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Taxation Reviewer 2007 PDF
Taxation Reviewer 2007 PDF
Taxation Law
SUMMER REVIEWER
PART I GENERAL PRINCIPLES
TAXATION power inherent in every sovereign
State to impose a charge or burden upon persons,
properties, or rights to raise revenues for the use and
support of the government to enable it to discharge
its appropriate functions
SCOPE OF TAXATION
TAXATION IS:
Unlimited,
Far-reaching,
Plenary
Comprehensive
Supreme
STAGES OF TAXATION: (LAP)
1. Levy
2. Assessment
3. Payment
Basic Principles of a Sound Tax System
1. Fiscal Adequacy
2. Theoretical Justice
3. Administrative Feasibility
INHERENT LIMITATIONS (SPING)
1) Situs or territoriality of taxation
2) Must be for a Public purpose
Test is whether proceeds will be
used for something which is the
duty of the State to provide.
Legislature is not required to
adopt a policy of all or none.
Incidental benefit to individual
does not defeat exemption
3) International comity
Property of a foreign State of
government may not be taxed by
another
4) Non-delegability of the taxing power
Contemplates
power
to
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amount, coverage, and situs of
tax;
Distinguish from power to assess
and collect
Exemptions: (a) presidential
taxing
powers;
(b)
local
governments
5) Exemptions of Government agencies
Taking money from one pocket
to the other
Applies only to entities exercising
government functions (acta jure
imperii)
CONSTITUTIONAL LIMITATIONS
A. Direct
1) Due process
Should not be harsh, oppressive,
or confiscatory (Substantive)
By authority of valid law
(Substantive)
Must be for a public purpose
(Substantive)
Imposed
within
territorial
jurisdiction (Substantive)
No arbitrariness in assessment
and collection (Procedural)
Right to notice and hearing
(Procedural)
2) Equal protection
All persons subject to legislation
shall be treated alike, under like
circumstances and conditions
both in privileges conferred and
liabilities imposed.
Power to tax includes power to
classify provided:
(a) Based
on
substantial
distinction
(b) Apply to present and future
conditions
(c) Germane to purpose of law
(d) Apply equally to all members of
the same class
3) Non-impairment clause
Rules
(a) When government is party to
contract granting exemption
cannot be withdrawn
without
violating
nonimpairment clause
(b) When exemption generally
granted by law withdrawal
does not violate
(c) When exemption granted
under a franchise may be
revoked; Consti provides that
franchise is subject to
amendment, alteration, or
repeal by Congress.
4) Must be uniform and equitable
Advisers: Atty. Serafin Salvador, Atty. Michael Dana Montero, Atty. Gaudencio Mendoza; Head: Julie Ann B.
Domino, Juan J. P. Enriquez III; Understudies: Rachelle T. Sy, Aldwin Mendoza, Timothy John Batan
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
B.
C.
D.
E.
Page 3 of 145
Raise revenue
Amount of
exaction
No limit
Superiority
of
contracts
Contracts may
be impaired
unless (a)
government is
party to
contract
granting
exemption; or
(b) involves
franchise
Taxes paid
form part of the
public funds
Transfer
of
property
rights
Persons
affected
Purpose
TAX
Raise
revenue
Compensation
Payment of
EMINENT DOMAIN
The taking of
property for public
use
Just compensation
Only particular
property is
comprehended
Source
Purpose
Object
Amount
TAX
Exercise of
Taxing power
Raise
revenue
Persons,
property and
privilege
no limit
LICENSE FEE
Emanate from the police
power of the State
Regulation
Right to exercise a
privilege
only necessary to carry
out regulation
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taxes accrue
to the general
benefit of the
citizens of the
taxing State
Applies to all
persons,
property and
excises that
may be
subject
thereto
TAX
Source
DEBT
Law; legal
obligation
Based on contract
Personal
Assignable
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Imprisonment is
sanction for nonpayment
No imprisonment
for non-payment
Kind of
demand
Purpose
Amount
When
imposed
Basis
FROM
SPECIAL
SPECIAL
ASSESSMENT
Only on land
persons,
properties, etc.
regardless of
Public improvement
public
that benefits the land
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Support are
of needed to see thisContribution
to cost
government
of public
improvement
Regular exaction Exceptional as to
time and locality
Necessity
Benefits obtained
TAX
Demand of
sovereignty
support of
government
no limit depends
on need of the
government
TOLL
Demand of
ownership
Collection for the
use of property
Fair return of the
cost of the property
or improvement
More comprehensive
than customs duty
Persons, prop, etc
CUSTOMS
DUTY
kind of tax
goods imported
or exported
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C.
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picture.Deposit 6) Authority to Inquire
into
Bank
Notwithstanding R.A. 1405 (Bank Secrecy
Law) the Commissioner is authorized to
inquire into the Bank deposits of:
(a) a decedent to determine his gross estate
(b) a taxpayer who has filed an application to
compromise payment of tax liability by
reason of financial incapacity
Note:
SOURCE
Residence of the debtor
Place of performance
Location of property
Location of property
Place of sale
Philippine source
Tax Base
Resident Citizen
Taxable
Income
Nonresident Citizen
Taxable
Income
Taxable
Income
Taxable
Income
Taxable on
income
Within and
without the
Philippines
Within the
Philippines
Within the
Philippines
Within the
Philippines
Gross
Income
Within the
Philippines
Taxable
Income
Within
or/and
without the
Philippines
(depending
on
classification
of individual
partner)
Same basis
as an
individual
(depending
on
classification
of decedent,
if estate,
trustor, if
trust)
Within and
Without the
Philippines
Within the
Philippines
Within the
Philippines
Resident Alien
Nonresident Alien
engaged in trade or
business
Nonresident Alien not
engaged in trade or
business
General Professional
Partnership
Taxable
Income
Domestic Corporation
Taxable
Income
Resident Foreign
Corporation
Non-resident Foreign
corporation
Taxable
Income
Gross
Income
Unallocated = Foreign
deductions
deductions
TYPES OF TAXPAYERS
A. Individuals
Kinds of Individuals
1) Resident Citizen
2) Nonresident Citizen = citizen of the
Philippines who:
(a) Establishes the fact of his physical
presence abroad with a definite intention
to reside therein
(b) Leaves the Philippines during the taxable
year to reside abroad, as immigrant or for
employment on a permanent basis
(c) Works & derives income from abroad &
whose employment requires him to be
physically present abroad most of the
time (i.e. not less than 183 days) during
the taxable year
(d) Previously considered as nonresident
citizen & arrives in the Philippines at any
time during the taxable year to reside
permanently in the Philippines
3) Resident Alien
4) Nonresident Alien
a) Those engaged in trade or business in
the Philippines who come and stay in the
Philippines for an aggregate period of
more than 180 days during any calendar
year
b) Those not engaged in trade or business
in the Philippines, which include nonresident aliens whose stay in the
and aor less
Philippines
is QuickTime
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c) Aliens employed
bypicture.
regional or area
headquarters and regional operating
headquarters of multinational companies
in the Philippines
d) Aliens employed by offshore banking
units
e) Aliens
employed
by
petroleum
contractors and subcontractors
TYPES OF INCOME
1) General (part of gross income, subject to 532%)
a) Compensation Income
b) Income from Business
c) Income from Exercise of Profession
2) Special Types of Income (not part of gross
income, subject to final tax)
a) Interests, royalties, prizes and other
winnings subject to final tax (Passive
Income)
b) Cash & property dividends (does not
include stock dividends; these are
realized only upon their subsequent sale)
(Passive Income)
c) Capital gains from sale of real property
d) Capital gains from sales of shares of
stock not listed in the stock exchange
e) Capital gains from sale of shares of stock
listed in stock exchange (subject to
percentage tax
B. Estates and Trusts
Estate: property, rights and obligations of a
person which are not extinguished by his death
and those that accrues thereto; taxed in the same
way as an individual provided it is irrevocable and
earns income; what is taxed is not the property
that constitutes the trust (this was already subject
to donors tax) but the income of such property.
Trust: arrangement created by agreement under
which title to property is passed to another for
conservation or investment with the income and
the corpus/principal distributed in accordance
with the directions of the creator; to be taxable as
a separate entity, grantor must have absolutely
and irrevocably given up control and benefit over
the trust.
C. Corporation
A corporation shall include partnerships, no matter
how created or organized. Joint stock companies,
joint accounts, associations, and insurance
companies
But does not include, for the purpose of
imposing ordinary 35% corporate income tax:
o general professional partnerships
o joint venture or consortium formed for the
purpose of undertaking construction
projects or engaging in petroleum, coal,
geothermal & other energy operations
pursuant to an operating or consortium
agreement under a service contract with
Page 14 of 145
General Types:
1) Domestic Corporation is created or
organized in the Philippines or under its laws
2) Foreign Corporation is organized and
existing under the laws of a foreign country
(a) Resident foreign corporation foreign
corp. engaged in trade or business within
the Philippines
(b) Nonresident foreign corporation
foreign corp. not engaged in trade or
business within the Philippines
D. Partnerships
Kinds of Partnerships
1) General Professional Partnerships
Established solely for purpose of exercising
common profession and not part of income
derived from engaging in trade or business.
As an entity, it is not subject to income tax.
Partners are liable for income tax on their
distributive share (computed by dividing net
income of GPP). Each partner shall report his
distributive share as part of his gross income.
2) Taxable/Business/Ordinary Partnership
All other partnerships no matter how created
or organized.
Includes unregistered joint ventures and
business partnerships.
Taxable as an entity ordinary corporate
income tax.
Joint ventures are not taxable as
corporations when its purpose if a)
undertaking
construction
projects;
b)
engaged in petroleum, coal and other energy
operation under a service contract with the
government.
Partners are considered stockholders;
therefore, their distributive share is taxed as
dividends.
