Taxation 2 PDF

Transfer Taxes
Taxation Law 2
TRANSFER TAXES
o
o
Transfer taxes are excise taxes imposed upon the

privilege of gratuitously transmitting ones property
to another. There are two types of transfer taxes:
donors tax and estate tax.
o
Donors Tax
Imposed
upon
privilege to give
Transfer is
the living
the
between
Transfer
may
take
place between natural
and juridical persons
Estate Tax
Imposed
upon
the
privilege to transmit
property to heirs
Transfer is from the
deceased,
through
his/her estate, to the
living
Transfer takes place
only between natural
persons
o
o
o
I.
ESTATE TAX
PRINCIPLES
Definition
It is a graduated tax imposed upon the privilege of the
decedent to transmit property at death and is based
on the entire net estate. It is not a direct tax on the
property transmitted or transferred although its
amount is based thereon.
Applicable Law
It is a well-settled rule that estate taxation is
governed by the statute in force at the time of the
death of the decedent. The estate tax accrues as of
the death of the decedent and the accrual of the tax is
distinct from the obligation to pay the same. Upon the
death of the decedent, succession takes place and the
right of the State to tax the privilege to transmit the
estate vests instantly upon death. (Section 3, RR 22003)
b.
Transfer with retention or reservation of

certain rights (Sec. 85B)
This contemplates those cases where the
owner transfers his property during life but
still retains the economic benefits the
possession or enjoyment of the property, or
the power to designate the persons who may
exercise such rights. By reason of the
restriction or encumbrance, the transferee is
incapable of freely enjoying or disposing of
the property until the transferors death, that
the transfer may be regarded as having been
intended to take effect in possession or
enjoyment at the transferors death.
ILLUSTRATION:
X transfers his property to Y in naked
ownership and to Z in usufruct throughout Zs
lifetime subject to the condition that if Z
predeceases X, the property shall return to X.
If X dies during Zs life, the value of the
reversionary interest of X at death is
includible in his gross estate (see Articles
756-757 of the Civil Code). The transfer is
taxable as intended to take effect at or after
death because the possibility of reversion to
X makes Zs interest conditional as long as X
lives.
NOTE: Transfer with retention or reservation
of certain rights is grouped by the Tax Code
under transfer in contemplation of death.
c.
Revocable transfers (Sec. 85C)

A revocable transfer is one where the
transferor has reserved the right to alter,
amend or revoke such transfer, regardless of
whether or not the power is actually
exercised during his lifetime, and whether or
not the power should be exercised by him
Transfers Affected
1. Transfers Mortis Causa - Gratuitous transfers
mortis causa or after death are the usual objects
of the estate tax.
Such transfers are either
testate or intestate.
2.
Transfers Inter Vivos - Generally, gratuitous

transfers inter vivos attract donors tax.
However, certain transfers inter vivos are treated
as testamentary dispositions and are accordingly
included in the computation of the gross estate in
order to arrive at the proper estate tax liability.
These transfers are the following:
a.
Transfers in contemplation of death (Sec.

85B)
The term in contemplation of death does
not refer to the general expectation of death
which all entertain. The transfers referred to
are those impelled by the thought of death
(i.e., the motivating factor or controlling
motive is the thought of death), regardless of
whether the transferor was near the
possibility of death or not. In ascertaining
such intent, the following are considered:
o
The age of the decedent at the time the
transfers were made;
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The decedents health, as he knew it, at

or before the time of the transfers;
The interval between the transfers and
the decedents death;
The amount of the property transferred
in proportion to the amount of property
retained;
The nature and disposition of the
decedent, e.g., whether peaceful or
gloomy, sanguine or morbid, optimistic
or pessimistic;
The existence of a general testamentary
scheme of which the transfers were part;
The relationship of the donee or donees
to the decedent, i.e. whether they were
the natural objects of their bounty;
The existence of a desire on the part of
the decedent to escape the burden of
managing property by transferring the
property to others;
The existence of a long established giftmaking policy on the part of the
decedent;
The existence of a desire on the part of
the decedent to vicariously enjoy the
enjoyment of the donees of the property
transferred; and
The existence of the desire by the
decedent of avoiding estate taxes by
means of making inter vivos transfers of
property.
(Source: Nolledo, The NIRC Annotated)
Transfer Taxes
Taxation Law 2
alone or in conjunction with someone else.
The power to alter, amend or revoke shall be
considered to exist on the date of the
decedents death EVEN THOUGH:
the exercise of the power is subject to

a precedent giving of notice, or
the
alteration,
amendment
or
revocation takes effect only on the
expiration of a stated period after the
exercise of the power,
whether or not on or before the date of the
decedents death notice has been given or
the power has been exercised.
If notice has not been given or the power

has not been exercised before the date
of his death, such notice shall be
considered to have been given, or the
power exercised, on the date of his
death.
d.
Transfers of property arising under a

general power of appointment (Sec. 85D)
The rule is that the gross estate shall include
any property passing or transferred under a
general power of appointment exercised by
the decedent:
by will, or
by deed executed in contemplation of, or

intended to take effect in possession or
enjoyment at, or after his death, or
by deed under which he has retained for

his life or any period not ascertainable
without reference to his death or for any
period which does not in fact end before
his death
o
the possession or enjoyment of, or
the right to the income from, the
property, or
o
the right, either alone or in
conjunction with any person, to
designate the persons who shall
possess or enjoy the property or
the income therefrom
Q: What is a power of appointment?
It is the power or right to designate by will or
by deed the person(s) who shall succeed to,
possess or enjoy the property, or the income
therefrom, received from the estate of the prior
decedent. It involves the person creating the
power (donor) and the person to whom is given
the right to exercise the power (donee). The
two kinds of appointment and their effects are
as follows:
Kind
of
Appointment
General
Nature
DONEE
has
power to
appoint
any
person he
chooses
who shall
possess
or enjoy
the
property
without
restriction
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Tax
Implications
Makes
appointed
property, for
all
legal
intents,
the
property
of
the
DONEE
(includible in
his estate)
Effects
DONEE
holds the
appointed
property
with
all
the
attributes
of
ownership,
under the
concept of
owner
Special
e.
DONEE
must
appoint
successor
to
the
property
only
within a
limited
group or
class
of
persons
Not includible
in the gross
estate of the
DONEE when
he dies
DONEE
holds the
appointed
property
in trust, or
under the
concept of
trustee
Transfers for insufficient consideration

(Sec. 85G)
These are transfers that are not bona fide
sales of property for an adequate and full
consideration in money or moneys worth.
The following rules apply:
If bona fide sale no value shall be

included in the gross estate
If not a bona fide sale - the excess of the

fair market value at the time of death over
the value of the consideration received by
the decedent shall form part of his gross
estate.
If inter vivos transfer is proven fictitious

total value of the property at the time of
death included in the gross estate; e.g.
FMV, transfer
FMV, death
Consideration
Received
Value
Included in
the
Gross
Estate
Case A
1,500
2,000
800
Case B
2,000
2,500
2,000
Case C
2,500
2,000
0
1,200
2,000
Transfers Exempted and Properties Excluded

1. Acquisitions and transfers expressly declared as
exempt: (Sec. 87)
a.
Merger of the usufruct in the owner of the
naked title
b.
Transmission or delivery of the inheritance or
legacy by the fiduciary heirs or legatee to the
fiduciary
c.
Transmission from the first heirs, legatees or
donees in favor of another beneficiary in
accordance with the desire of the testator
d.
All bequests, devises, legacies or transfers to
social welfare, cultural and charitable
institutions, no part of the income of which
inures to the benefit of any individual,
provided that not more than 30% of the said
bequests, devises, legacies or transfers shall
be used for administrative purposes
2.
Proceeds of:
A life insurance policy taken out by the

decedent upon his own life, when
beneficiary is OTHER THAN the estate,
executor or administrator, and designation
is IRREVOCABLE (Sec. 85E)
Thus, proceeds are INCLUDED in
the gross estate:
When beneficiary is the estate,

executor or administrator, whether
designation
is
revocable
or
irrevocable
Transfer Taxes
Taxation Law 2
When beneficiary is other than the

estate, executor or administrator, and
designation is REVOCABLE
NOTE: According to the Insurance
Code, the designation is presumed to
be revocable, in case the designation
of the beneficiary is not clear.
a group life insurance policy taken out by a
company for its employees, because the
law speaks of policies taken out by the
decedent upon his own life
life insurance policies issued by the GSIS to
government officials or employees, as they
are exempt by law from taxes of all kinds
(PD 1146, as amended)
3.
Death benefits received from the SSS, accruing

by reason of death (RA 1161, as amended)
4.
Amounts received from the Philippine and the

U.S. Governments from the damages suffered
during the last war (RA 227)
5.
Benefits received by beneficiaries residing in the

Philippines under laws administered by the U.S.
Veterans Administration (RA 360)
6.
Properties held in trust by the decedent
7.
Transfers by way of bona fide sales
8.
Separate or exclusive property of the surviving

spouse is not deemed part of the gross estate of
the decedent spouse. (Sec. 85, NIRC)
9.
Net estates which are not in excess of P200,000

are exempt from estate tax. (Sec. 84, NIRC)
GROSS ESTATE
Composition
The gross estate of a decedent shall be composed of
the following properties and interest therein at the
time of his death:
Citizens and Resident Aliens all properties,

real or personal, tangible or intangible,
wherever situated
Non-resident Aliens only properties situated

in the Philippines provided that, with respect
to intangible personal property, its inclusion
in the gross estate is subject to the rule of
reciprocity provided for under Section 104 of
the NIRC
Q: What is residence for estate tax purposes?
The term residence and domicile are synonymous
and are used interchangeably without distinction.
(Collector v. Lara, 102 Phil 813; Velilla v. Posadas, 62
Phil 624). For purposes of estate taxation, residence
refers to the permanent home, the place to which
whenever absent, for business or pleasure, one
intends to return, and depends on facts and
circumstances, in the sense that they disclose intent.
(Corre v. Tan Corre, 100 Phil 321) It is, therefore, not
necessarily the actual place of residence.
Q: What is the situs of intangible personal
property?
The general rule is that the situs is at the domicile or
residence of the owner. The principle, however, is not
controlling when:
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It is inconsistent with the express provisions

of statute, or
Justice does not demand that it should be, as
where the property has in fact a situs
elsewhere.
CASE LAW: Collector v. Lara, 102 Phil 813 As a rule,

personal property is taxable at the domicile of the
owner under the doctrine of mobilia sequuntur
personam; nevertheless, when he, during his lifetime,
extended his activities with respect to his interests so
as to avail himself of the protection and benefits of the
laws of the Philippines, in such a way as to bring his
person or property within the reach of the Philippines,
the reason for a single place of taxation no longer
obtains. His property in the Philippines enjoys the
protection of the government so that the right to
collect the estate tax cannot be questioned.
Q: What are the intangible properties which are
considered by law as situated in the Philippines?
Franchise which must be exercised in the

Philippines
Obligations or bonds issued by any

corporation or sociedad anonima organized or
constituted in the Philippines
Shares, obligations or bonds issued by any

foreign corporation 85% of the business of
which is located in the Philippines

foreign corporation if such shares, obligations
or bonds have acquired a business situs in
the Philippines
Shares or rights in any partnership, business

or industry established in the Philippines
Q: What is the reciprocity rule? (Sec. 104, NIRC)
There is reciprocity if the foreign country of which the
decedent was a citizen and resident at the time of his
death:
did not impose a transfer tax of any

character, in respect of intangible personal
property of citizens of the Philippines not
residing in that foreign country; or
allowed a similar exemption from transfer tax

in respect of intangible personal property
owned by citizens of the Philippines not
residing in that country
NOTE:
For the reciprocity rule to apply, there must

be TOTAL reciprocity. If any of the two states
collects or imposes and does not exempt any
transfer, death, legacy, or succession tax of
any character, reciprocity does not work. [For
instance,] in the Philippines, both estate and
inheritance taxes are imposed on the estate
while in California only inheritance tax is
imposed. The reciprocity rule may not,
therefore, be availed of. There cannot be
partial reciprocity. It has to be total or none
at all. (CIR v. Fisher, 110 Phil 686)
Reciprocity in exemption does not require the
foreign country to possess international
personality in the traditional sense (i.e.,
compliance with the requisites of statehood).
Thus, Tangier, Morroco (Collector v. CamposRueda, 42 SCRA 23) and California, a state in
the American Union (Collector v. de Lara, 102
Phil 813) were held to be foreign countries
within the meaning of Section 104.
Transfer Taxes
Taxation Law 2
o
Valuation of the Gross Estate
(88 of the NIRC and 5 of RR 2-2003)
GENERAL RULE: The properties comprising the gross
estate shall be valued based on FAIR MARKET VALUE
(FMV) as of the time of death.
Real property FMV shall be the FMV as

determined by the Commissioner OR the FMV
as shown in the schedule of values fixed by
the provincial and city assessors, whichever
is HIGHER.
Shares of Stock
o
Listed shares FMV shall be the
arithmetic
mean
between
the
highest and lowest quotation at a
date of death, OR the date nearest
the date of death, if none is
available on the date of death itself
o
Unlisted shares - COMMON shares
are valued based on BOOK VALUE;
while PREFERRED shares are valued
at PAR VALUE
o
o
Q: What are NOT deductible as funeral

expenses?
o
Expenses incurred AFTER INTERMENT, such
as for prayers, masses, entertainment, or the
like
o
Any portion of the funeral and burial
expenses BORNE or DEFRAYED by RELATIVES
and FRIENDS of the deceased
ILLUSTRATIONS:
o
If five percent (5%) of the gross estate is
P70,000 and the amount actually incurred is
P50,000, only P50,000 will be allowed as
deduction;
o
If the expenses actually incurred amount to
P90,000 and five percent (5%) of the gross
estate is P70,000, only P70,000 will be
allowed as deduction;
o
If five percent (5%) of the gross estate is
P220,000 and the amount actually incurred is
P215,000, the maximum amount that may be
deducted is only P200,000;
o
If five percent (5%) of the gross estate is P
100,000 and the total amount incurred is
P150,000 where P20,000 thereof is still
unpaid, the only amount that can be claimed
as deduction for funeral expenses is
P100,000. The entire P50,000 excess amount
consisting of P30,000 paid amount and
P20,000 unpaid amount can no longer be
claimed as FUNERAL EXPENSES. Neither can
the P20,000 unpaid portion be deducted from
the gross estate as CLAIMS AGAINST THE
ESTATE.
Right to usufruct, use or habitation, as

well as that of annuity - there shall be
taken into account the probable life of the
beneficiary in accordance with the latest basic
standard mortality table, to be approved by
the
Secretary
of
Finance,
upon
recommendation
of
the
Insurance
Commissioner.
Decedents interest Value to be included in the

gross estate is the extent of the interest therein of the
decedent at the time of his death
DEDUCTIONS
1.
Expenses, losses, indebtedness and taxes

a.
Funeral expenses (86-A1)

The allowable deduction may either be the
actual funeral expenses (whether paid or
unpaid) up to the time of interment, or an
amount equal to 5% of the gross estate,
whichever is lower, but in no case to exceed
P200,000.
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b)
NOTE: The unpaid portion of the funeral

expenses incurred which is in excess of the
P200,000 threshold is NOT allowed to be
claimed as a deduction under claims against
the estate (see 1(c) below). (Section 6(A)(1)
of RR 02-2003)
Q: What are examples of funeral expenses?

(RR 2-2003, Sec. 6-A1)
o
The MOURNING APPAREL of the surviving
spouse and unmarried minor children of the
deceased, bought and used on the occasion
of the burial
o
Expenses for the deceaseds wake, including
food and drinks
o
PUBLICATION CHARGES for death notices
o
TELECOMMUNICATIONS EXPENSES incurred
in informing relatives of the deceased
Cost of BURIAL PLOT, TOMBSTONES,

MONUMENT or MAUSOLEUM but not their
upkeep. In case the deceased owns a family
estate or several burial lots, only the value
corresponding to the plot where he is buried
is deductible
INTERMENT and/or CREMATION FEES and
CHARGES
All other expenses incurred for
the
performance of the RITES and CEREMONIES
incident to interment
Judicial expenses of testamentary and

intestate proceedings (86-A1)
Expenses allowed as a deduction under this
heading are those incurred in the inventorytaking of the assets comprising the gross
estate, their administration, the payment of
debts of the estate, as well as the
distribution of the estate among the heirs.
These deductible items are expenses incurred
DURING THE SETTLEMENT OF THE ESTATE
BUT
NOT
BEYOND
THE
LAST
DAY
PRESCRIBED BY LAW, or the extension
thereof, FOR THE FILING OF THE ESTATE
TAX RETURN (RR 2-2003, Sec. 6-A2)
Q: What are examples of judicial expenses?

o
Fees of executor or administrator
o
Attorneys fees
o
Court fees
o
Accountants fees
o
Appraisers fees
o
Clerk hire
o
Costs of preserving and distributing the
estate
Transfer Taxes
Taxation Law 2
Costs of storing or maintaining property of
the estate
Brokerage fees for selling property of the
estate
CASE LAW: Commissioner v. Court of Appeals,

328 SCRA 666
o
Expenses incurred in the extrajudicial
settlement of the estate should be allowed as
a deduction from the gross estate. It is
sufficient that the expense be a necessary
contribution toward the settlement of the
case. The notarial fee paid for the
extrajudicial settlement is deductible since
such settlement effected a distribution of
[Pajonars] estate to his lawful heirs.
o
Attorneys fees to be deductible from the
gross estate must be essential to the
collection of assets, payment of debts or the
distribution of property to the persons
entitled to it.
o
o
c)
1)
2)
Claims against the estate (86-A1)

Claims debts or demands of a pecuniary
nature which could have been enforced
against the deceased in his lifetime and could
have been reduced to simple money
judgments. These may arise out of contract,
tort or operation of law.
Requisites for deductibility (RR 2-2003,
Sec. 6-A3):
1) must be a PERSONAL OBLIGATION of the
deceased existing at the time of his
death (except unpaid funeral expenses
and unpaid medical expenses, which are
classified into their own separate
categories)
2) liability must have been contracted in
GOOD FAITH and for adequate and full
consideration in money or moneys worth
3) the claim must be a debt or claim which
is VALID IN LAW and ENFORCEABLE IN
COURT
4) indebtedness must NOT have been
CONDONED by the creditor or the action
to collect from the decedent must not
have prescribed.
Q:
What
are
the
substantiation
requirements?
The duly-notarized debt instrument, If the
claim arose out of a debt instrument
A statement showing the disposition of the
proceeds of the loan, if the indebtedness was
incurred within 3 years before the death of
the decedent.
d)
Claims against insolvent persons (86A1)

These shall be deductible from the gross
estate, provided that the value of the
decedents interest in the claim is included in
the value of the gross estate.
e)
Unpaid
mortgages,
losses
and
taxes(86-A1 and RR 2-2003, Sec. 6-A5)
UNPAID MORTGAGES shall be deductible
from gross estate, subject to the following
conditions:
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That the value of the decedents

interest in the property which was
encumbered by such mortgage or
indebtedness is included in the value
of the gross estate
That the deduction shall be limited to
the extent that they were contracted
bona fide and for an adequate and full
consideration in money or moneys
worth, if such unpaid mortgages or
indebtedness were founded upon a
promise or an agreement.
LOSSES deductible from the gross estate if

ALL of the following conditions are satisfied:
o
The losses were INCURRED DURING the
SETTLEMENT of the estate
o
The losses arose from FIRES, STORMS,
SHIPWRECK or OTHER CASUALTIES, or
from
ROBBERY,
THEFT
or
EMBEZZLEMENT
o
The losses are NOT COMPENSATED BY
INSURANCE or otherwise
o
The losses are not claimed as a
deduction for income tax purposes in an
income tax return
o
The losses were incurred NOT LATER
THAN THE LAST DAY FOR PAYMENT OF
THE ESTATE TAX
TAXES shall be deductible from the gross

estate if:
o
They have accrued as of the death of
the decedent
o
They were unpaid as of the time of
death
NOTE: This deduction DOES NOT
include income tax upon income
received after death, or property taxes
not accrued before his death, or the
estate tax due from the transmission
of his estate.
2.
Property
previously
taxed
(vanishing
deductions) (86-A2)
Vanishing deduction or deduction of property
previously taxed is a deduction allowed on the
property left behind by the decedent which he had
acquired previously by inheritance or donation.
Previously, a transfer tax had already been imposed
on the property, either the estate tax if the property
was acquired by inheritance or the donors tax if the
same was acquired by donation.
Now that the
recipient of the inheritance or donation has died, the
same property will again be subjected to a transfer
tax, the estate tax. Thus, to minimize the effects of a
double tax on the same property within a short period
of time, i.e. five (5) years, the law allows a deduction
to be claimed on the said property.
Example: Mr. A died in December 2003.

In March 2003, Mr. B (Mr. As father)
died and left Mr. A some properties as
inheritance. May vanishing deductions
be claimed as deductions in computing
Mr. As net taxable estate?
YES, vanishing deductions shall be allowed if the
following conditions are met (REQUISITES FOR
DEDUCTIBILITY):
1)
Death the present decedent (Mr. A) died

within five years from the receipt of the
Transfer Taxes
Taxation Law 2
2)
property from a prior decedent (Mr. B) or

donor;
Mr. A paid P70,000 of the mortgage.

Thus, P870,000 less 70,000 is P800,000
Identity of the property The property with

respect to which deduction is sought can be
identified as the one received from the prior
decedent or the donor, or as the property
acquired in exchange for the original property
so received.
3)
The value as reduced in (2)

shall be further reduced by an amount
equal to:
3)
Inclusion of the property The property must

have formed part of the gross estate situated
in the Philippines of the prior decedent, or the
total amount of the gifts of the donor
4)
Previous taxation of the property the

donor's tax on the gift or estate tax on the
prior succession (Mr. Bs succession) was
finally determined and paid
5)
4)
No vanishing deduction on the property was

allowed to the estate of the prior decedent.
(Illustration of how this requirement may
NOT be met: In the example above, if Mr. B
received the same properties as a donation
from Mr. C in July 2002, a vanishing
deduction on the properties was claimed with
respect to Mr. Bs estate. Thus, no more
vanishing deduction may be claimed by Mr.
As estate)
2)
First, compare the values of the property

at the time of the prior decedents death
and at the time of the present decedents
death.
The lower amount shall be the
initial basis.
in the example, the initial basis shall be
P800,000 for the land and P70,000 for
the car, for a total of P870,000
NOTE: The value used as initial basis is
only
for
purposes
of
significant
computing the amount of vanishing
deduction. The value included in the
decedents gross estate is ALWAYS the
fair market value at the time of his
death.
80%
Then, the value in (1) shall

be reduced by any payment made by the
present decedent on any mortgage or
lien on the property
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60%
40%
20%
3.
Total
amount
of
Finally, the remaining balance shall be

multiplied
by
the
corresponding
percentage:
100%
* excluding family home, medical

expenses,
standard
deduction
and
amounts received under RA 4917
800/3200 x 600,000 equals 150,000.
This will be deducted from P800,000,
which gives a balance of P650,000
Q: How shall the amount of vanishing

deduction be computed?
Using the facts above, assume that Mr. A
inherited a car and a house from his father
Mr. B. The FMV of the car was P120,000
and the FMV of the house was P800,000 at
the time of Mr. Bs death. At the time Mr.
A inherited the land, it was subject to a
mortgage of P80,000. Mr. A paid P70,000
of the mortgage during his lifetime (leaving
a balance of P10,000). The FMV of the
properties at the time of Mr. As death were
P850,000 for the land and P70,000 for the
car. Mr. As gross estate amounted to
P3,200,000
while
total
deductions
(excluding medical expenses, standard
deductions, family home) amounted to
P600,000.
1)
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Value as reduced in (2)

deductions*
Gross Estate
If received by inheritance or
gift:
within one (1) year prior to
the death of the present
decedent
More than one year but not
more than two years prior
to the death of the decedent
More than two years but not
more than three years prior
to the death of the decedent
More than three years but
not more than four years
prior to the death of the
decedent
More than four years but
not more than five years
prior to the death of the
decedent
Since Mr. A received the inheritance in

March 2003 (within 1 year from his death
in December 2003), the balance of
P650,000 shall be multiplied by 100%.
Thus, the allowable vanishing deduction
is P650,000
Transfers for public purpose
The amount of all the BEQUESTS, LEGACIES, DEVISES

or TRANSFERS to or for the use of the Government of
the Republic of the Philippines, or any political
subdivision thereof, for exclusively public purposes
shall be deductible from gross estate. The whole
amount or value of the property is deductible provided
such amount or value had been included in the gross
estate.
4.
Family home
Q: What is a family home?

It is the dwelling house, including the land on
which it is situated, where the husband and
wife, or a head or the family, and members of
their family reside, as certified to by the
Barangay Captain of the locality. The family
home is deemed to be constituted on the
house and lot from the time it is actually
occupied as s family residence and
Transfer Taxes
Taxation Law 2
considered as such for as long as any of its
beneficiaries actually resides therein. (Arts.
152 and 153, Family Code) However, actual
occupancy of the house or house and lot as
the family residence shall not be considered
interrupted or abandoned in such cases as
the temporary absence from the constituted
family home due to travel or studies or work
abroad, etc. In other words, the family home
is generally characterized by permanency,
that is, the place to which, whenever absent
for business or pleasure, one still intends to
return. (RR 2-2003, Sec. 6D)
Q: What are the conditions for the

allowance of family home as deduction
from the gross estate?
1) The family home must be the actual
residential home of the decedent and his
family at the time of his death, as
certified by the barangay captain of the
locality.
2) The total value of the family home must
be included as part of the gross estate of
the decedent
3) Allowable deduction must be in an
amount equivalent to the current FMV of
the family home as declared or included
in the gross estate but in no case shall
the deduction exceed P1,000,000
5. Standard deduction (86-A5)

An amount equivalent to One million pesos
(P1,000,000) shall be deducted from the gross estate
without need of substantiation.
6. Medical expenses (86-A6)

All medical expenses (cost of medicine, hospital bills,
doctors fees, etc.) incurred (whether paid or unpaid)
shall be allowed as a deduction against gross estate,
subject to the following conditions:
The expenses were incurred by the

decedent within one (1) year prior to his
death
The expenses are duly substantiated with

receipts
PROVIDED, that in no case shall the deductible
medical expenses exceed Five Hundred Thousand
Pesos (P500,000).
Any amount of medical expenses incurred within one

year from death in excess of P500,000 CANNOT be
claimed as a deduction under Claims against the
estate. (RR 2-2003, Sec. 6-F)
7.
Amounts received by heirs under R.A. 4917

(86-A7)
Any amount received by the heirs from the decedents

employer as a consequence of the death of the
decedent-employee in accordance with Republic Act
No. 4917
PROVIDED that such amount is included
in the gross estate of the decedent.
QUICK GLANCE:
Resident or citizen
decedent
Non-resident
decedent
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alien
GROSS ESTATE all

property at the time
of death, wherever
situated
GROSS ESTATE includes

only that part of gross
estate located in the
Philippines
DEDUCTIONS
funeral
expenses
judicial
expenses
claims
against
the
estate
claims
against
insolvents
unpaid
mortgage
and debt
taxes
and
losses
transfers for
public use
vanishing
deductions
family home
standard
deduction
medical
expenses
amounts
received
under
R.A.
4917
share
in
conjugal
property
DEDUCTIONS
funeral expenses
judicial expenses
claims
against
the estate
claims
against
insolvents
unpaid mortgage
and debt
taxes and losses
transfers
for
public use
vanishing
deductions
share in conjugal
property
NOTE:
To compute for
total allowable deductions
of the first six items
above, this formula is
used:
Gross estate,
Phils
X
Gross estate,
world
World
expense
s,
losses,
indebte
dness,
taxes
etc.
NOTE: No deduction shall be allowed in the case of a

non-resident decedent not a citizen of the Philippines,
unless the executor, administrator, or anyone of the
heirs, as the case may be, includes in the return
required to be filed under Section 90 of the Code the
value at the time of the decedents death of that part
of his gross estate not situated in the Philippines.
(Section 86, NIRC)
Tax Rates Applicable:
If the net estate is:
P 200,000
THE TAX
SHALL
BE
Exempt
P 200,000
500,000
2,000,000
500,000
2,000,000
5,000,000
0
P 15,000
135,000
5%
8%
11%
P 200,000
500,000
2,000,000
5,000,000
10,000,000
10,000,000
And Over
465,000
1,215,000
15%
20%
5,000,000
10,000,000
OVER
BUT NOT
OVER
PLUS
OF
THE
EXCESS
OVER
Tax Credit for Estate Taxes (86-E)

Q: What is a tax credit?
It is a remedy against international double taxation.
To minimize the onerous effect of taxing the same
property twice, tax credit against Philippine estate tax
is allowed for estate taxes paid to foreign countries.
Transfer Taxes
Taxation Law 2
Q: Who may avail of tax credit?
Only the estate of a decedent who was a citizen or a
resident of the Philippines at the time of his death can
claim tax credit for any estate tax paid to a foreign
country.
Q: What is the amount allowable as tax credit?
GENERAL RULE: The estate tax imposed by the
Philippines shall be credited with the amounts of any
estate tax imposed by the authority of a foreign
country.
LIMITATIONS: The amount of the credit

taken shall be subject to each of the following
limitations:
a.
b.
The amount of the credit in respect to

the tax paid to any country shall not
exceed the same proportion of the tax
against which such credit is taken, which
the decedent's net estate situated within
such country taxable under the NIRC
bears to his entire net estate; (PER
COUNTRY BASIS) and
The total amount of the credit shall not
exceed the same proportion of the tax
against which such credit is taken, which
the decedent's net estate situated
outside the Philippines taxable under the
NIRC bears to his entire net estate.
(OVERALL BASIS)
ILLUSTRATION:
Assume:
Net Estate Philippines
(reduced by all allowable
deductions, except standard
deduction)
Country G Net Estate
Country H Net Estate
Tax
paid/incurred:
Philippines
Country G
Country H
P 1,050,000
300,000
150,000
15,000
5,000
1,400
Net taxable estate is P500,000 (1,050,000 +

300,000 + 150,000 1,000,000 standard
deduction).
The Philippine estate tax on
P500,000 is P15,000
To get tax credit per country under Limitation

A, this formula is followed:
x Phil. estate tax
The result after applying the formula above is

compared to the tax actually paid for each
foreign country.
The lower of the two
amounts for each foreign country will be
added to get the total tax credit allowed
under Limitation A.
Amount
Allowed
(Whichever
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P 3,000
5,000
P 1,500
1,400
1,400
P
3,000
4,400
Solution Limitation B:
Net estate in all foreign countries.
= Tax credit
Net Estate Worldwide
x Phil. estate tax
The result after applying the formula above is

compared to the tax actually paid in total to
foreign countries.
The lower of the two
amounts will be added to get the total tax
credit allowed under Limitation B.
Amount
Allowed
(Whichever
is Lower)
450/1500 x 15,000
Total foreign income
taxes paid
Tax credit allowed
under Limitation B
P 4,500
6,400
P 4,500
Compare the tax credit allowed under Limitation A and

Limitation B. The lower of the two amounts is the
final allowable tax credit. In this case, the amount
computed under Limitation A (4,400) is lower, thus it
becomes the final allowable tax credit.
If there is only one foreign country involved, both
Limitations will yield the same answer. To get the tax
credit allowable, use the formula in Limitation A. The
resulting amount will be compared to the actual tax
paid to the foreign country. The lower amount will be
the final allowable tax credit.
(Source: Reyes, Income Tax Law and Accounting)
COMPLIANCE REQUIREMENTS
Person Liable for Payment of Estate Tax
Solution Limitation A:
Net Estate in a Particular Country

= Tax credit
Net Estate Worldwide
is Lower)
Country G (300/1500 x
15,000)
Actually paid to Country
G
Country H (150/1500 x
15,000)
Actually paid to Country
H
Tax
credit
allowed
under Limitation A
Q: Who is liable to pay the estate tax?

The estate, through the executor or administrator,
shall have the primary obligation to pay the estate
tax. Such payment shall be made before the delivery
of the distributive share in the inheritance to any heir
or beneficiary.
Where there are two or more
executors or administrators, all of them are severally
liable for the payment of the tax. The estate tax
clearance issued by the Commissioner or the Revenue
District Officer (RDO) having jurisdiction over the
estate, will serve as the authority to distribute the
remaining/distributable
properties/share
in
the
inheritance to the heir or beneficiary.
HOWEVER, the heirs or beneficiaries

have subsidiary liability for the
payment of that portion of the estate
which his distributive share bears to
the value of the total net estate. The
Transfer Taxes
Taxation Law 2
extent of his liability, however, shall in
no case exceed the value of his share in
the inheritance.
Notice Requirement and Filing of Estate Tax
Return
Q: When must notice of death be filed?
A written Notice of Death must be given to the BIR
within two (2) months after the death of the decedent
or within a period after the executor or administrator
or executor qualifies as such:
1. In all cases of transfers subject to tax; or
2. Where, though exempt from tax, the gross
value of the estate exceeds P20,000.
Q: When is an estate tax return required to be
filed?
1. When the estate is subject to estate tax, OR
2. When, though exempt from tax, the gross
value of the estate exceeds Two hundred
thousand pesos (P200,000), OR
3. Regardless of the gross value of the estate,
when the said estate consists of registered or
registrable property such as real property,
motor vehicle, shares of stock or other similar
property for which a clearance from the
Bureau of Internal Revenue is required as a
condition precedent for the transfer of
ownership thereof in the name of the
transferee,
Q: What are the contents of the estate tax
return?
The executor, or the administrator, or any of the legal
heirs, as the case may be, shall file a return under
oath in duplicate, setting forth:
1. The value of the gross estate of the decedent
at the time of his death, or in case of a
nonresident, not a citizen of the Philippines,
of that part of his gross estate situated in the
Philippines;
2. The deductions allowed from gross estate in
determining the net taxable estate; and
3. Such part of such information as may at the
time be ascertainable and such supplemental
data as may be necessary to establish the
correct taxes.
4. For estate tax returns showing a gross
value exceeding Two million pesos
(P2,000,000) there must be a statement
duly certified to by a Certified Public
Accountant containing the following:
Itemized assets of the decedent with

their corresponding gross value at the
time of his death, or in the case of a
nonresident, not a citizen of the
Philippines, of that part of his gross
estate situated in the Philippines;
Itemized deductions from gross estate

allowed in Section 86; and
The amount of tax due whether paid or

still due and outstanding.
Q: When must the required estate tax return be
filed?
The estate tax return shall be filed within six (6)
months from the decedent's death. However, the
Commissioner shall have authority to grant, in
meritorious cases, a reasonable extension not
exceeding thirty (30) days for filing the return
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Q: Where must the estate tax return be filed?

Except in cases where the Commissioner otherwise
permits, the return shall be filed with:
an authorized agent bank,
or Revenue District Officer,
Collection Officer, or
duly authorized Treasurer of the city

or municipality in which the
decedent was domiciled at the time
of his death, or
if there be no legal residence in the

Philippines, with the Office of the
Commissioner.
Payment of Estate Tax
Q: When must estate tax be paid?
The estate tax shall be paid at the time the return is
filed by the executor, administrator or the heirs.
Q: Can the payment of estate tax be extended?
The Commissioner may allow an extension of
payment, if he finds that the payment on the due date
of the estate tax or of any part thereof would impose
undue hardship upon the estate or any of the heirs
extension not to exceed five (5) years,

in case the estate is settled through the courts,
or two (2) years in case the estate is

settled extrajudicially
Where the taxes are assessed by reason of
negligence, intentional disregard of rules and
regulations, or fraud on the part of the taxpayer, no
extension will be granted by the Commissioner.
If an extension is granted, the

Commissioner may require the executor,
or administrator, or beneficiary, as the
case may be, to furnish a BOND in such
amount, not exceeding DOUBLE the
amount of the tax and with such sureties
as the Commissioner deems necessary,
conditioned upon the payment of the
said tax in accordance with the terms of
the extension.
Q: What are the effects of granting an
extension?
The amount in respect of which the

extension is granted shall be paid on or
before the date of the expiration of the
period of the extension, and the running
of the statute of limitations for deficiency
assessment shall be suspended for the
period of any such extension.
Any amount paid after the statutory due

date of the tax, but within the extension
period, shall be subject to interest but
not to surcharge.
Q: Can estate tax be paid in installments?
Yes. In case the available cash of the estate is not
sufficient to pay its total estate tax liability, the estate
may be allowed to pay the tax by installment and a
clearance shall be released only with respect to the
property the corresponding/computed tax on which
has been paid. (RR 2-2003)
Q: What are the ways by which the government
can collect any unpaid tax due from the estate of
a deceased person?
Transfer Taxes
Taxation Law 2
The government has two (2) ways of collecting any
unpaid tax due from the estate of a deceased person:
1.
2.
Filing of Action First, by filing an action

against all the heirs for the collection from
each one of them the amount of the tax
proportionate to the inheritance received.
Such action rests on the concept that
hereditary property consists only of that part
which remains after the settlement of all
lawful claims against the estate for the
settlement of which the entire estate is first
liable. It achieves thereby two results: first,
payment of the tax; and second, adjustment
of the shares of each heir in the distributed
estate as lessened by the tax.
Enforcement of Tax Lien Another remedy,
pursuant to the lien created by Section 219 of
the Tax Code upon all property and rights to
property belonging to the taxpayer, is by
subjecting said property of the estate which
is in the hands of an heir or transferee to the
payment of the tax due on the estate. This
remedy seeks only one objective: payment of
the tax. As a holder of property belonging to
the estate, an heir is liable for the tax up to
the amount of the property in his hands. As
an heir, he is individually answerable for the
part of the tax proportionate to the share he
received from the inheritance. His liability,
however, cannot exceed the amount of his
share. After payment of the tax, he will have
a right of contribution from his co-heirs, to
achieve an adjustment of the proper share of
each heir in the distributable estate.
(Commissioner v. Pineda, 21 SCRA 105)
No judge shall authorize the executor or

administrator to deliver a distributive share to
any party interested in the estate, unless a
certification from the BIR that the estate tax
has been paid is shown. (94)
3.
Register of Deeds
The Register of deeds shall not register in the
registry of property any transfer of real
property or real rights therein, or any
mortgage, by way of donation or mortis
causa or inheritance, without a certification
from the BIR of payment of the estate tax,
and they shall immediately notify the BIR of
non-payment of tax discovered by them.
(95)
4.
Bank
If a bank has knowledge of the death of a
person who maintained a joint account or
deposit jointly with another, it shall not allow
any withdrawal by a surviving depositor from
the
said
joint
account
unless
the
Commissioner has certified that the estate
tax has been paid.
EXCEPTION: the administrator or
any heir may, with the authorization
of the Commissioner, withdraw an
amount NOT EXCEEDING P20,000.
(95)
5.
Lawyer,
Notary
Public
or
any
Government Officer
Any lawyer, notary public, or any government
officer who, by reason of his official duties,
intervenes
in
the
preparation
or
acknowledgment of documents regarding
partition or disposal of donations mortis
causa, legacy or inheritance, shall furnish the
BIR with copies of such documents and any
information whatsoever which may facilitate
the collection of estate tax. (95)
6.
Debtor
A debtor shall not pay his debts to the heirs,
legatees, executor or administrator of his
creditor-decedent without a certification from
the BIR that the estate tax has been paid.
EXCEPTION:
if the credit is
included in the inventory of estate
of the decedent. (95)
7.
Corporate Secretary of other responsible

officer
No transfer to any new owner in the books of
any
corporation,
sociedad
anonima,
partnership, business or industry organized
or established in the Philippines, of any
shares, obligations, bonds or rights by way of
donations mortis causa, legacy or inheritance
shall be made, UNLESS a certification from
the BIR that the estate tax has been paid is
shown. (97)
OBLIGATIONS OF EXECUTOR, ADMINISTRATOR,

OFFICERS, OTHERS
1.
2.
Executor or Administrator
When the gross estate is more than

P20,000, the executor, administrator or
any of the legal heirs shall:
b) give a written notice of death to the
BIR within two months after the
decedents death OR after the
executor or administrator shall have
qualified
c) file the estate tax return within the
time prescribed by law
d) pay the estate tax within the time
prescribed by law
If the executor or administrator makes a

written application to the Commissioner
for determination of the amount of
estate tax and discharge from personal
liability therfor, the Commissioner shall
notify the executor or administrator of
the amount of the tax. Upon payment
of the tax, the executor or administrator
shall be DISCHARGED from PERSONAL
LIABILITY for any deficiency in the tax
thereafter found to be due, and shall be
entitled to a receipt or writing showing
such discharge. (92)
Judge
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ILLUSTRATIONS
o
Decedent is an unmarried head of a family

a.
Real and personal properties

P5,000,000
Transfer Taxes
Taxation Law 2
Family home
Gross estate
P7,000,000
Less: Deductions
Ordinary deductions
Funeral expenses
Other
Special deductions
Family Home
Standard deduction
1,000,000
Medical expenses
(2,500,000)
Net taxable estate
2,000,000
P 200,000
deductions
1,300,000
(1,500,000)
P1,000,000
500,000
P3,000,000
NOTE:
Although the family home is valued at P2

million,
the
maximum
allowable
deduction for the family home is
P1million only.
Medical expenses are not included in the

deductions
referred
under
Section
86(A)(1) of the Code but are treated as
a special item of deduction under
Section 86(A)(6) of the same Code.
P5,000,000
Family home
800,000
Gross estate
P5,800,000
Less: Deductions
Ordinary deductions
Funeral expenses
200,000
Other deductions
Gross estate
P9,500,000
Less: Deductions
Ordinary deductions
Conjugal deductions
Funeral expenses
P 200,000
Other deductions
1,300,000
(1,500,000)
Special deductions
Family Home
P1,000,000
Standard deduction
1,000,000
Medical expenses
500,000
(2,500,000)
Net estate
P5,500,000
Less: Share of Surviving Spouse
of net conjugal estate
((5,000,000 1,500,000)/2)
P3,750,000
b)
P
1,300,000
(1,500,000)
Special deductions
Family Home
P 800,000
Standard deduction
1,000,000
Medical expenses
500,000
(2,300,000)
Net taxable estate
P2,000,000
Decedent is a married man with a surviving

spouse
Family home is exclusive property

Conjugal properties
P5,000,000
Exclusive properties
Family home
P2,000,000
Other exclusive properties
2,500,000
4,500,000
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Family home is conjugal or community

property
Conjugal properties
Family home
P2,000,000
Other real properties
5,000,000
P7,000,000
2,000,000
Gross estate
P9,000,000
Less: Deductions
Ordinary deductions
Conjugal deductions
Funeral expenses
200,000
Other deductions
1,300,000
NOTE: Deduction for family home is allowed

for P800,000 only (declared value of the
family home).
o
(1,750,000)
Net taxable estate
P2,250,000
(1,500,000)
Special deductions
Family Home
P1,000,000
Standard deduction
1,000,000
Medical expenses
500,000
(2,500,000)
Net estate
P5,000,000
((7,000,000 1,500,000)/2)
(2,750,000)
Net taxable estate
Family home is conjugal property, valued
at P1500000
Conjugal properties
Family home
P1,500,000
Transfer Taxes
Taxation Law 2
Y during his last illness. The cost of the
dinner amounted to Php 50,000. Compared
to his gross estate, the Php 50,000 did not
exceed five percent of the estate. Is the said
cost of the dinner to commemorate his oneyear death anniversary deductible from his
gross estate? (2001 Bar)
Other real properties

5,000,000
P6,500,000
2,000,000
Gross estate
P8,500,000
Less: Deductions
Ordinary deductions
Conjugal deductions
Funeral expenses P 200,000
Other deductions
1,300,000
(1,500,000)
Special deductions
Family Home
P
750,000
Standard deduction 1,000,000
Medical expenses
500,000
(2,250,000)
Net estate
P4,750,000
((6,500,000 1,500,000)/2)
(2,500,000)
Net taxable estate
P2,250,000
NOTE: Only 750,000 is allowed as a
deduction for the family home, considering
that it was conjugal property valued at
P1,500,000. This value is subdivided into
P750,000, which belonged to the decedent,
and P750,000, which
belonged to the
surviving spouse. The part owned by the
decedent (P750,000) is compared with the
P1,000,000 maximum deduction, the lower of
the two amounts being the allowable
deduction.
PROBLEMS
1.
X received an inheritance from his deceased

father in the form of a residential lot on
January 5, 1999.
At this time, the fair
market value was P1,000,000. This land was
previously mortgaged by Xs father for
P500,000. X was able to pay only P300,000
before he died on January 10, 2004. At this
date, the fair market value of the lot was
already P2,000,000. What deduction/s may
be claimed for estate tax purposes?
Answer: Xs estate may claim the unpaid
mortgage as a deduction from his gross
estate in the amount of P200,000, provided
the value of the property which is P2,000,000
is reported as part of the gross estate,
undiminished by the mortgage. Vanishing
deduction may no longer be claimed since the
interval between the time of death of the
present decedent and the death of the prior
decedent is more than five (5) years.
2.
On the first anniversary of the death of Y, his

heirs hosted a sumptuous dinner for his
doctors, nurses, and others who attended to
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Answer: NO. This expense will not fall

under any of the allowable deductions from
gross estate. Whether viewed in the context
of either funeral expenses or medical
expenses, the same will not qualify as a
deduction because:
funeral
expenses
may
include
medical expenses of the last illness
BUT NOT expenses incurred after
burial nor expenses incurred to
commemorate death anniversary
(De Guzman v. De Guzman, 83
SCRA 256)
medical expenses are allowed only if

incurred by the decedent within one
year PRIOR to his death. (86-A6)
3.
Mr. Felix dela Cruz, a bachelor resident

citizen, suffered from a heart attack while on
a business trip to the USA. He died intestate
on 15 June 2000 in New York City, leaving
behind real properties as follows:
real properties in New York
family home in Valle Verde, Pasig

City
an office condo in Makati City
shares of stock in San Miguel Corp.
cash in bank
personal belongings
The decedent is heavily insured with Insular
Life. He had no known debts at the time of
his death. As the sole heir and appointed
Administrator, how would you determine the
gross estate of the decedent?
What
deductions may be claimed by the estate and
when and where shall the return be filed and
estate tax paid? (2000 Bar)
Answer:
All the properties enumerated
above shall be included in the gross estate,
because dela Cruz is a resident citizen.
(85A)
The amount includible with respect
to the life insurance proceeds would be to the
extent of the amount receivable by the
estate, executor or administrator, under
policies taken out by the decedent upon his
own life, irrespective of whether or not the
insured retained the power of revocation, OR
the amount receivable by any beneficiary
designated in the insurance policy, except
when the designation of the beneficiary is
irrevocable. (85E)
The deductions that may be claimed are:
funeral expenses
judicial
expenses
in
intestate
proceedings
value of the family home in an

amount not exceeding P1M
standard deduction of P1M
medical expenses incurred within

one year prior to death in an amount not
exceeding P500,000
Transfer Taxes
Taxation Law 2
The estate tax return shall be filed within six
months from the decedents death (except if
the Commissioner has granted an extension
in meritorious cases). The return shall be
filed with an authorized agent bank, Revenue
District Officer, Collection Officer or duly
authorized Treasurer of Pasig City, the city in
which dela Cruz was domiciled at the time of
his death. (90D)
4.
5.
Cliff Robertson, an American citizen, was a

permanent resident of the Philippines. He
died in Miami, Florida. He left 10,000 shares
of Meralco, a condominium unit at the Twin
Towers Building in Pasig, Metro Manila, and a
house and lot in Los Angeles, California. What
assets shall be included in the Estate Tax
Return to be filed with the BIR? (1994 Bar)
subjected to the donors tax, a gift or donation must

first satisfy the following REQUISITES:
1.
2.
3.
4.
The donor must have CAPACITY

There must be an INTENT TO DONATE
There must be DELIVERY, either actual or
constructive
The donee must ACCEPT the donation
Q: What are the kinds of donations?

1. Donations inter vivos a donation made
between living persons, which is perfected
the moment the donor knows of the
acceptance of the gift by the donee1; subject
to donors tax
2.
Donations mortis causa a donation which

takes effect upon the death of the donor;
subject to estate tax
Answer: All of Mr. Robertsons assets are

taxable. The properties of a resident alien
decedent like Mr. Robertson are taxable
wherever situated.
Q: What are considered donations for tax

purposes?
1. Sales, exchanges and other transfers of property
for less than an adequate and full consideration in
money or moneys worth
A died, survived by his wife and three

children. The estate tax was properly paid
and the estate settled and divided and
distributed among the four heirs. Later, the
BIR found out that the estate failed to report
the income received by the estate during
administration. The BIR issued a deficiency
tax assessment plus interest, surcharges and
penalties. Since the three children are
residing abroad, the BIR sought to collect the
full tax deficiency only against the widow. Is
the BIR correct? (1999 Bar)
2.
Answer: YES, the BIR is correct. In a case

where the estate has been distributed to the
heirs, the collection remedies available to the
BIR in collecting tax liabilities of an estate
may either be 1) sue all heirs and collect
from each of them the amount of tax
proportionate to the inheritance received, or
2) by virtue of the lien created under Section
219, sue only one heir and subject the
property he received from the estate to the
payment of the estate tax. The BIR therefore
is correct in pursuing the second remedy
although this will give rise to the right of the
heir who pays to seek reimbursement from
the other heirs. (Collector v. Pineda, 21 SCRA
105) In no case, however, can the BIR
enforce the tax liability in excess of the share
of the widow in the inheritance.
II. DONORS TAX
Condonation or remission of debt where the

debtor did not render service in favor of the
creditor
Noteworthy, the element of donative intent
is conclusively presumed in transfers of property
for less than an adequate or full consideration in
money or moneys worth.
In this case, the
difference between the fair market value of the
gift or donation and the actual value received
shall constitute the gift. However, real property
considered capital assets under the Tax Code are
excepted from this rule. (Section 100 in relation
to Section 24(d)) In other words, the difference
between fair market value and actual value
received in transfers of real property considered
capital assets for less than an adequate or full
consideration in money or moneys worth shall
not be subject to donors tax. This is because
under Section 24(d), the fair market value itself,
if higher than the gross selling price, is the base
for computing the capital gains tax imposed upon
the sale of such capital assets. Thus, what the
seller avoids in the payment of the donors tax, it
pays for in the capital gains tax.
Q: What is the applicable law?

