Taxation 2 Notes

TAXATION2(ATTY.
GONZALES)
ESTATETAX
NatureofEstateTax
Leviedonthegratuitoustransferofonespropertyupononesdeath
Imposedontherightofapersontotransferhispropertiestohisheirsor
successorsuponhisdeath
Imposed upon the right or privilege to transfer properties as a result of

theownersdeath
Impositionatthetimeoftransferofpropertiesleftbythedecedenttohis
heirs
BasisofEstateTax
Object of the estate tax is to tax the transfer of economic benefits and
enjoymentofpropertiesfromadecedentpersontotheheir
JustificationofEstateTax
RedistributionofWealthTheory
1. Inheritance received by the heir contributes to the unequal
distribution of wealth and earnings because the heir hasnt
actuallyworkedforit
2. Impositionofestatetaxhelpsdistributesomeoftheeconomic
benefitswhichshouldhavebeensolelyenjoyedbytheheirs
BenefitReceivedTheory
1. Governmentprovidesservicesforthetransferoftheestateof
thedecedent,eitherbylaworbywill
2. It is therefore fair that the government collects its equivalent
compensation in protecting individual persons and properties
andrights
PrivilegeorStatePrivilegeTheory
1. State is a passive and silent partner in the accumulation of
wealthasitsprotectionforanindividualwithinitsterritory
2. Ithastherighttocollectthesharewhichispropertyduetoit
AbilityToPayTheory
1. Every inheritance received by a heir is in the nature of
unearnedwealth
Effectivityofthetransferofproperties
Rightofsuccessioniseffectedfromthemomentofdecedentsdeath
Construed that the properties and rights of decedent are transferred to
hissuccessorattimeofhisdeathwithoutanyinterruption
LORENZOV.POSADAS
64PHIL383
FACTS:
Hanley died and left property for his nephew. It was indicated that the nephew
wouldhavepossessionandownershipofthepropertyonlyafter10yearsfromthe
death of Hanley. The BIR assessed the nephew for estate tax, counting from the
dateofdeathofHanley.Thenephewquestionedthis,averringthatheshouldbe
assessed instead from the period when he gets possession and ownership of the
property.
HELD:
1. The accrual of the inheritance tax is distinct from the obligation to pay the
same. This tax is imposed on every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance,
deviseorbequest.Thetaxthereforeisupontransmissionorthetransferor
devolutionofpropertyofadecedent,madeeffectivebyhisdeath.
2. Ifdeathisthegeneratingsourcefromwhichthepowerofthestatetoimpose
inheritancetaxestakesitsbeingandifupondeathofthedecedent,succession
takesplaceandtherightofthestatetotaxvestsinstantly,thetaxshouldbe
measuredbythevalueoftheestateasitstoodatthetimeofthedecedents
death, regardless of any subsequent contingency affecting value or any
subsequentincreaseordecreaseinvalue.
MARCOSV.COURTOFAPPEALS
5JUNE1997
GROSSESTATE
GrossEstate
Consists of all property owned by the decedent at the time of death,

including stocks, real estate, mortgage, and any other property that
technicallybelongedtohim
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TAXATION2(ATTY.GONZALES)
Itshallnotincludeexclusivepropertiesofsurvivingspouse
To be reduced by decedents debt, funeral expenses, share of the
surviving spouse, and other permissible deductions to arrive at net
taxableestate
o
o
Shares,obligations,orbondsissuedbyanyforeigncorporation
ifsuchacquiredbusinesssitusinthePhilippines;
Sharesorrightsinapartnership,businessorindustrylocatedin
thePhilippines
Rules:citizensand/orresidentsofthePhilippines&nonresidentaliens
ValuationOfTheGrossEstate
For decedent citizens or resident aliens: real and personal properties
Grossestateofthedecedentshallbeappraisedatthetimeofdeathsince
whereverlocated
thetransferofpropertiesfromthedeadtothelivingtakeseffectatthe
Fornonresidentaliens:onlypropertieslocatedwithinthePhilippines
momentofdeath
Real property, tangible personal property and intangible personal
property
AdditionstoGrossEstate
The following shall be considered as personal property within the

1. Decedentsinterestaccruedatdateofdeath
Philippines
2. Transfersincontemplationofdeath
o FranchiseswhichmustbeexercisedinthePhilippines;
3. Revocabletransfers
o Shares of stocks, bonds and other instruments of obligations
4. Propertypassingundergeneralpowerofappointment
issuedbyadomesticcorporation;
5. Proceedsoflifeinsurancewithrevocablebeneficiary
o Shares of stock, bonds, and other instruments of obligations
6. Transfersforinsufficientconsideration
issued by a foreign corporation whose 85% of its business are
7. Priorinterests
conductedinthePhilippines;
GROSSESTATE
ADDITIONSTOTHEGROSS
DEFINITION
ADDITIONALINFORMATION
ESTATE
Decedentsinterest
Persons estate, the wealth that would have enjoyed, possessed, and
disposed,hadhelived
Valueofanyinterestinpropertyorrightsaccruedinfavorofdecedentonor
beforehisdeathwhichhavebeenreceivedonlyafterhisdeath
o Dividendsdeclaredonorbeforehisdeathandreceivedbyestate
aftersaidpersonsdeath
o Partnership profits earned prior to death of partner but received
byestateafterdeath
o Accrued interests and rents on or before time of death but
collecteduntilafterdeath
Transfersincontemplation
Anticipationofdeath
Note:Thereisnocontemplationofdeathforsaleforan
ofdeath
Therestransferincontemplationofdeathwhenthefollowinginstancesare adequateconsideration.
present:
1. Whilestillliving,thedecedenttransferredhispropertyinfavorof Isthissituationatransferincontemplationofdeath:he
anotherpersonbutthetransferwasintendedtotakeeffectonly was informed that he only had six months to live. He
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2.
Revocabletransfers
Propertypassingunder
generalpowerofattorney
uponformersdeath
Bygiftintendedtotakeeffectafterdeath,orafterdeath,orunder
which donor reserved the income or the right to designate the
personswhoshouldenjoytheincome
Followingtransfersareheldtobeincontemplationofdeath:
1. Whereadonationwasmadeconcurrentlywiththeexecutionofa
will
2. Where a donation was made to the decedents age and/or the
decedentsknownseriousillnessatthetimeofthegift
3. Wherethetimebetweenmakingthegiftanddeathofdonorwas
relativelyclose
Transfer of property with retention or reservation of rights over the

propertyofthedonorwhilehestilllives
1. Bygift,wherethedonorhasreservedthepowertoalter,amend,
andrevokedonation
2. The donor retains the option to relinquish such power in
contemplationofdeath
If the enjoyment of the property transferred to decedent is subject at the
date of his death to any change through the exercise of a power to alter,
amend, or revoke or terminate the transfer, the transferred property is to
beincludedinthedecedentsestate.
Ownershipstillisretainedbythedecedent
Eveniftheownerdidn'texercisethepowerofrevocation,itisdeemedtobe
exercisedatthemomentofhisdeath
To the extent of property passing under general power of appointment

exercisedbyadecedent:
1. Bywill
2. By deed executed in contemplation of, or intended to take effect in
possessionorenjoymentat,orafterhisdeath,and
3. By deed under which he has retained for his life or for any
then gave his properties to his children. But then, he

outlivedthe6monthperiod.
It is still a transfer in contemplation of death because
what matters is the state of mind of the donor when he
made the donation or conveyance. In this case, he took
consideration of the serious illness he was informed
about.
X donated a property to his brother with the condition

thatthebrothercannotdisposeofthepropertywhileX
was still living. Is this a transfer in contemplation of
death?
Yes
There is a transfer in contemplation of death when the
decedent, while still living, he transferred his property in
favorofanotherpersonthatthetransferwasintendedto
takeeffectonlyupontheformersdeath
Isthepropertystillpartofthegrossestate:XlendAan
expensive painting for 50 years. X informed A that if Y
asksforthepainting,hemaydoso.
Itisstillpartofthegrossestate.Xdidnotrelinquishthe
powertorevokethepainting.Heonlymadeacondition
thatifYwantstheproperty,hemayhaveso.
Is the property still part of the gross estate of X if he

dies: X owns the painting and he gives Y the power to
revokethepaintingfromZ.Theconditionofrevocation
wasgiventoYbutproblemis,YdiesaheadofX.
Yes because the ownership is retained by X and
accordingly,theconditionwasalreadyanimpossibleone
whenYdiedaheadofX
However, if power released is special power of

appointment, the property subject to such shall be
excludedfromthegrossestate
Itisnotageneralpowerofappointmentifthepower
to consume or appropriate property and/or income
for the benefit of the decedent is limited to an
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Proceedsoflifeinsurance
withrevocablebeneficiary
Transfersforinsufficient
consideration
1.
2.
3.
4.
DecedentsInterest
BIRRuling13098
unascertainableperiodwithoutreferencetohisdeathorforanyperiod
whichdoesntinfactendbeforehisdeath(a)theenjoymentoforthe
right to the income from the property, (b) by right, either alone or in
conjunctionwithanyperson,todesignatethepersonwhoshallpossess
or enjoy the income of the property there from; except in case of a
bona fide sale for an adequate and full consideration in money or
moneysworth
As a rule, the decedent possessed, exercised, released a general power of
appointment,thepropertyshallbeincludedinthedecedentsgrossestate
becauseinsubstance,heownstheproperty
Life insurance covers all descriptions of insurance related to life, including
deathbenefitsandaccidentinsurance
Presence of the following instances would signal inclusion of life insurance
ofdecedentaspartofgrossestate
1. The beneficiary is the estate of the decedent, his executor, or
administrator
2. A person other than the estate, his executor or administrator is
designated under a revocable insurance policy whether or not such
powerofrevocationwasexercised
Lifeinsurancetobeincludedisinsurancetakenoutofdecedentonhisown
life
Ifthetransferwasinthenatureofabonafidesaleforanadequateandfull
consideration in money or moneys worth, no value shall be included in
grossestate
Iftheconsiderationreceivedislessthanadequateandfull,thevaluetobe
includedingrossestateshallbetheexcessoftheFMVofthepropertyatthe
timeofdecedentsdeathovertheconsiderationreceived
If there was no consideration received on the transfer, the value to be
includedistheFMVofthepropertyatthetimeofdecedentsdeath
Ifthetransferisnotshowntohavebeenmadeincontemplationofdeathor
totakeeffectupondecedentsdemise,itshallbesubjecttodonorstax
ascertainablestandard
There are instances that when the transfer is for

insufficient consideration, it shall not be considered
part of gross estate since values of tax have already
beenimposedbytheBIR
Section100
FACTS:
Ricardo Samano owned a parcel of land which he gave to his youngest and only
sister, who at that time, was married to Perfecto Espiritu. Subsequently, the old
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TCTwascancelledanditwasnamedafterLuz,marriedtoPerfecto.Perfectolater
ondied.
HELD:
The land was acquired by Luz by virtue of gratuitous title from her brother while
shewasmarriedtoPerfecto.Suchbeingthecase,thelandisnotincludedinthe
grossestateofPerfecto,itbeingexclusivepropertyofLuz.
BIRRuling10396
FACTS:
Jocsonownedseveralsubdivisionlotsduringhislifetime.Inaccordancewithlaw,
roadlotsandopenspaceswereprovidedforinthesame.Itisinquiredwhetheror
nottheroadlotsandopenspacesshallbeincludedaspartofhisgrossestate.
HELD:
Roadsandopenspaceswhicharerequiredbylawtobereserved/setasidebythe
subdivision owners for the common use of the buyers of the subdivision lots and
the public in general don't form part of the transmissible properties of the
decedenthencethevaluethereofisexcludedindeterminingthetaxableproperties
ofthedecedentsubjecttoestatetax.Consideringtheroadsandopenspacesare
forpublicuse,theyareinfactgovernmentproperties
BIRRuling18681
FACTS:
Arellano was an architect who used cash basis of accounting in his sole
proprietorship. With this method, income already earned but not yet received
were not reflected in his income tax returns. He then met his untimely demise
togetherwithhisimmediatefamily.Itisnowinquired
1. Whetherornotthereceivablesshouldbeincludedinthevaluationofhisgross
estate?
2. Whetherornotthetaxrefundshewasentitledtopartofhisgrossestate?
HELD:
1.
2.
ThereceivablespertainingtoArellanoshallformpartofhisgrossestateand
thusshallnotbesubjecttothe10%withholdingtax
The amount of tax refundable per income tax return of Arellano shall form
also part of his gross estate. Take note that the value of a tax refund is
includableinthedecedentsgrossestatewhetherfiledbythedecedentduring
hislifetimeandunresolvedathisdeathorbytheexecutorafterhisdeath.
TransfersinContemplationofDeath(Section85[b])
VDA.DEROCESV.POSADAS
58PHIL108
FACTS:
Tuazondonatedparcelsoflandtotheplaintiffsthroughpublicdocuments,whoin
turn, accepted the same. A few months after the said donation, the donor died,
withoutanyforcedheir.Intheprobateofherwill,sheleftsumsofmoneyinfavor
of the donees. The Commissioner in turn assessed inheritance tax against the
plaintiffs, which included properties previously donated to them. They paid the
taxesunderprotest.
HELD:
The decision appealed from was based on the provisions in the Administrative
Codethatafterdeductionshavebeenmade,thereshallbeaddedtotheresulting
amountthevalueofallgiftsoradvancesmadebythepredecessortoanyofthose
who, after his death, shall prove to be his heirs, devisees, or legatees. The
appellantscontendthatsuchprovisionsdon'tincludedonationsintervivos.
In tune with earlier rulings on the same issue, all gifts refers to gifts inter vivos
inasmauchasthelawconsidersthemasadvancesmadeincontemplationofdeath.
In this case, the transmissions were effected and then after less than a year, the
donor died, leaving the appellants as legatees in the donors will. It is in this
allegation that there is presumption juris tantum that said donations were made
mortiscausaandassuch,aresubjecttothepaymentofinheritancetax.
DIZONV.POSADAS
57PHIL465
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FACTS:
DonDizonmadeadonationintervivostohisonlyson.WhenDonFelixDizondied,
the son didn't receive any property from the former. Upon assessment of the
inheritance tax against Luis, part of the properties assessed was the gift made to
himduringthelifetimeofthefather.
HELD:
The facts warrant the inference that the transfer was an advancement upon the
inheritance upon the donee, as the sole and forced heir of the donor, which he
would otherwise be entitled to upon the death of the father. The argument
furthered that he is not an heir because there was no longer any property is
fallacious. In any event, Luis cannot be deprived of his share in the inheritance
becausethelawconfersuponhimthestatusofaforcedheir.
Furthermore, following previous rulings, when the law says all gifts, it doubtless
referstogiftsintervivos,andnotmortiscausa.Boththeletterandspiritofthelaw
leaves no room for any other interpretation. Such clearly, is the tenor of the
languagewhichreferstodonationsthattookeffectbeforethedonorsdeath,and
not to mortis causa donations, which can only be made with the formalities of a
will,andcanonlytakeeffectafterthedonorsdeath.
RevocableTransfers
BIRRuling02198
FACTS:
MarianoandRoyenteredintoanagreementtoequallyshareinthepurchaseof5
parcelsofland.Roywasthenthetrusteeofportionoftheproperty.Helateron
withdrewhisbecomingatrusteebecauseofhisfailuretopayhisshareduefrom
him. The administrator of his estate then received a letter from Mariano,
informing him that the latter is the sole owner of the 5 parcels of land.
Consequently, a deed of transfer was executed between the estate and Mariano
withoutanyconsideration.Thiswasapprovedbythecourtandlaterbecamefinal
andexecutory.
HELD:
Since the transfer of portion of the 5 parcels of land was made without
considerationpursuanttoadeedoftransferandconsideringfurtherthatthiswas
duly approved by the court, the transfer of the aforementioned properties to

Mariano is not subject to 5% capital gains tax and moreover, is exempt from
donorstaxduetolackofdonativeintentonthepartoftheestateofRoyPadilla.
BIRRulingUN04195
FACTS:
Leonora Pascual has established a revocable inter vivos trust and would like to
change the manner of holding title to her real properties and securities from
LEONORAPASCUALtoLEONORAPASCUAL,trustee.
HELD:
Therewasnoactualtransferofownershipovertheaforementionedpropertiesasa
resultofthetransferthereoftoLEONORAPASCUAL,trustee,L.F.PASCUALTRUST.
Thesaidtransferisnotsubjecttothe5%capitalgainstaxandconsequently,tothe
expandablecreditablewithholdingtax.
Itistobeunderstoodthoughthatpropertyplacedinrevocabletrustisincludiblein
the trustors gross estate for estate tax purposes. even if the trustor is
incompetentandcannotlegallyexercisethepowerofrevocation,merepossession
atdeathofthepowertorevokeshallcausetheinclusionofthepropertiesheldin
trust for the trusotrs estate. Accordingly, the creation of the revocable trust
doesn'tdirectlyaffecttheamountofestatetaxpayableatthetrustorsdeath.
PropertyPassingUnderGeneralPowerofAppointment
BIRRuling8695
FACTS:
Atty.MendezonaenteredintoatrustagreementwithFEBTCwhereinitwasagreed
that the amount subject of the agreement would go to the heirs of Ozamiz upon
her death. Ozamiz died. An inquiry is then made whether or not the amount
subjectoftrustagreementissubjecttoestatetax.
HELD:
Mendezona is not the decedent and the money subject of the trust agreement
belongstohimontheconditionthatthesaidmoneywillbetransferredtotheheirs
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ofOzamizuponthedeathofthelatter,hence,isntincludedinthegrossestateof
the decedent and it follows, that it is not subject to estate tax. however, the
moneygivenbyMendezonaissubjecttodonorstax.
ProceedsofLifeInsuranceWithRevocableBeneficiary
BIRRuling42387
FACTS:
AmotherwrotetheBIRinquiringwhetherornotthelifeinsuranceproceedsofhis
sonisincludedinthevaluationofhisgrossestate.Thesonmetanaccident,which
inturnledtohisuntimelydeath.
HELD:
Proceedsoflifeinsurancepolicyformpartofthegrossestateofthedecedentto
theextentoftheamountreceivablebytheestateofthedecedent,orhisexecutor,
or administrator, as insurance under policies taken out by the decedent upon his
own life, whether or not the insured retained the power of retention, or to the
extentoftheamountreceivableofanybeneficiarydesignatedinthepolicyofthe
of insurance, except when it is expressly stipulated that the designation of the
beneficiaryisirrevocable.
BIRRuling31487
FACTS:
HELD:
Capitalofthesurvivingspouse
The capital of the surviving spouse of the decedent shall not, for the
purposeofChapter1,TitleIIIbedeemedpartofhisorhergrossestate
RulesInValuationOfGrossEstate(Section88NIRC)
1. Ingeneral,grossestateshallbevaluedatitsfairmarketvalueatthetime
of decedents death. The property is to be valued as of the decedents
death upon which date the tax accrues regardless of any subsequent
contingencyaffectingtheestate.
2. Realproperties:CurrentvalueorFMVasshowninthescheduleofvalue
fixed by the City or Provincial Assessor, or FMV as determined by BIR
Commissioner,whicheverishigher
3. Personalproperties:reportedatacquisitioncostifrecentlyacquiredor
currentmarketpriceforthepreviouslyacquiredproperties
4. Stocks, bonds and other securities: mean of the highest and lowest
quotedsellingpricesattimeofdeathornearestdatewheretherewasa
sale;ifnotlistedonanexchange,thevalueshouldbethebookvalueat
thetimeofdeath
(PARVALUE+RETAINEDEARNINGS)X#OFSHARESINC.INESTATE
OUTSTANDINGSHARESISSUED
BIRRuling9598
FACTS:
The decedent Sto. Domingo left real propertiesincluding two parcels of
residentialland.Onbehalfoftheheirsofthedecedent,aninquirywasmadeon
thetaxability,valuationandassessmentoftheproperties.
HELD:
It was ruled that in the payment of estate tax, the estate shall be evaluated or
appraisedatthemarketvalueasofthetimeofdeath,orasof6monthstherafter,
intheelectionoftheexecutororadministrator.Withrespecttorealproperty,the
determiningvalueisthecurrentorfairmarketvalueasreflectedinthescheduleof
values fixed by the City or Provincial Assessor, or the FMV as determined by the
Commissioner,whicheverishigher.
BIRRuling10396
FACTS:
Jocsonownedseveralsubdivisionlotsduringhislifetime.Inaccordancewithlaw,
roadlotsandopenspaceswereprovidedforinthesame.Itisinquiredwhetheror
nottheroadlotsandopenspacesshallbeincludedaspartofhisgrossestate.
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HELD:
Roadsandopenspaceswhicharerequiredbylawtobereserved/setasidebythe
subdivision owners for the common use of the buyers of the subdivision lots and
the public in general don't form part of the transmissible properties of the
decedenthencethevaluethereofisexcludedindeterminingthetaxableproperties
ofthedecedentsubjecttoestatetax.Consideringtheroadsandopenspacesare
forpublicuse,theyareinfactgovernmentproperties
BIRRuling01186
FACTS:
OnbehalfoftheheirsLimBoonHai,aninquirywasmadeastothevaluationand
taxability of shares of stock, for estate tax purposes. These shares of stock
consistedoftwosuspended,onedelisted,andonewithnotransactionatall.
HELD:
Forestatetaxpurposes,thevalueofeveryitemofpropertyincludibleinthegross
estate is the fair market value thereof at the time of the decedents death.
However,sharesofstockwhichhadbeeneithersuspendedordelistedorwhereno
transactions involving them have been made, shall be valued at their book value
nearestthevaluationdatewhichinthiscase,isthedateofdecedentsdeath.Said
bookvalueshallbeprimafacieconsideredastheirfairmarketvalue.Iftherehave
been previous bona fide sales/exchanges of such shares, the price at which such
sharesexchangedhandsshouldbetakenorconsideredastheirfairmarketvalue.
Withrespecttotheshareswhichhavebeeninsolvent,itshallhavezerovaluation.
And should the shares later on appreciate in value and are subsequently sold or
disposed,fortaxpurposes,theircostbasisshallbezero.
**SeealsoRR62008
BIRRuling18681
FACTS:
Arellano was an architect who used cash basis of accounting in his sole
proprietorship. With this method, income already earned but not yet received
were not reflected in his income tax returns. He then met his untimely demise
togetherwithhisimmediatefamily.Itisnowinquired
1.
Whetherornotthereceivablesshouldbeincludedinthevaluationofhisgross
estate?
Whetherornotthetaxrefundshewasentitledtopartofhisgrossestate?
2.
HELD:
1. ThereceivablespertainingtoArellanoshallformpartofhisgrossestateand
thusshallnotbesubjecttothe10%withholdingtax
2. The amount of tax refundable per income tax return of Arellano shall form
also part of his gross estate. Take note that the value of a tax refund is
includableinthedecedentsgrossestatewhetherfiledbythedecedentduring
hislifetimeandunresolvedathisdeathorbytheexecutorafterhisdeath.
BIRRuling6081
FACTS:
This ruling answered the inquiry on what is meant by the taxes imposed on joint
accountdepositsunderSection118oftheTaxCodeandwhatshouldbereported
forestatetaxpurposes.
HELD:
The taxes contemplated in Section 118 are for estate tax purposes only and the
impositionofinheritancetaxeshavebeenabolished.
Usufruct
Todeterminethevalueoftherightofusufruct,useorhabitation,aswell
asthatofannuity,thereshallbetakenintoaccounttheprobablelifeof
the beneficiary in accordance with the latest Basic Standard Mortality
Table, to be approved by the Secretary of Finance, upon
recommendationoftheInsuranceCommissioner.
NETESTATE
DeductionsfromGrossEstate
(1) Permitted to be subtracted from the value of gross
estateinordertoarriveatanettaxableestate
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(2) Deductions from gross estate are presumed to be

conjugal deductions unless specifically identified as
exclusive
DeductionsAllowedFromTheEstateOfACitizenOrResident
1. Ordinarydeductions
a. Funeral expenses (amount of funeral expenses as permissible
deduction from gross estate is the lower of actual funeral
expenses,5%ofthegrossestate,orthelimitofPp200000)(asa
rule,shouldbeincurredonorbeforeinterment)
DEGUZMANV.R.CGUZMAN
83SCRA256
FACTS:
One of the properties left by deceased testator was a house and lot which was
adjudicated in favor of the eight children. One of the children was appointed as
the administrator of the estate. It is to be noted that the probate court ordered
the administrator to refrain from spending the assets of the estate for
reconstructuringandremodelingthehouseofthedeceasedandtostopspending
any asset of the estate without prior authority of the court. However, in the
accountingreportsubmittedbytheadministrator,severalexpensesweremadefor
the remodeling of the house. This was allowed by the lower court and this
promptedtheotherchildrentoopposethisorder.
HELD:
An executor or administrator is allowed the necessary expenses in the care,
management,andsettlementoftheestate.Heisentitledtopossessandmanage
thedecedentsrealandpersonalestateaslongasitisnecessaryforthepayment
of the debts and expenses of administration. He is accountable for the whole
decedentsestatewhichhascomeintohispossession,withalltheinterest,profit,
andincomethereof,andwiththeproceedsofsomuchofsuchestateasissoldby
him,attheprice,atwhichitwassold.
Administrationexpensesshouldbethosewhicharenecessaryforthemanagement
oftheestate,forprotectingitagainstdestructionanddeterioration,andpossibily,
fortheproductionoffruits.Theyareexpensesentailedforthepreservationand
productivityoftheestateanditsmanagementforpurposesofliquidation,payment
ofdebts,anddistributionoftheresidueamongthepersonsentitledthereto.
Itshouldbenotedthatthefamilyresidencewaspartitionedproindivisoamongthe
decedentschildren.Eachoneofthemwasgivenan1/8shareinconformitywith
thewill.Fiveofthechildrenagreedtotheuseoffundsoftheestateforrepairand
improvement of the family home. It is obvious that the expense was incurred to
preserve the family home and to maintain the familys social standing in the
community.Insummary,thiswasincurredforthebenefitofthecoowners.
This is not the same proposition on the other hand for the expenses incurred by
Libradawhilestayinginthefamilyhouse.Theexpensesarepersonalinnatureand
don't inure to the benefit of the family nor of the estate. This is the same stand
withrespecttotheexpensesspentonthefirstdeathanniversaryofthedecedent.
Thisaswelldoesn'thaveanyconnectionwiththebenefitoftheestate.
b. Judicialexpensesofthetestamentaryorintestateproceeding
VERAV.NAVARRO
79SCRA408
FACTS:
Judge Tan was appointed as the executor of the estate of Elsie Gaches. He
preliminarilysubmittedamotionforadvancepaymentofallowances,inheritance,
etc. pending the finality of probate of the will. He maintained that there are
sufficientassetstocoverwhateverliabilitytothegovernmentfortaxesandother
charges.TheCommissioneropposedthismotionandshowedsomeproofofclaims
forestatetaxesandinheritancetaxes.Thecourtthendisapprovedthemotionof
Tan.Onalaterdate,Tanpaidthetaxesduebuttherewasdeficiencyinpayment
oftheinheritancetaxes.Uponpayment,hemovedagainthathebeallowedtopay
T
advance inheritance, allowances, etc. This time, the court allowed him to do so.
TheCommissionertriedtoopposethisbuttonoavail.Hethentriedtogarnishthe
bankaccountsoftheestatebutwasn'tabletodosoduetothequickthinkingof
Tantohavethewritofgarnishmentdischarged.
HELD:
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UndertheprovisionsoftheRulesofCourt,togetherwiththeprovisioninthetax
code, the distribution of a decedents assets may only be ordered under the
followingcircumstances
1. Whentheinheritancetax,amongothers,ispaid
2. When a sufficient bond is given to meet the payment of the inheritance tax
andallotherobligationsofthenatureenumerated
3. Whenthepaymentofthesaidtaxandalltheotherobligationsmentionedin
theRulehasbeenprovidedfor.
Noneofthesewerepresentwhenthequestionedorderswereissuedatthecaseat
bar.
Ontheissueofattorneysfees,theseshouldbeshoulderedbytheheirsandnotby
theestate.Theattorneysfeespayablewerenotforthebenefitoftheestateand
thus,neednotbepaidbytheestate.
c. Claimsagainsttheestate
DELAVINAV.COLLECTOR
65PHIL520
FACTS:
After the death of Jose, Diego was appointed as an administrator of his estate.
Afterwards, the court approved the accounting of administration expenses Diego
made as an outgoing administrator. The court allowed the disbursement of
expenses paid by him. However, the government made a supervening claim for
unpaid taxes on the estate. With the present assets held by the estate, it would
insufficient to pay off the unpaid taxes and administration expenses sought by
Diego to be disbursed to him. The government tried to get the upper hand but
Diego continuously maintained that he is preferred to be paid first than the
government.
HELD:
The income tax on the profits derived by the properties of the estate cannot be
consideredasadministrationexpenses,whichenjoyspreferenceinpayment.
Section735oftheCodeofCivilProcedure,asamendedbyActNo.3960,provides
asfollows:
SEC. 735. Order of payment if estate insolvent. If the assets which can be
appropriated for the payment of debts are not sufficient for that purpose, the
executor or administrator shall, after pay the debts against the estate in the
followingorder:
1.Thenecessaryfuneralexpenses;
2.Theexpensesofthelastsickness;
3.Whatisowingtothelaborerforsalariesandwagesearnedandforindemnities
duetohim,forthelastyear;
4.DebtsduetotheUnitedStates;
5. Taxes and assessments due to the Government, or any branch or subdivision
thereof;
6.Debtsduetotheprovince;
7.Debtsduetoothercreditors.
InviewofthelegalprovisionjustquotedandSection680ofthesamecodeofCivil
Procedure,onlypaymentswhichtheexecutororadministrationmayhavemadein
the discharge of his office and the commissions to which he may be entitled,
partakesofthenatureofadministrationexpenses.Theexpensesofadministration
are due only to the executor or administrator, and he alone, and no other, may
collect them. It is also irrelevant to say that the taxes were due on the profits
earned from the properties of the estate. As already mentioned, the
administration expenses contemplated by the rules are those which the
administratormayhaveincurredinthecare,administrationandliquidationofthe
properties of the estate and the commissions due to him for collections and
disbursements which he may have made, and not those which he cold or might
havewishedtomakeoutofhisownpocketorbutofthefundsoftheestate.These
includeexpendituresindiscoveringandpreservingassets,attorneysfeesincurred
inconnectionwiththeadministrationoftheestate,incurredinconnectionwiththe
administrationoftheestate,costrecoveredagainsttherepresentativeinanaction
torecoverassets,toestablishedaclaimagainsttheestate,totrytitletoland,and
insurance premiums expended for the protection of the property and it has even
been considered that expenditures in carrying on decedent's business may be
regardedasexpensesofadministration.
OnthesecondissuemaintainedbytheCollector,thatpaymentoftaxesowingto
the government are preferred, this again is untenable. The lien created by the
said section 1588 of the Revised Administrative Code, having reference to all
internal revenue taxes, including the income tax here in question, is general in
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character, and the order of its payment as a lien is applicable to all properties
subject to the payment of internal revenue tax; whereas the order of payment
establishedbysection735oftheCodeofCivilProcedure,asamendedbyActNo.
3960, is special in character and is only applicable to properties of deceased
persons; consequently, in accordance with the cardinal rule of statutory
construction,thelatterprovisionoflawshouldprevailovertheformer.Insection
lastmentioned,thetaxesduetogovernmentofanybranchorsubdivisionthereof
occupythefifthplaceintheorderofpayment;wherefore,theindebtednessofthe
estate of Diego de la Via for income tax not being a necessary expense of
administration,andtheclaimoftheexadministratorDr.JoseMa.delaViaydela
Rosa being such necessary expense of administration, the latter has preference
overtheformer.
c. Insolvent
d. Unpaidmortgages,taxes,andlosses
2. Vanishingdeductionsorpropertypreviouslytaxed
3. Transfers for public usethe amount of all the bequests, legacies,
devisesortransferstoorfortheuseoftheGovernmentoftheRepublic
of the Philippines, or any political subdivision thereof, for exclusively
publicpurposes.
4. Familyhome
5. Standarddeductions(P1,000,000)
6. Medical expenses paid (are to be declared as separate allowable
deductionfromgrossestate)(maximumofP500,000)
7. AmountreceivedbyheirsunderRA4917(Retirementbenefitsofprivate
employees)
ClaimsAgainstTheEstate
At the time indebtedness was incurred, the debt instrument was duly
notarized
If the loan was contracted within 3 years before the death of the
decedent, the administrator/executor shall submit a statement showing
thedispositionoftheproceedsoftheloan
ClaimsAgainstInsolventPersons
Amountofsaidclaimshasbeeninitiallyincludedaspartofgrossestate
The incapacity of the debtor to pay his debt is not proven not merely
alleged
Governmenthaspreferenceoverassetsofinsolventperson
After payment to government, following order of payment priority is to

bemade:employees,andcreditors
UnpaidTaxes
Followingtaxesaredeductiblefromgrossestate
1. Propertytaxesaccruedpriortodecedentsdeath
2. Unpaidtaxesonincomereceivedbydecedentbeforehisdeath
3. Gifttaxesonlifetimegiftswhichareunpaidupondeath
4. Excise or transfer tax in connection with either a necessary sale of
estatetaxesordistributioninkind
VanishingDeductions
Amount allowed as deduction for property which was previously taxed

withtransfertaxpriortodecedentsdeath
Where such property can be identified as having been received by the

decedent from the donor by gift, or from such prior decedent by gift,
bequest,deviseorinheritance,orwhichcanbeidentifiedashavingbeen
acquiredinexchangeforpropertysoreceived
If the same property is included in gross estate, its value may be

deducted in computing the tax on his estate subject to the following
conditions
1. Present decedent died within 5 years from receipt of the property
throughgratuitoustransfer
2. Anestateordonorstaxmustactuallybeenpaidonsuchproperty
3. Propertyfromwhichvanishingdeductionisbeingclaimedislocated
inthePhilippines
4. Property on which vanishing deduction is being claimed must be
identifiedastheonereceivedfromthepriordecedentordonor
5. Nosimilardeductionmusthavebeenallowedforthesameproperty
intheestateofthepriordecedent
Computationofamounttobededucted
1. Valuetobetaken:lesserofthevalueofthepropertyatdateofpresent
decedentsdeathorvalueofthepropertyattimeoftransfer
2. Initial Basis: if the inherited property has been subjected to mortgage,
thevaluetakenshallbereducedbytheamountpaidonthemortgageof
thedecedent
3. Deductionsfromthevaluetaken:
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a.
4.
5.
Ordinary deductions from present gross estate multiplied by

the value taken over present gross estate. The ordinary
deductions include the expenses, losses, indebtedness, taxes,
etc.,plustransfersforpublicuse.
b. DEDUCTION FROM INITIAL BASIS = (TOTAL ORDINARY
DEDUCTIONSxINITIALBASIS)/PRESENTGROSSESTATE
Basisforvanishingdeduction
BASIS FOR VANISHING DEDUCTIONS = INITIAL BASIS DEDUCTIONS
FROMINITIALBASIS
Levelofdeduction(yearslapsedfromdateoftransfertodateofdeath)
Withinoneyear
100%
Morethan1yearto2years
80%
Morethan2yearsto3years
60%
40%
20%
FamilyHome
Amountequivalenttothecurrentfairmarketvalueorzonalvalueofthe
decedentsfamilyhome,whichshallnotexceedPp1000000
The residential home and lot is used as an official residence of the

decedent
1. If the decedent is single/head of the family, the allowable
deductionwouldbePp1M
2. Where the decedent was married and family home was
conjugal property, the allowable deduction for family home
wouldbe1/2ofthetotalvalueoftheconjugalproperty
3. Where the decedent was married and family home was
exclusive, the allowable deduction would be at the extent of
Pp1M
4. Where decedent was married and residential lot is exclusive
propertyandhouse,conjugalproperty
RESIDENTIAL LOT + (1/2 * RESIDENTIAL LOT ) = ALLOWABLE
DEDUCTION
StandardDeduction
Toarriveatnetestate,astandarddeductionofPp1,000,000isallowedin
additiontootherallowabledeductions
Notoptionalbutstandard
MedicalExpenses
Incurredbydecedentwithin1yearpriortohisdeathwhichshallbeduly
substantiatedwithreceipts
Allowabledeductionuptopp500000
BenefitsbyvirtueofRA4917
Section 1. Any provision of law to the contrary notwithstanding, the

retirementbenefitsreceivedbyofficialsandemployeesofprivatefirms,
whetherindividualorcorporate,inaccordancewithareasonableprivate
benefitplanmaintainedbytheemployershallbeexemptfromalltaxes
andshallnotbeliabletoattachment,garnishment,levyorseizurebyor
underanylegalorequitableprocesswhatsoeverexcepttopayadebtof
the official or employee concerned to the private benefit plan or that
arising from liability imposed in a criminal action: Provided, That the
retiringofficialoremployeehasbeenintheserviceofthesameemployer
foratleastten(10)yearsandisnotlessthanfiftyyearsofageatthetime
ofhisretirement:Provided,further,Thatthebenefitsgrantedunderthis
Act shall be availed of by an official or employee only once: Provided,
finally, That in case of separation of an official or employee from the
serviceoftheemployerduetodeath,sicknessorotherphysicaldisability
orforanycausebeyondthecontrolofthesaidofficialoremployee,any
amount received by him or by his heirs from the employer as a
consequenceofsuchseparationshalllikewisebeexemptashereinabove
provided.
As used in this Act, the term "reasonable private benefit plan" means a
pension, gratuity, stock bonus or profit sharing plan maintained by an
employer for the benefit of some or all of his officials and employees,
wherein contributions are made by such employer or officials and
employees,orboth,forthepurposeofdistributingtosuchofficialsand
employeestheearningsandprincipalofthefundthusaccumulated,and
wherein it is provided in said plan that at no time shall any part of the
corpusorincomeofthefundbeusedfor,orbedivertedto,anypurpose
otherthanfortheexclusivebenefitofthesaidofficialsandemployees.
Decedentunmarried
Nocomputationalproblemsinceallpropertiesareconsideredexclusive
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DecedentMarriedWithSurvivingSpouse
FirstApproach
Thestandarddeductionshallbedeductedfirstfromthedecedentsgross
conjugalestatebeforetheshareofthesurvivingspouse
Anyamountnotabsorbedbythegrossconjugalestatewillbededucted
fromthedecedentsexclusiveestate
Itissaidbysomeauthorsthatthefirstapproachwouldbeinconformity
withtheTaxCodeandtheBIRmethod,giventhattheNIRCincludedthe
standard deduction of Pp1M as among the deductions from the gross
estate. For this reason, the intention of the law is to deduct the
P1000000standarddeductionfromthegrossestateandnotfromthenet
estateaftertheshareofthesurvivingspouse
SecondApproach
Standard deduction shall be deducted first from decedents exclusive

property, the balance shall be deducted from the conjugal property
beforetheshareofthesurvivingspouse
ThirdApproach
Standarddeductiontobedeductedfromthenetestateaftertheshareof
thesurvivingspouse
NonResidentAlienDecedent
Same allowable deductions except those pertaining to the family home

andstandarddeduction
ComputationOfNetTaxableEstate
Properties
Exclusive
Conjugal
Personal
Pxxx
Pxxx
Real
xxx
xxx
Taxabletransfers
xxx
xxx
GrossEstate
Pxxx
Pxxx
Less:Deductions
Funeralexpenses
Judicialexpenses
Claimsagainstestate
Claimsagainstinsolventperson
Unpaidmortgage
Pxxx
xxx
xxx
xxx
xxx
Pxxx
xxx
xxx
xxx
xxx
Transfersforpublicuse
Vanishingdeductions
Medicalexpenses
Amountreceivedbyheirs
Standarddeduction
Netestatebeforeotherdeductions
Less:Otherdeductions
ShareofSurvivingSpouse
Familyhome
Nettaxableestate
xxx
xxx
xxx
xxx
xxx
Pxxx
xxx
xxx
Pxxx
xxx
xxx
xxx
xxx
xxx
Pxxx
xxx
xxx
Pxxx
TaxCreditForEstateTaxPaidToAForeignCountry
Onlyonecountryisinvolved
TAX CREDIT = (NET ESTATE IN FOREIGN COUNTRY / ENTIRE NET ESTATE) x PHIL.
ESTATETAX
2ormorecountriesareinvolved(LimitAorBoractualestatetaxpaid,whichever
islower)
LIMIT A = (NET ESTATE PER FOREIGN COUNTRY / ENTIRE NET ESTATE) x PHIL.
ESTATETAX
*PERFOREIGNCOUNTRY
LIMIT B = (NET ESTATE ALL FOREIGN COUNTRIES / ENTIRE NET ESTATE) x PHIL.
ESTATETAX
*BYTOTAL
EXEMPTIONSFROMESTATETAX
1. The following acquisitions and transmission shall not be subjected to

estatetax
a. Merger or usufruct in the owner of a naked title (full title is
neededtocomplyforestatetaxpurposes)
b. Transmission or delivery of the inheritance or legacy by the

fiduciaryheirorlegateetothefiducommissary
Illustration: A transmits to son B property upon the condition

that the same be transmitted to C grandson. If A dies, it is
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c.
d.
includedinhisestate.ButifBdies,thepropertyisnotincluded
inhisestate,fallingunderexemption(2).
Transmission from the first heir, legatee, or donee in favor of

another beneficiary, in accordance to the desire of the
predecessor
Illustration: A transmits property to her great grandson D but

doesn'tprecludeBandCfromrightstousetheproperty.
Doneeinstitutions:Allbequests,devices,legacies,ortransfers
tosocialwelfare,culturalandcharitableinstitutions,nopartof
thenetincomeofwhichgoestothebenefitofanyindividual;
provided, however, that not more than 30% of such shall be
usedbysaidinstitutionsforadministrationpurposes
2.
3.
See also Section 34 (H) for allowable 100% deduction for

contributionstocharitableinstitutions,etc.
AnetestatewithavalueofPp200000orless
Exemptionsunderreciprocityclauseofestatetaxlaw
PROCEDURESFORSETTLEMENTOFESTATETAX
Noticeofdeathtobefiled
Within 2 months after decedents death or within 2 months after

qualifyingasexecutororadministratorincaseof:
1. Inallcasesofdeathwhereestateisnttaxexempt
2. Thoughtaxexempt,ifthegrossvalueoftheestateexceedsPp20,000
FilingofEstateTaxReturn(BIRForm1801)
1. InallcasesoftransferssubjecttoEstatetax
2. Though exempt from tax, the gross value of the estate exceeds
Pp200,000
3. Regardless of the value of the estate, where the said estate consists of
registered/registrable property such as real property, motor vehicle,
sharesofstockorothersimilarpropertyforwhichaclearanceoftheBIR
is required as a condition precedent for the transfer of property
ownership thereof in the name of the transferee, executor, or

administrator,oranyofthelegalheirs.
TimeofFiling
Estatetaxreturnrequiredshallbefiledwithin6monthsfromdecedents
death
TimeofPaymentofEstateTax
Shallbepaidatthetimethereturnfiledbytheexecutor,administrator,
ortheheirs
WhenBIRcommissionerfindsthatthepaymentonduedateofestatetax
oranypartthereofwouldimposeunduehardshipupontheStateorany
oftheheirs,hemayextendthetimeofpaymentoranypartthereofnot
to exceed 5 years in case the estate is settled through the courts or 2
yearsifestateissettledextrajudicially
RUIZV.COURTOFAPPEALS
GR118671,29JANUARY1996
FACTS:
Hilario Ruiz left a holographic will and therein named his only son, adopted
daughterandthreegrandchildrenasheirs.ImmediatelyafterthedeathofHilario,
the cash component of the estate was distributed among the heirs according to
what was provided in the will. Peculiar though since Edmond never initiated the
probateofhisdadswill.Andinthemeanwhile,thehousethatwasallottedtothe
three children were leased by Edmond. Mondez was prompted to petition the
probate of the will but originally, Edmond opposed this but later on changed his
mind. Mondez also moved for the release of the rental income to the three
grandchildren. Thereafter, Edmond moved for the release of funds for the
paymentofcertainexpenses,includingthosecoveringrealpropertytaxes.Hewas
allowed to do so but only insofar as administration expenses and allowances for
support.
HELD:
ItissettledthatallowancesforsupportunderSection3ofRule83shouldnotbe
limitedtothe"minororincapacitated"childrenofthedeceased.Article188ofthe
Civil Code of the Philippines, the substantive law in force at the time of the
testator's death, provides that during the liquidation of the conjugal partnership,
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thedeceased'slegitimatespouseandchildren,regardlessoftheirage,civilstatus
or gainful employment, are entitled to provisional support from the funds of the
estate.Thelawisrootedonthefactthattherightanddutytosupport,especially
therighttoeducation,subsistevenbeyondtheageofmajority.
Be that as it may, grandchildren are not entitled to provisional support from the
fundsofthedecedent'sestate.Thelawclearlylimitstheallowanceto"widowand
children" and does not extend it to the deceased's grandchildren, regardless of
their minority or incapacity. It was error, therefore, for the appellate court to
sustaintheprobatecourt'sordergrantinganallowancetothegrandchildrenofthe
testatorpendingsettlementofhisestate.
Respondent courts also erred when they ordered the release of the titles of the
bequeathed properties to private respondents six months after the date of first
publication of notice to creditors. In settlement of estate proceedings, the
distribution of the estate properties can only be made: (1) after all the debts,
funeral charges, expenses of administration, allowance to the widow, and estate
tax have been paid; or (2) before payment of said obligations only if the
distributees or any of them gives a bond in a sum fixed by the court conditioned
uponthepaymentofsaidobligationswithinsuchtimeasthecourtdirects,orwhen
provisionismadetomeetthoseobligations.
Extensionoftime
TheBIRCommissionershallhaveauthoritytogrant,inmeritiouscases,a
reasonableextensionnotexceeding30daysforfilingofreturn
PlaceofFiling(DomicileRule;Section90[D];BIRRuling10096)
ShallbefiledwithanAAB,orRevenueDistrictofficer,collectionofficer,
or duly authorized Treasurer of the city/municipality in which decedent
wasdomiciledattimeofhisdeathoriftherebenolegalresidenceinthe
Philippines,withtheofficeoftheBIRCommissioner
Surcharges
COMMISSIONERV.CUUNJIENG
66SCRA1
FACTS:
Dominga Ayala vda. Cu Unjieng died and her estate was assessed for estate and
inheritancetaxes.Theheirspaidthecorrespondingtaxesbutwithdeficienciesand
theywerenotifiedofsuchfactbytheCommissioner.TheCommissionerinformed
them to pay the deficiency and the heirs asked for a grace period. They were
allowed a grace period on the condition that within 2 years, there should be 24
equal monthly installments. The schedule of payments included a 5% interest,
which according to the heirs was uncalled for. This protest was denied on the
ground that the surcharge is mandatory and operates independently of any tax
extension. Upon elevating the matter to the CTA, the court ruled that the 5%
surcharge is imposable only upon notice and demand for payment. It shall be
appropriate if at the end of 30 days from such notice and demand, there was no
payment. The court also ruled that it couldn't still be imposable upon the
assessment given for deficiency taxes as the heirs were given a grace period to
oblige. The court ruled in the end that what was due was only interest on the
deficiencytaxesunpaid.
HELD:
The 5% surcharge is mandatory according to the provisions of the Tax Code and
thisattachesautomaticallyattheendofthe30dayperiodreckonedfromtheday
anoticeofassessmentanddemandwasissuedbytheCommissioner.Thepower
oftheCommissionertoextendthedeadlinehasnomodifyingorextendingeffect
ontheimpositionofsurcharge.
BIRRuling4698
FACTS:
Benigno Toda left properties here and abroad. The estate is asking that the
surchargeandinterestbewaivedduetodifficultiesencounteredinthesettlement
of the estateamong other things was the proper inventory of the assets, the
appointmentofexecutor,etc.
HELD:
In views thereof, considering that the preparation of the estate tax return was
beset with difficulties after which payment cannot be effected due to financial
constraints,yourrequestforwaiverofthesurchargeontheestatetaxdueonthe
transmission of the estate of the late Benigno P. Toda, Jr. is hereby granted.
However, it is reasonable that the interest must be paid to compensate for the
concomitantuseofthefundsbytheestatewhenitissupposedtohavebeenpaid.
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RMO1907
In all cases of criminal violations of the NIRC not involving the commission of
fraudulent act, the compromise penalties to be imposed shall follow strictly the
amounts in the "Revised Schedule of Compromise Penalties" (Annex A of the
Order). Certain acts/violations which are commonly resorted to by taxpayers as
means of tax evasion are deleted from the coverage thereof for having met the
requirementsofthedefinitionoffraudulentacts.
In no case shall the compromise penalty differ in amount from those specified in
theaforementionedSchedule,exceptwhendulyapprovedbytheCommissioneror
concernedDeputyCommissioner,orinpropercases,bytheRegionalDirectors.
Although all amounts of compromise penalties incident to violations shall be

itemizedintheassessmentnoticeand/ordemandletter,thesameshouldnotform
partofassessmentnoticethatreflectsdeficiencybasictax,surchargeandinterest
but should appear in a separate assessment notice/demand letter as the amount
suggested to the taxpayer to pay in lieu of criminal prosecution. If paid, the
compromise penalties shall be collected and accounted for under the usual
procedures,asinternalrevenuecollection.
Sincecompromisepenaltiesareonlyamountssuggestedinsettlementofcriminal
liability, and may not therefore be imposed or exacted on the taxpayer, the
violationshallbereferredtotheappropriateofficeforcriminalactionintheevent
thatataxpayerrefusestopaythesuggestedcompromisepenalty.Casesinvolving
fraudshallbereferredtotheconcernedDivisionhavingjurisdictionoverthecase,
fortheinstitutionofthecorrespondingcriminalaction.
The prescribed schedule of compromise penalties shall not prevent the

CommissionerofInternalRevenue(CIR)orhisdulyauthorizedrepresentativefrom
accepting a compromise amount higher than what is provided in the Order. A
compromise offer lower than the prescribed amount may be accepted after
approval by the CIR or the concerned Deputy Commissioner/Assistant
Commissioner/RegionalDirector.
SeealsoSection248oftheTaxCodewhichdiscussesthecivilpenalties.
LIABILITIESOFEXECUTORANDHEIRS
SEC.92.DischargeofExecutororAdministratorfromPersonalLiability.
IftheexecutororadministratormakesawrittenapplicationtotheCommissioner
for determination of the amount of the estate tax and discharge from personal
liabilitytherefore,
TheCommissioner(assoonaspossible,andinanyeventwithinone(1)
year after the making of such application, or if the application is made
beforethereturnisfiled,thenwithinone(1)yearafterthereturnisfiled,
butnotaftertheexpirationoftheperiodprescribedfortheassessment
ofthetaxinSection203shallnotnotifytheexecutororadministratorof
theamountofthetax.
Theexecutororadministrator,uponpaymentoftheamountofwhichhe
isnotified,shallbedischargedfrompersonalliabilityforanydeficiencyin
the tax thereafter found to be due and shall be entitled to a receipt or
writingshowingsuchdischarge.
GOVERNMENTV.PAMINTUAN
55Phil13
FACTS:
Florentino Pamintuan, while still alive, was able to file the needed income tax
returnsandpaythenecessarytaxes.However,hewasn'tabletopaytheincome
tax for the income he earned when he sold his house and lot. When he died,
intestate proceedings were held. Partition was made on the property, to be
distributedtotheheirs.Theproceedingwasclosedwhenthegovernmentrealized
abouttheunpaidincometaxofPamintuan.Ittriedtorunafterthedefendantsbut
theyrefusedtopaythedeficientincometax.
HELD:
The administration proceedings of the late Florentino Pamintuan having been
closed,andhisestatedistributedtotheheirs,itisonlyproperthatthedefendants
bemaderesponsibleforthepaymentoftheincometaxinquestioninproportion
totheshareofeachinthesaidestate.Theclaimsforincometaxesneednotbe
filed with the committee on claims and appraisals appointed in the course of
testate proceedings and may be collected even after the decedents estate has
been distributed among his heirs, who shall be liable therefore in proportion to
theirshareintheinheritance.
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Deficiency
1. The amount by which the tax imposed by this Chapter exceeds the
amount shown as the tax by the executor, administrator or any of the
heirsuponhisreturn;buttheamountssoshownonthereturnshallfirst
be increased by the amounts previously assessed (or collected without
assessment) as a deficiency and decreased by the amount previously
abated,refundedorotherwiserepaidinrespectofsuchtax;or
2. Ifnoamountisshownasthetaxbytheexecutor,administratororanyof
the heirs upon his return, or if no return is made by the executor,
administrator,oranyheir,thentheamountbywhichthetaxexceedsthe
amounts previously assessed (or collected without assessment) as a
deficiency; but such amounts previously assessed or collected without
assessment shall first be decreased by the amounts previously abated,
refundedorotherwiserepaidinrespectofsuchtax.
GOVERNMENTAGENCIESDUTIES
PaymentBeforeDeliverybyExecutororAdministrator
Nojudgeshallauthorizetheexecutororjudicialadministratortodeliver
a distributive share to any party interested in the estate unless a
certificationfromtheCommissionerthattheestatetaxhasbeenpaidis
shown.
DutiesofCertainOfficersandDebtors(Section95,NIRC)
1. Registers of Deeds shall not register in the Registry of Property any
documenttransferringrealpropertyorrealrightsthereinoranychattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that the tax
fixed in this Title and actually due thereon had been paid is show, and
they shall immediately notify the Commissioner, Regional Director,
RevenueDistrictOfficer,orRevenueCollectionOfficerorTreasurerofthe
cityormunicipalitywheretheirofficesarelocated,ofthenonpayment
ofthetaxdiscoveredbythem.
2. Any lawyer, notary public, or any government officer who, by reason of
his official duties, intervenes in the preparation or acknowledgment of
documents regarding partition or disposal of donation inter vivos or
mortiscausa,legacyorinheritance,shallhavethedutyoffurnishingthe
Commissioner, Regional Director, Revenue District Officer or Revenue
3.
Collection Officer of the place where he may have his principal office,
with copies of such documents and any information whatsoever which
mayfacilitatethecollectionoftheaforementionedtax.
Neithershalladebtorofthedeceasedpayhisdebtstotheheirs,legatee,
executor or administrator of his creditor, unless the certification of the
CommissionerthatthetaxfixedinthisChapterhadbeenpaidisshown;
but he may pay the executor or judicial administrator without said
certificationifthecreditisincludedintheinventoryoftheestateofthe
deceased.
PaymentofTaxAntecedenttotheTransferofShares,BondsorRights
There shall not be transferred to any new owner in the books of any
corporation, sociedad anonima, partnership, business, or industry
organizedorestablishedinthePhilippinesanyshare,obligation,bondor
right by way of gift inter vivos or mortis causa, legacy or inheritance,
unless a certification from the Commissioner that the taxes fixed in this
Titleandduethereonhavebeenpaidisshown.
Ifabankhasknowledgeofthedeathofaperson,whomaintainedabank
deposit account alone, or jointly with another, it shall not allow any
withdrawalfromthesaiddepositaccount,unlesstheCommissionerhas
certifiedthatthetaxesimposedthereonbythisTitlehavebeenpaid:
o Provided,however,Thattheadministratoroftheestateorany
one(1)oftheheirsofthedecedentmay,uponauthorizationby
theCommissioner,withdrawanamountnotexceedingTwenty
thousandpesos(P20,000)withoutthesaidcertification
o Forthispurpose,allwithdrawalslipsshallcontainastatement
totheeffectthatallofthejointdepositorsarestilllivingatthe
timeofwithdrawalbyanyoneofthejointdepositorsandsuch
statementshallbeunderoathbythesaiddepositors.
SPECIALTOPICS
RenunciationOfHeirOfShareInTheEstate
BIRRuling45593
Inlegalsuccession,accretiontakesplaceincaseofrepudiationamongheirsof
thesamedegree.Thisissobecausethereisnorightofrepresentation.The
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coheirsinlegalsuccessionarecoownersoftheinheritance,forwhichreason,
there is always a right of accretion among them, unlike in testamentary
succession, where they may or may not be a right of accretion. However, if
therenunciationbyanheirorheirsismadeinfavorofoneormoreheirsbut
not all the heirs, the act of renunciation is in effect an act of disposition
inasmuchastheactofdispositionandthebenefitsthereofarenotenjoyedby
everybodybutoneormoreheirs
Since the renunciation of the properties Asuncion inherited from her late
husband in favor of her grandchildren who arent coheirs but are heirs of
differentdegreeasthatofAsuncionaswellasthedispositionofherconjugal
shares in said properties in favor of the same firstborn grandchildren were
made out of pure liberality on the part of Asuncion, she shall be subject to
donorstax
BIRRulingDA53698
FACTS:
Mamertohadawifeand6children.Whenhedied,oneofthepropertiesleftisa
residential lot. This was divided among the heirs by virtue of an extrajudicial
settlement.Theestatetaxandotherchargeswerepaidaccordingly.Afterwards,a
waiverofrightswasexecutedbythemotherand2childreninfavoroftwobutnot
allsiblings.
HELD:
Iftherenunciationbyanheirorheirsismadeinfavorofoneormoreheirsbutnot
alltheotherheirs,theactofrenunciationisineffectanactofdispositioninasmuch
astheactofdispositionandthebenefitsthereofarenotenjoyedbyeverybodybut
onlybyoneormoreheirs.
Itwouldseemclearthatrenunciationorwaiverbyanyofthecoheirsinfavorof
oneormoreofthecoheirsbutnotallofthecoheirs,norightofaccretionshall
take place in favor of the coheir to whom the share in the inheritance was
renouncedsincetheactofrenunciationshallbetreatedasbothaninheritanceand
donation and the coheirs to whom the waiver was made shall equally divide the
same and shall equally pay the estate tax computed. The corresponding gift tax
thereofshalllikewisebepaidcomputedinaccordancewithSection92ofthesame
code,otherwisethewaivermaybeconsideredasifmadebyanyofthecoheirsin
favorofalltheothercoheirs.
BIRRulingDA25199
FACTS:
Pacita renounced her inheritance in favor of her son, from the estate of her
deceasedhusband.
HELD:
Asarule,whenapersonrenounces/repudiateshispartofhisinheritance,theright
of accretion takes place and the same is added or incorporated to that of his co
heirs, codevisees, or colegatees. The share of the renouncer shall accrue to his
coheirsinthesameproportionthattheyinherit.
Intheinstantcase,whenPacitawaiverhershareintheinheritanceinfavorofthe
legitimate son, accretion had effectively took place in the latters favor and the
renouncedsharewasaddedorincorporatedtohisshare.Undoubtedly,whenthe
surviving spouse renounced her share in the inheritance, she did not donate the
property which had never became hers. Such being the case, the renunciation is
notsubjecttodonorstaximposed.
CreationOfAnUnregisteredPartnership
ONAV.COMMISSIONER
GRL19342,25May1972
FACTS:
When Julia died and left behind her husband and children, a project of partition
was made for her estate. However, no division was made of the properties.
Instead, the properties remained under management of the father who used the
propertiesinbusinessbyleasingorsellingthemandinvestingtheincomethereof
in real properties and securities. From these investments and securities, the
petitioners incurred income. From these facts, the Commissioner held that they
formedanunregisteredpartnershipandsubjectedthemtoincometax.
HELD:
Itisincontrovertiblethatpetitionersmerelylimitthemselvestoholdingproperties
inheritedbythem.Indeed,itisadmittedthatduringthosematerialyearsherein
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involved, some of the said properties were sold at considerable profit, and that
with said profit, petitioners engaged in the purchase and sale of corporate
securities.Itislikewiseadmittedthatallprofitsfromtheseventuresweredivided
among petitioners proportionately in accordance with their respective shares in
the inheritance. The moment the petitioners allowed not only the incomes from
theirrespectivesharesbuteventheinheritedpropertiesthemselvestobeusedby
Lorenzoasacommonfundinundertakingseveraltransactionsorinbusiness,with
theintentionofderivingprofittobesharedbythemproportionally,suchactwas
tantamounttoactuallycontributingsuchincometoacommonfundandineffect,
theytherebyformedanunregisteredpartnership.
*From the moment of such partition, the heirs are entitled already to their
respective share of the estate and the incomes thereof, for each of them to
manage and dispose of as exclusively his own with the intervention of the other
heirs, and accordingly, he becomes liable individually for all taxes in conjunction
therewith.Ifaftersuchpartition,heallowshissharetobeheldincommonwith
hiscoheirsunderasinglemanagementtobeusedwiththeintentofmakingprofit
therebyinproportiontohisshare,therecanbenodoubtthatevenifnodocument
or instrument were executed for the purpose, for tax purposes, at least, an
unregisteredpartnershipisformed.
BIRRuling10287
FACTS:
Jose and Petra were the owners of two parcels of land and they derived rental
income from the same during their lifetime. The property subsequently became
subjecttopartitionamongtheheirsandtheytooarenowreceivingincomefrom
theproperties.
HELD:
Since the properties left by the deceased persons have been the subject of an
extrajudicial settlement among the heirs who continued the business of their
parentsbyreceivingtherentalincomeofthepropertiesfromthemomentofsuch
extrajudicialsettlement,anunregisteredpartnershiphasbeenformed.
For tax purposes, the coownership of inherited properties is automatically

converted into an unregistered partnership the moment the said common
propertiesand/ortheincomesderivedtherefromareusedasacommonfundwith
intenttoproduceprofitsfortheheirsinproportiontotheirrespectivesharesinthe
inheritance as determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the corresponding testate or
intestateproceeding.
From the moment of such partition, the heirs are entitled already to their
respectivedefinitesharesoftheestateandtheincomethereof,foreachofthemto
manageanddisposeofanexclusivelyhisownwithouttheinterventionoftheother
heirs, and accordingly, he becomes liable individually for all taxes in connection
therewith.Ifaftersuchpartition,heallowshissharetobeheldincommonwith
hiscoheirsunderasinglemanagementtobeusedwiththeintentofmakingprofit
thereby in proportion to his share, there can be no doubt that, even if no
document or instrument were executed for the purpose, fopar tax purposes, at
least,anunregisteredpartnershipisformed.
PartitionofEstateIndividuallyAmongHeirs
BIRRuling25891
FACTS:
The parents of the heirs died intestate in a shipwreck and left several real
properties.Theheirsthenexecutedanextrajudicialsettlementofestate.
HELD:
Capital gains presumed to have been realized from the sale, exchange or other
disposition of real property located in the Philippines classified as capital assets
including pacto de recto sales and other forms of conditional sales, by individual,
includingestatesandtrusts,shallbetaxedat5%basedonthegrosssellingpriceor
thefairmarketvalueprevailingatthetimeofsale,whicheverishigher.Onthe
other hand, the CC provides that every act which is intended to put an end to in
division among coheirs and legatees and devisees is deemed to be partition,
although it should purport to be a sale, exchange, compromise, or any other
transaction.
AandDarenotsubjecttotheCGTconsideringthereisneitherasale,disposition,
nor exchange of real property on their part, but a partition of the estate of their
parents wherein both of them agreed to receive the cash equivalent of their
respectivesharesintheestateoftheirparents.
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ExtensionofTimeToFileEstateTaxReturn
BIRRuling6698
FACTS:
Almedadiedandleftherheirsindisarrayinmanagingtheaffairssheleftbehind.
She, according to the heirs, had a centralized form of managing her business and
properties. By virtue of this, they asked for an extension in filing of estate tax
return and correspondingly, the payment of the tax. And if they are allowed the
extension,tobegrantedexemptionfrompayingsurchargeandinterest.
HELD:
The estate tax shall be paid at the time the return is filed by the executor,
administrator, or the heirs. Moreover, when the Commissioner of Internal
Revenue finds that the payment on the due date of the estate tax or of any part
thereofwouldimposeunduehardshipupontheestateoranyoftheheirs,hemay
extendthetimeforpaymentofsuchtaxoranypartthereofnottoexceed5years,
in case the estate is settled through the courts, or 2 years in case the estate is
settledextrajudicially.Suchbeingthecase,andsincethepaymentofestatetaxor
anypartthereofontheduedatewouldimposeunduehardshipupontheestateor
anyoftheheirs,therequestforextensionofthetimeforpaymentoftheestatetax
oranypartthereofdueonthetransmissionoftheestatetohisheirsisgranted.
DONORSTAX
ImpositionOfDonorsTax
There shall be levied, assessed, collected and paid upon the transfer by
any person, resident or nonresident, of the property by gift, a tax,
computedasprovidedinSection99.
Thetaxshallapplywhetherthetransferisintrustorotherwise,whether
thegiftisdirectorindirect,andwhetherthepropertyisrealorpersonal,
tangibleorintangible.
NatureofDonorstax
Excise tax imposed on the right to transfer gratuitously, directly or

indirectly,realandpersonalproperty,tangibleornontangibleoutofthe
ownersliberalityinfavorofanotherwhoacceptsthegift
Purposeistopreventtheavoidanceofestatetaxthrulifetimetransfers
orpropertywhichwouldotherwisebywillorthroughdonorsdeath
Donation
Donationisanactofliberalitywherebyapersondisposesgratuitouslyof
athingorrightinfavorofanother,whoacceptsit.(725)
It is perfected upon the knowledge of the donor of the donees

acceptance(734)
DonationofRealProperty
Mustbeinpublicinstrument
DonationofPersonalProperty
(3) Verbaldonationforvalueofpersonalpropertywhich
isP5000orless
(4) WrittendonationforvaluethatexceedsP5000
VoidDonations(Article739CC)
1. Those made between persons who were guilty of adultery or
concubinageatthetimeofthedonation;
2. Thosemadebetweenpersonsfoundguiltyofthesamecriminaloffense,
inconsiderationthereof;
3. Thosemadetoapublicofficerorhiswife,descendantsandascendants,
byreasonofhisoffice.
*In the case referred to in No. 1, the action for declaration of nullity may be
broughtbythespouseofthedonorordonee;andtheguiltofthedonoranddonee
maybeprovedbypreponderanceofevidenceinthesameaction.
DonorsTax
Taxontheprivilegeoftransmittingonespropertyorpropertyrightsto
anotherorotherswithoutadequateandfullvaluableconsideration
WhatDonorsTaxShouldNotMean
1. Whenthelawsaysallgifts,itdoubtlessreferstogiftsintervivos,andnot
mortiscausa.Boththeletterandspiritofthelawleavenoroomforany
other interpretation. Such clearly, is the tenor of the language which
MA.ANGELAAGUINALDO
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2.
referstodonationsthattookeffectbeforethedonorsdeath,andnotto
mortis causa donations. (Dizon v. Posadas, supra; Roces v. Posadas,
supra)
If a creditor merely desires to benefit the debtor and without any
considerationthereforecancelsthedebt,theamountofthedebtisagift
fromthecreditortothedebtorandneednotbeincludedinthelatters
grossincome.Ifacorporationtowhichastockholderisindebtedforgives
the debt, the transaction has the effect of the payment of a dividend.
(BIRRuling07689)
Rules
1. GiftsToEmployeesByEmployers
FringeBenefits,Defined
Anygood,serviceorotherbenefitfurnishedorgrantedincashorin
kindbyanemployertoanindividualemployee(exceptrankandfile
employees as defined herein) such as, but not limited to, the
following:
o Housing;
o Expenseaccount;
o Vehicleofanykind;
o Householdpersonnel,suchasmaid,driverandothers;
o Interest on loan at less than market rate to the extent of
the difference between the market rate and actual rate
granted;
o Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or
othersimilarorganizations;
o Expensesforforeigntravel;
o Holidayandvacationexpenses;
o Educationalassistancetotheemployeeorhisdependents;
and
o Life or health insurance and other nonlife insurance
premiums or similar amounts in excess of what the law
allows.
FringeBenefitsNotTaxable
1. Fringebenefitswhichareauthorizedandexemptedfromtaxunder
speciallaws;
2.
3.
4.
Contributions of the employer for the benefit of the employee to

retirement,insuranceandhospitalizationbenefitplans;
Benefits given to the rank and file employees, whether granted
underacollectivebargainingagreementornot;and
De minimis benefits as defined in the rules and regulations to be
promulgatedbytheSecretaryofFinance,uponrecommendationof
theCommissioner.
De Minimis Benefits Not Subject To Withholding Tax on Compensation

IncomeofBothManagerialandRankandFileEmployees(Asprovidedforin
RR82000)
*Theamountofthedeminimisbenefitsconformingtotheceilingshallnotbe
considered in determining the P30,000 ceiling or other benefits provided
under the Code. However, if the employer pays more than the ceiling
prescribed by these regulations, the excess shall be taxable to the employee
receivingthebenefitsonlyifsuchexcessisbeyondP30,000ceiling.Provided
further,thatanyamountgivenbytheemployerasbenefitstohisemployees
whetherclassifiedasdeminimisorfringebenefits,shallconstitutedeductible
expensefortheemployer.
a. Monetized unused vacation leave credits of employees not
exceeding10daysduringtheyear
b. Medicalcashallowancetodependentsofemployeesnotexceeding
P750persemesterorP125permonth
c. Rice subsidy of P1000 or one sack of 50kg. rice per month
amountingtonotmorethanP1000
d. UniformsgiventoemployeesbytheemployernotexceedingP3000
perannum
e. Actualmedicalbenefitsgiventotheemployeesbytheemployernot
exceedingP10,000perannum
f. LaundryallowancenotexceedingP300permonth
g. Employee achievement awards, e.g for the length of service or
safety achievement, which must be in the form of a tangible
personalpropertyotherthancashorgiftcertificate,withanannual
monetary value not exceeding P10,000 received by the employee
under an established written plan which doesn't discriminate in
favorofhighlypaidemployees
h. GiftsgivenduringChristmasandmajoranniversarycelebrationsnot
exceedingP5,000peremployeeperannum
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i.
j.
Flowers,fruits,booksorsimilaritemsgiventotheemployeesunder
special circumstanceson account of illness, marriage, birth of
child,etc.notexceeding25%ofthebasicminimumwage
Daily meal allowance for overtime work not exceeding 25% of the
basicminimumwage
BasicRulesonFringeBenefitsandFringeBenefitsTax
1. Fringe benefits given to a rank and file employee is not subject to
thefringebenefittax
2. Fringe benefit given to a supervisory or managerial employee is
subjecttothefringebenefittax
3. Deminimisbenefit,whethergiventoarankandfileemployeeora
supervisory or managerial employee is not subject to the fringe
benefittax
a. Notethatdeminimisbenefitsshallbelimitedtofacilities
and privileges furnished or offered by an employer to his
employees that are relatively small in value and are
offeredorfurnishedbytheemployermerelyasameansof
promoting the health, goodwill and contentment, or
efficiencyofhisemployees
2.
Giftsbycorporationtoshareholders
Dividends
Compriseanydistributionwhetherincashorotherpropertyinthe
ordinary course of business, even though extraordinary in amount
madebyadomesticcorporation,jointstockcompany,partnership,
jointaccount,association,orinsurancecompanytotheshareholders
ormembersoutofitsearningsorprofits
In general, dividends are included in the gross income of the

stockholder unless they are exempt from tax or subject to final
withholdingtaxasmaybeprovidedforbytheTaxCode
Remember that any type of dividend must come from the

unappropriatedretainedearningsofthecorporation
3.
Corporatesponsorships
BIRRULING0380
FACTS:
Thecompanyhasanexistinginterestbearingdeferredforeignobligationfrom
a nonresident foreign corporation. This obligation was secured by an
irrevocable letter of credit issued by the PNB. The PNB opined that it is the
withholdingagentrequiredtodeductthe15%taxontheinterestincomefrom
saidforeignloan.
HELD:
Thepartyhavingthecontrol,receipt,custody,disposalorpaymentofinterest
shallundertakethedeductionandwithholdingofthe15%.Inasmuchasthe
corporationhasthecontrol,custodyanddisposaloftheinterestpaymentsto
be remitted to the nonresident foreign corporation, it is the withholding
agent and should therefore be the one to deduct and withhold the 15%
withholdingtaxduethereon.
4.
Bonusplusadditionalcompensation
BIRRulingDA0602599
FACTS:
IMA Philippines is a branch office of IMA. It receives compensation in the
form of allowances, transportation, living quarters, meal allowances, and
otherfaciltieswhichareofrelativelysmallvalue.GrantscomingfromUSAID
and donations locally are used to finance projects which IMA Philippines
undertakes.
HELD:
Since the monthly financial support in the form of various allowances thus
mentionedbeingallocatedbyvariousdonorsandNGOsabroadandreceived
by the officers and employees through IMA are not compensation and/or
salary per se, but donations made by individuals and NGOs in the US
specificallytosustainthepurposewhichIMAwasorganizedandfromwhich
theofficersandempkloyeesreceivesuchkindofbenefitstosustainthemto
suchendeavors.Saidfinancialsupportanddonationarenotthereforesubject
to income tax. However, the net gift or donation to each and every local
officer or employee by each and every individual donor shall be subject to
donorstax.
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5.
Contributionstopoliticalcampaigns
ABELLOV.COMMISSIONEROFINTERNALREVENUE
452SCRA162
FACTS:
Petitioners,whowereallpartnersoftheACCRAlawfirm,duringtheelection
period, made contributions to the campaign of Senator Angara. The
Commissioner then assessed each one of them for the payment of donors
tax.Theydidn'twanttopayandmaintainedthatelectoralcontributionsare
not donations and thus, cannot be subjected to donors tax. However, their
claimwasdeniedbytheCommissioner.
HELD:
Section91oftheNationalInternalRevenueCode(NIRC)reads:
(A)Thereshallbelevied,assessed,collectedandpaiduponthetransferbyany
person, resident or nonresident, of the property by gift, a tax, computed as
providedinSection92
(B)Thetaxshallapplywhetherthetransferisintrustorotherwise,whether
the gift is direct or indirect, and whether the property is real or personal,
tangibleorintangible.
TheNIRCdoesnotdefinetransferofpropertybygift.However,Article18of
theCivilCode,states:
In matters which are governed by the Code of Commerce and special laws,
theirdeficiencyshallbesuppliedbytheprovisionsofthisCode.
Thus,referencemaybemadetothedefinitionofadonationintheCivilCode.
Article725ofsaidCodedefinesdonationas:
. . . an act of liberality whereby a person disposes gratuitously of a thing or

rightinfavorofanother,whoacceptsit.
Donation has the following elements: (a) the reduction of the patrimony of
thedonor;(b)theincreaseinthepatrimonyofthedonee;and,(c)theintent
todoanactofliberalityoranimusdonandi.
Thepresentcasefallssquarelywithinthedefinitionofadonation.Petitioners,
thelateManuelG.Abello,JoseC.Concepcion,TeodoroD.RegalaandAvelino
V. Cruz, each gave P882,661.31 to the campaign funds of Senator Edgardo
Angara,withoutanymaterialconsideration.Allthreeelementsofadonation
are present. The patrimony of the four petitioners were reduced by
P882,661.31 each. Senator Edgardo Angaras patrimony correspondingly
increased by P3,530,645.24. There was intent to do an act of liberality or
animus donandi was present since each of the petitioners gave their
contributionswithoutanyconsideration.
Sinceanimusdonandiortheintentiontodoanactofliberalityisanessential
elementofadonation,petitionersarguethatitisimportanttolookintothe
intention of the giver to determine if a political contribution is a gift.
Petitionersargumentisnottenable.Firstofall,donativeintentisacreature
ofthemind.Itcannotbeperceivedexceptbythematerialandtangibleacts
whichmanifestitspresence.Thisbeingthecase,donativeintentispresumed
present when one gives a part of ones patrimony to another without
consideration. Second, donative intent is not negated when the person
donating has other intentions, motives or purposes which do not contradict
donativeintent.
Generally,whatthepetitionerssoughtwasthedistinctionbetweenagiftfrom
apoliticaldonationbysayingthattheconsiderationforagiftistheliberality
ofthedonor,whiletheconsiderationforapoliticalcontributionisthedesire
of the giver to influence the result of an election by supporting candidates
who, in the perception of the giver, would influence the shaping of
government policies that would promote the general welfare and economic
wellbeingoftheelectorate,includingthegiverhimself.
Petitionersattemptisstrained.Thefactthatpetitionerswillsomehowinthe
futurebenefitfromtheelectionofthecandidatetowhomtheycontribute,in
nowayamountstoavaluablematerialconsiderationsoastoremovepolitical
contributions from the purview of a donation. Senator Angara was under no
obligationtobenefitthepetitioners.Theproperperformanceofhisdutiesas
alegislatorishisobligationasanelectedpublicservantoftheFilipinopeople
MA.ANGELAAGUINALDO
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andnotaconsiderationforthepoliticalcontributionshereceived.Infact,asa
public servant, he may even be called to enact laws that are contrary to the
interestsofhisbenefactors,forthebenefitofthegreatergood.
In fine, the purpose for which the sums of money were given, which was to
fundthecampaignofSenatorAngarainhisbidforasenatorialseat,cannotbe
consideredasamaterialconsiderationsoastonegateadonation.
RATESPAYABLE
WhenDoesGraduatedRatesApply
When the donee or beneficiary is not a stranger, then the donors tax
shallbebasedonthegraduatedrates
OVER
BUT
NOT
OVER
THE
TAX
SHAL
LBE
P
L
U
S
OF
THE
EXCES
S
OVER
P
100,00
0
Exem
pt
P
100,00
0
200,00
0
2
%
P100,0
00
200,00
0
500,00
0
2,000
4
%
200,00
0
500,00
0
1,000,
000
14,00
0
6
%
500,00
0
1,000,
000
3,000,
000
44,00
0
8
%
1,000,
000
3,000,
000
5,000,
000
204,0
00
1
0
%
3,000,
000
5,000,
000
10,000
,000
404,0
00
1
2
%
5,000,
000
10,000
,000
1,004
,000
1
5
%
10,000
,000
Whenthedoneeorbeneficiaryisastranger,thenthedonorstaxshallbe
30%ofthenetgiftsgivenduringtheyear
Whoisconsideredastranger?
Forthepurposeofthistax,a'stranger,'isapersonwhoisnota:
(1)Brother,sister(whetherbywholeorhalfblood),spouse,ancestorandlineal
descendant;or
(2)Relativebyconsanguinityinthecollaterallinewithinthefourthdegreeof
relationship.
TreatmentOfSonsInLawAndParentInLaw
BIRRuling15989
FACTS:
SpousesAlbamadeadonationofrealpropertytotheparentsofVirginia,thewife.
They were assessed then for donors tax. Payment was made but they were still
assessed for the deficiency, allegedly since the donees were considered as
strangerswithinthemeaningprovidedbytheTaxcode.
HELD:
Given the relevant provision of the Tax Code, relatives by affinity, as in this case
being the parentsinlaw, are not included in the enumeration of who are
consideredasstrangers.Thisbeingthecase,thedonorsshouldpayaccordinglythe
donorstaxrelatingtodonationstostrangers.
DonationofConjugalProperty
TONGHOV.BTA
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97Phil889
FACTS:
Li Seng Giap and his wife Tang Ho were the stockholders together with their 13
children of two family corporations. A perusal of the corporate records would
reflectinvestmentsbythechildreninshares.Theywereassessedfordonorstax
by the Commissioner, alleging these were undeclared gifts. By way of defense,
they submitted donors and donees tax returns, reflecting donations inter vivos
madeeachyeartothechildren;thatthechildrenwhomarriedweregivendowries.
The spouses admitted that the gifts were unreported but they alleged that the
same came from conjugal funds and thus should be considered as individual
contributionsbyeachofthespouses.
HELD:
TheappealedfindingsoftheBoardofTaxAppealsandoftheCollectorofInternal
Revenue(thatthestocktransfersfromLiSengGiaptohischildrenweredonations)
appearsupportedbythefollowingcircumstances:
(1)ThatthetransferorLiSengGiap(nowdeceased)hadinfactconveyedsharesto
stock to his 13 children on the dates and in the amounts shown in the table on
page2ofthisdecision.
(2)Thatnoneofthetransfereesappearedtopossessadequateindependentmeans
to buy the shares, so much so that they claim now to have purchased the shares
withthecashdonationsmadetothemfromtimetotime.
(3)Thatthetotaloftheallegedcashdonationstoeachchildispracticallyidentical
tothevalueofthesharessupposedlypurchasedbyeachdonee.
(4)Thatthereisnoevidenceotherthanthebelatedsworngifttaxreturnsofthe
spouses Li Seng Giap and Ang Tang Ho, and their children, appellants herein, to
supporttheircontentionthattheshareswereacquiredbypurchase.Nocontracts
of sale or other documents were presented, nor any witnesses introduced; not
eventheclaimantsthemselveshavetestified.
(5)Theclaimthattheshareswereacquiredbythechildrenbypurchasewasfirst
advancedonlyaftertheassessmentofgifttaxesandpenaltiesduethereon(inthe
sumofP76,995.31)hadbeenmade,andaftertheappellantshadpaidP53,434.50
onaccount,andhadfiledabondtoguaranteethebalance.
(6)Thatfortheparenttodonatecashtoenablethedoneetobuyfromhimshares
ofequivalentvalueis,forallintentsandpurposes,adonationofsuchsharestothe
purchaserdonee.
We cannot say, under the circumstances, that there is no sufficient evidence on

record to support the findings of the Tax Board that the stock transfers above
indicated were made by way of donation, as would entitle us to disregard or
reversetheBoard'sfinding.
The filing of the gift tax returns only after assessments and part payment of the
taxes demanded by the Collector, and the lack of corroboration of the alleged
donations in cash, amply justify the Tax Board's distrust of the veracity of the
appellants'belatedtaxreturns.
The second and third issues in this appeal revolve around appellants' thesis that
inasmuch as the property donated was community property (gananciales), and
suchpropertyisjointlyownedbytheirparents,thetotalamountofthegiftsmade
in each year should be divided between the father and the mother, as separate
donors,andshouldbetaxedseparatelytoeachoneofthem.
ThispresentationshouldbeviewedinthelightoftheprovisionsoftheSpanishCivil
Codeof1889,whichwasthegoverninglawintheyearshereininvolved,1939to
1950.thedeterminativeruleisthatofArts.1409and1415,readingasfollows:
Art. 1409. The conjugal partnership shall also be chargeable with anything which
may have been given or promised by the husband to the children born of the
marriagesolelyinordertoobtainemploymentforthemorgivethemaprofession,
orbybothspousesbycommonconsent,shouldtheynothavestipulatedthatsuch
expendituresshouldbeborneinwholeorinpartbytheseparatepropertyofone
ofthem.
ART. 1415, p. 1. The husband may dispone of the property of the conjugal
partnershipforthepurposesmentionedinArt.1409.
In effect, these Articles clearly refute the appellants' theory that because the
propertydonatediscommunityproperty,thedonationsshouldbeviewedasmade
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bybothspouses.First,becausethelawclearlydifferentiatesthedonationsofsuch
property "by the husband" from the "donations by both spouses by common
consent" ("por el marido . . . o por ambos conyuges de comun acuerdo," in the
Spanishtext).
Next,thewordingofArts.1409and1415indicatesthatthelawfuldonationsbythe
husband to the common children are valid and are chargeable to the community
property, irrespective of whether the wife agrees or objects thereof. Obviously,
shouldthewifeobjecttothedonation,shecannotberegardedasadonoratall.
Appellantshereinarethereforeinerrorwhentheycontendthatitisenoughthat
thepropertydonatedshouldbelongtotheconjugalpartnershipinorderthatthe
donationbeconsideredandtaxedasadonationofbothhusbandandwife,evenif
the husband should appear as the sole donor. There is no blinking the fact that,
under the old Civil Code, to be a donation by both spouses, taxable to both, the
wifemustexpresslyjointhehusbandinmakingthegift;herparticipationtherein
cannotbeimplied.
DonationsMortisCausa
BIRRuling20481
HELD:
Since the transaction was a donation mortis causa, the provisions on exemptions
for donors tax is not applicable. Since said donation was in contemplation of
death,thedonatedpartyformspartofthegrossestateofthedeceasedsubjectto
theestatetaxprescribed.
BIRRuling08198
HELD:
Thedonationsmadeinfavorofthesister,whichareintendedtotakeeffectupon
the death of the donor partake of the nature of testamentary provisions and the
same shall remain part of the donors estate at the time of his/her death even if
thesamehadbeendonatedtothedonee.Thereforetheprovisionsrelativetothe
impositionofestatetaxontransfersincontemplationofdeathshallbeapplicable
totthiscase.
ContributionstoPoliticalCampaigns
CIRV.ABELLO
Supra
Petitioners maintain that the definition of an "electoral contribution" under the

