordance with special law.10% taxable income from trade business or profession before contribution b. It must be made within the taxable year It must not exceed 10% (individual) or 5% (corporation) of the taxpayer’s taxable income before charitable contributions. Deductible In Full Recipient is an accredited nongovernment organization. Deductible In Full Deductible Subject To Limitation Recipient is a foreign or Non-government international Organizations organization with an 1 agreement with the Philippine Government on deductibility. b. Individual . or capital expenditures 2. Charitable and Other Contributions Contributions and donations of a taxpayer may be deductible in full. Social welfare g.80 Income Taxation MEMORY AID IN TAXATION LAW Depletion of Oil and Gas Wells and Mines Exhaustion of natural resources as in mines. building/youth and sports development f. Health i. 1975.

or to be distributed by a court to another organization to be used in such manner that will accomplish the general purposes of the dissolved corporation. Paid or incurred in connection with trade. 81 2008 CENTRALIZED BAR OPERATIONS PAID OR MADE TO ENTITIES SPECIFIED UNDER THE TAX CODE NOT TO EXCEED 10% (INDIVIDUAL) OR 5% (CORPORATION) OF TAXABLE INCOME For the accredited NGO: Not later than the 15th day after the close of the taxable year in which the contribution is received. Youth and Sports Development Research and Development Research and development costs are for improvements of processes and formula as well as the development of improved or new products. Human Settlement 7. and c. Research and development costs may be expenditures: a. or to the State for public use. business. IF PROPERTY IS CONTRIBUTED. Any of its agencies or political subdivisions For a non-priority activity in any of the areas mentioned in A. the research and development shall be amortized over a period of not less than 60 months. Any expenditure paid or incurred for the purpose of ascertaining the existence. b. location. extent or quality of any deposit of ore or other mineral including oil or gas. Government of the Philippines b. b. and c. b. 2. would be distributed to another non-profit domestic corporation organized for similar purposes. Any of its agencies or political subdivision c. Ordinary and necessary expenses in connection with trade business or profession. 3 For priority activity in: 1. Amount deductible: If treated as a deferred expense. Deferred Expenses Requisites: a. TAX TREATMENT Either as: 1. Paid or incurred during the taxable year. Not treated as expense. Chargeable to capital account but not chargeable to property subject to depreciation or depletion. MUST BE BASED ON ACQUISITION COST Imposed in order to stop the practice of some unscrupulous taxpayers of contributing property based on its fair market value to foundations for purposes of claiming huge deductions as charitable contributions deductible in full. 4. Other research and development costs. Any fully-owned government corporation Deductible Subject To Limitation Recipient is: a. Any expenditure 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. 2. Revenue Expenditures Requisites: a. 3.San Beda College of Law Deductible In Full Recipient is: a. Exclusion from Research And Development Expenditures: 1. makes utilization directly for the active conduct of its activities consisting of the purposes or functions for which it is organized and operated. . Not chargeable to capital account. 5. Government of the Philippines b. the assets. administration expenses do not exceed the level prescribed by the Secretary of Finance and not exceeding 30% of the total expenses. and exclusively for a public purpose. Science Education Culture Health Economic Development 6. or profession. in the event of dissolution. For acquisition or improvements of property subject to depreciation or depletion used in research and development. 2.

A. 7641 can be claimed by employer as deductible business expense Insurance premiums paid by an employer client-company for group plan are deductible as business expense under Section 34(A) of Tax Code. No. the plan should consider the services of the employees who were already with the employer even before the plan was set up. a certificate of tax exemption for reasonable private benefit plan must be obtained. Since the benefits from any pension plan consider the length of service of the employee. 2. This deduction is purely business in character. 4917 and Section 32(B)(6)(a) of the Tax Code] The rules in the law on deduction for pension payments to employees apply to a pension plan that is funded. amount contributed for the present service cost. any purpose other than for the exclusive benefit of the said officials and employees. REASONABLE AND ACTUARIALLY SOUND Reasonable Private Benefit Plan [R. A pension plan is usually set up after some years of operations have gone by. Personal. b. 2.A. .1/10 of the amount contributed is deductible in the year the contribution is made. Amount expended in restoring property or in making good the exhaustion thereof for which • - means a pension. This is called “present service cost. gratuity.A. 32(B)(6) b) c) d) e) PENSION OR RETIREMENT PLAN ESTABLISHED AND FUNDED BY EMPLOYER Kinds of Private Retirement Benefit Plans a. 4917 3. NOTE: Section 6 of R. living or family expenses – because these are personal expenses. No.82 Income Taxation MEMORY AID IN TAXATION LAW Pension Trust Contributions A deduction applicable only to the employer on account of its contribution to a private pension plan for the benefit of its employee. The payment has not yet been allowed as a deduction. this is called “past-service cost. Amount paid out for new buildings or for permanent improvements.R. • Trusteed plan Non-trusteed plan/insured plan Premiums paid by employer for the life insurance plans in accordance with R. and 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. 60(B) Exclusion from Gross Income – amount received by the employee from the fund upon compliance of certain conditions under Sec. there should be payment to the fund for pension for the services rendered during the year by the employees.100% deductible b.because these are capital expenditures except that intangible drilling and development cost incurred in petroleum operations are deductible. and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for. the remaining balance will be amortized equally over 9 consecutive years. No. 1-68 as amended by R.R. Amount contributed for the past service cost. Requisites for Deductibility: a) The employer must have established and funded a pension or retirement plan to provide for the payment of reasonable pensions to his employees. The amount contributed must be no longer subject to the control and disposition of the employer. 1-83 which implement R.” LIMITATIONS ON DEDUCTIONS Contribution made to a pension trust may be claimed as deduction in the following manner: a. Summary of Rules on Retirement Benefit Plans/ Pension Trust 1. NON-DEDUCTIBLE EXPENSES Specific Items (Section 36): 1. Such past services will require a lump sum payment to the pension fund. or be diverted to. when the employer is already financially capable of providing benefits to his employees. Exempt from Income Tax – employees’ trust under Sec. The pension plan is reasonable and actuarially sound. An employer does not provide for pension for his employees in his initial years of operations. provides that before availing of the privilege. stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees. or betterment made to increase the value of any property or estate . No. No.” For each year after the pension plan was set up. wherein contributions are made by such employer for officials or employees or both for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated.

GROSS INCOME FROM SOURCES WITHIN THE PHILIPPINES 1. b. Tax Consequences under Sec. project or scheme the use of or the right to use: c. venture. patent. or of any person financially interested in any trade or business carried on by the taxpayer. 3. technical. interests dividends a. goodwill. machinery or other apparatus purchased from such non–resident person technical advice. b. use of or the right or privilege to use in the Philippines any copyright. design or model. From domestic corp. 83 2008 CENTRALIZED BAR OPERATIONS Losses from sales or exchanges of property between related taxpayers. 2. trade brand or other like property or right use of or the right or privilege to use in the Philippines any industrial. plan. Premiums paid on any life insurance policy covering the life of any officer or employee. for the 3-yr. when the taxpayer is directly or indirectly a beneficiary under such policy – because these are items not normally subject to income tax and therefore not deductible. b. Interest expense [Sec. individual or corporate. and is furnished as a means of enabling the application or enjoyment of. 5. profits and income from the sale of real property located in the Philippines . 36 (B): The following are not deductible: 1. 34 (B)(2)] Bad debts [Sec. B. (unless less than 50% of the gross income of such foreign corp. trademark. g. C L A S S I F I C A T I O N O F I N C O M E ACCORDING TO SOURCE a.San Beda College of Law an allowance has been made – because these are capital expenditures. 5. period ending with the close of the taxable year preceding the declaration of such dividends was derived from sources within the Philippines) – only in an amount which bears the same ratio to such dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to its gross income from all sources. secret formula or process. any such property/right in (a) such equipment or (b) in knowledge/information in (c) supply of services by a non–resident person or his employee in connection with the use of property/rights belonging to. 4. assistance or services rendered in connection with technical management or administration of any scientific. e. • • • motion picture films films or video tapes for use in connection with TV tapes for use in connection with radio broadcasting Gains. c. Income derived from sources within the Philippines Income derived from sources without the Philippines Income derived from source partly within and partly without the Philippines d. f. from foreign corp. commercial or scientific equipment supply of scientific. industrial or commercial knowledge or information supply of any assistance that is ancillary and subsidiary to. industrial or commercial undertaking. 34 (E)(1)] Losses from sales or exchanges of property [Sec 36 (B)] Situs/Source of Income Situs/Source of Income A. or the installation or operation of any brand. 2. services (compensation for labor/personal services) rentals and royalties (from property or use of property located in Philippines or interest therein) Including: a. 4. 3.

losses and other deductions properly allocated thereto and a ratable part of expenses. Worldwide Gross Income X Unallocated Expenses ALLOWABLE DEDUCTIONS FROM GROSS INCOME FROM SOURCES WITHIN THE PHILIPPINES GENERAL RULE: Deductions: expenses. Items of gross income in (A) and (B) above shall be allocated or apportioned to sources within or without the Philippines. Gain from the sale of shares of stock in a domestic corporation . Gains from the sale of personal property: o produced (in whole or in part) by the taxpayer within and sold without the Philippines. EXPENSES TO BE ALLOCATED TO INCOME FROM WITHOUT Exception: No deduction for interest paid/ incurred abroad is allowed unless the indebtedness was actually incurred to provide funds for use in connection with the conduct . INCOME FROM SOURCES PARTLY WITHIN AND PARTLY WITHOUT THE PHILIPPINES 1. Ratable part formula Philippines Gross Income Worldwide Gross Income X Unallocated Expenses EXPENSES TO BE ALLOCATED TO INCOME FROM WITHOUT Deductions: expenses. Such deductions are allowed only if fully substantiated by all information necessary for its calculation. MEMORY AID IN TAXATION LAW or operation of trade/business in the Philippines C. interests. trade brands.84 Income Taxation 6. losses and other deductions which cannot definitely be allocated to some items or class of gross income. copyrights. losses and other deductions properly apportioned or allocated thereto and a ratable part of expenses. losses and other deductions effectively connected with the business/trade conducted exclusively in the Philippines which cannot definitely be allocated to some items or class of GI. and income from the sale of personal property as determined in Subsection E of Section 42. Gains. franchises and other like properties Gains. profits. G R O S S I N C O M E F R O M S O U R C E S WITHOUT THE PHILIPPINES 1.treated as derived e n t i rely from sources within the Philippines regardless of where the said shares are sold. losses and other deductions which cannot 2. subject to the following rules: PLACE OF PLACE PURCHASE OF SALE Philippines Abroad EXCEPTION: 1. interests. trademarks. Gross Income (within and without the Philippines) Less: Deductions Taxable Income Deductions where items of gross income are separately allocated to sources within the Philippines and in case of GI derived from sources partly within and partly without the Philippines . goodwill. interests. profits and income from the sale of real property located without the Philippines GENERAL RULE: Gains. secret processes and formulas. D. or produced (in whole or in part) by the taxpayer without and sold within the Philippines Abroad TREATMENT Income from without Philippines Income from within 4. Interests (other than those derived from sources within the Philippines) Dividends (other than those derived from sources within the Philippines) Compensation for labor or personal services performed without the Philippines Rental or royalties from property located without the Philippines or from any interest in such property including rentals/royalties for the use of or for the privilege of using without the Philippines. 5. patents.expenses. and income from the sale of personal property. 2. NIRC. ALLOWABLE DEDUCTIONS FROM GROSS INCOME FROM SOURCES WITHOUT THE PHILIPPINES Gross Income from Without the Phils. 2. losses and other deductions properly apportioned or allocated thereto and a ratable part of expenses. 3. o • Treated as derived partly from sources within and partly from sources without the Philippines. profits.

shall be treated as derived entirely from sources within the country in which sold. under As a methods of general accounting rule permitted under Section 43. Transfer by a nonresident alien or a foreign corporation to anyone of any shares of stock issued by a domestic corporation shall not be made in its book. any such amounts are to be properly accounted for as of a different period. Gains. profits and income from the sale of personal property produced by the taxpayer within and sold without the Philippines or produced by the taxpayer without and sold within the Philippines shall be treated as derived partly from without the Philippines Gains. a. Taken for the taxable year in which "paid or accrued" or "paid or incurred". accounting period is other than a fiscal year. Accounting Methods Accounting Methods Accounting Periods PERIOD FOR ITEM OF INCOME ITEMS OF GROSS INCOME Included in the gross income for the taxable year in which received by the taxpayer. GENERAL RULE Taxable income is computed upon the basis of taxpayer’s annual accounting period (fiscal or calendar year) in accordance with the method of accounting employed. 85 2008 CENTRALIZED BAR OPERATIONS Gain from sales of shares of stock in a domestic corporation shall be treated as derived entirely from sources within the Philippines regardless of where the said shares are sold. or taxpayer is an individual. 3. 2. • • • Fiscal year: accounting period of 12 months ending on the last day of any month other than December Calendar year: accounting period from January 1 to December 31 . unless. computation shall be made in accordance with such method as the opinion of the Commissioner clearly reflects the income. profits and income from the purchase of personal property within and sold without the Philippines or from the purchase of personal property without and sold within the Philippines. included in computing taxable income for the taxable period in In case which falls the date of of his death. • If no method of accounting is employed or method does not clearly reflect the income. Transferor filed a bond with the Commissioner. unless in order to clearly reflect the income. 4.San Beda College of Law definitely be allocated to some items or class of Gross Income. death amounts accrued of the up to the date of taxhis death if not payer otherwise properly includible in respect of such period or a prior period DEDUCTIONS AND CREDITS Taken for the taxable year in which "paid or accrued" or "paid or incurred". Taxable income is computed based on calendar year if: 1. dependent upon the method of accounting the basis of which the net income is computed. 4. Commissioner certified that the taxes imposed and due on the gain realized have been paid. dependent upon the method of accounting the basis of which the net income is computed. taxpayer does not keep books. 3. the deductions should be taken as of a different period. It is the duty of transferor and the corporation to advise the transferee of the requirements. taxpayer has no accounting period. the deductions should be taken as of a different period. unless: 6. unless in order to clearly reflect the income. 5. or b.

subject to the provisions of Section 47. Methods of Accounting CASH METHOD Recognition of income and expense dependent on inflow or outflow of cash ACCRUAL METHOD Method under which income. and expenses are allowed as deductions when incurred. What does “initial payment mean”? The payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made. account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income. Change from Accrual to Installment Basis If a taxpayer entitled to the benefits of Subsection (1) elects for any taxable year to report his taxable income on the installment basis. which the gross profit realized or to be realized when payment is completed. . if in either case the initial payments do not exceed twenty-five percent (25%) of the selling price How income reported? In the same manner as in sales of dealer in personal property above. upon recommendation of the Commissioner. the Commissioner may permit or require an amended return. installation or construction contracts covering a period in excess of one (1) year. 3. If upon completion of a contract.86 Income Taxation CHANGE OF ACCOUNTING PERIOD If a taxpayer. be computed on the basis of such new accounting period. considered as capital asset. with the approval of the Commissioner. 1. it is found that the resulting taxable net income has not been clearly reflected for any year or years. Sales of Real Property Considered as Capital Asset by Individuals. There should be deducted from such gross income all expenditures made during the taxable year on account of the contract. for a price exceeding One thousand pesos (P1. INSTALLMENT BASIS Sales of Dealers in Personal Property Under rules and regulations prescribed by the Secretary of Finance. Sales of Realty and Casual Sales of Personality In cases of: a) casual sale or other casual disposition of personal property (other than 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). a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year.000). How is income reported? Persons whose gross income is derived in whole or in part from such contracts shall report such income upon the basis of percentage of completion. An individual who sells or disposes of real property. Examples:    Interest or rent income earned but not yet received. from calendar year to fiscal year. changes his accounting period from fiscal year to calendar year. although not yet paid. then in computing his income for the year of change or ACCOUNTING FOR LONG TERM CONTRACTS 'long-term contracts' mean building. bears to the total contract price. or from one MEMORY AID IN TAXATION LAW fiscal year to another. upon recommendation of the Commissioner. The Return The return should be accompanied by a return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under contract. the net income shall. other than an individual. or b) sale or other disposition of real property. and is otherwise qualified to report the gain therefrom under (2) above may pay the capital gains tax in installments under rules and regulations to be promulgated by the Secretary of Finance. gains and profits are included in gross income when earned whether received or not. Rent expense accrued but not yet paid Wages due to workers but remain unpaid 2.

4 of R. refers to the requirement that taxes imposed or prescribed by the NIRC are to be deducted and withheld by the payor-corporations and/or persons from payments made to payeescorporation and/or persons for the former to pay the same directly to the BIR. Rationale: 1. WHICHEVER COMES FIRST (Section 2. To provide the taxpayer a convenient manner to meet his probable income tax liability. although there is a word “tax” in it. Withholding Tax at Source: a. If above remedies are availed of. 4. Rather. Final Withholding Tax This practice which is also known as “taxation at source”.57. 2-98 as amended by R. In two natures: final withholding tax and creditable withholding tax (Large Taxpayers Quick Guide.R. trade or business. and surcharges. To ensure the collection of the income tax which could otherwise be lost or substantially reduced through the failure to file the corresponding returns. the expenses not previously subjected to withholding tax will be allowed as a deduction for income tax purposes.R. May 2006). Volume II by Large Taxpayers Assistance Division I. PERCENTAGE TAX. at the time of the audit investigation or reinvestigation/ reconsideration provided the payees reported the income. including the interest incident to failure to withhold tax. amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded. 3. and surcharges if applicable. at the time of the audit investigation or reinvestigation/ reconsideration if the payees did not report the income and pay the tax. pay the difference between the correct amount and the amount of tax withheld. 2. it is a manner of collecting a kind of tax (advance payment of tax due) which may be INCOME TAX. Remedies of withholding agent if expense is disallowed (R. if he determined that such distribution.R. Section 6 of R. To minimize tax evasion.R. including the interest incident to the failure to withhold the tax. Pay the amount that should have been withheld. Allocation of Income and Deductions In the case of two or more organizations. . Kinds: 1. at the time of audit b. VAT. and surcharges if applicable. Withholding Taxes Withholding Taxes General Concepts investigation or reinvestigation/ reconsideration. In case of under withholding. the Commissioner is authorized to distribute. 17-2003: items for deduction representing return of capital such as those pertaining to purchase of raw materials forming part of finished product or purchases of goods for resale.R. Pay the tax due thereon. including the interest. Thus. incident to such error. apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any such organization. 14-2002): a. apportion or allocate gross income or deductions between or among such organization. the taxes are collected practically at the time the transaction is made or when the taxable act occurs. 2-98 as amended by Section 4 of R. shall be allowed as deductions upon the withholding agent’s payment of the basic withholding tax and penalties incident to non-withholding or underwithholding. Is withholding tax a type of tax? Withholding tax is not a tax. WITHHOLDING TAXES HAVE BEEN PAID The obligation of the payor to deduct or withhold the tax arises at the time an income payment is PAID or PAYABLE or ACCRUED or recorded as an expense or asset whichever is applicable in the payor’s books. trades or businesses (whether or not incorporated and whether or not organized in the Philippines) 87 2008 CENTRALIZED BAR OPERATIONS owned or controlled directly or indirectly by the same interests. etc. 12-2001). c.San Beda College of Law any subsequent year. thus resulting in a more efficient tax collection system. trade or business. To improve the government’s cash flow. if applicable.

The withholding agent is merely a tax collector. 251. 3. fringe benefit tax and the 10% tax on cash rewards of informers shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as returns and payment of taxes withheld at source (Section 57 (A) NIRC). If a withholding agent was assessed for deficiency withholding tax under the Code. exchange or transfer or real property is concerned. No. revenue district officer. Liable upon conviction to a penalty equal to the total amount of the tax not withheld. as a matter of internal administration. 4. Is taxpayer answerable for the nonperformance of the withholding agent? NO. upon the recommendation of the Commissioner. paying and returning the tax and furnishing such statements rests with the corporate employer (R. Persons required to deduct or withhold a) In general. the payor is the taxpayer . Liable for surcharges and penalties. or duly authorized treasurer of the city or municipality where the withholding agent has his legal residence or principal place of business.R. Unless there is collusion and bad faith on the part of the taxpayer. in the case of a corporate employer with branch offices. b) An individual. Thus. capital gains tax on sales on shares of stocks and real properties. or not accounted for and remitted (Sec. 104151 March 10. with respect to payments made in connection with his trade or business. whether or not engaged in trade or business.R. Nature of Withholding Agent’s Liability: The withholding agent is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittance (Commissioner vs. individual buyers who are not engaged in trade or business are also constituted as withholding agents. where the principal office is located. Court of Appeals G. collection agent. Procter and Gamble.R.R. city and municipal governments and barangays. a separate entity acting no more than an agent of the government for the collection of tax in order to ensure its payments. MEMORY AID IN TAXATION LAW Withholding Tax on Creditable Value-Added Tax Withholding of Percentage Tax W i t h h o l d i n g Ta x o n C o m p e n s a t i o n (Withholding Tax on Wages and Fringe Benefit Tax ) The Withholding Agent What taxes are required to be withheld? Subject to rules and regulations the Secretary of Finance may promulgate. insofar as taxable sale. certain mechanical details of the withholding process may be handled by representatives of the employer. R. Nevertheless. it is being held liable in its capacity as a withholding agent and not its personality as a taxpayer (Commissioner of Internal Revenue vs. G. the final tax on passive income. withhold the tax or prepare the statements required under the law. Creditable Withholding Tax (Expanded withholding tax) 3. and the payee is the taxing authority. No. 2. except in cases where the Commissioner otherwise permits. How are taxes withheld and remitted to the BIR? Taxes deducted and withheld by withholding agents shall be covered by a return and paid to. 1997 NIRC). Consequences for Failure to Withhold: 1.he is the person subject to tax imposed by law. the withholding agent is the payor. . Note: As a matter of business administration. deemed a taxpayer? No. 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 (Section 58A NIRC). as amended). requiring the filing of income tax return by certain income payees. c) However. not a taxpayer.5. The taxpayer could not be deemed to have evaded the tax had the withholding agent performed its duty. the branch manager or other representative may actually. December 2. An income taxpayer covers all persons who derive taxable income. an authorized agent bank. 66838. May a withholding agent in such capacity.58. 1991).88 Income Taxation b. 2-98. as such. the legal responsibility for withholding. d) All government offices including GOCC’S as well as provincial. 2. 2-98). and Any income payment which is otherwise deductible from the payor’s gross income will not be allowed as a deduction if it is shown that the income tax required to be withheld is not paid to the BIR (Sec. 1995). No. any juridical person. Role of Withholding Agent In the operation of the withholding tax system. or where the withholding agent is a corporation. 2.

whichever comes first.g. gross by the expanded income of NRAwithholding tax (R. R. 3. No.98).R.A.A. deductions and/or personal and additional exemptions are not allowed. No. sale of real property by corporation registered and certified by HLURB or HUDCC as engaged in social housing project where the selling price of house and lot or lot only does not exceed P 300.54. general or special. such as but not limited to the following: a.Fees paid to violations of the medical NIRC and the practitioners discovery and .Income seizure of smuggled payments to goods. 2. 2. WHO IS PRIMARILY LIABLE The liability for payment Liability rests upon the of the tax rests primarily taxpayer on the payor as the withholding agent. It is the withholding agent who files the return. city or municipal governments Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law.Professional persons instrumental fees. FINAL WITHHOLDING TAX 1. demandable or legally enforceable (Sec. The liability for the payment of the tax rests primarily on the payor as withholding agent.57 (a). NEED TO FILE A RETURN The payee is not required to file an income tax return for the particular income. there would be a violation of prohibited double taxation. partners of GPP 2. The income subjected to final income tax is no longer subject to the net income tax. 7916 and Omnibus Investment Code of 1987 AMOUNT OF TAX COLLECTED The amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income due from the payee on the said income [Sec. COVERAGE  All income subject to  Those income final taxes (e. 7916 and Omnibus Investment Code of 1987 corporation registered with BOI and enjoying tax exemption from income tax provided under R. . E X E M P T I O N S F R O M C R E D I TA B L E WITHHOLDING TAX (Large Taxpayers Quick Guide Volume II by Large Taxpayers Assistance Division I. Time to Withhold Tax at Source: Arises at the time an income is paid or payable. No. 2. The income recipient is still required to file an income tax return and/ or pay the difference between the tax withheld and the tax due on the income. b. NETB) 2-98) Examples:  Fringe benefit  Informer’s reward to . It is constituted as a full and final payment of the income tax due from the payee on a particular type of income subject to final withholding tax (FWT). 2-98]. 5. 4. payments covered passive.R. The finality of the withholding tax is limited only to the payee’s income tax liability and does not extend to other taxes that may be imposed on said income. as provided under R.San Beda College of Law 89 2008 CENTRALIZED BAR OPERATIONS Withholding Tax Source FINAL WITHHOLDING TAX SYSTEM CREDITABLE WITHHOLDING TAX SYSTEM Taxes withheld on certain income payments are intended to equal or at least approximate the tax due from the payee on the said income. The term “payable” refers to the date the obligation becomes due. May 2006): 1. income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subjected to withholding tax as prescribed in existing regulations.000 or such adjusted amount of selling price for socialized housing as may later be determined and adopted by HLURB. The rate of the final tax is multiplied to the gross income. NOTE: Payments to PAGCOR are subjected to withholding tax. No.R. Corporations which are exempt from income tax under Section 30 of NIRC However.4 R. talent fees in the discovery of . otherwise. Thus. National Government and its instrumentalities. 3. including provincial. The payee is not required to file an income tax return for the particular income subjected to FWT. 2.

to pay the interest without deduction for any tax which the obligor may be required/ permitted to pay or to retain therefrom. resident of the Philippines. G S I S . and There must be a payroll period. whether bonds. whether such Withholding Tax on Compensation Income The income recipient (i.90 Income Taxation Tax-Free Covenant BOND [Sec. What Constitutes compensation? 10. • Obligor shall deduct and withhold a tax equal to 30% of the interest and other payments whether interest or other payments are payable annually or at a shorter period. Income exempt under treaty 11. except rank and file employees. 58 (d)] Income which any creditable tax is required to be withheld at source shall be included in the return of its recipient. mortgages. deriving income from compensation for services rendered in the Philippines. which contain a contract/provision by which the obligor agrees: MEMORY AID IN TAXATION LAW Income of Recipient [Sec. the State requires the employer to withhold the tax upon payment of the compensation income. Compensation Exempted: 1. Thirteenth (13th) month pay and other benefits 12. refund/credit taxes). There must be payment of compensation or wages for services rendered. b. f. It applies to all employed individuals whether citizens or aliens. The excess of the amount of tax withheld over the tax due on his return shall be refunded to him.. 7. b. FRINGE BENEFIT TAX it is a final withholding tax imposed on the grossed up monetary value of fringe benefit furnished. 57(C)] Covenant Bonds – bonds. yet to improve the collection of compensation income of employees. deeds of trust and other similar obligations of domestic/ resident foreign corporation. Withholding tax on compensation income a. Expanded withholding tax • • Withholding Tax on Compensation The method of collecting the income tax at source upon receipt of the income. to pay any portion of the tax imposed upon the obligee. or 3. granted or paid by the employer to the employee. e. ELEMENTS OF WITHHOLDING ON COMPENSATION: 1. employee) is the person liable to pay the income tax. to reimburse the obligee for any portion of the tax. 3. b. The employer is constituted the withholding agent. S S S . Return on Creditable Withholding Tax The income payor who withheld a creditable income tax should file a return and pay the tax withheld a. 2. 8. c. d. a. obligations had been/will be issued/marketed and the interest and other payments paid within and without the Philippines if the interest or other payment is payable to a non-resident alien or a citizen or resident of the Philippines. 4. securities. Salaries and wages Commissions Tips Allowances Bonuses Fringe Benefits of rank and file employees 5. There must be an employer-employee relationship. Remunerations received as an incident of employment Remunerations paid for agriculture/labor Remunerations paid for domestic services Remunerations for casual not in the course of an employer's trade or business. 2. 2. Compensation for services of a citizen. subject to Section 204 (abatement. . for a foreign government or an international organization Damages Life insurance Amount received by the insured as return of premium Compensation for injuries and sickness 6. Monthly return – within ten (10) days after the close of the month Annual return – On or before January 31 of the succeeding year Monthly return – within ten (10) days after the close of the month Annual return – on or before March 1 of the succeeding year 1. 9.e. P h i l h e a l t h a n d o t h e r contributions. 3.

Taxable Fringe Benefits What are fringe benefits? TWO VIEWS: A. such as maid. 6. These expenses are liquidated or substantiated by receipts or other adequate documentation. • If the employer lends money ton his NRF employee free of interest or a rate lower than 12% such interest foregone by the employer or the difference of the interest assumed by the NRF employee and the rate of 12% shall be treated as taxable fringe benefit. De minimis benefit. service. 5.San Beda College of Law employer is an individual. professional partnership or corporation. 2. subject to FBT if NON- b. Who pays the Fringe Benefit Tax? The employer but he is allowed by law to deduct FBT as a business expense in determining his taxable income. garbage dues. • • • Fixed and variable transportation. FRINGE BENEFIT means any good. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. or the government and its instrumentalities. Housing General Rule: The value to the employee of quarters and meals given by the employer shall be added to his compensation subject to withholding. BASIC RULES 1. representation and other allowances as a general rule. to an individual employee (except rank and file employees) such as. but not taxable if incurred or reasonably expected to be incurred by employee in the performance of his duties. or other similar personal expenses (like payment for homeowners association dues. Fringe benefits subject to FBT are NOT LIMITED only to those explicitly mentioned in the Tax Code and R. which must be withheld and deducted by his employer from the compensation income of his employee. these are ordinary and necessary in the pursuit of employer’s business and paid or incurred by employee. 3-98. Vehicle of any kind Household personnel. 3. Fringe benefit given to a rank and file employee (whether under a collective bargaining agreement or not) is not subject to the fringe benefit tax.R. Exception: if living quarter/meals are furnished to an employee for the convenience of the employer. 2. What is the tax implication if the employer gives ‘fringe benefits’ to rank-and-file employees? Fringe benefits given to a rank-and-file employee are treated as part of his compensation income subject to income tax and withholding tax on compensation income.R. No. Expense Account 3. in cash or in kind. Fringe benefit given to a supervisory or managerial employee is subject to the fringe benefit tax. dues and other expenses borne by the employer for the employee in social and athletic clubs and similar organizations • Borne by NRF employee in social and athletic taxable fringe benefit of the NRF employee in full. or other benefit furnished or granted by an employer. Membership fees. but not limited to the following: 1. in addition to basic salaries. All other benefits are subject to regular WTW. The benchmark interest rate of 12% remains in effect until revised by a subsequent regulation. Fixed and variable transportation. subject to the following conditions: a. 3-98. etc. such as salaries of household help. representation and other allowances as a general rule. 7. The rule shall apply to installment payments or loans with interest rate lower than 12% starting January 1. B. driver and others • Expenses for the NRF employees which are borne by the employer for household personnel. whether given to rank and file employee or to supervisory or managerial 91 2008 CENTRALIZED BAR OPERATIONS employee is not subject to the fringe benefit tax. 1998. regardless of whether the corporation is taxable or not. 4. subject to FBT if NONRANK. Only those benefits specifically enumerated in the Tax Code and R. Expenses for foreign travel • . No. personal driver of the employee.) shall be taxable as fringe benefits.

Foreign service contractor or foreign service subcontractor engaged in petroleum operations in the Philippines Individuals working in special economic zones GROSSED UP DIVISOR 66% 67% 68% RATE 34% FWT 33% FWT 32% FWT RATE 32% FWT2000 and onwards 25%FWT 2. 9. NRA-ETBL NRA-NETB Individuals employed by RHQ or RAHQ. b. such as the 13th month pay and other benefits with the ceiling of P30. For NRF General Rule: taxable fringe benefit Exception: a. YEAR 1998 1999 2000 onwards EMPLOYEE Citizen. MEMORY AID IN TAXATION LAW “GMV” OF THE FRINGE BENEFIT REPRESENTS: 1. Education/study is directly connected with employer’s trade or business. GSIS. 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. b. if it is required or necessary to the business of the employer. OBU. STOCK OPTIONS ARE SUBJECT TO FRINGE BENEFIT – The basis is the difference between the fair market value and the exercise price at the time of exercise. Fringe benefits which are authorized and exempted under special laws.000. “GMV” of the fringe benefit shall be determined by dividing the monetary value of the fringe benefit by the Grossed–up divisor. 10. RA.92 Income Taxation RANK. FRINGE BENEFITS NOT SUBJECT TO FBT 1. and Contributions of the employer for the benefit of NRF employee to the SSS. plus The amount of fringe benefit tax thereon otherwise due from the employee but paid by the employer for and in behalf of the employee. 8. 2. but not taxable if incurred or reasonably expected to be incurred by employee in the performance of his duties. b. 32 (B) – Exclusions from Gross Income Fringe benefits not taxable under Sec. Educational assistance to the employee or his dependents. except when the assistance was provided through a competitive scheme under the scholarship program of the company employer. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. The Grossed–up divisor is the difference between 100% and the applicable rates. TAX RATES AND BASE Tax Base: The grossed up monetary value (GMV) of the fringe benefit Fringe Benefit that is not taxable under Sec. 3. 33 Fringe Benefit Tax: a. GROSSED– UP DIVISOR 68% 75% In case of NRF’s dependents. General rule: Life or health insurance and other non-life insurance are taxable fringe benefit Exception: 85% 15%FWT • • The cost of premiums borne by the employer for the group insurance of his NRF employees . . and similar contributions arising from provisions of any existing law. subject to the following conditions: a. or If it is for the convenience or advantage of the employer. and With a written contract that employee shall remain employed with the employer for a period of time mutually agreed upon by the parties. the same is taxable fringe benefit. Fringe benefits not considered as gross income – a. These are ordinary and necessary in the pursuit of employer’s business and paid or incurred by employee. These expenses are liquidated or substantiated by receipts or other adequate documentation. Holiday and vacation expenses • Holiday and vacation expense of the NRF employee borne by his employer shall be treated as taxable fringe benefit.

In the case of rank and file employees. insurance and hospitalization benefit plans. NOTE: These are not considered as compensation. 10.000 received by the employee under an established written plan which does not discriminate in favor of paid employees.00 or one (1) sack of 50kg. Uniform and clothing allowance not exceeding P3. as last amended by RR No. 000 per annum. whether granted under a collective bargaining agreement or not.000 per employee per annum. No. To be considered “de minimis” medical allowance.000 per annum. monetization of SL credits even if not exceeding 10 days are subject to TAX. with respect to “de minimis benefits" not subject to withholding tax. The amount given to the EE shall be for his own medical expense. fringe benefits other than those excluded from gross income under the Tax Code and other special laws.San Beda College of Law b. The EE must fully substantiate with or in his 4.00. . Note: Revenue Regulations No. 5. The amount actually given and actually spent shall not exceed P10. and efficiency of employees The term “Rank and File Employees” shall mean all employees who are holding neither managerial nor supervisory position as defined in the Labor Code.00). 2.00 per employee per semester or P125 per month. for length of service or safety achievement.500. DE MINIMIS BENEFITS Income but not compensation hence not taxable 9. 5-2008 further amended RR Nos. which must be in the form of a tangible personal property other than cash or gift certificate. subject to exceptions Income but not compensation hence not taxable 8. 6. Rice subsidy is in the amount of P1. Flowers. Benefits given to the rank and file employees. Gifts given during Christmas and major anniversary celebrations not exceeding P3. MANAGERIAL/ SUPERVISORY EMPLOYEES It is subject to income tax Subject to fringe benefit tax RANK AND FILE EMPLOYEES 93 2008 CENTRALIZED BAR OPERATIONS 2. Monetized unused vacation leave credits of PRIVATE employees not exceeding (10) days during the year and the monetized value of leave credits paid to government officials and employees • General Rule: Paid VL and SL are subject to FBT for NRF Exception: Monetized value of unutilized VL credits of 10 days or less are NOT SUBJECT TO WTW OR FBT However. uniform and clothing allowance not exceeding P4.g. name the medical allowance to be granted (As amended by RR 5-08. are taxable under the individual normal tax rate.000 per annum. 2-98 and 3-98. Daily meal allowance for overtime work not exceeding 25% of the basic minimum wage. Medical cash allowance to dependents of employees not exceeding P750. c.000 in any given calendar year. Employees achievement awards e. 10-2000. Rice subsidy of P1. Actual yearly medical benefits not exceeding P10. Laundry allowance not exceeding P300 per month. rice per month amounting to not more than P1.000.500 or one(1) sack of 50 kg rice per month amounting to not more than P1.000.R. 7. and (b) Uniform and clothing allowance not exceeding P4. 8-2000 and 10-2000): 11. DE MINIMIS BENEFITS NOT SUBJECT TO FBT (R. for rank and file employees as well as managerial employees. d. 1. 3. contentment. fruits. Contributions of the employer for the benefit of the employee to retirement. books or similar items given to employees under special circumstances. COMPENSATION/SALARIES/WAGES It is subject to income tax FRINGE BENEFITS Part of compensation and subject to income tax. the following conditions must concur: 1.00 (As amended by RR 5-08.000 per annum). as follows: (a) Rice subsidy of P1. and De minimis benefits – benefits which are relatively small in value offered by the employer as a means of promoting goodwill. with an annual monetary value of not exceeding P10.500.

000 limit – excess subject to FBT If given to rank and file employee a. The excess is within the P30. partnership or association are required to deduct and withhold taxes due from the payees on account of such money payment. instrumentalities of the government. Remunerations received as an incident of employment Remunerations paid for agriculture/labor Remunerations paid for domestic services Remunerations for casual not in the course of an employer's trade or business. The excess is within the P30.000.the excess is not taxable b. An individual (citizens/aliens) engaged in business or practice of a profession within the Phil. corporations.. municipalities making any money payment to private individuals. 32(b)(7)(e) of the NIRC . Income exempt under treaty 11. The excess is beyond the P30. 5. 8. Additional Compensation Allowance (ACA) is part of “other benefits” under Sec. the income tax due. the allowable deductions including exemptions. 5. 4. 32(b)(7)(e) of the NIRC . for a foreign government or an international organization Damages Life insurance Amount received by the insured as return of premium Compensation for injuries and sickness 6. Compensation Exempted 1. . the net taxable income. 32(b)(7)(e) of the Tax Code of 1997 which are excluded from gross compensation income provided the total amount of such benefits does not exceed P30.000 limit under Sec. It is also not subject to MEMORY AID IN TAXATION LAW withholding tax pending its formal integration into basic pay. Resident alien on income from within the Phil. 10. 4. and 6. provinces.94 Income Taxation De minimis benefit exceeds the ceiling prescribed: If given to managerial/supervisory employee a. 9. Compensation for services of a citizen. 7. Representation and Transportation Allowance (RATA) and Personnel Economic Relief Allowance (PERA) are not subject to Income Tax and Withholding Tax. regardless of the amount of gross income. Resident citizen.the excess is not taxable b. including GOCC’s as well as their subsidiaries. the income tax rate. Thirteenth (13th) month pay and other benefits 12.. The excess is beyond the P 30. Returns and Payments Returns and Payments Filing of Tax Return and Payment of Tax Tax Return – This is a report made by the taxpayer to the BIR of all gross income received during the taxable year. and the income tax still to be paid or refundable. the income tax withheld. if any. 3. 2. Individual 1.000 limit – excess is taxable as salary or compensation income. offices. cities. NRAETB on income from within the Phil. resident of the Philippines. 3. 2. G S I S . S S S .000 limit under Sec. Individual deriving compensation income concurrently from two or more employers at any time during the taxable year. P h i l h e a l t h a n d o t h e r contributions Withholding of Percentage Tax Bureaus. PERSONS REQUIRED TO FILE INCOME TAX RETURN: A. Non-resident citizen on income from within the Phil.

San Beda College of Law 7. items of gross income and deductions allowed. . c. 2. resident or non–resident aliens) Do not derive income purely from compensation. false or fraudulent return. Not exempt from income tax. a return of its income (except those income exempt) Shall set forth: a. duly authorized agents. Insurance company doing business in the Philippines or deriving income therein. and Exempt from income tax under Sec. a. 30 of NIRC but has not shown proof of exemption. or when transfer of such property is exempt from donor’s tax. or other person charged with the care of his person or property. Individual whose gross income does not exceed total personal and additional exemptions. 5. • D. Individual with respect to pure compensation income derived from sources within the Philippines. Unmarried Minor: • 6. c. 95 2008 CENTRALIZED BAR OPERATIONS • Individuals Exempt from Filing Income Tax Return: 1. How is the return of the Corporation filed? The return shall be filed by the president. B. ii. d. whether with income or not. names of partners. • Married individuals (citizens. Income of unmarried minors derived from property received by the living parent shall be included in the return of the parent. 4. it may be made by his: a. when donor’s tax has been paid on such property. Individual whose pure compensation income derived from sources within the Phil. Corporation subject to tax having existed during the taxable year. b. Corporation 1. exceeds P60. except: a. Who will assume the responsibility of making the return and incurring penalties provided for erroneous. TIN. 000. and shall be sworn to by such officer and by the treasurer or assistant treasurer. Taxable Estate and Trust • • • 2. Individual whose sole income has been subjected to final withholding income tax. the income tax on which has been correctly withheld. • • I n d i v i d u a l s R e q u i r e d To F i l e A n Information Return: Individuals not required to file an income tax return may nevertheless be required to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance upon recommendation of the Commissioner. by guardian. General Professional Partnership • 3. representative. b. Estate and Trust with gross income of P20. C. Corporation in the process of liquidation or receivership. The ITR shall be filed on or before April 15 Each GPP shall file in duplicate. 4. Persons under Disability: If a taxpayer is unable to make his own return. vice-president or other principal officer.000 Return is filed by the fiduciary The ITR shall be filed on or before April 15 The income tax return shall be signed and filed by the principal officer of the partnership. 3. b. and Address and share of each partner. and Foreign corporation having income from within the Philippines If impracticable to file one return: each spouse shall file a separate return of income but the return so filed shall be consolidated by the Bureau for the purpose of verification for the year. and Individual who is exempt from income tax. d. Special Rules Return of Husband and Wife: • File one (1) return for the taxable year if the following requisites are complied.

Example: employee whose pure compensation income does not exceed P60. as if he had in fact filed a BIR Form No. 2. Individuals deriving other non-business. 1700 (for employees not entitled to substituted filing of ITR). • Non-filing – applicable to certain types of individual taxpayers who are not required under the law to file an income tax return. as indicated in BIR Form No. 2002. 5. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer. The employee's spouse also complies with all three (3) conditions stated above. The employee receives purely compensation income (regardless of amount) during the taxable year. the submission of the Joint Certification will suffice. Employees deriving compensation income. for employees entitled to substituted filing of ITR. whether from a single or several employers during the calendar year. No. 1604-CF. Individuals receiving purely compensation income from a single employer although the income tax of which has been correctly withheld.96 Income Taxation MEMORY AID IN TAXATION LAW Substituted Filing Substituted filing – is when the employer’s annual return may be considered as the “substitute” Income Tax Return (ITR) of employee inasmuch as the information provided in his income tax return would exactly be the same information contained in the employer’s annual return. 3.R. non-profession-related income in addition to compensation income not otherwise subject to final tax.000 or the statutory minimum wage. or compensation income and other non-business. It serves as proof of financial capacity in case the employee decides to apply for a bank loan or a credit card. 2. 4. It contains the employee's consent that BIR Form No.It is a sworn statement made by the employer and employee. and opted for nonwithholding of tax on said income. Employees whose monthly gross compensation income does not exceed P5. the income tax of which has 2. The employer files the annual information return (BIR Form No. Requirement of Banks for Submission of an ITR for Loan or Credit Card Applications: Banks may require the submission of BIR Form No. How Is “Substituted Filing” Different From “Non-Filing”? • Substituted Filing – an individual taxpayer although required under the law to file his income tax return. Individuals Not Qualified For Substituted Filing (Still Required To File): 1. which serve the following purposes: 1. 3-2002). 1604CF may be considered his substituted return. 3. Thereafter. It contains the employer's certification that he has reported the employee's income to the BIR and that he has remitted the taxes on the employee's income. But instead the employer’s annual information return filed is considered the “substitute” income tax return of the employee inasmuch as the information in the employer’s return is exactly the same information contained in the employee’s return. nonprofession-related income. not been withheld correctly (i. No. 6. 3-2002. will no longer have to personally file his own income tax return. regardless of the amount. . 5. whichever is higher. The employee receives the income only from one employer during the taxable year.R. which the employee no longer filed. R. 1700. 3. However. for employees who are qualified for the substituted filing shall be OPTIONAL for the taxable year 2001. or for any other purpose. Joint Certification . tax due is not equal to the tax withheld) resulting to collectible or refundable return. and The employer issues BIR Form 2316 (Oct 2002 ENCS) version to each employee. substituted filing where applicable shall be MANDATORY (Sec 5 R. Note: Non-filing of ITR. in lieu of BIR Form No. 4. 6. RMC 01-03] Requisites: 1. 1700. 1604-CF). but whose spouse falls under 1 to 4 above. the returns for which shall be filed on or before April 15.e. Substituted filing of Income tax Returns by Employees Receiving Purely Compensation Income [Section 4. Individuals deriving compensation from two or more employers concurrently or successively during the taxable year.000 and has only one employer for the taxable year and whose tax withheld is equivalent to his tax due.

EXCEPTION: Individuals may in two equal installments if the income tax due on the annual return exceeds Two thousand pesos (P2. The taxpayer must be enrolled in the EFPS Electronic signatures of the taxfiler shall be affixed in the return The taxpayer that will e-pay shall enroll with any authorized agent bank where he intends to pay Who is a large taxpayer? (As amended by R. On or before April 15 for final and consolidated return. 398 as implemented by R. 97 2008 CENTRALIZED BAR OPERATIONS of twenty (20) percent interest per annum from the original due date. the income tax shown on the return should be paid at the time the return is filed. Within 30 days after each transaction.000) for the preceding taxable year. 2.00) and above.000.R.000. Excise Tax – Business establishment with the excise tax paid or payable of at least One million pesos (P1.000) for any quarter of the preceding taxable year.San Beda College of Law TIME AND PLACE OF FILING INDIVIDUALS 1. Within 30 days after each transaction.000) for the preceding taxable year. if the taxpayer desires to pay on installment. Extension of Time to File Return: The Commissioner may on meritorious cases grant a reasonable extension of time for filing income tax return and may subject the imposition . following the close of the calendar year. statement in changes in financial position. 2. retained earnings. Revenue District Officer.R.April 15 Returns (BIR Form Quarterly Return 1702Q) Q1 – April 15 – within 60 days after Q2 – August 15 the end of each first Q3 – November 15 three quarters Capital Gains Tax Shares of Stock 1. statement of retained earnings. 2. and schedules attached to the aforementioned statements. corporations with paid-up capital stock of Ten Million Pesos (P10.000). • • • • • • MANNER OF PAYMENT GENERAL RULE: By “pay-as-you-file-system”. On or before April 15 for final and consolidated return. income statement.000. that non-stock non-profit corporations are excluded from the coverage of this regulations. etc. Real Property Within 30 days following each sale or disposition A taxpayer who satisfies any of the following criteria • Value Added Tax – Business establishment with VAT paid or payable of at least One hundred thousand pesos (P100.000. REPORTORIAL REQUIREMENTS (R. Legal residence authorized agent bank.000.000). however. Corporations with complete computerized system. Real Property Within 30 days following each sale or disposition Capital Gains Tax Shares of Stock 1. and All government bidders pursuant to Executive Order No. ELECTRONIC FILING AND PAYMENT SYSTEM (EFPS) Large taxpayers shall e-file their final adjustment income tax returns for the calendar/ fiscal year and Where to file • • • • Large taxpayers shall e-pay their taxes on or before the 15th day of the fourth month following the close of the taxable year. First Installment – At the time the return is filed Second Installment – On or before July 15. or the first installment of the tax. or 3. C o r p o r a t e I n c o m e Ta x – B u s i n e s s establishment with the annual income tax paid or payable of at least One million pesos (P1. Office of the Commissioner CORPORATION Non-large taxpayer – authorized agent banks within its RDO where enrolled Large taxpayers Electronic Filing and Payment System (EFPS). 21-2002) Financial statements shall be composed of the balance sheet. 10-2007) When to File Purely Compensation Annual Income Tax . Principal place of business. • Any creditable withholding tax shall be credited against the tax due. Collection agent or duly authorized treasurer. It should be emphasized. Withholding Tax – Business establishment with a withholding tax payment or remittance of at least One million pesos (P1. No.R. Submission of the mentioned statements is mandatory even if there is no income.substituted filing of Returns (BIR Form 1702 ) tax – on or before the 15th day of the 4th month Purely trade business following the close of or professional the taxable year income Annual Return Quarterly Income Tax . 3-2005.

The dissolving or reorganizing corporation shall. as may be defined by rules and regulations prescribed by the Secretary of Finance. has the responsibility to maintain and preserve copies of audited and certified Financial Statements for a period of 3 years from due date of filing the annual ITR or the actual date of filing. DEADLINES FOR FILING AND PAYMENT Remittance Of Final Income Taxes Withheld On Fringe Benefits Paid To Employees Other Than Rank And File. or for the liquidation of the whole or any part of its capital stock. Manual Filing On or before the tenth (10th) day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient.Fourteen (14) days following end of the month Group C . providing in sufficient detail the computation of the differences and the reasons therefore aimed at bringing into agreement the International Financial Reporting Standards (IFRS) and ITR figures (RR No. upon recommendation of the Commissioner. equally as taxpayer.Thirteen (13) days following end of the month Group D . including a corporation which has been notified of possible involuntary dissolution by the Securities and Exchange Commission. or for its reorganization. within thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution.98 Income Taxation All financial statements filed with accompanying auditor’s certificate shall show the comparative figures of the current year and the previous year. MEMORY AID IN TAXATION LAW Taxpayers are hereby mandated to maintain books and records that would reflect the reconciling items between Financial Statements figures and/or data with those reflected/presented in the filed Income Tax Return (ITR). prescribe.Eleven (11) days following end of the month Except for taxes withheld for the month of December which shall be filed on or before January 20th of the succeeding year Manual Filing On or before the tenth (10th) day of the month following the month the withholding was made.Twelve (12) days following end of the month Group E .Eleven (11) days following end of the month . verified under oath. except for taxes withheld for the month of December which shall be filed on or before January 15 of the succeeding year Monthly Remittance of Income Taxes Withheld (Expanded) [Except for Transactions Involving Onerous Transfer of Real Property Classified as Ordinary Asset] Filing via EFPS Group A . 8-2007).Twelve (12) days following end of the month Group E .Fifteen (15) days following end of the month Group B . secure a certificate of tax clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and Exchange Commission. The independent CPA who audited the records and certified the FS of taxpayer. by rules and regulations. setting forth the terms of such resolution or plan and such other information as the Secretary of Finance. Monthly Remittance of Taxes Withheld on Compensation Filing via EFPS Group A .Fourteen (14) days following end of the month Group C . Return of Corporations Contemplating Dissolution/ Reorganization Every corporation shall. Filing Via EFPS On or before the fifteenth (15th) day of the month following the end of the calendar quarter in which the fringe benefits were granted to the recipient. Thus. prior to the issuance by the Securities and Exchange Commission of the Certificate of Dissolution or Reorganization.Fifteen (15) days following end of the month Group B . render a correct return to the Commissioner. upon recommendation of the commissioner. shall. whichever comes later. financial statements with no required auditor’s certificate need not be presented in comparative format. The recording and presentation of the reconciling items in such books and records shall be done in such a manner that would facilitate the understanding by the examiners/auditors of the Bureau of Internal Revenue tasked to undertake audit/investigation functions.Thirteen (13) days following end of the month Group D .

1-2007. Annual Information on Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt From Withholding Tax On or before March 1 of the year following the calendar year in which the income payments subjected to expanded withholding taxes or exempt from withholding tax were paid.Thirteen (13) days following end of the month 99 2008 CENTRALIZED BAR OPERATIONS Group D .R. December 4. except for taxes withheld for the month of December which shall be filed on or before January 15 of the succeeding year Monthly Remittance of Final Income Taxes Withheld On or before the tenth (10th) day of the month following the month the withholding was made. 9257 Expanded Senior Citizens Act of 2003 (With R.Fifteen (15) days following end of the month Group B . Provided. taxable year from all sources as defined in Section 31 of the Tax Code. 2005.Fourteen (14) days following end of the month Group C . Filing via EFPS Group A .Twelve (12) days following end of the month Group E . December 2. Etc. If qualified. Availment of Income Tax Exemption He must be qualified as such by the Commissioner or RDO of the place of his residence File an Annual Information Return indicating that his annual taxable income does not exceed the poverty level as determined by the NEDA. his name shall be recorded by the RDO in MASTER LIST OF TAX EXEMPT SENIOR CITIZENS. that their annual taxable income does not exceed the poverty level as determined by the National Economic and Development Authority (NEDA) for that year Annual Taxable Income of a resident senior citizen – shall refer to the annual gross compensation. No.San Beda College of Law Except for taxes withheld for the month of December which shall be filed on or before January 20th of the succeeding year Manual Filing On or before the tenth (10th) day of the month following the month the withholding was made. 2006) Who is a senior citizen or elderly?   any resident citizen of the Philippines at least sixty (60) years old 1. Is a senior citizen required to pay income tax? A senior citizen is exempted from the payment of individual income taxes.R. 3. NOTE: A senior citizen who is a compensation income earner subject to a withholding tax and . R. Annexes to Income Tax Annexes to Income Tax Republic Act No. except for taxes withheld for the month of December which shall be filed on or before January 15 of the succeeding year Annual Information on Income Taxes Withheld On Compensation and Final Withholding Taxes On or before January 31 of the year following the calendar year in which the compensation payment and other income payments subjected to final withholding taxes were paid or accrued.Eleven (11) days following end of the month Except for taxes withheld for the month of December which shall be filed on or before January 15 of the succeeding year Manual Filing On or before the tenth (10th) day of the month following the month the withholding was made. business and other income received by a resident senior citizen during each 2. No. except for taxes withheld for the month of December which shall be filed on or before January 15 of the succeeding year Monthly Remittance Of Final Income Taxes Withheld On Interest Paid And Yield On Deposit Substitutes Trust. 4-2006.

Hotels and similar lodging establishments. Establishments which can claim the discounts granted as deductions 1. Excise Tax on certain goods 11. Restaurants Recreation centers Theaters. 4. 6. Requisites: a. Registered by the benefactor as his dependent and himself/herself as benefactor. as amended. consumed or enjoyed by the senior citizen shall be eligible for the deductible sales discounts. MEMORY AID IN TAXATION LAW Only portion of gross sales exclusively used. equivalent to fifteen percent (15%) of the total amount paid as salaries and . Domestic air and sea transportation companies. 9. 4. 10. 5. sales discounts granted. 9. 4-2006 may claim the said discount granted as deduction from gross income. d. The business establishment giving the sales discounts to qualified senior citizen is required to keep separate and accurate record of sales. Public land transportation utilities. 3% Percentage tax if not subject to VAT. and as such. Income Tax if the annual taxable income exceeds the poverty level. cinema houses.100 Income Taxation whose annual taxable income exceeds the poverty level is also entitled to substituted filing under R. VAT Self-employed. The establishment may claim the discounts granted as tax deduction based on the net cost of the goods sold or services rendered. or practice of profession Gross annual sales or receipts exceeds P1. for VAT or other percentage tax purposes. dates of transactions and invoice number for every sale transaction to senior citizen. Final tax on passive income (same rules with resident citizens).R. gross sales/receipts. medical and optical clinics and similar establishments dispensing medicines. Only selected establishments mentioned in R. for income tax purposes. circuses. No. carnivals and other similar places of culture. 2. hospital pharmacies. Donor’s Tax Estate Tax e. How is a senior citizen treated under the tax law? The senior citizen shall be treated as dependents provided for in the National Internal Revenue Code. Is the discount granted by establishments to senior citizens deductible? YES. 3. Capital gains tax same rules with resident citizens). f. 8. OSCA ID. c. Benefactor entitled only to P25. 2. The discount can only be allowed as deduction from gross income for same taxable year that the discount is granted. 7. 3. 3. or engaged in business. leisure and amusement. and from gross sales or gross receipts of the business enterprise concerned. concert halls. Gross selling price and sales discount must be separately indicated in the official receipt or sales invoice issued by the establishment for the sale of goods or services to the senior citizen Only the actual amount of the discount granted or a sales discount not exceeding 20% of the gross selling price can be deducted from the gross income. 4. 500. Drug stores. The senior citizen whose annual taxable income does not exceed the poverty level must be dependent upon the benefactor for his chief support. No. 5. which shall include the name of the senior citizen. 8. Requisites: 1. birthday and OSCA ID Number of the senior citizen. the benefactor must indicate the name. Are the salaries and wages paid to senior citizen-employees deductible? YES.R. net of value added tax. 2.000 basic personal exemptions.000 or the adjusted amount under section 109 (1) V of the Tax code. Private entities that will employ senior citizens as employees upon effectivity of this Act shall be entitled to an additional deduction from their gross income. In the ITR. individual taxpayers caring for them. 2-98 as amended. b. 6. Funeral parlors and similar establishments. be they relatives or not shall be accorded the privileges granted by the Code insofar as having dependents are concerned. 7. Medical and dental services in private facilities. Documentary stamp tax Availment of the Head of the Family Status by Benefactors Who is a Benefactor? Any person whether related to the senior citizens or not who takes care of him/her as a dependent. if applicable. TAX LIABILITIES 1.

