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1AxA1lCn
SÞLClAL Þ8L-WLLk 8A8 8LvlLW
Atty. vlc c. Momoloteo
SepL. 9, 2010
SAN SL8AS1IAN CCLLLGL CI LAW
• INCCML 1Ak
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lnCCML 1Ax
• lnCCML 1Ax
– 1ax on all yearly proflLs arlslng from properLy, professlons, Lrades or
offlces, or as a Lax on a person's lncome, emolumenLs, proflLs and Lhe
llke (llsbet v. 1tlolJoJ).
– lncome Lax ls a dlrecL Lax on acLual or presumed lncome (gross or neL)
of a Laxpayer recelved, accrued or reallzed durlng Lhe Laxable year.
• Wl1PPCLulnC 1Ax
– lL ls noL an lnLernal revenue Lax buL a mode of collecLlng lncome Lax ln
advance on lncome of Lhe reclplenL of lncome Lhru Lhe payor of
lncome. [nC1L: Sec. 21, nl8C enumeraLes varlous lnLernal revenue
Laxes.]
– 1here are 2 Lypes of wlLhholdlng Laxes, namely: (1) flnal wlLhholdlng
Lax, and (2) credlLable wlLhholdlng Lax.
llnAL Wl1PPCLulnC 1Ax
• llnAL Wl1PPCLulnC lnCCML 1Ax
– lW1 wlLhheld by Lhe payor of lncome (e.g., 20° lW1 on lnLeresL
lncome on bank deposlLs) represenLs luLL paymenL of lncome Lax due
on such lncome of Lhe reclplenL.
– lncome payee (or reclplenL of lncome) does noL reporL lncome
sub[ecLed Lo lW1 ln hls lncome Lax reLurn, alLhough lncome ls
reflecLed ln hls audlLed flnanclal sLaLemenLs for Lhe year. Powever, he
ls noL allowed Lo clalm any Lax credlL on lncome sub[ecLed Lo lW1.
– WlLhholdlng agenL flles Lhe wlLhholdlng Lax reLurn, whlch lncludes Lhe
lW1 deducLed from Lhe lncome payee, and pays Lhe Lax Lo Lhe 8l8.
1here ls no CerLlflcaLe of 1ax WlLhheld lssued Lo lncome payee.
– no CerLlflcaLe of 1ax WlLhheld (8l8 lorm 2307) ls aLLached Lo Lhe
lncome Lax reLurn of reclplenL of lncome because he does noL clalm
any Lax credlL ln hls Lax reLurn.
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lnCCML 1Ax S?S1LMS
• GLC8AL 1Ak S¥S1LM
– CompensaLlon lncome noL sub[ecL Lo lW1
– 8uslness and/or professlonal lncome
– CaplLal galns noL sub[ecL Lo lW1
– Þasslve lnvesLmenL lncome noL sub[ecL Lo lW1
– CLher lncome noL sub[ecL Lo lW1
• SCnLDULAk 1Ak S¥S1LM
– CompensaLlon lncome sub[ecL Lo lW1 (salary of C8u expaL)
– CaplLal galns sub[ecL Lo lW1 (real properLy ln Lhe Þhll and shares of
domesLlc corporaLlon)
– Þasslve lnvesLmenL lncome sub[ecL Lo lW1 (lnLeresL on bank deposlL)
– CLher lncome sub[ecL Lo lW1 (auLo won on x'mas raffle)
• 1he Þhlllpplnes adopLed Lhe seml-global or seml-schedular Lax
sysLem. LlLher Lhe global or schedular sysLem, or boLh
sysLems may apply Lo a Laxpayer.
lC8MuLA
• GLC8AL S¥S1LM
• Cross sales/revenue
• Less: CosL of sales/servlce
• Cross lncome
• Less: ueducLlons
• ÞAL (for lndlvldual)
• neL Laxable lncome
• MulLlplled by appllcable
raLe (graduaLed or flaL)
• lncome Lax due
• Less: CredlLable W1
• 8alance
• SCnLDULAk S¥S1LM
• Cross selllng prlce or falr
markeL value, whlchever ls
hlgher Llmes appllcable Lax
raLe = 1ax due (real
properLy)
• Cross selllng prlce less cosL
or ad[usLed basls = CaplLal
galn Llmes appllcable Lax
raLe = 1ax due (shares of
dom corp)
• Cross lncome Llmes
appllcable raLe = 1ax due
(passlve lnv lncome)
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nA1u8L Cl ASSL1
• CkDINAk¥ ASSL1
• CAÞI1AL ASSL1
• lnvenLory lf on hand aL end of
Laxable year
• SLock ln Lrade held prlmarlly for
sale or for lease ln Lhe course of
Lrade or buslness
• AsseL used ln Lrade or buslness,
sub[ecL Lo depreclaLlon
• 8eal properLy used ln Lrade or
buslness
• All oLher asseLs, wheLher or noL
used ln Lrade or buslness, oLher
Lhan Lhe above asseLs
8LAL Þ8CÞL81? 18AnSAC1lCnS
• Sale of real properLy
– Who ls seller?
• Þerson engaged ln real properLy buslness (dealer, developer, or lessor)
• Þerson noL engaged ln real properLy buslness
– non-sLock, non-proflL assoclaLlon (chamber of commerce, ?MCA)
– naLure of properLy?
• Crdlnary asseL
• CaplLal asseL
– LocaLlon of properLy?
• WlLhln Lhe Þhlllpplnes
• CuLslde Lhe Þhlllpplnes
– Þrlnclpal resldence?
• ?es - exempL, lf condlLlons for exempLlon are saLlsfled by seller-lndlvldual
• no - Laxable
– ConslderaLlon?
• lull conslderaLlon or falr markeL value
• lnadequaLe conslderaLlon
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klnuS Cl 1AxÞA?L8S
• lnulvluuAL
– Cl1lZLn
• 8esldenL - 1axab|e on wor|dw|de |ncome
• non-resldenL - 1axable on lncome from sources wlLhln Lhe Þhll
– lmmlgranL or permanenL worker - n8C from daLe of deparLure from Lhe Þhll
– ClW (seamen) - n8C lf hls aggregaLe sLay ouLslde Lhe Þhll ls more Lhan 183 days
– ALlLn - 1axable on lncome from sources wlLhln Lhe Þhll
• 8esldenL
• non-resldenL
– Lngaged ln Lrade or buslness (more Lhan 180 days ln Lhe Þhll)
– noL engaged ln Lrade or buslness (180 days or less sLay ln Þhll)
• CC8ÞC8A1lCn
– uCMLS1lC - 1axable on worldwlde lncome
– lC8LlCn - 1axable on lncome from sources wlLhln Lhe Þhll
• 8esldenL (e.g., Þhll branch of forelgn corporaLlon)
• non-resldenL
– 1LS1 lC8 1Ax Þu8ÞCSLS: Law of lncorporaLlon
ÞA81nL8SPlÞS
• 1AxA8LL
– ÞarLnershlps, no maLLer how creaLed or organlzed, lncludlng [olnL
venLures or consorLlums
• LxLMÞ1
– Ceneral professlonal parLnershlp (CÞÞ), buL parLners are Laxed on
Lhelr share of parLnershlp proflLs acLually or consLrucLlvely pald durlng
Lhe year
– !olnL venLure or consorLlum underLaklng consLrucLlon acLlvlLy or
energy-relaLed acLlvlLles wlLh operaLlng conLracL wlLh Lhe governmenL
• AgreemenL Lo manage and operaLe mlne denomlnaLed as ºÞower of ALLorney"
ls ln reallLy a parLnershlp. Þhllex ls a parLner because lL would recelve 30° of
neL proflLs as compensaLlon under Lhe agreemenL, lL does noL appear LhaL
8agulo Cold was uncondlLlonally obllgaLed Lo pay Lhe advances, lL was unllkely
for a buslness Lo lend hundreds of mllllons wlLhouL securlLy or collaLeral and
wlLhouL speclflc daLe when advance shall be due and payable (lbllex Mloloq
cotp v. clk, 2008).
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8LSluLn1 lC8LlCn CC8ÞS
• 1AxA8LL
– Crdlnary branch of a forelgn corporaLlon ln Lhe Þhll (30° of neL
Laxable lncome from sources wlLhln Lhe Þhll)
• ÞLZA- & S8MA-reglsLered branch are exempL from branch proflL
remlLLance Lax
– 8eglonal operaLlng headquarLers (8CPC) - 10° of neL Laxable
lncome from sources wlLhln Lhe Þhll
– Cffshore banklng unlL (C8u) and forelgn currency deposlL unlL
(lCuu) [lnC 8ank Manlla v. Cl8] - 10° on gross lnLeresL lncome on forelgn
currency loans
– lnLernaLlonal carrlers by alr or waLer - 2.3° of Cross Þhll 8llllngs
– lorelgn conLracLor or sub-conLracLor engaged ln peLroleum
operaLlons ln Lhe Þhll - 8° of gross lncome
• LxLMÞ1
– 8epresenLaLlve offlce
– 8eglonal headquarLers (8PC)
SCu8CLS Cl lnCCML
• Interest - lnLeresL from sources wlLhln Þhll and lnLeresL on bonds and obllgaLlons
of resldenLs, corporaLe or oLherwlse
• D|v|dend - lrom domesLlc corporaLlon and from forelgn corporaLlon, unless less
Lhan 30° of gross lncome of forelgn corporaLlon for 3 years prlor Lo declaraLlon of
dlvldends was derlved from sources wlLhln Lhe Þhll, hence, apply only raLlo of Þhll-
source lncome Lo gross lncome from all sources
• Serv|ces - Þlace where servlces are performed, excepL ln case of lnLernaLlonal alr
carrler and shlpplng llnes whlch are Laxed aL 2.3° on Lhelr Cross Þhll 8llllngs.
8evenues from Lrlps orlglnaLlng from Lhe Þhll are consldered as lncome from
sources wlLhln Lhe Þhlllpplnes, whlle revenues from lnbound Lrlps are LreaLed as
lncome from sources ouLslde Lhe Þhlllpplnes.
• kenta|s and roya|t|es - LocaLlon or use of properLy or properLy rlghL ln Þhll
• Sa|e of rea| property - LocaLed ln Lhe Þhlllpplnes
• Sa|e of persona| property - LocaLed ln Lhe Þhlllpplnes
• Ga|n from sa|e of shares of stocks of a domest|c corporat|on ls ALWA?S LreaLed as
lncome from sources wlLhln Lhe Þhlllpplnes.
• Cther |ntang|b|e property - Moblllo sepoootot petsooom - lt follows Jomlclle of
owoet
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C8CSS lnCCML
• SALL Cl CCCuS
• Cross Sales
• Less: CosL of Sales:
• 8eg. lnvenLory
+ Þurchases
1oLal avallable for sale
- Lndlng lnvenLory
CosL of Sales
• Cross lncome
• 1lmes 2°
• MCl1
• nC1L: MCl1 ls now compuLed
on quarLerly basls. lf quarLerly
MCl1 > Lhan 8Cl1, excess MCl1
of prlor year ls noL allowed.
• SALL Cl SL8vlCLS
• Cross 8evenue
• Less: CosL of Servlce
• conslsLlng of all dlrecL
• cosLs and expenses
• Cross lncome
• 1lmes 2°
• MCl1
nC1L: MCl1 ls lmposed beglnnlng on
Lhe 4
Lh
Laxable year lmmedlaLely
followlng Lhe year ln whlch Lhe
corp commenced bus operaLlons
(5ec 27(í)(1), Nlkc)
Þay MCl1 afLer 4 years lmmedlaLely
followlng Lhe year bank
commenced bus operaLlons
(Moollo 8ook v clk, Ck 168118, Aoq 28,
2006)
lnCCML
• lnCCML means cash or lLs equlvalenL comlng Lo a person wlLhln a
speclfled perlod, wheLher as paymenL for servlces, lnLeresL or proflL from
lnvesLmenL. lL covers galn derlved from caplLal, from labor, or from boLh
comblned, lncludlng galn from sale or converslon of caplLal asseLs.
– l81 ls a Lax on frlnge beneflLs recelved by employees, alLhough Lhe Lax ls assumed by
Lhe employer-payor of lncome.
• 8eLurn of caplLal ls exempL from lncome Lax (e.g., Lax-free exchange of
properLy).
• 1o be Laxable, Lhere musL be lncome, galn or proflL, galn ls recelved,
accrued or reallzed durlng Lhe year, and lL ls noL exempL from lncome Lax
under Lhe ConsLlLuLlon, LreaLy or law.
– Mere lncrease ln Lhe value of properLy does noL consLlLuLe Laxable lncome. lL
ls noL yeL reallzed durlng Lhe year.
– 1ransfer of appreclaLed properLy Lo Lhe employee for servlces rendered ls
Laxable lncome.
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1LS1 ln uL1L8MlnlnC lnCCML
• 8eallzaLlon LesL
– 1here musL be separaLlon from caplLal of someLhlng of
exchangeable value (e.g., sale of asseL)
• Clalm of rlghL docLrlne
– Cl8 v. !avler, 199 SC8A 824
• Lconomlc beneflL LesL
– SLock opLlon glven Lo Lhe employee
– ÞaymenL of real properLy LhaL has appreclaLed ln value by
employer Lo lLs employee
• lncome from whaLever source
– All lncome noL expressly exempLed from lncome, lrrespecLlve of
volunLary or lnvolunLary acLlon of Laxpayer ln produclng lncome
nA1u8L Cl lnCCML
• CCMÞLnSA1lCn lnCCML
– LxlsLence of employer-employee relaLlonshlp
• 8uSlnLSS Anu/C8 Þ8ClLSSlCnAL lnCCML
– nC employer-employee relaLlonshlp
• CAÞl1AL CAln
– 8eal properLy ln Lhe Þhll and shares of sLock of domesLlc corporaLlon
– CLher sources of caplLal galn
• ÞASSlvL lnvLS1MLn1 lnCCML
– lnLeresL, dlvldend, and royalLy lncome
– 8l8 cannoL compuLe compounded lnLeresL on delay ln paymenL of
promlssory noLes ln Lhe absence of sLlpulaLlon ln conLracL (clk v. lsobelo
coltotol cotp, Ck 1722J1, leb 12, 2007).
• C1PL8 lnCCML
– Þrlzes and wlnnlngs
– All oLher lncome, galn or proflL noL covered by Lhe above classes
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CCS1 C8 Au!uS1Lu 8ASlS
• lC8MuLA
– AmounL reallzed/Selllng prlce 100
– Less: CosL or ad[usLed basls 80
– Caln/(loss) from sale 20
• ºAmounL reallzed" shall be Lhe sum of money recelved plus Lhe falr markeL
value of Lhe properLy (oLher Lhan money) recelved (Sec 40A, nl8C).
