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TRANSFER TAXATION Transfer Taxes y those imposed upon the gratuitous disposition of private property Under our law, they are taxes levied on the transmission of private properties from a prior decedent to his heirs in the case of estate tax, or from a donor to a donee in the case of donor·s tax.

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ability to contribute to governmental income; and d.) Privilege theory or State Partnership theory Inheritance is not a right but a privilege granted by the state and large estates have been acquired only with the protection of the state. The State, as a ´passive and silent partnerµ in the accumulation of property has the right to collect the share which is properly due to it. Incidence or burden of estate of tax Three views on who is the taxpayer in estate taxation: 1. PREDECESSOR ² the object of the tax is the property which has been held or accumulated by the deceased and the tax has fallen upon him in the sense it has affected the amount of the property which he could dispose. SUCCESSOR ² the tax is not paid by the predecessor who has no liability till he dies and who is free to ignore the duty if he wishes, while the successor comes into less than he would have, and has no kind of redress. No Personal Incidence - the estate tax has no personal incidence at all, merely falling upon the estate as such.

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Kinds of Transfer Taxes 1. Death / Estate taxes - those levied on the gratuitous transfers of property upon one·s death, formerly comprised of the estate and inheritance taxes: Both taxes are now integrated into one estate tax. 2. Gift Taxes - Are imposed on the gratuitous transfers of property during one·s lifetime, formerly comprised of the donor·s and donee·s gift taxes; both taxes are now integrated into a donor·s tax.

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3. I. DEATH / ESTATE TAX Estate tax y graduated tax imposed on the privilege of the decedent to transmit property at death and is base on the entire net estate, regardless of the number heirs and relations to the decedent. a ´transferµ tax not a property tax. tax on the right to transmit property at death and on certain transfers which are made by the statute the equivalent of testamentary dispositions.

Law applicable Estate taxation is governed by the statute in force at the time of the death of the decedent. Reciprocity There is reciprocity if the foreign country of which the decedent was a citizen or resident at the time of his death: 1.) Did not impose an estate tax; or 2.) Allowed a similar exemption from estate tax with respect to intangible personal property owned by Filipino citizens residing in that foreign country. Note: 1. Reciprocity applies only when: a.) The property is an intangible; and b.) The decedent is a nonresident alien 2. The following intangibles are deemed located in the Philippines: (an exception to the principle of Res Mobilia Sequuntur Personam and Situs of Taxation) a.) Franchises which must be exercised in the Philippines; b.) Shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; c.) Shares, obligations or bonds issued by any foreign corporation 85% of the business of which is located in the Philippines; d.) Shares, obligations or bonds issued by any foreign corporation if such shares obligations or bonds have acquired a business situs in the Philippines; and e.) Shares or rights in any partnership, business, or industry established in the Philippines.

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Nature of Estate Tax y It is not a direct tax on property nor is it a capitation tax, that is, the tax is laid neither on the property, nor on the transferee or transferor, but on the right of the decedent to transmit his estate. y It is not a property tax but an excise tax. Purpose and justification of estate tax: The following theories have been advanced to justify death taxation: (BRAP) a.) Benefit-Received Theory For the performance of services rendered by the government in the distribution of the estate of the decedent and other benefits that accrue to the estate and the heirs, the state collects the tax. b.) Redistribution of Wealth Theory Estate tax is a contributing factor to the inequalities in wealth and income. The imposition of death tax reduces the property received by the successor bringing about a more equitable distribution of wealth in society. c.) Ability to pay theory The receipt of inheritance places assets in the hands of the heirs and beneficiaries thereby creating an ability to pay the tax and thus,

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REVIEW NOTES FOR TAXATION 2
GROSS ESTATE y the total value of all property, whether real or personal, tangible or intangible belonging to the decedent at the time of his death, situated within or outside the Philippines, where such decedent was a resident or citizen of the Philippines. y In the case of a nonresident alien decedent, it shall include only property situated in the Philippines. -

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A transfer with the thought of death. The term ´in contemplation of deathµ means that the impelling or controlling motive is the thought of death, regardless of whether the transferor is near the possibility of death or not, which induces the disposition of the property for the purpose of avoiding the tax. Example: donation was made concurrently with the execution of a will (Vidal de Rocs vs. Posadas, 58 Phil 108)

Property Included in the Gross Estate (INCLUSIONS): A. In case of resident citizens, nonresident citizens and resident aliens: 1. Real Property within and without the Philippines; 2. Tangible personal property within and without the Philippines; and 3. Intangible personal property within and without the Philippines. B. In cases of nonresident aliens: 1. Real property within the Philippines; 2. Tangible personal property within the Philippines and; 3. Intangible personal property within the Philippines, unless there is reciprocity in which case, it is not taxable. Note: These are either: A) Properties actually owned at the time of death B) Properties deemed by law to be owned by the decedent under Sec. 85 Inter Vivos Transfers Subject to Estate Tax The gross estate extends to gratuitous transfers made by the decedent during his lifetime which are treated by the law as substitutes for testamentary dispositions. They are transfers inter vivos in form but mortis causa in substance. Rationale for taxability: To reach such transfers which are really substitutes for testamentary dispositions and thus prevent the evasion of the estate tax. These transfers are: a.) transfers in contemplation of death (sec.85 b); b.) transfers with retention or reservation of certain rights (sec.85 b); c.) revocable transfers (sec.85 c) d.) transfers of property arising under a general power of appointment ( sec.85 d); and e.) transfers for insufficient consideration (sec.85 g) Note: Transfers by virtue of a bona fide sale of property for an adequate and full consideration in money or money·s worth are excluded and not taxable. INCLUSIONS IN THE GROSS ESTATE (CR2IG DIP) 1) Decedent·s interest at a specific property - To the extent of the interest therein of the decedent at the time of his death. (Sec. 85 A) Ex: partnership interest, dividends 

Circumstances taken into account in determining in whether the transfer was made in contemplation of death: A.) Age and state of health of the decedent at the time of the gift; B.) Length of time between the gift and the date of death; and C.) Concurrent making of a will or making a will within a short time after the transfer. Note: Check the factual settings before and at time of death because proximity to death is not always conclusive.  Examples of motives precluding the category of a transfer in contemplation of death: a.) b.) c.) d.) e.) f.) g.) To relieve the donor from the burden of management; To save income or property taxes; To settle family litigated and unlitigated disputes; To provide independent income for dependents; To see the children enjoy the property while the donor is alive; To protect the family from hazards of business operations; To reward services rendered

Note: The THREE (3) YEAR PRESUMPTION provides that any transfer of a material part of his property in the nature of a final disposition or distribution thereof made by the decedent within three years prior to his death without such adequate and full consideration shall, unless shown to the contrary, be deemed to be have been made in contemplation of death. This provision, however, has been already deleted in Sec. 100 (b) now sec. 85 (B) of the Tax Code by PD No. 1705. Under BIR Ruling No. 261 September 2, 1987, the law does not specify the number of years prior to a decedent·s death within which a transfer can be considered in contemplation of death. Note: In relation to transfers with retention of rights which are made in contemplation of death ² if the right of retention by the Decedent is co-terminous with his lifetime. - Ex: X has a house and lot which he transferred to Y a) with the condition that X will use it while X lives - Effect: Still part of estate of X as he has control over it b) with the condition that X will use it only for 10 years and then X dies before 10 years - Effect: Not part of the estate of X as he is not the actual owner

2) Transfer in contemplation of death

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REVIEW NOTES FOR TAXATION 2

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3.) Transfer with retention or reservation of certain rights - This contemplates the instances where the owner transfers his property during his lifetime but still retains economic benefits (the possession or enjoyment of the property or the power to designate the person who may exercise such rights). - It includes: A. Transfer without retention of interest but intended to take effect at or after the decedents death. - Example: donations mortis causa. B. Transfer with retention of interest in respect to: - 1. The possession or enjoyment of or the right to the income from the property; or 2. The right either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom. And such interest is retained by the decedent for his life or for any period which does not in fact end before his death. C. Transfer with reversionary interest, wherein there is a possibility that the transferred property may return to the decedent or his estate or that it may become subject to a power of disposition by the decedent. - Ex: A transfers his property to B in naked ownership and to C in usufruct throughout C·s lifetime subject to the condition that if C predeceases A, the property shall return to A. If A dies during C·s lifetime, the value of the reversionary interest of A at death is included in his gross estate. 3.) Revocable transfer - the decedent has full control of disposition of property - even if the control is not exercised, it is enough that it is exists - A transfer where: a.) The decedent or in conjunction with any other person has reserved the right to alter, amend, revoke, or terminate; or b.) Any such power is relinquished in contemplation of the decedent·s death. The power to alter, amend or revoke shall be considered to exist on the date of the decedent·s death even though: a.) the exercise of the power is subject to a precedent giving of notice; or b.) The alteration, amendment or revocation takes effect only upon the expiration of a stated period after the exercise of the power. If the notice has not been given or the power has not been exercised on or before the decedent·s death, such notice or the power shall be considered to have been given or exercised on the date of the decedent·s death. 4.) Transfer of property under a general power of appointment - A transfer where the donor of the power of appointment authorizes the donee of such power to designate any person he chooses to be given the right over the appointed property. - The transferee may choose freely any person who will own the property after he dies

- Rationale: the will of the transferee is followed; hence, part of transferee·s estate * Note: the decedent is the transferee in this provision General power of appointment vs. special power of appointment: A.) A power is general, when it authorizes the donee of the power to appoint any person he pleases including himself, thus having a full dominion over the property as if he owned it. B.) It is special when, the donee can appoint only among a restricted or designated class of persons other than himself. Note: If the power of appointment is general, it makes the appointed property a part of the donee·s property. Under a general power of appointment, title to the property is legally transferred to the donee. Therefore the property shall form part of the gross estate of the donee.

5.) Transfer for insufficient consideration - A transfer that is not a bona fide sale of property for an adequate and full consideration in money or money·s worth. The excess of the fair market value at the time of death over the value of the consideration received by the decedent shall form part of his gross estate. However, if the purported absolute sale inter vivos by the decedent is shown to be fictitious, then the total value of the property transferred is subject to inclusion in the taxable estate.

- Ex: X owns a house and lot, he wants to help Y so he sells his house worth P5M for only P1M. At the time of X·s death, his house and lot is worth P10M. How much is included in the gross estatre of X? 10-1 = 9M - Ex: X bought a car worth P1.3M. X needed money so he sells his car to Y for only P1M. This is not a transfer for insufficient consideration as this is a bona fide transfer at arm·s length; hence, a valid transfer. 6.) Proceeds of life insurance - Proceeds of life insurance taken by the decedent on his own life shall be included in the gross estate if the beneficiary: A.) Is the estate of the decedent, his executor, or administrator (regardless whether the designation is revocable or irrevocable); or B.) Third person other than the estate, executor, administrator but the designation of the beneficiary is revocable. - Presumption: proceeds are revocable - include in the estate only if it is revocable as the decedent retained control over the proceeds 7.) Prior Interest - Except as otherwise specifically provided therein, subsections (B), (C), (E) of Section 85 referring to transfer in contemplation of death, revocable transfer and proceeds of life insurance respectively shall apply to the transfers, trusts, estates, interests, rights, powers

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REVIEW NOTES FOR TAXATION 2
and relinquishment of powers as severally enumerated and described therein, whether made, created, arising, existing, exercised or relinquished before or after the effectivity of the CTRP. NOTE: In most of these transfers the property remains substantially that of the transferor during his lifetime notwithstanding the transfer since he still retains either the ´beneficial ownershipµ or ´naked titleµ to the property.

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Note: In the determination of the gross estate, the nature of the property, whether common property of the spouses, separate or exclusive property either of the deceased or of the surviving spouse, becomes of vital importance. What regime of property relations shall govern the spouses? Under the Civil Code, the husband and wife who got married before August 3, 1988 are governed by the Conjugal Partnership of Gains, while those who got married on or after August 3, 1988 are governed by the Absolute Community of Property, unless a different regime was agreed upon in the marriage settlement. EXEMPTION FROM ESTATE TAX A. The first P200, 000.00 value of the estate (sec. 84 NIRC) B. The merger of the usufruct in the owner of the naked title. C. The transmission from the first heir, legatee, or donee in favor of another beneficiary in accordance with the desire of the predecessor. D. All bequest, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the net income of which inured to the benefit of any individual and provided that not more than 30% of the said bequest, etc shall be used by such institution for administration purposes. E. Intangible personal property of non-resident aliens under the principle of reciprocity. F. Retirement benefits of employees of private firms from private pension plans approved by the BIR. G. Amount received for war damages. H. Grants and donations to the Intramuros administration. ALLOWABLE DEDUCTIONS FROM THE GROSS ESTATE - Granted by mere legislative grace - Construed strictly against the taxpayer - Requisites: a) Substantiate the claim for deduction b) Identify the provision granting the deduction. The provision must be clear and definite. RESIDENT DECEDENT A. Ordinary Deductions (ELIT): 1) Funeral Expenses - The amount deductible is equal to 5% of the gross estate or the amount of the actual funeral expenses whichever is lower, but in no case to exceed P200,000; - ´Actual funeral expensesµ are those which were actually incurred in connection with the interment or burial of the deceased and paid for from the estate of said deceased.

EXCLUSIONS FROM THE GROSS ESTATE 1. Merger of usufruct in the owner of the naked title - ex: X has a house and lot. X gave the title to Z. X also allows Y to use the same and that in case Y dies, the use goes to Z. What are the effects? a) If X dies ² include the house and lot in X·s estate b) If Y dies ² exclude from the estate of Y as the will of X is being followed, there is a merger of usufruct in Z (the owner of the naked title). 2. Fideicommisary and transmissions from the first heir, legatee, or donee in favor of another beneficiary, in accordance with the desire of the predecessor - ex: X has a house and lot. In the will of X, Y may have the title to the house and lot but in case Y dies, the property will go to Z. What are the effects? a) If X dies ² include as part of X·s estate as he actually owns it b) If Y dies ² excluded from the estate of Y as he has no control over its disposition - Ex: X has a house and lot which he wants to give to Y but Y is a minor at the moment so that X institutes T to hold the property in trust for Y until Y reaches the age of majority. X died. The property passed to T. T died. Y reached the age of majority. Effect if T dies: Not part of estate of T. Note: Common reasons for 1 and 2 ² the will of the first decedent is followed, the second decedent has no control over the disposition. 3. Transfers to social welfare, cultural, and charitable institutions - Requisites: a) Qualified organization b) Not more than 30% will be used for administrative purposes - Reason: to encourage such transfers 4. Proceeds of insurance not includible in the gross estate of the decedent a) Amount receivable by any beneficiary irrevocably designated in the policy of insurance by the insured. b) Proceeds of a group insurance policy taken out by a company for its employees. c) Proceeds of insurance policies issued by the GSIS to government officials and employees. d) Benefits accruing under the Social Security Act. e) Proceeds of life insurance payable to the heirs of deceased members of the military personnel of the United States Army or Philippine Army under laws administered by the United States Veterans Administration. f) Accident insurance proceeds. 5. Separate property of the surviving spouse.

- Funeral expenses include: a) Costs of coffin, tombstone, mausoleum, and burial lot; b) Funeral parlor fees; c) Mourning clothing of the surviving spouse and the unmarried minor children; d) Costs of obituary notices; and e) Expenses during the wake.

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legatees. extrajudicial expenses are included. VANISHING DEDUCTION: because the rate of deduction gradually diminishes and entirely BAR OPERATIONS COMMITTEE .Requisites for deductibility: a) The fair market value of the property mortgaged without deducting the mortgage indebtedness has been initially included as part of his gross estate. . B. X died. Y paid 1M. wake and burial. . 6) Casualty Losses (TRECUSO) . e) At the time the indebtedness was incurred. . Z died.Requisites for deductibility: a) Losses not compensated by an insurance or otherwise. Vanishing / Alternating Deduction Or Property Previously Taxed .Debts or obligations of the decedent that is enforceable against the estate provided that the following requisites are met: a) They were contracted in good faith and for an adequate and full consideration in money or money·s worth. b) Expenses paid by the relatives and friends. e) salaries of employees. and f) All other expense related to administration of the estate. and c) Expenses after the burial. theft or embezzlement.Requisite: ´administration expensesµ to those actually incurred in the administration of the estate.The following cannot be deducted under funeral expenses: a) Cash advances of the surviving spouse and the heirs. which have accrued prior to the death of the decedent (real property taxes accrued at the beginning of the year but may be paid before or at the end of each quarter) are deductible. and c) Losses incurred not later than the last day for payment of the estate tax (6 months from death).REVIEW NOTES FOR TAXATION 2 5) Unpaid mortgages indebtedness . and b) The incapacity of the debtors to pay their obligations is proven and not merely alleged.Ex: X owns a house and lot worth 5M. expenses on the death anniversary are not included b) The expenses must have been shouldered by the estate and not by other people 2) Judicial expenses of the testamentary or intestate proceedings . Y obtained a 3M loan from Z with X·s house and lot as collateral. Effect: in the estate of X. . storms. include the 5M in the gross estate of X and claim as deduction the unpaid 2M. b) The mortgage indebtedness was contracted in good faith and for an adequate and full consideration in money or money·s worth. b) They must be existing against the estate. . d) They must be reasonably certain in amount. shipwreck or other casualties or from robbery. the debt instrument was duly notarized and if the loan was contracted within three (3) years before the death of the decedent. and. 5 . has been the object of previous transfer deduction. or property taxes not accrued before his death.They include all losses incurred during the settlement of the estate arising from fires. the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan. or any estate tax cannot be deducted because they are chargeable to the income of the estate. Requisites: a) The expenses must be due to the interment. or devisees are not allowed as deductions.except: estate tax because estate tax liability is determined at the time of death 4) Claims against the insolvent persons . b) Losses that were not claimed as a deduction for income tax purposes. y Accommodated Loan . the Note: This includes ´all expenses necessary to settle or preserve the estateµ hence. received by him from prior decedent by gift. Effect: Include in the gross estate of X the 5M as receivable from Y (reason: right of reimbursement). transferred to him by gift. X died.Examples: a) fees of the executor or administrator.Unpaid income tax on income due or received before death of the decedent. Income taxes upon income received after the death of the decedent. X paid 1M. d) court fees. b) attorney·s fees. and real property taxes. d) Include the worth of the property in the gross estate e) File a sworn declaration of the fact of loss within 45 days from its occurrence 7) Unpaid Taxes .Requisites for deductibility: a) The amount of said claims has been initially included as part of the gross estate. and claim as deduction the unpaid 2M. or b. c) accountant·s fees. Expenses not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs. c) They must be legally enforceable obligations of the decedent and ought to be enforced by the claimants.an amount allowed to reduce the taxable estate of a decedent where the property was: a.ex: X obtained a 3M loan from Y and executed a Real Estate Mortgage over his house and lot worth 5M. an oppositor is a personal expense 3) Claims against the decedent·s estate . bequest. devise or inheritance.ex: expenses to be declared as administrator vs. hence.

