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ESTATETAX 1
DONORSTAX 20
VALUEADDEDTAX 27
PERCENTAGETAXES 53
EXCISETAXES 63
DOCUMENTARYSTAMPTAXES 67
POWERSOFTHEBIR 69
REMEDIESOFTHEGOVERNMENT 75
TAXPAYERSREMEDIES 97
COURTOFTAXAPPEALS(RA9282ANDREVISEDRULESOFCOURTOFTHECTA) 103
LOCALTAXATION 108
COMMUNITYTAX 124
REALPROPERTYTAXATION 126
CUSTOMSANDTARIFFSCODE 136

Estate Tax
Estate tax is the tax on the right to transmit property at death and on certain transfers
by the decedent during his lifetime which are made by the law equivalent of
testamentary dispositions.
It accrues upon the death of the decedent.
A transmission by inheritance is taxable at the time of the predecessors death,
notwithstanding the postponement of the actual possession or enjoyment of the estate
by the beneficiary. (Lorenzo v Posadas)
The tax is measured by the value of the property transmitted at the time of death,
regardless of its appreciation or depreciation.
The accrual of the tax is distinct from the obligation to pay the tax.

SEC. 84. Rates of Estate Tax. - There shall be levied, assessed, collected and paid upon the transfer of the net
estate as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of
the Philippines, a tax based on the value of such net estate, as computed in accordance with the following
schedule
Over But not over The tax shall Plus Of the Excess
be Over
P200k Exempt
P200k P500k 0 5% P200k
P500k P2m P15k 8% P500k
P2m P5m P135k 11% P2m
P5m P10m P465k 15% P5m
P10m P1.215m 20% P10m

Properties in the Estate


SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined by including the value
at the time of his death of all property, real or personal, tangible or intangible, wherever situated: Provided,
however, that in the case of a nonresident decedent who at the time of his death was not a citizen of the
Philippines, only that part of the entire gross estate which is situated in the Philippines shall be included in his
taxable estate.

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death;

SEC. 104. Definitions. - For purposes of this Title, the terms "gross estate" and "gifts" include real and personal
property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent
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or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal
property so transferred but which are situated outside the Philippines shall not be included as part of his "gross
estate" or "gross gift": Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any
partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if
the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect
of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of
the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation
allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign country.
For estate tax purposes, residence refers to the domicile of the person.
For residents and citizens, gross estate includes ALL properties, real or personal,
tangible or intangible, WHEREVER situated.
For non-resident aliens, gross estate includes only properties those situated in the
Philippines.
o Except with respect to INTANGIBLE personal property, its inclusion to the gross
estate is the subject to the rule of reciprocity.
If the foreign country of the non-resident alien does not impose a transfer
tax of any character on the IPP of Filipinos not residents of that foreign
country; or
The foreign country of the non-resident alien allows a similar exemption
from transfer tax in respect of IPP owned by Filipinos not residents of that
foreign country,
Then IPPs of the non-resident alien here are exempt from the
estate tax.
o Reciprocity must be total. If any of the two states or countries collects or imposes
and does not exempt any transfer, death, legacy, or succession tax of any
character, reciprocity does not apply. (CIR v Fisher)
o Reciprocity in exemption does not require the foreign country to possess
international personality. (CIR v Campos Rueda)
The following, among others, are intangible personal properties located in the
Philippines:
1. Franchise which must be exercised in the Philippines
2. Shares, obligations or bonds issued by any corporation or sociedad anonima
organized or constituted in the Philippines in accordance with its laws
3. Shares, obligations or bonds issued by any foreign corporation 85% of the business
of which is located in the Philippines
4. Shares, obligations or bonds issued by ay foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines, and
5. Shares or rights in any partnership, business or industry in the Philippines.

Properties not in the estate


There may be properties which at the time of the decedents death are not in the estate
because they were transferred by him during his lifetime.
These transfers are:
1. Transfers in contemplation of death,
2. Revocable transfers,
3. Transfers under a general power of appointment, and
4. Transfers for an insufficient consideration.

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o The values of these properties will be included in the determination of the gross
estate for estate tax purposes.
As such, the gross estate, for purposes of the estate tax, may exceed the actual value of
his assets at the time of his death as it includes the value of transfers of property by him
during his lifetime that partake of the nature of testamentary dispositions.
These kinds of transfers have the following in common:
o They are ostensible transfers, usually with the purpose to evade the estate tax
o They are extension of interests
o If the transfers are in fact for a bona fide consideration, then they will not form
part of the gross estate (this proviso is present in all the provisions regarding
these transfers)

Transfers in contemplation of death


(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent has at
any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or
enjoyment at or after death, or of which he has at any time made a transfer, by trust or otherwise, under which he
has retained for his life or for any period which does not in fact end before his death (1) the possession or
enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any
person, to designate the person who shall possess or enjoy the property or the income therefrom; except in case of
a bonafide sale for an adequate and full consideration in money or money's worth.
A transfer in contemplation of death is a transfer motivated by the thought of death,
although death may not be imminent.
The following are examples of circumstances which may be taken into consideration in
determining whether the transfer was made in contemplation of death:
o We can look at the age and state of health of the decedent at the time of the
transfer (is he terminally ill?)
o Length of time between the transfer and the date of the death.
o Concurrent making of a will or making of a will within a short time after the
transfer.
But again, in the case of a bona fide sale for an adequate and full consideration in
money or moneys worth, the value of the property transferred will not be considered in
determining the gross estate.

Revocable transfers
(C) Revocable Transfer. -
(1) To the extent of any interest therein, of which the decedent has at any time made a transfer (except in case of
a bona fide sale for an adequate and full consideration in money or money's worth) by trust or otherwise, where
the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in
whatever capacity exerciseable) by the decedent alone or by the decedent in conjunction with any other person
(without regard to when or from what source the decedent acquired such power), t o alter, amend, revoke, or
terminate, or where any such power is relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to exist on the date
of the decedent's death even though the exercise of the power is subject to a precedent giving of notice or even
though the alteration, amendment or revocation takes effect only on the expiration of a stated period after the
exercise of the power, whether or not on or before the date of the decedent's death notice has been given or the
power has been exercised. In such cases, proper adjustment shall be made representing the interests which would
have been excluded from the power if the decedent had lived, and for such purpose if the notice has not been
given or the power has not been exercised on or before the date of his
death, such notice shall be considered to have been given, or the power exercised, on the date of his death.
A revocable transfer is a transfer where the terms of the enjoyment of the property may
be altered, amended, revoked or terminated by the decedent.
It is sufficient that the decedent had the power to revoke, though he did not exercise the
power to revoke.
Again, the same rule with bona fide sales applies.

Transfers under a General Power of Appointment


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(D) Property Passing Under General Power of Appointment. - To the extent of any property passing under a
general power of appointment exercised by the decedent: (1) by will, or (2) by deed executed in contemplation of,
or intended to take effect in possession or enjoyment at, or after his death, or (3) by deed under which he has
retained for his life or any period not ascertainable without reference to his death or for any period which does not
in fact end before his death (a) the possession or enjoyment of, or the right to the income from, the property, or
(b) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy
the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in
money or money's worth.
A power of appointment refers to the right to designate the person or persons who will
succeed the property of a prior decedent.
A general power of appointment is one which may be exercised in favor of anybody.
o Carles donated property to Andres, with a provision that Andres can transfer the
property to anyone. Andres transferred it to Iker. The property should be
included in the gross estate of Andres.
A limited power of appointment is one which may be exercised only in favor of a certain
person or persons designated by the prior decedent.
o Carles donated property to Andres, with a provision that Andres should transfer
the property to Iker, and only Iker. The value of the property should not be
included in the gross estate of Andres.
In order that property passing under a power of appointment may be included in the
gross estate of the transferor, the power of appointment must be a general power of
appointment.
Again, the bona fide sale rule applies.

(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B), (C) and (E) of this
Section shall apply to the transfers, trusts, estates, interests, rights, powers and relinquishment of powers, as
severally enumerated and described therein, whether made, created, arising, existing, exercised or relinquished
before or after the effectivity of this Code.

(G) Transfers of Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or powers
enumerated and described in Subsections (B), (C) and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair
market value, at the time of death, of the property otherwise to be included on account of such transaction, over
the value of the consideration received therefor by the decedent.
In the transfers in contemplation of death, revocable transfer, or transfer under a GPA,
the value to include in the gross estate will be determined under the following rules:
o If the transfer was in the nature of a bona fide sale for an adequate and full
consideration in money or moneys worth, no value will be included in the gross
estate;
o If the consideration received on the transfer was less than adequate and full, the
value to include in the gross estate will be the excess of the fair market value at
the time of the decedents death over the consideration received;
o If there was no consideration received on the transfer (donation mortis causa),
the value to include in the gross estate will be the fair market value of the
property at the time of the decedents death.
When looking at transaction, ask yourself, was the consideration insufficient?
a. If yes, then add the balance of the FMV at the time of death and the
consideration.
b. If no, then it was a bona fide sale. Dont add the value to the gross estate.

Analysis of the cases of Zapanta, Tuason, Dizon and Vidal de Roces

Voluntary/Compulsory Time between Will? Remarks


Heir transfer and

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death
Zapanta Compulsory None Yes Not considered
advances.
Tuason Voluntary 3 years Yes Considered as
advances,
because the
donees became
legatees in the
will.
Dizon Compulsory 1 day No Considered
advances. The
donee is a
compulsory heir.
Vidal de Roces Voluntary 9 months Yes Considered
advances.
Donees were
legatees in the
will
When it comes to transfers done during the lifetime of a decedent, there is a disputable
presumption that the transfers are in contemplation of death if the recipients are
compulsory heirs.
o The government presumes that one is transferring property beforehand to escape
the estate tax, and instead pay the lower donors tax.
o The case of Zapanta showed that the presumption is disputable. There, the Court
considered the gifts as not advances even if the recipients were compulsory
heirs. The reason for this was the condition imposed upon the recipients by the
decedent (they had to pay the decedent a certain amount of rice and money
during his lifetime). It showed that the transfer was not in contemplation of
death, because the decedent in fact, would benefit from the transfer.
o The presence of a will also plays a part. In the cases of Tuason and Vidal de
Roces, the Court considered the transfers as advances because a will was made
making the transferees legatees. This played a part in the Courts impression that
there was an intention of the decedent to minimize his gross estate.
o Thus, when looking at cases like these, the totality of all the factors and facts
must be taken into consideration.
Does the government always want to consider a transfer an advance (to be covered by
the estate tax)? Not necessarily. There are instances where they will argue for it to be
considered under the donors tax.

Life Insurance Proceeds


(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies taken out by the decedent upon his own life, irrespective of
whether or not the insured retained the power of revocation, or to the extent of the amount receivable by any
beneficiary designated in the policy of insurance, except when it is expressly stipulated that the designation of the
beneficiary is irrevocable.
Proceeds of life insurance are paid by the insurance company directly to the beneficiary.
Proceeds of insurance under policies taken out by the decedent upon his life shall
constitute part of the gross estate if the beneficiary is:
1. The estate of the decedent, his executor or administrator; or
2. A third person (not those in #1), and the designation of the beneficiary is revocable.
The Insurance Code states that the designation of a beneficiary is generally revocable.
o Except of course, when the policy states that the designation is irrevocable. In
such cases, the proceeds are not considered as part of the decedents estate.

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So, gross estate is made up of:
1. The decedents interests at the time of his death
2. Transfers made during his lifetime (in contemplation of death, revocable, and under
a GPA), and
3. Life insurance proceeds
4. Some other stuff required by law to be included in the gross estate in order to allow
deductions (claims against insolvent persons, unpaid mortgage, value of the family
home, and the retirement benefits under RA 4917)

Valuation of the gross estate


SEC. 88. Determination of the Value of the Estate. -
(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of annuity, there
shall be taken into account the probable life of the beneficiary in accordance with the latest Basic Standard
Mortality Table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.
(B) Properties. - The estate shall be appraised at its fair market value as of the time of death. However, the
appraised value of real property as of the time of death shall be, whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed by the Provincial and City Assessors.
The properties comprising the gross estate shall be valued based on the FMV as of the
time of death.
In case of real property, the fair market value shall be:
1. The FMV as determined by the Commissioner; or
2. The FMV as shown in the schedule of values fixed by the Provincial and City
Assessors
o Whichever is HIGHER
In case of personal property recently acquired by the decedent, the purchase price may
indicate the FMV.
o In case of personal property not recently acquired, there should be some
evidence of the FMV.
For shares of stock, the FMV shall depend on whether the shares are isted or unlisted in
the stock exchange.
o If unlisted
Common shares based on their book value
Preferred shares based on their par value
o If listed
The mean between the highest and lowest quotation on the date of death;
If none, then the date nearest the death.
For use of usufruct, there be taken into account the probable life of the beneficiary in
accordance with the latest basic standard mortality table, to be approved by the
Secretary of Finance.

Computation for the net estate


The basic equation to determine the net taxable estate is (gross estate deductions)
The complication arises when the decedent is married at the time of his death. Well
tackle that later.
First, lets take a look at the deductions.

Deductions
The deductions from the gross estate are:
1. Ordinary deductions
a. Expenses, losses, indebtedness, taxes, etc:
i. Funeral expenses
ii. Judicial expenses of testamentary or intestate proceedings
iii. Claims against the estate
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iv. Claims against the insolvent persons
v. Unpaid mortgage or indebtedness on property
vi. Taxes paid
vii. Losses
b. Transfer for public use
c. Vanishing deductions
2. Special deductions
a. Family home
b. Standard deduction of P1,000,000
c. Medical expenses
d. Amounts received by heirs under RA 4917.
These deductions are allowed for a citizen or resident of the Philippines.
Non-resident aliens are not entitled to special deductions.

Ordinary deductions
Funeral expenses
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident of the
Philippines, by deducting from the value of the gross estate -
(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts:
(a) For actual funeral expenses or in an amount equal to five percent (5%) of the gross estate, whichever is lower,
but in no case to exceed Two hundred thousand pesos (P200,000);
The deduction of funeral expenses is the
o Amount of actual funeral expenses, or
o An amount equal to 5% of the gross estate, whichever is LOWER,
But not to exceed P200,000.
Funeral expenses includes:
1. Mourning apparel of the surviving spouse and the unmarried minor children of the
deceased bought and used on the occasion of the burial
2. Expenses for the deceased wakes
3. Publication charges for death notices
4. Telecommunication expenses incurred in informing relatives of the deceased
5. Cost of burial plot, tombstones, monument or mausoleum (BUT NOT THEIR UPKEEP)
6. Interment and/or cremation fees and charges, and
7. All other expenses incurred for the performance of the rites and ceremonies incident
to interment
These arent deductible:
o Expenses incurred AFTER the interment
o Expenses borne or defrayed by relatives and friends
The cut-off point is interment. Thus, the expenses for the 9th day, thank you cards, 40th
day arent included.
When some of the items which are actual funeral expenses are covered by a memorial
plan, the value of the memorial plan must be included in the gross estate.
o The value of the memorial plan plus other actual funeral expenses will give an
aggregate which will be compared with the 5% limitation and with P200k.

Judicial expenses of the testamentary/intestate proceedings


(b) For judicial expenses of the testamentary or intestate proceedings;
These are the expenses incurred during the settlement of the estate,
o BUT not beyond the last day prescribed by law for the filing of the estate tax
return (within 6 months from the date of death), or the extension period allowed.
These judicial expenses include
1. Fees of the executor or administrator
2. Attorneys fees
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3. Court fees
4. Accountants fees
5. Appraisers fees
6. Clerk hire
7. Costs of preserving and distributing the estate
8. Costs of storing or maintaining property of the estate
9. Brokerage fees for selling property of the estate
Expenses on extrajudicial settlement of the estate are allowed as deductions. They come
within the meaning of administration expenses.
o The notarial fee paid for the extrajudicial settlement is deductible since such
settlement effected a distribution of the decedents estate to his lawful heirs.
(CIR v CA & Pajonar)
In that case, the notarial fees and the guardianship fee of the attorney
were considered deductibles.
Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not
deductible.
Expenses for the improvement and renovation of the decedents residential house were
allowed as a deductible. (Testate Estate of Felix de Guzman v de Guzman-Carillo)
o Admin expenses should be those which are necessary for the management of the
estate, for protecting it against destruction or deterioration, and possible for the
production of fruits.
Attorneys fees paid by the heirs to their respective lawyers arising from conflicting
claims are not deductible as judicial expenses. These shall be separately borne by them.

Claims against the estate


c) For claims against the estate: Provided, That at the time the indebtedness was incurred the debt instrument was
duly notarized and, if the loan was contracted within three (3) years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of the proceeds of the loan;
Claims means debts or demands of a pecuniary nature which could have been
enforced against the deceased in his lifetime and could not have been reduced to simple
money judgments.
o In other words, if enforceable against him when he was alive, the obligations will
be claims against his estate when he shall be dead.
o So, an obligation that has prescribed during his lifetime, or that was
unenforceable against him, will not be a claim against his estate when he shall be
dead.
Requisites:
1. The liability must represent a personal obligation of the deceased at the time of his
death (except unpaid obligations incurred incident to his death and unpaid medical
expenses classified as a deduction),
2. The liability was contracted in good faith and for adequate and full consideration,
3. The claim must be a debt or claim which is valid in law and enforceable in court
4. The indebtedness must not have been condoned by the creditor during the lifetime of
the decedent, or the actions to collect must not have prescribed.
Regarding the 4th requisite, if the debts were condoned AFTER the decedents death, the
debts are deductible, following the date-of-death valuation rule. (Dizon v CTA)
If the claim arose out of a debt instrument, the debt instrument must be notarized.
o EXCEPT for loans granted by financial institutions where notarization is not part
of the business practice or policy of the institution.
If the loan was contracted within 3 years before the death of the decedent, the admin
or executor must submit a statement showing the disposition of the proceeds of the
loan.

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If a monetary claim against the decedent did not arise out of a debt instrument, the
requirement of a notarized debt instrument does not apply.
There is no requirement to add the amount to the gross estate (as compared to claims
against insolvent persons/mortgage). This is a DIRECT DEDUCTION.

Claims against insolvent persons


(d) For claims of the deceased against insolvent persons where the value of decedent's interest therein is included
in the value of the gross estate;
Claims against insolvent persons are deductions from the gross estate
o SUBJECT to the condition that the full amounts of the receivables are first
included in the gross estate.
The deduction from the gross estate will be the uncollectible portion.

Unpaid mortgage or indebtedness on property


(e) For unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's interest
therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, but not
including any income tax upon income received after the death of the decedent, or property taxes not accrued
before his death, or any estate tax. The deduction herein allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon a promise or agreement, be limited to the extent that
they were contracted bona fide and for an adequate and full consideration in money or money's worthWhen a
person leaves property encumbered by a mortgage or indebtedness, his gross estate must include the fair market
value of the property, undiminished by the mortgage or indebtedness.
The mortgage or indebtedness will be claimed as a deduction from the gross estate.
o Pique died leaving real property with a FMV of P1m, subject to a mortgage in the
amount of P600k. Before he can deduct the P600k, he has to include the total
FMV of his property to the gross income.
If the loan is merely an accommodation loan, where the proceeds of the loan went to
another person, the value of the unpaid loan must be included in the receivable of the
estate.
In the cases of claims against insolvent persons and unpaid mortgage/indebtedness on
property, it is imperative that the values of each are first added to the gross estate.
o These are called zero-sum computations. They dont really benefit the heirs
because these transactions werent supposed to be part of the gross estate
anyway.

Taxes
Taxes are deductions from the gross estate if such taxes accrued prior to the decedents
death.
Those that accrued after the decedents death are not deductions from gross estate.
These taxes can NOT be deducted:
1. Income tax on income received after death
2. Property taxes not accrued before death
3. Estate tax

Losses
There shall also be deducted losses incurred during the settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft or embezzlement, when such losses are not compensated for
by insurance or otherwise, and if at the time of the filing of the return such losses have not been claimed as a
deduction for the income tax purposes in an income tax return, and provided that such losses were incurred not
later than the last day for the payment of the estate tax as prescribed in Subsection (A) of Section 91.
Losses are deductible from the gross estate if:
1. Arising from fire, storm, shipwreck, or other casualty, robbery, theft or
embezzlement
2. Not compensated by insurance or otherwise

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3. Not claimed as a deduction in an income tax return of the estate subject to
income tax
4. Occurring during the settlement of the estate, and
5. Occurring before the last day for the payment of the estate tax (6 months after
the decedents death, or the allowed extension)

o Example: Dude died January 1, 2010. A fire razed his house on March 1, 2010.
His estate was settled January 1, 2012. He can claim a deduction (within 6
months!)
Dude died January 1, 2010. A fire razed his house on January 1, 2011.
He cant claim a deduction.

Transfers for public use


(3) Transfers for Public Use. - The amount of all the bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes.
Transfers for public use mean dispositions in a last will and testament, or a transfer to
take effect after death, in favor of the Government of the Philippines, or any political
subdivision thereof, for exclusively public purposes.
You can deduct the value of the property transferred to the government.

Vanishing deductions
(2) Property Previously Taxed. - An amount equal to the value specified below of any property forming a part of the
gross estate situated in the Philippines of any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5) years prior to his death, 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, devise or inheritance, or which can be identified as having been acquired in exchange for property so
received:
One hundred percent (100%) of the value, if the prior decedent died within one (1) year prior to the death of the
decedent, or if the property was transferred to him by gift within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
These deductions shall be allowed only where a donor's tax or estate tax imposed under this Title was finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and
only in the amount finally determined as the value of such property in determining the value of the gift, or the
gross estate of such prior decedent, and only to the extent that the value of such property is included in the
decedent's gross estate, and only if in determining the value of the estate of the prior decedent, no deduction was
allowable under paragraph (2) in respect of the property or properties given in exchange therefor. Where a
deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate tax of the prior
decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under said
Subsection shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under said paragraph (2) bears to the value of the decedent's estate. Where the
property referred to consists of two or more items, the aggregate value of such items shall be used for the purpose
of computing the deduction.
Property may change hands within a very short period of time by reason of the early
death of the owner who received it by inheritance or by donation (gift).
To provide relief to the burdened taxpayer, vanishing deductions are allowed to reduce
the gross estate.
Vanishing deductions are allowed when:
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1. The present decedent died within 5 years from receipt of the property from a
prior decedent or donor;
2. The property on which the vanishing deduction is being claimed must be located
in the Philippines
3. The property must have formed part of the taxable estate of the prior decedent,
or of the taxable gift of the donor
4. The estate tax on the prior succession or the donors tax on the gift must have
been finally determined and paid
5. The property must be identified as the one received from the prior decedent or
donor, or something acquired in exchange therefore
6. No vanishing deduction on the property was allowable to the estate of the prior
decedent
How do we compute?
Step 1: Get the basis. Either the value of the property in the prior estate/value used for
donors tax purposes OR the value of the property in the present estate, whichever is
LOWER.
Step 2: The Step 1 value will be reduced by any payment made by the present decedent on
any mortgage or lien on the property (when such mortgage/lien was used as a
deduction on the prior dead guys estate, or gift of the donor)
Step 3: The Step 2 value shall be further reduced by:
Step 2 value x Expenses, losses, indebtedness, taxes and transfers for
Gross Estate public use

This is done to prevent double deduction.

Step 4: Look at the chart below and multiply to get the value which you can actually deduct.
% If received by inheritance or gift
100 Within one year prior to death of the decedent
80 More than one year but not more than two years
60 More than two years but not more than 3 years
40 More than 3 years but not more than 4 years
20 More than 4 years but not more than 5 years

Example
Che inherited land from his pop with a fmv of P500k when inherited. Two and a half
years later, Che died. The FMV of the land was P600k at that time. The gross estate, on
which the land was part, was P2m. deductions from the gross estate (not including the
family home, medical expenses, standard deduction or RA 4917 receivable) amounted to
P400k. Whats the vanishing deduction?
Step 1: Get the lower value. - P500k
Step 2: No mortgage mentioned, so P500k
Step 3: P500k x P400k = P100k
P2m
Basis of the vanishing deduction (500k-100k) = P400k
Vanishing deduction (60% of P400k) = P240

Special deductions
Family Home
(4) The Family Home. - An amount equivalent to the current fair market value of the decedent's family home:
Provided, however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess
shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must
have been the decedent's family home as certified by the barangay captain of the locality.

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The deduction is an amount equivalent to the current FMV of the decedents family
home.
o BUT the maximum is P1m only.
Do not forget to add the amount of the family home to the gross estate. Kasama yan!
o Zero-sum? Yes, but only to the extent of P1m. Lugi yung rich folk.
The deduction will be allowed when the famly home is certified to be as such by the
barangay captain of the locality where it is located.
For a person married at the time of death, and who was under a system of conjugal
partnership or absolute community, the deduction for the family home is of the FMV,
but should not exceed P1m, if such family home was conjugal property or community
property. (Remember this!)

Standard deduction
(5) Standard Deduction. - An amount equivalent to One million pesos (P1,000,000).
Do not forget to deduct P1m every time! Its standard!

Medical expenses
(6) Medical Expenses. - Medical Expenses incurred by the decedent within one (1) year prior to his death which
shall be duly substantiated with receipts: Provided, That in no case shall the deductible medical expenses exceed
Five Hundred Thousand Pesos (P500,000).
All medical expenses incurred (whether paid or unpaid) within ONE YEAR before the
death of the decedent shall be allowed as a deduction, PROVIDED,
o that the same are duly substantiated with official receipts, and
o The total amount, whether paid or unpaid, does NOT exceed P500k.
If its more than P500k, can you deduct it as a claims against the estate? No. See
requisites of claims against the estate.

Amounts receivable under RA 4917


(7) Amount Received by Heirs Under Republic Act No. 4917. - Any amount received by the heirs from the decedent
- employee as a consequence of the death of the decedent-employee in accordance with Republic Act No. 4917:
Provided, That such amount is included in the gross estate of the decedent.
Retirement benefits received by employees of private firms in accordance with a
reasonable benefit plan maintained by the employer are EXEMPT from all taxes, provided
that the retiriing employee has been in the services of the same employer for at least 10
years and is not less than 50 years old at the time of his retirement.
The amount must:
o have been received by the heirs of the decedent-employee as a consequence of
the latters death, and
o included in the gross estate of the descendent. (important!)

Deductions from the gross estate with ceilings


Funeral expenses
Actual funeral expenses, or Whichever is the LOWEST
5% of the gross estate; or
P200k
Medical expenses
Actual medical expenses, or Whichever is LOWER
P500k
Family home
FMV, or Whichever is LOWER
P1m

Deductions for a NON-RESIDENT, NOT CITIZEN of the Philippines


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(B) Deductions Allowed to Nonresident Estates. - In the case of a nonresident not a citizen of the Philippines,
by deducting from the value of that part of his gross estate which at the time of his death is situated in the
Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the deductions specified in paragraph (1) of
Subsection (A) of this Section which the value of such part bears to the value of his entire gross estate wherever
situated;
(2) Property Previously Taxed. - An amount equal to the value specified below of any property forming part of the
gross estate situated in the Philippines of any person who died within five (5) years prior to the death of the
decedent, or transferred to the decedent by gift within five (5) years prior to his death, 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, devise or inheritance, or which can be identified as having been acquired in exchange for property so
received:
One hundred percent (100%) of the value if the prior decedent died within one (1) year prior to the death of the
decedent, or if the property was transferred to him by gift, within the same period prior to his death;
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not more than two (2)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not more than three (3)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death;
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but not more than four (4)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death; and
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but not more than five (5)
years prior to the death of the decedent, or if the property was transferred to him by gift within the same period
prior to his death.
These deductions shall be allowed only where a donor's tax, or estate tax imposed under this Title is finally
determined and paid by or on behalf of such donor, or the estate of such prior decedent, as the case may be, and
only in the amount finally determined as the value of such property in determining the value of the gift, or the
gross estate of such prior decedent, and only to the extent that the value of such property is included in that part
of the decedent's gross estate which at the time of his death is situated in the Philippines; and only if, in
determining the value of the net estate of the prior decedent, no deduction is allowable under paragraph (2) of
Subsection (B) of this Section, in respect of the property or properties given in exchange therefore. Where a
deduction was allowed of any mortgage or other lien in determining the donor's tax, or the estate tax of the prior
decedent, which was paid in whole or in part prior to the decedent's death, then the deduction allowable under said
paragraph shall be reduced by the amount so paid. Such deduction allowable shall be reduced by an amount which
bears the same ratio to the amounts allowed as deductions under paragraphs (1) and (3) of this Subsection as the
amount otherwise deductible under paragraph (2) bears to the value of that part of the decedent's gross estate
which at the time of his death is situated in the Philippines. Where the property referred to consists of two (2) or
more items, the aggregate value of such items shall be used for the purpose of computing the deduction.
(3) Transfers for Public Use. - The amount of all bequests, legacies, devises or transfers to or for the use of the
Government of the Republic of the Philippines or any political subdivision thereof, for exclusively public purposes.
A non-resident decedent who was not a citizen of the Philippines at the time of death,
with properties within and outside the Philippines, is subject to tax only on his estate
within the Philippines.
Due to this, the estate in the Philippines is allowed deductions for:
1. Expenses, losses, indebtedness, taxes, etc, computed by:
Gross Estate, Philippines x World expenses, losses, indebtedness,
Gross Estate, World taxes, funeral expenses, judicial
expenses, etc
It does not matter where the expenses are paid or incurred. On the total of
the items, the formula provided by law will be applied.
Moreover, it also doesnt matter if you can pinpoint specifically where the
expenses were incurred, you have to use the formula.
2. Transfers for public use of property in the Philippines
3. Vanishing deduction on property in the Philippines
A non-resident, not citizen is NOT allowed:
1. Deduction for family home
2. Standard deduction
3. Deduction for medical expenses

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4. Deduction for amount receivable under RA 4917

D) Miscellaneous Provisions. - No deduction shall be allowed in the case of a nonresident not a citizen of the
Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return
required to be filed under Section 90 the value at the time of his death of that part of the gross estate of the
nonresident not situated in the Philippines.
No deduction shall be allowed for a non-resident alien unless the executor, administrator
or anyone of his heirs, includes in the return required to be filed under Sec. 90 the value
at the time of the decedents death that part of his gross estate not situated in the
Philippines. (Needed for the formula specified above)

Net Estate Computation of Married Persons


Section 85 (H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not,
for the purpose of this Chapter, be deemed a part of his or her gross estate.
Section 86 (C) Share in the Conjugal Property. - the net share of the surviving spouse in the conjugal
partnership property as diminished by the obligations properly chargeable to such property shall, for the purpose of
this Section, be deducted from the net estate of the decedent.
Gross estate
The gross estate of a decedent who was married and who was under the system of
absolute community of property during the marriage consists of:
1. The EXCLUSIVE properties of the decedent, and
2. The COMMUNITY properties
The exclusive properties are:
1. Property acquired during the marriage by gratuitous title (inheritance/donation) by
either spouse, and the fruits as well as the income thereof
a. Unless the donor, testator or grantor states that they will be part of the
community property
2. Property for personal and exclusive use of either spouse
a. But jewelry will form part of the community property
3. Property acquired BEFORE the marriage by either spouse who have legitimate
descendants by a former marriage, and the fruits as well as the income of such
property

Community property will consist of all properties owned by the spouses at the time of
the celebration marriage or acquired thereafter (presumed to belong to the community)
o The family home constituted by the husband and wife is community property.
Proceeds of life insurance taken out by the decedent on his own life, when includible in
the gross estate, will be exclusive property if the premiums were paid out of exclusive
funds.
o They will be community property if the premiums were paid out of community
funds.
A claim against an insolvent person will be included in the gross estate as exclusive or
community depending on whether the claim is for exclusive or community property.
Deductions from gross estate
The same rules and ceilings which were discussed on the part of deductions will apply
The following are the community/conjugal deductions:
1. Funeral expenses and judicial expenses
2. Special deductions of family home, standard deduction, medical expenses and
amounts receivable under RA 4917
3. Those obligations contracted during the marriage which are presumed to have
benefited the family (debts incurred during the marriage, etc)
The following are exclusive deductions:

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1. Debts before the marriage by either spouse that did NOT redound to the benefit of
the family
2. Support of the illegitimate children of either spouse
3. Liabilities incurred by either spouse of a crime

So, how do we get the net estate of a married person?


Step 0: Know which are community/conjugal and which are exclusive
Step 1: Get the net conjugal estate (gross conjugal estate conjugal deductions)
Step 2: Get the decedents share (net conjugal estate/2)
Step 3: Get the gross estate of the decedent (decedents share + exclusive properties)
Step 4: Get his net estate (gross estate of the decedent exclusive & special deductions)
Step 5: Once you reach step 4, yun na yon! Thats the decedents taxable estate.

Mao, a citizen and resident of the Philippines, was married under the system of absolute
community of property during the marriage. He died leaving the following properties and
obligations:
Real properties inherited from his father 10 years ago and before the marriage P200k
Real property received as a gift from the mother 7 years ago,
during the marriage P1.115m
Cash income from the property received as gift P5k
Real property owned by Mrs. Mao before the marriage P300k
The family home P500k
Medical expenses P70k
Funeral expenses P50k
Judicial expenses for settlement of estate P100k
Obligations incurred during the marriage P150k
Debt of Mao before the marriage P120k

Step 0: Determine what are conjugal/community and what are exclusive

Step 1: Get the net conjugal estate (gross conjugal estate conjugal deductions)
(P200k1 + P300k2 +500k3) - (P50k4 + P100k5 + P150k6) = P700k

Step 2: Get the decedents share (Step 1s NCE/2)


P700k/2 = P350k

Step 3: Get the gross estate of the decedent (decedents share + exclusive properties)
P350k + P1.115m7 + P5k8 = P1.47m

Step 4: Get his net estate (Gross estate decedent exclusive deductions & special
deductions)
P1.47m (P120k9 + P250k10 + P70k11 + P1m12) = P30k

1
Real property inherited from the father
2
Real property owned by Mrs. Mao before the marriage
3
Value of the family home
4
Funeral expenses
5
Judicial expenses
6
Obligations incurred during the marriage
7
Real property gift from mom during marriage
8
Income from the gift
9
debt before marriage
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Step 5: The net taxable estate is P30k. Check the schedular rate, and youll find out that his
estate is tax exempt!

Tips:
Do not forget the limitations and ceilings imposed by the general rule of deductions.
o Family home only up to P1m.
o Funeral expenses only up to P200k whatevers lower of the actual expense and
5% of the gross estate (exclusive + conjugal)
o Medical expenses not to exceed P500k
Remember that only of the family home is counted as a special deduction (since half
belongs to the still living spouse).
o And also remember that if the value of the family home (once halved) is above
P1m, the deduction allowed is still P1m because of the ceiling imposed by law.
Dont forget to subtract the standard deduction. Its not usually given as part of the facts
but you still have to deduct that.
Medical expenses are special deductions and are deducted from the gross estate of the
decedent. Funeral deductions are conjugal deductions and are deducted from the gross
conjugal/community estate.

Exemption from Estate Tax


SEC. 87. Exemption of Certain Acquisitions and Transmissions. - The following shall not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the
net income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent
(30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.
The following are exempt from estate tax:
1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee
to the fideicommisary
3. Transmission from the 1st heir, legatee or donee in favor of another beneficiary in
accordance with the desire of the predecessor, and
4. All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income inures to the benefit of any individual,
provided that not more than 30% of the said bequests, devises, legacies or transfers
shall be used by such institutions for the administration purposes

Tax Credit for Foreign Estate Tax


E) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be credited with the amounts of any estate tax imposed by the
authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the
following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the
tax against which such credit is taken, which the decedent's net estate situated within such country taxable under
this Title bears to his entire net estate; and

10
the value of the family home
11
Medical expenses
12
Standard deduction! Dont forget!
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(b) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is
taken, which the decedent's net estate situated outside the Philippines taxable under this Title bears to his entire
net estate.
To minimize the onerous effect of taxing the same property twice, a tax credit against
Philippine estate tax is allowed for estate taxes paid to foreign countries.

One foreign country


What you paid to the foreign country
Tax Credit Limit = Net foreign estate x Tax here in the Philippines
Entire Net Estate

Between what you paid to the foreign country and the tax credit limit here, you choose
whatevers lower as what you can credit.
See example in donors tax part.

If tax is paid to 2 or more foreign countries:


Limitation A: see above
Limitation B: Tax Credit Limit = Total foreign net estate x Tax here in the Philippines
Entire Net Estate

Between limitation A and B, you choose whatevers lower as your credit.

Admin Provisions
SEC. 89. Notice of Death to be Filed. - In all cases of transfers subject to tax, or where, though exempt from
tax, the gross value of the estate exceeds Twenty thousand pesos (P20,000), the executor, administrator or any of
the legal heirs, as the case may be, within two (2) months after the decedent's death, or within a like period after
qualifying as such executor or administrator, shall give a written notice thereof to the Commissioner.
A notice of death must be filed within two months after the decedents death:
1. In all cases of transfers subject to tax, or
2. When exempt, the value of the estate exceeds P20,000

SEC. 90. Estate Tax Returns. -

(A) Requirements. - In all cases of transfers subject to the tax imposed herein, or where, though exempt from tax,
the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of
the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting
forth:
(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen
of the Philippines, of that part of his gross estate situated in the Philippines;
(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and
(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall
be supported with a statement duly certified to by a Certified Public Accountant containing the following:
(a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of
a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86; and
(c) The amount of tax due whether paid or still due and outstanding.
(B) Time for Filing. - For the purpose of determining the estate tax provided for in Section 84 of this Code, the
estate tax return required under the preceding Subsection (A) shall be filed within six (6) months from the
decedent's death.
A certified copy of the schedule of partition and the order of the court approving the same shall be furnished the
Commissioner within thirty (30) after the promulgation of such order. (C) Extension of Time. - The
Commissioner shall have authority to grant, in meritorious cases, a reasonable extension not exceeding thirty (30)
days for filing the return. (D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the

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return required under Subsection (A) shall be filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or duly authorized Treasurer of the city or municipality in which the decedent was domiciled at
the time of his death or if there be no legal residence in the Philippines, with the Office of the Commissioner.
An estate tax return is required to be filed when the estate is:
1. Subject to estate tax,
2. Exempt from estate tax, but the gross estate exceeds P200,000
3. Regardless of the amount of the gross estate, where the said gross estate consists of
registered or registerable property, motor vehicle or shares of stock, or other similar
property for which clearance from the BIR is required as a condition precedent for
the transfer of ownership thereof in the name of the transferee.
The return shall be under oath and shall include the following:
1. Value of the gross estate at the time of the decedent (for non-resident aliens, the
value of the gross estate here in the Philippines)
2. Deductions allowed from the gross estate
3. Whatevers necessary to establish the correct estate tax
If the estate tax return shows that the gross estate exceeds P2,000,000, it should be
accompanied by a statement certified by a CPA. See codal.
The estate tax return should be filed within 6 months after the decedents death.
o The BIR can extend this, but not more than 30 days.
A return need not be complete in all particulars. It is sufficient if it complies substantially
with the law. There is substantial compliance when:
o The return is made in good faith and is not false or fraudulent;
o It covers the entire period involved; and
o It contains information as to the various items of income, deductions and credits
with such definiteness as to permit the computation and assessment of the tax.
(CIR v Gonzales)
Where the return was made on the wrong form, it was held that the filing
thereof did not start the running of the period of limitations, and where
the return was very deficient, there was no return at all. (same case)

SEC. 91. Payment of Tax. -


(A) Time of Payment. - The estate tax imposed by Section 84 shall be paid at the time the return is filed by the
executor, administrator or the heirs.
(B) Extension of Time. - When the Commissioner finds that the payment on the due date of the estate tax or of
any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for
payment of such tax or any part thereof not to exceed five (5) years, in case the estate is settled through the
courts, or two (2) years in case the estate is settled extrajudicially. In such case, the amount in respect of which
the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the
running of the Statute of Limitations for assessment as provided in Section 203 of this Code shall be suspended for
the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and regulations, or fraud on
the part of the taxpayer, no extension will be granted by the Commissioner.
If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, as the
case may be, to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties
as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms
of the extension.
(C) Liability for Payment. - The estate tax imposed by Section 84 shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share of the estate. Such beneficiary shall to the extent of his
distributive share of the estate, be subsidiarily liable for the payment of such portion of the estate tax as his
distributive share bears to the value of the total net estate.
For the purpose of this Chapter, the term "executor" or "administrator" means the executor or administrator of the
decedent, or if there is no executor or administrator appointed, qualified, and acting within the Philippines, then
any person in actual or constructive possession of any property of the decedent.
Estate tax shall be paid at the time the return is filed.
The Commissioner may extend the payment of such tax.
o It should not exceed 5 years in case of judicial settlement, and 2 years if
extrajudicial settlement.
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o The running of the period of limitation for assessment shall be suspended for the
period of such extension.
The estate tax shall be paid by the executor or administrator before delivery to any
beneficiary of his distributive share of the estate.
o Where there are two or more executors, all of them are severally liable for the
payment of the estate tax. (CIR v Gonzales)
o The inheritance tax, although charged against the account of each beneficiary,
should be paid by the executor or administrator.
o Such beneficiary shall be subsidiarily liable for the payment of such tax to the
extent of his share
Claims for income tax need not be filed with the committee on claims and appraisals in
the course of testate proceedings, and the amount thereof may be collected after the
distribution of the decedents estate among his heirs, who shall be liable in proportion to
their share in the inheritance. (Government v Pamintuan)
The government, in collecting unpaid taxes accruing before the death of the decedent,
has two ways of collecting the said taxes. (CIR v Pineda)
1. By going after all the heirs and collecting from each one of them the amount of the
tax proportionate to the inheritance received.
2. By subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due the estate. (or, go against one heir for the
entire tax, subject to the heirs right of contribution from his co-heirs.)

Miscellaneous Provisions
SEC. 92. Discharge of Executor or Administrator from Personal Liability. - If the executor or administrator
makes a written application to the Commissioner for determination of the amount of the estate tax and discharge
from personal liability therefore, the Commissioner (as soon as possible, and in any event within one (1) year after
the making of such application, or if the application is made before the return is filed, then within one (1) year
after the return is filed, but not after the expiration of the period prescribed for the assessment of the tax in
Section 203 shall not notify the executor or administrator of the amount of the tax. The executor or administrator,
upon payment of the amount of which he is notified, shall be discharged from personal liability for any deficiency in
the tax thereafter found to be due and shall be entitled to a receipt or writing showing such discharge.
SEC. 93. Definition of Deficiency. - As used in this Chapter, the term "deficiency" means:
(a) 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 heirs upon his return; but the amounts so shown on the return shall first be increased
by the amounts previously assessed (or collected without assessment) as a deficiency and decreased by the
amount previously abated, refunded or otherwise repaid in respect of such tax; or
(b) If no amount is shown as the tax by the executor, administrator or any of the heirs upon his return, or if no
return is made by the executor, administrator, or any heir, 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, refunded or otherwise
repaid in respect of such tax.
SEC. 94. Payment Before Delivery by Executor or Administrator. - No judge shall authorize the executor or
judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from
the Commissioner that the estate tax has been paid is shown.

SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in the Registry of
Property any document transferring real property or real rights therein or any chattel mortgage, 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, Revenue District Officer, or Revenue Collection Officer or Treasurer of the city or municipality
where their offices are located, of the non payment of the tax discovered by them. 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 mortis causa, legacy or inheritance, shall have
the duty of furnishing the Commissioner, Regional Director, Revenue District Officer or Revenue Collection Officer
of the place where he may have his principal office, with copies of such documents and any information whatsoever
which may facilitate the collection of the aforementioned tax. Neither shall a debtor of the deceased pay his debts
to the heirs, legatee, executor or administrator of his creditor, unless the certification of the Commissioner that the
tax fixed in this Chapter had been paid is shown; but he may pay the executor or judicial administrator without
said certification if the credit is included in the inventory of the estate of the deceased.
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SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the payment of the
estate tax, new obligations of the decedent shall appear, and the persons interested shall have satisfied them by
order of the court, they shall have a right to the restitution of the proportional part of the tax paid.
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights. - There shall not be
transferred to any new owner in the books of any corporation, sociedad anonima, partnership, business, or
industry organized or established in the Philippines any share, obligation, bond or 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 Title
and due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that
the taxes imposed thereon by this Title have been paid: Provided, however, That the administrator of the estate or
any one (1) of the heirs of the decedent may, upon authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (P20,000) without the said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be under oath by the said depositors.