The
law
in
force
at
the
time
of
the
perfection/completion of the donation shall govern the
imposition of the donors tax. (Section 11, RR 2-2003)
NOTE: 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. (Sec. 99(C), NIRC)
PRINCIPLES
Definition
The Tax Reform Act of 1997 does not provide a
definition of donors tax. It simply subjects a gift to
donors tax. According to Article 725 of the Civil Code,
a gift or donation is an act of liberality whereby a
person disposes gratuitously of a thing or right in
favor of another who accepts it. Thus, before being
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In the case of donations of immovable property, they

must be made in a public document specifying therein
the property donated. The acceptance may be made in
the same Deed of Donation or in a separate public
document, but it shall not take effect unless it is done
during the lifetime of the donor. If the acceptance is
made in a separate instrument, the donor shall be
notified thereof in an authentic form, and this step shall
be noted in both instruments.
Transfer Taxes
Taxation Law 2
CASE LAW: Abello v. CIR (Feb. 23, 2005)The SC
has held in this case that the contributions of the
ACCRA partners to the campaign funds of Sen. Angara
during the 1987 national elections constitutes a
donation, thus, subject to gift taxes. However, the
SC in its decision has noted that succeeding cases
shall be governed by RA 7166 enacted by Congress on
Nov. 25, 1991. The RA provides in Sec 13 that
political/electoral contributions, duly reported to the
Commission on Elections, are NOT subject to the
payment of any gift tax.
PROPERTIES INCLUDED
of deductions and are, therefore, deductible from

gross gifts in order to arrive at the taxable net gifts.
The following donations are exempt from donors tax:
1.
Dowries or donations made on account of

marriage 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 P10,000.
However, this exemption may not be availed
of by a non-resident not a citizen of the
Philippines.
Q: Can both parents making a donation
to a child in consideration of marriage
avail of the P10,000 deduction?
Yes. If both spouses made the gift, then
the gift is taxable one-half to each donor
spouse; in other words, the gift is
considered as having been made one-half
by the husband and one-half by the wife.
There is a necessity for filing separate
donors tax returns, considering that
husband and wife are considered as
separate and distinct taxpayers for
purposes of donors tax. (Section 12, RR 22003) However, where there is failure to
prove that the donation was actually made
by both spouses, the donation is taxable as
an exclusive act of the husband (Tang Ho
v. BTA, 97 Phil 890), without prejudice to
the right of the wife to question the validity
of the donation without her consent
pursuant to the provisions of the Civil Code
and the Family Code. (Section 12, supra)
2.
Gifts made to or for the use of the National

Government or any entity created by any of
its agencies which is not conducted for profit,
or to any political subdivision of the said
Government
3.
Gifts in favor of an educational and/or

charitable, religious, cultural or social welfare
corporation, institution, accredited nongovernment
organization,
trust
or
philanthropic
organization
or
research
institution or organization, provided not more
than 30% of said gifts will be used by such
donee for administration purposes
Q: What are the classes of donors and what is

their gross gift?
1.
Citizens or Residents of the Philippines all

properties located not only within the
Philippines but also in foreign countries
2.
Nonresident Alien all real and tangible

properties within the Philippines, and
intangible personal property, unless there is
reciprocity, in which case it is not taxable
Q: What are the intangible properties which are

considered by law as situated in the Philippines?
1. Franchise which must be exercised in the
Philippines
2.

3.

4.

the Philippines
5.

Q: What is the rule on reciprocity? (Section 104,

NIRC)
There is reciprocity if the foreign country of which the
decedent was a citizen and resident at the time of his
death:
1. did not impose a transfer tax of any
character, in respect of intangible personal
property of citizens of the Philippines not
residing in that foreign country; or
2.
Q: What is a non-profit educational

and/or charitable corporation, etc?
It is a school, college or university and/or
charitable corporation, accredited NGO,
trust or philanthropic organization and/or
research institution or organization:
Incorporated as a non-stock entity,
Paying no dividends,
Governed by trustees who receive no

compensation, and
Devoting all its income, whether

students fees or gifts, donations,
subsidies
or
other
forms
of
philanthropy, to the accomplishment
and promotion of the purposes
enumerated
in
its
Articles
of
Incorporation
allowed a similar exemption from transfer tax

in respect of intangible personal property
owned by citizens of the Philippines not
residing in that country
This rule applies to the transmission by gift of

intangible personal property located or with a situs
within the Philippines of a nonresident alien.
(See page 4 for the relevant notes on reciprocity)
EXEMPTIONS
Exemptions are not to be treated as exclusions from
the gross gifts of the donor. They partake the nature
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4.
Encumbrances on the property donated if

assumed by the donee in the deed of
donation
Transfer Taxes
Taxation Law 2
5.
6.
Donations made to entities exempted under

special laws, e.g.:
o
Aquaculture
Department
of the
Southeast
Asian
Fisheries
Development
Center
of
the
Philippines
o
Development
Academy
of
the
Philippines
o
Integrated Bar of the Philippines
o
International Rice Research Institute
o
National Museum
o
National Library
o
National Social Action Council
o
Ramon Magsaysay Foundation
o
Philippine Inventors Commission
o
Philippine
American
Cultural
Foundation
o
Task Force on Human Settlement on
the donation of equipment, materials
and services
Donations to persons not strangers where the
total of such net gifts for the calendar year is
not more than P100,000.00
Q: What is the meaning of net gifts?

Net Gift shall mean the net economic benefit from
the transfer that accrues to the donee. Accordingly, if
a mortgaged property is transferred as a gift, but
imposing upon the donee the obligation to pay the
mortgage liability, then the net gift is measured by
deducting from the fair market value of the property
the amount of the mortgage assumed. (Section 11, RR
2-2003)
COMPUTATION
How is donors tax computed?
This general formula shall be followed:
Gross gifts made
Less: Deductions from the gross gifts
Net gifts made
Multiplied by applicable rate
Donors tax on the net gifts
If there were several gifts made during the year, this

formula is followed:
Gross gifts made on this date
Less: Deductions from the gross gifts
Net gifts made on this date
Add: all prior net gifts during the year
Aggregate net gifts
Multiplied by applicable rate
Donors tax on the aggregate net gifts
Less: donors tax paid on prior net
gifts
Donors tax due on the net gifts to
date
RATES OF TAX
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There are two sets of donors tax rates. The applicable

donors tax rate is dependent upon the relationship
between the donor and the donee, more specifically:
1.
If the donee is a stranger to the donor, the tax

rate is equivalent to 30 % of the net gifts.
Q: Who is a stranger for purposes of the
donors tax?
a. a person who is not a brother, sister
(whether by whole or half-blood),
spouse,
ancestor
or
lineal
descendant, or
b. a person who is not a relative by
consanguinity in the collateral line
within
the
fourth
degree
of
relationship. (Sec. 99(B))
Note that donations made between
business organizations and those made
between an individual and a business
organization shall be considered as
donations made to a stranger (RR 22003)
2.
If the donee is not a stranger to the donor,

the tax for each calendar year shall be computed
on the basis of the total net gifts made during the
calendar year:
Over
But not
Over
The Tax
Shall Be
Plu
s
Of
the
Excess
Over
0
100,000
200,000
500,000
100,000
200,000
500,000
1,000,00
0
3,000,00
0
5,000,00
0
10,000,0
00
Exempt
0
2,000
14,000
2%
4%
6%
100,000
200,000
500,000
44,000
8%
1,000,000
204,000
10
%
12
%
15
%
3,000,000
1,000,00
0
3,000,00
0
5,000,00
0
10,000,0
00
404,000
1,004,00
0
5,000,000
10,000,00
0
Note: A legally adopted child is entitled to

all the rights and obligations provided by law
to legitimate children, and therefore, a
donation to him shall not be considered as a
donation made to a stranger.
OBJECT OF TAXATION
The donors tax shall be imposed 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. The computation of the donors
tax is on a cumulative basis over a period of one
calendar year
Illustrations:
1. Donation to son by parents on account of
marriage (P100,000):
Husband
Net Taxable Gift = P50,000
10,000 = P40,000
Tax Due = None, since
P40,000
is
below
the
P100,000 threshold
Wife same as above
Transfer Taxes
Taxation Law 2
2.
3.
Donation to son and daughter-in-law by

parents on account of marriage (P100,000):
Husband
o
Gift pertaining to the son
10,000 = P15,000
Tax Due = None, since
P15,000 is below the P100,000
threshold
o
Gift pertaining to the daughterin-law
Tax Due = P25,000 x 30% =
P7,500
Wife same as above

Donations to donees not considered strangers
for tax purposes were made on:
January 30, 2002 P 2,000,000
March 30, 2002 -- 1,000,000
August 15, 2002 -500,000
ENTIRE NET GIFTS

NOTE: The computation of the donors tax credit is
the same as the computation for estate tax credit.
Please refer to the illustration in page 8.
COMPLIANCE REQUIREMENTS
Q: Who are required to file the Donors Tax
Return?
Every person, whether natural or juridical, resident or
non-resident, who transfers or causes to transfer
property by gift, whether in trust or otherwise,
whether the gift is direct or indirect and whether the
property is real or personal, tangible or intangible.
Q: What are the contents of the Donors Tax
Return?
1. Each gift made during the calendar year
which is to be included in computing net
gifts;
2. The deductions claimed and allowable;
3. Any previous net gifts made during the same
VALUATION
If the gift is made in property, the fair market

value at that time will be considered the amount
of gift.
In case of real property, the taxable base is the
fair market value as determined by the
Commissioner of Internal Revenue (Zonal Value)
or fair market value as shown in the latest
schedule of values of the provincial and city
assessor (Market Value per Tax Declaration),
whichever is higher. If there is no zonal value, the
taxable base is the fair market value that appears
in the latest tax declaration
If there is an improvement, the value of
improvement is the construction cost per building
permit and/or occupancy permit plus 10% per
year after year of construction, or the market
value per latest tax declaration.
TAX CREDIT
A situation may arise when the property given as a
gift is located in a foreign country and the donor may
be subject to donors tax twice on the same property:
first, by the Philippine government and second, by the
foreign government where the property is situated.
The remedy of claiming a tax credit is, therefore,
aimed at minimizing the burdensome effect of double
taxation by allowing the taxpayer to deduct his foreign
tax from his Philippine tax, subject to the limitations
provided by law.
Q: Who may claim tax credit?
Tax credit for donors tax may be claimed only by a
resident citizen, non-resident citizen and resident
alien.
Q: What are the limitations on the tax credit?

1.
PHILIPPINE
NET GIFT (foreign country) X
DONORS TAX
ENTIRE NET GIFTS
2.
NET GIFT (all foreign countries)X PHILIPPINE
DONORS TAX
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Net
Taxab
le Gift
Corre
spond
ing
Donor
s Tax
(refer
to
sched
ule)
Tax
Due /
Payab
le
4.
5.
6.
After
the
first
donatio
n
P
2,000,0
00
After the
donation
second
January Donation
P2,000,000
March Donation
1,000,000
Total
P3,000,000
P124,00
0
P 204,000
P124,00
0
Donors
Tax
P 204,000
Less: Tax Previously
Paid
124,000
Tax
Due
P 80,000
After the
donation
third
January Donation P2,000,000

March Donation 1,000,000
August Donation 500,000
Total
P3,500,000
P254,000
Donors
Tax
P 254,000
Less:
Tax
Previously
Paid
(124,000 +
80,000)
204,000
Tax
Due
P 50,000
calendar year;
The name of the donee;
Relationship of the donor to the donee; and
Such
further
information
as
the
Commissioner may require.
Q: When and where should the Donors Tax

Return be filed?
The donors tax return shall be filed within thirty (30)
days after the date the gift is made or completed and
the tax due thereon shall be paid at the same time
that the return is filed. Unless the Commissioner
otherwise permits, the return shall be filed and the tax
paid to an authorized agent bank, the Revenue District
Officer, Revenue Collection Officer or duly authorized
Treasurer of the city or municipality where the
Transfer Taxes
Taxation Law 2
donor was domiciled at the time of the transfer, or if
there be no legal residence in the Philippines, with the
Office of the Commissioner. In the case of gifts made
by a non-resident, the return may be filed with the
Philippine Embassy or Consulate in the country where
he is domiciled at the time of the transfer, or directly
with the Office of the Commissioner. For this purpose,
the term OFFICE OF THE COMMISSIONER shall
refer to the Revenue District Office (RDO) having
jurisdiction over the BIR-National Office Building which
houses the Office of the Commissioner, or presently,
to the Revenue District Office No. 39 South Quezon
City.
PROBLEMS
1. Your bachelor client, a Filipino residing in Quezon
City, wants to give his sister a gift of P200,000. He
seeks your advice for purposes of reducing, if not
eliminating, the donors tax on the gift: whether it is
better for him to give all of the P200,000 on Christmas
2001, or to give P100,000 on Christmas 2001 and the
other P100,000 on January 1, 2002. Please explain
your advice. (2001 Bar)
Answer: I would advise him to split the donation.
Giving the P200,000 as a one-time donation would
mean that it will be subject to a higher tax bracket
under
the
graduated
tax
structure,
thereby
necessitating the payment of donors tax. On the other
hand, splitting the donation into two equal amounts of
P100,000 given on two different years will totally
relieve the donor from donors tax because the first
P100,000 donation in the graduated tax brackets is
exempt. While the donors tax is computed on the
cumulative donations, the aggregation of all donations
made by a donor is allowed only over one calendar
year.
2. Mr. Bill Morgan, a Canadian citizen and a resident
of Ontario, sends a gift check of $20,000 to his future
Filipina daughter-in-law, who is to be married to his
only son. Is the donation of Mr. Morgan subject to
tax? (1992 Bar)
Answer: Yes. While the gift has been made on
account of marriage, to qualify for the exemption to
the extent of the first P10,000 of the value thereof,
such gift should have been given to a legitimate,
recognized natural, or adopted child of the donor.
3. X owned idle land not used in connection with his
business. At the insistence of a close friend, X sold
the land to him at a friendly price of P600,000,
although its fair market value at that time was
P1,000,000. The BIR assessed X for payment of
donors tax on the difference of P400,000 on the
ground that the sale is a transfer for less than an
adequate consideration in money or moneys worth.
Is the BIR correct on the assessment?
Answer: No, the BIR is not correct. The land is
properly classified as a capital asset, being real
property not used in connection with trade or
business. As such, the sale is instead subject to a 6%
capital gains tax based on the gross selling price or
fair market value, whichever is higher.
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4. X donated mortgaged property with a fair market

value of P1,000,000 to Y subject to the condition that
Y shall undertake the mortgage liability worth
P400,000. What is the base for computing the donors
tax?
Answer: The base shall be the net gift which is
P600,000 or the difference between the fair market
value of the mortgaged property and the mortgage
liability.
5. Y, the surviving spouse, renounces her share in the
conjugal partnership after the dissolution of her
marriage. Is she liable to pay donors tax?
Answer: It depends. If Y renounces her share in
favor of other heirs or any other person, she is liable
to pay donors tax based on her share. However, if Y
makes a general renunciation of her share, she is not
liable to pay donors tax.
6.
When is a franchise considered as intangible
personal property within the Philippines?
Answer: Franchise is an intangible within if the same
is exercised within the Philippines. Otherwise, it shall
be considered an intangible without.
7. When is a share of stock, obligation or bond
considered as intangible personal property within?
Answer:



the Philippines

8. On 6 December 2001, LVN Corporation donated a
piece of vacant lot situated in Mandaluyong City to an
accredited and duly registered non-stock, non-profit
educational institution to be used by the latter in
building a sports complex for students. In order that
donations to non-stock, non-profit educational
institutions may be exempt from donors tax, what
conditions must be met by the DONEE? (2002 Bar)
Answer: The condition is that not more than thirty
percent (30%) of the said donation for the taxable
year shall be used by the accredited non-stock, nonprofit corporation/NGO institution (qualified-donee
institution) for administration purposes pursuant to
the provisions of Section 101(A)(3) and (B)(2) of the
National Internal Revenue Code. (RR 2-2003, Sec.
13(C))
9. A, aged 90 years and suffering from incurable
cancer, on 1 August 2001 wrote a will and on the
same day, made several inter-vivos gifts to his
Transfer Taxes
Taxation Law 2
children. He died ten days later. In your opinion, are
the gifts considered transfers in contemplation of
death for purposes of determining properties to be
included in the gross estate? Explain your answer.
(2001 Bar)
Answer: YES. When the donor makes his will within
a short time of, or simultaneously with the making of
the gifts, the gifts are considered as having been
made in contemplation of death (Roces v. Posadas 58
Phil 108). Obviously, the intention of the donor in
making the gifts is to avoid the imposition of the
estate tax and since the donees are likewise his forced
heirs who are called upon to inherit, it will create a
presumption juris tantum that said donations were
made mortis causa, hence the properties donated shall
be included as part of As gross estate.
10. Are contributions to a candidate in an election
subject to donors tax? (1998 Bar)
Answer: NO, provided the recipient candidate had
complied with the requirement of filing of returns of
contributions with the COMELEC as required under the
Omnibus Election Code. 99C of the NIRC states that
the taxability of this type of donations is governed by
the Election code. (Mamalateo)
Alternative Answer: YES, because there are no
provisions under the Tax Code that grant any
exemption. (Domondon)
11. A, an individual, sold to B, his brother-in-law, his
lot with a market value of P1M for P600,000. As cost
of the lot is P100,000. B is financially capable of
buying the lot. A also owns X Co, which has a fast
growing business. A sold some of his shares of stock
in X Co. to his key executives in X Co. These
executives are not related to A. The selling price is
P3M, which is the book value of the shares sold but
with a market value of P5M. As cost in the shares
sold is P1M. The purpose of A in selling the shares is
to enable his key executives to acquire a proprietary
interest in the business and have a personal stake in
its business. Explain if the transactions above are
subject to donors tax.
Answer: The first transaction where a lot was sold by
A to his brother-in-law for a price below its FMV will
not be subject to donors tax if the lot qualifies as a
capital asset. The transfer for less than adequate and
full consideration, which gives rise to a deemed gift,
does not apply to the sale of property subject to
capital gains tax (Section 100, NIRC). However, if the
lot sold is an ordinary asset, the excess of the FMV
over the consideration received shall be considered a
gift subject to the donors tax.
The sale of shares of stock below the FMV thereof is
subject to the donors tax pursuant to the provisions
of Section 100 of the NIRC. The excess of the FMV
over the selling price is a deemed gift.
Alternative Answer: No donors tax, because in
determining the gain from the transfer [for purposes
of computing the capital gains tax on the sale of
shares not listed nor traded in a local stock exchange],
the basis is either the actual selling price or the FMV of
the stocks transferred, whichever is higher. (Sec.
24(C), NIRC and RR 2-82) In which case, the reason
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for imposing a donors tax on sales for inadequate

consideration does not exist.
Value Added Tax

Taxation Law 2
VALUE-ADDED TAX2
I.
CONCEPT
Value added tax (VAT) is a percentage tax imposed at

every stage of the distribution process on the sale,
barter, or exchange (including any other transaction
deemed by law as sale), or lease of goods or
properties, and on the performance of service in the
course of trade or business, or on the importation of
goods, whether for business or non-business
purposes. It is a business tax levied on certain
transactions involving a wide range of goods,
properties, and services, such tax being payable by
the seller, lessor, or transferor. The tax is so-called
because it is imposed on the value not previously
subjected to VAT (De Leon, The National Internal
Revenue Code Annotated, 2000 edition)
The multi-stage VAT has been around since January 1,
1988 when it has been enacted under Executive Order
(EO) No. 273. Under this system, the VAT is imposed
on the sale and distribution process, and culminating
in sale to the final customer. (Acosta and Vitug, Tax
Law and Jurisprudence, 2001 edition)
The taxpayer (the seller) determines his tax liability by
computing the tax on the gross selling price or gross
receipt (this is called the output tax), and
subtracting or crediting the earlier VAT on the
purchase or importation of goods or on the sale of
service (called the input tax) against the tax due on
his own sale.
The following
computation
shows
of
the basic formula for the

the
VAT
Payable:
Gross taxable sales/receipts

Less: Sales returns
Sales allowances
Sales discounts
Net sales
Multiply with the VAT rate
Output tax (12% of Net sales)
Input tax carried over from previous
Domestic purchases
Importations
Total
Input tax (12% of Total)
xxx
xxx
xxx
xxx
period
xxx
xxx
xxx
Total Input tax
(xxx)
xxx
12%
xxx
xxx
xxx
(xxx)
VAT payable (Output tax less input tax)

xxx
(All amounts in the formula must be NET of VAT)
II.
NATURE & CHARACTERISTICS

It is an indirect tax, the amount of which may be
shifted to or passed on the buyer, transferee, or
lessee of the goods, properties or services. (Sec.
105)
Credits: 2008 AD, C2005
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RR 16-20053: The seller is the one statutorily

liable for the payment of the tax but the
amount of the tax may be shifted or passed
on to the buyer, transferee, or lessee of the
goods, properties, or services. This rule shall
likewise apply to existing contracts of sale or
lease of goods, properties or services at the
time of the effectivity of RA No. 9337.
It is a business tax/percentage tax.
Because it is a business tax, it is also an excise
tax, or a tax on the privilege of engaging in the
business of selling goods or services, or in the
importation of goods.
Constitutionality of VAT
ABAKADA Guro Party List, et. al. v Ermita

The assailed provisions of RA 9337 are those that say
that the President, upon the recommendation of the
Sec. of Finance, shall raise the rate of VAT to 12%
when VAT as a percentage of the GDP of the previous
year exceeds 2 4/5% and when the deficit as a
percentage of the previous years GDP exceeds 1 %.
This is NOT an undue delegation of legislative power.
It is simply a delegation of ascertainment of facts
upon which enforcement and administration of the
increased rate under the law is contingent.
No
discretion would be exercised by the President. The
word shall is used in the common proviso. It is the
ministerial duty of the President to immediately
impose the 12% rate upon the existence of any of the
conditions specified by Congress.4
This is also not to nullify the Presidents control over
the Sec. of Finance. Here, the Sec. of Finance is NOT
acting as the alter ego of the President, but is acting
as the agent of the legislative department.
Reasons for the two conditions before VAT rate is
increased to 12%: The first condition, that is if
VAT/GDP is less than 2.8%, means that the
government
has
weak
or
no
capability
of
implementing the VAT or that the VAT is not effective
in the function of the tax collection. There would be
no value in increasing it to 12% because such action
would be ineffectual. The second condition, that is
when the deficit/GDP is 1.5% or less, means that the
fiscal condition of government has reached a relatively
sound position or is towards the direction of a
balanced budget position. Thus, there would be no
need to increase the VAT rate since the fiscal house is
in a relatively healthy position. Otherwise stated, if
the ratio is more than 1.5%, there is indeed a need to
increase the VAT rate.
Another assailed provision is Sec. 8 amending Sec.
110(B), which imposes a limitation on the amount of
input tax (70% of the output tax) that may be
Revenue Regulations (RR) No. 4-2007 dated February 7,

2007 introduced recent changes to RR No. 16-2005. A sample
of which reads as: SEC. 4.106-1. VAT on Sale of Goods or
Properties. VAT is imposed and collected on every sale,
barter or exchange, or transactions deemed sale of taxable
goods or properties at the rate of twelve percent (12%)
(starting February 1, 2006) of the gross selling price or gross
value in money of the goods or properties sold, bartered, or
exchanged, or deemed sold in the Philippines.
4
The rate was indeed increased to 12%, effective Feb. 1,
2006, as per Revenue Memorandum (RMC) No. 7-06, dated
January 31, 2006
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Taxation Law 2
credited against the output tax. The Court says this
does not violate due process. The excess input tax, if
any, is retained in a business books of accounts and
remains creditable in the succeeding quarter/s. In
addition, Sec. 112(B) allows a VAT-registered person
to apply for the issuance of a tax credit certificate or
refund for any unused input taxes, to the extent that
such input taxes have not been applied against the
output taxes. Such unused input tax may be used in
payment of his other internal revenue taxes.5
The input tax is NOT a property or a property right
within the constitutional purview of the due process
clause. A VAT-registered persons entitlement to the
creditable input tax is a mere statutory privilege. The
right to credit input tax as against the output tax is
clearly a privilege created by law, a privilege that also
the law can remove, or in this case, limit.
[Note: This limitation of creditable input tax has been
eliminated by RA 9361, effective December 2006. Pls
refer to the discussion on input taxes on page 40.]
With respect to Sec. 8, amending Sec. 110 (A), which
provides for 60-month amortization of the input tax on
capital goods purchased: It is not oppressive,
arbitrary, and confiscatory.
The taxpayer is not
permanently deprived of his privilege to credit the
input tax. For whatever is the purpose, it involves
executive economic policy and legislative wisdom in
which the Court cannot intervene.
The tax law is uniform: it provides a standard rate of
0% or 10% (or 12% now) on all goods or services.
The law does not make any distinction as to the type
of industry or trade that will bear the 70% limitation
on the creditable input tax, 5-year amortization of
input tax on purchase of capital goods, or the 5% final
withholding tax by the government.
It is equitable: The law is equipped with a threshold
margin (P1.5M). Also, basic marine and agricultural
products in their original state are still not subject to
tax. Congress also provided for mitigating measures
to cushion the impact of the imposition of the tax on
those previously exempt. Excise taxes on petroleum
products and natural gas were reduced. Percentage
tax on domestic carriers was removed.
Power
producers are now exempt from paying franchise tax.
VAT, by its very nature, is regressive. The VAT paid
eats the same portion of an income, whether big or
small. The lower income group or businesses with
low-profit margins are always hardest hit. BUT the
Constitution does not really prohibit the imposition of
indirect taxes (which is essentially regressive). What
it simply provides is that Congress shall evolve a
progressive system of taxation. In Tolentino v. Sec.
of Finance, the Court said that direct taxes are to be
preferred, and as much as possible, indirect taxes
should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them.
Tolentino v. Guingona
Petitioners contend that R.A. 7716 did not originate
exclusively in the House of Representatives because
This, however, is not accurate. The option to apply for tax

credit certificate or refund is available to the VAT taxpayer
only in case his VAT registration is cancelled, unless he is
subject to VAT zero-rate.
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it was a result of the consolidation of two distinct bills

(a Senate bill and a House bill). The SC says it is not
the law, but the revenue bill, which is required by the
Consti to originate exclusively from the House of
Representatives. To insist that a revenue statute, and
not only the bill which initiated the legislative process,
must substantially be the same as the House bill
would be to deny the Senates power not only to
concur with amendments, but also to propose
amendments. What the Consti simply means is that
the initiative for filing revenue, tariff or tax bills etc.
must come from the House of Representatives on the
theory that, elected as they are from the districts, the
members of the House can be expected to be more
sensitive to the local needs and problems.
On alleged violation of the rule that the system of
taxation should be progressive, instead of regressive:
The petitioners argue that VAT is regressive and that it
violates the Consti requirement that Congress shall
evolve a progressive system of taxation. They cite
several studies and statistics which support their
theory, although the new VAT system has yet to be
implemented. Regressivity is not a negative standard
for courts to enforce. What Congress is required by
the Consti to do is to evolve a progressive system of
taxation.
This provision is placed in the Consti as
moral incentives to legislation, not as judicially
enforceable rights.
The Consti mandate to evolve a progressive system
of taxation simply means that direct taxes are to be
preferred as much as possible, and indirect taxes
should be minimised. Resort to indirect taxes should
be minimised but not avoided entirely. Also, the
regressive effects are corrected by the zero rating of
certain transactions and through the exemptions. The
transactions which are subject to VAT \are those
which involve goods and services which are used or
availed of mainly by higher income groups ( real
properties held primarily for sale to customers, right
or privilege to use patent, copyright...)
III. TRANSACTIONS SUBJECT TO VAT
A. Any sale, barter or exchange of goods and
properties, or similar transactions in the
course of trade or business
B. Any sale of services, or similar transactions,
in the course of trade or business
C. Any lease of goods and properties or similar
transactions, in the course of trade or
business
D. Any importation of goods, whether in the
course of trade or business or not
RMC 9-2006: Reimbursable expenses
Transactions and amounts that are subject to VAT:
1. If
the
reimbursable
expenses
and/or
advanced payments for certain expenses
(e.g. arrastre, wharfage, documentation,
trucking, handling charges, storage fees,
duties and taxes, etc.) made by brokers on
behalf of their customers are receipted with
the brokers VAT official receipt.
2. Any advanced payment for expenses incurred
(e.g. transportation, overtime and facilitation
fee to facilitate the clearing of goods through
customs) for the benefit of brokers,
notwithstanding that the same is reimbursed
by their customers.
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Taxation Law 2
Reimbursable expenses and/or advanced payments
shall NOT be subject to VAT on the part of the broker
if the following conditions/procedures are complied
with:
1. The reimbursable expenses and/or advanced
payments EXCEPT those incurred for the
benefit of the brokers, are receipted
separately
using
NON-VAT
Official
Acknowledgment Receipts to be issued by the
brokers to the Customers upon collection of
the reimbursements or advances previously
recorded as Receivable For Cash Advances
on Behalf of Customers, which recording was
done upon payment, on behalf of customers,
of the advances to the third-party service
providers who issued official receipts in the
name of the customers and not of the brokers
2. The third-party service providers to whom
the advanced payments or reimbursable
expenses of the customers have been paid by
the brokers shall issue receipts in the name
of the Customers
3. The brokers shall record the reimbursable
expenses of or the advanced payments on
behalf of Customers under the account
Receivable for Cash Advances on Behalf of
Customers
4. For liquidation purposes, the brokers shall
attach the original copy of all said official
receipts issued by the third-party service
providers in the name of the customers to the
NON-VAT official acknowledgment receipts of
the brokers issued to their Customers upon
payment by the latter of the reimbursable
expenses
*The Customers may be able to claim input tax
for the services of the third-party service
providers that are subject to VAT if the same are
receipted by the third-party service providers VAT
official receipts evidencing the latters reporting of
the same for VAT purposes.
IV. PERSONS LIABLE
Sec. 105. Persons liable Any person who, in
the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders
services, and any person who imports goods shall
be subject to the value-added tax (VAT) imposed
on Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and
the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties, or services. This rule shall likewise
apply to existing contracts of sale or lease of
goods, properties, or services at the time of the
effectivity of RA 7716.
The phrase in the course of trade or
business means the regular conduct or pursuit of
a commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a non-stock, nonprofit organization
(irrespective of the disposition of its net income
and whether or not it sells exclusively to members
or their guests), or government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
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persons shall be considered as being rendered in

the course of trade or business.
A.
Any person who, in the course of trade or

business, (1) sells, barters, exchanges goods or
properties, (2) leases goods or properties, and (3)
renders services.
Exception:
1. When the sales do not exceed P100,000
(meaning not considered to be in the course of
trade or business but only for subsistence, even if
he, in the course of trade or business, (1) sells,
barters, exchanges goods or properties, (2) leases
goods or properties, and (3) renders services;
hence, he is not liable for either VAT or
percentage tax)
2.
The rule of regularity, to the contrary
notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in
the course of trade or business.
RR 16-2005 clarifies this: Non-resident
persons who perform services in the Philippines
are deemed to be in the course of trade or
business, even if performance is NOT regular.
B.
Any person who imports goods

RR 16-2005: the importer, whether an
individual or corporation and whether or not made
in the course of his trade or business, shall be
liable to pay VAT.
RATES IN GENERAL
A. 12% VAT
i.
SALE OF GOODS OR PROPERTIES
Sec. 106. Value-added Tax on Sale of Goods or

Properties.
Rate and Base of Tax There shall be levied,
assessed, and collected on every sale, barter or
exchange of goods, or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or
properties sold, bartered, or exchanged, such tax to
be paid by the seller or transferor: Provided, That the
President, upon the recommendation of the Sec. of
Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to 12%, after any of the
following conditions has been satisfied:
Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds
2 4/5%; or
National government deficit as a percentage of GP of
the previous year exceeds 1 %.
(1) The term goods or properties shall mean all
tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(a) Real properties held primarily for sale to
customers or held for lease in the ordinary course of
trade or business;
(b) The right or the privilege to use patent,
copyright, design, or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like
property or right;
(c) The right or the privilege to use in the
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Taxation Law 2
Philippines of any industrial, commercial or scientific
equipment;
(d) The right or the privilege to use motion
picture films, films tapes and discs; and
(e) Radio, television, satellite transmission
and cable television time.
The term gross selling price means the total
amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of the
goods or properties, excluding the value-added tax.
The excise tax, if any, on such goods or properties
shall form part of the gross selling pricexxx.
(as amended by RA 9337, underscore for emphasis)
Note: The rate of VAT was indeed raised to 12%
beginning 1 February 2006. (RMC No. 7-06, dated
January 31, 2006)
RR 16-2005:
Notes on Sale of real properties. In the case of sale
of real properties on the installment plan, the real
estate dealer shall be subject to VAT on the
installment payments, including interest and penalties,
actually and/or constructively received by the seller.
Sale of residential lot exceeding P1.5M, residential
house and lot or other residential dwellings exceeding
P2.5M, where the instrument of sale is executed on or
after July 1, 2005, shall be subject to [12%] VAT.
Where the instrument of sale was executed prior to
July 1, 2005, the price needs only to exceed P1M for
the installment sale of residential house and lot or
other residential dwellings to be subject to 10% VAT.
Sale of real property on installment plan means sale
of real property by a real estate dealer, the initial
payments of which in the year of sale (downpayment
+ all payments actually or constructively received
during the year of sale) do not exceed 25% of the
gross selling price. However, in the case of sale of
real properties on the deferred-payment basis, not on
the installment plan, (meaning the initial payments in
the year of sale exceed 25% of the gross selling
price), the transaction shall be treated as cash sale
which makes the entire selling price taxable in the
month of sale.
Transmission of property to a trustee shall NOT be
subject to VAT IF the property is to be merely held in
trust for the trustor and/or beneficiary. However, IF
the property transferred is one for sale, lease or use in
the ordinary course of trade or business AND the
transfer constitutes a completed gift, the transfer is
subject to VAT as a deemed sale transaction. The
transfer is a completed gift if the transferor divests
himself absolutely of control over the property, i.e.,
irrevocable transfer of corpus and/or irrevocable
designation of beneficiary.
The gross selling price shall mean:
1) The consideration stated in the sales
document, or
2) The fair market value,
Whichever is HIGHER
The fair market value shall mean, whichever
is the HIGHER of:
a) FMV
as
determined
by
the
Commissioner (zonal value), or
b) FMV as shown in schedule of values
of the Provincial & City assessors
(real property tax declaration)
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If the gross selling price is based on the zonal

value or market value of the property, the
zonal or market value shall be deemed
INCLUSIVE of VAT.
If the VAT is not billed separately, the selling
price stated in the sales document shall be
deemed to be INCLUSIVE of VAT.
TRANSACTIONS DEEMED SALE (subject to 12%
VAT)
Sec. 106. xxx
(B) Transactions Deemed Sale. The following
transactions shall be deemed sale:
(1) Transfer, use or consumption not in the
course of business of goods 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 VAT-registered persons; or
(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; and
(4) Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation.
(C) Changes in or Cessation of Status of a VATregistered Person. The tax imposed in Subsection
(A) of this Section shall also apply to goods disposed
of or existing as of a certain date if under the
circumstances to be prescribed in rules and
regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner,
the status of a person as a VAT-registered person
changes or is terminatedxxx.
RR 16-2005:
Transactions deemed sale (pls refer to Sec. 106),
some notes:
(1) For example, when a VAT-registered person
withdraws goods from his business for his
personal use
(2) Property dividends which constitute stocks in
trade or properties primarily held for sale or
lease declared out of retained earnings on or
after Jan. 1, 1996 and distributed by the
company to its shareholders shall be subject
to VAT based on the zonal value or FMV at
the time of the distribution, whichever is
applicable.
(3) Consigned goods returned by the consignee
within the 60-day period are not deemed
sold;
(4) Retirement from or cessation of business with
respect to ALL goods on hand, whether
capital goods, stock-in-trade, supplies or
materials, as of the date of such retirement
or cessation, whether or not the business is
continued by the new owner or successor.
Examples are change of ownership of the
business (e.g. when a sole proprietorship
incorporates, or the proprietor sells his entire
business) and dissolution of a partnership
and creation of a new partnership which
takes over the business.
Change or Cessation of Status as VAT-registered
Person
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Taxation Law 2
1)
2)
Subject
to
output
taxapplicable
to
goods/properties originally intended for sale or
use in business and capital goods which are
existing as of the occurrence of the following:
a) Change of business activity from VAT taxable
status to VAT-exempt status.
b) Approval of a request for cancellation of
registration due to reversion to exempt status
c) Approval of a request for cancellation of
registration due to a desire to revert to
exempt status AFTER the lapse of 3
consecutive years from the time of
registration by a person who voluntarily
registered despite being exempt under Sec.
109 (2)
d) Approval of request for cancellation of
registration of one who commenced business
with the expectation of gross sales/receipts
exceeding P1.5M but who failed to exceed
this amount during the first 12 months of
operation
NOT subject to output tax
a) Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder or group
of stockholders.
b) Change in the trade or corporate name of the
business
c) Merger or consolidation of corporations. The
unused input tax of the dissolved corporation,
as of the date of merger or consolidation,
shall be absorbed the surviving or new corp.
For transactions deemed sale, the output tax shall be

based on the market value of the goods deemed sold
as of the time of the occurrence of the transactions.
However, in case of retirement or cessation of
business, the tax base shall be the acquisition cost or
the current market price of the goods or properties,
whichever is LOWER.
ii.
IMPORTATION OF GOODS
Sec. 107. Value-Added Tax on Importation of Goods. (A) In General. - There shall be levied, assessed and
collected on every importation of goods a value-added
tax equivalent to ten percent (10%) based on the total
value used by the Bureau of Customs in determining
tariff and customs duties, plus customs duties, excise
taxes, if any, and other charges, such tax to be paid
by the importer prior to the release of such goods
from customs custody: Provided, That where the
customs duties are determined on the basis of the
quantity or volume of the goods, the value-added tax
shall be based on the landed cost plus excise taxes, if
any: Provided, further, That the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of valueadded tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of
GDP of the previous year exceeds one and one-half
percent (1 1/2%).
(B) Transfer of Goods by Tax-exempt Persons. - 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-
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exempt persons or entities, the purchasers,

transferees or recipients shall be considered the
importers thereof, who shall be liable for an 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. (as amended by
RA 9337, underscore for emphasis)
VAT is imposed on goods imported, whether for use in
business or not.
iii.
SALE OF SERVICES & USE/LEASE OF

PROPERTIES
Sec. 108. Value-added Tax on Sale of Services and

Use or Lease of Properties. (A) Rate and Base of Tax. - There shall be levied,
assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from
the sale or exchange of services, including the use or
lease of properties: Provided, That the President, upon
the recommendation of the Secretary of Finance,
shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of
the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross
two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of
GDP of the previous year exceeds one and one-half
percent (1 1/2%).
The phrase 'sale or exchange of services' means the
performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration,
including those performed or rendered by construction
and
service
contractors;
stock,
real
estate,
commercial, customs and immigration brokers; lessors
of property, whether personal or real; warehousing
services; lessors or distributors of cinematographic
films; persons engaged in milling, processing,
manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels,
rest-houses, pension houses, inns, resorts; proprietors
or operators of restaurants, refreshment parlors, cafes
and other eating places, including clubs and caterers;
dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for
hire and other domestic common carriers by land
relative to their transport of goods or cargoes;
common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines; sales of electricity by generation
companies, transmission, and distribution companies;
services of franchise grantees of electric utilities,
telephone and telegraph, radio and television
broadcasting and all other franchise grantees except
those under Section 119 of this Code and non-life
insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether
or not the performance thereof calls for the exercise
or use of the physical or mental faculties. The phrase
'sale or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to
use any copyright, patent, design or model plan,
secret formula or process, goodwill, trademark, trade
brand or other like property or right;
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Taxation Law 2
to franchise grantees of telephone and telegraph
services, amounts received for overseas dispatch,
message, or conversation originating from the
Philippines are subject to the percentage tax
under Sec. 120 and hence exempt from VAT.
(2) The lease or the use of, or the right to use of any
industrial, commercial or, scientific equipment;
(3) The supply of scientific, technical, industrial or
commercial knowledge or information;
(4) The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or
right as is mentioned in subparagraph (2) or any such
knowledge or information as is mentioned in
subparagraph (3);
(5) The supply of services by a nonresident person or
his employee in connection with the use of property or
rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased
from such nonresident person;
(6) The supply of technicai advice, assistance or
services rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, venture, project
or scheme;
(7) The lease of motion picture films, films, tapes and
discs; and
(8) The lease or the use of or the right to use radio,
television, satellite transmission and cable television
time.
Lease of properties shall be subject to the tax herein
imposed irrespective of the place where the contract
of lease or licensing agreement was executed if the
property is leased or used in the Philippines.
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 the services performed or to be
performed for another person, excluding value-added
taxxxx. (as amended by RA 9337, underscored
parts amended or added by RA 9337)
Notes: (unless otherwise indicated, from RR 162005)
1.
Persons
engaged
in
milling,
processing,
manufacturing or repacking goods for others are
subject to VAT, EXCEPT palay into rice, corn into
corn grits, and sugarcane into raw sugar
2.
For dealers in securities, gross receipts means

gross selling price less cost of the securities sold.
RR 7-95: Pre-need companies are considered
dealers in securities.
3.
4.
Lending investors all persons OTHER than

banks, non-bank financial intermediaries, finance
companies and other financial intermediaries NOT
performing quasi-banking functions who make a
practice of lending money for themselves or
others at interest
Subject to VAT: Franchise grantees of electric
utilities, telephone and telegraph, radio and/or TV
broadcasting and all other franchise grantees
(including PAGCOR and its licensees/franchisees)
EXCEPT franchise grantees of radio and/or TV
broadcasting whose annual gross receipts of the
preceding year do not exceed P10M (which shall
be subject to 3% franchise tax under Sec. 119,
subject to optional registration), and franchise
grantees of gas and water facilities (under Sec.
109, subject to 2% franchise tax). With respect
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5.
Lease of properties shall be subject to the tax

herein imposed irrespective of the place where
the contract of lease or licensing agreement was
executed if the property is leased or used in the
Philippines.
6.
In a lease contract, the advance payment by the

lessee may be:
a) a loan to the lessor from the lessee NOT
subject to VAT
b) an option money for the property NOT
subject to VAT
c) a security deposit to insure the faithful
performance of certain obligations of the
lessee to the lessor NOT subject to VAT.
BUT if the security deposit is applied to
rental, it shall be subject to VAT at the time
of its application.
d) or pre-paid rental subject to VAT when
received, irrespective of the accounting
method employed by the lessor
7.
On transportation:
All receipts from service, hire, or operating

lease of transportation equipment not subject
to the percentage tax on domestic common
carriers and keepers of garages shall be
subject to VAT. (Pls refer to Sec. 117 for
other percentage taxes.
Common
carrier
By land
By sea
Transporting
Persons
Goods/cargo
Whether
transporting
persons
or
goods/cargo
Kind
of
carrier
Domestic
Domestic
Domestic
International
By air
Domestic
International
8.
Tax
Liability
3%,
Sec.
117
12% VAT
Domestic
trip - 12%
VAT
International
trip zerorated
3%,
Sec.
118
Domestic
flight - 12%
VAT
International
flight
zero-rated
3%,
Sec.
118
Sale of electricity by generation, transmission,

and distribution companies shall be subject to
12% VAT, EXCEPT sale of power or fuel generated
through renewable sources of energy, such as,
but not limited to, biomass, solar, wind
hydropower, geothermal, ocean energy, and other
emerging energy sources using technologies such
as fuel cells and hydrogen fuels, which shall be
subject to 0% rate of VAT (zero-rated). The
universal charge passed on and collected by
distribution companies and electric cooperatives
shall be excluded from the computation of
gross receipts.
Value Added Tax

Taxation Law 2
9.
Insurance and reinsurance commissions, as

opposed to premiums, whether life or non-life, are
subject to VAT. Non-life insurance premiums are
subject to VAT. Life insurance premiums are NOT
subject to VAT, for they are subject to percentage
tax.
B.
0% VAT (ZERO-RATED TRANSACTIONS)
A zero-rated sale by a VAT-registered person is a

taxable transaction for VAT purposes, but shall not
result in any output tax. However, the input tax on
purchases of goods, properties or services related to
such zero-rated sale shall be available as tax credit or
refund. (RR 16-2005)6
i.
SALE OF GOODS OR PROPERTIES
Sec. 106 xxx.

(2) The following sales by VAT-registered persons
shall be subject to zero percent (0%) rate:
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership
of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas,(BSP);
(2) Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local
export-oriented
enterprise
to
be
used
in
manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for
in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP):
(3) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas
(BSP);
(5) Those considered export sales under Executive
Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws; and
6
Thus, the benefit of being zero-rated vis--vis being exempt
is that enterprises which enjoy zero-rating of transactions can
avail of input taxes on purchases of goods, properties, or
services (as either tax credit or refund, there being no output
tax against which input tax can be credited). In mathematical
terms, the enterprises enjoy 100% of their input taxes.
On the other hand, exempt enterprises cannot avail of these
input taxes; instead, these input taxes form part of
cost/expense. Thus, the net benefit these enterprises get
from their exempt transactions is 35% (in the case of
corporations), or to the extent that they can be used as
deductions from income in the computation of income tax
payable (subject to rules in income taxation).
There is therefore a 65% difference (100% in the case of

zero-rated transactions, less 35% in exempt transactions).
[Editors note]
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25 of 112
(6) The sale of goods, supplies, equipment and fuel to

persons engaged in international shipping or
international air transport operations. (#6 added by
RA 9337)
(b) Foreign Currency Denominated Sale. - The phrase
'foreign currency denominated sale' means sale to a
nonresident of goods, except those mentioned in
Sections 149 and 150, assembled or manufactured in
the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption
under special laws or international agreements to
which the Philippines is a signatory effectively subjects
such sales to zero rate xxx. (underscore for
emphasis)
Section 6 of RR 4-2007, dated February 7, 2007:
The term effectively zero-rated sale of goods and
properties shall refer to the local sale of goods and
properties by a VAT-registered person to a person or
entity who was granted indirect tax exemption under
special laws or international agreement.
Note: RR 4-2007 removed the distinction between
automatic and effectively zero-rated transactions
found in prior Revenue Regulations (including RR 162005) with respect to prior application. The following
line in RR 16-2005 has been DELETED by RR 4-2007:
Other cases of zero-rated sales shall require prior
application with the appropriate BIR office for effective
zero-rating.
Without an approved application for
effective zero-rating, the transaction otherwise
entitled to zero-rating shall be considered exempt. The
foregoing rule notwithstanding, the Commissioner may
prescribe such rules to effectively implement the
processing of applications for effective zero-rating.
This is probably a consequence of the Supreme Court
ruling in the case of Commissioner of Internal
Revenue v. Seagate Technology (Philippines).
Commissioner of Internal Revenue vs. Seagate

Technology (Philippines) February 11, 2005
The BIR regulations additionally requiring an approved
prior application for effective zero rating cannot
prevail over the clear VAT nature of Seagates
transactions (subject to zero-rating, as an entity
registered with the PEZA). The scope of such
regulations is not within the statutory authority x x x
granted by the legislature.
A mere administrative issuance, like a BIR regulation,
cannot amend the law; the former cannot purport to
do any more than interpret the latter. The courts will
not countenance one that overrides the statute it
seeks to apply and implement.
Other than the general registration of a taxpayer the
VAT status of which is aptly determined, no provision
under our VAT law requires an additional application to
be made for such taxpayers transactions to be
considered effectively zero-rated. An effectively zerorated transaction does not and cannot become exempt
simply because an application therefor was not made
or, if made, was denied. To allow the additional
requirement is to give unfettered discretion to
those officials or agents who, without fluid
Value Added Tax

Taxation Law 2
to a manufacturer/producer whose products
are 100% exported are considered export
sales. A certification to his effect must be
issued by the Board of Investment which
shall be good for 1 year unless subsequently
re-issued. (RR 16-2005)
consideration, are bent on denying a valid application.