TAX ON CORPORATIONS
I. DOMESTIC CORPORATIONS
A. In general
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32% (2000-2005)
35% (2006-2008)
30% (2009
onwards)
20% of
GNP
40%
4% of GNP
0.9%
Does not
exceed 55%
Gross Income =
Gross Sales
( - ) Sales returns,
discounts
and
allowances
( - ) Cost of goods sold
10%
On related trade,
business or activity;
35% (2006) if total
gross income from
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GOCC, Agencies
and
Intrumentalities,
including
PAGCOR
32%
(20002005)
35%
(2006)
Exempt
10%
unrelated trade,
business, or activity
exceed 50% of total
income
Same tax rate upon
their taxable
income in a similar
business, industry,
or activity
On interest income
from foreign
currency
transactions
including interest
income from
foreign loans
GOCCs
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General Rule:TIFFall
corporations,
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instrumentalities owned or controlled by the govt.
are taxable.
Exceptions:
1) GSIS
2) SSS
3) PHIC
4) PCSO
2% of GI = P10,000
35% of TI = P17,500
2% of GI = P10,000
35% of TI = P7,000
32% (2000-2005)
35% (2006-2008)
30% (2009 onwards)
Exempt
10%
On taxable income
Air Canada vs. CIR, CTA Case No. 6572, Dec. 22,
2004
It is evident that the definition of Gross Philippine
Billings under Section 28(A)(3)(a) of the 1997 Tax
Code covers the gross revenue derived from the
carriage of persons, excess baggage, cargo and mail
originating from the Philippines in a continuous and
uninterrupted flight irrespective of the place or sale
or issue and the place of payment of the ticket or
passage document. To originate would mean to
cause the beginning of; to start (a person or thing) on
a course or journey; to begin, start. In other words,
the flights carrying the passengers must have
originated or started from the Philippines. Verily,
petitioner, being an off-line international carrier, as
authorized to operate by the CAB and having no
flights originating from the Philippines in a continuous
and uninterrupted flight, cannot be taxed pursuant to
Section 28(A)(3)(a) of the 1997 Tax Code, that is,
based on their Gross Philippine Billings.
However, although petitioner Air Canada is not
liable to pay the tax as an international air carrier
(2.5% on gross Phil. Billings), it is still liable to pay
income tax as a resident foreign corporation.
Under Section 22 of the 1997 Tax Code, the term
resident foreign corporation applies to a foreign
corporation engaged in trade or business within the
Philippines, while the term non-resident foreign
corporation applies to a foreign corporation not
engaged in trade or business within the Philippines.
However, with regard to the term doing or engaged
in business, there is no fixed or specific criterion as
what constitutes doing or engaging in business. In
the case of The Mentholatum Co., Inc., et al. vs.
Mangiliman, et al., 72 PHIL 524, the Honorable
Supreme Court had thoroughly and clearly explained
the term in this way:
There is no specific criterion as to what
constitutes doing or engaging in or transacting
business. Each case must be judged in the light of
its peculiar environmental circumstances. The term
implies continuity of commercial dealings and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some
of the functions normally incident to, and in
progressive prosecution of commercial gain or for the
purpose and object of the business organization.
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32% (2000-2005)
35% (2006-2008)
30% (2009
onwards)
A. In general
Page 19 of 145
D. Composition:
The
following
constitute
accumulation of earnings for the reasonable
needs of the business: (ILL ABE)
1) Allowance for the increase in the
accumulation of earnings up to 100% of the
paid-up capital of the corporation as of
Balance
Sheet
date,
inclusive
of
accumulations taken from other years;
2) Earnings reserved for definite corporate
expansion projects or programs requiring
considerable capital expenditure as approved
by the Board of Directors or equivalent body;
3) Earnings reserved for building, plants or
equipment acquisition as approved by the
Board of Directors or equivalent body;
4) Earnings reserved for compliance with any
loan covenant or pre-existing obligation
established under a legitimate business
agreement;
5) Earnings required by law or applicable
regulations to be retained by the corporation
or in respect of which there is legal
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6) In the case
of tosubsidiaries
of foreign
corporations
in
the
Philippines,
all
undistributed earnings intended or reserved
for investments within the Philippines as can
be proven by corporate records and/or
relevant documentary evidence.
E. Covered Corporations: Only domestic and
closely-held corporations are liable for IAET.
I. GROSS INCOME
All income derived from whatever source, including
(but not limited to the following items) (GRIP CARD
GPP)
1) Gross income derived from the conduct of trade
or business or the exercise of a profession
2) Rent Income
3) Interest Income
4) Prizes & winnings
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a
for (Uncompressed)
services
in
whatever
form paid,
5) Compensation TIFF
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including, but notarelimited
to fees, salaries, wages,
commissions & similar items
6) Annuities
7) Royalties
8) Dividend Income
9) Gains derived from dealings in property
10) Pensions
11) Partners distributive share from the net income
of the GPP (distributive share from ordinary
must
render
taxpayer
incapable of working (Ex. Does
not include STD)
o Benefits from separation due to
retrenchment
come
under
exemption (no choice/option; but
if the Ee avails of an optional
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reason that he was separated for
reasons beyond his control,
therefore, he cannot claim
exemption of the benefits on this
ground but he can claim
under other grounds such as
RPBP or RA 7641.
c) Benefits received from a foreign
government by resident of non
7) Miscellaneous Items
(a) income derived by foreign government (from
investments in Philippines in loans, stocks,
bonds or other domestic securities)
Refers only to passive income. If the
foreign government engages in trade,
income is taxable.
(b) income derived by govt./its political
subdivisions (from public utility or exercise
essential governmental function)
Key:
Income
should
accrue
to
government; if the income is retained by
the public utility, it is not exempt look
at charter of political subdivision/GOCC
to determine whether its income accrues
to the government or not.
(c) prizes, awards in sports competition
sanctioned by national sports associations
whether held in Philippines or abroad
Contemplates a particular competition,
not a cumulative achievement (Ex.
Sportsman of the year award does not
qualify for exemption)
(d) prizes & awards
in recognition of religious, charitable,
scientific, educational, artistic, literary or
civic achievement, but only if:
recipient was selected without any action
on his part
recipient not required to render
substantial future services as a condition
of receiving the prize/award
Example: Nobel prize award
Construed strictly, take note of 7
categories. It does not include athletic
achievement.
Contemplates a rational selection
process; cannot just be randomly
selected.
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other benefits (i.e.
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productivity incentives & Christmas bonus)
Total exclusion shall not > P30,000
(f) GSIS, SSS, Medicare, Pag-ibig contributions
& union dues of individuals
(g) Gains form the sale of bonds, debentures or
other certificates of indebtedness with a
maturity of more than 5 years
(h) Gains from redemption of shares in mutual
fund
33%
32%
4)
5)
6)
7)
8)
9)
10)
Taxes
Depreciation
Interest
Depletion of oil & gas wells & mines
Charitable & other contributions
Research & Development
Pension trusts
Requirements:
Page 26 of 145
sufficient
2. INTEREST
Requisites for deductibility, as implemented
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(a) there must
be an
indebtedness
(b) there should be an interest expense paid
or incurred upon such indebtedness
(c) indebtedness must be that of the
taxpayer
(d) indebtedness must be connected with
the taxpayers trade, business or
exercise of profession
(e) interest expense must have been paid or
reality is dividend
9. interest on unpaid salaries and
bonuses
10. interest calculated for cost keeping
on account of capital or surplus
invested in business which does not
represent charges arising under
interest-bearing obligation
11. interest paid when there is no
stipulation for the payment thereof
OPTIONAL
EXPENSE
TREATMENT
OF
INTEREST
LIMITATIONS ON DEDUCTIONS
In case of a nonresident alien individual
engaged in trade/business in the Philippines,
taxes to be deducted shall be allowed only if
& to the extent that they are connected with
income from sources w/in the Philippines
Tax Credit: a right of an income taxpayer to
deduct from income tax payable the foreign
income tax he has paid to his foreign country
subject to limitation.
WHO CAN CLAIM?
1. Citizen
2. Domestic Corp
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3. Member
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4. Beneficiary
estate or trust
WHO CANNOT CLAIM?
1. Alien individual (except resident
aliens deriving income from within &
without the Phils., if there is
reciprocity)
2. Foreign Corp.
Limitation
of
Credit
(Substantiation
Requirements)
-The tax credit shall be allowed only
if the taxpayer establishes to the satisfaction of
the Commissioner the following:
a. The total amount of the income derived
from sources without the Philippines;
b. The amount of income derived from each
country, the tax paid or incurred to which is
claimed as a credit under said paragraph, such
amount to be determined under rules and
regulations prescribed by the Secretary of
Finance; and
c. All other information necessary for the
verification and computation of such credits.
What amount may be taken as tax credit: The
amount of tax credit allowed is equivalent to the
tax paid or incurred to a foreign country during
the taxable year but NOT TO EXCEED THE
FOLLOWING LIMITS:
Per Country Limitation Amount of credit to tax
paid/incurred to any country shall not exceed
same proportion of the tax against which such
credit is taken
Country A
Country B
Philsource
income
Total NI
all
Net
Income
P50,000
40,000
110,000
P200,000
Actual Foreign
Tax Paid in
Philippine
Peso
P18,000
P11,000
Phil
Income
Tax due at
32%
P29,000
P64,000
4. LOSSES
Requisites for deductibility of ordinary loss
(a) loss must be of the taxpayer
(b) actually sustained during the taxable
year
(c) not compensated for by insurance or
other forms of indemnity
of
rate
x 200% = 6,000
= 3,600
b.
c.
d.
e.
f.
