You are on page 1of 104


GENERAL PRINCIPLES OF TAXATION It covers persons, businesses, activities, professions, rights, and
1. Taxation as a process A tax does not cease to be valid merely because it regulates,
a means by which the sovereign, through its law- discourages, or even definitely deter the activities taxed. The
making body, raises revenue to defray the necessary power to impose taxes is one so unlimited in force and so
expenses of the government. It is merely a way of searching in extent that the courts scarcely venture to declare
apportioning the costs of government among those that it is subject to any restriction whatever, except such as rest
who in some measures are privileged to enjoy its in the discretion of the authority which exercises it.
benefits and must bear its burdens.
3. Plenary
2. Taxation as a power It is complete. Under the NIRC, the BIR may avail of certain
refers to the inherent power of the state to demand remedies to ensure the collection of taxes.
enforced contributions for public purpose or
purposes. 4. Supreme
Although referred to as the strongest of all the powers of the
CIRvs.Allegre,February 17, 1988 government, it cannot be interpreted to mean that it is superior
It is said that taxes are what we pay for civilized society. Without to other inherent powers of the government, only that it is
taxes, the government would be paralyzed for lack of the motive supreme insofar as the selection of the subject of taxation.
power to activate and operate it. Hence, despite the natural
reluctance to surrender part of ones hard-earned income to the
taxing authorities, every person who is able must contribute his D. POWER OF TAXATION COMPARED WITH
share in the running of the government, for its part, is expected OTHER INHERENT POWERS
to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their Taxation Police Power Eminent
moral and material values. This symbiotic relationship is the Domain
rationale of taxation and should dispel the erroneous notion that
Purpose: To raise revenue To promote To facilitate the
it is an arbitrary method of exaction by those in the seat of
public welfare taking of
power. through private
regulations property for
1. It is an inherent attribute of sovereignty
---The power of taxation is inherent in sovereignty as an incident Amount of No limit (but as It is limited to No amount is
or attribute thereof, being essential to the existence of every Exaction: much as possible, the cost imposed(but
it must be equal to of regulation, rather the owner
government. It can be exercised by the government even if the needs of the is paid the
issuance of
the Constitution is entirely silent on the subject. government in
license or market value of
order to avoid the property
deficit scenario for surveillance fee
Note: the State)
a. Constitutional provisions relating to the
power of taxation do not operate as grants Benefits No special or No direct A direct benefit
of the power to the government. They received: direct benefit is benefit is results in the
merely constitute limitations upon a power received by the received, but a form of just
which would otherwise be practically without TP, merely healthy compensation
limit. general benefit economic to the property
of protection standard of owner
b. While the power to tax is not expressly
society is
provided for in our constitutions, its attained
existence is recognized by the provisions
relating to taxation. Non- Contracts may Contracts Contracts may
impairment not be impaired may be be impaired
MCIAA vs. Marcos, Sept. 11, 1996 of impaired
As an incident of sovereignty, the power to tax has been Contracts:
described as unlimited in its range, acknowledging in its very
nature no limits, so that security against its abuse is to be found Transfer of Taxes paid No transfer but Transfer is
only in the responsibility of the legislative which imposes the tax Property become part of only restraint in effected in
Rights: public funds its exercise favour of the
on the constituency who are to pay it.
2. It is legislative in character Scope: All persons, All persons, Only upon a
---The power to tax is exclusively legislative and cannot be property and property, rights, particular
exercised by the executive or judicial branch of the government. excises and privileges property
1. Comprehensive

Page 1 of 104
Who May exercise May exercise May be:
exercises only by the govt only by the 1.exercised by F. PRINCIPLES OF SOUND TAX SYSTEM
the power? or its political govt or its the govt or its
subdivisions political political
subdivisions subdivisions; 1. Fiscal Adequacy
2.granted to The sources of tax revenue should coincide with, and
public service approximate the needs of government expenditure.
companies or Neither an excess nor a deficiency of revenue vis--
public utilities vis the needs of government would be in keeping with
the principle.
Basis Public necessity Public Public
necessity and necessity
the right of the 2. Administrative Feasibility
state and the Tax laws must be capable of being effectively
public to self- enforced with the least inconvenience to the taxpayer.
protection and
self- 3. Theoretical Justice
preservation The tax burden should be in proportion to the
taxpayers ability to pay (Ability to Pay Theory). The
E. PURPOSE OF TAXATION 1987 Constitution requires taxation to be uniform and
1. Revenue-raising equitable and that the State must evolve a progressive
---to raise funds or property with which the State promotes the system of taxation (Sec. 28[1],Art.VI).
general welfare and protection of its citizens
Progressive Scheme of Taxation
Municipality of Makati vs. CA, October 01, 1990 This refers to or covers the entire tax structure of the
Revenues derived from taxes are intended primarily to finance country in all its stages or aspects. It requires that
the government and its activities and are thus exempt from revenue laws place emphasis on direct rather than
execution. indirect taxes, the Ability-to-Pay principle as the
principal criterion. Thus, this system is primarily based
2. Non-revenue/Special or Regulatory on TPs ability to pay; it implies that as the income,
gain or proceeds of a TP increase, he pays more
taxes. As applied to income taxation, he who earns
1.Promotion Taxation may be used as an implement of more shall pay more and he who earns less, pays
of General police power in order to promote the general less.
Welfare welfare of the people
2.Regulation As in the case of taxes levied on excises
and privileges like those imposed in tobacco 1. Lifeblood Theory
or alcoholic products or amusement places. It maintains that the payment of taxes is compulsory
because without money, the government cannot pay
3.Reduction This is made possible through the its expenses, it would be paralyzed for lack of motive
of Social progressive system of taxation where the power to activate and operate and therefore, it ceases
Inequality objective is to prevent the under-concentration to exist. So it is required of its citizens and residents to
of wealth in the hands of few individuals. take the monetary burden of taxes in order that it can
perform its functions and services.
4.Encourage In the realm of tax exemptions and tax reliefs, Taxes are indispensable to state existence, without
Economic for instance, the purpose is to grant taxation the State cannot raise revenue to support
Growth incentives or exemptions in order to itself, to pay for governmental services and deliver
encourage investments and thereby promote basic services to the people. Neither can the inherent
the countrys economic growth. powers of police power and eminent power be
effectively and permanently exercised without the
5. In case of foreign importations, protective power of taxation
Protectionis tariffs and customs are imposed for the
m benefit of local industries. 2. Necessity Theory
Taxes proceed upon the theory that the existence of
the government is a necessity; that it cannot continue
without the means to pay its expenses; and that for
those means, it has the right to compel all citizens and
properties within its limits to contribute.

Phil. Guaranty Co., Inc. vs. CIR, 13 SCRA 775

Taxation is a power emanating from necessity. It is a necessary
burden to preserve the States sovereignty and a means to

Page 2 of 104
give the citizenry an army to resist aggression, a navy to defend 1. Taxing twice;
its shores from invasion, a corps of civil servants to serve, public 2. by the same taxing authority;
improvements designed for the enjoyment of the citizenry and 3. within the same jurisdiction or taxing district;
those which come with the States territory and facilities, and 4. for the same purpose;
protection which a government is supposed to provide. 5. in the same year or taxing period;
6. some of the property in the territory
3. Benefits-Protection Theory (Symbiotic
Relationship) b. Broad sense
The basis of taxation is the reciprocal duty of referred to as indirect double taxation, it is taxation
protection between the state and its inhabitants. In other than direct duplicate taxation. It extends to all
return for the contributions, the TP receives the cases in which there is a burden of two or more
general advantages and protection which the impositions.
government affords the TP and his property.
c. Constitutionality of double taxation
Note: Unlike in the United States Constitution, our
1. The TP cannot question the validity of the tax law on Constitution does not prohibit double taxation.
the ground that payment of such tax will render him However, while it is not forbidden, it is something not
impoverished, or lessen his financial or social standing, favored. Such taxation should, whenever possible, be
because the obligation to pay taxes is involuntary and avoided and prevented.
compulsory, in exchange for the protection and benefits In addition, where there is direct double taxation, there
he receives from the government. may be a violation of the constitutional precepts of
2. Special benefits to TPs are not required. A person equal protection and uniformity in taxation.
cannot object to or resist the payment of taxes solely
because no personal benefit to him can be pointed out City of Baguio vs. De Leon, 25 SCRA 938
arising from the tax. The argument against double taxation may not be invoked
where one tax is imposed by the State and the other is imposed
4. Jurisdiction over Subject and Objects by the city, it being widely recognized that there is nothing
Rules: inherently obnoxious in the requirement that license fees or
a. Tax laws cannot operate beyond a States territorial taxes be exacted with respect to the same occupation, calling,
limits. or activity by both the State and a political subdivision thereof.
b. The govt cannot tax a particular object of taxation which is And where the statute or ordinance in question, there is no
not within its territorial jurisdiction. infringement of the rule on equality.
c. Property outside ones jurisdiction does not receive any
protection of the State. d. Modes of eliminating double taxation
d. If a law is passed by Congress, it must always see to it
that the object or subject of taxation is within the Two methods of relief:
territorial jurisdiction of the taxing authority.
Exemption Method Credit Method
1.Prospectivity of tax laws The income or capital which is Although the income or capital
Taxes must only be imposed prospectively except taxable at the state of source or which is taxed in the state of
situs is exempted at the state of source is still taxable in the state
when the language of the statute clearly demands of
residence, although in some of residence, the tax paid in the
express that it shall have a retroactive effect.
instances it may be taken into former is credited against the tax
account in determining the rate levied in the latter. The basic
Lorenzo vs. Posadas, June 18, 1937
of tax applicable to the TPs difference between the two
The legislative intent evidencing that a tax statute should
remaining income or capital. methods is that in the exemption
operate retroactively should be explicit and perfectly clear. Thus,
method, the focus is on the
a statute should be considered as prospective in its operation,
income or capital, whereas the
whether it enacts, amends ore repeals, unless the language of
credit method focuses upon the
the statute clearly demands or express that is shall have a
retroactive effect.

2. Imprescriptibility 4. Escapes from taxation

a. Shifting of tax burden
Taxes are imprescriptible except when provided
The process by which the tax burdens are transferred
otherwise by the tax law itself.
from the statutory taxpayer to another without violating
e.g. NIRC provides for statutes of limitation in the
the law. This is the basic attribute of indirect taxes.
assessment and collection of taxes therein imposed.
3. Double Taxation
What is transferred is not the payment of tax but the burden of
a. Strict sense
referred to as direct duplicate taxation, it means:

Page 3 of 104
A taxpayer has legal right to decrease the amount of what would
otherwise be his taxes or avoid them by means which the law
1) Ways of shifting the tax burden permits.
Ways Definition Example c. Tax Evasion (Tax Dodging)
It is resorting to acts and devices that illegally reduce
a) When the burden of the Manufacturer or producer or totally escape payment of taxes that are due from a
Forward tax is transferred from a may shift tax assessed to taxpayer; they are prohibited and therefore subject to
Shifting factor of production wholesaler, who in turn civil and/or criminal penalties.
through the factors of shifts it to the retailer, who
distribution until it finally also shifts it to the final
settles on the ultimate purchaser or consumer. Elements:
purchaser or consumer. 1. The end to be achieved
e.g. payment of less than that known by the taxpayer to be
b) When the burden of tax Consumer or purchaser legally due, or paying no tax when it is shown that tax
Backward is transferred from the may shift tax imposed on is due.
Shifting consumer or purchaser him to retailer by 2. An accompanying state of mind which is described as
through the factors purchasing only after the being evil, in bad faith, willful, or deliberate and
distribution to the factors price is reduced, and from
not accidental.
of production. the latter to the wholesaler,
or finally to the 3. A course of action (or failure of action) which is unlawful
manufacturer or producer.
Indicia of fraud in tax evasion:
1. Failure to declare for taxation purposes true and actual
c) When the tax is shifted Thus, a transfer from the income derived from business for 2 consecutive
Onward two or more times either seller to the purchaser years; or
Shifting forward or backward. involves one shift; from the 2. Substantial under-declaration of income tax returns
producer to the of the taxpayer for 4 consecutive years coupled with
wholesaler, then to retailer,
unintentional overstatement of deductions.
we have two shifts; and if
the tax is transferred again
to the purchaser by the Evidence to prove tax evasion:
retailer, we have three Since fraud is a state of mind, it need not be proved
shifts in all. by direct evidence but may be proved from the
circumstances of the case.

2) Taxes that can be shifted Cases:

Only indirect taxes may be shifted; direct taxes Republic vs. Gonzales, April 30, 1965
cannot be shifted. Failure of the taxpayer to declare for taxation purposes his true
and actual income derived from his business for 2 consecutive
3) Meaning of impact and incidence of taxation years is an indication of his fraudulent intent to cheat the
government of its due taxes.
Impact of Taxation Incidence of Taxation
CIR vs. Reyes, November 25, 1958
-The point on which a tax is -The point on which the tax Substantial under-declaration of income in the tax returns of the
originally imposed. burden finally rests or settles taxpayer for 4 consecutive years coupled with intentional
-In so far as the law is down. overstatement of deductions.
concerned, the TP is the person - It takes place when shifting has
who must pay the tax to the been effected from the statutory 5. Exemption from taxation
government. TP to another. a. Meaning of exemption from taxation
-He is also termed as the It is the grant of immunity to particular persons or corporations
statutory TP-the one on whom or to persons or corporations of a particular class from a tax
the tax is formally assessed. which persons and corporations generally within the same state
-He is the subject of the tax. or taxing district are obliged to pay. It is an immunity or privilege;
it is freedom from a financial charge or burden to which others
are subjected.
b. Tax Avoidance (Tax Minimization Scheme)
It is the reduction or totally escaping payment of taxes Rationale:
thru legally permissible means they are nor The inherent power of the state to impose taxes
prohibited and therefore are not subject to penalties. It naturally carries with it the power to grant tax
is a tax saving device within the means sanctioned by exemptions. The power to exempt from taxation, as
law, if used by the taxpayer in good faith and at arms well as the power to tax, is an essential attribute of
length, then, it is valid. sovereignty and may be exercised in the Constitution
expressly or by implication prohibits action by the
Delpher Trades vs. IAC, January 26, 1988 legislature on the subject. It may arise through pardon

Page 4 of 104
by the government, reciprocity between states, Restrictions on revocation
necessity, and convenience, contractual agreement or a. Non-impairment clause- where the exemption was granted
mere generosity. to private parties based on material consideration of a mutual
nature, it then becomes contractual and is covered by the non-
b. Nature of Tax exemption impairment clause of the Constitution.
1. It is a mere personal privilege of the grantee.
2. It is generally revocable by the government unless the b. Adherence to form- if the tax exemption is granted by the
exemption is founded on a contract which is Constitution, its revocation may be effected through
contract which is protected from impairment. constitutional amendment only.
3. It implies a waiver on the part of the government of
its right to collect what otherwise would be due to it, c. Where the tax exemption grant is in the form of a special law
and so is prejudicial thereto. and not by a general law even if the terms of the general act are
4. It is not necessarily discriminatory so long as the broad enough to include the codes in the general law unless
exemption has a reasonable foundation or rational there is manifest intent to repeal or alter the special law
basis. (Province of Misamis Oriental vs. Cagayan Electric Power and
5. It is not transferable except if the law expressly Light Co. Inc., January 12, 1990).
provides so.
6. Compensation and Set-off
c. Kinds of Tax exemption
1. Express (affirmative exemption)- The exemption from Domingo vs. Garlitos, June 29, 1963
the taxation is one that is categorically stated by the Requisites of Compensation:
Constitution, statutes, treaties, ordinance, franchise, 1. The tax assessed and the claim against the govt be fully
contract or law. liquidated.
2. The tax assessed and the claim against the govt is due
2. Implied(Exemption by Omission)-when the legislature and demandable, and
omits TPs from the list of those subject to certain 3. The govt had already appropriated funds for the
tax. payment of the claim

3. Contractual- those agreed upon by the taxing General Rule:

authority in contracts lawfully entered into by them Taxes cannot be the subject of legal compensation or set-off
under enabling laws, in so doing the government because the government and the taxpayer are not mutually
performs a non-governmental function. creditor and debtor of each other and a claim for taxes is not
such debt, demand, contract or judgment as is allowed to be
d. Rationale/Grounds for exemption set-off (Doctrine of Legal Compensation of Set-off).

Rationale for granting tax Grounds for granting tax Exception:

exemptions exemptions Where both the claims of the government and the taxpayer
. against each other have already become due and demandable
Its avowed purpose is some May be based on: as well as fully liquated.
public benefit or interests which 1. contract.
the law-making body considers 7. Compromise
sufficient to offset the monetary 2. some ground of public policy. A contract whereby the parties, by reciprocal concessions, avoid
loss entailed in the grant of the litigation or put an end to one already commenced.
exemption. 3. grounds of reciprocity or to
lessen the rigors of international Requisites:
The theory behind the grant of double or multiple taxation. 1. Taxpayer must have a tax liability.
tax exemptions is that such act 2. There must be an offer by the TP or the CIR, of an
will benefit the body of the amount to be paid by TP.
people. It is not based on the 3. There must be acceptance of the offer in settlement
idea of lessening the burden of of the original claim.
the individual owners of property.
Persons allowed to compromise:
1. CIR(Sec. 204, NIRC)
e. Revocation of Tax exemption 2. Collector of Customs with respect to customs duties
It is an act of liberality which could be taken back by limited to cases where legitimate authority is specifically
the government unless there are restrictions. granted, such as in the remission of duties (Sec. 709, TCC)
3. Customs Commissioner- subject to the approval of the
MCIAA vs. Marcos, 261 SCRA 667 Secretary of Finance, on cases involving the imposition of
Since Taxation is the rule and exemption is the exception, the fines, surcharges and forfeitures (Sec. 2316, TCC)
exemption thus may be withdrawn at the pleasure of the taxing 4. Local Government Code- no provision regarding
authority. compromise; however, tax (not criminal) liability is not

Page 5 of 104
prohibited from being compromised (Arts. 2034 and 2035, a. Tax Laws
NCC) General rule:
Tax laws are liberally interpreted in favor of the TP and strictly
against the government.
8. Tax Amnesty
It is a general pardon or intentional overlooking by the State of Exception:
its authority to impose penalties on persons otherwise guilty of Liberal interpretation does not apply to tax exemptions which
tax evasion or violation of a revenue tax law. It partakes an should be construed in strictissimi juris against the taxpayer.
absolute forgiveness or waiver by the government of its right
to collect what otherwise could be due it, to give tax evaders a b. Tax Exempt and Exclusion
chance to reform and become part of the new society with a General Rule:
clean slate. ---In the construction of tax statutes, exemptions are not favored
and are construed strictissimi juris against the taxpayer. The
Note: fundamental theory is that all taxable property should bear its
1. Tax amnesty, like tax exemption, is never favored nor share in the cost and expense of the government.
presumed in law and if granted by statute must be Taxation is the rule and exemption. He who claims exemption
construed strictly against the taxpayer, who must show must be able to justify his claim or right thereto by a grant
compliance with the law. express in terms too plain to be mistaken and too categorical to
2. The government is not estopped from questioning the be misinterpreted. If not expressly mentioned in the law, it must
tax liability even if amnesty tax payments were already be at least within its purview by clear legislative intent.
a. Tax Amnesty vs. Tax exemption 1. The law itself expressly provides for a liberal construction
2. In cases of exemptions granted to religious, charitable and
Tax Amnesty Tax exemption educational institutions or to the government or its agencies or
to public property because the general rule is that they are
Partakes of an absolute The grant of immunity to exempted from tax.
forgiveness or waiver by the particular persons or
Government of its right to collect corporations of a particular class c. Tax rules and regulations
what otherwise would be due it from a tax of which persons and General Rule:
and, in this sense, prejudicial corporations generally within the They shall not be given retroactive application if the revocation,
thereto, particularly to tax same state or taxing district are modification or reversal will be prejudicial to the taxpayers.
evaders who wish to relent and obliged to pay.
are willing to reform are given a d. Penal provisions of tax laws
chance to do so and therefore Tax laws are civil and not penal in nature, although there are
become a part of the society with penalties provided for their violation.
a clean slate.
Purpose of imposing penalties:
Immunity from all criminal, civil Immunity from civil liability To compel the timely payment of taxes or to punish evasion or
and administrative liabilities only neglect of duty in respect thereof.
arising from non-payment of
taxes e. Non-retroactive application to taxpayers
A statute may operate retroactively provided it is expressly
Applies only to past tax periods, Prospective application declared or is clearly the legislative intent. But a tax law should
hence retroactive application not be given retroactive application when it would be harsh and

There is revenue loss since None, because there was no I. SCOPE AND LIMITATION OF TAXATION
there was actually taxes due but actual taxes due as the person 1. Inherent limitations
collection was waived by the or transaction is protected by tax a. Public Purpose
government. exemption. The term public purpose is synonymous with
governmental purpose; a purpose affecting the
Never favored nor presumed in law inhabitants of the state or taxing district as a
granted by statute community and not merely as individuals.
The terms of the amnesty or exemption must be strictly
construed against the TP and liberally in favor of the The tax must be used:
government 1. for the support of the state or
2. for some recognized objects of governments or
3. directly to promote the welfare of the community
9. Construction and Interpretation of:

Page 6 of 104
Test in determining Public Purposes in tax:
a. Duty Test whether the thing to be threatened by the
appropriation of public revenue is something which is Note:
the duty of the State, as a govt. For the delegation to be constitutionally valid, the law must be
b. Promotion of General Welfare Test whether the law complete in itself and must set forth sufficient standards.
providing the tax directly promotes the welfare of the 1. Completeness Test the law must be complete in all
community in equal measure. essential terms and conditions when it leaves the
legislature so that there will be nothing left for the delegate
Note: to do when it reaches him except to enforce it.
- A tax levied for a private purpose constitutes a taking 2. Sufficient Standard Test- the law must offer a sufficient
of property without due process of law. standard to specify the limit of the delegates authority,
- The purposes to be accomplished by taxation need announce legislative policy, and specify conditions under
not be exclusively public. Although private individuals which it is to be implemented.
are directly benefited, the tax would still be valid
provided such benefit is only incidental. c. Territorial
- The test is not as to who receives the money, but the 1. Situs of Taxation
character of the purpose for which it is expended; not Literally means the place of taxation.
the immediate result of the expenditure but rather the The place or the authority that has the right to impose
ultimate. and collect taxes. It is premised upon the symbiotic
- In the imposition of taxes, public purpose is presumed. relation between the TP and the State.

b. Inherently Legislative a. Situs of Income Tax

General Rule: 1. From sources within the Philippines
Taxation is purely legislative, Congress cannot delegate the 2. From sources without the Philippines
power to others. This limitation arises from the doctrine of Determined by the nationality, residence of the
separation of powers among the three branches of government. TP and source of income.

