ATENEO CENTRAL BAR OPERATIONS 2007 Taxation Law SUMMER REVIEWER
PART I – GENERAL PRINCIPLES TAXATION – power inherent in every sovereign State to impose a charge or burden upon persons, properties, or rights to raise revenues for the use and support of the government to enable it to discharge its appropriate functions SCOPE OF TAXATION TAXATION IS: Unlimited, Far-reaching, Plenary Comprehensive Supreme STAGES OF TAXATION: (LAP) 1. Levy 2. Assessment 3. Payment Basic Principles of a Sound Tax System 1. Fiscal Adequacy 2. Theoretical Justice 3. Administrative Feasibility INHERENT LIMITATIONS (SPING) 1) Situs or territoriality of taxation 2) Must be for a Public purpose • Test is whether proceeds will be used for something which is the duty of the State to provide. • Legislature is not required to adopt a policy of “all or none.” • Incidental benefit to individual does not defeat exemption 3) International comity • Property of a foreign State of government may not be taxed by another 4) Non-delegability of the taxing power • Contemplates power to QuickTime™ and a TIFF (Uncompressed) decompressor determine kind,thisobject, extent, are needed to see picture. amount, coverage, and situs of tax; • Distinguish from power to assess and collect • Exemptions: (a) presidential taxing powers; (b) local governments 5) Exemptions of Government agencies • Taking money from one pocket • to the other Applies only to entities exercising government functions (acta jure imperii)
CONSTITUTIONAL LIMITATIONS A. Direct 1) Due process • Should not be harsh, oppressive, or confiscatory (Substantive) • By authority of valid law (Substantive) • Must be for a public purpose (Substantive) • Imposed within territorial jurisdiction (Substantive) • No arbitrariness in assessment and collection (Procedural) • Right to notice and hearing (Procedural) 2) Equal protection • All persons subject to legislation shall be treated alike, under like circumstances and conditions both in privileges conferred and liabilities imposed. • Power to tax includes power to classify provided: (a) Based on substantial distinction (b) Apply to present and future conditions (c) Germane to purpose of law (d) Apply equally to all members of the same class 3) Non-impairment clause • Rules (a) When government is party to contract granting exemption cannot be withdrawn without violating nonimpairment clause (b) When exemption generally granted by law withdrawal does not violate (c) When exemption granted under a franchise may be revoked; Consti provides that franchise is subject to amendment, alteration, or repeal by Congress. 4) Must be uniform and equitable
—Advisers: Atty. Serafin Salvador, Atty. Michael Dana Montero, Atty. Gaudencio Mendoza; Head: Julie Ann B. Domino, Juan J. P. Enriquez III; Understudies: Rachelle T. Sy, Aldwin Mendoza, Timothy John Batan—
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Uniform: all articles or properties of the same class taxed at same rate • Equity: apportionment must be more or less just in the light of taxpayer’s ability to shoulder tax burden Non-imprisonment for non-payment of poll tax • Taxpayer may be imprisoned for non-payment of other kinds of taxes where the law so expressly provides. Congress shall evolve a progressive system of taxation • As resources of the taxpayer becomes higher, his tax rate likewise increases (ex. Income tax) • Constitution does not prohibit regressive taxes; this is a directive upon Congress, not a justiciable right. All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments • It is the bill, not the law, that must originate from House; bill may undergo extensive changes in Senate • Rationale: members of House are more sensitive to local needs. Freedom of religion • Activities simply and purely for propagation of faith are exempt (e.g. sale of bibles and religious articles by nonstock, non-profit organization at minimal profit). • Tax is unconstitutional if it operates as a prior restraint on exercise of religion • Income even of religious organizations from any activity conducted for profil or from any of their property, real or personal, regardless of disposition of such income, is taxable Freedom of press/expression QuickTime™ and a TIFF (Uncompressed) decompressor • Tax thatareoperatesthisas a prior restraint needed to see picture. invalid. • If fee is only for purpose of defraying cost of registration and not for exercise of privilege, no violation. Charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques and non-profit cemeteries and all lands, buildings and improvements • ACTUALLY, DIRECTLY and EXCLUSIVELY USED for charitable, religious and educational purposes shall be exempt from taxation • Pertains only to real estate tax. • Test of exemption: actual use of the property, not ownership • Use of word “exclusively” means “primarily” rather than “solely.” • Exemption extends to property incidental to or reasonably necessary for the accomplishment of the purposes mentioned. Tax exemption of all revenues and assets of (a) non-stock, non-profit educational institutions (b) used ACTUALLY, DIRECTLY AND for educational EXCLUSIVELY purposes • Exemption covers income, property, donor’s tax, and customs duties (distinguish from previous which pertains only to property tax) • Revenue must both be (a) derived from an activity in pursuance of educational purpose; and (b) proceeds must be used for the same purpose (ex. hospital adjunct to medical school tax exempt) (ex. Interest income not exempt). • Income exempt provided it is used for maintenance or improvement of institution. • Distinguish from tax treatment of (a) proprietary educational institutions (Preferential Tax); and (b) government educational institutions (exempt, ex. UP) Delegated authority of President to impose tariff rates, import and export quotas, tonnage and wharfage dues • delegated by Congress • through a law • subject to Congressional limits and restrictions • within the framework of national development program Law granting tax exemption (includes amnesties, condonations and refunds) shall be passed with concurrence of Congress majority of all members voting separately • Relative majority (majority of quorum) is sufficient to withdraw exemption. No use of public money or property for religious purposes except if priest is assigned to armed forces, penal institutions, government orphanage or leprosarium Page 2 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
15) Special purpose - special fund for said purpose, balance goes to general funds 16) Veto power of the President - revenue/tariff bill 17) Power of review of the SC 18) Power of Local Government to create their own sources and levy taxes, fees, charges 19) Just share of local government in national revenue which shall be automatically released. 20) Tax exemption of all revenues and assets of (a) proprietary or cooperative educational institutions (b) subject to limitations provided by law 21) Tax exemption of grants, endowments, donations or contributions USED ACTUALLY, DIRECTLY and EXCLUSIVELY for educational purposes CIR v. CA (298 SCRA 85) Facts: YMCA is a non-stock, non-profit institution, which conducts various programs and activities beneficial to the public pursuant to its religious, educational and charitable objective. In 1980, YMCA earned an income of more than P600K from leasing out a portion of its premises to small shop owners and P47K from parking fees. Issue: Is the rental income from real property owned by the YMCA subject to income tax? Held: YES, the exemption claimed by YMCA is expressly disallowed by the last paragraph of then §27 of the NIRC. Furthermore, Art. XIV, §4 (3) of the Constitution only exempts YMCA from property taxes NOT income tax. YMCA cannot be considered as an “educational institution” within the purview of the above-cited article. The term “educational institution” under the Education Act of 1982 refers to schools. The school system is synonymous with formal education, which refers to hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through grades or more to higher levels. QuickTime™ and a Nothing in the Articles(Uncompressed) decompressor or By-Laws of TIFF of Incorporation are needed to see this picture. the YMCA suggests that it is an educational institution. Classification of Taxes A. As to subject matter of object 1) personal, poll, capitation tax – (a) fixed amount (b) individuals residing within specified territory C. (c) without regard to their property, occupation or business Ex. Community Tax (Cedula) 2) property tax – (a) imposed on property, real or personal (b) in proportion to its value or other reasonable method of apportionment Ex. Real estate tax 3) excise, privilege tax - (different from the excise tax in Taxation II) (a) imposed upon performance of an act, the enjoyment of a privilege or the engaging in an occupation, profession or business Ex. Income tax, VAT, estate tax, donor’s tax As to who bears the burden 1) Direct – the tax is imposed on the person who also bears the burden thereof Ex. Income tax, community tax, estate tax 2) Indirect – imposed on the taxpayer who shifts the burden of the tax to another Ex. VAT, specific tax, percentage tax, customs duties As to determination of amount 1) Specific – tax imposed and based on a physical unit of measurement, as by head, number, weight, length or volume Ex. Tax on distilled spirits, fermented liquors, cigars 2) Ad Valorem - tax of a fixed proportion of the value of property with respect to which the tax is assessed; requires intervention of assessor. Ex. Real estate tax, excise tax on cars, nonessential goods As to purpose 1) General, fiscal or revenue - imposed for the general purpose of supporting the government Ex. Income tax, percentage tax 2) Special or regulatory - imposed for a special purpose, to achieve some social or economic objectives Ex. Protective tariffs or customs duties on imported goods intended to protect local industries As to authority imposing the tax 1) National - imposed by the national government Ex. National internal revenue taxes, custom duties 2) Municipal or local - imposed by the municipal corporations or local governments Ex. Real estate tax, occupation tax
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property and privilege no limit LICENSE FEE Emanate from the police power of the State Regulation Right to exercise a privilege only necessary to carry out regulation
Source Purpose Object
TAX DISTINGUISHED FROM POLICE POWER TAX Purpose Raise revenue POLICE POWER (in the form of a FEE) Exercise to promote public welfare through regulation Limited to the cost of regulation. or at least one of the real and substantial purposes is to raise revenue. As to graduation of rate (Three systems of taxation) 1) Proportional . property and excises that may be subject thereto is given the owner of the expropriated property
Only particular property is comprehended
TAX DISTINGUISHED FROM LICENSE FEE TAX Exercise of Taxing power Raise revenue Persons. income or other basis to be taxed Ex.
TAX DISTNGUISHED FROM EMINENT DOMAIN TAX Raise revenue Payment of EMINENT DOMAIN The taking of property for public use Just compensation
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. estate tax. Purpose of distinction: limitations and exemptions apply only to one and not to the other (ex.increase of rate is not proportionate to the increase of tax base • SITUS OF TAXATION . unless imposed on non-useful occupations or businesses. VAT. issuance of license.tax rate decreases as the tax base increases 4) Degressive . taxes accrue to the general benefit of the citizens of the taxing State Applies to all persons. Exemption from taxation does not include exemption from fee)
• Allows merely the restraint on the exercise of property rights
TAX DISTINGUISHED FROM DEBT TAX Source Law.based on a fixed percentage of the amount of the property. or surveillance Contracts may be impaired
Amount of exaction
Superiority of contracts
Transfer of property rights
Contracts may be impaired unless (a) government is party to contract granting exemption. or (b) involves franchise Taxes paid form part of the public funds
Distinction lies in the primary purpose: • License fee if primary purpose is to regulate and the excess of the amount collected from the cost to carry out the regulation is minimal and incidental. • Tax if primary purpose.the place of taxation.tax rate increases as the tax base or bracket increases Ex. donor’s tax 3) Regressive . legal obligation Personal DEBT Based on contract Assignable
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. percentage tax 2) Progressive or graduated . the country that has the power to levy and collect the tax. Real estate tax. Income tax. • If amount is too high for regulation. it would be a tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
However. prop. DIRECT DUPLICATE • taxing same person. etc CUSTOMS DUTY kind of tax goods imported or exported
DOCTRINE OF EQUITABLE RECOUPMENT 1) refund of a tax illegally or erroneously collected or overpaid by a taxpayer 2) such tax refund is barred by prescription 3) tax presently being assessed against a taxpayer 4) may be recouped or set-off against the tax barred by prescription not allowed in Philippines. INDIRECT DUPLICATE • Exists if any of the elements for Direct taxation is not present • No constitutional prohibition on double taxation. where there is direct duplicate taxation then there may be violation of the constitutional precepts of equal protection and uniformity in taxation.LIFE BLOOD CONCEPT OF DOUBLE TAXATION Kinds of Double Taxation A. The collection of tax cannot await the results of a lawsuit against the government.
When imposed Basis
persons. etc. reason . 2) Tax overpayment (BIR’s obligation to refund or set-off arises from time tax was paid) 3) If the case involves local government taxes TAX DISTINGUISHED ASSESSMENT TAX Imposed on Why imposed Purpose FROM SPECIAL
TAX DISTINGUISHED FROM CUSTOMS DUTY TAX Coverage Object More comprehensive than customs duty Persons.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Generally not subject to compensation/setoff Imprisonment is sanction for nonpayment May be the subject of compensation/setoff No imprisonment for non-payment TAX DISTINGUISHED FROM TOLL TAX Demand of sovereignty support of government no limit – depends on need of the government TOLL Demand of ownership Collection for the use of property Fair return of the cost of the property or improvement
Kind of demand Purpose Amount
GENERAL RULE: Taxes cannot be the subject of compensation or set-off * A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. of Contribution to cost government of public improvement Regular exaction Exceptional as to time and locality Necessity Benefits obtained
SPECIAL ASSESSMENT Only on land
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. property or right twice • for the same purpose • by the same taxing authority • within the same jurisdiction or taxing district • within the same taxable period • and they must be of the same kind or character of tax B. regardless of Public improvement public that benefits the land improvement QuickTime™ and a TIFF (Uncompressed) decompressor Support are needed to see this picture. properties. Reasons: a) lifeblood theory b) taxes are not contractual obligation (absence of consent of taxpayer) c) taxpayer and government are not mutual debtors and creditors of each other EXCEPTIONS: 1) Both claims already became overdue and demandable as well as fully liquidated there must have already been an act of appropriation by the government (legislative) of funds for payment of the debt.
099. No. Pursuant to §24 of the NIRC. For the sale of the property to RMI. citing Sison v. CIR vs.” [Reyes v.Ed. among other things. 25. sold the same property on the same day to RMI for P200M. Moreover. BIR assessed deficiency taxes against the “pool” on the ground that it is considered a partnership taxable as a corp. its work was indispensable to the business of the ceding companies and the German Co.” The web or unreality spun from Justice Marshall’s famous dictum was brushed away by one stroke of Mr.. McCullough v. Justice Holmes’ pen. its gain from the sale of real property in the amount of P75. It has a common fund and an executive board to manage its affairs. But for all its plenitude. said power can be a power to destroy.728. who. Tax Avoidance (Tax Minimization) – tax saving device that is legally permissible Tax Evasion (Tax Dodging) – connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. not acting on its own and therefore.22. 14.R. 579 (1819)] The imposition of a valid tax could not be judicially restrained merely because it would prejudice a taxpayer’s property. CIR (1985)]. Double taxation means taxing the same person twice by the same jurisdiction for the same thing. Maryland. The Estate of Benigno Toda. CIC filed its corporate annual ITR for the year 1989.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
TAX TREATY AS A MODE OF ELIMINATING DOUBLE TAXATION: 1) EXEMPTION METHOD – the income or capital which is taxable in the state of source or situs is exempted in the state of residence. Toda sold all his shares. in turn. both the due process and equal protection clauses of the Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. no common fund and no control exercised by its board in the management of its fund. declaring. 2004 Facts: This Court is called upon to determine in this case whether the tax planning scheme adopted by a corporation constitutes tax evasion that would justify an assessment of deficiency income tax. purportedly sold the property for P100 M to Rafael Altonaga. surcharge.991% of its issued and outstanding capital stock. Tax Sparing Credit scheme) 2) CREDIT METHOD – the tax paid in the state of source is credited against the tax levied in the state of residence Afisco Insurance Corp v. Power to Tax Involves Power to Destroy [Chief Justice Marshall.” “So it is in the Philippines. to sell the Cibeles Building and the two parcels of land on which the building stands for an Toda then amount of not less than P90M. He died 3 yrs. cannot be taxed as a corp. Sept. there being no risk undertaken by the pool. thus: “The power to tax is not the power to destroy while this Court sits. the ceding cos. Almanzor (1991). the pool is included within the definition of “domestic corps. In this case. different from the tax on the dividends received by the said companies. Petitioners insist that the pool is a mere agent. 1999) Petitioners are local non-life insurance corps. Jan. Jr. If it were otherwise.021. The TIFF (Uncompressed) decompressor is obviously tax on its income are needed to see this picture.. Issue (1) : Is the Pool Taxable as a Corp? Held (1): YES. there would be truth to the dictum that “the power to tax involves the power to destroy. The pool is a taxable entity distinct from the individual corporate entities of the ceding QuickTime™ and a companies. CIC authorized Toda. Adversely effecting as it does property rights. Issue (2): Is there double taxation? Held(2): NO.” Which comprises even unregistered partnerships and associations. Obillos v. Ancheta (1984). 147188. & interest on the Page 6 of 145
.999. 112675. Which formed a “pool” in order to enter into a Reinsurance Treaty with a German company. Altonaga paid capital gains tax in the amount of P10M. CA (G. President and owner of 99. Entered into an association that would handle all business under the Treaty. even if the pool itself did not issue any policies on its own. GR No. 4 L. As long as the power to tax does not violate any constitutional or statutory provisions. The BIR sent an assessment notice and demand letter to the CIC for deficiency income tax for the year 1989 in the amount of P79. later. representing the tax. although in some instances it may taken into account in determining the rate of tax applicable to the tax payer’s remaining income or capital (ex. must be willful and intentional. These 2 transactions were evidenced by Deeds of Absolute Sale. the power to tax is not unconfined as there are restrictions.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
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(Sec. is a personal defense. never favored nor presumed (b) construed strictly against the taxpayer (must show complete compliance with the law) 2) Government not estopped from questioning the tax liability even if amnesty tax payments were already received QuickTime™ and a TIFF (Uncompressed) decompressor Reason: Erroneous this picture. who wish to relent & are willing to reform a chance to do so RULES ON TAX AMNESTY 1) Tax amnesty (a) like tax exemption. Power to interpret tax law and decide tax cases (Sec 4) 1) Interpret provisions of NIRC and other tax laws subject to review by the Secretary of Finance 2) Decide: (a) disputed assessments (b) refunds of internal revenue taxes.Deputy Commissioners (Sec. fees and charges (c) penalties imposed in relation thereto (d) other matters arising from NIRC or other Page 8 of 145
NATURE OF TAX AMNESTY 1) general or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law 2) partakes of an absolute forgiveness or waiver of the Government of its right to collect 3) to give tax evaders. Reason: Relates to the circumstances of a
. The government is never estopped by mistakes or errors of its agents. Basis: Lifeblood Theory 3) Defense of Tax amnesty. 2) Officials of the BIR 1) one chief . like insanity.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
particular accused and not the character of the acts charged in the information
PART II – THE NATIONAL INTERNAL REVENUE CODE OF 1997 TITLE I.O.Commissioner of Internal Revenue (Commissioner) 2) four assistant chiefs . 430 (July 28. application and are needed to see enforcement of the law by public officers do not block subsequent correct application of the statute. ORGANIZATION AND FUNCTION OF THE BUREAU OF INTERNAL REVENUE (BIR) POWERS AND DUTIES OF THE BIR (ACEEGA) 1) Assessment and Collection of national internal revenue: (a) taxes (b) fees (c) charges 2) Enforcement of all (a) forfeitures (b) fines and (c) penalties connected therewith 3) Execution of all judgments decided in BIR’s favor by (a) the Court of Tax Appeals (CTA) and (b) the ordinary courts 4) Give effect to and Administer the supervisory and police powers conferred to it by NIRC or by other laws. 1997) designates each of the 4 Deputy Commissioners to head the following functional groups: (a) Operations group (b) Legal Enforcement Group (c) Information Systems Group (d) Resource Management Group Powers of the Commissioner A. 3) *E.
the same may be modified. Presumptive Gross Sales (a) Commissioner may. sales. Power to make assessments. changed or amended. 6 (F) of the Code (authority to inquire into bank deposits). papers. provided that no notice for audit or investigation of such return. records and other data and to give testimony 6) to take the Testimony of the person concerned.
. under oath as may be relevant to the inquiry 7) To cause revenue officers and employees to make a Canvass of any revenue district or region nothing in Section QuickTime™ andbe construed as 5 shall a TIFF (Uncompressed) decompressor are needed to see this granting the Commissionerpicture. or 2. but within THREE YEARS from date of filing. Power to obtain information. the Assessment of the correct amount of tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
laws or portions thereof administered by the BIR subject to the exclusive appellate jurisdiction of the CTA B. paper. the Examination of any taxpayer. been actually served upon the taxpayer. Any return. etc). on a regular basis from: (a) any person other than the person under investigation or (b) any office or officer of the national/local government. authority to the inquire into bank deposits other than as provided for under Sec. has in the meantime. examine and take testimony of persons (Sec. 6) 1) Examination of returns and determination of tax due (a) After a return has been filed the Commissioner or his representative may authorize i. may place the business operations of any person (natural/juridical) under Observation or Surveillance if there is reason to believe that such person is not declaring his correct income. the books of accounts 2. receipts. summon. record or other data 3) to Obtain any Information (costs. accounting records of entries relating to the business of the person liable for tax or any other person 5) to Produce such books. sales or receipts for tax purposes. government agencies and instrumentalities (Bangko Sentral. at any time during the taxable year 1. volume of production. 2) Failure to submit required returns and other documents If a person (a) fails to file a required return or report at the time prescribed or (b) Willfully or otherwise files a false or fraudulent return. The findings may be used as basis for assessing the taxes and shall be deemed prima facie correct. Surveillance. (b) Failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. prescribe additional requirements for tax administration and enforcement (Sec. and ii. statement or declaration filed in any authorized office shall not be withdrawn. order the Inventory taking of goods of any taxpayer. The Commissioner shall Make or Amend the return from (a) his own knowledge or (b) from such information as he can obtain through testimony or otherwise which shall be prima facie correct and sufficient for all legal purposes 3) Inventory-taking. GOCCs) 4) To Summon (a) the person liable for tax or required to file a return or (b) any officer or employee of such person or (c) any person having in his possession/custody/ care 1. gross income. Any tax or deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or his representative. Page 9 of 145
C. 5) 1) For the Commissioner to ascertain: (a) correctness of any return or in making a return where none has been made (b) liability of any person for any internal revenue tax or in correcting such liability (c) tax compliance The Commissioner is authorized: 2) to Examine any relevant Book.
When a person has failed to issue receipts as required by Sec. or (b) Fair market value as shown in the schedule of values of the provincial and city assessors. or 2. of Finance to rule on the appeal within the said period shall be deemed as approval for accreditation. 1405 (Bank Secrecy Law) the Commissioner is authorized to inquire into the Bank deposits of: (a) a decedent to determine his gross estate (b) a taxpayer who has filed an application to compromise payment of tax liability by reason of financial incapacity QuickTime™ and a TIFF (Uncompressed) decompressor
The taxpayer’s application for compromise shall not be considered unless he waives in writing his privilege under RA 1405 and other general or special laws. the value of the property shall be whichever is higher of: (a) Fair market value as determined by the Commissioner. such minimum amount shall be prima facie correct 4) Terminate taxable period Commissioner shall declare the tax period of a taxpayer terminated and send notice to the taxpayer of such decision with a request for immediate payment of the tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
(b) Commissioner may prescribe a Minimum amount of gross receipts. 7) The Commissioner may delegate the powers vested in him to subordinate officials with rank equivalent to Division Chief or higher. the regional evaluation board may compromise: (a) assessments issued by regional offices involving deficiency taxes of P500. 113 (Invoice requirements for VATregistered persons) and Sec. (the following powers shall NOT be delegated): (RIR CoA A) 1) power to Recommend the promulgation of rules and regulations by the Sec. 8) Authority to Prescribe Additional RequirementsThe Commissioner may prescribe the manner of compliance with any documentary or procedural requirement for the submission or preparation of financial statements accompanying tax returns. sales and taxable base (taking into account the sales and income of other persons engaged in similar business) : 1.000 or less. Such waiver shall authorize the Commissioner to inquire into his bank deposits. when it has come to the knowledge of the Commissioner: (RIRHO) (a) that a taxpayer is Retiring from business subject to tax or (b) is Intending to leave the Philippines or (c) to Remove his property therefrom or (d) to Hide or conceal his property or (e) is performing any act tending to Obstruct the proceedings for the collection of tax 5) Prescribe Real Property Values The Commissioner is authorized to: (a) divide the Philippines into different zones or areas and (b) determine the fair market value of real properties located in each zone or area For tax purposes. subject to limitations/restrictions imposed under the rules and regulations EXCEPT.A. When the books of accounts or records do not correctly reflect the declarations made or required to be made in a return. Failure of the Sec. revoke. 7) Authority to Register tax agents (a) The Commissioner shall Accredit and Register. and (b) minor criminal violations as may be Page 10 of 145
. 237 (Issuance of Receipts or Commercial Invoices). of Finance who shall rule on the appeal within 60 days from receipt of such appeal. modify any existing rule of the BIR 3) power to Compromise or Abate any tax liability EXCEPT. of Finance 2) power to Issue rulings of first impression or to Reverse. Authority to delegate power (Sec. who prepare and file tax returns and other papers or who appear before the BIR (b) The Commissioner shall create national and regional accreditation boards Those who are denied accreditation may appeal the same to the Sec.Deposit Notwithstanding R.
are needed into Bank 6) Authority to Inquire to see this picture. D. individuals and general professional partnerships and their rep.
Internal Revenue Districts (Sec. labels. certificates. (Sec. bonds.. Heads of the Legal. associations & recreation or amusement clubs & mutual fund certificates Page 11 of 145
. 20) NATIONAL INTERNAL REVENUE TAXES: (Sec. stamps. provided that he shall in no case stay in his assignment for more than 2 years (Sec. Assignment of Internal Revenue Officers (Secs. on the exercise of his powers of abatement and compromise of taxes (Sec. instruments and appliances used in administering laws falling within the jurisdiction of BIR 2) To Acknowledge payment of any tax under this Code expressing a) the amount paid and b) the particular account for which payment was made (Sec. estate or corp. but not be limited to: (a) industry audits (b) collection performance data (c) status reports in criminal actions initiated against persons (d) taxpayer’s returns provided. 16) 2) without change in rank and salary. professional partnership).Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
determined by the rules 3) To Submit reports to the appropriate committee of Congress upon its request and in aid of legislation. warrants & options to purchase shares of stock. of Finance. 9) The Commissioner. TAX ON INCOME DEFINITION OF TERMS 1) Person – an individual. 21) (I VEE DOO) 1) Income tax 2) Estate and Donor’s tax 3) Value-Added tax 4) Other percentage tax 5) Excise tax 6) Documentary stamp tax 7) Such Other taxes as are or hereafter may be imposed and collected by the BIR
Regional Evaluation Board is composed of: i. Duties of the Commissioner: (PASO) 1) To Prescribe. iv. with approval of the Sec. joint ventures taxable as corp. joint stock companies. shall divide the Philippines into such number of revenue districts for administrative purposes. receipts. assignment of officers and employees to special duties shall not exceed 1 year (Sec. 17) F. no part of its income being derived from engaging in any trade or business 4) Shares of stock – includes shares of stock of a corp. invoices. provide and distribute to the proper officials the requisiteQuickTime™ and a internal revenue licenses. provided that officers assigned to perform assessment or collection functions shall not remain in the same assignment for more than 3 years. Revenue District Officer having jurisdiction over the taxpayer 4) power to Assign or reassign internal revenue officers to establishments where articles subject to excise tax are kept
E. Regional Director iii. Asst. 8)
TITLE II. Each district shall be under the supervision of a Revenue District Officer. any return or information which can be associated with or identifies. a trust. which information or report shall include. unless the taxpayer consents in writing to such disclosure 4) Submit reports to the Oversight Committee through the Chairman of the Committee on Ways and Means of the Senate and House of Representatives. Assessment and Collection Div. 16 &17) The Commissioner may assign/ reassign internal revenue officers: 1) involved in excise tax functions as often as the exigencies of revenue service may require. joint accounts. as well as units of participation in a partnership (except gen. Regional Director as Chairman ii. 2) Corporation – include partnerships (distinguish between ordinary and general professional partnership) 3) General professional partnership – partnerships formed for the sole purpose of exercising their common profession. 204) every 6 months of each calendar year. areall other picture.. TIFF (Uncompressed) decompressor needed to see this forms. records. shall be furnished to the appropriate committee of Congress only when sitting in Executive Session. to other or special duties connected with the enforcement and administration of internal revenue laws as the exigencies of the service may require. directly or indirectly a particular taxpayer. books.
an additional deduction for personal exemptions is allowed Situs of Taxation is the place or authority that has the right to impose and collect taxes (CIR v. In this case. • Assignment of Income Doctrine – Ex: A is entitled to his salary of P10m but assigns it to B for unknown reasons. Creditor does not have income on x amount as this is merely return on capital. In a debt/loan situation it is important to determine whether there was an original intention to pay/consensual recognition of an obligation to repay. SOURCES OF INCOME Page 12 of 145
Not recognized as income .400 per year equals: Taxable income 2) Taxpayer doing business. Feb 1 to Jan 31) 8) Paid or incurred (cash method) or Paid or accrued (accrual method) – payment actually made or if not paid. actually liable for the expense TAXABLE INCOME REQUISITES FOR INCOME TO BE TAXABLE: 1) There must be a gain or addition to net worth 2) The gain must be realized or received. A constructively received income (because he was able to assign thus has complete control/dominion over it) and B actually received it. he has income only with respect to the amount of y interest. or the fiscal year 7) Fiscal Year – an accounting period of 12 months ending on the last day of any month other than December (ex. Increase in the value of property is not recognized as income. there is no flow of wealth. The income is taxable in the hands of both A and B. actually or constructively. assets of the taxpayer borrower. then the liability that QuickTime™ and a TIFF (Uncompressed) decompressor results just offsets the increase in are needed to see this picture. recipient must have complete dominion 3) The gain must not be excluded by law or treaty from taxation • Income can be realized actually and constructively. The state where the subject to be taxed has a situs may rightfully levy and collect the tax.
. this only constitutes an unrealized increase which becomes taxable income only upon disposition and realization of gains. • If yes. The situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question. In this case. Proceeds of embezzlement/swindling are income because embezzler/swindler already has complete dominion over them and can use such for his economic benefit. whether individual or corporation (domestic or FC doing business) Gross Revenue/Sales less: Cost of Sales equals: Gross Income less : Allowable Deductions equals: Taxable Income for individuals.when funds were merely entrusted/held money in trust (with obligation to return) to taxpayer because taxpayer acquires no control and does not receive economic benefit from it. both A and B realize income. A did not get the check until January 30. Ex. therefore. Marubeni Corp). the proceeds will be considered as income and therefore taxable in the hands of the borrower swindler. • If no (as in the case of a swindler/estafa). A constructively received income in December and is taxable in that taxable period. Debtor repays x amount plus y interest. Creditor lends debtor x amount. Same situation for stocks and stock dividends. no increase in net worth and no income derived from the debt/loan. • Not recognized as income if proceeds are merely a return of capital. Deposit with no interest does not produce income for the depositary.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
5) Taxpayer – any person subject to tax 6) Taxable Year – can either be calendar year (Jan 1 to Dec 31). COMPUTATION OF TAXABLE INCOME 1) Taxpayer earning purely compensatory income Gross Compensation less : Personal Exemption premium payments on health and/or hospital insurance amounting to P2. • Doctrine of Constructive Receipt – Ex: A was informed that his check dated December 16 is already available and he can get it anytime.
Taxable Income Taxable Income Gross Income
Resident Foreign Corporation Non-resident Foreign corporation
*Taxable Income = Gross income (less) Deductions (less) Personal and additional exemptions *Gross Income = all income derived from whatever source TYPES OF INCOME TAXATION UNDER THE NIRC 1) Net Income Tax/Taxable Income (GI – Deductions – Exemptions) 2) Gross Income Tax (All income from whatever source) 3) Final Income Tax (On passive income and capital Page 13 of 145
GENERAL PRINCIPLES OF INCOME TAXATION IN THE PHILIPPINES
. where one of the countries is the Philippines is income derived from sources partly within and partly outside the Philippines.’s worldwide income is not derived from Phil. partly foreign)
Allocation of Unallocated Deductions (partly Phil. entirely from treated as derived sources within the country in which it was sold. – deemed income from within Phil. if estate. trustor. Gains from the purchase of personal property within and sold without the Philippines or the purchase of personal property without and and a sale within the QuickTime™ its TIFF (Uncompressed) decompressor Philippines shall be are needed to see this picture. Worldwide GI. Philippines GI. (b) From a foreign corp. if trust) Within and Without the Philippines Within the Philippines Within the Philippines
Nonresident Citizen Resident Alien Nonresident Alien engaged in trade or business Nonresident Alien not engaged in trade or business General Professional Partnership
(a) From a domestic corp. Outside Phil GI. Worldwide x x Unallocated = Phil deductions deductions Unallocated = Foreign deductions deductions
Estate and Trust
Income from sale of personal property derived from sources partly within and partly without the Phils. Domestic Corporation Gain from sale of personal property produced in whole or in part in one country and sold in another country. – deemed income from without provided more than 50% of the corp.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Taxpayer ITEM Interest Compensation for personal services Rent and royalty Gain from sale of real property Gain from sale of personal property Gain from sale of shares of stock of domestic corporation Dividend income SOURCE Residence of the debtor Place of performance Location of property Location of property Place of sale Philippine source Resident Citizen Tax Base Taxable Income Taxable Income Taxable Income Taxable Income Gross Income Taxable Income Taxable on income Within and without the Philippines Within the Philippines Within the Philippines Within the Philippines Within the Philippines Within or/and without the Philippines (depending on classification of individual partner) Same basis as an individual (depending on classification of decedent.
Joint stock companies.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
gains) 4) Fringe Benefits Tax (amount of benefits to Managerial and Supervisory Employee paid by Employer. which include nonresident aliens whose stay in the Philippines is QuickTime™ and a less 180 days or TIFF (Uncompressed) decompressor are needed to see by regional or area c) Aliens employed this picture. what is taxed is not the property that constitutes the trust (this was already subject to donor’s tax) but the income of such property. Corporation A corporation shall include partnerships. subject to final tax) a) Interests. headquarters and regional operating headquarters of multinational companies in the Philippines d) Aliens employed by offshore banking units e) Aliens employed by petroleum contractors and subcontractors
. Ee is taxed but burden is on Er) 5) Capital Gains Tax (Real property and stocks not traded in stock market) 6) Optional Corporate Income Tax 7) Minimum Corporate Income Tax (2% of GI) 8) Improperly Accumulated Earnings Tax 9) Preferential Rates (for special corporations) 10) Branch Profit Remittance Tax TYPES OF INCOME 1) General (part of gross income. as immigrant or for employment on a permanent basis (c) Works & derives income from abroad & whose employment requires him to be physically present abroad most of the time (i.e. subject to 532%) a) Compensation Income b) Income from Business c) Income from Exercise of Profession 2) Special Types of Income (not part of gross income. these are realized only upon their subsequent sale) (Passive Income) c) Capital gains from sale of real property d) Capital gains from sales of shares of stock not listed in the stock exchange e) Capital gains from sale of shares of stock listed in stock exchange (subject to percentage tax B. and insurance companies • But does not include. Estates and Trusts Estate: property. coal. C. no matter how created or organized. taxed in the same way as an individual provided it is irrevocable and earns income. geothermal & other energy operations pursuant to an operating or consortium agreement under a service contract with Page 14 of 145
TYPES OF TAXPAYERS A. associations. rights and obligations of a person which are not extinguished by his death and those that accrues thereto. joint accounts. grantor must have absolutely and irrevocably given up control and benefit over the trust. royalties. not less than 183 days) during the taxable year (d) Previously considered as nonresident citizen & arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines 3) Resident Alien 4) Nonresident Alien a) Those engaged in trade or business in the Philippines who come and stay in the Philippines for an aggregate period of more than 180 days during any calendar year b) Those not engaged in trade or business in the Philippines. to be taxable as a separate entity. Individuals Kinds of Individuals 1) Resident Citizen 2) Nonresident Citizen = citizen of the Philippines who: (a) Establishes the fact of his physical presence abroad with a definite intention to reside therein (b) Leaves the Philippines during the taxable year to reside abroad. Trust: arrangement created by agreement under which title to property is passed to another for conservation or investment with the income and the corpus/principal distributed in accordance with the directions of the creator. prizes and other winnings subject to final tax (Passive Income) b) Cash & property dividends (does not include stock dividends. for the purpose of imposing ordinary 35% corporate income tax: o general professional partnerships o joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum.
• As an entity. including insurance while in transit Manufacturing concern • Cost of production of finished goods (raw materials. Special Types of Domestic Corporations Proprietary educational institutions and hospital which are 10% On related trade. and other costs to bring the raw materials to the factory) If taxpayer is engaged in sale of service: Gross Income = Gross receipts ( . not engaged in trade or business within the Philippines D. DOMESTIC CORPORATIONS A. b) engaged in petroleum.) Sales returns. business or activity. Partners are liable for income tax on their distributive share (computed by dividing net income of GPP).) Sales returns. therefore. it is not subject to income tax. freight cost. coal and other energy operation under a service contract with the government. General Types: 1) Domestic Corporation is created or organized in the Philippines or under its laws 2) Foreign Corporation is organized and existing under the laws of a foreign country (a) Resident foreign corporation – foreign corp. their distributive share is taxed as dividends. direct labor and manufacturing overhead. 35% (2006) if total gross income from
On taxable income from all sources within and without the Philippines
32% (2000-2005) 35% (2006-2008) 30% (2009 onwards)
Page 15 of 145
. 1. engaged in trade or business within the Philippines (b) Nonresident foreign corporation – foreign corp.) Cost of goods sold
Cost of Goods Sold Trading and Merchandising Concern • Invoice cost plus import duties and freight in transporting goods to the place where actually sold. • Includes unregistered joint ventures and business partnerships. discounts and allowances ( . In general
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. • Joint ventures are not taxable as corporations when its purpose if a) undertaking construction projects. • Partners are considered stockholders.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
the govt. 2000: the President (upon recommendation of the Sec of Finance) may allow corporation an option to be taxed at 15% of gross income after the ff. conditions are satisfied: Tax effort ratio Ratio of IT collection to total tax revenue VAT tax effort Ratio of Consolidated Public Sector Financial Position (CPSFP) to GNP Ratio of Cost of Sales to Gross Sales from all sources 20% of GNP 40% 4% of GNP 0. is qualified under the scheme Gross Income = Gross Sales ( . Partnerships Kinds of Partnerships 1) General Professional Partnerships • Established solely for purpose of exercising common profession and not part of income derived from engaging in trade or business. Each partner shall report his distributive share as part of his gross income.
Does not exceed 55%
The election of the option shall be irrevocable for 3 consecutive taxable years during which the corp. Optional Gross Income Taxation Effective Jan. 2) Taxable/Business/Ordinary Partnership • All other partnerships no matter how created or organized. allowances and discounts C. • Taxable as an entity ordinary corporate income tax. insurance premiums. TAX ON CORPORATIONS I.
instrumentalities owned or controlled by the govt. ENTIRE taxable income shall be subject to the REGULAR corporate tax rate (35% Effective 2006) Distinguish from non-profit non-stock educational institutions which are exempt from tax on revenues and assets Actually. to be exempt.
E. However. or from any activities conducted for profit regardless of the disposition made of such income. Over statement of depreciation expense) 2. Exception: exempted corporations are subject to income tax on their income from any of their properties. For educational institutions. Example: for 2006 calendar year GI = P500.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
nonprofit unrelated trade. including PAGCOR GSIS/ SSS / PHIC / PCSO Depository Banks
32% (20002005) 35% (2006) Exempt 10%
On interest income from foreign currency transactions including interest income from foreign loans
Proprietary Educational Institutions & Hospitals (non-profit) • Proprietary educational institution – any private school maintained & administered by private individuals or groups with an issued permit to operate from DECS. Minimum Corporate Income Tax (MCIT) 1. Directly and Exclusively used for educational purposes (See above for discussion). or all corporations. Rule for Corporations Exempt from Taxation General Rule: those enumerated under section 30 are exempt.000 TI = P27. or activity
D. business.000 35% of TI = P9. • Ex. provided ADE use for its religious purpose). the proceeds. are taxable. Agencies and Intrumentalities. non-profit religious organization is exempt from 35% ordinary income tax on corporations (by virtue of section 30 which uses “as such”) and from all property tax (by virtue of Constitution.450 2006 IT = P10. 2% of the corporations GI is greater than 35% of its TI. are needed to see this picture. MCIT Rate = 2% of gross income (GI) When to begin/apply MCIT? Beginning on the th 4 taxable year immediately following the year in which such corporation commenced its business operation (Commencement of Business Operation: Upon Issuance of BIR Certificate of Registration) Imposed when on the 4th taxable year.000 Rationale: This is designed to prevent corporations from escaping being taxed by including frivolous expenses in their statement of income (Ex.
Exceptions: 1) GSIS 2) SSS 3) PHIC 4) PCSO
. if it derives income from its property or conducts an activity that is for profit (even if the proceeds will be used for the religious purpose). real or personal.000 2% of GI = P10. Carry Forward of Excess Minimum Tax Page 16 of 145
QuickTime™ and a General Rule:TIFF (Uncompressed) decompressor agencies. • Ex. or activity exceed 50% of total income Same tax rate upon their taxable income in a similar business. Non-stock. must be both a) realized from educational activities and b) used for educational activities.
GOCC. or CHED or TESDA Taxable at 10% on taxable income. industry. except on certain passive income (which are subject to final tax) Predominance Test: if GI from unrelated trade/business/other activity > 50% of the total GI from all sources. the proceeds will be taxable.
B.950 NOTE: You can deduct MCIT Carry Forward only if Regular Income Tax is greater than MCITY Situation B: If regular income tax is less than MCIT Pay MCIT For 2007 calendar year: GI = P500. local commercial banks.500 (Regular Income Tax) – 550 (MCIT Carry Forward from 2006: 10. other offshore banking units.000 35% of TI = P7. 3.5% On Gross Philippine Shipping Billings Offshore 10% Any interest income banking units derived from foreign currency loans granted to residents other than offshore banking units or local commercial banks. discounts and allowances ( . C. Gross Income (for purposes of applying MCIT) Gross Income = Gross Sales ( .000 from 2007). CIR infra) International 2.000-9450) = 16.) Sales returns.550 (550 from 2006 and 3. Special types of resident foreign corporations: International Air 2.000 TI = P20. So if in 2008. MCIT . Relief from MCIT MCIT may be suspended by the Sec of Finance when corporation’s losses are due to: (a) prolonged labor dispute (b) force majeure (c) legitimate business reverses 4.550 from payable Regular Income Tax.5% On Gross Philippine carriers Billings (see case of Air Canada vs.) Cost of Goods sold If taxpayer is engaged in sale of service: Gross Income = Gross Receipts
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. In General (the rest is the same as domestic corp. including Page 17 of 145
Income Tax payable for 2007 = 10. RESIDENT FOREIGN CORPORATION A.000 TI = P50.000 35% of TI = P17. b) costs of facilities directly utilized in providing the service such as depreciation or rental of equipment used and costs of supplies II. from foreign currency transactions with nonresidents.) Cost of Services *means all direct costs and expenses necessarily incurred to provide the services required by the customers including: a) salaries and employee benefits of personnel. you may deduct 3. discounts & allowances ( . including local branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units Offshore Exempt Income derived by banking units offshore banking units authorized by the BSP.same as domestic corp.500 ( .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Excess of MCIT over the normal income tax shall be carried forward & credited against normal income tax for the 3 succeeding years Example: (proceeding from above example) Situation A: If regular income tax (35% of taxable income) is greater than MCIT (2% of GI) Pay Regular Income Tax For 2007 calendar year: GI = P500.) On taxable income from all the sources within Philippines.000 NOTE: MCIT carry forward as of 2007 is already 3.000 2% of GI = P10. 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards)
Income Tax payable for 2007 = 17.) Sales returns. consultants and specialists directly rendering the service.000 2% of GI = P10.
. Regular Income Tax is already greater than MCIT.
exchanged and/or indorsed to another international airline form part of the GPB if the passenger boards a plane in a port or point in the Philippines o If the ticket is indorsed to another airline. to begin. 6572. and contemplates. passenger/cargo must QuickTime™ and a TIFF the Philippines decompressor originate from(Uncompressed) this picture. et al. Inc. for a flight which orginates in the Philippines but transshipment (transfer) of passenger takes place at any port outside the Philippine on another airline.
Air Canada vs. that is. 72 PHIL 524. the GPB will be charged to the transferee/indorsee Provided. tickets revalidated. o Note: Transfer of airline company. Does not apply to offline carriers o On line carriers: those with landing rights in the Philippines
• • • • •
. Verily. if its not. it is still liable to pay income tax as a resident foreign corporation.. excess baggage. the flights carrying the passengers must have originated or started from the Philippines. Now we adopt the originating rule meaning to form part of GPB. as authorized to operate by the CAB and having no flights originating from the Philippines in a continuous and uninterrupted flight. In the case of The Mentholatum Co. cargo. petitioner. CTA Case No. Under Section 22 of the 1997 Tax Code. 2004 It is evident that the definition of ‘Gross Philippine Billings’ under Section 28(A)(3)(a) of the 1997 Tax Code covers the gross revenue derived from the carriage of persons. not transfer of aircraft GPB rule in the NIRC is a departure from the old rule which emphasized where tickets were bought. are needed to see Does not apply to domestic corporations (Ex. 22.” However. Dec.5% on gross Phil. with regard to the term ‘doing’ or ‘engaged in’ business. In other words. to start (a person or thing) on a course or journey. and in progressive prosecution of commercial gain or for the purpose and object of the business organization. However. only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment shall form part of the GPB. cargo and mail ‘originating from the Philippines in a continuous and uninterrupted flight’ irrespective of the place or sale or issue and the place of payment of the ticket or passage document. refers to gross revenue derived from carriage of persons. PAL) Carrier must be an alien resident corporation. irrespective of the place of sale or issue and the place of payment of the ticket or passage document Provided.. excess baggage.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
branches of foreign banks that may be authorized by the BSP to transact business with offshore banking units. based on their Gross Philippine Billings. there is no fixed or specific criterion as what constitutes ‘doing’ or ‘engaging’ in business. The term implies continuity of commercial dealings and arrangements. Mangiliman. cannot be taxed pursuant to Section 28(A)(3)(a) of the 1997 Tax Code. start’. ‘To originate’ would mean ‘to cause the beginning of. CIR. the Honorable Supreme Court had thoroughly and clearly explained the term in this way: “…There is no specific criterion as to what constitutes ‘doing’ or ‘engaging in’ or ‘transacting’ business. although petitioner Air Canada is not liable to pay the tax as an international air carrier (2. Regional/Area Headquarters Regional Operating Headquarters of Multinational companies Exempt 10% On taxable income o Off line carriers: those without landing rights but may nevertheless be selling tickets in the Phil subject to tax treatment of ordinary resident foreign corporation What’s controlling is the amount stated in the ticket and not the actual purchase value..” Page 18 of 145
Gross Philippine Billings • For international air carriers. then it will be subject to 35% tax on GI as non-resident alien corporation. to that extent. the term ‘resident foreign corporation’ applies to a foreign corporation engaged in trade or business within the Philippines. being an off-line international carrier. vs. Each case must be judged in the light of its peculiar environmental circumstances. Billings). and mail originating from the Philippines in a continuous and uninterrupted flight. et al. the performance of acts or works or the exercise of some of the functions normally incident to. while the term ‘non-resident foreign corporation’ applies to a foreign corporation not engaged in trade or business within the Philippines.