• 8asls of properLy:
– lf acqulred by purchase, cosL,
– lf acqulred by lnherlLance, lMv aL daLe of acqulslLlon,
– lf acqulred by donaLlon, basls ln Lhe hands of donor,
– lf acqulred for lnsufflclenL conslderaLlon, amounL pald by
Lransferee for Lhe properLy (Sec 40(8), nl8C).
C8CSS ÞPlL 8lLLlnCS
• A. CÞ8 applles on revenue from LransporL of passengers,
cargoes or mall orlglnaLlng from Lhe Þhlllpplnes
– ln1L8nA1lCnAL Al8 CA88lL8
• lrom Þhll Lo forelgn desLlnaLlon
– ConLlnuous and unlnLerrupLed fllghL
– 1ranshlpmenL of passenger ln anoLher counLry on anoLher forelgn alrllne: CÞ8 Lax
applles only on allquoL porLlon of revenue on Þhlllpplne leg (Þhll Lo forelgn
counLry)
• lrom forelgn counLry Lo Lhe Þhll
– 1hls ls LreaLed as lncome from forelgn sources, hence, exempL from Þhll lncome Lax
– ln1L8nA1lCnAL SPlÞÞlnC LlnL
• lrom Þhll Lo flnal forelgn desLlnaLlon ls Laxable
• lrom forelgn counLry Lo Þhll ls exempL
• 8. C8ulnA8? lnCCML
– uemurrage fees (for laLe reLurn of conLalners) are akln Lo
renLal lncome sub[ecL Lo ordlnary corporaLe lncome Lax
raLe based on neL Laxable lncome from sources wlLhln Lhe
Þhlllpplnes
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ln1L8LS1 lnCCML
• 1?ÞLS Cl ln1L8LS1 lnCCML
– Sub[ecL Lo lW1:
• (a) lnLeresL lncome of deposlLor on bank deposlLs, deposlL subsLlLuLes,
LrusL and oLher slmllar arrangemenLs
– 20° lW1 - peso deposlL
– 7.3° lW1 - forelgn currency deposlL wlLh C8u/lCuu (lf deposlLor ls
resldenL) and exempL from Lax, lf deposlLor ls a non-resldenL
• (b) lnLeresL lncome of C8u/lCuu on forelgn currency loans Lo (1)
resldenLs - 10° of gross lnLeresL lncome, or (2) non-resldenLs, C8us,
local commerclal banks, lncludlng branches of forelgn banks - exempL
from all Laxes.
– nC1 sub[ecL Lo lW1 buL sub[ecL Lo regular Lax raLes (3°-32°, lf lndlvldual, 30°, lf
corporaLlon): All oLher lnLeresL lncome or flnanclng lncome
– LxempL lncome:
• Long-Lerm deposlL or lnvesLmenL by lndlvlduals
– 1axable lncome:
• ÞreferenLlal Lax raLe - Þre-LermlnaLlon of long-Lerm deposlL by lndlvldual (20°: 1- less
Lhan 3 yrs, 12°: 3 yrs-less Lhan 4 yrs, 3°: 4 yrs-less Lhan 3 yrs), and lnLeresL on forelgn
loan
• 8egular Lax raLe (30°) - All oLher cases
ulvluLnu lnCCML
• 8LCulSl1LS lC8 ulvluLnu uLCLA8A1lCn
– Þresence of reLalned earnlngs
– no prohlblLlon Lo declare dlvldend ln loan agreemenL
– ueclaraLlon of dlvldend by 8oard of ulrecLors
• 1?ÞLS Cl ulvluLnuS
– 1axable
• Cash dlvldend
• ÞroperLy dlvldend
– LxempL
• SLock dlvldend (excepL when Lhere ls change ln proporLlonaLe lnLeresL
among sLockholders and Lhere ls subsequenL cancellaLlon or redempLlon
of shares declared as sLock dlvldend)
• LlquldaLlng dlvldend - dlsLrlbuLlon of asseLs Lo sLockholders
– 1axable on Lhe parL of sLockholder under Lhe global Lax sysLem
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ulvluLnu lnCCML
• lnLer-corporaLe dlvldend: LxempL from Lax
– CorporaLlon paylng dlvldend: uomesLlc corporaLlon
– 8eclplenL of dlvldend: AnoLher domesLlc corporaLlon or resldenL
forelgn corporaLlon
• ulvldend pald Lo non-resldenL forelgn corporaLlon
– CorporaLlon paylng dlvldend: uomesLlc corporaLlon
– 8eclplenL of dlvldend
• lorelgn head offlce makes dlrecL lnvesLmenL ln Þhll company: 13° lW1
• Þhll branch of forelgn corporaLlon makes lnvesLmenL ln Þhll company:
LxempL from lncome Lax
– 1ax-sparlng provlslon
• lf forelgn counLry does noL lmpose lncome Lax on dlvldend pald by forelgn
corporaLlon
C1PL8 lnCCML
• Income from any source whatever
• 1he words ºlncome from any source whaLever" dlscloses a leglslaLlve
pollcy Lo lnclude all lncome noL expressly exempLed from Lhe class of
Laxable lncome under our laws {MoJtlqol vs. koffetty, sopto, commlsslooet vs.
8OAc). 1he words ºlncome from any source whaLever" ls broad enough Lo
cover galns conLemplaLed here. 1hese words dlsclose a leglslaLlve pollcy
Lo lnclude all lncome noL expressly exempLed wlLhln Lhe class of Laxable
lncome under our laws, lrrespecLlve of Lhe volunLary or lnvolunLary acLlon
of Lhe Laxpayer ln produclng Lhe galns (Cotlettez vs. collectot, c1A cose 65, Aoq. J1,
1955).
• Any economlc beneflL Lo Lhe employee whaLever may have been Lhe
mode by whlch lL ls effecLed ls Laxable. 1hus, ln sLock opLlons, Lhe
dlfference beLween Lhe falr markeL value of Lhe shares aL Lhe Llme Lhe
opLlon ls exerclsed and Lhe opLlon prlce consLlLuLes addlLlonal
compensaLlon lncome Lo Lhe employee (commlsslooet vs. 5mltb, J24 u.5. 177).
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LxCLuSlCnS
• Llfe lnsurance proceeds
• AmounL recelved by lnsured as reLurn of premlum
• ClfLs, bequesLs and devlses
• CompensaLlon for ln[urles or slckness
• lncome exempL under LreaLy
• 8eLlremenL beneflLs, penslons, graLulLles
– 8.A. 7641 (3 yrs & 60 yrs) and 8.A. 4917 (10 yrs & 30 yrs)
• lnLeresL lncome of employee LrusL fund or accredlLed reLlremenL plan ls exempL
from lW1 (clk v. Ccl ketltemeot lloo, 207 5ckA 487)
– AmounL recelved as a consequence of separaLlon because of deaLh, slckness
(tbot wlll eoJooqet llfe of employee) or oLher physlcal dlsablllLy or for any
cause beyond Lhe conLrol of employee
• Mlscellaneous lLems
– lncome of forelgn governmenL
– lncome of governmenL or lLs pollLlcal subdlvlslons from any publlc uLlllLy or
exerclse of governmenLal funcLlon
LxLMÞ1 ASSCClA1lCnS
• 1he phrose "ony of their octivities conducted for profit" does not quo/ify the
word "properties."-- 1he phrase ºany of Lhelr acLlvlLles conducLed for proflL" does noL
quallfy Lhe word ºproperLles." 1hls makes lncome from Lhe properLy of Lhe organlzaLlon
Laxable, regardless of how LhaL lncome ls used - wheLher for proflL or for lofLy non-proflL
purposes. 1hus, Lhe lncome derlved from renLals of real properLy owned by Lhe ?oung Men's
ChrlsLlan AssoclaLlon of Lhe Þhlllpplnes, lnc. (¥MCA), esLabllshed as a welfare, educaLlon and
charlLable non-proflL corporaLlon, ls sub[ecL Lo lncome Lax. 1he renLal lncome cannoL be
exempLed on Lhe sollLary buL unconvlnclng ground LhaL sald lncome ls noL collecLed for proflL
buL ls merely lncldenLal Lo lLs operaLlon. 1he law does noL make a dlsLlncLlon. Where Lhe law
does noL dlsLlngulsh, nelLher should we dlsLlngulsh. 8ecause Laxes are Lhe llfeblood of Lhe
naLlon, Lhe CourL has always applled Lhe docLrlne of sLrlcL lnLerpreLaLlon ln consLrulng Lax
exempLlons. ?MCA ls exempL from Lhe paymenL of properLy Laxes only buL noL lncome Laxes
because lL ls noL an educaLlonal lnsLlLuLlon devoLlng lLs lncome solely for educaLlonal
purposes. 1he Lerm ºeducaLlonal lnsLlLuLlon" has acqulred a well-known Lechnlcal meanlng.
under Lhe LducaLlon AcL of 1982, such Lerm refers Lo schools. 1he school sysLem ls
synonymous wlLh formal educaLlon whlch ºrefers Lo Lhe hlerarchlcally sLrucLured and
chronologlcally graded learnlngs organlzed and provlded by Lhe formal school sysLem and for
whlch cerLlflcaLlon ls requlred ln order for Lhe learner Lo progress Lhrough Lhe grades or
move Lo hlgher levels (commlsslooet vs. coott of Appeols ooJ ¥McA of tbe lblls., C.k. No.
12404J, Oct. 14, 1998).
13
uLuuC1lCnS
• klnuS Cl uLuuC1lCnS
– lLemlzed ueducLlons
– CpLlonal SLandard ueducLlons
– Speclal ueducLlons
• l1LMlZLu uLuuC1lCnS
– 8uslness expenses, lncl. research and developmenL
– lnLeresLs
– 1axes
– Losses
– 8ad debLs
– uepreclaLlon
– uepleLlon
– CharlLable conLrlbuLlons
– ConLrlbuLlons Lo penslon LrusL
– PealLh or hosplLallzaLlon premlum
uLuuC1lCnS
• 8uSlnLSS LxÞLnSLS
• 1. 1he expense musL be ordlnary and necessary,
• 2. Þald or lncurred durlng Lhe Laxable year,
• 3. ln carrylng on or whlch are dlrecLly aLLrlbuLable Lo Lhe develop-
• menL, managemenL, operaLlon and/or conducL of Lhe Lrade,
• buslness or exerclse of professlon,
• 4. SupporLed by adequaLe lnvolces or recelpLs,
• 3. noL conLrary Lo law, publlc pollcy or morals. CperaLlng expenses
• of an lllegal or quesLlonable buslness are deducLlble, buL
• expenses of an lnherenLly lllegal naLure, such as brlbery and
• proLecLlon paymenLs, are noL.
• 6. 1he Lax requlred Lo be wlLhheld on Lhe amounL pald or payable ls
• shown Lo have been pald Lo Lhe 8l8.
• CCnvLnlLnCL Cl 1PL LMÞLC?L8 8uLL: Llvlng quarLers or meals furnlshed Lo
employee shall be added Lo compensaLlon lncome sub[ecL Lo Lax. Powever, lf such
llvlng quarLers or meals are furnlshed Lo an employee for Lhe convenlence of Lhe
employer, Lhe value Lhereof need noL be lncluded as compensaLlon (88 2-86 & 3-
98)

14
AuvL81lSlnC LxÞLnSL
• An expense ls ºordlnary" when lL connoLes a paymenL, whlch ls normal ln
relaLlon Lo Lhe buslness of Lhe Laxpayer and Lhe surroundlng
clrcumsLances.
• An expense ls ºnecessary" where Lhe expendlLure ls approprlaLe or helpful
ln Lhe developmenL of Laxpayer's buslness or LhaL Lhe same ls proper for
Lhe purpose of reallzlng a proflL or mlnlmlzlng a loss.
• Þ9.4 M pald ln 1983 for adverLlslng a producL was sLaggerlng lncurred to
stlmolote fotote soles Lo ºcreaLe or malnLaln some form of goodwlll for Lhe
Laxpayer's Lrade or buslness or for Lhe lndusLry or professlon of whlch Lhe
Laxpayer ls a member."
• ºCoodwlll" generally denoLes Lhe beneflL arlslng from connecLlon and
repuLaLlon, and efforLs Lo esLabllsh repuLaLlon are akln Lo acqulslLlon of
caplLal asseLs. 1herefore, expenses relaLed LhereLo are noL buslness
expenses buL caplLal expendlLures (clk vs. Ceoetol looJs lbl., Ck No. 14J672, Apt.
24, 200J).
Þ8ClLSSlCnAL lLLS
• Legal and accounLanL's fees for prlor years were noL bllled ln
correspondlng years (1984-1983). lL was pald by Laxpayer ln succeedlng
year (1986) when lL was bllled by Lhe lawyer and accounLanL. 1axpayers
uses accrual meLhod of accounLlng.
• Accrual of lncome and expense ls permlLLed when Lhe ºa|| events test" has
been meL. 1hls LesL requlres (1) flxlng a rlghL Lo lncome or llablllLy Lo pay,
and (2) Lhe avallablllLy of reasonably accuraLe deLermlnaLlon of such
lncome or llablllLy. lL does noL, however, demand LhaL Lhe amounL of
lncome or llablllLy be known absoluLely, lL only requlres LhaL a Laxpayer
has aL lLs dlsposal Lhe lnformaLlon necessary Lo compuLe Lhe amounL wlLh
reasonable accuracy, whlch lmplles someLhlng less Lhan an exacL or
compleLely accuraLe amounL.
• Moreover, deducLlon Lakes Lhe naLure of Lax exempLlon, lL musL be
consLrued sLrlcLly agalnsL Lhe Laxpayer (commlsslooet vs. lsobelo coltotol cotpototloo,
C.k. No. 1722J1, leb. 12, 2007).
• Legal fees pald for defendlng LlLle Lo properLy ls a caplLal expendlLure LhaL
should form parL of Lhe cosL of Lhe asseL, buL ls recovered by way of
depreclaLlon over Lhe llfe of Lhe asseL.