hence.000 exemption F. and transfer for public purpose =2nddeduction 3. if not related. a) City . Must not exceed P500. unlike the optional standard deduction which is in lieu of other deductions. The property must be identified as the one received from the prior decedent or from the donor.Ex: H owns a car worth 1M and a house and lot worth 5M W owns a truck worth 2M and jewelry worth 10M H and W owns a conjugal lot worth 20M H died. NET SHARE OF THE SURVIVING SPOUSE IN THE CONJUGAL / COMMUNITY PROPERTY. The property must have formed part of the gross estate of the prior decedent if acquired by inheritance. Such fact must be certified by the Barangay Captain of the locality where the family is situated.86 (A. The family home must be the actual residential home of the decedent and his family at the time of his death. Must be duly substantiated by receipts. 6 b) NGO ² excluded from the gross estate and subject to the limitation that not more than 30% must be used for administrative purposes a. . The estate tax or the donor·s tax. b. 000. or the taxable gift of the donor if acquired by donation. The amount deductible is equivalent to the current fair market value of the decedent·s family home if said current fair market value exceeds P1. Must be incurred by the decedent within one (1) year prior to his death b. Amounts Received By Heirs Under RA 4917 From The Decedent·s Employer As A Consequence Of The Death Of The Decedent²Employee. Otherwise. (Decedent is married and has dependents or is a head of family with dependents. In favor of the government of the Philippines. Transfers For Public Use .2). Value taken of property previously taxed Less:Mortgage paid by the present decedent on property previously mortgaged by prior decedent / donor. 2.included in the gross estate and claimed as deduction BAR OPERATIONS COMMITTEE .on top of other deductions.Rationale: The deduction operates to ease the harshness of successive taxation of the same property within a relatively short period of time. d. 2. Provided That Such Amount Is Included In The Gross Estate Of The Decedent.Requisite: include in gross estate H. including the land on which it is situated. . Family Home . The disposition must be testamentary in character.000. as the case may be. D. Included in the gross estate Query: If in a will the property was bequeathed to a city and an NGO. There are two (2) deceased persons and the first is the donor. 6. are the tax effects the same? No. if any (Ist deduction) = Initial basis 2. and c. Standard Deduction Of P1.000. or an unmarried person who is the head of the family and members of their immediate family resides as certified by the Barangay Captain of the locality. Requisites for deductibility: 1. a person may constitute only one family home.Requisite: Include the entire amount in the gross estate then deduct the share of the surviving spouse . these are.Refers to the dwelling house. it does not include the P 200. Initial basis divided by the value of the gross estate of present decedent X Expenses. NIRC) Vanishing Deduction - . it is a personal expense. and The second decedent dies within five (5) years after the death of the prior decedent or in the case of gifts the decedent ² donee dies within the same period after the date of the gift.Requisites: a.00 . 000. The present decedent must have acquired the property by inheritance or by donation. The 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 not exceeding P1.000. where the husband and wife. The estate of the prior decedent must not have previously availed of the vanishing deduction on the subject property.retirement benefits . ALTERNATING DEDUCTION: because the present decedent·s estate cannot claim it if the prior decedent·s estate claimed it Factors necessary in vanishing deduction. Exclusively for public purpose. Gross estate of H: C. For the purpose of availing of a family home deduction to the extent provided by law. 000 *Opinion of JB: medical expense must be related to the cause of death as it is the estate that is being settled. Initial Basis Less: 2nd deduction Final Basis Multiplied by rate deduction (sec.Requisites to be deductible: a. the excess shall be subject to estate tax.) b. The total value of the family home must be included in the gross estate of the decedent.Requisites: 1. E. The property must have been acquired within five (5) years prior to the death of the present decedent 3. 4. Procedure in computing vanishing deductions: 1. To take effect after death. must have been paid on the previous transfer. Medical Expenses . or any political subdivision thereof. 5.000. 3. G. 4. 5. .REVIEW NOTES FOR TAXATION 2 vanishes depending upon the time interval between the two (2) successive transfers. as the case may be. c.

get a Certificate of No-improvement.) The tax credit limit for estate taxes paid to two or more countries is determined as follows: TAX CREDIT LIMIT = Decedent·s net estate situated outside of the Phil X Phil. indebtedness and taxes. Valuation of Property The estate shall be appraised at its fair market value (FMV) at the time of death of the decedent (Sec. Posadas. Estate tax of Entire net Estate Note: 1. asking for a formal certification from the corporation which issued the shares of stock as to the value of such stock at the time of death of the decedent b) Inventories . (Lorenzo vs.This is the zonal value (of the land) as fixed by the CIR.Requisites: 1. Prove that the foreign estate tax has been paid 2.)The tax credit limit for estate taxes paid to one foreign country is determined by the following: TAX CREDIT LIMIT= Decedent·s Net Estate situated in a foreign country x Phil. 64 Phil. bears to the value of his entire gross estate wherever situated.REVIEW NOTES FOR TAXATION 2 Exclusive 5 M house and lot 1M car _________ 6M Total gross estate = 26 M Conjugal 20 M lot _______ 20 M 7 alien decedent with respect to his estates situated in the Philippines at the time of his death. the foreign tax paid is allowed to reduce his Philippine estate tax . NIRC). 2. to determine the ratable portion of the deduction for expenses allowable. which is the ½ share of the surviving spouse in the conjugal lot.Use this amount for real properties with no zonal values (i.book or par value at the time of death. a similar tax credit is given to Filipinos Limitations on tax credit: A.) Under limitation A the allowable tax credit is the lower amount between the tax credit limit and the estate tax paid to the foreign country. the amount of the allowable deduction is limited only to the proportion of such deductions with the value of such part of his gross estate which at the time of his death. . and can be obtained by writing a letter of inquiry.applicable only to residents and citizens. of that part of the gross estate of the non-resident not situated in the Philippines. This is regardless of any subsequent contingency affecting the estate. it must be included in the return required to be filed the value at the time of his death. In case of deductions for expenses. 86 (B)) Formula: Allowable deduction of non-resident estate = Philippine Gross Estate Entire Gross estate x Deductions Claimed Then claim as deduction the 10M.value as stated in the invoices (i. state the approximate reasonable value (but this will be subject to the discretion of the BIR inspector) c) Motor vehicles . (Sec.88. 86 (E)(2)) . In computing the gross estate of H and W. 2.) IF DECEDENT IS A NON ² RESIDENT ALIEN The deductions allowed to citizens or residents of the Philippines are also extended to a non-resident BAR OPERATIONS COMMITTEE . not to NRA since he is taxed only on his properties within the Philippines. and can be obtained from the BIR website or regional office b) FMV fixed by the provincial or city assessor . is situated in the Philippines. Personal Properties a) Shares of Stock .The estate tax imposed by the tax code shall be credited with the amount of any estate tax paid to a foreign country.e. (which you can get only after obtaining a Certificate of Non-tax delinquency) and attach these to the estate tax return.e.) Under limitation B the allowable tax credit is the lower amount between the tax credit limit computed under (A) and that computed under (B) As a prerequisite to the deduction. 353) 1. Prove reciprocity : that in the decedent·s foreign country. or if value cannot be definitely ascertained. the NRA will not be made to pay estate taxes twice for his property located abroad = no international double taxation = no tax credit. .these depreciate 20% per year from purchase B.higher amount of : a) FMV as determined by the Commissioner . losses.: price at purchase).This is the value as shown in the tax declaration of the property .Purpose: minimize the effect of international double taxation . Estate tax of the Entire net estate B. real properties other than land such as buildings and improvements) * Note : The law does not state that the prevailing market rate or the consideration as a basis for determining the FMV * Note: If there are no improvements in the property. Real Property . I) Tax Credit For Estate Tax Paid To A Foreign Country . their shares ½ shares as to the conjugal lot may immediately be split as there is no surviving spouse left.Concept: if a property located in the Philippines was already subjected to estate tax abroad and the same property is also subjected to estate tax in the Philippines.Ex: H and W died simultaneously. hence. or the prevailing market rate (ask for the value from those engaged in the same business). (Sec.

to the Commissioner of Internal Revenue.000 although exempt. 3. Date of death .must submit a certificate of an independent CPA stating: 1.) Where the gross value of the estate exceeds P200. administrator. motor vehicle.000 * Note: Filing with the nearest Revenue District Office is sufficient compliance. shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee. a reasonable extension not exceeding 30 days for filing the return.NOTE: The taxpayer must not be guilty of a) negligence b) intentional disregard of the rules and regulations.the taxpayer may also be required to pay a bond not exceeding double the amount of tax and with such sureties.allowed in meritorious cases when the Commisioner finds that the payment of the esate tax on the due date would impose undue hardships upon the estate or any heir : At most 2 years ² if estate extrajudicially settled At most 5 years ² if estate judicially settled .Effect of failure to file notice: subject to penalty not lower than P1. that part of his gross estate situated in the Philippines 2.000 though exempt from the estate tax. Residence of the decedent 3. the executor.REVIEW NOTES FOR TAXATION 2 .) When to file? y The return shall be filed within 6 months from the decedent·s death. (Pay as you file system) 6. use or habitation. such as real property (land. The fact that the decedent died 2. (Read: Revenue Memorandum Order 15-2003) * Note: To avoid the imposition of penalties while there is no extra/judicial settlement yet.Hence.) Where to file? Except in cases where the Commissioner otherwise permits. etc. or if NRA. the administrator/executor/heir must submit additional documents to determine the correctness of the values stated by him in the estate tax return. NIRC) . tax declaration of the land and its improvements or Certificate of No-improvement. as the Commissioner deems necessary * Note: The filing of the estate tax return is not sufficient to obtain a tax clearance.) Copies: The return shall be filed in triplicate. where the said estate consists of registered or registrable real property.such as the title of the land. or b. others with definite records). 2. whether paid or still due and outstanding BAR OPERATIONS COMMITTEE . additional requirement: . y The Commissioner shall have the authority to grant. bank accounts. as basis for payment of estate tax. two (2) for the BIR and one (1) copy for the taxpayer. 5.) Regardless of the gross value of the estate. or Filing of Notice of Death Where the gross value of the estate exceeds P 20. itemized assets of the decedent with corresponding gross value at the time of his death. in accordance with the latest basic mortality table. of Finance. 89. motor vehicles are fully liquidated and has no estate tax liability after 5 years but include in the gross estate placing zero as the amount (to secure a tax clearance therefor) 3.) Extension for Payment: . If Gross Estate >2M. a written notice thereof.) When to Pay Pay the estate tax at the time you will file your estate tax return. in meritorious cases. any heir may file a sworn declaration to the BIR stating the fact of death.probable life of the beneficiary shall be taken into account. Filing of Return and Payment of Tax 1. Right to Usufruct.Contents of the letter: 1. amount of tax due. the return shall be filed with: * if the decedent is a resident a) an authorized agent bank b) Revenue District Officer c) Revenue Collection Officer * if the decedent is a non-resident a) with the Revenue District Office where his executor/administrator is registered b) with the Revenue District Office having jurisdiction over the residence of the executor/administrator e) with the Office of the Commissioner if the decedent has no executor or administrator 4. within 2 months after the decedent·s death or within like period after the executor or administrator qualifies as such. vicinity map to fix the exact location and zonal value. or any of the legal heirs: a. to be approved by the Sec. that the estate has not yet been settled and the list of the properties included in the estate.) By whom? y An estate tax return under oath is required by law to be filed by the executor. or annuity . . or c) fraud . itemized deductions from the gross estate 3. or any of the legal heirs shall give. administrator. upon recommendation of the Insurance Commissioner 8 d) duly authorized treasurer of the city or municipality where the decedent was domiciled at the time of his death. (Sec.

Revenue Memorandum Order 15-2003 NOTE: There are two ways the government may enforce collection of estate taxes from the decedent·s heirs: 1. but only up to the amount of that heir·s share in the hereditary estate. 267). the court is required to furnish the commissioner of Internal Revenue a certified copy of the schedule of participation and the court order approving the same within 30 days after its promulgation. No judge shall authorize the executor or judicial administrator to deliver a distributive share to any party interested in the estate unless a certification from the Commissioner that the estate tax has been paid as shown. Pineda.by the court requiring the executor/administrator to submit an inventory of properties of the estate. (Sec. After due payment. Neither shall a debtor of a deceased pay his debts to the heirs.94) . the BIR can collect from or sue any of the heirs. y d. It can collect from all the heirs the amount of the estate tax proportionate to the inheritance they received. 95) . or any Government Officer who. legacy or inheritance. but he may pay the executor or judicial administrator without said certification if the credit is included in the inventory of the estate of the deceased. (Sec. penalties. etc. Revenue Regulation 2-2003 2. This is without prejudice to such heir·s right of reimbursement from his co-heirs of their share in the payment of the estate tax. 97) . Any lawyer notary public. but do not include an account subject to a Survivorship Agreement with a survivortake-all feature (because there is an automatic transfer of right to the survivor. Otherwise. The estate tax together with interest. Pineda. intervenes in the preparation or acknowledgement of documents regarding partition or disposal of donation inter vivos or mortis causa. (CIR vs. 273 SCRA 47) b. (Sec. legacy or inheritance. 91(b)). 95) . hence.to the extent of his distributive share. shall have the duty of furnishing the Commissioner.REVIEW NOTES FOR TAXATION 2 9 Liability for Payment of Estate Tax y Primarily Liable : Executor or administrator . legatees. (Sec. (Sec. He may be discharged from personal liability for deficiency in the estate tax only after written application to the commissioner and upon determination that no such deficiency appears. Revenue District Officer. the joint depositor will be liable for perjury (Sec. bonds or rights by way of gift inter vivos or mortis causa. (Sec.ex: deed of extrajudicial settlement.For this purpose. The enforcement and collection of taxes are executive in nature. However. If a bank has knowledge of the death of a person who maintained a bank deposit account alone or jointly with another. business or industry organized in the Philippines shall not transfer in their books any shares obligations. liable for the portion of the estate tax as his distributive share bears to the value of the total net estate. (Sec. partnerships. sociedad anonima..NOTE: The approval of the probate court is not required before estate taxes may be collected. 91 (c)). which may facilitate the collection of the aforementioned tax. unless certification from the commissioner that the tax has been paid and the y shall immediately notify the Commissioner. unless a certification of the Commissioner that the tax fixed has been paid is shown.obligation of corporate secretary f. Subsidiarily Liable : Beneficiary . It can subject properties of the estate which are in the hands of the heirs/transferees to the payment of the tax. the executor or administrator shall be discharged from personal liability. a Certificate Authorizing Registration (CAR) must be shown c.joint accounts covered by this rule include ´andµ and ´and/orµ accounts. with copies of such documents and any information whatsoever. (Marcos II vs. upon authorization by the Commissioner of Internal Revenue withdraw an amount not exceeding P 20. the administrator of the estate or any of the heirs of the decedent may. In judicial settlement of estates. like a withholding agent who fails to withhold taxes e. and costs that may accrue in addition thereto constitutes a lien upon all property and rights to property belonging to the taxpayer.else: debtor may be personally liable for the payment of the lost tax. executor or administrator of his creditor. it shall not allow any withdrawal from the said joint deposit account unless the Commissioner has certified that the estate taxes imposed thereon have been paid. not included in gross estate of the joint depositor who died ² tax avoidance scheme) g.before the properties are transferred in the name of the heirs. (CIR vs.before delivery to any beneficiary of his distributive shares. by way of gift inter vivos or mortis causa. of the non-payment of the tax discovered by them. or Revenue collection Officer or treasurer of the city or municipality where their officer are located. 97) . The lien attaches when the taxpayer neglects or refuses to pay after demand. these properties are to be distributed only after payment of estate taxes and receipt of clearance by the Commissioner or his duly authorized representative . Regional Director.00 without the said certification . i. (Sec. all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath. The estate tax shall be paid by the executor or administrator before delivery to any beneficiary his distributive share of the estate (Sec. Hence. Corporations. 219) h. legacy or inheritance to the new owner unless a certification from the Commissioner that the taxes fixed and due thereon have been is shown. CA. 2. . Registers of Deeds shall not register in the Registry of Property any document transferring real property any document transferring real property or real right therein or any chattel mortgage. (Sec. 92) NOTE: Additional Readings 1. deed of donation BAR OPERATIONS COMMITTEE . by reason of his official duties. 95) . 21 SCRA 105) NOTE: The heirs have a solidary obligation to settle the estate. 21 SCRA 105) Measures to Insure Payment of Estate Tax a.

2. Set up a living trust . except in forced sales and in the sale of real property which is a capital asset. any transfer in trust or otherwise.execute a Deed of Exchange. e. Maximize your claims for deductions such as the use of the transfers falling under the exclusions from gross estate. imposed on the privilege of the donor to give or on the privilege of the done to receive.) CAPACITY of the donor to make the donation. Requisites Of A Taxable Gift: 1.) DELIVERY. 4. DISTINCTION BETWEEN DONOR·S AND ESTATE TAX DONOR·S TAX Tax on the privilege to transmit property during the lifetime of the donor Tax rates are lower (2 to 15) Exemption is only P 100. (Sec. donor·s tax applies now to both natural and juridical persons. 2.the stock shares will be included in the gross estate but the tax would be lower as the value at time of death might still be the same original value at the time of exchange. Donor·s tax or tax levied on the act of giving. transfer of property for less than an adequate and full consideration. it was formerly the counterpart of the inheritance tax. The donee.00 Notice of death is required Extension of payment may be granted by the Commissioner of Internal Revenue Payable within 6 months from the date of death Imposed on the net estate Payable within 30 days from the date of gift Imposed on the net gift II.REVIEW NOTES FOR TAXATION 2 10 TAX TIPS: Avoidance of Estate Tax Liability 1. 100) c.000.Create an irrevocable trust over your properties so that they will not form part of your gross estate when you die. In Abello vs. it supplements the estate tax. where the creditor merely desires to benefit a debtor and without any consideration therefore cancels the debt.) The donor·s tax is also intended to prevent the avoidance of income tax through the device of splitting income among numerous/different donees with the donor thereby escaping the effect of the progressive rates of income taxation.Ex: grandfather (Grantor) during his lifetime would like to give certain properties to his grandchild. whether actual or constructive. 98) b.000. Until he reaches the age of maturity. Condonation or remission of debt. the properties will be held in trust by X (trustee) for the grandchild (Beneficiary). 3. which has been integrated into an estate tax.g. This is because the Irrevocable Trust is a new taxpayer created. donative intent is not always essential to constitute a gift. of the gift.It is an excise (privilege) tax.) The gift tax was enacted originally to supplement the estate and inheritance taxes by preventing their avoidance through the taxation of gifts inter vivos.more tax savings if real properties are exchanged . . any transfer of property by gift. if there was no exchange the estate tax for the land would be higher as the value of the land at time of death will be higher than at the time of the acquisition. 25. 2. CIR (Feb.) DONATIVE INTENT or INTENT on the part of the donor to make a gift. . Note: A. whether the gift is direct or indirect. it includes: a. Donate properties to your relatives as the tax rates for donor·s taxes are lower than for estate taxes. It is not a tax on the property as such because its imposition does not rest upon general ownership. the properties of at most 5 persons in exchange for shares of stock in order to obtain control of the corporation (more than 51% ownership) . and 2.the properties in the deed will no longer be part of the gross estate as it is now owned by the corporation . *Both taxes have now been integrated into a donor·s tax. tangible or intangible. (Sec.) ACCEPTANCE of the gift by the donee. NIRC) . on the other hand.For tax purposes. donative intent is superfluous. NATURE Parties To A Donation: BAR OPERATIONS COMMITTEE . 2005). y Donation / Gift . and whether the property is real or personal. Purposes Of Gift Tax 1. . donative intent must be present in direct gift but with respect to indirect gift. unlike the donor need not be capacitated.Trust: obligation imposed by a person regarding his property . for less than and adequate and full consideration in money or money·s worth.this exchange is not taxable for income tax purposes . B. and 4. C. 3. D. Donee·s tax or tax levied on the act of receiving.The tax is imposed without reference to the death of the donor unlike in the case of estate tax. the term has a much wider meaning. donative intent is evidenced by a reduction of patrimony of one and an increase in patrimony to the other. DONOR·S TAX / GIFT TAX A.an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it. . Estate Planning (Section 40 (c). Thus. Kinds Of Gift Taxes: 1.00 Notice of donation is generally not required Extension of payment is not provided ESTATE TAX Tax on the privilege to transmit property upon one·s death Tax rates are higher (5 to20) Tax exemption is P200.

