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Tax2 Reviewer
ESTATE TAX
Q: What is an Estate Tax?
A: An estate tax is a tax on the privilege of
transmitting property at death which is measured
by the value of the property at the time of the
death of the decedent.
Estate tax is the tax on the right to transmit
property at death and on certain transfers by the
decedent during his lifetime which are made by
law the equivalent of testamentary dispositions.
(De Leon)
Q: When does the estate tax accrue?
A: It accrues at the time of death irrespective of
whether the heirs took possession or enjoyment
of the property.

A: The administrator is the taxpayer of the estate


tax. In the case of Estate of Juliana de Gabriel,
SC ruled that when an estate is under
administration, notice must be sent to the
administrator of the estate, since it is the said
administrator who has the legal obligation to
pay and discharge the debts of the estate and to
perform the orders of the court.
In the first place, the administrator pays using
the funds of the estate.
Q: What if the estate administrator has been
granted a clearance as the estate has already been
distributed, who pays?
A: The heirs are liable to estate tax, even if the
estate has already been distributed.
Decedents Interest

Q: What does Estate Tax include?


A: property transmitted at death and lifetime
transfers bur regarded as testamentary
dispositions.

Q: What is the decedents interest?


A: Sec. 85 (A) Decedents Interest. To the
extent of the interest therein of the decedent at
the time of his death.

Q: Suppose X, a decedent died, leaving 3 heirs


(A, B, C). X had 3 apartments (M, N, O). Each
of his heirs inherited at least one of the
decedents apartments (i.e., A took M apartment,
B took N) Is the estate tax payable by A, B,
and C?
A: No. Estate tax is a transfer of a net estate to
the heirs but not a transfer of the net estate to a
specific heir.

Q: If the decedent was entitled to a year end


bonus paid on December but he died on July.
The bonus was paid on December. Would the
bonus be part of the gross estate?
A: No, because it did not accrue at the time of
the decedents death. But it is an income of an
estate but not a part of the gross estate.

Q: How does the net estate complement income


taxation?
A: Estates are also taxpayers. What is not caught
in life shall be caught in death.
Q: What is the concept of gross estate?
A: It includes all properties of the decedent, real
or personal, tangible or intangible (when resident
or citizen). But in case of non resident alien, it
includes all those within and if the situs is here in
the Phils.
Q: Is it accurate to say that only the assets owned
by the decedent at the time of his death would
form the gross estate that assets or interests of 3rd
parties would not form the gross estate?
A: No. Gross estate includes not only assets of
decedent at the time of his death but also lifetime
transfers (such as transfers in contemplation of
death, revocable transfers).

Q: Suppose decedent is a contractor. He has a


building contract. He did a flyover.
The
contractor is to be paid in two years by 4
installments but before the payment of the 3rd
installment, he died. What would be part of his
estate?
A: The payment for the 3rd and 4th installment did
not accrue at the time of the death but after the
death. It will not form part of the gross estate
because the law says the value at the time of
death, the property at the time of death. It would
form part of the estate not for estate tax
purposes. It goes to the estate as income of the
estate subject to income tax, not part of the
estate for estate tax purposes.
Q: X is a consultant of a corporation. He was
paid on a monthly basis. He gets his salary
regardless of services actually rendered. He died
in May but the salary was paid in July. Would it
form part of the estate?
A:

Q: Who pays the estate tax?


Alf Bambi Carlos Deli Jonah Ron Rybi She TR
Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

2
Tax2 Reviewer
Q: How about dividends declared and paid after
the decedents death, would they be part of the
gross estate?
A: No. It is an income of the estate but not part
of the gross estate for estate tax purposes. In
dividends, what is important is the date of
declaration of the dividends, not the date of the
receipt of the dividends.
Q: A and B opened a joint account (A or B)
where either A or B may withdraw. B died.
Would this be a part of Bs estate?
A: Yes, but in order for A to claim the whole
amount for himself, A would have to show that B
was stripped of his right over the account and
such was transferred to A after his death
Q: A and B opened a joint account (A and B)
where either A or B may withdraw. B died.
Would this be a part of Bs estate?
A:
Q: A, B, C bought a property, so they co-own it.
However, it was C who paid the purchase price.
C died. Is the part of Cs estate, the whole or 1/3
of the property?
A: Only 1/3 because of the co-ownership
existing between them, except if it is shown that
C actually own the entire interest. Other
evidence could be shown in order to prove
decedents interest.

Q: Supposing X was suffering from lung cancer.


X tells his daughter that he is giving to her his
property because he was ill. X died two years
after. Is that a transfer in contemplation of death
as against the previous case of 5 days after?
A: That would still be transfer in contemplation
of death because the impelling motive was the
thought of death, as he was terminally ill.
(Bar Ops Stenographic Notes)
Q: Supposing a decedent, A, the father, suffering
from mental impairment but still sane enough to
execute a transfer, transfers the property. A tells
his son, Im transferring this to you because Im
mentally ill, I may soon become insane. Not only
did he become insane, he died. Would that be a
transfer in contemplation of death?
A: No, because it was not in contemplation of
death. It was in contemplation of an incapacity,
not death. (Bar Ops Stenographic Notes)
Q: Supposing X gives property to Y and tells Y
that X is giving this property to Y so that Y can
improve his life. Thirty days after X died. Could
that be transfer in contemplation of death?
A: No because death was never the impelling
cause, never the controlling motive, never the
particular concern that prompted the transfer. If
the reason for the transfer is the thought of better
living, the thought of a good life, it would not be
in contemplation of death.
(Bar Ops Stenographic Notes)

Transfer in Contemplation of Death


Q: What is a transfer in contemplation of death?
A: It means that it is the thought of death, as a
controlling motive, which induces the disposition
of the property.
Q: Are transfers in contemplation of death
transfers in expectation of death?
A: No, its not the general expectation of death,
since every person would die.
Q: Supposing you have a ballroom dancer, a very
healthy guy. He goes ballroom dancing every
night. He tells his daughter that he will be giving
his land because he may die anytime. Ten days
after, he die. Is that a transfer in contemplation of
death?
A: Yes, that would be a donation mortis causa or
a transfer in contemplation of death because of
the proximity of the date of giving and the date
of death. (Bar Ops Stenographic Notes)

Q: What is the basic reason why a transfer in


contemplation of death (or the passing of title
during the lifetime of the decedent) part of the
gross estate?
A: Since it is really a testamentary disposition.
Q: Give an example of a transfer in
contemplation of death?
A: For instance X was very ill when he made the
transfer, it is important that X knew that he was
very ill so that it could be considered in
contemplation of death.
When the decedent made the transfer with the
belief that he is healthy, it could not be
considered in contemplation of death. Death
must be the compelling motive. (US vs. Wells)
Q: How is a transfer in consideration of death
made?
A: Sec. 85 (B) x x x by trust or otherwise.

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

3
Tax2 Reviewer
Q: X told Y that he may die soon so he left a
very expensive car to Y. Is this considered a
transfer in contemplation of death?
A: Yes, because there is a thought of death.
Q: What is the transfer was made without the
decedent knowing that he is ill, is it a transfer in
contemplation of death?
A: No, the decedent should have knowledge of
his ill condition.
Q: A, 70 years old and suffering from cancer, has
a real property having a fair market value of
P10M, but he sold it for P9M telling the buyer
that he is going to die. He died afterwards. Is it a
transfer in contemplation of death?
A: No, because there is an adequate
consideration. This consideration takes it away
from the gross estate.
Revocable Transfer
Q: What is a revocable transfer?
A: Yung bigay na bawi
You give but you retain control, possession, and
enjoyment. What you have given under the
scheme forms part of the gross estate.
(Bar Ops Stenographic Notes)
Q: Are revocable transfers considered as part of
the gross estate?
A: Yes, because these are considered as not
having left the decedent/grantor.
Q: Suppose that A gave property to B under a
revocable trust. Ten days before his death he said
to the beneficiary and to the trustee that he is
very ill and he may die soon so he is revoking
his power to revoke. He died. B considered this
as an irrevocable trust contending that it is not
part of the gross estate. Would that form part of
the gross estate?
A: Yes, because when he revoke the power to
revoke, he revoke it in contemplation of death.
Q: Suppose Dad made a revocable transfer to son
but Son paid Dad P8M. The property is valued at
P9M. Dad died. Is it part of his estate?
A: No because there is an adequate consideration
which means that it left the estate.
General Power of Appointment
Q: What is a general power of appointment?
A: It refers to the right of the decedent to
designate any person including himself who shall

enjoy or possess certain property from the estate.


(De Leon)
Q: Why is the general power of appointment part
of the gross estate?
A: It would form part of the estate because it
could have been his property. He could give it to
himself and therefore, under our estate tax law, it
was as if that property was given to himself at
the time of his death.
Q: What are the requisites for the taxability of
appointed property?
A: The value of the appointed property is
includible in the gross estate of the decedent if
the following requisites are present:
1. The existence of general power of
appointment
2. An exercise of such power by the
decedent by will or by deed
3. The passing of the property by virtue of
such exercise (De Leon)
Q: How is a general power of appointment
made?
A: Sec. 85 (D) provides:
1. by will
2. by deed in contemplation of death
3. by deed to take effect at death
4. by deed where decedent retained for
himself several rights pertaining to his
property
Q: What are the rights that the decedent retained
for himself in a general power of appointment?
A: As provided in Sec. 85 (D)
1. possession or enjoyment of the property
2. income or fruits of the property
3. right to designate the person who may
have right to possession, enjoyment, or
to the fruits.
Q: Can the decedent designate or appoint any
person in the general power of appointment such
that he may appoint even himself despite the fact
that this property was transferred to the donee?
A: Yes, the decedent may be appointed if he
wanted to, so this is why it is part of the
decedents estate.
Q: What is the difference between a special from
a general power of appointment?
A: It is general when it authorizes the decedent
to appoint any person he pleases, including
himself, thus having as full dominion over the
property as though he owned it.

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

4
Tax2 Reviewer
It is special when he can appoint only among a
restricted or designated class of persons other
than himself. (De Leon)
Q: Are properties transferring under a special
power of appointment part of the gross estate?
A: No. because the decedent is restricted to a
specific or special class of persons, which means
that he cannot even appoint himself.
Proceeds of Life Insurance
Q: Are proceeds of life insurance part of gross
estate?
A: Yes, but, as provided in Sec 85 (E), only to
the extent of the amount receivable by the estate
of the deceased , his executor, or administrator.
Q: Suppose A got an insurance policy where Y
was designated as a revocable beneficiary, but A
died. Is the proceeds part of the estate?
A: The proceeds do not belong to the estate, but
to Y. However, the mere fact of revocability only
makes it part of the Estate, there it is taxable. To
be irrevocable, it must be expressly stated.

A: It would be the P10M the value of the


property as the time of the decedents death since
the law says that it should be the value of the
property at the time of death.
Deductions
1. Funeral Expenses
Q: Suppose text messages were made to inform
the death of the deceased, would it be
deductible?
A: Yes. Sec. 86 (A) provides x x x by
deducting from the value of the gross estate: (1)
(a) For actual funeral expenses, or in an amount
equal to 5% of the gross estate, whichever is
lower, but in no case to exceed P200,000.
The term funeral expenses is not confined to its
ordinary or usual meaning. They include:
Telecommunication expenses incurred in
informing relatives of the deceased. (De Leon)
Q: During As funeral, B, his relative, paid all the
funeral expenses. Are these expenses deductible?
A: No, because expenses must come from the
estate.

Transfers for Insufficient Consideration


Q: In a transfer for insufficient consideration,
suppose A transferred a property worth P10M to
B, B paid A P2M, what forms part of As gross
estate?
A: P8M is part of Gross estate for purposes of
computing the net estate. In gift situation, the
excess is considered as the gift, taxable.
Q: Are all transfers for insufficient consideration
part of the gross estate?
A: No, for this kind of transfer to be included in
the gross estate, the transfer must also be in
contemplation of death, otherwise, the excess
would be considered as a gift.
Q: What would be the tax treatment if the
transfer for insufficient consideration pertains to
a real property that is a capital asset?
A: It would not be subject to estate tax, but to
provisions of Sec. 24 (D) (6% of fair market
value or gross selling price, whichever is higher).
Q: Suppose A owned a property worth P10M,
then he transferred this property to B. The next
day, A died. After 3 months, B sold this property
for P50M. What would be the value included in
the estate?

Q: Are monuments and tombstones deductible as


funeral expenses?
A: The test to be deductible is that it should
pertain to the expenses preceding the burial. If
these were made after the burial it would not be
deductible as funeral expenses.
Q: Suppose funeral expenses costs P1.5M,
however, 5% of the gross estate is 500k, Can the
P1M excess be deductible as a claim against the
estate? (Note: the P1M is not deducted as a
funeral expense but rather an indebtedness of the
estate)
A: No. Otherwise, it would violate the statutory
limitation.
Moreover, for indebtedness to be deducted, it
must be incurred prior to the death.
2. Judicial Expenses of Estate Settlement
Q: Suppose a CPA was hired to look for the
decedents assets, P10k was paid for such
services. Is it deductible?
A: Yes, as long as it is important for the
settlement of the estate. Sec. 86 (1) (b) For
judicial expenses of the testamentary or intestate
proceedings.

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

5
Tax2 Reviewer
Q: Suppose A was designated by the probate
court as an administrator of the decedents estate.
However, as a condition for the office, the
probate court required A to post a bond having a
premium amount worth P30k, is this amount
deductible to the estate?
A: No. This is not for the settlement of the estate
but in the nature of a qualification for office.
Q: Suppose an heir hired a lawyer to protect his
interest in the estate. He spend P100k. Is it
deductible?
A: No, not an expense for the settlement of the
estate. The Supreme Court ruled that attorneys
fees incurred by the heirs in asserting their rights
in the estate are not expenses essential to the
settlement of the estate. Only expenses essential
to the proper settlement of the estate are
deductible.
Q: Supposing that notarial fees were paid for the
extrajudicial settlement of the estate, would this
be deductible?
A: Yes. In CIR vs. Pajonar, the Supreme Court
ruled that expenses necessary for the settlement
of the estate should be deducted, although the
Tax Code specifies judicial expenses
3. Claims against the Estate
Q: The estate is indebted to A, but the debt
instrument was notarized a week before the
decedents death. May this debt instrument used
as a valid deduction?
A: No. Law looks at it only as a manufactured
document. To be deductible, it must be duly
notarized at the time the indebtedness was
incurred.
Sec. 86 (A) (1) (c) For claims against the
estate: Provided, That at the time the
indebtedness was incurred the debt instrument
was duly notarized and, if the loan was
contracted within 3 years before the death of the
decedent, the administrator or executor shall
submit a statement showing the disposition of
the proceeds of the loan.
Q: What if the loan is contracted within 3 years
prior to the death of the deaceased?
A: The administrator or executor required to
submit a statement showing the disposition of
the proceeds of the loan.
Q: What is the purpose of this within 3 year
rule?

A: To avoid fabrication.
Q: Can funeral expenses exceeding P200,000 be
deducted as claims against the estate?
A: No, it cannot be claimed as a deduction.
4. Bad Debt Deduction
Sec 86 (A) (1) (d) For claims of the deceased
against insolvent persons where the value of the
decedents interest therein is included in the
value of the gross estate
Q: What is the requirement in this deduction?
A: You have to put the uncollectible receivables
in the estate before getting a claim. Also, you
cannot just claim that an indebtedness is
insolvent. You must show that the debtor is
financially incapable of paying.
(Bar Ops Stenographic Notes)
Q: What is the tax benefit in including the bad
debt (or insolvent claim) and then deducting it?
A:
5. Unpaid Mortgages
Sec. 86 (e) For unpaid mortgages upon, or
any indebtedness in respect to, property where
the value of decedents interest therein,
undiminished by such mortgage or indebtedness,
is included in the value of the gross estate.
Q: What do deductions for unpaid mortgages
include?
A: It includes the mortgaged property
undiminished by indebtedness in the gross estate.
This means that you have to include the
mortgage property in the gross estate
undiminished by the indebtedness before
claiming the unpaid mortgages as a deduction
because the fair market value of the property
could be much higher than the mortgage
indebtedness.
6. Losses
Sec. 86 (e) x x x There shall be deducted
losses incurred during the settlement of the
estate arising from fires, storms, shipwreck, or
other casualties, or from robbery, theft, or
embezzlement, (fortuitous event), when such
losses are not compensated for by insurance or
otherwise, and if at the time of the filing of the
return such losses have not been claimed as a

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

6
Tax2 Reviewer
deduction for income tax purposes in a income
tax return, and provided that such losses were
incurred not later than the last day for the
payment of the estate tax.
7. Any Indebtedness
Tax
Q: Are taxes deductible to the estate?
A: Yes, Sec. 86 (e) provides for any unpaid
mortgages upon, or any indebtedness.
Indebtedness includes tax.
Q: What taxes are deductible?
A: Taxes accruing before the death. Sec 86
(e) x x x but not including any income tax
upon income received after the death of the
decedent, or property taxes not accrued before
his death, or any estate tax.
Unpaid Subscriptions
Q: During the lifetime of the decedent, he
subscribed to a corporation. Worth P1M, but he
simply paid 25%. Suddenly the corporation
became financially unstable. The Board of
Directors issued a call/ pay up. Decedent died
before paying up. Would the 75% be considered
a claim against the estate for indebtedness?
A: Yes, this is a valid claim against the estate.
8. Vanishing Deduction
Q: What is the rule with regard to Vanishing
Deduction as provided in Sec. 86 (A) (2)?
A: There must be a prior decedent transferor and
a current decedent transferee who died within 5
years after the death of the transferor.
Q: Suppose A had properties here and abroad. A
died. B inherited these properties. Later B died.
Which is deductible?
A: Only properties situated in the Philippines.
Sec. 86 (A) (2) x x x any property forming a part
of the gross estate situated in the Philippines.
9. Transfer for Public Use
Q: Suppose decedent made a transfer in favor of
a NGO, is it deductible as transfer for public
use?
A: No. it should be for the government, not for a
non-government organization.

Sec. 86 (4) The Family Home An amount


equivalent to the current market value of the
decedents family home: Provided, however,
That if the said current fair market value exceeds
P1M, the excess shall be subject to estate tax. AS
a sine qua non condition for the exemption or
deduction, said family home must have been the
decedents family home as certified by the
barangay captain of the locality.
Q: Is the family home of a decedent (civil status:
single) deductible?
A: Yes, as long as he is the owner.
Q: Suppose decedent has 2 family homes, would
the choice of one suffice?
A: Yes, as long as it was certified by the
barangay captain. It must be shown his actual
residence.
Q: Suppose a wife was legally separated from
her husband. The husband retained in his custody
the family home. The wife died. Is the family
home deductible to the wifes estate?
A: Yes, it is within the statutory limitation.
Q: Suppose a family home worth P2M was
leased for P500k. He rent an apartment at P10k
per month. Would the family home deduction
apply?
A: Yes, as long as it is still his family home.
There is no need for actual residence.
Q: Suppose the decedent lived in an ancestral
house for 5 years. It belong to his mother but
was constructed by his uncle. Is it deductible to
the decedents estate?
A: No, the family home must be owned by the
decedent.
Q: A, a single decedent, lived with his parents,
can his estate claim family home deduction?
A: No, in order to avail this deduction he must
own the family home.
Q: Suppose the decedent has a house in Baguio
worth P2M where he lives there for 6 months per
year, and the decedent also has a house in Manila
worth P10M where he also lives there for 6
months per year, which family home would be
deducted?
A: Choice of which value to deduct is immaterial
as there is a P1M limitation to this deduction.

10. Family Home


Alf Bambi Carlos Deli Jonah Ron Rybi She TR
Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

7
Tax2 Reviewer
Q: What if the family home was bought by
conjugal funds, is it deductible?
A: Yes, the one-half share of the surviving
spouse in the family home is deducted from the
gross estate to arrive at the net estate.
Q: How about the share of the surviving spouse
in the conjugal funds, is it deductible?
A: Yes. The surviving spouse exclusive property
is not included in the decedent spouses estate.
Sec. 85 (H) Capital of the Surviving Spouse
The capital of the surviving spouse of a decedent
shall not be deemed a part of his or her gross
estate.

Q: Suppose at the time of transfer the property


was worth P10M, but at the time of death it was
P15M. What would be the value?
A: P15M because this is the value at the time of
death. Sec. 88 (B) The estate shall be appraised
at its fair market value as of the time of death.
Q: Suppose A gave to B in contemplation of
death cash worth P10M. When A died, B only
have P5M. What would be included in the gross
estate?
A: P10M, otherwise the tax provision would be
defeated. In the case of cash or money, it should
be the value at the time of transfer and not at the
time of death.

11. Medical Expenses


Sec. 86 (A) (6) Medical expenses incurred by
the decedent within one year prior to his death
which shall be duly substantiated with receipts:
Provided, that in no case shall the deductible
medical expenses exceed P500,000.
Q: What if the medical expenses amounts to
P1M, would the excess of P500K be claimed as a
claim against the estate?
A: No, if it is already covered by one category of
deductions already, you cant put it under a
different category because this would violate the
statutory limitations.
Determination of Estate Value

Computation of Non-resident Alien Decedents


Estate Tax
Q: Is the gross estate the same in all kinds of
decedents?
A: No. (i.e., non resident alien decedent) The
property of a non resident alien decedent without
the Philippines is not subject to estate tax.
Sec. 104 provides x x x where the decedent was
a non-resident alien at the time of his death his
real and personal property so transferred but
which are situated outside the Philippines shall
not be included as part of his gross estate

Q: How do you value the jewelry of the


decedent?
A: By fair market value, by comparing it with
other jewelries or with the supplies at the
pawnshop.

Q: Are all properties of the non resident alien


decedent without the Philippines NOT subject to
tax?
A: No. Sec. 104 states: x x x considered as
situated in the Philippines
1. Franchise which must be exercised in
the Philippines
2. Shares, obligations, bonds issued by any
domestic corporation
3. Shares, obligations, bonds by any
foreign corporation 85% of the business
located in the Philippines
4. Shares, obligations, bonds by a foreign
corporation having a business situs in
the Philippines
5. Shares, rights in any partnership,
business, or industry established in the
Philippines.

Q: A made a transfer in contemplation of death


in 1989. A died in 1999. How do you value
property in contemplation of death?
A: The value of the property at the time of death
(1999).

Q: If it is a resident alien decedent, what would


be the rule?
A: A citizen and alien resident decedent are
treated alike. Their properties within and without
the Philippines are subject to estate tax.

Q: How do you value the property?


A: Sec. 88 (B) Properties The estate shall be
appraised at its fair market value as of the time
of death. However, the appraised value of real
property as of the time of death shall be,
whichever is the higher of (1) the fair market
value as determined by the Commissioner, or (2)
the fair market value as shown in the schedule of
values fixed by the Provincial and City
Assessors.

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She

8
Tax2 Reviewer
Q: Suppose X, an alien, lived in the Philippines.
X acquired a car, PLDT shares, IBM shares,
savings (3 years), account in PNB Manila,
savings in PNB (New York). Then he left for US
and acquired similar properties. He lived and
died there. What forms part of his estate?
A:
Q: Same question, at the time of his death, is he
a resident or a non-resident?
A:
Q: Same question but assuming that he died as a
non resident alien, what are included in the gross
estate?
A: IBM shares are not included unless 85% of its
business is located in the Philippines.
Q: Suppose a non resident alien decent has
shares in AOL which have a 100% subsidiary in
the Philippines, will it be included in the gross
estate?
A: No, Equity investment is not doing business
in the Philippines.
Q: Suppose an American decedent died having a
promissory note issued by a Filipino
businessman, and the BIR argued that the
promissory note has a business situs in the
Philippines referring to Sec. 104 (obligations
considered as situated in the Philippines), is it
part of the estate?
A: No. the law speaks of institutions or
corporations and not individual obligations (Sec.
104 x x x obligations by any corporation)
Reciprocity
Q: When would the intangibles mentioned in
Sec. 104 not considered part of gross estate?
A: When there is reciprocity. Reciprocity in that
section is when the foreign country of the nonresident decedent allows a similar exemption to a
non-resident Filipino, meaning the intangibles of
the non resident Filipino in that foreign country
of the non resident decedent would exempt the
intangibles similarly.
Q: Although Sec. 104 states five instances where
the intangible property of the non resident alien
decedent is included in the computation of his
estate, are there instances where the computation
of the intangible property of the non resident
alien decedent would not be included in the
estate tax?