A. ADDITIONAL
REQUIREMENT
FOR
DEDUCTIBILITY OF CERTAIN PAYMENTS tax required to be deducted/withheld has been
paid to BIR
B. NON-DEDUCTIBLE ITEMS
Specific Items Under Section 36:
1. Personal, living or family expenses
2. Amounts paid out for new buildings or for
permanent improvements or betterments made to
increase the value of any property or estate (not
applicable to intangible drilling & development
costs incurred in petroleum operation)
3. Amounts expended in restoring property or in
making good the exhaustion thereof for w/c an
allowance is or has been made
4. Premiums on life insurance policy when the
taxpayer is directly/indirectly a beneficiary under
such policy
5. No deduction shall be allowed in Losses from
Sales
or
Exchanges
of
Property
directly/indirectly:
a) between members of a family (include only
brothers & sisters, spouse, ancestors, &
lineal descendants)
b) between an individual & a corp. more than
50% in value of outstanding stock is owned
by such individual (except in case of
distributions in liquidation)
c) between 2 corps. more than 50% in value of
outstanding stock owned by same individual,
Page 35 of 145
OPTIONAL
Personal Exemption
Single Married Individual (or judicially
declared as legally separated without any
dependent)
Head of Family (unmarried or legally
separated with qualified dependent/s)
Each married individual
P20,000
25,000
32,000
Head of Family
1) an
unmarried/legally
separated
man/woman with
(a) One or both parent
(b) One or more brothers or sister
(c) One or more legitimate, recognized
natural/legally adopted children
2) Who are living with & dependent upon
him for their chief support
3) Where such brothers/sisters/children are:
(a) Not more than 21 years old
(b) Unmarried, and
(c) Not gainfully employed
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brothers/sister,
of age,
are incapable of self support
because of mental or physical defect
An illegitimate child is within the meaning
of a recognized natural child.
Under the provision on additional
exemption for dependents, illegitimate
children are specifically included under the
term dependents.
A senior citizen, whether relative or not,
lliving with the taxpayer or not, can be
classified as a dependent to make a taxpayer
a head of a family not exceeding 4 (RA 7432)
In case of married individuals, where only
1 of the spouses is deriving gross income,
only such spouse shall be allowed additional
exemption.
Chief support means more than one half
of the requirements for support.
Parents, brothers, and sisters, who are
qualified dependents may entitle the taxpayer
to the personal exemption of P25,000 as
head of the family but not to the additional
exemption of P8,000.
Note:
NOTE:
Individuals not entitled to personal and additional
exemptions:
ON
INSURANCE
the
H. DETERMINATION
OF
AMOUNT
RECOGNITION OF GAIN OR LOSS
&
Gift
Acquired
for
less
than
adequate
consideration
if
property
acquired where
G/L
is
not
recognized
dividends
amt.
of
any
gain
recognized
by
the
exchange
(2) decreased by:
money received
fair market value of the
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2. Exchange of property
a. GENERAL RULE: the entire amount of
the gain or loss shall be recognized upon
the sale or exchange of property
b. EXCEPTION:
no gain or loss is
recognized (tax-free exchanges)
(1) If in pursuance to a plan of merger or
consolidation
(a) a corporation exchanges property
solely for stocks in a corp. (both
parties to merger/consolidation)
(b) shareholder exchanges stock in a
corp. for the stock of another
corp. (both corps. are parties to
the merger/consolidation)
(c) security holder of a corp.
exchanges his securities in such
corp. solely for stock or securities
in another corp. (both corps. are
parties
to
the
merger/consolidation)
(2) If property is transferred to a corp. by
a person in exchange for stock/unit of
participation in such corp. of w/c as a
result of such exchange such person,
alone/together w/ others, not exceeding 4
persons, gains control of said corp.
(stocks issued for services shall not be
considered as issued in return for
property)
o Control is ownership of stocks in a
corporation possessing at least 51%
of the total voting power of all
classes of stocks entitled to vote.
BASIS: same as the basis of
property, stock/securities exchanged
(a) decreased by:
money received
fair market value of the other
property received
(b) increased by:
amount treated as dividend
amount of any gain recognized
by the exchange
Page 39 of 145
Dividends
income within, if :
> 50% of the Gross Income of
such foreign corp. for the 3yr. period ending w/ the close
of the taxable yr. prior to the
declaration of dividends (or
for such part of such period
as the corporation has been
in existence) was derived
from
sources
w/in
the
Philippines
Extent:
Phil Gross Income x Dividend
=Income
Total Gross Income
within
Services
(Compensation
for
labor/personal
services)
Rentals
Royalties
Gain on sale of
Real property
Gain on sale of
Personal
Property other
than shares of
stock
in
a
domestic
corporation
purchased
in
one country and
sold in another
Income without, if
< 50% of the Gross Income of
such foreign corp. for the 3yr. period ending w/ the close
of the taxable yr. prior to the
declaration of dividends was
derived from sources w/in the
Philippines.
Therefore, nothing of such
dividends forms part of
income within
Place of performance of service
Page 40 of 145
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be identified as the expense that generated the
income.
For instance, if ABC Corp.
manufactures clothes and sells it in the Phils.,
and sells shoes in the US. The cost of
manufacturing the clothes are attributable to
the income generated from selling the clothes.
Since the income from the sale of clothes is
income within, then the expense for
manufacturing them must be deducted from
Income
from
Sources
Page 41 of 145
Without
the
partly
within,
within,
Income
within
-------------------------Worldwide
Income
Deductions
x
ACCOUNTING
ACCOUNTING
Unallocated
expense
from
income
within
PERIOD
&
METHODS
OF
A. ACCOUNTING PERIODS
1. General Rule (Sec. 43): Taxable income is
computed upon the basis of taxpayers
annual accounting period (fiscal or calendar
year) in accordance with the method of
accounting employed
2. If no method of accounting employed or
method does not clearly reflect the income,
computation shall be made in accordance w/
such method as the opinion of the
Commissioner clearly reflects the income.
3. taxable income is computed based on
calendar year if:
(a) accounting period is other than a fiscal
year
(b) taxpayer has no accounting period
(c) taxpayer does not keep books
(d) taxpayer is an individual
4. fiscal year: accounting period of 12 months
ending on the last day of any month other
than December
5. calendar year:
accounting period from
January 1 to December 31
B. PERIODS IN WHICH ITEMS OF GROSS
INCOME INCLUDED (Sec. 44)
1. Amount of all items of gross income shall be
included in the gross income for the taxable
year in which received by the taxpayer,
unless, any such amounts are to be properly
accounted for in a different period under
methods of accounting permitted
2. In case of death of taxpayer include for the
taxable year in which falls the date of his
death, all amounts which accrued up to the
date of his death, if not otherwise properly
includible in respect of such period or a prior
period
C. PERIOD FOR WHICH DEDUCTION
CREDITS TAKEN (Sec. 45)
Page 42 of 145
AND
Illustration:
A leases an office space at P1M per year and
Illustration:
ABC Corp. entered into a contract with X whereby the
former agreed construct a condominium for the latter
to be completed in 5 years for a fee of P10M. For the
first year of construction, ABC Corp was able to
construct 30% of the condominium. It will therefore
Page 43 of 145
P 10 M
x 30%
P 3M
3.
INSTALLMENT BASIS
1. SALES OF DEALERS IN PERSONAL
PROPERTY
Under Rules and Regulations (R&R)
prescribed by the Sec. of Finance, upon
recommendation of the Commissioner: a
person who regularly sells or otherwise
disposes of personal property on the
installment plan may return as income
therefrom in any taxable year that
proportion of the installment payments
actually received in that year, which the
gross profit realized or to be realized
when payment is completed, bears to the
contract price.
P100,000
75,000
P 25,000
SALES
OF
REAL
PROPERTY
CONSIDERED AS CAPITAL ASSET BY
INDIVIDUALS
4.
CHANGE
FROM
INSTALLMENT BASIS
ACCRUAL
TO
I. INDIVIDUAL RETURN
A. WHO ARE REQUIRED TO FILE AN ITR:
I. Individual
1) Filipino citizen residing in the Philippines
2) Filipino citizen residing outside the
Philippines, on his income from sources
within the Philippines
3) Alien residing in the Philippines, on
income derived from sources within the
Philippines
4) Nonresident alien engaged in trade or
business or in the exercise of profession
in the Philippines
5) An individual (citizen/alien) engaged in
business or practice of a profession
within the Philippines regardless of the
amount of gross income
6) Individual deriving compensation income
concurrently at any time during the
taxable year
7) Individual whose pure compensation
income derived from sources within the
Philippines exceeds P60,000.
II. Taxable Estate and Trust
III. General Professional Partnership
IV. Corporation
1. Not exempt from Income tax
2. Exempt from income tax under
Section 30 of the NIRC but has not shown
proof of exemption.
B. WHO ARE NOT REQUIRED TO FILE AN
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see this picture. to Rules and
information return
Regulations prescribed by the Sec. of
Finance, upon recommendation of the
Commissioner)
An individual whose gross income does not
exceed his total personal and additional
exemptions
An individual whose compensation income
derived from one employer does not exceed
Page 45 of 145
C. WHERE TO FILE
Except in cases where the Commissioner
otherwise permits:
1) Authorized agent bank
2) Revenue District Officer
3) Collection Agent
4) Duly authorized Treasurer of the
city/municipality in w/c such person has
his legal residence/principal place of
business in the Philippines, or
5) Office of Commissioner, if there be no
legal residence/ place of business in the
Philippines
D. WHEN TO FILE:
1) for
any
individual
(compensation,
business, professional income)
on or before April 15 of each year
covering income for preceding
taxable year
example: individuals income from
Jan. to Dec. 1997, shall be filed on or
before April 15, 1998
2) individual subject to capital gains tax
(a) sale/exchange of shares of stock not
traded thru a local stock exchange:
within 30 days after each
transaction
(b) sale/disposition of real property
within 30 days following each sale
or other disposition
HUSBAND AND WIFE
File 1 return for the taxable yr., if ff.
requisites complied :
1) Married individuals (citizens, resident
or nonresident aliens)
2) Do not derive income purely from
compensation
If impracticable to file 1 return: each
spouse may file a separate return but the
returns shall be consolidated by the
Bureau for purposes of verification for the
taxable yr.