) Gifts made to or for the use of the National Government or any of its agencies which is not conducted for profit. 2. The donation must be given on account of marriage. Gifts made by a Non-Resident Alien a. trust or philanthropic organization is defined as: y school. foundations trust or philanthropic organization. institutions. It must be given before or one year after the celebration of the marriage. the donor·s tax shall be 30% of the net gifts. Gifts Made by a Resident: a.REVIEW NOTES FOR TAXATION 2 1. research organization or institution. spouse.) donations made between individuals and business organizations are considered donations to strangers 3. it is not taxable. y Stranger 1. c. 2. In the case of resident citizens. Provided. as a guideline. non-resident citizens and resident aliens: 1.the Person who disposes of his property or right. research institution or organization. 2. recognized natural or legally adopted child of the donor.000. or to any political subdivision of the said government. 2.the Person who receives the property or right.) Gifts in favor of educational. foundation trust or philanthropic organization and/ or research institution or organization incorporated as a non-stock entity: y paying no dividends. charitable. and 3. The child must be either the legitimate. cultural or social welfare corporation. Requisites: 1. 3. (B. Donor . foundations. religious. institution. Donee .) Gifts made to or for the use of the National Government or any entity created by of its agencies which is not conducted for profit. y Franchise which must be exercised in the Philippines Note: Donees who have no blood relation to the donor are considered strangers to the donor. The parent must give it to his child. 3. religious. Note: The specific items includible in the ´gross estateµ are applicable to and are embraced by the term ´giftµ. charitable. unless there is reciprocity in which case.) In the case of non-resident aliens: 1. B. b. non-profit educational institutions are exempt from gift taxes as although Article 14 of the Constitution states that proprietary educational institutions may be given the same privileges subject to a guideline. BAR OPERATIONS COMMITTEE . the NIRC does not provide for such exemption to them. that no more than 30% of said gifts shall be used by such donee for administration purposes. y governed by trustees who receive no compensation. FACTORS AFFECTING LIABILITY FOR GIFT TAXES 1.00. accredited non-government organization. the tax shall be based on the 2-15% table under Sec. institution. such as those made to one·s in-laws or to juridical persons. Provided. Properties Included In The Term ´Giftµ (A). Tangible personal property within and without the Philippines. cultural or social welfare corporation. 99(A).) donations made between business organizations are considered donations made to strangers (RR 2-2003) Note: Only donations made to non-stock. Value of the Gift . b) when the donee is a relative of the donor. illegitimate or adopted children to the extent of the first P10. Note: doesn·t include accredited NGO Note: 1. Real property within and without the Philippines. that no more than 30% of said gifts shall be used by such donee for administration purposes. Intangible personal property within the Philippines. if the PRINCIPLE OF RECIPROCITY is not cognizable. trust or philanthropic organization. 11 4. Intangible personal property in the gross gift of a NON-RESIDENT ALIEN donor shall be taxable in the Philippines. trust or university and/ or charitable corporation. Note: For purposes of exemption. and. b. Relationship of the donor and the donee a) when the donee is considered a stranger to the donor.) Dowries or gifts made on account of marriage before its celebration or within one year thereafter by parents to each of their legitimate. ancestor and lineal descendant (b) relative by consanguinity in the collateral line within the fourth degree of relationship 2. the higher the gift taxes C. Intangible personal property within and without the Philippines. 2. DEDUCTIONS / EXEMPTIONS FROM GIFT TAX 1. and y devoting all its income to the accomplishment and promotion of the purposes enumerated in its articles of incorporation. Real property within the Philippines.) one who is not a : (a) brother/sister (whole or half blood).the higher the value of the gift. or to any political subdivision of the said government.) Gifts in favor of educational. a non-profit educational and/or charitable corporation. Intangible personal properties considered situated in the Philippines. 2. Tangible personal property within the Philippines. or accredited nongovernment organization. 2.

TAX TREATMENT OF POLITICAL CONTRIBUTIONS . Donor·s Tax Paid to 1 Foreign Country Tax Credit Limit = Net gift situated in a foreign country X Phil. Donor·s Tax Entire net gifts D. Under limitation B the allowable tax credit is the LOWER AMOUNT between the tax credits. ADMINISTRATIVE PROVISIONS Formula: BAR OPERATIONS COMMITTEE .the total amount of gifts less the allowable deductions and specific exemptions. Shares of stocks issued by any foreign corporation 85% of the business of which is situated in the Philippines. NET GIFT . and Shares or rights in any partnership. y Between persons guilty of adultery or concubinage. Note: Effects Of General And Specific Renunciation . it shall be subject to donor·s tax. Donor was a Filipino citizen or resident alien. Shares of stock issued by a foreign corporation. have acquired a business situs in the Philippines. y E. G. descendants. TAX CREDIT FOR DONOR·S TAXES PAID TO A FOREIGN COUNTRY 1. which the donor·s net gift situated outside the Philippines taxable under the National Internal Revenue Code bears to his entire net gift. this is not subject to gift tax (report to COMELEC?) Note: Void Donations Are Not Subject To Donor·s Tax Such as: y Between husband and wife. if such shares. Limitations: A. business or industry established in the Philippines. The amount of tax credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which credit is taken which the net gifts situated within such country taxable under the National Internal Revenue Code bears to his entire net gift. VALUATION . A donation is considered as completed FOR TAX PURPOSES at the time the donee accepts the gift. Donor·s Taxes paid to 2 or more Foreign Countries Tax Credit Limit = Net gifts outside the Philippines X Phil.whether made in favor of the heirs of the deceased spouse or in favor of a third person. Donor·s Tax Entire net gifts y y y 2. TAX TREATMENT OF PROPERTIES TRANSFERRED FOR LESS THAN FULL / ADEQUATE CONSIDERATION General Rule: The amount by which the FMV of the property exceeded the value of the consideration shall be deemed a gift Exception: real properties classified as capital assets (not used in business) as there were already subjected to Capital Gains Tax Note: y Under limitation A the allowable tax credit limit is the LOWER AMOUNT between the tax credit limit and the gift tax paid to the foreign country. ascendants by reason of his office.) For donor·s tax paid to two or more foreign countries: The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken.) For donor·s tax paid to one foreign country. LAW APPLICABLE .An heir·s general renunciation of inheritance in favor of a co-heir is not subject to donor·s tax. limit computed under A and that computed Under B. 12 1. obligations. and B. y Between those made to a public officer or his wife. . J.REVIEW NOTES FOR TAXATION 2 y Shares of stocks issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. political party or coalition of parties for campaign purposes shall be governed by the Election Code. Donor·s taxes of any character and description are imposed and paid by the authority of a foreign country.any contribution in cash or in kind to any candidate.the gift tax is based on the fair market value of the gift at the time it was given I. but if it is specifically renounced in favor of a co-heir to the exclusion of others. Note: Renunciation of a surviving spouse of his/her share in the conjugal partnership or absolute community after dissolution of marriage .the total net gifts made during the SAME calendar year is used as basis for computing the donor·s tax H. at the time of foreign donation 2. the same is subject to donor·s tax F. hence. y Between those found guilty of the same criminal offenses. or bonds.the law in force at the time of the perfection / completion of the donation shall govern the imposition of donor·s tax. even if the relationship has not been solemnized.

within 30 days after the completion of the gift . 101 (B2) 3. A flat rate if 30% is imposed on donations made between strangers.pay as you file the tax return .to B 250. Donor must give notice to the RDO on every donation worth at least P50. 101(A3) and Sec. 3. H and W jointly donated to their child A 1M on account of his marriage to B. the renounced inheritance will go to the co-heirs anyway).000 Note: Do not deduct the first 100. before the marriage or 1 year thereafter.000 _______ 250. given dowry February ² C married D.It depends if X and Y are relative or not.000 + 700. 600 B 250. Filing of Donor·s Tax Return . Donee is any of the organizations mentioned under Sec. Deductions claimed and allowed 3.000 to his brother April ² 400.000 in case of doneerelatives as this is incorporated already in the table under Section 99.101(A3) and Sec. the deduction for the December dowry may be made. Unlike in estate tax where extension is granted. Gifts made during the calendar year 2. without prejudice to the right of W to question the validity of the donation without her consent.000 *2 to 15% 3. hence. Previous net gifts made during the year 4. because the payment of the tax may cause undue hardship on the heirs specifically for non-liquid properties which requires time to be sold first to be converted into cash for payment of the estate tax. Donations made by X January ² 300.000 A 250.000 donor·s tax will be paid whether made one time or split.000 -10. C. Payment of Donor·s Tax . PROBLEMS ON DOWRY DEDUCTION 1. a) A renounced his inheritance in favor of B. Name of the done 5. Relationship of the donor and the done 6. as the dowries were given to different children 4. B. A is the child of H and W January ² A got married.000 * (percentage in the 2 to 15% table) = tax b) For April Donation = (300. Is there liability for donor·s tax? BAR OPERATIONS COMMITTEE . 2.donation is completed FOR TAX PURPOSES at the time the donee accepts the gift . 3. 2. Show computation. The certificate of Donation must be attached to the notice.000) * (2 to 15% table) = tax less tax paid for January and April 2. there is no tax that remained unpaid regarding this transfer.000 to his mother Compute donor·s tax: a) For January donation = 300. There is only one donor. given dowry Can H and W claim dowry deduction for both? -Yes. provided these were made on account of marriage. the first 100.000 March ² H and W gave A P2. there will be savings as under the table in Section 99.000 Can the parents claim dowry deduction even if these were made on a staggered basis? . H and W gave him P2. No donor·s tax will then be paid for both donations. there is no more need to subject the transfer again to estate tax.000 April ² H and W gave A another P2. 5.the NIRC does not provide for any extension for payment of gift tax.000 to his sister August ² 500. X died and left 1M each to his heirs A. a) relatives ² yes. TAX TIPS : Avoidance of Gift Taxes Execute a Deed of Extra-judicial Settlement with simultaneous general renunciation of all inheritance (by operation of law. as it is presumed that if you can donate. Filing of notice of donation General Rule: Filing of notice of donation is not required Exception: if the donor wishes to claim exemption from tax and the donee is an organization under Sec. b) strangers ² nom there will be no tax savings. 4.000 + 400.000 * 30% 75. will there be tax savings to X if he will donate one time the amount of 200.Note: if the donor·s tax was paid for the transfer.000 on January 2008? .000 ² to A 250. PROBLEMS 1. X wants to give Y 200.Yes. January .REVIEW NOTES FOR TAXATION 2 1.000 or should he split by donating 100. Donor is engaged in business 2. The heirs agreed to settle extrajudicially.A married B. Extensions For Payment Of Donor·s Tax .000 + 400. Other information as may be required 3.000) * (2 to 15% table) = tax c) For August Donation = (300.000.000 .There is no rule on the matter yet but it is submitted that as it was made on account of 2 different marriages.Contents: 1. A and C are the children of H and W January . Applying the Back Tax Theory. The notice must be given within 30 days from the issuance by the donee of a Certificate of Donation.000 240. 101 (B2) Requisites to be exempt from gift tax : 1. you still have sufficient properties to pay for the tax. 4. General Rule: H and W are considered separate and distinct taxpayers for purposes of donor·s tax.000 on December 2007 and 100.000.A married B and was given dowry February ² B died December ² A married C and was given dowry Can the parents of A still claim dowry deduction even if it was claimed already for the January dowry? 13 . Exception: What was donated is a conjugal property and only H signed. the same amount of P60.000 is exempt from Donor·s tax. For each of H and W the computation is: 500.

The Bureau of Internal Revenue a.REVIEW NOTES FOR TAXATION 2 . .It is not the tax itself which is shifted or passed but it is NIRC. as amended by RA 9337) the economic burden is shouldered by the buyer. intended to transfer ownership of. Sale conducted in the c. Consumption Based Tax . exchange.the person who last consumes the product absorbs the effect of VAT 1. as amended by RA 9337) the burden to pay the tax b.Indirect Tax a. Exemption 14 VALUE ADDED TAX A. NIRC) ii. In general The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and collection of all national internal revenue taxes. not merely perfected. 109. penalties. including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. including transactions incidental thereto. B. * VAT becomes due when the following conditioned concur: a. B. Presumptive Input Tax Credits (Sec. D. E. Value Added Tax F. or government entity. Exchange of business e. b) A renounced his share without specifying a co-heir who will receive the same. Importation ² whether or not in the regular course of business b. and c. b. either for nominal or valuable consideration. C.No donor·s tax because as if A never inherited anything from X and the transfer was made directly from X to B and C. this is a case of waiver. The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws. 111(A). Is there liability for donor·s tax? . articles imported. 111(B). Lease TAX ADMINISTRATION AND ENFORCEMENT A. or title to. The sale is consummated. a. A is deemed to have accepted the property before he gave it to B as one cannot give what one does not own. There is sale. produced or manufactured. barter. NIRC) b.Yes. Tax Administration: Its general concepts is the power of the Bureau of Internal Revenue (BIR) to enforced and administer taxes. Specific 1. Interpret tax laws and decide cases (Sec. and fines connected therewith.  Why? Tax is Personal. Tax Credits . in the Philippines. NIRC) * The phrase ´in the course of businessµ means the regular conduct or pursuit of a commercial or an economic activity. and charges. Government agencies involved in tax administration the BIR and Bureau of Customs are tasked to implement revenues laws as the case may be. are required to register while registration is option for VATexempt persons. as amended by RA 9337) BAR OPERATIONS COMMITTEE . 2. Destination Principle . Transactions Subject to VAT (ISBEL) a. non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests). by any person regardless of whether or not the person engaged therein is a non-stock. transfer or similar transactions. The place where the title to the thing passes determines the place of delivery or tax situs. A zero-rated scale is taxable transaction.4. being subject to VAT. Zero rating vs. (Sec. and the enforcement of all forfeitures. Powers and Duties i. 3.Goods going out of the Philippines shall not be subjected to tax since these goods are not destined to be consumed in the Phils. (Sec. only that NIRC. and b. Barter regular course d. but does not result in an output tax while an exempted transaction is not subject to the output tax.The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue. C. Persons engaged in transactions which are zerorated.Goods are destined to be consumed in the Philippines Cross-border principle . The input VAT on the purchases of VATregistered person with zero-rated sales may be allowed as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt. Specific Characteristics of VAT a. milled. NIRC. Transitional Input Tax Credits (Sec. fees. *VAT is imposed only on whatever value was added. A specific renunciation is taxable. Seller is still liable. 2. Exempt Transactions (Sec. hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as Deputy Commissioners. Composition Functions .

mutual fund companies. government agencies and instrumentalities. 1405 or under other general or special laws. provisions specifying. the Secretary of Finance. 204 (A) (2) of this Code by reason of financial incapacity to pay his tax liability. Inquiry into bank deposits (Sec 6 {f}).Any revocation. ´third-party b. Examination of Books of Accounts (Sec. BAR OPERATIONS COMMITTEE . or in determining the liability of any person for any internal revenue tax. and their members. or (c) Where the taxpayer acted in bad faith. . Non-Retroactivity of Rulings. penalties imposed in relation thereto. any information such as.REVIEW NOTES FOR TAXATION 2 . NIRC) the Bureau has the power to issue rules and issuances as the case may be but subject to the following rule: . 246. (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. and financial statements of corporations. costs and volume of production. c. addresses. In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed. associations. insurance companies. upon the recommendation of the Commissioner. conditions to be observed by revenue officers respecting the institutions and conduct of legal actions. receipts or sales and gross incomes of taxpayers. joint ventures of consortia and registered partnerships. (see Sec.In ascertaining the correctness of any return. The rules and regulations of the Bureau shall contain. form of labels. The power to decide disputed assessments. modification or reversal will be prejudicial to the taxpayers. fees or other charges. however before a tax official could inquire into said books of accounts a letter of authority is required. or from any office or officer of the national and local governments. refunds of internal revenue taxes.245. or in collecting any such liability. or in evaluating tax compliance. Exceptions: Notwithstanding any contrary provision of Republic Act No. or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner. subject to review by the Secretary of Finance. Thus. 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 Bureau of Internal Revenue. regional operating headquarters of multinational companies. the Commissioner is authorized to obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. 1405 and other general or special laws. shall promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code.244. his application shall not be considered unless and until he waives in writing his privilege under Republic Act No.The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner. and such waiver shall constitute SEC. and the names. but not limited to. NIRC) the Bureau has the power to examine books of accounts of every person (taxpayer) engaged in a business a. BIR Issuances and rules relevant thereto 15 2. subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. or in making a return when none has been made. among others. including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations. 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. the Commissioner is hereby authorized to inquire into the bank deposits of: 1) a decedent to determine his gross estate. a. What is verification ruleµ? The power to issue regulations is expressly conferred in the Tax Code. NIRC). NIRC) General Rule: The Bureau of Internal Revenue has no power to inquire into the bank deposits of a person or taxpayer. (see Sec. joint accounts. prescribing or defining the time and manner of canvassing revenue regions. and (2) any taxpayer who has filed an application for compromise of his tax liability under Sec. 5.