A: Yes, if there is reciprocity. Sec. 104 x x x


Provided still further, That no tax shall be
collected in respect of intangible personal
property:
(a) if the decedent at the time of his death
was a citizen and resident of the foreign
country which at the time of his death
did not impose a transfer tax in respect
of intangible personal property of
citizens of the Philippines not residing
in that foreign country.
(Alien country does not tax intangibles of
Pinoys not residing there)
(b) If the laws of the foreign country of
which the decedent was a citizen and
resident at the time of his death allows
a similar exemption from transfer or
death taxes in respect of intangible
personal property owned by citizens not
residing in the Philippines
(Alien country exempts from death tax
intangibles of Pinoys not living there)
Q: Can the estate of the non resident alien
decedent claim exemption even if there just
partial reciprocity?
A: No. The Supreme Court held in CIR vs.
Fisher:
Reciprocity must be total with respect to transfer
or death taxes of any and every character. If any
of the two states collects or imposes and does not
exempt any transfer, death, legacy, or succession
tax of any character, the reciprocity does not
work. This is the underlying principle of the
reciprocity clauses in both laws.
Exempt Transmissions
Sec. 87. Exemption of Certain Acquisitions and
Transmissions. The following shall not be
taxed:
(A) The merger of usufruct in the owner of
the naked title;
(B) The transmission or delivery of the
inheritance or legacy by the fiduciary
heir or legatee to the fideicommissary.
(C) The transmission from the first heir,
legatee or donee in favor of another
beneficiary, in accordance with the
desire of the predecessor; and
(D) All bequests, devises, legacies, or
transfers to social welfare, cultural, and
charitable institutions, no part of the net

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income of which inures to the benefit of
any individual: Provided, however, That
not more than 30% of the said bequests,
devises, legacies, or transfers shall be
used by such institutions for
administration purposes.
Q: What is the basis for the exemption in Sec. 87
(A) to (C)?
A: It is premised on the fact that in all the
transfers mentioned, there is really one
transmission of property, (i.e.- from the testator
to the owner of the naked title; or from the
testator to the fideicommissary0 Hence, the
exemption from the tax because the property was
previously subject thereto. (De Leon)
Q: In the merger of the usufruct and the naked
title, what if the usufruct die which results to the
merger of the usufruct and the naked title, would
the transmission be taxable?
A: No, it is not taxable because the right of the
usufruct is included in the gross estate of the
decedent.
Q: Suppose A transfers property to trust. This
property would be enjoyed by B but the title is
given to C. A dies, would the property be part of
the estate?
A: If it is a revocable trust, it would be a part of
As estate.
Q: Same question, but what if B dies?
A: The value of the usufruct is included in the
gross estate of B. See Sec. 88. (A).
Q: Same question, but what if B dies ahead of A?
A: Sec. 88 (A) also applies.

DONORS TAX
Q: What is a donors tax?
A: The donors tax is imposed on donations inter
vivos or those made between living persons to
take effect during the lifetime of the donor.
(De Leon)
Q: How are donations mortis causa taxed?
A: Donations mortis causa or those which are to
take effect upon the death of the donor partake
the nature of testamentary dispositions, are
subject to estate tax. They are considered
transfers in contemplation of death. (De Leon)
Q: What is the concept of the gift tax?

A: The concept of the gift tax is on the right to


transmit. It is imposed on the privileged to
transfer property.
Q: What are the differences between Estate Tax
and Donors Tax?
A: Tax rates. And also:
In estate tax.
1. transferor is dead
2. transfer mortis causa
In donors tax
1. donor is living
2. life-time transfer
Q: How is donors tax imposed?
A: Sec. 98 (B) The tax shall apply whether the
transfer is in trust or otherwise, whether the gift
is direct or indirect, and whether the property is
real or personal, tangible or intangible.
Q: How do you explain that donors tax
supplements estate tax? or income tax?
A: The donors tax supplements the estate tax by
preventing the avoidance of the latter through the
device of donating the property during the
lifetime of the deceased. (De Leon)
Q: How do you explain that donors tax
supplements income tax?
A: The donors tax also supplements the income
tax. Without the donors tax, the donor may
escape the progressive rates of income taxation
through the simple expedient of splitting his
income among numerous donees. (De Leon)
Q: How is a gift tax a downpayment when the
donor died?
A: The gift tax is a downpayment of the estate
tax when the donor dies. Any property given by
gift reduces the gross estate upon the decedents
death. If there will be no gift tax, then the Estate
tax would be avoided.
Q: Suppose the donor donated his P30M
property. He divided his property into 3 so as to
donate it to 3 donees. This property earns an
income of P50K. After the donation, the donor
has no more income. What is the effect of the
gift?
A:
Q: What is the difference between a gift subject
to donors tax and a gift as an item of exclusion
in income tax?
A: A donors tax is imposed on whatever gift
regardless of motive (there must be a donative

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Tax2 Reviewer
intent). But for a gift to be an item of exclusion,
there must be disinterested generosity.
Q: What property is contemplated in donors
tax?
A: real, personal, tangible, intangible.
Q: Would donors tax include conceptual or
contingent property?
A: It could be a conceptual or contingent
property as long as you can value it, because if
you cannot value it, it cannot be considered as
property. (it could be a thing but not a property)
Q: Would donors tax include something that
could not be valued? (i.e., blood of Kris Aquino
)
A: It is not subject to gift tax because it cant be
valued.
Q: When is there a taxable gift?
A: There must be cessation of control by the
donor over the property given.
Q: Suppose X gave Y a check dated June 30,
2004. On July 8, X died, but Y had not encashed
the check. Is there a gift?
A: No. there was no cessation of control and
dominion on the part of the donor over the
property transferred.
The Court in Burnett vs. Guggenheim:
Taxation is not so much concerned with the
requirements of title as it is with actual command
over the property taxed.
Q: X would give his Bulacan land as a gift to Y
provided that Y would give his Laguna land to X
as a gift. Is there a taxable gift?
A: No. There is no gift because the transfer was
with consideration. It is a taxable exchange of
property. If it is a capital asset, it is an exchange
subject to Sec. 24 (D).
Q: Dad owns shares worth P70 per share. Son is
engaged in trading securities. Dad told Son to
sell his shares for P140/share such that the profit
would belong to Son. Is there a taxable gift?
A:
Q: Same question, but what if there is no filial
relationship?
A: No gift because it was a transaction in the
ordinary course of business. In a purely business
transaction, transactions with discounts and
bargaining are beyond the scope of gift tax.

Q: A starlet goes to a car shop and the owner of


the shop sells a P1.2M car to her for only 200K,
is there a taxable gift?
A: It could be argued that it may be a business
transaction where the starlet should opt to be a
model for the car shop. If that is the case, then it
is not deemed a gift. Business transactions are
beyond gift tax coverage.
Q: X mortgaged his property worth P10M for a
P10M loan. The following year, X donated this
property to Y. Is there a gift?
A: Yes if there was an appreciation of the values
of the property, there is a gift to the extent of the
appreciation of the value.
But if the value of the property declined, there is
no gift. There could be no gift of liability.
Q: X borrowed money from Y but with interest
at 1% p.a. The current interest rate in the market
is 9%. Could there be a gift in this loan
transaction?
A: Yes, which the 8% deficiency, as the 1%
interest is very nominal.
Q: Do gratuitous free loans result in taxable
gifts?
A: Yes. Court ruled in CIR vs. Dickman:
The gift tax is imposed upon the reasonable
value of the use of the money lent. The taxable
gift that assertedly results from an interest-free
demand loan is the value of receiving and using
the money without incurring a corresponding
obligation to pay interest along with the loans
repayment.
Q: What is the problem with the Dickman
theory?
A: If you let your friend borrow your car, or the
use of a vacation house, then this would become
taxable gifts. Gift tax should not cover necessary
conveniences within a familial setting.
Q: B rendered services to C worth P10k. C did
not pay B. A paid B P20k for Bs services to C. A
and C are strangers. What is the gift?
A: A made a direct gift to B the excess of P10K
worth of services.
A made an indirect gift to C when A paid Cs
debt.
Q: Same question, but what if A made the gift
without mentioning Bs services to C.
A: the whole P20k is a direct gift to B.

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Q: A tells B that A will give B money if B would
do something.
A tells C that A will give C money if B will not
do anything.
B did not do anything. A gave the money to C.
Who made the gift?
A: B gave the gift. B had control on whether or
not the conditions would be fulfilled. It would be
the same effect as if B received the money then
B gave it to C. B was an indirect donor.
Exemption of Certain Gifts
1. Dowries
Sec. 101 provides: The following gifts or
donations shall be exempt from the tax provided
(1) Dowries or gifts made on account of
marriage and before its celebration or within one
year thereafter by parents to each of their
legitimate, recognized natural, or adopted
children to the extent of the first Ten thousand
pesos.
Q: What are the requirements for gifts in
consideration of marriage to be exempted from
the donors tax?
A: It should be
1. given by parent
2. to children
3. given before or within one year from
celebration of marriage
4. limit: first P10,000
Q: If a gift is given after the celebration of
marriage, can it be exempted from the tax?
A: Yes if given within one year from celebration
of marriage
Q: Suppose a child gave a donation to his
widower father, can this donation be exempted?
A: No. the law only contemplates gifts made by
a parent to a child not a child to a parent.
Q: X will give a property to Y on a condition that
Y will marry X. They got married. X gave the
property. Is the gift taxable?
A: No, the gift is prohibited by law.
Q: Dad will give X a gift if X will marry Dads
daughter. The BIR taxed the transaction.
However, Dad argued that the consideration was
the marriage, therefore exempt. Is this
exempted?
A: It is not exempted. It is not a gift if there is a
consideration.

In this case, the consideration of the gift is the


marriage. However, there is no valid
consideration because marriage is incapable of
pecuniary estimation.
Q: Suppose Dad makes a donation worth
P100,00 but the funds came from the conjugal
property, what would be the extent of the
exemption?
A: In Tang Ho vs. Collector, the Supreme Court
ruled that the wife must expressly join the
husband in making the gift, and her part cannot
be implied. Since the wife did not expressly join
the husband in the donation, the donation would
be deemed to be made only by the husband, so
the exemption would only be P10,000. However,
if the wife expressly join the husband in the
donation, then they may both claim exemption,
so it would be P20,000.
2. Gifts to Government
Sec. 101 (A) (2) Gifts made to or for the use of
the National Government or any entity created
by an of its agencies which is not conducted for
profit, or to any political subdivision of the said
Government;
Q: If the government agency is for profit, is it
covered?
A: No, only agencies not conducted for profit.
3. Gifts to Non-Profit Institutions
Q: Suppose Nestle Phils. Gave P200K to
students but this would be administered by a
NGO. Is this exempt?
A: not exempted because the donee is not an
institution
Q: But what if the donation is in favor of the
NGO but the beneficiary would be the student,
would this be exempt?
A: Yes. Sec. 101 (A) (3), as long as the
disposition by the donor was in favor of an
institution.
Stranger Rule
Q: What is the stranger rule?
A: Sec. 99 (B) Tax Payable by Donor if Donee is
a Stranger. When the donee or beneficiary is a
stranger, the tax payable by the donor shall be
30% of the net gifts. For purposes of this tax, a
stranger is a person who is not a:

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Tax2 Reviewer
1.
2.
3.

Brother, sister (whether by whole or


half-blood), spouse, ancestor and lineal
descendant
Relative by consanguinity in the
collateral line within the fourth degree
of relationship
Any contribution in cash or in kind to
any candidate, political party or
coalition of parties for campaign
purposes shall be governed by the
Election Code as amended.

Q: Who pays the gift tax?


A: donors liability, but the donee can assume the
liability.
Q: Suppose A donated a property to B but B is
obliged to pay the donors tax. Would it still be a
gift?
A: Yes, there is a gift as long as the burden to
pay the tax is less than the value of the property.
Q: A corporation donates to X, X donates to the
corporation, is there a difference in the tax
consequence?
A: No difference, stranger rule applies in both
cases.

A: The following conditions must be satisfied:


1. There must be a sale, barter, exchange
or other disposition in the Philippines.
2. The sale must be of taxable goods,
properties or services.
3. The sale must be made by a taxable
person in the course or furtherance of
his/its business. (De Leon)
Q: What is the meaning of in the course of
business?
A: Sec. 105 par. (3) The phrase in the course
of trade or business means the regular conduct
or pursuit of a commercial or economic activity,
including transactions incidental thereto, by any
person regardless of whether or not the person
engaged therein is a non stock, non profit private
organization (irrespective of the disposition of its
net income and whether or not it sells
exclusively to members or their guests), or
government entity.
Q: How do you compute this tax?
A: 10% as the tax rate. The law says you
multiply 1/11 times the gross selling price, if the
tax is already part of the invoice amount. If it is
not part of the invoice amount, just get 10% of
the gross selling price.

Gifts to/by Aliens


Q: Suppose a non-resident gives a gift to a
resident. When will it be a taxable gift?
A: Non resident is subject to pay donors tax if
the property is located in the Philippines.
Q: Suppose US corporation has a subsidiary in
RP, US corporation donated its shares of stock to
the employees of RP subsidiary, is the donation
subject to donors tax?
A: It is not subject to tax because the shares of
stock pertains to US corporation that is not doing
business in the Philippines. (See Sec. 104)
Q: In the same situation, suppose the President
of RP subsidiary donated its shares of stock to
employees of US corporation, is the donation
subject to donors tax?
A: It is subject to tax because the shares of stock
pertains to RP subsidiary that is doing business
in the Philippines. Also a subsidiary has a
personality separate from its parent. (See Sec.
104)

Q: What are gross receipts?


A: Sec. 108 (A) (last par.) The term gross
receipts means the total amount of money or its
equivalent representing the contract price,
compensation, service fee, rental, or royalty,
including the amount charged for materials
supplied with the services and deposits and
advanced payments actually or constructively
received during the taxable quarter for services
performed or to be performed for another person,
excluding value-added tax.
Q: Can a non profit corporation conduct an
activity for business?
A: Yes. The law says commercial or economic
activity but it does not necessarily mean a profit
seeking activity.

VALUE-ADDED TAX

Q: Suppose DOJ renders an opinion by request


of DENR. Later DENR paid the lawyers of DOJ
due to this opinion. Is it subject to tax?
A: No, this is not an economic or commercial
activity but simply a performance of
governmental functions, and the government
cannot tax itself.

Q: What are the requisites for liability to VAT?

Q: Who is the person liable to pay this tax?

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A: The following are liable:
1. any person who in the ordinary course
of business sells, barters, or exchanges
goods or properties
2. any person engaged in the sale or
exchange of services including the lease
or use of properties in the ordinary
course of business
3. in case of importation, the importer who
imports the goods.
but the burden can be shifted to the buyer.
(Bar Ops Stenographic Notes)

the formers waterworks. The contract provides


that at the end of the stipulated term, the
concessionaires are required to sell the operation
back to MWSS.
BIR argued that it was an incidental sale.
MWSS argued that it was an isolated sale.
A: It is an isolated sale because the
concessionaries are not in the business of selling
business operations. It may not be incidental
because the operation had already ceased.

Q: What is covered by the term "goods and


property"?
A: any goods and property capable of pecuniary
estimation

Q: What are the transactions deemed sale?


A: as provided in Sec. 106 (B) A:
1. Transfer, use, or consumption not in the
course of business of goods or
properties originally intended for sale or
for use in the course of business.
2. Distribution or transfer to:
a. Shareholders or investors as
share in the profits of the VATregistered persons
b. Creditors in payment of debt
3. Consignment of goods if actual sale is
not made within 60 days following the
date such goods were consigned
4. Retirement from or cessation of
business with respect to inventories of
taxable goods existing as of such
retirement or cessation.

Q: A donates his property to B. Is this subject to


VAT?
A: No, VAT contemplates a transaction with a
consideration.
Q: If it is a sale for an insufficient consideration,
is it subject to VAT?
A: You can argue both ways
Q: Suppose a property owner is required to sell
his property to the government, is it subject to
VAT?
A: No. A forced sale or expropriation is not a
sale in the course of business. A sale in VAT
refers to voluntary sale in pursuit of business.
Incidental and Isolated Transactions
Q: What is the concept of "incidental to the
business"?
A: It is when the transaction is not the main
purpose of the business but somehow related to
it. It is subject to VAT.
Q: What is the difference between isolated
transactions and incidental transactions?
A: Isolated transactions are not subject to VAT
but incidental transactions are subject to VAT.
Q: Suppose a real estate dealer sold a parcel of
land which is not a part of the bundle of the
property he is selling, is it subject to VAT?
A: No. This is not a transaction incidental to the
business but rather an isolated transaction as the
property was not held for sale to the customers.
Q:
MWSS
entered
a contract
with
concessionaires where the latter would operate

Transactions Deemed Sale

Q: Why is there transactions deemed sale?


A: To lessen the impact of input taxes or else it
would be prejudicial to the government.
Q: What would be the tax basis for the
transactions deemed sale?
A: In transactions deemed sale, the fair market
value is deemed the gross selling price.
Q: Suppose you are engaged in a construction
supply. A customer bought 150 bags of cement
worth P50,000. You gave him 5 bags as
promotion. Do you consider the 5 additional
bags taxable?
A: It is not taxable because it is not different
from a gift. It is not a sale.
Q: What is the rule regarding the consignment of
goods?
A:
1. Goods are sold within 60 days a sale,
subject to VAT
2. Goods are sold after 60 days a
transaction deemed sale, subject to VAT

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Tax2 Reviewer
3.

Withdrawn within 60 days no


transaction

Q: In a partnership engaged in selling goods,


what if one of the partners die, would there be
any tax consequence?
A: when one of the partners die, there is a
retirement or cessation of business, it is subject
to VAT as a transaction deemed sale.
Q: Same question, what would be subject to
VAT?
A: the inventory of the retired firm would be
deemed sold for VAT purposes.
Importation
Q: What are the requisites of importation to be
subject to VAT?
A:
Q: In the case of P550,00 threshold requirement,
does this apply to importation?
A:
Q: Is there a necessity that the importation be in
the course of business?
A: No. When you talk of importation, Sec. 105
dispenses of the in the course of business
requirement.
Q: X imports a computer for his personal use, is
it subject to tax?
A: Yes because it need not to be for business.
Q: Suppose a foreign corporation engage in
selling machineries has a branch (a domestic
corporation) here in the Philippines. Buyer told
branch that he would buy. Branch told the
Parent. Parent delivered the machineries. Who is
the importer?
A: Consider the invoice, whoever is stated there
as an importer is the importer. Consider also the
fact that the parent and the branch are one and
the same juridical person and that it is the buyer
who made the importation possible.
Q: Who is the importer if the imported goods
were delivered by a tax exempt entity?
A: The purchaser.
Sec. 107 (B) In the case of tax-free importation
of goods into the Philippines by persons, entities,
or agencies exempt from tax where such goods
are subsequently sold, transferred, or exchanged
in the Philippines to non-exempt persons or
entities, the purchasers, transferees, or

recipients shall be considered the importers


thereof, who shall be liable for any internal
revenue tax on such importation. The tax due on
such importation shall constitute a lien on the
goods superior to all charges or liens on the
goods, irrespective of the possessor thereof.
Q: What is the tax base for importation?
A: Sec 107 - Based on the total value used by the
Bureau of Customs in determining tariff and
customs duties, plus custom duties, excise taxes,
if any, and other charges.
Sale of Real Property
Q: What are the requisites for sale of real
property subject to tax?
A: There must be a
1. sale or lease
2. in the ordinary course of business
3. gross annual receipts exceed P550k
4. offered primarily for sale or lease
Sec. 106 (A) (1) (a) Real properties held
primarily for sale to customers or held for lease
in the ordinary course of trade or business.
Q: If you sell your house, and you are a real
estate dealer, is it subject to VAT?
A: no, it excludes capital assets.
Q: Suppose you sold a lot for the right of way, is
the sale subject to VAT?
A: No. Selling for a right of way is not primarily
for sale. It is a forced sale.
Q: If you have a property and then you leased it
to a foreigner for $100K for the entire year.
Would it be subject to VAT?
A: Yes even if paid in foreign currency because it
is not a foreign denominated sale.
Sale of Services/Lease of Property
Q: What are the requirements for the taxability
of sale of services?
A: In all instances gross annual receipts should
exceed P550,000.
1. service for others
2. for a fee
3. in the Philippines
Q: Suppose you work in China but the payment
is made in the Philippines, is this sale of service
subject to VAT?
A: No, it should be performed in the Philippines.

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Tax2 Reviewer
Q: Suppose you work for A, but you did not
charge anything, would that be subject to VAT?
A: No, because there is no consideration.
Q: Suppose you own a motor shop. Your car was
repaired in your shop. Would that be subject to
tax?
A: No, because law says service for others.
Q: Same question but the spare parts were
supplied by Toyota, what would be subject to
VAT?
A: VAT here only applies to the sale of the spare
parts.

A: Not all reimbursable items are strictly


considered as fees. The COMASERCO case
should be construed strictly. If the amount is
strictly a reimbursible item, it is a mere return or
capital.
Sec 106 (D) (2) The value of goods sold and
subsequently returned x x x may be deducted
from the gross sales or receipts for the quarter in
which a refund is made x x x.
Franchises
Q: Are TV franchises subject to VAT?
A: Yes if gross annual receipts exceed P10M.
Zero- Rated vs. Exemption

Q: Suppose Y entered into a contract of lease of


container vans, would that be subject to VAT?
A: Yes under the provisions of Sec. 108 x x x
from the sale or exchange of services, including
the use or lease of properties. (this means that the
requirements for the taxability of sale of service
also applies to the lease of property)
Q: What does the law contemplate for a fee?
A: It is the charges for services rendered.
Whatever is the fee arrangement would be
subject to VAT even if it be a return to VAT.
Q: Suppose a company is engaged in the services
on a no-profit, reimbursement-of-cost-only
basis, is it subject to VAT?
A: Yes. SC held in CIR vs. CA, COMASERCO,
that it is immaterial whether profit is derived
from rendering service as even non profit
institutions and the government may be subject
to it.
Moreover, there is a valid consideration or fee,
which is the reimbursement-of-cost basis.
Q: Suppose that a contractor advanced costs for
labor and materials. Then the contractor bills the
owner P1.6 M including the advance payment. Is
the total amount of payment subject to VAT even
when there is just a mere reimbursement of cost
or return to capital?
A: No, the mere reimbursement of cost is not
subject to VAT. COMASERCO case does not
apply because when the contractor adds the
advance cost in the total amount of payment, the
contractor is not charging you, but it was a mere
reimbursement. It is not for a fee but only for
reimbursing. There is no VAT with regard to the
advances of the contractor.

Q: What are the zero-rated sale of goods?


A: As provided in Sec. 106 (A) (2).
Q: What are the zero-rated sale of services?
A: As provided in Sec. 108 (B)
Q: What are the distinctions between zero-rating
and exemption?
A:
1. In zero rating transaction is
completely free of VAT
Exemption only removes the VAT at
the exempt stage
2. In zero rating a VAT-payer can claim
and enjoy a credit or refund for the
input tax invoiced to him on his
purchases
Exemption not applicable.
3. In zero rating taxable sales
Exemption not taxable sales, may not
register with VAT. (De Leon)
Q: Can a person be exempted from VAT?
A: VAT does not exempt a person. VAT exempts
certain transactions.
Input/Output
Q: Can any person claim input VAT?
A: No, the seller and buyer must be both VAT
registered.
Q: How can you explain that the input-output
tells us that it is not 10% that is paid to BIR?
A: The output tax less input tax is actually the
tax paid. Law presupposes that the mark-up is
the one subject to tax.

Q: Is any reimbursable item subject to VAT?


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Tax2 Reviewer
Q: PLDT sells services subject to VAT. What
would be the input tax credit?
A: To credit input tax credit, it should be related
to the services rendered for purposes of claiming.
So in this case PLDT may claim the equipment
bought as input tax credit as it is related to the
services rendered.

1.

2.
3.

Q: Suppose A is a VAT registered person who


rents his house to B. B used the house partly for
business and partly for residential purposes.
What may B claim as input tax credit?
A: B may only claim the portion that he used in
the business for input tax credit. It must be
related to the transaction in order to claim input
tax credit. You cannot claim input VAT for
personal purposes.
Q: Same case, but A did not issue an invoice,
may B claim input tax credit?
A: No. It is important that there must be an
invoice, without it there can be no input-output.
Q: What are tax credit certificates?
A: It is the certificate applied to claim the input
tax credit. With this certificate, a taxpayer may
settle his other tax deficiencies except
withholding tax, but he must use it within the 5
year period.