Exceptions: Theories:
1. Delegation to local governments (Sec. 5,Art. X, 1987 1. Domicillary theory - the location where the income
Consti) earner resides is the situs of taxation
- The power of LGUs to impose taxes and fees is 2. Nationality theory - the country where the income
always subject to the limitations which the Congress earner is a citizen is the situs of taxation
may provide, the former having no inherent power to 3. Source rule - the country which is the source of the
tax. income or where the activity that produced the
income took place is the situs of taxation.
The power to tax is primarily vested in the Congress,
however, in our jurisdiction, it may be exercised by local 3. Income partly within and partly without the
legislative bodies, no longer merely by virtue of a valid Philippines
delegation but pursuant to direct authority conferred by Allocated or apportioned to sources within or without
Section 5, Article X of the1987 Constitution, subject to the Philippines.
guidelines and limitations which Congress may provide
which must be consistent with the basic policy of local b. Situs of Property Taxes
autonomy. 1. Taxes on Real Property
The place where the property is located. The
2. Delegation to the President applicable concept is lex situs or lex rei sitae.
The power granted to Congress under this constitutional
provision to authorize the President to fix within specified limits 2. Taxes on Personal Property
and subject to such limitations and restrictions as it may impose,
tariff rates and other duties and imposts include tariffs rates Tangible personal property Intangible personal property
even for revenue purposes only. Customs duties which are Where the property is physically The place where the owner is
assessed at the prescribed tariff rates are very much like taxes located although the owner located. The applicable concept
which are frequently imposed for both revenue-raising and resides in another jurisdiction. is mobilia sequuntur personam
regulatory purposes (Sec. 28(2), Art. VI, 1987 Consti.).

3. Delegation to administrative agencies

Mobilia sequuntur presonam
With respect to aspects of taxation not legislative in
- movables follow the owner or domicile of the owner
1. When the property has acquired a business situs in
a. power to value property
another jurisdiction;
b. power to assess and collect taxes
2. When an express provision of the statute provide for
c. power to perform details of computation,
another rule.
appraisement or adjustments.

Page 7 of 104
c. Situs of Excise Tax 1. governmental functions - tax exempt
1.Estate Tax 2. proprietary functions - subject to tax.
2. Donors Tax Note:
Determined by the nationality and residence of the TP and the The exemption applies only to governmental entities
place where the property is located. through which the government immediately and
directly exercises its sovereign powers.
d. Situs of Business Tax Tax exemption of property owned by the Republic of
The place where the act or business is performed or occupation the Philippines refers to the property owned by the
is engaged in or where the transaction is performed because it government and its agencies which do not have
is that place that gives protection separate and distinct personality (NDC vs. Cebu City)
Those created by special charter (incorporated
agencies) are not covered by the exemption.
The power to levy an excise upon the performance of an act or
the engaging in an occupation does not depend upon the 2. Constitutional Limitations
domicile of the person subject to the exercise, nor upon the a. Provisions Directly Affecting Taxation
physical location of the property or in connection with the act or 1. Prohibition against imprisonment for non-payment of poll
occupation taxed, but depends upon the place on which the act tax (Sec. 20, Art. III)
is performed or occupation engaged in.
The prohibition is against imprisonment for non-
payment of poll tax. Thus, a person is subject to
Transaction Situs of Transaction
imprisonment for violation of the community tax law
other than for non-payment of the tax and for non-
1.Sale of Real Property Place or location of the real property
payment of other taxes as prescribed by law.
The non-imprisonment rule applies to non-payment of
2.Sale of Personal Property Place of sale
poll tax which is punishable only by a surcharge, but
not to other violations like falsification of community
3.VAT Where the goods, property or
tax certificate or non-payment of other taxes.
services are destined, used or
consumed. The only penalty for delinquency in payment is the
payment of surcharge in the form of interest at the rate
d. International Comity of 24% per annum which shall be added to the unpaid
amount from due date until it is paid(Sec. 161, LGC)
Comity is the respect accorded to other sovereign
2. Uniformity and equality of taxation
The property of a foreign state or government may not (Sec. 28(1), Art. VI)
be taxed by another. Uniformity (equality or equal protection of the laws) means
all taxable articles or kinds or property of the same
Basis: Sec. 2, Art. II, 1987 Constitution- Doctrine of
class shall be taxed at the same rate. A tax is uniform
Incorporation Clause
when the same force and effect in every place where
The Philippines renounces war as an instrument of
the subject of it is found.
national policy, adopt the generally accepted principles of
Equitable means fair, just, reasonable and
international law as part of the law of the land and adheres
to the policy of peace, equality, justice, freedom, proportionate to ones ability to pay.
cooperation, and amity with all nations.
3. Grant by Congress of authority to the President to
Bases of the rule impose tariff rates (Art. 28 (2), Art. VI)
1. Doctrine of Sovereign equality(In par parem non
habet imperium) 4. Prohibition against taxation of religious, charitable entities,
- as between equals, there is no sovereign and educational entities (Sec. 4(4), Art. XIV)
2. Usage among states that when one enter into the The exemption granted to non-stock, non-profit
territory of another, there is an implied understanding educational institution covers:
that the power does not intend to degrade its dignity income,
by placing itself under the jurisdiction of the latter property, and
3. The rule of international law that a foreign government donors taxes, and
may not be sued without its consent. Thus it would be custom duties.
useless to assess the tax since it cannot be collected To be exempt from tax or duty, the revenue, assets,
4. Reciprocity among states property or donation must be used
ADE for educational purpose.
e. Exemption of Government Entities, Agencies, and In the case of religious and charitable entities and
Instrumentalities non-profit cemeteries, the exemption is limited to
property tax.
Agencies performing:

Page 8 of 104
The said constitutional provision granting tax In the interest of national economy, general
exemption to non-stock, non-profit educational welfare and/or national security, the President
institution is self-executing. upon the recommendation of the NEDA is
Tax exemptions, however, of proprietary educational empowered:
institutions require prior legislative implementation. 1. To increase, reduce or remove existing protective
Their tax exemption is not self-executing. rates of import duty, provided that the increase should
Lands, Buildings, and improvements ADE used for not be higher than 100% ad valorem.
educational purposed are exempt from property tax, 2. To establish import quota or to ban imports of any
whether the educational institution is proprietary or commodity.
non-profit. 3. To impose additional duty on all imports not
exceeding10% ad valorem
5. Prohibition against taxation of non-stock, non-profit
institutions (Sec. 4 (3), Art. XIV) 12. Exemption from real property taxes
All revenues and assets of non-stock, non-profit (Sec. 28(3), Art. VI)
educational institutions used ADE for educational 13. No appropriation or use of public money for religious
purposes shall be exempt from taxes and duties purposes (Sec. 29(2), Art. VI)
Congress is without power to appropriate funds for
Note: a private purpose.
Where the educational institution is private and non-profit (but a
stock corporation), it is subject to income tax but at the
b. Provisions Indirectly Affecting Taxation
preferential rate of 10% 1. Due process (Sec. 1, Art. III)
No person shall be deprived of life, liberty or
6. Majority vote of Congress for grant of tax exemption (Sec. property without due process of law.
28(4), Art. VI) 2. Equal protection (Sec. 1, Art. III)
The provision requires the concurrence of a majority, 3. Religious freedom (Sec. 5 Art. III)
not of attendees constituting a quorum, but of all Note:
members of the Congress. License fees/taxes would constitute a restraint on the
freedom of worship as they are actually in the nature
7. Prohibition on use of tax levied for special purpose (Sec. of a condition or permit of the exercise of the right.
29(3), Art. VI) However, the Constitution or the Free Exercise of
All money collected or any tax levied for a special Religion clause does not prohibit imposing a generally
purpose shall be treated as a special fund and paid applicable sales and use tax on the sale of religious
out for such purpose only. If the purpose for which a materials by a religious organization.
special fund was created has been fulfilled or
abandoned the balance, if any, shall be transferred to 4. Non-impairment of obligations of contracts
the general funds of the government. (Sec. 10, Art. III)
A law which changes the terms of the contract by
8. Presidents veto power on appropriation, revenue, tariff bills making new conditions, or changing those in the
(Sec. 27(2), Art. VI) contract, or dispenses with those expressed, impairs
The President shall have the power to veto any the obligation.
particular item or items in an Appropriation, Revenue The non-impairment rule, however, does not apply to
or Tariff bill but the veto shall not affect the item or public utility franchise since a franchise is subject to
items to which he does not object. amendment, alteration or repeal by the Congress
when the public interest so requires.
9. Non-impairment of jurisdiction of the Supreme Court
The Congress shall have the power to define, J. STAGES OF TAXATION
prescribe, and apportion the jurisdiction of the various 1. Levy
courts but may not deprive the Supreme Court of its It refers to the enactment of a law by Congress
jurisdiction over cases enumerated in Sec. 5,Art. VIII. authorizing the imposition of tax on person, property
or excises. It includes:
10. Grant of power to the local government units to create its a. determination of the subject of taxation;
own sources of revenue (Sec 5, Art. X) b. determination of the purposes for which taxes
Note: shall be levied;
LGUs have no power to further delegate said c. fixing the rate of taxation; and
constitutional grant to raise revenue, because d. rules of taxation in general (manner, means, and
what is delegated is not the enactment or the agencies of collection)
imposition of a tax, it is the administrative
implementation. 2. Tax administration
the act of administration and implementation of the tax
11. Flexible Tariff Clause (Sec. 401 of the Tariff Code) law by executive through its administrative agencies. It

Page 9 of 104
a. Assessment; and
b. Collection 4. It is proportionate in character.
- It is ordinarily based on the TPs ability to pay

5. It is levied on persons or property.

3. Payment - A tax may also be imposed on acts, transactions, rights or
It is the act of compliance by the TP, including such privileges.
options, schemes or remedies as may be legally
available to him 6. It is levied for public purpose or purposes.


It the recovery of any tax alleged to have been 1. It should be for a public purpose
erroneously or illegally assessed or collected, or of 2. The rule of taxation should be uniform
any penalty claimed to have been collected without 3. Either the person or property taxed be within the
authority, or of any sum alleged to have been jurisdiction of the taxing authority
excessively, or in any manner wrongfully collected. 4. The assessment and collection be in consonance with
the due process clause
Note: 5. The tax must not infringe on the inherent and
If what is delegated is tax legislation, the delegation is invalid. If constitutional limitations of the power of taxation.
what is delegated is tax administration, the delegation is valid.
CHARACTERISTICS OF TAXES 1. Tariff synonymous with custom duties
May be used in three senses:
Definition a A book of rates drawn usually in alphabetical order
It is an enforced proportionate contribution imposed upon: containing the names of several kinds of merchandise
- persons, b Duties payable on goods imported or exported (PD.
- properties, No. 230)
c The system or principle of imposing duties on the
- businesses,
importation/exportation of goods.
- rights,
- interests,
- privileges, 2. Toll it is an amount paid for the use of someone elses
- transactions and property. It may either imposed by private individual or by the
- acts within the territorial jurisdiction of the taxing government.
authority exercise by the legislature for public purpose
Example: toll fee for the use of canal, bridge, hi-way, or any
and generally payable in money
of public nature
Tax Toll
They are not arbitrary exactions but contributions levied by
authority of law, and by some rule of proportion which is
It is a demand of sovereignty of proprietorship
intended to ensure uniformity of contribution and a just
apportionment of the burdens of government.
It is paid for the support of the for the use of anothers
government property
1. It is levied by the law-making body of the State.
Generally, no limit as to amount amount depends on the cost of
- The power to tax is a legislative power which under the
imposed the construction and
Constitution only Congress can exercise through the
maintenance of the public
enactment of laws. Accordingly, the obligation to pay taxes is
improvement used
a statutory liability.

2. It is an enforced contribution. Imposed only by the the government or

- A tax is not a voluntary payment or donation. It is not government private individuals or
dependent on the will or contractual assent, express or entities
implied, of the person taxed. Taxes are not contracts but
positive acts of the government. 3. License fee
A charge imposed under the police power for the
3. It is generally payable in money. purposes of regulation.
- Tax is a pecuniary burden an exaction to be discharged
alone in the form of money which must be in legal tender, Tax License/Permit Fee
unless qualified by law, such as RA304 which allows
backpay certificates as payment of taxes. Enforced contribution Legal compensation or reward

Page 10 of 104
assessed by the sovereign of an officer for specific purposes
authority to defray public Generally, cannot be assigned Assignable
Generally, payable in money May be paid in kind
For revenue purposes regulation
Generally, not subject to set-off May be subject to set-off or
An exercise of the taxing power of the Police Power or compensation compensation

Generally, no limit as to the limited to the necessary Imprisonment is a sanction for No imprisonment for non-
amount of tax to be paid expenses of inspection and non-payment except poll tax payment
Governed by special prescriptive by ordinary prescriptive periods
Imposed also on persons and on the right to exercise privilege periods provided in the Tax Code
Does not draw interest except Draw interest when so
Three kinds of licenses are recognized in the law: only when delinquent stipulated, or in case of default
1. Licenses for the regulation of useful occupations.
2. Licenses for the regulation or restriction of non- N. KINDS OF TAXES
useful occupations or enterprises 1. As to object
3. Licenses for revenue only a. Personal, capitation, or poll tax
Tax of a fixed amount imposed on persons residing
4. Special assessment within a specified territory, whether citizens or not,
An enforced proportional contribution from owners of without regard to their property or the occupation or
lands especially or peculiarly benefited by public business in which they may be engaged.
improvements. b. Property tax
Since special assessments are not taxes within the Tax imposed on property, real or personal, in
constitutional or statutory provisions on tax proportion to its value or in accordance with some
exemptions, it follows that the exemption under Sec. other reasonable method of apportionment.
28(3), Art. VI of the Constitution does not apply to c. Privilege tax
special assessments. A charge imposed upon the performance of an act, the
However, in view of the exempting proviso in Sec. 234 enjoyment of privilege, or the engaging in an
of the LGC, properties which are ADE used for occupation.
religious, charitable and educational purposes are not
exactly exempt from real property taxes but are 2. As to burden or incidence
exempt from the imposition of special assessments as a. Direct
well. Demanded from the person who also shoulders the
burden of the tax. It is a tax which the taxpayer is
Tax Special Assessment directly or primarily liable and which he or she cannot
shift to another.
Imposed on persons, properties, Levied only on land b. Indirect
and rights Demanded from a person in the expectation and
intention that he or she shall indemnify himself or
Personal liability of the person Not a personal liability of the herself at the expense of another, falling finally upon
assessed person assessed, his liability is the ultimate purchaser or consumer. A tax which the
limited only to the land involved. taxpayer can shift to another.
Based on necessity as well as Based wholly on benefits 3. As to tax rates
the benefits received a. Specific
The computation of the tax or the rates of the tax is
General application Exceptional both as time and
already provided for by law.
b. Advalorem
Tax upon the value of the article or thing subject to
5. Debt taxation; the intervention of another party is needed
Debt is based upon juridical tie, created by law, for the computation of the tax.
contracts, delicts or quasi-delicts between parties for c. Mixed
their private interest or resulting from their own acts or Tax rates are partly progressive and partly regressive
4. As to purposes
Tax Debt
a. General or fiscal
Based on Law on contracts (express or implied)

Page 11 of 104
imposed for the purpose of raising public funds for the
service of the government.

b. Special, regulatory, or sumptuary

Imposed primarily for the regulation of useful or non-
useful occupation or enterprises and secondarily only
for the purpose of raising public funds.

5. As to scope or authority to impose

a. National internal revenue taxes
Imposed by the National Government.
b. Local real property tax, municipal tax
Imposed by the municipal corporations or local
government units.

6. As to graduation
a. Progressive
Rate or amount of tax increases as the amount of the
income or earning to be taxed increases.
b. Regressive
Tax rate decreases as the amount of income to be
taxed increases.
c. Proportionate
Tax based on a fixed percentage of the amount of the
property receipts or other basis to be taxed.

Page 12 of 104
are imposed on passive income.
c. Comprehensive The Philippine Income tax law adopted
the so-called comprehensive tax situs:
- comprehensive in the sense that it practically applies
II. NATIONAL INTERNAL REVENUE CODE all possible rules of tax situs.
d. Semi-schedular or semi-global tax system.
(NIRC) OF 1997
3. Criteria in imposing Philippine Income Tax
A. INCOME TAXATION a. Citizenship Principle
Income Tax A citizen of the Philippines is subject to Philippine
It is a tax on all yearly profits arising from property, income tax on his worldwide income, if he resides in
professions, trades or offices, or as a tax on a the Philippine, or only on his income from sources
persons income, emoluments, profits and the like within the Philippines, if he qualifies as NRC.
(Fisher vs. Trinidad, October 30,1922).
b. Residence Principle
1. Income tax system A RA is liable to pay income tax on his income from
a. Global Tax System sources within the Philippines but exempt from tax on
All income received by the taxpayer are grouped together, his income from sources outside the Philippines.
without any distinction as to the type or nature of the income,
and after deducting therefrom expenses and other allowance c. Source Principle
deductions, are subjected to tax at a fixed rate. An alien is subject to Philippine income tax because
he derives income from sources within the Philippines.
b. Schedular Tax System Thus, a NRA is liable to pay Philippine income tax on
The various types or items of income are classified accordingly his income from sources within the Philippines despite
and are accorded different tax treatments, in accordance with the fact that he has not set foot in the Philippines.
schedules characterized by graduated tax rates. Since these
types of income are treated separately, the allowance Taxable Source of
deductions shall likewise vary for each type of income. Taxpayer Income
Schedular System Global System
RC Within & without
There are different tax rates Single tax rate
NRC Within
There are different categories No need for classification as all
of taxable income TPs are subjected to a single tax OCW/Seaman in International Vessel Within
Alien Individual Resident or Non Within
Usually used in the income Usually applied to corporations Resident
taxation of individuals
DC Within & Without
c. Semi-schedular or semi-global tax system (mixed income)
It is a system where: FC(engaged or not in trade or business in Within
the compensation, the Philippines)
business or professional income,
capital gain and passive income(not subject to final tax), 4. Types of Philippine Income Tax
and other income are added together to arrive at the
a. Graduated Income Tax on individuals;
gross income,
b. NCIT on corporations;
and after deducting the sum of allowable deductions
c. MCIT on corporations;
from business or professional income,
d. Special Income Tax on certain corporations
capital gain and passive income (not subject to final tax),
and other income,in the case of corporations,
1. private educational institutions
as well as personal and additional exemptions in case
2. foreign currency deposits
of individual taxpayer,
3. international carriers
the taxable income is subjected to one set of graduated
e. CGT on sale or exchange of unlisted shares of stock
tax rates;
of domestic corporation classified as capital assets;
method of taxation under the law.
f. CGT on sale or exchange or real property located in
the Philippines classified as capital assets
2. Features of the Philippines Income Tax Law g. FWT on income payment made to non-residents
a. Direct Tax One assessed upon the property, person, (individual or corporation);
business income, etc. of those who pay. h. FBT;
b. Progressive The tax rates increase as the tax base i. Branch profit remittance tax;
increases. In certain cases, however, final taxes

Page 13 of 104
j. IAET; and status of employment and irrespective of the method
k. GIT by which they are paid.