Donors Tax
SEC. 98. Imposition of Tax. -
(A) There shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of
the property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or intangible.
Gifts and donors tax will be levied, assessed, collected and paid upon the transfer by
any person, resident or nonresident, of property by gift
o The property can be real or personal, tangible or intangible
o The transfer can be in trust or otherwise
o The gift can be direct or indirect
The donors tax shall not apply unless and until there is a completed gift. The transfer of
property by gift is perfected from the moment the donor knows of the acceptance by the
donee; it is completed by the delivery, either actually or constructively, of the donated
property to the donee. Thus, the law in force at the time of the perfection/completion
of the donation shall govern the imposition of the donors tax. (RR 02-03)

Gross gifts
SEC. 104. Definitions. - For purposes of this Title, the terms "gross estate" and "gifts" include real and personal
property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent
or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal
property so transferred but which are situated outside the Philippines shall not be included as part of his "gross
estate" or "gross gift": Provided, further, That franchise which must be exercised in the Philippines; shares,
obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in
accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the
business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any
partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if
the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect
of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of
the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation
allows a similar exemption from transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign count
There are two kinds of donors (similar to estate tax):
1. The resident or citizen of the Philippines, and
2. The non-resident, not citizen of the Philippines
If the donor is a resident or a citizen of the Philippines, gross gifts would consist of:
1. Real estate, regardless of location
2. Tangible personal property, regardless of location
3. Intangible personal property, regardless of location
If the donor is non-resident, not citizen of the Philippines, gross gifts would consist of:
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1. Real estate located in the Philippines
2. Tangible personal property located in the Philippines
3. Intangible personal property located in the Philippines, subject to the reciprocity
clause (Similar to the rules for estate tax, see discussion there for what constitutes
intangible property)
a. If donor at the time of the donation was a citizen and resident of a foreign
country which at the time of the donation did not impose a transfer tax of any
character in respect of intangible personal property of Filipino citizens not
residing in that country, or
b. If the laws of the foreign country of which the donor was a citizen and resident
at the time of donation allow a similar exemption from transfer taxes of every
character in respect of intangible personal property owned by citizens of the
Philippines not residing in that country

A donation made by a corporation to the heirs of a deceased office out of gratitude for
his past services is subject to the donees gift tax. It is not subject to deduction for the
value of said services which do not constitute a recoverable debt. (Pirovano v CIR, the
heirs here wanted to consider it remuneratory so it wont be taxed as a gift. In this case,
the donees were the ones who were made liable to pay, not the donor)
Prior to RA 7166, a donation for a political candidate was subject to donors tax. (ACCRA
v CIR, wherein the ACCRA partners claimed that political and electoral contributions
were not subject to donors tax)
o But now, under RA 7166, contributions duly reported to the BIR are not subject
to any donors tax.13
o Segue to election taxes: so what happens to the money given to the candidate?
(RR 7-2011, Feb 8, 2011)
GR: The money given to the candidate will NOT go into his taxable
income, as long as it is utilized in his campaign.
HOWEVER, unutilized/excess campaign funds shall be subject to
income tax.
Moreover, any candidate (winner or loser) must file with the COMELEC
his/her statement of expenditures. If not, he/she will be precluded from
using such expenditures as deductions from his/her campaign
contributions. As such, the entire amount of such contributions will be
directly subject to income tax.
o Any provision of law to the contrary notwithstanding, any contribution in cash or
in kind to any candidate or political party or coalition of parties for campaign
purposes, duly reported to the Commission shall not be subject to the payment of
any gift tax. (RR 8-2009, Oct 22, 2009)
Any provision of law to the contrary notwithstanding, any contribution in
cash or in kind to any candidate or political party or coalition of parties for
campaign purposes, duly reported to the Commission shall not be subject
to the payment of any gift tax. (RR 8-2009)

Also to be considered as gifts are the following:


1. Transfers for insufficient consideration
2. Cancellation of indebtedness

Transfers for insufficient consideration

13
Sec 13 xxx Any provision of law to the contrary notwithstanding any contribution in cash or in kind to any candidate or political party or
coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to the payment of any gift tax.
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SEC. 100. Transfer for Less Than Adequate and Full Consideration. - Where property, other than real
property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or
money's worth, then the amount by which the fair market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in
computing the amount of gifts made during the calendar year.
A transfer of real/personal property will be considered a donation/gift and subject to the
donors tax when:
1. The transfer was for less than adequate and full consideration,
2. Such transfer was effective during his life time (inter vivos), and
3. Other than real property in Sec 24 (d), i.e. the property was not subject to final
capital gains tax (capital asset).
In cases like this, the amount by which the value of the property exceeded the
consideration received shall be considered a donation.
o Mos sold to Jango for P100k a property which had a FMV of P280k. the P180k will
be considered a donation and thus subject to the tax.
With re: #3, what are the implications if the real property sold was a capital asset as
against an ordinary asset?
o For example, the real property had a cost of P100, a FMV of P200, but sold for
only P170.
If it were classified as a capital asset, it will be taxed 6% of the FMV
(remember, the base is either the consideration or the FMV, whichever is
higher).
If it were classified as an ordinary asset, it will be taxed twice. First, it will
be taxed for income tax purposes (tax base of P70). Second, it will be
taxed for donors tax (tax base of P30). In this case, donors tax will be
attracted unwittingly.

Cancellation of indebtedness
If a creditor desires to benefit a debtor, and without any consideration therefore, cancels
the debt (and the debtor accepts), the amount of the debt is a donation by the creditor
to the debtor.

Value of the gifts


SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in property, the fair market value thereof at
the time of the gift shall be considered the amount of the gift. In case of real property, the provisions of Section
88(B) shall apply to the valuation thereof.
The fair market value of the property donated/given at the time of the donation shall be
the value of the gross gifts.

Deductions from gross gifts


SEC. 101. Exemption of Certain Gifts. - The following gifts or donations shall be exempt from the tax provided
for in this Chapter: (A) In the Case of Gifts Made by a Resident. -
(1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by
parents to each of their legitimate, recognized natural, or adopted children to the extent of the first Ten thousand
pesos (P10,000):
(2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is
not conducted for profit, or to any political subdivision of the said Government; and
(3) 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:
Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of the exemption, a 'non-profit 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 institution or organization, incorporated as a
nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its

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income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment
and promotion of the purposes enumerated in its Articles of Incorporation.
These exemptions of certain gifts should be taken to mean the deductions allowed by
law to arrive at the taxable net gifts.
The deductions allowed for a resident or citizen donor:
1. Dowries or gifts made on account of marriage and before its celebration, or within
one year thereafter, by parents to each of their legitimate, recognized natural or
adopted children
Only to the extent of P10,000
Remember, this article only covers gifts of a parent to his/her child, not a
parent to his future son-in-law/daughter-in-law. If the gift is given to a future
son-in-law/daughter-in-law, no deductions will be allowed because the latter
are considered strangers. (ouch naman!)
2. Gifts made to or for the use of the National Government or any entity created by any
of its agencies which is not conducted for profit
3. Gifts in favor of educational and/or charitable, religious, cultural or social welfare
corporations, institutions, accredited NGOs, trust or philanthropic organizations,
research institutions or organizations, provided that not more than 30% of said gifts
shall be used by such donee for administration purposes
The entity must be:
i. Non-stock
ii. Paying no dividends
iii. Governed by trustees who receive NO compensation
iv. Devoting ALL its income to the accomplishment of the purpose
enumerated in its AOI

Deductions from the gross gifts by husband and wife


For deductions from gross gifts made by husband and wife, out of community/conjugal
property, each donor has his or her own deductions. Their donations will be distributed
equally among them. (1/2)
o However, if what was donated is a conjugal or community property and only the
husband signed the deed of donation, there is only one donor for donors tax
purposes, without prejudice to the right of the wife to question the validity of the
donation without her consent pursuant to the pertinent provisions of the Civil
Code of the Philippines and the Family Code of the Philippines.
Each of the spouses is entitled to a maximum deduction of P10,000 for donation on
account of marriage.

Example Husband and wife donated P400k to son and daughter-in-law, on account of
marriage out of community property. How do we break this down?

Gross gift Gross gift to Deduction Kind of Net Gift Tax Rate Donors
by donee (see Tax
schedule)
Father Son P100k P10k Non- 90k Exempt 0
P200k stranger
Daughter-in- None Stranger 100k 30% 30k
law P100k

Mother Son P100k P10k Non- 90k exempt 0


P200k stranger
Daughter-in- none Stranger 100k 30% 30k
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law P100k

Deductions for a non-resident, not citizen donor


(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines. -
(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is
not conducted for profit, or to any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution,
foundation, trust or philanthropic organization or research institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes.
Same as the resident or citizen donor EXCEPT that they arent allowed deductions for
gifts on account for marriage

Other deductions
The BIR ahs allowed the following as deductions from gross gifts to arrive at net gifts:
1. Encumbrance on the property donated, if assumed by the donee
2. Those specifically provided by the donor as a diminution of the property donated.

Example Lhizavhel donated land which was subject to a mortgage to Chlahrihvel. The FMV
of the land was P1m, but the mortgage was P400k. Chlahrihvel agreed to assume the
mortgage, hence the deduction of P400k is allowed. The net gift is P600k.

Tax rates Payable by Donor


SEC. 99. Rates of Tax Payable by Donor. -

(A) In General. - The tax for each calendar year shall be computed on the basis of the total net gifts made during
the calendar year in accordance with the following schedule:
If the net gift is:
Over But not over The tax shall be Plus Of Excess over
P100k Exempt
P100k 200k 0 2% P100k
200k 500k 2k 4% 200k
500k 1m 14k 6% 500k
1m 3m 44k 8% 1m
3m 5m 204k 10% 3m
5m 10m 404k 12% 5m
10m 1.004m 15% 10m
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee or beneficiary is stranger, the tax payable by
the donor shall be thirty percent (30%) of the net gifts. For the purpose of this tax, a "stranger", is a person who is
not a:
(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as amended.
The tax rate for donors are illustrated in the table above.
However, if donee or beneficiary is a stranger, the tax payable by the donor shall be
30% of the net gifts.
A stranger is a person who is NOT a:
1. Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal
descendant, or
2. Relative by consanguinity in the collateral line within the 4th degree of relationship.
Donation made between business organizations and those made between an individual
and a business organization shall be considered as donation made to a stranger. (RR 02-
03)

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The basic tax formula is as follows:
On the first donation of a calendar year
Gross gifts
Less: Deductions from these gross gifts
Net Gifts
X Donors tax rate
Donors tax due on the net gifts

On a subsequent donation in the same calendar year


Gross gifts made on this date
Less: Deductions from these gross gifts
Net gifts made on this date
Plus: All prior net gifts given with the same calendar year
Aggregate net gifts

Donors tax on aggregate net gifts


Less: Donors tax on all prior net gifts within the same calendar year
Donors tax due on the net gifts of this date

Example
Mr. and Mrs. Lumbat are Filipino residents. On Jan 3, 2010, they donated a lot with a FMV
of P2m to their child, Zombie, and his wife, Honka Monka on account of their marriage. On
June 3, 2010, they donated P200k to Mr. Lumbats brother, Piggie Boy.

Mr. Lumbat Mrs. Lumbat


Jan 3, 2010 Non-stranger Stranger Total Non-stranger Stranger Total
Gross gifts
made:
To Zombie, 500k 500k 500k 500k
To Honka Monka, 500k 500k 500k 500k
Total 500k 500k 1m 500k 500k 1m
Deduction: 10k 0 10k 10k 0 10k
For account of
marriage
Net gifts made 490k 500k 990k 490k 500k 990k
Donors tax 13,600 150,000 163,600 13,600 150,000 163,600
(use (use 30%) (use (use 30%)
schedule) schedule)

June 3, 2010
Gross gifts
made:
To Piggie Boy 100k 100k 100k 100k
Total 100k 100k 100k 100k
Deduction: 0
Net gifts made 100k 0 100k 0 100k 100k
on this date
Add: All prior net 490k 500k 490k 500k
gifts within the
year
Aggregate net 590k 500k 490k 600k
gifts
Donors tax on 19,400 150,000 13,600 180,000
aggregate net
gifts
Less: Donors tax 13,600 150,000 13,600 150,000
on all prior net
gifts within the
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year
Donors Tax Due 5,800 0 5,800 0 30,000 30,000

Donors Tax Return


SEC. 103. Filing of Return and Payment of Tax. -
(A) Requirements. - any individual who makes any transfer by gift (except those which, under Section 101, are
exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a return under oath
in duplicate. The return shall se forth:
(1) Each gift made during the calendar year which is to be included in computing net gifts;
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
(4) The name of the donee; and
(5) Such further information as may be required by rules and regulations made pursuant to law.
(B) Time and Place of Filing and Payment. - The return of the donor required in this Section shall be filed within
thirty (30) days after the date the gift is made and the tax due thereon shall be paid at the time of filing. Except in
cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to an authorized agent
bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of the city or
municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence in the
Philippines, with the Office of the Commissioner. In the case of gifts made by a nonresident, the return may be
filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or
directly with the Office of the Commissioner.
The donors tax return must be filed within 30 days after the date of the donation.
On all donations of one date, only one donors tax return is required.
In case of husband and wife as donors the donors tax return of the husband will be
apart of the donors tax return of the wife.
Where to file? See codal.
When and where to pay? The donors tax will be paid at the time the return is filed, and
with the office where the return is filed.

Donors tax credit


(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any donor's tax of any character and description imposed by the
authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the
following limitations:
(a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the
tax against which such credit is taken, which the net gifts situated within such country taxable under this Title
bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is
taken, which the donor's net gifts situated outside the Philippines taxable under this title bears to his entire net
gifts.
Only resident or citizen donors are allowed donors tax credit.
Why? Because they are the only ones taxed worldwide. A non-resident non-citizen is not
taxed for his donations in foreign jurisdictions.
For a foreign donors tax paid to a foreign country, a credit is allowed to reduce the
Philippine donors tax to pay, under the formula:

Foreign donors tax paid = xxxx


Limit:
Net foreign gifts x Philippine Donors Tax = xxxx
Net gifts, worldwide

Allowed tax credit is whichever is lower of the foreign donors tax paid and the limit.
Example
Mr. Aquino donated property to Jojo here in the Philippines, net gift value of P200k.
He also donated to Pele in Brazil, net gift value of P300k. In Brazil, he paid a tax of P10k.
They are both relatives of Mr. Aquino.
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Foreign donors tax paid = P10k
Donors tax supposed to be paid worldwide, without the credit = P14,000.

Credit is:
300k x P14,000 = 8,400
500k

So choose whats lower between the tax paid abroad and the credit limitation. So, its
P8,400. Thats the tax credit.
Mr. Aquino has to pay P5,600 na lang.

If two foreign countries


Limitation A: Foreign donors tax paid to the foreign country
Net gifts, foreign country x Philippine donors tax
Net gifts, world
Allowed tax credit = whatevers lower

Limitation B (by totals)


Total of foreign donors taxes paid to the foreign countries
Net gifts, outside the Phil x Philippine donors tax
Net gifts, world
Allowed tax credit = whatevers lower

Tax credit to apply is whatever is lower between Limitation A and Limitation B

Value-Added Tax
TITLE IV
VALUE-ADDED TAX

CHAPTER I
IMPOSITION OF TAX
SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added 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, properties or services at the time of the effectivity of Republic Act No. 7716.
VAT is imposed on any person who:
1. Sells, barters or exchanges goods or properties in the course of trade or business; or
2. Sells services in the course of trade or business; or
3. Imports goods, whether or not in the course of trade or business.
The VAT is a tax on consumption, levied on the sale, barter, exchange or lease of goods
or properties and services in the Philippines and the importation of goods into the
Philippines.
o The seller is the one statutorily liable for the payment of the tax, but the amount
of the tax may be shifted or passed on to the buyer, transferee or lessee of the
goods or properties or services.
Is VAT really a tax on the value-added?
o Yes. Consider this:
A sells to B a piece of wood.
Price: P100
Tax (10% for this example): P10.
Total: P110.
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B then makes the wood into a fine chair, and he sells it to C.


Price: P150.
Tax: P15
Total: P165.

B has an output tax of P15, and an input of P10. He has a P5 NET VAT payable
(output-input). Ok, fine, but where do we see the tax on the value added by B?
We see that in the level of the price level. By applying his skills and labor, B
made a chair out of the wood that he bought from A. From P100, the price increased to
P150. There was a P50 increase from the value added by B. And applying the VAT on this
P50, it results into the same amount, which is P5. This proves that the tax is really on the
value added.

How do we know if the transaction is subject to VAT? What are the elements?
1. It must be done in the ordinary course of trade or business
2. There must be a sale, barter, exchange, lease of goods or properties, or
rendering of service in the Philippines.
3. It is not VAT-exempt or VAT zero-rated.
o If all three are present, then the transaction is subject to the 12% VAT. Absence
of one will not make the transaction subject to VAT.
But remember that importations are subject to VAT, whether or not in the
course of trade or business.
As it is a tax on the transaction, there is no need whatsoever for there to be a taxable
gain (unlike in income tax). It is not required by either law or jurisprudence.
o In fact, the NIRC and in CIR v CA and COMASERCO state that non-stock, non-
profit organizations are subject to the VAT, as long as the service is done for a
fee or remuneration.
In his comment, Sir said that Comaserco would have escaped liability from
VAT if they pressed the point that they were doing the services not in the
course of business.

Ordinary course of trade or business


Sec. 105
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, by any person regardless of whether or not the person
engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines
by nonresident foreign persons shall be considered as being course of trade or business.
It means the regular conduct or pursuit of a commercial or an economic activity.
o It also includes transactions incidental thereto.
o It covers any person regardless whether or not the person engaged therein is a
nonstick, nonprofit organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members or their guests), or a
government entity.
There should be
o a commercial or economic activity, and
o regularity in the action.
Regular involves more than one isolated transaction. It requires repetition
and continuity of action.

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However, if the taxpayer is a non-resident alien, there is no need for the regularity of
conduct. Services rendered by them in the Philippines are considered as being in the
course of trade or business, and thus, subject to the VAT.
o This is an exception to the regularity requirement.
Any sale, barter or exchange of goods or services not in the course of trade or business
is not subject to VAT. (CIR v Magsaysay, wherein a company sold property to another.
SC said no VAT since seller was not involved in the business of selling property)
When determining if this element/requisite exists, be mindful of the following:
o Was the transaction done regularly? Or isolated?
o Was it incidental thereto?
o Is the taxpayer a non-resident alien? (Because if he is, the transaction need not
be regular.)
Between an automobile shop who sells 5 parcels of land and a real estate dealer who
sold a parcel of land, both will be subject to VAT. The automobile shop because of its
regular conduct, and the real estate dealer because of the nature of his business
(pursuit of a commercial or economic activity, which takes the quantitative approach.)
This provision notwithstanding, an importation of goods for personal use is still subject
to VAT because of Section 107.
o This is an exception to pursuit of a commercial or economic activity
requirement

For the next part, well go by tax rates.


First, well look at those taxed at 12% (Usual VATable and Importations)
Next, those taxed at 0%.
And then finally, the exempt transactions.

Sale, lease, etc of goods or rendering of services


Lets take up sale of goods or properties first.
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
In dealing with this element, youre dealing with two questions:
o Is this a normal sale?
o If not, is this at least a transaction which are deemed sales by law (Sec. 106 (b)?
Generally, the VAT rate is 12% on the gross selling price or gross value in money of the
goods, properties sold, bartered or exchanged.
o We say generally because there are some transactions which are subject to 0%
or tax exempt, but well take those later.
For sale of goods or properties, the tax base is the gross selling price.

The term gross selling price means the total amount of money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding
the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price.

(D) Determination of the Tax. -


Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and subsequently returned
or for which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts
for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount granted and
indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future
event may be excluded from the gross sales within the same quarter it was given.
The term gross selling price means the total amount of money or its equivalent which
the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter

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or exchange of the goods or properties, excluding the value-added tax. The excise tax, if
any, on such goods or properties shall form part of the gross selling price.
o In other words, the gross selling price includes everything that the buyer pays
the seller, except the VAT which is shifted to the buyer.
For example, Toby sold a shirt to Carlo. The quoted selling price was
P100, but there were freight charges of P50. The gross selling price is
P150. You apply the VAT to P150.
o While the law says the VAT is based on the gross selling price, gross selling
price does not mean gross sales. The law and regulations allo downward
adjustments for:
Sales returns and allowances;
Sales discounts agreed upon at the time of the sale indicated in the sales
invoice, and availed of by the buyer.

(1) The term goods or properties shall mean all tangible and intangible objects which are capable of pecuniary
estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
Goods or properties include:
a. Real properties held primarily for sale to customers, or held for lease in the ordinary
course of trade or business;
b. The right or privilege to use patent, copyright, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or other like property or right;
c. The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion picture films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
This is not an exclusive list.

What is a sale?
A sale is the transfer of ownership of property in consideration of money received or to
be received.
What are transactions deemed sales?
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or
for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were
consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.
By virtue of law, the following are considered sales in the course of trade or business,
and is subject to the VAT:
a. Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business;
b. Distribution or transfer of inventory to shareholders or investors as share in the
profits of the VAT-registered persons; (Property Dividends)
c. Distribution or transfer of inventory to creditors in payment of debt;

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d. Consignment of goods if actual sale is not made within sixty (60) days following the
date such goods were consigned; and
e. Retirement from or cessation of business, with respect to inventories of taxable
goods existing as of such retirement or cessation.
o For example, Johnson & Johnson gave Atty. Montero baby powder. Thats a
deemed sale by virtue of transfer of goods originally intended for sale
o With number 4 (letter e), Atty. Salvador says that capital goods are included in
the valuation
o Take note of this! Possible multiple choice question!

(E). Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall, by rules and
regulations prescribed by the Secretary of Finance, determine the appropriate tax base in cases where a
transaction is deemed a sale, barter or exchange of goods or properties under Subsection (B) hereof, or where the
gross selling price is unreasonably lower than the actual market value.
The CIR shall determine the appropriate tax base in cases where transactions are
deemed sales, or where the gross selling price is unusually lower than the actual market
value.

Now lets look at sale of service and use or lease of properties.


SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (12%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties.

The phrase "sale or exchange of services" means the performance of all kinds or services in the Philippines for
others for a fee, remuneration or consideration, including those performed or rendered by construction and service
contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether
personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire
another domestic common carriers by land, air and water relative to their transport of goods or cargoes; services
of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code; services of banks, non-bank financial intermediaries and finance
companies; and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity
and bonding companies; and similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret
formula or process, goodwill, trademark, trade brand or other like property or right;
(2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge
or information as is mentioned in subparagraph (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 installation or operation of any brand, machinery or other apparatus purchased from such
nonresident person.
(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) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
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.
The term "gross receipts" means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the 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 another person, excluding value-added tax.

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Any sale or exchange of services in the course of trade or business, including the use or
lease or properties, shall be subject to the VAT.
To be defined as sales of services, the services:
o Should be rendered in the Philippines,
o Can be any and all kinds of services rendered to others (provided there is no
employer-employee relationship);
o There is a fee, remuneration or consideration.
Sale of services in the course of trade or business includes those performed or rendered
by:
a. construction and service contractors
b. stock, real estate, commercial, customs and immigration brokers
c. lessor of property, whether personal or real
d. warehousing services
e. lessor or distributors of cinematographic films
f. persons engagedin milling, processing, manufacturing or repacking of goods for
others
g. proprietors, operators, or keepers of hotels, motels, resthouses, pension houses,
inns, resorts
h. proprietors or operators of restaurants, refreshment parlors, cafes and other eating
places, including clubs and caterers
i. dealers in securities
j. lending investors
k. transportation contractors on their transport of goods or cargoes, including persons
who transport goods or cargoes for hire and other domestic common carriers by
land, relative to their transport of goods or cargoes (keep this in mind for when we
take up percentage tax)
l. common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines (same
here)
m. sales of electricity by generation companies, transmission and distribution companies
n. services of franchise grantees of electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees, except those under Section
119 of the NIRC
o. non-life insurance companies (except their crop insurances), including surety, fidelity
and bonding companies
p. similar services regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties
Also included are:
a. The lease or use of or right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand and other
like property or right;
b. The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;
c. The supply of scientific, technical, industrial or commercial knowledge or information;
d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a
means of enabling the application or enjoyment of any such property, or right as is
enumerated in letter (b) hereof or any such knowledge or information as is mention
(c)
e. The supply of services by a non-resident person or his employee in connection with
the use of property or rights belonging to, or the installation or operation of any
brand, machinery or other apparatus purchased from such non-resident person;

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f. 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;
g. The lease of motion picture films, tapes, and discs,
h. The lease or use of or the right to use radio, television, satellite transmission and
cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place
where the contract or lease or licensing agreement was executed if the property is
leased or used in the Philippines
The list not exhaustive. However, exhibition of movies is not subject to VAT, but subject
to amusement tax imposed by local government units. (CIR v SM Prime)
For the sale or exchange of services, including the use or lease of properties, the VAT
rate is 12% of the gross receipts.
Gross receipts means cash or its equivalent actually received or constructively received
(not including the VAT) as:
o Payments on the contract price, compensation, service fee, rental or royalty;
Note: royalty includes services as to investment, training and education
(Philamlife CA GR SP 31283, April 25, 1995)
o Payments or materials supplied with the services; and
o Deposits of advanced payments on the contract for services.
For example, Lionel was a building contractor. He spent P50m for
materials and P30mfor labor. The taxable gross receipts is P80m, the
whole of which is VATable by 12%.
o Constructive receipt occurs when the money consideration or its equivalent is
placed in the control of the person who rendered the service without restriction
by the payor. (like a bank deposit; issuance by the debtor of a notice to offset
any debt or obligation and acceptance thereof by the seller as payment for the
services rendered)
Are reimbursements subject to VAT? (See RMC 9-2006 for more details on this)
o If the reimbursable expenses advanced by brokers on behalf of their customers
are receipted with the brokers VAT OR, then its vatable.
o But if no receipt given (only a non-vat acknowledgment receipt), the same shall
not form the gross receipts of the broker and shall not be subject to the VAT on
the part of the broker.
However, the third-party must provide an OR in the name of the
customer.

VAT on Importation of Goods


SEC. 107. Value-Added Tax on Importation of Goods. -
(A) In General. - There shall be levied, assessed and collected on every importation of goods a value-added tax
equivalent to ten percent (12%) based on the total value used 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, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, If any.
Every importation of goods shall be subject to the VAT, whether the importation is for
sale or use in business, or for personal use.
The imported goods shall be subject to 12% VAT.
The tax base is:

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o the total value used by the Bureau of customs in determining tariff and customs
duty, plus customs duties, excise tax (if any), and other charges prior to the
removal of the goods from customs custody; OR
o based on the landed cost, when the customs duties are determined on the basis
of the quantity or volume of the goods. By landed cost is meant the invoice
cost, freight, insurance, customs duties, excise tax (if any), and other charges
prior to the removal of the goods from customs custody.

(B) Transfer of Goods by Tax-Exempt Persons. - In the case of tax-free 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-exempt persons or entities, the purchasers, transferees or recipients shall
be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax
due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods,
irrespective of the possessor thereof.
This article deals with technical importation.
When a person who was exempt from the VAT on his importation subsequently sells
(transfers or exchanges) in the Philippines such imported article to a non-exempt person
or entity, the purchaser (transferee or assignee) will be required to pay the VAT.
o Xavi is a tax-exempt entity who imported stuff. He then sold it to Diego, a non-
exempt entity. Diego has to pay for the VAT. But Diego can claim the VAT paid as
creditable input taxes.
The VAT of an importation should be paid prior to the releae of the goods from customs
custody. If its subject to both excise tax and VAT, he has to pay both prior to the
release.
A seller of goods or services who imports stuff can claim the VAT paid on importations
during a taxable period as input taxes creditable against the output taxes on the sales of
the same period.

Before tackling zero-rated and exempt transactions, lets have an overview of the VAT
system.
Understanding VAT is a matter of perspective. We first have to know WHO we are
talking about.
Remember that in the VAT system, the burden of paying the VAT is passed on to the
buyer. (A sells to B; B pays the 12% VAT on it.)
o But B can recover the amount he paid to A by selling the shirt to C, since C will
pay the 12% on the VAT.
The biggest difference of zero-rated/effectively zero-rated transactions and VAT-exempt
transactions is the ability to recover VAT already paid to the seller.
o Why do we look at the input tax and not the output tax?
Because the input tax is what we all seek to recover, thats what we paid
for.
Output tax doesnt come out of our own pockets because we can pass that
burden to our buyers.
o In zero-rated transactions, there is total relief for the purchaser from the burden
of the tax since he does not have input VAT and in effect, because VAT is at 0%,
it does not have output VAT.
o In exempt transactions, there is only partial relief because the purchaser is not
allowed any tax refund or credit for input taxes paid.
In normal VAT transactions, the VAT paid to A can be recovered by selling it to C. We
are talking about B.

A sells to B B sells to C B paid A P10 as VAT. But


VAT TAXABLE (lets use VAT TAXABLE he recovered the P10 by
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10% to simplify things) selling the product to C.
P100 P150 In his sale to C, he
P10 (VAT) P15 received P15 which
P110 P165 covered the P10 he paid
A. So, in essence, he
recovered the P10 he
paid A.
What if the transaction of B to C is VAT ZERO-RATED?
A sells to B B sells to C B paid A P10 as VAT. But,
VAT TAXABLE (lets use VAT ZERO-RATED his transaction to C was
10% to simplify things) zero-rated. So he didnt
P100 P150 receive anything from C
P10 (VAT) P0 to offset his VAT payment
P110 P150 to A.
He has an output of O,
and an input of 10.
He can use the 10 as a
tax credit by applying for
a tax credit certificate
with the BIR.

What if the transaction of B to C is VAT EXEMPT?


A sells to B B sells to C B paid A P10 as VAT. But,
VAT TAXABLE (lets use VAT EXEMPT his transaction to C was
10% to simplify things) exempt. So he didnt
P100 P150 receive anything from C
P10 (VAT) P0 to offset his VAT payment
P110 P150 to A.
He has an output of O,
and an input of 10.
However, unlike a zero-
rated transation, he can
NOT use the excess of 10
to offset his VAT payment
to A. He cant recover.

So, if we were B, and we had a choice what should our next sale transaction be
normal VATable, zero-rated, or exempt?
o Clearly, we wont go for exempt, because we wont recover the VAT we paid to
our suppliers (A).
But what do you do with the unrecovered VAT in exempt transactions?
Itll be considered as cost, so deductible item.
o Its a toss-up between going for normal VATable transactions and zero-rated
transactions.
In both these cases, we will recover the VAT we paid to our suppliers. It
will just depend on different factors.
If we go for a zero-rated transaction, do we want to go through the
hassle of having to deal with the BIR and paying the fees?
If we go for the normal VATable, the recovery would be quicker.
But this would mean wed have to keep track of the VAT paid to us
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and then have to pay the net VAT payable to the government. And
what if our line of business is really engaged in exporting (zero-
rated), should we go to the trouble of looking for buyers here in
the Philippines if thats not our main line of business anyway?

Zero-rated/Effective zero rated transactions


For goods
Sec 106 (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said
buyer's goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy
percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus Investment
Code of 1987, and other special laws.
(6) The sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or international
air transport operations (added by RA 9337)

(b) Foreign Currency Denominated Sale. - The phrase "foreign currency denominated sale" means sale to a
nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

(c) Sales to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales to zero rate.
For goods, a rate of 0% of the gross selling price will be applied if:
1. Export sale; or
2. Foreign currency denominated sale; or
3. Sales to persons or entities whose exemption under special laws, or international
agreements to which the Philippines is a signatory (effective zero rated sales)
Export sales means:
o the sales and actual shipments or exportations of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so
exported, and
o paid for in acceptable foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the BSP.
The following are also within the meaning of export sales (possible MCQ!):
a. sales of raw materials or packaging materials to a non-resident buyer for delivery to
a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of said buyers goods and paid for in
acceptable foreign currency and accounted for in accordance with BSP rules and
regulations
b. sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed 70% of total annual production
c. sale of gold to the BSP
d. those considered export sales under EO 226 and other special laws
e. sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations
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While an ecozone is geographically within the Philippines, it is deemed a separate
customs territory and is regarded in law as foreign soil. Thus, sales by suppliers from
outside the ecozone to this separate customs territory are deemed as exports and
treated as export sales. (CIR v Sekisui)
Foreign currency denominated sales means
o sales to nonresidents of goods assembled or manufactured in the Philippines,
o for delivery to residents in the Philippines, and
o paid in acceptable foreign currency and accounted for in accordance with BSP
rules and regulations.
o This does not apply to automobiles and non-essential goods subject to excise
taxes.
Under the cross-border principle of the VAT system, no VAT shall be imposed to form
part of the cost of goods destined outside of the territorial border of the taxing authority.
(CIR v Seagate)

For services
Sec 108 (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.
(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 accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, of manufacturing goods for
an enterprise whose export sales exceed seventy percent (70%) of total annual production.
(6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country (RA 9337)
(7) Sale of power or fuel generated through renewable sources of energy such as, but no limited to, biomass, solar,
wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel
cells and hydrogen cells. (RA 9337)
For services performed in the Philippines, a rate of 0% of the gross receipts will be
applied in the following instances:
1. From processing, manufacturing or repacking of goods,
a. For other persons doing business outside the Philippines,
b. The goods are subsequently exported,
c. The services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
2. Services other than processing, manufacturing or repacking of goods, rendered to a:
a. Person engaged in business conducted outside the Philippines, or
b. non-resident person not engaged in business who is outside the Philippines
when the services are performed
i. the consideration is paid in acceptable foreign currency and accounted
for in accordance with the blah blah blah of the BSP
3. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects
such services to zero rate;
4. Services rendered to persons engaged in international shipping or international air
transport operations, including leases of property for use thereof;
5. Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceed 70% of total
annual production;

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6. Transport of passengers and cargo by air and sea vessels from the Philippines to a
foreign country, and
7. Sale of power or fuel generated through renewable sources of energy
Services other than processing, manufacturing, or repacking of goods must likewise be
performed outside the Philippines. (CIR v Bumeister and Wain, wherein the recipient of
the services was the Consortium who was deemed doing business within the Philippines)
In CIR v American Express, AMEX had a branch in the Philippines (AMEX-Phil) who
collected receivables from the Philippine customers of AMEX-Hong Kong. SC held that
AMEX-Phil qualified for zero-rating. It fell under Section 108 (b) (2) (Performed services
in the Philippines for a person doing business outside the Philippines and paid in
acceptable foreign currency)
The VAT system generally follows the destination principle (exports are zero-rated
whereas imports are taxed).
o However, there is an exception in the form of services performed in the
Philippines for a recipient doing business outside the Philippines (since the service
is still done here). (CIR v Wain)
To be exempt from the destination principle under Section 108(b)(1) and (2), the
service must be
o Performed in the Philippines,
o For a person doing business outside the Philippines, and
o Paid in acceptable foreign currency accounted for in accordance with BSP rules.
Effectively-zero rated sales usually come from special laws and international agreements
o RA 7227, RA 7916, Asia Development Bank, Embassies, etc
According to RR 16-2005, PEZA enterprises have to register first with the
BIR to get effectively zero rated benefits. If not, it will just be deemed
exempt. (BIR Ruling DA 736-2006, check if still applicable)

Difference between zero-rated and effectively zero-rated transactions (CIR v Seagate)


Zero-rated transactions refer to the export sale of goods and supply of services. The
seller of such transactions charges no output tax, but can claim a refund or a tax credit
certificate for the VAT previously charged by suppliers. This is for the benefit of the
seller.
Effectively zero-rated transactions refer to the sale of goods or supply of services to
persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such transactions to a zero rate.
Such rate does not yield any tax chargeable against the purchaser. This is for the benefit
of the purchaser.
In both zero-rated and effectively zero-rated transactions, the seller who charges zero
output tax can claim a refund or a tax credit certificate for the VAT previously charged
by suppliers.

Exempt Transactions
SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value added tax:
(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 foods for human consumption; and breeding stock and genetic
materials therefor.
Products classified under this paragraph shall be considered in their original state even if they have undergone the
simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting,
smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra
shall be considered in their original state;
(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 race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered
as pets);
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(c) Importation of personal and household effects belonging to the residents of the Philippines returning from
abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from
customs duties under the Tariff and Customs Code of the Philippines;
(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) belonging to persons coming to settle in the Philippines, for their
own use and not for sale, barter or exchange, accompanying such persons, or 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 change of residence is bona fide;
(e) Services subject to percentage tax under Title V;
(f) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane
into raw sugar;
(g) Medical, dental, hospital and veterinary services except those rendered by professionals;
(h) Educational services rendered by private educational institutions, duly accredited by the Department of
Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED), the Technical Education
and Skills Development Authority (TESDA) and those rendered by government educational institutions
(i) Services rendered by individuals pursuant to an employer-employee 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 Philippines is a signatory or under
special laws, except those under Presidential Decree 529;
(l) 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 non-members; their importation
of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively
in the production and/or processing of their produce;
(m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority;
(n) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the
members;
(o) Export sales by persons who are not VAT-registered;
(p) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade
or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued
at One million five hundred thousand pesos (P1,919,500) and below, house and lot and other residential dwellings
valued at Two million five hundred thousand pesos (P3,199,200) and below: Provided, That not later January 31,
2009 and every three years thereafter, the amounts herein stated shall be adjusted to their present value using
the Consumer Price Index, as published by the NSO;
(q) Lease of a residential unit with a monthly rental not exceeding Eight thousand pesos (P12,800); Provided, That
not later January 31, 2009 and every three years thereafter, the amounts herein stated shall be adjusted to their
present value using the Consumer Price Index, as published by the NSO;
(r) Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin which
appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the
publication of paid advertisements;
(s) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare
parts thereof for domestic or international transport operations;
(t) importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations
(u) services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank
financial intermediaries; and
(v) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in
the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five
hundred thousand pesos (P1,919,500): Provided, That not later January 31, 2009 and every three years
thereafter, the amounts herein stated shall be adjusted to their present value using the Consumer Price Index, as
published by the NSO.

(2) A VAT-registered person may elect that subsection (1) not apply to its sale of goods 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 was made. (RA 9337)
VAT-exempt transactions refer to the sale of goods or properties and/or services and the
use or lease of properties that is not subject to VAT (output tax) and the seller is not
allowed any tax credit of VAT (input tax) on purchases.

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The person making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not subject to VAT.
A VAT-registered person may elect that the exemptions shall not apply to his sales of
goods or properties or services.
o But one the election is made, it shall be irrevocable for a period of three years
counted from the quarter when the election was made.
EXCEPT for franchise grantees of radio and TV broadcasting whose annual
gross receipts for the preceding year do not exceed P10m. In their case,
the option becomes perpetually irrecovable. (RR 4-2007)
Itll be too lengthy if RR 16-05 will be replicated here. Instead, Ill just add those parts
which further explain the statutory enumeration above.
Note: the new threshold values are based on RR 16-2011.
Re (a): the term livestock does not include fighting cocks, race horses, zoo animals
and other animals generally considered as pets.
Re (b): Specialty feeds refers to non-agricultural feeds or food for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets.
Re (g): laboratory services are exempted. But if the hospital or clinic operates a
pharmacy or drug store, the sale of drugs and medicine is subject to VAT.
Re (h): Educational services do not include seminars, in-service training, review classes
and other similar services rendered by persons who are not accredited by the DepEd,
CHED or Tesda.
Re (j): this only refers to RAHQs. ROHQs are subject to zero-rated sales. (?)
Re (l): importation by non-agricultural, non-electric and non-credit cooperatives of
machineries and equipment, including spare parts thereof, to be used by them are
subject to VAT.
o Sale by agricultural cooperatives to non-members can only be exempted from
VAT if the producer of the agricultural products sold is the cooperative itself. It
the cooperative is not the producer (like a trader), then only those sales to its
members shall be exempted from VAT. (RR 4-2007)
Re (p): If the real property is not primarily held for sale to customers or held for lease in
the ordinary course of trade or business BUT the same is used in the trade or business
of the seller, the sale thereof shall be subject to VAT being a transaction incidental to
the taxpayers main business.
o Low-cost housing refers to housing projects intended for homeless low-income
family beneficiaries, undertaken by the Government or private developers, which
may either be a subdivision or a condominium.
o Socialized housing refers to housing programs and projects covering houses
and lots or home lots only undertaken by the Government or the private sector
for the underprivileged and homeless citizens.
o If two or more adjacent residential lots are sold or disposed in favor of one
buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be
exempt from VAT only if the aggregate value of the lots do not exceed
P1,919,500.
Re (q): Lease of residential units where the monthly rental per unit exceeds P12,800 but
the aggregate of such rentals of the lessor during the year do not exceed P1,919,500
shall likewise be exempt from VAT. However, it shall be subjected to the 3% percentage
tax.
o So, less than P12.8k/month -> exempt
o More than P12.8k/month but less than P1.9195m/year -> 3% Percentage tax.
o More than P10k/month and more than P1.9195m/year -> 12% VAT.

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o Residential units shall refer to apartments and houses & lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places.
Motels are not included.
o Units refer to an apartment unit in case of apartments, house in the case of
houses, per person in the case of dorms, boarding houses and bed spaces, and
per room in case of rooms for rent.
Re (s): the exemption from VAT on the importation and local purchase of passenger
and/or cargo vessels shall be limited to those of 150 tons and above, including engine
and spare parts of said vessels.
o Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal
plates including marine-grade aluminum plates, used for shipping transport
operations shall be exempt. It will be subject to the Domestic Shipping
Development Act of 2004.
o Same thing with the importation of capital equipment, machinery, spare parts,
life-saving and navigational equipment, steel plates and other plates to be used
in the construction, repair, etc of any merchant marine vessel operated or to be
operated in the domestic trade.
Re (t): said fuel, goods and supplies should be used exclusively or should pertain to the
transport of goods and/or passenger from a port in the Philippines directly to a foreign
port, or vice versa, without docking 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 passenger and/or cargoes that originated from abroad, or to load passengers
and/or cargoes bound for abroad.
o If any portion of such fuel, goods or supplies is used for purposes other than that
mentioned, such shall be subject to 12% VAT. (yari ka boy!)
Re (u): services of such banks, non-bank financial intermediaries performing quasi-
banking functions, and other non-bank financial intermediaries , like money changers or
pawnshops, are subject to percentage tax. (RR 4-2007)
Re (v): for purposes of the P1.5m threshold, the husband and the wife shall be
considered separate taxpayers. However, the aggregation rule for each taxpayer shall
apply, for instance, if a professional, aside from the practice of his profession 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 threshold has been
exceeded. Thus, the VAT-exempt sale shall not be included in determining the threshold.
Note: the sale of electricity is now VAT-able
Is copra exempt? Yes! Its considered a food product.
Are the fees, per diems, honoraria or allowances given to directors of corporations
exempt?
o YES, exempt since not considered derived from an economic or commercial
activity. Said fees are remunerations paid in the exercise of a right of an owner in
the management of the corporation.
o Not even liable for 3% percentage tax. (RMC 77-2008, Dec 9, 2008)
Is the transfer of real estate from one real estate dealer to another real estate dealer
exempt?
o No. Exemption from VAT has been deleted. (Atty. Salvadors syllabus)

SEC. 110. Tax Credits. -

(A) Creditable Input Tax. -


(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on
the following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:

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(i) For sale; or
(ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code,
except automobiles, aircraft and yachts.
(b) Purchase of services on which a value-added tax has been actually paid.
(2) The input tax on domestic purchase of goods or properties shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the
Bureau of Customs.

Provided, that the input tax on goods purchases or imported in calendar month for use on trade or business for
wich deduction is allowed under this Code, shall be spread evenly over the month of acquisition and the 59
succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds
One million pesos (P1,000,000): Provided, however, that if the estimated useful life of the capital good is less than
5 years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period:
Provided, finally, That, in the case of purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or free.
The input tax credit on importation of goods or local purchases of goods, properties or
services by a VAT-registered person shall be creditable:
1. To the importer upon payment of VAT prior to the release of goods from customs
custody,
2. To the purchaser of the domestic goods or properties upon consummation of the
sale, or
3. To the purchaser of services or the lessee or licensee upon payment of the
compensation, rental, royalty or fee. (RR 16-2005)
An input tax means the VAT due or paid by a VAT-registered person on importation of
goods or local purchases of goods, properties, or services, including lease or use of
properties, in the course of his trade or business.
o It shall also include the transitional input tax and the presumptive input tax.
o It also includes input taxes which
Can be directly attributed to transactions subject to the VAT, and
A ratable portion of any input tax which cannot be directly attributed to
either the taxable or exempt activity.
Any input tax on the following transactions evidence by a VAT invoice or official receipt
by a VAT-registered person in accordance with Sections 113 and 237 of the Tax Code
shall be creditable against the output tax:
1. Purchase or importation of goods
a. For sale, or
b. For conversion into or intended to form part of a finished product for sale,
including packaging materials, or
c. For use as supplies in the course of business, or
d. For use as raw materials supplied in the sale of services, or
e. For use in trade or business for which deduction for depreciation or
amortization is allowed under the Tax Code
2. Purchase of real properties for which a VAT has actually been paid,
3. Purchase of services in which a VAT has actually been paid,
4. Transactions deemed sale,
5. Transitional input tax,
6. Presumptive input tax,
7. Transitional input tax credits.

Rule on capital goods


Section 110 (A) proviso. Provided, that the input tax on goods purchases or imported in calendar month for use on
trade or business for wich deduction is allowed under this Code, shall be spread evenly over the month of

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acquisition and the 59 succeeding months if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P1,000,000): Provided, however, that if the estimated useful life of
the capital good is less than 5 years, as used for depreciation purposes, then the input VAT shall be spread over
such a shorter period: Provided, finally, That, in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty
or free.
Capital goods or properties refer to goods or properties
o with estimated useful life of more than one year and
o which are treated as depreciable under the income tax law,
o used directly or indirectly, in the production or sale of taxable goods or services.
If the input tax on capital goods purchased or imported in a calendar month does NOT
exceed P1m, the input tax will be allowed in the month of purchase.
If the aggregate acquistion cost of such goods in a calendar month, excluding the VAT,
exceeds 1m:
o If the estimated life is 5 years or more, the input tax will be evenly spread over
the month of acquisition and the 59 succeeding months.
o If the estimated life is less than 5 years, the input tax will be spread evenly on a
monthly basis by dividing the input tax by the actual number of months
comprising the estimated useful life of the asset.
For construction in progress (CIP)
o CIP is the cost of construction which is not yet completed. It is considered a
purchase of services, the value of which will be determined based on the
progress billins.
o Input taxes on such transaction will be recognized in the moth that payment was
made.
o In case of contract for the sale of service where only labor will be supplied by the
contractor and the materials will be purchased by the contractee from other
suppliers,
input tax on the labor will be recognized in the month that payment was
made based on progress billings.
Input tax on the purchase of materials will be recognized at the time when
the materials were purchased.
An asset acquired in installment for an acquisition cost of more than P1m, excluding the
VAT, will be subject to the amortization of input tax despite the fact that the monthly
payments/installments may not exceed P1m.
o When an asset with an unamortized input tax is retired from business, the
unamortized input tax will be closed against the output taxes on the taxable
period in which it is retired.