OTHER PERCENTAGE TAXES


Q: What is a percentage tax?
A: A percentage tax is a business tax which is
based on a given ratio between the gross sales or
receipts and the burden imposed upon the
taxpayer. (De Leon)
Q: Who are subject to percentage tax?
A: Sec. 116 Any person
1. whose sales or receipts are exempt
under Sec. 109 (Z) from the payment of
VAT
2. who is not a VAT-registered person
3. NOT a cooperative Provided, That
cooperatives shall be exempt from the
3% gross receipts tax herein imposed.
Q: What are the instances when a person is
exempt to pay VAT and percentage tax, pay only
percentage tax, or pay only VAT?
A: According to 4.112-2, Rev. Regs. No. 7-95
and Rev. Regs. No. 10-2000 (Sir mentioned this
anyway):

Exempted to pay both gross sales or


receipts do not exceed P100,000 during
any 12-month period. The presumption
is that it is not engaged in business
although it is subject to income tax.
Pay Percentage Tax exceed P100,000,
but do not exceed P550,000.
Pay VAT exceed P550,000.

Domestic Carriers Tax


Q: What is covered by the domestic carriers tax?
A: Sec. 117 provides:
1. Cars for rent or hire driven by the lessee
2. transportation contractors, including
persons who transport passengers for
hire
3. other domestic carriers by land, air, or
water, for the transport of passengers
Q: What do they transport?
A: Persons or passengers.
Q: Are transport of cargoes subject to this
percentage tax?
A: No, but subject to VAT.
Franchise Tax
Q: What franchises covered by the 3% franchise
tax?
A: As provided by Sec. 119, to all franchises on
radio and/or television broadcasting companies,
whose annual gross receipts of the preceding
year does not exceed P10M.
Q: What franchises covered by the 2% franchise
tax?
A: As provided by Sec. 119, electric, gas, and
water utilities, on the gross receipts derived from
the business covered by the law granting them.
Q: When are franchises covered by VAT (10%)?
A: All other franchise grantees except those
under Sec. 119 are subject to VAT under Sec. 108
(A). Radio and television companies, however,
are given the option to register as VAT taxpayers
(Sec. 119). Franchise grantees subject to VAT are
no longer liable to pay franchise tax.
(De Leon)
Amusement Tax
Q: Who pays the amusement tax or tax on sinful
places?

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Tax2 Reviewer
A: Sec. 125 collected from the proprietor,
lessee, or operator
Q: What does the amusement tax cover?
A: admission receipts and other revenues.
Sec. 125 (e) par. 2 For the purpose of the
amusement tax, the term gross receipts
embraces all the receipts x x x. Said gross
receipts also include income from television,
radio, and motion picture rights, if any.
Q: Suppose that there are restaurants in the
cockpit, would it also be subject to 18% tax?
A: Yes if the owner of the cockpit and the
restaurant is the same.

EXCISE TAX
Q: What is an excise tax?
A: It refers to taxes applicable to certain
specified or selected goods or articles
manufactured or produced in the Philippines for
domestic sale or consumption or for any other
disposition and to things imported into the
Philippines. (De Leon)
The excise tax is a privilege tax imposed on the
privilege of engaging in the business of
manufacturing or producing goods for local
consumption or imported in the Philippines.
(Bar Ops Stenographic Notes)

Q: If you have a restaurant along Makati Avenue


with 24 hour ballroom dancing and singing, is it
subject to 10% VAT (for restaurants) or 18%
amusement tax (for night clubs)?
A: The main point here is the definition of night
club. The principal purpose of a night club is to
seek pleasure while the principal purpose of a
restaurant is to dine. It may be contended that the
singing and dancing may only be an incidental
purpose.

Q: Who are the persons covered by the excise


tax?
A: the manufacturer, importer.

Q: What does gross receipts contemplate?


A: It should include everything. There should be
no deduction, whatsoever. Gross receipts should
be construed in its ordinary meaning.

Q: What is an ad valorem tax?


A: It is based on the value or selling price of the
manufactured or produced article. The rates or
amounts fluctuate as the prices of the articles
move up and down. (De Leon)

Sale of Listed and Traded Shares


Q: Are the sale through dealers in securities
covered by the percentage tax on the sale of
listed and traded shares?
A: No. Only sale of listed and traded shares in
the local stock exchange or through initial public
offering .
Q: Is the initial public offering covered by the
percentage tax of of 1%?
A: No, but rather the 2nd and so forth public
offerings.
Q: What do you understood by closely-held
corporations?
A: Sec. 127 (B) par. 3 the term closely held
corporation means any corporation at least fifty
percent in value of the outstanding capital stock
or at least fifty percent of the total combined
voting power of all classes of stock entitled to
vote is owned directly or indirectly by or for not
more than 20 individuals.

Q: What is a specific tax?


A: The specific tax derives its name from the fact
that its rates are of a specific or fixed amount in
pesos and/or centavos levied on the articles
according to a certain physical unit of
measurement. (De Leon)

Q: Distinguish specific from ad valorem?


A: There are advantages of one against the other.
1.

2.

Advantage of Ad valorem
a. Ad valorem if there is
inflation, the higher the taxes.
b. Specific tax remains the
same even if there is inflation
Advantage of Specific
a. The manufacturer may simply
undervalue the price to reduce
the ad valorem tax
b. Even if the manufacturer
undervalue the price, the tax
remains the same because the
only thing to look at is the
quantity of the goods.

Q: Is there an excise tax that has the qualities of


specific and ad valorem tax?
A: Excise tax on wine. The tax is per capacity
per liter tied to the net retail price. (See Sec. 142)

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Tax2 Reviewer
DOCUMENTARY STAMP TAX
Q: What is the documentary stamp tax?
A: Documentary stamp tax is a tax on
documents, instruments and papers evidencing
the acceptance, assignment, sale, or transfer of
an obligation, right, or property incident thereto.
(De Leon)
Q: Is this tax really imposed on the document?
A: It is really imposed on the transaction rather
than on the document. (De Leon)
Q: Who pays the documentary stamp tax?
A: The tax is imposed against the person making,
signing, issuing, accepting, or transferring the
document or facility evidencing the transaction.
(De Leon)
Q: Who pays the documentary stamp tax if the
one who is suppose to pay is exempted?
A: the other party Sec. 173 x x x Provided,
That whenever one party to the taxable
document enjoys exemption from the tax herein
imposed, the other party thereto who is not
exempt shall be the one directly liable for this
tax.
Q: Does documentary stamp tax apply to
documents executed abroad?
A: Under the present law, documentary stamp
tax would apply to any document, even
documents executed abroad as long as the
obligation or right over the transaction arises
from the Philippine sources or the property is
situated in the Philippines.
(Bar Ops Stenographic Notes)
Sec. 173 Upon documents x x x and transfers
of the obligation, right or property incident
thereto, there shall be levied x x x the
corresponding documentary stamp tax prescribed
x x x wherever the document is made x x x when
the obligation or right arises from Philippine
sources or the property is situated in the
Philippines x x x.
Q: Suppose A donates to B a property. It was
evidenced by a certain document. Is this
document subject to documentary stamp tax?
A: No. Documentary Stamp tax is a tax on an
amount for another amount. There must be a
value for another value. (or consideration). The
purpose of the tax is to apply the consideration.

Since there is no valuable consideration in


donations, it cannot be imposed in this case.
Q: What would be the tax treatment of a single
transaction with multiple documents (example: a
loan agreement with a promissory with the note
indicating the value of the loan?
A: the loan will be treated as one taxable
document but the taxed will be based on
whichever yields a higher documentary stamp
tax. (Bar Ops Stenographic Notes)
Q: Supposing the loan agreement has several
promissory notes, or mortgage agreements?
A: Again, the law will treat this as one taxable
transaction, as one taxable document. But the
documentary stamp tax will be based on the total
value of the loan as supported by the loan
documents, whichever will yield a higher
documentary stamp tax.
(Bar Ops Stenographic Notes)
Q: How do you pay a documentary stamp tax?
A: Three steps. First you buy documentary
stamps. Second, you affix the documentary
stamps, and third you cancel the affixed
documentary stamp.
(Bar Ops Stenographic Notes)
Q: What is the effect if the documentary stamps
are affixed to the wrong document?
A: The Supreme Court ruled that since the tax
was paid, the government cannot collect
anymore or else it would result to double
taxation.
If it was done in good faith and there was proof
to show the payment of documentary stamp
taxes, the fact that it was affixed to the wrong
document would not subject the taxpayer to a
documentary stamp liability.
(Bar Ops Stenographic Notes)
Q: Is it valid defense that the credit or the debt
instrument is not valid because there is no
documentary stamp?
A: No, the non-affixture of the documentary
stamp would not affect the validity of the
document and in that case would not affect the
validity of the credit.
(Bar Ops Stenographic Notes)
Q: When do you pay documentary stamp tax?
A: Upon execution of the document.
(Bar Ops Stenographic Notes)

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Tax2 Reviewer
Q: What is the effect of non-payment of this tax?
A: Sec. 201 An instrument x x x without being
stamped shall
1. not be recorded
2. nor shall it or any copy thereof or any
record of transfer of the same be
admitted or used in evidence in any
court
3. No notary public or other officer
authorized to administer oaths shall add
his jurat or acknowledgment
Q: What is the remedy for non-payment?
A: Require them to pay. Documents are nonadmissible until paid. Sec. 201 x x x until the
requisite stamp or stamps shall have been affixed
thereto and cancelled.

GOVERNMENTS TAX REMEDIES


The Commissioner of Internal Revenue
Q: What are the some of the powers and duties
of the Commissioner of Internal Revenue (CIR)?
A: Sec. 4 The power to interpret the tax x x x.
The power to decide disputed assessments,
refunds of internal revenue taxes, fee, penalties x
x x other matters arising under the NIRC.
Q: Can the BIR be compelled to make an
assessment?
A: No, as a general rule. A tax assessment is
discretionary upon the CIR. You cannot compel
it since it is discretionary.
Q: Is there an instance where the BIR may be
compelled to make an assessment?
A: Yes, if there is grave abuse of discretion, such
as when the BIR found that there was basis to
assess and yet it refused to make assessment.
Q: Supposing that there is a question of law, and
the BIR asked DOJ for its opinion, can DOJs
opinion be binding upon the BIR?
A: No, because Sec. 4 provides that the power to
interpret tax laws shall be under the exclusive
and original jurisdiction of the CIR.
Q: What is the remedy against BIRs
interpretation?
A: Sec. 4 subject to review by the Secretary of
Finance.

Q: What is the difference between the appeal or


review with the Secretary of Finance and the
appeal with the Court of Tax Appeals (CTA)?
A: Appeal to Secretary of Finance
interpretation of tax laws.
Appeal to CTA disputed assessments, refunds,
other matters arising under the Tax Code.
(See Sec. 4)
Remedy of Assessment
Q: What are the tax remedies available to the
government?
A: The remedies available to the government are
to assess and collect.
Q: What is an assessment?
A: Assessment is a written notice to a taxpayer to
the effect that the amount stated therein is due as
a tax, and containing a demand for the payment
thereof. (De Leon)
Q: What is the importance of an assessment?
A: Assessment is necessary for the
administrative remedies of the government to
apply (such as distraint and levy). If there is no
assessment, government can only avail judicial
remedies.
Q: Who generally assesses the tax?
A: The taxpayer. Taxes are generally selfassessing because they do not need a letter of
demand or assessment notice. The taxpayer is
supposed to know how much he should pay as
tax and when and where he should pay.
(De Leon)
Q: So when may the government resort to
assessment?
A: In case of deficiency taxes for failure to file a
return, or for filing a false or fraudulent return;
and in cases when the tax period is terminated.
(De Leon)
Q: Suppose a taxpayer issued a check to pay his
debt. The check bounced, so the BIR sent him a
notice to make good the check. Is that notice an
assessment?
A: Yes. Any notice sent to the taxpayer
demanding payment of tax liability is an
assessment. It need not be in the standard form.
A letter form may be an assessment.
(Bar Ops Stenographic Notes)
Q: What is the legal basis of the power to assess?

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Tax2 Reviewer
A: BIR has the power to examine and assess
taxes after the filing of the tax return. The law
also gives BIR certain powers in aid-ofassessment. CIR can get any information from
anybody for purposes of ascertaining the liability
of the taxpayer.
Q: What is the governments right to assess?
A: This right exclusively belongs to the BIR,
especially the CIR.. It is the right to examine the
books of the taxpayer to determine his tax
liability.
Q: Can the CIR disregard the return and make
his own personal assessment?
A: Yes, but with conjunction with other
information, especially documents from the
supplier.
Other Basis of Assessment
1. Best Evidence Obtainable
Q: What is the best evidence obtainable?
A: CIR can resort to gathering any evidence that
will assist him in making a proper assessment on
the tax liability of the taxpayer if the taxpayer
refuses to submit a tax report or any report he
submits is inaccurate.
Sec 6 (B) 2nd par. the CIR shall make or amend
the return from his own knowledge and from
such information as he can obtain through
testimony or otherwise.
Q: When would the CIR resort to the best
evidence obtainable?
A: Sec. 6 (B) provides
1. 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
2. When there is reason to believe that any
such report is
a. False
b. Incomplete
c. Erroneous
3. In case a person
a. Fails to file a required return or
other document at the time
prescribed by law
b. Willfully or otherwise files a
false or fraudulent return or
document
Q: How should evidence be attained?

A: Evidence should be attained legally. If it is


attained illegally, it is not evidence.
Q: Supposing the corporate taxpayer invites the
BIR Regional Director to a cocktail party
tendered by the corporation. During the party, the
BIR official went to the room of the President to
make a personal call. In making the call, he saw
some documents. Can the documents be the basis
of making an assessment of tax liability?
A: It cannot be the basis of best evidence
obtainable. You cannot make an assessment
based on illegally seized evidence. It is not the
best evidence obtainable. Still, the old doctrine,
there can be no legal fruit from an illegal tree.
(Bar Ops Stenographic Notes)
Q: May these kinds of assessment be considered
correct?
A: Yes. Sec. 6 (B) x x x which shall be prima
facie correct and sufficient for all legal purposes.
Q: What evidence may the BIR acquire in
arriving at the best evidence?
A: Any evidence that may be obtained by the
BIR in making as assessment or in making a
return to determine the tax liability of a taxpayer.
In the case of Sy Po vs. CA BIR took the
testimony of the witnesses, got sample products
of the taxpayer, and the books of account.
(Bar Ops Stenographic Notes)
Q: Can you ask any question in assessing the tax
liability?
A: No, the testimony that may be taken should
only be relevant and material. There should also
be a tax inquiry or investigation as provided in
Sec. 5 (D).
2. Power of Surveillance
Q: What is the power of surveillance of the BIR?
A: The BIR can do some surveillance for
purposes of arriving at a base for which as
assessment can be made.
Sec. 6 (C) The CIR may place the business
operations of any person under observation or
surveillance if there is reason to believe that such
person is not declaring his correct income, sales,
or receipt for internal revenue tax purposes.
Q: Suppose BIR conducted a surveillance for the
period of January to March, can this surveillance
cover the year before such surveillance?

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Tax2 Reviewer
A: Yes. The results of the surveillance can be
made a basis of assessment for the current
taxable year and the prior taxable year.
Sec. 6 (C) x x x 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

liability by reason of financial


incapacity to pay his tax liability.
Q: May the BIR asked for the records of the
transactions with the Bank?
A: Yes. BIR is prohibited to look only at the
account of the deposits.
Terminate Taxable Period

3. Presumptive Gross Receipts


Q: What is the presumptive gross receipts?
A: Sec. 6 (C) par. 2 x x x when there is reason
to believe that the books of accounts or other
records do not correctly reflect the declarations
made, CIR, after taking into account the sales,
receipts, income, or other taxable base of other
persons engaged in similar businesses under
similar situations or circumstances or after
considering other relevant information, may
prescribe a minimum amount of such gross
receipts.
Q: When may the BIR resort to the fixing of the
presumptive gross receipt?
A: If a certain taxpayer was not reporting the
proper sales tax transaction.
Q: May the CIR based its assessment on
presumption?
A: No, only on actual facts.
Q: Suppose a Department Store files a return of
PhP500,000 sales a month but earns millions,
how do you prove the fraudulent act of this
taxpayer?
A: You could do a comparative review. Review
the same taxpayer under similar circumstances to
arrive at the minimum gross receipts. Sec. 6 (C)
par. 2 after taking into account the sales,
receipts, income, or other taxable base of other
persons engaged in similar businesses under
similar situations or circumstances
Here it is not based on assumption but on actual
facts.
4. Inquiry into Bank Deposit Accounts
Q: Can the BIR see the bank accounts of the
taxpayer?
A: No, as a general rule. However, Sec. 6 (F)
authorizes the CIR to inquire into the bank
deposits of:
1. a decedent to determine his gross estate
2. any taxpayer who has filed an
application for compromise of his tax

Q: What is the BIRs authority to terminate


taxable period?
A: Sec. 6 (D) provides CIR shall declare the
tax period of such taxpayer terminated at any
time and shall send the taxpayer a notice of such
decision, together with a request for the
immediate payment of the tax for the period so
declared terminated x x x.
Q: What are the circumstances when the BIR
may terminate the taxable period?
A: As provided by Sec. 6 (D):
1. When it shall come to the knowledge of
the CIR that a taxpayer is retiring from
the business subject to tax.
2. Intending to leave the Philippines
3. Intending to remove his property
therefrom
4. Intending to hide or conceal his
property
5. Performing any act tending to obstruct
the proceedings for the collection of the
tax for the past or current quarter or
year
6. Performing any act tending to render
the proceedings totally or partially
ineffective
Period to Assess
Q: When must an assessment be made?
A: In ordinary assessments, it should be within 3
years.
Sec. 203 x x x internal revenue taxes shall be
assessed within 3 years after the last day
prescribed by law for the filing of the return.
In extraordinary assessment, tax may be assessed
within 10 years from the discovery of fraud,
falsity, or omission.
Service of Notice of Assessment
Q: Supposing,

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22
Tax2 Reviewer

4/15/99 taxpayer filed his return


4/12/02 assessment was made
4/15/02 3 year-period of assessment
lapsed.
5/01/02 taxpayer received the
assessment
Is there a valid assessment despite the fact that
the notice of assessment was received beyond
the period?
A: Yes. The law provides that assessment be
made within 3 years. It does not require that the
taxpayer received such assessment within 3
years. There is a presumption of regularity in the
performance of the official government functions
that the mail was received within the period.
Sec. 203 x x x taxes shall be assessed within 3
years. (no receipt requirement by the taxpayer)
Q: Is it necessary that the assessment be received
by the taxpayer?
A: Yes, it must be received to be binding upon
him so as not to result to deprivation of property
without due process.
Q: Supposing that the BIR sent a notice to the
taxpayer, but the taxpayer cannot be located.
What would be the effect?
A: The assessment period is suspended.
Sec. 223 The running of the Statute of
Limitations x x x shall be suspended x x x when
the taxpayer cannot be located in the address
given by him in the return filed upon which a tax
is being assessed or collected.
Q: Supposing that taxpayer has address at 123
Vito Cruz but he informed the BIR of a change
in address 123 Corinthian. All assessments
were being sent to the Vito Cruz address within
the 3 year period. Would that be a valid
assessment?
A: No. when BIR continues to send assessment
notices to an old address after being informed by
the tax payer of the change in address, that
assessment is no assessment at all. The right to
assess may be subject to the three-year period.
(Bar Ops Stenographic Notes)
Sec. 223 x x x Provided, That, if the taxpayer
informs the Commissioner of any change in
address, the running of the Statute of Limitations
will not be suspended.

Q: Suppose the taxpayer changed his address.


When he filed his income tax return, he indicated
his old address. BIR sent notice of assessment to
the old address. Definitely, the taxpayer did not
received the notice. Is this a valid assessment?
A: Yes, it was the taxpayers fault for not
indicating the new address in the tax return.
Q: What would be the remedy if the taxpayer
changed his address after the filing of the return?
A: The taxpayer should modified or amended his
return within 3 years from the filing provided
that there is no notice of audit or investigation
served upon him.
Sec. 6 (A) par. 3 Provided that within 3 years
from the date of such filing, the same may be
modified, changed, or amended: Provided
further, That no notice for audit or investigation
of such return been actually served upon the
taxpayer.
Q: Supposing,
4/15/99 return was filed
4/10/02 return was amended,
indicating new address
6/10/02 assessment was made and
sent to new address
Was the assessment made within the period?
A: Yes, if the return was amended, reckon the
prescriptive period from the date of the
amendment.
Q: What if the taxpayer refuses or denies receipt
of the assessment, what must the Government
do?
A: Government must validly prove that the
assessment was validly sent and received.
Q: How can the BIR argued that there was valid
receipt?
A: In Nava vs. CIR, SC held that BIR must
established that:
1. the letter was properly addressed
2. the letter was mailed
If the BIR established such, it can be presumed
that the notice was duly mailed.
Q: Can the BIR assess beyond the three-year
period?
A: Yes, on the ground of fraud, falsity, and
failure to file a return.

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23
Tax2 Reviewer
Fraud Assessment
Q: May the BIR make an assessment anytime
even if the year 2030 as long as the BIR says
there is fraud?
A: No. BIR must prove fraud. If it cannot prove
fraud, BIR is limited to the 3 year period.
(Bar Ops Stenographic Notes)
Q: What fraud must the BIR prove?
A: Deliberate, actual fraud. An example would
be in the case of Aznar vs. CIR. This case gives
you the badges of fraud you have consistent
under declaration of income, over claiming of
deductions that would be a badge of fraud. It
was the failure to declare a substantial portion of
the income with intention to deceive.
(Bar Ops Stenographic Notes)
Q: Supposing,
4/15/99 return was filed
4/15/02 3 year period lapsed
4/14/05 fraud assessment was made
taxpayer did not make any answer.
Is the government required to prove fraud?
A: No, the fraud assessment became final as it
was not contested.
Sec. 222 (a) Provided, That in a fraud
assessment which has become final and
executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal
action for the collection thereof.
Q: When is there a prima facie evidence of
fraud?
A: When there are badges of fraud such as
substantial underdeclaration of taxable sales, or a
substantial overstatement of deductions.
Sec. 248 (B) that a substantial under
declaration of taxable sales, or a substantial
overstatement of deductions, shall constitute
prima facie evidence of a false or fraudulent
return.
Q: When is there a substantial underdeclaration
of taxable receipts and substantial over statement
of deductions?
A: Sec. 248 (B) x x x, Provided further, That
the failure to report sales in an amount exceeding
30% of that declared per return, and a claim of
deductions in an amount exceeding 30% of the
actual deductions.

Q: If there is a fraud assessment, when may the


government collect?
A: within 5 years from the fraud assessment.
Q: If there is fraud, can the BIR collect without
assessment?
A: Yes.
Sec. 222 (a) In the case of a fraudulent return,
the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed
without assessment.
Q: Suppose that BIR discovered fraud in 1999,
can the government collect in 2008 even if it did
not make any assessment?
A: Yes, by judicial action to collect. But it must
be commenced within 10 years from discovery.
Q: In case of fraudulent returns, does the ten year
period prescribed in Sec. 222 apply to criminal
actions?
A: No, Sec. 222 pertains to the period for actions
of collection but not to criminal actions against
tax evaders.
Q: What is the difference between the period to
collect if there is a fraud assessment and the
period to collect without an assessment.
A: A fraud assessment must be made within 10
years. After such assessment, the government
must collect the tax in 5 years.
When the government opted to collect without an
assessment, the action should be made within 10
years.
Falsity
Q: What is falsity, as distinguished from fraud?
A: False Return may be due to mistake,
carelessness, or ignorance. It implies deviation
from the truth , whether intentional or not.
Fraudulent Return made with intent to evade
taxes. It implies intentional or deceitful entry
with intent to evade the taxes due.
(De Leon)
Q: Is there a difference of standard between
fraud and falsity?
A: The standard is the same between the two, the
standard as provided in Sec. 248 (B).
Sec. 248 (B) Provided, That a substantial
underdeclaration of taxable sales x x x or a
substantial overstatement of deductions x x x

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shall constitute prima facie evidence of a false
and fraudulent return.
The badges of fraud (substantial under
declaration of taxables sales or substantial
overstatement of deductions) are also made to
apply to false returns.
Failure to File a Return
Q: When is there a failure to file a return?
A: there is a failure to file a return if, on the basis
of the returned file, the BIR cannot make a
computation or assessment of tax liability.
In short, when you have a return filed which is
incomplete to the point that the BIR cannot make
a valid assessment, that amounts to a failure to
file a return.
(Bar Ops Stenographic Notes)
Q: Now supposing the BIR assesses after 10
years from the filing of the return on the ground
that no return was filed. The taxpayer asserts that
for his defense that a return was filed. Who has
the burden of proof to show a return was really
filed in order to apply the 10-year period?
A: The taxpayer. In Taligaman Lumber vs. CIR,
the Supreme Court said that if the BIR says that
was no return filed, and the taxpayer, as a
defense, argues that a return was filed, then the
taxpayer must prove that a return was filed. The
taxpayer who asserts that he filed a return, as an
affirmative defense, must prove that a return was
filed. (Bar Ops Stenographic Notes)
Q: In case the taxpayer fails to prove that he filed
the return, what is the conclusion?
A: The Supreme Court said the conclusion is that
no return was filed. So, here, is the opposite of
the ground of fraud.
(Bar Ops Stenographic Notes)
Q: Is it an unjustified burden on the part of the
taxpayer that he proved the fact that he filed the
return despite the fact that BIR has all the
records.?
A: No, the taxpayer has the duty to keep and
preserve his books. This duty should be
reconciled with his burden to prove the fact that
he filed the return.
Sec. 235 All the books of accounts x x x shall
be preserved for a period beginning from the last
entry in each book until the last day prescribed x
x x.