5. Taxable Period MWEs shall NOT cover :

a. Calendar Period a. household or domestic helpers;
A period of 12 mos. commencing from January 1 and b. persons in the personal service of another, including
ending December 31. family drivers, and
c. workers of duly registered Barangay Micro Business
b. Fiscal Period Enterprises (BMBs) with Certificate of Authority
An accounting period of 12 mos. ending on the last pursuant to RA 9178 (Sec. 2, Wage Order No. NCR -15,
day of any month other than December. providing an increase in the minimum wage in the NCR).

c. Short Period Taxation of Income of MWEs

A period of less than 12 mos. Compensation income of MWEs being paid the SMW,
as fixed by the RTWPB or NWPC, applicable to the
6. Kinds of Taxpayers place where he/she is assigned shall be exempted
A) Individual Taxpayers form income tax.
1. Citizen: For this purpose, a senior citizen whose salary is
a. RC Citizen and resident of the equivalent to the SMW shall also be considered as a
Philippines MWE entitled to exemption from income tax.
b. NRC Sec.22(e):
A citizen of the Philippines who: Said exemption covers:
- establishes to the satisfaction of the CIR the fact of his Holiday pay,
physical presence abroad with a definite intention to overtime pay,
reside therein. night shift differential pay and
- leaves the country during the taxable year to reside hazard pay
abroad, either as immigrant or for employment or on However, an employee who receives/earns additional
permanent basis. compensation such as:
- has been previously considered as NRC and two a. commissions,
arrives in the Philippines at any time during the b. honoraria,
taxable year to reside permanently in the country. c. fringe benefits,
- shall have stayed outside the Philippines for 183 days d. benefits in excess of the allowable statutory amount
or more by the end of the year. of P30,000 taxable allowances and other taxable
income other than those covered by the exemption
2. Aliens: shall not enjoy the privilege of being a MWE.
a. RA Implication: the entire earnings are not exempt from income
Resident of the Philippines but not citizen thereof tax and, consequently, from withholding tax.
b. NRA
Not a resident and a citizen of the Philippines MWEs receiving other income, such as income from:
a. NRAETB in the Philippines (Sec. 25[A][1]) a. the conduct of trade, business, or
- An alien who stays in the Philippines for b. practice of profession, except income subject to final
more than 180 days. tax,
are not exempted from income tax on their entire income
b. NRANETB in the Philippines earned during the taxable year. This rule, notwithstanding, the
- An alien who stays in the Philippines for 180 SMW, holiday pay, overtime pay, night shift differential pay and
days or less. hazard pay shall be exempt from withholding tax only, but said
income shall be included in the gross income for purposes of
3. Special Class of individual employees computing his income tax, wherein he is required to file his
a. MWE - (Sec.22[HH]) income tax return (BIR Form No. 1701).
A worker in the private sector paid the statutory minimum wage,
or to an employee in the public sector with compensation B) Corporations
income of not more than the statutory minimum wage in the 1. DC created or organized in the Philippines or under its laws.
non-agricultural sector where he/she is assigned. 2. FC created, organized or existing under any laws other than
those of the Philippines.
By virtue of the passage of R.A. 9504, MWEs are a) RFC engage in trade or business within the
exempted from the payment of the income tax on their Philippines.
compensation income. b) NRFC Not engaged in the trade or business within
The SMW applies to all MWEs in the private sector in the Philippines.
the Region, regardless of their position, designation or
3. JV and consortium

Page 14 of 104
The legal concept of a JV is of common law origin. It appropriate Tendering Agency (government office) that
has no precise legal definition but it has been the project is a foreign financed/internationally-funded
generally understood to mean an organization formed project and that international bidding is allowed under
for some temporary purpose (Philippine Mining the Bilateral Agreement entered into by and between
Corporation vs. CIR, April 16, 2008). It is in fact hardly the Philippine Government and the
distinguishable from the partnership, since their foreign/international financing institution pursuant to
elements are similar community of interest in the the implementing rules and regulations of RA 4566,
business, sharing of profits and losses, and a mutual otherwise known as Contractors License Law.
right of control.
In addition, the tax-exempt JV or consortium shall not
The main distinction cited by most opinions in include those who are mere supplier of goods,
common law jurisdictions is that the partnership services, or capital to a construction project.
contemplates a general business with some degree of The member to a JV not taxable as corporation shall
continuity, while the joint venture is formed for the each be responsible in reporting and paying
execution of a single transaction, and is thus of a appropriate income taxes on their respective share to
temporary nature. This observation is not entirely the JVs profit.
accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, Note: The tax exemption of the JV is valid only up to
and a particular partnership may have for its object a the completion of the construction project and does
specific undertaking. It would seem therefore that not extend to the subsequent sale or lease of the
under Philippine law, a joint venture is a form of developed condominium floors or units to customers
partnership and should thus be governed by the law of (Mamalateo, Reviewer on Taxation, 2008,ed.,p.94)
partnerships. The Supreme Court has, however,
recognized a distinction between these 2 business EXCEPTION:
forms, and has held that although a corporation 1. Absent any one of the aforesaid requirements, the JV or
cannot enter into a partnership contract, it may, consortium formed for the purpose of undertaking construction
however, engage in a joint venture with others. projects shall be considered as taxable corporation.

What are the requisites of a joint venture? 2. If the JV is engaged in any other line of business other than
1. Each party to the JV must make a contribution (capital, construction or petroleum and other energy operations with
services, skill, knowledge, material or money); operating contract or consortium agreement under a service
2. Profits which must be shared among the parties; contract with the government, the same will be treated as a
3. Profits must be a joint proprietary interest taxable corporation.
4. There must be a right of mutual control over the subject
matter of the enterprise; and 3. When two corporations shall be separately taxable as a
5. Usually, there is a single business transaction. corporation.

When is a joint venture or consortium NOT taxable as a C) Partnerships

corporation? Partnership is a contract whereby two or more persons bind
GENERAL RULE: themselves to contribute money, property, or industry to a
A joint venture is not taxed as a corporation and is taxed just like common fund with the intention or dividing the profits among
a GPP which means that the co-venturers are taxed only on themselves (Art.1767 NCC)
their individual companys share in the profits.
In general, partnerships are taxable just like a
In order that a JV or consortium will not be considered as a corporation.
taxable corporation under Sec. 22, it should be: For tax purposes, partnerships, no matter how created
1. For the undertaking of a construction project;
or organized (except a general professional partnership)
2. Involve joining or pooling of resources by licensed
are taxed like a corporation.
local contractors, that is, licensed as general
They are taxable as an entity subject to the ordinary
contractor by the
3. PCAB of the DTI: corporate income tax.
4. These local contractors are engaged in construction The partners are considered as stockholders, hence,
business; and the distributive shares are taxed as dividends subject
5. The JV itself must likewise be duly licensed as such to the final withholding tax of 10%.
by the PCAB of the DTI.
General co-partnerships.
JVs involving foreign contractors may also be treated General co-partnerships are partnerships, which by
as a non-taxable corporation only if: law are assimilated to be within the context of, and so
a. the member foreign contractor is covered by a special legally contemplated as corporations.
license as contractor by the PCAB of the DTI; and
b. and the construction project is certified by the The partnership itself is subject to the corporate
income tax, while the individual partners are

Page 15 of 104
considered stockholders and therefore, profits E) Estate and Trusts
distributed to them by the partnership are taxable as Estate the mass of property, rights, and obligations left behind
dividends. The taxable income of a general co- by the decedents upon his death.
partnership for a taxable year, after deducting the The status of the estate is determined by the status
corporate income tax imposed therein, shall be of the decedent at the time of his death; so an estate
deemed to have been actually or constructively as an income TP can be a citizen or an alien
received by the partners in the same taxable year and Trust An arrangement created by will or co-agreement under
shall be taxed to them in their individual capacity which title to property is passed to another for conservation or
whether actually distributed or not. investment with the income therefrom and ultimately the
corpus to be distributed in accordance with the directions of the
D) General Professional Partnerships (GPPs) creator as expressed in the governing instrument.

What are general professional partnerships? F) Co-ownership

Partnerships formed by persons for the sole purpose of Co-ownership occurs when:
exercising their common profession, no part of the income of 1. two or more heirs inherit an undivided property
which is derived from engaging in any trade or business (Sec. from a decedent, or
22[B]). 2. a donor makes a gift of an undivided property in
favour of two or more donees.
General Professional partnerships NOT subject to
income tax. Before Partition of the property:
thus, income payments made to the GPPs are not It is not taxable when the activities are limited to the
subject to the expanded withholding tax. But they are preservation of the co-owned property and the
required to file returns of their income. collection of the income therefrom.
Reason: for the purpose of furnishing information as to the Each co-owner is taxed individually on his
share in the gains or profits which each partner shall include in distributive share.
his individual return. Before partition and distribution, all the income
belongs to all the heirs.
Individuals carrying on business in GPPs are,
however, taxable upon their distributive shares of the After Partition
net income of such partnership, whether distributed or Should the co-owners invest the income of the co-
not, and are required to include such distributive ownership in any income producing properties after
shares in their individual returns. partition, they would be constituting themselves into
an unregistered partnership which is subject to income
For administrative purposes, GPPs are required to tax as corporation
render, in duplicate, a return of their earnings, profits
and income, setting forth the items of gross income A co-ownership may become an unregistered general
and the deductions allowable, and the names and partnership and therefore becomes a taxable
addresses of the individuals who would be entitled to corporation if the co-owners appoint an administrator
the net earnings, profits, and income, if distributed. who manages the affairs of the co-ownership by
making investments therein from which profits are
But distributive shares of partners in the net profit of a realized. This applies even if there was already a
GPP are taxable in the hands of the partners. partition ordered by the court should the joint
Income payments made to a GPP in consideration for management be given to one of the co-owners.
its professional services are not subject to income tax
and consequently to withholding tax. A co-ownership is automatically converted into an
unregistered partnership the moment the said
It is the individual partners who shall be subject to common properties and/or income derived therefrom
income tax, and consequently, to withholding tax, in are used as a common fund with intent to make profits
their separate and individual capacities pursuant to for the heirs in proportion to their respective shares in
Section 26 of the Tax code. Furthermore, each partner the inheritance as determined in a project partition
shall report as gross income his distributive shares, either respective shares in the inheritance as
actually or constructively received, in the net income determined in a project partition either duly executed
of the partnership. in an extrajudicial settlement or approved by the court
HOWEVER, it is worth mentioning that income in the corresponding testate or intestate proceeding.
payments made periodically or at the end of the Judicial partition of property will not preclude the
taxable year by GPP to the partners, such as treatment of a co-ownership as a taxable corporation
drawings, advances, sharings, allowances, stipends where the property is not actually divided and where
and the like, are subject to the 15%, if the payment to the co-owners place the inherited property in
the partner for the current year exceeds P 720,000; business.
and 10% FWT, if otherwise.

Page 16 of 104
HOWEVER, when the co-ownerships activities are essence of the test is that in order for income to be
limited merely to the preservation of the co-owned taxed, it is to be severed from the property from which
property, the co-owners shall be liable only for income it was derived.
tax in their separate and individual capacities, and the
co-ownership itself is not considered as a separate Eisner vs. Macomber, 252 US 189, March 08, 1920
taxable entity. The Court analogized capital as being separate from income
in the way that a tree is separate from its fruit. It requires the
presence of a tax event which is an event which triggers a
transfer of ownership of property.

7. Income Taxation
A. Definition Mandarin Hotels, Inc. vs. CIR, March 24, 1997
A tax on all yearly profits arising from property, profession, trade There are two conditions in the realization of income:
or business, or a tax on persons income, emoluments, profits 1. The earning process is complete or virtually complete;
and the like. 2. An exchange has taken place.

B. Nature b. Actual vs. constructive receipt:

It is generally regarded as an excise tax.
It is not levied upon persons, property, funds or profits Actual receipt Constructive receipt
but on the privilege of receiving said income or profit.
-Income may be actual -When money consideration or its
receipt or Physical receipt. equivalent is place at the control of the
8. Income
person who rendered the service
A. Definition
without restriction by the payor.
It is an amount of money coming to a person or
corporation within a specified time whether as
Limpan Investment Corp vs. Commissioner, 17 SCRA 703
payment for services, interest or profits from
The term constructive receipt closely refers to availability of the
investment. It is a gain derived from capital, from
income to the TP but, by his own and exclusive choosing, he
labor, or from both combined, provided it be
prefers not to actually receive the income. Hence, a landlord
understood to include profit or gain, resulting from the
must consider as constructively received such rentals he
sale or conversion of real/personal property, ordinary
unjustifiably refused to accept from his tenant.
or capital assets.
(iii)Recognition of income
B. Nature
a. There is income, gain or profit.
All wealth which flows to the taxpayer other than a mere return
b. The income, gain or profit is received or realized during
of capital.
the taxable year.
Unless otherwise specified, it means cash or its equivalent.
The income gain or profit is not exempt from income
Income can also be thought of as a flow of the fruits of ones
labor. tax
Income includes earnings, lawfully or unlawfully acquired,
without consensual recognition, express or implied, of an (iv) Methods of accounting
obligation to repay and without restriction as their disposition. a. Cash method vs. Accrual method

C. When income is taxable Cash Method Accrual Method

1. There must be a closed and completed transaction;
- the income of the TP is reported in - Income of the TP is reported in the
2. A gain or profit is derived therefrom; and the year it is paid, actually or year which it is earned and the
3. It is not tax exempt constructively expenses are deducted in the year
4. An income to be taxable must be realized and in which it is incurred.
recognized. - expenses are deducted in the year
it is paid. - The income, gain, and profits are
(i)Existence of income included in gross income when
There must be gain a value received in the form of cash or earned, whether received or not and
its equivalent as a result of rendition of service or earnings in expenses are allowed as deductions
when incurred, although not yet
excess of capital invested.
(ii) Realization of income - It is the right to receive and not the
a. Tests of Realization actual receipt that determines the
Also called Severance Test or Macomber Test inclusion of the amount in gross
There is no taxable income until there is a separation income.
from capital of something of exchangeable value,
thereby supplying the realization or transmutation b. Instalment payment vs. Deferred payment vs. Percentage
which would result in the receipt of income. The completion

Page 17 of 104
A. Definition (Sec. 32)
Installment Deferred payment Percentage The term gross income is understood to mean all
payment completion income from whatever source derived, including ,
but not limited to the following items:
Appropriate when Initial payments Persons whose gross 1. Compensation for services in whatever form paid;
collections extend exceed 25% of the income is derived 2. Gross income derived from business;
over relatively long gross selling price from long-term 3. Gains derived from dealings in property;
periods of time and and such transaction contracts shall report
there is a strong shall be treated as such income upon
4. Interest;
possibility that full cash sale which the basis of 5. Rents;
collection will be makes the entire percentage of 6. Royalties;
made. selling price taxable completion. 7. Dividends;
in the month of sale. 8. Annuities;
9. Prizes and winnings;
D. Tests in determining whether income is earned for tax 10. Pensions; and
purposes 11. Partners distributive share of the gross income of the
1. Realization test
No taxable income until there is a separation from The definition is broad enough to include all passive
capital of something of exchangeable value, thereby income subject to specific rates or final taxes.
supplying the realization or transmutation which would However, since these passive incomes are already
result in the receipt of income. subject to different rates and taxed finally at source,
they are no longer included in the computation of
2. Claim of right doctrine or Doctrine of ownership, command, or grass income, which determines taxable income.
A taxable gain is conditioned upon the presence of a B. Concept of income from whatever source derived
claim of right to the alleged gain and the absence of a Implies the inclusion of all income under the law,
definite unconditional obligation to return or repay. irrespective of the voluntary or involuntary action of
The power to dispose of income is the equivalent of the TP in producing the gains.
ownership of it. The exercise of that power to procure All income not expressly excluded or exempted
the payment of income to another is the enjoyment from the class of taxable income, irrespective of the
and hence, the realization of the income by him who voluntary or involuntary action of the TP in producing
exercises it. The dominant purpose of the revenue the income.
laws is the taxation of income to those who earn or
otherwise create the right to receive it and enjoy the C. Gross Income vs. Net Income or Taxable Income
benefit of it when paid.

3. Economic benefit test or Doctrine of proprietary interest Gross Income Net Income or
Income realized is taxable only to the extent that the Taxable Income
taxpayer is economically benefited. As to
Any economic benefit to the employee that increases deductions: allows no deduction Allows deduction
his net worth is taxable.
As to
exemptions: grants no exemptions Grants exemptions
4. Severance test
There is no taxable income until there is a separation As to tax base:
from capital of something which is of exchangeable Gross Income Net Income
value thereby supplying the realization or
transmutation which would result in the receipt of
income. Thus, income is not taxable unless separated Advantages or Disadvantages
or severed from the capital or labor that bore it.
Simplifies the income tax system Confusing and complex process of
5. All events test filing income tax return
For income or expense to accrue, it requires:
Substantial reduction in corruption Vulnerable to corruption on account of
1. the fixing of a right to income or liability to pay; and and tax evasion as the exercise of margin of discretion in the grant of
2. the availability of the reasonable accurate discretion, to allow or disallow deductions
determination of such income or liability deductions is dispensed with

CIR vs. Isabela Cultural Corporation, February 12, 2007 More Administratively feasible Provides equitable reliefs in the form
The amount of liability does not have to be determined exactly. It of deductions, exemptions and Tax
must be determined with reasonable accuracy credit

9. Gross Income Does away with wastage of Tax Audit minimizes fraud

Page 18 of 104
manpower and supplies taxable year preceding the declaration of such dividends, or for
such part of such period as the corporation within the
Philippines has been in existence, was derived from sources. It
must be only in an amount which bears the same ratio to such
dividends as the gross income of the corporation for such period
derived from sources within the Philippines bears to its gross
income from all sources.

3) Compensation for labor or personal services performed in

4) Rentals and Royalties from property located in the Phils. or
Formula: from any interest in such property, including rentals or royalties
Total Sales/Revenue/Receipts/Fees a. The use of, or the right or privilege to use in the Phils.
Add: Gross sales not subject to withholding tax any copyright, patent, design or model, plan,
Total Sales secret formula or process, goodwill, trademark,
Less: Sales Returns Allowances & Discounts trade brand or other like property or night;
Net Sales/ Revenue /Receipt & Fees
Add: Other Taxable income from operations not subject to b. The use of, or the right to use in the Philippines any
Final Tax. industrial, commercial or scientific equipment;
Total Sales/Revenues/Receipts/Fees
Less: Cost of Sales /Service___________________ c. The supply of scientific technical, industrial or
Gross Income from Business/Prof. commercial knowledge or information;
Add: Non-operating income__________________ The supply of any assistance that is ancillary and subsidiary to,
Gross Income and is furnished as a means of enabling the application or
enjoyment of, any such property or right as is mentioned in
paragraph (a), any such equipment as is mentioned in
paragraph (b) or any such knowledge or information as is
NET INCOME mentioned in paragraph (c);

Gross Income d. The supply of services by a nonresident person or his

Less: Deductions___ employee in connection with the use of
Net Income property or rights belonging to, or the installation or
operation of any brand, machinery or other apparatus
purchased from such nonresident person;
e. Technical advice, assistance or services rendered in
Net Income connection with technical management or
Add: Non-allowable Deduction administration of any scientific , industrial or
Taxable Income commercial undertaking, venture, project or scheme;

Gross Income ii) Gross income and taxable income from sources
Less: Allowable deductions without the Philippines.
Add: Compensation Income 1. Interest other than those derived from sources within the
Taxable Income Philippines.
2. Dividends other than those derived from sources within the
D. Classification of Income as to Source Philippines.
i) Gross income and taxable income from sources a. Dividends from foreign corporations in general;
within the Philippines and
1) Interests b. Dividends derived from foreign corporations, 50%
a. Interests derived from sources within the Philippines. or more of the gross income of which for the 3 rd
Interests on bonds, notes or other interest- period preceding the declaration of dividends.
bearing obligations of residents, corporate 3. Compensation for labor or personal services performed
or otherwise. outside the Philippines.
4. Rentals or royalties from property located outside the Phils.
2) Dividends Or from any interest in such property including rentals or
a. From a domestic corporation, and royalties for the use of or for the privilege of using outside the
b. From a foreign corporation 50% or more of the gross income Philippines patents, etc.
of which for the 3- year period ending with the close of the

Page 19 of 104
5. Gains, profits and income from the sale real property located Fringe benefits subject to FBT are only those given to
outside the Philippines. managerial or supervisory employees.
6. Gains, profits and income from the sale of personal property The employee referred to as subject to FBT is either a
located outside the Philippines, and Income derived from the managerial or supervisory employee.
purchase of personal property within and its sale outside the

iii) Income partly within or partly without the Philippines

Income from transportation such as foreign steamship
companies whose vessel touch the Philippine ports Sec. 218 [m] of PD 442
and other services rendered partly within and partly Managerial employee- one who is vested with powers or
outside the Philippines such as foreign corporations prerogatives to lay down and execute management policies
carrying on the business of transmission of telegraph and/or to:
and cable messages between points outside the hire,
Philippines. transfer,
Income from the sale of personal property produced in suspend,
whole or in part by the TP within and sold outside the lay-off,
Philippines or produced by the TP outside and sold recall,
within the Philippines. discharge,
assign or
E. Sources of income subject to tax discipline employees.
1. Compensation income
All remuneration for services rendered by an Supervisory employees- are those who, in the interest of the
employee for his employer unless specifically employer (ER), effectively recommend such managerial actions
excluded under the NIRC. if the exercise of such authority is not merely routinary or clerical
in nature but requires the use of independent judgment.
2. Fringe Benefits
a. Special treatment of fringe benefits b. Definition Sec. 33 [B] of the NIRC
Applied to fringe benefits given or furnished to Any good, service or other benefit furnished or
managerial or supervising employees and not to granted in cash or in kind by an ER to an individual
the rank and file. employee (EE), except rank and file employee.