Power to assess and prescribe requirements for tax administration Power to examine returns (Sec.00) without the certification. incomplete or erroneous. d. 3. That no notice for audit or investigation of such return. BAR OPERATIONS COMMITTEE 16 That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.5 {d}. or in evaluating tax compliance. shall be filed in the Office of the Commissioner and shall constitute public records and be open to inspection as such upon the order of the President of the Philippines. cause to be prepared and published in any newspaper the lists containing the names and addresses of persons who have filed income tax returns. NIRC) Any internal revenue officer who is or shall become interested. or any other person. the returns. papers. as provided in this Title. in each year.5 {c}. Rule on confidentiality of tax returns and exceptions thereto (Sec. or any person having possession. To take such testimony of the person concerned. the Commissioner is authorized: 1. NIRC) After the assessment shall have been made. records. sale or importation of any article subject to excise tax under Title a. or any person having possession. unless the Commissioner has certified that the transfer taxes imposed thereon have been paid. Summons persons. to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books. If the bank has knowledge of the death of a person. which shall be prima facie correct and sufficient for all legal purposes. the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. However the administrator of the estate or any one of the heirs of the decedent may. NIRC) To summon the person liable for tax or required to file a return. to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books.A 1405 or the Secrecy of Bank Deposits Law because the provisions of the Tax Code granting this power are an exception to the said legislation. the same may be modified. 6 {a}. or willfully or otherwise files a false or fraudulent return or other document. the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided. under oath. take testimony In ascertaining the correctness of any return. That within three (3) years from the date of such filing. 6 {b}. the Commissioner shall assess the proper tax on the best evidence obtainable. In case a person fails to file a required return or other document at the time prescribed by law. or in collecting any such liability. however. withdraw an amount not exceeding twenty thousand pesos (P20. or other data. To summon the person liable for tax or required to file a return. NIRC) After a return has been filed as required under the provisions of this Code. Such limited power of the Commissioner does not conflict with R. and to give testimony (Sec. changed. Any return. statement or declaration has in the meantime been actually served upon the taxpayer. or any other person. as may be relevant or material to such inquiry (Sec. or any officer or employee of such person. NIRC) ii. or in determining the liability of any person for any internal revenue tax. i. in the manufacture. NIRC) 2. who maintained a bank deposit account either alone or jointly with another. . upon authorization by the Commissioner. For this purpose all withdrawal slips shall contain a statement to the effect that all of the joint depositors are still living at the time of withdrawal by any one of the joint depositors and such statement shall be under oath by the said depositors. under rules and regulations to be prescribed by the Secretary of Finance. 000. directly or indirectly. The Commissioner may. it shall not allow any withdrawal from the said deposit account. custody.REVIEW NOTES FOR TAXATION 2 the authority of the Commissioner to inquire into the bank deposits of the taxpayer. records. (see Sec. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. papers. statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided. and to give testimony. further. or any officer or employee of such person. upon recommendation of the Commissioner.71 and 270. custody. Amendment of Returns When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false. (Sec.71. together with any corrections thereof which may have been made by the Commissioner. or amended: Provided. or in making a return when none has been made. or other data.

The findings may be used as the basis for assessing the taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct. upon consultation with competent appraisers both from the private and public sectors. after taking into account the sales. income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information may prescribe a minimum amount of such gross receipts. which shall be prima facie correct and sufficient for all legal purposes. the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise. natural or juridical. the Commissioner. or (2) The fair market value as shown in the schedule of values of the Provincial and City Assessors. y y y y e. or such portion thereof as may be unpaid. based on their professional BAR OPERATIONS COMMITTEE . NIRC) The Commissioner shall accredit and register. receipts. or is performing any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately. of any die for printing. or willfully or otherwise files a false or fraudulent return or other document. sales or receipts for internal revenue tax purposes. 6 {d}).6 {b}. be punished by a fine of not less than Five thousand pesos (P5. NIRC) 17 - b. For purposes of computing any internal revenue tax.6 {g}. together with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter. f. NIRC) The Commissioner may. or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code. and such amount so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such person. under observation or surveillance if there is reason to believe that such person is not declaring his correct income. at any time during the taxable year. or is intending to leave the Philippines or to remove his property therefore or to hide or conceal his property. determine the fair market value of real properties located in each zone or area. d. the BIR has the power to terminate tax period under the following instances: y when the taxpayer conceals his properties with the intention to evade taxes when the taxpayer is leaving the Philippines with the intention to evade taxes when the taxpayer is obstructing proceedings for the collection of taxes when the taxpayer is removing properties with the intention of evading taxes when the taxpayer is retiring form business - Power to conduct inventory taking. When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections 113 and 237 of the Tax Code. Power to accredit tax agents (see Sec. Power to fix real property values (see Sec. Power to make a returns (Sec.000) but not more than Ten thousand pesos (P10. unless paid within the time fixed in the demand made by the Commissioner. (see Sec. NIRC) When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from business subject to tax.000). or suffer imprisonment of not less than two (2) years and one (1) day but not more than four (4) years. the Commissioner shall declare the tax period of such taxpayer terminated at any time and shall send the taxpayer a notice of such decision. Power to terminate tax period (see Sec.270. or making of stamps. NIRC) The Commissioner is authorized to divide the Philippines into different zones or areas and shall. c.REVIEW NOTES FOR TAXATION 2 VI of this Code or in the manufacture or repair or sale. surveillance and to issue presumptive gross sales/receipts (see Sec. NIRC) What is ´Best Evidence Obtainable Ruleµ? In case a person fails to file a required return or other document at the time prescribed by law.6 {e}. or may place the business operations of any person. order inventory-taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities. or labels shall upon conviction for each act or omission. sales and taxable base. or both.6 {c}. the value of the property shall be whichever the higher is of: (1) The fair market value as determined by the Commissioner. and said taxes shall be due and payable immediately and shall be subject to all the penalties hereafter prescribed.

Where the basic tax involved exceeds One million pesos (P 1. Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of Finance. a reasonable doubt as to the validity of the claim against the taxpayer exists 2. (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. the Commissioner shall create national and regional accreditation boards. upon recommendation of the Commissioner: Provided. Power to delegate (see Sec. unless and until he waives in writing his privilege under RA 1405 or under other general or special laws. Power to prescribe procedural/documentary requirements the BIR has the power to prescribe the manner of filing of a returns h.000. NIRC) The taxpayer·s offer to compromise shall not be considered. those involving fraud (see Sec. those already filed in court b.7. Within one hundred twenty (120) days from January 1. That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500. upon recommendation of the Commissioner. and such waiver shall . integrity and moral fitness. That the following powers of the Commissioner shall not be delegated: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance. the heads of the Legal. as members. 204 (A) and (B) of this Code. 1998. reports. as may be determined by BAR OPERATIONS COMMITTEE 18 rules and regulations to be promulgated by the Secretary of finance.000. discovered by regional and district officials. the Bureau for taxpayers. and shall designate from among the senior officials of the Bureau. statements. i. Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer.00) or where the settlement offered is less than the prescribed minimum rates. (b) The power to issue rulings of first impression or to reverse. subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of finance. any tax liability: Provided. Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant. may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman. under Sec. the members of which shall serve for three (3) years. 204 {a}. NIRC) The Commissioner may delegate the powers vested in him under the pertinent provisions of the Tax Code to any or such subordinate officials with the rank equivalent to a division chief or higher. g.000) or less. the Assistant Regional Director. however. one (1) chairman and two (2) members for each board. however. For cases of financial inability to pay. subject to such rules and regulations as the Secretary of Finance shall promulgate upon the recommendation of the Commissioner. revoke or modify any existing ruling of the Bureau. and minor criminal violations. the power to compromise as a general rule the power of the BIR to compromise cannot be delegated to other administrative agencies unless in the following grounds: 1. and other papers with or who appear before. Non-delegable powers in relation to Section 16 of NIRC the following are the powers which the Bureau of Internal Revenue cannot delegate: a.REVIEW NOTES FOR TAXATION 2 competence. a minimum compromise rate equivalent to ten per cent (10%) of the basic tax assessed b. All criminal violations may be compromised except those a. For other cases. a minimum compromise rate equivalent to forty percent (40%) of the basic tax assessed. individuals and general professional partnerships and their representatives who prepare and file tax returns. who shall rule on the appeal within sixty (60) days from receipt of such appeal. (c) The power to compromise or abate. protests. the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the Deputy Commissioners. financial inability to pay - The compromise settlement of any tax liability shall be subject to the following minimum accounts: a.

The compromise settlement of any tax liability shall be subject to the following minimum amounts: i.6 {f}{2}. 204.000.30-2002 as amended by RR No. Authority of the Commissioner to Compromise.REVIEW NOTES FOR TAXATION 2 constitute the authority of the Commissioner to inquire into his bank deposits. Authority to Abate and Compromise Tax Liabilities (see Sec.000. except in the following cases. D. like other principles.  Where the basic tax involved exceeds One million pesos (P1. Pascor Realty. Assessments and its governing principles a. NIRC) The Commissioner.000) or where the settlement offered is less than the prescribed minimum rates. assessments issued by the regional offices involving basic taxes of P 500.15.00 or less b. Enforcement of police power (see Sec. the compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy Commissioners. a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax. CIR v. j. which cannot be placed on estoppel on account of the mistakes of its agents. (B) Abate or Cancel a Tax Liability. the administration and collection costs involved do not justify the collection of the amount due  19 For cases of financial incapacity. All criminal violations may be compromised except: (a) those already filed in court.7. when: (1) The tax or any portion thereof appears to be unjustly or excessively assessed. the principle of estoppel also admits exceptions in the interest of justice and fair play. a. Any mistakes committed by the agents of the sovereign. rule or regulation administered by the Bureau of Internal Revenue. Regs. 204 in relation to Rev. (see Sec. 6 {f}. Any person so arrested shall be forthwith brought before a court.The Commissioner may (A) Compromise the Payment of any Internal Revenue Tax. The rule on estoppel in relation to tax administration a. the Revenue District Officers and other internal revenue officers shall have authority to make arrests and seizures for the violation of any penal law. (see Sec. b. namely government officials and employees are their own and cannot bind the government. What constitutes an assessment The power to compromise or abate shall not be delegated by the Commissioner. for taxes are fixed by law and the government is never estopped to collect the legitimate taxes because of the errors committed by its agents. b. Against the taxpayer E. Abate and Refund or Credit Taxes. or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax. there to be dealt with according to law. Minor criminal violations. Definition The notice and demand for payment of a tax liability should not be confused with assessment relative to real property taxation which refers to the listing and evaluation of taxable real property. the tax or any portion thereof appears to be unjustly or excessively assessed b. or (2) The administration and collection costs involved do not justify the collection of the amount due. or (b) those involving fraud. NIRC) b. the Deputy Commissioners. 29 June 1999 Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition of form of an assessment BAR OPERATIONS COMMITTEE . Against the government The error made by a tax official in the assessment of his tax liabilities does not have the effect of relieving the taxpayer from the obligation to pay the full amount of his tax liability. and For other cases. These cases may be compromised by the regional evaluation board. NIRC) i. However. . The Commissioner is precluded from adopting a position inconsistent with one previously taken where in justice would result therefore or where there has been a misrepresentation. the Revenue Regional Directors. when: (1) A reasonable doubt as to the validity of the claim against the taxpayer exists.8-2004) SEC. power to abate The BIR may abate or cancel tax liability when: a.

R. By the very nature of its function. unappealable and. i. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due id extended to a date certain. ii. For the purpose of safeguarding taxpayers from any unreasonable examination.R. January 27. 16 December 2004 Appellate Jurisdiction of the CTA is not limited to cases which involve decisions of the CIR on matters relating to assessments or refunds. demandable. Reyes. v. is a derogation of the taxpayer·s right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The second part of the provision covers other cases that arise out of the NIRC or related laws and 20 administered by the BIR. 2006 Tax payers shall be informed in writing of the law and the facts on which the assessment and the assessment is made. In all likelihood. No. her request for reconsideration did not suspend the running for y y y y BAR OPERATIONS COMMITTEE . The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the CA. The notice of assessment for respondent·s tax deficiency was issued by petitioner on July 18. e. (2nd paragraph of section 228 is clear and mandatory) c. fraud or omission: If before the expiration of the time prescribed in the tax codes for the assessment of the tax. No. Kinds of Assessment d. 222. CIR. otherwise the assessment becomes final. In contrast. If the commissioner is unsatisfied. R. being a remedial measure should be liberally construed in order to afford such protection/ ii. CIR v. respondent made her request for reconsideration thereof only on November 3. therefore. On the other hand. and must demand payment of the taxes described therein within a specific period. 1986. Hence.REVIEW NOTES FOR TAXATION 2 however the NIRC defines the specific function and effects of an assessment: y An assessment must be sent to and received by a tax payer. G. CIR v. an assessment signed by him/her is then sent to the tax payer informing the latter specifically and clearly that an assessment has been made against him/her. Even assuming that she first learned of the deficiency assessment on this date her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. 159694. Thus the law on prescription. CA and Carnation. otherwise the assessment shall be void. out tax law provides a statute of limitation in collection of taxes. G. the criminal charge need not go through all this. Statute of Limitation on Assessment of Internal Revenue Taxes (Sections 203. this court will not set aside the conclusion reached by an agency such as the CTA unless there has been an abuse or improvident exercise of authority. NIRC) General rule (sec203) Internal revenue taxes shall be assessed within three years after the last day prescribed for the filing of the return. Instances where the running of the prescriptive period is suspended (section 223) i. 1989. there is by practice. Philippine Journalist Inc. investigation or assessment. the tax may be assessed within the period agreed upon. without stating when she received the notice of tax assessment. It gives the CTA the Jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the waiver of stature of limitations was validly effected. both the commissioner and the taxpayer have agreed in writing to its assessment after such time. the tax collection may be filed without an assessment at any time within ten years after the discovery of the falsity.222) In the case of a false of fraudulent return with intent to evade tax or of failure to file a return. 13 December 1999 Sec. An assessment is deemed made only when the collector of Internal Revenue releases or mails or sends such notice to the tax payer. dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject. She explained that she was constrained to ask for a reconsideration in order to avoid the harrrasment of BIR collectors. she must have been referring to the distraint and levy of her properties by petitioner·s agents which took place of January 12. to a certain extent. The wording of the provision is clear and simple. G. RMO 20-90. Before an assessment is issued. An assessment is not necessary before acriminal charge can be filed.The tax Payer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. Republic v. A waiver of the statute of limitations under the NIRC. a pre-assessment notice sent to the tax payer. Exceptions (sec. and no proceeding in court without assessment for the collection of sluch taxes shall begun after the expiration of such period. 1992.. 115712. 229 of the code mandates that a request for reconsideration must be made within thirty (30) days from the tax payer·s receipt of tax deficiency assessment. No. 162852. Hizon. 25 February 1999 Finality of findings of facts as a matter of principle. Issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest.

May 30. G. 2004 The rule that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released. No. 17. BPI was.R.REVIEW NOTES FOR TAXATION 2 the prescriptive period provided under section 223. 155541. CIR v. In the absence of proof of any irregularities in the performance of duties.R. Exception: the Court of Appeals may issue injunctions against administrative collection. Procedure in the process of assessment (Section 228) i. notice must be sent to the administrator of the estate. y When the excise tax due on exciseable articles has not been paid. 21 iv. i. No. Is assessment necessary before a taxpayer could be prosecuted for violation of the NIRC? i. 139736. h. f. y When the article locally purchased or imported by an exempt person has been sold. Instances when pre-assessment is not required (Section 228) A preassessment notice shall not be required in the following cases: y When any tax deficiency is the result of mathematical error in the computation of the tax as appearing on the face of the return. 109976. mailed or sent to the taxpayer to effectuate the assessment requires that the notice must be sent to the taxpayer. BPI v. April 26. y When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. Cusi. 2006 The tax payers shall be informed in writing of the law and facts on which the assessment is made otherwise the assessment itself is void. PNOC v. 17 October 2005 The court had consistently ruled in a number of cases that a request for reconsideration by the tax payer without a valid waiver of the prescriptive period for the assessment and collection of tax. will not suspend the running thereof. 1994. In case where a return is filed beyond the three year period shall be counted form the day the return was filed. g.R. from then on barred from disputing the correctness of the assessments or invoking any defense that would reopen the question of its liability on the merits. G. (Exception: section 224) Wherein the statute of limitations on assessment and collection of taxes is considered suspended. 159694. There arose a presumption of correctness when BPI failed to protest the assessments: Tax assessments by tax examiners are presumed correct and made in good faith. and this requires him to positively establish the date when the period started running and when the same was fully accomplished. De Gabriel v. No. j. when the tax payer request for a reinvestigation which is granted by the commissioner. Ungab v. 1980 What is involved here is not collection of taxes where the assessment of the commissioner of BAR OPERATIONS COMMITTEE . January 27. iii. when collection could jeopardize the interest of the Government or taxpayer. The taxpayer has the duty to prove otherwise. Governing principles concerning assessment Injunction is not available to restrain the collection of internal revenue taxes. Thus. G. All presumptions are in favor of the correctness of tax assessments. and not merely to a disinterested party. an assessment duly made by a BIR examiner and approved by his superior offices will not be disturbed. this is of no moment and does not distract from the fact that the assessment had become demandable ii. BPI. as required by the tax code and implementing rules. When do we reckon the period when the assessment was made? Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return. Court of Appeals. Estate of the Late Juliana Diez Vda. due process requires at the very least that such notice actually be received. G. Not only that. ii. No. Although the commissioner acted on her request by eventually denying it on August 11.R. CIR v. When an estate is under administration. CIR.R. being a matter of defense. y 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. Reyes. G. 2005 The defense of prescription of the period for the assessment and collection of tax liabilities shall be deemed waived when such defense was not properly pleaded and the facts alleged and evidenced submitted by the parties were not sufficient to support a finding by the supreme court on the matter ² prescription. traded. 134062. No. April 2007 The inevitable conclusion is that BPI·s failure to protest the assessments within the 30-day period provided in the former section 270 meant that they became final and unappealable. the CTA correctly dismissed BPI·s appeal for lack of jurisdiction. imposes the burden on the taxpayer to prove that the full period of the limitation has expired. CIR. January 27.. or transferred to non-exempt persons. Although there is no specific requirement that the taxpayer should receive that notice within the said period.

However. there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code. Applicability of the Doctrine Exhaustion of Administrative Remedies No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the Commissioner. It can be used in court in case administrative remedies have been exhausted. k. CIR v. that pending actions are excepted from the operation of section 228. While there can be no civil action to enforce collection before the assessment procedures provided in the code have been followed. There was willful attempt to evade tax in Ungab because of the taxpayer·s failure to declare in his income tax return ´his income derived from banana saplings. they. No. Section 222. Otherwise. ii. U. Filing of claim for tax credit B. (Sec. Approved by the BIR. b. RA 8424 does not state. In both instances. Pascor Realty. Clearly. Also.µ In plain words. Before Payment 1. and c. S. the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted form Guzik v. or whether interest and penalty may accrue thereon. Necessarily. Judicial (1) Civil action a. is presumed to be the actual wholesale price. the taxpayer should not be placed in the crucible of criminal prosecution. Remedies in favor of the taxpayer A. Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. 29 June 1999 The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Reyes. Herein lies a whale of difference between Ungab and the case at bar. confusion would arise regarding the period within which t make an assessment or to protest the same. Protest (Section 228. do not fall under the general rule against the 22 retroactive operation of statutes. the taxpayer must be certain that a specific document constitutes an assessment. come in as safeguards against arbitrary action.R. CIR v. CIR v. or that applying it to pending proceedings would impair vested rights. statutes that are remedial. 159694.: ´the crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax. Moreover. CA. Action to contest forfeiture of chattel. therefore. Section 203 of NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return.REVIEW NOTES FOR TAXATION 2 internal revenue may be reviewed by the court of tax appeals. on the other hand. No. 4 June 1996 Reading Ungab carefully. or that do not create new or take away vested rights. but a criminal prosecution for violations of the NIRC which is within the recognizance of the CFI. 220. there must be a prima facie showing of willful attempt to evade taxes. 2006 The general rule is that statutes are prospective. Filing of claim for tax refund. such collection must nevertheless be made in accordance with law as any arbitrariness will negate the very reason or the Government itself. G. iii.µ In the mind of the trial court and the Court of Appeals. INTERNAL REVENUE TAX REMEDIES Tax Remedies: Its general concepts Importance: They exist to enhance the Government·s tax collection efforts. It is a repository of all arguments. and b. Filing of a petition or request for reconsideration or reinvestigation (Administrative Protest). While taxes are the lifeblood of the Government and should be collected without unnecessary hindrance. either expressly or by necessary implication. 119322. Section 228 provides for the procedure in case an assessment is protested. it can surely be applied retroactively. NIRC) Remedies Available to Taxpayers A. Appeal to the Court of Tax Appeals b. not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes. G. for criminal prosecution to proceed before assessment. Fortune·s situation is quite apart factually since the registered wholesale price of the goods. Classification: 1.R. NIRC) Protest is a vital document which is a formal declaration of resistance of the taxpayer. Administrative (1) Before Payment a. It is also the formal act of the taxpayer questioning the official actuation of the BAR OPERATIONS COMMITTEE . too. Are the procedures outlined in Section 228 of the NIRC retroactive? i. January 27. Entering into compromise (2) After Payment a. Action for Damages (2) Criminal Action Filing of complaint against erring Bureau of Internal Revenue officials and employees Remedies available to the government 2. The provision does not create new or take away vested rights.