Collection
Q: When may the government collect when there
is an assessment and there is no fraud?
A: 3 years from the assessment.
Q: But what if there is an assessment and there is
fraud?
A: 3 years from the fraud assessment
Q: But what if there is no assessment, and there
is no fraud?
A: 3 years from the filing of the return.
Q: But what if there is no assessment, and there
is fraud?
A: 10 years from the discovery of the fraud.
Summary:
Fraud

No Fraud

Assessment
Within 3 years
from Fraud
Assessment
Within 3 years
from
Assessment

No Assesment
Within 10
years from the
discovery of
the fraud
Within 3 years
from filing the
return

Q: If there is an assessment, what are the


remedies of the government?
A: administrative and judicial.
Q: Supposing a return was filed in 1990. In year
2000 it was discovered. 2005, a fraud assessment
was made, when may BIR collect?
A: Collection must be made within 3 years from
the fraud assessment.
Q: Can the government still collect beyond the
10 year period?
A: Yes, if there is an agreement prior to the
expiration of the 10-year period, the government
can collect within that period extended, but the
extension must be made before the lapse of the
10 year period. See Sec. 222 (b).
Remedies in Collection
Q: What are the governments remedies in the
collection of tax?
A: It has administrative and judicial remedies.
Q: Suppose the BIR chose to collect
administratively, is it barred to collect judicially?

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A: No. The government can avail of either
administrative or judicial remedy, either
alternatively or simultaneously.
Sec. 205 x x x Either of these remedies or both
simultaneously may be pursued in the discretion
of the authorities charged with the collection of
such tax.
1. Suspension of the Prescriptive Period
Q: When may the prescriptive period be
suspended?
A: As provided in Sec. 223:
1. CIR is prevented from making
assessments.
2. Taxpayer requests for reinvestigation,
which is granted by the CIR
3. Taxpayer is out of the country
4. Taxpayer cant be located in the address
given by him in the return
5. Warrant of distraint or levy is served an
no property can be located
Q: When does a warrant of distraint or levy
operate as a suspension of the prescriptive
period?
A: It is sufficient that the warrant of distraint or
levy was issued and served. It is not necessary
that there be an actual seizure before the period
would be suspended. From the date of the
service of the warrant, the prescriptive period is
suspended.
(Bar Ops Stenographic Notes)
Sec. 223 x x x when the warrant of distraint or
levy is duly served upon the taxpayer.
2. Distraint
Q: What is distraint?
A: Distraint is the seizure by the government of
personal property, tangible or intangible, to
enforce the payment of taxes, to be followed by
its public sale, if the taxes are not voluntarily
paid. (De Leon)
Q: How is distraint effected?
A: It takes place when chattels are taken and sold
at public auction. (See Sec. 208, 209)
Q: Is a warrant of distraint necessary?
A: Yes. The issuance of the warrant of distraint
begins the summary remedy of distraint. It is
merely the first step, while the seizure of the
property is the next step. (De Leon)

Q: Suppose that a taxpayer has a P500,000 tax


liability. Taxpayer failed to pay. He has the
following properties:
Car P2M
Painting P700K
Shares P500K
Jewelry P600K
Can the BIR distraint all these chattels?
A: No, BIR may only seize the chattels that are
enough to satisfy liability.
Q: Same circumstance, may the BIR choose the
car (P2M) to satisfy the tax liability (P500K)?
A: Yes, BIR has the discretion to choose what
property can be seized as long as it is sufficient.
If there is a residue, (after paying off the tax due,
the expenses and costs of distraint) it should be
returned to the taxpayer.
Q: Suppose the car was seized and sold at public
auction. However, there was no bidder. Who
would buy the seized property?
A: Government, under the law would have to
purchase the property.
(Bar Opts Stenographic Notes)
Sec. 215 In case there is no bidder for real
property exposed for sale x x x the Internal
Revenue Officer conducting the sale shall
declare the property forfeited to the Government
in satisfaction of the claim in question x x x.
Q: In the above situation where the government
purchased the property seized, suppose there was
a residue, is the taxpayer entitled to it?
A: No, when the law (Sec. 209 par. 4) speaks of
the taxpayer entitled to the excess, it refers to the
proceeds of the public auction and not from the
proceeds after the purchase by the government of
the property. (Bar Opts Stenographic Notes)
Q: How about bank deposits?
A: By garnishment.
Sec. 208 par. 4 Bank accounts shall be
garnished by serving a warrant of garnishment
upon the taxpayer and upon the president x x x
of the bank. Upon receipt of the warrant of
garnishment, the bank shall turn over to the CIR
so much of the bank accounts as may be
sufficient to satisfy the claim of Government.
Q: Suppose that it was indicated in the notice
that the property would be sold on August 6 or

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any day thereafter, would this be construed as a
compliance with the notice requirement?
A: No, it should be a definite date. There should
be a strict compliance, or else the tax payer
would be deprived of his property. The
presumption of regularity does not apply.
(also applicable with regard the name of the
taxpayer, the place and time of the sale, the
amount advertised as against the amount due)
Sec. 209 par. 2 At the time and place fixed in
such notice x x x.
3. Levy
Q: What is a levy?
A: Levy, as a summary administrative remedy,
refers to the act of seizure of real property in
order to enforce the payment of taxes. (De Leon)
Q: Taxpayer has a tax liability worth P5M.
However, he has real properties, to wit:
Forbes P30M
Corinthian P20M
Fairview P7M
Bulacan P10M
Can you levy all these properties?
A: Yes, it can levy all real properties because of
the very simple procedure of sending notices to
the Register of Deeds. The levy is only an
annotation on the title.
Q: In the same case, can the government
advertise for sale all these properties?
A: No, Government can only advertise for sale to
satisfy any tax liability only such property, or
usable portion thereof sufficient to satisfy the tax
claim, plus the expenses of the sale.
(Bar Ops Stenographic Notes)
Q: Supposed the government levied the Forbes
property, but it was sold for only P5M, may the
taxpayer impugn the sale?
A: No, because the taxpayer has the right to
redeem the property. It would be easier for him
to redeem the property at a lower price.
Q: What if the taxpayer did not redeem the
property, afterwards the government sold it at
P30M, can the taxpayer claim the excess?
A:
Q: What if the sale is invalidated, would it affect
the tax liability?

A: No, the tax liability remains but the BIR


should go over the process again.
Q: Supposing that a creditor had a favorable
judgment where he was awarded to him the land
of his debtor, who is also a delinquent taxpayer.
However, before the judgment was rendered, the
property was subjected to levy. To whom would
the property belong, to government or to the
creditor?
A: Property can no longer accrue to the creditor
because it already belongs to the government.
Q: Suppose that the judgment came first.
Afterwards, the government levied it. To whom
would that belong?
A: It would belong to the government because
the judicial attachment did not deprive of the
taxpayer of ownership over the property, since he
still has possession. He still has ownership as it
was not yet delivered or the ownership to the
creditor has not yet transferred.
4. Further Distraint or Levy
Q: Taxpayer has a liability worth P5M. He had a
property worth P4M. BIR sold it at public
auction. BIR issued a certificate of sale having a
statement that the sale proceeds fully satisfied
the tax liability. 5 years after, the taxpayer has a
new property worth P5M. Can the BIR levy and
sell this property to satisfy the deficiency of
P1M?
A: Yes, there could be a further levy until the
amount due is collected.
Sec. 217 The remedy by distraint of personal
property and levy on realty may be repeated if
necessary until the full amount due, including all
expenses, is collected.
Q: In the same case, is the right to collect
deemed prescribed?
A: No, it is merely a continuation of the
collection. It is deemed made together with the
earlier sale, or within the prescriptive period.
Q: Can there be distraint and levy 10 years after
the assessment?
A:
5. Constructive Distraint
Q: What is the difference between a constructive
distraint and an actual distraint?

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A: In actual distraint There is taking of
possession of personal property.
In constructive distraint the owner is merely
prohibited from disposing of his properties.
(De Leon)
In constructive distraint, there is no previous
assessment and the government does not take
possession.
Sec 206 par. 2 The constructive distraint of
personal property x x x obligate himself
(taxpayer) to preserve the same intact and
unaltered and not to dispose of the same x x x.
Q: When may the BIR resort to constructive
restraint?
A: Sec. 206 provides:
1. taxpayer retiring from any business
subject to tax
2. taxpayer is intending to leave the
Philippines
3. intending to remove his property
4. or hide or conceal his property
5. to perform any act tending to obstruct
the collection proceeding.
Q: What is the rationale for this remedy?
A: This is the remedy where the government
cant do the actual distraint. Constructive
distraint is an additional remedy because the
government can resort to it while the remedy of
actual distraint is not yet available, meaning the
assessment process is still to be done.
It applies to a potential delinquent taxpayer. It
also serves to protect the government from
taxpayers who intends to abscond.
6. Tax Lien
Q: What is the tax lien?
A: The tax lien renders the tax claim of the
government superior than any other claim.
Sec. 219 If any person x x x liable to pay an
internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien
in favor of the Government from the time when
the assessment was made by the Commissioner
until paid x x x upon all the property and rights
to property belonging to the taxpayer. Provided,
That this lien shall not be valid against any
mortgagee, purchaser, or judgment creditor until
notice of such lien filed with Register of Deeds.
Q: What if there is a court order, can it prevail
over a tax lien?

A: No, no private claim, even a claim based on a


court judgment can prevail over a tax claim.
Q: Where does the tax lien attached?
A: Tax lien attaches to all properties and property
rights of the taxpayer.
Sec. 219 If any person x x x refuses to pay x x
x shall be a lien in favor of the Government x x x
upon all the property and rights to property
belonging to the taxpayer.
Q: When does the tax lien attaches?
A: from the time when the assessment was made
by the Commissioner until paid
Sec. 219 If any person x x x liable to pay an
internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien
in favor of the Government from the time when
the assessment was made by the Commissioner
until paid
Q: What does a tax lien represents?
A: It represents the tax liability being enforced
by the tax remedies available to the government,
whether administratively or judicially.
7. Criminal Action
Q: When can the BIR collect by criminal action?
A: NIRC provides a number of provisions as
basis for filing criminal actions.
1. Sec. 205 (b) By civil or criminal
action.
2. Sec. 222 (a) x x x the fact of fraud
shall be judicially taken cognizance in
the civil or criminal action for
collection thereof.
3. Sec. 254 Tax Evader Provision
4. Sec. 281 Prescription for Violation
Q: Is an assessment required before a criminal
case be filed against the offending taxpayer?
A: No. In CIR vs. Pascor Realty, the court ruled
that the proceeding in court may be preceded
without an assessment or simultaneously with
another action. (See also Sec. 205)
Q: How could the government collect by
criminal action if the assessment is not yet final?
A: In Lim vs. CA, the court said that in cases of
fraud, there is no necessity for an assessment
before the criminal case would be filed. It is the
fact of fraud that the criminal case would
proceed. But if the criminal action is based on

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failure to file the tax return, there should first be
an assessment.
Q: Supposing the taxpayer was acquitted in the
tax evasion case, would the acquittal have the
effect of having the tax liability extinguished?
A: No, criminal liability is premised on another
statutory basis. Tax liability is a matter of legal
duty, arising from another statutory basis. So
there are two different things based on two
different premises. The extinction of one would
not extinguish the other.
(Bar Ops Stenographic Notes)
Q: When does a criminal action prescribe?
A: You can file a criminal action or a violation of
the criminal provision of the NLRC within 5
years from the date of the commission of the
violation. If the commission is not known, then it
is reckoned from the discovery and institution of
judicial proceedings for the investigation and
punishment. (Sec. 281)
Q: What do you mean by institution of judicial
proceeding?
A: It means filing with the prosecutors office,
because the law talks of investigation and
punishment. (not filing the information with the
court)
Q: What is the purpose of statute of limitations?
A: These are:
1. to give the taxpayer a sufficient time to
settle his tax liability
2. to give the government time to study the
case.

2.

financial position of the taxpayer


demonstrates a clear inability to pay the
assessed tax.
Q: Supposing that you have a taxpayer who
disputed the assessed amount against him. He
appealed to the CTA, CA, and SC. The taxpayer
lost. The judgment became final and executory.
Can the tax liability still be compromised under
the first ground (reasonable doubt of the tax
liability)?
A: No, because clearly the the claim of the
government is not doubtful
Q: In the same case, can it still be compromised?
A: Yes, if the case fall under the second ground,
the financial incapacity of the taxpayer.
Q: Can all criminal cases be compromised?
A: No. As a general rule all criminal violations
may be compromised.
Exception:
1. those already filed in court
2. those involving fraud
(See Sec. 204)
2. Cancellation
Q: When can the BIR cancel a tax liability?
A: Sec. 204 (B) provides
1. The tax or any portion thereof appears
to be unjustly or excessively assessed.
2. The administration and collection costs
involved do not justify the collection of
the amount due.
In the first ground, BIR cancel when the tax
appears to be on its face excessive and unjust

Administrative Tax Amnesty


1. Compromise
Q: What is a compromise?
A: Compromise is a contract whereby the parties
by reciprocal concessions avoid a litigation or
put an end to one already commenced. (De
Leon)
(See Sec. 204)
Q: When does the remedy of compromise apply?
A: The compromise remedy is available to the
government in two cases:
1. existence of a reasonable doubt as to the
validity of the claim against the
taxpayer

In the second ground, the BIR can cancel the tax


liability when it seems to be insignificant which
would not warrant a collection. The expense of
collection would be much more than the amount
to be collected.
(Bar Ops Stenographic Notes)
(After Midterms)

TAXPAYERS REMEDIES
1. PROTEST
Q: How does the BIR found basis for
assessment?
A: See p. 416 of De Leon

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A. Notice for informal conference The
revenue officer who audited the taxpayers
records shall state in his report whether the
taxpayer agrees in his findings that he is liable
for deficiency tax.
1. Taxpayer disagrees he shall be
informed of the discrepancies for the
purpose of Informal Conference
2. Taxpayer fails to respond within 15
days from receipt of notice he is
considered in default, records shall be
endorsed for review and issuance of
deficiency tax assessment
B. Preliminary Assessment Notice (PAN) If
after review, it is determined that there is
sufficient basis to assess the taxpayer, BIR shall
issue a PAN, showing in detail the facts and the
law on which it is based.
Failure to respond: the taxpayer has 15
days from receipt to respond. If he did
not, a formal letter of demand shall be
issued, calling for payment
C. Formal Letter of Demand It calls the
payment of the deficiency tax, stating the facts
and law on which the assessment is based
It shall be sent by registered mail or
personal delivery
D. Disputed Assessment The taxpayer may
protest administratively against the formal letter
of demand within 30 days from receipt.
Preliminary Assessment Notice Not Required
Q: What are the cases when a PAN is not
required?
A: Sec. 228 par. (a)
1. mathematical error When the finding for
any deficiency tax is the result of mathematical
error in the computation of the tax as appearing
on the face of the return.
2. discrepancy in tax withheld - When a
discrepancy has been determined between the tax
withheld and the amount actually remitted by the
withholding agent.
3. refunded or credited but deducted 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

4. unpaid excise tax When the excise tax due


on excisable articles has not been paid
5. sale or imported by exempt but sold to nonexempt When an article locally purchased or
imported by an exempt person, such as, but not
limited to, vehicles, capital equipment,
machineries, and spare parts, has been sold,
traded, or transferred to non-exempt persons.
The notice for informal conference and the
preliminary assessment notice shall not be
required in these cases. (De Leon)
PROCEDURE
1. Issuance of Preliminary Assessment Notice
Q: When would the BIR issue PAN?
A: Sec. 228 When the Commissioner or his
duly authorized representative finds that proper
taxes should be assessed x x x.
Q: What must the PAN contain?
A: the facts and the law
Sec. 228 par (2) The taxpayer shall be
informed in writing of the law and the facts on
which the assessment is made; otherwise, the
assessment shall be void.
Q: What if the PAN does not contain the
necessary statements therein?
A: Failure to state the facts and law, the PAN is
void, but the BIR may issue another PAN.
Q: Does the requirement of stating the facts and
law apply only to PAN?
A: Reading Sec. 228 closely, it seems that this
requirement only pertains to the PAN. A demand
of payment suffices in the formal assessment
notice.
However, jurisprudence and tax regulations said
that there must be statements of facts and law in
both the PAN and final assessment notice.
Q: If the assessment is void for lack of facts and
law, can it still assess?
A: No, but the BIR may issue another PAN.
2. Responding to the PAN
Q: What happens after the PAN?
A: Sec. 228 par. (3) x x x the taxpayer shall be
required to respond to the said notice.
Q: Supposing:

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3/13/00 taxpayer filed tax return
3/17/03 taxpayer received PAN
Is there a valid assessment?
A: No, this implies that it has already prescribed
because in Basilan Case, final assessment must
be made within 3 years.
It is important that the BIR prove that the
taxpayer received the FAN.
Q: What would happen if the taxpayer fails to
respond to the PAN?
A: The PAN would serve as a formal or final
assessment notice
Sec. 228 par (3) x x x if the taxpayer fails to
respond, the Commissioner or his duly
authorized representative shall issue an
assessment based on his findings.
3. Filing Request for Reconsideration
Q: What may the taxpayer do if the BIR issued
the FAN?
A: Sec. 228 par (4) Such assessment may be
protested by filing a request for reconsideration
or reinvestigation within 30 days from receipt of
the assessment x x x.
Q: Supposing:
August 1967 CIR made a demand
letter assessing taxpayers 1957 1960
income
CIR said assessment based on failure to
report in full the capital gains
December 1974 CIR made a decision
against the taxpayer
September 1975 CIR sued the
taxpayer
Whether the CIRs assessment have prescribed?
A: No. The assessments were predicated on the
fact that his income tax were false because he
underdeclared his income. In such a case, the
deficiency assessments may be made within 10
years from the discovery of the falsity or
omission. (Basa vs. Republic)
4. Submission of Documents
Q: What is the 60 day period?
A: Sec. 228 par (4) x x x within 60 days from
the filing of the protest, all relevant supporting
documents shall have been submitted x x x.

Q: What if he didnt submit the documents


within the 60 day period?
A: If the taxpayer fails to submit the supporting
documents, the assessment becomes final.
Sec. 228 par (4) x x x all relevant supporting
documents shall have been submitted otherwise,
the assessment shall become final.
Q: Suppose that the taxpayer filed a strongly
worded protest with attachments. Within the 60
day period, the taxpayer didnt submit any
documents. Can the BIR argue that the
assessment has already become final?
A: No. BIR cannot argue that it has become
final. The right to submit documents belongs to
the taxpayer. It depends upon him whether the
submission of documents is sufficient.
However, the BIR may request the submission of
documents if it sees it fit. If it does, it should be
submitted within 60 days.
5. Resolution and Appeal
Q: When may the BIR resolve the protest?
A: Within 180 days from submission of
documents. (Sec 228, par. 5)
Q: What will happen if the BIR failed to decide
within the 180 day period?
A: Sec. 228 par. (5) If the protest x x x is not
acted upon within 180 days from submission of
documents, the taxpayer x x x may appeal to the
CTA within 30 days from the lapse of the 180
day period x x x.
Q: Supposing
within 30 days disputed assessment
within 60 days submitted documents
after 180 days no decision
Can taxpayer appeal to the CTA?
A: Yes. Inaction by the BIR is a denial of the
protest. The taxpayer can appeal to the CTA.
Q: Same question, but supposing that the BIR
made a decision after 280 days, did it still
retained jurisdiction over the disputed
assessment?
A: Yes. The taxpayer may wait for a period even
after 180 days for the BIR to decide because the
law states that the taxpayer has the right to
decide which period to appeal.

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Q: Suppose that within the 180 day period, the
BIR issued a warrant of distraint or levy, would
that be a decision appealable to the CTA?
A: It depends. The law obliges the taxpayer to
dispute the assessment on strong grounds. It also
obliges the BIR to state clearly what is the
appealable decision. The decision must clearly
state that it is the one that would be appealable if
the protest is based on strong grounds. However,
if the taxpayer merely made a pro forma protest,
a warrant of distraint or levy is deemed an
implied decision appealable to the CTA.

Q: Same question, but can the taxpayer contend


that the BIR fraudulently assess him or that he
didnt receive PAN?
A: No. When a taxpayer fail to appeal, he losses
all rights to dispute the assessment because it
may only be raised in the administrative level.

Q: Supposing the assessment became final. The


BIR issued a warrant. Can the taxpayer consider
the warrant as a decision of the BIR appealable
to the CTA?
A: No. There is no decision because there is no
disputed assessment. The disputed assessment
has already become final once the warrant has
been issued.

Pro Forma Protest

Q: Supposing that the documents were submitted


within the 60 day period, but 4 submissions were
made. Can the BIR say that the 180 day period
should be reckoned from the date of the 2nd
submission?
A: No, the 180 day period should be reckoned
from the date of the last submission of the
documents because the taxpayer determines what
are the relevant documents to be submitted and
the sixty day period is for the benefit of the
taxpayer.
Q: Supposing:
Nov 1 assessment notice issued
Afterwards the BIR and the taxpayer
made no further action.
June 30 collection case filed with
RTC
Can the taxpayer go to the CTA and say that the
assessment is invalid?
A: No, because the assessment is already final
and executory.
Q: Same question, but can the taxpayer go to the
CTA to appeal arguing that the collection case in
the RTC is the BIRs decision?
A: No, because there is no protest and there is
nothing to decide. This is not an implied decision
but a collection remedy. Moreover, the taxpayer
may no longer question the assessment.

Q: Same facts, but may the taxpayer raise the


defense that the collection has prescribed?
A: Yes, he may raise that defense. It is a
theoretically valid argument but in reality it does
not happen.