2. Those with pending cases a) b) c) d) 3. residential communities or retirement villages solely for the senior citizens shall be accorded the following: 1. Priority in the building and/or maintenance of the provincial or municipal roads leading to the aforesaid home. 4. Cooperatives and tax exempt entities that have become taxable as of December 31. and Other juridical entities including partnerships. 2007. 69-2007. RMC No. 3. 2. or resident or nonresident aliens. 55-2007. whether resident or nonresident citizens. Withholding taxes and Taxes passed-on and already collected from the customers for remittance to the BIR To Whom Available 1. that have remained unpaid as of December 31. RMC No. 2007. 101 2008 CENTRALIZED BAR OPERATIONS REALTY TAX HOLIDAY Individuals or non-government institutions establishing homes. 8. 5. 90-2007. 19-2008. 2007. Individuals. February 22. Estates and trusts. 4. In addition. That such employment shall continue for a period of at least six (6) months The annual income of a senior citizen does not exceed the poverty level as determined by the National Economic and Development Authority (NEDA) for that year. Taxes NOT Covered 1. 2005. November 5. residential community or retirement village. August 8. expenses otherwise deductible may be allowed as a deduction only if the tax required to be deducted and withheld therefrom has been paid to the BIR.San Beda College of Law wages to senior citizens subject to the provision of Section 34 of the National Internal Revenue Code. Realty tax holiday for the first five (5) years starting from the first year of operation. 2008) COVERAGE Taxes Covered All national internal revenue taxes for the taxable year 2005 and prior years.g. 5. 1. as amended: Conditions 1. 7. . Corporations. 3. 6. Taxpayers who have failed to observe or follow BOI and/or PEZA rules on entitlement to Income Tax Holiday Incentives and other incentives). December 3. income tax estate tax donor’s tax capital gains tax value added tax other percentage taxes excise taxes documentary stamp taxes 2. To Whom NOT Available 1. 2005. 2. Withholding agents with respect to their withholding tax liabilities. Issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment of the taxpayer. only cases that have underdeclarations/ undervaluations and were already issued with Certificate Authorizing Registration (CAR) by the BIR are covered. with or without assessments duly issued therefore.RMC No. 29-07. 9480 An Act Enhancing The Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by The National Government for Taxable Year 2005 and Prior Years (With Department Order No. Republic Act No. 2. (e. RMC No. NOTE: An individual taxpayer in his/her own capacity shall be treated as a different taxpayer when he acts as administrator/executor of the estate of a deceased taxpayer. 3. Under the jurisdiction of the PCGG Involving violations of the Anti-Graft and Corrupt Practices Act Involving violations of the Anti-Money Laundering Law For tax evasion and other criminal offenses under the NIRC and/or the RPC NOTE: In case of donor’s tax and capital gains tax. 2.

shall file two (2) separate amnesty tax returns. Forms to be submitted are:     Notice of Availment of Tax Amnesty Statement of Assets. NOTE: An individual taxpayer. 2007 or on May 5. 9480. No. Duties of the Revenue District Officer 1. Note: Under RMC 29-2008 and Department Order No. Non-residents Commissioner of the BIR. pursuant to Section 220 of the National Internal Revenue Code of 1997. No. 9480 (e. The completion of these requirements shall be deemed full compliance with the provisions of R. executor or administrator of the estate of a deceased taxpayer who would also like to avail of the tax amnesty. in representation of the estate. Tax Amnesty Rates 1. the persons liable to avail of the tax amnesty shall be the estate and the heirs. Cases involving issues ruled with finality by the Supreme Court prior to the effectivity of R. The Revenue District Officer shall issue an acceptance of payment form authorizing an authorized agent bank. but may not look into. who is the person liable to avail of the tax amnesty? In case of estate under administration. No. Liabilities and Networth. the collection agent or municipal treasurer concerned. the Notice of Availment. Where: Residents Revenue District Officer (RDO)/Large Taxpayer District Office of the BIR which has jurisdiction over the legal residence or principal place of business of the taxpayer. as the case may be. 0617) Forms may be photocopied. to accept the amnesty tax payment.g. At the option of the taxpayer. MEMORY AID IN TAXATION LAW 5. as declared in the SALN as of the said Are cases subject of criminal complaint filed with the DOJ still covered by the Tax Amnesty? YES. 2007. Liabilities and Networth (SALN) Tax Amnesty Return (BIR Form No. Delinquent Accounts/Accounts Receivable considered as assets of the BIR/Government. AVAILMENT AND PAYMENT OF AMNESTY How to Avail Tax Amnesty Accomplish three (3) copies of the required forms and submit the same to the BIR ➡ Proceed to the Authorized Agent Bank (AAB) and pay the Amnesty Tax using the Payment Form (BIR Form NO. 9480. Statement of Assets. ➡ File the Tax Amnesty Return. or such other documents submitted by the taxpayer. In case of estate not under administration. Full Compliance The Acceptance of Payment Form. or with any RDO. including self-assessed tax.A. 0617). as amended. Notice of Availment and SALN with either the AAB or RDO 2. 2005. or in the absence thereof. and the Tax Amnesty Return shall be submitted to the RDO. except cases filed under the RUN AFTER TAX EVADER (RATE) Program of the BIR and other cases involving tax evasion initiated and instituted with the approval of the Commissioner of Internal Revenue or his authorized representatives. 6.A. the SALN. one for himself as a taxpayer and the other in his capacity as executor or administrator of the estate of the decedent with respect to the revenue and other income earned or received by the estate. seeking to avail of the tax amnesty and who at the same time is an . shall be 6 months from November 7. it is clarified that the last day of availing benefits under R. In case of estate under administration. Effectivity of DOF Department Order 29-07 commenced on November 7. When and Where to File and Pay When: The return. Tax amnesty rate of five percent (5%) based on:  NETWORTH as of December 31. Two (2) copies shall be filed with the BIR.102 Income Taxation 4. 11-08. question or examine the veracity of the entries contained in the Tax Amnesty Return. SALN and the payment of the amnesty tax for those availing themselves of the tax amnesty shall be made within six months starting from the effectivity of the IRR. the RDO may assist the taxpayer in accomplishing the forms and computing the taxable base and the amnesty tax payable. 2116) Payment Form (BIR Form No. who is the person liable to avail of the tax amnesty? In case of estate not under administration. DST on Special Savings Account) Taxes passed-on and collected from customers for remittance to the BIR. which shall be received only after complete payment. the one that should avail of the tax amnesty for the estate is the administrator/executor of the estate.A. otherwise known as Tax Amnesty Act of 2007. one (1) copy shall remain with the taxpayer. 2008.

LIABILITIES AND NETWORTH What to Declare in the SALN 1.00 whichever is higher 2.  RATES 103 2008 CENTRALIZED BAR OPERATIONS For taxpayers who had been filing their correct networth and have no additional asset to declare further. 2005 shall be considered as true and correct. will they be allowed to do so? In cases where the taxpayer decides to avail but does not declare additional assets or decides that he/it should not make any amendments of his/its networth as December 31. but not limited whichever is higher to. the regulations have prescribed a specific SALN format to be filled-up and submitted for purposes of availment. but would like to participate in the amnesty program. Exceptions: 1. Trusts and Estates Subscribed capital of above P50 Million 5% or P50. whichever is higher. In lieu of the SALN.  RESULTING INCREASE IN NETWORTH by amending such previously filed statements to include undeclared assets and/or liabilities by qualified taxpayers who have filed with BIR’s authorized agents their SALN/balance sheet together with their income tax returns for taxable year 2005. 2. When findings of or admission in congressional hearings or proceedings in administrative agencies of the government. TOTAL DECLARED NETWORTH as of December 31. whichever is higher. 2005 and have no additional assets to declare. secured and unsecured. 2005. that have become taxable as of December 31. can taxpayers be allowed to file a Balance Sheet for purposes of tax amnesty availment? While the Balance Sheet may be equivalent to the SALN.000.00 including. Assets within or without the Philippines.00 whichever is higher All existing liabilities which are legitimate and enforceable. he/it can avail of the amnesty program by paying five percent (5%) of the total declared networth as of Balance Sheet date in 2005 or the prescribed minimum absolute amount. which shall be the difference between the total assets and total liabilities. tangible or intangible.000. 2005 by taxpayers who have previously filed their SALN as of December 31.000.  CORPORATIONS 5% or P500. 2005 Taxpayers who filed their balance sheet/ SALN. resident or nonresident aliens. and The networth of the taxpayer. together with their income tax returns for 2005.00 P5 Million to P20 Million whichever is higher With subscribed capital 5% of P25.000. and in courts. The absolute minimum amnesty payment. but still wish to avail of the tax amnesty OR 2. Thus. whether or not incurred in trade or business. The SALN as of December 31. whichever is higher. whether real or personal.San Beda College of Law period by qualified taxpayers who have no previously filed statements of assets and liabilities/balance sheet as of December 31. in accordance with the following schedule: ENTITIES INDIVIDUALS Citizens. whether or not used in trade or business  Property other than the money shall be valued at the cost at which the property was acquired Foreign currency assets and/or securities shall be valued at the rate of exchange prevailing as of the date of the SALN. Where the amount of declared networth is understated to the extent of thirty percent (30%) or more as may be established in proceedings within one (1)-year following the date of filing of the Tax Amnesty Return and the SALN. by. prove that there is at least thirty percent (30%) underdeclaration. STATEMENT OF ASSETS. 2005. 3.000. and who desire to avail of the tax amnesty under this act shall amend such previously filed statements by including still undeclared assets and/or liabilities 5% based on resulting increase in networth or the minimum absolute amounts of amnesty tax prescribed above. in the availment of .000. cooperatives and foundations. or at the instance of parties other than the BIR or its agents.00 of below P5 Million whichever is higher OTHERS Other juridical entities 5% or P50.00 of above P20 Million up whichever is higher to P50 Million Subscribed capital of 5% or P100. Presumption of Correctness of the SALN Subscribed capital 5% or P250.

MEMORY AID IN TAXATION LAW The taxpayer’s Tax Amnesty Return and the SALN as of December 31. Will individuals engaged two SALNs . inquired or look into by any person or government office. before judicial. what would be the content of the SALN to be filed? The resident foreign corporation shall report assets and liabilities and networth related to the business in the Philippines and the amnesty tax shall be the 5% of the total declared Philippine networth or 5% of the resulting increase in Philippine networth. 2005 is proven to be understated to the extent of thirty percent (30%) or more. be subject to the penalties of perjury under the Revised Penal Code. The taxpayer shall be immune from the payment of taxes as well as additions thereto. whichever is applicable. as amended. tax incentives. 2006. insofar as such proceedings relate to internal revenue taxes. 3.one strictly assets/liabilities/networth non-business related networth? in business submit for business-related and another one for assets/liabilities/ 2. 3. May husband and wife be allowed to submit only one SALN? Would they be separately liable for the minimum amount of amnesty tax if they avail of the amnesty? No. . 2005 shall not be admissible as evidence in all proceedings that pertain to taxable year 2005 and prior years. whichever is applicable. and the amnesty tax payable is whichever is higher between the resulting product therefrom and the minimum absolute amount prescribed by the Tax Amnesty Law where the subscribed capital refers to the assigned capital in the Philippine Branch lodged in the account “Due to Head Office”. partnerships. and the appurtenant civil. willfully understates his networth to the extent of thirty percent (30%) or more shall. IMMUNITIES AND PRIVILEGES 1. The books of accounts and other records of the taxpayer for the years covered by the tax amnesty availed of shall not be examined: Provided. whichever is higher. upon conviction. and to criminally prosecute those found to have willfully evaded lawful taxes due. quasi-judicial or administrative bodies in which he is a defendant or respondent. Any person who. That the Commissioner of Internal Revenue may authorize in writing the examination of the said books of accounts and other records to verify the validity or correctness of a claim for any tax refund. arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. What would be used as basis in determining the minimum amnesty payment of a local branch of a foreign corporation where the subscribed capital stock is not determinable for this purpose? The basis of the 5% shall be the networth or increase in networth of the branch located in the Philippines. and except for the purpose of ascertaining the networth beginning January 1. immediate tax fraud investigation shall be conducted to collect all taxes due. criminal or administrative penalties under the National Internal Revenue Code of 1997. An individual taxpayer/availer shall submit only one SALN or Balance Sheet presenting the assets and liabilities and networth into two major groups which are those that are classified as businessrelated and those that are non-business related. They have to submit two separate SALNs reflecting their exclusive properties and liabilities as well as their respective shares in the conjugal properties and liabilities. in cases brought against him. and/or exemptions under existing laws. the Balance Sheet should be converted to the SALN format as provided by the BIR in the SALN form. Immunities and Privileges NOT available Where the person failed to file a SALN and the Tax Amnesty Return. general manager. having filed a statement or Tax Amnesty Return under this Act. However. or the minimum absolute amount. president. 4. the same shall not be examined. In the case of associations. In the case of a representative office in the Philippines of a foreign corporation which is only required to file audited statements of receipts and disbursements. the taxpayer may use this as a defense. tax credit (other than refund or credit of taxes withheld on wages).104 Income Taxation the tax amnesty. including increments. the penalty shall be imposed on the partner. or corporations. a) b) OFFENSES AND PENALTIES Penalties 1. 2. In addition to the penalties provided in paragraphs (1) and (2) above. or Where the amount of networth as of December 31. The willful failure to declare any property in the statement and/or in the Tax Amnesty Return shall be deemed a prima facie evidence of fraud and shall constitute a ground upon which attachment of such property may be issued in favor of the BIR to answer for the satisfaction of any judgment that may be acquired against the declarant. whenever appropriate.

28(A)(4)] .000 or less) and other winnings Royalties on books. no deductions) (All sources within the Phil.32% (2000 onwards) (Normal Tax Rate) Gross Income (Entire income.000. Profession (including casual gains.33% (1999) . Any person who makes an unlawful divulgence of the Tax Amnesty Return or the SALN shall be penalized by a fine of not less than Fifty thousand pesos (P50. 290. profits.20 (A). NIRC) 6. officer-in-charge and employees responsible for the violation. Congressional Oversight Committee (Sec. The Commissioner of Internal Revenue may disclose the content of the Tax Amnesty Return and SALN upon the request of Congress pursuant to and in accordance with:   In aid of legislation [Sec. Liabilities and Networth Publication of list of taxpayers and filers by the Commissioner.00) and imprisonment of not less than six years but not more than ten (10) years. literary works and musical compositions) • Prizes (except amounting to P10. 105 2008 CENTRALIZED BAR OPERATIONS Gen. 27(D)(3)] [Sec. Rule: It shall be unlawful for any person having knowledge of the Tax Amnesty Return and SALN filed pursuant hereto. income. Unlawful Divulgence of Tax Amnesty Return and Statement of Assets. and any violation hereof shall subject the offender to the penalties under this Act: Exceptions: 1.5% FWT (Exchange Rate to be used shall be the opening rate on remittance day) Any income from transaction with depositary banks under the expanded FCDS or OBU – Exempt [Sec.000 or less). 2. treasurer. Does not include those income subject to final tax and/or special tax treatment • Interest from any currency bank deposit and yield or any other monetary benefit from deposit substitute and from trust funds and similar arrangements. Tax Rates for Individuals GENERAL CATEGORIES SOURCES OF INCOME NATURE OF INCOME Compensation. THE PHILS TAXABLE BASE/ TAX RATE Taxable Income (Gross Income less Allowable Deductions) 5% . • Royalties (other than from books.5% FWT Any income from transactions with depository bank under the expanded FCDS or ODU – Exempt [Sec. he/she shall likewise suffer an additional penalty of perpetual disqualification to hold public office.) 25% Gross Income (within) – 20% Final Withholding Tax (FWT) Gross Income (within) 10% FWT Gross income (within) 7. Trade. and capital gains.34% (1998) . prizes of P10. Business. 5. to disclose any information relative to such declaration and statement.San Beda College of Law branch manager. NON-RESIDENTS WITHIN THE PHILIPPINES RESIDENTS ALIENS NRAEBT NRANEBT WITHIN THE PHILIPPINES WITHIN THE WITHIN PHILS. as well as other literary works and musical composition Interest income from depository bank under the expanded foreign currency deposit system (FCDS) CITIZENS RESIDENTS WITHIN and WITHOUT THE PHILS.(27)D(3)] [Sec. 28(A)(4)] Gross Income (within) 7. If the offender is an officer or employee of the BIR or any government entity. NIRC]. to vote and to participate in any public election.

) 25% Net capital gains (within) Not over P100. and d. Historical cost or adjusted basis of property sold is carried over to the new principal residence. Capital gains on sale of shares of stock not traded in a domestic stock exchange Capital gains on shares of stocks of Foreign Corporation with principal place of business outside Philippines Gross income (within) Final Withholding Tax 6% 8% 10% - Year 1998 1999 2000 onwards (Tax on dividends shall apply on income earned on or after Jan. 3. 6% Final Tax or Normal Tax Rate. c. 000 or as prescribed by the BSP. 73(c) provides that dividends distributed are deemed made from most recently accumulated profits) Gross Income (within) 20% FWT Gross Income (Entire income. 6% Final Tax on the Gross Selling Price or FMV whichever is higher If sold to the government or any of its political subdivision or agencies or to GOCC. 1998. deposit substitute investment management accounts in denomination of P10. or a joint venture or consortium taxable as a corporation. to less than 4 yrs. joint account. . insurance or mutual fund companies. or • On the share on the net income after tax of an association. a.12% Less than 3 yrs. (2) The coverage for the determination of the income was for the three-year period ending with the close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence).000 – 10% Final Tax Taxable on the normal tax rate Not taxable Not taxable Dividends from Foreign Corporation Taxable. Sec. • on the share of an individual in the distributable net income after tax of a taxable partnership. at the option of taxpayer. CASH AND/OR PROPERTY DIVIDENDS ACTUALLY OR CONSTRUCTIVELY RECEIVED MEMORY AID IN TAXATION LAW CITIZENS RESIDENTS NON-RESIDENTS RESIDENTS . The tax on the unutilized portion shall be paid within 30 days after the expiration of the 18-month period.000 – 5% Final Tax Amount in Excess of P100. Capital gains from sale or other disposition of real property located in the Philippines 1.106 Income Taxation GENERAL CATEGORIES Interest income from longterm deposit or deposit in the form of savings. If proceeds is from disposition of principal residence and is fully utilized in acquiring or constructing a new principal residence within 18 months from the date of disposition. 1.5% 3 yrs. common or individual trust funds.20% • from a domestic corp. . • from a joint stock company. Taxable only in the amount which bears the ratio to the dividends as the gross income of the corporation for such period derived from sources within the Philippines bears to gross income from all sources.Exempt Interest on long term deposit ALIENS NRAEBT NRANEBT In case of Pretermination: Number of years lapsed before pretermination: Holding Period 4 yrs. The commissioner is notified within 30 days from the date of disposition of the taxpayer’s intention to avail of the tax exemption. 2. b. to less than 5 yrs. no deductions) (All sources within the Phil. Tax exemption can only be availed of once every 10 years. (date of notarization) the capital gain is exempt from the capital gains tax subject to the following conditions. provided the following requisites are present: (1) More than 50% of the Gross Income of the foreign corporation was derived from sources within the Philippines.. Note: Aliens are not allowed to own real property subject to exceptions ( see income tax topic as discussed ) Cinematographic film and similar works Individual Normal Tax Rate shall apply Gross Income (within) 25% Gross Income (within) 25% . Unutilized portions of the proceeds are subject to capital gains tax to be computed proportionately. .

2. income and expenses shall be deemed to have been earned and spent equally for each month of the period. 32(B)(7)(b)] TAXABLE INCOME Same as Normal Domestic Rate GROSS INCOME Same as Normal Domestic Rate NON-RESIDENT CORPORATIONS (Not engaged in trade or business in the Philippines) In general.Dec 31. Covered x Tax 12 Mos. or to any political subdivision thereof is excluded from gross income [Sec. TAXABLE BASE/RATE TAX INCOME 35% (Normal Domestic Rate) 34% . 2005 . industry or activity. SSS. AND PCSO) engaged in a similar business.1999 32% . Aliens employed by OBU 15% Divisor Year 34% FWT 66% 1998 4. PAGCOR is no longer exempt (R. by the tax rate rate B. SOURCES OF INCOME NATURE OF INCOME ALL SOURCES WITHIN THE PHILS.2000. of Mos.A.January 1. In General . 2009 onwards A. Individual Normal Tax Rate shall apply Grossed up monetary value of In the case of aliens. including GOCCs.San Beda College of Law GENERAL CATEGORIES Proprietary educational institution/ Hospital Fringe Benefit CITIZENS RESIDENTS NON-RESIDENTS 107 2008 CENTRALIZED BAR OPERATIONS ALIENS RESIDENTS NRAEBT NRANEBT N. (b) Alien Individuals Employed by Offshore Banking Units. Transition Period 1. Aliens employed by Petroleum Service 33% FWT 67% 1999 5. Government or its Political Subdivision Income derived from any public utility or from the exercise of any essential government function accruing to the Government of the Phil. For Corporations adopting the fiscal year accounting period. the tax rates to be fringe benefit furnished or granted to applied on fringe benefit shall be as follows: the employee (except rank and file) 1. Tax Rates for Corporations FOREIGN CORPORATIONS GENERAL CATEGORIES DOMESTIC CORPORATIONS RESIDENT FOREIGN CORPORATIONS (Existing under the laws of the foreign country. PHIC.1998 33% . and (c) Alien Individuals employed by Petroleum Service Contractor and Subcontractor. agencies or instrumentalities (EXCEPT GSIS. NRANEBT 25% 2. 9337). • In general. a non-resident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty days during any calendar year shall be deemed as “non-resident alien doing business in the Philippines.July 1. Aliens employed by regional HO 15 % Tax Rate Grossed Up 3. engaged in trade or business within the Philippines) WITHIN THE PHILS. 2008 { 30%.A. Contractors and Subcontractors 32% FWT 68% 2000 NOTE: onwards • Gross up divisor is the difference between 100% and the applicable rates. 2005 { 35%.” Exceptions are the following: (a) Alien Individuals Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. Taxable Income x No.November 1.

(added to other taxes imposed upon the corporation) Net Operating Loss CarryOver NOLCO shall be carried over as a deduction from gross income for the next 3 consecutive taxable years immediately following the year of such loss.15% NON-RESIDENT CORPORATIONS N.A. such that: 25% or more change is substantial. subject to tax. Imposed upon any domestic corporation beginning the fourth taxable year immediately following the taxable year in which the corporation commenced its business registration. Provided further. Interest Income on foreign loans contracted on or after Aug. Income derived by a depository bank from foreign currency transactions with local commercial banks including branches of foreign banks. that any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a deduction. 15% FWT. Gross interest income derived by a domestic corporation and a resident foreign corporation from a depositary bank 7. (R. that NOLCO shall not be allowed as a deduction if there has been a substantial change in the ownership of the business or enterprise. Net Capital Gain Not over P100.A. Dividends Dividends received by a received from a domestic corporation from domestic another domestic corporation corporation not shall not be subject to tax. 1986 (20% FWT) Any income from transaction with depository banks under FCDS shall be exempt from income tax Optional Corporate Tax Interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements royalties Gross Income ( within ) 20% FWT Income derived under the expanded FCDS 1. Provided however.R.000 – 5% Excess of P100. Improperly Accumulated Earnings Improperly Accumulated Taxable (IAE) Tax. 12-2007) . Capital Gains Realized from the Disposition of Land and/or Buildings Minimum Corporate Income Tax (MCIT) Please refer to Table C Gross Selling Price or FMV whatever is higher 6% Final Tax Gross Income – 2% MCIT N. and residents 10% Final Tax. 1.000 – 10% Inter-corporate dividends and income from a taxable partnership Dividend received from a domestic corp. 24% or less non-substantial. IAET and NOLCO TYPE OF TAX/ DEDUCTIONS MINIMUM CORPORATE INCOME TAX (MCIT) IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) A tax equal to 10% of the improperly accumulated taxable income of corporations formed or availed of for the purpose of avoiding the income tax with respect to its shareholders of any other corporation. 2.108 Income Taxation MEMORY AID IN TAXATION LAW FOREIGN CORPORATIONS GENERAL CATEGORIES RESIDENT DOMESTIC CORPORATIONS FOREIGN CORPORATIO NS GROSS INCOME . as amended.A. by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders. No. Imposed whenever such corporation has zero or negative taxable income or whenever the amount of MCIT is greater than the normal income tax due from such Characteristics corporation (in lieu or corporate income tax) MCIT shall apply on operations covered by the regular income tax system The computation and the payment of MCIT shall likewise apply at the time of filing the quarterly corporate income tax as prescribed under Section 75 and Section 77 of the Tax Code. other depositary banks. Please refer to Table C Income –10% tax (in addition to other income taxes) Comparative Table on MCIT.5% FWT. N. Provided foreign law allows taxpayer clause. otherwise it will be subject to the normal domestic rate Capital Gains from the sale of shares of stocks not traded in the local stock exchange.

deducted Deductions: Cost of Goods Sold shall include Income tax paid/payable all business expenses directly for the taxable year incurred to produce the Dividends actually or merchandise to bring them to their constructively paid/issued present location and use. insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse. that “cost of services” shall not include interest expense except in the case of banks and other financial institutions. freight cost. Closely-held corporations are those corporations at least 50% in value of the outstanding capital stock 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. salaries and employee benefits of personnel. discounts and Income excluded from allowances and cost of goods Gross Income sold. Provided however. Applicability . Income subject to final Gross sales shall include only Tax sales contributory to income Amount of NOLCO taxable. consultants and specialists directly rendering the service. the cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used and cost of supplies.San Beda College of Law 109 2008 CENTRALIZED BAR OPERATIONS TYPE OF IMPROPERLY MINIMUM CORPORATE INCOME TAX/ ACCUMULATED Net Operating Loss Carry-Over TAX (MCIT) DEDUCTIONS EARNINGS TAX (IAET) 2% of the Gross Income TAXABLE INCOME Additions: Gross Income means gross sales Income exempt from Tax less sales returns. • Domestic Corporations • Resident Foreign Corporation subject to normal incorporate income tax Net operating loss of the business or enterprise which had not been previously offset as deduction from Gross Income Tax Base Domestic Corporations Those subject to normal Income as defined under the Tax Tax Code classified as closely-held corporations. such as raw reasonable needs of the materials used direct labor and business manufacturing overhead. Cost of services means all direct costs and expenses necessarily incurred to provide the services required by the customers and clients including: a. Domestic Corporations not falling under the definition are publiclyheld corporations. from the applicable year’s Cost of Goods Manufactured taxable income means all costs of production of Amount reserved for the finished goods. and b.

subject to 35% income tax.110 Income Taxation MEMORY AID IN TAXATION LAW TYPE OF IMPROPERLY MINIMUM CORPORATE INCOME TAX/ ACCUMULATED Net Operating Loss Carry-Over TAX (MCIT) DEDUCTIONS EARNINGS TAX (IAET) MCIT shall not be imposed upon the following: • Domestic Corporations 1.Income received from tuition fee is excluded being “income received as such. Exceptions Summary of Rules for Exempt Corporations EXEMPTION FROM INCOME TAX KINDS OF INSTITUTIONS Government Agencies SOURCE OF INCOME Income from performance of government functions Income from other sources Income from tuition fee Income from other sources Income from tuition fee Income from other sources Income from tuition fee Income from other sources EXEMPTED? Exempted Taxable LEGAL BASIS Sec 32 (B) (7) (b) NIRC . Firms under special income tax regime Not applicable to: • Banks and other nonbank financial intermediaries • Insurance Companies • Publicly-held Corporations • Taxable Partnerships • General Professional Partnerships • Non-taxable joint ventures • 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. under the last paragraph all income realized from activities conducted for profit is subject to income tax. Sec. Sec. Domestic Corporations engaged in Hospital Operations which are non– profit subject to 10% on their taxable income 3. Sec 30 NIRC . Taxable Taxable Sec.” However.If the income from an unrelated trade or activity exceeds 50% of the total gross income. Firms under special income tax regime (PEZA and BCDA registered entities) • Resident Foreign Corporations 1. enjoying exemption from income tax with respect to its operation during the period for which the exemption is applicable. NIRC exempts such institution from income tax with respect to income realized as such. Otherwise. FCDUs subject to final income tax of 10% 4. However. 27(B).all revenues and assets ADE used for educational purposes shall be Non-Taxable exempt from payment of taxes and duties. OBUs 3. 1987 Constitution . any person. Taxpayers not entitled to deduct NOLCO: • OBU and FCDU • BOI–registered enterprise enjoying income tax holiday. 4(3). Domestic Corporations operating as proprietary educational institutions subject to 10% on their taxable income. • PEZA registered entities • Enterprise registered under the Bases Conversion and Development Act of 1992 • Foreign Corporations engaged in international shipping or air carriage business in the Philippines • In general. all income realized from activities conducted for profit is subject to income tax. under the last paragraph. NIRC . a 10% tax shall be imposed.Income derived from any public utility or from the exercise of any essential governmental function is exempt from tax.all income realized from activities conducted for profit is subject to income tax. EDUCATIONAL INSTITUTIONS Government Educational Institution Non-stock. 30 NIRC (last paragraph) . 30(E). XIV. Resident Foreign Corporations engaged in business as “international carrier” 2. Sec. The accumulated net operating losses incurred or sustained during the period of the Income Tax Holiday shall not qualify for purposes of NOLCO. Its accumulated net operating losses incurred or sustained during the period of its said registered operation shall not qualify for purposes of NOLCO. Resident Foreign Corporations engaged in business as regional operating headquarters 4. natural or juridical. RELIGIOUS AND CHARITABLE INSTITUTIONS Charitable Institutions Income received as a charitable institution Income from other sources Exempted Taxable . 2. non-profit Educational Institution Proprietary Educational Institution Exempted Taxable Exempted Art. it will be treated as an ordinary domestic corporation. national or local.

Sec. Sec. 101(A) (2). 32(B) (3). shall be subject to tax. NIRC exempts such gift from payment of donor’s tax. NIRC exempts such gift from payment of donor’s tax. However.the donation will not be subject to tax.the donation will not be subject to tax provided that not more than 30% of the same shall be used for administration purposes Religious Institutions From donor’s point of view KINDS OF INSTITUTIONS CAN THE DONOR DEDUCT THE DONATION FROM HIS TAXABLE INCOME? It depends. 4(3). Art. it will be treated as an ordinary domestic corporation. Sec. NOTE: Even if the income from other sources is used to improve the facilities of these institutions. NIRC . Sec. 4(3). a 10% tax shall be imposed. NIRC – Such donation is exempted from gross income and is not subject to taxation. 30. Sec. Sec. Provided that not more than 30% of the same shall be used for administration purposes Sec. subject to 35% income tax. 86 (A) (3). XIV. non-profit Educational Institutions Art. Proprietary Educational Institutions RELIGIOUS AND CHARITABLE INSTITUTIONS Charitable Institutions Sec. 32(B) (3). NIRC exempts such gift from payment of donor’s tax. Sec. NIRC . 1987 Constitution . 1987 Constitution . 87(B).all revenues and assets ADE used for educational purposes shall be exempt from payment of taxes and duties. NIRC provides that such income. 4(3). TAX EFFECTS ON DONATIONS From donee’s point of view: KIND OF IS IT SUBJECT TO INCOME INSTITUTION TAX? Sec. 101(A) (2). 101(A)(3).San Beda College of Law KINDS OF INSTITUTIONS SOURCE OF INCOME Income received as a religious institution Income from other sources EXEMPTED? 111 2008 CENTRALIZED BAR OPERATIONS LEGAL BASIS RELIGIOUS AND CHARITABLE INSTITUTIONS Religious Institutions Exempted Taxable Sec. 101(A) (2). Sec. 87(B).all revenues and assets ADE used for educational purposes shall be exempt from payment of taxes and duties. XIV. IS IT SUBJECT TO DONOR’S TAX? Sec. NIRC – Such Government donation is exempted from Agencies gross income and is not subject to taxation. XIV.If the income from an unrelated trade or activity exceeds 50% of the total gross income. NIRC . EDUCATIONAL INSTITUTIONS Sec. NIRC – Such donation is exempted from gross income and is not subject to taxation. NIRC exempts such institution from income tax with respect to income realized as such. 1987 Constitution . 32(B) (3). Otherwise. under the last paragraph. There are only 3 kinds of allowable deductions for compensation Sec 34(H)(2)(a) NIRC . Sec.all revenues and assets ADE used for educational purposes shall be exempt from payment of taxes and duties.all transfers to or for the use of the government for exclusively public purposes are exempt from such tax Art. .amount of Government Agencies income earners* and a donation is not included donation may be deducted entirely among such deductions. 30(E). Sec. Sec. 1987 Constitution . NIRC . 32(B) (3). If donor is engaged in trade or If donor is compensation income earner business There can be no deduction.all revenues and assets ADE used for educational purposes shall be exempt from payment of taxes and duties. XIV. NIRC exempts such gift from payment of donor’s tax Provided that. the income realized from such sources is still taxable since the last paragraph of Sec. NIRC exempts such gift from payment of donor’s tax. 4(3). 86 (A)(3). 27(B). NIRC . all income realized from activities conducted for profit is subject to income tax. not more than 30% shall be used for administration purposes. Art.all transfers to or for the use of the government for exclusively public purposes are exempt from such tax. Non-stock. IS IT SUBJECT TO ESTATE TAX? Sec. Sec. regardless of the disposition made of such income. NIRC – Such Government donation is exempted from Educational gross income and is not Institutions subject to taxation. 101 (A) (2).

lands. 28(3). buildings and improvements ADE used for educational purposes are exempted from RET Art. 1987 Constitution . XIV.lands. buildings and improvements ADE used for religious purposes are exempt from payment of RET Art. 4(3). 10% if Proprietary donor is an individual) Educational Institution RELIGIOUS AND CHARITABLE INSTITUTIONS There can be no deduction. 2. There are only 3 donation may be deducted entirely Non-stock. personal exemptions additional exemptions premiums on health or hospitalization insurance EXEMPTION FROM REAL ESTATE TAX KINDS OF INSTITUTIONS EXEMP TED? Yes LEGAL BASIS FOR EXEMPTION LGC . VI. VI.a portion of the Charitable Institution kinds of allowable deductions for amount of donation may be deducted (5% compensation income earners* and a donation if donor is a corporation.amount of Educational InstitutionThere can be no deduction. Sec. buildings and improvements ACTUALLY DIRECTLY and EXCLUSIVELY (ADE) used for educational purposes are exempted from RET EDUCATIONAL INSTITUTIONS LGC . buildings and improvements ADE used for charitable purposes are exempt from payment of RET Government Agencies Government Educational Institutions Non-stock Non-profit Educational Institutions Proprietary Educational Institutions Yes Yes Yes Charitable Institutions Yes Religious Institutions Yes . If donor is engaged in trade or If donor is compensation income earner business EDUCATIONAL INSTITUTIONS Government Sec 34(H)(2)(a) NIRC . KINDS OF INSTITUTIONS # Allowable deductions for compensation income earners: 1.all lands. non-profit kinds of allowable deductions for compensation Sec 34(H) (1) NIRC . 1987 Constitution .lands. 10% if donor is an Religious Institution is not included among such deductions. 28(3). buildings and improvements ADE used for educational purposes are exempted from taxes RELIGIOUS AND CHARITABLE INSTITUTIONS Art.a portion of the Educational Institution income earners# and a donation is not included amount of donation may be deducted among such deductions. individual. 1987 Constitution .112 Income Taxation MEMORY AID IN TAXATION LAW CAN THE DONOR DEDUCT THE DONATION FROM HIS TAXABLE INCOME? It depends.all lands. Sec. There are only 3 Sec 34(H) (1) NIRC .revenues and assets ADE used for educational purposes shall be exempt from taxes and duties LGC . (5% if donor is a corporation. 3. Sec.

San Beda College of Law

113 2008 CENTRALIZED BAR OPERATIONS

Preferential Tax Treatment on Certain Individuals
GENERAL CATEGORIES SOURCE OF INCOME CITIZENS RESIDENTS ALL SOURCES NON-RESIDENTS WITHIN THE PHILS RESIDENTS WITHIN THE PHILS ALIENS NRAEBT WITHIN THE PHILS NRANEBT WITHIN THE PHILS

15% Final Withholding Income Tax (FWIT)

A tax rate of 15% is imposed on gross income (salaries, wages, etc.) received by every Filipino employee occupying the same position as an alien employed by any of the following: a.Multinational company which is foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia Pacific Region & other foreign markets as follows: i. Regional or Area Headquarters ii. Regional Operating Headquarters (Sec. 25 [c]) b.Offshore Banking Units (Sec. 25 [d]) c. Foreign petroleum service contractor or subcontractor (Sec.25 [e]).

A TAX RATE OF 15% IS IMPOSED ON GROSS INCOME (SALARIES, WAGES, ANNUITIES, COMPENSATION, REMUNERATION, OTHER
EMOLUMENTS SUCH AS HONORARIA AND ALLOWANCES) OF ALIEN INDIVIDUAL EMPLOYED BY:

a. Regional or Area Headquarters (Sec.25 [c]) b. Regional Operating Headquarters (Sec.25 [c]) c. Offshore Banking Units (OBUs) established in the Philippines (Sec. 25 [d]) d. Foreign petroleum service contractor or subcontractor engaged in Petroleum Operations in the Philippines (Sec. 25 [e])

1.Regardless of the period of stay in the Philippines, foreign source (compensation income) is not taxable if received by any of the following non-resident citizen. Foreign a. Immigrant (Sec.22 [E,2]) Source b. Foreign-based employee on a permanent basis Compensation (Sec. 22 [E,2]) . Income not c. Overseas Contract Worker, including overseas seaman (Sec. 23 [c]) subject to income tax 2.A Filipino employed as Philippine Embassy/ Consultant service personnel of the Philippine Embassy/Consulate is not to be treated as a non-resident citizen, hence, his income is taxable.

NOT TAXABLE

Preferential Tax Treatment on Certain Corporations (Special Corporations)#
DOMESTIC CORPORATION 1. 2. Educational Institution Hospital FOREIGN CORPORATIONS RESIDENT FOREIGN CORPORATION NON-RESIDENT FOREIGN CORP.

1.A NON-STOCK, NON-PROFIT 1.INTERNATIONAL CARRIER within the 1.CINEMATOGRAPHIC EDUCATIONAL INSTITUTION is EXEMPT Philippines – 2.5% of Gross Phil. Billings FILM OWNER, from Income Tax on its Revenue as (Sec. 28 [3a]) LESSOR OR educational institution and from the 2.OFFSHORE BANKING UNIT (OBU) – DISTRIBUTOR – operation of ancillary activities located Income derived by OBU from foreign 25% of gross within the school premises, such as: currency transaction with local income within the a.Cafeteria/canteen commercial bankers, including branches Phil. b.Dormitories of foreign bank, including any interest 2.OWNER OR LESSOR c. Bookstores income derived from foreign currency OF SEA VESSEL d.School Bus loans granted to residents. CHARTERED BY e.Hospitals Final Tax – 10% of amount of interest PHILIPPINE f. Pharmacies or Drugstores and from income NATIONALS – 4.5% # with respect to income derived by banks deposits subject to certain of gross rental, condition (1987 Constitution). OBU from certain foreign currency lease or charter transactions – EXEMPT fees

114 Income Taxation DOMESTIC CORPORATION 1. 2. Educational Institution Hospital

MEMORY AID IN TAXATION LAW

FOREIGN CORPORATIONS RESIDENT FOREIGN CORPORATION NON-RESIDENT FOREIGN CORP.

2.PROPRIETARY/ PROFIT – ORIENTED EDUCATIONAL INSTITUTION, AND NON-STOCK, NON-PROFIT - If gross income from unrelated trade business or other activity does not exceed 50% of the total gross income derived from all sources b. Regular Domestic Rate - If gross income from unrelated trade business or other activity exceeds 50% of the total gross income derived from all sources (Sec. 27 [b]). 3.Regardless of the proportion explained in item No. 2(a) and (b) a profit oriented hospital will be treated as an ordinary domestic corporation, hence subject to the Normal Domestic Rate.
HOSPITAL a. 10% OF THE TAXABLE INCOME

3.BRANCHES (Except those 3.OWNER OR registered with PEZA). Any profit LESSOR OF remitted to the head office (total AIRCRAFT, profit applied or earmarked for MACHINERIES AND remittance without any deduction OTHER for the tax component thereof). EQUIPMENT – 15% - FWT 7.5% of gross 4.REGIONAL OR AREA rentals or fees HEADQUARTERS – not subject to within the Phil. Income Tax 5.REGIONAL OPERATING HEADQUARTERS – 10% of the taxable income (within)

# There is no Minimum Corporate Income Tax (MCIT) imposable for these Special Corporations

Comparative Table of Income Tax Provisions Between The NIRC and RA 9337
1997 NIRC (Old Rules) Section 27(A), NIRC: 1998 – 34% 1999 – 33% 2000 – 32% Section 27(C), NIRC: As a rule: All corporations, agencies or instrumentalities owned or controlled by the Government are subject to income tax. Except: GSIS, SSS, PHIC, PCSO, and PAGCOR Section 28(A)(1), NIRC: 1998 – 34% 1999 – 33% 2000 – 32% Section 28(b)(1), NIRC: 1998 – 34% 1999 – 33% 2000 – 32% R.A. 9337 and Consolidated Revenue Regulations (New Rules and Amendments) 1. Income Tax Rates on Domestic Corporations Section 1(A), R.A. 9337: November 1, 2005 – December 31, 2008 – 35% January 1, 2009 onwards – 30% NOTE: Taxable income within and without the Philippines Section 1(a), R.A. 9337: As a rule: All corporations, agencies or instrumentalities owned or controlled by the Government are subject to income tax Except: GSIS, SSS, PHIC, and PCSO NOTE: PAGCOR is now subject to income tax Section 2, R.A. 9337: November 1, 2005 – December 31, 2008 – 35% January 1, 2009 onwards – 30% NOTE: Taxable income within the Philippines Section 2, R.A. 9337: November 1, 2005 – December 31, 2008 – 35% January 1, 2009 onwards – 30% NOTE: Taxable income within the Philippines

2. Government-Owned and Controlled Corporations, Agencies or Instrumentalities

3. Income Tax Rates on Resident Foreign Corporations

4. Income Tax Rates on Non-resident Foreign Corporations

San Beda College of Law
1997 NIRC (Old Rules) Section 28 (5)(b), NIRC: A final withholding tax at the rate of 15% is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid provided in Section 57 (a) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% for 1997, 19% for 1998, 18% for 1999, 17% thereafter, which represents the difference between the regular income tax of 35% in 1997, 34% in 1998, 33% in 1999, and 32% thereafter on corporations and the 15% tax on dividends as provided in this subparagraph.

115 2008 CENTRALIZED BAR OPERATIONS R.A. 9337 and Consolidated Revenue Regulations (New Rules and Amendments) Section 2, R.A. 9337: A final withholding tax at the rate of 15% is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid provided in Section 57 (a) of this Code, subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular income tax of 35% and the 15% tax on dividends as provided in this subparagraph. PROVIDED, that effective January 1, 2009, the credit against the tax due shall be equivalent to 15%, which represents the difference between the regular income tax of 30% and the 15% tax on dividends. Effect on the Tax Sparing Rule: • 17% was increased to 20% for the application of 15% tax sparing rule (i.e. 35% less 20%) • Starting January 1, 2009 it will be 15% (i.e. 30% less 15%) • Applicable to intercorporate dividends payable TO nonresident foreign corporations. Section 3, R.A. 9337: The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as deduction from gross income, PROVIDED, however, that the taxpayer’s otherwise allowable deduction for interest expense shall be reduced by 42% of the interest income subjected to final tax; PROVIDED, that effective January 1, 2009, the percentage shall be 33%. Effect on Allowable Interest Expense: • Interest expense deductible shall be reduced by 42% of the interest income subjected to final tax. • Starting January 1, 2009, it will be 33%.

5. Income Tax on Certain Income Received by Non-resident Foreign Corporations

6. Deductions from Gross Income Section 34(b)(1), NIRC: The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as deduction from gross income, PROVIDED, however, that the taxpayer’s otherwise allowable deduction for interest expense shall be reduced by an amount equal to the following percentages of the interest income subject to final tax: 41% beginning January 1, 1998 39% beginning January 1, 1999 38% beginning January 1, 2000

116 Transfer Taxes

MEMORY AID IN TAXATION LAW

TAXATION LAW TRANSFER TAXES
TRANSFER TAXES

Estate Taxes
Estate Taxes

DEFINITION: an excise tax on the right 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. The transfer of the net estate of every decedent whether resident or non-resident of the Philippines is subject to the estate tax (RR 2-2003) ESTATE TAX FORMULA Gross Estate (Sec. 85) Less: (1) Deductions (Sec. 86) (2) Net share of the SS in the CPP Net Taxable Estate x Tax rate (Sec. 84) Estate Tax due Less: Tax Credit [if any] (Sec. 86[E] or 110[B] Estate Tax Due, if any ESTATE TAX RATE The entire value of the net estate is divided into brackets and each rate is imposed on the corresponding bracket. The application of rates prescribed below shall apply to estate taxes falling

due or have accrued beginning January 1, 1998, effectivity date of RA 8424, otherwise known as the Tax Reform Act of 1997. Table showing the tax on each bracket and cumulative total tax for the entire net estate.
OVER TAX OF THE BUT NOT SHALL PLUS EXCESS OVER BE OVER P200,000 EXEMPT P200,000 500000 2000000 10,000,000 and over 500000 2000000 P15,000 5000000 135000 465000 1215000 5% P200,000 8% 11% 15% 500000 2000000 5000000

5000000 10000000

20% 10000000

EXECUTIVE COMMITTEE

VISMARCK UY over-all chair, APRIL CABEZA chair academics operations, ALDEAN LIM chair hotel operations, AYN SARSABA vice chair for operations, ANTHONY PURGANAN vice chair for academics, RONALD JOHN DECANO vice chair for secretariat, KARLA FUNTILA vice chair for finance, JEFFREY GALLARDO vice chair for edp, ULYSSES GONZALES vice chair for logistics

TAXATION LAW

IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. UNTAYAO edp MARIEL MAILOM general principles, MAUREEN ROSE OBON income taxation, MARK JULIUS ESTUR estate taxation, MINERVA JIMENEZ donor’s tax and court of tax appeals, MARK ANTHONY DIZON, value added tax, ARLENE ALDAY and NELSON SALVA JR. tax remedies, MAUREEN SEYMOUR JAVIER local taxation and real property taxation, JULIUS BABALCON tariff and customs code, ROWENA MUTIA tables and annexes

MEMBERS:

Maria Evitha Abante, Aldren Abrigo, Herbert Abugan, Julian Adarlo, James Agustin, Karren Amparo, Mary Joy Aquino, Aileen Artificio, Ray John Bangi, Jennifer Bautista, Vincent Cablao, Raul Canon, Jay Martin Celzo, John Ray Concepcion, Maureen De Castro, Ramon Alfredo Dela Cruz, Karla Funtila, Kathryn Joy Hautea, Irene May Junio, Erwin Legaspi, Precious Angela Lledo, Micael Ortiz Luis, Katherine Jane Manarang, Masha Mariano, Leonardo Mendoza II, Joanne Mosquera, Sol Pejo, Ryan Pingol, Donelle Jay Quilates, Diana Rabanal, Mariflor Reyes, Deepee Salazar, Ralph Jerome Salvador, John Zernan Sambahon, Lauren Rose Tanyag, Maria Joy Toledo, Jan Reiner Uy, Jennylyn Valencia, Cristiellane Valerio and Sherwin P. Pascua

or b) as shown in the schedule of values fixed by the provincial and city assessors (zonal valuation) THE LAW THAT GOVERNS THE IMPOSITION OF ESTATE The statute in force at the time of death of the decedent shall govern estate taxation. Franchise which must be exercised in the Philippines. tangible or intangible. RESIDENT DECEDENT ALIEN DECEDENT All properties. Shares. and Shares or rights in any partnership. succession takes place and the right of the State to tax the privilege to transmit the estate vests instantly upon death (R. tangible personal properties and other intangible personal properties. 2. c. b. EXCEPTIONS: Reciprocity Clause under Sec. Transfers in contemplation of death Revocable transfers Transfer under general power of appointment 5. b. Shares.book value . Shares. shares Listed/ Traded . The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from the obligation to pay the same. VALUATION OF THE GROSS ESTATE The properties comprising the gross estate shall be valued based on their fair market value at the time of death. who at the time of his death: a. If the decedent at the time of his death was a citizen and resident of a foreign country. In respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC. The following shall be included in the computation of gross estate if transferred under circumstances qualifying as: a. real or personal. did not impose a transfer tax or death tax of any character. if none is shares available on the date of death Preferred itself.San Beda College of Law 117 2008 CENTRALIZED BAR OPERATIONS Gross Estate The gross estate consists of the following: a. Only properties situated in the Philippines provided that. 4. obligations or bonds issued by any foreign corporation. wherever situated. business or industry established in the Philippines. 85) RESIDENT and NON-RESIDENT NON-RESIDENT ALIEN CITIZEN.R. Properties Physically in the Estate These properties may refer to those real estate or real property such as land and buildings. b. b. 3. 2)Shares of Stock . allow a similar exemption from transfer taxes or death taxes of every character. 2-2003). INTANGIBLE PERSONAL PROPERTIES WITH SITUS IN THE PHILIPPINES (Sec. Upon the death of the decedent. Properties Not Physically in the Estate These are properties which at the time of the decedent’s death are not physically in the estate because they were transferred by the decedent during his lifetime. or DECEDENT’S GROSS ESTATE INCLUDES (Sec.par value . If the laws of the foreign country of which the decedent was a citizen and resident at the time of his death: a. PROPERTY 1)Real Property VALUATION WHICHEVER IS HIGHER of fair market value: a) as determined by the Commissioner. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. with respect to intangible personal property. if such shares. obligations or bonds have acquired a business situs in the Philippines. TAX 2.Arithmetic mean between the Unlisted/ highest and lowest quotation at a Not Traded date nearest the valuation date Common (date of death). 104) 1. In respect of intangible personal property of citizens of the Philippines not residing in that foreign country. 104 of the NIRC: 1. obligations or bonds issued by any foreign corporation eighty-five per centum (85%) of the business of which is located in the Philippines.

when the donee (decedent) can appoint only among a restricted or designated class of persons other than himself. by deed executed in contemplation of his death. to be approved by the Secretary of Finance. or by deed under which he has retained for his life 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. GENERAL . 3. thus having full dominion over the property as though he owned it. 85) 1. NO VALUE If the consideration received on the transfer was less than adequate and full • EXCESS of the FMV of the property at the time of decedent’s death over CONSIDERATION received 100000 100000 100000 none 70000 100000 3. Classification: a.the probable life of the beneficiary in accordance with the latest basic standard mortality table.118 Transfer Taxes PROPERTY 3)Right to usufruct. or b. TRANSFER UNDER GENERAL POWER OF APPOINTMENT Power of appointment . If the transfer was in the nature of a bona fide sale for an adequate and full consideration in money or money’s worth Illustration: Case 1 Case 2 Case 3 A B C Fair market value at the time of transfer Consideration received Fair market value at the time of death The value to include in the gross estate NOTE: • • Compare (a) and (b) to determine the ADEQUACY of the consideration (b) and (c) to determine the VALUE to include in the gross estate 50000 50000 50000 30000 50000 0 • 2. Note: If recently acquired by decedent. NOTE: The extent or degree of control which the decedent has over a property determines the character of the power of appointment.when it authorizes the donee (decedent) to appoint any person he pleases including himself. the possession or enjoyment of. If there was no consideration received (Donation Mortis Causa) • FMV of the property at the time of decedent’s death Inclusions in the Gross Estate (GRID-LIP)(Sec. 2. upon recommendation of the Insurance Commissioner shall be taken into account. “Sentimental value” is practically disregarded. as well as that of annuity 4)Personal property VALUATION . or the right to the income from the property.Whether tangible or intangible. appraised at FMV. The general power of appointment may be exercised by the decedent: 1.is the right to designate the person or persons who shall enjoy and possess certain property from the estate of a prior decedent. . by will. . SPECIAL . use or habitation. purchase price may indicate FAIR MARKET VALUE MEMORY AID IN TAXATION LAW Valuation Rules of Properties Not Physically in The Estate 1.

but is not a bona fide sale for an adequate and full consideration in money or money’s worth. 119 2008 CENTRALIZED BAR OPERATIONS A transfer. • The power to alter. to designate the persons who shall possess or enjoy the property or the income therefrom. revoke or terminate. . executor or administrator where the designation of the beneficiary is revocable. or The right. interests. either alone or in conjunction with any person. unless stated expressly as irrevocable. In such cases. the estate of the decedent. revocable transfers and transfers under general power of appointment. where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by: a. The value to be included in the gross estate is the excess of the fair market value of the property at the time of the decedent’s death over the consideration received. 4. decedent alone. amend. 2. and (3) period of time between the time of transfer and time of death. T R A N S F E R S F O R I N S U F F I C I E N T CONSIDERATION Transfers for insufficient consideration refer to transfers. his executor or administrator (regardless of whether the designation is revocable or irrevocable). to alter. The right. by which the decedent retained for his life. whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised. exercised or relinquished for a consideration in money or money’s worth. rights or powers (denominated as transfer in contemplation of death. by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power. • NOTE: It is enough that the decedent had the power to alter. created. TRANSFER IN CONTEMPLATION OF DEATH a. or where any such power is relinquished in contemplation of the decedent’s death other than a bona fide sale for an adequate and full consideration in money or money’s worth. (2) to whom the transfer was made. either alone or in conjunction with any person. b. or made for a consideration.San Beda College of Law b. but is not a bona fide sale for an adequate and full consideration in money or money’s worth. Exception: bona fide sale for an adequate and full consideration in money or money’s worth. PROCEEDS OF LIFE INSURANCE Proceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary is: a. or revoke shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration. Exception: bona fide sale for an adequate and full consideration in money or money’s worth. such notice shall be considered to have been given. or the right to the income from the property. amendment or revocation takes effect only on the expiration of a stated period after the exercise of the power. or A third person other than the estate. proper adjustment shall be made representing the interests which would have been excluded from the power if the decedent had lived. b. Presence of any of these indicators will determine if the transfer is in contemplation of death: (1) health condition and age of transferor. 3. on the date of his death. the possession or enjoyment of. Under the Insurance Code. or for any period. to designate the person who shall possess or enjoy the property or the income therefrom. • A revocable transfer is a transfer by trust or otherwise. REVOCABLE TRANSFER 2. or the power exercised. A transfer motivated by the thought of impending death although death may not be imminent. c. Exception: bona fide sale for an adequate and full consideration in money or money’s worth. 5. b. trusts. Exception: bona fide sale for an adequate and full consideration in money or money’s worth. which does not in fact end before his death: 1. and for such purpose if the notice has not been given or the power has not been exercised on or before the date of his death. revocable transfer and property passing under general power of appointment) made. a designation of a beneficiary is revocable. This is applicable in cases of: • • • transfers in contemplation of death. amend or revoke even though he did not exercise such power. amend.

PROPERTY RELATIONS BETWEEN HUSBAND AND WIFE The property relations between the spouses shall be governed by contract (marriage settlement) executed before the marriage. taxes. 2-2003) The following are deductible from the gross estate of citizens and resident aliens: (VET FAST ME RASH) 1. legatee or donee in favor of another beneficiary. Mourning apparel of the surviving spouse and unmarried minor children of the deceased. MEMORY AID IN TAXATION LAW The transmission from the first heir. 5. and Net share of the surviving spouse in the conjugal or community property. Cost of burial plot. or if the contract is void: a. EXEMPT TRANSMISSIONS (Sec. legacies. the system of absolute community of property shall govern.R. Transfer for public use. Family home. 4. and All bequests. The following shall not be taxed (examples under special laws): (a) Amounts received for war damages. b.000. 3. legacies or transfers to social welfare. (ordinary deductions) . in accordance with the will of the predecessor. devices. 1988. (c) Benefits received from the GSIS and SSS (d) Retirement benefits of employees of private firms. actual funeral expenses. 6. created. ORDINARY DEDUCTIONS FUNERAL EXPENSES The amount deductible is the lowest among the following: 1. 2. 3. On marriages contracted on or after August 3. 87) 1.000. trusts. powers and relinquishment of powers made. cultural and charitable institutions provided that: a. PRIOR INTERESTS All transfers. (b) Amounts received from the US Veterans Administration. exercised or relinquished before or after the effectivity of the NIRC. In case deceased owns a family estate or 1. 2. b. existing. The merger of usufruct in the owner of the naked title. 5% of the gross estate. Vanishing deduction. 5. the system of conjugal partnership of gains shall govern. Deductions On Gross Estate Applicable To Resident Aliens And Citizens (R. 2.120 Transfer Taxes 6. Medical expenses. arising. or P200. 1. Amounts received by heirs under RA 4917 (Retirement Benefits). and (e) Intangible personal property of a non-resident decedent. tombstone monument or mausoleum but not their upkeep. losses. interests. no part of the net income of which inures to the benefit of any individual and no more than 30% of the said bequests. estates. Expenses. rights. . Telecommunication expenses in informing relatives of the deceased. bought and used in the occasion of the burial. not a citizen of the Philippines. 3. as provided in the reciprocity clause of the estate tax law. 3. Standard deduction equivalent to one million pesos (P1. It includes the following: 2. or transfers shall be used by such institutions for administration purposes 4. Fideicommissary substitution. No. 7. a.000). etc. On marriages contracted before August 3. 1988 (effectivity of the Family Code of the Philippines). Expenses of the wake preceding the burial including food and drinks. 4. Publication charges for death notices. 8. indebtedness. In the absence of such contract.