Commissioner did not rule on the taxpayer·s MR of the assessment ² 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.Sep 30. Under the circumstances. CIR) Acts of BIR Commissioner Considered as Denial of Protest which serves as a Basis for Appeal to CTA: 1. 4. Indication to the taxpayer by the Commissioner in clear and unequivocal language of his final denial.REVIEW NOTES FOR TAXATION 2 CIR. vs. 27. 76281. For this purpose. 3. the running of the prescriptive period was suspended. 1991) Failure of the BIR to act within the 180-day period. Reiterating the demand for immediate payment of the deficiency tax due to taxpayer·s continued refusal to execute waiver (CIR vs. It may involve a question of fact or law or both. (Revenue Regulation No. (sec. 1.Lim Tian Teng Sons) c. petitioner. Direct Denial The decision of the Commissioner or his duly rep shall (a) state the facts. Preliminary collection letter may serve as assessment notice (United Int·l Pictures vs. CA. Documentary evidence as it may deem necessary and relevant to support its protest to be submitted within sixty (60) days from the filing of the protest. (CIR v. Grant of the Protest 2. If the Commissioner or his duly authorized representative fails to act on the taxpayer·s protest within 180 days from the date of submission by the 23 taxpayer of the required documents in support of his protest. his protest shall be considered void and without force and effect on the event the letter of protest submitted by the taxpayer is accepted. Motion for reconsideration BAR OPERATIONS COMMITTEE . This is equivalent to a pleading.R. G. 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. 12-85. 2000 Apr 12) Remedies from a denial of protest 1.) d. 2.a plea for the re-evaluation of an assessment on the basis of existing records without need of additional evidence.5. dated Nov. BIR demand letter reiterating his previous demand to pay. Ayala Securities Corp. Taxable periods covered by the assessment. the protest shall not be deemed validly filed unless payment of the agreed portion of the tax is paid first. 5. Request for reinvestigation. It may also involve question of fact or law or both. taxpayers would be encouraged to delay the payment of taxes in the hope of ultimately avoiding the same. INC. 118176. Itemized statement of the findings to which the taxpayer agrees. Wyeth. 8. Date of receipt of assessment notice or letter of demand. No. otherwise. Must be accompanied by a waiver of the Statute of Limitations in favor of the government. Name of the taxpayer and address for the immediate past three taxable years. 3. Contains the following: 1. 7. v. the assessment shall become final. Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence that he intends to present it is a request for reinvestigation. Administrative actions taken during the 180-day period. Amounts and kind/s of tax involved. 6.Indirect Denial a. 3. as a basis for computing the tax due.(PROTECTOR'S SERVICES. and Assessment Notice Number. If the taxpayer's stand that the pendency of the appeal did not stop the running of the period because the Court of Tax Appeals did not have jurisdiction over the case of taxes is upheld. Denial of Protest: A.. in which case the same shall not be considered a decision a disputed assessment and (b) that the same is his final decision.) Effect of a protest on the period to collect deficiency taxes: The prescriptive period is arrested by the taxpayer's request for re-examination or reinvestigation even if he has not previously waived it (CIR vs. otherwise the protest shall be considered void and without force and effect. It may be a: Request for reconsideration. Union Shipping Corp . which amount should be paid immediately upon the filing of the protest.R. applicable law rules and regulations and jurisprudence on which his protest is based. Referral by the Commissioner of request for reinvestigation to the Solicitor General (Republic vs. RR 1299) B. rules and regulations or jurisprudence on which his protest is based. 2. 4.a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. If the taxpayer fails to comply with this requirement. (CIR vs. 57 SCRA 523) 4. and 9. 5. G. the taxpayer may appeal to the CA within 30 days from the lapse of the 180-day period. Statement of facts and/or law in support of the protest. Addressed to the CIR. Effect of protest filed out of time The pendency of the taxpayer's appeal in the Court of Tax Appeals and in the Supreme Court had the effect of temporarily staying the hands of the said Commissioner. In writing. Deficiency Percentage Taxes must be imposed. sent to taxpayer after his protest of the assessment (Surigao Electric Co. CTA. Filing by the BIR of a civil suit for collection of the deficiency tax (CIR v.1. Union Shipping Corp) 3. Union Shipping b. 185 SCRA 547) 2. Union Shipping Corp) b. applicable law. Itemized schedule of the adjustments with which the taxpayer does not agree. No. States the Facts. Inc. if any. 1985. Requirements of a valid protest 1.

Is automatic application of excess tax credits allowed? f. 1996) B. Appeal to the Court of Tax Appeals(RA 1125.113347. b. After Payment 1. 96322. 49 (a) by the NIRC (now Sec. Period of validity of a tax refund/credit 1. 231. if any. payment is made at the time the return is filed. (CIR vs. G. Compromise 24 accomplished.(CIR vs. The Government is within the scope of the principle of solutio indebiti.) The rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. which can only be determined after a final adjustment return is i. (CIR vs.General Rule is two years from the date of payment The two-year prescriptive period provided in Section 292 (now Section 230 of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax. b. be legal and proper. 1966. Sec. 1. in ACCRAIN's case was when its tax liability.REVIEW NOTES FOR TAXATION 2 2. After the sale and within 6 months to recover the net proceeds realized at the sale (see. Is the taxpayer entitled to claim interest on the refunded tax? General Rule: The Government cannot be required to pay interest on taxes refunded to the taxpayer. Fireman·s Fund Insurance Co. L-19607. The withholding agent/corporation is then obliged to remit the tax to the Government since it already and properly belongs to the Government. 83736. June 14. the owner desiring to contest the validity of the forfeiture may bring an action: a. 1999) There is some likelihood that the above rule could apply also to individuals who are self employed (i. 1991 Dec 20) The two-year period for prescription should be counted from the date of payment of the tax.) 2. May 29. TMX SALES. No. The value of internal revenue stamps when they are returned in good condition by the purchaser may also be redeemed. If a withholding agent who is personally liable for income tax withheld at source fails to pay said withholding tax. starting after the lapse of the 3-month period to the date the refund or credit is made (Sec 79 (c) (2) 1997 NIRC b. In case of seizure of personal property under claim for forfeiture. under Sec. fell due upon its filing of its final adjustment return. therefore. No. 56(a).) a.Penalties imposed without authority. 1992 Jan 15. 1. In case of Amended Returns 3. GR No. as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were made. The Commissioner acted with patent arbitrariness Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions. Refund and Protest are mutually exclusive remedies 1. as amended by RA 9282) 2.R.. 1997 NIRC).R. The "date of payment". it can already be determined whether there has been an overpayment by the taxpayer.(CIR V PHILAMLIFE. and 2. G. The prescriptive period of two years should commence to run only from the time that the refund is ascertained. 244 SCRA 446. 1997 NIRC) Action partakes the nature of an ordinary civil action for recovery of personal property or the net proceeds of its BAR OPERATIONS COMMITTEE . Victorias Milling Corp. 29. Before sale or destruction of the property to recover the property from the person seizing the property or in possession thereof upon filing of the proper bond to enjoin the sale. Inc. Is setting-off of taxes against a pending claim for refund allowed? e.e.. 231) Other Remedies Action to Contest Forfeiture of Chattel (Sec. A tax is illegally collected if payments are made under duress. an assessment for said deficiency withholding tax would. Who has the personality to file a claim for refund? The duty of the withholding agent to withhold the corresponding tax arises at the time of such accrual. Refund (Section 229. Nov. which are likewise required to file quarterly returns. CTA. Taxpayer pays under the mistake of fact. 1995) 2. 117254. Returns are not actionable documents for purposes of the rules on civil procedure and evidence h. This is so because at that point. GR No. NIRC) The Legal Principle of quasi-contracts or solutio indebiti (see Art. 2142 & 2154 of the Civil Code). V CA. Must be strictly construed against taxpayer Grounds for filing a claim for refund: Erroneously or illegally assessed or collected internal revenue taxes. January 21. which for actions for refund of corporate income tax should be computed from the time of actual filing of the adjustment return or annual income tax return. Moreover. Period within which to file a claim for refund d. Effect of existing tax liability on a pending claim for refund g. in business and professional practice) as well as estates and trusts. Refund or credit after such time earn interest at the rate of 6% per annum. therefore.Any sum alleged to have been excessive or in any manner wrongfully collected. unless: 1. In case of taxpayers contemplating dissolution c. (FILIPINAS SYNTHETIC FIBER CORP. BPI. (CIR V CA. (ACCRA vs CA. In case of Income Tax withheld on the wages of employees Any excess of the taxes withheld over the tax due from the taxpayer shall be returned or credited within 3 months from the fifteenth (15th) day of April.

HIZON. Order No. Compromise  CIR may compromise both civil and criminal liability of the taxpayer. 1991 y There was no actual intentional fraud in filing the return. Failure to file notice of such lien in the office of register of Deeds. 1999 y Revenue Adm. OVERVIEW OF REMEDIES (SECTION 205) 1. Extinguishment of Tax Lien 1. 222.  A tax lien created in favor of the government is superior to all other claims and preferences. identify that the collection of tax is prejudicial to the interest of either the TP or government. CASE: CIR V. 7 of NIRC. Redemption of Property Sold (Sec. CIR V. No Injunction to restrain collection of taxes ( Sec. 09. As the complaint filed in this case was signed by the BIR·s Chief of Legal Division for Region 4 and verified by the Regional Director. CASES: REPUBLIC V. penalties. y Sec. There must be an offer by the taxpayer of an amount to be paid by the taxpayer 3. The last day prescribed by law for filing the return 2. upon all property and rights to property belonging to the taxpayer. an invitation for C. Prescription of the right of the government to assess or collect. 218. Failure to file a return  Within the period agreed upon. NOV. Tax Lien (Sec 219. authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher. NIRC) Assessment of Tax Liability  Three (3)years from the following. 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. the taxpayer is still liable. NIRC) G. 2005 Remedies available to the Government A. REQUISITES: 1. Destruction of the property subject to the lien. or 2. therefore. whichever comes later: 1. even to that of a private litigant predicated on a court judgment. DEC. PNOC V. B. before the expiration of the period in Sec. there is a pending case before the CTA (ancillary remedy. The taxpayer have a tax liability 2. or charge imposed by the NIRC. Payment or remission of the tax 2. False or fraudulent return with intent to evade tax. there is no more tax liability while under nos. 1994 y A tax lien created in favor of the government is superior to all other claims and preferences. CA. Private respondent·s notation on the tax return was at most an error or mistake of fact or law not constituting fraud.  Lien shall not be valid against any mortgagee. JULY 31. APRIL 26. compliance with the law. REQUISITES: 1. NOTE: In Nos. there was. 214) 25 investigation and private respondent had literallyµ laid his cards on the table. 203. 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 Grounds for compromise BAR OPERATIONS COMMITTEE . when both the TP and the Commissioner have agreed in writing. the amount so demanded shall be a lien in favor of the government from the time the assessment was made by the Commissioner until paid with interest. 3. No Court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax. not a main cause of action) 2. JAVIER.REVIEW NOTES FOR TAXATION 2 sale which must be brought in the ordinary courts and not the CTA 2. purchaser or judgment creditor until notice of such lien shall be filed by the Commissioner in the Register of Deeds of the province or city where the property of the taxpayer is located. fee.R. 4. NLRC. and costs that may secure in addition thereto. 13. 203 for the assessment of the tax. Period within which the government could collect ( Secs. purchases or judgment creditor. fraud or omission in case of: 1. 2. EXC: CTA may enjoin the collection of Internal Revenue taxes. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. The day when the return was actually filed  Ten (10) years after the discovery of the falsity. 3 and 4. 1 and 2. even to that of a private litigant predicated on a court judgment. NIRC)  When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand.

All apparatus used in or about the illicit production of such articles. Private sale: provided. (wine. Public sale: provided. Effect: Transfer the title to the specific thing from the owner to the government. Withholding tax cases Criminal tax fraud cases Criminal cases already filed in court Delinquent accounts with duly approved schedule of installment payments Cases where reduction of payments had already been granted. Where settlement offered is less than the prescribed minimum rates. as the case may require. and those involving fraud. b. and those involved in fraud.000. Personal entitled ² taxpayer or anyone for him b.00 or b. 3.000. Time to redeem ² within one (1) year from forfeiture c. automobile. 2. When basic tax involved exceeds P1. b. If highest bid is for an amount insufficient to pay the taxes. Dies for printing or making IR stamps. Cases that cannot be compromised 1. Enforce the compromise. Minimum compromise rate: a. 10% of the basic tax assessed ² in case of financial incapacity. b. plus interest and cost of the sale Cases that may be compromised 1. Regard it as rescinded and insists upon the original demand. 4. In case of personal property ² by seizure and sale or destruction of the specific forfeited property. liquors 3. 4. Right of Redemption: a. In case of real property ² by a judgment of condemnation and sale in a legal action or proceeding. penalties and costs. 4. 5. 3. Amount to be paid ² full amount of the taxes and penalties. Distraint and/or Levy Civil Action Criminal Action Forfeiture  Implies a divestiture of property without compensation. 3. To be destroyed ² by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law: (at least 20 days after seizure) 1. cigarettes. or b. and other manufactured products of tobacco 5. Remedy in case of failure to comply: The CIR may either: a. 6. or The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax 26  It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer. 2. there is notice given not less than 20 days. cases already decided and are final and executory Compromise of criminal violation y y y In criminal violations. With in two days thereafter. 2. 2. in consequence of a default or offense. Delinquent accounts Cases under administrative protest Cases disputed before the courts Cases for collection already filed in courts Criminal violations except those already filed. A reasonable doubt as to the validity of the claim against the taxpayer exists. cigars 4. Subject to approval of the Evaluation Board a. the compromise must be made prior to the filing of the information in court. Exception: The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 500.REVIEW NOTES FOR TAXATION 2 1. 5. To be sold or destroyed ² depends upon the discretion of CIR 1. 40% of basic tax assessed ² other cases. 6.000. 5. labels or tags. When available: a. All other articles subject to exercise tax. Limitations: 1. non-essential items a petroleum products) manufactured or removed in violation of the Tax Code. 1. playing cards 6. How enforced: a. Delegation of Power to Compromise General Rule: The power to compromise or abate shall not be delegated by the commissioner. When forfeited property to be destroyed or sold: a. labels and tags. No bidder for the real property exposed for sale. b. civil or criminal. in imitation of or purport to be lawful stamps. Where to be sold: a.00 or less. a return of the proceeding is duly made. BAR OPERATIONS COMMITTEE . distilled spirits 2. b. 2. it is with the approval of the Secretary of Finance. miscellaneous products. mineral products. All criminal violations may be compromised except: those already filed in court. manufactured oils. 2.

000. Time and place of sale. Revenue District Officer (RDO) Amount Involved In excess of P1. c. c. 206-217. to be followed by its public sale. company or association. Copy of an account of the property distrained. Require taxpayer or person in possession to: . Commissioner or his duly authorized representative 2.In the presence of two witnesses of sufficient age and discretion. Taxpayer hides or conceals his property. at the dwelling or place of business and with someone of suitable age and discretion b. 2. Statement of the sum demanded. 3. Suspension of Business Operations 8. Debts and credits 1.000. Taxpayer is retiring from any business subject to tax. Difference between Actual and Constructive Distraint Actual Constructive Made on the property only May be made on the of a delinquent taxpayer. Enforcement of Administrative Fines D. In case of Tangible Property: a. if the taxes are not voluntarily paid. Taxpayer is delinquent in the payment of tax.Sign a receipt covering property distrained . Taxpayer is intending to leave the Philippines.Prohibit him from disposing the property from disposing the property in any manner. 2. 2. Period with in to assess or collect has not yet prescribed. treasurer or responsible officer of the bank.00 P1. 2. BAR OPERATIONS COMMITTEE . In case of intangible property: a. 2. ADMINISTRATIVE REMEDIES IN DETAIL (SECS. Posting of notice is not less than two places in the municipality or city and notice to the taxpayer specifying time and place of sale and the articles distrained. .000. Serve warrant upon taxpayer and president. signed by the officer. Constructive ² The owner is merely prohibited from disposing of his personal property. In case of intangible property. manager. Stocks and other securities Serving a copy of the warrant upon taxpayer and upon president. 4. leaving a list of same An immediate step for Such immediate step is collection of taxes where not necessary. Actual ² There is taking of possession of personal property out of the taxpayer into that of the government. Effected by having a list of Effected by requiring the the distraint property or by taxpayer to sign a receipt service or warrant of of the property or by distraint or garnishment. Sale at public auction to highest bidder 4. Requisites: 1.00 or less How Actual Distraint Effected 1. leave a copy in the premises where property is located. to enforce the payment of faces. Service of warrant of distraint upon taxpayer or upon person in possession of taxpayer·s personal property. left either with the owner or person from whom property was taken. KINDS a. Bank Accounts ² garnishment 1. NOTE: The Register of Deeds is duty bound to transfer the title of property forfeited to the government with out necessity of an order from a competent court. Leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent. with out the authority of the CIR. In keeping with the provision on the abatement of the collection of tax as the cost of same might even be more than P100. Bank shall turn over to CIR so much of the bank accounts as may be sufficient. Where Taxpayer or person in possession refuses to sign: . Warrant shall be sufficient authority for such person to pay CIR his credits or debts. 4. or 3. 3.Obligate him to preserve the same properties. 7.Seizure by the government of personal property. To remove his property there from. may not be definite or it is being questioned. Effect of failure to redeem ² forfeiture shall become absolute. Taxpayer must fail to pay delinquent tax at time required. How constructive Distraint Effected 1. DISTRAINT . b. treasurer or other responsible officer of the issuing corporation.REVIEW NOTES FOR TAXATION 2 d. 2. To whom paid ² Commissioner or the Revenue Collection Officer e. taxpayer is also diverted of the power of control over the property. Subsequent demand for its payment. Disposition of proceeds of the sale. When remedy not available: Where amount involved does not exceed P100. tax due amount due is definite. 2. Procedure: 1. Grounds of Constructive Distraint 1.Officer shall prepare list of the property distrained. . manager. tangible or intangible.000. b. prohibited from disposing of his property. 27 Who may effect distraint 1. NIRC) A. property of any taxpayer whether delinquent or not There is actual taking or Taxpayer is merely possession of the property.