OmnibusElectionCodeisessentialtoappreciatehowapoliticalcontributiondiffers
fromataxablegift.11Section94(a)ofthesaidCodedefineselectoralcontribution
asfollows:
The term "contribution" includes a gift, donation, subscription, loan, advance or

deposit of money or anything of value, or a contract, promise or agreement to
contribute,whetherornotlegallyenforceable,madeforthepurposeofinfluencing
the results of the elections but shall not include services rendered without
compensationbyindividualsvolunteeringaportionoralloftheirtimeinbehalfof
a candidate or political party. It shall also include the use of facilities voluntarily
donatedbyotherpersons,themoneyvalueofwhichcanbeassessedbasedonthe
ratesprevailinginthearea.
Since the purpose of an electoral contribution is to influence the results of the

election, petitioners again claim that donative intent is not present. Petitioners
attempttoplacethebarrierofmutualexclusivitybetweendonativeintentandthe
purposeofpoliticalcontributions.ThisCourtreiteratesthatdonativeintentisnot
negated by the presence of other intentions, motives or purposes which do not
contradictdonativeintent.
Petitioners would distinguish a gift from a political donation by saying that the
considerationforagiftistheliberalityofthedonor,whiletheconsiderationfora
politicalcontributionisthedesireofthegivertoinfluencetheresultofanelection
bysupportingcandidateswho,intheperceptionofthegiver,wouldinfluencethe
shaping of government policies that would promote the general welfare and
economicwellbeingoftheelectorate,includingthegiverhimself.
Petitioners attempt is strained. The fact that petitioners will somehow in the
futurebenefitfromtheelectionofthecandidatetowhomtheycontribute,inno
way amounts to a valuable material consideration so as to remove political
contributions from the purview of a donation. Senator Angara was under no
obligation to benefit the petitioners. The proper performance of his duties as a
MA.ANGELAAGUINALDO
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legislatorishisobligationasanelectedpublicservantoftheFilipinopeopleandnot
a consideration for the political contributions he received. In fact, as a public
servant,hemayevenbecalledtoenactlawsthatarecontrarytotheinterestsof
hisbenefactors,forthebenefitofthegreatergood.
Infine,thepurposeforwhichthesumsofmoneyweregiven,whichwastofund
the campaign of Senator Angara in his bid for a senatorial seat, cannot be
consideredasamaterialconsiderationsoastonegateadonation.
DonationsbySpouses
TANGHOV.CA
supra
Ineffect,Articles1409and1415clearlyrefutetheappellants'theorythatbecause
the property donated is community property, the donations should be viewed as
madebybothspouses.First,becausethelawclearlydifferentiatesthedonationsof
suchproperty"bythehusband"fromthe"donationsbybothspousesbycommon
consent" ("por el marido . . . o por ambos conyuges de comun acuerdo," in the
Spanishtext).
Next,thewordingofArts.1409and1415indicatesthatthelawfuldonationsbythe
husband to the common children are valid and are chargeable to the community
property, irrespective of whether the wife agrees or objects thereof. Obviously,
shouldthewifeobjecttothedonation,shecannotberegardedasadonoratall.
Evenmore:Supposethatthehusbandshouldmakeadonationofsomecommunity
propertytoaconcubineorparamour.Undeniably,thewifecannotberegardedas
joining in any such donation. Yet under the old Civil Code, the donation would
stand,withtheonlylimitationthatthewifeshouldnotbeprejudicedinthedivision
of the profits after the conjugal partnership affairs are liquidated. So that if the
value of the donation should be found to fit within the limits of the husband's
ultimate share in the conjugal partnership profits, the donation by the husband
would remain unassailable, over and against the nonparticipation of the wife
therein.
Appellantshereinarethereforeinerrorwhentheycontendthatitisenoughthat
thepropertydonatedshouldbelongtotheconjugalpartnershipinorderthatthe
donationbeconsideredandtaxedasadonationofbothhusbandandwife,evenif
the husband should appear as the sole donor. There is no blinking the fact that,
under the old Civil Code, to be a donation by both spouses, taxable to both, the
wifemustexpresslyjointhehusbandinmakingthegift;herparticipationtherein
cannotbeimplied.
Itistrue,asappellantsstress,thatinGibbsvs.GovernmentofthePhilippines,59
Phil., 293, this Court ruled that "the wife, upon acquisition of any conjugal
property, becomes immediately vested with an interest and title equal to that of
thehusband";butthisCourtwascarefultoimmediatelyadd,"subjecttothepower
ofmanagementanddispositionwhichthelawvestsonthehusband."Ashasbeen
shown, this power of disposition may, within the legal limits, override the
objections of the wife and render the donation of the husband fully effective
withoutneedofthewife'sjoiningtherein.
EXEMPTIONS
Taxpayer
Resident
1.
2.
3.
Exemption
P100,000
Dowriesorgiftsmadeonaccountofmarriageandbeforeitscelebrationor
within one year thereafter by parents to each of their legitimate,
recognized natural, or adopted children to the extent of the first Ten
thousandpesos(P10,000):
Gifts made to or for the use of the National Government or any entity
createdbyanyofitsagencieswhichisnotconductedforprofit,ortoany
Notes
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4.
Nonresident,noncitizen
1.
2.
TAXCREDIT
General
politicalsubdivisionofthesaidGovernment;and
Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, accredited nongovernment
organization, trust or philanthropic organization or research institution or
organization
Gifts made to or for the use of the National Government or any entity
createdbyanyofitsagencieswhichisnotconductedforprofit,ortoany
politicalsubdivisionofthesaidGovernment.
Gifts in favor of an educational and/or charitable, religious, cultural or
social welfare corporation, institution, foundation, trust or philanthropic
organizationorresearchinstitutionororganization
Notmorethanthirtypercent(30%)ofsaidgiftsshallbeused
bysuchdoneeforadministrationpurposes.
Nonprofit educational and/or charitable corporation,

institution, accredited nongovernment organization, trust or
philanthropic organization and/or research institution or
organization
Is a school, college or university and/or charitable

corporation, accredited nongovernment organization,
trust or philanthropic organization and/or research
institutionororganization
Incorporatedasanonstockentity
Payingnodividends
Governedbytrusteeswhoreceivenocompensation
And devoting all its income, whether students' fees or

gifts, donation, subsidies or other forms of
philanthropy,totheaccomplishmentandpromotionof
thepurposesenumeratedinitsArticlesofIncorporation
Notmorethanthirtypercent(30%)ofsaidgiftsshallbeused
bysuchdoneeforadministrationpurposes.
ThetaximposedbythisTitleuponadonorwhowasacitizenoraresidentatthetimeofdonationshallbecreditedwiththeamountofany
donor'staxofanycharacteranddescriptionimposedbytheauthorityofaforeigncountry.
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Limitation
1.
2.
Theamountofthecreditinrespecttothetaxpaidtoanycountryshallnotexceedthesameproportionofthetaxagainstwhichsuch
creditistaken,whichthenetgiftssituatedwithinsuchcountrytaxableunderthisTitlebearstohisentirenetgifts;and
Thetotalamountofthecreditshallnotexceedthesameproportionofthetaxagainstwhichsuchcreditistaken,whichthedonor's
netgiftssituatedoutsidethePhilippinestaxableunderthistitlebearstohisentirenetgifts.
FILINGOFRETURNS
Requirements
Anyindividualwhomakesanytransferbygift(exceptthosewhich,under
Section101,areexemptfromthetaxprovidedforinthisChapter)shall,
for the purpose of the said tax, make a return under oath in duplicate.
Thereturnshallseforth:
(1) Eachgiftmadeduringthecalendaryearwhichistobeincluded
incomputingnetgifts;
(2) Thedeductionsclaimedandallowable;
(3) Anypreviousnetgiftsmadeduringthesamecalendaryear;
(4) Thenameofthedonee;and
(5) Such further information as may be required by rules and
regulationsmadepursuanttolaw.
TimeandPlaceofFiling
ThereturnofthedonorrequiredinthisSectionshallbefiledwithinthirty
(30)daysafterthedatethegiftismadeandthetaxduethereonshallbe
paidatthetimeoffiling.
Except in cases where the Commissioner otherwise permits, the return

shallbefiledandthetaxpaidtoanauthorizedagentbank,theRevenue
DistrictOfficer,RevenueCollectionOfficerordulyauthorizedTreasurerof
thecityormunicipalitywherethedonorwasdomiciledatthetimeofthe
transfer,oriftherebenolegalresidenceinthePhilippines,withtheOffice
oftheCommissioner.
Inthecaseofgiftsmadebyanonresident,thereturnmaybefiledwith
thePhilippineEmbassyorConsulateinthecountrywhereheisdomiciled
at the time of the transfer, or directly with the Office of the
Commissioner.
SPECIALTOPICS
TerminationofTrust
Trustor
Trustee(transfer
alreadytriggered
estatetax)
Beneficiary
VALUEADDEDTAX
Preliminaries
VATiscoveredbySections106to118oftheNIRC
RA8241,9238,9337allamendedtheprovisionscoveringVAT
Tolentinov.SecretaryofFinance
GR15455,25August1994
1.
What it contends is that by withdrawing the exemption previously

granted to print media transactions involving printing, publication,
importationorsaleofnewspapers,RepublicActNo.7716hassingledout
thepressfordiscriminatorytreatmentandthatwithintheclassofmass
media the law discriminates against print media by giving broadcast
media favored treatment. We have carefully examined this argument,
butweareunabletofindadifferentialtreatmentofthepressbythelaw,
muchlessanycensorialmotivationforitsenactment.Ifthepressisnow
requiredtopayavalueaddedtaxonitstransactions,itisnotbecauseit
is being singled out, much less targeted, for special treatment but only
becauseoftheremovaloftheexemptionpreviouslygrantedtoitbylaw.
Thewithdrawalofexemptionisallthatisinvolvedinthesecases.Other
transactions, likewise previously granted exemption, have been delisted
as part of the scheme to expand the base and the scope of the VAT
system.Thelawwouldperhapsbeopentothechargeofdiscriminatory
treatment if the only privilege withdrawn had been that granted to the
press.Butthatisnotthecase.
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2.
Indeed,regressivityisnotanegativestandardforcourtstoenforce.What
CongressisrequiredbytheConstitutiontodoisto"evolveaprogressive
systemoftaxation."ThisisadirectivetoCongress,justlikethedirective
to it to give priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion of the right to "quality
education" (Art. XIV, 1). These provisions are put in the Constitution as
moralincentivestolegislation,notasjudiciallyenforceablerights.
DestinationPrinciple
BIRRuling3298
FACTS:
Therevenuedistrictofficerinquiredonthetaxabilityofthevehiclesimportedbya
company. It seemed that the company was authorized by the BOI to import
vehicles.Novehicleshaveyetbeenrecoveredandthus,noexcisetaxeshavebeen
paid.Inadditiontothis,thecompanywasonlyallowedtoclassifythevehiclesas
jeepformarkettestpurposesonlyandnotfortheexemptionfromtax.
HELD:
Theexcessunitsimportedarestillsubjecttoexcisetax.Absentanylawexempting
thesame,noexemptionisgoingtobegranted.Anexemptionfromthecommon
burden cannot be permitted to exist upon vague implication, otherwise state
revenueswillsuffer.
SEC.105.PersonsLiable.Anypersonwho,inthecourseoftradeorbusiness,sells
barters, exchanges, leases goods or properties, renders services, and any person
who imports goods shall be subject to the valueadded tax (VAT) imposed in
Sections106to108ofthisCode.
The valueadded tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods,
propertiesorservicesatthetimeoftheeffectivityofRepublicActNo.7716.
The phrase "in the course of trade or business" means the regular conduct or
pursuit of a commercial or an economic activity, including transactions incidental
thereto,byanypersonregardlessofwhetherornotthepersonengagedthereinis
anonstock,nonprofitprivateorganization(irrespectiveofthedispositionofitsnet
income and whether or not it sells exclusively to members or their guests), or
governmententity.
The rule of regularity, to the contrary notwithstanding, services as defined in this

Code rendered in the Philippines by nonresident foreign persons shall be
consideredasbeingcourseoftradeorbusiness.
Directtaxv.Indirecttax
Directtax
Indirecttax
Amount of tax that may not be shifted The amount of tax may be shifted or
orpassedontothebuyer,transfereeor passed on to the buyer, transferee or
lessee of the goods, properties, or lessee of the goods, sdervices, or
services
properties
PersonsLiable
Any person who, in the course of business, sells, barters, exchanges, or

leases goods or properties, or renders service, any person who imports
goods, shall be liable to VAT imposed in Sections 106 to 108 of the Tax
Code
In case of importation of taxable goods, the importer, whether an

individual or corporation and whether or not made in the course of his
tradeorbusiness,shallbeliabletoVATimposedinSection107oftheTax
Code
TaxableSale
Sale, barter, exchange and/or lease of goods or properties, including

transactions deemed sale and the performance of service for a
consideration,whetherincashorinkind,allofwhicharesubjecttotax
underSections106and108oftheCode
NatureandCharacteristicsofValueAddedTax
Taxontheconsumptionbasedonthesale,exchange,barter,exchangeor
lease of goods or properties and services in the Philippines and on
importationofgoodsintothePhilippines
Theselleristheonestatutorilyliableforthepaymentofthetaxbutthe
amountofthetaxmaybeshiftedorpassedonthebuyer,transfereeor
lesseeofthegoods,properties,orservices
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This rule shall likewise apply to existing contracts of sale or lease of

goods,services,orpropertiesatthetimeofeffectivityofRA9337
P1000
500
100
=600
400
=P1000
P100
50
0
50
Output
Input
BIRRuling88243
FACTS:
Inquiry is made on the applicability of VAT purchases made by HDMF for its
operations. HDMF is a governmental financial institution enjoying tax exemption
butwiththeimplementationofVAT,thesuppliershavebeenchargingVAT.
HELD:
ThepersonsliablefortheVATarenotthebuyersorpurchasersbutthesellersor
importersofthegoodsandthoseperformingservicesforafee.ButsinceVASTis
anindirecttax,itcanbeshiftedtotheconsumer.Onceshiftedtothecustomer,it
isnolongerataxbutanadditiontothecost.
TheshiftingofVATtoyoudoesn'tmakeyouthepersonliableforthesame,hence,
thetaxexemptiongrantedtoyoucannotbeinvoked.
BIR91151
PurchaseofPrimeCommoditiesfromCDA
FACTS:
This is a request for exemption from the payment of VAT on purchase of prime
commodities from food manufacturers on the ground that it is a cooperative
registeredwiththeCDA.
HELD:
Therequestcannotbegranted.Theexemptiongrantedtocooperativesislimited
totaxesdirectlypayablebythem.Thevalueaddedtaxisataxindirectlypaidby
themasitisthesellerwhoisprimarilyliableforit.beinganindirecttax,itcanbe
addedtothecostofthegoodspurchasednotastaxbutasanadditionalcosttothe
purchaser.
CIRv.Gotamco
27February1987
FACTS:
The World Health Organization (WHO for short) is an international organization
which has a regional office in Manila. As an international organization, it enjoys
privileges and immunities which are defined more specifically in the Host
Agreement entered into between the Republic of the Philippines and the said
Organization on July 22, 1951. Section 11 of that Agreement provides, inter alit;
that"theOrganization,itsassets,incomeandotherpropertiesshallbe:(a)exempt
fromalldirectandindirecttaxes.Itisunderstood,however,thattheOrganization
will not claim exemption from taxes which are, in fact, no more than charges for
publicutilityservices;..."
WhentheWHOdecidedtoconstructabuildingtohouseitsownoffices,aswellas
the other United Nations offices stationed in Manila, it entered into a further
agreement with the Government of the Republic of the Philippines on November
26, 1957. This agreement contained the following provision (Article III, paragraph
2):
"TheOrganizationmayimportintothecountrymaterialsandfixturesrequiredfor
theconstructionfreefromalldutiesandtaxesandagreesnottoutilizeanyportion
oftheinternationalreservesoftheGovernment."
The Organization sent out invitations to bid for the construction of its building.
Respondent won the bid and started construction of the building. The
Commissioner then assessed the same forn payment of 3% ofts gross receipts.
Respondent questioned the same, averring of the exemption from direct and
indirecttaxesoftheWHO.
HELD:
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Incontext,directtaxesarethosethataredemandedfromtheverypersonwho,it
is intended or desired, should pay them; while indirect taxes are those that are
demanded in the first instance from one person in the expectation and intention
thathecanshifttheburdentosomeoneelse.(Pollockvs.Farmers,L&TCo.,1957
US429,15S.Ct.673,39Law.Ed.759.)Thecontractor'staxisofcoursepayableby
thecontractorbutinthelastanalysisitistheownerofthebuildingthatshoulders
theburdenofthetaxbecausethesameisshiftedbythecontractortotheowneras
amatterofselfpreservation.Thus,itisanindirecttax.Anditisanindirecttaxon
theWHObecause,althoughitispayablebythepetitioner,thelattercanshiftits
burden on the WHO. In the last analysis it is the WHO that will pay the tax
indirectlythroughthecontractoranditcertainlycannotbesaidthat'thistaxhasno
bearingupontheWorldHealthOrganization.'
TheHostAgreement,inspecificallyexemptingtheWHOfrom"indirecttaxes,"
contemplatestaxeswhich,althoughnotimposeduponorpaidbytheOrganization
directly,formpartofthepricepaidortobepaidbyit.ThisismadeclearinSection
12oftheHostAgreementwhichprovides:
"WhiletheOrganizationwillnot,asageneralrule,inthecaseofminorpurchases,
claim exemption from excise duties, and from taxes on the sale of movable and
immovablepropertywhichformpartofthepricetobepaid,nevertheless,when
the Organization is making important purchases for official use of property on
whichsuchdutiesandtaxeshavebeenchargedorarechargeabletheGovernment
of the Republic of the Philippines shall make appropriate administrative
arrangementsfortheremissionorreturnoftheamountofdutyortax"
InTheCourseofTradeorBusiness
Regular conduct or pursuit of a commercial or economic activity,

including transactions incidental thereto, by any person regardless of
whether or not the person engaged therein is a nonstock, nonprofit
privateorganization(irrespectiveofthedispositionofitsnetincomeand
whether or not it sells exclusively to its members or their guests), or
governmententity
Nonresident persons who perform services in the Philippines are

deemedtobemakingsalesinthecourseoftradeorbusiness,evenifthe
performance
of
services
is
not
regular.
Definingbusiness
Section22(s)
Revenue
Audit
Memorandum Order 1
86
Some branches of foreign corporations engage in

business in the Philippines by soliciting orders from
local importers. These branches are called "liaison
offices or branches." Sales made from such
solicitations are not reported by these branches as
theirownsalespurportedlybecausethebranchoffice
merelyrelaystoitsheadofficeabroadpurchaseorders
from local importers and it is purportedly its head
officethatactuallyconsummatesthesales.Attheend
ofthetaxableperiod,thebranchofficesimplyreports
for income tax purposes its purported share of the
incomegeneratedfromsalesbuttheallocationofthis
purported share is left entirely at the discretion of its
head office. The revenue service is completely at the
mercyofmultinationalcompanies.
Some branches engage in business in the Philippines

bysolicitingordersfromlocalimportersandrelaysthis
informationtoitsheadofficeabroad.Theheadoffice
in turn solicits prospective exporters for a
compensation. At the end of the taxable period, the
head office allocates a certain portion of the
compensation to its branch in the Philippines. The
branch in turn reports its purported share for income
taxpurposesbutdoesnotpaythecommercialbroker's
tax thereon purportedly because the compensation
was received from its head office and purportedly
because the branch cannot be legally considered a
commercial broker in relation to its head office since
the branch and its head office possess only a single
legalpersonality.
HELD:Thesebranchoffices,likeanyotherbusinesses,
are required by law to account for their business
operations in accordance with generally accepted
accounting practices (SEC. 38, NIRC). Thus, a branch
office although not possessing a separate and distinct
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juridical personality is, however, considered under

generally accepted accounting practices as a distinct
character, a separate business unit and should be
"supplied by the home office with cash and
merchandiseandsuchotherassetsasmaybeneeded"
.
The Philippine branch solicits purchase orders from

localbuyers,relaystheinformationtoitshomeoffice
abroad, and the home office purportedly directly
makesthesale.
In this type of operation: (i) Sales purportedly
consummated abroad by the home office shall be
treated as sales constructively consummated in the
Philippines and made by the branch office, hence,
income therefrom shall be considered income from
sources within the Philippines; (ii) the branch shall
record and report the gross selling price of
commoditiessoldthruitshomeoffice;and(iii)report
forincometaxpurposesitsnetincometherefrom.(iv)
Sinceunderthissituation,theimporttaxes,dutiesand
charges have already been paid by the local buyers,
thesameshallnotanymorebechargeableagainstthe
branch.
HELD: these transactions are treated sales

constructively consummated by the branch office in
accordance with generally accepted accounting
practices required under Section 38 of the Tax Code
sincethebranchsolicitationsareactuallytradingacts.
Accordingly, the home office is obligated to supply its
branch with merchandise in pursuing its trading
business in the Philippines. Hence, sales purportedly
madedirectlybyitshomeofficeshallbeconsideredno
more than merely a constructive supplying of the
merchandise to its branch which eventually
constructivelysellsthesametoPhilippinebuyers.
IMPERIALV.COLLECTOR
97PHIL992
Thebranchsolicitspurchaseordersfromlocalbuyers,
relays the information to its home office, the home
officesolicitsprospectivesellersabroadandeventually
receivescompensationforservicesrendered.
Inthissecondtypeofoperation:(i)thebranchshallbe
considered "a commercial broker" or indentor; (ii) its
share from compensation as allocated by its home
office shall be subject to commercial broker gross
receiptstax;(iii)thebranchshallprovideitselfwiththe
corresponding fixed tax as a commercial broker; and
(iv)payincometaxonitsshareofthecompensation.
HELD:Underthisparagraph,thebranchofficeshallbe
considered a commercial broker since its activities is
wellwithintheambitoftheterm"broker".Brokersare
". . . those who are engaged for others in the
negotiation of contracts relative to property with the
custody of which they have no concern. They act as
negotiators in bringing other persons together to
bargain; generally, they ought not to sell in their own
names,havenoimpliedauthoritytoreceivepayment,
are not entrusted with the physical possession of the
principal's goods when engaged to buy or sell, and
havenospecialpropertythereinorlienthereon."
Appeal from the judgment of the Court of First
Instance of Manila, ordering the Collector of Internal
Revenue to refund to plaintiff/appellee the sum of
P637.50imposedandcollectedfromthelatterasreal
estate dealer's tax, corresponding to the period from
thefourthquarterof1946tothethirdquarterof1950,
plusthesumofP50ascompromise.Duringtheperiod
for which the tax was imposed, appellee was the
ownerofaninedoorcamarininTobaco,Albay,leased
tothreemerchantspayingmonthlyrentalsamounting
toP6,240.00ayear.Itappearsthatplaintiffwas,from
1946 to 1950, Senatoratlarge and later Minister in a
foreign country, the exercise of the duties of which
offices required the greater part of his time and his
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BIRruling1398
MANILAPOLOV.MEER
106PHIL885
absencefromthePhilippines.
HELD:
Thereisnoweightintheargument,intheabsenceof
proof, that during that period of time plaintiff was
"engagedinleasingrealestate"especiallyifitbetaken
into account that the camarin which he had been
leasing to the merchant/tenants appears to be the
only property of his for lease, and the annual rental
received therefrom being much less than the annual
income he received from the offices which he had
been holding. "To engage" is to embark in a business
ortoemployoneselftherein.
Judgmentaffirmed.
Any person who in the course of business or trade,

sells, barters, exchanges goods or properties shall be
subjecttothevalueaddedtax.Inthecourseoftrade
or business means the regular conduct or pursuit of
businessorcommercialactivity,includingtransactions
incidentalthereto.
The intended sale of the microwave backbone

transmission network to another telecommunications
carrier is not in the course of trade or business of
selling telecommunication services. Neither s it
incidentaltheretosincethesqamedoesn'tnecessarily
follow
the
primary
function
of
selling
telecommunicationsetrcies.
It is admitted by appellant that appellee is a social

club,andthatitwouldbeexemptfromthepaymentof
thefixedandpercentagetaxesinquestionshoulditbe
able to prove that the sales in its restaurant and bar
were made strictly on the "costplusexpensesbasis".
Bythisformulaismeantthattheappelleeshouldhave
charged its patrons for only the procurement costs of
the food and drink served, plus an amount merely
BIRRuling89106
88112
sufficienttocovertheexpensesfortheoperationofits
bar and restaurant. Since it has been shown that this
method of operation had been pursued by the
appellee, it cannot be considered as engaged in
businessasakeeperofrestaurantandbar,andisnot
therefore subject to the fixed and percentage taxes
imposed by Sections 182 and 191 of the National
InternalRevenueCode,asamended.
Inasmuch as the record also show that appellant

admitsthattheappellee,asaclub,hasforitsobjective
the promotion of the game of polo, other athletic
sportandoutdoorrecreations,andtogiveopportunity
for social intercourse to its members, and that the
establishmentoroperationofthebarandrestaurantis
only incidental to the alleged objectives of appellee's
existence as a polo club, we hold that the appellee is
notacommercialconcern,runforprofit.
The exchange of real property with shares of stock is

not subject to VAT because real property does not
come within the purview of VAT taxable goods
pursuanttoSection2(p)ofRevenueRegulationsNo.5
87. For the same reason, the exchanges of personal
property or securities transfer of real or personal
propertiesorsecuritiesbyonecorporationtoanother
in pursuance of a merger or consolidation solely for
thesharesofstocksintheothercorporationwhichisa
partytheretoshallheexemptfromincometax.
Accordingly, it is safe to conslude that the deletion

madebyLOINo.1504ofbowlingalleysfromthelistof
amusement places subject to amusement or
percentage taxes still stands as of this date. Such
being the case, bowling alleys are not subject to
percentage (amusement) tax imposed by Section 123
of the Tax code, as amended by Executive Order No.
273. Neither are bowling alleys subject to the
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88204
8971
8884
RMC788
BIRRuling4198
therefore, not a business enterprise, and the

government's recognition as a matter of national
policy the development of sports and the
encouragementofthepeople'sparticipationinsports.
UnderSection99oftheTaxCode,onlythosepersons
selling goods or rendering service in the course of
trade or business are subject to the valueadded tax
whichisnotsointhecaseofbowlingalleys.
Gymnastics is a sport and, therefore, riot a business

enterprise; hence, your client for engaging in the
promotion and development of gymnastics is not
subjecttothevalueaddedtax.
*Takenotehoweveroftheyearthiswasruled
Engagingingivingoutaphysicalfitnessprogramdoes
not constitute sale of services. Accordingly, it is not
subjecttothevalueaddedtaximposedbySection102
of the Tax Code, as amended by Executive Order No.
273.
As long as the amount of sale exceeds P200,000.00

during a 12month period, a hospital operating a
pharmacy or drugstore becomes subject to the value
addedtaxirrespectiveofwhomsoeverthemedicineor
drugissoldwhethertoinpatientoroutpatient
A travel agent is required to pay a 10% VAT on its

receiptswhichpurposesofthistaxwillnotincludethe
priceofairlineorshipticketsorthereimbursementof
expenses which shall be limited to passport and visa
fees for all types of passengers and hotel room
charges,busand/orcartourcharges,guidefees,resort
feesandmealchargesfortouristsprovidedthatallthe
said expenses are properly supported by receipts
issuedbythesupplyingcompanyorestablishment.All
otherincomeorreceiptshallpaytheVATof10%.
LPGfallsunderthedefinitionof"petroleumproducts"
91136
8880
under Section 2(l) of Revenue Regulations No. 896

which is separate and distinct from the term
"processed gas" as defined in letter (m) thereof The
latter is subject to excise tax at the rate of P0.05 per
liter while LPG is subject to excise tax at the rate of
P0.00 per liter (except LPG used for motive power
which is subject to excise tax at the rate of P1.63 per
liter)pursuanttoSection148(b)and(j)oftheTaxCode
of 1997 [formerly Section 145(2) and (10) of the Tax
Code,asamendedbyR.A.No.8184].
Moreover, the sale or importation, among others, of

petroleumproducts,whichasperdefinitionunderSec.
2(l) of Revenue Regulations No. 896 include LPG is
exempt from VAT pursuant to Section 109(e), also of
the Tax Code of 1997 [formerly Section 103(e), Tax
Code, as amended by R.A. No. 7716, as further
amendedbyR..ANo.8241].
While airtime is an intangible property, the sale of a

specific TV airtime contemplates the use by the
contracteebuyer of television broadcast facilities of
the station owner and/or availment of services of the
latter wherein the consideration is measured by the
length of time allowed to the buyer to use TV
broadcastfacilities.Inotherwords,whenyoupurchase
TVairtimetotelecastprogramsandshowsthroughthe
useofsuchfacilities,thestationownersellstimespots
to advertisers and flash their advertisements within a
specific time in between programs or shows, this
constitutesrenderingofservicesforaconsideration.
ThesalebytheBureauofAnimalIndustryofvaccines
andotherbiologicfortheuseoflivestockissubjectto
valueaddedtax.
Asaseller,itisrequiredtoregisterasaVattaxpayerif
its gross income for a 12month period exceed
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P200,000.00. However, the requirement for

registrationisoptionalifitsgrosssalesdonotexceed
thesaidamount,inwhichcaseitshallbesubjectto2%
onthegrosssales.
The valueadded tax cannot be discounted because

thiskindofdiscountisnotdeductiblefromtheselling
prim pursuant to Section 6(c)(A) of Revenue
RegulationsNo.587.ForVATpurposes,the10%VAT
shallbecomputedwithoutconsideringthediscount.
VATonSaleofGoodsandProperties
Imposedandcollectedoneverysale,barterorexchange,ortransactions
deemed sale of taxable goods or properties at the rate of 12% of the
gross selling price or gross value in money of the goods or properties
sold,bartered,exchanged,ordeemedsoldinthePhilippines
Meaningofgoodsandproperties
1. Real properties held primarily for sale to customers or held for lease in
theordinarycourseoftradeorbusiness
2. Therightortheprivilegetousepatent,copyright,designormodel,plan,
secretformulaorprocess,goodwill,trademark,tradebrandorotherlike
propertyorright
3. The right or the privilege to use any industrial commercial or scientific
equipment
4. The right or the privilege to use motion picture films, films, tapes and
discs
5. Radio,television,satellitetransmissionandcabletelevisiontime
SaleofRealProperties
Sale of real properties held primarily for sale to customers or held for
lease in the ordinary course of business of the seller shall be subject to
VAT
In the case of real properties on the installment plan, the real estate
dealer shall be subject to VAT on the installment payments, including
interest and penalties, actually and/.or constructively received by the
seller
Sale of residential lot exceeding P1500000, residential lot and house or

otherresidentialdwellingsexceedingP2500000,wheretheinstrumentof
saleisexecutedon1July2005,shallbesubjectto12%VAT
Installmentsaleofresidentialhouseandlotorotherresidentialdwellings
exceedingP1000000,wheretheinstrumentofsalewasexecutedpriorto
1July2005,shallbesubjecttoVAT
SaleofPropertyonInstallmentPlan
Saleofrealpropertybyarealestatedealer,theinitialpaymentsofwhich
intheyearofsaledon'texceed25%ofthegrosssellingprice
However, in the case of sale of real properties on a deferred payment

basis, it shall be treated as a cash sale which makes the entire selling
pricetaxableonthemomentofsale
RMC396
WhatrealestatetransactionsaresubjecttoVATstartingJanuary1,1996?
RealestatetransactionswhicharesubjecttoVATstartingJanuary1,1996include
thefollowing:
a.
Sale, barter or exchange of real property held primarily for sale to
customersorforlease,intheordinarycourseoftradeorbusiness,whenthegross
annualand/orreceiptsexceedP500,000.00;
b.
Lease of real property in the ordinary course of trade or business,
whetherforcommercialorresidentialuse,whenthegrossannualreceiptsexceed
P500,00.00 and provided that, in the case of residential use, the monthly rental
exceeds P3,950.00/unit (as adjusted under Republic Act No. 7644, otherwise
knownastheRentControlLaw);
c.
Security deposits in lease contracts, when the same is applied to rental
(atthetimeoftheapplication);
d.
Advancepaymentreceivedinthemonth/quarterbythelessor,whenthe
sameisinfactaprepaidrental,regardlessoftheaccountingmethodused;
e.
Real property dividends distributed by real estate dealers/lessors to its
stockholders and declared out of the retained earnings. The VAT should be
computed based on the fair market value or zonal value thereof, whichever is
higher,atthetimeofdistribution.
WhatrealestatetransactionsareexemptfromVAT?
RealestatetransactionwhicharenotsubjecttoVATincludethefollowing:
MA.ANGELAAGUINALDO
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a.
Saleofrealpropertynotprimarilyheldforsaletocustomersorheldfor
leaseintheordinarycourseoftradeofbusiness;
b.
SaleofrealpropertyutilizedforsocializedhousingunderRA7279,except
whensoldbyarealestatedealertoapersonotherthantheintendedorqualified
beneficiaries;
c.
Sale of real property utilized for lowcost housing under BP 220 or PD
957,exceptwhensoldbyarealestatedealertoapersonotherthantheintended
orqualifiedbeneficiaries;
d.
Transferofrealpropertytoatrusteeifthepropertyistobeheldmerely
intrustforthetrustor;
e.
Transfer of real property to a corporation in exchange for its shares of
stockunderSection34(c)(2)and(6)(c)oftheTaxCode;
f.
Advance payment by the lessee in a lease contract, when the same is
actuallyaloantothelessorfromthelessee;
g.
Security deposits for lease arrangements to insure the faithful
performanceofcertainobligationsofthelesseetothelessor;
h.
Lease of residential units, boarding houses, dormitories, rooms and bed
spaces offered for rent by their owners at a monthly rental not exceeding
P3,950.00/unitasadjustedunderRepublicActNo.7644,(RentControlLaw);
Theterm"unit"shallmeananapartmentunitinthecaseofapartments;
house in the case of residential houses; per person in the case of dormitories,
boardinghousesandbedspaces;andperroominthecaseofroomsforrent.
i.
Saleorleaseofrealpropertyprimarilyheldforsaletocustomersorfor
lease in the ordinary course of trade or business when the gross annual sales
and/orreceiptsdonotexceedP500,000.00.
WhatresidentialunitsarereferredtoinA2(h)?
The term "residential units" shall refer to apartments, houses and/or lands on
whichanother'sdwellingislocated,usedforresidentialpurposesandshallinclude
not only buildings, parts or units thereof, used solely as dwelling places [except
motels,hotels,apartelles,pensionhouses,lodginghousesandresorts]oralsoused
forhomeindustries,retailstoresorotherbusinesspurposes,ifthetenantthereof
andhisfamilyactuallylivethereinandusethemprincipallyfordwellingpurposes;
What is the business tax liability of a real estate dealer/lessor whose gross
sales/receiptsdonotexceedP500,000.00duringany12monthperiod?
They shall be liable as NonVAT taxpayers subject to 3% percentage tax imposed
underSec.112oftheTaxCode.However,theyhavetheoptiontoregisterasVAT
taxpayers,inwhichcase,theyareliabletothe10%VATwiththebenefitofinput
taxcredits.
Whatisthebusinesstaxliabilityofindividualswhosegrosssalesreceiptsdonot
exceedP100,000.00duringany12monthperiod?
IndividualswhosegrossreceiptsdonotexceedP100,000.00duringany12month
period shall be exempt from the VAT and 3% percentage tax imposed under Sec.
112, since they are considered principally for subsistence or livelihood and not in
thecourseoftradeorbusiness.
WhoarethepersonsliabletoVAT?
ThefollowingpersonsengagedinrealestatebusinessareliabletoVAT:
a.
Any person, whether natural or juridical, engaged in the sale, barter, or
exchangeofrealpropertiesintheordinarycourseoftradeorbusiness;
b.
Realestatelessorsandsublessors;
c.
Nonresident lessors of real property located in the Philippines through
theirresidentlessees;
d.
Nonstock,nonprofitorganizationsengagedinthesale,barter,exchange
or lease of real property, irrespective of the disposition of its net income and
whether or not the sale/lease is exclusively to its members, as long as the
transactionisundertakenintheregularconductorpursuitofacommercialoran
economicactivity;and
e.
Government, its agencies and instrumentalities, including government
ownedorcontrolledcorporationsengagedinthesale,barter,exchangeorleaseof
realpropertiesintheordinarycourseoftradeorbusiness.
Provided, however, that the gross sales/receipts from the sale, barter, exchange
and/or lease of real property of the aforementioned taxpayers in the course of
its/histradeorbusinessduringany12monthperiodexceedP500,000.00.
Whoisconsideredarealestatedealer?
A real estate dealer is any person engaged in the business of buying, developing,
selling, or exchanging real property as principal and holding himself out as a full
timeorparttimedealerinrealestate.
Whoisconsideredarealestatelessor?
Arealestatelessorincludesanypersonengagedinthebusinessofleasingorsub
leasingofrealproperty.
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When is a real estate dealer considered to be engaged in low cost housing

project?
Arealestatedealerisconsideredtobeengagedinlowcosthousingprojectwhen
such project is registered and licensed by HLURB/HUDCC as lowcost housing
pursuanttoBP220orPD957,oranyothersimilarlaw.Lowcosthousingrefersto
housing projects intended for homeless lowincome family beneficiaries,
undertaken by the Government or private developers, which may either be a
subdivision or a condominium, wherein the unit selling price is not more than
P375,000.00orasmaybedeterminedfromtimetotimebyHLURB/HUDCC;
Whenisarealdealerconsideredtobeengagedinsocializedhousing?
A real estate dealer is considered to be engaged in socialized housing when such
projectisregisteredandlicensedbyHLURB/HUDCCassocializedhousingpursuant
to RA 7279, otherwise known as the "Urban Development and Housing Act of
1992."Socializedhousingreferstohousingprogramsandprojectscoveringhouses
andlotsorhomelotsonlyundertakenbytheGovernmentortheprivatesectorfor
the underprivileged and homeless citizens which shall include sites and services
development, longterm financing, liberalized terms on interest payments, and
such other projects intended for the underprivileged and homeless wherein the
housing package selling price is not more than P150,000.00 or within the lowest
interestratesundertheUnifiedHomeLendingProgram(UHLP)oranyequivalent
housing program of the Government, the private sector or nongovernment
organizations;
ForpurposesofdeterminingexemptionfromVAT,whatdocumentsarerequired
to be submitted by real estate dealer engaged in lowcost socialized housing
projects?
Within30daysfromapprovalofeachproject,realestatedealersengagedinlow
cost/socialized housing are required to submit a duly authenticated copy of the
certificate of license to sell issued by HLURB/HUDCC specifying the project name,
location and number units to be sold, to the Revenue District Office where its
principalplaceofbusinessislocated.
Arecommissionsofrealestateagent/brokersubjecttoVAT?
Yes, commissions of real estate agent/broker are subject to VAT if the gross
receiptsexceedP500,000.00duringany12monthperiod.
Can real estate dealers withhold the VAT from the commissions paid to real
estatebrokers?
No, real estate dealers are not allowed to withhold VAT; however, government
entitiescanwithholdVATonitspaymentforgoodsandservices.
AreallsalesofrealpropertypriortoJanuary1,1996subjecttoVAT?
No.Onlysalesofrealpropertyheldprimarilyforsaletocustomersorforleaseby
real estate dealers or lessors on installment plan shall be subject to VAT with
respecttotheinstallmentpaymentsmadeonorafterJanuary1,1996.Saleofreal
properties on deferred payment basis in 1995 and prior years are not subject to
VAT.
Whatdowemeanbysaleofrealpropertyoninstallmentplan?
Saleofrealpropertyontheinstallmentplanmeanssaleofrealpropertytheinitial
paymentsofwhichintheyearofsaledonotexceed25%ofGrossSellingPrice.
Whatdowemeanbysaleofrealpropertyonthedeferredpaymentbasis?
Saleofrealpropertyonadeferredpaymentbasismeanssaleofrealproperty,the
initialpaymentsofwhichintheyearofsaleexceed25%ofthegrosssellingprice.
Whatdoesinitialpaymentmean?
Initial payment 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 purchases) during the calendar year when the sale or disposition of the real
property was made. It covers any downpayment made and includes all payments
actuallyorconstructivelyreceivedduringthecalendaryearofsale,theaggregate
ofwhichdeterminesthelimitsetbylaw.
Howdowecomputethepercentageofinitialpayment?
Therearetwowaysofdeterminingthepercentageoftheinitialpaymentoverthe
contractprice
1.
Add the downpayment and the scheduled principal amortization during
theyearofsaleanddividethesumbythetotalcontractprice,or
2.
Add the downpayment and the scheduled amortizations (principal plus
interest) during the year of sale and divide the sum by the aggregate of the
downpaymentandthetotalamortizationfortheentirecontract,includinginterest.
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If either test results to more than 25% then it is a sale on the deferred payment
plan,otherwise,itisasaleontheinstallmentplan.
WhatisthebasisoftheVATontaxablesalesofrealproperty?
For cash basis/deferred payment plan The computation of the VAT by
persons/entities engaged in the sale of real property in the course of trade or
businessshallbebasedonthegrosssellingpricewhichiseithersellingpricestated
inthesalesdocumentorthezonalvaluesoftherealpropertiessold,whicheveris
higher. In the absence of zonal values the gross selling price shall refer to the
marketvalueasshowninthelatesttaxdeclarationortheconsideration,whichever
ishigher.
How is the zonal valuation rule applied in the case of sale of real property on
installmentplanbasis?
Forsaleofrealpropertyoninstallmentplan,thecomputationoftheVATshallbe
basedontheactualconsiderationreceived,includinginterestsandothercharges.
However, upon full payment, if the zonal/market value is higher than the total
receipts/collections,theadditionalVATshallbepaidaccordingly.
WhatisthetaxbaseofVATonleaseofrealproperties?
The computation of the VAT by lessor of real properties shall be based on their
grossreceiptsfromtheleaseofrealproperties.
Gross receipts, as defined under Revenue Regulations No. 795, means the total
amountofmoneyoritsequivalentrepresentingthecontractprice,compensation,
servicefee,rentalorroyalty,includingtheamountchargedformaterialssupplied
with the services and deposits in advance payments actually or constructively
receivedduringthetaxablequarterfortheservicesperformedortobeperformed
foranotherpersonexcludingVAT.
IfthecontractofleasewasnotarizedoutsidethePhilippines,istheleasesubject
toVAT?
Gross receipts from lease of real property covered by the VAT law are subject to
VAT regardless of the place where the contract of lease was executed, if the
propertyonleaseislocatedinthePhilippines.
If the lessor has real property for lease located in different places, should the
lessorregistereachpropertyseparately?
There shall only be one registration and, consequently, he shall pay an annual
registrationfeeofP1,000.00intheRDOwherethemainorheadofficeislocated.
However, if he maintains an office within the premises of the leased properties,
said office shall be considered as branch which shall also be registered and for
whichtheapplicableregistrationfeeshallbepaid.
Is the rental of residential houses or offices of embassies or diplomatic agents

subjecttotheVAT,orpercentagetax,asthecasemaybe?
Yes,theexemptionofdiplomaticagents/embassiesislimitedonlytodirecttaxes.
Since the VAT and percentage taxes are indirect taxes, the lessors of diplomatic
agents and embassies are liable thereto. However, if the sending state allows
Philippine diplomatic agents/embassies exemption from indirect taxes on
transactionsinthatstate,theirdiplomaticagents/embassiesshallenjoyexemption
from indirect taxes in the Philippines, pursuant to the international rule on
reciprocity.
HowarerealpropertytransactiondocumentedforVATpurposes?
Taxable sales of real property on cash basis and on the deferred payment plan
shall, in addition to the document of sale, be covered by a VAT invoice for the
entire selling price and NonVAT official receipts for the initial and succeeding
payments.
Taxable sales of real property on the installment plan shall, in addition to the
documentofthesale,becoveredbyaVATreceiptforeveryinstallmentpayment.
TaxableleaseorrealpropertyshallbecoveredbyaVATreceipt.
Exempt sale of real property be real estate dealers shall, in addition to the
document of sale, be covered by nonVAT receipts upon collection of the
payments.Exemptleaseofrealpropertybyrealestatelessorsshallbecoveredbya
nonVATreceipt.
WhatistheconsequenceifaVATexemptpersonissuesaVATinvoiceorreceipt?
Any person whose sale or lease of real property is VATexempt, but issues a VAT
invoice or receipt shall, in addition to his liability to other applicable percentage
tax, if any, be liable to VAT without the benefit of input tax credit, and such tax
shallnotalsoberecognizedasinputtaxcredittothepurchaser/lessee.
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Can unused invoices or receipts printed prior to January 1, 1996, of persons

becomingliabletoVATforthefirsttime,beusedonorafterJanuary1,1996?
Yes,unusedinvoicesorreceiptsprintedpriortoJanuary1,1996canstillbeused
provided that an inventory indicating the number of booklets and the
corresponding serial numbers as of December 31, 1995 shall be submitted to the
RDOwherethemainofficeislocatedonorbeforeJanuary31,1996andthephrase
"VAT registered as of (date of registration) is stamped on all copies thereof. Said
unusedinvoicesorreceiptsshallbeallowedforuseintransactionssubjecttoVAT
uptoJune30,1996.
Arerealestatedealersentitledtothe8%presumptiveinputtax?
Yes,realestatedealersshallbeentitledtothe8%presumptiveinputtax.
Whatisthebasisofthe8%presumptiveinputtaxoftherealestatedealer?
Thepresumptiveinputtaxcreditof8%oftherealestatedealersshallbebasedon
the book value of the improvements, such as buildings, roads, drainage systems,
water drainage system perimeter posts, landscaping and other similar structures
constructedonorafterJanuary1,1988(theeffectivityofE.O.273),inadditionto
itsinventoryofsuppliesandmaterialsforuseinthebusiness.
Arereallessorsentitledtothe8%presumptiveinputtax?
Yes, real estate lessors are entitled to the 8% presumptive input tax only with
respecttotheirinventoryofsuppliesandmaterials.
What are documents required to be filed by sellers or lessors of real property

subjecttoVATonorbeforeJanuary31,1996?
Sellerorlessorofrealpropertiesarerequiredtosubmitthefollowingdocuments
notlaterthanJanuary31,1996totheRevenueDistrictOfficewheretheirprincipal
placeofbusinessislocated.
A)
ForPresumptiveinputtaxpurposes;
1)
Inventory of goods, supplies & materials not for sale but purchased for
useinbusinessonhandasofDecember31,1995.
2)
InventoryofgoodsorpropertiesandimprovementsasofDecember31,
1995;(forrealestatedealeronly)
B)
InventoryofunusedinvoicesasofDecember31,1995,and
C)
ScheduleofreceivableforcontractsonadeferredpaymentbasisasDec.
31,1995.FailuretosubmitthisscheduleshallsubjectreceivablestoVAT.
How does the threshold provision of P500,000.00 apply to real estate lessor to
determinewhethertheyareliabletoVAT?
For purposes of determining compliance with the threshold of P500,000.00, even
grossreceiptsfromleaseofresidentialunitscoveredbytheRentControlLawshall
be included. If the aggregate of the gross receipts exceeds P500,000.00, then the
real estate lessor shall register as a VAT person. However, for purposes of
determining the VAT payable, VAT shall be computed only on the gross receipts
fromleaseofrealproperties/residentialunitsnotcoveredbytheRentControlLaw.
Toillustrate:ForthemonthofJanuary,1996,ABCRealtyInc.isthelessorofa15
doorapartmentwiththefollowingmonthlyrentalcharges:
10unitsarebeingleasedoutforP3,950perunit;while5unitsarebeingleasedout
forP5,000perunit.
IsABCRealtyInc.subjecttoVAT?Ifso,howmuchistheVATavailable?
I.
Determine first whether the gross receipts of ABC Realty Inc. for the
taxable year (TY) 1996 from the lease of the 15door apartment exceeds the
thresholdofP500,000.00.
A.
Determine the gross receipts for TY 1995 from rentals covered by the
rentControlLaw:
10xP3,950=P39,500/month
x12months
P474,000
B.
DeterminethegrossreceiptsforTY1995fromrentalsnotcoveredbythe
RentControlLaw:
5xP5,000=
P25,000/month
x12months
P300.00
C.
Add (A) and (B) to determine whether ABC's gross receipts from the
aforesaidleaseduringthe12monthperiodexceedstheP500,000.00threshold.
P474,000(A)
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+300,000(B)
P774,000ExceptedGross
Receiptsfor
TY1996
Therefore,ABCRealtyInc.issubjecttoVATbecauseitexpectstoearngrossrentals
exceedingtheP500,000thresholdforTY1996.
II.
TheVATpayableofABCRealtyInc.forthemonthofJanuary,1996shall
becomputedasfollows:
Assume that ABC Realty Inc. incurred P20,000 worth of VATinvoiced building
materialsfortherepairandmaintenanceoftheapartmentunitsforthemonthof
January,1995.
1/11ofP25,000 P2,272.73(OutputTax)
Less: 1/11ofP20,000x300
774
704.72(InputTax)
VATpayableforthemonthofJan.;1995
P1,568.01
N.B.theVATpayableiscomputedontheportionofthegrossreceiptsfromrentals
correspondingtothefive(5)apartmentunitsbeingleasedoutatamonthlyrental
ofP5,000.00perunitonly.
WhatisthemannerofpaymentofVATonrealpropertytransactions?
Asarule,theVATdueonrealpropertytransactionsshallbepaiduponfilingofthe
VATreturn/declaration.However,inthecaseofleaseofrealpropertiesownedby
nonresident lessors, the VAT due shall be withheld and remitted by the lessee
throughthefilingofaVATreturn/declarationforandinbehalfofthenonresident
owner.
All revenue officials and employees are hereby enjoined to give this Circular the
widestpublicitypossible.
RealProperties
RMC396
(seeabove)
Section109(w)(y)(z)
(seediscussionbelow)
BIRRuling1998
Under Sec. 4.1001 of Revenue Regulations No. 795
6098
11098
otherwise known as the Consolidated ValueAdded

TaxRegulations,saleofrealpropertiesheldprimarily
forsaletocustomersorheldforleaseintheordinary
course of trade or business of the seller shall be
subjectto10%VATbasedonthegrosssellingprice.
For this purpose, "gross selling price' shall mean the

consideration stated in the sales documents or the
zonal value whichever is higher; provided, however,
that in the absence of applicable zonal values, gross
sellingpricereferstothemarketvaluesshowninthe
latest tax declaration or the consideration whichever
ishigher.
Suchbeingthecase,yourclientbeingengagedinreal
estateleasingshallbesubjecttothe10%VATshould
their intention to sell their real property in Alabang
materializes pursuant to Section 4100.1 of Revenue
RegulationsNo.795.
The contract between UPSS and BOC for the sale of

goods,suchascomputerhardware,computersystem
softwareprograms,applications,components,devices
and supplies, and the sale of services, such as
providing support, training, and consultancy services
in the use and application of the said products, are
transactions subject to the 10% VAT which may be
shiftedorpassedontoBOC,VATbeinganindirecttax.
Consequently, BOC, being a government agency is
required to deduct and withhold the VAT due at the
rate of three percent (3%) of the gross payments on
the purchase of goods and six percent (6%) on the
gross receipts for services rendered by UPSS, which
shall be creditable against the VAT liability of UPSS
pursuant to then Sec. 110C of the Tax Code, as
amended[nowsec.114CoftheTaxCodeof1997.
Thesalebyrealestatedealersand/orlessorsofhouse
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588
8860
88291
andlotandotherresidentialdwellingsvaluedatOne
Million Pesos (P1,000,000.00) and below shall be
exempt from VAT. Accordingly, since the current
prices of your condominium units are below
P1,000,000.00 each, we hereby confirm your opinion
that you are exempt from VAT on your sale of said
condominiumunits,pursuanttoSection109(w)ofthe
TaxCodeof1997.However,sinceyouareanonVAT
taxpayer, you shall pay a tax equivalent to three
percent(3%)ofyourquarterlygrosssalesorreceipts
pursuanttoSection116ofthesameCode.
BARBeverageCorporationisnolongersubjecttothe
4% ad valorem tax but to the 10% valueadded tax
under Section 100 of the Tax Coda, as amended by
ExecutiveOrderNo.273whichtookeffectonJanuary
1, 1988. Such being the case, effective January 1,
1988, it is no longer required to affix the BIR Strip
stamps or secondary label on its products in view of
therepealoftheexcisetaxprovisiononcompounded
liquorsbyExecutiveOrderNo.273.
Veterinary drugs, biologicals, vitamins and

disinfectants are subject to the 10% valueadded tax
pursuant to Section 100(a) of the Tax Code as
amendedbyExecutiveOrderNo.273.
Itisrepresentedthatcorngermisseparatedfromthe
corn grits, corn gran and other corn parts during the
contraptionsandscreensofdifferentgauges.Itissold
to oil mills for extraction of oil or as an ingredient in
themanufactureofalltypesofanimalfeeds,including
aquaculturefeeds.
Although corn germ is a byproduct in the process of

millingcorn,itisnotoneofthoseconsideredintheir
originalstateforpurposeofSection103(b)oftheTax
Code, as amended by Executive Order No. 273. It is
88378
88198
893
noted in said provision that only corn grits, another

byproduct is considered 'in their original state. Such
being the case, corn germ which is a manufactured
productandnolongerinitsoriginalstateis'subjectto
10%valueaddedtax.
In your purchase of locally manufactured cigarettes

the party subject thereto is the seller, e.g., factory,
wholesalers, jobbers or distributors, as the case may
be.Whenaddedtothecostofyourpurchases,itisno
longer a tax payable by you but an additional cost
whichyouhavetopaytoobtainthecigarettes.Ifyou
arenotVATregisteredandyouexportsaidcigarettes
you are exempt from the valueadded tax; but if you
areVATregistered,youarezeroratedonyourexport
thereof
Since export sales do not extend the zerorating

privilegeoftheexportertoitssuppliers,yourclientis
subject to VAT on its sale of goods to G. G.
Sportswear, (Sec. 100 Tax code, as amended by
ExecutiveOrderNo.273)Thefactthatsaidpurchaser
rejects the billing of the VAT will not exempt your
clientfromliabilitytotheVAT.
Quarryresourcessubjecttothe3%excisetaximposed
bySection151(a)(2)oftheTaxCode,includesandand
gravelwhetherremovedfromriverbedsorquarried.
[sec.2(h),RevenueRegulationsNo.1380]
However, if you are merely engaged in

hauling/transporting sand and gravel to be used
exclusively for Government projects and in no case
shall be disposed of commercially, in which case, h
you are paid which case, your taking of sand and
gravel from river beds is covered by a gratuitous
permitgrantedbytheDirectorofMines,pursuantto
Mines Administrative Order No. MRD16, S. 1977,
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VATRuling03701
then you are not subject to the 3% excise tax. With

respect to your hauling services for which you are
paid, your quarterly gross receipts derived thereon
are subject to 3% tax pursuant to Section 115 of the
TaxCode,asamendedbyExecutiveOrderNo.273.
On the other hand, if you shall sell sand and gravel

then you are subject to the 3% excise tax in addition
to the 10% valueadded tax. (Sec. 1269 Tax Code) In
the latter case, you are required to register with the
Excise Team Area VIMindanao, pursuant to Section
18 of Revenue Regulations No. 587 implementing
Title IV (VAT Law) of the Tax Code, as amended by
ExecutiveOrderNo,273.
The valueadded tax imposed under Section 100 of

theTaxCode,asamendedbyExecutiveOrderNo.273
is based on the gross selling price of the goods sold.
The goods given free in the course of trade or
businessarenotconsideredtransactiondeemedsale
Your exemption from VAT on your sale of fish under

Section 109 (d) of the Tax Code of 1997 covers only
your direct tax liability, meaning your output VAT on
the gross receipts from your sale of fish in their
original state. However, you cannot claim exemption
from the input VAT being passed on to you by the
suppliers on your purchase of supplies, parts, fuels,
etc.AsformingpartoftheinvoicepricebecauseVAT,
beinganindirecttax,maybeshiftedorpassedonto
thebuyerofgoodsandservicespursuanttoSec.105
oftheTaxCodeof1997.
Sinceyourclient'srentalfromitsresidentialdormitory
operationsdoesnotexceedP8,000.00permonth,per
individual, the same is exempt from the 10% VAT,
pursuant to Section 109 (x), NIRC of 1997, as
implementedbySection4ofRevenueRegulationsNo.
RR42007
12998
697.
Onyourquerywhetherthesaidrentalsfromthelease
ofyourclient'sresidentialdormitoriesmaybesubject
to the 3% percentage tax, in lieu of the 10% VAT,
please be informed that the 3% percentage tax
prescribed under Section 116 of the said NIRC does
notapplytopersonsexemptfromthe10%VATunder
Section109(a)to(y)oftheCode.
Patents,Copyrights,DesignModel,etc.
That under the most favored nation provision of the
RPUSTaxTreaty[Art.13,para.(2)(b)(iii)],theimposed
onroyaltiesderivedbyaresidentoftheUnitedStates
fromsourceswithinthePhilippinesshallbethelowest
rate of Philippine tax that may be imposed on
royalties of the same kind paid under similar
circumstances to a resident of a Third State. Article
12,paragraphs(2)(b)and(4)oftheRPNetheriandsTax
TreatyprovidesthatroyaltiesarisinginthePhilippines
and paid to a resident of Netherlands may also be
taxed in the Philippines, but the tax so charged shall
not exceed 15 per cent of the gross amount of the
royalties in all other cases. The term "royalties" as
used in this Article means payments of any kind
receivedasaconsiderationfortheuseof,ortheright
touse,anypatent,trademark,designormodel,plan,
secret formula or process, or for the use of, or the
right to use, industrial, commercial or scientific
equipment, or for information concerning industrial,
commercialorscientificexperience.
Suchbeingthecase,thisOfficeisoftheopinionasit
hereby holds that the royalty payments made by
Studio to Warner, a limited partnership organized
under the laws of Delaware, U.S.A., for the right to
establishandoperateStoresinthePhilippinesaswell
as for the exclusive right to use the WB Intellectual
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10498
PropertyandtheWBSSSysteminconnectionwiththe
ownershipandoperationoftheStoresandthesaleof
the WB Merchandise, are subject to the preferential
taxrateof15%.
However, the remittance by Studio to Warner of the

said royalties shall be subject to the 10% valueadded
tax pursuant to Section 108(A)(1) of the Tax Code of
1997.
Moreover,theVATonrentaland/orroyaltiespayable
tononresidentforeigncorporationsorownersforthe
sale of services and use or lease of properties in the
Philippinesshallbebasedonthecontractpriceagreed
upon by the licensor and licensee. The licensee shall
be responsible for payment of VAT on such rentals
and/or royalties in behalf of the nonresident foreign
corporation or owner by filing a separate VAT
declaration/returnforthispurpose.Thedulyvalidated
VAT declaration/return is sufficient evidence in
claiminginputbythelicensee."(Sec.4.1021(b),Rev.
Regs.No.795)
In view thereof, Studio shall, before making payment

of royalties to Warner, withhold and remit to this
Bureauthe10%VATduethereonbyfilingaseparate
VAT return for and in behalf of Warner. (Sec. 4.110
3(b)ofRevenueRegulationsNo.795).
Considering that your foreign licensor is a nonVAT

registered person. Your aforesaid royalty payments
are accordingly exempt from the valueadded tax.
Consequently, you are also exempt from the
obligationtowithholdandremitthe10%valueadded
tax on your payments and remittances of the
aforesaid royalties which otherwise would be due
thereon pursuant to the provisions of Section 110 of
theNationalInternalRevenueCode,asamendedbyR.
BIRRuling1498
3898
A. No. 7716 as further amended by R. A. No. 8241

(now Section 114 of the Tax Code of 1997) and as
implemented by Section 4.1103(b) of Revenue
Regulations No. 795, otherwise known as the
ConsolidatedValueAddedTaxRegulations.
Radio,televisionsatellite,andcabletelevisiontime
Government entities and instrumentalities, including
governmentowned and controlled corporations, are
subject to VAT. As an agency of the government, PIA
shall be subject to VAT if in the course of trade or
business,itsells,barters,exchangesorleasesgoodsor
properties,orrendersservicesandimportgoods.
The buying and selling of TV airtime constitutes

rendition of services to others for a consideration
subject to the 10% value-added tax under
Section 102(a) of the Tax Code. (BIR Ruling No.
135-91 dated July 16, 1991). As lessor, TV and
radio broadcasting station owners are the ones
primarily liable for the payment of VAT although
they can pass on to PIA the amount of tax as part
of cost, pursuant to Section 105 (formerly Sec.
99) of the Tax Code of 1997.
Radio and television stations are subject to VAT on
their importation of radio and telelvision equipment,
spare parts and allied technical and program
materials, inspite o contracts entered into by and
between said radio and television stations and the
PIA.
Both PLDT's "International Trunkline (IT) products"

and "Services to Internet users" fall within the
contemplation of the term "sale or exchange of
services" which are subject to VAT pursuant to Sec.
108(A)oftheTaxCodeof1997basedonPLDT's"gross
receipts" derived from telephone, telegraph,
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8859
8885
telewriter
exchange,
wireless
and
other
communicationequipmentservicesbecausealthough
said products involve the usage of "International
Trunklines",insomecases,saidserviceswouldstillbe
consideredasbeingrenderedinthecourseoftradeor
business in the Philippines since the rendition of the
same starts in the Philippines. However, overseas
dispatch, message, or conversation originating from
the Philippines thru the Internet or even thru the
"International Trunklines" is subject to the 10%
percentage tax based on the amount paid for such
servicespayablebytheInternetorTrunklineuser/sto
PLDTpursuanttoSec.120oftheTaxCodeof1997.
As regards the basis of the 10% VAT payable by an

advertising agency, the Department of Finance has
ruledthatonly15%ofitsgrossbillings,constitutethe
gross receipts subject to the contractor's tax then
payable by said agency since this amount is retained
bytheagencyasitscommissionfrommedia.(See3rd
Indorsement dated December 3, 1973 of Acting
Secretary Pedro M. Almanzor) Accordingly, and since
the 10% VAT is based on gross receipts which means
the total amount of money or its equivalent
representing the contract price, compensation or
servicefee(Section2(m),RevenueRegulationsNo.5
87) said 15% of the gross billings of an advertising
agency,likewise,constitutesthegrossreceiptsofsaid
agencyforpurposesofthe10%VAT.
Advertising agencies are now subject to the value

added tax of 10% on their gross receipts pursuant to
Section 102(a) of the Tax Code as amended by E.O.
No.273.
UseinthePhilippinesofindustrial,commercial,orscientificequipment
Motionpictures
Others
2798
Exemption from VAT of electric cooperatives

registered with the CDA or NEA under Section 107(s)
of the Tax Code of 1997 covers only their sales of
electricity and importation of machineries and
equipment, including spare parts thereof, which shall
be used in the generation and distribution of
electricity. However, the local purchases by electric
cooperatives of machineries, equipment and spare
parts shall be subject to VAT even if the same are to
be used in the generation of electricity. This is so,
becauseVATisanindirecttaxandtheamountoftax
maybeshiftedorpassedonbythelocalsupplierson
the former's purchases of machineries and
equipment.
InitialPayments
Paymentorpaymentswhichthesellerreceivesbeforeoruponexecution
oftheinstrumentofsaleandpaymentswhichheexpectsorisscheduled
to receive in cash or property during the year when the sale or
dispositionoftherealpropertywasmade
Itcoversanydownpaymentmadeandincludesallpaymentsactuallyor
constructively received during the year of sale, the aggregate of which
determinesthelimitsetbylaw
It doesn't include the amount of mortgage on the real property sold

exceptwhensuchmortgageexceedsthecostorotherbasisofproperty
to the seller, in which case, the excess shall be considered part of the
initialpayments
Alsoexcludedarenotesorotherevidenceofindebtednessissuedbythe
purchasertotheselleratthetimeofsale
TransmissionofPropertytoTrustee
ShallnotbesubjecttoVATifthepropertyistobemerelyheldintrustfor
thetrustorand/orbeneficiary
However,ifthepropertytransferredisoneforsale,lease,oruseinthe
ordinary course of trade or business and the transfer constitutes a
completed gift, the transfer is subject to VAT as a deemed sale
transaction
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GrossSellingPrice
Total amount of money or its equivalent which the purchaser pay or is

obligated to pay to the seller in consideration of the sale, barter, or
exchangeofthegoods,properties,orservices,excludingtheVAT
Theexcisetaxshallifany,onsuchgoodsandpropertiesshallformpartof
thegrosssellingprice
In the case of real properties, it shall mean the consideration stated in

thesalesdocumentortheFMV,whicheverishigher
SEC.4.1064.MeaningoftheTermGrossSellingPrice.Thetermgrossselling
pricemeansthetotalamountofmoneyoritsequivalentwhichthepurchaserpays
orisobligatedtopaytothesellerinconsiderationofthesale,barterorexchange
ofthegoodsorproperties,excludingVAT.
The excise tax, if any, on such goods or properties shall form part of the gross
sellingprice.
Inthecaseofsale,barterorexchangeofrealpropertysubjecttoVAT,grossselling
priceshallmeantheconsiderationstatedinthesalesdocumentorthefairmarket
value whichever is higher. If the VAT is not billed separately in the document of
sale, the selling price or the consideration stated therein shall be deemed to be
inclusiveofVAT.Thetermfairmarketvalueshallmeanwhicheverishigherof:1)
the fair market value as determined by the Commissioner /zonal value, or 2) the
fair market value as shown in schedule of values of the Provincial and City
Assessors (real property tax declaration). However, in the absence of zonal
value/fair market value as determined by the Commissioner, gross selling price
referstothemarketvalueshowninthelatestrealpropertytaxdeclarationorthe
consideration,whicheverishigher.Ifthegrosssellingpriceisbasedonthezonal
valueormarketvalueoftheproperty,thezonalormarketvalueshallbedeemed
exclusiveofVAT.Thus,thezonalvalue/marketvalue,netoftheoutputVAT,should
stillbehigherthantheconsiderationinthedocumentofsale,exclusiveoftheVAT.
Ifthesaleofrealpropertyisoninstallmentplanwherethezonalvalue/fairmarket
valueishigherthantheconsideration/sellingprice,exclusiveoftheVAT,theVAT
shallbebasedontheratioofactualcollectionoftheconsideration,exclusiveofthe
VAT, against the agreed consideration, exclusive of the VAT, appearing in the
ContracttoSell/ContractofSaleappliedtothezonalvalue/fairmarketvalueofthe
propertyatthetimeoftheexecutionoftheContracttoSell/ContractofSaleatthe
inceptionofthecontract.Thus,sincetheoutputVATisbasedonthemarketvalue
ofthepropertywhichishigherthantheconsideration/sellingpriceinthesales
document, exclusive of the VAT, the input VAT that can be claimed by the buyer
shallbetheseparatelybilledoutputVATinthesalesdocumentissuedbytheseller.
Therefore, the output VAT which is based on the market value must be billed
separatelybythesellerinthesalesdocumentwithspecificmentionthattheVAT
billedseparatelyisbasedonthemarketvalueoftheproperty.
ZeroratedTransactions
ReferstotransactionsexemptfrompayingoutputVATbutcanclaimtax
credit for the input tax on related purchases from VATregistered
business
Inputtaxattributablemayberefundedorcreditedagainstotherinternal
revenuetaxes
Any VATregistered person, whose sales are zerorated or effectively

zerorated may, within 2 years after close of the taxable quarter when
the sales were made, apply for the issuance of tax credit certificate or
refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax hasnt
beenappliedagainstoutputtax
ExportSales
1. ThesaleandactualshipmentofgoodsfromthePhilippinestoaforeign
country, irrespective of any shipping arrangement that may be agreed
uponwhichmayinfluenceordeterminethetransferofownershipofthe
goods so exported and paid for in acceptable foreign currency or its
equivalentingoodsorservices,andaccountedforinaccordancewiththe
rulesandregulationsoftheBangkoSentralngPilipinas(BSP);
2. Sale of raw materials or packaging materials to a nonresident buyer for
delivery to a resident local exportoriented enterprise to be used in
manufacturing,processing,packingorrepackinginthePhilippinesofthe
said buyer's goods and paid for in acceptable foreign currency and
accountedforinaccordancewiththerulesandregulationsoftheBangko
SentralngPilipinas(BSP);
A,foreigntransactsB,domesticforexporttoC
(Shallbedeemedasexportsale)
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3.
4.
5.
Sale of raw materials or packaging materials to exportoriented

enterprise whose export sales exceed seventy percent (70%) of total
annualproduction;
SaleofgoldtotheBangkoSentralngPilipinas(BSP);and
ThoseconsideredexportsalesunderExecutiveOrderNO.226,otherwise
knownastheOmnibusInvestmentCodeof1987,andotherspeciallaws.
ConsideredexportsalesunderExecutiveOrderNo.226shallmeanthe
Philippine port F.O.B. value determined from invoices, bills of lading,
inward letters of credit, landing certificates, and other commercial
documents, of export products exported directly by a registered
export producer, or the net selling price of export products sold by a
registered export producer to another export producer, or to an export
trader that subsequently exports the same; Provided, That sales of
exportproductstoanotherproducerortoanexporttradershallonlybe
deemedexportsaleswhenactuallyexportedbythelatter,asevidenced
by landing certificates or similar commercial documents; Provided,
further, That pursuant to EO 226 and other special laws, even without
actual exportation, the following shall be considered constructively
exported: (1) sales to bonded manufacturing warehouses of export
orientedmanufacturers;(2)salestoexportprocessingzonespursuantto
Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar
export processing zones; (3) sale to enterprises duly registered and
accredited with the Subic Bay Metropolitan Authority pursuant to RA
7227; (4) sales to registered export traders operating bonded trading
warehouses supplying raw materials in the manufacture of export
productsunderguidelinestobesetbytheBoardinconsultationwiththe
Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5)
salestodiplomaticmissionsandotheragenciesand/orinstrumentalities
grantedtaximmunities,oflocallymanufactured,assembledorrepacked
productswhetherpaidforinforeigncurrencyornot.
6. The sale of goods, supplies, equipment and fuel to persons engaged in

internationalshippingorinternationalairtransportoperations;Provided,
thatthesameislimitedtogoods,supplies,equipmentandfuelpertaining
toorattributabletothetransportofgoodsandpassengersfromaportin
thePhilippinesdirectlytoaforeignport,orviceversa,withoutdocking
or stopping at any other port in the Philippines unless the docking or
stopping at any other Philippine port is for the purpose of unloading

passengers and/or cargoes that originated from abroad, or to load
passengersd/orcargoesboundforabroad;Provided,further,thatifany
portion of such fuel, goods or supplies is used for purposes other than
thatmentionedinthisparagraph,suchportionoffuelgoodsandsupplies
shallbesubjecttotwelvepercent(12%)outputVATstartingFebruary1,
2006.
BIRRuling11394
Under existing mining practice in the country, gold

ingots (or gold bars) are produced only by mining
companies engaged in the integrated activity of
carryingandprocessingmineralores.
Metallic minerals are subject to 5% excise tax based

ontheactualmarketvalueofthegrossoutputthereof
at the time of removal, in the case of those locally
extracted or produced, or the value used by the
bureau of customs in determining tariff and customs
duties, net of excise tax and valueadded tax, in the
case of importation. Gross output means the "actual
market value of minerals or mineral products of
bullionfromeachmineorminerallandsoperatedasa
separate entity without any deduction from mining,
milling, refining (including all expenses incurred to
prepare the said minerals or mineral products in a
marketable state) as well as transporting, handling,
marketingoranyotherexpenses:provided,thatifthe
minerals or mineral products are sold or consigned
abroadbythelesseeorownerofthemineunderc.i.f.
terms, the actual cost of ocean freight and insurance
shallbededucted:provided,however,thatinthecase
of mineral concentrate not traded in commodity
exchangeinthePhilippinesorabroadsuchascopper
concentrate, the actual market value shall be the
worldpricequotationsoftherefinedmineralproducts
content thereof prevailing in the said commodity
exchanges, after deducting the smelting, refining and
other charges incurred in the process of converting
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87170
themineralconcentratesintorefinedmetaltradedin
those commodity exchanges". (sec. 15 1 (a)(3) &
(b)(1),taxcode)
In addition to the excise tax on gold ores imposed

under section 151 of the tax code, when gold ingots
aresoldtothecentralbank,theseareagainsubjectto
10%vatbasedonthegrosssellingpricethereofatthe
timeofsalepursuanttosection100ofthetaxcode,in
other words, sale of gold to the central bank is not
consideredexportsaleundersection100(a)(2)ofthe
same code as held under vat ruling no. 0892 dated
january 23,1992 which revoked earlier rulings stating
thecontraryrule.
However, if the gold ingots are actually exported by

the mining company or by the producer thereof, it is
zerorated pursuant to section 100(a)(2) of the tax
code.
Metallic minerals are now subject to 5% excise tax

basedontheactualmarketvalueofthegrossoutput
thereof at the time of removal, in the case of those
locallyextractedorproduced;orthevalueusedbythe
Bureau of Customs in determining tariff and customs
duties, net of excise tax and valueadded tax, in the
case of importation pursuant to Section 151(a)(3) of
theTaxCodeasamendedbyExecutiveOrderNo.273.
Saidproductsarenolongersubjecttotheroyaltytax.
Moreover, if the mineral products are exported

abroad,thegrosssalesderivedtherefromareexempt
fromthevalueaddedtax.IfthefirmisVATregistered,
theexportsalesareautomaticallysubjecttozerorate.
(Section100(a)(1),TaxCodeasamendedbyExecutive
OrderNo273).
Since ordinary ice is an essential article, the same
RMC794
being utilized as a food product for human

consumption,itisconsideredprocessedfoodproduct;
hence, subject to the 10% sales tax, pursuant to
Section 163(2)(a) of the Tax Code, as amended by
ExecutiveOrderNo.36.
Section103(d),NIRC,provides:
"Sale or importation in their original state of
agricultural...foodproducts..."shallbeexempted
fromVAT.
Water is not agricultural product. Rather, it is a

mineral.Thus
Definition of minerals. "The term 'minerals' shall

mean all naturally occurring inorganic substances
(foundinnature)whetherinsolid,liquid,gaseous,or
any intermediate state." (Sec. 257(b), NIRC, as
amendedbyBatasPambansaBlg.84).
Definition of mineral products. "The term 'mineral
products'shallmeanthingsproducedandpreparedin
a marketable state by simple treatment such as
washing or drying, but without undergoing any
chemical change or process or manufacturing, by the
lessee, concessionaire or owner of mineral lands."
(ibid).
Definitionofagriculture."Thecultivationofsoilfor
foodproductsoranyotherusefulorvaluablegrowths
ofthefieldorgarden..."(Bouvier'sLawDictionary,p.
167)
Definitionofagriculturalproduct."Thatwhichisthe
direct result of husbandry and the cultivation of the
soil...."(ibid)cdasia
Itisclearfromtheforegoingthatthetermagricultural
product pertains to organic products through
cultivation of the soil, whereas the term mineral
product pertains to inorganic substances naturally
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occurring in nature. It follows that water, being a

substance naturally occurring in nature, is mineral
rather than agricultural product. Accordingly, water,
may not legally be classified as agricultural food
product within the purview of Section 103(b), NIRC.
Hence, sale of water, whether in the form of bottled
mineral water or water delivered/supplied to inter
islandandoceangoingvesselsbypersonsengagedin
thebusinessofsupplyingwatertotheaforesaidinter
islandandoceangoingvessels,shallbesubjectto10%
VAT,pursuanttoSection100(a),NIRC.
Supra.
88182
ForeignCurrencyDenominatedSale
The phrase 'foreign currency denominated sale' means sale to a

nonresidentofgoods,exceptthosementionedinSections149and150,
assembledormanufacturedinthePhilippinesfordeliverytoaresidentin
thePhilippines,paidforinacceptableforeigncurrencyandaccountedfor
in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas(BSP).
BIRRuling3298
Supra.
3398
Section4.102(b)(3)ofRevenueRegulationsNo.795,
as amended by Revenue Regulations No. 697,
provides that services rendered by VATregistered
personstopersonsorentitieswhoseexemptionunder
speciallawsorinternationalagreementstowhichthe
Philippines is a signatory effectively subjects the
supply of such services to zerorate. Effectively
zerorated sale of services shall refer to the sale by a
VATregistered person to a person or entity who was
granted indirect tax exemption under special laws, or
international agreements. Effectively zerorated
transactions shall be limited to the local sale of
services to persons or entities who enjoy exemptions
from indirect taxes under subparagraph (b), Nos (3),
(4) and (5) of Section 4.1022 of Revenue Regulations
RMC7499
VATRuling998
No.795,asamended.
Such being the case, the domestic sales of

construction services by Zenitaka, a VATregistered
general contractor to export companies registered
withinthePEZA,arezerorated.Thesaleofservicesby
Zenitaka shall not result in any output tax. However,
the input tax on its purchases of goods, properties or
services related to such zerorated sale shall be
available as a tax credit or refund in accordance with
RevenueRegulationsNo.795.
It shall be understood, however, that your client,