UNMARRIED MINOR
Income of unmarried minors derived from
property received by the living parent
shall be included in the return of the
parent, except:
1) when donors tax has been pd. on
such property, or
2) when transfer of such property is
exempt from donors tax
Page 46 of 145
Revocable trusts
Income for the benefit of the
grantor
Estate or Trust
Beneficiary
Fiduciary
or
Beneficiary,
depending upon
the
amounts
which
are
property paid or
credited
Fiduciary
or
beneficiary,
depending upon
the
amounts
which
are
property paid or
credited
Grantor
Grantor
IMPOSITION OF TAX
A. Application of tax:
1) Applies to income of estates or of any
kind of property held in trust, including:
(a) income accumulated in trust:
1. for
the
benefit
of
unborn/
unascertained
person(s)
w/
contingent interests
2. held for future distribution under the
terms of the will or trust
(b) income:
1. to be distributed currently by the
fiduciary to the beneficiaries
2. collected by a guardian of an infant
to be held or distributed as the court
may direct
(c) income received by estates of deceased
persons
during
the
period
of
administration or settlement of the estate
(d) income which, in the discretion of the
fiduciary, may be either distributed to
beneficiaries or accumulated
C. Taxable Income
1) Computed in same manner & on the same
basis as in the case of an individual,
EXCEPT:
(a) deduction allowed: amount of income of
the estate/trust for the taxable yr. w/c is
to be distributed currently by the fiduciary
to the beneficiaries & the amt. of the
income collected by a guardian of an
infant w/c is to be held./distributed as the
court may direct
1. amt. allowed as deduction is
included as TI of the beneficiaries,
whether distributed or not
2. amt. allowed
as deduction under
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as deduction under (b) hereof
(b) additional deduction: amt. of the income
of the estate/trust for its taxable yr.,
properly paid/credited during such yr. to
any legatee, heir or beneficiary applies to
cases of :
1. income received by estates of
deceased person during the
period of administration or
settlement of the estate
2. income w/c, in the discretion of the
fiduciary,
may
be
either
distributed to the beneficiary or
accumulated
3. amt. deducted is included in TI of
the legatee, heir or beneficiary
2) for trust administered in a foreign country:
deductions in a) and b) not allowed provided,
the amt. of income included in the return of
said trust shall not be included in computing
the income of the beneficiaries
D. Exemption Allowed to Estates and Trusts:
P20,000
E. Revocable Trusts
1) Requisites: the power to re-vest in the
grantor title to any part of the corpus of the
trust is vested(a) in the grantor either alone/ in conjunction
w/ any person not having a substantial
adverse interest in the disposition of
such part of the corpus/income
therefrom
(b) in any person not having a substantial
adverse interest in the disposition of
such part of the corpus/income
therefrom
2) effect: the income of such trust shall be
included in computing the taxable income of
the grantor
F. Income for Benefit of Grantor
1) Requisites: where any part of the income
of a trust is, or in the discretion of the
grantor/any
person
not
having
a
substantial adverse interest in the
disposition of such part of the income
(a) may be held/accumulated for future
distribution to the grantor
(b) may be distributed to the grantor
(c) may be applied to the payment of
premiums upon policies of insurance
on the life of the grantor
2) Effect:
such part of the income be
included in computing the taxable income
of the grantor
G. Fiduciary Returns
1) Who shall make the return?
(a) Guardians
(b) Trustees
(c) Executors
(d) Administrators
Page 50 of 145
E. DISTRIBUTION OF DIVIDENDS/ASSETS BY
CORPS.
Dividends = any distribution made by a corp. to
its SH out of its earnings or profits & payable to
its SH, whether in money or in other property
1. Gain/loss sustained by SH for any liquidating
dividends received is a taxable income or a
deductible loss (as the case may be)
2. Stock Dividends representing the transfer of
surplus to capital account shall not be subject
to tax.
3. Amt. distributed in redemption or cancellation
of stock is taxable income to the extent that it
represents a distribution of earnings/profits
4. Net income of a partnership after deducting
the corporate income tax shall be deemed to
have been actually or constructively received
by the partners in the same taxable yr. &
shall be taxed to them in their individual
capacity, whether actually distributed or not
DECLARATION
INDIVIDUALS
A. In general:
OF
INCOME
TAX
BY
Tax
@35%:
105,000
350,000
700,000
Payable
(each Q)
105,000
245,000
350,000
875,000
175,000
2) EMPLOYEE:
(a) If fails to file withholding exemption cert.
or supplies inaccurate/false info, the tax
shall be collected from him + penalties or
additions to the tax
(b) Excess taxes w/held by the employer shall not be
refunded if due to:
1. failure or refusal to file the w/holding
exemption certificate
2. false & inaccurate information
C. STATEMENTS & RETURNS
1) Requirements
(a) employer shall furnish EE on/before Jan.
31 of the succeeding yr. or on the same
day of last payment made (if employment
is terminated), a written statement
confirming the wages paid by the
employer to employee
1. Annual Information Returns
(b) employer shall submit an annual
information return to the Commissioner
containing:
1. a list of employees
2. total amt. of compensation income of
each EE
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4. With copies of statement referred to in
(A) above
2) Extension of Time
Commissioner may grant the ER a
reasonable extension of time to furnish &
submit the statements & returns required
Withholding Tax on Compensation:
Income of Recipient
Income which any creditable tax is required
to be withheld at source shall be included in
the return of its recipient.
The excess of the amount of tax withheld
over the tax due on his return shall be
refunded to him, subject to Section 204
(abatement, refund/credit taxes)
TRANSFER IN CONTEMPLATION OF
DEATH, Transfers impelled by the thought of
an impending death (i.e., the motivating
factor or controlling motive is the thought of
death), without regard of the state of health
of the transferor
REVOCABLE TRANSFER
A transfer whereby the terms of enjoyment of
Page 54 of 145
PRIOR INTERESTS
All transfers, trusts, estates, interests, rights,
powers and relinquishment of powers made,
created,
arising,
existing,
exercised
or
relinquished before or after the effectivity of the
NIRC.
2. Shares of Stock
3. Personal Property
Valued at FMV
B. Judicial Expenses
A. Funeral expenses
FUNERAL EXPENSES are costs which are
actually incurred in connection with the interment
or burial of the deceased.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
SOURCES OF CLAIMS
ESTATE:
1) Contract;
2) Tort; or
3) Operation of Law
Substantiation Requirements:
o
AGAINST
THE
E. Unpaid Mortgage
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o
o
G. Losses
1. REQUISITES FOR DEDUCTIBILITY:
1. Losses should arise from fire, storm,
shipwreck, or other casualty, robbery,
theft or embezzlement;
2. Losses should not be compensated by
insurance or otherwise;
3. Losses should not be claimed as
deduction in the income tax return of the
taxable estate;
4. The losses should occur during the
settlement of the estate; AND that
5. The losses should occur before the last
day for the payment of the estate tax
(last day to pay 6 months after the
decedents death)
(2) TRANSFER FOR PUBLIC USE
2. REQUISITES FOR DEDUCTIBILITY:
1) the disposition is in the last will and
testament
2) to take effect after death
3) in favor of the government of the
Philippines or any political subdivision
thereof
4) exclusive for public purpose
5) the value of property given is included in
the gross estate
3. The transfer also contemplates bequests,
devices, or transfers to social welfare, cultural
and charitable institutions
(3)
VANISHING
Previously Taxed)
DEDUCTIONS
Page 58 of 145
(Property
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.
Note that:
o The family home must be part of the
properties of the absolute community or
of the conjugal partnership, or of the
exclusive properties of either spouse,
depending upon the classification of the
property (family home), and the property
relations prevailing on the properties of
the husband and wife. It may also be
constituted by an unmarried head of a
family on his or her own property.
o
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Conjugal Property-deducted
estate of the decedent
To be allowed deductions for a non-resident
alien, executor/administrator/ any heir must
include in the return to be filed, the value of
the gross estate not situated in the
Philippines
No deduction shall be allowed in the case of
a nonresident not a citizen of the Philippines,
(2) Procedures
1) Filing of Notice of death
(a) Who files: the executor, administrator or
any of the legal heirs,
(b) When to file: within 2 months after the
decedent's death, or within a like period
after qualifying as such executor or
administrator
(c) To whom filed: Commissioner.
2) Filing of Estate Tax Returns
When to file: within six (6) months from
the decedent's death; except, the
Commissioner, in meritorious cases,
grants a reasonable extension not
exceeding 30 days for filing the return
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to the benefit of any individual:
Provided not more than 30% of the
transfers shall be used by such
institutions for administration purposes
J. COMPLIANCE REQUIREMENTS
(1) Persons liable to pay estate tax
(2)
KINDS
OF
THERE ARE
DONATIONS:
4) Distribution of Estate
Upon payment, the administrator shall
deliver the distributive share in the
inheritance to any heir or beneficiary. The
estate tax clearance issued by the
Commissioner or the Revenue District
Officer having jurisdiction over the estate
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remaining/distributable
properties/share in
the inheritance to the heir or beneficiary.
PROPERTIES INCLUDED:
1. citizens or residents of the Philippines all
properties located not only within the
Philippines but also in foreign countries
2. non-resident alien all real and tangible
properties within the Philippines, and
intangible personal property, unless there is
reciprocity, in which case it is not taxable.
- See reciprocity rules in the estate
taxes for intangible properties (Section 104
NIRC)
Applicability of Laws Governing the Imposition of
Donors Tax
The donors tax applies to a completed gift.
The transfer is perfected from the moment
the donors knows of the acceptance by the
donee; it is completed by the delivery, either
actual or constructively, of the donated
property to the donee. The law in force at the
time of the perfection/completion of the
donation shall govern the imposition of
donors tax based on the FMV of the
property.