The claim must be a debt or claim which is valid in law and enforceable in court. March 22. NOTE: If claim arose out of a debt instrument: a. Expenses incurred after the interment. or Operation of Law. 4. Court of Appeals G. fees of executor or administrator B. clerk hire G. 3. Amount of funeral expenses must be reasonable. debt instrument must be NOTARIZED if contracted within 3 years before the death of the decedent. inventory-taking of assets comprising the gross estate. 7. the value of the memorial plan must be included in the GROSS ESTATE before computing for the allowable deduction for funeral expense b. masses. and distribution of the estate among the heirs. and All other expenses incurred for the performance of the ritual and ceremonies incident to the interment. The liability was contracted in good faith and for adequate and full consideration in money or money's worth. b. brokerage fees for selling property of the estate ATTORNEYS FEES DEDUCTIBLE Attorney’s fees in order to be deductible from gross estate must be essential to the collection of assets.R. Judicial expenses may include: A. costs of preserving and distributing the estate H. 1. or the like are not deductible. attorney’s fees C. Any unpaid amount for costs and expenses claimed under judicial expenses should be supported by sworn statement of account issued and signed by creditor. for the filing of the estate tax return. accountant fees E.. The services for which the fees are charged must relate to the proper settlement of the estate. these deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law. 123206. 121 2008 CENTRALIZED BAR OPERATIONS I. 2. Requisites: 2. except unpaid obligations incurred incident to his death such as unpaid funeral expenses (i. In short. or the extension thereof. expenses incurred up to the time of interment) and unpaid medical expenses which are classified under a different category of deductions. No. 4. 2. Tort. or distribution of the property to the person entitled to it. Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. The expenses must be duly supported with receipts or invoices or other evidence to show that they were actually incurred.San Beda College of Law several burial lots. administration. payment of debts. the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan SUBSTANTIATION OF CLAIMS All unpaid obligations and liabilities of the decedent at the time of his death (except unpaid funeral or medical expenses which are deductible under a different category) are allowed as deductions from gross estate . costs of storing or maintaining property of the estate and 3. The liability represents a personal obligation of the deceased existing at the time of his death. CLAIMS AGAINST THE ESTATE The word "claims" is generally construed to mean 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. Interment fees and charges. and The indebtedness must not have been condoned by the creditor or the action to collect from the decedent must not have prescribed. 6. such as for prayers. payment of debts of the estate. appraiser’s fees F. Contract. entertainment. Claims against the estate or indebtedness in respect of property may arise out of: 1. 3. 2000) c. NOTE: When some items are covered by a memorial plan. only the value corresponding to the plot where he is buried is deductible. court fees D. Actual funeral expenses shall mean those which are actually incurred in connection with the interment or burial of the deceased. (CIR vs. JUDICIAL EXPENSES OF THE TESTAMENTARY OR INTESTATE PROCEEDINGS Expenses allowed as deduction under this category are those incurred in the: 1.e.

• f. d. should always form part of the gross taxable estate. CLAIMS AGAINST INSOLVENT PERSONS Requisites: 1. the mortgaged property. SIMPLE LOANS (including advances) a. as duly acknowledged. a certified true copy of the updated latest subsidiary ledger/records of the debt of the debtor-decedent should likewise be submitted.122 Transfer Taxes provided the following requirements/ documents are complied with/submitted: 1. c. executed and signed by decedent debtor and creditor and statement of account given by the creditor as duly received by the decedent debtor. there is no effect on the amount of estate tax but the payment shall be treated as income of the estate. The following are not deductible: 1. verification must be made as to who was the beneficiary of the loan proceeds. b. or any estate tax When founded upon a promise or agreement. d.d e b t o r. 2. Value of decedent’s interest in the property mortgaged. In income taxation. If the loan is found to be merely an accommodation loan where the loan proceeds went to another person. Y died without X paying the debt. Duly notarized certification from the creditor as to the unpaid balance of the debt. Example: X owes Y (decedent) P100. • • b. In all instances. 000. 2. undiminished by such mortgaged or indebtedness is included in the value of the gross estate but not including any income tax upon income received after the death of the decedent. property taxes not accrued before death. The debt instrument must be duly notarized at the time the indebtedness was incurred except for loans granted by financial institutions where notarization is not part of the business practice/policy of the financial institution-lender. 2. as well as latest audited balance sheet with detailed schedule of its receivable showing unpaid balance of the decedent-debtor. TAXES Taxes which have accrued as of or before the death of the decedent which were unpaid as of the time of death. NPAID OBLIGATIONS arose from purchase of goods or services a. Duly notarized certification from the creditor as to the unpaid balance of the debt. Pertinent documents evidencing the purchase of goods or services. Certified true copy of the latest audited balance sheet of creditor with a detailed schedule of its receivable showing the unpaid balance of the d e c e d e n t . 3. In the event of subsequent payment by X after the estate tax has already been paid. or property taxes not accrued before his death. bad debts previously written off but subsequently collected are considered gross income under the Tax Benefit Rule. including interest as of the time of death Proof of financial capacity of the creditor to lend the amount at the time the loan was granted. to the extent of the decedent's interest therein. and estate tax. and . In case unpaid mortgage payable is being claimed by the estate. • c. If there is a legal impediment to recognize the same as receivable of the estate. MEMORY AID IN TAXATION LAW The incapacity of the debtors to pay their obligation is proven. the value of the unpaid loan must be included as a receivable of the estate. M o r e o v e r. The estate of Y will include the credit of X. Statement under oath executed by administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted with three (3) years prior to the death of the decedent. e. The amount thereof has been initially included as part of his gross estate (for otherwise they would constitute double deductions if they were to be deducted). UNPAID MORTGAGE Requisites: 1. including interest as of the time of death. the unpaid mortgage or indebtedness must have been contracted bona fide and for an adequate and full consideration in money or money’s worth. income tax on income received after death. said unpaid obligation/ mortgage payable shall not be allowed as a deduction from the gross estate. 2. such as sales invoices/delivery receipts. or contract for the services agreed to be rendered.

Not claimed as deduction in an income tax return of the taxable estate. medical expenses and amounts received under R. and For exclusive public purpose. The disposition is in a last will and testament. or of the taxable gift of the donor. In favor of the government of the Phiippines or any political subdivision thereof. No. The present decedent died within 5 years from receipt of the property from a prior decedent or donor. and No vanishing deduction on the property was allowable to the estate of the prior decedent. or other casualty. It should arise from fire. 2. b. etc. as follows: PERIOD Within 1 year DEDUCTION 100% . or something acquired in exchange therefore. 4. 3. 6. indebtedness. apply the applicable rate as follows: The rate of deduction depends on the period from the date of transfer to the death of the decedent. losses. PURPOSE: To lessen the harsh effects of double taxation in the broad sense considering that the property has been previously subjected to estate tax when the prior decedent died. Occurring during the settlement of the estate. The estate tax or donor’s tax on the gift must have been finally determined and paid. 2. 5. In case of refund of the estate tax paid. * expenses. 4. WHICHEVER IS LOWER NOTE: Casualty loss can be allowed as deduction in one instance only. 5. 3. Steps in the computation of vanishing deduction: a. NOTE: Where the property referred to consists of two or more items. the amount shall be considered as income of the estate. TRANSFER FOR PUBLIC USE Requisites: 1. devices. LOSSES Requisites: 1. The property formed part of the taxable estate of the prior decedent.A.San Beda College of Law NOTE: For estate tax purposes: the unpaid taxes must have accrued before the death of the decedent regardless of whether or not it was incurred in connection with trade or business. 4917. 123 2008 CENTRALIZED BAR OPERATIONS Requisites: 1. To take effect after death. Determine the basis of the vanishing deduction: 1. and Occurring before the last day for the payment of the estate tax (last day to pay: six months after the decedent’s death). or transfers to social welfare. cultural and charitable institutions. Value in no. or gift of the donor 3. 3. The value as reduced in (2) shall be further reduced by an amount equal to: Value as reduced in no. 2. the aggregate of such item by item lower of two values shall be the initial basis 2. theft or embezzlement. VANISHING DEDUCTION DEFINITION: The deduction allowed from the gross estate for properties that were subject to donor’s or estate taxes. standard deduction. shipwreck. On the computed basis of vanishing deduction in (a). g. either for income tax purposes or estate tax purposes. robbery. and transfers for public use not including family home. 1 shall be reduced by any payment made by the present decedent on any mortgage or lien on the property. 2. 2 Gross Estate x ELIT * NOTE: This should also include bequests. It is called vanishing deduction. where such mortgage or lien was a deduction from the gross estate of the prior decedent. 3. storm. Initial value • value of the property in the prior estate (or value used for donor’s tax purposes) OR value of such property in the present estate. The property must be identified as the one received from the prior decedent. 4. Not compensated by insurance or otherwise. The property must be located in the Philippines. because the deduction allowed diminishes over a period of 5 years.

000.000. STANDARD DEDUCTION Sec. . whichever is lower.000 Available to resident citizens. losses. The family home must be the actual residential home of the decedent and his family at the time of his death. as certified to by the Barangay Captain of the locality. The total value of the family home must be included as part of the gross estate of the decedent. Conditions: 1. which was paid in whole or in part prior to the decedent’s death. • • 2. transfers for public use as the amount of property previously taxed bears to the value of the decedent’s estate.000 TREATMENT IF IN THE DETERMINATION OF ESTATE TAX. or the estate tax of the prior decedent. where the husband and wife. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein (Article 152 and 153 of Family Code). but not exceeding P1. FAMILY HOME FAMILY HOME It is a dwelling house.124 Transfer Taxes PERIOD More than 1 year but not more than 2 years More than 2 years not more than 3 years More than 3 years not more than 4 years More than 4 years but not more than 5 years DEDUCTION 80% 60% 40% 20% 3. The full amount of P1. as certified by the Barangay Captain of the locality where the family home is situated. non-resident citizens and resident aliens OPTIONAL STANDARD DEDUCTION Sec. NOTE: It should be duly substantiated with receipts for services rendered by decedent’s attending physicians. Examples: cost of medicines. doctor’s fees. indebtedness and taxes. including the land on which it is situated. hospital bills. DEDUCTION FROM VANISHING DEDUCTION The vanishing deduction shall be reduced by an amount which bears the same ratio to the amounts of expenses.000) shall be allowed as an additional deduction without need of substantiation.000 shall be allowed as deduction for the benefit of the decedent.000. or head of family and members of their family reside.000. invoices. 34 (L) Deduction in lieu of itemized deductions Amount of deduction: 10% of gross income Applies to all individual taxpayers except non-resident aliens 5. Neither can any unpaid amount thereof in excess of the P500. etc incurred. 6. 86 (A)(5) Deduction in addition to the other deductions Amount of deduction: P1.000) shall no longer be allowed as a deduction. STANDARD DEDUCTION A deduction in the amount of One Million Pesos (P1. MEMORY AID IN TAXATION LAW Allowable deduction must be in an amount equivalent to: • • the current fair market value of the family home as declared or included in the gross estate. whether paid or unpaid within 1 year before the death of the decedent shall be allowed as long as properly substantiated. statements of account duly certified by the hospital and such other documents in support thereof and provided. and 4. MEDICAL EXPENSES • Any amount of medical expenses incurred within one year from death in excess of Five Hundred Thousand Pesos (P500. or the extent of the decedent's interest (whether conjugal/community or exclusive property).000 threshold nor any unpaid amount for medical expenses incurred prior to the one-year period from date of death be allowed to be deducted from the gross estate as claim against the estate. A MORTGAGE OR OTHER LIEN WAS ALLOWED Where a deduction was allowed of any mortgage or other lien in determining the donor’s tax. then the deduction allowable shall be reduced by the amount so paid.

Such benefit is availed only once. Expenses. The capital of surviving spouse of a decedent shall not be deemed part of his or her gross estate. 4917 contemplates retirement benefits of employees in the private sector. Deductions FROM Gross Estate Applicable To NonResident Aliens The following are deductible from the gross estate of non-resident aliens: 1. indebtedness and taxes (ELIT) (ordinary deductions) Formula: Tax Credit = Phil. 4917 Any amount received by the heirs from the decedent's employer as a consequence of the death of the decedent-employee in accordance with Republic Act No. whether paid or unpaid. Retirement plan is duly approved by the BIR. 4. that the total amount thereof. 2. Where:  – Applicable/Allowed  – Not Applicable/Not Allowed FE – Funeral Expenses JE – Judicial Expenses . Conjugal share of the surviving spouse RC NRC RA SUMMARY RULES ON DEDUCTIONS FROM GROSS ESTATE: FE RC NRC RA    JE    CAE    CAIP UM UT          CL    NRA In proportion to the value of the estate located in the Philippines as against the total estate SD FH ME RA TPU CS of 4917 SS                   VD    NRA       In prop. 4917 is allowed as a deduction provided that the amount of the separation benefit is included as part of the gross estate of the decedent. the share of the surviving spouse must be removed to ensure that only the decedent's interest in the estate is taxed. 3.000.00 125 2008 CENTRALIZED BAR OPERATIONS AMOUNTS RECEIVED BY HEIRS UNDER REPUBLIC ACT NO.San Beda College of Law further. does not exceed P500. No. Employee is at least 50 years old at the time of retirement. losses. 4. Employee has rendered at least 10 years of continuous service in favor of the same employer. NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL PARTNERSHIP OR COMMUNITY PROPERTY After deducting the allowable deductions (only the ordinary deductions) appertaining to the conjugal or community properties included in the gross estate. Transfer for public use Vanishing deduction on property in the Philippines. 5. and The fund shall not be used by the employer for any purpose other than for the benefit of the employees. Gross Limit Estate X World ELIT World Gross Estate 2. Requisites: 1. INCOME TAX ESTATE TAX Claim for Deductions Full deduction as long No distinction as taxpayer is engaged in trade/business Purpose of Transfer No specific purpose required Exclusively for public purpose 3. CAPITAL OF SURVIVING SPOUSE OF DECEDENT TREATED FOR ESTATE TAX 8. 7. R.A.

as the case may be shall file A RETURN UNDER OATH IN DUPLICATE (Section 90 NIRC). though exempt from tax. One foreign country only The tax credit is whichever is lower between: 1. though exempt from tax. foreign country NTE. 89). estate tax 2. where the said estate consists of registered or registrable property such as real property. the gross value of the e s t a t e e x c e e d s P 2 0 . AN ESTATE TAX RETURN IS REQUIRED TO BE FILED 1. regardless of the amount of the gross estate. or where. world (NTE . Estate tax actually paid to the foreign country Tax Credit Limit = NTE. world X Phil. shares of stock. administrator or any of the legal heirs. when the estate is not subject to estate tax but the gross estate exceeds P200.Net Taxable Estate) Settlement of The Estate Tax A. shall give a written notice thereof to the Commissioner (Sec. More than one foreign country The credit shall be that which is the lower amount between Limit A and Limit B. or where.126 Transfer Taxes CAE CAIP UM UT CL SD FH ME TPU VD – – – – – – – – – – Claims against the Estate Claims against Insolvent Persons Unpaid Mortgage Unpaid Taxes Casualty Loss Standard Deduction Family Home Medical Expenses Transfers for Public Use Vanishing Deduction CS of SS – MEMORY AID IN TAXATION LAW Conjugal Share of Surviving Spouse NOTE: Non-resident aliens cannot deduct the following from the gross estate: • Standard deductions • Family home • Medical expenses • Retirement benefits Estate Tax Credit A tax credit is granted for estate taxes paid to a foreign country on the estate of citizens and resident aliens subject to the following limitations: Purpose: To provide a relief from too onerous a taxation of the taxable estate outside the Philippines 1. 2. shall GIVE WRITTEN NOTICE THEREOF TO COMMISSIONER (Section 89 NIRC). or 2. estate tax Limit B.000. X Phil. when the estate is subject to estate tax. or within a like period after qualifying as such executor or administrator. Whichever is lower between: • • Estate tax paid to a foreign country Tax Credit Limit = NTE.000 Executor. world X Phil. as the case may be. B. or 3. or within a like period after qualifying as such executor or administrator. 0 0 0 . t h e e x e c u t o r. foreign country NTE. Limit A. or other similar property for which clearance from BIR is required as a condition precedent to such transfer of ownership Executor or administrator or any of legal heirs. REPORTORIAL REQUIREMENTS A. the gross value of the estate exceeds P20. estate tax NTE. In all cases of transfers subject to tax. though exempt from tax. where the gross estate consists of registered or registrable property such as motor vehicle or shares of stock or other similar property for which clearance from the BIR is required as a condition precedent for the transfer of . or where. or regardless of the gross value of the estate. the gross value of the estate exceeds P200. whichever is lower between: • • Total of estate taxes paid to all foreign countries Tax Credit Limit = NTE outside Phil. FILING NOTICE OF DEATH TO BE FILED In all cases of transfers subject to tax. within two months after the decedent’s death. within 2 months after decedent’s death.000. administrator. motor vehicle. In all cases of transfers subject to tax. or any legal heirs.

CONDITIONS FOR THE GRANT OF EXTENSION The taxpayer is not guilty of negligence. all of them shall be severally liable for the payment of the tax. 3. THE ESTATE TAX RETURN SHALL BE ACCOMPANIED BY A STATEMENT WHICH IS CERTIFIED BY AN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT STATING NOTE: In case the available cash is not sufficient to pay its total estate tax liability.R. September 15. there may be many clearances as there are many properties released. R. b.000. the estate may be allowed to pay tax by installment (Sec. legacy or inheritance. The amount of tax due. the itemized assets of the decedent with its corresponding gross value at the time of his death. No. Therefore. whether paid or still due and outstanding. No. The deductions allowed from gross estate in determining the estate c. No. 127 2008 CENTRALIZED BAR OPERATIONS years if there is an extrajudicial settlement of the estate. Pineda G. and they shall immediately notify the Commissioner. qualified and acting within the Philippines. Register of Deeds shall not register in the Registry of Property any document transferring real property or real rights therein or any chattel mortgage. R. LIABILITY FOR PAYMENT The estate tax shall be paid by the executor or administrator before delivery of the distributive share in the inheritance to any heir or beneficiary. An heir is liable for the assessment as an heir and as holder-transferee of property belonging to the estate/taxpayer.R. or constructive possession of any property of the decedent. 1967). grant an extension of not exceeding thirty (30) days for the filing of the estate tax return. 2. . then any person in actual. 2-2003]. If there are two or more executors or administrators. or in the case of a non-resident.R. not citizen of the Philippines. and fraud. or in case of nonresident. 9F. intentional disregard of the rules and regulations. E x t e n s i o n : T h e C o m m i s s i o n e r m a y. CONTENTS OF ESTATE TAX RETURN The following shall be set forth in the return: 1. Regional 1. not a citizen of the Philippines. of that part of his gross estate situated in the Philippines. 000. or The payment of the estate tax may be extended for a period not to exceed two (2) B. It is the primary obligation of the executor or administrator to pay the estate tax due 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 [Sec. by way of gifts inter vivos or mortis causa. As an heir. The value of the gross estate of the decedent at the time of his death. PAYMENT PAYMENT OF THE ESTATE TAX DUE The estate tax due shall be paid at the time when the estate tax return is filed (Pay as you file system) When the Commissioner finds that the payment of the estate tax on the due date would impose undue hardships upon the estate or any heir: a. 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. The executor or administrator or the beneficiary may be required to furnish a bond in such amount not exceeding double the amount of tax and with such sureties as the Commissioner deems necessary. that part of his gross estate situated in the Philippines. No judge shall authorize the distribution of the estate unless a certification from the Commissioner that the tax has been paid is shown (Sec. L-22734. unless a certification from the Commissioner that the tax actually due thereon had been paid is shown. 2-2003). TIME FOR FILING THE ESTATE TAX RETURN The estate tax return shall be filed within six (6) months after the death of the decedent. If there is no executor or administrator appointed. a. 94). WHEN THE GROSS ESTATE EXCEEDS P2. 9 (G). the payment of the estate tax may be extended for a period not to exceed five (5) years if there is a judicial settlement of the estate.San Beda College of Law ownership thereof in the name of the transferee. the itemized deductions from the gross estate. The estate tax clearance will serve as authority to distribute the remaining/distributable properties/share in the inheritance to the heir or beneficiary. i n meritorious cases. Such part of information as may at the time is ascertainable and such supplemental data as may be necessary to establish the correct taxes. he is individually answerable for the part of the tax proportionate to the share he received from the inheritance (CIR vs. 2. b.

notary public. the statute of non-claims does not bar government for unpaid taxes.R. a. is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate (CIR vs. MEMORY AID IN TAXATION LAW STATUTE OF NON-CLAIMS DOES NOT BAR CLAIMS OF GOVERNMENT Section 5. 1997). unless the certification of the Commissioner that the estate tax imposed by NIRC has been paid is shown. Any lawyer. L-31364. 1962). Collection Officer. with executor or administrator in the Philippines. No. following prevailing collection rules and procedures. L –22734. or any government officer. legatee. 120880. upon authorization by the Commissioner. and the persons interested shall have satisfied them by order of the court. In case of non-resident decedent having no executor or administrator in the Philippines. shall have the duty of furnishing the Commissioner. Commissioner of Internal Revenue. filed with and the TIN of estate shall be secured from the RDO having jurisdiction over the executor or administrator’s legal residence. PLACE OF FILING OF ESTATE TAX RETURN AND PAYMENT a. No. Revenue District Officer or Revenue Collection Officer or Treasurer of the city or municipality where their offices are located. or Pursuant to the lien created by Section 219 of the Tax Code upon all property and rights to property belonging to the taxpayer for unpaid income tax. whichever is applicable. Court of Appeals. still within the period of limitation prescribed in the NIRC (Vera vs. b. 16661. In case of resident decedent. 97). . G. 000) without the said certification. can be collected from the heirs even after the distribution of the properties of the decedent (Palanca vs. who. COLLECTION OF TAX FROM THE HEIRS An estate or inheritance tax. new obligations of the decedent shall appear. b.R. G. Fernandez. G. it is the probate or settlement court which is bidden not to authorize the delivery of the distributive share to any interested party without a certification from the CIR showing the payment of the estate tax (Marcos II vs. business or industry organized in the Philippines. withdraw an amount not exceeding twenty thousand pesos (P20. 1979). 97). If not registered. The Government has two ways of collecting taxes due from the estate. with copies of such documents and any information whatsoever which may facilitate the collection of the estate tax (Section 95 NIRC). Pineda. by reason of his official duties. September 15. Revenue District Officer or Revenue Collection Officer of the place where he may have his principal office. 1967). partnership. No. On the contrary. or duly authorized Treasurer of the city or municipality where the decedent was domiciled at the time of his death. G. unless a similar certification by the Commissioner is shown (Sec. legacy or inheritance. executor or administrator of his creditor. the administrator shall register the estate of the decedent and secure a new TIN therefore from the Revenue District Office (RDO) where the decedent was domiciled at the time of his death and shall file the estate tax return and pay the corresponding estate tax with the Accredited Agent Bank. Provided: that the administrator of the estate or any one (1) of the heirs of the decedent may. Regional Director. the estate tax return shall be filed with and the TIN for the estate shall be secured from the RDO where such executor or administrator is registered. Revenue District Officer. A debtor of the deceased shall not pay his debts to the heirs.128 Transfer Taxes Director. of the non-payment of tax discovered by them (Section 95 NIRC). There is nothing in the Tax Code and in the pertinent remedial law provisions that imply the necessity of the probate court or estate settlement of court’s approval of the State’s claim for estate taxes before the same can be enforced and collected by the BIR. Rule 86 of the Rules of Court. March 30. In case of non-resident decedent. intervenes in the preparation or acknowledgment of documents regarding partition or disposal of donation inter vivos or mortis causa.R. c. January 31. they shall have a right to the restitution of the proportional part of the tax paid (Section 96 NIRC).R. No. it shall not allow any withdrawal by the surviving depositor without the above certification (Sec. No shares or other forms of securities shall be transferred in the books of any corporation. whether assessed before or after the death of the deceased. June 5. If after payment of the estate tax. under Section 94. but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased (Section 95 NIRC). whether non-resident citizen or non-resident alien. the C. When a bank has knowledge of the death of a person who maintained a joint account. By going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received.

its inclusion in the gross estate is subject to the rule of reciprocity provided for under Section 104 of the NIRC. NON-RESIDENT ALIEN DONOR Only properties situated in the Philippines provided that. • 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. DONOR’S TAX ESTATE TAX Tax on privilege to Tax on privilege to transfer property during transfer property upon one’s lifetime one’s death Generally imposed on Donations Inter Vivos Generally imposed on Donations Mortis Causa Coverage Of The Tax (Sec. other than because of the donor's death. it is completed by the delivery. 3. It is not negated when the person donating has other intentions. the donor renounces the power. or purposes that do not contradict donative intent (Abello. Concepcion. whether actual or constructive. 2-2003) . 104) RESIDENT & NON-RESIDENT CITIZEN. motives. When Incomplete Gift Becomes Complete A gift that is incomplete because of reserved powers becomes complete when either: 1. Acceptance by the donee. 2. wherever situated. No. The transfer is perfected from the moment the donor knows of the acceptance by the donee. It cannot be perceived except by the material and tangible acts that manifests its presence. Delivery. 129 2008 CENTRALIZED BAR OPERATIONS Note: The Commissioner may continue to exercise his power to allow a different venue/place in filing of tax returns.R. Donor’s Taxes Donorʼs Taxes DEFINITION: A tax on the privilege of transmitting one’s property or property rights to another or others without adequate and full valuable consideration. it is presumed to exist when one gives a part of one’s patrimony to another without consideration. LAW THAT GOVERNS THE IMPOSITION OF DONOR’S TAX The law in force at the time of the completion of donation shall govern the imposition of donor’s tax (R. of the donated property to the donee. of his/her share in the hereditary estate left by the decedent is not subject to donor's tax. Capacity of the donor. Regala and Cruz vs. 4. When Donor’s Tax Applies The donor’s tax shall not apply unless and until there is a completed gift. unless specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in • . 120721). Requisites: 1. including the surviving spouse. tangible or intangible.R. of the subject gift. 2. Donative intent (intention to donate). CIR G. or his right to exercise the reserved power ceases because of the happening of some event or contingency or the fulfillment of some condition. DONATIVE INTENT Donative Intent is a creature of mind. Hence. RESIDENT ALIEN DONOR All properties. either actually or constructively. with respect to intangible personal property.San Beda College of Law estate tax return shall be filed with and TIN for the estate shall be secured from the Office of the Commissioner. real or personal. General renunciation by an heir.

Where property. 2-2003). 11. Husband and wife are considered separate and distinct taxpayers for purposes of donor’s tax. Notes: 1. AND INSTANCES WHEN TRANSFER OF INTANGIBLE PERSONAL PROPERTY OWNED BY A CITIZEN AND RESIDENT OF A FOREIGN COUNTRY IS NOT • . The acceptance may be made in the same Deed of Donation or in a separate public document. No.130 Transfer Taxes the hereditary estate (Sec. If the donee is a stranger. ancestor and lineal descendant. Accordingly. If the acceptance is made in a separate instrument. or a relative by consanguinity in the collateral line within the 4th civil degree. sister.04M 15% FORMULA (ON A CUMULATIVE BASIS OVER A PERIOD OF ONE CALENDAR YEAR): 1. Over But not Tax Plus over shall be 100000 100000 200000 200000 500000 500000 1M 3M 5M 10M 1M 3M 5M 10M Exempt 0 2500 14000 44000 2% 4% 6% 8% 100000 200000 500000 1M 3M 5M 10M Of the excess over 204000 10% 404000 12% 1. Net gifts mean the net economic benefits from the transfer that accrues to the donee. there is only one donor for donor’s tax purposes. if a mortgaged property is transferred as a gift. VALUATION OF GIFTS OF PROPERTY The fair market value of the property given at the time of the gift shall be the value of the gift. ON DONATION THE YEAR OF A SUBSEQUENT DATE DURING XXX XXX XXX XXX XXX 2.2% to 15%. but shall not take effect unless it is done during the lifetime of the donor.R. and this step shall be noted in both instruments (R. it must be made in a public document specifying therein the property donated. spouse. “NET GIFT” The net economic benefit from the transfer that accrues to the donee. If the donee is not a stranger.a person who is not a brother. the donor shall be notified thereof in an authentic form. • A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children. other than a real property that has been subjected to the final capital gains tax. STRANGER . then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed gift. MEMORY AID IN TAXATION LAW B. TAX RATES A. R. INTANGIBLE PERSONAL PROPERTIES WITH A SITUS IN THE PHIL. but imposing upon the donee the obligation to pay the mortgage liabilities. then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed. GROSS GIFTS MADE ON THIS DATE LESS: DEDUCTIONS FROM GROSS GIFTS NET GIFTS ADD: ALL PRIOR NET GIFTS WITHIN THE YEAR AGGREGATE NET GIFTS X TAX RATE DONOR’S TAX ON AGGREGATE NET GIFTS LESS: DONOR’S TAX ON ALL PRIOR NET GIFTS DONOR’S TAX ON THE NET GIFTS ON THIS DATE % XXX XXX XXX NOTES: If what was donated is a conjugal or community property and only the husband signed the deed of donation. is transferred for less than an adequate and full consideration in money or money’s worth.R. without prejudice to the right of the wife to question the validity of the donation without her consent pursuant to the pertinent provision of the Civil Code of the Philippines and Family Code of the Philippines (R. Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. the donor’s tax shall be computed based on the tax table as indicated below.R. 2-2003). and shall be included in computing the amount of gifts made during the calendar year. ON THE 1ST DONATION OF THE YEAR GROSS GIFTS LESS: DEDUCTIONS FROM GROSS GIFTS NET GIFTS X TAX RATE DONOR’S TAX ON THE NET GIFTS XXX XXX XXX % XXX 2. donation to him shall not be considered as donation made to stranger. and therefore. the rate of tax shall be 30% of the net gifts. 2-2003). DONATION OF IMMOVABLE PROPERTY TO BE VALID In order for a donation of an immovable property to be valid.

incorporated as a non-stock entity. and Gifts in favor of educational. INSTITUTION . foundations. 1998 (Section 99. 2. religious. cultural or social welfare corporation. institutions. 2-2003). express or implied. and Same as (c) above except accredited non-government organization (NGO). Donations under Adopt-A-School Program donor’s tax exempt Donations under the “Adopt-a-School” program as provided in the “Adopt-a-School Act of 1998” (R. trust or philanthropic organization. providing in Section 13 thereof. or adopted children d. made before the celebration of marriage or within one year thereafter c.San Beda College of Law SUBJECT TO DONOR’S TAX (SAME AS IN ESTATE TAX SUBJECT TO THE RECIPROCITY RULE) (Sec. accredited non-government organization (NGO). Thus. There can be no donative intent on the part of the transferor in a transfer of properties to the member beneficiaries. 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. . b. T R U S T O R P H I L A N T R O P H I C O R G A N I Z AT I O N . pays no dividends. R. do not constitute cause or consideration that would make a conveyance of property anything else but a gift or donation. Congress approved RA 7166 on November 25. trust or philanthropic organization or research institution or organization donor’s tax exempt To be exempt it is required that not more than 30% of said gifts shall be used by such donee for administration purposes. increase in patrimony of the donee. 1991. religious. Gifts made by a resident: a. The application of the rates as provided above is imposed on donations made beginning January 1. political party or coalition of parties for campaign purposes shall be governed by the Election Code as amended. Provided. R E S E A R C H INSTITUTION OR ORGANIZATION IS ONE: DONATIONS EXEMPT FROM PAYMENT OF DONOR’S TAX 1. rendered without relying on a coetaneous promise. Past services.NO DONATIVE INTENT A merger between parent company and its wholly owned subsidiary where no shares are to be issued is not subject to donor’s tax because there is no intention to donate on the part of any of the parties. made on account of marriage b. reduction of patrimony of the donor. A NON-PROFIT EDUCATIONAL AND/OR CHARITABLE CORPORATION .000.: a. charitable. that such services would be paid for in the future. the intent to do an act of liberality or animus donandi. 8525) Gifts in favor of an educational and/or charitable.00) b. CONTRIBUTIONS FOR ELECTION CAMPAIGN Any contribution in cash or in kind to any candidate. cultural or social welfare corporation. research institution or organization. recognized natural. accredited nongovernment organization. are not subject to payment of any gift tax. ACCREDITED NON G O V E R N M E N T O R G A N I Z AT I O N . or to any political subdivision of the said government. Gifts made by a non-resident not a citizen of the Phil. that not more than 30% of said gifts shall be used by such donee for administration purposes. Donation having the following elements: a. duly reported to the Commission on Elections. Contributions for 1. to the extent of the first ten thousand pesos (P10.000.A. 2. MERGER AND TRANSFER TO MEMBER BENEFICIARIES. b. c. 104) 131 2008 CENTRALIZED BAR OPERATIONS electoral campaign falls squarely within the definition of donation and therefore taxable. DONATION MADE BY CORPORATION TO A DECEASED OFFICER OUT OF GRATITUDE FOR PAST SERVICES A donation made by a corporation to the heirs of the deceased officer out of gratitude for his past services is subject to the donee’s gift tax. NIRC of 1997. a transfer from one subsidiary to another pursuant to a worldwide reorganization of a group of companies is not subject to donor’s tax. considering that a person or entity cannot donate properties the ownership of which belongs to themselves. c. Requisites: a. Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate. that political/electoral contributions. same as (b) above. made by the parents to each of their legitimate. institution. illegitimate or adopted children to the extent of the first P10.R.

for donor’s taxes paid to one foreign country Net Gift situated In a foreign country x Philippine Donor’s Tax Entire net gift (PDT) = Tax credit Limit for donor’s taxes paid to two or more foreign country Net Gift outside the Philippines x PDT Entire net gift = Tax credit limit The allowable tax credit is the lower amount between the tax credit limit under (a) and (b) LIMITATION ON TAX CREDIT 1. Contents of the Return: Any person making a donation (whether direct or indirect) unless the donation is specifically exempt under the Code or other special laws is required. unlike in estate tax where notice of death is required. The deductions claimed and allowable 3. For this purpose. make a return under oath in duplicate. NOTE: The filing of a notice of donation is not required. The name of the donee 5. MEMORY AID IN TAXATION LAW taxable under NIRC bears to his entire net gift. which the decedent’s net gifts situated within such country Return. 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. for purpose of the said tax. RR 2-2003) TIME FOR FILING OF RETURN AND PAYMENT OF THE DONOR’S TAX The donor’s tax return is filed and the donor’s tax due is paid within thirty (30) days after the date the gift is made (Pay as you file system). and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. 6. Relationship of the donor to the donee.132 Transfer Taxes 3. revenue district officer. 2. to accomplish under oath a donor’s tax return in duplicate which shall set forth: 1. governed by trustees who receive no compensation. or if there be no legal residence in the Philippines. Each gift made during the calendar year which is to be included in computing net gifts. Any previous net gifts made during the same calendar year 4. and devotes all its income whether students’ fees or gifts. 2-2003). which the decedent’s net gift situated outside the Philippines taxable under the NIRC bears to his entire net gift. Such further information as the Commissioner may require (Section 103 NIRC. the return may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of transfer. revenue collection officer or duly authorized treasurer of the city or municipality where the donor was domiciled at the time of the transfer. or every donation. with the Office of the Commissioner. the return shall be filed and tax paid to an authorized agent bank. In the case of gifts made by a non-resident.R. donations.  END OF TRANSFER TAXES  . the term Office of the Commissioner shall refer to the Revenue District office (RDO) having jurisdiction over the BIR national office Building (R. or directly with the Office of the Commissioner. Filing. 2. PLACE OF FILING AND PAYMENT Unless the Commissioner otherwise permits. and Payment An individual who makes any transfer by gift. TAX CREDIT FOR DONOR’S TAXES PAID TO A FOREIGN COUNTRY 1. Donor was a Filipino citizen or resident alien at the time of foreign donation Donor ’s taxes of any character and description are imposed and paid by the authority of a foreign country. subsidies or other forms of philanthropy to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. 4. except those which are exempt form donor’s tax shall. FORMULA OF TAX CREDIT LIMITS 1. 2.

MARK JULIUS ESTUR estate taxation. Erwin Legaspi. No. Tax Code. as amended by R. Mary Joy Aquino. sells. barter. whether an individual or corporation and whether or not made in the course of trade or business.R. Aldren Abrigo. partnership. Cristiellane Valerio and Sherwin P. and other implementing rules and regulations VALUE-ADDED TAX NATURE AND CHARACTERISTICS OF VAT VAT is a tax on consumption levied on the sale. Donelle Jay Quilates. Irene May Junio. ULYSSES GONZALES vice chair for logistics TAXATION LAW IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. JEFFREY GALLARDO vice chair for edp. 2. properties or services at the time of the effectivity of RA 9337. 3. No. shall be liable to VAT imposed in Section 107 of the Tax Code (R. Julian Adarlo. in the case of importation of taxable goods. leases goods or properties. John Zernan Sambahon. renders services. and any person who imports goods shall be subject to the valueadded tax (VAT) imposed in Sections 106 to 108 of the National Internal Revenue Code. ALDEAN LIM chair hotel operations. joint venture. VAT-registered person – refers to any person who is registered as a VAT taxpayer under Section 236 of the Tax Code. Precious Angela Lledo. value added tax. UNTAYAO edp MARIEL MAILOM general principles. barters.R. Aileen Artificio. 16-2005 Sec. exchange or lease of goods or properties or services in the Philippines and on importation of goods into the Philippines. cooperative or association. 4. Taxable Sale – refers to the sale. including transactions incidental thereto. Jan Reiner Uy. Sale of Commodities or Goods (in the course of trade or business only) Exportation (in the course of trade or business only) Sale of Services (in the course of trade or business only) Importation (whether or not in the course of trade or business) PERSONS LIABLE FOR VAT Any person who. Tax Code.San Beda College of Law 133 2008 CENTRALIZED BAR OPERATIONS TAXATION LAW VALUE-ADDED TAX (Title IV of NIRC. all of which are subject to tax under Sections 106 and 108. whether registered or registrable in accordance with Section 236. in the course of trade or business. Pascua . Raul Canon. RONALD JOHN DECANO vice chair for secretariat. EXECUTIVE COMMITTEE VISMARCK UY over-all chair. Karla Funtila. 9337. John Ray Concepcion. However.R. Micael Ortiz Luis. Ryan Pingol. Taxable person – refers to any person liable for the payment of VAT. ROWENA MUTIA tables and annexes MEMBERS: Maria Evitha Abante. ANTHONY PURGANAN vice chair for academics. No. Herbert Abugan. His status as a VATregistered person shall continue until the cancellation of such registration. Leonardo Mendoza II. Sol Pejo. trust. Maureen De Castro. MARK ANTHONY DIZON. MINERVA JIMENEZ donor’s tax and court of tax appeals. APRIL CABEZA chair academics operations. Mariflor Reyes. Ramon Alfredo Dela Cruz. Joanne Mosquera. MAUREEN ROSE OBON income taxation. 4. Vincent Cablao. Karren Amparo. exchange and/or lease of goods or properties including transactions “deemed sale” and the performance of service for a consideration whether in cash or in kind. The seller is the one statutorily liable for the payment of the tax but the amount of tax may be shifted or passed on to the buyer. James Agustin. 16-2005): Person – refers to any individual. Ray John Bangi. 16-2005 Sec. KARLA FUNTILA vice chair for finance.105-1). Definition of terms (R.  However. transferee or lessee of the goods. Jay Martin Celzo. in the case of importation. barter. Kathryn Joy Hautea. This rule shall likewise apply to existing contracts of sale or lease of goods. Lauren Rose Tanyag. Maria Joy Toledo.102-2).A. AYN SARSABA vice chair for operations. Katherine Jane Manarang. as amended by RA 9337. 4. “IN THE COURSE OF TRADE OR BUSINESS” The regular conduct or pursuit of a commercial or an economic activity. Deepee Salazar. the importer. TRANSACTIONS COVERED BY VAT (CESI) 1. the importer is the one liable for the VAT (R. tax remedies. properties or services. ARLENE ALDAY and NELSON SALVA JR. JULIUS BABALCON tariff and customs code. Diana Rabanal. corporation. MAUREEN SEYMOUR JAVIER local taxation and real property taxation. Ralph Jerome Salvador. exchanges. Masha Mariano. by any person regardless of The VAT is an indirect tax. Jennylyn Valencia. Jennifer Bautista.

bartered or exchanged despite the change in the ownership interest in the said corporation. give rise to transactions “deemed sale”: 1. as amended by Republic Act 9337 provides for the following exempt transactions: 1. c. zoo animals and other animals generally considered as pets). Sale or importation of agricultural and marine food products in their original state.134 Value-Added Tax whether or not the person engaged therein is a non-stock. whether or not the business is continued by the new owner or successor. broiling. then it is not subject to VAT. The goods or properties used in business or those comprising the stock-intrade of the corporation. except with respect to importation. Shareholders or investors as share in the profits of VAT-registered person. salting. fighting cocks. stock-in-trade. and Creditors in payment of debt or obligation. t o t h e c o n t r a r y notwithstanding. consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business (i. having a change in corporate control. Consigned goods returned by the consignee within the 60-day period are not deemed sold Retirement from or cessation of business with respect to all goods on hand. or yielding or producing food for human consumption.109-1).e. Distribution or transfer to: 1. or government entity. when a VAT-registered person withdraws goods from his business for his personal use). The unused input tax of the dissolved corporation. Therefore. Change of ownership of the business. d. Polished and/ or husked rice. NIRC. Section 109. (3) Merger or consolidation of corporations.R. There is a change in the ownership of the business when a single proprietorship incorporates. corn grits. The following circumstances shall. nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests). used in the manufacture of finished feeds (except specially made feeds for race horses. whether capital goods. prawn. 3. livestock and poultry feeds. Products classified under this paragraph shall be considered in their original state even if they have undergone the simple process of preparation or preservation for the market such as freezing. MEMORY AID IN TAXATION LAW Change or Cessation of Status as VATregistered Person The VAT shall not apply to goods or properties existing as of the occurrence of the following: (1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. if the disposition of goods or services is NOT in the course of trade or business. shall be absorbed by the surviving or new corporation. and Dissolution of a partnership and creation of a new partnership which takes over the business. 16-2005 Sec. properties or services shall not bill any output tax to his customers because said transaction is not subject to VAT (R. Regulation is one of the purposes of taxation. Sale or importation of fertilizers. will not be considered sold. VAT-EXEMPT TRANSACTIONS These refer to the sale of goods or properties and/ or services and the use or lease of properties that is NOT subject to output tax and the seller is NOT allowed any tax credit of input tax on purchases. whether locally produced or imported. Importation of personal and household effects belonging to residents of the Philippines b. or the proprietor of a single proprietorship sells his entire business. as of the date of merger or consolidation. seeds. and breeding stock and genetic materials therefor. use. 2. supplies or materials as of the date of such retirement or cessation. rendered in the Philippines by non-resident foreign persons shall be considered as being in the course of trade or business. fish. aquarium fish. No. however. drying. are “deemed sales” pursuant to Section 106 (B) of the Tax Code: (TDCR) a. seedlings. raw cane sugar and molasses and ordinary salt shall be considered in their original state. 4. T h e r u l e o f r e g u l a r i t y. The following transactions. including ingredients. Transfer. The person making the exempt sale of goods. services as defined in the Tax Code. (2) Change in the trade or corporate name of the business. and fingerlings. . Consignments of goods if actual sale is not made within 60 days following the date such goods were consigned. 2. among others. livestock and poultry of a kind generally used as. roasting. smoking or stripping. 2. Importation is subject to VAT regardless of whether or not it is in the course of trade or business The reason for the rule is to protect our local or domestic goods or articles and to regulate the entry or introduction of foreign articles to our local market.

equipment and spare parts thereof for domestic or international transport operations. Services subject to the percentage taxes under Title V of the NIRC. 000 and regardless of the aggregate capital and net surplus ratably distributed among the members. that such goods are exempt from customs duty under the Tariff and Customs Code of the Philippines. 12. hospital and veterinary services except those rendered by professionals. c o m m u n i c a t i o n s a n d coordinating centers for their affiliates. 529. 14. Gross receipts from lending activities of credit or multi-purpose cooperatives duly registered with the CDA. to be used by them are subject to VAT. including engine. 9. that the share capital contribution of each member does not exceed P15. subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines. their importation of direct farm inputs. 19. 5. including spare parts thereof. 17. that sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof. trader). CHED and TESDA. barter or exchange. 14. Importation by these cooperatives of machineries and equipment. 16. dental. If the hospital operates a pharmacy or drug store. printing or publication of books and any newspaper. Lease of residential unit with a monthly rental not exceeding P10. importation or lease of passenger or cargo vessels and aircraft. 04-2007). Importation of professional instruments and implements. R.R. 04-2007) 13. review. pursuant to Subsection (a) hereof (Sec. If the cooperative is not the producer (e. machinery. accompanying such persons or arriving within 90 days before or after their arrival upon the production of evidence satisfactory to the Commissioner of Internal Revenue that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide. It is to be reiterated however. the sale of drugs and medicine is subject to VAT. then only those sales to its members shall be exempted from VAT. residential lot valued at P1. 15. R. even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller. 11. 14.5 million and below and house and lot and other residential dwellings valued at P2. Services rendered by individuals pursuant to an employer-employee relationship. 135 2008 CENTRALIZED BAR OPERATIONS processing of their produce. Sale. Sale by agricultural cooperatives to nonmembers can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. Medical. 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. 7. non-electrical and non-credit cooperatives duly registered with the CDA: Provided. Sale. 8.5 million and below. No. domestic animals. Export sales by persons who are not VAT registered. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws except those under Presidential Decree No. Sales by non-agricultural. to be used directly and exclusively in the production and/or . 4. whether in its original state or processed form. other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines. Services by agricultural contract growers and milling for others of palay into rice.g. importation. Laboratory services are exempted. wearing apparel. magazine. including spare parts thereof. aircraft.R. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce. Educational services rendered by private educational institutions duly accredited by the DepED. 10. corn into grits and sugar cane into raw sugar. to non-members. for their own use and not for sale. 6.A. Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as s u p e r v i s o r y. 18. or real property utilized for low-cost housing and socialized housing as defined by R. the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business (Sec. and personal household effects ( except any vehicle. 7279 (Urban Development and Housing Act of 1992) and other related laws.. machineries and equipment. vessel.San Beda College of Law returning from abroad and non-resident citizen coming to resettle in the Philippines: PROVIDED. However.000.

RATE AND BASE OF TAX There shall be levied. or scientific equipment. 4. and 22. plan. irrespective of any shipping arrangement that VAT. on such goods or properties shall form part of the GSP. steel plates and other metal plates including marine-grade aluminum plates. The right or privilege to use motion pictures films. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. 23. commercial. copyright. Importation of fuel. trademark. However. 3. GROSS SELLING PRICE (GSP) 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. repair. Foreign Currency Denominated Sale. Importation of life-saving equipment. 21. barter. and other non-bank financial intermediaries. television. Importation of capital equipment. a value–added tax equivalent to 12% of the gross selling price or gross value in money of the goods or properties sold. properties or services. 04-2007) Value–Added Tax on Goods or Properties MEANING OF GOODS OR PROPERTIES The term “goods or properties” refer to all intangible and tangible objects which are capable of pecuniary estimation and shall include. 4.136 Value-Added Tax 20. spare parts. the gross annual sales and/or receipts do not exceed the amount of P1. renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade. 3. gross selling price shall mean the consideration stated in the sales document or the fair market value. 4. otherwise known as ‘The Domestic Shipping Development Act of 2004 (Sec. shall be available as tax credit or refund. excluding EXPORT SALES 1. among others: (RPEMT) 1. 2. goods and supplies by persons engaged in international shipping or air transport operations. the input tax on purchases of goods. 500. related to such zero-rated sale. 14. if any. but shall not result in any output tax. machinery. Zero-Rated Sales of Goods or Properties: a taxable transaction for VAT purposes. 9295. RR 04-2007). 2006. Export Sales. The excise tax. In the case of sale. 2. or other like property or right. No. The right or privilege to use in the Philippines of any industrial. Note: Sales discounts and sales returns and allowances are allowable deductions from the Gross Selling Price. design or model. assessed and collected on every sale. 24. that the exemption shall be subject to the provisions of Section 19 of Republic Act. 14. The right or privilege to use patent. Radio. or exchange of the goods or properties. 04-2007). non-bank financial intermediaries performing quasi-banking functions. satellite transmission and cable transmission time. such tax to be paid by the seller or transferor The effectivity date of the increase in VAT rate is February 1. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business. barter or exchange of real property subject to VAT.106-5): (FEST) 1. Sale to persons or entities which is VAT exempt under special laws or international agreements to which the Philippines is a signatory. barter or exchange of goods or properties. steel plates and other metal plates including marine-grade aluminum plates to be used in the construction. goodwill. whichever is higher. Services of banks.000. trade brand. the selling price or the consideration stated therein shall be deemed to be inclusive of VAT (Sec. and discs. 14. that the exemption shall be subject to the provisions of Section 4 of Republic Act. No. tapes. 9295. bartered or exchanged. safety and rescue equipment and communication and navigational safety equipment. used for MEMORY AID IN TAXATION LAW shipping transport operations. and Transactions subject to zero-rated (0%) as provided in Section 108(B) of NIRC. 5. . Provided. otherwise known as ‘The Domestic Shipping Development Act of 2004 (Sec. If the VAT is not billed separately in the document of sale. secret formula or process. The sale and actual shipment of goods from the Philippines to a foreign country. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate (RR 16-2005 Sec. lifesaving and navigational equipment. provided. as amended by RA 9337.

assembled or manufactured in the Philippines for delivery to a resident in the Philippines. 2. Sales by supplies outside the borders of the ecozone to this separate customs territory are deemed exports and treated as export sales (CIR vs. supplies. Provided. bills of lading.B. such as. 226 (Omnibus Investment Code of 1987) and other special laws. 4. or repacking in the Philippines of the said buyer’s goods. assembled or repacked products.R. that the same is limited to goods. Seksui Jushi Phils. Provided. whether paid for in foreign currency or not. that if any portion of such fuel. Those considered export sales under EO No. FOREIGN CURRENCY DENOMINATED SALE Means the sale to non-resident of goods. sales to r egistered 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 BIR and Bureau Of Customs. Sale of goods. sales to export processing zones. 496 SCRA 206). paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. except those mentioned in Section 149 and 150 of the NIRC. 137 2008 CENTRALIZED BAR OPERATIONS or international air transport operations. Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government paid for in convertible foreign currency and accounted for in accordance with the rules and regulations of the BSP shall also be considered export sales (R. d. sales to bonded manufacturing warehouses of export-oriented manufacturers. landing certificates. While an ecozone is geographically within the Philippines. of export products exported directly by a registered export producer to another export producer. paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP. of locally manufactured. sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities. further. 226 Shall mean the Philippine port F. that sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter. supplies. it is deemed a separate customs territory and is regarded in laws as foreign soil. PEZA REGISTERED ENTERPRISE GIVEN THE OPTION PEZA registered enterprise is given the option to choose between two fiscal incentives (a) 5% preferential tax rate on its gross income under the said law or (b)income tax holiday provided under E. and accounted with the rules and regulations of the BSP. goods or supplies is used for purposes other than that mentioned in this paragraph. value determined from invoices. The sale of raw materials or packaging materials to non-resident buyer for delivery to resident local export-oriented enterprise to be used in manufacturing. such portion shall be subject to 10% VAT. equipment and fuel to persons engaged in international shipping . Inc. PROVIDED FURTHER. 6. as evidenced by landing certificates or similar commercial documents. 5. EFFECTIVELY ZERO-RATED SALE OF GOODS OR PROPERTIES Refer to the local sale of services by a VATregistered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. Sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed 70% of total annual production. b. packaging.San Beda College of Law may be agreed upon which may influence or determine the transfer or ownership of the goods so exported. and other commercial documents. 226 or Omnibus Investment Code of 1987. that without actual exportation the following shall be considered C O N S T R U C T I V E LY E X P O R T E D f o r purposes of these provisions: (BERD) a. SALE TO PERSONS OR ENTITIES DEEMED TAX EXEMPT UNDER SPECIAL LAW OR INTERNATIONAL AGREEMENT Sales of goods or property to persons or entities who are tax-exempt under special laws or international agreements to which the Philippines is a signatory.O. 3. c. paid for in acceptable foreign currency or its equivalent in goods or services. No. equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other port in the Philippines. Asian Development Bank (ADB) and International Rice Research Institute (IRRI) shall be effectively subject to zero-rate. processing. as amended. PROVIDED. CONSIDERED EXPORT SALES UNDER E. inward letters of credit. 16-2005). Sale of gold to the BSP.O.O. or to an export trader that subsequently exports the same.

Services other than processing. biomass. 16-2005 Sec.R. outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed. including leases of property for use thereof. that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers.108-1). the same being subject to 10% VAT under Sec 108 of the Tax Code. wind. however. rental or royalty. properties or services. the input tax on purchases of goods. related to such zero-rated sale. and other emerging sources using technologies such as fuel cells and hydrogen fuels. that zero-rating shall apply strictly to the sale of the power or fuel generated through renewable sources of energy. 2. 4. 2006. assessed and collected. excluding VAT. 3.138 Value-Added Tax MEMORY AID IN TAXATION LAW Value-Added Tax on Sale of Services MEANING OF SALE OR EXCHANGE OF SERVICES Means the performance of all kinds of services in the Philippines for others for a fee. whether in kind or in cash (R. However. Zero-Rated Transactions or Services A zero–rated transaction is a taxable transaction for VAT purposes. No. compensation. geothermal and steam. however. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered. Sec. RATE AND BASE OF TAX There shall be levied. The effectivity date of the increase in VAT rate is February 1. manufacturing or repacking of goods for other persons doing business outside the Philippines. or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production. converting. 4. Deposit in banks which are made available to the seller of services without restrictions. 6.108-4) Refers to the total amount of money or its equivalent representing the contract price. which goods are subsequently exported. The following are examples of constructive receipts: 1. provided. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country. 4. The following services by VAT-registered persons shall be subject to zero percent (0%) rate: 1. where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. and Sale of power or fuel generated through renewable sources of energy such as. Processing. a value added tax equivalent to 12% of the gross receipts derived from the sale or exchange of services. which shall not result in any output tax. 3. Services performed by subcontractors and/or contractors in processing. manufacturing or repacking rendered to a person engaged in business conducted 7. provided. solar. 5. including the amount charged for materials supplied with the services and deposit applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person. the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. 2. and Transfer of amounts retained by the payor to the account of the contractor. No. . and shall not extend to the sale of services related to the maintenance or operation of plants generating said power. or cargoes from one place in the Philippines to another place in the Philippines. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate. service fee. shall be available as tax credit or refund. 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. including the use or lease of properties. remuneration or consideration. but not limited to.R. Gross receipts of international air carriers doing business in the Philippines and international sea carriers doing business in the Philippines are still liable to percentage tax of 3% based on their gross receipts as provided for in Sec 118 of the Tax Code but shall not to be liable to VAT. Services rendered to persons engaged in international shipping or air transport operations. 16-2005. goods. ocean energy. hydropower. GROSS RECEIPTS (R. Effectively Zero-Rated Sale of Services Refer to the local sale of services by a VATregistered person to a person or entity who was granted indirect tax exemption under special laws or international agreement.

” b. With respect to legal services rendered to persons engaged in international shipping or international air transport operations. commission and similar charges. 2005. Importer refers to any person who brings goods into the Philippines. The VAT receipt to be issued by the lawyer must also show the words “Zero-rated Sales. (Payment of professional fee in foreign currency is not required. There is no employer-employee relationship between him and the person to whom he provides the legal service. Congress has expressed in clear terms that all professionals should be subject to VAT and practice of law cannot be exempted from said tax on the ground that it is not considered as a business.San Beda College of Law 139 2008 CENTRALIZED BAR OPERATIONS Value-Added Tax on Legal Services * R. prior to the release of the goods from customs custody. It includes nonexempt persons or entities who acquire tax-free imported goods from exempt persons. and (Payment of professional fee in foreign currency is not required. deleting the old Section 109 (BB) of RA 9238. Otherwise. There was an elimination of the exemption from VAT of legal services. a value added tax equivalent to 12% of the gross receipts derived from the sale or exchange of services. plus customs duties. and His gross receipts for the next 12 months exceed P1.) Legal services rendered to persons engaged in international shipping or international air transport operations. assessed and collected. the consideration for which is paid for in acceptable foreign currency and accounted with the rules and regulations of the BSP. An individual can practice his law profession either personally or through general professional partnership. • 3.5 million. in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed. Legal services rendered to a person engaged • Value-Added Tax on Importations VAT ON IMPORTATION OF GOODS VAT is imposed on goods brought into the Philippines. entities or agencies. he is exempt from VAT. A lawyer who practices his profession may be subject to or exempt from VAT. including the use or lease of properties.A. 2. • A lawyer practicing his profession is subject to VAT if: a. whether for use in business or not. The tax shall be based on the total value used by the BOC in determining tariff and customs duties. Practice of law is a privilege burdened with conditions. excise tax. and other charges. Payment of professional fee must be in acceptable foreign currency and accounted for in accordance with BSP rules. . Zero percent (0%) tax rate shall apply to the following: 1. they are subject to VAT at zero percent. RATE AND BASE OF TAX There shall be levied. WHO PAYS THE VAT ON IMPORTATION OF GOODS AND WHEN? It is the IMPORTER who pays RELEASE of such goods from the VAT PRIOR TO THE the customhouse. whether or not made in the course of trade or business. such as postage.) EFFECTIVELY ZERO-RATING One of the conditions for zero-rating is that the VAT receipt issued by the lawyer must prominently show the words “Zero-Rated Sales” so that the buyer thereof will not utilize any input tax assumed to have been passed on to him. if any. RA 9337 clearly provided that sale of legal services by a lawyer or a law firm shall be subject to VAT effective November 1. Legal services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate. The effectivity date of the increase in VAT rate is February 1. including leases of property for use thereof. 9337 Expanded Value-Added Tax ARE LAWYERS LIABLE FOR VAT? YES. 2006.