Zenitaka,shallapplywiththeRevenueDistrictOfficer
concernedhavingjurisdictionoveritsprincipalplaceof
business for the effective zerorating of sales of
services to the export enterprises, registered with
PEZAwithintheSEZ,pursuanttoRevenueRegulations
No. 795, as amended. Without an approved
application for effective zerorating, the transaction
otherwise entitled to zerorating shall be considered
exempt.
Pleaseseebelow.
Under Section 24 of R.A. No. 7916, otherwise known
as the "Special Economic Zone Act of 1993",
businesses and enterprises within the ECOZONE as
defined by Section 5 thereof shall, in lieu of paying
local and national taxes, be liable to the payment of
the five percent (5%) preferential tax rate based on
gross income earned, distributed as follows: (1) three
percent (3%) to the national government; (2) one
percent(1%)tothelocalgovernmentunitsaffectedby
the declaration of the ECOZONE; and (3) one percent
(1%) for the establishment of a development fund to
be utilized for the development of municipalities
outsideandcontiguoustoeachECOZONE.
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VATRuling3396
The aforementioned 5% preferential tax is a

commutation of all the national and local taxes
otherwise due from businesses and enterprises
operating within the ECOZONE. Such being the case,
your client is considered exempt from all direct and
indirect taxes hence, may not legally be passedon
with the valueadded tax otherwise due from its
foreign licensor visavis the said royalty payments.
(BIRVATRulingNo.03396datedOctober30,1996)
In view thereof, and considering that your client's

foreign licensor is a nonVAT registered person, your
client's aforesaid royalty payments are accordingly
exemptfromthevalueaddedtax.Consequently,your
client is also exempt from the obligation to withhold
and remit the 10% valueadded tax on its payments
and remittances of the aforesaid royalties which
otherwise would be due thereon pursuant to the
provisions of Section 110 of the National Internal
Revenue Code, as amended by R.A. No. 7716, and as
implemented by Section 4.1103 of Revenue
Regulations No. 795, otherwise known as the
Consolidated Value-Added Tax Regulations.
UnderSection24ofRepublicActNo.7916,otherwise
known as the Special Economic Zone Act of 1993,
businesses and enterprises within the ECOZONE as
defined by Section 5 thereof shall, in lieu of paying
local and national taxes, be liable to the payment of
the five percent (5%) preferential tax rate based on
gross income earned distributed as follows: (1) three
percent (3%) to the national government; (2) one
percent(1%)tothelocalgovernmentunitsaffectedby
the declaration of the ECOZONE; and (3) one percent
(1%) for the establishment of a development fund to
be utilized for the development of municipalities
outsideandcontiguoustoeachECOZONE.
Section 102 (a) of the Tax Code as amended by
Republic Act No. 7716 and as implemented by
1094
Revenue Regulations No. 795 provides that sales of

goods and services to persons or entities whose
exemption under special laws, (e.g. Duly registered
and accredited enterprises of the PEZA under R.A.
7916) or international agreements to which the
Philippineisasignatoryeffectivelysubjectsthesupply
ofsuchgoodsorservicestozerorate.
Such being the case, since R.A 7916 is a special law

whichgrantsexemptionsfromnationaltaxestoPEZA
registeredbusinessesestablishmentsoperatingwithin
the ECOZONE, except payment of the preferential tax
rateof5%ongrossincomeearned,thesalesofgoods
and services by Customs Territory contractors like EEI
Corporation Philippines, Inc., shall be effectively zero
rated.
ItshallbeunderstoodthattheVATregisteredservice
contractors shall apply with the Revenue District
Officer concerned having jurisdiction over their
principalplaceofbusinessfortheeffectivezerorating
oftheirsalesofservicestoPEZAregisteredenterprises
withintheECOZONEpursuanttoRevenueRegulations
No. 795. Without an approved application for zero
rating, the transactions otherwise entitled to zero
ratingshallbeconsideredexempt.
Republic Act No. 7649, as implemented by Revenue

Regulations No. 1093, requiring the withholding of
creditablevalueaddedtax,tookeffectonJuly1,1993,
andappliesonlytoincomepaymentsmadeaftersaid
date. Moreover, the 3% contractor's tax has been
replaced by the 10% valueadded tax imposed under
Section102oftheTaxCode,asamendedbyExecutive
Order No. 273 effective January 1, 1988. Accordingly,
the collections and/or withholding of the 3%
contractor'staxonthebillingssubmittedinDecember,
1992 and March, 1993 but actually paid by the
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0697
Department of Environment and Natural Resources

(DENR) in January, 1993 and June, 1993, respectively
arewithoutlegalbasis.
However, income payments made subsequent to July

1, 1993 (effectivity of R.A. 7649) for sale of services
shall be subject to the withholding of 6% creditable
withholding tax (VAT) regardless of whether the
underlying contract was entered into before or after
July1,1993.
(1) The transfer by MWSS to the concessionaires of'

the right to operate the waterworks and
sewerage/sanitation systems and to use its existing
fixed assets in consideration for the payment of a
commencement fee to be made periodically by the
concessionaires to MWSS over the concession period
is not subject to VAT since the transfer is not in the
ordinarycourseofthetradeorbusinessofMWSS(Sec.
99,TaxCode,asamendedbyR.A.7716):
(2)Capitalexpendituresmaynotbedeductedfrom
gross income except through depreciation, depletion
oramortizationdeductionsspreadovertheusefullife
of the expenditure (par. 6060, 34 Am. Jur 2d. 1976).
Thus,thecostoftheConcessionRight(i.e..sumofthe
concession payments made or payable in the future)
arising from the rights given by MWSS to the
concessionaires to operate its waterworks and
sewerage/ sanitation systems and to use its existing
fixed assets may be amortized over the concession
period of 25 years and the amortization may be
deducted from the gross income of the
concessionaires;
(3)ThetransferbyMWSStotheconcessionairesas
its agents of the right to operate its waterworks and
sewerage/sanitation systems and to use its existing
fixedassetsspecificallylandortenementsorportions
thereofshallbesubjecttothedocumentarystamptax
imposed under Section 194 of the Tax Code, as

amendedbyR.A.7760;
(4)Thetransferoftherightsofwaypurchasedand
constructed by the concessionaires during the
concessionperiodinexpandingitsservicecoveragefor
water and sewerage/sanitation services to MWSS is
not a donation subject to donor's tax. Although the
concessionaires paid for said rightsofway,
nevertheless its ownership belongs to MWSS since it
was the one who acquired said rightsofway through
theexerciseofits,rightofeminentdomain.Theright
tousetheland(rightofway)tobegivenbyMWSSto
the concessionaires is an intangible asset which may
be recorded by the concessionaires as "Concession
Right".
(5)Thetransferofassetspurchasedorconstructed
bytheconcessionairesduringtheconcessionperiodto
MWSSisnotsubjecttoVATsincethetransferisnotin
thecourseoftradeorbusinessoftheconcessionaires
pursuanttoSection99oftheTaxCode,asamended;
(6) The right to use by the concessionaires of the
assets acquired by MWSS through the exercise of the
right of eminent domain is an intangible asset which
mayberecordedbytheconcessionairesintheirbooks
asanasset(ConcessionRight)atanamountequivalent
to the cost of property. The value of the concession
rightwhichisacapitalexpendituremaybeamortized
over the remaining period of the concession
agreement and the annual amortization is deductible
fromthetaxableincomeoftheconcessionaires:
(7) Any deed of conveyance or transfer involving
realpropertytobeexecutedbytheconcessionairesto
MWSSduringtheconcessionperiodshallbesubjectto
the documentary stamp tax unposed under Section
196oftheTaxCode,asamendedbyR.A.7660.
(8)PursuanttoSection29(f)(1)oftheTaxCode,as
amended. there shall be allowed as a depreciation a
reasonable allowance for the exhaustion, wear and
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tear(includingreasonableallowanceforobsolescence)
of property used in the trade or business. The term
"reasonable allowance" shall include (but not limited
to) an allowance computed in accordance with
regulations prescribed by the Secretary of Finance,
underanyofthefollowingmethods:
(A)Thestraightlinemethod;
(B) Declining balance method, using a rate not
exceedingtwicetheratewhichwouldhavebeenused
had the annual allowance been computed under the
methoddescribedinparagraph(f)(1)ofSection29of
theTaxCode,asamended:
(C)Thesumoftheyearsdigitmethod;and
(D) Any other method which may be prescribed by
theSecretaryofFinanceuponrecommendationofthe
CommissionerofInternalRevenue.
Theproperallowancefordepreciationofanyproperty
used in the trade or business is that amount which
wouldbesetasideforthetaxableyearinaccordance
,with a reasonable consistent plan whereby the
aggregateoftheamountsosetaside,plusthesalvage
value.will,attheendoftheusefullifeoftheproperty
in business, equal the basis of the property. Due
regard must be given to expenditures for current
upkeep.(Section105,RevenueRegulationsNo.2).
Moreover, the capital sum to be replaced should be
chargedoffovertheusefullifeofthepropertyeither
inequalannualinstallmentsorinaccordancewithany
other recognized trade practice, such as an
apportionment of the capital sum over units of
production. Whatever plan or method of
apportionment is adopted must be reasonable and
must have due regard to operating conditions during
the taxable period. While the burden of proof must
restuponthetaxpayertosustainthedeductionstaken
byhim,suchdeductionsmustnotbedisallowedunless
shown by clear and convincing evidence to be
unreasonable. The reasonableness of any claim for
depreciationshallbedeterminedupontheconditions
knowntoexistattheendoftheperiodforwhichthe
returnismade.Ifitdevelopsthattheusefullifeofthe
property will be longer or shorter than the useful life
asoriginallyestimatedunderallthethenknownfacts,
the portion of the cost or other basis of the property
not already provided for through depreciatio
allowanceshouldbespreadovertheremaininguseful
life of the property as reestimated in the light of the
subsequent facts and depreciation deductions taken
accordingly.(Sec.109,RevenueRegulationsNo.2)
Depreciationisaquestionoffactandisnotmeasured
bytheoreticalyardstick,butshouldbedeterminedby
a consideration of actual facts. Thus the rates of
depreciation on Bulletin "F" of the Federal Internal
RevenueServicehassomepersuasiveeffect.(Lipman,
Investment Corporation vs. Commissioner of Internal
Revenue,et.al.,No.L21570,July26,1966)
The depreciation rate currently being used by MWSS
for its property, plant and equipment have been
determined on the basis of its particular operating
conditions, experience and informed judgment as to
technologicalimprovementsandeconomicchanges.
Such being the case, this Office may allow the use of
the depreciation rates currently being used by MWSS
for its assets for the fixed assets to be acquired and
constructedbytheconcessionaires:.
(9) The transfer to MWSS at the end of the
concession period of the fixed assets acquired and
constructed by the concessionaires is not subject to
VAT since the transfer of said assets is not in the
course of trade or business of the concessionaires
pursuanttoSection99oftheTaxCode,asamended;
(10) The receivables that may be transferred by the
concessionairestoMWSSattheendoftheconcession
periodisnotlikewisesubjecttoVATsincethetransfer
ofsaidreceivablesbytheconcessionairesisnotinthe
course of their trade or business pursuant to Section
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32188
99oftheTaxCode,asamended;
(11)Incomputingthegainorlossifanyontheend
ofperiod payment to be received by the
concessionairesfromMWSS,thenetbookvalueofthe
assets to be transferred shall be deducted from the
consideration to be received by the concessionaires
fromMWSS;
(12)Thedeedofconveyanceortransferinvolvingthe
real properties purchased by the concessionaires
duringtheconcessionperiodwhichwillbetransferred
toMWSSattheendoftheconcessionperiodshallbe
subjecttothedocumentarystamptaximposedunder
Section196oftheTaxCode,asamended;
(13) The transfer of the other assets, such as
receivablesandinventories,atthebookvaluecarried
in the books of the concessionaires at the end of the
concession period to MWSS is not subject to the
documentarystamptax.
Shinryo Corporation which provides mechanical

services to Asian Development Bank (ADB) in
connection with the construction of the ADB building
can be considered as effectively zero rated under the
ValueAddedTaxsystem.
PursuanttoSection8(c)(2)ofRevenueRegulationsNo.
587 implementing Title IV (ValueAdded Tax) of the
TaxCodewhichreadsasfollows:
"(2)
Services rendered to persons or entities
which are effectively zerorated under special laws or
internationalagreements.Inthiscase,ifunderthelaw
or agreement, it is not only the entity that is exempt
from taxes but also its suppliers, the sales of services
tosuchentityareeffectivelyzerorated."
Moreover,asprovidedunderSection8(d)ofthesame
regulations,personsclaimingthattheirsalesofgoods
or services are effectively zerorated shall file an
application for zero rate justifying the imposition of
6599
such rate on the said transactions. In order to qualify

for effective zerorating, the company must be VAT
registered and services rendered must be covered by
special law (Executive Order No. 161) which extends
exemption not only to the grantee but also to its
suppliers.
Blessed Child Monressori Foundation, being a non

stock, nonprofit educational institution is exempt
from taxes and duties on all its revenues and assets
used actually, directly and exclusively for educational
purposes. However, it shall be subject to internal
revenuetaxesonitsincomefromtrade,businessand
other activity the conduct of which is not related to
the exercise or performance of its educational
purposes or functions. It must be emphasized that
yourtaxexemptiondoesnotcoverwithholdingtaxes.
As an educational institution, you are constituted as
withholdingagentforthegovernmentandrequiredto
withhold the tax on compensation income of your
employees, or the expanded withholding tax on
incomepaymenttopersonssubjecttotaxpursuantto
Section50(b)oftheTaxCode,asamended.
Finally, as a taxexempt educational institution, you

shallfileanannualinformationreturnonorbeforethe
15"' day of the 0 month following the end of your
taxable year (Sec. 4, Finance Department Order No.
13787). Under Section 235 of the Tax Code, any
provision of existing general and special law to the
contrary notwithstanding, the books of accounts and
otherpertinentrecordsoftaxexemptorganizationsor
grantees of tax incentives shall be subject to
examination by the BIR for purposes of ascertaining
compliancewiththeconditionsunderwhichtheyhave
been granted tax exemptions or tax incentives, and
theirtaxliabilities,ifany,Thistaxexemptionshallbe
valid for a period of three (3) years from the date of
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issueofthisletter.
REVENUEMEMORANDUMCIRCULARNO.7499
SUBJECT :
TaxTreatmentofSalesofGoods,PropertyandServicesMade
by a Supplier from the Customs Territory to a PEZA Registered Enterprise; and
SaleTransactionsMadebyPEZARegisteredEnterprisesWithinandWithoutthe
ECOZONE
TO
AllInternalRevenueOfficersandOthersConcerned
SECTION1.
Scope. This Circular is being issued to consolidate and
harmonize all the pertinent tax laws and their corresponding implementing rules
andregulationsinrespectofsalesofgoods,propertyandservicestoandfromthe
ECOZONES,inrelationtotheprovisionsofR.A.No.7916,asamendedbyR.A.No.
8748, entitled "The Special Economic Zone Act of 1995" which created the
PhilippineEconomicZoneAuthority(PEZA).cdasia
SECTION2.
Background.Ingeneral,enterprisesregisteredandoperating
underthesaidAct,otherwiseknownasECOZONEorPEZAregisteredenterprises,
shallonlybeimposedwitha5%specialtax,basedon"grossincomeearned"inlieu
ofalltaxes,excepttherealpropertytax.However,thistaxincentiveonlyappliesin
respect of the registered enterprise's operations within the ECOZONE. The
ECOZONES"areselectedareaswithhighlydevelopedorwhichhavethepotential
to be developed into agroindustrial, industrial tourist/recreational, commercial,
banking,investmentandfinancialcenters.AnECOZONEmaycontainanyorallof
the following: industrial estates, export processing zones, free trade zones, and
tourist/recreational centers." (SEC. 4 (a), R.A. No. 7916). The ECOZONE "shall be
managedandoperatedbythePEZAasaseparatecustomsterritory."(SEC.8,id.)
The term "Customs Territory" means "the national territory of the Philippines
outside of the proclaimed boundaries of the ECOZONES except those areas
specifically declared by other laws and/or presidential proclamations to have the
status of special economic zones and/or free ports." (Sec. 1 (g), PEZA Rules and
Regulations).Generally,productsmanufacturedorproducedwithintheECOZONE
are destined for export to foreign countries. While such products, under certain
conditions, may also be sold to buyers in the Customs Territory, i.e., outside the
ECOZONE,suchsalesaretechnicallyconsideredasimportationbysuchbuyerfrom
the Customs Territory. Since the ECOZONE is technically treated as another

separate Customs Territory, the buyer is treated as an importer and is imposed
with the corresponding import taxes and customs duties on his purchase of
productsfromwithintheECOZONE.
While all ECOZONE enterprises are not necessarily manufacturerexporters of
productsconsideringthattherearealsoserviceenterprisesregisteredasECOZONE
enterprises, however, taken as a whole, all their integrated activities eventually
translateintomanufacturedproductswhichareeitheractuallyexportedtoforeign
countries,inwhichcase,noVATmustformpartofitsexportprice;oractuallysold
tobuyersfromtheCustomsTerritory,inwhichcase,10%VATshallbepaidthereon
by such buyers, consistent with the "Cross Border Doctrine" of the VAT system.
LexLib
ThePhilippines'ValueAddedTax(VAT)lawadherestothe"CrossBorderDoctrine"
of the VAT System, which basically means that no VAT shall be imposed to form
partofthecostofgoodsdestinedforconsumptionoutsideoftheterritorialborder
of the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of the VAT. Conversely, those
destinedforuseorconsumptionwithinthePhilippinesshallbeimposedwiththe
10% VAT. Accordingly, interpretation of the provisions of the VAT law has been
harmonizedwiththe"CrossBorderDoctrine".
SECTION3.
Tax Treatment Of Sales Made By A VAT Registered Supplier
FromTheCustomsTerritory,ToAPEZARegisteredEnterprise.
(1)
If the Buyer is a PEZA registered enterprise which is subject to the 5%
specialtaxregime,inlieuofalltaxes,exceptrealpropertytax,pursuanttoR.A.No.
7916,asamended:
(a)
Sale of goods (i.e., merchandise). This shall be treated as indirect
export hence, considered subject to zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5),NIRCandSec.23ofR.A.No.7916,inrelationtoART.77(2)ofthe
OmnibusInvestmentsCode.
(b)
Saleofservice.Thisshallbetreatedsubjecttozeropercent(0%)VAT
underthe"crossborderdoctrine"oftheVATSystem,pursuanttoVATRulingNo.
03298datedNov.5,1998.
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(2)
IfBuyerisaPEZAregisteredenterprisewhichisnotembracedbythe5%
special tax regime, hence, subject to taxes under the NIRC, e.g., Service
Establishments which are subject to taxes under the NIRC rather than the 5%
specialtaxregime:
(a)
Sale of goods (i.e., merchandise). This shall be treated as indirect
export hence, considered subject to zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5),NIRCandSec.23ofR.A.No.7916inrelationtoART.77(2)ofthe
OmnibusInvestmentsCode.
(b)
SaleofService.Thisshallbetreatedsubjecttozeropercent(0%)VAT
underthe"crossborderdoctrine"oftheVATSystem,pursuanttoVATRulingNo.
03298datedNov.5,1998.
3.
In the final analysis, any sale of goods, property or services made by a
VAT registered supplier from the Customs Territory to any registered enterprise
operating in the ecozone, regardless of the class or type of the latter's PEZA
registration,isactuallyqualifiedandthuslegallyentitledtothezeropercent(0%)
VAT.Accordingly,allsalesofgoodsorpropertytosuchenterprisemadebyaVAT
registeredsupplierfromtheCustomsTerritoryshallbetreatedsubjectto0%VAT,
pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus
InvestmentsCode,whileallsalesofservicestothesaidenterprises,madebyVAT
registeredsuppliersfromtheCustomsTerritory,shallbetreatedeffectivelysubject
tothe0%VAT,pursuanttoSection108(B)(3),NIRC,inrelationtotheprovisionsof
R.A.7916andthe"CrossBorderDoctrine"oftheVATsystem.
This Circular shall serve as a sufficient basis to entitle such supplier of goods,
propertyorservicestothebenefitofthezeropercent(0%)VATforsalesmadeto
theaforementionedECOZONEenterprisesandshallserveassufficientcompliance
to the requirement for prior approval of zerorating imposed by Revenue
RegulationsNo.795effectiveasofthedateoftheissuanceofthisCircular.
SECTION4.
TaxTreatmentOfSalesMadeByAVATExemptSupplierFrom
TheCustomsTerritory,ToAPEZARegisteredEnterprise.Saleofgoods,property
and services by VATExempt Supplier from the Customs Territory, to a PEZA
registered enterprise shall be treated exempt from VAT, pursuant to Sec. 109, in
relationtoSec.236,NIRC,regardlessofwhetherornotthePEZAregisteredbuyer
is subject to taxes under the NIRC, or enjoying the 5% special tax regime, or a
registered manufacturerexporter the "Cross Border Doctrine" of the VAT System

tothecontrarynotwithstanding.
SECTION5.
TaxTreatmentOfSalesMadeByAPEZARegisteredEnterprise.
(1)
Sale of goods (i.e., merchandise), by a PEZAregistered enterprise, to a
buyerfromtheCustomsTerritory(i.e.,domesticsales).Thiscaseshallbetreated
as a technical importation made by the Buyer. Such Buyer shall be treated as an
importerthereofandshallbeimposedwiththecorrespondingimporttax/es(i.e.,
VATorVATplusexcisetax,asthecasemaybe),pursuanttoSec.107,TitleIVand
TitleVI,NIRC,inrelationtoSec.26,R.A.No.7916,asimplementedbySec.2,Rule
VIII, PART V of the PEZA rules and regulations entitled "Rules and Regulations to
Implement Republic Act No. 7916." The registered enterprise's "gross income
earned"therefromshallbesubjecttothe5%specialtaxpursuanttoSec.24ofR.A.
No.7916:Provided,however,thatitssalesintheCustomsTerritorydonotexceed
the threshold allowed or permitted for such sales, pursuant to the pertinent
provisionsofthePEZArulesandregulations:Provided,further,thatforincometax
purposes, if such sales should exceed the aforesaid threshold, its income derived
from such excess sales shall be imposed with the normal income tax pursuant to
theprovisionsofTitleII,NIRC:Provided,further,thatincomputingfortheincome
tax due on such excess sales, its net income from such excess sales shall be
determinedinaccordancewiththemethodofgeneralapportionmentpursuantto
theprovisionsofSec.50,NIRC,(i.e.,computeitstotalnetincomefromtotalsales,
then,computeitsnetincomefromsuchexcesssalesbygeneralapportionment,as
follows:Excesssalesdividedbytotalsalestimestotalnetincomefromtotalsales
equalsnetincomefromexcesssales).
(2)
Sale of Services by a PEZA Registered Enterprise to a Buyer from the
CustomsTerritory.Thistypeoftransactionisnotembracedbythe5%specialtax
regime governing PEZAregistered enterprises pursuant to R.A. No. 7916, as
implementedbythePEZArulesandregulationshence,suchsellershallbesubject
tothe10%VAT,pursuanttoSection108ortothepercentagetax,pursuanttoTitle
V, whichever is applicable, and to the normal income tax on income derived
therefrom, pursuant to Title II, NIRC. Such income tax shall be computed in
accordance with the method of general apportionment provided in the
immediatelyprecedingparagraph.
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(3)
Sale of Goods, by a PEZA Registered Enterprise, to Another PEZA
RegisteredEnterprise(i.e.,IntraECOZONESalesofGoods).Itssaleofgoodsor
property to another zone enterprise shall be exempt from VAT, pursuant to Sec.
109(q),NIRC,inrelationtoSec.24,R.A.7916,asimplementedbySec.1,RuleVIII,
PARTV,ofthePEZAimplementingrulesandregulations.
(4)
Sale of Service by ECOZONE Enterprise, to Another ECOZONE Enterprise
(IntraECOZONEEnterpriseSaleofService):
(a)
If PEZARegistered Seller is Subject to the 5% Special Tax Regime.
ExemptfromVAToranypercentagetax,pursuanttoSec.24,R.A.7916.
(b)
IfPEZARegisteredSellerisSubjecttoTaxesUndertheNIRC.Subject
to zero percent (0%) VAT pursuant to the "Cross Border Doctrine" of the VAT
system,regardlessofthetypeorclassofPEZAregistrationofthePEZAenterprise.
Buyer,sincetheusefororbenefitfromsuchpurchaseofserviceshalleventuallybe
translatedtoactualexportofgoods(i.e.,shipmentofgoodstoaforeigncountry,
which is subject to zero percent (0%) VAT, or translated into technical export of
goods(i.e.,saleofgoodstoabuyerfromtheCustomsTerritory,whichistreatedas
importationbysuchbuyer,hence,subjectto10%VATagainstthesaidbuyer).
SalesToPersonsOrEntitiesWhoseExemptionUnderSpecialLawsOrInternational
AgreementsToWhichThePhilippinesIsASignatoryEffectivelySubjectsSuchSales
ToZeroRate
Sales of goods or property to persons or entities who are taxexempt

underspeciallawsshallbeeffectivelysubjecttoVATatzerorate
E.g SBMA, sales to enterprises duly registered and accredited with the
PEZA,ADB,etc.
8978
Paragraph3oftheAgreementbetweenthePhilippine
Governmentandthatorganizationreading
"3.TheGovernmentwill:
"(a)Inviewofthebeneficialnatureoftheprogramfor
whichthedonatedcommoditiesdescribedhereinare
to beused, admit the commodities, as well as any
equipment and supplies required to be imported by
CARE for the administration of the program, and all
personaleffects,equipmentandsuppliesofAmerican
employees of CARE, free of all arrastre charges,
88244
7298
importduties,taxesendfeesforconsularinvoices.
(b)Levynotaxes:
(1) on commodities imported by CARE into the
Philippines belonging to CARE, any organization
distributing them for CARS, or the ultimate
recipients;"
exempts your importation of commodities but does
not contemplate a grant of tax exemption to your
purchase of goods and services in the Philippines. In
otherwords,sincelocalpurchasesarenotcoveredby
your tax exemption, you have no tax exemption
privilege that can be extended to Your suppliers of
goodsandservicesascontemplatedbytheprovisions
ofSection100(a)(2)and102(a)(3)oftheTaxCode,as
amended by Executive Order No. 273. Accordingly,
yourrequestforthezeroratingofyourlocalsuppliers
ofgoodsandserviceshastobeasitisherebydenied
forlackoflegalbasis.
AmongthesalesbyVATregisteredpersonswhichare
zerorated are those made to persons or entities
whose exemptions are effectively zerorated under
speciallawsoragreementstowhichthePhilippinesis
a signatory. The exemptions expressly granted are
extended not only to the grantee but also to its
supplier of goods. Example of zerorated sales are
sales of goods to a U.S. Military facility which is
exemptfromsalestaxundertheRPUSMilitaryBases
Agreement. [Sec. 8(b), Revenue Regulations No. 587
implement Sec. 100(a)(2), Tax Code, as amended by
ExecutiveOrderNo.273].
Inviewthereof,theabovesaleofdeionizedwaterby
a local company to a U.S contractor to fulfill the
latter's supply contract with a U.S. Military facility is
subjecttovalueaddedtaxatzeropercent(0%).
The charter of Davao Light is a legislative franchise
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grantedbytheGovernmentofthePhilippinesandisin
thenatureofprivatecontractconstitutingaproperty
right. It stands upon a different footing from the
general laws. The Legislature when granting a
franchise considers such facts and circumstances
which the Act or charter is intended to meet. Having
speciallyconsideredallofthefactsandcircumstances
in the particular case in granting a special charter, it
will not be considered that the Legislature, by
adoptingagenerallawcontainingprovisionrepugnant
to the provisions of the charter, and without making
any mention of its intention to amend or modify the
charter, intended to amend, repeal, or modify the
special act. (Lewis vs. Cook County, 74 111 App. 151;
PhilippineRailwayCo.vs.Nolting,34Phil.401..)Thus,
theenactmentoftheEVATLaw,beinganamendment
to the general law, did not in any way, alter, amend,
nor repeal the terms and conditions of the Charter
under which Davao Light s required to pay 2% of its
grossearning"inlieuofanyandalltaxesofanykind,
nature or description levied, established, or collected
byanyauthoritywhatsoever,municipal,provincial,or
insular, now or in the future, on its franchise rights,
privileges, receipts, revenues and profits, from which
taxesthegranteeisexempted."
Moreover, the provisions of R.A. No. 7716 as further
amended by R.A. No. 8241 specifically subjects
franchise grantee of electric utilities to only two
percent (2%) franchise tax and thereby expressly
exemptingthemfromVAT.
In the light of the foregoing provisions, this Office
herebyholdsthatDavaoLightisexemptfromVATon
itsimportationofmachineries,equipment,spareparts
and implements exclusively used in the business of
generating and selling electric light and power and
shallbesubjectonlytothetwopercent(2%)franchise
tax imposed under Section 117 of the Tax Code of
1997.
13297 but see RMC 25

99
Seebelow.
SUBJECT :
Disseminating the Ruling of the Commissioner of Internal
Revenue on the Noneligibility for VAT ZeroRating of Automobile Sales to
EntitiesRegisteredwithPEZA,SBMAandClarkDevelopmentAuthority
TO
AllInternalRevenueOfficersandOthersConcerned
QuotedhereunderisthememorandumrulingofthisOfficedatedFebruary2,1999
holding that sales of ordinary automobiles to PEZA or SBMA and other ECOZONE
registeredenterprisesarenotentitledtoVATzerorating:
"Thisreferstotheissueofwhetherornotautomobilesuppliersmaybeentitledto
the benefit of VAT zerorating pertaining to their sales of cars to enterprises
registeredwithPEZA,SBMAorCDA.
"Admittedly, we have a previous ruling (BIR Ruling No. DA15397) holding that
salesofautomobilesmaybezeroratedpursuanttotheprovisionofthenSection
100(a)(2)(c) [now Section 106(A)(2)(c)] as implemented by Revenue Regulations
No. 795 that sales to persons and entities whose exemption under special laws,
e.g. RA Nos. 7227 and 7916, effectively subject such sales to zerorate.
Furthermore,withrespecttothesalesofgoodsormerchandisetosuchentities,it
hasbeenwellsettledthatthesameshallbetreatedasexportsalespursuanttothe
provision of Article 77(2) of E.O. 226, otherwise known as the Omnibus
Investments Code, which provision is likewise made applicable to PEZA or SBMA
locators.Thequestionthatnowarisesiswhetherornotitislegallycorrecttohold
thatordinarycars,vehiclesorautomobilesmaybeconsideredembracedwithinthe
definitionof'goodsormerchandise'entitledtothebenefitofzerorating.
"The definition of what comprises merchandise or goods is found under Section
2(ii)ofR.A.7916,asfollows:
"ii.
'MerchandiseorGoods'shallcollectivelyrefertorawmaterials,supplies,
equipment, machineries, spare parts, packaging materials or wares of every
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description to be used in connection with the registered activity of an ECOZONE

enterprise."(Emphasissupplied).
"Theuseofthephrase"tobeusedinconnectionwiththeregisteredactivityofan
ECOZONEenterprise"indescribingwhatcomprisesmerchandiseorgoodsimparts
thepresumptionthatthesamearesomehowutilizedintheproductionactivityof
anECOZONEenterprise.ThisisconfirmedbyreferringtotheRulesandRegulations
toImplementR.A.7916.RuleXVthereofwhichdealswiththeincentivesgrantedto
ECOZONEexportandfreetradeenterprises,provides,thus:
"SECTION1.
Exemption from Duties and Taxes on Merchandise.
Merchandise,rawmaterials,supplies,articles,equipment,machineries,spareparts
and wares of every description brought into the ECOZONE Restricted Area by an
ECOZONEExportorFreeTradeEnterprisetobesold,stored,brokenup,repacked,
assembled,installed,sorted,cleaned,gradedorotherwiseprocessed,manipulated,
manufactured, mixed with foreign or domestic merchandise whether directly or
indirectly related in such activity, shall not be subject to customs and internal
revenue laws and regulations of the Philippines nor to local tax ordinances. . . ."
(Emphasissupplied)
"Applyingtheforegoingprovisions,itwouldnowappearthatcarsorautomobiles
couldnotbepossiblyembracedwithintheclassificationofgoodsormerchandise
entitledtothebenefitoftaxexemption.
"Ontheotherhand,wefindspecificreferencetothekindofvehicleswhichmaybe
extendedsuchtaxexemptionprivilegeandthiscanbelikewisefoundinthesame
RuleXVoftheRulesandRegulationstoImplementR.A.7916inthiswise:
"D.
ImportationofSpecializedVehiclesandOtherTransportationEquipment
Specialized vehicles and other specialized transportation equipment, including
necessary spare part, directly related to the registered activity of the ECOZONE
ExportorFreeTradeEnterprise,maybeimportedexemptfromcustomsdutiesand
taxes only upon prior approval of the Board and with proper clearance from the
appropriate government agency(ies). Otherwise, ordinary vehicles and other
transportation equipment, including necessary spare parts, whenever applicable
shallbeprocuredlocally."(Emphasissupplied)
"The plain meaning and significance of the above provision need no further
constructioninarrivingattheobviousconclusionthat1)onlyspecializedvehicles
may be allowed to be imported free from duties and taxes; and that 2) ordinary
commercial vehicles shall be purchased locally which necessarily includes all
componentdutiesandtaxes.Inthisregard,weagreetotheobservationtakenby
Mrs.ElviraR.Vera,formerChiefoftheRegulatoryOperationsMonitoringDivision,
in her memorandum dated August 3, 1998, as concurred by the present ROMD
Chief,DirectorEnriqueRamos,that:
"PursuanttotheRulesXV,Section1(D)oftheRulesandRegulationsissuedbyPEZA
to implement the Special Economic Zone Act of 1995 (RA No. 7916), exemptions
from the imposition of valueadded tax are being allowed only with respect to
importation of specialized vehicles and other transportation equipment that are
directly related to the registered activity. For example, a registered construction
firmmayimportspecializedvehiclessuchaspayloaders,graders,etc.withoutthe
payment of the valueadded tax. However, exemption does not extend to
importation of service vehicles since the same are not directly related to its
registeredactivityasaconstructioncontractor.Asamatterofpolicy,PEZAisnot
givingtaxincentivesfortheprocurementofvehiclesortransportationequipment
that are not directly connected with the firms' registered activities in view of the
absenceofaneffectivemonitoringsystemtodeterminewhetherthesevehiclesare
indeed being utilized by registered enterprises in the conduct of their registered
activities. It appears, therefore, that with the issuance of the aforementioned
ruling, the BIR is more liberal in the grant of tax incentives to locators inside the
PEZAzone"
"Inviewhereof,theRegulatoryOperationsMonitoringDivisionisherebydirected
to deny all applications for effective zerorating of the sales of automobiles to
enterprises registered with PEZA, SBMA and CDA and other ECOZONES now or
hereinafter established pursuant to RA Nos. 7227 and 7916. All BIR rulings and
issuances inconsistent with this directive are hereby revoked, superseded or
modified accordingly, subject to the nonretroactivity provision of Section 246 of
theTaxCode1997."
AllinternalrevenueofficersandemployeesareherebydirectedtogivethisCircular
thewidestpublicitypossible.
TransactionsDeemedSale
TheCommissionerofInternalRevenueshalldeterminetheappropriatetax
baseincaseswhereatransactionisdeemedasale,barterorexchangeof
goodsorproperties,orwherethegrosssellingpriceisunreasonablylower
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thantheactualmarketvalue.
Thegrosssellingpriceisunreasonablylowerthantheactualmarketvalueif
itislowerbymorethan30%oftheactualmarketvalueofthesamegoods
of the same quantity and quality sold in the immediate locality on or
nearestthedateofsale.
Nonetheless, if one of the parties in the transaction is the government as
definedandcontemplatedundertheAdministrativeCode,theoutputVAT
onthetransactionshallbebasedontheactualsellingprice.
RememberthattradediscountsmaybebasisforreductionofoutputVAT
butnottradereturns
Barterorexchangeofgoodsorproperties,orwherethegrosssellingprice
is unreasonably lower than the actual market value, the Commissioner
shalldeterminetheappropriatetaxbasefor10%
Thefollowingtransactionsaredeemedsale:
1. Transfer,use,orconsumptionnotinthecourseofbusinessof
goodsorpropertiesoriginallyintendedforsaleorforuseinthe
courseofbusiness
2. Distributionortransfertostockholdersorinvestorsassharein
theprofitsofthevatregisteredperson
3. Distributionortransfertocreditorsinpaymentofdebt
4. Consignment of goods if actual sale isnt made within 60 days
followingthedatesuchgoodswereconsigned
5. Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation
ConsumptionofInventory
Originally intended for sale but used or consumed for personal use of
taxpayerisconsideredtobedeemedsale
RetirementFromBusiness
Merchandise inventory left at the retirement of business is deemed sales
forVATpurposes
It gave rise to input VAT credit when acquired, which may have been
claimedbyVATregisteredperson
BIRRuling6393
Accordingly, the transfer by SLRDC and STRDC of all their assets and liabilities to
SLIC solely in exchange for the latter's shares of stock shall not give rise to the
recognitionofgainorlosspursuanttoSection34(c)(2)oftheTaxCode.Nogainor
lossshallberecognizedtoSLRDCandSTRDCuponthedistributionofSLICsharesto
SLRDC and STRDC stockholders in complete redemption of their stocks under
Section34(c)(2)oftheTaxCode.NogainorlossshallberecognizedtoSLRDCand
STRDCstockholdersupontheexchangeoftheirstockssolelyforSLICstocksunder
Section34(c)(20)oftheTaxCode,asamended.
The basis of the assets received by SLIC shall be the same as it would be in the
handsofSLRDCandSTRDC.ThebasisofSLICstocksreceivedbythestockholdersof
SLRDC and STRDC shall be the same as the basis of the SLRDC and STRDC stocks
surrenderedinexchangetherefor.
IfthetotalliabilitiestobeassumedbySLICuponeffectivemergerdateexceedthe
historicalororiginalacquisitioncost(costbasis)oftheassetstransferredbySLRDC
and STRDC, the excess shall be recognized as gain to SLRDC and STRDC (Section
34(c)(4)(b),TaxCode,asamendedbyP.D.No.1773)
Moreover,youropiniontotheeffectthat
(1)Thatthetransferoftheassets,includingtangibleandmovableproperties,by
SLRDCandSTRDCtoSLICpursuanttothemergerwillnotbesubjecttothevalue
addedtaxandanyunusedinputtaxofSLRDCandSTRDCasoftheeffectivedateof
merger, will be absorbed by SLIC as surving corporation, pursuant to Section
5(b)(3)ofRevenueRegulationsNo.587;
(2)ThattheoriginalissuesofthecertificatesofstockofSLICtoSTRDCstockholders
will be subject to the documentary stamp tax imposed by Section 175 of the Tax
Code;
(3) That the transfer of the real properties will be subject to the documentary
stamp tax imposed by Section 196 of the Tax Code, as amended, are hereby
confirmed.
Itisunderstood,however,thatuponthesubsequentsaleorexchangeoftheassets
or shares of stock acquired by the parties, the gain derived from such sale or
exchangeshallbesubjecttoincometax.
Theabovementionedtransactionsshallnotbesubjecttothegifttaxasthereisno
intentiontodonateonthepartofanyoftheparties.
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However, in order that the abovedescribed reorganization can be considered as

merger under Section 34(c)(2) of the Tax Code, the parties to the merger should
complywiththefollowingrequirements:
A. The plan of reorganization should be adopted by each of the corporations,
parties thereto, the adoption being shown by the acts of its duly constituted
responsible officers and appearing upon the official records of the corporation.
Each corporation, which is a party to the reorganization, shall file, as part of its
return for the taxable year within which the reorganization occurred a complete
statementofallfactspertinenttothenonrecognitionofgainorlossinconnection
withthereorganization,including:
(1) A copy of the plan of reorganization, together with a statement, executed
underthepenaltiesofperjury,showinginfullthepurposesthereofandindetailall
transactionsincidentto,orpursuanttotheplan.
(2) A complete statement of all cost or other basis of all property, including all
stocksorsecurities,transferredincidenttotheplan.
(3)Astatementoftheamountofstockorsecuritiesandotherpropertyormoney
received from the exchange, including a statement of all distribution of other
dispositionmadethereof.Theamountofeachkindofstockorsecuritiesandother
property received shall be stated on the basis of the fair market value thereof at
thedateoftheexchange.
(4) A statement of the amount and nature of any liabilities assumed upon the
exchange,andtheamountandnatureofanyliabilitiestowhichanyoftheproperty
acquiredintheexchangeissubject.
B. Every taxpayer, other than a corporation, party to the reorganization, who

receivedstockorsecuritiesandotherpropertyormoneyuponataxfreeexchange
in connection with a corporate reorganization shall incorporate in his income tax
return for the taxable year in which the exchange takes place a complete
statement of all facts pertinent to the nonrecognition of gain or loss upon such
exchangeincluding:
(1)Astatementofthecostorotherbasisofthestockorsecuritiestransferredin
theexchange;and
(2)Astatementinfulloftheamountofstockorsecuritiesandotherproperlyor
money received from the exchange, including any liabilities assumed upon the
exchange, and any liabilities to which property received is subject The amount of
eachkindofstockorsecuritiesandotherproperty(otherliabilitiesassumedupon
the exchange) received shall be set forth upon the basis of the fair market value
thereofatthedateoftheexchange.
C. Permanent records in substantial form shall be kept by every taxpayer who

participates in a taxfree exchange in connection with a corporate reorganization
showing the cost or other basis of the transferred property or money received
(includinganyliabilitiesassumedontheexchange,oranyliabilitiestowhichanyof
the properties received were subject), in order to facilitate the determination of
gain or loss from subsequent disposition of such stock of securities and other
propertyreceivedfromtheexchange,(par.98038,FH963,ed.,p.9611)
Inadditiontotheforegoingrequirements,permanentrecordsinsubstantialform
must be kept by the corporation participating in the merger showing the
information listed above in order to facilitate the determination of gain or loss
from a subsequent disposition of the stock received as a consequence of the
merger.
BIRRuling47293
MergersandConsolidations
THCandBRCexecutedaPlanofMergerwherebyBRCis
the surviving corporation; that with the merging of the
twocorporations,theoutstandingsharesofstockofTHC
shall,aftertheeffectivemergerdateanduponsurrender
by the registered owners of the shares of stock, be
exchanged with shares of stock of BRC at the ratio of
eight (8) shares of BRC for one (1) share of THC, as
determinedonthebasisoftheamountofthenetassets
of THC, as of July 31, 1993; that upon effective merger
date, THC's corporate existence shall cease and all its
rights,privilegespowersandfranchises,allitsproperties,
real and personal, including receivables on whatever
account,andallandeveryotherinterestofTHCshallbe
assumedby,andbevestedinBRCwithoutfurtheractor
deed; that all debts, liabilities and obligations of THC in
theamountofP37,216,936.00,aswellaspendingclaims,
actions and proceedings shall likewise vest in, attach to
and be assumed by 13RC, and may be enforced against
BRCasiftheyhadbeenoriginallycontractedorincurred
by it without further act or deed; and that the merger
will achieve mutually advantageous and beneficial
business purposes, such as but not limited to (1)
increased financial strength; and (2) rationalization of
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RR795,Sec.4.100.5
overall business expenses, particularly administrative

expenses.
HELD:
Accordingly, the transfer by THC of all its assets and
liabilitiestoBRCsolelyinexchangeforthelatter'sshares
of stock shall not give rise to the recognition of gain or
loss pursuant to Section 34(c) (2) of the Tax Code. No
gain or loss shall be recognized to THC upon the
distribution of BRC shares to THC stockholders in
completeredemptionoftheirstockssolelyforBRCstocks
underSection34(c)oftheTaxCode.
ThebasisoftheassetsreceivedbyBRCshallbethesame
asitwouldbeinthehandsofTHC.ThebasisoftheBRC
stocks received by the stockholders of THC shall be the
same as the basis of the THC stocks surrendered in
exchangetherefor.
If the total liabilities to be assumed by BRC upon
effective merger date exceed the historical or original
acquisition cost (cost basis) of the assets transferred by
THC, the excess shall be recognized as gain of THC
[Section34(c)(4)(b),TaxCode,asamendedbyP.D.No.
1773].
Itisunderstood,however,thatuponthesubsequentsale
orexchangeoftheassetsorsharesofstockacquiredby
theparties,thegainderivedfromsuchsaleorexchange
shallbesubjecttoincometax.
The Agreement of Merger executed by BRC and THC is
notsubjecttodocumentarystamptax.
Changes in or cessation of status as a VATregistered

person.
a)Subjecttotax.Thevalueaddedtaxprovidedforin
Sections100and102oftheCodeshallapplytoservices,
goods, or properties originally intended for sale or for
useinbusinessandcapitalgoodswhichareexistingasof
theoccurrenceofthefollowing:
(1)
Change of business activity from valueadded
ButseeRMC1999
statustoexemptstatus.AnexampleisaVATregistered
person engaged in a taxable activity like wholesaler or
retailer who decides to discontinue such activity and
engagesinsteadinlifeinsurancebusinessorinanyother
businessnotsubjecttoVAT;
(2)
Approval of a request for cancellation of
registrationduetoreversiontoexemptstatus.
(3)
registration due to a desire to revert to exempt status
after the lapse of two (2) consecutive years from the
time of registration by a person who voluntarily
registeredinspiteofbeingexemptunderSection103(a),
(b), (c) and (d) of the Code with respect to his export
salesonly,andSection103(t)oftheCode.
(4)
registration of one who commenced business with the
expectation of gross sales or receipts exceeding
P500,000.00butwhofailedtoexceedthisamountduring
thefirsttwelvemonthsofoperation.
(b)
Notsubjecttooutputtax.TheVATshallnot
apply to goods or properties existing as of the
occurrencesofthefollowing:
1)
Change of control of a corporation by the
acquisitionofthecontrollinginterestofsuchcorporation
by another stockholder or group of stockholder,
Example: transfer of property to a corporation in
exchange for its shares of stock under Section
34(c)(2)and(6)(c)oftheCode.
2)
Change in the trade or corporate name of the
business;
3)
Merger or consolidation of corporations. The
unused input tax of the dissolved corporation as of the
dateofmergerorconsolidatedshallbeabsorbedbythe
survivingornewcorporation.
The absorbed corporation, upon the merger, ceases or

retires from doing business, so that its merchandise
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inventory transferred to the surviving corporation, by

clearprovisionoflaw,is"deemedsale"forVATpurposes
(Section106,(B)(4),TaxReformCode).Theunusedinput
taxes of the absorbed corporations cannot legally be
transferred to the surviving corporation for the latter's
use as tax credits to its output VAT. This could only be
usedastaxcredittotheVATpaymentsoftheabsorbed
corporationsandthesameisnottransferabletoaparty
not privy to the contracts from where the input taxes
arose (Section 110 (A) (2) (a) of Tax Code, supra., as
implemented by Section 4.1041 (d) of Revenue
Regulations No. 795). In other words, only the direct
buyers of goods/services to whom the input taxes were
"passed on" could avail of the right to tax credit. Under
theVATlaw,theabsorbedentityshouldpaytheVATon
themerchandiseinventory,therebeinga"deemedsale"
transaction, after tax crediting the corresponding input
taxes,withtherighttoclaimrefund,iftheinputexceeds
the output tax. If the output tax is paid, this may be
"passedon"tothesurvivingcorporationforitsuseastax
credit.
DeterminationOfTax:InvoicingRequirements
AVATregisteredpersonshallissue
1. AVATinvoiceforeverysale,barterorexchangeofgoodsorproperties;
2. AVATofficialreceiptforeveryleaseofgoodsorproperties,andforevery
sale,barterorexchangeofservices.
OnlyVATregisteredpersonsarerequiredtoprinttheirTINfollowedbythe
wordVATintheirinvoiceorofficialreceipts.Saiddocumentsshallbe
considered as a VAT Invoice or VAT official receipt. All purchases
coveredbyinvoices/receiptsotherthanVATInvoice/VATOfficialReceipt
shallnotgiverisetoanyinputtax.
VATinvoice/officialreceiptshallbepreparedatleastinduplicate,the
originaltobegiventothebuyerandtheduplicatetoberetainedbythe
selleraspartofhisaccountingrecords.
InformationContainedinVATinvoiceorreceipt
(1) AstatementthatthesellerisaVATregisteredperson,followedbyhis
TIN;
(2) Thetotalamountwhichthepurchaserpaysorisobligatedtopaytothe
sellerwiththeindicationthatsuchamountincludestheVAT;Provided,
That:
1. Theamountoftaxshallbeshownasaseparateiteminthe
invoiceorreceipt;
2. IfthesaleisexemptfromVAT,thetermVATexemptsale
shallbewrittenorprintedprominentlyontheinvoiceor
receipt;
3. Ifthesaleissubjecttozeropercent(0%)VAT,thetermzero
ratedsaleshallbewrittenorprintedprominentlyonthe
invoiceorreceipt;
4. Ifthesaleinvolvesgoods,propertiesorservicessomeofwhich
aresubjecttoandsomeofwhichareVATzeroratedorVAT
exempt,theinvoiceorreceiptshallclearlyindicatethebreak
downofthesalepricebetweenitstaxable,exemptandzero
ratedcomponents,andthecalculationoftheVAToneach
portionofthesaleshallbeshownontheinvoiceorreceipt.
Thesellerhastheoptiontoissueseparateinvoicesorreceipts
forthetaxable,exempt,andzeroratedcomponentsofthe
sale.
(3) Inthecaseofsalesintheamountofonethousandpesos(P1,000.00)or
morewherethesaleortransferismadetoaVATregisteredperson,the
name,businessstyle,ifany,addressandTINofthepurchaser,customer
orclient,shallbeindicatedinadditiontotheinformationrequiredin(1)
and(2)ofthisSection.
IssuanceofVATInvoiceByaNonVATPerson
IfapersonwhoisnotVATregisteredissuesaninvoiceorreceiptshowinghisTIN,
followedbythewordVAT,theerroneousissuanceshallresulttothefollowing:
(1) ThenonVATpersonshallbeliableto:
1. thepercentagetaxesapplicabletohistransactions;
2. VATdueonthetransactionsunderSec.106or108oftheTax
Code,withoutthebenefitofanyinputtaxcredit;and
3. a50%surchargeunderSec.248(B)oftheTaxCode;
(2) VATshallberecognizedasaninputtaxcredittothepurchaserunderSec.
110 of the Tax Code, provided the requisite information required under
Subsection 4.113 (B) of these Regulations is shown on the invoice or
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receipt.
Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by a VAT

registeredPerson
IfaVATregisteredpersonissuesaVATinvoiceorVATofficialreceiptfora
VATexempt transaction, but fails to display prominently on the invoice
or receipt the words VATexempt sale, the transaction shall become
taxableandtheissuershallbeliabletopayVATthereon.
Thepurchasershallbeentitledtoclaimaninputtaxcreditonhispurchase.
VATonImportations(Section107)
There shall be levied, assessed and collected on every importation of

goodsavalueaddedtaxequivalentto12%basedonthetotalvalueused
by the Bureau of Customs in determining tariff and customs duties plus
customs duties, excise taxes, if any, and other charges, such tax to be
paid by the importer prior to the release of such goods from customs
custody:Provided,Thatwherethecustomsdutiesaredeterminedonthe
basisofthequantityorvolumeofthegoods,thevalueaddedtaxshallbe
basedonthelandedcostplusexcisetaxes,Ifany.
In the case of taxfree importation of goods into the Philippines by

persons, entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to non
exemptpersonsorentities,thepurchasers,transfereesorrecipientsshall
beconsideredtheimportersthereof,whoshallbeliableforanyinternal
revenuetaxonsuchimportation.Thetaxdueonsuchimportationshall
constitute a lien on the goods superior to all charges or liens on the
goods,irrespectiveofthepossessorthereof.
Firstthingyouask:whoisimportingthegoods?Next,isthegoodbeing
importedsubjecttoSection109orexempttransactions?
Ifthegoodsareimportedbyexemptentitiesandlaterontransferredtoa
nonexemptentity,theVATwouldbecollectedfromthem
InGeneral
BIRRuling7298,supra
Moreover,theprovisionsofR.A.No.7716asfurther
amended by R.A. No. 8241 specifically subjects
franchise grantee of electric utilities to only two
percent (2%) franchise tax and thereby expressly
exemptingthemfromVAT.
8896
88160
88193
In the light of the foregoing provisions, this Office

hereby holds that Davao Light is exempt from VAT
onitsimportationofmachineries,equipment,spare
parts and implements exclusively used in the
business of generating and selling electric light and
powerandshallbesubjectonlytothetwopercent
(2%)franchisetaximposedunderSection117ofthe
TaxCodeof1997.
As importer of Industrial Essential Oil, Artificial

Flavour and Food Additives (DC Compound 05888),
yourclientissubjecttothevalueaddedtax(VAT)at
therateof10%basedonthetotalvalueusedbythe
Bureau of Customs in determining tariff and
customs duties, plus customs duties and other
chargespursuanttoSection101oftheTaxCodeits
amendedbyExecutiveOrderNo.273.Saidarticles,
however,arenotsubjecttotheexcisetaximposed
underSection150(b)ofthesameCodeandSection
145thereof.
Your imported Liquid Glucose Feedgrade and

Sulfadaminefeedadditiveswhicharerawmaterials
in the manufacture of poultry feeds are subject to
valueadded tax equivalent to 10% based on the
total value used by the Bureau of Customs in
determiningtariffandcustomsduties,pluscustoms
duties,excisetaxes,ifany,andothercharges,such
taxtobepaidbytheimporterpriortothereleaseof
such goods from customs custody, pursuant to
Section 101(a) of the Tax Code as amended by
Executive Order No. 273. This is so because under
Section l03(c) of the same Code, the exemption
covers only the importation of manufactured fish,
animalandpoultryfeedsbutnottherawmaterials
usedinthemanufactureofsaidfeeds.
Under Section 103(c) of the same Code, the
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8813
12898
exemption covers only the manufactured fish,

animalandpoultryfeedsandnottherawmaterials
used in the manufacture of said feeds as in the
instantcase.
Youhaveimportedforpersonaluseonlyoneunitof
1982Fiat132havingadutiablevalueinpesosinthe
amountofP49,911.04.
In reply, please be informed that based on the

foregoing information, you are subject to both ad
valoremandvalueaddedtaxinaccordancewiththe
followingcomputations:
ExciseTax
Dutiablevalueinpesos.........................P49,911.04
Customsduty............................................24,955.51
OtherCharges............................................2,365.18
P77,231.73
Plus:10%...................................................7,723.17
P84,954.90
35%AdValoremtax29,734.00
ForVAT
Dutiablevalueinpesos..........................P49,911.00
Customsduty...........................................24,956.00
ExciseTax.................................................29,734.00
OtherCharges............................................2,365.18
P106,966.00
10%VAT................................................P10,697.00
SUMMARY
Excisetax.........................................P29,734.00
VAT...................................................10,697.00
P40,431.00
ImportationofBanolewhichisusedasfungicideto
combat banana sigatoka diseases and not to
generatepowerorenergytobeusedasfuel,isnot
subject to the excise tax imposed under Section
148(a) of the Tax Code of 1997. It goes without
saying that the certification of the Fertilizer &
16398
Pesticide Authority to the effect that Banole is an

agricultural chemical is entitled to great respect it
being the competent government agency to
determinetheproperclassificationofBanole.
Section 17 of Republic Act No. 79136, otherwise

knownastheThriftBanksActof1955,providesthat
all thrift banks created and organized under the
provisions of the Act and thrift banks already in
operation as of the date of effectivity thereof on
March18,1995shallbeexemptfromthepayment
of all taxes, fees and charges of whatever nature
anddescription,exceptcorporateincometaxesand
local taxes, fees and charges. The exemption shall
be for a period of five (5) years from the date of
commencementofoperation;whileforthriftbanks
arealreadyexistingandoperatingasofthedateof
effectivity of the Act (March 18, 1995), the tax
exemption shall be for a period of five (5) years
reckonedfromthedateofsucheffectivity,provided
that the said tax exemption shall continue to be in
force and effect only until December 31, 1999
therebysubjectingallthriftbankstotaxes,feesand
chargesinthesamemannerandatthesamerateas
banksandotherfinanialintermediariespursuantto
Section7ofR.A.No.8424,otherwiseknownasthe
TaxReformActof1997.
VAT on importations under Section 107(A) of the

TaxCodeof1997isnotataxontheoperationofthe
thrift bank. It is a tax on the privilege of importing
goods whether or not the taxpayer is engaged in
business, and regardless of whether the imported
goodsareintendedforsale,barterorexchange,or
forpersonaluse.Inotherwords,VATunderSection
107(A) of the Tax Code of 1997 replaced the
advance sale tax and compensating tax under then
Sections183(b)and199,respectively,oftheoldTax
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10095
VATonSaleofServices
There shall be levied, assessed and collected, a valueadded tax

equivalentto12%ofgrossreceiptsderivedfromthesaleorexchangeof
services,includingtheuseorleaseofproperties.
SaleOrExchangeOfServices
It means the performance of all kinds or services in the Philippines for

others for a fee, remuneration or consideration, including those
performedorrenderedby
o Constructionandservicecontractors;
o Stock, real estate, commercial, customs and immigration
brokers;
o Lessors of property, whether personal or real; warehousing
services;
o Lessorsordistributorsofcinematographicfilms;
o Persons engaged in milling, processing, manufacturing or
repackinggoodsforothers;
Proprietors, operators or keepers of hotels, motels, rest

houses,pensionhouses,inns,resorts;
o Proprietors or operators of restaurants, refreshment parlors,
cafesandothereatingplaces,includingclubsandcaterers;
o Dealersinsecurities;
o Lendinginvestors;
o Transportation contractors on their transport of goods or
cargoes,includingpersonswhotransportgoodsorcargoesfor
hireandotherdomesticcommoncarriersbyland,airandwater
relativetotheirtransportofgoodsorcargoes;
o Servicesoffranchisegranteesoftelephoneandtelegraph,radio
and television broadcasting and all other franchise grantees
exceptthoseundersection119ofthiscode;
o Services of banks, nonbank financial intermediaries and
financecompanies;
o And nonlife insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding
companies;
o And similar services regardless of whether or not the
performancethereofcallsfortheexerciseoruseofthephysical
ormentalfaculties.
Itshalllikewiseinclude:
(1) Theleaseortheuseofortherightorprivilegetouseanycopyright,
patent, design or model, plan secret formula or process, goodwill,
trademark,tradebrandorotherlikepropertyorright;
(2) The lease of the use of, or the right to use of any industrial,
commercialorscientificequipment;
(3) The supply of scientific, technical, industrial or commercial
knowledgeorinformation;
(4) Thesupplyofanyassistancethatisancillaryandsubsidiarytoandis
furnished as a means of enabling the application or enjoyment of
any such property, or right as is mentioned in subparagraph (2) or
anysuchknowledgeorinformationasismentionedinsubparagraph
(3);
(5) The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the
installationoroperationofanybrand,machineryorotherapparatus
purchasedfromsuchnonresidentperson.
o
Code. Accordingly, your exemption from taxes

under Republic Act No. 7906 does not include VAT
onimportationunder the saidSection107(A)ofthe
TaxCode.
TransfersofGoodsbyTaxExemptEntities
Ataxfreevehicleacquiredandsubsequentlysoldby
ataxexemptentitytoanonexemptpersonshallbe
subject to VAT and to the excise tax, respectively.
Accordingly,sincea1991ModelToyotaCorollafalls
under the category of automobile, when sold by a
taxexempt person to a nonexempt person, the
latter shall become the person liable to the unpaid
VAT and ad valorem tax. In other words, as the
transferee of the aforesaid vehicle, you are the
persondirectlyliabletotheVATandadvaloremtax
pursuant to Sections 101(b) and 149 in relation to
Section128oftheTaxCode,asamended.
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(6) The supply of technical advice, assistance or services rendered in

connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project or
scheme;
(7) Theleaseofmotionpicturefilms,films,tapesanddiscs;and
(8) Theleaseortheuseofortherighttouseradio,television,satellite
transmissionandcabletelevisiontime.
Lease of properties shall be subject to the tax herein imposed
irrespective of the place where the contract of lease or licensing
agreement was executed if the property is leased or used in the
Philippines.
Grossreceipts
It means the total amount of money or its equivalent representing the

contractprice,compensation,servicefee,rentalorroyalty,includingthe
amount charged for materials supplied with the services and deposits
and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for
anotherperson,excludingvalueaddedtax.
SaleorExchangeofServices
BIRRuling0297
Pursuant to Section 102(a) of the Tax Code, as
amended by Republic Act No. 7716, and as
implemented by Section 1021 of Revenue
RegulationsNo.795,grossreceiptsofconstruction
and service contractors like the MTOB Consortium
are subject to VAT. (BIR Ruling No. 27492 dated
September 30, 1992). Moreover, under Section
102(b)(2) of the Tax Code. as amended, and as
implemented by Section 4, 1022(b)(2) of Revenue
RegulationsNo.795asamendedbyR.R.596dated
February 20, 1996 provides that services by a
resident to a nonresident foreign client such as
project studies, information services, engineering
andarchitecturaldesignsandothersimilarservices,
theconsiderationforwhichispaidforinacceptable
foreign currency and accounted for in accordance
with the rules and regulations of the BSP shall be
subject to 017c VAT. Accordingly, although 75% of

NAIA 11 Terminal Construction Project is foreign
fundedbytheOECFofJapan,grossreceiptsderived
therefrom. inclding the OECF portion, shall remain
subject to 10% VAT since the services being
performed by the residents, in this case the MTOB
consortium members, are not for a nonresident
foreignclientsbutforMIAA.Grossreceiptsderived
from the 25% peso portion of the project shall be
subject to the 10% VAT also. Consequently, since
MIAAisagovernmentagency,itshallwithholdthe
6% creditable VAT on its gross payments to the
MTOB consortium pertaining to both the 75%
foreigncurrencyfundedportion,includingtheOECF
peso portion, and the 25% peso portion of the
project pursuant to Republic Act No. 7649 and as
implemented by Revenue Regulations 1093. (Sec.
4.1103,R.R.No.795).
The subsequent disbursernents to the MTOB

consortium members of their share in the revenue
from the NAIA 11 Terminal Construction Project
shallnolongerbesubjecttoVATandconsequently
to the 6% withholding creditable VAT since they
representthesamepaymentstoMIAAforthesame
saleofservicealreadysubjectedtothe10%VATand
6%withholdingVATattheMTOBconsortiumlevel.
The expanded VAT law and its implementing

regulationsdonotprohibitconsortiummembersto
enter into separate contracts or subcontracts with
third parties or subcontractors for their respective
scopeofworkintheNAIA11TerminalConstruction
Project. Section 4.1042 of Revenue Regulations
No.795,however,requiresthatinputtaxcrediton
purchases of goods and services shall be creditable
onlytothepurchaserofgoodsandservices.Thus,to
enable MTOB consortium to credit to its output
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VAT, the input VAT derived from the separate

domestic purchases of goods and services by the
consortium members, the invoices and/or receipts
issued by the third parties or subcontractors must
be issued to the MTOB consortium. Your following
proposalthattheinvoiceand/orofficialreceiptwill
indicatethepurchaserofthegoodsand/orservices
asfollows:
"Soldto(nameofconsortiummembers)asmember
of MTOB Consortium" that the VATregistered
invoicewillstateasfollows:
DescriptionofArticles
UnitPriceTotal
000
"For the specific scope of work of (name of
consortium member) for the NAIA 11 Terminal
ConstructionProjectIl."andthattheVATregistered
officialreceiptswillstateasfollows:
"Receivedtheamountofaspaymentforservicesof
(nameofconsortiummember)asmemberofMTOB
Consortium for its specific scope of work." is
acceptable to this Office to enable the MTOB
ConsortiumtoclaimtheinputVATagainstitsoutput
VAT.
Inaddition,tosupporttheMTOBConsortiuminput
tax credit, the VATregistered invoices and/or
receipts issued by the third parties or sub
contractors must comply with the invoicing
requirements as provided in Section 108(a) of the
Tax Code, as amended. It is axiomatic that any
unutilizedinputVATofMTOBConsortiumcannotbe
treated/recognized as cost by the different
consortium members for income tax purposes. The
unapplied input VAT of the MTOB Consortium, if
any, maybe the subject of a tax credit/refund
pursuanttoSec.4.1061ofR.R.795.
ButseeRMC3299
Furthermore, pursuant to Section 20(b) of the Tax

Code, as amended, the term corporation includes
partnerships, no matter how created or organized,
joint stock companies, joint accounts (cuentas en
participacion),associationsorinsurancecompanies,
but does not include general professional
partnerships and a joint venture or consortium
formedforthepurposeofundertakingconstruction
projects,orengaginginpetroleum,coal,geothermal
and other energy operations pursuant to an
operatingorconsortiumagreementunderaservice
contract with the Government. Thus, it is our
opinion that the MTOB consortium members are
separately subject to the regular corporate income
taxontheirtaxableincomeduringeachtaxableyear
respectively derived by them from the aforesaid
construcion project. (BIR Ruling No. 1096 dated
January 23, 1996). The same contracts with third
partiesorsubcontractorsandtheVATandnonVAT
registeredsalesinvoicesand/orofficialreceiptswill
supporttherespectivebusiness,expenseofeachof
the consortium members as deductions from their
grossincome.
Japanese contractors undertaking OECFfunded

projects in the Philippines are not liable to
Philippine taxes. They are exempt from VAT
imposed under Sections 106(A) and 108(A) both of
the Tax Code of 1997 on their supply of materials
and services relative to the OECFfunded project.
Consequently, they are exempt from the eight and
one half percent (8.5%) creditable value added tax
imposed under Section 114(C) of the Tax Code of
1997. They are also exempt from the one percent
(1%) expanded withholding tax imposed under
Section 2.57.2(E) of Revenue Regulations No. 298
implementing Section 57(B) of the Tax Code of
1997.
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3399
Allrevenueofficialsandemployeesareenjoinedto
givethisCircularaswideapublicityaspossible.
The "Special Economic Zone Act of 1995" provides

that no taxes, local and national, shall be imposed
on business establishments operating within the
Ecozone.Inlieuofpayingtaxes,fivepercent(5%)of
the gross income earned by all businesses and
enterpriseswithintheEcozoneshallberemittedto
thenationalgovernment.
Moreover, Section 4(A)(e) of Revenue Regulations

No. 195, otherwise known as the Rules aW
Regulations implementing the tax incentives
provisions under paragraphs (h) and (c) of Section
12,RepublicActNo.7227,otherwiseknownasthe
'Bases Conversion and Development Act of 1992 ",
reads:
"SEC.4.EXEMPTIONSANDINCENTIVES.
"A. All SBMAregistered enterprises doing business
withintheSecuredAreaintheZoneshallenjoythe
following:
xxxxxxxxxxxx
"c) Purchases of raw materials, capital goods and
services by the SBMA and SBFaccredited
enterprises, from enterprises in the Customs
territory shall be considered effectively zerorated
for VAT purposes. However, the VATregistered
enterprises in the Customs territory shall apply for
effective zerorating of their sales of goods and
servicestoSBMAandtoSBFenterprisespursuantto
RevenueRegulationsNo.587,asamended."
FromtheforegoingprovisionofR.A.No.7916,itis
clear that the sale of services to PEZAregistered
enterprises, for income and VAT purposes, should
be rendered within the PEZA boundaries to be
entitled to the benefits of Section 24 of R. A. No,
5598
8398
7916. Accordingly, and since your Liaison office

space and Expats house are located outside the
PEZA bondaries, the lease thereof is therefore
subjecttothe10%VATimposedunderthenSection
102(a)[now Section 108(a)] of the Tax Code, as
amended, and to the corporate income tax
prescribed under then Section 24(a)[now Section
27(A)]oftheTaxCode,asamended.
Moreover,purchasesofservicesbySBMAandSBF
accredited enterprises from enterprises in the
customs territory should be rendered within the
secured area in the zone to be considered
effectivelyzeroratedforVATpurposes.
Commonstonefallsunderthedefinitionof"Quarry
sources"asdefinedinSection151(B)(4)oftheTax
Codeof1997,RevenueRegulationsNo.1394dated
July20,1994whichgovernstheimpositionofexcise
taxes on minerals and mineral products also
containsthesamedefinitionof"quarryresources".
Such being the case, boulders or stones cannot be

consideredasnonfoodagriculturalproductsintheir
original state, in which case, said products are
subjectto2%excisetaxbasedontheactualmarket
value of the gross output thereof at the time of
removal, pursuant to Section 151(A)(2) of the Tax
Codeof1997.Inaddition,saidproductsaresubject
to 10% VAT imposed under Section 106(A) of the
sameCode.
UnderthemostfavorednationprovisionoftheRP
USTaxTreaty(Article13,paragraph2(b)(iii)],thetax
imposable on royalties by a resident of the United
States from sources within the Philippines shall be
the lowest rate of Philippine tax that may be
imposed on royalties of the same kind paid under
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similarcircumstancestoaresidentofaThirdState.
Article 12, paragraph 2(b) of the RPWest Germany
Tax Treaty, effective January 1, 1985, provides that
royalties arising in the Philippines and paid to a
residentofWestGermanymayalsobetaxedinthe
Philippines,butthetaxsochargedshallnotexceed
10% of the gross amount of royalties arising from
the use of, or the right to use, any patent,
trademark, design or commercial or scientific
equipmentorforinformationconcerningindustrial,
commercialofscientificexperience.Thesaidtreaty
also provides that for as long as the transfer of
technology under Philippine law is subject to
approval, the limitations of the tax rate mentioned
underArticle12(2)(b)oftheRPGermanyTaxTreaty
shall,inthecaseofroyaltiesarisingintheRepublic
of the Philippines, only apply if the contract giving
rise to such royalties has been approved by the
Philippinecompetentauthorities.
Such being the case, and inasmuch as the

Development and Multiple Shop Franchise
AgreementbetweenAAIandPPIhasbeenapproved
by the Bureau of Patents, Trademarks and
Technology Transfer of the Department of Trade
andIndustry,royaltiesarisinginthePhilippinesand
payable by your client, AAI, are subject to the
Philippinetaxattherateof10%pursuanttoArticle
13(2)(b)(iii) of the RPUS Tax Treaty in relation to
Article12(2)(b)oftheRPWestGermanyTaxTreaty.
Thesaidtaxshallbewithheldandpaidinthesame
manner and subject to the same condition as
provided in Section 50(b) of the Tax Code, as
amended. (BIR Ruling No. 00290 dated January 4,
1990).
Moreover, the remittance by PPI to AAI, of 5%

franchise fees arising in the Philippines as royalties
88426
based on gross sales shall be subject to 10% value

added tax pursuant to Section 102(a)(1) of the Tax
Code,asamendedbyRepublicActNo.7716.Section
4. 1021(b) of Revenue Regulations No. 795,
implementingR.A.No.7716,provides,viz:
"Sec. 4.1021. Valueadded tax on the sale of
servicesanduseofproperties.
"(a)xxxXxxXxx
"(b) The VAT on rental and/or royalties payable to
nonresidentforeigncorporationsorownersforthe
saleofservicesanduseorleaseofpropertiesinthe
Philippines shall be based on the contract price
agreed upon by the licensor and the licensee. The
licenseeshallberesponsibleforthepaymentofVAT
on such rentals and/or royalties in behalf of non
resident foreign corporation or owner by filing a
separate VAT declaration/return for this purpose.
The duly validated VAT declaration/return is
sufficient evidence for Petriolas Philippines, Inc. in
claiminginputtaxcreditbythelicensee.
Inviewthereof,PPIshall,beforemakingpaymentof
royalties to AAI, withhold and remit to this Bureau
the 10% VAT due thereon, by filing a separate VAT
return for and in behalf of the said nonresident
foreigncorporation.(Section4.1103(b)ofRevenue
Regulations No. 795). The duly validated VAT
declaration/return is sufficient evidence for
Pretiolas Philippines, Inc. in claiming input tax
credit.
Pursuant to the RPUS Military Bases Agreement,

your sale of services to the U.S. Military Base is
exemptfromVATprovidedthatyoudonotregister
as a VAT taxpayer, in accordance with Section
103(u) of the Tax Code, as amended by Executive
Order No. 273. However, if you register as a VAT
taxpayer, your sale to the U.S. Bases shall be zero
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rated provided you apply for zerorating, pursuant

to Section 102(a)(3) of the same Code. Upon
approval of your application for zerorating, your
billingstotheU.S.MilitaryBaseshallnotincludethe
VAT as contemplated in Section 8(c)(2) of Revenue
RegulationsNo.587.
WithrespecttoBIRRulingNo.15588totheeffect
that VAT applies to reinsurance overriding
commission which can be classified as charge for
service, this Office, after a restudy, believes that
the insurance company deriving said commission is
notasellerbutabuyerofservice.Accordingly,said
insurance company cannot be held liable for VAT
becauseVATappliesonlytosellersofservices.
As regards BIR Ruling No. 18688, the query
propounded therein as to whether reinsurance
commissions are subject to VAT is answered in the
negativeforthereasonthattheinsurancecompany
derivingthesameisabuyer,notasellerofservice.
Under the VAT law, the seller of the service is the
partysubjecttoVAT.
Accordingly,BIRRulingNos.15588and18688are
modified.
1. In acting as commission agent or broker, you

shall fall within the purview of a "commercial
broker". Such being the case, your gross receipts
whatever, shall be subject to 10% valueadded the
case,yourgrossreceiptswhatever,shallbesubject
to 10% valueadded tax (VAT) pursuant to Section
102 of the Tax Code, as amended by E.O. No. 273
and as implemented by Section 3 of Revenue
Regulations No. 587. "Gross receipts menas the
total amount of money or its equivalent
representing the contract price, compensaton or
service fee, including the amount changed for
materialssuppliedwiththeservicesanddepositsor
9448
87335
advance payments actually or constructively

receivedduringthetaxablequarterfortheservices
performed ot to be performed for another person,
excludingvalueaddedtax.[Sec.102(a),TaxCodeas
amended].
2.Likewise,inbuyingandthensellinganyorallof
theaforestatedarticles,youshallbesubjectto10%
VAT based on your gross selling price pursuant to
Section100ofthesaidCode.
3. Finally, in extending credit or advances at
interest to the owners of said articles, you shall be
considered a lending investor subject to 5% tax
based on gross income pursuant to Section 116
(formerlySection175)ofthesamecode.
Moreover, your gross income shall ber subject to
incometaxpursuanttoSection21oftheTaxcode,
asamended.
Records show that under the technical service

agreementbetweenthepurchaserDelMonteFresh
Produce (International), Inc. and its affiliate, Del
MonteFreshProduce(Philippines),Inc.,paymentof
the latter's technical service fees are made by
inward dollar remittances by the purchaser to its
affiliateprovidingtheservicesinthePhilippines.
Accordingly, the service fees derived by Del Monte