Input tax allocation and mixed transactions


(3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be
allowed tax credit as follows:
(a) Total input tax which can be directly attributed to transactions subject to value-added tax; and
(b) A ratable portion of any input tax which cannot be directly attributed to either activity.
The term "input tax" means the value-added tax due from or paid by a VAT-registered person in the course of his
trade or business on importation of goods or local purchase of goods or services, including lease or use of property,
from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section
111 of this Code.
The term "output tax" means the value-added tax due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under Section 236 of this Code.
In crediting input tax, you have to look at three things:
1. Those which can be directly attributed to transactions subject to VAT, and
2. Those which cannot be directly attributed to either a VAT taxable or VAT-exempt
transaction. For these cases, the input tax shall be pro-rated to the VAT taxable and

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VAT-exempt transactions and only the ratable portion pertaining to transactions
subject to VAT may be recognized for input tax credit.
3. Sales to the Government because you cant credit input tax arising from sales to the
Government since sales to the Government is subject to final withholding VAT.
RR 16-2005 states:
o All the input taxes that can be directly attributed to transactions subject to VAT
may be recognized for input tax credit; provided, that input taxes that can be
directly attributable to VAT taxable sales of goods and services to the
Government (or any of its political subdivisions, etc) shall not be credited against
output taxes arising from sales to non-Government entities.
o If any input tax cannot be directly attributed to either a VAT taxable or VAT-
exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-
exempt transactions and only ratable portion pertaining to transactions subject to
VAT may be recognized for input tax credit.

Example
ABC Corporations has the following sales during the month:
To private entities subject to 12% - P100,000
Export sales - P100,000
Exempt goods - P100,000
To the Govt - P100,000
Total - P400,000

The following input taxes were passed on by its VAT suppliers:


On taxable goods 12% - P5,000
On the exports - P3,000
On sale of exempt goods - P2,000
On sale to government - P4,000
On depreciable capital good, - P20,000
Not attributable to any specific activity
(60 month amortization)
From the facts, we can see that only the input tax on the depreciable capital good can not
be allocated to any specific activity. To get the input tax for that, you have to pro-rate it
among the transactions, using the following equation:

Specific transaction14 X Amount of input tax not directly


Total Sales attributable to any activity

Output Input
Allocated Unallocated Total Creditable Net Vat Excess Refund/ Unrecoverable17
Payable15 Input Creditable16
12% 12k 5k 5k 10k 10k 2k 0 0 0
0% 0 3k 5k 8k 8k 0 8k 8k 0
Exempt 0 2k 5k 7k 0 0 0 0 7k
Govt 12k 4k 5k 9k 7k18 5k 0 0 2k

14
Either the VATable, export, exempt or the govt
15
Math column. Output Tax Creditable Tax
16
Law column. Sec 112
17
Total input Creditable Tax
18
Why 7? Because 5% has been withheld by the Govt.
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The input tax attributable to VAT-exempt sales shall not be allowed as credit against the
output tax but should be treated as part of cost or expense.

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: Provided, however, that any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes,
subject to the provisions of Section 112. (RA 9361)
(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over from the preceding
month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall
be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as
purchase returns or allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of
Internal Revenue but also those filed with other government agencies, such as the Board of Investments the
Bureau of Customs.
If at the end of any taxable quarter the output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person. (Known as the Net VAT payable)
If the input tax inclusive of input tax carried over from the previous quarter exceeds the
output tax, the excess input tax shall be carried over to the succeeding quarter or
quarters,
o Provided, that any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or applied for a tax credit certificate which
may be used in the payment of internal revenue taxes. (this is where you can get
input tax credit or refunds)
o In other words, any input tax, attributable to zero-rated sales may be:
Refunded, or
Credited against other internal revenue taxes of the VAT taxpayer.

Transitional and Presumptive Input Tax Credits


SEC. 111. Transitional/Presumptive Input Tax Credits. -
(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to
be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations prescribed
by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the
actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable
against the output tax.
Taxpayers who become VAT-registered persons upon exceeding the minimum turnover
of P1.5m in any 12-month period, or who voluntarily register even if their turnover does
not exceed P1.5m (except franchise grantees of radio and tv broadcasting whose
threshold is P10m) shall be entitled to a transitional input tax on the invonetory on hand
as of the effectivity of their VAT registration, on the following:
1. Goods purchase for resale in their present condition
2. Materials purchased for further processing, but which have not yet undergone
processing,
3. Goods which have been manufactured by the taxpayer
4. Goods in process for sale, or
5. Goods and supplies for use in the course of the taxpayers trade or business as a
VAT-registered person. (RR 16-2005)
The transitional input tax shall be
a. 2% of the value of the beginning inventory on hand, or
b. actual VAT paid on such goods, materials and supplies
whichever is HIGHER.

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The transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies. (Fort Bonifacio Development Corp v CIR)
During that period of transition from non-VAT to VAT status, the transitional input tax
credit serves to alleviate the impact of the VAT on the taxpayer. (FBDC v CIR)
There is no transitional input tax on capital goods or on supplies. (Reyes, 2009 Edition)

(B) Presumptive Input Tax Credits. -


(1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar
and cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to four percent(4%) of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their production.
As used in this Subsection, the term "processing" shall mean pasteurization, canning and activities which through
physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to
prepare it for special use to which it could not have been put in its original form or condition.
Presumptive input tax credits are given for those engaged:
o In the processing of sardines, mackerel and milk; and
o In manufacturing refined sugar, cooking oil and packed noodle-based instant
meals
The rate is 4% of the gross value in money.
They are given this 4% presumptive input tax because the goods used in the said
enumeration are VAT-exempt.

Refunds or Tax Credits on Input Tax


SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a 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 has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided,
finally, that for a person making sales that are zero-rated under Section 108(B)(6), the input taxes shall be
allocated ratably between his zero-rated and non-zero-rated sales.

(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code may, within
two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input
tax which may be used in payment of his other internal revenue taxes.

(C) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of compete documents in support of the application filed in accordance with
Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.-

(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being countersigned by the Chairman, Commission on audit, the
provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the Commission on Audit.
There are three instances where one can avail of a VAT refund:
1. When there is excess input VAT versus output VAT;
2. Zero-rated and effectively-zero rated sales
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3. Cessation of business
For zero-rated and effectively zero-rated sales of goods, properties or services, the
application should be filed within 2 years after the close of the taxable quarter when
such sales were made.
o The two year period is reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said
tax was paid or not. (CIR v Mirant Pagbilao Corp)
o Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file a claim for refund or
tax credit of the unutilized creditable input VAT.
Take note of CIR v Aichi, 2010:
o The CIR has 120 days, from the date of the submission of the complete
documents within which to grant or deny the claim for refund/credit of input vat.
o In case of full or partial denial by the CIR, the taxpayers recourse is to file an
appeal before the CTA within 30 days from receipt of the decision of the CIR.
However, if after the 120-day period the CIR fails to act on the application
for tax refund/credit, the remedy of the taxpayer is to appeal the inaction
of the CIR to CTA within 30 days.
Hence, if filed with CTA before the 120-day period expires, CTA will
dismiss for prematurity.
If filed with CTA after the 150-day (120 + 30 days), CTA will
dismiss for being late.
o Weird because it will dismiss even if still within 2 years.
o This only applies to credit input tax refunds.
For cessation of business, a VAT-registered person whose registration has been
cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Sec. 106 (C), may within 2 years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which he may
use in payment of his other internal revenue taxes.
o Provided, that he shall be entitled to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate may be utilized.
More on cessation of business or change of status as VAT-registered person (RR 16-
2005):
o Subject to output tax:
Change of business activity from VAT taxable to VAT-exempt status.
Approval of a request for cancellation of registration due to reversion to
exempt status.
o Not subject to output tax:
Change of control of a corporation by the acquisition of the controlling
interest of such corporation by another stockholder or group of
stockholders. The goods or properties will not be considered sold,
bartered, etc.
Change in the trade or corporate name of the business.
Merger or consolidation of corporations. The unused input tax of the
dissolved corporation shall be absorbed by the surviving or new
corporation.

Withholding of creditable value-added tax


(C) Withholding of Creditable Value-Added Tax. - The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added
tax due at the rate of five percent (5%) of the gross thereof: Provided, That the payment for lease or use of

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properties or property rights to nonresident owners shall be subject to ten percent (12%) withholding tax at the
time of payment. For this purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the
month the withholding was made.
The VAT is withheld in two instances:
1. In sales of goods and services to the Govt (5% withheld by the government)
2. In payment for lease or use of properties to nonresident owners (12% withheld by
the lessee)
In transactions with the government, the 5% final withholding VAT shall represent the
net VAT payable for the seller. The remaining 7% accounts for the standard input VAT
for sales of goods or services to the government or any of its political subdivisions, in
lieu of the actual input VAT directly attributable or ratably apportioned to such sales.
o Should actual input VAT attributable to sales to government exceed 7% of gross
payments, the excess may form part of the sellers expense or cost.
o If the actual input VAT attributable to sale to government is less than 7%, the
difference should be counted as income.
Kaka sells to the Government something for P100. The VAT is P12. The P5
is withheld by the government, so the Government only pays him P107.
o In this scheme, the government assumes that your input VAT will be 7%. If it is
7%, then all is well.
But if the input VAT is higher than 7 (in Kakas case, for example it was
P10), then the excess of P3 will be treated as an expense. It will form part
of the expense column in the income statement.
But if the input VAT is smaller than 7% (for example, Kaka only spent P5),
then there is income on Kakas side, this will form part of his income.
In both instances, Kaka will lose or be benefited only by 30% (rate of
income tax) because it will form part of his income and subject to the
income tax.
In transactions with non-residents, 12% will be withheld with respect to the following
payments:
1. Lease or use of properties or property rights owned by non-residents, and
2. Other services rendered in the Philippines by non-residents.
o The government did this as a matter of enforcement. How will the Government
run after the VAT of a non-resident, right? So, they just make the payors
withholding agents.
Jhunabhel lives in the condo owned by non-resident Tevez. Jhunabhel will
withhold P12 of the total amount of the lease of P112. Jhunabhel will only
pay Tevez P100.
o The one who remits the 12% to the government, when he files his return can
state that he is entitled to an input tax credit.
In Jhunabhels case, she can ask for the input tax credit of P12.

VAT on the sale of real property in installments by a real estate dealer


A sale on installment of real property by a real estate dealer shall be subject to the 12%
VAT of the gross selling price.
A real estate dealer is any person engaged in the business of buying, developing, selling,
exchanging real property as principal and holding himself out as a full or part-time
dealer of real estate.
The gross selling price is whichever is highest of the:
o Consideration in the deed of sale,
o Zonal value, per CIR; and

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o The fair market value per real property declaration with the provincial or city
assessor.
When the initial payments do not exceed 25% of the selling consideration in the deed of
sale, the steps are:
1. Multiply the gross selling price by 12% (VAT)
2. Get the VAT on the installment payment received, using the formula below:
Collection on the consideration (no VAT) x Computed VAT in
Agreed consideration (no VAT) Step 1
Initial payments are the payments
o which the seller received before and upon the execution of the instrument of sale,
and
o payments which he expects or is scheduled to receive in cash or property (other
than evidence of indebtedness of the purchaser) during the taxable year of the
sale or disposition.
o It will include more than the down payment in the year of sale.
o It will not include the amount of mortgage on the real property sold which was
already there at the time of sale and which was assumed by the buyer,
EXCEPT when such mortgage exceeds the cost or other basis of the
property to the seller, in which case the excess shall form part of the
initial payments.
For example, the mortgaged assumed by the buyer was P600k,
and the cost to the seller was just P500k. The P100k excess will be
included as initial payments
If the initial payments exceed 25% of the selling price, the transaction shall be
considered a cash sale with a VAT at the time of the sale.
Take note that it is the agreed consideration which is used to determine the initial
payments, while it is the highest among the consideration, zonal value and FMV which is
used for the computation of the VAT.

VAT on Lease
All forms of property for lease, whether real or personal, are liable to VAT except when
gross annual sales do not exceed P1.5m, in which case they will be exempt. (See
discussion on VAT-exempt)
Lease of property shall be subject to VAT regardless of the place where the contract of
lease or licensing agreement was executed if the property leased or used is located in
the Philippines.
See also rules just mentioned when lessor is a non-resident.
In a lease contract, the advance payment by the lessee may be:
1. A loan to the lessor from the lessee, or
2. Option money for the property, or
3. Security deposit to insure the faithful performance of certain obligations of the lessee
to the lessor, or
4. Pre-paid rental.
o If the advanced payment is #1, 2 or 3, not subject to VAT.
o If the advanced payment is #4, then such payment is taxable to the lessor in the
month when it was received, irrespective of the accounting method employed by
the lessor.
o If the security deposit (#3) is applied to rental, then it shall be subject to VAT at
the time of its application.

VAT Registration

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Every taxpayer subject to the VAT must register with the BIR as a VAT taxpayer and pay
an annual registration fee of P500 for every separate and distinct establishment,
including facility types where the business is conducted.
Every taxpayer not subject to VAT but subject to the excise tax or percentage tax must
register with the BIR and pay an annual registration fee of P500 for every separate and
distinct establishment where the business is conducted.
o VAT exempt persons under Section 109 who did not opt to be registered as VAT
taxpayers must register as non-VAT taxpayers.

Mandatory Registration
Sec 236 (G) Persons required to register for Value-Added Tax
1) Any person, who in the course of trade or business, sells, barters or exchanges goods or properties, or
engages in the sale or exchange of services, shall be liable to register for VAT if:
a) His gross sales or receipts for the past 12 months, other than those that are exempt under Section 109(A) to
(U) have exceeded One Million Five Hundred Thousand Pesos (P1,500,000); or
b) There are reasonable grounds to believer that his gross sales or receipts for the next 12 months, other than
those that are exempt under Section 109 (A) to (U), will exceed One Million Five Hundred Thousand Pesos
(P1,500,000);
2) Every person who becomes liable to be registered under paragraph (1) of this Subsection shall register with the
Revenue District Office which has jurisdiction over the head office or branch of that person, and shall pay the
annual registration fee prescribed in Subsection (B) hereof. If he fails to register, he shall be liable to pay the tax
under Title IV as if he were a VAT-registered person, but without the benefit of input tax credits for the period in
which he was not properly registered.
Any person who, in the course of trade or business, sells, barters or exchanges goods or
properties, or engages in the sale or exchange of services shall be liable to register for
VAT if:
1) His gross sales or receipts for the past 12 months, other than those exempt under
Section 109 (A) to (U), have exceeded P1.5m; or
2) There are reasonable grounds to believe that his gross sales or receipts for the next
12 months, other than those exempt under Section 109 (A) to (U), will exceed
P1.5m
If a person who is mandated to register does not, he shall:
o Be liable to pay the tax as if he were a VAT-registered person, and
o Without the benefit of input tax credits.

Optional registration
(H) Optional Registration for Value-Added Tax of Exempt Person. -
(1) Any person is not required to register for VAT under Subsection (G) hereof may elect to resiter for VAT by
registering with the Revenue District Office that has jurisdiction over the head office of that person, and paying the
annual registration fee in Subsection (B) hereof.
(2) Any person who elects to register under this Subsection shall not be entitled to cancel his registration under
Subsection (F)(2) for the next three years.
For purposes of Title IV of this Code, any person who has registered VAT as a tax type in accordance with the
provisions of Subsection (C) hereof shall be referred to as Vat-registered person who shall be assigned only one
Taxpayer Identification Number (TIN).
Any person who is not required to registered as a VAT taxpayer may register for the
VAT.
He, however, cannot cancel his registration for the next three years.

Cancellation of VAT registration


(G) Cancellation of VAT registration. -
(1) A VAT-registered person may cancel his registration for VAT if:
(a) he makes written application and can demonstrate ot the commissioners satisfaction that his gross sales or
receipts for the following 12 months, over than those that are exempt under Section 109 (A) to (U), will not exceed
one million five hundred thousand pesos (P1,500,000), or
(b) he has ceased to carry on his trade or business, and does not expect to recommence any trade or business
within the next twelve months.

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The cancellation of registration will be effective from the first day of the following month.

Read codal na lang. Hehe.

Compliance Requirements
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -
"(A) Invoicing Requirements. - A VAT-registered person shall issue:
"(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
"(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.
"(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated
in the VAT invoice or VAT official receipt:
"(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
"(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax: Provided, That:
"(a) The amount of the tax shall be shown as a separate item in the invoice or receipt;
"(b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
"(c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or
printed prominently on the invoice or receipt;
"(d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT
zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its
taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale
shall be shown on the invoice or receipt: "Provided, That the seller may issue separate invoices or receipts for the
taxable, exempt, and zero-rated components of the sale.
"(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service;
and
"(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made
to a VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of
the purchaser, customer or client.
"(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the value-
added tax under Sections 106 and 108 shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary of Finance.
A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties, and for every sale,
barter or exchange of services
If the sale is exempt from VAT, the term VAT-exempt sale shall be written or printed
prominently on the invoice or receipt
If the sale is subject to 0%, the term zero-rated sale shall be written or printed
prominently on the invoice or receipt
If the sale involves some which are subject to VAT and some which are zero-rated or
VAT-exempt, the invoice or receipt shall clearly indicate the break-down of the sale price
between the taxable, exempt and zero-rated components
o The calculation of the VAT on each portion of the sale shall be shown on the
invoice or receipt.
o But the seller may issue separate invoices or receipts for the taxable, exempt and
zero-rated components of the sale
The date of the transaction, quality, unit cost and description of the goods or properties
or nature of the services must also be indicated.
o Input tax cannot be credited against output tax when supported by an undated
official receipt or invoice. (Nesic Philippines Inc v CIR, May 6, 2010)
When the sale is P1000 or more to a VAT-registered person, the name, business style,
address and TIN of the purchaser, customer or client must also be placed in the receipt
or invoice.

Issuing Erroneous VAT invoice or VAT official receipt


Section 113(D) Consequence of Issuing Erroneous Vat Invoice or Vat Official Receipt.
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(1) If a person who is not a VAT-registered person issues an invoice or receipt showing his Taxpayer Identification
Number (TIN), followed by the word VAT:
(a) The issuer shall, in addition to any liability to other percentage taxes, be liable to:
(i) The tax imposed in Section 106 or 108 without the benefit of any input tax credit; and
(ii) A 50% surcharge under Section 248 (B) of this code;
(b) The VAT shall, if the other requisite information required under Subsection (B) hereof is shown on the invoice
or receipt, be recognized as an input tax credit to the purchaser under Section 110 of this Code.
(2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails
to display prominently on the invoice or receipt the term VAT-exempt Sale", the issuer shall be liable to account
for the tax imposed in Section 106 or 108 as if Section 109 did not apply.
"(E) Transitional Period. - Notwithstanding Subsection (B) hereof, taxpayers may continue to issue VAT invoices
and VAT official receipts for the period July 1, 2005 to December 31, 2005, in accordance with Bureau of Internal
Revenue administrative practices that existed as of December 31, 2004.
If a person is NOT a VAT-registered person issues an invoice or receipt showing his TIN
followed by the word VAT, the issuer shall be:
1. Liable for the percentage tax due on his transaction
2. Liable for the VAT, without credit for any input tax, and
3. Subject to a 50% surcharge.
o VAT shall be recognized as an input tax credit to the purchaser under Section
110, provided the requisite information required in invoices or receipts are shown
on the invoices or receipts.
If a VAT-registered person issues a VAT invoice or official receipt for a VAT-exempt
transaction, but fails to display prominently on the invoice or receipt the term VAT-
exempt sale, he shall be subject to the VAT, as if Section 109 on exempt transactions
did not apply.
o Meaning, he has to pay the VAT.
If the VAT is erroneously billed in the invoice, the total invoice amount shall be
presumed to be comprised of the gross selling price/gross receipts plus the correct
amount of the VAT.
o The output tax shall be computed by multiplying the total amount in the invoice
by a fraction using the rate of VAT as the numerator and 100% plus the rate of
the VAT as the denominator.
RR 8-99 says that penalties for violation of the requirement that output tax on sale of
goods and services should not be separately indicated in the sales invoice or official
receipt.
o The amount appearing in the sales invoices/receipts is thus deemed inclusive of
the Value-Added Tax due thereon.
o The penalty for violation of the said requirement is a fine of not less than One
Thousand Pesos (P 1,000) but not more than Fifty Thousand Pesos (P50,000),
and imprisonment of not less than two (2) years but not more than four (4)
years.

Return and Payment of VAT


Sec. 114. Return and Payment of Value-Added Tax. -
"(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a quarterly
return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added
tax on a monthly basis.
"Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the
tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one
consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.
"(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the return shall be
filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly authorized city or
municipal Treasurer in the Philippines located within the revenue district where the taxpayer is registered or
required to register.

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Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly
gross sales or receipts within 25 days following the close of the taxable quarter using the
latest version of Quarterly VAT Return.
The VAT-registered persons shall pay the VAT on a monthly basis.

Power of the Commissioner


SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The
Commissioner or his authorized representative is hereby empowered to suspend the business operations and
temporarily close the business establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or
receipts for the taxable quarter.

(b) Failure of any Person to Register as Required under Section 236. -


The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be
lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.

Percentage Taxes
Generally, percentage taxes are based on gross receipts.
The percentage taxes are payable by the seller of the services,
o EXCEPT the overseas communications tax, which is payable by the user of the
facilities of the seller.
The term gross receipts means cash actually or constructively received.
o Receivables, although income thereon is earned already, are not yet taxable.
o There are no deductions from gross receipts to arrive at the taxable gross
receipts.

Three percent (3%) percentage tax


SEC. 116. Tax on Persons Exempt From Value-Added Tax (VAT). - Any person whose sales or receipts are
exempt under Section 109(v) of this Code from the payment of value-added tax and who is not a VAT-registered
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. (RA 9337)
What are the requisites to be considered under the 3% Percentage Tax?
1. Gross annual sales or receipts do NOT exceed P1.5,
2. Transaction is NOT under Section 109 (A)-(U),
3. NOT VAT-registered, and
4. NOT under any specific percentage tax.
The 3% percentage tax is imposed on persons who are exempt from the VAT because
their gross annual sales or receipts do not exceed P1.5m.
It is based on gross sales or receipts, without any deduction.
Persons who are otherwise subject to the 3% percentage tax may opt to be under the
VAT system by registering with the BIR as a VAT taxpayer.
o When so registered, they shall be subject to the rules on VAT on their domestic
and export sales.
Why register?!
The VAT system has input credit. Percentage tax does not.

Tax on domestic carriers


SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. - Cars for rent or hire driven by
the lessee, transportation contractors, including persons who transport passengers for hire, and other domestic
carriers by land, air or water, for the transport of passengers, except owners of bancas and owner of animal-drawn
two wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly
gross receipts.

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The gross receipts of common carriers derived from their incoming and outgoing freight shall not be subjected to
the local taxes imposed under Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
In computing the percentage tax provided in this Section, the following shall be considered the minimum quarterly
gross receipts in each particular case:
Jeepney for hire -
1. Manila and other cities P 2,400
2. Provincial 1,200

Public utility bus -


Not exceeding 30 passengers 3,600
Exceeding 30 but not exceeding 50 passengers 6,000
Exceeding 50 passengers 7,200

Taxis -
1. Manila and other cities P 3,600
2. Provincial 2,400

Car for hire (with chauffer) 3,000


Car for hire (without chauffer) 1,800
A common carrier is a person, corporation, firm or association, engaged in the business
of carrying or transporting passengers or goods, or both, by land, water, or air, for
compensation, offering services to the public, and shall include transportation
contractors.
o Common carriers can either be subject to percentage tax (common carriers
tax) or VAT.
o For those under the common carriers tax, the rate is 3% of gross receipts.
What constitute gross receipts?
o See footnote.19
Those subject to percentage tax are:
1. Cars for rent or hire driven by the lessee (rent-a-car)
2. Transportation contractors, including persons who transport passengers for hire;
3. Other domestic carriers by land for transport of passengers (except owners of bancas
and animal-drawn two-wheeled vehicles), and
4. Keepers of garages
A garage is a closed shelter for automobilies, a business establishment where
automobiles are repaired, stored, etc.
Those subject to VAT are:
1. Transportation contractors on their transport of goods or cargoes, including persons
who transport goods or cargoes for hire;
2. Other domestic common carriers by land relative to their transport of goods or
cargoes;
3. Common carriers by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines.

19
RR 15-2011 (July 20, 2011) Gross receipts" shall include, but shall not be limited to, the total amount of
money or its equivalent representing the contract or ticket prize, excess baggage fees, freight/cargo fees, mail
fees, rental, penalties, deposit applied as payments, advance payments and other service charges and fees actually
or constructively received during the taxable quarter from the passage of persons, excess baggage, cargo and/or
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 passage documents.

Provided, that ticket revalidated, exchanged and/or endorsed to another international airline shall likewise form
part of the gross receipts if the passenger boards a plane in a port or point in the Philippines.

Provided, further, that for a flight which originates from the Philippines, but where 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 the Gross
Receipts.
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The transport of passengers and cargo by air or sea vessels from the Philippines to a
foreign country is subject to 0% VAT.
Under the law, certain common carriers have statutory minimum quarterly gross
receipts (jeepneys, etc).

VAT or Percentage Tax on DOMESTIC Carriers


Common carrier by LAND:
Transporting goods or cargoes 12% VAT
Transporting passengers 3% Common
Carriers tax
Common carriers by AIR or SEA:
From one point in the Philippines to another point in the Philippines
Transporting goods or cargoes 12% VAT
Transporting passengers 12% VAT
From one point in the Philippines to a point outside the Philippines
Transporting goods or cargoes 0% VAT
Transporting passengers 0% VAT

Percentage tax on International carriers


SEC. 118. Percentage Tax on International Carriers. -
(A) International air carriers doing business in the Philippines shall pay a tax of three percent (3%) of their
quarterly gross receipts.
(B) International shipping carriers doing business in the Philippines shall pay a tax equivalent to three percent
(3%) of their quarterly gross receipts.
International air carriers and international shipping carriers doing business in the
Philippines shall pay a tax equivalent to 3% of their gross receipts from shipping
outgoing from the Philippines.

Franchise tax
SEC. 119. Tax on Franchises. - Any provision of general or special law to the contrary notwithstanding, there
shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000.00),
subject to Section 236 of this Code, a tax of three percent (3%) and on electric, gas and water utilities, a tax of
two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise:
Provided, however, That radio and television broadcasting companies referred to in this Section shall have an
option to be registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That once the
option is exercised, said option shall be irrevocable.
The grantee shall file the return with, and pay the tax due thereon to the Commissioner or his duly authorized
representative, in accordance with the provisions of Section 128 of this Code, and the return shall be subject to
audit by the Bureau of Internal Revenue, any provision of any existing law to the contrary notwithstanding.
The franchise tax is:
1. On gross receipts covered by the law granting the franchise;
2. At the following rates:
a. On radio and/or television broadcasting companies whose annual gross
receipts of the preceding year did not exceed P10m: 3%
b. On gas and water utilities: 2%
Those whose annual gross receipts of the preceding year exceeded P10m shall be
subject to the VAT.
o If the gross receipts do not exceed P10m, they may opt to be registered under
VAT, but once they choose to, it cannot be revoked.

Overseas communications tax


SEC. 120. Tax on Overseas Dispatch, Message or Conversation Originating from the Philippines. -
(A) Persons Liable. - There shall be collected upon every overseas dispatch, message or conversation transmitted
from the Philippines by telephone, telegraph, telewriter exchange, wireless and other communication equipment
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service, a tax of ten percent (10%) on the amount paid for such services. The tax imposed in this Section shall be
payable by the person paying for the services rendered and shall be paid to the person rendering the services who
is required to collect and pay the tax within twenty (20) days after the end of each quarter.
(B) Exemptions. - The tax imposed by this Section shall not apply to:
(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 foreign
government;
(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) News Services. - Amounts paid for messages from any 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, public press,
radio or television broadcasting or a newsticker service furnishing a general news service similar to that of the
public press.
Franchise grantees of telephone and telegraph are subject to the VAT on their gross
receipts from their telephone, telegraph, telewriter exchange, wireless and other
communication equipment services. (ingoing messages)
BUT amounts received from overseas dispatch message or conversation originating form
the Philippines (outgoing messages) shall be subject to the overseas communications
tax.
The OCT is based on the amount paid by the user to the provider of the communication
facility, imposed on the person paying for the services rendered, and not on the person
rendering the service.
o The person rendering the service is merely considered as a tax collector.
The OCT is 10% of the amount paid.
The OCT shall not apply to:
1. The government of the Philippines or any of its political subdivisions,
2. Diplomatic services,
3. International organizations, and
4. News services.

Tax on banks and non-bank financial intermediaries performing quasi-banking functions


SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries. - There shall be a collected tax on gross
receipts derived from sources within the Philippines by all banks and non-bank financial intermediaries in
accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the
basis of remaining maturities of instruments from which such receipts are derived:
Maturity period is 5 years or less - 5%
Maturity period is more than 5 years - 1%
(b) On dividends and equity shares in net income of
subsidiaries 0%
(c) On royalties, rentals of property, real or personal, profits,
from exchange and all other items treated as gross income
under Section 32 of this Code 7%
(d) On net trading gains within the taxable year on foreign currency, debt
securities, derivaties and other similar financial instruments 7%
Provided, however, That in case the maturity period referred to in paragraph (a) is shortened thru pretermination,
then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the
transaction as short, medium or long-term and the correct rate of tax shall be applied accordingly.
Provided, finally, that the generally accepted accounting principles as may be prescribed by the BSP for the bank or
non-bank financial intermediary performing quasi-banking functions shall be likewise be the basis for the
calculation of gross receipts.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar banking activities.
The tax base is the gross receipts from sources within the Philippines.
Tax rates are:
On interest, commissions and discounts from
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lending activities as well as income from
financial leasing, on the basis of remaining
maturities of instruments from which such
receipts are derived: 5%
Maturity period is 5 years or less 1%
Maturity period is more than 5 years
On dividends and equity shares in net 0%
income of subsidiaries
On royalties, rentals of property, real or 7%
personal, profits from exchange and all other
items treated as gross income under the
income tax law
On net trading gains within the taxable year 7%
on foreign currency, debt securities,
derivaties and other similar financial
instruments
In case the maturity period is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination
Financial intermediaries are persons or entities whose principal functions include the
lending, investing, or placement of funds or evidence of indebtedness or equity
deposited with them, or otherwise coursed through them, either for their own account or
for the account of others.
Quasi-banking activities refer to borrowing funds from twenty or more lenders at any
one time, through issuance, indorsement or acceptance of debt instruments, or through
the issuance of certificates of assignments for the purpose of relending or purchasing
receivables and other similar obligations.

Tax on other non-bank financial intermediaries


SEC. 122. Tax on Other Non-bank Financial Intermediaries. - There shall be collected a tax of five percent
(5%) on the gross receipts derived by other non-bank financial intermediaries doing business in the Philippines,
from interest, commissions, and discounts from lending activities, as well as income from financial leasing, shall be
taxed on the basis of remaining maturities of the instruments from which such receipts are derived, in accordance
with the following schedule:
Maturity period is 5 years or less 5%
Maturity period is more than 5 years 1%
Provided, however, That in case the maturity period is shortened thru pretermination, then the maturity period
shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction as short,
medium or long-term and the correct rate of tax shall be applied accordingly.
Provided, finally, that the generally accepted accounting principles as may be prescribed by the SEC for other non-
bank financial intermediaries shall likewise be the basis of the calculation of gross receipts.
Nothing in this Code shall preclude the Commissioner from imposing the same tax herein provided on persons
performing similar financing activities. (RA 9238)
Tax base is the gross receipts from sources within the Philippines
Tax rates are:
On interest, commissions and discounts from
lending activities as well as income from
financial leasing, on the basis of remaining
maturities of instruments from which such
receipts are derived: 5%
Maturity period is 5 years or less 1%
Maturity period is more than 5 years
On interests, commissions, discounts and all 5%
other items treated as gross income under
the Income Tax Law

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A pawnshop is a non-bank financial intermediary not performing quasi-banking
functions. (Tambunting v CIR)
o Hence, they are subject to 5% gross receipts tax, and not to VAT.
o Same rule with money changers. (RR 10-2004)

Tax on insurance companies


SEC. 123. Tax on Life Insurance Premiums. - There shall be collected from every person, company or
corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the
Philippines a tax of five percent (5%) of the total premium collected, whether such premiums are paid in money,
notes, credits or any substitute for money; but premiums refunded within six (6) months after payment 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 reinsurance by a company that has already paid the tax; 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 upon premiums collected or
received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the
Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been
issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on
variable contracts (as defined in section 232(2) of Presidential Decree No. 612), in excess of the amounts
necessary to insure the lives of the variable contract workers.
Cooperative companies or associations are such as are conducted by the members thereof with the money
collected from among themselves and solely for their own protection and not for profit.
Insurance companies may be divided into two classes:
1. Non-life insurance companies, and
2. Life insurance companies
Non-life insurance companies are subject to VAT.
Life insurance companies are subject to a percentage tax called the premium tax, as
follows:
o Tax base: total life insurance premiums collected (gross receipts), whether in
money, notes, credits, or any substitute for money
o Tax rate: 5%
The follow are exempted from the premium tax:
1. Premiums refunded within 6 months after payment on account of rejection of risk or
returned for other reasons to a person insured;
2. Reinsurance premiums paid by a company that has already paid a tax;
3. Premiums collected or received by an y branch of a domestic corp, firm or
association doing business in the Philippines on account of any life insurance of an
insured who is a non-resident, if any tax on such premiums is imposed by the foreign
country where the branch is established;
4. Reinsurance premiums, if the insured of personal insurance resides outside the
Philippines, if any tax on such premium is imposed by the foreign country where the
original has been issued or perfected;
5. Portion of the premiums collected or received by insurance companies on variable
contracts in excess of the amount necessary to insure the lives of variable contract
owners.

Tax on agents of foreign insurance companies


SEC. 124. Tax on Agents of Foreign Insurance Companies. - Every fire, marine or miscellaneous insurance
agent authorized under the Insurance Code to procure policies of insurance as he may have previously been legally
authorized to transact on risks located in the Philippines for companies not authorized to transact business in the
Philippines shall pay a tax equal to twice the tax imposed in Section 123: Provided, That the provision of this
Section shall not apply to reinsurance: Provided, however, That the provisions of this Section shall not affect the
right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said
owner does not make use of the services of any agent, company or corporation residing or doing business in the
Philippines. In all cases where owners of property obtain insurance directly with foreign companies, it shall be the
duty of said owners to report to the Insurance Commissioner and 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
Section 123.
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Every fire, marine or miscellaneous insurance agent authorized under the Insurance
Code to procure insurance as he may have previously been authorized to transact on
risks located in the Philippines, for companies not authorized to transact business in the
Philippines, shall pay a tax equal to twice the tax imposed on life insurance companies.
o So, 10%.
An owner of property can obtain directly for himself policies in foreign companies but he
must report to Insurance Commissioner and to the CIR, and pay a tax of 5% on
premiums paid.

Amusement taxes
SEC. 125. Amusement Taxes. - There shall be collected from the proprietor, lessee or operator of cockpits,
cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks, a tax
equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided, however, That boxing exhibitions wherein World
or Oriental Championships in any division is at stake shall be exempt from amusement tax: Provided, further, That
at least one of the contenders for World or Oriental Championship is a citizen of the Philippines and said exhibitions
are promoted by a citizen/s of the Philippines or by a corporation or association at least sixty percent (60%) of the
capital of which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball games as envisioned in Presidential Decree No.
871: Provided, however, That the tax herein shall be in lieu of all other percentage taxes of whatever nature and
description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks of their gross receipts, irrespective, of whether or
not any amount is charged for admission.
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 respect to such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each quarter and it shall be the duty of the proprietor,
lessee or operator concerned, as well as any party liable, within twenty (20) days after the end of each quarter, to
make a true and complete return of the amount of the gross receipts derived during the preceding quarter and pay
the tax due thereon.
Tax base: gross receipts
o Embraces all the receipts of the proprietor, lessee or operator of the amusement
place.
o It also includes income from TV, radio and motion picture rights, if any.

Amusement Place Tax


Place for boxing exhibition 10%
Place for professional basketball games (which shall be in lieu of all 15%
percentage taxes of whatever name and description)
Cockpits, cabarets, night or day clubs 18%
Jai-alai and race tracks 30%
Boxing exhibitions where World or Oriental Championships in any division is at stake
shall be exempt from amusement tax if:
o One of the contenders is a Pinoy citizen, and
o Said exhibitions are promoted by citizens of the Philippines or by a corp or
association at least 60% of the capital of which is owned by such citizens.

Tax on Winnings
SEC. 126. Tax on Winnings. - Every person who wins in horse races shall pay a tax equivalent to ten percent
(10%) of his winnings or 'dividends', the tax to be based on the actual amount paid to him for every winning ticket
after deducting the cost of the ticket: Provided, That in the case of winnings from double, forecast/quinella and
trifecta bets, the tax shall be four percent (4%). In the case of owners of winning race horses, the tax shall be ten
percent (10%) of the prizes.

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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 horse races
before paying the dividends or prizes to the persons entitled thereto.
The operator, manager or person in charge of horse races shall, within twenty (20) days from the date the tax 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 the same period
the total amount of tax so deducted and withheld.
Tax base:
o If a person wins in horse races and jai-alai, based on his winnings or dividends
(tax to be based on the actual amount paid to him for every winning ticket, after
deducting the cost of the ticket),
o If a person owns a winning race horse, based on the price.
The tax shall be withheld from the dividends or prize by the operator, manager or
person in charge of the horse races or jai-alai.

Tax on Winnings Tax


In horse races or jai-alai 10%
But if from: double, forecast, quinella and trifecta bets 4%
Owner of winning horse 10%

Tax on Stock Transactions and IPOs (Stock Transaction Tax)


SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the Local Stock Exchange
or Through Initial Public Offering. -
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the Local Stock Exchange. -
There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of shares of
stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the
rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock
sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.
(B) Tax on Shares of Stock Sold or Exchanged Through Initial Public Offering. - There shall be levied, assessed and
collected on every sale, barter, exchange or other disposition through initial public offering of shares of stock in
closely held corporations, as defined herein, a tax 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 outstanding shares of
stock after the listing in the local stock exchange:
Up to twenty-five percent (25%) 4%
Over twenty-five percent (25%) but not over thirty-three
and one third percent (33 1/3%) 2%
Over thirty-three and one third percent (33 1/3%) 1%
The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary
offering.
For purposes of this Section, the term "closely held corporation" means any corporation at least fifty percent (50%)
in value of outstanding capital stock or at least fifty percent (505) of the total combined voting power of all classes
of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals.
For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is
based on stock ownership, the following rules shall be applied:
(1) Stock Not Owned by Individuals. - Stock owned directly or indirectly by or for a corporation, partnership, estate
or trust shall be considered as being owned proportionately by its shareholders, partners or beneficiaries.
(2) Family and Partnership Ownerships. - An individual shall be considered as owning the stock owned, directly or
indirectly, by or for his family, or by or for his partner. For purposes of the paragraph, the 'family of an individual'
includes only his brothers and sisters (whether by whole or half-blood), spouse, ancestors and lineal descendants.
(3) Option. - If any person has an option acquire stock, such stock shall be considered as owned by such person.
For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be
considered as an option to acquire such stock.
(4) Constructive Ownership as Actual Ownership. - Stock constructively owned by reason of the application of
paragraph (1) or (3) hereof shall, for purposes of applying 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) hereof
shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the
constructive owner of such stock.
(C) Return on Capital Gains Realized from Sale of Shares of Stocks. -
(1) Return on Capital Gains Realized from Sale of Shares of Stock Listed and Traded in the Local Stock Exchange. -
It shall be the duty of every stock broker who effected the sale subject to the tax imposed herein to collect the tax

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and remit the same to the Bureau of Internal Revenue within five (5) banking days from the date of collection
thereof and to submit on Mondays of each week to the secretary of the stock exchange, of which he is a member, a
true and complete return which shall contain a declaration of all the transactions effected through him during the
preceding week and of taxes collected by him and turned over to the Bureau Of Internal Revenue.
(2) Return on Public Offerings of Share Stock. - In case of primary offering, the corporate issuer shall file the
return and pay the corresponding tax within thirty (30) days from the date of listing of the shares of stock in the
local stock exchange. In the case of secondary offering, the provision of Subsection (C)(1) of this Section shall
apply as to the time and manner of the payment of the tax.
(D) Common Provisions. - Any gain derived from the sale, barter, exchange or other disposition of shares of stock
under this Section shall be exempt from the tax imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c)
of this Code and from the regular individual or corporate income tax. Tax paid under this Section shall not be
deductible for income tax purposes.
On the sale, barter, exchange or other disposition of shares listed and traded thru a local
stock exchange, other than by a dealer in securities
o Tax base: gross selling price or gross value in money of the shares sold,
bartered, exchanged or otherwise disposed of,
o Tax rate: of 1%
o Paid by: the seller
On the sale, barter, exchange or other disposition thru initial public offering of shares of
stock in a closely held corporation, in accordance with the proportion of the shares sold,
bartered, exchanged or otherwise disposed of to the total outstanding shares of stock
after the listing in the local stock exchange
o Up to 25% 4%
o 25% - 33.33% 2%
o over 33.33% 1%
o Paid by: the issuing corporation in primary offering, and the seller in the
secondary offering
For purposes of tax on initial public offerings, the term closely-held corporation means
any corporation at least 50% in value of the outstanding capital stock or at least 50% of
the total combined voting power of all classes of stock entitled to vote, is owned directly
or indirectly by or for not more than 20 individuals.

Return and payment of percentage taxes


SEC. 128. Returns and Payment of Percentage Taxes. -
(A) Returns of Gross Sales, Receipts or Earnings and Payment of Tax. -
(1) Persons Liable to Pay Percentage Taxes. - 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 earnings and pay the tax due thereon
within twenty-five (25) days after the end of each taxable quarter: Provided, That in the case of a person whose
VAT registration is cancelled and who becomes liable to the tax imposed in Section 116 of this Code, the tax shall
accrue from the date of cancellation and shall be paid in accordance with the provisions of this Section.
(2) Person Retiring from Business. - Any person retiring from a business subject to percentage tax shall notify the
nearest internal revenue officer, file his return and pay the tax due thereon within twenty (20) days after closing
his business.
(3) Exceptions. - The Commissioner may, by rules and regulations, prescribe:
(a) The time for filing the return at intervals other than the time prescribed in the preceding paragraphs for a
particular class or classes of taxpayers after considering such factors as volume of sales, financial condition,
adequate measures of security, and such other relevant information required to be submitted under the pertinent
provisions of this Code; and
(b) The manner and time of payment of percentage taxes other than as hereinabove prescribed, including a
scheme of tax prepayment.
(4) Determination of Correct Sales or Receipts. - When it is found that a person has failed to issue receipts or
invoices, or when no return is filed, or when there is reason to believe that the books of accounts or other records
do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of
this Code, the Commissioner, after taking into account the sales, receipts or other taxable base of other persons
engaged in similar businesses under similar situations or circumstances, or after considering 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 revenue tax liabilities of such
person.
(B) Where to File. - Except as the Commissioner otherwise permits, every person liable to the percentage tax
under this Title may, at his option, file a separate return for each branch or place of business, or a consolidated
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return for all branches or places of business with the authorized agent bank, Revenue District Officer, Collection
Agent or duly authorized Treasurer of the city or municipality where said business or principal place of business is
located, as the case may be.
The taxpayer may file a separate return for each branch or place of business, or a
consolidated return for all.
General rule: every person liable to pay a percentage tax shall file a monthly return of
the amount of his gross receipts and pay the tax thereon, within 20 days after the end
of each taxable month.
Except:
1. 3% tax within 20 days after the end of the month, except when the tax was a final
tax through the withholding tax system
2. Overseas communications tax within 20 days after the end of the quarter
3. Amusement tax within 20 days after the end of the quarter
4. Tax on winnings remitted to the BIR within 20 days from the date withheld
5. Stock transaction tax of of 1% remitted to the BIR within 5 banking days from
the date withheld by the broker
6. Stock transaction tax of 4%, 2% and 1% on primary offering, within 30 days from
the date of listing in the local stock exchange

Summary of the percentage taxes


The tax Tax Base Rate
3% percentage tax Gross sales/ gross receipts 3%
Domestic common carriers Gross receipts 3%
tax (land, for passengers),
international common
carriers tax
Franchise tax on: Gross receipts
Gas and water facilities 2%
Radio and/or broadcasting 3%
companies whose gross
receipts in the preceding
year did not exceed P10m
Overseas communications Amount paid 10%
tax
Tax on banks and non-bank Gross receipts from 1% and 5%
financial intermediaries lending/financial leasing
performing quasi-judicial
functions
Gross receipts from other 7%
gross income items

Dividends 0%

Tax on other non-bank Gross receipts from 1% and 5%


financial intermediaries lending/financial leasing

Gross receipts from other 5%


gross income items
Tax on life insurance Premiums collected 5%
companies (premium tax)
Tax on agents of foreign Premiums collected 10%
insurance companies

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Amusement taxes on:
Boxing exhibitions 10%
Pro basketball games Gross receipts 15%
Cockpits, cabarets and night 18%
clubs
Jai-alai and race tracks 30%
Tax on winnings:
Of persons in horse races or 10%
jail-alai
But if from double, forecast, Winnings 4%
quinella and trifecta bets
Owners of winning horses 10%
Stock transaction tax Selling price of 1%
(secondary offering)

Excise Taxes
SEC. 129. Goods Subject to Excise Taxes. - Excise taxes apply to goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax
imposed herein shall be in addition to the value-added tax imposed under Title IV.
For purposes of this Title, excise taxes herein imposed and based on weight or volume capacity or any other
physical unit or measurement shall be referred to as "specific tax" and an excise tax herein imposed and based on
selling price or other specified value of the good shall be referred to as "ad valorem tax".
Excise taxes are applicable only to
1. Manufacturers, or
2. Importers
There are two kinds of excise taxes, namely:
1. Specific tax, and
2. Ad valorem tax
Specific taxes are those based on weight or volume capacity or any other physical unit
of measurement. Those subject to specific taxes are:
1. Alcohol products - proof liter (Sec 141-143)
2. Tobacco products - kilogram (Sec. 144)
3. Petroleum products - liter and kilogram (Sec. 148)
4. Coal and coke - metric ton (Sec. 151)
Ad valorem taxes are those based on the selling price or other specified value of the
article.
1. Automobiles importers/manufacturers selling price(Sec. 149)
2. Non-essential goods wholesale price or value of importation (Sec. 150)
Jewelry (real or imitation), opera glasses, lorgnettes
Perfumes and toilet waters
Yachts and other vessels intended for pleasure or sports
3. Other minerals, mineral products and quarry resources actual market value of
gross output (Sec. 151)
4. Cigars net retail price (Sec. 145)
5. Cigarettes packed by hand or machine net retail price per pack(Sec. 145)
For cigarettes pack by hand or machine, it is actually a hybrid because it is ad valorem
to the extent of selling price, but specific in its imposition (per pack)

"New brands, as defined in the immediately following paragraph, shall initially be classified according to their
suggested net retail price.