140 Value-Added Tax WHAT IS THE TAX BASE? The imported goods shall be subject to 12% VAT rate: 1. insurance and other charges and also excise tax.110-5) Adding all creditable input taxes during the month or quarter plus any amount of input tax carriedover from the preceding month or quarter. 4. To the importer upon payment of VAT prior to the release of goods from customs custody. HOW IS INPUT TAX CREDITABLE DURING THE TAXABLE MONTH OR QUARTER DETERMINED? (R. rental. VAT paid on the purchase of services. 6. b. customs duties. For conversion into or intended to form part of the finished product for sale. No. excise taxes. 4. reduced by the amount of claim for VAT refund or .110-2). transferee or assignee shall be required to pay the VAT. d. c. TRANSFER OF GOODS BY TAX-EXEMPT PERSON When a person who was exempt from VAT on his importation subsequently sells. 4. royalty or fee (R. Same rule applies to technical importation of goods sold by a person located in a Special MEMORY AID IN TAXATION LAW Economic Zone to a customer located in a customs territory (R. or exchanges in the Philippines such imported article to a non-exempt person or entity.107-1).R. and Transitional input tax credits allowed under the transitory and other provisions of these regulations (R. Tax Credit and Refund WHO CAN AVAIL OF THE INPUT TAX CREDIT? The input tax credit on importation of goods or local purchases of goods. 9337). 3. Sec. from a VATregistered person. To the purchaser of the domestic goods or properties upon consummation of the sale. 16-2005. Transactions deemed sale. It shall also include the transitional input tax determined in accordance 2. the resulting amount is treated as Tax Credit or Refund. 5. including packaging materials. Based on total value used by the BOC in determining tariff and customs duties.4. No. and other charges such tax to be paid by the importer prior to the release of such goods from customs custody (Section 5. properties or services by a VAT registered person shall be creditable: a. with Section 111 of the NIRC (Sec. VAT paid on the purchase of real property. Landed cost consists of the invoice amount. if any. if any. including lease or use of property. No.R. Sec. 4.R. 16-2005.R. 16-2005 Sec. or To the purchaser of services or the lessee or licensee upon payment of the compensation. R. Sec. "INPUT TAX" 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. VAT ON IMPORTATION AS INPUT TAX A seller of goods or services who imports goods. No. or For use in the course of trade or business for which deduction for depreciation or amortization is allowed for income tax purposes (capital goods) c. supplies or depreciable assets can claim the VAT paid on importations as input taxes creditable against the output taxes on his sales. "OUTPUT TAX" 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 Section 236 of the NIRC (Sec.110 1997 NIRC as amended). transfers. TAX FORMULA Output Tax Less: Input Tax Value-Added Tax Payable If the amount of input tax is greater than the amount of output tax.110-1). For use as supplies in the course of business. freight. 7. 2. plus customs duties. For sale. Transitional Input tax. the landed cost shall be the basis for computing VAT. VAT paid in the course of trade or business on the purchase or importation: a. 16-2005. In case of valuation used by the BOC in computing customs duties is based on volume or quantity of the imported goods. Presumptive Input tax. the purchaser. The following input taxes when evidenced by VAT invoice or official receipt issued by a VATregistered person shall be creditable against the output tax: 1. b.110 1997 NIRC as amended).A. materials.

c. with Department of Finance. c. If at the end of any taxable quarter the output tax exceeds the input tax. 16-2005. with respect to reinsurance premiums payable to non-residents. If both zero-rated or effectively zero-rated and taxable or exempt and the amount of creditable input tax due cannot be directly and entirely attributed to any one of the transactions. Input tax that may be subject to claim shall exclude the portion of input tax that has been applied to output tax. however. input taxes allocated RATABLY BETWEEN ZERO-RATED AND NON-ZERO RATED sale (subject to regular rate. Board of Investments or the BOC) and other adjustments.No.110-7 as amended by R.R. b. • C L A I M S F O R R E F U N D / TA X C R E D I T CERTIFICATE OF INPUT TAX 1. 16-2005. Output tax is determined by multiplying the gross selling price or gross receipts by the VAT rate. The input tax that can be claimed by the buyer shall be the corrected amount of VAT. Sale of goods and services to government is subject to 10% VAT Government deducts and withholds a final VAT of 5% For payments to lease or use of properties or property rights owned by non-residents. other implementing rules (R. 2. d. Output tax less input tax to arrive at VAT payable on a monthly VAT declaration and the quarterly VAT returns.withholding is 10% If actual input VAT exceeds 5% of gross payments. No. DETERMINATION OF OUTPUT TAX AND VAT PAYABLE AND THE COMPUTATION OF VAT PAYABLE OR EXCESS TAX CREDITS (R. If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax. the output tax is determined by multiplying the total invoice amount by fraction using rate of VAT as numerator and 100% plus VAT rate as denominator. No. VAT PAYABLE IN EXCESS OUTPUT OR EXCESS INPUT TAX 1. 10.R. Output tax a. payments for the sales must have been made in acceptable foreign currency duly accounted for in accordance with BSP rules and regulations. Sec. NIRC has been withdrawn • Option to apply for refund/tax credit certificate of capital goods has been withdrawn.110-7). The application should be filed within 2 years after the close of the taxable quarter when such sales were made. Where the basis for computing output tax is either the gross selling price or gross receipts. such as purchase returns or allowances. the excess shall be paid by the VAT-registered person (R.R. the difference must be treated as income of the seller. Sec. • 141 2008 CENTRALIZED BAR OPERATIONS WITHHOLDING OF CREDITABLE INPUT TAX In the case of VAT on Government Purchases: a. Sec. * The amendment was pursuant to RA 9361 amending Sec 110(B) NIRC removing the 70% cap. 2). Hence. Sec 4. e. 2.San Beda College of Law tax credit certificate (whether filed with BIR.R. final withholding VAT and Vat-exempt sales).A. services rendered to local insurance companies. the excess input tax shall be carried over to the succeeding quarter or quarters. the excess may form part of the seller’s cost. subject to limitations prescribed by the regulations. 2. Zero-rated and Effectively Zero-rated sales of goods. the total invoice amount is presumed to be comprising of gross selling price/gross receipts plus the correct VAT. VAT payable • b. input tax attributable to exempt ales and input tax attributable to sales subject to final VAT withholding. 16-2005. Sec. properties or services a. 9337 Capital goods provision as provided in Section 112 (B). If engaged in transport of passenger and cargo by air or sea vessels from Philippines to a foreign country. but the amount of VAT is erroneously billed in the invoice. as well as. subject to the limitations as may be provided for by law. No. that any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or applied for a tax credit certificate which may be used in the payment of internal revenue taxes. 2-2007. ONLY PROPORTIONATE share of input taxes allocated to zerorated or effectively zero-rated sales can be claimed for refund or issuance of tax credit certificate. . and If actual input VAT is less than 5% of gross payments. R. Provided. 4110-6) 1. c. 4. In case of zero-rated sales. other services rendered in the Philippines by nonresidents. b.

certificate/refund of input taxes shall be made • Commissioner of Internal Revenue shall grant the claim within 120 days from date of submission of complete documents in support of the application filed. that the filing of the claim with one office shall preclude the filing of the same claim with another office. finally. within 2 years from date of cancellation. or due to changes in or cessation of status.R. if no action on the claim after the 120–day period from date of submission of application with complete documents. that refunds shall be subject to post audit by the COA (R.e. Collection Agent. taxpayer may appeal to the Court of Tax Appeals within 30 days from receipt of said denial. otherwise decision shall become final. Provided. a VAT– registered person may. Sec.within twenty two (22) days following the end of the month Group D . Within thirty (30) days following the close of taxable quarter of the taxpayer (for taxpayers under the jurisdiction of the LTS and for filing through eFPS) WHERE TO FILE AND PAY? The monthly VAT declaration and quarterly return shall be filed with. 16-2005. duly authorized Municipal/ . Deadline Quarterly VAT Returns (BIR 2550Q) Within twenty five (25) days following the close of taxable quarter of the taxpayer (for manual filing). however. Provided. The quarterly VAT return and the monthly VAT declaration. shall be filed with the RDO/LTDO/ Large Taxpayers Assistance Division (LTAD). 4.within twenty three (23) days following the end of the month Group D . WHEN TO FILE VAT RETURN? Deadline Monthly VAT Return (BIR 2550M) Manual Filing Not later than the 20th day following the end of each month Filing Through eFPS Group A . to the RDO. that he shall be entitled to a refund if he has no internal revenue tax liabilities against which the tax credit certificate may be utilized. taxpayer may appeal to CTA within 30 days from lapse of the 120 day period Refunds shall be made upon warrants drawn by the CIR or by his duly authorized representative without the necessity of being countersigned by the Chairman. Period within which refund or tax credit Filing of Return and Payment of VAT WHO FILES VAT RETURN? Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly gross sales or receipts within 25 days following the close of the taxable quarter. • • 4. and VAT due thereon paid to: a. In case of full or partial denial of the claim. b. An Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office/BIR Office where the taxpayer (head office of the business establishment) is required to be registered. the provision of the Revised Administrative Code notwithstanding. Collection Agent or duly authorized Treasurer of the Municipality or City where such taxpayer (head office of the business establishment) is required to be registered. Commission on Audit (COA).112-1).within twenty one (21) days following the end of the month c. however. 6.within twenty five (25) days following the end of the month Group B . where no payment is involved. However. apply for the issuance of a tax credit certificate for any unused input tax which he may use in payment of his other internal revenue taxes. No. Cancellation of Registration MEMORY AID IN TAXATION LAW • Cancelled registration due to retirement from or cessation of business. Where to file the claim for refund/tax credit certificate • It shall be filed with the appropriate BIR office (Large Taxpayers Service [LTS] or Revenue District Office [RDO]) having jurisdiction over the principal place of business of the taxpayer.within twenty four (24) days following the end of the month Group C . that direct exporters may also file their claim for tax credit certificate with the One Stop Shop Center of the Department of Finance. Taxable year shall mean the quarter that is synchronized to the income tax quarter of the taxpayer (i. Manner of giving refund • • • 5.142 Value-Added Tax 3. Provided. calendar or fiscal year). Provided. In cases where AAB are no duly accredited agent banks within the municipality or city.

which were implemented by Revenue Regulation Nos. OPTIONAL Any person who is VAT-exempt may elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person. 4. services of PPs are also subject to either VAT or 3% Percentage Tax. • • • • Certified Public Accountants Insurance Agents (Life & Non-life) Other Professional Practitioners required to pass the government examination Others Short Period Return Any person who retires from business with due notice to the BIR office where the taxpayer (head .00) for any twelve month period A person required to register as VAT taxpayer but failed to register A person who imports goods Professional practitioners Professional Practitioners (PPs) are formerly classified as non-VAT taxpayers and were exempt from the Value-Added Tax and Percentage taxes under Section 109 of the National Internal Revenue Code (hereinafter referred to as the Code). No. 16-2005. No. REGISTRATION 1.000. Only one consolidated quarterly VAT return or monthly VAT declaration covering the results of operation of the head office as well as the branches of all lines of business subject to VAT shall be filed by the taxpayer.000.00 for a 12-month period and subject to 3% Percentage Tax if gross professional fees total P1.500.00 and below for a 12-month period. or exchanges goods or properties or engages in the sale or exchange of services shall be liable to register if: a. taxpayers shall pay a tax equivalent to 3% of his gross monthly sales or receipts.500.500. properties and services subject to VAT. will exceed P1. except cooperatives who are exempt from the 3% gross receipts tax herein imposed. Who Are Required To File VAT Returns • • • • • b. Sec. e. 109 (1)(A) to (U) of the Tax Code. or There are reasonable grounds to believe that his gross sales or receipts for the next 12 months. 2003.500.000. they were subject only to Income Tax under Section 24 of the Code.00.San Beda College of Law City Treasurer of Municipality/City where the taxpayer (head office of the business establishment) is registered or required to be registered. 7716 and 9010. 2. barters. by virtue of Republic Act Nos. with the BIR office where said taxpayer is required to be registered (R. Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Sec. if the aggregate amount of actual gross sales or receipts exceed One Million Five Hundred Thousand Pesos (P 1. for every return period. Pursuant to Revenue Regulations No. 1-2003 and 3-2003. Provided.500. MANDATORY Any person who. 109(1)(V) NIRC from payment of VAT and NOT VAT-registered.00 for every separate and distinct establishment. TAX ON PERSONS EXEMPT FROM VAT If exempt under Sec. 16-2005. have exceeded P1. however. until December 31. Sec. 109 (1) (A) to (U) of the Tax Code.R. 2002. as amended. 16-2005. d. and pay the annual registration fee of P 500. "Professional Practitioners" include the following: 143 2008 CENTRALIZED BAR OPERATIONS office) is registered or whose VAT registration has been cancelled shall file a final quarterly return and pay the tax due thereon within 25 days from the end of the month when the business ceases to operate or when VAT registration has been officially cancelled. Effective January 1. other than those that are exempt under Sec. 109(1) of the Tax Code. Prior to this date. services of Professional Practitioners are subject to VAT if gross professional fees exceed P1. 4. Any person who elects to register—optional registration—shall not be allowed to cancel his registration for the next 3 years EXCEPT franchise grantees of radio and/or television broadcasting who registered optionally which their VAT-registration shall be irrevocable. sells. however.000.114-1[C]). in the course of trade or business.R. His gross sales or receipts for the past 12 months.114-1) Every person or entity who in the course of his trade or business. other than those that are exempt under Sec.00.000. Taxpayers filing via EFPS shall comply with the provisions of the EFPS Regulations. that subsequent monthly declarations/quarterly returns are still required to be filed if the results of the winding up of the affairs/business of the taxpayer reveals taxable transactions (R. sells or leases goods.

If the VAT is not billed separately in the document of sale. 4. The cancellation of registration will be effective from the first day of the following month (Sec. . other than those that are exempt under Section 109 (A) TO (U). the selling price or the consideration stated therein shall be deemed to be inclusive of VAT. NOTE: Initial payments do not include the amount of mortgage on the real property sold except when such mortgage exceeds the cost or other basis of the property to the seller. an application for registration information update in a form prescribed therefor.” VAT PAYABLE. A VAT-registered person may cancel his registration for VAT if: (a) He makes written application and can demonstrate to the Commissioner's MEMORY AID IN TAXATION LAW satisfaction that his gross sales or receipts for the following twelve (12) months. barter or exchange of real property subject to VAT. however.Sec. 4. Xxx xxx xxx. (b) If the input tax inclusive of input tax carried over from the previous quarter exceeds the output Revenue Regulations No. the initial payments of which in the year of sale exceed twenty-five percent (25%) of the gross selling price. the initial payments of which in the year of sale do not exceed twenty-five (25%) of the gross selling price. Sale of real property by a real estate dealer on a deferred payment basis not on the installment plan means sale of real property. the aggregate of which determines the limit set by law. in which case the excess shall be considered part of the initial payments. VAT Payable (Excess Output) or Excess Input Tax.000). Provided. subject to the limitations as may be provided for by law. It covers any down payment made and includes all payments actually or constructively received during the year of sale. 04-2007 SALE OF REAL PROPERTIES Sale of real property on installment plan means sale of real property by a real estate dealer. gross selling price shall mean the consideration stated in the sales document or the fair market value whichever is higher. . other implementing rules. as well as. (Amendments to Value-Added Tax) Amendments to Value-Added Tax (Annex) Annexes Revenue Regulations No. 236 (F). and does not expect to recommence any trade or business within the next twelve (12) months.110-7. “Initial payments” means payment or payments 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 taxable year when the sale or disposition of the real property was made. will not exceed One million five hundred thousand pesos (P1. Also excluded from the initial payments are notes or other evidence of indebtedness issued by the purchaser to the seller at the time of the sale.110-7 of RR No. GROSS SELLING PRICE In the case of sale.144 Value-Added Tax CANCELLATION OF VALUE-ADDED TAX REGISTRATION General Rule : The registration of any person who ceases to be liable to a tax type shall be cancelled upon filing with the Revenue District Office where he is registered. 16-2005 is hereby amended to read as follows: “SEC.500. NIRC as amended). the excess input tax shall be carried over to the succeeding quarter or quarters. that any input tax attributable to zerorated sales by a VAT-registered person may at his option be refunded or applied for a tax credit certificate which may be used in the payment of internal revenue taxes. 02-2007 tax. or (b) He has ceased to carry on his trade or business.

spare parts. Board of Investment. the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business. exclusive of the VAT. Therefore. No. ISSUANCE OF TAX CREDIT CERTIFICATES FOR UNUTILIZED ADVANCE VAT PAYMENTS. otherwise known as ‘The Domestic Shipping Development Act of 2004’. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development Authority (CDA) to their members. as well as sale of their produce. 9295. 8. 2. exclusive of the VAT. to be used directly and exclusively in the production and/or processing of their produce. which is tantamount to excess payment. Thus. INPUT TAX ON MIXED TRANSACTIONS Claims for VAT refund/Tax Credit Certificate (TCC) with the Bureau of Internal Revenue. exclusive of the VAT. However. Issuance of Tax Credit Certificate for Unutilized Advance VAT Payments. – Sec. steel plates and other metal plates including marine-grade aluminum plates to be used in the construction. VAT-EXEMPT TRANSACTIONS 1. their importation of direct farm inputs. Importation of capital equipment. that the exemption shall be subject to the provisions of Section 4 of Republic Act. 9295. It is to be reiterated however. the input VAT that can be claimed by the buyer shall be the separately-billed output VAT in the sales document issued by the seller. renovation or alteration of any merchant marine vessel operated or to be operated in the domestic trade. at the option of the owner/seller/taxpayer or importer/miller/ taxpayer. appearing in the Contract to Sell/Contract of Sale applied to the zonal value/ fair market value of the property at the time of the execution of the Contract to Sell/Contract of Sale at the inception of the contract. and One-Stop-Shop and Duty Drawback Center of the Dept.San Beda College of Law If the sale of real property is on installment plan where the zonal value/fair market value is higher than the consideration/selling price. safety and rescue equipment and communication 145 2008 CENTRALIZED BAR OPERATIONS and navigational safety equipment. – The advance payments made by the seller/owner of refined sugar and importer/miller of wheat/flour shall be allowed as credit against their output tax on the actual gross selling price of refined sugar/ flour. 8. Provided. If the cooperative is not the producer (e.. Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carry-over nor credited against the output tax of the succeeding quarter/ year. the VAT shall be based on the ratio of actual collection of the consideration. or if filed out of time. may. whether in its original state or processed form. trader).229-1 is hereby added to the provisions of RR 16-2005. repair. The following sales of real properties are exempt from VAT. No. Provided. machinery.229-1. Sale by agricultural cooperatives to nonmembers can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. against the agreed consideration. then only those sales to its members shall be exempted from VAT. used for shipping transport operations. be available for the issuance of TCC upon application duly filed with the BIR by the seller/owner or importer/miller within two (2) years from the date of filing of the 4th quarter VAT return of the year such advance payments were made. to read as follows: “SEC. even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller. since the output VAT is based on the market value of the property which is higher than the consideration/ selling price in the sales document. including spare parts thereof. that the exemption shall be subject to the provisions of Section 19 of Republic Act. Advanced VAT payments which remained unutilized for more than one (1) year prior to the . However. the output VAT which is based on the market value must be billed separately by the seller in the sales document with specific mention that the VAT billed separately is based on the market value of the property. steel plates and other metal plates including marine-grade aluminum plates. from the last day prescribed by law for filing the return. machineries and equipment. 3. namely: Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. otherwise known as ‘The Domestic Shipping Development Act of 2004’. lifesaving and navigational equipment.g. of Finance should be deducted from the Allowable input tax that is attributable to zero-rated sales. pursuant to Subsection (a) hereof. Importation of life-saving equipment. that sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof. exclusive of the VAT. to non-members. advance payments which remains unutilized at the end of taxpayer’s taxable year where the advance payment was made.

6-2007 entitled “Consolidated Regulations on Advance Value-Added Tax on the Sale of Refined Sugar. who are holders of the following permits issued by. or if filed out of time. In addition to the input tax credits allowed under section 110 of the code.146 Value-Added Tax effectivity of these regulations may. 11-2007 issued on August 28.Forestry Farm Lease Agreements e.Based Forest Management Program h. Revenue Regulations No. and to introduce improved version of the Regulations to properly address the problems of the sugar industry and collectthe correct taxes due from them.” Revenue Regulations No. the Department of Environment and Natural Resources (DENR). or agreements entered into with. Socialized Industrial Forest Management Program g. Community. whether natural or juridical. Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a separate application for TCC following applicable rules. The certificate of advance payment of the VAT or percentage tax issued shall be attached to the monthly VAT declaration/quarterly vat return or percentage tax return to support the claim for credit of advance VAT or percentage tax payment. The suspension aims to give time to both the Bureau of Internal Revenue and the sugar industry to thresh out unclear provisions in RR No. at the option of the seller/owner of the refined sugar or importer/miller of wheat/flour. are liable to pay the advance VAT on naturally grown and planted timber products harvested prior to its transport for purposes of consummating a sale : a. from the last day prescribed by law for filing the return. In the case of advance 3% percentage tax. Agro. Tree Farm Lease Agreements d. 11-2007 REVENUE REGULATIONS NO. the advance payment shall be credited to the monthly/ quarterly percentage tax return. 2007 suspends until further notice the implementation of Revenue Regulations (RR) No. or to the Revenue Collection Officers (RCOs) or deputized City or Municipal Treasurers. Timber License Agreements b.  END OF VALUE-ADDED TAX  . be the subject of application for TCC to be filed within two (2) years from the date of filing of the last quarterly VAT return where the unutilized advance VAT payments appeared. MEMORY AID IN TAXATION LAW Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax. Industrial Forest Management Agreements c. Timber Cutting/ Salvage & Related Permits Naturally grown and planted timber products harvested from industrial tree plantations and in private lands covered by existing land titles and approved land applications are also subject to advance VAT. Absence of proof of payment of advance VAT will authorize the agents of DENR and BIR to hold in abeyance transport/sale of naturally grown and planted timber products. 6-2007. Owners/sellers of naturally grown and planted timber products. The owner/concessionaire/seller of the naturally grown or private timber products shall not allow any transport of said timber products from the cutting area without the advance payment of the VAT. and for Other Related Purposes”. in places where there are no AABs. 13-2007 Prescribing the Rules on the Advance Payment of Value Added Tax/Percentage Tax on the Transport of Naturally Grown and Planted Timber Products The VAT on the transport of naturally grown and planted timber products shall be paid in advance by the owner/seller to the Bureau of Internal Revenue (BIR) through the Authorized Agent Banks (AABs). Private Forest Development Agreements f. the amount of advance VAT payments made by sellers/owners of naturally grown and planted timber products shall be allowed as credits against their output VAT on the actual gross selling price of the timber products. Amending and/or Revoking All Revenue Issuances Issued to this Effect. before transporting them from place of production or concession.

Herbert Abugan. Masha Mariano. They both refer to the taxes imposed on imported or exported wares. Ralph Jerome Salvador. Vincent Cablao. Jennylyn Valencia. MAUREEN ROSE OBON income taxation. JULIUS BABALCON tariff and customs code. IMPORTED ARTICLES SUBJECT TO DUTY All articles. a table or catalogue drawn usually in alphabetical order containing the names of several kinds of merchandise with the duties to be paid for the same as settled by authority or agreed upon between several states that hold commerce together (Matic. 1992). upon recommendation of NEDA (Sec. 3514. value added tax. Cristiellane Valerio and Sherwin P. even though previously exported from the Philippines (Sec. RONALD JOHN DECANO vice chair for secretariat. Katherine Jane Manarang. Exemptions of international organizations pursuant to agreements or special laws. or obligations with foreign countries. ARTICLES. ROWENA MUTIA tables and annexes MEMBERS: Maria Evitha Abante. Jennifer Bautista. Donelle Jay Quilates. Maureen De Castro. Jan Reiner Uy. AYN SARSABA vice chair for operations. TCC). Aileen Artificio. Ray John Bangi. Ryan Pingol. RMC No. LIABILITY OF IMPORTATIONS WITHIN THE SUBIC SPECIAL ECONOMIC ZONE Importations of registered businesses and enterprises within the Subic Special Economic Zone in EXCESS of their registered business or authorized business activity consisting of raw materials. Sol Pejo. tax remedies. Ramon Alfredo Dela Cruz. Exceptions: 1. 660. Mary Joy Aquino. 105. when imported from any foreign country into the Philippines. Raul Canon. Aldren Abrigo. July 3. instrumentalities or GOCCs with existing contracts. Karla Funtila. 2. TCCP). James Agustin. E. NOTE: Customs and tariffs are synonymous with one another. John Ray Concepcion. MARK ANTHONY DIZON. Karren Amparo. G. capital goods and equipment shall be deemed brought into and sold within the customs territory. Jay Martin Celzo. Exemptions granted to government agencies. and therefore subject to the payment of taxes and customs duties in accordance with existing customs and tax laws (Sec 1. Pascua . toll or tribute payable upon merchandise to the Government. includes goods. ARLENE ALDAY and NELSON SALVA JR. ALDEAN LIM chair hotel operations. shall be subject to duty upon each importation. Lauren Rose Tanyag. of the Phil.. Leonardo Mendoza II. John Zernan Sambahon. 101273. Deepee Salazar. Julian Adarlo.San Beda College of Law 147 2008 CENTRALIZED BAR OPERATIONS TARIFFS AND CUSTOMS CODE OF THE PHILIPPINES TARIFF AND CUSTOMS CODE TAXATION LAW Definitions TARIFF – customs duties.R. and Exemptions granted by the Pres. MARK JULIUS ESTUR estate taxation. ULYSSES GONZALES vice chair for logistics TAXATION LAW IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. EXECUTIVE COMMITTEE VISMARCK UY over-all chair. APRIL CABEZA chair academics operations. ANTHONY PURGANAN vice chair for academics. Maria Joy Toledo. Diana Rabanal. Irene May Junio. Joanne Mosquera. 4. LIABILITY OF IMPORTER FOR CUSTOM DUTIES • A PERSONAL DEBT which can be discharged only by payment in full thereof. This means a book of rates. Exemptions under the TCCP. MAUREEN SEYMOUR JAVIER local taxation and real property taxation. KARLA FUNTILA vice chair for finance. Erwin Legaspi. CUSTOM DUTIES – Tax assessed upon merchandise from or exported to a foreign country (Garcia vs. JEFFREY GALLARDO vice chair for edp. These are duties which are charged upon commodities on their being imported into or exported out of a country (1 Cooley 73). TCCP). wares and in general anything that may be made subject to importation or exportation (Sec. articles. agreements. Micael Ortiz Luis. or merchandise. UNTAYAO edp MARIEL MAILOM general principles. commitments. Taxation in the Phil). No. Kathryn Joy Hautea.O. 20-2008). Executive Sec.when used with reference to importation. 100. MINERVA JIMENEZ donor’s tax and court of tax appeals. Precious Angela Lledo. 3. Mariflor Reyes.

bays. 481 SCRA 109). 6. Cause all such articles to be appraised and classified. TCCP). and Other premises in the respective ports of entry. 1206. ports. Court of Appeals. • • • MEMORY AID IN TAXATION LAW Berthing fee Harbor fee Tonnage due MEANING AND SCOPE OF THE TARIFF AND CUSTOMS LAWS Include not only the provisions of the Tariff and Customs Code of the Philippines (TCCP) and regulations pursuant thereto. rivers and inland waters whether navigable or not from the sea (1st par. 2. Sec. the jurisdiction over premises used for customs purposes is without prejudice to the general police powers of the city or municipality and the Philippine Coast Guard in the exercise of its functions (Sec. 603. 604. (b) Direction and (c) Management of: 1. The Bureau of Customs Chief Officials Of The Bureau Of Customs: One Chief or Commissioner of Customs Four Assistant Chiefs or Deputy Commissioner of Customs each one to head: (a) Customs Revenue Collection Monitoring Group. and (d) Internal Administration Group. . Control smuggling and related frauds. 2. (Sec. L-9452. EXTENT OF IMPORTER’S LIABILITY The liability of an importer is limited to the value of the imported merchandise. 4. 4. airports. As to its scope. charged not for the use of any wharf but for a special fund known as the Port Works Fund. OTHER TYPES OF FEES CHARGED BY THE BUREAU OF CUSTOMS • • Arrastre charge Wharfage due – counterpart of license. TCCP). tariff and customs laws extend not only to the provisions of the TCCP but to all other laws as well. Jurisdiction Over Premises Used For Customs Purposes: The BOC shall have exclusive (a) Control. the enforcement of which is entrusted to the BOC. taxes and other charges are paid thereon (Sec. GR No. 3. Enforcement of TCCP and related laws. 5. 1204. In case of forfeiture of the seized material. 5. 1961). 3. TCCP). therefore. All seas within the jurisdiction of the Philippines. Territorial Jurisdiction of the BOC: The BOC shall have the right of supervision and police authority over: 1. the maximum civil penalty is the forfeiture itself (Mendoza vs. TCCP). taxes and other charges thereon. 7. Jurisdiction of Collector of Customs Over Importation of Articles: 1. 2. but all other laws and regulations that are subject to the Bureau of Customs (BOC) or otherwise within its jurisdiction. Exclusive Jurisdiction of the Collector of Customs cannot be interfered with by regular courts even upon the allegation of ownership (Commissioner of Customs vs.148 Tariffs and Customs Code of The Philippines • A LIEN upon the imported articles while they are in custody or subject to the control of the government. Cause all articles for importation to be entered in the customhouse. Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce. Functions of the Bureau of Customs: 1. Hold possession of all imported articles until the duties. Assess and collect the duties. March 27. (b) Customs Assessment and Operations Coordinating Group. 4. Customhouses. David. and All coasts. Assessment and collection of revenues from imported articles and all other impositions under the tariff and customs laws. harbors. Supervision and control over the handling of foreign mails arriving in the Philippines. (c) Intelligence and Enforcement Group. Offices. Warehouses. Wharves. 2. 3. and Exclusive original jurisdiction over seizure and forfeiture cases under the tariff and customs laws. and Note: In all cases. Supervise and control all import and export cargoes for the protection of government revenue.

No. G. If not entered or not claimed. 1210. and Not reported for transshipment to another port. Unless prevented by causes beyond the vessel’s control. Legal permit for withdrawal shall have been granted. and Stored at the vessel’s expense. may be: a. and there is unmanifested cargo. TCCP). 1203. 2. and Even if a customs seizure is illegal. failure of vessel’s gear. The holder of a bill of lading duly endorsed by the consignee therein named. October 6. Upon payment of the duties. 1995). Neither replevin filed with the RTC will issue. which shall not be extendible from the date of posting of the notice to claim in conspicuous places in the BOC.. TCCP). Consigned to order by the consignor. Importation begins: • When the carrying vessel or aircraft enters the jurisdiction of the Phil. Note: Articles so stored shall be entered within 30 days. With jurisdiction over them at any place therein for the enforcement of the law (2nd par. with intention to unload therein. TCCP) INTENTION TO UNLOAD Even if not yet unloaded. c. b. or In case the articles are free of duties. 2. 104604. 2. DISPOSITION OF IMPORTED ARTICLES REMAINING ON VESSEL AFTER TIME FOR UNLOADING 1. and . BUREAU OF CUSTOMS (BOC) The RTCs do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC and to interfere with these proceedings. taxes and other charges due upon the articles. TCCP).San Beda College of Law DOCTRINE OF HOT PURSUIT Requisites: 1. prohibition or mandamus filed with the RTC will lie because these are in reality attempts to review the Commissioner's actuations. The Collector of Customs has exclusive jurisdiction over all questions touching on the seizure and forfeiture of dutiable goods. Customs Duties WHEN TARIFF AND CUSTOMS APPLY Only after importation has begun but before importation is terminated. Rationale: Doctrine of Primary Jurisdiction b. Over Imported Articles a. waters which constitutes a violation of the tariff and customs laws. Sec. and A pursuit of such vessel began within the jurisdictional waters which • 149 2008 CENTRALIZED BAR OPERATIONS DOCTRINE OF PRIMARY JURISDICTION: REGIONAL TRIAL COURTS (RTC) VS. 6. bad weather. 4. exclusive jurisdiction (to the exclusion of regular courts) still belongs to the Bureau of Customs (Jao v. port congestion. riots or civil commotions. Importation is deemed terminated: 1. 5. 3. and • (ii) the vessel may be seized on the high seas. b. along a coast or in any area of the Phils (Sec. Court of Appeals. OWNER OF IMPORTED ARTICLES Imported articles into the Philippines shall be held to be the property of the person to whom the same are consigned: 4. After the expiration of the said period for discharge. 1202. 2. it shall be disposed of in accordance with the provisions of TCCP (Sec. An act is done in Phil. As a consequence they may be pursued in the Phil. and similar causes 1. 2. There is a violation of the tariff and customs laws. 3. strikes. Salvors of articles saved from a wreck at sea. Unladen by the customs authorities. such as: 1. or secured to be paid. 3. 603. taxes and other charges.R. (i) may continue beyond the maritime zone. Over Vessels a. No petition for certiorari. until they have legally left the jurisdiction of the customs (Sec. Underwriters of abandoned articles. forfeiture may take place because importation has already begun.

the legal effects of the importation of qualifiedly prohibited articles are the same as those of absolutely prohibited articles (Auyong Hian vs. and b.A. Conditionally–free from tariff and customs duties (conditionally–free importation) 3.7651) a) by the importer. for personal use. All imported articles. GOCCs with agreements with foreign countries. or under irrevocable domestic letter of credit. Those granted to government agencies. and personal and household effects or articles.150 Tariffs and Customs Code of The Philippines ARTICLES UNDER TCCP 1. 7618. An importer is required to file an import entry. except luxury items purchased abroad and imported to the Philippines. regardless of value. No. 2. 102. TCCP). Qualifiedly prohibited Where such conditions as to warrant a lawful importation do not exist. bank guarantee or bond PERSONS AUTHORIZED TO MAKE IMPORT ENTRY (Sec 1301. b. livelihood tools personal and household effects by Overseas Filipino Workers (OCW) and Balikbayans at Philippine duty– free shops. • • • • • Those provided in Sec. Returning residents for purposes of conditionally free importation of personal and household effects: (a) Nationals (Filipino) (b) Who have stayed in the foreign country (c) For a period of at least six (6) months. upon instruction of the Secretary of Finance. not in c o m m e r c i a l q u a n t i t y.00) or less. 1974). (c) T h e p u r c h a s e a b r o a d o f consumables. All articles when imported from any country into the Philippines shall be subject to duty upon each importation. immoral. mail or otherwise. obscene or insidious articles.TCCP. Collector of Customs. (d) T h e p u r c h a s e a b r o a d o f consummables. livelihood tools personal and household effects by Overseas Filipino Workers (OCW) and Balikbayans. Prohibited from being imported (Prohibited importation) a. narcotics or prohibited drugs. (1) INFORMAL ENTRYa. A formal entry may be for immediate consumption. require a formal entry. being the holder of the bill of lading . • Kinds of conditionally free importations of personal and household effects of returning residents: (a) Personal and household effects. September 12. 101. as amended by R. March 27. the dutiable value of which is Two thousand pesos (P2. 1913). GR No. It must be accomplished from disembarking of last cargo from vessel. gambling devices. (2) FORMAL ENTRYThe Commissioner may. 1302. TCCP. (b) Personal and household effects.A. except as otherwise specifically provided for in the TCCP or other laws. 9135) It is a declaration to the BOC showing particulars of the imported article that will enable the customs authorities to determine the correct duties. MEMORY AID IN TAXATION LAW (e) Personal and household effects of members of Philippine diplomatic missions including civil or military attachés. whatever be the purpose and nature of the importation. TCCP). shall be subject to a formal or informal entry. TCCP. barter or hire. Those given to international institutions entitled to exemption by agreement or special laws. G. CTA. 105. and those prohibited under special laws (Sec.000. and Those that may be granted by the President upon NEDA’s recommendation. except importations admitted free of duty under Subsection "k". No. IMPORT ENTRY (Sec. for the protection of domestic industry or of the revenue. Absolutely prohibited such as: weapons of war. Free from TC duties (duty-free) Imported goods must be entered in a customhouse at their port of entry otherwise they shall be considered as contraband and the importer is liable for smuggling (See Sec. Articles of a commercial nature intended for sale.R. L-28782. as amended by R. 105 of this Code. including luxury items brought out of the Philippines and returned. even though previously exported from the Philippines. i m p o r t e d i n passenger's baggage. DRAWBACK A device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign markets upon the same terms as if it had not been taxed at all (Uy Chaco Sons vs.

as amended by R. IDENTICAL GOODS . which shall be the price actually paid or payable for the goods when sold for export to the Philippines plus other costs incurred by the buyer but not included in the price. subject to deductions: (1) Either the commissions usually paid or agreed to be paid or the additions usually made for profit and general expenses in connection with sales (2) The usual costs of transport and insurance and associated costs (3) The costs and charges (4) Customs duties and other national taxes Method Five: COMPUTED VALUE . TCCP.goods which are the same in all respects. have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable. including physical characteristics. . at or about the time of the importation of the goods being valued. the dutiable value shall be the transaction value of similar goods sold for export to the Philippines and exported at or about the same time as the goods being valued. and (5) The cost of containers and packing. 151 2008 CENTRALIZED BAR OPERATIONS imported. Method Four: DEDUCTIVE VALUE .The dutiable value under this method shall be the computed value which shall be the sum of: (1) The cost or the value of materials and fabrication or other processing employed in producing the imported goods. if its value is not included under paragraph (1) hereof. Method Six: FALLBACK VALUE . 2.goods which.San Beda College of Law b) by a duly licensed customs broker acting under authority from a holder of the bill or by a person duly empowered to act as agent or attorney-in-fact for each holder c) a party other than the importer. in the greatest aggregate quantity. SIMILAR GOODS . No. Method Three: T R A N S A C T I O N VA L U E O F S I M I L A R GOODS – Where the dutiable value cannot be determined under the preceding method. although not alike in all respects. Specific duty: This is a duty based on the dutiable weight of goods (either the gross weight. provided said importer shall himself be required to declare under oath and under the penalties of falsification or perjury that the declarations and statements contained in the entry are true and correct. if their values are not included under paragraph (1) hereof. legal weight. The quality of the goods.A.If the dutiable value cannot be determined under the preceding methods described above. quality and reputation. their reputation and the existence of a trademark shall be among the factors to be considered in determining whether goods are similar. Minor differences in appearances shall not preclude goods otherwise conforming to the definition from being regarded as identical.The dutiable value of the imported goods under this method shall be the deductive value which shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the Philippines.The dutiable value of an imported article subject to an ad valorem rate of duty shall be the transaction value. in the same condition as when 3. 1. 9135) Method One: TRANSACTION VALUE . CLASSIFICATION OF CUSTOM DUTIES A. insurance fees and other transportation expenses for the importation of the goods (4) Any assist. BASIS OF DUTIABLE VALUE (Sec 201. it shall be determined by using other reasonable means and on the basis of data available in the Philippines. (3) The freight. Method Two: TRANSACTION VALUE OF IDENTICAL GOODS . (2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to the Philippines. Ad valorem duty: This is a duty based on the value of the imported article. Regular Duties – those which are imposed and collected merely as a source of revenue. 4. Alternating duties: This is a duty which alternates ad valorem and specific. Compound Duty: This is a duty consisting of ad valorem and specific duties.The dutiable value shall be the transaction value of identical goods sold for export to the Philippines and exported at or about the same time as the goods being valued. to persons not related to the persons from whom they buy such goods. or net weight).

The Secretary of Agriculture in the case of agricultural product. MEMORY AID IN TAXATION LAW of import duty be higher than a maximum of one hundred (100%) percent ad valorem. PURPOSE OF SPECIAL CUSTOMS DUTIES The special customs duties are imposed for the protection of consumers and manufacturers. 2. etc. TCCP). The Secretary of Agriculture in the case of agricultural product. as may be necessary. commodity or article. Imposed upon goods coming from countries that discriminate against Philippine products. The Commission shall submit their findings and recommendations to the NEDA within thirty (30) days after the termination of the public hearings. and To impose an additional duty on all imports not exceeding ten (10%) per cent ad valorem whenever necessary. Dumping duty Countervailing duty Marking duty Discriminatory duty NATURE OF SPECIAL CUSTOMS DUTIES Special customs duties are additional import duties imposed on specific kinds of imported articles under certain conditions. 401. AS TO AMOUNT/RATE Difference between the actual price Equivalent to the bounty. subsidy. subvention. reduce or remove existing protective rates of import duty (including any necessary change in classification). 4. commodity or article. To increase. President of the Philippines Imposed upon those not properly marked as to place of origin of the goods. 401.152 Tariffs and Customs Code of The Philippines B. The Commission shall also hear the views and recommendations of any government office. on one or several stages but in no case shall the increased rate a. b. Any amount not exceeding 100% ad valorem of the subject articles. MARKING DUTY DISCRIMINA-TORY DUTY AS TO IMPOSING AUTHORITY 1. 1. To establish import quota or to ban imports of any commodity. 2. products from undue competition posed by foreign-made products. or 2. TCCP). agency or instrumentality concerned. the Secretary of Trade and Industry in the case of nonagricultural product. FLEXIBLE TARIFF CLAUSE The President may fix tariff rates. SPECIAL DUTIES COMPARED DUMPING DUTY COUNTERVAILING DUTY AS TO NATURE Imposed upon foreign products with value lower than their fair market value to the detriment of local products. The decision on whether or not to impose a definitive anti-dumping duty remains with the prerogative of the Tariff Commission. the Secretary of Trade and Industry in the case of nonagricultural product. 28. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. articles. LIMITATIONS IMPOSED REGARDING THE FLEXIBLE TARIFF CLAUSE Conduct by the Tariff Commission of an investigation in a public hearing. The decision on whether or not to impose a definitive countervailing duty remains with the prerogative of the Tariff Commission. Constitution and Sec. commodity or article. 1. or 5% ad valorem of and the normal value of the article. after formal investigation and affirmative finding of the Tariff Commission. 1. after formal investigation and affirmative finding of the Tariff Commission. under TCCP (See Sec. The NEDA thereafter submits its recommendation to the President. as well as Phil. 3. VI. Art. or 2. 3. import and export quotas. In such a case the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases (Sec. The existing rates may be increased or decreased to any level. Imposed upon foreign goods enjoying subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated. Special duties – those which are imposed and collected in addition to the ordinary customs duties usually to protect local industries against foreign competition. Commissioner of Customs . commodity or article.

1204. b. 2. ascertain conversion costs and costs of production including effects of tariff modifications or import restrictions on prices in the principal growing.. the volume of importations. • May be exercised even where the articles are not or no longer in Custom’s custody UNLESS the importation is merely attempted in which case it may be effected only while the goods are still within the Customs jurisdiction or in the hands of a person who is aware thereof (Secs. producing or manufacturing centers of the Phil. compared with domestic production and consumption. including their relation to the national revenues. the tariff relations between the Philippines and foreign countries. c. TCCP) a. articles of the Phil. f. select and describe representative articles into the Phil. TCCP). while still in the custody or control of the Government. f. Availed of when the importation is neither prohibited nor improperly made. regardless of ownership. ascertain import costs of such representative articles so selected. TCCP) • Attaches on the goods. Under Sec. TAX REMEDIES OF THE GOVERNMENT C. ascertain the grower's. copy furnished to NEDA. and effects relating to competition of foreign industries with those of the Philippines. c. Investigative Powers (Sec. all questions relative to the arrangement of schedules and classification of articles in the several schedules of the tariff law. ascertain conversion costs and costs of production in the principal growing. conditions. e. 506. b. The complementary if collateral use of the Cessna plane for smuggling operation is sufficient for it to be deemed to have been used in • • 2.San Beda College of Law 153 2008 CENTRALIZED BAR OPERATIONS The Tariff Commission (TC) FUNCTIONS OF THE TARIFF COMMISSION 1. producing or manufacturing centers of foreign countries of articles imported into the Phil. producer’s or manufacturer’s selling prices in the principal growing. g. ascertain all other facts which will show t h e d i ff e r e n c e i n o r w h i c h a ff e c t competition between. producing or manufacturing centers of the Phil. and those imported in the principal markets of the Phil. BSP. producing or manufacturing centers of the Phil. d. the effect of export bounties and preferential transportation rates. the administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted. and In general. Submit annual reports of these to the President. the relations between the rates of duty on raw materials and the finished or partly finished products. TCCP) a. 2531 and 2530. 2530 (a) of the TCCP. DOF and BOI. economic alliances. g. to investigate the operation of customs and tariff laws. it is not necessary that the vessel or aircraft must itself carry the contraband. ascertain conversion costs and costs of production in the principal growing. similar to or comparable with those locally produced. Tax Remedies Under The Tariff and Customs Code (TCCP) I. Applied when the importation is unlawful. h. the effects of ad valorem and specific duties and of compound specific and ad valorem duties. Tax Lien (Sec. Administrative Assistance to the President and Congress (Sec. their effect upon the industries and labor of the country and to submit reports of its investigation as provided. commercial treaties. causes.. e. including dumping and cost of production.. preferential provisions. d. ADMINISTRATIVE 1. 505. in order to warrant forfeiture. h. Administrative Fines and Forfeitures • .

WHEN CUSTOMS PROTEST APPLICABLE The customs protest is required to be filed only in case the liability of the taxpayer for duties. Sec. articles lost or destroyed after such arrival. TCCP). taxes. 1801 TCCP) a. fees. Refund a. or within 5 days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. as amended by Sec. as amended by RA 7651). A. JUDICIAL This remedy is normally availed of when the tax lien is lost by the release of the goods.R. (Llamado vs. • Appeal Within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA (Sec. May 16. Commissioner of Customs. 1701-1708 TCCP). Taxpayer – within 15 days from assessment. Reduction of customs duties / compromise • • subject to approval of Sec. the action of the collector shall be final and conclusive against him EXCEPT as to matters collectible for manifest error in: a. MEMORY AID IN TAXATION LAW Drawback cases where the goods are re-exported (Secs. TCCP) 4. b. 1801. and for manifest clerical errors. or when there is an actual and intentional fraud (Sec. Within 15 days to the Commissioner after notification by Collector of his decision (Sec. and II. 1983) 3. NOTE: Before filing a protest. . Any importer or interested party if dissatisfied with published value within 15 days from date of publication. b. Payment under protest is necessary (Secs. Action to question the legality of seizure Abandonment (Sec. Since Sec. 2308 and 2210 TCCP). but not in protest cases. or the release would be contrary to law. 1801 TCCP) impliedly – • • 2. L-28809. or having filed an entry fails to claim within 15 days but it shall not be so effective until so declared by the collector (Sec. of Finance (Secs. 2307. invoice entry. Appeal B.154 Tariffs and Customs Code of The Philippines smuggling. 2. b. JUDICIAL TAX REMEDIES OF THE TAXPAYER A. 2210 and 2211. 7 of RA 1125. Protest a. No. 3. Settlement of any seizure by payment of fine or redemption • D. and other charges. A written claim for refund may be submitted by the importer in abatement cases on missing packages. 2403 TCCP. it would appear that an importer may appeal without first paying the duties. TCCP). 1. fees and other charges is determined and the taxpayer disputes said liability otherwise. failure to file an import entry within 30 days from the discharge of goods. such as in seizure. G. 709 and 2316 TCCP) Seizure. 9 of RA 9282). 1204. expressly (Sec. TCCP) Criminal Action • But this shall not be allowed in any case where importation is absolutely prohibited. Search. deficiencies in the contents of packages or shortages before arrival of the goods in the Philippines. there must first be a payment under protest.11 of RA 1125 as amended by RA 9282 empowers the Tax Court to issue injunctions. 2205. dead or injured animals. ADMINISTRATIVE 1. 2313. • • Civil Action (Sec. Arrest (Secs. • Two Kinds of Proceedings in the Bureau of Customs (BOC) CUSTOMS PROTEST CASES DEFINITION: These are cases which deal solely with liability for customs duties. 3.

2. Exception: Common carriers that are not privately chartered cannot be confiscated. G. 2310. rules and regulations. etc. 3514. A domestic port open to both foreign and coastwise trade including “airport of entry” (Sec. RIGHT OF CUSTOMS OFFICERS TO EFFECT SEIZURE AND ARREST (Sec. 3601. 31776-78. or the procedure of passing goods through the customs house (Rodriguez vs. 2309 in relation to Sec. 1983). TCCP). like the vessel. 4. Thus. TCCP) SEIZURE AND FORFEITURE CASES DEFINITION: These refer to matters involving smuggling. The Philippines is divided into various ports of entry – entry other than port of entry.R. Payment of the tax due after apprehension is not a valid defense (Rodriguez vs. facilitate. THINGS SUBJECT TO CONFISCATION IN SMUGGLING CASES Anything that was used for smuggling is subject to confiscation. sell. Must point out the particular decision or ruling of the Collector of Customs to which exception is taken or objection made. or Assist in so doing. aircraft. 115218. To protect the interest of the Government. Manila Star Ferry. TCCP) Export contrary to law (Sec. which cannot in any way absolve the vessel from the liability of forfeiture (Commissioner of Customs vs. the submission and acceptance of the documents. October 21. 1707. conceal. (Llamado vs. TCCP). Must be limited to the subject matter of a single adjustment. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. 1. The absence or lack of actual knowledge of such use is a defense personal to the owner himself. L-28809. Must be filed when the amount claimed is paid or within 15 days after the payment. buy. article. the documents filed at the Customs house . Nos. TCCP) d. 2. Court of Appeals) GR No. cargo. May 16. May exercise such powers only in conformity with the laws and provisions of the TCCP. An act of any person who shall: a. 1995) REASONS FOR THE AUTOMATIC REVIEW OF DECISIONS ADVERSE TO THE GOVERNMENT: 1. 2. animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under tariff and customs laws. Must be in writing. 3. A favorable decision will not be appealed by the taxpayer and certainly a Collector will not appeal his own decision. 1993). 3514. or Receive. TCCP) WHEN CUSTOMS PROTEST NOT REQUIRED Where there is no dispute. c. EVIDENCE FOR CONVICTION IN SMUGGLING CASES Mere possession of the article in question UNLESS defendant could explain that his possession is lawful to the satisfaction of the court (Sec. Entry: In Customs law means 1. Court of Appeals. September 18. plane. 3. 6. B. and Protestant must furnish samples of goods under protest when required (Sec. supra). 5. ALL articles imported into the Philippines whether subject to duty or not shall be entered through a customhouse at a port of entry. 2205. Must state the grounds relied upon for relief. c.San Beda College of Law b. 2. b. CONTRABAND: Articles of prohibited importations or exportations (Sec. Fraudulently import any article contrary to law. TCCP). and Lifeblood Theory. Commissioner of Customs. errors in return of weight. will be SMUGGLING. and measure and gauge (Sec. TCCP). it is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. G. but the claim for refund arises by reason of the happening of supervening events such as when the raw material imported is utilized in the production of finished products subsequently exported and a duty drawback is claimed. transport. 3601.R. These are actions in rem.. conceal or sell such article knowing its illegal importation (Sec. No. REQUIREMENTS FOR MAKING A PROTEST: 1. May seize any vessel. Inc. 155 2008 CENTRALIZED BAR OPERATIONS SMUGGLING 1. 3514. 2. PORT OF ENTRY 3. .

officials of the BIR in all cases falling within the regular performance of their duties. or When there is fraud (Sec. No. or the wrongful making or delivery by the same persons of any invoice. L-20805. Jr. November 29. and That seizure and/or forfeiture was made under the circumstances and in the manner described in the TCCP (Sec. importer. TCCP). 2535. Generally.156 Tariffs and Customs Code of The Philippines Persons having police authority to enforce the Tariff and Customs Laws and effect searches. exporter or consignee of any declaration or affidavit. As long as the importation has not been terminated. officers of the Phil. district collectors.R. agents. L-33756. The wrongful making by the owner. It is thus subject to forfeiture. Berdiago. vs. Vessels or aircrafts and persons or articles conveyed therein. 42204. No. I S M A N I F E S T R E Q U I R E D O N LY F O R IMPORTED GOODS? NO. The PROBABLE CAUSE shall be first shown for the institution of such proceedings. seizures and arrests (Sec. October 23. beasts and persons. Court of Tax Appeals.all touching on the importation or exportation of merchandise. police officers. 2. G. January 21. No. and lack of personal knowledge of the owner or the carrier is not a defense to forfeiture. and That such declaration. October 29. 2. PROPERTIES NOT SUBJECT TO FORFEITURE IN THE ABSENCE OF PRIMA FACIE EVIDENCE The forfeiture of the vehicle. MEMORY AID IN TAXATION LAW PLACES WHERE SEARCHES AND SEIZURES MAY BE CONDUCTED (a) (b) (c) (d) (e) Enclosures. Navy and other members of the AFP and national law enforcement agencies when authorized by the Commissioner of Customs. 2203. ACQUITTAL IN CRIMINAL CHARGE NOT RES JUDICATA IN SEIZURE OR FORFEITURE PROCEEDINGS Reasons: 1. L-29218. 2. 1965). officials of the BOC. If a motor vehicle is hired to carry smuggled goods but it has no Certificate of Public Convenience (CPC). it is not a common carrier. Exceptions: 1. The importation is absolutely prohibited. 2307. Officers generally empowered by law to effect arrests and execute processes of courts. G. G. letter or paper is false (Farolan. 2. FORFEITURE OF COMMON CARRIERS 1. Articles subject to seizure do not have to be imported goods. NOTE: Burden of proof in seizure or forfeiture is on the claimant provided that: 1. affidavit. the imported goods remain under the jurisdiction of the Bureau of Customs (Viduya vs. Dwelling house (there must be a search warrant issued by a judge). 2. invoice. Manifests are also required for articles found on vessels or aircraft engaged in coastwise trade (Rigor vs. 1976). inspectors. Rosales. 3. when acting under the direction of the Collector. 2. 1993). TCCP).R. Vehicles. UNMANIFESTED CARGO IS SUBJECT TO FORFEITURE whether the act of smuggling is established or not under the principle of res ipsa loquitur. common carriers are not subject to forfeiture. REQUIREMENTS FOR CUSTOMS FORFEITURE 1. If the owner has knowledge of its use in smuggling and was a consenting party. . Desiderio.R. 3. Customs compromise does not extinguish criminal liability (People vs. and Persons arriving from foreign countries. 4. 1982). it may be forfeited. or The surrender of the property to the person offering to redeem would be contrary to law. Criminal proceedings are actions in personam while seizure or forfeiture proceedings are actions in rem. It is enough that the cargo was unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. SETTLEMENT OF FORFEITURE CASES General Rule: Settlement of cases by payment of fine or redemption of forfeited property is allowed. vessel or aircraft shall not be effected if it is established that the owner thereof or his agent in charge of the means of conveyance used as aforesaid GOODS IN CUSTOM’S CUSTODY BEYOND REACH OF ATTACHMENT Goods in the custom’s custody pending payment of customs duties are beyond the reach of attachment. TCCP) 1. when the payment of internal taxes are involved. GR No. and guests of the BOC. letter or paper .