Fresh Produce (Philippines), Inc. pursuant to the
contractenteredintowithDelMonteFreshProduce
(International), Inc. shall be subject to VAT at zero
percent,underSection102(a)(2)oftheTaxCode,as
amended.
For leasing your real property located at Mayon

corner Retiro St., Quezon City, you are not subject
tothe4%percentagetaximposedbySection170of
the Tax Code. However, you are considered a real
estatedealersubjecttothefixedtaximposedunder
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8879
8883
88250
Section161(3)(aa)ofthesameCode.
Engineeringconsultationservicesaresubjecttothe
valueadded tax pursuant to Section 102(a) of the
TaxCodeasamendedbyExecutiveOrderNo.273.
A public relations agency is subject to the value

addedtaxof10%onitsgrossreceipts.
Asregardsyourunusedinvoicesorreceipts,allvat
registered persons who have in their possession
invoicesorreceiptsprintedpriortojanuary1,1988,
arerequiredtosubmitaninventoryofsuchinvoices
orreceiptsonorbeforejanuary31,1988indicating
the number of unused booklets and their.
Correspondingserialnumbertotherevenuedistrict
officer who has jurisdiction over its principal place
of business. However, since january 31, 1988 is a
sunday, the last day for filing said inventory is the
nextworkingday,whichwasonfebruary1,1988.
As a vatregistered person, you are required to

stamptheunusedinvoiceswithyourvatregistration
numberwhichyouwilluseinconnectionwithyour
vattaxabletransactions.Thereafter,anysubsequent
printing of receipts or invoices should include your
vatregistrationnumber.
Anypersonwho,inthecourseoftradeorbusiness
rendersservicetothetaximposedinSection102of
the Tax Code. (Sec. 99, Tax Code, as amended by
Executive Order No. 273. Under Section 102, 10%
valueaddedtaxisleviedonanypersonengagedin
the sale of service. The phrase "sale of service"
means performance of all kinds of services for
others for a fee regardless of whether or not the
performancethereofcallsfor,theexerciseoruseof
the physical or mental faculties. Undoubtedly, by
performing professional and management services
88163
88250
88163
toyourmanagedcompanies,youareengagedinthe
sale of services to them. Hence, as you are
rendering service for a fee, you are subject to the
10%valueaddedtax.
YoudonotfallwithinthepurviewofSection103(r)
of the Tax Code which exempts from VAT services
performed in the exercise of profession or calling
subject to the occupation tax under the Local Tax
Code and professional services performed by a
registered general professional partnership. This is
so because your management services are not
Code and that you are a corporation and not a
partnership.
Aprivateemploymentagencyissubjecttothe10%
VAT on the amount of placement fee which for
purposesofthistaxwillnotincludereimbursement
of expenses which shall be limited to fees for
passport/visa, medical examination, clearances,
inoculation,tradeandskilltesting,airportterminal,
performance bond premiums and notary public,
provided that the said expenses are supported by
receipts issued by the supplying company, or
government agency in the name of the applicant
worker.Allotherincomeorreceiptshallbesubject
toVAT.
On the other hand, the agency is required to pay

the 10% VAT on the entire placement fee if the
abovementioned expenses are supported by
receiptsissuedinthenameoftheagency.
Aprivateemploymentagencyissubjecttothe10%
VAT on the amount of placement fee which for
purposesofthistaxwillnotincludereimbursement
of expenses which shall be limited to fees for
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8859
passport/visa, medical examination, clearances,

inoculation,tradeandskilltesting,airportterminal,
performance bond premiums and notary public,
provided that the said expenses are supported by
receipts issued by the supplying company, or
government agency in the name of the applicant
worker.Allotherincomeorreceiptshallbesubject
toVAT.
On the other hand, the agency is required to pay

the 10% VAT on the entire placement fee if the
abovementioned expenses are supported by
receiptsissuedinthenameoftheagency.
As regards the basis of the 10% VAT payable by an

advertising agency, the Department of Finance has
ruled that only 15% of its gross billings, constitute
the gross receipts subject to the contractor's tax
then payable by said agency since this amount is
retained by the agency as its commission from
media. (See 3rd Indorsement dated December 3,
1973 of Acting Secretary Pedro M. Almanzor)
Accordingly, and since the 10% VAT is based on
gross receipts which means the total amount of
money or its equivalent representing the contract
price, compensation or service fee (Section 2(m),
RevenueRegulationsNo.587)said15%ofthegross
billings of an advertising agency, likewise,
constitutes the gross receipts of said agency for
purposesofthe10%VAT.Asregardsthebasisofthe
10% VAT payable by an advertising agency, the
Department of Finance has ruled that only 15% of
its gross billings, constitute the gross receipts
subjecttothecontractor'staxthenpayablebysaid
agencysincethisamountisretainedbytheagency
asitscommissionfrommedia.(See3rdIndorsement
dated December 3, 1973 of Acting Secretary Pedro
M.Almanzor)Accordingly,andsincethe10%VATis
88332
based on gross receipts which means the total

amountofmoneyoritsequivalentrepresentingthe
contractprice,compensationorservicefee(Section
2(m),RevenueRegulationsNo.587)said15%ofthe
gross billings of an advertising agency, likewise,
constitutes the gross receipts of said agency for
purposesofthe10%VAT.
for VAT purposes, lessors or distributors of

cinematographicfilmsaswellascontractorssubject
arenowto4%taximposedbythenSection170of
theTaxCodearenowconsideredasengagedinthe
"sale of services" subject to the 10% VAT. [Sec.
102(a) Tax Code, as amended by Executive Order
No. 273] Accordingly, Section 6(g) of Revenue
RegulationsNo.587implementingtheprovisionsof
ExecutiveOrderNo.273whichstatesthatamounts
dueoncontractscompletedonorbeforeDecember
31, 1987, payments of which are receivable on or
afterJanuaryl,1983,shallbeconsideredasaccrued
as of December 31, 1987 for purposes of the
paymentofthecontractor'staxof4%shallapplyto
cinematographic film owners, lessors and
distributors subject to the following conditions
statedtherein:
a) filing of an information return showing the

name(s) of the contractee(s) and the amount(s) of
the contract price outstanding as of December 31,
1987,andcontainingadeclarationoftheobligation
topaythecontractor'staxdue;
b) billing of the unpaid amount not later than

December 31, 1987 by the contractor and copy of
suchbillingtobeattachedtotheinformationreturn
hereinrequired,
c) recording of the amount receivable in the books
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RR12003
RR122003
ZeroRatedSales
RMC1796
88161
ofaccountsofthecontractorfortheyear1987;and
d) filing not later than January 20, 1988, and/or

beforethe20thdayaftereachcalendarquarter,of
the regular contractor's tax return for the payment
of the contractor's tax on payments received in
1988.
Failure to comply with the abovestated conditions

shall automatically subject the gross receipts to
valueaddedtaxat10%.
Accordingly, under the foregoing provision of the
regulations, your receivables which have been
earned,billedandbookedbutwhichremainunpaid
as of December 3l,1987 are still subject to the 3%
percentage tax provided that the abovestated
conditions are complied with; otherwise, said
billingsshallbesubjecttoVAT.(BIRRulingNo.059
88)
Seebelow.
You are a recruiting agency; that you send
contractual workers abroad and charged their
respective principals for the allotment and various
expenses of the company; that the agency fee and
miscellaneous expenses obviously paid in foreign
currencyandremittedbytheprincipaltoyouarein
accordancewithCentralBankregulations.
HELD: you are subject to a valueadded tax of 0%

based on the aggregate of your agency fee and
miscellaneous expense, provided that you are VAT
registeredandthatthepaymenttoyouisinforeign
88107
88191
currency inwardly remitted to the Philippines in

accordancewithCentralBankregulations,pursuant
toSection102(a)(2)oftheTaxCode,asamendedby
Clients are either branches or subsidiaries of

multinational enterprises who act as brokerage
agents of their respective head offices or affiliates
shared for a solicitation of orders from domestic
companies;thatorderspro,caredinthePhilippines
are communicated abroad and a contract of sale is
entered into between fine head office or affiliates
and the local buyer; and that your clients received
Indent commissions for such brokerage activity
which are paid for in foreign currency and is
inwardlyremittedtothePhilippines.
HELD: the indent commissions received by your

clients for soliciting orders from domestic
companies which are paid for in foreign currency
and remitted inwardly in accordance with line
Central Bank Rules and Regulations are subject to
the value added tax of 10% pursuant to Section
102(a)(2) of the Tax Code as amended by
generative Order No. 273 and amplified by Section
8(4)(3)ofRevenueRegulationsNo.647.
Ipil International, Inc., is a corporation duly

organized and existing under Philippine laws acting
as agent and/or husbanding agent of MV "Meng
Hai" whose owner/principal is based in Hamburg,
Germany; that for stevedoring services, wherever
the vessel is in the Port of Manila, your client
appoints Ocean Terminal Services, Inc. for the
loading of cargoes on board the vessel MV "Meng
Hai", for which service, a service invoice is
presented which includes payment of the
corresponding VAT; that as payment for services
renderedandforotherincidentalexpensesincurred
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4498
by your client, the foreign principal remits the

necessary funds in foreign currency through one of
the local banks. you are of the opinion that your
clientissubjecttothevalueaddedtax.
HELD:onthebasisoftheforegoingrepresentation
your opinion is confirmed. The services of your
client which are paid for in acceptable foreign
currency inwardly remitted to the Philippines and
accounted for in accordance with the rules and
regulations of the Central Bank of the Philippines
aresubjecttothevalueaddedtaxat0%pursuantto
Section 102(a)(2) of the Tax Code as amended by
Executive Order No. 273 and amplified by Revenue
RegulationsNo.587.
The tax base in computing the valueadded tax on

the sale of services is gross receipts which means
service fee, including the amount charged for
advance payments, actually or constructively
performed or to be performed for another person,
excluding the valueadded tax pursuant to Section
2(m)ofRevenueRegulationsNo.587implementing
E.O. No. 273. Accordingly, in the foregoing
illustrationthevalueaddedtaxshouldbebasedon
P17,415.88 which represents the gross payments
made by your clients. However, your client may
chargetheinputtaxonyoursaleofservicesagainst
theiroutputtaxontheirsaleofmanufacturedgoods
and other merchandise for resale pursuant to
Section 10(5) of Revenue Regulations No. 587
implementing Section 104 of the Tax Code as
amended.
CIRv.AMEXCO
19June2005
SUBJECT :
Clarification of Issues Affecting ZeroRated Sales and Claims
for Input Tax Credit/Refund under Republic Act No. 7716, Otherwise Known as
the"ExpandedVATLaw".
Whatiszeroratedtransaction?
Azeroratetransactionreferstosale,lease,barterorexchangeofgoods,
propertiesand/orservicessubjecttoVATattherateofzeropercent(0%)
pursuanttoSec.100andSec.102oftheNationalInternalRevenueCode
(TaxCode).
WhatisVATexempttransaction?
A VATexempt transaction refers to sale, lease, barter or exchange of

goods, properties and/or services that are exempt from VAT under Sec.
103oftheTaxCode.
DistinguishzeroratedfromVATexempttransaction.
Inazeroratedtransactionthesellerisallowedtoclaiminputtaxcredit
refundonhispurchaseofVATtaxablegoods,propertiesorservices.Inan
exempttransaction,thesellerisnotentitledtosuchtaxcredit/refund.
Whoshallqualifyforzerorating?
Any VATregistered person whose sales fall under Sec. 100(a)(2) and
102(b)oftheTaxCode.
Whattransactionsarezerorated?
Thefollowingtransactionsarezerorated:
WithrespecttoGoods
1.
Exportsales.Theterm"exportsales"means:
(a)
ThesaleandactualshipmentofgoodsfromthePhilippinestoa
foreign country, irrespective of any shipping arrangement that may be
agreeduponwhichmayinfluenceordeterminethetransferofownership
ofthegoodssoexportedandpaidforinacceptableforeigncurrencyor
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its equivalent in goods and services, and accounted for in accordance

withtherulesandregulationsoftheBangkoSentralngPilipinas(BSP);
(b)
Sale of raw materials or packaging materials to nonresident
buyer for delivery to a resident local exportoriented enterprise to be
used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods paid for in acceptable foreign
currencyandaccountedforaccordancewiththerulesandregulationsof
theBangkoSentralngPilipinas(BSP);
(c)
Saleofrawmaterialsorpackagingmaterialstoexportoriented
enterprises whose export sales exceed seventy percent (70%) of total
annualproduction;
(d)
SaleofgoldtoBangkoSentralngPilipinas(BSP);and
(e)
ThoseconsideredexportsalesunderExecutiveOrderNo.226,
otherwise known as the Omnibus Investments Code of 1987, and other
speciallaws.
2.
Foreigncurrencydominatedsale.
The phrase "foreign currency dominated sale" means sale to a nonresident of
goods,exceptthosementionedinSection149and150oftheCode,assembledor
manufactured in the Philippines for delivery to a resident in the Philippines, paid
forinacceptableforeigncurrencyandaccountedforinaccordancewiththerules
andregulationsoftheBangkoSentralngPilipinas(BSP),and
3.
Sales to persons or entities whose exemption under special laws or
internationalagreementstowhichthePhilippinesisasignatoryeffectivelysubject
suchsaletozerorate.
WithrespecttoServices
1.
Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported, where
the services are paid for in acceptable foreign currency and accounted for in
accordancewiththerulesandregulationsoftheBangkoSentralngPilipinas(BSP);
2.
Services other than processing, manufacturing or repacking for other
persons doing business outside the Philippines for goods which are subsequently
exported,aswellasservicesbyaresidenttoanonresidentforeignclientsuchas
project studies, information services, engineering and architectural designs and
othersimilarservices,theconsiderationforwhichispaidforinacceptableforeign
currency and accounted for in accordance with the rules and regulations of the
BSP.
3.
Servicesrenderedtopersonsorentitieswhoseexemptionunderspecial
lawsorinternationalagreementstowhichthePhilippinesisasignatoryeffectively
subjectthesupplyofsuchservicestozerorate;
4
Services rendered to vessels engaged exclusively in international
shipping;and
5.
Services performed by subcontractors and/or contractors in processing,
converting or manufacturing goods for an enterprise whose export sales exceed
seventy(70%)oftotalannualproduction.
Whatareeffectivelyzeroratedtransactions?
Effectively zerorated transactions shall cover local sale of goods, properties and
servicestopurchasersenjoyingexemptionfromindirecttaxesunderspeciallawsor
internationalagreementssuchas:
WithrespecttoGoods:
1. Sale of raw materials or packaging materials to exportoriented
enterprise whose direct export sales exceed seventy percent (70%) of
totalannualproduction.
2. Foreign currency denominated sale of goods to a nonresident, except
thosementionedinSections149and150oftheTaxcode,assembledor
manufactured in the Philippines for delivery to a resident in the
Philippines,paidforinacceptableforeigncurrencyandaccountedforin
accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas.
3. SaletoSBMAandCDAregisteredenterprisespursuanttoRA7927,sale
toPEZAregisteredenterprisespursuanttoRA7916andsaletoADBand
IRRIpursuanttointernationalagreements,etc.,and
4. SaleofgoldtotheBangkoSentralngPilipinas(BSP).
WithrespecttoServices:
1. Servicesrenderedtopersonsorentitieswhoseexemptionunderspecial
laws or international agreements to which the Philippines is a signatory
effectivelysubjectsthesupplyofsuchservicestozerorate.
2. Services rendered to vessels engaged exclusively in international
shipping;and
3. Services performed by subcontractors and/or contractors in processing,
convertingormanufacturinggoodsforanenterprisewhosedirectexport
salesexceedseventypercent(70%)oftotalannualproduction.
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Whatareautomaticallyzeroratedtransactions?
ThefollowingsalesbyVATregisteredtaxpayersareautomaticallyzerorated:
WithrespecttoGoods:
1. ThesaleandactualshipmentofgoodsfromthePhilippinestoaforeign
country, irrespective of any shipping arrangement that may be agreed
uponwhichmayinfluenceordeterminethetransferofownershipofthe
goods so exported and paid for in acceptable foreign currency or its
equivalent in goods and services, and accounted for in accordance with
therulesandregulationsoftheBangkoSentralngPilipinas;and
2. Sale of raw materials or packaging materials to nonresident buyer for
delivery to a resident local exportoriented enterprise to be used in
manufacturing,processing,packingorrepackinginthePhilippinesofthe
said buyer's goods and paid for in accordance with the rules and
regulationsoftheBangkoSentralngPilipinas(BSP).
WithrespecttoServices:
1. Processing, manufacturing or repacking goods for other persons doing
businessoutsidethePhilippineswhichgoodsaresubsequentlyexported,
where the services are paid for in acceptable foreign currency, and
accountedforinaccordancewiththerulesandregulationsoftheBangko
SentralngPilipinas(BSP);and
2. Services other than processing, manufacturing or repacking for other
persons doing business outside the Philippines for goods which are
subsequentlyexported,aswellasservicesbyaresidenttoanonresident
foreign client such as project studies, information services, engineering
andarchitecturaldesignsandothersimilarservices,theconsiderationfor
which is paid for in acceptable foreign currency and accounted for in
accordancewiththerulesandregulationsoftheBSP.
Distinguisheffectivelyzeroratedfromautomaticallyzeroratedtransactions.
Inaneffectivelyzeroratedtransaction,theVATregisteredsellerofgoods
orservicesisrequiredtofileanapplicationandsecureapprovalforzero
rating; whereas in an automatically zerorated transaction, the VAT
registeredsellerneednotfileanapplicationforzerorating.
HowdoesaVATregisteredsellertaxpayerapplyforeffectivezerorating?
A properly filledup Application for ZeroRating together with the

requiredattachmentsmustbesubmittedforapprovaltotheappropriate
Revenue District Office having jurisdiction over its principal place of

business.
Whendoyouapplyforeffectivezerorating?
Applications for effective zerorating shall be filed before the initial sale
toacustomerwithrespecttotransactionsenumeratedabove.Approved
applicationsforzeroratingshallbeeffectivefor12monthsfromthedate
ofissuanceoftheapproval.
UnderSec.4.1002(a)(5)ofRevenueRegulations795,saleoffinishedproducts
byaBOIregisteredexportproducer(indirectexporter)toanotherBOIregistered
export producer or export trader that subsequently exports the same is
considered export sale and, therefore, subject to output VAT at zero percent
(0%).Whataretherequirementsforpurposesofzeroratingandentitlementto
taxcredits/refunds?
The BOIregistered export producer (indirect exporter) after registering

asaVATperson,shallapplyforVATzeroratingwiththeRDOwhereits
main office is located, submitting copies of its BOI certificate of
registration, as well as those of the customers/buyers. Once approved,
the indirect exporter is considered a zerorated taxpayer for its sale of
finishedproductstotheBOIregisteredexportproducerorexporttrader.
TheindirectexportershallsubmittotheBIR,alongwithitsquarterlyVAT
returns proof of actual exportation of the products consisting of bills of
lading and other shipping documents certified to by the BOIregistered
exports producer/trader. Failure to furnish the BIR with such proof of
exportation shall subject such indirect export sale to the 10% output
VAT?
Explain the distinction between the requirement for accreditation under the
Export Development Act ("earns at least 50% of its normal operating revenues
from the sale of its products or services abroad for foreign currency") and
requirement to qualify as an exportoriented enterprise ("whose export sales
exceed70%ofthetotalannualproductionoftheprecedingtaxableyear").
The 50% requirement is only for accreditation as an exporter under the

ExportDevelopmentActwhilethe70%requirementisforentitlementto
applyforeffectivezeroratingoftransactionsunderSec.100(2)(a)(3)and
Sec.102(2)(b)(5)byexportorientedenterprises.
MA.ANGELAAGUINALDO
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(1)
For zerorated taxpayer within two (2) years after the

close of the taxable quarter when the zerorated sales
weremade.
Forinputtaxoncapitalgoodswithintwo(2)yearsafter
the close of the taxable quarter when the importation of
purchasewasmade.
Forcancelledregistration/changeinorcessationofstatus
within two (2) years from the date of cancellation of
VATregistration.
Is the importation of equipment, materials and/or supplies that are merely

consigned and which are not intended to remain in the country but in fact
required to be "re exported or "shipped back" to their country of origin, or the
importation through a customs bonded manufacturing warehouse of raw
materials,suppliesandsparepartsusedinthemanufacture/assemblyofarticles
forexport,subjecttothe10%VATonimportation?
No.Theimportationsofmachinery,equipmentandsparepartswhichare
merely consigned to a BOIregistered enterprise are exempt from the
VAT provided the appropriate reexport bond is posted and that the
consigned equipment shall be for the exclusive use of the registered
enterprise [Article 39(c) and (f), Title III, Executive Order No. 226, as
amendedbyRepublicActNo.7918]
So also importations through a customs bonded manufacturing

warehouse of raw materials and spare parts used in the
manufacture/assembly of products for export are likewise exempt from
the VAT [Sec. 4, 1002(a)(5) Revenue Regulations No. 795]. Customs
bondedmanufacturingwarehousesareoutsideofthejurisdictionofthe
PhilippineCustomsTerritoryand,thus,therawmaterialsandspareparts
are deemed not to have entered said territory and were never
introducedintoPhilippinecommerce.
Zerorated taxpayers will normally have an excess of input taxes over output
taxes.Cantheexcessbeoffsetagainstthetaxpayer'sotherinternalrevenuetax
liabilities"?
No. Direct offsetting of excess input over output taxes against other
internalrevenuetaxliabilitiesofthezeroratedtaxpayerisnotallowed.
What are the consequences for failure of the seller to secure prior approval for
effectivelyzerorating?
Such transactions shall be considered exempt from VAT. However, if it

turns out that there are other factors that would disqualify the
transaction from zerorating other than the failure to file an application
thereof,thensuchtransactionshallbesubjecttotheVATat10%.
IsthereaprescriptiveperiodtoclaimforVATCredit/Refund?
Yes. The following are the prescribed period for filing a claim for VAT
credit/refund:
(2)
(3)
Whatistheprescribedperiodfortheprocessingoftaxcreditorrefundofunused
inputtaxcredit?
ThelawprovidesthattheCommissionershallgranttheVATcredit/refund
within sixty (60) days from the date of submission of complete
documentsinsupportoftheapplicationbytheclaimant.
HowIsItComputed
BIRRuling8861
The tax base in computing the valueadded tax on
the sale of services is gross receipts which means
service fee, including the amount charged for
advance payments, actually or constructively
performed or to be performed for another person,
excluding the valueadded tax pursuant to Section
2(m)ofRevenueRegulationsNo.587implementing
E.O.No.273.
88363
do
88360
As a whollyowned subsidiary of the Development
Bank of the Philippines (DBP) tasked as the sole
marketing arm in the disposition of the Bank's
acquiredassets,the10%VATisimposedonthe5%
servicefeeprovidedthattheamountcorresponding
toitisbilledseparately.
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14298
On the other hand, as the sole marketing arm of

Land Bank bonds, your company is classified as a
broker in its management/arrangement fees.
Hence, the valueadded tax is imposed on the
income, compensation or fee, received by the
corporation, provided that such amount is billed
separately.
However,ifthewholeamountforbothtransactions
isreflectedinthereceipt,saidamountissubjectto
VAT.
It appears that the consortium of Marubeni

Corporation,ABBPower,Inc.andABBDaimlerBenz
Transport Corporation (ADTRANZ) has been
awarded the contract for LRT Line I Expansion
Project;thatthecontractinvolvesthedesign,supply
of materials and equipment, and the installation
servicesforthesaidproject;thatthecontractprice
willbepaidthroughadvancepaymentandthrough
periodicpayments;thattheadvancepaymentis5%
of the total contract price while the progress
payments will then be paid monthly; that the
contractprovidesforaretention(retentionmoney)
of 10% of the total contract price; that the 10%
retention money is deducted from each progress
billingsubmittedbyMarubeni;thattheLRTAplaces
the retained amounts in a trust fund; that this
retention money will be paid upon substantial
completion of the project and upon the expiration
of the defects liability period; and that during the
defects liability period, if there is any corrective
work to be done, the expense will be charged
againsttheretentionmoney.
HELD:
UnderSection3ofRevenueRegulationsNo.685,as
lastamendedbyRev.Regs.No.298,theexpanded
withholding tax is due on income paid or payable
and since in the instant case, the retention money
cannotbeconsideredasincomeorpaidatthetime
of the progress payment, LRTA should not include
the amount in the tax base in the computation of
the EWT. The EWT should be deducted only upon
resolutionoftheaforestatedconditionortheactual
payment of LRTA of the said retention money to
Marubeni.
Moreover,Section9ofRevenueRegulationsNo.6
97provides:
"Sec.9.Withholdingofcreditablevalueaddedtax.
xxx
(a) The government or any of its political
subdivisions,instrumentalitiesoragencies,including
governmentowned or controlled corporations
(GOCCs)shallbeforemakingpaymentonaccountof
its purchase of goods from sellers and/or services
rendered by contractors which are subject to the
VATimposedunderSecs.100and102oftheCode,
deduct and withhold the VAT due at the rate of
three percent (3%) of the gross payment of the
purchaseofgoodsandsixpercent(6%)onthegross
receiptsfortheservicesrenderedbycontractorson
every sale or installment payment which shall be
creditable against the VAT liability of the sellers or
contractors pursuant to R.A. No. 7644, as
implemented by Revenue Regulations No. 1093:
Provided, That payment of One thousand pesos
(P1,000.00) and below per purchase shall not be
subject to withholding tax rate. Provided however,
That in the case of Government public works
contractors, the withholding tax rate shall be eight
andonehalfpercent(8.5%)."
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Such being the case, the retention money should

notlikewisebeincludedinthetaxbaseforpurposes
ofcomputingthe8.5%creditableVAT,becausethe
retention money was not yet paid to Marubeni at
the time the progress payments were made. It will
benotedthattheVATonsaleofservicesisbasedon
gross receipts pursuant to Section 102 of the Tax
Codeof1997whichprovides,viz:
"Sec. 102. Valueadded tax. There shall be levied,
assessed and collected, a valueadded tax
equivalentto10%ofgrossreceiptsderivedfromthe
sale or exchange of services, including the use or
leaseofproperties.xxx"
Sec. 4.1021 of Revenue Regulations No. 795,

definestheterm"grossreceipts"asfollows:
"Grossreceiptsrefertothetotalamountofmoney
or its equivalent representing the emuad price,
compensation, service fee, rental or royalty,
includingtheamountchargedformaterialssupplied
with the services and deposits and advanced
paymentsactuallyorconstructivelyreceivedduring
thetaxablequarterfortheservicesperformedorto
be performed for another person, including VAT.
xxx"
"Constructive receipt occurs when the money

consideration or its equivalent is placed at the
control of the person who rendered the service
withoutrestrictionsbythepayor.xxx"
It is clear from the foregoing that the VAT shall be

paid only on gross receipts whether actually or
constructively received. Since the retention money
is not paid at the time the progress payments are
made, the said retention money should not be
included in the computation of the 8.5% creditable
VAT.
15498
12498
UnderSectionI(e)(2)(1)ofRevenueRegulationsNo.
685, as amended and Section 5 of Revenue
RegulationNo.1093,thetaxbaseincomputingthe
1% expanded creditable withholding tax on income
payments to forwarding contractors and the 6%
creditable VAT on payments made by the
government to sellers of services shall be on gross
payments.Thus,forpurposeoftaxremittances,the
1% expanded creditable withholding tax imposed
underSectionI(e)(2)(1)ofRevenueRegulationsNo.
685, as amended and the 6% creditable VAT
prescribed under Section 3 of Revenue Regulations
No. 1093 shall be computed based on gross
payments,whichmeanstotalpaymentsinclusiveof
thesaidCommissionPrivilegeFund.Thisissosince
like other funds of the same nature, the said funds
will ultimately redound to the benefit of your said
supplier.Hence,acorrespondingchargeforbenefits
derived thereby is deemed included in the
impositionofsaidtaxes.
ChangeofStatus
Section 15 of R.A. No. 7353, as implemented by
RevenueRegulationsNo.1693,providesthat:
"Sec.15.Allruralbankscreatedunderitsprovisions
andthosealreadyinoperationasofthedateofthe
approvalthereofshallbeexemptfromthepayment
of an taxes, fees and charges of whatever nature
and description, except the corporate income tax
andlocaltaxes,feesandcharges,foraperiodoffive
(5) years from the date of commencement of
operation."
Based on the foregoing, rural banks are exempt

from the documentary stamp tax imposed under
Section175oftheTaxCodeof1997ontheoriginal
issuance of shares of stock to the stockholders.
However, Section 173 of the same Code provides
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RR162005
that"wheneveronepartytothetaxabledocument
enjoysexemptionfromthetaxhereinimposed,the
otherpartythereto,whoisnotexemptshallbethe
one directly liable for the tax." Accordingly, since
rural banks are exempt from the documentary
stamp tax, the stockholders are the ones liable for
thepaymentofthedocumentarystamptaxdueon
saidcertificatesofstocktobeissuedbytheformer.
DeterminationoftheTax
Supra.
ExemptTransactions
(a) Sale or importation of agricultural and marine food products in their
original state, livestock and poultry of or king generally used as, or
yieldingorproducingfoodsforhumanconsumption;andbreedingstock
andgeneticmaterialstherefor.
Products classified under this paragraph and paragraph (a) shall be
consideredintheiroriginalstateeveniftheyhaveundergonethesimple
processesofpreparationorpreservationforthemarket,suchasfreezing,
drying,salting,broiling,roasting,smokingorstripping.
Polishedand/orhuskedrice,corngrits,rawcanesugarandmolasses,and
ordinarysaltshallbeconsideredintheiroriginalstate;
(b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,
prawn,livestockandpoultryfeeds,includingingredients,whetherlocally
producedorimported,usedinthemanufactureoffinishedfeeds(except
specialtyfeedsforracehorses,fightingcocks,aquariumfish,zooanimals
andotheranimalsgenerallyconsideredaspets);
(c) Importationofpersonalandhouseholdeffectsbelongingtotheresidents
ofthePhilippinesreturningfromabroadandnonresidentcitizenscoming
toresettleinthePhilippines:Provided,Thatsuchgoodsareexemptfrom
customsdutiesundertheTariffandCustomsCodeofthePhilippines;
(d) Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except any
vehicle, vessel, aircraft, machinery other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belongingtopersonscomingtosettleinthePhilippines,fortheirownuse
and not for sale, barter or exchange, accompanying such persons, or
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner, that such
persons are actually coming to settle in the Philippines and that the
changeofresidenceisbonafide;
ServicessubjecttopercentagetaxunderTitleV;
Services by agricultural contract growers and milling for others of palay
intorice,cornintogritsandsugarcaneintorawsugar;
Medical,dental,hospitalandveterinaryservicessubjecttotheprovisions
ofSection17ofRepublicActNo.7716,asamended:
Educational services rendered by private educational institutions, duly
accredited by the Department of Education, Culture and Sports (DECS)
andtheCommissiononHigherEducation(CHED),andthoserenderedby
governmenteducationalinstitutions;
Services rendered by individuals pursuant to an employeremployee
relationship;
Services rendered by regional or area headquarters established in the
Philippines by multinational corporations which act as supervisory,
communicationsandcoordinatingcentersfortheiraffiliates,subsidiaries
orbranchesintheAsiaPacificRegionanddonotearnorderiveincome
fromthePhilippines;
Transactionswhichareexemptunderinternationalagreementstowhich
the Philippines is a signatory or under special laws, except those under
PresidentialDecreeNos.66,529and1590;
Sales by agricultural cooperatives duly registered with the Cooperative
DevelopmentAuthoritytotheirmembersaswellassaleoftheirproduce,
whether in its original state or processed form, to nonmembers; their
importationofdirectfarminputs,machineriesandequipment,including
sparepartsthereof,tobeuseddirectlyandexclusivelyintheproduction
and/orprocessingoftheirproduce;
Gross receipts from lending activities by credit or multipurpose
cooperatives duly registered with the Cooperative Development
Authoritywhoselendingoperationislimitedtotheirmembers;
Sales by nonagricultural, non electric and noncredit cooperatives duly
registered with the Cooperative Development Authority: Provided, That
the share capital contribution of each member does not exceed Fifteen
thousandpesos(P15,000)andregardlessoftheaggregatecapitalandnet
surplusratablydistributedamongthemembers;
ExportsalesbypersonswhoarenotVATregistered;
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(p) Saleofrealpropertiesnotprimarilyheldforsaletocustomersorheldfor
leaseintheordinarycourseoftradeorbusinessorrealpropertyutilized
forlowcostandsocializedhousingasdefinedbyRepublicActNo.7279,
otherwise known as the Urban Development and Housing Act of 1992,
and other related laws, house and lot and other residential dwellings
valued at One million five hundred thousand pesos (P1,500,000) and
below: Provided, That not later than January 31st of the calendar year
subsequent to the effectivity of this Act and each calendar year
thereafter, the amount of One million pesos (P1,000,000) shall be
adjusted to its present value using the Consumer Price Index, as
publishedbythenationalStatisticsOffice(NSO);
(q) Lease of a residential unit with a monthly rental not exceeding ten
thousand pesos(P10,000); Provided, That not later than January 31st of
2009andeverythreeyearsthereafter,theamountshallbeadjustedtoits
present value using the Consumer Price Index as published by the
NationalStatisticsOffice(NS0);
(r) Sale, importation, printing or publication of books and any newspaper,
magazinerevieworbulletinwhichappearsatregularintervalswithfixed
prices for subscription and sale and which is not devoted principally to
thepublicationofpaidadvertisements;and
(s) Sale, importation or lease of passenger or cargo vessels and aircraft,
including engine, equipment and spare parts thereof for domestic or
internationaltransportoperations
(t) Importation of fuel, goods and supplies by persons engaged in
internationalshippingorairtransportoperations
(u) Services of banks, nonbank financial intermediaries performing quasi
bankingfunctions,andothernonbankfinancialintermediaries;and
(v) Saleorleaseofgoodsorpropertiesortheperformanceofservicesother
thanthetransactionsmentionedintheprecedingparagraphs,thegross
annual sales and/or receipts do not exceed the amount of One million
fivehundredthousandpesos(P1,500,000):Provided,Thatnotlaterthan
January31,2009andeverythree(3)yearsthereafter,theamountherein
stated shall be adjusted to its present value using the Consumer Price
IndexaspublishedbytheNationalStatisticsOffice(NSO).
AVATregisteredpersonmayelectthatSubsection(1)notapplytoitssaleofgoods
or properties or services: Provided, That an election made under this Subsection
shall be irrevocable for a period of three (3) years from the quarter the election
wasmade.
(1) Subject to the provisions of Subsection (2) hereof, the following transactions
shallbeexemptfromVAT:
(a) Sale or importation of agricultural and marine food products in their original
state, livestock and poultry of a kind generally used as, or yielding or producing
foodsforhumanconsumption;andbreedingstockandgeneticmaterialstherefor.
Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits.
Poultryshallincludefowls,ducks,geeseandturkey.Livestockorpoultrydoesnot
include fighting cocks, race horses, zoo animals and other animals generally
consideredaspets.
Marinefoodproductsshallincludefishandcrustaceans,suchas,butnotlimitedto,
eels,trout,lobster,shrimps,prawns,oysters,musselsandclams.
Meat, fruit, fish, vegetables and other agricultural and marine food products
classifiedunderthisparagraphshallbeconsideredintheiroriginaldateevenifthey
have undergone the simple processes of preparation or preservation for the
market, such as freezing, drying, salting, broiling, roasting, smoking or stripping,
including those using advanced technological means of packaging, such as shrink
wrapping in plastics, vacuum packing, tetrapack, and other similar packaging
methods.
Polishedand/orhuskedrice,corngrits,rawcanesugarandmolasses,ordinarysalt
andcoprashallbeconsideredasagriculturalfoodproductsintheiroriginalstate.
Sugar whose content of sucrose by weight, in the dry state, has a polarimeter
readingof99.5oandabovearepresumedtoberefinedsugar.
Cane sugar produced from the following shall be presumed, for internal revenue
purposes,toberefinedsugar:
(1)productofarefiningprocess,
(2)productsofasugarrefinery,or
(3) product of a production line of a sugar mill accredited by the BIR to be
producing and/or capable of producing sugar with polarimeter reading of 99.5o
and above, and for which the quedan issued therefor, and verified by the Sugar
Regulatory Administration, identifies the same to be of a polarimeter reading of
99.5oandabove.
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Bagasseisnotincludedintheexemptionprovidedforunderthissection.
(b) Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty feeds for
racehorses,fightingcocks,aquariumfish,zooanimalsandotheranimalsgenerally
consideredaspets);
Specialty feeds refers to nonagricultural feeds or food for race horses, fighting
cocks,aquariumfish,zooanimalsandotheranimalsgenerallyconsideredaspets.
(c) Importation of personal and household effects belonging to residents of the

Philippines returning from abroad and nonresident citizens coming to resettle in
thePhilippines;Provided,thatsuchgoodsareexemptfromcustomsdutiesunder
theTariffandCustomsCodeofthePhilippines;
(d) Importation of professional instruments and implements, wearing apparel,

domestic animals, and personal household effects (except any vehicle, vessel,
aircraft,machineryandothergoodsforuseinthemanufactureandmerchandiseof
any kind in commercial quantity) belonging to persons coming to settle in the
Philippines,fortheirownuseandnotforsale,barterorexchange,accompanying
suchpersons,orarrivingwithinninety(90)daysbeforeoraftertheirarrival,upon
theproductionofevidencesatisfactorytotheCommissionerofInternalRevenue,
that such persons are actually coming to settle in the Philippines and that the
changeofresidenceisbonafide;
(e)ServicessubjecttopercentagetaxunderTitleVoftheTaxCode,asenumerated
below:
(1)SaleorleaseofgoodsorpropertiesortheperformanceofservicesofnonVAT
registeredpersons,otherthanthetransactionsmentionedinparagraphs(A)to(U)
ofSec.109(1)oftheTaxCode,thegrossannualsalesand/orreceiptsofwhichdoes
not exceed the amount of One Million Five Hundred Thousand Pesos
(P1,500,000.00);Provided,ThatnotlaterthanJanuary31,2009andeverythree(3)
yearsthereafter,theamounthereinstatedshallbeadjustedtoitspresentvalue
usingtheConsumerPriceIndex,aspublishedbytheNationalStatisticsOffice(NSO)
(Sec.116oftheTaxCode);
(2) Services rendered by domestic common carriers by land, for the transport of
passengersandkeepersofgarages(Sec.117);
(3)Servicesrenderedbyinternationalair/shippingcarriers(Sec.118);
(4)Servicesrenderedbyfranchisegranteesofradioand/ortelevisionbroadcasting
whoseannualgrossreceiptsoftheprecedingyeardonotexceedTenMillionPesos
(P10,000,000.00),andbyfranchisegranteesofgasandwaterutilities(Sec.119);
(5) Service rendered for overseas dispatch, message or conversation originating
fromthePhilippines(Sec.120);
(6) Services rendered by any person, company or corporation (except purely
cooperativecompaniesorassociations)doinglifeinsurancebusinessofanysortin
thePhilippines(Sec.123);
(7)Servicesrenderedbyfire,marineormiscellaneousinsuranceagentsofforeign
insurancecompanies(Sec.124);
(8)Servicesofproprietors,lesseesoroperatorsofcockpits,cabarets,nightorday
clubs, boxing exhibitions, professional basketball games, JaiAlai and race tracks
(Sec.125);and
(9) Receipts on sale, barter or exchange of shares of stock listed and traded
throughthelocalstockexchangeorthroughinitialpublicoffering(Sec.127).
(f)Servicesbyagriculturalcontractgrowersandmillingforothersofpalayintorice,
cornintogrits,andsugarcaneintorawsugar;
Agricultural contract growers refers to those persons producing for others

poultry, livestock or other agricultural and marine food products in their original
state.
(g) Medical, dental, hospital and veterinary services, except those rendered by
professionals.
Laboratoryservicesareexempted.Ifthehospitalorclinicoperatesapharmacyor
drugstore,thesaleofdrugsandmedicineissubjecttoVAT.
(h) Educational services rendered by private educational institutions duly

accredited by the Department of Education (DepED), the Commission on Higher
Education (CHED) and the Technical Education and Skills Development Authority
(TESDA)andthoserenderedbygovernmenteducationalinstitutions;
Educational services shall refer to academic, technical or vocational education

provided by private educational institutions duly accredited by the DepED, the
CHEDandTESDAandthoserenderedbygovernmenteducationalinstitutionsandit
does not include seminars, inservice training, review classes and other similar
services rendered by persons who are not accredited by the DepED, the CHED
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and/ortheTESDA;
(i) Services rendered by individuals pursuant to an employeremployee

relationship;
(j) Services rendered by regional or area headquarters established in the

Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region and do not earn or derive income from the
Philippines;
(k) Transactions which are exempt under international agreements to which the
PhilippinesisasignatoryorunderspeciallawsexceptthosegrantedunderPDNo.
529 Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
and
(l)Salesbyagriculturalcooperativesdulyregisteredandingoodstandingwiththe
Cooperative Development Authority (CDA) to their members, as well as sale of
their produce, whether in its original state or processed form, to nonmembers,
their importation of direct farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in the production and/or
processingoftheirproduce.
SalebyagriculturalcooperativestononmemberscanonlybeexemptedfromVAT
if the producer of the agricultural products sold is the cooperative itself. If the
cooperativeisnottheproducer(e.g.,trader),thenonlythosesalestoitsmembers
shallbeexemptedfromVAT;
It is to be reiterated however, that sale or importation of agricultural food

products in their original state is exempt from VAT irrespective of the seller and
buyerthereof,pursuanttoSubsection(a)hereof.
(m) Gross receipts from lending activities by credit or multipurpose cooperatives

dulyregisteredandingoodstandingwiththeCooperativeDevelopmentAuthority,
(n) Sales by nonagricultural, nonelectric and noncredit cooperatives duly

registeredwithandingoodstandingwiththeCDA;Provided,Thatthesharecapital
contribution of each member does not exceed Fifteen Thousand Pesos
(P15,000.00) and regardless of the aggregate capital and net surplus ratably
distributedamongthemembers.Importationbynonagricultural,nonelectricand
noncredit cooperatives of machineries and equipment, including spare parts
thereof,tobeusedbythemaresubjecttoVAT.
(o)ExportsalesbypersonswhoarenotVATregistered;
(p)ThefollowingsalesofrealpropertiesareexemptfromVAT,namely:
(1)Saleofrealpropertiesnotprimarilyheldforsaletocustomersorheldforlease
intheordinarycourseoftradeorbusiness.
However, even if the real property is not primarily held for sale to customers or
heldforleaseintheordinarycourseoftradeorbusinessbutthesameisusedin
thetradeorbusinessoftheseller,thesalethereofshallbesubjecttoVATbeinga
transactionincidentaltothetaxpayersmainbusiness.
(2)SaleofrealpropertiesutilizedforlowcosthousingasdefinedbyRANo.7279,
otherwiseknownastheUrbanDevelopmentandHousingActof1992andother
relatedlaws,suchasRANo.7835andRANo.8763.
Lowcost housing refers to housing projects intended for homeless lowincome

family beneficiaries, undertaken by the Government or private developers, which
mayeitherbeasubdivisionoracondominiumregisteredandlicensedbythe
HousingandLandUseRegulatoryBoard/Housing(HLURB)underBPBlg.220,PD
No.957oranyothersimilarlaw,whereintheunitsellingpriceiswithintheselling
price ceiling per unit of P750,000.00 under RA No. 7279, otherwise known as the
Urban Development and Housing Act of 1992 and other laws, such as RA No.
7835andRANo.8763.
(3) Sale of real properties utilized for socialized housing as defined under RA No.
7279,andotherrelatedlaws,suchasRANo.7835andRANo.8763,whereinthe
priceceilingperunitisP225,000.00orasmayfromtimetotimebedeterminedby
theHUDCCandtheNEDAandotherrelatedlaws.
Socializedhousingreferstohousingprogramsandprojectscoveringhousesand
lotsorhomelotsonlyundertakenbytheGovernmentortheprivatesectorforthe
underprivileged and homeless citizens which shall include sites and services
development,longtermfinancing,liberatedtermsoninterestpayments,andsuch
otherbenefitsinaccordancewiththeprovisionsofRANo.7279,otherwiseknown
astheUrbanDevelopmentandHousingActof1992andRANo.7835andRANo.
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8763.
Socialized housing shall also refer to projects intended for the underprivileged
and homeless wherein the housing package selling price is within the lowest
interestratesundertheUnifiedHomeLendingProgram(UHLP)oranyequivalent
housing program of the Government, the private sector or nongovernment
organizations.
(4) Sale of residential lot valued at One Million Five Hundred Thousand Pesos
(P1,500,000.00)andbelow,orhouse&lotandotherresidentialdwellingsvaluedat
TwoMillionFiveHundredThousandPesos(P2,500,000.00)andbelowwherethe
instrument of sale/transfer/disposition was executed on or after November 1,
2005; Provided, That not later than January 31, 2009 and every three (3) years
thereafter,theamountsstatedhereinshallbeadjustedtoitspresentvalueusing
the Consumer Price Index, as published by the National Statistics Office (NSO);
Provided, further, that such adjustment shall be published through revenue
regulationstobeissuednotlaterthanMarch31ofeachyear;
Iftwoormoreadjacentresidentiallotsaresoldordisposedinfavorofonebuyer,
forthepurposeofutilizingthelotsasoneresidentiallot,thesaleshallbeexempt
from VAT only if the aggregate value of the lots do not exceed P1,500,000.00.
Adjacent residential lots, although covered by separate titles and/or separate tax
declarations,whensoldordisposedtooneandthesamebuyer,whethercovered
by one or separate Deed of Conveyance, shall be presumed as a sale of one
residentiallot.
(q) Lease of residential units with a monthly rental per unit not exceeding Ten
Thousand Pesos (P10,000.00), regardless of the amount of aggregate rentals
received by the lessor during the year; Provided, that not later than January 31,
2009 and every three (3) years thereafter, the amount of P10,000.00 shall be
adjustedtoitspresentvalueusingtheConsumerPriceIndex,aspublishedbythe
NSO;
Theforegoingnotwithstanding,leaseofresidentialunitswherethemonthlyrental
per unit exceeds Ten Thousand Pesos (P10,000.00) but the aggregate of such
rentalsofthelessorduringtheyeardonotexceedOneMillionFiveHundredPesos
(P1,500,000.00) shall likewise be exempt from VAT, however, the same shall be
subjectedtothreepercent(3%)percentagetax.
Incaseswherealessorhasseveralresidentialunitsforlease,someareleasedout
foramonthlyrentalperunitofnotexceedingP10,000.00whileothersareleased
outformorethanP10,000.00perunit,histaxliabilitywillbeasfollows:
1. The gross receipts from rentals not exceeding P10,000.00 per month per unit
shallbeexemptfromVATregardlessoftheaggregateannualgrossreceipts.
2.ThegrossreceiptsfromrentalsexceedingP10,000.00permonthperunitshallbe
subject to VAT if the aggregate annual gross receipts from said units only (not
including the gross receipts from units leased for not more than P10,000.00)
exceedsP1,500,000.00.Otherwise,thegrossreceiptswillbesubjecttothe3%tax
imposedunderSection116oftheTaxCode.
The term residential units shall refer to apartments and houses & lots used for
residentialpurposes,andbuildingsorpartsorunitsthereofusedsolelyasdwelling
places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms,
hotels,hotelrooms,lodginghouses,innsandpensionhouses.
Thetermunitshallmeananapartmentunitinthecaseofapartments,housein
the case of residential houses; per person in the case of dormitories, boarding
housesandbedspaces;andperroomincaseofroomsforrent.
(t) Importation of lifesaving equipment, safety and rescue equipment and

communication and navigational safety equipment, steel plates and other metal
plates including marinegrade aluminum plates, used for shipping transport
operations; Provided, that the exemption shall be subject to the provisions of
Section 4 of Republic Act. No. 9295, otherwise known as The Domestic Shipping
DevelopmentActof2004;
(u) Importation of capital equipment, machinery, spare parts, life saving and
navigationalequipment,steelplatesandothermetalplatesincludingmarinegrade
aluminumplatestobeusedintheconstruction,repair,renovationoralterationof
any merchant marine vessel operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the provisions of Section 19 of
RepublicAct.No.9295,otherwiseknownasTheDomesticShippingDevelopment
Actof2004;
(v) Importation of fuel, goods and supplies by persons engaged in international

shipping or air transport operations; Provided, that the said fuel, goods and
suppliesshallbeusedexclusivelyorshallpertaintothetransportofgoodsand/or
passenger from a port in the Philippines directly to a foreign port, or vice versa,
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withoutdockingorstoppingatanyotherportinthePhilippinesunlessthedocking
orstoppingatanyotherPhilippineportisforthepurposeofunloadingpassengers
and/orcargoesthatoriginatedfromabroad,ortoloadpassengersand/orcargoes
bound for abroad; Provided, further, that if any portion of such fuel, goods or
supplies is used for purposes other than that mentioned in this paragraph, such
portion of fuel, goods and supplies shall be subject to twelve percent (12%) VAT
startingFebruary1,2006;
(w)Servicesofbanks,nonbankfinancialintermediariesperformingquasibanking
functions, and other nonbank financial intermediaries, such as money changers
andpawnshops,subjecttopercentagetaxunderSecs.121and122,respectively,of
theTaxCode;and
(x)Saleorleaseofgoodsorpropertiesortheperformanceofservicesotherthan
the transactions mentioned in the preceding paragraphs, the gross annual sales
and/orreceiptsdonotexceedtheamountofOneMillionFiveHundredThousand
Pesos (P1,500,000.00). Provided, that not later than January 31, 2009 and every
three (3) years thereafter, the amount of P1,500,000.00 shall be adjusted to its
presentvalueusingtheConsumerPriceIndex,aspublishedbytheNSO.
ForpurposesofthethresholdofP1,500,000.00,thehusbandandthewifeshallbe
considered separate taxpayers. However, the aggregation rule for each taxpayer
shallapply,forinstance,ifaprofessional,asidefromthepracticeofhisprofession,
also derives revenue from other lines of business which are otherwise subject to
VAT, the same shall be combined for purposes of determining whether the
thresholdhasbeenexceeded.Thus,theVATexemptsaleshallnotbeincludedin
determiningthethreshold.
SpecialTopics
BIRRuling33588
Since a joint venture operates as a single entity to
tender the service, said joint venture should be
registeredundertheVATlawasrequiredbySection
107(a) of the Tax Code, as amended by Executive
OrderNo.273.
RMC498
InthecoverageofpersonsliabletoValueAddedTax
(VAT),itisprovidedintheTaxCodethatanyperson
who in the course of trade or business, sells,
Section4.14ofRR298
4398
barters, exchanges, leases goods or properties,

renders services or any person who imports goods
shallbesubjecttothepaymentofVAT.Thephrase
"in the course of trade or business" has been
definedtomeantheregularconductorpursuitofa
commercial or economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a nonstock, nonprofit private
organization.
In Revenue Regulations No. 795, the term "in the

courseofbusiness"wasfurtherqualifiedinthelight
oftheabovestatedpolicy.Hence,thisBureauheld
that "any business or businesses pursued by an
individual where the aggregate gross sales or
receipts do not exceed P100,000.00 during any 12
month period shall be considered principally for
subsistence or livelihood and not in the course of
business".
In view of the foregoing, individual taxpayers
qualifiedundertheaforestateddefinition,although
still required to register, shall nevertheless be
exempted from the payment of registration fee as
prescribed under Sec. 236(B) of the Tax Code, in
additiontotheirbeingexemptedfromthepayment
ofthefollowingtaxes,whereapplicable:
1.
VALUEADDED TAX (VAT) under Title IV,
ChapterI,NIRCof1997;
2.
PERCENTAGETAXESunderTitleV,NIRCof
1997.
Exemptions
The Exchange of Notes between our Secretary of
ForeignAffairsandtheAmbassadorExtraordinary&
Plenipotentiary of Japan to the Republic of the
Philippines is actually not a grant of tax exemption
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privilege to the Japanese nationals who may be

involved in the supply of products and services in
the Project since it simply states that the
Government of the Republic of the Philippines will
ensure that the taxes that may be imposed by the
Philippine Government on the said supply of goods
andservicesshallbeexemptfrominternalrevenue
taxes. In other words, it is incumbent upon the
Government of the Philippines to see to it that the
Japanese nationals who may be involved in the
Project shall not pay whatever internal revenue
taxes that the latter may be liable to for providing
the supply of goods and services for the Project.
Thus, there is really no tax exemption to speak of
becausethesaidtaxesreferredtomaybeborneby
the Philippine Government in consideration for the
ecoomic cooperation extended by the Japanese
Government with a view to strengthening friendly
and cooperative relations. Hence, it cannot be
considered as a violation of the Constitutional
prohibitionagainstgrantsoftaxexemptionswithout
theconcurrenceofthemajorityofthemembersof
the Congress (Sec. 28(4), Art VI, 1987 Philippine
Constitution).
In view thereof, this Office is of the opinion that
since the Philippine Government obligated itself
under the Exchange of Notes between our country
andtheJapaneseGovernmentdatedJuly1,1996to
make the necessary measures to exempt the
Japanesenationalswhomaybeinvolvedinthesaid
Project from internal revenue taxes, which may be
imposed by the Republic of the Philippines with
respect to the supply of products and services,
MitsubishiCorporation,whichmustnecessarilybea
corporation organized and existing under the laws
ofJapan,shallbeexemptfromthepaymentofthe
10% VAT on the supply of goods, such as the
materials and equipment used for the construction
7498
8798
9998
of the National Vocational Training and

Development for Women, imposed under Section
106oftheTaxCodeof1997andconsideringfurther
that paragraph (6)(1)(g) of the subject Exchange of
Notes specifically provides that the Government of
the Philippines shall "bear all the expenses other
than those covered by the Grant necessary for the
executionoftheProject,"
Consequently, the Philippine Government (thru

TESDA) will bear the payment of the valueadded
tax on the supply of materials and equipment by
Mitsubishi Corp. used for the said Project and the
saidtaxesaredeemedautomaticallyappropriated.
Section103(e)oftheTaxCode,asamendedbyR.A.
No.7716asfurtheramendedbyR.A.No.8241(now
Sec. 109(c) of the Tax Code of 1997),exempt from
VATthe"saleorimportationofcoalandnaturalgas,
inwhateverformandstateandpetroleumproducts
(except lubricating oil, processed gas, grease, wax
and petrolatum) subject to excise taxes under Title
VI of the Tax Code". (underscoring supplied) Under
Section 2(l) of Revenue Regulations No. 896, the
term "Petroleum products" includes among others,
asphalts subject to excise tax at the rate of PO.56
perkilogrampursuanttoSection145(11)oftheTax
Code, as amended by R.A. No. 8184 (now Sec.
148(k)oftheTaxCodeof1997).
Accordingly, since the sale of asphalts is exempt
fromVAT,thewithholdingofthecreditableVATon
your payments to Petrophil on account of your
purchasesofasphaltsfromithasnolegalbasis.
Section108(A)oftheTaxCodeof1997providesas
follows:
"Sec. 108. Valueadded tax on sale of services and
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useorleaseofproperties.
"(A) Rate and base of tax. There shall be levied,
assessed and collected, a value added tax
equivalenttotenpercent(10%)ofthegrossreceipts
derived from the sale or exchange of services,
includingtheuseorleaseofproperties.
The phrase "sale or exchange of services " means
the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration,xxxregardlessofwhetherornotthe
performancethereofcallsfortheexerciseoruseof
physicalandmentalfaculties.xxx
The term "gross receipts" means the total amount
ofmoneyoritsequivalentrepresentingthecontract
price, compensation, service fee, rental or royalty,
includingtheamountchargedformaterialssupplied
with the services and deposits and advanced
paymentsactuallyorconstructivelyreceivedduring
thetaxablequarterfortheservicesperformedorto
be performed for another person, excluding value
addedtax."
Such being the case, this Office confirms your
opinionthatBTDIisengagedinthesaleofservices,
and therefore subject to the 10% VAT on gross
receipts derived from the sale or exchange of
services. Consequently, BTDI is required to file its
VAT returns covering the fees received from its
advertisers,andtopaytheVATduethereononthe
followingdates:
1. On the 25th day of the month succeeding the
monthofreceiptofeachsucceedingpaymentfrom
Bizlink;
monthofreceiptofeachsucceedingpaymentfrom
Bizlink;and
month of receipt of each remittance from the
Philippinebasedadvertisers.
10498
under Section 24 of R. A. No. 7916, otherwise

knownasthe"SpecialEconomicZoneActof1993",
business and enterprises within the ECOZONE as
defined in Section 5 thereof shall, in lieu of paying
localandnationaltaxes,beliabletothepaymentof
thefivepercent(5%)preferentialtaxratebasedon
gross income earned, distributed as follows: (1)
three percent (3%) to the national government; (2)
one percent (1%) to the local government units
affectedbythedeclarationoftheECOZONE;and(3)
one percent (1%) for the establishment of a
development fund to be utilized for the
development of municipalities outside and
contiguoustoeachECOZONE.
The aforementioned 5% preferential tax is a

commutation of all the national and local taxes
otherwise due from businesses and enterprises
operatingwithintheECOZONE.Suchbeingthecase,
Dae Ryung Ind., Inc. (Philippines) is considered
exempt from all direct and indirect taxes hence,
may not legally be passedon with the value added
tax otherwise due from its foreign licensor visavis
thesaidroyaltypayments.(BIRVATRulingNO.033
96 dated October 30, 1996; VAT Ruling No. 00998
datedFebruary5,1998).
In view thereof, and considering that your foreign

licensor is a nonVAT registered person. your
aforesaid royalty payments are accordingly exempt
from the valueadded tax. Consequently, you are
also exempt from the obligation to withhold and
remit the 10% valueadded tax on your payments
and remittances of the aforesaid royalties which
otherwise would be due thereon pursuant to the
provisions of Section 110 of the National Internal
Revenue Code, as amended by R. A. No. 7716 as
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88181
88291
88250
further amended by R. A. No. 8241 (now Section

114 of the Tax Code of 1997) and as implemented
bySection4.1103(b)ofRevenueRegulationsNo.7
95, otherwise known as the Consolidated Value
AddedTaxRegulations.
Although corn starch is a byproduct in the process

ofmilling,itisnotoneofthoseconsideredintheir
original state for purposes of Section 103(b) of the
Tax code, as amended by Executive Order No. 273.
It is noted in said provision that only corn grits,
another byproduct, is considered in their original
state. Such being the case, corn starch which is a
manufactured product and no longer in its original
stateissubjectto10%valueaddedtaximposedby
Section 100 of the Tax Code, as amended by
Althoughcorngermisabyproductintheprocessof
milling corn, it is not one of those considered in
theiroriginalstateforpurposeofSection103(b)of
the Tax Code, as amended by Executive Order No.
273.
Anypersonwho,inthecourseoftradeorbusiness
rendersservicetothetaximposedinSection102of
the Tax Code. (Sec. 99, Tax Code, as amended by
Executive Order No. 273. Under Section 102, 10%
valueaddedtaxisleviedonanypersonengagedin
the sale of service. The phrase "sale of service"
means performance of all kinds of services for
others for a fee regardless of whether or not the
performancethereofcallsfor,theexerciseoruseof
the physical or mental faculties. Undoubtedly, by
performing professional and management services
toyourmanagedcompanies,youareengagedinthe
sale of services to them. Hence, as you are
rendering service for a fee, you are subject to the
12298
10%valueaddedtax.
YoudonotfallwithinthepurviewofSection103(r)
of the Tax Code which exempts from VAT services
performed in the exercise of profession or calling
Code and professional services performed by a
registered general professional partnership. This is
so because your management services are not
Code and that you are a corporation and not a
partnership.
UnderSection103oftheTaxCode,asamendedby
RepublicActNo.8241,whichtookeffectonJanuary
1, 1997 [now Section 109(r) of the Tax Code of
19971,viz:
"SEC.103.Exempttransactions.Thefollowingshall
beexemptfromthevalueaddedtax:
Xxxxxxxxx
"(r) Sales by agricultural cooperatives duly
registered with the Cooperative Development
Authority to their members as well as sale of their
produce, whether in its original state or processed
form, to nonmembers, their importation of direct
farminputs,machineriesandequipments,including
spare parts thereof, to be used directly and
exclusively in the production and/or processing of
theirproduce."
Xxxxxxxxx
The importation of a used "Backhoe", which was
primarily imported for the purpose of preparing,
tilling and irrigating the soil is not subject to value
addedtaxpursuanttotheaforequotedprovisionof
thelaw.
Onthematterofwhentheimportationoftheused
"Backhoe" was made, a perusal of the documents
submittedtothisOffice,i.e.,BillofLading,Shipment
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Invoice No. TO0101 dated December 3, 1996,

likewise, had revealed that its shipment was made
onDecember12,1996butwasloadedonboard"SS
TeresaPristege"onlyonDecember14,1996bound
for Manila, Philippines from Yokohama, Japan. It is
likewise,concededthatregularprocedure,including
unloading of shipment by the Arrastre from the
vessel, and documentations would require at least
seven (7) working days to withdraw the shipment
from the custom house. Thus, with the number of
holidaysandnonworkingdaysbetweenthedateof
arrival of the vessel up to the payment of the
correspondingtaxesandduties,inallprobability,it
was only after January 1, 1997, which is the
effectivitydateofRepublicActNo.8241(TheEVAT
Law),thattheshipmentwasfinallywithdrawnfrom
thecustomshouse.
UnderSection1202oftheTariffandCustomsCode,
"importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines
with the intention to unload therein"; and "it is
deemed terminated upon payment of the duties,
taxes and other charges due upon the articles on
securedtobepaid,ataportofentryandthelegal
permitforwithdrawalshallhavebeengranted,orin
case said articles are free from duties, taxes, and
other charges, until they have legally left the
jurisdiction of the customs". (Viduya vs. Bverdiago
73SCRA553).Theintentiontounload,anessential
element of importation, is manifested only at the
time when the shipment is withdrawn from the
customshouseuponpaymentofthecorresponding
duties and taxes, or upon issuance of a permit to
withdraw; otherwise, if the same are not paid,
importationisillegal.
ItshouldbenotedthatSection(g)oftheTransitory
Provisions of Revenue Regulations 795,
15298
15498
implementing R.A. 7716 (EVAT Law), clearly states

the effect of the new law on the importation of
goods,viz:
"(g) Importations.Importation of goods previously
exemptbutarenowsubjecttoVATunderR.A.7716
shall,uponwithdrawalfromcustomscustodyonor
after January 1, 1996, be subject to VAT. On the
otherhand,importationofgoodspreviouslytaxable
but are now exempt under R.A. 7716 shall, upon
withdrawal from customs custody on or after
January1,1996,beexemptfromVAT."
Therefore, starting January 1, 1997, which is the

effectivity date of R.A. No. 8241, the provisions of
the EVAT Law shall apply to all importations being
released/withdrawn from the customs house.
Henced, the VAT exemption of agricultural
cooperatives of their importations under the Old
VAT Law, which was denied under R.A. No. 7716,
andwhichwasagainrestoredunderR.A.No.8241,
shouldbeappliedinthiscase.
The sale by real estates dealers and/or lessors of

houseandlotandotherresidentialdwellingsvalued
atOneMillionPesos(PI,000,000.00)andbelowshall
be exempt from VAT. Since, as represented the
selling price of the house and lot at your Grand
Victoria Estates Subdivision is less than
P1,000,000.00, you are exempt from VAT on your
aforesaidtransaction,pursuanttoSection109(w)of
theTaxCodeof1997.
UnderSectionI(e)(2)(1)ofRevenueRegulationsNo.
685, as amended and Section 5 of Revenue
RegulationNo.1093,thetaxbaseincomputingthe
1% expanded creditable withholding tax on income
payments to forwarding contractors and the 6%
creditable VAT on payments made by the
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RR899
17498
government to sellers of services shall be on gross

original state. However, you cannot claim
payments.Thus,forpurposeoftaxremittances,the
exemption from the input VAT being passed on to
1% expanded creditable withholding tax imposed
you by the suppliers on your purchase of supplies,
underSectionI(e)(2)(1)ofRevenueRegulationsNo.
parts,fuels,etc.Asformingpartoftheinvoiceprice
685, as amended and the 6% creditable VAT
because VAT, being an indirect tax, may be shifted
prescribed under Section 3 of Revenue Regulations
or passed on to the buyer of goods and services
No. 1093 shall be computed based on gross
pursuanttoSec.105oftheTaxCodeof1997.
payments,whichmeanstotalpaymentsinclusiveof
thesaidCommissionPrivilegeFund.Thisissosince
LeaseOfVATExemptTransactions,SuppliesPassed
like other funds of the same nature, the said funds
OnToVATExempt
will ultimately redound to the benefit of your said
VATRuling3701
Gross receipts from lease of residential units is
supplier.Hence,acorrespondingchargeforbenefits
exemptfromthe10%VAT,asfollows:
derived thereby is deemed included in the
"(x)
Leaseofaresidentialunitwithamonthly
impositionofsaidtaxes.
rental not exceeding Eight Thousand (P8,000.00)
Pesos:..."1
HowtoShowVATinBill
"(x)
Lease of residential units with a monthly
All VATregistered taxpayers who are required
rental per unit not exceeding Eight Thousand
under
Section
23
(P8,000.00) Pesos, regardless of the amount of
7ofthe1997TaxCodetoissuereceiptsorsalesor
aggregate rentals received by the lessor during the
commercial invoices are no longer allowed to
year,..."
separately bill the valueadded tax corresponding
thereto. The amount appearing in the sales

"The term 'residential units' shall refer to
invoices/receipts is thus deemed inclusive of the
apartments, houses and/or lands on which
valueaddedtaxduethereon.
another's dwelling is located, used for residential
purposesandshallincludenotonlybuildings,parts
Failureorrefusaltocomplywiththerequirementin
orunitsthereofusedsolelyasdwellingplaces(e.g.,
Section1hereofshall,uponconviction,foreachact
dormitories, rooms and bed spaces) except motels,
or mission, be punished by a fine of not less than
motel rooms, hotels and hotel rooms. 'Residential
One thousand pesos (P1,000) but not more than
units' shall also include apartments, houses,
Fifty thousand pesos (P50,000) and suffer
building, parts or units thereof used for home
imprisonmentofnotlessthantwo(2)yearsbutnot
industries, retail stores or other business purposes,
morethanfour(4)years.
if the tenant thereof and his family actually live
therein and use them principally for dwelling

purposes.
TreatmentofVAT
YourexemptionfromVATonyoursaleoffishunder
"Theterm'unit'shallmeananapartmentunitinthe
Section109(d)oftheTaxCodeof1997coversonly
caseofapartments,houseinthecaseofresidential
yourdirecttaxliability,meaningyouroutputVATon
houses; per person in the case of dormitories,
the gross receipts from your sale of fish in their
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boarding houses and bed spaces; and per room in

caseofroomsforrent."
Since your client's rental from its residential

dormitory operations does not exceed P8,000.00
permonth,perindividual,thesameisexemptfrom
the 10% VAT, pursuant to Section 109 (x), NIRC of
1997, as implemented by Section 4 of Revenue
Regulations
No.
697.
On your query whether the said rentals from the

leaseofyourclient'sresidentialdormitoriesmaybe
subjecttothe3%percentagetax,inlieuofthe10%
VAT,pleasebeinformedthatthe3%percentagetax
prescribedunderSection116ofthesaidNIRCdoes
not apply to persons exempt from the 10% VAT
underSection109(a)to(y)oftheCode,asfollows:
"SECTION109.
Exempt Transactions. The
followingshallbeexemptfromthevalueaddedtax:
"(a)
...
"xxxxxxxxx
"(z)
Saleorleaseofgoodsorpropertiesorthe
performanceofservicesotherthanthetransactions
mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the
amount of Five hundred fifty thousand pesos
(P550,000):..."
"SECTION116.
Tax on Persons Exempt from
Valueadded Tax (VAT). Any person whose sales
or receipts are exempt under Section 109(z) of this
Codefromthepaymentofvalueaddedtaxandwho
is not a VATregistered person shall pay a tax
equivalent to three percent (3%) of his gross
quarterly sales or receipts: Provided, That
cooperatives shall be exempt from the three
percent (3%) gross receipts tax herein imposed."
It follows, your client's gross receipts from lease of
RR162003
its residential dormitories is likewise exempt from

the3%percentagetax.
VAT/PercentageTaxonTiangge
Business Tax [ Valueadded Tax (VAT) or
Percentage Tax, as the case may be] of ONE
HUNDRED FIFTY PESOS (P150) per day or FOUR
THOUSAND FIVE HUNDRED PESOS (P4,500) per
month during the entire duration that such
privilegestoreisallowedbytheconcernedLocal
Government Unit to be set up in the place for
whichthesamehasbeentemporarilyestablished.
Astheseareadvancepayments,thesameshallbe
credited against the actual business tax (value
added tax or percentage tax, as the case may be)
and income tax due from such persons for the
taxableperiodforwhichsuchadvancepayments
wereremittedtotheBureauofInternalRevenue.
If the seller of goods/services is do not exceed

P550,000 in any 12month period and therefore,
liable to the 3% percentage tax imposed under
Section116oftheTaxCode,suchadvancebusiness
tax paid pursuant to Section 4(a) above shall be
creditedagainstthepercentagetaxduefromsuch
seller for the month for which such advance
paymentwascollected.
Ifthesellerofgoods/service,ontheotherhand,is
aVATtaxpayer,inadditiontotheinputtaxcredits
allowed by the Code, the amount of advance
business tax paid pursuant to Section 4(a) above
shallbeallowedascreditagainsttheoutputtaxon
theaccumulatedgrosssales/receiptsrealizedbythe
seller for the month for which such advance
payment was made. For this purpose, the
accumulatedgrosssales/receiptsreportablebythe
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sellerinthemonthlyVATdeclarationorQuarterly
VAT Return shall not only include those realized
fromtheuseofprivilegestore,butshalllikewise
includethoserealizedfromitspermanentplaceof
establishment, branches and other places where
marketing and/or sales of goods/services are
conducted.
TAXCREDITS
InputVAT(Section110B,NIRC)
1. ValueAdded tax due from or paid by a VATregistered person in the
courseofhistradeorbusinessonimportationofgoodsorlocalpurchase
ofgoodsorservices
2. There is creditable input VAT against output VAT if taxpayer is VAT
registeredpersonandhasobtainedserviceormerchandiseforsalefrom
anotherVATregisteredperson
SourcesofCreditableInputVAT
1. Purchaseorimportationofgoods
1. Forsale
2. For conversion into or intended to form part of a finished product
forsale,includingpackagingmaterials
3. Foruseassuppliesinthecourseofbusiness
4. Foruseasrawmaterialssuppliedinthesaleofservices
5. Foruseintradeorbusinessforwhichdeductionfordepreciationor
amortizationisallowedundertheTaxCode
2. PurchaseofrealpropertiesforwhichVAThasactuallybeenpaid
3. PurchasesofservicesinwhichaVAThasactuallybeenpaid
4. Transactionsdeemedsale
5. TransitionalinputVAT
6. PresumptiveinputVAT
7. Transitional input tax credits allowed under the transitory and other
provisions
PersonsWhoCanAvailoftheInputTaxCredit
1.
2.
3.
TotheimporteruponpaymentofVATpriortothereleaseofgoodsfrom
customscustody
To the purchaser of the domestic goods or properties upon
consummationofthesaleor
To the purchaser of services or the lessee or licensee upon payment of
thecompensation,rental,royaltyorfee
RequisitesforClaimforInputTaxonDepreciableGoods
AVATregisteredpersonpurchasesorimportscapitalgoods
Aggregate acquisition cost of which in a calendar month exceed P1

million
MannerofClaimingInputTax
1. Estimatedusefullifeofacapitalgoodis5yearsormore
a. Inputtaxspreadevenlyoveraperiodof60months
b. Commenced in the calendar month when the capital good is
acquired
2. Estimatedusefullifeislessthan5years
a. Inputtaxspreadevenlyonmonthlybasisbytheactualnumber
of months comprising the estimated useful life of the capital
good
b. Commended in the calendar month when the capital good is
acquired
AggregateAcquisitionCostDoesNotExceedP1million
Total input taxes will be allowable as credit against output tax in the
monthofacquisition
AggregateAcquisitionCostofaDepreciableAssetinanyCalendarMonth
Referstothetotalpriceagreeduponforoneormoreassetsacquiredand
notonthepaymentsactuallymadeduringthecalendarmonth
IftheDepreciableCapitalGoodisTransferred/SoldWithinthePeriodof5years
orPriortotheExhaustionoftheAmortizableInputTaxThereon
Entireunamortizedinputtaxonthecapitalgoodssold,canbeclaimedas
input tax credit during the month or quarter when the sale or transfer
wasmadebutsubjecttolimitation
ApportionmentofInputTaxonMixedTransactions
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1.
2.
3.
4.
All the input taxes that can be directly attributed to the transactions
subject to VAT may be recognized for input tax credits (note however
thatinputtaxeswhichcanbedirectlyattribut4edtoVATtaxablesalesof
goods and services from government or any of its political subdivisions,
etc.shallnotbecreditedagainstoutputtaxesarisingfromsalestonon
governmententities
If any input tax cannot be directly attributed to either a VAT taxable or
VATexempt transaction, the input tax shall be prorated to the VAT
taxableandVATexempttransactions
InputtaxattributabletoVATexemptsalesshallnotbeallowedascredit
againstoutputtaxbutshouldbetreatedaspartofcostofgoodssold
For persons engaged in both nonzero rated and zerorated sales, the
aggregateinputtaxesshallbeallocatedratably
4%asassumedinputVATonpurchaseofagriculturalproductswhichare
usedasinputstotheproductionofthefollowingbusiness
o On persons/firms engaged in the processing of sardines, mackerel,
milk
o On persons/firms engaged in manufactured refined sugar and
cookingoil
o On persons/firms engaged in manufactured noodlebased instant
meals
OutputVAT
Due on sale or lease of taxable goods or services or properties by any

personregisteredorrequiredtoregister
SalesDiscount,Returns,andAllowances
Discountsexpresslyindicatedininvoicedontformpartoftaxablebase
Discountsarentexcludedfromgrosssellingpriceofitscustomersgrant
theseonlyuponthesubsequenthappeningofaneventorfulfillmentof
certainconditionssuchaspromptpaymentorattainmentofsalesgoals
(VATruling20490)
Sales returns and allowances for which a proper credit or refund was
made during the month or quarter to the buyer or sales previously
recordedastaxablesalesarealsoexcludedfromgrosssellingprice
TransitionalInputVAT(Section111)
MaybeallowedforpersonwhoforthefirsttimebecomesliableforVAT
oranypersonwhoelectstobeVATregisteredpersonshall,atthestart,
be subjected to file an inventory report, be allowed input tax in his
beginninginventoryofgoods,materials,andsuppliesequivalentto2%of
the value of such inventory or the actual VAT paid on such goods,
materials, or supplies, whichever is higher, which shall be credited
againstoutputVAT
PresumptiveInputTax
AmountallowedasinputtaxdespitethatthereisnoactualVATpayment
inVATexempttransactions
PERCENTAGETAXES
SUBJECTOFTAXATION
Generalrule
DEFINITION
Any person whose sales or receipts are exempt
under Section 109 (V) of this Code from the
paymentofvalueaddedtaxandwhoisnotaVAT
registeredperson
Domesticcarriersandkeepersof Cars for rent or hire driven by the lessee;
garages
transportation contractors, including persons who
transportpassengersforhire,andotherdomestic
TAXRATE/TAXBASE
3%
of
gross
receipts/sales
NOTES/COMMENTS
Cooperatives shall be exempt from the three percent
(3%)grossreceiptstaxhereinimposed
3%
of
receipts/sales
Incoming and outgoing freight shall not be subjected to

thelocaltaxesundertheLocalGovernmentCode
*The abovementioned is a riderthere may be
gross
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Internationalcarriers
Franchisetaxes
carriers by land for the transport of passengers