Moreover, the State can never be estopped by the
omissions, mistakes or errors of its officials or agents.
Export sales
1)
The sale and actual shipment of goods from the

Philippines to a foreign country AND paid for in
acceptable foreign currency or its equivalent in
goods or services, AND accounted for in
BSP
2)
Sale of raw materials or packaging materials to a

nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing, packing or repacking
in the Philippines of the said buyer's goods AND
paid for in acceptable foreign currency AND
accounted for in accordance with the rules and
regulations of the BSP
3)
Sale of raw materials or packaging materials to

export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production. Any enterprise whose export sales
exceed 70% of the total annual production of the
preceding taxable year shall be considered an
export-oriented enterprise upon accreditation
under the rules & regulations of Export
Development Act, RA 7844 (RR 7-95)
4)
Sale of gold to the Bangko Sentral ng Pilipinas

(BSP);
5)
Those considered export sales under the Omnibus

Investment Code of 1987, and other special laws
(ex. Bases Conversion & Development Act of
1992)
Under Omnibus Investment Code:
a) Phil. port FOB value of export products
exported directly by a registered export
producer
b) Net selling price of export products sold by a
registered export producer to another export
producer, or to an export trader that
subsequently exports the same (only when
actually exported by the latter)
The following shall be considered constructively
exported:
a) sales to bonded manufacturing warehouses of
export-oriented manufacturers
b) sales to export processing zones
c) sales to registered export traders operating
bonded trading warehouses supplying raw
materials in the manufacture of export
products under guidelines to be set by the
Board in consultation with the BIR and
Bureau of Customs
d) sales to diplomatic missions and other
agencies and/or instrumentalities granted tax
immunities,
of
locally
manufactured,
assembled or repacked products, whether
paid for in foreign currency or not.
Provided that export sales of registered
export traders may include commission
income, and that exportation of goods on
consignment shall not be deemed export
sales until the export products consigned are
in fact sold by the consignee, and provided
finally that sales by a VAT-registered supplier
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26 of 112
6)
The sale of goods, supplies, equipment and fuel to

persons engaged in international shipping or
international air transport operations. (added by
RA 9337) Provided, that the same is limited to
goods, supplies, equipment and fuel pertaining to
or attributable to the transport of goods and
passengers from a port in the Phil. directly to a
foreign port without docking or stopping at any
other port in the Phil., and that if any portion of
such fuel, goods, or supplies is used for purposes
other than that mentioned here, such portion of
fuel, goods, and supplies shall be subject to 12%
VAT.
Foreign Currency Denominated Sale - sale to a

nonresident of goods, except those mentioned in
Sections 149 and 150 (automobiles and non-essential
goods like jewelry, perfume, and yachts), assembled
or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable
foreign currency AND accounted for in accordance with
the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP).
Sales of locally manufactured or assembled goods for
household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as
returning Overseas Filipinos under the Internal Export
Program of the government paid for in convertible
foreign currency AND accounted for in accordance with
the rules and regulations of the BSP shall also be
considered export sales.
Sales to persons or entities whose exemption
under special laws or international agreements
to which the Philippines is a signatory effectively
subjects such sales to zero rate.
Example:
a) sales to enterprises duly registered &
accredited with the
i) Subic Bay Metropolitan Authority,
ii) Philippine Economic Zone Authority
(PEZA),
b) international agreements to which the Phil. is
signatory, such as
i.
Asian Development Bank (ADB),
ii.
International Rice Research Institute
(IRRI)
RMC 74-99: Tax Treatment of Sales of Goods and
Services Made by Suppliers from Western Territory to
a PEZA registered enterprise and Sale Transactions
made by PEZA registered enterprises Within and
Without the Zone
The Phil VAT law adheres to the Cross Border
Doctrine, which basically means that no VAT shall
be imposed to form part of the cost of goods destined
for consumption OUTSIDE of the territorial border of
the taxing authority. Hence, actual export of goods
and services from the Phil to a foreign country must
be free from VAT. Conversely, those destined for use
or consumption WITHIN the Phil shall be imposed with
the 10% VAT.
Value Added Tax

Taxation Law 2
A. Tax Treatment of Sales Made by VAT registered
Supplier from Customs Territory to a PEZA registered
enterprise
1) if the buyer is a PEZA registered enterprise
which is subject to the 5% special tax regime
(a) Sale of Goods this shall be treated as
INDIRECT EXPORT, hence considered
SUBJECT TO 0% VAT.
(b) Sale of Service this shall be treated
SUBJECT TO 0% VAT under the cross
border doctrine
2)
if the buyer is a PEZA registered enterprise

which is NOT embraced by the 5% tax
regime
(a) Sale of Goods this shall be
treated as INDIRECT EXPORT,
hence considered SUBJECT TO 0%
VAT.
(b) Sale of Service this shall be
treated SUBJECT TO 0% VAT under
the cross border doctrine
NOTE: Any sale of goods, property or services

made by a VAT registered supplier from the
Customs Territory* to any registered enterprise
operating in the ecozone, REGARDLESS of the
class or type of the latters PEZA registration, is
actually qualified and thus LEGALLY ENTITLED
TO THE 0% VAT. Accordingly, all sales of goods
or property to such enterprise made by a VAT
registered supplier from the Customs Territory
shall be treated SUBJECT TO 0% VAT.
means the national
Customs Territory
territory of the Phil OUTSIDE of the proclaimed
boundaries of the ECOZONES.
B. Tax Treatment of Sales Made by a VAT-Exempt
Supplier from the Customs Territory to a PEZA
registered enterprise
Sale of goods, property and services by VAT-Exempt
supplier from the Customs Territory to a PEZA
registered enterprise shall be treated EXEMPT FROM
VAT, regardless of whether or not the PEZA registered
buyer is subject to taxes under the NIRC or enjoying
the 5% special tax regime.
C. Tax Treatment of Sales Made by a PEZA Registered
Enterprise
1)
Sale of Goods by a PEZA registered
enterprise to a buyer from the Customs
Territory (ie domestic sales) -- this case shall
be treated as a technical IMPORTATION made
by the buyer. Such buyer shall be treated as
an IMPORTER thereof and shall be imposed
with the corresponding VAT.
2) Sale of Services by a PEZA registered
enterprise to a buyer from the Customs
Territory this is NOT embraced by the 5%
special tax regime, hence, such seller shall be
SUBJECT TO 10% VAT.
3)
Sale of Goods by a PEZA registered

enterprise to Another PEZA registered
enterprise (ie Intra-ECOZONE Sales of
Goods) this shall be EXEMPT from VAT.
4)
Sale of Services by ECOZONE enterprise, to

Another
ECOZONE
enterprise
(IntraECOZONE enterprise Sale of Service)
(a) if PEZA registered seller is subject to 5%
special tax regime EXEMPT from VAT
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(b) if PEZA registered seller is subject to

taxes under NIRC (ie not subject to 5%
special tax regime) subject to 0% VAT
pursuant to cross border doctrine
ii.
SALE OF SERVICES & USE/LEASE OF

PROPERTIES
Sec. 108. xxx (amendments introduced by

RA 9337 indicated)
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by
VAT- registered persons shall be subject to zero
percent (0%) rate.
(1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
[NO CHANGE]
(2) Services other than those mentioned in the
preceding paragraph, the consideration for which is
paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP); [AMENDED. THIS
NOW READS: Services other than those mentioned in
the preceding paragraph rendered to a person
engaged in business conducted outside the Philippines
or to a nonresident person not engaged in business
who is outside the Philippines when the services are
performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in
Bangko Sentral ng Pilipinas (BSP)]
(3) Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent (0%) rate; [NO CHANGE]
(4) Services rendered to vessels engaged exclusively
in international shipping; and [AMENDED. THIS NOW
READS: Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use
thereof]
(5) Services performed by subcontractors and/or
contractors
in
processing,
converting,
of
manufacturing goods for an enterprise whose export
sales exceed seventy percent (70%) of total annual
production. [NO CHANGE]
[RA 9337 ALSO ADDS THESE TWO:
(6) Transport of passengers and cargo by air or sea
vessels from the Philippines to a foreign country; and
(7) Sale of power or fuel generated through renewable
sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal, ocean energy,
and other emerging energy sources using technologies
such as fuel cells and hydrogen fuels.]
RR 4-2007: The term effectively zero-rated sales of
services shall refer to the local sale of services by a
Value Added Tax

Taxation Law 2
VAT-registered person to a person or entity who was
granted indirect tax exemption under special laws or
international agreement.
RR 4-2007 removed the distinction between automatic
and effectively zero-rated transactions found in prior
Revenue Regulations (inc. RR 16-2005) with respect
to prior application. The following line in RR 16-2005
has been deleted by RR 4-2007:
The concerned taxpayer must seek prior approval or
prior confirmation from the appropriate offices of the
BIR so that a transaction is qualified for effective zerorating. Without an approved application for effective
zero-rating, the transaction otherwise entitled to zerorating shall be considered exempt. The foregoing rule
notwithstanding, the Commissioner may prescribe
such rules to effectively implement the processing of
applications for effective zero-rating.
This is probably a consequence of the Supreme Court
ruling in the case of Commissioner of Internal
Revenue v. Seagate Technology (Philippines). Please
refer to page 30.
Zero-rated transactions
1)
2)
3)
4)
5)
6)
7)
Processing, manufacturing or repacking goods for

other persons doing business outside the
Philippines
which goods are
subsequently
exported, where the services are paid for in
acceptable foreign currency AND accounted for in
BSP
Services other than those mentioned in the
preceding paragraph rendered to a person
engaged in business conducted outside the
Philippines or to a nonresident person not
engaged in business who is outside the Philippines
when
the
services
are
performed,
the
consideration for which is paid for in acceptable
foreign currency AND accounted for in accordance
with the rules and regulations of the BSP
Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to
zero percent (0%) rate;
Services rendered to persons engaged in
international
shipping
or
international
air
transport operations, including leases of property
for use thereof; Provided, however, that the
services referred to herein shall not pertain to
those made to common carriers by air and sea
relative to their transport of passengers, goods or
cargoes from one place in the Phil. to another
place in the Phil., the same being subject to 12%
VAT under Sec. 108
Services performed by subcontractors and/or
contractors
in
processing,
converting,
of
manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of
total annual production.
Transport of passengers and cargo by air or sea
vessels from the Philippines to a foreign country;
(pls see table on page 29) and;
Sale of power or fuel generated through
renewable sources of energy such as, but not
limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging
energy sources using technologies such as fuel
cells and hydrogen fuels. Zero-rating shall apply
UP LAW BAROPS 2007

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strictly to the sale of power or fuel generated

through renewable sources of energy, and shall
not extend to the sale of services related to the
maintenance or operation of plants generating
said power.
C.
FINAL WITHHOLDING VAT OF 5%
SEC. 114. Return and Payment of Value-Added Tax. xxx.

(C) Withholding of Value-Added Tax. - The
Government or any of its political subdivisions,
instrumentalities or agencies, including governmentowned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase
of goods and services which are subject to the valueadded tax imposed in Sections 106 and 108 of this
Code, deduct and withhold a final value-added tax at
the rate of five percent (5%) of the gross payment
thereof: Provided, That the payment for lease or use
of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax
at the time of payment. For purposes of this Section,
the payor or person in control of the payment shall be
considered as the withholding agent.
The value-added tax withheld under this Section shall
be remitted within ten (10) days following the end of
the month the withholding was made. (RA 9337)
NOTE: This 5% final VAT withheld by the government
is an innovation of RA 9337.
RR 16-2005: The 5% final VAT shall represent the
net VAT payable of the seller. The remaining 5% (or
7%, with the raise of VAT to 12%) effectively accounts
for the standard input VAT, in lieu of the actual input
VAT directly attributable or ratably apportioned to
such sales. (This means that where the 5% final VAT
applies, the basic formula of output tax less input tax
does not apply. ) Should actual input VAT exceed 7%
of the gross payments, the excess may form part of
the sellers expense or cost. On the other hand, if
actual input VAT is less than 7% of gross payment,
the difference must be closed to expense or cost, in
effect reducing it.
However, 12% shall be withheld with respect to the
following:
1) Lease or use of properties or property rights
owned by non-residents
2) Services rendered to local insurance companies,
with respect to reinsurance premiums payable to
non-residents; and
3) Other services rendered in the Philippines by nonresidents.
V.
TRANSACTIONS EXEMPT FROM VAT
(amendments introduced by RA 9337 indicated, text in

ALL CAPS added by RA 9337)
SEC. 109. Exempt Transactions.

1) SUBJECT TO THE PROVISIONS OF SUBSECTION
(2) HEREOF, The following shall be exempt from
the value-added tax:
(a) Sale of nonfood agricultural products;
marine and forest products in their original
state by the primary producer or the owner
Value Added Tax

Taxation Law 2
of the land where the same are produced;
[DELETED BY RA 9337]
(b) Sale of cotton seeds in their original state;
and copra; [DELETED]
(c) Sale or importation of agricultural and
marine food products in their original state,
livestock and poultry of or kind generally used
as, or yielding or producing foods for human
consumption; and breeding stock and genetic
materials therefor.
Products classified under this paragraph and
paragraph (a) shall be considered in their
original state even if they have undergone the
simple
processes
of
preparation
or
preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or
stripping.
Polished and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt, AND
COPRA shall be considered in their original
state; [AMENDED]
(d) Sale or importation of fertilizers; seeds,
seedlings and fingerlings; fish, prawn, livestock
and poultry feeds, including ingredients,
whether locally produced or imported, used in
the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals
generally considered as pets);
(e) Sale or importation of coal and natural
gas, in whatever form or state, and petroleum
products (except lubricating oil, processed gas,
grease, wax and petrolatum) subject to excise
tax imposed under Title VI; [DELETED]
(f) Sale or importation of raw materials to be
used by the buyer or importer himself in the
manufacture of petroleum products subject to
excise tax, except lubricating oil, processed
gas, grease, wax and petrolatum; [DELETED]
(g) Importation of passenger and/or cargo
vessels of more than five thousand tons
(5,000) whether coastwise or ocean-going,
including engine and spare parts of said vessel
to be used by the importer himself as operator
thereof; [DELETED]
(h) Importation of personal and household
effects belonging to the residents of the
Philippines
returning
from
abroad
and
nonresident citizens coming to resettle in the
Philippines: Provided, That such goods are
exempt from customs duties under the Tariff
and Customs Code of the Philippines;
(i) Importation of professional instruments
and implements, wearing apparel, domestic
animals, and personal household effects
(except any vehicle, vessel, aircraft, machinery
other goods for use in the manufacture and
merchandise of any kind in commercial
quantity) belonging to persons coming to settle
in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such
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29 of 112
persons, or arriving within ninety (90) days

before or after their arrival, upon the
production of evidence satisfactory to the
Commissioner, that such persons are actually
coming to settle in the Philippines and that the
change of residence is bona fide;
(j) Services subject to percentage tax under
Title V;
(k) Services by agricultural contract growers
and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar;
(l) Medical, dental, hospital and veterinary
services subject to the provisions of Section 17
of Republic Act No. 7716, as amended EXCEPT
THOSE
RENDERED
BY
PROFESSIONALS:
[AMENDED]
(m) Educational services rendered by private
educational institutions, duly accredited by the
Department of Education, Culture and Sports
(DECS) Department of Education (DEPED), the
Commission on Higher Education (CHED), THE
TECHNICAL
EDUCATION
AND
SKILLS
DEVELOPMENT AUTHORITY (TESDA), and
those rendered by government educational
institutions; [AMENDED]
(n) Sale by the artist himself of his works of
art, literary works, musical compositions and
similar creations, or his services performed for
the production of such works; [DELETED]
(o) Services rendered by individuals pursuant
to an employer-employee relationship;
(p) Services rendered by regional or area
headquarters established in the Philippines by
multinational corporations which act as
supervisory, communications and coordinating
centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines;
(q) Transactions which are exempt under
international
agreements
to
which
the
Philippines is a signatory or under special laws,
except those under Presidential Decree Nos.
66,
529
[Petroleum
Exploration
Concessionaires under the Petroleum Act of
1949] and 1590; [AMENDED]
(r) Sales by agricultural cooperatives duly
registered with the Cooperative Development
Authority to their members as well as sale of
their produce, whether in its original state or
processed form, to non-members; their
importation of direct farm inputs, machineries
and equipment, including spare parts thereof,
to be used directly and exclusively in the
production and/or processing of their produce;
(s)
Sales by electric cooperatives duly
authority
or
National
Electrification
Administration, relative to the generation and
distribution of electricity as well as their
importation of machineries and equipment,
including spare parts, which shall be directly
Value Added Tax

Taxation Law 2
used in the generation and distribution of
electricity; [DELETED]
[RA 9337 ADDED

SUBSECTIONS]
(t) Gross receipts from lending activities by

credit or multi-purpose cooperatives duly
Authority whose lending operation is limited to
their members; [AMENDED]
(S) SALE, IMPORTATION OR LEASE OF

PASSENGER OR CARGO VESSELS AND
AIRCRAFT, INCLUDING ENGINE, EQUIPMENT
AND SPARE PARTS THEREOF FOR DOMESTIC
OR
INTERNATIONAL
TRANSPORT
OPERATIONS;
(u) Sales by non-agricultural, non- electric

and non-credit cooperatives duly registered
with the Cooperative Development Authority:
Provided, That the share capital contribution of
each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of
the aggregate capital and net surplus ratably
distributed among the members;
(v) Export sales by persons who are not VATregistered;
(w) Sale of real properties not primarily held
for sale to customers or held for lease in the
ordinary course of trade or business or real
property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development
and Housing Act of 1992, and other related
laws, house and lot and other residential
dwellings valued at One million pesos
(P1,000,000) and below RESIDENTIAL LOT
VALUED AT ONE MILLION FIVE HUNDRED
THOUSAND PESOS (P1,500,000) AND BELOW,
HOUSE AND LOT, AND OTHER RESIDENTIAL
DWELLINGS VALUED AT TWO MILLION FIVE
HUNDRED THOUSAND PESOS (P2,500,000)
AND BELOW: Provided, That not later than
January 31st of the calendar year subsequent
to the effectivity of this Act and each calendar
year thereafter, the amount of One million
pesos (P1,000,000) shall be adjusted to its
present value JANUARY 31, 2009 AND EVERY
THREE (3) YEARS THEREAFTER, THE AMOUNTS
HEREIN STATED SHALL BE ADJUSTED TO
THEIR PRESENT VALUES using the Consumer
Price Index, as published by the national
Statistics Office (NSO); [AMENDED]
(x) Lease of a residential unit with a monthly
rental not exceeding TEN THOUSAND PESOS
(10,000) Eight thousand pesos (P8,000);
Provided, That not later than January 31st of
the calendar year subsequent to the effectivity
of Republic Act No. 8241 and each calendar
year thereafter, the amount of Eight thousand
pesos (P8,000) JANUARY 31, 2009 AND EVERY
THREE (3) YEARS THEREAFTER, THE AMOUNT
HEREIN STATED shall be adjusted to its
present value using the Consumer Price Index
as published by the National Statistics Office
(NS0); [AMENDED]
(y) Sale, importation, printing or publication of
books and any newspaper, magazine review or
bulletin which appears at regular intervals with
fixed prices for subscription and sale and which
is not devoted principally to the publication of
paid advertisements; and
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THE
FOLLOWING
TWO
(T) IMPORTATION OF FUEL, GOODS, AND

SUPPLIES
BY
PERSONS
ENGAGED
IN
INTERNATIONAL
SHIPPING
OR
AIR
TRANSPORT OPERATIONS;
(U) Services of banks, non-bank financial
intermediaries
performing
quasi-banking
functions and other non-bank financial
intermediaries; and
(z) Sale or lease of goods or properties or the
performance of services other than the
transactions mentioned in the preceding
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Five
hundred fifty thousand pesos (P550,000) ONE
MILLION FIVE HUNDRED THOUSAND PESOS
(P1,500,0000: Provided, That not later than
January 31st of the calendar year subsequent
to the effectivity of Republic Act No. 8241 and
each calendar year thereafter, the amount of
Five hundred fifty thousand pesos (550,000)
JANUARY 31, 2009 AND EVERY THREE (3)
YEARS THEREAFTER, THE AMOUNT HEREIN
STATED shall be adjusted to its present value
using the Consumer Price Index, as published
by the National Statistics Office (NSO).
[AMENDED]
The foregoing exemptions to the contrary
notwithstanding, any person whose sale of goods
or properties or services which are otherwise not
subject to VAT, but who issues a VAT invoice or
receipt therefor shall, in addition to his liability to
other applicable percentage tax, if any, be liable to
the tax imposed in Section 106 or 108 without the
benefit of input tax credit, and such tax shall also
be recognized as input tax credit to the purchaser
under Section 110, all of this Code. [DELETED]
(2) A VAT-REGISTERED PERSON MAY ELECT THAT
SUBSECTION (1) NOT APPLY TO ITS SALE OF
GOODS
OR
PROPERTIES
OR
SERVICES:
PROVIDED, THAT AN ELECTION MADE UNDER THIS
SUBSECTION SHALL BE IRREVOCABLE FOR A
PERIOD OF THREE (3) YEARS FROM THE QUARTER
THE ELECTION WAS MADE. [ADDED BY RA 9337]
Notes on exempt transactions (from RR 16-2005):
VAT-exempt transactions refer to the sale of goods or
properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and
the seller is not allowed any tax credit of VAT (input
tax) on purchases. The person making the exempt
sale of goods, properties or services shall not bill any
output tax to his customers because the said
transaction is not subject to VAT.
Value Added Tax

Taxation Law 2
1.
Livestock or poultry does not include fighting

cocks, race horses, zoo animals and other animals
generally considered as pets.
Original state even if they have undergone the
simple processes of preparation or preservation for the
market, such as freezing, drying, salting, broiling,
roasting, smoking or stripping, including those using
advanced technological means of packaging, such as
shrink wrapping in plastics, vacuum packing, tetrapack, and other similar packaging methods.
2.
Services subject to percentage tax under Title V:

(1) Sale or lease of goods or properties or the
performance
of
services
of
non-VATregistered persons, the gross annual sales
and/or receipts of which does not exceed the
amount of P1.5M; Provided, That not later
than January 31, 2009 and every three (3)
years thereafter, the amount herein stated
shall be adjusted to its present value using
the Consumer Price Index, as published by
the National Statistics Office (Sec. 116);
(2) Services rendered by domestic common
carriers by land, for the transport of
passengers and keepers of garages (Sec.
117);
(3) Services
rendered
by
international
air/shipping carriers (Sec. 118);
(4) Services rendered by franchise grantees of
radio and/or television broadcasting whose
annual gross receipts of the preceding year
do not exceed P10M, and by franchise
grantees of gas and water utilities (Sec.
119);
(5) Service rendered for overseas dispatch,
message or conversation originating from the
Philippines (Sec. 120);
(6) Services rendered by any person, company or
corporation
(except
purely
cooperative
companies
or
associations) doing
life
insurance business of any sort in the
Philippines (Sec. 123);
(7) Services rendered by fire, marine or
miscellaneous insurance agents of foreign
insurance companies (Sec. 124);
(8) Services of proprietors, lessees or operators
of cockpits, cabarets, night or day clubs,
boxing exhibitions, professional basketball
games, Jai-Alai and race tracks (Sec. 125);
and
(9) Receipts on sale, barter or exchange of
shares of stock listed and traded through the
local stock exchange or through initial public
offering (Sec. 127).
3.
Medical, dental, hospital and veterinary services,

except
those
rendered
by
professionals.
Laboratory services are exempted. If the hospital
or clinic operates a pharmacy or drug store, the
sale of drugs and medicine is subject to VAT.
4.
Educational services does not include seminars,

in-service training, review classes and other
similar services rendered by persons who are not
accredited by the DepED, CHED, and/or TESDA.
5.
With respect to non-agricultural, non-electric and

non-credit cooperatives duly registered with the
Cooperative Development Authority, their sales
are exempt (provided that the share capital
contribution of each member does not exceed
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P15K, regardless of the aggregate capital and net

surplus ratably distributed among the members)
BUT their importation of machineries and
equipment, including spare parts thereof, to be
used by them are SUBJECT to VAT. Compare this
with agricultural cooperatives (duly registered
with the CDA), whose exemption includes
importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be
used directly and exclusively in the production
and/or processing of their produce.
6.
Sale of real properties the ff. sales are exempt:

(1) Sale of real properties NOT primarily held for
sale to customers or held for lease in the
ordinary course of trade or business.
(2) Sale of real properties utilized for low-cost
housing as defined by RA No. 7279,
otherwise known as the "Urban Development
and Housing Act of 1992" and other related
laws, such as RA No. 7835 and RA No. 8763.
Low-cost housing" refers to housing projects
intended for homeless low-income family
beneficiaries, undertaken by the Government
or private developers, which may either be a
subdivision or a condominium registered and
licensed by the Housing and Land Use
Regulatory Board/Housing (HLURB) under BP
Blg. 220, PD No. 957 or any other similar
law, wherein the unit selling price is within
the selling price ceiling per unit of
P750,000.00 under RA No. 7279, and other
laws, such as RA No. 7835 and RA No. 8763.
(3) Sale of real properties utilized for socialized
housing as defined under RA No. 7279, and
other related laws, such as RA No. 7835 and
RA No. 8763, wherein the price ceiling per
unit is P225,000.00 or as may from time to
time be determined by the HUDCC and the
NEDA and other related laws.
"Socialized
housing" refers to housing programs and
projects covering houses and lots or home
lots only undertaken by the Government or
the private sector for the underprivileged and
homeless citizens which shall include sites
and
services
development,
long-term
financing, liberated terms on interest
payments, and such other benefits in
accordance with the provisions of RA No.
7279and RA No. 7835 and RA No. 8763.
"Socialized housing" shall also refer to
projects intended for the underprivileged and
homeless wherein the housing package
selling price is within the lowest interest rates
under the Unified Home Lending Program
(UHLP) or any equivalent housing program of
the Government, the private sector or nongovernment organizations.
(4) Sale of residential lot valued at P1.5M and
below, or house & lot and other residential
dwellings valued at P2.5M and below, where
the instrument of sale/transfer/disposition
was executed on or after July 1, 2005;
Provided, That not later than January 31,
2009 and every 3 years thereafter, the
amounts stated herein shall be adjusted to its
present value using the Consumer Price
Index, as published by the National Statistics
Office (NSO); Provided, further, that such
adjustment shall be published through
Value Added Tax

Taxation Law 2
revenue regulations to be issued not later
than March 31 of each year;
If two or more adjacent residential lots are
sold or disposed in favor of one buyer, for the
purpose of utilizing the lots as one residential
lot, the sale shall be exempt from VAT only if
the aggregate value of the lots does not
exceed P1.5M. Adjacent residential lots,
although covered by separate titles and/or
separate tax declarations, when sold or
disposed to one and the same buyer, whether
covered by one or separate Deed of
Conveyance, shall be presumed as a sale of
one residential lot.
7. Lease of residential units with a monthly rental per
unit not exceeding P10K, regardless of the
amount of aggregate rentals received by the
lessor during the year.
Lease of residential units where the monthly
rental per unit exceeds 10K but the aggregate of
such rentals of the lessor during the year do not
exceed One Million Five Hundred Pesos P1.5M
shall likewise be exempt from VAT, however, the
same shall be subjected to three percent (3%)
percentage tax.
In cases where a lessor has several residential
units for lease, some are leased out for a monthly
rental per unit of not exceeding P10K while others
are leased out for more than P10K per unit, his
tax liability will be as follows:
a. The gross receipts from rentals not exceeding
P10K per month per unit shall be exempt
from VAT regardless of the aggregate annual
gross receipts.
b. The gross receipts from rentals exceeding
P10K per month per unit shall be subject to
VAT IF the aggregate annual gross receipts
from said units only (not including the gross
receipts from units leased for not more than
P10K) exceeds P1.5M. Otherwise, the gross
receipts will be subject to the 3% tax
imposed under Section 116 of the Tax Code.
The term 'residential units' shall refer to
apartments and houses & lots used for
residential purposes, and buildings or parts or
units thereof used solely as dwelling places
(e.g., dormitories, rooms and bed spaces)
except motels, motel rooms, hotels and hotel
rooms.
The term 'unit' shall mean an apartment unit
in the case of apartments, house in the case
of residential houses; per person in the case
of dormitories, boarding houses and bed
spaces; and per room in case of rooms for
rent.
7.
The exemption from VAT on the importation and

local purchase of passenger and/or cargo vessels
shall be limited to those of 150 tons and above,
including engine and spare parts of said vessels;
Provided, further, that the vessels to be imported
shall comply with the age limit requirement, at
the time of acquisition counted from the date of
the vessel's original commissioning, as follows:
(i) for passenger and/or cargo vessels, the
age limit is 15 years old, (ii) for tankers, the
age limit is 10 years old, and
(iii) for high-speed passenger crafts, the age
limit is 5 years old
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8.
Importation of fuel, goods and supplies by

persons engaged in international shipping or air
transport operations; Provided, that the said fuel,
goods and supplies shall be used exclusively or
shall pertain to the transport of goods and/or
passenger from a port in the Philippines directly
to a foreign port without stopping at any other
port in the Philippines; Provided, further, that if
any portion of such fuel, goods or supplies is used
for purposes other than that mentioned in this
paragraph, such portion of fuel, goods and
supplies shall be subject to 10% VAT
9.
For purposes of the threshold of P1,5M, the

husband and the wife shall be considered
separate taxpayers. However, the aggregation
rule for each taxpayer shall apply. For instance, if
a professional, aside from the practice of his
profession, also derives revenue from other lines
of business which are otherwise subject to VAT,
the same shall be combined for purposes of
determining whether the threshold has been
exceeded. The VAT-exempt sales shall NOT be
included in determining the threshold.
VI.
a)
DETERMINING THE VAT BASE
Sale of Goods
VAT Base = gross selling price or gross value
in money of the goods sold or exchanged
Gross selling price shall include:
charges for packaging, delivery &

insurance
excise taxes if goods are subject to

excise tax
For transactions deemed sale, the output tax shall be

based on the market value of the goods deemed sold
as of the time of the occurrence of the transactions.
However, in case of retirement or cessation of
business, the tax base shall be the acquisition cost or
the current market price of the goods or properties,
whichever is LOWER.
In the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the
actual market value shall be the tax base.
b)
Sale of Services
VAT Base = Gross Receipts
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 advance payments
actually or constructively received during the
taxable quarter for the services performed or
to be performed for another person,
excluding VAT.
occurs when the
Constructive receipt
money consideration or its equivalent is
placed at the control of the person who
rendered the service without restrictions by
the payor. Examples:
1) deposit in banks which are made
available to the seller of services without
restrictions
Value Added Tax

Taxation Law 2
2)
3)
issuance by the debtor of a notice to

offset any debt or obligation and
acceptance thereof by the seller as
payment for services rendered
transfer of the amounts retained by the
contractee to the acount of the
contractor.
Reimbursable expenses may be EXCLUDED

from the tax base IF the ff. conditions are
complied with:
1) the
expenses
are
supported
by
invoices/receipts in the name of the
customer
2) the expenses are paid or will be paid to a
3rd party
3) there is no mark-up on the amounts
billed, and
4) the reimbursable expenses should NOT
be included in the Sellers VAT Invoice or
if so included, these should be clearly
indicated in the VAT Invoice as
reimbursable expenses.
c)
Importation of Goods
VAT Base = total value (used by Bureau of
Customs in determining tariff and customs
duties) + customs duties + excise tax (if any)
+ other charges
In case the valuation used by Bureau of
Customs in computing customs duties is by
volume or quantity, the LANDED COST* shall
be the tax base.
*LANDED COST = invoice amount +
customs duties + freight + insurance + other
charges + excise tax (if any)
NOTE: The VAT on importation shall be paid
by the importer PRIOR to the release of such
goods from customs custody. (RR 16-2005)
VII.
INPUT TAXES
(amendments introduced by RA 9337 indicated, text in

ALL CAPS added by RA 9337)
SEC. 110. Tax Credits.
(A) Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice
or official receipt issued in accordance with
Section 113 hereof on the following
transactions shall be creditable against the
output tax:
(a) Purchase or importation of goods:
(i)
For
sale;
or
(ii) For conversion into or intended
to form part of a finished product for
sale including packaging materials;
or
(iii) For use as supplies in the
course
of
business;
or
(iv) For use as materials supplied in
the
sale
of
service;
or
(v) For use in trade or business for
which deduction for depreciation or
amortization is allowed under this
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Code, except automobiles, aircraft

and yachts. [AMENDED]
(b) Purchase of services on which a
value-added tax has been actually paid.
(2) The input tax on domestic purchase OR
IMPORTATION of goods or properties shall be
creditable: [AMENDED]
(a)
To
the
purchaser
upon
consummation of sale and on importation
of goods or properties; and
(b) To the importer upon payment of the
value-added tax prior to the release of
the goods from the custody of the
Bureau of Customs.
Provided, That the input tax on goods purchased or
imported in a calendar month for use in trade or
business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over
the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost
for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000): Provided,
however, That if the estimated useful life of the capital
good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided, finally,
that in the case of purchase of services, lease or use
of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee. [AMENDED]
(3) A VAT-registered person who is also
engaged in transactions not subject to the
value-added tax shall be allowed tax credit as
follows:
(a) Total input tax which can be
directly attributed to transactions
subject to value-added tax; and
(b) A ratable portion of any input
tax
which
cannot
be
directly
attributed to either activity.
The term "input tax" means the value-added
tax due from or paid by a VAT-registered
person in the course of his trade or business
on importation of goods or local purchase of
goods or services, including lease or use of
property, from a VAT-registered person. It
shall also include the transitional input tax
determined in accordance with Section 111 of
this Code.
The term "output tax" means the value-added
tax due on the sale or lease of taxable goods
or properties or services by any person
registered or required to register under
Section 236 of this Code.
(B) Excess Output or Input Tax. - If at the end of
any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the VAT-registered
person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter
or quarters: Provided, however, that any input tax
attributable to the purchase of capital goods or to
zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other
internal revenue taxes, subject to the provisions of
Section 112.7 [AMENDED]
7
As amended by RA 9361. RA 9337, effective July 1, 2005,

amended this subsection to read as follows: If at the end of
any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters: Provided, That the input
Value Added Tax

Taxation Law 2
(C) Determination of Creditable Input Tax. - The
sum of the excess input tax carried over from the
preceding month or quarter and the input tax
creditable to a VAT-registered person during the
taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for valueadded tax and other adjustments, such as purchase
returns or allowances and input tax attributable to
exempt sale.
The claim for tax credit referred to in the foregoing
paragraph shall include not only those filed with the
Bureau of Internal Revenue but also those filed with
other government agencies, such as the Board of
Investments the Bureau of Customs.
SEC. 111. Transitional/Presumptive Input Tax
Credits. (A) Transitional Input Tax Credits. - A person who
becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to
the filing of an inventory according to rules and
regulations prescribed by the Secretary of finance,
upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods,
materials and supplies equivalent for eight percent
(8%) TWO PERCENT (2%) of the value of such
inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher,
which shall be creditable against the output tax.
[AMENDED]
(B) Presumptive Input Tax Credits. (1)
Persons or firms engaged in the
processing of sardines, mackerel and milk,
and in manufacturing refined sugar and
cooking oil AND PACKED NOODLE BASED
INSTANT MEALS, shall be allowed a
presumptive input tax, creditable against the
output tax, equivalent to one and one-half
percent (1 1/2%) FOUR PERCENT (4%) of
the gross value in money of their purchases
of primary agricultural products which are
used
as
inputs
to
their
production.
[AMENDED]
As used in this Subsection, the term
"processing" shall mean pasteurization,
canning and activities which through physical
or chemical process alter the exterior texture
or form or inner substance of a product in
such manner as to prepare it for special use
to which it could not have been put in its
original form or condition.
(2) Public works contractors shall be allowed
a presumptive input tax equivalent to one
and one-half percent (1 1/2%) of the contract
price with respect to government contracts
tax inclusive of input VAT carried over from the previous

quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: Provided, however,
That any input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions
of Section 112. HOWEVER, this was again amended by
Congress through RA 9361 passed on Nov. 21, 2006. RR 22007, dated January 11, 2007, provides that this regulation
enforcing the amendment introduced by RA 9361 shall take
effect immediately and shall apply to the quarterly VAT
returns to be filed after the effectivity of RA 9361 (which is 15
days after its publication) except VAT returns covering taxable
quarters ending earlier than December 2006.
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only in lieu of actual input taxes therefrom.

[DELETED]
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-Rated or Effectively Zero-Rated Sales. any VAT-registered person, whose sales are zerorated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input
tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in
the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1)
and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in
Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or
exempt sale of goods of properties or services, and
the amount of creditable input tax due or paid cannot
be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on
the basis of the volume of sales. PROVIDED, FINALLY,
THAT FOR A PERSON MAKING SALES THAT ARE ZERORATED UNDER SECTION 108 (B)(6), THE INPUT
TAXES SHALL BE ALLOCATED RATABLY BETWEEN HIS
ZERO-RATED
AND
NON-ZERO-RATED
SALES.
[AMENDED]
(B) Capital Goods. - A VAT-registered person may
apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported
or locally purchased, to the extent that such input
taxes have not been applied against output taxes. The
application may be made only within two (2) years
after the close of the taxable quarter when the
importation or purchase was made. [DELETED]
(C) Cancellation of VAT Registration. - A person
whose registration has been cancelled due to
retirement from or cessation of business, or due to
changes in or cessation of status under Section 106(C)
of this Code may, within two (2) years from the date
of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used
in payment of his other internal revenue taxes.
(D) Period Within Which Refund or Tax Credit of
Input Taxes Shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of
submission of complete documents in support of the
application filed in accordance with Subsections (A)
and
(B)
hereof.
In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the
period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
(E) Manner of Giving Refund. - Refunds shall be
made upon warrants drawn by the Commissioner
Value Added Tax

Taxation Law 2
or by his duly authorized representative without the
necessity of being countersigned by the Chairman,
Commission on audit, the provisions of the
Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the
Commission on Audit.
Notes from RR 16-2005:
Input tax means the VAT due on or paid by a VATregistered person on importation of goods or local
purchases of goods, properties, or services, including
lease or use of properties, in the course of his trade or
business. It shall also include the transitional input tax
and the presumptive input tax determined in
accordance with Sec. 111 of the Tax Code.
It includes input taxes which can be directly attributed
to transactions subject to the VAT plus a ratable
portion of any input tax which cannot be directly
attributed to either the taxable or exempt activity.
Input tax must evidenced by a VAT invoice or official
receipt issued by a VAT-registered person in
accordance with Secs. 113 and 237 of the Tax.
Claim for Input Tax on Depreciable Goods.
Where a VAT-registered person purchases or imports
capital goods, which are depreciable assets for income
tax purposes, the aggregate acquisition cost of which
(exclusive of VAT) IN A CALENDAR MONTH EXCEEDS
P1M, regardless of the acquisition cost of each capital
good, shall be claimed as credit against output tax in
the following manner:
(a)
If the estimated useful life of a capital good is
5 YEARS OR MORE The input tax shall be spread
evenly over a period of 60 months and the claim for
input tax credit will commence in the calendar month
when the capital good is acquired. The total input
taxes on purchases or importations of this type of
capital goods shall be divided by 60 and the quotient
will be the amount to be claimed monthly.
(b)
If the estimated useful life of a capital good is
LESS THAN 5 YEARS The input tax shall be spread
evenly on a monthly basis by dividing the input tax by
the actual number of months comprising the
estimated useful life of the capital good. The claim for
input tax credit shall commence in the calendar month
that the capital goods were acquired.
Where the aggregate acquisition cost (exclusive of
VAT) of the existing or finished depreciable capital
goods purchased or imported DURING ANY CALENDAR
MONTH DOES NOT EXCEED P1M, the total input taxes
will be allowable as credit against output tax in the
month of acquisition.
The aggregate acquisition cost of a depreciable asset
in any calendar month refers to the total price agreed
upon for one or more assets acquired and not on the
payments actually made during the calendar month.
Thus, an asset acquired in installment for an
acquisition cost of more than P1M will be subject to
the amortization of input tax despite the fact that the
monthly payments/installments may not exceed P1M.
Illustration:
LBH Corporation sold capital goods on installment on
October 1, 2005. It is agreed that the selling price,
including the VAT, shall be payable in five (5) equal
monthly installments. The data pertinent to the sold
assets are as follows:
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Selling Price (exclusive of VAT)

P5,000,000.00
Passed-on VAT (at 12%)
600,000.00
The input tax of P 600,000.00 on the bought capital
goods worth P5M shall be spread evenly over a period
of 60 months starting the month of purchase (because
the total selling price exceeded P1M, even if the actual
payment in the year did not exceed P1M) if the
estimated useful life is 5 years or more. Thus, the
input tax that can be credited per month is P8.333.33
(P500K/60 months). If the estimated useful life is 4
years, then the input tax creditable is P10,416.67
(P500K/48 months).
If the depreciable capital good is sold/transferred
within a period of 5 years or prior to the exhaustion of
the amortizable input tax thereon, the entire
unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit
during the month/quarter when the sale or transfer
was made.
However, for example, if the capital good was bought
at the total selling price of P1M (exclusive of VAT) and
there was no other capital good purchased in the
month of October, the entire input tax of P120K (12%
of P1M) can be credited in the month of October.
Apportionment
of
Input
Tax
on
Mixed
Transactions. A VAT-registered person who is also
engaged in transactions not subject to VAT shall be
allowed to recognize input tax credit on transactions
subject to VAT as follows:
1. All the input taxes that can be directly attributed
to transactions subject to VAT may be recognized for
input tax credit; Provided, that input taxes that can be
directly attributable to VAT taxable sales of goods and
services to the Government or any of its political
subdivisions, instrumentalities or agencies, including
government-owned
or
controlled
corporations
(GOCCs) shall not be credited against output taxes
arising from sales to non-Government entities; and
2. If any input tax cannot be directly attributed to
either a VAT taxable or VAT-exempt transaction, the
input tax shall be pro-rated to the VAT taxable and
VAT-exempt transactions and only the ratable portion
pertaining to transactions subject to VAT may be
recognized for input tax credit.
Illustration: ERA Corporation has the following sales
during the month:
Sale to private entities subject to 12%
P100,000.00
Sale to private entities subject to 0%
100,000.00
Sale of exempt goods
100,000.00
Sale to gov't. subjected to 5% final VAT Withholding
100,000.00
Total sales for the month
P400,000.00
=========
The following were its input taxes (or passed on by its

VAT suppliers):
Input tax on taxable goods (12%)
P5,000.00
Input tax on zero-rated sales
3,000.00
Value Added Tax

Taxation Law 2
Input tax on sale of exempt goods
2,000.00
Input tax on sale to government
4,000.00
Input tax on depreciable capital good not attributable
to any specific activity (monthly amortization for 60
months)
P20,000.00
Determination of Input Tax Creditable during a

Taxable Month or Quarter.
xxx
All creditable input taxes8
(as illustrated in the previous example
to be P18K) during the month or quarter
A. The creditable input tax for the month shall be

computed as follows:
Input tax on sale subject to 12%
P5,000.00
Input tax on zero-rated sale
3,000.00
Ratable portion of the input tax not directly
attributable to any activity, computed below
any amount of input tax carried-over

from the preceding month or quarter
Taxable sales (0% and 12%)
Total Sales
P200,000.00
400,000.00
X Amount of
input tax
not directly
attributable
B.
The input tax attributable to sales to
government for the month shall be computed as
follows:
Input tax on sale to gov't.
P4,000.00
Ratable portion of the input tax not
directly attributable to any activity, computed as
follows:
Taxable sales to government
Total Sales
X
P20,000.00
Amount of
input tax
not directly
attributable
=
P5,000.00
Total input tax attributable to sales

P9,000.00
to government (P4,000 + P5,000) - These amounts
are not available for input tax credit but may be
recognized as cost or expense. That is because as far
as sales to government are concerned, there is a VAT
that is finally withheld (at 5%).
C. The input tax attributable to VAT-exempt sales for
the month shall be computed as follows:
Input tax on VAT-exempt sales
P2,000.00
Ratable portion of the input tax not directly
attributable to any activity, computed below:
VAT-exempt sales
Total Sales
P100,000.00 X
400,000.00
other adjustments (purchases returns

or allowances)
P20,000.00 = P10,000.00
Total creditable input tax for the month (P5,000+

P3,000 +P10,000)
P18,000.00
P100,000.00
400,000.00
Less:
amount of claim for VAT refund
or tax credit certificate
(whether filed with the BIR,
the Department of Finance,
the Board of Investments, BOC)
Amount of
input tax
not directly attributable
P20,000.00
P5,000.00
Total input tax attributable to

P7,000.00
VAT-exempt sales (P2,000+ P5,000) - These
amounts are not available for input tax credit but may
be recognized as cost or expense.
xxx
(xxx)
(xxx)
xxx
VAT Payable (Excess Output)t or Excess Input

Tax.
(a) If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the
VAT-registered person.
Illustration: For a given taxable quarter ABC Corp. has
output VAT of 100 and input VAT of 80. Since output
tax exceeds the input tax for such taxable quarter, all
of the input tax may be utilized to offset against the
output tax. Thus, the net VAT payable is 100 minus 80
= 20.
(b) If the input tax inclusive of input tax carried over
from the previous quarter EXCEEDS the output tax,
the EXCESS input tax shall be carried over to the
succeeding quarter or quarters; Provided, however,
that any input tax attributable to zero-rated sales by a
VAT-registered person may at his option be refunded
or applied for a tax credit certificate which may be
used in the payment of internal revenue taxes, subject
to the limitations as may be provided for by law, as
well as, other implementing rules.
Illustration:
For a given taxable quarter XYZ Corp. has output VAT
of 100 and input VAT of 110. 100-110 = -10. Since
input tax exceeds the output tax for such taxable
quarter, the unutilized input tax amounting to 10 is
carried over to the succeeding month.
Transitional/Presumptive Input Tax Credits.
(a) Transitional Input Tax Credits on Beginning
Inventories
Taxpayers who became VAT-registered persons upon
exceeding the minimum turnover of P1.5M in any 12month period, or who voluntarily register even if their
turnover does not exceed P1.5M (except franchise
grantees of radio and television broadcasting whose
threshold is P10M) shall be entitled to a transitional
input tax on the inventory on hand. The transitional
input tax shall be 2% of the value of the beginning
inventory on hand OR actual VAT paid on such, goods,
materials and supplies, whichever is HIGHER, which
amount shall be creditable against the output tax of
Remember, this does NOT include input tax attributable to

exempt sales, and input tax attributable to sales subject to
final withholding VAT
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Value Added Tax

Taxation Law 2
VAT-registered person. The value allowed for income
tax purposes on inventories shall be the basis for the
computation of the 2% transitional input tax,
excluding goods that are exempt from VAT under Sec.
109 of the Tax Code.
(b) Presumptive Input Tax Credits
Persons or firms engaged in the processing of
sardines, mackerel, and milk, and in manufacturing
refined sugar, cooking oil and packed noodle-based
instant meals, shall be allowed a presumptive input
tax, creditable against the output tax, equivalent to
4% of the gross value in money of their purchases of
primary agricultural products which are used as inputs
to their production.
Claims for Refund/Tax Credit Certificate of Input
Tax.
(a) Zero-rated and Effectively Zero-rated Sales of
Goods, Properties or Services
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively
zero-rated may apply for the issuance of a tax credit
certificate/refund of input tax attributable to such
sales. The input tax that may be subject of the claim
shall EXCLUDE the portion of input tax that has been
applied against the output tax. The application should
be filed within two (2) years after the close of the
taxable quarter when such sales were made.
Where the taxpayer is engaged in both zero-rated or
effectively zero-rated sales and in taxable (including
sales subject to final withholding VAT) or exempt sales
of goods, properties or services, and the amount of
creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, only
the proportionate share of input taxes allocated to
zero-rated or effectively zero-rated sales can be
claimed for refund or issuance of a tax credit
certificate.
(b) Cancellation of VAT registration
A VAT-registered person whose registration has been
cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status
under Sec. 106 (C) of the Tax Code may, within 2
years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused
input tax which he may use in payment of his other
internal revenue taxes; Provided, however, that he
shall be entitled to a refund if he has no internal
revenue tax liabilities against which the tax credit
certificate may be utilized.
(c) Where to file the claim for refund/tax credit
certificate
Claims for refunds/tax credit certificate shall be filed
with the appropriate BIR office (Large Taxpayers
Service (LTS) or Revenue District Office (RDO)) having
jurisdiction over the principal place of business of the
taxpayer; Provided, however, that direct exporters
may also file their claim for tax credit certificate with
the One Stop Shop Center of the Department of
Finance; Provided, finally, that the filing of the claim
with one office shall preclude the filing of the same
claim with another office.
(d) Period within which refund or tax credit
certificate/refund of input taxes shall be made
In proper cases, the Commissioner of Internal
Revenue shall grant a tax credit certificate/refund for
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creditable input taxes within one hundred twenty

(120) days from the date of submission of complete
documents in support of the application filed in
accordance with subparagraph (a) above.
In case of full or partial denial of the claim for tax
credit
certificate/refund
as
decided
by
the
Commissioner of Internal Revenue, the taxpayer may
appeal to the Court of Tax Appeals (CTA) within thirty
(30) days from the receipt of said denial, otherwise
the decision shall become final. However, if no action
on the claim for tax credit certificate/refund has been
taken by the Commissioner of Internal Revenue after
the one hundred twenty (120) day period from the
date of submission of the application with complete
documents, the taxpayer may appeal to the CTA
within 30 days from the lapse of the 120-day period.
VIII.
SUBSTANTIATION REQUIREMENTS
RR 16-2005: Substantiation of Input Tax Credits

(a) Input taxes must be substantiated and supported
by the following documents, and must be reported in
the information returns required to be submitted to
the Bureau:
(1) For the importation of goods import entry
or other equivalent document showing actual
payment of VAT on the imported goods.
(2) For the domestic purchase of goods and
properties invoice showing the information
required under Secs. 113 and 237 of the Tax
Code.
(3) For the purchase of real property public
instrument i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell, etc.,
together with VAT invoice issued by the seller.
(4) For the purchase of services official receipt
showing the information required under Secs. 113
and 237 of the Tax Code.
A cash register machine tape issued to a
registered buyer shall constitute valid proof of
substantiation of tax credit only if it shows the
information required under Secs. 113 and 237 of
the Tax Code.
(b) Transitional input tax shall be supported by an
inventory of goods as shown in a detailed list to be
submitted to the BIR.
(c) Input tax on "deemed sale" transactions shall be
substantiated with the invoice required (please refer
to the table on page 46).
(d) Input tax from payments made to non-residents
(such as for services, rentals and royalties) shall be
supported by a copy of the Monthly Remittance Return
of Value Added Tax Withheld (BIR Form 1600) filed by
the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld
by the payor.
(e) Advance VAT on sugar shall be supported by the
Payment Order showing payment of the advance VAT.
IX.
INVOICING REQUIREMENTS
SEC. 113. Invoicing and Accounting Requirements for

VAT-Registered Persons. (A) Invoicing Requirements. - A VAT-registered person
shall issue:
(1) A VAT invoice for every sale, barter or exchange of
goods or properties; and
(2) A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange of
services.
Value Added Tax

Taxation Law 2
(B) Information Contained in the VAT Invoice or VAT
Official Receipt. - The following information shall be
indicated in the VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered
person, followed by his taxpayer's identification
number (TIN);
(2) The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the value-added tax: Provided,
That:
(a) The amount of the tax shall be shown as a
separate item in the invoice or receipt;
(b) If the sale is exempt from value-added tax, the
term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) valueadded tax, the term "zero-rated sale" shall be written
or printed prominently on the invoice or receipt;
(d) If the sale involves goods, properties or services
some of which are subject to and some of which are
VAT zero-rated or VAT-exempt, the invoice or receipt
shall clearly indicate the breakdown of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the value-added
tax on each portion of the sale shall be shown on the
invoice or receipt: "Provided, That the seller may issue
separate invoices or receipts for the taxable, exempt,
and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and
description of the goods or properties or nature of the
service; and
(4) In the case of sales in the amount of one thousand
pesos (P1,000) or more where the sale or transfer is
made to a VAT-registered person, the name, business
style, if any, address and taxpayer identification
number (TIN) of the purchaser, customer or client.
xxx.
Notes from RR 16-2005:
Only VAT-registered persons are required to print their
TIN followed by the word "VAT" in their invoice or
official receipts. Said documents shall be considered
as a "VAT Invoice" or VAT official receipt. All
purchases covered by invoices/receipts other than VAT
Invoice/VAT Official Receipt shall not give rise to any
input tax.
VAT invoice/official receipt shall be prepared at least in
duplicate, the original to be given to the buyer and the
duplicate to be retained by the seller as part of his
accounting records.
Invoicing and Recording Deemed Sale Transactions.

Transaction
Invoicing Requirement
Transfer,
use
or Memorandum entry in
consumption not in the the
subsidiary
sales
course of business of journal
to
record
goods
or
properties withdrawal of goods for
originally intended
for personal use
sale or for use in the
course of business
Distribution or transfer to Invoice, at the time of
shareholders/investors or the transaction, which
creditors
should include all the info
prescribed in Sec. 113(B)
Consignment of goods if Invoice, at the time of
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actual sale is not made

within 60 days
Retirement
from
or
cessation of business with
respect to all goods on
hand
X.
the transaction, which

should include all the info
prescribed in Sec. 113(B)
An inventory shall be
prepared and submitted
to the RDO who has
jurisdiction
over
the
taxpayers principal place
of business not later than
30 days after retirement
or cessation from the
business.
An invoice
shall be prepared for the
entire inventory, which
shall be the basis of the
entry into the subsidiary
sales
journal.
The
invoice
need
not
enumerate the specific
items appearing in the
inventory regarding the
description of the goods.
If the business is to be
continued by the new
owners or successors,
the entire amount of
output tax on the amount
deemed sold shall be
allowed as input taxes.
ACCOUNTING REQUIREMENTS
Invoicing
and
Accounting
SEC.
113.
Requirements for VAT-Registered Persons. xxx
(C) Accounting Rquirements. - Notwithstanding
the provisions of Section 233, all persons subject
to the value-added tax under Sections 106 and
108 shall, in addition to the regular accounting
records required, maintain a subsidiary sales
journal and subsidiary purchase journal on which
the daily sales and purchases are recorded. The
subsidiary journals shall contain such information
as may be required by the Secretary of Finance.
...xxx.
RR 16-2005: A subsidiary record in ledger form shall
be maintained for the acquisition, purchase or
importation of depreciable assets or capital goods
which shall contain, among others, information on the
total input tax thereon as well as the monthly input
tax claimed in VAT declaration or return.
XI.
CONSEQUENCES
OF
ISSUING
ERRONEOUS VAT INVOICE OR VAT
OFFICIAL RECEIPT
Added by RA 9337:
SEC.
113.
Invoicing
and
Accounting
Requirements for VAT-Registered Persons. xxx
(D) Consequence of Issuing Erroneous Vat Invoice
or Vat Official Receipt. (1) If a person who is not a VAT-registered
person issues an invoice or receipt
Value Added Tax

Taxation Law 2
showing his Taxpayer Identification Number
(TIN), followed by the word "VAT":
(a) The issuer shall, in addition to any
liability to other percentage taxes, be
liable to:
(i) The tax imposed in Section 106
or 108 without the benefit of any
input tax credit; and
(ii) A 50% surcharge under Section
248 (B) of this code;
(b) The VAT shall, if the other requisite
information required under Subsection
(B) hereof is shown on the invoice or
receipt, be recognized as an input tax
credit to the purchaser under Section
110 of this Code.
(2) If a VAT-registered person issues a VAT
invoice or VAT official receipt for a VATexempt transaction, but fails to display
prominently on the invoice or receipt the
term "VAT-exempt Sale", the issuer shall be
liable to account for the tax imposed in
Section 106 or 108 as if Section 109 did not
apply.
(E) Transitional Period. - Notwithstanding Subsection
(B) hereof, taxpayers may continue to issue VAT
invoices and VAT official receipts for the period July 1,
2005 to December 31, 2005, in accordance with
Bureau of Internal Revenue administrative practices
that existed as of December 31, 2004.
Under sub-par(2), clarification: If a VAT-registered
person issues a VAT invoice or VAT official receipt for a
VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the words "VATexempt sale", the transaction shall become taxable
and the issuer shall be liable to pay VAT thereon. The
purchaser shall be entitled to claim an input tax credit
on his purchase. (RR 16-2005)
XIII. REGISTRATION REQUIREMENTS
SEC. 236. Registration Requirements
xxx.
(F) Cancellation of Registration. (1) General Rule. - The registration of any person
who ceases to be liable to a tax type shall be
cancelled upon filing with the Revenue District
Office where he is registered, an application for
registration information update in a form
prescribed therefor;
(2) Cancellation of Value-Added Tax Registration.
- A VAT-registered person may cancel his
registration for VAT if:
(a) He makes written application and can
demonstrate
to
the
Commissioner's
satisfaction that his gross sales or receipts for
the following twelve (12) months, other than
those that are exempt under Section 109 (A)
TO (U), will not exceed One million five
hundred thousand pesos (P1,500,000); or
(b) He has ceased to carry on his trade or
business,
and
does
not
expect
to
recommence any trade or business within the
next twelve (12) months.
The cancellation of registration will be
effective from the first day of the following
month.
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(G) Persons Required to Register for Value-added Tax.