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"'New brand' shall mean a brand registered after the date of effectivity of R.A. No. 8240.
"'Suggested net retail price' shall mean the net retail price at which new brands, as defined above, of locally
manufactured or imported cigarettes are intended by the manufacturer or importer to be sold on retail in major
supermarkets or retail outlets in Metro Manila for those marketed nationwide, and in other regions, for those with
regional markets. At the end of three (3) months from the product launch, the Bureau of Internal Revenue shall
validate the suggested net retail price of the new brand against the net retail price as defined herein and determine
the correct tax bracket under which a particular new brand of cigarette, as defined above, shall be classified. After
the end of eighteen (18) months from such validation, the Bureau of Internal Revenue shall revalidate the initially
validated net retail price against the net retail price as of the time of revalidation in order to finally determine the
correct tax bracket under which a particular new brand of cigarettes shall be classified: Provided, however, That
brands of cigarettes introduced in the domestic market between January 1, 1997 and December 31, 2003 shall
remain in the classification under which the Bureau of Internal Revenue has determined them to belong as of
December 31, 2003. Such classification of new brands and brands introduced between January 1, 1997 and
December 31, 2003 shall not be revised except by an act of Congress.
"'Net retail price', as determined by the Bureau of Internal Revenue through a price survey to be conducted by the
Bureau of Internal Revenue itself, or the National Statistics Office when deputized for the purpose by the Bureau of
Internal Revenue, shall mean the price at which the cigarette is sold on retail in at least ten (10) major
supermarkets in Metro Manila (for brands of cigarettes marketed nationally), excluding the amount intended to
cover the applicable excise tax and the value-added tax. For brands which are marketed only outside Metro Manila,
the 'net retail price' shall mean the price at which the cigarette is sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the applicable excise tax and the value-added tax.
"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', including the classification of brands for the same products which, although not set forth in said
Annex ID', were registered and were being commercially produced and marketed on or after October 1, 1996, and
which continue to be commercially produced and marketed after the effectivity of this Act, shall remain in force
until revised by Congress.

Suggested net retail price apply to new brands to be introduced. Its the net retail
price at which new brands are intended to be sold on retail in major supermarkets or
retail outlets in Metro Manila.
Net retail price apply to those brands already in the market. It is the price at which the
goods are sold on retail in at least 10 major supermarkets in Metro Manila.
The classification freeze provision in Sec 145 was the main issue in the case of British
American Tobacco v CIR.
o To the issues raised by British American Tobacco, the Supreme Court stated All
in all, the classification freeze provision addressed Congress's administrative
concerns in the simplification of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection, buoyant and stable
revenue generation, and ease of projection of revenues. Consequently, there can
be no denial of the equal protection of the laws since the rational-basis test is
amply satisfied.
o The Court, in answering the claim of unfair competition created by the
classification freeze, merely stated that the it wasnt conceived in a hostile
attitude against newer brands compared to older brands. And, respecting the
wisdom of the Congress as a co-equal branch of the government, the Court could
not strike down the provision as unconstitutional, even if it were imperfect.
Excise tax is basically an indirect tax imposed on the consumption of a specified list of
goods or products.
The tax is directly levied on the manufacturer upon removal of the taxable goods from
the place of production but in reality, the tax is passed on to the end consumer as part
of the selling price of the goods sold.
o The main difference with VAT (which is also an indirect tax) is the ability of the
buyer to claim a refund.
In VAT, zero-rated buyers have express statutory basis which allows them
to claim refunds.

Mickey Ingles 64
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In excise tax, buyers cannot claim refunds because there is no statutory
basis. Hence, it is only the statutory taxpayer who can claim a refund (as
in the case of Silkair v CIR)

Those exempt from excise taxes or conditional tax-free removal


EXEMPTION OR CONDITIONAL TAX-FREE REMOVAL OF CERTAIN ARTICLES
SEC. 133. Removal of Wines and Distilled Spirits for Treatment of Tobacco Leaf. - Upon issuance of a permit from
the Commissioner and subject to the rules and regulations prescribed by the Secretary of Finance, manufacturers
of cigars and cigarettes may withdraw from bond, free of excise local and imported wines and distilled spirits in
specific quantities and grades for use in the treatment of tobacco leaf to be used in the manufacture of cigars and
cigarettes; but such wines and distilled spirits must first be suitably denatured.
SEC. 134. Domestic Denatured Alcohol. - 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
exempt from the excise tax prescribed in Section 141: Provided, however, That such denatured alcohol shall be
subject to tax under Section 106(A) of this Code: Provided, further, That if such alcohol is to be used for
automotive power, it shall be taxed under Section 148(d) of this Code: Provided, finally, That any alcohol,
previously rendered unfit for oral intake after denaturing but subsequently rendered fit for oral intake after
undergoing fermentation, dilution, purification, mixture or any other similar process shall be taxed under Section
141 of this Code and such tax shall be paid by the person in possession of such reprocessed spirits.
SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. - Petroleum
products sold to the following are exempt from excise tax:
(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines:
Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank
and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the 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 foreign international carrier or exempt entities or
agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; and
(c) Entities which are by law exempt from direct and indirect taxes.
SEC. 136. Denaturation, Withdrawal and Use of Denatured Alcohol. - 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 provided for under Title X of this Code.
SEC. 137. Removal of Spirits Under Bond for Rectification.- Spirits requiring rectification may be removed from the
place of production to another establishment for the purpose of rectification without prepayment of the excise tax:
Provided, That the distiller removing such spirits and the rectifier receiving them shall file with the Commissioner
their joint bond conditioned upon the payment by the rectifier of the excise tax due on the rectified alcohol:
Provided, further, That in cases where alcohol has already been rectified either by original and continuous
distillation or by redistillation, no loss for rectification and handling shall be allowed and the rectifier thereof shall
pay the excise tax due on such losses: Provided, finally, That where a rectifier makes use of spirits upon which the
excise tax has not been paid, he shall be liable for the payment of the tax otherwise due thereon.
SEC. 138. Removal of Fermented Liquors to Bonded Warehouse. - Any brewer may remove or transport from his
brewery or other place of manufacture to a bonded warehouse used by him exclusively for the storage or sale in
bulk of fermented liquors of his own manufacture, any quantity of such fermented liquors, not less than one
thousand (1,000) liters at one removal, without prepayment of the tax thereon under a permit which shall be
granted by the Commissioner. Such permit shall be affixed to every package so removed and shall be cancelled or
destroyed in such manner as the Commissioner may prescribe. Thereafter, the manufacturer of such fermented
liquors shall pay the tax in the same manner and under the same penalty and liability as when paid at the brewery.
SEC. 139. Removal of Damaged Liquors Free of Tax. - When any fermented liquor has become sour or otherwise
damaged so as to be unfit for use as such, brewers may sell and after securing a special permit from the
Commissioner, under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary
of Finance, remove the same without the payment of tax thereon in cask or other packages, distinct from those
ordinarily used for fermented liquors, each containing not less than one hundred seventy-five (175) liters with a
note of their contents permanently affixed thereon.
SEC. 140. Removal of Tobacco Products Without Prepayment of Tax. - Products of tobacco entirely unfit for
chewing or smoking may be removed free of tax for agricultural or industrial use, under such conditions as may be
prescribed in the rules and regulations prescribed by the Secretary of Finance. Stemmed leaf tobacco, fine-cut
shorts, the refuse of fine-cut chewing tobacco, scraps, cuttings, clippings, stems, or midribs, and sweepings of
tobacco may be sold in bulk as raw material by one manufacturer directly to another without payment of the tax,
under such conditions as may be prescribed in the rules and regulations prescribed by the Secretary of Finance.
"Stemmed leaf tobacco", as herein used, means leaf tobacco which has had the stem or midrib removed. The term
does not include broken leaf tobacco.

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The following are exempt from paying excise taxes, or articles which can be removed,
without paying the excise tax, subject to a condition:
1. Wines and distilled spirits for treatment of tobacco leaf, but with prior approval of the
Commissioner and with corresponding bond
2. Domestic alcohol of not less than 180 degree proof (or 90% absolute alcohol), when
suitably denatured and rendered unfit for oral intake
3. Petroleum products sold to the following are exempt:
a. International carriers of Philippine or foreign registery on their use or consumption
outside the Philippines, provided that the petroleum products sold to these
international carriers shall be stored in a bonded storage tank, or
b. Exempt entities or agencies covered by tax treaties, conventions and other
international agreements for their use or consumption, provided that the country of
said foreign international carrier exempts from similar taxes petroleum products sold
to Philippine carriers, or
c. Entities which are by law exempt from direct and indirect taxes
4. Spirits requiring rectification upon filing of a bond
5. Fermented liquors removed by brewers from brewery to a bonded warehouse used
exclusively for the storage or sale in bulk of fermented liquors, not less than 1000 liters
at one removal
6. Damaged fermented liquor unfit for use removed by brewers upon approval by the
Commissioner. The damaged fermented liquor must be in distinct packages different
from those used for fermented liquors.
7. Tobacco products entirely unfit for chewing or smoking
The proper party to question, or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even if
he shifts the burden thereof to another.
o In the case of Silkair v CIR, the excise tax was imposed upon Petron as the
manufacturer of petroleum products. Silkair was claiming for the refund on the
basis of a tax exemption. However, the Court ruled that it was Petron, the
statutory taxpayer who was the propert party to claim the tax refund, not Silkair.
o The Court noted that even if Petron passed on to a tax-exempt airline the burden
of the tax, the additional amount billed to the latter for jet fuel is not a tax but
part of the price which the airline had to pay as a purchaser.

Credit for excise tax on goods exported


(D) Credit for Excise Tax on Goods Actually Exported. - When goods locally produced or manufactured are
removed and actually exported without returning to the Philippines, whether so exported in their original state or
as ingredients or parts of any manufactured goods or products, any excise tax paid thereon shall be credited or
refunded upon submission of the proof of actual exportation and upon receipt of the corresponding foreign
exchange payment: Provided, That the excise tax on mineral products, except coal and coke, imposed under
Section 151 shall not be creditable or refundable even if the mineral products are actually exported.
When goods locally produced or manufactured (except coal and coke under sec 151) are
removed and actually exported without returning to the Philippines, whether exported in
their original state or as ingredient or part of any manufactured goods or products, any
excise tax paid on such goods shall be credited or refunded upon submission of actual
exportation and upon receipt of the corresponding foreign exchange payment.

Who should pay? (Sec 130-131, didnt paste the codal, haba eh.)
For manufactured goods, the manufacturer or producer.
o But, if they are removed without paying the tax, the owner or person having
possession thereof shall be liable.
For imported goods, the importer or the owner.

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o But, for tax-free articles brought or imported by persons exempt from tax which
are subsequently sold in the Philippines to non-exempt persons, the purchasers
shall be considered the importers and will have to pay the duty and tax due on
such importation.

When should the excise taxes be paid?


For locally manufactured goods, pay prior to the removal of the article from the place of
production.
For imported goods, pay prior to the release of the article from customs custody.

Documentary Stamp Taxes


SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. - 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, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes prescribed in the following
Sections of this Title, by the person making, signing, issuing, accepting, or transferring the same wherever the
document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine
sources or the property is situated in the Philippines, and the same time such act is done or transaction had:
Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the
other party who is not exempt shall be the one directly liable for the tax.
Documentary stamp taxes are paid by the person making, signing, issuing, accepting or
transferring the document.
o Whenever one party to the taxable document enjoys an exemption from the tax,
the other party who is not exempt shall be the one directly liable for the tax.

SEC. 200. Payment of Documentary Stamp Tax. -


(A) In General. - The provisions of Presidential Decree No. 1045 notwithstanding, any person liable to pay
documentary stamp tax upon any document subject to tax under Title VII of this Code shall file a tax return and
pay the tax in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner.
(B) Time for Filing and Payment of the Tax. - Except as provided by rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, the tax return prescribed in this Section shall be
filed within ten (10) days after the close of the month when the taxable document was made, signed, issued,
accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is filed.
(C) Where to File. - Except in cases where the Commissioner otherwise permits, the aforesaid tax return shall be
filed with and the tax due shall be paid through the authorized agent bank within the territorial jurisdiction of the
Revenue District Office which has jurisdiction over the residence or principal place of business of the taxpayer. In
places where there is no authorized agent bank, the return shall be filed with the Revenue District Officer,
collection agent, or duly authorized Treasurer of the city or municipality in which the taxpayer has his legal
residence or principal place of business.
(D) Exception. - In lieu of the foregoing provisions of this Section, the tax may be paid either through purchase and
actual affixture; or by imprinting the stamps through a documentary stamp metering machine, on the taxable
document, in the manner as may be prescribed by rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner.

SEC. 201. Effect of Failure to Stamp Taxable Document. - An instrument, document or paper which is required by
law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall
not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in
evidence in any court until the requisite stamp or stamps are affixed thereto and cancelled.
When and how to pay?
o Return should be filed and the payment made within 10 days after the close of
the month when the taxable document was made, signed, issued, accepted or
transferred;
o In lieu of the above, by buying the required documentary stamp, affixing the
stamp on the document and canceling the stamp with indication of the date of
cancellation, or imprinting the amount of the required documentary stamp tax on
the document with the use of a special machine.
What if I fail to stamp the taxable document?
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o An instrument, document or paper which is required by law to be stamped and
which has been signed, issued, accepted or transferred without being duly
stamped, shall
NOT be recorded, or
Any record of transfer of the same be admitted or used in evidence in any
court
until the requisite stamps shall have been paid.
o No notary public or officer authorized to administer oaths shall add his jurat or
acknowledgment to any document subject to the DST unless the proper
documentary stamps are paid.

DST on Original Issue of Shares of Stock


SEC. 174. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on
organization, reorganization or for any lawful purpose, of shares of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos
(P200), or fractional part thereof, of the par value, of such shares of stock: Provided, That in the case of the
original issue of shares of stock without par value the amount of the documentary stamp tax herein prescribed
shall be based upon the actual consideration for the issuance of such shares of stock: Provided, further, That in the
case of stock dividends, on the actual value represented by each share.
For every original issue of shares of stock, P1 DST is paid for every P200 (or fraction
thereof) of the par value of such shares of stock
o If without par value, base will be the actual consideration
o If stock dividends, the base will be the actual value represented by each share

Example A stock certificate was issued by Safari, Inc with a par value of P500. With the
rate of P1.00 on each P200 or fractional part thereof, the tax is P3.00. (500/200 = 2.5,
round up to 3. Multiply 3 x P1.)

For other, check codal, Sections 173-198.

Give some examples of documents not subject to the DST (Section 199, wont copy it here
since its quite long, below is some random examples from the code)
1. Insurance policies or annuities made or granted by a fraternal or beneficiary society,
order, association, etc operated on the lodge system or local cooperation plan organized
and conducted solely by the members for the exclusive benefit of each member and not
for profit
2. Certificates of oaths administered to any government official in his official capacity
3. Papers filed in court for and by the government
4. Affidavits of poor folk for the purpose of proving poverty
5. Certificates of lands, not exceeding P200 in assessed value furnished by the municipal
treasurer to applicants for registration of title to land
6. Borrowing and lending of securities executed under the Securities Borrowing and
Lending Program of a registered exchange or in accordance with regulations prescribed
by the appropriate regulatory authority
7. Loan agreements or promissory notes the aggregate of which does not exceed
P250,000, executed by an individual for his purchase on installment for his personal use
a house, lot, motor vehicle, appliance or furniture
8. Assignment or transfer of any mortgage, lease or policy insurance, if there is no change
in the maturity period
9. Fixed income and other securities traded in the secondary market or through an
exchange
10. Derivatives
11. Interbranch or interdepartment advances within the same legal entity

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12. All forbearances arising from sales or service contracts including credit card and trade
receivables
13. Bank deposit without a fixed term or maturity
14. All instruments related to the conduct of business of the BSP
15. Tax-free exchanges (Sec 40(c)2)
16. Interbank call loans with maturity of not more than 7 days to cover deficiency in
reserves against deposit liabilities irrelevant where the document was executed

Powers of the BIR


SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be
under the supervision and control of the Department of Finance and its powers and duties shall comprehend the
assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of all
forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases decided in
its favor by the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to and administer the
supervisory and police powers conferred to it by this Code or other laws.
The BIR has the power and duty
o to assess and collect all taxes, fees and charges,
o to enforce all forfeitures, penalties and fines in connection therewith,
this includes execution of judgments in all cases decided in its favor
SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall have a chief
to be known as Commissioner of Internal Revenue, hereinafter referred to as the Commissioner and four (4)
assistant chiefs to be known as Deputy Commissioners.

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
When it comes to rulings, the Secretary of Finance can review the rulings of of the CIR
or his deputies.
o The taxpayer must go to the Sec of Finance within 30 days. (RMC 44-2001)
Not sure where you go from here, baka CTA.
o In fact, the Secretary of Finance can motu propio review rulings and issuances of
the BIR. (BIR Website)
When it comes to assessments, refunds, penalties and other matters, recourse should be
done to the CTA.
o See CTA rules.

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons. - In ascertaining the correctness of 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 collecting any such liability, or
in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or officer of the national and local governments, government
agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled
corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of multinational companies, joint accounts,
associations, joint ventures of consortia and registered partnerships, and their members; (
C) To summon the person liable for tax or required to file a return, or any officer or employee of such person, or
any person having possession, 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 representative at a time and place specified in the summons and to produce
such books, papers, records, or other data, and to give testimony;

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(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry;
and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with respect to which a tax is
imposed. The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for in
Section 6(F) of this Code.
The Commissioner is authorized by law to do a whole host of things (see codal) in
o ascertaining the correctness of any return, or
o making a return when none has been made, or
o collecting any such liability, or
o evaluating tax compliance, or
o in determining the liability of any person for tax.
Take note of Sec 5 (b): the BIR can issue access letters addressed to a 3rd party in
relation to the investigation of a taxpayer.
The law allows the BIR access to all relevant or material records and data in the person
of the taxpayer. In fact, the BIR can accept documents which cannot be admitted in a
judicial proceeding where the Rules of Court are strictly observed. (Fitness by Design v
CIR)
The rule on the best evidence obtainable applies when a tax report is required by law
for the purpose of assessment and it is not available or when the tax report is
incomplete or fraudulent. (Sy Po v CTA)
The failure of the taxpayers to present their books of accounts for examination is a
reason for the CIR to resort to his powers.

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for
Tax Administration and Enforcement. -
(A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of
any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return
shall not prevent the Commissioner from authorizing the examination of any taxpayer.
Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from 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, statement or declaration has
in the meantime been actually served upon the taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by
law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time
fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete
or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall
be prima facie correct and sufficient for all legal purposes.

(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales and Receipts. -
The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any taxpayer as a
basis for determining his internal revenue tax liabilities, or may place the business operations of any person,
natural or juridical, under observation or surveillance if there is reason to believe that such person is not declaring
his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the basis for
assessing the taxes for the other months or quarters of the same or different taxable years and such assessment
shall be deemed prima facie correct.
When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections
113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this
Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other
persons engaged in similar businesses under similar situations or circumstances or after considering 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 revenue tax liabilities of such
person.

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(D) Authority to Terminate Taxable Period. - When it shall come to the knowledge of the Commissioner that a
taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the
collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless
such proceedings are begun immediately, the Commissioner shall declare the tax period of such taxpayer
terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the
immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter,
or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be
subject to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the
Commissioner.

(E) Authority of the Commissioner to Prescribe Real Property Values. - The Commissioner is hereby authorized to
divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both
from the private and public sectors, determine the fair market value of real properties located in each zone or area.
For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the higher of:
(1) the fair market value as determined by the Commissioner, or
(2) the fair market value as shown in the schedule of values of the Provincial and City Assessors.

(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and
Other Related Information Held by Financial Institutions. - Notwithstanding any contrary
provision of Republic Act No. 1405, Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act of
the Philippines, and other general and special laws, the Commissioner is hereby authorized to inquire into the bank
deposits and other related information held by financial institutions of:
(1) A decedent to determine his gross estate.
(2) Any taxpayer who has filed an application for compromise of his tax liability under Sec. 204 (A)(2) reason of
financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and
until he waives in writing his privilege under Republic Act No. 1405, Republic Act No. 6426, otherwise known as the
Foreign Currency Deposit Act of the Philippines, or under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is a
signatory or a party of: Provided, That the information obtained from the banks and other financial institutions may
be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.
"In case of request from a foreign tax authority for tax information held by banks and financial institutions, the
exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.

The Commissioner shall provide the tax information obtained from banks and financial institutions pursuant to a
convention or agreement upon request of the foreign tax authority when such requesting foreign tax authority has
provided the following information to demonstrate the foreseeable relevance of the information to the request:
"(a) The identity of the person under examination or investigation;
"(b) A statement of the information being sought including its nature and the form in which the said foreign tax
authority prefers to receive the information from the Commissioner;
"(c) The tax purpose for which the information is being sought;
"(d) Grounds for believing that the information requested is held in the Philippines or is in the possession or control
of a person within the jurisdiction of the Philippines;
"(e) To the extent known, the name and address of any person believed to be in possession of the requested
information;
"(f) A Statement that the request is in conformity with the law and administrative practices of the said foreign tax
authority, such that if the requested information was within the jurisdiction of the said foreign tax authority then it
would be able to obtain the information under its law or in the normal course of administrative practice and that it
is conformity with a convention or international agreement; and
"(g) A statement that the requesting foreign tax authority has exhausted all means available in its own territory to
obtain the information, except those that would give rise to disproportionate difficulties.
"The Commissioner shall forward the information as promptly as possible to the requesting foreign tax authority.
To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to the requesting tax
authority and shall notify the latter of deficiencies in the request, if any, within sixty (60) days from the receipt of
the request.
If the Commissioner is unable to obtain and provide the information within ninety (90) days from the receipt of the
request, due to obstacles encountered in furnishing the information or when the bank or financial institution

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refuses to furnish the information, he shall immediately inform the requesting tax authority of the same, explaining
the nature of the obstacles encountered or the reasons of refusal."
The term 'foreign tax authority', as used herein, shall refer to the tax authority or tax administration of the
requesting State under the tax treaty or convention to which the Philippines is a signatory or a party of.

(G) Authority to Accredit and Register Tax Agents. - The Commissioner shall accredit and register, based on their
professional competence, integrity and moral fitness, individuals and general professional partnerships and their
representatives who prepare and file tax returns, statements, reports, protests, and other papers with or who
appear before, the Bureau for taxpayers. Within one hundred twenty (120) days from January 1, 1998, the
Commissioner shall create national and regional accreditation boards, the members of which shall serve for three
(3) years, and shall designate from among the senior officials of the Bureau, one (1) chairman and two (2)
members for each board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon
the recommendation of the Commissioner.
Individuals and general professional partnerships and their representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of
Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the Secretary of
Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for
accreditation of the appellant.

(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements. - The
Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in
connection with the submission or preparation of financial statements accompanying the tax returns.
Take note of the amendment by RA 10021 to Subsection F.
o Bank deposits can be examined by the CIR, in the following instances:
A decedent to determine his gross estate, or
Any taxpayer who has filed an application for compromise, or
Pursuant to an international convention or tax agreement, which the
Philippines is a signatory of.
Read with the amendment to Sec 71 and Sec 270.20

SEC. 7. Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers
vested in him under the pertinent provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules
and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner:
Provided, however, That the following powers of the Commissioner shall not be delegated:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

20
SEC. 71. Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers. - After the assessment
shall have been made, as provided in this Title, the returns, together with any corrections thereof which may have
been made by the Commissioner, shall be filed in the Office of the Commissioner and shall constitute public records
and be open to inspection as such upon the order of the President of the Philippines, under rules and regulations to
be presented by the Secretary of Finance, upon recommendation of the Commissioner.
"The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists containing
the names and addresses of persons who have filed income tax returns.
"Income tax returns of specific taxpayers subject of a request for exchange of information by a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is a
signatory or a party of, shall be open to inspection upon the order of the President if the Philippines under rules
and regulations as may be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.
SEC. 270. Unlawful Divulgence of Information. - Except as provided in Sections 6(F) and 71 of this Code and
Section 26 of Republic Act No. 6388, any officer or employee of the Bureau of Internal Revenue who divulges to
any person or makes known in any other manner than may be provided by law information regarding the business,
income, or estate of any taxpayer, the secrets, operation, style or work, or apparatus of any manufacturer or
producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by
him in the discharge of his official duties, 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), or suffer
imprisonment of not less than two (2) years but not more than five (5) years, or both.
"Any officer or employee of the Bureau of Internal Revenue who divulges or makes known in any other manner to
any person other than the requesting foreign tax authority information obtained from banks and financial
institutions pursuant to Section 6(F), knowledge or information acquired by him in the discharge of his official
duties, shall, upon conviction, be punished by a fine of not less than Fifty thousand pesos (P50,000) but not more
than One hundred thousand pesos (P100,000), or suffer imprisonment of not less than two (2) years but not more
than five (5) years, or both
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(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand
pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to be
promulgated by the Secretary of finance, upon 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, the heads of the Legal, Assessment and Collection Divisions
and the Revenue District Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax
are produced or kept.
The CIR may delegate the power to assess taxes to his subordinates. (Republic v Hizon)
o But he cannot delegate the power:
To recommend the promulgation of rules and regulations by the Sec of
Finance,
To issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the bureau,
To compromise or abate any tax liability
but if P500,000 or less, he can delegate
To assign or reassign officers to establishments where excise tax articles
are produced or kept.

Tax Assessment
SEC. 56. Payment and Assessment of Income Tax for Individuals and Corporation. -
(A) Payment of Tax. -
(1) In General. - The total amount of tax imposed by this Title shall be paid by the person subject thereto at the
time the return is filed. In the case of tramp vessels, the shipping agents and/or the husbanding agents, and in
their absence, the captains thereof are required to file the return herein provided and pay the tax due thereon
before their departure. Upon failure of the said agents or captains to file the return and pay the tax, the Bureau of
Customs is hereby authorized to hold the vessel and prevent its departure until proof of payment of the tax is
presented or a sufficient bond is filed to answer for the tax due.
(2) Installment of Payment. - When the tax due is in excess of Two thousand pesos (P2,000), the taxpayer other
than a corporation may elect to pay the tax in two (2) equal installments in which case, the first installment shall
be paid at the time the return is filed and the second installment, on or before July 15 following the close of the
calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the
tax unpaid becomes due and payable, together with the delinquency penalties.
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and prescribed under Section 24 (c), 24(D),
27(E)(2), 28(A)(8)(c) and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed by the person
liable thereto: Provided, That if the seller submits proof of his intention to avail himself of the benefit of exemption
of capital gains under existing special laws, no such payments shall be required : Provided, further, That in case of
failure to qualify for exemption under such special laws and implementing rules and regulations, the tax due on the
gains realized from the original transaction shall immediately become due and payable, subject to the penalties
prescribed under applicable provisions of this Code: Provided, finally, That if the seller, having paid the tax,
submits such proof of intent within six (6) months from the registration of the document transferring the real
property, he shall be entitled to a refund of such tax upon verification of his compliance with the requirements for
such exemption.
In case the taxpayer elects and is qualified to report the gain by installments under Section 49 of this Code, the tax
due from each installment payment shall be paid within (30) days from the receipt of such payments.
No registration of any document transferring real property shall be effected by the Register of Deeds unless the
Commissioner or his duly authorized repre
sentative has certified that such transfer has been reported, and the tax herein imposed, if any, has been paid.
(B) Assessment and Payment of Deficiency Tax. - After the return is filed, the Commissioner shall examine it and
assess the correct amount of the tax. The tax or deficiency income tax so discovered shall be paid upon notice and
demand from the Commissioner.
As used in this Chapter, in respect of a tax imposed by this Title, the term "deficiency" means:
(1) The amount by which the tax imposed by this Title exceeds the amount 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 otherwise repaid in respect of such tax; or
(2) If no amount is shown as the tax by the taxpayer upon this return, or if no return is made by the taxpayer,
then the amount by which the tax exceeds the amounts previously assessed (or collected without assessment) as a

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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 such tax.
An assessment is an official action by an administrative officer to determine the tax due
of the taxpayer.
It consists of:
o a computation of the amount of tax that must be paid by the taxpayer,
o coupled with a demand to pay the tax within a specified period of time.
There are two kinds of assessment:
1. Self-assessment (Section 56 (A))
a. This is when the taxpayer files his return and pays
2. Deficiency assessment (Section 56 (B)
a. This occurs upon discovery of the BIR that the self-assessment was either
deficient, or when no return was made by the taxpayer

1. Tax assessment by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. (Sy Po v CTA)
2. However, assessments cannot be based on mere presumptions on the part of the
government. There must be a minimum effort on the government before the
presumption of correctness sets in. (CIR v Benipayo, wherein the Court said that a
charge of fraud against a taxpayer is a serious one and must be supported by clear and
convincing proof).
3. Mandamus does not lie to compel the CIR to impose a tax assessment not found by him
to be proper. (Meralco Securities v Savellano, a case where an informer wanted his
reward)
4. The assessment must always be addressed to the proper party.

Ok, youve got a deficiency tax assessment, what happens now? (RR 12-99, Reyes)
1. The revenue officer who audited the taxpayers records shall state in his report
whether or not the taxpayer agrees with his findings that the taxpayer is liable for
deficiency taxes
2. The BIR will inform the taxpayer of the discrepancies and will call the taxpayer for a
conference, using a Notice of Informal Conference.
a. Taxpayer has 15 days from receipt of the Notice to respond. If he doesnt,
default
3. The finding of the examiner and the response of the taxpayer will be reviewed by the
Assessment Division of the Revenue District Officer
4. If there is sufficient basis for an assessment, the BIR will issue a pre-assessment
notice (PAN) stating the facts, laws, rules, regs, and jurisprudence on which the
proposed assessment is based
a. Taxpayer has 15 days from receipt of the PAN to respond. If he doesnt,
default.
5. If the taxpayer is in DEFAULT or his response is NOT meritorious, the BIR will issue a
formal letter of demand and assessment. It too will state the facts, laws, etc etc.
6. The taxpayer must file a letter of protest within 30 days thereof. He too should state
the laws, facts, etc etc.
a. For issues which he did not raise, a collection letter shall be issue telling the
taxpayer to pay up.
b. For issues protested, the prescriptive period on assessment and collection will
be suspended.
c. If the taxpayer failed to file a valid protest within the period, the assessment
will become final, executory and demandable. (yari ka boy!)

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7. The taxpayer must submit supporting documents within 60 days from filing his letter
of protest. If he doesnt, assessment shall become Final. Executory. And.
Demandable!!!!!!!!
8. If the protest is denied in whole or in part, appeal to the CTA within 30 days from
date of receipt of decision
a. But if the denial was by an agent of the Commissioner, protest first to the
Commissioner within 30 days.
b. If the commissioner or his agent fails to act on the taxpayers protest within
180 days from the submission of documents, the taxpayer has to appeal to
the CTA within 30 days from the lapse of the 180 day period. If not, yari ka
na naman.
9. Within 15 days from receipt of the decision of the CTA, appeal it to the SC.

Filing of tax return BIR finds deficiency


Notice of Informal Conference (15 days to respond)
PAN (15 days to respond)
Formal Assessment (30 days to protest)
Taxpayer Protest Letter Submit Supporting Documents (60 days from time of
protest letter)
BIR Decision Appeal to CTA (within 30 days from decision)
BIR no decision in 180 days Appeal to CTA (within 30 days from lapse of
180 days)

When is the PAN not needed? (Formal Assessment enough)


1. Any deficiency tax is the result of mathematical error in the computation of the tax
evident on the face of the return
2. Discrepancy between the tax withheld and the amount actually remitted by the
withholding agent
3. Taxpayer opted to claim a refund or tax credit for excess creditable withholding tax
carried it over and automatically applied the amount claimed against the estimated
tax liabilities for the taxable quarter of the succeeding taxable year
4. Excise tax due on excisable articles has not been paid
5. When an article locally purchase or imported by an exempt person has been sold,
traded or transferred to non-exempt person

Remedies of the Government


The government has the following tax remedies for its tax collection and tax
enforcement:
1. Compromise and abatement
2. Tax lien
3. Distraint and levy
4. Forfeiture
5. Civil penalties and interests
6. Civil action
7. Criminal action
The government can avail of these remedies of collection when the assessment has
become final, executory and demandable.
o When does that happen? Um, read the previous section.

Compromise
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SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner
may -
(A) Compromise the Payment of any Internal Revenue Tax, when:
(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 pay the assessed tax. The compromise
settlement of any tax liability shall be subject to the following minimum amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic
assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which shall
be composed of the Commissioner and the four (4) Deputy Commissioners.
The grounds for compromise are:
1. Doubtful validity of the claim against the taxpayer, or
2. Financial incapacity of the taxpayer
The BIR and the law allows compromise because may tulog (a 70s term that Atty.
Montero uses). In other words, the BIR would rather compromise than go to court
because there is a chance that once brought to court, they might not collect because of
some rabbit that the taxpayer might pull out of his hat.
A compromise in extra-judicial settlement of the taxpayers criminal liability for his
violation is consensual in character, hence, may not be imposed on the taxpayer without
his consent. (RR 12-99)
The cases which may be compromised are:
1. Delinquent accounts
2. Pending admin cases under admin protest after issuance of final assessment notice
to the taxpayer
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations
o EXCEPT if 1) already filed in court or 2) involving criminal tax fraud
The following cases can NOT be compromised:
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that
cast doubt on the taxpayers obligation to withhold. (Atty Montero asked why, dont
know why!)
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue
or his duly authorized representative
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments (taxpayer
already given a chance to pay in installments, gusto pang magcompromise, grabe
na!);
5. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for the purpose. (taxpayer
already agreed to the reduction, gusto pang magcompromise, sobra na!)
6. Cases which become final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment
This was also the doctrine in Rovero v Amparo
7. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer (its not the taxpayer who will pay anyway, but the estate)

What are the examples for doubtful validity?


1. Delinquent account/disputed assessment resulted from a jeopardy assessment
a. Jeopardy assessment is an assessment without the benefit of complete or
partial audit by an authorized revenue officer

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b. These assessments are usually done just before the end of the prescription
period.
c. Thus, they are called jeopardy because the tax is in jeopardy of not being
collected at all and the officer is in jeopardy of losing his job. Nag-assess na
lang para lang may ma-assess.
2. The assessment seems to be:
a. Arbitrary,
b. Based on presumptions, and
c. There is reason to believe that is lacking in legal/factual basis
3. There is reason to believe that the assessment is lacking in legal and factual basis
and taxpayer failed:
a. to file an admin protest because of alleged failure to receive notice of
assessment, or
b. to file a request for reinvestigation reconsideration within 30 days from
receipt of final assessment notice, or
c. to elevate to the Court of Tax Appeals (CTA) an adverse decision of the
Commissioner, or his authorized representative, in some cases, within 30
days from receipt thereof.
4. The assessments were issued on or after January 1, 1998, where the demand notice
allegedly failed to comply with the formalities prescribed under Sec. 228 of the
National Internal Revenue Code of 1997
5. Assessments made based on the Best Evidence Obtainable Rule and there is reason
to believe that the same can be disputed by sufficient and competent evidence
6. The assessment was:
a. issued within the period extended by the taxpayers execution of Waiver of
Statute of Limitations and
b. the waivers authenticity is being questioned and
c. there is strong reason to believe and evidence to prove that it is not authentic.

What are examples of financial incapacity?


1. Corporation ceased or dissolved (but the tax liabilities for the assets distributed to
the stockholders as return of capital can not be compromised)
2. Taxpayer has a surplus deficit resulting to capital impairment by at least 50%
a. Provided taxpayer has no sufficient liquid asset to satisfy liability
b. Provided that amounts payable or due to stockholders other than business-
related transactions which are properly includible in the regular accounts
payable are by fiction of law considered as part of capital and not liability
3. Net Worth deficit (for corps), and for an individual, if he has no other leviable
properties except his family home
4. Taxpayer is a compensation earner and he has no more leviable assets except his
family home
5. Taxpayer declared to be bankrupt by any court/tribunal/authority/body/government
agency
Minimum Compromise Rates
Based on financial incapacity 10% of the basic assessed tax
Based on doubtful validity 40% of the basic assessed tax
Where the basic tax involved exceeds P1m or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the
Evaluation Board.
The expansion and discussion are based on RR 30-2002.

Abatement and Cancellation of Tax Liability


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(B) Abate or Cancel a Tax Liability, when:
(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 collection of the
amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.
Abatement of the penalties and/or interest is allowed when:
1. The taxes or any portion thereof appears to be unjustly or excessively assessed, or
2. The administration and collection costs do not justify the collection of the amount
due.
What are the instances where there appears to be unjust or excessive assessment?
1. Filing of the return/payment was made at the wrong venue
2. Taxpayers mistake in payment of tax was due to erroneous written advice of a
revenue officer
3. Taxpayers non-compliance is due to a difficult interpretation of said law
4. Failure to pay on time because of substantial losses from prolonged labor disputes,
force majeure, legitimate business reverses
5. Failure to pay because of circumstances beyond his control
In 4 & 5, the abatement will only cover the surcharge and the compromise
penalty, not the interest.
6. Late payment of tax under meritorious circumstances like:
One-day late filing in the bank
Use of wrong tax form but correct amount of tax was remitted
Filing an amended return under meritorious circumstances (here, only
penalties are abated, not interest)
Surcharge erroneously imposed
Late filing due to unresolved issue on classification/valuation of real property
(for capital gains)
Offsetting of taxes of the same kind
Offsetting of one kind of withholding against the underpayment of another
kind
Late remittance of withholding tax on compensation of expats
Wrong use of the Tax Credit Certificate
Analogous cases
What are the instances where the collection costs are more than the amount sought to
be collected (i.e. not worth it)?
o Basically, cases where the taxpayer appealed the assessment or is contesting an
assessment which had already been reinvestigated and other meritorious
circumstances
o Whats important is that the abatement of the surcharge and compromise will
only be allowed upon written application by the taxpayer that he is signifying his
willingness to pay the basic tax and interest or just the basic tax (depending on
the circumstances)
The expansion and discussion are based on RR 13-2001.

Tax Liens
SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account (cuentas en
participacion), association or insurance company liable to pay an internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time
when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may
accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, That this
lien shall not be valid against any mortgagee purchaser or judgment creditor until notice of such lien shall be filed
by the Commissioner in the office of the Register of Deeds of the province or city where the property of the
taxpayer is situated or located.

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When a taxpayer neglects or refuses to pay his internal revenue tax liability after
demand, the amount demanded shall be a lien in favor of the government from the time
the assessment was made by the CIR until paid with interest, penalties, and costs that
may accrue in addition thereto upon all property and rights to property belonging to the
taxpayer
However, the lien shall not be valid against any mortgagee, purchaser or judgment
creditor until notice of such lien is registered in the office of the RD.
Well-settled that the claim of the government predicated on a tax lien is superior to the
claim of a private litigant predicted on a judgment. (CIR v NLRC)

Distraint and Levvvvvvvvvy!!!!!!! WHAT UP!


SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal
revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks
and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy

upon real property and interest in rights to real property; and (b) By civil or criminal action. 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 availed of where the amount of

tax involve is not more than One hundred pesos (P100). The judgment in the criminal case shall not only
impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the

Commissioner. 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 improvements thereon.
Collection by distraint and levy are known as summary, extrajudicial or administrative
enforcement remedies.
o They are distinguished from remedies of collection by civil and criminal actions,
where are judicial in nature.
However, the remedies of distraint and levy, as well as collection by civil and criminal
action may by be pursued singly or independently of each other or all of them
simultaneously.
Distraint is enforced on personal property.
Levy is enforced on real property.

Lets talk about distraint.


There are two kinds of distraint:
o ACTUAL distraint, wherein actual delinquency in tax payment is necessary; and
o CONSTRUCTIVE distraint, wherein no actual delinquency is necessary.
SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the
Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or
any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the
Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to
obstruct the proceedings for collecting the tax due or which may be due from him.
The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose of the same ;in any manner whatever, without the
express authority of the Commissioner.
In case the taxpayer or the person having the possession and control of the property sought to be placed under
constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed,
leave a copy thereof in the premises where the property distrained is located, after which the said property shall be
deemed to have been placed under constructive distraint.
Constructive distraint is a preventive remedy of the Government which aims at
forestalling possible dissipation of the taxpayers assets when delinquency sets in. Again,
actual delinquency is not necessary before this can be resorted to.

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Some instances when constructive distraint may be availed of; the CIR believes the
taxpayer:
o Is retiring from any business subject to tax,
o Intends to leave the Philippines
o Intends to remove his property from the Philippines
o Intends to hide or conceal his property
o Performs any act tending to obstruct the proceedings for collecting the tax due.
How is constructive distraint effected?
o The taxpayer will be required to sign a receipt covering the property distrained
and obligate himself to:
Preserve it intact and unaltered, and
Not dispose of it in any manner, without express authority of the CIR
o If the taxpayer refuses, the officer will prepare a list of the properties distrained
and will leave a copy thereof in the premises, in the presence of 2 witnesses.
Procedure for actual distraint:
1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property
4. Release of distrained property, prior to sale
5. Sale of property distrained
6. Purchase by Government at sale upon distraint

Codal provisions for the process, each box corresponds to one step of the process
(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or delinquent
revenue to pay the same at the time required, the Commissioner or his duly authorized representative, if the
amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if the amount
involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the
personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights
to personal property of such persons ;in sufficient quantity to satisfy the tax, or charge, together with any
increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale.
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 Commissioner or
his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance,
upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided, further, That a
consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary.

SEC. 208. Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall make
or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of
which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels,
or effects or other personal property were taken, or at the dwelling or place of business of such person and with
someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of
the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and
upon the president, manager, treasurer or other responsible officer of the corporation, company or association,
which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or
under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be
sufficient authority to the person owning the debts or having in his possession or under his control any credits
belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president,
manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank
shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the
Government.

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or his duly
authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules
and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith
cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the

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distraint is made, specifying; the time and place of sale and the articles distrained. The time of sale shall not be
less than twenty (20) days after notice. One place for the posting of such notice shall be at the Office of the Mayor
of the city or municipality in which the property is distrained.

SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects
distrained shall be restored to the owner.

SEC. 209 (CONTINUED) At the time and place fixed in such notice, the said revenue officer shall sell the goods,
chattels, or effects, or other personal property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity
or stock exchanges.
In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall
deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks
or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or association shall make
the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and
issue, if required to do so, the corresponding certificates of stock or other securities.
Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the
owner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actual
expenses of seizure and preservation of the property pending ;the sale, and no charge shall be imposed for the
services of the local internal revenue officer or his deputy.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property under
distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles
offered for sale, the Commissioner or his deputy may purchase the same in behalf of the national Government for
the amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations
prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and
accounted for as internal revenue.

The procedure for levy of real property is:


1. Commencement of levy proceedings
2. Service of warrant of levy
3. Advertisement for sale
4. Public sale of the property under levy
5. Redemption of property sold
6. Forfeiture to the Government for want of bidder
7. Resale of real estate taken for taxes
8. Further distraint and levy

Codal provisions for the process, each box corresponds to one step of the process
(B) Levy on Real Property. - 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 representative shall prepare a duly authenticated certificate showing the name
of the taxpayer and the amounts of the tax and penalty due from him. Said certificate shall operate with the force
of a legal execution throughout the Philippines.

Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the
same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the 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 manager of the business in respect to which the liability arose, or if there be none, to the occupant of
the property in question.
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, within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to
the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the

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Revenue Regional Director may be required by the Commissioner 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
accordance with the provisions hereof.

SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the proceedings
shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and
cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by
posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in
the barrio or district in which the real estate lies and ;by publication once a week for three (3) weeks in a
newspaper of general circulation in the municipality or city where the property is located. The advertisement shall
contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the
taxpayer against whom taxes are levied, and a short description of the property to be sold.