(except owners of bancas and owners of animal
drawn two wheeled vehicle), and keepers of
garages
International air and shipping carriers doing 3%ofgrossreceipts
businessinthePhilippines
All franchises on radio and/or television

broadcasting companies whose annual gross
receiptsoftheprecedingyeardoesnotexceedten
millionpesos(P10,000.00)
3% for electric, gas, and

waterutilities
2% on the gross receipts

derived
from
the
business covered by the
law
granting
the
exemptions to national taxes but here, there is

introduction of exemptions from local revenue taxes
(ergo,thisparagraphismisplaced)
There is no double taxation. There are two different
purposes for the taxation. One is imposed on the
income.Theotherisimposedonthetransaction.
*ReviewofgrossPhilippinebillings
(a) International Air Carrier. "Gross Philippine Billings"
refers to the amount of gross revenue derived from
carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage
document:Provided,Thatticketsrevalidated,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:
Provided,further,Thatforaflightwhichoriginatesfrom
the Philippines, but transshipment of passenger takes
place at any port outside the Philippines on another
airline, only the aliquot portion of the cost of the ticket
corresponding to the leg flown from the Philippines to
the point of transshipment shall form part of Gross
PhilippineBillings.
(b) International Shipping. "Gross Philippine Billings"
means gross revenue whether for passenger, cargo or
mail originating from the Philippines up to final
destination, regardless of the place of sale or payments
ofthepassageorfreightdocuments.
That radio and television broadcasting companies
referred to in this Section shall have an option to be
registeredasavalueaddedtaxpayerandpaythetaxdue
thereon.
Thatoncetheoptionisexercised,itshallnotberevoked.
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Overseascommunication
franchise
Every overseas dispatch, message or conversation 10%
on
amount
transmitted from the Philippines by telephone, collectedforservice
telegraph,telewriterexchange,wirelessandother
communicationequipmentservice
Banks and nonbanks financial On interest, commissions and discounts from lending activities as well as
intermediaries
income from financial leasing, on the basis of remaining maturities of
instrumentsfromwhichsuchreceiptsarederived
Maturityperiodisfiveyearsorless
5%
The tax imposed in this Section shall be payable by the

personpayingfortheservicesrenderedandshallbepaid
to the person rendering the services who is required to
collectandpaythetaxwithintwenty(20)daysafterthe
endofeachquarter.
Thefollowingshallbeexempted
(1) Government. Amounts paid for messages
transmitted by the Government of the Republic of the
Philippines or any of its political subdivisions or
instrumentalities;
(2) Diplomatic Services. Amounts paid for messages
transmitted by any embassy and consular offices of a
foreigngovernment;
(3) International Organizations. Amounts paid for
messages transmitted by a public international
organization or any of its agencies based in the
Philippines enjoying privileges, exemptions and
immunities which the Government of the Philippines is
committed to recognize pursuant to an international
agreement;and
(4)NewsServices.Amountspaidformessagesfromany
newspaper, press association, radio or television
newspaper, broadcasting agency, or newstickers
services, to any other newspaper, press association,
radio or television newspaper broadcasting agency, or
newsticker service or to a bona fide correspondent,
which messages deal exclusively with the collection of
news items for, or the dissemination of news item
through,publicpress,radioortelevisionbroadcastingor
a newsticker service furnishing a general news service
similartothatofthepublicpress.
Incasethematurityperiodreferredtoinparagraph(a)is
shortened thru pretermination, then the maturity
period shall be reckoned to end as of the date of pre
termination for purposes of classifying the transaction
andthecorrectrateoftaxshallbeappliedaccordingly.
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Maturityperiodismorethanfiveyears 1%
Ondividendsandequitysharesandnetincomeof 0%
subsidiaries
Onroyalties,rentalsofproperty,realorpersonal, 7%
profits,fromexchangeandallotheritemstreated
asgrossincomeunderSection32ofthisCode
On net trading gains within the taxable year on 7%
foreign currency, debt securities, derivatives, and
othersimilarfinancialinstruments
That interests, commissions and discounts from lending

activities, as well as income from financial leasing, shall
betaxedonthebasisoftheremainingmaturitiesofthe
instruments from which such receipts are derived, in
accordancewiththefollowingschedule:
Shortterm maturity (not in excess of 2 years)
5%
Mediumtermmaturity(overtwo(2)years
but
not
exceeding
four
(4)
years)
3%
Longtermmaturity
(1) Over four (4) years but not exceeding seven (7)
1%
(2)
Over
seven
(7)
years
0%
Premiumsrefundedwithinsix(6)monthsafterpayment
on account of rejection of risk or returned for other
reason to a person insured shall not be included in the
taxable receipts; nor shall any tax be paid upon
reinsurancebyacompanythathasalreadypaidthetax;
nor upon doing business outside the Philippines on
account of any life insurance of the insured who is a
nonresident, if any tax on such premium is imposed by
the foreign country where the branch is established nor
uponpremiumscollectedorreceivedonaccountofany
reinsurance,iftheinsured,incaseofpersonalinsurance,
resides outside the Philippines, if any tax on such
premiums is imposed by the foreign country where the
originalinsurancehasbeenissuedorperfected;norupon
that portion of the premiums collected or received by
the insurance companies on variable contracts (as
definedinsection232(2)ofPresidentialDecreeNo.612),
inexcessoftheamountsnecessarytoinsurethelivesof
thevariablecontractworkers.
That the provision of this Section shall not apply to
reinsurance.
Insurance/premiums
Every person, company or corporation (except 5%

purely cooperative companies or associations)
doing life insurance business of any sort in the
Philippines
Foreigninsurance
Every fire, marine or miscellaneous insurance Twice the tax paid for
agent authorized under the Insurance Code to insurancepremiums
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procure policies of insurance as he may have

previously been legally authorized to transact on
risks located in the Philippines for companies not
authorizedtotransactbusinessinthePhilippines
Amusementtaxes
The proprietor, lessee or operator of cockpits, cabarets, night or day clubs,

boxingexhibitions,professionalbasketballgames,JaiAlaiandracetracks
Cockpits
18%
Inthecaseofcabarets,nightordayclubs;
18%
That the provisions of this Section shall not affect the

rightofanownerofpropertytoapplyforandobtainfor
himselfpoliciesinforeigncompaniesincaseswheresaid
owner does not make use of the services of any agent,
companyorcorporationresidingordoingbusinessinthe
Philippines.
In all cases where owners of property obtain insurance

directly with foreign companies, it shall be the duty of
saidownerstoreporttotheInsuranceCommissionerand
to the Commissioner each case where insurance has
been so effected, and shall pay the tax of five percent
(5%) on premiums paid, in the manner required by
Section123.
Reason behind the taxability: Since the property is

within the Philippines, any dispute that may arise from
theinsurancecontractmustnecessarilybesettledinthe
Philippinecourts
For the purpose of the amusement tax, the term "gross
receipts" embraces all the receipts of the proprietor,
lessee or operator of the amusement place. Said gross
receipts also include income from television, radio and
motion picture rights, if any. A person or entity or
association conducting any activity subject to the tax
herein imposed shall be similarly liable for said tax with
respecttosuchportionofthereceiptsderivedbyhimor
it.
Thetaxesimposedhereinshallbepayableattheendof
each quarter and it shall be the duty of the proprietor,
lesseeoroperatorconcerned,aswellasanypartyliable,
withintwenty(20)daysaftertheendofeachquarter,to
make a true and complete return of the amount of the
gross receipts derived during the preceding quarter and
paythetaxduethereon.
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Inthecaseofboxingexhibitions
Winnings
Professional basketball games as envisioned in 15%

PresidentialDecreeNo.871:
InthecaseofJaiAlaiandracetracksoftheirgross 30%
receipts, irrespective, of whether or not any
amountischargedforadmission.
Everypersonwhowinsinhorseraces
10%
10%
of1%
Thetaxtobebasedontheactualamountpaidtohimfor
everywinningticketafterdeductingthecostoftheticket
The tax herein prescribed shall be deducted from the
'dividends' corresponding to each winning ticket or the
"prize" of each winning race horse owner and withheld
by the operator, manager or person in charge of the
horseracesbeforepayingthedividendsorprizestothe
personsentitledthereto.
The operator, manager or person in charge of horse

racesshall,withintwenty(20)daysfromthedatethetax
was deducted and withheld in accordance with the
second paragraph hereof, file a true and correct return
with the Commissioner in the manner or form to be
prescribed by the Secretary of Finance, and pay within
thesameperiodthetotalamountoftaxsodeductedand
withheld.
Upto25%4%
25%to331/3%2%
Over331/3%1%
Thetaxhereinimposedshallbepaidbytheissuing
corporationinprimaryofferingorbythesellerin
secondaryoffering.
In the case of winnings from double, 4%

forecast/quinellaandtrifectabets
Inthecaseofownersofwinningracehorses
10%
Sharesofstocklistedandtraded Every sale, barter, exchange, or other disposition

inthestockexchange
of shares of stock listed and traded through the
local stock exchange other than the sale by a
dealerinsecurities
Shares of stock in initial public Every sale, barter, exchange or other disposition
offering
throughinitialpublicofferingofsharesofstockin
closelyheldcorporations,asdefinedherein,atax
That boxing exhibitions wherein World or Oriental

Championshipsinanydivisionisatstakeshallbeexempt
fromamusementtax
ThatatleastoneofthecontendersforWorldorOriental
Championship is a citizen of the Philippines and said
exhibitionsarepromotedbyacitizen/softhePhilippines
or by a corporation or association at least sixty percent
(60%)ofthecapitalofwhichisownedbysuchcitizens
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at the rates provided hereunder based on the

gross selling price or gross value in money of the
shares of stock sold, bartered, exchanged or
otherwise disposed in accordance with the
proportion of shares of stock sold, bartered,
exchanged or otherwise disposed to the total
outstandingsharesofstockafterthelistinginthe
localstockexchange
ForpurposesofthisSection,theterm"closelyheld
corporation"meansanycorporationatleastfiftypercent
(50%)invalueofoutstandingcapitalstockoratleastfifty
percent(50%)ofthetotalcombinedvotingpowerofall
classesofstockentitledtovoteisowneddirectlyor
indirectlybyorfornotmorethantwenty(20)individuals.
Forpurposesofdeterminingwhetherthecorporationisa
closelyheldcorporation,insofarassuchdeterminationis
basedonstockownership,thefollowingrulesshallbe
applied:
(1)StockNotOwnedbyIndividuals.Stockowned
directlyorindirectlybyorforacorporation,partnership,
estateortrustshallbeconsideredasbeingowned
proportionatelybyitsshareholders,partnersor
beneficiaries.
(2)FamilyandPartnershipOwnerships.Anindividual
shallbeconsideredasowningthestockowned,directly
orindirectly,byorforhisfamily,orbyorforhispartner.
Forpurposesoftheparagraph,the'familyofan
individual'includesonlyhisbrothersandsisters(whether
bywholeorhalfblood),spouse,ancestorsandlineal
descendants.
(3)Option.Ifanypersonhasanoptionacquirestock,
suchstockshallbeconsideredasownedbysuchperson.
Forpurposesofthisparagraph,anoptiontoacquiresuch
anoptionandeachoneofaseriesofoptionsshallbe
consideredasanoptiontoacquiresuchstock.
(4)ConstructiveOwnershipasActualOwnership.Stock
constructively owned by reason of the application of
paragraph(1)or(3)hereofshall,forpurposesofapplying
paragraph (1) or (2), be treated as actually owned by
such person; but stock constructively owned by the
individual by reason of the application of paragraph (2)
hereofshallnotbetreatedasownedbyhimforpurposes
of again applying such paragraph in order to make
anothertheconstructiveownerofsuchstock.
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COMMISSIONERV.USLINES
5SCRA175
FACTS:
1.
2.
US Lines is the operator of oceangoing vessels transporting passengers

andfreighttoandfromthePhilippines
In the examination of books of accounts, it was found out that the
companycontractedwithanothervesselcompanyinconnectionwiththe
transportationofchromeoresfromZambalestotheUS.
CIRassessedthecompanyforthenonpaymentofpercentagetaxes
3.
HELD:
Whatthelegalprovisionpurportstotaxisthebusinessoftransportation,somuch
so,thatthetaxisbasedongrossreceipts.Thepersonliableisofcoursetheowner
ortheoperator,butthisdoesn'tmeanthatheandhealonecanbemadeactually
topaythetax.Inotherwords,whoeveractsonhisbehalfandforhisbenefitmay
beheldliabletopay,forandonbehalfofthecarrieroroperatorsuchpercentage
taxonbusiness.
SOUTHAFRICANAIRWAYSV.CIR
CTACASE6760,9JUNE2005
FACTS:
SouthAfricanAirwaysisanonresidentforeigncorporationengagedininternational
air carrier operations. It has a local sales agent which is in charge of selling on
commissionbasispassagedocuments,etc.Theagentdulyfiledincometaxreturns
butonthebeliefthatithasoverpaiditstaxesbypayingthegrossPhilippinebillings
tax,itdemandedtherefundbutwasdenied.
HELD:
TheabsenceofflightoperationstoandfromthePhilippinesisnotdeterminativeof
the source of income or the situs of income taxation. Petitioner admitted that it
sellspassagedocumentsinthePhilippinesthroughitssalesagent.Petitioner,thus,
is deriving revenues from the conduct of its business activity regularly pursued
within the Philippines. Petitioner is therefore a resident foreign corporation
engagedintradeorbusinessinthecountrywithinthepurviewofourtaxlawandis
thereforesubjecttotax.
BIRRULINGDA15805
14APRIL2005
FACTS:
Air France and KLM, are now part of the same group, they continue to exist as
separate entities; that the decision to keep the airlines as separate entities took
intoaccounttheexistingflyingrightsofAirFranceandKLMundertherespective
AirTransportAgreementsofFranceandofTheNetherlandswithothercountries,
underwhich,therespectiveflagcarriersoftheContractingStatesareauthorizedto
carryspecificflights;thatnonetheless,incountrieswherebothAirFranceandKLM
operate, it has been decided that only one airline will continue to have flight
operations; that in other words, one airline will continue to carry flights to and
from that country, while the other airline will cease its flight operations in that
country. With respect to the Philippines, Air France pursuant to the merger,
ceasedtohaveflightsinthePhilippinesbutcontinuedsellingticketsforitsflights.
Itwasoftheopinionthatitshouldn'tbesubjectedtogrossPhilippinebillingstax,
CCT,etc.
HELD:
Underthedefinitionof"GrossPhilippineBillings"underSection28(A)(3)(a)ofthe
Tax Code of 1997, for passenger and cargo revenues to form part of Gross
PhilippineBillings,suchrevenuesmustbederivedfromthecarriageofpersonsand
ofcargooriginatingfromthePhilippinesinacontinuousanduninterruptedflight.
Thisruleappliesirrespectiveoftheplaceofsaleorissueandtheplaceofpayment
oftheticketsorpassagedocuments.
Being an offline airline, Air France shall not be subject to the 2 1/2% Gross
PhilippineBillingsTaxorthe11/2%incometaxonGrossPhilippineBillingsunder
Section8oftheRPFranceTaxTreaty,the3%CCT,andthe32%regularcorporate
income tax/2% MCIT on revenues generated from the sale of Air France tickets
withinthePhilippines.
VISAYANELECTRICV.DAVID
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92PHIL969
FACTS:
VisayanElectricCo..Ltd.,isapubliclimitedcompanyorganizedunderthelawsof
thePhilippines,withheadquartersinthecityofCebu,andisdedicatedtoproviding
electricfluid,withcertificateofpublicconvenience.TheLawno.3499grantedthe
right, previlegio and authority to build, maintain and operate for fifty years
belongings, appliances and other accessories for electricity supplied in the
municipalitiesofTalisay,Minglanilla,Naga,SanFernando,Mandawa,Consolacin,
lilac,CompostelaandcityofCebu.
Thecompanyfiledalawsuitdemandingthatadeclarationbythecourtthatthe5
percenttaxprovisoinArticle259oftheNationalTaxCode,asamended,doesnot
apply to it because, according to their franchise (Article 8, Law Not. 3499), must
paytaxonly2percent.
HELD:
ItistruethatArticle11ofLawno.3499attachestotheVisayanElectricCo..,S.A.
the franchise with the condition that this subject to amendment, alteration or
repealofthelawbyUnitedStatesCongress,butneithertheNationalTaxCodeor
RepublicActno.39repealingArticle8ofLawfranchise(No.3499).
Article259oftheNationalTaxcode,asamendedbyArticle7ofRepublicActNo.
39, no amendment of Article 8 of Law no. 3499, which stipulates that the two
percent tax to be paid by the applicant "Shall be in lieu of all taxes levied at any
time,establishedorcollectedbyanyauthoritywhatsoever,noworinthefuture."
COMMISSIONERV.CA
195SCRA445
FACTS:
1.
2.
Private respondent is engaged in international telecommunications and

through a special concession, was granted the authority to construct,
operate and maintain submarine telegraph devices/cables from Hong
KongtoManila.
Whentheconcessionexpired,itwasgrantedafranchise.Itwasgranted
likewiseexemptionfrompaymentofalltaxesexceptthefranchisetaxof
5%.
3.
4.
5.
Thegrantedfranchisewasbroadenedbutthesectiononexemptionfrom
taxeswasn'trepealed
The CIR assessed the corporation for deficiency income taxes, on the
beliefthatthefranchisegrantedtoitwasineffectiveforfailingtocomply
withtheconstitutionalrequirements
In the meanwhile, Marcos allowed the assignment of the franchise to
EasternTelecommunications
HELD:
Private respondent was rightfully granted a franchise. It complied with the
necessaryrequirementsinacceptingthesame.Inthislight,thepetitionerisbound
bythetermsofthefranchise.Itcannotdeclarethefranchiseasunenforceableand
ineffective.
CIRV.REPUBLICBROADCASTING
CAGR32811,19SEPTEMBER1994
FACTS:
RBS was previously granted a franchise to operate its broadcasting business.
However, by virtue of a PD, the franchise of RBS together with other franchisees
wasrevoked.Whenthefranchisewasrevoked,theRBScontinuedoperationsby
virtueofalicensegrantedbytheNTC.Alaterlawwaspassedgrantingfranchiseto
RBS to operate. For the interim period when there was no franchise, the CIR
assessedthecompanyfordeficiencyfranchisetaxes.
HELD:
TheCTAdecisionissustained.Therewasnolegalbasisfortheassessmentofthe
CIRforfranchisetaxasRepublicdidn'thaveavalidfranchiseduringitsoperations
duringthethirdandfourthquartersofthesubjecttaxableperiod.CTAwouldlike
toaverthatRBSwasunlawfullyoperatingstillnotwithstandingthelackoffranchise
and thus, should be duly assessed for payment of tax. However, there is a
distinctionbetweenfranchiseandlicense.ThecontinuedoperationsofRBSabsent
thefranchisewaslicensedbytheNTC.
A 'franchise' is a right or privilege granted by the sovereignty to one or more

partiestodosomeactoracts,whichtheycouldnotdowithoutthisgrantfromthe
sovereign power; a privilege which emanates from the sovereign power of the
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state government; a branch of the sovereign power of the state, subsisting in a

personorcorporationbygrantfromthestate."
A "license" on the other hand, confers no right or estate nor vested interest, not
doesitconstituteabindingcontractbetweentheparties,butitisamereleaveto
be enjoyed as matter of indulgence at the will of the party granting it. It is in no
senseacontractbetweenthestateandthelicensee,butisamerepersonalpermit,
neithertransferablenorvendible.
4.
HELD:
1.
2.
3.
MERALCOV.YATCO
69PHIIL89
FACTS:
1.
2.
3.
MERALCO insured with foreign insurance companies not doing business

inthecountryitspersonalandrealproperties
The policies contained provisions for the settlement and payment of
lossesupontheconcurrenceofanyriskinsuredagainst
MERALCO paid accordingly the premiums due and the Commissioner
assessedandwithheldtaxonthesame.
MERALCOpaidunderprotestandclaimedforitsrefund.
4.
HELD:
WheretheinsurediswithinthePhilippines,theriskinsuredagainstalsowithinthe
Philippines,andcertainincidentsofcontractaretobeattendedinthePhilippines,
suchas,paymentofdividendwhenreceivedincash,sendingofanadjusterintothe
Philippinesincaseofdispute,ormakingofproofofloss,thegovernmenthasthe
powertoimposethetaxupontheinsured,regardlessofwhetherthecontractwas
executedinaforeigncountryandwithaforeigncorporation.
STANDARDVACUUUMOILV.ANTIGUA
96PHIL909
FACTS:
1.
2.
3.
Standardisengagedintheimportation,distribution,andsaleofgasoline,
kerosene,andotherfueloils
SomeofitsproductsareplacedintincansandsoldinthePhilippines
ItsbranchinCebuoperatesanestablishmentwhereitstoresitsgasoline,
keroseneandotherfueloils.
An ordinance was passed imposing a graduated tax on businesses

engagedinthemanufactureoftincans.
Theoccupationtaximposedbythemunicipalgovernmentisinapplicable
toStandard
Themanufactureoftincansasinthepresentcaseisconductednotasan
independentbusinessandforprofitbutmerelyasanincidenttoorpart
ofitsmainbusinesswhichmaybetaxedseparately
Whenapersonorcompanyisalreadytaxedonitsmainbusiness,itmay
not be further taxed for doing something or engaging in an activity or
workwhichismerelyapartofitorincidentalornecessarytoitsbusiness.
RETURNSANDPAYMENTOFPERCENTAGETAXES
PersonsLiableToPay
Every person subject to the percentage taxes imposed under this Title
shall file a quarterly return of the amount of his gross sales, receipts or
earningsandpaythetaxduethereonwithintwentyfive(25)daysafter
theendofeachtaxablequarter
Provided,ThatinthecaseofapersonwhoseVATregistrationiscancelled
andwhobecomesliabletothetaximposedinSection116ofthisCode,
the tax shall accrue from the date of cancellation and shall be paid in
accordancewiththeprovisionsofthisSection.
PersonsRetiringfromBusiness
Anypersonretiringfromabusinesssubjecttopercentagetaxshallnotify
the nearest internal revenue officer, file his return and pay the tax due
thereonwithintwenty(20)daysafterclosinghisbusiness
Exceptions
(a) Thetimeforfilingthereturnatintervalsotherthanthetimeprescribed
intheprecedingparagraphsforaparticularclassorclassesoftaxpayers
after considering such factors as volume of sales, financial condition,
adequate measures of security, and such other relevant information
requiredtobesubmittedunderthepertinentprovisionsofthisCode;and
(b) The manner and time of payment of percentage taxes other than as
hereinaboveprescribed,includingaschemeoftaxprepayment.
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DeterminationofCorrectSalesorReceipts
Whenitisfoundthatapersonhasfailedtoissuereceiptsorinvoices,or
whennoreturnisfiled,orwhenthereisreasontobelievethatthebooks
of accounts or other records do not correctly reflect the declarations
madeortobemadeinareturnrequiredtobefiledundertheprovisions
of this Code, the Commissioner, after taking into account the sales,
receipts or other taxable base of other persons engaged in similar
businessesundersimilarsituationsorcircumstances,orafterconsidering
other relevant information may prescribe a minimum amount of such
gross receipts, sales and taxable base and such amount so prescribed
shall be prima facie correct for purposes of determining the internal
revenuetaxliabilitiesofsuchperson.
WheretoFile
ExceptastheCommissionerotherwisepermits,everypersonliabletothe
percentagetaxunderthisTitlemay,athisoption,fileaseparatereturn
for each branch or place of business, or a consolidated return for all
branchesorplacesofbusinesswiththeauthorizedagentbank,Revenue
DistrictOfficer,CollectionAgentordulyauthorizedTreasurerofthecity
or municipality where said business or principal place of business is
located,asthecasemaybe.
EXCISETAX
Whatistheexcisetax?
Tax imposed in addition to the VAT and apply to certain goods

manufactured or produced in the Philippines for domestic sale or
consumptionorforanyotherdispositionandtothoseimported
Thisincludesspecificandadvaloremtaxes
Specifictaxonethatimposesaspecificsumonanarticleperitsunitor
number, weight, or volume capacity, or any other physical unit or
measurement, requiring no further assessment beyond a listing and
classificationoftheobjectstobetaxed
Ad valoremthe selling price or other specified value of the good is

considered
SHELLV.MUNICIPALITYOFCORDOVA
94PHIL389
FACTS:
The Municipal Council of Cordova, Province of Cebu, adopted the following
ordinances: No. 10, series of 1946, which imposes an annual tax of P150 on
occupationortheexerciseoftheprivilegeofinstallationmanager;No.9,seriesof
1947, which imposes an annual tax of P40 for local deposits in drums of
combustible and inflammable materials and an annual tax of P200 for tin can
factories;andNo.11,seriesof1948,whichimposesanannualtaxofP150ontin
canfactorieshavingamaximumoutputcapacityof30,000tincans.TheShellCo.of
P.I.Ltd.,aforeigncorporation,filedsuitfortherefundofthetaxespaidbyit,on
thegroundthattheordinancesimposingsuchtaxesareultravires.Thedefendant
deniesthattheyareso.
HELD:
OrdinanceNo.11,seriesof1948,whichimposesamunicipaltaxofP150ontincan
factories having a maximum annual output capacity of 30,000 tin cans which,
accordingtothestipulationoffacts,wasapprovedbytheProvincialBoardofCebu
and the Department of Finance, is valid and lawful, because it is neither a
percentagetaxnoroneonspecifiedarticleswhicharetheonlyexceptionsprovided
in section 1, Commonwealth Act No. 472. Neither does it fall under any of the
prohibitionsprovidedforinsection3ofthesameAct.Specifictaxesenumeratedin
the National Internal Revenue Code are those that are imposed upon "things
manufactured or produced in the Philippines for domestic sale or consumption"
andupon"thingsimportedfromtheUnitedStatesandforeigncountries,"suchas
distilled spirits, domestic denatured alcohol, fermented liquors, products of
tobacco,cigarsandcigarettes,matches,mechanicallighters,firecrackers,skimmed
milk, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
cinematographic films, playing cards, sacharine. And it is not a percentage tax
because it is tax on business and the maximum annual output capacity is not a
percentage,becauseitisnotashareorataxbasedontheamountoftheproceeds
realizedoutofthesaleofthetincansmanufacturedthereinbutonthebusinessof
manufacturing tin cans having a maximum annual output capacity of 30,000 tin
cans.
FILINGOFRETURNANDPAYMENTOFEXCISETAXESONDOMESTICPRODUCTS
PersonsLiabletoFileaReturn
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EverypersonliabletopayexcisetaximposedunderthisTitleshallfilea
separatereturnforeachplaceofproductionsettingforth,amongothers,
the description and quantity or volume of products to be removed, the
applicable tax base and the amount of tax due thereon: Provided,
however, That in the case of indigenous petroleum, natural gas or
liquefied natural gas, the excise tax shall be paid by the first buyer,
purchaserortransfereeforlocalsale,barterortransfer,whiletheexcise
tax on exported products shall be paid by the owner, lessee,
concessionaireoroperatoroftheminingclaim.
Should domestic products be removed from the place of production
withoutthepaymentofthetax,theownerorpersonhavingpossession
thereofshallbeliableforthetaxduethereon.
TimeForFilingofReturnandPaymentofTax
Unless otherwise specifically allowed, the return shall be filed and the
excise tax paid by the manufacturer or producer before removal of
domesticproductsformplaceofproduction
The excise tax on locally manufactured petroleum products and

indigenous petroleum levied under Sections 148 and 151(A)(4),
respectively,ofthisTitleshallbepaidwithinten(10)daysfromthedate
ofremovalfromtheplaceofproductionofsuchproductsfromJanuary1,
1999andthereafter
Thattheexcisetaxonnonmetallicmineralormineralproducts,orquarry
resourcesshallbedueandpayableuponremovalofsuchproductsfrom
thelocalitywhereminedorextracted,butwithrespecttotheexcisetax
on locally produced or extracted metallic mineral or mineral products,
the person liable shall file a return and pay the tax within fifteen (15)
days after the end of the calendar quarter when such products were
removed subject to such conditions as may be prescribed by rules and
regulations to be promulgated by the Secretary of Finance, upon
recommendationoftheCommissioner.
For this purpose, the taxpayer shall file a bond in an amount which
approximatestheamountofexcisetaxdueontheremovalsforthesaid
quarter.
The foregoing rules notwithstanding, for imported mineral or mineral

products, whether metallic or nonmetallic, the excise tax due thereon
shallbepaidbeforetheirremovalfromcustomscustody.
PlaceofFilingandPayment
The return shall be filed with and the tax paid to any authorized agent
bankorRevenueCollectionOfficer,ordulyauthorizedCityorMunicipal
TreasurerinthePhilippines.
Exceptions
(a) Thetimeforfilingthereturnatintervalsotherthanthetimeprescribed
intheprecedingparagraphsforaparticularclassorclassesoftaxpayers
afterconsideringfactorssuchasvolumeofremovals,adequatemeasures
ofsecurityandsuchotherrelevantinformationrequiredtobesubmitted
underthepertinentprovisionsofthisCode;and
(b) The manner and time of payment of excise taxes other than as herein
prescribed,underataxprepayment,advancedepositorsimilarschemes.
In the case of locally produced of extracted minerals and mineral
productsorquarryresourceswheretheminesiteorplaceofextractionis
notthesameastheplaceofprocessingorproduction,thereturnshallbe
filed with and the tax paid to the Revenue District Office having
jurisdiction over the locality where the same are mined, extracted or
quarried: Provided, however, That for metallic minerals processed
abroad, the return shall be filed and the tax due thereon paid to the
Revenue District Office having jurisdiction over the locality where the
samearemined,extractedorquarried.
DeterminationofGrossSellingPriceforPaymentofAdValoremTax
Unless otherwise provided, the price, excluding the valueadded tax, at

which the goods are sold at wholesale in the place of production or
throughtheirsalesagentstothepublicshallconstitutethegrossselling
price.
If the manufacturer also sells or allows such goods to be sold at

wholesale in another establishment of which he is the owner or in the
profits of which he has an interest, the wholesale price in such
establishment shall constitute the gross selling price. Should such price
be less than the cost of manufacture plus expenses incurred until the
goodsarefinallysold,thenaproportionatemarginofprofit,notlessthan
ten percent (10%) of such manufacturing cost and expenses, shall be
addedtoconstitutethegrosssellingprice.
ManufacturersorProducersSwornStatement
Every manufacturer or producer of goods or products subject to excise

taxesshallfilewiththeCommissioneronthedateordatesdesignatedby
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thelatter,andasoftenasmayberequired,aswornstatementshowing,
amongotherinformation,thedifferentgoodsorproductsmanufactured
orproducedandtheircorrespondinggrosssellingpriceormarketvalue,
together with the cost of manufacture or production plus expenses
incurredortobeincurreduntilthegoodsorproductsarefinallysold.
CreditForExciseTaxonGoodsActuallyExported
Whengoodslocallyproducedormanufacturedareremovedandactually
exported without returning to the Philippines, whether so exported in
theiroriginalstateorasingredientsorpartsofanymanufacturedgoods
or products, any excise tax paid thereon shall be credited or refunded
upon submission of the proof of actual exportation and upon receipt of
thecorrespondingforeignexchangepayment
Provided,Thattheexcisetaxonmineralproducts,exceptcoalandcoke,
imposedunderSection151shallnotbecreditableorrefundableevenif
themineralproductsareactuallyexported.
PAYMENTOFEXCISETAXESONIMPORTEDARTICLES
PersonsLiable
Excisetaxesonimportedarticlesshallbepaidbytheownerorimporter
to the Customs Officers, conformably with the regulations of the
Department of Finance and before the release of such articles from the
customs house, or by the person who is found in possession of articles
which are exempt from excise taxes other than those legally entitled to
exemption.
InthecaseoftaxfreearticlesbroughtorimportedintothePhilippinesby
persons, entitles, or agencies exempt from tax which are subsequently
sold,transferredorexchangedinthePhilippinestononexemptpersons
orentitles,thepurchasersorrecipientsshallbeconsideredtheimporters
thereof,andshallbeliableforthedutyandinternalrevenuetaxdueon
suchimportation.
The provision of any special or general law to the contrary

notwithstanding,theimportationofcigarsandcigarettes,distilledspirits
and wines into the Philippines, even if destined for tax and duty free
shops, shall be subject to all applicable taxes, duties, charges, including
excisetaxesduethereon
o Thatthisshallnotapplytocigarsandcigarettes,distilledspirits
andwinesbroughtdirectlyintothedulycharteredorlegislated
freeports of the Subic Special Economic and Freeport Zone,

crated under Republic Act No. 7227; the Cagayan Special
Economic Zone and Freeport, created under Republic Act No.
7922;andtheZamboangaCitySpecialEconomicZone,created
underRepublicActNo.7903,andarenottransshippedtoany
otherportinthePhilippines
o That importations of cigars and cigarettes, distilled spirits and
wines by a governmentowned and operated dutyfree shop,
liketheDutyFreePhilippines(DFP),shallbeexemptedfromall
applicable taxes, duties, charges, including excise tax due
thereon:
o Thatifsucharticlesdirectlyimportedbyagovernmentowned
and operated dutyfree shop like the DutyFree Philippines,
shallbelabeled"taxanddutyfree"and"notforresale":
o That is such articles brought into the duly chartered or
legislated freeports under Republic Acts No. 7227, 7922 and
7903 are subsequently introduced into the Philippine customs
territory, then such articles shall, upon such introduction, be
deemedimportedintothePhilippinesandshallbesubjecttoall
impostsandexcisetaxesprovidedhereinandotherstatutes:
o That the removal and transfer of tax and dutyfree goods,
products, machinery, equipment and other similar articles,
fromonefreeporttoanotherfreeport,shallnotbedeemedan
introductionintothePhilippinecustomsterritory.
Articlesconfiscatedshallbedisposedofinaccordancewiththerulesand
regulations to be promulgated by the Secretary of Finance, upon
recommendationoftheCommissionerofCustomsandInternalRevenue,
upon consultation with the Secretary of Tourism and the General
managerofthePhilippineTourismAuthority.
Thetaxdueonanysuchgoods,products,machinery,equipmentorother
similar articles shall constitute a lien on the article itself, and such lien
shall be superior to all other charges or liens, irrespective of the
possessorthereof.
ModeofComputingContents
Everyfractionalpartofaproofliterequaltoorgreaterthanahalfliterin
acaskorpackagecontainingmorethanonelitershallbetaxedasaliter,
and any smaller fractional part shall be exempt; but any package of
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spirits,thetotalcontentofwhicharelessthanaproofliter,shallbetaxed
asoneliter.
GIGAREV.COMMISSIONER
17SCRA1001
FACTS:
1.
HELD:
Uponinspectionbycustoms
GOODDAYV.BOARDOFTAXAPPEALS
95PHIL569
FACTS:
HELD:
EXEMPTIONORCONDITIONALTAXFREEREMOVALOFCERTAINARTICLES
ARTICLE
DESCRIPTION
Removal of wines and Upon issuance of a permit from the
distilled spirits for treatment Commissioner and subject to the rules and
oftobaccoleaf
regulations prescribed by the Secretary of
Finance, manufacturers of cigars and cigarettes
maywithdrawfrombond,freeofexciselocaland
imported wines and distilled spirits in specific
quantitiesandgradesforuseinthetreatmentof
tobacco leaf to be used in the manufacture of
cigarsandcigarettes;butsuchwinesanddistilled
spiritsmustfirstbesuitablydenatured.
Domesticdenaturedalcohol
Any person who produces, withdraws, sells,
transports or knowingly uses, or is in possession
of denatured alcohol, or articles containing
denatured alcohol in violation of laws or

regulations now or hereafter in force pertaining
thereto shall be required to pay the
corresponding tax, in addition to the penalties
providedforunderTitleXofthisCode.
Domestic alcohol of not less than one hundred

eighty degrees (180O) proof (ninety percent
[90%] absolute alcohol) shall, when suitably
denatured and rendered unfit for oral intake, be
exemptfromtheexcisetaxprescribedinSection
141:
Provided, however, That such denatured alcohol

shallbesubjecttotaxunderSection106(A)ofthis
Code:
Provided, further, That if such alcohol is to be

used for automotive power, it shall be taxed
underSection148(d)ofthisCode:
Provided, finally, That any alcohol, previously

renderedunfitfororalintakeafterdenaturingbut
subsequently rendered fit for oral intake after
undergoing fermentation, dilution, purification,
mixture or any other similar process shall be
taxedunderSection141ofthisCodeandsuchtax
shallbepaidbythepersoninpossessionofsuch
reprocessedspirits.
Petroleum products sold to (a) International carriers of Philippine or foreign
international carriers and registry on their use or consumption outside the
exemptentitiesoragencies
Philippines: Provided, That the petroleum
productssoldtotheseinternationalcarriersshall
be stored in a bonded storage tank and may be
disposedofonlyinaccordancewiththerulesand
regulations to be prescribed by the Secretary of
Finance, upon recommendation of the
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Commissioner;
(b) Exempt entities or agencies covered by tax

treaties, conventions and other international
agreements for their use or consumption:
Provided, however, That the country of said
foreigninternationalcarrierorexemptentitiesor
agencies exempts from similar taxes petroleum
products sold to Philippine carriers, entities or
agencies;and
(c) Entities which are by law exempt from direct

andindirecttaxes.
Removal of cigars or spirits Spirits requiring rectification may be removed
underbond
from the place of production to another
establishment for the purpose of rectification
withoutprepaymentoftheexcisetax:
Provided, That the distiller removing such spirits

andtherectifierreceivingthemshallfilewiththe
Commissioner their joint bond conditioned upon
thepaymentbytherectifieroftheexcisetaxdue
ontherectifiedalcohol:
Provided,further,Thatincaseswherealcoholhas
already been rectified either by original and
continuousdistillationorbyredistillation,noloss
forrectificationandhandlingshallbeallowedand
the rectifier thereof shall pay the excise tax due
onsuchlosses:
Provided,finally,Thatwherearectifiermakesuse
ofspiritsuponwhichtheexcisetaxhasnotbeen
paid,heshallbeliableforthepaymentofthetax
otherwiseduethereon.
Removal
of
fermented Any brewer may remove or transport from his
liquors
to
bonded brewery or other place of manufacture to a
warehouses
bonded warehouse used by him exclusively for
thestorageorsaleinbulkoffermentedliquorsof
his own manufacture, any quantity of such
fermented liquors, not less than one thousand
(1,000)litersatoneremoval,withoutprepayment
ofthetaxthereonunderapermitwhichshallbe
grantedbytheCommissioner.
Such permit shall be affixed to every package so

removed and shall be cancelled or destroyed in
suchmannerastheCommissionermayprescribe.
Thereafter, the manufacturer of such fermented
liquorsshallpaythetaxinthesamemannerand
underthesamepenaltyandliabilityaswhenpaid
atthebrewery.
Removal of damaged liquors When any fermented liquor has become sour or
freeoftax
otherwise damaged so as to be unfit for use as
such, brewers may sell and after securing a
special permit from the Commissioner, under
suchconditionsasmaybeprescribedintherules
and regulations prescribed by the Secretary of
Finance, remove the same without the payment
oftaxthereonincaskorotherpackages,distinct
fromthoseordinarilyusedforfermentedliquors,
each containing not less than one hundred
seventyfive (175) liters with a note of their
contentspermanentlyaffixedthereon.
Removaloftobaccoproducts Products of tobacco entirely unfit for chewing or
withoutprepaymentoftax
smoking may be removed free of tax for
agricultural or industrial use, under such
conditions as may be prescribed in the rules and
Finance. Stemmed leaf tobacco, finecut shorts,
the refuse of finecut chewing tobacco, scraps,
cuttings, clippings, stems, or midribs, and
sweepingsoftobaccomaybesoldinbulkasraw
materialbyonemanufacturerdirectlytoanother
without payment of the tax, under such
conditions as may be prescribed in the rules and
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Finance.
Automobilesusedexclusively Provided, That utility vehicles of registered zone
withintheFreeportzones
enterprises, which are indispensable in the
conductandoperationsoftheirbusiness,suchas
delivery trucks and cargo vans with gross vehicle
weight above three (3) metric tons may be
allowed unrestricted use outside the freeport
zone: Provided, further, That vehicles owned by
touristorientedenterprises,suchastouristbuses
and cars with yellow plates, colorcoded, and
utilized exclusively for the purpose of
transporting tourists in tourismrelated activities,
and service vehicles of freeport registered
enterprises and executives, such as company
service cars and expatriates and investors
automobiles brought in the name of such
enterprises, may be used outside the freeport
zoneforsuchperiodsasmaybeprescribedbythe
DepartmentsofFinance,andTradeandIndustry,
the Bureau of Customs and the Freeport
authorities concerned, which in no case shall
exceedfourteen(14)dayspermonth.
In case such tourist buses and cars, service

vehicles of registered freeport enterprises and
company service cars are used for more than an
aggregateperiodoffourteen(14)dayspermonth
outside of the freeport zone, the owner or
importer shall pay the corresponding customs
duties,taxesandcharges.
In the case of personallyowned vehicles of

residents, including leaseholders of residences
insidethefreeportzone,theuseofsuchvehicles
outside of the freeport zone shall be deemed an
introductionintothePhilippinecustomsterritory,
and such introduction shall be deemed an
importationintothePhilippinesandshallsubject
such vehicles to Customs duties taxes and
charges,includingexcisetaxdueonsuchvehicle.
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ALCOHOLPRODUCT
DISTILLEDSPIRITS
If produced from the sap of nipa, coconut,
cassava, camote, or buri palm or from the
juice, syrup or sugar of the cane, provided
suchmaterialsareproducedcommerciallyin
the country where they are processed into
distilledspirits
If produced from raw materials other than
those enumerated in the preceding
paragraph, the tax shall be in accordance
with the net retail price per bottle of seven
hundred fifty milliliter (750 ml.) volume
capacity (excluding the excise tax and the
valueaddedtax)asfollows:
Medicinal preparations, flavoring extracts,
and all other preparations, except toilet
preparations, of which, excluding water,
distilledspiritsforthechiefingredient
EXCISETAXONALCOHOLPRODUCTS
CLASSIFICATION/DESCRIPTION
EXCISETAXRATE/PAYABLE
P8.00perproofliter
LessthanTwohundredandfiftypesos(P250)
Seventyfive pesos (P75),

perproofliter
Two hundred and fifty pesos (P250) up to Six One hundred and fifty
hundredandSeventyFivepesos(P675)
pesos(P150),perproofliter
MorethanSixhundredandseventyfivepesos Three hundred pesos
(P675)
(P300),perproofliter
Shall be subject to the

same tax as such chief
ingredient.
NOTES/ADDITIONALINFORMATION
Provided, That if produced in a pot still or
other similar primary distilling apparatus by a
distillerproducingnotmorethanonehundred
(100) liters a day, containing not more than
fifty percent (50%) of alcohol by volume, per
proofliter,Fourpesos(P4.00)
This tax shall be proportionally increased for
any strength of the spirits taxed over proof
spirits, and the tax shall attach to this
substanceassoonasitisinexistenceassuch,
whetheritbesubsequentlyseparatedaspure
or impure spirits, or transformed into any
other substance either in the process of
original production or by any subsequent
process.
"Spirits or distilled spirits" is the substance

known as ethyl alcohol, ethanol or spirits of
wine, including all dilutions, purifications and
mixtures thereof, from whatever source, by
whatever process produced, and shall include
whisky,brandy,rum,ginandvodka,andother
similarproductsormixtures.
"Proof spirits" is liquor containing onehalf

(1/2) of its volume of alcohol of a specific
gravity of seven thousand nine hundred and
thirtynine thousandths (0.7939) at fifteen
degrees centigrade (15O C). A "proof liter"
meansaliterofproofspirits.
The rates of tax imposed under this Section

shallbeincreasedbytwelvepercent(12%)on
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January1,2000.
New brands shall be classified according to

theircurrent"netretailprice".
Fortheabovepurpose,"netretailprice"shall
mean the price at which the distilled spirit is
sold on retail in ten (10) major supermarkets
in Metro Manila, excluding the amount
intendedtocovertheapplicableexcisetaxand
thevalueaddedtaxasofOctober1,1996.
The classification of each brand of distilled

spiritsbasedontheaveragenetretailpriceas
ofOctober1,1996,assetforthinAnnex"A",
shallremaininforceuntilrevisedbyCongress.
WINES
Sparkling wines/champagnes regardless of
proof, if the net retail price per bottle
(excluding the excise tax and valueadded
tax)is:
Stillwinescontainingfourteenpercent(14%)
ofalcoholbyvolumeorless
Still wines containing more than fourteen
percent(14%)butnotmorethantwentyfive
percent(25%)ofalcoholbyvolume
Fivehundredpesos(P500)orless
MorethanFivehundredpesos(P500)
P100
P300
P12
P24
Fortified wines containing more than twenty

five percent of alcohol by volume shall be
taxedasdistilledspirits."Fortifiedwines"shall
mean natural wines to which distilled spirits
areaddedtoincreasetheiralcoholicstrength.
The rates of tax imposed under this Section

January1,2000.

theircurrentnetretailprice.
meanthepriceatwhichwineissoldonretail
in ten (10) major supermarkets in Metro
Manila, excluding the amount intended to
cover the applicable excise tax and the value
addedtaxasofOctober1,1996.
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Theclassificationofeachbrandofwinesbased
onitsaveragenetretailpriceasofOctober1,
1996,assetforthinAnnex"B",shallremainin
forceuntilrevisedbyCongress.
FERMENTEDLIQUOR
Thereshallbelevied,assessedandcollected
anexcisetaxonbeer,lagerbeer,ale,porter
and other fermented liquors except tuba,
basi, tapuy and similar domestic fermented
liquors in accordance with the following
schedule:
If the net retail price (excluding the excise tax P6.15/liter

and valueadded tax) per liter of volume
capacity is less than Fourteen pesos and fifty
centavos(P14.50)
and the valueadded tax) the per liter of
volume capacity is Fourteen pesos and fifty
centavos (P14.50) up to Twentytwo pesos
(P22.00)
and the valueadded tax) per liter of volume
capacity is more than Twentytwo pesos
(P22.00)
Variants of existing brands which are

introduced in the domestic market after the
effectivity of Republic Act No. 8240 shall be
taxed under the highest classification of any
variantofthatbrand.
Fermented liquor which are brewed and sold

at microbreweries or small establishments
such as pubs and restaurants shall be subject
totherateinparagraph(c)hereof.
The excise tax from any brand of fermented

liquorwithinthenextthree(3)yearsfromthe
effectivity of Republic Act No. 8240 shall not
be lower than the tax which was due from
eachbrandonOctober1,1996.
The rates of excise tax on fermented liquor

under paragraphs (a), (b) and (c) hereof shall
be increased by twelve percent (12%) on
January1,2000.

meanthepriceatwhichthefermentedliquor
is sold on retail in twenty (20) major
supermarkets in Metro Manila (for brands of
fermented liquor marketed nationally)
excluding the amount intended to cover the
applicableexcisetaxandthevalueaddedtax.
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For brands which are marketed only outside

MetroManila,the"netretailprice"shallmean
thepriceatthewhichthefermentedliquoris
sold in five (5) major supermarkets in the
region excluding the amount intended to
cover the applicable excise tax and the value
addedtax.
The classification of each brand of fermented

liquor based on its average net retail price as
of October 1, 1996, as set forth in Annex "C",
"A variant of brand" shall refer to a brand on

whichamodifierisprefixedand/orsuffixedto
therootnameofthebrandand/oradifferent
brandwhichcarriesthesamelogoordesignof
theexistingbrand.
Everybrewerorimporteroffermentedliquor
shall, within thirty (30) days from the
effectivity of R. A. No. 8240, and within the
first five (5) days of every month thereafter,
submit to the Commissioner a sworn
statement of the volume of sales for each
particularbrandoffermentedliquorsoldathis
establishment for the threemonth period
immediatelypreceding.
Any brewer or importer who, in violation of

this Section, knowingly misdeclares or
misrepresents in his or its sworn statement
herein required any pertinent data or
information shall be penalized by a summary
cancellationorwithdrawalofhisoritspermit
toengageinbusinessasbrewerorimporterof
fermentedliquor.
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Any corporation, association or partnership

liable for any of the acts or omissions in
violation of this Section shall be fined treble
theamountofdeficiencytaxes,surcharge,and
interest which may be assessed pursuant to
thisSection.
Any person liable for any of the acts or

omissions prohibited under this Section shall
be criminally liable and penalized under
Section 254 of this Code. Any person who
willfullyaidsorabetsinthecommissionofany
such act or omission shall be criminally liable
inthesamemannerastheprincipal.
If the offender is not a citizen of the
Philippines, he shall be deported immediately
after serving the sentence, without further
proceedingsfordeportation.
TOBACCOPRODUCTS
Tobaccoproducts
Tobacco twisted by hand or reduced into a
condition to be consumed in any manner
other than the ordinary mode of drying and
curing;
Tobacco prepared or partially prepared with

or without the use of any machine or
instruments or without being pressed or
sweetened;and
Finecut shorts and refuse, scraps, clippings,

cuttings,stemsandsweepingsoftobacco.
P0.75/kilogram
Finecut shorts and refuse, scraps, clippings,

cuttings, stems and sweepings of tobacco
resulting from the handling or stripping of
whole leaf tobacco may be transferred,
disposed of, or otherwise sold, without
prepayment of the excise tax herein provided
for under such conditions as may be
prescribed in the rules and regulations
promulgatedbytheSecretaryofFinance,upon
recommendation of the Commissioner, if the
same are to be exported or to be used in the
manufacture of other tobacco products on
whichtheexcisetaxwilleventuallybepaidon
thefinishedproduct.
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Ontobaccospeciallypreparedforchewingso
as to be unsuitable for use in any other
manner
Cigarsandcigarettes
Cigars
Cigarettespackedbyhand
Cigarettespackedbymachine
P0.75/kilogram
If the net retail price (excluding the excise tax

and the valueadded tax) is above Ten pesos
(P10.00)perpack
andthevalueaddedtax)exceedsSixpesosand
fiftycentavos(P6.50)butdoesnotexceedTen
pesos(P10.00)perpack
and the valueadded tax) is Five pesos (P5.00)
but does not exceed Six pesos and fifty
centavos(P6.50)perpack
and the valueadded tax is below Five pesos
(P5.00)perpack
P1/cigar
P0.40/pack
P12/pack
"Cigars" mean all rolls of tobacco or any

substitutethereof,wrappedinleaftobacco.
"Cigarettes" mean all rolls of finelycut leaf

tobacco, or any substitute therefor, wrapped
inpaperorinanyothermaterial.
"Wholesale price" shall mean the amount of

money or price paid for cigars or cigarettes
purchased for the purpose of resale,
regardlessofquantity.
"Retailprice"shallmeantheamountofmoney
or price which an ultimate consumer or end
userpaysforcigarsorcigarettespurchased.
Variantsofexistingbrandsofcigaretteswhich
are introduced in the domestic market after
the effectivity of R.A. No. 8240 shall be taxed
under the highest classification of any variant
ofthatbrand.
The excise tax from any brand of cigarettes

within the next three (3) years from the
effectivityofR.A.No.8240shallnotbelower
thanthetax,whichisduefromeachbrandon
October 1, 1996: Provided, however, That in
cases where the excise tax rates imposed in
paragraphs (1), (2), (3) and (4) hereinabove
willresultinanincreaseinexcisetaxofmore
than seventy percent (70%); for a brand of
cigarette,theincreaseshalltakeeffectintwo
tranches: fifty percent (50%) of the increase
shall be effective in 1997 and one hundred
percent (100%) of the increase shall be
P8/pack
P5/pack
P1/pack
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effectivein1998.
Dulyregisteredorexistingbrandsofcigarettes
or new brands thereof packed by machine
shallonlybepackedintwenties.
Theratesofexcisetaxoncigarsandcigarettes
under paragraphs (1), (2), (3) and (4) hereof,
January1,2000.

mean the price at which the cigarette is sold
onretailintwenty(20)majorsupermarketsin
Metro Manila (for brands of cigarettes
marketed nationally), excluding the amount
intendedtocovertheapplicableexcisetaxand
the valueadded tax. For brands which are
marketedonlyoutsideMetroManila,the"net
retailprice"shallmeanthepriceatwhichthe
cigaretteissoldinfive(5)majorsupermarkets
in the region excluding the amount intended
to cover the applicable excise tax and the
valueaddedtax.
The classification of each brand of cigarettes

based on its average net retail price as of
October 1, 1996, as set forth in Annex "D",
"Variant of a brand" shall refer to a brand on

whichamodifierisprefixedand/orsuffixedto
therootnameofthebrandand/oradifferent
brandwhichcarriesthesamelogoordesignof
theexistingbrand.
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Manufactures and importers of cigars and

cigarettes shall, within thirty (30) days from
theeffectivityofR.A.No.8240andwithinthe
first five (5) days of every month thereafter
submit to the Commissioner a sworn
statement of the volume of sales for each
particular brand of cigars and/or cigarettes
sold at his establishment for the threemonth
periodimmediatelypreceding.
Any manufacturer or importer who, in

violation of this Section, knowingly
misdeclares or misrepresents in his or its
sworn statement herein required any
pertinent data or information shall, upon
discovery, be penalized by a summary
cancellationorwithdrawalofhisoritspermit
to engage in business as manufacturer or
importerofcigarsorcigarettes.
Any corporation, association or partnership

liable for any of the acts or omissions in
violation of this Section shall be fined treble
the amount of deficiency taxes, surcharges
and interest which may be assessed pursuant
tothisSection.
Any person liable for any of the acts or

omissions prohibited under this Section shall
be criminally liable and penalized under
Section 254 of this Code. Any person who
willfullyaidsorabetsinthecommissionofany
such act or omission shall be criminally liable
inthesamemannerastheprincipal.
If the offender is not a citizen of the

Philippines, he shall be deported immediately
after serving the sentence without further
proceedingsfordeportation.
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InspectionFee.ForinspectionmadeinaccordancewiththisChapter,thereshallbecollectedafeeofFiftycentavos(P0.50)foreachthousandcigarsorfractionthereof;Ten
centavos(P0.10)foreachthousandcigarettesoffractionthereof;Twocentavos(P0.02)foreachkilogramofleaftobaccoorfractionthereof;andThreecentavos(P0.03)for
eachkilogramorfractionthereof,ofscrapandothermanufacturedtobacco.Itshallbepaidbythewholesaler,manufacturer,producer,owneroroperatorofredryingplant,as
thecasemaybe,immediatelybeforeremovalthereoffromtheestablishmentofthewholesaler,manufacturer,owneroroperatoroftheredryingplant.Incaseofimportedleaf
tobaccoandproductsthereof,theinspectionfeeshallbepaidbytheimporterbeforeremovalfromcustoms'custody.
Fiftypercent(50%)ofthetobaccoinspectionfeeshallaccruetotheTobaccoInspectionFundcreatedbySection12ofActNo.2613,asamendedbyActNo.3179,andfifty
percent(50%)shallaccruetotheCulturalCenterofthePhilippines.
PETROLEUMPRODUCTS
Lubricating oils and greases, including but

P4.50/liter and kilogram, That the excise taxes paid on the purchased
not limited to, base stock for lube oils and
respectively of volume feedstock(bunker)usedinthemanufactureof
greases, high vacuum distillates, aromatic
capacityorweight
excisable articles and forming part thereof
extracts,andothersimilarpreparations,and
shall be credited against the excise tax due
additives for lubricating oils and greases,
therefrom
whether such additives are petroleum
basedornot
That lubricating oils and greases produced
from base stocks and additives on which the
excise tax has already been paid shall no
longerbesubjecttoexcisetax
That locally produced or imported oils

previouslytaxedassuchbutaresubsequently
reprocessed, rerefined or recycled shall
likewise be subject to the tax imposed under
thisSection.
Processedgas
P0.05/per liter of volume

capacity
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Waxesandpetrolatum
Ondenaturedalcoholtobeusedformotive
power
P3.50/perkilogram
P0.05/volumecapacity
Naphtha, regular gasoline and other similar

productsofdistillation
Leadedpremiumgasoline
Unleadedpremiumgasoline
Aviationturbojetfuel
That unless otherwise provided by special

laws, if the denatured alcohol is mixed with
gasoline, the excise tax on which has already
been paid, only the alcohol content shall be
subject to the tax herein prescribed. For
purposes of this Subsection, the removal of
denatured alcohol of not less than one
hundred eighty degrees (180o) proof (ninety
percent (90%) absolute alcohol) shall be
deemed to have been removed for motive
power,unlessshownotherwise
Thatnaphtha,whenusedasarawmaterialin
the production of petrochemical products or
as replacement fuel for natural gasfired
combinedcyclepowerplant,inlieuoflocally
extracted natural gas during the non
availability thereof, subject to the rules and
regulations to be promulgated by the
Secretary of Energy, in consultation with the
Secretary of Finance, per liter of volume
capacity,Zero(P0.00):Provided,further,That
the byproduct including fuel oil, diesel fuel,
kerosene, pyrolysis gasoline, liquefied
petroleum gases and similar oils having more
orlessthesamegeneratingpower,whichare
produced in the processing of naphtha into
petrochemicalproductsshallbesubjecttothe
applicable excise tax specified in this Section,
exceptwhensuchbyproductsaretransferred
to any of the local oil refineries through sale,
barterorexchange,forthepurposeoffurther
processing or blending into finished products
which are subject to excise tax under this
Section
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Kerosene
Dieselfueloil,andonsimilarfueloilshaving
moreorlessthesamegeneratingpower
Liquefiedpetroleumgas
Asphalts
Bunker fuel oil, and on similar fuel oils
having more or less the same generating
power
That kerosene, when used as aviation fuel,

shall be subject to the same tax on aviation
turbo jet fuel under the preceding paragraph
(g), such tax to be assessed on the user
thereof
P0.56/perkilogram
P0.00
MISCELLANEOUSPRODUCTS
AUTOMOBILES
NONESSENTIALGOODS
(a) All goods commonly or commercially
known as jewelry, whether real or
imitation, pearls, precious and semi
precious stones and imitations thereof;
goods made of, or ornamented,
mountedorfittedwith,preciousmetals
or imitations thereof or ivory (not
including
surgical
and
dental
instruments,silverplatedwares,frames
or mountings for spectacles or
eyeglasses, and dental gold or gold
alloysandotherpreciousmetalsusedin
filling, mounting or fitting the teeth);
operaglassesandlorgnettes.
Based on the manufacturers or importers 15%100%

sellingprice,netofexciseandvalueaddedtax
That in the case of imported automobiles not

forsale,thetaximposedhereinshallbebased
on the total value used by the Bureau of
Customs in determining tariff and customs
duties, including customs duty and all other
charges, plus ten percent (10%) of the total
thereof.
Based on the wholesale price or the value of 20%

importationusedbytheBureauofCustomsin
determining tariff and customs duties, net of
excisetaxandvalueaddedtax
The term "precious metals" shall include

platinum, gold, silver and other metals of
similar or greater value. The term imitations
thereof shall include platings and alloys of
suchmetals.
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1.
(b) Perfumesandtoiletwaters;
(c) Yachts and other vessels intended for

pleasureorsports.
Oncoalandcoke
On all nonmetallic minerals and quarry
resources
MINERALPRODUCTS
P10/metricton
Based on the actual market value of the gross 2%
output thereof at the time of removal, in the
caseofthoselocallyextractedorproduced;or
the value used by the Bureau of Customs in
determining tariff and customs duties, net of
excise tax and valueadded tax, in the case of
importation.
Notwithstanding the provision of paragraph

(4) of subsection (A) of this Section, locally
extractednaturalgasandliquefiednaturalgas
shallnotbesubjecttotheexcisetaximposed
herein.
Onmetallicminerals
Basedontheactualmarketvalueofthegrossoutputthereofatthetimeofremoval,inthecaseofthoselocallyextractedorproduced;orthevalueusedbytheBureauof
Customsindeterminingtariffandcustomsduties,netofexcisetaxandvalueaddedtax,inthecaseofimportation,inaccordancewiththefollowingschedule:
Copperandothermetallicminerals
Onthefirstthree(3)yearsupontheeffectivity 1%
ofRepublicActNo.7729
Onthefourthandthefifthyears
1%
Onthesixthyearandthereafter
2%
Goldandchromite
2%
Onindigenouspetroleum
3% of the fair international Thephrase"firsttaxablesale,barter,exchange

market price thereof, on or similar transaction" means the transfer of
the first taxable sale, indigenous petroleum in its original state to a
barter, exchange or such first
taxable
transferee.
The
fair
similartransaction,suchtax internationalmarketpriceshallbedetermined
to be paid by the buyer or in consultation with an appropriate
purchaser before removal governmentagency.
from the place of
production.
"Indigenous petroleum" shall include locally
extracted mineral oil, hydrocarbon gas,

bitumen, crude asphalt, mineral gas and all
other similar or naturally associated
substances with the exception of coal, peat,
bituminous shale and/or stratified mineral
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deposits.
"Gross output" shall be interpreted as the actual market value of minerals or mineral products or of bullion from each mine or mineral land operated as a separate entity,
without any deduction from mining, milling, refining (including all expenses incurred to prepare the said minerals or mineral products in a marketable state), as well as
transporting,handling,marketingoranyotherexpenses:Provided,Thatifthemineralsormineralproductsaresoldorconsignedabroadbythelesseeorownerofthemine
under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted: Provided, however, That in the case of mineral concentrate, not traded in commodity
exchangesinthePhilippinesorabroad,suchascopperconcentrate,theactualmarketvalueshallbetheworldpricequotationsoftherefinedmineralproductscontentthereof
prevailinginthesaidcommodityexchanges,afterdeductingthesmelting,refiningandotherchargesincurredintheprocessofconvertingthemineralconcentratesintorefined
metaltradedinthosecommodityexchanges.
"Minerals"shallmeanallnaturallyoccurringinorganicsubstances(foundinnature)whetherinsolid,liquid,gaseousoranyintermediatestate.
"Mineral products" shall mean things produced and prepared in a marketable state by simple treatment processes such as washing or drying, but without undergoing any
chemicalchangeorprocessormanufacturingbythelessee,concessionaireorownerofminerallands.
"Quarry resources" shall mean any common stone or other common mineral substances as the Director of the Bureau of Mines and GeoSciences may declare to be quarry
resourcessuchas,butnotrestrictedto,marl,marble,granite,volcaniccinders,basalt,tuffandrockphosphate:Provided,Thattheycontainnometalorothervaluableminerals
ineconomicallyworkablequantities.
DOCUMENTARYSTAMPSTAX
StampTaxesUponDocuments,LoanAgreements,InstrumentsandPapers
Upon documents, instruments, loan agreements and papers, and upon

acceptances, assignments, sales and transfers of the obligation, right or
property incident thereto, there shall be levied, collected and paid for,
andinrespectofthetransactionsohadoraccomplished
By the person making, signing, issuing, accepting, or transferring the

same wherever the document is made, signed, issued, accepted or
transferredwhentheobligationorrightarisesfromPhilippinesourcesor
thepropertyissituatedinthePhilippines,andthesametimesuchactis
doneortransactionhad
That whenever one party to the taxable document enjoys exemption
fromthetaxhereinimposed,theotherpartywhoisnotexemptshallbe
theonedirectlyliableforthetax.
TAXBASE
DESCRIPTION
RATES
Stamp Tax on Oneveryoriginalissue,whetheronorganization, One peso (P1.00) on each Two hundred pesos
Original Issue of reorganization or for any lawful purpose, of (P200), or fractional part thereof, of the par
SharesofStock
shares of stock by any association, company or value,ofsuchsharesofstock
corporation
ADDITIONALINFORMATION/NOTES
Accrual doesn't happen at the issuance of stock
certificatebutattheissuanceoftheshare.
Accrual of documentary stamp tax when there is

perfectionforcontractofsaleofsharesofstock
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Stamp Tax on
Sales, Agreements
toSellMemoranda
of Sales, Deliveries
or Transfer of
Shares
or
Certificates
of
Stock
Stamp Tax on
Bonds,
Debentures,
Certificate of Stock
or Indebtedness
Issued in Foreign
Countries.
Stamp Tax on
Certificates
of
Profits or Interest
in Property or
Accumulations
Onallsales,oragreementstosell,ormemoranda Seventyfivecentavos (P0.75) on each Two

of sales, or deliveries. Or transfer of shares or hundred pesos (P200), or fractional part That only one tax shall be collected on each sale
certificatesofstockinanyassociation,company, thereof,oftheparvalueofsuchstock
or transfer of stock from one person to another,
or corporation, or transfer of such securities by
regardlessofwhetherornotacertificateofstock
assignment in blank, or by delivery, or by any
is issued, indorsed, or delivered in pursuance of
paper or agreement, or memorandum or other
suchsaleortransfer
evidencesoftransferorsalewhetherentitlingthe
holderinanymannertothebenefitofsuchstock,
That in the case of stock without par value the
ortosecurethefuturepaymentofmoney,orfor
amount of the documentary stamp tax herein
thefuturetransferofanystock
prescribed shall be equivalent to twentyfive
percent(25%)ofthedocumentarystamptaxpaid
upontheoriginalissueofsaidstock
Onallbonds,debentures,certificatesofstock,or Such as tax as is required by law on similar Accrual doesn't happen at the issuance of stock
certificatesofindebtednessissuedinanyforeign
instrumentswhenissued,soldortransferredin certificatebutattheissuanceoftheshare.
country,thereshallbecollectedfromtheperson thePhilippines
sellingortransferringthesameinthePhilippines
Accrual of documentary stamp tax when there is
perfectionforcontractofsaleofsharesofstock
Thetaxispaid5daysaftertheendofthemonth
onwhichthesaleoccured
On all certificates of profits, or any certificate or Fifty centavos (P0.50) on each Two hundred
memorandumshowinginterestinthepropertyor pesos (P200), or fractional part thereof, of the
accumulations of any association, company or facevalueofsuchcertificateormemorandum.
corporation, and on all transfers of such
certificatesormemoranda
On each bank check, draft, or certificate of One peso and fifty centavos (P1.50) for each
deposit not drawing interest, or order for the check
payment of any sum of money drawn upon or
issuedbyanybank,trustcompany,oranyperson
orpersons,companiesorcorporations,atsightor
ondemand
StampTaxonBank
Checks,
Drafts,
Certificates
of
Deposit
not
Bearing Interest,
and
Other
Instruments
Stamp Tax on All Oneveryoriginalissueofdebtinstruments
DebtInstruments
One peso (P1.00) on each Two hundred pesos Forsuchdebtinstrumentswithtermsoflessthan

(P200), or fractional part thereof, of the issue one (1) year, the documentary stamp tax to be
priceofanysuchdebtinstruments
collected shall be of a proportional amount in
accordancewiththerationofitsterminnumber
ofdaystothreehundredsixtyfive(365)days
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Stamp Tax on All

BillsofExchangeor
Drafts
Stamp Tax Upon
Acceptance of Bills
of Exchange and
Others
On all bills of exchange (between points within

thePhilippines)ordrafts
Only one documentary stamp tax shall be

imposedoneitherloanagreement,orpromissory
notesissuedtosecuresuchloan.
DebtInstruments
Instruments representing borrowing and

lending transactions including but not
limited to debentures, certificates of
indebtedness, due bills, bonds, loan
agreements, including those signed abroad
wherein the object of contract is located or
used in the Philippines, instruments and
securities issued by the government of any
of its instrumentalities, deposit substitute
debt instruments, certificates or other
evidencesofdepositsthatareeitherdrawing
interest significantly higher than the regular
savingsdeposittakingintoconsiderationthe
size of the deposit and the risks involved or
drawing interest and having a specific
maturity date, orders for payment of any
sumofmoneyotherwisethanatsightoron
demand, promissory notes, whether
negotiable or nonnegotiable, except bank
notesissuedforcirculation
Thirty centavos (P0.30) on each Two hundred
pesos (P200), or fractional part thereof, of the
facevalueofanysuchbillofexchangeordraft
Thirty centavos (P0.30) on each Two hundred
face value of any such bill of exchange, or
order, or the Philippine equivalent to such
value,ifexpressedinforeigncurrency.
Upon any acceptance or payment of any bill of

exchange or order for the payment of money
purporting to be drawn in a foreign country but
payableinthePhilippines,
Stamp Tax on On all foreign bills of exchange and letters of Thirty centavos (P0.30) on each Two hundred
Foreign Bills of credit (including orders, by telegraph or pesos (P200), or fractional part thereof, of the
Exchange
and otherwise, for the payment of money issued by facevalueofanysuchbillofexchangeorletter
MA.ANGELAAGUINALDO
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LettersofCredit
Stamp Tax on Life

InsurancePolicies
Stamp Tax on
Policies
of
Insurance
Upon
Property
Stamp Tax on
Fidelity Bonds and
Other Insurance
Policies
Stamp Tax on
Policies
of
Annuities and Pre
expressorsteamshipcompaniesorbyanyperson
or persons) drawn in but payable out of the
Philippinesinasetofthree(3)ormoreaccording
tothecustomofmerchantsandbankers
On all policies of insurance or other instruments
by whatever name the same may be called,
wherebyanyinsuranceshallbemadeorrenewed
uponanylifeorlives
On all policies of insurance or other instruments
by whatever name the same may be called, by
whichinsuranceshallbemadeorrenewedupon
property of any description, including rents or
profits, against peril by sea or on inland waters,
orbyfireorlightning
On all policies of insurance or bonds or
obligations of the nature of indemnity for loss,
damage or liability made or renewed by any
person, association, company or corporation
transacting the business of accident, fidelity,
employers liability, plate, glass, steam, boiler,
burglar, elevator, automatic sprinkler, or other
branch of insurance (except life, marine, inland,
and fire insurance), and all bonds, undertakings,
or recognizances, conditioned for the
performance of the duties of any office or
position, for the doing or not doing of anything
therein specified, and on all obligations
guaranteeing the validity or legality of any bond
or other obligations issued by any province, city,
municipality, or other public body or
organization, and on all obligations guaranteeing
the title to any real estate, or guaranteeing any
mercantile credits, which may be made or
renewed by any such person, company or
corporation
On all policies of annuities, or other instruments
by whatever name the same may be called,
wherebyanannuitymaybemade,transferredor
of credit, or the Philippine equivalent of such

facevalue,ifexpressedinforeigncurrency.
Fifty centavos (P0.50) on each Two hundred

amountofpremiumcollected
Fifty centavos (P0.50) on each Four pesos Thatnodocumentarystamptaxshallbecollected
(P4.00), or fractional part thereof, of the onreinsurancecontractsoronanyinstrumentby
amountofpremiumcharged
which cession or acceptance of insurance risks
under any reinsurance agreement is effected or
recorded.
Fifty centavos (P0.50) on each Four pesos
(P4.00), or fractional part thereof, of the
premiumcharged.
Fifty centavos (P0.50) on each Two hundred

premium or installment payment or contract
MA.ANGELAAGUINALDO
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NeedPlans
redeemed
On preneed plans, the documentary stamp tax

shallbe
Stamp Tax on
IndemnityBonds
Stamp Tax
Certificates
on
Stamp Tax
Warehouse
Receipts
on
pricecollected
Twentycentavos(P0.20)onteachTwohundred
premiumorcontributioncollected
Onallbondsforindemnifyinganyperson,firmor Thirty centavos (P0.30) on each Four pesos
corporationwhoshallbecomeboundorengaged (P4.00), or fractional part thereof, of the
as surety for the payment of any sum of money premiumcharged
or for the due execution or performance of the
duties of any office or position or to account for
money received by virtue thereof, and on all
other bonds of any description, except such as
may be required in legal proceedings, or are
otherwiseprovidedforherein
Oneachcertificateofdamagesorotherwise,and Fifteenpesos(P15.00)
on every certificate or document issued by any

customsofficer,marinesurveyor,orotherperson
actingassuch,andoneachcertificateissuedbya
notary public, and on each certificate of any
description required by law or by rules or
regulations of a public office, or which is issued
for the purpose of giving information, or
establishing proof of a fact, and not otherwise
specifiedherein
On each warehouse receipt for property held in Fifteenpesos(P15.00)
No tax shall be collected on each warehouse
storage in a public or private warehouse or yard
receipt issued to any one person in any one
foranypersonotherthantheproprietorofsuch
calendar month covering property the value of
warehouseoryard
whichdoesnotexceedTwohundredpesos(P200)
Oneachjaialai,horseraceticket,lotto,orother Tencentavos(P0.10)
That if the cost of the ticket exceeds One peso
authorizednumbergames
(P1.00),anadditionaltaxofTencentavos(P0.10)
on every One peso (P1.00), or fractional part
thereof,shallbecollected.
Stamp Tax on Jai

Alai, Horse Racing
Tickets, lotto or
Other Authorized
NumbersGames
Stamp Tax on Bills On each set of bills of lading or receipts (except
of
Lading
or charter party) for any goods, merchandise or
Receipts
effects shipped from one port or place in the
Philippines to another port or place in the
Philippines(exceptonferriesacrossrivers),orto
One peso (P1.00), if the value of such goods

exceeds One hundred pesos (P100) and does
notexceedOneThousandpesos(P1,000)
Ten pesos (P10), if the value exceeds One
That freight tickets covering goods, merchandise

or effects carried as accompanied baggage of
passengers on land and water carriers primarily
engaged in the transportation of passengers are
herebyexempt
MA.ANGELAAGUINALDO
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126
anyforeignport
on On each proxy for voting at any election for
officersofanycompanyorassociation,orforany
otherpurpose,exceptproxiesissuedaffectingthe
affairs of associations or corporations organized
forreligious,charitableorliterarypurposes
Stamp Tax on On each power of attorney to perform any act
PowersofAttorney whatsoever, except acts connected with the
collection of claims due from or accruing to the
GovernmentoftheRepublicofthePhilippines,or
the government of any province, city or
municipality
Stamp tax on On each lease, agreement, memorandum, or
Leases and Other contract for hire, use or rent of any lands or
HiringAgreements tenements,orportionsthereof
Stamp Tax
Proxies
Stamp Tax on Oneverymortgageorpledgeoflands,estate,or

Mortgages,Pledges property, real or personal, heritable or movable,
andDeedsofTrust whatsoever, where the same shall be made as a
security for the payment of any definite and
certain sum of money lent at the time or
previouslydueandowingofforbornetobepaid,
being payable and on any conveyance of land,
estate, or property whatsoever, in trust or to be
sold, or otherwise converted into money which
shall be and intended only as security, either by
expressstipulationorotherwise
Onanymortgage,pledge,ordeedoftrust,where
the same shall be made as a security for the
payment of a fluctuating account or future
advanceswithoutfixedlimit
thousandpesos(P1,000)
Fifteenpesos(P15.00)
Fivepesos(P5.00)
Threepesos(P3.00)forthefirstTwothousand
pesos (P2,000), or fractional part thereof, and
an additional One peso (P1.00) for every One
Thousand pesos (P1,000) or fractional part
thereof, in excess of the first Two thousand
pesos(P2,000)foreachyearofthetermofsaid
contractoragreement
When the amount secured does not exceed
Five thousand pesos (P5,000), Twenty pesos
(P20.00).
On each Five thousand pesos (P5,000), or

fractional part thereof in excess of Five
thousand pesos (P5,000), an additional tax of
Tenpesos(P10.00).
Documentary stamp tax on such mortgage,

pledge or deed of trust shall be computed on
theamountactuallyloanedorgivenatthetime
of the execution of the mortgage, pledge or
deed of trust, additional documentary stamp
tax shall be paid which shall be computed on
thebasisoftheamountadvancedorloanedat
That if the full amount of the loan or credit,

granted under the mortgage, pledge or deed of
trust shall be computed on the amount actually
loaned or given at the time of the execution of
themortgage,pledgeordeedoftrust.
However, if subsequent advances are made on
MA.ANGELAAGUINALDO
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theratesspecifiedabove
Stamp tax on
Deeds of Sale and
Conveyances
of
RealProperty
On all conveyances, deeds, instruments, or

writings, other than grants, patents or original
certificates of adjudication issued by the
Government, whereby any land, tenement, or
other realty sold shall be granted, assigned,
transferred or otherwise conveyed to the
purchaser,orpurchasers,ortoanyotherperson
or persons designated by such purchaser or
purchasers
When the consideration, or value received or

contracted to be paid for such realty after
makingproperallowanceofanyencumbrance,
does not exceed One thousand pesos (P1,000)
fifteenpesos(P15.00).
For each additional One thousand Pesos

(P1,000),orfractionalpartthereofinexcessof
One thousand pesos (P1,000) of such
suchmortgage,pledgeordeedoftrust,additional
documentary stamp tax shall be paid which shall
be computed on the basis of the amount
advancedorloanedattheratesspecifiedabove
That if the full amount of the loan or credit,
granted under the mortgage, pledge or deed of
trust is specified in such mortgage, pledge or
deed of trust, the documentary stamp tax
prescribed in this Section shall be paid and
computedonthefullamountoftheloanorcredit
granted.
Illustration: Loan secured by a promissory note.

