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SAN BEDA COLLEGE OF LAW

CRIMSON NOTES

TAXATION LAW
Q&A

0

GENERAL PROVISIONS

3
Does the non-impairment of contracts
clause in the Constitution apply to a public
utility franchise?
The non-impairment rule does not apply
to a public utility franchise since a it is
subject to amendment, alteration or repeal
by Congress when the public interest so
requires (Art. XII, Sec. 11, 1987
Constitution).

0
Is the non-profit sale of Bibles
taxable?
No. Taxing non-profit sale of Bibles is a
violation of freedom of religious worship.
Furthermore, RA 8047, which amended the
EVAT Law (RA 7716) exempted Bibles (and
newspapers) from VAT coverage.
1
What is the extent of the legislature’s
power to choose the subject to be taxed?
The legislature can choose anyone who
can be taxed, not anything that can be
taxed. To illustrate, the manufacturer of the
Bible can be taxed on his income but the act
of manufacturing and selling the Bible
cannot be taxed.

5. Does the tax exemption in the Constitution
of properties used for religious, charitable
and educational purposes [Art. VI, Sec.
28(3)] apply to gifts?
In
the
case
of
Lladoc
vs.
Commissioner, the SC ruled that the
Constitutional exemption applies only to
property tax. Gifts are subject to donor’s tax.
HOWEVER, at present under Sec. 101 of
the CTRP, gifts made in favor of religious,
charitable or educational organizations would
nevertheless qualify for donor’s gift tax
exemption.

2
An ordinance was passed by the City
of Manila which imposed a permit fee of
P50.00 on aliens as a condition for
employment or engaging in any business or
occupation. Did this constitute a denial of
due process?
Yes. The SC pointed out that aliens
once admitted in the Philippines cannot be
deprived of life w/o due process of law and
this guarantee includes the means of
livelihood (Villegas vs. Hsiu Chiong Tsai
Pao).

0
Is proof of actual use for
charitable
and
educational
necessary in order to avail
constitutional tax exemption?
In the case of Prov. of
Hernando (107 SCRA104), the
1

religious,
purposes
of the
Abra vs.
SC ruled

Is the manufacturer subject to business tax imposed by the City of Manila? Yes. In this case. This doctrine was discussed in Abra Valley College vs. The absence of flight operations to and from the Philippines is not determinative of situs of income taxation. even if a property is owned by a religious. See CIR v BOAC. the lands. To be exempt. buildings. 149 SCRA 395 1 Is incidental use covered by the exemption? Yes. and improvements must not only be exclusively but also actually and directly used for religious and charitable purposes. The test of taxability is the place of source of income or where the activity which produces the income. 7 income tax on money received as legacy. 6 income tax on money received as donation. No. or educational institution but is actually used for a nonexempt purpose. 4 income tax on income from the rock concert held at the football field. It has a sales broker who transacts business in Manila. I will consider the following: 2 . 4 A German Airline has a ticket office in the Philippines but without any landing right therein. It is not subject to percentage (excise) tax. 5 Resume of Situs of Taxation Income tax-situs is the place of source of income.) How about percentage (excise) tax? a.. 5 income tax on income from the operation of the cafeteria. the SC held that incidental use of school building for director’s residence will not deprive property of its tax-exempt character. Place of domicile of taxpayer is immaterial. Yes. (9) donor’s tax on its donations and tax treatment thereof for income tax purposes. The term exclusive use includes incidental use as long as it is reasonably necessary for the accomplishment of the taxpayer’s main purpose. v City of Manila. the SC held that “use” overrides “ownership”. Inc. Aquino (162 SCRA 106). but depends upon the place where the act is performed.) Is it subject to income tax? b. the exemption from tax of said property vanishes. Its situs is the place where the act or privilege is done or performed. This is called the doctrine of incidental use. 70 Phil 325 3 A manufacturer has a factory in Pasig. (See Allied Thread Co. 1 income tax on interest on as: 0 bank deposit 1 loan 2 real property tax on the football field. 3 real property tax on the new basketball court simply lent by an alumnus. City Treasurer of Baguio (71 Phil 547). 6 As to its taxability.that actual use is necessary. Thus the following may impose a tax thereon: 0 The country where the intangible property receives protection ( see Sec. 133 SCRA 338) A: San Beda being a non-stock. charitable. (10)VAT on 0 supplies purchased to be used in the school’s operations 1 books purchased to be used at the library 2 educational services 2 What is the situs of intangible property for tax purposes? An intangible property may have different situs for tax purposes. In the case of Apostolic Prefect vs. It is subject to income tax. Hence. 1 The place of domicile of the decedent at the time of his death (Mobilia Sequuntur Personam) See Wells Fargo Bank v CIR. The power to levy a business (excise) tax upon the performance of an act does not depend upon the domicile of the person subject to the excise tax. a. what will be your advice if you are consulted by San Beda on the following matters: 0 income tax on amount received from students as tuition fee. non-profit educational institution. 104 CTRP). nor upon the physical location of the property taxed. b. Excise tax-situs is the place where the act or privilege is done or preformed.