Domestic corporation paid cash dividend to non-resident foreign corporation (NRFC) organized in Brazil. salaries. Distinguish between a branch and a subsidiary o If branch. a foreign airline company selling tickets in the Philippines through their local agents. such as the appointment of a local agent.). This serves as an incentive by
INCOME TAX RATES I.5% On gross income of vessel charted by Philippine nationals Owner or lessors 7. Capital Gains (not subject to FT) NON-RESIDENT FOREIGN CORPORATION Cinematographic 25% On gross income Film owner. branch pays amount to regional headquarters supposedly for administrative support services The amount paid for the services will still be subject to BPRT because the tax is imposed on “any form QuickTime™ and a TIFF (Uncompressed) decompressor of remittance. premiums (except reinsurance prem. INDIVIDUALS
A. The dividend received shall only be taxed at 15% in the Phils (instead of 35%) if Brazil will reduce/credit at least 20% of the tax imposed in the Phils. there must be continuity of conduct and intention to establish a continuous business. agencies or branches. direct or indirect. subject to BPRT o If subsidiary amounts received by non-resident foreign corporation would be treated as dividends it becomes part of its Gross Income from within taxable at 35% Branch will first be subjected to ordinary corporate tax as a resident foreign corporation (35%). periodic/casual gains. Phils.
Gross Income includes interest. machineries and other equipment
TAX SPARING CREDIT • Tax reduced by the Philippines should be fully applied or credited to the tax on dividend income received by the non-resident foreign corporation imposed by the country of its domicile. In general
Page 19 of 145
. emoluments or other fixed/determinable annual.” Branch Profit Remittance Tax • • BPRT shall be imposed on any profit remitted by a branch to its head office. lessor or distributor Owner or lessors 4. (Because branch assumes personality of an RFC and is therefore taxable as such) Any remittance. royalties.” are needed to see this picture. X foreign corp. dividends. and not one of a temporary character. as in the case at bar. the profits for remittance shall then be subject to 15% BPRT.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
“In order that a foreign corporation may be regarded as doing business. This shall form part of NRFC’s income therefore taxable also in Brazil. In General Gross Income from all sources within the Philippines (except Capital Gains on sale of domestic shares subject to final tax) 32% (2000-2005) 35% (2006-2008) 30% (2009 onwards) • reducing their tax liability in the Philippines and in their residence countries. In other words. [See Section 28(5)(b)] If Brazil will credit/reduce less than 20% or will not credit any amount. has both regional headquarters and branch in Philippines. Afterwards. Instead of remitting straight to X. shall be considered as resident foreign corporation engaged in trade or business in that country for such activities show continuity of commercial dealings or arrangements and performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of commercial gain or for the purpose and object of the business organization. III. from its tax imposed in Brazil. so long as you can trace it from a branch to the foreign parent corporation subject to BPRT o Ex. whether liaison offices. rents. NONRESIDENT FOREIGN CORPORATION A. annuities. cannot give more than 15% tax credit because the law only allows such.5% On gross income of aircraft. then the Phils will tax the dividend at 35% (ordinary income tax). Ex.
Special Tax Rates for Aliens – Please see
exhibit II.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Graduated rates of 5 to 32%. not voluntary). law does not talk about the net gain. • Rule for Exchange o FMV of the property exchanged/given up shall be basis of CGT. CGT on B will be based on 2M) • Exception on Principal Residence QuickTime™ and a o Gains TIFF (Uncompressed) this have been realized presumedsee decompressor to picture. transaction is not subject to CGT. as implemented by Rev.
B. even if the sale was at a loss (bought for 2M. it only considers gross selling price/FMV whichever is higher. Passive Income – Please see exhibit
Capital Gains from Sale of Real Property • Final tax on gross selling price or current fair market value. hence. by permitting the earnings and profits of the corporation to accumulate instead of dividing them among or distributing them to the shareholders (Ex. CGT will still be imposed on entire proceeds of the disposition. B. or other disposition of real property located in the Philippines. o If the disposition took nature of expropriation (no meeting of the minds. (Ex. sold for 1M). in addition to other taxes. It is a tax in the nature of a penalty to the corporation for the improper accumulation of its earnings. Net gain (if any) will be treated as part of GI. they would incur no tax in respect to the undistributed earnings and profits of the corporation. • Refers to real property held as capital asset (not used for business/investment) as opposed to ordinary asset (used in ordinary course of business). • Special Rule for disposition to government o Taxpayer has option of treating the proceeds as (a) taxable income (5-32% on net gain) or as capital gains (6% final tax on FMV/gross selling price). if the distribution were not made to them. Rationale If the earnings and profits were distributed. • Imposed upon capital gains presumed to have been realized from the sale. including pacto de retro sales and other forms of conditional sales. Tax rate for Resident Foreign Corporation – Please see exhibit D. and a deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends Page 20 of 145
. the proceeds of which is fully utilized in acquiring new principal residence within 18 months from disposition shall be exempt from CGT. CORPORATIONS A. In general 2006-2008 – 35% 2009-onwards – 30% B. whichever is higher. Reg. A exchanges property worth 1M for B’s property worth 2M CGT on A will be based on 1M. are needed to from sale or disposition of principal residence. Exemption does not include exchange of principal residence for a new principal residence subject to rules on exchange above. 2-2001 which prescribes rules governing the imposition of IAET) A. o If second option is chosen: 6% final tax shall be based on actual consideration and not FMV since the former is usually lower than FMV (BIR Ruling). Holding company). o If the new principal residence is cheaper than old (meaning there is no full
C. the shareholders would then be liable for income tax. exchange. Rule There is imposed for each taxable year. Tax rate for special types of Resident Foreign Corporation – Please see exhibit
IMPROPERLY ACCUMULATED EARNINGS TAX (“IAET”) (Sec. Passive Income and other income – Please see exhibit C. • Law presumes a gain. 29. the difference will be subject to CGT. Includes disposition by judicial order and other forms of forced disposition. o utilization of the proceeds). o Can be availed only once every 10 years. a tax equal to 10% of the improperly accumulated taxable income of domestic and closely-held corporations formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation.
and collecting the income therefrom or investing the same. 7916.
G. and 2) where the earnings or profits of a corporation are permitted to accumulate beyond the Page 21 of 145
. Composition: The following constitute accumulation of earnings for the reasonable needs of the business: (ILL ABE) 1) Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the corporation as of Balance Sheet date. are of see this picture. or 2) a direct correlation of anticipated needs to such accumulation of profits. 3) Earnings reserved for building. publicly-held corporations. inclusive of accumulations taken from other years. and 7) Enterprises that are registered: (a) with the Philippine Economic Zone Authority (PEZA) under R. Immediacy Test – It states that the “reasonable needs of the business” are the 1) immediate needs of the business. the IAET.A. Exempt Corporations: The IAET shall not apply to the following corporations: (BIG-PEN-T) 1) Banks and other non-bank financial intermediaries. 3) Publicly-held corporations. or b) 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. F. 1. if any.A. and (c) under special economic zones declared by law which enjoy payment of special tax rate on their registered operations or activities in lieu of other taxes. Domestic corporations not falling under the aforesaid definition are. 2) Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditure as approved by the Board of Directors or equivalent body. therefore. 6) In the case needed tosubsidiaries of foreign corporations in the Philippines. national or local. What is meant by “reasonable needs of the business” is determined by the Immediacy Test. D. 7227. Covered Corporations: Only domestic and closely-held corporations are liable for IAET. 6) Non. Determination of Purpose to Avoid Income Tax 1) The fact that a corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members A “holding or investment company” is a corporation having practically no activities except holding property. (b) pursuant to the Bases Conversion and Development Act of 1992 under R. 4) Taxable partnerships. Closely-held corporations are those: a) at least 50% in value of the outstanding capital stock. all undistributed earnings intended or reserved for investments within the Philippines as can be proven by corporate records and/or relevant documentary evidence. H. Expansion) How to prove the “reasonable needs of the business”: The corporation should prove that there is 1) an immediate need for the accumulation of the earnings and profits. 5) General professional partnerships.taxable joint ventures. 5) Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is legal QuickTime™ and a prohibition TIFF (Uncompressed) decompressor against its distribution. plants or equipment acquisition as approved by the Board of Directors or equivalent body. and 2) reasonably anticipated needs (Ex. 2) Insurance companies. Period for Payment of Dividend/IAET: The dividends must be declared and paid or issued not later than one year following the close of the taxable year.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
tax on the earnings distributed to them. E. should be paid within fifteen (15) days thereafter. otherwise. 4) Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement. C. Exception The use of undistributed earnings and profits for the reasonable needs of the business would not generally make the accumulated or undistributed earnings subject to the tax.
in this case. Cyanamid Phils. limited to fees. The mere recognition of a future problem or the discussion of possible and alternative solutions is not sufficient. GROSS INCOME All income derived from whatever source.salaries. I. vs.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
reasonable needs of the business. A Debt-to-Equity ratio (Current Assets over Current Liabilites) of 2:1 is indicative of the liquidity of a corporation. A speculative and indefinite purpose will not suffice. 3) Amount Received by Insured as Return of Premium • Under life insurance. hence the socalled "2 to 1" rule. received either during the term or at the maturity of the terms or upon surrender Page 22 of 145
I. commissions & similar items 6) Annuities 7) Royalties 8) Dividend Income 9) Gains derived from dealings in property 10) Pensions 11) Partner’s distributive share from the net income of the GPP (distributive share from ordinary
. II. endowment. and further accumulation would expose it to the IAET. 108067. not otherwise intended for the reasonable needs of the business. 2) Income Exempt under Treaty • To the extent required by any treaty obligation binding upon the Phil govt. Prima facie instances of accumulation of profits beyond the reasonable needs of a business and indicative of purpose to avoid income tax upon shareholders 1) Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business. • Can be a gift if given on account of filial relationship. income from such property shall be included in GI • Must be characterized by disinterested generosity and pure liberality • Difficult to establish gift situations if there is an Er-Ee relationship (A bonus/assistance as recognition of service rendered is not exempt) • If given under a) constraining force of any moral or legal duty or b) from the incentive of c) an anticipated benefit of an economic nature or where it is a return for services rendered. partnerships is taxable as dividends. from tortious acts) taxable Recovery of items previously deducted Taxable from gross income (return of capital) Forgiveness of indebtedness (if effect of Not entire transaction is a reduction of Taxable purchase price of property acquired in prior year) Income derived form illegal business Taxable (gain) Recovery of lost earnings Taxable BIR Ruling #017-2003 The transfer of land made by a person to another in payment of services rendered in the form of attorneys fees shall be considered as part of the gross income of the latter valued at either the fair market value or the zonal valuation. wages. 2) Investment in bonds and other long-term securities. and 3) Accumulation of earnings in excess of 100% of paid-up capital. CA. Jan. 2000 Ideally. Definiteness of plan/s coupled with action/s taken towards its consummation is essential. the ordinary partnership has already been subject to ordinary corporate income tax) All income from whatever source derived Recovery of damages (compensation for Not injury. The controlling intention of the taxpayer is that which is manifested at the time of accumulation. • Most critical consideration is the giver’s intention or motive. but notare needed to see this picture. GR No. 20. for services decompressor 5) Compensation TIFF (Uncompressed) in and a including. EXCLUSIONS FROM GROSS INCOME (GIRL CRM) 1) Gifts. proceeds cannot qualify as a gift. Bequests & devises • But. the working capital should equal the current liabilities and there must be 2 units of current assets for every unit of current liability. or annuity contracts. whichever is higher. in the taxable year received. including (but not limited to the following items) (GRIP CARD GPP) 1) Gross income derived from the conduct of trade or business or the exercise of a profession 2) Rent Income 3) Interest Income 4) Prizes & winnings QuickTime™ whatever form paid.
h) Reasonable Private Benefit Plan o Conditions: (i) at least 50 yrs old. Damages from car accident exempt only if claim includes compensation for personal injury. for the purpose of distributing to such officials & employees the earnings & principal of the fund thus accumulated. it is exempt (Ex. there/s only partial exemption to the extent that the proceeds constitute return of capital (total amount of premiums paid). however. In RPBP. all is excludable. 6) Retirement Benefits. 5) Compensation for Injuries or Sickness • Received through Accident/Health Insurance or Workmen’s Compensation Act. Pensions. he cannot claim exemption of the benefits on this ground but he can claim under other grounds such as RPBP or RA 7641. reason that he was separated for reasons beyond his control. as compensation for personal injuries/sickness + amount of damages received on account of such injuries/sickness • Damages will be exempt only if they arise together with personal injury. & provided in the plan that no part of the income shall be used for/be diverted to any purpose other than for the exclusive benefit of the said officials & employees Service must be continuous. you cannot avail of another RPBP). Employee can claim exemption under RPBP then later claim on the ground that the amount he received is a consequence of his separation in a subsequent job for any cause beyond his control Page 23 of 145
. gratuity. therefore. stock bonus or profit-sharing plan maintained by an ER for the benefit of some or all of his officials/employees. A government employee can claim exemption for retirement benefits received from the GSIS even after availing of RPBP taxpayer can claim RPBP after qualifying as a private employee then under GSIS proceeds exemption after qualifying as a government employee o Ex. the interest payments shall be included in the GI • Insured must die to avail of total exemption. he cannot are needed to see this picture. damages for car wreckage will only be exempt to the extent of the amount of the actual damage return of capital) • Must be physical injury. or both. but you can avail of exemption under another ground o Ex. Section 32(B)(6) g) RA 7641 o Conditions: (i) at least 60 years old. You can “avail of the benefits only once” (once you’ve availed of RPBP. sickness or other physical disability) o Sickness must be job threatening must render taxpayer incapable of working (Ex. Gratuities • Forms a) RA 7641 or Reasonable Private Benefit Plan o See below for rules b) Amount received as a consequence of separation for any cause beyond control (death. Does not include STD) o Benefits from separation due to retrenchment come under exemption (no choice/option. but if the Ee avails of an optional QuickTime™ and a TIFF (Uncompressed) decompressor early retirement plan. c) Benefits received from a foreign government by resident of non resident citizens or aliens who reside permanently in the Philippines d) Veterans benefits e) Benefits under SSS f) Benefits received from GSIS • 2 Options under paragraph (a). if damages only amount to return of capital. If he survives. If no personal injury. not injury to rights.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
of the contract 4) Life Insurance • Proceeds of life insurance policies paid to the heirs/beneficiaries upon the death of the insured • If such amounts are held by the insurer under an agreement to pay interest. (ii) 5 years of service at time of retirement o Availed if there is no reasonable private benefit plan (benefits under this option is less) o Limted exemption: ½ month salary for every year of service. (ii) in the service of same employer for at least 10 years at time of retirement o Must be approved by BIR o A pension. wherein contributions are made by such ER for the officials/employees.
awards in sports competition sanctioned by national sports associations whether held in Philippines or abroad • Contemplates a particular competition. cannot just be randomly selected. artistic./its political subdivisions (from public utility or exercise essential governmental function) • Key: Income should accrue to government. (c) prizes. educational. whether an individual or corp. bonds or other domestic securities) • Refers only to passive income.000 (f) GSIS. not a cumulative achievement (Ex. debentures or other certificates of indebtedness with a maturity of more than 5 years (h) Gains from redemption of shares in mutual fund
SPECIAL TREATMENT OF FRINGE BENEFIT A. take note of 7 categories.e. it is not exempt look at charter of political subdivision/GOCC to determine whether its income accrues to the government or not. if the income is retained by the public utility. stocks. Medicare.
7) Miscellaneous Items (a) income derived by foreign government (from investments in Philippines in loans. scientific. charitable. Fringe Benefit Any good. If the foreign government engages in trade. dues & other expenses borne by the employer for the employee in social & athletic clubs or other similar organizations 7) expenses for foreign travel 8) holiday & vacation expenses 9) educational assistance to the employee or his dependents 10) life or health insurance & other non-life insurance premiums or similar amounts in excess of what the law allows B.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
• Terminal Leave Pay: amount paid for the commutation of leave credits o Excludable only for government employees (this exemption does not find support in NIRC but is backed by SC decision and BIR Ruling #143-98) BIR Ruling #125-98 The phrase “shall not have availed of the privilege under a retirement benefit plan of the same or another ER” found in Sec. Sportsman of the year award does not qualify for exemption) (d) prizes & awards in recognition of religious. Pag-ibig contributions & union dues of individuals (g) Gains form the sale of bonds. Nature of FBT Final tax imposed on the grossed-up monetary value of fringe benefit furnished/granted to the EE by the ER. BIR Ruling #143-98 The terminal leave pay of government employees whose employment is coterminous is exempt since it falls within the meaning of the phrase “for any cause beyond the control of the said official or EE” found in Sec. 32(B) of the CTRP. • Contemplates a rational selection process. driver & others) 5) interest on loan at less than market rate to the extent of the difference between the market rate & actual rate granted 6) membership fees. service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees) such as. productivity incentives & Christmas bonus) Total exclusion shall not > P30. 32 (B) (6) (a) of the Tax Code means that the retiring official or EE must not have previously received retirement benefits from the same or another employer who has a qualified retirement benefit plan. income is taxable. SSS. but not limited to the ff: 1) housing 2) expense account 3) vehicle of any kind 4) household personnel (such as maid. (payable by the employer) Effective 1/1/98 34% Page 24 of 145
. (b) income derived by govt. but only if: recipient was selected without any action on his part recipient not required to render substantial future services as a condition of receiving the prize/award Example: Nobel prize award • Construed strictly. & other (e) 13 are needed to see this picture. literary or civic achievement. It does not include athletic achievement. QuickTime™ and a th TIFF pay month (Uncompressed) decompressor benefits (i.
vs. etc j) Daily meal allowance of overtime work not exceeding 25% of basic minimum wage
III. Er can deduct FBT from its taxable income. Adequate records should be kept to support the deductions. He must be able to prove that he is entitled to the deduction authorized or allowed.000 f) Laundry allowance of P300 per month g) Employee achievement awards. For rank and file. • Exception: If the nature of the Er’s business is hazardous to health of Ee. If employee is given housing allowance in cash. one seeking a deduction must point to some specific provisions of the statute in which that deduction is authorized & must be able to prove that he is entitled to the deduction which the law allows. it is called an allowance. CIR.000 d) Uniform and clothing allowance not exceeding P3. if it qualifies as a Fringe Benefit. January 12. Fringe Benefits not subject to FBT (a) FB authorized & exempted from tax under special laws (b) Contributions of ER for the benefit of the employee to retirement.000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees QuickTime™ and a TIFF (Uncompressed) decompressor needed h) Christmas are and to see this picture. hence.000 per year e) Actual yearly medical benefits not exceeding P10.000 or 1 sack of 50 kg rice amounting to not more than P1. whether granted under a CBA or not (d) De minimis benefits De Minimis benefits a) Monetized unused vacation leave credits of private employees not exceeding 10 days during the year and monetized value of leave credits paid to government officials and employees b) Medical cash allowance to dependents of employees not exceeding P750 per semester or P125 per month c) Rice subsidy of P1. Deductions for income tax purposes partake of the nature of tax exemptions. The deduction claimed must have been subjected to withholding tax. for length of service or safety achievement in the form of tangible personal property other than cash or gift certificate. However. marriage. birth of a baby. major anniversary celebrations not exceeding P5. fruits.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
1/1/99 1/1/00 33% 32% CONVENIENCE OF THE EMPLOYER RULE • When a fringe benefit is given solely for the convenience of the employer. • Ex. with an annual monetary value not exceeding P10. Allowances (benefits to rank and file) are not subject to FBT. Because deductions are strictly construed against the taxpayer. 1981)
• • •
WHO MAY AVAIL OF THE DEDUCTIONS? 1) Individuals Page 25 of 145
. C. Expenditure on housing of engineer within factory premises is not subject to FBT • General Rule: If housing is located outside. The basic principle governing deductions from gross income apply to all taxpayers. housing can be located outside the factory without being subject to FBT. insurance & hospitalizations benefit plan (c) Benefits given to the rank & file employees. books or similar items given to employees under special circumstances on account of illness. DEDUCTION FROM GROSS INCOME • • • Defined as: Items or amounts which the law allow to be deducted from gross income in order to arrive at the taxable income. then it follows that deductions must be STRICTLY construed. this will constitute compensation of the employee (income from whatever source). Fringe benefits are only for corporate officers/management. the fringe benefit is exempt from FBT because the employee does not recognize income from the benefit. Corp. then it will be subject to FBT and the burden is shifted to Er (Tax on Ee. if required.000 per employee per annum i) Flowers. Burden on Er)
Fringe benefit is an income of the employee subject to Fringe Benefit Tax but is payable by the Employer. (Atlas Consolidated Mining & Dev’t. it is subject to FBT. • Ex. if tax exemptions are to be strictly construed.
34 (BELT DID CRP) 1) Bad Debts 2) Expenses 3) Losses
Page 26 of 145
. salaries. management.Amount must be reasonable. business or exercise of a profession. Corporations QuickTime™ and a o Itemized Deductions decompressor TIFF (Uncompressed)
are needed to see this picture. public policy or morals.50% of net sales (gross sales less sales returns/allowances & sales discounts) for taxpayers engaged in sale of goods or properties. wages & other forms of compensation for personal services actually rendered (including grossedup monetary value of FB). business/ profession 3. but the final tax should have been paid 2. Must be ordinary AND necessary (both must be complied with) b. Estates and Trusts Section 62 of the NIRC ITEMIZED DEDUCTIONS/ ALLOWABLE DEDUCTIONS SEC. (b) resident foreign corp. Must be paid or incurred during the taxable year c. Non-resident aliens not engaged in trade or business in the Philippines.It is not contrary to law. operation and or conduct of the trade. including reasonable allowance for: 1. EXPENSES (SEC 34A) 1) Ordinary & necessary trade. o Premium payments on health and/or hospital insurance (if requisites are complied with) o Personal and additional exemptions 3. entertainment. . & operation & conduct of trade. . (RR No.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
(a) citizen (b) resident alien (c) non-resident alien doing business in the Philippines (d) member of GPP 2) Corporations (a) domestic corp. Individuals with gross income from business or practice of profession: o Optional Standard Deduction (OSD) OR Itemized deductions o Optional Standard Deductions – 10% of the gross income. Non-resident foreign corporation THE FOLLOWING ARE THE ALLOWABLE DEDUCTIONS FROM GROSS INCOME BASED ON CLASSES OF TAXPAYER: 1. user or possessor 4. 2. or 1% of net revenue (gross revenue less discounts) for those engaged in sale of services. 10-02) EXPENSES TO BE DEDUCTIBLE: . This is in lieu of the itemized deductions.Amount must be substantiated. May be availed only by individuals (except nonresident aliens) who are not purely compensation income earners. business/ profession > The Regulations impose a limit of 0. travel expenses in pursuit of trade. amusement & recreation expenses directly connected to the devt. Must be paid or incurred in carrying on or which are directly attributable to. the development. (c) proprietary educational institutions & hospitals (d) GOCCs WHO CANNOT AVAIL OF DEDUCTIONS FROM GROSS INCOME: 1. .
4) 5) 6) 7) 8) 9) 10)
Taxes Depreciation Interest Depletion of oil & gas wells & mines Charitable & other contributions Research & Development Pension trusts
1.Tax required to be withheld must have been paid to the BIR 2) Substantiation sufficient
4. mgt. Individuals with gross income from employeeemployer relationship only (gross income only): o Premium payments on health and/or hospital insurance (if requisites are complied with) o Personal exemptions and additional exemptions 2. including exercise of profession and use or lease of properties. business or professional expenses only REQUISITIES FOR DEDUCTIBILITY: a. Citizens and resident aliens whose income is purely compensation income (except for premium payments on health and/or hospitalization insurance).. rentals &/or other payments as lessee. and 3.
Necessary expense – appropriate and helpful in the development of taxpayer’s business and are intended to minimize losses or to increase profits. exp. In tax cases. income subjected to FT = P1. expenses which constitute bribe. being against law and public policy are not deductible from gross income (Sec.000 . INTEREST Requisites for deductibility.: P2. kickback. Business expense – expenditure related to the business that is deductible in the year incurred.(P1. such as in the form of depreciation. LIMITATION ON DEDUCTION Interest expense shall be reduced by an amt. business or exercise of profession (e) interest expense must have been paid or incurred during the taxable year (f) interest must have been stipulated in writing (g) interest must be legally due (h) interest payment arrangement must not be between related taxpayers (i) interest must not be incurred to finance petroleum operations (j) in case of interest incurred to acquire property used in trade. in the same taxable year. of expense deducted (b) direct connection/relation of the expense to the development. financial statements or other adequate records) to substantiate: (a) amt. Expenses allowable to private educational institutions: In addition to the expenses allowable as deductions. business or profession of the taxpayer 3) Bribes. (b) there should be an interest expense paid or incurred upon such indebtedness (c) indebtedness must be that of the taxpayer (d) indebtedness must be connected with the taxpayer’s trade. official receipts. While illegal income will form part of the income of the taxpayer. = P2. business.500 Deduct as int. These are the day to day expenses. GENERAL RULE ON DEDUCTION . the same was not treated as a capital expenditure (k) the interest id not expressly disallowed by law to be deducted from gross income of the taxpayer. often to resolve financing and exchange control problems. Capital expense – expenditure that improves or adds to the value of your property or equipment. Not immediately deductible. the proceeds of which are invested in income earning interest that is subject to 20% final tax.
DEDUCTIBLE INTEREST EXPENSE: Page 27 of 145
.500 x 42%) = P1. back-to-back loan is used to take advantage of the lower rate of tax on interest income and a higher rate of tax on interest expense deduction. exp.is a method of borrowing without entering into a debtor/creditor relationship. or exercise of profession shall be allowed as a deduction from the taxpayer’s gross income. % of interest income subjected to FT: 1/1/00 38% 1/1/06 42% (RA9337) 1/1/09 33%
Example: Year 2006 Int. 34A1c). 13-2000 TIFF (Uncompressed) decompressor are be an indebtedness (a) there must needed to see this picture. as implemented QuickTime™ and a by Rev. a private educational institution has the option to elect either: (a) to deduct as expense those otherwise considered as capital outlays of depreciable assets for the expansion of school facilities (b) to capitalize asset & deduct allowance for depreciation 2.370 The objective of the limitation is to discourage tax arbitrage on back to back loans. It is deductible over time. business or exercise of profession.e. equal to the ff.The amount of interest expense paid or incurred within a taxable year of indebtedness in connection with the taxpayer’s trade. and other similar payment. Reg.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
evidence (i. Kickbacks & Other Similar Payments: not deductible Ordinary expense – normal or usual in relation to the taxpayer’s business and the surrounding circumstance.000 Int. management operation &/or conduct of the trade. Tax arbitrage.
are deductible from gross income. hence. interest on preferred stock which in reality is dividend 9. between members of a family (include only brothers & sisters. interest paid when there is no stipulation for the payment thereof OPTIONAL EXPENSE TREATMENT OF INTEREST
. NON-DEDUCTIBLE INTEREST (a) interest paid in advance through discount or otherwise(in case of cash basis taxpayer) allowed as deduction in the year the debt is paid if indebtedness is payable in periodic amortizations. it must be imposed directly on the taxpayer d. 8. Interest paid by a corporation on scrip dividends. 4. of the principal paid. Reg. such as those paid for deficiency or delinquency. profession or business c. it must be paid or incurred in connection with the taxpayer’s trade. Rev. Interest on deposits paid by authorized banks of the BSP to depositors. TAXES -the term “taxes” refers to national and local taxes. spouse. except in the case of income tax). ancestors.All taxes. between Fiduciary & a beneficiary of a trust 7. if either one is a personal holding co. 5. is deducted in proportion of the amt. 80. even though it is not directly liable for the indebtedness. 3. more than 50% in value of outstanding stock owned by same individual. between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust 6. 2. Interests o b. interest on unpaid salaries and bonuses 10. during the taxable yr. interest calculated for cost keeping on account of capital or surplus invested in business which does not represent charges arising under interest-bearing obligation 11. indebtedness is incurred by a service contractor to finance petroleum corp. between QuickTime™ and a fiduciary of any grantor & TIFF (Uncompressed) decompressor trust are needed to see this picture. The interest on unpaid business tax shall not be subjected to the limitation on deduction. it must not be specifically excluded by law from being deducted from the taxpayer’s gross income NON-DEDUCTIBLE TAXES (a) Philippine income tax (but FBT can be deducted from gross income RR 8-98)) (b) income tax imposed by authority of any foreign country (except when the taxpayer signifies his desire to avail of the tax credit for taxes of foreign countries) (c) estate & donor’s taxes (d) taxes assessed against local benefits of Page 28 of 145
. However. surcharges o c. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) 3. & lineal descendants) 2. paid or incurred during the taxable year in connection with the taxpayer’s profession. and means TAXES PROPER. or a foreign holding co. since taxes are considered indebtedness (provided that the tax is a deductible tax. and surcharges on account of taxes are not deductible. or local. fines. interest incurred to acquire property used in trade or business may be allowed as: (a) as expense (deduction) (b) as capital expenditure 3. Interest paid by a corporate taxpayer who is liable on a mortgage upon real property of which the said corporation is the legal or equitable owner. national. 2) DEDUCTIBLE TAXES .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
1. REQUISITES FOR DEDUCTIBILITY: a. interest on taxes. trade or business.at the option of taxpayer. between 2 corps. it must be paid or incurred within the taxable year b. penalties. no deductions are allowed for: o a. between an individual & a corp. preceding the date of sale/exchange 4. if it is shown that the tax on such interest was withheld. (b) payments made: 1. penalties or fines incident to delinquency (sec. int.
can be claimed by the corporation as deduction. Citizen 2. Foreign Corp. Exceptions to the rule that only such persons on whom the tax is imposed by law can claim deduction thereof: a. Alien individual (except resident aliens deriving income from within & without the Phils. A corporation paying the tax for the holder its bonds or other obligation containing a tax-free covenant clause cannot claim deduction for such taxes paid by it pursuant to such covenant. Beneficiary to seean picture. b. The amount of income derived from each country. dependent upon whether the accounts of the taxpayer are kept and his returns filed upon the accrual basis or upon cash receipts and disbursements. Divided by total income from ALL sources Subtotal Multiplied by Philippine Income Global Limitation WHEN CREDIT FOR TAXES MAY BE TAKEN: The credit for taxes provided by Section 34(C)(3) to (7) may ordinarily be taken either in the return for the year in which the taxes accrued or on which the taxes were paid. What amount may be taken as tax credit: The amount of tax credit allowed is equivalent to the tax paid or incurred to a foreign country during the taxable year but NOT TO EXCEED THE FOLLOWING LIMITS: Per Country Limitation – Amount of credit to tax paid/incurred to any country shall not exceed same proportion of the tax against which such credit is taken
Income from outside the Phils (per country) Divided by Phil. The total amount of the income derived from sources without the Philippines. taxes of shareholder upon his interest as such and paid by the corporation without reimbursement from him. b. WHO CAN CLAIM? 1. Limitation of Credit (Substantiation Requirements) -The tax credit shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner the following: a. Income Subtotal Multiplied by: TOTAL income from ALL sources Limitation per country Global Limitation – Total amount of credit shall not exceed same proportion of tax which such credit is taken Total income from OUTSIDE the Phils. such amount to be determined under rules and regulations prescribed by the Secretary of Finance. and c. Member of GPP and a TIFF (Uncompressed) decompressor are needed of this estate 4.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
a kind tending to increase the value of the property assessed (e) final taxes. being in the nature of income tax (f) special assessments Taxes. (Tax Benefit Rule) For NRAETB and RFC.. or trust WHO CANNOT CLAIM? 1. Domestic Corp QuickTime™ 3. the tax paid or incurred to which is claimed as a credit under said paragraph. All other information necessary for the verification and computation of such credits. Page 29 of 145
. when refunded or credited. taxes to be deducted shall be allowed only if & to the extent that they are connected with income from sources w/in the Philippines Tax Credit: a right of an income taxpayer to deduct from income tax payable the foreign income tax he has paid to his foreign country subject to limitation. shall be included as part of GI in the year of receipt to the extent of income tax benefit of said deduction. taxes paid or incurred are allowed as deductions only if and to the extent that they are connected from income within the Philippines. LIMITATIONS ON DEDUCTIONS In case of a nonresident alien individual engaged in trade/business in the Philippines. if there is reciprocity) 2.
(City Lumber Vs.000 at 32% Less: Allowable Foreign Tax Credit Country A P16. 11K (actual) is the lower amount. get the total of all per country amounts. not < 75% in nominal value of outstanding issued shares is held by same persons b. of such loss .000/200. the former is the lower amount so that is the allowable tax QuickTime™ and a credit. the taxpayer was not exempt from income tax in the year of such net operating loss.Refers to the excess of allowable deductions over gross income of the business for any taxable year.000
A. TIFF (Uncompressed) decompressor
are needed to see this picture.000)] = 16.000)] P28.the 3 year period shall continue to run notwithstanding that the corporation paid its taxes under Page 30 of 145
Computation of Allowable tax credit Tax Due on P200. or other casualties OR from robbery.000 Tax Still Due P37. For limitation B.
Country A Country B Philsource income Total NI – all
• P29. Ordinary Losses a. not deductible.000 P64. the yr.000 Country B : [(40. storm.000 Actual Foreign Tax Paid in Philippine Peso P18.000 27.000 Country B 11. hence.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
DIFFERENCES: Deduction: included in the gross income but later deducted.800 ** maximum tax credit limit B. business or profession lost through fires.000 x 64. there has been no substantial change in the ownership of the business or enterprise. is held by same persons (a) Net operating loss of a business shall be carried over as deduction from GI for the next 3 consecutive taxable yrs. 2. Country B.000 Phil Income Tax due at 32% (d) incurred in trade. Exclusion: not included in the computation of gross income. Example: Particulars Net Income P50.000/200. 1964). 16K is lower than the actual. shipwreck. 28. and 3. January 30.000 ** Cannot exceed maximum tax credit limit NOTE: For limitation A. or practice of profession NET OPERATING LOSS CARRY-OVER (NOLCO) .
4. The taxpayer’s failure to record in his books the alleged loss proves that the loss had not been suffered.000 110. B. Domingo and CA. not < 75% of paid up capital of corp.000 40.000 x 64.000 P11. business or profession OR property connected w/ trade. incurred in trade or business. LOSSES Requisites for deductibility of ordinary loss (a) loss must be of the taxpayer (b) actually sustained during the taxable year (c) not compensated for by insurance or other forms of indemnity
.000 x 64. Comparing the total of limitation A vs.000)] = 12. Tax Credit: paid beforehand and is deducted from the tax liability of the taxpayer. REQUIREMENTS: 1.8K is lower than the total of the actual amount. Country A. Refers to income received or earned but is not taxable as income because of exemption by virtue of a law or treaty. the loss was not incurred in a taxable year during which the taxpayer was exempt from income tax. which has not been previously offset as deduction from gross income. PER COUNTRY LIMITATION Country A : [(50. theft or embezzlement • No loss shall be allowed as a deduction for income tax purposes if such loss has been claimed as a deduction for estate tax purposes. immediately ff. GLOBAL LIMITATION [(90. There is no substantial change in the ownership of the business when: a.000
Category and Types of Losses 1.000 P64. theft or embezzlement (e) evidenced by a completed transaction (f) not claimed as a deduction for estate tax purposes (g) notice of loss must be filed with the BIR within 45 days from the date of discovery of the casualty or robbery.000/200.
losses from short sales of property d. business. or that the individual availed of the 10% Optional Standard Deduction (b) Net Operating Loss = excess allowable deduction over the GI of extent of the gains from such losses (d) Abandonment Losses In case of abandoned petroleum operations. the sale.not deductible (f) Losses due to voluntary removal of building incident to renewal or replacements – deductible expense from gross income (g) Loss of useful value of capital assets due to charges in business conditions – deductible expense only to the extent of actual loss sustained (after adjustment for improvement. and salvage value) (h) Losses from sales or exchanges of property between related taxpayers – Not deductible as provided under Section 36 of the NIRC but the gains are taxable (i) Losses of Farmers – deductible if incurred in the operation of farm business (j) Loss in shrinkage in value of stock – if the stocks of the corporation become worthless. b.the excess over the net book value immediately before the casualty should be capitalized. Any amount claimed as a loss on account of shrinkage in value of the stock through fluctuation in the market or otherwise cannot be deducted from gross income 5. losses from sale or exchange of capital assets b. storms. losses resulting from securities becoming worthless and which are capital assets c. unamortized cost & undepreciated costs of equipment directly used. the taxpayer has acquired or has entered into a contract or option so as to acquire. theft or embezzlement Total Destruction. Partial Destruction. “Actually ascertained to be worthless”Worthlessness is not determined by an inflexible formula or slide rule calculation but upon the exercise of sound business judgment. shipwreck or other casualties. Special Types of Losses (a) Capital Losses – deductions allowed only to the extent of the gains from such sales or exchanges of capital assets (does not apply to banks and trust companies) a. substantially identical stock/securities General rule: not deductible unless claim is made by a dealer in stock/securities & made in ordinary course of business (c) Wagering Losses . notice of abandonment shall be filed with Commissioner In case of abandoned producing well.the replacement cost to restore the property to its normal operating condition. but in no case shall the deductible loss be more than the net book value of the property as a whole.debts due to the taxpayer actually ascertained to be worthless and charged off during the year. subject to depreciation over the remaining useful life of the property. if the loss arises from fires.allowed only to the
.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
MCIT. allowed as deduction in the yr. the cost or other basis may be deducted by the owner in the taxable year in which the stocks became worthless. carry-over for the next 5 yrs. of operation. The determination of worthlessness must depend upon the Page 31 of 145
(c) For mines other than oil & gas wells. immediately before casualty. losses due to failure to exercise privilege or option to buy or sell property (b) Losses from wash sales of stock or securities QuickTime™ and a 30 TIFF (Uncompressed) decompressor the date of days before and after are needed to see this picture. 2. depreciation. accumulated expenditures incurred prior to 1/1/79 allowed as deduction only from income derived from same contract area. or profession. BAD DEBTS . if loss incurred in any of the 1st 10 yrs. of abandonment (e) Losses from Illegal Transactions . of property connected with the trade. or from robbery.
b. It must be for property used for employment in trade or business or out of its not being used temporarily during the year. to cause plant elements or the plant as a whole to suffer diminution in value (a) In case of property held by one person for life w/ remainder to another person.000.67 2) Special Types of Depreciation (a) Petroleum operations i.6000 x 200% 5 (c) sum of years digits method
6. .000 15. December 22. deduction is computed as if the life tenant were the
nth period x (cost .15. Schedule on the allowance must be attached to the return.666. business or practice of profession. The allowance must be charged off. Goodrich International Rubber Co. taxpayer did in fact ascertain the debt to be worthless in the year for which the deduction was sought.accumulated depreciation estimated life example: rate 200% year 1 -.. 1) Methods of Depreciation (a) straight-line method = cost . of recovery to the extent of the income tax benefit of such deduction (Tax Benefit Rule) Ascertainment of Worthlessness: Proof of two facts: a. and 5.000 . Recovery of bad debts previously allowed as deduction in the preceding yrs.333. (Collector v. b. The allowance for depreciation must be reasonable. May shift from DB method to SL Page 32 of 145
.also applies to amortization of intangible QuickTime™ in assets.salvage value) sum of the years digits example: SYD: 5+4+3+2+1 = 15
year 1 -.33 year 2 . DEPRECIATION .5/15 x (15.gradual diminution in the service or useful value of tangible property due from exhaustion. 21 SCRA 1336) absolute owner of the property & allowed to life tenant (b) In case of property held in trust.Existing indebtedness due to the taxpayer which must be valid and legally demandable. deduction apportioned between the income beneficiaries & trustees REQUISITES FOR DEDUCTIBILITY: a. 3.5.salvage value estimated life example: cost=15. life=5 years = 2. Goodrich.000 = 3. 2. shall be included as part of gross income in the yr. 4. SV=5000.000 . wear and tear and normal obsolescence.000) = 2. that in so doing. A reasonable allowance for the exhaustion.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
particular facts and circumstances of the case. Must not be sustained in a transaction entered into between related parties.15.000 .000 .000 5 years (b) declining balance method = x rate
REQUISITES FOR DEDUCTIBILITY: 1. Depreciation of all properties directly related to production of petroleum shall be allowed under straight-line or declining-balance (DB) method ii. wear & tear of property used in the trade or business. Actually charged off in the books of accounts of the taxpayer as of the end of the taxable year. est.600
year 2 -. theTIFF (Uncompressed) decompressor or business use of which and atrade are needed to is of limited duration.5. see this picture. c.4/15 x (15. he acted in good faith (Collector Vs.000 . Connected with the taxpayer’s trade.. 1967) depends upon the facts and the circumstances of the case good faith does not require that the taxpayer be an incorrigible optimist but on the other hand.5. Actually ascertained to be worthless and uncollectible as of the end of the taxable year. It must be uncollectible even in the future. d.000) = 3.0 5
x 200% = 6. he may not be unduly pessimistic
or its agencies or any political subdivision. DEPLETION OF OIL & GAS WELLS & MINES The reduction of cost or value of natural resources such as oil & gas wells.. or quality of any deposit of ore/other mineral & pd/incurred before the beginning of the development stage of the mine/deposit development expenditures = paid/incurred during development stage of the mine or other natural deposits (4) Depletion of Oil and Gas wells and mines deductible by a non-resident alien or foreign corporation only in respect of oil and gas wells or mines located in the Phils. – to finance. incurred if incurred for non-producing wells & mines b) deduct in full OR capitalize & amortize of incurred for producing wells & mines in same contract area (2) Intangible costs in petroleum operations: no salvage value & incidental to & necessary for dwelling of wells & QuickTime™ and preparation of wells for athe production of TIFF (Uncompressed) decompressor are petroleum needed to see this picture. No further allowance is granted if the allowance for depletion = the capital invested (1) Intangible exploration & development drilling costs: a) deduct in the yr. to accredited domestic corps. exclusively for public purpose iii. depreciation on all properties in mining operations other than petroleum operations at the normal rate if expected life is 10 yrs or less. location. to or for the use of the govt. (3) Election to deduct exploration & development expenditures for mining corps. or. youth & sports development. deductible shall not exceed 25% of NI actual exploration & development expenditures net of 25% of NI shall be carried forward to succeeding yrs. if expected life is > 10 yrs. or to be used in undertaking priority activities in education. The change shall not be effective before the taxable year on which notice in writing by certified mail or registered mail is served by the party initiating. & mines as the resources are converted into inventories. to provide for. Useful life: 10 yrs.: ii. (a) deduct as cost (b) deduct as adjusted basis provided./associations organized & operated exclusively for: (1) religious (2) charitable (3) scientific (4) youth & sports development (5) cultural or educational purposes (6) for the rehabilitation of veterans (7) to social welfare institutions (8) to NGOs iv. under straight-line method (b) Mining operations i. bet. human settlements. 8. Contributions or gifts actually paid or made w/in the taxable yr. depreciate over any no. Donations to the govt. The agreed rate may be modified if justified by facts or circumstances. 5 yrs. total amt. CHARITABLE & OTHER CONTRIBUTIONS (a) Contributions subject to limitations i. of yrs. extent. science & culture & in economic development Page 33 of 145
.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
method iii. not used directly: 5 yrs. health. or shorter life as may be permitted by Commissioner iv. 7. no part of NI inures to the benefit of any private stockholder or individual for individual: not > 10% of taxable income before deducting the charitable contributions for corporation: not > 5 % of taxable income before deducting the charitable contributions (b) Contributions deductible in full i. ii. until fully deducted exploration expenditures = pd/incurred for the purpose of ascertaining the existence. & the expected life Depreciation deductible by non-resident aliens engaged in trade/business or non-resident corporation only when such property is located in the Philippines The BIR and the taxpayer may agree in writing on the useful life of the property to be depreciated. Useful life of prop.
is extended Administrative expense should not be > 30% of total expenses Upon dissolution. ordinary and necessary expenses in connection with trade business or profession c. 34[J]) REQUISITES FOR DEDUCTIBILITY: a. EXCLUSIONS: (1) Any expenditure for the acquisition or improvement of land. the net income of the institution must not inure to the benefit of any private stockholder or individual. the contribution or gift must be actually paid. character-building & youth & sports development. b. extent. Donations to certain foreign institutions or international organizations . or quality of any deposit of ore or other mineral. in w/c the transfer/payment is made (Sec. educational.) 10. allowed as deduction during the taxable yr. but not chargeable to property of a character w/c is subject to depreciation/depletion (4) amortized over a period of not < 60 months as may be elected by the taxpayer LIMITATIONS ON DEDUCTIONS – not applicable to. The employer must have established a Page 34 of 145
. & foreign institutions/international organizations iii.in pursuance or compliance with agreements. or for the important of prop. govt. it must be given to the organizations specified in the code. location. when pd. Established or maintained by employer to provide for the payment of reasonable pensions to his employees. Donations to accredited NGOs Organized & operated exclusively for scientific. including oil or gas (exploration exp. health. c. paid or incurred during the taxable year b. treaties. unless pd. 34(A)(1) as “expenses in general”. in connection w/ hisdecompressor business or trade. or commitments entered into by Phil. REQUISITES FOR DEDUCTIBILITY: a.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
according to National Priority Plan determined by NEDA If not in accordance w/ annual priority plan. expenses w/c are not chargeable to capital account. to be used in same purpose as the dissolved corp. cultural or charitable purposes or combination thereof (no part of NI inures to the benefit of any private individual) W/in 15th of the 3rd month after the close of the taxable yr. Allowed as a deduction under Sec.. social welfare./incurred REQUISITES FOR DEDUCTIBILITY AS EXPENSE: a. not chargeable to capital account Requisites for amortization of certain R&D expenditures (treated as deferred expenses): (1) paid/incurred by the taxpayer in connection w/ his trade/business (2) not treated as expense (3) chargeable to capital acct. to be used in connection w/ R&D of a character subject to depreciation & depletion (2) Any expenditure paid/ incurred for the purpose of ascertaining the existence. allowed as deduction only if: (a) such amount not been allowed as a deduction (b) apportioned in equal parts over 10 consecutive years beginning w/ the yr. PENSION TRUSTS (past service cost) Pension Trust Contributions – a deduction applicable only to the employer on account of its contribution to a private pension plan for the benefit of its employee. organized for similar purpose or to the state for public purpose or to another org. This deduction is purely business in character. • Past Service Cost – amount in excess of the above contribution (covering pension liability pertaining to old employees which accrued during the years previous to the establishment of the pension trust). (c) VALUATION of property donated other than money: acquisition cost 9. RESEARCH AND DEVELOPMENT Paid or incurred by a taxpayer during the taxable QuickTime™ and a yr. assets would be distributed to another nonprofit domestic corp.. donation is subject to limitations in (1) above ii. TIFF (Uncompressed) are needed to necessary profession as ordinary & see this picture. makes utilization directly for the active conduct of activities constituting the purpose/function of the org. • Normal Cost – the contributions during the taxable year to cover the pension liability accruing during the taxable year.