Q: Suppose BIR assessed taxpayer. Taxpayer


made a protest. Pending the resolution of the
protest, the BIR issued a warrant of distraint and
levy. May the taxpayer appeal?
A: It depends on whether the protest is merely a
pro forma protest or a strongly worded protest or
strong protest.
If the taxpayer filed a strong protest, the BIR can
not issued a warrant of distraint and levy pending
resolution thereof.
Q: Supposing a protest was filed stating that the
assessments are contrary to law and not
supported by sufficient evidence, can the
Commissioner ignore the protest and instead file
a collection suit before the RTC?
A: Yes. Such protest does not have a basis or a
leg to stand on. The requirement for the
Commissioner to rule on disputed assessments
before bringing an action for collection is
applicable only in cases where the assessment
was actually disputed, adducing reasons in
support thereto. Where the taxpayer did not
actually contest the assessment by stating the
basis thereof, the CIR need not rule on their
request. The act of the Commissioner in filing an
action may be considered as an outright denial or
the protest. (Dayrit vs. Cruz)
Q: Supposing:
January 14 taxpayer was assessed
January 18 taxpayer filed protest
based on strong legal considerations.
March 12 Warrant of distraint and
levy. Taxpayer refused to received it
because there is a pending protest
BIR cant find the protest in its dockets
Taxpayer gave a copy to BIR
April 7 BIR told taxpayer that no
action to protest

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Tax2 Reviewer
April 23 appeal to CTA
Whether the warrant of distraint functioned as an
implied decision and that it has become final and
executory?
A: No. In this case, after 4 days from the receipt
of the assessment, the taxpayer filed a protest
based on strong legal considerations. Because it
was based on strong legal considerations, the
issuance of the warrant was premature. The
warrant could not be served.
The warrant did not became final and executory
because it became effective as an implied
decision when the protest was denied, but the
taxpayer seasonably filed an appeal, hence it was
not yet final and executory. (CIR vs. Algue)
Filing of Criminal Action
Q: Pending resolution of a protest, a criminal
action was filed. May the criminal action
proceed?
A: Yes. In Ungab vs. Cusi, SC ruled that there is
no requirement for the precise computation and
assessment of the tax before there can be a
criminal prosecution under the Code. This is so
because in that case, there is a prima facie
showing that there was willful evasion of taxes.
Q: Whether a criminal case may prosper pending
the resolution of the assessment absence prima
facie evidence of intent to defraud the
government?
A: No. Before one is prosecuted for willful
attempt to evade or defeat any tax, the fact that a
tax is due must be proved. The tax liabilities of
the taxpayer should first be determined before
the CIR may assert that the taxpayer have
willfully attempted to evade or defeat the taxes
sought to be collected. (CIR vs. CA, Fortune
Tobacco)
Q: Was the Ungab Case overruled by the Fortune
Tobacco Case (Lucio Tan)?
A: No, the Ungab Case was not overruled
because in that case, there is a prima facie
showing of a willful attempt to evade taxes. But
in the Fortune Tobacco Case, its registered
wholesale price was approved by the BIR. Since
it was approved by the BIR, it is presumed to be
the actual wholesale price, therefore, not
fraudulent. (CIR vs. CA, Fortune Tobacco)
Q: Can the taxpayer consider the filing of a civil
or criminal case against him as an implied
decision to his protest appealable to the CTA?

A: A criminal action is not an implied decision.


A civil action is an implied decision because its
purpose is to collect.
Commissioners Final Decision
Q: If the taxpayer filed a protest based on strong
legal considerations, does the warrant of distraint
and levy serves as an implied decision, rejecting
outright the protest?
A: No. The Commissioner should always
indicate to the taxpayer in clear and unequivocal
language what constitutes his final determination
of the disputed assessment. On the basis of this
statement indubitably showing that the
Commissioners communicated action is his final
decision on the contested assessment, the
aggrieved taxpayer would then be able to take
recourse to the tax court as the opportune time.
Without needless difficulty, the taxpayer would
be able to determine when his right to appeal to
the tax court accrues. This would encourage the
Commissioner to conduct a careful and thorough
study of every questioned assessment and render
a correct and definite decision. This would also
deter the Commissioner from unfairly making
the taxpayer grope in the dark and speculate as to
which action constitutes the decision appealable
to the tax court. (CIR vs. Union Shipping)
Q: Supposing that the BIR issued a Final Notice
Before Seizure to the taxpayer. It states that it is
the taxpayers last opportunity to settle the
assessment and that should he fail, the BIR
would pursue collection remedies. Can the BIR
argue that this is not the decision appealable to
the CTA?
A: No, because its content and tenor supported
the theory that it was the CIRs final act
regarding the protest. The very title indicated
that it as a final notice. It is the CIRs final act
when it demanded the taxpayer to pay, gave a
warning that in event of failure to pay, the CIR
would be constrained to enforce collection.
Although prior to the decision of a disputed
assessment, there may still be exchanges
between the CIR and the taxpayer. But when the
CIR indicated his position regarding the disputed
assessment, he has made a decision that is
properly appealable to the CTA for review.
(CIR vs. Isabela Cultural Corporation)
Appeal to the CTA

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Tax2 Reviewer
Q: Supposing a criminal case was filed, can the
taxpayer argue that this is an implied decision
saying that the BIR can collect by filing a civil or
criminal case?
A: No, because the protest is not deemed
decided.
Q: But how about Section 205 of the NIRC that
states that the criminal case is a collection
remedy, does this mean that the filing of the
criminal case is an implied decision appealable
to the CTA?
A: No. It is not an implied decision because its
purpose is to penalize the offender and not to
collect, although it is a collection remedy in a
sense that the judgment must contain an order to
pay the tax. Take note that Sec. 245 of the NIRC
states that the acquittal of the delinquent
taxpayer does not bar the BIR from filing a civil
action.
Effect of Protest to Collection
Q: Does the protest have the effect of suspending
the period of collection?
A: It depends.
If the protest if filed on time, then it may
suspend the collection of taxes.
But if the protest is filed beyond the 30-day
period, it does not suspend the running of the
prescriptive period. (De Leon, Citing Republic
vs. Hizon)
Q: Supposing that the BIR assessed the taxpayer.
The taxpayer made a protest. It was denied and
so he appealed, and kept on appealing until he
reached the SC. Before the SC, can the taxpayer
argue that the collection remedy has prescribed
assuming that it took him years to reach the SC?
A: No. Sec. 223 The running of the Statute of
Limitations x x x on a proceeding in court for
collection x x x, shall be suspended for a period
during which the Commissioner is prohibited
from making the assessment or beginning
distraint or levy or a proceeding in court for sixty
days thereafter x x x. The pendency of the
taxpayers appeal in the CTA and in the SC had
the effect of temporarily staying the hands of the
Commissioner. If the taxpayers stand that the
pendency of the appeal did not stop the running
of the period, taxpayers would be encouraged to
delay the payment in the hope of ultimately
avoiding the same. (Protectors Services vs. CA)

Q: What are the requirements for claim for


refund?
A: According to Cebu Portland vs. CIR
1. filing a written claim for refund with the
Commissioner of Internal Revenue
2. institution of suit or proceeding in court
within 2 years from the date of
payment.
According to De Leon:
1. in writing, stating clearly the basis or
grounds for such claim
2. filed with the Commissioner within 2
years after the payment of the tax or
penalty.
Exceptions to Written Claim
Q: What are the instances when the taxpayer
opting to claim refund is not required to filed a
written claim?
A: Two codal provisions in the NIRC
1. Sec. 204 (C) Provided, however, a
return filed showing an overpayment
shall be considered as a written claim
for credit or refund.
2. Sec. 229 par. 2 Provided, however,
That the Commissioner may, even
without a written claim therefore,
refund or credit any tax, where on the
face of the return upon which payment
was made, such payment appears
clearly to have been erroneously paid.
Proper Forum
Q: Is the administrative remedy independent
from the judicial remedy?
A: Yes. It can stand by itself because at that
level, refund can be granted.
Q: Is the judicial remedy of refund independent
from the administrative remedy?
A: No. Before the judicial remedy may prosper,
the taxpayer should first resort to the
administrative remedy.
Q: When does the judicial aspect of the claim for
refund arise?
A: When the taxpayer appeal with the CTA
within the two year period. He must appeal
within 30 days from the receipt of the decision of
the CTA.
Two Year Period

2. REFUND
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Tax2 Reviewer
Q: When can you claim refund before the BIR
and the courts?
A: The claim for refund should be filed with the
BIR within 2 years from the date of payment.
Judicial action can be had by appealing to the
CTA within 2 years from the date of payment.
Q: What if the BIR takes time in deciding the
claim for refund and the 2 year period is about to
end, what may the taxpayer do?
A: The suit or the proceeding must be started in
the CTA before the end of the two-year period
without awaiting the decision of the BIR. Here,
there is no decision to appeal from, much less is
there an appeal. (De Leon)

additional income tax or if he is entitled to a


refund of overpaid income tax. (CIR vs. TMX
Sales)
Q: Whether the two-year period of prescription
for filing a claim for refund is counted from the
date when the tax return was actually filed or
from the date when the final return could still be
filed without incurring any penalty?
A: The two year period should be computed
from the time of the actual filing and not on the
last day. This is so because at that point, it can
already be determined whether there has been an
overpayment by the taxpayer. (CIR vs. CA, BPI)
Mergers

Q: Supposing:
March 1999 Payment
March 2000 Claim refund
2001 denied
Has it prescribed?
A: No, but the taxpayer must appeal to the CTA
within two years from the date of payment.
Q: Supposing:
March 1999 Payment
June 1999 Claim Refund
August 1999 BIR denied claim
Can the taxpayer appeal argue that he can appeal
to the CTA on February 2001 since it is within
the two year period
A: No. Sir said that if the claim is denied by the
Commissioner within the two year period, the
taxpayer has 30 days from receipt of the denial
within which to appeal to the Court of Tax
Appeals. (De Leon)
Q: In cases where the taxpayer files quarterly
income tax return, whether the basis for
computing the two year period should be the date
when the quarterly income tax was paid or the
date when the final return for the taxable year
was filed?
A: It should be computed from the date when the
final return for the taxable year was filed,
because the payment of quarterly income tax
should only be considered as mere installments
of the annual tax due. These quarterly tax
payments should be treated as advances or
portions of the annual tax due. (De Leon) It is
the Final Return which is reflective of the
operations of the business for the whole tax
period. It is at the time of the filing of the Final
or Annual Income Tax Return when it can be
ascertained if the taxpayer has still to pay

Q: In case of mergers, whether the two year


prescriptive period should be reckoned from the
date of the filing of the annual return for the
taxable year or the date of the filing of the return
required to be filed thirty days after the
dissolution or merger?
A: From the date of the return required to be
filed after the dissolution or merger, because
after it ceased operations, its taxable period was
shortened. (BPI vs. CIR)
Q: Why should it be reckoned from the date of
the approval of the merger and not from the
filing of the final adjustment return?
A: Because from the approval of the merger, the
corporation ceased to exist. It is no longer
necessary to wait the end of the taxable year.
Burden of Proof
Q: Who has the burden of proof in case of
refund?
A: The taxpayer. He who asserts must prove.
Also, a refund is akin to an exemption to
taxation. Moreover, in cases of refund pursuant
to an assessment, the assessment is prima facie
correct, so the taxpayer must prove the contrary,
unless if the assessment became final.
Protest and Refund
Q: Must there be a protest on the assessment to
have a valid refund? Or does the refund remedy
presupposes an assessment?
A: No. As long as there is an irregular payment,
there can be a refund.
Q: Supposing:
Sept 15 Assessment

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Tax2 Reviewer

Oct 19 Payment
Oct 20 Claim for refund
Can the taxpayer claim refund despite the
finality of the assessment?
A: No. If the taxpayer is allowed to claim a
refund despite the finality of the assessment, then
it would reopen the question of the validity of
the assessment. Otherwise the period to appeal
the assessment would make little sense. (CIR vs.
Concepcion)
Q: Suppose that the taxpayer paid the tax within
the period to appeal the assessment. After that,
the taxpayer claim refund at the time when the
period to appeal the assessment have already
lapsed. Can the taxpayer still claim?
A: Sir said that some authors say that the
taxpayer could file a refund as long as there is
payment within the period to appeal. This is
different from the Concepcion case, because in
that case, the taxpayer paid the tax at the time
when the period to appeal the assessment have
already lapsed.
Q: In appealing the decision of the BIR to the
CTA, is the taxpayer who paid the tax under
protest also required to file a claim for refund?
A: No. To hold that the taxpayer must file a
claim for refund before appealing with the CTA
would in effect require of him to go through a
useless and needless ceremony that would only
delay the disposition of the case, for the CIR
would certainly disallow the claim for refund in
the same way as he disallowed the protest
against the assessment. (Vda. De San Agustin vs.
CIR)
Claiming Taxpayer
Q: Who is the person that should file the claim
for refund?
A: The one who paid the taxes erroneously or
illegally.
Q: Can the agent of the taxpayer filed the claim
for refund?
A:
Q: Supposing:
X sold goods plus 10% sales tax to Y.
SC declared the tax illegal
Who may claim refund, X or Y?
A: X because he is the person who is liable to
pay the tax with the BIR.

Q: Same facts, but supposing that the BIR


refunded X. What are Ys rights?
A: Sir said that it would be a good law if X
would hold the amount refunded in trust for Y, as
in the American case. Otherwise, it would
unjustly enrich X.
Supervening Cause
Sec. 229 par. (b) In any case, no such suit or
proceeding shall be filed after the expiration of
two years from the date of payment of the tax or
penalty regardless of any supervening cause
that may arise after payment x x x.
Q: Supposing,
1999 date of payment
2002 SC declared the tax illegal
2002 taxpayer file a claim for refund
Did the action to claim refund prescribed?
A: Yes. Because the supervening event occur
beyond the two year period.
Q: Is there an instance where the two year period
is extended notwithstanding the mandate of the
law that the claim for refund should be made
within 2 years regardless of any supervening
clause?
A: Yes, when there is an agreement between the
taxpayer and the Commissioner to wait for the
result of a pending case in the Supreme Court.
On moral and equitable grounds, therefore, the
taxpayer is entitled to refund from the date of the
claim for refund, especially that the CIR also
offered to credit the taxpayer with overpayment
for a period of two years from the date of claim
for refund. In doing so, the CIR waived the
prescriptive period of two years from the date of
payment. (Panay Electric vs. CIR)
Refund of Withholding Tax
Q: What are the requisites for the refund of
withholding tax?
A: According to Citibank N.A. vs. CA:
1. withheld income included in the gross
income - the income tax return for the
previous year must show that the
income payment was reported as part of
the gross income.
2. withheld amount remitted to BIR the withholding tax statement of the
withholding tax agent must show the
payment of the creditable withholding
tax was made.

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Tax2 Reviewer
Q: Supposing that there was an excessive
withholding tax, can the withholding agent file
an action for refund?
A: Yes, because the withholding agent is also a
taxpayer liable to pay the tax.

COURT OF TAX APPEALS


Jurisdiction
Q: According to RA 9282, Sec. 7 (a), what is the
exclusive appellate jurisdiction of the CTA?
A: Sec. 7(a):
1. Decisions of the CIR xxx
2. Inaction by the CIR xxx
3. Decisions, orders, or resolutions of RTC
in local tax cases originally decided or
resolved by them in the exercise of thir
original or appellate jurisdiction
4. Decisions of the CBAA
5. Decisions of the Secretary of Finance
on customs cases xxx
6. Decisions of the Secretary of Trade and
Industry, in the case of nonagricultural
product involving dumping and
countervailing duties and safeguard
measures
7. Decisions of the Secretary of
Agriculture in the case of agricultural
product involving dumping and
countervailing duties and safeguard
measures
Q: Supposing:
September 15 final notice
October 19 appeal to CTA
Does the CTA have jurisdiction?
A: No jurisdiction for failure to appeal within the
period.
Q: BIR made a final decision, a final notice for
seizure. BIR issued a warrant of distraint and
levy after 40 days from the final assessment.
After 5 days from the receipt of the warrant of
distraint and levy, the taxpayer appealed to the
CTA. Does CTA have jurisdiction?
A: No, because the assessment became final. The
warrant is a collection remedy and not an
implied decision.
Q: What is the appeal to CTA by BIRs inaction?
A: Inaction is deemed a denial of the protest. It is
the BIRs decision.
Disputed Assessment

Q: Suppose that a taxpayer received an


assessment notice. Immediately after receipt, he
appealed to the CTA alleging that the assessment
was illegal and unconstitutional. Can the CTA
take cognizance of it?
A: No. CTA has no jurisdiction because there is
no disputed assessment and there is no decision.
Sec 7 (a) (1) Decisions of the CIR in cases
involving disputed assessments
Q: Supposing X, inc. received an assessment. He
filed a protest within the period. Subsequently,
he received a final notice of assessment. Within
30 days from receipt, he appealed to the CTA.
Pending appeal, BIR canceled the tax liability.
Can the CTA take cognizance of the case?
A: No, if an assessment was cancelled, there
would be no disputed assessment. CTA has
jurisdiction only to disputed assessment. If it is
canceled, the assessment is no longer disputed.
Q: The taxpayer received a final assessment
obliging him to pay P300K as his tax liability.
He appealed to the CTA. During a hearing in the
CTA, BIR increased the assessment. It amended
its pleading increasing the assessment to P450K.
Can the CTA dismissed the case as it was not the
disputed assessment appealed?
A: No. BIR may, after appeal from its decision to
the Court of Tax Appeals increase his
assessment. SC in CIR vs. Batangas
Transportation and Laguna Tayabas:
1. the Government is not bound by the
errors committed by its tax collectors in
making tax assessments,
2. If the BIR is not allowed to amend the
assessment before the CTA, and since it
may make a subsequent reassessment to
collect additional sums that would lead
to multiplicity of suits which the law
does not encourage;
3. that the hearing before the Court of Tax
Appeals partakes of a trial de novo and
the Tax Court is authorized to receive
evidence, and the taxpayer has
opportunity to present and argue their
sides, so that the true and correct
amount of the tax to be collected may
be determined and decided, whether
resulting in the increase or reduction of
the assessment appealed to it.
.
Q: Same question, can the taxpayer argue that he
was denied due process (i.e., that he was

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Tax2 Reviewer
deprived of his right to protest the new
assessment with the BIR under section 228)?
A: No, because he can still dispute the
assessment at the CTA level and prevent
multiplicity of suit and needless procedure.

2. Exclusive appellate jurisdiction


1. appeals from RTC in tax collection
cases originally decided by them
2. petitions for review of RTC in the
exercise of their appellate jurisdiction

Q: But supposing that instead of increasing, the


BIR lowered the assessment from 300K to 150K
pending appeal. Can the CTA object?
A: No, because the amended assessment (150K)
is now the disputed assessment even if it were a
lower amount.

Q: Suppose an assessment became final, can the


BIR filed a collection case with the RTC?
A: Yes.
Sec. 7 (c) (1) x x x collection cases where the
principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than PhP1
Million shall be tried by the proper MTC, MeTC,
and RTC

Q: Suppose that the taxpayer appealed the BIRs


decision to the CTA. Pending appeal, certain
documents were discovered tending to show that
the taxpayer evaded the payment of taxes. These
amounts were not included in the assessments.
Can the BIR hold the taxpayer for the amounts
reflecting in the discovered documents?
A: No. When the amounts are not included in the
disputed assessments, the CTA should not rule
upon it. The jurisdiction of the CTA is purely
appellate. It does not have jurisdiction over
amounts not included in the disputed assessment.
(CIR vs. Guerero)
Criminal Jurisdiction
Q: What is the exclusive CTA jurisdiction on
criminal cases?
A: Sec. 7 (b)
1. Exclusive original jurisdiction all criminal
violatons arising from violations of the NIRC,
Customs Code, other laws administered by BIR
or Bureau of Customs
The principal amount of taxes and fees
exclusive of charges and penalties is
PhP1 Million or more.
2. Exclusive appellate jurisdiction
1. appeals from RTC in tax cases
originally decided by them
2. petitions for review of RTC in the
exercise of their appellate jurisdiction
Collection Jurisdiction
Q: When does the CTA have original jurisdiction
on tax collection cases?
A: Sec. 7 (c)
1. Exclusive original jurisdiction final and
executory assessments, the principal amount of
taxes and fees exclusive of charges and penalties
is PhP 1 Million or more

Q: Supposing that there is a pending collection


case, can the RTC enjoin the collection?
A: No, because no court shall issue an injunction
Sec. 218 No court shall have the authority to
grant an injunction to restrain the collection of
any national internal revenue tax, fee, or charge
imposed by this Code.
No Injunction
Q: Supposing a collection case involving an
amount of less than P1 million was heard before
the RTC. Can the CTA, upon motion of the
taxpayer, enjoin the BIR?
A: No. CTA may only enjoin a collection case in
the exercise of its appellate jurisdiction. The
main case must be before the CTA. Pending the
resolution of the case before the RTC, the CTA
cannot enjoin the collection.
Appeals from CTA
Q: Suppose a taxpayer lost in the CTA, what is
his remedy?
A: He may filed a MR. Then, he may appeal to
the CTA en banc. After that, he may appeal to the
SC by Rule 45 but his appeal is limited to only
questions of law.
Sec. 9 (RA 9282) x x x A party adversely
affected by a ruling, order, or decision of a
Division of the CTA may file a MR or new trial
before the same Division.
Sec. 11 (RA 9282) x x x a partly adversely
affected by a resolution of a Division of the CTA
on a MR or new trial, may file a petition for
review with the CTA en band.

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Tax2 Reviewer
A party adversely affected by a decision or ruling
of the CTA en banc may file with the SC a
verified petition for review on certiorari.
Q: Supposing a taxpayer filed a motion for
reconsideration with the Court of Tax Appeals en
banc, is it an unfair rule that even those justices
who decided in the case in the division level
would also participate in the resolution of the
appealed case?
A: Yes, sabi ni Sir.

A: Sec. 602 (Tariffs and Customs Code):


1. assessment and collection of customs duties
2. prevent and suppress smuggling and other
frauds.
3. to enforce tariff and customs laws
4. supervise/control entry of vessels
5. on foreign mails, collect duty on dutiable
articles
6. Supervise/control cargoes
7. Seizure and forfeiture under this code.
Territorial Jurisdiction

Q: Suppose that a taxpayer was ordered by the


CTA en banc to pay the tax, can the BIR now
seize the taxpayers property upon the issuance
of its order?
A: Yes, but the CTA has to issue an order
allowing the seizure. BIR must file a motion for
seizure.
Sec. 13 Upon issuance of any ruling, order, or
decision by the CTA favorable to the national
government, the CTA shall issue an order
authorizing the BIR to seize and distraint x x x.
Other Matters
Q: Supposing that the BIR rents an office space
with the taxpayer. The taxpayer did not pay tax.
The BIR did not pay any rent to the taxpayer.
The taxpayer filed an action with the CTA
alleging that the CTA has jurisdiction by virtue
of Sec. 7 (a) of CTA law other matter. Is he
correct?
A: No. The other matter pertains to a tax issue.
In the present case, it pertains to an
administrative matter and not a tax issue.
Q: What are some examples of other matter?
A: validity of tax sale, validity of memorandum
circular issued by the BIR.
Q: Suppose that there is an auction sale, but the
taxpayer was out of town. The taxpayer filed a
motion to reset the sale. BIR denied the
taxpayers motion. Can the taxpayer appeal to
the CTA?
A: No. an appeal to the CTA must only be final
cases disposing of the case and not interlocutory
orders.

BUREAU OF CUSTOMS
Functions

Q: What is the territorial jurisdiction of the


Bureau of Customs (BC)?
A: sea, air, airports
Sec. 603 x x x said Bureau shall have the right
of supervision and police authority over all seas
within the jurisdiction of the Philippines and
over all coasts, potrs, airports, harbors, bays,
rivers, and inland waters whether navigable or
not from the sea.
Q: Why does the Customs law does not talk of
land as part of BCs jurisdiction?
A: Because you cannot import on land in the
Philippines, but there can be seizure in land
when importation obligations are not yet paid.
Sec. 603 par. (b) x x x Imported articles which
may be subject to seizure for violation of the
tariff and customs law may be pursued in their
transportation in the Philippines by land x x x.
Q: Supposing a ship was sighted unloading
goods. The customs alerted a signal to board the
vessel. But, this vessel went to international
waters. Can BC seized the vessel and the cargo
even if it is already at international waters?
A: Yes, Asaali case.
General Rule: the chase must begin inside the
Philippine Waters.
Exception: Asaali case where the Court stated
that the state has the power to secure itself from
injury. This power may be exercised beyond the
limits of its territory.
There must be a reasonable ground to believe
that the vessel would enter the Philippine waters.
Q: Same facts, but is there hot pursuit in this
case?
A: There is hot pursuit, when the pursuit began
in the Philippine waters.

Q: What are the functions of the Bureau of


Customs?
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Tax2 Reviewer
The customs officials may resort to seizure if
there is reasonable ground to suspect or believe
that there is an illegal importation, even if there
is no provision in the Customs law which allows
the seizure of a vessel which have not yet
entered the Philippine jurisdiction.
Customs Search
Q: Section 2208 does not say that the search
should be without warrant. How come that
searched under Section 2208 are without
warrant?
A: Because in Section 2209, it expressly state
that it is required. Therefore, it impliedly allows
a search without a warrant for searches other
than a dwelling house. (See Papa v Mago)
In the first place, under Sec. 603, it states that the
Bureau of Customs has territorial jurisdiction,
that violators may be pursued in their
transportation by land.
Q: If a goods were sold to a buyer, can he argue
that he is an innocent purchaser for value if the
goods were released without satisfying
importation dues?
A: No. He cannot invoke that he is an innocent
purchaser for value because the goods are still
subject to the payment of customs duties. Also,
Sec. 603 x x x imported articles which may be
subject to seizure for violation of the tariff and
customs laws may be pursued in their
transportation in the Philippines by land x x x.
The government may collect the importer if the
goods have already been sold to a third person.
Q: Suppose a customs officer went to a store
where imported goods are sold, the customs
officer asked the store owner whether customs
duties were paid, but the latter can not produce
the evidence of payment of customs duties, can
the customs officer seize the goods?
A: The customs officer must have a prior
written authorization by the Commissioner
before he may seize he goods.
Sec. 2536 The Commissioner and Collector
and/or any other customs officer, with the prior
authorization in writing by the Commissioner,
may demand evidence of payment x x x and if no
such evidence can be produced, such articles
may be seized x x x.