Special treatment of FBT c. Taxable and non-taxable fringe benefits

The tax imposed on the fringe benefits received by
managerial or supervisory employees shall be treated Taxable fringe benefits (Sec. 33[B])
as a final income tax on the employee, but shall be 1. Housing Privileges
withheld and paid by the employer on a calendar a. Lease of residential property for the use of the ER as
quarterly basis as provided under Sections 57 (A) his usual place of resident.
(Withholding of Final Tax on certain incomes) and 58 b. Residential Property owned by ER and assigned to
(Quarterly Returns and Payments of Taxes Withheld EE as his usual place of residence.
of the Tax Code) c. Residential property purchased by ER on instalment
basis for the use of ER as his usual
Who is legally required to pay the FBT? place of residence.
It is the employer who is legally required to pay the fringe d. Residential property purchased by ER and ownership
benefits tax. is transferred to EE as his usual place of residence.
e. Residential property transferred to EE at less than
The FBT is imposed as a final withholding tax placing the ERs acquisition cost.
legal obligation to the employer to remit the tax, such that, if the
tax is not paid, the legal recourse of the BIR is to go after the 2. Household Expenses
employer. Refer to expenses of the EE paid by the ER for household
personnel or other personal expenses, which shall include:
Any amount or value received by the employee as a fringe a. salaries of household helper
benefit is considered tax paid hence, net of the income tax due b. personal driver of the EE
thereon. The person who is legally required to pay (same as c. payment for homeowner association ,etc.
statutory incidence as distinguished from economic incidence) is that
person who , in case of non-payment, can be legally 3. Interest on loan at less than the market rate
demanded to pay the tax. 4. Expenses for Foreign Travel
General rule:

Page 20 of 104
Expenses for foreign travel insured by the EE and/or family b goodwill,
members of the EE borne by the ER shall be treated as taxable c contentment, or
fringe benefits of the EE. d efficiency of his EEs.
5. When the fringe benefit is required by the nature of, or
Exception: necessary to the trade, business or profession of the
Where the expenses for foreign travel paid by the ER for the EE employer;
are for the purpose of attending business meeting or 6. When the fringe benefit is for the convenience of the
convention. ER. This is known as Employers Convenience Rule.
The exemption covers only the following expenses:
a. Inland travel expenses except lodging cost in hotel Convenience of the Employer Rule:
averaging US$ 300 or less/day; and A final withholding tax of 32% is imposed on the
b. Cost of economy or business class airline ticket. grossed-up monetary value of fringe benefit furnished,
granted or paid by the employer to the employee,
5. Membership fees, dues and other expenses borne by the ER except rank and file employees, whether such
for his EE, in social or athletic clubs or other similar employer is an individual , professional partnership or
organizations. a corporation, regardless of whether the corporation is
6. Life or Health Insurance taxable or not, or the government and its
General rule: instrumentalities, except when:
Borne by the ER for his EE shall be treated as taxable fringe 1. The fringe benefit is required by the nature of or
benefits. necessary to the trade, business or profession of the
Exception: ER; or
a. Contribution of the ER for the benefits of the EE 2. When the fringe benefit is for the convenience or
pursuant to existing laws. advantage of the ER.
b. The cost of premium borne by the ER for the group
insurance of his EEs. 3. Professional income
refers to the fees received by a professional from the
The cost of life or health insurance and other non-life practice of his profession, provided that there is no
insurance premiums or similar amounts in excess of employer employee relationship between him and his
what the law allows clients.

7. Holiday and Vacation Expenses 4. Income from Business

8. Motor Vehicle refers to the income derive from merchandising,
9. Expense Account mining, manufacturing and farming operations.
a. Expenses incurred by the employee but paid by his
employer. 5. Income from Dealings in Property
b. Expenses paid by the employee but reimbursed by his A. Types of Properties
employer. 1. Ordinary assets
Properties held by a taxpayer in the pursuit of his
10.Educational Assistance profession, trade or business:
a. Stock in Trade;
None-Taxable Fringe Benefits: b. real property of a kind which would properly be
1. Fringe benefits which are authorized and exempted included in the inventory if on hand at the close
from tax under special laws; of the taxable year;
2. Contributions of the employer for the benefit of the c. real property held by the taxpayer primarily for sale to
employee to: customers in the ordinary course of trade
a. retirement, or business;
b. insurance and d. real property used in trade or business which in
c. hospitalization benefit plans; subject to the allowance for depreciation; and
3. Benefits given to the rank and file EEs, whether e. Real property used in trade or business.
granted under a collective bargaining agreement or
not; 2. Capital assets (Sec.39 [A][1])
4. De minimis benefits; refers to all real properties held by a taxpayer whether
These are benefits received by an EE from his or not such properties are connected with the
ER which are exempt from FBT and withholding taxpayers trade or business and which are not
tax on the compensation of managerial, included among the real properties considered as
supervisory, rank and file EEs ordinary assets above
In general, they are limited to facilities or capital assets of property used in the trade
privileges furnished or offered by an ER to his or business of a taxpayer are subject to
EEs that are relatively of small value and are depreciation allowance
offered or furnished by the ER merely as a mean
of promoting the:
a health,

Page 21 of 104
the normal tax of 32% applies if the capital a. Capital loss limitation rule (applicable to both corporations and
assets are located outside the Philippines individuals)
and sold. Capital losses are deductible only to the extent of
Reason: CGT of 6% applies only when the real property is capital gains.
situated within the Philippines.
b. Net loss carry-over rule (applicable only to individuals)
B. Types of gains from dealings in property If any individual taxpayer sustains in any taxable
year a net capital loss, it shall be treated in the
1. Ordinary gain vs. Capital gain succeeding taxable year as a loss from the sale or
exchange of a capital asset held not more than 12
Ordinary Gain Capital Gain mos.

-any gain derived from the sale -Any gain realized by the TP 7. Dealings in real property situated in the Philippines
or exchange or ordinary assets from the sale, exchange or other 6% final tax shall be imposed on the gross selling
disposition of capital asset. price, or the current FMV at the time of the sale,
- It includes all gains other than whichever is higher.
capital gains (such as those 8. Dealings in shares of stock of Philippine corporations
derived from the performance of a. Shares listed and traded in Stock exchange
services, whether personal or b. Shares not listed and traded in Stock exchange
professional, and those accruing
from business) Passive income of domestic corporations which are
subject to Final Withholding Tax.
2. Actual gain vs. Presumed gain
The tax treatment of the passive incomes of
domestic corporations derived from within the
Actual gain Presumed gain
Philippines shall also be subject to the final
withholding tax just like the passive incomes of a
Excess of the cost from a Presumption of law that the seller
resident citizen derived within the Philippines:
sale of asset. realized gains, which is taxed at 6%
of the selling price or FMV,
whichever is higher. Interest income from any currency bank deposit in regular banking units.

3. Long term capital gain vs. Short term capital gain Yield or any monetary benefit from deposit substitutes.

Long term capital gain Short term capital gain Interest income and yield from trust funds and similar arrangements.

The profit realized from selling or The profit realized from selling or Royalties derived from sources within the Philippines.
exchanging a capital asset held exchanging a capital asset held
for more than a specified period for less than a specified period of Interest income derived from a depository bank under the FCDU.
of 1 year. 1 year.
Interest income from foreign currency loans granted by depository bank under the e
4. Net capital gain vs. Net capital loss currency deposit system to residents other than OBUs in the Philippines or other de
under the expanded depository system.
Net capital gain Net capital loss
On net capital gains from sale of shares of stock of a domestic corporation not listed
The excess of the gains from The excess of the losses from stock exchange not over 100,000
sales or exchange of capital sales or exchanges of capital
assets over the losses from such assets over the gains from such On any amount in excess of P100,000
sales or exchanges. sales or exchanges.

5. Computation of the amount of gain or loss On presumed capital gains from sale of lands and/or buildings located in the Philipp
The gain from the sale or other disposition of property capital assets.
shall be the excess of the amount realized therefrom
Gross income derived from contracts by sub-contractors from service contractor en
over the basis or adjusted basis for determining gain,
operations as defined under PD 87 (also known as the Oil Exploration and Develop
and the loss shall be the excess of the basis or Philippines), as imposed under PD 1354.
adjusted basis for determining loss over the amount
realized. The amount realized from the sale or other
disposition of property shall be the sum of money 9. Sale of principal residence
received plus the fair market value of the property Not liable for CGT when:
received. a. Sold or disposed of by natural persons.
b. The proceeds of the sale are fully utilized in
6. Income tax treatment of capital loss acquiring or constructing a new principal residence

Page 22 of 104
within 18 calendar months from the date of sale or regular rent income.
c. The Commissioner is duly notified by the TP within 30 b. VAT added to rental/paid by the lessee
days from the date of sale or disposition through a Any additional amount paid, directly or indirectly, by
prescribed return of his intention to avail of the tax the lessee in consideration for the lease is considered
exemption. rental. Therefore, taxes paid by the lessee on leased
d. A deposit is made of the 6% CGT otherwise due, in property are part of rental income of the landlord.
cash or managers check, in an interest-bearing
account with an Authorized Agent Bank (AAB), under
an Escrow Agreement between the TP and the BIR
that the same shall be released to the TP when the c. Advance rental/long term lease
proceeds of the sale shall have been utilized as
intended. Advanced rental is a Security Advanced rental is prepaid rental
e. The tax exemption can only be availed of ONCE every Deposit which restricts the received without restriction as to its
10 years. lessor as to its use. use.

6. Passive Investment Income The amount shall be The entire amount is taxable in
A. Interest Income excluded in the the year it is received.
An earning derived from depositing or lending of determination of rental
money, goods or credits. income.
B. Dividend Income
1. Cash dividend 7. Annuities, proceeds from life insurance or other types of
It is a dividend paid in cash and taxable to the extent insurance.
of the cash received.
Annuities Proceeds of life insurance
2. Stock Dividend
It is a transfer of a portion of retained earnings to Amounts payable yearly or at Paid by reasons of the death of
capital stock by action of stockholders. It simply other regular intervals for a the insured to his estate or to
means the capitalization of retained earnings. certain or uncertain period. They any beneficiary, directly or in
also represent as installment trust.
3. Property Dividend payments for life insurance sold
It is a dividend paid in property held by the corporation by insurance companies.
and to the extent of the FMV of the distribution. Return of insurance premium

4. Liquidating dividend When annuities are income to the annuitant:

A dividend distributed to the shareholders upon The aleatory contract of life annuity binds the debtor to pay an
dissolution of the corporation. annual pension or income during the life of one or more
determinate persons in consideration of a capital consisting of
C. Royalty Income money or other property, whose ownership is transferred to him
Compensation or payment for the use of property and at once with the burden of the income.
is paid to the owner of a right.
What is Annuity?
D. Rental Income It refers to annuity policies sold by insurance.
1. Lease of personal property
2. Lease of real property 8. Prizes and awards
Earnings derived from leasing of real estate as well as Contest prizes and awards received are generally
personal property. It includes all other obligations taxable. Such payment constitutes derived from labor.
assumed to be paid by the lessee to the third party in
behalf of the lessor. When prizes and awards considered taxable income:
1. Contest awards or prizes received from an employer or
3. Tax treatment of another are generally taxable. Thus, amounts received as an
a. Leasehold improvements by lessee award for special services, such as an award for suggestions to
employer or a reward for the prevention of a bank robbery, are
Outright Method Spread Out Method taxable; so also are prizes won in a competitive contest
conducted for non-commercial or commercial purposes. Such
The FMV of the building or Allocate the depreciated value payments are for services rendered.
improvement shall be reported over the remaining term of the
as additional rent income. lease contract. Every year, an However, amounts received as prizes and awards made primary
aliquot part of the depreciated in recognition of religious, charitable, scientific, educational,
value should be reported as artistic, literary, or civic achievement are not taxable and are
additional rent in addition to the considered as exclusions from gross income but only if:

Page 23 of 104
a. The recipient was selected without any action on his d. That he is not less than 60 years of age but not more
part to enter the contest or proceeding; and than 65, which is declared as the compulsory
b. The recipient is not required to render substantial retirement age; and
future services as a condition to receiving the prize e. He shall be entitled to retirement pay equivalent to at
or award. least month salary for every year of service, a
fraction of at least 6 mos. being considered as one
2. All prizes and awards granted to athletes in local and whole year.
international sports competitions and tournaments whether held
in the Philippines or abroad and sanctioned by their national
sports associations shall be excluded from gross income. Bengson vs. Drilon, 208 SCRA 133 (1992).
Prizes derived from sources without the Philippines The grant of retirement benefits is not only an act of generosity
considered taxable income. or liberality on the part of the government but is equally a
If the prizes are derived from sources without the compensation and reward for satisfactory, faithful, meritorious
Philippines, the same shall be included in the and valuable service to the latter. Hence, an officer found guilty
gross income for TPs whose income derived from of misconduct in office may be deprived of his retirement
within and without the Philippines are taxable in benefits for failure to live up to such requirement (Perez vs.
the Philippines. Abiera, 64 SCRA 302 (1975).

9. Pensions, retirement benefit, or separation pay Requisites in order that the separation pay of an
The following are exclusions from gross income: employee may be excluded form gross income:
a. Pension refers to allowance paid regularly to a person a. The amount received by an official or employee or by
on his retirement or to his dependents on his death, in the heirs from the employer would be due to death,
consideration of past services, meritorious work, age, sickness or other physical disability or employee, such
loss or injury. as retrenchment, redundancy, or cessation of
b. Retirement benefits received under RA 7641 and business. The phrase for any cause beyond the
those received by officials and employees of private control of the said official or employee connotes
firms in accordance with a reasonable private benefit involuntariness on the part of the official or employee.
plan maintained by the employer. b. The separation from the service of the official or
c. Any amount received by an employee or by his heirs employee must not be asked for or initiated by him.
from the employer as a consequence of separation of c. The separation was not of his own making.
such official or employee form the service of the d. Whether or not the separation is beyond the control of
employer because of death, sickness, other physical the official or employee, being essentially a question
disability or for any cause beyond the control of the of fact, shall be determined on the basis of prevailing
employee. facts and circumstances and shall be duly established
d. The social security benefits, retirement gratuities, by the employer by competent evidence which should
pensions and other similar benefits received by be attached to the monthly return for the period in
resident or NRCs of the Philippines or aliens who which should be attached to the monthly return for the
come to reside permanently in the Philippines from period in which the amount paid due to the involuntary
foreign government agencies and other institutions. separation was made.
e. Payments of benefits due or to become due to any e. Amounts received by reason of involuntary separation
person residing in the Philippines under the laws of remain exempt from income tax even if the official or
the United States administered by the United States the employee, at the time of separation, had rendered
Veterans Administration. less than 10 years of service and/or is below 50 years
f. Benefits received from or enjoyed under the Social of age.
Security System.
g. Benefits received from the GSIS, including retirement But any payment made by an employer to an
gratuity received by government officials and employee on account of DISMISSAL, constitutes
employees. compensation regardless of whether the employer is
legally bound by contract, statute, or otherwise, to
Retirement benefits under RA 7641 received by make such payment.
officials and employees of private firms from
employers without any retirement plan. Baguio Country Club vs. NLRC, 213 SCRA 554 (1992)
Eastern Paper Mills, Inc. vs. NLRC, 170 SCRA 595 (1989).
Requisites: Sickness must be life threatening; it must render taxpayer
a. The retirement benefits must be received under incapable of working.
existing CBA or other agreements;
b. This is given in the absence of retirement plan or The terminal leave pay of a government employee whose
agreement providing for retirement benefit employment is coterminous is exempt from income tax since
c. The retiring employee has served at least 5 years in it falls within the meaning of the phrase for any cause beyond
the said establishment; the control of the said employee. Employee should not exercise
choice or option, such that if the employee avails of the optional
early retirement plan, he cannot reason that he was separated

Page 24 of 104
for reasons beyond his control. Hence, he cannot claim General rule: a refund of a tax related to the business or the
exemption for benefits on this basis although he may be practice of profession is taxable income in the year of receipt to
qualified under RA 76451 or RA 4917. the extent of the income tax benefit of said deduction.

Taxes paid and subsequently refunded, taxable.

Taxes paid which are allowed as deduction from
gross income are taxable when subsequently
refunded but only to the extent of the income tax
benefit of said deduction. It flows that taxes paid
which are not allowed as deduction form gross
income, i.e., income tax donors tax and estate
tax, are not taxable even if refunded.
10. Income from any source whatever
D. Source rules in determining income from within and without
What is the meaning of gross income from whatever source income from sources within the Philippines :
The law imposes a tax on income from whatever source which 1. Interest
means that it includes in income whether coming from legal or Derived from sources within the Philippines, and interests on
illegal sources. The theory underlying the taxability of income bonds, notes or other interest-bearing obligation or residents,
derived from illegal sources is based upon the principle that an corporate or otherwise.
unlawful or prohibited business is not exempt from the payment
of taxes that it would have to pay if it were a lawful business. 2. Dividends
The amount received as dividends:
The theory underlying the taxability of income derived a. From a domestic corporation; and
from illegal sources is based upon the principle that an b. from a foreign corporation, unless less than 50% of
unlawful or prohibited business is not exempt from the the gross income of
payment of taxes that it would have to pay if it were a such foreign corporation for the 3-year period ending with the
lawful business. close of its taxable year preceding the declaration of such
dividends or for such parts of such period as the corporation has
While it has been held that the phrase income from whatever been in existence was derived from sources within the
source derived indicates a legislative policy to include all Philippines as determined under the provisions of this Section;
income not expressly exempted within the class of taxable but only in an amount which bears the same ration to such
income under our laws, the term income has been variously dividends as the gross income of the corporation for such period
interpreted to mean cash received or its equivalent, the derived from sources within the Philippines bears to its gross
amount of money coming to a person within a specific time or income from all sources.
something distinct form principal or capital.
3. Services
All income not expressly excluded or exempted from Compensation for labor or personal services performed in the
the class of taxable income, irrespective of the Philippines.
voluntary or involuntary action of the taxpayer in
producing the income. 4. Rentals
Rentals and royalties from property located in the Philippines or
A. Forgiveness of indebtedness from any interest in such property, including rentals or royalties
Dependent upon the circumstances, may amount to: for:
a. Income; a. The use of or the right or privilege to use in the
b. A gift; or Philippines any copyright, patent, design or model,
c. A capital transaction. plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
B. Recovery of accounts previously written off b. The use of, or the right to use in the Philippines any
Recovery of bad debts previously charged off is industrial, commercial or scientific equipment;
taxable to the extent of income tax benefit of said c. The supply of scientific, technical, industrial or
deduction. commercial knowledge or information;
d. The supply of any assistance that is ancillary and
The general rule is that recovery of amounts deducted subsidiary to, and is furnished as a means of
in prior years would result to income. However, where enabling the application or enjoyment of, any such property or
the deduction did not result in tax benefit, the right as is mentioned in paragraph (a), any such equipment as is
subsequent recovery is not taxable income. This is mentioned in paragraph (b) or any such knowledge or
the so-called Tax Benefit Rule. information as is mentioned in paragraph (c));
e. The supply of services by a non-resident person or his
C. Receipt of tax refunds or credit employee in connection with the use of

Page 25 of 104
property or rights belonging to, or the installation or operation of copyrights, secret processes and formulas, goodwill,
any brand, machinery or other apparatus purchased from such trademarks, trade brands, franchise and other like
non-resident person; properties; and
f. Technical advice, assistance or services rendered in 5. Gains, profits and income from the sale of real
connection with technical management or property located without the Philippines.
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme; and 8. Shares of stock of DC
g. The use of or the right to use: Gain from the sale of shares of stock in a DC shall be treated as
i. Motion picture films; derived entirely from sources within the Philippines regardless of
ii. Films or video tapes for use in connection with where the said shares are sold.
television; and
iii. Tapes for use in connection with radio Dealings in shares of stock of domestic corporations.
broadcasting. a. Net Capital gains from the sale, barter,
exchange or other disposition of shares of stock
of a domestic corporation held as capital assets
It is a form of payment of any kind received as a consideration STOCK EXCHANGE shall be subject to the CGT
for the use of, or the right to use, any copyright of literary, artistic of 5% on the net capital gains not over P100,000
or scientific work, including cinematographic films, or films or plus 10% on any amount in excess of P 100,00.
tapes used for radio or television broadcasting, any patent, trade b. In the case, however, of sale, barter or exchange
mark, design or model, plan, secret formula or process, or for of shares of stock held as capital assets of a
use of, or the right to use, industrial, commercial or scientific domestic corporation which are TRADED AND
equipment, or for information concerning industrial, commercial LISTED IN THE LOCAL STOCK EXCHANGE,
or scientific experience. the same shall not be subject to the CGT but to
The definition covers both payments made under a the of 1 % STOCK TRANSACTION TAX under
license and compensation which a person would be Section 127 of the Tax Code, which is in lieu of
obliged to pay for fraudulently copying or infringing the the CGT, based on the gross selling price or
right. gross value in money of the shares of stock sold
or transferred.
When royalty considered as active business income; when
considered as passive income? F. Situs of Income Taxation:
Royalty is a valuable property that can be It literally means place of taxation. The basic rule is that the
developed and sold on a regular basis for a state where the subject to be taxed has a situs may rightfully
consideration. Thus, any gain derived therefrom is levy and collect the tax. The situs is necessarily in the state
considered as an active business income subject to which has jurisdiction or which exercises dominion over the
the normal income tax. It is a special form of rental subject in question. Thus, the person may be subject to taxation
income for the use of intangible property. in several taxing jurisdictions.
However, when a person pays royalty to another for
the use of its intellectual property, such as copyrights , What are the subjects of taxation?
patents, trademark, such royalty is a passive income 1. Persons poll tax may be properly levied upon persons
of the owner thereof subject to withholding tax. who are inhabitants or residents of the state,
whether citizens or not.
6. Sale of real property 2. Real Property with respect to real property taxes, real
Gains Derived from Dealings in Property: estate is subject to taxation in the state in which
Income from dealings in property, such as sales or exchanged it is located, whether the owner is a resident or a non-
of property, may result in gain or loss, depending on the nature resident.
of the property as to whether said property is a capital asset or
an ordinary asset. *** Lex Rei Situs or where the property is located ***
7. Sales of personal property The taxing authority has control because of the
Items of gross income treated as income from sources stationary and fixed character of the property;
without the Philippines: The place where the real property is situated gives
1. Interests other than those derived from sources protection to the real property hence the property or its
within the Philippines owner should support the government of that place.
2. Dividends other than those derived from sources
within the Philippines ; 3. Personal Property (Mobilia Sequntur Personam)
3. Compensation for labor or personal services Generally, the place where the owner is found is that situs of
performed without the Philippines, and taxation under the rule that movables follow the person.
4. Rentals or royalties from property located without the Generally, this is where the owner resides:
Philippines or from any interest in such property
including rentals or royalties for the use of or for the a. Tangible personal property- usually located where the
privilege of using without the Philippines, patents, owner is domiciled.