That said family had a gross income of not more than P250. spouse. 32(B)(6) 3.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
pension or retirement plan to provide for the payment of reasonable pensions to his employees. ADDITIONAL REQUIREMENT FOR DEDUCTIBILITY OF CERTAIN PAYMENTS tax required to be deducted/withheld has been paid to BIR B.000 for the taxable year. c. NON-DEDUCTIBLE ITEMS Specific Items Under Section 36: 1. Insurance(Uncompressed) have actually been must decompressor TIFF taken. Individual taxpayers earning purely compensation income during the year. Applicable to any individual. d. more than 50% in value of outstanding stock owned by same individual. PREMIUM PAYMENTS ON HEALTH AND/OR HOSPITALIZATION INSURANCEan amount of premium on health and or hospitalization paid by an individual taxpayer (head of family or married). DEDUCTION FROM GROSS INCOME – a. Amounts expended in restoring property or in making good the exhaustion thereof for w/c an allowance is or has been made 4. b. f. except a nonresident alien b. or so paid to place the trust in a sound financial basis – deductible under Sec. Page 35 of 145
11. living or family expenses 2. & lineal descendants) b) between an individual & a corp. 60(B) 2. Such election should be signified in his return & shall be irrevocable for the taxable year for which the return was made Individual is not required to submit his financial statements
b. spouse claiming additional exemption shall be entitled to this deduction. EXEMPT FROM INCOME TAX – employees’ trust under Sec. The amount of premium deductible from gross income does not exceed P2400 per family or P200 per month during the taxable year. Personal. only the
. 2. more than 50% in value of outstanding stock is owned by such individual (except in case of distributions in liquidation) c) between 2 corps.
e. In case of married individuals.
Summary rules on Retirement Benefits Plan/ Pension Trust 1. Who may Avail of this deduction: 1. REQUISITES FOR DEDUCTIBILITY: QuickTime™ and a a. The amount contributed must be no longer subject to the control and disposition of the employer. amounts contributed by the employer during the taxable year into the pension plan to cover the pension liability accruing during the year – considered as ordinary and necessary expenses under Sec. c. 1/10 of the reasonable amount paid by the employer to cover pension liability applicable to the years prior to the taxable year. The pension plan is reasonable and actuarially sound. EXCLUSION FROM GROSS INCOME – amount received by the employee from the fund upon compliance of certain conditions under Sec. It must be funded by the employer. Premiums on life insurance policy when the taxpayer is directly/indirectly a beneficiary under such policy 5. 34 (J). d. No deduction shall be allowed in Losses from Sales or Exchanges of Property directly/indirectly: a) between members of a family (include only brothers & sisters. 12. and The deduction is apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer of payment is made. 34(A)(1). ancestors. Amounts paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate (not applicable to intangible drilling & development costs incurred in petroleum operation) 3. for himself and members of his family during the taxable year. b. OPTIONAL STANDARD DEDUCTION (OSD) a. Taxpayer may elect to pay a standard deduction in an amount not exceeding 10% of GI a. Individual taxpayers earning business income or in practice of his profession whether availing of itemized or optional standard deductions during the year. are needed to see this picture. The payment has not yet been allowed as a deduction.
Senior Citizen is: 1. recognized natural/legally adopted children 2) Who are living with & dependent upon him for their chief support 3) Where such brothers/sisters/children are: (a) Not more than 21 years old (b) Unmarried. can be classified as a dependent to make a taxpayer a head of a family not exceeding 4 (RA 7432) • In case of married individuals. and sisters. are needed to see picture.000
25. who are qualified dependents may entitle the taxpayer to the personal exemption of P25. husband is working abroad like an OFW or a seaman 3.000 32.” • Under the provision on additional exemption for dependents. and (c) Not gainfully employed QuickTime™ a (d) Or. any resident citizen of the PHilippines Page 36 of 145
C. only such spouse shall be allowed additional exemption.” • A senior citizen. • Parents. or a foreign holding co. where only 1 of the spouses is deriving gross income.000. thisregardless of age. 3. ADDITIONAL EXEMPTION P8. the personal exemption shall be equal to that allowed by the income tax law of the country to a citizen of the Philippines not residing therein. illegitimate and legally adopted The proper claimant of the additional exemption would be the husband. lliving with the taxpayer or not.000
Head of Family 1) an unmarried/legally separated man/woman with (a) One or both parent (b) One or more brothers or sister (c) One or more legitimate. are incapable of self support because of mental or physical defect • An illegitimate child is within the meaning of a “recognized natural child.000 8. whichever is LOWER. recognized natural. term “dependents.000 as head of the family but not to the additional exemption of P8.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
if either one is a personal holding co.TIFF (Uncompressed) decompressor where and such children. and 2. illegitimate children are specifically included under the
. brothers. PERSONAL EXEMPTION AND STANDARD DEDUCTION (OSD) Personal Exemption
Single Married Individual (or judicially declared as legally separated without any dependent) Head of Family (unmarried or legally separated with qualified dependent/s) Each married individual Each dependent (not exceeding 4)
P20. • Chief support means more than one half of the requirements for support. or the amount provided in the NIRC. whether relative or not.000 for EACH of the qualified dependent children not exceeding 4 in number. husband explicitly waived his right of the exemption in favor of his wife in the withholding exemption certificate. the income tax law of his country allows personal exemption to citizens of the Philippines not residing therein but deriving income therefrom and not to exceed the amount allowed in NIRC. during the taxable yr. being the head of the family except under the following cases: 1. country from which he is a citizen has an income tax law. preceding the date of sale/exchange d) between grantor & fiduciary of any trust e) between Fiduciary of a trust & the fiduciary of another if same person is a grantor to each trust f) between Fiduciary & a beneficiary of a trust A person is said to be “financially interested” in the taxpayer’s business if he is a stockholder thereof or he is to receive as his compensation a share of the profits of the business. > Non-resident aliens engaged in trade or business (NRAETB) may be entitled to personal exemptions subject to reciprocity: 1. Qualified dependent children – legitimate. brothers/sister. • Note: • Personal and additional exemptions are available only to business income and compensation income earners. husband is unemployed 2.
the taxpayer may still claim the same exemptions as if he/she died. NRAETB may deduct personal exemption (but NOT additional exemption). Mutual Insurance Companies Shall not report as income premium deposits returned to policyholder Report income received from all other sources plus such portion of premium deposits retained by the companies for purposes other than payment of losses & expenses & reinsurance reserves c. Change of Status i. claimed only by the spouse who has custody of the children. Alien individual employed by Regional or Area Headquarters of Multinational Companies f. or became twenty one years old or became gainfully employed at the close of such year. Alien Individual employed by Offshore Banking Units g. Non-resident alien NOT engaged in trade or business e. unmarried & not gainfully employed OR if such dependent regardless of age is incapable of self-support because of mental/physical defect i. Special deductions: net additions required by law to reserve funds & the sums other than dividends paid w/in the yr. Alien Individual employed by Pertroleum Service Contractor and Subcontractor Deduction for Estate or Trust . Assessment Insurance Companies Deduct from gross income the actual deposit of sums w/ the officers of the Phil. Definitions . and 3. For married individuals. Income & Deductions of Insurance Companies a. gross premiums collected & received by them less amounts paid for reinsurance. Dependent = legitimate/illegitimate/legally adopted child chiefly dependent upon & living with the taxpayer if such dependent is not > 21 years old. a.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
2. For legally separated spouses. may be claimed by both as long as they have custody of the children but total amount claimed by both shall not exceed the maximum allowed b.No definition in the Code for capital assets. has an income of not more than sixty thousand pesos per annum subject to the review of the National Economic Development Authority(NEDA) every three years. as if he died at the end of such year ii. CAPITAL GAINS & LOSSES 1. claimed by only 1 of the spouses ii.P20. ORDINARY ASSETS: (a) stock in trade of taxpayer (b) property which would properly be Page 37 of 145
. or (Uncompressed) decompressor gainfully employed TIFF become are needed to see this picture. If the spouse should die or any of the dependents become twenty one years of QuickTime™ and a age. at least sixty 60 years old. Mutual Marine Insurance Companies Include in gross income. of release b. The death of the taxpayer during the taxable year shall not affect the amount of personal and additional exemptions his estate can claim. If the taxpayer got married or should have additional dependent (child born within the year) during the taxable year. governmentt as additions to guarantee or reserve funds G. NOTE: Individuals not entitled to personal and additional exemptions: d. during the taxable year. SPECIAL RULES COMPANIES ON INSURANCE
1. he may claim the corresponding personal exemptions in full for such year iii. Only Ordinary assets are defined a.000 F. and shall not exceed the aforementioned amounts. include as deductions amounts repaid to policyholders on account of premiums previously paid by them & interest paid upon those amounts between the ascertainment & payment thereof d. NRANETB cannot claim any personal or additional exemption. including those who have retired from both government offices and private enterprises. on policy & annuity contracts. but only to the extent allowed by his country to Filipinos not residing therein. released reserve treated as income for the yr.
Percentage taken into account Taxpayer other than a corporation (Individuals. NET CAPITAL LOSS – loss > gains from sales/ exchanges of capital assets 2. Option to buy or sell property: Example: Suppose X Inc. Section 39 (F) or the provision on the failure to exercise privilege will not apply. Suppose the same situation above but Y fails to Page 38 of 145
. Y exercised the option and bought the property. in expectation of the decline in their price. are needed to see this picture. on the last day of such taxable year.. note or certificate or other evidence of indebtedness issued by any corp.000 only since it should not exceed the net income of the taxable yr. Notes or Certificates or other evidences of indebtedness Tax Base: Amount received by the holder for such transaction These transactions result in capital gain or loss although there is no sale of capital assets 6. the actual holding period is taken into account.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
included in an inventory of the taxpayer. Exception: If securities become worthless during the taxable year and are capital assets. capital assets are property of a taxpayer other than ordinary assets. Such net capital loss that should be carried over should not exceed the net income for the year Incurred (prior year’s net income) d. as a loss from the sale/exchange of a capital asset held for not more than 12 mos. such loss is treated in the succeeding taxable yr. substantial part of business is receipt of deposits. the loss resulting therefrom shall be considered as a loss from the sale or exchange. 37 5. sell any bond. Net Capital Loss Carry-over a.000 TIFF (Uncompressed) decompressor In this case. debenture. Gains & Losses attributable to failure to exercise privileges or options to buy or sell property = capital gains/losses Note: Short sale is a transaction in which the seller sells securities which he does not own and. hence. if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business b. Limitation on Capital Loss Allowed only to the extent of the gains from such sales or exchanges. Gain or Loss from Short Sales of Property a. w/ int.000 • treated as a loss in 1997(100%) = P6.100% if the capital asset is held for more than 12 months .O. c. therefore. estates and trusts) .000 Losses 15. owns real property worth Php 10 M. Example: NI in 1996 = P6.000 NCL QuickTime™ and a P10. NET CAPITAL GAIN – gains > loss from sales/ exchanges of capital assets d. If net capital loss is sustained in any taxable yr. CAPITAL ASSETS – property held by the taxpayer (whether or not connected with his trade or business) Hence. Y gives X Inc. Retirement of Bonds. Corporations cannot carry over a net capital loss b. coupons or in registered form (including one issued by government or political subdivision) the
4.50% if the capital asset is held for less than 12 months Note: GR: for purposes of computing capital loss and capital gain.000 NCL in 1996 = 10. What will the tax treatment? It will be subject to 6% capital gains tax under Section 27 (D) (5). the net capital loss is not deductible. Before the 2 year period ends. w/c the loss was incurred • Net income should be understood as TAXABLE income according E. of capital assets. (100% deduction) c. cannot himself supply the securities for delivery. Example: Gains P 5. Debentures. 3.000 can deduction (to the extent of the gain) Exception: Losses from such sale incurred by a domestic bank/trust co. Php 2M as option money for a 2-year option period. Considered as gains & losses from sales/exchanges of capital assets b. be claimed as only P5.
” 2. (both corps.
Same as the basis of property. GAIN = amt.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
exercise his option. are parties to the merger/consolidation) (c) security holder of a corp. AMOUNT REALIZED = money received + fair market value of the property (other than money. the basis shall be such FMV for the purpose of determining the loss amount paid by the transferee
Acquired for less than adequate consideration if property acquired where G/L is not recognized
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. the option money will be a capital gain for X and a capital loss for Y. for the stock of another corp. It only says “attributable to a property. gains control of said corp. realized (cost > selling price/proceeds) c. are parties to the merger/consolidation) (2) If property is transferred to a corp. Computation of Gain or Loss a. (stocks issued for services shall not be considered as issued in return for property) o Control is ownership of stocks in a corporation possessing at least 51% of the total voting power of all classes of stocks entitled to vote. The law does not say if it should be an ordinary or capital asset. realized > basis/adjusted basis for determining gain (in other words. if any) received Mode of Acquisition Purchase Inheritance Basis for determining gain/loss from sale/disposition of property cost of property acquired on/after 3/1/1913 fair market value as of the date of acquisition (at the time of death) the cost to the donor or to the previous owner who did not acquire it by gift. BUT. EXCEPTION: no gain or loss is recognized (tax-free exchanges) (1) If in pursuance to a plan of merger or consolidation (a) a corporation exchanges property solely for stocks in a corp. (both corps. of w/c as a result of such exchange such person. LOSS = basis/adjusted basis for determining loss > amt. GENERAL RULE: the entire amount of the gain or loss shall be recognized upon the sale or exchange of property b. by a person in exchange for stock/unit of participation in such corp. selling price or proceeds > cost) b. DETERMINATION OF AMOUNT RECOGNITION OF GAIN OR LOSS
1. if such basis > FMV at the time of the gift. Exchange of property a. (both parties to merger/consolidation) (b) shareholder exchanges stock in a corp. BASIS: same as the basis of property. What will be the tax treatment? In that case. solely for stock or securities in another corp. not exceeding 4 persons. stock/securities exchanged (a) decreased by: • money received • fair market value of the other property received (b) increased by: • amount treated as dividend • amount of any gain recognized by the exchange Page 39 of 145 • other property received liability assumed by the transferee
H. of any gain recognized by the exchange (2) decreased by: • money received • fair market value of the
. Note: the property subject of option need not be a capital asset. stock/securities exchanged (1) increased by: • dividends • amt. exchanges his securities in such corp. alone/together w/ others.
When there is no boot. trademarks. if : > 50% of the Gross Income of such foreign corp. . period ending w/ the close of the taxable yr.) giving rise to royalties Location of property Place of Sale
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. the basis is the transferor’s property given up because the rules provided that the basis would be the same basis as the property given up by the transferor. A.Transferor’s basis is Section 40 (C) (5) (a) while transferee’s basis is Section 40 (C) (5) (b). SOURCES OF INCOME * The need to identify the situs of the income arises only when the taxable entity is merely taxed on income within. such assumption shall be treated as money received by the transferor on the exchange if transferor receives several kinds of stock/securities. transferred in the hands of the transferee: same as would be in the hands of the transferor increased by the amt.– income within b) from foreign corp. the transferee of property assumes a liability of the transferor/acquires from the latter property subject to a liability. when the taxable entity is an individual resident TIFF (Uncompressed) decompressor corporation. income within. In this kind of transaction. for the 3yr. Hence. etc. the rule is always the transferor’s basis. for the 3yr. of the gain recognized to the transferor on the transfer Note: . nothing of such dividends forms part of income within Place of performance of service
Services (Compensation for labor/personal services) Rentals Royalties
IV. . Commissioner is authorized to allocate the basis among the several classes of stocks/securities basis of the prop. period ending w/ the close of the taxable yr. GROSS INCOME FROM SOURCES WITHIN THE PHILIPPINES Income Interests Test of Source of Income Residence of Debtor Gain on sale of Real property Gain on sale of Personal Property other than shares of stock in a domestic corporation purchased in one country and sold in another
Location of the property/interest in such property Place of use or location of intangibles (such as patents. Dividends a) from domestic corp. prior to the declaration of dividends was derived from sources w/in the Philippines.Boot is any cash or property given in addition to the shares of stock received by a transferor in a tax-free exchange. prior to the declaration of dividends (or for such part of such period as the corporation has been in existence) was derived from sources w/in the Philippines Extent: Phil Gross Income x Dividend =Income Total Gross Income within Income without. citizenQuickTime™ and a or a domestic are needed to since they the situs becomes irrelevant see this picture. are taxed on worldwide income.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
property received as ‘boot’ shall have the FMV as basis if part of the consideration to the transferor. if < 50% of the Gross Income of such foreign corp. the basis is the same as transferor’s basis minus boot increased by the recognized gain. . Therefore.When there is boot.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Gain on sale of shares of stock in a domestic corporation Philippines regardless of where sold gross income within. However, the cost of selling the shoes may not be deducted from income within since it is not attributable to income within. Rather, it is specifically attributable to income without. 2. Deductions: expenses, losses & other deductions properly allocated thereto & a ratable part of expenses, interests, losses & other deductions effectively connected w/ the business/trade conducted exclusively w/in the Philippines which cannot definitely be allocated to some items or class of gross income Such deductions shall be allowed only if fully substantiated by all info necessary for its calculation 3. EXCEPTION: no deduction for interest paid/incurred abroad shall be allowed unless • Indebtedness was actually incurred • Indebtedness must be that of the taxpayer • Interest must be legally due and stipulated in writing • Interest must be paid or incurred during the taxable year • Indebtedness must be in connection w/ the conduct or operation of trade/business in the Philippines B. GROSS INCOME FROM SOURCES WITHOUT THE PHILIPPINES 1) Interests (other than those derived from sources within the Philippines) 2) Dividends (other than those derived from sources within the Philippines) 3) Compensation for labor or personal services performed w/o the Philippines 4) Rentals or royalties from property located w/o the Philippines or from any interest in such property including rentals/royalties for the use of or for the privilege of using w/o the Philippines, patents, copyrights, secret processes & formulas, goodwill, trademarks, trade brands, franchises & other like properties 5) Gains, profits & income from the sale of real property located w/o the Philippines Tip: The foregoing enumeration is merely the reverse of the enumeration of gross income from sources within the Philippines. Hence, so long as you know which income are considered as income within, all else are income without. Taxable Income from Sources Without the
ROYALTIES (from property or use of property located in Philippines), includes: (a) use of/the right/privilege to use in the Philippines any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right (b) use of/the right to use in the Philippines any industrial, commercial or scientific equipment (c) supply of scientific, technical, industrial or commercial knowledge or information (d) supply of any assistance that is ancillary & subsidiary to, & is furnished as a means of enabling the application or enjoyment of, any such property/right in (a) above, such equipment in (b) above or knowledge/info in (c) above (e) supply of services by a nonresident person/his employees in connection with the use of prop./rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person (f) technical advice, assistance or services rendered in connection with technical mgt./admin. Of any scientific, industrial or commercial undertaking, venture, project or scheme (g) the use of or the right to use: i. motion picture films ii. films or video tapes for use in connection with TV iii. tapes for use in connection with radio broadcasting Taxable Income from Sources Within the Phils. 1. General Rule Gross Income [GI] (within the Philippines) ( - ) Deductions (attributable to GI within) = Taxable Income •
TIFF is meant decompressor by “attributable”(Uncompressed) this picture. expense can that the are needed to see be identified as the expense that generated the income. For instance, if ABC Corp. manufactures clothes and sells it in the Phils., and sells shoes in the US. The cost of manufacturing the clothes are attributable to the income generated from selling the clothes. Since the income from the sale of clothes is income within, then the expense for manufacturing them must be deducted from QuickTime™ and a
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Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Income Deductions without --------------- x Unallocated = from -----------expense Worldwide income Income without Philippines 1. General Rule Gross Income (without the Philippines) ( - ) Deductions (attributable to GI without) = Taxable Income 2. Deductions: expenses, losses & other deductions properly apportioned/allocated thereto & a ratable part of expenses, interests, losses & other deductions w/c cannot definitely be allocated to some items or class of gross income C. INCOME FROM SOURCES PARTLY WITHIN AND PARTLY WITHOUT THE PHILIPPINES. These are: 1. Income from services rendered partly within and partly without; 2. Income from sale of personal property produced (in whole or in part) within and sold without the Philippines; and 3. Income from sale of personal property produced (in whole or in part) without and sold within the Philippines. Personal Property Income Produced here and sold party within, without without Produced here and sold Income within here Produced abroad and Income partly sold here partly without Purchased without and Income within sold within Purchased within and Income without sold without Purchased within and Income wiithin sold within QuickTime™ and a decompressor Taxpayer sells it TIFF (Uncompressed) this picture. partly abroad toIncome are needed see through a sales office partly without Income within -------------------------Worldwide Income Deductions x Unallocated expense = from income within
A. ACCOUNTING PERIODS 1. General Rule (Sec. 43): Taxable income is computed upon the basis of taxpayer’s annual accounting period (fiscal or calendar year) in accordance with the method of accounting employed 2. If no method of accounting employed or method does not clearly reflect the income, computation shall be made in accordance w/ such method as the opinion of the Commissioner clearly reflects the income. 3. taxable income is computed based on calendar year if: (a) accounting period is other than a fiscal year (b) taxpayer has no accounting period (c) taxpayer does not keep books (d) taxpayer is an individual 4. fiscal year: accounting period of 12 months ending on the last day of any month other than December 5. calendar year: accounting period from January 1 to December 31 B. PERIODS IN WHICH ITEMS OF GROSS INCOME INCLUDED (Sec. 44) 1. Amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, any such amounts are to be properly accounted for in a different period under methods of accounting permitted 2. In case of death of taxpayer include for the taxable year in which falls the date of his death, all amounts which accrued up to the date of his death, if not otherwise properly includible in respect of such period or a prior period C. PERIOD FOR WHICH DEDUCTION CREDITS TAKEN (Sec. 45) Page 42 of 145 AND
As for unallocated expenses, meaning those which are not entirely attributable to either income within or without, such expenses shall be allocated using the following formula:
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
1. Deductions provided in this Title shall be taken for the taxable year in which ‘paid or accrued’ or ‘paid or incurred’, dependent upon the method of accounting upon the basis of which the net income is computed, unless, in order to reflect the income, deductions should be taken as of a different period. 2. In case of death of taxpayer: deductions allowed for the taxable period in which falls the date of his death, amounts accrued up to the date of his death if not otherwise properly allowable in respect of such period or a prior period D. CHANGE OF ACCOUNTING PERIOD (Sec. 46) 1. Kinds of changes: (a) from fiscal year to calendar year (b) from calendar year to fiscal year (c) from one fiscal year to another fiscal year 2. effect of change: net income shall, with the approval of the Commissioner, be computed on the basis of the new accounting period, subject to Sec. 47 on Final or Adjustment Returns for a Period of Less Than 12 Months (as discussed below) E. METHODS OF ACCOUNTING 1. CASH METHOD - recognition of income and expense dependent on inflow or outflow of cash (meaning, you recognize the income when you actually receive the cash payment for the sale, and you recognize the expense when you actually pay cash for the expense) 2. ACCRUAL METHOD - method under which income, gains and profits are included in gross income when earned whether received or not, and expenses are allowed as deductions when incurred, although not yet paid. It is the right to receive and not the actual receipt that determines the inclusion of the amount in gross income
are needed to see this picture. Examples: (a) interest or rent income earned but not yet received (b) rent exp. accrued but not yet paid (c) wages/salaries due but remaining unpaid QuickTime™ and a TIFF (Uncompressed) decompressor
lease payments are made on a yearly basis and are due every January 5. A leased out the space to X on January 1, 2004. However, X will only pay rent for one year on January 5, 2005. For the year 2004, A should recognize income of P1M as of December 31, even if he will receive payment only on January 5 because the he is considered to have earned the P1M already for allowing X to actually use the space for the year 2004. F. ACCOUNTING FOR LONG-TERM CONTRACTS 1. Long-term contracts: building, installation or construction contracts covering a period in excess of 1 yr 2. Persons whose gross income is derived in whole or in part from such contracts shall report such income upon the basis of percentage of completion 3. The return should be accompanied by a return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under the contract 4. Deductions from gross income: all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. 5. Amended return may be permitted/required by the Commissioner: if upon completion of contract, taxable income has not been clearly reflected for any year(s) • This provision takes into account that certain businesses, like construction, takes more than a year for a project to be completed. As such, it is not practical (from the point of view of the government) to wait until the project is finished before the income arising therefrom is actually reported and taxed. Hence, income is spread over the years where the construction is in progress, and the allocation is made on the basis of percentage of completion.
Illustration: ABC Corp. entered into a contract with X whereby the former agreed construct a condominium for the latter to be completed in 5 years for a fee of P10M. For the first year of construction, ABC Corp was able to construct 30% of the condominium. It will therefore Page 43 of 145
Illustration: A leases an office space at P1M per year and
000. trades or businesses (w/n incorporated & w/n organized in the Philippines) owned or controlled directly/indirectly by the same interest 2) Commissioner is authorized to distribute.000 P 25.500 2. considered as capital asset & is otherwise qualified to report the gain under (2) above may pay the capital gains tax in installments under R&R to be promulgated by the Sec. taxpayer at the close of the taxable year) for a price > P1.000 3. Example: Sale in 1997 payable in 2 equal annual installments. How to compute for income: Contract Price/ Installments Receivable Cost (GP) P100. which the gross profit realized or to be realized when payment is completed. upon recommendation of the Commissioner 2) capital asset: property held by the taxpayer (whether or not connected with his trade or business) but does not include: (a) stock in trade of taxpayer (b) property which would properly included in inventory. or (b) sale or other disposition of real property. initial payments: payments received in cash or property other than evidence of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made SALES OF REAL PROPERTY CONSIDERED AS CAPITAL ASSET BY INDIVIDUALS 1) individual who sells of disposes of real property. of Finance. if on hand (c) merchandise inventory (d) depreciable assets used in the trade/business (e) real property used in trade/business 4. CHANGE FROM INSTALLMENT BASIS ACCRUAL TO
* installments payable in 2 equal annual installments GP/Contract Price ratio = 25T/100T = 25% Collections in 1997 = P50T Income for 1997 = P50T x 25% = P12. of Finance. SALES OF REALTY AND CASUAL SALES OF PERSONALTY 1) in cases of: (a) casual sale or other casual disposition of personal property QuickTime™ and a (other(Uncompressed) decompressor hand of the TIFF than inventory on are needed to see this picture. ALLOCATION OF INCOME AND DEDUCTIONS 1) Applicable to: cases of 2 or more organizations.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
declare a gross income of P3M computed as follows: P 10 M x 30% P 3M INSTALLMENT BASIS 1.000 75. apportionment or allocation is necessary in Page 44 of 145
. apportion or allocate gross income or deductions between or among such organization. upon recommendation of the Commissioner: a person who regularly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year. bears to the contract price. SALES OF DEALERS IN PERSONAL PROPERTY • Under Rules and Regulations (R&R) prescribed by the Sec. trade or business. if in either case the initial payments do not exceed 25% of the selling price 2) how may income be returned: same as in sales of dealer in personal property above
1) taxpayer must be entitled to benefits under 1 (sales of dealers in personal property) 2) in computing income for the year of change or any subsequent year: amounts actually received during any such year on account of sales or other dispositions of property made in any prior year shall not be excluded G. if he determines that such distribution.
SUBSTITUTED FILING . B. 3. The amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer. SUBSTITUTED FILING OF INCOME TAX RETURNS BY EMPLOYEES RECEIVING PURELY COMPENSATION INCOME. 2. on income derived from sources within the Philippines 4) Nonresident alien engaged in trade or business or in the exercise of profession in the Philippines 5) An individual (citizen/alien) engaged in business or practice of a profession within the Philippines regardless of the amount of gross income 6) Individual deriving compensation income concurrently at any time during the taxable year 7) Individual whose pure compensation income derived from sources within the Philippines exceeds P60. 6. trade or business RETURNS AND PAYMENT OF TAX Tax Return.is when the employer’s annual return may be considered as he “substitute” Income Tax Return of employee inasmuch as the information provided in his income tax return would exactly be the same information contained in the employer’s annual return. The employee receives the income only from one employer during the taxable year. Exempt from income tax under Section 30 of the NIRC but has not shown proof of exemption. the income tax withheld. The employer files the annual information return.This is a report made by the taxpayer to the BIR of all gross income received during the taxable year. non-resident aliens not engaged in trade or business) Those who are qualified under “substituted filing”.000. WHO ARE NOT REQUIRED TO FILE AN ITR: (but TIFF (Uncompressed) decompressor to file an may QuickTime™ and a be required are needed see this picture. REQUISITES: 1. information return topursuant to Rules and Regulations prescribed by the Sec. the income tax due. the net taxable income.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
order to prevent evasion of taxes or clearly to reflect the income of any such organization. 1604-CF) the employer issues BIR Form No. Corporation 1. upon recommendation of the Commissioner) • An individual whose gross income does not exceed his total personal and additional exemptions • An individual whose compensation income derived from one employer does not exceed • • • • • • P 60. 2316 (Oct 2002 ENCS version ) to each employee. The employee’s spouse also complies with all 3 conditions stated above. if any. the allowable deductions including exemptions. 5. Individual 1) Filipino citizen residing in the Philippines 2) Filipino citizen residing outside the Philippines. 4. General Professional Partnership IV. WHO ARE REQUIRED TO FILE AN ITR: I. The employer issues BIR form 2316
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. petroleum service contractors and sub-contractors and offshore-banking units.000 and the income tax on which has been correctly withheld An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies. the income tax rate. INDIVIDUAL RETURN A. substituted filing applies only if all of the following requirements are present the employee received purely compensation income (regardless of amount) during the taxable year the employee received the income from only one employer in the Philippines during the taxable year the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer the employee’s spouse also complies with all 3 conditions stated above the employer files the annual information return (BIR Form No. on his income from sources within the Philippines 3) Alien residing in the Philippines. and the income tax still to be paid or refundable. • I. The employee receives purely compensation income (regardless of amount) during the taxable year. However. Not exempt from Income tax 2. II. Taxable Estate and Trust III.
UNMARRIED MINOR • Income of unmarried minors derived from property received by the living parent shall be included in the return of the parent. or 2) when transfer of such property is exempt from donor’s tax
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. Individuals required to file an information return: Individuals not required to file an income tax return may nevertheless be required to file an information return pursuant to rules and regulations prescribed by the Secretary of Finance upon recommendation of the Commissioner. or for TIFF (Uncompressed) decompressoras if he had in any other purpose. if there be no legal residence/ place of business in the Philippines D. requisites complied : 1) Married individuals (citizens. 1998 2) individual subject to capital gains tax (a) sale/exchange of shares of stock not traded thru a local stock exchange: • within 30 days after each transaction (b) sale/disposition of real property • within 30 days following each sale or other disposition HUSBAND AND WIFE • File 1 return for the taxable yr. It contains the employee’s consent that BIR form 1604CF may be considered his substituted return. business. whichever is higher. professional income) • on or before April 15 of each year covering income for preceding taxable year • example: individual’s income from Jan.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED FILING: 1. WHERE TO FILE • Except in cases where the Commissioner otherwise permits: 1) Authorized agent bank 2) Revenue District Officer 3) Collection Agent 4) Duly authorized Treasurer of the city/municipality in w/c such person has his legal residence/principal place of business in the Philippines. 2002. 6. and opted for non-withholding of tax on said income. Non-resident aliens engaged in trade or business in the Philippines deriving purely compensation income. 2.It is a sworn statement made by the employer and employee. Non-filing of ITR. Individuals deriving other non-business. Thereafter. whether from a single or several employers during the calendar year. the returns fro which shall be filed on or before April 15. 1997. Individuals deriving compensation from two or more employers concurrently or successively during the taxable year. 3. but whose spouse falls under 1 to 4 above. to Dec. Individuals receiving purely compensation income from a single employer although the income tax of which has been correctly withheld. in lieu of BIR Form No 1700.000 or the statutory minimum wage. substituted filing where applicable shall be MANDATORY. fact filed a BIR Form are needed to see this picture. 5. 2. the income tax of which has not been withheld correctly resulting to collectible or refundable return 3. Joint Certification. which the employee no longer filed. on such property. It serves as a proof of financial capacity in case the employee decides to apply for a bank loan QuickTime™ and a or credit car. if ff.. C. which serve the following purposes: 1. resident or nonresident aliens) 2) Do not derive income purely from compensation • If impracticable to file 1 return: each spouse may file a separate return but the returns shall be consolidated by the Bureau for purposes of verification for the taxable yr. non-profession-related income. Employees deriving compensation income regardless of the amount. 4. as indicated in BIR Form 1604-CF. shall be filed on or before April 15. for employees who are qualified for the substituted filing shall be OPTIONAL for the taxable year 2001. WHEN TO FILE: 1) for any individual (compensation. nonprofession-related income in addition to compensation income not otherwise subject to final tax. or compensation income and other nonbusiness. Employees whose monthly gross compensation income does not exceed P5. except: 1) when donor’s tax has been pd. 1700. or 5) Office of Commissioner. It contains the employer’s certification that he has reported the employee’s income to the BIR and that he has remitted the taxes on the employee’s income.
a return of its income (except items under exclusions from gross income) • set forth: 1) items of gross income & of deductions allowed 2) names of partners 3) TIN 4) Share of each partner F. D. except foreign corp.000. of a resolution/plan for its dissolution or for the liquidation of the whole/any part of its capital stock: 1) render a correct return 2) verified under oath 3) set forth the terms of such resolution/plan & such other information as the Sec. grant a reasonable extension of time for filing returns of income (or final & adjustment returns in case of corps. not engaged in trade/business in the Philippines. 38504. of Finance. 2000 It was held that the 30-day period is counted from the approval of the SEC of the corporation’s adopted authority to dissolve. RETURN ON CAPITAL GAINS REALIZED FROM SALE OF SHARES OF STOCK NOT TRADED IN PSE • File a return within 30 days after each transaction • AND. return may be made by: 1) duly authorized agent or representative 2) guardian. including a corporation w/c has been notified of possible involuntary dissolution by the SEC. RETURNS OF GENERAL PROFESSIONAL PARTNERSHIPS • each GPP shall file in duplicate. • REQUIREMENTS: File in duplicate a true & accurate quarterly income tax return & final/adjustment return • Taxable year: fiscal or calendar (corp. the taxpayer. GR No. or 3) other person charged w/ the care of his person/property • principal & his rep. in meritorious cases. are needed to see Regulations. CORPORATION RETURNS A. by Rules and shall.. CIR. this picture. April 14. may elect to pay in 2 equal installments: Page 47 of 145
. or guardian assumes responsibility of making the return & incurs penalty for erroneous. C. false/fraudulent returns • an individual’s name signed in the return is prima facie evidence for all purposes that the return was actually signed by such individual II. captains • failure to do so: Bureau of Customs is authorized to hold the vessel & prevent departure until proof of payment of tax is presented or a sufficient bond is filed to answer for the tax due 2) INSTALLMENT PAYMENT (for individuals only) • If tax due > P2. or for its reorganization • within 30 days after the adoption by the corp. other than a corp. RETURN OF CORPORATION CONTEMPLATING DISSOLUTION/ REORGANIZATION • Which corporation? Every corporation. PAYMENT OF TAX 1) IN GENERAL: Who shall pay? (a) Total amount of tax shall be paid • by the person subject thereto • at the time the return is filed (b) For tramp vessels: • Filed & paid before departure by: the shipping agents &/ or the husbanding agents. WHO IS REQUIRED TO FILE AN ITR: • Every corporation subject to tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
PERSONS UNDER DISABILITY • If unable to make a return. EXTENSION OF TIME TO FILE RETURNS • Commissioner may. shall not change accounting period w/o prior approval by the Commissioner) B. E. upon recommendation of the QuickTime™ and a TIFF (Uncompressed) decompressor Commissioner. in their absence. a final consolidated return of all transactions must be filed on or before 15th day of the fourth month following the close of the taxable yr.) This is exceptional and in case of calamity only based on precedents. prescribe • prior to issuance by the SEC of Certificate of Dissolution/Reorganization: dissolving/reorganizing corporation shall secure a certificate of tax clearance from BIR to be submitted to the SEC BPI vs.
by w/c tax exceeds the amts. previously assessed as a deficiency. of tax • Any deficiency shall be paid upon notice & demand of Commissioner • Deficiency means: a. but the rate may be reduced to 10% for certain royalty payments or under the most-favored-nation-clause of the tax treaty. no return is made. at the time the return is filed 2nd inst. Estates of deceased persons under administration or settlement. and seller submits proof of intent w/in 6 mos. tax due shall be paid w/in 30 days from such receipt of payments • No registration of document transferring real prop. returned or otherwise repaid in respect of such tax • Withholding of Creditable Tax at Source: Sec. 60 (A): 1. he shall be entitled to a refund upon verification of his compliance with requirements for such exemption • If taxpayer elects to report gain by installments. that is. From the registration of the document transferring real property. such as the Philippines-US Tax Treaty.
3) PAYMENT OF CAPITAL GAINS TAX • Paid on the date the return is filed • No payment is required if the seller submits proof of his intention to avail of exemption provided by law • In case of failure to qualify for exemption. and 4. returned/ otherwise repaid b. the tax due shall immediately become due & payable + penalties • If tax has been paid. no amt.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
(a) (b) (c) 1st inst. Commissioner shall examine & assess the correct amt. If any inst. it will not grant more favorable terms to other treaty countries without granting the same concession to the treaty partner involved. the close of calendar yr. on fixed date. credited. if:
ESTATES AND TRUSTS SEPARATE TAXABLE ENTITIES Sec. credited. but such amounts previously assessed/collected w/o assessment shall first be decreased by the amts. → The purpose of the clause in a tax treaty is to grant to the other Contracting State a tax treatment that is no less favorable than that which is granted to the “most favored” among other countries. is shown upon the return as the tax. 3. pd. whole amount of the tax unpaid becomes due & payable + delinquency penalties 1. Trusts where the income is to be accumulated or held for future distribution by the fiduciary.. Unless Commissioner/duly authorized representative certified that such transfer has been reported & tax due has been paid 4) ASSESSMENT & PAYT. which shall be credited against the income tax liability for the taxable year • Most favored nation clause – Royalty income paid by a domestic corporation to a non-resident foreign corporation which is a resident of a Contracting State with which the Philippines has an effective tax treaty is generally subject to 15% final withholding tax. or 2. tax imposed > amount shown by QuickTime™ and a theTIFF (Uncompressed) this picture. → It means each party to the treaty pledges that any tax concession given to any other treaty country will also be extended to the other party to the treaty. previously abated. 2. Trusts where the income which is to be distributed Page 48 of 145
. Trusts where the income may be either accumulated or distributed at the discretion of the fiduciary. residing in the Philippines. OF DEFICIENCY TAX • After return is filed. at rate of not more than 1% but not more than 32%. is not pd. return taxpayer see decompressor upon his are needed to • amount shown in the return shall be increased by amount previously assessed as a deficiency & decreased by amounts previously abated. paid on/before July 15 ff. then: • the amt. of Finance may require the w/holding of a tax by payor-corp. on income payable to natural/juridical persons.
The benefits of the trust will not to go the grantor. the grantor has no control over the corpus of the trust. in the discretion of the fiduciary. and income accumulated or held for future distribution under the terms of the will or trust Income to be distributed currently by the fiduciary to the beneficiaries. depending upon the amounts which are property paid or credited Grantor Grantor
IMPOSITION OF TAX A. under the trust treatment. and income collected by a guardian of an infant which is to be held or distributed as the court may direct Income received by estates of deceased persons during the period of administration or settlement of estates
Estate or Trust
Incom which. If there is a condition that provides that a portion shall be reserved for the grantor’s medical expenses (for example). for the benefit of unborn/ unascertained person(s) w/ contingent interests 2. it is a trust where the title can revest back to the grantor anytime . 2. The grantor has transferred the income earning property to a beneficiary. Income Liable for Tax Page 49 of 145 Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interest.not taxable as an entity because the income forms part of the income of the grantor NOTE: An estate is taxable as a separate entity when it is already subject to a judicial proceeding A trust is taxable as a separate entity if the trust is irrevocable. the power to revest in the grantor title to the property transferred to the trust or any part of the corpus of such trust is vested: a. revocable trust. the entire income shall be taxable in the hands of the grantor. held for future distribution under the terms of the will or trust (b) income: 1. in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom . This is because the grantor has absolutely given up the corpus and any incidents thereto.in short. or b. If the transfer is revocable. then see this whole income or he property is taxable on the part of the grantor. either alone or in conjunction with any person not having substantial adverse interest in the disposition of such part of the corpus. may be either distributed to the beneficiaries or accumulated
Revocable trusts Income for the benefit of the grantor
Fiduciary or Beneficiary. or the income therefore. An irrevocable trust is where the grantor has unconditionally parted with all the incidents of ownership.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
currently by the fiduciary or is collected by a guardian of an infant to be held or distributed as the court may direct. it should be an irrevocable trust. Application of tax: 1) Applies to income of estates or of any kind of property held in trust. this condition does not convert the irrevocable trust to a revocable trust. depending upon the amounts which are property paid or credited Fiduciary or beneficiary. and 3. to be distributed currently by the fiduciary to the beneficiaries 2. tax must be imposed on the income of the trust. He has absolutely given up the incidents of it. including: (a) income accumulated in trust: 1. in the grantor. In this case. the trust retains the income REVOCABLE TRUST A revocable trust is one where. collected by a guardian of an infant to be held or distributed as the court may direct (c) income received by estates of deceased persons during the period of administration or settlement of the estate (d) income which. REQUISITIES FOR THE TAXABILITY OF TRUST: 1. If it is a TIFF (Uncompressed) decompressor are needed to the picture. may be either distributed to beneficiaries or accumulated
. in the discretion of the fiduciary. But that portion is taxable income QuickTime™ and a of the grantor.
it is impossible. may be either distributed to the beneficiary or accumulated 3.000 E. to any legatee. of income included in the return of said trust shall not be included in computing the income of the beneficiaries D. Taxable Income 1) Computed in same manner & on the same basis as in the case of an ‘individual’. heir or beneficiary 2) for trust administered in a foreign country: deductions in a) and b) not allowed provided.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
2) Exception: Employee’s trust which forms part of a pension. purposes other than for the exclusive benefit of his employees (any amount distributed to employees shall be taxable in the yr. properly paid/credited during such yr. deducted is included in TI of the legatee. allowed as deduction is included as TI of the beneficiaries.. amt. of the income of the estate/trust for its taxable yr. so distributed) B. or in the discretion of the grantor/any person not having a substantial adverse interest in the disposition of such part of the income (a) may be held/accumulated for future distribution to the grantor (b) may be distributed to the grantor (c) may be applied to the payment of premiums upon policies of insurance on the life of the grantor 2) Effect: such part of the income be included in computing the taxable income of the grantor G. Income for Benefit of Grantor 1) Requisites: where any part of the income of a trust is. not be allowed are needed to see as deduction under (b) hereof (b) additional deduction: amt./distributed as the court may direct 1. w/c is to be distributed currently by the fiduciary to the beneficiaries & the amt. Fiduciary Returns 1) Who shall make the return? (a) Guardians (b) Trustees (c) Executors (d) Administrators Page 50 of 145
C. the amt. stock bonus or profit-sharing plan of an employer for the benefit of all or some of his employees: (a) if contributions are made to the trust by the employer/employees. income w/c. whether distributed or not 2. Revocable Trusts 1) Requisites: the power to re-vest in the grantor title to any part of the corpus of the trust is vested(a) in the grantor either alone/ in conjunction w/ any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom (b) in any person not having a substantial adverse interest in the disposition of such part of the corpus/income therefrom 2) effect: the income of such trust shall be included in computing the taxable income of the grantor F. in the discretion of the fiduciary. income received by estates of deceased person during the
. at any time prior to the satisfaction of all liabilities w/ respect to employees under the trust. for any part of income to be used for/diverted to. EXCEPT: (a) deduction allowed: amount of income of the estate/trust for the taxable yr. heir or beneficiary applies to cases of : 1. Consolidation of Income of 2/more trusts: 1) Requisites: (a) 2/more trusts exist (b) creator of the trust in each instance is the same person (c) beneficiary in each instance is the same 2) tax computed on such consolidated income 3) proportion of each tax be assessed & collected from each trustee period of administration or settlement of the estate 2. or both for the purpose of distributing to such employees the earnings + principal of the fund accumulated by the trust in accordance w/ such plan (b) if under the trust instrument. of the income collected by a guardian of an infant w/c is to be held. Exemption Allowed to Estates and Trusts: P20. allowed as a deduction under QuickTime™ and TIFF subsection will decompressor this(Uncompressed) this picture. amt. amt.
trust. Amt. assists. each yr. or estate for whom or which they act in case such person. PUBLICATION OF LISTS OF TAXPAYERS & FILERS 1) After the assessment. RETURN OF FOREIGN CORPORATIONS 1) Any attorney. OTHER INCOME TAX REQUIREMENTS A. it cannot be recovered by any suit unless it is proved that the said list. 3. whether actually distributed or not
DECLARATION INDIVIDUALS A. or duly registered gen. or return is false/fraudulently made. copartnership. to its SH out of its earnings or profits & payable to its SH. the returns. In general:
Filing of declaration of estimated income for current taxable yr.: INDIVIDUAL receiving: Income from On/before self-employment (as sole source) or April 15 of Combined w/ salaries. losses or other info B.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
(e) Receivers (f) Conservators (g) All persons/corp. & shall be taxed to them in their individual capacity. Net income of a partnership after deducting the corporate income tax shall be deemed to have been actually or constructively received by the partners in the same taxable yr. trust. wages & same taxable other fixed/ determinable income yr. DISPOSITION OF IT RETURNS. NONRESIDENT CITIZEN for: Not required Income from w/in the Philippines. bank. 15 & Nov. or estate has a gross income = P20. 15 of the ff. statement or return was not false nor fraudulent & did not contain any understatement or undervaluation 2) Not applicable to statements or returns made or to be made in good faith regarding annual depreciation of oil or gas wells & mines E. 2) Commissioner may cause. to file NONRESIDENT ALIEN not engaged in trade/business in the Philippines. or w/ respect to. the formation. corp. shall file a return w/in 30 days 2) Such return shall be in the form prescribe & set forth under oath. whether in money or in other property 1. • Dividends = any distribution made by a corp. organization or reorganization of any foreign corp. arestatement picture. distributed in redemption or cancellation of stock is taxable income to the extent that it represents a distribution of earnings/profits 4. RETURN & PAYMENT OF ESTIMATED INCOME TAX BY INDIVIDUALS 1) Paid in 4 installments 2) 1st installment: paid at the time of declaration 3) 2nd & 3rd installment: paid on Aug. has transacted any business. fiduciary. B. when final adjusted income tax is due to be filed • Estimated Tax means the amt. 4) 4th installment: paid on/before Apr. calendar yr. Stock Dividends representing the transfer of surplus to capital account shall not be subject to tax. 15 of current yr. financial institution or other person. counsels or advises in. 2) File. shall be filed in the Office of the Commissioner & shall constitute public records & be open to inspection as such upon order of the Pres. which the individual declared as income tax in his final adjusted & annual income tax return for the preceding taxable yr./gen. in duplicate.. showing names of customers for whom such person. w/ such details as to the profits. a return of the income of the person. RETURN OF INFORMATION OF BROKERS • Brokers(individual/corp.. minus the sum of the Page 51 of 145
.000 or over during the taxable yr. to the full extent of the info w/in the possession or knowledge or under the control of the person required to file the return C. accountant. w/ the corrections made by the Commissioner.. trust co. DISTRIBUTION OF DIVIDENDS/ASSETS BY CORPS. pawnshop) shall render a correct return duly verified under oath. SUIT TO RECOVER BASED ON FALSE/FRAUDULENT RETURNS 1) If tax is collectedQuickTime™ and a assessment that under an TIFF (Uncompressed) decompressor needed to see this the list. to publish the lists containing the names & addresses of such persons who have filed IT returns D. who aids. Gain/loss sustained by SH for any liquidating dividends received is a taxable income or a deductible loss (as the case may be) 2.
casual labor not in the course of the employer’s trade or business 4. he shall file an amended declaration during any interval of installment payment dates the corp. DECLARATION OF QUARTERLY INCOME TAX 1) Every corp.000 700. by such employer to such employee for such period shall be deemed to be wages 2) Payroll period means a period for which payment of wages is ordinarily made to the employee by his employer. DEFINITIONS.)