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Valuation:
o Personal property: FMV at the time
of donation
o
OBJECT OF TAXATION:
The donors tax shall be imposed to the transfer
of property by gift, 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 donors tax is on a
cumulative basis over a period of one calendar year.
B. Computation of Tax
st
1. On the 1 donation of the year
D.
Gross Gift
Less: deductions/exemptions
Net gift
X tax rate
Donors tax
xx
xx___
xx
xx___
xx
===========
2. On subsequent donation during the year
Gross Gift
Less: deductions/exemptions
Net gift
Add: prior net gift
Aggregate net gifts
X tax rate
Donors tax on aggregate gift
Less: prior donors tax paid
Donors tax on this date
xx
xx___
xx
xx___
xx
xx___
xx
xx___
xx
===========
C. Rates of Tax
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E. Net Gift
Formulas:
Limitation A:
For donors taxes paid to one foreign country
Allowable Final Tax Credit =
The lower amount between:
a. Tax actually paid to the foreign country,
and
AVAILABLE
TO
THE
In General
1. Compromise (Sec. 204)
2. Distraint - actual and constructive (Sec. 205208)
3. Levy (Sec. 207b)
4. Tax lien (Sec. 219)
5. Civil Action (Sec. 221)
6. Criminal Action (Sec. 221-222)
7. Forfeiture of Property (Sec. 224-225)
8. Suspension of business operations in
violations of VAT (Sec. 115)
9. Enforcement of administrative fine
the remedies of disraint and levy as well
as collection by civil and criminal actions
may
in
the
discretion
of
the
Commissioner, be pursued singly or
independently of each other, or all of
them simultaneously.
Prescriptive Periods
1) Assessment of Tax Liability
3 years from the following, whichever
comes later (Sec. 203):
1. the last day prescribed by law for
filing the return (when filed on or
before such date), or
2. the day when the return was
actually filed (when filed after the
last day prescribed).
10 years after the discovery of the
falsity, fraud or omission in case of:
1. false or fraudulent return with
intent to evade tax, or
2. failure to file a return (Sec. 222 a)
SUSPENSION
OF
PRESCRIPTIVE
PERIODS: (Sec. 223)
1) Periods suspended:
(a) periods for assessment in Sec.
203 and 222
(b) beginning of distraint or levy
(c) proceeding in court for collection
2) Grounds for suspension of
prescriptive periods: [ PLORP ]
a) Commissioner is Prohibited
from making the assessment or
beginning distraint or levy or a
proceeding in court and for 60
days thereafter
b) Taxpayer
requests
for
Reinvestigation which is granted
c) Taxpayer cannot be Located in
the address given in the return
filed, except if the taxpayer
Page 68 of 145
Compromise
Definition
REQUISITES:
o The taxpayer have a tax
liability
o There must be an offer (by
the taxpayer of an amount to
be paid by the taxpayer)
o There
must
be
an
acceptance
(by
the
Commissioner
or
the
taxpayer as the case may
be) of the offer in the
settlement of the original
claim
P1,000,000 or
b) where the settlement offered is
less
than
the
prescribed
minimum rates
o
Power to Compromise
o Who has the Power to Compromise?
The Commissioner of Internal
Revenue with respect to criminal
and civil cases arising from
violations of the tax code (Sec 7c
and 204).
The power to compromise is vested
in the CIR. The NIRC allows the
Commissioner of Internal Revenue to
compromise the civil as well as
criminal cases arising thereunder. No
similar provision exists, vis-a-vis the
Collector or Commissioner of
Customs, in regard to violations of
the Tariff and Customs Code.
(People vs. Desiderio L-20805,
November 29, 1965).
If an offer of compromise is
rejected by the taxpayer, the
compromise penalty cannot be
enforced thru an action in court or by
distraint and levy. The CIR should
file a criminal action if he believes
that the taxpayer is criminally liable
for violation of the tax law as the only
way
to
enforce
a
penalty.
(Commissioner vs. Abad, L-19627,
June 27, 1968).
Other
Consideration
on
Compromise
Agreements
o Compromise Penalty
It is the amount of money which the
taxpayer pays to compromise tax
violations. This is paid in lieu of
criminal prosecution. A taxpayer
cannot be compelled to pay a
compromise penalty if he does not
want to pay, in which case the CIR
must institute a criminal action.
2.
3.
4.
5.
6.
7.
Page 71 of 145
Types of Distraint
A. Actual Distraint
There is taking of possession of the personal
property from the taxpayer by the
government. Physical transfer of possession
is not always required. This is true in case of
intangible property such as stocks and
credits.
Resorted to only when the taxpayer becomes
delinquent.
There is actual seizure of the property of the
delinquent taxpayer.
Resorted to when there is actual delinquency
in tax payment.
B. Constructive Distraint
There may be no actual delinquency.
Taxpayer is prohibited from disposing of the
property and must preserve the same
ACTUAL DISTRAINT
Made only on the
property
of
a
delinquent taxpayer
there is taking or
possession
Effected by leaving a
list
of
distrained
property or by service
of a warrant of distraint
or garnishment
an immediate step for
collection of taxes
CONSTRUCTIVE
DISTRAINT
made on the property of
any
taxpayer,
whether
delinquent or not
the taxpayer is merely
prohibited from disposing of
his property
Effected by requiring the
taxpayer to sign a receipt of
the property or by the
revenue officer preparing
and leaving a list of such
property
not
necessarily
an
immediate
step
for
collection
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Both
REQUISITES
FOR
THE
EXERCISE
OF
THE
REMEDY OF DISTRAINT:
The taxpayer must be delinquent (except in
constructive distraint) in the payment of taxes
There must be a subsequent demand for its
payment
The taxpayer must have failed to pay the tax
at the time required; and
The period within which to assess or collect
the tax has not yet prescribed.
Distraint of Personal Property (Actual Distraint)
WHO
MAY
EFFECT
DISTRAINT
Commissioner or his duly
authorized representative
Revenue District Officer (Sec.
207(a))
AMOUNT
INVOLVED
In excess
P1,000,000
P1,000,000
less
of
or
4)
CONSTRUCTIVE DISTRAINT
1) When may this occur? [ HORRID ] (Sec. 206)
a) taxpayer is Delinquent
b) taxpayer is Retiring from any business
subject to tax
c) taxpayer is Intending to leave the Phil. or to
Remove his property therefrom
d) taxpayer Hides or conceals his property
e) taxpayer performs any act tending to
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tax due
2) Procedure
(a) Require the taxpayer or any person having
possession/control of the property to
1. sign a receipt covering property
distrained; and
2. obligate himself to preserve the same
intact and unaltered; and
LEVY
involves real property
Forfeiture authorized if (
215):
There is no bidder or
If the highest bid is
insufficient to pay
the taxes, penalties
and costs
There is no right of There is a right of
redemption
on
the redemption in case of
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and sold or forfeited to
the government
Both:
summary remedies for collection
cannot be availed of where amount involved
do not exceed P100
Redemption of Property Sold
TAX LIEN
It is a legal claim or charge on property, either
real or personal, established by law as a security
in default of the payment of taxes (51 AmJur
881). Generally, it attaches to the property
irrespective of ownership or transfer thereof.
o
o
o
to
judgment
claim
Page 74 of 145
of
private
property
Attaches not only from the time the warrant was
served BUT from the time tax was due and
demandable (from the time when the assessment
was made [Sec. 219]).
LIEN
Directed against the
property subject to the
tax
Regardless of the owner
of the property
DISTRAINT
Need not be directed
against
the
property
subject to tax
Property seized must be
owned by the taxpayer
CIVIL ACTIONS
For tax remedy purposes, these are actions
instituted by the government to collect
internal revenue taxes. It includes filing by
the government with the probate court claims
against the deceased taxpayer.
Resorted to when the tax liability becomes final and
unappealable, or when the decision of the
Commissioner becomes final or executory. When:
A tax is assessed and the assessment becomes
final and unappealable because the taxpayer
fails to file an administrative protest with the BIR
within 30 days from the receipt of the
assessment.
When an administrative protest filed by the
taxpayer against the assessment is
o denied, in whole and in part or
o Is not acted upon within 180 days from
submission of the documents, and
o The taxpayer adversely affected by the
decision or inaction fails to file an appeal
with the CTA within 30 days from receipt
of said decision or from the lapse of the
180 day period.
Where to File
1) Court of Tax Appeals- where the principal
amount of taxes and fees exclusive of
charges and penalties claimed is one million
pesos and above
2) RTC, Mun. TC,QuickTime
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of charges and penalties claimed is less than
P1,000,000.00 (Sec 7[c], RA 9282)
The approval of the CIR is essential in civil
cases (Sec. 220). However under Sec. 7 of
NIRC, the Commissioner may delegate such
power to a Regional Director.
Defenses which are Precluded by Final and
Executory Assessment
Invalidity or illegality of the assessment and
Prescription of the governments right to
assess
CRIMINAL ACTIONS
The judgment in the criminal cases shall not
only impose the penalty but shall also order
the payment of taxes subject of the criminal
case as finally decided by the Commissioner
(Sec 205)
Resorted not only for the collection of the
taxes but also for the enforcement of
statutory penalties of all sorts.
Where to file
1) Court of Tax Appeals- on criminal offenses
arising from violations of the NIRC or TCC and
other laws administered by the BIR and the BOC,
where the principal amount of taxes and fees,
exclusive of charges and penalties claimed is
P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on criminal offenses
arising from violations of the NIRC or TCC and
other laws administered by the BIR and the BOC,
where the principal amount of taxes and fess
exclusive of charges and penalties claimed is
less than P1,000,000.00 or where there is no
specified amount claimed (Sec 7[b], RA 9282)
Acquittal of the taxpayer in criminal case does
not exonerate him from liability to pay Taxes
Under the Penal Code the civil liability is incurred by
reason of the offender's criminal act. Stated
differently, the criminal liability gives birth to the civil
obligation such that generally, if one is not criminally
liable under the Penal Code, he cannot become
civilly liable thereunder. The situation under the
income tax law is the exact opposite. Civil liability to
pay taxes arises from the fact, for instance, that one
has engaged himself in business, and not because of
any criminal act committed by him. The criminal
liability arises upon failure of the debtor to satisfy his
civil obligation. The incongruity of the factual
premises and foundation principles of the two cases
is one of the reasons for not imposing civil indemnity
on the criminal infractor of the income tax law.