At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of
the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall
determine and as the notice of sale shall specify.
Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered
upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director.
The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out and deliver to
the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold
stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided,
however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over
to the owner of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance
an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code,
including ;the preservation or transportation in case of personal property, and the advertisement and subsequent
sale, both in cases of personal and real property including improvements found on the latter. In his monthly
collection reports, such advances shall be reflected and supported by receipts.

SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent taxpayer,
or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes,
penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said
purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of
redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the
purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the
Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus
been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.

The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents
and other income thereof until the expiration of the time allowed for its redemption.

SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property exposed
for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and
costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in
satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and
the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds
concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property
forfeited to the Government without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property
by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall
become absolute.

SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real estate
obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs arising under
this Code or in compromise or adjustment of any claim therefore, and said Commissioner may, upon the giving of
not less than twenty (20) days notice, sell and dispose of the same of public auction or with prior approval of the
Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of the sale shall be

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deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman of the
Commission on Audit.

SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty may be
repeated if necessary until the full amount due, including all expenses, is collected.

Forfeiture
SEC. 224. Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of any
sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The forfeiture of
real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or
criminal, as the case may require.
The difference between distraint/levy (or collectively, seizure) and forfeiture is
o In seizure, the residue after deducting tax liability and expenses shall go to the
taxpayer.
o In forfeiture, all the proceeds of the sale will go to the government.

Civil Penalties and Interest


CHAPTER I
ADDITIONS TO TAX

SEC. 247. General Provisions. -


(a) The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all taxes, fees and charges
imposed in this Code. The Amount so added to the tax shall be collected at the same time, in the same manner
and as part of the tax.
(b) If the withholding agent is the Government or any of its agencies, political subdivisions or instrumentalities, or
a government-owned or controlled corporation, the employee thereof responsible for the withholding and
remittance of the tax shall be personally liable for the additions to the tax prescribed herein.
(c) the term "person", as used in this Chapter, includes an officer or employee of a corporation who as such officer,
employee or member is under a duty to perform the act in respect of which the violation occurs.

Penalties and interests apply to ALL taxes, fees and charges imposed by the NIRC.
Tax laws imposing penalties for delinquencies are intended to hasten tax payments by
punishing evasions or neglect of duty in respect thereof.
It is mandatory to collect penalty and interest at the stated rate in case of delinquency.
(PRC v CA)

SEC. 248. Civil Penalties. -


(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent
(25%) of the amount due, in the following cases:
(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and
regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than
those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the
provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations,
or in case a false or fraudulent return is willfully 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 overstatement of deductions, as determined by the Commissioner pursuant to the 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%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual
deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein.

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Civil penalties can be divided into two categories those with a 25% surcharge, and
those with a 50% surcharge.
A penalty of 25% on the amount due will be imposed in the following cases:
1. Failure to file any return AND pay the tax due
2. Filing a return with an internal revenue officer other than those with whom the
return is required to be filed
3. Failure to pay the deficiency tax within the time prescribed in the notice of
assessment
4. Failure to pay the full or part of the amount of tax stated in the return (or full
amount when no return is required) on or before the date prescribed for its payment
o Note: There is NO 25% surcharge when you file on time, pay the full amount
stated in the return, but subsequently find out that the return filed and the
amount paid was erroneous. See situation 4.1 and 4.2 below.
A penalty of 50% of the deficiency tax will be imposed in the following cases:
1. Willful neglect to file a return within the period prescribed by law
2. False or fraudulent return is willfully made
a. Prima facie evidence of a false and fraudulent return when substantial
underdeclaration of taxable income or substantial overstatement of
deductions (failure to declare an amount exceeding 30% for taxable income
or actual deductions)
Note on willful neglect: if the taxpayer voluntarily files the return, without notice from
the BIR, only 25% surcharge shall be imposed for late filing and late payment of the tax.
o But if the taxpayer files the return only after prior notice in writing from the BIR,
then the 50% surcharge will be imposed.
In other words, no demand on the BIR and the taxpayer pays, albeit late,
25%.
With demand by the BIR, 50%.
The 25% surcharge for non-payment of the sales tax is not imposable where such non-
payment arose from a legitimate dispute on whether an article is subject or not to the
sales tax. (CIR v Republic Cement, wherein Republic Cements erroneous payment was
based on the original stand of the BIR regarding the classification of cement. CIR should
have abated the surcharge. This ruling seems to have been incorporated to RR 13-2001
on abatement)
o Where imposition of a tax statute was controversial, taxpayer may not be held
liable to pay surcharge and interest. It should be liable only for tax proper and
should not be held liable for the surcharge and interest. (Cagayan Electric v CIR)
Willful neglect to file the required tax return or the fraudulent intent to evade the
payment of taxes, considering that the same is accompanied by legal consequences, can
not be presumed. (CIR v Air India)
o The fraud contemplated by law is actual and not constructive. It must be
intentional fraud, consisting of deception willfully and deliberately done or
resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to give up some
legal right. (Aznar v CTA)

SEC. 249. Interest. -


(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty
percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully paid.
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this 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 until the full payment thereof.
(C) Delinquency Interest. - In case of failure to pay:
(1) The amount of the tax due on any return to be filed, or
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(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of
the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in
Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax.
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay the tax on
installment under the provisions of this Code, 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 Commissioner has authorized
an extension of time within which to pay a tax or a deficiency tax or any part thereof, there shall be assessed and
collected interest at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof unpaid from
the date of notice and demand until it is paid.
There are four kinds of interest in this article:
o General interest
o Deficiency
o Delinquency
o Extended Payment interest
For general, the interest on unpaid taxes is 20% per annum on any unpaid amount of
tax from the date prescribed for payment until the amount is fully paid.
For deficiency interest, the rate is 20% per annum on any deficiency in the tax due from
the date prescribed for its payment until full payment
For delinquency interest, 20% per annum on the unpaid amount in case of failure to
pay:
o Amount of tax due on any return required to be filed, or
o Amount of tax due for which no return is required, or
o Deficiency tax, or any surcharge or interest thereon on the due date appearing in
the notice and demand of the CIR.
For interest on extended payment, the rate is 20% per annum.
o This is imposed when a taxpayer is qualified and elects to pay the tax on
installment, but fails to pay the tax or any installment thereof, or pays it beyond
the period of payment; or
o CIR has authorized an extension of time within which pay a tax or a deficiency
tax or any part thereof.

Situations based on RR 12-99


1. Late filing and late payment of the tax; no BIR intervention/demand
Rocky forgot to file on April 15. He filed on June 30 after he woke up and realized his
error.
Penalties: 25% surcharge for late filing and late payment
20% general interest from date due up to time paid
Result: Pay the tax due + penalties

2. Tax return filed on time, but filed through an internal revenue officer other than with
whom the return is required to be filed. (Paid in the wrong venue)
Rocky paid on April 15, but he paid to the wrong agent bank.
Penalties: 25% surcharge only
No interest charge because he paid on time, just at the wrong place
Result: Pay the surcharge (no need to pay the tax due, you paid it na eh)

3. Late filing and late payment due to taxpayers willful neglect; i.e. did not file, then BIR
notified him to pay by a certain time, and only then did he file and pay his tax.
Rocky didnt file on April 15. He didnt care until a demand letter was sent to him by the
BIR to pay by June 30. He paid on June 30.
Penalties: 50% surcharge
20% general interest from date due (not from demand) up to time paid
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Result: Pay tax, plus penalties

4. Penalty or penalties for deficiency tax


As a rule, no surcharge is imposed on deficiency tax and on the basic tax. However, if
the amount due inclusive of penalties is not paid on or before the due date stated on the
demand letter, the corresponding surcharge will be imposed.

4.1 Paid on time, error in computation resulting to deficiency tax.


Rocky filed his income tax return on time (April 15) and paid P100,000. Upon pre-audit,
it was discovered that there was an error in computation. The correct amount due was
P120,000. He was assessed for deficiency income tax in a letter of demand and
assessment noticed, telling him to pay by June 30. He did.
Penalties: 20% deficiency interest imposed on the deficiency tax from date due up to
time paid
No surcharge (Note here that the there are no grounds for the imposition of
the 25% surcharge)

Paid on time, BIR disallowed deductions resulting to deficiency tax.


Safari, Inc filed its return and paid on time tax amounting to P100,000. BIR disallowed
its deductions, so their taxable income went back up. They were sent a PAN stating that
the correct amount due was P170,000. They failed to protest. BIR sent them a formal
demand telling them to pay by June 30. They did.
Penalties: 20% deficiency interest imposed on deficiency tax from date due up to time
paid
No surcharge (No statutory basis for imposition of the 25% surcharge)

Paid on time, but return found to be false and fraudulent resulting to


deficiency tax.
McJonalds, Inc filed its return on time in April 15 and paid P175,000 for its income tax
(it declared a P500,000 net taxable income). However, the BIR discovered that it did not
report a taxable income of another P500,000 a clear case of false and fraudulent
return. This amounted to a deficiency income tax of another P175,000. They were
informed by a PAN, but they failed to protest. A formal letter of demand and assessment
notice was issued to them on May 31 demanding them to pay by June 30. They paid.
Penalties: 50% surcharge (deficiency tax is the base)
20% deficiency interest imposed on deficiency tax from date due up to time
paid

5. Late payment of deficiency tax assessed


In general, the deficiency tax assessed shall be paid by the taxpayer within the time
prescribed in the notice and demand, otherwise, such payer shall be liable for the civil
penalties incident to the late payment.

Based on 4.3, the amount due (the deficiency assessed plus the penalties) imposed on
McJonalds was P304,771.67. The corporation did not pay on June 30, the deadline for
the payment of the assessment. As such, the corporation shall be considered late in
payment of the said assessment. They pay on July 31.
Penalties: 25% surcharge on the P304,771.67 (i.e unpaid amount supposed to be
paid on June 30)
20% delinquency interest imposed on the P304, 771.67 (i.e. total unpaid
amount due on June 30), from the day after the payment was due until
time of actual payment
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In a case like this, he feels the full force of the law.


First, a 50% surcharge was imposed on him for his fraudulent return, to be computed
from the deficiency assessed by the BIR.
Second, 20% deficiency interest was also imposed on the deficiency assessed by the
BIR.
Third, because of his late payment of the deficiency tax and the corresponding penalties,
a 25% surcharge is now imposed on him based on the total unpaid amount he was
supposed to pay. (Statutory basis? Sec 248 (A)3)
Fourth, 20% delinquency interest is imposed on the total unpaid amount he was
supposed to pay on June 30.
(Note the difference of the base of the two interest impositions:
The deficiency interest imposition, computed from April 15 to June 30, is computed
based on the deficiency tax.
The delinquency interest imposition, computed from July 1 to July 31, is computed
based on the total unpaid amount assessed in the May 31 demand, i.e. the deficiency
tax plus the penalties)

6. Computation of 20% interest per annum in case of partial or installment payment of a tax
liability. (Based on Sec 249)
If a taxpayer requests to pay his income tax liability in installment and the request is
approved, no 25% surcharge shall be imposed for the late payment of the tax since its
deadline for payment has been duly extended.
However, 20% interest per annum for the extended payment shall be imposed, computed
based on the diminishing balance of the unpaid amount, pursuant to Section 249 (D).
If the taxpayers request for extension of the period within which to pay is made on or
before the deadline prescribed for payment of the tax due, no 25% surcharge.
But if the request is made after the deadline prescribed for payment, the taxpayer is already
late in payment, in which case, the 25% surcharge shall be imposed, even if payment of
the delinquency be allowed in partial amortization.

Analysis
Actual Liability: A Basis B Basis
P10m
On April 15 , 5m 0
paid:
1. Late, but No surcharge Filed on time, 25% surcharge Late filing, late
unilaterally pays 20% interest but error in 20% interest payment, no
the balance computation, BIR demand.
no BIR
demand.
2. BIR demands No surcharge Still filed on 25% surcharge Late filing, late
to pay on June 20% deficiency time and error 20% deficiency payment. BIR
30, paid on June interest in interest demands, but
30 computation. paid on time
BIR demands, required by
but paid on BIR, so 248
time required (A3) no
by BIR, so application.
248(A3) no
application.
3. BIR demands 25% surcharge BIR demands 25% surcharge BIR demands
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to pay on June on unpaid but does NOT on unpaid but does NOT
30, but paid on amount pay on time amount pay on time
July 31 20% delinquency required by 20% delinquency required by
interest on BIR, 248 (A3) interest on BIR, 248 (A3)
unpaid amount applies. unpaid amount applies.

Analyzing the chart, if you compare situation 1 and situation 2, they are identical, there
is no additional violation. Why?
o Because surcharge is imposed on deficiency tax (plus penalties), only when it is
NOT paid by the date indicated on the demand period.
o So, if you pay within the period in the demand letter, you will not incur the
additional 25% surcharge on the unpaid deficiency tax (plus penalties).
Atty. Montero said the 50% surcharge is a matter of substance.
Also note that there is no 25% surcharge when you file and pay on time but its
subsequently discovered that there was an error. Only the interest will be imposed in
that case (Situation 1 above)

Civil Action
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - 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 Government of the Philippines and shall be
conducted by legal officers of 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.
Basic principle: No civil (or criminal action) for the recovery of taxes shall be filed
without the approval of the CIR.
The government can collect when the assessment has become final and unappealable.
This occurs when:
o The taxpayer fails to file an administrative protest with the BIR within 30 days
from receipt of assessment
o The administrative protest is denied (or not acted upon within 180 days), and he
fails to file an appeal with the CTA within 30 days from the receipt of the
decision, or from the lapse of the 180 day period

Collection in cases where the assessment is final an unappealable


When there is no valid protest, the assessment shall become final and unappealable, and
thus the tax shall be collectible.
o To be a valid protest, the claim against the assessment must be substantiated.
The requirement for the Commissioner to rule on disputed assessments
before bringing an action for collection is applicable only in cases where
the assessment was actually disputed, adducing reasons in support
thereto. (Dayrit v Cruz, wherein the petitioners did not actually contest
the assessments by stating the basis they did not submit the required
position paper.)
Failure to question the assessments will cause the said assessment to lapse into finality.
(Marcos v CA, wherein the Marcoses not only failed to file the required estate tax return,
but they also never questioned the assessments served upon them.)
Once the assessment is final and executory, an action to collect the tax assessed is akin
to an action to enforce a judgment. Hence, there can no longer be any inquiry on merits
of the original case.
o Thus, raising the defense of prescription in the case for collection is of no merit.
(Mambulao Lumber v Republic)
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o The taxpayers failure to appeal to the CTA in due time made the assessment in
question final, executory and demandable. Thus, when the present action for
collection was instituted, said taxpayer was already barred from disputing the
correctness of the assessment or invoking any defense that would reopen the
question of its tax liability on the merits. (Republic v Lim Tian Teng)
o A taxpayer who fails to contest the BIR assessment in the CTA cannot contest the
same in action to collect. (Basa v Republic)
The RTC can acquire jurisdiction over a claim for collection of deficiency taxes only after
the assessment made by the CIR has become final and unappealable; not where there is
still a pending CTA case. (Yabes v Flojo, wherein the Court ruled that the RTC did not
have jurisdiction and thus, must dismiss the case, because there was an appeal to the
CTA of the disputed assessment)
There is no requirment that the CIR must first rule on the taxpayers request for
reinvestigation before going to court for the purpose of collecting the tax assessed. (Rep
v Lim Tian)

Criminal action
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of internal
revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:

xxx
(b) By civil or criminal action.

xxx
The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes
subject of the criminal case as finally decided by the Commissioner.
SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - 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 Government of the Philippines and shall be
conducted by legal officers of 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.
Again, no criminal action for the recovery of taxes shall be filed without the approval of
the CIR.
The judgment in the criminal case shall not only impose the penalty, but shall also order
payment of the taxes subject of the criminal case as finally decided by the
Commissioner.
Acquittal of taxpayer in a criminal case does not exonerate him from tax liability. His
legal duty to pay taxes cannot be affected by his attempt to evade payment. Said
obligation is not a consequence of the felonious acts charged in the criminal proceeding,
nor is it a mere civil liability arising from a crime that could be wiped out by the judicial
declaration of non-existence of the criminal acts charged. (Republic v Patanao)
o Civil liability to pay taxes arises from the fact that, for instance, one has engaged
himself in business. His civil liability to pay taxes arises not because of any flony
but upon the taxpayers failure to pay taxes.
o The criminal liability arises upon failure of the debtor to satisfy his civil obligation.
Computation and assessment of deficiency taxes is not a pre-requisite for criminal
prosecution under the NIRC. Hence, protesting an assessment cannot stop criminal
prosecution under the NIRC. (Ungab v Cusi)
o A criminal complaint is instituted not to demand payment, but to penalize the
taxpayer for violation of the Tax Code. (CIR v Pascor)
o A crime is complete when the violator has knowingly and willfully filed a
fraudulent return, with intent to evade and defeat the tax. The perpetration of
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the crime is grounded upon knowledge on the part of the taxpayer that he has
made an inaccurate return, and the governments failure to discover the error
and promptly to assess has no connections with the commission of the crime.
(Adamson v CA)
See discussion on page 97 for prescription of criminal cases.

Prescription of the Governments Right to Assess & Collect


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 begun after the
expiration of such period: Provided, That in a case where a return is 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 filed
before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -


(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court 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 and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(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 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 previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a)
hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of
any tax amnesty law or decree.
Lets start with the prescriptive period for assessment.
An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. The ultimate purpose of assessment is to ascertain
the amount that each taxpayer is to pay. It is a notice to the effect that the amount
stated is due as tax and a demand for payment thereof.
Assessments made beyond the prescriptive period would not be binding on the
taxpayer. (Tupaz v Ulep)
General Rule: The right to assess must be done 3 years from:
o The day the return was actually filed, or
o From the last day for filing the return (if the return was filed before the last day
prescribed by law),
whichever is later.
Why whichever is later? This to benefit the government, so they
have more time to make the assessment on the taxpayer.
Exceptions:
1. False or fraudulent return with intent to evade taxes within 10 years from
discovery of the falsity or fraud
2. Failure or omission to file a return within 10 years after discovery of failure or
omission to file the return
3. Waiver of statute of limitations in writing, which must be made before the expiration
of the 3 year period of assessment of taxes period agreed upon

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Our tax law provides a statute of limitations in the collection of taxes to safeguard
taxpayers from any unreasonable examination, investigation or assessment. Thus, it
should be liberally construed in order to afford protection to the taxpayers.
o As a corollary, the exceptions to the law on prescription should perforce be
strictly construed. (CIR v BF Goodrich, wherein the Court said that the negligence
or oversight on the part of the BIR with regard to make timely assessments
cannot prejudice taxpayers, considering that the prescriptive period was precisely
intended to give them peace of mind.)
In determining if prescription to assess has indeed set in, the important date to
remember is the date when the demand letter or notice is released, mailed or sent by
the CIR to the taxpayer. (Basilan Estates v CIR)
o Provided the release was effected before prescription sets in, the assessment is
deemed made on time even if the taxpayer actually receives it after the
prescriptive period.
o However, the fact that the assessment notice was mailed before prescription
period sets in must be proved with substantial evidence by the CIR. The
presumption that a letter duly directed and mailed was received in the regular
course of mail cannot be applied if there is no substantial evidence to prove that
the notice was indeed sent.
Deficiency income tax assessments cannot be enforced where the tax
collector cannot prove that said assessments were served on the
taxpayer. (Nava v CIR)
o Moreso, if the taxpayer makes a direct denial of receipt of a mailed demand
letter, such denial shifts the burden to the Government to prove that such letter
was indeed received by the taxpayer. (Republic v CA, 1987).
This is an exception to the general rule that there is a presumption of
receipt of the demand letter by the taxpayer. (But again, for the
presumption to arise, the government has to at least show with
substantial evidence that the demand was sent on time.)
o If the date on which the assessment is due to prescribe falls on a Saturday, the
following day being a Sunday, it is understood that the Government has until the
next succeeding business day or Monday within which to assess the tax. (CIR v
Western Pacific, ruling probably also applies to dates falling on a national non-
working holiday)
Sirs question: But what if the last day to assess falls on a local holiday
like Quezon City day is the national government allowed to send the
assessment the following work day?

Doctrines regarding returns


In order that the filing of a return may serve as the starting point of the period for the
making of an assessment, the return must be as substantially complete as to include the
needed details on which the full assessment may be made. (Republic v Marsman,
wherein Marsman failed to show when the returns were actually made, and assuming
that they did file a return, they also failed to show that the return was substantially
complete. Hence, the Court ruled that the 10-year period would apply, as there was a
failure to file a return.)
If the taxpayer files an amended return which is substantially different from the original
return, the period of prescription of the right to issue the deficiency assessment should
be counted from the filing of the amended return, and not the original return. (CIR v
Phoenix)
If the taxpayer files the wrong return, it is as though he filed no return at all. This is true
even if all the necessary information was reflected in the erroneous return. In situations
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like this, the 10-year prescriptive period will apply. (Butuan Sawmill v CA, wherein
Butuan filed an income tax return for sales tax purposes).
It is incumbent upon a taxpayer who wants to avail of the defense of prescription to
prove that he indeed submitted a return. If he fails to do so, the conclusion should be
that no such return was filed, in which case the Government ahs 10 years within which
to make the corresponding assessments. (Taligaman v CIR)

Doctrines regarding fraud, falsity, and the imposition of the 10-year period
Fraud is a question of fact and the circumstances constituting fraud must be alleged and
proved in the court. Fraud is never lightly to be presumed because it is a serious charge.
Hence, if fraud is not proven, the Government can not use the 10-year period to make
the assessment. (CIR v Ayala)
o It is not enough that fraud is alleged in the complaint, it must be established.
(Republic v Lim De Yu, wherein the BIR was not even sure of the net income of
the taxpayer)
Claiming fictitious expenses as deductions is a proof of falsity or fraud in the income tax
return. (Tan Guan v CTA)
There is a difference between false return and fraudulent return. (Aznar v CTA)
o False return merely implies deviation from the truth. Its usually due to
mistake, carelessness or ignorance.
o Fraudulent return implies intentional or deceitful entry with intent to evade the
taxes due.
o Be it false or fraudulent, whats the point? Either way, the period to assess will be
10 years anyway. So, why make a distinction?
The importance lies in the application of the penalty surcharge.
Remember, Aznar also teaches that actual fraud, not constructive fraud, is
subject to the 50% penalty surcharge. For the surcharge to apply, it must
be intentional fraud, consisting of deception willfully and deliberately done
or resorted to in order to induce another to give up some legal right.
Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by law.
The legal implications of this case are the following:
Just because the 10-year period kicks in, it doesnt necessarily
mean that the taxpayer will be slapped with the penalty surcharge.
This is what happened in Aznar the taxpayer was adjudged to
have filed a false return, but not a fraudulent one. So, the 10-year
period applies, but he wasnt slapped with the penalty surcharge.
If you were the government and you want to use the 10-year
period, it will be easier to impute falsity in the part of the taxpayer.
Falsity is easier to prove than fraud.
The 30% threshold we learned in surcharges doesnt necessarily
apply when it comes to prescription purposes, as it merely raises a
presumption of fraud which must in the end be proven by the
government.
Speaking of surcharges, the case of CIR v Ayala Securities teaches that collection of
surtax on excess profits does not prescribe there being no law providing a prescriptive
period therefore.

Lets discuss prescription with collection.


SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -
(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court 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
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which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(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 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 previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a)
hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the
assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of
any tax amnesty law or decree.

General rule: The prescriptive period to collect the taxes due is 5 years from the date of
assessment.
Exceptions:
1. False or fraudulent return with intent to evade taxes within 10 years from
discovery without need for prior assessment. The government may file a proceeding
in court.
2. Failure or omission to file a return within 10 years from discovery without need for
assessment.
3. Waiver in writing executed before the 5-year period expires period agreed upon.

The prescriptive period to assess or collect deficiency tax is governed by the NIRC (a
special law) and not the Civil Code (a general law). (Guagua v CIR)
o The same can be said between the NIRC and the Rules of Court. Hence, claims
for taxes may be collected even after the distribution of the decedents estate.
Claims for estate taxes are exempted from the application of statute of non-
claims. (Vera v Fernandez)

For prescriptive period purposes, the tax is deemed collected if:


o If collection is thru summary remedies (distraint and levy), when the government
avails of a distraint and levy procedure prescribed under the Code
o If collection is thru judicial remedies (civil or criminal), when the government files
the complaint with the proper court.
A judicial action for the collection of a tax may be initiated by filing of a
complain with the proper regular trial court, or where the assessment is
appealed to the CTA, by filing an answer to the taxpayers petition for
review wherein payment of the tax is prayed for. (PNOC v CA, which was
a unique case. Read it na lang)
The general rule is that there must be an assessment made before collection is resorted
to by the government.
o The exception is found in Section 222 (A) of the NIRC wherein judicial action to
collect the tax liability is permitted without an assessment when the taxpayer
files a false or fraudulent return with intent to evade the tax or fails to file a
return. Collection must be done within 10 years after the discovery.
However, if an assessment is made against the taxpayer, the government
cannot avail of Section 222 (A). In Republic v Ret, the Court stated that
an assessment against the taxpayer takes the case out of the provisions
of Section 222 (A) and places it under Section 222 (C) or 5 years from
the assessment made.
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The period for collecting a tax through a judicial proceeding, in case no
return has been filed, is 10 years from the discovery of the omission.
A letter by the CIR demanding the amount of a rubber-check previously paid by a
taxpayer, should be deemed to be an assessment if it declares and fixes the tax payable
against the party thereo and demands the settlement thereof. Hence, the five-year
period for collection of the tax due should commence anew from the time said letter of
demand was sent to the taxpayer. (Republic v Limaco)

Regular Return was Made False, Fraudulent or Failure


Assessment: 3 years Assessment: 10 years, from discovery
Collection: 5 years from assessment Collection: 5 years, from assessment
If government does not make an
assessment, they can collect within 10 years
from discovery.
They are, however, limited to purely judicial
remedies. (Section 222(A)

Waiver of Statute of Limitations


(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 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 previously agreed upon.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b)
hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the five (5) -year period. The period so agreed upon may be extended by
subsequent written agreements made before the expiration of the period previously agreed upon.
Why go for a waiver?
o Its sometimes advisable to do so to allow the BIR to fix their jeopardy
assessments (which are usually excessive.)
The taxpayer and the government may extend by mutual agreement in writing the
prescriptive period for the assessment and collection of taxes.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation
of the taxpayers right to security against prolonged and unscrupulous investigations and
must therefore be carefully and strictly construed. (Philippine Journalists v CIR)
Jurisprudence has given us the essential conditions for a waiver to be valid:
o It must be executed by the parties before the lapse of the 3 year prescriptive
period for assessment of taxes (Republic v Acebedo).
o They must be signed by the CIR or any of his agents. If it isnt, the waivers are
not valid and binding. (CIR v CA, wherein the Court ruled that the waiver is not a
unilateral act on the part of the taxpayer.)
o It must contain a definite expiration date. (Philippine Journalists v CIR)
o It must also contain the date when the waiver was executed (to know whether
the waiver was signed within the prescriptive period).
o These have been embodied in RMO 20-90, below:

RMO 20-90
1. The waiver must be in proper form prescribed by RMO 20-90. The phrase but not after_____19__ which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription, should be filled up;
2. The waiver must be signed by the taxpayer himself or his duly authorized representative;
3. The waiver must be duly notarized;
4. The Commissioner of Internal Revenue or the revenue official authorized by him must sign the waiver
indicating the BIRs acceptance and agreement to the waiver. The date of such acceptance by the BIR should be
indicated;

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5. Both the date of execution by the taxpayer and the date of acceptance by the BIR should be prior to the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed; and
6. The waiver must be in three copies: the original copy to be attached to the docket of the case, the second
copy for the taxpayer, and the third copy for the Office accepting the waiver.
o Additionally, the waiver must not reduce the prescriptive period to less than that
granted by law to the detriment of the state. It should not diminish the
opportunity of the State to collect the taxes due it. (Republic v Lopez).
o The taxpayers waiver of statute of limitations does not cover taxes already
prescribed. (Republic v Lim De Yu)

Suspension of Running of Statute of Limitations


SEC. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a 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 proceeding in court and
for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the
Commissioner; 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 Statute of Limitations will not be suspended; when the warrant of distraint or levy is
duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is out of the Philippines.
The running of the prescriptive period can be suspended in the following situations:
1. When the CIR is prohibited from making an assessment or beginning distraint and levy
or a proceeding in court and for 60 days thereafter
The periods for assessment and collection are suspended.
The filing of a petition for review in the CTA from the decision of the CIR on a
protested assessment interrupts the running of the prescriptive period for collection.
The pendency of the taxpayers appeal in the CTA and in the SC had the effect of
temporarily staying the hands of the CIR from collecting. (Republic v Ker)
2. The taxpayer requests for reinvestigation which is granted by the CIR
The collection is suspended (the assessment has already been done at this point, so
only period to collect is suspended).
There is a difference between a request for reconsideration and a request for
reinvestigation. (BPI v CIR)
o Reconsideration refers to a plea for a re-evaluation of an assessment on the basis
of existing records without need of additional evidence. This is basically a mere
re-evaluation of existing records. (CIR v Philippine Global)
o Reinvestigation refers to a plea for re-evaluation on the basis of newly-discovered
or additional evidence that a taxpayer intends to present in the reinvestigation.
o The distinction is essential because the suspension of the period only occurs
when the taxpayer requests for a reinvestigation and is granted by the CIR.
Why doesnt a request for reconsideration suspend the period? Because there
is nothing which prevents the BIR from collecting they have all the
documents they need. Since no new documents are to be presented in a
request for reconsideration, the next step for the BIR is to issue a decision
denying the taxpayers protest and to initiate proceedings for the collection of
the assessed tax, and thus, allow the taxpayer, should it so choose, to
contest the assessment before the CTA.
A mere request for reinvestigation WITHOUT corresponding action on the part of the
CIR will not interrupt the running of the period. The request must be granted by the
CIR.
o Granted means that the government acted upon the request, as seen in
Republic v Arache

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The taxpayer is barred from invoking the defense of prescription because the
delay was due to his repeated requests for reinvestigation and for extensions
of time to pay, which the government acted upon. (Republic v Arache)
o Since this suspends the period (and prejudicial to the taxpayer), the burden of
proof that the request was actually granted shall be on the BIR.
o However, even when the request for reconsideration or reinvestigation is not
accompanied by a valid waiver or there is no request for reinvestigation that had
been granted by the BIR, the taxpayer may still be held in estoppel and be
prevented from setting up the defense of prescription on collection when, by his
own repeated requests or positive acts, the Government had been, for good
reasons, persuaded to postpone collection to make the taxpayer feel that the
demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by the Court in the Suyoc case. (BPI v CIR)
In computing whether the collection was done within the period prescribed by law,
do this:
o (Date of Collection) (Date of Assessment) (Period of Reinvestigation) </= 5
years
o The period starts to run again when the said request is denied, i.e. the BIR acted
upon the request but did not find it meritorious afterwards (CIR v Capitol)
There is also an important difference between a revised assessment and a ruling on
a reinvestigation.
o When the assessment has been revised, the period to collect begins from the
time of the revision. In other words, the period is reset.
o But in ruling on a reinvestigation, the BIR only considers a past assessment. The
period is not reset. The suspended period just starts from where it left off.
3. When the taxpayer cannot be located in the address given by him in the return filed,
unless he informs the CIR of the change of address
Both the periods for assessment and collection are suspended
4. When the warrant of distraint and levy is duly served upon the taxpayer or authorized
representative and no property could be located
Only the period for collection is suspended
5. When the taxpayer is out of the Philippines
Period for assessment and collection is suspended
6. Those under the CTA law

Prescription in Criminal Cases


SEC. 281. Prescription for Violations of any Provision of this Code. - 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 violation of the law, and if the same be not
known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and
punishment.
The prescription shall be interrupted when proceedings are instituted against the guilty persons and shall begin to
run again if the proceedings are dismissed for reasons not constituting jeopardy.
The term of prescription shall not run when the offender is absent from the Philippines.
The prescriptive period for criminal cases is 5 years. When it begins to run depends on
the nature of the violation of the taxpayer:
o If failure or refusal to pay taxes due from the service of final notice and
demand for payment of the deficiency taxes upon the taxpayer.
o If filing of false or fraudulent returns from the institution of judicial proceedings
for its investigation and punishment.
In the latter case, isnt this one-sided in favor of the Government? Yes, it
is. It would seem that cases of fraudulent/false returns are practically
imprescriptible for as long as the period from the discovery and institution
of judicial proceedings for its investigation and punishment, up to the
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filing of the information in court does not exceed 5 years. But, thats what
the law says. (Lim Sr v CA)

Taxpayers Remedies
In General
The taxpayer is given two remedies:
1. Protest or dispute the assessment, or
2. Refund or recovery of erroneously or illegally collected taxes
The remedies are mutually exclusive.
To distinguish,
o In protest, the tax has not yet been paid, and what is being contested is the
governments claim that the tax is underpaid.
Protesting is the proper remedy when a FAN has been issued. You protest
the assessment and appeal it to the CTA, when proper.
o In refund, the tax has already been paid by the taxpayer and the claim of the
taxpayer is that the tax is overpaid.
Refund is proper when the taxpayer has paid the tax pursuant to a self-
assessment.

Protest (some of these have been discussed in page 75, please check it out there, so we
dont waste paper adding it all again in this section.)
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a
preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; 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, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond
to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing
rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
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 taxpayer adversely affected by the decision or inaction may appeal to the 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, the decision shall become final, executory and demandable.
Some additional stuff:
o Even before the notice of informal conference is given to the taxpayer, the very
first step is that a Letter of Authority is given to the taxpayer. The letter of
authority tells the taxpayer what taxes are subject of the investigation by the BIR
and the officers who are in charge of the investigation.
The LOA is good for 120 days, but can easily be extended.
o The FAN can be issued by the CIRs duly authorized representative.

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o The FAN must state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise the FAN is void. It must also be
written. More on this in the assessments section a few pages on.
o The FAN must be sent via registered mail or personal delivery.
See discussion regarding the 60-day period to submit documents in the CTA part.
If you protest the PAN, youre only protesting the declaration of default. This is not the
protest contemplated after a final assessment is made. If you dont protest the FAN
within 30 days, the assessment becomes final, executory and demandable. You cant
raise it to the CTA anymore.

RR 12-99 3.1.5
The taxpayer or his duly authorized representative may protest administratively against the aforeseaid
formal letter of demand and assessment notice within 30 days from the date of receipt thereof. If there are several
issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests
against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes
attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for
payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action shall be taken
on the taxpayers disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said
undisputed taxes. The prescriptive period for assessment or collection of the tax or taxes attributable to the
disputed issues shall be suspended.
The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his
protest is based, otherwise, his protest shall be considered void and without force and effect. If there are several
issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment
is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to
pay the corresponding deficiency tax or taxes attributable thereto.
The taxpayer shall submit the required documents in support of his protest within 60 days from the date
of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. The
phrase submit the required documents includes submission or presentation of the pertinent documents for
scrutiny and evaluation by the Revenue Officer conducting the audit. The said RO shall state this fact in his report
of investigation.
If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice
within 30 days from date of receipt thereof, the assessment shall become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the CTA
within 30 days from date of receipt of the said decision, otherwise, the assessment shall become final, executory
and demandable.
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized
representaive, the taxpayer may appeal to the CTA within 30 days from date of receipt of the said decision,
otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer
elevates his protest to the Commissioner within 30 days from date of receipt of the final decision of the
Commissioners duly authorized representative, the latters decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by the Commissioner.
If the Commissioner or his duly authorized represntative fails to act on the taxpayers protest within 180
days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer
may appeal to the CTA within 30 days from the lapse of the said 180-day period, otherwise, the assessment shall
become final, executory and demandable.

LOA ---- NIC 15 - PAN 15 - FAN 30 - PROTEST 60 - SUBMIT Documents 180 -


Inaction after 180 days 30 - CTA
Decision 30 CTA

Refund
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner
may -
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the
value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of
destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

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A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion into
refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code: Provided,
That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the appropriate
revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund be given
resulting from availment of incentives granted pursuant to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and
House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating
therein the following facts and information, among others: names and addresses of taxpayers whose cases have
been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons for
the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in Congress
that shall be constituted to determine that said powers are reasonably exercised and that the government is not
unduly deprived of revenues.

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 authority, of any sum
alleged to have been excessively or in any manner wrongfully 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, whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration 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, That
the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the
return upon which payment was made, such payment appears clearly to have been erroneously paid.
There is a distinction between a tax refund and a tax credit.
o In a tax refund, there is actual reimbursement.
o In a tax credit, a tax certificate or tax credit memo is issued to the taxpayer, and
this can be applied against any sum that may be due and collectible from the
taxpayer, except withholding taxes.
The requirements for a tax credit or refund are:
1. Written claim for credit or refund filed with the CIR (a return filed showing
overpayment shall be considered as a written claim), whether or not the tax has
been paid under protest, and
2. Filed within 2 years after the actual payment of the tax or penalty, regardless of the
existence of any supervening cause after payment
Basically, when filing for a refund/credit, you need the following (common elements in
all refund cases):
o Filed within the period
o Substantive basis in law
o Documents to support or substantiate your claim
Why such stringent requirements?
Because a claim for a refund/credit partakes of the nature of an
exemption and is strictly construed against the claimant. He needs
to establish the legal basis for the refund and substantiate it. (CIR
v Tokyo Shipping)
This was also reiterated in Philex Mining Corporation v CIR, where
the refund awarded to the taxpayer was based on the specific tax
deemed paid, and not on the increased rates actually paid. The
Court stated that the refund privileges must be strictly construed.
The following are the instances when a claim for refund may be done:
1. Erroneously or illegally assessed or collected internal revenue taxes,
2. Penalties imposed without authority, or
3. Any sum alleged to have been excessive or in any manner wrongfully collected
Taxes are erroneously paid when a taxpayer pays under a mistake of fact, like when he
is not aware of an existing exemption in his favor at the time he pays.
Taxes are illegally collected when payments are made under duress.
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The government is not liable to pay interest on the taxes it refunds to the taxpayer,
given that there is no provision in law requiring such. (CIR v Sweeney)

Two venues of refund:


Admin (BIR)
Judicial (CTA)

On the written claim:


The written claim for credit or refund filed with the CIR is a mandatory requirement.
o It is a condition precedent. If the taxpayer fails to comply with the same, any
action on his part in recovering that tax will necessarily fail. If a judicial action is
brought for recovery, it will be dismissed. (Vda de Aguinaldo v CIR)
o But can the CIR refund or claim any tax without a written claim?
Yes. But only when on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.
(Codal)

On the two year prescriptive period


The general rule is that the 2-year prescriptive period runs from the payment of the tax.
This, however, has been explained by the Supreme Court in the following cases:
o For overpaid quarterly corporate income tax, the 2-year prescriptive period to
claim refunds commences to run only from the time the refund is ascertained,
which can only be determined after a final adjustment return is accomplished. In
other words, for corporations, the 2-year period begins when they file the final
adjustment return. (CIR v Phil Am Life)
o The 2-year period should be computed from the time of actual filing of the
adjusted return or annual income tax return, not the last day allowed by law to
file. So if you file earlier than the last day for filing, the period is counted from
the date of actual filing. (CIR v CA and BPI, 1999)
For example, the last day to file is on April 15 and you file your income tax
return on April 4, the 2-year period will start on April 4.
The Government is given this benefit.
o For overpaid withholding taxes, the period is counted from the end of the taxable
year. (Gibbs v CIR, 1965 Gibbs claimed he overpaid the taxes he withheld for
some foreigner)
o But for claiming a refund for creditable withholding taxes, the period is counted
from the filing of the taxpayers final adjustment tax return. (ACCRAIn v CA
ACCRAIn claimed that they didnt have taxes due to credit the taxes withheld by
their withholding agents.)
The 2-year period cannot be extended by the BIR by a mere revenue memorandum.
(PBCOM v CIR)
The other general rule is that the 2-year prescriptive period is mandatory, meaning after
the lapse of the 2-year period, there can no longer be proceedings for refund. This,
however, also its exceptions:
1. When the taxpayer and the government agree to wait for the outcome of a case
which is on all fours with the instant case
2. When the payment of tax was not due because of error or wrongful collection, but
because of a patriotic duty to help the cause of the nation (CIR v PNB, wherein the
PNB made an advanced payment of its taxes, which was recognized as such by the
BIR themselves)
3. When the taxpayer was made to believe that the refund was going to be allowed by
the government
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With respect to the CTA, the 2-year period is not jurisdictional and may be
suspended for reasons of equity and other special circumstances.

On bringing the claim to the CTA (take note of the different rule when it comes to refunds of
input taxes because of CIR v Aichi, 2010)
The taxpayer need not wait for the action of the CIR on the claim for refund before
taking his claim to the CTA.
Both the claim for refund and the appeal to the CTA must be done within the 2-year
period.
o Hence, if the period is about to expire, and the CIR has not acted upon the claim,
the taxpayer may file and appeal with the CTA, without waiting for the CIR.
o The suit or proceeding must be started in the CTA before the end of the 2-year
period without awaiting the decision of the CIR. (Gibbs v CIR 1960)
The taxpayers failure to comply with requirement regarding the institution
of the action or proceeding in court within 2 years after the payment of
the taxes bars him from recovery of the same, irrespective of whether a
claim for the refund of such taxes filed with the CIR is still pending action
on the latter. (CIR v. Sweeney)
o For example, on April 15, 2008, you filed an ITR. On April 10, 2010, you realized
you overpaid your taxes. You have 5 days before the prescriptive period lapses.
What do you do?
a. Claim for a refund with the BIR on April 10, 2010
b. File an appeal with the CTA on April 15, 2010
c. Cry
d. Both A & B
The answer is D. The prudent thing to do is exhaust all administrative
remedies before going to Court. But since youre last day is on April
15, then you have no other choice but to file an appeal with the CTA
unless you just want to cry, then thats up to you.
The claim must be filed with the court which has proper jurisdiction over the refund.
That court is the CTA. And, the claim must not be in a mere supplemental petition in
another case pending before the CTA, as its admission is merely discretionary. A petition
for review must be filed instead. (FEBTC v CIR)

On choosing between a refund and a credit


SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment
return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that
year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.
In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the
excess amount shown on its final adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-
over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding
taxable years has been made, such option shall be considered irrevocable for that taxable period and no application
for cash refund or issuance of a tax credit certificate shall be allowed therefor.
The section offers 3 options to a taxable corporation whose total quarterly income tax
payments in a given taxable year exceeds its total income due:
1. Filing for a tax refund, or
2. Availing of a tax credit, or
3. Carry-over the excess credit against the estimated income tax liabilities of the
succeeding quarters.
These are alternative in nature. You choose one and thats it.
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If you choose the carry-over option, its considered irrevocable for that taxable period,
and no application for a tax refund or issuance of a tax credit certificate shall then be
allowed. (Phil Am v CIR)
The taxpayer must choose by marking the corresponding option box provided in the
FAT. While a taxpayer is required to mark its choice in the form provided by the BIR,
this requirement is only for the purpose of facilitating tax collection.
o However, failure to signify ones intention in the FAR does not mean outright
barring of a valid request for a refund, should one still choose this option later
on.
In Phil Am Mangagement v CIR, PhilAm did not make the appropriate
marking in the BIR form, but the Supreme Court said that the despite the
failure to do so, the filing of its written claim effectively serves as an
expression of its choice to request a tax refund, instead of a tax credit. To
assert that any future claim for a tax refund will be instantly hindered by a
failure to signify ones intention in the FAT is to render nugatory the clear
provision that allows for a 2-year prescriptive period. Moreover, PhilAm
did not perform any act indicating that it chose a tax credit.
o In the same case, however, the Court, ruling on a different taxable period, stated
that the subsequent acts of Phil Am revealed that it had effectively chosen the
carry-over option despite not marking the carry-over option box. The act
which indicated such was that they filled out the portion prior years excess
credits in the FAR. Filling this portion was not mandatory if they indeed chose
a refund, they shouldnt have just left this blank.
A Tax Credit Certificate acquired through the DOF One Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center, which is run by the DOF, BIR, BOC and BOI, is
immediately valid and effective after issuance. (Pilipins Shell v CIR)
o Their validity is not subject or dependent on the outcome of any post-audit.
o A transferee in good faith and for value of a TCC who has relied on the Centers
representation of the genuineness and validity of the TCC transferred to it may
not be legally required to pay again the tax covered by the TCC which has been
belatedly declared null and void, that is, after the TCCs have been fully utilized
through settlement of internal revenue tax liabilities.
A tax credit generally refers to an amount that may be subtracted directly from ones
total tax liability. (Pilipinas Shell)
o It is an allowance against the tax itself or a deduction from what is owed by a
taxpayer to the government.
o It is the amount due to a taxpayer resulting from an overpayment of a tax
liability or erroneous payment of a tax due.
o It is transferable in accordance with pertinent laws, rules and regulations.
A TCC is a certification, duly issued to the taxpayer, by the CIR, acknowledging that the
taxpayer named is legally entitled to a tax credit, the money value of which may be used
in payment of any of his internal revenue tax liability (except those excluded), or may
be converted as a cash refund. (Pilipinas Shell)

Assessments
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary 5-day letter, are not valid substitutes for the mandatory notice in writing of
the legal and factual bases of the assessment. (CIR v Enron)
o The law requires that the legal and factual bases of the assessment be stated in
the formal letter of demand and assessment notice.