C. quarterly. as the case may be Example: 1997 Cumulative Taxable Income Q1: P300.000 Q4: P 2. the corp. shall file in duplicate a quarterly summary declaration of its GI and deductions on a cumulative basis for the preceding quarter(s) upon w/c the IT shall be levied. FINAL ADJUSTMENT RETURN 1) Every corp.. Q2: P 1. final adjustment return shall be filed with: (a) authorized agent banks (b) Revenue District Officer (c) Collection Agent (d) Duly authorized Treasurer 2) Where? (a) of the city/municipality having jurisdiction over the location of the principal office of
. of tax previously pd. monthly. services by a citizen or resident of the Philippines for a foreign government or an international organization (b) if remuneration paid by an employer to an employee for services performed during ½ or more of any payroll period of not more than 31 consecutive days constitutes wages..000 245.000. weekly. liable to tax shall file a final adjustment return covering the total taxable income for the preceding calendar/fiscal yr. including the cash value of all remuneration paid in any medium other than cash.000.000 175.000 (final adjustment return) Tax @35%: 105. paid. employee or elected official of the Philippine Page 52 of 145
E. miscellaneous payroll period means a payroll period other than a daily. domestic service in a private home 3.) On/before the 15th day of the 4th mo. whether calendar/fiscal yr.000
4) Time of Payment of IT: Income tax is paid at the time of the filing of the declaration or return WITHHOLDING TAX ON WAGES A. agricultural labor paid entirely in products of the farm where the labor is performed 2. (a) shall not include remuneration paid for: 1. the close of the first 3 quarters of the taxable yr. D..000 350. biweekly. 1) Wages means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer.000 350. semi-annual. or annual period 3) Employee refers to any individual who is the recipient of wages & includes an officer. collected & paid 2) The tax shall be decreased by the amt.000.000. filing the return (b) or place where its main books of accounts & other data from w/c the return is prepared are kept 3) Time of Filing of IT Return Corp. PLACE & TIME OF FILING & PAYMENT OF QUARTERLY CORPORATE INCOME TAX QuickTime™ and a 1) The quarterly(Uncompressed) tax declaration & the TIFF income decompressor are needed to see this picture.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
• credits allowed against the said tax If during the current taxable yr. shall either: (a) pay the balance of tax still due (b) carry-over the excess credit (c) be credited or refunded w/ the excess amt. quarterly declaration Final adjustment return W/in 60 days ff. the taxpayer reasonably expects to pay a bigger IT.000 875. semi-monthly.000 Payable (each Q) 105. (fiscal yr. 2) If sum of the quarterly tax payments is not equal to the total tax due on the entire taxable income of that yr. On/before the 15th day of April (calendar yr. (sum of TI of Q1 & Q2). then all remuneration pd.500. Q3:P 2./ assessed during the preceding quarters & shall be paid not less than 60 days from the close of each of the first 3 quarters of the taxable yr. after the close of the taxable yr.
There must be a payroll period Compensation Exempted: 1. An amount received by the insured as return of premium 9. STATEMENTS & RETURNS 1) Requirements (a) employer shall furnish EE on/before Jan. Annual Information Returns (b) employer shall submit an annual information return to the Commissioner containing: 1. of whatever nature. as the employee of such person (b) the person having control of the payment of such wages (c) person paying wages on behalf of a nonresident alien individual. total amt. Income exempt under treaty th 11.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Government. false & inaccurate information C.whichever is higher Elements of Withholding on Compensation: 1. or supplies inaccurate/false info. of compensation income of each EE 3. Does not exceed the statutory minimum wages. LIABILITY FOR TAX 1) EMPLOYER: (a) liable for withholding & remittance of the correct amt. 4. GSIS. deeds of trust and other similar obligations of domestic/resident foreign corporation. securities. total amt. Compensation for services of a citizen. of tax (b) if failed to withhold & remit. Remunerations paid for domestic services 4. There must be payment of compensation or wages for services rendered 3. or 3. 2. failure or refusal to file the w/holding exemption certificate 2. Remunerations received as an incident of employment 2. or 2. There must be an employer-employee relationship 2. or on the same day of last payment made (if employment is terminated). to pay the interest without deduction for any tax which the obligor may be required/permitted to pay or to retain therefrom. a written statement confirming the wages paid by the employer to employee 1.000) monthly (60. With copies of statement referred to in (A) above 2) Extension of Time • Commissioner may grant the ER a reasonable extension of time to furnish & submit the statements & returns required Withholding Tax on Compensation: Every employer must withhold from compensation paid. resident of the Philippines. Life insurance 8. Exception: Where such compensation income of an individual: 1. B.000 a year) . employer is liable for the tax + penalties & additions to the tax 2) EMPLOYEE: (a) If fails to file withholding exemption cert. Remunerations paid for agriculture labor 3. Damages 7. 31 of the succeeding yr. Compensation for injuries and sickness 10. SSS. an amount computed in accordance with the regulations. whether bonds. to pay any portion of the tax imposed upon the obligee. mortgages. Five thousand pesos (5. the tax shall be collected from him + penalties or additions to the tax (b) Excess taxes w/held by the employer shall not be refunded if due to: 1. to reimburse the obligee for any portion of the tax. a list of employees 2. Philhealth and other contributions Tax Free Covenant Bonds Covenant Bonds – bonds. Obligor shall deduct and withhold a tax = 30% of the interest and other payments whether interest or other payments are payable annually or at a shorter period. for a foreign government or an international organization 6. obligations had been/will be issued/ marketed and the Page 53 of 145
. 13 month pay and other benefits 12. 4) Employer (a) the person for whom an individual performs or performed any service. are needed to see this picture. foreign partnership/corp. QuickTime™ and w/held during the of taxes a TIFF (Uncompressed) decompressor yr. includes an officer of a corp. Remunerations for casual not in the course of an employer’s trade or business 5. which contain a contract/provision by which the obligor agrees: 1.
85) Less: (1) Deduction (Sec.. 86 [E]aor 110 [B] are needed to see this picture. subject to Section 204 (abatement. Transfers made before the decedent’s death wherein decedent retained: a.ESTATE TAX Nature and Definition An EXCISE TAX on the rights of transmitting property at the time of death and on the privilege that a person is given in controlling to a certain extent the disposition of his property to take effect upon death A tax imposed upon the privilege to transmit property at the time of death. with respect to the intangible personal property. its inclusion in the gross estate is subject to the rule of reciprocity provided for under Sec 104 of the NIRC
Income of Recipient Income which any creditable tax is required to be withheld at source shall be included in the return of its recipient. All properties.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
interest and other payments paid within and without the Philippines if the interest or other payment is payable to a non-resident alien or a citizen or resident of the Philippines. The excess of the amount of tax withheld over the tax due on his return shall be refunded to him. Transfers impelled by the thought of an impending death (i. 86) (2) Net share of the surviving spouse in the CP ---------------------------------------------------------------------Net Taxable Estate X Tax rate (Sec. ---------------------------------------------------------------------Estate Tax Due. b. or the right to the income of the property. the motivating factor or controlling motive is the thought of death). the possession or enjoyment of. GROSS ESTATE includes (Sec. 85) Residents and Nonresident citizen. if any A. the tax should not be construed as a direct tax on the property of the decedent although the tax is based thereon
ITEMS OF GROSS ESTATE: (DT RALIC) 1) Decedent's Interest 2) Transfer in Contemplation of Death 3) Revocable Transfer 4) Property Passing Under General Power of Appointment 5) Proceeds of Life Insurance 6) Prior Interests 7) Transfers for Insufficient Consideration DECEDENT’S INTEREST • To the extent of the interest in property of the decedent at the time of his death Transfer in Contemplation of Death • TRANSFER IN CONTEMPLATION OF DEATH. the right either alone or in conjunction with any person. without regard of the state of health of the transferor • Transfers deemed in contemplation of death: transfers involving retention or reservation of certain rights. to designate the person who shall possess or enjoy the property or its income EXCEPT bona fide sales for an adequate and full consideration in money or money’s worth REVOCABLE TRANSFER A transfer whereby the terms of enjoyment of Page 54 of 145
ESTATE TAX FORMULA Gross Estate (Sec. 84) ----------------------------------------------------------------------Estate Tax due QuickTime™ and Less: Tax Credit (if TIFF (Uncompressed) decompressor any) Sec. resident alien decedent Non-Resident Alien Decedent
. ESTATE TAX AND DONOR’S TAX CHAPTER I. refund/credit taxes)
TITLE III. tangible or intangible. wherever situated Only properties situated in the Philippines provided that. real or personal.e.
executor or administrator. existing. amend or revoke though he did not exercise such power EXCEPT bona fide sales for an adequate and full consideration in money or money’s worth Property Passing Under General Power of Appointment What is a GENERAL POWER OF APPOINTMENT? The power to designate. the property or → The right. rights.
• • •
. trusts. or the right to the income from.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
the property may be altered. executor or administrator AND the designation is revocable TRANSFERS FOR INSUFFICIENT CONSIDERATION Amount includible in the gross estate is the excess of the FMV at the time of death over the value of consideration received Exclusions from the Gross Estate • ACQUISITIONS AND TRANSFERS EXPRESSLY DECLARED AS EXEMPT: o Merger of the usufruct in the owner of the naked title o Transmission or delivery of the inheritance or legacy by the fiduciary heirs or legatee to the fiduciary o Transmission from the first heirs. the persons who shall receive. powers and relinquishment of powers made. arising. amended. exercised or relinquished before or after the effectivity of the NIRC. It is enough that the decedent had the power to alter. whether the designation is revocable or irrevocable o the beneficiary is other than the estate. or where any such power is relinquished in the contemplation of the decedent’s death. either alone or in conjunction with any person to designate the persons who shall possess or enjoy the property or the income therefrom EXCEPT bona fide sales for an adequate and full consideration in money QuickTime™ and a or money’s worth TIFF (Uncompressed) decompressor
are needed to see this picture. legacies. estates. devises. revoked or terminated by the decedent alone or in conjunction with any other person. legatees or donees in favor of another beneficiary in accordance with the desire of the testator o All bequests. interests. succeed to. without restrictions. created. or transfers to social welfare. not more than 30% of the value given is used for administrative purposes Proceeds from life insurance where the beneficiary is other than estate.
Proceeds of Life Insurance PROCEEDS FROM LIFE INSURANCE FORM PART OF THE GROSS ESTATE ONLY WHEN: o the beneficiary is the estate. executor or administrator AND the designation is irrevocable SSS death benefits Properties held in trust by the decedent Benefits received by beneficiaries residing in the Philippines under laws administered by the US Veterans Administration Separate or exclusive properties of the surviving spouse Page 55 of 145
PRIOR INTERESTS All transfers. cultural or charitable institutions → Provided. possess or enjoy the property or its income received from the estate of a prior decedent • How is a general power of appointment exercised? The GPA is exercised by: a) will b) deed executed in contemplation of death c) deed under which he has retained for his life or for any period which does not in fact end before his death → The possession or enjoyment of.
2. in respect of the intangible personal property of citizens of the Philippines not residing in that foreign country.000 6) Medical Expenses Page 56 of 145
Special Rules on Intangible Properties • INTANGIBLE PERSONAL PROPERTIES WITH SITUS IN THE PHILIPPINES (SECTION 104) 1. business or industry established in the Phil.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Valuation 1. THE INTANGIBLES SHALL NOT
. Personal Property • Valued at FMV B.P1. obligations or bonds issued by any foreign corporation. obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines. Real Property • • FMV as determined by the Commissioner OR the FMV shown in schedule of values fixed by the assessors. 86): 1) Expenses. allow a similar exemptions from transfer taxes or death taxes of every character 2. Franchise which must be exercised in the Philippines. QuickTime™ and a TIFF (Uncompressed) decompressor 5. or • The law of the foreign country of which the decedent was a citizen and resident a the time of his death: 1. DEDUCTIONS FOR ESTATE OF A CITIZEN OR A RESIDENT (Revenue Regulations 2-2003 and Sec. 2. rightsthisin any partnership are needed to see picture. exclusively for public purposes 3) Vanishing deductions 4) Family Home 5) Standard Deduction -. if no quotation is available at the time of death) Unlisted Shares – • Common stocks: use BOOK VALUE • Preferred stocks: use PAR VALUE
3. whichever is HIGHER No zonal value: use the FMV in the latest tax declaration. FORM PART OF THE GROSS ESTATE IF: • The decedent at that time of his death was a citizen and resident of a foreign country which at the time of his death 1. 4. in respect of the intangible personal property owned by citizens of the Philippines not residing in that foreign country. and Taxes: (a) actual funeral expenses or five percent (5%) of the gross estate whichever is lower (not exceeding P200. did not impose a transfer tax or death tax of any character 2. Shares. if such shares. obligations or bonds have acquired a business situs in the Philippines. Shares of Stock • Listed shares: average of the highest and lowest quotation at date of death (or the date nearest to the date of death. Losses. Indebtedness. Shares. Shares.000) (b) judicial expenses of the testamentary or intestate proceedings (c) claims against the estate (d) claims against insolvent persons included in the gross estate (e) unpaid mortgages or indebtedness upon property (f) unpaid taxes (g) losses incurred during the settlement of the estate 2) Transfers for Public Use-to the government of the Republic of the Philippines or any political subdivision thereof. WITH A SITUS IN THE PHILIPPINES (SECTION 104). RECIPROCITY CLAUSE ON INTANGIBLE PERSONAL PROPERTY OF A DECEDENT WHO IS NON-RESIDENT ALIEN.000. 3. Shares. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws.
for the filing of the estate tax return. • • EXAMPLES OF FUNERAL EXPENSES: a) The mourning apparel of the surviving spouse and unmarried minor children of the deceased bought and used on the occasion of the burial. Appraiser’s fee. such as for prayers. Judicial Expenses • What are JUDICIAL EXPENSES for estate taxation? o These deductible items are expenses incurred during the settlement of the estate but not beyond the last day prescribed by law. f) Interment and/or cremation fees and charges. c) Publication charges for death notices. entertainment. EXAMPLES OF JUDICIAL EXPENSES (1) (2) (3) (4) (5) (6) (7) Fees of executor or administrator Attorney’s fees Court fees. Funeral expenses FUNERAL EXPENSES are costs which are actually incurred in connection with the interment or burial of the deceased. Accountant’s fee. Claims against the Estate Debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to simple money judgments. • SOURCES OF CLAIMS ESTATE: 1) Contract. Clerk hire. and g) All other expenses incurred for the performance of the rites and ceremonies incident to interment. or the like are not deductible.
CIR v. only the value corresponding to the plot where he is buried is deductible. (8) Brokerage fees for selling property of the estate. payment of debts or the distribution of the estate C. including food and drinks. QuickTime™ and a •
TIFF (Uncompressed) decompressor are needed to see this picture. monument or mausoleum but not their upkeep.
Judicial Expenses should be supported by a sworn statement of account issued and signed by the creditor.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
7) Amount Received by Heirs under RA 4917 8) Net Share of the surviving spouse in the Conjugal Property (1) ORDINARY DEDUCTIONS A. or the extension thereof.
B. b) Any portion of the funeral and burial expenses borne or defrayed by relatives and friends of the deceased are not deductible. e) Cost of burial plot. Cost of preserving and distributing the estate. d) Telecommunication expenses incurred in informing relatives of the deceased. or 3) Operation of Law AGAINST THE
Substantiation Requirements: o The expenses must be duly supported by receipts or invoices or other evidence to show that they were actually incurred (RR 2-2003)
REQUISITES FOR DEDUCTIBILITY: a) A personal obligation of the deceased existing a the time of his death except Page 57 of 145
. masses. 2) Tort. tombstones. • EXAMPLES OF NON-DEDUCTIBLE FUNERAL EXPENSES: a) Expenses incurred after the interment. In case the deceased owns a family estate or several burial lots. b) Expenses for the deceased’s wake. CA 328 SCRA 666 • Expenses incurred in the extrajudicial settlement of the estate must be necessary costs toward the settlement of the case • Attorney’s fees to be deductible should essential to the collection of assets.
income tax on income received after death 3. shipwreck. 4. REQUISITES FOR DEDUCTIBILITY: 1) the disposition is in the last will and testament 2) to take effect after death 3) in favor of the government of the Philippines or any political subdivision thereof 4) exclusive for public purpose 5) the value of property given is included in the gross estate 3. Losses 1. storm. e) Duly substantiated • Substantiation in case of Loans or other Similar Indebtedness: a) notarized at the time incurred. or other casualty. Claims against Insolvent Persons • Condition for deductibility: The value of decedent’s interest in the claim is included in the gross estate and the incapacity of the debtors to pay their obligation is proven. property taxes not accrued before death
G. Unpaid Mortgage • CONDITIONS FOR DEDUCTIBILITY: o The value of the decedent’s interest over the property encumbered is included as part of the gross estate undiminished by the amount of mortgage The deduction shall be limited to the extent that the mortgage was contracted bona fide and for an adequate consideration
are needed to see this picture. theft or embezzlement. allowed as a deduction from the GE F. If merely an accommodation made by decedent. except loans from financial institutions where notarization not part of business practice or policy b) A statement under oath executed by the administrator or executor of the estate reflecting the disposition of the proceeds of the loan if said loan was contracted within three (3) years prior to the death of the decedent D. 2. Losses should not be claimed as deduction in the income tax return of the taxable estate. c) Must be a debt or claim which is valid in law and enforceable in court. The losses should occur before the last day for the payment of the estate tax (last day to pay 6 months after the decedent’s death) (2) TRANSFER FOR PUBLIC USE 2. the unpaid obligation shall not be
Nature and Purpose
Page 58 of 145
. 3.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
unpaid obligations incurred incident to his death such as unpaid funeral expenses and unpaid medical expenses which are classified under a different category of deductions. estate taxes 2. Losses should not be compensated by insurance or otherwise. The losses should occur during the settlement of the estate. The transfer also contemplates bequests. then balance of loan considered as receivable and part of GE If there is a legal impediment to recognize the same as receivable of the estate. devices. robbery. cultural and charitable institutions (3) VANISHING Previously Taxed) • DEDUCTIONS (Property
E. Taxes • What taxes are deductible? Income taxes. real estate or property taxes due at the time of death which were unpaid as of the time of death • TAXES NOT DEDUCTIBLE: 1. d) Must not have been condoned by the creditors or the action must not have prescribed.
QuickTime™ and a Other Rules in TIFF (Uncompressed) decompressor Respect to Unpaid Mortgage
Determine the recipient or beneficiary of the loan which must be verified. REQUISITES FOR DEDUCTIBILITY: 1. AND that 5. b) Contracted in good faith and for adequate and full consideration in money or money's worth. or transfers to social welfare. Losses should arise from fire.
that is. • Note that: o The family home must be part of the properties of the absolute community or of the conjugal partnership. or the extent of the decedent’s interest (whether conjugal/community or exclusive property). including the land on which it is situated. or a head of the family. It must be the same property received from previous decedent or donor 5. the place to which. depending upon the classification of the property (family home). The property must have formed part of the GE of previous decedent or the taxable gift of the donor 3. whichever is lower. whichever is lower o Any excess over 500. etc. and members of their family reside as certified by Barangay Captain of the locality. a person may constitute only one family home. and 3) Allowable deduction must be in an amount equivalent to the current fair market value of the family home as declared or included in the gross estate. 2) The total value of the family home must be included as part of the gross estate of the decedent. It may also be constituted by an unmarried head of a family on his or her own property.
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Present decedent acquired the property by inheritance or donation within 5 yrs prior to his death 2.000. and the property relations prevailing on the properties of the husband and wife. The property must be located in the Philippines
(4) FAMILY HOME It is the dwelling house. Estate tax on the prior estate or the donor’s tax must have been paid 4.
REQUISITES FOR DEDUCTIBILITY: 1.000 cannot be deductible as claims against the estate o It must be duly substantiated with official receipts for services rendered Page 59 of 145
CONDITIONS FOR THE ALLOWANCE OF FAMILY HOME AS DEDUCTION FROM THE GROSS ESTATE-
.000. Estate of previous decedent or donor have not previously availed of vanishing deduction 6. 1) The family home must be the actual residential home of the decedent and his family at the time of his death. o For purposes of availing of a family home deduction to the extent allowable. The family home is deemed constituted on the house and lot from the time it is actually occupied as a family residence and is considered as such for as long as any of its beneficiaries actually resides therein. but not exceeding 1 Million.g. where the husband and wife. The family home is generally characterized by permanency.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
VANISHING DEDUCTIONS are deductions allowed for properties which were already subjected to transfer taxes (e. The purpose is to minimize the effect of double taxation within a short period of time since the same property will be again subjected to tax in the form of estate tax.. or of the exclusive properties of either spouse.
(5) STANDARD DEDUCTIONS • A deduction in the amount of One million pesos (1. one still intends to return. whenever absent for business or pleasure. o Actual occupancy of the house or house and lot as the family residence shall not be considered interrupted or abandoned in such cases as the temporary absence from the constituted family home due to travel or studies or work abroad. estate and donor’s tax). as certified by the Barangay Captain of the locality where the family home is situated.000) shall be allowed as an additional deductions without need of substantiation Full amount shall be allowed as deduction for the benefit of the decedent
(6) MEDICAL EXPENSES • REQUISITES FOR DEDUCTIBILITY: o Medical cost incurred within the one year prior to the death of the decedent o Up to a maximum amount of 500.
such amount is included in the gross estate of the decedent.
(8) Net Share of the surviving spouse in the Conjugal Property After deducting the allowable deductions (only the ordinary deductions) appertaining to the conjugal or community properties included in the gross estate. Property Previously Taxed (vanishing deductions in the properties in the Philippines) C.taxes deduction
What amount of tax credit may be claimed? Formulas: Limitation A: For estate taxes paid to one foreign country Allowable Final Tax Credit = The lower amount between: a.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
o Any amount incurred within one year from death in excess of P500.000 CANNOT be claimed as a deduction under “claims against estate. losses = allowable indebtedness. Expenses. Tax actually paid to the foreign country. a. executor/administrator/ any heir must include in the return to be filed.the lower amount between the actual foreign taxes paid to each country and the amount derived from the forumula below:
Net gifts. Indebtedness and Taxes • Only the proportion of the total expenses. Losses. world
For estate taxes paid to 2 or more foreign countries the lower amount between limitation A and limitation B. the amount derived from this formula:
Net gifts. foreign country x Phils.” unless the executor. as the case may be. administrator. and b.the lower amount between the sum of the actual taxes paid to ALL foreign countries and the answer to the formula below:
Net gifts. 84 and Page 60 of 145
EXEMPTION FROM ESTATE TAX (Sec. losses indebtedness and taxes which the value of such part bears to the value of his entire GE wherever situated:
Estate situated in the Phils Total estate everywhere X expenses. estate tax Net gifts. Transfers for Public Use OTHER CONSIDERATIONS • •
QuickTime™ and a Net ShareTIFF (Uncompressed) decompressor of the surviving spouse in the are needed to see this picture.
b. the share of the surviving spouse must be removed to ensure that only the decedent’s interest in the estate is taxed. estate tax Net gifts. Limitation A (per country): . the value of the gross estate not situated in the Philippines No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines. estate tax Net gifts. world
B. or anyone of the heirs. 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. Limitation B (by total): . ESTATE TAX CREDIT ESTATE TAX CREDIT is a remedy against international double taxation to minimize the onerous effect of taxing the same property twice • Who may avail of tax credits? o Only the estate of a citizen or resident alien at the time of the death can claim tax credit for any estate taxes paid to a foreign country
(7) Amount Received by Heirs under RA 4917 o Amount received by the heirs from the decedent’s employer as a consequence of death of the decedent employee in accordance with RA4917 Provided. foreign country x Phils. Conjugal Property-deducted from the net estate of the decedent To be allowed deductions for a non-resident alien. SPECIAL RULES FOR NONRESIDENT ALIENS (for property situated in the Philippines) ALLOWABLE DEDUCTIONS: A. foreign country x Phil.
devises. a son of A when A reaches legal age. 4) Transmission from the first heir. The extent of his liability shall not. But the transmission or delivery to C upon reaching legal age shall be exempt from estate tax.000. (b) When to file: within 2 months after the decedent's death. all of them are severally liable for the payment of tax. to the benefit of any individual: • Provided not more than 30% of the transfers shall be used by such institutions for administration purposes J. cultural and charitable institutions. through the executor and administrator. legacies or transfers to • social welfare. another son. where the gross value of the estate exceeds P200. Upon the death of C. and usufruct to C. COMPLIANCE REQUIREMENTS (1) Persons liable to pay estate tax • The person primarily liable is the estate itself. 3) Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary • • The substitution must not go beyond one degree from the heir originally instituted The fiduciary or first heir must be both living at the time of the testator’s death Example A dies and leaves in his will a lot to his brother B who is entrusted with the obligation to transfer the lot to C. The transfer from A to B is subject to estate tax. in meritorious cases. B is the fiduciary heir and C is the fideicommissary. The transfer from C to B is exempt from estate tax. except. 2) Filing of Estate Tax Returns • When to file: within six (6) months from the decedent's death. or within a like period after qualifying as such executor or administrator (c) To whom filed: Commissioner. The fishpond will be included in the gross estate of A. the Commissioner. for life. grants a reasonable extension not exceeding 30 days for filing the return • Mandatory filing of estate tax returns in all cases of: o transfers subject to the tax imposed herein o transfers though exempt from tax.000 o regardless of the gross value. the estate consists of registered or registrable property for which a clearance from the Bureau of Internal Revenue is required for the transfer of ownership in the name of the transferee Where to file: o Authorized agent bank o Revenue district officer o Duly authorized city or municipal treasurer of the place of decedent’s domicile o If there is no legal residence in the country. QuickTime™ and a • no part of(Uncompressed) decompressor which inures TIFF the net income of are needed to see this picture. being the owner.00 value of the net estate 2) Merger of usufruct in the owner of the naked title • Example A died leaving a fishpond. naked title to B.
(2) Procedures 1) Filing of Notice of death (a) Who files: the executor. in accordance with the desire of the predecessor 5) Bequests. the usufruct will be merged into the owner of the naked title B who shall become the absolute owner thereof. C died a year later. however.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
87): 1) First P200. When there are 2 or more executors or administrators. The heir or beneficiary has a subsidiary liability for the payment of that portion of the estate which his distributive share bears to the value of the net estate. legatee or donee in favor of another beneficiary. administrator or any of the legal heirs. exceed the value of his share in the inheritance. with the Commissioner Page 61 of 145
. his son.
” Thus. subject to donor’s tax 2. 2) intentional disregard of rules and regulations. Delivery of the subject gift. subject to estate tax The law in force at the time of the perfection or completion of the donation shall govern the imposition of the donor’s tax.DONOR'S TAX 3) Payment of Tax: Time of Payment (a) General Rule: at the time the return is filed by the executor. • In case of installment payments. ( Sec 11 RR 2-2003 ) Note: Any contribution in cash or in kind to any candidate. not to exceed 5 years. administrator or the heirs but before delivery of the distributive share in the inheritance to any heir or beneficiary. Article 725 of the Civil Code defines a gift or donation as “an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. he may extend the time for payment of such tax: 1. the following are the REQUISITES OF VALID GIFT OR DONATION SUBJECT TO DONOR’S TAX: 1. Capacity of the donor 2. The Commissioner may require a bond not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary when an extension for payment is granted. Page 62 of 145
. (c) Restrictions as to Extension of Time to Pay: o no extension shall be allowed when taxes are assessed by reason of : 1) negligence. The subject of donor’s tax is the gift or donation. The acceptance may be made in the same Deed of Donation or in a separate public document. Acceptance by the donee THERE ARE DONATIONS: TWO (2) KINDS OF
1. the donor shall be notified thereof in an authentic form. and this step shall be noted in both instruments. political party. The estate tax clearance issued by the Commissioner or the Revenue District Officer having jurisdiction over the estate QuickTime™ and a will serve as the authority to distribute the TIFF (Uncompressed) decompressor are needed to see this remaining/distributable picture.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
CHAPTER II. If the acceptance is made in a separate instrument. but it shall not take effect unless it is done during the lifetime of the donor. whether actual or constructive 4. Definition and Subject A tax on the privilege of transmitting one’s property or property rights to another or others without adequate and full valuable consideration. perfection is at the moment when the donor knows of the acceptance of the donee (exception: donations of immovable 1 properties). Intent to donate 3. properties/share in the inheritance to the heir or beneficiary. (b) Exception: when the Commissioner finds that payment on due date would impose undue hardship upon the estate or any of the heirs. in case the estate is settled through the courts. or 2. 3) fraud on the part of the taxpayer 4) Distribution of Estate • Upon payment. Donation inter vivos: a donation made between living persons. or coalition of
Must be in a public document specifying therein the property donated. the clearance shall be released only with respect to the property the corresponding tax has been paid. 2 years in case the estate is settled extrajudicially In which case it shall be paid on or before expiration of the extension and running of the Statute of Limitations for assessment shall be suspended for the period of any such extension. Donation mortis causa: a donation which takes effect upon the death of the donor. the administrator shall deliver the distributive share in the inheritance to any heir or beneficiary.
the difference between the FMV and the actual value received in transfers for less than the adequate or full consideration shall not be
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parties for campaign purposes shall be governed by the Election Code as amended. (Sec. In essence. 6747. (Sec 99 C of the NIRC). unless categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. it is completed by the delivery. a general renunciation by an heir. other than a real 2 property that has been subjected to
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. whereas. in which case it is not taxable. 11. o o Debt condoned or remitted Transfers made in trust for another person Renunciation by the surviving spouse of his/her share in the conjugal partnership or absolute community after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person. 2006 where the repudiation by the heirs of an inheritance was held not to be a donation. of his/her share in the hereditary estate left by the decedent is not subject to donor’s specifically and tax. citizens or residents of the Philippines – all properties located not only within the Philippines but also in foreign countries 2. PROPERTIES INCLUDED: 1. or • his right to exercise ceased because of the happening of some event or contingency or the fulfillment of some condition. • ITEMS DEEMED GIFTS OR DONATIONS: o Where property. including the surviving spouse. of the donated property to the donee. is the base for the computation of capital gains tax. unless there is reciprocity. it pays for the capital gains tax. The rationale is that under Section 24 (d). intangible or mixed. non-resident alien – all real and tangible properties within the Philippines.
the final capital gains tax. and intangible personal property. Page 63 of 145
Note that in the case of real properties considered as capital assets. is transferred for less than an adequate and full consideration in money or money’s worth. Real property considered capital assets under the Tax Code are exempted from this rule (Sec. subject to donor’s tax.See reciprocity rules in the estate taxes for intangible properties (Section 104 NIRC) Applicability of Laws Governing the Imposition of Donor’s Tax The donor’s tax applies to a completed gift. Jan. The law in force at the time of the perfection/completion of the donation shall govern the imposition of donor’s tax based on the FMV of the property. Personal properties may be tangible. if higher than the gross selling price. Gross Gifts • Gifts may be real or personal properties. Rev. A. then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift. the FMV itself. 100 in relation to Sec. 2-2003) See Estate of Fidel Reyes. either actual or constructively. CTA Case No. The transfer is perfected from the moment the donors knows of the acceptance by the donee. Reg. A GIFT THAT IS INCOMPLETE BECAUSE OF RESERVED POWERS. 24 (D) NIRC). and shall be included in computing the amount of gifts made during the calendar year. other than the death of the donor. 16. what the seller avoids in the payment of donor’s tax. BECOMES COMPLETE WHEN EITHER: • the donor renounces the power.
They partake the nature of deductions and are. or adopted children to the extent of the first P10. 12 RR-2-2003) However. This has the effect of splitting the value of the gift into half for both spouses so each spouse can claim the exemption. 1) Made by a Resident (a) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate. Gross Gift Less: deductions/exemptions Net gift X tax rate Donor’s tax xx xx___ xx xx___ xx
EXEMPTION FROM GIFT TAX (SEC. ancestor and lineal descendant
1. therefore. whichever is HIGHER 2) Relative by consanguinity in the collateral line within the 4th degree of relationship A legally adopted child is entitled to all the rights and obligations provided by law to legitimate children.000 Note: Both parents may make dowries and gifts made on account of marriage.
• Rate: Graduated Rates
D. whether the transfer is in trust or otherwise. whether the gift is direct or indirect.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
• Valuation: o Personal property: FMV at the time of donation o Real Property: FMV as determined by the Commissioner or the FMV in the latest schedule of values of the provincial or city assessor. and therefore. where there is failure to prove that the donation was actually made by both spouses. and whether the property is real or personal. recognized natural. 2. spouse. On subsequent donation during the year Gross Gift Less: deductions/exemptions Net gift Add: prior net gift Aggregate net gifts X tax rate Donor’s tax on aggregate gift Less: prior donor’s tax paid Donor’s tax on this date =========== xx xx___ xx xx___ xx xx___ xx xx___ xx
C. the donation is taxable as an exclusive act of the husband. Computation of Tax
st 1. The computation of donor’s tax is on a cumulative basis over a period of one calendar year. Each parent shall be entitled to the exemption above. tangible or intangible. deductible from gross gifts in order to arrive at the taxable net gifts. On the 1 donation of the year
OBJECT OF TAXATION: The donor’s tax shall be imposed to the transfer of property by gift. However. sister (whether by whole or half-blood). Rates of Tax
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Donee is a Stranger to the Donor • Rate: 30% • Who is a stranger: A STRANGER IS A PERSON WHO IS NOT A: 1) Brother. Donee is NOT a Stranger to the Donor B. 101) Exemptions are not to be treated as exclusions from the gross gifts of the donor. both spouses must file separate returns because the husband and wife are considered as distinct entities for purposes of donor’s tax. Donation made between business organizations and those made between an individual and a business organization shall be considered as donation made to a stranger. without prejudice to the right of the wife to question the validity of the donation Page 64 of 145
=========== 2. donation to him shall not be considered as donation made to stranger.
Feb. assessed. not more than 30% shall be used by such donee for administration purposes. Pursuant to the above-quoted provisions of law. whether the transfer is in trust or otherwise. The BIR assessed each of the petitioners for their contributions. trust or philanthropic organization or research institution or organization.000 per year (Sec. b) The tax shall apply whether the transfer is in trust or otherwise. a) There shall be levied.000) to the Revenue District Office(RDO) which has jurisdiction over his place of business within thirty (30) days after receipt of the qualified donee institution’s duly issued Certificate of Donation. without considerations therefor. On appeal. governed by trustees who received no compensation. a tax. tangible or intangible.661. collected. 120721. who are partners in the ACCRA law firm. In the instant case. is subject to donor’s or gift tax. tangible or intangible. ordering the petitioners to pay donor’s tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
without her consent pursuant to the provisions of the Civl Code and the Family Code. and whether the property is real or personal. Inc. religious. and whether the property is real or personal. the donor engaged in business shall give a notice of donation QuickTime™ and a TIFF (Uncompressed) decompressor on every donation are needed to see this picture.31 each to the campaign funds of Senator Edgardo Angara. or non-resident. therefore. nonprofit corporation/NGO institution (qualified-donee institution) for administration purposes pursuant to the provisions of Section 101(A)(3)and (B)(2) of the Code (RR 2-2003). petitioners. as amended. which shall be attached to the said Notice of Donation. 99[A]) In order to be exempt from donor’s tax and to claim full deduction of the donation given to qualified donee institutions duly accredited by the Philippine Council for NGO Certification. they are not liable for donor’s tax. Fifty Thousand worth at least Pesos (P50. institution accredited non-government organization.(PCNC). As correctly pointed out by the Solicitor General: The fact that the contributions were given to be used as campaign funds of Sen. computed as provided in Section 92. provides: Sec. and that. 91. The CA reversed and set aside the CTA decision. provided. stating that not more than thirty percent (30%) of the said donation/gifts for the taxable year shall be used by such accredited non-stock. There was thereby no retention of control over the disposition of the contributions. (f) Donations to persons not strangers of not more than P100. the contributions are voluntary transfers of property in the form of money from private respondents to Sen. of the property by gift. and paid upon the transfer by any person. 23. then running for the Senate. Imposition of Tax. Angara. or to any political subdivision of the said Government (c) Gifts in favor of an non profit educational and/or charitable. claiming that political or electoral contributions are not considered gifts under the NIRC. A gift is generally defined as a voluntary transfer of property by one to another without any consideration or compensation therefore. CIR. The claim for exemption was denied by the Commissioner. Abello vs. cultural or social welfare corporation. 2005 Facts: During the 1987 national elections. the transfer of property by gift. For as long as the contributions Page 65 of 145
. whether the gift is direct or indirect. Angara does not affect the character of the fund transfers as donation or gift. Petitioners questioned the assessment. GR No. Hence. they squarely fall under the definition of donation or gift. There was simply an indication of the purpose for which they were to be used. (b) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit. resident. WHAT IS A NON-PROFIT EDUCATIONAL AND/OR CHARITABLE CORPORATION? It is one which is incorporated as a non-stock entity paying no dividends. and devoting all its income to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation (d) Encumbrances on the property donated if assumed by the donee in the deed of donation (e) Donations made to entities as exempted under special laws. the CTA ordered the Commissioner to desist from collecting donor’s taxes from the petitioners. contributed P882. reasoning as follows: The NIRC. whether the gift is direct or indirect.
whether or not legally enforceable. Angara had complete and absolute power to dispose of the contributions. donative intent is presumed present when one gives a part of ones patrimony to another without consideration. motives or purposes which do not contradict donative intent. and.645. would influence the shaping of government policies that would promote the general welfare and economic well-being of the electorate. He was fully entitled to the economic benefits of the contributions. Second. cannot be considered as a material consideration so as to negate a donation. The Court was not convinced that QuickTime™ the purpose of the since and a TIFF (Uncompressed) decompressor are needed to see candidate.530. Senator Angara was under no obligation to benefit the petitioners. advance or deposit of money or anything of value. It shall also include the use of facilities voluntarily donated by other persons. donation. an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another. the money value of which can be assessed based on the rates prevailing in the area. Article 18 of the Civil Code. Article 725 of said Code defines donation as: “. The patrimony of the four petitioners were reduced by P882. which was to fund the campaign of Senator Angara in his bid for a senatorial seat. In fact. Section 94(a) of the said Code defines electoral contribution as follows: “The term ‘contribution’ includes a gift. Issue2: Since animus donandi or the intention to do an act of liberality is an essential element of a donation. there was contribution was to help elect athis picture. petitioners argue that it is important to look into the intention of the giver to determine if a political contribution is a gift. 2) Made by a Nonresident Alien Page 66 of 145
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were used for the purpose for which they were intended.” Since the purpose of an electoral contribution is to influence the results of the election. donative intent is not negated when the person donating has other intentions.661. (c) the intent to do an act of liberality or animus donandi. This being the case. The fact that petitioners will somehow in the future benefit from the election of the candidate to whom they contribute. Petitioners would distinguish a gift from a political donation by saying that the consideration for a gift is the liberality of the donor. as a public servant. Petitioners’ attempt is strained. in no way amounts to a valuable material consideration so as to remove political contributions from the purview of a donation. donative intent is a creature of the mind.661. It cannot be perceived except by the material and tangible acts which manifest its presence. for the benefit of the greater good. The Court reiterated that donative intent is not negated by the presence of other intentions. Issue1: What is the definition of a transfer of property by gift? Held1: The NIRC does not define transfer of property by gift. In fine.31 each.24. subscription. The proper performance of his duties as a legislator is his obligation as an elected public servant of the Filipino people and not a consideration for the political contributions he received. motives or purposes which do not contradict donative intent. All three elements of a donation are present. he may even be called to enact laws that are contrary to the interests of his benefactors. However. their deficiency shall be supplied by the provisions of this Code. while the consideration for a political contribution is the desire of the giver to influence the result of an election by supporting candidates who. The present case falls squarely within the definition of a donation. . Held2: Untenable. including the giver himself. or a contract. promise or agreement to contribute. The fact that their purpose for donating was to aid in the election of the donee does not negate the presence of donative intent. Sen. who accepts it. (b) the increase in the patrimony of the donee. First of all. . without any material consideration. loan.31 to the campaign funds of Senator Angara. Petitioners’ contribution of money without any material consideration evinces animus donandi. made for the purpose of influencing the results of the elections but shall not include services rendered without compensation by individuals volunteering a portion or all of their time in behalf of a candidate or political party. an Issue3: Petitioners maintain that the definition of “electoral contribution” under the Omnibus Election Code is essential to appreciate how a political contribution differs from a taxable gift.” Donation has the following elements: (a) the reduction of the patrimony of the donor. Held3: Petitioners attempt to place the barrier of mutual exclusivity between donative intent and the purpose of political contributions. the purpose for which the sums of money were given. There was intent to do an act of liberality or animus donandi was present since each of the petitioners gave their contributions without any consideration. states: “In matters which are governed by the Code of Commerce and special laws. reference may be made to the definition of a donation in the Civil Code. no donative intent.” Thus. in the perception of the giver. petitioners again claim that donative intent is not present. Senator Angara’s patrimony correspondingly increased by P3. Petitioners each gave P882.
cultural or social welfare corporation. donor’s tax Net gifts. 103) 1) Who are liable to file donor’s tax return? • Every person. Donor’s Tax Credit A situation may arise when the property given as a gift is located in a foreign country and the donor may be subject to donor’s tax twice on the same property – by the Philippine government and by the foreign government where the property is situated. Tax actually paid to the foreign country. religious.
b. the amount derived from this formula:
Net gifts. whether natural or juridical. foreign country x Phils. which the decedent’s net gifts situated within such country taxable QuickTime™ and a under the TIFF (Uncompressed) decompressorentire net gift. Who are entitled to claim credits: only resident or citizen donors (resident citizens. or to any political subdivision of the said Government (b) Gifts in favor of an non profit educational and/or charitable. Special Rules on Husband and Wife • Husband and wife are considered as separate and distinct taxpayer’s for purposes of the donor’s tax. and b. world
For donor’s taxes paid to 2 or more foreign countries the lower amount between limitation a and limitation b. a. and The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken. resident or non-resident. who transfers or causes to transfer property Page 67 of 145
. Compliance Requirements (Sec. NIRC bears to his are needed to see this picture. world
F. then the net gift is measured by deducting from the fair market value of the property the amount of mortgage assumed. Limitation B (by total): .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
(a) Gifts made to the National Government or any entity created by any of its agencies which is not conducted for profit. non-resident citizens. donor’s tax Net gifts. world
H. trust or philanthropic organization or research institution or organization. not more than 30% shall be used by such donee for administration purposes E. there is only one donor for donor’s tax purposes. but imposing upon the donee the obligation to pay the mortgage liability. Formulas: Limitation A: For donor’s taxes paid to one foreign country Allowable Final Tax Credit = The lower amount between: a.the lower amount between the sum of the actual taxes paid to ALL foreign countries and the answer to the formula below:
Net gifts. which the decedent’s net gift situated outside the Philippines taxable under the NIRC bears to his entire net gift. if what was donated is a conjugal or community property and only the husband signed the deed of donation. institution accredited non-government organization. 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. Limitation A (per country): . and resident aliens) Limitations on Tax Credit: 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. Accordingly. foreign country x Phils.the lower amount between the actual foreign taxes paid to each country and the amount derived from the forumula below:
Net gifts. provided. if a mortgaged property is transferred as a gift. Net Gift • • The net economic benefit from the transfer that accrues to the donee. foreign countryx Phil. donor’s tax Net gifts. However.
No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax. 205208) 3. to an assessment after such time. 223) 1) Periods suspended: (a) periods for assessment in Sec. whether in trust or otherwise. Compromise (Sec. 203 and 222 (b) beginning of distraint or levy (c) proceeding in court for collection 2) Grounds for suspension of prescriptive periods: [ PLORP ] a) Commissioner is Prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter b) Taxpayer requests for Reinvestigation which is granted c) Taxpayer cannot be Located in the address given in the return filed. or all of them simultaneously. 224-225) 8. false or fraudulent return with intent to evade tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
by gift.actual and constructive (Sec. Such period agreed upon may be extended by written agreement before the expiration of such agreed upon period. 10 years after the discovery of the falsity. 222 a) The following are covered by the general rule (Sec. fee . Tax lien (Sec. 218) • Justification: lifeblood theory EXCEPTION: Injunction may be issued by the CTA in aid of its appellate jurisdiction under Sec. 219) 5. or 2. or 2. fraud or omission in case of: 1. (Sec. 221) 6. 203): • false return-filed with no intent to evade tax • fraudulent return-filed with intent to evade tax within the period agreed upon. Suspension of business operations in violations of VAT (Sec. Levy (Sec. opinion of the Court the collection … 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. 203 for the assessment of tax.222 b) •
In General 1. 2) When to file donor’s tax • The donor’s tax return shall be filed within 30 days after the date the gift is made 3) When to pay the tax • Pay at the time of filing (pay-as-you-file system) TITLE VIII – REMEDIES PART I. the last day prescribed by law for filing the return (when filed on or before such date). Enforcement of administrative fine the remedies of disraint and levy as well as collection by civil and criminal actions may in the discretion of the Commissioner. Forfeiture of Property (Sec. whichever comes later (Sec. 203): 1. tangible or intangible. Civil Action (Sec. before the expiration of the period in Sec. 11 of RA QuickTime™ and a TIFF (Uncompressed) decompressor 1125. 207b) 4. whether the gift is direct or indirect and whether the property is real or personal. when both the Commissioner and the taxpayer have agreed in writing. be pursued singly or independently of each other. failure to file a return (Sec. REMEDIES GOVERNMENT AVAILABLE TO THE • Prescriptive Periods 1) Assessment of Tax Liability 3 years from the following. Distraint . as amended are needed to see9282 (…when in the by RA this picture. 115) 9.) Prescription
SUSPENSION OF PRESCRIPTIVE PERIODS: (Sec. 221-222) 7. or charge imposed by the NIRC (Sec. Criminal Action (Sec. except if the taxpayer Page 68 of 145
. the day when the return was actually filed (when filed after the last day prescribed). 204) 2.
New Civil Code) REQUISITES: o The taxpayer have a tax liability o There must be an offer (by the taxpayer of an amount to be paid by the taxpayer) o There must be an acceptance (by the Commissioner or the taxpayer as the case may be) of the offer in the settlement of the original claim When may taxes be compromised? 1.500/month if single. criminal violations already filed in court 4. (Art. the taxpayer should waive the confidentiality privilege on bank deposits under RA 1405 (Sec 6 (F)(2) NIRC). the BIR may only suggest settlement of the taxpayer's liability through a compromise. Criminal tax fraud cases 3.