98 CTRP). However. CTRP. 27B. If unilaterally given. However. (10)The VAT is imposable on the supplies purchased to be used in the school’s operations (Sec. 30(H)CTRP. CTRP). 87 CTRP. (5) The income from the rock concert. 27 B. provided. CTRP).(1) The tuition fee is not a taxable income pursuant to Sec. Giver Income TaxSec. (2) The interest on bank deposit is subject to 20%final tax. 101 VAT Sec. CTRP. 84. in full or in part. If bilaterally given. etc. Sec. 109y. v Aquino. of the property taxable. Inc. Note: Same considerations shall apply to religious. Sec. It is taxable just like any other domestic corporation. it is subject to tax. The educational services of San Beda is not subject to VAT under Sec. important in determining its taxability. not source. on loan is subject to 532% income tax. 105 CTRP) The sale and importation of books are transactions exempt from VAT under Sec. (4) The basketball court is not subject to real property tax pursuant to Sec. Hence it is not subject to income tax. 234 LGC only if San Beda can prove it is actually. there is impairment (Art. NB: The donor may claim exemption for the payment of the tax thereon pursuant to Sec. 87 Donor’s Tax Sec. under Sec. See Province of Abra v Hernando. Constitution) 3 . Hence San Beda is not liable therefore. 234LGC. charitable institutions. a related or ancillary activity from the purposes of San Beda. directly and exclusively used for educational purposes. It constitutes a mere revocation of a grant of privilege. CTRP. 32B3. San Beda can claim the amount donated as deduction from its gross income. 11. (9) The donation is subject to donor’s tax unless San Beda can claim exemption under Sec. The donation is already subject to donor’s tax payable by the donor (Sec. 109 Receiver Sec. 101 CTRP. 162 SCRA 106. 34H Estate Tax Sec. it may enjoy a preferential tax treatment(10% on its taxable income) if its gross income from unrelated activity does not exceed 50% of the taxable gross income derived from all sources. CTRP. See Abra Valley College. he can prove that not more than 30% of such amount shall be used by San Beda for administration purposes. 34H. 32B3. See Sec. 109m. See last paragraph of Sec. 105. is not subject to income tax. Constitution). Exception: In case of grant of franchise to public utilities when common good so requires (Art. 101CTRP. Any income that may be subsequently received therefrom is subject to income tax(Sec. CTRP) (6) The income from the operation of cafeteria. (8) The legacy is not subject to income tax. Same as (7). an unrelated activity from the purposes of San Beda. See Secs. if it is operated by concession. 107 SCRA 104. (7) The donation received is an exclusion from gross income (Sec. CTRP. An activity is unrelated if the conduct of which is not substantially related to the exercise or performance by the school of its primary purpose or function (Sec. 30. 84. 8 When can a grant of tax-incentive be taken away by the government without violating the rule on non-impairment of contracts? It depends on whether the grant is unilaterally or bilaterally given by the government. is subject to 5-32% income tax. (3) The football field is not subject to real property tax pursuant to Sec. For income tax purposes. 32B3. Use. there is no impairment. The following table may help you in correlating the pertinent CTRP provisions in the above illustration. 32B(3) N/A N/A same 7 If it is CEU seeking your advice with regard to the above matters? Same advice in the preceding problem except on the income tax treatment of CEU as a proprietary educational institution. 98. III. XII. 10.