Page 26 of 104
Reason: The place where the tangible personal property is Income derived by the government or its political
found gives protection. Hence, the property or its owners subdivisions from the exercise of any essential
should support the government of that place. governmental function from:
a. any public utility; and
b. Intangible personal property usually the domicile of b. the exercise of any essential governmental
the owner. This includes credit, bills, receivable, bank function.
deposits, bonds, promissory notes, mortgage loans,
judgments and corporate stock, which does not admit Income derived by Foreign Government.
of actual location. - Income derived from investments in the Philippines in loans,
Reason: The place where the tangible personal property is stocks, bonds or other domestic securities, or from interest on
found gives protection. Hence, the property or its owners deposits in banks in the Philippines by:
should support the government of that place. a. Foreign governments;
b. Financing institutions owned, controlled, or enjoying
refinancing from foreign governments; and
EXCEPTION: c. International or regional financial institutions
The situs is not the owners domicile as where the intangible established by foreign governments are excluded form
personal property has acquired a business situs in another gross income, and therefore except form income tax
Example: 5. Under the Tax Code
Taxes imposed in sales of Philippine Stocks (stocks in a. Proceeds of life insurance policies
domestic corporation) are payable in the Philippines Paid to the heirs or beneficiaries upon the death of the
no matter where they may be found, or where the insured, whether in a single sum or otherwise.
owners domicile is.
b. Return of premium paid
G. Exclusions from gross income Paid by the insured under life insurance, endowment,
Income received or earned but is not taxable as income or annuity contracts, either during the term or at the
because it is exempted by law or by treaty. Receipts which maturity of the term of the contract or upon surrender.
are not in fact income are also excluded from Gross income.
Amount received by the insured as return of premium
1. Rationale for the exclusion: paid.
Exclusions from gross income merely represent Amounts received by the insured under a life
return of capital and are not treated as income, gain insurance, endowment, or annuity contract either
or profit; during the term or at the maturity of the term
Some items of exclusions from gross income may be mentioned in the contract or upon surrender of the
subject to another kind of internal revenue tax; contract are excluded from gross income. But, if such
Some items of exclusions are income, gain or profits amounts (when added to amounts received before the
that are expressly exempt from income tax under taxable year under such contract) exceed the
the: aggregate premiums or consideration paid (whether
Constitution, or not paid during the taxable year) then the excess
tax treaties, shall be included in gross income. However, in the
the Tax Code itself, or case of a transfer for a valuable consideration, by
under special tax laws. assignment or otherwise, of a life insurance,
endowment, or annuity contract, or any interest
2. TPs who may avail of the exclusions therein, only the actual value of such consideration
All kinds of TPs- individuals, estates, trusts and corporations, and the amount of the premiums and other sums
whether citizens, aliens, whether residents or non-residents. subsequently paid by the transferee are exempt from
3. Exclusions distinguished from deductions and tax credit
Exclusions - are actually income received or earned by the c. Amounts received under life insurance, endowment or annuity
taxpayer but is not taxable as income because of the exemption contracts
provided for by law or by tax treaties. If the insured dies, and the beneficiary receives the life
insurance proceeds, these are not taxable income
Deductions - are the expenses and other allowable deductions because they are excluded from gross income.
as provided for by law which are incurred for engaging in trade
or business or exercise of profession. If the insured does not die and survives the
designated period, the amount pertaining to the
Tax credits - are amount of tax previously paid by the taxpayer, premiums he paid are excluded from gross income,
whether erroneously, illegally or excessively paid, or thru the but the excess shall be considered part of his gross
withholding tax system, but which later on can be claimed as tax income.
credit deductible from the tax liability of the taxpayer.
d. Value of property acquired by gift, bequest, devise or descent.
4. Under the Constitution

Page 27 of 104
The income from such property, as well as gift, b. a reward for the prevention of a bank
bequest, devise, or descent of income from property, robbery,
in cases of transfers of divided interest, shall be c. prizes won in a competitive contest
included in gross income. conducted for non-commercial or
commercial purposes.
The estate of the testator or the decedent is subject to Such payments are for services rendered.
estate tax, while the heirs or beneficiary/ies are not
required to pay donees tax as the same was already However, amounts received as prizes and awards made
abolished. The value of the bequest and/or the devise primarily in recognition of religious, charitable, scientific,
received by the heirs or beneficiary/ies is not included educational, artistic, literary, or civic achievement are not
in the computation of their gross income since gifts, taxable and are considered as exclusions from gross income
bequest and devises are excluded from gross income. but only if:
a. The recipient was selected without any action on his
part to enter the contest or proceeding; and
b. is not required to render substantial future services as
e. Amount received through accident or health insurance a condition to receiving the prize or award.
As compensation for personal injuries or sickness,
plus the amount of any damages received, whether 2. All prizes and awards granted to athletes in local and
by suit or agreement , on the account of such injuries international sports competitions and tournaments whether held
or sickness in the Philippines or abroad and sanctioned by their national
sports associations shall be excluded from gross income.
f. Income exempt under tax treaty
Income of any kind, to the extent required by any 6.Under special laws
treaty obligation binding upon the Government of the a. Personal Equity and Retirement Account
H. Deductions from gross income
g. Retirement benefits, pensions, gratuities, etc.
Retirements benefits under RA7641 received by TPs NOT allowed to claim the allowable deductions:
officials and EEs of private firms under a reasonable 1. TPs earning compensation income arising from
private retirement plan. personal services rendered under an employer-
employee relationship (except for the deduction on
RA 4917 exempts from all taxes the retirement premium payments on health and/or hospitalization
insurance under Section 34 (M), if applicable);
benefits received by officials and EEs of private firms 2. NRANETB within the Philippines;
under a reasonable private benefit plan maintained 3. Alien individual employed by RHQs or ROHQs of
by the ER and all amounts received by such officials MNCs;
and EEs from their ERs on account of involuntary 4. Alien individuals employed by OBUs;
separation, such as death, sickness, or physical 5. Alien individuals employed by petroleum service
disability, or any other cause beyond the control of contractors and subcontractors;
said officials and EEs. 6. International carriers;
7. OBUs;
Requisites: 8. Branches of foreign corporations on the profits
a. The plan must be reasonable; remitted to their head offices;
b. The benefit plan must be approved by the 9. RHQs;
BIR; 10. ROHQs; and
c. The retiring official or EE must have been in 11. NRFC
the service of the same ER for at least
10 years and at least 50 years old at the 1. General rules for the deductibility of certain transactions from
time of retirement; and gross income.
d. The retiring official or EE should not have a. Deductions must be paid or incurred in connection
previously availed of the privilege with the taxpayers trade, business or exercise of
under the retirement benefit plan of the profession;
same or another ER. b. Deductions must be paid or incurred during the
taxable year;
h. Winnings, prizes and awards, including those in sports c. Deductions must be supported by adequate receipts
competition. or invoices; and
d. Deductible expenses must have been subjected to
1. Contest awards or prizes received from an employer or withholding tax.
another are taxable.
Example: 2. Return of capital
amounts received as an award for special services, Return of capital which may be deducted from this gross sales
such as: or gross revenue.
a. an award for suggestions to employer or

Page 28 of 104
Income tax is levied by law only on income, hence, the Substantiation Rule
amount representing return of capital should be It provides that no allowable deduction from gross income shall
deducted from proceeds from sales and should not be be allowed unless the taxpayer shall substantiate with sufficient
subject to income tax. Return of capital are in the evidence (official receipts and/or adequate records) the amount of
form of cost of sales or cost of service paid or incurred the expense being deducted including the amount of the
by the taxpayer in the conduct of his business or expense being deducted to the development, management,
exercise of profession. operation and /or conduct of the trade, business or profession of
the taxpayer.
Sale of inventory of goods by manufacturers and dealer
properties Cohan Rule (Approximation of expenses)
- In sales of goods representing inventory, the amount received The BIR has the power to disallow 50% of the expenses claimed
by the seller consists of return of capital and gain from sale of on the condition that there was really an expense paid or
goods or properties. That portion of the receipt representing incurred but there was no document showing that this expense
return of capital is not subject to income tax. was indeed paid or incurred. Belief by the BIR as to such
Sale of stock in trade by a real estate dealer and dealer in expense is sufficient (RMC No. 23-2000).
Real estate dealers and dealers in securities are ordinarily not If the payment is on:
allowed to compute the amount representing return of capital a. Cash receipt basis- expenses are deductible in the
through cost of sales. Rather, they are required to deduct the year they are paid.
total cost specifically identifiable to the real property or shares of b. Accrual basis - expenses are deductible in the year
stock sold or exchanged. they are incurred, whether paid or not.

Sale of services 1. Salaries, wages and other forms of compensation for

In the sale of service, the portion of the cost of service personal services actually rendered, including the grossed-up
representing the return of capital is not subject to income tax. monetary value of the fringe benefit subjected to fringe benefit
tax which tax should have been paid.
3. Itemized deductions
A. Expenses 2. Travel/Transportation expenses.
Requisites for deductibility: Requisites:
1. It must be ordinary and necessary. a. Expense must be reasonable and necessary.
2. It must be paid or incurred during the taxable year. b. It must be paid or incurred while away from home.
3. It must be paid or incurred in carrying on or which are c. It must be paid or incurred in the conduct of trade or
directly attributable to the development, management, business or exercise of profession.
operation and/or conduct of the trade, business or
exercise of a profession. 3. Cost of materials
4. The amount must be reasonable (not lavish, Materials and suppliers are deductible only to the amount
extravagant, or excessive under the circumstances) actually consumed or used in the operation during the taxable
5. It must be substantiated with sufficient evidence year.

4. Rentals and/or other payments

Ordinary Necessary Capital Requisites:
Expenses expenses expenditures a. Rental must be ordinary and necessary ;
b. It must have been paid or incurred during the taxable
- commonly -these expenses -expenditures that year;
incurred in the trade are intended to result in obtaining c. It must be paid or incurred in carrying trade or
or business of the TP realize a profit or benefits of a business of the taxpayer or practice of profession;
as distinguished from to minimize a permanent nature d. It must be supported by official receipts, record or
capital expenditures. loss, or those that or character such as other pertinent papers;
are appropriate those spent on e. It is required as a condition for the continued use or
-usually incurred and helpful to a lands, buildings and possession of the property being leased;
during a taxable year TPs business, machineries. f. The taxpayer has not taken or is not taking title to the
and benefits such trade or profession property or has no equity other than that of a lessee,
taxable year -incurred to user , or possessor; and
improve assets g. Rentals should be subject to the expanded
and benefits for withholding tax of 5% of the rental charge, net of VAT,
more than 1 taxable if any.
5. Incidental, minor or Repairs and maintenance.
-not deductible from The cost of incidental repairs which neither materially add to the
gross income in the value of the property nor appreciably prolong its life, but keep it
year it was paid in an ordinarily efficient operating condition may be deducted as

Page 29 of 104
expenses, provided that plant or property account is not 4. Interest paid where parties provide no stipulation in
increased by the amount of such expenditure. writing to pay interest
5. If the indebtedness is incurred to finance petroleum
Repairs in the nature of replacement, to the extent that they exploration
arrest deterioration and appreciably prolong the life of the 6. Interest paid on indebtedness between related
property or increase its value are capital expenditures and taxpayer
should be charred /debited against the depreciation reserves if 7. Interest on indebtedness paid in advance through
such account is kept. discount or otherwise and the taxpayer reports income
on cash basis.
6. Expenses under lease agreements
7. Expenses for professionals Interest subject to special rules:
a. Interest paid in advance
- If the indebtedness is payable in periodic amortizations, the
8. Entertainment, amusement and recreation expenses amount of interest which corresponds to the amount of the
Requisites: principal amortized or paid during the year shall be allowed as
a. It must be paid or incurred during the taxable year; deduction in such taxable year.
b. The amount must be reasonable; b. Interest periodically amortized
c. It must be: c. Interest expense incurred to acquire property for use
i. directly connected to the development, in trade/business/profession.
management and operation of the trade, *At the option of the taxpayer, may be allowed as a deduction or
business or profession of the taxpayer; and treated as a capital expenditure.
ii. directly related to or in furtherance of the
conduct of his or its trade, business or C. Taxes
exercise of a profession; 1. Requisites for deductibility:
d. It must not be contrary to law, morals, good customs, a. It must be paid or incurred within the taxable year.
public policy, or public order; b. It must be paid or incurred in connection with the TPs
e. It must not have been paid, directly or indirectly, if it trade, profession or business.
constitutes a bribe, kickback or other similar c. It must be imposed directly on the TP.
payment; d. It must not be specifically excluded by law from being
f. It must not exceed the ceiling of 0.05% of net sales for deducted from the TPs gross income.
sellers of goods or properties or 1% net
revenues for sellers of services; 2. Non-deductible taxes
g. It must be duly substantiated by adequate proof. Taxes not allowed provided under the NIRC
h. The appropriate amount of withholding tax, if a. Income tax provided under the NIRC
applicable, should have been withheld therefrom and b. Income taxes imposed by authority of any foreign
paid to the BIR. country

9. Political campaign expenses 3. Treatment of surcharges/interests/fines/for delinquency.

10. Training expenses. No deductions should be allowed for amounts
representing interest, surcharge, or penalties incident
B. Interest to delinquency in the payment of taxes.
Requisites for deductibility:
a. There must be a valid and existing indebtedness; 4. Treatment of special assessment.
b. The indebtedness must be that of the taxpayer; Deductible as taxes where these are made for the
c. The interest must be legally due and stipulated in purpose of:
writing; a. Maintenance or repair of local benefits, if the payment
d. The interest expense must be paid or incurred during of such assessment is ordinary and necessary in the
the taxable year; conduct of trade, business or profession.
e. The indebtedness must be connected with the b. Constructing local benefits tending to increase the
taxpayers trade, business or exercise of profession; value of the property assessed, the payments
f. The interest payment arrangement must not be are in the nature of capital expenditures.
between related taxpayers;
g. The interest is not expressly disallowed by law to be 5. Tax credit vs. Tax deduction.
deducted from the taxpayers gross income, and
h. The amount of interest deducted from gross income Tax Credit: Tax Deduction:
does not exceed the limit set forth in the law

Non-deductible interest expense:

1. Interest on preferred stock(which in reality is dividend)
2. Interest on unpaid salaries and bonuses
3. Interest calculated for cost keeping

Page 30 of 104
Net Operating loss of a business for any taxable year
Deducted from Philippine Income Tax. Deducted from the gross can be carried over as deduction for the next 3
income. consecutive taxable years immediately following the
All taxes are allowed to be deducted year of such loss
with the exception of the taxes Only foreign income
expressly excluded. taxes may be claimed as Note:
credits. MARCELO DOCTRINE: Loss in one line of business is not
deductible from gain in another line of business, if the loss is
sustained from a tax exempt business activity belonging to the
D. Losses same taxpayer.
Losses actually sustained during the taxable year and
not compensated for by insurance or other forms of E. Bad debts
indemnity. debts due to the taxpayer which are actually
ascertained to be worthless and charged off within a
1. Requisites for deductibility: taxable year
a. The loss must be that of the taxpayer.
b. There must be an actual loss suffered in a closed and Bad-Debt Theory
completed transaction. This is applied to losses occasioned by theft or embezzlement
c. The loss must be connected with the taxpayers trade, of known person(s). Thus, creating a debtor-creditor
business or profession. relationship. The loss sustained is not deductible on the year it
d. The loss must not be compensated for by insurance or was committed or on the period of discovery but in the year
otherwise. when the right of recovery becomes worthless
e. The loss must be actually sustained and charge off Requisites for deductibility:
during the taxable year. 1. existence of indebtedness due to the taxpayer(must
f. In the case of casualty loss, declaration of loss must be valid and legally demandable);
be filed within 45 days from the occurrence of the 2. it must be connected with the taxpayers trade,
casualty loss. business or practice of profession;
g. The loss must not be claimed as deduction for estate 3. it must not be sustained in a transaction entered into
tax purposes in the estate tax return. between related parties under Sec. 36 (B);
4. it must be actually charged off in the books of
2. Other types of losses. accounts of the taxpayer as of the end of the taxable
a) Capital losses year;
Losses from sale or exchange of capital assets. 5. it must be actually ascertained to be worthless and
Deductible to the extent of capital gains only. uncollectible as of the end of the taxable year
andeven in the future.
b) Securities becoming worthless.
The loss resulting therefrom to the taxpayer is not Tax benefit rule or the equitable doctrine of tax benefit
considered as a bad debt but as a capital loss in case of recovery of bad debts.
The recovery of bad debts previously allowed as deduction in
c) Losses on wash sales of stocks or securities. the preceding year or years shall be included as part of the
Wash sales taxpayers gross income in the year of such recovery to the
A pre-arranged fictitious sale of stocks or securities extent of the income tax benefit of said deduction.
with no change in ownership that is made to influence
the marker or to establish a loss for tax purposes. Example:
Not deductible when:
1. A TP who is not a dealer of stocks in trade has If in the year the taxpayer claimed deduction of bad debts
disposed shares and written-off, he realized a reduction of the income tax due from
2. Within the period of 60 days beginning 30 days him on account of the said deduction, his subsequent recovery
before the date of such sale and ending 30 days thereof from his debtor shall be treated as a receipt of realized
after such date, the TP has acquired substantially taxable income. Conversely, if the said taxpayer did not benefit
identical stocks or securities. from the deduction of the said bad debt written-off because it
did not result to any reduction of his income tax in the year of
d) Wagering losses such deduction (i.e., where the result of his business operation
Deductible only to the extent of the gains from such wagering was a net loss even without deduction of the bad debts written-
transaction. If there is no gain from the wagering transaction, the off), then his subsequent recovery thereof shall be treated as a
loss therefrom cannot be deducted from gross income. mere recovery or a return of capital, hence, not treated as
receipt of realized taxable income.
e) Net Operating Loss Carry-Over (NOLCO)- Sec. 34(D)(3) Thus, bad debts claimed as deduction in the preceding year(s)
Net Operating Loss but subsequently recovered shall be included as part of the
shall mean the excess of allowable deduction over gross taxpayers gross income in the year of such recovery to the
income of the business in a taxable year. extent of the income tax benefit of said deduction.