Andinthepromissorynote,thereisamortgage
given, how many documentary stamp taxes
shouldbepaid?
Thedocumentarystamptaxtobepaidisthe
higher/highest of values, to avoid double
payment
Whatifthepromissorynoteandmortgagewere
indifferentinstruments?
Ifthepromissorynoteissuccessfullyproven
to be connected with the mortgage, then
you can use the aforementioned rule
higherofthevalues
Butifthemortgagecoversadifferentaspect
andnottheloan/promissorynote,thentwo
paymentsofDST
That when one of the contracting parties is the
Government the tax herein imposed shall be
basedontheactualconsideration.
When it appears that the amount of the

documentary stamp tax payable hereunder has
been reduced by an incorrect statement of the
consideration in any conveyance, deed,
instrument or writing subject to such tax the
MA.ANGELAAGUINALDO
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considerationorvalue,Fifteenpesos(P15.00).
Stamp Tax on Oneverycharterparty,contractoragreementfor

CharterPartiesand thecharterofanyship,vesselorsteamer,orany
SimilarInstruments letterormemorandumorotherwritingbetween
the captain, master or owner, or other person
acting as agent of any ship, vessel or steamer,
andanyotherpersonorpersonsfororrelatingto
the charter of any such ship, vessel or steamer,
and on any renewal or transfer of such charter,
contract,agreement,letterormemorandum
Commissioner, provincial or city Treasurer, or

other revenue officer shall, from the assessment
rolls or other reliable source of information,
assess the property of its true market value and
collectthepropertaxthereon.
~@~
Capital asset= whole selling price/FMW is
subjectedtoCGTof6%
Ordinary asset= 12% VAT; 6% CWT; 1.5
DSTsubjectedtoincometaxandCWT
**You first need to take away the VAT
componentbeforeyouimposetheDSTandvice
versa
If the registered gross tonnage of the ship,
vessel or steamer does not exceed one
thousand(1,000)tons,andthedurationofthe
charter or contract does not exceed six (6)
months, Five hundred pesos (P500); and for
eachmonthorfractionofamonthinexcessof
six (6) months, an additional tax of Fifty pesos
(P50.00)shallbepaid.
If the registered gross tonnage exceeds one

thousand(1,000)tonsanddoesnotexceedten
thousand(10,000)tons,andthedurationofthe
months, One thousand pesos (P1,000); and for
eachmonthorfractionofamonthinexcessof
six (6) months, an additional tax of One
hundredpesos(P100)shallbepaid.
If the registered gross tonnage exceeds ten

thousand(10,000)tonsandthedurationofthe
months, One thousand five hundred pesos
(P1,500); and for each month or fraction of a
monthinexcessofsix(6)months,anadditional
MA.ANGELAAGUINALDO
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129
tax of One hundred fifty pesos (P150) shall be

paid.
Stamp Tax on Upon each and every assignment or transfer of Same rate as that imposed on the original
Assignments and anymortgage,leaseorpolicyofinsurance,orthe instrument
Renewals
of renewal or continuance of any agreement,
Certain
contract,charter,oranyevidenceofobligationor
Instruments
indebtednessbyalteringorotherwise
DOCUMENTSANDPAPERSNOTSUBJECTTOSTAMPTAX
accordance with regulations prescribed by the appropriate regulatory
1. Policies of insurance or annuities made or granted by a fraternal or
authority
beneficiarysociety,order,associationorcooperativecompany,operated
a. However, That any borrowing or lending of securities
on the lodge system or local cooperation plan and organized and
agreement as contemplated hereof shall be duly covered by a
conducted solely by the members thereof for the exclusive benefit of
mastersecuritiesborrowingandlendingagreementacceptable
eachmemberandnotforprofit.
totheappropriateregulatoryauthority,andwhichagreements
2. Certificatesofoathsadministeredtoanygovernmentofficialinhisofficial
is duly registered and approved by the Bureau of Internal
capacity or of acknowledgment by any government official in the
Revenue.(BIR).
performanceofhisofficialduties,writtenappearanceinanycourtbyany
4. Loan agreements or promissory notes, the aggregate of which does not
government official, in his official capacity; certificates of the
exceed Two hundred fifty thousand pesos (P250,000), or any such
administrationofoathstoanypersonastotheauthenticityofanypaper
amount as may be determined by he Secretary of Finance, executed by
requiredtobefiledincourtbyanypersonorpartythereto,whetherthe
anindividualforhispurchaseoninstallmentforhispersonaluseorthat
proceedingsbecivilorcriminal;papersanddocumentsfiledincourtsby
ofhisfamilyandnotforbusinessorresale,barterorhireofahouse,lot,
orforthenational,provincial,cityormunicipalgovernments;affidavitsof
motorvehicle,applianceorfurniture
poor persons for the purpose of proving poverty; statements and other
a. However,thattheamounttobesetbytheSecretaryofFinance
compulsoryinformationrequiredofpersonsorcorporationsbytherules
shall be in accordance with a relevant price index but not to
andregulationsofthenational,provincial,cityormunicipalgovernments
exceed ten percent (10%) of the current amount and shall
exclusivelyforstatisticalpurposesandwhicharewhollyfortheuseofthe
remaininforceatleastforthree(3)years.
bureauorofficeinwhichtheyarefiled,andnotattheinstanceorforthe
5. Sale,barterorexchangeofsharesofstocklistedandtradedthroughthe
use or benefit of the person filing them; certified copies and other
localstockexchangeforaperiodoffive(5)yearsfromtheeffectivityof
certificates placed upon documents, instruments and papers for the
thisAct.
national,provincial,cityormunicipalgovernments,madeattheinstance
6. Assignmentortransferofanymortgage,leaseorpolicyofinsurance,or
andforthesoleuseofsomeotherbranchofthenational,provincial,city
the renewal or continuance of any agreement, contract, charter, or any
ormunicipalgovernments;andcertificatesoftheassessedvalueoflands,
evidence of obligation or indebtedness, if there is no change in the
notexceedingTwohundredpesos(P200)invalueassessed,furnishedby
maturity date or remaining period of coverage from that of the original
theprovincial,cityormunicipalTreasurertoapplicantsforregistrationof
instrument.
titletoland.
7. Fixed income and other securities traded in the secondary market or
3. Borrowing and lending of securities executed under the Securities
throughanexchange.
Borrowing and lending Program of a registered exchange, or in
MA.ANGELAAGUINALDO
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130
8.
9.
10.
11.
12.
13.
14.
Derivatives: Provided, That for purposes of this exemption, repurchase

agreementsandreverserepurchaseagreementsshallbetreatedsimilarly
asderivatives.
Interbranchorinterdepartmentaladvanceswithinthesamelegalentity.
All forbearances arising from sales or service contracts including credit
card and trade receivables: Provided, That the exemption be limited to
thoseexecutedbythesellerorserviceprovideritself.
Bankdepositaccountswithoutafixedtermormaturity.
Allcontracts,deeds,documentsandtransactionsrelatedtotheconduct
ofbusinessoftheBankoSentralngPilipinas.
TransferofpropertypursuanttoSection40(c)(2)oftheNationalInternal
RevenueCodeof1997,asamended.
Interbank call loans with maturity of not more than seven (7) days to
cover deficiency in reserves against deposit liabilities, including those
betweenoramongbanksandquasibanks.
TimeforFilingandPaymentoftheTax
ExceptasprovidedbyrulesandregulationspromulgatedbytheSecretary
of Finance, upon recommendation of the Commissioner, the tax return
prescribedinthisSectionshallbefiledwithinten(10)daysaftertheclose
of the month when the taxable document was made, signed, issued,
accepted, or transferred, and the tax thereon shall be paid at the same
timetheaforesaidreturnisfiled.
Buttakenote,RR62001,thishasbeenshortenedinto5days
SecretaryofFinancemayprescriberulesandregulationsforthepayment
ofDST
REMEDIESUNDERTHETAXCODEOF1997
TaxDelinquencyVs.TaxDeficiency
Ataxpayerisconsidereddelinquentinthepaymentofhistaxwhen
o The selfassessed tax per return filed by the taxpayer on the
prescribeddatewasnotpaidorpartiallypaid;or
o ThedeficiencytaxassessedbytheBIRbecamefinalandexecutory.
Deficiencymeans:
Theamountbywhichthetaximposedbylaw,asdeterminedbythe
commissioner or his duly authorized representative exceeds the
amountshownasthetaxbythetaxpayeronhisreturn;or
o Ifnoamountisshownasthetaxbythetaxpayeruponhisreturnor
no tax return was filed, then the amount by which the tax was
determined by the commissioner or his duly authorized
representativeexceedstheamountpreviouslyassessed(orcollected
withoutassessment)asadeficiency.
Remediesareapplicabletoissuesofdeficiency
o
Taxdelinquency
Can immediately be collected
administrativelythroughtheissuanceof
a warrant of distraint and levy or by
judicialaction
Taxdeficiency
A deficiency tax can likewise be
collectedthroughadministrativeand/or
judicialprocessexceptthatithastogo
through the process of filing of a
protest,etc.
The filing of a civil action for the An action for the collection of a
collection of the delinquent tax in the deficiency tax with the CTA or ordinary
CTA or ordinary court is the proper court requires that the assessment
remedy
become final and executory, otherwise
the same may be dismissed for lack of
jurisdiction.
SeeSection203:PeriodofLimitationUponAssessmentandCollection
Except as provided in Section 222, internal revenue taxes shall be

assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without assessment
forthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuch
period
Inacasewhereareturnisfiledbeyondtheperiodprescribedbylaw,the
three(3)yearperiodshallbecountedfromthedaythereturnwasfiled.
ForpurposesofthisSection,areturnfiledbeforethelastdayprescribed
bylawforthefilingthereofshallbeconsideredasfiledonsuchlastday.
Illustration:
MA.ANGELAAGUINALDO
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131
Calendar:31
December
2008
Assessment:
3years;15
April2012
15April2009
Finalassessment
prepared
Dulyreceivedby
thetaxpayer
LOA:
120
day
perio
d;
LN/
TVN:
sales
and
purch
ases
made
,
comp
ares
recor
ds
BIR
will
serve
LOA/
LN/
TVN
and
will
ask
the
prepa
ratio
nof
recor
ds
After
invest
igatio
n,
letter
of
infor
mal
confe
rence
Withi
n15
days,
taxpa
yer
must
reply
BIR
will
revie
w
Letter
of
Preli
minar
y
Asses
smen
t
Final
Asses
smen
t
Notic
e
Prote
st
CIRvs.IslandGarmentManufacturingCorp
GRNoL46644September11,1987
.
FACTS:
IslandGarmentisadulylicensedandoperatingcorporationundertheEmbroidery
Law. It imports textile fabrics, cotton piece goods for manufacture into finished
garmentswhichitreexportsbacktoitsforeignsuppliersunderthesupervisionof
the Embroidery Board. In turn, it receives payment for labor costs, overhead
expenses, and margin profits. Under the Embroidery Law, said corporation is
exempt from its importation of fabrics and textiles. However, its net income is
subjecttoincometax.
Onalaterdate,thecorporationwasassessedfordeficiencyincometaxes,towhich
the corporation protested against. The Appeal Board ordered the cancellation of
theassessments.
HELD:
Theletterfiledbyrespondentwasn'tproformaandconsideredasreconsideration
and thus, suspended the running of period for the perfection of the appeal. As
statedinthepertinentlaw,theperiodfortheperfectionofappealtotheCTAis30
daysfromreceiptofanadversedecisionoftheCIR,CollectorofCustoms.Inthis
case, the respondent corporation timely filed its appeal as it filed the same after
thelapseof16daysfromreceiptofletterdenyingwithfinalityitsprotest.
On the issue of deficiency, the CIR was validly overruled in its assessment. An
assessment fixes and determines the tax liability of a taxpayer. As soon as it is
served, an obligation arises on the part of the taxpayer concerned to pay the
amountassessedanddemanded.Hence,assessmentsshouldn'tbebasedonmere
presumptionsnomatterhowreasonableorlogicalsaidpresumptionsmaybe.
ASSESSMENTPROCESS
(RR1299;SECTION228NIRC)
Afterthefilingofthereturnofthetaxpayertogetherwiththepayment
oftaxes.Itisthedutyofthegovernmenttoascertainthecorrectnessof
the returns filed and if there exists any deficiency or fraud in the said
returns.
1. IssuanceofavalidLetterofAuthority,LetterNotice,TaxVerificationNotice
2. ExaminationofBooks,paperandrecords
SEC. 5. Power of the Commissioner to Obtain Information, and to Summon,

Examine,andTakeTestimonyofPersons.Inascertainingthecorrectnessof
any return, or in making a return when none has been made, or in
determining the liability of any person for any internal revenue tax, or in
collectinganysuchliability,orinevaluatingtaxcompliance,theCommissioner
isauthorized:
xxx
MA.ANGELAAGUINALDO
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132
(B)ToObtainonaregularbasisfromanypersonotherthanthepersonwhose
internal revenue tax liability is subject to audit or investigation, or from any
officeorofficerofthenationalandlocalgovernments,governmentagencies
and instrumentalities, including the Bangko Sentral ng Pilipinas and
governmentownedorcontrolledcorporations,anyinformationsuchas,but
not limited to, costs and volume of production, receipts or sales and gross
incomesoftaxpayers,andthenames,addresses,andfinancialstatementsof
corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts,
associations,jointventuresofconsortiaandregisteredpartnerships,andtheir
members;
(C) To summon the person liable for tax or required to file a return, or any
officeroremployeeofsuchperson,oranypersonhavingpossession,custody,
or care of the books of accounts and other accounting records containing
entries relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly authorized
representativeatatimeandplacespecifiedinthesummonsandtoproduce
suchbooks,papers,records,orotherdata,andtogivetestimony;
SEC. 6. Power of the Commissioner to make assessments and Prescribe

additionalRequirementsforTaxAdministrationandEnforcement.
(A)ExaminationofReturnsandDeterminationofTaxDue.Afterareturnhas
beenfiledasrequiredundertheprovisionsofthisCode,theCommissioneror
his duly authorized representative may authorize the examination of any
taxpayerandtheassessmentofthecorrectamountoftax:Provided,however;
That failure to file a return shall not prevent the Commissioner from
authorizingtheexaminationofanytaxpayer.
The tax or any deficiency tax so assessed shall be paid upon notice and
demandfromtheCommissionerorfromhisdulyauthorizedrepresentative.
Anyreturn,statementofdeclarationfiledinanyofficeauthorizedtoreceive
thesameshallnotbewithdrawn:Provided,Thatwithinthree(3)yearsfrom
the date of such filing , the same may be modified, changed, or amended:
Provided, further, That no notice for audit or investigation of such return,
statementordeclarationhasinthemeantimebeenactuallyserveduponthe
taxpayer.
3.
NoticeofInformalConference
3.1.1
Notice for informal conference. The Revenue Officer who
auditedthetaxpayer'srecordsshall,amongothers,stateinhisreportwhether
or not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency tax or taxes. If the taxpayer is not amenable, based on the said
Officer'ssubmittedreportofinvestigation,thetaxpayershallbeinformed,in
writing,bytheRevenueDistrictOfficeorbytheSpecialInvestigationDivision,
asthecasemaybe(inthecaseRevenueRegionalOffices)orbytheChiefof
Divisionconcerned(inthecaseoftheBIRNationalOffice)ofthediscrepancy
or discrepancies in the taxpayer's payment of his internal revenue taxes, for
thepurposeof"InformalConference,"inordertoaffordthetaxpayerwithan
opportunity to present his side of the case. If the taxpayer fails to respond
within fifteen (15) days from date of receipt of the notice for informal
conference, he shall be considered in default, in which case, the Revenue
DistrictOfficerortheChiefoftheSpecialInvestigationDivisionoftheRevenue
RegionalOffice,ortheChiefofDivisionintheNationalOffice,asthecasemay
be, shall endorse the case with the least possible delay to the Assessment
Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and
issuanceofadeficiencytaxassessment,ifwarranted.
a.
4.
OnmatterthattaxpayersandBIRagreepaymentmaybemade
using the Agreement Form. On other matter not in
agreement,theprocesscontinues.
IssuanceofthePreliminaryAssessmentNotice(PAN)
a. Taxpayer isgiven15daystocontest,otherwiseheisconsideredin
default, this is done by a REPLY within 15 days. The REPLY is not
mandatoryanddoesnotfullytackletheissuescontainedinthePAN.
b. ExceptionstotheuseofPAN
(a) When the finding for any deficiency tax is the result of
mathematicalerrorinthecomputationofthetaxasappearing
onthefaceofthereturn;or
(b) When a discrepancy has been determined between the tax
withheldandtheamountactuallyremittedbythewithholding
agent;or
MA.ANGELAAGUINALDO
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133
5.
(c) Whenataxpayerwhooptedtoclaimarefundortaxcreditof
excess creditable withholding tax for a taxable period was
determinedtohavecarriedoverandautomaticallyappliedthe
same amount claimed against the estimated tax liabilities for
thetaxablequarterorquartersofthesucceedingtaxableyear;
or
(d) When the excise tax due on exciseable articles has not been
paid;or
(e) When the article locally purchased or imported by an exempt
person,suchas,butnotlimitedto,vehicles,capitalequipment,
machineries and spare parts, has been sold, traded or
transferredtononexemptpersons.
IssuanceoftheFormalAssessmentNotice(FAN)andletterofdemand
a. Statethefacts,laws,rulesandregulationswhichtheassessmentisbased
otherwiseitisvoid.
b. Sent by registered mail or by personal delivery, if using the latter, the
same should be acknowledged in the duplicate copy with the following
information:1)name,2)signature,3)designationandauthority,4)date
ofreceipt.
PNZMarketingvs.Com.
CTACaseNo.5726Dec.14,2001
FACTS:
Petitioner was engaged in business as importer and dealer of powdered and
skimmed milk and other related product. Petitioner received formal assessment
notice and Demand letter from herein Respondent stating therein Petitioner's
alleged deficiency income tax liability for the year 1994. As admitted, the alleged
deficiency income tax assessment issued against the Petitioner arose from the
followingadjustmentstoPetitioner'sincometaxreturn,towit:
(a)
DisallowanceoftheinterestexpenseintheamountofP1,053,885.00;
(b)
DisallowanceofthesalaryexpenseintheamountofP489,865.35;and
(c)
ImputationofunrecordedincomeintheamountofP394,625.58.
Petitioner seeks reconsideration as the assessment was bereft of any law or

regulationuponwhichitwasbased.
HELD:
Thefirstissuedealsmainlywiththesufficiencyoftheassessmentnoticeinsofaras
compliancewithSection228oftheTaxCodeisconcerned.Itmustbestressedthat
Section228requirestheRespondenttoinformthetaxpayerinwritingofthelaws
andthefactsonwhichtheassessmentismade,otherwisetheassessmentshallbe
void.Simplyput,itisincumbentupontheRespondenttoshowclearlythelegaland
thefactualbaseswhichledhimtoissuethesaiddeficiencyincometaxassessment
inthefirstplace.Thestrictnessofthisrulerunsparalleltothedueprocessclause
as it obliges the Respondent not only to lay down the law from which the
assessment is based but more importantly, the surrounding circumstances
supporting the assessment. For it is believed that it is only through a detailed
appraisal of its basis that the taxpayer may be able to dispute the imposition or
agreewithit.
The case at bar is no exception to the rule. A perusal of the records indicates a
successfulattemptonRespondent'sparttocomplywiththerules.Theassessment
notice, while vague at first glance is subsequently cured by the demand letter
which shows the legal and factual basis relied upon by the Respondent in issuing
the assessment The demand letter, as thus worded contains the reasons why a
deficiency income tax assessment was issued against the Petitioner. It reflects
some notable disallowance on the Business expense of the Petitioner for reasons
suchasthefollowing:
a)
interestincomehasnosupportingdocumentpursuanttoSection29;
b)
thattheincomeisunrecordedwhichisfactual;and
c)
that there is discrepancy in the declared salary expense as provided in
RevenueRegulationsNo.493.
To the courts mind, these explanations are sufficient compliance with the
requirementsofSection228oftheTaxCode.
ArtexDevelopmentCovs.NLRC
187SCRA611(opportunitytobeheard)
FACTS:
*alleged illegal dismissal of the employees of Artex for not being given the
opportunitytobeheard.
HELD:
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Theconfirmationcopiesofthetelegraphednoticesofthevarioushearingsbefore
the Labor Arbiter showed that the telegrams were properly sent and delivered in
theordinarycourseofbusiness.Asthepetitionerhadnotchangeditsaddress,nor
didtheTelegraphicCommunicationOfficeadvisethesenders(hereinrespondents)
that the telegrams were undelivered, and as petitioner had in fact received all
copies of the Labor Ministry's resolutions and decisions sent to its address, the
presumptionisthatitreceivedthenoticesofhearing.
Evenifthepetitionerwasnotheardatthestageofmediationandfactfinding,it
maynotcomplainoflackofdueprocessforitwasgivenanopportunitytopresent
its side of the controversy when its motions for reconsideration and appeal were
given due course. What due process abhors is not lack of previous notice, but
absolutelackofopportunitytobeheard
NOTE:
Protest by taxpayer of the FAN within thirty days otherwise the same
becomesfinalandexecutorywhereinthetaxpayercannolongercontest
theassessment.
ProtestingofAssessment
When the Commissioner or his duly authorized representative finds that proper
taxesshouldbeassessed,heshallfirstnotifythetaxpayerofhisfindings:provided,
however,Thatapreassessmentnoticeshallnotberequiredinthefollowingcases:
1. 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;or
2. Whenadiscrepancyhasbeendeterminedbetweenthetaxwithheldand
theamountactuallyremittedbythewithholdingagent;or
3. 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
carriedoverandautomaticallyappliedthesameamountclaimedagainst
the estimated tax liabilities for the taxable quarter or quarters of the
succeedingtaxableyear;or
4. Whentheexcisetaxdueonexciseablearticleshasnotbeenpaid;or
5. When the article locally purchased or imported by an exempt person,

suchas,butnotlimitedto,vehicles,capitalequipment,machineriesand
spareparts,hasbeensold,tradedortransferredtononexemptpersons.
The taxpayers shall be informed in writing of the law and the facts on
whichtheassessmentismade;otherwise,theassessmentshallbevoid.
Withinaperiodtobeprescribedbyimplementingrulesandregulations,
thetaxpayershallberequiredtorespondtosaidnotice.Ifthetaxpayer
failstorespond,theCommissionerorhisdulyauthorizedrepresentative
shallissueanassessmentbasedonhisfindings.
Suchassessmentmaybeprotestedadministrativelybyfilingarequestfor
reconsiderationorreinvestigationwithinthirty(30)daysfromreceiptof
the assessment in such form and manner as may be prescribed by
implementingrulesandregulations.
Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall
becomefinal.
If the protest is denied in whole or in part, or is not acted upon within
one hundred eighty (180) days from submission of documents, the
taxpayeradverselyaffectedbythedecisionorinactionmayappealtothe
Court of Tax Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty (180)day period;
otherwise,thedecisionshallbecomefinal,executoryanddemandable.
6.
COLLECTIONPROCESS
TheissuanceoftheFinalAssessmentNoticelegallycreatesataxliability
of the taxpayer which is being demanded in the accompanying letter of
demand.
FilingOfAnAdministrativeProtestByTheTaxpayerAgainstTheAssessment
1.
Donewithinthirtydaysfromreceiptotherwisetheassessment
becomesfinal.
2.
Mustspecifythefollowing:
a. Completenameandaddressoftaxpayer
b. Natureoftherequestofwhetheritisforreconsiderationor
reinvestigation
i. Ifreconsiderationquestionofappreciationofthe
law
ii. Ifreinvestigationnewlydiscoveredevidencewhich
istobepresented.
c. Taxableperiodcovered
d. Assessmentnumber
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e.
f.
Dateofreceiptofassessmentnumberordemandletter
i. Itemizedstatementoffindingswhichareagreed
uponwhichshouldbepaidimmediately.
Itemizedscheduleoftheadjustmentstowhichthetaxpayer
doesnotagreeto.
Statementoffactsandlawtosupporttheprotest.
g.
DifferenceBetweenReconsiderationandReinvestigation
Request for reconsideration refers to a plea of reevaluation of the

assessment on the basis of existing records without need of additional
evidence.Itmayinvolvebothaquestionoffactoroflaworboth.
Request for reinvestigation refers to a plea of reevaluation of an

assessmentonthebasisofnewlydiscoveredoradditionalevidencethat
ataxpayerintendstopresentinthereinvestigation.Itmayalsoinvolvea
questionoffactorlaworboth.
CIR v. Philippine Global Communications, 31 October 2006: The main

difference between the two types of protests lies in the records or
evidencetobeexaminedbyinternalrevenueofficers,whetherthereare
existing records or newly discovered evidence. It is a request for
reinvestigationandnotreconsiderationthatinterruptstherunningofthe
statuteoflimitationsonthecollectionoftheassessedtax.
3. Submissionofdocumentaryevidencewithinsixtydaysoffilingofprotest.
4. Upon the submission of documentary evidence or memorandum, the

commissionerisgiventhe180daystoactupontheprotest.
Thereareissueswhenthe180dayperiodstartstorun
Ifthereisnoadditionaldocumentsfiled.Ifthememoisfiledbeforethe
lapseof60daysorafterthelapseof60days.
OCEANICWIRELESSNETWORKV.COMMISSIONER
CTACASE61111,3NOVEMBER2004
FACTS:
Petitioner was issued final assessment notices. It duly filed its protest to the
assessed deficiency taxes and submitted the needed documentary evidence to
support its claim. However, within the 180day period that the Commissioner
oughttohaveactedonthematter,thesamewasn'tabletorenderitsdecisionand
after180plus30daysdidpetitionerbelatedlyfiledapetitionforreviewwiththe
CTA.
HELD:
Petitionerhavingfailedtocomplywiththerequirementofthelawindisputingan
assessment, the same became final, executory and demandable. The law is quite
clearonthismatter:
SEC.228.Protesting of Assessment. When the Commissioner or his duly

authorizedrepresentativefindsthatpropertaxesshouldbeassessed,heshallfirst
notify the taxpayer of his findings: Provided, however, That a preassessment
noticeshallnotberequiredinthefollowingcases:
xxxxxxxxx
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessmentinsuchformandmannerasmaybeprescribedbyimplementingrules
and regulations. Within sixty (60) days from filing of the protest, all relevant
supportingdocumentsshallhavebeensubmitted;otherwise,theassessmentshall
becomefinal.
Iftheprotestisdeniedinwholeorinpart,orisnotacteduponwithinonehundred
eighty (180) days from submission of documents, the taxpayer adversely affected
by the decision or inaction may appeals to the Court of Tax Appeals within thirty
(30)daysfromreceiptofthesaiddecision,orfromthelapseoftheonehundred
eighty(180)dayperiod;otherwise,thedecisionshallbecomefinal,executoryand
demandable.
Undoubtedly, a taxpayer has sixty (60) days from the filing of the protest to
submittherelevantdocumentstosupportitsprotest,otherwise,theassessment
becomesfinal.Withinonehundredeighty(180)daysfromthesubmissionofthe
relevantdocuments,therespondentshouldactontheprotest.Iftherespondent
rendered his decision within the period or failed to act on it, the remedy of the
taxpayeristofilewithinthirty(30)daysfromthereceiptofthedecisionorfrom
thelapseofonehundredeighty(180)days,anappealtothiscourt,otherwise,the
assessmentwillbecomefinal,executoryanddemandable.
In the case at bar, petitioner failed to submit supporting documents contrary to

whatwasjointlystipulatedbytheparties.Hence,thereckoningoftheonehundred
eighty(180)dayperiodwouldbethedaytheprotestwasfiled,i.e.,onAugust16,
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1999. However, respondent failed to render his decision within the one hundred
eighty(180)daysoruntilFebruary12,2000.Asalreadydiscussed,theremedyof
petitioner was to file within thirty (30) days therefrom an appeal with this court
which would be until March 14, 2000. But since the Petition for Review was filed
onlyonMay12,2000,thesamewasdefinitelyfiledbeyondthedateprescribedby
law.
5. Issuanceofarevisedassessment
COLLECTORV.BATANGASTRANSPORTATION
102PHIL822
FACTS:
Respondentcompaniesaretwodistinctandseparatecorporationsengagedinthe
business of land transportation by means of motor buses, and operating distinct
and separate lines. It was managed by two different managers and if they had a
linkwithoneanother,thatwouldbetheirpresident,whoowned30%ofthecapital
stocksofeachcompany.
Duringthewar,theoperationsofbothcompanyceasedanditwasonlyafterthe
liberationwhentheystartedtooperateagain.Followingthedecisionoftheboard,
the two companies were managed by one person after the previous manager of
onecompanyresigned.
Underthetheorythatbyvirtueofthejointemergencyoperationofbothandthe
pooling of their resources, the companies are deemed to have formed a joint
venture and was assessed by the Commissioner for deficiency taxes. The
Commissioner then issued a revised assessment, crediting previous payments
made and this was appealed by the companies with the CTA. However, the
Commissionerthenissuedanotherassessment,whichwasbiggerduetoitsalleged
errorincrediting100%oftheirpreviouspayments.
HELD:
Governmentisnotboundbytheerrorscommittedbyitsagentsandtaxcollectors
inmakingtaxassessments,speciallywhenduetoamisinterpretationorapplication
ofthetaxlaws,moresowhendoneingoodfaith;thatthetaxlawsprovidefora
prescriptive period within which the tax collectors may make assessments and
reassessmentsinordertocollectallthetaxesduetotheGovernment,andthatif
the Collector of Internal Revenue is not allowed to amend his assessment before
the Court of Tax Appeals, and since he may make a subsequent reassessment to
collectadditionalsumswithinthesamesubjectofhisoriginalassessment,provided
it is done within the prescriptive period, that would lead to multiplicity of suits
whichthelawdoesnotencourage;thatsincetheCollectorofInternalRevenue,in
modifyinghisassessment,maynotonlyincreasethesame,butmayalsoreduceit,
if he finds that he has committed an error against the taxpayer, and may even
make refunds of amounts erroneously and illegally collected, the taxpayer is not
prejudiced;thatthehearingbeforetheCourtofTaxAppealspartakesofatrialde
novoandtheTaxCourtisauthorizedtoreceiveevidence,summonwitnesses,and
give both parties, the Government and the taxpayer, opportunity to present and
argue their sides, so that the true and correct amount of the tax to be collected,
maybedeterminedanddecided,whetherresultingintheincreaseorreductionof
theassessmentappealedtoit.Theresultisthattherulinganddoctrinenowbeing
laid by this Court is, that pending appeal before the Court of Tax Appeals, the
CollectorofInternalRevenuemaystillamendhisappealedassessment,ashehas
doneinthepresentcase.
a. Cancellationofentireassessment
b. Revisionoftheassessmentinparts
c. Denialofprotest
6. Denialofprotest
Iftheprotestofthetaxpayerisdeniedinwholeorinpart,thesameshall
containthefollowing
o State the facts, the applicable law, rules and regulations,
jurisprudence on which such decision is based; otherwise, the
decisionshallbevoid
o Thatthesameisthefinaldecisionofthecommissioner
7. Within30daysfromthedenialoftheprotest,thetaxpayerisgiven30days
toappealtotheCTA
WhendoestheCTAhavejurisdiction?
Exclusiveappellatejurisdictiontoreviewbyappeal
1. Decisions of the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges,penaltiesinrelationthereto,orothermattersarisingunderthe
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2.
3.
4.
5.
6.
7.
National Internal Revenue or other laws administered by the Bureau of

InternalRevenue;
Inaction by the Commissioner of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges,penaltiesinrelationsthereto,orothermattersarisingunderthe
National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be
deemedadenial;
Decisions, orders or resolutions of the Regional Trial Courts in local tax
cases originally decided or resolved by them in the exercise of their
originalorappellatejurisdiction;
DecisionsoftheCommissionerofCustomsincasesinvolvingliabilityfor
customs duties, fees or other money charges, seizure, detention or
release of property affected, fines, forfeitures or other penalties in
relationthereto,orothermattersarisingundertheCustomsLaworother
lawsadministeredbytheBureauofCustoms;
DecisionsoftheCentralBoardofAssessmentAppealsintheexerciseof
itsappellatejurisdictionovercasesinvolvingtheassessmentandtaxation
of real property originally decided by the provincial or city board of
assessmentappeals;
Decisions of the Secretary of Finance on customs cases elevated to him
automaticallyforreviewfromdecisionsoftheCommissionerofCustoms
which are adverse to the Government under Section 2315 of the Tariff
andCustomsCode;
Decisions of the Secretary of Trade and Industry, in the case of
nonagricultural product, commodity or article, and the Secretary of
Agriculture in the case of agricultural product, commodity or article,
involvingdumpingandcountervailingdutiesunderSection301and302,
respectively, of the Tariff and Customs Code, and safeguard measures
underRepublicActNo.8800,whereeitherpartymayappealthedecision
toimposeornottoimposesaidduties.
Jurisdictionovercasesinvolvingcriminaloffensesashereinprovided:
1. Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs
CodeandotherlawsadministeredbytheBureauofInternalRevenueor
the Bureau of Customs: Provided, however, That offenses or felonies
mentioned in this paragraph where the principal amount o taxes and
2.
fees,exclusiveofchargesandpenalties,claimedislessthanOnemillion
pesos (P1,000,000.00) or where there is no specified amount claimed
shallbetriedbytheregularCourtsandthejurisdictionoftheCTAshallbe
appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action
fortherecoveryofcivilliabilityfortaxesandpenaltiesshallatalltimes
be simultaneously instituted with, and jointly determined in the same
proceedingbytheCTA,thefilingofthecriminalactionbeingdeemedto
necessarily carry with it the filing of the civil action, and no right to
reservethefillingofsuchcivilactionseparatelyfromthecriminalaction
willberecognized.
Exclusiveappellatejurisdictionincriminaloffenses
a. Overappealsfromthejudgments,resolutionsorordersofthe
RegionalTrialCourtsintaxcasesoriginallydecidedbythem,in
theirrespectedterritorialjurisdiction.
b. Over petitions for review of the judgments, resolutions or
orders of the Regional Trial Courts in the exercise of their
appellate jurisdiction over tax cases originally decided by the
MetropolitanTrialCourts,MunicipalTrialCourtsandMunicipal
CircuitTrialCourtsintheirrespectivejurisdiction.
Jurisdictionovertaxcollectioncasesashereinprovided:
1. Exclusive original jurisdiction in tax collection cases involving final and
executory assessments for taxes, fees, charges and penalties: Provided,
however,Thatcollectioncaseswheretheprincipalamountoftaxesand
fees,exclusiveofchargesandpenalties,claimedislessthanOnemillion
pesos(P1,000,000.00)shallbetriedbytheproperMunicipalTrialCourt,
MetropolitanTrialCourtandRegionalTrialCourt.
2. Exclusiveappellatejurisdictionintaxcollectioncases:
a. Overappealsfromthejudgments,resolutionsorordersofthe
Regional Trial Courts in tax collection cases originally decided
bythem,intheirrespectiveterritorialjurisdiction.
b. Over petitions for review of the judgments, resolutions or
orders of the Regional Trial Courts in the Exercise of their
appellate jurisdiction over tax collection cases originally
decidedbytheMetropolitanTrialCourts,MunicipalTrialCourts
and Municipal Circuit Trial Courts, in their respective
jurisdiction."
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LASCONAREALTYCORP.V.COMMISSIONER
CTACASE5777
FACTS:
Respondentissuedanassessmentnoticetopetitioner.Thelatterfileditsprotest
andinreply,respondentaverredthatwhileitagreeswiththeargumentsadvanced
bypetitioner,thesamecouldn'tbeentertainedasthecasewasn'televatedtothe
CTA,asallegedlyprovidedforbythelaw.
HELD:
The wordings of Section 228 of the Tax Code clearly provide that it is only the
decision not appealed by the taxpayer that becomes final, executory and
demandable. Otherwise, the authors of the law could have easily included the
wordassessmentasalsobecomingfinal,executoryanddemandableshouldtheBIR
failtoactontheprotestwithin180days.
Theword'decisions'inparagraph1,Section7ofRepublicAct1125,quotedabove,
has been interpreted to mean the decisions of the Commissioner of Internal
Revenue on the protest of the taxpayer against the assessments. Definitely, said
worddoesnotsignifytheassessmentitself.
Verily,incasesofinaction,Section228oftheTaxCodemerelygavethetaxpayer
anoption:first,hemayappealtotheCourtofTaxAppealswithinthirty(30)days
fromthelapseoftheonehundredeighty(180)dayperiodprovidedforunderthe
saidsection,orsecond,hemaywaituntiltheCommissionerdecidesonhisprotest
before he elevates his case. This Court believes that the taxpayer was given this
optionsothatincasehisprotestisnotacteduponwithinthe180dayperiod,he
maybeabletoseekimmediatereliefandneednotwaitforanindefiniteperiodof
timefortheCommissionertodecide.Butifhechoosestowaitforapositiveaction
onthepartoftheCommissioner,thenthesamecouldnotresultintheassessment
becomingfinal,executoryanddemandable.
TAXREMEDIES:NATIONALTAXES
REMEDIESOFTHEGOVERNMENT
COLLECTIONOFTAXLIABILITY
Nocourtinjunctionagainsttaxcollectionrule
No court shall have the authority to grant an injunction to restrain the

collectionofanynationalinternalrevenuetax,feeorchargeimposedby
thisCode.
Payasyoufilerule(cf.Section56[A][1])
MotionforSuspensionofCollectionofTax(Rule12)
SECTION1.
Where,pursuanttotheprovisionsofsection11ofRepublicAct
No.1125,thecollectionbytheBureauofInternalRevenueortheCommissionerof
Customs of the amount of the taxpayer's liability whether such collection be
soughtbymeansofademandforpaymentorbylevy,distraintand/orsaleofany
propertyofthetaxpayer,asprovidedbyexistinglawmayjeopardizetheinterest
oftheGovernmentand/orthetaxpayer,theinterestedpartymayfileamotionfor
thesuspensionofthecollectionofthetaxliability.
SECTION2.
Themotionforthesuspensionofthecollectionofthetaxmay
befiledtogetherwiththePetitionforRevieworwiththeAnswer,asthecasemay
be, or in a separate motion filed by the interested party at any stage of the
proceedings.
SECTION3.
Themotionforthesuspensionofthecollectionofthetaxshall
beunderoathandshallstateclearlyanddistinctlythefactsandthegroundsrelied
upon by the movant in support of the suspension of the collection of the tax.
SECTION4.
Unless a shorter period is fixed by the Court because of the
urgencyofthemotion,theadversepartyshall,withinfivedaysafteracopyofthe
motionisreceivedbyhim,filehisOppositionthereto,whichshallstateclearlyand
distinctlythefactsandthegroundsrelieduponbyhiminsupportofhisOpposition.
SECTION5.
TheClerkofCourtshall,uponreceiptofthesaidOpposition,set
the motion shall be given preference over all other cases. At the hearing, both
parties shall submit their respective evidence in support of their respective
contentions.However,forthesakeofexpediency,uponmotionofthepartiesorby
the Court motu proprio, the hearing of the motion for the suspension of the
collection of the tax may be consolidated with the hearing on the merits of the
case.
REPUBLICV.LIMTIANTENG
16SCRA584
FACTS:
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Respondentincludedinitstaxreturnasbeginninginventorytheoutrunofcoprait
incurredduringthepreviousyear.Intheauditandexaminationofitsbooks,the
Commissionerexcludedthesame,whichresultedtoahigherincometaxpayable.
Respondentsoughtreconsiderationofitstaxliability.Consequently,theSolicitor
General demanded the payment of the deficiency income tax otherwise judicial
action would be instituted without further notice. Respondent reiterated its
requestforreinvestigation.TheCommissionerrepliedthatsaidrequestshallonly
be granted if a waiver of the statute of limitations be issued by the respondent.
Respondent failed to file the waiver and thus judicial action commenced and the
courtruledagainstrespondent,absentanyordertopaysurcharge.
HELD:
NowhereintheTaxCodeistheCollectorofInternalRevenuerequiredtorulefirst
on a taxpayer's request for reinvestigation before he can go to court for the
purpose of collecting the tax assessed. On the contrary, Section 305 of the same
Codewithholdsfromallcourts,excepttheCourtofTaxAppealsunderSection11
of Republic Act 1125, the authority to restrain the collection of any national
internalrevenuetax,feeorcharge,therebyindicatingthelegislativepolicytoallow
the Collector of Internal Revenue much latitude in the speedy and prompt
collectionoftaxes.Thereasonisobvious.Itisupontaxationthatthegovernment
chieflyreliestoobtainthemeansthecarryonitsoperations,anditisoftheutmost
importancethatthemodesadoptedtoenforcecollectionoftaxesleviedshouldbe
summaryandinterferedwithaslittleaspossible.Nogovernmentcouldexistifall
litigantswerepermittedtodelaythecollectionofitstaxes.
Taxpayer failure to appeal to the Court of Tax Appeals in due time made the
assessmentinquestionfinal,executoryanddemandable.Andwhentheactionwas
institutedonSeptember2,1958toenforcethedeficiencyassessmentinquestion,
itwasalreadybarredfromdisputingthecorrectnessoftheassessmentorinvoking
any defense that would reopen the question of his tax liability on merits.
Otherwise,theperiodofthirtydaysforappealtotheCourtofTaxAppealswould
makelittlesense.
In a proceeding like this the taxpayer's defenses are similar to those of the
defendant in a case for the enforcement of a judgment by judicial action under
Section6ofRule39oftheRulesofCourt.Noinquirycanbemadethereinastothe
meritsoftheoriginalcaseorthejustnessofthejudgmentreliedupon,otherthan
byevidenceofwantofjurisdiction,ofcollusionbetweentheparties,oroffraudin
thepartyofferingtherecordwithrespecttotheproceedings.
*If this case would happen today, the Commissioner is mandated to answer the
protest of the taxpayer and state the facts and laws upon which his assessment
wasmade.Heshouldlikewisestatethefinalityoftheassessment.
TemporaryRestrainingOrderv.RA9337
(seeAbakadaGuroPartyList)
SummaryRemedies
DistraintofPersonalProperty
Upon the failure of the person owing any delinquent tax or delinquent
revenuetopaythesameatthetimerequired,theCommissionerorhis
dulyauthorizedrepresentative,iftheamountinvolvedisinexcessofOne
millionpesos(P1,000,000),ortheRevenueDistrictOfficer,iftheamount
involvedisOnemillionpesos(P1,000,000)orless,shallseizeanddistraint
anygoods,chattelsoreffects,andthepersonalproperty,includingstocks
and other securities, debts, credits, bank accounts, and interests in and
rights to personal property of such persons ;in sufficient quantity to
satisfythetax,orcharge,togetherwithanyincrementtheretoincidentto
delinquency, and the expenses of the distraint and the cost of the
subsequentsale.
A report on the distraint shall, within ten (10) days from receipt of the
warrant, be submitted by the distraining officer to the Revenue District
Officer, and to the Revenue Regional Director: Provided, That the
Commissionerorhisdulyauthorizedrepresentativeshall,subjecttorules
and regulations promulgated by the Secretary of Finance, upon
recommendationoftheCommissioner,havethepowertoliftsuchorder
ofdistraint:Provided,further,ThataconsolidatedreportbytheRevenue
Regional Director may be required by the Commissioner as often as
necessary.
LevyonRealProperty
After the expiration of the time required to pay the delinquent tax or
delinquent revenue as prescribed in this Section, real property may be
levied upon, before simultaneously or after the distraint of personal
property belonging to the delinquent. To this end, any internal revenue
officer designated by the Commissioner or his duly authorized
representativeshallprepareadulyauthenticatedcertificateshowingthe
nameofthetaxpayerandtheamountsofthetaxandpenaltyduefrom
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him. Said certificate shall operate with the force of a legal execution
throughoutthePhilippines.
Levyshallbeaffectedbywritinguponsaidcertificateadescriptionofthe
property upon which levy is made. At the same time, written notice of
thelevyshallbemailedtoorservedupontheRegisterofDeedsforthe
province or city where the property is located and upon the delinquent
taxpayer, or if he be absent from the Philippines, to his agent or the
managerofthebusinessinrespecttowhichtheliabilityarose,orifthere
benone,totheoccupantofthepropertyinquestion.
In case the warrant of levy on real property is not issued before or
simultaneously with the warrant of distraint on personal property, and
the personal property of the taxpayer is not sufficient to satisfy his tax
delinquency, the Commissioner or his duly authorized representative
shall,withinthirty(30)daysafterexecutionofthedistraint,proceedwith
thelevyonthetaxpayer'srealproperty.
Within ten (10) days after receipt of the warrant, a report on any levy
shallbesubmittedbythelevyingofficertotheCommissionerorhisduly
authorizedrepresentative:Provided,however,Thataconsolidatedreport
bytheRevenueRegionalDirectormayberequiredbytheCommissioner
as often as necessary: Provided, further, That the Commissioner or his
duly authorized representative, subject to rules and regulations
promulgated by the Secretary of Finance, upon recommendation of the
Commissioner, shall have the authority to lift warrants of levy issued in
accordancewiththeprovisionshereof.
ExceptionsastoPeriodofLimitationofAssessmentandCollectionofTaxes.
1. Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxorof
failuretofileareturn,thetaxmaybeassessed,oraproceedingincourt
for the collection of such tax may be filed without assessment, at any
time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final
andexecutory,thefactoffraudshallbejudiciallytakencognizanceofin
thecivilorcriminalactionforthecollectionthereof.
2. Waiver of prescriptive periodIf before the expiration of the time
prescribed in Section 203 for the assessment of the tax, both the
Commissionerandthetaxpayerhaveagreedinwritingtoitsassessment
aftersuchtime,thetaxmaybeassessedwithintheperiodagreedupon.
The period so agreed upon may be extended by subsequent written
3.
4.
5.
agreement made before the expiration of the period previously agreed

upon.
Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by
distraintorlevyorbyaproceedingincourtwithinfive(5)yearsfollowing
theassessmentofthetax.
Any internal revenue tax, which has been assessed within the period
agreeduponasprovidedinparagraph(b)hereinabove,maybecollected
bydistraintorlevyorbyaproceedingincourtwithintheperiodagreed
upon in writing before the expiration of the five (5) year period. The
period so agreed upon may be extended by subsequent written
agreementsmadebeforetheexpirationoftheperiodpreviouslyagreed
upon.
Provided, however, That nothing in the immediately preceding and
paragraph(a)hereofshallbeconstruedtoauthorizetheexaminationand
investigation or inquiry into any tax return filed in accordance with the
provisionsofanytaxamnestylawordecree.
CivilActionandCriminalAction
1. Bydistraintofgoods,chattels,oreffects,andotherpersonalpropertyof
whatevercharacter,includingstocksandothersecurities,debts,credits,
bankaccountsandinterestinandrightstopersonalproperty,andbylevy
uponrealpropertyandinterestinrightstorealproperty;and
2. Bycivilorcriminalaction.
Either of these remedies or both simultaneously may be pursued in the

discretion of the authorities charged with the collection of such taxes:
Provided, however, That the remedies of distraint and levy shall not be
availedofwheretheamountoftaxinvolveisnotmorethanOnehundred
pesos(P100).
Thejudgmentinthecriminalcaseshallnotonlyimposethepenaltybut
shall also order payment of the taxes subject of the criminal case as
finallydecidedbytheCommissioner.
The Bureau of Internal Revenue shall advance the amounts needed to

defray costs of collection by means of civil or criminal action, including
the preservation or transportation of personal property distrained and
the advertisement and sale thereof, as well as of real property and
improvementsthereon.
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FormandModeofProceedings
Civil and criminal actions and proceedings instituted in behalf of the

Government under the authority of this Code or other law enforced by
the Bureau of Internal Revenue shall be brought in the name of the
GovernmentofthePhilippinesandshallbeconductedbylegalofficersof
the Bureau of Internal Revenue but no civil or criminal action for the
recovery of taxes or the enforcement of any fine, penalty or forfeiture
under this Code shall be filed in court without the approval of the
Commissioner.
ARCHESV.BELLOSILLO
20SCRA32
FACTS:
Arches was assessed for deficiency income taxes which he didn't contest.
Thereafter, the Commissioner sought the recovery of the sums of money
equivalenttothepaymentofincometaxdeficiency.Archescontestedthis,onthe
groundthattheassessmentwasn'tapprovedbytheRevenueCommissioner.The
trialcourtoverruledthisclaim.
HELD:
The question of whether this suit should bear the approval of the Revenue
Commissionerisnotjurisdictional,butonerelatingtocapacitytosueoraffecting
thecauseofactiononly.So,inrulingonsaidquestion,whatevererror.ifany
the municipal court committed, was merely an error of judgment, not correctible
bycertiorari.
REPUBLICV.HIZON
GR130430,13DECEMBER1999
FACTS:
RespondentwasissuedadeficiencyincometaxassessmentbytheBIRwhichwas
uncontested. Consequently, warrants of levy and distraint were issued for the
payment of deficiency taxes. After three years from the issuance, respondent
soughtreconsiderationoftheorder.
HELD:
Sec.7ofthepresentCodeauthorizestheBIRCommissionertodelegatethepowers
vestedinhimunderthepertinentprovisionsoftheCodetoanysubordinateofficial
withtherankequivalenttoadivisionchieforhigher,exceptthefollowing:"(a)The
powertorecommendthepromulgationofrulesandregulationsbytheSecretaryof
Finance;(b)Thepowertoissuerulingsoffirstimpressionortoreverse,revokeor
modify any existing ruling of the Bureau; (c) The power to compromise or abate
under 204(A) and (B) of this Code, any tax deficiency: Provided, however, that
assessmentsissuedbytheRegionalOfficesinvolvingbasicdeficiencytaxesoffive
hundred thousand pesos (P500,000.00) or less, and minor criminal violations as
maybedeterminedbyrulesandregulationstobepromulgatedbytheSecretaryof
Finance, upon the recommendation of the Commissioner, discovered by regional
and district officials, may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the Assistant Regional
Director,headsoftheLegal,AssessmentandCollectionDivisionsandtheRevenue
District Officer having jurisdiction over the taxpayer, as members; and (d) The
power to assign or reassign internal revenue officers to establishments where
articlessubjecttoexcisetaxareproducedorkept.Noneoftheexceptionsrelates
totheCommissioner'spowertoapprovethefilingoftaxcollectioncases."
Sec. 229 of the Code mandates that a request for reconsideration must be made
within 30 days from the taxpayer's receipt of the tax deficiency assessment,
otherwise the assessment becomes final, unappealable and, therefore,
demandable.Thenoticeofassessmentforrespondent'staxdeficiencywasissued
by petitioner on July 18, 1986. On the other hand, respondent made her request
for reconsideration thereof only on November 3, 1992, without stating when she
receivedthenoticeoftaxassessment.Sheexplainedthatshewasconstrainedto
askforareconsiderationinordertoavoidtheharassmentofBIRcollectors.Inall
likelihood,shemusthavebeenreferringtothedistraintandlevyofherproperties
by petitioner's agents which took place on January 12, 1989. Even assuming that
she first learned of the deficiency assessment on this date, her request for
reconsideration was nonetheless filed late since she made it more than 30 days
thereafter.Hence,herrequestforreconsiderationdidnotsuspendtherunningof
theprescriptiveperiodprovidedunder223(c).AlthoughtheCommissioneracted
onherrequestbyeventuallydenyingitonAugust11,1994,thisisofnomoment
and does not detract from the fact that the assessment had long become
demandable.
PoliciesofDecentralization
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Sec.7ofthepresentCodeauthorizestheBIRCommissionertodelegatethepowers
vestedinhimunderthepertinentprovisionsoftheCodetoanysubordinateofficial
withtherankequivalenttoadivisionchieforhigher,exceptthefollowing:
1. The power to recommend the promulgation of rules and regulations by
theSecretaryofFinance;
2. The power to issue rulings of first impression or to reverse, revoke or
modifyanyexistingrulingoftheBureau;
3. Thepowertocompromiseorabateunder204(A)and(B)ofthisCode,
any tax deficiency: Provided, however, that assessments issued by the
RegionalOfficesinvolvingbasicdeficiencytaxesoffivehundredthousand
pesos (P500,000.00) or less, and minor criminal violations as may be
determinedbyrulesandregulationstobepromulgatedbytheSecretary
of Finance, upon the recommendation of the Commissioner, discovered
by regional and district officials, may be compromised by a regional
evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer
havingjurisdictionoverthetaxpayer,asmembers;and
4. The power to assign or reassign internal revenue officers to
establishmentswherearticlessubjecttoexcisetaxareproducedorkept.
UNGABV.CUSI
97SCRA877
FACTS:
Pending decision on the protest on the assessment it made, the Commissioner
instituted criminal actions against Ungab for tax evasion with the RTC. Ungab
questions this as he alleged that decision on the protest is a condition precedent
forfilingofacriminalactionincourt.
HELD:
What is involved here is not the collection of taxes where the assessment of the
CommissionerofInternalRevenuemaybereviewedbytheCourtofTaxAppeals,
but a criminal prosecution for violations of the National Internal Revenue Code
whichiswithinthecognizanceofcourtsoffirstinstance.Whiletherecanbenocivil
action to enforce collection before the assessment procedures provided in the
Codehavebeenfollowed,thereisnorequirementfortheprecisecomputationand
assessmentofthetaxbeforetherecanbeacriminalprosecutionundertheCode.
Thecontentionismade,andishererejected,thatanassessmentofthedeficiency
tax due is necessary before the taxpayer can be prosecuted criminally for the
charges preferred. The crime is complete when the violator has, as in this case,
knowingly and willfully filed fraudulent returns with intent to evade and defeat a
partorallofthetax.
Anassessmentofadeficiencyisnotnecessarytoacriminalprosecutionforwillful
attempttodefeatandevadetheincometax.Acrimeiscompletewhentheviolator
has knowingly and willfully filed a fraudulent return with intent to evade and
defeatthetax.Theperpetrationofthecrimeisgroundeduponknowledgeonthe
partofthetaxpayerthathehasmadeaninaccuratereturn,andthegovernment's
failure to discover the error and promptly to assess has no connections with the
commissionofthecrime.
PEOPLEV.PATANAO
20SCRA712
FACTS:
CommissionerassessedPatanaofordeficiencyincometaxes.Formerallegedthat
latter filed fraudulent returns, not reflective of the true income. Patanao sought
thedismissalofthecomplaintonthegroundthathewasacquittedearlieroninthe
criminalcasesfiledagainsthim.
HELD:
InapplyingtheprincipleunderlyingthecivilliabilityofanoffenderunderthePenal
Codetoacaseinvolvingthecollectionoftaxes,thecourtaquofellintoerror.The
two cases are circumscribed by factual premises which are diametrically opposed
toeacheither,andarefoundedonentirelydifferentphilosophies.UnderthePenal
Code the civil liability is incurred by reason of the offender's criminal act. Stated
differently, the criminal liability gives birth to the civil obligation such that
generally, if one is not criminally liable under the Penal Code, he cannot become
civilly liable thereunder. The situation under the income tax law is the exact
opposite.Civilliabilitytopaytaxesarisesfromthefact,forinstance,thatonehas
engaged himself in business, and not because of any criminal act committed by
him. The criminal liability arises upon failure of the debtor to satisfy his civil
obligation.Theincongruityofthefactualpremisesandfoundationprinciplesofthe
two cases is one of the reasons for not imposing civil indemnity on the criminal
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infractoroftheincometaxlaw.Anotherreason,ofcourse,isfoundinthefactthat
while section 73 of the National Internal Revenue Code has provided the
impositionofthepenaltyofimprisonmentorfine,orboth,forrefusalorneglectto
pay income tax or to make a return thereof, it failed to provide the collection of
saidtaxincriminalproceedings.Theonlycivilremediesprovided,forthecollection
ofincometax,inChaptersIandII,TitleIXoftheCodeandsection316thereof,are
distraintofgoods,chattels,etc.orbyjudicialaction,whichremediesaregenerally
exclusive in the absence of a contrary intent from the legislator. (People vs.
Arnault,G.R.No.L4288,November20,1952;Peoplevs.Tierra,G.R.Nos.L17177
17180, December 28, 1964) Considering that the Government cannot seek
satisfactionofthetaxpayer'scivilliabilityinacriminalproceedingunderthetaxlaw
or, otherwise stated, since the said civil liability is not deemed included in the
criminal action, acquittal of the taxpayer in the criminal proceeding does not
necessarilyentailexonerationfromhisliabilitytopaythetaxes.Itiserrortohold,
asthelowercourthasheld,thatthejudgmentinthecriminalcasesNos.2089and
2090 bars the action in the present case. The acquittal in the said criminal cases
cannotoperatetodischargedefendantappelleefromthedutyofpayingthetaxes
which the law requires to be paid, since that duty is imposed by statute prior to
and independently of any attempts by the taxpayer to evade payment. Said
obligation is not a consequence of the felonious acts charged in the criminal
proceeding,norisitamerecivilliabilityarisingfromcrimethatcouldbewipedout
bythejudicialdeclarationofnonexistenceofthecriminalactscharged.
CIRV.CA
257SCRA200
FACTS:
1.
2.
3.
4.
President issued MO creating task force to investigate tax liabilities of

manufacturersengagedintaxevasion.
TaskforcefoundthatFortuneisengagedinghostwholesalebuyers
a. Fortune sells its products in lower wholesale price to these
ghostentities
b. Theseghostentitiesselltootherwholesalersandcustomersat
higherprice
c. Claims it is conduit incorporator and non existing individual
buyersasitsgrosssale
CIRandprosecutorfiledcriminalcaseforevasionoftax
InjunctionandTROprocedural
HELD:
Thecriminalcasescannotprospervalidly.
1. Asfoundbythecourt,noindustryisasintenselysupervisedbyBIRand
NTA
2. Registeredwholesalepriceisusedtocomputetheadvaloremtax
3. ButtheregisteredwholesalepriceisregisteredwithBIRinorderforBIR
tohaveclosesupervisionovertheindustryandassurecorrectpayment
4. Fraud cannot be presumed. If there was fraud, there should have been
connivance of BIR official who supervised and monitored Fortunes
productionactivities.
5. Butnosuchallegationhasbeenmade
6. thereispresumptionthatBIRpersonnelperformedtheirdutiesinregular
courseinensuingthatcorrecttaxesarepaid.
7. Before it can be prosecuted for tax evasion, deficiency income should
firstbeestablished
8. CIRhasnotyetresolvedMRuptothepresent
9. In plain words, before one is prosecuted for willful attempt to evade or
defeatanytaxundersec253,255oftaxcode,thefactthatataxisdue
mustfirstbeproved.
10. ConflictwithUngab?Seedoctrine.
a. Itfollowsthat,undertheUngabdoctrine,thefilingofacriminal
complaint for fraudulent tax evasion would be proper even
withoutapreviousassessmentofthecorrecttax.
b. The argument that the Ungab doctrine will not apply to the
case at bar because it involves a factual setting different from
thatofthecaseatbar,iserroneous.TheUngabcaseinvolved
the filing of a fraudulent income tax return because the
defendant failed to report his income derived from sale of
bananasaplings.Inthecaseatbar,thecomplaintsfiledbefore
theDOJforinvestigationchargeprivatewholesalerespondents
with fraudulent concealment of the actual price of products
sold through declaration of registered wholesale prices lower
thantheactualwholesaleprices,resultinginunderpaymentof
income,advalorem,andvalueaddedtaxes.Bothcasesinvolve,
therefore, fraudulent schemes to evade payment to the
Governmentofcorrecttaxes.
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MARCOSV.CA
GR120880,5JUNE1997
FACTS:
HELD:
The approval of the court, sitting in probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the collection of estate taxes. It
cannot therefore be argued that the Tax Bureau erred in proceeding with the
levying and sale of the properties allegedly owned by the late President, on the
ground that it was required to seek first the probate court's sanction. There is
nothing in the Tax Code, and in the pertinent remedial laws that implies the
necessityoftheprobateorestatesettlementcourt'sapprovalofthestate'sclaim
forestatetaxes,beforethesamecanbeenforcedandcollected.
Onthecontrary,underSection87oftheNIRC,itistheprobateorsettlementcourt
which is bidden not to authorize the executor or judicial administrator of the
decedent's estate to deliver any distributive share to any party interested in the
estate,unlessitisshownaCertificationbytheCommissionerofInternalRevenue
that the estate taxes have been paid. This provision disproves the petitioner's
contention that it is the probate court which approves the assessment and
collectionoftheestatetax.
IfthereisanyissueastothevalidityoftheBIR'sdecisiontoassesstheestatetaxes,
this should have been pursued through the proper administrative and judicial
avenuesprovidedforbylaw.
Section229oftheNIRCtellsushow:
Sec.229.Protestingofassessment.WhentheCommissionerofInternalRevenue
orhisdulyauthorizedrepresentativefindsthatpropertaxesshouldbeassessed,he
shall first notify the taxpayer of his findings. Within a period to be prescribed by
implementingregulations,thetaxpayershallberequiredtorespondtosaidnotice.
Ifthetaxpayerfailstorespond,theCommissionershallissueanassessmentbased
onhisfindings.
Such assessment may be protested administratively by filing a request for

reconsiderationorreinvestigationinsuchformandmannerasmaybeprescribed
by implementing regulations within (30) days from receipt of the assessment;

otherwise,theassessmentshallbecomefinalandunappealable.
If the protest is denied in whole or in part, the individual, association or

corporation adversely affected by the decision on the protest may appeal to the
Court of Tax Appeals within thirty (30) days from receipt of said decision;
otherwise,thedecisionshallbecomefinal,executoryanddemandable.(Asinserted
byP.D.1773)
Apartfromfailingtofiletherequiredestatetaxreturnwithinthetimerequiredfor
the filing of the same, petitioner, and the other heirs never questioned the
assessments served upon them, allowing the same to lapse into finality, and
prompting the BIR to collect the said taxes by levying upon the properties left by
PresidentMarcos.
Theomissiontofileanestatetaxreturn,andthesubsequentfailuretocontestor
appealtheassessmentmadebytheBIRisfataltothepetitioner'scause,asunder
theabovecitedprovision,incaseoffailuretofileareturn,thetaxmaybeassessed
at any time within ten years after the omission, and any tax so assessed may be
collectedbylevyuponrealpropertywithinthreeyearsfollowingtheassessmentof
thetax.Sincetheestatetaxassessmenthadbecomefinalandunappealablebythe
petitioner'sdefaultasregardsprotestingthevalidityofthesaidassessment,there
isnownoreasonwhytheBIRcannotcontinuewiththecollectionofthesaidtax.
Any objection against the assessment should have been pursued following the
avenue paved in Section 229 of the NIRC on protests on assessments of internal
revenuetaxes.
Forfeitures
RemedyforEnforcementofForfeitures
The forfeiture of chattels and removable fixtures of any sort shall be

enforcedbytheseizureandsale,ordestruction,ofthespecificforfeited
property.
The forfeiture of real property shall be enforced by a judgment of

condemnationandsaleinalegalactionorproceeding,civilorcriminal,as
thecasemayrequire.
WhenPropertytobeSoldorDestroyed
Salesofforfeitedchattelsandremovablefixturesshallbeeffected,sofar
aspracticable,inthesamemannerandunderthesameconditionsasthe
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publicnoticeandthetimeandmannerofsaleasareprescribedforsales
ofpersonalpropertydistrainedforthenonpaymentoftaxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured products
oftobacco,andallapparatususedIorabouttheillicitproductionofsuch
articles may, upon forfeiture, be destroyed by order of the
Commissioner,whenthesaleofthesameforconsumptionorusewould
beinjurioustopublichealthorprejudicialtotheenforcementofthelaw.
Allotherarticlessubjecttoexcisetax,whichhavebeenmanufacturedor
removed in violation of this Code, as well as dies for the printing or
makingofinternalrevenuestampsandlabelswhichareinimitationofor
purport to be lawful stamps, or labels may, upon forfeiture, be sold or
destroyedinthediscretionoftheCommissioner.
Forfeitedpropertyshallnotbedestroyeduntilatleasttwenty(20)days
afterseizure.
DispositionoffundsRecoveredinLegalProceedingsorObtainedfromForfeitures
All judgments and monies recovered and received for taxes, costs,
forfeitures, fines and penalties shall be paid to the Commissioner or his
authorizeddeputiesasthetaxesthemselvesarerequiredtobepaid,and
except as specially provided, shall be accounted for and dealt with the
sameway.
Cf.SuspensionofRunningofStatuteofLimitations
The running of the Statute of Limitations provided in Sections 203 and

222onthemakingofassessmentandthebeginningofdistraintorlevya
proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a
proceedingincourtandforsixty(60)daysthereafter
o When the taxpayer requests for a reinvestigation which is
grantedbytheCommissioner;
o When the taxpayer cannot be located in the address given by
him in the return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the
StatuteofLimitationswillnotbesuspended;whenthewarrant
of distraint or levy is duly served upon the taxpayer, his
authorizedrepresentative,oramemberofhishouseholdwith
sufficient discretion, and no property could be located; and

whenthetaxpayerisoutofthePhilippines.
REPUBLICV.ENRIQUEZ
166SCRA608
FACTS:
The commissioner issued a warrant of distraint of personal property of the
MaritimeCompanytosatisfydeficiencytaxes.Someofthepropertyseizedwere2
barges.Consequentlythepetitionerinformedthesheriffthesubjectbargeswere
already not owned by the company as they were already subjected to distraint.
This notwithstanding, the sheriff sold the barges in public auction and issued the
correspondingcertificatesofsaletothehighestbidders.
HELD:
Itissettledthattheclaimofthegovernmentpredicatedonataxlienissuperiorto
theclaimofaprivatelitigantpredicatedonajudgment.Thetaxlienattachesnot
onlyfromtheserviceofthewarrantofdistraintofpersonalpropertybutfromthe
time the tax became due and payable. Besides, the distraint on the subject
properties of Maritime Company of the Philippines as well as the notice of their
seizure were made by petitioner, through the Commissioner of Internal Revenue,
longbeforethewritofexecutionwasissuedbytheRegionalTrialCourtofManila,
Branch 31. There is no question then that at the time the writ of execution was
issued, the two (2) barges, MCP1 and MCP4, were no longer properties of the
Maritime Company of the Philippines. The power of the court in execution of
judgments extends only to properties unquestionably belonging to the judgment
debtor. Execution sales affect the rights of the judgment debtor only, and the
purchaserinanauctionsaleacquiresonlysuchrightasthejudgmentdebtorhadat
thetimeofsale.Itisalsowellsettledthatthesheriffisnotauthorizedtoattachor
levyonpropertynotbelongingtothejudgmentdebtor.
Compromise
1. A reasonable doubt as to the validity of the claim against the taxpayer
exists;or
2. The financial position of the taxpayer demonstrates a clear inability to
paytheassessedtax.
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The compromise settlement of any tax liability shall be subject to the following
minimumamounts:
1. Forcasesoffinancialincapacity,aminimumcompromiserateequivalent
totenpercent(10%)ofthebasicassessedtax;and
2. Forothercases,aminimumcompromiserateequivalenttofortypercent
(40%)ofthebasicassessedtax.
3. WherethebasictaxinvolvedexceedsOnemillionpesos(P1,000.000)or
wherethesettlementofferedislessthantheprescribedminimumrates,
thecompromiseshallbesubjecttotheapprovaloftheEvaluationBoard
which shall be composed of the Commissioner and the four (4) Deputy
Commissioners.
CasesWhichCanBeCompromised
1. Delinquentaccounts;
2. Cases under administrative protest pending in the Regional Offices,
Revenue District Offices, Legal Service, Large Taxpayer Service (LTS),
CollectionService,EnforcementServiceandotherofficesintheNational
Office;
3. Civiltaxcasesbeingdisputedbeforethecourts,e.g.,MTC,RTC,CTA,CA,
SC;
4. Collectioncasesfiledincourts;
5. Criminal violations, other than those already filed in court or those
involvingcriminaltaxfraud;and
6. Casescoveredbypreassessmentnoticesbuttaxpayerisnotagreeableto
thefindingsoftheauditofficeasconfirmedbythereviewoffice.
EXCEPTIONS:
1. Withholdingtaxcases;
2. Criminaltaxfraudcases;
3. Criminalviolationsalreadyfiledincourt;
4. Delinquent accounts with duly approved schedule of installment
payments;
5. Caseswherefinalreportsofreinvestigationorreconsiderationhavebeen
issuedresultingtoreductionintheoriginalassessmentandthetaxpayer
is agreeable to such decision. On the other hand, other protested cases
shallbehandledbytheRegionalEvaluationBoard(REB)ortheNational
EvaluationBoard(NEB)onacasetocasebasis;and
6. Caseswhichbecomefinalandexecutoryafterfinaljudgmentofacourt.
Compromise:DoubtfulValidityofAssessment
1. The delinquent account or disputed assessment is one resulting from a
jeopardyassessment(Forthispurpose,"jeopardyassessment"shallrefer
toataxassessmentwhichwasassessedwithoutthebenefitofcomplete
or partial audit by an authorized revenue officer, who has reason to
believe that the assessment and collection of a deficiency tax will be
jeopardizedbydelaybecauseofthetaxpayer'sfailuretocomplywiththe
audit and investigation requirements to present his books of accounts
and/orpertinentrecords,ortosubstantiatealloranyofthedeductions,
exemptions,orcreditsclaimedinhisreturn);or
2. The assessment seems to be arbitrary in nature, appearing to be based
onpresumptionsandthereisreasontobelievethatitislackinginlegal
and/orfactualbasis;or
3. The taxpayer failed to file an administrative protest on account of the
allegedfailuretoreceivenoticeofassessmentorpreliminaryassessment
and there is reason to believe that the assessment is lacking in legal
and/orfactualbasis;or
4. The taxpayer failed to file a request for reinvestigation/reconsideration
within30daysfromreceiptoffinalassessmentnoticeandthereisreason
tobelievethattheassessmentislackinginlegaland/orfactualbasis;or
5. The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an
adverse decision of the Commissioner, or his authorized representative,
insomecases,within30daysfromreceiptthereofandthereisreasonto
believethattheassessmentislackinginlegaland/orfactualbasis;or
6. The assessments were issued on or after January 1, 1998, where the
demandnoticeallegedlyfailedtocomplywiththeformalitiesprescribed
underSec.228oftheTaxCodeof1997;or
7. Assessments made based on the "Best Evidence Obtainable Rule" and
thereisreasontobelievethatthesamecanbedisputedbysufficientand
competentevidence
Compromise:FinancialCapability
1. Thecorporationceasedoperationorisalreadydissolved;or
2. The taxpayer is suffering from surplus or earnings deficit resulting to
impairmentintheoriginalcapitalbyatleast50%;or
3. Thetaxpayerissufferingfromanetworthdeficitcomputedbydeducting
totalliabilities(netofdeferredcredits)fromtotalassets(netofprepaid
expenses,deferredcharges,preoperatingexpenses,aswellasappraisal
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increases in fixed assets), taken from the latest audited financial

statements;or
4. The taxpayer is a compensation income earner with no other source of
income and the family's gross monthly compensation income does not
exceedthelevelsofcompensationincomeprovidedforunderSec.4.1.1
oftheseRegulations,anditappearsthatthetaxpayerpossessesnoother
leviable/distrainableassets,otherthanhisfamilyhome;or
5. The taxpayer has been granted by the Securities and Exchange
Commission (SEC) or by any competent tribunal a moratorium or
suspensionofpaymentstocreditors,orotherwisedeclaredbankruptor
insolvent.
**The Commissioner shall not consider any offer for compromise settlement by
reason of financial incapacity unless and until the taxpayer waives in writing his
privilege of the secrecy of bank deposits under Republic Act No. 1405 or under
othergeneralorspeciallaws,andsuchwaivershallconstituteastheauthorityof
theCommissionertoinquireintothebankdepositsofthetaxpayer.
Abatement/Cancellation
1. The tax or any portion thereof appears to be unjustly or excessively
assessed;or
2. The administration and collection costs involved do not justify the
collectionoftheamountdue.
**All criminal violations may be compromised except: (a) those already filed in
court,or(b)thoseinvolvingfraud.
DEFICIENCYTAXASSESSMENT
MeaningofAssessment/Deficiency
1. TheamountbywhichthetaximposedbythisTitleexceedstheamount
shown as the tax by the taxpayer upon his return; but the amount so
shown on the return shall be increased by the amounts previously
assessed (or collected without assessment) as a deficiency, and
decreased by the amount previously abated, credited, returned or
otherwiserepaidinrespectofsuchtax;or
2. Ifnoamountisshownasthetaxbythetaxpayeruponthisreturn,orifno
return is made by the taxpayer, then the amount by which the tax
exceeds the amounts previously assessed (or collected without
assessment) as a deficiency; but such amounts previously assessed or
collected without assessment shall first be decreased by the amounts

previously abated, credited returned or otherwise repaid in respect of
suchtax.
KindsofTaxAssessment
1. Table assessmentthe BIR didn't proceed to the office of taxpayer but
insteadusedfinancialstatementstodeterminetaxliabilities;notfavored
2. Jeopardyassessmenttableassessmentbutwithinthe3yearperiod,the
BIRhasn'tdoneanyauditingorlegworkyet;heisforcedtousewhatever
hehasonhand
SelfAssessment
Rememberthepayasyoufilerule
REPUBLICV.RICARTE
12NOVEMBER1985
FACTS:
Following the amendment of the internal revenue code, Ricarte made a self
assessment and paid accordingly following the same. An assessment notice was
senttohimbytheBIRforallegeddeficiencyincometaxes.
HELD:
Clearly, before the amendment, the taxpayer files his income tax return and the
Collector (now Commissioner) of Internal Revenue assesses the tax due and
notifies the taxpayer thereof. On the other hand, under the amendatory act, the
taxpayerassesseshimself,fileshisreturnandisrequiredtopaythetaxasshownin
hisreturnuponfilingthereof.Thisprocedureiscommonlyknownasthe"payas
youfile" system. In other words, under the old law, the Collector of Internal
Revenue was required to assess the tax due, while under R.A. No. 2343 the
taxpayer himself computes the tax on the basis of the figures appearing in his
incometaxreturn.
The CFI erroneously held that the subsequent assessment made on January 19,
1961wasbasedontheamendatoryact.
Appellee filed his income tax return for the year 1958 on March 2, 1959 and the
samewasassessedbytheBureauofInternalRevenueonApril6,1959.Thetaxwas
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paidintwoinstallments.TheBureauofInternalRevenuereviewedthesaidreturn
and found out a deficiency in the assessment it previously made and the income
tax paid by the appellee. A notice of assessment was sent to the appellee on
January 19, 1961. Such subsequent assessment undertaken by the Bureau of
InternalRevenuewasbasedmerelyontheincometaxreturnfiledbytheappellee
wherenoassessmenthasbeenmadebyhim.Ashasbeensaid,theamountoftax
due was previously computed by the Bureau of Internal Revenue. Finding that it
madeanerror,theBureaureassessedtheincometaxreturnoftheappellee;but
such reassessment was made pursuant to the old law and not under the
amendatoryact.
However,Weagreewiththelowercourtthatthepresentactionwasfiledafterthe
prescriptive period of five (5) years provided for in Section 332(c) of the National
InternalRevenueCode.
TUPAZV.ULEP
316SCRA118
FACTS:
InformationwasfiledagainstspousesTupazascorporateofficersofacorporation
for nonpayment of corporate income tax. The prosecutor moved then for the
withdrawal of information on the ground that the spouses were exempted from
paying contractors taxes. The judge dismissed the case on the motion of
prosecutor.Thereafter,prosecutormovedfortherevivaloftheinformationonthe
groundofpalpablemistake.Thejudgesustainedthemotionoftheprosecutorand
resurrectedthecase.
HELD:
At the outset, it must be stressed that "internal revenue taxes are selfassessing
andnofurtherassessmentbythegovernmentisrequiredtocreatethetaxliability.
An assessment, however, is not altogether inconsequential; it is relevant in the
properpursuitofjudicialandextrajudicialremediestoenforcetaxpayerliabilities
and certain matters that relate to it, such as the imposition of surcharges and
interest,andintheapplicationofstatutesoflimitationsandintheestablishmentof
taxliens."Anassessmentcontainsnotonlyacomputationoftaxliabilities,butalso
a demand for payment within a prescribed period. The ultimate purpose of
assessmentistoascertaintheamountthateachtaxpayeristopay.Anassessment
isanoticetotheeffectthattheamountthereinstatedisdueastaxandademand
forpaymentthereof.Assessmentsmadebeyondtheprescribedperiodwouldnot
bebindingonthetaxpayer.
Exceptions
1. Taxpayerperiodisterminated
2. Taxaudits
3. Taxliens
4. Dissolution
DeficiencyAssessment
Afterthereturnisfiled,theCommissionershallexamineitandassessthe
correctamountofthetax.Thetaxordeficiencyincometaxsodiscovered
shallbepaiduponnoticeanddemandfromtheCommissioner.
IllegalandVoidAssessment
The taxpayers shall be informed in writing of the law and the facts on
whichtheassessmentismade;otherwise,theassessmentshallbevoid.
VICTORIASMILLINGV.CTA
L24213,13MARCH1968
FACTS:
Thecorrespondingtaxesdueonthesaidmachinerieswerepaidunderprotest.
Victorias, however, did not appeal from all the aforesaid assessments to the
Provincial Board of Assessment Appeals as required in Section 17 of the
Assessment Law. Instead, on April 24, 1953 it filed a complaint with the Court of
First Instance of Negros Occidental against the Provincial Treasurer of Negros
Occidental, alleging inter alia, that the assessor erroneously did not follow the
"straightlinemethod"indeterminingthedepreciationofitsmachineries.
HELD:
It is settled in our jurisdiction that where an assessment is illegal and void, the
remedyofataxpayer,whoalreadypaidtherealtytaxunderprotest,istocourtof
first instance. On the other hand, where the assessment is merely erroneous, his
recourseistofileanappealintheProvincialBoardofAssessmentAppealswithin
60daysfromreceiptoftheassessment.
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Anassessmentisillegalandvoidwhentheassessorhasnopowertoactatall.Itis
erroneouswhentheassessorhasthepowerbuterrsintheexerciseofthatpower.
In this case, the Provincial Assessor of Negros Occidental had the power to make
theassessmentsinquestionunderSection7oftheAssessmentLaw.Atanyrate,
theauthorityoftheassessorisnotdisputedbyVictorias.
Since the Provincial Assessor had the power to make the assessments, but in the
exerciseofsuchpowerhedeviatedfromtheproceduresetdownbylaw,inthathe
employedthe"fixedpercentageofdiminishingbookvaluemethod"insteadofthe
"straight line method" in depreciating the machineries, logically, the assessment
shouldbeconsideredaserroneous.Inwhichevent,Victoria'sremedy,pursuantto
Section 17 of the Assessment Law, was to appeal to the Provincial Board of
AssessmentAppeals.
ErroneousAssessment
Theassessorhasthepowertoactbuterredintheexerciseofthepower
PrinciplesGoverningAssessments
1. Presumptionofcorrectnessofassessments
2. Assessmentsarenotbasedonpresumptionsnomatterhowlogical
3. Assessmentsisdiscretionaryonthepartofthecommissioner
4. Authoritytoassessmaybedelegated
5. Assessmentmustbedelegatedtotheproperparty
6. Investigativepowersofthecommissioner
7. Commissioner must state in a clear and unequivocal language the
decision
8. Fraudcases
9. Mandamuswillnotlieagainstdiscretion
NoEstoppelAgainsttheGovernment
DisputablePresumption:DulyDirectedandMailedLetterisDeemedReceived
Rulesonmailinglettersofauthorityorassessment
Itshouldnotbepersonalbutregisteredmail:dateofmailingisthedate
ofreceipt
If made through personal service, date of receipt is the actual date of

receiptofthetaxpayerorhisrepresentative
Iftaxpayeriscorporation,itmustbemadetoitsofficersauthorizedinthe
RulesofCourt(*rememberRulesonserviceofsummons)
PRESCRIPTIONOFRIGHTTOASSESSANDCOLLECTTAXES
PrescriptionofRighttoAssess
SEC. 203. Period of Limitation Upon Assessment and Collection. Except as

provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begunaftertheexpirationofsuchperiod:Provided,Thatinacasewhereareturnis
filed beyond the period prescribed by law, the three (3)year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filedbeforethelastdayprescribedbylawforthefilingthereofshallbeconsidered
asfiledonsuchlastday.
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of