Inc. (Sec. as delegated to duly authorized internal revenue officers. The fact that a seller added the amount of tax to the price of the product did not make it a tax on the purchaser. vs. This is issued when the revenue officer finds himself without enough time to conduct an appropriate or thorough examination in view of the impending expiration of the prescriptive period for issuing a valid assessment. Rulings with established precedents – They are mere reiterations of previous rulings. Tax exemption – is construed against the taxpayer. 14 If a seller adds to the selling price the tax imposed on him. See Medina v City of Baguio (Taxes imposed therein were taxes on the admission tickets sold). the Exception is exemption. Note the Inherent limitation that the government is not subject to tax. opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the NIRC and other tax laws without established precedents. Maceda v Macaraig. The term includes reversal. The taxpayer is usually given ten (10) days from notice within which to explain his side. CTRP) If the activity is performed by the government in its proprietary capacity (jure gestionis). if his specific exemption from indirect taxes contemplates taxes which. See Phil. B7b.(China Banking Corp. and jeopardy assessments. the Exception is taxation. (Sec. although not imposed upon or paid by him directly. How are rulings classified? Rulings of first impression. Taxation – is construed against the government. the General Rule is exemption.148 SCRA 36. To prevent the issuance of a jeopardy assessment. does it violate the Bank Secrecy Law (RA 1405)? No. or his explanation is not satisfactory to the Commissioner. not on the thing sold. 20 SCRA 1056 11 Distinguish prospective. and Sons .9 10 12 When the BIR garnishes a taxpayer’s bank deposit. The purchaser paid the additional amount not as a tax but as part of the selling price of the product. official. CTRP). if the buyer is specifically exempted from indirect taxes. form part of price paid or to be paid by him.. Acetylene Co. Exception: If the exemption is granted to a government or religious institution. when can the seller claim a refund of the tax erroneously paid by the former? It depends. the taxpayer may be required to execute a waiver of the statute of limitations. – They are the rulings. 27C. Prospective assessment informs the taxpayer of the findings of the examiner who recommends a deficiency assessment. 13 Is the revenue producing activity of the government taxable? It depends. b. can a tax-exempt purchaser claim a refund after paying for the same? No. Jeopardy assessment is a delinquency tax assessment made without the benefit of complete or partial investigation by an authorized revenue officer. can he now claim a refund? Yes. but on the act of the seller who is 4 . opinions and interpretations of the Commissioner. v CIR. 16 If the tax is paid by the seller but passed on to the buyer. If the tax is imposed directly. modification or revocation of any existing ruling. If the activity is performed by the government in its sovereign capacity (jure imperii). only the buyer has the right to claim a refund. 15 In the case above. the General Rule is taxation. If the tax is imposed directly on the thing sold. See CIR v Gotamco. It is not a violation of the Bank Secrecy Law because the BIR is not inquiring the balance of the deposit but merely attaching it without knowing the balance of the same. Official assessment is issued by the BIR in case the taxpayer fails to respond to the proposed assessment. How are tax laws construed? In case of doubt a. Ortega). 32.

See Republic v Mambulao Lumber Co. taxes and debt cannot be compensated. his tax liability was due to a local government unit while his claim was against the national government).. See Francia v IAC. See CIR vs American Rubber Co. See Domingo v Garlitos. Further. 204(C) CTRP). Thus. A return filed showing an overpayment shall be considered a written claim for refund (refer to Sec. Failure of the withholding agent to withhold the correct amount of tax will make him liable for the deficiency. See CIR v Itogon Suyoc Mines. 28 SCRA 867 Is there an imprescriptible tax in the Tax Code? Formerly documentary stamp tax. The government does not owe anything from him. 18 If the claim of the taxpayer against the government has long been paid and deposited in a bank but he simply fails to withdraw it. That the two debts be due. can he compensate his contribution from his tax liability? No. it may be deducted from the tax to be paid.. the amount withheld by the withholding agent constitutes a full and final payment of the tax due from the taxpayer. 1 NATIONAL TAXATION 1. it may help to refer to the requisites of legal compensation under Art. They are not mutual creditors and debtors of each other. The taxpayer is no longer required to file an income tax return. An exception is when two obligations are both due and demandable and all the requisites of a valid compensation (Art. 20 If the government fails to use the taxpayer’s compelled contribution to a fund for the purpose to which it was set up. and. 19 If the taxpayer is clearly entitled to a tax refund although the CIR has not yet approved the same. there is no more imprescriptible tax. the tax withheld is intended to equalize or at least approximate the tax due of the taxpayer on his income. a documentary stamp tax return is required. 1 When such vessel is engaged exclusively in international trade. 162 SCRA 753(The taxpayer knew that the payment for his claim had long been deposited to the bank but did not withdraw it. specifically: 0 That each one of the obligors be bound principally. 622 (The amount paid by the licensee as reforestation charges is in the nature of a tax which forms part of the reforestation fund. NB: To reconcile the above cases. 3. 2. the seller can claim a refund and hold the refunded taxes in trust for the buyers. Under the final withholding tax system. On the other hand. 8 SCRA 447(Both the claim of the government and intestate. When is a seaman considered an OCW for purposes of income tax exemption from sources not within the Philippines? 0 When the seaman receives compensation abroad as a member of the complement of a vessel. payable by it irrespective of whether the area covered by its license is reforested or not). 4 SCRA 5 . 17 When can a taxpayer compensate his claims against the government from his tax liability? As a general rule. 1279 Civil Code. and that he be at the same time a principal creditor of the other. The taxpayer is still required to file an income tax return and pay the difference between the tax withheld and the tax due. under the creditable withholding tax system. b.exclusively made liable for its timely payment. can he compensate it against his other tax liability? Yes. Inc. Distinguish “final withholding tax system” from the “creditable withholding tax system” per BIR Revenue Regulations 298. can he compensate it against his tax liability? No. If not yet refunded. have already become overdue and demandable as well as fully liquidated). There is no compensation if the parties involved are not creditors and debtors of each other. the latter’s claim had earlier been appropriated by a corresponding law. 1279 Civil Code) are present. Now under the CTRP. 58(D) in relation to Sec.