(Republic vs. Patanao).
While there can be no civil action to enforce
collection before the assessment procedures
provided in the Code have been followed, there is no
requirement for the precise computation and
assessment of the tax before there can be a criminal
prosecution under the Code. (Ungab vs. Cusi L41919-24, 30 May 1980, 97 SCRA 877)
Page 75 of 145
PRE-ASSESSMENT STAGE
STEP 1: Notice of Informal Conference
- 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 have 15 days from receipt
of the notice of informal conference to
explain his side.
STEP 2: Informal Conference
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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 the submission of the waiver of
the SOL is necessary evaluation may
extend beyond 3 years
Page 78 of 145
PRESCRIPTIVE
PERIODS
FOR
THE
ASSESSMENT AND COLLECTION OF TAXES
Rationale
The periods are designated to secure the
taxpayers against unreasonable investigation
after the lapse of the period prescribed. They
are also beneficial to the government
because tax officers will be obligated to act
promptly.
Rules on Prescription
When the tax law itself is silent on
prescription, the tax is imprescriptible
When no return is required, tax is
imprescriptible
N.B. Remedy of taxpayer is to file a return
Defense of prescription is waivable
Page 79 of 145
TO
THE
1. Administrative
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a) protest of assessment
Filing a petition for reconsideration or
reinvestigation within 30 days from receipt of
assessment.
Appeal to the SC within 15 days from the receipt of the CTA en banc decision
Where tax
has been
shifted
Appeal to the Division of CTA within 30 days from the receipt of the final
decision of CIR or his duly authorized representative (taxpayer has the
option to appeal straight to CTA upon receipt of the decision of CIR
[Lascona doctrine])
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If the CIR or his rep fails to act on the protest within 180 days from date
of submission by taxpayer, the latter may appeal within 30 days from
Appeal to the CTA en banc from receipt of the decision of CTA division
(after denial by CTA division of motion for reconsideration)
Where
payer
is
not
the
taxpayer
(e.g.
theater
owners
who paid
illegal
municipal
taxes billed
to
and
collected
from
theater
goers)
Where
payer
is
withholding
agent
Who
is
entitled
to
ask
for
refund
The taxpayer
(even if tax
has
been
actually
shifted by the
taxpayer to his
customers as
in sales tax
and even if
the tax has
been billed as
a
separate
item in the
invoice) (CIR
vs. American
Rubber)
Theater goers
are
not
entitled
to
claim refund
of such taxes
(Medina
vs.
City
of
Baguio)
Reason
Withholding
agent (CIR vs.
Procter
&
Gamble)
"Taxpayer" is any
person subject to tax
imposed by this title
(income tax).
The
withholding agent is
Page 83 of 145
Donee is the
proper party to
claim refund
of the donor's
tax (even if
the tax was
advanced by
the donor)
2-year
period starts
from
From date tax
was
paid
(CIR
v
Victorias
Milling)
From date of
the last or
final
Page 84 of 145
Notes
There is no
payment until
the whole/entire
If the taxpayer
merely made a
deposit
Corporate
taxpayer
installment or
payment
(CIR
vs.
Prieto; CIR v
Palanca; CIR
v.
TMX
Sales)
From
conversion of
the deposit to
payment
(Union
Garment
v
Coll)
tax liability
fully paid
is
Merely making
a deposit is not
equivalent
to
payment until
the amount is
actually applied
to the specific
purpose
for
which it was
deposited
A taxpayer who
contributes to
the withholding
tax
system
performs and
extinguishes
his
tax
obligation
for
the
year
concerned. In
other words, he
is paying his
tax liabilities for
that year.
From date it
falls due at
the end of the
taxable year
(Gibbs
vs
CIR) He is
deemed
to
have paid his
tax
liability
when
the
same
falls
due at the
end of the
taxable year
(Aguilar vs.
CA)
At
the It is only then
earliest,
on that
the
the date of corporation can
the filing of ascertain
the adjusted whether
it
final
return made profits or
(ACCPA
incurred losses
Investment
in its business
vs. CA)
operations
The
2-yr
period
provided
in
Sec QuickTime
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computed
from the time
of filing of the
Adjusted
Return
or
Annual ITR
and
final
payment
of
income
tax
(CIR vs. TMX
Sales)
From
the
date
the
taxpayer
becomes
entitled
to
refund
and
not from the
date
of
payment (CIR
vs.
Don
Pedro Central
Azucarera)
are needed
to see
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CHAPTER I- ADDITIONS
TO
THE
TAX
(Sec. 247-252)
Definitions
Increments to the basic tax incident due to
the taxpayers non-compliance with certain
legal requirements.
Surcharge, defined. A surcharge is a civil
penalty imposed by law as an addition to the
should
be
in
the
C. Crimes
Page 88 of 145
Offense: FVC
1) Willfully Falsifies any report
or statement bearing on any
examination or audit
2) Renders a report, including
exhibits,
statements,
schedules or other forms of
accountancy work which has
not been Verified by him
personally or under his
supervision or by a member
of his firm or by a member of
his staff in accordance with
sound auditing practices, or
3) Certifies financial statements
of a business enterprise
containing
an
essential
misstatement of facts or
omission in respect of the
transactions, taxable income,
deduction and exemption of
his client; or
E. Prescription of Actions
All violations of any provision of the Code
shall prescribe after five (5) years
CHAPTER III OTHER PENAL PROVISIONS
Page 89 of 145
Book II
Local Taxation and Fiscal Matters
Title I
LOCAL GOVERNMENT TAXATION
CHAPTER 1 - GENERAL PROVISIONS
Sources of Revenues:
1. Internal Revenue Allotment (IRA)
National internal revenue collected and not
applied as hereinabove provided or otherwise
specially disposed of by law shall accrue to the
National Treasury and shall be available for the
general purposes of the Government, with the
exception of the amounts set apart by way of
allotment as provided for under Republic Act No.
7160, otherwise known as the Local Government
Code of 1991. (Sec. 283, NIRC)
Local government units shall have a share in the
national internal revenue taxes based on the
collection of the third fiscal year preceding the current
fiscal year as follows (c) On the third year and
thereafter, 40%... (Sec. 284, RA 7160)
Page 92 of 145
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Page 94 of 145
Rate
Not more than 50% of
the 1% of the total
consideration or of the
fair
market
value,
whichever is higher
Exceptions
Sale, transfer or other
disposition
of
real
property pursuant to R.A.
No. 6657 (CARL).
Professionals exclusively
employed
in
the
government
shall
be
exempt from the payment
Notes
It shall be the duty of the seller, donor,
transferor or administrator to pay the
tax imposed within 60 days from the
date of the execution of the deed or
from the date of the decedent's death.
Page 95 of 145
panlalawigan
may
determine but shall in
no
case
exceed
P300.00.
of this tax.
Sangguniang
panlalawigan
may
prescribe the time, manner, terms and
conditions for the payment of tax. In
case of fraud or failure to pay, the
sangguniang panlalawigan may impose
surcharges, interest and penalties. The
proceeds from the amusement tax shall
be shared equally by the province and
the
municipality
where
such
amusement places are located.
Page 96 of 145
B. MUNICIPALITIES
SCOPE: Municipalities may levy taxes, fees and
charges not otherwise levied by provinces. (sec. 142,
LGC)
Tax on Business
The municipality may impose taxes on the following:
a. On manufacturers, assemblers, repackers,
processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and
wines or manufacturers of any article of
commerce of whatever kind or nature.
b. On wholesalers, distributors, or dealers in any
article of commerce of whatever kind or nature.
c. On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or
retailers of the following essential commodities
(where the rate prescribed is only of the
regular rate [Sec. 143 par. c, LGC])
(RW CLAPS C):
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;
d.
e.
f.
g.
h.
SPECIFIC:
Municipalities may im pose such reasonable
rates for the sealing and licensing of weights
and measures as shall be prescribed by the
sangguniang bayan.
C. CITIES
IRR:
The cities may levy and collect a percentage
Page 98 of 145
D. BARANGAYS
Scope of Taxing Powers. - The barangays may levy
the following taxes and charges, which shall
exclusively accrue to them: [ TOBS ]
(a) Taxes - On stores or retailers with fixed business
establishments with gross sales of receipts of the
preceding calendar year of P50,000.00 or less for
cities and P30,000.00 or less, in the case of
municipalities, rate = not exceeding 1% on gross
sales or receipts.
(b) Service 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.
(d) Other fees and Charges. - The barangay may
levy reasonable fees and charges: (CRB)
1. On commercial breeding of fighting
Cocks and cockpits;
2. On places of Recreation which charge
admission fees; and
3. On Billboards, signboards, neon signs,
and outdoor ads. (Sec. 152)
VIII. COMMON REVENUE-RAISING POWERS OF
LGUS (Secs. 153-155) [ SPT ]
a. Service Fees and Charges for services rendered
b. Pubic Utility Charges for the operation of public
utilities owned, operated and maintained by
LGUs within their jurisdiction.
c. 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 concerned.
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picture. of the AFP and
1. officers and
enlisted
PNP on mission,
2. post office personnel delivering mail,
3. physically-handicapped, and disabled
citizens who are sixty-five (65) years or
older.
When public safety and welfare so requires, the
sanggunian concerned may discontinue the collection
A. Individual
1. When an individual subject to the comm. tax
acknowledges any document before a notary
public;
2. Takes the oath of office upon election or
appointment to any position in the
government service;
3. Receives any license, certificate or permit
from any public authority;
4. Pays any tax or fee;
5. Receives any money from any public fund;
6. Transacts other official business; or
7. Receives any salary or wage from any
person or corporation.