Penalty due. JUDICIAL REMEDIES IN DETAIL (SEC 220. NOTE: 1. However under Sec. Disposition of proceeds of sale. all proper charges are paid to the officer conducting the same.where the principal amount of taxes and fees. The property may be sold at public sale. in case of action. manager. Redemption of property sold or forfeited a. 4. Officer shall write upon the certificate a description of the property upon which levy is made. forfeiture by government not provided authorized where there is no bidder or the highest bid is not sufficient to pay the taxes. NOTE: The excess shall be turned over to owner. 2.Begins from registration of the deed of sale or declaration of forfeiture.an act of seizure of real property in order to enforce the payment of taxes. penalties and costs. government.  Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs. Conducted by Legal Officer of BIR 3. Bank shall turn over to CIR so much of the bank accounts as may be sufficient. to transfer the title to the property with out of an order from a competent court 2. exclusive of charges and penalties claimed is less thanP1. Advertisement of the time and place of sale. the CIR or his deputy may purchase the distrained property on behalf of the national government. Amount of tax and c. Brought in the name of the Government of the Philippines.00 (Sec 7[c]. E. It is the duty of the Register of Deeds concerned upon registration of the declaration of forfeiture. TC. 6. Bank accounts may be distrained without violating the confidential nature of bank accounts for no inquiry is made. RA 9282)  The approval of the CIR is essential in civil cases (Sec. LEVY OF REAL PROPERTY . C. The day when the return was actually filed  Ten (10) years after the discovery of the falsity. It includes filing by the government with the BAR OPERATIONS COMMITTEE . Difference between Distraint and Levy Distraint Levy personal property real property forfeiture by government. GARNISHMENT Bank Accounts ² garnishment 1. Failure to file a return  Within the period agreed upon. the goods distrained shall be restored to the owner. fraud or omission in case of: 3. 2. Name of taxpayer b. 5. penalty or forfeiture. including all expenses. Procedure: 1. BIR simply seizes so much of the deposit with out having to know how much the deposits are or where the money or any part of it came from. If at any time prior to the consummation of the sale. 3. c. NOTE: The requisites are the same as that of distraint. Service of written notice to: a. or 4. 7 of NIRC.222.REVIEW NOTES FOR TAXATION 2 5. The taxpayer. or enforcement of a fine. Mun. False or fraudulent return with intent to evade tax. before the expiration of the period in Sec.000. when both the TP and the Commissioner have agreed in writing. Taxpayer no given the Taxpayer can redeem right of redemption properties levied upon and sold/forfeited to the 2. penalties and interest thereon from date of delinquency to the date of sale together with interest on said purchase price at 15% per annum from date of purchase to date of redemption. 1. 220). and b. Where to File 1) Court of Tax Appeals.where the principal amount of taxes and fees exclusive of charges and penalties claimed is one million pesos and above 2) RTC. 3. 2. 203 for the assessment of the tax. 28 Both are summary remedies for collection of taxes. Sale at public auction to the highest bidder. The remedy of distraint or levy may be repeated if necessary until the full amount. B. Period within which the action may be filed Civil and Criminal Actions: 1. Serve warrant upon taxpayer and president. Person entitled: Taxpayer or anyone for him b. if after seizure the taxes are not voluntarily paid. When the amount of the bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of articles. Must be with the approval of the CIR. The last day prescribed by law for filing the return 4.enforceable throughout the Philippines 2.Cannot be extended by the courts.NIRC)  Three (3)years from the following. whichever comes later: 3. is collected. depending on the amount involved). . NIRC) 1. treasurer or responsible officer of the bank. Metro TC. Price: Amount of taxes. CIVIL CASES (SECS 203. RD where property is located. Time to redeem: one year from date of sale or forfeiture . Possession pending redemption: owner not deprived of possession d. Taxpayer acts tending to obstruct collection proceedings. NOTE: 1. A. International Revenue officer shall prepare a duly authenticated certificate showing a.000. the Commissioner may delegate suchpower to a Regional Director. Both cannot be availed of where amount involved is not more than P100. . for recovery of taxes.

Metro TC. HIZON. A surcharge added to the main tax is subject to interest. Section 220 of the Tax Reform Act must not be understood as overturning the long established procedure before this Court in requiring the Solicitor General to represent the interest of the Republic. immortalized in the maxim that taxes are the lifeblood of the government E. Sec. because the collection of estate tax is executive in character. in whole and in part or Is not acted upon within 180 days from submission of the documents. and if the same shall be not known.on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC. 2) RTC. An appeal from such court. NIRC) Penalty: 25% of the amount due. day of the commission of the violation. As the complaint filed in this case was signed by the BIR·s Chief of Legal Division for Region 4 and verified by the Regional Director. SURCHARGES. 248A. NOTE: y When should it commence: The five (5) year prescriptive period shall begin to run from the a. CA. in addition to the tax required to be paid BAR OPERATIONS COMMITTEE . from the (2) discovery thereof and the institution of the judicial proceedings for its investigation and punishment. JULY 04. 7 of NIRC. 281. 13.  Resorted to when the tax liability becomes final and unappealable. compliance with the law. 2005 LIM V.on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC. 1990 ( re: prescription of criminal actions. When the offender is absent from the Philippines. therefore. however. 1999 (re: approval of filing of civil and criminal actions) y Revenue Adm. Mun. CRIMINAL CASES ( TITLE X. 18. 10-95 specifically authorizes the Litigation and Prosecution section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. a. 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. b. y MARCOS II V. If known. As such the estate tax is exempted from the application of the statute of the non ² claims. OCT. SEC. is not a matter of right. y When should it run again: When the proceeding is dismissed for reason not constituting jeopardy. y When is it interrupted: a. or when the decision of the Commissioner becomes final or executory.000. NIRC) 1. NIRC) should be filed 5 years from the (1) day of the commission of the violation of the law. there was. APRIL 26. CA. y CIR V.000. y B. 281. Order No. where the principal amount of taxes and fess exclusive of charges and penalties claimed is less than P1. y 29 Sec. NIRC)  All violations of any provision of the tax code shall prescribe after five (5) years. NIRC. If not known. TITLE X. LA SUERTE CIGAR. 1997 (re: enforcement of tax liability during pendency of probate proceedings) y The BIR is authorized to collect estate tax deficiency through the summary remedy of the levying upon and sale of properties of a decedent. CA.REVIEW NOTES FOR TAXATION 2 probate court claims against the deceased taxpayer. y When an administrative protest filed by the taxpayer against the assessment is denied. This Court continues to maintain that it is the Solicitor General who has the primary responsibility to appear for the government in appellate proceedings. from the time of discovery and the institution of judicial proceeding for its investigation and punishment. ORDINARY (SEC. Where to file 1) Court of Tax Appeals. 1992 (re: participation of the Office of the Solicitor General) y The institution or commencement before a proper court of civil and criminal actions and proceedings arising under the Tax Reform Act which "shall be conducted by legal officers of the Bureau of Internal Revenue" is not in dispute. When a proceeding is instituted against the guilty person b. exclusive of charges and penalties claimed is P1.00 and above. and this is justified by the necessity of the government finding. y y PNOC V. RA 9282) CASES: REPUBLIC V. DEC. TC. and y 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 the180 day period.000. where the principal amount of taxes and fees. JUNE 5.a civil penalty imposed by law as an addition to the main tax required to be paid. EFFECTS OF FAILURE TO PAY THE TAX ON TIME: ADDITIONS TO THE TAX (CHAPTER I.000. authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provision of the Code to any subordinate official with the rank equivalent to a division chief or higher. 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. without the cognition and authority of the court sitting in probate over the supposed will of the deceased.00 or where there is no specified amount claimed (Sec 7[b].

The amount of the tax due on any return required to be filed. Province of Laguna. INTEREST. 1999 ´Prefatorily. CASE: CIR V. Meralco vs.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 any part on or before the date prescribed. it might be well to recall that local governments do not have the Deficiency interest y Any deficiency in the tax due shall be subject to the interest of 20% per annum which shall be assessed and collected from the date prescribed for its payment until the full payment thereof. or 2. In case of willful neglect to file the return within the period prescribed by the NIRC or rule. March 25. Private respondent·s notation on the tax return was at most an error or mistake of fact or law not constituting fraud. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. FRAUD PENALTY (SEC. A deficiency tax or any surcharge or interest thereon on the issue date appearing in the notice and demand of the Commissioner. y Interest on Extended Payment. The amount of tax due for which no return is required. c. b. Rate is 20% per annum until the amount is fully paid which interest shall form part of the tax. Classes of interest 1. d. the same may be collected only if the taxpayer is willing to pay them. 3) keep any record. 3) from the date of notice and demand until it is paid. in interpreting statutory provisions on municipal fiscal powers. in addition to the tax required to be paid a.µ ii. May 5. JAVIER. or any installment. but pursuant to direct authority conferred by Section 5. or the full amount of tax due for which no return is required to be filed. City of San Pablo Laguna vs.µ b. 2. NIRC) Penalty: 50% of the amount due. 1991 y There was no actual intentional fraud in filing the return. an invitation for investigation and private respondent had literallyµ laid his cards on the table. 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. Reyes. Not authorized officer. Delegated Power i. 30 1) any person who is qualified and elects to pay the tax on installment but fails to pay the tax. it may be exercised by local legislative bodies. Nature of Local Taxing Power a. 250. 3. doubts will have to resolved in favor of municipal corporations. consistent with the basic policy of local autonomy. 3. 2. 2) statement or list. 2. on or before the date prescribed for its payment. b. 248B. no longer merely by virtue of a valid delegation as before. Local Taxation: General Concepts 1. a. Deficiency interest Delinquency interest Interest on extended payment LOCAL TAXATION A. 4) supply any information E) required by this Code or by the Commissioner on the date prescribed thereof. Failure to File Certain Information Returns (Sec. It is a certain amount of money which the taxpayer pays to compromise a tax violation.000 for each failure B) The aggregate amount for all such failure shall not exceed P 25. Such taxes. fees. Since it is voluntary in character. NIRC) A) Penalty: P 1.This is an increment on any unpaid amount of tax assessed at the rate of 20% per annum or such higher rate as may be prescribed by the regulations from the date prescribed for payment until the amount is fully paid. The important legal effect of Section 5 is that henceforth. Constitutional Provision (Section 5. In the case of each failure to file: 1) information return. Filing a return with an internal revenue officer other than those with whom the return is required to be fired. It is pain in lieu of a criminal prosecution. Failure to pay the full or part of the amount of tax shown on any return. Article X of the Constitution.REVIEW NOTES FOR TAXATION 2 Failure to file any return and to pay the tax due thereon as required by the NIRC or rules. In case a false or fraudulent return is willfully made. 1999 ´The power to tax is primarily vested in Congress. in our jurisdiction. Compromise Penalty 1. and charges shall accrue exclusively to the local governments. Article X) ´Each local government unit shall have the power to create its own sources of revenues and to levy taxes. b. JULY 31. fees and charges subject to such guidelines and limitations as the Congress may provide. However. or 3. When delinquency interest imposed? y Delinquency interest is imposed in case of failure to pay: 1. BAR OPERATIONS COMMITTEE .

inter alia. uniform. and local government unitsµ. 2006 ´The power to tax is primarily vested in the Congress. the legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions. Under the now prevailing Constitution. and (d) local taxation will be fair. Marcos. Clearly then. 2003 ´In recent years. while a new slant on the subject of local taxation now prevails in the . This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. the present constitutional rule (starting with the 1973 Constitution). which did come out with a similar delegation of revenue making powers to local governments. 1996 ´The taxing powers of local government units cannot extend to the levy of. innovation and imaginative resilience in matters of local development on the part of local government leaders. for BAR OPERATIONS COMMITTEE 31 consideration or otherwise. April 9. the power to tax is no longer vested exclusively on Congress. (c) the resources of the national government will not be unduly disturbed. inter alia. ´taxes. and taxation has become a tool to realize social justice and the equitable distribution of wealth. no longer merely be virtue of a valid delegation as before. but pursuant to direct authority conferred by Section 5.µ The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services. section 5 of the 1987 Constitution. NAPOCOR vs. City of Cabanatuan. March 6. Bayantel. The 1987 Constitution has a counterpart provision in the 1973 Constitution. ´real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted.REVIEW NOTES FOR TAXATION 2 inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute. pursuant to Section 232. must be consistent with the basic policy of local autonomy. the fundamental law did not intend the delegation to be absolute and unconditional. fees and other charges pursuant to Article X. under Article X of the 1987 Constitution. Mactan Cebu International Airport Authority vs. in our jurisdiction. Nevertheless. the delegation of tax powers granted at that time by statute to local governments was confined and defined (outside of which the power was deemed withheld). local legislative bodies are now given direct authority to levy taxes. It has also ´dampened the spirit of initiative. however. Under the latter. however. Presently. its agencies and instrumentalities. economic progress and the protection of local industries as well as public welfare and similar objectives. (b) each local government unit will have its fair share of available resources. the country·s highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. and just. Taxation assumes even greater significance with the ratification of the 1987 Constitution. and confer them sufficient powers to generate their own sources for the purpose. For a long time. Under the regime of the 1935 Constitution no similar delegation of tax powers was provided. the increasing social challenges of the times expanded the scope of state activity. consistent with the basic policy of local autonomy. set the guidelines and limitations to this grant of taxing powers. however. of Quezon City vs. the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which.µ as provided in item (a) of the first paragraph of Section 234. September 11. then. Whereas. To achieve this goal. where there is neither a grant nor a prohibition by statute.µ iii.µ - Extent of the Power of Congress in Local Taxation City Govt. provinces. however. Thenceforth. The basic rationale for the current rule is to safeguard the viability and selfsufficiency of local government units by directly granting them general and broad tax powers. section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will. it may be exercised by local legislative bodies. cities. and local government units instead derived their tax powers under a limited statutory authority. fees and charges of any kind on the National Government. and municipalities in the Metropolitan Manila Area may impose the real property tax except on. would broadly confer such tax powers subject only to specific exceptions that the law might prescribe. the constitutional objective obviously is to ensure that.µ iv. Article X of the Constitution. to a taxable person. a general delegation of that power has been given in favor of local government units. the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. while the local government units are being strengthened and made more autonomous.

to wit: BAR OPERATIONS COMMITTEE 2. earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. through their Sanggunian. By express language of Sections 153 and 155 of RA No. April 28. However." It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax. Batangas City. vs. it is impliedly withholding the power of LGU to tax the same. 1998 (Section 133j. in the guise of wharfage. however. 2004 (Section 133g) Sec. 2003 (Sec. gravel.Adopted in the Philippines despite nonprohibition of double taxation unless expressly allowed by Congress. may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road. except as provided in this Code. 7160.If the national government elects to tax a particular subject within a Local Government Unit. local government units. As to stones. gravel. LGC) . For as the Court stressed in Mactan. October 16. 133. d. Municipality of Malangas. as the same are already taxed under the National Internal Revenue Code. Thus.µ 2. the exercise of the taxing powers of provinces. impose a tax on stones. Cases: a. at bottom. therefore. regardless of origin. The Principle of Preemption / Exclusionary Rule (Sec. ² Unless otherwise provided herein. The province can. b. and the local government·s delegated power to tax under the aegis of the 1987 Constitution. of the Local Government Code. c. Title III. a clash between the inherent taxing power of the legislature." In net effect. December 9. Common Limitations on the Exercise of Local Taxing Power 1. 130. sand. Batangas Power Corp. exempt from the business tax as provided for in Section 133 (j).on goods or merchandise. land or water. LGC) Exercise of Local Taxing Power 32 "Section 133. gravel. applies specifically to taxes imposed by the local government. Local Tax on Common Carriers) There is no doubt that petitioner is a "common carrier" and.the basic doctrine on local taxation remains essentially the same. sand. 1998 A province may not levy excise taxes on articles already taxed by the National Internal Revenue Code. First Philippine Industrial Corp.[18] specifically Section 1. because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e). municipalities. cities. Fundamental Principles in the exercise of Local Taxing Power (Sec. of fees -. "the power to tax is [still] primarily vested in the Congress. which necessarily includes the power to exempt.as well as all other taxes or charges in any form whatsoever -. earth and other quarry resources." Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. sand. CA. Palma Development Corp. and barangays shall not extend to the levy of the following : xxx xxx xxx (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. 133 (g) of the LGC. the controversy presently before the Court involves. Common Limitations on the Taxing Powers of Local Government Units. because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid. B. it may not do so. 226. like the business tax imposed by Batangas City on BPC in the case at bar.REVIEW NOTES FOR TAXATION 2 sense that the former doctrine of local government units delegated power to tax had been effectively modified with Article X. pier or wharf funded and constructed by them. which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration. November 27. 7160 prohibits the imposition. It is clearly apparent from Section 151 of the National Internal Revenue Code levies a tax on all quarry resources. . It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods. vs. Section 133(e) of RA No. Province of Bulacan vs.[19] To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code. Article 39. is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial . whether extracted from public or private land. Reliance of BPC on the provision of Executive Order No. CA. a province may not ordinarily impose taxes on stones. earth and other quarry resources extracted from private land. vs. however. Section 5 of the 1987 Constitution now in place. . 133e) 3.