2. other than his family home. 2028. the taxpayer's criminal liability arising from his violation of the pertinent provision of the Code may be settled extrajudicially instead of the BIR instituting against the taxpayer a criminal action in Court. avoid litigation or put an end to one already commenced. The financial position of the taxpayer demonstrates a clear Inability to pay the assessed tax. or The assessment seems to be arbitrary in nature. taken from the latest audited financial statements The taxpayer is a compensation earner with no other sources of income and the family’s gross monthly compensation does not exceed (P 10. Withholding tax cases 2. RR 7-2001). appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis QuickTime™ and a
TIFF (Uncompressed) decompressor are needed to see this picture. The corporation ceased operation or is already dissolved. Delinquent accounts with duly approved Page 69 of 145
.000/month if married) and that it appears that the taxpayer possesses no other leviable/distrainable assets. Hence.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
informs the Commissioner of a change in address the prescriptive period will not be suspended d) When the warrant is duly served upon the taxpayer and no Property could be located e) When the taxpayer is Out of the Phils. A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character. (Sec. The taxpayer has been granted by the SEC or by any competent tribunals a moratorium or suspension of payments to creditors or otherwise declared bankrupt or insolvent (Sec 3. • In general. deductions or credits in his return. 204 A) in such case. The taxpayer is suffering from earning deficit resulting to an impairment in the original capital by at least 50% The taxpayer is suffering from a net worth deficit computed by deducting total liabilities form total assets. hence. P 21. A reasonable doubt as to the validity of the claim against the taxpayer exists: The delinquent account or disputed assessment is one resulting from a jeopardy assessment 3. by reciprocal concessions. (RR 012-99)
A jeopardy assessment is a tax assessment made by an authorized Revenue Officer without the benefit of complete or partial trial in light of the RO’s belief that assessment and collection of tax will be jeopardized by the delay caused by the taxpayer’s failure to 1) comply with audit and investigation requirements and 2) substantiate any or all claims. Compromise Definition A contract whereby the parties.
CASES NOT SUBJECT TO COMPROMISE: 1. may not be imposed on the taxpayer without his consent.
000. June 27. in regard to violations of the Tariff and Customs Code. Compromise subject to approval of Evaluation Board (composed of Commissioner and 4 Deputy Commissioners): a) when basic tax involved exceeds
Remedy in Case the Taxpayer Refuses or Fails to Abide the Tax Compromise 1. The NIRC allows the Commissioner of Internal Revenue to compromise the civil as well as criminal cases arising thereunder.
Power to Compromise o Who has the Power to Compromise? The Commissioner of Internal Revenue with respect to criminal and civil cases arising from violations of the tax code (Sec 7c and 204). Desiderio L-20805. o Nature of a Compromise in Extrajudicial Settlement of the Taxpayer’s Criminal Liability for his Violation It is consensual in character. it can be enforced by mere execution.
LIMITATIONS FOR COMPROMISE OF TAX LIABILITY: (Sec. (People vs. 40% of basic assessed tax 2. case of picture. Before the complaint is filed with the prosecutor’s office: the CIR has full discretion to compromise except those involving fraud 2. No similar provision exists. After the complaint is filled with the prosecutor’s office but before the information is filed with the court: the CIR can still compromise provided the prosecutor must give consent 3. The extra-judicial settlement and the amount of the suggested compromise penalty should conform with the schedule of compromise penalties provided under the relevant BIR regulations or orders. Magdaluyo. Cases which become final and executory after final judgment of a court (Sec 2 RR 7-2001). The CIR should file a criminal action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to enforce a penalty. A Page 70 of 145
.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
schedule of installment payments 5. 1965). As a mere agent of the Government. L-19627. the Commissioner is not authorized to accept anything less than what is adjucated in favor of the government by virtue of such final judgment. vis-a-vis the Collector or Commissioner of Customs. the government has already acquired a vested rights. 10% of basic assessed tax b) In other cases. After information is filed with the court: the CIR is no longer permitted to compromise with or without the consent of the Prosecutor (People vs. November 29. 204A) 1. (Commissioner vs. If an offer of compromise is rejected by the taxpayer. The BIR may only suggest settlement of his tax liability through a compromise. may not be imposed on the taxpayer without his consent. April 20. Minimum QuickTime™ and a rate: compromise TIFF (Uncompressed) decompressor are a) In needed to see thisfinancial incapacity. • P1. 1968). The power to compromise is vested in the CIR.000 or b) where the settlement offered is less than the prescribed minimum rates o Extent of the Commissioner’s Discretion to Compromise Criminal Violations 1. the compromise penalty cannot be enforced thru an action in court or by distraint and levy. 1961) This is more so when the court has rendered a final judgment. hence. 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 6. Enforce the Compromise If it is a judicial compromise. Abad.
4. there’s a cancellation of the entire tax liability. This is paid in lieu of criminal prosecution. 2. 3. o When may taxes be abated or cancelled? [ UJ ] 1. while compromise involves a mere reduction of the tax. 249 o when the assessment is brought about or the result of taxpayer’s non-compliance with the law due to a difficult interpretation of said law o when the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his control. The tax or any portion thereof appears to be Unjustly or excessively assessed. or 2. 5. Abatement • THE COMMISSIONER MAY ABATE OR CANCEL A TAX LIABILITY WHEN: 1. legitimate business reverses.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
judicial compromise is one where a decision based on the compromise agreement is rendered by the court on request of the parties Any other compromise is extrajudicial and like any other contract can only be enforced by court action 2. provided.
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. force majure. It is a summary remedy. tax is due to his are needed to this erroneous written official advice of a revenue officer o when the taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged labor dispute. RR 13-2001)
2. the tax or any portion thereof appears to be unjustly or excessively assessed (Sec 204 (b)) o when the filing of the return/payment is made at the wrong venue o whenQuickTime™ and a the taxpayer’s mistake in TIFF (Uncompressed) decompressor paymentseeof picture. the abatement shall cover only the surcharges and the compromise penalty and not the interest imposed under Sec 249 o late payment of the tax under meritorious circumstances (Sec. The property may be offered in a public sale if taxes are not voluntarily paid. provided. chattels or effects of the taxpayer including other personal property of whatever character. in which case the CIR must institute a criminal action.
Distraint (Only For Personal Property) O Definition and Nature It is the seizure by the government of personal property. 204 B) Abatement vs. tangible or intangible to enforce the payment of taxes on the goods. Compromise In Abatement. A taxpayer cannot be compelled to pay a compromise penalty if he does not want to pay. Regard it as rescinded and insist upon original demand (Art 2041. RR 13-2001) the admission and collection costs involved do not justify the collection of the amount due (Sec 204 (b) Abatement of penalties on assessment confirmed by the lower court but appealed by the taxpayer to a higher court Abatement of penalties on withholding tax assessment under meritorious circumstances Abatement of penalties on delayed installment payment under meritorious circumstances abatement of penalties on assessment reduced after reinvestigation but taxpayer is still contesting reduced assessment such other circumstances which the Commissioner may deem analogous to the enumerations above (Sec. the abatement shall only cover the surcharges and the compromise penalty and not the interest imposed under Sec. Civil Code) • Other Consideration on Compromise Agreements o Compromise Penalty It is the amount of money which the taxpayer pays to compromise tax violations. 6. The administration and collection costs involved do not Justify the collection of the amount due (Sec.
whether delinquent or not the taxpayer is merely prohibited from disposing of his property Effected by requiring the taxpayer to sign a receipt of the property or by the revenue officer preparing and leaving a list of such property not necessarily an immediate step for collection of taxes QuickTime™ and a REMEDY OF DISTRAINT: The taxpayer must be delinquent (except in constructive distraint) in the payment of taxes There must be a subsequent demand for its payment The taxpayer must have failed to pay the tax at the time required. effects and other personal property b) including stocks and other securities. signed by the officer.000 less
PROPERTY SEIZED OR DISTRAINED: a) goods. • Resorted to only when the taxpayer becomes delinquent. 207 A) 2) Service of Warrant of Distraint Procedure with respect to: (a) Goods. chattels. submitted to the Revenue District Officer and to the Revenue Regional Director b) by the Revenue Regional Director . shall be left either with the owner or the person from whom the property was taken or at the dwelling or place of business of such person and with someone of suitable age and discretion 2. This is true in case of intangible property such as stocks and credits. effects. 207(a)) AMOUNT INVOLVED In excess P1. interests in and rights to personal property PROCEDURE FOR THE ACTUAL DISTRAINT OR GARNISHMENT 1) Report on the Distraint (Commencement of distraint proceedings) a) by the distraining officer 1. • There is actual seizure of the property of the delinquent taxpayer.
. If it is an indication of a final decision. submitted within 10 days from receipt of the warrant 2. B. Types of Distraint A. debts.000 P1. a copy of an account of the property distrained. Constructive Distraint • There may be no actual delinquency. as may be required by the Commissioner The order of Distraint may be lifted by the Commissioner or his representative (Sec. chattels and other personal property 1.a consolidated report. Distraint of Personal Property (Actual Distraint) WHO MAY EFFECT DISTRAINT Commissioner or his duly authorized representative Revenue District Officer (Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
The warrant is a summary procedure forcing the taxpayer to pay. The receipt of a warrant may or may not partake the character of a final decision. • Resorted to when there is actual delinquency in tax payment. bank accounts. • Taxpayer is prohibited from disposing of the property and must preserve the same ACTUAL DISTRAINT Made only on the property of a delinquent taxpayer there is taking or possession Effected by leaving a list of distrained property or by service of a warrant of distraint or garnishment an immediate step for collection of taxes Both CONSTRUCTIVE DISTRAINT made on the property of any taxpayer. Physical transfer of possession is not always required. the taxpayer may appeal to the CTA within 30 days from service of the warrant.000.000. together with a statement of the sum demanded Page 72 of 145
Are summary remedies for the collection of taxes Refer only to personal property Cannot be availed of where the amount of the tax involved is not more than P 100 REQUISITES FOR THE EXERCISE OF THE
TIFF (Uncompressed) decompressor are needed to see this picture. and The period within which to assess or collect the tax has not yet prescribed. Actual Distraint There is taking of possession of the personal property from the taxpayer by the government. credits.
bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient (Sec. When may Levy be effected? It is effected by issuing a warrant of levy and giving a written notice to the taxpayer and the Register of Deeds. or if he is absent from the Philippines. serving a copy of the warrant upon the taxpayer AND upon the president. sign a receipt covering property distrained. leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent the warrant shall be sufficient authority to the person served to pay to the Commissioner the amount of such debts or credits (d) Bank accounts (garnishment) 1. manager. tax due 2) Procedure (a) Require the taxpayer or any person having possession/control of the property to 1. and 2.208) 3) Posting of Notice (Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
3. to his Page 73 of 145
CONSTRUCTIVE DISTRAINT 1) When may this occur? [ HORRID ] (Sec. association (c) Debts and Credits 1. or to Remove his property therefrom d) taxpayer Hides or conceals his property e) taxpayer performs any act tending to QuickTime™ for Obstruct the proceedingsand a collection of any TIFF (Uncompressed) decompressor are needed to see this picture. When exercised: before. (b) Where taxpayer or person in possession refuses to sign: distraining officer shall prepare a list of the property distrained in the presence of 2 witnesses leave a copy in the premises where the property is located = after which the said property shall be deemed to have been placed under constructive distraint (Sec. and also a note of the time and place of sale (b) Stocks and other Securities 1. company. and
. after which the real property shall be sold at a public sale to satisfy the tax obligation of the taxpayer. simultaneously or after the distraint of personal property belonging to the taxpayer Procedure of Levy on Real Property Prepare Certificate of Levy (a) Internal revenue officer shall prepare a duly authenticated certificate showing: the name of taxpayer amounts of tax and penalty due (b) Enforceable as a legal execution throughout the Philippines (c) officer shall write upon the certificate a description of the property upon which levy is made written notice of levy shall be mailed or served upon 1. treasurer or other responsible officer of the bank 2. without the express authority of the Commissioner.Constructive distraint is an additional remedy because the government can resort to it while the remedy of actual distraint is not yet available. not to dispose of the property in any manner. manager. the taxes are not voluntarily paid. One of the places for posting of such notice is the Office of the Mayor of such city or municipality. the delinquent taxpayer. LEVY (ONLY ON REAL PROPERTY) The seizure of real property of the taxpayer and interests or rights to such property for the satisfaction of taxes due from the delinquent taxpayer to enforce the payment thereof. meaning the assessment process is still to be done. The property may be offered in a public sale. treasurer or other responsible officer of the issuing corporation. obligate himself to preserve the same intact and unaltered. 206) a) taxpayer is Delinquent b) taxpayer is Retiring from any business subject to tax c) taxpayer is Intending to leave the Phil. 209) Notice specifying the time and place of sale and the articles distrained. if after seizure. The posting shall be made in not less than 2 public places in the city or municipality where the distraint is made. serve a warrant of garnishment upon the taxpayer AND upon the president. Sale of Property Distrained 3. 206) Note: .
the Register of Deeds where the property is located (Sec.only when notice of such lien is filed by the Commissioner in the Register of Deeds in the province/city where the property is situated (Sec. the real property shall be forfeited to the Government (Sec. It shall be effected by: a) posting a notice at the main entrance of the municipal building or the city hall and in public and conspicuous place in the barrio or district where the property is located b) by publication once a week for 3 consecutive weeks in newspaper of general circulation in the municipality or city where the property is located (Sec. 207[B]) Advertisement of the time and place of sale. (Sec. o Nature. and sold or forfeited to the government Both: summary remedies for collection cannot be availed of where amount involved do not exceed P100 Redemption of Property Sold
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. (Sec 217) Otherwise. Generally. upon the payment of the taxes. and the same shall be for a period of at least 30 days. it attaches to the property irrespective of ownership or transfer thereof. 214) The taxpayer-owner shall not be deprived of possession of said property and shall be entitled to rents and other income until the expiration of the period for redemption. penalties and costs There is no right of There is a right of redemption on the redemption in case of QuickTime™ and a personal property TIFF (Uncompressed) decompressor levied upon real property are needed to see this picture. penalties and costs. and interests. 2. At any time before the day fixed for the sale. Forfeiture to the Government If there is no bidder in the public sale or if the amount of the highest bid is insufficient to pay the taxes. which shall contain a) The amount of tax and penalties due b) Name of the taxpayer c) Short description of the property to be sold the advertisement shall be made within 20 days after the levy. LEVY DISTRAINT refers to personal property forfeiture of the property in favor of the government is not provided LEVY involves real property
Forfeiture authorized if (§ 215): There is no bidder or If the highest bid is insufficient to pay the taxes.upon all property and rights to property belonging to the taxpayer Effectivity against third persons. either real or personal. penalties. 213) Sale Awarded to the highest bidder In case the proceeds of the sale exceeds the claim and costs of sale. TAX LIEN It is a legal claim or charge on property. established by law as a security in default of the payment of taxes (51 AmJur 881).lien exists from the time assessment is made by the Commissioner until paid. with interests. penalties and interest thereon from the date of delinquency to the date of sale together with interest on purchase price at 15% per annum from the date of sale to the date of redemption. to the occupant of the property. 219) Superior to judgment claim of private
DISTRAINT VS. the property may be redeemed by the delinquent taxpayer or anyone from him. 215) Further Distraint and Levy The remedy of distraint and levy may be repeated if necessary until the full amount of the tax delinquency due including all expenses is collected from the taxpayer. the excess shall be turned over to the owner of the property.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
agent or manager if the business in respect to which the liability arose. a clever taxpayer who is also able to conceal most of the valuable part of his property would escape payment of his tax liability by sacrificing an insignificant portion of his holdings. Within 1 year from the date of sale. penalties and costs that may accrue in addition thereto Extent. or if there be no agent. the taxpayer may discontinue all proceedings by paying the taxes.a lien in favor of the Government of the Philippines when a person liable to pay a tax neglects or refuses to do so upon demand Duration.
Resorted to when the tax liability becomes final and unappealable. Defenses which are Precluded by Final and
. However under Sec. in whole and in part or o Is not acted upon within 180 days from submission of the documents. It includes filing by the government with the probate court claims against the deceased taxpayer.000. where the principal amount of taxes and fess exclusive of charges and penalties claimed is less than P1. the criminal liability gives birth to the civil obligation such that generally. RA 9282) The approval of the CIR is essential in civil cases (Sec. the Commissioner may delegate such power to a Regional Director. Where to file 1) Court of Tax Appeals. RA 9282) Acquittal of the taxpayer in criminal case does not exonerate him from liability to pay Taxes Under the Penal Code the civil liability is incurred by reason of the offender's criminal act.where the QuickTime™ and TIFF (Uncompressed) decompressor principal amount of to see this picture. TC. The criminal liability arises upon failure of the debtor to satisfy his civil obligation. TC. if one is not criminally liable under the Penal Code. and o The taxpayer adversely affected by the decision or inaction fails to file an appeal with the CTA within 30 days from receipt of said decision or from the lapse of the 180 day period. • When an administrative protest filed by the taxpayer against the assessment is o denied. The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infractor of the income tax law. there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. Mun. (Ungab vs. (Republic vs. When: • A tax is assessed and the assessment becomes final and unappealable because the taxpayer fails to file an administrative protest with the BIR within 30 days from the receipt of the assessment. fees. Metro aTC. where the principal amount of taxes and fees.000. these are actions instituted by the government to collect internal revenue taxes. exclusive of charges and penalties claimed is P1.on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC. 220). Patanao). or when the decision of the Commissioner becomes final or executory. 219]).00 and above. he cannot become civilly liable thereunder. Metro TC. 2) RTC.000. 30 May 1980.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
• property Attaches not only from the time the warrant was served BUT from the time tax was due and demandable (from the time when the assessment was made [Sec.000.000.on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC.where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above 2) RTC. exclusive are needed taxes and of charges and penalties claimed is less than P1. The situation under the income tax law is the exact opposite. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed. for instance. that one has engaged himself in business.000. Civil liability to pay taxes arises from the fact.00 (Sec 7[c]. Where to File 1) Court of Tax Appeals. Mun. 7 of NIRC. Stated differently. Cusi L41919-24. and not because of any criminal act committed by him. 97 SCRA 877) Page 75 of 145
LIEN Directed against the property subject to the tax Regardless of the owner of the property
CIVIL ACTIONS For tax remedy purposes.00 or where there is no specified amount claimed (Sec 7[b]. DISTRAINT Need not be directed against the property subject to tax Property seized must be owned by the taxpayer Executory Assessment Invalidity or illegality of the assessment and Prescription of the government’s right to assess CRIMINAL ACTIONS The judgment in the criminal cases shall not only impose the penalty but shall also order the payment of taxes subject of the criminal case as finally decided by the Commissioner (Sec 205) Resorted not only for the collection of the taxes but also for the enforcement of statutory penalties of all sorts.
forfeited property shall not be destroyed until at least 20 days from seizure ENFORCEMENT OF REMEDY OF FORFEITURE: Personal Property Seizure and sale or destruction of specific forfeited property Real Property Judgment of condemnation and sale Distille spirits. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return. and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. 224-225) ASSESSMENT AND COLLECTION Page 76 of 145 Divestiture of property without compensation. 1999. Island v.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Effect of Subsequent Satisfaction of Civil Liability The subsequent satisfaction of civil liability by payment or prescription does not extinguish the taxpayer’s criminal liability. 119761. dies for not be destroyed until at printing or making fake least 20 days from revenue stamps and seizure labels
Effect of the Forfeiture of Property The effect is to transfer the title to the specific thing from the owner to the government. cigarettes destroyed by order of the manufactured. that there is a prima facie showing of a willful attempt to evade taxes. 128315. It relates solely to the sale of property distrained to pay taxes of delinquents and the disposition of the proceeds thereof. in the latter the residue of such proceeds over and above what is required to pay the tax sought to be realized. may be cigars. in the case of CIR vs. 1996). must be filed with the approval of the Commissioner (Sec. (Bank of Phil. penalty or forfeiture. 97 SCRA 877) See also CIR vs. (Ungab v. 30 May 1980. CTA. including expenses. HOWEVER. Upon forfeiture. it may be imposed in cases of failure to pay the fine imposed. However. Aug. Trinidad. 220) FORFEITURE: (SEC. CA. All the proceeds in case of a sale goes to the coffers of the government. In the former all the proceeds derived from the sale of the thing forfeited are turned over to the Collector of Internal Revenue. liquors. (Sec 280) Criminal Action May be Filed during the Pendency of an Administrative Protest in the BIR It is not a requirement for the filing thereof that there be a precise computation and assessment of the tax. since what is involved in the criminal action is not the collection of tax but a criminal prosecution for the violation of the NIRC. Surla. which reached the same conclusion as in Ungab. removed in violation of Forfeited property shall the Code. Pascor Realty. Conducted by legalneeded to see this picture. There is a great difference between a seizure under forfeiture and a seizure to enforce a tax lien. Provided. Must be brought in the name of the Government QuickTime™ and a of the Philippines (Uncompressed) decompressor TIFF are officers of the 2. however. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. in consequence of a default or offense. BIR 3. is returned to the owner of the property. 20 Phil 163). No Subsidiary Imprisonment In case of insolvency on the part of the taxpayer subsidiary imprisonment cannot be imposed as regards the tax which he is sentenced to pay. Cusi. GR No. 42 Phil 220). The provisions in the Code which entitles the taxpayer to the balance of the proceeds in excess of the tax liability is entirely inapplicable to forfeited property. L-41919-24. products CIR where the sale may of tobacco and apparatus be injurious to public used for their production health or prejudicial to law enforcement Other articles subject to Upon forfeiture may be excise tax which have sold or destroyed at the been manufactured or discretion of the CIR. 29. In case of actions for recovery of taxes or enforcement of a fine. June 29.
. & Fortune Tobacco (GR No. (US v. the CIR held a contrary position CIVIL AND CRIMINAL ACTIONS: 1.
. WHEN PAN NO LONGER REQUIRED: a. The assessment shall be in writing. in order to determine the taxpayer’s correct internal revenue tax liabilities WHO ISSUES LOA: o CIR – for those units reporting directly under him o Regional Directors – for taxpayers covered by his particular region. comply with audit and investigation requirements to present his books of accounts and or pertinent records b. STEP 2: Informal Conference a QuickTime™ and MATTERS TIFF (Uncompressed) this picture.policy cases under audit by the special teams in national offices 4. TAKEN to see decompressor UP: are needed 1. informing a taxpayer who has been audited of the findings of the Revenue Officer. when the excise tax due has not been paid. the taxpayer shall have 15 days from receipt of the notice of informal conference to explain his side.
PRE-ASSESSMENT STAGE STEP 1: Notice of Informal Conference . a Revenue Officer recommends the imposition of deficiency tax assessments. it is usually when statutory prescriptive periods for the assessment or collection of taxes are about to lapse due to taxpayer’s fault. Discussion on the merits of the assessment 2.If the taxpayer disagrees with the findings in the PAN. Evaluate if the submission of the waiver of the SOL is necessary – evaluation may extend beyond 3 years
STEP 3: Issuance of Pre-Assessment Notice (PAN) . mathematical errors b. following the review of these findings.Communication issued by the Regional Assessment Division or any other concerned BIR office. and should inform the taxpayer of the law and the facts on which the assessment is made. when an article locally purchased or imported by an exempt person Page 77 of 145
. or d. and . Attempt of taxpayer to convince the examiner to conduct a re-investigation and or re-examination 3. he has 15 days to file a written reply contesting the proposed assessment. Taxpayer to advise the examiner if position paper JEOPARDY ASSESSMENT: a tax assessment made by an authorized revenue officer without the benefit of a complete or partial audit if the officer believes that the assessment and collection will be jeopardized by the delay caused by the taxpayer’s failure to: a.a written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency assessments have to be paid . otherwise.Cases involving civil/criminal tax fraud which fall under the jurisdiction of the tax fraud division of the enforcement services. exemptions or credits claimed in his return. after the culmination of an audit. discrepancy has been determined between tax withheld and amount actually remitted by the withholding agent 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 e. If the CIR has already issued an LA to investigate a particular taxpayer.If. the Regional Director shall desist from issuing another LA for the same taxpayer. WHERE NO LETTER OF AUTHORITY NEEDED: . substantiate all or any of the deductions. the assessment is void.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Letter of Authority The letter of authority is an official document that empowers a Revenue Officer to examine and scrutinize a taxpayer’s books of accounts and other accounting records. this recommendation is communicated by the Bureau to the taxpayer concerned during an informal conference called for this purpose.
(Meralco Securities vs. . estoppel cannot be invoked by the taxpayer in order to preclude the collection of taxes that is rightfully due the government. The same is true even if the CIR is wrong. 23. (Sy Po v. Deficiency tax liability arisinf from a tax audit conducted by a BIR (sec 56b. or transferred to a non-exempt person BURDEN OF PROOF: .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
has been sold. An assessment contains not only a computation of under declaration of taxable sales. 6d. Tax lien (sec. It is settled in our jurisdiction that where an assessment is illegal and void. Oct. is to sue for refund in the competent court. traded. NIRC) 4. which is the primary responsibility of the executive branch of the government. 228) Assessments Prima facie correct Tax assessments by tax examiners are presumed correct and made in good faith. Dissolving Corporation (sec. NIRC) 3. thus. the remedy of a taxpayer. 1968)
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. receipts or income. 219.) Assessment Discretionary on the part of Commissioner Since the office of the Commissioner of Internal Revenue is charged with the administration of revenue laws. GENERAL RULE: Taxes are self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer. where the assessment is merely erroneous. (GR L-24213 March 13. L-36181 and L-36748. CA) Reasons: > lifeblood theory > presumption of regularity in the performance of public functions Note: assessments by the BIR must have on its face the law and facts upon which the presumption is made. the burden lies on the taxpayer. it can be written anywhere as long as it is signed by the BIR.Failure to report sales. the finding of the CIR will be conclusive and he will assess the taxpayer. 52c. mandamus may not lie against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper for that would be tantamount to a usurpation of executive functions. The taxpayer has the duty to prove otherwise. receipts. 1992). if the taxpayer does not controvert it (Cagayan Robina Sugar Milling V. On the other hand. OR a substantial overstatement of deductions . What Constitutes an Assessment? There is no form for an assessment. Tax period of a taxpayer is terminated (sec. 1988. must state the facts and law upon which it is based (Sec. CTA.
Void vs. Savellano. who has already paid the realty tax under protest. Otherwise. or income in an amount exceeding 30% of that declared per return.The state cannot be estopped by the QuickTime™ and a TIFF agents and officers. This is commonly known as the Final Assessment Notice. The rule of (Uncompressed) decompressor neglect of itsare needed to see this picture. or whose reply to the PAN was found to be without merit.There is a presumption of correctness and good faith on the part of the CIR. FORMAL ASSESSMENT STAGE Notice of Assessment is a formal letter of demand where a declaration of deficiency taxes is issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time. his recourse is to file an appeal in the Provincial Board of Assessment Appeals within 60 days from receipt of the assessment. and a claim of deductions exceeding 30% of actual deductions constitute substantial under declaration or over declaration. GRN L81446 August 18. NIRC) Requisites of a valid assessment: 1. Exceptions: 1. Any notice sent to the taxpayer demanding the tax liability is an assessment. NIRC) 2. It is erroneous when the assessor has the power but errs in the exercise of that power. in writing 2. Illegal Assessment An assessment is illegal and void when the assessor has no power to act at all.
Javier) Mistakes of revenue officers on three different occasions remove element of fraud ( Aznar V. intentional and substantial QuickTime™ and a deductions overstatement decompressor of of TIFF (Uncompressed) are needed exemptionsto see this picture. proves existence of fraud (Tan Guan V. Remedy of taxpayer is to file a return Defense of prescription is waivable
Prescriptive Period for the Assessment of Taxes a) General Rule: 3 years after the date the return is due or filed. They are also beneficial to the government because tax officers will be obligated to act promptly.Ayala Securities) Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in the trial court (CIR v. CTA and Collector) Agreement in writing to the extension of the period to assess between the CIR and the taxpayer before the expiration of the 3 year period. tax is imprescriptible N. carelessness or ignorance. recurrence of the above circumstances Falsity constitutes a deviation from the truth due to mistake. of the actual (>30% deductions [Sec. whichever is later (Sec 203) b) Exceptions: failure to file return: 10 years from date of discovery of the omission to file the return (Sec 222A) False or fraudulent return with intention to evade the tax: 10 years from the date of the discovery of the falsity or fraud (Sec 222A) Nothing in Sec 222A shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree Fraud must be alleged and proved as a fact. There is fraud in the following cases:
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. Collector) Substantial underdeclarations of income for six consecutive years demonstrate fraudulence of returns (Perez V. (Sec. Ayala Securities) Farud is never imputed and the courts never sustain findings of fraud upon circumstances that only create suspicion ( CIR v. 248]) 2. intentional and substantial understatement of the tax liability by the taxpayer (substantial underdeclaration of income.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND COLLECTION OF TAXES Rationale The periods are designated to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. Republic) Sale of real property for less than FMV is not necessarily a false return ( CIR v. >30% of that declared [Sec. 248]) 3. 222(b)) Written waiver or renunciation of the original 3 years limitation. The extension period agreed upon can further be extended by a subsequent written agreement made before the expiration of the extended period previously agreed upon. mailed or sent to the taxpayer also within the 3 year period. CTA) Presence of fictitious expenses. CIR) No Fraud in the following cases: mere understatement in the tax return will not necessarily imply fraud (Jalandoni V.B. It may be established by the: 1. It is not required that the notice be received by the taxpayer within the prescribed period. with no evidence presented. Notice of the assessment is released. signed by the taxpayer. But the
Rules on Prescription When the tax law itself is silent on prescription. It must be the product of a deliberate intent to evade taxes. the tax is imprescriptible When no return is required. Republic) Simple statement that return filed was not fraudulent does not disprove existence of fraud (Tayengco V. Fraud must be the product of a deliberate intent to evade taxes (Jalandoni V.
By summary remedies – when the Government avails of the summary method of distraint and levy procedure 2.it has complied substantially with the requirements of the law • The return is appropriate. But the said period shall run from the filing of the original return. Effect of filing a wrong return: the 10 year prescriptive period for cases where returns are not filed applies. (Fernandez Hermanos v. the collection of tax is considered begun when the Government filed its answer to the taxpayer’s petition for review. when the taxpayer requests for a reconsideration which is granted by the CIR 3. • a defective tax return is the same as if no return was filed at all. Hence. In this case the taxpayers failed to pay the installments due despite demand. from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment (Lim v. Charge is filing of false or fraudulent return with intent to evade the assessment. if the same is sufficiently complete to enable the CIR to make proper assessment ( CIR v. when the warrant of distraint or levy is duly served and no property is located 5. without need for an assessment (Sec 222) Prescriptive Period where the Government’s Action is on a Bond which the Taxpayer Executes in order to Secure the Payment of his Tax Obligation • 10 years under Art. (Basilan Estate v. when the taxpayer cannot be located in the address given by him in the return. 1961) Grounds for Suspension of the Running of the QuickTime™ and a Statute of Limitation (Uncompressed) decompressor TIFF are needed to see this picture. 281) should be filed 5 years from the (1) day of the commission of the violation of the law.in addition to the fact of discovery.) Within 3 years from the date of such filing. The action is for the enforcement of a contractual obligation. and for 60 days thereafter 2. and if the same shall be not known. May 30. the same may be modified. 223) A Tax Return is Considered Filed for Purposes of Starting the Running of the Period of Limitation • The return is valid. Charge is failure or refusal to pay deficiency income-committed only after the finality of the assessment coupled with the taxpayer’s willful refusal to pay the taxes within the allotted period 2. 1. (Republic v. the prescriptive period shall be counted from the filing of the amended return. the Government sued on the bond which is a separate and distinct obligation of the parties thereto. 21 SCRA 17). there must be a judicial proceedings for the investigation and punishment of the tax offense before the 5 year prescriptive period begins to run. unless he informs the CIR of any change in his address 4. Phoenix Assurance Co. when the taxpayer is out of the Philippines (Sec. By judicial remedies – by filing a complaint through the proper court Note: if the decision of the CIR on protested assessment is appealed to the CTA. provided that no notice for audit or investigation of such return. changed or amended. Araneta. when the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding in court.it is a return for the particular tax required by law. CIR) INFORMER’S REWARD -Persons instrumental in the discovery of violations of the NIRC and in the discovery and seizure of smuggled goods REQUISITES TO QUALIFY FOR THE REWARD: Page 80 of 145
. or declaration has in the meantime been actually served upon the taxpayer. Prescriptive Period for the Violation of Any Provision of the Tax Code (Sec. CA 190 SCRA 616) 1. Prescriptive Period for the Collection of Taxes • 5 years – from assessment or within period for collection agreed upon in writing before expiration of the 5 year period (Sec 222) • 10 years – after discovery in case of false or fraudulent return with intent to evade or failure to file return. 1144(1) of the Civil Code and not 3 years under the NIRC. CIR. L-14142. GR No. Amendment of Return If the amended return is substantially different from the original return. statement. WHEN TAX DEEMED COLLECTED: 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
sending of the notice must clearly be proven.
Case No.the cash rewards shall be subject to income tax at the rate of 1-% Note: Status offering rewards must be liberally construed in favor of informers and with regard to the purpose for which they are intended. Before payment TIFF taxes of (Uncompressed) decompressor are needed to see a) protest of assessment this picture. and addressed to the Commissioner of Internal Revenue 2. not yet in the possession of the BIR b. leading to discovery of frauds c. whichever is lower. conviction of the guilty party d. all relevant documents should be filed. resulting in the discovery of revenue. CHARACTERISTICS OF A VALID PROTEST: 1. CTA. or fees be actually collected. otherwise assessment becomes FINAL and cannot be appealed (Sec 228) Submission of documents within the 60 days
.000. applicable law. otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. The prescriptive period begins to run again when the taxpayer receives the letter denying its request/motion for recon.000. Administrative QuickTime™ and a A. Aug.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
PART II. It is filed within the period prescribed by law. 228) 2. or P1. the taxpayer mat file several motions for reconsideration with the Commissioner instead of at once filing his petition for review before the CTA. • Within 60 days from filing. surcharges or fees recovered and/or fine/penalty imposed. It can be used in court in case of administrative remedies have been exhausted. with mere technicality yielding to the substantive purpose of the law Same amount shall be given if the offerender offered to compromise and such offer has been accepted and collected by the CIR If no revenue. or P1. It is also the formal act of the taxpayer questioning the official actuations of the CIR.10% of the revenues. 4. He then only has the remainder of the Page 81 of 145 period is optional to the taxpayer. Civil Action a) Appeal to the CTA • within 30 days from receipt of the decision on the protest or from the lapse of the 180 days inaction of the Commissioner (Sec. It states the facts. The relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted. After payment of taxes a) Claim for refund or tax credit • Within 2 years from the date of payment regardless of any supervening cause (Sec.000. This is equivalent to a pleading. (Standard Chartered Bank v. The subsequent motion for reconsideration tolls the running of the prescriptive period. whichever is LOWER. otherwise the protest shall be considered void and without force and effect. . Voluntarily gives definite and sworn information: a. • Filing a petition for reconsideration or reinvestigation within 30 days from receipt of assessment. It contains information as specified in RR12-85 3. 16. or employee or relative within the 6th degree of consanguinity 2. Person is not an internal revenue official or employee. Judicial Relief A. B. such person is not entitled to a reward For discovery and seizure of SMUGGLED GOODS -> the cash reward is 10% of the FMV of the smuggled and confiscated goods. rules and regulations or jurisprudence on which his protest is based. 2001) A protest is a vital document which is a formal declaration of resistance of the taxpayer. not refer to a case already pending or previously investigated or examined by the CIR or his agents or the SOF or his agents Amount of Reward . b) Entering into a compromise (Sec. and/or. REMEDIES AVAILABLE TAXPAYER General Remedies
1. surcharges and fees. public official. 5696. 228) • Within the 30 day period to appeal. It is made in writing. It is a repository of all arguments. surcharge.
Court may require deposit of an amount or surety bond for not more than double the amount with the enactment of RA 9282. Inc. Union Shipping Corp. RA 1125) b) Action to contest forfeiture of chattel • at any time before the sale or destruction thereof. the assessment shall become FINAL (cannot be appealed).5. Criminal Action a) Against erring BIR officials and employees b) Injunction • When the CTA in its opinion the collection by the BIR may jeopardize the taxpayer. vs. Involves a question of fact or law or both. Involves a question of fact or law or both. an action to recover the net proceeds realized at the sale (Sec 231) c) Action for damages • against a revenue officer by reason of any act done in the performance of official duty (Sec 227) 3. CIR) Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA filing by the BIR of a civil suit for collection of the deficiency tax (CIR v. (Surigao Electric Co.1. Grounds: a) if the protest is denied in whole or in part or b) is not acted upon within 180 days from submission of documents 2. Effect of failure to appeal: the decision shall be final. (Sec. Ayala Securities Corp. (CIR v. Commissioner did not rule on the taxpayer’s MR of the assessment – it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run. Appellate Court: Court of Tax Appeals 3. Referral by the (Uncompressed) decompressor request for TIFF Commissioner of are needed to see this picture. 228) 1. reinvestigation to the Solicitor General (Republic vs. 11. all relevant supporting documents should have been submitted. executory and demandable (NOTE: See Lascona doctrine which gives the taxpayer the Page 82 of 145
. Direct Denial The decision of the Commissioner or his duly rep shall (a) state the facts. 3. otherwise the protest shall be considered void and without force and effect. v.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
original 30-day period to appeal to the CTA. CA. or • after the sale and within 6 months. applicable law. 12-85) 2. • request for reconsideration• a plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. (sec. Within 60 days from filing of protest. in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision. and upon giving proper bond. to recover the same.) QuickTime™ and a b. Reiterating the demand for immediate payment of the deficiency tax due to taxpayer’s continued refusal to execute waiver (CIR vs. Preliminary collection letter may serve as assessment notice (United Int’l Pictures vs. (CIR vs. Union Shipping Corp. the CTA has now jurisdiction over criminal cases Denial of Protest: 1. enjoin the sale. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment • request for reinvestigation• a plea for re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. 228) Appeal of Protest to the CTA (Judicial Relief): (Sec. rules and regulations or jurisprudence on which his protest is based. Period to appeal: a) within 30 days from receipt of decision denying the protest or b) 30 days from the lapse of 180 day period 4. Union Shipping Corp) Protest of Assessment: 1. 57 SCRA 523) The actual issuance of a warrant of distraint and levy in certain cases cannot be considered as final decision on a disputed settlement (CIR v. 1974) • A division of the CTA shall hear the appeal.) d. (sec. sent to taxpayer after his protest of the assessment (Surigao Electric Co. RR 12-99) 2. Lim Tian Teng Sons) c. CTA. 185 SCRA 547) indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial. Indirect Denial a. otherwise. Union Shipping Corp) BIR demand letter reiterating his previous demand to pay. (Revenue Regulation No.
City of Baguio)
Because the sales tax is imposed directly on the seller as an occupation tax for selling Once recovered. RA 1125) If the taxpayer is not satisfied with the decision of the CTA en banc. (sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
option either to appeal to the CTA or to await the decision of the CIR. 11. 19. a party adversely affected may file with the SC a verified petition for review on certiorari pursuant to Rule 45 of the Rules of Court. (sec. Then. elevate the matter to the CIR within 30 days from the receipt of the decision of the CIRs duly authorized representative
Appeal to the Division of CTA within 30 days from the receipt of the final decision of CIR or his duly authorized representative (taxpayer has the option to appeal straight to CTA upon receipt of the decision of CIR [Lascona doctrine])
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. RA1125) 2. Sec 228 and Rules of Court) BIR makes a tax assessment If taxpayer is not satisfied with the assessment file a protest within 30 days from the receipt thereof Submit supporting documents within 60 days from date of the filing of the protest Where payer is not the taxpayer (e.) If taxpayer is not satisfied with the CTA Division’s ruling. The withholding agent is
Page 83 of 145
. the latter may appeal within 30 days from
Appeal to the CTA en banc from receipt of the decision of CTA division (after denial by CTA division of motion for reconsideration)
Withholding agent (CIR vs.g.
Who is entitled to ask for refund The taxpayer (even if tax has been actually shifted by the taxpayer to his customers as in sales tax and even if the tax has been billed as a separate item in the invoice) (CIR vs. the seller must hold the refunded taxes in trust for the individual purchasers who advanced payment thereof and whose name must appear on his records
If the CIR or his rep fails to act on the protest within 180 days from date of submission by taxpayer. American Rubber) Theater goers are not entitled to claim refund of such taxes (Medina vs. RA 1125) REGLEMENTARY PERIODS IN INCOME TAX IMPOSED BY LAW UPON THE TAXPAYER (Pursuant to RR 12-99. Procter & Gamble)
"Taxpayer" is any person subject to tax imposed by this title (income tax). 18. a party adversely affected by a resolution of a division of the CTA on a motion for recon may file a petition for review with the CTA en banc. theater owners who paid illegal municipal taxes billed to and collected from theater goers) Where payer is withholding agent Appeal to the SC within 15 days from the receipt of the CTA en banc decision
FILING OF CLAIM FOR TAX REFUND OR TAX CREDIT Parties Entitled to Refund GR: The person entitled to ask for a refund is the taxpayer who paid the same Exceptions: Case
Where tax has been shifted
If protest is denied. 1. (sec. He may first file a motion for recon before the same division of the CTA within 15 days from notice thereof.
from date of payment of the tax/penalty regardless of any supervening cause that may arise after payment d) the Commissioner may. 204 C. Tax Credit Certificate a) may be applied against any internal revenue tax. When may taxes be refunded or credited? 1. surcharges and penalties Where donor's tax was assumed by donee Donee is the proper party to claim refund of the donor's tax (even if the tax was advanced by the donor) that may arise after the payment c) a return filed showing an overpayment shall be considered a written claim for credit or refund 3. (Sec. e) where on the face of the return upon which payment was made. Forfeiture of cash refund/tax credit a) Forfeiture of refund in favor of the government when a refund check or warrant remains unclaimed or uncashed within 5 yrs. 204(3) and 229 Case 2-year period starts from From date tax was paid (CIR v Victorias Milling) From date of the last or final Page 84 of 145 Notes
What is the nature of as a claim for refund? It partakes of the nature of an exemption and is strictly construed against the claimant. such as. 204 C) 5. He burden of proof is on the taxpayer claiming the refund that he is entitled to the same (CIR v. he is not aware of an existing exemption in his favor at the time that payment is made. suit must be filed within 2 yrs. UNLESS revalidated. payment appears to be erroneous.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
directly and independently liable for the correct amount of tax that should be withheld. Grounds for Tax refunded or credited: [EPWroSUn] a) Taxes erroneously or illegally received b) Penalties imposed without authority c) Any sum alleged to have been excessively or in any manner wrongfully collected d) Refund the value of internal revenue stamps when returned in good condition by the purchaser e) Redeem or change unused stamps rendered unfit for use and refund their value upon proof ofand a destruction. 229) 4. from date of mailing or delivery b) Forfeiture of Tax Credit-a tax credit certificate which remains unutilized after 5 yrs. Taxes are illegally collected when payments are made under duress. Tokyo). in the QuickTime™ TIFF decompressor discretion (Uncompressed) this picture. EXCEPT withholding taxes b) original copy is surrendered to the revenue officer c) no tax refund will be given resulting from availment of incentives granted by law where no actual payment was made (Sec. from date of issue. Suit or proceeding for refund a) a claim for refund or credit has been filed with the Commissioner b) the suit may be maintained whether or not such tax/penalty/sum has been paid under protest c) in any case. or illegally assessed or collected taxes? Taxes are erroneously paid when a taxpayer pays under a mistake of fact. 230) Commencement of 2-year period under Sec. of the Commissioner are needed to see 2. When are there erroneously paid. (Sec. Procedure for credit/refund a) taxpayer files in writing with the Commissioner a claim for credit or refund b) filed within 2 yrs after the payment of the tax or penalty no suit or proceeding shall begun after the expiration of the said 2 yrs regardless of any supervening cause
If the tax sought to be refunded is illegally or erroneously collected If the tax is paid in installment or only in part
There is no payment until the whole/entire
. shall be invalid. and of deficiency assessments. refund or credit a tax. even without a written claim.
on that the the date of corporation can the filing of ascertain the adjusted whether it final return made profits or (ACCPA incurred losses Investment in its business vs. (CIR v. payment under protest is not necessary in refund for local taxes. 1858) Interest on Tax Refunds General Rule Government cannot be required to pay interest on taxes refunded to the taxpayer in the absence of a statutory provision clearly or expressly directing or authorizing such payment. (Sec. the 30 days period to appeal with the CTA must be within the 2 yr preemptory Page 85 of 145
. 229) Similarly. Nov. 196 LGC). TMX Sales) From the date the taxpayer becomes entitled to refund and not from the date of payment (CIR vs. 106 Phil 59) Exception 1) When the CIR acted with patent arbitrariness. 29. Collector. In other words. computed from the time of filing of the Adjusted Return or Annual ITR and final payment of
Merely making a deposit is not equivalent to payment until the amount is actually applied to the specific purpose for which it was deposited A taxpayer who contributes to the withholding tax system performs and extinguishes his tax obligation for the year concerned. CA) At the It is only then earliest. (CIR v. CIR v. May 28. however. 252 LGC) (b) custom duties (Sec 2308 TCC) Suspension of the 2 yr Prescriptive Period 1) there is a pending litigation between the gov’t & the taxpayer 2) CIR in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto (Panay Electric Co. Prieto. TMX Sales) From conversion of the deposit to payment (Union Garment v Coll) tax liability fully paid is income tax (CIR vs.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
installment or payment (CIR vs. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. Victoria Milling. Don Pedro Central Azucarera)
If the taxpayer merely made a deposit
If tax has been withheld from source (through the withholding tax system)
From date it falls due at the end of the taxable year (Gibbs vs CIR) He is deemed to have paid his tax liability when the same falls due at the end of the taxable year (Aguilar vs. L-19667. penalty or sum has been paid under protest or duress (Sec. Sweeney. under protest is necessary to claim for (a) real property taxes (Sec. he is paying his tax liabilities for that year.