13
uLuuC1lCnS
• IN1LkLS1 LkÞLNSL
• 1. 1here musL be a valld and exlsLlng lndebLedness,
• 2. 1he lndebLedness musL be LhaL of Lhe Laxpayer,
• 3. 1he lnLeresL musL be legally due and sLlpulaLed ln wrlLlng,
• 4. 1he lnLeresL expense musL be pald or lncurred durlng Lhe Laxable year,
• 3. 1he lndebLedness musL be connecLed wlLh Lhe Laxpayer's Lrade, buslness or
• exerclse of professlon,
• 6. 1he lnLeresL paymenL arrangemenL musL noL be beLween relaLed Laxpayers as
• mandaLed ln SecLlon 34(8)(2)(b), ln relaLlon Lo SecLlon 36(8), of Lhe 1ax Code,
• 7. 1he lnLeresL ls noL expressly dlsallowed by law Lo be deducLed from Lhe Laxpayer's
• gross lncome (e.g., lnLeresL on lndebLedness Lo flnance peLroleum operaLlons),
• and
• 8. 1he amounL of lnLeresL deducLed from gross lncome does noL exceed Lhe llmlL seL
• forLh ln Lhe law. ln oLher words, Lhe Laxpayer's oLherwlse allowable deducLlon for
• lnLeresL expense shall be reduced by forLy-Lwo percenL (42°) of Lhe lnLeresL
• lncome sub[ecLed Lo flnal Lax beglnnlng november 1, 2003 under 8.A. 9337, and
• LhaL effecLlve !anuary 1, 2009, Lhe percenLage shall be LhlrLy-Lhree percenL (33°)
• j5ec. J4(8)(1), Nlkc].
uLuuC1lCnS
• 1AkLS
• 1. ÞaymenLs musL be for Laxes, naLlonal or local,
• 2. 1axes are lmposed by law upon Lhe Laxpayer,
• 3. 1axes musL be pald or accrued durlng Lhe
• Laxable year ln connecLlon wlLh Lhe
• Laxpayer's Lrade, buslness or professlon, and
• 4. 1axes are noL speclflcally excluded by law from
• belng deducLed from Lhe Laxpayer's gross lncome.
• Ways Lo avold double LaxaLlon: Lax credlL or Lax deducLlon
– lorelgn Lax credlL ls deducLed from Þhll lncome Lax, buL amounL of Lax
credlL ls sub[ecL Lo a maxlmum amounL based on formula.
– 1ax deducLlon ls deducLed from gross lncome, wlLhouL any llmlLaLlon.
16
uLuuC1lCnS
• LCSSLS {kev. keqs. No. 12-77 ooJ kev. keqs. No. 10-79)
• 1. 1he loss musL be LhaL of Lhe Laxpayer,
• 2. 1he loss ls acLually susLalned and charged off wlLhln Lhe Laxable
• year,
• 3. 1he loss ls evldenced by a closed and compleLed LransacLlon,
• 4. 1he loss ls noL clalmed as a deducLlon for esLaLe Lax purposes,
• 3. 1he loss ls noL compensaLed for by lnsurance or oLherwlse,
• 6. ln Lhe case of an lndlvldual, Lhe loss musL be connecLed wlLh hls
• Lrade, buslness or professlon, or lncurred ln any LransacLlon
• enLered lnLo for proflL Lhough noL connecLed wlLh hls Lrade,
• buslness or professlon, and
• 7. ln Lhe case of casualLy loss, lL has been reporLed Lo Lhe 8l8
• wlLhln forLy-flve days from daLe of occurrence of Lhe loss.
• CaplLal losses are deducLlble only Lo Lhe exLenL of caplLal galns.
– Sale of real properLy classlfled as caplLal asseL locaLed ln Lhe Þhll
– Sale of shares of sLocks of a domesLlc corporaLlon
– Sale of [ewelry held for more Lhan 12 monLhs
uLuuC1lCnS
• 8Au uL81S
• 1. 1here musL be an exlsLlng lndebLedness due Lo Lhe Laxpayer
• whlch musL be valld and legally demandable,
• 2. 1he same musL be connecLed wlLh Lhe Laxpayer's Lrade, buslness
• or pracLlce of professlon,
• 3. 1he same musL noL be susLalned ln a LransacLlon enLered lnLo
• beLween relaLed parLles enumeraLed under Sec. 36(8) of Lhe 1ax
• Code of 1997,
• 4. 1he same musL be acLually charged off Lhe books of accounLs of
• Lhe Laxpayer as of Lhe end of Lhe Laxable year, and
• 3. 1he same musL be acLually ascerLalned Lo be worLhless and
• uncollecLlble as of Lhe end of Lhe Laxable year.
17
uLuuC1lCnS
• 1Ax 8LnLll1 8uLL
– 1he Laxpayer ls obllged Lo declare as Laxable lncome any
subsequenL recovery of bad debLs ln Lhe year Lhey were
collecLed Lo Lhe exLenL of Lhe Lax beneflL en[oyed by Lhe
Laxpayer when Lhe bad debLs were wrlLLen off and clalmed
as deducLlon from gross lncome.
– lL also applles Lo Laxes prevlously deducLed from gross
lncome buL whlch were subsequenLly refunded or credlLed
by Lhe 8l8. Pe has Lo reporL lncome Lo Lhe exLenL of Lhe
Lax beneflL derlved ln Lhe year of deducLlon.
uLuuC1lCnS
• DLÞkLCIA1ICN
• 1. 1he allowance for depreclaLlon musL be reasonable,
• 2. lL musL be for properLy arlslng ouL of lLs use ln Lhe Lrade or
buslness, or ouL of lLs noL belng used Lemporarlly durlng Lhe year,
• 3. lL musL be charged off durlng Lhe Laxable year from Lhe Laxpayer's
books of accounLs,
• 4. uepreclaLlon shall be compuLed on Lhe basls of hlsLorlcal cosL or
ad[usted bas|s. Wh||e f|nanc|a| account|ng a||ows computat|on based on
appra|sed va|ue, recovery of |nvestment for tax purposes sha|| be ||m|ted to
h|stor|ca| cost.
18
uLuuC1lCnS
• CPA8l1A8LL CCn18l8u1lCnS
• 1. 1he charlLable conLrlbuLlon musL acLually be pald or made Lo Lhe
Þhlllpplne governmenL or any pollLlcal subdlvlslon Lhereof excluslvely for
publlc purposes, or any of Lhe accredlLed domesLlc corporaLlon or
assoclaLlon speclfled ln Lhe 1ax Code,
• 2. lL musL be made wlLhln Lhe Laxable year,
• 3. lL musL noL exceed 10° (lndlvldual) or 3° (corporaLlon) of Lhe
Laxpayer's Laxable lncome before charlLable conLrlbuLlons (wheLher
deducLlble ln full or sub[ecL Lo llmlLaLlon),
• 4. lL musL be evldenced by adequaLe recelpLs or records, and
• 3. 1he amounL of charlLable conLrlbuLlon of properLy oLher Lhan money
shall be based on Lhe acqulslLlon cosL of sald properLy (5ec. J4(n), Nlkc).
1he llmlLaLlon ls lmposed Lo prevenL abuse of donaLlng palnLlngs and
oLher valuable properLles and clalmlng excesslve deducLlons Lherefrom.
uLuuC1lCnS
• D. Cpt|ona| Standard Deduct|on
• Þrlvllege ls avallable only Lo clLlzens or resldenL allens as well
corporaLlons sub[ecL Lo Lhe regular corporaLe lncome Lax,
Lhus, non-resldenL allens and non-resldenL forelgn
corporaLlons are noL enLlLled Lo clalm Lhe opLlonal sLandard
deducLlon.
• SLandard deducLlon ls opLlonal, l.e., unless Laxpayer slgnlfles
ln hls/lLs reLurn hls/lLs lnLenLlon Lo elecL Lhls deducLlon, he/lL
ls consldered as havlng avalled of Lhe lLemlzed deducLlons,
• Such elecLlon when made by Lhe quallfled Laxpayer ls
lrrevocable for Lhe year ln whlch made, however, he can
change Lo lLemlzed deducLlons ln succeedlng year(s),
19
uLuuC1lCnS
• AmounL of sLandard deducLlon ls llmlLed Lo 40° of Laxpayer's gross sales or
recelpLs (ln Lhe case of an lndlvldual) or gross lncome (ln Lhe case of a
corporaLlon). lf Lhe lndlvldual ls on Lhe accrual basls of accounLlng for hls
lncome and deducLlons, CSu shall be based on Lhe gross sales durlng Lhe year.
lf he employs Lhe cash basls of accounLlng, CSu shall be based on hls gross
recelpLs durlng Lhe year. lL should be noLed LhaL cosL of sales or cosL of servlces
shall noL be allowed Lo be deducLed from gross sales or recelpLs.
• A general professlonal parLnershlp (CÞÞ) may clalm elLher Lhe lLemlzed
deducLlons or ln lleu Lhereof, Lhe CSu allowed Lo corporaLlons ln clalmlng Lhe
deducLlons ln an amounL noL exceedlng 40° of lLs gross lncome. 1he neL
lncome deLermlned by elLher Lhe lLemlzed deducLlon or CSu from Lhe CÞÞ's
gross lncome ls Lhe dlsLrlbuLable neL lncome from whlch Lhe share of each
share ls Lo be ascerLalned.
• Þroof of acLual expenses ls noL requlred, hence, he ls noL also requlred Lo keep
books of accounLs and records wlLh respecL Lo hls deducLlons durlng Lhe year.

ÞL8SCnAL LxLMÞ1lCnS
• 8A 8424: !an 1, 1998
• Slngle and esLaLe or LrusL -
Þ20,000
• Pead of famlly - Þ23,000
• Marrled - Þ32,000
• lor each chlld, noL Lo
exceed 4 - Þ8,000
• 8A 9304: !uly 6, 2009
• lndlvldual, wheLher slngle,
PCl, or marrled - Þ30,000
• lor each chlld, noL Lo
exceed 4 - Þ23,000
• Law exempLs lncome of
mlnlmum wage earners and
lncreases CSu from 10° Lo
40° of gross sales or
recelpLs, for lndlvlduals, and
of gross lncome, for
corporaLlons.
20
ÞL8SCnAL LxLMÞ1lCnS
• Status-at-the-end-of-the-year ru|e
• ºSLaLus-aL-Lhe-end-of-Lhe-year rule" whlch means LhaL whaLever ls Lhe
sLaLus of Lhe Laxpayer aL Lhe end of Lhe calendar year shall be used for
purposes of deLermlnlng hls personal and addlLlonal exempLlons generally
applles. A change of sLaLus of Lhe Laxpayer durlng Lhe Laxable year
generally beneflLs, buL does noL pre[udlce, hlm. 1hus, lf he marrles aL Lhe
end of Lhe year, he shall be enLlLled Lo personal exempLlon of
Þ32,000/Þ30,000. lf a chlld ls born aL any Llme durlng Lhe calendar year,
even on Lhe lasL day of Lhe year, Lhe Laxpayer ls enLlLled Lo clalm hls chlld
as a dependenL enLlLllng hlm Lo deducL addlLlonal exempLlon of
Þ8,000/Þ23,000 for LhaL year. Cn Lhe oLher hand, lf one of hls quallfled
dependenL chlldren dles durlng Lhe year, Lhe law conslders LhaL Lhe chlld
dled on Lhe lasL day of Lhe year, hence, he ls enLlLled Lo clalm Lhe full
amounL of addlLlonal exempLlon of Þ8,000/Þ23,000 for Lhe deceased chlld
for Lhe year.
LuuCA1lCnAL lnS1l1u1lCn
• ÞroprleLary educaLlonal lnsLlLuLlons (lncludlng Lhose
admlnlsLered by lndlvlduals or groups wlLh an lssued
permlL Lo operaLe from uLCS, CPLu, or 1LSuA) and
hosplLals whlch are non-proflL shall pay 10° Lax on neL
Laxable lncome, excepL Lhose covered by Sec u hereof
(l.e., lncome sub[ecL Lo lW1), provlded LhaL gross
lncome from school-relaLed acLlvlLles exceeds 30° of
LoLal gross lncome.
• Powever, lf gross lncome from unrelaLed (noL
subsLanLlally relaLed Lo Lhe exerclse of educaLlonal
lnsLlLuLlon or hosplLal) Lrade, buslness or oLher acLlvlLy
exceeds 30° of LoLal gross lncome from all sources, neL
lncome shall be sub[ecL Lo 8Cl1 (30°).
21
lMÞ8CÞL8L? ACCuMuLA1Lu
LA8nlnCS 1Ax
• 8A1lCnALL: lf proflLs were dlsLrlbuLed, shareholders would
be llable Lo pay lncome Lax Lhereon, lf noL so dlsLrlbuLed,
no Lax. 1hus, lAL1 ls a penalLy Lax for lmproper
accumulaLed of earnlngs and a form of deLerrenL Lo Lhe
avoldance of Lax on shareholders.
• lAL1 = 10° x accumulaLed Laxable lncome of corporaLlon
• lAL1 does noL apply Lo banks, lnsurance companles,
publlcly-held corporaLlons, Laxable parLnershlps,
enLerprlses reglsLered wlLh ÞLZA, S8MA, and 8Cl.
• Cnce proflL has been sub[ecLed Lo lAL1, Lhe same shall no
longer be sub[ecLed Lo lAL1 ln laLer years, even lf noL
declared as dlvldends.
lAL1
• 1he followlng are consldered ºreasonable needs
of buslness":
– 8eLalned earnlngs ls equal Lo or less Lhan 100° of
pald-up caplLal of corporaLlon,
– Larnlngs reserved for:
• ueflnlLe corporaLe expanslon pro[ecL or program requlrlng
conslderable caplLal expendlLure,
• 8ulldlng, planLs or equlpmenL acqulslLlon,
• Compllance wlLh any loan covenanL or pre-exlsLlng
obllgaLlon under a leglLlmaLe buslness agreemenL,
– ln case of subsldlarles of forelgn corporaLlons,
earnlngs lnLended or reserved for lnvesLmenLs wlLhln
Lhe Þhll as proven by corporaLe records.
22
1Ax-l8LL LxCPAnCL
• CLnL8AL 8uLL: 1he enLlre amounL of galn or loss shall
be recognlzed upon Lhe sale or exchange of properLy.
• LxCLÞ1lCnS: no galn or loss aL Lhe Llme of exchange ls
recognlzed:
– 1. ML8CL8 C8 CCnSCLluA1lCn, where a corporaLlon,
shareholder, or securlLy holder exchanges properLy, shares
or securlLles solely for shares of sLocks of a corporaLlon,
whlch ls a parLy Lo Lhe merger.
– 2. 18AnSlL8 Cl Þ8CÞL81? lC8 SPA8LS Cl S1CCkS, as a
resulL of whlch, he, alone or LogeLher wlLh oLhers noL
exceedlng four, galns conLrol of sald corporaLlon.
ACCCun1lnC ML1PCuS
• Cash meLhod
• Accrual meLhod
– All evenLs LesL, amounLs recelved ln advance are noL LreaLed as
revenue of Lhe perlod ln whlch recelved buL as revenue of fuLure
perlods ln whlch earned (Moollo MooJotlo notels vs. clk, c1A cose No. 5046, Mot
24, 1997).