(1) Any person who, in the course of trade or
business, sells, barters or exchanges goods or
properties, or engages in the sale or exchange of
services, shall be liable to register for Valueadded tax if:
(a) His gross sales or receipts for the past
twelve (12) months, other than those that
are exempt under section 109 (a) to (u),
have exceeded One million five hundred
thousand pesos (P1,500,000); or
(b) There are reasonable grounds to believe
that his gross sales or receipts for the next
twelve (12) months, other than those that
are exempt under Section 109 (A) to (U), will
exceed one million five hundred thousand
pesos (P1,500,000).
(2) Every person who becomes liable to be
registered under paragraph (1) of this Subsection
shall register with the Revenue District Office
which has jurisdiction over the head office or
branch of that person, and shall pay the annual
registration fee prescribed in Subsection (B)
hereof. If he fails to register, he shall be liable to
pay the tax under Title IV as if he were a VATregistered person, but without the benefit of input
tax credits for the period in which he was not
properly registered.
(H) Optional Registration for Value-added Tax of
Exempt Person.
(1) Any person who is not required to register for
Value-added tax under Subsection (G) hereof may
elect to register for Value-added tax by
registering with the Revenue District Office that
has jurisdiction over the head office of that
person, and paying the annual registration fee in
Subsection (B) hereof.
(2) Any person who elects to register under this
Subsection shall not be entitled to cancel his
registration under Subsection (F)(2) for the next
three (3) years.
For purposes of Title IV of this Code, any person who
has registered value-added tax as a tax type in
accordance with the provisions of Subsection (C)
hereof shall be referred to as a "VAT-registered
person" who shall be assigned only one Taxpayer
Identification Number (TIN). xxx. (amended by RA
9337)
RR 16-2005:
Annual registration fee = P500.00
Once registered as a VAT person, the taxpayer shall
be liable to output tax and be entitled to input tax
credit beginning on the first day of the month
following registration.
Non-VAT or VAT-exempt persons are also required to
register as NON-VAT persons and pay the annual
registration fee of P500.00 for every separate or
distinct establishment or place of business before the
start of such business and every year thereafter on or
before the 31st day of January. Individuals engaged in
business where the gross sales or receipts do NOT
exceed P100,000.00 during any 12-month period, and
cooperatives other than electric cooperatives, are
required to register but will not be made to pay the
P500.00 fee.
Value Added Tax

Taxation Law 2
Franchise
grantees
of
radio
and
television
broadcasting whose gross annual receipt for the
preceding calendar year exceeded P10M shall register
within 30 days from the end of the calendar year.
Franchise grantees of the same whose annual gross
receipts do not exceed P10M derived from the
business covered by the law granting the franchise
may opt for VAT registration.
This option, once
exercised, shall be irrevocable (as opposed to VATexempt persons, in general, who choose to be VATregistered, in which case VAT registration cannot be
cancelled for 3 years only).
Any person who is VAT-registered but enters into
transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his
transactions which would have been exempt.
Cancellation of VAT registration:
A VAT-registered person may cancel his registration
for VAT as provided for in Sec. 236 (F) (2), and also in
the following instances:
1. A change of ownership, in the case of a single
proprietorship;
2. Dissolution of a partnership or corporation;
3. Merger or consolidation with respect to the
dissolved corporation(s);
4. A person who has registered prior to planned
business commencement, but failed to actually start
his business
Some instances where taxpayer will update his
registration by submitting a duly accomplished
Registration Update Form:
1. A person's business has become exempt in
accordance with Sec. 109
2. A change in the nature of the business itself from
sale of taxable goods and/or services to exempt sales
and/or services;
3. A person whose transactions are exempt from
VAT who voluntarily registered under VAT system,
who after the lapse of three years after his
registration, applies for cancellation of his registration
as such; and
4. A VAT-registered person whose gross sales or
receipts for three consecutive years did not exceed
P1,500,000.00 beginning July 1, 2005, which amount
shall be adjusted to its present value every three
years using the Consumer Price Index, as published by
the NSO.
Upon updating his registration, the taxpayer shall
become liable to the percentage tax imposed in Sec.
116 of the Tax Code. A short period return for the
remaining period that he was VAT-registered shall be
filed within twenty five (25) days from the date of
cancellation of his registration.
XIV. FILING OF RETURNS & PAYMENT OF VAT
SEC. 114. Return and Payment of Value-Added
Tax. (A) In General. - Every person liable to pay the
value-added tax imposed under this Title shall file
a quarterly return of the amount of his gross sales
or receipts within twenty-five (25) days following
the close of each taxable quarter prescribed for
each taxpayer: Provided, however, That VAT-
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registered persons shall pay the value-added tax

on a monthly basis.
Any person, whose registration has been
cancelled in accordance with Section 236, shall
file a return and pay the tax due thereon within
twenty-five (25) days from the date of
cancellation of registration: Provided, That only
one consolidated return shall be filed by the
taxpayer for his principal place of business or
head office and all branches.
(B) Where to File the Return and Pay the Tax. Except as the Commissioner otherwise permits,
the return shall be filed with and the tax paid to
an authorized agent bank, Revenue Collection
Officer or duly authorized city or municipal
Treasurer in the Philippines located within the
revenue district where the taxpayer is registered
or required to register.
(C) Withholding of Value-Added Tax. - The
Government or any of its political subdivisions,
instrumentalities
or
agencies,
including
government-owned or -controlled corporations
(GOCCs) shall, before making payment on
account of each purchase of goods and services
which are subject to the value-added tax imposed
in Sections 106 and 108 of this Code, deduct and
withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof:
Provided, That the payment for lease or use of
properties or property rights to nonresident
owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For
purposes of this Section, the payor or person in
control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall
be remitted within ten (10) days following the end of
the month the withholding was made. (as amended by
RA 9337)
RR 16-2005:
Filing of Return. Every person liable to pay VAT
shall file a quarterly return of the amount of his
quarterly gross sales or receipts within twenty five
(25) days following the close of taxable quarter using
the latest version of Quarterly VAT Return. The term
"taxable quarter" shall mean the quarter that is
synchronized to the income tax quarter of the
taxpayer (i.e., the calendar quarter or fiscal quarter).
Amounts reflected in the monthly VAT declarations for
the first 2 months of the quarter shall still be included
in the quarterly VAT return which reflects the
cumulative figures for the taxable quarter. Payments
in the monthly VAT declarations shall, however, be
credited in the quarterly VAT return to arrive at the
net VAT payable or excess input tax/over-payment as
of the end of a quarter.
Example. Suppose the accounting period adopted
by the taxpayer is fiscal year ending October.
The taxpayer has to file monthly VAT declarations
for the months:
November, December
February, March
May, June
August, September
Value Added Tax

Taxation Law 2
on or before the 20th day of the month
following the close of the taxable month
for every return period, with the BIR office where said
taxpayer is required to be registered.
His quarterly VAT returns corresponding to the

quarters ending
January, April, July, and October
Shall be filed and taxes due thereon be paid,
after crediting payments reflected in the Monthly
VAT declarations, on or before February 25, May
25, August 25, and November 25, 2003,
respectively.
Persons Required to Submit Summary Lists of

Sales/Purchases.
(1) Persons Required to Submit Summary Lists of
Sales. All persons liable for VAT such as
manufacturers, wholesalers, service-providers, among
others, with quarterly total sales/receipts (net of VAT)
exceeding Two Million Five Hundred Thousand Pesos
(P2,500,000.00).
(2) Persons Required to Submit Summary Lists of
Purchases. All persons liable for VAT such as
manufacturers, service-providers, among others, with
quarterly total purchases (net of VAT) exceeding One
Million Pesos (P 1,000,000.00).
The monthly VAT Declarations (BIR Form 2550M) of

taxpayers whether large or non-large shall be filed and
the taxes paid not later than the 20th day following
the end of each month.
The return for withholding of VAT shall be filed and the
withholding VAT paid on or before the tenth (10th)
day of the following month.
Payment of VAT upon filing of VAT return
Advance Payment The following are subject to the
advance payment of VAT:
1. Sale of Refined Sugar
2. Sale of Flour
Short Period Return
Any person who retires from business with due notice
to the BIR office where the taxpayer (head office) is
registered or whose VAT registration has been
cancelled shall file a final quarterly return and pay the
tax due thereon within twenty five (25) days from the
end of the month when the business ceases to operate
or when VAT registration has been officially cancelled;
Provided,
however,
that
subsequent
monthly
declarations/quarterly returns are still required to be
filed if the results of the winding up of the
affairs/business of the taxpayer reveal taxable
transactions.
Where to File and Pay
1. The monthly VAT declaration and quarterly return
shall be filed with, and VAT due thereon paid to,
an AAB under the jurisdiction of the Revenue
District/BIR Office where the taxpayer (head
office of the business establishment) is required
to be registered.
2. In cases where there are no duly accredited agent
banks within the municipality or city, the monthly
VAT declaration and quarterly VAT return, shall be
filed with and any amount due shall be paid to the
RDO, Collection Agent or duly authorized
Treasurer of the Municipality/City where such
taxpayer
(head
office
of
the
business
establishment) is required to be registered.
3. The quarterly VAT return and the monthly VAT
declaration, where no payment is involved, shall
be filed with the RDO/LTDO/Large Taxpayers
Assistance Division (LTAD), Collection Agent, duly
authorized
Municipal/City
Treasurer
of
Municipality/City where the taxpayer (head office
of the business establishment) is registered or
required to be registered.
Only one consolidated quarterly VAT return or monthly
VAT declaration covering the results of operation of
the head office as well as the branches for all lines of
business subject to VAT shall be filed by the taxpayer,
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When and Where to File the Summary Lists of

Sales/Purchases.
shall be submitted in diskette form to the RDO or
LTDO or LTAD having jurisdiction over the taxpayer,
on or before the twenty-fifth (25th) day of the month
following the close of the taxable quarter (VAT
quarter. However, taxpayers under the jurisdiction of
the LTS, and those enrolled under the EFPS, shall,
through electronic filing facility submit their Summary
List of Sales/Purchases to the RDO/LTDO/LTAD, on or
before the thirtieth (30th) day of the month following
the close of the taxable quarter.
Information that Must be Contained in the Quarterly
Summary List of Sales to be Submitted: the monthly
total sales generated from regular buyers/customers,
regardless of the amount of sale per buyer/customer,
as well as from casual buyers/customers with
individual sales amounting to P100,000.00 or more.
For
this
purpose,
the
term
"regular
buyers/customers" shall refer to buyers/customers
who are engaged in business or exercise of profession
AND those with whom the taxpayer has transacted at
least 6 transactions regardless of amount per
transaction either in the previous year or current year.
The term "casual buyers/customers", on the other
hand, shall refer to buyers/customers who are
engaged in business or exercise of profession BUT did
not qualify as regular buyers/customers as defined in
the preceding statement.
The Quarterly Summary List of Sales to Regular
Buyers/Customers and Casual Buyers/Customers and
Output Tax shall reflect the following:
(1) BIR-registered name of the buyer who is engaged
in business/exercise of profession;
(2) TIN of the buyer (Only for sales that are subject
to VAT);
(3) Exempt Sales;
(4) Zero-rated Sales;
(5) Sales Subject to VAT (exclusive of VAT);
(6) Sales Subject to Final VAT Withheld; and
(7) Output Tax (VAT on sales subject to 10%).
(The total amount of sales shall be system-generated)
Information that must be Contained in the Quarterly
Summary List of Purchases
(1) The Quarterly Summary List of Local Purchases
and Input Tax
a. BIR-registered
name
of
the
seller/supplier/service-provider;
b. Address of seller/supplier/service-provider;
c. TIN of the seller;
d. Exempt Purchases;
Value Added Tax

Taxation Law 2
e. Zero-rated Purchases;
f.
(i) Purchases Subject to VAT (exclusive of
VAT) on services;
(ii) Purchases Subject to VAT (exclusive of
VAT) on capital goods; and
(iii) Purchases Subject to VAT (exclusive of
VAT) on goods other than capital goods
(iv) Purchases Subject to Final VAT Withheld
g. Creditable Input Tax; and (to be computed
not on a per supplier basis
but on a per month basis)
h. Non-Creditable Input Tax (to be computed
not on a per supplier basis
but on a per month basis)
(The total amount of purchases shall be systemgenerated)
(2) The Quarterly Summary List of Importations.
(a) The import entry declaration number;
(b) Assessment/Release Date;
(c) The date of importation;
(d) The name of the seller;
(e) Country of Origin;
(f) Dutiable Value;
(g) All Charges Before Release From Customs'
Custody;
(h) Landed cost:
(i) Exempt;
(ii) Taxable (Subject to VAT);
(i) VAT paid;
(j) Official Receipt (OR) Number of the OR
evidencing payment of the tax; and
(k) Date of VAT payment
For the claimed input tax arising from services
rendered in the Philippines by nonresidents, no
summary list is required to be submitted.
Once any of the taxable quarters total sales and/or
purchases exceed the threshold amounts as provided
above, VAT taxpayer shall be required to submit the
summary lists for the next 3 succeeding quarters,
regardless of whether or not such succeeding taxable
quarter sales and/or purchases exceed the herein set
threshold amounts of P2,500,000.00 for sales and
P1,000,000.00 for purchases.
Penalties in case of failure to submit quarterly
summary list of sales and purchases.
A person who fails to file, keep or supply a statement,
list, or information required herein on the date
prescribed therefor shall pay, upon notice and demand
by the Commissioner of Internal Revenue, an
administrative penalty of P1,000.00 for each such
failure, unless it is shown that such failure is due to
reasonable cause and not to willful neglect. For this
purpose, the failure to supply the required information
for each buyer or seller of goods and services shall
constitute a single act or omission punishable hereof.
However, the aggregate amount to be imposed for all
such failures during a taxable year shall not exceed
P25,000.00.
In addition to the imposition of the administrative
penalty, willful failure by such person to keep any
record and to supply the correct and accurate
information at the time or times as required herein,
shall be subject to the criminal penalty under the
relevant provisions of the Tax Code (e.g., Sec. 255,
Sec. 256, etc.,), upon conviction of the offender.
The imposition of any of the penalties under the Tax
Code and the compromise of the criminal penalty on
such violations, notwithstanding, shall not in any
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manner relieve the violating taxpayer from the

obligation to submit the required documents.
Finally, the administrative penalty shall be imposed at
all times, upon due notice and demand by the
Commissioner of Internal Revenue. A subpoena duces
tecum for the submission of the required documents
shall be issued on the second offense. A third offense
shall set the motion for a criminal prosecution of the
offender.
XV. ENFORCEMENT MEASURES

RR 16-2005: Administrative and Penal Provisions.
(a) Suspension of business operations. In addition
to other administrative and penal sanctions provided
for in the Tax Code and implementing regulations, the
Commissioner of Internal Revenue or his duly
authorized representative may order suspension or
closure of a business establishment for a period of not
less than five (5) days for any of the following
violations:
(1) Failure to issue receipts and invoices.
(2) Failure to file VAT return as required under
the provisions of Sec. 114 of the Tax Code.
(3) Understatement of taxable sales or receipts
by 30% or more of his correct taxable sales or
receipt for the taxable quarter.
(4) Failure of any person to register as required
under the provisions of Sec. 236 of the Tax Code.
(b) Surcharge, interest and other penalties. The
interest on unpaid amount of tax, civil penalties and
criminal penalties imposed in Title XI of the Tax Code
shall also apply to violations of the provisions of Title
IV of the Tax Code.
XVI.
BAR EXAM QUESTIONS ON VAT
1998 BAR EXAM

State whether the following transactions are a) VAT
exempt, b) subject to VAT at 10% or c) subject to VAT
at 0%:
1.
2.
3.
4.
5.
Sale of fresh vegetables by Aling Ining at the

Pamilihang Bayan ng Trece Martirez
Services rendered by Jakes Construction
Company, a contractor to the World Health
Organization in the renovation of its offices in
Manila
Sale of tractors and other agricultural
implements by Bungkal Incorporated to local
farmers
Sale of RTW by Celys Boutique, a Filipino
dress designer, in her dress shop and other
outlets
Fees for lodging paid by students to BahayBahayan
Dormitory,
a
private
entity
operating a student dorm (monthly fee of
P1,500)
SUGGESTED ANSWERS:
1. VAT Exempt. Sale of agri products, such as
fresh veggies, in their original state, of a kind
generally used as, or producing foods for
human consumption is exempt from VAT.
(106c)
2. VAT at 0%. Since Jakes Construction has
rendered services to the WHO which is an
entity exempted from taxation under
Value Added Tax

Taxation Law 2
3.
4.
5.
international agreements to which the

Philippines is a signatory, the supply of
services is subject to zero percent rate.
(108B3)
VAT at 12%.
Tractors and other agri
implements fall under the definition of goods
which include all tangible objects which are
capable of pecuniary estimation. (106A1)
VAT at 12%. This transaction also falls under
the definition of goods which include all
tangible objects which are capable of
pecuniary estimation. (106A1)
VAT Exempt. The monthly fee paid by each
student falls under the lease of residential
units with a monthly rental per unit not
exceeding Php8,000 (now Php 10,000), which
is exempt from VAT regardless of the amount
of aggregate rentals received by the lessor
during the year.
PERCENTAGE TAXES
TAX ON PERSONS EXEMPT FROM VAT
3% of gross quarterly sales or receipts.

Q: Who are liable?
GENERAL RULE: Any person who are exempt from
VAT (gross annual sales and receipts does not exceed
P1.5M) and who is not a VAT-registered person.
EXCEPTION:
Cooperatives shall be exempt from the 3%

GRT.
Those earning LESS THAN P100,000 which is

neither covered by percentage tax nor by
VAT.
TAX ON DOMESTIC CARRIERS AND KEEPERS OF
GARAGES
3% of quarterly gross receipts
Gross receipts of common carriers derived

from INCOMING and OUTGOING freight is
NOT subject to local taxes under the Local
Govt Code.
Q: Who are covered?
1. Cars for rent or hire driven by lessee;
2. Transportation contractors, including persons
who transport passengers for hire;
3. Other domestic carriers by LAND;
4. Keepers of garages.
EXCEPT:
1. Owners of bancas
2. Owners
of
animal-drawn
two-wheeled
vehicles
Minimum quarterly gross receipts:

Jeepneys
Manila and other cities
Provincial
Public Utility Bus
Not exceeding 30 passengers
> 30 but not > 50 passengers
Exceeding 50 passengers
Taxis
Manila and other cities
Provincial
Car for hire (with chauffeur)
Car for hire (w/o chauffeur)
P2,400
P1,200
P3,600
P6,000
P7,200
P3,600
P2,400
P3,000
P1,800
TAX ON INTERNATIONAL CARRIERS
3% of their quarterly gross receipts.
To be subject to this percentage tax, they

MUST BE DOING BUSINESS IN THE
PHILIPPINES.
Q: Who are liable?
1. International air carriers
2. International shipping carriers
3.
Amendment introduced by RA 9337 (July

2005):
Common
carrier
By land
By sea
By air
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Transporting
Persons
Goods/cargo
Whether
transporting
persons or
goods/cargo
Kind
carrier
Domestic
Domestic
Domestic
of
International
Domestic
Tax Liability
3%, Sec. 117
12% VAT
Domestic trip 12% VAT
International
trip zero-rated
3%, Sec. 118
Domestic flight 12% VAT
Percentage Taxes
Taxation Law 2
International
International
flight zerorated
3%, Sec. 118
TAX ON FRANCHISES
Q: Who are liable?
1. Radio and broadcasting companies whose
annual gross receipts of the preceding year
does not exceed P10M 3% of gross receipts
derived from business covered by law
granting the franchise.
Note: The franchisee has the option to register as
VAT taxpayer and pay the VAT instead. However,
once option is exercised, it is IRREVOCABLE.
2. Electric, gas and water utilities 2% of gross
receipts derived from business covered by
the law granting the franchise.
* Under RA 9337, electric companies are now
subject to VAT and not percentage tax.
OVERSEAS COMMUNICATIONS TAX
10% of the amount paid for the services.

Levied upon EVERY overseas dispatch,
message or conversation TRANSMITTED
FROM THE PHILIPPINES by:
telephone
telegraph
telewriter exchange
wireless
other
communication
equipment
services.
Q: Who are liable?

It shall be payable by the person paying for the
services rendered to the person rendering the service,
who will in turn pay the taxes at the end of the
quarter.
Q: Who are exempted?
1. Government and any of its political
subdivisions and instrumentalities;
2. Diplomatic services (any embassy and
consular offices of a foreign govt)
3. International Organizations (if bases in the
Phils. and enjoying privileges, exemptions
and immunities pursuant to an international
agreement)
4. News services (which deals EXCLUSIVELY
with the collection of news and dissemination
to the public)
TAX ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES
PERFORMING
QUASIBANKING FUNCTIONS
tax on gross receipts derived from sources

within the Philippines by all banks and nonbank financial intermediaries
Definitions (from RR 09-04):

Non-bank Financial Intermediaries refer to
persons or entities whose principal functions include
the lending, investing or placement of funds or
evidences of indebtedness or equity deposited with
them, acquired by them or otherwise coursed through
them, either for their own account or for the account
of others.
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Quasi-banking Activities refer to the borrowing of

funds from 20 or more personal or corporate lenders
at any one time through the issuance, endorsement or
acceptance of debt instruments of any kind other than
deposits for the borrowers own account, or through
issuance of certificates of assignment or similar
instruments for purposes of relending or purchasing
receivables and other similar obligations. HOWEVER,
if borrowing of funds if for LIMITED PURPOSE of
financing their own needs or the needs of their agents
or dealers, it shall not be considered as performing
quasi banking functions.
RATES:
1. interest, commissions, discounts from lending
activities and financial leasing bases on
remaining maturities of instruments:
- maturity period is 5yrs or less
5%
- maturity period is more than 5yrs
1%
2. dividends and equity shares in net income of
subsidiaries
0%
3. royalties, rentals of property (real/personal),
profits from exchange and all other items
treated as gross income under sec. 32
7%
4. net trading gains on foreign currency, debt
securities, derivatives and other similar
financial instruments
7%
[Note: rates in #s 3 & 4 are as amended by RA
9337]
COMPUTING FOR THE NET TRADING GAINS:
The figure to be reported in the monthly
percentage
tax
return
shall
be
the
CUMMULATIVE TOTAL of the net trading
gain/loss since the first month of the
applicable taxable year LESS the figures
already reflected in the previous months of
the same year.
The net trading loss may only be deducted
from the net trading gain and not from any
other items of gross receipt to arrive at the
total gross receipts tax due.
The net trading loss cannot be deducted on
net trading gain earned on any taxable year
other than the year it was incurred and may
not be carried over to the succeeding taxable
year.
RULE ON PRETERMINATION:
In case the maturity period of an instrument is
shortened by pretermination, the maturity period
shall be reckoned to end as of the date of
pretermination for purposes of classifying the
transaction and applying the correct rate of tax.
Illustration (from RR 09-04):
Mr. A executede on Nov. 10, 2003 a long-term
loan from Bank B in the amount of P5M payable
within 10yrs with the first installment due on or
before Nov. 10, 2004 and the succeeding yearly
installment on the same date of the subsequent
years. Assume that on Nov. 10, 2008, the loan
was preterminated and the interest paid and other
fees received from 2004 up to 2008, amounting
to P100T annually, were received and declared by
Bank B correctly and the applicable gross receipts
taxes were paid as follows:
Year
Remaining Interest
Tax
GRT
Percentage Taxes
Taxation Law 2
Maturity
2004 9
100,000
2005 8
100,000
2006 7
100,000
2007 6
100,000
2008 5
100,000
GROSS RECEIPTS TAX
Rate
1%
1%
1%
1%
5%
1,000
1,000
1,000
1,000
5,000
9,000
In 2008, upon pretermination, the loan

agreement shall be reclassified and correct gross
receipts tax, including prior years, shall be
computed on the basis of the new category as
shown:
Year
Remaining Interest
Maturity
2004 4
100,000
2005 3
100,000
2006 2
100,000
2007 1
100,000
2008 <1
100,000
GROSS RECEIPTS TAX
Less: GRT previously paid
GRT AS RECOMPUTED
Tax
Rate
5%
5%
5%
5%
5%
GRT
5,000
5,000
5,000
5,000
5,000
25,000
9,000
16,000
CASE LAW: China Bank v. CTA (GR 146749,

June 10, 3003) The 20% withholding tax on
interest income shall form part of the gross
receipts in computing gross receipts tax on banks.
Gross Receipts is commonly understood as the
entire receipts without any deductions. Deducting
any amount will change its meaning to net
receipts. GRT is collected based on gross receipts
which cover all receipts without deductions.
TAX
ON
OTHER
INTERMEDIARIES
NON-BANK
FINANCE
tax on gross receipts derived by other nonbank

finance
intermediaries,
DOING
BUSINESS IN THE PHILIPPINES, from:
interest
commissions
discounts from lending activities
financial leasing
tax is based on the remaining maturities of

the instruments from which receipts are
derived
maturity period is 5 yrs or less
5%
maturity period is more than 5 yrs
3%
[Note: The same rule on pretermination applies.]
CASE LAW: CIR v. Lhuiller (GR 15094, July 15,
2003) The SC has ruled that pawnshops, although
are engaged in the business of lending money, are not
subject to percentage tax since they are not lending
investors.
They are subject to different tax
treatments, thus, the 5% percentage tax only applies
to lending investors and not to pawnshops.
However, RR 10-2004 has subsequently classified
pawnshops
as
under
NON-BANK
FINANCIAL
INTERMEDIARIES, thus are now subject to 5% gross
receipts tax. The revenue regulation also required
pawnshops to register, from VAT taxpayers, as
percentage taxpayers.
TAX ON LIFE INSURANCE PREMIUMS
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5% of total premiums collected (whether in

money, notes, credits or any substitute for
money.
Q: Who are liable?

GENERAL RULE:
Every person, company or
corporation DOING LIFE INSURANCE BUSINESS OF
ANY SORT IN THE PHILIPPINES.
Purely cooperative companies or
EXCEPTION:
associations.
Cooperative companies or associations are such
as are comducted by the members thereof with the
money collected from among themselves and solely
for their own protection and NOT for profit.
PREMIUMS NOT INCLUDED IN THE TAXABLE
RECEIPTS:
1. Premiums refunded within 6 months after
payment on account of rejection of risks or
returned for other reason to a person
insured.
2. Premiums paid upon reinsurance by a
company that has already paid the tax.
3. Premiums collected or received by any branch
of a domestic corporation, firm or association
doing business OUTSIDE the Phils. on
account of any life insurance of the insured
who is a NON-RESIDENT, if any tax on such
premiums is imposed by the foreign country
where the branch is established.
4. Premiums collected or received on account of
any reinsurance, if the insured of personal
insurance, RESIDES OUTSIDE THE PHILS., if
any tax on such premiums is imposed by the
foreign country where the original insurance
has been issued or perfected.
5. Portions of premiums collected or received by
insurance
companies
on
VARIABLE
CONTRACTS in excess of the amounts
necessary to insure the lives of variable
contract owners.
Variable Contracts (as defined by PD612)benefits
under the contract vary as to reflect investment
results of any segregated portfolios of investments.
CASE LAW: CIR v. Insular Life Assurance (CA GR
SP 46516) MUTUALIZED LIFE INSURANCE COMPANY
is not subject to premium tax or DST on policies as
cooperatives. If a mutualized life insurance company
satisfies all the elements of cooperative [1. managed
by members; 2. operated with money collected from
members; 3. has for its main purpose the mutual
protection of members and not for profit] as defined in
Sec. 123, it shall not be subject to premiums tax.
TAX ON AGENTS
COMPANIES
OF
FOREIGN
INSURANCE
10% of total premiums collected.
Q: Who are liable?

GENERAL RULE: Tax shall be levied upon every FIRE,
MARINE OR MISCELLANEOUS INSURANCE AGENT
authorized to procure policies of insurance as he may
have previously been legally authorized to transact on
risks located in the Phils FOR COMPANIES NOT
AUTHORIZED TO TRANSACT BUSINESS IN THE PHILS.
EXCEPTION: Premiums paid on reinsurance.
Percentage Taxes
Taxation Law 2
where an owner of property obtains insurance

DIRECTLY from foreign insurance companies
NOT authorized to transact insurance
business in the Phils., he shall pay a tax of
5% on the premiums paid.
AMUSEMENT TAXES
Q: Who are liable?
The
proprietor, lessee or operator of cockpits,
cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks.
B.
return should be filed and tax paid within 20

days after the end of every quarter
Rates:
1.
2.
3.
4.
18% for cockpits

18% for cabarets, night or day clubs
10% for boxing exhibitions
15% for professional basketball games in lieu
of all other percentage taxes
5. 30% for Jai-Alai and racetracks (whether or
not they charge for admissions)
EXEMPTION: If boxing exhibition is a World or
Oriental Championship in any division featuring at
least 1 Filipino contender and promoted by a
Filipino or by a corporation with at least 60%
Filipino equity.
Tax Base: GROSS RECEIPTS
it embraces all the receipts of the proprietor,

lessee or operator of the amusement place;
including income from TV, radio and motion
picture rights.
RMC
08-88
transferred
the
EXCLUSIVE
JURISDICTION to levy tax on gross receipts from
ADMISSIONS to places of amusement to the local
government.
TAX ON WINNINGS
Q: Who are liable?
1. every person who wins in horse races
2. owners of winning race horses
Rates:
a. 10% of winnings or dividends (bases on the
actual amount paid to winner for every
winning ticket AFTER deducting the cost of
the ticket)
b. 4%
of
winnings
from
double,
forecast/quinella and trifecta bets
c. 10% of prizes, in case of owners of race
horses
tax shall be WITHHELD by the operator,

manager or person in charge of the horse
races before paying the dividends or prizes
return shall be filed and tax paid within 20
days from the date tax was deducted and
withheld
TAX ON SALE, BARTER OR EXCHANGE OF SHARES

OF STOCK LISTED AND TRADED THROUGH THE
LOCAL STOCK EXCHANGE OR THROUGH INITIAL
PUBLIC OFFERING (IPO)
A.
Through the Local Stock Exchange
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of 1% of the GROSS SELLING PRICE or

GROSS VALUE IN MONEY (GSP/GVM) of the
shares of stocks sold, bartered, exchanged or
otherwise disposed of through the local stock
exchange OTHER THAN THE SALE BY A
DEALER IN SECURITIES.
Tax shall be paid by seller or transferor.
Through IPO
covers sale, barter, exchage of shares of

stock of CLOSELY HELD CORPORATIONS
tax shall be paid by the issuing corporation in

the primary offering or by the seller in the
secondary offering
tax base is the GSP/GVM
levied in accordance with the proportion of

shares
sold,
bartered,
exchanged
or
disposed, to the total outstanding shares
after the listing in the local stock exchange:
- up to 25% of all shares
4% GSP/GVM
- >25% but not over 33.33%
2% GSP/GVM
- over 33.33%
1% GSP/GVM
Closely Held Corporationany corporation at least

50% in value of the outstanding capital stock or at
least 50% of the total combined voting power of all
classes of stock entitled to vote is owned directly or
indirectly by or for not more than 20 individuals.
Rules to be applied to determine whether the
corporation is closely held:
1. Stock owned directly or indirectly by
corporations, partnerships, estates or trusts
shall be considered as actually owned by its
stockholders, partners or beneficiaries in
proportion to their shares as individuals.
2. An individual is considered the constructive
owner of the stock owned by members of his
family (includes only brothers and sisters
whole/half-blood, spouse, ancestors and
lineal descendants)
3. A person having an option to acquire stock is
considered the actual owner of such stock
C.
Return on Capital Gains realized from sale of

Shares of Stocks
1. return on capital gains realized from sale of
shares of stock listed and traded in the local
stock exchange
it is the duty of every stockbroker who

effected the sale to collect the tax and remit
it to the BIR within 5 banking days from date
of collection and to submit to the secretary of
the stock exchange a true and complete
return
2.
return on public offerings of shares of stocks

the corporate issuer shall file the return and
pay the tax within 30days from the date of
listing of the shares in the local stock
exchange.
[Note: Both IPOs and sales of stock through the

local exchange are EXEMPT from capital gains tax
and from regular individual or corporate income
tax. Also, such tax is not deductible from income
tax.]
PAYMENT OF PERCENTAGE TAXES
Q: When to file return and pay?
Percentage Taxes
Taxation Law 2
Persons subject to percentage taxes shall file a
QUARTERLY RETURN and PAY the tax due within
25 days after the end of each taxable quarter.
However, RR 6-2001 has changed the period
from 25 days after end of quarter to 10 days after
end of the month.
Persons whose VAT registration is cancelled

and become liable under Sec 116 shall be
liable for the tax due from the date of
cancellation of registration.
Persons retiring from business must file a
return and pay within 20 days from closing of
the business.
Q: Where to file?
At the option of the person liable, he may file
a separate return for each branch or
place of business, or
a consolidated return
with authorized agent bank, Revenue District Office,
Collection Agent or City/Mun. Treasurer where the
business or principal place of business is located.
The Commissioner may prescribe rules and

regulations altering the time and manner of
payment prescribed herein.
The Commissioner may prescribe a minimum
amount of gross receipts where it is found that a
person:
1. has failed to issue receipts or invoices
2. does not file a return, or
3. if records of the books of accounts do not
correctly reflect the declarations in the
return.
EXCISE TAX
Goods Subject to Excise Tax
(Sec. 129, NIRC)
Goods manufactured or produced in the

Philippines for domestic sale or consumption
or other disposition
Things imported
NOTE:
Excise tax is imposed in addition to VAT.

The tax attaches even on articles illicitly
made, or the production of which is
prohibited or punished by law.
Two Classifications of Excise Tax:
Specific tax- tax is based on weight or

volume capacity or other physical unit of
measurement
Ad valorem tax - tax is based on selling price

or other specified value of the good
Purpose and justification of excise taxes:
1. To
curtail
consumption
of
certain
commodities, excessive or indiscriminate use
of which is considered harmful to the
individual or community. Taxes of this kind
are sumptuary in nature and are exemplified
by the taxes on alcoholic beverages and
tobacco products
2.
To protect a domestic industry the products

of which face competition from similar
imported articles
3.
To distribute the tax burden in proportion to

the benefit derived from a particular
government service. Examples are the excise
taxes on gasoline, lubricating oils and
denatured alcohol for motive power, and
4.
To raise revenue
When Excise Taxes Accrue
As to domestic products They accrue or

attach as soon as the articles are produced,
or come into existence as in the case of
distilled spirits (Sec. 141) and manufactured
and other fuel oils (Sec. 148)
As to imported articles They accrue as soon

as the articles are brought into the Philippine
jurisdiction with the intention to unload them
here.
Filing of Return and Payment of Excise Tax on

DOMESTIC Products (Sec. 130)
(A) Persons liable to file a return, filing of return on
removal and payment of tax
1.
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Person Liable to File a Return

such person shall file a separate return
for each place of production setting
forth, among others:
o
Description and quantity or volume
of products removed
o
Applicable tax base
o
Tax due
Excise Tax
Taxation Law 2
-
2.
3.
4.
in the case of indigenous petroleum,

natural gas or liquefied natural gas
excise tax shall be paid by first
buyer, purchaser or transferee for
local sale, barter or transfer
export products
excise tax shall be paid by owner,
lessee, concessionaire or operator of
the mining claim
should domestic products be removed
from the place of production without the
payment of tax, the owner or possessor
shall be liable for the tax due
Time of Filing of Return and Payment of Tax

GENERALLY: return shall be filed and
excise tax shall be paid by the
manufacturer or producer before removal
of the domestic products from place of
production unless otherwise specifically
allowed
HOWEVER, IN CASE OF:
nonmetallic mineral or mineral

products and quarry sources due
and payable upon removal of such
products from locality where mined
and extracted
locally
produced
or
extracted
metallic mineral or mineral products:
o
file return and pay tax within 15
days after end of the calendar
quarter when such products
were
removed
subject
to
conditions prescribed by rules
and
regulations
to
be
promulgated by Secretary of
Finance, upon recommendation
of the Commissioner
o
taxpayer shall file bond
amount of excise tax due
IMPORTED
mineral
or
mineral
products,
whether
metallic
or
nonmetallic paid before their
removal from customs duty
Place of Filing of Return and Payment of Tax
(GENERAL RULE)
any authorized agent bank or Revenue

Collector Officer, or
duly authorized City or Municipal

Treasurer
Exceptions (TO GENERAL RULE SET OUT
ABOVE)
IN GENERAL: Sec of Finance, upon
recommendation of Commissioner, may
by rules and regulations prescribe:
a.
time of filing the return at intervals for a

particular class or classes of taxpayer
b.
manner and time of payment under a tax

prepayment, advance deposit and other
similar schemes
IN THE SPECIFIC CASES of:
minerals, mineral products or quarry

resources where the place of
extraction is different from the place
of processing or production, or
metallic minerals processed abroad,
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file and pay at the Revenue

District Office having jurisdiction
in the locality where it was mined,
extracted or quarried
(B) Determination of Gross Selling Price of Goods
Subject to Ad Valorem Tax
Gross Selling Price= Price - VAT
where Price is:
That at which the goods are sold at
wholesale in the place of production or
through their sales agents to the public
If the goods are sold in another
establishment where the manufacturer is
the owner or in the profits of which he
has an interest, wholesale price there
NOTE: if price < cost of manufacture + expenses
incurred until the goods are finally sold a
proportionate margin of the profit (which is not
less than 10% of such manufacturing costs +
expenses) shall be added to the GSP
(C) Manufacturers or Producers Sworn Statement
It shall show:
different
goods
and
products
manufactured or produced,
their corresponding GSP or market value
Costs of manufacture or production +
expenses incurred or to be incurred until
goods are sold
(D) Credit for Excise Tax on Goods Actually Exported
In case goods produced or manufactured are
removed and actually exported without returning
to the Philippines:
GENERAL RULE any excise tax paid
shall be credited or refunded upon
submission of proof of actual exportation
and upon receipt of the foreign exchange
payment
EXCEPTION (i.e., NOT credible): mineral
products
o
EXCEPTION TO EXCEPTION:
coal and coke
Payment of Excise Tax on IMPORTED Articles
(Sec. 131)
(A) Persons Liable
Paid by:
owner or importer to the Customs

Officers before release from the
customhouse, OR
person found in possession of

articles which are exempt from
excise taxes other than those legally
entitled to exemption
In case tax-free articles brought in by
exempted persons or entities or agencies are
subsequently sold, transferred or exchanged in
the Philippines purchaser or recipients shall
be considered importers and shall be liable for
duty and internal revenue tax due
Importation of cigar, cigarettes, distilled spirits
and wines even if destined to tax and duty-free
shops shall be subject to all applicable taxes,
EXCEPT:
Excise Tax
Taxation Law 2
1.
b.
such are brought directly into Subic

Special Economic and Freeport Zone;
Cagayan Special Economic Zone and
Freeport;
Zamboanga
City
Special
Economic Zone and not transshipped to
any other port in the Philippines
importation done by government-owned

and operated duty free shop like DFP,
PROVIDED such products are labeled
tax and duty free and not for resale
if such products are eventually introduced
to Philippine customs territory, then such
articles shall be deemed imported into Phil
and be subject to all import and excise taxes
HOWEVER, removal and transfer
from one Freeport to another
Freeport shall not be deemed an
introduction to Phil territory.
cigar, cigarettes, distilled spirits and wines in
duty free shops which are NOT LABELED AS
REQUIRED, as well as
those articles obtained from duty free shops
and subsequently FOUND IN NON DUTY FREE
SHOPS FOR RESALE
confiscated and perpetrator punished
tax due on any such goods,

products, machinery, equipment and
other similar articles shall constitute
a lien on the article itself which shall
be superior to all other liens
c.
2.
(B) Rate and Basis of the Excise Tax on Imported

Articles
Unless otherwise specified, imported articles shall
be subject to the same rate and basis of excise
taxes applicable to locally manufactured articles
Exemption / Conditional Tax-Free Removal of
Certain Articles
a. denatured wine/spirits for treatment of
tobacco leaf
b. domestic denatured alcohol rendered unfit for
oral intake, but VAT should be paid
c. petroleum products sold to:
international carriers (Philippine or

foreign carriers) on their use or
consumption outside the Philippines,
provided there is reciprocity
exempt entities covered by tax

treaties, conventions, international
agreements,
provided
there
is
reciprocity
entities which are by law exempted

from direct & indirect taxes
d. removal of spirits under bond for rectification
e. removal of fermented liquors to bonded
warehouse
f.
removal of damaged liquors
g. removal of tobacco products entirely unfit for
chewing/smoking
Tax on Alcohol Products
Definition
a. distilled spirits substance known as
ethyl alcohol, ethanol or spirits of
wine including whiskey, brandy,
rum, gin and vodka, from whatever
source,
by
whatever
process
produced
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wines all alcoholic beverages

produced by fermentation without
distillation from the juice of any kind
of fruit; and fortified beverages
fermented
liquor
alcoholic
beverages produced by fermentation
without distillation of grain or malt
(beer, lager, ale, porter)
Sec. 141 Distilled Spirits (Rates of tax as per RR

3-2006)
P11.65/
proof liter
produced from sap of nipa,

coconut, cassava, camote buri palm or
juice, syrup or sugar cane
provided, materials are produced
commercially in the country where they
are processed
P4.48/
proof liter
produced in a pot still or similar

primary distilling apparatus
distiller not producing >100L/day,
containing <50% alcohol
if produced from raw materials other than those

above, tax is in accordance with the net retail price
(NRP) (excluding VAT + excise tax) per 750 ml bottle:
P126.00/
NRP < P250
proof liter
P252.00/
proof liter
NRP: P250 P675
P504.00/
proof liter
NRP >P675
Medicinal preparations, flavoring extracts,

other preparations except toilet preparations,
wherein
distilled
products
form
chief
ingredient
same tax as chief ingredient
tax shall proportionally increase for
any strength of spirit taxed over proof spirits.
Tax shall attach as soon as it is in existence
whether it is subsequently separated as pure
or impure spirits or transformed into any
other substance either in the process of
original production or by any subsequent
process.
Sec. 142 Wines (Rates of tax as per RR 3-2006)

P145.60
sparkling wines/champagne regardless
of proof if
NRP <P500/bottle
P436.80
sparkling wines/champagne regardless of proof if NRP
>P500
P17.47
still wines 14% of alcohol by vol or less
P34.94
still wines 14% - 25% of alcohol by vol
Fortified wines
containing more than 25% of alcohol by volume
natural wines to which distilled spirits are
added to increase their alcoholic strength
taxed as distilled spirits
Excise Tax
Taxation Law 2
Sec. 143 Fermented Liquor (Rates of tax as per
RR 3-2006)
Beer, lager beer, ale. Porter and other fermented
liquor
except tuba, basi, tapuy and similar domestic
fermented liquors
P8.27/L
NRP <P14.50
P12.30/L
NRP P14.50 P22
P16.33/L
NRP >P22
P16.33/L
those brewed and sold at microbreweries or micro brew pubs
PENAL PROVISIONS:
Brewer or importer who knowingly misdeclares
or misrepresents in his sworn statement any
pertinent data or information
summary
cancellation
or
withdrawal of his permit.
Corporation, association or partnership
fined treble the amount of
deficiency taxes + surcharges + interest
person liable for acts or omissions prohibited
under this section
criminally liable and penalized
under Sec 254
those who willfully abet or aid in the
commission of such act or omission
liable same as principal
offender not citizen of Phil
deported after service of sentence
Tax on Tobacco Products
Definition
a. cigar all rolls of tobacco or any
substitute wrapped in leaf tobacco
b. cigarette all rolls of finely-cut leaf
tobacco or any substitute wrapped in
paper or any other material
Sec. 144 Tobacco Products (Rates of tax as per
RR 3-2006)
P1.00/kg
tobacco twisted by hand or reduced into a condition to
be consumed in any manner other than the ordinary
mode of drying and curling
those prepared or partially prepared with or without
use of any machine or instruments or without being
pressed or sweetened
fine-cut shorts and refused, scraps, clippings, cutting,
stems and sweepings of tobacco
P0.79/kg
specially prepared for chewing so as to be unsuitable
for use in any other manner
Sec. 145 Cigars and Cigarettes (Rates of tax as
per RR 3-2006)
10% of NRP
cigars
NRP (excluding excise tax and VAT) < P500
P50 + 15% of
NRP in excess
of P500
cigars
NRP (excluding excise tax and
VAT) > P500
P2.00/pack
cigarettes packed by hand
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P25.00/pack
cigarettes packed by machine
NRP >P10
P10.35/pack
NRP P6.50 P10
P6.35/pack

NRP P5 P6.50
P2.00/pack

NRP <P5
PENAL PROVISIONS:
Brewer or importer who knowingly misdeclares
or misrepresents in his sworn statement any
pertinent data or information
summary
cancellation
or
withdrawal of his permit.
Corporation, association or partnership
fined treble the amount of
deficiency taxes + surcharges + interest
person liable for acts or omissions prohibited
under this section
criminally liable and penalized
under Sec 254
those who willfully abet or aid in the
commission of such act or omission
liable same as principal
offender not citizen of Phil
deported after service of sentence
Tax on Petroleum Products
Sec. 148
Manufactured Oils and other Fuels
(Rates of tax 1997 NIRC, as amended by RA 9337
[2005])
P4.50/Kg or L
Lubricating oil and greases (kg), and
additives for lubricating oil and greases (L)
P0.05/L
Processed Gas
P3.50/kg waxes and petrolatum

P0.50/L
denatured alcohol for motive power
P4.35/L
naphtha, regular gasoline and

similar products of distillation
P0.00/L
naphtha, used either as raw material in

the production of petrochemical products
or as replacement fuel for
natural-gas-fired-combined cycle power
plant
P5.35/L
leaded premium gasoline
P4.35/L
unleaded premium gas
P3.67/L
aviation turbo jet fuel
P0.00/L
kerosene
P3.67/L
kerosene used as aviation fuel
P0.00/L
diesel fuel oil and similar oils with same

generating power
P0.00/L
liquefied petroleum gas
P0.56/kg
asphalt
P0.00/L
bunker fuel oil and similar oils with same

generating power
other
Excise Tax
Taxation Law 2
20% based on wholesale price or value of importation
of:
1. jewelry, real or imitation
2. pearls, precious and semi precious stones
and imitations thereof
3. goods made of or ornamented, mounted or
fitted with precious metals or imitations, or
ivory EXCEPT:
- surgical and dental instruments
- silver plated wares
- frames or mounting for frames or
spectacles
- used in filling, mounting or fitting of the
teeth
4. perfumes and toilet waters
5. yachts and other vessels intended for
pleasure
Tax on Miscellaneous Articles
On Automobiles (Sec. 148 of the NIRC, as
amended by RA 9224)
NATURE: Ad valorem tax on automobiles based on
manufacturers or importers selling price (net excise
tax and VAT)
NET SELLING PRICE
RATE
Up to P600T
2%
P600T P1.1M
P12,000 + 2% in
excess of P600T
P1.1M P2.1 M
P112T + 40% in
excess of P1.1M
over P2.1M
P512T + 60% in
excess of P2.1M
NOTE:
Sec 150
imported cars NOT for sale, tax shall be

based on total landed value + transaction
value + customs duty + other charges
cars used exclusively in Freeport zones are
exempt
Non Essential Goods
Tax on Mineral Products

Sec. 151 Mineral Products
P10/ metric ton
coal and coke
2% MV
non metallic minerals and quarry resources
2%
locally extracted natural gas and liquefied natural gas
2% MV
gold and chromite
copper and other metallic minerals:
1% MV
1st 3 years after effectivity of
RA 7729
1 % MV
4th-5th years
2%
6th year and thereafter
indigenous petroleum:
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3% of fair international market price on the first

taxable sale, barter, exchange or similar transaction to
be paid by buyer before removal from place of
production
Documentary Stamp Tax

Taxation Law 2
DOCUMENTARY STAMP TAX

General Principles
DEFINITION: Tax on documents, instruments

and papers evidencing the acceptance,
assignment, sale or transfer of an obligation,
right or property thereto
NATURE: It is an excise or privilege tax

because it is imposed on the privilege to
enter into the transaction rather than the
document. It is only paid once.
The amount of DST depends on the nature of

the document and the value appearing upon
its face.
If the transaction is subsequently annulled or

invalidated, the tax may be refunded since
the law presupposes a valid transaction.
Q: Who are required to file the Documentary
Stamp Tax Declaration Return?
a)
In case of constructive affixture of documentary

stamps, by the persons making, signing, issuing,
accepting or transferring documents, instruments,
loan agreements and papers, acceptances,
assignments, sales and conveyances of the
obligation, right or property incident thereto
wherever the document is made, signed, issued,
accepted or transferred when the obligation or
right arises from Philippine sources or the
property is situated in the Philippines at the same
time such act is done or transaction had;
b)
By metering machine user who imprints the