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o The alleged factual bases in the advice, preliminary letter and audit working
papers did not suffice.
o Sir said that even if Enron made an intelligent protest, the CIR still has no
ground to stand on, given that the law states that the assessment without legal
and factual basis is void, not even voidable.
The authority to make tax assessments may be delegated to subordinate officers.
(Oceanic v CIR)

Distinction between prescriptive periods of assessment and refund


In both cases, the prescriptive periods for making assessment and claiming a refund are
made in favor of the government.
o For making an assessment, the period starts from either the day the return was
actually filed, or the day when the return was supposed to be filed, whichever is
later.
o For claiming a refund, the period starts from the day the return was actually
filed, even if it were earlier than the day it was supposed to be filed.
The only situation where the government is not given this benefit is when the return was
filed after the date prescribed by law. The period for refund is counted from that date,
and not from the date prescribed by law. Why? The law on refund states that the period
starts from the time of payment.

Assessment Refund
4/2 Filed this date, period starts Filed this date, period starts this day too
4/15
4/15 Filed this date, period starts Filed this date, period starts this day too
this date
4/20 Filed this date, period starts But if filed this date, period starts this day
this date too (not in favor of the government!)

Court of Tax Appeals (RA 9282 and Revised Rules of Court of the
CTA)
RA 9282, Sec. 7. Jurisdiction. - The CTA shall exercise:
"a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
"1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National
Internal Revenue or other laws administered by the Bureau of Internal Revenue;
"2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the 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 deemed a denial;
"3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by
them in the exercise of their original or appellate jurisdiction;
"4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto,
or other matters arising under the Customs Law or other laws administered by the Bureau of Customs;
"5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;
"6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions
of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and
Customs Code;
"7. 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, involving dumping and
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countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard
measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose
said duties.
"b. Jurisdiction over cases involving criminal offenses as herein provided:
"1. Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue
Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of
Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount o
taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or
where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall
be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the
corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal
action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of
such civil action separately from the criminal action will be recognized.
"2. Exclusive appellate jurisdiction in criminal offenses:
"a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally
decided by them, in their respected territorial jurisdiction.
"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 Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts in their respective jurisdiction.
"c. Jurisdiction over tax collection cases as herein provided:
"1. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees,
charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the
proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
"2. Exclusive appellate jurisdiction in tax collection cases:
"a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases
originally decided by them, in their respective territorial jurisdiction.
"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 decided by the Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction."
Exclusive Appellate Jurisdiction to Review by Appeal:
1. Decisions of CIR, involving disputed assessments, refunds or other matters arising under
NIRC or other laws administered by the BIR
2. Inaction by the CIR, involving disputed assessments, refunds or other matters arising
under NIRC or other laws administered by the BIR, when the NIRC provides a specific
period of action, in which case the inaction shall be deemed a denial
3. Decisions, orders or resolutions of RTCs on local tax cases originally decided or resolved
by them
4. Decisions of the Commissioner of Customs (COC) involving matters arising under the
Customs Law or other laws administered by the BOC
5. Decisions of the Central Board of Assessment Appeals (CBAA) involving the assessment
and taxation of real property originally decided by the provincial or city board of
assessment appeals
6. Decisions of the Secretary of Finance on customs case elevated to him automatically for
review from decisions of the COC which are adverse to the Government
7. Decisions of the Secretary of Trade and Industry (nonagricultural products, commodities
or articles), and the Secretary of Agriculture (for agricultural products, commodities, or
articles), involving dumping and countervailing duties under Section 301 or 302 of the
Tariff and Customs Code, and safeguard measures under RA 8800, where either party
may appeal the decision to impose or not to impose said duties.

Jurisdiction over cases involving criminal offenses:


1. Exclusive original jurisdiction all criminal offenses arising from violations of NIRC or
Customs and Tariff Code and other laws administered by the BIR or BOC, where the
principal amount of tax claimed is worth P1m or more
If less than P1m or no specified amount claimed, appellate jurisdiction (see below)
2. Exclusive appellate jurisdiction over:

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Appeals from the RTC in tax cases originally decided by them
Petitions for review from RTS in the exercise of their appellate jurisdiction over tax
cases originally decided by the MTCs

Jurisdiction over tax collection cases


1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties, where amount claimed is P1m or
more
If less than P1m or no specified amount claimed, appellate jurisdiction (see below)
2. Exclusive appellate jurisdiction in tax collection cases
Appeals from the RTC in tax cases originally decided by them
Petitions for review from RTS in the exercise of their appellate jurisdiction over tax
cases originally decided by the MTCs

Composition
Rule 2, Section 1. Composition of the Court. The Court is composed of a presiding justice and eight (8)
associate justices appointed by the President of the Philippines. In appropriate cases, the court shall sit en banc, or
in three (3) Divisions of three (3) justices each, including the presiding justice, who shall be the Chairperson of the
First Division and the two (2) most Senior Associate Justices shall be served as Chairpersons of the Second
Divisions, respectively.(a)
One presiding judge and 8 associate justices
They may rule
o en banc, or
o sitting in 3 divisions, each with 3 justices each

Rule 2, Sec. 3. Court en banc; quorum and voting. - The presiding justice or, if absent, the most senior justice in
attendance shall preside over the sessions of the Court en banc. The attendance of five (5) justices of the Court
shall constitute a quorum for its session en banc. The presence at the deliberation and the affirmative vote of five
(5) members of the Court en banc shall be necessary to reverse a decision of a decision of a Division but only a
simple majority of the justices present to promulgate a resolution or decision in all cases. Where the necessary
majority vote cannot be had, the petition shall be dismissed; in appealed cases, the judgement or order appealed
from shall stand affirmed; and on all incidental matters, the petition or motion shall be denied. (a)

Sec. 4. The Court Division: quorum and voting. - The Chairperson of the Division or, if absent, the most senior
member shall preside over the sessions of the Court in Division . The attendance of at least two (2) justices of the
court shall be necessary to constitute a quorum for its sessions in Divisions. The presence at the deliberation and
the affirmative vote of at least two justices shall be required for the pronouncement of a judgement or final
resolution of the Court Decision. (a)
En banc quorum 5
o 5 affirmative votes needed to reverse a decision of a division
o Simple majority to promulgate a resolution or decision in all cases
Division quorum - 2
o 2 affirmative votes needed to pronounce a judgment

Procedure
RA 9282, SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary
of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment
Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of
such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(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 decision or
ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. A
Division of the CTA shall hear the appeal: Provided, however, That with respect to decisions or rulings of the
Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal
shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the
1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.
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"All other cases involving rulings, orders or decisions filed with the CTA as provided for in Section 7 shall be raffled
to its Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may file a motion
for reconsideration of new trial before the same Division of the CTA within fifteens (15) days from notice thereof:
Provide, however, That in criminal cases, the general rule applicable in regular Courts on matters of prosecution
and appeal shall likewise apply.

1. Appeal within 30 from receipt of decision or period of inaction of the CIR, COC, Secretary
of Finance, Secretary of Trade & Industry or Secretary of Agriculture, or the CBAA or the
RTC. How?
General rule: Appeal to a CTA DIVISION by a petition for review under Rule 42
Exception: In case of decisions of the CBAA or RTC in the exercise of its appellate
jurisdiction, appeal to EN BANC by a petition for review under Rule 43
2. In case the decision of the Division was adverse:
File an MR with the same division within 15 days from notice thereof,
In criminal cases, apply rules applicable to regular courts
3. In case the resolution of the Division on the MR is still adverse:
File a petition for review with the CTA en banc under Rule 43
4. In case the decision of the CTA en banc is still adverse
File a review on certiorari with the SC under Rule 45

If you want to appeal from a decision of the local assessment board, go first to the
CBAA. The decision of the CBAA will be appealable to the CTA en banc under Rule 43.
(See #1 exception)

Suspension of Collection
NIRC, SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority
to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this
Code.

RA 9282, Sec. 9. 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, city or municipal treasurer or the Secretary of
Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the
payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law: Provided, however, That when in the opinion of the Court the collection by the
aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer, the
Court any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount with the Court.

In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act, the Government may
directly file the said cases with the CTA covering amounts within its exclusive and original jurisdiction."

General rule: No injunction to restrain collection of taxes.


Exception: Suspension is allowed when the following conditions concur:
1. There is an appeal to the CTA, and
2. In the opinion of the court, the collection by the government agencies may
jeopardize the interest of the Government and/or the taxpayer, and
3. Taxpayer either to deposit the amount claimed or to file a surety bond for not more
than the double the amount with the Court.

Doctrine discussion
The jurisdiction of the CTA is to review by appeal decisions of the CIR on disputed
assessments. When a taxpayer does not protest an assessment, and appeals the
assessment itself to the CTA, his appeal is premature. (CIR v Villa)

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A final demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment. Thus, the taxpayer can file an appeal with the CTA.
(CIR v Isabela Cultural)
o Demand letter of the CIR - which states a warning that in the event the taxpayer
fails to pay, collection will be enforced - constitutes the order appealable to the
CTA. (Surigao Electric v CIR)
o The BIR should always indicate to the taxpayer in clear and unequivocal language
what constitutes final action on a disputed assessment. The object is to avoid
repeated requests for reconsideration by the taxpayer, thereby delaying the
finality of the assessment, and consequently, the collection of the taxes due.
o This would also prevent the taxpayer from groping in the dark, speculating as to
which communication or action of the BIR may be the decision appealable to the
CTA.
o Now, the BIR should make it clear to the taxpayer that he can appeal if not
satisfied with the assessment.
o Since the power to make an assessment may be delegated to subordinate
officers, the act of issuance of the demand letter by a subordinate officer is an
order that is appealable to the CTA. (Oceanic v CIR, wherein the taxpayer failed
to appeal to the CTA within 30 days of receipt of the demand letter made by the
Chief of the Accounts Receivable and Billing Division of the BIR)
In this case, the investigation was started and concluded by the same
division.
Sir asks, what if the CIR himself starts the investigation, and then
delegates it to his deputy, do you appeal it to the CIR or straight to the
CTA?
The jurisdiction of the CTA has been expanded to include not only decisions or rulings
but inaction as well of the CIR. (RCBC v CIR)
o In case the CIR fails to act on the disputed assessment within the 180-day period
from date of submission of documents, a taxpayer can either:
1. File a petition for review with the CTA within 30 days after the expiration of
the 180-day period, or
2. Await the final decision of the Commissioner or the disputed assessments and
appeal such final decision to the CTA within 30 days after receipt of a copy of
such decision.
However, these options are mutually exclusive, and resort to one bars the
application of the other.
After availing the first option, but filing it out of time, a taxpayer can not
successfully resort to the second option (awaiting the final decision of the
CIR and appealing the same to the CTA, on the pretext that there is yet
no final decision on the disputed assessment because of the CIRs
inaction).
You cant have your cake and eat it too.
Remember that when a taxpayer protests an assessment, he is given 60 days to submit
supporting documents. From the time he submits the documents, the 180-day period for
the CIR to act on the protest starts. But what if the taxpayer submits the documents
with the protest?
This is what happened in CIR v First Express Pawnshop.
In that case, the CIR was contending that First Express did not submit the relevant
documents. However, given that First Express submitted their documents along
with their protest, the Court said that the BIR can not demand what type of
supporting documents should be submitted. Otherwise, a taxpayer will be at the

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mercy of the BIR, which may require the production of documents that a
taxpayer cannot submit.
From the case, we learn that the 60-day period is given for the benefit of the
taxpayer. He can take up the entire 60 days or not. The taxpayer has a choice of
not utilizing the period, by immediately submitting the documents, effectively
starting the 180-day period of the BIR to act much earlier.
The legal implication of this is when the taxpayer appeals to the CTA because of the
expiration of the 180-day period, the taxpayer must allege that the supporting
documents were submitted along with the protest. If not, the CTA may dismiss
the case because it was filed still within the 180-day period, and thus,
prematurely filed.
The question is, how does the taxpayer know if the documents are in fact, complete?
What if the BIR asks him to submit additional documents to substantiate his
claim?
If he doesnt submit any more documents, then the 180-day period should
start from the time he submitted the initial documents. Because of CIR v
First Express Pawnshop, the BIR cant demand for the specific documents.
If he does submit more documents within the 60-day period, then the 180-
day period should start from the time he submitted the additional
documents, since the 60-day period is given for the benefit of the
taxpayer, and it is his choice whether or not to use the whole period or
not.
If he submits the additional documents after the 60-day period and there is
no decision yet. (Maybe the 180-day period will start from the time he
submitted the first documents, since it is mandatory that the supporting
documents have to be given within the 60-day period. But I dont know.)
Filing a motion for reconsideration of a decision of the CIR denying a protest does not
toll or suspend the period to appeal to the CTA. The 30-day period to appeal to the CTA
is still reckoned from the date the taxpayer is notified of the denial of the CIR.
(Fishwealth Canning Corp v CIR)
Compare this to asking for a reinvestigation and it being granted by the CIR.
In that case, what is being tolled is the time for the CIR to collect, not the
period to appeal to the CTA. But can the period to appeal to the CTA be
extended?
Yes. In City of Manila v Coca-Cola (2009), the Court stated that in appeals to
the CTA, the Rules of Court are applicable. Since in the Rules of Court,
Rule 42 allows extensions to file petitions for review to be filed with Court
of Appeals, the same should be applicable in petitions for review with the
CTA.
Hence, the 30-day original period for filing a Petition for Review with the CTA
may be extended for a period of 15 days. No further extension shall be
allowed thereafter, except only for the most compelling reasons, in which
case the extended period shall not exceed 15 days.

Local Taxation
Local Business Taxes
SEC. 129. Power to Create Sources of Revenue. - 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 government
units.
Each LGU shall exercise its power:
o to create its own sources of revenue, and
o to levy taxes, fees, and charges,
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subject to the LGC provisions and consistent with the basic policy of local
autonomy.
These shall accrue exclusively to the LGUs.

Fundamental Principles
SEC. 130. Fundamental Principles. - The following fundamental principles shall govern the exercise of the taxing
and other revenue-raising powers of local government units:
(a) Taxation shall be uniform in each local government unit;
(b) Taxes, fees, charges and other impositions shall:
(1) be equitable and based as far as practicable on the taxpayer's ability to pay;
(2) be levied and collected only for public purposes;
(3) not be unjust, excessive, oppressive, or confiscatory;
(4) not be contrary to law, public policy, national economic policy, or in restraint of trade;
(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person;
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be
subject to disposition by, the local government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein; and,
(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.
The following are the fundamental principals that shall govern the exercise of the taxing
and revenue-raising powers of the LGUs.
1. Uniformity in each LGU
2. The taxes, fees, charges and other impositions shall:
a. equitable and based on the taxpayers ability to pay
b. levied and collected only for public purposes
c. not be unjust, excessive, oppressive, or confiscatory
d. not be contrary to law, public policy, national economic policy, or in restraint of
trade
3. Collection shall not be let to any private person
4. The revenue collected shall inure solely to the benefit of the LGU levying the tax, etc,
unless otherwise specifically provided in the LGC
5. Each LGU shall evolve a progressive system of taxation.

Local Taxing Authority


SEC. 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to generate revenue under this
Code shall be exercised by the sanggunian of the local government unit concerned through an appropriate
ordinance.
The power to tax in the local government is vested and exercised by the Sanggunian.
Every tax imposed must be levied pursuant to a valid ordinance.
The ultimate reference for local taxation is the local ordinance.
o These ordinances usually add to the minimum requirements of the LGC.
LGUs may exercise the power to levy taxes, fees, or charges on any bases or subject
NOT otherwise specifically enumerated in the LGC or the taxed under the NIRC, or other
applicable laws. (see section 186 below)

Limitations on the Power to Tax


In determining the limitations of local governments to tax, two sections are applicable:
SEC. 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may exercise the power to levy
taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the
provisions of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy:
Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior
public hearing conducted for the purpose.
Section 186, which gives a general view of the limitations
o Those that already subject to tax under the NIRC or other applicable laws cannot
be taxed again

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o Local taxes shall not be unjust, excessive, confiscatory or contrary to national
policy
o No ordinance can be enacted without any prior public hearing conducted for the
purpose
The exclusionary rule states that a province may not levy excise taxes on articles
already taxed by the NIRC. (Province of Bulacan v CA)
o Hence, a province may not ordinarily impose taxes on stones, sand, gravel, etc,
as the same are already taxed under the NIRC.
o The same with professional basketball games. PBA is liable to pay amusement
taxes to the national government and not to the local governments. Amusement
tax on professional basketball games remains a national tax under the NIRC.
Section 140 of the LGC subjects certain places of amusement to amusement tax
imposable by the province, but it does not include professional basketball games.
(PBA v CA)

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided
herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed and maintained by the local government
unit concerned;
(e) Taxes, fees and charges and other impositions upon goods carried into or out of, or passing through, the
territorial jurisdictions of local government units in the guise of charges for wharfage, tolls for bridges or otherwise,
or other taxes, fees or charges in any form whatsoever upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of
six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees
or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in this Code;
(k) Taxes on premiums paid by way of reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered
under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938) otherwise known
as the "Cooperatives Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government , its agencies and instrumentalities, and local
government units.
Section 133, which enumerates specific instances where an LGU cannot impose a tax.
They are:
1. Income tax,
Except when levied on banks and other financial institutions
2. Documentary stamp tax
3. Taxes on estates, inheritance, legacies or other acquisitions mortis causa,
Except as otherwise provided
4. Customs duties, registration of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges ad dues
Except wharfage on wharves constructed and maintained by the LGU
5. Taxes, fees and charges and other impositions upon goods carried into or out of, or
passing through, the territorial jurisdictions of local government units in the guise of
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charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or charges in
any form whatsoever upon such goods or merchandise
An ordinance imposing fees on goods and the vehicles passing through a municipality
for police surveillance is invalid. It violates this limitation. It is also a restraint of
trade.
It is irrelevant if the fees imposed are actually for police surveillance, because any
other form of imposition on goods passing through the territorial jurisdiction of the
municipality is clearly prohibited. (Palma v Municipality of Malangas)
6. Taxes, fees, and charges on agricultural products or aquatic products when sold by
marginal farmers or fishermen
7. Taxes on business enterprises certified to by the Board of Investments as pioneer or
non-pioneer for a period of six (6) and four (4) years, respectively from the date of
registration
The starting point is the date of registration, not date of commercial operation.
(Batangas Power Corp v Batangas City)
o Date of commercial operation refers to income taxes imposed by the national
government on BOI-registered firms.
o Since commercial operations usually start a few years after registration, why
dont enterprises just register when they are about to commence operations?
Because they need the incentives of being registered when they import
equipment and other stuff, which usually happens before operation starts.
8. Section 133 (h) covers two distinct limitations:
Excise taxes on articles enumerated under the NIRC, and
Taxes, fees or charges on petroleum products.
o For excise taxes on articles enumerated under the NIRC, the Court defined
excise tax as that levied on a specific article rather than one upon the
performance, carrying on, or the exercise of an activity. (Petron v Tiangco,
wherein the municipality of Navotas passed an ordinance imposing business taxes
on Petron.)
In other words, when the LGC talks about excise taxes, they refer to those
enumerated in the NIRC which are subject to either ad valorem tax or specific
tax.
For this limitation to be applicable, there should be a mirror image between
the good sought to be taxed by the LGU and the good either under ad
valorem tax or specific tax.
o The distinction between a tax on a business (business tax) and a tax on the
article (excise tax) is immaterial when it comes to petroleum products. (Petron v
Tiangco)
The phrase taxes, fees or charges on petroleum products does not qualify
the kind of taxes, fees or charges that could withstand the absolute
prohibition imposed by the provision.
Since the law does not distinguish, LGUs are prohibited from imposing not only
excise taxes on petroleum products, but all taxes, fees and charges.
9. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or
services
Except as otherwise provided
10. Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water
Except as provided in this Code
The definition of common carriers in the Civil Code makes no distinction as to the
means of transporting, as long as it is by land, water or air. Nor does it provide that

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the transportation of the passengers or goods be by motor vehicle. (First Philippine
Industrial v CA)
o Thus, a grantee of a pipeline concession is a common carrier, and is thus exempt
from business tax imposed by a LGU.
o The legislation intended to exclude from the taxing power of the LGU the
imposition of business tax against common carriers to prevent a duplication of
the common carriers tax already found in the NIRC.
11. Taxes on premiums paid by way of reinsurance or retrocession
12. Taxes, fees or charges for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof,
Except tricycles
13. Taxes, fees, or other charges on Philippine products actually exported,
Except as otherwise provided herein
14. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and the Cooperatives Code of the
Philippines
15. Taxes, fees or charges of any kind on:
the National Government,
its agencies and instrumentalities, and
local government units.
o Is this absolute? No. In Section 234 (A), there is the exception to the exemption
clause which taxes the national government when the beneficial use of its real
properties is given to a taxable entity. (More on this when we reach real property
tax)

How to Determine Local Business Tax


In answering this question, use the following:
1. What is the business activity involved and the rate assigned to it? (Check section
135-141, 143)
2. What are the gross receipts of the business?
3. Multiply the gross receipts by the rates.

General rule: Only cities and municipalities can impose business taxes.
Exception: Provinces can impose business taxes on business of printing and publication.
(Section 136). How come? Because of Section 134 which says.
SEC. 134. Scope of Taxing Powers. - Except as otherwise provided in this Code, the province may levy only the
taxes, fees, and charges as provided in this Article.
o If provinces cant impose business taxes, what can they impose?
1. Tax on Transfer of Real Property Ownership (Sec 135)21
2. Taxes on Business of Printing and Publication (Sec 136)22

21
SECTION 135. Tax on Transfer of Real Property Ownership. - (a) The province may impose a tax on the sale, donation, barter, or on any
other mode of transferring ownership or title of real property at the rate of not more than fifty percent (50%) of one percent (1%) of the total
consideration involved in the acquisition of the property or of the fair market value in case the monetary consideration involved in the transfer is
not substantial, whichever is higher. The sale, transfer or other disposition of real property pursuant to R.A. No. 6657 shall be exempt from this
tax.
(b) For this purpose, the Register of Deeds of the province concerned shall, before registering any deed, require the presentation of the evidence
of payment of this tax. The provincial assessor shall likewise make the same requirement before canceling an old tax declaration and issuing a
new one in place thereof. Notaries public shall furnish the provincial treasures with a copy of any deed transferring ownership or title to any real
property within thirty (30) days from the date of notarization.
It shall be the duty of the seller, donor, transferor, executor or administrator to pay the tax herein imposed within sixty (60) days
from the date of the execution of the deed or from the date of the decedent's death.
22
SECTION 136. Tax on Business of Printing and Publication. - The Province may impose a tax on the business of persons engaged in the
printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and other of similar nature, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year.
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23
3. Franchise Tax (Sec 137)
Notwithstanding any exemption given by law
4. Tax on Sand, Gravel and Other Quarry Resources (Sec 138)24
Thus, transporting lahar is taxable.
5. Professional Tax (Sec 139)25
For professions, even if you pay taxes in Batanes, you can still practice your
profession in Manila, or anywhere else in the Philippines. (Bar question)
6. Amusement Tax (Sec 140)26
Although in Michael Jacksons case, the amusement tax was lowered to 2%.
7. Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers,
Wholesalers of, Dealers, or Retailers in, Certain Products (Sec 141)27

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
calendar year, or any fraction thereof, as provided herein.
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 reference shall be exempt from the tax herein imposed.
23
SECTION 137. Franchise Tax - Notwithstanding any exemption granted by any law or other special laws, the province may impose a tax on
business enjoying a franchise, at a rate exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its territorial jurisdiction.
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
calendar year, or any fraction thereof, as provided herein.
24
SECTION 138. Tax on Sand, Gravel and Other Quarry Resources - The province may levy and collect not more than ten percent (10%) of
fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National
Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters
within its territorial jurisdiction.
The permit to extract sand, gravel and other quarry resources shall be issued exclusively by the provincial governor, pursuant to the ordinance of
the Sangguniang Panlalawigan.
The proceeds of the tax on sand, gravel and other quarry resources shall be distributed as follows:
(1) Province - Thirty percent (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 are extracted - Forty percent (40%).
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SECTION 139. Professional Tax - (a) The province may levy an annual professional tax on each person engaged in the exercise or practice of
his profession requiring government examination as such amount and reasonable classification as the Sangguniang Panlalawigan may determine
but shall in no case exceed Three hundred pesos (P300.00)
(b) Every person legally authorized to practice his profession shall pay the professional tax to the province where he practices his
profession or where he maintains his principal office in case he practices his profession in several places: Provided, however, That such person
who has paid the corresponding professional tax shall be entitled to practice his profession in any part of the Philippines without being subjected
to any other national or local tax, license, or free for the practice of such profession.
(1) Any individual or corporation employing a person subject to professional tax shall require payment by that person of the tax on his
profession before employment and annually thereafter.
(2) The professional tax shall be payable annually on or before the thirty first (31st) day of January must, however, pay the full tax before
engaging therein. A line of profession does not become exempt even if conducted with some other profession for which the tax has been paid.
Professionals exclusively employed in the government shall be exempt from the payment of this tax.
(3) Any person subject to the professional tax shall write in deeds, 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.
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SECTION 140. Amusement Tax - (a) 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 more than thirty percent (30%) of the
gross receipts from admission fees.
(1) In the case of theaters of 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
cinematographic films.
(2) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical programs, literary and oratorical
presentations, except pop, rock, or similar concerts shall be exempt from the payment of the tax herein imposed.
(3) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax. In case of fraud or
failure to pay the tax, the Sangguniang Panlalawigan may impose such surcharges, interests and penalties.
(4) The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are
located.
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SECTION 141. Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in,
Certain Products. - (a) The province may levy an annual fixed tax for every truck, van or any vehicle used by manufacturers, producers,
wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other
products as may be determined by the Sangguniang Panlalawigan, to sales outlets, consumers, whether directly or indirectly, within the province
in an amount not exceeding Five hundred pesos (P500.00).
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For municipalities and cities


Article Two - Municipalities
SEC. 142. Scope of Taxing Powers. - Except as otherwise provided in this Code, municipalities may levy taxes,
fees, and charges not otherwise levied by provinces.

Article Three - Cities


SEC. 151. Scope of Taxing Powers. - 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, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in
accordance with the provisions of this Code. The rates of taxes that the city may levy may exceed the maximum
rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes.
Municipalities may levy taxes, fees, and charges not otherwise levied by provinces.
o Except as otherwise provided.
o In other words, stuff that the provinces are already taxing, the municipalities can
not, unless otherwise provided.
Cities may levy taxes, fees, and charges which the province or municipality may impose.
o The rates may exceed the maximum rates allowed for the province or municipality
by not more than 50% except the rates of professional and amusement rates.
o In other words, what the province or municipality may impose, so can the city.

SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses:
(a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in
accordance with the following schedule: With gross sales or receipts for the Amount of Tax preceding calendar year
in the amount of:
xxx
(b) On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature in accordance
with the following schedule: With gross sales or receipts for the Amount of Tax preceding calendar year in the
amount of:
xxx
(c) On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or retailers of
essential commodities enumerated hereunder at a rate not exceeding one-half (1/2) of the rates prescribed under
subsections (a), (b) and (d) of this Section:
(1) Rice and corn;
(2) Wheat or cassava flour, meat, dairy products, locally manufactured, processed or preserved food, sugar, salt
and other agricultural, marine, and fresh water products, whether in their original state or not;
(3) Cooking oil and cooking gas;
(4) Laundry soap, detergents, and medicine;
(5) Agricultural implements, equipment and post- harvest facilities, fertilizers, pesticides, insecticides, herbicides
and other farm inputs;
(6) Poultry feeds and other animal feeds;
(7) School supplies; and
(8) Cement.
(d) On retailers, With gross sales or receipts Rate of tax for the preceding calendar year of: per annum
P400,000.00 or less 2%
more than P400,000.00 1%
Provided, however, That barangays shall have the exclusive power to levy taxes, as provided under Section 152
hereof, on gross sales or receipts of the preceding calendar year of Fifty thousand pesos (P=50,000.00) or less, in
the case of cities, and Thirty thousand pesos (P=30,000.00) or less, in the case of municipalities.
(e) On contractors and other independent contractors, in accordance with the following schedule:
xxx
(f) On banks and other financial institutions, at a rate not exceeding fifty percent (50%) of one percent (1%) on
the gross receipts of the preceding calendar year derived from interest, commissions and discounts from lending
activities, income from financial leasing, dividends, rentals on property and profit from exchange or sale of
property, insurance premium.

The manufacturers, producers, wholesalers, dealers, and retailers referred to in the immediately foregoing paragraph shall be exempt from the tax
on peddlers prescribed elsewhere in this Code.
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(g) On peddlers engaged in the sale of any merchandise or article of commerce, at a rate not exceeding Fifty pesos
(P50.00) per peddler annually.
(h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may
deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the
National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or
receipts of the preceding calendar year. The sanggunian concerned may prescribe a schedule of graduated tax
rates but in no case to exceed the rates prescribed herein.

Sec 131 (d) "Business" means trade or commercial activity regularly engaged in as a means of livelihood or with a
view to profit;
Section 143 gives an enumeration of specific business activities and their responding tax
rates.
o The tax rates given by the LGC are the maximum rates that a sanggunian can
impose by an ordinance.
o Section 143 (h) gives the sanggunian the authority to tax whatever it pleases, as
long as it does not go against the limitations set about in the other provisions of
the LGC.
Hence, the ultimate reference on whether there is a local tax or not is an
ordinance passed by the sanggunian.
An example of this is the local business tax imposed by the City of Makati
on holding companies.
Take note of the special section on essential goods (rice, corn, etc)
o These get taxed of the normal rate.
Local business taxes are based on gross receipts.
o Gross receipts include money or its equivalent actually or constructively received in
consideration of services rendered or articles, sold, exchanged or leased, whether
actual or constructive.
Constructive receipt occurs when the money consideration or its equivalent is
placed at the control of the person who rendered the service without
restrictions by the payor.
o It is important to know the difference between gross receipts and gross income,
especially when the taxpayer uses the accrual method of accounting, which considers
when the right to receive income accrues, and not the actual receipt of the income.
Revenue includes those amounts which havent actually been received yet.
o Hence, when a city assessed a petitioners local business tax based on gross
revenues as reported in its audited financial statements, the city is wrong. (Ericcson
Telecomm v City of Pasig)
Condominium corporations are generally exempt from local business taxation under the
Local Government Code, irrespective of any local ordinance that seeks to declare
otherwise. They are prohibited from doing activities for profit under the Condominium
Code, hence they are not businesses under the Local Government Code. (Yamane v BA
Lepanto)
o Sir doesnt agree with the logic of this case. There is nothing in the LGC that states
that as long as there is no view for profit, the entity is exempt. It would have been
better for the Court to just state that the condominium corporations have no gross
receipts, thus there will be nothing to multiply to the tax rates, in effect, zero to pay.
When a municipality or city has already imposed a business tax pursuant to Section 143
(A-G) of the LGC, said municipality may no longer subject the same taxpayer to a
business tax under Section 143 (H). This would be direct duplicate double taxation. (City
of Manila v Coca-Cola, 2009).
o Can the LGUs choose between A-G or H as the basis of the tax ordinance?
No. You can only use Sec 143 (H) when the activity is not otherwise specified
in the preceding paragraphs. Hence, if the business activity is already under

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those specified in A-G, the LGU has to abide by the maximum tax rates
established therein.

SECTION 144. Rates of Tax within the Metropolitan Manila Area. - The municipalities within the Metropolitan
Manila Area may levy taxes at rates which shall not exceed by fifty percent (50%) the maximum rates prescribed
in the preceding Section.
Special rule for municipalities within Metro Manila:
o They can tax more than the usual, as long as not more than 50% of the
maximum rates of the preceding section.

Situs
SEC. 150. Situs of the Tax.
(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 branch or sales outlet making
the sale or transaction, and the tax thereon 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 shall accrue
and shall be paid to such city or municipality.

(b) The following sales allocation shall apply to manufacturers, assemblers, contractors, producers, and exporters
with factories, project offices, plants, and plantations in the pursuit of their business:
(1) Thirty percent (30%) of all sales recorded in the principal office shall be taxable by the city or municipality
where the principal office is located; and
(2) Seventy percent (70%) of all sales recorded in the principal office shall be taxable by the city or city or
municipality where the factory, project office, plant or plantation is located; and

(c) In case of a plantation located at a place other than the place where the factory is located, said seventy percent
(70%) mentioned in subparagraph (b) of subsection (2) above shall be divided as follows:
(1) Sixty percent (60%) to the city or municipality where the factory is located; and
(2) Forty percent (40%) to the city or municipality where the plantation is located.

(d) In cases where a manufacturer, assembler, producer, exporter or contractor has two (2) or more factories,
project offices, plants, or plantations located in different localities, the seventy percent (70%) sales allocation
mentioned in subparagraph (b) of subsection (2) above shall be prorated among the localities where the factories,
project offices, plants, and plantations are located in proportion to their respective volumes of production during
the period for which the tax is due.
(e) The foregoing sales allocation shall be applied irrespective of whether or not sales are made in the locality
where the factory, project office, plant, or plan is located.

Sec 243 (d) of IRR Sales made by route trucks, vans, or vehicles
(1) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has a branch
or sales office or warehouse, the sale are recorded in the branch, sales office or warehouse and the tax due
thereon is paid to the LGU where such branch, sales office or warehouse is located.

(2) For route sales made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has no
branch, sales office or warehouse the sales are recorded in the branch, sales office or warehouse from where the
route trucks withdraw their products for sale, and the tax due on such sales is paid to the LGU where such branch,
sales office or warehouse is located.

(3) Based on subparagraphs (1) and (2) above, LGUs where route trucks deliver merchandise cannot impose any
tax on said trucks except the annual fixed tax authorized to be imposed by the province in Article 231 of this Rule
on every delivery truck or van or any motor vehicle used by manufacturers, producers, wholesalers, dealers, or
retailers, in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and
other products as may be determined by the sangguniang panlalawigan, and by the city, pursuant to Article 223 of
this Rule.

How to allocate:
1. When sale was made in a certain municipality or city

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a If there is a branch where the sale was made, the sale shall be recorded in the said
branch, and the tax shall accrue and be paid to the municipality (or city) where the
branch is located.
b If there is no branch where the sale was made, the sale shall be recorded in the
principal office and taxes shall accrue and be paid to the municipality (or city) where
the principal office is located.
2. If there is no branch, and the company has a factory, plants, plantations, etc
a 30% of sales taxable where principal office is located
b 70% of sales taxable where factory, etc is located
3. Sales allocation in case factories and plantations located in different places
a 30% of sales taxable where principal office is located
b 70% distributed as follows:
o 60% taxable where factory is located
o 40% taxable where plantation is located
4. In case there are 2 or more factories and plantations located in different localities
a Prorate the 70% according to the volume of production
5. In case of route sales (think Coca-cola trucks delivering to sari-sari stores)
a Made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has
a branch or sales office or warehouse, the sale are recorded in the branch, sales
office or warehouse and the tax due thereon is paid to the LGU where such branch,
sales office or warehouse is located
b Made in a locality where a manufacturer, producer, wholesaler, retailer or dealer has
no branch, sales office or warehouse the sales are recorded in the branch, sales
office or warehouse from where the route trucks withdraw their products for sale

Remember, as long as there is a branch, the sale will be recorded there. The rules for
allocation apply only if there is no branch.
The sales allocations shall be applied irrespective of whether or not sales are made in
the locality where the factory, project office, plant, or plantation is located.
A city can validly tax orders booked and paid for in the companys branch office in the
city, even if the matches are delivered outside the city. (Philippine Match v City of Cebu)

Retirement of Business
SEC. 145. Retirement of Business. - A business subject to tax pursuant to the preceding sections shall, upon
termination thereof, submit a sworn statement of its gross sales or receipts for the current year. If the tax paid
during the year be less than the tax due on said gross sales or receipts of the current year, the difference shall be
paid before the business is considered officially retired.
If the tax paid during the year be less than the tax due on said gross sales or receipts of
the current year, the difference shall be paid before the business is considered official
retired.
But what if the tax paid is more than the tax due on said gross sales or receipts of the
current year?
The case of Mobil Phil v Makati is instructive.
Local business tax is paid for the privilege of carrying a business during the year it is
paid, and not for the previous year.
In that case, the City of Makati would use the gross receipts of the previous year as
the basis for the local business tax of the current year. The gross receipts were,
of course, mere estimates, such that if the estimate is more than the actual
receipts of the current year, the company would be entitled to the difference.
For example, in 2009, Mobils gross receipts were P1m. The business tax rate is 5%.
On January 1, 2010, Mobil paid their business tax of P50,000, which was based
on their gross receipts of 2009. However, in August, 2010, Mobil decided to close

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down their operations and move to Mindanao. At the end of August, 2010, their
gross receipts were P700,000. What happens?
Mobil will be entitled to a refund of P15,000. Since the previous years gross
receipts are used as the basis for the current years business tax (and is
only a mere estimate thereof), if the business closes down within the
year, and its gross receipts are lower than that of the previous year, they
are entitled to a credit.
At the time they closed down, their gross receipts were P700,000. Hence, the
tax was only P35,000.
At the start of the year, they paid P50,000 for the privilege for carrying their
business for the entire year. Since the P50,000 tax paid is more than the
amount computed based on Mobils actual gross receipts for 2010, they
are entitled to a refund.

SEC. 146. Payment of Business Taxes.


(a) The taxes imposed under Section 143 shall be payable for every separate or distinct establishment or place
where business subject to the tax is conducted and one line of business does not become exempt by being
conducted with some other business for which such tax has been paid. The tax on a business must be paid by the
person conducting the same.
(b) 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 gross sales or
receipts of the said two (2) or more related businesses.
(c) In cases where a person conducts or operates two (2) or more businesses 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 separately
reported for the purpose of computing the tax due from each business.

SEC. 147. Fees and Charges. - The municipality may impose and collect such reasonable fees and charges on
business and occupation and, except as reserved to the province in Section 139 of this Code, on the practice of any
profession or calling, commensurate with the cost of regulation, inspection and licensing before any person may
engage in such business or occupation, or practice such profession or calling.

SEC. 165. Tax Period and Manner of Payment. - Unless otherwise provided in this Code, the tax period of all local
taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly
installments.
SEC. 166. Accrual of Tax. - Unless otherwise provided in this Code, all local taxes, fees, and charges shall accrue
on the first (1st) day of January of each year. However, new taxes, fees or charges, or changes in the rates
thereof, shall accrue on the first (1st) day of the quarter next following the effectivity of the ordinance imposing
such new levies or rates.
SEC. 167. Time of Payment. - Unless otherwise provided in this Code, all local taxes, fees, and charges shall be
paid within the first twenty (20) days of January or of each subsequent quarter, as the case may be. The
sanggunian concerned may, 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 period not exceeding six (6) months .
All local taxes, fees, and charges must be paid by January 20, or of each subsequent
quarter.

For barangays
Article Four - Barangays
SEC. 152. Scope of Taxing Powers. - The barangays may levy taxes, fees, and charges, as provided in this Article,
which shall exclusively accrue to them:
(a) Taxes - On stores or retailers with fixed business establishments with gross sales or receipts of the preceding
calendar year of Fifty thousand pesos (P=50,000.00) or less, in the case of cities and Thirty thousand pesos
(P=30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales
or receipts.
(b) Service Fees or Charges - barangays may collect reasonable fees or charges for services rendered in
connection with the regulation or the use of barangay-owned properties or service facilities such as palay, copra, or
tobacco dryers.
(c) Barangay Clearance - No city or municipality may issue any license or permit for any business or activity
unless a clearance is first obtained from the barangay where such business or activity is located or conducted. For
such clearance, the sangguniang barangay may impose a reasonable fee. The application for clearance shall be

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acted upon within seven (7) working days from the filing thereof. In the event that the clearance is not issued
within the said period, the city or municipality may issue the said license or permit.
(d) Other Fees and Charges - The barangay may levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks, cockfights and cockpits;
(2) On places of recreation which charge admission fees; and
(3) On billboards, signboards, neon signs, and outdoor advertisements.

Read codal. Who knows some examiner might ask some random (and unfair!) question
about barangays.

Penalties and Surcharges


SECTION 168. Surcharges and Penalties on unpaid Taxes, fees, or Charges. - The Sanggunian may impose
a surcharge not exceeding twenty-five percent (25%) of the amount of taxes, fees or charges not paid on time and
an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes, fees or charges including
surcharges, until such amount is fully paid but in no case shall the total interest on the unpaid amount or portion
thereof exceed thirty-six (36) months.

SECTION 169. Interests on Other Unpaid Revenues. Where the amount of any other revenue due a local
government unit, except voluntary contributions or donations, is not paid on the date fixed in the ordinance, or in
the contract, expressed or implied, or upon the occurrence of the event which has given rise to its collection, there
shall be collected as part of that amount an interest thereon at the rate not exceeding two percent (2%) per month
from the date it is due until it is paid, but in no case shall the total interest on the unpaid amount or a portion
thereof exceed thirty- six (36) months.
Surcharge: 25% of the amount of taxes, fees, or charges NOT paid on time
o With interest: 2% per MONTH on amount including surcharges
BUT in no case shall the total interest on the unpaid amount or protion
exceed 36 months
For other dues: 2% per month, subject to the 36-month rule

On exemptions (read with real property exemption)


SEC. 192. Authority to Grant Tax Exemption Privileges. - Local government units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem
necessary.
LGUs have the power to grant tax incentives through ordinances.
The distinction between local business taxes and real property taxes in terms of the
power of the LGU to grant exemptions:
For real property tax, the LGUs cant add on to the exemptions stated in the LGC.
For local business taxes, the LGUs are free to grant exemptions.
Art 282 (IRR) states that sanggunians have the power to grant tax exemptions, tax
incentives and tax reliefs.
The tax exemptions should be conferred via a tax exemption certificate.
The grant of exemption and reliefs must be through an ordinance
They may be granted in cases of natural calamities, civil disturbances, general
failure of crops, or adverse economic conditions.
Any exemption or relief granted to a type or kind of business shall apply to all
business similarly situated.
The exemption or reliefs are only to last for a period not exceeding 12
months.
They do not cover regulatory fees (police power fees)

SEC. 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or -controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.

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Tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
natural or juridical, including GOCCs, were withdrawn upon the enactment of the LGC.
Except:
Unless provided in the Code
Local water districts
Cooperatives duly registered
Non-stock and non-profit hospitals and educational institutions

Indicative of the legislative intent to carry out the Constitutional mandate of vesting
broad tax powers to local government units, the LGC has effectively withdrawn tax
exemptions or incentives theretofore enjoyed by certain entities. (Meralco v Province of
Laguna)
One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the national government from the coverage of local
taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities, this rule now
admits an exception when specific provisions of the LGC authorize the LGUs to
impose taxes, fees or charges on the aforementioned entities with the phrase
unless otherwise provided herein (National Power Corp v Cabanatuan)
How about exemptions granted after the LGC was enacted?
Congress has the power to grant tax exemptions over and above the power of the
local governments delegated power to tax. (Quezon City v Bayantel)
However, the grant of congress must be unequivocal.
In the cases of QC v ABS-CBN and Smart v Davao, ABSCBN and Smart were
to pay franchise tax in lieu of all taxes. The clauses in both their
franchises were construed to apply only to national internal revenue taxes
and not to local taxes.
Moreover, the Court also ruled that the in lieu of all taxes has become
functus officio with the advent of the VAT.
The in lieu of all taxes clause cannot apply when what is paid is a tax
other than a franchise tax. Since the broadcasting companies and
the telecom companies are now subject to the VAT (provided they
reach the threshold imposed by law), they can no longer use the
clause to exempt themselves.

Remedies in Local Taxation


Tax Remedies of the LGU
SEC. 173. Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a lien, superior to all
liens, charges or encumbrances in favor of any person, enforceable by appropriate administrative or judicial action,
not only upon any property or rights therein which may be subject to the lien but also upon property used in
business, occupation, practice of profession or calling, or exercise of privilege with respect to which the lien is
imposed. The lien may only be extinguished upon full payment of the elinquent local taxes fees and charges
including related surcharges and interest.

SEC. 174. Civil Remedies. - The civil remedies for the collection of local taxes, fees, or charges, and related
surcharges and interest resulting from delinquency shall be:
(a) By administrative action thru distraint of goods, chattels, or effects, and other personal property of whatever
character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to
personal property, and by levy upon real property and interest in or rights to real property; and
(b) By judicial action. Either of these remedies or all may be pursued concurrently or simultaneously at the
discretion of the local government unit concerned.