Page 31 of 104
F. Depreciation applying changing factions to the cost or other basis of
It is a gradual diminution in the useful value of the property reduced by estimated salvage. The
tangible property resulting from: numerator of the fraction changes each year to a
- wear and tear, number which corresponds to the remaining useful life
- exhaustion and of the asset (including the year for which the
- normal obsolescence. allowance is being computed), and the denominator
(which remains constant) is the sum of all the years
Nth Period x cost-Salvage value Allowance for digits corresponding to the estimated useful life of the
Sum of all the years digits depreciation asset.
It is a reasonable allowance for the deterioration of
property arising out of its use or employment in the 4. Any other method which may be prescribed by the Secretary
trade or business, or out of its non-used. of Finance upon recommendation of the
The term is also applied to amortization of the value of CIR.
intangible assets the use of which in the trade or
business is definitely limited in duration Note:
Whatever plan or method of apportionment is adopted
Requisites for deductibility of allowance for depreciation: must be reasonable and must have due regard to
1. It must be sustained by the person who owns or who operating conditions during the taxable period.
has a capital investment in the property; The burden of proof must rest upon taxpayer to
2. It must be reasonable in that the amount of sustain the deduction taken by him, such deductions
depreciation must be in accordance with the must not be disallowed unless shown by clear and
depreciation method being adopted by the company; convincing evidence to be unreasonable.
3. It must be charged off during the taxable year;
4. It should not exceed the cost of the property; G. Charitable and other contributions
5. The schedule of the allowable must be attached to the Requisites for deductibility:
return; 1. Must actually be paid or made to the Philippine
6. The property being depreciated is being used in the Government or any of its agencies or political
trade or business; subdivision or to any domestic corporations or
7. The property must have a limited useful life; associations;
2. Must be made within the taxable year;
Methods of Computing allowance for 3. Must not exceed 10% of the individuals taxable
depreciation income and 5% of the corporations taxable
1. Straight-line method income before deducting the contribution; and
The straight line method is to the effect that the rate 4. Must be evidenced by adequate records or receipts.
and the base (the cost) are constant. Under this
method, the cost or other basis of the property less its Amount that may be deducted Deductible in full
estimated salvage value is deductible in equal annual
amounts over the period of the estimated useful life of
the property.

Cost- Salvage value Allowance for

Useful life depreciation

2. Declining-balance method
The fixed percentage of diminishing book value
method is to the effect that the rate of yearly
depreciation remains the same but the base (the
book value) upon which the rate is applied diminishes
from year to year.

Cost-Depreciation x rate
Estimated Useful life Allowance for depreciation

3. Sum-of-the-years-digit method
The capital sum to be replaced should be charged off
over the useful life of the property, either in equal
annual instalments or in accordance with any other
recognized trade practice, such as an apportionment
of the capital sum over units of production. The
annual allowance for depreciation is computed by

Page 32 of 104
5. Personal and additional exemption (Sec. 35)
Donations to: a) Basic personal exemptions (BPEs)-(Sec. 35 [A]
1. The Philippine government or 1. Philippine government or to P50,000 each individual TP.
any of its agencies or any political any of its agencies or political
subdivision thereof exclusively subdivisions, including fully- Note: In the case of married individuals, where only
for public purposes; owned government one of the spouse is deriving gross income, only one
corporations exclusively to spouse shall be allowed the personal exemption
2. Accredited domestic finance, to provide for, or to
corporations or associations be used in undertaking priority b) Additional exemptions (AEs) for TP with dependents (Sec.
organized and operated activities in: 35[B])
exclusively for: a. Education; P25,000 each dependent not exceeding 4
a. Religious; b. Health;
b. Charitable; c. Youth and sports
dependent means:
c. Scientific; development;
d. Human settlements; 1. A legitimate, illegitimate or legally adopted child of the
a. Scientific; TP;
e. Science and culture; and
b. Youth and sports f. Economic development. 2. Chiefly dependent upon and living with the TP;
development; Chiefly dependent- means principal or main support. It means
c. Cultural; or 2. Foreign institutions or more than one half of the support required by the dependent.
d. Educational purposes; or international organizations in
for the pursuance or compliance with 3. If such dependent is:
e. Rehabilitations of agreements, treaties, or a. not more than 21 years of age
veterans; and commitments entered into by b. unmarried and not gainfully employed; or
the government and of the 4. If such dependent,
3. Social welfare institutions or to foreign laws or international a. regardless of age,
NGOs provided no part of the net organizations or in pursuance b. is incapable of self-support because of
income of which inures to the of special laws. mental or physical defect
benefit of any private stockholders
or individual. 3. Accredited NGOs. c) Status-at-theend-of-the-year rule.
1. TP marries during taxable year-may claim the
corresponding BPE in full for such year.
2. TP should have additional dependent(s) during
H. Contributions to pension trusts taxable year-may claim corresponding AE in full for
Requisites for deductibility: such year.
1. The ER must have established a pension or 3. TP dies during taxable year-his estate may still claim
retirement plan to provide for the payment of BPE and AE for himself and his dependent(s) as if he
reasonable pensions to its EEs; died at the close of such year.
2. The pension plan is reasonable and actuarially sound; 4. If during the taxable year.
3. It must be funded by the ER; a) spouse dies, or
4. The amount contributed must no longer be subject to b) any of the dependents:
its control or disposition. dies or marries,
The payment has not therefore been allowed as turns 21 years old or becomes gainfully
a deduction. employed , TP may still claim same
exemptions as if the spouse or any of the
dependents died, or married, turned 21
years old or became gainfully employed at
4. Optional Standard Deduction (OSD) the close of such year.
a) Individual (except NRA) 6. Items not deductible
A maximum of 40% of gross sales or gross receipts a. General rule:
during the taxable year. These items are not related to the trade, business or
profession of the TP.
The cost of sales or the cost of services is not b. Personal, living or profession of the TP.
allowed to be deducted for purposes of determining These are personal expenses and not related to the
the basis of the OSD inasmuch as the law is specific conduct of trade or business.
as to the basis thereof which states that for
individuals, the basis of the 40% OSD shall be the c. Amount paid for new buildings or for permanent
gross sales or gross receipts and not gross improvements.
income. These are capital expenditures added to the cost of
the property and the periodic depreciation is the
b) Corporations (except NRFC) amount that is considered as deductible expense.
Not exceeding 40% of their gross income.
d. Amount expended in restoring property.

Page 33 of 104
they are capital expenditures or those expenditures i. Non-deductible taxes.
that result in obtaining benefits of a permanent nature. j. Non-deductible losses.
1. Losses from illegal transactions.
e. Premiums paid on life insurance policy covering life or any 2. Losses from sales or exchanges of property between
other officer or employer financially interested. related TPs
When the taxpayer is directly or indirectly a but the gains are taxable.
beneficiary under such policy.
k. Losses from wash sales of stock or securities.
f. Interest expense, bad debts, and losses from sales of property l. Exempt Corporations
between related parties. 1. GPPs;
2. JV under a service contract with the government;
Interest Expenses: 3. GOCCs
In general, the amount of interest paid or incurred i. GSIS
within a taxable year on indebtedness in connection ii. SSS
with the taxpayers profession, trade or business. iii. PHIC
iv. PCSO
Bad Debts:
In general, debts due to the TP actually ascertained to Other exempt corporations:
be worthless and charged off within the taxable year The following organizations shall not be taxed in respect to
except those not connected with profession, trade or income received by them as such:
business and those sustained in a transaction entered A. Labor, agricultural or horticultural organization not
into between parties. Recovery of bad debts organized principally for profit;
previously allowed as deduction in the preceding B. Mutual savings bank not having a capital stock
years shall be included as part of the gross income in represented by shares, and cooperative bank without
the year of recovery to the extent of the income tax capital stock organized and operated for mutual
benefit of said deduction. purposes and without profit;
C. A beneficiary society, order or association, operating
Losses from sales of property between related for the exclusive benefit of the members such as a
parties. fraternal organization operation under the lodge
1. Between members of a family system, or mutual aid association or a non-stock
2. Except in the case of distributions in liquidation, corporation organized by employees providing for the
between an individual and corporation more than payment of life, sickness, accident, or other benefits
50% in value of the outstanding stock of which is exclusively to the members of such society, order, or
owned, directly or indirectly, by or for such individual; association, or non-stock corporation or their
or dependents;
3. Except in the case of distributions in liquidation, D. Cemetery company owned and operated exclusively
between two corporations more than 50% in value of for the benefit of its members;
the outstanding stock of which is owned, directly or E. Non-stock corporation or association organized and
indirectly, by or for the same individual if either one of operated exclusively for religious, charitable, scientific,
such corporations, with respect to the taxable year of athletic, or cultural purposes, or for the rehabilitation of
the corporation preceding the date of the sale of veterans, no part of its net income or asset shall
exchange was under the law applicable to such belong to or inures to the benefit of any member,
taxable year, a personal holding company or a foreign organizer, officer or any specific person;
personal holding company; F. Business league chamber of commerce, or board of
4. Between the grantor and a fiduciary of any trust; or trade, not organized for profit and no part of the net
5. Between the fiduciary of and the fiduciary of a trust income of which injures to the benefit of any private
and the fiduciary of another trust if the same person is stockholder, or individual;
a grantor with respect to each trust; or G. Civic league or organization not organized for profit
6. Between a fiduciary of a trust and beneficiary of such but operated exclusively for the promotion of social
trust. welfare;
H. A non-stock and non-profit educational institution;
g. Losses from sales or exchange or property. I. Government educational institutions;
In general, losses actually sustained during the taxable year and J. Farmers or other mutual typhoon or fire insurance
not compensated for by insurance or other forms of indemnity; company, mutual ditch or irrigation company, mutual
or cooperative telephone company, or like
1. If incurred in trade, profession or business; organization of a purely local character, the income of
2. Of property connected with the trade, business or which consists solely of assessments, dues, and fees
profession, if the loss arises from fires, storms, collected from members for the sole purpose of
shipwreck, or other casualties, or from robbery, theft meeting its expenses; and
or embezzlement. K. Farmers, fruit growers, or like association organized
and operated as a sales agent for the purpose of
h. Non-deductible interest. marketing the products of its members and turning

Page 34 of 104
back to them the proceeds of sales, less the extent of the difference between the market rate
necessary selling expenses on the basis of the and actual rate granted;
quantify of produce finished by them; 6. Membership fees, dues and other expenses
borne by the employer for the employee in social
Note: and athletic clubs or other similar organizations;
The income of whatever kind and character from any of their 7. Holiday and vacation expenses;
properties, or from any of their activities conducted for profit 8. Holiday and vacation expenses;
regardless of the disposition made of such income, shall be 9. Educational assistance to the employee or his
subject to tax. dependents; and
10. Life or health insurance and other non-life
10. Taxation of Resident Citizens, Non-resident Citizens, insurance premiums or similar amounts in excess
and Resident Aliens within and without the Philippines. of what the law allows.
A. General rule:
A Resident citizen is taxable on all income derived b. De minimis benefits
from sources within and without the Philippines. 1. Monetized unused leave credits of employees not
exceeding 10 days during the year;
B. Taxation on Compensation Income 2. Monetized value of vacation and sick leave credits
paid to government officials and employees;
(i) Inclusions 3. Medical cash allowance to dependents of employees
a. Monetary compensation not exceeding :
1. Regular salary/wage a. P750 per employee per semester or
Compensation income derived from an employer- b. P125per month;
employee relationship in consideration of services 4. Rice subsidy of:
rendered, except in the case of a MWE. a. P1,500 or
b. one sack of 50 kg. of rice/ month amounting
2. Separation pay/retirement benefit not otherwise to not more than P1,500;
exempt. 5. Uniform and clothing allowance Not exceeding P4,000
Separation pay received by an employee who per annum;
voluntarily resigns is subject to income tax. 6. Actual Medical Assistance (e.g., medical allowance to
Retirements benefits may be subject to tax if it does cover medical and healthcare needs , annual
not comply with the provision of sec. 32 (B)(6)(a). medical/executive check-up, maternity assistance
and routine consultations) not exceeding P10,000 per
3. Bonuses, 13th month pay, and other benefits not annum;
exempt. 7. Laundry allowance not exceeding P300/month;
Amount in excess of P30,000 8. EEs achievement awards (10,000) received by the EE
under an established written plan which does not
4. Directors fees
discriminate in favor of highly paid employees;
9. Gifts given during Christmas and major anniversary
b. Non-monetary compensation
celebrations not exceeding P5,000 per employee per
1. Fringe benefit NOT subject tax.
annum; and
a. Fringe benefits which are authorized and exempted
10. Daily meal allowance for overtime work and night
from tax under special laws;
/graveyard shift Not Exceeding 25% of the
b. Contributions of the ER for the benefit of the EE to:
basic minimum wage on a per region basis.
- retirement,
- insurance and
Note: All other benefits given by ERs which are not
- hospitalization benefit plans;
c. Benefits given to the rank and file EEs, whether included in the above-enumeration shall not be
granted under a CBA or not; and considered as de minimis benefits, and hence, shall
d. De minimis benefits. be subject to income tax as well as withholding tax on
e. If the grant of the fringe benefits is for the compensation income.
convenience of the ER. c. 13th month pay and other benefits and payments specifically
(ii) Exclusions excluded from taxable compensation income.
a. Fringe benefit subject to tax. Gross benefits received by officials and employees of
Any good, service or other benefit furnished or public and private entities, the total exclusion of which
granted in cash or in kind by an employer to an shall not exceed P30,000 which shall cover:
individual employee such as, but not limited to , the a. Benefits received by officials and employees of the
following: national and local government.
1. Housing ; b. Benefits received by employees.
2. Expense account; c. Benefits received by officials and employees not
3. Vehicle of any kind; covered by (b).
4. Household personnel, such as maid, driver and d. Other benefits.
5. Interest on loan at less than market rate to the (iii) Deductions

Page 35 of 104
a. Personal exemptions and additional exemptions. Royalties, except on books, as well as other literary
works and musical compositions.
Basic Personal exemption Additional exemption Royalties on books literary works and musical
compositions 10%
P50,000 for each individual P25,000 for each
taxpayer. dependent not exceeding 4. c. Dividends from DC
Cash and or property dividend actually or
b. Health and hospitalization insurance. constructively received from a domestic corporation or
The amount of premiums not to exceed P2,400 per form a joint stock company, insurance or mutual fund
family or P200 a month paid during the taxable year companies and regional operating headquarters of
taken by the taxpayer for himself, including his family multinational companies. 10%
who has a gross income of not more than P250,000
for the taxable year. d. Prizes and other winnings.
Prizes over P10,000 20%
Note: In the case of married taxpayers, only the Prizes less than P10,000 are included in the income
spouse claiming the additional exemption for tax of the individual subject to the scheduler rate of
dependents shall be entitled to this deduction. 5% up to P125,000+32% of excess of P500,000.
Other winnings, except PCSO and Lotto, derived from
c. Taxation of compensation income of a MWE. sources within the Philippines 20%.
1. Statutory Minimum Wage.
The rate fixed by the RTWPB, as defined by the (ii) Passive income NOT subject to final tax.
Bureau of Labor and Employment Statistics (BLES) of Interest income from long-term deposit or investment
the DOLE. in the form of savings, common or individual trust
funds, deposit substitutes, investment management
2. Minimum Wage Earner. accounts and other investments evidenced by
3. Income also subject to tax exemption: certificates-exempt from final tax.
a. holiday pay,
b. overtime pay, E. Taxation of capital gains.
c. night shift differential, and 1) Income from sale of shares of stock of a Philippine
d. hazard pay. corporation.
a. Shares traded and listed in the stock exchange.
C. Taxation of business income/income from practice of The gains are not subject to income tax. The tax
profession. applicable will be a business tax known as percentage
OSD or Itemized deductions. tax.
OSDs 10% of the gross income. May be availed A tax at the rate of of 1% of the gross selling price
only by individuals who are not purely compensation or gross value in money of the shares of stock sold,
income earners. This is in lieu of the itemized bartered, exchanged or otherwise disposed which
deductions. shall be paid by the seller or transferor.

D. Taxation of Passive Income. b. Shares not listed and traded in the stock exchange.
(i) Passive income subject to final tax A final tax as follows:
a. Interest income Not over P100, 000 - 5%
Interest income derived by a resident individual from a Amount in excess of P100, 000 10%
depositary bank under the expanded foreign service
deposit system 7.5%. 2) Income from the sale of real property situated in the
Interest income from long term deposit or investment Philippines.
evidenced by certificates prescribed by BSP. A final tax of 6% based on the gross selling price or
Exempt, if investment is held for more than current FMV, whichever is higher, upon capital gains
5 years. presumed to have been realized from the sale,
If investment is pre-terminated, interest exchange, or other disposition of real property
income on such investment shall be subject classified as capital assets, including pacto de retro
to the following rates: sales and other forms of conditional sales, by
If pre-terminated in less than 3 individuals, including estates and trusts.
years 20%.
If pre-terminated after 3 years to 3) Income from the sale, exchange, or other disposition of other
less than 4 years-12% capital assets.
If pre-terminated after 4 years to A final tax of :
less than 5 years-5% 6% on the gross selling price, or
the current FMV at the time of the sale,
b. Royalties. whichever is higher.

Page 36 of 104
11. Taxation of NRAETB. Philippines shall be imposed on Domestic
a. General rule corporations duly organized and existing under the
A NRAETB in the Philippines shall be subject to an Philippine laws.
income tax in the same manner as an individual
citizen and a resident alien individual, on taxable (ii) MCIT-Sec. 27 (E)
income received from all sources within the a. Imposition of MCIT
Philippines. A MCIT of 2 % of the gross income as of the end of
the taxable year is imposed beginning the 4th taxable
b. Cash and/or property dividends. year immediately following the year in which such
10% final tax, on cash and or property dividend corporation commenced its business operations,
actually or constructively received from a domestic which the year when the corporation registers with
corporation or from a joint stock company, insurance the BIR and NOT when the corporation started
or mutual fund companies and regional operating commercial operation.
headquarters of multinational companies.
b. Carry forward of excess minimum tax - Sec.27 (E)(2)
c. Capital gains. any excess of the MCIT over the normal income tax
It is generally an income tax on sale of real property shall be carried forward on an annual basis and
and shares of stocks classified as capital assets. credited against the normal income tax for the 3
immediately succeeding taxable years.
12. Individual Taxpayers Exempt from Income Tax
a. Senior citizens c. Relief from the MCIT under certain conditions Sec.27 (E)
A senior Citizen is: (3)
1. any resident citizen of the Philippines the Secretary of Finance may suspend the
2. at least 60 years old, including those who have retired imposition of the MCIT on any corporation which
from both government offices and private enterprises, suffers losses on any of the following instances:
and 1. Prolonged labor dispute (e.g. strikes for more
3. has an income of not more than P60,000 per annum than 6 months)
subject to the review of the NEDA every 3 years. 2. Force majeure (e.g. war)
3. Legitimate business reverses (e.g. theft)
b. Minimum Wage Earners
Who is a Minimum Wage Earner? d. Corporations exempt from the MCIT
Worker in the private sector who is paid the statutory 1. Proprietary Educational Institution if enjoys
minimum wage. preferential tax rate
Employee in public sector with compensation income 2. Non-profit hospitals
of not more than the statutory minimum wage in the 3. Depository banks under expended FCDU
non-agricultural sector where he is assigned. 4. International carriers
5. OBUs
Rule on MWE Receiving Additional Compensation Income 6. ROHQs of resident foreign corp.
An employee who receives/earns additional 7. Other corporations not subject to the normal tax rate
compensation such as commissions, honoraria, fringe
benefits, benefits in excess of the allowable statutory e. Applicability of the MCIT where a corporation is governed
amount of P30, 000, taxable allowances and other both under the regular tax system and a special income tax
taxable income other than the SMW, holiday pay, system
overtime pay, hazard pay and night shift differential Only one may be imposed.
pay shall not enjoy the privilege of being a MWE and,
therefore, his/her entire earnings are not exempt from
income tax and, consequently, from withholding tax.
B. Allowable deductions
c. Exemptions granted under international agreement (i) Itemized deductions
NRAETB may deduct personal exemption but only to Business expenses which are ordinary and necessary
the extent allowed by his country to Filipinos not in the conduct of business.
residing therein, and shall not exceed the (ii) Optional standard deduction (Sec. 34[L])
aforementioned amounts. NRANETB cannot claim May be taken by an individual, in lieu of itemized
any personal or additional exemption. deductions.