e. Hence. 34A1). 1 Amount to be received as return of premium. Corporate Taxpayer Foreign to Domestic Corporation  32% (Sec. the interest payments shall be included in gross income. They will not result in a change in interest of the stockholder. 25B) NB: If a corporate taxpayer will not declare dividends. Both seek your advice about the tax treatment of the following: 0 Premium payments. it will be subjected to 10% tax on improperly accumulated income (Sec.). at what rate? Cash and property dividends may either be exempt or taxable depending on whether the recipient is an individual or corporate taxpayer. 6 . (3) Proceeds of life insuranceThe proceeds of life insurance policy paid to the heirs or decedent’s estate is excluded from gross income for income tax purposes under Sec. From Domestic Corporation 0Resident citizen. 28B5b. Are cash and property dividends taxable? If so. 33C2 (2) Amount to be received as return of premiumThe amount is not taxable under Sec. The measure of income in such case is the fair market value of stocks received. 32% 6. For estate tax purposes. An employer is planning to take a life insurance policy on the life of his key officer as part of the latter’s fringe benefits. 25B) b. The tax rate depends on what type of taxpayer is the recipient. They will result in a new cost per share which will be used in determining any gain or loss upon any subsequent sale of such shares. 32B2.4. 28A7d) 0Nonresident Foreign Corporation  15% subject to the condition stated in Sec. 27D) c. Are stock dividends taxable? How about liquidating dividends? As a rule. 32B1. nonresident alien engaged in business and trade  5-32% (Sec. if the designated beneficiary is the  Estate-whether or not revocable-taxable 5. But any gain or loss sustained by him is taxable income or deductible loss. nonresident citizen. If such proceeds are held by the insurer under an agreement to pay interest thereon. resident alien  10%(Sec 24A) 0Nonresident alien engaged in business and trade  20%(Sec. Consider the following summary of the pertinent CTRP provisions: They are taxable only if they will give stockholder an interest different from that which his former stocks represent (i. Liquidating dividends are not taxable to the stockholder as dividends. 32A) Domestic to Domestic Corporation  Exempt (Sec. 25A1) 0Nonresident alien not engaged in business and trade  25% on gross income (Sec. the excess amount is a taxable income. They are considered as mere return of capital. nonresident citizen. It is considered as a mere return of capital. If the designated beneficiary is: The employee’s estate or his heirs (1) Premium paymentsThey are deductible by the employer for income tax purposes as ordinary and necessary expenses (Sec. From Foreign Corporation 0Resident citizen. Domestic to Foreign Corporation 0Resident Foreign Corporation  Exempt(Sec. resident alien. when the stockholder is given the option of choosing cash or property instead of stocks. not income. They are not taxable fringe benefits of the officer under Sec. 25A2)  Nonresident alien not engaged in business and trade  25% on gross income (Sec. 2 Proceeds of insurance Individual Taxpayer a. Otherwise. 24. If the amount to be received is much more than the total amount of the premiums. 29) My advice depends on who will be the designated beneficiary. stock dividends are not taxable.