• lnsLallmenL sales
– Sale on Lhe lnsLallmenL plan
• lnlLlal paymenLs do noL exceed 23° of CSÞ
– ueferred paymenL sale, noL on Lhe lnsLallmenL plan
• lnlLlal paymenLs exceed 23° of CSÞ
• ÞercenLage of compleLlon
• Crop year meLhod
23
llLlnC Cl 1Ax 8L1u8n
• Su8S1l1u1Lu llLlnC Cl l18: no lndlvldual lncome Lax reLurn
for Lhe year wlll be flled by Lhe employee concerned, and Lhe
employer ls Lhe one LhaL flles Lhe reLurn for hlm
– Applles only Lo lndlvlduals
– WlLh only one (1) employer
– Who correcLly wlLhholds Lhe lncome Lax on compensaLlon lncome pald
Lo Lhe employee and remlLs Lhe same Lo Lhe 8l8
• SubsLlLuLed flllng of reLurn does noL apply when Lhe
condlLlons above are noL meL, such as when Lhe lndlvldual has
(a) Lwo or more employers, (b) mlxed lncomes, © correcL W1
was noL deducLed from compensaLlon lncome, eLc.
llLlnC Cl 1Ax 8L1u8n
• lndlvldual derlvlng mlxed lncome, or purely buslness/ professlonal lncome,
or oLher lncome musL flle hls quarLerly lncome Lax reLurns (8l8 lorm 1700
C) and annual lncome Lax reLurn (8l8 lorm 1700 ) as follows:
• Þerlod uue uaLe for llllng 8eLurn

• C1 8eLurn Aprll 13 of same year
• C2 8eLurn AugusL 13 of same year
• C3 8eLurn november 13 of same year
• Annual 8eLurn Aprll 13 of Lhe followlng year

24
llLlnC Cl 1Ax 8L1u8n
• A domesLlc corporaLlon and resldenL forelgn corporaLlon shall flle quarLerly
corporaLe lncome Lax reLurn (8l8 lorm 1702 C) and annual corporaLe lncome Lax
reLurn (8l8 lorm 1702 as follows:
• C1 8eLurn May 31 of same year
• C2 8eLurn AugusL 31 of same year
• C3 8eLurn november 30 of same year
• Annual 8eLurn Aprll 13 of Lhe followlng year (lf on calendar
year), or 13Lh day of Lhe fourLh monLh followlng
Lhe close of Lhe flscal year (lf on flscal year).
• CompuLaLlon of Lhe quarLerly and annual Lax reLurns of lndlvlduals (excepL Lhose
recelvlng purely compensaLlon lncome) and corporaLlons shall be made on Lhe
cumu/otive bosis, l.e., gross lncome and deducLlons are consolldaLed and Lhe
lncome Lax llablllLy ls compuLed on Lhe consolldaLed neL lncome, and Lhe lncome
Laxes pald for Lhe precedlng quarLer(s) are credlLed agalnsL Lhe consolldaLed
lncome Lax due.

8Llunu C8 1Ax C8Lul1
• 1axpayer has 3 opLlons: refund, Lax credlL, or carry over excess wlLhholdlng Lax or
paymenL.
• Powever, once Laxpayer exerclses opLlon Lo carry over, such opLlon ls lrrevocable
for LhaL Laxable perlod and no appllcaLlon for refund or Lax credlL shall be allowed
(loseo keolty v cA, Ck 119286, Oct 1J, 2004).
• Whlle a Laxpayer ls glven Lhe cholce Lo clalm refund or Lax credlL, such elecLlon ls
noL flnal. Þrlor verlflcaLlon and approval by Cl8 ls requlred. Such remedy ls noL
absoluLe and mandaLory (lblJ).
• CondlLlons for granL of refund or Lax credlL: (1) clalm was flled wlLhln 2 years from
daLe of paymenL, (2) lncome paymenL was declared ln Lax reLurn, and (3) facL of
wlLhholdlng ls esLabllshed by copy of 8l8 lorm 2307 (8l 8ook v. cA, Ck 155682, Mot 27,
2007).
• ln case of dlssoluLlon of corporaLlon, Lhe 2-year perlod for clalm for refund ls
counLed 30 days afLer SLC approval of plan for dlssoluLlon, whlch ls consldered Lhe
daLe of paymenL of Laxes wlLhheld on earned lncome (8ll v. clk, Ck 14465J, Aoq 28,
2001).
• WlLhholdlng agenL ln Lhe Þhlllpplnes ls a proper parLy Lo flle a clalm for refund or
Lax credlL for Lax erroneously or lllegally pald Lo a forelgn corporaLlon. A person
llable Lo Lax ls also a person sub[ecL Lo Lax (ltoctet & Comble v. clk).
23
Wl1PPCLulnC 1Ax
• An lncome paymenL ls sub[ecL Lo Lhe expanded wlLhholdlng
Lax, lf Lhe followlng condlLlons concur:
• a. An expense ls pald or payable by Lhe Laxpayer, whlch ls
lncome Lo Lhe reclplenL Lhereof sub[ecL Lo lncome Lax,
• b. 1he lncome ls flxed or deLermlnable aL Lhe Llme of
paymenL,
• c. 1he lncome ls one of Lhe lncome paymenLs llsLed ln Lhe
regulaLlons LhaL ls sub[ecL Lo wlLhholdlng Lax, excepL when
payor ls a 1op 20,000 CorporaLlon,
• d. 1he lncome reclplenL ls a resldenL of Lhe Þhlllpplnes llable
Lo lncome Lax, and
• e. 1he payor-wlLhholdlng agenL ls also a resldenL of Lhe
Þhlllpplnes.
Wl1PPCLulnC 1Ax
• LkLMÞ1 IkCM LW1
• 1. naLlonal governmenL and lLs lnsLrumenLallLles, lncludlng provlnclal, clLy or munlclpal
governmenLs and botooqoys, excepL governmenL-owned or conLrolled corporaLlons,
• 2. Þersons en[oylng exempLlon from paymenL of lncome Laxes pursuanL Lo Lhe provlslons
of any law, general or speclal, such as buL noL llmlLed Lo Lhe followlng:
• a. Sales of real properLy by a corporaLlon whlch ls reglsLered wlLh and cerLlfled by PLu88
or PuuCC as engaged ln soclallzed houslng pro[ecL where Lhe selllng prlce of Lhe house
and loL or only Lhe loL does noL exceed Þ180,000 ln MeLro Manlla and oLher hlghly
urbanlzed areas and Þ130,000 ln oLher areas,
• b. CorporaLlons reglsLered wlLh Lhe 8Cl, ÞLZA, and S8MA, en[oylng exempLlon from
lncome Lax under L.C. 226, 8.A. 7916, and 8.A. 7227,
• c. CorporaLlons whlch are exempL from lncome Lax under SecLlon 30 of Lhe 1ax Code,
such as CSlS, SSS, ÞPlC, ÞCSC, and ÞACCC8,
• d. Ceneral professlonal parLnershlps, and
• e. !olnL venLures or consorLlum formed for Lhe purpose of underLaklng consLrucLlon
pro[ecLs or engaglng ln peLroleum, coal, geoLhermal and oLher energy operaLlons
• f. lnLernaLlonal carrlers (by alr or waLer) sub[ecL Lo 2.3° Cross Þhll 8llllngs
26
• 1kANSILk 1AkLS
LS1A1L 1Ax
• ueaLh ls Lhe generaLlng source of Lhe power Lo Lax (loteozo v. losoJos). no
manual or physlcal Lransfer of Lhe properLy ls requlred for Lhe esLaLe Lax Lo
accrue.
• 1he law ln force aL Lhe Llme of deaLh of Lhe decedenL governs.
• º8esldence" refers Lo Lhe permanenL home, Lhe place Lo whlch whenever
absenL, for buslness or pleasure, one lnLends Lo reLurn, and depends on
facLs and clrcumsLances, ln Lhe sense LhaL dlsclose lnLenL (cotte v. 1oo cotte).
lL ls noL necessarlly Lhe acLual place of resldence aL Lhe Llme of deaLh.
• All properLles (real or persona, Langlble or lnLanglble) and lnLeresLs ln
properLles of Lhe decedenL aL Lhe Llme of hls deaLh shall be lncluded ln hls
gross esLaLe. Powever, properLles Lransferred or lnLeresLs rellnqulshed by
Lhe decedenL before hls deaLh are excluded from hls gross esLaLe.
• 1he esLaLe shall be appralsed aL lLs falr markeL value aL Lhe Llme of deaLh
(even lf perlod Lo flle reLurn and pay Lax ls exLended by Cl8).
– 8eal properLy: falr markeL value as deLermlned by Lhe Cl8
– Shares of sLocks: falr markeL value as shown ln Lhe audlLed flnanclal
sLaLemenLs closesL Lo Lhe daLe of deaLh of Lhe decedenL
27
LS1A1L 1Ax
• Gross estate:
• Con[uga| Lxc|us|ve 1ota|
– 8eal properLy
– Þersonal properLy
• Less: Deduct|ons:
– luneral expenses
– Clalms agalnsL Lhe esLaLe
– unpald Laxes and morLgages
– Medlcal expenses
– lamlly home
– SLandard deducLlon
– ÞroperLles prevlously Laxed
– Share of the surv|v|ng spouse
• Net 1axab|e Lstate
• LsLaLe Lax due (llrsL Þ200,000 ls exempL, 3° from Þ200,001, and 20° on over Þ10
M)
LS1A1L 1Ax
• WPC lS 1PL uLCLuLn1 Anu WPA1 Þ8CÞL81lLS lC8M ÞA81
Cl PlS C8CSS LS1A1L?
– 8esldenL decedenL: ClLlzen or resldenL allen
• lnclude ln hls gross esLaLe all properLles, real or personal, Langlble
or lnLanglble, regardless of locaLlon (wlLhln or wlLhouL Lhe
Þhlllpplnes)
– non-resldenL decedenL: non-resldenL allen
• lnclude ln hls gross esLaLe all properLles locaLed ln Lhe Þhlllpplnes
• lor lnLanglble properLles, use Lhe prlnclple of moblllo sepoootot
petsooom- 1axaLlon of lnLanglbles follows Lhe resldence or
domlclle of Lhe owner.
28
LS1A1L 1Ax
• 1PLSL ln1AnCl8LL Þ8CÞL81lLS PAvL Sl1uS ln 1PL
ÞPlLlÞÞlnLS (5ec. 104, Nlkc):
– lranchlse whlch ls exerclsed ln Lhe Þhll
– Shares, obllgaLlons or bonds lssued by any corporaLlon
organlzed ln Lhe Þhll
– Shares, obllgaLlons or bonds lssued by any forelgn
corporaLlon, 83° of Lhe buslness of whlch ls locaLed ln Lhe
Þhll or lf such properLles have acqulred buslness slLus ln
Lhe Þhll (Wells largo case)
– Shares or rlghLs ln parLnershlp, buslness or lndusLry
esLabllshed ln Lhe Þhlllpplnes
LS1A1L 1Ax
• uLCLuLn1'S C8CSS LS1A1L (5ec. 85, Nlkc)
– uecedenL's lnLeresL (ln properLy owned or possessed)
– 1ransfers ln conLemplaLlon of deaLh
– 8evocable Lransfers
– ÞroperLy passlng under a general power of appolnLmenL
– Þroceeds of llfe lnsurance
– 1ransfers for lnsufflclenL conslderaLlon
– CaplLal of Lhe survlvlng spouse (dependlng on daLe of
marrlage and appllcable properLy reglme beLween Lhe
spouses)
29
LS1A1L 1Ax
• º1ransfers ln conLemplaLlon of deaLh" refers Lo Lhe LhoughL of
deaLh, as a conLrolllng moLlve, whlch lnduces Lhe dlsposlLlon
of Lhe properLy for Lhe purpose of avoldlng Lhe Lax.
• º8evocable Lransfers" covers Lransfers, by LrusL or oLherwlse,
where Lhe en[oymenL was sub[ecL aL Lhe daLe of hls deaLh Lo
any change or where such power ls rellnqulshed ln
conLemplaLlon of deaLh.
– ueceased declared her conveyance was a donaLlon mottls cooso and
forbade Lhe reglsLraLlon of Lhe deed unLll afLer her deaLh (lolq v.
leooflotlJo).
– lL does noL cover booo-flJe sale of properLy for an adequaLe and full
conslderaLlon ln money or money's worLh.
LS1A1L 1Ax
• 1ransfer of properLy under a general power of appolnLmenL
– 8y wlll, or by deed execuLed ln conLemplaLlon of deaLh, or by deed
where he reLalns for hls llfe or any perlod noL ascerLalnable wlLhouL
reference Lo hls deaLh, whlch ln facL does noL end before hls deaLh
– Þossesslon or en[oymenL of, or Lhe rlghL Lo Lhe lncome from, Lhe
properLy, or Lhe rlghL Lo deslgnaLe Lhe persons who shall possess or
en[oy Lhe properLy or Lhe lncome Lhereof
– LxcepL ln case of booo-flJe sale for an adequaLe and full conslderaLlon
ln money or money's worLh.
• Þower of appolnLmenL ls ºgeneral" when lL glves Lo Lhe donee Lhe power
Lo appolnL any person he pleases, Lhus havlng as full domlnlon over Lhe
properLy as Lhough he owned lL. lL ls ºspeclal" when Lhe donee can
appolnL only among a resLrlcLed or deslgnaLed class of persons oLher Lhan
hlmself.
30
LS1A1L 1Ax
• Þroceeds of llfe lnsurance
• 1axable:
– 8eneflclary ls Lhe esLaLe of Lhe deceased, hls execuLor or
admlnlsLraLor, lrrespecLlve of wheLher or noL Lhe lnsured reLalned Lhe
power of revocaLlon
– 8eneflclary ls oLher Lhan Lhe decedenL's esLaLe, execuLor or
admlnlsLraLor, when Lhe deslgnaLlon of beneflclary ls noL expressly
made lrrevocable. under Lhe lnsurance Code, lnsurance pollcles are
presumed revocable.
• noL 1axable:
– AccldenL lnsurance proceeds (noL llfe lnsurance)
– Þroceeds of group lnsurance pollcles
– 8eneflclary (nC1 decedenL's esLaLe, execuLor or admlnlsLraLor) ls
deslgnaLed lrrevocably
– CSlS, SSS, and AlÞ 8S8S
LS1A1L 1Ax
• 8LCulSl1LS Cl Þ8CÞL81? Þ8LvlCuSL? 1AxLu
(vAnlSPlnC uLuuC1lCn)
– ueaLh
– ldenLlLy of Lhe properLy
– lncluslon of Lhe properLy (ln gross esLaLe or gross glfL)
– Þrevlous LaxaLlon of Lhe properLy (esLaLe Lax or glfL Lax)
– no prevlous vanlshlng deducLlon on Lhe properLy (Lo
preclude appllcaLlon of vanlshlng deducLlon on same
properLy more Lhan once).