13. Taxation of Domestic Corporations (Sec. 27 of the NIRC) C. Taxation of passive income
A. Tax payable (i) Passive income subject to tax
(i) Regular Tax a. Interest from deposits and yield, or any other
Except as otherwise provided in the Tax Code, an monetary benefit from deposit substitutes and from
income tax of 30% based on their gross income trust funds and similar arrangements and royalties-
derived from the sources within and without the 20% final tax

Page 37 of 104
b. Capital gains from the sale of shares of stock not (ii) Income derived under the expanded foreign currency deposit
traded in the stock exchange system
On the net capital gain: (iii) Capital gains from sale of shares of stock not traded in the
Not over P100,000 stock exchange
Final Tax of 5% (iv) Inter-corporate dividends
On any amount in excess of P100,000 plus
10% Final tax on the excess Exclude:
c. Income derived under the expanded foreign currency (i) International carrier
deposit system- 10% final tax (ii) Offshore banking units
Exempt: (iii) Branch profits remittances
any income of nonresidents, whether (iv) Regional or area headquarters and regional operating
individuals or corporations, from headquarters of multinational companies
transactions with depository banks.
d. Inter-corporate dividends-not subject to tax. 15. Taxation of non-resident foreign corporations (NRFCs)
e. Capital gains realized from the sale, exchange, or A. General rule
disposition of lands and/or buildings 6% final Non-resident foreign corporations are subject to any or some of
tax- on the gross selling price, or the current FMV at the following:
the time of the sale, whichever is higher. 1. Capital Gains Tax
2. Final Tax on Passive Income
(ii) Passive income not subject to tax 3. Final Tax on [Other] Gross Income from sources
within the Philippines
D. Taxation of capital gains
(i) Income from sale of shares of stock B. Tax on certain income
(ii) Income from the sale of real property situated in (i) Interest on foreign loans-20% final withholding tax
the Philippines (ii) Inter-corporate dividends:
(iii) Income from the sale, exchange, or other 15% - as long as the country in which the NRFC is
disposition of other capital assets domiciled allows a tax credit for taxes deemed paid
in the Philippines equivalent to 15%.
E. Tax on proprietary educational institutions and hospitals- 10% 30% withholding tax - if the country within which the
on their taxable income NRFC is domiciled does not allow a tax credit.
(iii) Capital gains from sale of shares of stock not traded in
F. Tax on GOCCs, agencies or instrumentalities the stock exchange
Such rate of tax imposed upon corporations or associations Exclude:
engaged in similar business, industry, or activity, except: 1. Non-resident cinematographic film-owner, lessor or
1. GSIS, distributor
2. SSS, 2. Non-resident owner or lessor of vessels chartered by
3. PHIC, Philippine nationals
4. PCSO 3. Non-resident owner or lessor of aircraft machineries
and other equipment
14. Taxation of resident foreign corporations (RFCs)
Sec. 28 (A) 16. Improperly accumulated earnings of corporation
A. General rule: Every corporation formed or availed for the purpose of
RFCs are subject to any or some of the following: avoiding the income tax with respect to its
1. Capital Gains Tax shareholders or the shareholders of any other
2. Final Tax on Passive Income corporation, by permitting earnings and profits to
3. Normal Tax [or] MCIT [or] Gross Income Tax (GIT) accumulate instead of being divided or distributed.
4. Branch Profit Remittance Tax
17. Exemption from tax on corporations
-when it opted to be taxed at the rate of 15% on gross income 18. Taxation of Partnerships
under the same conditions as provided in Section 27 (A) Rules:
1. Subject to the same rules on corporations, but is not
B. With respect to their income from sources within the subject to the improperly accumulated earnings
Philippines tax [IAET].The partnership must file quarterly and
year-end income tax returns.
C. Minimum Corporate Income Tax
2. The taxable income of the partnership, less the normal
D. Tax on certain income corporate income tax thereon, is the distributable net
(i) Interest from deposits and yield, or any other monetary income of the partnership.
benefit from deposit substitutes, trust funds and similar
arrangements and royalties 3. 10% final tax - the share of a partner in the
partnerships distributable net income of a year

Page 38 of 104
deemed to have been actually or constructively The remaining 7% effectively accounts for the
received by the partners in the same taxable year standard input VAT for sales of goods or services to
taxed to them in their individual capacity, whether government or any of its political subdivisions,
actually distributed or not, withheld by the partnership. instrumentalities or agencies including GOCCs, in lieu
of the actual Input VAT directly attributable or ratably
19. Taxation of General Professional Partnerships (GPPs) apportioned to such sales.
Rules: Should actual input VAT attributable to sale to
1. Not subject to income tax. government exceed 7% of gross payments, the
2. The partners shall only be liable for income tax only in excess may form part of the sellers expense or cost
their separate and individual capacities. If actual input VAT attributable to sale to government
3. For purposes of computing the distributive share of is less than 7% of gross payment, the difference must
the partners, the net income of the GPP shall be be closed to expense or cost.
computed in the same manner as a corporation.
4. Each partner shall report as gross income his 2. The government or any of its political subdivisions,
distributive share, actually or constructively received, instrumentalities or agencies, including GOCCs, as well as
in the net income of the partnership. private corporations, individuals, estates and trusts, whether
5. The share of a partner shall be subject to a creditable large or non-large taxpayers, shall withhold 12% VAT, starting
withholding income tax of 15%. February 1, 2006, with respect to the following payments:
1. Lease or use of properties or property rights owned by
20. Withholding tax non-residents; and
A. Concept 2. Other services rendered in the Philippines by non-
The requirement that taxes imposed or prescribed by residents (RR 16-2005, as amended by RR 4-2007)
the NIRC are to be deducted and withheld by the
payor-corporations and/or persons from payments D. Filing of return and payment of taxes withheld
made to payees-corporations and/or persons for the (i) Return and payment in case of government employees
former to pay the same directly to the BIR. Hence, the The return of the amount deducted and withheld upon
taxes are collected practically at the same time the any wage shall be made by the officer or employee
transaction is made or when the taxable transaction having control of the payment of such wage, or by any
occurs. It is taxation at source. officer or employee duly designated for the purpose.

B. Kinds (ii) Statements and returns

Withholding of final tax of certain income (A) Requirements Every employer re

As to income subject of the system respect of his em
succeeding year,
1. Passive incomes 1. Compensation Income on the same day
2. Fringe benefits 2. Professional/talent fees confirming the wa
3. Rentals the amount of tax
4. Cinematographic film rentals and other payments statement require
5.Income payments to certain contractors other information,
As to whether income should be reported as part of the gross income Secretary of Fina
regulation, prescr
The recipient may not report the said income in his gross The employee is required to include the income in his gross income
income because the tax withheld constitutes final and full (B) Annual Information Returns. Every employer re
settlement of the tax liability employees shall,
As to the effect of the tax withheld Commissioner an
of compensation
The tax withheld cannot be claimed as tax credit during
The tax withheld can be claimed as a tax credit or may be deducted from the
the year,
tax dua
or payable paragraph, and su
As to filing of ITR
E. Final withholding tax at source
If the only source of income is subject to final tax, no need to There is F. Creditabletowithholding
a necessity tax
file on the earner
file an ITR on the part of the earner (i) Expanded withholding tax
(ii) Withholding tax on compensation
C. Withholding of VAT Every employer must withhold from compensation
1. The Government or any of its political subdivisions, paid, an amount computed in accordance with the
instrumentalities or agencies, including GOCCs shall, before regulations.
making payment on account of its purchase of goods and/or Elements of Withholding on compensation:
services taxed at 12% shall deduct and withhold a final VAT of 1. There must be an employer-employee relationship
5% of the gross payment. 2. There must be payment of compensation or wages for
The 5% final VAT withholding rate shall represent the services rendered
net VAT payable to the seller 3. There must be a payroll period

Page 39 of 104
Exception: These transfers are:
Where such compensation income of an individual: a. transfers in contemplation of death (Sec.85 b);
1. Does not exceed the statutory minimum wages; or b. transfers with retention or reservation of certain rights
2. P5,000 monthly- whichever is higher (Sec.85 b);
G. Timing of withholding c. revocable transfers (Sec.85 c)
d. transfers of property arising under a general power of
B. ESTATE TAX appointment (Sec.85 d); and
1. Basic principles e. transfers for insufficient consideration (Sec.85 g)
The estate tax accrues as of the death of the
decedent and the accrual of the tax is distinct from the Note:
obligation to pay the same. Upon the death of the Transfers by virtue of a bona fide sale of property for
decedent, succession takes place and the right of the an adequate and full consideration in money or
State to tax the privilege to transmit the estate vests moneys worth are excluded and not taxable.
instantly upon death (Sec.3, RR 2-2003).
Not a direct tax on the property transmitted or
transferred although its amount is based thereon. 4. Purpose and justification or object
A transfer tax NOT a property tax A. Benefit-Received Theory
the transfer of the NET ESTATE of every decedent The tax is the return for the services the
(resident or non-resident) is subject to tax.. government renders in the distribution of the estate of
the decedent, either by law or in accordance with his
2. Definition wishes, for the performance of these services and
A graduated tax imposed on the privilege of the decedent to other benefits that accrue to the estate and the heirs,
transmit property at death and is based on the entire net estate, the state collects the tax.
regardless of the number heirs and relations to the decedent.
B. Redistribution of Wealth Theory
3. Nature According to this theory, the receipt of inheritance is a
A tax imposed on the privilege of transmitting contributing factor to the inequalities in wealth and
income. The imposition of estate tax reduces the
property upon the death of the owner. The liability for
property received by the successor, thus helping
estate tax is generated by death and accrues at the
bring about a more equitable distribution of wealth
time of death. It is governed by the law in force at the
in society. The tax base is the value of the property
time of death notwithstanding the postponement of the
and the progressive scheme of taxation is precisely
actual possession or enjoyment of the estate by the
motivated by the desire to mitigate the evils of
beneficiary. Consequently, all properties that are
inheritance in its original form.
included in the taxable estate should be valued at the
moment of death of a decedent.
C. Ability to pay theory
This theory asserts that the receipt of inheritance
There is reciprocity if the foreign country of which the decedent which is in the nature of unearned wealth or a windfall,
was a citizen or resident at the time of his death: places assets in the hands of the heirs and
1. Did not impose an estate tax; or beneficiaries thereby creating an ability to pay the
2. Allowed a similar exemption from estate tax with tax and thus to contribute to governmental income.
respect to intangible personal property owned by
Filipino citizens residing in that foreign country. D. Privilege theory or State Partnership Theory
Inheritance is not a right but a privilege granted by
Note: the state and large estates have been acquired only
1. Reciprocity applies only when: with the protection of the state. The State, as a
a. The property is an intangible; and passive and silent partner in the accumulation of
b. The decedent is a NRA property has the right to collect the share which is
properly due to it.
Inter Vivos Transfers Subject to Estate Tax
The gross estate extends to gratuitous transfers made 5. Time and transfer of properties (Sec.85)
by the decedent during his lifetime which are treated At the time of death
by the law as substitutes for testamentary
dispositions. They are transfers inter vivos in form but 6. Classification of decedent
mortis causa in substance. a. resident decedent
b. non-resident citizen
Rationale for taxability: c. non-resident alien decedent
To reach such transfers which are really substitutes for
testamentary dispositions and thus prevent the 7. Gross estate vs. net estate
evasion of the estate tax. Gross estate (Sec.85)

Page 40 of 104
b. To save inco
The total value of all property (real or personal, Determined by deducting taxes;
tangible or intangible) belonging to the decedent c. To settle fam
at the time of his death, situated within or 1. Expenses, losses indebtedness, and taxes. unlitigated dispute
outside the Philippines, where such decedent 2. Property previously taxed. d. To provide in
was a resident or citizen of the Philippines. 3. Transfers for public use. income for depen
4. The Family Home e. To see the ch
In the case of a NRA decedent, it shall include 5. Standard Deductions property while the
only property situated in the Philippines. 6. Medical Expenses alive;
7. Amount received by heirs under R.A. 4917 f. To protect th
8. Net share of the surviving spouse in the conjugal partnership or community
of busine
g. To reward se

8. Determination of gross estate and net estate c. Revocable transfer A transfer by trust
death to any chan
Decedent is a RC, NRC, & RA Decedent is a NRA such transfer by:

All properties, real or personal, Only properties situated in the a. Decedent alone
tangible or intangible, wherever Philippines provided that, b. By the deceden
situated. intangible personal property is without regard to w
subject to the rule of reciprocity amend, revoke or
provided for under Section 104 decedents death o
of the NIRC. or moneys worth.

9. Composition of gross estate 1. the decedent ha
2. even if the cont

Decedent is a RC,NRC, & RA d. Property passing under GENERAL POWER OF A transfer where th
APPOINTMENT designate any per
Value at the time of death of all:
1. Real property(wherever The transferee ma
2. Personal property(tangible Note: A power is GENE
or intangible, wherever situated) the decedent is the transferee in this provision pleases including
3. To the extent of the interest therein of the decedent at the time of his Tax implication: m
death. (includible in his e
Effect: DONEE ho
concept of owner
10. Items to be INCLUDED in gross estate
It is SPECIAL whe
persons other than
a. Decedent's interest It includes any interest having value or capable of being valued, transferredTax
by implication:
the decedentNo
his death. Effect: Donee hold

b. Transfer in contemplation of death A transfer motivatede. Proceeds of life

by the thought of insurance
impending death although death mayProceeds of life in
not be imminent:
estate if the benef
-in contemplation of death 1. When the decedent has, at any time, made a transfer in contemplation of ora.intended
Is the estate
means that the impelling or controlling motive is the take effect in possession or enjoyment at or after death; or designation is revo
thought of death, regardless of whether the transferor b. third person
is near the possibility of death or not, which induces 2. When decedent has, at any time, made a transfer under which he has retainedbeneficiary is revo
for his life o
the disposition of the property for the purpose of for a period not ascertainable without reference to his death or any period which does not in p
avoiding the tax. fact end before his death:
f. Prior interests All transfers, trusts
a. Possession, enjoyment or right to income from the property; or created, arising, e
b. The right alone or in conjunction with any other person to designate the person who will
possess or enjoy the property or income there from. Note:
In most of these tr
Examples of motives precluding the category of a transfer in contemplationlifetime
of death:notwithsta
a. To relieve the donor from the naked title to the
burden of management;

Page 41 of 104
g. Transfers of insufficient consideration Only the excess In short, these deductible items are expenses incurred
consideration received shallduring
be included in the grossofestate.
the settlement the estate but not beyond
the last day prescribed by law, or the extension
11. Deductions from estate thereof, for the filing of the estate tax return.
Granted by mere legislative grace Include administration expenses to those actually
Construed strictly against the taxpayer incurred in the administration of the estate
a. Substantiate the claim for deduction Examples:
b. Identify the provision granting the deduction. 1. fees of the executor or administrator;
*The provision must be clear and definite. 2. attorneys fees;
A. Decedent is a RC, NRC and RA 3. accountants fees;
1. Ordinary Deductions (Expenses, Losses, Indebtedness, 4. court fees;
and Taxes-ELIT) 5. salaries of employees; and
6. all other expense related to the administration of the
a. Funeral Expenses Sec. 86 (A)(1)(a) estate.
- Actual funeral expenses are those which were actually
incurred in connection with the interment or burial of the Note:
deceased and paid for from the estate of said deceased. This includes all expenses necessary to settle or
preserve the estate hence, extrajudicial expenses
The amount deductible is the lowest among the following: are included.
1. actual funeral expenses Expenses not essential to the proper settlement of the
2. 5% of the gross estate estate but incurred for the individual benefit of the
3. P200, 000 heirs, legatees, or devisees are not allowed as
It includes: e.g.: expenses to be declared as administrator vs. an
1. Costs of coffin, tombstone, mausoleum, and burial lot; oppositor is a personal expense
2. Funeral parlor fees;
3. Mourning clothing of the surviving spouse d. Claims against decedents estate
and the unmarried minor children; The word "claims" is generally construed to mean
4. Costs of obituary notices; and debts or demands of a pecuniary nature which could
5. Expenses during the wake. have been enforced against the deceased in his
lifetime and could have been reduced to simple
The following cannot be deducted under funeral expenses: money judgments.
1. Cash advances of the surviving spouse and the Debts or obligations of the decedent that is
heirs; enforceable against the estate.
2. Expenses paid by the relatives and friends; and They may arise out of:
3. Expenses after burial 1. Contract;
2. Tort; or
Requisites: 3. Operation of Law.
1. The expenses must be due to the interment,
wake and burial; hence, expenses on the Requisites:
death anniversary are not included 1. contracted in good faith and for an adequate and full
2. The expenses must have been shouldered by consideration
the estate and not by other people 2. existing against the estate.
3. legally enforceable obligations of the decedent and
b. Medical Expenses ought to be enforced by the claimants.
Requisites: 4. They must be reasonably certain in amount; and;
1. Must be incurred by the decedent within 5. At the time the indebtedness was incurred, the debt
1 year prior to his death instrument was duly notarized
2. Must be duly substantiated by receipts; and
3. Must not exceed P500, 000 Note: If the loan was contracted within 3 years before
the death of the decedent, the administrator or
c. Judicial expense of the testamentary or intestate executor shall submit a statement showing the
proceedings disposition of the proceeds of the loan.
Expenses allowed as deduction under this category
are those: e. Claims against insolvent persons
1. incurred in the inventory-taking of assets Requisites:
comprising the gross estate, 1. claims has been initially included as part of the gross
2. administration, estate; and
3. payment of debts of the estate, as well as the 2. incapacity of the debtors to pay is proven
distribution of the estate among the heirs.

Page 42 of 104
f. Unpaid Mortgage decedent donee dies within the same period after
Requisites: the date of the gift.
1. The FMV of the property mortgaged without deducting Rationale:
the mortgage indebtedness has been initially The deduction operates to ease the harshness of
included as part of his gross estate; and successive taxation of the same property within a
2. The mortgage indebtedness was contracted in good faith relatively short period of time.
and for an adequate and full consideration in money
or moneys worth.
g. Casualty Losses
They include all losses incurred during the settlement of the Requisites:
estate arising from: 1. The present decedent must have acquired the
- fires, property by inheritance or by donation.
- storms, 2. The property must have been acquired within 5 years
- shipwreck or prior to the death of the present decedent
- other casualties or from 3. The property must have formed part of the gross
- robbery, theft or embezzlement. estate of the prior decedent if acquired by inheritance,
or the taxable gift of the donor if acquired by donation.
Requisites: 4. The estate tax or the donors tax, as the case may be,
1. not compensated by an insurance must have been paid on the previous transfer.
2. not claimed as a deduction for income tax 5. The property must be identified as the one received
purposes; and from the prior decedent or from the donor, as the case
3. incurred not later than the last day for payment of the may be.
estate tax (6 months from death). 6. The estate of the prior decedent must not have
4. Include the worth of the property in the gross estate previously availed of the vanishing deduction on the
5. File a sworn declaration of the fact of loss within 45 days subject property.
from its occurrence
3. Transfer for Public Use
h. Unpaid Taxes Requisites:
Unpaid income tax on income due or received before death of a. The disposition must be testamentary in character.
the decedent, and real property taxes, which have accrued prior b. To take effect after death.
to the death of the decedent (real property taxes accrued at the c. In favor of the government of the Philippines, or any
beginning of the year but may be paid before or at the end of political subdivision thereof.
each quarter) are deductible. d. Exclusively for public purpose.

Income taxes upon income received after the death of the Q: If in a will the property was bequeathed to a city and an
decedent, or property taxes not accrued before his death, or any NGO, are the tax effects the same? No.
estate tax cannot be deducted because they are chargeable to City - included in the gross estate and claimed as
the income of the estate. Deduction
Except: estate tax because estate tax liability is NGO excluded from the gross estate and subject to the
determined at the time of death limitation that not more than 30% must be used for
administrative purposes
2. Vanishing/Alternating Deductions or Property Previously
Taxed 4. Family Home
an amount allowed to reduce the taxable estate of a It is the dwelling house, including the land on which it is situated,
decedent where the property was: where the husband and wife, or an unmarried person who is the
a. received by him from prior decedent by gift, bequest, head of the family and members of their immediate family
devise or inheritance, or resides as certified by the Barangay Captain of the locality.
b. transferred to him by gift, has been the object of
previous transfer deduction. For the purpose of availing of a family home deduction
to the extent provided by law, a person may constitute
VANISHING DEDUCTION: because the rate of deduction only one family home.
gradually diminishes and entirely vanishes depending upon the
time interval between the 2 successive transfers. The amount deductible is equivalent to the current
FMV of the decedents family home if said current
ALTERNATING DEDUCTION: because the present decedents FMV value exceeds P1, 000,000, the excess shall be
estate cannot claim it if the prior decedents estate claimed it. subject to estate tax.

Factors necessary in vanishing deduction: Requisites:

a. There are 2 deceased persons and the first is the a. The family home must be the actual residential home of
donor; and thedecedent and his family at the time of his death.
b. The second decedent dies within 5 years after the b. Such fact must be certified by the Barangay Captain of
deathof the prior decedent or in the case of gifts the thelocality where the family is situated.

Page 43 of 104
c.The total value must be included in the gross estate
d. The allowable deduction must be in an amount Decedents net estate situated outside of the Phil x Phil. Estate
equivalent to the current FMV as declared or tax of Entire net Estate
included in the gross estate not exceeding P1M
5. Standard Deduction 1. Under limitation A the allowable tax credit is the lower amount
on top of other deductions, unlike the optional between the tax credit limit and the estate tax paid to the foreign
standard deduction which is in lieu of other country.
deductions; hence, it does not include the 2. Under limitation B the allowable tax credit is the lower
P 200,000 exemption amount between the tax credit limit computed under (a) and that
it is an additional deduction without need of computed under (b)
B. Decedent is a NRA
6. Amounts Received by Heirs Under R.A. No. 4917 from the The deductions allowed to citizens or residents of the
decedents employer as a consequence of the death of the Philippines are also extended to a NRA decedent with
decedent employee provided that such amount is included in respect to his estates situated in the Philippines at the
the gross estate of the decedent. time of his death.
- retirement benefits
- Requisite: include in gross estate In case of deductions for ELITs, the amount of the
allowable deduction is limited only to the proportion of
7. Net Share of the Surviving Spouse in the Conjugal such deductions with the value of such part of his
Partnership or Community Property. gross estate which at the time of his death, is situated
Include the entire amount in the gross estate then deduct the in the Philippines, bears to the value of his entire
share of the surviving spouse gross estate wherever situated.