Documentary Stamp Tax due on the taxable
documents; and
c)
By Revenue Collection Agent, for remittance of

sold loose documentary stamps.
NOTE: Wherever one party to the taxable document

enjoys exemption from the tax imposed, the other
party who is not exempt will be the one directly liable
to file Documentary Stamp Tax Declaration and pay
the applicable stamp tax.
Q: What are the implications of failure to stamp
taxable documents?
The untaxed document will not be recorded, nor

will it or any copy thereof or any record of
transfer of the same be admitted or used in
evidence in court until the requisite stamp or
stamps have been affixed thereto and cancelled
No notary public or other officer authorized to

administer oaths will add his jurat or
acknowledgment to any document subject to
Documentary Stamp Tax unless the proper
documentary stamps are affixed thereto and
cancelled
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Taxation Law 2
TAX RATES APPLICABLE (1997 NIRC, as amended by RA 9243 [2004])
Tax Due Per
Document
Taxable Unit
Unit
Debentures
and
Certificates
of DELETED by RA 9243
Indebtedness
Original Issue of Shares P200.00 or fraction 1.00
thereof
of Stock with par value9
Original Issue of Shares
of Stock without par
value
Stock Dividends
Sales, Agreements to
Sell,
Memoranda
of
Sales,
Deliveries
or
Transfer
of
Due-bills,
Certificate of Obligation,
or Shares or Certificates
of Stock10
1.00
actual
consideration
for
issuance of shares of stocks
P200.00 or fraction
thereof
1.00
Actual value represented by each

share
P200.00 or fraction
thereof
0.75
Par
value of
such due-bills,
certificate of obligation or stocks
P200.00 or fraction
thereof
25% of the DST

paid upon the
original issue of
said stock
1.50
P200.00 or fraction
thereof
0.50
On each Document
1.50
P200.00 or fraction
thereof
1.00
For
such
debt
instruments with terms
of less than one year
Bills
of
exchange
(between points within
the
Philippines)
and
drafts
Bills of Exchange or order
drawn in foreign country
but
payable
in
the
Philippines
Foreign Bills of Exchange
Par value of shares of stocks
P200.00 or fraction
thereof
In the case of stocks

without par value
Bonds,
Debentures,
Certificate of Stock or
Indebtedness issued in
foreign Countries
Certificate of Profits or
Interest in Property or
Accumulation
Bank
Checks,
Drafts,
Certificate of Deposit not
bearing
interest
and
other Instruments
Original issue of debt
instruments
Taxable Base
P200.00 or fraction
thereof
Shall be of a
proportional
amount
in
accordance with
the ration of its
term in number
of days to 365
days
.30
P200.00 or fraction
thereof
.30
P200.00 or fraction
.30
the
Par
value
of
such
bonds,
debentures or Certificate of Stocks
Face value of such certificate /
memorandum
Issue price
instrument
of
any
such
debt
Face value of the bill of exchange or

draft
Face value of such bill of exchange
or order or the equivalent of such
value, if expressed in foreign
currency
Face value of such bill of exchange
When are shares considered issued? Upon the acquisition of the stockholder of the attributes of ownership over the shares (the
right to vote, the right to receive dividends, the right to dispose, etc., notwithstanding that restrictions on the exercise of any of these
rights may be imposed by the Corporations Articles and/or by-laws, the SEC, stockholder agreement, court order, etc.) which
acquisition of such attributes of ownership shall be manifested by the acceptance by the Corporation of the stockholders subscription to
its shares of stock. The delivery of the certificates of stock to the stockholders is NOT essential for the DST to accrue. [RR 13-2004]
What is the basis of DST? The entire shares of stock subscribed are considered issued for purposes of DST, even if not fully paid.
[RR 13-2004]
10
When is a sale or exchange of shares taxable? There must be actual or constructive transfer of beneficial ownership of shares
of stock from one person to another. This may be manifested by:
a)
the clear exercise of attributes of ownership over such stocks by the transferee, or
b)
by an actual entry of a change in the name appearing in the certificate of stock or in the stock and transfer book of the
corporation or by any entry indicating transfer of beneficial ownership in any form of registry including those of a duly
authorized scripless registry, such as those maintained for or by the Philippine Stock Exchange. [RR 13-2004]
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Taxation Law 2
and Letter of Credit
thereof
Life Insurance Policies
P200.00 or fraction
thereof
P4.00 premium or
fraction thereof
P4.00 premium or
fraction thereof
P200.00 or fraction
thereof
Policies
Of
Insurance
upon Property
Fidelity Bonds and other
Insurance Policies
Policies
of
Annuities,
Annuity
or
other
instruments
Pre-Need Plans
Indemnity Bonds
Certificates of Damage or
otherwise and Certificate
or document issued by
any
customs
officers,
marine surveyor, notary
public
and
certificate
required by law or by
rules and regulations of a
public office
Warehouse
Receipts
(except if value does not
exceed P200.00)
Jai-alai,
Horse
Race
Tickets, lotto or Other
Authorized
Number
Games
Bills of Lading or Receipts

(except charter party)
Proxies
Powers of Attorney
Lease and other Hiring
agreements
of
memorandum or contract
for hire, use or rent of
any land or tenements or
portions thereof
Mortgages Pledges of
lands, estate, or property
and Deeds of Trust
Deed of Sale, instrument
or
writing
and
Conveyances
of
Real
Property (except grants,
patents
or
original
certificate
of
the
government)
Charter
parties
and
Similar Instruments
.50
or order or the equivalent of such

value, if expressed in foreign
currency
Amount of premium collected
.50
Premium charged
.50
Premium charged
0.50
Amount of premium or installment

payment of contract price collected
.20
Premium or contribution collected
.30
Premium charged
P200.00 or fraction
thereof
P4.00 or fraction
thereof
Each Certificate
15.00
Each Receipt
15.00
P1.00 cost of ticket

and
Additional P0.10 on
every
P1.00
or
fraction thereof if
cost
of
ticket
exceeds P1.00
>P100 not > P1000
.10
>P1000
Each Proxy
Each Document
First 2,000
For every P1,000 or
fractional
part
thereof in excess of
the first P2,000 for
each year of the
term of the contract
or agreement
First 5,000
On each P5,000 or
fractional
part
thereof in excess of
5,000
First 1,000
For each additional
P1,000 or fractional
part
thereof
in
excess of P1,000
10.00
15.00
5.00
3.00
1.00
1,000
below
tons
1,001
tons
to
and
10,000
1.00
20.00
10.00
Amount Secured
Amount Secured
15.00
15.00
Consideration or Fair Market Value,

whichever is higher (if government
is a party, basis shall be the
consideration)
P500.00 for the

first 6 months
PlusP50
each
month or fraction
thereof in excess
of
6
months
Tonnage
contract
P1,000
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Cost of the ticket
for
the
and
duration
of
the

Taxation Law 2
Over 10,000 tons
Assignment or transfer of
any mortgage, lease or
policy of insurance
Renewal
of
any
agreement/ contract
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first 6 months
Plus P100 each
month or fraction
thereof in excess
of 6 months
P1,500 for the
first 6 months
Plus P150 each
month or fraction
thereof in excess
of 6 months
At the same rate
as that imposed
on the original
instrument

Taxation Law 2
Documents and Papers Not Subject to Stamp Tax
a. Policies of insurance or annuities made or
granted by a fraternal or beneficiary society,
order, association or cooperative company,
operated on the lodge system or local
cooperation
plan
and
organized
and
conducted solely by the members thereof for
the exclusive benefit of each member and not
for profit.
b.
c.
d.
Certificates of oaths administered to any

government official in his official capacity or
of acknowledgment by any government
official in the performance of his official
duties, written appearance in any court by
any government official, in his official
capacity; certificates of the administration of
oaths to any person as to the authenticity of
any paper required to be filed in court by any
person or party thereto, whether the
proceedings be civil or criminal; papers and
documents filed in courts by or for the
national, provincial, city
or
municipal
governments; affidavits of poor persons for
the purpose of proving poverty; statements
and other compulsory information required of
persons or corporations by the rules and
regulations of the national, provincial, city or
municipal
governments
exclusively
for
statistical purposes and which are wholly for
the use of the bureau or office in which they
are filed, and not at the instance or for the
use or benefit of the person filing them;
certified copies and other certificates placed
upon documents, instruments and papers for
the national, provincial, city or municipal
governments, made at the instance and for
the sole use of some other branch of the
national, provincial, city
or
municipal
governments; and certificates of the assessed
value of lands, not exceeding Two hundred
pesos (P200) in value assessed, furnished by
the provincial, city or municipal Treasurer to
applicants for registration of title to land.
Borrowing and lending of securities executed
under the Securities Borrowing and lending
Program of a registered exchange, or in
accordance with regulations prescribed by the
appropriate regulatory authority: Provided,
however, That any borrowing or lending of
securities agreement as contemplated hereof
shall be duly covered by a master securities
borrowing and lending agreement acceptable
to the appropriate regulatory authority, and
which agreements is duly registered and
approved by the Bureau of Internal Revenue.
(BIR).
Loan agreements or promissory notes, the
aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000), or
any such amount as may be determined by
he Secretary of Finance, executed by an
individual for his purchase on installment for
his personal use or that of his family and not
for business or resale, barter or hire of a
house, lot, motor vehicle, appliance or
furniture: Provided, however, That the
amount to be set by the Secretary of Finance
shall be in accordance with a relevant price
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index but not to exceed ten percent (10%) of

the current amount and shall remain in force
at least for three (3) years.
e.
Sale, barter or exchange of shares of stock

listed and traded through the local stock
exchange for a period of five (5) years from
the effectivity of this Act.
f.
Assignment or transfer of any mortgage,

lease or policy of insurance, or the renewal or
continuance of any agreement, contract,
charter, or any evidence of obligation or
indebtedness, if there is no change in the
maturity date or remaining period of
coverage from that of the original instrument.
g.
Fixed income and other securities traded in

the secondary market or through an
exchange.
h.
Derivatives: Provided, That for purposes of

this exemption, repurchase agreements and
reverse repurchase agreements shall be
treated similarly as derivatives.
i.
Interbranch or interdepartmental advances

within the same legal entity.
j.
All forebearances arising from sales or service

contracts including credit card and trade
receivables: Provided, That the exemption be
limited to those executed by the seller or
service provider itself.
k.
Bank deposit accounts without a fixed term or

maturity.
l.
All
contracts,
deeds,
documents
and
transactions related to the conduct of
business of the Banko Sentral ng Pilipinas.
m.
Transfer of property pursuant to Section

40(c)(2) of the National Internal Revenue
Code of 1997, as amended.
n.
Interbank call loans with maturity of not

more than seven (7) days to cover deficiency
in reserves
against deposit liabilities,
including those between or among banks and
quasibanks.
One-Transaction Rule:
Where only one instrument was prepared, made
signed
and
executed
to
cover
a
loan
agreement/promissory note, pledge/mortgage, the
documentary stamp tax shall be paid and computed
on the full amount of the loan or credit granted. In
this regard, the instrument shall be treated as
covering only one taxable transaction, subject to the
higher documentary stamp tax. (RR 9-94, Sec. 8)
Payment of Documentary Stamp Tax
(Sec 200)
WHERE: filed and paid at
authorized agent bank within territorial

jurisdiction of Revenue District Officer which
had jurisdiction over residence or principal
place of business of taxpayer

Taxation Law 2
Revenue District Officer, collection agent,

duly authorized treasurer of municipality or
city where the taxpayer has his residence or
principal place of business
EXCEPTION:
Tax may be paid thru purchase and actual
affixture
or
imprinting
the
stamp
thru
documentary stamp metering machine as
prescribed by the pertinent rules and regulations.
WHEN:
5 days after close of the month when the taxable
document was made, signed issued, transferred or
accepted. (RR 6-01) [Note: 10-day rule provided in
Sec. 200(B) of the NIRC no longer applicable)
Applicability
Documents:
of
DST
Law
on
57 of 112
STAGES
IN
BIR
AUDIT
(Framework of discussion)
EXAMINATION
Audit Stage/Issuance of Letter of Authority
Pre-Assessment Stage
Formal Assessment Stage
Collection Letter/Warrants
Compromise and Abatement
Electronic
The DST rates shall be applicable on all documents not

otherwise
expressly
exempted
by
the
law,
notwithstanding that they are in electronic form. As
provided for in RA 8792 (Electronic Commerce Act),
electronic documents are the functional equivalent of a
written document under existing laws, and the
issuance thereof is therefore tantamount to the
issuance of a written document, and therefore subject
to DST. (RR 13-04, Sec. 10)
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REMEDIES
I.
AUDIT STAGE
Authority)
A.
(Issuance
of
Letter
of
Powers of the Commissioner Relative to

the Audit Process
1.
Authority to EXAMINE RETURNS and

DETERMINE TAX DUE (5) the
Commissioner
may
authorize
the
examination of any taxpayer and the
assessment of the correct amount of
tax, WON a return has been filed by
such taxpayer.
NOTE:
Any return filed with the
Commissioner shall not be withdrawn,
BUT the taxpayer may MODIFY, CHANGE
or AMEND such return within three (3)
years from the date of filing, provided
that no notice for audit or investigation
of such return has been actually served
on the taxpayer.
2.
Authority
to
conduct
INVENTORYTAKING,
SURVEILLANCE
and
to
prescribe presumptive gross sales and
Inventory-taking
receipts (6C)
may be conducted at any time during
the taxable year, for the purpose of
determining the correct tax liabilities.
Surveillance is done if there is reason
to believe that the taxpayer is not
declaring his correct income, sales or
receipts for tax purposes.
The
prescribe
Commissioner
may
presumptive
gross
sales
and
receipts if:
It is found that the taxpayer

has failed to issue receipts and
invoices, or
When there is reason to believe

that the books of accounts or
other records do not correctly
reflect the declarations made
by the taxpayer
3.
Authority to terminate TAXABLE PERIOD

The Commissioner may
(6D)
terminate taxable period and order the
immediate payment of the tax for the
terminated period and any remaining tax
that is unpaid, under the following
circumstances:
Remedies
Taxation Law 2
4.
5.
6.
Authority to prescribe REAL PROPERTY

VALUES (6E) The Commissioner is
authorized to divide the Philippines into
different zones or areas, and shall
determine the FMV of real properties in
each zone or area, upon consultation
with competent appraisers from private
and public sectors. For the purpose of
computing any internal revenue tax, the
value
of
the
property
shall
be
WHICHEVER IS HIGHER OF:
The fair market value as

determined
by
the
Commissioner, or
The fair market value as shown

in the schedule of values of the
provincial and city assessors
9.
Section 246, NIRC: Non-retroactivity of Rulings

Any revocation, modification or reversal ofany of the
rulings or circulars promulgated by the Commissioner
shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial
to the taxpayers, EXCEPT in the following cases:
Authority to accredit and register TAX

AGENTS (6G) The Commissioner
shall accredit and register tax agents
(may
be
individuals
or
general
professional partnerships) based on the
following criteria:
Professional competence
Integrity
Moral fitness
7.
Authority
to
prescribe
additional
PROCEDURAL
OR
DOCUMENTARY
REQUIREMENTS (6H) in relation to
the manner of compliance of any
requirement in connection with the
submission or preparation of financial
statements
accompanying
the
tax
returns.
8.
The
ACCESS
LETTER
(5B)
Commissioner may obtain on a regular
Power to INTERPRET TAX LAWS and to

DECIDE TAX CASES (4)
shall be
under
the exclusive and
original
jurisdiction of the Commissioner, subject
to review by the Secretary of Finance.
RMC 44-01
A ruling by the BIR Commissioner shall be presumed
VALID unless modified, reversed or superseded by the
Secretary of Finance.
A taxpayer who receives an adverse ruling from the
Commissioner may, within thirty (30) days from
the date of receipt of such ruling, seek its review by
the Secretary of Finance, either by himself/itself or
though his/its duly authorized representative.
A reversal or modification of the BIR ruling shall
terminate its effectivity upon the receipt by the
taxpayer or the BIR of written notice of reversal or
modification, whichever came earlier.
NOTE:
DOF Order 7-02 added that the Secretary of

Finance may review the rulings MOTU
PROPRIO.
Authority to inquire into BANK DEPOSIT

Notwithstanding
ACCOUNTS (6F)
any contrary provision of R.A. 1405
(Bank Secrecy Law) and other general or
special laws, the Commissioner is
authorized to inquire into bank deposits
of:
A decedent to determine his gross

estate, and
Any taxpayer who has filed an

application for compromise of tax
liability by reason of financial
the taxpayer must
incapacity
waive in writing his privilege under
R.A. 1405 and other relevant laws,
before
the
Commissioner
may
inquire into his bank accounts
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basis, from any person OTHER THAN

the person whose tax liability is
subject to audit or investigation, or
from any office or officer of the national
and local governments, government
agencies or instrumentalities, including
BSP and GOCCs, any information such
as, but not limited to, costs and
volumes of production, receipts or
sales
and
gross
incomes
of
taxpayers, and the names addresses,
and financial statements of corporations,
mutual fund companies, insurance
companies etc.
NOTE: This is known as the Third Party
Information Rule.
When a taxpayer is retiring from

business subject to tax, or
When the taxpayer is intending to
leave the Philippines or to remove
his property therefrom or to hide or
conceal his property
When the taxpayer is performing
any act tending to obstruct the
proceedings for the collection of the
tax for the past or current quarter or
year or to render the same totally or
partially ineffective unless such
proceedings are begun immediately
a)
Where the taxpayer deliberately misstates or

omits material facts from his return or any
document required of him the BIR;
b)
Where the facts subsequently gathered by

the BIR are materially different from the facts
on which the ruling is based; or
c)
Where the taxpayer acted in bad faith.
B.
Letter of Authority
Q: What is a letter of authority?

The Letter of Authority is an official document that
empowers a Revenue Officer to examine and
scrutinize a taxpayers books of accounts and other
accounting records, in order to determine the
taxpayers correct internal revenue tax liabilities.
Q: Who issues the Letter of Authority?

Commissioner for those units reporting directly to
him
Remedies
Taxation Law 2
Regional directors for taxpayers covered by his

particular region. If the Commissioner has already
issued an LA to investigate a particular taxpayer,
the Regional director shall desist from issuing
another LA for the same taxpayer.
Q: What are the cases which need not be
covered by a valid LA?
Cases involving civil/criminal tax fraud which fall
under the jurisdiction of the tax fraud division of the
Enforcement Services, and
Policy cases under audit by the special teams in
national offices
II. PRE-ASSESSMENT STAGE
A.
Step 1: Issuance of Notice of Informal

Conference
What is a notice of informal conference?
A notice of informal conference is a
written notice informing a taxpayer that the
findings of the audit conducted on his books
of accounts and accounting records indicate
that
additional
taxes
or
deficiency
assessments have to be paid. If, after the
culmination of an audit, a Revenue Officer
recommends the imposition of deficiency tax
assessments,
this
recommendation
is
communicated by the Bureau to the taxpayer
concerned during an informal conference
called for this purpose. The taxpayer shall
then have fifteen (15) days from the date of
his receipt of the Notice for Informal
Conference to explain his side.
B.
Step 2: Informal Conference

What matters are taken up during the
informal conference?
1. Discussion on the merits of the
assessment
2. Attempt of taxpayer to convince the
examiner to conduct a re-investigation
and/or re-examination
3. Evaluate if submission of the waiver of
the statute of limitations is necessary
because evaluation may extend beyond
three years
4. Taxpayer to advise the examiner if
position paper will be submitted
What is a jeopardy assessment?
A jeopardy assessment is a tax assessment
made by an authorized Revenue Officer
without the benefit of complete or partial
audit, in light of the ROs belief that the
assessment and collection of the deficiency
tax will be jeopardized by delay caused by
the taxpayers failure to:
i. Comply
with
audit
and
investigation
requirements
to
present his books of accounts
and/or pertinent records
ii. Substantiate all or any of the
deductions, exemptions or credits
claimed in his return.
It
is usually
issued when statutory
prescriptive periods for the assessment or
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collection of taxes are about to lapse due

principally to the taxpayers fault.
C.
Step 3:
Notice
Issuance of Pre-Assessment
What is a pre-assessment notice (PAN)?

The Pre-Assessment Notice is a communication
issued by the Regional Assessment Division or
any other concerned BIR office, informing a
taxpayer who has been audited of the findings of
the Revenue Officer, following the review of these
findings. The assessment shall be in writing, and
should inform the taxpayer of the law and the
facts on which the assessment is made;
otherwise, the assessment shall be void. (Sec.
228)
If the taxpayer disagrees with the findings in the
PAN, he has fifteen (15) days from his receipt of
the PAN to file a written reply contesting the
proposed assessment.
Under what circumstances is a PAN no
longer required?
(a) 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; or
(b) When a DISCREPANCY has been determined
between the TAX WITHHELD and the amount
ACTUALLY REMITTED by the withholding agent;
or
(c) When a taxpayer who opted to claim a refund
or tax credit of excess creditable withholding
tax for a taxable period was determined to have
carried over and automatically applied the same
amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of
the succeeding taxable year; OR
(d) When the EXCISE TAX due on excisable articles
has not been paid; or
(e) 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 a non-exempt person. (228)
III. FORMAL ASSESSMENT STAGE
What is a Notice of Assessment (Final
Assessment Notice FAN or Formal Letter of
Demand)?
A notice of assessment is a declaration of
deficiency taxes issued to a taxpayer who fails to
respond to a pre-assessment notice within the
prescribed period of time, or whose reply to the
PAN was found to be without merit. This is
commonly known as the Final Assessment Notice
(FAN). An assessment contains not only a
computation of tax liabilities, but also a demand
for payment within a prescribed period. The
ultimate purpose of assessment is to ascertain
the amount that each taxpayer is to pay. An
assessment is a notice to the effect that the
amount therein stated is due as tax and a
Remedies
Taxation Law 2
demand for payment thereof. (Tupaz v. Ulep,
1999)
The formal letter of demand shall be issued by
the Commissioner or his duly authorized
representative. The letter of demand calling for
the payment of the taxpayers deficiency taxes
shall state the FACTS, the LAW, RULES and
REGULATIONS or JURISPRUDENCE on which the
assessment is based, OTHERWISE, the formal
letter of demand or assessment notice shall be
VOID. (RR 12-99)
NOTE:
A follow-up letter/demand letter for

payment of taxes is considered a notice
of assessment. [REPUBLIC vs. CA and
NIELSON & CO. (April 30, 1987)]
Where the taxpayer is appealing on the

ground
that
the
assessment
is
erroneous, it is incumbent upon him to
prove what is the correct and just
liability by a full and fair disclosure of all
pertinent data. Tax assessments by tax
examiners are presumed correct and
made in good faith. The taxpayer has
the duty to prove otherwise. [Bonifacio
Sy Po v. CTA]
Within what time may the Commissioner
issue a notice of assessment?
If the taxpayer filed a return
internal revenue taxes shall be assessed
within three years after the last day
prescribed by law for the filing of the
return. If a return is filed beyond the
period prescribed by law, the three-year
period shall be counted from the day the
return was filed. A return filed before
the last day prescribed by law for filing
shall be considered as filed on the last
day. (203)
ILLUSTRATION:
The income tax return of an individual shall be filed on
or before the fifteenth day of April of each year
covering income of the previous taxable year. If X
files his 2003 income tax return on 1 April 2004, what
is the last day for issuing a notice of assessment?
ANSWER: 16 April 2007. The three-year period
is counted from 15 April 2004, since X filed his
return earlier than the date prescribed by law.
NOTE: In short, the period for
assessment is within three years
from the time the return is filed or
from the time the return is due,
WHICHEVER IS LATER.
alleged and proved in the court below. The

finding of the trial court as to its existence and
non-existence is final and cannot be reviewed
by the Supreme Court unless clearly shown to
be erroneous. [CIR V. Ayala Securities (1976)]
Q: Are there tax returns which are false
but not fraudulent? YES. There must be a
distinction between false returns (due to
mistakes, carelessness or ignorance) and
fraudulent returns (with intent to evade taxes).
The fraud contemplated by law is actual and not
constructive, and must amount to intentional
wrongdoing with the sole object of avoiding the
tax. [Aznar v. CTA (1974)]
Q: What constitutes prima facie evidence
of a false or fraudulent return?
substantial underdeclaration of taxable sales,
receipts
or
income,
OR
a
substantial
overstatement of deductions (248b)
Q:
What
circumstances
constitute
substantial underdeclaration of sales,
receipts or income, and overstatement of
deductions, respectively? failure to report
sales, receipts or income in an amount
exceeding thirty percent (30%) of that declared
per return, and a claim of deductions in an
amount exceeding (30%) of actual deductions
(248b)
If the taxpayer DID NOT file a

return internal revenue taxes shall be
assessed within ten years after the
discovery of the failure to file the return
(222a)
If the taxpayer filed a false or

fraudulent return with intent to
evade tax
internal revenue taxes
shall be assessed within ten years
after the discovery of the falsity or fraud
(222a)
Fraud or falsity on the return with intent to
evade payment of tax is a question of fact and
the circumstances constituting fraud must be
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WAIVER:
The
taxpayer
and
the
Commissioner may agree in writing, before
the expiration of the time prescribed in Sec.
203, to extend the period of assessment
(222b)
The waiver of prescription must be executed
properly per RMO 20-90, otherwise, invalid
and results to prescription of the right to
assess/collect. [PHIL JOURNALISTS INC. v.
CIR (December 16, 2004)]
Requirements under RMO 20-90:
1. definite agreed date,
2. date of acceptance indicated, and
3. taxpayer must be furnished with a
copy of the waiver.
Q: What is the nature of prescription on the

right to assess?
The law on prescription, being a remedial
measure, should be LIBERALLY CONSTRUED in
order to afford protection. As a corollary, the
exceptions to the law on prescription should be
clearly construed. Hence, negligence or oversight
on the part of the BIR cannot prejudice taxpayers,
considering that the prescriptive period was
precisely intended to give them peace of mind.
[CIR v. Goodrich Philippines (1999)]
Remedies
Taxation Law 2
RMC No. 48-90
Counting of the
Prescriptive Periods (April 23, 1990)
When the period covers a leap year, it shall

be understood that years are of 365 days
each as provided in Article 13 of the New Civil
Code. Consequently, a 3-year prescriptive
period for assessment or collection purposes
shall have an aggregate number of 1,095
days (365 days X 3 years) reckoned from the
date of filing of the return (in case of
assessment) or from the issuance of the
assessment (in case of collection). In other
words, the 3-year prescriptive period expires
on the 1,095th day, notwithstanding the fact
that within the period, there is a leap year
which is of 366 days. This principle applies
to ALL prescriptive periods under the
Code.
What are the characteristics of a valid

protest?
A protest is considered validly made if it satisfies
the following conditions:
1)
it is made in writing, and addressed to the

Commissioner of Internal Revenue
2)
it contains the information the following

information (from RR 12-85):
name of the taxpayer and address for

the immediate past three taxable years
nature
of
request
whether
reinvestigation
or
reconsideration
specifying newly-discovered evidence he
intends to present if it is a request for
reinvestigation
the taxable periods covered
assessment number
date of receipt of assessment notice or

letter of demand
itemized statement of the findings to

which the taxpayer agrees as a basis for
computing the tax due, which amount
should be paid immediately upon the
filing of the protest. For this purpose,
the protest shall not be deemed validly
filed unless payment of the agreed
portion of the tax is paid first
the
itemized
schedule
of
the
adjustments with which the taxpayer
does not agree
a statement of facts and/or law in

support of the protest.
3)
It states the FACTS, applicable LAW, RULES

and REGULATIONS or JURISPRUDENCE on
which his protest is based, otherwise the
protest shall be considered void and without
force and effect.
4)
It is filed within the period prescribed by law
applied in ASIABANK v. CIR, CTA

Case No.6095, October 9, 2001
When is an assessment deemed made?

An assessment is deemed made when the
demand letter or notice is RELEASED, MAILED OR
SENT by the BIR to the taxpayer. The law does
not require that the taxpayer receive the notice
within the three-year or ten-year period. [CIR vs.
BAUTISTA (May 27, 1959)] So, even if the
taxpayer actually received the assessment after
the expiration of the prescriptive period, provided
the release thereof was effected before
prescription sets in, the assessment is deemed
made on time.
If the taxpayer does not agree with the
assessment, what is his REMEDY?
The taxpayer has the right to contest an
assessment, and he may do so by filing a letter
of PROTEST stating in detail his reasons for
contesting the assessment. When no protest is
seasonably
made
by
the
taxpayer,
the
assessment shall become final and unappealable,
and thus the tax shall be collectible.
Q: What is the nature of an assessment
when it is final and executory?
It is in the nature of an enforcement
judgment such that no inquiry can be made
thereon on the merits of the original case.
Within what time may the taxpayer protest
the assessment?
An assessment may be protested administratively
by filing a request for reconsideration or
reinvestigation within thirty (30) days from
receipt of the assessment. Within sixty (60)
days from filing of the protest, all relevant
supporting documents must be submitted,
otherwise the assessment shall become final.
(228)
What
is
the
difference
between
a
reconsideration and reinvestigation?
(RR 12-85)
RECONSIDERATION refers to a plea

of re-evaluation of the assessment on
the basis of existing records WITHOUT
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NEED OF ADDITIONAL EVIDENCE.

It
may involve both question of fact or of
law or both
REINVESTIGATION refers to a plea
of re-evaluation of an assessment on the
basis of NEWLY-DISCOVERED EVIDENCE
that a taxpayer intends to present in the
reinvestigation. It may also involve a
question of fact or law or both.
What should the taxpayer do if his protest is

denied or is not acted upon by the
Commissioner?
Situation 1:
If the Commissioner
DENIES THE PROTEST filed by the
taxpayer the taxpayer may appeal to
the Court of Tax Appeals within thirty
days from receipt of the decision denying
the protest (228)
Where there is a request for reconsideration,

final demand letter from BIR is considered a
decision on a disputed or protested
assessment which is therefore appealable to
the CTA. [CIR v. ISABELA CULTURAL CORP.
(July 11, 2001)]
Remedies
Taxation Law 2
Situation 2: If the Commissioner did

NOT ACT UPON THE PROTEST within
one hundred and eighty days from
the time the documents were
submitted the taxpayer may either:
o
Appeal to the CTA within thirty
days from the lapse of the 180day period OR
o
Wait until the Commissioner
decides before he elevates the
case to the CTA
NOTE: If Situation 1 occurs and the taxpayer

does not file a protest within the prescribed
period,
the
assessment
becomes
FINAL,
EXECUTORY and DEMANDABLE.
But if the
Situation 2 occurs and the taxpayer does not file
a protest within the prescribed period, the
assessment
DOES
NOT
become
FINAL,
EXECUTORY and DEMANDABLE. In cases of
inaction by the Commissioner, Section 228 of the
Tax Code merely gave the taxpayer an OPTION:
first, he may appeal to the Court of Tax Appeals
within thirty days from the lapse of the 180-day
period, or second, he may wait until the
Commissioner decides on his protest before he
elevates his case. The taxpayer was given this
option so that in case his protest is not acted
upon within 180 days, he may be able to seek
immediate relief and need not wait for an
indefinite period of time for the Commissioner to
decide. But if he chooses to wait for a positive
action on the part of the Commissioner, then the
same could not result in the assessment
becoming final, executory and demandable.
[LASCONA LAND Co vs. CIR (January 4, 2000)]
If the taxpayer is not satisfied with the

decision of the CTA en banc, what is his
REMEDY?
A party adversely affected by a decision or ruling
of the CTA en banc may file with the Supreme
Court a verified petition for review on certiorari
pursuant to Rule 45 of the 1997 Rules of Court.
(Sec. 19, RA 1125 as amended by RA 9282
[2004])11
EFFECTS
OF
RA
JURISDICTION:
The CTA shall exercise:
EXCLUSIVE APPELLATE
review by appeal:
a.
If the taxpayer is not satisfied with the CTA

Divisions ruling, what is his REMEDY?
FIRST, he may file a motion for

reconsideration before the same Division
of the CTA within fifteen (15) days from
notice thereof. (Sec. 11, RA 1125 as
amended by RA 9282 [2004])
THEN, a party adversely affected by a

resolution of a Division of the CTA on a
motion for reconsideration may file a
petition for review with the CTA en
banc. (Sec. 18, RA 1125 as amended by
RA 9282 [2004])
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ON
THE
CTAS
JURISDICTION
to
1.
Decisions of the Commissioner of Internal

Revenue
in
cases
involving
disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue or other laws
administered by the Bureau of Internal
Revenue;
2.
Inaction by the Commissioner of Internal

Revenue
in
cases
involving
disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relations
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal
Revenue, where the National Internal Revenue
Code provides a specific period of action, in
which case the inaction shall be deemed a
denial;
Decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their
original or appellate jurisdiction;
3.
When does the 30-day period to appeal in
Situation 1 commence to run?
The 30-day period starts when the taxpayer
receives the decision of the Commissioner
denying the protest.
The decision of the
Commissioner must categorically state that his
action on the disputed assessment is final,
otherwise period to appeal will not commence to
run. The appealable decision is the decision of
the Commissioner denying the protest, NOT the
warrants of distraint or levy. [ADVERTISING
ASSOCIATES vs. CA (December 26, 1984)]
NOTE:
A Division of the CTA shall hear the

appeal. (Sec. 11, RA 1125 as
amended by RA 9282 [2004])
9282
4.
Decisions of the Commissioner of Customs in

cases involving liability for customs duties, fees
or other money charges, seizure, detention or
release of property affected, fines, forfeitures or
other penalties in relation thereto, or other
matters arising under the Customs Law or other
laws administered by the Bureau of Customs;
5.
Decisions of the Central Board of Assessment

Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment
and taxation of real property originally decided
by the provincial or city board of assessment
appeals;
6.
Decisions of the Secretary of Finance on

customs cases elevated to him automatically for
review from decisions of the Commissioner of
Customs which are adverse to the Government
under Section 2315 of the Tariff and Customs
Code;
11
RA 9282, which amended RA 1125, expanded the
jurisdiction of the CTA and elevated it to the level of the Court
of Appeals.
Q: Is the CTA a special court or a regular court? It is a
regular court with special jurisdiction.
Remedies
Taxation Law 2
7.
b.
Decisions of the Secretary of Trade and

Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of
Agriculture in the case of agricultural product,
commodity or article, involving dumping and
countervailing duties under Section 301 and
302, respectively, of the Tariff and Customs
Code, and safeguard measures under Republic
Act No. 8800, where either party may appeal
the decision to impose or not to impose said
duties.
Jurisdiction over
OFFENSES:
cases
involving
a)
Over appeals from the judgments, resolutions

or orders of the Regional Trial Courts in tax
cases originally decided by them, in their
respected territorial jurisdiction.
b)
Over petitions for review of the judgments,

resolutions or orders of the Regional Trial
Courts in the exercise of their appellate
jurisdiction over tax cases originally decided by
the Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.
Jurisdiction over TAX COLLECTION CASES:
c.
1.
EXCLUSIVE ORIGINAL JURISDICTION in

tax collection cases involving final and
executory assessments for taxes, fees, charges
and penalties.
EXCEPTION: Collection cases where the
principal amount of taxes and fees,
exclusive of charges and penalties, claimed
is less than One million pesos
(P1,000,000.00) shall be tried by the
proper
Municipal
Trial
Court,
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63 of 112
2.
EXCLUSIVE APPELLATE JURISDICTION in

tax collection cases:
a.
Over appeals from the judgments, resolutions

or orders of the Regional Trial Courts in tax
collection cases originally decided by them, in
their respective territorial jurisdiction.
b.
Over petitions for review of the judgments,

resolutions or orders of the Regional Trial
Courts in the Exercise of their appellate
jurisdiction over tax collection cases originally
decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial
Courts, in their respective jurisdiction.
CRIMINAL
EXCLUSIVE ORIGINAL JURISDICTION over

all criminal offenses arising from violations of
the National Internal Revenue Code or Tariff
and Customs Code and other laws administered
by the Bureau of Internal Revenue or the
Bureau of Customs:
EXCEPTION: That offenses or felonies

where the principal amount of taxes and
fees, exclusive of charges and penalties,
claimed is less than One million pesos
(P1,000,000.00) or where there is no
specified amount claimed shall be tried
by the regular Courts and the
jurisdiction of the CTA shall be
appellate.
NOTE: Any provision of law or the Rules of
Court to the contrary notwithstanding, the
criminal action and the corresponding civil
action for the recovery of civil liability for taxes
and
penalties
shall
at
all
times
be
simultaneously instituted with, and jointly
determined in the same proceeding by the CTA,
the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil
action, and no right to reserve the filling of such
civil action separately from the criminal action
will be recognized.
EXCLUSIVE APPELLATE JURISDICTION
2.
in criminal offenses:
1.
Metropolitan Trial Court and Regional

Trial Court.
IV. COLLECTION LETTER/WARRANTS

A.
Collection of Deficiency Taxes

Within what time period must collection
of internal revenue taxes be made?
Return filed
NOT
false
fraudulent
was
or
No return filed, or
the
return
was
false or fraudulent.
Collection with PRIOR

ASSESSMENT
should
be
made
within three years
from the date of
assessment of the
tax.
Collection with PRIOR

ASSESSMENT
should
be
made
within five years
from the date of
assessment
(based
on 222c)
by distraint or
levy, or by judicial
proceedings
Collection WITHOUT
PRIOR ASSESSMENT
should be made
within three years
from the date of filing
of return or date
return
is
due,
whichever is LATER
(based on 203)
by
judicial
proceedings
by distraint or
levy, or by judicial
proceedings
Collection WITHOUT
PRIOR ASSESSMENT
should be made
within ten years
after the discovery of
the falsity, fraud or
omission to file a
return.
by
proceedings
judicial
If tax was assessed within the different

period agreed upon by the Commissioner and
the taxpayer, it may be collected by distraint
or levy or by a proceeding in court within the
period agreed upon in writing before the
expiration of the 5-yr period. (222d)
When shall the period for assessment or

collection of taxes be suspended? (223)
The running of the statute of limitations
provided in 203 and 222 shall be
suspended for the period:
Remedies
Taxation Law 2
1.
2.
During
which
the
commissioner
is
PROHIBITED from making the assessment or
beginning distraint or levy or a proceeding in
court, and for sixty (60) days thereafter
When
the
taxpayer
requests
for
a
REINVESTIGATION which is granted by the
Commissioner
CIR
vs.
WYETH
CASE
LAWS:
(September 30, 1991) The statutory
period of limitation for collection may be
interrupted when, by the taxpayers
repeated requests or positive acts, the
government has been, for good reasons,
persuaded to postpone collection to
make him feel the demand was not
unreasonable or that no harassment or
injustice was meant by government.
Q: What is the nature of a claim for refund?

It partakes of the nature of an exemption and is
strictly construed against the claimant. The
burden of proof is on the taxpayer claiming the
refund that he is entitled to the same. [CIR v.
Tokyo Shipping (1995)]
RR 12-85
RECONSIDERATION refers to a plea of

re-evaluation of the assessment on the basis
of existing records WITHOUT NEED OF
ADDITIONAL EVIDENCE. It may involve both
question of fact or of law or both
REINVESTIGATION refers to a plea of reevaluation of an assessment on the basis of

NEWLY-DISCOVERED
EVIDENCE
that
a
taxpayer
intends
to
present
in
the
reinvestigation.
It may also involve a
question of fact or law or both.
Q: When are there erroneously paid, or

illegally assessed or collected taxes?
Taxes are erroneously paid when a taxpayer pays
under a mistake of fact, such as, he is not aware
of an existing exemption in his favor at the time
that payment is made. Taxes are illegally
collected when payments are made under duress.
Q: What is the difference between a tax
credit and refund?
They are essentially modes of recovering taxes
that have been either erroneously or illegally paid
to the government. REFUND takes place when
there is actual reimbursement. TAX CREDIT takes
place upon the issuance of a tax certificate or tax
credit memo, which can be applied against any
sum that may be due and collected from the
taxpayer.
PHIL GLOBAL COMMUNICATION vs.

A reCIR (October 31, 2006)
evaluation of existing records which
results from a request for reconsideration
does not toll the running of the
prescription period for the collection of
an assessed tax. The law distinctly limits
the suspension of the running of the
statute of limitations to instances when
reinvestigation is requested by a
taxpayer and is granted by the CIR.
3.
4.
5.
Q: Is payment under protest necessary in

claims for refund?
No. Section 229 of the NIRC is specific on this
point when it provides that a suit or proceeding
for tax refund may be maintained whether or not
such tax, penalty or sum has been paid under
protest or duress.
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, but if the taxpayer informs the
Commissioner of any change in address, the
running of the statute of limitations shall not
be suspended
When the warrant of distraint or levy is duly
served upon the taxpayer, his authorized
representative, or a member of his household
with sufficient discretion, and NO PROPERTY
is located
When the taxpayer is OUT OF THE
PHILIPPINES
What is the procedure for obtaining a refund

or tax credit?
First, the taxpayer must file a claim for refund
before the Commissioner within two years from
the date of payment. (229) [GENERAL RULE]
o
o
B.
Remedies of the taxpayer against a tax

erroneously or illegally paid
When may taxes be refunded or
credited?
Taxes may be refunded or credited in the
following cases:
Taxes erroneously or illegally assessed

or collected
Penalties imposed without authority
64 of 112
EXCEPTIONS to the rule requiring a

claim for refund: When on the face of the
return upon which payment was made, such
payment appears clearly to have been
erroneously paid (e.g. mathematical errors),
the Commissioner may refund or credit the
tax even without a written claim therefor.
NOTE:
A return filed showing an
overpayment shall be considered as a written
claim for credit or refund. (204C)
But how shall the date of payment be

determined?
i.
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Value of internal revenue stamps when

they are returned in good condition by
the purchaser
Unused stamps that have been rendered
unfit for use (Commissioner may
redeem, change or refund their value
upon proof of destruction)
Any sum alleged to have been
excessively or in any manner wrongfully
collected
If the income tax is withheld at

source the taxpayer is deemed to have
paid his tax liability at the end of the
taxable year.
CASE LAW: GIBBS vs. COMMISSIONER
(November 29, 1965) A taxpayer who
Remedies
Taxation Law 2
contributes to the withholding tax system,
does so not really to deposit an amount to
CIR, but, in truth, to perform and extinguish
his tax obligation for the year concerned. He
is paying his tax liabilities for that year.
Consequently, a taxpayer whose income is
withheld at the source will be deemed to
have paid his tax liability when the same falls
due at the end of the tax year. It is from this
latter date then, or when the tax liability falls
due, that the 2-year prescriptive period starts
to run with respect to payments effected thru
the withholding tax system.
ii.
If the income is paid on a quarterly

basis the two-year period is counted from
the time of filing the final adjustment
return.
CASE LAW: CIR vs. TMX SALES (January
16, 1992) When a tax is paid in
installments, the prescriptive period should
be counted from the date of final payment or
the last installment. This rule proceeds from
the theory that there is no payment until the
entire tax liability is completely paid. Further,
it is only upon the filing of the Final
Adjustment Return would the taxpayer be
able to ascertain if he still has to pay
additional income tax or if he is entitled to a
refund. The filing and payment of quarterly
income tax should only be considered as
mere installments of the annual tax due. It
should be treated as advances or portions of
the annual tax due.
What should the taxpayer do if his claim for

refund is denied or is not acted upon by the
Commissioner?
o
SITUATION 1: The Commissioner denies

the claim for refund the taxpayer may
appeal to the CTA within thirty (30) days
from the receipt of the Commissioners decision
AND within two years from the date of
payment. (Note that 229 states that no such
suit or proceeding shall be filed after the
expiration of the 2-year period regardless of
any supervening cause that may arise after
payment)
SITUATION 2: The Commissioner does not
act on the claim, and the two-year period
is about to lapse the taxpayer must file a
claim before the CTA before the 2-year
period lapses, otherwise he may no longer file
a claim before the CTA in case the
Commissioner renders an adverse decision
beyond the 2-year period.
NOTE HOWEVER! Is the two-year
period jurisdictional with respect to the
CTA?
NO. Even if the two-year period had already
lapsed, the same is not a jurisdictional defect
which, upon grounds of justice and equity,
may
be
set
aside
by
the
court.
[(COMMISSIONER vs. PHILAMLIFE (May 29,
1995)]
If the Commissioner grants the refund, within

what time must it be claimed?
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65 of 112
A refund check or warrant must be claimed or

cashed within five years from the date such
warrant or check was mailed or delivered,
otherwise it shall be forfeited in favor of the
government and the amount thereof shall revert
to the general fund.
What can be done with a Tax Credit Certificate?
Tax credit certificates (TCCs) can be applied
against all internal revenue taxes, excluding
withholding tax.
TCCs which remain unutilized after five years
from the date of issue shall be considered as
invalid, unless revalidated. If not revalidated, the
amount covered by the TCC shall revert to the
general fund
C.
Remedies of the State for Collection of

Taxes
GENERALLY, the remedies of distraint, levy
or civil or criminal action may be pursued
SIMULTANEOUSLY.
(205)
Remedies of
distraint and levy may be repeated if
necessary until the full amount due, including
all expenses, is collected. (217)
o
HOWEVER, the remedies of distraint
and levy shall not be available where the
amount of the tax involved is not more
than One hundred pesos.
o
Q: When may the government avail

of the remedies of collection?
When the assessment shall have become
final, executory and demandable.
NOTE: A court MAY NOT GRANT AN INJUNCTION

to restrain the collection of any national internal
revenue tax, fee or charge imposed under the
NIRC. (218)
o
EXCEPTION: Under Section 11 of RA 1125,
as amended by RA 9282, suspension is
allowed when the following conditions concur:
1.
it is an appeal to the CTA from a decision

of the Commissioner of Internal Revenue
or Commissioner of Customs or the
Regional Trial Court, provincial, city or
municipal treasurer or the Secretary of
Finance, the Secretary of Trade and
Industry and Secretary of Agriculture, as
the case may be, and
2.
in the opinion of the Court of Tax

Appeals, the collection may jeopardize
the interest of the Government and/or
the taxpayer.
Q: In case of suspension, what may
the taxpayer be required to do? Either
to deposit the amount claimed or to file a
surety bond for not more than double the
amount with the Court.
Q: What are tax liens? (Sec. 219, NIRC)

When a taxpayer neglects or refuses to pay his
internal revenue tax liability after demand, the
amount so demanded shall be a lien in favor of
the government from the time the assessment
was made by the CIR until paid with interest,
penalties, and costs that may accrue in
Remedies
Taxation Law 2
addition thereto upon ALL PROPERTY AND RIGHTS
TO PROPERTY BELONGING to the taxpayer.
o
HOWEVER, the lien shall not be valid against any

mortgagee, purchaser or judgment creditor until
NOTICE of such lien shall be filed by the
Commissioner in the Office of the Register of
Deeds of the province or city where the property
of the taxpayer is situated or located.
Q: What is the difference between seizure

under forfeiture an a seizure to enforce a tax
lien? There is a great difference between a
seizure under forfeiture and a seizure to enforce a
tax lien. In the former all the proceeds derived
from the sale of the thing forfeited are turned
over to the Collector of Internal Revenue; in the
latter, the residue of such proceeds over and
above what is required to pay the tax sought to
be realized, including expenses, is returned to the
owner of the property. [BPI v. Trinidad]
How are different kinds of personal property

distrained?
Stocks and other securities by serving a

copy of the warrants of distraint on the
taxpayer, AND upon the president, manager,
treasurer or other responsible officer of the
corporation, company or association which
issued the stocks or securities.
Debts and credits by leaving with the

person owing the debts or having in his
possession or under his control such credits, or
with his agent, a copy of the warrant of
distraint. The person owing the debts shall
then pay the Commissioner instead of his
creditor (taxpayer) on the strength of such
warrant.
Bank accounts by serving a warrant of

garnishment upon the taxpayer AND upon the
president,
manager,
treasurer
or
other
responsible officer of the bank. The bank shall
then turn over to the Commissioner so much of
the bank accounts as may be sufficient to
satisfy the claim of the Government. (NOTE:
distraint
of
bank
accounts
is
called
GARNISHMENT)
ADMINISTRATIVE REMEDIES
1.
Distraint
What is distraint of personal property?
Distraint involves the SEIZURE by the
Government of PERSONAL PROPERTY,
tangible or intangible, to enforce the
payment of taxes; followed by the
PUBLIC SALE of such property, if the
taxpayer fails to pay the taxes
voluntarily.
What are the kinds of distraint?
1.
Actual Distraint resorted to when there is

ACTUAL delinquency in tax payment
2.
Constructive Distraint is a preventive

remedy which aims at forestalling a possible
dissipation of the taxpayers assets when
delinquency sets in. Hence, no actual
delinquency in payment is necessary.
How is ACTUAL distraint of personal property

effected?
When the taxpayer fails to pay the delinquent

tax at the time required, the proper officer shall
SEIZE and DISTRAINT any GOODS, CHATTELS,
or EFFECTS, and the PERSONAL PROPERTY,
including STOCKS and other SECURITIES,
DEBTS, CREDITS, BANK ACCOUNTS and
INTERESTS in and RIGHTS to personal property
of the taxpayer in sufficient quantity to satisfy
the tax, expenses of distraint and the cost of
the subsequent sale.
Who is the proper officer authorized to issue the
warrant of distraint?
Commissioner or his duly authorized
representative if the amount involved is
in
EXCESS
of
One
million
pesos
(P1,000,000)
Revenue District Officer if the amount
involved is One million pesos (P1,000,000)
or LESS. (207A)
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The officer serving the warrant of distraint shall

make an account of the goods, chattels, effects
or other personal property distrained. A copy
shall be left with the person from whom the
goods were taken, or at the dwelling or place of
business of such person with someone of
suitable age and discretion. The account shall
also contain a statement of the sum demanded
and the time and place of sale of the distrained
property. (208)
What is the remedy of the taxpayer once the