However, if the person seizing is the


Commissioner or the Collector, no written
authority is needed.
Q: Suppose a customs officer saw a truck getting
out of the customs house. Ater 5 minutes, he
pursue the vehicle. Are their actions justifiable,
that they can search the vehicle without a
warrant?
A: Yes, if it is based on reasonable ground to
suspect. No warrant is needed when moving
vehicles are stopped and searched. It would be
impractical to search without a warrant.
Q: A person carried 5 reams of blue sealed
cigarettes. He boarded a passenger jeepney. A
customs officer saw this guy. Can he seize the
cigarettes?
A:
Search of Dwelling House
Q: Suppose a compound has a residential house.
However, in the same compound, there are
warehouses. At its gate, it states residential
area. Can the BC search it?
A: Yes, regardless of whether or not the
compound is residential or not because the law
states that the Bureau of Customs can enter any
land enclosure, except a dwelling house. In this
case, it is a dwelling compound not a dwelling
house. They may search the compound without
warrant, but to search the dwelling house inside
the compound, a warrant is needed.
Sec. 2208 For the more effective discharge of
his official duties, any person exercising the
powers herein conferred, may at any time enter,
pass through, or search any land or inclosure or
any warehouse, store or other building, not being
a dwelling house.
Q: For purposes of Sec. 2209 search, when can
you say that it is a dwelling or warehouse?
A: The law does not judge it by the appearance
of a dwelling house but the question is whether
the purpose is to store imported goods.
Q: Upon entry into the compound, the customs
officials saw a building. This structure looks like
a warehouse, but it is a residence. The customs
officials want to search it, but the owner
demands a search warrant. Can they enter the
building without a warrant?
A: They have to determine whether or not the
structure is a dwelling house.

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40
Tax2 Reviewer
1.
2.

3.

They should look at the structure. (there


might be no windows).
It could be the dwelling of the
watchman (because under par. B of Sec.
2208, a warehouse x x x does not
become a dwelling x x x by reason of
the fact that the person employed as
watchman lives in the place x x x.)
Look at the primary use of the structure.

Q: Supposing they went to the warehouse, while


searching and doing some seizure, goods were
taken out of the warehouse by employees of the
importer inside and taken into the dwelling
house. Can the dwelling house be searched of
articles being seized without a search warrant
from the warehouse to the dwelling home?
A: Yes. As incidental lawful arrest, you can
search without a warrant. So while the rule is a
dwelling home cannot be searched without a
search warrant, as an exception to the broad
power of search and seizure of customs
authorities, you have that provided. Thats a
basic principle in tax law. Search can be made
pursuant or incidental to a lawful arrest.
(Bar Ops Stenographic Notes)
Importation
Q: When do you have an importation?
A: Sec. 1202 Importation begins when the
carrying vessel or aircraft enters the jurisdiction
of the Philippines with intention to unlade
(unload) therein.
Q: When is importation deemed terminated?
A: Sec. 1202 x x x Importation is deemed
terminated upon payment of duties, taxes, and
other charges due upon the articles, or secured to
be paid, at a port of entry and the legal permit for
withdrawal shall have been granted, or incase
said articles are free of duties, taxes, and other
charges, until thay have legally left the
jurisdiction of the customs.

Q: Suppose a foreign vessel enters the


Philippines, BC was informed that the vessel
carries highly dutiable goods and contraband
goods for pushers. Can the customs officials
board the vessel and seize the goods?
A: Intention to unload must be established by the
importer, or by the circumstances. Look at the
bill of lading if it is bound for the Philippines.
Q: What if the owner of the contraband goods
denied that he intended to unload the goods,
what must the customs officials do?
A: They must look at the circumstances to
determine the whether there is an intention to
unload. They may look at the bill of lading,
delivery bill, document of the goods, the name of
the consignee or shipper, and the invoice.
Transshipment
Q: What is the defense of transshipment?
A: That there is no intention to unload the goods.
The ship merely docked.
Misshipment
Q: What is the defense of misshipment?
A: That there is no intention to unload because
the ship was not really destined to the
Philippines but somehow it docked.
Kinds of Importation
Q: What are the kinds of importation?
A: These are:
1. Dutiable
2. Prohibited
a. Absolute
b. Qualified
3. Conditionally Free
4. Tax Exempt
1. Dutiable Importation
2. Absolute Prohibited Importation

Q: Prior to entry, is there importation?


A: If there is an intention to unlade. The mere
possession of merchandise on board a vessel in
the Philippine waters is not of itself sufficient to
amount to an importation of the same. There
must be proof of an intent to import.
(US vs. Chu Loy)

Sec. 1207 Where articles are of prohibited


importation or subject to importation only upon
conditions prescribed by law, it shall be the duty
of the Collector to exercise such jurisdiction in
respect thereto as will prevent importation or
otherwise secure compliance with all legal
requirements.

Intention to Unlade
Q: Can the consignee redeem contraband
articles?
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Tax2 Reviewer
A: No, the Supreme Court held in Paterok vs.
Bureau of Customs that the redemption of
forfeited property shall not be allowed in any
case where the importation is absolutely
prohibited or where the surrender of the property
to the person offering to redeem the same would
be contrary to law.
Q: Why is it impossible to redeem contraband
articles?
A: The use of the contraband cannot be allowed
as that would set at naught the purpose of the
law. Moreover, there is nothing in the Code that
authorizes the Collector to release the contraband
in favor of an importer. The code (Sec. 2609) is
clear that the thing may be disposed by sale
under restrictions as will insure its use for
legitimate purpose. (Paterok vs. Bureau of
Customs)
3. Qualified Prohibited Importation
Q: What is a qualified prohibited importation?
A: Sec. 1207 where articles are x x x subject to
importation only upon conditions prescribed by
law, it shall be the duty of the Collector x x x to
secure compliance with all legal requirements.
Q: What is an example of a qualified prohibited
importation?
A: Sirs example: importation of opium for
medical use is a conditional importation, but not
shabu.

Unlawful Importation
Sec. 3601 Any person who shall fraudulently
import or bring into the Philippines, or assist in
doing so, any article, contrary to law, or shall
receive, conceal, buy, sell, or in any manner
facilitate the transportation, concealment, or sale
of such article after importation, knowing the
same to have been imported contrary to law,
shall be guilty of smuggling and shall be
punished x x x.
Q: What constitutes fraud in fraudulent
importation?
A: In fraudulent importation, the fraud
contemplated by law must be actual and not
constructive fraud. It must be intentional,
consisting of deception willfully and deliberately
done or resorted to in order to induce another to
give up some right. (Transglobe vs. CA)
Q: Suppose, there was misdeclarations in the
invoice, would this be sufficient to characterize
the importation as fraudulent?
A: No, the fraud contemplated by law is actual
fraud. There must be proof of an intent to
deceive and that it is deliberately done.
The misdeclaration is not a conclusive proof of
fraud. The wrongful making or falsity could be
attributed to the foreign suppliers or shippers. If
it is not shown that the taxpayer had knowledge
of any falsity in the shipping documents, then
forfeiture would not lie.

4. Conditionally Free Importation


Classification of Duties
Q: What is a conditionally free importation?
A: The importation is free from duties because of
the purpose for which the articles were imported.
Q: What is an example of a conditionally free
importation?
A: Sirs example is the importation of dutiable
goods for mere exhibition.
5. Tax Exempt Importation
Q: Is the government exempt from paying tax
duties?
A: No. Sec. 1205 x x x all importations by the
Government for its own use or that of its
subordinate branches or instrumentalities, or
corporations, agencies or instrumentalities
owned or controlled by the government shall be
subject to the duties, taxes, fees, and other
charges provided for in this code.

Q: What are these taxes imposed on imported


materials?
A: specific or ad valorem
Q: How are duties classified?
A: Classification of Duties:
1. Ordinary or Regular
a. ad valorem
b. specific
2. Special
a. Countervailing
b. Anti-Dumping
c. Marking
d. Discriminatory
Q: What is an ad valorem duty?
A: It is a duty based on the value or price of the
goods. (Bar Ops Stenographic Notes)

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Tax2 Reviewer
Q: What is a specific duty?
A: It is a duty imposed on goods based on some
kind of measurement without any assessment on
the value of the goods. (Bar Ops Stenographic
Notes)
Q: Who imposes the Dumping and
Countervailing Duties?
A: Secretary of DTI non-agricultural products
Secretary of DA agricultural products
Q: Where may a taxpayer appeal the decision of
the Secretary of DTI or DA?
A: To the CTA.

specific subsidy upon the production,


manufacture or exportation of such product,
commodity, or article, and the importation of
such subsidized product, commodity, or article
has caused or threatens to cause material
injury to a domestic product or has materially
retarded the growth or prevents the establishment
of a domestic industry x x x issue a
countervailing duty equal to the ascertained
amount of the subsidy. (Amended by RA 8751)
Q: What goods are subject to countervailing
duty?
A: Foreign goods sold here. These goods enjoy a
subsidy from country of origin.

Dumping Duty
Sec. 301 Whenever any product, commodity,
or article of commerce imported into the
Philippines at an export price less than its
normal value in the ordinary course of trade for
the like product, commodity, or article destined
for consumption in the exporting country is
causing material injuru to a domestic
industry,
or
materially
retarding
the
establishment of a domestic industry x x x shall
cause the imposition of an anti-dumping duty
equal to the margin of dumping on such
product, commodity, or article x x x. However,
the anti-dumping duty may be less than the
margin if such lesser duty will be adequate to
remove the injury to the domestic industry. x
x x.
Q: What goods are subject to dumping duty?
A: Goods sold here at a cost lower than fair
market value or cost of production.
These goods are dumped into the country.
Q: When are goods dumped?
A: When the price of the goods is less than its
cost of production. But there must be a material
injury to the local industry.
Q: How much is the dumping duty?
A: It is equivalent to the underpricing. Or the
difference between the FMV and the actual cost
being sold here.
(Bar Ops Stenographic Notes)

Q: What is the purpose of this duty?


A: Foreign goods are subjected to this duty to
counter or upset the subsidy, to protect local
industries.
Q: Is there a need to establish injury to local
industries?
A: No. However, the subsidy must be proved.
Once the subsidy is proven, injury is already
shown because the local industry is already at a
disadvantage because of the subsidy. (Bar Ops
Stenographic Notes) The law states that the
subsidized goods threatens to cause material
injury to local industries.
Marking Duty
Sec. 303 (c) - If at the time of importation any
article is not marked in accordance with the
requirements of this section, there shall be
levied, collected and paid upon such article a
marking duty of 5 per cent ad valorem, which
shall be deemed to have accrued at the time of
importation, except when such article is exported
or destroyed under customs supervision and prior
to the final liquidation of the corresponding
entry. (RA 1937)
Q: What is a marking duty?
A: It is the duty imposed for violation of
marking requirement to protect the public
(Bar Ops Stenographic Notes)
Discriminatory Duty

Countervailing Duty
Sec. 302 Whenever any product, commodity,
or article of commerce is granted directly or
indirectly by the government in the country or
origin or exportation, any kind or form of

Sec. 304. a. The President x x x, shall by


proclamation specify and declare new or
additional duties in an amount not exceeding 50
per cent x x x of, any foreign country whenever
he shall find as a fact that such country -

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43
Tax2 Reviewer
(1)
Imposes, x x x product of the
Philippines any unreasonable charge, x x x
which is not equally enforced upon the like
articles of every foreign country; or
(2)
Discriminates in fact against the
commerce of the Philippines, x x x in such
manner as to place the commerce of the
Philippines at a disadvantage compared with the
commerce of any foreign country. x x x
Q: What goods are subject to the discriminatory
duty?
A: If a foreign country (for example, Somalia)
discriminates against our local products or local
commerce, the President may imposed a
discriminatory duty on goods coming from
Somalia.
Q: What if the foreign country still discriminates
against our local goods after the imposition of
discriminatory duties?
A: The president may totally ban the imports
from such foreign country.
Flexible Tariff Laws
Sec. 401 - The President, x x x is hereby
empowered to reduce by not more than fifty per
cent or to increase by not more than five times
the rates of import duty expressly fixed by
statute x x x when in his judgment such
modification in the rates of import duty is
necessary in the interest of national economy,
general welfare and/or national defense. (RA
1937)
Q: What is Flexible Tariff Laws?
A: Under Sec. 401 of the Customs Code.
The president may reduce or increase import or
tariff rates. But the President cannot reclassify
importation. (ex. From prohibited to dutiable
importation) This is different from the
constitutional power of the President to fix
import duties.
Basis of Dutiable Value
Sec. 201 - The dutiable value of an imported
article subject to an ad valorem rate of duty shall
be based on the transaction value or price of
same, like or similar articles, as bought and sold
or offered for sale freely in the usual wholesale
quantities in the ordinary course of trade in the
principal markets of the exporting country on the
date of exportation to the Philippines x x x.
(as amended by E.O. 71)

Q: What is the transaction value?


A: It is the amount paid by the buyer to acquire
the goods. Only goods subject to ad valorem rate
shall be taxed based on the transaction value.
Q: How do you determine transaction value?
A: Look at the invoice, bill of lading
Sec. 201 x x x The transaction value under this
section shall be trade value or price declared in
the commercial, trade or sales invoice. x x x.
Q: What if the customs official seriously doubt
the documents of the importer, what would be
the basis?
A: Sec. 201 x x x Where there exists a
reasonable doubt as to the value or price of the
imported article declared in the entry, the correct
dutiable value of the article shall be ascertained
by the Commissioner of Customs x x x.
When the dutiable value provided for in the
preceding paragraphs can not be ascertained for
failure of the importer to produce the documents
mentioned in the second paragraph, or where
there exists a reasonable doubt as to the dutiable
value of the imported article declared in the
entry, it shall be the domestic wholesale selling
price x x x.
Q: Would it be correct to say that the
Commissioner of Customs may adopt any
method to arrive at the basis?
A: Yes, in the end of the day, the Commissioner
may adopt any method, unlike the BIR.
REMEDIES OF THE GOVRENMENT
1. Tax Lien
Q: Suppose that the importer and the BC agreed
at a transactional value. It was paid. The goods
were released out of customs territory. A buyer
bought it. Later, BC discovered that there were
unpaid taxes. Can the customs get it back?
A: No. Tax lien attached only when goods are in
custody or subject to the control of the
government.
The remedy of the government is not the tax lien
but to go after the importer to collect the unpaid
taxes. These unpaid taxes constitute a personal
debt.
Sec. 1204 x x x, the liability for duties x x x
attaching on importation constitutes a personal
debt due from the importer to the government

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Tax2 Reviewer
which can be discharged only by payment in full
of all duties x x x legally accruing. It also
constitutes a lien upon the articles imported
which may be enforced while such articles are
in custody or subject to the control of the
government.

A: The Customs Commissioner can compromise


in certain seizure and forfeiture cases except
when the case involves prohibited importation,
importation attended by fraud, and when the
release of the goods will be contrary to law.
There is also no compromise in criminal cases.

Q: What if the goods are imported fraudulently,


what is the governments remedy?
A: Enforcement of tax lien applies only to lawful
importation. Tax lien does not apply to
fraudulent or contraband importation. Seizure
and forfeiture are the proper remedies.

3. Compulsory Acquisition

Q: How do you enforce the tax lien?


A: BC can only enforce the tax lien while it is
still within customs jurisdiction. The goods may
be sold to satisfy the unpaid customs duties. The
tax lien represents the customs liability of the
taxpayer. (Bar Ops Stenographic Notes)
Q: Is this tax lien similar to the tax lien enforced
under the NIRC?
A: No, The tax lien under the NIRC attaches to
all properties of the taxpayer, while the tax lien
enforced by the BC attaches to the imported
articles only. (Bar Ops Stenographic Notes)

Sec. 2317 par (a) In order to protect


government revenues against the undervaluation
of goods subject to ad valorem duty, the
Commissioner of Customs may acquire imported
goods under question for a price equal to their
declared customs value plus by duties already
paid on the goods, payment for which shall be
made within 10 working days from issuance of a
warrant signed by the Commissioner of Customs
for the acquisition of such goods.
Q: When may the government resort to the
remedy of compulsory acquisition?
A: When there is undervaluation of goods
subject to ad valorem duty.
Sec. 2317 par (a) x x x undervaluation of
goods subject to ad valorem duty
Q: On what basis are the goods acquired?
A: for a price equal to their declared customs
value plus by duties already paid on the goods

Prescriptive Period
Q: What if the imported goods are not prohibited
articles or not imported fraudulently, and that
there was a deficiency importation in 2001,
however, it was discovered after more than 3
years. Can the government collect?
A: No. Sec. 1603 When x x x final adjustment
of duties made, with subsequent delivery, such x
x x settlements of duties will, after the
expiration of 3 years from the date of payment
of duties, in the absence of fraud or protest x x x
be final and conclusive upon all parties x x x.
2. Compromise
Sec. 2316 Subject to the approval of the
Secretary of Finance, the Commissioner of
Customs may compromise any case arising
under this Code or other laws or part of laws
enforced by the Bureau of Customs involving the
imposition of fines, surcharges, and forfeitures
unless otherwise specified by law.
Q: What is the remedy of compromise and when
is it available?

Q: What is the remedy of the taxpayer?


A: Sec. 2317 par (b) An importer who is
dissatisfied with a decision of the Commissioner
x x x may within 20 working days after the date
on which the notice of the decision is given,
appeal to the Secretary of Finance, and thereafter
if still dissatisfied, to the CTA x x x.
4. Hold Delivery of Goods
Sec. 1508 Whenever any importer, except the
government, has an outstanding and demandable
account with the Bureau of Customs, the
Collector shall hold the delivery of any article
imported or consigned to such importer unless
subsequently authorized by the Commissioner of
Customs, and upon notice as in seizure cases, he
may sell such importation or any portion thereof
to cover the outstanding account of such
importer; Provided, however, That at any time
prior to the sale, the delinquent importer may
settle his obligations with the Bureau of
Customs, in which case the aforesaid articles
may be delivered upon payment of the

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45
Tax2 Reviewer
corresponding duties and taxes and compliance
with all other legal requirements.
Q: When can the Bureau of Customs hold the
delivery and release of shipments of the
importer?
A: If there is still an outstanding customs
liability of the importer. Incoming shipments will
be held, delivery will be withheld and those
shipments may even be sold after notice to the
importer for purposes of satisfying an
outstanding customs liability.
5. Criminal Action
Q: Does the BC have the power to collect by
criminal action?
A: The Commissioner can authorize collection
be criminal action.
Sec. 2401 x x x criminal actions and
proceedings instituted in behalf of the
government under the authority of this Code x x
x but no criminal action for the recovery of
duties x x x shall be filed in court without the
approval of the Commissioner.
Sir said that the criminal action filed under Sec.
2401 is different from smuggling. This provision
talks of violations of the customs law.
Sir said that criminal actions filed under the
Tariffs and Customs Code does not have any
prescriptive period.
6. Search and Seizure

From the commissioner, they can appeal to the


CTA, CA, and to the SC.
(Bar Ops Stenographic Notes)
Q: Can the BC argued that the importers failure
to attend forfeiture proceedings could be
interpreted as badges of fraud (or that there is a
fraudulent importation)?
A: No, forfeiture of seized goods in the Bureau
of Customs is a proceeding against the goods and
not against the owner. It is in the nature of a
proceeding in rem directed against the res or
imported articles x x x. In this proceeding, it is in
legal contemplation the property itself which
commits the violation and is treated as the
offender, without reference whatsoever to the
character or conduct of the owner. (Transglobe
vs. CA)
Q: Can customs authorities board a foreign
vessel in the high seas upon information that
such vessel contains contraband goods?
A: No, as a general rule. Exception: Asaali case.
The state has the power to secure itself against
threats to its national security. It has the power to
protect even its revenues. This power is not
limited to its own territory but extending to the
high seas.
Q: The vessels involved in the Asaali case were
registered in this country and heading towards
Mindanao. What if the vessel involved was a
foreign one, can the BC officials board on it?
A: Yes, seizure would still be valid because of
the states right to protect itself. But in practice,
customs officials would be hesitant to do so.

Q: What is the nature of the seizure proceedings?


A: It is a civil proceeding. Which means there is
no conviction. It is in rem against the res. A
forfeiture penalty is a civil penalty. Once
forfeited, that is the end of customs liability
because forfeiture is the maximum penalty. The
offender is the property itself and not the person.
(Bar Ops Stenographic Notes)

Q: Can the Philippine vessel or aircraft traveling


within the Philippine territory subject to seizure?
A: Yes. In Llamado, the Supreme Court held that
it is not essential that the vessel or aircraft must
come from a foreign country. It held that when
the vessel or aircraft is used to insure the success
of the smuggling operation, it could be forfeited.

Q: What is the procedure in seizure proceedings?


A: The procedure is first, customs issues a
warrant of seizure and detention (WSD). After
the WSD is issued, notice is sent to the importer,
and then a hearing is conducted. After the
hearing, the collector gives a decision, in most
cases, a forfeiture penalty. From a decision of
forfeiture, a taxpayer can appeal the decision of
the collector of customs to the commissioner
within 15 days from the receipt of the decision.