3. Natividad. importer or consignee: 1. TCCP) ABATEMENT The reduction or non-imposition of customs duties on certain imported materials as a result of: 1. 2.San Beda College of Law NOTE: At any time prior to the sale. TCCP). the delinquent importer may settle his obligations with the Bureau of Customs. A person arriving in the Philippines with baggage containing dutiable articles is bound to declare the same in all respects. 4. 4. TCCP). certificate or other document to secure to him or others the payment of any drawback. Effects of Abandonment: 1. as established by clear and convincing evidence (Sec. 2. 2. Unlawful importation. FAILURE TO PAY CORRECT DUTIES AND TAXES ON IMPORTED GOODS After being subject to post-entry audit and examination. Filing any affidavit. DOCTRINES RELATED TO TARIFF AND CUSTOMS CODE 1. 1508. or Fails to claim his importation within 15 days (not extendible) from the date of posting of the notice to claim such importation (Sec. In Mison vs. Filing any false or fraudulent claim for the payment of drawback or refund of duties upon the exportation of merchandise. who is found to have incurred deficiencies in taxes and duties paid for imported goods. Loss or destruction of articles after arrival.where a deficiency results from an act or acts of omission or commission done with actual knowledge or wanton disregard for the relevant facts and with indifference to or disregard for obligations under the statue. 1802. Sec. 1802. Deemed to have renounced all interests and property rights (par. or .It was designed to supplement the existing provisions of the Tariff and Customs Code against the means leading up to smuggling. in which case the aforesaid articles may be delivered upon payment of the corresponding duties and taxes and compliance with all other legal requirements (Sec. Damage incurred during voyage. to exercise reasonable care and competence to ensure that a statement is correct. Court of Appeals 481 SCRA 109). 157 2008 CENTRALIZED BAR OPERATIONS 6. 4. (b) Gross Negligence –. shall be penalized according to three (3) degrees of culpability: (a) Negligence – where a deficiency results from failure. any person. Death or injury of animals. 2. invoice. Disposed of in accordance with the TCCP (par. 3. Nothing shall mean to relieve the owner from criminal liability which may arise in connection with the importation (par. 4. Expressly signifies in writing to the Collector of his intention to abandon. affidavit. Deficiency in contents packages. People 481 SCRA 638). An administrative penalty imposed on the person arriving in the Philippines with undeclared dutiable articles is separate from and independent of criminal liability for smuggling under Section 3601 of the Tariff and Customs Code and for violation of other provisions in the Tariff and Customs Code Section 3601 of the Tariff and Customs Code is a penal provision . TCCP). 3602. TCCP). Ipso facto deemed the property of the Government. 3. 3611. Payment of less than the amount due. 1801. 2. allowance or refund of duties on the exportation of merchandise greater than that legally due thereon (Sec. 2. TCCP). 2. Sec. TCCP) 3. or other documents. 1. Sec. Entry of goods at less than their true weights or measures or upon a classification as to quality or value. the Supreme Court has held that the exclusive jurisdiction of the Collector of Customs cannot be interfered with by regular courts even upon the allegation of ownership (Commissioner of Customs vs. which might render it ABANDONMENT An article is deemed abandoned when the owner. through an act or acts of omission or commission. voluntarily and intentionally. Adequate reporting of dutiable merchandise being brought into the country is absolutely necessary for the enforcement of customs laws and failure to comply with those requisites is as condemnable as failure to pay customs fees (Jardeleza vs. FRAUDULENT PRACTICES CONSIDERED AS CRIMINAL OFFENSES AGAINST CUSTOMS REVENUE LAWS 1. 5. 1801. 3. Fails to file an entry within 30 days from the date of discharge of the last package from the vessel or aircraft (not extendible). declaration. Entry of imported or exported article by means of any false or fraudulent practices. (c) Fraud – When the material false statement or act in connection with the transaction was committed or omitted knowingly.

knowing the same to have imported contrary to law. 8. willfully and deliberately dared or resorted to in order to give up some right. Importation consists of bringing an article into the country from the outside. consisting of deception. concealment or sale of such goods after importation. Smuggling is committed by any person who (1) fraudulently imports or brings into Philippines any article contrary to law (2) assists in so doing any article contrary to law. for the protection of government revenues (Asian Terminals vs. i. meaning substantive or legislative type rules as opposed to general statements of policy or rules of agency. Bautista-Ricafort 505 SCRA 748). 7. and (c) procedure of passing goods through the Customs house. 6. 10.It is in the nature of a proceeding in rem. loaded or stored in piers.It may consist as well of deeds. Fraud is not confined with words or positive assertions . conceals. . 9. Importation is complete when taxable. directed against the res or imported articles and entails a determination of the legality of their importation.It is tasked to enforce tariff and supervise and control customs law and all other laws. dutiable commodity is brought within the limits of the port of entry. The term “entry” in Customs Law has a triple meaning (a) the documents filed at Customs House (b) the submission and acceptance of those documents. buys or sells or in any manner facilitates the transportation. The forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner .. rules and regulations relating to the tariff and customs administration. The fraud contemplated by law must be intentional fraud. 5. terminal facilities. and to supervise and control all import and export cargoes.e. organization. acts or artifice of a nature calculated to mislead another and thus allow one to obtain undue advantage. or (3) receives. including container yards and freight stations. Fraudulent concealment presupposes a duty to disclose the truth and that disclosure was not made MEMORY AID IN TAXATION LAW when opportunity to speak and inform was present. The Bureau of Customs exercises exclusive jurisdiction over seized and forfeited cars .158 Tariffs and Customs Code of The Philippines beneficial by a substantive and criminal statement separately providing for the punishment of smuggling. The phrase “contrary to law” in Section 3601 qualifies the phrases “ imports or brings into the Philippines” and “assists in doing” and not the word “article” The word “law” includes regulations having the force and effect of law. procedures or positions.

file a and executory and is motion for reconsideration not appealable within15 days from receipt  of the decision  Whether the MR is granted If decision is adverse Whether the MR is granted If decision is adverse or denied. to the protestant. the Collector shall decide on the same within 30 days   If decision is adverse to the protestant  Appeal with the Commissioner within 15 days from notice   If decision is adverse to the protestant  Appeal with the Court of Tax Appeals Division within 30 days from notice  Whether the CTA division grants or denies wholly or partially the protest.  If decision is adverse Whether the CTA division to the government. Upon termination of the hearing. wholly or partially. and collect the duties thereon. Supreme Court within 15 days from notice days from notice . file a motion for reconsideration within 15 days from receipt of the decision  If decision is adverse to the government  Automatic review by the Secretary of Finance  If decision is adverse to the government  Automatic Review by the Commissioner   If decision is adverse to the protestant  Appeal with the Court of Tax Appeals Division within 30 days from notice  If decision is adverse to the government  Automatic review by the Secretary of Finance  If decision is adverse to the government. wholly or partially. liquidate. adverse party shall file an Appeal with the adverse party shall file an Appeal with the Appeal with the CTA en Court of Tax Appeals Appeal with the CTA en Court of Tax Appeals banc within 15 days from Division within 30 banc within15 days from Division within 30 receipt of decision days from notice receipt of decision days from notice  Then follow the  Then follow the Appeal by certiorari with the procedure given in 4th Appeal by certiorari with the procedure on the left. Supreme Court within 15 column. to the protestant.San Beda College of Law 159 2008 CENTRALIZED BAR OPERATIONS Annexes to Tariff and Customs Annexes to Tariff and Customs Procedure In Customs Protest Cases The Collector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse  The Collector shall assess. or denied. the grants or denies wholly or decision shall be final partially the protest. the decision shall be final and executory and is not appealable. or detain the said goods if the party liable does not pay the same  The party adversely affected (the protestant) may file a written protest on his foregoing liability with the Collector within 15 days after paying the liquidated amount (the payment under protest rule applies)  Hearing within 15 days from receipt of the duly presented protest.

    Whether the MR is granted or If decision is adverse denied. Whether the MR is granted or If decision is adverse denied. file a the decision shall be partially the protest. Commission on Audit  Issuance by the Collector of a warrant of detention  Notification to owner or importer  Formal hearing  District Collector renders his decision   If decision is adverse to the protestant  Appeal with the Commissioner within 15 days from notice   If decision is adverse to the protestant  Appeal with the Court of Tax Appeals Division within 30 days from notice  If decision is adverse to the government  If decision is adverse to the government  Automatic Review by the Commissioner   If decision is adverse to the protestant  If decision is adverse to the government  Automatic review by Appeal with the Court of Tax Automatic review by the Secretary of Appeals Division within 30 the Secretary of Finance days from notice Finance    Whether the CTA division If decision is adverse Whether the CTA division If decision is adverse grants or denies wholly or to the government. to the protestant. appraisal and classification of seized property  Report of seizure to the Commissioner of Customs and the Chairman. grants or denies wholly or to the government. wholly or partially.160 Tariffs and Customs Code of The Philippines MEMORY AID IN TAXATION LAW Administrative and Judicial Procedures Relative to Customs Seizures and Forfeitures Determination of probable cause and issuance of warrant  Actual seizure of the articles  Listing of description. wholly or partially. the decision appealable. partially the protest. file a the decision shall be motion for reconsideration final and executory motion for reconsideration final and executory within15 days from receipt of and is not within 15 days from receipt of and is not the decision appealable.  END OF VALUE-ADDED TAX  . to the protestant. adverse party shall file an Appeal with the Appeal with the CTA en banc Court of Tax within 15 days from receipt of Appeals Division decision within 30 days from  notice Appeal by certiorari with the Then follow the SC within 15 days from notice procedure on the left. adverse party shall file an Appeal with the Appeal with the CTA en banc Court of Tax within15 days from receipt of Appeals Division decision within 30 days from  notice Appeal by certiorari with the Then follow the SC within 15 days from notice procedure on the left.

.

refund value of internal revenue stamps when they are returned in good condition by purchaser. Jan Reiner Uy. every six (6) months. Credit or refund taxes or penalties. Ramon Alfredo Dela Cruz. redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. Micael Ortiz Luis. Ryan Pingol. Herbert Abugan. Aldren Abrigo. b. AYN SARSABA vice chair for operations. IMPORTANCE 1. Jennylyn Valencia. Compromise the payment of internal revenue tax. APRIL CABEZA chair academics operations. Ray John Bangi. Joanne Mosquera. John Zernan Sambahon. The report shall be presented to the Oversight Committee in Congress that shall be constituted to determine that said powers were exercised reasonably and the Government is not unduly deprived of revenues. p. ARLENE ALDAY and NELSON SALVA JR.164 Tax Remedies Under The NIRC MEMORY AID IN TAXATION LAW TAX REMEDIES UNDER THE NIRC TAX REMEDIES UNDER THE NIRC TAXATION LAW Preliminaries Preliminaries REMEDY – is a method by which a cause of action can be enforced by law or equity. ANTHONY PURGANAN vice chair for academics. JEFFREY GALLARDO vice chair for edp. EXECUTIVE COMMITTEE VISMARCK UY over-all chair. d. Karla Funtila. b. 20). Jay Martin Celzo. Aileen Artificio. ULYSSES GONZALES vice chair for logistics TAXATION LAW IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. Vincent Cablao. JULIUS BABALCON tariff and customs code. Kathryn Joy Hautea. 1. Maureen De Castro. MARK ANTHONY DIZON. Julian Adarlo. Karren Amparo. Donelle Jay Quilates. Mary Joy Aquino. James Agustin. Raul Canon. MINERVA JIMENEZ donor’s tax and court of tax appeals.Remedies: a. John Ray Concepcion. a report on the exercise of his powers as above-mentioned stating the following: a. They enhance and support the government’s tax collection. c. Maria Joy Toledo. c. Jennifer Bautista. ALDEAN LIM chair hotel operations. Sol Pejo. 2. Precious Angela Lledo. In his discretion. Remedial Law Compendium. Katherine Jane Manarang. Mariflor Reyes. MAUREEN ROSE OBON income taxation. RONALD JOHN DECANO vice chair for secretariat. Authority of Commissioner under Title VIII. It is a procedure or type of action which may be availed of by the plaintiff as the means to obtain the relief desired (Florenz D. amount compromised or abated. MAUREEN SEYMOUR JAVIER local taxation and real property taxation. Chapter 1 . Ralph Jerome Salvador. and reasons for the exercise of power. They are safeguards of the taxpayer’s rights against arbitrary action. MARK JULIUS ESTUR estate taxation. Masha Mariano. Abate or cancel a tax liability. Lauren Rose Tanyag. Vol. The Commissioner shall submit to the Chairmen of Committee on Ways and Means of both Senate and House of Representatives. tax remedies. d. Irene May Junio. KARLA FUNTILA vice chair for finance. Diana Rabanal. Cristiellane Valerio and Sherwin P. names and addresses of taxpayers whose cases have been subject to abatement or compromise. UNTAYAO edp MARIEL MAILOM general principles. Pascua . value added tax. Regalado. amount involved. Erwin Legaspi. Deepee Salazar. Leonardo Mendoza II. ROWENA MUTIA tables and annexes MEMBERS: Maria Evitha Abante.

BURDEN OF PROOF IN PRE-ASSESSMENT PROCEEDINGS There is a presumption of correctness and good faith on the part of the CIR. vs. Court of Appeals. 2.R. 2. no amount of tax is shown in the return. TAXPAYER b. 31. Savellano. 2.R.ASSESSMENT – one in which the tax is assessed by the taxpayer himself. PRINCIPLES GOVERNING TAX ASSESSMENTS (PADDD) 1. The same is true even if the CIR is wrong.13656. Assessments should not be based on presumptions no matter how logical the presumption might be. 422). the burden lies on the taxpayer. No. Dela Rama. Vol. Oct. 3. if the taxpayer does not controvert (Cagayan Robina Sugar Milling Co. and taxpayer did not file any return at all. Oct. b. All presumptions are in favor of tax assessment (Cagayan Robina Sugar Milling Co. NIRC] Tax lien [Sec. 29. 122451. 1964) Assessment must be Directed to the right party (Republic vs. vs. NIRC Annotated. L-18611. 2003.R. 2000). L. The authority vested in the Commissioner to assess may be Delegated but the power to make final assessments cannot be delegated (City Lumber. Jan. 3. 2000). c. L-36181 and L-36748. NIRC] Deficiency tax liability arising from a tax audit conducted by the BIR [Sec. June 30. lifeblood theory presumption of regularity in the performance of public functions KINDS OF ASSESSMENT (SIDE) 1. 2003. DEFICIENCY ASSESSMENT – made by the tax assessor himself whereby the correct amount of the tax is determined after an examination or investigation is conducted. G. Inc. Assessment informs the taxpayer that he or she has tax liabilities (De Leon. 122451. 56(B). IMPORTANCE OF ASSESSMENT ON THE PART OF THE a. also cited in De Leon. must be based on Actual facts (CIR vs. SIGNIFICANCE OF ASSESSMENT ON THE PART OF THE GOVERNMENT (RSTE) a. In the proper pursuit of judicial and extrajudicial Remedies to enforce taxpayer liabilities and certain matters that relate to it. No. ASSESSMENT – a finding by the taxing authority that the taxpayer has not paid the correct taxes. p. G. No. NIRC] Dissolving corporation [Sec. NIRC Annotated. 1999. 4.R. Benipayo. Victorino. such as the imposition of surcharges and interests In the application of Statute of limitations In the establishment of Tax liens and In estimating the revenues that may be collected by the government in the coming year (Mamalateo. 422). NIRC] 5. October 12. L-128315 June 29. Reasons: a. 6(D). 2004). G.R. thus. The liability is determined and assessed for the following reasons: a. GR No. Nov. No. d. 23. 2. Exceptions: (T2D2) 1. vs. G. 12. the finding of the CIR will be conclusive and he will assess the taxpayer. No. Corporation. 52(c). c. 1966). The issuance of assessment is vital in determining the period within which to protest it (CIR vs. Tax period of a taxpayer is Terminated [Sec. p. . SELF. 1962). Assessment is Discretionary on the part of the Commissioner (Meralco Securities Corp. No. do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer. G. G. vs. 1992). It is also a written notice to a taxpayer to the effect that the amount stated therein is due as a tax and containing a demand for the payment thereof. Pascor Realty and Devt. Vol.San Beda College of Law 165 2008 CENTRALIZED BAR OPERATIONS Assessment of Taxes Assessment of Taxes General rule: Taxes are self-assessing and thus. 219. Reviewer on Taxation.R. Domingo. 4. CA. 2. Assessments are Prima facie presumed correct and made in good faith. Otherwise. amount ascertained exceeds that which is shown as the tax by the taxpayer in his return. b. L-21108. b.

If there is reason to believe that the taxpayer is not declaring his correct income. b. or any evidence gathered by internal revenue b. documents. patients. p. examination of return and determination of tax due. Authority to prescribe additional procedural or documentary requirements. and taxpayer is performing any act tending to obstruct the proceedings for the collection of taxes. 8. tenants. MEANS EMPLOYED IN THE ASSESSMENT OF TAXES The Commissioner or his duly authorized representative is authorized to use the following powers to make assessment (Sec. or whose reply to the PAN was found to be without merit. He files a return.166 Tax Remedies Under The NIRC 3. officers from government offices/ agencies. FINAL ASSESSMENT OR FAN declaration of deficiency taxes issued to a taxpayer who fails to respond to a PAN within the prescribed period of time. in light of the Revenue officer’s belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to: • C o m p l y with audit and investigation requirements to present his books of accounts and/or pertinent records. surveillance and prescribe gross sales and receipts. papers. a. incomplete or erroneous. corporations. MEMORY AID IN TAXATION LAW JEOPARDY ASSESSMENT – tax assessment made by an authorized Revenue Officer without the benefit of complete or partial audit. 6. ERRONEOUS ASSESSMENT – assessor has power to assess but errs in the exercise thereof. a. 2. 3. He files a return but fails to pay the tax. taxpayer is retiring from business subject to tax. authority to accredit and register tax agents. exemptions or credits claimed in his return 1. Assessment may also be: c. served under any of the following circumstances: a. authority to terminate taxable period in the following instances. b.182) authority to conduct inventory taking. 6. PRELIMINARY ASSESSMENT OR PAN – a pre-assessment. b. clients. 4. NIRC): (TIP2 CABE) 1. use of best evidence obtainable a. 5. Taxpayer fails to file a return where a return is required. authority to inquire into bank deposit accounts in the following instances. BEST EVIDENCE OBTAINABLE . sales or receipts for internal revenue purposes • 4. pays the tax but payment is insufficient because certain deductions claimed are disallowed by the BIR. - - 7. or Substantiate all or any of the deductions. a decedent to determine his gross estate. ILLEGAL AND VOID ASSESSMENT – tax assessor has no power to assess at all. vendees and from all other sources with whom the taxpayer had previous transactions or from whom he received any income (Aban. . authority to prescribe real property values. and any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapability to pay his tax liability. taxpayer is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property. employees. lessees. 2001. when a report or return required to be filed shall not be forthcoming within the time fixed by laws. 2. c.any data. When there is a reason to believe that any such report or return is false. record. must be issued within 3 years from the time the return was filed unless a waiver is issued within the 3-year period or there was a failure to file or there is fraud. rules and regulations.

After a return has been filed. to conduct the audit and submit the required report of investigation. provided. NIRC). No. If the taxpayer is liable. revised or modified within 3 years from date of such filing. a Preliminary Assessment Notice. The endorsement is made by the Revenue District Officer or the Special Investigation Division of the Revenue Regional Office or the Chief of Division in the National Office. that no notice for audit. • A tax return filed by a taxpayer may be amended. in order to determine the taxpayer’s correct internal revenue tax liabilities.  If taxpayer fails to respond within 15 days. an informal conference will be held. 6. . the CIR or his duly authorized representative may authorize the examination of the books of any taxpayer and the assessment of the correct amount of tax (Sec. If the Revenue Officer is unable to submit his final report of investigation. he shall be considered in DEFAULT. at least by registered mail. NIRC. R. The taxpayer shall have fifteen (15) days from the date of his receipt of the notice for informal conference to explain his side. 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 EXCEPT: (a) cases involving civil or criminal tax fraud falling under the jurisdiction of the Tax Fraud Division of the Enforcement Service and . 6.  5. the Revenue Officer shall state in his report if the taxpayer agrees to his liability to deficiency tax. AUDIT / TAX INVESTIGATION A Revenue Officer is allowed only 120 days from the date of receipt of a LA by the taxpayer. the assessment process ends. NOTICE FOR INFORMAL CONFERENCE • b.R.  • Purpose of Informal Conference – to afford the taxpayer opportunity to present his case. statement or declaration or letter of authority for investigation has been actually served upon him (Sec. it shall become null and void. the Revenue Officer shall make a report of his investigation stating his findings and determination of the taxpayer’s liability for tax deficiency. as the case may be. (b) policy cases under audit by Special Teams in the National Office (RMO 36-99) NOTE: It must be served to the concerned taxpayer within 30 days from its date of issuance. ISSUANCE OF A LETTER OF AUTHORITY (LA) LETTER OF AUTHORITY – an official document that empowers a Revenue Officer to examine and scrutinize a taxpayer’s books of accounts and other accounting records. the said Office shall issue to taxpayer.  4. The taxpayer shall then have the right to refuse the service of this LA unless the LA is revalidated.R. DETERMINATION OF TAXPAYER’S LIABILITY FOR DEFICIENCY TAX Based on his preliminary findings. (A) INFORMAL CONFERENCE If taxpayer responds within 15 days from receipt of said notice. otherwise. in which case. or investigation of such return.12-99) ** NPEFD ** 1. The Revenue Regional Director shall approve and sign all LA’s for all audit cases within his regional jurisdiction 3. NOTE: If after 5(A) OR after 5(B). OR (B) ENDORSEMENT TO THE ASSESSMENT DIVISION OF THE REVENUE REGIONAL OFFICE TO THE CIR OR DULY AUTHORIZED REPRESENTATIVE FOR REVIEW AND ISSUANCE OF TAX ASSESSMENT 2. he must then submit a Progress Report to his Head of Office and surrender the LA for revalidation. • • If the taxpayer is NOT liable . there exist sufficient basis to assess taxpayer for any deficiency tax.San Beda College of Law 167 2008 CENTRALIZED BAR OPERATIONS Assessment Process PROCEDURE IN THE ISSUANCE OF A DEFICIENCY TAX ASSESSMENT (Assessment Process) (R. WHO MAY ISSUE A LETTER OF AUTHORITY? a. 12-99). No. he shall be informed in writing by the Revenue District Officer or by the Special Investigation Division (in case of the BIR National Office) of the discrepancies for the purpose of Informal Conference. If the taxpayer DISAGREES to the report.

The BIR may opt to issue a PAN once or twice from which the taxpayer shall have 15 days from receipt thereof to file a letter contesting the proposed assessment. When the Excise tax due on excisable articles has not been paid. or any other concerned BIR office. otherwise. vs. EXCEPTIONS TO THE INFORMAL CONFERENCE AND THE PRELIMINARY ASSESSMENT NOTICE (MDCEA) GENERAL RULE: Pre-assessment notice is required. MEMORY AID IN TAXATION LAW  7. following the review of these findings. Shall be sent to the taxpayer by registered mail or by personal delivery. If the taxpayer fails to respond within 15 days from date of receipt of the PAN. showing the following: (a) name (b) signature (c) designation and authority to act for and in behalf of taxpayer. if acknowledged received by a person other than the taxpayer himself and (d) date of receipt thereof. rules and regulations or jurisprudence upon which the proposed assessment is based. Shall state the facts. CTA case No. NOTE: A. No. It must show in detail the law and the facts. EXCEPTIONS: (MDCEA) a) When the finding for any deficiency tax is the result of Mathematical error in the computation of the tax as appearing on the face of the return. If sent by personal delivery. the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand. but not limited to. 12-99) • • • • b) c) d) e) . 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. Shall inform the taxpayer of the fact of tax deficiency and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course.R. such as. machineries and spare parts. rules and regulations or jurisprudence on which the assessment is based. informing a taxpayer who has been audited of the findings of the Revenue Officer. traded or transferred to non-exempt persons.168 Tax Remedies Under The NIRC  6. Formal Letter of Demand and Assessment Notice • must be issued within 3 years from the time the return was filed UNLESS a waiver is issued within the 3–year period or there was a failure to file or there is fraud. the formal letter of demand and assessment notice shall be void. When a Discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. he shall be considered in DEFAULT. capital equipment. in which case. the law. (R. ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE (PAN) Preliminary Assessment Notice (PAN) – a communication issued by the Regional Assessment Division. vehicles. or When an Article locally purchased or imported by an exempt person. has been sold. CIR. 6812. These protests are different from the administrative protests of request for reinvestigation/ reconsideration which may only be taken from a Final Assessment Notice or FAN (may refer to the case of Telesat Inc. 2006) B. January 2. a formal letter of demand and assessment notice shall be caused to be issued by said Office.

Request for Reconsideration Involves re-evaluation of assessment based on existing records Request for Reinvestigation Involves presentation of newly-discovered or additional evidence b. by his own repeated request or positive acts.R. must be accompanied by a Waiver of the Statute of Limitations in favor of the government: • 2. (2) Nature of the Request. rules and regulations or jurisprudence on which his protest is based. (3) Ta x a b l e P e r i o d s c o v e r e d b y t h e assessment. the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the Statute of Limitations on collection when. c. Request for reinvestigation – a plea for the reinvestigation of the assessment on the basis of the newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. for good reasons. 2005). Request for reconsideration – a plea for a re evaluation of an assessment on the basis of existing records without need of additional evidence which may involve a question of fact or law or both. No. 12-99) Enter into a compromise Civil action including appeal to the CTA up to the SC b. persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government (Bank of the Philippine Islands vs. It does NOT toll the It tolls the Statute of Statute of Limitations Limitations CHARACTERISTICS OF A VALID PROTEST A protest is considered valid if it satisfies the following conditions: (WAWFC) a. It can be used in court in case administrative remedies have been exhausted. the Government had been. Oct 17. It is a repository of all arguments. otherwise. e. This is equivalent to a pleading. c. Protest against Assessment (Sec. NIRC) REMEDIES AFTER PAYMENT (1) TAX REFUND (2) TAX CREDIT (2) JUDICIAL REMEDIES (3) SUBSTANTIVE REMEDIES Remedies Before Payment ADMINISTRATIVE REMEDIES PROTEST – A vital document which is a formal declaration of resistance of the taxpayer. 139736. states the Facts. 228. It may also involve a question of law or fact or both. in Writing. It is also the formal act of the taxpayer questioning the official actuation of the CIR. NIRC) Failure to inform the taxpayer in writing of the legal and factual bases of assessment makes it void (Sec. If the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner. 228 of NIRC and R. . G. 246. The protest may be a: 1. his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted. a.R.San Beda College of Law 169 2008 CENTRALIZED BAR OPERATIONS Tax Remedies of The Taxpayer Tax Remedies of The Taxpayer REMEDIES BEFORE PAYMENT (1) ADMINISTRATIVE REMEDIES a. specifying the newly discovered evidence he intends to present. applicable law. CIR. Contains the following: (NR_PAD_I2SD) (1) Name of the taxpayer and address for the immediate past 3 taxable years. Addressed to CIR. b. No. d. a. Questioning the constitutionality or validity of tax statutes or regulations Non-retroactivity of rulings (Sec.

he may appeal to the CTA within 30 days from lapse of the 180 day period provided for under Sec. (7) Itemized schedule of the adjustments to which the taxpayer does not agree. the taxpayer has two (2) options: 1. OTHERWISE. SUPPORTING DOCUMENTS "Such documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted. SUBMISSION OF ALL RELEVANT SUPPORTING DOCUMENTS WITHIN 60 DAYS • • The 60 day period is counted from the filing of the protest. CIR. • • 180 days counted from the submission by the taxpayer of the documents in support of the protest. it becomes final and appeal to the CTA may be taken. the prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended. and (9) Documentary evidence as it may deem necessary and relevant to support its protest. 2001). the assessment shall become final. Failure to file a position paper that would embody the grounds for reconsideration may be construed as abandonment of request for reconsideration (Oceanic Wireless Network Inc. ADMINISTRATIVE DECISION ON A DISPUTED ASSESSMENT  PROTEST IS DENIED BY THE COMMISSIONER’S AUTHORIZED REPRESENTATIVE – taxpayer may elevate the protest to the Commissioner 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. that if the taxpayer elevates his protest to the CIR within 30 days from date of receipt of the final decision of CIR’s duly authorized representative. vs. supra). which must be paid immediately upon the filing of the protest. vs.170 Tax Remedies Under The NIRC (4) Amount and kind of tax involved and the assessment notice and number. Said assessment has the same force and effect as that issued by the CIR himself if NOT revised or reviewed by the latter (Oceanic Network Wireless Inc. In such case. the latter’s decision shall NOT be considered final. (5) Date of receipt of assessment notice or letter of demand. In cases of inaction. . PROCEDURE IN PROTESTING AN ASSESSMENT 1. 2005). • • If the taxpayer protest only to some of the issues raised - taxpayer must pay the deficiency tax/taxes attributable to the undisputed issues inclusive of interests and surcharges before an action may be taken on the disputed issues. taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce" (Standard Chartered Bank vs. executory and demandable.  FA I L U R E TO A C T U P O N T H E PROTEST BY THE COMMISSIONER O R H I S D U LY A U T H O R I Z E D REPRESENTATIVE WITHIN 180 DAYS • • A collection letter shall be issued calling for the payment of the said undisputed deficiency tax. or He may wait until the Commissioner decides on his protest before he elevates the case. to be submitted 60 days from the filing thereof.R. otherwise. CIR. NOTE: • The authority to make tax assessments may be delegated to subordinate officers. August 16. (6) Itemized statement of the finding to which the taxpayer agrees(if any) as basis for the computation of the tax due. executory and demandable: Provided. 9. Non-submission of the documents renders the assessment final. G. No. executory and demandable. Commissioner of Internal Revenue. 148380 Dec. 2. (8) Statements of facts or law in support of the protest. however. 228 of the NIRC. MEMORY AID IN TAXATION LAW 3. Otherwise.  PROTEST IS DENIED IN WHOLE OR IN PART BY THE COMMISSIONER Remedy: Appeal by the taxpayer to the CTA within 30 days from receipt of decision. 5696. THE TAXPAYER SHALL FILE HIS PROTEST WITHIN 30 DAYS FROM RECEIPT OF THE FINAL ASSESSMENT. 2. CTA Case No.

The decision is personally served on the taxpayer or his duly authorized representative. 12-99) Commissioner did not rule on the taxpayer ’s motion for reconsideration of the assessment – it was only when respondent received the summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run (Commissioner vs.1. Taxpayer fails to respond within 15 days to the Preliminary Assessment Notice.5. 1990.R. July 11. CIR. 3. 3. 1982 and BIR vs. L-39910.San Beda College of Law • These options are mutually exclusive and resort to one bars the application of the other (Rizal Commercial Banking Corporation vs. . Taxpayer fails to file a valid protest against the final notice of assessment within 30 days from receipt (Dayrit vs. 46954. formal and final letter of demand from the BIR to the taxpayer • INSTANCES WHEN ASSESSMENT BECOMES FINAL AND EXECUTORY: 1. G.) Preliminary collection letter may serve as assessment notice (United International Pictures vs. reiterating to the taxpayer the immediate payment of a tax deficiency assessment previously made. April 24. •  FORMS OF DENIAL Direct denial of protest • By an administrative decision on a disputed assessment – The decision of the Commissioner or his duly authorized representative shall: a. No. R. witnessed and signed by at least two revenue officers other than the revenue officer who constructively served the same. 25. No. CIR. supra). the aggrieved taxpayer would be able to determine when his right to appeal to the tax court accrues (Oceanic Wireless Network Inc. Issuance of warrant of distraint and levy to enforce collection of deficiency assessment is tantamount to outright denial of the request for reconsideration (Vicente Hilado vs.R. Commissioner G. 28. No. rules and regulations or jurisprudence on which such decision is based otherwise. On the basis of such statement. No response is received from the taxpayer within the prescribed period from date of the posting of the mail. May 21. 2.5. • 3. NOTE: A final notice or formal NOTICE of assessment is different from a final and executory assessment. By leaving the decision in the premises of the taxpayer and this fact of constructive service is attested to. Indirect denial of protest 1. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the Court of Tax Appeals (CTA) (CIR vs. 2007). Union Shipping Corp G. 1988). vs. in which case the same shall not be considered a decision on a disputed assessment and that the same is his final decision (Sec.R. Isabela Cultural Corp. 1964).R. No. 171 2008 CENTRALIZED BAR OPERATIONS • NOTE: Constructive Service of the decision: a. 135210. the applicable law. July 20. the decision shall be void. 110318 Aug. is tantamount to a denial of the taxpayer's request for reconsideration. No. CTA Case 1256. No. Taxpayer fails to appeal to CTA from the adverse decision of the Commissioner or his A final demand letter from the Bureau of Internal Revenue. This is the reason for the rule that the CIR should ALWAYS indicate in clear and unequivocal language what constitutes his final determination of the disputed assessment.R. Cruz G. Union Shipping Corp. It becomes final and executory if no protest is filed within a period of 30 days from its receipt (R. G. b. 4). state the facts. par. No. Civil collection can also be considered as denial of protest of assessment as held in the cases of Yabes vs. The former is an assessment that becomes the subject of a protest. 2001). 168498. 3. No. CIR. 12-99. c. September 26. 66160. 1996). The revenue officer who constructively served the same shall make a written report on the matter which shall form part of the docket of the case.R.R.1. Flojo G. Feb. 2. b.R. A formal letter of demand may be considered a decision on a disputed or protested assessment. who refused to acknowledged receipt thereof.

and upon giving proper bond. • 3. No. Taxpayer fails to appeal to the Supreme Court from the adverse decision of the CTA within 15 days. 1997 NIRC) 6. in which case. Rule 8 of these Rules (30 days from receipt of the decision)” (Revised Rules of CTA. Appeal to the Court of Tax Appeals (Division) – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner otherwise it will be final and executory (Sec. 2000). executory and demandable. it is the latter’s decision that becomes final and executory if not appealed by the taxpayer to the CTA. The decision or assessment becomes final and executory. 2005). RULES GOVERNING INJUNCTION General Rule : Tax collection CANNOT be restrained by court injunction (Sec. Action to contest forfeiture of chattel. 5777.Effective December 15. which was not the intention of the law. the taxpayer’s defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action. lack of jurisdiction or excess of jurisdiction. Injunction – if collection may jeopardize the interest of the government and/or the taxpayer. Appeal to the Supreme Court – within 15 days from the receipt of the decision of the CTA. 3. 2. that should the taxpayer opt to await the final decision of the CIR on the disputed assessments beyond the 180–day period abovementioned. The assessment is considered correct which may be enforced by summary or judicial remedies. CONDITIONS FOR THE ISSUANCE BY THE COURT OF TAX APPEALS OF AN INJUNCTION 5. 218. the same may jeopardize the interest of the government and/or the taxpayer. 1997 NIRC) NOTE: • If the taxpayer chooses to wait for positive action on part of the Commissioner. • If. Sec. Provided. 5. and The assessment which has become final and executory cannot be superseded by a new assessment. taxpayer fails to appeal to the CTA within 30 days from the lapse of the 180 day period which is counted from the submission of the required documents. JUDICIAL REMEDIES 1. 227. Except if the protest is decided by the Commissioner’s representative and taxpayer elevates it to the Commissioner. 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. CIR. NIRC) Justification: Lifeblood Theory Exception: Injunction may be issued by the CTA in aid of its appellate jurisdiction under RA 1125 (as amended by RA 9282). The taxpayer is barred in an action for the collection of the tax by the government from re-opening the question already decided. In this instance. enjoin the sale. .M. CTA Case No. the taxpayer may appeal such final decision to the Court under Section 3(a). If the MR is denied. 3(a)(2) A. 05-11-07-CTA. MEMORY AID IN TAXATION LAW 4. E F F E C T O F FA I L U R E TO A P P E A L ASESSMENT TO THE COURT OF TAX APPEALS: 1. 2. file a petition for review with the CTA en banc. further . to recover the same.172 Tax Remedies Under The NIRC representative on the protest within 30 days from receipt thereof. Jan. an action to recover the net proceeds realized at the sale (Sec. prohibition and mandamus to the Supreme Court in cases of grave abuse of discretion. 5. but will likewise condone the Bureau’s inaction (Lascona vs. 4. In a proceeding for collection of tax by judicial action. 231. 228. Appeal to the CTA en banc – the party adversely affected by the CTA Division’s decision may file one motion for reconsideration/new trial within 15 days from receipt of the decision. Rule 4. at any time before the sale or destruction thereof. 4. or after the sale and within 6 months. 1997 NIRC) 7. By way of special civil action – Petition for certiorari. in its opinion. To adopt the contrary theory will not only sanction inefficiency. 4. Action for damages against a revenue officer by reason of any act done in the performance of official duty (Sec. If upon inaction on the protest by the Commissioner or his representative within 180 days from the submission of the taxpayer of the supporting documents. then the same could not result in the assessment becoming final.

. Show proof of Payment. Rule 8 of these Rules” (Revised Rules of CTA.. AUTHORITY OF COMMISSIONER UNDER SECTION 204 (C) NIRC: 1. can be applied after proper verification against any sum that may be due and collectible from the taxpayer. the taxpayer may appeal such final decision to the Court under Section 3(a). TAX REFUND – actual reimbursement of the tax TAX CREDIT – the government issues a tax credit certificate or a tax credit memo covering the amount determined to be reimbursable. Tax Credit TAX REFUND TAX CREDIT 2. REQUISITES OF TAX REFUND OR TAX CREDIT: (W2P) 1. mandatory requirement. Refund the value of internal revenue stamps when they are returned in good condition by the purchaser. necessary because: a) b) It is an opportunity for the Commissioner to correct the errors of his subordinates. • Requirement of filing the refund or credit within 2 years is a condition precedent. If the MR is denied file a petition for review with the CTA en banc  Appeal to the SC within 15 days from receipt of the CTA en banc decision under Rule 45 of the Rules of Court Remedies After Payment FILING FOR A CLAIM OF TAX REFUND OR TAX CREDIT A. Reg. and RA No. Sec. 1125 as amended by RA No. Credit or refund penalties imposed without authority. Tax is collected erroneously or illegally Penalty is collected without authority. Tax Refund vs.  The party adversely affected by the CTA Division’s decision may file one motion for reconsideration/ new trial within 15 days from receipt of decision. 228 of the 1997 NIRC.M. the latter may appeal within 30 days from lapse of the 180-day period with the CTA Division. B. 4. and In his discretion. Sec. To notify the government The taxpayer asks for The taxpayer asks that restitution of the money the money so paid be paid as tax applied to his existing tax liability Two-year period to file claim with the CIR starts after the payment of the tax or penalty Two-year period starts from the date such credit was allowed (in case credit is wrongly made). redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. 05-11-07-CTA.San Beda College of Law REGLEMENTARY PERIOD IN INCOME TAX IMPOSED BY LAW UPON THE TAXPAYER (Pursuant to Rev. 3. 3. 2. 12-99. 2005). elevate the matter to the CIR within 30 days from receipt of the decision of the CIR’s duly authorized representative officer  Appeal to the CTA Division within 30 days from receipt of final decision of CIR or his duly authorized representative (the taxpayer has the option to appeal straight to the CTA upon receipt of the decision of the CIR’s duly authorized representative)  173 2008 CENTRALIZED BAR OPERATIONS If the CIR or his duly authorized representative fails to act on the protest within 180 days from date of submission by taxpayer. 3. 9282) BIR makes a tax assessment  If taxpayer is not satisfied with the assessment file a protest within 30 days from receipt thereof  Submit supporting documents within 60 days from date of the filing of the protest  If protest is denied. Sum collected is excessive or in any manner wrongfully collected. GROUNDS FOR FILING A CLAIM FOR TAX REFUND OR TAX CREDIT: 1. Effective December 15. No. OR he may opt to await the final decision of the CIR on the disputed assessments beyond the 180 day-period abovementioned. It must be filed with the Commissioner within two (2) years after the payment of the tax or penalty. 2. Rule 4. NOTE: No suit or proceeding shall be instituted after the expiration of the said two (2) years regardless of any supervening cause that may arise after payment. Claim must be in Writing.3 (a) (2) A. Credit or refund taxes erroneously or illegally received. No.

UNDER THE PRESENT LAW. RECOVERY OF TAX ERRONEOUSLY OR ILLEGALLY COLLECTED (Sec. 229): No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been (Scope of claims for refund): (EWE) 1. No. Tax is paid only in installments or only in part – from the date the last or final installment or payment because for tax purposes. EVEN WITHOUT A WRITTEN CLAIM. the supervening cause is NOT considered in determining whether or not prescription of the taxpayer’s right to claim the refund has set in. unless revalidated. Commissioner. for which the taxpayer is directly liable. The original of the Tax Credit Certificate showing creditable balance is surrendered to the appropriate revenue officer for verification and cancellation. No.  In the nature of an exemption from taxation. NO AUTOMATIC CREDITING of the overpaid income tax against taxes due in the succeeding quarters of the following year for corporations and partnerships taxable as corporations THERE IS AUTOMATIC CREDITING and refund may be claimed in cases of estates. but the suit or proceeding may be maintained whether or not such tax. 2. failure to discharge such burden is fatal to the claim. L19495. 1331. Under Section 230 of NIRC. In no case shall the suit or proceeding be filed after the expiration of two (2) years from the date of the payment of the tax or penalty regardless of any supervening cause that may arise after payment. 1961). 2. such payment appears to have been erroneously paid. • In case of OVERPAID QUARTERLY INCOME TAX FOR CORPORATIONS the 2–year period is counted from the date the final adjustment return is filed after the end of the taxable year. Nov. Nature of Erroneously Paid or Illegally Assessed or Collected Taxes – taxpayer pays under a mistake of fact. 3. L-11976.R. Erroneously or illegally assessed or collected. Gonzales. 24. Right to contest tax before or after payment – The taxpayer’s willingness to pay the tax is no waiver to raise defense against the tax’s legality (Commissioner of Internal Revenue vs. and In no case shall a tax refund be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made. G. Nov. COMMISSIONER MAY REFUND OR CREDIT TAX where on the face of the return upon which payment was made. Acetylene Co. January 31. strictly construed against the claimant. trusts and individuals for excess tax payment against the quarterly income taxes due for the succeeding year . Collector. . L-24108. 7. 1958) Merely making a deposit is not equivalent to payment until the amount is actually applied to the specific purpose for which it was deposited. 1965) QUARTERLY INCOME TAXES 1. ANY REQUEST FOR CONVERSION INTO REFUND OF UNUTILIZED TAX CREDITS MAY BE ALLOWED UNDER SEC. 230 subject to the following: 1. TAX CREDIT CERTIFICATE – one which is validly issued under the provisions of the Code and may be applied against any internal revenue tax.R. excluding withholding taxes. August 29. • • A return filed showing an overpayment shall be considered as a written claim for credit or refund. there is no payment until the whole or entire tax liability is fully paid (Collector vs. and Sum alleged to have been excessively or in any manner wrongfully collected. Tax sought to be refunded is illegally or erroneously collected – from the date the tax was paid (Commissioner vs. vs. shall. 2. Victorias Milling. G. as when he is not aware of an existing exemption in his favor at the time the payment was made. CTA Case No. Taxpayer merely made a deposit – counted from the conversion of the deposit to payment (Union Garment vs.174 Tax Remedies Under The NIRC noncompliance bars recovery (Phil. which shall remain unutilized AFTER 5 years from the date of issue. No. Inc. Prieto. penalty or sum has been paid under protest or duress. COMMENCEMENT OF THE TWO (2) YEAR PERIOD (JURISPRUDENCE) 1. 1966). MEMORY AID IN TAXATION LAW Penalty claimed to have been collected without authority. 416. 1968). G.R. and the amount covered by the certificate shall revert to the general fund. be considered INVALID and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer. November 17. 3. Until a claim for refund or credit has been filed with the Commissioner.a tax credit certificate issued. CTA Case No..

1992). Exceptions: 1. 2. Forfeiture of refund in favor of the government when a refund check or warrant remains unclaimed or uncashed within five (5) years from date of mailing or delivery. 229. NOTES: • As a general rule. No. 1958). May 28. The Commissioner may.R. G. G. where on the face of the return upon which payment was made. G. Under Sec. 6. August 29. G. No. shall be invalid. End of taxable year vs. WHEN IS THERE WAIVER OF THE PRESCRIPTION IN AN ACTION FOR REFUND? If the government failed to plead prescription in a motion to dismiss or as a defense in its answer to the petition for review. 7.R.R. 8. taxpayer must commence action for refund before the CTA within the 2-year period. Commissioner. 1966). 230. Date of the filing of the final adjusted return – from the date when the final adjusted return was filed. NOTE: The claim for refund under the law refers to the: 1. The judicial claim that the taxpayer should commence in the CTA. No 117254. Feb. 15) – from the date the final adjustment return was actually filed (Commissioner vs. 28. Court of Appeals. No. 1965). 1997 NIRC). There is a pending litigation between the Government and the taxpayer. 230 NIRC) 1. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions (Commissioner vs. Forfeiture of Cash Refund/Tax Credit (Sec. Date when quarterly income tax was paid vs. No.R. performs and extinguishes his tax obligation for the year concerned (Gibbs vs. Date when the final adjustment return was actually filed (ex. 2. 2. TMX Sales. . Sweeney. PAYMENT UNDER PROTEST IS NOT NECESSARY UNDER NIRC A suit or proceeding for tax refund may be maintained “whether or not such tax. 2) vs. Collector. L-17406. Last day when the adjustment return could still be filed (ex. G. The administrative claim which the taxpayer should file within two years from payment with the BIR. L-10574. 175 2008 CENTRALIZED BAR OPERATIONS EXCEPTION: 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. Apr. January 15. No. When the CIR acted with patent arbitrariness. 2.R. 12-99. and CIR in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto (Panay Electric Co. such payment appears clearly to have been erroneously paid. L-19667. The rationale in computing this period is the fact that it is only then that the corporation can ascertain whether it made profits or incurred losses in its business operations (ACCRA Investments vs. December 20. G.San Beda College of Law 4. L-28467. penalty or sum has been paid under protest or duress” (Sec. unless revalidated (Sec. 96322. 79(c)(2) with respect to income taxes withheld on the wages of the employees. vs. except when partial payment of uncontroverted taxes is required under R. but in truth. Date when final adjusted return was filed – from the date when final adjusted return was filed The filing of the quarterly income tax return (Sec. 5. No. Forfeiture of Tax Credit – a tax credit certificate which remains unutilized after five (5) years from date of issue. Apr. November 29. 1999). Nov. NIRC). 68) and payment of quarterly income tax should only be considered mere installments of the annual tax due (Commissioner vs. INTEREST ON TAX REFUNDS General Rule: Government cannot be required to pay interest on taxes refunded to the taxpayer in the absence of a statutory provision clearly or expressly directing or authorizing such payment (Commissioner vs. payment under protest is not required under the NIRC. 1973). G. in case the BIR fails to act on the action for refund. 83736.R. 1991). No. Tax was not erroneously or illegally paid but the taxpayer became entitled to refund because of supervening circumstances – from the date the taxpayer becomes entitled to refund and not from the date of payment (Commissioner vs.R. 1959). Tax has been withheld from source (through the withholding tax system) – counted from the date it falls due at the end of the taxable year A taxpayer who contributes to the withholding tax system does not really deposit an amount to the government. Victorias Milling. No. January 21. even without a written claim therefor.R. Don Pedro Central Azucarera. G. SUSPENSION OF THE TWO-YEAR PRESCRIPTIVE PERIOD 1. L-12178. 29. refund or credit any tax.R. Court of Appeals.

A. 267) • The remedies of distraint and levy as well as collection by civil and criminal actions may. The remedy of tax refund cannot be availed of to revive the right to contest the validity of an assessment once the same has been lost not only by failure to appeal but by the lapse of the reglementary period within which appeal could have been taken. ADMINISTRATIVE REMEDY 1. 4. surcharges and penalties Civil Action (Sec. the taxpayer should appeal to the CTA division (the appeal must be within the 2year period provided above) OTHER CONSIDERATIONS AFFECTING TAX REFUNDS: a) b) The 2-year prescriptive period is not applicable to input VAT claims for refund Payment under protest is not necessary in order to obtain refund to internal revenue taxes. 224-225) Suspension of business operations in violation of VAT (Sec. SUBSTANTIVE REMEDIES (WRSP) 1. 3. The partial payment of tax cannot be a basis for tax refund. or all of them simultaneously. the 30-day period to appeal with the CTA must be within the 2-year peremptory period for instituting judicial action. 245) Failure to obey Summons (Sec 266) Declaration under penalties of Perjury (Sec. Abatement [Sec. It allows a taxpayer whose claim for refund has been barred due to prescription (lapse of more than 2 years from date of payment) to recover said tax by setting off the prescribed refund against a tax that may be due and collectible to him. 115) Giving of reward to Informers who give information as to tax violations (Sec. 6. c) d) e) Tax Remedies of The Government Tax Remedies of The Government TO EFFECT TAX COLLECTION A. in the discretion of the Commissioner. 204(A)] Distraint (Actual and Constructive) (Secs. 7. MEMORY AID IN TAXATION LAW EQUITABLE RECOUPMENT IN RELATION TO TAX REMEDIES – not applicable in our jurisdiction because it puts a premium on the taxpayer’s neglect to enforce his rights.176 Tax Remedies Under The NIRC • In case of the CIR’s final denial of the claim for refund. 221) Criminal Action (Secs. be pursued singly or independently of each other. 282) Enforcement of Administrative Fines. CORPORATE WITHHOLDING AGENTS in the Philippines of non-resident foreign corporations are entitled to claim the refund of excess withholding tax paid on the income of said corporations in the Philippines. 5. 4. 2. the payment appears to have been clearly erroneous. 207(B)] Tax Lien (Sec. Imposition of Withholding tax on certain income payments [Sec. A D M I N I S T R A T I V E (CD_L2F2_SI) 1. 3. 205-208) Levy [Sec. 219) Forfeiture of Property (Secs. Compromise [Sec. 204(B)] . TO CANCEL TAX LIABILITY B. 57(B)] Issuance of Revenue regulations by administrative agency (Sec. 221 and 222) REMEDIES C. 2. 2. JUDICIAL REMEDIES (C2) 1. 8. REGLEMENTARY PERIODS APPLICABLE TO TAX CREDIT/REFUND The taxpayer must file a claim for refund/credit within 2 years after the payment of tax or penalty  In case of inaction by the CIR or his duly authorized representative and the 2 year period is about to expire. on the face of the return upon which payment was made. The Commissioner may grant refund or tax credits even without a written claim if.

Commissioner of Internal Revenue 3. REQUISITES: (LOA) 1. Sept. 1. Assessment and Collection Divisions. The taxpayer must have a tax liability.R. 6. Criminal violations. To Effect Tax Collection A. Through summary remedies .when the Government avails of the summary method of distraint and levy procedure. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer (R. Collection cases filed in courts. L-1977. b. C a s e s w h e r e f i n a l r e p o r t s o f Reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision. CIR. There must be an offer (by the taxpayer of an amount to be paid by the taxpayer). G. W ithholding tax cases unless the taxpayer invokes provisions of law that cast doubt on his obligation to withhold. 3. 30-2002). ADMINISTRATIVE REMEDIES (1)COMPROMISE DEFINITION: A contract whereby the parties. OFFICERS AUTHORIZED TO COMPROMISE 1. C a s e s w h i c h b e c o m e F i n a l a n d executory after final judgment of a court. (b) Assistant Regional Director. Commissioner.by filing of complaint through the proper court 177 2008 CENTRALIZED BAR OPERATIONS NOTE: If the decision of the Commissioner on protested assessment is appealed to the CTA. Criminal violations already filed in court. Cases covered by P re-assessment notices BUT taxpayer is not agreeable to the findings of the audit office as confirmed by the review office (Sec.San Beda College of Law WHEN TAX DEEMED COLLECTED a. by reciprocal concessions. where compromise is requested on the ground of doubtful validity of the assessment. 2. and (c) the Revenue District Officer having jurisdiction over the taxpayer. No. L-24978. Reg. Civil tax cases being disputed before the courts. • Is authorized to compromise assessments issued by the regional offices involving basic taxes of P500.R. NIRC] 1. Philippines vs. 30–02). No. September 21. A compromise implies mutual agreement. 4. Cases under Administrative Protests. 5. and There must be an acceptance (by the Commissioner or taxpayer as the case may be) of the offer in the settlement of the original claim. . 1950). and minor criminal violations discovered by regional and districts officials.000 or less. CASES WHICH (DAC3P) 1. 204 (A). 2. • Delinquent accounts. or The financial position of the taxpayer demonstrates clear Inability to pay the assessed tax. the collection of tax is considered begun when the Government filed its answer to the taxpayer’s petition for review (Fernandez Hermanos vs. No. and 7. 2. 2028. Rev.R. 1997 NIRC] His power is discretionary and once exercised by him cannot be reviewed or interfered with by the Courts (Koppel. 2. 2. Criminal tax Fraud cases. 7(C) and 204. 1969). M AY B E C O M P R O M I S E D : • Is authorized to compromise criminal and civil cases arising from violations of the Tax Code [Secs. 4. the heads of the Legal. G. There is a reasonable Doubt as to the validity of the assessment. as members. other than those already filed in court or those involving criminal tax fraud (R. and 6. CASES WHICH MAY (WF CD RFE) NOT BE COMPROMISED: The Regional Evaluation Board composed of: (a) the Regional Director as Chairman. 2. 3. Through judicial remedies . COMMISSIONER M AY C O M P R O M I S E T H E PAYMENT OF ANY INTERNAL REVENUE TAX WHEN (DI) [Sec. It cannot be imposed in the absence of a showing that the taxpayer consented thereto. No. 30. 7-2001). avoid litigation or put an end to one already commenced (Art. New Civil Code). 5.R. Delinquent accounts with duly approved schedule of installment payments.

1997 NIRC a. is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%.  The offer to compromise a delinquent account or disputed assessment on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that. c.R. The assessment seems to be arbitrary in nature. exemptions. and there is reason to believe that it is lacking in legal and/or factual basis. or (2) The taxpayer ’s failure to substantiate all or any of the deductions. other than his family home.000 per month if married. or otherwise declared bankrupt or insolvent (Sec. distributed/ distributable to the stockholders representing return of capital at the time of cessation of operation or dissolution of business shall NOT be considered for compromise. Provided that in the case of an individual taxpayer.178 Tax Remedies Under The NIRC MEMORY AID IN TAXATION LAW • In case of financial incapacity. among others: a. or Taxpayer’s failure to elevate to the CTA an adverse decision of the Commissioner. R. Other cases: MCR = 40% of the basic assessed tax . 6 (F) (2). among others: a. 3. appearing to be based on presumptions. e. that tax liabilities corresponding to the Subscription Receivable or Assets 1.  MINIMUM COMPROMISE RATES (MCR) OF ANY TAX LIABILITY  The offer to compromise based on financial incapacity may be accepted upon showing that. Taxpayer’s failure to file a request for reinvestigation/reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that assessment is lacking in legal and/ or factual basis.. in some cases. b. Provided. No. that amounts payable or due to stockholders other than business-related transactions which are properly includible in the regular "accounts payable" are by fiction of law considered as part of capital and not liability. Jeopardy Assessment – a tax assessment which was assessed without the benefit of a complete or partial audit by an authorized revenue officer. P21.500 per month if single. 204 (A). taken from the latest audited financial statements. The corporation ceased operation or is already dissolved. b. In case of financial incapacity: MCR = 10% of the basic assessed tax b. and that it appears that the taxpayer possesses no other leviable or distrainable assets. NIRC]. d. The taxpayer has been granted by the SEC or by any competent tribunal a moratorium or suspension of payments to creditors. The taxpayer. The taxpayer is suffering from a net worth deficit (total liabilities exceed total assets). The taxpayer is a compensationincome earner with no other source of income and the family’s gross monthly compensation does NOT EXCEED P10. The delinquent account or disputed assessment resulted from a Jeopardy assessment. as reflected in its latest Balance Sheet supposed to be filed with the Bureau of Internal Revenue. c. he has no other leviable properties under the law other than his family home. 1405 [Sec. Provided . Under Sec. 07-2001). or credits claimed in his return. within 30 days from receipt thereof and there is reason to believe that assessment is lacking in legal and/or factual basis. t h a t t h e taxpayer has NO sufficient liquid asset to satisfy the tax liability. and P r o v i d e d f u r t h e r. d. the taxpayer should waive in writing the confidentiality privilege on bank deposits under RA No. or his authorized representative. who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of: (1) The taxpayer ’s failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records.

JUDICIAL COMPROMISE – one where a decision based on the compromise agreement is rendered by the court on request of the parties. By virtue of such final judgment. 2.000 or less and (b) for minor criminal violations discovered by Regional and District Offices 179 2008 CENTRALIZED BAR OPERATIONS 3.R. Enforce the compromise a.R. Minimum Minimum amount amount prescribed: depends on prescribed: the nature of tax depends on the violation and is legal grounds generally NOT less than used by TP P1. A taxpayer cannot be compelled to pay a compromise penalty. No. This is more so. It is CONSENSUAL in character. The BIR may only suggest settlement of his tax liability through a compromise. AFTER information is filed with the court: The CIR is NO longer permitted to compromise with or without the consent of the Prosecutor (People vs. • • 2. Approval must be by a majority of all the members of the NEB (Sec. the CIR must institute a criminal action. BY THE REGIONAL EVALUATION BOARD • COMPROMISE PENALTY – an amount of money that the taxpayer pays to compromise a tax violation. 30-2002) Covers (a) assessments issued by the Regional Offices involving basic deficiency taxes of P500. NATURE OF COMPROMISE PENALTY: • It is neither a tax nor an administrative penalty for tax delinquency. it can be enforced by mere execution. 6. 204 (B). L-16235.000. Exceptions: 1.000 • Both are mutually agreed upon by the parties. when the court has rendered a FINAL JUDGMENT. The extra-judicial settlement and the amount of the suggested compromise penalty should CONFORM to the schedule of compromise penalties provided under the relevant BIR regulations or orders.000 or (b) for offer of compromise less than the prescribed minimum rates as provided under Section 204 (A) NIRC. COMPROMISE Amount paid to settle TP’s civil liability for tax assessed COMPROMISE PENALTY Amount paid to compromise a tax violation TP has committed for which he is subject to criminal prosecution Basis: gross sales or receipts during the year or the tax due • N AT U R E O F A C O M P R O M I S E I N EXTRAJUDICIAL SETTLEMENT OF THE TAXPAYER’S CRIMINAL LIABILITY FOR HIS VIOLATION 1. Basis: basic tax assessed General Rule: All criminal violations under the NIRC may be compromised. If it is a judicial compromise. 2. 1997 NIRC]. BEFORE the complaint is filed with the Prosecutor’s Office: The CIR has full discretion to compromise EXCEPT those involving fraud. 1961). and Those involving fraud [Sec. R. RULES ON COMPROMISE OF CRIMINAL VIOLATIONS 2. BY THE NATIONAL EVALUATION BOARD (NEB) COMPOSED OF THE COMMISSIONER AND FOUR (4) DEPUTY COMMISSIONERS • Covers (a) all compromise settlements where the basic tax involved exceed P1. the CIR is not authorized to accept anything less than what is adjudicated in favor of the Government. EXTENT OF THE COMMISSIONER’S DISCRETION TO COMPROMISE CRIMINAL VIOLATIONS: 1.San Beda College of Law APPROVAL OF THE COMPROMISE 1. thus a collection suit does not lie. in lieu of criminal prosecution. Magdaluyo. • Compromise penalties cannot be imposed and collected in the absence of a valid compromise agreement REMEDY IN CASE THE TAXPAYER REFUSES OR FAILS TO ABIDE THE TAX COMPROMISE 1. G. the Government has already acquired a vested right. As a mere agent of the Government. Those already filed in court. April 20. AFTER the complaint is filed with t h e P r o s e c u t o r ’s O f f i c e B U T BEFORE the information is filed with the court: The CIR can still compromise PROVIDED the prosecutor must give consent. If he does not want to pay. No. .