Commissioner or other proper officer issues the
warrant of distraint?
The taxpayer may request that the warrant be
lifted. The commissioner may, in his discretion,
allow the lifting of the order of distraint. He
may ask for a bond as a condition for the
cancellation of the warrant. (207)
If the taxpayer does not ask for the lifting of the
warrant, what shall be done with the seized
properties?
The properties will be SOLD in a PUBLIC SALE,
and the procedure shall be as follows:
(1) The Revenue District Officer or his duly
authorized representative (not the officer who
served the warrant), shall cause a notification
of the public sale to be posted in not less
than two (2) public places in the municipality
or city (one of which is the Office of the
Mayor) where the distraint was made. The
notice shall specify the time and place of the
sale. The time of sale shall not be less than
twenty (20) days after notice to the owner
and the publication or posting of such notice.
(2) At the time of the public sale, the revenue
officer shall sell the goods, chattels, or
effects, or other personal property, including
stocks and other securities so distrained at
Remedies
Taxation Law 2
for collecting the tax due or which may
be due from him (206)
NOTE: In constructive distraint, the property is
not actually confiscated or seized by the
revenue officer
a PUBLIC AUCTION, to the HIGHEST BIDDER

for CASH or with the approval of the
Commissioner, through a DULY LICENSED
COMMODITY or STOCK EXCHANGES.
(3) Any residue over and above what is required
to pay the entire claim, including expenses of
sale and distraint, shall be RETURNED to the
owner of the property sold. Expenses shall
be limited to actual expenses of SEIZURE and
PRESERVATION of the property pending the
sale, no charge shall be imposed for the
services of the local internal revenue officer
or his deputy. (209)
(4) If the amount offered by the highest bidder is
not equal to the amount of the tax or is very
much less than the actual market value of the
articles offered for sale, the Commissioner or
his deputy may purchase the same in behalf
of the National Government for the amount of
taxes, penalties and costs due thereon. The
property so purchased may thereafter be
resold by the Commissioner or his deputy.
(212)
2.
Levy
What is Levy of Real Property?
Levy of real property refers to the same act of
seizure as in distraint, but in this case, of real
property, an interest in or rights to such property
in order to enforce the payment of taxes. The
real property under levy shall be sold in a public
sale, if the taxes involved are not voluntarily paid
following such levy.
How is levy of real property effected?
1)
After the expiration of time required to pay

the delinquent tax, real property may be
levied upon, BEFORE, SIMULTANEOUSLY or
AFTER the distraint of personal property
belonging to the delinquent. The IR officer
designated by the Commissioner or his duly
authorized representative shall prepare a
DULY AUTHENTICATED CERTIFICATE showing
the name of the taxpayer and the amounts of
tax and penalty due from him.
This
certificate shall operate with the force of
LEGAL
EXECUTION
throughout
the
Philippines.
2)
The certificate shall contain a description of

the property upon which levy is made. At the
same time, written notice of the levy shall be
mailed to or served upon the Register of
Deeds of the province or city where the
property is located and upon the taxpayer (if
he is absent from the Philippines, to his agent
or manager of business in respect to which
the liability arose or to the occupant of the
property in question)
3)
Within twenty (20) days after the levy, the

officer conducting the proceedings shall
proceed to advertise for SALE the property or
a portion thereof as may be necessary to
satisfy the claim and costs of sale. Such
advertisement shall cover a period of at least
thirty (30) days. The notice shall be posted
at the main entrance of the city or municipal
all AND in a public and conspicuous place in
the barrio or district where the real property
lies. The notice must also be published in a
newspaper of general circulation in the place
where the property is located, once a week
for three (3) weeks.
CONTENTS of notice:
statement of
amount of taxes, and penalties due, time
and place of sale, name of taxpayer,
short description of property.
4)
The sale shall be held either at the main

entrance of the municipal or city hall or on
the premises to be sold. Property will be
awarded to the highest bidder. In case the
proceeds of the sale exceeds the claim and
costs of sale, the excess shall be turned over
to the owner of the property. (213)
(5) If the proceeds from the sale of the distrained

properties is not sufficient to satisfy the tax
delinquency, the Commissioner or his duly
authorized representative shall within thirty
(30) days after execution of the distraint,
proceed with the levy on the taxpayers real
property. (207B)
May the taxpayer recover his property prior
to consummation of the sale?
YES. If at any time prior to the consummation of
the sale all proper charges are paid to the officer
conducting the sale, the goods or effects
distrained shall be restored to the owner. (210)
How is CONSTRUCTIVE distraint effected?
Constructive distraint is effected by requiring a
taxpayer or any person in possession or control of
such property to SIGN a RECEIPT covering the
property distrained and obligate himself to
PRESERVE THE SAME INTACT and UNALTERED
and NOT TO DISPOSE of the same in any manner
whatever, without the Commissioners authority.
If the taxpayer or person in possession or control
refuses to sign the receipt, the revenue officer
shall prepare a list of the property and leave a
copy of such list in the premises where the
properties are located, in the presence of two (2)
witnesses.
Q: When may property of the taxpayer be
placed in constructive distraint?
The property of a taxpayer may be placed in
constructive distraint, if in the Commissioners
opinion:
the taxpayer is retiring from any

business subject to tax
the taxpayer is intending to leave the

Philippines
the taxpayer is intending to remove his

property from the Philippines or to hide
or conceal his property
the taxpayer is planning to perform any

act tending to obstruct the proceedings
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Remedies
Taxation Law 2
5)
If there is no bidder for the real property OR

if the highest bid is not sufficient to pay the
taxes, penalties and costs, the IR Officer
conducting the sale shall declare the property
FORFEITED
to
the
GOVERNMENT
in
satisfaction of the claim.
(215)
The
Commissioner may resell the property at a
public auction after the giving of not less than
twenty (20) days notice. (216)
required tax return. [CIR v. Pascor Realty (June 29,

1999)]
V.
COMPROMISE AND ABATEMENT
1.
Compromise (to reduce the amount of tax

payable)
May the taxpayer recover his property prior to

consummation of the sale?
YES. At any time before the day fixed for the sale,
the taxpayer may discontinue all proceeding by
paying the taxes, penalties and interest. (213)
On what grounds may the commissioner

compromise the payment of internal revenue
tax (civil compromise)?
The Commissioner may compromise the payment
of any internal revenue tax in the following cases:
May the taxpayer recover his property after

the consummation of the sale?
YES. Within one (1) year from the date of sale,
the taxpayer or anyone for him, may pay to the
Revenue District Officer the total amount of the
following:
public taxes
penalties
interest from the date of delinquency to the

date of sale
interest on said purchase price at the rate of

fifteen percent (15%) per annum from the date
of sale to the date of redemption. (NOTE: if
the property was forfeited in favor of the
government, the redemption price shall include
only the taxes, penalties and interest plus costs
of sale no interest on purchase price since the
Govt did not purchase the property anyway,
it was forfeited)
NOTE:
The taxpayer-owner shall not be
deprived of possession of the said property and
shall be entitled to rents and other income until
the expiration of the period for redemption
JUDICIAL PROCEEDINGS
Civil and criminal action and proceedings
instituted in behalf of the Government under the
authority of this Code or other law enforced by
the BIR
shall be BROUGHT IN THE NAME OF THE
GOVERNMENT of the Philippines
shall be CONDUCTED BY LEGAL OFFICERS OF
THE BIR
No civil or criminal action for the recovery of
taxes or the enforcement of any fine, penalty or
forfeiture under the NIRC shall be filed in court
without the APPROVAL OF THE COMMISSIONER
approval of the Commissioner. (220)
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A REASONABLE DOUBT as to the validity of

the claim against the taxpayer exists; or
2)
The financial position of the taxpayer

demonstrates a clear inability to pay the
assessed tax. (FINANCIAL INCAPACITY)
What are the limits of the Commissioners

power to compromise?
For cases of financial incapacity

a
minimum compromise rate equivalent to ten
percent (10%) of the basic assessed tax
For other cases a minimum compromise

rate equivalent to forty percent (40%) of
the basic assessed tax
NOTE:
When the basic tax involved
exceeds One Million Pesos (P1,000,000), or
where the settlement offered is less than the
prescribed minimum rates, the compromise
must be approved by the Evaluation Board
(composed of the Commissioner and 4
deputy commissioners)
May the Commissioner compromise cases of
criminal violations?
Generally, ALL CRIMINAL VIOLATIONS may be
compromised, EXCEPT:
a) those cases already filed in court
b) those involving fraud
2.
Abatement (to cancel the entire amount of tax

payable)
When may the Commissioner abate or cancel
a tax liability?
The Commissioner may abate or cancel a tax
liability when:
Q: How is a criminal action a collection

remedy?
The judgment in the criminal case shall not only
impose the penalty but shall also order payment of
the taxes subject of the criminal case as finally
decided by the Commissioner. (205)
Q: Is an assessment necessary before filing a
criminal charge for tax evasion?
No, an assessment is not necessary before a
criminal charge can be filed. The criminal charge
need only be proved by a prima facie showing of a
willful attempt to file taxes, such as failure to file a
1)
1)
the tax or any portion thereof appears to be

UNJUSTLY or EXCESSIVELY ASSESSED; or
2)
the ADMINISTRATION and COLLECTION

COSTS do not justify the collection of the
amount due. (costs of collection > amount of
tax due)
VI. STATUTORY OFFENSES AND PENALTIES

A.
Additions to the Tax
1.
Civil Penalties
Remedies
Taxation Law 2
Surcharge, defined Surcharge is a civil
penalty imposed by law as an addition to the main
tax required to be paid. It is not a criminal
penalty but a civil administrative sanction
provided primarily as a safeguard for the
protection of the State revenue and to reimburse
the government for the expenses of investigation
and the loss resulting from the taxpayers fraud. A
surcharge added to the main tax is subject to
interest.
B.
1.
Rates of Surcharge:
There shall be imposed a penalty equivalent to
twenty-five percent (25%) of the amount due,
in the following cases:
FAILURE TO FILE ANY RETURN and PAY THE

TAX DUE THEREON on the date prescribed; or
Filing a return with an internal revenue officer

than those with whom the return is required
to be filed (except when authorized by the
Commissioner); or
FAILURE TO PAY THE DEFICIENCY TAX within

the time prescribed for its payment in the
notice of assessment
FAILURE TO PAY THE FULL OR PART of the

amount of tax shown on any return required
to be filed, or the full amount of tax due for
which no return is required to be filed, on or
before the date prescribed for its payment.
(248A)
The penalty shall be fifty percent (50%) of the
tax or of the deficiency tax, in the following cases:
WILLFUL NEGLECT to FILE THE RETURN

within the period prescribed
A FALSE OR FRAUDULENT RETURN is willfully

made (248B)
Prima-facie evidence of false or fraudulent
return:
substantial underdeclaration of taxable
sales, receipts or income (failure to
report sales, receipts or income in an
amount exceeding 30% of that declared
per return)
substantial overstatement of deductions
(a claim of deduction in an amount
exceeding 30% of actual deductions)
2.
Interest
There shall be assessed and collected an interest
at 20% per annum on any unpaid amount of tax
or higher rate prescribed by rules and regulations
from the date prescribed for payment until the
amount is fully paid.
Deficiency interest the term deficiency
means the amount by which the taxed imposed
under the Code exceeds the amount shown on
the return filed (249B)
Delinquency Interest. - In case of failure to
pay:
tax due on any return required to be filed, or
tax due for which no return is required, or
a deficiency tax, or any surcharge or interest
thereon on the due date appearing in the
notice and demand of the Commissioner,
there shall be assessed and collected on
the unpaid amount, interest at the rate
prescribed until the amount is fully paid,
which interest shall form part of the tax.
(249C)
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Crimes, Other Offenses and Forfeitures
2.
Tax
Code
Secti
on
254
General Provisions
Any person convicted of a crime under the
Code shall, in addition to being liable for the
payment of the tax, be subject to the
penalties imposed under the Code. Payment
of the tax due after a case has been filed
shall not constitute a valid defense in any
prosecution for violation of the provisions
under the Code.
Any person who willfully aids or abets in the
commission of a crime penalized under the
Code or who causes the commission of any
such offense by another shall be liable in the
same manner as the principal.
If the offender is not a citizen of the
Philippines, he shall be deported immediately
after serving the sentence. If the offender is
a public officer or employee, the
maximum penalty prescribed for the offense
shall be imposed on him, and he shall be
dismissed from public office, and perpetually
disqualified from holding any public office, to
vote and to participate in any election. If the
offender is a CPA, his license shall be
automatically revoked or cancelled once he is
convicted.
In cases of corporations, associations,
partnerships etc. the penalty shall be
imposed on the partner, president, general
manager, branch manager, treasurer, officerin-charge and employees responsible for the
violation.
The fines imposed for any violation of the
Code shall not be lower than the fines
imposed herein or twice the amount of taxes,
interests and surcharges due from the
taxpayer, whichever is higher. (253)
All violations of any provision of the Code
shall prescribe after five (5) years.
Criminal Offenses
Offense
Willful
attempt to
evade or
defeat
tax.
Who
liable
is
Any person
who willfully
attempts in
any manner
to evade or
defeat
any
tax or the
payment
thereof.
Penalty
Fine - P30,000
or
100,000;
and
Imprisonment
- 2 to 4 years;
Plus
other
penalties
Remedies
Taxation Law 2
255
Failure to
File
Return,
Supply
Correct
and
Accurate
Informatio
n,
Pay
Tax,
Withhold
and Remit
Tax
and
Refund
Excess
Taxes
Withheld
on
Compensa
tion
257
Making
false
entries,
records,
or reports,
or
using
falsified or
fake
accountab
le forms.
258
Unlawful
pursuit of
business
Any person
required to
pay any tax,
make
a
return, keep
any record,
or
supply
correct and
accurate
information
Any person
who
attempts to
make
it
appear
for
any reason
that he or
another has
in fact filed a
return
or
statement,
or
actually
files a return
or statement
and
subsequentl
y withdraws
the
same
return
or
statement
Any financial
officer
or
Independent
Certified
Public
Accountant
engaged to
examine and
audit books
of accounts
of taxpayers
under
Sec.232 (A)
and
any
person
under
his
direction.
Any person
who carries
on
any
business for
which
in
annual
registration
fee
is
imposed
without
paying
the
tax
as
required by
law.
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Fine - P10,000
or more; and
Imprisonment
- 1 to 10
years;
Plus
other penalties
259
Illegal
Collection
of Foreign
Payments
260
Unlawful
Possessio
n
of
Cigarette
Paper
in
Bobbins or
Rolls, Etc.
Fine - P10,000
- 20,000; and
Imprisonment
- 1 to 3 years;
Plus
other
penalties
Fine - P50,000
- 100,000; and
Imprisonment
- 2 to 6 years
Fine - P5,000 20,000;

and
Imprisonment
- 6 months to
2 years
A
person
engaged in
the business
of distilling,
rectifying,
repacking,
compoundin
g
or
manufacturi
ng
any
article
subject
to
excise tax.
Any person
who
knowingly
undertakes
the
collection of
foreign
payments
under
Sec.
67 without a
license
or
without
complying
with
the
implementin
g rules and
regulations.
Any person,
manufacture
r or importer
of cigar or
cigarettes
Fine - P30,000
- 50,000; and
Imprisonment
- 1 to 2 years
Fine - P20,000
- 50,000; and
Imprisonment
- 1 to 2 years
Fine - P20,000
- 100,000; and
Imprisonment
- 6 years 1
day
to
12
years
Remedies
Taxation Law 2
261
262
Unlawful
Use
of
Denatured
Alcohol
Shipment
or
Removal
of Liquor
or
Tobacco
Products
under
False
Name or
Brand or
as
an
Any person
who for the
purpose
of
manufacturi
ng
any
beverage,
uses
denatured
alcohol
or
alcohol
specially
denatured to
be used for
motive
power
or
withdrawn
under bond
for industrial
uses
or
alcohol
knowingly
misrepresent
ed
to
be
denatured to
be unfit for
oral
intake
or
who
knowingly
sells
or
offers
for
sale
such
preparations
containing
as
an
ingredient
such alcohol.
Any person
who
unlawfully
recovers or
attempt
to
recover
by
distillation or
other
process any
denatured
alcohol
or
who
knowingly
sells
or
offers
for
sale,
conceals or
otherwise
disposes of
alcohol
as
recovered or
redistilled
Any person
who
ships,
transports or
removes
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Fine - P20,000
- 100,000; and
Imprisonment
- 6 years 1
day
to
12
years
263
Imitation
of
any
Existing or
Otherwise
Known
Product
Name or
Brand
Unlawful
Possessio
n
or
Removal
of Articles
Subject to
Excise Tax
Without
Payment
of the Tax
Any person
who owns or
is found in
possession
of
these
articles
Value of goods
not > P1,000:
Fine not <
than
P1,000
not > P2,000,
imprisonment
of not < 60
days, not >
100 days
Value
of
goods
>
P1,000, not >
than P50,000:
Fine not <
than P10,000
not
>
P20,000,
imprisonment
of not < 2 yrs,
not > 4 years
Value of goods
>
P50,000,
not > than
P150,000:
Fine not <
than P30,000
not
>
P60,000,
imprisonment
of not < 4 yrs,
not > 6 years
Value of goods
>
P150,000:
Fine not <
than P50,000
not
>
P100,000,
imprisonment
of not < 10
yrs, not > 12
years
Fine - P20,000
- 100,000; and
Imprisonment
- 6 years 1
day
to
12
years
Remedies
Taxation Law 2
264
265
266
Failure or
Refusal to
Issue
Receipts
or
Sales
or
Commerci
al
Invoices,
Violations
Related to
the
Printing of
Such
Receipts
or
Invoices
and Other
Violations
Offenses
Relating
to Stamps
Any person
who, being
required
under
Section 237
to
issue
receipts
or
sales
or
commercial
invoices
Failure to
Obey
Summons
Any person
who
being
duly
summoned
to appear to
testify, or to
appear and
produce
books
of
accounts,
records,
memoranda
or
other
papers, or to
furnish info.
as required
under
the
pertinent
provisions of
this Code.
Any person
who willfully
files
a
declaration,
return
or
statement
containing
information
which is not
true
and
correct as to
every
material
matter
Any
manufacture
r subject to
excise tax
267
Declaratio
n
under
Penalties
of Perjury
268
Misdeclara
tion
or
Misrepres
entation
of
Manufactu
rers
Subject to
Excise Tax
Forfeiture
of
Any
who
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person
Fine - P 1,000
- 50,000; and
Imprisonment
- 2 to 4 years
Fine
P
20,000
50,000;
and
Imprisonment
- 4 to 8 yrs
Fine - P 5,000
- 10,000; and
Imprisonment
- 1 to 2 yrs
274
275
Perjury under
the
Revised
Penal Code
Summary
cancellation or
withdrawal of
the permit to
engage
in
business as a
manufacturer
of
articles
subject
to
excise tax
Forfeiture
276
Property
Used
in
Unlicense
d Business
or
Dies
Used
for
Printing
False
Stamps,
Etc.
conducts an
unlicensed
business
Forfeiture
of Goods
Illegally
Stored or
Removed
Any person
subject
to
excise
tax
who fails to
store
the
goods
in
proper place,
or removes
goods
without
payment of
excise tax
Penalty
for Second
and
Subseque
nt
Offenses
Violation
of
Other
Provisions
of the Tax
Code
or
Rules
or
Regulation
s
in
General
Penalty
for
Selling,
Transferri
ng,
Encumberi
ng or in
any
way
disposing
of
property
Placed
under
Constructi
ve
Distraint
Forfeiture
Maximum
of
the
penalty
prescribed for
the offense
Any person
who violates
any
provision of
this Code or
any rule or
regulation
promulgated
by
the
Department
of
Finance
for which no
specific
penalty
is
provided by
law
Any
taxpayer,
whose
property has
been placed
under
constructive
distraint
Fine: not more

than P 1,000
or
Imprisonment:
not more than
6 months, or
both
Fine: not less

than twice the
value of the
property
but
not less than P
5,000
or
Imprisonment:
2 yrs 1 day - 4
yrs or both
Remedies
Taxation Law 2
277
278
3.
Failure to
Surrender
Property
Placed
under
Distraint
and Levy
Procuring
Unlawful
Divulgenc
e of Trade
Secrets
Any person
having in his
possession
or under his
control any
property or
rights
to
property,
upon which
a warrant of
constructive
distraint or
actual
distraint and
levy
has
been issued
Any person
who causes
or procures
an officer or
employee of
the Bureau
of
Internal
Revenue to
divulge any
confidential
information
regarding
the
business,
income
or
inheritance
of
any
taxpayer,
knowledge
of which was
acquired by
him in the
discharge of
his
official
duties, and
which it is
unlawful for
him
to
reveal, and
any person
who
publishes or
prints in any
manner
whatever,
not provided
by law, any
income,
profit,
loss
or
expenditure
appearing in
any income
tax return
Fine: not more

than P 2,000
or
Imprisonment:
6 months - 5
years, or both
Penalties Imposed on Public Officers

The law imposes a fine of not less than
P50,000 nor more than P100,000 or
imprisonment for not less than 10 years nor
more than fifteen years on every official,
agent or employee of the BIR or of any
agency or employee of the Government
charged with the enforcement of the Tax
Code, who shall:
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Fine: P 5,000
or more or
Imprisonment:
6 months 1
day - 2 years,
or both
a)
extort or willfully oppress under color of

law;
b)
knowingly demand other or greater sums

than are authorized by law or receive any
fee, compensation or reward, except as by
law prescribed, for the performance of any
duty;
c)
willfully neglect to give receipts, as by law

required, for any sums collected in the
performance of duty, or who willfully
neglect to perform any of the duties
enjoined by law;
d)
conspire or collude with another or others

to defraud the revenues or otherwise
violate the law;
e)
willfully make opportunity for any person to

defraud the revenues, or who do or omit to
do any act with intent to enable any other
person to defraud the revenues;
f)
negligently or by design permit the

violation of the law by any other person;
g)
make or sign any false certificate or return

in any case where the law requires the
making by them of such entry, certificate
or return;
h)
having knowledge or information of a

violation of any provision of the Code or of
any fraud committed on the revenues
collectible by the BIR, fail to report such
knowledge or information to their superior
officer, or to report as otherwise required
by law; or
i)
without the authority of law, demand or

accept or attempt to collect, directly or
indirectly, as payment or otherwise, any
sum of money or other thing of value for
the compromise, adjustment or settlement
of any charge or complaint for any violation
or alleged violation of law. (235)
VII. COMPLIANCE REQUIREMENTS

What records are required to be kept by
taxpayers?
(1) taxpayers with gross quarterly sales,
earnings, receipts or output of P50,000 or
less
a simplified form of bookkeeping
records duly authorized by the Secretary of
Finance, wherein all transactions and results
of operations are shown and from which all
taxes due may be readily and accurately
ascertained and determined at ant time of
the year. (232)
earnings, receipts or output exceeding
P50,000 but not more than P150,000 a
journal and ledger or their equivalent. (232)
Remedies
Taxation Law 2
1.

earnings, receipts or output
exceeding
P150,000 books of accounts, examined
and audited by an independent CPA and their
income tax return shall be accompanied by
certified balance sheets
profit and loss statements
list of income-producing properties

and other relevant data (232)
NOTES:
Taxpayers may also keep other subsidiary

books at their option, as the needs of their
business may require. If subsidiary books
are kept, they shall form part of the
accounting system of the taxpayer. (233)
Books or records shall be kept in a native

language, English or Spanish. The keeping
of books and records in any language other
than the three mentioned is prohibited,
unless the taxpayer makes a true and
complete translation of all the entries in the
said books and records. (234)
All the books and records shall be kept by

the taxpayer until the period for making an
assessment under Sections 203 and 222
have prescribed. (235)
Examination and inspection of all books and

records shall be made only once in a taxable
year, EXCEPT in these cases:
Fraud, irregularity or mistakes, as
determined by the Commissioner
The
taxpayer
requests
reinvestigation
Verification of compliance with
withholding tax laws and regulations
Verification of capital gains tax
liabilities
In
the
exercise
of
the
Commissioners power to issue an
access letter. (235)
Who are required to register with the BIR?
Every person subject to any internal revenue tax
shall register once with the appropriate Revenue
District Officer:
Within ten (10) days from date of employment,
or
On or before the commencement of business,
or
Before payment of any tax due, or
Upon filing of a return, statement or declaration
as required under the Code (236)
What shall the BIR do after the taxpayer
registers?
The BIR shall assign a Taxpayer Identification
Number (TIN) which the taxpayer shall indicate in
every return, statement or document filed with
the BIR. Only one TIN shall be given a person.
Any person who secures more than one TIN shall
be criminally liable. (236)
VIII. INFORMERS REWARD (Sec. 282 of the NIRC)
To whom given persons instrumental in the

discovery of violations of the NIRC and in
discovery and seizure of smuggled goods.
Conditions to qualify for the reward:
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2.
Person is not an internal revenue official or

employee, public official, or employee or
relative within 6 th degree of consanguinity
Voluntarily gives definite and sworn
information:
a) Not yet in the possession of BIR
b) Leading to discovery of frauds
c) Resulting in:
i.
the
recovery
of
revenues,
surcharges and fees and/or
ii. conviction of the guilty party.
d) Not refer to a case already pending
or
previously
investigated
or
examined by the Commissioner or
his agents or the SOF or his agents.
Amount of reward: 10% of the revenues,

surcharges
or
fees
recovered
and/or
fine/penalty imposed, or P1,000,000, whichever
is LOWER.
The same amount shall be given if the

offender offered to compromise and such
offer has been accepted and collected by
the Commissioner.
If no revenue, surcharge or fees be

actually collected, such person is not
entitled to a reward
For discovery and seizure of SMUGGLED

GOODS The cash reward is 10% of the
FMV of the smuggled and confiscated
goods, or P1,000,000, whichever is
LOWER.
The cash rewards shall be subject to income
TAX at the rate of 10%.
Rule of construction Statutes offering
rewards must be liberally construed in favor of
informers and with regard to the purpose for
which they are intended, with mere technicality
yielding to the substantive purpose of the law.
[Penid v. Virata]
IX.
PROBLEMS
1.
Mr. Sebastian is a Filipino seaman employed

by a Norwegian company which is engaged
exclusively in international shipping. He and
his wife, who manages their business, filed a
joint income tax return for 1997 on 15 March
1998. After an audit of the return, the BIR
issued on 20 April 2001 a deficiency income
tax assessment for the sum of P250,000
inclusive of interest and penalties. For failure
of the couple to pay the tax within the period
stated in the notice of assessment, the BIR
issued on 19 August 2001 a warrant of
distraint and levy to enforce collection of the
tax. If you are the lawyer of the couple, what
possible defense or defenses will you raise in
behalf of your clients against the action of the
BIR in enforcing collection of the tax by the
summary remedies of warrants of distraint
and levy? Explain your answer. (2002 Bar)
Answer:
I will raise the defense of
prescription. The right of the BIR to assess
prescribes after three years from the last day
prescribed by law for filing the return. The
Remedies
Taxation Law 2
amount actually remitted by the withholding
agent. Since the amount assessed relates to
deficiency withholding taxes, the BIR is
correct in issuing the assessment and
demand letter calling for the immediate
payment of the deficiency withholding taxes.
Moreover, the special civil action for
prohibition will not prosper, because the CTA
has no jurisdiction to entertain the same.
The power to issue writ of injunction provided
for under Section 11 of RA 1125 is only
ancillary to its appellate jurisdiction. The CTA
is not vested with original jurisdiction to issue
writs
of
prohibition
or
injunction
independently of and apart from an appealed
case. The remedy is to appeal the decision of
the BIR (Collector vs. Yuseco 3 SCRA 313)
last day for filing the 1997 ITR is on 15 April

1998. Since 20 April 2001 is more than 3
years from that date, BIRs right to assess
had already prescribed.
2.
TY Corporation filed its final adjusted IT

return for 1993 on 12 April 1994 showing a
net loss from operations. After investigation,
the BIR issued a pre-assessment notice on 30
March 1996. A final notice and demand letter
dated 15 April 1997 was issued, personally
delivered to and received by the companys
chief accountant.
For willful refusal and
failure of TY Corporation to pay the tax,
warrants of distraint and levy on its
properties issued and served upon it. On 10
January 2002, a criminal charge for violation
of the Tax Code was instituted in the RTC
with the approval of the Commissioner. The
company moved to dismiss the complaint on
the ground that an act for violation of any
provision of the Tax Code prescribes after five
years and in this case, the period commenced
to run on 30 March 1996 when the PAN was
issued. How will you resolve the motion?
(2002 Bar)
4.
Answer: The MTD should not be granted. It

is only when the assessment has become
final and unappealable that the 5-year period
to file a criminal action commences to run.
The PAN is not a final assessment which is
enforceable by the BIR. IT is the issuance of
the final notice and demand letter dated 15
April 1997 and the failure of the taxpayer to
protest within 30 days from receipt that made
the assessment final and unappealable. The
earliest date that the assessment has become
final is 16 May 1997, and since the criminal
charge was instituted on 10 January 2002,
the same was timely filed.
3.
In the investigation of the withholding tax

returns of AZ Medina Security Agency for the
taxable years 1997 and 1998, a discrepancy
between the taxes withheld from its
employees and the amounts actually remitted
to the government was found. Accordingly,
before the period of prescription commenced
to run, the BIR issued an assessment and a
demand letter calling for the immediate
payment of the deficiency withholding taxes
in the total amount of P250,000. Counsel for
AZ Medina protested the assessment for
being null and void on the ground that no
PAN had been issued. However, the protest
was denied. Counsel then filed a petition for
prohibition with the CTA to restrain the
collection of the tax. Is the contention of the
counsel tenable? Will the special civil action
for prohibition brought before the CTA under
Sec. 11 of RA 1125 prosper? Discuss your
answer. (2002 Bar)
Answer: No, the contention of the counsel is
untenable.
Section 228 of the Tax Code
expressly provides that no PAN shall be
required when a discrepancy has been
determined between the tax withheld and the
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Mr. Chan, a manufacturer of garments, was

investigated for failure to file tax returns and
to pay taxes for the taxable year 1997.
Despite subpoena duces tecum issued to him,
he refused to present and submit his books of
accounts and allied records. Investigators,
therefore, raided his factory and seized
several bundles of manufactured garments,
supplies
and
unpaid
imported
textile
materials. After his apprehension and based
on the testimony of a former employee,
deficiency income and business taxes were
assessed against Mr. Chan on April 15, 2000.
It was then that he paid the taxes. Criminal
action was nonetheless instituted against him
in the RTC for violation of the Tax Code. Mr.
Chan moved to dismiss the criminal case on
the ground that he had already paid the taxes
assessed against him. He also demanded the
return of the garments and materials seized
from his factory. How will you resolve Mr.
Chans motion? (2002 Bar)
Answer: The MTD should be denied. The
satisfaction of the civil liability is not one of
the grounds for the extinction of criminal
action. Likewise, the payment of the tax due
after apprehension shall not constitute a valid
defense in any prosecution for violation of
any provision of the Tax Code (Sec. 253a).
However, the garments and materials seized
from the factory should be ordered returned
because the payment of the tax had released
them from any lien that the Government has
over them.
5.
A taxpayer is suspected not to have declared

his correct income in the return filed for
1997.
The examiner requested the
Commissioner to authorize him to inquire into
the bank deposits of the taxpayer so that he
could proceed with the net worth method of
investigation to establish fraud.
May the
examiner be allowed to look into the
taxpayers bank deposits? (2000 Bar)
Answer: NO, as this would be violative of
RA 1405, the Bank Secrecy Law.
The
Commissioner or his representative is allowed
to inquire into the bank deposits of a
taxpayer only in these three cases:
Remedies
Taxation Law 2
-
6.
For the purpose of determining the

gross estate of a decedent
Where the taxpayer has filed an
application for compromise of his tax
liability on the ground of financial
incapacity
Where the taxpayer has signed a
waiver authorizing the Commissioner
to inquire into his bank deposits
A Co. a Philippine corporation, is a big

manufacturer of consumer goods and has
several suppliers of raw materials. The BIR
suspects that some of the suppliers are not
properly reporting their income on sales to A
Co. The CIR therefore:
Issued an access letter to A Co. to
furnish the BIR with information on
sales and payments to its suppliers
Issued an access letter to X bank to
furnish the BIR on deposits of some
suppliers of A C. on the alleged ground
that the suppliers are committing tax
evasion.
A Co., X Bank and the suppliers have not
been issued by the BIR letter of authority to
examine. A Co. and X Bank believe that the
BIR is on a fishing expedition and come to
you for counsel. What is your advice? (2000
Bar)
Answer: I will advise A Co. and X Bank that
the BIR is justified only in getting information
from the former but not from the latter. The
BIR is authorized to obtain information from
other persons other than those whose tax
liability is subject to audit or investigation.
However, this power shall not be construed
as granting the Commissioner the authority
to inquire into bank deposits. (Section 5,
NIRC)
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Local Taxation
Taxation Law 2
LOCAL TAXATION
III. BASIC CONCEPTS
A.
B.
Scope of Local Taxation The provisions

in LGC shall govern the exercise by
PROVINCES, CITIES, MUNICIPALITIES, and
BARANGAYS of their taxing and other
revenue-raising powers. (Sec 128 LGC)
C.
Power to Create Sources of Revenue -Each local government unit shall exercise its
power to create its own sources of revenue
and to levy taxes, fees, and charges subject
to the provisions herein, consistent with the
basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively
to the local government units. (SEC. 129,
LGC)
Fundamental Principles -- The following
fundamental principles shall govern the
exercise of the taxing and other revenueraising powers of local government units:
(a) Taxation shall be uniform in each local
government unit;
NOTE: the uniformity required is only
within the territorial jurisdiction of an
LGU. (IRR)
(b) Taxes,
fees,
charges
and
other
impositions shall:
(1) be equitable and based as far as
practicable on the taxpayer's ability
to pay;
(2) be levied and collected only for
public purposes;
be
unjust,
excessive,
(3) not
oppressive, or confiscatory;
(4) not be contrary to law, public
policy, national economic policy, or
in the restraint of trade;
(c) The collection of local taxes, fees,
charges and other impositions shall in no
case be let to any private person;
(d) The revenue collected pursuant to the
provisions of this Code shall inure solely
to the benefit of, and be subject to
the
disposition
by,
the
local
government unit levying the tax, fee,
charge or other imposition unless
otherwise specifically provided herein;
and,
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E.
Local Government Unit - 1987 CONSTI,

ART X, SECTION 1.
The territorial and political subdivisions of the
Republic of the Philippines are the provinces,
cities, municipalities, and barangays. There
shall be autonomous regions in Muslim
Mindanao and the Cordilleras as hereinafter
provided.
D.
(e) Each local government unit shall, as far

as practicable, evolve a progressive
system of taxation. (SEC. 130, LGC)
Local Taxing Authority. - shall be

exercised by the SANGGUNIAN of the local
government unit concerned through an
appropriate ordinance. (SEC. 132, LGC)
HOWEVER, the local chief executive of the
LGUs
(except
the
punong
barangay)
possesses veto powers, as laid out in Sec. 55
of the LGC:
SEC. 55. Veto Power of the Local Chief
Executive.
(a) The local chief executive may veto any
ordinance
of
the
sangguniang
panlalawigan, sangguniang panlungsod, or
sangguniang bayan on the ground that it is
ultra vires or prejudicial to the public
welfare, stating his reasons therefor in
writing.
(b) The local chief executive, except the
punong barangay, shall have the power to
veto any particular item or items of an
appropriations ordinance, an ordinance or
resolution adopting a local development
plan and public investment program, or an
ordinance directing the payment of money
or creating liability. In such a case, the
veto shall not affect the item or items
which are not objected to. The vetoed item
or items shall not take effect unless the
sanggunian overrides the veto in the
manner herein provided; otherwise, the
item or items in the appropriations
ordinance
of
the
previous
year
corresponding to those vetoed, if any, shall
be deemed reenacted.
(c) The local chief executive may veto an
ordinance or resolution only once. The
sanggunian may override the veto of the
local chief executive concerned by twothirds (2/3) vote of all its members,
thereby making the ordinance effective
even without the approval of the local chief
executive concerned.
IV. Common Limitations on the Taxing Powers

of Local Government Units (Sec 133)
Unless otherwise provided, the exercise of the
taxing powers of provinces, cities, municipalities,
and barangays shall NOT EXTEND to the levy of
the following:
(a) Income tax, except when levied on
banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts,
legacies and other acquisitions mortis
causa, except as otherwise provided
herein;
Local Taxation
Taxation Law 2
(d) Customs duties, registration fees of
vessel and wharfage on wharves,
tonnage dues, and all other kinds of
customs fees, charges and dues except
wharfage on wharves constructed and
maintained by the LGU concerned;
(e) Taxes, fees, and charges and other
impositions upon goods carried into or
out of, or passing through, the
territorial
jurisdictions
of
local
government units in the guise of charges
for wharfage, tolls for bridges or
otherwise, or other taxes, fees, or
charges in any form whatsoever upon
such goods or merchandise;
(f)
Taxes, fees or charges on agricultural

and aquatic products when sold by
marginal farmers or fishermen;
(g) Taxes on business enterprises certified

to by the Board of Investments as
pioneer or non-pioneer for a period of
six (6) and four (4) years, respectively
from the date of registration;
(h) Excise taxes on articles enumerated
under the NIRC, as amended, and taxes,
fees or charges on petroleum products;
(i)
Percentage or VAT on sales, barters or

exchanges or similar transactions on
goods or services except as otherwise
provided herein;
(j)
Taxes on the gross receipts of

transportation contractors and persons
engaged in the transportation of
passengers or freight by hire and
common carriers by air, land or water,
except as provided in this Code;
(k) Taxes on premiums paid by way or

reinsurance or retrocession;
(l)
Taxes, fees or charges for the

registration of motor vehicles and for the
issuance of all kinds of licenses or
permits for the driving thereof, except
tricycles;
(m) Taxes, fees, or other charges on

Philippine
products
actually
exported, except as otherwise provided
herein;
(n) Taxes, fees, or charges, on Countryside
and Barangay Business Enterprises and
cooperatives duly registered under the
"Cooperative Code of the Philippines";
and
(o) Taxes, fees or charges of any kind
on the National Government, its
agencies and instrumentalities, and
local government units.
V.
Specific Provisions on the Taxing and Other

Revenue-Raising Powers of LGUs
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TAX
A. PROVINCES
Tax on Transfer of
Real
Property
Ownership
- tax on sale, donation
or on any other mode
of
transferring
ownership
NOTE:
sale, transfer or
other disposition
pursuant to RA
6657 shall be
EXEMPT
from
this tax.
the Register of
Deeds
shall
require
the
presentation
of
evidence
of
payment of this
tax,
BEFORE
registering
any
deed.
the
Provincial
Assessor
shall
also make the
same
requirement
BEFORE
cancelling an old
tax
declaration
and issuing a
new one.
it shall be the
DUTY of the
seller,
donor,transfer
or,executor/ad
minis-trator to
pay
the
tax
herein imposed
within 60 days
from the date
of execution of
the
deed or
from the date
of
decedents
death.
TAX RATE AND TAX

BASE
Not more than fifty
percent (50%) of the
one percent (1%) of
the
total
consideration
involved
in
the
acquisition
of
the
property or of the
fair market value in
case the monetary
consideration
involved
in
the
transfer
is
not
substantial,
whichever is higher
NOTE: the FMV used
here shall be that
reflected
in
the
prevailing schedule of
FMVs enacted by the
sanggunian concerned.
(IRR)
Local Taxation
Taxation Law 2
Tax on Business of
Printing
and
Publication
- imposed on business
of persons engaged in
the
printing
and/or
publication of books,
cards, posters, leaflets,
handbills, certificates,
receipts,
pamphlets,
and others of similar
nature
In the case of a
newly started business
and
- In the succeeding
calendar
year,
regardless of when
the business started
to operate
NOTE:
receipts from
the
printing
and/or
publishing of books or
other reading materials
prescribed by DECS
as school texts or
references shall be
EXEMPT from this tax.
Franchise Tax
imposed
on
businesses enjoying
a
franchise
(notwithstanding
any
exemption granted by
any law or other special
law)
business enjoying a
franchise shall not
include
holders
of
certificates of public
convenience for the
operation
of
public
for
utility
vehicles
reason
that
such
certificates are NOT
considered
as
franchises. (IRR)
In the case of a
newly started business
and
- In the succeeding
calendar
year,
regardless of when
the business started
to operate
Tax on Sand, Gravel
and
Other Quarry
Resources
NOTE: The permit to
extract sand, gravel
and
other
quarry
resources
shall
be
issued EXCLUSIVELY by
provincial
the
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Not
exceeding
fifty
percent (50%) of one
percent (1%) of the
gross annual receipts
for
the
preceding
calendar year
Not
exceed
onetwentieth (1/20) of one
percent (1%) of the
capital investment
Based on the gross
for
the
receipts
preceding
calendar
year, or any fraction
thereof
Not
exceeding
fifty
percent (1%) of the
gross annual receipts
for
the
preceding
calendar year based on
the incoming receipt, or
realized,
within
its
territorial jurisdiction
Not
exceed
onetwentieth (1/20) of one
percent (1%) of the
capital investment
Based on the gross
for
the
receipts
preceding
calendar
year, or any fraction
thereon
Not more than ten

percent (10%) of FMV
in the locality per
of
cubic
meter
ordinary stones, sand,
gravel, earth, and other
quarry
resources,
extracted from public
governor,
pursuant
to the ordinance of
the
sangguniang
panlalawigan.
lands or from the beds

of seas, lakes, rivers,
streams, creeks, and
other public waters
within
its
territorial
jurisdiction
Local Taxation
Taxation Law 2
Professional Tax
on
each
person
engaged in the exercise
or
practice
of
his
profession
requiring
government
examination (ie bar or
any
board
exam
conducted by PRC)
NOTE:
Where to pay the

tax?
a.)
where he
practices
his
profession;
or
b.)
where he
maintains
his
principal
office
in
case
he
practices in
several
places
PROVIDED, that
such person who
has
paid
the
professional tax
shall be entitled
to practice his
profession in any
part of the Phil
without
being
subjected to any
other national or
local tax, license,
or fee for the
practice of such
profession.
Any
employer
employing
a
person subject to
this
tax
shall
require
such
payment BEFORE
the employment
and
annually
thereafter.
A
line
of
profession does
NOT
become
exempt even if
conducted with
some
other
profession
for
which the tax
has been paid.
Professionals
EXCLUSIVELY
employed
in
the
government
shall
be
EXEMPT.
Amusement Tax
- collected from the
proprietors, lessees, or
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At such amount and

reasonable
classification
as
the
sangguniang
panlalawigan
may
determine but shall
in no case exceed
Three hundred pesos
(P300.00)
at a rate of not more

than
thirty
percent
operators of theaters,
cinemas, concert halls,
circuses, boxing stadia,
and other places of
amusement
NOTE:
In
case
of
theaters
or
cinemas, the tax
shall
first
be
deducted
and
withheld by their
proprietors,
lessees
or
operators
and
paid
to
the
provincial
treasurer
BEFORE
the
gross
receipts
are
divided
between
said
proprietors,
lessees,
or
operators,
and
distributors
of
cinematographic
films.
The holding of
operas, concerts,
dramas, recitals,
painting and art
exhibitions,
flower
shows,
musical
programs,
literary
and
oratorical
presentations,
EXCEPT
pop,
rock or similar
concerts shall be
EXEMPT
from
this tax.
(30%) of the
receipts
admission fees.
gross
from
Local Taxation
Taxation Law 2
Annual Fixed Tax For
Every Delivery Truck
or
Van
of
Manufacturers
or
Producers,
Wholesalers
of,
Dealers, or Retailers
in, Certain Products
- for every truck, van
or any vehicle used by
manufacturers,
producers, wholesalers,
dealers or retailers in
the
delivery
or
distribution of distilled
spirits,
fermented
liquors,
soft
drinks,
cigars and cigarettes,
and other products as
may be determined by
the
sangguniang
panlalawigan, to sales
outlets, or consumers,
whether directly or
indirectly, within the
province
NOTE:
the
manufacturers,
producers, wholesalers,
dealers and retailers
referred above shall be
EXEMPT from the tax
on peddlers described
elsewhere in LGC.
B. MUNICIPALITIES
SCOPE
municipalities
may
levy taxes, fees, and
not
charges
otherwise levied by
(SEC.
provinces.
142,LGC)
Tax on Business
1. On manufacturers,
assemblers, repackers,
processors,
brewers,
distillers, rectifiers, and
compounders of liquors,
distilled
spirits, and
wines or manufacturers
any article of
of
commerce
of
whatever
kind
or
nature, in accordance
with the schedule (refer
to Sec 143)
NOTE: the rates in Sec
143 (a) shall apply
ONLY to amount of
DOMESTIC
sales.
(IRR)
2.
On
wholesalers,
distributors, or dealers
article of
in any
commerce
of
whatever
kind
or
nature in accordance
with the schedule (Sec
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in an amount not
exceeding Five hundred
pesos (P500.00)
Not exceeding one-half

()
of
the
rates
prescribed
under
subsection (a), (b) and
(d) of Sec 143
Local Taxation
Taxation Law 2
143 again)
3. On exporters, and
on
manufacturers
,
millers,
producers,
wholesalers,
distributors, dealers or
retailers of essential
commodities -- such
as:
(1) Rice and corn;
(2) Wheat or cassava
flour, meat, dairy
products,
locally
manufactured,
processed
or
preserved
food,
sugar, salt and
other agricultural,
marine, and fresh
water
products,
whether in their
original state or
not;
(3) Cooking oil and
cooking gas;
(4) Laundry
soap,
detergents,
and
medicine;
(5) Agricultural
implements.
equipment
and
post-harvest
facilities,
fertilizers,
pesticides,
insecticides,
herbicides
and
other farm inputs;
(6) Poultry feeds and
other
animal
feeds;
(7) School
supplies;
and
(8) Cement.
4. On retailers:
With gross sales or
for
the
receipts
preceeding CY of:
P400,000 or less
More
than
P400,000
Provided,
however,
That barangays shall
have the exclusive
power to levy taxes,
as
provided
under
Section 152 hereof, on
gross sales or receipts
of
the
preceding
calendar
year
of
P50,000 or less, in the
case of cities, and
P30,000 or less, in the
case of municipalities.
5. On contractors and
other
independent
contractors
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6. On banks and other

financial institutions
per annum
2%
1%
NOTE:
all
other
income and receipts of
banks
and
financial
intitutions
NOT
otherwise enumerated
shall
be
()
EXCLUDED from the
taxing authority of
the LGU.(IRR)
7. On peddlers engaged
in the sale of any
merchandise
or
article of commerce
in accordance with the
schedule (Sec 143)
Not
exceeding
fifty
percent (1%) on the
gross receipts of the
preceding calendar year
derived
from
interest,
commissions
and
discounts
from
lending
activities,
income
from
financial
leasing,
dividends, rentals on
property and profit
from exchange or
sale
of
property,
insurance premium.
Not
exceeding
Fifty
pesos
(P50.00)
per
peddler annually.
8. On any business, not

otherwise specified in
the
preceding
paragraphs, which the
sanggunian
concerned may deem
proper
to
tax:
Provided, That on any
business subject to the
excise, value-added or
percentage tax under
the NIRC, as amended,
the rate of tax shall not
exceed two percent
(2%) of gross sales
or receipts of the
preceding
calendar
year. (this is the catchall provision)
NOTE: The sanggunian concerned may prescribe a
schedule of graduated tax rates but in no case to
exceed the rates prescribed in the LGC.
Rates of Tax within the Metropolitan Manila Area
The municipalities within the Metropolitan Manila Area
may levy taxes at rates which shall not exceed by
fifty percent (50%) the maximum rates
prescribed in Sec 143. (SEC. 144, LGC)
Retirement of Business
A business subject to tax pursuant to Sec 143 shall,
upon termination thereof, submit a sworn statement
of its gross sales or receipts for the current year. If
the tax paid during the year be LESS THAN the tax
due on said gross sales or receipts of the current year,
the difference shall be paid before the business is
considered officially retired. (Sec 145)
Payment of Business Taxes
The taxes imposed in sec 143 shall be

payable for EVERY SEPARATE OR DISTINCT
ESTABLISHMENT or PLACE where business
subject to tax is conducted.
One line of businees does NOT become

exempt by being conducted with some other
businesses for which such tax has been paid.
The tax on a business must be paid by the

person conducting the same.
In cases where a person conducts or operates
Local Taxation
Taxation Law 2
2 or more businesses mentioned in Sec 143
a.) which are subject to THE SAME tax rate
tax shall be computed on the
COMBINED
TOTAL
GROSS
SALES/RECEIPTS
b.) which are subject to DIFFERENT tax
rates the gross sales/receipts shall be
SEPARATELY
REPORTED
for
the
computation of taxes.
Condominium corporations are not business

entities, thus not subject to local business
tax. The procurement of profit does not fall
within the scope of permissible corporate
purposes of a condominium corporation under
the Condominium Act. Even though the
corporation
is
empowered
to
levy
assessments or dues from the unit owners,
these amounts are not intended for the
incurrence of profit by the corporation, but to
shoulder the multitude of necessary expenses
for maintenance of the condominium.
[YAMANE vs. LEPANTO CONDO CORP.
(October 25, 2005)]
Provided, finally, That the sanggunian concerned shall

have the authority to prosecute any violation of the
provisions of applicable fishery laws.
C. CITIES
SCOPE --- Except as otherwise provided in this Code,
the city, may levy the taxes, fees, and charges
which the province or municipality may impose:
Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and
independent component cities shall accrue to them
and distributed in accordance with the provisions of
LGC.
NOTE: The rates of taxes that the city may levy may
exceed the maximum rates allowed for the
province or municipality by not more than fifty
percent (50%) except the rates of professional and
amusement taxes.
IRR:
Fees and Charges

GENERAL:
The municipality may impose and collect such

reasonable fees and charges on business and
occupation and on the practice of any profession or
commensurate
with
the
cost
of
calling,
regulation, inspection and licensing BEFORE any
person may engage in such business or occupation, or
practice such profession or calling.
SPECIFIC:
1. For Sealing and Licensing of Weights and Measures.
at such reasonable rates as shall be prescribed by
the sangguniang bayan.
2. Fishery Rentals, Fees and Charges.
Municipalities shall have the exclusive authority to
grant fishery privileges in the municipal waters
and impose rentals, fees or charges thereon.
The sangguniang bayan may:
(1) Grant fishery privileges to erect fish corrals,
oysters, mussels or other aquatic beds or
bangus fry areas, within a definite zone of
the municipal waters, as determined by it
(2) Grant the privilege to gather, take or catch
bangus fry, prawn fry or kawag-kawag or
fry of other species and fish from the
municipal waters by nets, traps or other
fishing gears to marginal fishermen free of
any rental, fee, charge or any other
imposition whatsoever.
(3) Issue licenses for the operation of fishing
vessels of three (3) tons or less
Provided, however, That the sanggunian concerned
shall, by appropriate ordinance, penalize the use of
explosives,
noxious
or
poisonous
substances,
electricity, muro-ami, and other deleterious methods
of fishing and prescribe a criminal penalty therefor in
accordance with the provisions of the LGC
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The city may levy and collect a percentage

tax on ANY business NOT otherwise
specified in the LGC or the IRR, at rates
NOT exceeding 3% of the gross sales or
receipts of the preceding calendar year.
The rates of the following taxes shall be
uniform for the city and the province:
a. Professional tax shall not exceed
P300
b. Amusement tax the rate shall
not be more than 30% of the
gross receipts from admission fees
The proceeds of the tax on sand, gravel, and

other quarry resources in highly-urbanised
cities shall be distributed as follows:
highly urbanised city
60%
barangay where the sand, gravel, etc are
extracted
40%
D. BARANGAYS
SCOPE --- The barangays may levy taxes, fees, and
charges, as provided in this Article, which shall
exclusively accrue to them:
(a) Taxes - On stores or retailers with fixed
business establishments at a rate not
exceeding one percent (1%) on such gross
sales or receipts.
IN CASE OF CITIES -- with gross sales

or receipts of the preceding calendar
year
of
Fifty
thousand
pesos
(P50,000.00) or less
IN CASE OF MUNICIPALITIES with

gross sales or receipts of Thirty
thousand pesos (P30,000.00) or less
(b) Service Fees or Charges - Barangays may
collect reasonable fees or charges for
services rendered in connection with the
regulations or the use of barangay-owned
properties or service facilities such as palay,
copra, or tobacco dryers.
(c) Barangay Clearance - No city or municipality
may issue any license or permit for any
business or activity unless a clearance is first
obtained from the barangay where such
business or activity is located or conducted.
Local Taxation
Taxation Law 2
For
such
clearance,
the
sangguniang
barangay may impose a reasonable fee.
(d) Other fees and Charges. - The barangay
may levy reasonable fees and charges:
(1) On commercial breeding of fighting cocks,
cockfights and cockpits;
(2) On places of recreation which charge
admission fees; and
NOTE: places of recreation include
places of amusement where one seeks
admission to entertain himself by seeing or
viewing the show or performance or those
where one amuses himself by direct
participation.
(3) On billboards, signboards, neon signs,
and outdoor advertisements.
QUICK GLANCE
TYPE OF TAX
Sec. 135 Tax on
Transfer of Real
Property
Ownership
Sec. 136 Tax on
Business
of
Printing
and
Publication
Sec.
137
12
Franchise Tax
Sec. 138 Tax on
Sand, Gravel and
Other
Quarry
13
Resources
Sec.
139
Professional Tax
Sec.
140
Amusement Tax
Sec. 141 Annual
Fixed
Tax
For
Every
Delivery
Truck or Van of
Manufacturers
or
Producers,
Wholesalers
of,
Dealers,
or
Retailers
in,
Certain Products
Sec. 143 Tax on
Business
Sec. 147 Fees
and charges on
regulation/licensing
of business and
occupation (except
professional taxes)
Sec. 148 Fees for
Sealing
and
Licensing
of
Weights
and
Measures
Sec. 149 Fishery
Rentals, Fees and
Charges
Sec.
156
Community Tax
Sec. 152(a) Tax
on Gross Sales or
Receipts of SmallScale
Stores/Retailers
Sec.
152(b)
Service Fees on
the
use
of
Barangay-owned
properties
Sec.
152(c)
Barangay
Clearance
Sec.
152(d)
Other Fees and