The presentation of the CTC shall not be required in
connection with the registration of a voter.
B. Corporation
1. receives any license, certificate or permit
from any public authority;
2. pays any tax or fee;
3. receives any money from any public
fund; or
4. transacts other official business.
The city or municipal treasurer deputizes the
barangay treasurer to collect the community tax in
their respective jurisdictions. (Sec. 164, LGC)
The proceeds of the comm. tax is actually and
directly collected by the city or municipal treasurer
shall accrue entirely to the general fund of the city or
municipality concerned.
Proceeds of the comm. tax collected through the
barangay treasurers shall be apportioned as follows:
50% accrues to the general fund of the city or
municipality concerned; and
50% accrues to the barangay where the tax
is collected.
CHAPTER 3 - COLLECTION OF TAXES
Taxable Period The tax period of ALL local taxes,
fees and charges shall be the calendar year, unless
otherwise provided in the Code.
Accrual of Tax ALL local taxes, fees, and charges
accrue on first day of January of each hear, unless
otherwise provided in the Code.
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
Page 100 of 145
i. Distraint
seizure or confiscation of assets in
sufficient quantity to satisfy the liability
accounting of distrained goods
publication of the sale of distrained properties
sale
After Assessment
a. Protest within 60 days from receipt of
assessment (sec. 195, LGC). Payment under protest
is not necessary.
b. Payment & subsequent refund or tax credit within
2 years from payment of taxto local treasurer (sec.
196, LGC). It is to be noted that, unlike in internal
revenue taxes, the supervening cause applies in local
taxation because th period for the filing of the claims
for refund or credit of local taxes is counted not
necessarily from the date of payment but from the
date of taxpayer is entitled to a tax credit.
c. Right of redemption 1 year from the date of
sale or from the date of forfeiture (sec. 179, LGC)
B. JUDICIAL
1. Court action
- within 30 days after receipt of decision or lapse of
60 days of Secretary of Justices inaction (sec. 187,
LGC)
- within 30 days from receipt when protest of
assessment is denied (sec. 195, LGC)
- if no action is taken by the treasurer in refund cases
and the two year period is about to lapse (sec. 195,
LGC)
- if remedies available does not provide plain, speedy
and adequate remedy.
2. Action for Declaratory Relief
3. Injunction if irreparable damage would be caused
to the taxpayer and no adequate remedy is available.
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Types of Real Property
Tax:
1. Basic real property tax
2. Special levies:
a. Special Education Fund (SEF) 1%
additional real estate tax to finance
the SEF (Sec. 236, LGC) within
MM area only
b. Additional Ad Valorem on the Lands
not exceeding 5% of the assessed
NOTE:
FOR ADVANCE and PROMPT
PAYMENT
a) advance payment - discount not exceeding
20% of annual tax (Sec 251, LGC)
b) prompt payment - discount not exceeding 10%
of annual tax due(Art 342 IRR)
Approved
Denied
Supreme Court
Condonation Real Property Taxes
1. By Sanggunian
VALUE-ADDED TAX
Nature and Characteristics
Value added is the value that a producer adds to
his raw materials or purchases (other than labor)
before selling the new or improved product or
service
VAT is an indirect tax levied on goods and
services; not on persons, and ultimately paid by
consumers in the form of higher prices
VAT is a tax on consumption levied on the sale,
barter, exchange or lease of goods or properties
and services in the Philippines and on
importation of goods into the Philippines.
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.
In the case of importation, the importer is the one
liable for the VAT
Apply to existing contracts of sale or lease of
goods, properties or services at the time of
effectivity of RA No. 7716 (9337).
B. Judicial
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(2006)
FACTS:
Pursuant to a government program of
privatization, NDC decided to sell to private
enterprise all of its shares in its wholly-owned
subsidiary the National Marine Corporation(NMC).
The NDC sold in one lot its NMC shares and five of
its ships.
ISSUE:
Whether or not the sale of the five vessels is subject
to VAT?
HELD:
The court ruled that the sale was not in the ordinary
course of the trade or business of NDC and is
sufficient to declare the sale as outside the coverage
of VAT.
DOCTRINE:
Any sale, barter or exchange of goods or services
not in the course of trade or business is not
subject to VAT.
Export sales
Zero-rated if made by VAT-registered
persons
Exempt sales if made by person not VATQuickTime and a
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Origin Principle: only national taxpayers
would be exposed to the tax, without
distinguishing between transactions
consumed locally or abroad. Export taxable,
imports exempt. Situs: country of production
Destination Principle: VAT is imposed in
the country in which the products or services
are actually consumed or used. Exports
xiii.
4.
5.
6.
7.
15.
16.
17.
18.
19.
2.
3.
4.
5.
6.
7.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Requisites:
A VAT-registered person purchases or
imports capital goods (which are depreciable
goods for income tax purposes)
Aggregate acquisition cost of which
(exclusive of VAT) in a calendar month
exceed 1M
Manner of claiming input tax
1. estimated useful life of a capital good is 5
years or more:
a. input tax spread evenly over a period
of 60 months
b. commenced in the calendar month
when the capital good is acquired
2. estimated useful life is less than 5 years:
a. input tax spread evenly on monthly
basis by the actual number of
months comprising the estimated
useful life of the capital good
b. commenced in the calendar month
when the capital good is acquired
Aggregate acquisition cost does not exceed 1M:
total input taxes will be allowable as credit against
output tax in the month of acquisition
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.
If the depreciable capital good is sold/transferred
within the period of 5 years or prior to the
exhaustion of the amortizable input tax thereon:
entire unamortized input tax on the capital goods
sold, can be claimed as input tax credit during the
month or quarter when the sale or transfer was made
but subject to limitation
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:
all the input taxes that can be directly
attributed to transactions subject to VAT may
be recognized for input tax credit
o input taxes which are directly
attributable to Vat taxable sales of
goods and services from the
Government or any of its political
subdivisions, instrumentalities or
agencies, including GOCC shall not
be credited against output taxes
Page 119 of 145
3.
TARRIF:
Custom duties, toll or tribute
payable upon merchandise to govt.
CUSTOMS DUTIES: Tax assessed upon
merchandise from or exported to a foreign
country (Garcia v. Executive Sec., 211
SCRA 227 [1992])
FLEXIBLE TARIFF: Import duties which are
modified by the President upon investigation
by
the
Tariff
Commission
and
recommendation of the NEDA in the interest
of national economy, general welfare and
national security.
Dumping
Duty
Imposing
Authority
Special
Committee
on AntiDumping
(compose
d of Sec.
of Finance
as
Chairman;
Members:
the Sec. of
DTI and
either the
Sec. of
Agriculture
if article in
question is
agri.
Product or
the Sec. of
Labor if
non-agri.)
Countervailing
Duty
Sec.
of
finance
Marking
Duty
Commissi
oner
of
Customs
Discriminato
ry Duty
President of
the
Philippines
Intention to Unload
Even if not yet unloaded, and there is
unmanifested cargo forfeiture may take
place because importation has already
begun.
GOODS PROHIBITED FROM BEING IMPORTED
1. Absolutely prohibited
a. Weapons of war
b. Immoral/obscene
or
insidious
articles
c. Articles for treason
d. Prohibited drugs/narcotics
e. Gambling paraphernalia/devices
f. Those prohibited under Special Laws
(Sec 102 TCC)
2. Qualifiedly prohibited
o Where such conditions as to
warrants a lawful importation do not
exist, the legal effects of the
importation of qualifiedly prohibited
articles are the same as those
absolutely
prohibited
articles.
(Auyong Hian v. CTA, 59 SCRA 110)
Conditionally-free from tariff and customs duties
Certain imported articles are exempt from
import taxes upon compliance with certain
requirements. These are
1. Those provided for in Sec. 105 of the
TCC;
2. Those granted to government
agencies, GOCC with agreements
with foreign countries;
3. Those
given
to
international
institutions entitled to exemption by
agreement or special law; and
4. Those that may be granted by the
President
upon
Nedas
recommendation.
Exempt articles under Sec. 105
Article
Conditions
Animals and plants For scientific, experimental,
propagation,
botanical,
breeding, zoological and
national defense purposes
Aquatic products
o caught or gathered by
vessels of Philippine registry
o Not have landed in foreign
Page 124 of 145
Equipment
used
for the salvage of
vessels or aircraft
not
available
locally
Costs of repair
made in foreign
country of Phil
vessels or aircraft
Articles
brought
into the Philippines
for
repair,
processing,
or
reconditioning
Trophies, prizes (
medals, badges,
cups)
Those
received
as
honorary
distinction
Samples in such
quantity and of
such dimensions
or constructions as
to render them
unsaleable or of
no
appreciable
commercial value,
Wearing apparel,
articles of personal
adornment, toilet
articles, portable
tools
and
instruments,
theatrical
costumes
and
similar
personal
effects
analogous personal or
household
effects,
excluding
vehicles,
watercraft, aircraft and
animals, purchased in
foreign countries by
residents
of
the
Philippines which were
necessary, appropriate
and normally used for
their
comfort
and
convenience
during
their
stay
abroad,
accompanying them on
their return or arriving
within a reasonable
time which, barring
unforeseen
and
fortuitous events, in no
case shall exceed 60
days after the owners
return, subject however
to
the
following
provisions:
1. That the personal and
household effects shall
neither
be
in
commercial quantities
nor intended for barter,
sale or hire and that the
total dutiable value of
which shall not exceed
P10,000
2. That
the
returning
resident
has
not
previously availed of
the privilege under this
section within 365 days
prior to his arrival
3. That a 50% ad valorem
duty across the board
shall be levied and
collected
on
the
personal
and
household effects in
excess of P10,000
arriving
within
a
reasonable time, before
or after the owners,
in use of and necessary
and appropriate for the
wear or use of such
persons according to
their
profession or
position
for
the
immediate
Professional
instruments, tools
of trade, wearing
apparel, domestic
animals, personal
and
household
effects belonging
to persons coming
to settle in the Phil
and OFW
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.
purposes
of
their
journey
and
their
present comfort and
convenient.