The receipt of a warrant may or may not partake the character of a final decision. extra-judicial or administrative enforcement remedy. No inquiry is made on garnishment for it only earmarks a portion of the deposits. • Both refer only to personal property and cannot be availed of where the amount of the tax involved is not more than P100 Distraint includes garnishment of money even in bank deposits because R. whether delinquent or not Involves only a prohibition to dispose of his property 2. (2)DISTRAINT D EFINITION : It is the seizure by the government of personal property.A. Constructive Distraint ACTUAL DISTRAINT Made only on the property of a delinquent taxpayer Involves the taking of possession of his property. The taxpayer must fail to Pay the tax at the time required. Regard it as rescinded and insist upon original demand (Art. Actual Distraint 2. 1997 NIRC) 2. OR (b) at the dwelling or place of business of such person with someone of suitable age and discretion (Sec. 1. 207(A). OR (2) by service of a warrant of distraint or garnishment CONSTRUCTIVE DISTRAINT Made on the property of any taxpayer. The Period within which to assess or collect the tax has NOT yet prescribed. Duties of the officer serving the warrant of distraint: (ASL) 1.000 Revenue District Officer (RDO) – if the amount of delinquent tax is P1. Civil Code). 2041. The taxpayer must be D elinquent (except in constructive distraint) in the payment of tax. Commissioner or his duly authorized representatives – if the amount of delinquent tax is more than P1. NATURE OF THE WARRANT OF DISTRAINT/ LEVY • • • It is a summary. MEMORY AID IN TAXATION LAW REQUISITES FOR THE EXERCISE OF THE REMEDY OF DISTRAINT (D2P2) 1. a statement of the sum demanded and note of the time and place of sale. or a taxpayer who files an application to compromise by reason of financial incapacity to pay his tax liability and waives his right under RA 1405 [Sec. There must be a subsequent Demand for its payment (assessment).180 Tax Remedies Under The NIRC b. to enforce the payment of taxes. 1405 (Bank Secrecy Law) covers only divulging of information of deposits. Any other compromise is extrajudicial and like any other contract can only be enforced by court action. 6 (F). and 3. 2. a decedent to determine his gross estate. CTRP) A UTHORITY O F T HE C OMMISSIONER T O INQUIRE INTO BANK DEPOSIT ACCOUNTS • Notwithstanding any contrary provision of RA 1405. Sign the list of personal properties distrained to which shall be added. 2. the Commissioner is authorized to inquire into the bank deposits of: a. the taxpayer may appeal to the CTA within 30 days from service of the warrant. physical transfer is not required in case of intangible property such as stocks and credit Effected (1) by leaving a list of distrained property. b.000 or less (Sec. and 4. tangible or intangible. Make an Account of the personal properties distrained. 208.000. OR (2) by preparing and leaving a list of such property • An immediate step for Not necessarily collection of taxes • Both are summary remedies for the collection of taxes. . NIRC] Effected (1) by requiring the taxpayer to sign a receipt of the property. Leave either (a) with the owner or person from whose possession such personal properties were taken.000. If it is an indication of a final decision. TWO TYPES OF DISTRAINT 3. The warrant is a summary procedure “forcing” the taxpayer to pay. PERSONS WHO SHALL SEIZE AND DISTRAINT PERSONAL PROPERTY (ACTUAL DISTRAINT) 1.

Taxpayer must sign receipt ↓ IV. 2. 2. it must be held at a public auction and the property shall be sold to the highest bidder for CASH. or under his control such credits or upon his agent. or other personal property. The time of sale shall not be less than 20 days after notice to the owner or possessor of the property AND publication or posting of such notice. which shall be delivered to the buyer and to the corporation. Commencement of Distraint Proceedings (Sec. 209. 3. NOTE: Upon receipt of the warrant of distraint. Debts and credits – 1. 4. upon the owner of the goods. NIRC) NOTE: The warrant of distraint shall be sufficient authority to the person owing the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits. . Service of Warrant of Distraint (Sec. c. treasurer or other responsible officer of the corporation. upon the taxpayer. 5. Notice shall specify the time and place of sale and the articles distrained. or by the RDO ↓ II. One place for posting of such notice is at the Office of the Mayor of such city or municipality in which the property is distrained (Sec. 209. SERVICE OF WARRANT OF DISTRAINT SIGNING OF THE RECEIPT BY TAXPAYER POSTING OF NOTICE SALE OF PROPERTY DISTRAINED I. Posting of Notice (Sec. it must be with the approval of the CIR In case of stocks and other securities. Bank accounts shall be garnished by serving a warrant of distraint – 1. It may be conducted by the revenue officer (RO) OR through a licensed commodity or stock exchange. Sale of Property Distrained (Sec. owned by a delinquent taxpayer which is in the possession of a third party PROCEDURE FOR THE ACTUAL DISTRAINT OR GARNISHMENT (Secs. the officer making the sale shall execute a BILL of SALE. usually cash or sums of money. If sale is through a licensed commodity or stock exchange. AND Upon the president. ↓ III. NIRC) RULES GOVERNING SALE 1. company or association which ISSUED the said stock and securities. OR upon the person from whose possession such properties are taken (possessor) OR at the dwelling or place of business of such person with a person of suitable age and discretion upon the taxpayer. the bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the government’s claim 5.San Beda College of Law GARNISHMENT – the taking of personal properties. b. 209. and The posting shall be made in not less than two (2) public places in the city or municipality where the distraint is made. AND Upon the president. 3. 207. 4. company or association (CCA) which issued the stocks or other securities. 3. 2. Stocks and other securities 1. NIRC). 3. NIRC) With respect to: a. 208. treasurer. Either by the CIR or his duly authorized representative. Sale must be held at the time and place stated in the notice. Personal property – 1. chattels. 2. 2. persons owing or having in his possession the debts. or other responsible officer of the bank. ↓ V. 207 – 209. 2. manager. 2. If the sale is conducted by Revenue Officer. COMMENCEMENT PROCEEDINGS OF DISTRAINT 181 2008 CENTRALIZED BAR OPERATIONS d. NIRC) (CS2PS) 1. manager. NIRC) REQUIREMENTS OF NOTICE: 1.

b. 206. 2. the Revenue Officer effecting the constructive distraint shall: a. NOT to DISPOSE of the same in any manner whatsoever WITHOUT the express authority of the Commissioner of Internal Revenue. an entry of transfer should be made in the CCA’s book and a corresponding certificate of stock shall be issued if required. all the distrained properties shall be restored to the owner (Sec. (3)LEVY DEFINITION: It refers to the act of seizure of real property in order to enforce the payment of taxes. and Shall send TP a notice of such decision together with request for immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter. is retiring from any business subject to tax. c. 2. THE TAXPAYER’S PROPERTY MAY BE PLACED UNDER CONSTRUCTIVE DISTRAINT WHEN HE: 1. the net proceeds shall be remitted to the National Treasury and accounted as internal revenue Said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed unless paid within the time fixed in the demand made by the CIR [Sec. ALL proper charges are paid to the officer conducting the sale. PRESERVE the same intact and unaltered and 2. 212. 1997 NIRC). or 2. Very much LESS than the actual market value of the property offered for sale. proceed to PREPARE a list of such property and in the presence of two (2) witnesses LEAVE a copy thereof in the premises where the property distrained is located. NOT equal to the amount of tax. the CIR shall: 1. 210.182 Tax Remedies Under The NIRC ** Upon receipt of the copy of the bill of sale. 1. penalties and cost due thereon when the amount bid for the distrained property is: NOTE: If at any time prior to the consummation of the sale. 6 (D). MEMORY AID IN TAXATION LAW PROCEDURE FOR THE CONSTRUCTIVE DISTRAINT OF PERSONAL PROPERTY (Sec. 6. Is performing any act tending to obstruct the proceeding for collecting the tax due or which may be due from him (Sec. the taxes are not voluntarily paid. or hide or conceal his property 3. after which the said property shall be deemed to have been placed under constructive distraint. remove his property therefrom. Taxpayer’s Obligation to Preserve CIR shall REQUIRE the taxpayer or any person having possession or control of such property: a. Remedy when taxpayer did NOT sign receipt If the taxpayer or person in possession of the property refuses or fails to sign the receipt referred to. . • Property so purchased may be resold by the CIR or his deputy. NIRC) The Commissioner or his deputies may purchase in behalf of the National Government for the amount of taxes. • Under any of the foregoing instances. or such portion thereof as may be unpaid. if after seizure. to SIGN a receipt covering the property distrained and to OBLIGATE himself to: 1. leave the Philippines. The officer making the sale shall make a written report of the proceedings to the CIR within 2 days after the sale (Sec 211). PURCHASE BY THE GOVERNMENT AT SALE UPON DISTRAINT (Sec. ↓ II. b. NIRC]. NIRC). Declare the Taxpayer’s (TP) tax period terminated at any time. is intending to: a. * Expenses chargeable upon seizure shall include only those actual expenses of seizure and preservation of the property pending the sale and does not include services of the RO 7. The property may be offered in a public sale. 206. b. NIRC) I. 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.

4. Prepare a Certificate of Levy [Sec. and Publication once a week for 3 weeks in a newspaper of general circulation in the municipality or city where the property is located (Sec. NIRC] Advertisement of the time and place of sale [Sec. the proper Register of Deeds. Service of Notice Service of written notice to: a. the excess shall be turned over to the owner of the property. name of purchaser and exact amount of all taxes. Sale If TP does not pay his taxes. NIRC] ↓ . or on the premises to be sold. Advertisement of the Time and Place of Sale The advertisement shall contain: (TP AND) 1.San Beda College of Law REQUISITES FOR THE EXERCISE OF THE REMEDY OF LEVY Same as in the remedy of distraint. NIRC] I. including all expenses. to his agent or manager of the business in respect to which the liability arose. NIRC) (1) The return issued by the distraining or levying officer of the proceedings shall be entered in the records of the BIR within 5 days after the sale (2) The Revenue Collection Officer shall make out and deliver to the purchaser a certificate from his records showing the proceedings of the sale. d. Posting a notice at the main entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which the real property lies. 1997 NIRC]. and the remedy by distraint and levy may be repeated if necessary until the full amount. 213. NIRC] Sale of real property [Sec. 213. PROCEDURE OF LEVY ON REAL PROPERTY (PSAS) 1. 1997 NIRC). 207(B). (2) Name of the taxpayer. WHEN MAY LEVY BE EFFECTED? Real property may be levied upon before. This certificate shall operate with the force of a legal execution throughout the Philippines (Sec. AFTER SALE OF REAL / PERSONAL PROPERTY PURSUANT TO LEVY / DISTRAINT (Sec. It shall be effectuated by: (P2) a. within 30 days after the execution of the distraint. 207(b). or after the distraint of personal property belonging to the delinquent taxpayer [Sec. (3) In case proceeds of sale EXCEED the claim and cost of sale. and Short Description of the property to be sold. as the officer conducting the proceedings shall determine and as the notice of sale shall specify. b. 207(B). 207(b). 2. In case the warrant of levy is NOT issued before or simultaneously with the warrant of distraint AND the personal property of the TP is NOT sufficient to satisfy his tax delinquency. Amount of tax and penalties due Time and Place of sale Name of the taxpayer against whom taxes are levied. 1997 NIRC). to the occupant of the property (Sec. 2. PROCEED with the levy on TP’s real property [Sec. (1) Description of the property levied. 3. the CIR or his authorized representative shall. 1997 NIRC). 3. The advertisement shall be made within 20 days after the levy. c. penalties and interest. the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall. NIRC] Service of Notice [Sec. NIRC) b. and (3) the Amount of tax and penalty due from him. AND the delinquent taxpayer. or If none. description of property sold. 207 (B). 207(B). ↓ II. 213. 213. 4. ↓ IV. penalties and interest before the day fixed for the sale. Prepare Certificate of Levy PREPARATION OF A DULY AUTHENTICATED CERTIFICATE CONTAINING: (DNA) 183 2008 CENTRALIZED BAR OPERATIONS III. 217. simultaneously. is collected (Sec. or if he is absent from the Philippines. and the same shall be for a period of at least 30 days.

and costs that may accrue in addition thereto is a lien upon all property and rights to property belonging to the taxpayer. d. will go to the taxpayer (Bank of the Phil. No. 216. b. e i t h e r r e a l o r p e r s o n a l . 1941). FURTHER DISTRAINT AND LEVY The remedy of distraint and levy may be repeated if necessary until the full amount of the tax delinquency due including all expenses is collected from the taxpayer. 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 (Sec. NIRC) • The owner shall not be deprived of the possession of said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. or forfeited to the government. the residue. the proceeds of the sale shall be deposited with the National Treasury and an accounting of the same shall be rendered to COA (Sec. established by law as a security in default of the payment of taxes (51 Am Jur 881). • Both are summary remedies for the collection of taxes. EFFECTS OF REDEMPTION OF PROPERTY SOLD (1) Such payment shall entitle TP the delivery of the certificate issued to the purchaser and a certificate from RDO that he has redeemed the property. October 4. purchaser. LEVY DISTRAINT Refers to personal property Forfeiture by the government is not provided The taxpayer is not given the right of redemption with respect to distrained personal property. Generally. (Sec. together with interests. 217. MEMORY AID IN TAXATION LAW RESALE OF REAL ESTATE TAKEN FOR TAXES The CIR shall have charge of any real estate obtained by the Government in payment of taxes. 214. penalties and costs. FORFEITURE TO THE GOVERNMENT If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes. . or judgment creditor until notice of such lien shall be filed by the Commissioner of Internal Revenue in the Office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located (Sec.184 Tax Remedies Under The NIRC DISTRAINT VS. Period – within 1 year from the date of sale Who may redeem – the delinquent taxpayer or any one for him To whom made – to the Revenue District Officer How made – upon payment of the taxes. penalties. 1997 NIRC). Trinidad. (2) The RDO 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. LEVY Refers to real property Forfeiture is authorized The right of redemption is granted in case of real property levied upon and sold. 219. (4)TAX LIEN DEFINITION: It is a legal claim or charge on p r o p e r t y. The CIR may: (1) sell and dispose of the same at a public auction upon giving of not less than 20 days notice. the real property shall be forfeited to the government. OR (2) dispose of the same at a private sale with the approval of the Secretary of Finance In either case. Otherwise. In seizure for the enforcement of a tax lien. 16014. after deducting the tax liability and expenses. EXTENT AND NATURE The tax.R. G. 214. The lien shall not be valid against any mortgagee. it attaches to the property irrespective of ownership or transfer thereof. NIRC). penalties or costs arising under this Code or in compromise or adjustment of any claim. NIRC). penalties and interest thereon from the date of delinquency to the date of sale. NIRC). Island vs. together with interest on purchase price at 15% per annum from the date of sale to the date of redemption. and cannot be availed of where the amount of the tax involved is not more than P100 REDEMPTION OF PROPERTY SOLD a. c.

In seizure for the enforcement of a tax lien. after deducting the tax liability and expenses will go to the taxpayer (Bank of the Phil. or fees recovered and/or fine or penalty imposed and collected or P1M per case. 16014. The duration of the temporary closure shall be for a period of not less than 5 days and shall be lifted only upon compliance of whatever requirements imposed by the Commissioner in the collection order (Sec. vs. G. NIRC). in consequence of a default or offense..San Beda College of Law WHEN DOES IT ATTACH? Not only from the service of the warrant of distraint but from the time the tax became due and payable i. All the proceeds in case of a . as the case may require. (6)SUSPENSION OF BUSINESS OPERATIONS The Commissioner or his authorized representative may suspend the business operation and temporarily close the business of a VAT-registered person for understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter. 215. liquors. a reward of 10% of the revenues. if NOT redeemed within said period. c. No. NIRC). d. surcharges.S. • Sale of forfeited chattels and removable fixtures shall be effected in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of distrained property. G. Judgment of condemnation and sale in a legal action or proceeding. September 2. penalties and costs. the real property shall be forfeited to the Government. or Directed against Need not be directed the property subject against the property to the tax subject to tax Regardless of the owner of the property Property seized must be owned by the taxpayer (5)FORFEITURE DEFINITION: divestiture of property without compensation. penalties and interest thereon and cost of sale. shall be given to: Any person who voluntarily gives definite and sworn information not yet in the possession of the BIR 1. Forfeited property shall not be destroyed until at least 20 days from seizure (Sec. 1941) RULES GOVERNING FORFEITURE (1) If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes. October 4. 1911). the residue. (3) Within 1 year from the date of sale. 115. NIRC) A. For violations of the NIRC. ENFORCEMENT OF THE REMEDY OF FORFEITURE a. Island vs.R. civil or criminal. cigars. and cigarettes manufactured products of tobacco and apparatus used for their production. dies for printing or making fake revenue stamps and labels. from the time when the assessment was made by CIR (Sec 219. in case of real property. Destruction upon order by the Commissioner where the sale may be injurious to public health or prejudicial to law enforcement in case of distilled spirits. LIEN VS. (2) The Register of Deeds shall transfer title of forfeited property to the Government without necessity of a court order. 6536. 225. upon payment of the taxes. the forfeiture shall become ABSOLUTE (Sec. NIRC). DISTRAINT LIEN DISTRAINT 185 2008 CENTRALIZED BAR OPERATIONS sale go to the coffers of the government (U. Sale or destruction at the discretion of the CIR in case of other articles subject to excise tax which have been manufactured or removed in violation of the Code. leading to the discovery of fraud upon the Internal Revenue Laws and/or any violations thereof. Seizure and Sale or destruction of specific forfeited property in case of personal property.e. No. NIRC) EFFECT OF THE FORFEITURE OF PROPERTY The effect is to transfer the title to the specific thing from the owner to the government. whichever is lower. b. (7)INFORMER’S REWARD (Sec. Surla. the property may be redeemed by the delinquent taxpayer or any one for him.R. 282. Trinidad.

Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed. 249[C]) c.2. • 20% interest per annum or such higher rate assessed and collected from the date prescribed for its payment until the full payment thereof. • d. receipts or income. 2. 50% surcharge a. or or a substantial overstatement (exceeding 30% of actual deductions) of deductions (Sec. Unless otherwise authorized by the Commissioner. CIVIL PENALTY / SURCHARGE It shall be imposed in addition to the basic tax required to be paid 1. 248). 4.R. INTEREST – 20% per annum or such higher rate as may be prescribed by the rules and regulations a. voluntarily files the said return (only 25% shall be imposed) 50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the Commissioner or his duly authorized representative (Sec. This excludes an Internal Revenue Officer/employee or other public official/employee. filing a return with an internal revenue officer other than those with whom the return is required to be filed. B. . R. A. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. For the discovery and seizure of smuggled goods – a reward of 10% of the FMV of the smuggled and confiscated goods or P1M per case. who acquired the information in the course of performance of their duties during their incumbency. or the full amount of tax due for which no return is required to be filed. 2. No. whichever is lower. 12-99) NOTE: This shall not refer to a case already pending or examined by the CIR. in case a false or fraudulent return is willfully made Prima Facie evidence • substantial underdeclaration (exceeding 30% of that declared) of taxable sales. or Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this • b. shall be given to persons instrumental in the discovery and seizure of such smuggled goods. or his duly authorized representative. without notice from the Commissioner.186 Tax Remedies Under The NIRC 2. 249[B]) The interest assessed and collected on any unpaid amount of tax b. 248) • B. on or before the date prescribed for its payment (Sec. the amount of tax due on any return required to be filed. the amount of tax due for which no return is required to be filed b. In case of failure to pay: 1. MEMORY AID IN TAXATION LAW Code or rules and regulations. (8)ENFORCEMENT OF SURCHARGES AND INTEREST DEFINITION: increments to the basic tax incident to the taxpayer’s non-compliance with certain legal requirements. In case of willful neglect to file the return within the period prescribed by the Code • It will not apply in case a taxpayer. or his relative within the sixth degree of consanguinity. 25% surcharge a. An informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted and collected by the CIR. Deficiency interest (Sec. Delinquency interest (Sec. SURCHARGE – overcharge or exaction imposed by law as an addition to the main tax required to be paid. NOTE: This does not apply to all public officials whether incumbent or retired.

20% interest per annum or such higher rate prescribed on the unpaid amount in case of failure to pay a deficiency tax or any surcharge or interest thereon 187 2008 CENTRALIZED BAR OPERATIONS DEFICIENCY TAX Subject to deficiency interest DELINQUENCY TAX Subject to delinquency interest and compromise penalty c. DELINQUENCY TAX B. or When a protest against assessment is filed and a decision of the CIR was rendered but the said decision b e c o m e s f i n a l . the collected without deficiency assessment) as a tax assessed deficiency. 1997 NIRC. Exists when: Exists when: 1. TWO WAYS TO ENFORCE CIVIL LIABILITY THROUGH CIVIL ACTIONS: 1.San Beda College of Law 3. “… and no proceeding in court without assessment for the collection of such taxes shall be instituted after the expiration of such (3-year) period. JUDICIAL REMEDIES (1)CIVIL ACTION DEFINITION: For tax remedy purposes. WHEN RESORTED TO? 1. Interest on Extended Payment (Sec. 249[D]) • 20% interest per annum or such higher rate as may be prescribed on the tax or deficiency tax or any part unpaid if: a person required to pay tax elects to pay on installment but fails to pay the tax or installment. By filing a civil case for collection of a sum of money with proper regular court. 203. these are actions instituted by the government to COLLECT internal revenue taxes including the filing by the government of claims against the deceased taxpayer with the probate court. NOTE: Judicial action may be resorted to even before assessment although impractical. 2. . if no by the BIR amount is shown as became final tax by the taxpayer and upon his return or if executory no return is made by the taxpayer Can be collected through administrative and judicial remedies but has to go through the process of filing the protest against the assessment by the taxpayer and denial of such protest by BIR Filing of an action for collection of a deficiency tax during the pendency of the protest may be the subject of a motion to dismiss Can immediately be collected administratively through the issuance of warrant of distraint and levy and by judicial action Filing of a civil action for the collection of delinquent tax in the ordinary court is a proper remedy. When a tax is assessed and the assessment becomes final and unappealable because the taxpayer fails to file an administrative protest with the CIR within 30 days from receipt. When the protest is not acted upon within 180 days from submission of documents and the taxpayer failed to appeal with the CTA within 30 days from the lapse of the 180-day period. By filing an answer to the petition for review filed by TP with CTA. or the CIR has authorized an extension of time within which to pay a tax. deficiency or part thereof. Civil actions shall be brought in the name of the Government of the Philippines It shall be conducted by legal officers of the BIR. as stated in Sec. a n d demandable for failure of the taxpayer to appeal the decision to the CTA within 30 days from receipt of the decision.” FORM AND MODE OF PROCEEDING (Sec. or DEFICIENCY TAX DELINQUENCY TAX 2. 2. 3. prescribed 2. the amount by which date was not the tax as paid at all or determined by the was only CIR exceeds the partially amounts previously paid assessed (or 2. DEFICIENCY TAX VS. the amount by which 1. 220. e x e c u t o r y. NIRC) 1. the selfthe tax imposed by assessed tax the CIR exceeds the per return amount shown as filed by the the tax by the taxpayer on taxpayer upon his the return.

exclusive of charges and penalties claimed is less than One million pesos or where there is no specified amount claimed (Sec. JURISDICTION COURTS MTCs. FORM AND MODE OF PROCEEDING (Sec. the Commissioner may delegate such power to a Regional Director.R. 1988). 7.188 Tax Remedies Under The NIRC 3. 7. adducing reasons in support thereto (Dayrit vs. 220) Same as Civil Action. the approval by the Solicitor General for civil actions for collection of delinquent taxes is required before they are filed. WHERE TO FILE: 1.999 P400. Municipal Trial Court.000 Amount does not exceed P400. Regional Trial Court. R. MeTCs within Metro Manila RTCs outside Metro Manila RTCs within Metro Manila AMOUNT OF TAXES CLAIMED Amount does not exceed P300. MCTCs. Court of Tax Appeals – where the principal amount of taxes and fees. exclusive of charges and penalties claimed is less than One million pesos (Sec. G. Cruz. DEFENSES PRECLUDED BY FINAL AND EXECUTORY ASSESSMENTS MTCs. 39910 Sept. The requirement for CIR to rule on disputed assessments before bringing an action for collection is applicable ONLY in cases where the assessment was actually disputed. Regional Trial Court. MCTCs.A. MeTCs outside Metro Manila MTCs. validity or legality of the assessments. Further. b. 254) failure to file return. where the principal amount of taxes and fees. It is neither a mere consequence of the felonious acts charged nor is it a mere civil liability derived from a crime . 2. EFFECT OF ACQUITTAL OF THE TAXPAYER IN A CRIMINAL ACTION a. Rationale: The duty to pay tax is imposed by statute prior to and independent of any attempt on the part of the tax payer to evade payment. supply correct and accurate information. Municipal Trial Court. 26. No. exclusive of charges and penalties claimed is One million pesos and above. NIRC).000 P300. It does NOT necessarily result in the exoneration of said taxpayer from his civil liability to pay taxes. attempt to evade or defeat tax (Sec.No. Court of Tax Appeals – on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed is One million pesos and above. No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner. 255) • The judgment in the criminal case shall not only impose the penalty but shall also order the payment of taxes subject of the criminal case as finally decided by the Commissioner (Sec. 9282). MCTCs. RA No. WHERE TO FILE: 2. 1.001 to P999. However. and prescription of the Government’s right to assess. Metropolitan Trial Court – on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC. 7.999 MEMORY AID IN TAXATION LAW (2)CRIMINAL ACTION TWO COMMON CRIMES PUNISHABLE UNDER TAX CODE: a. 205. 9282). withhold and remit tax and refund excess taxes withheld on compensation (Sec. pay tax. JURISDICTION COURTS PENALTY N OTE : A decision on a request for reinvestigation is NOT a condition precedent to the filing of an action for collection of taxes already assessed. under Sec. Imprisonment of 6 years MeTCs and below RTCs Imprisonment of 6 years and 1 day IMPORTANT PRINCIPLES ON CRIMINAL ACTIONS 1. 1997 NIRC.001 to P999. Metropolitan Trial Court – where the principal amount of taxes and fees. The approval of the CIR is essential in civil cases. b.

1996. TP’s mistake in payment of tax is due to Erroneous written official advice of a Revenue Officer. Criminal liability in taxation arises as a result of one’s liability to pay taxes. June 29. force majuere. b. . f. CRIMINAL ACTION MAY BE FILED DESPITE THE LAPSE OF THE PERIOD TO FILE A CIVIL ACTION FOR COLLECTION OF TAXES When the civil action arising from tax delinquency has prescribed. the fact that a tax is due must first be proved. public turmoil etc. May 30. surcharge erroneously imposed. Assessment resulted from TP’s noncompliance with the law due to a difficult Interpretation of said law. NIRC) To Cancel Tax Liability A. however.San Beda College of Law (Republic vs. 2. 3. TP’s failure to file the return and pay the correct tax on time due to circumstances Beyond his control. ADMINISTRATIVE REMEDY (1)ABATEMENT (also see R. No. Provided that the abatement shall cover only the surcharge and the compromise penalty and not the interest imposed under Sec. 4. 1961) The civil liability to pay taxes arises not because of felony but upon taxpayer’s failure to pay taxes. EFFECT OF SUBSEQUENT SATISFACTION OF CIVIL LIABILITY The subsequent satisfaction of civil liability by payment or prescription DOES NOT extinguish the taxpayer’s criminal liability. Before anyone is prosecuted for willful attempt to evade or defeat any tax. 1997 NIRC). legitimate business g. Provided. would prescribe after lapse of 5 years from discovery of crime AND institution of proceedings (Sec. GR No. L-41919-24. GR No. However. 1999). PENALTIES AND/OR INTEREST IMPOSED ON THE TAXPAYER MAY BE ABATED ON THE GROUND THAT THE IMPOSITION THEREOF IS UNJUST OR EXCESSIVE: (WESIBLO) a. 280.R. it may be imposed in cases of failure to pay the fine imposed (Sec. subsidiary imprisonment CANNOT be imposed as regards the tax which he is sentenced to pay. June 4. CIR vs. Court of Appeals. (ex. L-128315. L-14142. 249. Failure to beat bank cut-off time. 1980 in relation to Commissioner vs. CRIMINAL ACTION MAY BE FILED DURING THE PENDENCY OF AN ADMINISTRATIVE PROTEST IN THE BIR It is NOT a requirement for the filing thereof that there be a precise 189 2008 CENTRALIZED BAR OPERATIONS computation and assessment of the tax. use of wrong tax form but correct tax amount) Other similar or analogous cases e.. Provided. May 30.. NIRC. Late payment of tax under meritorious circumstances. natural calamity. 281. Patanao. Cusi. since what is involved in the criminal action is not the collection of tax but a criminal prosecution for the violation of the NIRC. reverses such as labor strike for more than 6 months which has caused temporary shutdown of business. NO SUBSIDIARY IMPRISONMENT In case of insolvency on the part of the taxpayer. 5. Pascor Realty Development Corp. 119322. that abatement shall cover only the surcharge and the compromise penalty but not the interest. TP’s failure to file the return and pay the tax on time is due to Substantial losses from prolonged labor dispute. d. GR No. c. 15-2006 Abatement Program) DEFINITION: It means that the entire tax liability of the taxpayer is cancelled. that there is a prima facie showing of a willful attempt to evade taxes or failure to file the required return (See Ungab vs. INSTANCES WHEN THE TAX LIABILITIES. GROUNDS: (1) the tax or any portion thereof appears to be unjustly or excessively assessed. GR Nos. the BIR has only 5 years from assessment within which to collect the tax through criminal action in which case. Filing of the return/payment of tax at the Wrong Venue. or (2) The administration and collection costs involved do not justify the collection of the amount due.

False or fraudulent return with intention to evade the tax: ten (10) years from the date of the discovery of the falsity or fraud (Sec. Philippine Global Communications. 167146. c. 203. Grounds: 1. Ltd. and Other Analogous instances MEMORY AID IN TAXATION LAW COMPROMISE VS. The law on prescription should be liberally construed in order to afford protection to TP while its exceptions should perforce be strictly construed. Financial incapacity of TP Officer authorized to abate or cancel tax. Abatement of penalties on assessment reduced after Reinvestigation but TP is still contesting reduced assessment. 222 [A]). Failure to file a return: ten (10) years from the date of the discovery of the omission to file the return (Sec. 3.R. or 2. If the return is amended substantially. ABATEMENT COMPROMISE ABATEMENT Involves a Involves the cancellation reduction of the of the entire tax liability of taxpayer’s a taxpayer liability Officers authorized to compromise: CIR and Regional Evaluation Board Grounds: 1..190 Tax Remedies Under The NIRC INSTANCES WHEN THE TAX LIABILITIES. The administration and collection costs involved do not justify the collection of the amount due.. or 2. penalties and/or interest: CIR b. Phoenix Assurance Co. 2006). PENALTIES AND/OR INTEREST IMPOSED ON THE TAXPAYER MAY BE ABATED ON THE GROUND THAT THE TAX ADMINISTRATION AND COLLECTION COSTS ARE MORE THAN THE AMOUNT SOUGHT TO BE COLLECTED: (AWARD) a. G. . The tax or any portion thereof appears to be unjustly or excessively assessed. 1997 NIRC). Inc. ASSESSMENT OF TAXES General Rule: Within three (3) years from due date of filing of return if return is filed on or before due date or three (3) years from date of actual filing if filed beyond due date (Sec. L-19127. Reasonable doubt as to validity of assessment. October 31. 2. Prescriptive Periods for the Assessment and Collection of Taxes Prescriptive Periods for the Assessment and Collection of Taxes RATIONALE OF PRESCRIPTIVE PERIODS Such periods are designated to secure the taxpayers against possible harassment and unreasonable investigation after the lapse of the period prescribed. 4. Abatement of penalties on Delayed installment payment under meritorious circumstances. When no return is required. They are also beneficial to the government because tax officers will be obliged to act promptly (CIR vs. RULES ON PRESCRIPTION 1. Defense of prescription is waivable. Agreement in writing to the extension of the period to assess between the CIR and 3. the period starts from the filing of the amended return (CIR vs. tax is imprescriptible. May 20. No. d.R. Abatement of penalties on Withholding tax assessment under meritorious circumstances. G. the tax is imprescriptible. 222[A]). 1965). NOTE: Remedy of taxpayer is to file a return. PRESCRIPTIVE PERIOD FOR THE ASSESSMENT AND COLLECTION OF TAXES AND VIOLATION OF NIRC 1. When the tax law itself is silent on prescription. Exceptions: 1. 2. Abatement of penalties on assessment confirmed by the lower court but Appealed by TP to a higher court. e. No.

Recurrence of the above circumstances There must appear a design to mislead or deceive on the part of the taxpayer. NIRC) In case of non-filing. 2.R. It must be alleged and proved as a fact. No. Ayala Securities) Fraud is never imputed and the courts never sustain findings of fraud upon circumstances that only create suspicion (Commissioner vs. CTA G. 3. . 1997 NIRC) a. Inc. NIRC). 191 2008 CENTRALIZED BAR OPERATIONS Presence of fictitious expenses. 78963. 20. 30403. CA-G. VIOLATION OF ANY PROVISION OF THE TAX CODE (Sec. The term of prescription shall not run when the offender is absent from the Philippines. Illustrative case (Lim vs. NIRC) • 2.R.R. 1967) However.1991) Mistakes of revenue officers on three different occasions remove element of fraud (Aznar vs. Mar. (c). 20. FALSE RETURN FRAUDULENT RETURN FALSE RETURN e. No. 70025. the courts did not consider the tax returns filed as false or fraudulent with intent to evade payment of tax in the following cases: a. 222[b]). But the sending of the notice must clearly be proven (Basilan Estate. 48134-37. L-22492. September 5. • There is fraud in the following decided cases: 1. If the BIR choose to make assessment after discovery of the non-filing. 222. 1969) b. 10 years from discovery (Sec. Apr. It is not required that the notice be received by the taxpayer within the prescribed period. Inc. 1990): (1) charge is failure or refusal to pay deficiency income tax – committed only after the finality of the assessment coupled with the taxpayer’s willful refusal to pay the 3. 5 yrs. false or fraudulent return b. NB: The extended period agreed upon can further be extended by a subsequent written agreement made before the expiration of the extended period previously agreed upon (Sec. The running of prescription shall be interrupted when proceedings are instituted against the guilty persons and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy. Aug. No. Agreed period pursuant to agreement in writing before the expiration of the 5 year period (Sec. NIRC). Mere understatement in the tax return will not necessarily imply fraud (Jalandoni vs. Court of Appeals G. (Sec. 222. 29485. Established by the a. July 31.R. G. 18384. carelessness or ignorance. 31. 2004). Republic G. collection must be made within 5 years from date of assessment (Sec. 1965) Simple statement that return filed was not fraudulent does not disprove existence of fraud (Tayengco vs. 281. Ayala Securities G. mistake. (a).R. A mistake.San Beda College of Law the taxpayer before the expiration of the 3year period. 1974) • • If proceeding for collection is made without assessment. No. – from date of assessment (Sec. b. Nos. 222. 5 years – from the (a) day of the commission of the violation of the law. Republic G. 23. vs. 23766) Substantial underdeclarations of income for six consecutive five years demonstrate fraudulence of return (Perez vs. c. 1967). 27. proves existence of fraud (Tan Guan vs. and if the same be not known. par. false or fraudulent return. Ayala Hotels.. Sept. 18384. Fraud must be the product of a deliberate intent to evade taxes (Jalandoni vs. Intentional and substantial overstatement of deductions of exemptions. Javier G. c.R. No. No. NIRC) FRAUDULENT RETURN VS. Sept. April 19. 20569. CTA and Collector. b. No. par. Commissioner G. October 18. 1965) Sale of a real property for a price less than its fair market value is not necessarily a false return (Commissioner vs.R. mailed or sent to the taxpayer also within the 3 year period. No. and/or c.R. d.R. GR No. It must be the product It constitutes a deviation of a deliberate intent from the truth due to to evade taxes. NOTE: Notice of the assessment is released. 23676. July 3. 1976) Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in the trial court (Commissioner vs. SP No. 222. from the (b) discovery thereof and the institution of the judicial proceedings for its investigation and punishment. 4. not culpable in respect of its value would not constitute a false return (Commissioner of Internal Revenue vs. Collector G. Commissioner. Intentional and substantial understatement of tax liability by the taxpayer.R. with no evidence presented. or at least culpable negligence. COLLECTION a. 281.

G. In writing. G. 06-05).R. the Government proceeds by court action to forfeit a bond.e. 16 2004).192 Tax Remedies Under The NIRC taxes within the allotted period (i. Must specify a definite agreed date between the BIR and the taxpayer within which the taxpayer may assess and collect taxes. Araneta. b. Entered before the expiration of the 3 year period for assessment of the tax. vs. CIR. which has been assessed within the period agreed upon as provided for in the assessment (period agreed upon in writing by Commissioner and taxpayer) – Collection made within period agreed upon in writing before expiration of 5 year period but may be extended by subsequent written agreements made before expiration of period previously agreed upon. v. It is a BILATERAL agreement between TP and BIR (RMC No. NATURE OF WAIVER It is to a certain extent a derogation of TP’s right to security against prolonged and unscrupulous investigations and must be carefully and strictly construed. cannot be committed upon filing the return). CHARACTERISTICS OF AN INVALID WAIVER: If it does not specify a definite agreed date between BIR and the TP within which to formally assess and collect. NIRC) (PRA_PO) a. there must be a judicial proceeding for the investigation and punishment of the tax offense before the 5 year prescriptive period begins to run. Period agreed upon/extension of period If before expiration of the period of assessment of tax as prescribed in Section 203 NIRC. both Commissioner and taxpayer agreed in writing after such timeThe period agreed upon will govern and may be extended by subsequent written agreement made before expiration of period previously agreed upon. b. Any internal revenue tax. It is NOT a waiver of the right to invoke the defense of prescription. When the CIR is Prohibited from making the assessment or beginning the distraint or levy or a proceeding in court. NOTE: The only agreement that can suspend the running of the prescriptive period for collection of taxes is a WRITTEN agreement by TP and CIR before the expiration of the 5- What is the Prescriptive Period where the Government’s action is on a BOND which the taxpayer executes in order to secure the payment of his tax obligation? Ten (10) years under Art. 06-05). When the taxpayer requests for a Reinvestigation which is granted by the CIR. . GROUNDS FOR SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS (Sec. the BIR may file an ordinary action to collect even without an assessment. No. e. CIR. May 30. 223. c. 162852. supra). AND for sixty (60) days thereafter. REQUISITES FOR AGREEMENT WAIVING THE 3-YEAR PERIOD Return filed on or before due date or filed beyond due date 3 years from due date or from actual filing. Inc. Signed by both the taxpayer . respectively 10 years from discovery of falsity or fraud 10 years from discovery of non-filing 5 years from assessment • • Filing of false or fraudulent return 5 years If there is assessment Non-filing of return 5 years If there is assessment a. Inc. 1961). No. or If signed only by the RDO and not the CIR Waiver is not complete if copies were not furnished the TP (Philippine Journalists. d. ASSESSMENT COLLECTION • MEMORY AID IN TAXATION LAW In this case. (2) charge is filing of false or fraudulent return with intent to evade the assessment – in addition to the fact of discovery. b. a. L-14142.R. and Signed and accepted by the CIR or his duly authorized representative and the date of acceptance must be indicated ( RMC No. 1144(1) of the Civil Code and not three (3) years under the NIRC. WAIVER OF STATUTE OF LIMITATIONS DEFINITION: an agreement between TP and BIR that a period to issue an assessment and collect taxes due is extended to a date certain (Philippine Journalists. Dec. c. The action is for the enforcement of a contractual obligation (Republic vs. reckoned from the date of discovery of falsity or fraud or non-filing. In case there is NO ASSESSMENT In case of false or fraudulent return or nonfiling of return. The period to collect is 10 years.

San Beda College of Law
year period, extending the period of limitation prescribed by law (Mamalateo, Tax Reviewer)

193 2008 CENTRALIZED BAR OPERATIONS the Court of Tax Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not merely directory but mandatory and it is beyond the power of the courts to extend the same. Petitioner can not now claim that the disputed assessment is not yet final as it remained not acted upon by the Commissioner; that it can still await the final decision of the Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment because of the Commissioner's inaction (Fishwealth Canning Corporation vs. Commissioner of Internal Revenue C.T.A. Case No. 7346- C.T.A. EB CASE NO. 223. July 5, 2007). 3. In the normal course, the revenue district officer sends the taxpayer a notice of delinquent taxes, indicating the period covering the amount due including interest, and the reason for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating the reasons therefore, and submitting such proof as may be necessary. That letter is considered as the taxpayer's request for reconsideration of the delinquent assessment. After the request is filed and received by the BIR, the assessment becomes a disputed assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals for review (Commissioner of Internal Revenue vs. Isabela Cultural Corporation). The purpose of the requirement that the taxpayer shall be informed in writing of the law and facts on which the assessment is made, found in second paragraph of Section 228 of the NIRC of 1997, "is to give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed explanation regarding the proposed assessment(s)" (Belle Corporation vs. Commissioner of Internal Revenue, C.T.A. CASE No. 5930, April 4, 2002).

Why does a request for reinvestigation and not one for reconsideration toll the running of the Statute of Limitations? The former, which entails reception and evaluation of additional evidence, will take more time than the latter, which will be limited to the evidence already at hand (CIR vs. Philippine Global Communications, G.R. No. 167146, Oct 31, 2006)

c.

When the taxpayer cannot be located in the Address given by him in the return, UNLESS he informs the CIR of any change in his address. When the warrant of distraint or levy is duly served, AND no Property is located; and When the taxpayer is Out of the Philippines (Sec. 223, 1997 NIRC).

d. e.

NOTE: A tax return is considered FILED for purposes of starting the running of the period of limitations if: (VA) 1. The return is valid – it has complied substantially with the requirements of the law; and The return is appropriate – it is a return for the particular tax required by law. A defective tax return is the same as if no return was filed at all.

2.

DOCTRINES 1. Statutes are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statues, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights In case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails. Between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code (CIR vs. Reyes, 480 SCRA 382). 2. It is clear that the jurisdiction of the Court of Tax Appeals has been expanded to include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The decisions, rulings or inaction of the Commissioner are necessary in order to vest

4.

194 Tax Remedies Under The NIRC 5. It is clear from the second paragraph of Section 228 NIRC and its rationale that "so long as the parties are notified and were given an opportunity to explain their side, the requirements of due process are satisfactorily complied with." There is substantial compliance with Section 228 when petitioner was given an opportunity to protest the said

MEMORY AID IN TAXATION LAW

assessment upon issuance of the assessment notice. The requirement set forth in Section 228 of the NIRC was, therefore, substantially complied with. Consequently, the assessment notices are valid (United Overseas Bank Philippines vs. Commissioner of Internal Revenue C.T.A. Case No. 6764 -C.T.A. EB CASE NO. 188. January 10, 2007).

Assessment Process
Assessment Process
START ➡ Commissioner issues Letter of Authority ➡ BIR Audit/Tax Investigation ➡ Preliminary Findings ➡ Is taxpayer liable for deficiency tax? Yes ➡ POST-REPORTING NOTICE/INFORMAL CONFERENCE LETTER ➡ Taxpayer responds within 15 days? Yes ➡ No

No ➜ ASSESSMENT PROCESS ENDS

Informal Conference between taxpayer and BIR

Taxpayer and BIR come to an agreement

➜ ASSESSMENT PROCESS ENDS

Taxpayer and BIR talk to agree ➡
PRE-ASSESSMENT NOTICE (PAN) ➡ Taxpayer responds within 15 days? ➡ Commissioner receives the position paper of the taxpayer No

Commissioner accepts the explanation

➜ Assessment Process

Commissioner rejects the explanation ➡
FORMAL LETTER OF DEMAND ➡ A ➡ Taxpayer responds within 30 days? ➡ Yes ➡ Taxpayer must submit within 60 days all documents necessary for reinvestigation No ➜

Assessment becomes final and executory. Taxpayer must pay the government.

PROTEST: Taxpayer shall file protest request for reinvestigation or reconsideration

Taxpayer fails to submit the documents

ASSESSMENT BECOMES
FINAL AND EXECUTORY

Taxpayer submits the documents ➡

Commissioner resolves the taxpayer assessment based on the documents ➜ ASSESSMENT PROCESS ENDS

Favorable to the

San Beda College of Law

195 2008 CENTRALIZED BAR OPERATIONS

Unfavorable to the taxpayer ➡ Taxpayer may appeal to the Commissioner within 30 days from receipt of full decision
ISSUANCE OF THE COMMISSIONER FINAL DECISION ➡ Appeal to the Court of Tax Appeals if Commissioner denies the protest or fails to act within 180 days from receipt of documents ➡ Court of Tax Appeals ➡ Appeal to the Supreme Court ➡ END

If Commissioner does not act on the protest within 180 days from receipt of the documents

Related Revenue Regulations
(Annex)
Related Revenue Regulations (Annex)

Revenue Regulations No. 13-01

Implementing Section 204(B), in Relation to Section 290 of the Tax Code of 1997, Regarding Abatement or Cancellation of Internal Revenue Tax Liabilities
SECTION 1.
Scope. — Pursuant to Section 244 of the National Internal Revenue Code of 1997 (Code), these Regulations are hereby promulgated for the purpose of implementing Section 204(B), in relation to Sections 7(c) and 290 of the same Code, regarding the authority of the Commissioner of Internal Revenue (Commissioner) to abate or cancel internal revenue tax liabilities of certain taxpayers based on any of the following grounds, viz: i. ii. The tax or any portion thereof appears to be unjustly or excessively assessed; or The administration and collection costs involved do not justify the collection of the amount due."

SECTION 2.
Instances When The Penalties And/Or Interest Imposed On The Taxpayer May Be Abated Or Cancelled On The Ground That The Imposition Thereof Is Unjust Or Excessive. — 2.1 When the filing of the return/payment of the tax is made at the wrong venue; 2.2 When taxpayer's mistake in payment of his tax is due to erroneous written official advice of a revenue officer; 2.3 When taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute, force majeure, legitimate business reverses such as in the following instances, provided, however, that the abatement shall only cover the surcharge and the compromise penalty and not the interest imposed under Section 249 of the Code: 2.3.1 Labor strike for more than six (6) months which has caused the temporary shutdown of business; 2.3.2 Public turmoil; 2.3.3 Natural calamity such as lightning, earthquake, storm, flood and the like;

Disputed assessments pursuant to the provisions of Section 228 of the Code and its implementing rules and regulations, and assessments which are void from the beginning are not covered by these Regulations.

196 Tax Remedies Under The NIRC 2.3.4 Armed conflicts such as war or insurgency; 2.3.5 Substantial losses sustained due to fire, robbery, theft, embezzlement; 2.3.6 Continuous heavy losses incurred by the taxpayer for the last two (2) years; 2 3.7 Liquidity problem of the taxpayer for the last three (3) years; or 2.3.8 Such other instances which the Commissioner may deem analogous to the enumeration above. 2.4 When the assessment is brought about or the result of taxpayer's non-compliance with the law due to a difficult interpretation of said law; 2.5 When taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control, provided, however, that abatement shall cover only the surcharge and the compromise penalty and not the interest; 2.6 Late payment of the tax under meritorious circumstances such as those provided hereunder: 2.6.1 One day late filing and remittance due to failure to beat bank cut-off time: 2.6.2 Use of wrong tax form but correct amount of tax was remitted; 2.6.3 Filing an amended return under meritorious circumstances, provided, however, that abatement shall cover only the penalties and not the interest; 2.6.4 Surcharge erroneously imposed; 2.6.5 Late filing of return due to unresolved issue on classification/valuation of real property (for capital gains tax cases, etc.); 2.6.6 Offsetting of taxes of the same kind, i.e., overpayment in one quarter/month is offset against underpayment in another quarter/month; 2.6.7 Automatic offsetting of overpayment of one kind of withholding tax against the underpayment in another kind; 2.6.8 Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines pending the issuance by the Securities and Exchange Commission of the license to the Philippine branch office or subsidiary, provided, however, that the abatement shall only cover the surcharge and the compromise penalty and not the interest; 2.6.9 Wrong use of Tax Credit Certificate (TCC) where Tax Debit Memo (TDM) was not properly applied for; and

MEMORY AID IN TAXATION LAW

2.6.10 Such other instances which the Commissioner may deem analogous to the enumeration above. 2.7 Other cases similar or synonymous thereto.

SECTION 3.
Instances When The Tax Liabilities, Penalties And/Or Interest Imposed On Taxpayer May Be Abated Or Cancelled On The Ground That The Administration And Collection Costs Are More Than The Amount Sought To Be Collected. — When the administrative and collection costs, including cost of litigation, are much more than the amount that may be collected from the taxpayer, the assessment may be reduced through abatement, or entirely cancelled pursuant to Section 204(B) of the Code. The instances that may fall under this category are the following: 3.1 Abatement of penalties on assessment confirmed by lower court but appealed by the taxpayer to a higher court; 3.2 Abatement of penalties on withholding tax assessment under meritorious circumstances; 3.3 Abatement of penalties on delayed installment payment under meritorious circumstances; 3.4 Abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment; and 3.5 S u c h o t h e r i n s t a n c e s w h i c h t h e Commissioner may deem analogous to the enumeration above. Note: For items 3.1 to 3.4 above, the abatement of the surcharge and compromise penalty shall be allowed only upon written application by the taxpayer signifying his willingness to pay the basic tax and interest or basic tax only, whichever is applicable under the prevailing circumstance.

SECTION 4.
The Commissioner Has The Sole Authority To Abate Or Cancel Tax, Penalties And/Or Interest. — The Commissioner has the sole authority to abate or cancel internal revenue taxes, penalties and/or interest pursuant to Section 204(B), in relation to Section 7(c), both of the Code. This authority is generally applicable to surcharge and compromise penalties only, however, in meritorious instances, the Commissioner may likewise abate the interest as well as basic tax assessed, provided, however, that cases for abatement or cancellation of tax, penalties and/or interest by the Commissioner shall be coursed through the following officials: 4.1 The Deputy Commissioner (Operations Group), who shall constitute a Technical Working Committee (TWC) for the evaluation and review of any application for abatement or cancellation of tax, penalties and/or interest processed by the Revenue District Office

or by the Large Taxpayers' Service's Collection or Audit Division and Large Taxpayers District Office (LTDO) as reviewed by the Large Taxpayers Service (LTS). through the Chairmen of the Committee on Ways and Means of both the Senate and House of Representatives. The following cases may be the subject matter of compromise settlement: (a) Delinquent accounts. or by Collection Enforcement Division/Withholding Agent and Monitoring Division as reviewed by the Collection Service. every six (6) months of each calendar year. Enforcement Service and other offices in the National Office. Legal Service. 197 2008 CENTRALIZED BAR OPERATIONS SECTION 5. e. The following cases are not subject to compromise: • Withholding tax cases. (c) Civil tax cases being disputed before the courts. (e) Criminal violations. Large Taxpayer Service (LTS). 204 (A) and 290 of the National Internal Revenue Code of 1997 on Compromise Settlement of Internal Revenue Tax Liabilities Superseding Revenue Regulations Nos. Penalties and/or Interest”.San Beda College of Law (RDO) as reviewed by the Regional Office (RO). penalties and/or interest should be acted upon by the processing office and reviewing office within five (5) days from receipt by said office. 204(A) and 290 of the National Internal Revenue Code of 1997 on Compromise Settlement of Internal Revenue Tax Liabilities Superseding Revenue Regulations Nos.2 The Deputy Commissioner (Legal and Inspection Group). The application for abatement or cancellation of tax. The BIR National Office has thirty (30) days within which to act on the case. all the originating offices which processed the application for abatement or cancellation of tax. other than those already filed in court or that involving criminal tax fraud. In this regard. unless the Commissioner provides otherwise. who shall evaluate the legal issue involved in the case. 30-2002 Revenue Regulation Implementing Sections 7(c). Collection Service. Report of the Commissioner to the Congressional Oversight Committee (COC). 6-2000 and 7-2001 -and- Revenue Regulations No. and 4. penalties and/or interest shall likewise prepare for this activity/process (abatement) all the reports being prepared in the collection of taxes under the compromise power of the Commissioner. unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold. Processing Time. (b) Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices. 8-04 Revenue Regulations Implementing Sections 7(c). penalties and/or interest imposed on taxpayers. or by the Legal Service. On the other hand. — The application for abatement or cancellation of tax. Documentary proofs for the underlying reasons and causes aforestated should be appended to the "Application for Abatement or Cancellation of Tax. 7-2001 and 30-2002 SECTION 2. penalties and/or interest should state the reasons and causes for such request. denial of the application for abatement or cancellation of tax. CASES WHICH MAY BE COMPROMISED. Criminal tax fraud cases confirmed as such by the Commissioner of Internal • . a report on the exercise of his power to abate or cancel tax liabilities. SECTION 6. — The Commissioner shall submit to the Congressional Oversight Committee (COC) . Revenue Regulations No. g. Revenue District Offices. or any other office that has jurisdiction over the case. (d) Collection cases filed in courts. penalties and/or interest should state the reasons therefor.

within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis. • • • MEMORY AID IN TAXATION LAW Criminal violations already filed in court. . Doubtful validity of the assessment. or 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. “jeopardy assessment” . Provided that tax liabilities corresponding to the Subscription Receivable or Assets distributed/distributable to the stockholders representing return of capital at the time of cessation of operation or dissolution of business shall not be considered for compromise. where the demand notice allegedly failed to comply with the formalities prescribed under Sec. but for which the Supreme Court has not decided upon with finality (pursuant to RR 8-04). The corporation ceased operation or is already dissolved. The taxpayer who is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%. c. Cases which become final and executory after final judgment of a court. The amendment is included in the following enumeration). The 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. 1998. 228 of the National Internal Revenue Code of 1997. On the other hand. or to substantiate all or any of the deductions.a tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer. e. alleged failure to receive notice of assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis. 8-04. The assessment seems to be arbitrary in nature. or his authorized representative. 2. The offer to compromise a delinquent account or disputed assessment based on this ground may be accepted when it is shown that: a. as reflected in its latest Balance Sheet supposed to be filed with the Bureau of Internal Revenue. • f. or credits claimed in his return). where compromise is requested on the ground of doubtful validity of the assessment.198 Tax Remedies Under The NIRC Revenue or his duly authorized representative. The assessments were issued on or after January 1. in some cases. and The assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the Bureau. 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. h. other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis. (This section has been amended by RR No. b. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records. and Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. 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. i. Financial incapacity. B. Delinquent accounts with duly approved schedule of installment payments. • SECTION 3. The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner. The taxpayer failed to file an administrative protest on account of the g. appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis. exemptions. The delinquent account or disputed assessment is one resulting from a jeopardy assessment. Upon showing that: A. d. GROUNDS FOR COMPROMISE: 1.

and that the taxpayer has no sufficient liquid asset to satisfy the tax liability. or less. or if married. taxpayer is an individual without any source of income. c. as well as appraisal increases in fixed assets). 2. other than his family home 2. if single. The taxpayer is a compensation income earner a. on hand or in transit. and it appears that the taxpayer possesses no other leviable/ distrainable assets. with no other source of income. 3.000 per month. 199 2008 CENTRALIZED BAR OPERATIONS 3. 3. he has no other leviable properties under the law other than his family home. and whose monthly salary. whose salary together with his spouse is P21. 1405 or under other general or special laws. and Dissolved corporations. E. The taxpayer is suffering from a networth deficit (total liabilities exceed total assets) taken from the latest audited financial statements. except business related transactions) from total assets (net of prepaid expenses. 226. Negative networth computed in accordance with Sec. Where the taxpayer is under any of the following conditions: 1. provided that in the case of an individual taxpayer.1 of these Regulations. with Tax Credit Certificate (TCC). b. preoperating expenses.San Beda College of Law Provided: 1. • SECTION 4.computed by deducting total liabilities (net of deferred credits and amounts payable to stockholders/owners reflected as liabilities. taxpayer is 1. • 20% a. it appears that the taxpayer possesses no other leviable or distrainable assets. 4. and . PRESCRIBED MINIMUM PERCENTAGES OF COMPROMISE SETTLEMENT. Already non-operating companies for a period of less than 3 years. Department of Finance One-Stop-Shop Tax Credit and Duty Drawback Center (Tax Revenue Group or Investment Incentive Group) and/or the courts. Already non-operating companies for a period of three (3) years or more as of the date of application for compromise settlement. • C.500 or less. 2. is P10. that amounts payable or due to stockholders other than businessrelated transactions which are properly included in the regular “accounts payable” are by fiction of law considered as part of capital and not liability. an individual whose only source of income is from employment. other than his family home.2(c) hereof. For cases of “financial incapacity” • 10% for a. 3. D. j. 2. The taxpayer has been declared by any competent tribunal/authority/body/ government agency as bankrupt or insolvent. Zero networth computed in accordance with Sec. or with pending claim for tax refund or tax credit with the Bureau of Internal Revenue. b. the family’s gross monthly compensation income does not exceed the levels of compensation income provided for under Sec. No offer of compromise shall be entertained unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act No.2(c) hereof. issued under the National Internal Revenue Code of 1997 or Executive Order No. deferred charges. c. Networth deficit . The Commissioner shall not consider any offer for compromise settlement on the ground of financial incapacity of a taxpayer 1. With existing finalized agreement or prospect of future agreement with any party that resulted or could result to an increase in the equity of the taxpayer at the time of the offer for compromise or at a definite future time. or b. 3. Presence of circumstances that would place the taxpayer-applicant’s inability to pay in serious doubt can be a ground to deny the application for compromise based on financial incapacity of the taxpayer to pay the tax. 1.1.