Charges
(on
commercial
breeding of fighting
cocks, cockfights,
cockpits; places of
recreation
which
charge admission
fees; outside ads)
Sec. 153 Service
PROVINCE
X
MUNICIPALITY
CITY
X
BARANGAY
X
X
XX
Legend:
X Authorized to impose the tax
XX Only if the municipality is within the Metro
Manila Area
VI. SITUS OF TAX
RULE 1: In case of persons maintaining/operating a
branch or sales outlet making the sale or transaction,
the tax shall be recorded in said branch or sales
outlet and paid to the municipality/city where
the branch or sales outlet is located.
RULE 2: Where there is NO branch or sales outlet in
the city/municipality where the sale is made, the sale
shall be recorded in the principal office and the tax
shall be paid to such city/municipality.
Illustration of Rule 1 to 3:
A company has a principal office in Mandaluyong,
while its sales office and factory are in Sta Rosa
sales made in Sta Rosa, will be recorded
in Sta Rosa
sales made in Los Baos, Calamba or
Cabuyao (ie delivered to customers
located in those places), will be recorded
in Mandaluyong
aside from sales made in Sta Rosa, Sta
Rosa also gets 70% of sales recorded in
Mandaluyong, pursuant to Rule 3
RULE 3: In the case of manufacturers, contractors,

producers, and exporters having factories, project
offices, plants, and plantations, the ff sales
allocation shall be observed:
30% of sales recorded in the principal office

shall be made taxable by the city/municipality
where the principal office is located
70% shall be taxable by the city/municipality

where the factory, project office, plant,
or plantation is located
Fees and Charges

Sec. 154 Public
14
Utility Charges
Sec. 155 Toll
15
Fees or Charges
Sec. 232 Real
Property Tax
RULE 4: In case the plantation is located in a place

other than the place where the factory is located, the
70% portion in Rule 3 will be divided as follows:
60% to the city/municipality where the

factory is located
40% to the city/municipality where the

plantation is located
RULE 5: In case of 2 or more factories, plantations,
etc in different localities, the 70% shall be prorated
where
the
factories,
among
the
localities
plantations, etc are located in proportion to their
respective volume of production.
NOTE:
In case of manufacturers or
producers which engage the services of an
independent contractor to produce or
12
The franchise tax provided in Sec. 137 is intended to be in addition to the franchise
tax imposed by the National Government. (de Leon, p. 463)
13
Note that under Sec. 138, the proceeds of this tax are allocated as follows:
(1) Province - Thirty percent (30%);
(2) Component city or municipality where the sand, gravel, and other
quarry resources are extracted - Thirty percent (30%); and
(3) barangay where the sand, gravel, and other quarry resources are
extracted - Forty percent (40%).
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14
Applies to public utilities operated and maintained by them within their jurisdiction.
15
Applies to the use of any public road, pier, wharf, waterway, bridge, ferry or
telecommunication system funded and constructed by the local government unit
concerned. Exemptions: (1) officers and enlisted men of the Armed Forces of the
Philippines and members of the Philippine National Police on mission, (2) post office
personnel delivering mail, (3) physically-handicapped, and (4) disabled citizens who are
sixty-five (65) years or older.
Local Taxation
Taxation Law 2
(30) consecutive working days during
any calendar year, OR
Who is engaged in business or
occupation, OR
Who owns real property with an
aggregate assessed value of P1,000 or
more, OR
Who is required by law to file an
income tax return
o
shall pay
an annual community tax of Five

pesos (P5.00) AND
an annual additional tax of One

peso (P1.00) for every One thousand
pesos
(P1,000.00)
of
income
regardless of whether from business,
exercise of profession or from
property which in no case shall
exceed Five thousand pesos
(P5,000.00).
manufacture some of their products, these

rules shall apply except that the factory or
plant and warehouse of the contractor utilised
for the production and storage of the
manufacturers products shall be considered
as the factory or plant and warehouse of the
manufacturer. (IRR)
NOTE: The city or municipality where
the port of loading is located shall not levy
and collect the reasonable fees unless the
exporter maintains in said city or municipality
its principal office, a branch, sales office, or
warehouse, factory, plant or plantation in
which case, the rule on the matter shall apply
accordingly. (IRR)
VII. COMMON REVENUE-RAISING POWERS
A.
Service fees and charges -- LGUs may

impose such reasonable fees and charges for
services rendered.
B.
Public Utility charges LGUs may fix the

rates for the operation of public utilities
owned, operated and maintained by them
within their jurisdiction.
C.
Toll fees or charges LGUs, thru their

sanggunian concerned, may fix the rates for
the imposition of toll fees or charges for the
use of any public road, pier, or wharf,
waterway, bridge, ferry or telecommunication
system funded and constructed by the
LGU.
NOTE: In the case of husband and wife,

EACH shall pay the basic tax of P5.00; but
the additional tax herein imposed shall be
based upon the total property owned by
them and the total gross receipts or
earnings derived by them.
2. Juridical Persons -- every corporation no
matter how created or organized,
whether domestic or resident foreign,
engaged in or doing business in the
Philippines
shall pay
o
an annual community tax of Five
hundred pesos (P500.00) AND
o
an annual additional tax, which, in
no case, shall exceed Ten thousand
pesos (P10,000.00) in accordance
with the following schedule:
PROVIDED, that no such toll fees or charges

shall be collected from (1) officers and
enlisted men of AFP and members of PNP on
mission, (2) post office personnel delivering
mail,
(3)
physically-handicapped,
and
disabled citizens who are 65 years or older.
(1) For every P5,000 worth of real property

in the Philippines owned by it during
the preceding year based on the
valuation used for the payment of real
property tax under existing laws, found
in the assessment rolls of the city or
municipality where the real property is
situated P2; AND
When public safety and welfare so requires,

the sanggunian concerned may discontinue
the collection of the tolls, and thereafter the
said facility shall be free and open for public
use.
VIII.
A.
Who may levy
Cities or municipalities may levy a

community tax
NOTE: For purposes of enactment
of a local tax ordinance levying a
community tax, the conduct of a
public hearing shall NO longer be
required.
B.
C.
Who are liable

1.
Individuals -- every inhabitant of the

Philippines eighteen (18) years of age or
over
Who has been regularly employed on a
wage or salary basis for at least thirty
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(2) For every P5,000.00 of gross receipts

or earnings derived by it from its
business in the Philippines during the
preceding year P2.00
NOTE:
The dividends received by a
corporation from another corporation
however shall, for the purpose of the
additional tax, be considered as part of
the gross receipts or earnings of said
corporation.
COMMUNITY TAX
Who are exempted

(1) Diplomatic and consular representatives;
and
(2) Transient visitors when their stay in the
Philippines does not exceed 3 months
D.
Manner of Payment
PLACE OF PAYMENT -- community tax shall

be paid in the place of residence of the
Local Taxation
Taxation Law 2
individual, or in the place where the
principal office of the juridical entity is
located.
TIME OF PAYMENT community tax shall

accrue on the 1st day of January of each
year which shall be paid not later than the
last day of February of each year
if a person reaches 18 or loses the benefit of
exemption
o
ON OR BEFORE the LAST DAY OF JUNE
liable for the tax on the day he
reaches 18 or loses exemption.
o
ON OR BEFORE the LAST DAY OF MARCH
he shall have 20 days to pay the
community
tax
without
becoming
delinquent
persons who become resident of Phil or
reaches 18 or loses exemption ON OR AFTER
the 1ST DAY OF JULY shall NOT be subject
to community tax for that year.
corporations established and organised
o
ON OR BEFORE the LAST DAY OF JUNE
shall be liable for the tax for that year
o
ON OR BEFORE the LAST DAY OF MARCH
shall have 20 days to pay the tax
without becoming delinquent
o
ON OR AFTER the 1ST DAY OF JULY
shall NOT be subject to community tax
for that year
X.
F.
Collecting Authority All local taxes, fees

and charges shall be collected by the
provincial, city, municipal, or barangay
treasurer, or their duly authorised deputies.
G.
Examination of Books The local treasurer

or his deputy duly authorised in writing, may
examine the books, accounts and other
pertinent records of any person, partnership,
corporation, or association in order to
ascertain, assess and collect the correct
amount of tax. Such examination shall be
made during the regular business hours,
ONLY ONCE for every tax period, and shall
be certified to by the examining official.
Civil Remedies (both LGU and taxpayer)

A.
Personal Property Exempt from Distraint

or Levy the following property shall be
EXEMPT from distraint or levy for delinquency
in the payment of any LOCAL tax, fee or
charge:
tools and implements necessarily used

by the deliquent taxpayer in his trade or
employment
one horse, cow, carabao, or other beast

of burden, such as the delinquent
taxpayer may select and necessarily
used by him in his ordinary occupatin
his necessary clothing, and that of all his

family
househld furniture and utensils necessary

for housekeeping and used for that
purpose by the delinquent taxpayer, such
as he may select, of a value not
exceeding P10,000
provisions, including crops, actually

provided for individual or family use
sufficient for 4 months
the professional libraries of doctors,

engineers, (ehem) lawyers and judges
one fishing boat and net, not exceeding

the total value of P10,000 by the lawful
use of which a fisherman earns his
livelihood
any material or article forming part of a

house or improvement of any real
property
B.
Periods of Assessment and Collection of

LOCAL Taxes
Assessment shall be made
GEN RULE:
within 5 years from the date they
become due, and collection shall be made
within 5 years from the date of
assessment by administrative or judicial
action.
EXCEPTION: In case of FRAUD, or INTENT
TO EVADE PAYMENT OF TAX, the same may
be assessed within 10 years from
NOTE: if the tax is not paid within the prescribed

period, there shall be added to the unpaid amount
an interest of 24% per annum from the due dte
until it is paid.
IX. COLLECTION OF TAXES
A.
Tax Period -- unless otherwise provided in

this Code, the tax period of all local taxes,
fees and charges shall be the calendar year.
B.
Manner of Payment -- Such taxes, fees and

charges may be paid in quarterly
installments.
C.
Accrual of Tax -- All local taxes, fees, and

charges shall accrue on the first (1st) day
of January of each year. However, new
taxes, fees or charges, or changes in the
rates thereof, shall accrue on the first
(1st) day of the quarter next following
the effectivity of the ordinance imposing
such new levies or rates.
D.
Time of Payment -- All local taxes, fees,

and charges shall be paid within the first
twenty (20) days of January or of each
subsequent quarter, as the case may be.
(Jan 20, Apr 20, July 20, and Oct 20).
The sanggunian concerned may, for a
justifiable reason or cause, extend the time
for payment of such taxes, fees, or charges
without surcharges or penalties, but only for
a period not exceeding six (6) months.
E.
Surcharges and Penalties
25% surcharge on taxes, fees or

charges NOT paid on time, AND
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interest at the rate NOT exceeding

2% per month of the unpaid taxes,
fees
or
charges
INCLUDING
surcharges, until the amount is fully
paid
NOTE: in no case shall the total
interest exceed 36 months.
Local Taxation
Taxation Law 2
ordinances or revenue measures may be
raised on appeal within 30 days from the
effectivity thereof to the Sec of Justice.
discovery of fraud or intent to evade

payment.
C.
D.
When Running of Prescription of Above

Periods is Suspended The running of the
periods of prescription above shall be
suspended for the time during which:
the treasurer is legally prevented

from making the assessment or
collection
the
taxpayer
requests
for
a
reinvestigation and executes a
waiver in writing before expiration of
the period within which to assess or
collect
the taxpayer is out of the country or

otherwise cannot be located
Protest of Assessment
STEP 1: When the local treasurer finds that
the correct tax has NOT been paid,
he shall issue a NOTICE OF
ASSESSMENT stating the nature of
tax, the amount of deficiency, the
surcharge and interest.
STEP 2: Within 60 days from the receipt
of the notice of assessment, the
taxpayer may file a WRITTEN
PROTEST with the local treasurer;
otherwise, the assessment shall
become final and executory.
STEP 2: The Sec of Justice shall decide

within 60 days from the date of receipt
of the appeal. However, this appeal shall not
have the effect of suspending the effectivity
of the ordinance and the accrual and
payment of the tax levied therein.
STEP 3: Within 30 days after receipt of
the decision or the lapse of the 60-day
period without the Sec of Justice acting
upon the appeal, the aggrieved party may
file appropriate proceedings with a court of
competent jurisdiction.
XI. Miscellaneous Provisions
A.
Power to Levy Taxes, Fees or Charges

GEN RULE: LGU may exercise the power to
levy taxes, fees or charges on
ANY BASE OR SUBJECT not
otherwise
specifically
enumerated in LGC or NIRC.
EXCEPTION:
It must NOT be unjust,
excessive,
oppressive,
confiscatory or contrary to
declared national policy.
B.
Requirements for a Valid Tax Ordinance

1. the ordinance shall only be enacted if
there is a prior public hearing
conducted for the purpose
2. within 10 days after the approval of the
ordinance, it must be published in full
for 3 consecutive days in a newspaper of
local circulation, or if no such newspaper,
it must be posted in at least 2
conspicuous and publicly accessible
places.
STEP 3: The local treasurer shall decide the

protest within 60 days from the
time of filing.
STEP 4: The local treasurer shall issue a
NOTICE either denying the protest
or cancelling wholly or partially the
assessment.
E.
F.
STEP 5: The taxpayer shall have 30 days

from the receipt of notice, or
from the lapse of 60-day period
to appeal with the court of
competent
jurisdiction
(regular
courts);
otherwise,
the
assessment becomes conclusive
and unappealable.
CASE LAW: The requirement of publication in full

for 3 consecutive days is MANDATORY for a tax
ordinance to be valid. The tax ordinance will be
null and void if it fails to comply with such
publication requirement. [COCA-COLA vs. CITY OF
MANILA (June 27, 2006)]
Claim for Refund or Tax Credit
No case or proceeding shall be

maintained in any court for the recovery
of any tax, fee, or charge erroneously or
illegally collected until a WRITTEN
CLAIM for refund or credit has been
filed with the local treasurer.
No case or proceeding shall be

entertained in any court AFTER the
expiration of 2 years from the date
of payment of such tax, or from the
date the taxpayer is entitled to a
refund or credit.
C.
Authority to Adjust Rates LGU shall have

the authority to adjust the tax rates
prescribed in LGC NOT oftener than once
every 5 years, but in no case shall such
adjustment exceed 10% of the rates
fixed.
D.
Authority to Grant Exemption LGU may,

through ordinances, grant tax exemptions,
incentives or reliefs under such terms and
conditions as they may deem necessary.
Remedy for Illegal or Unconstitutional

Tax Ordinance (Sec 187)
Any
question
STEP
1:
constitutionality
or
legality
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on
of
the
tax
XII.Problems
1.
A municipality passed an ordinance imposing

a tax of 1% on the consideration of all sales
or other transfers of title of real property
located within its boundaries. As a property
owner affected by the tax, comment on its
Local Taxation
Taxation Law 2
legality or illegality, and if you disagree with
it, what are your remedies, administrative
and judicial?
Answer: (Domondon) The tax is illegal
because only provinces and cities may
impose a tax on transfer of real property
ownership. My first administrative remedy
would be to question the legality of the
ordinance within thirty (30) days from
effectivity by appealing to the Secretary of
Justice. If the Secretary rejects my appeal, I
have thirty (30) days from receipt of the
denial within which to file appropriate
proceedings before a competent court. If the
Secretary of Justice does not act within sixty
(60) days, I would have thirty (30) days from
the lapse of the 60-day time period during
which the Secretary of Justice has to decide
the case, within which to file suit with the
appropriate court.
2.
What is the nature of local taxation?

Answer: Distinguished from the taxation
power of the State, local taxation is not an
inherent power it is granted by the
Constitution or statute. [Basco v. PAGCOR
(1991)]
3.
What is the preemption or exclusionary rule?

Answer: It refers to the instance wherein the
National Government elects to tax a
particular area, impliedly withholding from
the LGU the delegated power to tax the same
field.
4.
Do LGUs have the authority to grant tax

exemptions?
Answer:
Yes, through an ordinance, by
express provision of law in Section 192, LGC
(but only those taxes within its powers).
5.
a.
b.
c.
What are the limitations on the LGUs power

to tax?
Answer:
1. LGUs cannot levy taxes that are
unjust,
excessive,
oppressive,
confiscatory or contrary to declared
national policy. (Sec. 186, LGC)
2. The LGC enumerates those that
cannot be taxed by LGUs, as follows:
Sec.
133
Unless otherwise
provided, the exercise of the taxing
powers
of
provinces,
cities,
municipalities, and barangays shall
NOT EXTEND to the levy of the
following:
Income tax, except when levied on banks
and other financial institutions;
Documentary stamp tax;
Taxes on estates, inheritance, gifts,
legacies and other acquisitions mortis
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d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
causa, except as otherwise provided

herein;
Customs duties, registration fees of vessel
and wharfage on wharves, tonnage dues,
and all other kinds of customs fees,
charges and dues except wharfage on
wharves constructed and maintained by the
LGU concerned;
Taxes, fees, and charges and other
impositions upon goods carried into or out
of, or passing through, the territorial
jurisdictions of local government units in
the guise of charges for wharfage, tolls for
bridges or otherwise, or other taxes, fees,
or charges in any form whatsoever upon
such goods or merchandise;
Taxes, fees or charges on agricultural
and aquatic products when sold by
marginal farmers or fishermen;
Taxes on business enterprises certified
to by the Board of Investments as pioneer
or non-pioneer for a period of six (6) and
four (4) years, respectively from the date
of registration;
Excise taxes on articles enumerated
under the NIRC, as amended, and taxes,
fees or charges on petroleum products;
Percentage or VAT on sales, barters or
exchanges or similar transactions on goods
or services except as otherwise provided
herein;
Taxes on the gross receipts of
transportation contractors and persons
engaged
in
the
transportation
of
passengers or freight by hire and common
carriers by air, land or water, except as
provided in this Code;
Taxes on premiums paid by way or
reinsurance or retrocession;
Taxes, fees or charges for the
registration of motor vehicles and for the
issuance of all kinds of licenses or permits
for the driving thereof, except tricycles;
Taxes, fees, or other charges on
Philippine products actually exported,
except as otherwise provided herein;
Taxes, fees, or charges, on Countryside
and Barangay Business Enterprises and
cooperatives duly registered under the
"Cooperative Code of the Philippines"; and
Taxes, fees or charges of any kind on
the National Government, its agencies and
instrumentalities, and local government
units.
Real Property Taxation

Taxation Law 2
REAL PROPERTY TAXATION

I.
Kinds of Real Property Tax and Special

Levies
Basic real property tax
Additional levy on real property for
the Special Education Fund
Additional ad valorem tax on idle
lands
Special levy by local government
units
II. Basic Concepts

Definition:
Real property tax has been defined as a direct tax on
the ownership of lands and buildings or other
improvements thereon not specially exempted, and is
payable regardless of whether the property is used or
not, although the value may vary in accordance with
such factor.
It has also been defined as: an annual ad valorem tax
imposed by local government units (provinces, cities,
and Metro Manila municipalities) on real property
within their jurisdiction, determined on the basis of a
fixed proportion of the value of the property. (de Leon,
p. 509)
NOTE: Real property tax is a fixed

proportion of the assessed value of the
property being taxed and requires,
therefore, the intervention of assessors.
Characteristics of real property tax
It is a direct tax on the ownership or use of real
property.
It is an ad valorem tax. Value is the tax base.
It is proportionate because the tax is calculated
on the basis of a certain percentage of the
value assessed.
It creates a single, indivisible obligation.
It attaches on the property (i.e., a lien) and is
enforceable against it.
Nature and scope of power to impose realty tax
The taxing power of local governments in real
property taxation is a delegated power.
Fundamental principles governing real property
taxation
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.
5. The appraisal and assessment of real
property shall be equitable. [Section 197,
Local Government Code]
Real properties subject to tax
Generally, Real Property Tax is imposed on lands,
buildings, machineries and other improvements. The
Local Government Code contains no definition of real
property; however, the following terms are defined:
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Improvement It is a valuable addition made

to a property or an amelioration in its condition
amounting to more than a repair or replacement
of parts involving capital expenditures and labor
which is intended to enhance its value, beauty, or
utility or to adopt it for new or further purposes.
[Section 199(m), Local Government Code]
Machinery Machinery embraces machines,

equipment, mechanical contrivances, instruments,
appliances or apparatus, which may or may not
be attached, permanently or temporarily, to the
real property. It includes the physical facilities for
production, the installations and appurtenant
service facilities, those which are mobile, selfpowered or self-propelled, and those not
permanently attached to the real property which
are actually, directly, and exclusively used to
meet the needs of the particular industry,
business or activity and which by their very
nature and purpose are designed for, or
necessary to its manufacturing, mining, logging,
commercial, industrial or agricultural purposes.
[Section 199(o), Local Government Code]
NOTE: this definition of machinery is too allencompassing and broad in that everything
that is used even indirectly for the needs of
the industry can be classifies as machinery
which is REAL property, which in turn means
that it is subject to RPT; example would be a
SCREWDRIVER being used in an office since
this is used by the office and indirectly
contributes the to smooth functioning of the
general business then this can be treated as
real property
This was solved by the LGC IRR sec 290 (o)

that now limits and qualifies this: this is
known as the GENERAL PURPOSE RULE
This rule states that if it used in line or for
the general purpose of the business but only
indirectly, then it is NOT to be treated as real
property. This means that a typewriter being
used in the main office of a firm that
manufactures cars is NOT real property as
the typewriter is NOT used to actually make
the car which is the main purpose of the
company.
Generally the SC has held that Art 415 CC (which

enumerates the kinds of real property) is an
exclusive list as to what constitutes real property.
BUT FOR TAX PURPOSES ONLY, it is common that
certain properties be classified as real property
even if according to the general principles of the
CC, they would only be classified as personal
property. LESSON: the NIRC and the LGC code
prevail in classifying property for tax purposes.
Properties EXEMPT from real property taxes

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.
Q: Are GOCCs covered by the
exemption? No. The tax exemption of
property owned by the Republic of the

Taxation Law 2
Philippines refers to properties owned by the
government and by its agencies which do not
have separate and distinct personalities, as
distinguished from GOCCs which have
separate and distinct personalities. [National
Development Company v. Cebu City]
Q: What is the scope of the
exemption? The exemption from tax of
property owned by the government obtains
even as to properties owned in a private,
proprietary or patrimonial character. The law
makes no distinction between property held
in
governmental
capacity
and
those
possessed in a proprietary capacity. [Board of
Assessment Appeals of Laguna v. CTA]
2.
CONFLICTING CASES: Mactan Airport

Authority vs. Pres. Marcos (September 11,
1996) and Manila Intl Airport Authority
vs. CA (July 20, 2006)
Both cases involves the following
provisions:
Sec 133(o), LGC: Unless otherwise
provided herein, the LGUs are not allowed
to levy (o) taxes, fees or charges of any
kind on the national govt, its agencies,
instrumentalities and LGUs.
Sec 234(a), LGC:
Properties exempt
from PPT (a) real properties owned by the
Republic
or
any
of
its
political
subdivisions
MACTAN Case: The SC held that since
Mactan Airport Authority is a GOCC and
GOCCs are not among those enumerated
as exempt, it is not exempted from RPT.
Legislature in amending the law has
specifically deleted GOCCS from the
enumeration in Sec 234(a).
MIAA Case: SC held that MIAA is not a
GOCC since it is neither a stock
corporation nor a non-stock corp as
defined in the Administrative Code.
Although not covered by the enumeration
in Sec 234, MIAA is a public utility which
falls under the term instrumentality
outside the scope of LGSs local taxing
powers under Sec 133(o).
NOTE: The MIAA Case may be argued to
have superseded the previous case, being
a more recent ruling decided by SC en
banc.
Charitable institutions, churches, parsonages,
or convents appurtenant thereto, mosques,
non-profit or religious cemeteries, and all
lands, buildings, and improvements actually,
directly and exclusively used for religious,
charitable, or educational purposes.
CASE LAW: LUNG CENTER of the PHILS vs.

QUEZON CITY (June 29, 2004)
As a general principle, a charitable institution
does not lose its character as such and its
exemption from taxes simply because it derives
income from paying patients, whether out-patient
or confined in the hospital, or receives subsidies
from the government, so long as the money
received is devoted or used altogether to the
charitable object which it is intended to achieve,
and no money inures to the benefit of persons

managing or operating the institution.
TEST:
The test whether an enterprise is
charitable or not is whether it exists to carry out a
purpose recognized by law as charitable or
whether it is maintained for gain, profit, or private
advantage.
EXTENT:
The portions of Lung Centers real
property that are leased to private entities are
NOT exempt from real property taxes as these are
not actually, directly and exclusively used for
charitable purposes. However, portions of the
land occupied by the hospital and portions of the
hospital used for its patients, whether paying or
non-paying, are exempt from real property taxes.
3.
All machineries and equipment that are

actually, directly and exclusively used by local
water utilities and government-owned or
controlled corporations 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 as provided for under Republic
Act No. 6938.
5.
Machinery and equipment used for pollution

control
and
environmental
protection.
[Section 234, Local Government Code]
NOTE: A taxpayer claiming exemption must submit

sufficient documentary evidence to the local assessor
within thirty (30) days from the date of the declaration
of real property; otherwise, it shall be listed as taxable
in the Assessment Roll.
III. Rates of levy
[BASIC RPT] A province or city or a municipality
within the Metro Manila area shall fix a uniform rate of
basic real property tax applicable to their respective
localities as follows:
1. In the case of a province, at the rate not
exceeding 1% of the assessed value of
real property; and
2. In the case of a city or a municipality
within the Metro Manila area, at the rate
not exceeding 2% of the assessed value
of real property. [Section 233, Local
Government Code]
[ADDITIONAL LEVY ON REAL PROPERTY FOR
THE SPECIAL EDUCATION FUND] A province, city
or a municipality within the Metro Manila area may
levy and collect an annual tax of one percent (1%) on
the assessed value of real property which shall be in
addition to the basic real property tax. The proceeds
thereof shall exclusively accrue to the Special
Education Fund created under Republic Act No. 5447.
[Section 235, Local Government Code]
[ADDITIONAL AD VALOREM TAX ON IDLE
LANDS] A province or city or a municipality within the
Metro Manila area may levy an annual tax on idle
lands at the rate not exceeding five percent (5%) of
the assessed value of the property which shall be in
addition to the basic real property tax. [Section 236,
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What are considered idle lands?

Taxation Law 2
Sec 237.
Idle Lands, Coverage.
idle lands shall include:
(a) Agricultural lands
more than one (1) hectare in area
suitable for cultivation, dairying,
inland fishery, and other agricultural
uses
one-half (1/2) of which remain

uncultivated or unimproved by the
owner or person having legal
interest.
Agricultural lands planted to permanent
or perennial crops with at least fifty (50)
trees to a hectare shall NOT be
considered idle lands. Lands actually
used for grazing purposes shall likewise
NOT be considered idle lands
(b) Lands other than agricultural
located in a city or municipality
more than one thousand (1,000)

square meters in area
one-half (1/2) of which remain

unutilized or unimproved by the
owner or person having legal
interest.
Regardless of land area, this Section
shall applies to residential lots in
subdivisions duly, ownership of
which has been transferred to
individual owners, who shall be liable
for the additional tax: Provided,
however, That individual lots of such
subdivisions, ownership of which has
not been transferred to the buyer
shall be considered as part of the
subdivision, and shall be subject to
the additional tax payable by
subdivision owner or operator.
EXEMPTION
from
idle
lands
tax:
Exemptions are given due to:
a. force majeure;
b. civil disturbance;
c. natural calamity; or
d. any cause or circumstance which
physically or legally prevents the owner
or person having legal interest from
improving, utilizing or cultivating the
same.
[SPECIAL LEVY BY LOCAL GOVERNMENT UNITS]

A province, city or municipality may impose a special
levy on the lands comprised within its territorial
jurisdiction specially benefited by public works projects
or improvements by the LGU concerned. The special
levy shall not exceed 60% of the actual cost of such
projects and improvements, including the costs of
acquiring land and such other real property in
connection therewith.
It shall not apply to lands exempt from basic

real property tax and the remainder of the
land, portions of which have been donated to
the LGU concerned for the construction of
such projects or improvements.
Need for public hearing and publication

before enactment of ordinance imposing
special levy.
Special levy accrues on the first day of the

quarter next following the effectivity of the
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ordinance imposing the levy. [Section 240,

IV. Other Important Provisions

APPRAISAL
PROPERTY
AND
ASSESSMENT
OF
REAL
Sec 201. Appraisal of Real Property. All real

property, whether taxable or exempt, appraised at
the current and fair market value prevailing in
the locality where the property is situated
Sec 202. Declaration of real Property by the
Owner or Administrator. shall be the duty of
all persons (natural or juridical) or their duly
authorized representative
owning or administering real property, including

the improvements therein
to prepare and file with assessor, a sworn

statement declaring the true value of their
property, whether previously declared or
undeclared, taxable or exempt, which shall be
the current and fair market value of the
property, as determined by the declarant
The sworn declaration of real property herein

referred to shall be filed with the assessor
concerned once every three (3) years during
the period from January first (1st) to June
thirtieth (30th) commencing with the calendar
year 1992.
Sec 203. Duty of Person Acquiring Real Property
or Making Improvement Thereon. duty of any
person, or his authorized representative
acquiring at any time real property in any

municipality or city
or making any improvement on real property,
to prepare and file with the a sworn statement

declaring the true value of subject property
within sixty (60) days after the acquisition of

such property or upon completion or occupancy
of the improvement, whichever comes earlier.
Sec 204. Declaration of Real Property by the
Assessor. any person, by whom real property is
required to be declared under Section 202
refuses or fails for any reason to make such

declaration within the time prescribed
assessor shall himself declare the property in

the name of the defaulting owner, if known, or
against an unknown owner, as the case may
be, and shall assess the property for taxation
Sec 205. Listing of Real Property in the
Assessment Rolls.
In every province and city, municipalities within

the Metropolitan Manila Area, there shall be
prepared and maintained by the assessor
an assessment roll wherein shall be listed all

real property, whether taxable or exempt,
located within the local government unit;
property shall be listed, valued and assessed in
the name of the owner or administrator, or
anyone having legal interest in the property.
undivided real property of a deceased person

may be listed, valued and assessed in the name
of the estate or of the heirs and devisees
without designating them individually

Taxation Law 2
BUT undivided real property other than
that owned by a deceased may be listed,
valued and assessed in the name of one or
more co-owners: Provided, however, That
such heir, devisee, or co-owner shall be
liable severally and proportionately for all
obligations imposed by this Title and the
payment of the real property tax with
respect to the undivided property.
real property of a corporation, partnership, or
association shall be listed, valued and assessed
in the same manner as that of an individual.
Real property owned by the Republic of the
Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has
been granted, for consideration or otherwise, to
a taxable person, shall be listed, valued and
assessed in the name of the possessor, grantee
or of the public entity if such property has been
acquired or held for resale or lease.
Sec 206. Proof of Exemption of Real Property

from Taxation.
Every person who shall claim tax exemption for

such property
shall file with assessor within thirty (30) days

from the date of the declaration of real property
sufficient documentary evidence in support of
such claimlike corporate charters, contracts,
titles, articles of incorporation etc
If the required evidence is NOT submitted

within the period prescribed, the property shall
be listed as taxable in the assessment roll.
However, if the property shall be proven to be
tax exempt, shall be dropped from the
assessment roll.
Sec 208. Notification of Transfer of Real Property
Ownership.
Any person who shall TRANSFER real property

OWNERSHIP to another
shall notify the assessor concerned within sixty

(60) days from the date of such transfer
The notification shall include the mode of

transfer, the description of the property
alienated, the name and address of the
transferee.
Sec 209. Duty of Registrar of Deeds to Appraise
Assessor of Real Property Listed in Registry.
duty of the Registrar of Deeds to require every

person who shall present for registration a
document
of
transfer,
alienation,
or
encumbrance of real property to accompany the
same with a certificate to the effect that the
real property subject has been fully paid of all
real property taxes due. Failure to provide such
certificate shall be a valid cause for the refusal
of the registration of the document.
Sec 212. Preparation of Schedule of Fair Market
Values. Before any general revision of property
assessment is made
there shall be prepared a schedule of fair

market values by the assessor of the provinces,
within
the
cities
and
municipalities
Metropolitan Manila Area for the different
classes of real property situated in their
respective local government units
for enactment by ordinance of the sanggunian
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schedule of fair market values shall be

published in a newspaper of general circulation
in the province, city or municipality; in the
absence thereof, shall be posted in the
provincial capitol, city or municipal hall and in
two other conspicuous public places
Sec 214. Amendment of Schedule of Fair Market

Values.
assessor may recommend to the sanggunian

amendments to correct errors in valuation in
the schedule of fair market values
sanggunian shall, by ordinance, act upon the

recommendation within ninety (90) days from
receipt
Sec
215.
Classes
of Real Property
for
Assessment Purposes. For purposes of
assessment, real property shall be classified:
1. residential
2. agricultural
3. commercial
4. industrial
5. mineral
6. timberland
7. special - Sec216. Special Classes of Real
Property. lands, buildings, and other
improvements thereon
actually, directly and exclusively used
for hospitals, cultural, or scientific purposes
those owned and used by local water

districts
government-owned
or
controlled
corporations rendering essential public
services in the supply and distribution of
water and/or generation and transmission
of electric power shall be classified as
special.
*The city or municipality within the Metropolitan
Manila Area, through their respective sanggunian,
shall have the power to classify lands as residential,
agricultural,
commercial,
industrial,
mineral,
timberland, or special in accordance with their
zoning ordinances.
Sec 217. Actual Use of Real Property as Basis for
Assessment. Real property shall be classified,
valued and assessed on the basis of its actual
use
regardless of where located
regardless whoever owns it
regardless whoever uses it

Sec 220. Valuation of Real Property. In cases
where:
(a) real property is declared and listed for taxation
purposes for the first time
(b) there is an ongoing general revision of property
classification and assessment
(c) a request is made by the person in whose name
the property is declared
assessor shall make a classification,

appraisal and assessment or taxpayer's
valuation
Provided, however, That the assessment of

real property shall NOT be increased
oftener than once every three (3) years

Taxation Law 2
EXCEPT in case of new improvements

substantially increasing the value of
said property or of any change in its
actual use.
Sec 221. Date of Effectivity of Assessment or

Reassessment.
All assessments/ reassessments made after

the first (1st) day of January of any year
shall take effect on the first (1st) day of
January of the succeeding year
Provided, the reassessment of real property

shall be made within ninety (90) days from the
date if any such cause or causes occurred, and
shall take effect at the beginning of the quarter
next following the reassessment due to its:
partial or total destruction
major change in its actual use
great and sudden inflation or deflation of

real property values
gross illegality of the assessment
any other abnormal cause

Sec 222. Assessment of Property Subject to Back
Taxes. Real property declared for the FIRST
TIME shall be assessed for taxes (back taxes) for
the period during which it would have been liable
but in no case of more than ten (10) years prior
to the date of initial assessment
Provided, however, That such taxes shall be

computed on the basis of the applicable
schedule of values in force during the
corresponding period.
If such taxes are paid on or before the end of

the quarter following the date the notice of
assessment was received by the owner NO
interest for delinquency shall be imposed
thereon; otherwise, taxes shall be subject
interest at the rate of two percent (2%) per
month or a fraction thereof from the date of the
receipt of the assessment until such taxes are
fully paid.
Sec
224.
Appraisal
Machinery.
and
Assessment
of
(a)
The fair market value of brand-new

machinery shall be acquisition cost
In all other cases, the fair market value

shall be determined by dividing the
remaining economic life of the machinery
by its estimated economic life and
multiplied by the replacement or
reproduction cost.
(b)
If machinery imported, the acquisition cost

includes freight, insurance, bank and
other charges, brokerage, arrastre and
handling, duties and taxes, plus charges
at the present site
Sec225.Depreciation Allowance for Machinery.

depreciation allowance shall be made for machinery
at a rate NOT exceeding five percent (5%) of
its original cost or its replacement or
reproduction cost, as the case may be, for each
year of use
Provided, the remaining value for all kinds of

machinery shall be fixed at NOT less than
twenty percent (20%) of such original,
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replacement, or reproduction cost for so long as

the machinery is useful and in operation.
ASSESSMENT APPEALS
Sec 226. Local Board of Assessment Appeals.
Any owner or person having legal interest in the
property NOT satisfied with the action of the
assessor in the assessment of his property
May within sixty (60) days from the date of

receipt of the written notice of assessment
appeal to the Board of Assessment Appeals of

the provincial or city
by filing a petition under oath in the form

prescribed for the purpose, together with copies
of the tax declarations and such affidavits or
documents submitted in support of the appeal.
Sec 229. Action by the
Assessment Appeals.
Local
Board
of
(a) Board shall decide the appeal within one

hundred twenty (120) days from the date
of receipt of such appeal. The Board, after
hearing, render its decision based on
substantial evidence
(b) In the exercise of its appellate jurisdiction, the
Board shall have the power to summon
witnesses, administer oaths, conduct ocular
inspection,
take
depositions,
and
issue
subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted
SOLELY for the purpose of ascertaining the
facts without necessarily adhering to technical
rules applicable in judicial proceedings.
(c) secretary of the Board shall furnish the owner
of the property or the person having legal
interest therein and the assessor with a copy of
the decision of the Board. In case the provincial
or city assessor concurs in the revision or the
assessment, it shall be his duty to notify the
owner or the person having legal interest of
such fact using the form prescribed.
(d) The owner, the person having legal interest or
the assessor who is NOT satisfied with the
decision of the Board,
May within thirty (30) days after receipt of

the decision of said Board appeal to the
Central Board of Assessment Appeals decision of the Central Board shall be final
and executory
Sec 231. Effect of Appeal on the Payment of Real
Property Tax. Appeal on assessments of real
property shall, in NO case, suspend the collection
of the corresponding realty taxes on the property
involved as assessed but without prejudice to
subsequent adjustment depending upon the final
outcome of the appeal.
SPECIAL LEVY BY LGUs
Sec 241. Ordinance Imposing a Special Levy. A
tax ordinance imposing a special levy shall:
describe with reasonable accuracy the

nature, extent, and location of the public

Taxation Law 2
works projects or improvements to be
undertaken
state the estimated cost
specify the metes and bounds by

monuments and lines
number of annual installments for the

payment of the special levy which in no
case shall be less than five (5) nor more
than ten (10) years
*The sanggunian shall NOT be obliged, in the
apportionment and computation of the special levy, to
establish a uniform percentage of all lands subject to
the payment of the tax for the entire district. May fix
different rates for different parts or sections thereof,
depending on whether such land is more or less
benefited by proposed work.
Sec 242. Publication of Proposed Ordinance
Imposing a Special Levy. Before the
enactment of an ordinance imposing a special
levy, the sanggunian concerned shall:
conduct a public hearing
notify in writing the owners to be

affected or the persons having legal
interest as to the date and place thereof
and afford the latter the opportunity to
express their positions or objections
relative to the proposed ordinance.
Sec 244. Taxpayer's Remedies Against Special
Levy. Any owner of real property affected by a
special levy or any person having a legal interest
therein may, upon receipt of the written notice of
assessment of the special levy, avail of the remedies
provided for in Chapter 3, Title Two, Book II of this
Code.
Sec245. Accrual of Special Levy. The special
levy shall accrue on the first day of the
quarter next following the effectivity of the
ordinance imposing such levy.
COLLECTION OF REAL PROPERTY TAX
Sec 246. Date of Accrual of Tax. real property
tax for any year shall accrue on the first day of
January
from that date it shall constitute a lien on the

property
superior to any other lien, mortgage, or

encumbrance of any kind whatsoever
extinguished only upon the payment of the

delinquent tax.
Sec 247. Collection of Tax. The collection of the
real property tax with interest thereon and related
expenses, and the enforcement of the remedies =
responsibility of the city or municipal treasurer.
treasurer may deputize the barangay treasurer

to collect all taxes on real property located in
the barangay:
Provided, the barangay treasurer is

properly bonded for the purpose
Provided, further, That the premium on the

bond shall be paid by the city or municipal
government concerned.
Sec 249. Notice of Time for Collection of Tax.
treasurer shall post the notice of the dates when the
tax may be paid without interest publicly accessible
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place at the city or municipal hall + notice shall

likewise be published in a newspaper of general
circulation in the locality once a week for two (2)
consecutive weeks.
on or before the thirty-first (31st) day of

January each year in the case of the basic real
property tax and the additional tax for the
Special Education Fund (SEF)
or any other date to be prescribed by the

sanggunian concerned in the case of any other
tax levied under this title
Sec 250. Payment of Real Property Taxes in
Installments. The owner or the person having
legal interest may pay the basic real property tax
and the additional tax for Special Education Fund
(SEF) due without interest:
in four (4) equal installments;
the first installment to be due and payable

on or before March Thirty-first (31st)
the second installment, on or before June

Thirty (30)
the third installment, on or before

September Thirty (30)
and the last installment on or before

December Thirty-first (31st)
*except the special levy the payment of which shall be
governed by ordinance of the sanggunian concerned.
*The date for the payment of any other tax imposed
under this Title without interest shall be prescribed by
the sanggunian concerned.
*Payments of real property taxes shall first be
applied to prior years delinquencies, interests,
and penalties, if any, and only after said
delinquencies are settled may tax payments be
credited for the current period.
Sec 251. Tax Discount for Advanced Prompt
Payment. If the basic real property tax and the
additional tax accruing to the Special Education
Fund (SEF) are paid in advance as provided under
Section 250
sanggunian may grant a discount NOT

exceeding twenty percent (20%) of the annual
tax due.
Sec 252. Payment Under Protest.
(a) 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

thirty (30) days from payment of the tax
to treasurer who shall decide the protest
within sixty (60) days from receipt.
(b) The tax or a portion paid under protest, shall
be held in trust by the treasurer concerned.
(c) In the event that the protest is finally decided
in favor of the taxpayer, the amount or portion
of the tax protested shall be refunded to the
protestant, or applied as tax credit against his
existing or future tax liability.
(d) In the event that the protest is denied or upon
the lapse of the sixty day period prescribed
in subparagraph (a), the taxpayer may avail
of the remedies as provided for in Chapter 3,
Title II, Book II of this Code.

Taxation Law 2
Sec 253. Repayment of Excessive Collections.
When an assessment of real property tax or any
other tax under this Title found to be illegal or
erroneous and the tax is accordingly reduced or
adjusted
the taxpayer may file a written claim for

refund or credit for taxes and interests with
the treasurer within two (2) years from the
date the taxpayer is entitled to such reduction
or adjustment.
The provincial or city treasurer shall decide the

claim for tax refund or credit within sixty (60)
days from receipt thereof
In case the claim for tax refund or credit is

denied, the taxpayer may avail of the remedies
as provided in Chapter 3, Title II, Book II of this
Code.
Sec 256. Remedies For The Collection Of Real

Property Tax. For collection of the real property
tax and other tax levied under this Title, the local
government unit concerned may avail of the
remedies:
administrative action thru levy on real property
or by judicial action.
Sec 254. Notice of Delinquency in the Payment of

the Real Property Tax.
Sec 258. Levy on Real Property. After the

expiration of the time required to pay real property
tax or any other tax levied under this Title, real
property subject to such tax may be levied through
the issuance of a warrant
on or before, or simultaneously with, the

institution of the civil action for the
collection of the delinquent tax.
The warrant shall operate with the force of a

legal execution throughout the province, city or
a municipality, within the Metropolitan Manila
Area.
The warrant shall be mailed to or served upon:
the delinquent owner or person having

legal interest - in case he is out of the
country or cannot be located, the
administrator or occupant of the property.
At the same time, written notice of the levy

with the attached warrant shall be mailed
to or served upon the assessor who shall
annotate it on the tax declaration
AND the Registrar of Deeds of the province,

city or municipality within the Metropolitan
Manila Area where the property is located
who shall annotate the levy on the
certificate of title of the property
(a) When real property tax or other tax imposed

under this Title becomes delinquent, treasurer
shall immediately cause a notice of the
delinquency to be posted at the main hall and
in a publicly accessible and conspicuous place
in each barangay of the local government unit
concerned + notice of delinquency shall also be
published once a week for two (2) consecutive
weeks, in a newspaper of general circulation in
the province, city, or municipality.
(b) notice shall specify:
the date upon which the tax became

delinquent
shall state that personal property may be

distrained to effect payment
state that any time before the distraint of

personal property, payment of the tax with
surcharges, interests and penalties may be
made in accordance with the next
following Section
and unless the tax, surcharges and

penalties are paid before the expiration of
the year for which the tax is due except
when the notice of assessment or special
levy is contested administratively or
judicially pursuant to the provisions of
Chapter 3, Title II, Book II of this Code,
the delinquent real property will be SOLD
at public auction, and the title to the
property will be vested in the purchaser,
subject, however, to the right of the
delinquent owner of the property or any
person having legal interest therein to
redeem the property within one (1) year
from the date of sale.
Sec 255. Interests on Unpaid Real Property Tax.
for failure to pay the basic real property tax or
any other tax levied under this Title upon the
expiration of the periods when due
subject the taxpayer to the payment of interest

at the rate of two percent (2%) per month
on the unpaid amount until the delinquent tax
shall have been fully paid
Provided, in NO case shall the total interest on

the unpaid tax or portion thereof exceed
thirty-six (36) months.
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Sec 257. Local Governments Lien. real property

tax and any other tax levied under this Title
constitute a lien on the property subject to tax
superior to all liens, charges or encumbrances

in favor of any person
irrespective of the owner or possessor thereof
enforceable by administrative or judicial action
and may only be extinguished upon payment of

the tax and the related interests and expenses.
Sec 260. Advertisement and Sale. Within thirty

(30) days after service of the warrant of levy, the
local treasurer shall proceed to publicly advertise for
sale or auction the property or a usable portion
thereof as may be necessary to satisfy the tax
delinquency and expenses of sale
The advertisement shall be by posting a notice

at the main entrance of the provincial, city or
municipal
building,
and
in
a
publicly
conspicuous place in the barangay where the
real property is located + by publication once a
week for two (2) weeks in a newspaper of
general circulation in the province, city or
municipality where the property is located.
advertisement shall specify:
the amount of the delinquent tax
interest due thereon
expenses of sale
the date and place of sale
name of the owner of the or person having

legal interest
description of the property to be sold.

*At any time before the date fixed for the sale, the
owner or person having legal interest may stay the
proceedings by paying the delinquent tax + interest
due + expenses of sale.

Taxation Law 2
*Proceeds of the sale in excess of the delinquent tax,
the interest due thereon, and the expenses of sale
shall be remitted to the owner of the real property or
person having legal interest therein.
Sec 261. Redemption of Property Sold. Within
one (1) year from the date of sale, the owner of the
delinquent real property or person having legal
interest or their representatives shall have the right
to redeem the property upon payment to treasurer
of the:
amount of the delinquent tax
interest due
expenses of sale - from the date of delinquency to

the date of sale
plus interest of not more than two percent (2%)

per month on the purchase price - from the date
of sale to the date of redemption
* payment shall invalidate the certificate of sale
issued to the purchaser and the owner of the
delinquent real property or person having legal
interest shall be entitled to a certificate of redemption
*From date of sale until the expiration of the period of
redemption, the delinquent real property shall remain
in possession of the owner or person having legal
interest therein who shall be entitled to the income
and other fruits
*the property shall be free from lien of such
delinquent tax, interest due thereon and
expenses of sale.
Sec 262. Final Deed to Purchaser. In case the
owner or person having legal interest fails to
redeem the delinquent property, the treasurer shall
execute a deed conveying to the purchaser said
property, free from lien of the delinquent tax,
interest due thereon and expenses of sale
Sec 263. Purchase of Property By the Local
Government Units for Want of Bidder. In case
there is NO bidder for the real property, the real
property tax and the related interest and costs of
sale
the treasurer conducting the sale shall

purchase the property in behalf of the local
government unit concerned to satisfy the
claim
shall be the duty of the Registrar of Deeds to

transfer the title of the forfeited property to the
local government unit concerned without the
necessity of an order from a competent
court.
*Within one (1) year from the date of such forfeiture,
the taxpayer or any of his representative, may redeem
the property by paying to the treasurer the full
amount of the real property tax and the related
interest and the costs of sale. If the property is not
redeemed as provided herein, absolute ownership
thereof shall be vested on the local government unit
concerned.
Sec 264. Resale of Real Estate Taken for Taxes,
Fees, or Charges. The sanggunian sell and
dispose of the real property acquired under the
preceding section at public auction; proceeds of the
sale shall accrue to the general fund of the local
government unit.
may by ordinance
upon notice of not less than twenty (20) days
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Sec 265. Further Distraint or Levy. Levy may

be repeated if necessary until the full amount
due, including all expenses, is collected.
Sec 266. Collection of Real Property Tax Through
the Courts. The local government unit concerned
may enforce the collection of the basic real property
tax or any other tax levied under this Title
by civil action in any court of competent

jurisdiction - civil action shall be filed by the
treasurer within the period prescribed in Section
270 of this Code.
Sec 267. Action Assailing Validity of Tax Sale.
No court shall entertain any action assailing the
validity or any sale at public auction of real
property or rights until:
taxpayer shall have deposited with the court

the amount for which the real property was
sold, together with interest of two percent
(2%) per month from the date of sale to the
time of the institution of the action
amount so deposited shall be:
paid to the purchaser at the auction sale if

the deed is declared invalid
shall be returned to the depositor if the

action fails.
*Neither shall any court declare a sale at public
auction invalid by reason or irregularities or
informalities in the proceedings - unless the
substantive rights of the delinquent owner of the real
property or the person having legal interest have been
impaired.
Sec 268. Payment of Delinquent Taxes on
Property Subject of Controversy. In any
action involving the ownership or possession of, or
succession to, real property, the court may, motu
propio or upon representation of the treasurer award such ownership, possession, or succession to
any party to the action
upon payment to the court of the taxes with

interest due on the property and all other costs
that may have accrued
subject to the final outcome of the action.