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
Privilege of free entry
was never granted to
them before or qualifies
under LOI 105, 163,
210
Must file bond
Exported
within
6
months
Not exhibited for profit
Otherwise, confiscation
+penalty
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
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
Economic,
technical,
vocational,
scientific,
philosophical,
historical,
and
cultural books and
publications
Phil
articles
previously
exported
and
returned
without
increasing value or
improved
condition.
Foreign
articles
Bond (1 x) to cover 1
year
Must
be
properly
identified
and
registered with the LTO
Subject to customs
supervision fee
Deposited in Customs
zone when not in use
Upon
expiration
of
period (1 year 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.
Aircrafts imported
by agro industrial
companies, spare
parts
and
accessories
Spare parts of
Brought to Phil as
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of foreign registry
emergency repair
engaged in foreign
Spare parts utilized to
trade
secure
safety,
seaworthiness,
or
airworthiness, enable it
to continue voyage or
flight
Articles for easy
Cannot be repaired
identification
locally
Personal
and
household effects
(including one car)
officer
or
employee of DFA,
attach,
staff
assigned to Phil
diplomatic mission
abroad, personnel
of
Reparations
Missions in Tokyo,
AFP
military
personnel
in
SEATO,
AFP
military personnel
accorded
diplomatic rank on
duty abroad
= returning from
regular
assignment,
reassignment,
dies, resigns or
retires
Free from tariff and customs duties
Imported goods must be entered in the
customhouse at their port of entry otherwise
they shall be considered as contraband and the
importer shall be liable for smuggling (sec
1201)
Port of entry means a domestic port open to
both foreign and coastwise trade including
airport of entry. (Sec. 3514)
All articles when imported from any country into
the Philippines shall be subject to duty upon
Page 127 of 145
DUTIABLE IMPORTATION
Articles although previously exported from the
Philippines, become dutiable from the entry of the
vessel or aircraft into the Philippine jurisdiction
until the payment of duties, taxes, and other
charges and the issuance of the permit for the
withdrawal of said goods from the custom
houses.
BASIS OF DUTIABLE VALUE (Sec. 201 TCC, as
amended by RA 9135)
Sec. 201.
Method One. Transaction Value. - The dutiable
value of an imported article subject to an ad valorem
rate of duty shall be the transaction value, which shall
be the price actually paid or payable for the goods
when sold for export to the Philippines, adjusted by
adding:
1. The following to the extent that they are incurred
by the buyer but are not included in the price
actually paid or payable for the imported goods:
Commissions and brokerage fess (except buying
commissions);
Cost of containers;
Cost of containers;
The cost of packing, whether for labor or
materials;
The value, apportioned as appropriate, of the
following goods and services: materials,
components, parts and similar items incorporated
in the imported goods; tools; dies; moulds and
similar items used in the production of imported
goods; materials consumed in the production of
the
imported
goods;
and
engineering,
development, artwork, design work and plans
and sketches undertaken elsewhere than in the
Philippines and necessary for the production of
imported goods, where such goods and services
are supplied directly or indirectly by the buyer
free of charge or at a reduced cost for use in
connection with the production and sale for
export of the imported goods;
The amount of royalties and license fees related
to the goods being valued that the buyer must
pay, either directly or indirectly, as a condition of
sale of the goods to the buyer;
2. The value of any part of the proceeds of any
subsequent resale, disposal or use of the
imported goods that accrues directly or indirectly
to the seller;
Page 128 of 145
NATURE
Dumping
Duty
Imposed
on foreign
articles:
a. Being
AMOUNT
/RATE
Difference
between the
actual price
and the
IMPOSING
Authority
Special
Committee
on Antidumping
b.
Counterv
ailing
Duty
Marking
Duty
Discrimin
atory
Duty
importe
d into,
sold or
is likely
to be
sold in
the
Phils.
At a
price
less
than its
normal
value
normal
value of the
article
(extent of
the
underpricing
)
The
importation
or sale of
which
might injure
an industry
producing
like goods
in the Phils.
Imposed
Equivalent
upon
to the
foreign
bounty,
goods
subsidy or
enjoying
subvention
subsidy
thus
allowing
them to sell
at lower
prices to
the
detriment
of local
products
similarly
situated
Imposed
5% ad
upon those valorem of
not
articles
properly
marked as
to the place
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the goods
Imposed
upon
goods
coming
from
countries
that
discriminat
(Sec. of
Financechairman;
members:
Sec of DTI,
Sec. of
Agriculture/
Sec of Labor)
Sec of
Finance
Comm of
Custom
Pres. Of the
Phil.
e against
Philippine
products
FLEXIBLE TARIFF CLAUSE
Sec. 28, ART VI of the 1987 Constitution and Sec.
401, TCC.
The President may fix tariff rates, import and
export quotas, etc. under TCC
1. To increase, reduce or remove existing
protective rates of import duty (including any
necessary change in classification)
the existing rates may be increased or
decreased to any level on one or several
stages but in no case shall be higher
than a maximum of 100% as valorem
2. To establish import quota or to ban imports of
any commodity, as may be necessary
3. To impose an additional duty on all imports
not exceeding 10% ad valorem whenever
necessary
LIMITATION
IMPOSED
REGARDING
FLEXIBLE TARIFF CLAUSE
THE
IF DECISION IS
ADVERSE TO THE
GOVERNMENT
Automatic review by
Commissioner
Automatic review by Sec.
of Finance
If decision of
Commissioner or Sec. is
adverse to the protestant,
he may appeal to the
CTA and SC under the
same procedure on the
left.
Appeal by certiorari to
the SC within 15 days
from notice
B. Seizure and Forfeiture Cases
Definition:
These refer to matters involving
smuggling. It is administrative and civil in nature and
is directed against the res or imported articles and
entails a determination of the legality of their
importation. These actions are in rem.
Thus, it is of no defense that the owner of the
vessel sought to be forfeited had no actual
knowledge that his property was used
illegally. The absence or lack of actual
knowledge of such use is a defense personal
to the owner himself which cannot in any way
absolve the vessel from the liability of
forfeiture. (Comm. Of Customs v. Manila
Starr Ferry, Inc., 227 SCRA 317)
Smuggling
A. An act of any person who shall:
Fraudulently import any article contrary to
law, or
Assist in so doing, or
Receive, conceal, buy, sell, facilitate or
transport such article knowing its illegal
importation (sec. 3601 TCC)
Export contrary to law (Sec. 3514 TCC)
B. The Philippines is divided into various ports of
entry - entry other than port of entry will be
SMUGGLING.
Port of Entry: A domestic port open to both
foreign and coastwise trade including airport of
entry. (Sec. 3514 TCC)
ENTRY in Customs law means The documents filed at the Customs house
The submission and acceptance of the
documents
If
decision
is
favorable
to
government
Automatic
Comm.
review
not
the
by
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Goods released
Protest Granted
Protest Denied
Protest Affirmed
Protest Denied
Protest Affirmed
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Assessment final
Assessment final
Assessment final
If unfavorable, appeal to CTA w/in 30
days from receipt of decision
(Sec. 7, RA 1125)
Protest Denied
EXHIBITS
TAX ON INDIVIDUALS
Type of Income
Non-Resident
Alien engaged in
trade / business
Non-Resident
Alien NOT
engaged in trade /
business
25% Final tax
Schedular rate
Schedular rate
Schedular rate
Schedular rate
exempt
exempt
Exempt
7.5% Final Tax
Exempt
Exempt
Non-Resident
Alien engaged in
trade / business
5% Final tax on
the entire income
5% Final tax on
the entire income
5% Final tax on
the entire income
5% Final tax on
the entire income
12%
20%
10% Final Tax
12%
20%
10% Final Tax
12%
20%
10% Final Tax
12%
20%
20% Final Tax
N/A
N/A
25% Final tax
5% Final tax on
net capital gains
realized during the
taxable yr:
5% Final tax on
net capital gains
realized during
the taxable yr:
5% Final tax on
net capital gains
realized during the
taxable yr:
10%
10%
10%
10%
6% Final Tax on
the gross selling
price or current
fair
market
value or zonal
value whichever
is higher
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever
is
higher
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is higher
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is higher
Non-Resident
Alien NOT
engaged in trade /
business
N/A
Non-Resident
Alien engaged in
trade / business
Non-Resident
Alien NOT
engaged in trade /
business
TAX ON CORPORATIONS
Type of Income
Interest on currency bank deposits & yield or any other
monetary benefit form deposit substitutes & from trust funds
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Royalties (similar within
theto Philippines)
Interest income from a depositary bank under the expanded
foreign currency deposit system (EFCDS)
CG from sale, barter, exchange or other disposition of shares
of stock (of domestic corp.) not traded in the stock exchange
For the first P100,000
On any amount in excess of P100,000
Domestic Corp
20% Final Tax
Non-Resident Foreign
32%/35% Income Tax
N/A
N/A
Tax Rate
2 % on Gross Phil Billings
International Shipping
Gross Phil Billings = gross revenue whether for passenger, cargo or mail originating from the
Philippines. up to final destination, regardless of the place of sale/ payments of passage of freight
documents
Offshore Banking Units
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Tax Rate
25% of gross income
4.5% of gross rentals, lease or charter fees
7.5% of gross rentals or fees
Petroleum
Contractor
Subcontractor
Service
&
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Advisers: Atty. Serafin Salvador, Atty. Michael Dana Montero, Atty. Gaudencio Mendoza; Head: Julie Ann B. Domino, Juan J. P. Enriquez III;
Understudies: Rachelle T. Sy, Aldwin Mendoza, Timothy John Batan