Taxes.
(a) Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailure
to file a return, the tax may be assessed, or a proceeding in court for the
collectionofsuchtaxmaybefiledwithoutassessment,atanytimewithinten
(10)yearsafterthediscoveryofthefalsity,fraudoromission:Provided,That
inafraudassessmentwhichhasbecomefinalandexecutory,thefactoffraud
shall be judicially taken cognizance of in the civil or criminal action for the
collectionthereof.
(b) If before the expiration of the time prescribed in Section 203 for the
assessmentofthetax,boththeCommissionerandthetaxpayerhaveagreed
in writing to its assessment after such time, the tax may be assessed within
the period agreed upon. The period so agreed upon may be extended by
subsequent written agreement made before the expiration of the period
previouslyagreedupon.
(c) Any internal revenue tax which has been assessed within the period of
limitationasprescribedinparagraph(a)hereofmaybecollectedbydistraint
or levy or by a proceeding in court within five (5) years following the
assessmentofthetax.
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(d) Any internal revenue tax, which has been assessed within the period agreed
uponasprovidedinparagraph(b)hereinabove,maybecollectedbydistraint
or levy or by a proceeding in court within the period agreed upon in writing
beforetheexpirationofthefive(5)yearperiod.Theperiodsoagreedupon
may be extended by subsequent written agreements made before the
expirationoftheperiodpreviouslyagreedupon.
(e) Provided,however,Thatnothingintheimmediatelyprecedingandparagraph
(a) hereof shall be construed to authorize the examination and investigation
orinquiryintoanytaxreturnfiledinaccordancewiththeprovisionsofanytax
amnestylawordecree.
GUAGUAELECTRICV.COLLECTOR
19SCRA790
authority,ofanysumallegedtohavebeenexcessivelyorinanymannerwrongfully
collected without authority, or of any sum alleged to have been excessively or in
any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained,
whetherornotsuchtax,penalty,orsumhasbeenpaidunderprotestorduress.
Inanycase,nosuchsuitorproceedingshallbefiledaftertheexpirationoftwo(2)
yearsfromthedateofpaymentofthetaxorpenaltyregardlessofanysupervening
cause that may arise after payment: Provided, however, That the Commissioner
may,evenwithoutawrittenclaimtherefor,refundorcreditanytax,whereonthe
faceofthereturnuponwhichpaymentwasmade,suchpaymentappearsclearlyto
havebeenerroneouslypaid.
FACTS:
Actingonthebeliefthatitwasentitledtoasmallerrateoffranchisetax,Guagua
filed for refund for alleged excess payments. CIR was granted refund but for a
certainextentonly.Guaguasoughtreconsiderationofthedecision.
In the meanwhile, the CIR made an assessment against Guagua for deficiency
franchisetaxes,andreconsidereditsdecisiontograntrefundtoGuagua.Italleged
that Guagua wasn't entitled to any refund and was actually liable for deficiency
taxes.
HELD:
Where the CIR seeks to recover from the taxpayer an amount which was
erroneously refunded, said amount is in effect an assessment for deficiency
franchise tax and the rules on prescription provided for in the Tax Code is
controlling.
NOTES:
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. no suit or

proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
Itisimportanttoknowthedatesofpayment
th
For example, quarterly VAT payments are paid every 25 and they are
consideredfinal.Thus,the2yearperiodstartstorunfromthispoint.
If the Commissioner denies your claim before the end of the 2year
period,yourremedyistoappealtotheCTA30daysfromreceiptofthe
denial
IftheCommissionerdeniesyourclaimafterthe2yearperiod,thereisno
remedyanylonger
If the Commissioner denies your claim on the last day of the 2year
period,youaregivenanadditionalonedaytoappeal
Ifyoufileyourclaimforrefund1daybeforethelastday,onthenextday,
without receiving any decision, you appeal to the CTA and alleged that
you will lose benefit by prescription if you wait for the decision. Valid?
Yes, you are still entitled given that it was still within the prescriptive
period.
CIRVS.SUYOCCONSOLIDATEDMINING
104 PHIL 819 (TAXPAYER CANNOT CLAIM PRESCRIPTION WHEN IT WAS THE
PARTYASKINGFORREINVESTIGATION)
FACTS:
Respondentcompanywasn'tabletofileitsincometaxreturnsbyvirtueofthewar.
After the war, a law was passed wherein an extension for filing tax returns was
granted. Due to the destruction and loss of its company records, the company
askedforextensionforfilingandwasdulygranted.Thereafter,itwasabletofile
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amendedreturnsateachstepadocumentoftheirsisreconstructed.TheCIRthen
assessed them for deficiency and the company asked for reassessment and
reinvestigation, which again was granted. With the new assessment given it, it
then filed an appeal with the CTA, alleging that prescription has kicked in and it
couldn'tnolongerbeassessedbytheCIR.
HELD:
Amererequestforreinvestigationorreconsiderationmaynotsuspendtherunning
of the period of limitations for in such a case, there is a need of a written
agreement to extend the period between the Collector and the taxpayer. There
arecaseshoweverwhereataxpayermaybepreventedfromsettingupthedefense
ofprescriptionevenifhehasn'tpreviouslywaiveditaswhenbyhisrequestsand
positiveactsthegovernment,hasbeen,forgoodreasons,persuadedtopostpone
collection to make himself feel that the demand wasn't unreasonable or that no
harassmentismeantforthegovernment.
REPUBLICVS.LOPEZ
117PHIL.575,578(1963)(PERIODWHEREINREINVESTIGATIONWASCONDUCTED
TOBEDEDUCTEDFROMPRESCRIPTIVEPERIOD.)
FACTS:
HELD:
COMM.VS.SISON
117PHIL892,895(1963)
Whatshouldbeincludedinthewaiverfortheprotectionoftheclient?
Theperiodofextensionortheexactdate
Thewaivershouldn'tbeundated
BISAYALANDTRANSPORTATIONCOVS.COLLECTOR
L12100&L11812,MAY19,1959
FACTS:
Petitioner acquired equipment from the US which it used in its operations of its
buses,withoutpaymentofthecorrespondingcompensatingandspecifictaxes.On
investigation of its books, it was found out that the company also wasn't able to
paydocumentarystamptaxes,commoncarrierstax,etc.Itwasthenassessedfor
thedeficiencyandtheappellatecourtsustainedthedeficiency.
HELD:
Thereisnomerittothecontentionthattheprescriptiveperiodshouldbecounted
from the filing of the income tax returns. The income tax returns reflect the
incomeforagiventaxableyearandthetaxpayerisnotsupposedtodeclareinsaid
returns that he has purchased or received that are subject to compensating tax.
Generally,suchpurchasesarenotincomeandthusnotrighttobeplacedinthetax
returns.
BUTUANSAWMILL,INC.VSCTA
16SCRA277,FEB.28,1961
FACTS:
HELD:
Whenshouldbethewaiverofstatuteoflimitationssigned?
It should be signed by both the taxpayer and the Commissioner before

theendoftheprescriptiveperiod
FACTS:
PetitionersoldtoJapanesefirmslogsatpricesFOB.Thesepricesincludedcostsfor
loading, wharfage, stevedoring, and other costs. Upon investigation it was found
out that there was no sales tax return filed and accordingly, no tax was paid for
suchsales.Thecompanywasthenassessedfordeficiencytaxesaswellasinterests
andsurcharges.
HELD:
Aqnincometaxreturncannotbeconsideredasareturnforcompensatingtaxfor
purposesofcomputingtheperiodofprescriptionandthatataxpayerinorderfor
himselftoavailofthebenefitsmustfileareturnfortheparticulartax.otherwise,
if he doesn't file a return, an assessment made within the time stated in the tax
code.
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Itisundisputedthatpetitionerfailedtofileareturnforthedisputedyearsandthis
omissionwasdiscoveredon4yearsafterthelastreturnwasfiled.
CIRVS.AYALASECURITIES
70SCRA204,MAR.31,1976
FACTS:
Respondent corporation was assessed for accumulated surplus deficiency income
taxestowhichitdulyprotestedagainst.Petitionerthenwroterespondentadvise
that your request for reconsideration will be the subject matter of further
reinvestigation and a thorough analysis of the issues involved conditioned
however,upontheexecutionofyourclientoftheenclosedformofwaiverofthe
defenseofprescription.Therespondentwasn'tabletosignthewaiverform.
Thereafter,therewasdemandfortheunpaidtaxes.Apetitionforreviewwasfiled
with the CTA and one of the allegations was that the prescription period already
kickedin.
HELD:
As the assessment was made beyond the 5year period prescribed under Section
331oftheCode,thesamewasmadeaftertheprescriptiveperiodhadexpired,and
therefore,wasn'tanymorebindingontheAyalaSecuritiesCorporation.
AZNARVS.CIR
58SCRA519
FACTS:
ThelateMatiasAznarfiledhisincometaxreturns.However,theCIRsuspiciousof
theamountsreportedconsideringthepersonsobviouswealthcausedthelocalBIR
examinertoascertainthetaxpayerstrueincome.IntheendAznarwasassessedfor
deficiency income taxes which upon reinvestigation was reduced and further
reducedbytheCTAuponappeal.
HELD:
The proper and reasonable interpretation of said provision should be that in the
threedifferentcasesof(1)falsereturn,(2)fraudulentreturnwithintenttoevade
tax,(3)failuretofileareturn,thetaxmaybeassessed,oraproceedingincourtfor
thecollectionofsuchtaxmaybebegunwithoutassessment,atanytimewithinten
years after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that
the law should be interpreted to mean a separation of the three different
situationsoffalsereturn,fraudulentreturnwithintenttoevadetax,andfailureto
file a return is strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely "falsity",
"fraud" and "omission". That there is a difference between "false return" and
"fraudulentreturn"cannotbedenied.Whilethefirstmerelyimpliesdeviationfrom
the truth, whether intentional or not, the second implies intentional or deceitful
entrywithintenttoevadethetaxesdue.
Theordinaryperiodofprescriptionof5yearswithinwhichtoassesstaxliabilities
under Sec. 331 of the NIRC should be applicable to normal circumstances, but
whenever the government is placed at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities due to false returns, fraudulent
returnintendedtoevadepaymentoftaxorfailuretofilereturns,theperiodoften
yearsprovidedforinSec.332(a)NIRC,fromthetimeofthediscoveryofthefalsity,
fraudoromissionevenseemstobeinadequateandshouldbetheoneenforced.
Therebeingundoubtedlyfalsetaxreturnsinthiscase,Weaffirmtheconclusionof
therespondentCourtofTaxAppealsthatSec.332(a)oftheNIRCshouldapplyand
thattheperiodoftenyearswithinwhichtoassesspetitioner'staxliabilityhadnot
expiredatthetimesaidassessmentwasmade
CIRVS.JAVIERJR.
199SCRA824,JULY31,1991
FACTS:
Thisisthatfamouscasewhereinthetaxpayerfootnotedinhisincometaxreturn
thatheerroneouslyreceivedmoneybutalreadyspentthesame.
HELD:
Thefraudcontemplatedbylawinthefilingofincometaxreturnsisactualandnot
constructive. It must be intentional fraud consisting of deception and willful and
deliberate inducement for one to give up its right. Connecting to the case atbar,
thereisnointentionalfraudtojustifytheimpositionoffraudchargesagainstthe
taxpayer.
REPUBLICVS.ACEVEDO
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22SCRA1356
FACTS:
AcebedowasissuedaNoticeofAssessmentfordeficiencyincometaxfortheyear
1948 in the amount of P5,962.83. The said Notice was issued on September 24,
1949,butthecomplaintforthedeficiencywasfiledonlyonDecember27,1961.
It was found out during the proceedings that Acebedo requested for a
reinvestigation of the deficiency on October 11, 1949. However, there were no
records of any action upon said request. Furthermore, it appeared that Acebedo
signedawaiverofthestatuteoflimitationsonDecember17,1959.
Acebedo filed for dismissal of the case on the ground of prescription. The CFI
grantedthedismissal.
UnderthethenNIRC,assessmentmaybecollectedthroughjudicialactionbutonly
if such action begun: (1) within five years after the assessment of the tax; or (2)
prior to the expiration of any period for collection agreed upon in writing by the
parties,providedthattheagreementwasenteredintowithintheaforementioned
fiveyearperiod.Theperiodagreeduponmaybeextendedbysubsequentwritten
agreements.
HELD:
Thedelayincollectioncannotbeattributedtothedefendant.Hisrequestswere
unheededandtherewasnothingtoimpedetheenforcementofthetaxliabilityby
the means provided by law. More than 5 years have transpired since the
assessmentwasmade.Prescriptionhasalreadysetinmakingsubsequentevents
no longer revive the right of action. The written waiver by the defendant is
inconsequentialasitwasexecutedafterthe5yearperiod.
SINFOROSAALCAVS.CA
26SCRA136
FACTS:
AlcawasassessedforspecifictaxesandlaterontheCIRdemandedpaymentofthe
deficiencytaxes.Atfirstblush,theassessmentanddemandwasmadebeyondthe
prescriptiveperiodgivenbylaw.Evenso,thetaxpayerhadearlieronsubmitteda
waiver,whichwasmadewithinthe5yearperiod.
HELD:
Thewaiverisnotonlyanextensionoftheperiodoflimitationsbutarenunciation
ofpetitionersrighttoinvokethedefenseofprescriptionwhichwasthenalready
available to her. There is nothing wrong about this kind of waiver just like any
otherright,therighttoavailofthedefenseiswaivable.
RPVS.LIMDEYU
10SCRA738
FACTS:
Defendantfiledaccordinglyherincometaxreturnsandwhenshewasassessedfor
deficiency,shepaid.Thereafter,shewasassessedfordeficiencytaxestowhichshe
protestedandsoughtreinvestigation.On1956,shesignedawaiverofthestatute
oflimitationsofthetaxcode.
HELD:
For the 10year period to kick in, fraud shouldn't only be alleged but it must be
established. Fraud not having been proven in the case at bar, the period of
limitationis5yearsfromthefilingofreturn,.Further,thewhateverwaiverismade
by the taxpayer cannot be interpreted to likewise include those taxes already
prescribed.
CIRVS.BFGOODRICH
G.R.NO.104171,FEB24,1999
FACTS:
HELD:
Prescription periods is provided for by law to protect taxpayers from any
unreasonableexamination,investigationorassessment.
Inconnectiontothis,Section15oftheNLRCdoesn'tprovideanexceptiontothe
statute of limitations on the issuance of the assessment. By allowing the initial
assessment to be made on the basis of the best evidence obtainable, and having
made its initial assessment, the Commissioner couldn't have been authorized to
issue,beyondthe5yearprescriptiveperiodthesecondandthirdassessments.
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BOISECASCADEPHILS,INC.VS.CIR
CTACASENO.2858,MARCH30,1987
HELD:
Section331ofthe1972TaxCodeprovidesthatBIRhas5yearsfromthefilingof
theincometaxreturn.TheexceptionunderSection332(b),whichiswhenthereis
a waiver of statute of limitation is not applicable in this case. The Code provides
thatforittobevalid,thewaivermustbeinwritingandmustbebothsignedbythe
CommissionerofInternalRevenueandthetaxpayer.Aclosescrutinyofthewaiver
ofthestatuteoflimitationallegedlysignedbybothBoiseandCommissionershow
that Revenue District Officer Sixto J. Javier had merely attested the aforesaid
waiver;thataforesaidofficerdidnotsignthewaivereitherfororbyvirtueofthe
authorityoftheCommissionerofInternalRevenue.Clearly,foralllegalintentsand
purposes of the above law, Section 332 of the National Internal Revenue Code,
there was no valid waiver executed by herein Commissioner of Internal Revenue
andpetitionertostoptherunningoftheperiodwithinwhichtovalidlyassessthe
taxinquestion.
CARNATIONPHILS.,INC.VS.CIR
CTACASENO.4263,JANUARY26,1993
HELD:
Although the period of prescription is waivable by agreement, there must exist,
however,2essentialrequisitesforthewaivertobevalid:first,thewaivermustbe
entered into before expiration of the time prescribed for making an assessment;
and second, the Commissioner and the taxpayer must have consented thereto in
writing.
MARCOSVS.CA,
G.R.NO.120880,JUNE5,1997
CIRVS.RASCOR
G.R.NO.128315,JUNE29,1999
FACTS:
HELD:
The issuance of an assessment is vital in determining the period of limitation
regardingitsproperissuanceandtheperiodwithinwhichtoprotestit.Section203
oftheNIRCprovidesthatinternalrevenuetaxesmustbeassessedwithin3years
from the last day of filing a return. Another section provides for a period of 10
years in cases of fraudulent returns. Necessarily, a taxpayer needs to be certain
thataspecificdocumentisanassessment.
Inthiscase,thenoticesenttothetaxpayerisnotanassessment.Itonlycontained
a computation of the liability of the taxpayer but absent any demand for its
payment.
11
Neither the NIRC nor the regulations governing the protest of assessments
provideaspecificdefinitionorformofanassessment.However,theNIRCdefines
the specific functions and effects of an assessment. To consider the affidavit
attached to the Complaint as a proper assessment is to subvert the nature of an
assessmentandtosetabadprecedentthatwillprejudiceinnocenttaxpayers.True,
as pointed out by the private respondents, an assessment informs the taxpayer
that he or she has tax liabilities. But not all documents coming from the BIR
containingacomputationofthetaxliabilitycanbedeemedassessments.
Assessmentisanoticedulysenttothetaxpayer.Indeed,anassessmentisdeemed
made only when the collector of internal revenue releases, mails or sends such
notice to the taxpayer. In the present case, the revenue officers' Affidavit merely
containedacomputationofrespondents'taxliability.Itdidnotstateademandor
aperiodforpayment.Worse,itwasaddressedtothejusticesecretary,nottothe
taxpayers.
TUPAZVS.ULEP
GR127777,OCTOBER1,1999
HELD:
Thetaxpayerhasn'tcommittedanyviolationfornonpaymentoftax.Theoffense
was committed only after the finality of the assessment coupled with the
taxpayers refusal to pay the taxes within the allotted period. In this case, when
thenoticeofassessmentwasissued,thetaxpayerstillhad30daystoprotestthe
same.Ashedidn'tprotest,theassessmentbecamefinalandunappeallable.And
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consequently,whenthecomplaintwasfiledagainsthim,itwaswithinthe5year
period.
PrescriptiontotheRighttoCollect
Except as provided in Section 222, internal revenue taxes shall be

assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without assessment
forthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuch
period:Provided,Thatinacasewhereareturnisfiledbeyondtheperiod
prescribed by law, the three (3)year period shall be counted from the
day the return was filed. For purposes of this Section, a return filed
before the last day prescribed by law for the filing thereof shall be
consideredasfiledonsuchlastday.
Exceptions(recap)
(a) Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxorof
failuretofileareturn,thetaxmaybeassessed,oraproceedingincourt
for the collection of such tax may be filed without assessment, at any
time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final
andexecutory,thefactoffraudshallbejudiciallytakencognizanceofin
thecivilorcriminalactionforthecollectionthereof.
(b) If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time, the tax may be
assessedwithintheperiodagreedupon.Theperiodsoagreeduponmay
be extended by subsequent written agreement made before the
expirationoftheperiodpreviouslyagreedupon.
(c) Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by
distraintorlevyorbyaproceedingincourtwithinfive(5)yearsfollowing
theassessmentofthetax.
(d) Any internal revenue tax, which has been assessed within the period
agreeduponasprovidedinparagraph(b)hereinabove,maybecollected
bydistraintorlevyorbyaproceedingincourtwithintheperiodagreed
upon in writing before the expiration of the five (5) year period. The
period so agreed upon may be extended by subsequent written
agreementsmadebeforetheexpirationoftheperiodpreviouslyagreed
upon.
(e) Provided, however, That nothing in the immediately preceding and

paragraph(a)hereofshallbeconstruedtoauthorizetheexaminationand
investigation or inquiry into any tax return filed in accordance with the
provisionsofanytaxamnestylawordecree.
SuspensionOfPrescriptivePeriods
The running of the Statute of Limitations provided in Sections 203 and

222onthemakingofassessmentandthebeginningofdistraintorlevya
proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a
proceedingincourtandforsixty(60)daysthereafter;whenthetaxpayer
requests for a reinvestigation which is granted by the Commissioner;
whenthetaxpayercannotbelocatedintheaddressgivenbyhiminthe
return filed upon which a tax is being assessed or collected: Provided,
that,ifthetaxpayerinformstheCommissionerofanychangeinaddress,
therunningoftheStatuteofLimitationswillnotbesuspended;whenthe
warrant of distraint or levy is duly served upon the taxpayer, his
authorizedrepresentative,oramemberofhishouseholdwithsufficient
discretion, and no property could be located; and when the taxpayer is
outofthePhilippines.
CIRVS.SISON
7SCRA824
Itissettledthatthe5yr.PeriodofSec.332ontheNIRCistobecountedfromthe
lastrevisedassessmentresultingfromareinvestigationaskedforbythetaxpayer.
Where a taxpayer demands for a reinvestigation, the time employed in
reinvestigatingshouldbedeductedfromthetotalperiodoflimitation.
REPUPLICVS.ABLAZA
108PHIL1705
The law prescribing a limitation of actions for the collection of the income tax is
beneficialbothtotheGovernmentandtoitscitizens;totheGovernmentbecause
taxofficerswouldbeobligedtoactpromptlyinthemakingofassessment,andto
citizensbecauseafterthelapseoftheperiodofprescriptioncitizenswouldhavea
feelingofsecurityagainstunscrupuloustaxagentswhowillalwaysfindanexcuse
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toinspectthebooksoftaxpayers,nottodeterminethelatter'srealliability,butto
takeadvantageofeveryopportunitytomolestpeaceful,lawabidingcitizens.
Without such legal defense taxpayers would furthermore be under obligation to

alwayskeeptheirbooksandkeepthemopenforinspectionsubjecttoharassment
byunscrupuloustaxagents.
Thelawonprescriptionbeingaremedialmeasureshouldbeinterpretedinaway
conducivetobringingaboutthebeneficientpurposeofaffordingprotectiontothe
taxpayer within the contemplation of the Commission which recommend the
approvalofthelaw.
REPUBLICVS.KER&CO.LTD.
18SCRA207SEPT.29,1966
CIRVS.CAPITOLSUBD.
10SCRA773
CIRVS.WYETHSUACOLABORATORIESINC.&CTA
202SCRA125,SEPT.30,1991
Section 331 of the Revenue Code explicitly provides, in mandatory terms, that
internalrevenuetaxesshallbeassessedwithin5yearsafterthereturnwasfiled,
andnoproceedingsincourtwithoutassessment,forthecollectionofsuchtaxes,
shallbebegunafterexpirationofsuchperiod
CIRVS.ALGUE
158SCRA9,FEB.17,1988
While it is true that the said letter did not specifically use the words review or
reconsideration,therequestitselfforanexplanationofthedisallowancesmadein
theassessmentineffectwasanexceptiontothecorrectnessthereof.
Settledistherulethattheprescriptiveperiodprovidedbylawtomakeacollection
by distraint or levy or by a proceeding in court is interrupted once a taxpayer
requestsforreinvestigationorreconsiderationoftheassessment
PALANCAVS.CIR
4SCRA263
CIRVS.UNIONSHIPPINGCORP.
185SCRA547,MAY21,1990
All that is required by the provisions of section 332 (c) of the NIRC to start the
running of the period of limitation therein prescribed is to distraint or levy, or
instituteaproceedingincourt,within5yearsaftertheassessmentofthetax.
A judicial action for the collection of the tax is begun by the filing of a complaint
withthepropercourtoffirstinstance,orwheretheassessmentisappealedtothe
court of tax appeals, by filing an answer to the taxpayers petition for review
whereinthepaymentofthetaxesareprayedfor.
Thesummaryremedyofdistraintorlevyisbegunbytheissuanceofawarrantof
distraintandlevyanditisnotnecessarythatitactuallybeexecutedtobeeffective.
Therightofthecommissionerofinternalrevenuetocollectbysummarymethod
has the effect of stopping the running of prescription once a warrant of distraint
andlevyisissued.
REMEDIESOFTHETAXPAYER
RemediesBeforePaymentoftheTax
Withinaperiodtobeprescribedbyimplementingrulesandregulations,
thetaxpayershallberequiredtorespondtosaidnotice.Ifthetaxpayer
failstorespond,theCommissionerorhisdulyauthorizedrepresentative
shallissueanassessmentbasedonhisfindings.
Suchassessmentmaybeprotestedadministrativelybyfilingarequestfor
reconsiderationorreinvestigationwithinthirty(30)daysfromreceiptof
the assessment in such form and manner as may be prescribed by
implementingrulesandregulations.
Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall
becomefinal.
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If the protest is denied in whole or in part, or is not acted upon within

one hundred eighty (180) days from submission of documents, the
taxpayeradverselyaffectedbythedecisionorinactionmayappealtothe
Court of Tax Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty (180)day period;
otherwise,thedecisionshallbecomefinal,executoryanddemandable.
DefensesAgainsttheAssessment
AGUINALDOINDUSTRIESCO.VS.CIR
112SCRA136,FEB.25,1982
C/OP.AQUINO
FACTS:
Aguinaldo Industries Corporation the manufacture of fishing nets (a taxexempt
industry)andthemanufactureoffurniture.Foraccountingpurposes,eachdivision
is provided with separate books of accounts as required by the Department of
Finance. Petitioner acquired a parcel of land in Muntinglupa, Rizal, as site of the
fishing net factory. Subsequently sold it and bought a parcel of land in Marikina
Heights which was supposedly suitable for their needs. Petitioner derived profit
fromthissalewhichwasenteredasmiscellaneousincometodistinguishitfromits
taxexemptincome.
During 1957, the examiners found that the petitioner deducted from its gross
incomeanadditionalremunerationpaidtotheofficersofpetitionerandthatthis
amount was taken from the net profit of the sale of a land not in the course of
tradeorbusiness.Thedeductionwasdisallowed.CTAagreedwiththeBIR.
ISSUESANDRATIO:
1.Istheprofitderivedfromthesalenottaxableforitistaxexemptincome?
No.Itwasimplicitlyadmittedthattheprofititderivedfromthesalewasataxable
gainwhichwasthereasonwhyfortaxpurposesthepetitionerdeductedthebonus
toitscorporateofficers.Itwasonlyafterthesaiddecisionhadbeenrenderedand
onamotionforreconsiderationthereof,thattheissueoftaxexemptionwasraised
by the petitioner for the first time. It was thus not one of the issues raised by
petitionerinhispetitionandsupportingmemorandumintheCourtofTaxAppeals.
This cannot be permitted, for the same reason that underlies the requirement of
prior exhaustion of administrative remedies to give administrative authorities the
prioropportunitytodecidecontroversieswithinitscompetence,andinmuchthe
samewaythat,onthejudiciallevel,issuesnotraisedinthelowercourtcannotbe
raisedforthefirsttimeonappeal.
2. Is the bonus given to the officers an ordinary and necessary business expense
deductible for income tax purposes and is the petitioner not liable for surcharge
andinterestforlatepayment?
No. There is no evidence of any service actually rendered by petitioner's officers
which could be the basis of a grant to them of a bonus out of the profit derived
from the sale. This being so, the payment of a bonus to them out of the gain
realized from the sale cannot be considered as a selling expense; nor can it be
deemedreasonableandnecessarysoastomakeitdeductiblefortaxpurposes.
ABRAVALLEYCOLLEGEVS.HON.AQUINO
L39086,JUNE15,1988
C/OP.AQUINO
FACTS:
Petitionerisaneducationalcorporationandinstitutionofhigherlearning.OnJuly
10,1972inthecourtaquotoannulanddeclarevoidthe"NoticeofSeizure'and
the "Notice of Sale" of its lot and building located at Bangued, Abra, for non
payment of real estate taxes and penalties. Said "Notice of Seizure" covered the
college lot and building. The "Notice of Sale" was caused to be served upon the
petitionerbytherespondenttreasurersforthesaleatpublicauctionofsaidcollege
lotandbuildingforthesatisfactionofthesaidtaxes.Dr.Millareofferedthehighest
bidwhichwasdulyaccepted.Thecertificateofsalewascorrespondinglyissuedto
him.Afterthesaleoftheschoolpremisesatpublicauction,therespondentJudge,
Hon. Aquino ordered the respondents provincial and municipal treasurers to
delivertotheClerkofCourttheproceedsoftheauctionsale.Thetrialcourtfound
that the school is recognized by the government and is offering Primary, High
School and College Courses, that it is located a few meters from the plaza and
about 120 meters from the Court of First Instance building, that the elementary
pupils are housed in a twostorey building across the street, that the high school
and college students are housed in the main building, that the Director with his
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familyisinthesecondfloorofthemainbuilding;andthattheannualgrossincome
oftheschoolreachesmorethanonehundredthousandpesos.
ISSUESANDRATIO:
1. Is the primary use of the school lot and building is the basic and controlling
guide,normandstandardtodeterminetaxexemption,andnotthemereincidental
usethereof?
Yes. The exemption in favor of property used exclusively for charitable or

educationalpurposesisnotlimitedtopropertyactuallyindispensablebutextends
to facilities which are incidental to and reasonably necessary for the
accomplishmentofsaidpurposes.Thetestofexemptionfromtaxationistheuseof
thepropertyforpurposesmentionedintheConstitution.However,whiletheuse
ofthesecondfloorofthemainbuildinginthecaseatbarforresidentialpurposes
oftheDirectorandhisfamily,mayfindjustificationundertheconceptofincidental
use,whichiscomplimentarytothemainorprimarypurposeeducational,thelease
of the first floor thereof to the Northern Marketing Corporation cannot by any
stretchoftheimaginationbeconsideredincidentaltothepurposeofeducation.
2.Canfactsnotraisedinthelowercourtbetakenupforthefirsttimeonappeal?
GeneralRule:No.TheleasewasraisedforthefirsttimeinthisCourt.Thematter
wasnottakenupinthecourt.Itisaxiomaticthatfactsnotraisedinthelowercourt
cannot be taken up for the first time on appeal. Nonetheless, as an exception to
the rule, this Court has held that although a factual issue is not squarely raised
below, still in the interest of substantial justice, this Court is not prevented from
considering a pivotal factual matter. The Supreme Court is clothed with ample
authority to review palpable errors not assigned as such if it finds that their
considerationisnecessaryinarrivingatajustdecision.
Note:Sinceonlyaportionisusedforpurposesofcommerce,itisonlyfairthathalf
oftheassessedtaxbereturnedtotheschoolinvolved.
CIRVS.PROCTER&GAMBLEPMC
204SCRA377,DECEMBER2,1991
C/OP.AQUINO
FACTS:
Procter and Gamble Philippines is a wholly owned subsidiary of Procter and
GambleUSA(PMCUSA),anonresidentforeigncorporationinthePhilippines,not
engaged in trade and business therein. PMCUSA is the sole shareholder of PMC
Philippines and is entitled to receive income from PMC Philippines in the form of
dividends, if not rents or royalties. For the taxable years 1974 and 1975, PMC
PhilippinesfileditsincometaxreturnandalsodeclareddividendsinfavorofPMC
USA.In1977,PMCPhilippines,invokingthetaxsparingprovisionofSection24(b)
as the withholding agent of the Philippine Government with respect to dividend
taxespaidbyPMCUSA,filedaclaimfortherefundof20percentagepointportion
ofthe35percentagewholetaxpaidwiththeCommissionerofInternalRevenue.
ISSUESANDRATIO:
1.Canfactsnotraisedinthelowercourtbetakenupforthefirsttimeonappeal?
No. The preliminary aspects of the question of the capacity of P&GPhil. to bring
the present claim for refund or tax credit was raised for the first time on appeal,
i.e., in the proceedings before this Court on the Petition for Review filed by the
Commissioner of Internal Revenue. The question was not raised by the
Commissionerontheadministrativelevel,andneitherwasitraisedbyhimbefore
the CTA. The BIR should not be allowed to defeat an otherwise valid claim for
refund by raising this question of alleged incapacity for the first time on appeal
beforethisCourt.Thisisclearlyamatterofprocedure.Itisaquestionoffairness.
Should the BIR, unlike any other litigant, be allowed to raise for the first time on
appealquestionswhichhadnotbeenlitigatedeitherinthelowercourtoronthe
administrativelevel?For,ifpetitionerhadattheearliestpossibleopportunity,i.e.,
at the administrative level, demanded that P&GPhil. produce an express
authorizationfromitsparentcorporationtobringtheclaimforrefund,thenP&G
Phil. would have been able forthwith to secure and produce such authorization
before filing the action in the instant case. The action here was commenced just
beforeexpirationofthetwo(2)yearprescriptiveperiod.
2. Is P&GPhil. a "taxpayer" under Section 309 (3) of the NIRC and can it claim
refundorcreditinbehalfofP&GUSA?
Yes. A withholding agent is in fact the agent both of the government and of the
taxpayer,andthatthewithholdingagentisnotanordinarygovernmentagent.The
lawsetsnoconditionforthepersonalliabilityofthewithholdingagenttoattach.
The reason is to compel the withholding agent to withhold the tax under all
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circumstances. In effect, the responsibility for the collection of the tax as well as
thepaymentthereofisconcentrateduponthepersonoverwhomtheGovernment
has jurisdiction. Thus, the withholding agent is constituted the agent of both the
Governmentandthetaxpayer.Withrespecttothecollectionand/orwithholdingof
the tax, he is the Government's agent. In regard to the filing of the necessary
incometaxreturnandthepaymentofthetaxtotheGovernment,heistheagent
ofthetaxpayer.Thewithholdingagent,therefore,isnoordinarygovernmentagent
especiallybecauseunderSection53(c)heisheldpersonallyliableforthetaxheis
dutyboundtowithhold;whereastheCommissionerandhisdeputiesarenotmade
liable by law. As pointed out, the withholding agent is also an agent of the
beneficialownerofthedividendswithrespecttothefilingofthenecessaryincome
taxreturnandwithrespecttoactualpaymentofthetaxtothegovernment,such
authoritymayreasonablybeheldtoincludetheauthoritytofileaclaimforrefund
and to bring an action for recovery of such claim. This implied authority is
especially warranted where, is in the instant case, the withholding agent is the
wholly owned subsidiary of the parentstockholder and therefore, at all times,
undertheeffectivecontrolofsuchparentstockholder.
Note:thisisareversaloftheoftheCommissionervs.Procter&GamblePhilippines
GRL66838,15April1988
Inthatcaseitwasheldthat:
The issue raised is one made for the first time before the Supreme Court. Under
the same underlying principle of prior exhaustion of administrative remedies, on
thejudiciallevel,issuesnotraisedinthelowercourtcannotbegenerallyraisedfor
the first time on appeal. Nonetheless, it is axiomatic that the state can never be
allowed to jeopardize the governments financial position. The submission of the
CommissionerthatPMCPhilippinesisbutawithholdingagentofthegovernment
andthereforecannotclaimreimbursementofallegedoverpaidtaxes,iscompletely
meritorious. The real party in interest is PMCUSA, which should prove that it is
entitledundertheUSTaxCodetoaUSForeignTaxCreditequivalenttoatleast20
percentage points spared or waived as otherwise considered or deemed paid by
theGovernment.Herein,theclaimantfailedtoshoworjustifythetaxreturnofthe
disputed 15% as it failed to show the actual amount credited by the US
GovernmentagainsttheincometaxduefromPMCUSAonthedividendsreceived
fromPMCPhilippines;topresenttheincometaxreturnofPMCUSAfor1975when
thedividendswerereceived;andtosubmitdulyauthenticateddocumentshowing
thattheUSgovernmentcreditedteh20%taxdeemedpaidinthePhilippines.
RemediesAftertheAssessment
SeeAuthorityofCommissionertoAbateorCompromise(above).
RecoveryofTaxErroneouslyorIllegallyCollected
Nosuitorproceedingshallbemaintainedinanycourtfortherecoveryof
any national internal revenue tax hereafter alleged to have been
erroneouslyorillegallyassessedorcollected,orofanypenaltyclaimedto
havebeencollectedwithoutauthority,ofanysumallegedtohavebeen
excessivelyorinanymannerwrongfullycollectedwithoutauthority,orof
any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the
Commissioner;butsuchsuitorproceedingmaybemaintained,whether
ornotsuchtax,penalty,orsumhasbeenpaidunderprotestorduress.
Inanycase,nosuchsuitorproceedingshallbefiledaftertheexpiration
of two (2) years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment:
Provided,however,ThattheCommissionermay,evenwithoutawritten
claimtherefor,refundorcreditanytax,whereonthefaceofthereturn
upon which payment was made, such payment appears clearly to have
beenerroneouslypaid.
JudicialRemedies
SeeCTAjurisdictionunderRA9282.
ProcedureofAppealtotheCTA
Any party adversely affected by a decision, ruling or inaction of the

Commissioner of Internal Revenue, the Commissioner of Customs, the
SecretaryofFinance,theSecretaryofTradeandIndustryortheSecretary
of Agriculture or the Central Board of Assessment Appeals or the
Regional Trial Courts may file an appeal with the CTA within thirty (30)
daysafterthereceiptofsuchdecisionorrulingoraftertheexpirationof
theperiodfixedbylawforactionasreferredtoinSection7(a)(2)herein.
Appeal shall be made by filing a petition for review under a procedure

analogous to that provided for under Rule 42 of the 1997 Rules of Civil
Procedure with the CTA within thirty (30) days from the receipt of the
decisionorrulingorinthecaseofinactionashereinprovided,fromthe
expirationoftheperiodfixedbylawtoactthereon.ADivisionoftheCTA
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shallheartheappeal:Provided,however,Thatwithrespecttodecisions
or rulings of the Central Board of Assessment Appeals and the Regional
Trial Court in the exercise of its appellate jurisdiction appeal shall be
madebyfilingapetitionforreviewunderaprocedureanalogoustothat
providedforunderrule43ofthe1997RulesofCivilProcedurewiththe
CTA,whichshallhearthecaseenbanc.
Allothercasesinvolvingrulings,ordersordecisionsfiledwiththeCTAas
providedforinSection7shallberaffledtoitsDivisions.Apartyadversely
affectedbyaruling,orderordecisionofaDivisionoftheCTAmayfilea
motion for reconsideration of new trial before the same Division of the
CTAwithinfifteens(15)daysfromnoticethereof:Provide,however,That
incriminalcases,thegeneralruleapplicableinregularCourtsonmatters
ofprosecutionandappealshalllikewiseapply.
No appeal taken to the CTA from the decision of the Commissioner of
Internal Revenue or the Commissioner of Customs or the Regional Trial
Court,provincial,cityormunicipaltreasurerortheSecretaryofFinance,
the Secretary of Trade and Industry and Secretary of Agriculture, as the
casemaybeshallsuspendthepayment,levy,distraint,and/orsaleofany
propertyofthetaxpayerforthesatisfactionofhistaxliabilityasprovided
byexistinglaw:Provided,however,ThatwhenintheopinionoftheCourt
the collection by the aforementioned government agencies may
jeopardizetheinterestoftheGovernmentand/orthetaxpayertheCourt
anystageoftheproceedingmaysuspendthesaidcollectionandrequire
the taxpayer either to deposit the amount claimed or to file a surety
bondfornotmorethandoubletheamountwiththeCourt.
IncriminalandcollectioncasescoveredrespectivelybySection7(b)and
(c) of this Act, the Government may directly file the said cases with the
CTAcoveringamountswithinitsexclusiveandoriginaljurisdiction.
CTAFindingofFactConclusive
FollowingdoctrineofNasiadv.CourtofTaxAppeals,29November1974
AppealofCTADecisions
AppealtotheCTAenbanc
No civil proceeding involving matter arising under the National Internal

Revenue Code, the Tariff and Customs Code or the Local Government
Codeshallbemaintained,exceptashereinprovided,untilandunlessan
appeal has been previously filed with the CTA and disposed of in
accordancewiththeprovisionsofthisAct.
A 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
withtheCTAenbanc.
AppealtotheSupremeCourt
ApartyadverselyaffectedbyadecisionorrulingoftheCTAenbancmay
file with the Supreme Court a verified petition for review on certiorari
pursuanttoRule45ofthe1997RulesofCivilProcedure.
STATUTORYOFFENSESANDPENALTIES
(SECTIONS247TO281)
AdditionstoTax
GeneralProvisions
(a) TheadditionstothetaxordeficiencytaxprescribedinthisChaptershall
applytoalltaxes,feesandchargesimposedinthisCode.TheAmountso
addedtothetaxshallbecollectedatthesametime,inthesamemanner
andaspartofthetax.
(b) IfthewithholdingagentistheGovernmentoranyofitsagencies,political
subdivisions or instrumentalities, or a governmentowned or controlled
corporation, the employee thereof responsible for the withholding and
remittanceofthetaxshallbepersonallyliablefortheadditionstothetax
prescribedherein.
(c) the term "person", as used in this Chapter, includes an officer or
employeeofacorporationwhoassuchofficer,employeeormemberis
underadutytoperformtheactinrespectofwhichtheviolationoccurs.
CivilPenalties
(A) There shall be imposed, in addition to the tax required to be paid, a penalty
equivalenttotwentyfivepercent(25%)oftheamountdue,inthefollowingcases:
(1) Failuretofileanyreturnandpaythetaxduethereonasrequiredunder
the provisions of this Code or rules and regulations on the date
prescribed;or
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(2) UnlessotherwiseauthorizedbytheCommissioner,filingareturnwithan
internal revenue officer other than those with whom the return is
requiredtobefiled;or
(3) Failure to pay the deficiency tax within the time prescribed for its
paymentinthenoticeofassessment;or
(4) Failuretopaythefullorpartoftheamountoftaxshownonanyreturn
required to be filed under the provisions of this Code or rules and
regulations,orthefullamountoftaxdueforwhichnoreturnisrequired
tobefiled,onorbeforethedateprescribedforitspayment.
(B)Incaseofwillfulneglecttofilethereturnwithintheperiodprescribedbythis
Codeorbyrulesandregulations,orincaseafalseorfraudulentreturniswillfully
made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the
deficiency tax, in case, any payment has been made on the basis of such return
before the discovery of the falsity or fraud: Provided, That a substantial
underdeclaration of taxable sales, receipts or income, or a substantial
overstatementofdeductions,asdeterminedbytheCommissionerpursuanttothe
rules and regulations to be promulgated by the Secretary of Finance, shall
constitute prima facie evidence of a false or fraudulent return: Provided, further,
That failure to report sales, receipts or income in an amount exceeding thirty
percent(30%)ofthatdeclaredperreturn,andaclaimofdeductionsinanamount
exceeding (30%) of actual deductions, shall render the taxpayer liable for
substantial underdeclaration of sales, receipts or income or for overstatement of
deductions,asmentionedherein.
Interest
(A)InGeneral.Thereshallbeassessedandcollectedonanyunpaidamountoftax,
interestattherateoftwentypercent(20%)perannum,orsuchhigherrateasmay
beprescribedbyrulesandregulations,fromthedateprescribedforpaymentuntil
theamountisfullypaid.
(B)DeficiencyInterest.Anydeficiencyinthetaxdue,asthetermisdefinedinthis
Code, shall be subject to the interest prescribed in Subsection (A) hereof, which
interest shall be assessed and collected from the date prescribed for its payment
untilthefullpaymentthereof.
(C)DelinquencyInterest.Incaseoffailuretopay:
1. Theamountofthetaxdueonanyreturntobefiled,or
2. Theamountofthetaxdueforwhichnoreturnisrequired,or
3.
A deficiency tax, or any surcharge or interest thereon on the due date

appearinginthenoticeanddemandoftheCommissioner,thereshallbe
assessed and collected on the unpaid amount, interest at the rate
prescribedinSubsection(A)hereofuntiltheamountisfullypaid,which
interestshallformpartofthetax.
(D) Interest on Extended Payment. If any person required to pay the tax is
qualifiedandelectstopaythetaxoninstallmentundertheprovisionsofthisCode,
but fails to pay the tax or any installment hereof, or any part of such amount or
installment on or before the date prescribed for its payment, or where the
Commissionerhasauthorizedanextensionoftimewithinwhichtopayataxora
deficiencytaxoranypartthereof,thereshallbeassessedandcollectedinterestat
the rate hereinabove prescribed on the tax or deficiency tax or any part thereof
unpaidfromthedateofnoticeanddemanduntilitispaid.
FailuretoFileCertainInformationReturns
Inthecaseofeachfailuretofileaninformationreturn,statementorlist,
orkeepanyrecord,orsupplyanyinformationrequiredbythisCodeorby
theCommissioneronthedateprescribedtherefor,unlessitisshownthat
such failure is due to reasonable cause and not to willful neglect, there
shall, upon notice and demand by the Commissioner, be paid by the
person failing to file, keep or supply the same, One thousand pesos
(1,000) for each failure: Provided, however, That the aggregate amount
tobeimposedforallsuchfailuresduringacalendaryearshallnotexceed
Twentyfivethousandpesos(P25,000).
FailureofaWithholdingAgenttoCollectandRemitTax
Anypersonrequiredtowithhold,accountfor,andremitanytaximposed
bythisCodeorwhowillfullyfailstowithholdsuchtax,oraccountforand
remitsuchtax,oraidsorabetsinanymannertoevadeanysuchtaxor
the payment thereof, shall, in addition to other penalties provided for
under this Chapter, be liable upon conviction to a penalty equal to the
totalamountofthetaxnotwithheld,ornotaccountedforandremitted.
FailureofaWithholdingAgenttorefundExcessWithholdingTax
Any employer/withholding agent who fails or refuses to refund excess

withholdingtaxshall,inadditiontothepenaltiesprovidedinthisTitle,be
liabletoapenaltytothetotalamountofrefundswhichwasnotrefunded
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totheemployeeresultingfromanyexcessoftheamountwithheldover
thetaxactuallydueontheirreturn.
Crimes,OtherOffenses,andForfeitures
AttempttoEvadeorDefeatTax
Anypersonwhowillfullyattemptsinanymannertoevadeordefeatany
taximposedunderthisCodeorthepaymentthereofshall,inadditionto
otherpenaltiesprovidedbylaw,uponconvictionthereof,bepunishedby
a fine not less than Thirty thousand (P30,000) but not more than One
hunderdthousandpesos(P100,000)andsufferimprisonmentofnotless
thantwo(2)yearsbutnotmorethanfour(4)years:Provided,Thatthe
conviction or acquittal obtained under this Section shall not be a bar to
thefilingofacivilsuitforthecollectionoftaxes.
FailuretoFileReturn,SupplyCorrectandAccurateInformation,PayTaxWithhold
andRemitTaxandRefundExcessTaxesWithheldonCompensation
Any person required under this Code or by rules and regulations

promulgatedthereundertopayanytaxmakeareturn,keepanyrecord,
orsupplycorrecttheaccurateinformation,whowillfullyfailstopaysuch
tax,makesuchreturn,keepsuchrecord,orsupplycorrectandaccurate
information,orwithholdorremittaxeswithheld,orrefundexcesstaxes
withheldoncompensation,atthetimeortimesrequiredbylaworrules
and regulations shall, in addition to other penalties provided by law,
upon conviction thereof, be punished by a fine of not less than Ten
thousandpesos(P10,000)andsufferimprisonmentofnotlessthanone
(1)yearbutnotmorethanten(10)years.
Any person who attempts to make it appear for any reason that he or
anotherhasinfactfiledareturnorstatement,oractuallyfilesareturnor
statement and subsequently withdraws the same return or statement
after securing the official receiving seal or stamp of receipt of internal
revenueofficewhereinthesamewasactuallyfiledshall,uponconviction
therefor, be punished by a fine of not less than Ten thousand pesos
(P10,000)butnotmorethanTwentythousandpesos(P20,000)andsuffer
imprisonmentofnotlessthanone(1)yearbutnotmorethanthree(3)
years.
PenalLiabilityofCorporations
Any corporation, association or general copartnership liable for any of

the acts or omissions penalized under this Code, in addition to the
penalties imposed herein upon the responsible corporate officers,
partners,oremployeesshall,uponconvictionforeachactoromission,be
punishedbyafineofnotlessthanFiftythousandpesos(P50,000)butnot
morethanOnehundredthousandpesos(P100,000).
PenalLiabilityforMakingFalseEntries,RecordsorReports,orUsingFalsifiedor
FakeAccountableForms
1. Any financial officer or independent Certified Public Accountant engaged to
examineandauditbooksofaccountsoftaxpayersunderSection232(A)and
anypersonunderhisdirectionwho:
(1) Willfullyfalsifiesanyreportorstatementbearingonanyexaminationor
audit, or renders a report, including exhibits, statements, schedules or
other forms of accountancy work which has not been verified by him
personally or under his supervision or by a member of his firm or by a
memberofhisstaffinaccordancewithsoundauditingpractices;or
(2) Certifies financial statements of a business enterprise containing an

essentialmisstatementoffactsoromissioninrespectofthetransactions,
taxableincome,deductionandexemptionofhisclient;or
2. Anypersonwho:
(1) Not being an independent Certified Public Accountant according to

Section 232(B) or a financial officer, examines and audits books of
accountsoftaxpayers;or
(2) Offerstosignandcertifyfinancialstatementswithoutaudit;or
(3) Offers any taxpayer the use of accounting bookkeeping records for
internal revenue purposes not in conformity with the requirements
prescribedinthisCodeorrulesandregulationspromulgatedthereunder;
or
(4) Knowinglymakesanyfalseentryorentersanyfalseorfictitiousnamein
thebooksofaccountsorrecordmentionedintheprecedingparagraphs;
or
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(5) Keepstwo(2)ormoresetsofsuchrecordsorbooksofaccounts;or
(6) Inanywaycommitsanactoromission,inviolationoftheprovisionsof
thisSection;or
(7) FailstokeepthebooksofaccountsorrecordsmentionedinSection232
inanativelanguage,EnglishorSpanish,ortomakeatrueandcomplete
translation as required in Section 234 of this Code, or whose books of
accounts or records kept in a native language, English or Spanish, and
found to be at material variance with books or records kept by him in
anotherlanguage;or
(8) Willfully attempts in any manner to evade or defeat any tax imposed
under this Code, or knowingly uses fake or falsified revenue official
receipts, Letters of Authority, certificates authorizing registration, Tax
Credit Certificates, Tax Debit Memoranda and other accountable forms
shall,uponconvictionforeachactoromission,bepunishedbyafinenot
lessthanFiftythousandpesos(P50,000)butnotmorethanOnehundred
pesos(P100,000)andsufferimprisonmentofnotlessthantwo(2)years
butnotmorethansix(6)years.
IftheoffenderisaCertifiedPublicAccountant,hiscertificateasaCertifiedPublic
Accountantshallbeautomaticallyrevokedorcancelleduponconviction.
In the case of foreigners, conviction under this Code shall result in his immediate
deportationafterservingsentence,withoutfurtherproceedingsfordeportation.
UnlawfulPursuitofBusiness
Anypersonwhocarriesonanybusinessforwhichanannualregistration
fee is imposed without paying the tax as required by law shall, upon
convictionforeachactoromission,bepunishedbyafineofnotlessthan
Fivethousandpesos(P5,000)butnotmorethanTwentythousandpesos
(P20,000)andsufferimprisonmentofnotlessthansix(6)monthsbutnot
morethantwo(2)years:Provided,Thatinthecaseofapersonengaged
in the business of distilling, rectifying, repacking, compounding or
manufacturinganyarticlesubjecttoexcisetax,heshall,uponconviction
for each act or omission, be punished by a fine of not less than Thirty
thousand pesos (P30,000) but not more than Fifty thousand pesos
(P50,000)andsufferimprisonmentofnotlessthantwo(2)yearsbutnot
morethanfour(4)years.
IllegalCollectionofForeignPayments
Anypersonwhoknowinglyundertakesthecollectionofforeignpayments
as provided under Section 67 of this Code without having obtained a
license therefor, or without complying with its implementing rules and
regulations,shall,uponconvictionforeachactoromission,bepunished
byafineofnotlessthanTwentythousandpesos(P20,000)butnotmore
thanFiftythousandpesos(P50,000)andsufferimprisonmentofnotless
thanone(1)yearbutnotmorethantwo(2)years.
UnlawfulPossessionofCigarettePaperinBobbinsorRolls,Etc
It shall be unlawful for any person to have in his possession cigarette

paper in bobbins or rolls, cigarette tipping paper or cigarette filter tips,
without the corresponding authority therefor issued by the
Commissioner. Any person, importer, manufacturer of cigar and
cigarettes, who has been found guilty under this Section, shall, upon
convictionforeachactoromission,bepunishedbyafineofnotlessthan
Twenty thousand pesos (P20,000) but not more than One hundred
thousand pesos (P1000,000) and suffer imprisonment for a term of not
less than six (6) years and one (1) day but not more than twelve (12)
years.
UnlawfulUseofDenaturedAlcohol
Any person who for the purpose of manufacturing any beverage, uses
denatured alcohol or alcohol specially denatured to be used for motive
powerorwithdrawnunderbondforindustrialusesoralcoholknowingly
misrepresented to be denatured to be unfit for oral intake or who
knowinglysellsoroffersforsaleanybeveragemadeinwholeorinpart
fromsuchalcoholorwhousessuchalcoholforthemanufactureofliquid
medicinal preparations taken internally, or knowingly sells or offers for
sale such preparations containing as an ingredient such alcohol, shall
uponconvictionforeachactoromissionbepunishedbyafineofnotless
thanTwentythousandpesos(P20,000)butnotmorethanOnehundred
thousand pesos (P100,000) and suffer imprisonment for a term of not
less than six (6) years and one (1) day but not more than twelve (12)
years.
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Any person who shall unlawfully recover or attempt to recover by distillation or

other process any denatured alcohol or who knowingly sells or offers for sale,
conceals or otherwise disposes of alcohol so recovered or redistilled shall be
subjecttothesamepenaltiesimposedunderthisSection.
ShipmentorRemovalofLiquororTobaccoProductsunderFalseNameorBrand
orasanImitationofanyExistingorOtherwiseKnownProductNameorBrand
Anypersonwhoships,transportsorremovesspirituous,compoundedor
fermentedliquors,winesoranymanufacturedproductsoftobaccounder
any other than the proper name or brand known to the trade as
designating the kind and quality of the contents of the cask, bottle or
package containing the same or as an imitation of any existing or
otherwiseknownproductnameorbrandorcausessuchacttobedone,
shall,uponconvictionforeachactoromission,bepunishedbyafineof
not less than Twenty thousand pesos (P20,000) but not more than One
hundredthousandpesos(P1000,000)andsufferimprisonmentofnotless
thansix(6)yearsandone(1)daybutnotmorethantwelve(12)years.
Unlawful Possession or Removal of Articles Subject to Excise Tax without

PaymentoftheTax
Anypersonwhoownsand/orisfoundinpossessionofimportedarticles
subjecttoexcisetax,thetaxonwhichhasnotbeenpaidinaccordance
with law, or any person who owns and/or is found in possession of
importedtaxexemptarticlesotherthanthosetowhomtheyarelegally
issuedshallbepunishedby:
(a) AfineofnotlessthanOnethousandpesos(P1,000)normore
thanTwothousandpesos(P2,000)andsufferimprisonmentof
not less than sixty (60) days but not more than one hundred
(100) days, if the appraised value, to be determined in the
manner prescribed in the Tariff and Customs Code, including
dutiesandtaxes,ofthearticlesdoesnotexceedOnethousand
pesos(P1,000).
(b) A fine of not less than Ten thousand pesos (P10,000) but not
more than Twenty thousand pesos (P20,000) and suffer
imprisonmentofnotlessthantwo(2)yearsbutnotmorethan
four (4) years, if the appraised value, to be determined in the
duties and taxes, of the articles exceeds One thousand pesos
(P1,000)butdoesnotexceedFiftythousandpesos(P50,000);
(c) AfineofnotlessthanThirtythousandpesos(P30,000)butnot
more than Sixty thousand pesos (P60,000) and suffer
imprisonmentofnotlessthanfour(4)yearsbutnotmorethan
six (6) years, if the appraised value, to be determined in the
duties and taxes of the articles is more than Fifty thousand
pesos (P50,000) but does not exceed One hundred fifty
thousandpesos(P150,000);or
(d) A fine of not less than Fifty thousand pesos (P50,000) but not
morethanOnehundredthousandpesos(P100,000)andsuffer
imprisonmentofnotlessthanten(10)yearsbutnotmorethan
twelve (12) years, if the appraised value, to be determined in
the manner prescribed in the Tariff and Customs Code,
includingdutiesandtaxes,ofthearticlesexceedsOnehundred
fiftythousandpesos(P150,000).
Any person who is found in possession of locally manufactured articles
subjecttoexcisetax,thetaxonwhichhasnotbeenpaidinaccordance
withlaw,oranypersonwhoisfoundinpossessionofsucharticleswhich
are exempt from excise tax other than those to whom the same is
lawfully issued shall be punished with a fine of not less than (10) times
theamountofexcisetaxdueonthearticlesfoundbutnotlessthanFive
hundred pesos (P500) and suffer imprisonment of not less than two (2)
yearsbutnotmorethanfour(4)years.
Any manufacturer, owner or person in charge of any article subject to
excisetaxwhoremovesorallowsorcausestheunlawfulremovalofany
such articles from the place of production or bonded warehouse, upon
which the excise tax has not been paid at the time and in the manner
required,andanypersonwhoknowinglyaidsorabetsintheremovalof
sucharticlesasaforesaid,orconcealsthesameafterillegalremovalshall,
for the first offense, be punished with a fine of not less than ten (10)
timestheamountofexcisetaxdueonthearticlesbutnotlessthanOne
thousandpesos(P1,000)andsufferimprisonmentofnotlessthanone(1)
yearbutnotmorethantwo(2)years.
Themereunexplainedpossessionofarticlessubjecttoexcisetax,thetax
onwhichhasnotbeenpaidinaccordancewithlaw,shallbepunishable
underthisSection.
Failure or refusal to Issue Receipts or Sales or Commercial Invoices, Violations

relatedtothePrintingofsuchReceiptsorInvoicesandOtherViolations
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(a) Any person who, being required under Section 237 to issue receipts or
sales or commercial invoices, fails or refuses to issue such receipts of
invoices, issues receipts or invoices that do not truly reflect and/or
containalltheinformationrequiredtobeshowntherein,orusesmultiple
or double receipts or invoices, shall, upon conviction for each act or
omission, be punished by a fine of not less than One thousand pesos
(P1,000) but not more than Fifty thousand pesos (P50,000) and suffer
imprisonment of not less than two (2) years but not more than four (4)
years.
(b) Anypersonwhocommitsanyoftheactsenumeratedhereundershallbe
penalizedinthesamemannerandtothesameextentasprovidedforin
thisSection:
(1) Printing of receipts or sales or commercial invoices without
authorityfromtheBureauofInternalRevenue;or
(2) Printingofdoubleormultiplesetsofinvoicesorreceipts;or
(3) Printing of unnumbered receipts or sales or commercial
invoices, not bearing the name, business style, Taxpayer
IdentificationNumber,andbusinessaddressofthepersonor
entity.
OffensesRelatingtoStamps
Any person who commits any of the acts enumerated hereunder shall,
upon conviction thereof, be punished by a fine of not less than Twenty
thousand pesos (P20,000) but not more than Fifty thousand pesos
(P50,000)andsufferimprisonmentofnotlessthanfour(4)yearsbutnot
morethaneight(8)years:
(a) making,importing,selling,usingorpossessingwithoutexpress
authority from the Commissioner, any die for printing or
makingstamps,labels,tagsorplayingcards;
(b) Erasingthecancellationmarksofanystamppreviouslyused,or
altering the written figures or letters or cancellation marks on
internalrevenuestamps;
(c) Possessingfalse,counterfeit,restoredoralteredstamps,labels
or tags or causing the commission of any such offense by
another;
(d) Selling or offering for sale any box or package containing
articlessubjecttoexcisetaxwithfalse,spuriousorcounterfeit
stamps or labels or selling from any such fraudulent box,
packageorcontainerasaforementioned;or
(e) Giving away or accepting from another, or selling, buying or

using containers on which the stamps are not completely
destroyed.
FailuretoObeySummons
Anypersonwho,beingdulysummonedtoappeartotestify,ortoappear
andproducebooksofaccounts,records,memorandaorotherpapers,or
tofurnishinformationasrequiredunderthepertinentprovisionsofthis
Code,neglectstoappearortoproducesuchbooksofaccounts,records,
memorandaorotherpapers,ortofurnishsuchinformation,shall,upon
conviction, be punished by a fine of not less than Five thousand pesos
(P5,000) but not more than ten thousand pesos (P10,000) and suffer
imprisonment of not less than one (1) year but not more than two (2)
years.
DeclarationunderPenaltiesofPerjury
Any declaration, return and other statement required under this Code,
shall,inlieuofanoath,containawrittenstatementthattheyaremade
under the penalties of perjury. Any person who willfully files a
declaration,returnorstatementcontaininginformationwhichisnottrue
andcorrectastoeverymaterialmattershall,uponconviction,besubject
tothepenaltiesprescribedforperjuryundertheRevisedPenalCode.
OtherCrimesandOffenses
1. Misdeclaration or Misrepresentation of Manufacturers Subject to Excise
Tax.Anymanufacturerwho,inviolationoftheprovisionsofTitleVIof
thisCode,misdeclaresintheswornstatementrequiredthereinorinthe
sales invoice, any pertinent data or information shall be punished by a
summarycancellationorwithdrawalofthepermittoengageinbusiness
asamanufacturerofarticlessubjecttoexcisetax.
2. Forfeiture of Property Used in Unlicensed Business or Dies Used for
Printing False Stamps, Etc. All chattels, machinery, and removable
fixturesofanysortusedintheunlicensedproductionofarticlessubject
to excise tax shall be forfeited. Dies and other equipment used for the
printingormakingofanyinternalrevenuestamp,labelortagwhichisin
imitation of or purports to be a lawful stamp, label or tag shall also be
forfeited.
3. Forfeiture of Goods Illegally Stored or Removed. Unless otherwise
specificallyauthorizedbytheCommissioner,allarticlessubjecttoexcise
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taxshouldnotbestoredorallowedtoremaininthedistillerywarehouse,
bondedwarehouseorotherplacewheremade,afterthetaxthereonhas
been paid; otherwise, all such articles shall be forfeited. Articles
withdrawn from any such place or from customs custody or imported
into the country without the payment of the required tax shall likewise
beforfeited.
ViolationsCommittedbyGovernmentEnforcementOfficers
Everyofficial,agent,oremployeeoftheBureauofInternalRevenueoranyother
agencyoftheGovernmentchargedwiththeenforcementoftheprovisionsofthis
Code, who is guilty of any of the offenses herein below specified shall, upon
conviction for each act or omission, be punished by a fine of not less than Fifty
thousand pesos (P50,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than ten (10) years but not more
thanfifteen(15)yearsandshalllikewisesufferanadditionalpenaltyofperpetual
disqualification to hold public office, to vote, and to participate in any public
election:
1. Extortion or willful oppression through the use of his office or willful

oppressionandharassmentofataxpayerwhorefused,declined,turned
downorrejectedanyofhisoffersspecifiedinparagraph(d)hereof;
2. Knowingly demanding or receiving any fee, other or greater sums that
are authorized by law or receiving any fee, compensation or reward,
exceptasbylawprescribed,fortheperformanceofanyduty;
3. Willfully neglecting to give receipts, as by law required, for any sum
collected in the performance of duty or willfully neglecting to perform
anyotherdutiesenjoinedbylaw;
4. Offering or undertaking to accomplish, file or submit a report or
assessment on a taxpayer without the appropriate examination of the
booksofaccountsortaxliability,orofferingorundertakingtosubmita
reportorassessmentlessthantheamountduetheGovernmentforany
consideration or compensation, or conspiring or colluding with another
orotherstodefraudtherevenuesorotherwiseviolatetheprovisionsof
thisCode;
5. Neglectingorbydesignpermittingtheviolationofthelawbyanyother
person;
6. Making or signing any false entry or entries in any book, or making or
signinganyfalsecertificateorreturn;
7.
8.
9.
Allowing or conspiring or colluding with another to allow the

unauthorized retrieval, withdrawal or recall of any return, statement or
declarationafterthesamehasbeenofficiallyreceivedbytheBureauof
InternalRevenue;
HavingknowledgeorinformationofanyviolationofthisCodeorofany
fraud committed on the revenues collectible by the Bureau of Internal
Revenue, failure to report such knowledge or information to their
superiorofficer,orfailuretoreportasotherwiserequiredbylaw;and
Without the authority of law, demanding or accepting or attempting to
collect,directlyorindirectly,aspaymentorotherwiseanysumofmoney
orotherthingofvalueforthecompromise,adjustmentorsettlementof
any charge or complaint for any violation or alleged violation of this
Code.
Provided, That the provisions of the foregoing paragraph notwithstanding, any

internalrevenueofficerforwhichaprimafaciecaseofgravemisconducthasbeen
established shall, after due notice and hearing of the administrative case and
subject to Civil Service Laws, be dismissed from the revenue service: Provided,
further, That the term "grave misconduct", as defined in Civil Service Law, shall
includetheissuanceoffakelettersofauthorityandreceipts,forgeryofsignature,
usurpationofauthorityandhabitualissuanceofunreasonableassessments.
ViolationofWithholdingTaxProvision
EveryofficeroremployeeoftheGovernmentoftheRepublicofthePhilippinesor
any of its agencies and instrumentalities, its political subdivisions, as well as
governmentowned or controlled corporations, including the Bangko Sentral ng
Pilipinas (BSP), who, under the provisions of this Code or rules and regulations
promulgated thereunder, is charged with the duty to deduct and withhold any
internal revenue tax and to remit the same in accordance with the provisions of
thisCodeandotherlawsisguiltyofanyoffensehereinbelowspecifiedshall,upon
conviction for each act or omission be punished by a fine of not less than Five
thousand pesos (P5,000) but not more than Fifty thousand pesos (P50,000) or
sufferimprisonmentofnotlessthansix(6)monthsandone(1)daybutnotmore
thantwo(2)years,orboth:
(a) Failingorcausingthefailuretodeductandwithholdanyinternalrevenue
tax under any of the withholding tax laws and implementing rules and
regulations;
(b) Failingorcausingthefailuretoremittaxesdeductedandwithheldwithin
thetimeprescribedbylaw,andimplementingrulesandregulations;and
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(c) Failing or causing the failure to file return or statement within the time
prescribed, or rendering or furnishing a false or fraudulent return or
statement required under the withholding tax laws and rules and
regulations.
OtherPenalProvisions
PenaltyforSecondandSubsequentOffenses
Inthecaseofreincidence,themaximumofthepenaltyprescribedforthe
offenseshallbeimposed.
ViolationofOtherProvisionsofthisCodeorRulesandRegulationsinGeneral
Any person who violates any provision of this Code or any rule or
regulation promulgated by the Department of Finance, for which no
specificpenaltyisprovidedbylaw,shall,uponconvictionforeachactor
omission, be punished by a fine of not more than One thousand pesos
(P1,000)orsufferimprisonmentofnotmorethansix(6)months,orboth.
Penalty for Selling, Transferring, Encumbering or in Any Way Disposing of

PropertyPlacedUnderConstructiveDistraint
Any taxpayer, whose property has been placed under constructive

distraint,whosells,transfers,encumbersorinanywaydisposesofsaid
property,oranypartthereof,withouttheknowledgeandconsentofthe
Commissioner, shall, upon conviction for each act or omission, be
punished by a fine of not less than twice the value of the property so
sold,encumberedordisposedofbutnotlessthanFiveThousandpesos
(P5,000),orsufferimprisonmentofnotlessthantwo(2)yearsandone
(1)daybutnotmorethanfour(4)years,ofboth.
FailuretoSurrenderPropertyPlacedUnderDistraintandLevy
Anypersonhavinginhispossessionorunderhiscontrolanypropertyor
rights to property, upon which a warrant of constructive distraint, or
actual distraint and levy has been issued shall, upon demand by the
Commissioner or any of his deputies executing such warrant, surrender
such property or right to property to the Commissioner or any of his
deputies, unless such property or right is, at the time of such demand,
subject to an attachment or execution under any judicial process. Any
person who fails or refuses to surrender any of such property or right
shallbeliableinhisownpersonandestatetotheGovernmentinasum
equal to the value of the property or rights not so surrendered but not
exceedingtheamountofthetaxes(includingpenaltiesandinterest)for
thecollectionofwhichsuchwarranthadbeenissued,togetherwithcost
and interest if any, from the date of such warrant. In addition, such
personshall,uponconvictionforeachactoromission,bepunishedbya
fine of not less than Five thousand pesos (P5,000), or suffer
imprisonment of not less than six (6) months and one (1) day but not
morethantwo(2)years,orboth.
ProcuringUnlawfulDivulgenceofTradeSecrets
AnypersonwhocausesorprocuresanofficeroremployeeoftheBureau
ofInternalRevenuetodivulgeanyconfidentialinformationregardingthe
business,incomeorinheritanceofanytaxpayer,knowledgeofwhichwas
acquired by him in the discharge of his official duties, and which it is
unlawfulforhimtoreveal,andanypersonwhopublishesorprintsinany
manner whatever, not provided by law, any income, profit, loss or
expenditure appearing in any income tax return, shall be punished by a
fine of not more than Two thousand pesos (P2,000), or suffer
imprisonmentofnotlessthansix(6)monthsnormorethanfive(5)years,
orboth.
ConfiscationandForfeitureoftheProceedsorInstrumentsofCrime
InadditiontothepenaltyImposedfortheviolationoftheprovisionsof
Title X of this Code, the same shall carry with it the confiscation and
forfeiture in favor of the government of the proceeds of the crime or
value of the goods, and the instruments or tools with which the crime
was committed: Provided, however, That if in the course of the
proceedings, it is established that the instruments or tools used in the
illicit act belong to a third person, the same shall be confiscated and
forfeitedafterduenoticeandhearinginaseparateproceedinginfavorof
the Government if such third person leased, let, chartered or otherwise
entrusted the same to the offender: Provided, further, That in case the
lesseesubleased,ortheborrower,charterer,ortrusteeallowedtheuse
of the instruments or tools to the offender, such instruments or tools
shall, likewise, be confiscated and forfeited: Provided, finally, That
propertyofcommoncarriersshallnotbesubjecttoforfeiturewhenused
in the transaction of their business as such common carrier, unless the
owneroroperatorofsaidcommoncarrierwas,atthetimeoftheillegal
act,aconsentingpartyorprivythereto,withoutprejudicetotheowner's
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rightofrecoveryagainsttheoffenderinacivilorcriminalaction.Articles
whicharenotsubjectoflawfulcommerceshallbedestroyed.
SubsidiaryPenalty
IfthepersonconvictedforviolationofanyoftheprovisionsofthisCode
has no property with which to meet the fine imposed upon him by the
court, or is unable to pay such fine, he shall be subject to a subsidiary
personalliabilityattherateofone(1)dayforeachEightpesosandfifty
centavos (P8.50) subject to the rules established in Article 39 of the
RevisedPenalCode.
PrescriptionforViolationsofanyProvisionofthisCode
All violations of any provision of this Code shall prescribe after Five (5)
years.
Prescription shall begin to run from the day of the commission of the
violationofthelaw,andifthesamebenotknownatthetime,fromthe
discovery thereof and the institution of judicial proceedings for its
investigationandpunishment.
The prescription shall be interrupted when proceedings are instituted

againsttheguiltypersonsandshallbegintorunagainiftheproceedings
aredismissedforreasonsnotconstitutingjeopardy.
Thetermofprescriptionshallnotrunwhentheoffenderisabsentfrom
thePhilippines.
Informer'sRewardtoPersonsInstrumentalintheDiscoveryofViolationsofthe
National Internal Revenue Code and in the Discovery and Seizure of Smuggled
Goods
(A) For Violations of the National Internal Revenue Code. Any person,
exceptaninternalrevenueofficialoremployee,orotherpublicofficialor
employee, or his relative within the sixth degree of consanguinity, who
voluntarily gives definite and sworn information, not yet in the
possessionoftheBureauofInternalRevenue,leadingtothediscoveryof
frauds upon the internal revenue laws or violations of any of the
provisions thereof, thereby resulting in the recovery of revenues,
surchargesandfeesand/ortheconvictionoftheguiltypartyand/orthe
imposition of any of the fine or penalty, shall be rewarded in a sum
equivalent to ten percent (10%) of the revenues, surcharges or fees
recovered and/or fine or penalty imposed and collected or One Million
Pesos (P1,000,000) per case, whichever is lower. The same amount of
rewardshallalsobegiventoaninformerwheretheoffenderhasoffered
to compromise the violation of law committed by him and his offer has
been accepted by the Commissioner and collected from the offender:
Provided, That should no revenue, surcharges or fees be actually
recovered or collected, such person shall not be entitled to a reward:
Provided,further,Thattheinformationmentionedhereinshallnotrefer
toacasealreadypendingorpreviouslyinvestigatedorexaminedbythe
Commissioner or any of his deputies, agents or examiners, or the
Secretary of Finance or any of his deputies or agents: Provided, finally,
Thattherewardprovidedhereinshallbepaidunderrulesandregulations
issued by the Secretary of Finance, upon recommendation of the
Commissioner.
(B) ForDiscoveryandSeizureofSmuggledGoods.Toencouragethepublic
to extend full cooperation in eradicating smuggling, a cash reward
equivalenttotenpercent(10%)ofthefairmarketvalueofthesmuggled
and confiscated goods or One Million Pesos (P1,000,000) per case,
whichever is lower, shall be given to persons instrumental in the
discoveryandseizureofsuchsmuggledgoods.
Thecashrewardsofinformersshallbesubjecttoincometax,collectedas
afinalwithholdingtax,atarateoftenpercent(10%).
The provisions of the foregoing Subsections notwithstanding, all public
officials,whetherincumbentorretired,whoacquiredtheinformationin
the course of the performance of their duties during their incumbency,
areprohibitedfromclaiminginformer'sreward.
LOCALGOVERNMENTTAXATION
PowertoCreateSourcesofRevenue
Each local government unit shall exercise its power to create its own
sources of revenue and to levy taxes, fees, and charges subject to the
provisions herein, consistent with the basic policy of local autonomy.
Such taxes, fees, and charges shall accrue exclusively to the local
governmentunits
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FundamentalPrinciplesForLocalTaxation
(a) Taxationshallbeuniformineachlocalgovernmentunit;
(b) Taxes,fees,chargesandotherimpositionsshall:
(1) beequitableandbasedasfaraspracticableonthetaxpayer's
abilitytopay;
(2) beleviedandcollectedonlyforpublicpurposes;
(3) notbeunjust,excessive,oppressive,orconfiscatory;
(4) notbecontrarytolaw,publicpolicy,nationaleconomicpolicy,
orintherestraintoftrade;
(c) Thecollectionoflocaltaxes,fees,chargesandotherimpositionsshallin
nocasebelettoanyprivateperson;
(d) TherevenuecollectedpursuanttotheprovisionsofthisCodeshallinure
solely to the benefit of, and be subject to the disposition by, the local
government unit levying the tax, fee, charge or other imposition unless
otherwisespecificallyprovidedherein;and,
(e) Each local government unit shall, as far as practicable, evolve a
progressivesystemoftaxation.
municipality by not more than fifty percent (50%)

except the rates of professional and amusement
taxes.
4.
5.
6.
CommonLimitationOnTaxationOfLocalGovernments(Section130)
1.
2.
3.
Incometax,exceptonbanksandotherfinancialinstitutions
Documentarystamptax
TaxesonEstate,inheritanceorgiftsandotheracquisitionsmortiscausa
exceptasmayotherwisebeprovidedinthecode.
a. Exceptiontotherule
i. Taxonrealpropertyownership
ii. Scopeoftaxingpowers(Section151)
Except as otherwise provided in this Code, the city,

may levy the taxes, fees, and charges which the
province or municipality may impose: Provided,
however,Thatthetaxes,feesandchargesleviedand
collected by highly urbanized and independent
componentcitiesshallaccruetothemanddistributed
inaccordancewiththeprovisionsofthisCode.
Theratesoftaxesthatthecitymaylevymayexceed
the maximum rates allowed for the province or
7.
8.
9.
10.
11.
12.
13.
14.
15.
Customsduties
Taxes,fees,chargesandotherimpositionupongoodscarriedinandout
Taxes, fees and charges on agricultural and aquatic products when sold
bymarginalfarmers
a. Note Section 131 (a)"Agricultural Product" includes the yield
of the soil, such as corn, rice, wheat, rye, hay. coconuts,
sugarcane,tobacco,rootcrops,vegetables,fruits,flowers,and
their byproducts; ordinary salt; all kinds of fish; poultry; and
livestockandanimalproducts,whetherintheiroriginalformor
not.
Thephrase"whetherintheiroriginalformornot"referstothe
transformation of said products by the farmer, fisherman,
producer or owner through the application of processes to
preserveorotherwisetopreparesaidproductsformarketsuch
asfreezing,drying,salting,smoking,orstrippingforpurposesof
preservingorotherwisepreparingsaidproductsformarket
TaxesonbusinessenterprisescertifiedbytheBoardofInvestment
ExcisetaxesonarticlesenumeratedundertheNIRC
Percentage tax or VAT on sales barters or exchanges of goods and
services.
Taxesongrossreceiptsoftransportationcontractorsandpersonsengage
inthetransportationofpassengers
Taxesonpremiumspaidforreinsuranceorretrocession.
Taxesfeeschargesfortheregistrationofmotorvehicles
Taxes,feesorotherchargesonPhilippineproductsactuallyexportedas
providedinthecode.Limitationisontheexportbutnotonthebusiness
ofexportingsaidproducts.
TaxesandfeesonCountrysideandBarangayBusinessEnterprises
Taxesfeesorchargesofanykindonthenationalgovernment
Importantdoctrines
1. Tax of five percent on gross receipts of rentals or lease of space in
privately owned markets constitutes a valid license tax or fee for the
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2.
3.
4.
regulation rather than income tax. Progressive Development Corp. vs.