Sec 270. Periods Within Which To Collect Real
Property Taxes. The basic real property tax and
any other tax levied under this Title shall be:
collected within five (5) years from the date

they become due
No action for the collection of the tax, whether

administrative or judicial, shall be instituted
after the expiration of such period
In case of fraud or intent to evade payment

of the tax, such action may be instituted
for the collection of the same within ten
(10) years from the discovery of such fraud
or intent to evade payment.
The period of prescription within which to collect
shall be suspended for the time during which:
(1) The local treasurer is legally prevented from
collecting the tax;
(2) The owner of the property or the person having
legal
interest
therein
requests
for
reinvestigation and executes a waiver in
writing before the expiration of the period
within which to collect; and

Taxation Law 2
(3) The owner of the property or the person having
legal interest therein is out of the country or
otherwise cannot be located.
DISPOSITION OF PROCEEDS
shall be automatically released to the local

school boards
Provided, in case of provinces, the

proceeds shall be divided equally between
the provincial and municipal school boards
the proceeds shall be allocated for the:
operation and maintenance of public

schools
construction and repair of school buildings,

facilities and equipment
educational research
purchase of books and periodicals
sports development as determined and

approved by the Local School Board.
Sec 271.
Distribution of Proceeds.
proceeds of real property tax, including interest
thereon + proceeds from the use, lease or
disposition, sale or redemption of property acquired
at a public auction shall be distributed as follows:
(a) In the case of provinces:
(1) Province Thirty-five percent (35%)
shall accrue to the general fund;
(2) Municipality Forty percent (40%) to
the general fund of the municipality where
the property is located; and
(3) Barangay Twenty-five percent (25%)
shall accrue to the barangay where the
property is located.
(b) In the case of cities:
(1) City Seventy percent (70%) shall
accrue to the general fund of the city; and
(2) Thirty percent (30%) shall be distributed
among the component barangays of the
cities where the property is located in the
following manner:
(i) Fifty percent (50%) shall accrue to the
barangay where the property is
located;
(ii) Fifty percent (50%) shall accrue
equally to all component barangays of
the city; and
(c) In the case of a municipality within the
Metropolitan Manila Area:
(1) Metropolitan Manila Authority Thirtyfive percent (35%) shall accrue to the
general fund of the authority;
(2) Municipality Thirty-five percent (35%
shall accrue to the general fund of the
municipality where the property is located;
(3) Barangays Thirty percent (30%) shall
be distributed among the component
barangays of the municipality where the
property is located in the following
manner:
(i) Fifty percent (50%) shall accrue to the
barangay where the property is
located;
(ii) Fifty percent (50%) shall accrue
equally to all component barangays of
the municipality.
(d) The share of each barangay shall be released,
without need of any further action, directly to
the barangay treasurer on a quarterly basis
within five (5) days after the end of each
quarter and shall not be subject to any lien or
holdback for whatever purpose.
Sec 272. Application of Proceeds of the
Additional One Percent SEF Tax. The proceeds
from the additional one percent (1%) tax on real
property accruing to the Special Education Fund
(SEF):
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Sec273.Proceeds of the Tax on Idle Lands.

proceeds of the additional real property tax on idle
lands shall accrue to the:
respective general fund of the province or

city where the land is located
In the case of a municipality within the

Metropolitan Manila Area, the proceeds shall
accrue equally to the Metropolitan Manila
Authority and the municipality where the
land is located.
Sec274.Proceeds of the Special Levy. The
proceeds of the special levy on lands benefited by
public works, projects and other improvements shall
accrue to the general fund of the local
government unit which financed such public
works, projects or other improvements.
SPECIAL PROVISIONS
Sec276. Condonation or Reduction of Real
Property Tax and Interest. sanggunian by
ordinance passed prior to the first (1st) day of
January of any year + upon recommendation of the
Local Disaster Coordinating Council, may condone
or reduce, wholly or partially, the taxes and
interest thereon for the succeeding year or years in
the city or municipality affected by the calamity in
cases of:
general failure of crops
substantial decrease in the price of agricultural

or agribased products
calamity in any province, city or municipality

Sec277.Condonation or Reduction of Tax by the
President of the Philippines. President may,
when public interest so requires, condone or
reduce the real property tax and interest for any
year in any province or city or a municipality within
the Metropolitan Manila Area.
V.
Problems
1.
An Ordinance was passed by the Provincial

Board of a Province in the North, increasing
the rate of basic real property tax from
0.006% to 1% of the assessed value of the
real property effective 1 January 2000.
Residents of the municipalities of the said
province protested the Ordinance on the
ground that no public hearing was conducted
and, therefore, any increase in the rate of
real property tax is void. Is there merit in
the protest? Explain.

Taxation Law 2
Answer: The protest is devoid of merit. No
public hearing is required before the
enactment of a local tax ordinance levying
the basic real property tax (Art. 324, LGC
Regulations)
2.
Alternative Answer: Yes, there is

merit in the protest provided that
sufficient proof could be introduced
for the non-observance of public
hearing. By implication, the SC has
recognized that public hearings are
required to be conducted prior to the
enactment of an ordinance imposing
real property taxes. Although it was
concluded by the SC that the
presumption of validity of a tax
ordinance can not be overcome by
bare assertions of procedural defects
on its enactment, it would seem that
if the taxpayer had presented
evidence to support the allegation
that no public hearing was held, the
Court should have ruled that the tax
ordinance is invalid (Figuerres v. CA,
March 25, 1999)
The real property of Mr. and Mrs. Angeles,

situated in a commercial area in front of the
public market, was declared in their tax
declaration as residential because it had been
used by them as their family residence from
the time of its construction in 1990.
However, since January 1997, when the
spouses left for the US to stay there
permanently with their children, the property
has been rented to a single proprietor
engaged in the sale of appliances and agriproducts. The Provincial Assessor reclassified
the property as commercial for tax purposes
starting January 1998. Mr. and Mrs. Angeles
appealed to the Local Board of Assessment
Appeals, contending that the tax declaration
previously classifying their property as
residential is binding. How should the appeal
be decided? (2002 Bar)
Answer: The appeal should be decided
against Mr. and Mrs. Angeles.
The law
focuses on the actual use of the property for
classification, valuation and assessment
purposes regardless of ownership. Section
217 of the LGC provides that real property
shall be classified, valued, and assessed on
the basis of its actual use regardless of where
located, whoever owns it, and whoever uses
it.
3.
A Co, a Philippine corporation, is the owner of

machinery, equipment and fixtures located at
its plant in Muntinlupa city.
The City
Assessor characterized all these properties
subject to the real property tax.
A Co.
appealed the matter to the Muntinlupa Board
of Assessment Appeals. The Board ruled in
favor of the city. In accordance with RA
1125, A Co. brought a petition for review
before the CTA to appeal the decision of the
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City Board of Assessment Appeals. Is the

Petition for Review proper? Explain. (1999
Bar)
Answer: No.
The CTA is devoid of
jurisdiction to entertain appeals from the
decision of the CBAA. Said decision is instead
appealable to the CBAA, which under the
LGC, has appellate jurisdiction over decisions
of the LBAA.
Tariff and Customs Code

Taxation Law 2
TARIFF AND CUSTOMS CODE

I.
indirectly information where, how or by whom

human conception is prevented or unlawful
abortion produced.
ARTICLES SUBJECT TO DUTY
e.
Roulette wheels, gambling outfits, loaded

dice, marked cards, machines, apparatus or
mechanical devices used in gambling, or in
the distribution of money, cigars, cigarettes
or other articles when such distribution is
dependent upon chance, including jackpot
and pinball machines or similar contrivances.
f.
Lottery
and
sweepstakes
tickets,
advertisements thereof and lists of drawings
therein.
except those authorized by the Philippine
Government
g.
TERMINATED:
1) payment of duties, taxes and other
charges
2) secured to be paid and legal permit for
withdrawal has been granted
3) articles have legally left the jurisdiction
of customs
Any article manufactured in whole or in part

of gold silver or other precious metal, or
alloys thereof, the stamps brands or marks of
which do not indicate the actual fineness or
quality of said metals or alloys.
h.
Any adulterated or misbranded article of food

or any adulterated or misbranded drug in
violation of the provisions of the "Food and
Drugs Act."
Classes of importation
i.
Marijuana, opium poppies, coca leaves, or

any other narcotics or synthetic drugs which
are or may hereafter be declared habit
forming by the President of the Philippines,
any
compound,
manufactured
salt,
derivative, or preparation thereof,
except when imported by the Government
of the Philippines or any person duly
authorized by the Collector of Internal
Revenue for medicinal purposes only.
j.
Opium pipes and parts thereof, of whatever

material.
k.
All other articles the importation of which is

prohibited by law.
A.
Export (suspended except on logs) and

import duties
B.
Meaning of importation
Sec. 1201
All articles imported into the Philippines,
whether subject to duty or not, shall be
entered through the customhouse at a port
of entry
Sec. 1202
Importation BEGINS:
vessel or aircraft enters the jurisdiction of
Philippines with intention to unlade
C.
1.
Dutiable importation
All articles, when imported from any foreign
country into the Philippines, shall be subject to
duty upon each importation, even though
previously exported from the Philippines, except
as otherwise specifically provided for in this Code
or in other laws. (100)
2.
Prohibited importations
Sec. 101
a.
Dynamite, gunpowder, ammunitions and

other explosives, firearm and weapons of
war, and detached parts thereof, except
when authorized by law.
b. Written or printed article in any form

containing:
1) any matter advocating or inciting
treason,
rebellion,
insurrection
or
sedition against the Government of the
Philippines
2) forcible resistance to any law of the
Philippines
3) containing any threat to take the life of
or inflict bodily harm upon any person in
the Philippines.
c.
d.
Written or printed articles, photographs,

engravings, lithographs, objects, paintings,
drawings or other representation of an
obscene or immoral character.
Articles, instruments, drugs and substances
designed, intended or adapted for preventing
human conception or producing unlawful
abortion, or any printed matter which
advertises or describes or gives directly or
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Sec. 1207
It is the duty of the Collector to exercise
jurisdiction to
- prevent importation (prohibited importation) or
- secure compliance with legal requirements
(articles that may be imported subject to
conditions)
3.
Conditionally-free importation
ARTICLE
Aquatic
products
CONDITIONS
- Caught,
gathered
and
imported by fishing vessels
of Phil registry
- Not have landed in foreign
territory, or if landed, solely
for transshipment
Equipment used
for the salvage
of vessels or
aircraft
not
available locally
bond = 1 x of ascertained
duties, taxes and charges
must be exported within 6
months

Taxation Law 2
Costs of repair
made in foreign
country of Phil
vessels aircrafts
Articles brought
into
Phil
for
repair,
processing
or
reconditioning
Trophies, prizes
(medals,
badges, cups)
Those received
as
honorary
distinction
Personal
and
household
effects
of
returning
Phil
residents
Effects
of
travelers,
tourist (wearing
apparel,
personal
adornment,
toiletries,
portable
tools
and
instruments,
costumes)
Personal
and
household
effects, vehicles
of
foreign
consultants and
experts hired or
rendering
service to govt
- including staff
and families
Professional
instruments
Tools of trade
Wearing apparel
Domestic
animals
Personal
and
household
Phil must not have adequate

facilities to make repair
Vessel was compelled by
weather or casualty to go to
foreign port for repair
Excludes value of article
used for repair
to be re-exported
bond = 1 x of ascertained
duties, taxes and charges
must be exported within 6
months
formally declared and listed

before departure
including those purchased
abroad
necessary
and
appropriate and used for
comfort and convenience
must have been using item
abroad for more than 6 mos
must accompany them or
arrive
within
reasonable
time
not in commercial quantities
total DV not exceed P2,000
in excess of P2,000
50% ad
valorem
returning resident has not
previously availed of this
benefit within 1 year
if resident was abroad for
less than 6 mos 50% ad
valorem (DV <P2T)
arrive with or at a
reasonable time
necessary
and
appropriate for wear
and use according to
nature
of
journey,
comfort
and
convenience
articles NOT for hire,
sale, barter
Collector may require:
written commitment or
bond
accompany them or arrive at
a reasonable time
in
quantities
and
kind
necessary and suitable to
the profession, rank or
position
for their own use, NOT for
sale, barter, hire
Collector
may
require:
written commitment or bond
in
quantities
and
kind
necessary and suitable to
the profession, rank or
position
for their own use, NOT for
sale, barter, hire
change of residence is bona
fide
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effects
belong to (1)
persons coming
to settle in Phil
and
(2)
overseas
Filipinos
Articles
used
exclusively for
public
entertainment;
display in public
expos;
exhibition
or
competition for
prizes; devices
for
projecting
picture
Brought
by
foreign
film
producers
for
making
or
recording
motion pictures
on location in
Phil
Photographic
and
cinematographic
films,
undeveloped,
exposed outside
Phil by resident
Filipinos or Phil
producing
companies
Importations
used by foreign
embassies,
legations,
agencies
of
foreign govt
Articles
for
personal
or
family use of
members
and
attaches
of
foreign
embassies,
legations,
consular officers
and other reps
of foreign govt
Articles donated
to
or
for
account of relief
organization
Containers,
holders
and
similar
receptacles
Supplies
of
vessel
or
aircraft
privilege of free entry was

never granted to them
before or qualifies under LOI
105, 163, 210
must file bond (1 X)

exported within 6 mos
not exhibited for profit
otherwise,
confiscation+
penalty
must file bond (1 X)

exported within 6 mos
(unless
extended
by
Collector for another 6 mos)
principal actors are Filipinos

affidavit by importer that the
exposed films are same
films previously exported
Reciprocity:
such foreign
country must grant same
privilege to Phil agencies
such privileges must be

accorded
in
a
special
agreement between Phil and
the foreign country
privilege may be granted
only
upon
specific
instructions
of
Sec
of
Finance which will be given
only upon request of DFA
org not for profit

for free distribution to the
needy
except
those
that
are
reusable for shipment or
transportation of goods
for use or consumption of

passengers on board
any surplus or excess shall
be dutiable

Taxation Law 2
Articles
and
salvage after 2
years from filing
protest
Coffins or urns
containing
human remains,
bones ashes
Personal
and
household
effects
of
deceased
EXCEPT vehicles
Samples
- unsaleable
- no appreciable
commercial
value
- Models not for
practical use
Sample
medicines
Commercial
samples
not exceed P10,000
marked
sample
sale
punishable by law
for purpose of introducing
new product
imported by person duly
registered and identified to
be engaged in that trade
importations authorized by
Sec of Finance
authorized by DOH
not available in Phil
not exceed P10,000

in excess of P10,000, it
may be entered in bond or
for consumption
bond (2x) conditioned on
exportation within 6 mos
Animals
and
plants
for scientific,
experimental,
propagation,
botanical,
breeding
zoological
and
defense
purposes
Economic,
technical,
vocational,
scientific,
philosophical,
historical
and
cultural
books
and publications
Phil
articles
previously
exported
and
returned
without
increasing value
or
improved
condition
vessels must have been

wrecked or abandoned in
Phil waters
Note that if a drawback or

bounty was allowed to any Phil
article under this subsection,
upon re-importation article shall
be subject to duty equal to the
bounty or drawback
Foreign articles
previously
exported when
returned
after
having
been
exported
and
loaned for use
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temporarily
abroad
solely
for exhibition
Foreign
container used
in
packing
exported
Phil
products
Articles
and
supplies
imported by and
for
use
of
scheduled
airlines
operating under
congressional
franchise
(Aircraft,
equipment and
machinery,
spare
parts
commissary and
catering
supplies,
aviation
gas,
fuel and oil)
machineries,
equipment,
tools
for
production,
plants
to
convert mineral
ores
into
saleable form,
spare
parts,
supplies,
materials,
accessories,
explosive,
chemicals,
transpo
and
communication
facilities
imported by and
used by new
mines and old
mines
aircrafts
imported
by
agro industrial
companies,
spare parts and
accessories
Spare parts of
vessels
or
aircrafts
of
foreign registry
engaged
in
foreign trade
Articles of easy
identification
exported from
Phil for repair
and
subsequently
reimported
such
articles
are
not
available
locally
in
reasonable quantity, quality
and price
necessary or incidental to
proper operations
such
articles
are
not
available
locally
inn
reasonable quantity, quality
and price
necessary or incidental to
proper operations
used in their agri

industrial operations
brought
to
Phil
as
replacement
or
for
emergency repair
spare parts utilized to secure
safety,
seaworthiness or
airworthiness, enable it to
continue voyage or flight
cannot be repaired locally
cost of repair made on
article shall pay 30% ad
valorem
and

Taxation Law 2
Trailer chassis
imported
by
shipping
companies
for
handling
containerized
cargo
Personal
and
household
effects
(including one
car)
officer/ Ee
of DFA, attach,
staff
assigned
to
Phil
diplomatic
mission abroad
personnel
of Reparations
Mission in Tokyo
AFP military
personnel
in
SEATO
AFP military
personnel
accorded
diplomatic rank
on duty abroad
DRAWBACKS - in the nature of refund or tax

credit
bond (1 x) to cover 1
year
must be properly identified
and registered with LTO
subject
to
customs
supervision fee
deposited in Customs zone
when not in use
upon expiration of period (1
yr or as extended by
Commissioner) duties and
taxes shall be paid
Car
must
have
been
purchased or ordered before
the mission or consulate
received his order of recall
the value of personal and
household effects shall not
exceed 30% of his total
salary
a)
Fuel used for Propulsion of Vessels

engaged in trade with foreign countries
or coastwide trade
refund or credit not exceeding
99% of duty imposed by law on such
fuel
b)
petroleum oils and oils from bituminous

minerals, crude oils imported by non
electric utilities and then sold to electric
utilities for generation of electric power
refund or credit not exceeding 50%
of duty imposed by law
c)
exportation of articles manufactured or

produced in Phil (including packing +
covering
+
marking/labeling)
of
imported materials for which duties have
been paid
CONDITIONS:
returning
from
regular
assignment
reassignment
dies
resigns
retires
1.
imported material was actually used in

the production of article to be exported
2.
refund or credit shall not exceed 100%

of duties paid on the imported material
3.
no determination by NEDA of the

requirement for certification on non
availability of locally produced or
manufactured competitive substitutes
for the imported material
(I think this means there are no local
substitutes for the material..)
4.
exportation must be made 1 year after

importation of material claim for refund
or credit must be made 6 months from
exportation
5.
when 2 or more result from the used of

same imported material, apportionment
shall be made
every application for drawback must pay

P500 filing, processing and supervision
fees
claims shall be paid by Bureau of
Customs within 60 days after receipt of
properly accomplished claims
II. RATES OF DUTY

A.
General Rules
Sec. 104
There shall be levied, collected and paid upon
all imported articles the rates of duty
indicated.
Max rate: NOT exceed 100% ad valorem

Rates of duty shall apply to ALL products
whether imported directly or indirectly of all
foreign products which do not discriminate
against Philippine products
If foreign country discriminates
additional 100% across-the-board
duty on their products
Rates of duty shall be subject to periodic
investigation by Tariff Commission and may
be
revised
by
President
upon
recommendation of NEDA.
Sec 106
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B.
Basis of Duty
Sec. 201 Basis of Dutiable Value (note: RA
8181 amended this section)
The DV shall be the Transaction Value which
is the price actually paid or payable for the
goods when sold for export to the Phil,
adjusted by:
a.
commissions and brokerage fees

costs of containers
costs of packing
b.
value of materials, components, parts

Taxation Law 2
and item incorporated in the imported
good;
tools,
dies, moulds used I
the
production;
materials consumed in the production;
engineering,
development,
artwork,
design, plans and sketches undertaken
not in Phil
such goods and services were
supplied by buyer to seller free of charge
or at a reduced rate to the extent that
value was not included in the price paid
imported goods may be had by filing

cash bond (imposable duties and taxes
+ 25% thereof)
c.
royalties and license fees that buyer paid
1.
d.
any part of the proceeds of a

subsequent resale, disposal or use of
good that accrues to the seller
e.
transportation cost from port of export

to port of entry in Phil
f.
loading, unloading and handling charges

(arrastre)
g.
insurance
if sale price is subject to some

consideration which value cannot be
determined such as:
a. seller fixes price on condition
that buyer will also buy other
goods in specified quantities
b. price of imported goods is
dependent upon price at which
buyer sells other goods to
seller
c. price is established on the basis
of
a
form
of
payment
extraneous to the Imported
goods
2.
part of proceeds of subsequent

resale , disposal or use of goods will
accrue to the seller
3.
buyer and seller are related to one

another and relationship affected
the price. They are related if:
officers or directors of one
anothers business
legally recognized partners in
business
Er-Ee (removed in RA 8181,
but included in CA 2-99)
Any person owns, controls or
holds 5% or more of the
outstanding voting stocks of
both of them
One of them directly or
indirectly controls the other
Both directly or indirectly
controlled by third person
members
of
same
family
including brothers and sisters
(whether full or half), spouse,
ancestors
and
lineal
descendants (note change in
CA 2-99)
Alternative Methods16:
1.
TV of identical goods sold for export in
Phil at or about the same time as good
being valued
2.
TV of similar goods sold for export in
Phil at or about the same time as good
being valued
if DV still cannot be determined using
through the successive application of the
methods above, the order of succession of
the ff may be reversed upon request of the
importer:
3. unit price at which the imported or similar
or identical good is sold domestically
same condition as when imported to
persons not related to seller at or about
the same time of the importation of the
goods being valued
COMPUTED VALUE =
cost of raw materials + profit and
general expenses + freight + insurance
fees + transpo expenses
4.
using other means consistent

accepted principles of GATT
values
shall
be
ascertained
by
Commissioner from reports of revenue
and commercial attaches
values shall be published in at least 1
newspaper of general circulation
with
party dissatisfied with the values can file

protest 15 days from date of publication
if it becomes necessary to delay the final

determination of DV,
release of
16
Methods are applied successively. Alternative methods are
used when value cannot be determined through successive
application of previous methods.
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Reasonable Doubt refers to any

condition that creates a probable cause
to make the Commissioner of Customs
believe in the inaccuracy of the invoice
value of imported goods as declared by
importer.
It may include the following situations:
identical Goods same in all respects

including physical characteristics, quality
and reputation.
Similar Goods although not alike in
all respects, have like characteristics and
component materials which enable them
to perform the same functions and be
commercially interchangeable
Sec. 202 Bases of Dutiable Weight
a) gross weight: weight of article + weight
of all containers, packages, holders and
packing where articles were contained
during importation

Taxation Law 2
b)
c)
d)
e)
legal weight: weight of article + weight

of immediate containers, holders where
such articles are usually contained at the
time of their sale to the public in retail
quantities
net weight: only the actual weight of
article
articles affixed to cardboard, cards,
paper, wood shall be dutiable together
with weight of such holders
when a single package contains articles
dutiable according to different weights,
the common exterior of the receptacle
shall be prorated.
Sec. 203 Rate of Exchange

Value quoted in foreign currency shall be
converted into Phil currency at the exchange
rate published by Central Bank
Sec. 204 Effective Date of Rates of Import
Duty
Imported articles shall be subject to rates of
import duty existing at the time of entry or
withdrawal from warehouse
For articles abandoned, forfeited or seized by
government and sold at public auction, the
rate of duty shall be the rates in force at the
time of auction
Duty based on weight, volume and quantity
shall be levied and collected on the weight,
volume and quantity at time of entry into
warehouse
or
date
of
abandonment/forfeiture/seizure.
Sec. 205
Imported article deemed entered in Phil for
consumption when:
entry form is properly filed and accepted
together with related documents
duties, taxes, fees and other charges are
paid or secured to be paid imported
article
deemed to be withdrawn from warehouse
in the Phil for consumption when:
entry form is properly filed and accepted
together with related documents
duties, taxes, fees and other charges are
paid or secured to be paid
Sec. 1308
Contents of Commercial Invoice
a. place, date, person by whom and the
person to whom articles are sold
If imported other than in a purchase,
place from which shipped, date when the
person to whom and by whom they are
shipped
b. port of entry
c. detailed description of the articles
(sufficient for tariff classification and
statistical purposes)
d. quantities
e. if articles bought in pursuance to
purchase, purchase price
in the
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f.
g.
h.
i.
j.
currency of purchase and the unit of

quantity in which the articles were
bought
if articles shipped otherwise than
purchase, value of each article in unit
which the article is usually bought and
sold and in the currency they are usually
transacted
OR price in the currency manufacturer
would receive if sold in ordinary course
of trade in usual wholesale quantities
all charges
discounts, rebates, drawbacks, bounties
current home consumption value or
price
other facts necessary for proper
examination,
appraisement
and
classification of the articles
Sec. 1309 Certificate of Invoice

Commercial invoice must be presented to the
consular officer of the Phil for certification at
the time or before or immediately after the
shipment of article
Consular invoice shall be certified in consular
district where articles were manufactured or
purchased or shippers.
In the absence of Phil consul, the invoice
may be certified by consular officer in the
district nearest the place of exportation or
person designated by DFA
Sec. 1310
All importations exceeding P10, 000 in DV
shall be entered only
1.
upon presentation of consular invoice
under penalties of falsification, perjury. All
importations exceeding P10, 000 in DV shall
be entered only upon presentation of
consular
invoice
under
penalties
of
falsification, perjury OR
2.
Affidavit showing cause why it is not
possible to produce invoice + bond
Exempt from consular invoice requirement:
a. conditionally free importations
b. tax free importations
c. importations of government agencies
and instrumentalities
d. importations on consignment basis
under RA 3137 and RA 6135 for re
export
Sec. 1313
Information Furnished on
Classification and Value
Classification:
When article not specifically classified in
code, the interested party, importer or
foreign exporter may submit a sample with
full description of component materials in a
written request.
Value:
Upon written application, Collector shall
furnish importer within 30 days the latest
information s to the DV of articles to be
imported.
Importer must present all pertinent papers
and documents, act in good faith and

Taxation Law 2
unable to obtain information due to unusual
conditions
like
characteristics
and
component materials
perform same functions
factors to determine WON
similar: quality, reputation and
trademark
-
Information given is not an appraisal nor is it

binding upon the Collectors right of
appraisal.
Customs Administrative Order # 2-96
d.
COMPONENTS OF DUTIABLE VALUE

COST
FREIGHT
1.
INSURANCE
PREMIUM
export value importers invoice or

transaction value
may be obtained from
identical or similar articles of other
transaction or source of information
COST
a.
Primary cost
- export value (at time of export or
date nearest exportation) at which
the same, identical or similar article
is freely offered for sale in the
principal export market of the
exporting country in the usual
wholesale quantities and in ordinary
course of trade
- including: value of containers,
coverings, packing other expenses,
costs and charges incident to
shipping article to Phil
b.
Alternate Cost
- to be used if value cannot be
ascertained thru the procedure
given above or reasonable doubt
exists as to the fairness of the value
determined thru that process
Cost at Country of Manufacture or
Origin
if such country is not the country
of exportation
2.
covering
INSURANCE
PREMIUM
transportation to port of entry to Phil
3.
FREIGHT covering transportation to

port of entry to Phil
RA 8181 (1996)
BASIS
OF
DUTIABLE
VALUE
IMPORTED ARTICLES, AMENDING
1464 (TARIFF AND CUSTOMS CODE)
c.
a.
commissions and brokerage fees

costs of containers
costs of packing
b.
value of materials, components, parts

and item incorporated in the imported
good;
tools, dies, moulds used in the
production;
materials consumed in the production;
engineering,
development,
artwork,
design, plans and sketches undertaken
not in Phil
such goods and services were
supplied by buyer to seller free of charge
or at a reduced rate to the extent that
value was not included in the price paid
c.
royalties and license fees that buyer paid
d.
any part of the proceeds of a

good that accrues to the seller
e.
transportation cost from port of export

to port of entry in Phil
f.
loading, unloading and handling charges

(arrastre)
g.
insurance
Identical and Similar goods

Identical Goods same in all
respects (physical characteristics,
quality and reputation)
minor differences in appearance
shall not preclude it from being
regarded as identical
Similar Goods
respects
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not alike in all
OF
PD
The DV of an imported article shall be the

transaction price, which shall be the price
actually paid or payable for the goods when
sold for export to the Phil, adjusted by
adding the ff to the extent that they are
incurred by the buyer but not included in the
price paid:
Third Country Cost

- export value of the article from
a country with the same stage of
economic development as the
country of exportation
Domestic Wholesale Selling Price
- domestic selling price in Metro
Manila or other principal market
in Philippines MINUS
25% selling price (for
expenses and profits)
duties and taxes paid
Relationship of Export Value and

Invoice Value
Alternative Methods:

Taxation Law 2
1.
Transaction Value of identical goods sold

or export to the Phil at or about the date
of exportation of the good being valued
if DV still cannot be determined using
through the successive application of the
2 methods above, the order of
succession of the ff may be reversed
upon request of the importer:
2.
unit price at which the imported or

similar or identical
good is sold
domestically
same condition as when imported to
persons not related to seller at or about
the same time of the importation of the
goods being valued subject to applicable
deductions provided under GATT
COMPUTED VALUE =
cost of raw materials + profit and
general expenses + freight + insurance
fees + transpo expenses
3.
using other means consistent

accepted principles of GATT
with
values shall be ascertained by

Commissioner
from reports of
revenue and commercial attaches
values shall be published in at least

1 newspaper of general circulation
party dissatisfied with the values

can file protest 15 days from date of
publication
if it becomes necessary to delay the

final determination of DV, release
of imported goods may be had by
filing cash bond (imposable duties
and taxes + 25% thereof)
Reasonable shall refer to any condition that

creates a probable cause to make the
Commissioner believe in the accuracy of the
invoice value of imported goods as declared
by importer.
Such conditions may include, but not limited
to:
1. if sale price is subject to some
consideration which value cannot be
determined such as:
seller fixes price on condition
that buyer will also buy other
goods in specified quantities
price of imported goods is
dependent upon price at which
buyer sells other goods to
seller
price is established on the basis
of
a
form
of
payment
extraneous to the Imported
goods
2.
part of proceeds of subsequent

resale , disposal or use of goods will
accrue to the seller
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3.
buyer and seller are related to one

another and relationship affected the
price. They are related if:
officers or directors of one
anothers business
legally recognized partners in
business
Any person owns, controls or
holds 5% or more of the
outstanding voting stocks of
both of them
One of them directly or
indirectly controls the other
Both directly or indirectly
controlled by third person
members
of
same
family
including brothers and sisters
(whether full or half), spouse,
ancestors
and
lineal
descendants
identical Goods same in all respects

including physical characteristics, quality and
reputation.
Similar Goods although not alike in all
respects, have like characteristics and
component materials which enable them to
perform the same functions and be
Customs Administrative Order # 2-99
(effective Jan 1, 1999)
DETERMINATION OF DUTIABLE VALUE
Dutiable Value (DV) shall be determined
using one of the 6 methods of valuation.
These methods must be applied in
sequence. However, method 4 and 5 may
be reversed at request of importer(unless
there shall be difficulty in using method 5 in
which case Commissioner shall reject
request)
Method # 1
TRANSACTION VALUE
Price actually paid or payable for goods when
sold for export to Phil
+ commissions & brokerage fees
+ cost of containers
+ cost of packing (labor, materials)
+ assists (value of goods and services
supplied by the buyer free of charge or at a
reduced price for use in connection with the
production and sale for export of the good)
+ royalties & license fees
+ value of any part of the proceeds of
imported goods that accrue directly or
indirectly to seller
+ cost of transport
+ loading, unloading, handling
+ insurance
DV must NOT include:
charges for construction, erection,
assembly maintenance or technical
assistance undertaken after importation
cost of transport after importation
duties and taxes of Phil

Taxation Law 2
-
other permissible deduction under WTO

Valuation Agreement
CONDITIONS so the Transaction Value shall

be the DV
1. sale for export to Phil
2. no restrictions as to the disposition or
use of goods by buyer except:
those imposed by law or Phil
authorities
limit the geographical area where
goods may be resold
do not substantially affect the value
of the goods
3. not be subject to some condition or
consideration for which value cannot be
determined
4. no part of the proceeds of any
subsequent disposal shall accrue to the
seller
5. buyer and seller are not related or if
they are, relationship did not affect the
price
DEEMED RELATED IF:
officers or directors of one anothers
business
legally recognized partners in business
Er-Ee
Any person owns, controls or holds 5%
or more of the outstanding voting stocks
of both of them
One of them directly or indirectly
controls the other
Both directly or indirectly controlled by
third person
Together they directly or indirectly
control a third person
Related by affinity or consanguinity up
to 4th civil degree
IF RELATED, USE OF TV ACCEPTABLE IF:
1. circumstances surrounding transaction
show that relationship did not influence
the price
2. TV closely approximates:
TV of unrelated buyers of identical
or similar goods
Deductive value of identical or
similar goods determined according
to method #4
Computed value of identical or
similar goods determined according
to method #5
Method # 2
TRANSACTION VALUE OF IDENTICAL
GOODS
The DV shall be the transaction value of
identical goods sold for export to the Phil and
exported at or about the same time as the
goods being valued.
Identical goods must be same commercial
level and substantially same quantity as the
goods being valued.
Identical goods
Same
in
all
respects
(physical
characteristics, quality and reputation)
Produced in the same country as the
goods being valued
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Produced by producer of the goods being

valued
excludes imported goods for which

engineering, development, artwork, design
work, plans and sketches is undertaken in
the Phil and provided by the buyer to the
producer free of charge or at a reduced rate
When no identical goods produced by

the same person
identical goods produced by different
producer in the same country
If
NO identical goods at same
commercial level and same quantity,
TV of identical goods at a different
commercial level and different
quantity may be utilized
TV shall be adjusted upward or
downward to account for the
difference
Method #3
TRANSACTION
VALUE
OF
SIMILAR
GOODS
The DV shall be the transaction value of
similar goods sold for export to the Phil and
exported at or about the same time as the
goods being valued.
Similar goods must be same commercial
level and substantially same quantity as the
goods being valued.
Similar goods:
like characteristics and like component
materials
capable of performing same functions
produced in same country
produced by dame producer
excludes imported goods for which
engineering, development, artwork, design
work, plans and sketches is undertaken in
the Phil and provided by the buyer to the
producer free of charge or at a reduced rate
When no similar goods produced by the

same person
similar goods produced by different
producer in the same country
If NO similar goods at same commercial

level and same quantity,
TV of similar goods at a different
commercial level and different quantity
may be utilized
TV shall be adjusted upward or
downward to account for the difference
Method # 4
THE DEDUCTIVE VALUE
DV is determined on the basis of sales in the
Phil of goods being valued of identical or
similar imported goods less certain expenses
resulting from importation and sale of goods.
Deductive Value is determined by making a
deduction from the established price per unit
for the aggregate of the ff elements:

Taxation Law 2
a.
b.
c.
d.
Commissions OR
additions made in connection with profit
and general expenses AND
transport, insurance and associated
costs
customs duties and other national taxes
PRICE - COMMISIONS/ADDITIONS
DUTIES/TAXES
= DEDUCTIVE VALUE
COSTS
Sec. 302 Countervailing Duty

When an article is granted any bounty,
subsidy or subvention upon its production,
manufacture or exportation in the country of
origin and importation of which is likely to
injure an established industry or retard the
establishment of industry in Phil
countervailing duty = ascertained or
estimated amount of bounty, subsidy or
subvention
CONDITIONS:
1. sold in the Phil in the same condition as
imported
2. sales taken place at or about the same
time of importation of good being valued
3. if no sale took place at or about the time
of importation
use sales at the earliest date after
importation (of the similar or identical
good) but before expiration of 90 days
4. if no sale meet the above conditions,
importer may choose the use of sales of
goods being valued after further
processing
Sec. 303 Marking

a. marking of articles
marked in official language of Phil and in
conspicuous places to indicate to the
ultimate purchaser the name of country
of origin
at or about the same time

45 days prior to and 45 days after
importation
Method # 5
THE COMPUTED VALUE
DV is determined on the basis of cost of
production + profit + general expenses
reflected in sales from exporting country to
the Phil of goods of same class or kind
b.
C.
Special Duties
Sec. 301 Dumping Duty
When Sec of Finance receives a petition or
has reason to believe that a specific foreign
article is being imported into, or sold/ likely
to be sold in Phil, at a price less than its
normal value
within 20 days, must determine prima
facie case for dumping
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marking of containers
failure to mark 5% ad valorem

failure or refusal to mark within 30 days from
date of notice shall constitute act o
abandonment.
DV is calculated by:
determine aggregate of relevant costs,
charges and expenses or value of (1)
materials and (2) production or processing
costs
costs
(containers,
packing,
assists,
+
engineering, artwork, plans and sketches
undertaken in Phil and charged to producer
+ profits and general expenses
+ cost of transport, insurance and charges
to the port or place of importation
Method # 6
THE FALLBACK VALUE
DV cannot be determined using any of
the above methods
Use other reasonable means consistent
with principles and general provisions of
GATT
Injury criterion shall be applied only on

imports from countries which adhere to
GATT
If article was allowed a drawback, only
the excess of the amount of drawback
over the total duties and taxes shall
constitute bounty, subsidy, subvention
When the conditions which necessitated
the imposition of countervailing duties
have ceased must discontinue
imposition
no imported article shall be delivered until it

has been inspected, examined or appraised
Sec. 304 Discrimination by Foreign Countries
The president may proclaim new and
additional duties in an amount not exceeding
100% ad valorem on articles from country
where:
1. imposes
an
unreasonable
charge,
exaction not equally enforceable in other
laws
2. discriminate against the commerce of
Phil in such a way that it places Phil
commerce at a disadvantage
D.
Flexible Tariff Rates

Sec.401
Pres is empowered to:
1. increase, reduce or remove existing
rates
2. establish quota or ban import of any
commodity
3. impose an additional duty not exceeding
10% ad valorem
the pres power to increase or decrease rates
of import duty shall include authority to
modify the form of duty

Taxation Law 2
2.
any order of Pres shall take effect 30 days

after promulgation
except if the imposition of additional duty is
less than 10%, it shall take effect upon the
discretion of the President.
3.
III. IMPOSITION OF DUTIES

A.
4.
Persons liable
signed by importer, consignee or holder of

bill, manager of corporation, firm or
association, licensed customs broker
Deemed Owner of Imported Articles:

1. consignee
2. holder of bill of lading
3. if consigned to order, the consignor
4. underwriters of abandoned articles and
salvors of articles saved at a wreck
B.
Contents:
name of importing vessel or aircraft
# and marks of packages,
quantity
description of article
value set in the invoice
C.
imported articles must be entered in

customhouse at the port of entry within
30 days from date of discharge by:
1. importer, being holder of B of L
2. customs broker
3. agent
Import entries:
1. Informal entry
articles
of
commercial
nature
intended for sale, barter or hire the
DV is P2,000 or less
personal and household effects, not
in commercial quantity, for personal
use
2.
Examination,
Appraisal
Classification (1405-08)
and
Procedure:
1. appraisers shall ascertain, estimate,
determine the value or price of articles
file action within 1 year
2. examiners shall render a report
3. appraisers shall describe all articles on
the face of entry in tariff
15 days
Declaration
An appraisal, fully passed upon and approved

by Collector, may not be altered or modified
except:
1. statement of error
2. request
for
reappraisal
and/or
classification
if duty assessed
entered value
amount is lower than the
D.
Assessment of Taxes
E.
Liquidation (1601-03)
Formal entry
may be for immediate consumption,
or under irrevocable domestic letter
of credit, bank guarantee or bond
for:
a. placing article in customs
bonded warehouse
b. constructive warehousing and
immediate transportation to
other Phil ports upon proper
examination and appraisal
c. constructive warehousing and
immediate exportation
Liquidation shall be made on the face of

entry showing the particulars
Written Declaration of Import Entry must

contain statements that declare:
1. full account of value or price
Finality of Liquidation:
After expiration of 1 year from date of final
payment of duties
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Form of Import Entry:

shall be signed by person making entries
have required # of copies as prescribed
by RR
the liability of importer for the duties,

taxes, fees and other charges constitute
a personal debt due to the government
which may be discharged only upon full
payment. It also constitutes a lien upon
the articles imported while articles are in
custody or subject to control of
government
all importations by the government, its
branches,
instrumentalities,
GOCCs,
agencies or instrumentalities owned or
controlled by government are subject to
similar duties, taxes and fees except for
those provided in Sec. 105 (conditionally
free imports)
the invoice and entry contains just and

faithful account of the value or price of
articles; nothing has been omitted or
concealed
to the best of knowledge of declaring, all
the invoices and B of L are the only ones
in exiting in relation to the importation
in question
the invoices, entries and B of L are
genuine and true
Daily record of entries liquidated shall be

posted ion the public corridor of customs
house
Tentative Liquidation
-if to determine the exact amount due some
future action is required, liquidation is
deemed tentative as to items affected and
shall be subject to future and final
adjustment and settlement within 6 months

Taxation Law 2
In the absence of protest, final and
conclusive between the parties unless
liquidation was tentative
IV. REMEDIES OF THE GOVERNMENT
A.
If within 15 days from notification, no owner

or agent is found or appears before Collector
property forfeited to Government and sold
at auction
SETTLEMENT
While case is pending, Collector may accept
settlement of any seizure case
upon approval of Commissioner
payment of fine ( 25% - 80% of the landed
cost of the article)
In case of forfeiture, should pay the
domestic market value of the seized article
Extrajudicial
1.
Enforcement of Tax Lien

Sec. 1508
When an importer has an outstanding and
demandable account with the Bureau of
Customs,
Collector shall hold the delivery of the
article
Upon notice, he may sell such importation
or a portion of it to satisfy the obligation
importer may settle his obligation anytime
before the sale
2.
Seizure and Forfeiture

Sec 2205
WHO: customs official
Fisheries Commissions
Philippine Coast Guard
to make seizure of any vessel, aircraft,
cargo, animal or any movable property when
the same is subject to forfeiture or liable for
any fine under the tariff and customs law
ADMINISTRATIVE PROCEEDINGS
(Secs 2301 2316)
When seizure is made:
1. Collector shall issue a warrant for the
detention of the property
Cash bond
if importer wishes to secure release of
article for legitimate use
amount fixed by Collector
conditioned on payment of appraised
value of article and/or fine, expenses,
costs
article will NOT be released if:
prima facie evidence of fraud in the
importation]
article is prohibited by law
2.
Report to Commissioner and Chairman of

Commission of Audit
3.
written notice to owner or importer

he shall he given opportunity to be heard
Notification to an unknown owner
- posting for 15 days in the public corridor of
customhouse
- publication in newspaper
- other means Collector considers desirable
4.
Collector shall make a list and particular

description and classification of the seized
property, appraisal based on local wholesale
values by
at least 2 appraising officials
absent such, 2 competent disinterested
citizens
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Settlement NOT allowed:

o
Fraud in importation
o
importation prohibited by law
o
release would be contrary to law
PROTEST
written protest
payment before protest is necessary (amount
due + docket fee)
When:
at the time payment of the amount
claimed to be due is made within 15 days
thereafter
Form:
filed according to RR; point out the
particular decision or ruling grounds used as basis
for the protest
Scope: limited to the subject matter of a single
adjustment (refers to the entire content of one
liquidation including duties, fees, surcharges and
fines) or other independent transaction
failure to protest will render the action of the
Collector final and conclusive except for manifest
error
upon demand of Collector, the importer shall
furnish samples of the articles which are the
subject of the protest
HEARING: 15 days after filing of protest
DECISION: within 30 days
REVIEW BY COMMISIONER:
15
days after
notification in writing of Collectors decision
if decision of Collector is adverse to
government automatic review
DECISION OF COMMISIONER: within 30 days
notice to party who brought case ( if seizure
case, personal service if practicable)
REVIEW BY SECRETARY OF FINANCE
if decision of Collector is adverse
government automatic review
to
Inaction of Commissioner or Secretary for 30

days from receipt of records of the case
decision under review becomes final and
executory
APPEAL TO CTA: within 30 days from receipt of
copy of decision
COMPROMISE

Taxation Law 2
Commissioner may compromise any case
subject to approval by Secretary
1.
2.
3.
B.
4.
Judicial
SEIZURE
WRITTEN NOTICE TO IMPORTER/ OWNER
SETTLEMENT
PROTEST
15 days
B.
If the result of the refund would result to

a corresponding refund of the internal
revenue taxes on the same importation,
Collector shall certify to Commissioner
who shall cause the said excess to be
paid, refunded or credited in favor of the
importer
Protest (2308-09. 2312)
30 days
written protest
payment before protest is necessary
(amount due + docket fee)
15 days
When: at the time payment of the amount

claimed to be due is made within 15 days
thereafter
HEARING
DECISION
If govt, automatic
review
Claim made in writing

Collector shall verify with the records in
his office
certify claim to Commissioner with his
recommendation and necessary papers
Commissioner shall then cause the claim
to be paid if found correct
Form: filed according to RR point out the

particular decision or ruling ground used as
basis for the protest
Review by
Commissioner
30 days
Scope: limited to the subject matter of a

single adjustment (refers to the entire
content of one liquidation including duties,
fees, surcharges and fines) or other
independent transaction
DECISION
Secretary of
Finance
failure to protest will render the action of

the Collector final and conclusive except
for manifest error
30 days
Appeal to CTA
upon demand of Collector, the importer

shall furnish samples of the articles
which are the subject of the protest
V.
REMEDIES OF THE TAXPAYER

A.
Refund (1707-08)
When:
1. manifest clerical error made in invoice or
entry
2. error in return of weight, measure and
gauge
certified,
under
penalties
of
falsification
or
perjury,
by
examining official
3. error in the distribution of charges on
invoices
not involving any question of law
certified,
under
penalties
of
falsification
or
perjury,
by
examining official
Conditions
1. errors discovered before payment OR
discovered within 1 year after the final
liquidation
2. written request and notice from importer
OR statement of error certified by the
Collector
How:
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111 of 112
C.
Abandonment (1801-03)
Article is deemed abandoned when:
1. owner, importer or consignee expressly
signifies in writing to Collector his
intention to abandon
2. after due notice, fails to file an entry
within 30 days from date of discharge of
last package from vessel or aircraft
3. after filing entry, fails to claim his
importation 15 days from date of posting
of the notice to claim such importation
Effect:
deemed to have renounced his interest
and property rights
ipso facto deemed property of the
Government
any official or employee who:
had knowledge of the existence of
abandoned article
custody or charge of such article
fails to report within 24 hours from time
article deemed abandoned shall be punished
accdg to sec. 3604 ( fine: P5000
P50,000mprisonment: 1 yr 10 yrs

Taxation Law 2
perpetual disqualification to hold public
office, vote and participate in election)
VI.
B.
Problems
1.
Whenever the decision of the Collector of

Customs is adverse to the government, it is
automatically
elevated
to
the
Commissioner for review and, if it is
affirmed by him, it is automatically
elevated to the secretary of Finance for
review. What is the basis of the automatic
review procedure in the Bureau of
Customs? Explain. (2002 Bar)
Answer: Automatic review is intended to
protect the interest of the Government in
the collection of taxes and customs duties
in seizure and protest cases. Without such
automatic
review,
neither
the
Commissioner
of
Customs
nor
the
Secretary of Finance would know about the
decision laid down by the Collector favoring
the taxpayer. The power to decide seizure
and protest cases may be abused if no
checks are instituted. Automatic review is
necessary because nobody is expected to
appeal the decision of the Collector which is
favorable to the taxpayer and adverse to
the
Government.
(Yaokasin
v.
Commissioner 180 SCTA 591
2.
The Collector of Customs of the Port of

Cebu issued warrants of seizure and
detention against the importation of
machineries and equipment by LLD Import
and Export Co. for alleged nonpayment of
tax and customs duties in violation of
customs laws. LLD was notified of the
seizure, but before it could be heard, the
Collector of Customs issued a notice of sale
of the articles. In order to restrain the
Collector from carrying out the order to
sell, LLD filed with the CTA a petition for
review with application for issuance of a
writ of prohibition. It also filed with the
CTA an appeal for refund of overpaid taxes
on its other importations of raw materials
which has been pending with the Collector
of Customs.
The Bureau of Customs
moved to dismiss this case for lack of
jurisdiction of the CTA. (2002 Bar)
A. Does the CTA have jurisdiction
over the petition for review and
writ of prohibition? Explain.
B. Will an appeal to the CTA for a tax
refund be possible? Explain.
Answer:
A.
No, because there is no decision as yet

by the Commissioner of Customs which
can be appealed to the CTA. Neither
would the remedy of prohibition lie
because the CTA has not acquired any
appellate jurisdiction over the seizure
case.
The writ of prohibition being
merely
ancillary
to
the
appellate
jurisdiction, the CTA has no jurisdiction
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3.
over it until it has acquired jurisdiction

on the petition for review.
No, because the Commissioner of
Customs has not yet rendered a decision
on the claim for refund. The jurisdiction
of the Commissioner and the CTA are not
concurrent in so far as claims for refund
are concerned. The only exception is
when the Collector has not acted on the
protested payment for a long time, the
continued inaction of the Collector or
Commissioner should not be allowed to
prejudice the taxpayer (Nestle v. CA,
July 6, 2001)
On the basis of a warrant of seizure and

detention issued by the Collector of
Customs for the purpose of enforcing the
Tariff and Customs laws, assorted brands
of cigarettes said to have been illegally
imported into the Philippines were seized
from a store where they were openly
offered for sale.
Dissatisfied with the
decision rendered after hearing by the
Collector of Customs on the confiscation of
the articles, the importer filed a petition for
review with the CTA. The Collector moved
to dismiss the petition for lack of
jurisdiction. Rule on the motion. (2000
Bar)
Answer: No. The legislators intended to
divest the RTCs of the jurisdiction to
replevin a property which is subject of
seizure and forfeiture proceedings for
violation of the Tariff and Customs Code
otherwise, actions for forfeiture of property
for violation of the Customs laws could
easily be undermined by the simple device
of replevin. (Dela Fuente v. De Veyra, 120
SCRA 455)
4.
What do you understand by the term

flexible tariff clause as used in the Tariff
and Customs Code? (2001 Bar)
Answer: The term flexible tariff clause
refers to the authority given to the
President to adjust the tariff rates under
Section 401 of the Tariff and Customs
Code, which is the enabling law that made
effective the delegation of the taxing power
to the President under the Constitution.

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Transfer Taxes

Transfer taxes are excise taxes imposed upon the

Transfer with retention or reservation of

Revocable transfers (Sec. 85C)

Transfers Inter Vivos - Generally, gratuitous

Transfers in contemplation of death (Sec.

UP LAW BAROPS 2007

The decedents health, as he knew it, at

the exercise of the power is subject to

If notice has not been given or the power

Transfers of property arising under a

by deed executed in contemplation of, or

by deed under which he has retained for

UP LAW BAROPS 2007

Transfers for insufficient consideration

If bona fide sale no value shall be

If not a bona fide sale - the excess of the

If inter vivos transfer is proven fictitious

Transfers Exempted and Properties Excluded

A life insurance policy taken out by the

When beneficiary is the estate,

When beneficiary is other than the

Death benefits received from the SSS, accruing

Amounts received from the Philippine and the

Benefits received by beneficiaries residing in the

Properties held in trust by the decedent

Transfers by way of bona fide sales

Separate or exclusive property of the surviving

Net estates which are not in excess of P200,000

Citizens and Resident Aliens all properties,

Non-resident Aliens only properties situated

UP LAW BAROPS 2007

It is inconsistent with the express provisions

CASE LAW: Collector v. Lara, 102 Phil 813 As a rule,

Franchise which must be exercised in the

Obligations or bonds issued by any

Shares, obligations or bonds issued by any

Shares, obligations or bonds issued by any

Shares or rights in any partnership, business

did not impose a transfer tax of any

allowed a similar exemption from transfer tax

For the reciprocity rule to apply, there must

Real property FMV shall be the FMV as

Q: What are NOT deductible as funeral

Right to usufruct, use or habitation, as

Decedents interest Value to be included in the

Expenses, losses, indebtedness and taxes

Funeral expenses (86-A1)

UP LAW BAROPS 2007

NOTE: The unpaid portion of the funeral

Q: What are examples of funeral expenses?

Cost of BURIAL PLOT, TOMBSTONES,

Judicial expenses of testamentary and

Q: What are examples of judicial expenses?

CASE LAW: Commissioner v. Court of Appeals,

Claims against the estate (86-A1)

Claims against insolvent persons (86A1)

UP LAW BAROPS 2007

That the value of the decedents

LOSSES deductible from the gross estate if

TAXES shall be deductible from the gross

Example: Mr. A died in December 2003.

Death the present decedent (Mr. A) died