If not sanctioned by the athlete’s national sports association. the contributions are not taxable fringe benefits. Sec. they are excluded from gross income provided the 2 requisites provided under Sec. They are considered as a mere return of capital. They are taxable including those that are enumerated as exclusions from gross income under Sec. educational. 24B. the prizes and awards are subject to income tax.000 or less. 32B7d). 8. How are gains and losses treated? To determine the proper treatment of gains and losses. See Sec.10. Are prizes and awards taxable as income? If so. the ordinary gains and losses are considered in determining income or 7 . Further. 3rd personIf revocable-taxable If irrevocable-not taxable(Sec. the prizes and awards are subject to 20% final tax if their value is more than Php 10. If it is not his profession. 32B6. 32A. If Php 10. the prizes and awards are excluded from gross income (Sec. For the employee/officer. 32B1 11. If Php 10.32B2 Sec. 34A1) The proceeds thereof covering the book value of the property are not taxable. If the sports competition is sanctioned by the athlete’s national sports association. the prizes and awards are subject to 20% final tax. 12. 86A7). they are subject to 5-32% income tax. The amount in excess of the book value: 0 If to be used in restoring the property  not taxable 1 If not  taxable 13. What if the employer instead considers an accident or health insurance . The employer (1) Premium paymentsThey are not deductible by the employer for income tax purposes (Sec. earnings of the trust fund are not subject to income tax under Sec. See Sec. then they are subject to 5-32% income tax. Exception-the interest income or yield from bank deposit or deposit substitute of trust fund is subject to 20% final tax (Sec. What will be your advice? The premium payments are deductible for income tax purposes as ordinary and necessary expenses (Sec. the amount which compensates the officer for lost profits is a taxable income. With regard to the proceeds thereof. If it is an ordinary asset. 60B. 34A. they are taxable income.J). religious. pensions taxable as income? Yes. 32B6 enumerates the exceptions. NB: The amount received by an employee under a reasonable private benefit plan is excluded from gross income only if the fund cannot anymore be diverted by the employer for other purposes (Sec. What about the prizes and awards given in sports competition? It depends.000 or less. 32B7c are met.000. For estate tax purposes. 32B6a). 39A.60A) 14. As regards to his property insurance. See Sec. whether it is an ordinary or a capital asset. Exception  the amount received by heirs under RA4917 (Sec. are they also taxable? Yes. Sec. the employer asks you on the tax treatment of the premium payments and the proceeds thereof. 36A4) They are not considered fringe benefits to the officer. scientific achievement (CCAR-LES). it is imperative to determine the type of property involved. the prizes and awards are subject to 5-32% income tax. 85E)  0 1 7. If the value thereof is more than Php 10. 9. civic. what will be your advice? My advice will be the same as in the case of life insurance policy payable to the employee’s estate in the preceding problem. at what rate? It depends. Are retirement benefits. literary. artistic. If being an athlete is the recipient’s profession. 32B4.000. If prizes and awards are given primarily in recognition of charitable. How will you treat the contributions of the employer to the retirement/pension benefit plan? The contributions are deductible by the employer for income tax purposes as ordinary and necessary expenses or as pension trusts (Sec. If prizes and awards are given in cases other than the above.