– ÞercenLage of deducLlon decreases over a perlod of 3
years or 20° reducLlon every year
31
LS1A1L 1Ax
• lC8MuLA Cl vAnlSPlnC uLuuC1lCn
• value Laken of properLy prevlously Laxed (as declared ln prlor decedenL's
gross esLaLe)
• Less: MorLgage debL pald (1
sL
deducLlon)
• lnlLlal basls
• ulvlded by Lhe value of gross esLaLe of presenL decedenL = __°
• MulLlplled by expenses, lndebLedness, eLc and Lransfers for publlc
purposes
• Lquals 2
nd
deducLlon
• lnlLlal basls less 2
nd
deducLlon = llnal basls mulLlplled by appllcable raLe of
vanlshlng deducLlon =
• AmounL of vanlshlng deducLlon deducLlble from Lhe esLaLe of second
decedenL
uCnC8'S 1Ax
• uonor's 1ax ls a Lax on Lhe prlvllege Lo Lransfer properLy from a llvlng
person Lo anoLher llvlng person.
– lL ls an exclse Lax, and noL a properLy Lax.
– lL ls lmposed on Lhe donor of properLy.
– uonee's Lax was already abollshed and lncorporaLed lnLo donor's Lax.
• Þurposes of donor's Lax
– 1o supplemenL esLaLe Lax
– 1o prevenL avoldance of lncome Lax Lhru Lhe devlce of spllLLlng lncome
• uonaLlon of properLy musL be accepLed by Lhe donee.
• Sale or exchange of properLy for less Lhan adequaLe and full conslderaLlon
ls sub[ecL Lo donor's Lax, excepL where Lhe properLy ls caplLal galns Lax,
such as real properLy locaLed ln Lhe Þhll and shares of sLock of a domesLlc
corporaLlon.
• uonaLed properLy musL be valued aL falr markeL value aL Lhe Llme of Lhe
donaLlon.
32
uCnC8'S 1Ax
• 1ransfer of properLy may be ln LrusL or oLherwlse, dlrecL or
lndlrecL. 1ransfer becomes compleLe and Laxable only when
Lhe donor has dlvesLed hlmself of all beneflclal lnLeresL ln
hlmself or hls esLaLe.
• uonor's Lax raLes
– uonee ls member of Lhe famlly
• llrsL Þ100,000 of neL glfL ls exempL
• 2° on Þ100,001 Lo Þ200,000
• 13° on amounL over Þ10 M
– uonee ls a sLranger - 30° of neL glfL
• ºSLranger" ls a person who ls noL a (a) broLher, slsLer (wheLher
by whole or half-blood), spouse, ancesLor, and llneal
descendanL, or (b) relaLlve by consangulnlLy ln Lhe collaLeral
llne wlLhln Lhe fourLh degree of relaLlonshlp.
uCnC8'S 1Ax
• uonor
– lndlvldual
• ClLlzen and resldenL allen -- 1axable
• non-resldenL allen - 1axable on properLy locaLed ln Lhe Þhll
– CorporaLlon
• uomesLlc corporaLlon and resldenL forelgn corporaLlon -- 1axable
• non-resldenL forelgn corporaLlon - 1axable on properLy locaLed ln
Lhe Þhll
• uonaLlon of con[ugal
– Made by boLh spouses - 1WC donaLlons
– Made only by one spouse (1ang Po v. 8oard of 1ax Appeals
[now C1A]) - CnL donaLlon
33
uCnC8'S 1Ax
• CumulaLlve compuLaLlon of donor's Lax ls requlred for all
donaLlons by Lhe same donor durlng Lhe calendar year, buL no
cumulaLlve compuLaLlon ls requlred for donaLlons Lo
sLrangers.
• LxempL donaLlons
– 1o Þhll govL for sclenLlflc, englneerlng, eLc purposes
– 1o soclal welfare, culLural, and charlLable organlzaLlons, noL more Lhan
30° shall be used for admlnlsLraLlon purposes
– 1o l88l and 8amon Magsaysay Awards loundaLlon
– 1o naLlonal Museum and naLlonal Llbrary
– 1o lnLramuros AdmlnlsLraLlon
• VALUL ADDLD 1Ak
34
8uSlnLSS 1AxLS
• vA1
• 1axable LransacLlons
– Sale or lease of goods or
properLles
– Sale of servlces
– lmporLaLlon of goods
• lormula for compuLlng vA1
– CuLpuL 1ax
– Less: lnpuL 1ax
– vA1 Þayable/(Lxcess lnpuL
1ax)
• nCn-vA1/LxLMÞ1 l8CM
vA1 18AnSAC1lCnS
– 1ransacLlon sub[ecL Lo CLher
ÞercenLage 1ax (1lLle v, nl8C)
ls exempL from vA1
– vA1 ls lmposed on LransacLlon
ln addlLlon Lo Lxclse 1ax, lf
any
– 1ransacLlon ls exempL from vA1,
CÞ1, and Lxclse 1ax (e.g., sale
of agrlculLural food producLs ln
Lhelr orlglnal sLaLe, sale of
books)
vALuL AuuLu 1Ax
• CPA8AC1L8lS1lCS Cl vA1
– 1ax on voloe oJJeJ of Laxpayer
– 1ransparenL form of soles tox
– 8road-based tox oo coosomptloo of goods, properLles and
servlces ln Lhe Þhll
– loJltect tox. Lax ls lmposed on seller buL burden of Lax ls shlfLed
Lo Lhe buyer
• ShlfLlng of Lax may be forward or backward
– 1ax ls collecLed Lhru Lhe tox cteJlt metboJ
• CuLpuL Lax on sales, lnpuL Lax on purchases
– No coscoJloq of tox ln vA1 sysLem
– º1ox-locloslve metboJ" ls adopLed by Lhe Þhll
33
vALuL AuuLu 1Ax
• 1AxA8LL ÞL8SCnS
– Seller of goods or properLles
• Coods or properLles are consumed or for consumpLlon ln Lhe Þhll
• ln Lhe course of Lrade or buslness
• Sales of goods or properLles are noL exempL from vA1
– Seller of servlces
• LlsLed servlces are performed or Lo be performed ln Lhe Þhll
• ln Lhe course of Lrade or buslness
• lor a valuable conslderaLlon acLually or consLrucLlvely recelved
• Servlces are noL exempL from vA1
– lmporLer of goods
• WheLher done ln Lhe course of hls Lrade or buslness or for
personal consumpLlon
vALuL AuuLu 1Ax
• 18AnSAC1lCnS Cl SÞLClAL 1?ÞLS Cl vA1 ÞL8SCnS
– non-resldenL person for sale of servlce ln Lhe Þhlllpplnes and gross
recelpLs exceed Þ1.3 M, wheLher ln Lhe course of Lrade or buslness
– Pusband and wlfe
• AggregaLlon rule for each spouse shall apply
– ÞarLnershlp
• Ceneral Þrofesslonal ÞarLnershlp ls Laxable, buL parLners are noL Laxable on
shares of parLnershlp proflLs
• unreglsLered [olnL venLure ls sub[ecL Lo vA1 and musL reglsLer as such
– non-sLock, non-proflL assoclaLlon
• LxempL on dues and speclal assessmenLs from members, buL vA1 seller may
pass on Lax Lo exempL assoclaLlon
• 1axable on gross sales or recelpLs, lf lL engages ln Laxable Lrade or buslness
– 8eal esLaLe dealer, developer or lessor
• Sale of real properLy exceeds Lhreshold prescrlbed by law, excepL Lhose under
Sec 109(Þ) of 1ax Code
36
vALuL AuuLu 1Ax
• Seller of real properLles ls sub[ecL Lo vA1
– Seller execuLes a documenL of sale (uAS or C1S)
– 8eal properLy ls locaLed ln Lhe Þhll
– Seller ls engaged ln real esLaLe buslness elLher as dealer, developer or
lessor
– 8eal properLy ls held prlmarlly for sale or for lease ln Lhe ordlnary
course of Lrade or buslness
– Sale ls noL exempL from vA1
• Powever, 8ev. 8egs. no. 4-2007 (leb 2007) provldes LhaL ºlf
Lhe real properLy sold ls used ln hls Lrade or buslness, sald
LransacLlon ls sub[ecL Lo vA1, belng lncldenLal Lo Lhe maln
buslness" of Lhe Laxpayer, who ls a vA1-reglsLered Laxpayer
engaged ln oLher Lypes of buslness.
• Sale of real properLy classlfled as caplLal asseL ls exempL from
vA1.
vALuL AuuLu 1Ax
• 1. Sale, barLer or exchange
– Sale, barLer or exchange has Lhe same Lax consequence
– 1here musL be valuable conslderaLlon, hence, donaLlon ls
exempL from vA1
– ueemed sale ls sub[ecL Lo vA1 (ouLpuL Lax) ln order Lo recoup
prevlous vA1 (lnpuL Lax) allowed
• 1ransfer, use or consumpLlon noL ln Lhe course of buslness of goods or
properLles lnLended for sale or for use ln Lhe course of buslness,
• ulsLrlbuLlon or Lransfer Lo shareholders or lnvesLors as share ln Lhe
proflLs of vA1-reglsLered persons or Lo credlLors ln paymenL of debL,
• ConslgnmenL of goods, lf acLual sale ls noL made wlLhln 60 days
followlng Lhe daLe such goods were conslgned, and
• 8eLlremenL or cessaLlon of buslness.
– non-Laxable LransacLlons
• Change of conLrol of a corporaLlon by Lhe acqulslLlon of conLrolllng
lnLeresL of such corporaLlon by anoLher sLockholder(s),
• Change ln Lrade or corporaLe name of buslness,
• Merger or consolldaLlon of corporaLlons.
37
vALuL AuuLu 1Ax
• 2. ln Lhe course of Lrade or buslness
– 1he regular conducL or pursulL of a commerclal or an
economlc acLlvlLy, lncludlng LransacLlons deemed
lncldenLal LhereLo, regardless of wheLher or noL Lhe person
engaged Lhereln ls a non-sLock, non-proflL prlvaLe
organlzaLlon (lrrespecLlve of Lhe dlsposlLlon of lLs neL
lncome and wheLher or noL lL sells excluslvely Lo members
or Lhelr guesLs), or governmenL enLlLy.
– lsolaLed LransacLlons are noL sub[ecL Lo vA1.
– lncldenLal lncome of Laxpayer follows LaxaLlon of Lhe
prlnclpal acLlvlLy. lf Laxpayer ls vA1-reglsLered person,
sub[ecL Lo vA1 (e.g., sale of car), lf non-vA1 Laxpayer,
exempL from vA1 (e.g., renLal lncome of bank).
– 1he absence of proflL ln Lhe performance of Laxable
servlces does noL make such acLlvlLy for a fee exempL from
vA1 (clk v. cOMA5íkcO, Ck 125J55, Mot J0, 2000).
vALuL AuuLu 1Ax
• 3. Coods or properLles musL be locaLed ln Lhe Þhlllpplnes and
consumed or desLlned for consumpLlon ln Lhe Þhll.
– Speclal economlc zones under 8A 7916 (ÞLZA Law) and freeporL zones
under 8A 7227 (8CuA Law) are LreaLed as ºfore|gn terr|tor|es by
f|ct|on of |aw." Pence, lmporLaLlon of goods by a speclal economlc or
freeporL zone enLerprlse from abroad shall be exempL from vA1 and
cusLoms duLles. lL wlll be sub[ecL Lo vA1 and duLles only upon Lhelr
sale Lo and wlLhdrawal from Lhe cusLoms cusLody by a person ln Lhe
ºcustoms terr|tory."
– uesLlnaLlon Þrlnclple:
• LxporL sales of goods are zero-raLed (0° vA1)
• lmporL of goods lnLo Lhe Þhll ls Laxable aL 12° vA1
• 4. Sale ls noL exempL from vA1 under Sec 109 of 1ax Code or speclal law
(e.g., SÞv law)
38
vALuL AuuLu 1Ax
• 1ax base ls ºCross Selllng Þrlce" (CSÞ) - Lhe LoLal amounL of money or lLs
equlvalenL, whlch Lhe purchaser pays or ls obllgaLed Lo pay Lo Lhe seller ln
conslderaLlon of Lhe sale, barLer or exchange of Lhe goods or properLles,
excludlng Lhe vA1.
• As a rule, ouLpuL Lax accrues on sale of goods or properLles (oLher Lhan a
real properLy) aL Lhe Llme of sale, when Lhe vA1 sales lnvolce ls lssued,
alLhough none or only a parL of Lhe gross selllng prlce ls pald by Lhe buyer
aL Lhe Llme of sale.
• Lxclse Lax (lf any), lnLeresL on lnsLallmenL sales, and dellvery charges form
parL of gross selllng prlce
• Sales dlscounLs deLermlned and granLed aL Lhe Llme of sale, whlch are
expressly lndlcaLed ln Lhe sales lnvolce do noL form parL of Lhe Lax base.
CranL of dlscounL musL noL depend upon Lhe happenlng of a fuLure evenL
or Lhe fulflllmenL of cerLaln condlLlon. 1hey musL be recorded ln Lhe books
of accounLs of Lhe seller.
• 20° sales dlscounLs Lo senlor clLlzens under 8A 9237 (Amended Senlor
ClLlzens Law) shall be deducLed from gross sales before applylng Lhe vA1
raLe. Sales Lo senlor clLlzens under 8A ____ ls exempL from vA1.
vALuL AuuLu 1Ax
• 1o deLermlne Gross Se|||ng Þr|ce (100°), dlvlde 1ota| Invo|ce
Amount (112°) by 1.12. vA1 = 1lA - CSÞ
• lf 1oLal lnvolce AmounL lncludes LW1, deLermlne flrsL Lhe
Cross Selllng Þrlce.
• 1ax base for lnsLallmenL sales of real properLy
– lf lnlLlal paymenLs (conslsLlng of down paymenL and all monLhly
amorLlzaLlons ln Lhe year of sale) exceeds 23° of Lhe gross selllng
prlce, Lhe Lax base ls Lhe enLlre gross selllng prlce as shown ln Lhe
documenL of sale, even Lhough only a parL of lL has been recelved
durlng Lhe perlod. SubsequenL collecLlons shall be exempL from vA1.
– lf lnlLlal paymenLs durlng Lhe year of sale do noL exceed 23° of gross
selllng prlce, Lhe Lax base ls only Lhe amounL recelved. SubsequenL
collecLlons shall be sub[ecL Lo ouLpuL Lax ln Lhe perlod of recelpL.