QuezonCityG.R.no.3608124April1999.
Tax on capital investment or purchases made during the preceding tax
periodisnotasalestaxandmaybelevied.Tatelvs.Viras,48SCRA79
Taxbasedonthesellingdistributionofrefinedandmanufacturedoils
based on the monthly allocation actually delivered and distributed and
intendedforsale..thefollowingtaxpayablemonthlywasdeemedto
be invalid because it is directly dependent upon which the owner or
supplieroftheitemizedproductsgenerateseverymonth.
Tax on the volume of goods produced or manufactured is not a
percentagetaxnorasalestaxbecausethetaxisnotbasedonsalesand
the tax imposed does not have a direct link on production. The tax is
based on criteria of volume for the tax base. (for 100,000 to 200,000
gallonsataxofP300.00pesos;from200,001to400,000gallonsataxof
P600.00)
LocalTaxingAuthority
Thepowertoimposeatax,fee,orchargeortogeneraterevenueunder
this Code shall be exercised by the sanggunian of the local government
unitconcernedthroughanappropriateordinance.
TAXESIMPOSEDBYLOCALGOVERNMENTUNITS
Province
1. Transfertax
2. Printingandpublications
3. Franchisetax(seeinlieuofprovisioninthecasesgiven.)
4. Taxonsandgravelandquarryresources
5. ProfessionalTax
6. Amusementtaxes
7. AnnualFixedtaxperdeliverytruck
TaxonTransferofRealEstateOwnership
1. The province may impose a tax on the sale, donation, barter, or on any
othermodeoftransferringownershiportitleofrealpropertyattherate
ofnotmorethanfiftypercent(50%)oftheonepercent(1%)ofthetotal
consideration involved in the acquisition of the property or of the fair
marketvalueincasethemonetaryconsiderationinvolvedinthetransfer
is not substantial, whichever is higher. The sale, transfer or other
2.
disposition of real property pursuant to R.A. No. 6657 shall be exempt

fromthistax.
Forthispurpose,theRegisterofDeedsoftheprovinceconcernedshall,
beforeregisteringanydeed,requirethepresentationoftheevidenceof
paymentofthistax.Theprovincialassessorshalllikewisemakethesame
requirement before cancelling an old tax declaration and issuing a new
oneinplacethereof,Notariespublicshallfurnishtheprovincialtreasurer
with a copy of any deed transferring ownership or title to any real
propertywithinthirty(30)daysfromthedateofnotarization.
It shall be the duty of the seller, donor, transferor, executor or

administrator to pay the tax herein imposed within sixty (60) days from
thedateoftheexecutionofthedeedorfromthedateofthedecedent's
death.
o Whats wrong with the aforementioned provision? In
settlementoftheestate,youaregiven6monthstosettlewhile
in this case, you are only given 60 days from the date of the
decedenttopay
TaxonBusinessofPrintingandPublishing
Theprovincemayimposeataxonthebusinessofpersonsengagedinthe
printing and/or publication of books, cards, posters, leaflets, handbills,
certificates, receipts, pamphlets, and others of similar nature, at a rate
notexceedingfiftypercent(50%)ofonepercent(1%)ofthegrossannual
receiptsfortheprecedingcalendaryear.
In the case of a newly started business, the tax shall not exceed one
twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendaryear,oranyfractionthereof,asprovidedherein.
The receipts from the printing and/or publishing of books or other

reading materials prescribed by the Department of Education, Culture
and Sports as school texts or references shall be exempt from the tax
hereinimposed.
TaxonFranchises
Notwithstandinganyexemptiongrantedbyanylaworotherspeciallaw,
theprovincemayimposeataxonbusinessesenjoyingafranchise,atthe
rate not exceeding fifty percent (50%) of one percent (1%) of the gross
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annual receipts for the preceding calendar year based on the incoming
receipt,orrealized,withinitsterritorialjurisdiction.
In the case of a newly started business, the tax shall not exceed one
twentieth (1/20) of one percent (1%) of the capital investment. In the
succeeding calendar year, regardless of when the business started to
operate, the tax shall be based on the gross receipts for the preceding
calendaryear,oranyfractionthereon,asprovidedherein.
TaxonSand,Gravel,andOtherQuarryResources
Theprovincemaylevyandcollectnotmorethantenpercent(10%)offair
market value in the locality per cubic meter of ordinary stones, sand,
gravel,earth,andotherquarryresources,asdefinedundertheNational
InternalRevenueCode,asamended,extractedfrompubliclandsorfrom
the beds of seas, lakes, rivers, streams, creeks, and other public waters
withinitsterritorialjurisdiction.
The permit to extract sand, gravel and other quarry resources shall be
issuedexclusivelybytheprovincialgovernor,pursuanttotheordinance
ofthesangguniangpanlalawigan.
Theproceedsofthetaxonsand,gravelandotherquarryresourcesshall
bedistributedasfollows:
(1) ProvinceThirtypercent(30%);
(2) Component City or Municipality where the sand, gravel, and
other quarry resources are extracted Thirty percent (30%);
and
(3) Barangay where the sand, gravel, and other quarry resources
areextractedFortypercent(40%).
ProfessionalTaxes
1. The province may levy an annual professional tax on each person
engaged in the exercise or practice of his profession requiring
governmentexaminationatsuchamountandreasonableclassificationas
thesangguniangpanlalawiganmaydeterminebutshallinnocaseexceed
Threehundredpesos(P300.00).
2. Every person legally authorized to practice his profession shall pay the
professional tax to the province where he practices his profession or
wherehemaintainshisprincipalofficeincasehepracticeshisprofession
inseveralplaces:Provided,however,Thatsuchpersonwhohaspaidthe
correspondingprofessionaltaxshallbeentitledtopracticehisprofession
3.
4.
5.
in any part of the Philippines without being subjected to any other

nationalorlocaltax,license,orfeeforthepracticeofsuchprofession.
Anyindividualorcorporationemployingapersonsubjecttoprofessional
tax shall require payment by that person of the tax on his profession
beforeemploymentandannuallythereafter.
The professional tax shall be payable annually, on or before the thirty
first (31st) day of January. Any person first beginning to practice a
profession after the month of January must, however, pay the full tax
before engaging therein. A line of profession does not become exempt
evenifconductedwithsomeotherprofessionforwhichthetaxhasbeen
paid. Professionals exclusively employed in the government shall be
exemptfromthepaymentofthistax.
Anypersonsubjecttotheprofessionaltaxshallwriteindeeds,receipts,
prescriptions, reports, books of account, plans and designs, surveys and
maps, as the case may be, the number of the official receipt issued to
him.
AmusementTax
1. The province may levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters, cinemas, concert halls,
circuses, boxing stadia, and other places of amusement at a rate of not
morethanthirtypercent(30%)ofthegrossreceiptsfromadmissionfees.
2. In the case of theaters or cinemas, the tax shall first be deducted and
withheld by their proprietors, lessees, or operators and paid to the
provincial treasurer before the gross receipts are divided between said
proprietors, lessees, or operators and the distributors of the
cinematographicfilms.
3. The holding of operas, concerts, dramas, recitals, painting and art
exhibitions, flower shows, musical programs, literary and oratorical
presentations,exceptpop,rock,orsimilarconcertsshallbeexemptfrom
thepaymentofthetaxhereonimposed.
4. The sangguniang panlalawigan may prescribe the time, manner, terms
andconditionsforthepaymentoftax.Incaseoffraudorfailuretopay
the tax, the sangguniang panlalawigan may impose such surcharges,
interestandpenaltiesasitmaydeemappropriate.
5. The proceeds from the amusement tax shall be shared equally by the
provinceandthemunicipalitywheresuchamusementplacesarelocated.
Municipalities
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BusinessTaxes
1. A fixed annual tax ranging from a minimum of P 165.00 based on the

grosssalesorreceiptsfortheprecedingcalendaryearofmanufacturers,
assemblers,repackers
2. AfixedannualtaxrangingfromaminimumofP18.00toamaximumof
50% of 1% on the gross sales for the preceding calendar year of
wholesalers,distributors
3. Afixedannualtaxonexporterandonmanufacturers,millers,producers
Pleasenotethetaxisnotontheexportbutontheexporter.
4. A fixed annual tax of 1% or 2% of the gross sales or receipts of the
precedingyearonretailers
5. Afixedannualtaxoncontractorsandvariousindependentcontractors.
6. Afixedannualtaxonthegrossreceiptsfortheprecedingcalendaryear
ofbanksandfinancialinstitutions
7. AfixedannualtaxonpeddlersnotexceedingP50.00
8. Ataxonanybusiness,provided,howeverthatinthecaseofanybusiness
subjecttotheexcise,VatorpercentagetaxundertheNIRCtherateshall
not exceed 2% of the gross sales or receipts for the preceding calendar
year.
a. Problem: Which will prevail over transportation contractors
and operatorsthe exemption under Section 133 or this?
Solution:Thegrossreceiptsofcommoncarriersderivedfrom
their incoming and outgoing freight shall not be subjected to
localtaxesimposedbytheLGU(cf.Section117oftheNIRC)
Notes:
The authority of municipalities to impose a tax on business subject to

excise,VATundertheNIRCisconfinedonlytotheimpositionofafixed
annualtax.I.E.whosetaxbaseistheamountofgrosssalesorreceiptsfor
theprecedingtaxableyearofthetaxpayer.Anytaximpositionbasedon
current years sales or production subject to the Vat or percentage or
excisetaxwouldbeinviolationofSec.133oftheLGC.
Municipalities in the Metro Manila area may levy taxes at rates not
exceeding50%ofthemaximumratesimposableunderSec.144LGC.
TaxSitusofthebusinessistheplacewherethesaleiseffectedifabranch
or sales office is there located; if there is no branch or sales office is
locatedwherethesaleiseffectedthesaleshallbedulyrecordedinthe
principalofficeandtaxablebythelocalgovernmentwheretheprincipal
business office and the factory, project office, plant or plantation are
located to the extent, respectively, of the thirty percent (30%) and
seventy percent (70%) of the sale. If the plantation and the factory are
locatedindifferentplaces,60%ofthe70%shallbeallocatedtothelocal
governmentwherethefactoryissituatedand40%ofthe70%tothelocal
government where the plantation is located. In cases of multiple
factories,the70%shallbeallocatedamongthefactoriesbasedontheir
production.
FeesandCharges
a. Reasonablefeesandchargesonbusinessandoccupationorcalling
b. Reasonablefeesforthesealingandlicensingofweightsandmeasures
c. Fisheryrental,feesandcharges
Cities
The cities may impose taxes, fees and charges that the provinces and
municipalities may levy but not exceeding 50% of such maximum rates
excepttheratesofprofessionalandamusementtaxes.
BusinessTax
1. ThetaxesimposedunderSection143shallbepayableforeveryseparate
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.
Thetaxonabusinessmustbepaidbythepersonconductingthesame.
2. In cases where a person conducts or operates two (2) or more of the
businesses mentioned in Section 143 of this Code which are subject to
the same rate of tax, the tax shall be computed on the combined total
grosssalesorreceiptsofthesaidtwo(2)ormorerelatedbusinesses.
3. Incaseswhereapersonconductsoroperatestwo(2)ormorebusinesses
mentioned in Section 143 of this Code which are subject to different
rates of tax, the gross sales or receipts of each business shall be
separatelyreportedforthepurposeofcomputingthetaxduefromeach
business.
Barangay
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a.
b.
c.
Taxes, on stores or retailers with fixed business establishment whose

grosssalesorreceiptsfortheprecedingcalendaryeardoesnotexceedP
50,000.00incitiesandP30,000inmunicipalities.
Servicechargeforservicesrenderedinconnectionwiththeregulationof
theuseofbarangayownedproperties.
Reasonablefeesandcharges
1. Oncommercialbreedingoffightingcocks,cockfights,andcockpits.
2. Onplacesofrecreationwhichchargeadmissionfees.
3. Onbillboardssignboardsandoutdooradvertisement.
Nocityormunicipalitymayissueanylicenseorpermitforanybusiness
or activity unless a clearance is first obtained from the barangay where
thebusinessislocated.(Sec.152LGC)
Exemptions
Diplomaticandconsularservices
TransientswhosestayinthePhilippinesdoesnotexceedthreemonths.
EnactmentAndEffectivityOfLocalTaxOrdinance
COMMUNITYTAXES
PersonsLiable
InhabitantofthePhilippines18yearsandabove,or;
Whohasbeenregularlyemployedonawageorsalarybasisforatleast
30consecutivedaysinacalendaryear;or,
Engagedinbusinessoroccupation,or,
Who owns real property with an aggregate assessed value of one

thousandpesosormore,or,
Whoisrequiredtofileanincometaxreturn
Basictax
Five pesos and one peso for every one thousand pesos of income
regardlessofsourceorfromownershipofrealpropertywhichinnocase
shallexceed5,000.00pesos
EntitiesLiable
Every corporation, joint stock company, partnership, joint account,

association, or insurance companies, but excluding general professional
partnershipsandjointventureforconstructionprojects
Basictax
o P 500 pesos and p 2.00 for every five thousand pesos in real
property of the corporation where the property is situated. P
2.00 for every five thousand pesos in earnings derived from
business.
Thepowertoimposeatax,feeorchargeortogeneraterevenueforlocal
government units may be exercised by the sangguniang panlalawigan,
panglungsod,bayanorbarangayconcerned.Apublichearingisrequired
forsuchordinanceconductedforsuchpurpose.
Theordinanceonceapprovedbythelocalsanggunianissenttothelocal
chief executive for signature. The local chief executive may veto such
ordinance by signifying his disapproval in writing. Sanggunian may
overridethevetobyavoteof2/3ofallmemberswhichwillbedeemed
approved even if without the signature of the local chief executive.
Failuretoactonthebillbythelocalchiefexecutiveshallalsobedeemed
approvalunderthefollowingperiods:15daysofinactionincasesofthe
province,10daysinactionincasesofcitiesandmunicipalities.
Effectivityshallbetendaysafterposting.
AuthorityToGrantTaxExemptions
Local government units may, through ordinance grant tax exemptions,

incentives or relief under such terms and conditions they may deem
necessary.Sec.192LGC.
All previously existing tax exemptions has been withdrawn by the local
government code except for those provided therein. There is also an
exceptionprovidedforlocalwaterdistricts,cooperativesdulyregistered
underR.A.No.6938,nonstockandnonprofithospitalandeducational
institution.
REMEDIESOFTAXPAYERS
RemediesPriorToAnAssessment
a. AdministrativeAppealtotheSecretaryofjustice
i.
An ordinance may be raised on appeal within 30 days from the
effectivitythereofwiththeSecretaryofJustice.TheSecretaryshall
renderadecisionwithin60daysfromthedateofreceiptofappeal.
Within30daysfromthedecisionoftheSecretaryorthelapseofthe
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60dayperiod,anactionmaybeinitiatedbythetaxpayerinacourt
ofcompetentjurisdiction.(Sec.187LGC)
b. Actionfordeclaratoryrelief
RemediesAfterAnAssessment
a.
ProtestanAssessment
1. Within60daysfromthereceiptofanassessment,thetaxpayermay
file a written protest with the treasurer, failure to file the said
protest shall render the assessment final and unappealable. Within
60 days from receipt of the written protest, the treasurer shall act
on the said protest. Within 30 days from the decision of the
treasurer,thetaxpayermayappealthedecisionofthetreasurerin
thecourtofcompetentjurisdiction.(Note,normallytheMTCorRTC
dependingontheamountoftheclaim.)
b.
Anactionforrefund.
1. Taxpayer may pay the tax assessed, with the specification that the
taxisbeingpaidunderprotestandthenfileaclaimforrefundwithin
the two year period of limitation. The payment, if made with an
assessment must be paid within 60 days from the assessment
thereofotherwiseitbecomesfinalandexecutory.
2. The taxpayer is also required to file a claim for a refund with the
treasurer within the two year period before any action can be
institutedinanycourtwithinthetwoyearperiod.(Sec.196LGC)
TAXINGPOWERS
PROV.OFBULACANVS.COURTOFAPPEALS
G.R.126232NOV.27,1998
1.
2.
Aprovincehasnoauthoritytoimposethetaxesongravel,sand,stones,
earthandotherquarryresourcesextractedfromprivatelands
AprovincemaynotlevyexcisetaxesonarticlesalreadytaxedbytheNIRC
1.
2.
MACTANCEBUVS.MARCOS,ET.AL.
G.R.120082SEPT.11,1996
LTOVS.CITYOFBUTUAN
G.R.131512JAN.20,2000
1.
2.
3.
Registration and licensing functions are vested in the LTO while

franchisingandregulatoryresponsibilitieshasbeenvestedintheLTFRB
LGUhavethepowertoregulatetheoperationoftricyclesforhireandto
grantfranchisesfortheoperationthereof
The power is however subject to the guidelines prescribed by the
DepartmentofTransportationandCommunications
CITYGOVT.OFSANPABLOVS.REYES
G.R.127708MARCH25,1999
The tax exemptions or incentives granted to or presently enjoyed by

naturalorjuridicalpersonsarewithdrawnupontheeffectivityoftheLGC
exceptwithrespecttothoseentitiesexpresslyenumerated
MERALCOVS.PROVINCEOFLAGUNA
GR.NO.131359MAY5,1999
FIRSTPHIL.INDUSTRIALVS.COURTOFAPPEALS
G.R.125948DEC.29,1998
The local government has no authority to impose another tax on the

common carriers as the same is already taxed under the Local
GovernmentCode
TotaxthesameagainwoulddefeatthepurposeoftheCode
Local government units have the inherent power to tax except to the
extentthatsuchpowermightbedelegatedtothemeitherbybasiclawor
bystatute
REYESVS.CA
G.R.118233DEC.10,1999
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Thelawrequiresthatthedissatisfiedtaxpayerwhoquestionsthevalidity
of the tax ordinance must file his appeal to the Secretary of Justice,
within30daysfromeffectivitythereof.IncasetheSecretarydecidesthe
appeal,aperiodofalso30daysisallowedfortheaggrievedpartytogo
thecourt.ButiftheSecretarydoesn'tdecide,afterthelapseof60days,
apartycouldalreadyproceedtoseekreliefincourt.
DOFBUREAUOFLOCALGOVERNMENTFINANCEOPINION
03291993
REALPROPERTYTAXATION
Impositions
1. An annual ad valorem tax that may be levied by the provincial, city or
municipalityonrealpropertysuchasland,building,machineryandother
improvementsaffixedorattachedtotherealproperty.
2. Specialleviesbythesamelocalgovernment,suchas
a. AnadditionalonepercentforthespecialeducationFund
b. Additionaltaxonidlelands
c. Speciallevies.
PropertiesSubjectToTax,Sec.145
Kindlynotethedefinitionofthefollowing:a)realproperty;b)machinery;
andc)improvements.ThedefinitionofrealpropertyundertheLGCisan
expandeddefinitionofrealpropertiesundertheNewCivilCode.Please
note that machineries embrace machines or equipment, mechanical
contrivances, instruments, appliances or apparatus which may or may
not be attached, permanently or temporarily to the real property. It
includes facilities used for production and mobile, selfpowered
machinerynotattachedtotherealpropertybutareactually,directlyand
essentially used to meet the needs of the industry, business or activity
(Sec.199[o],LGC)
FundamentalPrinciplesofRealPropertyTaxation
1) Realpropertyshallbeappraisedatitscurrentandfairmarketvalue
2) Realpropertyshallbeclassifiedforassessmentpurposesonthebasisof
itsactualuse.
3) Real property shall be assessed on the basis of a uniform classification
withineachlocalpoliticalsubdivision
4)
Theappraisal,assessmentandlevyofrealpropertyfortaxationpurposes
andthecollectionoftherealpropertytaxshallnotbelettoanyperson.
Theappraisalandassessmentofrealpropertyshallbeequitable.
5)
ClassesOfRealProperty
1. Residential
2. Agricultural
3. Commercial
4. Industrial
5. Mineral
6. Timberland
7. Special
a. Actually,directlyandexclusivelyusedforhospitals,cultural,or
scientificpurposes.
b. Thoseownedbylocalwaterdistricts
c. Government owned and controlled corporations rendering
essentialpublicservicesinthesupplyanddistributionofwater
and/orgenerationandtransmissionofelectricpower.
ValuationOfTheProperty
Theassessmentorrealpropertyshallnotbeincreasedoftenerthatonce
every three years except in cases of new improvements substantially
increasingthevalueofsaidpropertyorchangeinitsactualuse.
NotificationofNeworRevisedAssessment.
When real property is assessed for the first time or when an existing
assessment is increased or decreased, the provincial, city or municipal
assessor shall within thirty (30) days give written notice of such new or
revised assessment to the person in whose name the property is
declared.Thenoticemaybedeliveredpersonallyorbyregisteredmailor
throughtheassistanceofthepunongbarangaytothelastknownaddress
ofthepersontobeserved.
AppraisalandAssessmentofMachinery
(a) The fair market value of a brandnew machinery shall be the acquisition
cost. In all other cases, the fair market value shall be determined by
dividing the remaining economic life of the machinery by its estimated
economiclifeandmultipliedbythereplacementorreproductioncost.
(b) If the machinery is imported, the acquisition cost includes freight,
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insurance, bank and other charges, brokerage, arrastre and handling,

duties and taxes, plus charges at the present site. The cost in foreign
currency of imported machinery shall be converted to peso cost on the
basisofforeigncurrencyexchangeratesasfixedbytheCentralBank.
ImpositionofRealPropertytaxes
The provincial, municipal and city legislature shall fix a uniform rate of
realpropertytaxapplicabletotheirrespectivelocalitiesasfollows:
1) Provincesnotexceedingonepercent(1%)oftheassessedvalueof
therealproperty.
2) CitiesandmunicipalitiesinthemetropolitanManilaareanotmore
than2%ofsuchassessedvalue.
ExemptionsfromRealPropertytaxes
1. Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted,forconsiderationorotherwise,toataxableperson.
2. Charitable institutions, churches, parsonages, or convent appurtenant
thereto, mosques, nonprofit or religious cemeteries, and all lands,
buildings and improvement actually, directly and exclusively used for
religious,charitableoreducationalpurpose.
3. All pieces of machinery and equipment that are actually, directly and
exclusively used by local water districts and government owned or
controlled corporations engaged in the supply and distribution of water
and/orgenerationandtransmissionofelectricpower
4. Allrealpropertyownedbythedulyregisteredcooperativesasprovided
forunderR.A.No.6938
5. Machineryandequipmentusedforpollutioncontrolandenvironmental
protection.
All existing exemptions except as provided for above, including those

granted to government owned and controlled corporation, prior to the
effectivityoftheLGCof1991hasbeenwithdrawn.
ProofofExemptionofRealPropertyfromTaxation
Every person by or for whom real property is declared, who shall claim
tax exemption for such property under this Title shall file with the
provincial,cityormunicipalassessorwithinthirty(30)daysfromthedate
of the declaration of real property sufficient documentary evidence in
support of such claim including corporate charters, title of ownership,

articles of incorporation, bylaws, contracts, affidavits, certifications and
mortgagedeeds,andsimilardocuments.
If the required evidence is not submitted within the period herein
prescribed,thepropertyshallbelistedastaxableintheassessmentroll.
However,ifthepropertyshallbeproventobetaxexempt,thesameshall
bedroppedfromtheassessmentroll.
NotificationofTransferofRealPropertyOwnership
Any person who shall transfer real property ownership to another shall
notify the provincial, city or municipal assessor concerned within sixty
(60)daysfromthedateofsuchtransfer.Thenotificationshallincludethe
mode of transfer, the description of the property alienated, the name
andaddressofthetransferee.
Duty of Registrar of Deeds to Appraise Assessor of Real Property Listed in

Registry.
1. ToascertainwhetherornotanyrealpropertyenteredintheRegistryof
Property has escaped discovery and listing for the purpose of taxation,
theRegistrarofDeedsshallprepareandsubmittotheprovincial,cityor
municipal assessor, within six (6) months from the date of effectivity of
this Code and every year thereafter, an abstract of his registry, which
shallincludebriefbutsufficientdescriptionoftherealpropertiesentered
therein,theirpresentowners,andthedatesoftheirmostrecenttransfer
or alienation accompanied by copies of corresponding deeds of sale,
donation,orpartitionorotherformsofalienation.
2. ItshallalsobethedutyoftheRegistrarofDeedstorequireeveryperson
who shall present for registration a document of transfer, alienation, or
encumbranceofrealpropertytoaccompanythesamewithacertificate
totheeffectthattherealpropertysubjectofthetransfer,alienation,or
encumbrance,asthecasemaybe,hasbeenfullypaidofallrealproperty
taxes due thereon. Failure to provide such certificate shall be a valid
cause for the Registrar of Deeds to refuse the registration of the
document.
PreparationofScheduleofFairMarketValues
Beforeanygeneralrevisionofpropertyassessmentismadepursuantto
the provisions of this Title, there shall be prepared a schedule of fair
market values by the provincial, city and municipal assessor of the
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municipalities within the Metropolitan Manila Area for the different

classes of real property situated in their respective local government
units for enactment by ordinance of the sanggunian concerned. The
schedule of fair market values shall be published in a newspaper of
general circulation in the province, city or municipality concerned or in
the absence thereof, shall be posted in the provincial capitol, city or
municipalhallandintwootherconspicuouspublicplacestherein.
ActualUseofRealPropertyasBasisforAssessment.
Realpropertyshallbeclassified,valuedandassessedonthebasisofits
actual use regardless of where located, whoever owns it, and whoever
usesit.
Note: market value x assessment level = assessed value; always use the
marketvalueasassessedvalueisonlyacreatureofthemarketvalue
RemediesForTheCollectionOfRealPropertyTaxes
1. Extrajudicialremedyoflevy
2. Judicialaction
The collection may be enforced through either or both of the above

administrativeandjudicialremedies,alternativelyorsimultaneously,and
the use or nonuse of one remedy shall not be a bar against the
availmentoftheother.
Demand for payment is not necessary, it is enough that a notice of

delinquencyispostedandpublishedunderSection254oftheLGC.
LevyOnRealProperty
1. Issuanceofthenoticeofdelinquency
a. Effected by posting a notice at the main entrance of the
provincial capital and in a publicly conspicuous place in each
barangayofthelocalgovernmentunit.(Sec.254LGC)
2. WarrantofLevy
a. If the taxes remain unpaid, a warrant of levy is issued and
mailed to the delinquent owner or person having interest
therein, the assessor, the Registry of Deeds, for its annotation
inthetaxdeclarationandtitle.(Sec.258LGC.)
3. Advertisement
a.
Withinthirtydaysaftertheissuanceofthewarrantoflevy,the
treasurer shall advertise the sale at public auction of the real
property. This shall be done by posting a notice at the main
entrance of the provincial, city or municipality building and a
public and conspicuous place in the barangay where the
property is situated and by publication once a week for two
consecutive weeks in a newspaper of general circulation. The
announcement shall state the amount of taxes, penalties and
cost, the date and place of sale; name of taxpayer whom the
taxwasassessedandthedescriptionofthepropertytobesold.
Auctionsale
4.
RedemptionofRealPropertyafterSale
The delinquent taxpayer is given one year from the date of the
registrationofsaletoredeemthesamebypayingthelocaltreasurerthe
total amount of taxes and penalties due up to the date of redemption.
Suchpaymentshallinvalidatethesalecertificateissuedtothepurchaser
andshallentitlethepersonmakingthesametocertificateofredemption
from the treasurer. (Sec. 261, LGC). The delinquent taxpayer shall have
the right of the possession over the property sold within the one year
periodofreduction.
MACTANCEBUVS.MARCOS,ET.AL.
G.R.120082SEPT.11,1996
FACTS:
TheMCIAAwascreatedunderaspeciallawandwasgrantedexemptionfromtaxes
that may be imposed by the national government or any of its instrumentalities.
However, the local government of Cebu assessed it for realty tax for parcels of
land.Itcontestedthisandsincethelocalgovernmentwantedtoissueawarrantof
levy,itsoughtdeclaratoryrelief.
HELD:
Thus,readingtogetherSection133,232and234oftheLGC,weconcludethatasa
general rule, as laid down in Section 133 the taxing powers of local government
unitscannotextendtothelevyofinteralia,"taxes,fees,andchargesofanykindof
theNationalGovernment,itsagenciesandinstrumentalties,andlocalgovernment
units"; however, pursuant to Section 232, provinces, cities, municipalities in the
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MetropolitanManilaAreamayimposetherealpropertytaxexcepton,interalia,
"real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial used thereof has been granted, for
considerationorotherwise,toataxableperson",asprovidedinitem(a)ofthefirst
paragraphofSection234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or

juridical persons, including governmentowned and controlled corporations,
Section193oftheLGCprescribesthegeneralrule,viz.,theyarewithdrawnupon
the effectivity of the LGC, except upon the effectivity of the LGC, except those
grantedtolocalwaterdistricts,cooperativesdulyregisteredunderR.A.No.6938,
non stock and nonprofit hospitals and educational institutions, and unless
otherwiseprovidedintheLGC.ThelatterprovisocouldrefertoSection234,which
enumeratesthepropertiesexemptfromrealpropertytax.Butthelastparagraph
ofSection234furtherqualifiestheretentionoftheexemptioninsofarasthereal
property taxes are concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as the real property is owned by the
RepublicofthePhilippines,oranyofitspoliticalsubdivisionscoveredbyitem(a)of
thefirstparagraphofSection234,theexemptioniswithdrawnifthebeneficialuse
of such property has been granted to taxable person for consideration or
otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to natural or
juridical persons, including governmentowned or controlled corporations, except
asprovidedinthesaidsection,andthepetitioneris,undoubtedly,agovernment
ownedcorporation,itnecessarilyfollowsthatitsexemptionfromsuchtaxgranted
itinSection14ofitscharter,R.A.No.6958,hasbeenwithdrawn.Anyclaimtothe
contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts,
since,asshownabove,thesaidsectionisqualifiedbySection232and234.
NAPOCORVS.PROVINCEOFLANAO
G.R.96700NOV.19,1996
FACTS:
NAPOCOR was the owner of real properties comprising its hydroelectric power
plant complex. It was assessed by the local government for payment of realty
taxes.Lettersofdemandweresentuptotheextentofschedulinganauctionsale.
Petitionerfiledforarestrainingorderandwasgranted.
HELD:
The exemption is not only legally defensible, but also logically unassailable. The
propertiesinquestioncomprisethesiteoftheentireAgusIIHydroelectricPower
Plant Complex, which generates and supplies relatively cheap electricity to the
islandofMindanao.Thesearegovernmentproperties,whollyownedbypetitioner
and devoted directly and solely for public service and utilized in the
implementationofthestatepolicyofbringingaboutthetotalelectrificationofthe
countryattheleastcosttothepublic,throughthedevelopmentofpowerfromall
sources to meet the needs of industrial development and rural electrification. It
can be noted, from RA 6395, PD 380 and PD 938, that petitioner's nonprofit
character has been maintained throughout its existence, and that petitioner is
mandated to devote all its returns from capital investment and excess revenues
fromoperationstoitsexpansion.Onaccountthereof,andtoenablepetitionerto
pay its indebtedness and obligations and in furtherance of the state policy on
electrification and power generation, petitioner has always been exempted from
taxes.
Consequently,theassessmentandlevyon(aswellasthesaleof)thepropertiesof
petitionerbyrespondentswerenullandvoidforhavingbeeninmadeinviolation
ofSection10ofP.D.938andSection40(a)oftheRealPropertyTaxCode.
At this juncture, we hasten to point out that the foregoing ruling is solely with
respecttothepurportedrealtytaxliabilitiesofpetitionerfortheperiodfromJune
14,1984toDecember31,1989.
RAULSESBRENOVS.CBAA
G.R.106588MAR.24,1997
FACTS:
Sesbrenoboughtrealpropertytowhichitconstructedaresidentialproperty.He
duly registered the same for taxation purposes and declared therein he owned a
residential house made of strong materials. However, the field inspectors found
otherwisewhat he constructed was a 5storey building made of materials. As
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such, they increased by 1000% the assessment made on the property, to which
petitionernaturallycontested.
HELD:
The cited provision merely defines "market value." It does not in any way direct
thatthemarketvalueasdefinedthereinshouldbeusedasbasisindeterminingthe
value of a property for purposes of real property taxation. On the other hand,
Section 5 of PD 464 provides unequivocally that "(a)ll real property, whether
taxable or exempt, shall be appraised at the current and fair market value
prevailinginthelocalitywherethepropertyissituated."
Contrarytopetitioner'scontention,acquisitioncostcannotbeandisnotthesole
basisofthecurrentandfairmarketvalueofaproperty.Thecurrentvalueoflike
propertiesandtheiractualorpotentialuses,amongothers,arealsoconsidered.
ANTONIOCALLANTAVS.OMBUDSMAN
G.R.11525374JAN30,1998
May officials and employees of the Office of the City Assessor reduce the new
assessedvaluesofrealpropertiesuponrequestsoftheaffectedpropertyowners?
Toforestallthepracticeofinitiallysettingunreasonablyhighreassessmentvalues
only to eventually change them to unreasonably lower values upon "requests" of
property owners, the law gives no such authority to the city assessor or his
subalterns. Seemingly innocuous occasions for mischief and veiled opportunities
for graft should be excised from the public system. Builtin checks should be
zealouslyobservedsothattheingeniousandshrewdcannotcircumventthemand
theaudaciouscannotviolatethemwithimpunity.
FACTS:
ItisallegedthatageneralrevisionofassessmentwasconductedbytheOfficeof
theCityAssessorin1988andsometimethereafter.Noticesofassessmenttogether
with the new tax declarations were subsequently sent to the property owners.
Thereafter, respondents, without the authority of the Local Board of Assessment
Appeals,reassessedthevaluesofcertainproperties,incontraventionofSec.30of
P.D. 464. The said assessment resulted in the reduction of assessed values of the
properties.
InseveralsimilarlywordedlettercomplaintsdatedDecember19,1991,theCityof
Cebu simultaneously filed criminal and administrative charges against the above
enumeratedofficersandstaffoftheCityAssessor'sOfficefor"violationsofSection
106 of the Real Property Tax Code[,] for gross negligence or willful under
assessmentofrealpropertieswithinthecity'staxingjurisdictionandforviolation
ofSec.3(e)ofR.A.3019,otherwiseknownastheAntiGraftandCorruptPractices
Act[,]fortheactofcausingundueinjurytotheCityGovernmentbygivingprivate
personsunwarrantedbenefits,advantagesorpreferencesinthedischargeoftheir
official and administrative functions through manifest partiality, evident bad faith
or gross inexcusable negligence by reassessing the real properties of taxpayers
without any authority whatsoever, thereby resulting in the reduction of tax
assessmentstotheprejudiceofthecitygovernment
HELD:
Petitionersanchorthevalidityoftheiractsupontheabsenceofaspecificprovision
oflawexpresslyprohibitingtheassessorfrommakingadjustmentsorcorrectionsin
theassessmentofrealproperties,anduponthelongstandingpracticeofthecity
assessor'sofficeinmakingsuchadjustments/correctionsbelievedingoodfaithto
besanctionedunderSec.22,PD464.
Thisisbereftofanymerit.
Undertheprocedure,theissuanceofanoticeofassessmentbythelocalassessor
shall be his last action on a particular assessment. On the side of the property
owner,itisthislastactionwhichgiveshim[the]righttoappealtotheLocalBoard
of Assessment Appeals. The above procedure also, does not grant the property
ownertheremedyoffilingamotionforreconsiderationbeforethelocalassessor.
Theactofhereinpetitionersinprovidingthecorrespondingnoticesofassessment
thechanceforthepropertyownersconcernedtofileamotionforreconsideration
andforactingonthemotionsfiledisnotinaccordancewithlawandinexcessof
theirauthorityandthereforeconstitutesultraviresacts.
BELENFIGUERRASVS.CA
G.R.119172MAR.25,1999
FACTS:
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Petitionerwastheownerofaparcelofland.Shereceivedanassessmentfromthe
municipal assessor by virtue of two ordinances issued by the SBone fixing fair
market values and another issuing the assessment levels corresponding to each.
This prompted the petitioner to file for prohibition but this was overruled by the
CA.
HELD:
Petitionerisrightincontendingthatpublichearingsarerequiredtobeconducted
priortotheenactmentofanordinanceimposingrealpropertytaxes.R.A.No.7160
provides that an ordinance levying taxes, fees, or charges "shall not be enacted
withoutanypriorpublichearingconductedforthepurpose."
However,itisnoteworthythatapartfromherbareassertions,petitionerFiguerres
has not presented any evidence to show that no public hearings were conducted
prior to the enactment of the ordinances in question. On the other hand, the
Municipality of Mandaluyong claims that public hearings were indeed conducted
beforethesubjectordinanceswereadopted,althoughitlikewisefailedtosubmit
any evidence to establish this allegation. However, in accordance with the
presumption of validity in favor of an ordinance, their constitutionality or legality
should be upheld in the absence of evidence showing that the procedure
prescribedbylawwasnotobservedintheirenactment.
In view of 188 and 511(a) of R.A. No. 7160, an ordinance fixing the assessment
levelsapplicabletothedifferentclassesofrealpropertyinalocalgovernmentunit
and imposing penal sanctions for violations thereof (such as Ordinance No. 125)
should be published in full for three (3) consecutive days in a newspaper of local
circulation,whereavailable,withinten(10)daysofitsapproval,andpostedinat
leasttwo(2)prominentplacesintheprovincialcapitol,city,municipal,orbarangay
hallforaminimumofthree(3)consecutiveweeks.
Apartfromherallegations,petitionerhasnotpresentedanyevidencetoshowthat
thesubjectordinanceswerenordisseminatedinaccordancewiththeseprovisions
ofR.A.No.7160.Ontheotherhand,theMunicipalityofMandaluyongpresenteda
certificate,datedNovember12,1993,ofWilliardS.Wong,SanggunianSecretaryof
the Municipality of Mandaluyong that "Ordinance No. 125, S1993 . . . has been
posted in accordance with 59(b) of R.A. No. 7160, otherwise known as the Local
GovernmentCodeof1991."
TYVS.TRAMPE
G.R.NO.117577,DEC.1,1995.
FACTS:
Petitionerswereassessedbythemunicipalassessorforrealtytaxesovertheirreal
properties. They asked for reconsideration and thinking this is not yet enough,
theyfiledapetitionforprohibitionintheRTC.
HELD:
Comingdowntospecifics,Sec.9ofP.D.921requiresthatthescheduleofvaluesof
realpropertiesintheMetropolitanManilaareashallbepreparedjointlybythecity
assessorsinthedistrictscreatedtherein:whileSec.212ofR.A.7160statesthatthe
schedule shall be prepared "by the provincial, city and municipal assessors of the
municipalitieswithintheMetropolitanManilaAreaforthedifferentclassesofreal
property situated in their respective local government units for enactment by
ordinanceofthesanggunianconcerned...."
It is obvious that harmony in these provisions is not only possible, but in fact
desirable, necessary and consistent with the legislative intent and policy. By
readingtogetherandharmonizingthesetwoprovisions,wearriveatthefollowing
stepsinthepreparationofthesaidschedule,asfollows:
1. The assessor in each municipality or city in the Metropolitan Manila area shall
prepare his/her proposed schedule of values, in accordance with Sec. 212, R.A.
7160.
2.Then,theLocalTreasuryandAssessmentDistrictshallmeet,perSec.9,P.D.921.
Intheinstantcase,thatdistrictshallbecomposedoftheassessorsinQuezonCity,
Pasig,Marikina,MandaluyongandSanJuan,pursuanttoSec.1ofsaidP.D.Inthis
meeting,thedifferentassessorsshallcomparetheirindividualassessments,discuss
and thereafter jointly agree and produce a schedule of values for their district,
taking into account the preamble of said P.D. that they should evolve "a
progressiverevenueraisingprogramthatwillnotundulyburdenthetaxpayers".
3. The schedule jointly agreed upon by the assessors shall then be published in a
newspaper of general circulation and submitted to the sanggunian concerned for
enactmentbyordinance,perSec.212,R.A.7160.
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Althoughasarule,administrativeremediesmustfirstbeexhaustedbeforeresort
tojudicialactioncanprosper,thereisawellsettledexceptionincaseswherethe
controversydoesnotinvolvequestionsoffactbutonlyoflaw.Inthepresentcase,
the parties, even during the proceedings in the lower court on 11 April 1994,
alreadyagreed"thattheissuesinthepetitionarelegal",andthus,noevidencewas
presentedinsaidcourt.
In laying down the powers of the Local Board of Assessment Appeals, R.A. 7160
provides in Sec. 229 (b) that "(t)he proceedings of the Board shall be conducted
solelyforthepurposeofascertainingthefacts...."Itfollowsthatappealstothis
Boardmaybefruitfulonlywherequestionsoffactareinvolved.Again,theprotest
contemplatedunderSec.252ofR.A.7160isneededwherethereisaquestionas
to the reasonableness of the amount assessed. Hence, if a taxpayer disputes the
reasonableness of an increase in a real estate tax assessment, he is required to
"firstpaythetax"underprotest.Otherwise,thecityormunicipaltreasurerwillnot
act on his protest. In the case at bench however, the petitioners are questioning
theveryauthorityandpoweroftheassessor,actingsolelyandindependently,to
impose the assessment and of the treasurer to collect the tax. These are not
questions merely of amounts of the increase in the tax but attacks on the very
validityofanyincrease.
PROTESTCASES
PaymentUnderProtest
All protests of real property taxes shall first be paid prior to being
entertained.Itisnecessaryforthetaxpayertoindicateinthetaxreceipts
that the payment was made under protest. The taxpayer shall then
submithiswrittenprotestwiththegroundsthereofwithin30daystothe
municipal,cityorprovincialtreasurer.Thetreasurerisgivenaperiodof
60daystodecidetheprotest.
Iftheprotestisdecidedinfavorofthetaxpayer,theamountshalleither
berefundedorappliedasataxcredittoanyotherexistingorfuturetax
liability of the protestant. If the protest is denied, the same may be
appealedtotheboardofassessmentappeals.
REFUNDCASES
ClaimForRefund
Thetaxpayermayclaimforarefundoftaxesillegallyorerroneouslypaid
byfilingawrittenclaimforrefundwithinatwoyearperiodfromthedate
thetaxpayerisentitledthereto.Iftheclaimwasdeniedornotactedor
decided upon within 60 days the taxpayer may avail himself of the
remediesthroughtheBoardofAssessmentappeals.
BOARDOFASSESSMENTAPPEALS
Any taxpayer or person having legal interest in the property who is not
satisfiedwiththeactionoftheprovincial,cityormunicipalassessormay
within60daysfromthedateofwrittennoticeofassessment,appealto
the Local Board of Assessment Appeals. Such appeal does not suspend
the collection of the tax as assessed without prejudice to a later
adjustment.
Theboardshalldecideonthematterwithin120daysfromthereceiptof
the appeal. The decision of the LBAA may, within 30 days from the
receipt thereof by the taxpayer, be appealed to the Central Board of
Assessment Appeals. The decision of the CBAA is final and executory
howeverthesamemaybeappealedunderRule43oftheRevisedRules
ofCivilProceduretotheCourtofAppeals.
EffectofAppealonthePaymentofRealPropertyTax
Appealonassessmentsofrealpropertymadeundertheprovisionsofthis
Codeshall,innocase,suspendthecollectionofthecorrespondingrealty
taxes on the property involved as assessed by the provincial or city
assessor, without prejudice to subsequent adjustment depending upon
thefinaloutcomeoftheappeal.
TIUVS.COURTOFAPPEALS
G.R.127410JANUARY20,1999
FACTS:
TheCongresspassedintolawRA7227entitledAnActAcceleratingtheConversion
ofMilitaryReservationsIntoOtherProductiveUses,CreatingtheBasesConversion
and Development Authority for this Purpose, Providing Funds Therefore and for
Other Purposes, creating the Subic Special Economic Zone (SSEZ). SSEZ has
multiple benefits such as (1) free flow or movement of goods and capital; (2) tax
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and dutyfree importations of raw materials, capital and equipment; (3) no

exchangecontrolpolicy;(4)bankingandfinanceshallbeliberalized.
HELD:
(1) Theequalprotectionguaranteedoesnotrequireterritorialuniformityof
laws.
(2) Thefundamentalrightofequalprotectionofthelawisnotabsolute,but
issubjecttoreasonableclassification.
(3) Classification,tobevalid,must(1)restonsubstantialdistinctions,(2)be
germane to the purpose of the law, (3) not be limited to existing
conditionsonly,and(4)applyequallytoallmembersofthesameclass.
(4) Furthermore, RA 7227 clearly vests in the President the authority to
delineatethemetesandboundsoftheSSEZ.
SITUSOFTAXATION:CASES
PHILIPPINEMATCHCOVS.CITYOFCEBU
L30745JAN.181978WHERETHESALEWASBOOKED
FACTS:
Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and
alsoapprovedbytheprovincialboard)is"anordinanceimposingaquarterlytaxon
grosssalesorreceiptsofmerchants,dealers,importersandmanufacturersofany
commoditydoingbusiness"inCebuCity.Itimposesasalestaxofonepercent(1%)
onthegrosssales,receiptsorvalueofcommoditiessold,bartered,exchangedor
manufacturedinthecityinexcessofP2,000aquarter.Section9oftheordinance
provides that, for purposes of the tax, "all deliveries of goods or commodities
stored in the City of Cebu, or if not stored are sold" in that city, "shall be
considered as sales" in the city and shall be taxable. Thus, it would seem that
under the tax ordinance sales of matches consummated outside of the city are
taxableaslongasthematchessoldaretakenfromthecompany'sstockstoredin
CebuCity.
ThePhilippineMatchCo.,Ltd.,whoseprincipalofficeisinManila,isengagedinthe
manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships
cases or cartons of matches from Manila to its branch office in Cebu City for
storage, sale and distribution within the territories and districts under its Cebu
branch or the whole VisayasMindanao region. Cebu City itself is just one of the
elevendistrictsunderthecompany'sCebuCitybranchoffice.
Philippine Match sought the refund of a portion of the sales tax collected from
thembyvirtueofapartofitwasassessedbasedonsaleswhichtranspiredoutside
ofthecityandthatsomeofthematcheswerejuststoredinthecityanddelivered
directly to customers outside of Cebu. This was denied by the City Treasurer,
promptingPhilippineMatchtofileacaseincourt.Thetrialcourtinvalidatedthe
taxontransfersofmatchestosalesmenassignedtodifferentagenciesoutsideof
the city and on shipments of matches to provincial customers pursuant to the
instructions of the newsmen It ordered the defendants to refund to the plaintiff
the sum of P8,923.55 as taxes paid out the said outoftown deliveries with legal
rateofinterestfromtherespectivedatesofpayment.
The trial court characterized the tax on the other two transactions as a "storage
tax"andnotasalestax.Itassumedthatthesaleswereconsummatedoutsideof
thecityand,hence,beyondthecity'staxingpower.
The city did not appeal from that decision. The company appealed from that
portionofthedecisionupholdingthetaxonsalesofmatchestocustomersoutside
ofthecitybutwhichsaleswerebookedandpaidforinCebuCity,andalsofromthe
dismissalofitsclaimfordamagesagainstthecitytreasurer.
HELD:
Weholdthattheappealisdevoidofmeritbemusethecitycanvalidlytaxthesales
ofmatchestocustomersoutsideofthecityaslongastheorderswerebookedand
paidforinthecompany'sbranchofficeinthecity.Thosematchescanberegarded
as sold in the city, as contemplated in the ordinance, because the matches were
deliveredtothecarrierinCebuCity.Generally,deliverytothecarrierisdeliveryto
thebuyer.Adifferentinterpretationwoulddefeatthetaxordinanceinquestionor
encouragetaxevasionthroughthesimpleexpedientofarrangingforthedelivery
ofthematchesattheout.skirtsofthecitythroughthepurchasewereeffectedand
paidforinthecompany'sbranchofficeinthecity.
The taxing power of cities, municipalities and municipal districts may be used (1)
"upon any person engaged in any occupation or business, or exercising any
privilege" therein; (2) for services rendered by those political subdivisions or
rendered in connection with any business, profession or occupation being
conducted therein, and (3) to levy, for public purposes, just and uniform taxes,
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licenses or fees. Applying that jurisdictional test to the instant case, it is at once
obviousthatsalesofmatchestocustomersoutsideoilCebuCity,whichsaleswere
bookedandpaidforinthecompany'sbranchofficeinthecity,aresubjecttothe
city'staxingpower.Thesalesintheinstantcasewereinthecityandthematches
sold were stored in the city. The fact that the matches were delivered to
customers, whose places of business were outside of the city, would not place
those sales beyond the city's taxing power. Those sales formed part of the
merchandisingbusinessbeingassignedonbythecompanyinthecity.Inessence,
theyarethesameassalesofmatchesfullyconsummatedinthecity.
ILOILOBOTTLERSINC.VS.CITYOFILOILO
G.R.NO.52019AUG19,1988
FACTS:
PlaintiffwasanoperatorofabottlingplantinPavia,Iloilo.Inthemeanwhile,city
governmentofIloiloenactedanordinanceorderingthepaymentofmunicipaltax
by bottling, manufacturing and distributing plants, regardless of destination of
deliveries.PlaintiffpurchasedabottlingplantinIloiloCitybutsubsequentlyclosed
the same and moved all to its original plant. Thereafter, the city government
assesseditformunicipaltaxes.
HELD:
Thetaxordinanceimposesataxonpersons,firms,andcorporationsengagedinthe
businessof:
1.distributionofsoftdrinks
2.manufactureofsoftdrinks,and
3.bottlingofsoftdrinkswithintheterritorialjurisdictionoftheCityofIloilo.
ThereisnoquestionthatafterittransferreditsplanttoPavia,Iloiloprovince,Iloilo
Bottlers,Inc.nolongermanufactured/bottleditssoftdrinkswithinIloiloCity.Thus,
itcannotbetaxedasonefallingunderthesecondorthethirdtypeofbusiness.The
resolution of this case therefore hinges on whether the company may be
consideredengagedinthedistributionofsoftdrinksinIloiloCity,evenafterithad
transferred its bottling plant to Pavia, so as to be within the purview of the
ordinance.
IloiloBottlers,Inc.disclaimsliabilityontwogrounds:First,itcontendsthatsinceit
isnotengagedintheindependentbusinessofdistributingsoftdrinks,butthatits
activityofsellingismerelyanincidentto,orisanecessaryconsequenceofitsmain
orprincipalbusinessofbottling,thenitisNOTliableunderthecitytaxordinance.
Second,itclaimsthatonlymanufacturersorbottlershavingtheirplantsinsidethe
territorialjurisdictionofthecityarecoveredbytheordinance.
Thesecondgroundismanifestlydevoidofmerit.Itisclearfromtheordinancethat
three types of activities are covered: (1) distribution, (2) manufacture and (3)
bottlingofsoftdrinks.Apersonengagedinanyoralloftheseactivitiesissubjectto
thetax.
Thefirstground,however,meritsseriousconsideration.
ThisCourthasalwaysrecognizedthattherighttomanufactureimpliestherightto
sell/distributethemanufacturedproducts.Hence,fortaxpurposes,amanufacturer
does not necessarily become engaged in the separate business of selling simply
because it sells the products it manufactures. In certain cases, however, a
manufacturer may also be considered as engaged in the separate business of
sellingitsproducts.
To determine whether an entity engaged in the principal business of

manufacturing,islikewiseengagedintheseparatebusinessofselling,itsmarketing
systemorsalesoperationsmustbelookedinto.
ThisCourthadoccasiontodistinguishtwomarketingsystems:
Under the first system, the manufacturer enters into sales transactions and
invoices the sales at its main office where purchase orders are received and
approvedbeforedeliveryordersaresenttothecompany'swarehouses,wherein
turn actual deliveries are made. No warehouse sales are made; nor are separate
stores maintained where products may be sold independently from the main
office. The warehouses only serve as storage sites and delivery points of the
products earlier sold at the main office. Under the second system, sales
transactionsareenteredintoandperfectedatstoresorwarehousesmaintainedby
thecompany.Anyonewhodesirestopurchasetheproductmaygotothestoreor
warehouseandtherepurchasethemerchandise.Thestoresandwarehousesserve
assellingcenters.
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Entities operating under the first system are NOT considered engaged in the
separate business of selling or dealing in their products, independent of their
manufacturing business. Entities operating under the second system are
consideredengagedintheseparatebusinessofselling.
In the case at bar, the company distributed its softdrinks by means of a fleet of
delivery trucks which went directly to customers in the different places in lloilo
province. Sales transactions with customers were entered into and sales were
perfected and consummated by route salesmen. Truck sales were made
independentlyoftransactionsinthemainoffice.Thedeliverytruckswerenotused
solelyforthepurposeofdeliveringsoftdrinkspreviouslysoldatPavia.Theyserved
as selling units. They were what were called, until recently, "rolling stores". The
deliverytruckswerethereforemuchthesameasthestoresandwarehousesunder
the second marketing system. Iloilo Bottlers, Inc. thus falls under the second
categoryabove.Thatis,thecorporationwasengagedintheseparatebusinessof
sellingordistributingsoftdrinks,independentlyofitsbusinessofbottlingthem.
ThetaximposedunderOrdinanceNo.5isanexcisetax.Itisataxontheprivilege
ofdistributing,manufacturingorbottlingsoftdrinks.Beinganexcisetax,itcanbe
leviedbythetaxingauthorityonlywhentheacts,privilegesorbusinessesaredone
orperformedwithinthejurisdictionofsaidauthority
SitusOfTaxationLGC
(a) For purposes of collection of the taxes under Section 143 of this Code,
manufacturers, assemblers, repackers, brewers, distillers, rectifiers and
compounders of liquor, distilled spirits and wines, millers, producers,
exporters, wholesalers, distributors, dealers, contractors, banks and
other financial institutions, and other businesses, maintaining or
operating branch or sales outlet elsewhere shall record the sale in the
branchorsalesoutletmakingthesaleortransaction,andthetaxthereon
shall accrue and shall be paid to the municipality where such branch or
sales outlet is located. In cases where there is no such branch or sales
outlet in the city or municipality where the sale or transaction is made,
the sale shall be duly recorded in the principal office and the taxes due
shallaccrueandshallbepaidtosuchcityormunicipality.
(b) The following sales allocation shall apply to manufacturers, assemblers,
contractors, producers, and exporters with factories, project offices,
plants,andplantationsinthepursuitoftheirbusiness:
(1) Thirty percent (30%) of all sales recorded in the principal office
shall be taxable by the city or municipality where the principal
officeislocated;and
(2) Seventypercent(70%)ofallsalesrecordedintheprincipaloffice
shall be taxable by the city or municipality where the factory,
projectoffice,plant,orplantationislocated.
(c) Incaseofaplantationlocatedataplaceotherthantheplacewherethe
factoryislocated,saidseventypercent(70%)mentionedinsubparagraph
(b)ofsubsection(2)aboveshallbedividedasfollows:
(1) Sixtypercent(60%)tothecityormunicipalitywherethefactoryis
located;and
(2) Forty percent (40%) to the city or municipality where the
plantationislocated.
(d) In cases where a manufacturer, assembler, producer, exporter or
contractor has two (2) or more factories, project offices, plants, or
plantationslocatedindifferentlocalities,theseventypercent(70%)sales
allocationmentionedinsubparagraph(b)ofsubsection(2)aboveshallbe
proratedamongthelocalitieswherethefactories,projectoffices,plants,
andplantationsarelocatedinproportiontotheirrespectivevolumesof
productionduringtheperiodforwhichthetaxisdue.
PRINCIPAL
30%
30%
FACTORYPLANTATION
70%
FACTORY
PLANTATION
42%
28%
(e) Theforegoingsalesallocationshallbeappliedirrespectiveofwhetheror
notsalesaremadeinthelocalitywherethefactory,projectoffice,plant,
orplantationislocated.
COLLECTIONOFTAXES
TaxPeriodandMannerofPayment
UnlessotherwiseprovidedinthisCode,thetaxperiodofalllocaltaxes,
feesandchargesshallbethecalendaryear.Suchtaxes,feesandcharges
maybepaidinquarterlyinstallments.
AccrualofTax
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UnlessotherwiseprovidedinthisCode,alllocaltaxes,fees,andcharges
shallaccrueonthefirst(1st)dayofJanuaryofeachyear.However,new
taxes,feesorcharges,orchangesintheratesthereof,shallaccrueonthe
first (1st) day of the quarter next following the effectivity of the
ordinanceimposingsuchnewleviesorrates.
TimeofPayment
UnlessotherwiseprovidedinthisCode,alllocaltaxes,fees,andcharges
shall be paid within the first twenty (20) days of January or of each
subsequentquarter,asthecasemaybe.Thesanggunianconcernedmay,
for a justifiable reason or cause, extend the time for payment of such
taxes, fees, or charges without surcharges or penalties, but only for a
periodnotexceedingsix(6)months.
SurchargesandPenalties
Thesanggunianmayimposeasurchargenotexceedingtwentyfive(25%)
oftheamountoftaxes,feesorchargesnotpaidontimeandaninterest
at the rate not exceeding two percent (2%) per month of the unpaid
taxes,feesorchargesincludingsurcharges,untilsuchamountisfullypaid
butinnocaseshallthetotalthirtysix(36%)months.
InterestonOtherRevenues
Where the amount of any other revenue due a local government unit,
exceptvoluntarycontributionsordonations,isnotpaidonthedatefixed
in the ordinance, or in the contract, expressed or implied, or upon the
occurrenceoftheeventwhichhasgivenrisetoitscollection,thereshall
be collected as part of that amount an interest thereon at the rate not
exceedingtwopercent(2%)permonthfromthedateitisdueuntilitis
paid, but in no case shall the total interest on the unpaid amount or a
portionthereofexceedthirtysix(36)months.
ExaminationofAccounts
The provincial, city, municipal or barangay treasurer may, by himself or

through any of his deputies duly authorized in writing, examine the
books,accounts,andotherpertinentrecordsofanyperson,partnership,
corporation, or association subject to local taxes, fees and charges in
ordertoascertain.assess,andcollectthecorrectamountofthetax,fee,
orcharge.Suchexaminationshallbemadeduringregularbusinesshours,
onlyonceforeverytaxperiod,andshallbecertifiedtobytheexamining
official.Suchcertificateshallbemadeofrecordinthebooksofaccounts
ofthetaxpayerexamined.
Incasetheexaminationhereinauthorizedismadebyadulyauthorized
deputy of the local treasurer, the written authority of the deputy
concernedshallspecificallystatethename,address,andbusinessofthe
taxpayer whose books, accounts, and pertinent records are to be
examined,thedateandplaceofsuchexaminationandtheprocedureto
befollowedinconductingthesame.
Forthispurpose,therecordsoftherevenuedistrictofficeoftheBureau
of Internal Revenue shall be made available to the local treasurer, his
deputyordulyauthorizedrepresentative.
Notethatthisinspectionislimitedtothesalesandgrossrevenuesonly
CIVILREMEDIES
LocalGovernment'sLien.
Local taxes, fees, charges and other revenues constitute a lien, superior
toallliens,chargesorencumbrancesinfavorofanyperson,enforceable
by appropriate administrative or judicial action, not only upon any
propertyorrightsthereinwhichmaybesubjecttothelienbutalsoupon
propertyusedinbusiness,occupation,practiceofprofessionorcalling,or
exercise of privilege with respect to which the lien is imposed. The lien
mayonlybeextinguisheduponfullpaymentofthedelinquentlocaltaxes
feesandchargesincludingrelatedsurchargesandinterest.
CivilRemedies
(1) Byadministrativeactionthrudistraintofgoods,chattels,oreffects,and
other personal property of whatever character, including stocks and
othersecurities,debts,credits,bankaccounts,andinterestinandrights
to personal property, and by levy upon real property and interest in or
rightstorealproperty;
(2) Byjudicialaction.
Either of these remedies or all may be pursued concurrently or

simultaneouslyatthediscretionofthelocalgovernmentunitconcerned.
DistraintofPersonalProperty
(a) SeizureUponfailureofthepersonowinganylocaltax,fee,orchargeto
paythesameatthetimerequired,thelocaltreasurerorhisdeputymay,
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uponwrittennotice,seizeorconfiscateanypersonalpropertybelonging
to that person or any personal property subject to the lien in sufficient
quantitytosatisfythetax,fee,orchargeinquestion,togetherwithany
increment thereto incident to delinquency and the expenses of seizure.
In such case, the local treasurer or his deputy shall issue a duly
authenticated certificate based upon the records of his office showing
the fact of delinquency and the amounts of the tax, fee, or charge and
penalty due. Such certificate shall serve as sufficient warrant for the
distraintofpersonalpropertyaforementioned,subjecttothetaxpayer's
righttoclaimexemptionundertheprovisionsofexistinglaws.Distrained
personal property shall be sold at public auction in the manner hereon
providedfor.
(b) Accountingofdistrainedgoods.Theofficerexecutingthedistraintshall
make or cause to be made an account of the goods, chattels or effects
distrained,acopyofwhichsignedbyhimselfshallbelefteitherwiththe
owner or person from whose possession the goods, chattels or effects
aretaken,oratthedwellingorplaceorbusinessofthatpersonandwith
someone of suitable age and discretion, to which list shall be added a
statementofthesumdemandedandanoteofthetimeandplaceofsale.
(c) Publication The officer shall forthwith cause a notification to be

exhibitedinnotlessthanthree(3)publicandconspicuousplacesinthe
territory of the local government unit where the distraint is made,
specifyingthetimeandplaceofsale,andthearticlesdistrained.Thetime
of sale shall not be less than twenty (20) days after the notice to the
owner or possessor of the property as above specified and the
publication or posting of the notice. One place for the posting of the
noticeshallbeattheofficeofthechiefexecutiveofthelocalgovernment
unitinwhichthepropertyisdistrained.
(d) ReleaseofdistrainedpropertyuponpaymentpriortosaleIfatanytime
priortotheconsummationofthesale,alltheproperchargesarepaidto
the officer conducting the sale, the goods or effects distrained shall be
restoredtotheowner.
(e) ProcedureofsaleAtthetimeandplacefixedinthenotice,theofficer
conductingthesaleshallsellthegoodsoreffectssodistrainedatpublic
auctiontothehighestbidderforcash.Withinfive(5)daysafterthesale,
the local treasurer shall make a report of the proceedings in writing to

thelocalchiefexecutiveconcerned.
Should the property distrained be not disposed of within one hundred

and twenty (120) days from the date of distraint, the same shall be
considered as sold to the local government unit concerned for the
amountoftheassessmentmadethereonbytheCommitteeonAppraisal
and to the extent of the same amount, the tax delinquencies shall be
cancelled.
SaidCommitteeonAppraisalshallbecomposedofthecityormunicipal
treasureraschairman,witharepresentativeoftheCommissiononAudit
andthecityormunicipalassessorasmembers.
(f)
Disposition of proceeds The proceeds of the sale shall be applied to

satisfy the tax, including the surcharges, interest, and other penalties
incidenttodelinquency,andtheexpensesofthedistraintandsale.The
balanceoverandabovewhatisrequiredtopaytheentireclaimshallbe
returned to the owner of the property sold. The expenses chargeable
upon the seizure and sale shall embrace only the actual expenses of
seizureandpreservationofthepropertypendingthesale,andnocharge
shallbeimposedfortheservicesofthelocalofficerorhisdeputy.Where
the proceeds of the sale are insufficient to satisfy the claim, other
property may, in like manner, be distrained until the full amount due,
includingallexpenses,iscollected.
PersonalPropertyExemptFromDistraintandLevy
(a) Toolsandimplementsnecessarilyusedbythedelinquenttaxpayerinhis
tradeoremployment;
(b) One (1) horse, cow, carabao, or other beast of burden, such as the
delinquent taxpayer may select, and necessarily used by him in his
ordinaryoccupation;
(c) Hisnecessaryclothing,andthatofallhisfamily;
(d) Household furniture and utensils necessary for housekeeping and used
forthatpurposebythedelinquenttaxpayer,suchashemayselect,ofa
valuenotexceedingTenthousandpesos(P10,000.00);
(e) Provisions,includingcrops,actuallyprovidedforindividualorfamilyuse
sufficientforfour(4)months;
(f) Theprofessionallibrariesofdoctors,engineers,lawyersandjudges;
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(g) Onefishingboatandnet,notexceedingthetotalvalueofTenthousand
pesos (P10,000.00), by the lawful use of which a fisherman earns his
livelihood;and
(h) Any material or article forming part of a house or improvement of any
realproperty.
DistraintofRealProperty
Aftertheexpirationofthetimerequiredtopaythedelinquenttax,fee,
orcharge,realpropertymaybeleviedonbefore,simultaneously,orafter
thedistraintofpersonalpropertybelongingtothedelinquenttaxpayer.
To this end, the provincial, city or municipal treasurer, as the case may
be, shall prepare a duly authenticated certificate showing the name of
thetaxpayerandtheamountofthetax,fee,orcharge,andpenaltydue
fromhim.Saidcertificateshalloperatewiththeforceofalegalexecution
throughout the Philippines. Levy shall be effected by writing upon said
certificate the description of the property upon which levy is made. At
the same time, written notice of the levy shall be mailed to or served
upontheassessorandtheRegisterofDeedsoftheprovinceorcitywhere
thepropertyislocatedwhoshallannotatethelevyonthetaxdeclaration
and certificate of title of the property, respectively, and the delinquent
taxpayer or, if he be absent from the Philippines, to his agent or the
managerofthebusinessinrespecttowhichtheliabilityarose,orifthere
benone,totheoccupantofthepropertyinquestion.
In case the levy on real property is not issued before or simultaneously

with the warrant of distraint on personal property, and the personal
property of the taxpayer is not sufficient to satisfy his delinquency, the
provincial, city or municipal treasurer, as the case may be, shall within
thirty(30)daysafterexecutionofthedistraint,proceedwiththelevyon
thetaxpayer'srealproperty.
A report on any levy shall, within ten (10) days after receipt of the
warrant, be submitted by the levying officer to the sanggunian
concerned.
CollectionThroughJudicialAction
The local government unit concerned may enforce the collection of

delinquent taxes, fees, charges or other revenues by civil action in any
courtofcompetentjurisdiction.Thecivilactionshallbefiledbythelocal
treasurerwithintheperiodprescribedinSection194ofthisCode.
PrescriptivePeriods
1. Localtaxes,fees,orchargesshallbeassessedwithinfive(5)yearsfrom
the date they became due. No action for the collection of such taxes,
fees, or charges, whether administrative or judicial, shall be instituted
aftertheexpirationofsuchperiod:Provided,That.taxes,feesorcharges
which have accrued before the effectivity of this Code may be assessed
withinaperiodofthree(3)yearsfromthedatetheybecamedue.
2. Incaseoffraudorintenttoevadethepaymentoftaxes,fees,orcharges,
the same may be assessed within ten (10) years from discovery of the
fraudorintenttoevadepayment.
3. Localtaxes,fees,orchargesmaybecollectedwithinfive(5)yearsfrom
the date of assessment by administrative or judicial action. No such
action shall be instituted after the expiration of said period: Provided,
however, That, taxes, fees or charges assessed before the effectivity of
this Code may be collected within a period of three (3) years from the
dateofassessment.
4. The running of the periods of prescription provided in the preceding
paragraphsshallbesuspendedforthetimeduringwhich:
a. Thetreasurerislegallypreventedfrommakingtheassessment
ofcollection;
b. The taxpayer requests for a reinvestigation and executes a
waiver in writing before expiration of the period within which
toassessorcollect;and
c. The taxpayer is out of the country or otherwise cannot be
located.
ProtestAnOrdinance
Theprocedureforapprovaloflocaltaxordinancesandrevenuemeasures
shall be in accordance with the provisions of this Code: Provided, That
public hearings shall be conducted for the purpose prior to the
enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may
beraisedonappealwithinthirty(30)daysfromtheeffectivitythereofto
theSecretaryofJusticewhoshallrenderadecisionwithinsixty(60)days
from the date of receipt of the appeal: Provided, however, That such
appeal shall not have the effect of suspending the effectivity of the
ordinanceandtheaccrualandpaymentofthetax,fee,orchargelevied
therein:Provided,finally,Thatwithinthirty(30)daysafterreceiptofthe
decision or the lapse of the sixtyday period without the Secretary of
MA.ANGELAAGUINALDO
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Justiceactingupontheappeal,theaggrievedpartymayfileappropriate
proceedingswithacourtofcompetentjurisdiction.
DRILONVS.LIM
G.R.NO.112497AUG4,1994
FACTS:
QuestionontheconstitutionalityofSection187whichempowerstheSecretaryof
Justiceregardingconstitutionalityorlegalityoftaxordinances.
In his resolution, Secretary Drilon declared that there were no written notices of
publichearingsontheproposedManilaRevenueCodethatweresenttointerested
parties as required by Art. 276(b) of the Implementing Rules of the Local
Government Code nor were copies of the proposed ordinance published in three
successiveissuesofanewspaperofgeneralcirculationpursuanttoArt.276(a).No
minutesweresubmittedtoshowthattheobligatorypublichearingshadbeenheld.
Neitherwerecopiesofthemeasureasapprovedpostedinprominentplacesinthe
city in accordance with Sec. 511(a) of the Local Government Code. Finally, the
ManilaRevenueCodewasnottranslatedintoPilipinoorTagaloganddisseminated
amongthepeoplefortheirinformationandguidance,conformablytoSec.59(b)of
theCode.
JudgePalattaofoundotherwise.Hedeclaredthatalltheproceduralrequirements
hadbeenobservedintheenactmentoftheManilaRevenueCodeandthattheCity
of Manila had not been able to prove such compliance before the Secretary only
becausehehadgivenitonlyfivedayswithinwhichtogatherandpresenttohimall
theevidence(consistingof25exhibits)latersubmittedtothetrialcourt.
HELD:
Section187authorizestheSecretaryofJusticetoreviewonlytheconstitutionality
orlegalityofthetaxordinanceand,ifwarranted,torevokeitoneitherorbothof
thesegrounds.Whenhealtersormodifiesorsetsasideataxordinance,heisnot
also permitted to substitute his own judgment for the judgment of the local
government that enacted the measure. Secretary Drilon did set aside the Manila
Revenue Code, but he did not replace it with his own version of what the Code
shouldbe.Hedidnotpronouncetheordinanceunwiseorunreasonableasabasis
for its annulment. He did not say that in his judgment it was a bad law. What he
found only was that it was illegal. All he did in reviewing the said measure was
determine if the petitioners were performing their functions in accordance with

law,thatis,withtheprescribedprocedurefortheenactmentoftaxordinancesand
thegrantofpowerstothecitygovernmentundertheLocalGovernmentCode.As
weseeit,thatwasanactnotofcontrolbutofmeresupervision.
An officer in control lays down the rules in the doing of an act. If they are not
followed, he may, in his discretion, order the act undone or redone by his
subordinate or he may even decide to do it himself. Supervision does not cover
such authority. The supervisor or superintendent merely sees to it that the rules
are followed, but he himself does not lay down such rules, nor does he have the
discretiontomodifyorreplacethem.Iftherulesarenotobserved,hemayorder
theworkdoneorredonebutonlytoconformtotheprescribedrules.Hemaynot
prescribe his own manner for the doing of the act. He has no judgment on this
matterexcepttoseetoitthattherulesarefollowed.IntheopinionoftheCourt,
Secretary Drilon did precisely this, and no more nor less than this, and so
performedanactnotofcontrolbutofmeresupervision.
The issue of noncompliance with the prescribed procedure in the enactment of

the Manila Revenue Code is another matter. The procedural requirements have
indeed been observed. Notices of the public hearings were sent to interested
partiesasevidencedbyExhibitsG1to17.Theminutesofthehearingsarefoundin
Exhibits M, M1, M2, and M3. Exhibits B and C show that the proposed
ordinances were published in the Balita and the Manila Standard on April 21 and
25,1993,respectively,andtheapprovedordinancewaspublishedintheJuly3,4,
5, 1993 issues of the Manila Standard and in the July 6, 1993 issue of Balita, as
shownbyExhibitsQ,Q1,Q2,andQ3.
Theonlyexceptionsarethepostingoftheordinanceasapprovedbutthisomission
does not affect its validity, considering that its publication in three successive
issuesofanewspaperofgeneralcirculationwillsatisfydueprocess.Ithasalsonot
beenshownthatthetextoftheordinancehasbeentranslatedanddisseminated,
butthisrequirementappliestotheapprovaloflocaldevelopmentplansandpublic
investmentprogramsofthelocalgovernmentunitandnottotaxordinances.
ProtestAnAssessment
Whenthelocaltreasurerorhisdulyauthorizedrepresentativefindsthat
correcttaxes,fees,orchargeshavenotbeenpaid,heshallissueanotice
ofassessmentstatingthenatureofthetax,fee,orcharge,theamountof
deficiency,thesurcharges,interestsandpenalties.Withinsixty(60)days
MA.ANGELAAGUINALDO
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from the receipt of the notice of assessment, the taxpayer may file a
written protest with the local treasurer contesting the assessment;
otherwise, the assessment shall become final and executory. The local
treasurershalldecidetheprotestwithinsixty(60)daysfromthetimeof
its filing. If the local treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice cancelling wholly or partially the
assessment. However, if the local treasurer finds the assessment to be
wholly or partly correct, he shall deny the protest wholly or partly with
noticetothetaxpayer.Thetaxpayershallhavethirty(30)daysfromthe
receiptofthedenialoftheprotestorfromthelapseofthesixty(60)day
period prescribed herein within which to appeal with the court of
competent jurisdiction otherwise the assessment becomes conclusive
andunappealable.
ClaimForRefundOrTaxCredit
Nocaseorproceedingshallbemaintainedinanycourtfortherecovery
ofanytax,fee,orchargeerroneouslyorillegallycollecteduntilawritten
claimforrefundorcredithasbeenfiledwiththelocaltreasurer.Nocase
or proceeding shall be entertained in any court after the expiration of
two(2)yearsfromthedateofthepaymentofsuchtax,fee,orcharge,or
fromthedatethetaxpayerisentitledtoarefundorcredit.
TAXEXEMPTIONPRIVILEGES
AuthoritytoGrant
Local government units may, through ordinances duly approved, grant

taxexemptions,incentivesorreliefsundersuchtermsandconditionsas
theymaydeemnecessary.
WithdrawalofExemptions
Unless otherwise provided in this Code, tax exemptions or incentives

granted to, or presently enjoyed by all persons, whether natural or
juridical,includinggovernmentownedorcontrolledcorporations,except
local water districts, cooperatives duly registered under R.A. No. 6938,
nonstock and nonprofit hospitals and educational institutions, are
herebywithdrawnupontheeffectivityofthisCode.
TARIFFANDCUSTOMSCODE
RA1937customsandtariffcodeasamendedbyPD1464
Sec.100 Whenimportationsbegin
Sec.101 ProhibitedImportations
Sec.105 ConditionallyFreeImportations
Sec.106 Drawbacks
Sec.201 BasisofDutiableValue
Sec.301 AntiDumpingDuty
Sec.302 CountervailingDuty
Sec.303 MarkingDuty
Sec.304 Discriminatoryduty
Sec.401 FlexibleTariff
BookII
TitleIV
Sec.1201useofcustomshouse
Sec.1202WhenImportationBeginsandDeemedTerminated
Sec.1203
Sec.1204
TitleVI
Sec.2202to2212search,seizure,arrest
Sec.2308to2317protest
Sec.24012402judicialproceedings
RA4712
RA7843antidumpingduties
RA8181homeconsumptiontodutiablevalue
RA8752Antidumpingduties
RA9135
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TAXATION2(ATTY.

Imposed upon the right or privilege to transfer properties as a result of

Consists of all property owned by the decedent at the time of death,

For decedent citizens or resident aliens: real and personal properties

Real property, tangible personal property and intangible personal

The following shall be considered as personal property within the

Transfer of property with retention or reservation of rights over the

To the extent of property passing under general power of appointment

then gave his properties to his children. But then, he

X donated a property to his brother with the condition

Is the property still part of the gross estate of X if he

However, if power released is special power of

There are instances that when the transfer is for

duly approved by the court, the transfer of the aforementioned properties to

(2) Deductions from gross estate are presumed to be

After payment to government, following order of payment priority is to

Amount allowed as deduction for property which was previously taxed

Where such property can be identified as having been received by the

If the same property is included in gross estate, its value may be

Ordinary deductions from present gross estate multiplied by

The residential home and lot is used as an official residence of the

Section 1. Any provision of law to the contrary notwithstanding, the

Standard deduction shall be deducted first from decedents exclusive

Same allowable deductions except those pertaining to the family home

1. The following acquisitions and transmission shall not be subjected to

b. Transmission or delivery of the inheritance or legacy by the

Illustration: A transmits to son B property upon the condition

Transmission from the first heir, legatee, or donee in favor of

Illustration: A transmits property to her great grandson D but

See also Section 34 (H) for allowable 100% deduction for

Within 2 months after decedents death or within 2 months after

ownership thereof in the name of the transferee, executor, or

Although all amounts of compromise penalties incident to violations shall be

The prescribed schedule of compromise penalties shall not prevent the

For tax purposes, the coownership of inherited properties is automatically

Excise tax imposed on the right to transfer gratuitously, directly or

It is perfected upon the knowledge of the donor of the donees

Contributions of the employer for the benefit of the employee to

De Minimis Benefits Not Subject To Withholding Tax on Compensation

In general, dividends are included in the gross income of the

Remember that any type of dividend must come from the

. . . an act of liberality whereby a person disposes gratuitously of a thing or

We cannot say, under the circumstances, that there is no sufficient evidence on

Petitioners maintain that the definition of an "electoral contribution" under the

The term "contribution" includes a gift, donation, subscription, loan, advance or

Since the purpose of an electoral contribution is to influence the results of the

Nonprofit educational and/or charitable corporation,

Is a school, college or university and/or charitable

And devoting all its income, whether students' fees or

Except in cases where the Commissioner otherwise permits, the return

What it contends is that by withdrawing the exemption previously

The rule of regularity, to the contrary notwithstanding, services as defined in this

Any person who, in the course of business, sells, barters, exchanges, or

In case of importation of taxable goods, the importer, whether an

Sale, barter, exchange and/or lease of goods or properties, including

This rule shall likewise apply to existing contracts of sale or lease of

Regular conduct or pursuit of a commercial or economic activity,

Nonresident persons who perform services in the Philippines are

Some branches of foreign corporations engage in

Some branches engage in business in the Philippines

juridical personality is, however, considered under

The Philippine branch solicits purchase orders from