If tax was not erroneously or illegally paid but the taxpayer became entitled to refund because of supervening circumstances
Before the right to refund or credit arises. CA) operations The 2-yr period provided in Sec QuickTime™ and a 229 TIFF (Uncompressed) decompressor should be are needed to see this picture. 1966) 2) Under Sec. 79 (c)(2) with respect to income taxes withheld on the wages of the EEs In case of the CIRs final denial of the claim for refund. there is absolutely no basis to file a claim with the CIR or commence a suit in court
Payment Under Protest is NOT Necessary under NIRC A suit or proceedings for tax refund may be maintained whether or not such tax. v. CIR v Palanca.
or c) Failure to pay the Deficiency tax within the time prescribed for its payment in the notice of assessment. STATUTORY OFFENSES & PENALTIES
are needed to see this picture. 3)If the withholding agent is the Government or any of its agencies. as determined by the Commissioner 2. the employee responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax. CHAPTER I. or d) Failure to pay on or before the date prescribed for its payment: 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
period for instituting a judicial action TITLE IX. COMPLIANCE REQUIREMENTS Examination and inspection of all books and records shall be made only once in a taxable year.ADDITIONS TO THE TAX (Sec. or On or before the commencement of business. B) Penalty: 50% of the tax or of the deficiency tax. the full amount of tax due for which no return is required to be filed. defined. or (c) Where the taxpayer acted in bad faith. • In case of the following: RIDT (lets get RID of Tax) a) Failure to file any Return and pay the tax on the date prescribed. NIRC) Any revocation. 3. or a government-owned or controlled corporation. General Provisions 1)The additions to the tax or deficiency tax apply to all taxes. EXCEPT: 1. modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation. in addition to the tax required to be paid. or Upon filing of a return. Civil Penalties (Sec. The taxpayer requests reinvestigation. unless otherwise authorized by the Commissioner. Additions to Tax 1. A surcharge is a civil penalty imposed by law as an addition to the
. in the same manner and as part of the tax. in case any payment has been made on the Page 86 of 145
Definitions • Increments to the basic tax incident due to the taxpayer’s non-compliance with certain legal requirements. (sec. except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR. It is not a criminal penalty but a civil administrative sanction provided primarily as safeguard for the protection of the State revenue and to reimburse the government for the expenses of investigation and the loss resulting from the taxpayer’s fraud. irregularity or mistakes. the full or part of the amount of Tax shown on any return required to be filed. • Surcharge. 246. modification or reversal will be prejudicial to the taxpayers. A surcharge added to the main tax is subject to interest. TITLE X. statement or declaration as required under the Code (sec. political subdivisions or instrumentalities. employee or member is under a duty to perform the act in respect of which the violation occurs. (b) Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based. fees and charges imposed in this Code. Verification of capital gains tax liabilities 5. 248) A) Penalty: 25% of the amount due. 236) Non-Retroactivity of Rulings (Sec. In the exercise of the Commissioner’s power to issue an access letter. 2. Verification of compliance with withholding tax laws and regulations 4. 2)The amount so added to the tax shall be collected at the same time. or b) Filing a return with an Internal revenue officer other than those with whom the return is required to be filed. or Before payment of any tax due. 247-252) QuickTime™ and a TIFF (Uncompressed) decompressor
main tax required to be paid. Fraud. 235) Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer: Within ten days from date of employment. 4)The term ‘person’. includes an officer or employee of a corporation who as such officer.
substantial under declaration of taxable sales. Failure of a Withholding Agent to Collect and Remit Tax (Sec. 2) statement or list. 251) A) Penalty: Amount of the tax not withheld. or 2) where the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or any part thereof. C) FROM the date prescribed for its payment until the full payment. 22) The imposition of interest is but a just compensation to the state for the delay in the payment of the tax. account for. D) Interest shall formQuickTime™ and a tax.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
basis of a return before the discovery of the falsity or fraud. receipts or income in an amount exceeding 30% of that declared per return 2. 5. Aids or abets in any manner to evade any such tax or the payment thereof. or 2.000 for each failure B) The aggregate amount for all such failure shall not exceed P 25. • In case of: [ FiFa ] a)Willful neglect to File the return within the period prescribed. Meer.In case of failure to pay: 1. Any person required to withhold. or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. 3. or 2. Failure of a Withholding Agent to Refund Excess Withholding Tax.claim of deductions in an amount exceeding 30% of actual deductions 2. or not accounted for and remitted plus other penalties. 3) keep any record.
Bureau of Internal Revenue Ruling #019-2003 • Pursuant to Section 249 of the 1997 Tax Code. receipts or income . or any installment. tax due for which no return is required. (Sec. 74 Phil. or 3. B) Liable only upon conviction • In case of the following: 1. of Finance: 1. and for the concomitant use by the taxpayer
4. 250) A) Penalty: P 1. Who willfully fails to withhold such tax. the imposition of interest on delinquency is mandatory.252) Penalty: Amount of refund which was not Page 87 of 145
. In the case of each failure to file: 1) information return. Failure to File Certain Information Returns (Sec.
of funds that rightfully government's hands
Interest on Extended Payment.failure to report sales. tax due on any return required to be filed. 249) A) There shall be assessed and collected an Interest at 20% per annum on any unpaid amount of tax B) OR higher rate prescribed by rules and regulations from the date prescribed for payment until the amount is fully paid. (Jamora vs. substantial overstatement of deductions . (a) Deficiency Interest in the tax due (b) Delinquency Interest. and remit any tax. • Prima facie evidence of a false or fraudulent return as determined by the Commissioner pursuant to the rules and regulations promulgated by the Sec. in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. Interest (Sec. or 3. 3) from the date of notice and demand until it is paid. A deficiency tax. 1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax. part decompressor TIFF (Uncompressed)of the
are needed to see this picture. 4) supply any information E) required by this Code or by the Commissioner on the date prescribed thereof. or any part on or before the date prescribed. .000 during a calendar year C) Upon notice and demand by the Commissioner D) Unless it is shown that such failure is due to reasonable cause and not to willful neglect. or b)False or fraudulent return is willfully made. or account for and remit such tax.
Unlawful possession or removal of articles subject to excise tax without payment of the tax. The fines to are needed to see this picture. 9. D. (Sec. In the case of associations. • The conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.000. and b) Deported immediately after serving the sentence without further proceedings for deportation. 10. the penalty shall be imposed on the partner. Attempt to Evade or Defeat Tax. Misdeclaration or misrepresentation of manufacturers subject to excise tax. Plus other penalties • Who is liable: Any person who willfully attempts in any manner to evade or defeat any tax or the payment thereof. 5. Failure to File Return. Pay Tax. 4. Shipment or removal of liquor or tobacco products under false name or brand or as an imitation of any existing or otherwise known product name or brand. Failure to obey summons. and b) he shall be dismissed from the public service and perpetually disqualified from holding any public office. Payment of the tax due after apprehension is not a valid defense in any prosecution for violation of any provision of this Code or in any action for the forfeiture of untaxed articles.2 to 4 years. Declarations under penalties of perjury. 2. Penal liability for making false entries. partnerships or corporations. Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. General Provisions (Sec. 2. upon conviction. 4. 6. Other crimes and offenses 1. whichever is higher.CRIMES. treasurer. 253) 1. Failure to file return. Willful attempt to evade or defeat tax. 264) Crime 1: Willful Omission of Filing and Payment Page 88 of 145
. records. Supply Correct and Accurate Information. 5. and Imprisonment . 13. 8. 7. upon conviction: Fine . Offenses relating to stamps. general manager. Unlawful possession of cigarette paper in bobbins or rolls. If the offender is not a citizen of the Philippines: a) he shall serve the sentence. 254) • Penalty. be automatically revoked or cancelled. etc. 11. 3. withhold and remit tax and refund excess taxes withheld on compensation. or reports. 3. Illegal collection of foreign payments. branch manager. A person is liable in the same manner as the principal when he: a) willfully aids or abets in the commission of a crime penalized herein or b) causes the commission of any such offense by another. Crimes 1. etc. supply correct and accurate information. 3. to vote and to participate in any election. Any person convicted of a crime under this Code is liable for the payment of the tax and is subject to the penalties imposed herein.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return plus other penalties in case any employer/withholding agent fails or refuses to refund excess withholding tax. or using falsified or fake accountable forms. TIFF (Uncompressed) decompressor 8. If he is a public officer or employee: a) the maximum penalty prescribed for the offense shall be imposed. Failure or refusal to issue receipts or sales or commercial invoices. (Sec. interests and surcharges due from the taxpayer. 12. president. Forfeiture of property used in unlicensed business or dies used for printing false stamps. QuickTime™ and and employees responsible afor the violation. any violation of be imposed for the provisions of this Code shall: a) not be lower than the fines imposed herein or b) twice the amount of taxes. If the offender is a Certified Public Accountant. 7. C. his certificate as a Certified Public Accountant shall. Unlawful use of denatured alcohol. Forfeiture of goods illegally stored or removed. OTHER OFFENSES AND FORFEITURES A. Penal liability of corporation. officer-in-charge. pay tax. 14. violations related to the printing of such receipts or invoices and other violations. CHAPTER II. 2. 6.000 or 100.P30. Unlawful pursuit of business.
2) In the case of foreigners. withhold or remit taxes withheld. or o actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed. supply correct and accurate information. • Nature of Offense: Willful failure to 1. Crime 2: Withdrawal of Returns Filed • Penalty. taxable income. supply such correct and accurate information. refund taxes withheld on compensation. or 4. and • Imprisonment . 3. including exhibits. o Plus other penalties Person liable: Any person who: o attempts to make it appear for any reason that he or another has in fact filed a return or statement. without further proceedings for deportation. upon conviction: o Fine . Records or Reports. 2. or 3) Certifies financial statements of a business enterprise containing an essential misstatement of facts or omission in respect of the transactions. his certificate shall be automatically revoked or cancelled upon conviction. corporation. 4. association or 3. 2. 1. Who is liable: Any of the following liable for any of the acts or omissions penalized under this Code. 5. 257) • Penalty. and o Imprisonment .P50. TIFF (Uncompressed) decompressor are needed to see this picture. keep the record. partners. and o Imprisonment . deduction and exemption of his client.000 100.000. upon conviction: Fine .100. conviction under this Code shall result in his immediate deportation after serving sentence. • Special Penalties 1) If Offender is a Certified Public Accountant. • Offense: FVC 1) Willfully Falsifies any report or statement bearing on any examination or audit 2) Renders a report. 2. or
E.2 to 6 years. o Plus other penalties • Person liable: Any person required: 1.000.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Obligations • Penalty. make a return. upon conviction for each act or omission: • Fine . to pay any tax.000 .P50.P10.1 to 3 years. • Who is liable: • Any financial officer or • Independent Certified Public Accountant engaged to examine and audit books of accounts of taxpayers under Sec. general co-partnerships Accountable Forms (Sec.000 .000 o In addition to the penalties imposed upon the responsible corporate officers. or QuickTime™ and a employees. 6. make a return.000 or more. upon conviction: o Fine .20. Penal Liability of Corporations (Sec 256) • Penalty. schedules or other forms of accountancy work which has not been Verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices. at the time or times required. or Using Falsified or Fake
.232 (A) • Any person under his direction. 3. statements. pay tax. keep any record.P10.1 to 10 years. Prescription of Actions • All violations of any provision of the Code shall prescribe after five (5) years CHAPTER III – OTHER PENAL PROVISIONS Page 89 of 145
Penal Liability for Making False Entries.
surcharges or fees recovered and/or fine or penalty imposed and collected or P1M per case. When is a Person Instrumental
.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in Discovery and Seizure of Smuggled Goods (Sec. For Discovery and Seizure of Smuggled Goods o Persons instrumental in the discovery and seizure of QuickTime™ and a smuggled goods EXCEPT: TIFF (Uncompressed) decompressor are needed to see this picture. 282) 1. Page 90 of 145
3.. or his relative within the sixth degree of consanguinity. Internal Revenue Allotment (IRA) National internal revenue collected and not applied as hereinabove provided or otherwise specially disposed of by law shall accrue to the National Treasury and shall be available for the general purposes of the Government. otherwise known as the Local Government Code of 1991. whichever is lower. the same amount of reward shall be given to the informer. 1992)
For Discovery and Seizure of Smuggled Goods o 10% of the FMV of the smuggled and confiscated goods or P1M per case. agents or examiners or the Secretary of Finance or any of his deputies or agents. all public officials. with the exception of the amounts set apart by way of allotment as provided for under Republic Act No. Persons Entitled to Reward • For Violations of Internal Revenue Code o Any person. 7160. RA 7160)
• The cash rewards of informers subject to income tax. who acquired information in the course of the performance of their duties during their incumbency
Information shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his deputies. surcharges or fees actually recovered or collected: NO REWARD • A person is instrumental in the discovery and in collection or seizure when he voluntarily gives definite and sworn 4 information : o not yet in the possession of the Bureau of Internal Revenue.
Book II Local Taxation and Fiscal Matters Title I LOCAL GOVERNMENT TAXATION CHAPTER 1 . 284. whichever is lower. 283.
PART III .GENERAL PROVISIONS Sources of Revenues: 1. o No revenue. (Sec. except an internal revenue official or employee.. whether incumbent or retired. (Sec.LOCAL GOVERNMENT CODE OF 1991 (RA 7160-Effectivity: January 1. Note that where the offender has offered to compromise and his offer has been accepted. collected as a final withholding tax. at the rate of 10%. NIRC) Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows… (c) On the third year and thereafter.
2. o leading to the discovery of frauds upon the internal revenue laws and violations of any of the provisions thereof. o thereby resulting in the recovery of revenues. 40%. surcharges and fees and/or the conviction of the guilty party and/or the imposition of any fine or penalty. Amount of Reward • For Violations of Internal Revenue Code o 10% of the revenues.
192 LGC) . (c) The collection of local taxes. NIRC c) Percentage taxes under Sec. Power to Grant Local Exemptions (Sec. oppressive. consistent with the basic policy of local autonomy. The Sanggunian is authorized to prescribe fines or other penalties for violations of tax ordinances a. 130) IV. NIRC I. 50% share in collections for the ff: (2nd par. Such fine or other penalty shall be imposed at the discretion of the court.000 nor more than P5. levy taxes. and charges shall accrue exclusively to the local government units. 132 LGC) He may only veto an ordinance or resolution only once. (Sec. are needed to see 2) be levied and collected only for Public purposes. 106.. thereby making the ordinance effective even without the approval of the local chief executive concerned. grant tax exemptions. fees. fees. Power to Adjust Local Tax Rate (Sec. Sec. or in the restraint of trade. See Title XI. create its own sources of revenue and 2. (Sec. (Sec. Fundamental Principles The fundamental principles governing the exercise of the taxing and other revenue-raising powers of LGUs are [ U(EPuJul)LIP ]: (a) Taxation shall be Uniform in each local government unit.LGUs are authorized to adjust the tax rates as prescribed herein not oftener than once every 5 years. stating his reasons therefore in writing. (d) The revenue collected shall Inure solely to the benefit of the local government unit levying the tax. 108. public policy. not inherent 2. (sec. NIRC b) VAT on sale of services and use or lease or properties under Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
2. 283. (e) Each local government unit shall. excessive. evolve a Progressive system of taxation. as they may deem necessary. fee or charge or to generate revenue is exercised by the Sanggunian of the LGU concerned through an appropriate ordinance. TIFF (Uncompressed) this picture. The Sanggunian Barangay may prescribe a fine of not less than P100 nor more than P1000. The local chief executive.LGUs. charges and other impositions shall in no case be Left to any private person. fees. 132) The local chief executive may veto any ordinance of the sangguniang panlalawigan. The sanggunian may override his veto by twothirds vote of all its members. NIRC) a) VAT on sale of goods or properties under Sec. nor shall the imprisonment be less than one month nor more than six months 2.000 b. NIRC of 1997) II. incentives or reliefs under such terms and conditions. 3) not be unJust. exercised only if delegated to them by law or Constitution 3. and. or confiscatory. Power to Prescribe Penalties for Tax Violations and Limitations Thereon 1. may through ordinances duly approved. fee. Nature of the Taxing Power of Local Government Units (LGUs) 1. V. Local Taxing Authority The power to impose a tax. panlungsod or bayan on the ground that it is ultra vires or prejudicial to the public welfare. and in no case shall such adjustment exceed 10% of the rates fixed under the LGC. in no case shall fines be less than P1. not absolute subject to limitations provided for by law III. Power to Create Sources of Revenue EACH LOCAL GOVERNMENT UNIT HAS THE POWER TO: 1. 191 LGC) . as far as practicable. and charges subject to the provisions herein. national economic policy. charge or other imposition unless otherwise specifically provided herein. (b) Taxes. (NOTE: As distinguished from internal revenue taxes which do not accrue exclusively to the national government but are shared to the local governments in the form of internal revenue allotments. may veto any particular item of an appropriations ordinance. Page 91 of 145
. 116. except punong barangay. charges and other impositions shall (EPuJuL): 1) be Equitable and based as far as practicable on the taxpayer's ability to QuickTime™ and a decompressor pay. 129) Such taxes. fees. 3. 4) not be contrary to Law.
Any exemption or relief granted to a type or kind of business shall apply to all business similarly situated. then the ordinance may be posted in at least two conspicuous and publicly accessible places (Sec. whether natural or juridical. Any grant to a type or kind of business shall apply to all businesses similarly situated. 2. QuickTime™ and a TIFF (Uncompressed) decompressor
d. as amended c. the publication and affectivity 3. The same shall take effect only during the next calendar year for a period not exceeding 12 months as may be provided by the ordinance. publication in full for 3 consecutive days in a newspaper of general circulation. Procedural details (Secs. Limitations of the Residual Power 1. Levying of Local Taxes (Local Tax Ordinance) REQUISITES: 1. non-stock and non-profit hospitals and 3.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Tax Exemptions existing before the Effectivity of the LGC: Unless otherwise provided by the LGC. general failure of crops.
are needed to see this 2. The grant shall be for a definite period of not exceeding 1 calendar year. On the grant of tax incentives picture. In absence of such newspaper in the province. Tax Exemption Certificate: Tax exemptions shall be conferred through the issuance of a non-transferable tax exemption certificate. a. Tax Incentives and Tax Reliefs (Art. the exemption or relief shall only extend to the LGU granting such exemption or relief. submission for approval by the local chief executive c. tax exemptions or incentives granted to. LGC) Within 10 days after their approval. The grant shall be through an ordinance. Rules and Regulations Implementing the LGC) 1. educational institutions. Tax Exemptions not applicable to Regulatory Fees The power to grant tax exemptions. Guidelines for the Granting of Tax Exemptions. e. b. the same may be granted in cases of natural calamities. 187. tax incentives and tax reliefs shall not apply to regulatory fees which are levied under the police power of the LGU. 130 of the LGC 4. the procedure applicable to local gov’t ordinances in general should be observed. city or municipality. On the grant of tax exemptions or tax reliefs: a. specifically enumerated in LGC b. 189 LGC) Residual Taxing Powers of the LGU (Sec. or presently enjoyed by all persons. The principle of preemption. b. 187. Fundamental principles governing the exercise of the taxing power of the LGUs prescribed under Sec. local water districts. fees or charges shall not be enacted without any prior public hearing conducted for the purpose. The same shall be granted only to new investments in the locality and the ordinance shall prescribe the terms and conditions therefore. The grant shall be by ordinance passed st prior to the 1 day of January of any year. In the case of shared revenue. necessity of quorum b. other applicable laws. d. 55. The ordinance levying such residual taxes shall not be enacted without any prior public hearing conducted for the purpose and 5. including GOCCs are hereby withdrawn upon the effectivity of the LGC except the ff: 1. confiscatory or contrary to declared national policy. (Sec. oppressive. and 59 LGC): a. taxed under the provisions of the NIRC. 282 [B]. 54. LGC) 2. Conditions: a. Constitutional limitations on taxing power 2. the matter of veto and overriding the same d. c. c. The ordinance levying such taxes. 186 LGC) To levy taxes. Common limitations prescribed in Sec.
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. or adverse economic conditions such as substantial decrease in prices or agricultural or agri-based products. 133 of LGC 3. fees or charges shall not be unjust. civil disturbance. b. fees or charges on any base or subject NOT a. Public hearings are required before any local tax ordinance is enacted (Sec. excessive. That the taxes. cooperatives duly registered under RA 6938.
tonnage dues. (l) Taxes. fees and charges where the imposition of which contravenes existing gov’tal policies or which are violative of the fundamental principles of taxation *e. or charges. This doctrine principally rests on the intention of Congress. Taxes. LGUs cannot impose the same even on banks and other financial institutions. Satisfy the requirements of procedural and substantive due process. and all other kinds of customs fees. Local Tax Ordinance: Requirements 1. f. Publication of ordinance within 10 days from approval for 3 consecutive days in a newspaper of general circulation and/or posting in at least 2 conspicuous and publicly accessible places.
. fees. VI. h. and local government units. except as otherwise provided.) QuickTime™ and a (b) Documentary stamp tax.A. and taxes. respectively from the date of registration. and charges and other impositions upon goods carried into or out of.A. j 2. fees. registration fees of vessel and wharfage on wharves. 6810 and R. decompressor TIFF (Uncompressed) are needed see this legacies and other (c) Estate Tax. fees or charges for the registration of motor vehicles and for the issuance of all kinds of Licenses or permits for the driving thereof. etc. or passing through. its agencies and Instrumentalities. voting and approval and/or veto requirements complied with. unless otherwise provided by LGC of 1991. fees and other charges imposed under special law. the imposition of which contravenes existing gov’tal policies or which violates the fundamental principles of taxation. Taxes. n. 2. (d) Customs duties. b. (e) Taxes. COMMON LIMITATIONS ON THE TAXING POWERS OF LGUS LGUs CANNOT LEVY: [ IDECTA_BEV_TRELEBI ] or CADET-VIBE-LIBERTE' (a) Income tax. (k) Taxes on premiums paid by way of Reinsurance or retrocession. tolls for bridges or otherwise. fees. (g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer for a period of 6 and 4 years. except tricycles. etc. (i) Percentage or VAT on sales. as amended. (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. except wharfage on wharves constructed and maintained by the local government unit concerned. 3. (NOTE: Since income tax is already imposed by the National Government under NIRC. except on banks and other financial institutions. m. (m) Taxes. the territorial jurisdictions of local government units in the guise of charges for wharfage. Taxes which are levied under the NIRC. fees. inheritance. k.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Principle of Preemption or Exclusion Where the national gov’t elects to tax a particular area. g. 4. The exception is referring to the percentage tax on banks’ specified income. fees or charges of any kind on the National Government. Taxes. etc. which are imposed under the TCC *d 3. s 4. and (o) Taxes. 3. 6938 (Cooperative Code of the Philippines). Classification of Common Limitations 1. acquisitions mortis causa. fees or charges on petroleum products. fees. Taxes. fees. (f) Taxes. (n) Taxes. land or water. except as otherwise provided. Taxes which are levied under the NIRC unless otherwise provided by the LGC *a. fees and charges imposed under special laws. barters or exchanges or similar transactions on goods or services except as otherwise provided. picture. *l Provinces (see chart) Page 93 of 145
Excluded impositions pursuant to the doctrine of preemption) 1. Public hearing is required with quorum. (h) Excise taxes on articles enumerated under the national Internal Revenue Code. which are imposed under the TCC. or other charges on Philippine products actually Exported. charges and dues. on Countryside and Barangay Business Enterprises and cooperatives duly registered under R. I. Taxes. Taxes. 2. c. fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen. except as provided in the Code. it impliedly withholds from the local gov’t the delegated power to tax the same field.togifts.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Provinces (refers to Local Govt.
Page 94 of 145
. Provisions on Tax)
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
Exceptions Sale.A. transferor or administrator to pay the tax imposed within 60 days from the date of the execution of the deed or from the date of the decedent's death. and other public waters within its territorial jurisdiction. Gravel and Other Quarry Resources. Tax on Business of Printing and Publication. School texts or references. the province may impose a tax on businesses enjoying a franchise. Newly started business. whichever is higher Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. Franchise Tax. Not more than 10% of fair market value in the locality
At such amount and reasonable classification as the sangguniang
Professionals exclusively employed in the government shall be exempt from the payment
Page 95 of 145
. cards. donor. 6657 (CARL). streams. Proceeds distributed as follows: Province -30% Component City or Municipality where the quarry resources are extracted . PROVINCES Type of Tax Tax on Transfer of Real Property Ownership. sand. donation. within its territorial jurisdiction. barter.see this picture.
Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year. The province may levy and collect taxes on ordinary stones. Tax on Sand. To be paid to the province where he/she practices his/her profession or where he/she maintains principal office in case the practice is in several places Notes It shall be the duty of the seller. and others of similar nature. lakes. seas. the tax shall not exceed 1/20 of 1% of the capital investment. The permit to extract resources shall be issued exclusively by the provincial governor. handbills. prescribed by the DECS shall be exempt from the tax. and other quarry resources extracted from public lands or from QuickTime™ andof the beds a TIFF (Uncompressed) decompressor are needed to creeks. Notwithstanding any exemption granted by any law or other special law. certificates. earth. Newly started business. receipts. or on any other mode of transferring ownership or title of real property. posters. the tax shall not exceed 1/20 of 1% of the capital investment. gravel. Professional Tax. leaflets. No.30% Barangay where the quarry resources are extracted . The province may impose a tax on the sale.40%. The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession Rate Not more than 50% of the 1% of the total consideration or of the fair market value.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
SPECIFIC PROVISION ON THE TAXING AND OTHER REVENUE RAISING POWERS OF THE LGU A. transfer or other disposition of real property pursuant to R. rivers. pamphlets. The province may impose a tax on the business of persons engaged in the printing and/or publication of books. pursuant to the ordinance of the sangguniang panlalawigan.
concerts. musical programs. Amusement Tax. except pop. The province may levy an amusement tax to be collected from the proprietors. Wholesalers of. cinemas. pay the full tax before engaging therein. are needed to see
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. dealers or retailers in the delivery of distilled spirits. whether directly andor QuickTime™ a TIFF (Uncompressed) decompressor indirectly. After payment he/she shall be entitled to practice his/her profession in any part of the Phils. the sangguniang panlalawigan may impose surcharges. recitals. to sales outlets. The proceeds from the amusement tax shall be shared equally by the province and the municipality where such amusement places are located.00. painting and art exhibitions. Certain Products. and other products as may be determined by the sanggunian.
Annual Fixed Tax For Every Delivery Amount not exceeding Truck or Van of Manufacturers or P500. however. The province may levy an annual fixed tax for every truck or any vehicle used by manufacturers. Any person first beginning to practice a profession after the month of January must. rock. and other places of amusement panlalawigan may determine but shall in no case exceed P300. soft drinks. Provided.00. or fee for the practice of the profession. manner. concert halls. license. or operators of theaters. this picture. flower shows. or Retailers in. cigars and cigarettes. dramas. circuses.
The holding of operas. or similar concerts shall be exempt. Producers. literary and oratorical presentations. of this tax. lessees. To be paid on or before the 31st day of January. Sangguniang panlalawigan may prescribe the time. within the province. boxing stadia. w/out being subjected to any other national or local tax. wholesalers. or consumers. producers. Dealers.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
requiring government examination. In case of fraud or failure to pay.
Not more than 30% of the gross receipts from admission fees. interest and penalties. terms and conditions for the payment of tax.
Cooking oil and cooking gas. fertilizers. g. and coops or their failure to exercise their preferential right. distilled spirits. detergents. h. meat. pesticides and other farm inputs.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
B. which the sanggunian QuickTime™ and a concerned may (Uncompressed) decompressor tax. distillers. On manufacturers. oysters. 2. Page 97 of 145
d. b. and fresh water products. dairy products. (Sec. Agricultural implements. or dealers in any article of commerce of whatever kind or nature.
. 3. take or catch bangus fry. 7. prawn fry or fry of other species and fish from the municipal waters by nets or other fishing gears to marginal fishermen free of rental or fee c) Issue licenses for the operation of fishing vessels of three (3) tons or less. the tax rate shall not exceed 2% of gross sales of the preceding calendar year. sugar. (Sec. • The tax is payable for every separate or distinct establishment or place where business is conducted. 6. 143 par. and wines or manufacturers of any article of commerce of whatever kind or nature. On wholesalers. brewers. (Sec. millers. and 8. • Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed for a-h. 4. repackers. Duly registered organizations and cooperatives of marginal fishermen shall have the preferential right. Cement. value-added or percentage tax. equipment and post-harvest facilities. producers. locally manufactured. dealers or retailers of the following essential commodities (where the rate prescribed is only ½ of the regular rate [Sec. marine. Rice and corn. The tax on a business must be paid by the person conducting the same. The sanggunian may require a public bidding pursuant to an ordinance for the grant of such privilege. 5. Absent of such orgs. 144) The sanggunian concerned may prescribe a schedule of graduated tax rates but in no case shall exceed the rates prescribed in the LGC. deem proper to For TIFF are to the this picture. • Municipalities shall have the exclusive authority to grant fishery privileges in the municipal waters. 2. 142. The sanggunian may: a) Grant fishery privileges to erect fish corrals. businesses subjectneeded to seeexcise. processed or preserved food. distributors. LGC) Tax on Business The municipality may impose taxes on the following: a. c. School supplies. other parties may participate in the public bidding b) Grant the privilege to gather. b. distributors. On retailers On contractors and other independent contractors On banks and other financial institutions. c. On peddlers engaged in the sale of any merchandise or article of commerce On any business. It shall be payable for every separate or distinct establishment or place where the business subject to the tax is conducted and one line of business does not become exempt by being conducted with some other business for which such tax has been paid. salt and other agricultural. MUNICIPALITIES SCOPE: Municipalities may levy taxes. fees and charges not otherwise levied by provinces. and compounders of liquors. 146) The municipality may impose and collect such reasonable fees and charges on business and occupation except professional taxes reserved for provinces. LGC]) (RW CLAPS C): 1. rectifiers. (Sec 147)
SPECIFIC: • Municipalities may im pose such reasonable rates for the sealing and licensing of weights and measures as shall be prescribed by the sangguniang bayan. 149) Payment of Business Taxes: a. wholesalers. and medicine. f. whether in their original state or not. Poultry feeds and other animal feeds. e. assemblers. processors. or other aquatic beds or bangus fry areas 1. 3. Laundry soap. (sec. and on manufacturers. On exporters. Wheat or cassava flour.
plants. b. L-40296) Sales Tax – it is the place of the consummation of the sale. Rule 3: The following sales allocation for sales recorded in the principal office of businesses with factories. and • 70% of all sales recorded in the principal office shall be taxable by the city or municipality where the factory. Inc. taxes due shall accrue and see thispaid to such city or municipality. fees. and charges which the province or municipality may impose. factory. LGC Rule 1: For purposes of collection of the taxes under Section 143 (tax on business). Camarines Sur. City Mayor of Manila. plant or plantation in which case. Inc. a branch. project offices. the rule on the matter shall apply accordingly. the sale shall be recorded in QuickTime™ and a office and the the principal TIFF (Uncompressed) decompressor are needed to be picture. Rule 2: In case there is no branch or sales outlet in the city or municipality where the sale is made. and plantations are located in proportion to their respective volumes of production during the period for which the tax is due. and not merely the place of the perfection of the contract. or plantation is located. and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. Which are subject to the same rate of tax. the tax shall be computed on the combined total gross sales or receipts of the said 2 or more related businesses. or plantations located in different localities. the gross sales or receipts of each business shall be separately reported for the purpose of computing the tax due from each business. project offices. 151) IRR: The cities may levy and collect a percentage Page 98 of 145
. 150) NOTE: In case of manufacturers or producers which engage the services of an independent contractor to produce or manufacture some of their products. project offices. but the place where the place is perfected.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
c. (IRR) The city or municipality where the port of loading is located shall not levy and collect reasonable fees unless the exporter maintains in said city or municipality its principal office. not upon the location of the office. municipality where the principal office is located. and plantations: • 30% of all sales recorded in the principal office shall be taxable by the city or
Rule 4: Where the plantation located at a place other than the place where the factory is located. Rule 5: Where there are 2 or more factories. and 40% to the city or municipality where the plantation is located. the above mentioned 70% shall be divided as follows: 60% to the city or municipality where the factory is located. CITIES The city may levy the taxes. (IRR)
C. v. but on the place in which the act is performed or the occupation is engaged in. Which are subject to different rates of tax. v. plant. the above mentioned 70% shall be prorated among the localities where the factories. (Shell Co.. plants. 105 Phil 1263) SITUS ACCORDING TO SECTION 150. or warehouse.
VII. sales office. project office. (Sec. these rules shall apply except that the factory or plant and warehouse of the contractor utilized for the production and storage of the manufacturers’ products shall be considered as the factory or plant and warehouse of the manufacturer. In cases where a person conducts or operates 2 or more of the businesses mentioned in Section 143 of LGC a. associated with the delivery of the things which are the subject matter of the contract that determines the situs of the contract for purposes of taxation. (Allied Thread Co. Situs of Local Taxation Situs According to the Cases: Excise Tax – not dependent on the domicile of the taxpayer. plants. businesses maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or sales outlet making the sale or transaction. Municipality of Sipocot.. (Sec. The tax rates that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than 50% except the rates of professional and amusement taxes.
For every P5.00 or less.P2.P2.000. 2. and 3. 3.The barangay may levy reasonable fees and charges: (CRB) 1.00 and an annual additional tax. IX.The barangays may levy the following taxes and charges. . 157) B. Service Fees and Charges for services rendered b.[ IER ] a. For every P5. and 2.000.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
tax on ANY business not otherwise specified in the LGC or the IRR. engaged in or doing business in the Philippines are also liable to pay an annual community tax. (Sec. or who is required by law to file an income tax return Rate = P5. or who owns real property with an aggregate assessed value of P1. post office personnel delivering mail.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. In the case of husband and wife. operated and maintained by LGUs within their jurisdiction.000. (c) Barangay Clearance. Individuals Liable to Community Tax . and b.00. and thereafter the said facility shall be free and open for public use.00 of income regardless of whether from business. (b) Service Fees or Charges for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities such as palay. Pubic Utility Charges for the operation of public utilities owned. physically-handicapped. exercise of profession or from property which in no case shall exceed P5. When public safety and welfare so requires. 1. or who is engaged in business or occupation.00 or less for cities and P30. (Sec. 158) Corporations. the tax imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them.On stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of P50.00 in accordance with the following schedule: a.00 of gross receipts derived by it from its business in the Philippines during the preceding year . The dividends received by a corporation shall. for the purpose of the additional tax. Juridical Personalities (Sec. or wharf. C.00 worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax .000. in the case of municipalities. which shall exclusively accrue to them: [ TOBS ] (a) Taxes . c.00 and an annual additional tax of P1. (d) Other fees and Charges. On Billboards. the sanggunian concerned may discontinue the collection • Cities or municipalities may levy a community tax (Sec. 153-155) [ SPT ] a.000. COMMON REVENUE-RAISING POWERS OF LGUS (Secs.00.00. be considered as part of the gross receipts or earnings of said corporation. rate = not exceeding 1% on gross sales or receipts. of the tolls.000. waterway. pier. Those exempt from the community tax are: 1. officers and enlisted men of the AFP and PNP on mission. Page 99 of 145
. whether domestic or resident foreign. . 156)
A. Regularly employed on a wage or salary basis for at least 30 consecutive working days during any calendar year. .00 for every P1. at rates not exceeding 3% of the gross sales or recipts of the preceding calendar year. On commercial breeding of fighting Cocks and cockpits. Toll Fees or Charges for the use of any public road. ferry or telecommunication system funded and constructed by the LGU concerned. which shall not exceed P10. bridge. QuickTime™ and a Exceptions: TIFF (Uncompressed) decompressor are needed to see this picture.000. 2. copra. no matter how created or organized. or tobacco dryers.00 or more.000. Inhabitant of the Philippines b. Transient visitors when their stay does not exceed 3 months. BARANGAYS Scope of Taxing Powers. neon signs. Eighteen years of age or over c. 152) VIII. Community Tax D. Diplomatic and consular representatives. Rate = P500. and disabled citizens who are sixty-five (65) years or older. and outdoor ads. On places of Recreation which charge admission fees. signboards.
municipal or barangay treasurer. fees. fees or charges. The current Tax Code already imposes a tax on ALL quarry resources. (Sec. 163. fees and charges shall be collected by the provincial. or in the place where the principal office of the juridical entity is located. receives any license. tax collected through the barangay treasurers shall be apportioned as follows: 50% accrues to the general fund of the city or municipality concerned.An interest of 24% per annum from the due date until it is paid shall be added on the amount due. Issue: Does the province have authority to levy the tax? Held: NO. and charges accrue on first day of January of each hear. 5. or 7. Place and time of Payment Place of Payment . When an individual subject to the comm. 170. (Sec. A community tax certificate may also be issued to any person or corporation not subject to the community tax upon payment of P1. Although §186 of the LGC authorizes municipal corps. transacts other official business. CHAPTER 3 . 164. city or municipal government shall pay the premiums thereon in addition to the premiums of the bond that may be required under the Code. Receives any license. B. and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter. to levy taxes other than those specifically enumerated therein. pays any tax or fee. 6. Corporation 1. unless otherwise provided in the Code. 4. Accrual of Tax – ALL local taxes. or their duly authorized deputies. city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes. must QuickTime™ and a come from are Moreover. as the Page 100 of 145
. Presentation of Community Tax Certificate on Certain Occasions: (Sec. The Provincial Treasurer levied upon Republic Cement P2.place of residence of the individual. 160) Time for Payment . tax is actually and directly collected by the city or municipal treasurer shall accrue entirely to the general fund of the city or municipality concerned. certificate or permit from any public authority. or 4. Time of Payment – ALL local taxes.00. of each year Penalties for Delinquency. articles already taxed by the NIRC. 3. fees. The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their respective jurisdictions. Takes the oath of office upon election or appointment to any position in the government service. Receives any money from any public fund.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
D. city. Proceeds of the comm. LGC) The proceeds of the comm. 2. Transacts other official business. In case a bond is required for the purpose. tax acknowledges any document before a notary public. a provinceneeded to see thislevy excise taxes on may not picture. the provincial. PROVINCE OF BULACAN vs. 162) Collection of Local Revenues by the Treasurer: (Sec. regardless of origin. CA (299 SCRA 442) Facts: The Province passed an Ordinance imposing a 10% tax on the value of stones. 2.5M for its extraction of resources from private land. Pays any tax or fee. . (Sec. LGC) All local taxes. unless otherwise provided in the Code. The presentation of the CTC shall not be required in connection with the registration of a voter. 3. The provincial. certificate or permit from any public authority. the Province may no longer impose any additional amounts from Republic Cement. Receives any salary or wage from any person or corporation. hence. the subject ordinance was quite specific about the fact that the taxable articles TIFF (Uncompressed) decompressor public land.accrues on the 1st day of Jan. receives any money from any public fund. fees and charges shall be the calendar year. Individual 1.COLLECTION OF TAXES Taxable Period – The tax period of ALL local taxes. sand and other quarry resources from public lands. LGC) A. and 50% accrues to the barangay where the tax is collected. of each year which shall be paid not later than the last day of Feb.
Fees. simultaneous or after distraint of personal property belonging to delinquent taxpayer local treasurer shall prepare a duly authenticated certificate showing the name of taxpayer and amount of tax.
QuickTime™ and a 2. fees or charges may be paid in quarterly installments. city or municipal government shall pay premiums thereon in addition to the premiums of the bond that may be required under the Code. by administrative needed to see this picture. 9282. unless otherwise provided in the Code. by judicial action Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of the LGU concerned. 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. city. Surcharges and Penalties on Unpaid Taxes. b. or their duly authorized deputies. maximum of 36 months. the Court of Tax Appeals now has appellate jurisdiction over local taxation cases decided by the RTC in the exercise of its appellate or original jurisdiction. COLLECTION OF LOCAL REVENUES BY THE TREASURER (sec. through distraint of personal property and by levy upon real property
i. fees or charges. Manner of Payment – Such taxes. fees or charges including surcharges. LOCAL TAX REMEDIES UNDER THE LGC TAX REMEDIES OF THE LGUs CIVIL REMEDIES OF THE LGU TO EFFECT COLLECTION OF TAXES 1.
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. fees and charges shall be collected by the provincisl. Distraint seizure or confiscation of assets in sufficient quantity to satisfy the liability accounting of distrained goods publication of the sale of distrained properties sale disposition of the proceeds of the sale by application of such proceeds to the delinquency and expenses of sale return of balance to the owner NOTE: Where the proceeds of the sale are insufficient to satisfy the claim. Interest on other unpaid revenues – On any other source of revenue. Levy delinquency levy of real property before. enforceable by any appropriate administrative or judicial action. other properties may be distrained. on the amount unpaid. Local Government’s Lien – Local taxes. With the amendment brought by RA No. In case a bond is required for the purpose. Civil Remedies TIFF (Uncompressed) decompressor are action a. the provincial. charges or encumbrances in favor of any person. or Charges – The sanggunian may impose a surcharge not exceeding twenty five percent (25%) per month of the unpaid taxes. municipal or barangay treasurer. charges and other revenues constitute a lien.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
case may be. city or municipal treasurer may designate the barangay treasurer or his deputy to collect local taxes. fee and penalty due to him NOTE: Levy shall be effected by writing upon said certificate the description of the property upon which levy is made. fees. 170. ii. LGUs are authorized to imposed an interest of a maximum of 2% per month. LGC) All local 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. Jurisdiction of courts over local taxation cases: a. The provincial. superior to all liens.
Declaratory relief whenever applicable
. 194. 2. (sec. Action for Declaratory Relief 3. 196.within 30 days after receipt of decision or lapse of 60 days of Secretary of Justice’s inaction (sec. ADMINISTRATIVE
QuickTime™ and a Before assessmentTIFF (Uncompressed) decompressor are needed to see this picture. When there is fraud or intent to evade the payment of taxes. appraisal.e.if remedies available does not provide plain. the Local Tax Code does not contain any specific provision prohibiting courts from enjoining the collection of local taxes. i.REAL PROPERTY TAXATION (LGC of 1991) Definition: A direct tax on ownership of lands and buildings or other improvements thereon payable regardless of whether the property is used or not. b. a. speedy and adequate remedy. LGC) B. assessment. unlike in internal revenue taxes. Court action . The treasurer is legally prevented from the assessment or collection of the tax. NOTE: Unlike the NIRC. c. fees or charges may be collected within five years from the date of assessment by administrative or judicial action. LGC) TAX REMEDIES OF THE TAXPAYER REMEDIES OF THE TAXPAYER IN LOCAL TAXATION A. The taxpayer is out of the country or otherwise cannot be located. 179. levy and collection of Real Property Tax. Right of redemption – 1 year from the date of sale or from the date of forfeiture (sec. 195. Payment & subsequent refund or tax credit – within 2 years from payment of taxto local treasurer (sec. and c. LGC). the supervening cause applies in local taxation because th period for the filing of the claims for refund or credit of local taxes is counted not necessarily from the date of payment but from the date of taxpayer is entitled to a tax credit. Regular judicial courts are not prohibited from enjoining the collection of local taxes. Under the LGC. vs. 194. LGC) . tax on land and building and other structures and improvements on it. Protest against a newly enacted ordinance – any question on constitutionality or legality of tax ordinance within 30 days from effectivity thereof to Secretary of Justice (sec. JUDICIAL 1. LGC) . (Subject to the definition given by Art. (sec.within 30 days from receipt when protest of assessment is denied (sec. subject to Rule 58 (preliminary injunction) of the Rules of Court.
Grounds for the Suspension of the Running of the Prescriptive Periods a. 194.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
b. But it cannot negate the procedural rules and requirements under Rule 58 of the Rules of Court. CFI of Isabela. b. 194. LGC). 195. Injunction – if irreparable damage would be caused to the taxpayer and no adequate remedy is available. LGC) PRESCRIPTIVE PERIOD OF COLLECTION Local taxes. No such action shall be instituted after the expiration of such period. 187. 1989) PRESCRIPTIVE PERIODS OF ASSESSMENT 1. fees or charges – ten (10) years from discovery of fraud or intent to evade payment (sec.
PART IV . It is to be noted that. LGC) . LGC) 2. Local taxes. Protest – within 60 days from receipt of assessment (sec. (Valley Trading Co. although the value may vary in accordance with such factor. fees or charges – five (5) years from the date they became due (sec. including machineries. 187. LGC) Such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of tax.if no action is taken by the treasurer in refund cases and the two year period is about to lapse (sec. Such statutory lapse or intent may have allowed preliminary injunction where local taxes are involved. Payment under protest is not necessary. The taxpayer requests for a reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect. it covers the administration. LGC) After Assessment a. 415 of the Civil Code) Improvement – valuable addition made to a property or amelioration in its condition amounting to more Page 102 of 145
234) [CWERC] 1. and exclusively used to meet the needs of the particular industry. typewriters. Land. non-profit or religious cemeteries. It includes the physical facilities for production. Real Property liable for Real Prop tax are: 1. 6 SCRA `97. furnitures and fixtures. 3. 119 PHIL 328. breakable or easily damaged containers (glass or cartons). CULTURAL and SCIENTIFIC purposes 3. facsimile machines. mining. HOSPITALS 2. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. SPECIAL CLASSES OF REAL PROPERTY (Sec 216. directly. V. Machinery and 4. Indivisible single obligation 5. Industrial 6. LGC) Machinery which are of general purpose use including but not limited to office equipment. the installations and appurtenant service facilities. microcomputers. selfpowered or self-propelled. convents thereto. Ad Valorem tax. telex machine.the tax is calculated on the basis of a certain percentage of the value assessed 4. cash dispensers. Machinery – embraces machines. Owned by the REPUBLIC of the PHILS or its political subdivisions except: when beneficial use has been granted to a taxable person institutions. business or activity shall not be considered within the definition of machinery.Sec 218 (a) [CARMITS] 1. buildings and improvements actually directly and exclusively used for religious. industrial or agricultural purposes. PROPERTIES EXEMPT from real property tax (Sec. logging. I. Timberland 7. to the real property. Charitable parsonages. mosques.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
than a mere replacement of parts involving capital expenditures and labor. IV. business or activity QuickTime™ and a by their very and which TIFF (Uncompressed) decompressor nature and purpose to see this picture. The value is based on the tax base 3. Machinery and Equipment actually. LGC) [HCS LG] 1. Local Tax II. Manila Electric Co. owned and used by LOCAL WATER DISTRICTS 4. 2. IRR of RA 7160) III. early decisions of the Supreme Court in Mindanao Bus Co. and those not permanently attached to the real property which are actually. display cases or racks. LGC) Note: Although the term real property has not been expressly defined in the LGC. 10 SCRA 68) seem to suggest that Art 415 of the Civil Code could also be controlling. 2. Commercial 2. Special Classification of lands made by respective sanggunian in accordance with zoning ordinances and It is based on actual use. (Sec. refrigerators. PROPERTIES LIABLE UNDER REAL PROPERTY TAX According to the Local Government Code. and exclusively used by local Water districts and GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric power 4. v City Assessor of Cagayan de Oro. 199 [o]. instruments. permanently or temporarily. (Sec. charitable or educational purposes. Mineral 5. fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry. Proportion . Residential 4. churches. Buildings 3. CLASSIFICATION OF LAND for purposes of assessment . 290 [o]. Agricultural 3. Machinery & equipment for pollution control and Environment protection Page 103 of 145
. Real property includes machinery as defined by the LGC. Real property owned by duly registered Cooperatives under RA 6938 5. commercial. directly. CHARACTERISTIC OF REAL PROPERTY TAX: [LIPAD] 1. or are needed necessary to its manufacturing. v Board of Assessment Appeals. telephone equipment. Board of Assessment Appeals v Meralco. appliances or apparatus which may or may not be attached. mechanical contrivances. those which are mobile. are designed for. Other improvements not otherwise exempted under said code (Sec 232. Direct tax on the ownership of real property 2. freezers. equipment.