• 1ax raLes
– 12° beglnnlng leb 1, 2006 (8A 9337)
– 0° vA1 on zero-raLed or LZ8 sales
– 3° lW1 on sales Lo governmenL
39
vALuL AuuLu 1Ax
• Sales of goods sub[ecL Lo 0° vA1
– AcLual exporL sales (Lo a buyer abroad), regardless of shlpplng arrangemenL
– ueemed exporL sales
• lnLernal or consLrucLlve exporL sales under 8Cl law (LC 226) and speclal
laws (8A 7916 and 8A 7227).
– Lcozones and freeporL zones are deemed forelgn LerrlLorles by flcLlon
of law(clk v. 5eoqote 1ecbooloqy (2005), clk v. 1osblbo lofotmotloo ípolpmeot (2005)
– lor as long as Lhe goods remaln wlLhln Lhe zone, consumed or
desLroyed Lhere, Lhey wlll be duLy-free and Lax-free (cocooot Oll kefloets
Asso v. 1ottes (2005)
• LffecLlvely zero-raLed sales (sales Lo Au8, embassles, eLc) - 1ax exempLlon
granLed by law covers dlrecL Laxes and lndlrecL Laxes
– Sales of gold Lo 8SÞ, buL sale of sllver and copper ls Laxable aL 12° vA1
– lorelgn currency denomlnaLed sales
– Sales of goods, supplles, equlpmenL and fuel Lo persons engaged ln
lnLernaLlonal shlpplng or lnLernaLlonal alr LransporL operaLlons, wlLhouL
docklng or sLopplng aL any oLher porL ln Lhe Þhll
vALuL AuuLu 1Ax
• ZL8C-8A1Lu SALL
• 1ransacLlon ls compleLely free of
vA1, raLe charged by seller ls zero
• vA1-reglsLered seller can reclalm
unused excess lnpuL Laxes passed
on Lo lL by sellers of goods or
servlces from 8l8 ln form of
refund or Lax credlL
• Zero-raLed sales are Laxable sales
for purposes of reglsLraLlon as
vA1 Laxpayer Lo deLermlne
Lhreshold
• LxLMÞ1 SALL
• LxempLlon removes Lhe vA1
aL Lhe exempL sLage
• LxempL Laxpayer cannoL
reclalm vA1 passed on Lo lL
by vA1-reglsLered sellers,
vA1 shlfLed Lo buyer ls parL
of cosL or expense.
• LxempL sales are noL
Laxable sales for vA1
purposes
40
vALuL AuuLu 1Ax
• ÞL8SCnS SLLLlnC 1AxA8LL SL8vlCLS
– ConsLrucLlon and servlce conLracLors
• ManufacLurer of goods v. conLracLor of servlces
– 8rokers
• lnsurance broker
– Lessors of properLy, real or personal
– Warehouslng servlces
– Lessors or dlsLrlbuLors of clnemaLographlc fllms
• vA1 law dld noL lnclude showlng of fllms ln publlc owners, operaLors
or proprleLors of movle houses or LheaLers as sub[ecL Lo vA1 (5M ltlme
nolJloqs v. clk).
– Þersons engaged ln mllllng, processlng, manufacLurlng or
repacklng goods for oLhers
– ÞroprleLors or operaLors or keepers of hoLels, moLels,
resLhouses, penslon houses, lnns and resorLs
– ÞroprleLors or operaLors of resLauranLs and oLher slmllar
esLabllshmenLs
vALuL AuuLu 1Ax
• ÞL8SCnS SLLLlnC 1AxA8LL SL8vlCLS
– uealers ln securlLles
– Lendlng lnvesLors
• Þawnshops are noL LreaLed as lendlng lnvesLors, Congress conslder Lhem as
non-bank flnanclal lnLermedlarles sub[ecL Lo C81.
• lnLeresL lncome on bank deposlLs or on advances (noL more Lhan flve Llmes
durlng Lhe year) Lo a corporaLlon ls exempL from vA1.
– 1ransporLaLlon conLracLors on Lhelr LransporL of goods or cargoes
– uomesLlc common carrlers by alr and sea beLween polnLs ln Lhe
Þhlllpplnes
– Sales of elecLrlclLy (by generaLlon, Lransmlsslon, and dlsLrlbuLlon
companles)
– Servlces of franchlse granLees, excepL waLer and gas, as well as
radlo/1v sLaLlons wlLh gross recelpLs wlLh gross recelpLs of Þ10 M or
less
– non-llfe lnsurance companles, excepL crop lnsurance
– Slmllar servlces, regardless of wheLher or noL Lhe performance Lhereof
calls for Lhe exerclse or use of Lhe physlcal or menLal faculLles
41
vALuL AuuLu 1Ax
• ºGross rece|pts" means Lhe LoLal amounL of money or lLs
equlvalenL, represenLlng Lhe conLracL prlce, compensaLlon, servlce
fee, renLal or royalLy, lncludlng Lhe amounL charged for maLerlals
supplled wlLh Lhe servlces and deposlLs and advance paymenLs
acLually or consLrucLlvely recelved durlng Lhe Laxable quarLer for
Lhe servlces performed or Lo be performed for anoLher person,
excludlng Lhe vA1, excepL Lhose amounLs earmarked for paymenL Lo
unrelaLed Lhlrd parLy or recelved as relmbursemenL for advance
paymenL on behalf of anoLher, whlch do noL redound Lo Lhe beneflL
of Lhe payor.
• lor sale of servlces, Lhe LesL ls noL wheLher servlces have been
performed or noL, buL wheLher amounL of compensaLlon or fee ls
recelved, acLually or consLrucLlvely. 1he rule ls: nC 8LCLlÞ1 Cl
ÞA?MLn1, nC vA1 LlA8lLl1?. 1o be sub[ecL Lo vA1, Lhe gross recelpLs for Lhe
precedlng 12 monLhs musL exceed Þ1.3 mllllon.
vALuL AuuLu 1Ax
• ZL8C-8A1Lu SALLS Cl SL8vlCLS
– Þrocesslng, manufacLurlng or repacklng goods for oLher persons dolng
buslness ouLslde Lhe Þhll, whlch goods are subsequenLly exporLed,
where Lhe servlces are pald for ln accepLable forelgn currency and
accounLed for ln accordance wlLh 8SÞ rules and regulaLlons
– Servlces oLher Lhan processlng, manufacLurlng or repacklng rendered
Lo a person engaged ln buslness conducLed ouLslde Lhe Þhll or Lo a
non-resldenL person noL engaged ln buslness who ls ouLslde Lhe Þhll
when Lhe servlces are performed, Lhe conslderaLlon for whlch are pald
for ln accepLable forelgn currency and accounLed for ln accordance
wlLh 8SÞ rules and regulaLlons (clk v. 8w5c MloJoooo, Ck 15J205, Ioo 22,
2007)
– Servlces rendered Lo persons or enLlLles whose exempLlon under
speclal laws or lnLernaLlonal agreemenLs Lo whlch Lhe Þhll ls a
slgnaLory effecLlvely sub[ecLs Lhe sale of servlces Lo 0° raLe
42
vALuL AuuLu 1Ax
• ZL8C-8A1Lu SALLS Cl SL8vlCLS
– Servlces rendered Lo persons engaged ln lnLernaLlonal
shlpplng or lnLernaLlonal alr LransporL operaLlons,
lncludlng leases of properLy for use Lhereof
– Servlces performed by subconLracLors and/or conLracLors
ln processlng, converLlng or manufacLurlng goods for an
enLerprlse whose exporL sales exceeds 70° of LoLal annual
producLlon
– 1ransporL of passengers and cargo by domesLlc alr or sea
carrlers from Lhe Þhll Lo a forelgn counLry
– Sale of power or fuel generaLed Lhru renewable sources of
energy (e.g., blomass, solar, wlnd, hydropower, geoLhermal
and oLher emerglng sources)
vALuL AuuLu 1Ax
• 1ax Code noL only requlres LhaL Lhe servlces oLher Lhan ºprocesslng,
manufacLurlng or repacklng of goods" and LhaL paymenL for such servlces be ln
accepLable forelgn currency accounLed for ln accordance wlLh 8SÞ rules. AnoLher
essenLlal condlLlon for quallflcaLlon Lo zero-raLlng under Sec 102(b)(2) ls LhaL Lhe
reclplenL of such servlces ls dolng buslness ouLslde Lhe Þhll.
• Whlle Lhls requlremenL ls noL expressly sLaLed ln Lhe 2
nd
paragraph of Sec. 102(b),
Lhls ls clearly provlded ln Lhe 1
sL
paragraph of Sec 102(b) where Lhe llsLed servlces
musL be ºfor oLher persons dolng buslness ouLslde Lhe Þhll."
• 1he above phrase noL only refers Lo servlces enumeraLed ln Lhe flrsL paragraph,
buL also perLalns Lo Lhe general Lerm ºservlces" appearlng ln Lhe second
paragraph.
• CLherwlse, Lhose sub[ecL Lo Lhe regular vA1 under Sec 102(a) can avold paylng Lhe
vA1 by slmply sLlpulaLlng paymenL ln forelgn currency lnwardly remlLLed by Lhe
reclplenL of servlces. 1o lnLerpreL Sec. 102(b)(2) Lo apply apply Lo a payer-reclplenL
of servlces dolng buslness ln Lhe Þhll ls Lo make Lhe paymenL of regular vA1
dependenL on Lhe generoslLy of Lhe Laxpayer. A Lax ls a mandaLory exacLlon, noL a
volunLary conLrlbuLlon.
43
vALuL AuuLu 1Ax
• SlgnlflcanLly, Lhe amended SecLlon 108(b) [prevlously Sec 102(b)] of Lhe presenL
1ax Code clarlfles Lhls leglslaLlve lnLenL. lor zero-raLlng of servlces, lL musL be
rendered Lo a person engaged ln buslness conducLed ouLslde Lhe Þhll.
• 1he payer-reclplenL of respondenL's servlces ls Lhe ConsorLlum whlch ls a [olnL
venLure dolng buslness ln Lhe Þhll. Whlle Lhe ConsorLlum's prlnclpal members are
non-resldenL forelgn corps, Lhe ConsorLlum lLself ls dolng buslness ln Lhe Þhll. 1hls
ls shown ln 8l8 8ullng 23-93, whlch sLaLes LhaL Lhe conLracL beLween ConsorLlum
and nÞC ls for a 13-year Lerm. Conslderlng Lhe lengLh of Llme, Lhe ConsorLlum's
operaLlon and malnLenance of nÞC's power barges cannoL be classlfled as a slngle
or lsolaLed LransacLlon.
• 1hls case ls dlfferenL from clk v. Ametlcoo íxptess lotetootloool, loc. (lbll 8toocb),
because ln Lhe laLLer case, Lhe reclplenL of servlces ls ALll (Pk 8ranch) dolng
ouLslde Lhe Þhll (clk v. 8w5c MloJoooo, loc., Ck15J205, Ioo 22, 2007).
• Cl8's flllng of lLs Answer before Lhe C1A challenglng clalm for refund effecLlvely
serves as a revocaLlon of vA1 8ullng 03-99 and 8l8 8ullng 23-93. Powever, such
revocaLlon cannoL be glven reLroacLlve effecL slnce lL wlll pre[udlce respondenL.
vALuL AuuLu 1Ax
• vA1-LxLMÞ1 18AnSAC1lCnS
– A. Sale or lmporLaLlon of agrlculLural and marlne food producLs ln Lhelr
orlglnal sLaLe, llvesLock and poulLry generally produclng food for
human consumpLlon, and breedlng sLock
– 8. Sale or lmporLaLlon of ferLlllzers, seeds, seedllngs and flngerllngs,
flsh, prawn, llvesLock and poulLry feeds (excepL speclalLy feeds for race
horses, flghLlng cocks and oLher peLs)
– C. lmporLaLlon of personal and household effecLs belonglng Lo
resldenLs of Lhe Þhll reLurnlng from abroad and non-resldenL clLlzens
comlng Lo reseLLle ln Lhe Þhll
– D. lmporLaLlon of professlonal lnsLrumenLs and lmplemenLs, and
personal effecLs (excepL vehlcle, vessel, alrcrafL, machlnery for use ln
manufacLure) belonglng Lo persons comlng Lo seLLle ln Lhe Þhll
– L. Servlces sub[ecL Lo percenLage Lax under 1lLle v
44
vALuL AuuLu 1Ax
• vA1-LxLMÞ1 18AnSAC1lCnS
– G. Medlcal, denLal, hosplLal and veLerlnary servlces, excepL Lhose
rendered by professlonals
– n. LducaLlonal servlces rendered by prlvaLe educ lnsLlLuLlons
accredlLed by uepLd, CPLu, 1LSuA, and Lhose rendered by
governmenL educaLlonal lnsLlLuLlons
– I. Servlces rendered by lndlvlduals pursuanL Lo an employer-employee
relaLlonshlp
– C. LxporL sales by persons who are noL vA1-reglsLered
– Þ. Sale of real properLy noL prlmarlly held for sale Lo cusLomers or for
lease ln Lhe ordlnary course of Lrade or buslness, or real properLy for
low-cosL and soclallzed houslng, resldenLlal loL valued aL Þ1.3 M or
below, house and loL and oLher resldenLlal dwelllngs valued aL Þ2.3 M
or below
vALuL AuuLu 1Ax
• vA1-LxLMÞ1 18AnSAC1lCnS
– Ç. Lease of a resldenLlal unlL wlLh a monLhly renLal noL
exceedlng Þ10,000
– k. Sale, lmporLaLlon, prlnLlng or publlcaLlon of books and
any newspaper or magazlne whlch appear aL regular
lnLervals wlLh flxed prlces and ls noL devoLed prlnclpally Lo
publlcaLlon of pald adverLlsemenLs
– V. Sale or lease of goods or properLy or Lhe performance
of servlces oLher Lhan LransacLlons menLloned above, Lhe
gross sales or recelpLs do noL exceed Þ1.3 M
43
vALuL AuuLu 1Ax
• Sale of medlclnes by Lhe hosplLal pharmacy Lo ln-paLlenLs ls exempL from vA1, buL
sale Lo ouL-paLlenLs ls sub[ecL Lo 12° vA1 (5t. loke´s MeJlcol ceotet v. c1A ooJ clk,
1998).
• 1olllng fees recelved by a hoLel for ÞLu1 ls noL parL of lLs gross recelpLs
• ÞaymenL of vA1 by Lhe hoLel on fees for provldlng llmouslne servlce Lo lLs cllenL ls
correcL. lL ls noL sub[ecL Lo Lhe 3° common carrler's Lax. Clalm for Lax credlL ls
denled (Moollo MooJotlo notel v. clk)
• Cross recelpLs of LheaLre owner or operaLor from sales of LlckeLs Lo movlegoers are
exempL from vA1. 1heaLres and movle houses are noL lncluded ln Lhe enumeraLlon
of Laxable servlces ln Lhe vA1 law. Cur Lax laws, pasL and presenL, dld noL adopL
more speclflc Lerms for ºsale or exchange of servlces" Lo lnclude showlng of fllms
ln publlc (5M ltlme nolJloqs v. clk, c1A cose 7079, 2006).