debentures or other certificate of indebtedness (Sec. 39A1. Moreover. He may opt to be taxed at 6% of the FMV or GSP whichever is higher. then it is subject to capital gains tax (See Secs. the capital gains and losses are considered in determining the taxable income (Sec. OCW). This includes pacto de retro sales and other forms of conditional sales (Sec.loss from trade. Alien resident under the following cases: a. 34H. exchange. 24C. In both cases. What will be your advice? He has two options. Your client whose house and lot are being expropriated by the government asks you whether he is still subject to tax thereon. Further. consideration is essential. exchange or other disposition of real property located in the Philippines classified as capital asset. What are the transfer taxes under the CTRP? Discuss. Property acquired by intestate succession. capital losses have limitations (Sec. 39C). retirement are excluded from gross incomeBonds. 24D) This is also imposed upon the net capital gains realized from the sale. See also Secs. Condominium A nonresident alien engaged in business and trade (in case of a former Filipino citizen who still maintains a residence in the Phil. business or profession without considering the net capital gains. 39)Capital gains/losses are considered in determining the taxable income 15. 24D. exchange or other disposition of shares of stock in a domestic corporation not listed and traded through a local stock exchange (Sec. 27D2). 24C). 34D.(Secs. If not. The transfer taxes under the CTRP are as follows: Capital gains tax This is a tax imposed upon capital gains presumed to have been realized from the sale. 32A. exchange. determine further whether or not it is a real property located in the Philippines. See Secs. debentures or other certificate of indebtedness (Sec. If the subject property is his principal residence and the proceeds of the sale will be utilized in acquiring or constructing a new principal residence. The 5 or 10% limitation therein is based on income from trade.) (Sec. A nonresident alien not engaged in business and trade cannot avail of the exemption. distinction between them is important under Sec. 32)Ordinary gains/losses are taxable income/deductible losses from businessReal Property loc. Natural-born citizen who lost his Filipino citizenship (see Sec. 32B7h)Gains from redemption are excluded from gross income)Bonds. retirement are excluded from gross incomeReal property not located in the Phils Personal property located in/out the Phils (including shares of stock of foreign corp. business or profession. 27D5)Capital gains tax based on FMV or GSP whichever is higherShares of stock of domestic corp. in the Phils. not listed and traded thru a local stock exchange(Sec. b. They are only the following: A resident citizen A non-resident citizen (i. listed and traded thru a local stock exchange (Sec. 24C. 34D). 127)Stock transaction tax (percentage tax) based on the GSPShares of stock in a mutual fund company (Sec.e. 39). Is the immediately preceding advice (allowing exemption) available to all types of taxpayer? No.). 32B7g)Gains from their sale. If it is. But not an immigrant to a foreign country. he may be exempted from paying the capital gains tax provided the requisites under Sec. It is not available to a corporate taxpayer. 24D2 are met. Sec. he may consider the capital gain/loss thereon in computing his taxable income subject to the normal rate. 17. NB: While both ordinary and capital gains/losses affect the taxable income. 27D2)Capital gains tax based on the net capital gainsShares of stock of domestic corp. not all individual taxpayer can avail of the said exemption. Estate tax This is a tax imposed on the right to transmit property upon the death of the decedent and on certain transfers by the decedent during his lifetime which are made by law the equivalent of 8 . 27D5. 24D. If it is a capital asset. RA 7042 as amended by RA 8179-Foreign Investments Law) c. The following summary might help you: Type of AssetTax TreatmentOrdinary (see 4 types. 16. 10. 32B7g)Gains from their sale. ordinary losses are deductible without limitations (Sec.

98Insufficient Consideration Sec. See losses which are not deductible under Sec. 100 19. Estate and donor’s taxes are not applicable. See Sec. revocable transfer. See Sec. 774 Civil Code. See Arts. a corporate seller and subjected to the 6% capital gains tax under Sec. transfer under the general power of attorney. 85G. Estate and donor’s taxes are not applicable since there are no succession and donation (gratuitous titles) to speak of. when is such transfer subject to capital gains tax. 85G. Donor’s tax This is a tax imposed on the transfer by a person of the property by gift. See Arts.749 Civil Code. donor’s tax? It depends on the type of the property involved and whether there is a full. estate tax. transfer under the general power of attorney. Capital gains tax is not applicable since there is no sale or exchange to speak of. For income tax purposes. While not explicitly provided in the CTRP law. the formal requisites must also be observed. the transfer is subject to VAT provided it is in the ordinary course of trade or business (Sec. In case of transfer of property during the lifetime of the decedent.  In case of property other than real property located in the PhilippinesWith consideration The corresponding gain or loss is a taxable income or deductible loss for income tax purposes. 24(D) on sale of real property by an individual will no longer be subjected to Donor’s tax on the amount by which the FMV exceeded the consideration. 98 CTRP. Insufficient consideration In cases of transfer in contemplation of death. Art. inadequate. 9 . 24C. formal requisites must be complied with. the transfer is subject to donor’s tax under Sec. Further.  In case of real property located in the PhilippinesFull Consideration The transfer is subject to capital gains tax. the transfer is subject to capital gains tax (NB: the tax is based on the FMV or GSP whichever is higher). Donative intent is essential. No consideration The transfer is subject to either estate tax or donor’s tax. it is also deemed that same treatment shall be applied to lands and/or buildings held as capital assets by The following summary might help you: Capital Gains TaxEstate TaxDonor’s TaxWith Full Consideration Sec. or no consideration at all. 748. the corresponding loss is a deductible loss for income tax purposes. revocable transfer. 135. Further. N. the transfer is subject to estate tax pursuant to Sec. In any other transfer involving real property located in the Philippines. No consideration The transfer is either subject to estate or donor’s tax. 85G Sec. the transfer is subject to estate tax pursuant to Sec. 105). 84 Sec. In case there is no donative intent. 34H.a testamentary disposition. Art. 27(1)(5). 24D Sec.D N/A N/ANo Consideration N/A Sec. 725 Civil Code. In case of wills. 100. is the resulting loss from transfer of property (other than real property located in the Philippines) for insufficient consideration always deductible? No. For income tax purposes. 18. A real property subjected to 6% capital gains tax under Sec. In any other transfer involving property not a real property located in the Philippines. Death of the decedent is essential. 36B. Insufficient consideration In case of transfer in contemplation of death.: There is another kind of transfer tax which is found under the Local Government Code (LGC) – the tax on transfer of real property ownership imposed by provinces (Sec. 804-814 Civil Code.B. the value of the property may be claimed as a deduction under Sec. 84 CTRP. LGC).