cinemas.Both pioneer and non-pioneer enterprises enjoy such kind of privileges under the Omnibus Investments Code. LTO vs. The intention of the law is to centralize issuance of permits to drive motor vehicles including tricycles is to monitor the operation of the same. 1999. Local Taxing Power cannot extend to: Those already covered by the National Internal Revenue Code. CA vi.The power of LGU to tax even of not expressly granted by the LGC provided that there is no express prohibition.e. May levy taxes.Duties upon products about to be exported and goods passing through territorial jurisdiction cannot be taxed by LGUs. Specific Taxing Units 1. i. Professional Tax . public utility companies .As high as 30% . . If services provided is exclusive to the employer.Case: Province of Bulacan vs. percentage tax. Transfer of Real Property ownership . 5. fees. BAR OPERATIONS COMMITTEE .Those who have passed government licensure examinations are the ones liable . v. VAT. all local taxes. LGC) Unless otherwise provided in LGC. including its agencies and instrumentalities as we as local government units. Transfer tax.Not more than 10% of the FMV of what was extracted . Documentary Stamp Tax. and charges not otherwise levied by provinces (Sec.Imposed on extraction of sand.At a rate not exceeding ½ of 1% of the Gross Amount receipt of the preceding calendar year iv. it is deemed revoked by reason of the law·s blanket revocation. gravel and other quarry resources . fees. Provinces may tax: i. i.REVIEW NOTES FOR TAXATION 2 operation refers to income taxes imposed by the national government on BOI-registered pioneer firms. i.Amount ² not exceeding Php 300. extend the time for payment of such taxes. Taxes on Delivery trucks 2.Government franchise. D.Preemption rule is not applicable .½ of 1% ii. 142) - - - - 4.If the franchise grants tax exemption and the same was executed prior to 1991 LGC. The 6-year tax exemption of BPC should thus commence from the date of BPC·s registration with the BOI on July 16. The Sanggunian concerned may. Sand and Gravel Tax . Those enjoying privileges as granted by the Board of Investments (Investments Priorities Plan). concert halls.Applies to theaters. otherwise.e. PTR is not necessary.With employer-employee relationship ² liability to PTR depends on the extent of services provided. Cooperatives registered under RA 6938 (CDA). Taxation of the National Government. circuses and other places of amusements. Time of Payment (Section 167. the employee is liable. or charges without surcharges 3. it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC. Surcharges. except tricycles. Excise Tax. Franchise Tax . for a justifiable reason or cause. Residual Power to Tax (Sec. 186) . Taxes. boxing stadiums. Cities may tax those that may be taxed by a province and a municipality. fees. vii. Those subjects not within the ambit of real taxation by reason of public policy. They may impose a tax rate which is 50% higher than the rates being imposed by provinces and municipalities. 33 or penalties. 3. The permit to drive is issued by LTO. fees. or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof. as the case may be. Community Taxes iii. . and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter. 1993 and end on July 15.e.Imposed by the city or province where the taxpayer·s principal office is located . Amusement Tax . Section 133(l) is only for franchise where to grant the same is within the discretion of LGUs. Municipalities i. Clearly.Onerous or gratuitous . Income tax. whether primary or secondary.00 . but only for a period not exceeding six (6) months. . Those already covered by the Tariff and Customs Code. Taxes on agricultural or aquatic products sold by marginal enterprises. Butuan ² Congress has no intention to delegate issuance of permits to LGUs. Interests and Penalties C. Business permit ii. Printing and Publication - - - iii.

fees and charges shall be paid within the first 20 days of January or of each subsequent quarter. Interests and Penalties ² (Sec. still incumbent upon the city treasurer to send the notice of tax delinquency directly to the taxpayer in order to protect the interests of the latter.Cases involving an auction sale of land for the collection of delinquent taxes are in personam. listing. therefore. 1. or proportion thereof subject to tax. the registered owner of the property is deemed the taxpayer. for a justifiable reason or cause. The petitioner is also correct in pointing out that the last paragraph of the said notices that inform the taxpayer that in case payment has already been made. Release of distrained property upon payment prior to sale e. does not as a rule satisfy the requirement of proceedings in personam. fees or charges became due d. JUDICIAL (Sec. Meralco vs. The Sanggunian concerned may. LGC) a. Talusan vs. f. 174 and 175. as the case may be. including the discovery. It was. they were not entitled to it. LGC) - General rule: All local taxes. Unless otherwise provided by the LGC ii. the city treasurer of Baguio City directed him to settle the charges immediately and to protect his interest in the property. 174 and 176. (April 04. who was the registered owner of the condominium unit. extend the time for payment of such taxes. REMEDIES OF THE GOVERNMENT a. and appraisal of properties. fees or charges. the notice of delinquency was sent by registered mail to the permanent address of the registered owner in Manila. Publication In the present case. but only for a period not exceeding 6 months. y Surcharges. or changes in the rates thereof.REVIEW NOTES FOR TAXATION 2 REMEDIES IN LOCAL TAXATION A. 2001) . b. we hold that the notice sent by registered mail adequately protected the rights of the taxpayer. Tayag.. New taxes. petitioners cannot claim to have been deprived of such notice.A notice of assessment as provided for in the Real Property Tax Code should effectively inform the taxpayer of the value of a specific property. or charges or penalties. LGC) y Period within which to collect ² within 5 years from the date of assessment by administrative or judicial action y Contents of assessment: 1. and charges shall accrue on the 1st day of January of each year. In that notice. Under the circumstances. - ii. In fact. Thus. Hence. 167. 174. chattels or effect and other personal properties of whatever character (Sec. ADMINISTRATIVE 1) Local Government·s Lien (Sec 173. 2002) . mere publication of the notice of delinquency would not suffice. notice by publication. OTHER PROVISIONS y Accrual of the tax ² (Sec. Except: i. LGC) y Who is entitled to the notice of assessment 1. the notices may be disregarded is an indication that it is in fact a notice of collection. only the registered owner is entitled to a notice of tax delinquency and other proceedings relative to the tax sale. Barlis (Feb. As such. Procedure of sale Disposition of proceeds 4) Levy (Sec. though sufficient in proceedings in rem. c. considering that the procedure in tax sales is in personam. It could only qualify as a notice of collection if there is an unmistakable demand for payment of back taxes. For purposes of the real property tax. Unless otherwise provided in the LGC. Accounting of distrained goods c. LGC) General Rule: All local taxes. - BAR OPERATIONS COMMITTEE . fees. Not being registered owners of the property. LGC) 1) Civil Action in the court 2) Filed by Local Treasurer 3) Within 5 years from the date the taxes. LGC) 2) Assessment by the Local Treasurer 3) Distraint of goods. fees. Seizure 34 b. 166. classification. 168. shall accrue on the 1st day of the quarter next following the effectivity of the ordinance imposing such new levies or rates Time of payment ² (Sec. Except: i.

LGC) Pay under protest and such shall be annotated in the tax receipt 2. the effectivity of the assailed ordinance shall not be suspended. y Appeal to the Board of Assessment Appeals (Secs. - .A. ADMINISTRATIVE y Appeal to the Secretary of Justice. The funds for the operation of its agencies and provision of basic services to its inhabitants are largely derived from its revenues and collections. fees or charges. (December 1. fees or charges not paid on time and ii. Trampe. 1995) ² Petitioners failed to appeal the assessment of their properties to the Board of Assessment Appeal within sixty (60) days from the date of receipt of the written Notice of Assessment. then they could have availed of the provisions of Section 252. 1. 187. of the same R. When he alters or modifies or sets aside a tax ordinance. until such amount is fully paid. In the case at bar. (August 4. they failed to exhaust administrative remedies provided for by law before bringing the case to Court. it is essential that the validity of revenue measures is not left uncertain for a considerable length of time. as alleged in their pleadings.Sec. collection of revenues by the government is of paramount importance. Appeal to the BAA of the province or city by filing a petition under oath and copies of the tax declarations and affidavits or documents in support of appeal. y Protest of the assessment (Sec. 7160 by paying the real estate tax under protest. and if it is true that petitioner. 28 took effect in October 1996. 252 (d). LGC ² In the event that the protest is denied or upon the lapse of the 60-day period to decide. Lim. 187. but he did not replace it with his own version of what the Code should be. more than a year after the effectivity of the ordinance in 1996. BUT in no case shall the total interest on the unpaid amount or portion thereof exceed 36 months. the taxpayer may appeal to the BAA. was not afforded the opportunity to appeal to the board of assessment appeal. Because of petitioner·s failure to avail of either Sections 226 or 252 of R. Ordinance No. Within 30 days from its effectivity. LGC) ² Any question on the constitutionality or legality of tax ordinances or revenue measures. Bulacan. Being its lifeblood. Surcharge ² not exceeding 25% of the amount of taxes. Hence. Secretary Drilon did set aside the Manila Revenue Code. 226 and 252. 2002) . the same not falling under the exception because the issue involved is not a question of law but of fact. Re: newly enacted tax ordinance (Sec. LGC requires that an appeal of a tax ordinance or revenue measure should be made to the Secretary of Justice within 30 days from effectivity of the ordinance and even during its pendency.REVIEW NOTES FOR TAXATION 2 Sanggunian may impose: i. that was an act not of control but of mere supervision. Clearly. LGC) ² Sec. Petitioner filed its appeal only in December 1997. with the prescribed procedure for the enactment of tax ordinances and the grant of powers to the city government under the Local Government Code. Therefore the filing of this case before this Court is premature. As we see it. Interest ² not exceeding 2% per month of the unpaid taxes. 226 and 252. vs. (February 6. At this point. REMEDIES OF THE TAXPAYER a. He did not pronounce the ordinance unwise or unreasonable as a basis for its annulment. the law provided a time limit for an aggrieved party to assail the legality of revenue measures and tax ordinances. the Secretary of Justice correctly dismissed it for being timebarred. LGC ² Any owner or person who is not satisfied with the action of the provincial. to revoke it on either or both of these grounds. 1994) Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and. B. he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure.A. Ty vs. What he found only was that it was illegal. He did not say that in his judgment it was a bad law. city or municipal assessor in the assessment of his property. Drilon vs. it is apropos to state that the timeframe fixed by law BAR OPERATIONS COMMITTEE 35 for parties to avail of their legal remedies before competent court is not a "mere technicality" that can be easily brushed aside. 28 is a revenue measure adopted by the municipality of Hagonoy to fix and collect public market stall rentals. including surcharges. Hagonoy Market Vednors Assn. Municipal Ordinance No. 3. Sec. that is. 7160. All he did in reviewing the said measure was determine if the petitioners were performing their functions is accordance with law. The periods stated in the section are mandatory. Municipality of Hagonoy. if warranted. 226. Within 60 days from receipt of the written notice of assessment. Thus.

The appraisal and assessment of real property shall be equitable. A. city or municipal treasurer. assessment. There is no appellate remedy from the denial of the treasurer before the regular court but an independent and original action for refund. and collection of real property tax shall not be let to any private person. LGC)µ. including machineries. 7160) .since 1920 2. or any other tax levied is found to be illegal or erroneous and the tax is accordingly reduced or adjusted. Proportion . Tax Law and Jurisprudence. 2000 Edition by Justice Vitug and Judge Acosta]. Justice Vitug points out that: ´The real property tax has been considered and held to be a national. and 5. LGC) When an assessment of basic real property tax. The taxpayer may file a written claim for refund or credit of taxes and interests With the provincial or city treasurer Within 2 years from the date the taxpayer is entitled to such reduction or adjustment. The tax or a portion thereof paid under protest shall be held in trust by the treasurer concerned. The real estate tax is enforced throughout the Philippines and not in a particular political subdivision. 464. The Local Government Code covers the administration. Real Property Tax Code (Presidential Decree No. y Remedies from a denial of the protest and refund It should not only be the written claim before the treasurer that must be filed in 2 years but the taxpayer must also be able to file a case in court before the expiration of the 2 year period. although the value may vary in accordance with such factor. assessment. 470 ² Old Assessment Law . CHARACTERISTIC OF REAL PROPERTY TAX: 1. 415 of the New Civil Code) B. Ad Valorem tax. LGC) 1. Protest denied or upon lapse of the period to decide . Protest decided in favor of taxpayer ² the amount or portion of the tax protested shall be refunded to the protestant or applied as tax credit against his existing or future tax liability. Real property shall be assessed on the basis of a uniform standard within each local government unit. 2. not a local tax in Meralco Securities Industrial Corp v. although the bulk of the tax proceeds accrue to the various local government units where the property is located. Indivisible single obligation 5. [Page 479. Governing Law Historical Background: BAR OPERATIONS COMMITTEE .June 1. levy and collection of Real Property Tax.The changes however were only on the tax rate ceilings and assessment levels. tax on land and building and other structures and improvements on it. as amended) . The appraisal. Direct tax on the ownership of real property 2. the taxpayer may appeal to the BAA. 1974 3.the tax is calculated on the basis of a certain percentage of the value assessed 4. 4. The Court said that realty tax has always been imposed by the national law-making body. (Subject to the definition given by Art. Local Tax C. The value is based on the tax base 3. 253. CBAA. i.REVIEW NOTES FOR TAXATION 2 Protest in writing must be filed within 30 days from payment of the tax to the provincial. Under the Local Government Code. defined A direct tax on ownership of lands and buildings or other improvements thereon Payable regardless of whether the property is used or not. appraisal. local government units are mandated to fix a uniform rate of basic real property tax applicable to their respective localities. 1992 . (See Secs. Real property shall be appraised at its current and fair market value. JUDICIAL y Questioning Tax Sale REAL PROPERTY TAXATION Real Property Tax. Real property shall be classified for assessment purposes on the basis of its actual use. Local Government Code (Republic Act No. 114 SCRA 260. Fundamental Principles Governing Appraisal and Assessment of Real Property (Section 198. The provincial or city treasurer shall decide the claim for refund or credit within 60 days from receipt In case the claim is denied. despite the fact that in practice it is local in its imposition and utilization. - - - - - - b. 36 - - 1. the proceeds of which exclusively accrue to them. Nature of Real Property Tax ² National or Local? Hybrid of national and local tax Provisions of LGC are applied nationwide but rates imposed are different per LGU ordinance The real property tax has been considered and held to be national.January 1. 3. who shall decide the protest within 60 days from receipt. y Claim for refund (Sec. Commonwealth Act No. 233 and 271.e.appeal to the BAA.

(3) Everything attached to an immovable in a fixed manner. Oil companies. But in the otherwise Machinery ² embraces machines. business or activity shall not be considered within the definition of machinery. 119 PHIL 328. May 31. in case their owner has placed them or preserves them with the intention to have them permanently attached to the land. receptacles. water pumps. and those not permanently attached to the real property which are actually. in order for machinery and equipment to be considered real property. (4) Statues. (7) Fertilizer actually used on a piece of land. furnitures and fixtures. ´ In Caltex vs. logging. and waters either running or stagnant. ´Art. Properties Covered (Sec. 6 SCRA `97. freezers. telex machine. CBAA. which is intended to enhance its value. reliefs. industrial or agricultural purposes. and which tend directly to meet the needs of the said industry or works. Board of Assessment Appeals v Meralco. and servitudes and other real rights over immovable property. IRR of RA 7160) Improvements include valuable additions made to a property or an amelioration in its condition. beauty or utility or to adopt it for new or further purposes. car washer. in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object. mining. (Sec. (5) Machinery. air compressors and similar articles. directly. have been held to be real property subject to the tax. those which are mobile. are considered as real property for purposes of the imposition of real property taxes. fish ponds or breeding places of similar nature. It is only for purposes of executing a final judgment that these machinery and equipment. Other improvements not exempted under said code (Sec 232. (real properties which have characteristics of permanency. would not be considered as real property. Land. selfpowered or self-propelled. the installations and appurtenant service facilities. in its gasoline stations. car and truck hoists. such as Caltex and Shell. beehives. 415 of the Civil Code could also be controlling. buildings. Buildings 3. equipment. plants. while the matter thereof forms part of the bed. install underground tanks in the gasoline stations located in land leased by the oil companies from others. 415. Machinery and 4. though floating. It includes the physical facilities for production. (9) Docks and structures which. in addition. The underground tanks although installed by the lessee. installed by the lessee on a leased land. display cases or racks. LGC) Machinery which are of general purpose use including but not limited to office equipment. installed by Caltex (Philippines) Inc. they must be placed by the owner of the land and. quarries. Manila Electric Co. 199 [o]. and exclusively used to meet the needs of the particular industry. water tanks. roads and constructions of all kinds adhered to the soil. LGC) 37 manner that it reveals the intention to attach them permanently to the tenements. or necessary to its manufacturing. v City Assessor of Cagayan de Oro. and forming a permanent part of it. are intended by their nature and object to remain at a fixed place on a river. fruit juice or beverage automatic dispensing machines which are not directly and exclusively used to meet the needs of a particular industry. 290 [o]. (8) Mines. 1982: Machinery and equipment. appliances or apparatus which may or may not be attached. and growing fruits. 2. typewriters. breakable or easily damaged containers (glass or cartons). commercial. refrigerators. v Board of Assessment Appeals. lake. LGC) 1. computing pumps. Shell and Caltex. to wit:. Note: Although the term real property has not been expressly defined in the LGC. The following are immovable property: (1) Land. facsimile machines. and slag dumps.10 SCRA 68) seem to suggest that Art. early decisions of the Supreme Court in Mindanao Bus Co. permanently or temporarily. paintings or other objects for use or ornamentation. telephone equipment. amounting to more than a mere repair or replacement of parts involving capital expenditures and labor. microcomputers. to the real property. mechanical contrivances. pigeon-houses. Are those underground tanks. (Sec. (2) Trees. considered real property for purposes of real property taxation under the LGC? SUGGESTED ANSWER FROM UP LAW CENTER: Yes. gasoline pumps.REVIEW NOTES FOR TAXATION 2 D. (10) Contracts for public works. elevated tanks. placed in buildings or on lands by the owner of the immovable in such a BAR OPERATIONS COMMITTEE . the animals in these places are included. 232. while they are attached to the land or form an integral part of an immovable. cash dispensers. instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land. must tend to directly meet the needs of the industry or works carried on by the owner. the lease is for a long period of time) 2001 BAR QUESTION: Under Article 415 of the Civil Code. or coast. consisting of underground tanks. which were not placed there by the owner of the land but by the lessee. instruments. located on leased land. business or activity and which by their very nature and purpose are designed for. (6) Animal houses.

CBAA ² use as trainee students) C.incidental to operation of the school (Herrera vs.) 3. All pieces of machinery and equipment that are actually. .REVIEW NOTES FOR TAXATION 2 imposition of real property tax. charitable. GOCCs rendering essential public services in the supply and distribution of water and/or generation or transmission of electric power. 216. pro-rate according to use. Near the school is another school building with 2 floors used as classrooms while 2 floors are for commercial stores. m.e. Proof of Tax Exemption: Every person by or for whom real property is declared who shall claim the exemption shall file with the provincial. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted. in area if more than ½ of which remain uncultivated or unimproved by the owner of the property or person having legal interest therein. Machinery and equipment used for pollution control and environmental protection. 114 SCRA 296).000 sq. mosques. Properties Exempt 1. Section 234. CULTURAL and SCIENTIFIC purposes 3. CBAA. 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 2. educational and charitable purposes are exempt from real property tax Query: To where does the exemption attach? To the property or to the entity? Case: X owns a parcel of land. HOSPITALS 2. Case: School . non profit or religious cemeteries. 237.As to the land. depending on its charter giving it exemption . . or educational purposes.not subject to Real Property Tax if directly used for educational purposes. A. city or municipal assessor within 30 days from date of declaration of real property sufficient documentary evidence in support of such claim (i. etc. and government ² owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power. 2. exemption attaches on property as long as exclusively used for religious purchases. directly. force majeure b. exclusively used for religious. Has a mansion near the school where the president of the school resides and where guests may be accommodated incidental. parsonages. LGC) 1. incidental to operation of the school D. LGC a. LGC) 1. Near the school is a men·s dorm. civil disturbance c. Charitable institutions. May X claim exemption from Real Property Taxation? Yes. for consideration or otherwise.actually. SPECIAL CLASSES OF REAL PROPERTY (Sec. and all lands. E. buildings. a student center ² exempt. natural calamity d. one-half taxed pursuant to Abra Valley College Case c. or cultivating the same What Are Considered as Idle Lands: (Sec. utilizing. d. Section 238.incidental to operation of school (Bishop of Neva Segovia Case ² vegetable garden near convent is incidental to convent operation) . . and improvements actually. (Caltex v. directly. Constitutional Exemptions .that part not used for educational purpose is subject to real property tax . or convents appurtenant thereto. the underground tanks are taxable as necessary fixtures of the gasoline station without which the gasoline station would not be operational.charter enacted after LGC so that the exemption is not revoked b.except: when beneficial use thereof is granted to a taxable person . and e. and exclusively used by local water districts. Agricultural lands ² 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. directly and exclusively used for religious. title of ownership. Non-Agricultural Lands ² More than 1. to a taxable person. churches. contracts. LGC Idle Lands Exempt From Tax: By reason of: a. corporate charters. president has to live near school B. any cause which legally/physically prevents the owner of the property or person having legal interest therein from BAR OPERATIONS COMMITTEE . owned and used by LOCAL WATER DISTRICTS 4.articles of incorporation. affidavits.traditional exemptees 38 improving. leased by church.cases of MIAA and MCAA: GOCCs are not automatically exempt from real property tax. All real property owned by duly registered cooperatives as provided for under RA 6938. Near the school is a hospital where medical students are trained .