• ÞACCC8 ls exempL from vA1 pursuanL Lo lLs charLer, Þu 1869. 8elng a speclal law,
Þu 1869 prevalls over 8A 7716, a subsequenL general law. 1o be valld, repeal of
speclal law should be express (clk v. Aceslte notel cotp, Ck 147295, leb 16, 2007).
vALuL AuuLu 1Ax
• CA1LCC8lLS Cl lnÞu1 1AxLS
– lnpuL Lax credlL on lmporLaLlons of goods and currenL local purchases of
goods, properLles and servlces (12°)
• lnpuL Lax on caplLal goods musL be amorLlzed over cerLaln perlod
– 1ranslLlonal lnpuL Lax credlL (2° of value beglnnlng lnvenLory of goods,
maLerlals and supplles, or acLual vA1 pald, whlchever ls hlgher)
– ÞresumpLlve lnpuL Lax credlL (4° of value of purchases of prlmary
agrlculLural producLs used as lnpuLs Lo processlng of sardlnes, mackerel
and mllk, or ln manufacLure of reflned sugar and cooklng oll, and packed
noodle-based lnsLanL meals)
– WlLhholdlng lnpuL Lax credlL (3° lW1 on sale of goods or servlces Lo
governmenL)
– Lxcess lnpuL Lax credlL (l.e., lnpuL Lax ls greaLer Lhan ouLpuL Lax)
• Cnly vA1-reglsLered persons are enLlLled Lo credlL lnpuL Laxes
agalnsL Lhelr ouLpuL Lax.
• non-reglsLraLlon as a vA1 Laxpayer does noL exempL hlm from vA1
ouLpuL Lax llablllLy on hls Laxable sales of goods, properLles or
servlces.
46
vALuL AuuLu 1Ax
• lor sale of servlces, Lhe rule ls: nC ÞA?MLn1 Cl lLL 8? 8u?L8
Anu lSSuAnCL Cl vA1 8LCLlÞ1 8? SLLLL8, nC lnÞu1 1Ax lC8
8u?L8!
• 1ranslLlonal lnpuL 1ax
– 2° of value of lnvenLory or acLual vA1 pald on such goods, maLerlals
and supplles, whlchever ls hlgher
• ÞresumpLlve lnpuL 1ax
– Þersons or flrms engaged ln Lhe processlng of sardlnes, mackerel and
mllk, and ln manufacLurlng reflned sugar and cooklng oll, and packed
noodle-based lnsLanL meals are enLlLled Lo presumpLlve lnpuL Lax
equlvalenL Lo 4° of gross value ln money of Lhelr purchases of prlmary
agrlculLural producLs whlch are used as lnpuLs Lo Lhelr producLlon (5ec.
111, Nlkc)
vALuL AuuLu 1Ax
• 1ax rellefs of vA1 Laxpayers on Lhelr excess lnpuL Laxes
(Ll1) aLLrlbuLable Lo zero-raLed and effecLlvely zero-raLed
sales
– Carry over Lhe excess lnpuL Lax Lo Lhe nexL quarLer, unLll excess
ls uLlllzed
– llle a clalm for refund
– llle a clalm for Lax credlL, wlLhln Lwo years afLer Lhe close of
Laxable quarLer where Lhe sales were made
• lor non-zero-raLed sales, remedy avallable ls only Lo
carry over Ll1 Lo Lhe nexL quarLer(s), or flle clalm for Lax
credlL or refund wlLhln 2 years afLer dlssoluLlon of
corporaLlon
47
vALuL AuuLu 1Ax
• ÞrescrlpLlve perlod commences from Lhe close of tbe
toxoble poottet wbeo tbe soles wete moJe and noL
from Lhe Llme Lhe lnpuL vA1 was pald nor from Lhe
Llme Lhe offlclal recelpL was lssued. 1hus, when a
zero-raLed vA1 Laxpayer pays lLs lnpuL vA1 a year
afLer Lhe perLlnenL LransacLlon, sald Laxpayer only
has a year Lo flle a clalm for refund or Lax credlL of
Lhe unuLlllzed credlLable lnpuL vA1. 1he reckonlng
frame would always be Lhe end of Lhe quarLer when
Lhe perLlnenL sales or LransacLlon was made,
regardless when Lhe lnpuL vA1 was pald (clk v. Mltoot
loqblloo cotp, 2008).
vALuL AuuLu 1Ax
• CCMÞLlAnCL 8LCul8LMLn1S
– Secure 1axpayer ldenLlflcaLlon number (1ln)
– 8eglsLer as a vA1 or non-vA1 Laxpayer
• vA1-reglsLrable person - person requlred Lo reglsLer buL falled Lo do so
• CpLlonal reglsLraLlon as vA1 person
– Þay Þ300 annual reglsLraLlon fee for every place of buslness or
esLabllshmenL
– keep reglsLered books of accounLs
– lssue reglsLered vA1 sales lnvolces or recelpLs
– llle vA1 declaraLlon/reLurn and pay Lax
• Þay vA1 upon wlLhdrawal of reflned sugar from reflnery or mlll or upon
wlLhdrawal of lmporLed flour from cusLoms cusLody
– WlLhhold and remlL Lo 8l8:
• 3° lW1 on sales of goods or servlces Lo governmenL
• 12° vA1 on sales of servlces by non-resldenL forelgn persons
48
• 1Ak kLMLDILS UNDLk 1nL NIkC
ASSLSSMLn1 C?CLL
• llllng of Lax reLurn
• 1ax audlL by 8l8
• lnformal Conference
• Þrellmlnary AssessmenL
noLlce (ÞAn)
• 8eply Lo ÞAn
• llnal AssessmenL noLlce
(lAn)
• ÞroLesL Lo lAn
• SupplemenLal ÞroLesL
• Law prescrlbes due daLe
• 120 days + 120 days
• 13 days from recelpL
• 3 years or 10 years
• 30 days from recelpL
• 60 days from flllng of
proLesL
49
ASSLSSMLn1 C?CLL
• 8l8 AC1lCn
– Cancell assessmenL
– ueny proLesL
– 8evlse assessmenL
• 8l8 lnAC1lCn
• Appeal Lo C1A
• Appeal Lo C1A en banc
• 180 days from flllng of
proLesL, lf any, or
supplemenLal proLesL
• 30 days from daLe of recelpL
of denlal of proLesL or lapse
of 180 days
• 13 days from daLe of
recelpL, addl 13 days may
be granLed by C1A afLer
paymenL of dockeL fee.
8LMLulLS Cl 1AxÞA?L8S
• ADMINIS1kA1IVL kLMLD¥
– 8LlC8L ÞA?MLn1 Cl 1Ax
• Þ8C1LS1 Cl ASSLSSMLn1
– Al1L8 ÞA?MLn1 Cl 1Ax
• 1Ax C8Lul1, C8
• 8Llunu
• IUDICIAL kLMLD¥
– AÞÞLAL 1C CCu81 Cl 1Ax AÞÞLALS
30
nC Þ8L-ASSLSSMLn1 nC1lCL 8LCul8Lu
• ueflclency Lax ls Lhe resulL of maLhemaLlcal error
• ulscrepancy ls beLween amounL of Lax wlLhheld and amounL
remlLLed Lo 8l8
• 1axpayer who opLed Lo clalm refund/Lax credlL also carrled
over and applled Lhe same agalnsL Lax of nexL Laxable quarLer
• Lxclse Lax due has noL been pald
• ConsLrucLlve lmporLaLlon (5ec. 228, Nlkc)
ASSLSSMLn1
• WPA1 lS An ASSLSSMLn1?
– noLlce LhaL Laxpayer owes governmenL a sum
of money
– ConLalns compuLaLlon of Lax llablllLy and a
demand for paymenL of Lax wlLhln a cerLaln
perlod (clk v. loscot keolty & uev cotp)
• Þu8ÞCSL Cl ASSLSSMLn1
– 1o esLabllsh Lax llablllLy where an assessmenL ls
requlred
31
ASSLSSMLn1
• lC8MS Cl ASSLSSMLn1
1. lormal assessmenL noLlce (lAn)
2. CollecLlon leLLer
a. LeLLer demandlng paymenL of erroneously
refunded amounL (Cooqoo ílecttlc co v. clk), or amounL pald
by bounclng check (kepobllc v. llmoco & Je Cozmoo)
b. lollow-up or collecLlon leLLer duly recelved by
Laxpayer wlLhln Lhe prescrlpLlve perlod (1AxÞA?L8 uLnlLu
8LCLlÞ1 Cl C8lClnAL uLMAnu LL11L8 Anu ASS. nC1lCL) (kepobllc v. Nlelsoo & co)
nC1L: LeLLer from revenue offlcer granLlng opporLunlLy Lo dlsprove
flndlngs (SPCW-CAuSL LL11L8) ls nC1 an assessmenL
ASSLSSMLn1
• WPLn MuS1 ASSLSSMLn1 8L MAuL? (Sec. 203 & 222, nl8C)
– 8L1u8n WAS llLLu
• noL false or fraudulenL - 3 years from flllng of reLurn
• lalse or fraudulenL - 10 years from daLe of dlscovery of false
or fraudulenL reLurn
– nC 8L1u8n WAS llLLu
• 10 years from daLe of dlscovery of omlsslon
• lf assessmenL due falls on SaLurday, governmenL has nexL buslness
day wlLhln whlch Lo assess (Cl8 v. WesLern Þaclflc Corp)
32
CCun1lnC Cl ÞL8lCu
• 1AxA8LL ?LA8
– normal year (363 days)
– Leap year (366 days)
• lf Lhere ls a leap year wlLhln Lhe prescrlpLlve perlod (3 years
from flllng of reLurn), a year shall be deemed Lo have 363 days
only (NAMAkcO v. 1ecsoo, 29 5ckA 70). 1hus, assessmenL lssued on Aprll 13 of Lhe Lhlrd
year from flllng of reLurn shall be LreaLed as lnvalld due Lo prescrlpLlon.
• LC 292 (AdmlnlsLraLlve Code of 1987), belng Lhe more recenL law Lhan
Clvll Code, governs Lhe compuLaLlon of legal perlod. Accor-dlngly, a year
shall be undersLood Lo be 12 calendar monLhs, a monLh of 30 days, unless
lL refers Lo a speclflc calendar monLh (clk vs. ltlmetowo ltopetty Ctoop, Ck No.
162155, Aoq 22, 2007).
ASSLSSMLn1
• WPLn lS ASSLSSMLn1 uLLMLu MAuL?
– lssue daLe of assessmenL noLlce ls noL reckonlng polnL
for prescrlpLlon
– uaLe Lhe assessmenL noLlce and demand leLLer ls
released, malled or senL Lo Laxpayer consLlLuLes acLual
assessmenL (kepobllc v. llmoco & Je Cozmoo)
– ÞresumpLlon of recelpL ln Lhe regular course of mall
applles, lf lL was properly addressed, posLage was
prepald, and was malled. lf one elemenL ls absenL,
presumpLlon does noL lle (íotlpoez v. 5oollfe of coooJo)
33
CCMÞLlAnCL Wl1P SLC. 228
• 8l8 dlsallowed cerLaln lLemlzed deducLlons and consldered some cosL lLems as
sub[ecL Lo 3° Lax, wlLhouL lndlcaLlng facLual and legal bases. uurlng Lhe
prellmlnary sLage, 8l8 lnformed Laxpayer Lhru prellmlnary 3-day leLLer and
furnlshed copy of audlL worklng paper. C1A consldered assessmenL as vold. CA
afflrmed C1A declslon.
• SC ruled above documenLs were noL valld subsLlLuLes for mandaLory noLlce ln
wrlLlng of legal and facLual bases of assessmenL. 1hese sLeps were mere
perfuncLory dlscharge of Cl8's duLles ln correcLly assesslng a Laxpayer. !usL
because Cl8 lssued an advlce, prellmlnary leLLer and flnal noLlce does noL
necessarlly mean Laxpayer was lnformed of law and facLs. Law requlres LhaL Lhey
be sLaLed ln uL and lAn. CLherwlse, Lhe express provlslons of ArL. 228 of nl8C and
88 12-99 would be rendered nugaLory. 1he alleged ºfacLual bases" ln Lhe advlce,
prellmlnary leLLer and audlL worklng papers dld noL sufflce.
• Moreover, due Lo Lhe absence of a falr opporLunlLy Lo be lnformed of legal and
facLual bases of assessmenL, Lhe assessmenL ls vold. Cld law merely requlred
Laxpayer Lo be noLlfled of assessmenL. 1hls was changed ln 1998 (clk vs. íotoo 5oblc
lowet cotp, Ck No. 166J87, Ioo. 19, 2009).
ASSLSSMLn1 nC1lCL
• Þrellmlnary collecLlon leLLer presupposes Lhe
exlsLence of valld assessmenL noLlce.
• Þrellmlnary collecLlon leLLer shall serve as
assessmenL noLlce, lf lL was lnlLlal noLlce recelved by
Laxpayer, Laxpayer dld noL recelve any assessmenL
noLlce, and no follow-up leLLer was senL or
prellmlnary conference was arranged.
• 30-day perlod Lo proLesL shall commence from daLe
of recelpL of prellmlnary collecLlon leLLer (uolteJ lotetootloool
llctotes vs. clk, c1A cose No. 5884, Ioo. 5, 2002)
34
Þ8C1LS1
• valld proLesL of an assessmenL ls one assalllng Lhe
formal assessmenL noLlce (lAn) and Lhe leLLer of
demand, noL Lhe prellmlnary assessmenL noLlce
(ÞAn). ÞAn ls requlred merely Lo lnform Lhe Laxpayer
of Lhe proposed assessmenL.
• lallure Lo proLesL wlLhln 30 days wlll make Lhe formal
assessmenL noLlce flnal and execuLory.
• lallure Lo respond Lo ÞAn wlLhln 13 days wlll render
Laxpayer ln defaulL and a lAn would subsequenLly be
lssued (cebo kosvet lowosbop vs. clk, c1A cose No. 6425, Mot. 17, 200J).
Þ8C1LS1
• Cl8 vs. 8Þl
• CcL 28, 1988 - Cl8 assessed peLlLloner for def. percenLage Lax and uS1 for
1986
• uec 10, 1988 -- 8Þl replled sLaLlng º?our def assessmenLs are no
assessmenLs aL all. As soon as Lhls ls explalned and clarlfled ln a proper
leLLer of assessmenL, we shall lnform you of Lhe Laxpayer's declslon on
wheLher Lo pay or proLesL Lhe assessmenL."