Assessments issued by the Regional Offices involving basic deficiency taxes of Five Hundred Thousand Pesos (P500.  Offers of compromise of assessments subject to the approval of the Regional Evaluation Board: 1. shall have the concurrence of the Commissioner. that if the offer of compromise is less than the prescribed rates set forth in Sec. 226 pending in any office shall be submitted. The “Notice of Dissolution” submitted to SEC or other similar or equivalent document should likewise be submitted. at the option of the taxpayer. • • For financial incapacity by reason of dissolution:  A copy of the applicant's latest audited financial statements or audited Account Information Form filed with the BIR shall be submitted with the application. The prescribed minimum percentages shall likewise apply in compromise settlement of assessments consisting solely of increments. ii. 2. and . request for a compromise rate lower than forty percent (40%): Provided.A. etc. surcharge. based on the total amount assessed. granting the request of the taxpayer or favorable to the taxpayer. that he shall be required to submit his request in writing stating therein the reasons. Provided.  If the application for compromise is premised on the financial incapacity of a taxpayer who is a compensation income-earner. •  If the application is premised on the financial incapacity of a person without any source income. Waiver of the Secrecy of Bank Deposit under R. SECTION 6. DOCUMENTARY REQUIREMENTS. including allowances. and Minor criminal violations discovered by the Regional and District Offices. SECTION 5. a copy of the applicant's latest audited financial statements or audited Account Information Form filed with the BIR shall be submitted with the application. the same shall always be subject to the approval of the NEB. 1405 and Sworn Statement saying that he has no Tax Credit Certificate (TCC) on hand or in transit or claim for tax refund or TCC under the National Internal Revenue Code of 1997 and Executive Order No.000) or less. and a sworn statement that he has no other source of income other than from employment.200 Tax Remedies Under The NIRC c. A minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. interest. The taxpayer may.  All decisions of the NEB. APPROVAL OF OFFER OF COMPROMISE. • 2.. 4 hereof. 1. the taxpayer applicant shall submit with his application a sworn statement that he derives no income from any source whatever. For cases of “doubtful validity” i. The compromise offer may be paid before or after the approval of the offer of compromise by the Board (NEB or REB). all compromise settlements within the jurisdiction of the National Office (NO) shall be approved by a majority of all the members of the NEB composed of the Commissioner and the four (4) Deputy Commissioners..  Except for offers of compromise where the approval is delegated to the REB pursuant to the succeeding paragraph.e. however. i. nevertheless. why he should be entitled to such lower rate: The same shall be subject to the prior approval by the NEB. legal and/or factual.  If the application is premised on the financial incapacity of a taxpayer under the condition of zero or negative networth. applicant shall submit with his application the following: • a certification from his employer on his prevailing monthly salary.  In all cases of offer based on financial incapacity. • 2. • Taxpayer Declared insolvent or bankrupt taxpayer whose Surplus or earnings deficit resulting to impairment in the original capital by at least 50%  MEMORY AID IN TAXATION LAW 40% a. iii. For situation of financial incapacity in condition of bankruptcy or insolvency a copy of the order declaring bankruptcy or insolvency shall be submitted.

Legal Service (LS). Criminal violations. d. SECTION 2. 5. and To expand the coverage of the Abatement program under RR No. SECTION 3. amount of dishonored check. which has already been approved shall not be covered by these Regulations. refers to any of the following: 1. those under the BIR Run After Tax Evaders Program and tax fraud cases which are the results of confidential information. Guidelines and Procedures in the Implementation of the Expanded One-Time Administrative Abatement of all Penalties/Surcharges and Interest on Delinquent Accounts and Assessments PURPOSE: 1. Court of Tax Appeal. i. 15-2006. No. Taxpayers who have been paying their tax liabilities through an approved installment plan subject to the following conditions: . DEFINITION OF TERMS a. 6-2000. (except those already filed in court. request for abatement pursuant to the aforementioned RR. 30-2002 as amended by RR No. j. Letter Notice Cases. tax due shown on the Assessment Notice and Letter of Demand. those involving criminal tax fraud. To provide an opportunity for taxpayers with delinquent account and assessments and who were previously not covered by the abatement program under RR. Municipal Trial Court. 7-2001 and RR No. c. b. However. unpaid tax shown on the return filed. Failure to withhold Withholding Taxes discovered upon audit. and Deficiency interest. Assessed cases. f. dishonored checks cases. h. COVERAGE The following cases shall be covered hereof: a. 30. 15-2006. 3-2007 Regulation Providing for the Policies. Cases with pending request for abatement under RR No. to settle their existing cases. Enforcement Service (ES) and other offices in the National Office (NO). 30. Collection and civil tax cases being disputed before the Department of Justice and the courts (e. Delinquent accounts • - the amount of tax due on or before Nov.g. 2006 which has not yet final and executory. Large Taxpayer Service. income tax 2nd installment cases. 2. this regulation would not apply. 13-2001. where the amount offered is more than 100% of the basic tax which has already been approved shall not be covered by these Regulations. if the assessment issued was for penalties only (interest and surcharges). a tax assessment issued or self assessment made on or before Nov. request for compromise settlement pursuant to the aforementioned Regulations. cases under administrative protest pending in the Regional Offices (ROs).San Beda College of Law 201 2008 CENTRALIZED BAR OPERATIONS Revenue Regulations No. arising from (1) a selfassessed tax or (2) a deficiency assessment issued which has become final and executory. “Accounts Payable or Due to BIR ” account duly recorded or acknowledged by the taxpayer in his books of accounts. In the abovementioned cases. whether preliminary or final. e. 2. l. disputed or not. k. as of November 30. preliminary. Court of Appeals and Supreme Court) including decided cases which are not yet final and executory. if the PCGG has an interest and/or there is a need to coordinate with the PCGG. Revenue District Offices (RDOs). Collection Service (CS). 4. b. disputed or not Cases with pending request for Compromise Settlement under Revenue Regulations (RR) No. Regional Trial Court. delinquent accounts/accounts receivable cases. Assessment.. - • c. unpaid 2nd installment income tax. 3. 8-2004 and other prior years’ issuances. RR No. g. 2006 from a taxpayer who failed to pay the same within the time prescribed for its payment. Basic tax assessed - However. unless allowed to avail by the Commissioner or his representative on meritorious grounds). 2006. m.

Government-Owned and Controlled Corporations. . 2006. they will waive any claim for refund of paid amount in excess of 100% of the basic tax paid.g. • • d. for NO cases. EFFECTIVITY The Regulations shall remain in force until March 31. PLACE FOR FILING APPLICATION FOR ABATEMENT OF PENALTIES AND INTETREST All Applications shall be filed. is not paid as required. Legal. Collection Service – for delinquent accounts under the jurisdiction of the National Office other than LTS cases. With the AABs located within the jurisdiction of the RDO/LTS/LTDO where the taxpayer is registered. and concerned Assistant Commissioner (LTS. Notwithstanding the said provisions. MODE OF PAYMENT Upon filing of the application for/acceptance of the offer to avail of the Abatement Program. WHO MAY AVAIL  Any person/taxpayer.202 Tax Remedies Under The NIRC 1. • It includes taxpayers who have already paid any portion of the increments (surcharge. Large Taxpayers Service – for large taxpayers cases under the jurisdiction of the Large Taxpayers Service. Assessment Division – for RO cases with administrative protest. natural or juridical where the assessment notice has been released as of Nov. the interest assessed shall be considered as the basic tax which should be paid to be able to avail of this Program. 2. SECTION 7. the amount offered in complete settlement of the delinquent account/assessed tax cases shall be paid. the payment may be made to the Revenue Collection Officer/ Deputized Treasurer of the City/Municipality of the RDO/LTDO that has jurisdiction over the taxpayer. interest. SECTION 6. provided. g. the approved staggered payment is automatically nullified and the delinquent account or assessment shall be reverted to the original assessed amount plus the statutory increments incident to delinquency. etc. interest and compromise penalties) for late payment. Legal Service – for NO cases that are for judicial action or with judicial protest and/or administrative protest involving legal issue.) or any delinquent taxpayers who have already remitted 100% of the basic withholding tax and was assessed penalties (surcharge. • In this case. 30. they have paid 100% or more of the basic tax as originally assessed. NonGovernmental Agencies. or Enforcement). Local Government Units. Legal Division – for RO cases with judicial protest or for judicial action or with Administrative protest involving legal issues. Nonetheless. Collection. as abated. 2. n. If the amount. •  Who may not avail: • SECTION 5. and they will waive any claim for refund of what they may have already paid. Staggered payments of the amounts payable under the Program may be considered on a case to case basis in accordance with the existing Regulations of the Bureau of Internal Revenue upon approval of the Regional Director for regional cases. Taxpayers with existing tax cases on which the PCGG has/have an interest. f. Enforcement Service – for tax cases handled by the National Investigation Division of the NO. accepted and processed with the following offices: a. 2007 subject to extension by the Commissioner of Internal Revenue on meritorious grounds.) on their tax liabilities. Where to pay: 1. which shall be collected thru the summary remedies and/or judicial processes provided for by law. SECTION 4. c. e. cases pending in courts shall not be withdrawn unless the concerned taxpayer fully pays 100% of the basic tax. etc. Revenue District Office – for regional accounts under its jurisdiction. b. In the absence of AABs. the office which has possession of the docket of the case shall receive and process all applications for abatement of penalties/ surcharge and interest on delinquent accounts and assessed tax cases. • MEMORY AID IN TAXATION LAW Government Withholding Agents (e.

Concerned Group of the Large Taxpayers Service (LTS) — For Large Taxpayers Cases under the jurisdiction of the concerned group of the Large Taxpayers Service. CA and SC. including surcharge and interest. This paves the legal avenue for the abatement thereof because pursuant to Section 204(B) of the Code. SECTION 1. a photocopy of the Application for Abatement as well as of the payment form shall be given to the concerned Legal Office for its information/coordination with appropriate collecting office/TWC. Accredited Agent Bank (AAB) of the RDO/ LTS/Large Taxpayers District Office (LTDO) that has jurisdiction over the taxpayer. c) Withholding tax cases. PURPOSE. b. COVERAGE. if the case is under judicial protest. therefore. RTC. or the administration and collection costs involved do not justify the collection of the amount due. however. Justification: Before an assessment reaches finality. The application shall consist of the following: a) b) c) Letter request by the taxpayer for abatement of penalties and interest. and Pre-assessment Notice (PAN) or Final Assessment Notice (FAN). e. and Civil tax cases being disputed before the Department of Justice and the courts. Revenue District Office (RDO) — For Regional Office Cases under the jurisdiction of the concerned district. 2007. TIME FOR PAYMENT OF THE 100% BASIC TAX ASSESSED. Accomplished Application for Abatement Form (Annex “A”). In the absence of an AAB. Large Taxpayer's Service (LTS). Revenue District Office. unless extended by the Commissioner on meritorious grounds. Enforcement Service and other Offices in the National Office. shall be excluded: a) Cases involving issues decided by the Supreme Court with finality unless the issues involved difficult question of law or issues without established precedent ruling or Supreme Court Decision at the time of the transaction. To be filed with the: a. 2008. be forwarded to the appropriate Technical Working Committee (TWC) for its review and evaluation. and  The abatement docket or record consisting of the “Application for Abatement of Penalties and Interest” of basic tax shall. Collection Service.San Beda College of Law 203 2008 CENTRALIZED BAR OPERATIONS Revenue Regulations No. shall be covered hereof: a) Cases under administrative protest pending in the Regional Office. involving taxable year ending December 31. SECTION 3. PLACE FOR FILING APPLICATION FOR ABATEMENT OF PENALTIES AND INTEREST. with the Revenue Collection Officer/Deputized Treasurer of the concerned BIR Office that has jurisdiction over the taxpayer. thereafter. 15-2007 Regulation Allowing for the Abatement of Penalties/Surcharges and Interest on Disputed/Litigated Assessments. The following cases. the Commissioner is authorized to abate or cancel tax liability and/or the penalties thereon when the tax or any portion thereof which appears to be unjustly or excessively assessed.  However. SECTION 4. SECTION 2. Cases where the Presidential Commission on Good Government (PCGG) has an interest and/or there is a need to coordinate with the PCGG. b) . by way of application for payment of basic tax and abatement or cancellation of all penalties. the liability of the taxpayer is not yet certain and. CTA. with duly issued Assessment Notice as of November 29. 2005 and prior years. disputed/ protested administratively or judicially. including cases with decision which are not yet final and executory. • The following cases. The filing of the application and payment of an amount equal to 100% of the Basic tax assessed shall be made not later than February 29. Where to pay: 1.. the imposition of penalties at this stage appears to be unjust and/or makes the assessment excessive. To give the taxpayers the opportunity to settle their preliminary or final assessments. b) 2. MTC.g. Legal Service. as amended.

RR. both of the National Internal Revenue Code of 1997. in relation to Section 7(c). •  General rule: The recommendation of the aforementioned Officials. The processing of the cases shall be coursed through the following officials: a. shall    END OF TAX REMEDIES UNDER NIRC  . this program covers just the abatement of penalties and interest. PROCESSING TIME. for the evaluation and review of any application for abatement of taxpayers under the jurisdiction of the Region.. 3 hereof to the respective TWCs within five (5) days from receipt by said office. Like RR No. through a majority vote of all the members.e. and Authority to Cancel Assessment (ATCA) pertinent to that portion of the assessment (i. Nonetheless. the penalties/interest) abated. shall be the basis of the approval or disapproval by the Commissioner of the application. Exception: With respect to abatement of penalties and interest on protested/disputed assessments of taxpayers under the Large Taxpayer's Service (LTS). the tax case is accordingly terminated through the issuance of a Termination Letter. No. the concerned Officials. penalties and/or interest pursuant to Section 204(B). 3-2007. No. and The Assistant Commissioner/ Concerned Head Revenue Executive Assistant of the LTS. RR. The concerned TWC has fifteen (15) days within which to act on the case. through their respective TWCs. first have its recommendation approved or disapproved by Management Committee (MANCOM). before the same is elevated to the Commissioner for appropriate action.204 Tax Remedies Under The NIRC MEMORY AID IN TAXATION LAW SECTION 5 APPROVAL OF ABATEMENT. through the concerned TWC. • b. • • Upon approval by the Commissioner. this regulation likewise provides for abatement of penalties/ surcharges and interest but ONLY on DISPUTED AND LITIGATED ASSESSMENT. • The Commissioner has the sole authority to abate or cancel internal revenue taxes. The Deputy Commissioner-Operations Group. 15-2007 is the most recent regulation governing abatement of penalties/surcharges and interest. SECTION 6. 3-2007 governs abatement of penalties/surcharges and interest on delinquent assessments WHETHER DISPUTED OR NOT. for the evaluation of application for abatement of taxpayers under the jurisdiction of the Large Taxpayers Service. The application for abatement or cancellation of penalties and/or interest should be transmitted by the concerned Offices mentioned in Sec.

p. Ramon Alfredo Dela Cruz. Sol Pejo. Jennifer Bautista. Aileen Artificio. fees. Leonardo Mendoza II. AYN SARSABA vice chair for operations. Deepee Salazar. 2006). Maria Joy Toledo.San Beda College of Law 205 2008 CENTRALIZED BAR OPERATIONS TAXATION LAW LOCAL TAXATION LOCAL TAXATION Introduction Introduction “Each local government unit shall have the power to create its own sources of revenues and to levy taxes. Under the present constitutional rule. Province of Laguna.” The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations (by Fr. Ryan Pingol. Irene May Junio. MAUREEN SEYMOUR JAVIER local taxation and real property taxation. Moreover. JULIUS BABALCON tariff and customs code. Julian Adarlo. John Ray Concepcion. James Agustin. Karren Amparo. Donelle Jay Quilates. G. The only authority conferred to Congress is to provide the guidelines and limitations on the local government’s exercise of the power to tax (Dimaampao. GRN 162015. Mariflor Reyes.R. ARLENE ALDAY and NELSON SALVA JR. Katherine Jane Manarang. Jan Reiner Uy. JEFFREY GALLARDO vice chair for edp. They no longer have to wait for a statutory grant of these powers. Commissioner of the 1986 Constitutional Basis of Local Power Commission. ANTHONY PURGANAN vice chair for academics. 5. 131359. “where there is neither a grant nor a prohibition by statute. ROWENA MUTIA tables and annexes MEMBERS: Maria Evitha Abante. Vincent Cablao. The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers” (Manila Electric Company vs. Such taxes. Cristiellane Valerio and Sherwin P... Congress cannot abolish the local government’s power to tax as it cannot abrogate what is expressly granted by the fundamental law. et al v. Joaquin Bernas. EXECUTIVE COMMITTEE VISMARCK UY over-all chair. et al. Masha Mariano. Pascua . MARK ANTHONY DIZON. APRIL CABEZA chair academics operations. 1987 Philippine Constitution) Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. Inc. the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. tax remedies. Mary Joy Aquino. Nevertheless. Ralph Jerome Salvador. KARLA FUNTILA vice chair for finance. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. May 5. 1999). Lauren Rose Tanyag. Erwin Legaspi. No. Jay Martin Celzo. Herbert Abugan. Jennylyn Valencia. Micael Ortiz Luis. value added tax. Raul Canon. MAUREEN ROSE OBON income taxation. RONALD JOHN DECANO vice chair for secretariat. ALDEAN LIM chair hotel operations. Aldren Abrigo. these limitations must be “consistent with the basic policy of local autonomy. and charges subject to such guidelines and limitations as the Congress may provide. Bayan Telecommunications. Diana Rabanal. MARK JULIUS ESTUR estate taxation. MINERVA JIMENEZ donor’s tax and court of tax appeals. Joanne Mosquera. Precious Angela Lledo. March 6. ULYSSES GONZALES vice chair for logistics TAXATION LAW IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. fees and charges shall accrue exclusively to the local governments” (Sec. The City Government of Quezon City. Ray John Bangi. Kathryn Joy Hautea. 113). Article X. Maureen De Castro. John Zernan Sambahon. Karla Funtila. UNTAYAO edp MARIEL MAILOM general principles. consistent with the basic policy of local autonomy.

local governments to vary the rates of taxation (Vitug. Public hearing is required with quorum. 162051). no longer merely be virtue of a valid delegation as before. but pursuant to direct authority conferred by Section 5. Inc. Shall be uniform in each local sub-unit. LGC) Shall be exercised by the Sanggunian of the LGU concerned through an appropriate ordinance LOCAL TAX ORDINANCE (Secs. f. The revenues collected under the Code shall inure solely to the benefit of. and Each LGU shall. Satisfy the requirements of procedural and substantive due process.. oppressive. As explained in Mactan Cebu International Airport Authority: “The power to tax is primarily vested in the Congress. public policy. e. however. LGC) (P2IE C2U2) a. 130. G. p. Shall not be contrary to law. and subject to disposition by the LGU levying the tax or other imposition unless otherwise specifically provided therein. as far as practicable. fees and charges Nature of the Taxing Power Not Inherent. 187-188. LGC): a. evolve a progressive system of taxation. must be consistent with the basic policy of local autonomy. the power of local government units to tax is still limited. No. to a limited extent and within certain parameters.the basic doctrine on local taxation remains essentially the same (City of Quezon City vs. fees and other impositions. NOTE: While the system of local government taxation has changed with the onset of the 1987 Constitution. Shall be equitable and based as much as possible on the taxpayer’s ability to pay. voting and approval and/or veto requirements complied with. Under the latter. 2. Section 5 of the 1987 Constitution now in place.R. or confiscatory. Local Taxing Authority (Sec. LGC) Requirements: 1. c. Exercised by delegation of the Constitution or law. Shall not be unjust. . Collection of local taxes and other impositions shall not be let to any person. LGC) Local Government Taxation Imposition of license taxes. c. the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which. in our jurisdiction. Article X of the Constitution. Fundamental Principles Governing Local Taxation (Sec. including community tax Real Property Taxation System of levy on real property imposed on a country-wide basis but authorizing. h. Local Government Taxation (Secs. g. it may be exercised by local legislative bodies. excessive.” Clearly then. national economic policy. or in restraint of trade. a. 129. and . 428) Local Government Taxation Local Government Taxation THE LOCAL GOVERNMENT UNIT HAS THE POWER (Sec. d. 197-283. subject to limitations as may be imposed by the legislature. b. b. while a new slant on subject of local taxation now prevails in the sense that the former doctrine of local government units’ delegated power to tax had been effectively modified with Article X. however. Local Government Code) Real Property Taxation (Secs. Bayan Telecommunications. b.206 Local Taxation MEMORY AID IN TAXATION LAW Scope/Aspects of Local Taxation a. 128-196. Levied for public purposes. 132. To create its own sources of revenue and To levy taxes. Not absolute. b.

San Beda College of Law
3. Publication of ordinance within 10 days from approval for 3 consecutive days in a newspaper of general circulation and/or posting in at least 2 conspicuous and publicly accessible places.

207 2008 CENTRALIZED BAR OPERATIONS against any unjust and unreasonable exercise of the taxing powers by ensuring that the taxpayers are notified through publication of the existence of the measure, and are therefore able to voice out their views or objections to the said measure (CocaCola Bottlers Phils. Inc. vs. City of Manila, G.R. No. 156252, June 26, 2006). The amending law, having been declared as null and void, in legal contemplation, therefore, does not exist. As held by this Court in the case of People v. Lim, if an order or law sought to be amended is invalid, then it does not legally exist, there should be no occasion or need to amend it (Coca-Cola Bottlers Phils. Inc. vs. City of Manila, supra).

It is clear from [Sec. 188, LGC and Art. 277, IRR] that the requirement of publication is MANDATORY and leaves no choice. The use of the word “shall” in both provisions is imperative, operating to impose a duty that may be enforced (Soco v. Militante, G.R. No. L-58961 June 28, 1983). It bears emphasis, that, strict observance of the said procedural requirement is the only safeguard

Powers
A. B. C. D. Specific Power of LGU to Impose Taxes Common Revenue-Raising Powers of LGUs Power to Levy Community Tax Powers under Miscellaneous Provisions d. e. f. g. h. distributors, dealers or retailers of essential commodities; On retailers; On contractors and other independent; On banks and other financial institutions; On peddlers engaged in the sale of any merchandise or article of commerce; or On any business, not otherwise specified in the preceding paragraphs, which the Sanggunian concerned may deem proper to tax.

TAXES AND OTHER IMPOSITIONS THAT THE LGU MAY LEVY
PROVINCES (Secs. 134-141, lgc) 1. 2. 3. 4. 5. 6. 7. Tax on Transfer of Real Property Tax on Business of Printing and Publication Franchise Tax Tax on Sand, Gravel and other Quarry Resources extracted from Public Land Professional Tax Amusement Tax Annual Fixed Tax for every Delivery Truck or Va n o f M a n u f a c t u r e r s o r P r o d u c e r s , Wholesalers of, Dealers, or Retailers in, certain products 2.

Municipal non-revenue fees and charges The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces (Sec. 147, LGC). Rates of Tax Within the Metropolitan Manila Area (Sec. 144, LGC)

Not to exceed by 50% the maximum rates prescribed in the preceding Section. Payment of Business Taxes (Sec. 146, LGC) a. It 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. The tax on a business must be paid by the person conducting the same. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC • which are subject to the same rate of tax, the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. which are subject to different rates of tax, the gross sales or receipts of each

MUNICIPALITIES 1. Municipal Taxes – taxes on the businesses of the following (Sec. 143, LGC): a. On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind; On wholesalers, distributors, or dealers in any article of commerce of whatever kind; On exporters, and on manufacturers, millers, producers, wholesalers, b. c.

b. c.

208 Local Taxation business shall be separately reported for the purpose of computing the tax due from each business. CITIES (Sec. 151, lgc) • The city may levy the taxes, fees, and charges which the province or municipality may impose. The tax rates that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of professional and amusement taxes.

MEMORY AID IN TAXATION LAW

constructed by the local government unit concerned Exceptions (to # 3): a. Officers and enlisted men of the AFP and PNP; b. Post office personnel delivering mail; and c. Physically handicapped and disabled citizens who are sixtyfive (65) years or older (Sec. 155, LGC). When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use (Section 155, LGC).

BARANGAYS (Sec. 152, lgc) Barangays may levy the following taxes, fees, and charges which shall accrue exclusively to them: a. Taxes – On stores or retailers with fixed business establishments with the gross sales or receipts for the preceding calendar year of P50,000 or less (for barangays in the cities) and P30,000 or less (for barangays in municipalities) Rate – not exceeding 1% of such gross sales or receipts. Service Fees or Charges – For services rendered in connection with the regulation or the use of barangayowned properties or service facilities such as palay, copra or tobacco dryers Barangay Clearance – No city or municipality may issue any license or permit fee for any business or activity unless a clearance is first obtained from the barangay where such business or activity is located or conducted. Other Fees and Charges – The barangay may levy reasonable fees and charges: 1. 2. 3. On commercial breeding of fighting cocks, cockfights and cockpits; On places of recreation which charge admission fees; and On billboards, signboards, neon signs and outdoor advertisements.

COMMUNITY TAX
I. Who are authorized to levy? Cities or municipalities may levy a community tax (Section 156, LGC). A. Individuals Liable (Sec. 157, LGC) a. b. Every inhabitant of the Philippines; Under any of the following circumstances: i. 18 years of age or over, who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year; or Who is engaged in business or occupation; or

b. c.

II. Who are liable?

d.

ii.

e.

iii. Who owns real property with an aggregate assessed value of P1,000 or more; or iv. Who is required by law to file an income tax return B. Juridical Persons (Sec. 158, LGC) Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax. Exempted from paying the Community Tax: a. b. Diplomatic and Consular Representatives; Transient visitors when their stay in the Philippines does not exceed three (3) months (Section 159, LGC)

COMMON REVENUE-RAISING POWERS (Secs. 153-155, LGC)
1. Reasonable fees and charges for services rendered 2. Public utility charges for the operation of public utilities owned, operated and maintained by LGUs within their jurisdiction. 3. Toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and

III. Tax Rate A. Individuals – P5.00 plus P1.00 for every P1, 000.00 income regardless of whether

San Beda College of Law
from business, exercise of profession or from property which in no case shall exceed P5, 000. In case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them. B. Juridical Persons – P500 but not exceeding P10,000 in accordance with the following schedule: 1. For every P5,000 worth of real property owned by it during the preceding year based on the valuation used for the payment of the real property tax – P2.00. for every P5,000 of gross receipts or earnings derived by it from its business in the Philippines during the preceding year – P2.00. The dividends received by a corporation shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation (Section 158, LGC). IV. Place of Payment: residence of the individual, or in the place where the principal office of the juridical entity is located. V. Time of Payment: 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. VI. Penalty for delinquency: an interest of 24% per annum from the due date until it is paid shall be added to the amount due. Community Tax Certificate It is issued to every person or corporation upon payment of the community tax. It may also be issued to any person or corporation NOT subject to the community tax upon payment of P1.00 (Section 162, LGC). The presentation of the community tax certificate shall not be required in connection with the registration of a voter. Presentation of Community Tax Certificate on Certain Occasions (Sec. 163, LGC) A. Individual 1. when an individual subject to the community tax acknowledges any document before a notary public; takes the oath of office upon election or appointment to any position in the government service; 2. 3. 3.

209 2008 CENTRALIZED BAR OPERATIONS receives any license, certificate or permit from any public authority; pays any tax or fee; receives any money from any public fund; transacts other official business; or receives any salary or wage from any person or corporation. receives any license, certificate or permit from any public authority; pays any tax or fee; receives money from public funds; or transacts other official business. The city of municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions (Sec. 164, LGC). The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. Proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows:

4. 5. 6.

B. Corporation 1. 2. 3. 4.

2.

• •

50% accrues to the general fund of the city or municipality concerned; and 50% accrues to the barangay where the tax is collected.

OTHER POWERS IN THE LGC
Power to Prescribe Penalties for Tax Violations and Limitations Thereon (Sec. 516, LGC) • 1. Limited as to the amount of imposable fine as well as the length or period of imprisonment The Sanggunian is authorized to prescribe fines or other penalties for violations of tax ordinances, but: • in no case shall fines be less than P1,000 nor more than P5,000 nor shall the imprisonment be less than one (1) month nor more than six (6) months.

Such fine or other penalty shall be imposed at the discretion of the court. The Sangguniang Barangay may prescribe a fine of not less than P100 nor more than P1, 000.00.

2.

Power to Adjust Local Tax Rate (Sec. 197, LGC) Adjustment of the tax rates as prescribed herein should not be oftener than once every five (5) years, and in no case shall such adjustment

210 Local Taxation exceed ten percent (10%) of the rates fixed under the LGC. Power to Grant Local Tax Exemptions (Sec. 192, LGC) Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions, as they may deem necessary. The power to grant tax exemptions, tax incentives and tax reliefs shall not apply to regulatory fees which are levied under the police power of the LGU. Tax Exemption Certificate Tax exemptions shall be conferred through the issuance of a non-transferable tax exemption certificate. Guidelines for the Granting of Tax Exemptions, Incentives and Reliefs (Art. 282 [b], IRR of LGC) 1. On the grant of tax exemptions or tax reliefs: a. The same may be granted in cases of natural calamities, civil disturbance, general failure of crops, or adverse economic conditions such as substantial decrease in prices of agricultural or agribased products. The grant shall be through an ordinance. Any exemption or relief granted to a type or kind of business shall apply to all business similarly situated. Shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided in the ordinance. In the case of shared revenues, the exemption or relief shall only extend to the LGU granting such exemption or relief. 4. The same shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefor. The grant shall be for a definite period not exceeding 1 calendar year. The grant shall be by ordinance passed prior to the 1st day of January of any year. Any grant to a type or kind of business shall apply to all businesses similarly situated. 5.

MEMORY AID IN TAXATION LAW

corporations are hereby withdrawn upon the effectivity of the LGC except the following: a. b. c. Local water districts Cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and Educational institutions. RESIDUAL TAXING POWER (Sec. 186, LGC) General Rule: LGU’s may exercise the power to levy taxes, fees or charges on any base or subject. Exceptions: 1. 2. 3. Specifically enumerated in LGC Taxed under the provisions of the NIRC, as amended, and Other applicable laws

Conditions in the exercise of residual taxing powers: 1. That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy; That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose. 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, particularly the requirement that they must not be “unjust, excessive, oppressive, confiscatory, or contrary to declared national policy” (Section 186, LGC) The requirement prescribed in Section 186 of the LGC, which directs that the ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose The principle of preemption. Principle of Preemption or Exclusionary Doctrine Where the National Government elects to tax a particular area, it impliedly withholds from the local government the delegated power to tax the same field. This doctrine principally rests on the intention of the Congress. Conversely, should the Congress allow municipal corporations to cover fields of taxation it already occupies then the doctrine of preemption will NOT apply (Victorias Milling Co., Inc. vs. Municipality of Victorias Negros Occidental, G.R. No. L-21183, Sept. 27, 1968).

2.

b. c.

Limitations of the Residual Power: 1. 2.

d.

3.

e.

2.

On the grant of tax incentives: a.

b. c. d.

Tax Exemptions Existing Before the Effectivity of the LGC Has Been Abolished (Sec. 193, LGC) Unless otherwise provided by the LGC, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled

14. and charges imposed under special laws. Common Limitations on Local Taxing Powers (Sec. except as otherwise provided in the Code. tonnage dues and all other kinds of customs fees. fees and charges where the imposition of which contravenes existing governmental policies or which are violative of the fundamental principles of taxation 4. (Cooperatives Code of the Philippines) . fees. inheritance. and taxes. 15 8. 10. which are imposed under the Tariffs and Customs Code. Classification of Common Limitations: 1. • 4. T axes on premiums paid by way of Reinsurance or retrocession. 211 2008 CENTRALIZED BAR OPERATIONS Taxes. fees or charges for the registration of motor vehicles and for the issuance of all . and local government unit. c. fees and other charges imposed under special law. 3. b. tolls for bridges or otherwise. 9. Taxes. from the date of registration. and 15. Estate tax. 13.A. etc. charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned. fees. fees. unless otherwise provided by LGC of 1991. Percentage or valueadded tax (VAT) on sales. 7. 6. legacies and other acquisitions mortis causa except as otherwise provided Customs duties. except as provided in the Code. 14. 11. Taxes. Taxes. Number 4 Taxes. Taxes on business enterprises certified by the Board of Investments as pioneer or nonpioneer for a period of 6 and 4 years. 2. 3. Income tax. which are imposed under the Tariffs and Customs Code • 3. 13. Excise taxes on articles enumerated under the NIRC. 5. etc. 6810 and R. registration fees of vessels and wharfage on wharves. 2. land or water. as amended. Local government units cannot levy: 1. LGC) (C2T2 DRIVE3 NAP2) These apply to all LGUs and are actually taxes or impositions which LGC excludes from the taxing power of local governments. gifts. Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air. d. Taxes which are levied under the NIRC. Numbers 5. except on banks and other financial institutions. 11. fees or charges on petroleum products. fees or charges of any kind on the National Government. Numbers 1. 6938. Documentary stamp tax. or passing through. Taxes.. the imposition of which contravenes existing governmental policies or which violates the fundamental principles of taxation. except tricycle. Taxes. 6. Taxes which are levied under the NIRC unless otherwise provided by the LGC • 2. respectively. barters or exchanges or similar transactions on goods or services except as otherwise provided herein. etc. Taxes. 8. charges and other impositions upon goods carried into or out of. 133. 7. the territorial jurisdictions of local government units in the guise of charges for wharfage. fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen. Taxes. 12.San Beda College of Law Excluded impositions pursuant to the doctrine of preemption: a. fees or other charges on Philippine products actually exported. • Number 12 9. Taxes. Taxes. kinds of licenses or permits for the driving thereof. 10 Taxes. fees. fees. its agencies and instrumentalities.A. fees or charges on Countryside and barangay business enterprises and cooperatives duly registered under R.

project office..R. According to Sec. 165. producer. GR: 1st day of January. When there is a branch or sales outlet c. fees. Principal office – the head or the main office of the business. Time of Payment (Sec 167.LGC) . When there is no branch or sales outlet• 3. 21. Inc. vs. • Municipality or city where the branch or outlet making the sale or transaction is located. vs. interest on the unpaid amount or 169. S a l e s Ta x – i t i s t h e p l a c e o f t h e consummation of the sale. or their duly authorized deputies. fees and charges shall be collected by the provincial. not upon the location of the office. 1. According to Cases Excise Tax – not dependent on the domicile of the taxpayer. charges or Accrual of Tax changes in rates thereof – 1st day (Sec. but only for a period not exceeding 6 months Surcharge not exceeding 25% of the amount of TFC including surcharges. b. Collection of Taxes Tax Period/ Manner of Payment (Sec. Collection of Local Revenues by the Treasurer (Sec. contractor. May be paid in QUARTERLY installments At the rate not exceeding 2% per Interests on month from the date it is due until it other Unpaid is paid. G. until such amount is FULLY paid. for justifiable reason/ cause. City Mayor of Manila. Charges (TFC) (Sec. Municipality of Sipocot. If manufacturer. In case a bond is required for the purpose. 166. • Pro rata if FPPP are located in different municipalities or cities in proportion to their respective volumes of production. and not merely the place of the perfection of the contract (Shell Co. the foregoing 70% shall be subdivided as follows: • 60% to the city or municipality where the factory is located. assembler. LGC) All local taxes. Fees. The provincial. municipal or barangay treasurer. 1959).LGC) of the quarter next following the effectivity of the ordinance imposing such GR: w/in the 1st 20 days of January or of each subsequent quarter.12680 March 20. The period may. 168. the city or the municipality specifically mentioned in the Articles of Incorporation or official registration papers as being the official address of said principal office shall be considered the situs thereof.40296 Nov. 150.. city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes. city. 30% of recorded sales in the principal office: city or municipality where the principal office is located. 170. Municipality or city of principal office (not in the place of sale) 2.212 Local Taxation MEMORY AID IN TAXATION LAW Situs of Local Taxation A. Camarines Sur G. as the case may be. and • 40% to the city or municipality where the plantation is located. the provincial. city or municipal government shall pay the premiums thereon in addition to the premiums of the bond that may be required under the Code. 1984). 70% of recorded sales in the principal office: city or municipality where the FPPP is located. B.No. in no case shall the total Revenues (Sec. 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.LGC) General Rule: Calendar year. LGC Branch or sales office – a fixed place in the locality which conducts the operation of the business as an extension of the principal office.LGC) Surcharges & Penalties on Unpaid Taxes. but on the place in which the act is performed or the occupation is engaged in. If plantation is located in some place other than where the factory is located. but the place where the sale is perfected (Allied Thread Co. in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months. Inc. or exporter (MACPE) with factory. fees or charges.R. be extended w/out surcharges or penalties. No. New taxes. plant or plantation (FPPP): a. LGC) portion thereof exceed 36 months.

and that of all his family. CFI of Isabela. By administrative action through distraint of personal property and by levy upon real property i. LGC): 1. Note: The remedies of distraint and levy may be repeated if necessary until the full amount due including all expenses is collected. . such as the delinquent taxpayer may select. March 31. fee and penalty due to him  Advertisement for sale or auction of the property levied for 30 days  Sale  Report of the sale to the Sanggunian  Delivery to the purchaser of the certificates of sale  Disposition of the proceeds of the sale by application of such proceeds to the delinquency and expenses of sale  Return to the taxpayer of any excess in the proceeds of the sale  Redemption of the property within 1 year from date of sale  After lapse of the 1 year redemption periodexecution of the final deed to the purchaser in case there is failure to redeem Note: Levy shall be effected by writing upon said certificate the description of the property upon which levy is made.00. enforceable by any appropriate administrative or judicial action. Civil Remedies a. one (1) horse. 185. 5. 2. such as he may select. provisions. 2. vs. GR No. Local Government’s Lien – Local taxes. charges or encumbrances in favor of any person. household furniture and utensils for housekeeping and used for that purpose by the delinquent taxpayer. fees. the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. Levy Delinquency  Levy of real property before. ii. tools and implements necessarily used by the delinquent taxpayer in his trade or employment. and necessarily used by him in his ordinary occupation. Properties Exempt from Distraint and Levy (Sec. 4. superior to all liens. charges and other revenues constitute a lien. Distraint Seizure or confiscation of assets in sufficient quantity to satisfy the liability  Accounting of distrained goods  Publication of the sale of distrained properties  Sale  Disposition of the proceeds of the sale by application of such proceeds to the delinquency and expenses of sale  Return of balance to the owner Note: Where the proceeds of the sale are insufficient to satisfy the claim. 3. other properties may be distrained. carabao. simultaneous or after distraint of personal property belonging to delinquent taxpayer  Local treasurer shall prepare a duly authenticated certificate showing the name of taxpayer and amount of tax. Such statutory lapse or intent may have allowed preliminary injunction where local taxes are involved. actually provided for individual or family use sufficient for four (4) months. or other beast of burden. 49529. Note: Unlike the NIRC.000. in like manner. But it cannot negate the procedural rules and requirements under Rule 58 of the Rules of Courts (Valley Trading Co. 1989). his necessary clothing. cow. including crops. of a value not exceeding P10.San Beda College of Law 213 2008 CENTRALIZED BAR OPERATIONS Local Tax Remedies Under the LGC TAX REMEDIES OF THE LGUS CIVIL REMEDIES OF THE LOCAL GOVERNMENT UNITS (LGU) TO EFFECT COLLECTION OF TAXES 1.

196. wholly or wholly or partly. by judicial action • Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the LGU concerned MEMORY AID IN TAXATION LAW 8. the partly with notice to assessment. unlike in internal revenue taxes. Protest Against a Newly Enacted Ordinance – any question on constitutionality or legality of tax ordinance within 30 days from effectivity thereof to Secretary of Justice. It is to be noted that. c. Right of redemption – 1 year from the date of sale or from the date of forfeiture (Sec. Protest – IF THERE IS A PROTEST: within 60 days from receipt of notice of assessment file a written protest with the local treasurer (Sec. LGC). LGC) if no action is taken by the treasurer in refund cases and the two–year period is about to lapse (Sec.00. b. and Any material or article forming part of a house or improvement of any real property. LGC) within 30 days from receipt when protest of assessment is denied (Sec. the assessment becomes conclusive and unappealable. 195. 9282. If it finds the protest or If not meritorious. Court action • • • • 2. engineers. Action for declaratory relief Injunction – if irreparable damage would be caused to the taxpayer and no adequate remedy is available. Regular judicial courts are not prohibited from enjoining the collection of local taxes. LGC) If remedies available does not provide plain. speedy and adequate remedy. IF NO PROTEST: the assessment shall become final and executory. TAX REMEDIES OF THE TAXPAYER ADMINISTRATIVE Before assessment: a. who shall render a decision within 60 days from the date of the receipt of the appeal (Sec. After assessment: a. With the amendment brought by RA No. the professional libraries of doctors. LGC). 195. Such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax. Payment and subsequent refund or tax credit – within 2 years from payment of tax to local treasurer (Sec. otherwise. b. 187. ⬋⬊ . the Court of Tax Appeals now has appellate jurisdiction over local taxation cases decided by the Regional Trial Court in the exercise of its appellate or original jurisdiction. 187.  Taxpayer shall have 30 days from receipt of the denial of the protest OR from the lapse of 60 day period prescribed within which to appeal with the court of competent jurisdiction. in in part. Declaratory relief whenever applicable.214 Local Taxation 6. not exceeding the total value of P10. Payment under protest is not necessary. by the lawful use of which a fisherman earns his livelihood. lawyers and judges. 7. b. b.000. Jurisdiction of courts over local taxation cases: a. 3. LGC). one fishing boat and net. within 30 days after receipt of decision or lapse of 60 days of Secretary of Justice’s inaction (Sec. subject to Rule 58 (Preliminary Injunction) of the Rules of Court. 179. LGC).  Local Treasurer JUDICIAL 1. the supervening cause applies in local taxation because the period for the filing of claims for refund or credit of local taxes is counted not necessarily from the date of payment but from the date the taxpayer is entitled to a refund or credit. 195. he shall issue whole he shall deny a notice canceling the protest. the taxpayer.

Real Property Taxation Real Property Taxation Fundamentals other structures and improvements on it. LGC). under Section 234(a) of the LGC. 194. LGC). LGC). 194. It should be noted that the power to fix real estate tax rates does not extend to municipalities. LGC) 1. Imperial Mining Co. HOWEVER. Grounds for the Suspension of the Running of the Prescriptive Periods a. 194. tax on land and building and . or charges – five (5) years from the date they became due. Provinces 2.San Beda College of Law 215 2008 CENTRALIZED BAR OPERATIONS Prescriptive Periods for The Assessment and Collection of Local Taxes PRESCRIPTIVE PERIODS FOR ASSESSMENT 1. 194. LGC). including machineries. Who are authorized to Levy Real Estate Taxes? (Sec. fees. levy and collection of Real Property Tax. although the value may vary in accordance with such factor. The definition describes the real property tax or “realty tax” or “real estate tax” as a tax on ownership. Inc. 2. c. Municipalities in Metro Manila Area Extent of their Powers • They do not only have the power to levy real estate taxes BUT they may also fix real estate tax rates. Note: The taxing power of the LGUs in real property taxation is a delegated power. the SC observed that the policy of taxing real property is on the basis of the ACTUAL USE even if the user is not the owner (Province of Nueva Ecija vs. When there is fraud or intent to evade the payment of taxes. G. The treasurer is legally prevented from the assessment or collection of the tax. the property becomes taxable if the beneficial or actual use thereof is transferred for a consideration or otherwise to a taxable person.e. when the only local bodies authorized to fix tax rates were the provincial board in the case of province. appraisal. basis of which is Section 232 of the LGC. Under the LGC. assessment. 200. (Sec.. payable regardless of whether the property is used or not. fees.R. REAL PROPERTY TAXATION – A direct tax on ownership of lands and buildings or other improvements thereon. even if the real property in question is owned by the Government. The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect. Cities 3. b. Local taxes. Nov. i. fees or charges – ten (10) years from discovery of the fraud or intent to evade the payment (Sec. and the municipal board or city council in the case of a municipality or city. it covers the administration. No such action shall be instituted after the expiration of such period (Sec. Also. 19. or charges may be collected within five (5) years from the date of assessment by administrative or judicial action. it is worthwhile to note that in one decided case. PRESCRIPTIVE PERIOD OF COLLECTION Local taxes. No. 59463. 1982).. and The taxpayer is out of the country or otherwise cannot be located (Sec.

March 24. 415 of the Civil Code. 236. 2. LGC) 1. Local tax Fundamental Principles Governing Real Property Taxation (Sec. 232. Province 2. projects or improvements funded by the local government unit • 3. 20898) IMPROVEMENT . 5. Metro Manila 233. Additional Ad Valorem on Idle Lands . The appraisal. LGC).1% additional real estate tax to finance the special education fund (Sec. Basic Real Property Tax 2. Special Education Fund (SEF) . and The appraisal and assessment of real property shall be equitable. Jamarillo G.No. 1. 1992) – LGUs are authorized to impose an additional one-half percent (0. except those lands which are exempted from the coverage of RA 7279. City Rate of Basic Real Property Tax not exceeding 1% of assessed value not exceeding 2% • . 240. may be imposed even by municipalities outside Metro Manila provided: Special levy shall not exceed 60% of the actual cost of such projects and improvements. Not Idle Lands: • Agricultural lands planted to permanent or perennial crops with at least 50 trees to a hectare Lands actually used for grazing purposes shall likewise not be considered idle lands 3. 236.not exceeding 5% of the assessed value of the property (Sec. Real property shall be appraised at its current and fair market value. Indivisible single obligation 5. It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property (Standard Oil Co. Municipality within not exceeding 2%.216 Local Taxation Note: No public hearing shall be required before the enactment of a local tax ordinance levying the basic real property tax. LGC) Ad Valorem Tax – a levy on real property determined on the basis of a fixed proportion of the value of the property Special Levies A. Characteristics of Real Property Tax MEMORY AID IN TAXATION LAW LGU Rate of Basic Real Property Tax 3. For Public Works – on lands specially benefited by public works. (Sec. Ad valorem tax – The value is based on the tax base C. including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land has been donated to the local government unit concerned for the construction of said projects (Sec. Imposed by Other Laws Socialized Housing Tax (RA 7279. Special Levies BASIC REAL PROPERTY TAX LGU 1. Proportionate – the tax is calculated on the basis of a certain percentage of the value assessed 4. levy and collection of RP Tax shall not be left to any private person. Real property shall be assessed on the basis of uniform classification within each LGU. 198. For taxation purposes. 237. REAL PROPERTY – subject to the definition given by Art. LGC) - Within Metropolitan Manila area only 1. LGC) Taxing Authority (Sec. LGC) Agricultural lands More than 1 hectare – if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein. the term “real property” may include things that should be generally being regarded as personal property. 4. Real property shall be classified for assessment purposes on the basis of actual use. LGC). assessment. D.valuable addition made to a property or amelioration in its condition amounting to more than a mere replacement of parts involving capital expenditures and labor.R.5%) on the assessed value of all lands in urban areas in excess of Fifty-Thousand pesos. Direct tax on the Ownership of real property 2. What are considered as Idle Lands (Sec. of New York vs. B. Types of Real Property Tax 1.

3. city. e. or presently enjoyed by. 3. and It is based on actual use. LGC). the taxes and interest thereon for the succeeding year/s in the city or municipality affected by the calamity (Section 276. and exclusively used for the following purposes: 1. and improvements. utilizing or cultivating the same (Section 238. 3. and improvements actually. churches. * Special Classes of Real Property (Sec. the Sanggunian concerned. d. or municipality. wholly or partially. in area – if more than ½ of which remain unutilized or unimproved by the owner of the property or person having legal interest therein. No. c. or Any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving. 4. non-profit or religious cemeteries. 216. parsonages. natural calamity or any cause or circumstance which physically or legally prevents the owner of the property or person having legal interest therein from improving. directly and exclusively used by said entities or institutions for their stated purposes and not necessarily because they are owned by religious. actually. Owned and used by local water districts. All real property owned by duly registered cooperatives as provided under R. LGC) Lands. LGC) By reason of: 1. Exemptions from Real Property Tax (Sec. buildings. 217 2008 CENTRALIZED BAR OPERATIONS Exemptions from Real Property Tax Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted for consideration or otherwise to a taxable person. f. 6938. 2. 5. b. utilizing or cultivating the same. LGC). charitable or educational institutions All machineries and equipment that are actually. exempt idle lands from the additional 5% tax by reason of force majeure. any exemption from payment of real property tax previously granted to. all persons. b. 1. charitable or educational purposes. 238. Note: The tax exemption herein rest on the premise that they are actually. and all lands. or convents appurtenant thereto. civil disturbance. A. 234. Cultural and scientific purposes. LGC) Other Instances 2. and Machinery and equipment used for pollution control and environment protection. Question of Tax Exemption (Sec. directly. Hospitals. buildings. 4. 2. or calamity in the province. force majeure civil disturbance natural calamity. directly and exclusively used for religious. Proof of Tax Exemption Every person by or for whom real property is declared who shall claim the exemption shall file . 215. Classification of Lands for Purposes of Assessment (Sec. may condone or reduce. IDLE LANDS EXEMPT FROM TAX (Sec. in case of a general failure of crops or substantial decrease in the price of agricultural or agri-based products. • Commercial Agricultural Residential Mineral Industrial Timberland Special * Classification of lands is made by the respective Sanggunian in accordance with zoning ordinances. 4. Non-Agricultural Lands More than 1. LGC) General Rule: No provision in the LGC which expressly empowers LGUs to exempt real property from taxes Exemptions: a. Owned and used by GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. are hereby withdrawn upon the effectivity of the LGC Other Instances Wherein the LGUs May Grant Exemptions 1. Charitable institutions. LGC) (CAR-MITS) a. 234. directly and exclusively used by local water utilities and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. including all government-owned or controlled corporations. g.000 sq m. • Note: Except as herein provided. 2. whether natural or juridical. mosques. by ordinance passed prior to the first day of January of any year and upon recommendation of the Local Disaster Coordinating Council.San Beda College of Law 2.

For improvement on property: WHEN: must file within 60 days upon completion or occupation (whichever comes earlier) WHAT: sworn statement containing the fair market value and description of the property. II. No. city or municipal assessor. 90639. Taxes shall be computed on the basis of applicable schedule of values in force during the corresponding period. beneficial use is transferred to a taxable person – in the name of the possessor b. 222. administrator. LGC) WHEN: once every 3 years during the period from January 1 to June 30 commencing with the calendar year 1992 WHAT: file a sworn declaration with the assessor of the (1) true value of their property which shall be the current and fair market value of the property as determined by the declarant whether previously declared or not. Unpaid realty taxes attach to the property and are chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. • No oath by the assessor is required. 202 of the LGC refuses or fails to make a declaration within the prescribed time. valued and assessed in the name of the owner. Procedure in Administration of Real Property Tax DECLARATION OF REAL PROPERTY I. • c. 21. articles of incorporation. . B. and association – same as individuals owned by Republic of the Philippines. etc) MIAA’s Airport Lands and Buildings EXEMPT MIAA’s Airport Lands and Buildings are exempt from real estate tax imposed by local government. contracts. LGC) If declared for the first time. All declarations shall be kept and filed under a uniform classification system to be established by the provincial.e. (3) with description of the property. affidavits. Portion of that MIAA’s leases to private entities are not exempt from real estate tax. Feb. • STEP 1 If Property is Declared for the First Time (Sec. G. its instrumentalities. whoever owns it and whoever uses it. To impose the real property tax on the subsequent owner which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust (Estate of Lim vs. 202-203.218 Local Taxation with the provincial. title of ownership. (2) taxable or exempt. LGC) Real Property shall be classified. 1990). 204. 205. ACTUAL USE – refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.R. LGC) WHEN: only when the person under Sec.. city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (i. d. City of Manila. corporate charters. or anyone having legal interest in the property undivided real property – in the name of the estate or heirs or devisees Corporation. local governments cannot impose any kind of tax on national government instrumentalities like the MIAA (Manila International Airport Authority vs. political subdivision. A. MEMORY AID IN TAXATION LAW Actual Use of Property as Basis for Assessment (Sec. Declaration by Owner or Administrator (Sec. 217. Court of Appeals 495 SCRA 591). valued and assessed on the basis of its actual use regardless of where located. partnership. real property shall be assessed for back taxes for not more than 10 years prior to the date of initial assessment. by express mandate of the Local Government Code. in general – it shall be listed. STEP 2 LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS (Secs. 207. LGC) Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU a. Declaration by Provincial / City / Municipal Assessor (Sec. For newly acquired property: WHEN: must file with the assessor within 60 days from date of transfer WHAT: sworn statement containing the fair market value and description of the property.

PAYMENT AND COLLECTION OF TAX a. 246. LGC) 2. The owner of the property or the person having legal interest therein requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to collect. shall be posted in the provincial capitol. amount. • • For machinery 1. 255. Accrual of Tax: January of every year and such will constitute as a superior lien (Sec.San Beda College of Law STEP 3 b. shall be the responsibility of the city or municipal treasurer concerned. on or before June 30. 219. LGC). basic real property tax in 4 equal installments (on or before March 31. LGC) Assessor prepares a schedule of FMV for different classes of properties.on or before September 30. • • For Advance and Prompt Payment 1. 2. 2. Periods within which to Collect Real Property Taxes (Sec. 219 2008 CENTRALIZED BAR OPERATIONS Time and Manner of Payment (Sec. LGC). nature and value (Sec. 219. 342. The local treasurer is legally prevented from collecting the tax. 1. 224-225. 3. STEP 5 . 270. Life Cost * or Reproduction Cost d. 250. LGC) Determination of Fair Market Value (FMV) For land • Assessor of the province/city or municipality may summon the owners of the properties to be affected and may take depositions concerning the property. DETERMINE ASSESSED VALUE (Sec. 2. c. For Brand new machinery: FMV is the acquisition cost FMV = Remaining eco. city or municipality concerned or in the absence thereof.LGC) Sanggunian enacts a real property tax ordinance. 212-214. 218. city or municipal hall and in two other conspicuous public places therein (Sec. Grounds for the Suspension of the Running of the Prescriptive Periods (Sec. 2. LGC): 1. on or before December 30) special levy – governed by ordinance two percent (2%) for each month on unpaid amount until the delinquent amount is paid provided in no case shall the total interest exceed thirty-six (36) months Advance payment – discount not exceeding 20% of annual tax (Sec. 247. provided. 251. The city or municipal treasurer may deputize the barangay treasurer to collect all taxes on real property located in the barangay. 213. and the enforcement of the remedies provided by the LGC or any applicable laws. LGC) APPRAISAL AND VALUATION OF REAL PROPERTY (Secs. LGC) [PRO] 1. When there is fraud or intent to evade the payment of taxes – ten (10) years from discovery of the fraud or intent to evade the payment. 270. Life X Replacement * Estimated eco. LGC) General revision of property assessment is made (Sec. 2. 2. Take the schedule of FMV Assessed Value = FMV x Assessment level Tax = Assessed value x Tax rate STEP 4 Basic real property tax and any other tax levied under the title on Real Property Taxation – five (5) years from the date they became due (Sec. the barangay treasurer is properly bonded. The schedule of FMV is published in a newspaper of general circulation in the province. 212. IRR) Collection of Tax (Sec. 270. In all other cases: 1. Interest for Late Payment (Sec. and The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located Assessed Level – the percentage applied to the FMV to determine taxable value of real property 3. LGC) Determine Assessed Value/Taxable Value Procedure 1. its ownership. LGC) The collection of the real property tax with interest thereon and related expenses. LGC) Prompt payment – discount not exceeding 10% of annual tax due (Art.

expenses)  Redemption (within 1 year from date of sale)  Issuance of Final Deed to Purchaser (upon the delinquent taxpayer’s failure to redeem) • The proceeds of the sale in excess of the delinquent tax. LGC) – with notice of delinquency posted and published. amount of delinquent tax and its interests. LGC) – superior to all liens. II. 270. ADMINISTRATIVE 1. ADMINISTRATIVE 1. LGC) Issuance of Warrant by the LGU treasurer (on or before or simultaneously with the institution of civil action for collection of delinquent tax)  Advertise Sale or Auction (within 30 days after service of warrant by posting and publication)  Sale  Report of Sale (within 30 days after sale)  Preparation of Certificate of Sale (containing the name of the purchaser. LIEN (Sec. 270 LGC) – filed by the local treasurer within 5 or 10 years as provided in Sec. LGC) – in case there is no bidder for the real property advertised or if the highest bid is for an amount insufficient to pay the real property tax and other costs. 263. LGUs Tax Remedies I. PROTEST (involving questions of fact) Pay the Tax under Protest  File Written Protest with Local Treasurer (Within 30 days from payment of tax)    Approved  Apply for Tax Refund or Tax Credit Denied  Appeal with the LBAA – in case of denial of protest OR inaction of the treasurer after the lapse of 60 days  Appeal with the CBAA – within 30 days from receipt of adverse decision by LBAA  Appeal to the CTA – within 30 days from receipt of adverse decision rendered by CBAA Treasurer Decides (within 60 days from receipt of protest) 3. Taxpayer’s Remedies II. charges or encumbrances and is enforceable by administrative or judicial action. LGC. It is extinguished only upon payment of tax and other expenses LEVY (Sec. TAX REMEDIES OF THE TAXPAYER I. 270 of the LGC B. . 258. such action may be instituted for the collection of the same within 10 years from the discovery of such. Note: No action for the collection of the tax. TAX REMEDIES OF THE LOCAL GOVERNMENT TO EFFECT COLLECTION OF TAXES I. shall be instituted after the expiration of such period stated in Sec. I. Civil Action (Sec. the interest due thereon and the expenses of sale shall be remitted to the owner of real property or person having legal interest. DISTRAINT (Sec. Administrative Judicial Administrative Judicial 4. II. In case of fraud or intent to evade payment of the tax. 257. 266. whether administrative or judicial. JUDICIAL 1. 254. 2. description of the property.220 Local Taxation MEMORY AID IN TAXATION LAW Real Property Tax Remedies Under the LGC A. PURCHASE OF PROPERTY BY LOCAL TREASURER FOR WANT OF BIDDER (Sec. Personal property may be distrained for payment.