238. EQUITABLE appraisal and assessment
are needed to see Types of Real Property Tax: this picture. contracts. 90639. levy and collection should NOT BE LET to any private person.000 sq. force majeure 2. LGC) – within MM area only b. (not falling within the above enumeration) are withdrawn. LGC) For Public Works – on lands specially benefited by public works. valued and assessed on the basis of actual use regardless of where located. 1990) value of the property (Sec. (Sec. Additional Ad Valorem on the Lands – not exceeding 5% of the assessed QuickTime™ and a TIFF (Uncompressed) decompressor
. appraisal. Agricultural lands – More than 1 hectare if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein. ACTUAL USE of the property should be the basis of classification 4. Unpaid realty taxes attach to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. c. FUNDAMENTAL PRINCIPLES IN Assessment of REAL PROPERTY TAXES (Sec. civil disturbance 3. corporate charters. m. CURRENT and fair market value is the basis of appraisal 2. 217. Feb 21.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Exemptions previously granted. City of Manila. 5. 236. Proof of Tax Exemption: Every person by or for whom real property is declared who shall claim the exemption shall file with the provincial. articles of incorporation. Municipalities within Metropolitan Manila Page 104 of 145
VI. Although powerless to grant RPT exemption. natural calamity 4. Provinces 2. UNIFORMITY in classification in each local gov’t unit should be observed 3. 198) [CUANE] 1. LGU in MM can exempt the 5% ad valorem tax on idle lands. Idle Lands Exempt From Tax: (Sec. LGC) By reason of: 1. title of ownership. affidavits. LGC) 1. and whoever uses it. (Estate of Lim v. etc. Special levies: a. Cities 3. Non-Agricultural Lands – More than 1. Basic real property tax 2.) Actual Use of Property as Basis for Assessment (Sec. 1. or any cause which physically or legally prevents the owner of the property or person having legal interest therein from improving the land WHO ADMINISTER REAL PROPERTY TAX 1. LGUs (within and outside MM) may also grant condonation which actually partake of exemption.e. whoever owns it. GR No. 237. LGC) Real property shall be classified. LGC)
What Are Considered as Idle Lands: (Sec. To impose the RPT on the subsequent owner which was neither the owner nor the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. in area if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein. 236. Special Education Fund (SEF) – 1% additional real estate tax to finance the SEF (Sec. projects or improvements funded by the LGU May be imposed even by municipalities outside MM provided: Special levy shall not exceed 60% of the actual cost of such projects and improvements. assessment. 240. city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (i. including the costs of acquiring land and such other real property in connection therewith not apply to lands exempt from basic real property tax and the remainder of the land have been donated to the local government unit concerned for the construction of said projects. Not Idle Lands: Agricultural lands planted to permanent or perennial crops with at least 50 trees to a hectare Lands actually used for grazing purposes shall likewise not be considered idle lands 2.
political subdivisions. 207) Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU o Undivided real property – in the name of the estate or heirs or devisees o Corporation. real property shall be needed assessed for back taxes a) for not more than 10 yrs prior to the date of initial assessment b) taxes shall be computed on the basis of applicable schedule of values in force during the corresponding periods
.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
STEP 1 . In all other cases: FMV = Remaining eco. SWORN statement containing FMV and description of property IF improvement on real property a. Assessor of the province/city or municipality may summon the owners of the properties to be affected and may take depositions concerning the property. life STEP 4: DETERMINE ASSESSED VALUE (Sec 218) Page 105 of 145
NOTE: IF PROPERTY DECLARED FOR THE FIRST TIMEQuickTime™222) (Sec. Sanggunian enacts an ordinance 4. nature and value. (sec. city or municipal assessor. files with assessor within 60 DAYS from date of transfer a b. 213. For Brand New machinery : FMV is acquisition cost 2. to see this picture. life X Replacement cost Estimated eco. beneficial use is transferred to a taxable person – in the name of the possessor All declarations shall be kept and filed under a uniform classification system to be established by the provincial. partnership and association – same as individuals o Owned by the Republic of the Philippines. Declared by Provincial / City / Municipal Assessor (Sec 204) WHEN only when the person under Sec 202 refuses or fails to make the Declaration within the prescribed time No oath by assessor is required NOTE: IF FILING FOR EXEMPTION (Sec 206) WHAT person claiming exemptions must file with assessor sufficient documentary evidence to support claim WHEN within 30 days from the date of DECLARATION of property • • • IF required evidence is not submitted within 30 days. and a TIFF (Uncompressed) decompressor If declared for 1st aretime. its ownership amount. LGC) 2. Assessor prepares a schedule of FMV for different classes of properties 3.DECLARATION OF REAL PROPERTY 1. 224-225) How to determine Fair Market Value: FOR LAND 1. property will be dropped from the roll • STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENTROLLS (Sec 205. LGC) FOR MACHINERY 1. Declared by Owner or Administrator (Sec 202203) When: once every 3 years during the period from January 1 to June 30 What: file a sworn declaration with the assessor with description of the property IF newly acquired property a. its instrumentalities. The schedule of FMV is published in a newspaper of general circulation in the province city or municipality concerned or in the absence thereof shall be posted in the provincial capitol city or municipal hall places therein (sec. SWORN statement containing FMV and description of property 2. the property will be listed as taxable in the roll IF proven to be tax-exempt.212. file w/in 60 DAYS upon completion or occupation (whichever is earlier) b.
STEP 3: APPRAISAL AND VALUATION OF REAL PROPERTY (Sec 212-214.
charges or encumbrances and is enforceable by administrative or judicial action. the owner of the prop is out of the country or cannot be located
REMEDIES IN REAL PROPERTY TAXATION Tax Remedies of the Local Government to Effect Collection of Taxes A. expenses) Redemption (within 1 year from date of sale) Issuance of Final Deed to Purchaser (upon the delinquent taxpayer’s failure to redeem) The proceeds of the sale in excess of the delinquent tax. city. Personal property may be distrained to effect payment.discount not exceeding 20% of annual tax (Sec 251. the interest due thereon and the expenses of sale shall be remitted to the owner of real property or person having legal interest.Sep 30.247. 254. in case there is fraud or intent to evade Period of prescription shall be SUSPENDED when: (Sec 270. LGC) – superior to all liens. The city or municipal treasurer my deputize the barangay treasurer to collect all taxes on real property located in the barangay provided the barangay treasurer is properly bonded. LGC) b) prompt payment . within ten (10) yrs.discount not exceeding 10% of annual tax due(Art 342 IRR) Collection of Tax (Sec. basic real prop tax in 4 equal installments (Mar 31.governed by ordinance • NOTE: INTEREST for LATE PAYMENT . LGC) The collection of the real property tax with interest thereon and related expenses and the enforcement if the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned. amount of delinquent tax and its interests. It is extinguished only upon payment of tax and other expenses.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Procedure 1. LGC) Issuance of Warrant by the LGU treasurer (on or before or simultaneously with the institution of civil action for collection of delinquent tax) Advertise Sale or Auction (within 30 days after service of warrant) by posting and publication Sale Report of Sale (within 30 days after sale) Preparation of Certificate of Sale (containing the name of the purchaser. municipal or barangay treasurer •
PERIOD WITHIN WHICH TO COLLECT (Sec 270): QuickTime™ and a within five (5) yrsTIFF (Uncompressed) decompressor from the date they become due are needed to see this picture. description of the property. 3. Levy (Sec.
STEP 5: PAYMENT AND COLLECTION OF TAX WHEN January 1 of every year (Sec 246) tax shall constitute as superior lien (Sec 246) HOW a. WHO COLLECTS The provincial. LGC) 1.provided in no case shall the total interest exceed thirty-six (36) months NOTE: FOR ADVANCE and PROMPT PAYMENT a) advance payment .two percent (2%) each month on unpaid amt. LGC) . Distraint (Sec. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect
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. Administrative 1. special levy . 258. Tax = Assessed value X Tax rate 3. . 257. until the delinquent amt is paid.Jun 30. Assessed value = FMV X Assessment level 3. Lien (Sec.with notice of delinquency posted and published. 2. from discovery of fraud. local treasurer is legally prevented to collect tax 2. Dec 31) b. take the schedule of FMV 2.
Prescriptive Periods for the Collection of RPT 1. 270 of the LGC. GROUNDS FOR THE SUSPENSION OF THE RUNNING OF THE PRESCRIPTIVE PERIODS: 1. LGC) – filed by the local treasurer within 5 or 10 years as provided in Sec. (Sec. Within 1 year from the date of sale. Administrative 1. The treasurer is legally prevented from the assessment or collection of the tax.270. 261. 270. 226. 266. In case of denial of refund or credit. When there is fraud or intent to evade the payment of taxes – ten years from discovery of the fraud or intent to evade payment. LGC) within 30 days from receipt of decision of 2nd: LBAA to CBAA (sec. appeal to LBAA within 30 days as in protest case. Amount of delinquent tax b. 3. city or municipal assessor to LBAA (Sec. Protest Pay the Tax under Protest File Written Protest with Local Treasurer (within 30 days from payment of tax)
QuickTime™ and Treasurer Decidesa TIFF (Uncompressed) decompressor are from see this picture. Interest of not more than 2% per month on the purchase price from date of sale to date of redemption b.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
4. A certificate of redemption shall be issued. LGC) a. The taxpayer may file a written claim for refund or credit with the provincial or city treasurer within 2 years from the date the taxpayer is entitled to such reduction or adjustment. b. 2. and the certificate of sale issued to the purchaser shall be invalidated. LGC) 2. 270. Provincial or city treasurer should decide the claim within 60 days from receipt of the claim. shall have the right to redeem the property upon payment to the local treasurer the ff: a. (within 60 days needed toreceipt of protest)
Apply for Tax Refund Appeal with the LBAA or Tax Credit (in case of denial of protest
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. Judicial Civil Action (Sec. the owner of the delinquent real property. The taxpayer requests for a reinvestigation expiration of the executes a waiver in writing before the expiration of the period within which to assess or collect. 263. Expenses of sale from date of delinquency to date of the sale d. Basic RPT and any other tax levied under the title on RPT – five years from the date they became due. B. 230. or person having legal interest or his representative. Redemption of Real Property (Sec. Remedy against the Assessment/Appeal 1st: within 60 days from notice of assessment of provincial. LGC) within 30 days from receipt of decision of 3rd: CBAA to CTA en banc or inaction of the treasurer after the lapse of 60 days) Appeal with the CBAA (w/in 30 days from receipt of adverse decision by LBAA) Appeal to CTA (within 30 days from receipt of adverse decision rendered by CBAA)
Tax Remedies of the Taxpayer A. LGC) – in case there is no bidder for the real property advertised or if the highest bid for an amount insufficient to pay the RPT and other costs. Purchase of property by local treasurer for want of bidder (Sec. The taxpayer is out of the country or otherwise cannot be located (Sec. 253. c. Claim for Tax Refund or Credit (Sec. LGC) 2. and 3. Interest thereon c. LGC) a.
QuickTime™ and a or TIFF (Uncompressed) decompressor are needed to see this c. barter. Judicial
. estate. cooperative or association Taxable person refers to any person liable for payment of VAT. 2. CTA (En BANC) Within 15 days
VALUE-ADDED TAX Nature and Characteristics • Value added is the value that a producer adds to his raw materials or purchases (other than labor) before selling the new or improved product or service • VAT is an indirect tax levied on goods and services. Court Action – appeal of CBAA’s decision to CTA en banc. 236 of the Tax Code VAT-registered person refers to any person who is registered as a VAT taxpayer under Sec. City or Municipal Assessor Within 60 days Owner/Person with legal interest must file: 1. including Page 108 of 145
Supreme Court Condonation Real Property Taxes 1. LGC)
Appeals in Real Property Taxation Provincial. His status shall continue until the cancellation of such registration. exchange and/or lease of goods or properties. There is general failure of crops. 5. Suit assailing the validity of tax sale (Sec. With Supporting Documents Local Board of Assessment Appeals (LBAA should decide within 120 days from receipt of petition) Within 30 days from receipt of decision from LBAA. the importer is the one liable for the VAT • Apply to existing contracts of sale or lease of goods. dissatisfied party may appeal to CBAA Central Board of Assessment Appeals Party adversely affected by LBAA’s decision may appeal with CTA within 30 days from receipt of decision. Suit assailing validity of tax. Written Petition under Oath 2. There is calamity. exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. joint venture. properties or services. 2. properties or services at the time of effectivity of RA No. 64. transferee or lessee of the goods. and ultimately paid by consumers in the form of higher prices • VAT is a tax on consumption levied on the sale. b. PD 464 and Sec. Recovery of refund of taxes paid (Sec. barter.picture. whether registered or registrable in accordance with Sec. trust. By Sanggunian RPT may be condoned wholly or partially in a given LGU when: a. 236 of the Tax Code. Taxable sale refers to the sale. PD 464) 4. 3. Person refers to any individual. 1. 267. • In the case of importation. 83. • 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. corporation. There is substantial decrease in the price of agricultural or agri-based products. not on persons.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
4th: within 15 days from receipt of decision of CTA en banc to SC. Suit to declare invalidity of tax due to irregularity in assessment and collection. partnership. 7716 (9337). By the President of the Philippines When public interest so requires
Persons liable 1. Any person who. • Includes: o Real properties held primarily for sale to customers or held for lease in the ordinary course of business o the right or the privilege to use patent. in the course of trade or business o Sells.000 during any 12-month period shall be considered principally for subsistence or livelihood and not in the course of trade or business 2. barter or exchange of goods or services not in the course of trade or business is not subject to VAT. nonprofit private organization or government entity o Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business. something incident to the main purpose. including transactions incidental thereto. imports goods (importer)
Sec 106. Services rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business. barters. Export sales • The sale and actual shipment of goods from the Philippines to a foreign country Page 109 of 145
. commercial or scientific equipment o the right or the privilege to use motion picture films. are needed to see this picture. Zero-rated transactions 1.
Section 105. or depending upon another which is termed the principal. et al Gr. NDC decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation(NMC). The excise tax. (2006) FACTS: Pursuant to a government program of privatization. satellite transmission and cable television time
CIR v. by any person regardless of whether or not the person engaged therein is a non-stock. DOCTRINE: Any sale. Exceptions to the rule of regularity 1.
Gross Selling Price: the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of sale. excluding the VAT. plan.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
transactions deemed sale and the performance of service for a consideration. whether in cash or in kind Definition of “in the course of trade or business” (Rule of Regularity) o The regular conduct or pursuit of a commercial or an economic activity. even if the performance of services is not regular Incidental to the principal business o Something necessary. goodwill. The NDC sold in one lot its NMC shares and five of its ships. QuickTime™ and a Inc. Any business where the gross sales or receipt do not exceed P100. design or model. or exchanges goods or properties (seller or transferor) o Leases goods or properties (lessor) o Renders services (service provider) 2. trade brand or other like property or right o the right or the privilege to use in the Philippines of any industrial. ISSUE: Whether or not the sale of the five vessels is subject to VAT? HELD: The court ruled that the sale was not in the ordinary course of the trade or business of NDC and is sufficient to declare the sale as outside the coverage of VAT. secret formula or process. appertaining to. copyright. television. film tapes and disc o radio. if any. barter or exchange of the goods or properties. of such goods or properties shall form part of the gross selling price. 146984 Lines. trademark. VAT on Sale of Goods or Properties • Goods: all tangible and intangible objects which are capable of pecuniary estimation.Magsaysay TIFF (Uncompressed) decompressor No.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
i. Irrespective of any shipping arrangement ii. Paid for in acceptable foreign currency or its equivalent in goods or services iii. Accounted for in accordance with the rules and regulations of the BSP Sale of raw materials or packaging materials by a VAT-registered entity to a nonresident buyer i. for delivery to a resident local export-oriented enterprise ii. Used in the manufacturing, processing, packing, repacking in the Philippines of the said buyer’s goods iii. Paid for in acceptable foreign currency iv. Accounted for in accordance with the rules and regulations of the BSP Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production Sale of gold to the BSP Those considered export sales under the Omnibus Investment Code of 1987 The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations i. Limited to goods, supplies, equipment and fuel pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other ports in the Philippines exempt, imports taxable. Situs: country of consumption Cross boarder doctrine: No VAT shall be imposed to form part of the cost of goods sold destined for consumption outside of the territorial boarder of the taxing authority. Actual shipment of the goods from the Philippines to a foreign country is a precondition of an export sale following the destination principle being adhered to by our VAT system
• • •
• CIR v. American Express International, Inc. GR. No. 152609 (2006) The Supreme Court voided the Cross boarder doctrine. The court mentioned that the law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to have “a substantial connection” to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the place where the output of the service will be further or ultimately used. Sales to export-oriented enterprise • Seller complies with other requirements like registration with the BOI and the PEZA • The entirety of the sales to such enterprise that is to be zero-rated, not only a proportion to the actual exports made by such enterprise Omnibus Investment Code: following sales, without actual exportation are considered constructively exported: • Sales to bonded manufacturing warehouses of export-oriented manufacturers • Sales to registered PEZA enterprises • Sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products • Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assemble, or repacked products, whether paid for in foreign currency or not RMO No. 9-2000 • Sales of goods, properties, or services made by a VAT-registered supplier to a BOI-
Export sales • Zero-rated if made by VAT-registered persons • Exempt sales if made by person not VATQuickTime™ and a decompressor registered TIFF (Uncompressed) this picture. are needed to see • Origin Principle: only national taxpayers would be exposed to the tax, without distinguishing between transactions “consumed” locally or abroad. Export taxable, imports exempt. Situs: country of production • Destination Principle: VAT is imposed in the country in which the products or services are actually consumed or used. Exports
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registered exported shall be accorded automatic zero-rating RMC No. 74-99 • Sales made by a VAT-registered supplier to a PEZA-registered enterprise is subject to zero-percent VAT. • However, if the VAT registration of the PEZAregistered enterprise is an erroneous registration, it is not entitled to input taxes on its purchases from its supplier 2. Foreign Currency Denominated Sale (Internal Exports) • Sale to a nonresident of goods, except those mentioned in Section 149(automobiles) and 150 (non-essential goods), • Assembled or manufactured in the Philippines • For delivery to a resident in the Philippines • Paid for in acceptable foreign currency • Accounted for in accordance with the rules and regulations of the BSP • Sale of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program paid for in convertible foreign currency, and accounted for in accordance with the rules and regulations of the BSP shall be considered export sales 3. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory • Refer to exemptions granted under special laws or treaties which are extended not only to the grantee but also to its supplier of goods • Effectively zero-rated sale of goods and properties: refer to the local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or QuickTime™ and a TIFF (Uncompressed) decompressor international are needed to see this picture. agreement • Transactions which, although not involving actual export, are considered as constructive export shall be entitled to the benefit of zerorating Transactions 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. • Transfer of goods or properties not in the course of business can take place when VAT-registered person withdraws goods from his business for personal use 2. Distribution or transfer to: i. Shareholders or investors share in the profits of VAT-registered person • Property dividends which constitute stocks in trade or property primarily held for sale or lease declared out of RE on or after Jan.1, 1996 and distributed by the company to its shareholders shall be subject to VAT based on the zonal value or fair market value at the time of distribution, whichever is applicable. ii. Creditors in payment of debt or obligation 3. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned • Consigned goods returned by the consignee within the 60-day period are not deemed sold 4. Retirement from or cessation of business with respect to inventories of taxable goods existing as of such retirement or cessation • Change of ownership of the business (when a single proprietorship incorporates or the proprietor of a single proprietorship sells his entire business • Dissolution of a partnership and creation of a new partnership which takes over the business Not subject to output VAT The VAT shall not apply to goods or properties existing as of the occurrence of the following: 1. Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders. 2. Change in the trade or corporate name of the business 3. Merger or consolidation of corporations. Changes in or Cessation of Status of a VAT registered Person 1. subject to output VAT a. change of business activity from VAT taxable status to VAT-exempt status
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b. approval of a request for cancellation of registration due to reversion to exempt status c. approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of 3 consecutive years from the time of registration by a person who voluntarily registered despite being exempt under Sec 109 (2) of the Tax Code d. approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or receipt exceeding P1,500,000 but who failed to exceed this amount during the first 12 months of operations 2. not subject to output VAT a. change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders b. change in the trade or corporate name of the business c. merger or consolidation of corporations Allowable deductions from gross selling price a) discounts determined and granted at the time of sale (expressly indicated in the invoice) b) sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales Sale of Real Properties o sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT o real estate dealer shall be subject to VAT on the installment payments, including penalties and interest (real properties on the installment plan) o sale of residential lot exceeding P1,500,000, residential house and lot or other residential dwellings exceeding P2,500,000, where the instrument of sale was executed on or after QuickTime™ and a July 1, 2005, (Uncompressed) decompressor VAT (house shall be subject to TIFF are needed to see this picture. and lot is taxable though not in the ordinary course of business) o installment sale of residential house and lot or other residential dwellings exceeding P1,000,000 where the instrument was executed prior to July 1, 2005, shall be subject to VAT o sale of real property on installment plan: sale of real property by a real-estate dealer, the initial payments of which in the year of sale do not exceed 25% of the gross selling price. In the case of sale on the deferredpayment basis, the transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale (sale of real property where the initial payment exceeds 25% of the gross selling price. Initial payments: covers any down payment made and includes all payments actually or constructively received during the year of sale Real estate dealer: includes any person engaged in the business of buying, developing, selling, exchanging real properties as principal and holding himself out as a full or part-time dealer in real estate Transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for the trustor and/or beneficiary
SEC. 107 VAT ON IMPORTATION OF GOODS VAT is imposed on goods brought into the Philippines, whether for use in business or not Tax base = total value used by BOC in determining tariff and customs duties + custom duties + excise tax + other charges (postage, commission, and similar charges, prior to the release of the goods from customs custody If the valuation used is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost = invoice amount + customs duties + freight + insurance + other charges (excise tax shall form part of the tax base) the said tax shall be paid by the importer prior to the release of such goods from customs custody. Importer: refers to any person who brings goods into the Philippines, whether or not made in the course of his trade or business. Includes non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies Sale, transfer, or exchange of imported goods by tax-exempt persons: In the case of goods imported by VAT-exempt persons, entities or agencies which are subsequently sold, transferred or exchange in the Philippines to non-exempt persons or entities, the latter shall be considered the Page 112 of 145
trade brand. Sale or exchange of service. commercial. plan. inns. manufacturing. VAT ON SALE OF SERVICE AND USE OR LEASE OF PROPERTIES 1. remuneration or consideration. Non-life insurance companies (except their crop insurances). and/or distribution companies xiv.000. or cargoes from one place in the Philippines to another place in the Philippines Sales of electricity by generation. Dealers in securities x. goods. Lessors of property. secret formula or process. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties 3. Proprietors or operators of restaurants. refreshment parlors. indemnity and bonding companies xvi. taxes and other charges due upon the articles. Persons engaged in warehouse services v. transmission. The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to. whether personal or real iv. technical.
. The lease or the use of. patent. cafes and other eating places. Sale or exchange of service shall also include: i. commercial or scientific equipment iii. or the installation or operation of any brand. as well as the use or lease of properties shall be subject to 12% VAT 2. or right as is mentioned in subparagraph (b) hereof or any such knowledge or information as is mentioned in subparagraph (c) hereof v. Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein Importation is deemed terminated upon payment of the duties. trademark. customs and immigration brokers iii. or secured to be paid. Lending investor xi. Persons engaged in milling. design or model. Lessors or distributors of cinematographic film vi. machinery. Proprietors. including clubs and caterers ix. and movie houses viii. including QuickTime™ and a transport persons who TIFF (Uncompressed) decompressor are needed to see this for goods or cargoespicture. Stock. The supply of technical advise. real estate. industrial or commercial knowledge or information iv. whether in cash or in kind i.hire and other domestic common carriers by land relative to their transport of goods or cargoes xii. processing. Common carriers by air and sea relative to their transport of passenger. theaters. or the right to use any industrial. Franchise grantees of electric utilities. telephone and telegraph. goodwill. or keepers of hotels. assistance or services rendered in connection with technical management or administration of any Page 113 of 145 xiii. Transportation contractors on their transport of goods or cargoes. or other apparatus purchased from such nonresident person vi. or repacking goods for others vii. The supply of any assistance that is ancillary and subsidiary to and furnished as a means of enabling the application or enjoyment of any such property. radio and/or broadcasting television and all other franchise grantees except franchise grantees of radio and/or television broadcasting whose annual gross receipt of the preceding year do not exceed P10. Lease or the use of or the right or privilege to use any copyright. Construction and service contract ii. rest houses. fidelity. motels. The supply of scientific. including surety.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
importers thereof and shall be liable for VAT due on such importation.000 and franchise grantees of gas and water utilities xv. pension houses. at the port of entry and the legal permit for withdrawal shall have been granted SEC 108. operators. Sale or Exchange of Service: the performance of all kind of services in the Philippines for others for a fee. resorts. or other like property or right ii.
goods or cargoes from one place in the Philippines to another place in the Philippines 14. or iii. ocean energy. An option money for the property. A loan to the lessor from the lessee. by land. and distribution companies shall be subject to 12% vat on their gross receipts (sale of power or fuel generated through renewable sources of energy such as biomass.
7. VAT on rental and/or royalties payable to non-resident foreign corp or owners for the sale of services and use or lease of properties in the Philippines shall be based upon on the contract price agreed upon by the licensor and the licensee non –resident lessor/owner: any person. offering services to the public and shall include transportation contractors 12. or ii. regardless of the place where the contract of lease or licensing agreements was executed if the property leased or used is located in the Philippines ii. keeping and storing goods for others. miller: a person engaged in milling for others (except palay into rice and corn into corn grits. domestic common carriers by air and sea are subject to 12% VAT on their gross receipts from their transport of passengers. located in the Philippines Advance payment: i. transmission. or iii. whether real or personal.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
scientific. or a citizen who establishes to the satisfaction of the CIR the fact of physical presence abroad with definite intention to reside therein.
. natural or juridical. solar. or the right to use. firms or associations engaged in the business of carrying or transporting passengers or goods or both. are liable to VAT real estate lessor: includes any person engaged in the business of leasing or subleasing real property i. receiving goods and merchandise to be stored in his warehouse for hire. wind. and other emerging energy sources using technologies such as fuel cells and Page 114 of 145
4. hire. and sugarcane into raw sugar) is subject to VAT on sale of services. 5. Pre-paid rental • If the advance payment is for the faithful performance of certain obligations of the QuickTime™ and a lessee. and who owns/leases properties. hydropower. • A security deposit that is applied to rental shall be subject to VAT at the time of its application • If the advance payment constitutes a prepaid rental. corporations. A security deposit to insure the faithful performance of certain obligations of the lessee to the lessor. The lease of motion picture films. irrespective of the accounting method employed by the lessor 8. radio. and discs viii. all receipts from service. film tapes. • Cash: VAT shall be based on his gross receipts for the month or quarter • Receives a share of the milled products instead of cash: VAT shall be based on the actual market value of his share • Sale by the owner or miller of his share of the milled product (except rice. an alien. or operating lease of transportation equipment not subject to the percentage tax on domestic carriers and keepers of garages shall be subject to VAT 11. and tourist buses used for the transport of passengers shall be subject to percentage tax 13. venture. geothermal. utility cars for rent or hire driven by the lessees. real or personal. then such payment is taxable to the lessor in the month when received.TIFFis not subject to VAT it (Uncompressed) decompressor are needed to see this picture. television. industrial or commercial undertaking. warehousing service: rendering personal service of a warehouseman such as i.
6. The lease or use of. project or scheme vii. common carries: refers to persons. common carriers by land with respect to their gross receipts from the transport of passengers including operators of taxicabs. as a business and for use 9. engaging in the business of receiving and storing goods for compensation ii. corn grits and raw sugar) shall be subject to VAT) 10. or iv. sale of electricity by generation. water or air for compensation. satellite transmission and cable television time Lessors of property – all forms of property for lease. whether tangible or intangible.
• Deposit in banks which are made available to the seller of service without restrictios • Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services rendered • Transfer of amounts retained by the payor to the account of the contractor Zero-rated sales of service The following services performed in the Philippines by a VAT-registered person shall be subject to 0% VAT rate: 1. shall be subject to VAT • radio and/or television broadcasting: annual gross receipt of the preceding year do not exceed P10. pre-need companies: the compensation for their services is the premiums or payments received from the plan holders 21. except gas and water utilities. processing. and/or.000. iii.
19. credits or any substitute for money • non-life reinsurance premiums are subject to VAT • insurance and reinsurance commissions. telewriter exchange. Total amount charged by generation companies for the sale of electricity and related ancillary services. excluding VAT Gross Receipts: total amount of money or its equivalent representing the contract price. and/or ii. toll road operations and all other franchise grantees. manufacturing. rental or royalty. telegraph. •
15. indemnity and bonding companies are subject to VAT • not liable to premium tax under Sec. 16.000 shall not be subject to VAT but 3% percentage tax. originating from the Philippines are subject to percentage tax and hence exempt from VAT non-life insurance companies: including surety. notes. or conversion are needed to see this picture. whether paid in money.
17. radio and/or television broadcasting. health maintenance organizations (HMO) • gross receipts: total amount of money or its equivalent representing the service fee actually or constructively received during the taxable period for the services performed or to be performed . compensation. For dealer in securities. Gross receipts (sale of electricity): i.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
hydrogen fuels shall be subject to 0% VAT) generation companies: refers to persons or entities authorized by the ERC to operate facilities used in the generation of electricity. wireless and other communication equipment services • Amounts received for overseas QuickTime™ and a dispatch. the term gross receipts means gross selling price less cost of the securities sold service of franchise grantees of telephone and telegraph. or repacking goods for other persons doing business outside the Philippines. fidelity. including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person. 23 (percentage tax) of the Tax Code gross receipts: total premiums collected.
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.(Uncompressed) decompressor TIFF message. excluding VAT. Total amount charged by transmission companies for transmission of electricity and related ancillary services. are subject to VAT • Vat due from the foreign reinsurance company is to be withheld by the local insurance company and to be remitted to the BIR 20.
18. The universal charged passed on and collected by distribution companies and electric cooperatives shall be excluded from the computation of the GR dealers in securities and lending investors: subject to VAT on the basis of their gross receipts. service fee. whether life or non-life. • Gas and water utilities: subject to 2% franchise tax on their gross receipts • Telephone and telegraph: subject to VAT on their gross receipts derived from their telephone. 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. Total amount charged by distribution companies and electric cooperatives for distribution and supply of electricity and related electric services.
converting. Busmeirter. smoking or stripping. hydropower. et al. 5) • Concerned taxpayer must seek prior approval or prior confirmation from the appropriate offices to the BIR so that a transaction is qualified for effectively zero-rating • Without an approved application for effective zero-rating. roasting.] b. where the services are paid for in acceptable foreign currency c. sale or importation of agricultural and marine food products in their original state. including leases of property for use thereof • shall not pertain to those made to common carriers by air and sea relative to their transport of passengers. drying. vegetables and other agricultural and marine food products are considered in their original state even if hey undergone the simple process of preparation or preservation for the market : freezing.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
a. shrink wrappings in plastic. 153205 (2007) require performance of services to nonresident to qualify as zero-rated. which goods are subsequently exported b. biomass. shrimps. lobster. doing business in the Philippines and international sea carriers doing business in the Philippines are still liable to percentage tax sale of power or fuel generated through renewable sources of energy such as. pigs. geothermal and steam. livestock and poultry of a kind generally used as. • Zero rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy. vacuum packing. such as but not limited to. rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed [CIR v. sheep.
7. trout. eels. wind. or yielding or producing foods for human consumption. or repacking a. the transaction otherwise entitled to zero-rating shall be considered exempt SEC 109. 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 and the seller is not allowed any tax credit of VAT on purchases Exempt transactions: 1.
. accounted for in accordance with the rules and regulations of the BSP services rendered to persons or entities whose exemptions under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent rate services rendered to persons engaged in international shipping or air transport operations. goods or cargoes from one place in the Philippines to another place in the Philippines (subject to 12% VAT) services performed by subcontractors and/or contractors in processing.
5. salting. mussels and clams • Meat.
3. goats and rabbits • Poultry: fowls. and shall not extend to the sale of services related to the maintenance or operation of plants generating said power Effectively Zero-Rated Sale of Services: refer to the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement (limited to 3. QuickTime™ and a • Gross receipts of international air carriers TIFF (Uncompressed) decompressor are needed to see this picture. race horses. solar. Page 116 of 145
2. ducks. zoo animals and other animals generally considered as pets • Marine food products: fish and crustaceans. fruit. accounted for in accordance with the rules and regulations of the BSP services other than processing.
4. manufacturing. ocean energy. prawns. broiling. The consideration of which is paid for in acceptable foreign currency c. or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country. 4. GR No. and other emerging sources using technologies such as fuel cells and hydrogen fuels. bulls and calves. geese and turkey • Does not include fighting cocks. and breeding stock and genetic materials thereof • Livestock: cows. but not limited to. oysters.
5 • Bagasse is not included in the exemption provided for under this section 2. prawn. subsidiaries or branches in the Asia Pacific Region and do not earn or derive income from the RP Transactions which are exempt under international agreements to which the RP is a signatory sales by agricultural cooperatives duly registered and in good standing with the CDA to their members.
11. domestic animals. • Accompanying such persons or arriving within 90 days before or after their arrival Upon the production of evidence satisfactory to the CIR that such persons are actually coming to settle in the Philippines • The change of residence is bonafide services subject to percentage tax services by agricultural contract growers and milling for others of palay into rice. to be used directly and exclusively in the production and/or processing of their produce Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the CDA Page 117 of 145 •
5. corn grits and raw cane sugar and molasses. sale or importation of fertilizers. 7. as well as sale for their produce. importation of personal and household effects • belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines • such goods are exempt fro customs duties under the Tariff and Customs Code of the Philippines 4. review classes and other similar services rendered by persons who are not accredited by the DepED. 10. used in the manufacture of finished feeds (except specialty feeds for race horses. the sale of drugs and merchandise is subject to VAT Educational services rendered by private educational institutions duly accredited by the DepED. Importation of professional instruments and implements. whether in its original state or processed form. including spare parts thereof. aquarium fishes. to non-members • their importation of direct farm inputs. 12.
13. fish. vessel. barter or exchange. wearing apparel. except those rendered by professionals • laboratory services are exempted • if the hospital or clinic operates a pharmacy or drug store. whether locally produced or imported. and other similar packaging methods • Polished and/or husked rice. hospital and veterinary services.
9. including ingredients. in the dry state : parameter reading of 99.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
tetra-pack. • Belonging to persons coming to settle in the Philippines • For their own use and not for sale. and personal household effects (except any vehicle. communications and coordinating centers for their affiliates. zoo animals and other animals generally considered as pets) 3. machinery and other goods for use in the manufacture and merchandise of any QuickTime™ and a TIFF (Uncompressed) decompressor kind in commercial quantity) are needed to see this picture. seedlings and fingerlings. fighting cocks. 6. seeds. livestock and poultry feeds.
. corn into grits and sugar into raw sugar medical.
8. dental. machineries and equipment.5 and above are presumed to be refined sugar • Cane sugar produced from the following shall be presumed to be refined sugar: o Product of a refining process o Products of sugar refinery o Product of a production line of a sugar mill accredited by the BIR to be producing and/or capable of producing sugar with polarmeter reading of 99. the CHED and/or TESDA Services rendered by individuals pursuant to an employer-employee relationship Services rendered by regional or area HQ established in the RP by multinational corporations which act as supervisory. aircraft. ordinary salt and copra shall be considered as agricultural product in their original state • Sugar whose content of sucrose by weight. inservice training. CHED and TESDA and those rendered by government educational institutions • Does not include seminars.
000 needed to see this picture. Sale or lease of goods or properties or the performance of services other than the transaction mentioned in the preceding paragraphs. • For purposes of the threshold of 1. Sale. non-electric and non-credit cooperatives duly registered with and in good standing with the CDA • Share capital contribution of each member does not exceed 15. the gross annual sales and/or receipts do not exceed 1. 2005 • If two or more adjacent residential lots are sold or disposed in favor of one buyer. Sales by non-agricultural. or lease of passenger or cargo vessels and aircraft. magazine. goods and supplies by persons engaged in international shipping or air transport operations • Shall be used exclusively or shall pertain to the transport of goods and/or passengers from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines 21. printing or publication of books and any newspaper. Lease of residential units • Monthly RENTAL: notaexceeding QuickTime™ and TIFF (Uncompressed) decompressor P10.5M 17. including engine. non-bank financial intermediaries performing quasi-banking functions. including spare parts thereof. at the time of acquisition counted from the date of he vessel’s original commissioning o Passenger/cargo vessel: 15 years old o Tankers: 10 years old o High-speed passenger crafts: 5 years old Exemption shall be subject to the provisions of “The Domestic Shipping Development Act” 20. • The aggregation rule for each taxpayer shall apply •
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. Services of banks. Otherwise. are • If the aggregate of such rentals of the lessor during the year do not exceed 1.5M. or bulletin • which appears at regular intervals • with fixed prices for subscription and sale • which is not devoted principally to the publication of paid advertisements 19. or house and lot and other residential dwellings valued at 2. review. importation.5M and below • Instrument must be executed on or after July 1.5M.5M. including engine and spare parts of said vessels • Comply with the age limit requirement.000 and regardless of the aggregate capital and net surplus ratably distributed among the members • Importation of machineries and equipment. to be used by them are subject to VAT 15.5M. and other non-bank financial intermediaries subject to percentage tax such as money changers and pawnshops 22. Sale. importation.: exempt from VAT but subject to 3% percentage tax • GR from rentals exceeding 10T per month per unit shall be subject to VAT if the aggregate annual GR from said units only (not including the GR from units leased for not more than 10T) exceeds 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
14.000 • Utilized for socialized housing • Price ceiling per unit: P225. Importation of fuel. the husband and wife shall be considered separate taxpayer. The following sales of real properties are exempt from VAT: • Not primarily held for sale to customers or held for lease in the ordinary course of trade or business • Sale of real properties utilized for low-cost housing • A subdivision or a condominium registered and licensed by the HLURB • Undertaken by the gov’t or private developers • Unit selling price ceiling: P750. Export sales by persons who are not VATregistered 16. subject to 3% percentage tax 18.5M and below.000 • Residential lot valued at 1. the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed 1. for the purpose of utilizing the lots as one residential lot. equipment and spare parts thereof for domestic or international transport operations • Limited to 150 tons and above.
Purchase of real properties for which a VAT has actually been paid 3. To the purchaser of the domestic goods or properties upon consummation of the sale. Purchase or impartation of goods a) For sale . 1. Purchases of services in which a Vat has actually been paid. in the course of trade or business • Include the transitional and the presumptive input tax • Includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input taxes which cannot be directly attributed to either the taxable or exempt activity • Evidenced by a VAT invoice or official receipt issued by a VAT-registered person 1. Transactions deemed sale 5. including lease or use of properties. properties. can be claimed as input tax credit during the month or quarter when the sale or transfer was made but subject to limitation Apportionment of Input Tax on Mixed Transactions A vat-registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: • all the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit o input taxes which are directly attributable to Vat taxable sales of goods and services from the Government or any of its political subdivisions. or 3. To the purchaser of services or the lessee or licensee upon payment of the compensation. input tax spread evenly on monthly basis by the actual number of months comprising the estimated useful life of the capital good b. rental. including GOCC shall not be credited against output taxes Page 119 of 145
Claim for Input Tax on Depreciable Goods
. estimated useful life is less than 5 years: a. commenced in the calendar month when the capital good is acquired 2. or c) For use as supplies I the course of business. instrumentalities or agencies. or b) For conversion into or intended to form part of a finished product for sale. estimated useful life of a capital good is 5 years or more: a. If the depreciable capital good is sold/transferred within the period of 5 years or prior to the exhaustion of the amortizable input tax thereon: entire unamortized input tax on the capital goods sold. commenced in the calendar month when the capital good is acquired Aggregate acquisition cost does not exceed 1M: total input taxes will be allowable as credit against output tax in the month of acquisition Aggregate acquisition cost of a depreciable asset in any calendar month: refers to the total price agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. or e) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code 2. input tax spread evenly over a period of 60 months b. including packaging materials. 4. royalty or fee
Requisites: • A VAT-registered person purchases or imports capital goods (which are depreciable goods for income tax purposes) • Aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceed 1M Manner of claiming input tax 1.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
A VAT-registered person may. to the importer upon payment of VAT prior to the release of goods from customs custody 2. or d) For use as raw materials supplied in the sale of services. Credits for Input Tax Input Tax • The VAT due on or paid by a VAT-registered person on importation of goods or local purchases of goods. Transitional input tax credits allowed under the transitory and other provisions of these Regulations
QuickTime™ and a Persons who Can TIFF (Uncompressed) decompressor Avail of the Input Tax Credit are needed to see this picture. elect that that the exemption shall not apply to his sales of goods or services or properties which is irrevocable for a period of 3 years. Presumptive input tax 7. or services. Transitional input tax 6.
Output tax 100 Input tax (80) VAT Payable 20 QuickTime™ and a TIFF (Uncompressed) decompressor
B.(input tax attributable to sales subject to final VAT withholding) Input Tax Credit Determination of the Output Tax and VAT payable and Computation of VAT Payable or Excess Tax Credit Computation of output tax 1.(other adjustments – purchase returns or allowances) . 5. but which have not yet undergone processing. 3.Input Tax Vat payable
are VAT Payable (Excess needed to see this picture. goods purchase for resale in their present condition. 2. Presumptive Input Tax Credits (4%) Covered: Persons or firms engaged in the processing of sardines. Transitional Input Tax Credits on Beginning Inventories (2%) o Taxpayers who became VAT-registered persons upon exceeding the minimum turnover of 1. excluding goods that are exempt from VAT
Determination of Input Tax Credit during a taxable month or quarter All creditable input taxes during the month or quarter + any amount of input taxes carried-over from preceding month/qtr . Output) or Excess Input Tax If at the end of any taxable quarter the output tax > the input tax: the excess shall be paid by the VATregistered person Ex. mackerel.(claim for VAT refund or tax credit certificate) . the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions o only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of CGS for persons engaged in both zero-rated sales and non-zero rated sales. Materials purchased for further processing. Entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration 1.5M in any 12-month period o Voluntarily register even if their turnover does not exceed 1. Goods or properties: Gross selling price x VAT rate 2.(input tax attributable to exempt sales) . the aggregate input taxes shall be allocated ratably between the zero-rated sale and non-zero-rated sale A.5M (except franchise grantees of radio and television broadcasting whose threshold is 10M. canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition Claims for Refund/Tax Credit Certificate of Input Tax 1. Sellers of service: Gross receipts x VAT rate VAT payable computation: Output Tax . 4. whichever is higher o such amount shall be creditable against the output tax of VAT-registered person o value allowed for income tax purposes on inventories shall be the basis for the computation of the 2% TIT.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
• arising from sales to non-government entities if any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction. Zero-rated and Effectively Zero-rated Sales of goods. and milk and in the manufacturing refined sugar. materials and supplies. goods which have been manufactured by the taxpayer. cooking oil and packed noodle-based instant meals Rate: 4% of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production Creditable: against the output tax Processing: pasteurization. Properties or services
Transitional/Presumptive Input Tax Credits Page 120 of 145
. goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person TIT = 2% of the value of the beginning inventory on hand or actual VAT paid on such goods. goods in process for sale.
an act expanding the jurisdiction of the CTA. o Direct exporters: may file their claim for TCC with the One Stop Shop Center of the DOF o Filing of the claim with one office shall preclude the filing of the same claim with another office 4. Where to file the claim for refund/TCC o Filed with the appropriate BIR office (LTS or RDO) having jurisdiction over the QuickTime™ and a principal place of business of the TIFF (Uncompressed) decompressor taxpayer are needed to see this picture. or due to changes in or cessation of status under Sec 106(c) of the TAX Code When: within 2 years from the date of cancellation What: apply for the issuance of a TCC for any unused input tax which he may use in payment of his other internal revenue taxes However: shall only be entitled to a refund if he has no internal revenue tax liabilities against which the TCC may be utilized 3. Period within which refund or TCC of input taxes shall be made o CIR shall grant a TCC/refund for creditable input taxes within 120 days from the date of submission of complete documents in support of the application • Taxpayer may appeal to the CTA within 30 days from receipt of said denial • If no action on the claim for refund has been taken by the CIR after the 120 day period from the date of submission of the application with complete documents.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Vat-registered person may apply for the issuance of a TCC/refund of input tax attributable to such sales o Input tax that may be subject of the claim shall exclude the portion of input tax that has been applied against the output tax o Application should be filed within 2 years after the close of the taxable quarter when such sales were made o In case of zero-rated sales: the payments for the sales must have been made in acceptable foreign currency duly accounted for in accordance with the BSP rules and regulations o Taxpayer is engaged in both zerorated or effectively zero-rated sales and in taxable or exempt transactions and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions: only the proportionate share of input taxes allocated to zerorated or effectively zero-rated sales can be claimed for refund or issuance of a TCC o A person engaged in the transport of passenger and cargo by air or sea vessels from the Philippines to a foreign country: input taxes shall be allocated ratably between his zero-rated sales and non-zero-rated sales.may appeal to the CTA within 30 days from the laps of the 120-day period 5. Manner of giving refund • Refund shall be made upon warrants drawn by the CIR or by his duly authorized representative without the necessity of being countersigned by the Chairman of COA • Refunds under this paragraph shall be subject to post audit by the COA COURT OF TAX APPEALS What is the new law governing the CTA? • RA 9282. Sitting in 2 divisions. each division with 3 justices each What is the quorum? • The affirmative votes of 4 Justices for sessions En Banc and 2 Justices for sessions of a Division shall be necessary for he rendition of a decision or resolution • When the required quorum cannot be constituted. the taxpayer . Inaction of CIR •
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. and elevating it to the level of the Court of Appeals What is the composition of the CTA and how may the CTA rule? • CTA shall consist of a Presiding Justice and five (5) Associate Justice • They may rule as follows: 1. Decisions of CIR 2. Cancellation of VAT registration Why: due to retirement from or cessation of business. the Presiding Justice shall designate any Justice of other Divisions of the court to sit temporarily therein What is the APPELLATE JURISDICTION OF THE CTA? • The CTA shall exercise exclusive appellate jurisdiction to review by appeal: 1. 2. En banc 2.
In case the decision of the Division is adverse: a. or the CBAA or the RTC: a.