729 Civil Code Effectivity of donation may be subject to condition/term (i. 20. Bellosillo. Is criminal action allowed as a remedy for the collection of taxes? Yes. but no such action can be filed without the approval of the Commissioner of Internal Revenue (see Sec. 1423 Civil Code). AV is determined by the application of the assessment level to the FMV. Reason: Delivery to Carrier is Delivery to Buyer (Art. Disposition or its taking effect does not depend whether the property is delivered during the lifetime or after the death of donor. When the intention of donor is to transfer ownership after his death. 22. a. 221 & 222. FMV is declared by the owner subject to the final determination by the assessor. 6-98). not taxable by local taxing authority. Distinguish fair market value(FMV) from assessed value(AV). The BIR however accepts cashier’s or manager’s check (Rev. such as: When the donor reserves the right to revoke the donation at his pleasure. If the sale is perfected and paid for within the jurisdiction of local taxing authority but delivered to the customer outside its jurisdiction. or special. On the other hand. subject to the provisions of Rule 58 of Rules of Court(Preliminary Injuction). LOCAL TAXATION AND REAL PROPERTY TAXATION How is assessed value (taxable value) of real property computed? What is the nature of a business tax? This is a tax paid for each and every business activity. agricultural. Can regular courts enjoin the collection of local tax? Yes. If the sale is perfected within the jurisdiction of local taxing authority but paid and delivered to customer outside its jurisdiction. FMV is the actual value of the real property in the market.e. check where the sale is consummated (where payment is made). the sale is taxable by the local taxing authority. whether residential.death). v City of Manila 81 SCRA 99 b. that is when its effectivity is independent of donor’s death. When the donor reserves the right to dispose of property. Reason: Delivery to carrier is not considered delivery to buyer. Carrier is merely considered as agent of seller. FMV x Assessment level (%) = Assessed Value Assessment level depends on the nature of the property. AV is merely a percentage of the FMV. LGC) What is an assessment level? The percentage applied to the FMV to determine the taxable value of the property. See Shell v Municipality of Sipocot 105 Phil. CTRP). Tax Rates: 10 . See Philippine Match Co.When can a local government unit impose an excise tax on the sale transactions perfected within its jurisdiction? It depends. 21. May 10. timberland. (Arches vs. commercial. When is the gratuitous transfer of property during the lifetime of the donor subject to estate tax? subject to donor’s tax? The transfer is subject to estate tax if it constitutes a donation mortis causa. There is donation mortis causa if its effectivity is dependent on donor’s death. 1263 NB: To reconcile the above cases. industrial. Are checks acceptable for the payment of internal revenue taxes? Checks payable to BIR as payment for taxes are no longer acceptable beginning May 1. Regs. L-23534. The transfer is subject to donor’s tax if it constitutes a donation inter-vivos. A tax on business is distinct from a tax on the article itself. 199. 1967.) What is appraisal? It is the act or process of determining the value of the property as of a specific date for a specific purpose (Sec. No. except in remote areas where there are no Accredited Agent Banks. III. 1997. mining. NB: Disposition is different from execution. The approval may be given by the Regional Director. See Art.