267. PROTEST (involving purely questions of law. 253. 221 2008 CENTRALIZED BAR OPERATIONS 4th within 15 days from receipt of decision of Court of Tax Appeals en banc to the Supreme Court. LGC) • within 1 yr from the date of the sale. When public interest so requires. city or municipal assessor to LBAA (Sec. By the President of the Philippines • A certificate of redemption shall be issued. b. 3. appeal to LBAA within 30 days as in protest case. LGC) 1 st within 60 days from notice of assessment of provincial. 2. LGC).D. 464) Suit assailing the validity of tax sale (Sec. 226. 464) Suit to declare invalidity of tax because of irregularity in assessment and collection (Sec. recovery or refund of taxes paid (Sec. . or his representative. APPEALS IN REAL PROPERTY TAXATION PROVINCIAL. or person having legal interest. CLAIM FOR TAX REFUND OR CREDIT (Sec. P. REDEMPTION OF REAL PROPERTY (Sec. LGC) 3rd within 30 days from receipt of decision of CBAA to Court of Tax Appeals en banc 4. shall have the right to redeem the property upon payment to the local treasurer of the following: a. 2. 64. With Supporting Documents ↓ LOCAL BOARD ASSESSMENT APPEALS (LBAA should decide within 120 days from receipt of petition) Within 30 days from receipt of decision from LBAA. LGC).g. 2. There is general failure of crops. d. Court Action – appeal of CBAA’s decision to Court of Tax Appeals en banc.D. LGC) 2nd within 30 days from receipt of decision of LBAA to CBAA (Sec. Written Petition under Oath 2. In case of denial of refund or credit. LGC) a. e. There is substantial decrease in the price of agricultural or agri-based products. P. The taxpayer may file a written claim for refund or credit with the provincial or city treasurer within two years from the date the taxpayer is entitled to such reduction or adjustment. the dissatisfied party may appeal to CBAA ↓ CENTRAL BOARD OF ASSESSMENT APPEALS Party adversely affected by LBAA’a decision may appeal with the CTA within 30 days from receipt of decision. and the certificate of sale issued to the purchaser shall be invalidated. CITY OR MUNICIPAL ASSESSOR Within 60 days Owner/Person with legal interest must file: 1. 64. 1. Remedy against the Assessment/ Appeal • II. Suit assailing validity of tax. ↓ CTA (EN BANC) Within 15 days c. to the Secretary of Justice (Section 187. b. the owner of the delinquent real property. JUDICIAL 1. or There is calamity. 464) (Sec. appeal to the Board of Assessment Appeals (Section 226. b. within 60 days from notice of assessment. 230. constitutionality or legality of tax ordinance) A taxpayer may question the constitutionality or legality of an ordinance on appeal within 30 days from the effectivity thereof. P. By the Sanggunian Real property taxes may be condoned wholly or partially in a given local government unit when: a. ↓ SUPREME COURT CONDONATION OF REAL PROPERTY TAXES 1. An owner of real property who is not satisfied with the assessment of his property may.San Beda College of Law 2. 83.D. Provincial or city treasurer should decide the claim within 60 days from receipt of the claim. 261. c. amount of delinquent tax interest thereon expenses of sale from date of delinquency to date of the sale interest of not more than 2% per month on the purchase price from date of sale to date of redemption c.

Time of Payment within first 20 days of January or of each subsequent quarter as the case maybe 6. fees or charges or changes in the rates thereof. Remedies within 5 years from the date they become due within 5 years from the date of assessment by administrative or judicial action Government’s Remedies: 1. Municipalities and Barangays Expressly provided (Section 192. Gov’t’s lien 2. Manner of payment 5. Civil Remedies: . Date of Accrual LOCAL TAXATION Provinces.administrative action . Prescriptive period of collection 8.claims for refund or tax credit NOTE: “payment under protest is necessary” 4.protest against the assessment 3. LGU’s authorized to exercise 2.LGC) maybe paid in quarterly installments four equal installments 1st – on or before the 31st of March 2nd – on or before 30th of June 3rd – on or before 30th of September 4th – on or before 31st of December Exception: special levy Within 5 years from the date they become due within 5 years from the date they become due.judicial action • levy • purchase by local treasurer • collection through judicial action Taxpayer’s Remedies: 1. shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates (Section 166.protest against the assessment 3.claims for refund or tax credit NOTE: “payment under protest is not necessary” . REAL PROPERTY TAXATION COMPARISON 1. however. Govt. new taxes. LGC) Unless otherwise provided in the LGC. Civil Remedies: . Rule: No power to grant tax exemptions Exceptions: (see. within 10 years from the discovery of fraud or intent to evade payment Government’s Remedies: 1. fees or charges shall accrue on the 1st day of January of each year. Power or Authority to grant tax exemptions 3. Section 234. Cities.protest by means of appeal to the Secretary of Justice 2.protest by means of appeal to the Secretary of Justice 2. LGC) REAL PROPERTY TAXATION Provinces.judicial action •distraint •levy •collection through judicial action Taxpayer’s Remedies: 1. all on the 1st day of January local taxes. Prescriptive period of assessment 7. Cities and Municipalities in Metro Manila Area Gen.’s lien 2.222 Local Taxation MEMORY AID IN TAXATION LAW LOCAL TAXATION vs.administrative action .

NIRC) Franchise grantees of telephone telegraph. School Texts or of books.A. PROCEEDS OF THE TAX DISTRIBUTED AS FOLLOWS:  Province 30%  Component city of Municipality where 30% where the quarry resources are extracted  Barangay where the quarry resources 40% are extracted . Law) decedent's death Printer's or Publisher's • Not exceeding 50% of 1. For newly started Tax (Sec. posters. The permit to extract resources shall be issued exclusively by the provincial governor. creeks and other public waters within its territorial jurisdiction For newly started business – TAX RATE = 1/20 of 1% of the capital investment Manufacturers. TV and all other (except electric. cigars and cigarettes and other products. • Payable within sixty (60) days monetary consideration No. LGC) consideration. incoming receipts. enjoying a franchise. transferor or 135. review or bulletin w/c appears at regular intervals w/ fixed prices w/c is not devoted principally to publication of paid advertisements (Sec. No VAT on sale. soft drinks. 6657 barter or any other mode involved in the transfer is (Comprehensive from the date of execution of of transferring ownership not substantial. radio. or the province may impose realized within its a tax on business territorial jurisdiction. van or Vans of Manufacturers. donation. 138. lakes. pursuant to the ordinance of the Sangguniang Panlalawigan. streams. receipts. sand. producers. printing. or fair real property administrator to tax the tax market value in case the pursuant to R. LGC) Tax on Sand. importation. • Not exceeding P500 on Annual Fixed Tax on Delivery Trucks and every truck. wholesalers. handbills.San Beda College of Law 223 2008 CENTRALIZED BAR OPERATIONS Specific Provisions on The Taxing and Other Revenue-Raising Powers of Local Government Units Specific Provisions on The Taxing and Other Revenue-Raising Powers of Local Government Units Provinces Type of Tax Rate Exceptions Other Provisions • Not more than 50% of • Sale. Dealers delivery or distribution of or Retailers in certain merchandise products (Sec. Tax on the sale. as may be determined by the Sanggunian Panlalawigan. dealers and retailers subject to this tax is exempt from peddler’s tax Covers distilled spirits. gas and water utilities) are subject to 10% VAT (Sec. Agrarian Reform the deed or date of or title of real property. prescribed by certificates. 109 [y]. DECS shall be pamphlets. 1% of the capital persons engaged in the investment printing and/or publication 2. similar nature. NIRC) • Not exceeding 50% of Franchise Tax (Sec. gravel. 1% of the total other disposition of donor. references leaflets. LGC) 1% of the gross annual business – receipts for the TAX RATE = 1/20 of Tax on the business of preceding calendar year. imposed. magazine. earth and other quarry resources extracted from public lands or from the beds of seas. Tax on transfer of real property ownership (Sec. 141. whichever is higher. transfer or • It is the duty of the seller. 136. 137. and others of EXEMPT from tax. vehicle used in the Wholesalers or. rivers. cards. LGC) 1% of the gross annual receipts for the Notwithstanding any preceding calendar exemption granted by any year based on the law or other special law. newspaper. publication of books. 108 [A]. Gravel and • Not more than 10% of the Other Quarry Resources fair market value in the (Sec. LGC) locality per cubic meter The province may levy and collect taxes on ordinary stones.

shall be exempt from the payment of amusement tax Municipalities (Section 143. l a u n d r y s o a p . rock or similar concerts. and fresh water products. but shall in no exercise or practice of a case exceed P300. wheat or cassava flour. LGC) TAX ON BUSINESS Entities/Persons Taxable  MUNICIPAL TAXES – a. (b) and (d) of Sec. equipment and post-harvest facilities. Tax Rate • This is a graduated annual fixed tax. assemblers. 7. a n d medicine.5% of 1% is imposed instead. distributors or dealers in any article of commerce of whatever kind or nature (Sec. Wholesalers. whether in the original state or not. Amusement Tax (Sec. • At such amount and LGC) reasonable classification Annual professional tax on as the Sangguniang Panlalawigan may persons engaged in the determine. cooking oil and cooking gas. pay tax before employment the full tax before engaging and annually thereafter therein. Cement. 4. 140. l o c a l l y m a n u f a c t u r e s . tax shall be shared equally by admission fees recitals. the rate of which is based on the gross sales or receipts for the preceding calendar year. profession requiring government examination. sugar. amount to P2. the tax ceases to be a fixed tax. marine. LGC): 1. 5. fertilizers. meat. wholesalers. salt and other agricultural.224 Local Taxation Type of Tax Rate Professional Tax (Sec. LGC). producers. dairy pr oduct s. a. 143 [a]. LGC) a. when the gross sales or receipts amount to P6. b. 143 of LGC. MEMORY AID IN TAXATION LAW Exceptions Other Provisions • To be paid on or before the Professionals exclusively employed in 31st of January. painting and the province and the Tax on proprietors. in the province the government shall be where he practices his exempt from payment of profession or where he this tax AND individuals/ maintains principal office in corporation employing a case the practice is in several person subject to places. 500. 6. distilled spirits and wines or manufacturers of any article of commerce of whatever kind or nature (Sec. rectifiers. distributors. dramas. flower municipality where such lessees. • Not more than 30% of the • The holding of operas. and compounders of liquors. 143 [c]. repackers. 000. the tax becomes a percentage tax levied at a rate not exceeding 50% of 1%. rice and corn. • At a rate not exceeding onehalf of the rates for sales of articles mentioned in paragraphs (a). the rate of which is based on the taxpayer's gross sales or receipts for the preceding calendar year. dealers or retailers of the following essential commodities (Sec. processed or preserved food. Also a graduated annual fixed tax. d e t e r g e n t s . and 8. a. 143 [b]. brewers. musical amusement places are located theaters. 3. art exhibitions. however. • Proceeds from the amusement LGC) gross receipts from concerts. millers. circuses. Exporters and manufacturers. Any person first professional tax shall be beginning to practice a required by that person profession after the month of to pay the professional January must. pesticides and other farm inputs. 2. A percentage tax of 37. cinemas. or operators of shows.000 or more. boxing and oratorical other places of presentations. pop. except amusement. . processors. agricultural implements.000 or more for the preceding calendar year. poultry feeds and other animal feeds. school supplies. distillers. literary and halls. • However. Manufacturers. however. Where the gross sales or receipts. 139. concert programs.

and b. 143 [d].(Sec. (Sec.  MUNICIPAL NON – REVENUE FEES & CHARGES Municipalities may impose & collect reasonable fees & charges on business & occupation and. On places of recreation which charge admission fees c. signboards. 143 [g]. more. cockfights and cockpits b. Banks and other financial institutions (Sec. OTHER FEES AND CHARGES a. BARANGAY TAXES – On stores or retailers with fixed business establishments. inspection & licensing before any person may engage in such business/occupation/practice of such profession or calling. or tobacco dryers 3. LGC). On gross sales or receipts for the preceding calendar year not exceeding P400.000. On any business not otherwise specified above (Sec. when the gross receipts amount to 2. (Sec. 147. rentals on property and profit from exchange or sale of property. 143 [e]. 2. LGC). • Such reasonable fees or charges for services rendered in connection • Such reasonable fee as the Sanggunian Barangay may impose • The barangay may levy reasonable fees and charges with the regulation or the use of barangay –owned properties or service facilities such as palay. 143 of LGC. neon signs and outdoor advertisements CITIES • Cities may levy the taxes. 151 LGC)  END OF LOCAL TAXATION  . LGC) Barangay (Section 152. a. except in case of professional tax. fees. • The Sanggunian concerned may impose a schedule of graduated tax rates but in no case to exceed the rates prescribed in Sec.000 2%.000 or for the preceding calendar year.On sales or receipts exceeding P400. LGC) TAX ON BUSINESS Entities/Persons Taxable 1. a. 000 or less (for barangays in the cities) and P30. copra. On commercial breeding of fighting cocks. 000 1%. SERVICE FEES OR CHARGES Tax Rate • With the gross sales or receipts for the preceding calendar year of P50. The tax rate is 50% of 1%. • Provided that on any business subject to excise. There is no preemption on this score on the part of the provinces and municipalities. (w/c only provinces & cities may levy) on the practice of any profession or calling commensurate w/ the cost of regulation. commissions and discounts from lending activities. Contractors and other independent contractors (Sec. Peddlers engaged in the sale of any merchandise or article of commerce. BARANGAY CLEARANCE 4. insurance premium. 143 [f]. LGC) • At a rate not exceeding fifty pesos (P50) per peddler annually. • Also a graduated annual fixed tax based on the gross receipts • However. the rate of the tax shall not exceed 2% of gross sales or receipts of the preceding calendar year. calendar year derived from interests. valueadded or percentage tax under the National Internal Revenue Code. 143 [h]. the contractor's tax becomes a percentage tax. and charges which the province or the municipality may impose.000 or less (for barangay and municipalities) at a rate not exceeding 1% of such gross sales or receipts. dividends. LGC) 225 2008 CENTRALIZED BAR OPERATIONS Tax Rate • The tax on retailers is not a graduated annual fixed tax but an annual percentage tax imposed at the following rates: a.San Beda College of Law TAX ON BUSINESS Entities/Persons Taxable a. Retailers (Sec. On billboards. income from financial leasing. LGC) • The tax is 50% of 1% on their gross receipts of the preceding a. a.

Deepee Salazar. No. 115349. CTA. DISPUTED ASSESSMENT ISSUES 1. MINERVA JIMENEZ donor’s tax and court of tax appeals.R. UNTAYAO edp MARIEL MAILOM general principles. 1997). EXECUTIVE COMMITTEE VISMARCK UY over-all chair. Ralph Jerome Salvador. which is. Kathryn Joy Hautea.” After all. Micael Ortiz Luis. REFUND ISSUES 1. Because of CTA’s expertise. Erwin Legaspi. Jay Martin Celzo. Irene May Junio.R. John Zernan Sambahon. DISTRIBUTION OF JURISDICTION WITH RESPECT TO INTERNAL REVENUE TAXATION d. speedy and inexpensive disposition of every action and proceeding. 2. Mary Joy Aquino. Jennylyn Valencia. April 28. John Ray Concepcion. Vincent Cablao. Pascua . CIR GR NO. 2. and in the absence of strong reasons for the SC to delve into facts. 2. Sol Pejo. MARK JULIUS ESTUR estate taxation. ROWENA MUTIA tables and annexes MEMBERS: Maria Evitha Abante. JULIUS BABALCON tariff and customs code. RONALD JOHN DECANO vice chair for secretariat. Katherine Jane Manarang. and ADMU G. Herbert Abugan. No. 118794. e. APRIL CABEZA chair academics operations. MAUREEN ROSE OBON income taxation. depending upon the jurisdictional amount Regional Trial Court. ULYSSES GONZALES vice chair for logistics TAXATION LAW IRIS VICTORIA MERIN subject chair MARK JULIUS ESTUR assistant chair DICT V. Jan Reiner Uy. Karren Amparo. AYN SARSABA vice chair for operations. ARLENE ALDAY and NELSON SALVA JR. Maureen De Castro. Cristiellane Valerio and Sherwin P. As a matter of principle. Karla Funtila. value added tax. April 18.226 Court of Tax Appeals MEMORY AID IN TAXATION LAW TAXATION LAW COURT OF TAX APPEALS COURT OF TAX APPEALS RULES OF COURT APPLY IN TAX CASES Our Rules of Court apply “by analogy or in suppletory character and whenever practicable and convenient” and “shall be liberally construed in order to promote their objective of securing a just. Court of Appeals G. depending on the jurisdictional amount Court of Tax Appeals. Julian Adarlo. ALDEAN LIM chair hotel operations. May 8. Raul Canon. Aldren Abrigo. (formerly JS Steel Corporation) vs. Inc. 3. The findings of fact of the CTA are binding on the Supreme Court. MARK ANTHONY DIZON. Masha Mariano. MAUREEN SEYMOUR JAVIER local taxation and real property taxation. JEFFREY GALLARDO vice chair for edp. “the paramount consideration remains the ascertainment of truth” [Calamba Steel Center. Mariflor Reyes. Donelle Jay Quilates. either as original depending upon amount or appellate jurisdiction Court of Tax Appeals Supreme Court COLLECTION ISSUES f. 151857. 1996). Joanne Mosquera. 1. Ray John Bangi. the Supreme Court will set aside the conclusion reached by CTA. Diana Rabanal. KARLA FUNTILA vice chair for finance. only questions of law are open for determination (Philippine Refining Company vs. Ryan Pingol. Aileen Artificio. Leonardo Mendoza II. Maria Joy Toledo. tax remedies. by the very nature of its function d e d i c a t e d e xcl u si ve l y to th e stu d y a n d consideration of tax problems and has necessarily developed an expertise on the subject unless there has been abuse or grave exercise of authority (CIR vs. Nature and Powers of CTA NATURE AND WEIGHT The Court of Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Precious Angela Lledo. the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. 2005]. Jennifer Bautista. Lauren Rose Tanyag. Court of Appeals. Court of Tax Appeals Supreme Court Municipal Trial Court. ANTHONY PURGANAN vice chair for academics. Ramon Alfredo Dela Cruz. James Agustin..

9282. POWERS 1. only questions of law are open for determination. the Commissioner need not rule on their request.A. to administer oaths.R. each Division consisting of three (3) Justices. G. the authority to restrain the collection of any national internal revenue tax. Cruz G.R. fee. The requirement for the Commissioner to rule on disputed assessment before bringing an action for collection is applicable only in cases where the assessment was actually disputed. formal trial and receive evidence. to summon witnesses by subpoena. to receive evidence. 3. possessing all the inherent powers of a Court of Justice (R. to render decisions on cases brought before it. 3. 1988). The factual findings of the CTA are binding on the SC and can only be disturbed on appeal if not supported by substantial evidence (CIR vs. The required procedure is unlike that of the Court of Appeal or the Supreme Court. 2005. L-27733. or charge.San Beda College of Law A well settled doctrine is that findings of facts of the Court of Tax Appeals are binding on the Supreme Court and absent any strong reasons for the Supreme Court to delve into facts. Appeals from its decision (en banc) shall now be made before the Supreme Court. as amended. No. 1125. 1125. to suspend the collection of the tax pending appeal. 4. ELEVATION OF RANK Shall be of the same level as the Court of Appeals. 1980). It is required to conduct a mandatory pretrial. L-39910. CTA has been elevated to a collegiate court. adducing reasons in support thereto. to issue order authorizing distraint of personal property and levy of real property NB: Power to issue writs of prohibition and injunction is supplementary to its appellate jurisdiction. and 2. If the taxpayer did not actually contest the assessments by stating the basis thereof. 8. 4. 8). thereby indicating the legislative policy to allow the • QUORUM Sessions: presence of EN BANC 4 Justices Decision: affirmative vote of 4 Justices . I N T E R N A L R E V E N U E M AY P R O C E E D WITHOUT RULING FIRST ON REQUEST FOR RECONSIDERATION Nowhere in the Tax Code is the Collector of Internal Revenue required to rule first on a taxpayer’s request for reconsideration before he can go to the court for the purpose of collecting the tax assessed. to promulgate rules and regulations for the conduct of its business. NATURE OF THE CTA 1. September 26. 66416. the action to collect is akin to an action to enforce the judgment relied upon (Dayrit vs. No. December 3. Generally.A. 9282). No. Procedure is governed by the Revised Rules of the Court of Tax Appeals (RRCTA) . 10. 227 2008 CENTRALIZED BAR OPERATIONS Collector of Internal Revenue much latitude in the speedy and prompt collection of taxes. the Tax Code withheld from all courts. De Joya G. Court of special jurisdiction . 9. the Supreme Court is bound by questions of fact as found by the Court of Tax Appeals CTA proceedings shall not be governed strictly by technical rules of evidence (R. 2. No. Sec. The language used by the Court of Tax Appeals as to the existence of fraud must be given due weight and force.R.AM No. Mar. On the contrary. 1990).can act only in matters where it has exclusive original as well as in aid of its appellate jurisdiction. In case of a suit for collection of internal revenue taxes where the assessment has already become final and executory. COMPOSITION AND APPOINTMENT OF MEMBERS • Consists of a Presiding Justice and five (5) Associate Justices each of whom shall be appointed by the President upon nomination by the Judicial and Bar council. Under RA no. except Court of Tax Appeals under the RA No. to assess damages against appellant if appeal to CTA is found to be frivolous or dilatory. 21. The Presiding Justice and the most Senior Associate Justice shall serve as chairmen of the two respective divisions. 6. • 5. The finding of facts of the CTA is entitled to the highest respect (Raymundo vs. to require production of papers or documents by subpoena duces tecum. May sit en banc or in two (2) Divisions. 5. to punish contempt. Tours Specialist Inc. 05-11-07-CTA which took effect on December 15. 7.

stating clearly and distinctly the facts and the law on which they are based and signed by the judges who concurred therewith. in which case the inaction shall be deemed a denial. JURISDICTION OVER CASES INVOLVING CRIMINAL OFFENSES a. commodity or article. and the Secretary of Agriculture in the case of agricultural product. Decisions of the Secretary of Trade and Industry in the case of nonagricultural product. and safeguard measures under R. 2. 2. or any other lawful cause. f. . Exclusive original jurisdiction over all criminal cases arising from violations of 1. Decisions of the Commissioner of Internal Revenue 1. fees or other charges. respectively. Decisions of the Commissioner of Customs 1. disqualification. refunds of internal revenue taxes.000. EXCLUSIVE APPELLATE JURISDICTION TO REVIEW BY APPEAL a. The jurisdiction of the CTA shall be appellate. - b. the Presiding Justice shall designate any Justice of other Divisions of the Court to sit temporarily therein. refunds of internal revenue taxes. the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with. where: i. in cases involving disputed assessments. inhibition. 8800. Decisions of the Secretary of Finance - On customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2325 of the Tariff and Customs Code. fees or other charges. No. 2. commodity or article. Any provision of law or the Rules of Court to the contrary notwithstanding. NIRC. Inaction by the Commissioner of Internal Revenue 1. In cases involving liability for customs duties. 3. or Or other matters arising under the Customs Law or other laws administered by the Bureau of Customs. fees or other money charges. c. In local tax cases originally decided or resolved by them in the exercise of their original jurisdiction. Decisions. fines. and 2.A. Tariff and Customs Code. orders or resolutions of the RTC - Provided however. where the NIRC provides a specific period for action. This requirement however. involving dumping and countervailing duties under Secs. R. • 2. forfeitures or other penalties in relation thereto.228 Court of Tax Appeals Sessions: presence of DIVISION 2 Justices Decision: affirmative vote of 2 Justices • MEMORY AID IN TAXATION LAW DISPOSITION OF CASES • Cases shall be decided within 30 days after submission thereof for decision Decisions shall be in writing. is merely directory PROVIDED: when the required quorum cannot be constituted due to any vacancy. In cases involving disputed assessments.A. exclusive of charges and penalties claimed is less than one million pesos (P1.00) or Where there is no specified amount claimed. Other laws administered by the BIR or the Bureau of Customs the principal amount of taxes and fees. of the Tariff and Customs Code. where either party may appeal the decision to impose or not to impose said duties.000. seizure. or other matters arising under the NIRC or other laws administered by the BIR. Publication of decision in the Official Gazette. or other matters arising under the NIRC or other laws administered by the BIR. jurisdiction is by the regular courts. and. ii. penalties in relation thereto. e. 9282) • • Jurisdiction JURISDICTION OF CTA -DIVISION I. 301 and 302. d. detention or release of property affected. penalties in relation thereto. II. disability. (Sec.

Exclusive appellate jurisdiction in criminal offenses (a) Over appeals from the judgments. and no right to reserve the filing of such civil action separately from the criminal action will be recognized (Sec.A. TCCP and other laws. resolutions or orders of the RTC in tax collection cases originally decided by them. 000. 3. GR No. 9282). 2. III. depending on their respective jurisdiction. the CTA can dismiss a case ex meru motu (Commissioner of Internal Revenue vs. in their respective territorial jurisdiction.San Beda College of Law jointly determined in the same proceeding by the CTA. fees. 7[b][1] R. resolutions or orders of the RTC in the exercise of its appellate jurisdiction over: (1) Local tax cases (2) Tax collection cases and (3) Cases involving criminal offenses arising from violations of the NIRC.00) – shall be tried by the p r o p e r M u n i c i p a l Tr i a l C o u r t . TCCP and other laws administered by the BIR. Villa. Reason: CTA is a court of special jurisdiction. “PENALTIES IMPOSED IN RELATION THERETO” Includes collection of “compromise penalties which may form part of the tax court’s judgment in case taxpayer express willingness to pay the same. claimed is less than one million pesos (P1. January 2. the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action. Metropolitan Trial Court. resolutions or orders of the RTC in their original jurisdiction in criminal offenses arising from violations of the NIRC or Tariff and Customs Code and other laws administered by the BIR or BOC (b) Petitions for review of the judgment. 23988.000 or where there is no specific amount claimed. JURISDICTION OVER TAX COLLECTION CASES 1. exclusive of charges and penalties. charges and penalties. JURISDICTION OF CTA . 4. action for the nullity of distraint and levy questioning the propriety of the assessment declaration of nullity of waivers of Statute of Limitations executed by the taxpayer. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes. it can take cognizance only of matters as are clearly within its jurisdiction (Ibid). in collection cases where the principal amount of taxes and fees. as such.000. Provided. b. (d) D e c i s i o n s o f t h e C e n t r a l B o a r d o f Assessment Appeals (CBAA) in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. No. (c) Decisions. “OTHER MATTERS” Those controversies which can be considered within the scope of the function of the BIR / BOC under ejusdem generis rule Examples of “other matters”: 1. 1968). CTA’S JURISDICTION MAY BE CHALLENGED AT ANY TIME Jurisdiction can be challenged at any stage of the proceedings and for lack of it. or Regional Trial Court. (b) Decisions. Exclusive appellate jurisdiction in tax collection cases Over appeals from the judgments. order or resolution of RTC in the exercise of its appellate jurisdiction 229 2008 CENTRALIZED BAR OPERATIONS Division in the exercise of its exclusive appellate jurisdiction.000. 2. resolutions or orders on motions for reconsideration or new trial of the CTA in Division in the exercise of its exclusive original jurisdiction over (1) tax collection cases and (2) cases involving criminal offenses arising from violations of NIRC. thus invalidating the assessments issued by the BIR decision of the Commissioner of Internal Revenue granting “informer’s reward” • Where the principal amount of taxes and fees. claimed is P1.EN BANC EXCLUSIVE APPELLATE JURISDICTION Over the following cases: (a) Decisions or resolutions on motion for reconsideration or new trial of the CTA in . exclusive of charges and penalties.

R. Reason: In fairness to the taxpayer so as not to deprive him of his day in court.R. Rather. period for appeal begins to run. post reporting notices and pre-assessment notices are not appealable. (2) If the Commissioner of Customs has not rendered a decision on an application for refund of internal revenue taxes and the suit is about to prescribe. No jurisdiction over questions of unfair competition involving use of simplified bookkeeping records 3. vs.1. 3. No. Instances where CTA would have jurisdiction even if there is no decision: (1) If the Commissioner of Internal Revenue has not acted in a refund case and the two year prescriptive period is about to expire. R. 3. otherwise. SUBJECT OF APPEAL ONLY A FINAL DECISION IS APPEALABLE TO THE COURT OF TAX APPEALS A decision is appealable when it constitutes the final action taken by him or his authorized deputies with respect to the taxpayer’s liability. No. 58061). 1125) (b) If the protest is denied. CIR G. executory and demandable" (CIR vs. Court of Appeals G.5 par.R. Union Shipping G. because they are not the final decision of the Commissioner. CA-GR SP No. Any party adversely affected by a decision or ruling or inaction of 1.R.No.. WHO MAY APPEAL TO THE CTA a.R. Lascona Land Co. Commissioner must state that his decision is final for period of appeal to run. No. 12-99) (c) "If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission by the taxpayer of the required documents in support of his protest. then his right of action prescribes.A. 66160. 4. 31. the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period. • Preliminary collection letters. 11. No 8878 July 24. May 21. An appeal by way of Petition for Review must first be filed before the CTA. 1976) (3) The filing of a judicial action for collection may be treated by the taxpayer as a denial of a protest (Commissioner vs. CTA has no power motu propio to review tax cases. the assessment shall become final. MEMORY AID IN TAXATION LAW Reason: this does not involve any assessment or refund of tax (Ollada vs. 1956) CTA has no appellate jurisdiction over a decision rendered by the Philippine Ports Authority Reason: collection of port charges ceased to be an administrative function of the Bureau of Customs. Reason: If the taxpayer waits.R. taxpayer may appeal within 30 days from date of receipt of decision (Sec. 1990) • However. and the later states that his action is final. then. the issuance of a warrant of distraint or levy does not constitute a final action (Commissioner vs. Ayala Securities Corp G. 148380) (2) A letter of BIR Commissioner reiterating previous demand to pay an assessment (Commissioner vs. 6. 2. 2. Appeal WHEN: PERIOD CTA WITHIN WHICH TO FILE APPEAL TO Instances when decisions are final: (1) A demand letter for tax deficiency issued and signed by an authorized subordinate officer with the warning that failure to pay would result to issuance of a warrant of distraint and levy without further notice (Oceanic Wireless Network Inc. Reason: It can resolve cases only in aid of its original or appellate jurisdiction. 29485 Mar. Union Shipping supra) (a) Within 30 days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action (Sec. The Commissioner of Internal Revenue The Commissioner of Customs The Secretary of Finance The Secretary of Trade and Industry • • • .230 Court of Tax Appeals I N S TA N C E S W H E R E C TA H A S N O JURISDICTION 1. it is the action taken by the Commissioner in response to the taxpayer’s protest on the assessment that would constitute an appealable decision At times there is an exchange of communication between the taxpayer and the Commissioner.

G. No. By filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules on Civil Procedure • decision. 7. as amended by RA 9282). his action is devoid of merit. By filing a petition for review under a procedure analogous to that provided for under Rule 43 of 1997 Rules on Civil Procedure • decisions or rulings of the Central Board of Assessment Appeals and the .R.San Beda College of Law 5. assessment is considered correct and all that is necessary is for the • Requests or motions for reconsideration. b. that is. open an assessment that has become final c. the protest is denied or the original assessment is maintained. ruling. RUNS FROM THE DATE THE TAXPAYER RECEIVES THE APPEALABLE DECISION If the taxpayer’s request for reconsideration (i. 11. renders the action final. March 15. 1962). 231 2008 CENTRALIZED BAR OPERATIONS Commissioner to enforce the collection of the tax by summary remedies or judicial action c. b. the Secretary of Trade and Industry or the Secretary of Agriculture or the Regional Trial Courts this appeal shall be heard by a Division of the CTA Filing of a verified petition for review with the CTA in 7 legible copies deposit of filing fees proof of service to the adverse party certification of non-forum shopping prior filing of motion of new trial or reconsideration 15 day period under Rule 42 does not apply. 30 day period applies • Requirements: 1. No. Commissioner of Customs. THIRTY (30) DAY PRESCRIPTIVE PERIOD FOR APPEAL WITH THE CTA NATURE OF 30-DAY PERIOD 1. a. A pro forma request for reconsideration or one which is directed to the Secretary of Finance does not suspend the period. an assessment may no longer be disputed through the simple expedient of paying the protested tax and by subsequently claiming it as a refund within the period of two years from date of payment Reason: He would be doing indirectly what he could not do directly. executory and demandable b. BIR. 6. REQUESTS FOR RECONSIDERATION FAILURE TO FILE ON TIME OF A TAXPAYER CLAIMING FOR REFUND TO RECOVER TAXES PAID UNDER PROTEST ON THE GROUND OF ILLEGALITY OF ASSESSMENT NO LONGER AVAILABLE Where a taxpayer seeking a refund of taxes whose request is denied and whose appeal to the CTA was dismissed for being filed out of time. Concepcion G. 1968). L-15778 April 23. • MODES OF APPEAL A. For in the same way that the expediency of an appeal from a denial of a request for cancellation of warrant of distraint and levy cannot be utilized to test the legality of an assessment which has become conclusive and binding on the taxpayer. 2. the appealable decision is the decision denying the request for reconsideration).. • B. 4. Taxpayer in a proceeding for collection by judicial action may raise only defenses of absence of jurisdiction. Government Reason: The right is available to “any party” adversely affected by a decision or ruling or inaction (Sec. Stockholders of dissolved corporation Reason: They could be held personally liable for the unpaid deficiency assessments of a dissolved corporation in proportion to their distributive shares in the dissolved corporation (Tan Tiong Bio vs.A. The Secretary of Agriculture The Central Board of Assessment Appeals The Regional Trial Courts c. R. 2.e. 3. so is a claim for refund not available to revive the right to contest the validity of an assessment which had become final for failure to appeal the same on time (CIR vs. 3. 1125. or inaction of the Commissioner of Internal Revenue. JURISDICTIONAL Effects of failure of the taxpayer to appeal on time: a. operate to suspend the running of the period to appeal. the Secretary of Finance. sues anew to recover such taxes already paid under protest. collusion between the parties or fraud. No. NON-EXTENDIBLE After the 30-day period. however. L-23912.R. 5.

R.232 Court of Tax Appeals Regional Trial Courts in the exercise of its appellate jurisdiction MEMORY AID IN TAXATION LAW one who rendered the assailed decision is wrong but that the taxpayer is right. Sept. bank accounts. Apr. No. if any • The burden of proof is on the taxpayer contesting the validity or correctness of the assessment to prove not only that the 2.R. Requirements: 1. Any party adversely affected by a ruling. Fraud. have discovered and produced at the trial and B. G. order or decision of a Division of the CTA may file a motion for reconsideration or new trial before the same Division within 15 days from notice Any party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial may file a petition for review with the CTA en banc. chattels. G. or effects and the personal property. through the Commissioner: 1. 18. 66838. this was reversed in Supreme Court’s subsequent resolution wherein it was held that “in the absence of explicit statutory provisions to the contrary. L-81446 Aug. • Proving that the assessment is wrong is not enough • this appeal shall be heard by the CTA en banc Filing of verified petition for review in 7 legible copies with the CTA Proof of service of a copy thereof to the adverse party and on the court or agency a quo Certification of non-forum shopping Filing of a motion for reconsideration or new trial when proper period of appeal is not 15 days under Rule 43 but 30 days a.No. C. NEW ISSUES CANNOT BE RAISED FOR THE FIRST TIME ON APPEAL General Rule: New issues cannot be raised for the first time on appeal. accident. mistake. al. 1119. Defense of prescription Reason: This is a statutory right (Visayan Land Transportation vs. which he could not. BURDEN OF TAXPAYERS ON APPEAL TO CTA It is the burden of taxpayers on appeal to CTA to prove by a full disclosure of data on his possession that: a. with reasonable diligence. credits. 68375. b. the Government must follow the same rules of procedure which bind private parties” (Commissioner vs. 1991. Reason: The court which is supposed to review would not review but determine and decide for the first time. Mfg. • DISTRAINT OF PERSONAL PROPERTY AND LEVY OF REAL PROPERTY IF DECISION IS FAVORABLE TO THE GOVERNMENT Upon the issuance of any ruling. December 2. Procter and Gamble Phils. NOTE: However. Any party adversely affected by a decision or ruling of the CTA en banc may file with the Supreme Court a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules on Civil Procedure. Grounds of a motion for new trial a. Errors of administrative officials Reason: State can never be in estoppel and lifeblood theory (Commissioner vs. REMEDIES OF THE PARTY AFFECTED BY THE DECISIONS OF CTA A. b. 4. 1988). This remedy shall not be exclusive and shall not preclude the Court from availing of other means under the Rules of Court. b. 1988) Exceptions: a. order or decision by the CTA favorable to the national government.R. No. b. G. the CTA shall issue an order authorizing the BIR. c. to seize and distraint any goods. The tax assessment is wrong The tax assessment is merely a presumption and not based on actual facts The correct computation of liability. Resolution). 15.R. April 15. Procter and Gamble. Reason: The tax court could settle nothing and The way is open for subsequent assessments and appeals. No. Collector CTA Case No. Wander Philippines.. The roots of controversy must be cut (Siy Po vs. a question not raised at the administrative forum (Commissioner of Internal Revenue vs. debts. and interests in and rights to personal property and/or levy the real property of such persons in sufficient quantity to satisfy the tax or charge together with any increment thereto incident to delinquency. Corp. 2. 66838. . 1988) 3. Inc. including stocks and other securities. or Newly discovered evidence.30. 1964). Court of Appeals et. G. or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights.

A. How motion to suspend collection of tax is filed: may be filed together with the petition for review or with the answer. No. That the appeal is not frivolous or dilatory Sec. That the CTA may issue an injunction only in the exercise of its appellate jurisdiction. 2005) 233 2008 CENTRALIZED BAR OPERATIONS by Tax Code. will probably change the judgment (Philippine Phosphate Fertilizer Corp. Such evidence could not have been discovered and produced at the trial with reasonable diligence. levy or distraint. vs. It is material. vs. CIR. Rodriguez. Reason: Lifeblood Theory Exception: The CTA is empowered to suspend the collection of internal revenue taxes and custom duties or grant injunction only upon showing: 1. or in a separate motion filed by the interested party at any stage of the proceedings (Section 3. not merely cumulative. corroborative or impeaching. RRCTA) SIMULTANEOUS FILING OF AN APPLICATION FOR REFUND OR CREDIT AND INSTITUTION OF A CASE BEFORE THE CTA ALLOWED The law fixes the same period of two (2) years for filing a claim for refund with the Commissioner and for filing a case with the CTA. INTERLOCUTORY ORDER OF CTA NOT APPEALABLE A CTA resolution denying a taxpayer’s motion to declare a warrant of distraint and levy issued by the Commissioner of Internal Revenue as illegal is interlocutory and not appealable (Juan vs. • • . March 29.San Beda College of Law which. 4. 218 of the Tax Code provides that no court may grant injunction to restrain collection of any tax. 1125 as amended by Sec. if admitted. June 28. That the collection of the tax may jeopardize the interest of the government and/or the taxpayer That the taxpayer is willing to deposit the amount equal to the taxes assessed or to file a bond amounting to not more than twice the value of the tax being assessed. No second motion for reconsideration or new trial No party shall be allowed to file a second motion for reconsideration of a decision. Rule 15. 9 of R.R. No. • Where there is a clear showing of entitlement to refund. d. TAX COLLECTION NOT SUSPENDED DURING APPEAL General Rule: No appeal taken to the CTA shall suspend the payment. 1958). especially where the failure to present evidence in the first instance was adequately explained (Philippine Phospate Fertilizer Corp. or from the approval of the application for credit. would probably alter the result (Section 5. and/or sale of any property of the taxpayer. The evidence was discovered after the trial. The two-year period for both starts from the date after the payment of the tax or penalty. 2005). 1979). fee or charge imposed 2. However. No. final resolution or order or for new trial (Rule 15.A. Rule 10. CIR. CIR. GR No. G. RRCTA). c. 11 of R. 9282 grants CTA power to suspend collection of tax if such collection works to serious prejudice of either taxpayer or government. b. 3. RRCTA). and It is of such weight that. Requisites for motion for new trial based on newly discovered evidence a. L-11295. Sec. • • The provision in the Tax Code refers to courts other than the CTA (Blaquera vs. the technical rules may be waived so as to allow a new trial even if the requisites or grounds are not met. if presented. Appeal to the CTA does not automatically suspend collection unless CTA issues suspension order at any stage of the proceedings. June 28. 24740 July 30.

or twice. If the Revenue Officer is unable to submit his final report of investigation within the 120-day period. When must a Letter of Authority be served? A Letter of Authority must be served to the concerned Taxpayer within thirty (30) days from its date of issuance. However. Chief. 3. d. When the Commissioner determines that fraud. except in the following cases: a. shall be issued and approved by the Commissioner of Internal Revenue. 5. 18-2000 and 19-2000). unless the LA is revalidated. How many times can a taxpayer be subjected to examination and inspection for the same taxable year? A taxpayer’s books of accounts shall be subjected to examination and inspection only once for a taxable year. irregularities. How much time does a Revenue Officer have to conduct an audit? A Revenue Officer is allowed only one hundred twenty (120) days from the date of receipt of a Letter of Authority by the Taxpayer to conduct the audit and submit the required report of investigation. while for taxpayers under the jurisdiction of Regional Offices. 67-99. When does the audit process begin? The audit process commences with the issuance of a Letter of Authority to a taxpayer who has been selected for audit. Excise Taxpayer Operations Division. or mistakes were committed by Taxpayer. in the case of LAs issued by the National Office. Assessment Service (RMOs 64-99. for audit/investigation of taxpayers under the jurisdiction of National Office. and When the Commissioner chooses to exercise his power to obtain information relative to the examination of other Taxpayers (Secs. How is a particular taxpayer selected for audit? Officers of the Bureau (Revenue District Officers. and surrender the Letter of Authority for revalidation.234 Court of Tax Appeals MEMORY AID IN TAXATION LAW Taxpayer Bill of Rights (Annex) 7. How often can a Letter of Authority be revalidated? A Letter of Authority is revalidated through the issuance of a new LA. Who issues the Letter of Authority? Letter of Authority. c. Large Taxpayer Assessment Division. in order to determine the Taxpayer’s correct internal revenue tax liabilities. What is a Letter of Authority? The Letter of Authority is an official document that empowers a Revenue Officer to examine and scrutinize a Taxpayer’s books of accounts and other accounting records. it shall be issued by the Regional Director. 9. b. for LAs issued in the Revenue Regional Offices or the Revenue District Offices. it shall become null and void. When the Taxpayer himself requests a reinvestigation or re-examination of his books of accounts. Any suspended LA(s) must be attached to the new LA issued (RMO 38-88). Chief. The list submitted by RDO shall be pre-approved by the Regional Director and finally approved by Assistant Commissioner. Policy Cases and Tax Fraud Division) responsible for the conduct of audit/ investigation shall prepare a list of all taxpayer who fall within the selection criteria prescribed in a Revenue Memorandum Order issued by the CIR to establish guidelines for the audit program of a particular year. 4. a Letter of Authority can be revalidated— Only once. he must then submit a Progress Report to his Head of Office. the Commissioner may also: . 2. What are some of the powers of the Commissioner relative to the audit process? In addition to the authority of the Commissioner to examine and inspect the books of accounts of a Taxpayer who is being audited. 5 and 235. NIRC). When the Taxpayer’s capital gains tax liabilities must be verified. 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 of Internal Revenue. The list of taxpayers shall then be submitted to their respective Assistant Commissioner for preapproval and to the Commissioner of Internal Revenue for final approval. Chief. 8. otherwise. Taxpayer Bill of Rights (Annex) GENERAL AUDIT PROCEDURES AND DOCUMENTATION 1. 6. The Taxpayer shall then have the right to refuse the service of this LA.

Under what instances is PAN no longer required? A Preliminary Assessment Notice shall not be required in any of the following cases. rules and regulations. traded or transferred to non-exempt persons. 6. However. b. or any other concerned BIR Office. 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. the law. e. b. NIRC). What is "Jeopardy Assessment"? A Jeopardy Assessment is a tax assessment made by an authorized Revenue Officer without the benefit of complete or partial audit. this recommendation is communicated by the Bureau to the Taxpayer concerned during an informal conference called for this purpose. and can no longer be collected from the Taxpayer. Comply with audit and investigation requirements to present his books of accounts and/or pertinent records.5. in which case. a Revenue Officer recommends the imposition of deficiency assessments. such as. 14. and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course. What is a Pre-Assessment Notice (PAN)? The Pre-Assessment Notice is a communication issued by the Regional Assessment Division. Any assessment issued after the applicable period are deemed to have prescribed. he shall then have fifteen . otherwise. and prescribe presumptive gross sales and receipts (Sec. has been sold. or Substantiate all or any of the deductions. machineries and spare parts. or jurisprudence on which the assessment is based. The Taxpayer shall then have fifteen (15) days from the date of his receipt of the Notice for Informal Conference to explain his side. the formal letter of demand and the notice of assessment shall be void. informing a Taxpayer who has been audited of the findings of the Revenue Officer. after the culmination of an audit. Within what time period must an assessment be made? An assessment must be made within three (3) years from the last day prescribed by law for the filing of the tax return for the tax that is being subjected to assessment or from the day the return was filed if filed late.San Beda College of Law a. following the review of these findings. 11. What is a Notice of Assessment/Formal Letter of Demand? A Notice of Assessment is a declaration of deficiency taxes issued to a Taxpayer who fails to respond to a Pre-Assessment Notice within the prescribed period of time. If the Taxpayer disagrees with the findings stated in the PAN. vehicles. The formal letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts. The Notice of Assessment shall inform the Taxpayer of this fact. 12. 10. but not limited to. issuance of the formal assessment notice for the payment of the taxpayer’s deficiency tax liability shall be sufficient: a. If. 13. in light of the RO’s belief that the assessment and collection of a deficiency tax will be jeopardized by delay caused by the Taxpayer’s failure to: a. or When the excise tax due on excisable articles has not been paid. in cases involving tax fraud. c. b. exemptions or credits claimed in his return. What is a Notice for Informal Conference? A Notice for Informal Conference 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. or When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. NIRC). capital equipment. or 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. unless the Taxpayer has previously executed a Waiver of Statute of Limitations. Obtain data and information from private parties other than the Taxpayer himself (Sec. d. 15. 235 2008 CENTRALIZED BAR OPERATIONS (15) days from his receipt of the PAN to file a written reply contesting the proposed assessment. or When an article locally purchased or imported by an exempt person. or whose reply to the PAN was found to be without merit. the Bureau has ten (10) years from the date of discovery of such fraud within which to make the assessment. and Conduct inventory and surveillance.

The Appellate Division serves as a "Court". the Taxpayer may request the Commissioner for a reconsideration of such denial and that his tax case be referred to the Bureau’s Appellate Division. 6 of Revenue Regulations No.It contains the information. c. 12-85. 18. 19. the taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest. i. 22. what alternative course of action is open to the Taxpayer? If a protest filed by a Taxpayer be denied by the Commissioner’s duly authorized representative. A Taxpayer has the right to contest an assessment. In the event the Commissioner’s duly authorized representative denies a Taxpayer’s protest. intends to request for more time to present these documents in order to avoid the issuance of a Jeopardy Assessment. Name of the taxpayer and address for the immediate past three (3) taxable years. he shall likewise be. believing that he cannot present his books of accounts and/or other accounting records. What recourse is open to a Taxpayer if his request for reconsideration is denied or his protest is not acted? S h o u l d t h e Ta x p a y e r ’ s r e q u e s t f o r reconsideration be denied or his protest is not acted upon within 180 days from submission of documents by the Commissioner. and the Taxpayer on the other. he can. Itemized statement of the findings to which the taxpayer agrees as a basis for computing the tax due. No Waiver of the Statute of Limitations shall be considered valid unless it is accepted by a duly authorized Bureau official. applicable law. The taxpayer shall state the facts. the assessment shall become final. executory and demandable. What is the recourse of a Taxpayer who cannot submit the documents being required of him within the prescribed period of time? If a Taxpayer. What is a Waiver of the Statute of Limitations? The Waiver of the Statute of Limitations is a signed statement whereby the Taxpayer conveys his agreement to extend the period within which the Bureau may validly issue an assessment for deficiency taxes. It is filed within thirty (30) days from the Taxpayer’s receipt of the Notice of Assessment and formal Letter of Demand. and may do so by filing a letter of protest stating in detail his reasons for contesting the assessment. waiving his right to invoke the defense of prescription for assessments issued after the reglementary period. the Revenue Officer on one hand. Duly acknowledge his receipt of the appropriate Letter of Authority upon its presentation by the Revenue Officer authorized to conduct the audit by affixing in the Letter of Authority the name of the recipient and the date of receipt. otherwise. b. f.236 Court of Tax Appeals TAXPAYER’S OBLIGATIONS AND PRIVILEGES 16. Assessment number. his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted. to support their respective claims. 20. to wit: a. d. What is required of a taxpayer who is being audited? A Taxpayer who is being audited is obliged to: a. 17. and addressed to the Commissioner of Internal Revenue. e. otherwise. MEMORY AID IN TAXATION LAW Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence he intends to present if it is a request for investigation. g. can he protest this Assessment? Yes. in effect. and complies with the conditions required by Sec. The taxable periods covered. 21. A statement of facts and/or law in support of the protest. the Taxpayer may execute what is referred to as a Waiver of the Statute of Limitations. c. and Submit the necessary schedules as may be requested by the Revenue Officer within a reasonable amount of time from his (Taxpayer’s) receipt of the Letter of Authority. For this purpose. If a Taxpayer opts to execute a Waiver of the Statute of Limitations. the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first. where both parties.e. the . rules and regulations or jurisprudence on which his protest is based. If a Taxpayer does not agree with the assessment made following an audit. his books of accounts and other related accounting records that may be required by the Revenue Officer. What are the characteristics of a valid protest? A protest is considered valid if it satisfies the following conditions: It is made in writing. b. which amount should be paid immediately upon the filing of the protest. h. Present within a reasonable period of time. Date of receipt of assessment notice or letter of demand. can present testimony and evidence before a Hearing Officer. The itemized schedule of the adjustments with which the taxpayer does not agree.

if the taxes involved are not voluntarily paid following such levy. and/or Initiate proceedings to cite the Taxpayer for contempt. b. the Government may employ any. after the Taxpayer’s receipt of the second written request. 24. he can. Collector. 28. L-13453. the real property under levy shall be sold in a public sale. What is "Levy of Real Property"? Levy of real property refers to the same act of seizure. 31. the Bureau shall then issue him a Subpoena Duces Tecum. in writing. as amended. he can. File a criminal case against the Taxpayer for violation of Section 5 as it relates to b. . February 29. NIRC). but in this case of real property. If. 228 of the Tax Code. d. 23. In what time period must collection be made? Any internal revenue tax. Levy of real property belonging to the Taxpayer. of the following remedies for the collection of delinquent accounts: a. What course of action shall the Bureau take if the Taxpayer fails to comply with the Subpoena Duces Tecum? If. he may appeal this decision with the Supreme Court. If the Taxpayer is not satisfied with the CTA’s decision. What alternatives are open to Government for the collection of delinquent accounts? Once an assessment becomes final and demandable. if the two (2) year period stated above is about to end. followed by the public sale of such property. What is "Distraint of Personal Property"? Distraint of personal property involves the seizure by the Government of personal property . or neglects to comply with the requirements of the Subpoena Duces Tecum.San Beda College of Law Taxpayer has the right to appeal with the Court of Tax Appeals (CTA). 30. which has been assessed within the period prescribed shall be collected within three (3) years from date of assessment. 27. refuses. can the Taxpayer elevate his claim to the CTA? Yes.to enforce the payment of taxes.tangible or intangible . As in the distraint of personal property. Any appeal must be done within thirty (30) days from the date of the Taxpayer’s receipt of the Commissioner’s decision denying the request for reconsideration or from the lapse of the 180 day period counted from the submission of the documents (Sec. In the event that the Taxpayer is likewise unsatisfied with the decision of the Court of Appeals. as amended). Rule 71 of the Revised Rules of Court. REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND COLLECTION OF DELINQUENT ACCOUNTS 26. the Bureau may: a. tax fraud cases may be collected by distraint or levy or by a court proceeding within five (5) years from assessment of the tax or from the last waiver. to produce his books of accounts and other pertinent accounting records. If a Taxpayer has filed a claim for refund and the Bureau has yet to render a decision on this claim. he still fails to comply with the requirements of the notice. Civil Action. and interest in or rights to such property in order to enforce the payment of taxes. of the NIRC. can he appeal the decision to a higher Court? Yes. 229. Distraint of personal property. Failure of the Taxpayer to file such a claim within this prescribed period shall result in the forfeiture of his right to the refund or tax credit. and Criminal Action. Decisions of the Court of Tax Appeals may be appealed with the Court of Appeals within fifteen (15) days from the Taxpayer’s receipt of the CTA’s decision. What means are available to the Bureau to compel a Taxpayer to produce his books of accounts and other records? A Taxpayer shall be requested. 1960). 237 2008 CENTRALIZED BAR OPERATIONS Sections 14 and 266. The Taxpayer may file such a claim with the Commissioner of Internal Revenue (Sec. after the Taxpayer fails. or all. within two (2) years from the payment of the tax or penalty sought to be refunded. 29. However. c. for inspection. 25. under Section 3(f). he can. if the Taxpayer fails to pay the taxes voluntarily. and the Commissioner has yet to render a decision on the claim (Gibbs v. Can a Taxpayer claim a refund or tax credit for erroneously or illegally collected taxes? Yes. not more than two (2) times.

2003. Inc. 2007. Dimaampao. That In All Things God May Be Glorified! . Real Property Tax Law and Jurisprudence.. Benjamin. 2003. Inc. Basic Approach to Income Taxation. Rex Printing Company. Rex Printing Company. Victorino C.. The National Internal Revenue Code Annotated. Tax Law and Jurisprudence. Reviewer on Taxation. Abelardo T. Sababan. The National Internal Revenue Code Annotated. GIC Enterprises and Co. 2006.. De Leon. 2004. Victorino C. and Acosta. Bar Reviewer in Taxation. Hector M. Inc. Volume 2. Ernesto D. and De Leon. GIC Enterprises and Co. Volume I. Mamalateo. Taxation Law Reviewer.. Hector M. National Bookstore. Dimaampao. Hector S. and De Leon.. Aralar. Tax Principles and Remedies. 2000. Japar B.San Beda College of Law 2008 CENTRALIZED BAR OPERATIONS BIBLIOGRAPHY Aban. Domondon... Hector S. 2004. 2003. Reynaldo B. Japar B. Inc. Rex Printing Company. Rex Printing Company. Inc. Efren Vincent M. Abelardo T. Inc.. and Bundac.. Vitug. Mamalateo. Volume II. Domondon. Francis J. “Value Added Tax on Legal Services”. De Leon. Lydia A. Bar Reviewer in Taxation. Q & A in Taxation. GB Research and Information Center. Inc. Jose C. Rex Printing Company. 2003. Basic Law on Taxation. Rex Printing Company.. 2000. 2004. Jr. San Beda Law Journal 2005-2006. Inc. Volume 1. Dizon.. Jr.