• !une 27, 1991 -- 8Þl recelved leLLer from 8l8, sLaLlng º.. ?our leLLer falled Lo
quallfy as a proLesL under 88 12-83. sLlll we obllged Lo explaln Lhe basls of
Lhe assessmenLs."
• !uly 6, 1991 -- 8Þl requesLed a reconslderaLlon of assessmenLs.
• uec 12, 1991 -- 8l8 denled proLesL, whlch was recelved on !an 21, 1992.
• leb 18, 1992 -- 8Þl flled peLlLlon for revlew ln C1A.
33
Þ8C1LS1
• nov 16, 1993 -- C1A dlsmlssed peLlLlon for lack of [urlsdlcLlon, assessmenLs had
become flnal and unappealable.
• May 27, 1996, C1A denled reconslderaLlon.
• Cn appeal, CA reversed C1A's declslon. lL ruled CcL 28, 1988 noLlces were noL valld
assessmenLs because Lhey dld noL lnform Lhe Laxpayer of Lhe legal and facLual
bases Lherefor. lL declared Lhe proper assessmenLs were Lhose ln May 8, 1991
leLLer whlch provlded Lhe reasons for clalmed deflclencles. Cl8 elevaLed case Lo
SC.
• Cl8 dld noL lnform 8Þl ln wrlLlng of Lhe law and facLs on whlch assessmenLs were
made. Pe merely noLlfled 8Þl of hls flndlngs, conslsLlng of Lhe compuLaLlon of Lhe
Lax llablllLles and a demand for paymenL wlLhln 30 days from recelpL. Pe relled on
former Sec. 270, nl8C, prlor Lo lLs amendmenL by 8A 8424.
• ln CIk vs.keyes, Gk 1S9694, Ian 27, 2006, Lhe only requlremenL was for Lhe Cl8 Lo
ºnoLlfy" or lnform Lhe Laxpayer of hls ºflndlngs." noLhlng ln Lhe old law requlred a
wrlLLen sLaLemenL Lo Lhe Laxpayer of Lhe law and Lhe facLs. 1he CourL cannoL read
lnLo Lhe law whaL obvlously was noL lnLended by Congress. 1haL would be [udlclal
leglslaLlon.
Þ8C1LS1
• !urlsprudence slmply requlred LhaL assessmenLs conLaln a compuLaLlon of
Lax llablllLles, Lhe amounL Lo be pald plus a demand for paymenL wlLhln a
prescrlbed perlod.
• 1he senLence ºLhe Laxpayer shall be lnformed ln wrlLlng of Lhe law and Lhe
facLs on whlch Lhe assessmenL ls made, oLherwlse, Lhe assessmenL shall
be vold." was noL ln old Sec. 270, buL was only lnserLed ln Sec. 228 ln 1997
(8.A. 8424). 1he lnserLed senLence was noL an afflrmaLlon of whaL Lhe law
requlred, Lhe amendmenL by 8A 8424 was an lnnovaLlon and could noL be
reasonably lnferred from Lhe old law.
• 1he CcL 28, 1998 noLlces were valld assessmenLs, whlch 8Þl should have
proLesLed wlLhln 30 days from recelpL. 1he uec 10, 1988 reply lL senL Lo
8l8 dld noL quallfy as a proLesL, slnce Lhe leLLer lLself sLaLed º. we shall
lnform you of Lhe Laxpayer's declslon on wheLher Lo pay or proLesL Lhe
assessmenL."
• 8Þl's fallure Lo proLesL Lhe assessmenL made lL flnal and execuLory. 1he
assessmenL ls presumed Lo be correcL (clk vs 8ll, Ck 1J4062, Apt 17, 2007).
36
uLnlAL Cl Þ8C1LS1
• ul8LC1 uLnlAL
– LeLLer of Cl8 sLaLes ln clear Lerms hls denlal of
proLesL.
• lnul8LC1 uLnlAL
– llnal noLlce 8efore Selzure consLlLuLes as a
declslon on a proLesLed assessmenL, hence,
appealable Lo Lhe C1A (Cl8 vs. lsabela CulLural Corp, 361 SC8A 71
(2004)
– lssuance by 8l8 of WarranL of ulsLralnL and Levy
consLlLuLes a denlal of Lhe proLesL.
lnAC1lCn Cl CCMMlSSlCnL8
• 1he Laxpayer has Lwo opLlons:
– WalL for Lhe declslon of Lhe Commlssloner on Lhe proLesL and flle Lhe appeal
Lo Lhe C1A wlLhln 30 days from daLe of recelpL of Lhe denlal of proLesL, or
– llle appeal Lo Lhe C1A wlLhln 30 days from lapse of Lhe 180-day perlod (Lascona Land
Co vs Cl8, C1A Case no. 3777, !an 4, 2000)
• 8l8 appealed C1A declslon Lo CA.
• ln Lhe meanLlme, 8A 9282 was slgned by ÞCMA on Apr 2, 2004, whlch provldes
LhaL lnacLlon of Cl8 durlng Lhe 180-day perlod ls consLrued as a denlal of proLesL.
• ueclslon of Lhe C1A on Lascona case was reversed by Lhe CA. lf Lhere ls no appeal
flled wlLhln 30 days afLer Lhe lapse of 180 day perlod, Lhe maLLer/declslon under
proLesL becomes flnal. 1he word ºdeclslon" ln Sec. 228 cannoL be sLrlcLly ck sLrlcLly
consLrued as referrlng only Lo declslon per se of Cl8 buL should be consldered
synonymous wlLh dlspuLed assessmenL (clk vs. loscooo looJ co, cA Ck 5l No. 58061,
Oct 25, 2005).
• CA declslon was appealed Lo SC, where lL ls sLlll pendlng.
37
CCun1lnC Cl 180-uA? ÞL8lCu
• Slnce Lhe peLlLloner dld noL submlL any
documenL ln supporL of hls proLesL wlLhln
slxLy days from Lhe flllng of lLs proLesL, Lhe
counLlng of Lhe 180-day perlod was from Lhe
flllng of Lhe proLesL. Accordlngly, when
respondenL falled Lo render hls declslon wlLhln
180 days from Lhe flllng of hls proLesL,
peLlLloner has 30 days Lherefrom Lo flle an
appeal Lo C1A (Oceoolc wlteless Netwotk vs. clk, c1A cose No. 6111,
Nov. J, 2004)
AÞÞLALS
• AuMlnlS18A1lvL AÞÞLAL
– DLCISICN CI kLGICNAL DIkLC1Ck MA¥ 8L AÞÞLALLD 1C CCMMISSICNLk
– ÞkICk LknAUS1ICN CI ADM kLMLDILS GIVLS ADM AU1nCkI1ILS ÞkICk
CÞÞCk1UNI1¥ 1C DLCIDL CCN1kCVLkSILS WI1nIN 1nLIk CCMÞL1LNCL
(AqoloolJo loJosttles cotp. v. clk)
• !uulClAL AÞÞLAL
– IINAL DLCISICN CI CCMMISSICNLk MA¥ 8L AÞÞLALLD 1C CCUk1 CI 1Ak
AÞÞLALS
• Where a taxpayer f||ed a va||d protest w|th|n 30 days from date of
rece|pt of assessment and on same day a|so f||ed w|th C1A a
pet|t|on for rev|ew, there |s yet no f|na| dec|s|on of CIk on the
protest that |s appea|ab|e to C1A(Mooq coottols cotp vs. clk, c1A cose
No. 6700, Oct 18, 2004)
– C1A DIVISICN DLCISICN IS AÞÞLALLD 1C C1A £N 84Nc
– CCUk1 CI AÞÞLALS £N 84Nc DLCISICN AÞÞLALLD 1C SUÞkLML CCUk1
38
ÞL1l1lCn lC8 8LvlLW
• ÞeLlLloner malnLalns LhaL lLs counsel's neglecL ln noL flllng
peLlLlon for revlew wlLhln reglemenLary perlod (due Lo
counsel's secreLary) was excusable.
• 1he 30-day perlod Lo appeal ls [urlsdlcLlonal and fallure Lo
comply would bar Lhe appeal and deprlve Lhe C1A of lLs
[urlsdlcLlon. Such perlod ls mandaLory, and lL ls beyond Lhe
power of Lhe courLs Lo exLend Lhe same (cboo kloo vs c1A, 105 lbll 906
(1959).
• 1he opLlons granLed Lo Lhe Laxpayer ln case of lnacLlon by Lhe
Cl8 ls muLually excluslve and resorL Lo one bars Lhe
appllcaLlon of Lhe oLher. ÞeLlLlon for revlew was flled ouL of
Llme (more Lhan 30 days afLer lapse of 180 days), and
peLlLloner dld noL flle M8 or appeal, hence, dlspuLed
assessmenL became flnal and execuLory.
ÞL1l1lCn lC8 8LvlLW
• AfLer avalllng of Lhe flrsL opLlon (flllng peLlLlon for
revlew wlLh C1A), peLlLloner cannoL successfully
resorL Lo Lhe second opLlon (awalLlng flnal declslon
of Cl8) on Lhe preLexL LhaL Lhere ls yeL no flnal
declslon on Lhe dlspuLed assessmenL because of Cl8's
lnacLlon.
• AssessmenLs are presumed Lo be correcL unless
oLherwlse proven (kc8c vs clk, Ck No. 168498, Apt 24, 2007).
39
Þ8LSC8lÞ1lCn
• 1he 3-year perlod wlLhln whlch Lo assess any deflclency Lax
commences afLer Lhe lasL day prescrlbed by law for Lhe flllng
of Lhe lncome Lax reLurn.
• lor vA1, each Laxable quarLer shall have lLs own prescrlpLlve
perlod. vA1 reLurn ls flled quarLerly and a flnal reLurn ls noL
requlred aL Lhe end of Lhe year.
• ln case of credlLable wlLhholdlng Laxes, Lhe 3-year perlod shall
be counLed shall be counLed from Lhe lasL day requlred by law
for flllng monLhly remlLLance reLurn. Lach monLhly reLurn ls
already a compleLe reLurn. 1he annual lnformaLlon reLurn
submlLLed Lo 8l8 ls [usL an annual reporL of lncome paymenLs
and Laxes wlLhheld and ls noL ln Lhe naLure of a flnal
ad[usLmenL reLurn (nlcO AqtlJev cotp. vs. clk, c1A cose No. 6J55, Ioly 18, 2002)
Þ8LSC8lÞ1lCn
• 8equesL for reconslderaLlon or clarlflcaLlon on Lhe
assessmenL made by Lhe Laxpayer does noL suspend
Lhe runnlng of Lhe sLaLuLe of llmlLaLlons. Powever,
requesL for relnvesLlgaLlon may suspend Lhe runnlng
of prescrlpLlve perlod when lL has been granLed by
Cl8 (8ll vs. clk, Ck No. 1J97J6, Oct 17, 2005)
• Mere flllng of Lhe proLesL leLLer wlLhouL requesLlng
for a relnvesLlgaLlon does noL suspend Lhe runnlng of
Lhe prescrlpLlve perlod Lo collecL (lbll Clobol commoolcotloos vs.
clk, c1A í8 cose No. J7, leb. 2005)
60
8LCulSl1LS Cl WAlvL8
• Walver musL be ln Lhe form ldenLlfled ln 8MC 20-90,
• Lxplry daLe of perlod agreed upon ls lndlcaLed ln Lhe walver,
• Walver form requlres sLaLemenL of Lhe klnd of Lax and amounL of Lax due,
lf noL lndlcaLed ln Lhe walver, Lhere ls no agreemenL,
• Walver ls slgned by Laxpayer or hls auLhorlzed represenLaLlve. ln case of
corporaLlon, walver ls slgned by any responslble offlclal.
• Cl8 or hls auLhorlzed represenLaLlve shall slgn walver lndlcaLlng LhaL 8l8
has accepLed and agreed Lo Lhe walver,
• uaLe of accepLance by 8l8 ls lndlcaLed,
• uaLe of execuLlon and accepLance by 8l8 should be before explraLlon of
prescrlpLlve perlod,
• Walver ls execuLed ln 3 coples, second copy ls for Laxpayer. lacL of recelpL
by Lhe Laxpayer should be lndlcaLed ln Lhe orlglnal copy (lflzet, loc. vs. clk, c1A
cose No. 61J5, Apt. 21, 200J, lMl uev. cotp. vs. clk, c1A cose No. 615J, Mot. 20, 200J)
8LCulSl1LS Cl WAlvL8
• Walver musL lndlcaLe deflnlLe explraLlon daLe agreed upon by
Cl8 and Laxpayer
• Walver should sLaLe daLe of accepLance by 8l8. WlLhouL Lhe
daLe, lL cannoL be deLermlned wheLher walver was accepLed
before explraLlon of 3-year perlod.
• 1axpayer musL be furnlshed copy of accepLed walver. under
8MC 20-90, second copy of walver ls for Laxpayer. lacL of
recelpL by Laxpayer of hls copy should be lndlcaLed ln Lhe
orlglnal copy (lbll. Iootoollsts vs. clk, sopto).
• 8MC 20-90 musL be sLrlcLly consLrued agalnsL Lhe
governmenL, Lhey are mandaLory ln characLer. More-over, Lhe
walver of Lhe sLaLuLe of llmlLaLlons ls noL a walver of Lhe rlghL
Lo lnvoke Lhe defense of prescrlpLlon(clk vs. lMl uev cotp, Ck No.
167765, Iooe J0, 2008).
61
l8Auu
• 1Ax AvCluAnCL ls Lhe Lax savlng devlce wlLhln Lhe means sancLloned by
law, used ln good falLh and aL arms lengLh.
• 1Ax LvASlCn ls a scheme used ouLslde of Lhose lawful means and when
avalled of, lL usually sub[ecLs Lhe Laxpayer Lo furLher or addlLlonal clvll or
crlmlnal llablllLles. lL connoLes 3 facLors: end Lo be achleved, an
accompanylng sLaLe of mlnd LhaL ls descrlbed as evll, wlllful or dellberaLe,
and course of acLlon whlch ls unlawful.
• AlLonaga's sole purpose of acqulrlng and Lransferrlng LlLle of properLles on
same day was Lo creaLe Lax shelLer. Sale Lo hlm by ClC was a sham and
wlLhouL buslness purpose. Sale by AlLonaga Lo 8Ml was LalnLed wlLh fraud.
Lven before Lhe purporLed sale of properLy by ClC Lo AlLonaga, lL recelved
Þ40 M from 8Ml. 1haL was reflecLed by 8Ml ln lLs flnanclal sLaLemenL (clk
vs. ístote of 8eolqoo 1oJo, Ck No. 147188, 5ept. 14, 2004)

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