SEC. 175. Distraint of Personal Property. - The remedy by distraint shall proceed as follows:
(a) Seizure - Upon failure of the person owing any local tax, fee, or charge to pay the same at the time required,
the local treasurer or his deputy may, upon written notice, seize or confiscate any personal property belonging to
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that person or any personal property subject to the lien in sufficient quantity to satisfy the tax, fee, or charge in
question, together with any 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 delinquencycy and the amounts of the tax, fee, or charge and penalty due. Such certificate
shall serve as sufficient warrant for the distraint of personal property aforementioned, subject to the taxpayer's
right to claim exemption under the provisions of existing laws. Distrained personal property shall be sold at public
auction in the manner herein provided for.
(b) Accounting of distrained goods - The officer executing the distraint shall make or cause to be made an account
of the goods, chattels or effects distrained, a copy of which signed by himself shall be left either with the owner or
person from whose possession the goods, chattels or effects are taken, or at the dwelling or place of business of
that person and with someone of suitable age and discretion, to which list shall be added a statement of the sum
demanded and a note of the time and place of sale.
(c) Publication - The officer shall forthwith cause a notification to be exhibited in not less than three (3) public and
conspicuous places in the territory of the local government unit where the distraint is made, specifying the time
and place of sale, and the articles distrained. The time of sale shall not be less than twenty (20) days after 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 notice shall be at the office of the chief executive of the local government unit in which the
property is distrained.
(d) Release of distrained property upon payment prior to sale - If at any time prior to the consummation of the
sale, all the proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be
restored to the owner.
(e) Procedure of sale - At the time and place fixed in the notice, the officer conducting the sale shall sell the goods
or effects so distrained at public auction to the highest bidder for cash. Within five (5) days after the sale, the local
treasurer shall make a report of the proceedings in writing to the local chief executive concerned. 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 amount of the assessment made
thereon by the Committee on Appraisal and to the extent of the same amount, the tax delinquencies shall be
cancelled. Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman, with a
representative of the Commission on Audit and the city or municipal assessor as members.
(f) Disposition of proceeds - The proceeds of the sale shall be applied to satisfy the tax, including the surcharges,
interest, and other penalties incident to delinquency, and the expenses of the distraint and sale. The balance over
and above what is required to pay the entire claim shall be returned to the owner of the property sold. The
expenses chargeable upon the seizure and sale shall embrace only the actual expenses of seizure and preservation
of the property pending the sale, and no charge shall be imposed for the services of the local officer or his deputy.
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, including all

SEC. 176. Levy on Real Property . - After the expiration of the time required to pay the delinquent tax, fee, or
charge, real property may be levied on before, simultaneously, or after the distraint of personal property belonging
to the delinquent taxpayer. To this end, the provincial, city or municipal treasurer, as the case may be, shall
prepare a duly authenticated certificate showing the name of the taxpayer and the amount of the tax, fee, or
charge, and penalty due from him. Said certificate shall operate with the force of a legal execution 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 upon the assessor and the Registrar
of Deeds of the province or city where the property is located who shall annotate the levy on the tax declaration
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 manager of the business in respect to which the liability arose, or if there be none,
to the occupant of the property in question. 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) days
after execution of the distraint, proceed with the levy on the taxpayer's real property. 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.

SEC. 183. Collection of Delinquent Taxes, Fees, Charges or other Revenues through Judicial Action. - The local
government unit concerned may enforce the collection of delinquent taxes, fees, charges or other revenues by civil
action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer within the period
prescribed in Section 194 of this Code.
Civil Remedies
1. Local Governments Lien (Sec 173)
2. Civil Remedies
a Distraint and Levy (Sec 175 & 176)
b Judicial Action (Sec 183)
Read codal for the procedural aspects of the remedies.

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Prescriptive Periods for the Government


SEC. 194. Periods of Assessment and Collection. - (a) Local taxes, fees, or charges shall be assessed within five (5)
years from the date they became due. No action for the collection of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted after the expiration of such period: Provided, That, taxes, fees or
charges which have accrued before the effectivity of this Code may be assessed within a period of three (3) years
from the date they became due.
(b) In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be assessed within
ten (10) years from discovery of the fraud or intent to evade payment.
(c) Local taxes, fees, or charges may be collected within five (5) years from 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 date of assessment.
(d) The running of the periods of prescription provided in the preceding paragraphs shall be suspended for the
time during which:
(1) The treasurer is legally prevented from making the assessment of collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before expiration of the period
within which to assess or collect; and
(3) The taxpayer is out of the country or otherwise cannot be located.
For assessment
Within 5 years from the date they become due
Within 10 years in case of fraud, from time of discovery
For collection within 5 years from the date of assessment by administrative or judicial
action
Suspension of prescriptive period:
1. When the treasurer is legally prevented from making the assessment or collection of
the tax
2. When the taxpayer requests for a reinvestigation and executes a waiver in writing
before the expiration of the period (compare with national government, no need to
execute a waiver)
3. The taxpayer is out of the country or otherwise cannot be located

Tax Remedies of the Taxpayer


In local taxation, the taxpayer has 3 remedies:
1. Protest against a newly enacted ordinance
2. Protest against an assessment
3. Claim for refund or tax credit
It is important to know each one, because the taxpayer, when choosing what course of
action to take, must follow the procedure set down by law for each.

Protest against a newly enacted ordinance


SEC. 187. Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures; Mandatory Public
Hearings. - The procedure for approval of local tax ordinances and revenue measures 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 be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (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 ordinance and the accrual
and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of
the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the
aggrieved party may file appropriate proceedings with a court of competent jurisdiction.
Any question on the constitutionality or legality of tax ordinances or revenue measures
may be raised on appeal within 30 days from effectivity thereof to the Secretary of
Justice.
Remember that prior to the enactment of ordinances, you need:
o Public hearings, and
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o Within 10 days of enactment, there should be publication (Atty. Salvador)
Procedure28:
1. Appeal within 30 days from effectivity of the ordinance to the Secretary of Justice
2. Secretary must render a decision within 60 days from receipt of the appeal
3. Within 30 days from the lapse of the 60 days without any action from the Secretary
of Justice, or within 30 days from receipt of the decision, the aggrieved taxpayer
may go to Court.
Failure to follow the procedure in enactment of tax measures renders the same null and
void.
What is already void cannot be amended either. (Coca-cola v Manila)
The Secretary of Justice can only review the constitutionality or legality of the tax
ordinance, and, if warranted, to revoke it on either or both of these grounds. (Drilon v
Mayor Lim)
He can not replace it with his own version of what the Code/ordinance should be.
(Power of Supervision)
He has no right to determine or declare that the ordinance is unjust, excessive,
oppressive or confiscatory.
When disputing an ordinance, the appeal to the DOJ is mandatory. If no appeal to the
DOJ was made, the RTC will dismiss the case. (Jardine Davies v. Aliposa).
Also, when disputing an ordinance, there is no need for a written protest to be made.
The written protest is only needed when protesting against an assessment.
A taxpayer may file a complaint assailing the validity of the ordinance and praying
for a refund of its perceived overpayments without first filing a protest to the
payment of taxes due under the ordinance. (Jardine)

Protest against an assessment


SEC. 195. Protest of Assessment. - When the local treasurer or his duly authorized representative finds that correct
taxes, fees, or charges have not been paid, he shall issue a notice of assessment stating the nature of the tax, fee
or charge, the amount of deficiency, the surcharges, interests and penalties. Within sixty (60) days 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 treasurer shall decide the
protest within sixty (60) days from the time of its filing. If the local treasurer finds the protest to be wholly or
partly meritorious, he shall issue a notice canceling 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 notice
to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the protest or from the
lapse of the sixty (60) day period prescribed herein within which to appeal with the court of competent jurisdiction
otherwise the assessment becomes conclusive and unappealable.
Procedure:
1. Treasurer to issue an assessment
2. Taxpayer to file a written protest with the local treasurer within 60 days from the receipt
of the notice of assessment, otherwise it shall become final and executory
3. The treasurer has to decide within 60 days from the time of its filing. If treasurer finds
the protest meritorious, he will cancel the assessment; if not, he will deny the protest.
4. Taxpayer has 30 days from receipt of denial, or 30 days from the lapse of the 60 day
period within which to appeal to the proper court of competent jurisdiction; otherwise,
the assessment shall become final and executory.
5. After, go to the CTA within 30 days via:
o Petition for review to the CTA Division under Rule 42 (if from RTC acting
original), or
o Petition for review to the CTA En Banc under Rule 43 (if from the RTC acting in
its appellate jurisdiction) (see CTA Jurisdiction notes)

28
The procedure Atty. Salvador showed in class was different from that of the codal, so Ill just follow whats in the codal.
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A written protest is mandatory when protesting an assessment. You cant go straight to
court. (Jardine)
As a corollary to assailing the validity of an ordinance, no appeal to the DOJ is
necessary when protesting against an assessment.
Compared with real property tax, there is no requirement of payment under protest in
protesting an assessment of local business taxes. (In real property tax, it is required
before protesting).
However, just pay it, or else the Mayor and his goons will shut down your business.

Refund or Tax Credit


SEC. 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any court for the recovery
of any tax, fee, or charge erroneously or illegally collected until a written claim for refund or credit has been filed
with the local treasurer. No case or proceeding shall be entertained in any court after the expiration of two (2)
years from the date of the payment of such tax, fee, or charge, or from the date the taxpayer is entitled to a
refund or credit.
Requirements in tax credit or refund cases:
1. Written claim filed with the local treasurer
2. Filed within 2 years from
a Date of payment, or
b Date when taxpayer is entitled to a refund or credit.
Distinguished from refunds for national taxes, in local taxation, supervening causes are
allowed as reckoning points for prescriptive period purposes. (In national taxes, they are
not considered.)

Community Tax
Article Six. - Community Tax
SECTION 156. Community Tax. - Cities or municipalities may levy a
community tax in accordance with the provisions of this Article.

SECTION 157. Individuals Liable to Community Tax. - Every inhabitant of the Philippines eighteen (18) years of age
or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working
days during any calendar year, or who is engaged in business or occupation, or who owns real property with an
aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income
tax return shall pay an annual community tax of Five pesos (P5.00) and an annual additional tax of One peso
(P1.00_ for every One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of
profession or from property which in no case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned
by them and the total gross receipts or earnings derived by them.

SECTION 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual
community tax of Five hundred pesos (P500.00) and an annual additional tax, which, on no case, shall exceed Ten
thousand pesos (P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the
preceding year based on the valuation used for the payment of the real property tax under existing laws, found in
the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in
the Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the purpose of the additional
tax, be considered as part of the gross receipts or earnings of said corporation.

SECTION 159. Exemption. - The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
Who are liable to pay community tax?
o Individuals who are:
18 years and above, and who is

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regularly employed for at least 30 consecutive working days during
any calendar year or
is engaged in a business or occupation or
owns real property worth more than P1000 (assessed value), or
required to file an income tax return
o corporations
who are exempt?
o Dipmoats and consular reps
o Transient visitors who dont stay more than 3 months

SECTION 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual,
or in the place where the principal office of the juridical entity is located.

SECTION 161. Time for Payment; Penalties for Delinquency. - (a) The community tax shall accrue on the
first (1st) day of January of each year which shall be paid not later than the last day of February of each year. If a
person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day
of June, he shall be liable for the community tax on the day he reaches such age or upon the day the exemption
ends. However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before
the last day of June, he shall be liable for the community tax on the day he reaches such age or upon the day the
exemption ends. However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on
or before the last day of March, he shall have twenty (20) days to pay the community tax without becoming
delinquent.
Persons who come to reside in the Philippine or reach the age of eighteen (18) years on or after the first (1st) day
of July of any year, or who cease to belong to an exempt class on or after the same date, shall not be subject to
the community tax for that year.
(b) Corporation established and organized on or before the last day of June shall be liable for the community
tax for that year. But corporations established and organized on or before the last day of March shall have twenty
(20) days within which to pay the community tax without becoming delinquent. Corporations established and
organized on or after the first day of July shall not be subject to the community tax for that year.
If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of
twenty-four percent (24%) per annum from the due date until it is paid.

SECTION 162. Community Tax Certificate. - A community tax certificate shall be issued to every person or
corporation upon payment of the community tax. A community tax certificate may also be issued to any person or
corporation not subject to the community tax upon payment of One peso (P1.00).
Should be paid in the residence of the individual or in the place where the office of the
juridical entity is located.
Time to pay: before Feb 1 of each year
Other matters (see footnote)29

29
SECTION 163. Presentation of Community Tax Certificate On Certain Occasions. - (a) When an individual subject to the community tax
acknowledges any document before a notary public, takes the oath of office upon election or appointment to any position in the government
service; receives any license, certificate, or permit from any public authority; pays any tax or fee; receives any money from any public fund;
transacts other official business; or receives any salary or wage from any person or corporation, it shall be the duty of any person, officer, or
corporation with whom such transaction is made or business done or from whom any salary or wage is received to require such individual to
exhibit the community tax certificate.
The presentation of community tax certificate shall not be required in connection with the registration of a voter.
81(b) When, through its authorized officers, any corporation subject to the community tax receives any license, certificate, or permit from
any public authority, pays and tax or fee, receives money from public funds, or transacts other official business, it shall be the duty of the public
official with whom such transaction is made or business done, to require such corporation to exhibit the community tax certificate.
(c) The community tax certificate required in the two preceding paragraphs shall be the one issued for the current year, except for the
period from January until the fifteenth (15th) of April each year, in which case, the certificate issued for the preceding year shall suffice.
SECTION 164. Printing of Community Tax Certificates and Distribution of Proceeds. - (a) The Bureau of Internal Revenue shall cause the
printing of community tax certificates and distribute the same to the cities and municipalities through the city and municipal treasurers in
accordance with prescribed regulations.
The proceeds of the tax shall accrue to the general funds of the cities, municipalities and Barangays except a portion thereof which shall accrue to
the general fund of the national government to cover the actual cost of printing and distribution of the forms and other related expenses. The city
or municipal treasurer concerned shall remit to the national treasurer the said share of the national government in the proceeds of the tax within
ten (10) days after the end o each quarter.
(b) The city or municipal treasurer shall deputize the Barangay treasurer to collect the community tax in their respective jurisdictions:
Provided, however, That said Barangay treasurer shall be bonded in accordance with existing laws.
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Real Property Taxation


Fundamental principles
SEC. 198. Fundamental Principles. - The appraisal, assessment, levy and collection of real property tax shall be
guided by the following fundamental principles:
(a) Real property shall be appraised at its current and fair market value;
(b) Real property shall be classified for assessment purposes on the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform classification within each local government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and
(e) The appraisal and assessment of real property shall be equitable.
Real property shall be:
1. Appraised at its current and fair market value
2. Classified for assessment purposes on the basis of its actual use
3. Assessed on the basis of a uniform classification within each LGU
The appraisal, assessment, levy and collection:
1. shall not be let to any private person
2. shall be equitable

On appraisal at its current and fair market value


SEC. 201. Appraisal of Real Property. - All real property, whether taxable or exempt, shall be appraised at the
current and fair market value prevailing in the locality where the property is situated. The Department of Finance
shall promulgate the necessary rules and regulations for the classification, appraisal, and assessment of real
property pursuant to the provisions of this Code.

SEC 199 (l). "Fair Market Value" is the price at which a property may be sold by a seller who is not compelled to
sell and bought by a buyer who is not compelled to buy;
FMV is see codal.

SEC. 224. Appraisal and Assessment of Machinery. - (a) The fair market value of a brand-new 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 economic life and multiplied by the replacement or reproduction
cost.
(b) If the machinery is imported, the acquisition cost includes freight, insurance, bank and other charges,
brokerage, arrastre and handling, duties and taxes, plus cost of inland transportation, handling, and installation
charges at the present site. The cost in foreign currency of imported machinery shall be converted to peso cost on
the basis of foreign currency exchange rates as fixed by the Central Bank.
SEC. 225. Depreciation Allowance for Machinery. - For purposes of assessment, a depreciation allowance shall be
made for machinery at a rate not exceeding five percent (5%) of its original cost or its replacement or reproduction
cost, as the case may be, for each year of use: Provided, however, That the remaining value for all kinds of
machinery shall be fixed at not less than twenty percent (20%) of such original, replacement, or reproduction cost
for so long as the machinery is useful and in operation.
For FMV of brand-new machinery, the basis will be acquisition cost.
In all other cases, the basis will be the book value, depreciation having been taken into
account.
If the machinery is imported, the acquisition cost will include all the charges necessary
to brining the thing into the Philippines.
Specific to machinery, only a 5% depreciation rate can be used.
However, as long as the machinery is useful and in operation, the value will not be
less than 20% of its original value. It can never be zero.

On classification for assessment purposes on the basis of its actual use

(c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue entirely to the
general fund of the city or municipality concerned. However, proceeds of the community tax collected through the Barangay treasurers shall be
apportioned as follows:
(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and
(2) Fifty percent (50%) shall accrue to the Barangay where the tax is collected.
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SEC. 217. Actual Use of Real Property as Basis for Assessment. - Real property shall be classified, valued and
assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.
Actual use is the basis, regardless of who owns the property
This is for assessment purposes only. Do not confuse this on the rule in Mactan Cebu v
Marcos which is for exemption purposes.
Unpaid real estate taxes attaches to the property and is chargeable against the taxable
person who had actual or beneficial use and possession of it, regardless of whether or
not he is the owner. (Testate Estate of Lim v Manila)
Hence, an estate shouldnt pay for real estate taxes for periods when it didnt have
beneficial use of the property. It would not only be contrary to law but also
unjust.
The contractual assumption to pay real property tax, by itself, is not sufficient to
make one legally compellable by the government to pay the taxes due; the
person liable must also have use and possession of the property.

On assessment on the basis of a uniform classification within each local government unit
SEC. 232. Power to Levy Real Property Tax. - A province or city or a municipality within the Metropolitan Manila
Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other
improvement not hereinafter specifically exempted.
SEC. 233. Rates of Levy. - A province or city or a municipality within the Metropolitan Manila Area shall fix a
uniform rate of basic real property tax applicable to their respective localities as follows: (a) In the case of a
province, at the rate not exceeding one percent (1%) of the assessed value of real property; and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.
The following may levy the real property tax:
1. A province
2. A city
3. Municipality within the Metropolitan Manila area
Municipalities outside Metro Manila cannot levy real property taxes.

Real Property, what is it?


For taxation purposes, real property consists of the following:
1. The list of immovables in Article 415 Civil Code, and
2. The definition of machinery under Section 199 (0) and the DOF Circular
Sec. 199 (o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or
apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes the
physical facilities for production, the installations and appurtenant service facilities, those which are mobile, self-
powered or self-propelled, and those not permanently attached to the real property which are actually, directly,
and exclusively used to meet the needs of the particular industry, business or activity and which by their very
nature and purpose are designed for, or necessary to its manufacturing, mining, logging, commercial, industrial or
agricultural purposes;

DOF Circular: Summary of the rules on Machinery

1. Machinery that is permanently attached to land and buildings is subject to the real property tax, even though
this is actually, directly and exclusively used for religious, charitable or educational purposes.

2. Machinery that is not permanently attached

a. Subject to the real property tax if it is an essential and principal element of an industry, work or activity without
which such industry, work or activity cannot function; and

b. Not subject to the real property tax if it is not an essential and principal element of an industry, work or activity.

3. Notwithstanding rules 1 and 2, machinery of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes is not subject to real property tax.
Hence, if property is not within the Civil Code, but under Section 199 (O), they are still
subject to real property tax.
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o Under the civil code, a ceiling-type aircon is real property (Atty. Salvador)
Under Section 199 (O), machinery which are actually, directly and exclusively used to
meet the needs of the particular industry, business or activity of an enterprise, then they
are liable for real property tax.
o So the following are considered real property:
Taxis of a taxi company
Sewing machines of a sewing company
Utensils of a hotel
Seats and sofas in the lobby of a hotel
Hence, if the machinery is only used in a general purpose, i.e. not directly, actually and
exclusively for the needs of the business, it is NOT real property
o So the following are NOT considered real property:
Computers in the admin office of a hotel
The window-type aircon of a school
The cash registers of a mom & pop soda shop
Machinery which are not immobilized by destination and only incidental to the business
are not subject to real property tax. (Mindanao Bus Co v City Assessor in this case,
since they are not immobilized, they are not real property under the Civil Code, and
since they are not actually, directly and exclusively in the business, they are not
machinery under Section 199 (O))
Gasoline station equipment and machineries are permanent fixtures for purposes of
realty taxation, even if these are on leased land. (Caltex v CBAA)
These are the underground tanks, elevated water tanks, gasoline pumps, computing
pump, water pumps, car washers, etc. They are necessary to the operation of the
gas station, for without them the gas station would be useless.
The Pipeline System of Meralco, which consists of pipes embedded in the soil and welded
together and run from Batangas to Manila, is classified as real property and subject to
tax since they are machinery or improvements. (Meralco v CBAA)
The steel towers constructed by Meralco are not subject to real estate tax, as they do
not constitute buildings or constructions adhered to the soil. They are removable and
merely attached to a square metal frame by means of bolts, which when unscrewed
could easily be dismantled and moved from place to place. (BAA v Meralco using the
Civil Code definition)

Computing for the tax


After determining if the property is subject to real property tax or not, you now have to
know how much to pay. So
1. Get the assessed value by multiplying the fair market value x assessment level (refer to
Sec 218).
2. Then multiply the assessed value by the real property tax rate (Sec 233 below).

SEC. 218. Assessment Levels. - The assessment levels to be applied to the fair market value of real property to
determine its assessed value shall be fixed by ordinances of the sangguniang panlalawigan, sangguniang
panlungsod or sangguniang bayan of a municipality within the Metropolitan Manila Area, at the rates not exceeding
the following:
(a) On Lands:
CLASS ASSESSMENT LEVELS
Residential 20%
Agricultural 40%
Commercial 50%
Industrial 50%
Mineral 50%
Timberland 20%

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(b) On Buildings and Other Structures:
(1)Residential
xxx (see codal)
(2) Agricultural
xxx
(3) Commercial / Industrial
xxx
(4)Timber land
xxx
(c) On Machineries
Class Assessment Levels
Agricultural 40%
Residential 50%
Commercial 80%
Industrial 80%
(d) On Special Classes: The assessment levels for all lands, buildings, machineries and other improvements;
Actual Use Assessment Level
Cultural 15%
Scientific 15%
Hospital 15%
local water districts 10%

Government-owned or
controlled corporations
engaged in the supply and
distribution of water and/or
generation and transmission of
electric power 10%

SEC. 219. General Revision of assessments and Property Classification. - The provincial, city or municipal assessor
shall undertake a general revision of real property assessments within two (2) years after the effectivity of this
Code and every three (3) years thereafter.
SEC. 221. Date of Effectivity of Assessment or Reassessment. - All assessments or reassessments made after the
first (1st) day of January of any year shall take effect on the first (1st) day of January of the succeeding year:
Provided, however, That the reassessment of real property due to its partial or total destruction, or to a major
change in its actual use, or to any great and sudden inflation or deflation of real property values, or to the gross
illegality of the assessment when made or to any other abnormal cause, shall be made within ninety (90) days
from the date any such cause or causes occurred, and shall take effect at the beginning of the quarter next
following the reassessment.
The LGUs assessor shall undertake a general revision of real property assessments
within 2 years after effectivity of the LGC and every 3 years thereafter.
Assessments made after the first day of January of any year shall take effect on the first
day of January of the next year.
Assessors must comply with the requirements provided by law for a valid valuation of
real property. Assessors of LGUs, cannot singly and without consultation with the other
assessors of Metro Manila (because of some PD), make a valuation of real properties in
Metro Manila. (Mathay v Macalincag)

SEC. 233. Rates of Levy. - A province or city or a municipality within the Metropolitan Manila Area shall fix a
uniform rate of basic real property tax applicable to their respective localities as follows:
(a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real property;
and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two
percent (2%) of the assessed value of real property.

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A province can impose a real property tax rate not exceeding 1% of the assessed value
of the property
A city or a municipality within the Metro Manila area, not exceeding 2% of the assessed
value of the property

SEC. 235. Additional Levy on Real Property for the Special Education Fund. - A province or city, or a municipality
within the Metropolitan Manila Area, may levy and collect an annual tax of one percent (1%) on the assessed value
of real property which shall be in addition to the basic real property tax. The proceeds thereof shall exclusively
accrue to the Special Education Fund (SEF).
On top of the real property tax rate, the province, city or Metro Manila municipality, may
levy an annual tax of 1% of the assessed value for the Special Education Fund (SEF).

Tax on idle lands


SEC. 237. Idle Lands, Coverage. - For purposes of real property taxation, idle lands shall include the following:
(a) "Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery, and
other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by the owner of the property or
person having legal interest therein." Agricultural lands planted to permanent or perennial crops with at least fifty
(50) trees to a hectare shall not be considered idle lands. Lands actually used for grazing purposes shall likewise
not be considered idle lands.
(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000) square
meters in area one-half (1/2) of which remain unutilized or unimproved by the owner of the property or person
having legal interest therein. Regardless of land area, this Section shall likewise apply to residential lots in
subdivisions duly approved by proper authorities, the ownership of which has been transferred to individual
owners, who shall be liable for the additional tax: Provided, however, That individual lots of such subdivisions, the
ownership of which has not been transferred to the buyer shall be considered as part of the subdivision, and shall
be subject to the additional tax payable by subdivision owner or operator.
Idle lands are:
If agricultural more than 1 hectare in area and suitable for whatever (see codal)
and of which is uncultivated or unimproved (so get them cows grazin!)
Other than agricultural more than 1000 square meters, and of which is
uncultivated or unimproved

SEC. 236. Additional Ad Valorem Tax on Idle Lands. - A province or city, or a municipality within the Metropolitan
Manila Area, may levy an annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed
value of the property which shall be in addition to the basic real property tax.
Idle lands are taxed of a rate not exceeding 5%, in addition to the basic real property
tax.
So, the SEF and the tax on idle lands may be imposed in addition to basic real
property tax.

SEC. 238. Idle Lands Exempt from Tax. - A province or city or a municipality within the Metropolitan Manila Area
may exempt idle lands from the additional levy by reason of force majeure, civil disturbance, natural calamity or
any cause or circumstance which physically or legally prevents the owner of the property or person having legal
interest therein from improving, utilizing or cultivating the same.
However, for reasons above, idle lands may be exempted from tax.

Special levy
SECTION 240. Special Levy by Local Government Units. - A province, city or municipality may a special levy
on the lands comprised within its territorial jurisdiction specially benefited by public works projects or
improvements funded by the local government unit concerned: Provided, however, That the special levy shall not
exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring
land and such other real property in connection therewith: Provided, further, That the special levy shall not apply
to lands exempt from basic real property tax and the remainder of the land portions of which have been donated to
the local government unit concerned for the construction of such projects or improvements.
SECTION 241. Ordinance Imposing a Special Levy. - A tax ordinance imposing a special levy shall describe
with reasonable accuracy the nature, extent, and location of the public works projects or improvements to be
undertaken, state the estimated cost thereof, specify the metes and bounds by monuments and lines and the
number of annual installments for the payment of the special levy which in no case shall be less than five (5) nor

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more than ten (10) years. The Sanggunian concerned shall not be obliged, in the apportionment and computation
of the special levy, to establish a uniform percentage of all lands subject to the payment of the tax for the entire
district, but it may fix different rates for different parts or sections thereof, depending on whether such land is
more or less benefited by the proposed work.
SECTION 242. Publication of Proposed Ordinance Imposing a Special Levy. - Before the of an imposing a
special levy, the Sanggunian concerned shall conduct a public hearing thereon; notify in writing the owners of the
real property to be affected or the persons having legal interest therein as to the date and place thereof and afford
the latter the opportunity to express their positions or objections relative to the proposed ordinance.
SECTION 243. Fixing the Amount of Special Levy. - The special levy authorized herein shall be apportioned,
computed, and assessed according to the assessed valuation of the lands affected as shown by the books of the
assessor concerned, or its current assessed value as fixed by said assessor if the property does not appear of
record in his books. Upon the effectivity of the ordinance imposing special levy, the assessor concerned shall
forthwith proceed to determine the annual amount of special levy assessed against each parcel of land comprised
within the area especially benefited and shall send to each landowner a written notice thereof by mail, personal
service or publication in appropriate cases.
109SECTION 244. Taxpayers' Remedies Against Special Levy. - Any owner of real property affected a special
levy or any person having a legal interest therein may, upon receipt of the written notice of assessment of the
special levy, avail of the remedies provided for in Chapter 3, Title Two, Book II of this Code.
SECTION 245. Accrual of Special Levy. -The special levy shall accrue on the first day of the next following the
effectivity of the ordinance imposing such levy.
Special levy by province, city, or municipality: should NOT exceed 60%
Note the rules on the ordinance:
o Public hearing
o Notification
o Opportunity for owner of subject land to object

Exemption from Real Property Tax (the most important provision!)


SEC. 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious,
charitable or educational purposes;
(c) All machineries 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/or generation
and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations
are hereby withdrawn upon the effectivity of this Code.
Upon enactment of the LGC, any exemption from real property tax given to all persons,
whether natural or juridical, including all GOCCs, were withdrawn.
However, the Congress has the power to grants exemptions over the power of
local government units to impose taxes. (Quezon City v Bayantel (2006), wherein
the reenactment of a franchise law after the LGC in favor of Bayantel was said to
revive its exemption, but see Digital Telecom v Batangas (2008), which revolved
around the same provision of a franchise, but the Court ruled that the said
provision was too vague to merit an exemption. Sir said that the Digital Telecom
wasnt logical.)
The list is an exclusive one and local government units can not add on to the
exemptions.
The following properties are exempt from real property tax:
1. Real property owned by the Government or any of its political subdivision
EXCEPT when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.

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o This exception to the exemption is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by
local governments. (MIAA v CA)
o Hence, an installment purchaser, who agrees in a contract with the government
to shoulder all taxes due on a land, is liable to pay realty taxes from the time
possession was transferred to him by the government. (City of Baguio v
Busuego)
o Also, lessees of mineral land (which form part of the public domain), who likewise
agree to shoulder all taxes due on a land, are also liable for real property tax.
The basis of which is actual use. (Province of Nueva Ecija v Imperial Mining)
Because of Section 133 (O) related with this section, the Court has construed
political subdivision to mean government instrumentalities vested with corporate
powers or government corporate entities. (MIAA v CA) The following are examples of
GCEs:
o BSP, Philippine Rice Research Institute, Laguna Lake Development Authority
(LLDA), Fisheries Development Authority, Bases Conversion Development
Authority (BCDA), Philippine Ports Authority, Philippine National Railways, UP,
Manila International Airport Authority
o An instrumentality usually has capital stock but is not divided into shares of
stocks. It doesnt have stockholders or voting shares. Nor is it a non-stock
corporation because it doesnt have members. (PFDA v CA)
Hence, GOCCs are liable for real property tax. The Mactan Cebu International Airport
Authority was ruled liable for real property tax. It was a GOCC. (MCIAA v Marcos)
2. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,
non-profit or religious cemeteries and all lands, buildings, and improvements, actually,
directly and exclusively used for religious, charitable or educational purposes.
Keep in mind that because of the Local Finance Circular stated that improvements do
not include machinery. Hence, the rules:
Machinery that is permanently attached to land and buildings is subject to the
real property tax, even though this is actually, directly and exclusively used for
religious, charitable or educational purposes.
o Improvements, however, are exempt.
But for non-stock, non-profit educational institutions, machinery used actually,
directly, and exclusively for educational purposes is not subject to real property
tax.
o The fine distinction was lifted from the Constitutional provisions. For non-
stock, non-profit educational institutions, the exemption covered assets,
while for property actually, directly and exclusively used for religious,
charitable, or educational purposes, the exemption covered
improvements.
The exemption in favor of property used exclusively for charitable or educational
purposes is not limited to property actually indispensable therefore but extends to
facilities which are incidental to and reasonably necessary for the accomplishment of
said purposes. (City Assessor of Cebu v Association of Benevola de Cebu)
o Hence, for hospitals, a school for training nurses, a nurses home, property use to
provide housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses,
interns and residents such as athletic fields are exempt from real property
taxation.
o A hospitals charge of rentals for the offices and clinics its accredited physicians
occupy cannot be equated to a commercial venture, which is mainly for profit.

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o The Cebu case was not actually an exemption case, its issue actually involved the
assessment level of the medical arts center of the hospital whether it was to be
assessed as a commercial building or as special property. The Court used the
principles of tax exemption in classifying the medical arts center of the hospital
as special property, and thus under a lower assessment level.
3. All machineries and equipment that are actually, directly and exclusively used by local
water districts and GOCCs engaged in the supply and distribution of water and/or
generation and transmission of electric power
Take note that only the machineries and equipment are exempt from the real
property tax, not the lands or buildings.
Two elements must comply:
o First, the machineries and equipment are actually, directly, and exclusively used
by local water districts and GOCCs, and
o Second, the local water districts and GOCCs must be engaged in the supply and
distribution of water and/or the generation and transmission of electric power.
Hence, if a GOCC loans its equipment to a taxable entity and that taxable
entity is the one that uses the equipment, it will become taxable, as it is no
longer exclusively used by the GOCC. (NPC v Province of Quezon)
What if a GOCC, which supplies electric power, enters into an agreement with a
taxable entity for the lease of the formers equipment - and the agreement states
that the GOCC will be the one to assume the real property tax, will the exemption
extend to the taxable entity?
o No. In FELS v Batangas, stated that the undertaking of NPC (a GOCC) that it shall
be responsible for the payment of all real estate taxes does not justify the
exemption. The privilege granted to NPC cannot be extended to the lessee FELS.
The agreement is between the two and does not bind a 3rd person not privy
thereto, which in that case, was the Province of Batangas.
In short, the tax assumption clause is binding only between the two parties,
and not to the government or LGU.
This was reiterated in NPC v Province of Quezon.
4. All real property owned by duly registered cooperatives
5. Machinery and equipment used for pollution control and environmental protection
Again, only the machinery and equipment are exempt.

The case of Mactan Cebu International Airport Authority v Marcos gives another
perspective on this provision. It states that the exemptions are based on ownership,
character and use of property.
Ownership real properties owned by the Republic, LGUs and registered
cooperatives are exempt from real property tax.
Character real properties of charitable institutions, houses and temples of prayer,
and non-profit or religious cemeteries are exempt from real property tax.
Usage this covers (i) lands, buildings, etc used actually, directly and exclusively for
religious, charitable, or educational purposes, and (ii) machineries and equipment
actually used, directly and exclusively by local water districts and GOCCs
engaged in the supply of electricity, blah blah, and (iii) machinery and
equipment for pollution control and environmental protection.

Tax remedies for the taxpayer


When dealing with remedies, whether for local business taxes or real property taxes, always
identify the course of action, this will determine the procedure, specifically:
To whom do I protest or appeal?
What periods?
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The taxpayer has the following remedies in real property taxation (Lopez v City of
Manila):
1. Protest against a newly enacted ordinance or revenue measure
2. Remedy against an assessment
3. Payment under protest and tax refund or credit

Protest against a newly enacted ordinance or revenue measure


SEC. 187. Procedure for Approval and Effectivity of Tax ordinances and Revenue Measures; Mandatory Public
Hearings. - The procedure for approval of local tax ordinances and revenue measures 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 be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (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 ordinance and the accrual
and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of
the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the
aggrieved party may file appropriate proceedings with a court of competent jurisdiction.
This is the same as in local taxation.

Remedy against an Assessment


SEC. 226. Local Board of Assessment Appeals. - Any owner or person having legal interest in the property who is
not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may,
within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of
Assessment appeals of the province or city by filing a petition under oath in the form prescribed for the purpose,
together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

SEC. 229. Action by the Local Board of Assessment appeals. - (a) The Board shall decide the appeal within one
hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its
decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept as
adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses, administer
oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without necessarily
adhering to technical rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city assessor
concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the person
having legal interest therein of such fact using the form prescribed for the purpose. The owner of the property or
the person having legal interest therein or the assessor who is not satisfied with the decision of the Board, may,
within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of Assessment
appeals, as herein provided. The decision of the Central Board shall be final and executory.
You resort to this if you want to question an act of the assessor.
If a taxpayer having legal interest in the property is not satisfied with the action of the
assessor in the assessment of the property, he must appeal to the Local Board of
Assessment Appeals within 60 days from date of receipt of the written notice of
assessment.
The LBAA has 120 days from receipt of the appeal to decide. (Sec 229)
If still unsatisfied, appeal to the CBAA within 30 days after receipt of the decision
of the LBAA.
If still unsatisfied, appeal to the CTA en banc within 30 days.
o Why en banc? Remember that decisions of the CBAA and the RTC in the
exercise of its appellate jurisdiction are appealable to the CTA via Rule 43.
A taxpayers failure to question the assessment before the Local Board of Assessment
Appeals renders the assessment of the local assessor final, executory and demandable.
(NPC v Province of Quezon)
The taxpayer protesting must have legal interest.

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Hence, in a contract wherein the NPC assumes the tax liabilities of Mirant, and
Mirant operates and uses the property in question, the NPC does not have legal
interest to protest the tax imposed by law on Mirant.
Appeals on assessment shall in no case suspend the collection of real property taxes.
(Sec 231)

Payment Under Protest


SEC. 252. Payment Under Protest. - (a) No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words "paid under protest". The protest in writing must be filed
within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case
of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.
(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in subparagraph
(a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of this Code.
You resort to this when the taxpayer questions the excessiveness of the amount of tax.
(Lopez v City of Manila).
This covers a specific imposition on the taxpayer.
The procedure is as follows:
1. Pay first and cause the annotation paid under protest
a. You usually just file a bond in practice since its cheaper than paying the entire
tax.
2. Protest in writing within 30 days from payment with the local treasurer
3. The treasurer has 60 days to resolve it
4. In case of denial or lapse of 60 days, follow the procedure in questioning an
assessment, i.e:
a. Appeal to the LBAA within 60 days
b. Then appeal to the CBAA within 30 days.
c. Wala pa rin? Appeal to the CTA en banc within 30 days.
Again, comparing this with local business taxation, there, no payment under protest is
needed (but you still should because the Mayor will shut you down, mofo.)
o Codal here says that there is no 30 day period from the lapse of the 60-day
period of inaction. I dont know why. There is a 30-day period though in local
business tax cases.

Refunds
SEC. 253. Repayment of Excessive Collections. - When an assessment of basic real property tax, or any other tax
levied under this Title, is found to be illegal or erroneous and the tax is accordingly reduced or adjusted, the
taxpayer may file a written claim for refund or credit for taxes and interests with the provincial or city treasurer
within two (2) years from the date the taxpayer is entitled to such reduction or adjustment. The provincial or city
treasurer shall decide the claim for tax refund or credit within sixty (60) days from receipt thereof. In case the
claim for tax refund or credit is denied, the taxpayer may avail of the remedies as provided in Chapter 3, Title II,
Book II of this Code.
Like local business taxes, refunds must be claimed within 2 years from the date the
taxpayer is entitled, i.e. the supervening clause doctrine applies.

Prescriptive Period
SEC. 270. Periods Within Which To Collect Real Property Taxes. - The basic real property tax and any other tax
levied under this Title shall be collected within five (5) years from the date they become due. No action for the
collection of the tax, whether administrative or judicial, shall be instituted after the expiration of such period. In
case of fraud or intent to evade payment of the tax, such action may be instituted for the collection of the same
within ten (10) years from the discovery of such fraud or intent to evade payment. The period of prescription
within which to collect shall be suspended for the time during which:
(1) The local treasurer is legally prevented from collecting the tax;
(2) The owner of the property or the person having legal interest therein requests for reinvestigation and executes
a waiver in writing before the expiration of the period within which to collect; and
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(3) The owner of the property or the person having legal interest therein is out of the country or otherwise cannot
be located.
The period to collect by the government is 5 years from the date the real property taxes
are due.
But if theres fraud or intent to evade payment of the tax, the period is 10 years.
Similar to local business taxes, the period to collect is suspended when:
1. The local treasurer is legally prevented from collecting the tax
2. The owner of the property or the person having legal interest requests for
reinvestigation and executes a waiver in writing
3. The owner cannot be located or is out of the country.

Remedies of the Local Governments


Similar to those of local business taxation

Discussion on the tax assumption clauses of contracts between GOCCs like the NPC and
private taxable entities (just a summary of the FELS case and the NPC v Province of
Quezon)
In those two cases, the NPC entered into an agreement (lease of power barges and a
BOT agreement, respectively) with private taxable entities (like FELS and Mirant,
respectively). In both agreements, the NPC assumed all taxes which the private entities
might incur. What are the legal implications of these tax assumption clauses?
1. The private entity is the one liable for the tax because real property tax is chargeable
against the taxable person who has actual and beneficial use and possession of the
property.
In FELS, FELS was still the owner and still operated the power barges.
In Mirant, Mirant was still the owner of the plant and machinery and operated it as
well. The transfer of ownership to NPC to occur only after 25 years.
2. The exemption granted to NPC by Section 234 (C) will not extend to the private entities,
because of the strict interpretation against tax exemption.
3. The agreement is binding only between NPC and the private entities, and is not binding
on the government.
4. NPC does not have legal standing to protest the assessment, at least with respect to
NPC v Province of Quezon because NPC did not own the machines of the BOT
agreement. Moreover, the court said that they do not believe that the phrase person
having legal interest in the property in Sec 226 can include an entity that assumes
another persons tax liability by contract.
This point was not touched upon in the FELS case.

Customs and Tariffs Code


Notes here are based on the lecture of sir, and the stuff which were underlined in the codal
that he gave us. If you want to read the full texts of the codals, check the codal.

Meaning of importation
Section 1201. Articles to Be Imported Only Through Customhouse. All articles imported into the Philippines,
whether subject to duty or not, shall be entered through a customhouse at a port of entry.

Sec. 1202. When Importation Begins and Deemed Terminated. Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with intention to unlade therein. Importation is deemed terminated
upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid, at a port of
entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes
and other charges, until they have legally left the jurisdiction of the customs.
Importation begins upon entry into the jurisdiction of the Philippines.
It is terminated upon payment of the duties, taxes and other charges.

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The importance of knowing what importation is lies in the doctrine of primary
jurisdiction.
From the time importation begins until its termination, the Bureau of Customs
has exclusive jurisdiction, to the exclusion of everyone else.