PART VI . Except: appeal by filing a petition for review to En Banc in case of decisions of CBAA or RTC in the exercise of its appellate jurisdiction 2. Secretary of Trade and Industry or Secretary of Agriculture. File petition for review with CTA En Banc 4. appeal will be to a Division
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Secretary of Finance. the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or taxpayer In case of suspension. as the case may be. provincial. Decisions of CBAA (on exercise of appellate jurisdiction over RPT tax cases decided by LBAA) 6. In case resolution of Division on the MR or new trial is still adverse: a. IN case the decision of the CTA En Banc is adverse. COC or the RTC. the CTA have jurisdiction over the following cases involving tax collection: 1. Decisions of DOF on customs cases elevated to him on automatic review due to adverse decision versus the government 7. Appeal within 30 days from receipt of decision or period of inaction of CIR.FOR CRIMINAL ACTS UNDER NIRC AND CUSTOMS CODE 1M OR ABOVE • Over appeals from the decision of RTC in tax cases 1. Generally. File MR with same Division within 15 days from notice thereof 3.
b. the appeal shall be by petition for review to the CTA En Banc What is the rule on suspension of collection? • General Rule: no injunction to restrain collection of taxes • Exception: Under Section 9 of RA 9282. Over petitions for review of the decision of the RTC in the exercise of their appellate jurisdiction over tax collection cases originally decided by the MTC What is the Procedure? 1.TARIFF AND CUSTOMS CODE DEFINITIONS Page 122 of 145
. ORIGINAL .Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
3. • It is only after the CBAA has ruled that an appeal may be made to the CTA • In which case. Decisions of DTI (on nonagricultural products) and Department of Agriculture (on agricultural products) involving dumping and countervailing duties Does the CTA have jurisdiction over criminal cases? • Yes. or the Secretary of Finance. the CTA have jurisdiction over the following cases involving criminal offenses: 1. and o In the opinion of the Court. Over petitions for review of the decision of the RTC in the exercise of their appellate jurisdiction over tax cases originally decided by the MTC Does the CTA have jurisdiction over tax collection cases? • Yes. file a review on certiorari with the SC pursuant to Rule 45 of Rules of Court Where can you appeal a decision of a local assessment board? • To the Central Board of Assessment Appeals (CBAA) and not yet to the CTA. municipal treasurer. what is the taxpayer required to do? • The taxpayer will be required to either deposit the amount claimed or file a surety bond for not more than double the amount with the Court. suspension is allowed when the following conditions concur: o It is an appeal to the CTA from a decision of CIR. COC. Over appeals from Decision of RTC in tax collection cases 2. Decisions of RTC on local tax cases 4. ORIGINAL – 1M OR ABOVE • Exclusive appellate jurisdiction in tax collection cases: 1. Decisions of Commissioner of Customs 5. Secretary of Trade and Industry or Secretary of Agriculture.
toll or tribute payable upon merchandise to gov’t. Countervailing Duty Sec. TARRIF: Custom duties. • In such a case.
Dumping Duty Imposing Authority Special Committee on AntiDumping (compose d of Sec. CUSTOMS DUTIES: Tax assessed upon merchandise from or exported to a foreign country (Garcia v. Art. Product or the Sec. Berthing fee 4. LIMITATIONS IMPOSED REGARDING THE FLEXIBLE TARIFF CLAUSE 1. Wharfage due. Executive Sec. Conduct by the Tariff Commission of an investigation in public hearing. as may be necessary and 3. etc. under TCC (See Sec. To increase. of DTI and either the Sec. • The Commission shall also hear the views and recommendations of any gov’t office agency or instrumentality concerned. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. TCC) QuickTime™ and a 1. but all other laws and regulations which are subject to the Bureau of Customs (BOC) or otherwise within its jurisdiction. of Finance as Chairman. Arrastre charge 2. 211 SCRA 227 ) FLEXIBLE TARIFF: Import duties which are modified by the President upon investigation by the Tariff Commission and recommendation of the NEDA in the interest of national economy.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
FLEXIBLE TARIFF CLAUSE The President may fix tariff rates import and export quotas. • The NEDA thereafter submits its recommendation to the President. TCC) OTHER TYPES OF FEES CHARGED BY THE BOC 1. of Labor if non-agri. of Agriculture if article in question is agri.. VI. the enforcement of which is entrusted to BOC.Port Works Fund 3. • As to its scope: tariff and custom laws extend not only to the provisions of the TCC but to all other laws as well. Tonnage due Meaning and Scope of the Tariff and Customs Laws • Includes not only the provisions of the Tariff and Customs Code (TCC) and regulations pursuant thereto.counterpart of license. fines and penalties accruing under the Page 123 of 145
3. Constitution and Sec 401. Members: the Sec. To establish import quota or to ban imports of any commodity. fees. charged not for the use of any wharf but for a special fund. (Uncompressed) decompressor reduce or remove existing TIFF are needed to see this picture. 2. Assessment and collection of the lawful revenues from imported articles and all other dues. Harbor fee 5. To impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary. 28. 401. 2. of finance Marking Duty Commissi oner of Customs Discriminato ry Duty President of the Philippines 2. charges. protective rates of import duty (including any necessary change in classification) The existing rates may be increased or decreased to any level on one or several stages but in no case shall the increased rate of import duty be higher than a maximum of 100% ad valorem. general welfare and national security. BUREAU OF CUSTOMS FUNCTIONS: 1. the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing foreign country for the most recent representative period shall be used as bases (Sec.
For the purpose of the collection of the lawful duty on dutiable articles thus imported and prevention of smuggling through the medium of such mails 6. BEGINNING When the conveying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unload therein TERMINATION Upon payment of the duties. Absolutely prohibited a. GOODS PROHIBITED FROM BEING IMPORTED 1. Assess and collect the duties. Articles for treason d. taxes and other charges until they have legally left the jurisdiction of customs (Sec. Sec. • Exempt articles under Sec. 602) JURISDICTION OF COLLECTOR OF CUSTOMS OVER IMPORTATION OF ARTICLES 1. and other charges due upon the articles. zoological and national defense purposes Aquatic products o caught or gathered by vessels of Philippine registry o Not have landed in foreign Page 124 of 145
. and there is unmanifested cargo forfeiture may take place because importation has already begun. Cause all such articles to be appraised and classified 3. Exercise exclusive jurisdiction over seizure and forfeiture cases under the tariff and customs laws. 7. Those given to international institutions entitled to exemption by agreement or special law. rules and regulations relating to the tariff and customs administration. rivers and inland waters whether navigable or not from the sea (1st par. terminal facilities including container yards and freight stations for the protection of government revenue. 2. 603) APPLICATION OF THE TCC Only after importation has begun but before importation is terminated
QuickTime™ DURATION OF IMPORTATION: and a TIFF (Uncompressed) decompressor are needed to see this picture. 4. Those provided for in Sec. Supervision and control over the handling of foreign mails arriving in the Phils. 3. (Sec. Cause all articles for importation to be entered in the customhouse 2. airports. taxes and other charges thereon 4. ports. the legal effects of the importation of qualifiedly prohibited articles are the same as those absolutely prohibited articles. CTA. propagation.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
tariff and customs laws. 3. 2. Those prohibited under Special Laws (Sec 102 TCC) 2. 105 • Article Conditions Animals and plants • For scientific.. or secured to be paid at the port of entry and legal permit for withdrawal shall have been granted
In case the articles are free of duties. bays. These are 1. Supervision and control all import and export cargoes. breeding. experimental. All coasts. botanical. Those that may be granted by the President upon Neda’s recommendation. Immoral/obscene or insidious articles c. landed or stored in piers. Qualifiedly prohibited o Where such conditions as to warrants a lawful importation do not exist. airports. 2. Hold possession of all imported articles until the duties. and 4. 105 of the TCC. taxes and other charges are paid thereon (Sec 1206) TERRITORIAL JURISIDICTION OF THE BOC 1. taxes. Enforcement of tariff and customs laws. Those granted to government agencies. 5. Prohibited drugs/narcotics e. 1202) Intention to Unload • Even if not yet unloaded. Prevention and suppression of smuggling and other frauds upon the customs. harbors. All the seas within the jurisdiction of the Phils. Gambling paraphernalia/devices f. Supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce. 59 SCRA 110) Conditionally-free from tariff and customs duties • Certain imported articles are exempt from import taxes upon compliance with certain requirements. (Auyong Hian v. Weapons of war b. GOCC with agreements with foreign countries.
o personal and household effects including wearing apparel. processing. badges. watercraft.000 • arriving within a reasonable time. instruments related to one’s profession and
Wearing apparel. That the personal and household effects shall neither be in commercial quantities nor intended for barter. and o samples not for sale o marked sample sale punishable by law o for purpose of introducing new product o imported by person duly registered and identified to be engaged in that trade o Importations authorized by Sec of Finance Personal and o formally declared and household effects listed before departure of returning Phil and identified under residents oath before the Collector of Customs when exported from the Phil by such returning residents upon their departure therefrom or QuickTime™ and a during their stay abroad TIFF (Uncompressed) decompressor are needed to see this picture.
o models not adopted for practical use. purchased in foreign countries by residents of the Philippines which were necessary. appropriate and normally used for their comfort and convenience during their stay abroad. prizes ( medals. sale or hire and that the total dutiable value of which shall not exceed P10. before or after the owners. subject however to the following provisions: 1. toilet articles.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
territory. taxes and charges analogous personal or household effects. taxes and charges o Must be exported within 6 months o Phil must not have adequate facilities to make repair o Vessel was compelled by weather or casualty to go to a foreign port of repair o Excludes value of article used for repair o to be re-exported upon completion of the repair. excluding vehicles. barring unforeseen and fortuitous events. articles of personal adornment (except luxury items) toilet articles. • in use of and necessary and appropriate for the wear or use of such persons according to their profession or position • for the immediate
Equipment used for the salvage of vessels or aircraft not available locally Costs of repair made in foreign country of Phil vessels or aircraft
Articles brought into the Philippines for repair. solely for transshipment o Bond= 1 ½ x of ascertained duties. cups) Those received as honorary distinction Samples in such quantity and of such dimensions or constructions as to render them unsaleable or of no appreciable commercial value. aircraft and animals. or reconditioning Trophies. theatrical costumes and similar personal effects
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.000 2. in no case shall exceed 60 days after the owner’s return. portable tools and instruments. processing or reconditioning o Bond = 1 ½ x of ascertained duties. That the returning resident has not previously availed of the privilege under this section within 365 days prior to his arrival 3. articles of personal adornment. or if landed. That a 50% ad valorem duty across the board shall be levied and collected on the personal and household effects in excess of P10. accompanying them on their return or arriving within a reasonable time which.
Accompany them or arrive at a reasonable time In quantities and kind necessary and suitable to the profession. domestic animals. including staff and families purposes of their journey and their present comfort and convenient. that the exposed films undeveloped. vocational. exhibition or competition for prizes.
• • • •
Must file a bond Exported within 6 months (unless extended by the Collector for another 6 months) • Principal actors are Photographic and QuickTime™ and a Filipinos decompressor cinematographic TIFF (Uncompressed) this picture. wearing apparel. upon re-importation article shall be subject to duty equal to the bounty or drawback
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. 163. producing companies Importations used Reciprocity: such foreign
Articles and salvage after 2 years from filing protest Coffins or urns containing human remains. rank or position For their own use. hire Collector may require: written commitment or bond In quantities and kind necessary and suitable to the profession. NOT for sale. legations. barter. vehicles of foreign consultants and experts hired or rendering service to gov’t. devices for projecting picture Brought by foreign film producers for making or recording motion pictures on location in Phil. hire Change of residence is bona fide Privilege of free entry was never granted to them before or qualifies under LOI 105. tools of trade. scientific. holders and similar receptacles Supplies of vessel or aircraft country must grant same privilege to Phil. historical. and cultural books and publications Phil articles previously exported and returned without increasing value or improved condition. technical.000
Professional instruments. rank or position For their own use. are same films exposed outside previously exported Phil by resident Filipinos or Phil.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
accompanying travelers or tourists in their baggage Personal and household effects. agencies Such privileges must be accorded in a special agreement between Phil and the foreign country Privilege may be granted only upon specific instructions of Sec. of Finance which will be given only upon request of the DFA • Org not for profit • For free distribution to the needy • Except those that are reusable for shipment or transportation of goods • For use or consumption of passengers on board • Any surplus or excess shall be dutiable • Vessels must have been wrecked or abandoned in Phil waters • Not exceed P10. by importer are needed to see • Affidavit films. 210 Must file bond Exported within 6 months Not exhibited for profit Otherwise. personal and household effects belonging to persons coming to settle in the Phil and OFW
• • •
Articles used exclusively for public entertainment. legations. Personal and household effects of deceased except vehicles Economic. confiscation +penalty by foreign embassies. display in public expos. bones ashes. philosophical. Foreign articles
Note that if a drawback or bounty was allowed to any Phil article under this subsection. barter. NOT for sale. consular officers and other reps of foreign gov’t Articles donated to or for account of relief organization Containers. agencies of foreign gov’t Articles for personal or family use of members and attaches of foreign embassies.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
previously exported when returned after having been exported and loaned for use temporarily abroad solely for exhibition Foreign container used in packing exported Phil products Articles and supplies imported by and for use of scheduled airlines operating under congressional franchise Machineries, equipments, tools for production, plants to convert mineral ores into saleable form, spare parts, supplies, materials, accessories, explosives, chemicals, transpo and communications facilities imported by and used by new mines and old mines exported from Phil for repair and subsequently reimported Trailer chassis imported by shipping companies for handling containerized cargo • Cost of repair made on article shall pay 30% ad valorem Bond (1 ½ x) to cover 1 year Must be properly identified and registered with the LTO Subject to customs supervision fee Deposited in Customs zone when not in use Upon expiration of period (1 year or as extended by Commissioner) duties and taxes shall be paid Car must have been purchased or ordered before the mission or consulate received his order of recall The value of personal and household effects shall not exceed 30% of his total salary.
• • • •
Such articles are not available locally in reasonable quantity, quality and price Necessary or incidental to proper operations Such articles are not available locally in reasonable quantity, quality and price Necessary or incidental to proper operations Used in their agri and industrial operations
Personal and household effects (including one car) officer or employee of DFA, attaché, staff assigned to Phil diplomatic mission abroad, personnel of Reparations Missions in Tokyo, AFP military personnel in SEATO, AFP military personnel accorded diplomatic rank on duty abroad = returning from regular assignment, reassignment, dies, resigns or retires
Aircrafts imported by agro industrial companies, spare parts and accessories Spare parts of • Brought to Phil as QuickTime™ and a vessels or aircraftsTIFF (Uncompressed) decompressor replacement or for are needed to see this picture. of foreign registry emergency repair engaged in foreign • Spare parts utilized to trade secure safety, seaworthiness, or airworthiness, enable it to continue voyage or flight Articles for easy • Cannot be repaired identification locally
Free from tariff and customs duties • Imported goods must be entered in the customhouse at their port of entry otherwise they shall be considered as contraband and the importer shall be liable for smuggling (sec 1201) • Port of entry means a domestic port open to both foreign and coastwise trade including “airport of entry”. (Sec. 3514) • All articles when imported from any country into the Philippines shall be subject to duty upon Page 127 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
each importation, even though previously exported from the Phils. except as otherwise specifically provided for in the TCC or other laws. (sec 1201) LIABILITY FOR CUSTOMS DUTIES General Rule: No exemptions from customs duties 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 (Sec. 105, last par.) EXCEPTIONS: 1. If provided under the TCC (e.g. conditionallyfree importation) 2. Exemptions granted to GOCCs with existing contracts, commitments, agreements or obligations with foreign countries 3. Exemptions of international institutions, associations or organizations pursuant to agreements and special laws 4. Exemptions granted by the President of the Phils. Upon recommendation of NEDA in the interest of national economic development. (Sec. 1205) LIABILITY OF IMPORTER FOR CUSTOMS DUTIES 1. A personal debt due from the importer which can be discharged only by payment in full of all duties and taxes 2. a lien upon imported articles which may be enforced while they are in custody or subject to the control of the government (sec 1204) EXTENT OF IMPORTER’S LIABILITY limited to the value of the imported merchandise. In case of forfeiture of the seized materials, the maximum civil penalty is the forfeiture itself. (Mendoza v. David, 1 SCRA 791) PREFERENCE ON THE OWNER OF IMPORTED ARTICLES FOR CUSTOMS PURPOSES All articles imported into the Philippines shall be held to be the property of: • the person to QuickTime™ and a whom the property is decompressor consigned TIFF (Uncompressed) this picture. are needed to see • the holder of the bill of lading duly endorsed by the consignee therein named • the consignee if consigned to order by the consignor • the underwriters of the abandoned articles saved from a wreck at sea, along the coast or in any area in the Phils. DUTIABLE IMPORTATION Articles although previously exported from the Philippines, become dutiable from the entry of the vessel or aircraft into the Philippine jurisdiction until the payment of duties, taxes, and other charges and the issuance of the permit for the withdrawal of said goods from the custom houses. BASIS OF DUTIABLE VALUE (Sec. 201 TCC, as amended by RA 9135)
Sec. 201. 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: • Commissions and brokerage fess (except buying commissions); • Cost of containers; • Cost of containers; • The cost of packing, whether for labor or materials; • 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; • 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; Page 128 of 145
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
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 5. The cost of insurance. • Both of them are directly or indirectly controlled by a DRAWBACK: It is a device resorted to for third enabling a commodity affected by taxes to be pers exported and sold in foreign markets upon the on; same terms as if it had not been taxed at all. (Uy Tog Chiaco Sons vs. Collector of Customs, 24 Phil ethe 562) r they directly or indirectly control a third person; or They are members of the same family, including those related by affinity or consanguinity up to the fourth civil degree.
• 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:€ • Are imposed or required by law or by Philippine authorities; • Limit the geographical area in which the goods may be resold; or • 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: • They are officers or directors of one another’s businesses; • They are legally recognized partners in business; QuickTime™ and a TIFF (Uncompressed) decompressor • There exists an are needed to see this picture. employer-employee relationship between them; • 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; • One of them directly or indirectly controls the other;
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. (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. (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 Page 129 of 145
the Commissioner of Customs may refuse such a request in which event the dutiable value shall be determined under method four. These are imposed for the protection of consumers and manufacturers as well as Phil. Regular duties –those which are imposed ordinarily as a matter of course without order from the higher authorities and collected merely as a source of revenue a. xxx Value of materials. These are additional import duties imposed on specific kinds of imported articles under certain conditions 2. disposal or use of good that accrues to the seller. Discriminatory duty NATURE AND PURPOSE OF SPECIAL CUSTOMS DUTIES 1. expenses. Being AMOUNT /RATE Difference between the actual price and the IMPOSING Authority Special Committee on Antidumping
CONDITIONS FOR GRANT OF DRAWBACK 1. The Dutiable value of an imported article shall be the transaction price. Exportation must be made within 1 year after importation of material and claim for refund or credit must be made within 6 months from exportation 5. o Every application for drawback must pay P500 filing. Specific Duty. costs. 2. Refund or credit shall not exceed 100% of duties paid on the imported material 3. parts and item incorporated in the importer good o Royalties and license fees that buyer paid o Any part of the proceeds of a subsequent resale.those which are imposed and collected in addition to ordinary duties usually to protect local industries against foreign competition: a.
TRANSACTION VALUE UNDER RA 8181 QuickTime™ and a It is the invoice (Uncompressed)the goods plus freight. moment the last cargo is disembarked from the vessel. adjusted by adding the ff to the extent that they are incurred by the buyer but not included in the price paid: o Commissions and brokerage fees. Imported material was actually used in the production of article to be exported. Countervailing duty c. if it can be so determined. which shall be the price actually paid or payable for the goods when sold for export to the Phil. An importer is required to file an import It must be accomplished at the entry. processing. When 2 or more result from the used of same imported material. No determination by NEDA of the requirement for certification on nonavailability of locally produced or manufactured competitive substitutes for the imported material (no local substitute for the materials) 4.. costs of packing
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. SPECIAL DUTIES are: DUTIES Dumping Duty NATURE Imposed on foreign articles: a. o Transportation cost from port of export to port of entry in Phil o Loading. insurance. Marking duty d. Dumping Duty b.this is duty based on the dutiable weight of goods (either the gross weight. costs of containers. components. Special duties. Products from undue competition posed by foreign made products. and supervision fees o Claims shall be paid by BoC within 60 days after receipt of properly accomplished claims
IMPORT ENTRY: It is a declaration to the BOC showing particulars of the imported article that will enable the customs authorities to determine the correct duties. unloading and handling charges(arrastre) o insurance This replaces the Home Consumption Value as basis of valuation of goods. o CLASSIFICATION OF CUSTOMS DUTIES 1. o These cannot be imposed without regular duties because the law says that it is to be “in addition to such”.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
deems that he will experience real difficulties in determining the dutiable value using method five. apportionment shall be made. legal weight or the net weight) 2. TIFF value of decompressor are needed to see this picture. Ad Valorem Duty – this is a duty based on the value of the imported article b.
business and computer systems and all customs commercial data Page 131 of 145
Pres. of Agriculture/ Sec of Labor) e against Philippine products FLEXIBLE TARIFF CLAUSE Sec. (Sec 401 TCC) REQUIREMENT TO KEEP RECORDS (Sec. as may be necessary 3. Imposed upon goods coming from countries that discriminat
Sec of Finance
Comm of Custom
1. Conduct by the Tariff Commission of an investigation in a public hearing The Commissioner shall also hear the views and recommendations of any government office. The President may fix tariff rates. 28. goods subsidy or enjoying subvention subsidy thus allowing them to sell at lower prices to the detriment of local products similarly situated Imposed 5% ad upon those valorem of not articles properly marked as to the place of origin of QuickTime™ and a TIFF (Uncompressed) decompressor are the goods needed to see this picture. of Financechairman. all the records of their importations and/or books of accounts. 401. 3514 TCC. Imposed Equivalent upon to the foreign bounty. agency or instrumentality concerned The NEDA thereafter shall submits its recommendation to the President 2. reduce or remove existing protective rates of import duty (including any necessary change in classification) • the existing rates may be increased or decreased to any level on one or several stages but in no case shall be higher than a maximum of 100% as valorem 2. To establish import quota or to ban imports of any commodity. TCC.
. import and export quotas. under TCC 1. To increase. etc. Sec. Of the Phil. members: Sec of DTI. The power of the President to increase or decrease the rates of import duty within the abovementioned limits fixed in the Code shall include the modification in the form of duty. To impose an additional duty on all imports not exceeding 10% ad valorem whenever necessary LIMITATION IMPOSED REGARDING FLEXIBLE TARIFF CLAUSE THE
b. sold or is likely to be sold in the Phils. ART VI of the 1987 Constitution and Sec. At a price less than its normal value normal value of the article (extent of the underpricing ) (Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
importe d into. In such a case the corresponding ad valorem or specific equivalents of the duty with respect to the imports from the principal competing country for the most recent representative period shall be used as bases. as amended by RA 9135) 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.
Counterv ailing Duty
Discrimin atory Duty
The importation or sale of which might injure an industry producing like goods in the Phils.
506. Arrest (Sec. TCC) • Attaches on the goods.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
including payment records relevant for the verification of the accuracy of the transaction value declared by the importers/customs brokers on the import entry. Protest • Any importer or interested party dissatisfied with published value within 15 days from date of publication. 122 SCRA 118) 3. The complementary if collateral use of the Cessna plane for smuggling operations is sufficient for it to be deemed to have been used in smuggling (Llamado v. Civil action (Sec. the effect of export bounties and preferential transportation rates. b) The relations between the rates of duty on raw materials and the finished or partly finished products. Search. 2316 TCC) 4. 2. 2530 (a) of the TCC. • Taxpayer within 15 days from assessment. Criminal action REMEDIES OF THE TAXPAYER I. 1508. c) The effects of ad valorem and specific duties and of compound specific and ad valorem duties. Comm. 2308. in order to warrant forfeiture. 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. Of Customs. 1204 TCC) 2. Administrative/Extrajudicial 1. Administrative Fines and Forfeitures • Applied when the importation in unlawful. deficiencies in the contents of packages or shortages before arrival of the goods in the Page 132 of 145
. Judicial • this remedy is normally availed of when the tax lien is lost by the release of the goods 1. 2210. Administrative 1. to investigate the operation of customs and tariff laws.
Availed of when the importation is neither prohibited nor improperly made. 2210 TCC) 2. economic alliances. while still in the custody or control of the Gov’t. • And it may be exercised even where the articles are not or no longer in Custom’s custody unless the importation is merely attempted in which case it may be effected only while the goods are still within the Custom’s jurisdiction or in the hands of a person who is aware thereof (Sec. 2211 TCC) II. and g) In general. TCC) Tax Remedies Under the Tariff and Customs Code (TCC) REMEDIES OF THE GOVERNMENT TO EFFECT COLLECTION OF TAXES I. 2205. THE TARIFF COMMISSION FUNCTION OF THE TARIFF COMMISSIONS I. e) The tariff relations between the Philippines and other foreign countries’ commercial treaties. Payment under protest is necessary (Sec. Reduction of customs duties/compromise: • Subject to approval of Sec. TCC) II. of finance (Sec. Seizure. it is not necessary that the vessel or aircraft must itself carry the contraband. f) The volume of importations compared with domestic production and consumption. All brokers are required to keep at their principal place of business. 2531 & 2530 TCC) • Under Sec. Refund • A written claim for refund may be submitted by the importer in abatement cases on missing packages. 506. or within 5 days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring after the payment. regardless of ownership. their effect upon the industries and labor of the country and to submit reports of its investigation as provided. preferential provisions. Tax Lien (Sec. (Sec. Administrative Assistance to the President and Congress (Sec.
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. d) All questions relative to the arrangement of schedules and classification of articles in the several schedules in the tariff law. including their relation to the national revenues. 709. Investigative Powers a) The administration of and the fiscal and industrial effects of the tariff and customs laws of this country now in force or which may hereafter be enacted.
of Finance If decision of
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. 2403 TCC. and other charges. impliedly • failure to file an import entry within 30 days from the discharge of goods or • having filed an entry. but the claim for refund arises by reason of the happening of supervening events such as when the raw material imported is utilized in the production of finished products subsequently reported and a duty drawback is claimed. such as in seizure but not in protest cases. as amended by Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Philippines. liquidate. fees and other charges is determined and the taxpayer disputes said liability. Action to question the legality of seizure 3. as amended by Sec. and for manifest clerical errors and • Drawback cases where the goods are reexported. Judicial 1. Upon termination of the hearing. 9 RA 9282) • Since Sec. Must be limited to the subject matter of a single adjustment. expressly (Sec. 1801. dead or injured animals. Must state the grounds relied upon for relief. Customs Protest Cases Definition: These are cases which are solely with liability for customs duties. 3. REQUIREMENTS FOR MAKING A PROTEST 1. PROCEDURE ON CUSTOMS PROTEST CASES 1. The party adversely affected may file a written protest on his foregoing liability with the Collector within 15 days after the liquidated amount (the payment under protest rule applies) 4. 2. Protestant must furnish samples of goods under protest when required. Sec. the Collector shall decide on the same within 30 days IF DECISION IS ADVERSE TO THE PROTESTANT Appeal with the Commissioner within 15 days from notice Appeal with CTA division within 30 days from notice Appeal with the CTA en IF DECISION IS ADVERSE TO THE GOVERNMENT Automatic review by Commissioner Automatic review by Sec. 1701-1708 TCC) 3. Hearing within 15 days from receipt of the duly presented protest. 2. Must be filed when the amount claimed is paid or within 15 days after the payment. Settlement of any seizure by payment of fine or redemption • BUT this shall not be allowed in any case where importation is absolutely prohibited or the release would be contrary to law or when there is an actual and intentional fraud (Sec. fails to claim within 15 days but it shall not be so effective until so declared by the collector. (Sec. NOTE: Before filing a protest there must first be a payment under protest. 3. 4. 7 RA 1125. 2313 TCC) II. Must be in writing 2. Customs protest cases to see this picture. Customs seizure and forfeiture cases A. articles lost or destroyed after such arrival. Must point out the particular decision or ruling of the Collector of Customs to which to which exception is taken or objection made. The Collector acting within his jurisdiction shall cause the imported goods to be entered at the customhouse. 11 of RA 1125.
When Customs Protest NOT Required • When there is no dispute. 2307 TCC) 4. and collect the duties thereon. When Customs Protest Applicable • The customs protest is required to be filed only in case the liability of the taxpayer for duties. it would appear than an importer may appeal without first paying the duties. Appeal • Within 30 days from receipt of decision of the Commissioner or Secretary of Finance to the division of the CTA (Sec. The Collector shall assess. as amended by RA 7651) TWO KINDS OF PROCEEDINGS IN THE BOC QuickTime™ and a TIFF (Uncompressed) decompressor 1. fees. taxes. or detain the said goods if the party liable does not pay the same. are needed 2. 5. 1801 TCC) ii. 6. Appeal • Within 15 days to Commissioner after notification by collector of his decision (Sec. 9 RA 9282 empowers the tax court to issue injunctions. (Sec. 1801 TCC) i. Abandonment (Sec.
Of Customs v. Properties Not Subject to Forfeiture In The Absence of Prima Facie Evidence • The forfeiture of the vehicle. 3601 TCC). • May exercise such powers only in conformity with the laws and provisions of the TCC (Sec. Aircraft. 248 SCRA 288) Things Subject to Confiscation in Smuggling Cases • Anything that was used for smuggling is subject to confiscation. vessel or aircraft shall not be effected if it is established that the owner thereof or his agent in charge of Page 134 of 145
ENTRY in Customs law means • The documents filed at the Customs house • The submission and acceptance of the documents
. 1983). 227 SCRA 317) Smuggling A. is adverse to the protestant. of Customs. 18. 1995)
Appeal by certiorari to the SC within 15 days from notice B. Manila Starr Ferry. Set. animal or other movable property when the same is subject to forfeiture or liable for any time as imposed under tariff and customs laws. like the vessel. CA. buy. (Llamado v. it is of no defense that the owner of the vessel sought to be forfeited had no actual knowledge that his property was used illegally. 2205) Common Carriers. Inc. These actions are in rem. or • Receive. 3514 TCC)
Right of Customs Officers to Effect Seizure & Arrest • May seize any vessel. cargo. Seizure and Forfeiture Cases Definition: These refer to matters involving smuggling. It is not a common carrier. The absence or lack of actual knowledge of such use is a defense personal to the owner himself which cannot in any way absolve the vessel from the liability of forfeiture. Exception: Common carriers that are not privately chartered cannot be confiscated. • The procedure of passing goods through the customs house (Rodriguez v. (Comm.entry other than port of entry will be SMUGGLING. conceal. Port of Entry: A domestic port open to both foreign and coastwise trade including “airport of entry”. rules and regulations. Comm. (Sec.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
banc Commissioner or Sec. 3514 TCC) B. CA. (Sec. An act of any person who shall: • Fraudulently import any article contrary to law. The Philippines is divided into various ports of entry . article. • Thus. facilitate or transport such article knowing its illegal importation (sec. or • Assist in so doing. sell. entered through a customs house at a port of entry. he may appeal to the CTA and SC under the same procedure on the left. etc. Contraband: Articles of prohibited importations or exportations.
Evidence for Conviction in Smuggling Cases • Mere possession of the article in question UNLESS the defendant could explain that his possession is lawful to the satisfaction of the court (Sec. Forfeiture • Common carriers are generally not subject to forfeiture although if the owner has knowledge of its use in smuggling and was a consenting party.. • If a motor vehicle is hired to carry smuggled goods but it has no Certificate of Public Convenience (CPC). It is thus subject to forfeiture and lack of personal knowledge of the owner or carrier is not a defense to forfeiture. It is administrative and civil in nature and is directed against the res or imported articles and entails a determination of the legality of their importation. 3514 TCC) • ALL articles imported into the Philippines whether subject QuickTime™ and aor not shall be to duty TIFF (Uncompressed) decompressor are needed to see this picture. 3601 TCC) • Export contrary to law (Sec. plane. it may also be forfeited. • Payment of the tax due after apprehension is not a valid defense (Rodriguez v.
The wrongful making by the owner. b. Navy and other members of the AFP and national law enforcement agencies when authorized by the Comm. On Audit. If decision is not favorable to the aggrieved owner or importer Appeal by aggrieved owner or importer If decision is favorable to government Automatic Comm. 3. b. Notification to owner or importer. 6. they may be pursued in the Phils c. filed with the RTC will issue. prohibition or mandamus filed with the RTC will lie because these are in reality attempt to review the QuickTime™ and Commissioner’s actuations. (2 par. review not the by
REQUIREMENTS FOR CUSTOMS FORFEITURE 1. Officials of the BIR on all cases falling within the regular performances of their duties. • No petitions for certiorari. police officers. exclusive jurisdiction (to the exclusion of regular courts) still belongs to the Bureau of Customs. Oct. 4. 5. District collector renders his decisions. the vessel may be seized on the high seas. Waters which constitutes a violation of the tariff and custom laws. If the conveyance has been used for smuggling at least twice before. and ii. 73 SCRA 553)
Persons Having Police Authority To Enforce The Tariff and Customs Laws and Effect Searches. Listing of description. A pursuit of such vessel began within the jurisdictional waters which i. If the owner is not in the business for which the conveyance is generally used. 2203 TCC) Administrative and Judicial Procedures Relative to Customs Seizures and Forfeitures 1. Seizures and Arrests 1. Formal hearing. or the wrongful making or delivery by the same persons of any invoice. appraisal and classification of seized property. 603 TCC) RTC v. Berdiago. when the payment of internal taxes are involved 4. when acting under the direction of the Collector. 2. (Jao v. CA. If the owner is financially not in the position to own such conveyance. may continue beyond the maritime zone. 6. 2. however. exporter or consignee of any declaration or affidavit. Of Customs. 1995) Goods in Customs Custody Beyond Reach of Attachment • Goods in the customs custody pending payments of customs duties are beyond the reach of attachment. Report of seizure to Comm. and Page 135 of 145
. letter or paper . 8. district collectors. 7. and 3. Comm. the imported goods remain under the jurisdiction of the Bureau of Customs. Officers generally empowered by law to effect arrests and execute processes of courts. Over Imported Articles a. Over Vessels a. There is a violation of the tariff and customs laws. DOCTRINE OF HOT PURSUIT Requisites 1. Officers of the Phil. Actual seizure of the articles. As long as the importation has not been terminated. With jurisdiction over them at any place therein for the enforcement of nd the law. 2.all touching on the importation or exportation of merchandise. BOC • The RTCs do not have jurisdiction over seizure and forfeiture proceedings conducted by the BOC and to interfere with these proceedings.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
the means of conveyance used as aforesaid has no knowledge of or participation in the unlawful act: Provided. (Viduya v. that a prima facie presumption shall exist against the vessel. (Sec. Issuance by the Collector of warrant of detention. Determination of probable cause and issuance of warrant. agents. An act is done in Phil. 2. 3. • Rationale: Doctrine of Primary Jurisdiction.a Neither replevin TIFF (Uncompressed) decompressor are needed to see this picture. importer. Even if a Customs seizure is illegal. Sec. The Collector of Customs has exclusive jurisdiction over all questions touching on the seizure and forfeiture of dutiable goods. Of Customs and the Chairman. vehicle or aircraft under any of the following circumstances: 1. Officials of the BOC. As a consequence. inspectors and guests of the BOC.
1005 TCC) Query: Is Manifest Required Only for Imported Goods? No. That such declaration. Fraudulent Practices Considered As Criminal Offences Against Customs Revenue Laws • Unlawful importation. o Damage incurred during voyage. affidavit or other documents.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
2. 2307 TCC) Acquittal in Criminal Charge Not Res Judicata in Seizure or Forfeiture Proceedings Reasons: • • Criminal proceedings are actions in personam while seizure or forfeiture proceedings are actions in rem. 2535 TCC) Requirements for Manifest • A manifest in coastwise trade for cargo and passengers transported from one place or port in the Phils. CTA. It is enough that the cargo is unmanifested and that there was no showing that payment of duties thereon had been made for it to be subject to forfeiture. (Sec. o Death or injury of animals. (Farolan. 26. The surrender needed to seeproperty to the person of the this picture. are offering to redeem would be contrary to law. • Payment of less than the amount due. to another is required when one or both of such places is a port of entry. the delinquent importer may settle his obligations with the Bureau of Customs in which case the aforementioned articles may be delivered upon payment of the corresponding duties and taxes and compliance with all other legal requirements. Where there is fraud (Sec. 1508 TCC) Abatement • The reduction or non-imposition of customs duties on certain imported materials as a result of. Robles. (Sec. (Sec. Nov. v. o Deficiency in contents package. 217 SCRA 298) Places Where Searches and Seizures May Be Conducted • Enclosures • dwelling house (there must be search warrant issued by a judge) • vessels or aircrafts and persons or articles conveyed therein • vehicles. Articles subject to seizure do not have to be imported goods.
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. The importation isQuickTime™ and a prohibited or absolutely TIFF (Uncompressed) decompressor 2. Manifests are also required of articles found on vessels or aircrafts engaged in coastwise trade (Rigor v. letter or paper is false. invoice. Settlement of Forfeiture Cases General Rule: Settlement of cases by payment of fine or redemption of forfeited property is allowed. Jr. o Loss or destruction of articles after arrival. • Entry of goods at less than their true weights or measures or upon a classification as to quality or value. • Entry of imported or exported article by means of any false or fraudulent practices. Desiderio. 1965)
At any time prior to the sale. 117 SCRA 780) Unmanifested Cargo is Subject to Forfeiture • Whether the act of smuggling is established or not under the principle of res ipsa loquitur. beasts or persons • persons arriving from foreign countries Burden of Proof in Seizure or Forfeiture • claimant (Sec. v. affidavit. Customs compromise does not extinguish criminal liability (Pp. or 3. Exceptions: 1. declaration. 906 TCC) Manifests are also required of vessels from a foreign port. invoice.
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.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
appeal to CTA w/in 30 days from receipt of decision (Sec. taxes. 2313. ROC)
No appeal assessment final
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Assessment final If unfavorable. of Finance
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture.
Files written protest with ruling of Collector (Sec. 7. RA 1125)
CTA decides w/in 30 days
Appeal to SC w/in 15 days from notice (Rule 43. TCC)
Appeal to Customs Commissioner w/in 15 days from notice (Sec. classified and assessed
Taxpayer agrees with assessment
Taxpayer disagrees with assessment
Pays duties. 2313. TCC) Within 15 days from receipt of assessment No protest considered unless amount due is paid
Collector schedules hearing of protest w/in 15 days from receipt of protest
Collector renders decision w/in 30 days from termination of hearing
Automatic appeal to Customs Commissioner (Sec. 2303. etc.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
PROCEDURE TO PROTEST CUSTOM COLLECTORS ASSESSMENT
Articles enter customs house
Articles appraised. of Finance reports elevated w/in 5 days from promulgation or after lapse of 30 days if no decision
Automatic appeal to Sec. TCC)
Commissioner of Customs fails to render decision w/in 30 days
Protest Denied Protest Affirmed Protest Denied
Automatic appeal to Sec.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
EXHIBITS TAX ON INDIVIDUALS Type of Income Tax Rate For Resident Citizen 20% Final Tax Rate For NonResident Citizen (Incl. deposit substitutes.000 Other winnings except PCSO & Lotto Royalties on books & other literary works & musical compositions Prizes < P10.5% Final Tax
Final Tax of 10% Schedular rate Exempt Exempt
25% Final tax 25% Final tax 25% Final tax Exempt
Winnings from PCSO & Lotto exempt Interest Income received by an 7.5% Final Tax individual (except a nonresident individual) from a depositary bank under the expanded foreign QuickTime™ and a currency deposit system TIFF (Uncompressed) decompressor are needed to see picture. OCW) 20% Final Tax Tax Rate For Resident Alien 20% Final Tax Non-Resident Alien engaged in trade / business 20% Final Tax Non-Resident Alien NOT engaged in trade / business 25% Final tax
Interest from any currency bank deposit & yield or any other monetary benefit from deposit substitutes & from trust funds & similar arrangements Royalties (except on books & other literary works & musical compositions) Prizes > P10. investment management accounts & other investments evidenced by certification in such form prescribed by the BSP
Exempt from tax
Exempt from tax
Exempt from tax
25% Final tax
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. Interest income from long thisterm Exempt from tax deposit or investment in the form of savings.000
Final Tax of 10% Schedular rate
Final Tax of 10% Schedular rate exempt exempt
Final Tax of 10% Schedular rate Exempt 7. common or individual trust fund.
including pacto de fair market value retro sales & other forms of or zonal value conditional sales whichever is higher
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. OCW) 5% Final tax on the entire income 12% 20% 10% Final Tax Tax Rate For Resident Alien 5% Final tax on the entire income 12% 20% 10% Final Tax Non-Resident Alien engaged in trade / business 5% Final tax on the entire income 12% 20% 20% Final Tax Non-Resident Alien NOT engaged in trade / business N/A N/A N/A 25% Final tax
Pre-termination of such certificate before the 5th year (i. a joint account or a joint venture or consortium taxable as a corp. Share of an individual in the distributable net income after tax of a partnership (except GPP)..000 TIFF (Uncompressed) decompressor are needed to see this picture. barter. exchange or other disposition of shares of stock (of domestic corp.. 4 years to less than 5 years) 3 years to less than 4 years less than 3 years Cash and/or Property Dividends from a domestic corp.e. Share of an individual in the net income after tax of an assn.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Type of Income Tax Rate For Resident Citizen 5% Final tax on the entire income 12% 20% 10% Final Tax Rate For NonResident Citizen (Incl. or from a joint stock co. exchange 6% Final Tax on or other disposition of real property the gross selling located in Philippines. Capital gains from sale. of w/c he is a member/co-venturer Capital gains from sale.000 On any amount in excess of 10% QuickTime™ and a P100. classified as price or current capital assets. insurance or mutual fund companies & regional operating headquarters of multinational companies.) not traded in the stock exchange
5% Final tax on net capital gains realized during the taxable yr:
5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
5% Final tax on net capital gains realized during the taxable yr: 10% 6% Final Tax on the gross selling price or current fair market value or zonal value whichever is higher
For the first P100.
barter.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Type of Income Tax Rate For Resident Citizen Rate For NonResident Citizen (Incl. OCW) Tax Rate For Resident Alien Non-Resident Alien engaged in trade / business Non-Resident Alien NOT engaged in trade / business
CG from sale/disposition of principal residence by natural persons.l gains realized during the taxable yr: 10%
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.000 On any amount in excess of P100.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10%
7. from date of sale.000
Domestic Corp 20% Final Tax
Resident Foreign Corp 20% Final Tax
Non-Resident Foreign 32%/35% Income Tax
7. Duly notified w/in 30 days from sale Tax exemption can only be availed once every 10 years If no full utilization of proceeds of sale. exchange or other disposition of shares of stock (of domestic corp. provided historical cost/adjusted basis of sold prop be carried to the new principal residence built/acquired Commissioner.) not traded in the stock exchange For the first P100. such portion shall be subject to CG tax **a nonresident alien engaged in trade or business is an individual who shall come to the Philippines & stay therein for an aggregate period of more than 180 days during any calendar year
TAX ON CORPORATIONS Type of Income Interest on currency bank deposits & yield or any other monetary benefit form deposit substitutes & from trust funds QuickTime™ and a & similar arrangement(Uncompressed) decompressor TIFF are needed to see this picture. Royalties (similar within the Philippines) Interest income from a depositary bank under the expanded foreign currency deposit system (EFCDS) CG from sale.5% Final Tax 5% Final tax on net capital gains realized during the taxable yr: 10%
Exempt from tax 5% Final tax on net cap. the proceeds of which is fully utilized in Exempt from CG Exempt from CG Exempt from CG Exempt from CG Exempt from CG tax tax tax tax acquiring/constructing a new tax principal residence w/in 18 mos.
For a flight which originates from the Philippines but transshipment of passenger takes place at any port outside the Philippines on another airline. whichever is higher
32%/35% income tax
Type of Corporate Taxpayer International Air Carrier Gross Phil. Otherwise. excess baggage. income tax (RA 9294) 10% Final Tax Exempt form tax Exempt from Final tax – Part of gross income subject to 32%/35% corp. regardless of the place of sale/ payments of passage of freight documents Offshore Banking Units
Final Tax of 10% on gross income from transactions with residents
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. Includes tickets revalidated. exchange or other disposition of lands and/or buildings which are not used in the business of a corp. offshore banking unites in the Philippines. irrespective of the place of sale/issue & the place of payment of the ticket or passage document.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Income derived by depositary bank under the EFCDS from foreign currency transactions with non-residents.) Exempt from Final tax – Part of gross income subject to 32/%35% corp. & are treated as capital assets
6% Final tax on gross selling price or FMV or zonal value. subject to regular income tax rate of 32%/35% 32%/35% income tax
CG from sale. up to final destination. cargo or mail originating from the Philippines. 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 GPBQuickTime™ and a TIFF (Uncompressed) decompressor
are needed to see this picture.
Tax Rate 2 ½% on Gross Phil Billings
International Shipping Gross Phil Billings = gross revenue whether for passenger. local commercial banks including branches of foreign banks that may be authorized by the BSP to transact business with FCDS units & other depositary banks under the EFCDS Interest income form foreign currency loans granted by such depository banks under said EFCDS to RESIDENTS Inter-corporate dividends (from a domestic corp. exchanges &/or indorsed to another int’l airline if the passenger boards a plane in a port/point in the Philippines. income tax (RA 9294) 10% Final Tax Exempt form tax N/A
N/A 15% Final Tax * subject to the rule on tax credit for tax actually paid and tax deemed paid. cargo & mail originating form the Philippines in a continuous & uninterrupted flight. Billings = amount of gross revenue derived from carriage of persons.
Compensation. Nationals Nonresident owner or lessor of aircraft. Sourcing & procurement of raw materials & components d. Data processing & communication l.e.Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
Branch Profits remitted (connected with the conduct of its trade/business in the Philippines.) = based on the total profits applied/earmarked for remittance without any deduction for the tax component thereof (except those registered with the PEZA) Regional/Area Headquarters of Multinational Cos. = do not earn/derive income from the Philippines. lessor or distributor (NOTE: Even to individuals) Nonresident owner or lessor of vessels chartered by the Phil. Wages. Technical support & maintenance k. Training & personnel mgt. subsidiaries or branches in the Asia-Pacific Region & other foreign markets Regional Operating Headquarters of Multinational Companies = engaged in any of the following services: a. communication & coordinating center for their affiliates. Remuneration. machineries & other equipment Type of Income
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Business development Type of Taxpayer Nonresident cinematographic film owner.5% of gross rentals. & w/c act as supervisory. honoraria & allowances) received from such cos. Corporate finance advisory services e. lease or charter fees 7. General Administration & planning b. Provided. g.5% of gross rentals or fees
Gross Income = Salaries. Services & product development j. Other Emoluments (i. Business planning & coordination c. Marketing control & sales promotion f. Logistic services h. Annuities. 15% of gross income 15% of gross income
Petroleum Contractor Subcontractor
15% of gross income
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. same tax
Tax Rate For Alien Individual Employed By Regional Or Area Offshore Banking Units Headquarters & Regional Operating Headquarters of Multinational Cos.
15% on branch profits remittance
Exempt from tax
10% of taxable income
Tax Rate 25% of gross income 4. Research & development i.
Taxation Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007
treatment shall apply to Filipinos abroad employed & occupying same positions in these companies ** Multinational company = a foreign firm/entity engaged in international trade with affiliates/subsidiaries/branch offices in the Asia Pacific Region & other foreign markets
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Head: Julie Ann B.
—Advisers: Atty.ATENEO CENTRAL BAR OPERATIONS 2007 Taxation Law SUMMER REVIEWER
QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. Enriquez III. Michael Dana Montero. Atty. Sy. Aldwin Mendoza. Timothy John Batan—
. Serafin Salvador. Domino. P. Atty. Gaudencio Mendoza. Understudies: Rachelle T. Juan J.