Q: What are the requisites for the forfeiture of


fraudulently-imported goods?
A: these are:
1. the wrongful making by the owner,
importer, exporter, or consignee of any
declaration or affidavit, or the wrongful
making or delivery by the same person
of any invoice, letter, or paper all
touching on the importation or
exportation of merchandise

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Tax2 Reviewer
2.

the falsity of such declaration, affidavit,


invoice, letter, or paper
3. an intention on the part of the
importer/consignee to evade the
payment of the duties due.
(Republic vs. CTA, AGFHA)
Q: Supposing the goods were seized, can the
government ran after the importer?
A: No longer because forfeiture is the highest
penalty. The action is against the goods and not
the owner, but the criminal charges can be had.
Q: Is it proper to effect seizure and forfeiture
after the sale at public auction if the forfeited
articles are found in the possession of a third
party?
A: Yes, if the goods were found in the possession
of a third party, this means that the articles were
removed contrary to law from any public or
private warehouse under customs custody. Even
if the government has already been paid by
virtue of the public auction, it can still effect
forfeiture if the goods were removed contrary to
law. The forfeiture of the subject machineries,
however, is not dependent on whether or not
the importation was terminated; rather it is
premised on the illegal withdrawal of goods
from Customs custody. (Carrara Marble vs.
Commissioner)
Sec. 2530 Any xxx cargo xxx shall be subject
to forfeiture xxx (e) any article which is
fraudulently concealed or removed contrary to
law from any public or private warehouse, xxx
under customs supervision.
Regardless of the termination of importation, if
the goods were removed contrary to law, it still
belongs to the government. This is so because
forfeiture takes effect immediately upon the
commission of the offense. The forfeiture of the
subject machineries, therefore, retroacted to the
date they were illegally withdrawn from
Customs custody. (Carrara)
Burden of Proof
Q: Who has the burden of proof?
A: Sec. 2535 In all proceedings taken for the
seizure and/or forfeiture of any vessel, vehicle, x
x x, the burden of proof shall lie upon the
claimant: Provided, that probable cause shall
first shown for the institution of such
proceedings and that seizure and/or forfeiture

was made under the circumstances and in the


manner described x x x.
Q: In the prosecution of illegal importation, is it
necessary that the State presents the goods
before the court in order to prove illegal
importation?
A: No, even a single witness uncorroborated
testimony, if credible, may suffice to prove it,
there is no need to present the goods. (Rimorin
vs. People) The fact of the commission of the
crime may be established by the testimonies of
the witnesses.
Q: Supposing that the defendant was shown to
have possessed the illegally imported goods,
does the government has the burden that it was
imported illegally?
A: No, if the defendant is shown to have had
possession of the illegally imported merchandise,
without satisfactory explanation, such possession
shall be deemed sufficient to authorize
conviction. (Rimorin vs. People)
Sec. 3601 par (3) When upon trial for violation
of this section, the defendant is shown to have
had possession of the article in question,
possession shall be deemed sufficient evidence
to authorize conviction unless the defendant shall
explain the possession to the satisfaction of the
court x x x.
DEFENSES AVAILABLE
a. Commercial Quantity
Q: What is the commercial quantity
requirement?
A: Sec. 2530 (a) any vehicle x x x including
cargo, which shall be used unlawfully in the
importation of x x x contraband or smuggled
articles in commercial quantities x x x. The
mere carrying or holding on board of contraband
or smuggled articles in commercial quantities
shall subject such vehicle x x x to forfeiture.
Q: Suppose that PAL came from HK with HK
residents. When PAL disembarked, the HK
residents were apprehended by the BC because
they possess highly dutiable items. Will the
articles be forfeited?
A: No, because there is no importation in
commercial quantities.
b. Domestic Carrier

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Q: Same question, but would the aircraft be
subject to forfeiture?
A: No, because it is a common carrier.
Sec 2530 Any vehicle x x x shall x x x be
subject to forfeiture:
(a) Any vehicle x x x Provided, that the vessel,
or aircraft or any other craft is not used as duly
authorized common carrier x x x.
Q: Suppose a family rode a chartered aircraft
with contraband articles in commercial
quantities. Can the aircraft be forfeited?
A: Yes. Sec 2530 Any vehicle x x x shall x x x
be subject to forfeiture:
(a) Any vehicle x x x Provided, that the vessel,
or aircraft or any other craft is not used as duly
authorized common carrier and as such a carrier
it is not chartered or leased;
c. Knowledge of the Owner
Q: Is the knowledge of the vessel owner a
defense in forfeiture proceedings?
A: Generally, it is not a defense in forfeiture
proceedings because forfeiture proceedings are
directed against the property and not the owner.
Q: If the knowledge of the owner is not a
defense, why does Sec. 2531 states that the
forfeiture of the vehicle x x x shall not be
effected if it is established that the owner x x x
has no knowledge of or participation in the
unlawful act x x x?
A: If you have unlawful importation, it simply
means it will be subject to forfeiture
proceedings. The fact that the vessel owner has
no knowledge of the unlawful importation will
not take it out of the forfeiture proceedings.
Now, whether or not forfeiture as a penalty will
be imposed, it depends on the knowledge or nonknowledge of the owner. If there is no
knowledge, under Sec. 2531, forfeiture penalty
may not be imposed. But whether the vessel will
be subject to forfeiture proceedings, yes.
Whether the penalty will be imposed depends on
the knowledge.
(Bar Ops Stenographic Notes)
Q: Despite the allegation of lack of knowledge,
is it still possible to cause the forfeiture of the
vessel?
A: Yes. Sec. 2531 x x x, Provided, however,
That a prima facie presumption shall exist
against the vessel x x x:

1. If the conveyance has been used for


smuggling at least twice before
2. If the owner is not in the business for which
the conveyance is generally used.
3. If the owner is not financially in position to
own such conveyance.
Q: What are other the defenses available to the
importer?
A: He may allege that there is no intention to
unload, and that the items are mere personal
effects.
Jurisdiction in Seizure and Forfeiture
Q: Is there a necessity for the issuance of the
warrant of seizure and detention (WSD) before
the bureau of customs can exercise its exclusive
jurisdiction?
A: Yes, if the goods are outside the customs
zone. But, if the goods are already in possession
of the customs authority, WSD is not necessary.
Q: Are WSD like search warrants?
A: No, because in customs search, the goods
may be seized even without a WSD. (Chia case)
In Pacis vs Pamaran, the Court held that the
Collector cannot be found liable for usurpation
of judicial functions in issuing the WSD
notwithstanding the constitutional mandate that
only a judge may issue a search warrant because
Customs officials may conduct the search even
without any warrant.
Q: What is the purpose of a warrantless search if
they would have to wait for WSD?
A: Warrantless search simply talks of search.
WSD is important because it initializes the
seizure proceeding. In warrantless searches, it is
merely an administrative remedy, but without the
WSD there can be no seizure proceedings.
Q: When does the exclusive jurisdiction of BC
over seized and forfeited articles attach?
A: The issuance of the warrant of seizure and
detention initializes the seizure proceedings. If
the goods are already in the Customs custody, the
exclusive jurisdiction attached.
Q: Can the judicial courts take cognizance of
cases pending with the BC?
A: No. There is no question that RTCs are
devoid of any competence to pass upon the
validity or regularity of seizure and forfeiture
proceedings conducted by the Bureau of
Customs and to enjoin or otherwise interfere

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Tax2 Reviewer
with there proceedings. The Collector of
Customs sitting in seizure and forfeiture
proceedings has exclusive jurisdiction to hear
and determine all questions touching on the
seizure and forfeiture of dutiable goods. The
RTCs are precluded from assuming cognizance
over such matters even through petitions of
certiorari, prohibition, or mandamus. (Bureau of
Customs vs. Ogario)

proceedings and that the regular courts cannot


interfere with nor deprive him of such
jurisdiction. However, the exclusive original
jurisdiction of the Collector pertains only to such
goods seized pursuant to the authority under the
Customs Code. (Tenorio vs. CA)
REMEDIES OF THE TAXPAYER
1. Protest

Q: Can the RTC exercise jurisdiction if the WSD


is illegal?
A: No. Even if it be assumed that in the exercise
of such exclusive competence a taint of illegality
may be correctly imputed, the most that can be
said is that under the circumstances the grave
abuse of discretion conferred may oust it of such
jurisdiction. It does not mean however that
correspondingly the RTC is vested with
competence whe clearly x x x the law has not
seen fit to do so. x x x An appeal lies to the
commissioner of customs and thereafter to the
CTA. (Mison vs. Natividad)
Q: Suppose the goods were under custodia legis
by virtue of a RTC proceeding. Subsequently,
seizure proceedings were instituted with the BC.
Whether the RTC or the BC would have custody
over the goods?
A: BC. Because, the seizure proceedings are
against the goods and not the individual.
Q: What if the goods were earlier seized by a
warrant issued by the RTC, may the BC seized
this goods pursuant to a WSD?
A: Yes. When the goods have been brought
under the legal control of the RTC, this fact
serves to deprive any other court or tribunal,
except one having supervisory control or
superior jurisdiction x x x. The Collector is not
precluded by law or legal principle from
assuming jurisdiction over the goods.
(Commissioner of Customs vs. Makasiar)
Q: Supposing an officer applied for a search
warrant to search and seize the smuggled
articles, but instead of bringing the seized goods
to the court, the officer turned it over to the BC.
Is it proper for the officer who secured and
executed the search warrant to turn it over to the
BC?
A: No. When the officers secured the warrant,
they are aware that they have the duty to turn
over the goods to the court. Indisputably, the
Collector of Customs has exclusive original
jurisdiction over seizure and detention

Sec. 2308 When a ruling or decision of the


Collector is made whereby liability for duties x x
x are determined x x x the party adversely
affected may protest such ruling or decision by
presenting to the Collector at the time when
payment of the amount claimed to be due to the
government is made or within 15 days thereafter,
a written protest setting forth his objection to the
ruling or decision in question, together with the
reasons therefore. No protest shall be considered
unless payment of the amount due after final
liquidation has fist been made and the
corresponding docket fee x x x.
Q: What is protested here?
A: the assessment or the imposition of taxes.
Q: When can the taxpayer protest?
A: within 15 days from the payment of taxes
due.
Q: Suppose a taxpayer was made to pay on the
account of imported prohibited articles. Can he
made a protest thereafter?
A: No, protest is not available in probihited
importation.
Q: Suppose a taxpayer paid duties, but he later
protested, would the protest prosper?
A: Yes, if it is a regular or dutiable importation.
Q: X came from Bangkok with several sacks of
RTW. He was assessed P100K. X paid. 30 days
after, X questioned the imposition to the
Commissioner. The Commissioner issued an
order requiring the Collector to explain the
assessment. Is the order proper?
A: No, In this case there is no protest, so there
can be no appeal to the Commissioner.
Moreover, X questioned the assessment beyond
the period to appeal. Failure to protest renders
the imposition final.

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49
Tax2 Reviewer
Sec. 2309 x x x shall make a protest, otherwise
the action of the Collector shall be final and
conclusive against him x x x.
Q: What if the Collector ruled that the importer
should pay an amount lower than the assessment,
what results?
A: Sec. 2313 par (b) If in any seizure
proceedings, the Collector renders a decision
adverse to the Government, such decision shall
be automatically reviewed by the Commissioner
and the records of the case elevated within 5
days from the promulgation of the decision of
the Collector x x x
Q: Supposing that the Collector made a decision
adverse to the government, but the
Commissioner did not make any action, what
would happen to the decision?
A: Sec. 2313 par (b) x x x However, if the
Collectors decision is affirmed, or if within 30
days from receipt of the record of the case no
decision is rendered x x x such decision shall be
deemed automatically appealed to the Secretary
of Finance x x x.
Q: What if the Commissioner reverses the
decision of the Collector that was adverse to the
government, what may the importer do?
A: He may appeal the Commissioners decision
to the CTA.
Q: What if the Commissioner made a decision
adverse to the taxpayer and the taxpayer
appealed to the Secretary of Finance, will the
taxpayers appeal prosper?
A: No, because decisions of the Commissioner
of Customs must be appealed to the Court of Tax
Appeals.
2. Bond
Sec. 2301 Upon making any seizure x x x; and
if the owner or importer desires to secure the
release of the property for legitimate use, the
Collector shall x x x surrender it upon filing of a
cash bond, in an amount to be fixed by him,
conditioned upon the payment of the appraised
value of the article x x x.

3. Refund
Q: What are the grounds for refund?
A: The grounds are:
1. Missing Package when any package
or packages appearing on the manifest
or bill of lading are missing x x x
(Sec. 1702)
2. Deficiency in Contents of Package If,
upon opening any package, a deficiency
or absence of any article x x x as called
for by the invoice shall be found to exist
x x x. (Sec. 1703)
3. Injury, destruction, loss of irrevocable
domestic letter of credit, bank
guarantee, bond, while x x x:
a. Within limits of port of entry
b. Remaining in customs custody
c. In transit with formal entry x x
x
d. Released for export, except
theft (Sec. 1704)
4. Refund of Excess Payments (Sec. 1707)
Q: What is the procedure for filing a refund?
A: Sec. 1708 All claims for refund of duties
shall be in writing and forwarded to the
Collector x x x.
Q: X imported RTW. He paid custom duties on
January 15. Upon examining the sacks, the
quantity is much less than what is stated in the
invoice. On February 15, X filed a claim for
refund. The collector dismissed his action based
on prescription. Did the action for refund
prescribed?
A: Yes. The procedure is the same as in protest.
It must be filed within 15 days from payment.
x x x in all cases subject to protest, the claim for
refund of customs duties may be enforced only
when the interested party claiming refund fails to
file a written protest before the Collector of
Customs. This written protest must x x x be
made either at the time when payment of the
amount claimed to be due the government is
made or within 15 days thereafter x x x.
(Nestle vs. CA)
4. Settlement and Redemption

Q: What would be the remedy of the taxpayer


when the goods are in the custody of BC pending
the forfeiture case against it?
A: The goods can be released by filing a bond,
but the release should be for a legitimate use.

Q: Whether the taxpayer has a remedy pending


seizure proceedings?
A: Yes, the remedy of settlement.
Sec. 2307 x x x, the district collector may,
while the case is pending x x x accept the

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50
Tax2 Reviewer
settlement of any seizure case provided that the
owner x x x shall offer to pay to the collector a
fine imposed by him upon the property x x x.

1.
2.

Q: Whether the taxpayer may redeem the


forfeited property?
A: Yes. Sec. 2307 x x x in case of forfeiture,
the owner x x x shall offer to pay for the
domestic market value of the seized article x x x.
Q: What are the exceptions to the remedy of
settlement and redemption?
A: These are:
1. fraudulent importation: Sec. 2307 par (a) x x
x except when there is fraud.
2. prohibited importation Sec 2307 par (c)
3. release of property would be contrary to law
Sec 2307 par (c)
5. Abandonment
Q: What is the remedy of abandonment?
A:
Q: Is abandonment a remedy of the importer or
the government?
A:
Q: Why would the taxpayer resort to
abandonment?
A: When the burden of the taxpayer is greater. If
the taxpayer feels that he is being pressed for
certain liabilities, all he has to do is to abandon
the goods. The abandonment will relieve of any
customs liability.
Q: Would abandonment extinguish criminal
liability?
A: No. Sec. 1802 par (b) Nothing in this
section shall be construed as relieving the owner
or importer from any criminal liability which
may arise from any violation of law committed
in connection with the importation of the
abandoned article.
Q: Differentiate abandonment from forfeiture
and seizure?
A:
Q: How can an importer abandon the goods?
A: Sec. 1801 An imported article is deemed
abandoned under any of the following
circumstances:

3.

When the owner x x x of the imported


article expressly signifies in writing to
the Collector his intention to abandon
When the owner x x x after due notice,
fails to file an entry within 30 days
which shall not be extendible from the
date of discharge of the last package
from the vessel or the aircraft
or having filed such entry, fails to
claim his importation within 15 days
which shall not be extendible, from the
date of posting of the notice to claim
such importation

Q: What is the effect of abandonment?


A: Sec. 1801 par (b) Any person who abandons
an article or who fails to claim his importation x
x x shall be deemed to have renounced all his
interests and property rights therein.
Sec. 1802 An abandoned article shall ipso facto
be deemed the property of the Government x x x.
Q: Does the ownership of the government over
the abandoned articles mean that the taxpayer
can no longer question the propriety of
abandonment upon declaration of abandonment?
A: No, the taxpayer could appeal. Even if it is
deemed property of the government, there must
be a decree or declaration to that effect that can
be appealed.
Q: Can the taxpayer redeem the abandoned
goods?
A:
Q: Suppose goods were misshipped. Upon
reaching the port, the BC declared these goods
abandoned. The owner-importer appeared. The
collector allowed payment of duties and taxes.
Did the collector erred in allowing payment of
duties when such goods are abandoned in favor
of the government?
A: In the case of transshipment or misshipment,
there is no importation because there is no
intention to unload. Abandonment presupposes
importation.
Q: Supposing the importer stored the imported
goods
with
the
warehouseman,
the
warehouseman insured the goods with the
insurer. The consignee failed to file the import
return and to claim the goods. BIR issued a
declaration that the goods are abandoned in favor
of the government. Subsequently, the goods were
destroyed by fire. Can the consignee claim the
insurance proceeds?

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Tax2 Reviewer
A: No.

A: Tariff commission is a body having


investigative and administration functions.

4. Judicial Remedies
Q: What are the judicial remedies of the
taxpayer?
A: appeal to the CTA.
Q: Can the taxpayer have judicial remedies
without going to the administrative remedies?
A: No. Judicial remedies are always tied to
administrative remedy.

Sec. 502 x x x to investigate the administration


of and the fiscal and industrial effects of the
tariff and customs laws of this country now in
force or which may hereafter be enacted x x x.
Q: Can this body impose penalties pursuant to
findings on their investigation?
A: No, this is mainly a policy making body and
can only make recommendations for further
action by the President.

Taxpayer of Customs Duties


Q: Can the importer be held liable even if he no
longer have dominion over the property, or even
if the property have already been transferred?
A: Yes. As between the importer and the buyer, it
is the importer who has the obligation to pay
taxes to the BIR and the BC. The importer would
be unjustly enriched if the buyer should pay the
tax and denied reimbursement by the importer.
Imposing the tax burden on the buyer would only
encourage the proliferation of smugglers who
scheme to evade taxes by passing on their tax
obligations to their unsuspecting buyers.
(Harrison Motors Corporation vs. Navarro)

LOCAL GOVERNMENT TAXATION


GENERAL PRINCIPLES:
The entities involved here are the local
government units (LGUs), specifically
the provinces, cities, municipalities, and
the barangay.
This taxing power is merely delegated
by Congress to LGUs. The reason for
this grant is that the LGUs have no
inherent power to tax.
This taxing power is legislative in
character.
This means that it is
exercised by the LGUs through their
respective Sanggunian by an enactment
of an ordinance.
The enactment of tax ordinances and
revenue measures requires public
hearings to be first conducted.
The new Constitution grants LGUs the
authority to create their own sources of
revenues,
which
shall
accrue
exclusively to them. See Sec 5, Art 10.
The tax powers of LGUs are to be
liberally construed but a doubt on the
application of a tax ordinance shall be
construed strictly against the LGU. The
exceptions to this are tax exceptions,
incentive or relief, which shall be
construed strictly against the grantee.

CTA Jurisdiction in Customs Cases


Q: What is the jurisdiction of the CTA in
customs cases?
A: In Sec. 7 of RA 9282, CTA has exclusive
appellate jurisdiction to
1. Decisions of the Commissioner of
Customs x x x
2. Decisions of the Secretary of Finance
on customs cases elevated to him
automatically for review from decisions
of the Commissioner which are adverse
to the Government under Sec. 2315 of
Customs Code
3. Decisions of Sec of DTI
4. Decisions of Sec of DA
Q: What are the other cases that fall under the
exclusive appellate jurisdiction of the CTA in
customs cases?
A: countervailing duty, dumping duty, refund,
abandonment.
Tariff Commission
Q: What is the Tariff Commission?

II. FUNDAMENTAL PRINCIPLES


1.

Taxation shall be uniform in each LGU.


This means that all taxable articles or
kinds of property of the same class shall
be taxed at the same rate within the
territorial jurisdiction of the taxing
authority or LGU.

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Tax2 Reviewer
Q: Municipality A imposes a tax on a business
but the same business is exempted by
Municipality B. Is the tax levied by A valid?
A: YES, because uniformity is required only
within the geographical limits of the taxing
authority. The LGC provides in each LGU,
meaning it levies for its own purposes within its
jurisdiction, regardless of other LGUs. As long
as its uniform within the jurisdiction of the
taxing LGU then its valid.
2.

Taxes, fees, charges & other impositions


shall:
a. Equitable based on ability to pay
This is the same principle with
national taxation.
Note however that LGC covers
taxes, fees (i.e., parking fees,
garbage fees), charges, & other
impositions.
SIR: Apply the same rate
REGARDLESS (meaning: without
any standard)
b.

c.

Only for Public Purpose


Proceeds of taxation are used to
support the existence of the LGU or
the pursuit of its governmental
objectives.
The LGU taxes for its own benefit
and therefore can determine its own
public purpose.
Not unjust, excessive, oppressive or
confiscatory

Q: A tax rate is contested to be unjust &


excessive. What must the Court establish to
arrive at such a conclusion that said tax is
really unjust, excessive?
A: the Court must look at the circumstances
of the case because of the presumption of
reasonableness in favor of the LGU. Also,
the LGUs are given a wide latitude in fixing
the tax rates. Thus, absence any showing
that its unjust, excessive, the Court would
be slow in writing off an ordinance. See
Jagna case
d.

Not contrary to law, public policy,


national economic policy or in restraint
of trade

3.

The collection of local taxes, fees, charges,


& other impositions shall in no case be let
to any private person.
The collection cannot be assigned even
to a NGO. It must be collected by the
LGU itself.

Q: An ordinance is passed authorizing a NGO


(Org of Street Sweepers) to manage the funds
collected from garbage and sanitation fees.
Valid?
A: NO, because LGC also provides that revenue
collected shall be subject to the disposition by
the LGU levying the same.
4.

The revenue collected shall inure solely to


the benefit of and subject to disposition of
the LGU levying the local taxes, fees,
charges, & other impositions.
The LGU taxes for its own benefit and
therefore revenues collected would only
be shared when it is expressly provided
in the Code.
It is valid as long as the sharing is
between or among LGUs and would not
involve sharing it with the National
Government.

Q: Congress passes a law that amusement taxes


imposed by LGUs would be shared with
PAGCOR. Valid?
A: NO because this is against the Consti
provision that tax proceeds accrue exclusively to
the LGU concerned.
5.

Each LGU shall evolve a progressive system


of taxation.
MEANING: more income, more taxes
This is manifested in local government
taxation through business taxes.
NOTE: Sir thinks this is not really a
progressive tax since its based on a
previous year plus the fact that there is a
fixed annual rate.
Therefore, no
element of progressivity.

III. COMMON LIMITATIONS


This refers to taxes that an LGU cannot
impose.
LGUs cannot impose income taxes.
The code, however, provides an
exception as to banks and other
financial institutions. Sir believes that
this is really not an exception but rather

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Tax2 Reviewer
this refers to the tax on the gross
receipts of such institutions.
Q: City of Batangas passes an ordinance which
imposes a P5 tax on every balisong shipped out
and to be sold in Manila. Valid?
A: NO because the balisong is carried out and
therefore within the passing through limitation in
the Code.
Q: What if the next town enacted an ordinance
which imposes a P5 tax on every balisong
coming from Batangas City to be sold in Manila.
Valid?
A:
NO still within the passing through
limitation in the Code.
Q: What if tax imposed on the vehicle for using
the bridge connecting the 2 cities. Valid?
A: Depends. Have to look at the circumstances
of the case. If its a tax on the vehicle, then it
would be valid since it could be considered
under toll fees or charges (S155, LGC)
Remember that S155 refers to the vehicles itself
and not to the goods it carries. BUT if the tax is
on the vehicle for passing through the bridge,
then it would not be valid because its actually a
tax on the goods and therefore covered by the
passing through limitation.
Note that the
common limitations on passing through refers to
the goods itself.
Q: The business of X is subject to VAT. Can the
province impose a tax upon said business?
A: YES because the province can impose a
business tax on all businesses that are subject to
VAT or are VATABLE. However, the province
may not impose VAT on said business.
Q: Are industries certified by the BOI exempt
from paying sanitation fees and other similar
fees?
A: NO because they are only exempt from
paying taxes.
Q: What about cooperatives?
A: Cooperatives are exempt from paying taxes,
fees, or charges (pecuniary liabilities)
Sec of Finance says it should not cover
fees for services rendered and for
rentals of properties used for business.
BUT Sir disagrees with this since the
exemption is expressly provided for by
the Code.

Q: Can LGU impose tax on business of export?


A: YES but only on the business of export itself
and not on the products exported.
Q: X Inc engaged in the importation of copra. It
stored the copra in a warehouse. Can the copra
be subject to tax?
A: YES because it is still stored in the
warehouse and not actually exported. It may
happen that the said copra is only sold locally.
NOTE that the limitation applies only to goods
actually exported.
RE National Government (NG),
instrumentalities limitation: This only
applies in the absence of a specific
provision in the LGC authorizing the
LGU to impose a tax on the said
instrumentalities/agencies
of
the
national government. See Napocor v
Cabanatuan case
An exemption in this limitation is Sec
137, which authorizes provinces (as
well as cities by virtue of Sec 151) to
levy franchise tax notwithstanding any
exemption granted by law or other
special law.
IV. SPECIFIC TAX POWERS
Q: What the municipalities can impose (re
taxes), the province may not is this accurate?
A: The enumeration refer to those that cannot be
levied by the municipalities. The municipalities
cannot impose those levied by provinces.
Q: Can the province levy business tax?
A: YES, on the business of publication and
printing, on those enjoying a franchise, and a tax
on delivery vans among others.
Q: What is the coverage of the amusement tax?
A: it is collected from proprietors, lessees, or
operators of theaters, cinemas, concert halls,
circuses etc.
Q: What is not covered by the amusement tax?
A: It does not cover operas, concerts, dramas,
recitals, painting & art exhibitions, flower
shows, musical programs, and literary and
oratorical presentations.
The exception to the exception are pop, rock
or similar concerts.
Q: How is the amusement tax imposed?