Classes of importation
There are three classes of importation:
1. Dutiable (Sec 100)
2. Prohibited (Sec 101, 1207)
3. Conditionally Free (Sec 105)

Dutiable
Section 100. Imported Articles Subject to Duty
All articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each
importation, even though previously exported from the Philippines, except as otherwise specifically provided for in
this Code in other laws.
General rule: All imported articles are dutiable.
This includes articles which have been previously exported from the Philippines.
Exception: if otherwise exempted by the Code or in other laws

Prohibited
Section 101. Prohibited Importations:
The importation into the Philippines of the following articles is prohibited:
(a) Dynamite, gunpowder, ammunitions and other explosives, firearms and weapons of war, and parts thereof,
except when authorized by law.
(b) Written or printed articles in any form containing any matter advocating or inciting treason, or rebellion, or
insurrection, sedition or subversion against the Government of the Philippines, or forcible resistance to any law of
the Philippines, or containing any threat to take the life of, or inflict bodily harm upon any person in the Philippines.
(c) Written or printed articles, negatives or cinematographic film, photographs, engravings, lithographs, objects,
paintings, drawings or other representation of an obscene or immoral character.
(d) Articles, instruments, drugs and substances designed, intended or adapted for producing unlawful abortion, or
any printed matter which advertises or describes or gives directly or indirectly information where, how, or by whom
unlawful abortion is produced.
(e) Roulette wheels, gambling outfits, loaded dice, marked cards, machines, apparatus or mechanical devices used
in gambling or the distribution of money, cigars, cigarettes or other articles when such distribution is dependent on
chance, including jackpot and pinball machines or similar contrivances, or parts thereof.
(f) Lottery and sweepstakes tickets except those authorized by the Philippine Government, advertisements thereof,
and lists of drawings therein.
(g) Any article manufactured in whole or in part of gold, silver or other precious metals or alloys thereof, the
stamps, brands or marks or which do not indicate the actual fineness of quality of said metals or alloys.
(h) Any adulterated or misbranded articles of food or any adulterated or misbranded drug in violation of the
provisions of the "Food and Drugs Act".
(i) Marijuana, opium, pipes, coca leaves, heroin or any other narcotics or synthetic drugs which are or may
hereafter be declared habit forming by the President of the Philippines, or any compound, manufactured salt,
derivative, or preparation thereof, except when imported by the Government of the Philippines or any person duly
authorized by the Dangerous Drugs Board, for medicinal purposes only.
(j) Opium pipes and parts thereof, of whatever material.
(k) All other articles and parts thereof, the importation of which prohibited by law or rules and regulations issued
by competent authority. (As amended by Presidential Decree No. 34)

Sec. 1207. Jurisdiction of Collector Over Articles of Prohibited Importation. Where articles are of prohibited
importation or subject to importation only upon conditions prescribed by law, it shall be the duty of the Collector to
exercise such jurisdiction in respect thereto as will prevent importation or otherwise secure compliance with all
legal requirements.
The prohibited importations are usually those contrary to laws, public morals, public
policy, etc

Conditionally-Free Importations
Codal only the stuff that were underlined
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Sec. 105. Conditionally-Free Importations. The following articles shall be exempt from the payment of import
duties upon compliance with the formalities prescribed in, or with, the regulations which shall be promulgated by
the Commissioner of Customs with the approval of the Secretary of Finance; Provided, That any article sold,
bartered, hired or used for purposes other than that they were intended for without prior payment of the duty, tax
or other charges which would have been due and payable at the time of entry if the article had been entered
without the benefit of this section, shall be subject to forfeiture and the importation shall constitute a fraudulent
practice against customs revenue punishable under Section Thirty-six hundred and two, as amended of this Code:
Provided, further, That a sale pursuant to a judicial order or in liquidation of the estate of a deceased person shall
be subject to the preceding proviso, without prejudice to the payment of duties, taxes and other charges: Provided,
finally, That the President may upon recommendation of the Secretary of Finance, suspend, disallow or completely
withdraw, in whole or in part, any of the conditionally-free importation under this section:
Conditionally-free importations are exempt from payment of import duties provided they
comply with formalities and regulations promulgated by the Commish of Customs (with
approval of the Secretary of Finance. (kaya conditional!)
If the article imported for free was used, sold, bartered or hired for purposes
other than that which they were intended for without prior payment of the duty,
tax, or other charges which would have been due and payable at time of entry,
then the article will be forfeited for the Government, and the importation shall
constitute a fraudulent practice against customs revenue.
The President may suspend, disallow or completely withdraw, in whole or in part, any of
the conditionally-free imporation.

d. Articles brought into the Philippines for repair, processing or reconditioning to be re-exported upon completion of
the repair, processing or reconditioning: Provided, That the Collector of Customs shall require the giving of a bond
in an amount equal to one and one-half times the ascertained duties, taxes and other charges thereon, conditioned
for the exportation thereof or payment of the corresponding duties, taxes and other charges within six (6) months
from the date of acceptance of the import entry;

f. Personal and household effects belonging to residents of the Philippines returning from abroad including jewelry,
precious stones and other articles of luxury which were formally declared and listed before departure and identified
under oath before the Collector of Customs when exported from the Philippines by such returning residents upon
their departure therefrom and during their stay abroad; personal and household effects including wearing apparel,
articles of personal adornment (except luxury items), toilet articles, portable appliances and instruments and
similar personal effects, excluding vehicles, watercrafts, aircrafts, and animals purchased in foreign countries by
residents of the Philippines which were necessary, appropriate and normally used for the comfort and convenience
in their journey and during their stay abroad upon proof satisfactory to the Collector of Customs that same have
been in their use abroad for more than six (6) months and accompanying them on their return, or arriving within a
reasonable time which, barring unforeseen circumstances, in no case shall exceed ninety (90) days before or after
the owners' return: Provided, That the personal and household effects shall neither be in commercial quantities nor
intended for barter, sale or hire and that the total dutiable value of which shall not exceed two thousand pesos
(P2,000.00): Provided further, That the returning residents have not previously received the benefit under this
section within one year from and after the last exemption granted: Provided furthermore, That a fifty (50) per cent
ad valorem duty across the board shall be levied and collected on the personal and household effects (except
luxury items) in excess of two thousand pesos (P2,000.00): And provided, finally, That the personal and household
effects (except luxury items) of a returning resident who has not stayed abroad for six (6) months shall be subject
to fifty (50)per cent ad valorem duty across the board, the total dutiable value of which does not exceed two
thousand pesos (P2,000.00); any excess shall be subject to the corresponding duty provided in this Code;
Personal and household effects are duty free to the extent of P2000.
If it excees P2000, a lower duty is imposed.
g-1. Personal and household effects and vehicles belonging to foreign consultants and experts hired by, and/or
rendering service to, the government, and their staff or personnel and families, accompanying them or arriving
within a reasonable time before or after their arrival in the Philippines, in quantities and of the kind necessary and
suitable to the profession, rank or position of the person importing them, for their own use and not for barter, sale
or hire provided that, the Collector of Customs may in his discretion require either a written commitment or a bond
in an amount equal to one and one-half times the ascertained duties, taxes and other charges upon the articles
classified under this subsection; conditioned for the exportation thereof or payment of the corresponding duties,
taxes and other charges within six (6) months after the expiration of their term or contract; And Provided, finally,
That the Collector of Customs may extend the time for exportation or payment of duties, taxes and other charges

for term not exceeding six (6) months from the expiration of the original period;

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l. Imported articles donated to, or for the account of, any duly registered relief organization, not operated for
profit, for free distribution among the needy, upon certification by the Department of Social Services and
Development or the Department of Education, Culture and Sports, as the case may be;
This is the section which prevented most of the Ondoy relief goods from getting to the
needy folk.
FPGMA however relaxed the rules using an executive order, under the Flexible
Tariffs Clause.
q. Samples of the kind, in such quantity and of such dimension or construction as to render them unsalable or of
no appreciable commercial value; models not adapted for practical use; and samples of medicines, properly
marked "sample-sale punishable by law," for the purpose of introducing a new article in the Philippine market and
imported only once in a quantity sufficient for such purpose by a person duly registered and identified to be
engaged in that trade: Provided, That importations under this subsection shall be previously authorized by the
Secretary of Finance: Provided, however, That importation of sample medicine shall be previously authorized by
the Secretary of Health that such samples are new medicines not available in the Philippines: Provided, finally, That
samples not previously authorized and/or properly marked in accordance with this section shall be levied the
corresponding tariff duty.
Commercial samples, except those that are not readily and easily identifiable (e.g., precious and semi-precious
stones, cut or uncut, and jewelry set with precious stones), the value of any single importation of which does not
exceed ten thousand pesos (P10,000.00) upon the giving of a bond in an amount equal to twice the ascertained
duties, taxes and other charges thereon, conditioned for the exportation of said samples within six (6) months from
the date of the acceptance of the import entry or in default thereof, the payment of the corresponding duties, taxes
and other charges. If the value of any single consignment of such commercial samples exceeds ten thousand pesos
(P10,000.00),the importer thereof may select any portion of same not exceeding in value of ten thousand pesos
(P10,000.00) for entry under the provision of this subsection, and the excess of the consignment may be entered
in bond, or for consumption, as the importer may elect;
Take note that the sample medicines brought in the Philippines must not be sold or
available commercially in the Philippines.
s. Economic, technical, vocational, scientific, philosophical, historical, and cultural books and/or publications:
Provided, That those which may have already been imported but pending release by the Bureau of Customs at the
effectivity of this Decree may still enjoy the privilege herein provided upon certification by the Department of
Education, Culture and Sports that such imported books and/or publications are for economic, technical, vocational,
scientific, philosophical, historical or cultural purposes or that the same are educational, scientific or cultural
materials covered by the International Agreement on Importation of Educational Scientific and Cultural Materials

signed by the President of the Philippines on August 2, 1952, or other agreements binding upon the Philippines.
Educational, scientific and cultural materials covered by international agreements or commitments binding upon
the Philippine Government so certified by the Department of Education, Culture and Sports.
Bibles, missals, prayer books, Koran, Ahadith and other religious books of similar nature and extracts therefrom,
hymnal and hymns for religious uses;
The books must be: economic, technical, vocational, scientific, philosophical, historical or
cultural.

t. Philippine articles previously exported from the Philippines and returned without having been advanced in value
or improved in condition by any process of manufacture or other means, and upon which no drawback or bounty
has been allowed, including instruments and implements, tools of trade, machinery and equipment, used abroad by
Filipino citizens in the pursuit of their business, occupation or profession; and foreign articles previously imported
when returned after having been exported and loaned for use temporarily abroad solely for exhibition, testing and
experimentation, for scientific or educational purposes; and foreign containers previously imported which have
been used in packing exported Philippine articles and returned empty if imported by or for the account of the
person or institution who exported them from the Philippines and not for sale, barter or hire subject to
identification: Provided, That any Philippine article falling under this subsection upon which drawback or bounty has
been allowed shall, upon re-importation thereof, be subject to a duty under this subsection equal to the amount of
such drawback or bounty.
Articles which were previously exported and returned without having been advanced in
value or improved are exempt, provided they comply with the conditions set by the
Code.
The provisions of Sec. 105 of Presidential Decree No. 34, dated October 27, 1972, to the contrary notwithstanding
any officer or employee of the Department of Foreign Affairs, including any attache, civil or military, or member of

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his staff assigned to a Philippine diplomatic mission abroad by his Department or any similar officer or employee
assigned to a Philippine consular office abroad, or any personnel of the Reparations Mission in Tokyo or AFP
military personnel detailed with SEATO or any AFP military personnel accorded assimilated diplomatic rank on duty
abroad who is returning from a regular assignment abroad, for reassignment to his Home office, or who dies,
resigns, or is retired from the service, after the approval of this Decree, shall be exempt from the payment of all
duties and taxes on his personal and household effects, including one motor car which must have been ordered or
purchased prior to the receipt by the mission or consulate of his order of recall, and which must be registered in his
name: Provided, however, That this exemption shall apply only to the value of the motor car and to aggregate
assessed value of said personal and household effects the latter not to exceed thirty per centum (30%) of the total
amount received by such officer or employee in salary and allowances during his latest assignment abroad but not
to exceed four years; And Provided, finally, That the officer or employee concerned must have served abroad for
not less than two years.
The provisions of general and special laws, including those granting franchises, to the contrary notwithstanding,
there shall be no exemptions whatsoever from the payment of customs duties except those provided for in this
Code; those granted to government agencies, instrumentalities or government-owned or controlled corporations
with existing contracts, commitments, agreements, or obligations (requiring such exemption) with foreign
countries; international institutions, associations or organizations entitled to exemption pursuant to agreements or
special laws; and those that may be granted by the President upon prior recommendation of the National Economic
and Development Authority in the interest of national economic development.
The importations of the Government and its agencies, instrumentalities and its GOCCs
which have contracts with foreign countries are exempt from duties.
However, read with Sec 1205. That section requires a certificate that the
importations were used for government purposes to enable the government to
get a refund.
Sir says that in practice, they are not really imposing this.

Drawbacks
SECTION 106. Drawbacks
1. On Fuel Used for Propulsion of Vessels. - On all fuel imported into the Philippines used for propulsion of vessels
engaged in trade with foreign countries, or in the coastwise trade, a refund or tax credit shall be allowed not
exceeding ninety -nine (99) per cent of the duty imposed by law upon such fuel, which shall be paid or credited u
rider such rules and regulations as maybe prescribed by the Commissioner of Customs with the approval of the
Secretary of Finance.
2. On Petroleum Oils and Oils Obtained from Bituminous Minerals, Crude Eventually Used for Generation of Electric
Power and for the Manufacture of City Gas. - On petroleum oils and oils obtained from bituminous materials, crude
oils imported by non -electric utilities, sold directly or indirectly, in the same form or after processing, to electric
utilities for the generation of electric power and for the manufacture of city gas, a refund or tax credit shall be
allowed notexceeding fifty per cent (50%) of the duty imposed by law upon such oils, which shall be paid or
credited under such rules and regulations as may be prescribed by the Commissioner of Customs with the approval
of the Secretary of Finance.
3. On Articles made from Imported Materials. - Upon exportation of articles manufactured or produced in the
Philippines, including the packing, covering, putting up, marking or labeling thereof either in whole or in part of
imported materials for which duties have been paid, refund or tax credit shall be allowed for the duties paid on the
imported materials so used including the packing, covering, putting up, marking or labeling thereof, subject to the
following conditions:
a. The actual use of the imported materials in the production of manufacture of the article exported with their
quantity, value, and amount of duties paid thereon, having been established;
b. The duties refunded or credited shall not exceed one hundred (100) per cat of duties paid on the imported
materials used;
c. There is no determination by the National Economic and Development Authority of the requirement for
certification on non -availability of locally -produced or manufactured competitive substitutes for the imported
materials used at the time of importation:
d. The exportation shall be made within one (1) year after the importation of materials used and claim of refund or
tax credit shall be filed within six (6) months from the date of exportation;
e. When two or more products result from the use of the same imported materials, an apportionment shall be
made on its equitable basis.
For every application of a drawback, there shall be paid to and collected by the Bureau of Customs as filing,
processing and supervision fees the sum of Five Hundred Pesos (12500.00) which amount may be increased or
decreased when the need arises by the Secretary of Finance upon the recommendation of the Commissioner of
Customs.
4. Payment of Partial Drawbacks. - The Secretary of Finance may, upon recommendation of the Commissioner of
Customs, promulgate rules and regulations allowing partial payments of drawbacks under this section.

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5. Payment of the Drawbacks. - Claims for refund or tax credit eligible for such benefits shall be paid or granted by
the Bureau of Customs to claimants within sixty (60) days after receipt of properly accomplished claims: Provided,
That a registered enterprise under Republic Act Number Fifty -one hundred and eighty -six or Republic Act
Numbered Sixty -one hundred and thirty five which has previously enjoyed tax credit based on customs duties paid
on imported raw materials and supplies, shall not be entitled to drawback under this section, with respect to the
same importation subsequently processed and re -exported: Provided, further, That if as a result of the refund or
tax credit by way of drawback of customs duties, there would necessarily result a corresponding refund or credit of
internal revenue taxes on the same importation, the Collector of Customs shall likewise certify the same to the
Commissioner of Customs who shall cause the said refund or tax credit of internal revenue taxes to be paid,
refunded or credited in favor of the importer, with advice to the Commissioner of Internal Revenue
Drawbacks are like refunds.
They are given for articles or goods which were previously imported (and duties paid)
but are exported subsequently in another form.

Rates of Duty
Sec. 104. All Tariff Sections, Chapters, headings and subheadings and the rates of import duty under Section 104
of Presidential Decree No. 34 and all subsequent amendment issues under Executives Orders and Presidential
Decrees are hereby adopted and form part of this Code.
There shall be levied, collected, and paid upon all imported articles the rates of duty indicated in the Section under
this Section except as otherwise specifically provided for in this Code: provided, that the maximum rate shall not
exceed one hundred per cent ad valorem.
The rates of duty herein provided or subsequently fixed pursuant to Section four hundred one of this Code shall be
subject to periodic investigation by the Tariff Commission and may be revised by the President upon
recommendation of the National Economic and Development Authority.
The rates of duty herein provided shall apply to all products whether imported directly or indirectly of all foreign
countries, which do not discriminate against Philippine export products. An additional 100% across-the-board duty
shall be levied on the products of any foreign country which discriminates against Philippine export products.
The maximum rate for the duties shall not exceed 100% ad valorem.

Basis of Duty
There are 6 methods of valuing the articles which are imported:
1. Transaction value/invoice value
2. Transaction value of identical goods
3. Transaction value of similar goods
4. Deductive value
5. Computed value
6. Fall back value

Transaction value
A) Method One. Transaction Value. - The dutiable value of an imported article subject to an ad valorem rate of
duty shall be the transaction value, which shall be the price actually paid or payable for the goods when sold for
export to the Philippines, adjusted by adding:
(1) The following to the extent that they are incurred by the buyer but are not included in the price actually paid or
payable for the imported goods:
(a) Commissions and brokerage fees (except buying commissions);
(b) Cost of containers;
(c) The cost of packing, whether for labour or materials;
(d) The value, apportioned as appropriate, of the following goods and services: materials, components, parts and
similar items incorporated in the imported goods; tools; dies; moulds and similar items used in the production of
imported goods; materials consumed in the production of the imported goods; and engineering, development,
artwork, design work and plans and sketches undertaken elsewhere than in the Philippines and necessary for the
production of imported goods, where such goods and services are supplied directly or indirectly by the buyer free
of charge or at a reduced cost for use in connection with the production and sale for export of the imported goods;
(e) The amount of royalties and license fees related to the goods being valued that the buyer must pay, either
directly or indirectly, as a condition of sale of the goods to the buyer;
(2) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that
accrues directly or indirectly to the seller;
(3) The cost of transport of the imported goods from the port of exportation to the port of entry in the Philippines;
(4) Loading, unloading and handling charges associated with the transport of the imported goods from the country
of exportation to the port of entry in the Philippines; and

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(5) The cost of insurance.
All additions to the price actually paid or payable shall be made only on the basis of objective and quantifiable data.
No additions shall be made to the price actually paid or payable in determining the customs value except as
provided in this Section: Provided, That Method One shall not be used in determining the dutiable value of
imported goods if:
(a) There are restrictions as to the disposition or use of the goods by the buyer other than restrictions which:
(i) Are imposed or required by law or by Philippine authorities;
(ii) Limit the geographical area in which the goods may be resold; or
(iii) Do not substantially affect the value of the goods.

(b) The sale or price is subject to some condition or consideration for which a value cannot be determined with
respect to the goods being valued;
(c) Part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or
indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions hereof; or
(d) The buyer and the seller are related to one another, and such relationship influenced the price of the goods.
Such persons shall be deemed related if:

(i) They are officers or directors of one another's businesses;


(ii) They are legally recognized partners in business;
(iii) There exists an employer-employee relationship between them;
(iv) Any person directly or indirectly owns, controls or holds five percent (5%) or more of the outstanding voting
stock or shares of both seller and buyer;
(v) One of them directly or indirectly controls the other;
(vi) Both of them are directly or indirectly controlled by a third person;
(vii) Together they directly or indirectly control a third person; or
(viii) They are members of the same family, including those related by affinity or consanguinity up to the fourth
civil degree.
Persons who are associated in business with one another in that one is the sole agent, sole distributor or sole
concessionaire, however described, of the other shall be deemed to be related for the purposes of this Act if they
fall within any of the eight (8) cases above.
Basically, the transaction value uses the price actually paid or payable for the goods
when sold for export to the Philippines.
So this includes the charges, commissions, etc that were paid to get the article
into the Philippines.
The transaction value should not be used in the following instances:
1. There are restrictions as to the disposition or use of the goods by the buyer other than
restrictions which
a. Are imposed or required by law or by Philippine authorities;
b. Limit the geographical area in which the goods may be resold; or
c. Do not substantially affect the value of the goods.
2. Sale or price is subject to some condition or consideration for whiach a value cannot be
determined with respect to the goods being valued
3. Part of the proceeds of any subsequent transfer or use will accrue directly or indirectly to
the seller
4. The buyer and seller are related parties and such has influenced the price of the goods.
The following are deemed as related parties:
a. Officers or directors of one anothers biz
b. Legally recognized partners in a biz
c. Employer-employee relationship between them
d. Any person who owns, controls or holds 5% or more of the outstanding voting stock
or shares of both seller and buyer
e. Both are directly or indirectly controlled by a 3rd person
f. Together they directly or indirectly control a third person
g. Members of the same family, including those of 4th degree by affinity or
consanguinity

Transaction Value of Identical Goods

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(B) Method Two. Transaction Value of Identical Goods. Where the dutiable value cannot be determined under
method one, the dutiable value shall be the transaction value of identical goods sold for export to the Philippines
and exported at or about the same time as the goods being valued. "Identical goods" shall mean goods which are
the same in all respects, including physical characteristics, quality and reputation. Minor differences in appearances
shall not preclude goods otherwise conforming to the definition from being regarded as identical.
Identical goods are those which are the same in all respects. There are minor differences
but these differences do not influence the price.
Example: difference in color of a machine which is used to dig holes in the ground

Transaction Value of Similar Goods


(C) Method Three. Transaction Value of Similar Goods. Where the dutiable value cannot be determined under
the preceding method, the dutiable value shall be the transaction value of similar goods sold for export to the
Philippines and exported at or about the same time as the goods being valued. "Similar goods" shall mean goods
which, although not alike in all respects, have like characteristics and like component materials which enable them
to perform the same functions and to be commercially interchangeable. The quality of the goods, their reputation
and the existence of a trademark shall be among the factors to be considered in determining whether goods are
similar.
If the dutiable value still cannot be determined through the successive application of the two immediately
preceding methods, the dutiable value shall be determined under method four or, when the dutiable value still
cannot be determined under that method, under method five, except that, at the request of the importer, the order
of application of methods four and five shall be reversed: Provided, however, That if the Commissioner of Customs
deems that he will experience real difficulties in determining the dutiable value using method five, the
Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under
method four, if it can be so determined. law library
Similar goods are those, which, although not alike in all respects, have like
characteristics and like component materials which enable them to perform the same
functions and to be commercially interchangeable.
The differences affect the price, but not too much.
The articles dont deviate too much, they still have common characteristics.

Deductive Value
(D) Method Four. Deductive Value. The dutiable value of the imported goods under this method shall be the
deductive value which shall be based on the unit price at which the imported goods or identical or similar imported
goods are sold in the Philippines, in the same condition as when imported, in the greatest aggregate quantity, at or
about the time of the importation of the goods being valued, to persons not related to the persons from whom they
buy such goods, subject to deductions for the following:

(1) Either the commissions usually paid or agreed to be paid or the additions usually made for profit and general
expenses in connection with sales in such country of imported goods of the same class or kind;
(2) The usual costs of transport and insurance and associated costs incurred within the Philippines; and
(3) Where appropriate, the costs and charges referred to in subsection (A) (3), (4) and (5); and
(4) The customs duties and other national taxes payable in the Philippines by reason of the importation or sale of
the goods.

If neither the imported goods nor identical nor similar imported goods are sold at or about the time of importation
of the goods being valued in the Philippines in the conditions as imported, the customs value shall, subject to the
conditions set forth in the preceding paragraph hereof, be based on the unit price at which the imported goods or
identical or similar imported goods sold in the Philippines in the condition as imported at the earliest date after the
importation of the goods being valued but before the expiration of ninety (90) days after such importation.
If neither the imported goods nor identical nor similar imported goods are sold in the Philippines in the condition as
imported, then, if the importer so requests, the dutiable value shall be based on the unit price at which the
imported goods, after further processing, are sold in the greatest aggregate quantity to persons in the Philippines
who are not related to the persons from whom they buy such goods, subject to allowance for the value added by
such processing and deductions provided under Subsections (D)(1), (2), (3) and (4) hereof.
The deductive value shall be based on the unit price at which the imported goods or
identical or similar imported goods are sold in the Philippines., in the same condition as
when imported in the greatest aggregate quantity.
Basically, start with the price or the amount that the end-user will pay her then strip it
off with the non-essential amounts which were added to the product.

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Computed Value Method
(E) Method Five. Computed Value. The dutiable value under this method shall be the computed value which
shall be the sum of:

(1) The cost or the value of materials and fabrication or other processing employed in producing the imported
goods;
(2) The amount for profit and general expenses equal to that usually reflected in the sale of goods of the same
class or kind as the goods being valued which are made by producers in the country of exportation for export to
the Philippines;
(3) The freight, insurance fees and other transportation expenses for the importation of the goods;
(4) Any assist, if its value is not included under paragraph (1) hereof; and
(5) The cost of containers and packing, if their values are not included under paragraph (1) hereof.
The Bureau of Customs shall not require or compel any person not residing in the Philippines to produce for
examination, or to allow access to, any account or other record for the purpose of determining a computed value.
However, information supplied by the producer of the goods for the purposes of determining the customs value
may be verified in another country with the agreement of the producer and provided they will give sufficient
advance notice to the government of the country in question and the latter does not object to the investigation.
Simply, the computed value is the amount or price when all the components of the
article are added up.

Fallback Value
(F) Method Six. Fallback Value. If the dutiable value cannot be determined under the preceding methods
described above, it shall be determined by using other reasonable means and on the basis of data available in the
Philippines.
If the importer so requests, the importer shall be informed in writing of the dutiable value determined under
Method Six and the method used to determine such value.

No dutiable value shall be determined under Method Six on the basis of:
(1) The selling price in the Philippines of goods produced in the Philippines;
(2) A system that provides for the acceptance for customs purposes of the higher of two alternative values;
(3) The price of goods in the domestic market of the country of exportation;
(4) The cost of production, other than computed values, that have been determined for identical or similar goods in
accordance with Method Five hereof;
(5) The price of goods for export to a country other than the Philippines;
(6) Minimum customs values; or
(7) Arbitrary or fictitious values.
If in the course of determining the dutiable value of imported goods, it becomes necessary to delay the final
determination of such dutiable value, the importer shall nevertheless be able to secure the release of the imported
goods upon the filing of a sufficient guarantee in the form of a surety bond, a deposit, cash or some other
appropriate instrument in an amount equivalent to the imposable duties and taxes on the imported goods in
question conditioned upon the payment of customs duties and taxes for which the imported goods may be liable:
Provided, however, That goods, the importation of which is prohibited by law shall not be released under any
circumstance whatsoever.
Nothing in this Section shall be construed as restricting or calling into question the right of the Collector of Customs
to satisfy himself as to the truth or accuracy of any statement, document or declaration presented for customs
valuation purposes. When a declaration has been presented and where the customs administration has reason to
doubt the truth or accuracy of the particulars or of documents produced in support of this declaration, the customs
administration may ask the importer to provide further explanation, including documents or other evidence, that
the declared value represents the total amount actually paid or payable for the imported goods, adjusted in
accordance with the provisions of Subsection (A) hereof.
If, after receiving further information, or in the absence of a response, the customs administration still has
reasonable doubts about the truth or accuracy of the declared value, it may, without prejudice to an importer's
right to appeal pursuant to Article 11 of the World Trade Organization Agreement on customs valuation, be deemed
that the customs value of the imported goods cannot be determined under Method One. Before taking a final
decision, the Collector of Customs shall communicate to the importer, in writing if requested, his grounds for
doubting the truth or accuracy of the particulars or documents produced and give the importer a reasonable
opportunity to respond. When a final decision is made, the customs administration shall communicate to the
importer
The fallback value is determined using other reasonable means and on the basis of data
available in the Philippines.
This is used 70%-80% of the time.
It can be a combo of the other metods.

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The importer, upon request, shall be informed in writing of the dutiable value and the
method used to determine such value.
No dutiable value shall be determined on the basis of the enumeration in the codal. (See
na lang)

Effective Date of Rates of Import Duty


Sec. 204. Effective Date of Rates of Import Duty. Imported articles shall be subject to the rate or rates of import
duty existing at the time of entry, or withdrawal from warehouse, in the Philippines, for consumption.

On and after the day when this Code shall go into effect, all articles previously imported, for which no entry has
been made, and all articles previously entered without payment of duty and under bond for warehousing,
transportation, or any other purpose, for which no permit of delivery to the importer or his agent has been issued,
shall be subject to the rates of any duty imposed by this Code and to any other duty, upon the entry, or withdrawal
thereof from warehouse, for consumption.

On article abandoned or forfeited to, or seized by, the government, and then sold at public auction, the rates of
duty and the tariff in force on the date of the auction shall apply: Provided, That duty based on the weight, volume
and quantity of articles shall be levied and collected on the weight, volume and quantity at the time of their entry
into the warehouse or the date of abandonment, forfeiture and/or seizure.
The rates to apply are those existing at the time of entry, or withdrawal from the
warehouse in the Philippines, for consumption.

Special Duties, what are they, really?


1. Dumping duties
2. Countervailing duties
3. Marking duties
4. Discriminatory duties

Dumping
This is a duty imposed on a specific kind or class of foreign article which is being
imported into, or sold or is likely to be sold for exportation to or in the Philippines at a
price less than the fair value, the importation or sale of which might injure or retard the
establishment of an industry producing like goods in the Philippines.
There has to be:
o Dumping (selling at less than the fair value)
o Injury
o Causal relationship between dumping and injury
Anti-dumping duty refers to a special duty imposed on the importation of a product,
commodity or article of commerce into the Philippines at less than its normal value when
destined for domestic consumption in the exporting country, which is the difference
between the export price and the normal value of such product, commodity or article.
Examples of dumping: cement products and tiles brought into the country at dirt cheap
prices

Countervailing Duty
This is a duty imposed on articles, upon the production, manufacture or export of which
any bounty or subsidy is directly or indirectly granted in the country of origin and/or
exportation, and the exportation of which into the Philippines will likely injure an
industry in the Philippines or retard the establishment of such industry.
Bounty is the cash award paid to an exporter or manufacturer.
Subsidy refers to fiscal incentives, not in the form of cash award, to encourage
manufacturers or exporters.

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oIn both bounty and subsidy, there is no need for bad faith in the part of the
government or country which subsidizes or offers a bounty.
The duty is equal to the ascertained or estimated amount of the bounty or subsidy.
Example: steel from Russia after the fall of the communist regime

Marking
This a duty imposed on imported articles or containers which have not been properly
marked in any official language of the Philippines as to indicate the name of the country,
planet (ha!) or origin of the article.
The purpose is to prevent the deception of consumers.
Exceptions to marking in the codal below:
a. Such article is incapable of being marked;
b. Such article cannot be marked prior to shipment to the Philippines without injury;
c. Such article cannot be marked prior to shipment to the Philippines, except at an expense economically
prohibitive of its importation;
d. The marking of a container of such article will reasonably indicate the origin of such article;
e. Such article is a crude substance;
f. Such article is imported for use by the importer and not intended for sale in its imported or any other form;
g. Such article is to be processed in the Philippines by the importer or for his account otherwise than for the
purpose of concealing the origin of such article and in such manner that any mark contemplated by this section
would necessarily be obliterated, destroyed or permanently concealed;
h. An ultimate purchaser, by reason of the character of such article or by reason of the circumstances of its
importation must necessarily know the country of origin of such article even though it is not marked to indicate its
origin;
i. Such article was produced more than twenty years prior to its importation into the Philippines; or
j. Such article cannot be marked after importation except at an expense which is economically prohibitive, and the
failure to mark the article before importation was not due to any purpose of the importer, producer, seller or
shipper to avoid compliance with this section.

Discriminatory
This is a duty imposed upon articles of a foreign country which discriminates against
Philippine commerce in such a manner to place it a disadvantage compared with the
commerce of another foreign country.
Like how Australia discriminates against Philippine mangoes

Flexible Tariff Clause


Sec. 401. Flexible Clause.
a. In the interest of national economy, general welfare and/or national security, and subject to the limitations
herein prescribed, the President, upon recommendation of the National Economic and Development Authority
(hereinafter referred to as NEDA), is hereby empowered: (1) to increase, reduce or remove existing protective
rates of import duty (including any necessary change in classification). The existing rates may be increased or
decreased to any level, in one or several stages but in no case shall the increased rate of import duty be higher
than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota or to ban imports of any
commodity, as may be necessary; and (3) to impose an additional duty on all imports not exceeding ten (10%) per
cent ad valorem whenever necessary; Provided, That upon periodic investigations by the Tariff Commission and
recommendation of the NEDA, the President may cause a gradual reduction of protection levels granted in Section
One Hundred and Four of this Code, including those subsequently granted pursuant to this section.
b. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of this
section, except in the imposition of an additional duty not exceeding ten (10) per cent ad valorem, the Commission
shall conduct an investigation in the course of which they shall hold public hearings wherein interested parties shall
be afforded reasonable opportunity to be present, produce evidence and to be heard. The Commission shall also
hear the views and recommendations of any government office, agency or instrumentality concerned. The
Commission shall submit their findings and recommendations to the NEDA within thirty (30) days after the
termination of the public hearings.
c. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a"
shall include the authority to modify the form of duty. In modifying the form of duty, the corresponding ad valorem
or specific equivalents of the duty with respect to imports from the principal competing foreign country for the
most recent representative period shall be used as bases.
d. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import entries as
filed in the Bureau of Customs. The Commission or its duly authorized representatives shall have access to, and the

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right to copy all liquidated customs import entries and other documents appended thereto as finally filed in the
Commission on Audit.
e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section.
f. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (3) days after
promulgation, except in the imposition of additional duty not exceeding ten (10) per cent ad valorem which shall
take effect at the discretion of the President.
The President is empowered:
a. to increase, reduce or remove existing protective rates of import duty
b. to establish import quota or to band imports of any commodity, as may be necessary
c. to impose an additional duty on all imports not exceeding 10% ad valorem whenever
necessary
The President may do this in the interest of national economy, general welfare and/or
national security, and upon recommendation of the NEDA

Imposition of Duties
Persons liable
Sec. 1203. Owner of Imported Articles. All articles imported into the Philippines shall be held to be the property
of the person to whom the same are consigned; and the holder of a bill of lading duly indorsed by the consignee
therein named, or, if consigned to order, by the consignor, shall be deemed the consignee thereof. The
underwriters of abandoned articles and the salvors of articles saved from a wreck at sea, along a coast or in any
area of the Philippine may be regarded as the consignees.

Sec. 1204. Liability of Importer for Duties. Unless relieved by laws or regulations, the liability for duties, taxes,
fees and other charges attaching on importation constitutes a personal debt due from the importer to the
government which can be discharged only by payment in full of all duties, taxes, fees and other charges legally
accruing. It also constitutes a lien upon the articles imported which may be enforced while such articles are in
custody or subject to the control of the government.

Sec. 1205. Importations by the Government. Except as otherwise specifically provided, all importations by the
government for its own use or that of its subordinate branches on instrumentalities, or corporations, agencies or
instrumentalities owned or controlled by the government, shall be subject to the duties, taxes, fees and other
charges provided for in this Code: Provided, however, That upon certification of the head of the department or
political subdivision concerned, with the approval of the Auditor General, that the imported article is actually being
used by the government or any of its political subdivision concerned, the amount of duty, tax, fee or charge shall
be refunded to the government or the political subdivision which paid it.
The person to whom the imported articles are consigned are liable for the duties. These
include:
Holder of a bill of lading duly indorsed by the consignee
Underwriters of abandoned articles
Salvors of articles saved from a wreck at sea along the coast or in any area of the
Philippines
The liability of the importer constitutes a personal debt due from the importer to the
government.
It can only be discharged by full payment.
All importations by the government for its own use shall be subject to duties, but once a
certification by the head of the department or subdivision is made, the amount paid shall
be refunded. (This is in relation to the discussion in conditionally-free importations)

Declaration
Sec. 1302. Import Entries. All imported articles, except importation admitted free of duty under subsection "o",
section one hundred and five of this Code, shall be subject to a formal or informal entry. Articles of a commercial
nature intended for sale, barter or hire, the dutiable value of which is five hundred pesos or less, and personal and
household effects or articles, regardless of value, imported in passenger's baggage mail, or otherwise, for personal
use, may be cleared on an informal entry whenever duty, tax or other charges are collectible.

Remedies of the Government


1. Tax Lien (1508)
2. Seizure and Forfeiture (2205, 2301-2316)
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3. Post Entry Audit (CAO 5-01)
4. Penalties

Tax Lien
SEC. 1508. Authority of the Collector of Customs to Hold the Delivery or Release of Imported Articles. - Whenever
any importer, except the government, has an outstanding and demandable account with the Bureau of Customs,
the Collector shall hold the delivery of any article imported or consigned to such importer unless subsequently
authorized by the Commissioner of Customs, and upon notice as in seizure cases, he may sell such importation or
any portion thereof to cover the outstanding account of such importer; Provided, however, That at any time prior
to the sale, the delinquent importer may settle his obligations with the Bureau of Customs, in which case the
aforesaid articles may be delivered upon payment of the corresponding duties and taxes and compliance with all
other legal requirements.

Seizure and Forfeiture


Sec. 2205. Exercise of Power of Seizure and Arrest. It shall be within the power of a customs official or person
authorized as aforesaid, and it shall be his duty, to make seizure of any vessel, aircraft, cargo, articles, animal or
other movable property when the same is subject to forfeiture or liable for any fine imposed under customs and
tariff laws, and also to arrest any person subject to arrest for violation of any customs and tariff laws, such power
to be exercised in conformity with the law and the provisions of this Code.

Post Entry Audit


Sec. 8. A new section to be known as Section 3514 is hereby inserted in Part, 2 Title VII of the Tariff and Customs
Code of the Philippines, as amended, which shall read as follows:
"Section 3513. Requirement to Keep Records. - All importers are required to keep at their principal place of
business, in the manner prescribed by regulations to be issued by the Commissioner of Customs and for a period
three (3) years from the date of importation, all the records of their importations and/or books of accounts,
business and computer systems and all customs commercial data including payment records relevant for the
verification of the accuracy of the transaction value declared by the importers/customs brokers on the import
entry.
All brokers are required to keep at their principal place of business, in the manner prescribed by regulations to be
issued by the Commissioner of Customs and for a period of three (3) years from the date of importation copies of
the above mentioned records covering transactions that they handle."
Sec. 9. A new section to be known as Section 3515 is hereby inserted in Part 2, Title VII of the Tariff and Customs
Code of the Philippines, as amended, which shall read as follows:
"Section 3515. Compliance Audit or Examination of Records. - The importers/customs brokers shall allow any
customs officer authorized by the Bureau of Customs to enter during office hours any premises or place where the
records referred to in the preceding section are kept to conduct audit examination, inspection, verification and/or
investigation of those records either in relation to specific transactions or to the adequacy and integrity of the
manual or electronic system or systems by which such records are created and stored. For this purpose. A duty
authorized customs officer shall be full and free access to all books, records, and documents necessary or relevant
for the purpose of collecting the proper duties and taxes.
In addition, the authorized customs officer may make copies of, or take extracts from any such documents. The
records or documents must, as soon as practicable after copies of such have been taken, be returned to the person
in charge of such documents.
A copy of any such document certified by or on behalf of the importer/broker is admissible in evidence in all courts
as if it were the original.
An authorized customs officer is not entitled to enter any premises under this Section unless, before so doing, the
officer produces to the person occupying or apparently in charge of the premises written evidence of the fact that
he or she is an authorized officer. The person occupying or apparently in charge of the premises entered by an
officer shall provide the officer with all reasonable facilities and assistance for the effective exercise of powers
under this Section.
Unless otherwise provided herein or in other provisions of law, the Bureau of Customs may, in case of
disobedience, invoke the aid of the proper regional trial court within whose jurisdiction the matter falls. The court
may punish contumacy or refusal as contempt. In addition, the fact that the importer/broker denies the authorized
customs officer full and free access to importation records during the conduct of a post-entry audit shall create a
presumption of inaccuracy in the transaction value declared for their imported goods and constitute grounds for the
Bureau of Customs to conduct a re-assessment of such goods.
This is without prejudice to the criminal sanctions imposed by this Code and administrative sanctions that the
Bureau of Customs may impose against contumacious importers under existing laws and regulations including the
authority to hold delivery or release of their imported articles."
Sec. 10. A new Section to be known as Section 3516 is hereby inserted in Part 2, Title VII of the Tariff and
Customs Code of the Philippines, as amended, which shall read as follows:
"Section 3516. Scope of the Audit.
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(a) The audit of importers shall be undertaken:

(1) When firms are selected by a computer-aided risk management system, the parameters of which are to be
based on objective and quantifiable data and are to be approved by the Secretary of Finance upon recommendation
of the Commissioner of Customs. The criteria for selecting firms to be audited shall include, but not be limited to,
the following:

(a) Relative magnitude of customs revenue from the firm;


(b) The rates of duties of the firm's imports;
(c) The compliance tract records of the firm; and
(d) An assessment of the risk to revenue of the firm's import activities.

(2) When errors in the import declaration are detected;


(3) When firms voluntarily request to be audited, subject to the approval of the Commissioner of Customs.

(b) Brokers shall be audited to validate audits of their importer clients and/or fill information gaps revealed during
an audit of their importers clients."
All importers are required to keep at their principal place of business all the records of
their importations and/or books of accounts, business and computers systems and all
customs commercial date including payment records relevant for the verification of the
accuracy of the transaction value declared by importers/customs brokers on the import
entry.
This needs to be done for 3 years from the date of importation.
Importers/customs brokers shall allow any customs officer authorized by the BOC to
enter during office hours into the offices to conduct audit examination, inspection,
verification and/or investigation.

Penalties
Sec. 15. A new section to be known as Section 3610 is hereby inserted in Part 3, Title VII of the Tariff and Customs
Code of the Philippines, as amended, which shall read as follows:
"Section 3610. Failure to Keep Importation Records and Give Full Access to Customs Officers. - Any person who
fails to keep all the records of importations and/or books of accounts, business and computer systems and all
customs commercial data in the manner prescribed in Part 2, Section 3514 of this Title shall be punished with a
fine of not less than One hundred thousand pesos (P100,000.00) but not more than Two hundred thousand pesos
(P200,000.00) and/or imprisonment of not less than two (2) years and one day but not more than six (6) years.
This penalty shall likewise be imposed against importers/brokers who deny an authorized customs officer full and
free access to such records, books of accounts, business and computer systems, and all customs commercial data
including payment records. This is without prejudice to the administrative sanctions that the Bureau of Customs
may impose against the contumacious importers under existing laws and regulations including the authority to hold
delivery or release of their imported articles."

Sec. 16. A new section to be known as Section 3611 is hereby inserted in Part 3, Title VII of the Tariff and Customs
Code of the Philippines, as amended, which shall read as follows:
"Section 3611. Failure to Pay correct Duties and Taxes on Imported Goods. - Any person who, after being
subjected to post-entry audit and examination as provided in Section 3515 of Part 2, Title VII hereof, is found to
have incurred deficiencies in duties and taxes paid for imported goods, shall be penalized according to three (3)
degrees of culpability subject to any mitigating, aggravating or extraordinary factors that are clearly established by
the available evidence:

(a) Negligence - When the deficiency results from an offender's failure, through an act or acts of omission or
commission, to exercise reasonable care and competence to ensure that a statement made is correct, it shall be
determined to be negligent and punishable by a fine equivalent to not less than one-half (1/2) but not more than
two (2) times the revenue loss.
(b) Gross Negligence - When a deficiency results from an act or acts of omission or commission done with actual
knowledge or wanton disregard for the relevant facts and with indifference to or disregard for the offender's
obligation under the statute, it shall be determined to be grossly negligent and punishable by a fine equivalent to
not less than two and a half (2 ) but not more than four (4) times the revenue loss.
(c) Fraud - When the material false statement or act in connection with the transaction was committed or omitted
knowingly, voluntarily and intentionally, as established by clear and convincing evidence, it shall be determined to
be fraudulent and be punishable by a fine equivalent to not less than five (5) times but not more than eight (8)
times the revenue loss and imprisonment of not less than two (2) years but not more than eight (8) years.

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The decision of the Commissioner of Customs, upon proper hearing, to impose penalties as prescribed in this
Section may be appealed in accordance with Section 2402 hereof."

Failure to keep importation Fine of P100k to 200k and/or


records or give full access to imprisonment of 2-6 years
customs officers
Failure to pay correct duties and taxes
Negligence failure through an act or to 2 times the revenue
omission to exercise loss
reasonable care and
competence to ensure that
statement was correct
Gross Negligence Act or omission done with 2 to 4 times the revenue
actual knowledge or wanton loss
disregard for the relevant
facts and with indifference to
or disregard for the
offenders obligation
Fraud Material false statement or 5 to 8 times the revenue loss
act in connection with the and imprisonment of 2 8
transaction was committed years
or omitted knowingly,
voluntarily and intentionally,
as established by clear and
convincing evidence

Remedies of the Taxpayer


1. Refund (1707-1708)
2. Protest (2308-2312)
3. Abandonment (1801-3)
These werent discussed by sir, nor were they underlined in the codal, but here they are
nonetheless.

Refund
Sec. 1707. Correction of Errors Refund of Excess Payments. Manifest clerical errors made in an invoice or
entry, errors in return of weight, measure and gauge, when duly certified to by the surveyor or examining official
(when there are such officials at the port), and errors in the distribution of charges on invoices not involving any
question of law and certified to by the examining official, may be corrected in the computation of duties, if such
errors be discovered before the payment of duties, or, if discovered within one year after the final liquidation, upon
written request and notice of error from the importer, or upon statement of error certified by the Collector.

For the purpose of correcting errors specified in the next preceding paragraph the Collector is authorized to
reliquidate entries and collect additional charges, or to make refunds on statement of error within the statutory
time limit.

Sec. 1708. Claim for Refund and Mode of Payment. All claims for refund of duties shall be made in writing, and
forwarded to the Collector to whom such duties are paid, who upon receipt of such claim shall verify the same by
the records of his office, and if found to be correct and in accordance with law, shall certify the same to the
Commissioner with his recommendation together with all necessary papers and documents. Upon receipt by the
Commissioner of such certified claim he shall cause the same to be paid if found correct.

Protest
Sec. 2308. Protest and Payment upon Protest in Civil Matters. When a ruling or decision of the Collector is made
whereby liability for duties, fees, or other money charge is determined, except the fixing of fines in seizure cases,
the party adversely affected may protest such ruling or decision by presenting to the Collector at the time when
payment of the amount claimed to be due the Government is made, or within thirty days thereafter, a written
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protest setting forth his objections to the ruling or decision in question, together with the reasons therefor. No
protest shall be considered unless payment of the amount due after final liquidation has first been made.

Sec. 2309. Protest Exclusive Remedy in Protestable Case. In all cases subject to protest, the interested party
who desires to have the action of the Collector reviewed, shall make a protest, otherwise, the action of the
Collector shall be final and conclusive against him, except as to matters correctible for manifest error in the
manner prescribed in section one thousand seven hundred and seven hereof.

Sec. 2310. Form and Scope of Protest. Every protest shall be filed in accordance with the prescribed rules and
regulations promulgated under this section and shall point out the particular decision or ruling of the Collector to
which exception is taken or objection made, and shall indicate with reasonable precision the particular ground or
grounds upon which the protesting party bases his claim for relief.

The scope of a protest shall be limited to the subject matter of a single adjustment or other independent
transaction; but any number of issue may be raised in a protest with reference to the particular item or items
constituting the subject matter of the protest.

"Single adjustment", as hereinabove used, refers to the entire content of one liquidation, including all duties, fees,
surcharges or fines incident thereto.

Sec. 2312. Decision or Action by Collector in Protest and Seizure Cases. When a protest in proper form is
presented in a case where protest in required, the Collector shall reexamine the matter thus presented, and if the
protest is sustained, in whole or in part, he shall enter the appropriate order, the entry reliquidated if necessary.

In seizure cases, the Collector, after a hearing, shall in writing make a declaration of forfeiture or fix the amount of
the fine or take such other action as may be proper.

Abandonment
Sec. 1801. Abandonment, Kinds and Effect of . Abandonment is express when it is made direct to the Collector
by the interested party in writing, and it is implied when, from the action or omission of the interested party, an
intention to abandon can be clearly inferred. The failure of any interested party to file the import entry within
fifteen days or any extension thereof from the discharge of the vessel or aircraft, shall be implied abandonment. An
implied abandonment shall not be effective until the article is declared by the Collector to have been abandoned
after notice thereof is given to the interested party as in seizure cases.
Any person who abandons an imported article renounces all his interests and property rights therein.

Sec. 1802. Abandonment of Imported Articles. The owner or importer of any articles may, within ten days after
filing of the import entry, abandon to the Government all or a part of the articles included in an invoice, and,
thereupon, he shall be relieved from the payment of duties, taxes and all other charges and expenses due thereon:
Provided, That the portion so abandoned is not less than ten per cent of the total invoice and is not less than one
package, except in cases of articles imported for personal or family use. The article so abandoned shall be
delivered by the owner or importer at such place within the port of arrival as the Collector shall designate, and
upon his failure to so comply, the owner or importer shall be liable for all expenses that may be incurred in
connection with the disposition of the articles.

Nothing in this section shall be construed as relieving such owner or importer from any criminal liability which may
arise from any violation of law committed in connection with the importation of the abandoned article.

Sec. 1803. Right to Reclaim Article. The owner or importer of an article impliedly abandoned may, at any time
before it is sold or otherwise disposed of, reclaim such article provided all legal requirements regarding its
importation are complied with and the corresponding duties, taxes and other charges as well as all expenses
incurred as a consequence of the abandonment, are paid.

Whew! Finally! Good luck! Hope this reviewer helped! Please pay it forward!

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