The term family shall mean the spouse and children of the balikbayan who are not balikbayans in their own right (Sec. it shall automatically be reviewed by the Commissioner of Customs. RA 6768). 2. a search warrant issued by a court is required. Municipalities in Metro Manila . what is “property discovered for the first time”? What is its tax treatment? This refers to a property that has not been declared for tax purposes for so many years and when discovered. or Filipino overseas worker. [a]. A Regional Director possesses delegated powers to issue assessment notices on behalf of the CIR. Neither does it have criminal jurisdiction although it can take cognizance over cases involving the imposition by the Commissioner of compromise penalties. as well as his family. 3514. TARIFF AND CUSTOMS LAWS What is a port of entry? A port of entry refers to a domestic port open to both foreign and coastwise trade (Sec. Regulation No. who is considered the owner of articles imported into the Philippines? All articles imported into the Phil. Who is a BALIKBAYAN entitled to avail of the tax-free purchase incentive at Duty-free shops? A Balikbayan is either a: Filipino citizen who has been continuously out of the Philippines for a period of at least 1 year. Rev. 2 [b]). However. 11 . As contemplated in the real property tax code. who has been naturalized in a foreign country and comes or returns to the Philippines. effective June 16. the Regional Director's assessment was made with endorsement of the Commissioner. Assessed taxes shall cover not more than 10 years prior to the date of the initial assessment. the underwriters of the abandoned articles saved from a wreck at sea. they may impose a special levy or assessment. (In Fortaleza vs. shall be held to be the property of: the person to whom the same are consigned. a search warrant is not required to enforce the provisions of the customs code because of the Lifeblood Theory. When can there be an automatic review of the decision of the Collector of Customs? When the decision of the Collector of Customs in seizure and protest cases is adverse to the government. along a coast or in any area of the Philippines (Sec. or. If the amount involved is P5 million and above. TCC). Collector. in case of searches of a dwelling place. Whose decisions are appealable to the CTA? GENERAL RULE: Decisions of either the Commissioner of Internal Revenue or the Commissioner of Customs are appealable to the CTA. IV. For customs purposes. the owner must pay back taxes plus incremental penalties. However. TCC) COURT OF TAX APPEALS (CTA): RA 1125. (Sec. the holder of the bill of lading duly endorsed by the consignee therein named. or Former Filipino . 1954 Does the CTA possess advisory and criminal jurisdiction? It has no advisory jurisdiction. 1203. 12-85 provides that decisions of Regional Directors may be appealed to the CTA. When are personal and household effects of a RETURNING resident conditionally-free from duties? They are considered conditionally free from duties when the returning resident: Is a Filipino citizen. there will be an automatic review by the Secretary of Finance. or. Is a search warrant issued by a court necessary to effect searches and seizures under the TCC? As a general rule.citizen. so there was no need for the petitioner to elevate his case to the Commissioner). Can Municipalities outside Metro Manila impose real property tax? No.Cities .2% Provinces .1% Has stayed in a foreign country for a period of at least six months.2%.

it is not adversely affected by the decision of the BIR since the BIR itself is an agency of the Government. associations. Stockholders of a corporation who have unpaid subscription. 1968. the appealable decision is the letter of denial where the CIR not only demanded payment BUT made a statement regarding a resort to legal remedies. Administrative actions which are tantamount to appealable decisions (when the action to collect is by judicial remedies). What Decisions are Appealable? In Commissioner vs. the importer was allowed to file an appeal with the Tax Court even in the absence of an administrative decision of the claim for refund. The SC took note of the fact that the prescriptive period for judicial appeals on refunds (2 years) was about to expire. 1989. Stockholders of a dissolved company. the term "decisions" in Sec. 12 . Mar.EXCEPTION: In Commissioner of Customs v. The right is available only to persons. 20. . Villa. Who may appeal? Any person. 16. In cases where the taxpayer files several requests for reconsideration of a protested assessment and these requests for reconsideration are all denied. 7 of RA 1125 was interpreted to mean decisions of the CIR on the protest of the taxpayer against the assessments. Jan. A reiteration of BIR's previous demand for payment amounts to finality of its decision. association or corporation adversely affected by a decision of the CIR/Customs. Note: The Government cannot appeal to the CTA. or corporations. Mere assessments of the CIR are not appealable to the CTA. while a claim for refund was still pending in the Office of the Collector of Customs. Further. Planter's Products Inc.