" MIAA is not organized as a stock or non-stock corporation. As for non-stock corporations. vested with functions relating to public needs whether governmental or proprietary in nature. Paranaque. ´Under the 1973 and 1987 Constitutions and Rep. directly and exclusively used for charitable purposes. except for the portions that the MIAA has leased to private parties. MIAA has no stockholders or voting shares. agencies and offices within the entire government machinery. fees or charges of any kind" by local governments.REVIEW NOTES FOR TAXATION 2 39 Note: Incidental exemptions promulgated prior to 1987 Constitution ² meant. the Court declared the Airport Lands and Buildings of the Manila International Airport Authority exempt from the real estate tax imposed by the City of Parañaque. that (a) it is a charitable institution. 2004. MIAA does not qualify as a government-owned or controlled corporation. Thus. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code. and no money inures to the private benefit of the persons managing or operating the institution. as properties of public dominion and owned by the Republic. MIAA is also not a non-stock corporation because it has no members. namely: (1) that it has capital stock divided into shares. they must have members and must not distribute any part of their income to said members. June 29. primarily used for the purposes even if not solely. are properties of public dominion and thus owned by the State or the Republic of the Philippines. where applicable as in the case of stock corporations. CASES: 1. Under Article 420 of the Civil Code. Quezon City. whether out-patient. 2. there is no doubt that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. the Court made a distinction between a GOCC and an instrumentality. under which MIAA is a government instrumentality and not a government-owned or controlled corporation. for an entity to be considered as a GOCC. or. 2006. in which case the specific real property leased becomes subject to real estate tax. Under Section 133(o) of the Local Government Code. or receives subsidies from the government. it cannot be properly classified as a stock corporation. so long as the money received is devoted or used altogether to the charitable object which it is intended to achieve. If only one requisite is present. a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients. The Court declared void all the real estate tax assessments issued by the City of Parañaque on the Airport Lands and Buildings of the MIAA. the Court held that Lung Center of the Philipines." which includes public airports and seaports. those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually. In MIAA v. In Lung Center of the Philippines vs. the Airport Lands and Buildings of MIAA. MIAA as a government instrumentality is not a taxable person because it is not subject to "[t]axes. 7160 in order to be entitled to the exemption. and (2) that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. As properties of public dominion owned by the Republic. The Court based its ruling under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code. MIAA is not a stock corporation because it has no capital stock divided into shares. which governs the legal relation and status of government units. being devoted to public use. the petitioner is burdened to prove. However. only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque. Since MIAA is neither a stock nor a nonstock corporation. it must either be organized as a stock or non-stock corporation. or confined in the hospital. Furthermore. Thus. by clear and unequivocal proof. Thus: Government-owned corporation refers or controlled to any agency BAR OPERATIONS COMMITTEE organized as a stock or non-stock corporation. to the extent of at least fifty-one (51) percent of its capital stock: x x x A government-owned or controlled corporation must be "organized as a stock or non-stock corporation. and (b) its real . and owned by the Government directly or through its instrumentalities either wholly. Article 420 specifically mentions "ports x x x constructed by the State. July 20. Two requisites must concur before one may be classified as a stock corporation. Act No.

CBAA. whether paying or non-paying. 2000. BAR OPERATIONS COMMITTEE . are exempt from real property taxes. In LRTA vs. The petitioner failed to discharge its burden to prove that the entirety of its real property is actually. debarred from participation or enjoyment. though the creation of the LRTA was impelled by public service ² to provide mass transportation in MM. and "exclusively" is defined. July 31. use as ground that they should be exempt due to necessity. the Court held that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them. In Philippine Fisheries Development Authority vs.not clear as to the extent of Lung Center case as to areas which used to be considered as real property tax exempted as incidental .its operations undeniably partakes of ordinary business. exemption in its charter revoked by new LGC c. On the other hand.REVIEW NOTES FOR TAXATION 2 properties are ACTUALLY. the Court reversed the Court of Appeal·s decision which held that petitioner Philippine Fisheries Development Authority is liable to pay real property taxes on the land and buildings of the Iloilo Fishing Port Complex which are owned by the Republic of the Philippines but operated and governed by the Authority. . It is not the use of the income from the real property that is determinative of whether the property is used for taxexempt purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others. taxed on orchidarium. a portion of the land is being leased to a private individual for her business enterprise under the business name "Elliptical Orchids and Garden Center. In DIGITEL vs. Given that it is engage in a service-oriented commercial endeavour.. private clinics 40 Query: are the older cases now not applicable so that they are now taxable? . exclusively used means solely used for charitable purposes b. it is not exclusively used for the exempted purposes but is subject to taxation. respondent Province of Pangasinan can only levy real property tax on the remaining real properties of the grantee located within its territorial jurisdiction not part of the above-stated classification. 2007. DIRECTLY and EXCLUSIVELY used for charitable purposes. direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. Taxation is the rule and exemption is the exception." Accordingly. the portions of the land occupied by the hospital and portions of the hospital used for its patients.µ Analysis: Is Lung Center liable for Real Property Tax? Yes. 4. "in a manner to exclude. LRT is not exempt from real property tax. a. as enjoying a privilege exclusively. said exemption does not apply to the portions of the IFPC which the Authority leased to private entities. February 23.If city decides to tax SLU on its hospital. directly and exclusively used for charitable purposes. What is meant by actual. notwithstanding its claim of being a GOCC. its carriage ways and terminal stations are patrimonial property subject to tax. directly and exclusively used by petitioner DIGITEL in the pursuit of its franchise. The Court ruled that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax." If real property is used for one or more commercial purposes. however. Under its charter. whether paying or non-paying. Solely is synonymous with exclusively. etc. other portions thereof are being leased to private individuals for their clinics and a canteen. . do not use the word ´incidentalµ 3. However. parking lot. Court of Appeals. incidental exemption no longer recognized d. Province of Pangasinan. the Court ruled that in view of the unequivocal intent of Congress to exempt from real property tax those real properties actually. 2007. Said exemption. 5. Further. October 12. canteen. merely applies from the time of the effectivity of petitioner DIGITEL·s legislative franchise and not a moment sooner. The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law.

like assigning lower assessment levels to residential properties and higher levels to properties used in business. not the heirs because they were not the owners nor beneficial owners at the time b. not GSIS because at the time it was exempt c. b) fixing the assessment levels to be applied to the market values of real properties.LGUs (within and outside MM) may also grant condonation which actually partake of exemption. 192 LGC) .A.owner is liable Doctrine of Use . 219. c) providing necessary appropriation to defray expenses incident to general revision of real property assessments.REVIEW NOTES FOR TAXATION 2 With respect to these properties. 7160. Manila. No. and whoever uses it. owned by GSIS for the years 1977 to 1978. city or municipality concerned or the posting in the provincial capitol or other places as required by law. LGU in MM can exempt the 5% ad valorem tax on idle lands. although tax payments can be made either higher or lower depending on their percentage (assessment level) applied to the fair market value of property to derive its assessed value which is subject to tax. to wit: (1) The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned. incentives or reliefs under such terms and conditions. as they may deem necessary. valued and assessed on the basis of actual use regardless of where located. except those portions which have been leased to private entities. 2. In 1979. Beneficial User May Be Liable if: * he leased property from the government * he leased property from an exempt owner * use is not exempt from real property tax 2. may through ordinances duly approved. With the introduction of assessment levels. February 19. the Court discussed the steps to be followed for the mandatory conduct of General Revision of Real Property assessments. The preparation of fair market values as a preliminary step in the conduct of general revision was set forth in Section 212 of R. May LGUs grant exemption? Yes Power to Grant Local Exemptions (Sec. Procedure in Real Property Taxation 41 In Lopez vs. The Court also laid down the procedure in computing the real property tax.Although powerless to grant RPT exemption. GSIS foreclosed the property mortgaged by Lim and for failure to redeem. 1990. February 21. F. (2) The schedule of fair market values shall be published in a newspaper of general circulation in the province. of R. In Testate Estate of Concordia Lim vs.property is exempt due to Use (REC-religious. The computation of real property tax is cited below: Market Value Pxxx Multiplied by (x %) Assessed Value Multiplied by Rate of Tax (x %) Assessment Level Pxxx BAR OPERATIONS COMMITTEE .A.LGUs. beneficial users or those using the property for commercial use must pay however not made liable since not impleaded H. . As such. heirs of Lim repurchased the property. it is generally exempt from payment of real property tax. educational. LGC) Real property shall be classified. Moreover. Who is lible for the back taxes? a. G. and d) adopting the Schedule of Fair Market Values prepared by the assessors. whoever owns it. Who are liable for the Real Property Taxes 1. 1999. The procedural steps in computing the real property tax are as follows: 1) Ascertain the assessment level of the property 2) Multiply the market value by the applicable assessment level of the property 3) Find the tax rate which corresponds to the class (use) of the property and multiply the assessed value by the applicable tax rates. charitable) Actual Use of Property as Basis for Assessment (Sec. Ownership vs. The enactment of Ordinances: a) levying an annual "ad valorem" tax on real property and an additional tax accruing to the SEF. 7160 which are as follows: 1. Use Doctrine of Ownership . tax rates could be maintained. . The preparation of Schedule of Fair Market Values. 217. grant tax exemptions. the Authority is liable to pay real property tax. Manila sought to levy real property tax on heirs for back taxes covering 1977 and 1978. The Authority should be classified as an instrumentality of the national government. City of Manila. pursuant to the provision of Sec. classes and values of real properties can be given proper consideration.

204) WHEN only when the person under Sec 202 refuses or fails to make the declaration within the prescribed time. it was held that the unpaid tax attaches 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. real property shall be assessed for back taxes a) for not more than ten (10) years 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 *Assessor will compare the entry on file with the Registry of Deeds and the assessment roll in his office. administrator or their representatives to declare. In the case of Testate Estate of Concordia Lim V. partnership and association ² same as individuals o Owned by the Republic of the Philippines. if known. To impose the real property tax on the subsequent owner who 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. 205.For document notarization. the Court ruled that forestall the practice of initially setting unreasonably high reassessment values only to eventually change them to unreasonably lower values upon "requests" of property owners. Appraisal . . LGC) Owner or Administrator (Secs. 1990. city or municipal assessor. 1998. under oath. Listing of all properties subject to the tax. The valuation of such properties. beneficial use is transferred to a taxable person ² in the name of the possessor All declarations shall be kept and filed under a uniform classification system to be established by the provincial.REVIEW NOTES FOR TAXATION 2 Real Property Tax Pxx 1. must furnish the assessors a copy 2. the property will be listed as taxable in the roll BAR OPERATIONS COMMITTEE . Ombudsman. including the discovery. 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 submittedwithin 30 days. political subdivisions. building officials Prior to construction of building. 201-204 LGC). Steps in assessment of Real Property : 1. Provincial / City / Municipal Assessor (Sec. c. and appraisal of properties. In Callanta vs. as required in procuring building permit. 42 ‡ IF proven to be tax-exempt. No oath by assessor is required ‡ NOTE: IF FILING FOR EXEMPTION (Sec. 222) If declared for 1st time. where the issue was whether officials and employees of the Office of the City Assessor may reduce the new assessed values of real properties upon requests of the affected property owners. d. the true value of real property. and 2. Declaration of Real Properties ² whose duty? DECLARATION OF REAL PROPERTY It shall be the responsibility of the owner. o Undivided real property ² in the name of the estate or heirs or devisees o Corporation. classification. Notaries Public . and to assess the property for taxation. taxable or exempt.the act or process of determining the value of a property.the act or process of determining the value of property as of a specific date for a specific purpose. or proportion thereof subject to tax. LISTING OF REAL PROPERTY IN THE ASSESSMENT ROLLS (Secs. February 21. listing. the law gives no such authority to the city assessor or his subalterns. January 30. SWORN statement containing FMV and description of property IF improvement on real property a. within 60 days after the acquisition. petitioners' unauthorized reduction of the assessed values ineluctably resulted in the local government's a. files with assessor within 60 DAYS from date of transfer a b. SWORN statement containing FMV and description of property b. or against an unknown owner as the case may be. (Secs.For lands surveyed e. Permit transmitted by building officials to Registry of Deeds. Thus. 207) Listing of all Real Property whether taxable or exempt within the jurisdiction of LGU in the assessment roll. The sworn declaration shall be filed once every 3 years before June 30th of the year commencing 1992. property will be dropped from the roll ‡ NOTE: IF PROPERTY DECLARED FOR THE FIRST TIME (Sec. its instrumentalities. file w/in 60 DAYS upon completion or occupation (whichever is earlier) b. Geodetic engineers .. City of Manila. 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. Valuation by Assessors Assessment . The failure or refusal to make that declaration within the prescribed period would authorize the provincial or city assessor to declare the property in the name of the defaulting owner. 202-203.

projects or improvements funded by the LGU . not more than 60% of actual cost of project 3. Assessor prepares a schedule of FMV for different classes of properties.Classification of lands made by respective sanggunian in accordance with zoning ordinances. livestock and poultry.publication c. had every legal right to feel aggrieved and to institute the proceeding against petitioners. June 8. LGC states that: BAR OPERATIONS COMMITTEE . levy ad valorem taxes (see above) ii. 213. 2007. 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. industrial. Commercial ² land devoted principally for the object of profit and is not classified as agricultural.hearing and modification of prepared schedule b. Agricultural ² land devoted principally to the planting of trees. exist in sufficient quantity or grade to justify the necessary expenditures to extract and utilize such materials 5. Municipalities cannot fix real estate tax rates.Cities. Procedure: a. 212. LGC) Classification of Land for purposes of assessment .Provinces ² not more than 1% of assessed value. Residential ² land principally devoted to habitation 4. Special Levy Requirements for validity: 1. -It is based on actual use. therefore. Sanggunian enacts an ordinance.REVIEW NOTES FOR TAXATION 2 deprivation of the corresponding revenues.adoption of real property ordinance with assessment levels Coverage / Types of Real Property Tax: 1. 218) Procedure 1. Association of Benevola de Cebu. nature and value. The city government of Cebu. extent of project c. (sec. Special Education Fund (SEF) . in line with City Tax Ordinance LXX of Cebu City. 4. salt making.on lands specially benefited by public works. metallic or nonmetallic. applying Secs. take the schedule of FMV (Fair Market Value) 2.Special levy shall not exceed 60% of the actual cost of such projects and improvements. inland fishing and similar aquacultural activities. Special Assessments/ For Public Works .1% additional real estate tax to finance the SEF (Sec. LGC).LGC) 2. infrastructure project financed by government whereby real property owners benefit from it 2. Municipalities in MM ² not more than 2% of assessed value 2. LGC 1. timber. Industrial-land devoted principally to industrial activity as capital investment and is not classified as agricultural. not less than five but not more than ten years 4. its ownership amount.May be imposed even by municipalities outside MM provided: . Additional Ad Valorem on the Lands ² not exceeding 5% of the assessed value of the property (Sec. or residential land 2. In City Assessor of Cebu City vs. mineral or residential land 6. commercial.Mineral. b. nature of project b. thru an ordinance a.adoption of the schedule d. 215-216. the 10% special assessment should be imposed for the Chong Hua Hospital Medical Arts Center (CHHMAC) building which should be classified as ´specialµ. mineral. 3. Special levies: a. Real Property Tax = Assessed value x Allowable Real Property Tax rate 4.lands which minerals. Fix Assessment levels Assessment level ² is the percentage applied to the fair market value to determine the taxable or taxation value of the property. For Brand New machinery : FMV is acquisition cost 2. 224-225) How to determine Fair Market Value: For Land 1. metes and bounds What may be done: i. Preparation of Schedule of Fair Market Values APPRAISAL AND VALUATION OF REAL PROPERTY (Sec 212-214. LGC) c. In all other cases: FMV = Remaining economic life x Replacement cost DETERMINE ASSESSED VALUE (Sec. Assessed value = FMV x Assessment level 3. and other agricultural activities 3. 3. dairying. 236.Enactment of a Real Property Tax Ordinance 43 Barangays cannot impose realty taxes. Sec. raising of crops. Timberland 7. For Machinery 1. timber. Lost or reduced revenues undeniably translate into damages or injury within the contemplation of the law. 240. of LGC.Sec 218. Special .236) ² within MM area only b. Basic real property tax / Annual Ad Valorem Tax For real property not specifically exempted a. cost spent d. 216. Assessor of the province/city or municipality may summon the owners of the properties to be affected and may take depositions concerning the property. (Sec. 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. Actual use refers to the purpose for which the property is principally or predominantly utilized by the person in possession thereof.

247. and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special. directly and exclusively used for hospitals. . It is synonymous with taxable value. 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. in case there is fraud or intent to evade Period of prescription shall be SUSPENDED when: (Sec 270. and other improvements thereon actually. Adopt Schedule of Fair Market Values Fair Market Value and Assessed Value ² What·s the difference? Fair Market Value (FMV) price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy Assessed Value or Assessment Value (AV) fair market value of the real property multiplied by the assessment level.Sep 30. city.discount not exceeding 20% of annual tax (Sec 251. and those owned and used by local water districts. from discovery of fraud. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to collect 3. iii. buildings. Special Classes of Real Property.two percent (2%) each month on unpaid amount until the delinquent amt is paid. LGC) The collection of the real property tax with interest thereon and related expenses and the enforcement of the remedies provided by the LGC or any applicable laws shall be the responsibility of the city or municipal treasurer concerned. cultural or scientific purposes.provided in no case shall the total interest exceed thirty-six (36) months Advance and Prompt Payment a) advance payment . Provide for appropriations iv. 246) How: a. 216.²²All lands. municipal or barangay treasurer Period Within Which To Collect (Sec 270): BAR OPERATIONS COMMITTEE .discount not exceeding 10% of annual tax due(Art 342 IRR) Collection of Tax (Sec. local treasurer is legally prevented to collect tax 2. the owner of the property is out of the country or cannot be located Payment of Tax When: January 1 of every year (Sec 246) The tax shall constitute as superior lien (Sec. LGC) 1. LGC) b) prompt payment .governed by ordinance Interest for Late Payment . Who Collects: The provincial. Dec 31) b.Jun 30. basic real prop tax in 4 equal installments (Mar 31.REVIEW NOTES FOR TAXATION 2 44 SEC. special levy . Within five (5) yrs from the date they become due within ten (10) yrs.

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