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Tax2 Reviewer
A: It is based on the admission fees only. Sec
140, LGC provides at a rate of not more than
30% of the gross receipts from admission fees.
NOTE that in the NIRC, the amusement tax
levied by the NG is based on gross receipts.
Q: Can a province impose professional tax?
A: YES, the province may impose the same on
all those professions requiring government
examination. NOTE that in municipalities, the
Code talks of occupation (meaning:
no
government examination required) and not of
profession.
Q: What if a lawyer practices pro-bono, is he
subject to prof tax?
A: YES because the tax is based on the privilege
of practicing the legal profession.
Q: What if a lawyer only had a single case for
an entire year. Subject to prof tax?
A: NO because it may be argued that the Code
says regular practice.
Q: What makes up the bulk of a municipalitys
revenues?
A: Business taxes. This is since their power to
levy such tax covers almost all economic
activities from building of ships to beauty
parlors.
Q: X owns a compound and within the
compound, theres a beauty parlor, a barber shop,
a funeral parlor, and other shops. All of which
were owned by X. What is the business tax
treatment?
A: if its SAME person, SAME place but DIFF
businesses = segregate or separate the taxes on
each of the businesses. Treat each business
separately or differently.
Q: What if X owns a laundry business but it has
branches in different municipalities?
A: If SAME person, SAME business but DIFF
places = taxpayer must consolidate all the gross
receipts of each branch/business. Treat all the
branches as one business.
Q: X has a repair shop and within it there is a
spare parts store for automobiles to be repaired
by the repair shop. Would the spare parts store
be subject to a different tax than that of the repair
shop?
A: Depends. If the spare parts store is incidental
to the repair shop business, then it would not be
subject to a different tax. BUT if the spare parts

store sells to the public, then its an independent


business and therefore it can be made subject to
a different tax. See Opon case.
Q: What is the taxing power of the City?
A: The City has the broadest taxing power
among the LGUs. This is since the City has the
power to impose those taxes levied by both the
province and the municipality.
Q: What is the taxing power of the barangay?
A: The barangay has the least taxing power
among the LGUs. The general tax powers under
Sec 186 of the Code have not been withheld
from them.
V. TAX SITUS
If there is a branch/sales office: tax
situs is where the sale was effected.
If
there
be
none:
[SALES
APPORTIONEMENT RULE]
o Sale shall be recorded in the
principal office (30%) and where
the factory is located (70%).
o If the plantation and the factory are
located in different places then the
70% would be divided as follows:
60% allocated to the LGU where
the factory is situated and 40%
where the plantation is located.
o See Sec 150, LGC (very impt!)
Q: X business has principal office in Pasig City.
The following are its sales for 1 year:
Pasig = no sales
QC (w/ branch) = P1M
Manila (w/o branch) = P2M
Caloocan (w/o branch) = P3M
Makati (consignment/ delivery to SM)
= 4M
TOTAL SALES = P10M
What is the tax situs?
A: Remember the rules above. The P1M sale
shall be recorded in QC. While the rest of the
P9M sale shall be recorded in Pasig. NOTE: IF
ever the business maintains an outlet in SM, then
it could also be considered as store outlets and
therefore said sales may be recorded there.
Q: What if said business had a factory in
Valenzuela?
A: Then apply the Sales Apportionment Rule
wherein the sales would be split 30%

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55
Tax2 Reviewer
recorded in Pasig and the 70% recorded in
Valenzuela.
VI. COMMON REVENUE-RAISING
POWERS
This refers to service fees/charges,
public utility charges, and toll
fees/charges.
LGUs can levy taxes, fees, or charges
on any base or subject not otherwise
specifically enumerated. Provided:
o The tax measure is not violative of
any of the fundamental principles.
o The tax is not among those
explicitly prohibited by the Code.
o A prior public hearing conducted.
A specific enumeration of tax powers to
a LGU should be understood to be to
the exclusion of the other LGUs.
Exception here is the city.
No LGU may impose taxes which are
already imposed under the NIRC.
VII.CIVIL REMEDIES FOR COLLECTION
The non-payment of the tax liability on
the due date subjects the taxpayer to
corresponding surcharges and interest.
All local taxes shall be collected by the
local treasurer or his duly authorized
deputies.
A tax lien is created on any unpaid tax,
fee or charge. It attaches automatically
to the thing. It is superior to all other
liens, charges or encumbrances in favor
of any person. It is extinguished only
upon full payment of the delinquent tax,
fee, or charge plus the surcharges or
interest.
o It is generally directed against the
property subject to the tax
regardless of the owner. Whereas in
a distraint, the property must be
that of the taxpayer although it
need not be the property to which
the tax is assessed.
o NOTE the tax lien cannot be
appealed
since
it
attaches
automatically to the thing.
o It is imposed on any property
which is subject to the lien as well
as on any property used in the
business, occupation or practice of

profession or calling with respect to


which the lien is imposed.
Q: Can LGU file a criminal case to collect?
A: NO because the Code uses civil action.
Q: When can the LGU avail of these remedies?
A: Only after an assessment has become final
and the taxpayer fails to pay within the
prescribed period.
Q: When can the LGU assess?
A: The LGU can assess within 5 years from date
taxes, fees, or charges become due.
Q: When are they due?
A: Taxes accrue on the 1 st day of January.
Period to pay: first 20 days. BUT it may also be
paid by installments.
Q: When does the LGU collect?
A: Within 5 years from date of assessment. This
means that an assessment is always necessary.
The exception to this rule is if there is fraud or
intent to evade payment. In this case, the period
to collect shall be 10 years from discovery
thereof.
See Sec 194, LGC for the suspension of
prescriptive periods.
NOTE: There is no ground of failure to file a
return since the LGC does not require a return to
be filed.
The civil remedies are divided into 2:
o Administrative
remedies
of
distraint and levy
o Legal Action (only with respect to
other revenues, i.e., those arising
from contracts, etc)
The remedy of distraint and levy can
only be imposed on the amount or
quantity necessary to satisfy the claim
(sufficient quantity).
Thus only a
sufficient quantity of the properties
levied or distraint should be sold.
o Any excess in the proceeds of the
sale over the claim and costs of
sales shall be returned to the owner
of the property.
If there is no bidder or if the highest bid
is insufficient to pay the delinquency,
the local treasurer conducting the sale
shall purchase the property in behalf of
the LGU.

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Tax2 Reviewer
Q: What if the delinquent taxpayer has parcels
of land situated in other municipalities can
these be levied upon by the treasurer?
A: YES, the treasurer would only send notices to
the Register of Deeds concerned for the
annotation of the fact that the said property is
being levied.

Q: What if X has a P50k local tax liability but


his present properties were only worth P30k.
However, the following year, X acquired real
properties. The treasurer wants to levy on the
new real properties of X. X goes to court to
enjoin the same. Can the said real properties be
levied?
A: YES, the remedy of further levy is also
available to LGUs until the tax due is paid.
Provided that it is made within the 5 year
collection period.

Q: Same facts. Can an injunction be had?


A: YES. Actually X wants to enjoin the
collection and not the assessment. It should be
noted that there has already been a prior
collection made by the treasurer. Further, the
LGC does not contain a no injunction rule
unlike in the NIRC. This means that the Code
does not prohibit injunction orders.
Q: X is assessed by the treasurer. X contests the
assessment as the tax is based on an ordinance he
claims to be invalid. What is the remedy of X?
A: Since X failed to contest/appeal the validity
of the ordinance with the Secretary of Justice,
then such ordinance is already binding and
effective upon him. Therefore, the remedy of X
is to protest the same. However, he cannot use
the defense that ordinance is invalid since he did
not appeal the same with the Sec of Justice. See
Jardine case (the Court mentioned here the 3
mandatory periods: 30 day period, decision
period & appeal period; also the Doctrine of
Exhaustion of Admin Remedies)
See also Systems Plus case (re Doctrine of
exhaustion: cannot raise a purely legal issue so
as to skirt the doctrine of exhaustion.)
Q: What is the procedure for distraint?
A:
SEIZURE = upon failure of the
taxpayer to pay his tax liability at the
time required, the treasurer or his
deputy may seize or confiscate any
personal property subject to the tax lien
in sufficient quantity.
Accounting Of Distrained Goods

PUBLICATION = the notice shall be


exhibited in 3 public places in the
territory of the LGU where the distraint
is made. It should specify the time &
place of sale and the articles distrained.
Period: it should be not less than 20
days after notice to the owner or
possessor of the property.
Release of distrained property upon
payment prior to the sale.
Procedure of sale = within 5 days after
the sale, the treasurer shall make a
report of the proceedings in writing to
the chief executive.

Q: What is the procedure for levy?


A: Written notice of the levy shall be mailed or
served upon assessor or the RD.
PUBLICATION = within 30 days after
the levy, the local treasurer shall
publicly advertise the auction sale.
Posting of the notice is made at the
main entrance of the hall, and in the
barangay where the prop is located.
STAY OF SALE = At any time before
the date fixed for the sale, the taxpayer
may stay the proceedings by paying the
taxes, fees, charges, penalties and
interest.
SALE = If the taxpayer fails to settle
the delinquency on time, the sale shall
proceed and shall be held either at the
main
entrance
of
the
province/muni/city.
RIGHT OF REDEMPTION = within 1
year from date of the sale. It is
exercised upon payment of the total
amount of taxes, fees, charges,
surcharges, interests, and penalties plus
interest of not more than 2% from date
of delinquency.
o Note that possession and
enjoyment of property during
the period of redemption is
with the owner.
EXECUTION OF FINAL DEED TO
PURCHASER = if taxpayer fails to
redeem the property, the local treasurer
shall execute the final deed in favor of
the buyer.
Q: What is the remedy by judicial action?
A: the LGU may institute an ordinary civil
action with the regular courts for the collection
of delinquent taxes, fees, charges, or revenues.

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


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57
Tax2 Reviewer
Q:
What are the properties exempt from
distraint, levy, attachment or execution?
A: Some of which are the tools and implements
necessarily used by the delinquent taxpayer in
his trade or employment, his necessary clothing
& that of his family, professional libraries, etc.
Please see Sec 185, LGC
LGUs may, through ordinances, grant
tax exemptions, incentives or reliefs
(Sec 192).
The LGC has withdrawn tax
exemptions, incentives granted to or
presently enjoyed by all persons,
whether natural or juridical including
GOCCs.
Those entities still exempted are:
o Local water districts
o Cooperatives under RA 6938
o Non-stock, non-profit hospitals and
educational institutions
The authority of the LGUs to grant tax
exemption privileges and reliefs under
Sec 192 is broad enough to allow them
to condone or remit taxes.
VIII.
1.

REMEDIES OF TAXPAYERS

Remedies prior to an assessment


a.

b.

Administrative appeal to Sec of Justice


Within 30 days from effectivity of
the ordinance
Must decide within 60 days from
receipt of the appeal
If the Sec of Justice takes no action
upon the lapse of the 60 days, then
the taxpayer may file appropriate
proceedings with a court of
competent jurisdiction.
This involves questions re the
constitutionality or validity of the
ordinance.
The appeal shall not have the effect
of suspending the effectivity of the
ordinance and the accrual and
payment of the tax, fee, or charge
levied therein.
Action for declaratory relief
After the 30 days from effectivity
has lapsed then the remedy is
already an action for declaratory
relief. But only if it is made before

an assessment is made and before


payment by the taxpayer.
2.

Remedies after an assessment


a.

Written Protest of the assessment


Within 60 days from receipt of the
assessment; filed with the local
treasurer
If this is not done, then the
assessment becomes final and
executory.
The local treasurer shall decide the
protest within 60 days from its date
of filing by either sustaining or
denying the same wholly or partly.
From the decision of the local
treasurer, the taxpayer may, within
30 days from receipt of the said
decision, appeal to the regular
courts.

b.

An action for refund (Written claim for


refund)
Within 2 years from payment or
from the date the taxpayer is
entitled thereto.
Payment must be made within the
60 day period from receipt of the
assessment. [VITUG: if theres no
assessment, the taxpayer may still
opt to pay the tax and thereafter
claim a refund under the conditions
expressed in Sec 196]
The filing of the written claim for
refund with the local treasurer is a
condition precedent for maintaining
a court action.
If the local treasurer does not act
and the 2 year period is about to
expire, the taxpayer may already
initiate the court action and
consider the inaction as a denial.

REAL PROPERTY TAX


Q: What is the scope of real property taxation?
A: It can be imposed by a province, city, or
municipality, but only municipalities in Metro
Manila can impose special realty tax, those
outside Metro Manila can impose only basic
realty tax.
Q: How do you compute real property tax?

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Tax2 Reviewer
A: Use the Fair Market Value of the real
property.
Q: Does real property tax includes charges or
fees?
A No, charges or fees are not included.
Q: Is real property tax a local tax?
A: Yes, because the local tax accrues exclusively
to the LGU. (Sec. 271)
Fundamental Principles
Q: What are the fundamental principles of real
property taxation?
A: Sec. 198 The appraisal, assessment, levy,
and collection of real property tax shall be
guided by the following fundamental principles:
1. Real property shall be appraised at its
current and fair market value.
2. Real property shall be classified for
assessment purposes on the basis of its
actual use.
3. Real property shall be assessed on the
basis of a uniform classification within
each local government unit.
4. The appraisal, assessment, levy, and
collection of real property tax shall not
be let to any private person; and
5. The appraisal and assessment of real
property shall be equitable
1. Appraisal at Current and Fair Market Value
Q: What is the basis of the assessment?
A: The Assessor is not limited to any value so
long as it is equitable as in the case of Reyes vs.
Almanzor.

5. Equitable
Q: When is real property tax equitable?
A: When it is based on the ability to pay the tax.
The tax should not pay more when others are
paying less.
Taxable Properties
Q: What is covered by the real property tax?
A: It covers:
1. lands
2. buildings
3. machineries
4. improvements
Sec 232 xxx tax on real property such as land,
building, machinery, and other improvement not
hereinafter specifically exempted.
1. Lands
2. Buildings
3. Machineries
Sec. 199 (o) Machinery embraces machines
xxx which may or may not be attached,
permanently or temporarily, to the real property.
It includes xxx and those not permanently
attached to the real property which are actually,
directly, and exclusively used to meet the needs
of the particular industry xxx and which by their
very nature and purpose are designed for, or
necessary to its xxx business purpose.

2. Classified on the Basis of Actual Use

Q: What machineries are covered by the real


property tax?
A: It could either be:

Q: Why is the actual use requirement


important?
A: because of the difference in the assessment
level. It could be residential, or commercial,
which has different rates.

1. Realty by Destination machineries should


be essential to the business. It is a realty by
destination, although not permanently attached.
Such would include air conditioning systems of
banks or big computers of a business firm.

3. Uniform Classification within each LGU

2. Realty by incorporation if the machinery is


permanently attached.

Q: What is uniformity?
A: Uniformity has been defined as that principle
by which all taxable articles or kinds of property
of the same class shall be taxed at the same rate.
(Reyes vs. Almanzor)
4. Not be Let to Any Private Person

Q: Supposing a transportation company owns a


welding machine, a boring machine, a hydraulic
press, carpentry tools, blacksmith xxx, are these
machines subject to real property tax?
A: No. Movable equipment to be immobilized in
contemplation of the law must first be "essential

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59
Tax2 Reviewer
and principal elements" of an industry or works
without which such industry or works would be
"unable to function or carry on the industrial
purpose for which it was established." The tools
here are not essential and principal elements of
petitioner's business of transporting passengers
and cargoes by motor trucks. They are merely
incidentals acquired as movables and used
only for expediency to facilitate and/or improve
its service. Even without such tools and
equipments, its business may be carried on.
(Mindanao Bus vs. City Assessor)
4. Improvements
Sec. 199 (m) Improvement is a valuable
addition made to a property or an amelioration in
its addition, amounting to more than a mere
repair or replacement of parts involving capital
expenditures and labor, which is intended to
enhance its value, beauty or utility or to adapt it
for new or further purposes.
Q: What are the improvements
A: the improvement must
1. enhance the utility or value of the
property where it is attached
2. It must have a separate existence from
the property.
3.
It must also prolong the life of
property,
4. It must be separately assessed.
Q: What are some examples of taxable and nontaxable improvements?
A: For example, a road and a fence is a separate
taxable improvement. However, in a fishpond
having dikes, the dikes do not have a separate
existence hence it is not a taxable improvement.
Q: Suppose a tailings dam was constructed
which benefited not only the taxpayer but also
the nearby communities and that even without
the dam, the operations of the taxpayers
business could still continue, can the taxpayer
argue that the dam is an inseparable part of its
business therefore not a separate real property
subject to tax?
A: No. The subject dam falls within the
definition of an "improvement" because it is
permanent in character and it enhances both the
value and utility of petitioner's mine.
A structure constitutes an improvement would
depend upon the degree of permanence intended
in its construction and use. The expression

"permanent" does not imply that it must be used


perpetually but only until the purpose to which
the principal realty is devoted has been
accomplished. It is sufficient that the
improvement is intended to remain as long as the
land to which it is annexed is still used for the
said purpose. (Benguet vs. CBAA)
Exempted Properties
Q: What properties are exempt from the real
property tax?
A: Sec. 234 the following are exempted from
payment of the real property tax:
1. Real property owned by the Republic of
the Philippines or any of its political
subdivisions except when the beneficial
use thereof has been granted, for
consideration or otherwise, to a taxable
person.
2. Charitable institutions, churches xxx
mosques xxx nonprofit or religious
cemeteries and all lands, buildings, and
improvements actually, directly, and
exclusively
used
for
religious,
charitable, or educational purposes;
3. All machineries and equipment that are
actually, directly, and exclusively used
by local water districts and GOCCs
engaged in the supply and distribution
of water and/or generation and
transmission of electric power;
4. All real property owned by duly
registered cooperatives xxx.
5. Machinery and equipment used for
pollution control and environment
protection.
1. Real property owned by the State
Q: Suppose the State owns a parcel of land. This
was leased to the Society of Jesus for P10K per
month. Is this parcel of land subject to real
property tax?
A: No. The Code states that real property owned
by the state is subject to that when the beneficial
use thereof has been granted, for consideration or
otherwise, to a taxable person. Since the
Society of Jesus is not a taxable person, it cannot
be subject to tax.
Q: Supposing that a taxable entity leased his land
to the Society of Jesus, is it exempt?
A:

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Tax2 Reviewer
Q: Suppose that X entered into a contract to sell
with a government institution. After the
execution of the contract, X acquired possession
over the property, however, he did not pay the
whole consideration. Is X subject to tax
notwithstanding the fact that the property still
belongs to the government?
A: Yes. when the government sold the property,
the agency although exempt from the payment of
taxes clearly indicated that the property became
taxable upon its delivery to the purchaser" and
that "the sole determinative factor for exemption
from realty taxes is the 'use' to which the
property is devoted, And where 'use' is the test,
the ownership is immaterial. (City of Baguio vs.
Busuego)
Q: What if the real property is owned by the
State but its title is registered in the name of a
taxable GOCC, is the property subject to tax?
A: Yes, it must be subject to tax.
Q: What would be the rule if the use and
ownership of the State property are different?
A: Sir said that if owner is different from the
actual user, use controls. If ownership is clear,
and no actual use, ownership controls.
Q: Suppose X obtained a loan with the
government with his real property as a collateral.
He failed to pay. The government was the
highest bidder. Afterwards X redeemed the land.
Is X liable to pay the real property tax during the
period when he was deprived of its ownership
and possession?
A: No, to impose the real property tax on X
which was neither the owner nor the beneficial
user of the property during the designated
periods would not only be contrary to law but
also unjust. It is contrary to the tax policy that
the user of the property bears the tax. (Estate of
Lim vs. City of Manila)

4. All real property owned by cooperatives


5. Machinery for environment protection.
Effectivity of Assessments, Reassessments, and
Tax Exemptions
Q: When should the taxpayer be exempt?
A: He must be exempt on January 1 of the
taxable year to be exempt for the whole year.
Sec. 221 All assessments or reassessments
made after the first day of January of any year
shall take effect on the first day of January of the
succeeding year xxx.
Q: Supposing that a State property is leased to a
tax exempt person on January 10, is this property
subject to Real Property tax?
A: Yes, because the effectivity of lease is beyond
the tax date of January 1.
Computation of Real Property Tax
Q: How is Real Property Tax computed?
A: Appraise FMV, Classify based on use
assessment level, assess based on uniform
classification
Levies in Addition to the Basic Property Tax
Q: What are the special levies that a LGU may
imposed?
A: LGU can imposed
1. special education fund
2. idle lands this has the highest ad
valorem rate
3. special levy those benefited by public
works projects and LGU
4. different rates imposed
Special Levy

2. Real Property for religious, charitable, or


educational purposes
3. Machineries for water or electric power
Q: What is the extent of exemption granted to
local water districts and GOCCs engage in the
water and power industry? Can they claim that
their buildings and land are also exempt?
A: No, the exemption only covers machineries.
Sec. 234 (c) - All machineries xxx by local
water districts and GOCCs xxx.

Q: Supposing a LGU made a park. This park


enhanced the value of the properties around it.
How can the LGU imposed the special levy on
those affected by the park?
A: Those nearer to the park will be imposed a
higher rate than those imposed n properties far
from the park who were still benefited.
Q: But suppose the government builds a
dumpsite, the nearby properties depreciate in
value, is the government obliged to pay?
A: They may argue expropriation.

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Tax2 Reviewer
Q: which local government can impose a special
levy on real property?
A: It can be imposed by a province, city, or
municipality. This can be imposed even by
municipalities outside M.M.
Q: Can a religious organization be exempt to a
special levy?
A: Yes, if youre exempt from the Real Property
tax, you are also exempt from special levy.

Q: May the Assessor reduce the new assessed


values of real properties upon requests of the
affected property owners?
A: No. The issuance of a notice of assessment by
the local assessor shall be his last action on a
particular assessment. On the side of the property
owner, it is this last action which gives him the
right to appeal to the Local Board of Assessment
Appeals. The above procedure also, does not
grant the property owner the remedy of filing a
motion for reconsideration before the local
assessor. (Callanta vs. Ombudsman)

Remedies of the Government


Q: What are the remedies of the government in
the collection of real property tax?
A: It has administrative and judicial remedies.
Administrative Remedies
1. tax lien on the delinquent property
2. levy on the delinquent property
3. further levy if the first levy was not
enough to satisfy the tax liability
4. Distraint included by implication
because this is required to be included
in the notice of levy?
Judicial Remedies
1. Collection Suit there is no need for
the LGU to issue an assessment notice
or a notice that fixes the taxpayers
liability
Prescription
Q: When may the government collect real
property tax due?
A: within 5 years from due date, reckoning point
is the due date.
Sec. 270 xxx shall be collected within 5 years
from the date they become due.
Remedies of the Taxpayer
1. Remedy against Assessments
Sec. 226 Any owner xxx who is not satisfied
with the action of the xxx assessor in the
assessment of his property may, within 60 days
from the date of receipt of the written notice
of assessment, appeal to the Board of
Assessment of the LGU by filing a petition xxx.

Q: Why cant the assessor be allowed to review


his assessment?
A: Because, to allow owners chose to bring their
requests for a review/readjustment before the
city assessor would indeed invite corruption in
the system of appraisal and assessment. It
conveniently courts a graft-prone situation where
values of real property may be initially set
unreasonably high, and then subsequently
reduced upon the request of a property owner. In
the latter instance, allusions of a possible covert,
illicit trade-off cannot be avoided, and in fact can
conveniently take place.
(Callanta vs. Ombudsman)
2. Remedy against an Assessment issue
Sec. 252 No protest shall be entertained unless
the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words paid
under protest. The protest in writing must be
filed within 30 days from payment of the tax to
the LGU treasurer xxx who shall decide the
protest within 60 days from receipt xxx.
Q: Can the taxpayer go directly to the court?
A: As a general rule, administrative remedies
must first be exhausted. Butt if the issue is the
authority to assess, then the taxpayer can go
directly to court
Q: What could be a ground in the protest?
A: The payment will be illegal based on
fundamental principles.
Q: When can the taxpayer exercise right of
redemption?
A: Sec. 161 within one year from the date of
the sale, the owner of the delinquent property
xxx shall have the right to redeem xxx.
Q: When may the taxpayer claim for refund?

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Tax2 Reviewer
A: Within 2 years from entitlement to reduction
or adjustment
Sec. 253 xxx the taxpayer may file a written
claim for refund or credit for taxes and interests
with the provincial or city treasurer within 2
years from the date the taxpayer is entitled to
such reduction or adjustment.
Q: What is the remedy if the claim for refund is
denied?
A: The remedy is the same as in protest
Q: Can the real property tax be condoned?
A: Yes. Sec 277 - The President of the
Philippines may, when public interest so
requires, condone or reduce the real property tax
and interest xxx.
Sec. 276 In case of a general failure of crops or
substantial decrease in the price of agricultural or
agri-based products, or calamity xxx the
sanggunian concerned by ordinance passed prior
to the first day of January of any year and upon
the recommendation of the Local Disaster
Coordinating Council, may condone or reduce
xxx.
Q: What is the basis of this condoning power?
A: The power to make tax amnesty is based on
the power to grant tax relief as provided in
section 192.

Alf Bambi Carlos Deli Jonah Ron Rybi She TR


Special Acknowledgment to: Alf, Erika, Jovit, Maki, Ron, She