8. Tax Credit for Estate Tax Paid to a Foreign Country 12. Exclusions from estate
The estate tax imposed by the tax code shall be In the determination of the gross estate, the nature of
credited with the amount of any estate tax paid to a the property, whether common property of the
foreign country. spouses, separate or exclusive property either of the
deceased or of the surviving spouse, becomes of vital
Concept: if a property located in the Philippines was already importance.
subjected to estate tax abroad and the same property is also
subjected to estate tax in the Philippines, the foreign tax paid is A. Proceeds of insurance not includible in the gross estate of
allowed to reduce his Philippine estate tax the decedent
1. Amount receivable by any beneficiary irrevocably
Purpose: minimize the effect of international double taxation designated in the policy of insurance by the
applicable only to residents and citizens, not to 2. Proceeds of a group insurance policy taken out by a
NRA since he is taxed only on his properties within the company for its employees.
Philippines; hence, the NRA will not be made to pay 3. Proceeds of insurance policies issued by the GSIS to
estate taxes twice for his property located abroad = no government officials and employees.
international double taxation = no tax credit. (Sec. 86 4. Benefits accruing under the Social Security Act.
(E)(2)) 5. Proceeds of life insurance payable to the heirs of
deceased members of the military personnel of
Requisites: the United States Army or Philippine Army under laws
1. Prove that the foreign estate tax has been paid administered by the United State veterans
2. Prove reciprocity: that in the decedents foreign country, a Administration.
similar tax credit is given to Filipinos 6. Accident insurance proceeds.

Limitations on tax credit: B. Separate property of the surviving spouse.

a. The tax credit limit for estate taxes paid to one foreign country What regime of property relations shall govern the spouses?
is determined by the following: Under the Civil Code, the husband and wife who got
married before August 3, 1988 are governed by the
TAX CREDIT LIMIT= Conjugal Partnership of Gains, while those who got
married on or after August 3, 1988 are governed by
Decedents Net Estate situated in a foreign country x Phil. the Absolute Community of Property, unless a different
Estate tax of the Entire net estate regime was agreed upon in the marriage settlement.

b. The tax credit limit for estate taxes paid to two or more 13. Tax credit for estate taxes paid in a foreign
countries is determined as follows: country

Page 44 of 104
The estate tax imposed by the tax code shall be
credited with the amount of any estate tax paid to a The Commissioner shall have the authority to grant, in
foreign country. meritorious cases, a reasonable extension not exceeding 30
days for filing the return.
14. Exemption of certain acquisitions and
transmissions C. Where to file?
a. The first P200, 000 value of the estate (Sec. 84) Except in cases where the Commissioner otherwise permits, the
b. Fideicommissary substitution (Sec. 87) return shall be filed with:
c. The merger of the usufruct in the owner of the naked * if the decedent is a resident citizen
title (Sec. 87) a. an authorized agent bank or
d. The transmission from the first heir, legatee, or donee b. Revenue District Officer or
in favor of another beneficiary in accordance with the c. Revenue Collection Officer or
desire of the predecessor (Sec.87) d. duly authorized treasurer of the city or municipality
e. transfers to social welfare, cultural and charitable where the decedent was domiciled at the time of his
institutions (Sec.87) death, or
1. Qualified organization * if the decedent is a non-resident (citizen or alien)
2. Not more than 30% will be used for a. with the Revenue District Office where his
administrative purposes executor/administrator is registered
Reason: to encourage such transfers b. with the Revenue District Office having jurisdiction
f. Intangible personal property of NRAs under the over the residence of the executor/administrator
principle of reciprocity. c. with the Office of the Commissioner if the decedent
g. Retirement benefits of employees of private firms from has no executor or administrator
private pension plans approved by the BIR.
h. Amount received for war damages. D. Copies
i. Grants and donations to the Intramuros The return shall be filed in triplicate, 2 for the BIR and 1 copy for
administration. the TP.

15. Filing of notice of death (Sec.89) E. When to pay?

When to file: Within 2 mos. after the decedents death Pay the estate tax at the time you will file your estate tax return
to the CIR where the gross value of the estate exceeds (Pay as you file system).
P 20, 000.
F. Extensions for Payment
Contents of the letter: Reason: The payment of the tax may cause undue
1. The fact that the decedent died hardship on the heirs specifically for non-liquid properties which
2. Residence of the decedent requires time to be sold first to be converted into cash for
3. Date of death payment of the estate tax.
allowed in meritorious cases when the Commissioner
16. Filing of Return and Payment of Tax (Sections 90 finds that the payment of the estate tax on the due
date would impose undue hardships upon the estate
and 91)
or any heir :
A By whom?
At most 2 years if estate extrajudicially settled
An estate tax under oath is required by law to be filed by the
At most 5 years if estate judicially settled
executor, administrator, or any of the legal heirs in cases of:
1. Transfers subject to tax
In case the available cash is not sufficient to pay its total estate
2. Where gross value of estate exceeds P200,000
tax liability, the estate may be allowed to pay tax by instalment.
3. Where estate consists of registered or registrable
(Sec. 9F, Rev. Reg. 2-2003)
property, regardless of amount.
Note: The TP must not be guilty of
When the gross estate exceeds P2M:
The Return shall be accompanied by a Statement which is 1. negligence
certified by an independent Certified Public Accountant stating: 2. intentional disregard of the rules and regulations, or
1. the itemized assets of the decedent with its 3. fraud
corresponding gross value at the time of his death;
or in the case of a NRA, that part of his gross estate the TP may also be required to pay a bond not
situated in the Philippines; exceeding double the amount of tax and with such
2. the itemized deductions from the gross estate; sureties, as the Commissioner deems necessary
3. the amount of tax due, whether paid or still due and The filing of the estate tax return is not sufficient to
outstanding. obtain a tax clearance, the
administrator/executor/heir must submit additional
B. When to file? documents to determine the correctness of the
The return shall be filed within 6 months from the decedents values stated by him in the estate tax return such as
death. the title of the land, tax declaration of the land and its

Page 45 of 104
improvements or Certificate of No-improvement, legacy or inheritance, shall have the duty of furnishing
vicinity map to fix the exact location and zonal value, the CIR, etc., with copies of such documents and any
etc. information which may facilitate the collection of the
(Read: Revenue Memorandum Order 15-2003) aforementioned tax (Sec. 95).
4. Neither shall a debtor of a deceased pay his debts to
G. Who are liable for the payment of Estate Tax? the heirs, legatees, executor or administrator of his
Primarily Liable : Executor or administrator - before delivery to creditor, unless a similar certification by the CIR is
any beneficiary of his distributive shares. After due payment, the shown; but he may pay the executor or judicial
executor or administrator shall be discharged from personal administrator without said certification if the credit is
liability. included in the inventory of the estate of the
deceased(Sec. 95).
Subsidiarily Liable: Beneficiary - to the extent of his distributive 5. Corporations, sociedad anonima, partnerships,
share, liable for the portion of the estate tax as his distributive business or industry organized in the Philippines
share bears to the value of the total net estate. shall not transfer in their books any shares or other
forms of securities to the new owner unless a similar
CIR vs. PINEDA, September 15, 1967 certification by the CIR is shown (Sec. 97).
Two ways by which the government may enforce collection of 6. When a bank has knowledge of the death of a person
estate taxes from the heirs: who maintained a joint account, it shall not allow any
1. It can collect from all the heirs the amount of the withdrawal by the surviving depositor without the
estate tax proportionate to the inheritance they above certification (Sec. 97).
received. Provided: that the administrator of the estate or
2. It can subject properties of the estate which are in the any one of the heirs of the decedent may, upon
hands of the heirs/transferees to the payment of tax. authorization by the Commissioner, withdraw an
amount not exceeding P20,000 without the said
The heirs have a solidary obligation to settle the certification.
estate. Hence, the BIR can collect from or sue any of all withdrawal slips shall contain a statement to
the heirs, but only up to the amount of that heirs the effect that all of the joint depositors are still
share in the hereditary estate. This is without living at the time of withdrawal by any one of the
prejudice to such heirs right of reimbursement from joint depositors and such statement shall be
his co-heirs of their share in the payment of the estate under oath. Otherwise, the joint depositor will be
tax. liable for perjury (Sec. 267).

Is the approval of the probate court required before estate taxes Distinction between Donors and Estate Tax
may be collected?
No. The enforcement and collection of taxes are executive in Donors Tax
nature. There is nothing in the Tax Code and in the pertinent Tax on the privilege to transmit property during the lifetime of Tax on t
remedial law that implies the necessity of the probate court or the donor
estate settlement of courts approval of the States claim for
estate taxes before the same can be enforced and collected by Tax rates: 2% - 15% (lower) 5% - 20
the BIR. On the contrary, under Section 94, it is the probate or Except donations made to
settlement court which is bidden not to authorize the delivery of strangers (30%)
the distributive share to any interested party without a Tax exemption: P100,000 P200,00
certification from the CIR showing the payment of the estate tax Notice of donation: generally not required Notice o
(MARCOS II vs. CA, GR No. 120880, June 5, 1997). Extension of payment: not provided may be
Payable within 30 days from the date of gift Within 6
H. What are the measures to insure the payment of Imposed on the net gift Net esta
Estate Tax?
1. No judge shall authorize the distribution of the estate
unless a certification from the CIR that tax has been
paid is shown (Sec. 94). C. DONORS TAX (Sec. 98)
2. Registers of Deeds shall not register any document 1. Basic principles
transferring real property or real right unless a similar It is levied, assessed, collected and paid upon the
certification by the CIR is shown and shall immediately transfer of any person, resident or non-resident, of the
notify the CIR, Regional Director, Revenue District property by gift inter vivos. It applies whether the
Officer, or Revenue collection Officer or treasurer of transfer is in trust or otherwise, whether the gift is
the city or municipality where their offices are located, direct or indirect, and whether the property is real or
of the non-payment of the tax discovered by them personal, tangible or intangible.
(Sec. 95). It is imposed whether the transfer is in trust or
3. Any lawyer, notary public, or any Government otherwise, whether the gift is direct or indirect and
Officer who, by reason of his official duties, whether the property is real or personal, tangible or
intervenes in the preparation or acknowledgement of intangible.
documents regarding partition or disposal of donation,

Page 46 of 104
2. Definition
A tax on the privilege of transmitting ones property or property In ABELLO vs. CIR (February 25, 2005), donative intent is
rights to another or others without adequate and full valuable evidenced by a reduction of patrimony of one and an increase in
consideration. patrimony to the other.
1. an act of liberality whereby a person disposes gratuitously of
a thing or right in favor of another who accepts it (Art. 6. Transfers which may be constituted as donation
725,NCC). a) Sale/exchange/transfer of property for insufficient
2. For tax purposes, it includes:
a. any transfer in trust or otherwise, whether the gift is direct or
indirect, and whether the property is real or personal, tangible If bona fide sale No value shall be included in the gross
or intangible (Sec. 98). estate.

b. any transfer of property by gift, except in forced sales and in If not a bona fide sale The excess of the FMV at the time of
the sale of real property which is a capital asset, for less than death over the value of the
an adequate and full consideration in money or moneys consideration received by the decedent
worth (Sec. 100). shall form part of his gross estate.

c. Condonation or remission of debt, where the creditor If inter vivos transfer Total value of the property at the time
merely desires to benefit a debtor and without any consideration is proven fictitious of death included in the gross estate.
therefore cancels the debt.
b) Condonation/remission of debt
3. Nature It is where the creditor merely desires to benefit a
It is an excise tax on the privilege of the donor to give debtor and without any consideration therefore
or on the transfer of property by way of gift inter vivos. cancels the debt.
It is NOT a property tax. If the creditor condones the indebtedness of the
It is imposed without reference to the death of the debtor the following rules apply:
donor unlike in the case of estate tax. 1. On account of debtors services to the creditor the
same is in taxable income to the debtor.
4. Purpose or object 2. If no services were rendered but the creditor simply
To: condones the debt, it is taxable gift and not a taxable
a. Raise revenues income.
b. Tax the wealthy and to reduce certain other excise taxes
c. Discourage inter vivos transfers of property which could
reduce mortis causa transfers on which a higher 7. Transfer for less than adequate and full
tax (estate tax) can be collected consideration (Sec. 100)
d. Prevent avoidance of income tax through the device of General Rule: The amount by which the FMV of the property
splitting income among numerous donees who are exceeded the value of the consideration shall be deemed a gift
usually members of a family or into many trusts, with
the donor thereby escaping the effect of the Exception: Real properties classified as capital assets (not used
progressive rates of income taxation. in business) as there were already subjected to CGT

5. Requisites of valid donation

a. The donor must have capacity to donate 8. Classification of donor
b. There must be intent to donate
c. There must be delivery, either actual or constructive Taxable within and without the Philippines
d. The donee must accept the donation
a. RC a. NRA
Note: b. NRC b. FC
1. Donors capacity shall be determined as of the time of c. RA
the making of the donation. d. DC
2. The donee, unlike the donor need not be capacitated
3. Donors tax applies now to both natural and juridical 9. Determination of gross gift
persons All property, real or personal, tangible or intangible, that was
4. Donative intent is necessary only in cases of direct given by the donor to the donee by way of gift, without the
gift. If the gift is indirectly taking place by way of sale, benefit of any deduction (Sec. 104).
exchange or other transfer of property as
contemplated in cases of transfers for less than 10. Composition of gross gift (Sec. 104)
adequate and full consideration (Sec. 100, NIRC), not
always essential to constitute a gift. RC, NRC, and RA

Page 47 of 104
a. Real property (wherever Requisites:
a. Real property situated
situated); within the Philippines; 1. The donation must be given on account of
b. Personal property b. Personal property: marriage.
(wherever situated), tangible or intangible. i. Tangible property2.situated
The parent must give it to his child.
ii. Intangible personal3. The child must be either the legitimate,
property with recognized natural or legally adopted child of the
the Philippines unless donor, and;
exempted on the basis 4. It must be given before or one year after the
of reciprocity. celebration of the marriage.

b. Gifts made to or for the use of the National

11. Valuation of gifts made in property Government or any of its agencies which is not
conducted for profit, or to any political subdivision of
Personal Property the said government.
c. Gifts in favor of educational, charitable, religious,
The FMV of the property given at the time of the gift. The cultural or social welfare corporation, institutions,
assessor, whicheverfoundations,
is higher. trust or philanthropic organization,
research institution or organization, or accredited
NGO. Provided, that no more than 30% of said gifts
12. Tax credit for donors taxes paid in a foreign shall be used by such donee for administration
country (Sec. 101[c])
1. Donor was a Filipino citizen or resident alien
2. At time of foreign donation
3. Donors taxes of any character and description 1. Only donations made to non-stock, non-profit
4. Are imposed and paid by the authority of a foreign country. educational institutions are exempt from gift taxes as
although Article 14 of the Constitution states that
TAX CREDIT LIMIT proprietary educational institutions may be given the
A. For donors tax paid to one foreign country; same privileges subject to a guideline; a guideline, the
The amount of tax credit in respect to the tax paid to NIRC does not provide for such exemption to them.
any country shall not exceed the same proportion of
2. A Non-Profit Educational and/or Charitable Corporation,
the tax against which credit is taken which the net gifts
Institution, Accredited NGO, Trust or Philanthropic
situated within such country taxable under the NIRC
Organization, Research Institution or Organization is:
bears to his entire net gift.
1. one incorporated as a non-stock entity
2. paying no dividends
3. governed by trustees who receive no
NG situated Tax
compensation, and
in a foreign country x PDT = Credit
4. devoting all its income whether students fees or
Entire net gifts Limit
gifts, donations, subsidies or other forms of
philanthropy to the accomplishment and promotion of
(NG - Net Gifts; PDT - Phil. Donor's Tax)
the purposes enumerated in its Articles of
B. For donors tax paid to two or more foreign countries:
The total amount of the credit shall not exceed the
3. Certain gifts made by non-resident alien (Sec. 101 [B])
same proportion of the tax against which such credit is
a. same as (b)
taken, which the donors net gift situated outside the
b. same as (c) except accredited NGO
Philippines taxable under the National Internal
Revenue Code bears to his entire net gift.
FORMULA: 1. Intangible personal property in the gross gift of a NRA
Tax donor shall be taxable in the Philippines, if the
NG outside the Phil. x PDT = Credit PRINCIPLE OF RECIPROCITY is not cognizable.
Entire net gifts Limit
2. Intangible personal properties considered situated in the
The allowable tax credit is the lower amount between
Franchise which must be exercised in the Philippines
the tax credit limit under (A) and (B).
Shares of stocks issued by any corporation or
13. Exemptions of gifts from donors tax sociedad anonima organized or constituted in the
1. Donation for political campaign purposes (Sec. 99 [c]) Philippines in accordance with its laws.
2. Certain gifts made by residents (Sec. 101 [A]) Shares of stocks issued by any foreign corporation
a. Dowries or gifts to the extent of the first P10, 000. 85% of the business of which is situated in the

Page 48 of 104
Shares of stock issued by a foreign corporation, if 1 considered a stranger to the donor the tax rate shall
such shares, obligations, or bonds, have acquired a be 30% of the net gifts
business situs in the Philippines; and 2 a relative of the donor the tax rate shall be based
Shares or rights in any partnership, business or on the 2-15% table under Sec. 99 [A]
industry established in the Philippines.
Who is a Stranger?
4. Donation of intangibles subject to reciprocity (Sec. 104) one who is not a :
5. Donation for athletes prizes and awards 1 brother/sister (whole or half-blood), spouse, ancestor
The donation must be prizes and awards given to and lineal descendant
athletes in local and international tournaments and 2 relative by consanguinity in the collateral line within
competitions; the fourth degree of relationship (Sec. 99[B])
held in the Philippines or abroad; and
sanctioned by their respective sports association Note:
(Sec. 1, R.A. 7549). Donations made between individuals and business
6. Donation under the Adopt-a-School Program organizations are considered donations to strangers
Any aid, help, contribution or donation provided by an Donations made between business organizations
adopting private entity to a government school, are considered donations made to strangers (RR 2-
whether elementary, secondary or tertiary are exempt 2003)
from donors taxes. Donees that have no blood relation to the donor are
The assistance may be in the form of, but not limited considered strangers to the donor, such as those
to infrastructure, teaching, and skills development, made to ones in-laws or to juridical persons.
learning, support, computer and science laboratories
and food and nutrition(R.A. 8525). b. Value of the Gift
the higher the value of the gift, the higher the gift taxes
7. Exemption under other special laws.
Donations to: 17. Filing of Donors Tax Return (Sec. 103[A])
International Rice Research Institute (IRRI) a. By Whom?
Ramon Magsaysay Award Foundation -any individual who makes any transfer by gift
Philippines Inventors Convention (PIC)
Integrated Bar of the Philippines (IBP) b. When?
Development Academy of the Philippines -within 30 days after the completion of the gift
Social Welfare, Cultural or Charitable Institution, no part of donation is completed for tax purposes at the time the
the net income of which inures to the benefit of any donee accepts the gift
individual, if not more than 30% of the donation shall be
used by the done for administration purposes c. Contents:
Aquaculture Department of the Southeast Asian Fisheries 1. Gifts made during the calendar year
Development Center of the Philippines 2. Deductions claimed and allowed
National Museum 3. Previous net gifts made during the year
National Library 4. Name of the donee
National Social Action Council 5. Relationship of the donor and the donee
Philippine American Cultural Foundation 6. Other information as may be required
Task Force on Human Settlement on the donation of
equipment, materials, and services Note: The return must be under oath in duplicate.

14. Person liable d. Where to file?

Any person, resident or nonresident, of the property Except in cases where the Commissioner otherwise permits, the
transferred by gift. return shall be filed and the tax paid to:
* if the decedent is a resident citizen
Note: Any person making a donation unless the a. an authorized agent bank
donation is specifically exempted under NIRC or other b. Revenue District Officer
special laws, is required for every donation to c. Revenue Collection Officer
accomplish under oath a donors tax return in duly authorized treasurer of the city or municipality where the
duplicate. decedent was domiciled at the time of the transfer

15. Tax basis * if the decedent is a non-resident (citizen or alien)

a. the Philippine Embassy or Consulate in the country
The total net gifts made during the calendar year
where he is domiciled at the time of the transfer, or
(Sec. 99 [A]).
b. directly with the Office of the Commissioner
16. Factors affecting the liability for Donors Tax 18. Payment of Donors Tax (Sec. 103 [B])
a. Relationship of the donor and the donee
a. When?
When the donee is:

Page 49 of 104
Pay As You File the tax return.
b. Extensions for Payment
the NIRC does not provide for any extension When does importation begin and deemed terminated?
Importation begins when the carrying vessel or aircraft
Reason: It is presumed that if you can donate, you still have enters the jurisdiction of the Philippines with the
sufficient properties to pay for the tax. intention to unlade therein.

Note: Importation is deemed terminated:

If the donors tax was paid for the transfer, there is no a. upon payment of the duties, taxes and other
more need to subject the transfer again to estate tax. charges due upon the articles, or secured to
Applying the Back Tax Theory, there is no tax that be paid, at the port of entry and
remained unpaid regarding this transfer. b. the legal permit for withdrawal shall have
been granted, or
Void Donations are not subject to Donors Tax c. in case said articles are free of duties, taxes
Such as: and other charges, until they have legally
a Between husband and wife (even if the relationship left the jurisdiction of Customs.
has not been solemnized)
b Between persons guilty of adultery or concubinage. Note: On importation of goods, there are no zero-
c Between those found guilty of the same criminal rated transactions. Only Vatable and Exempt
offenses. transactions.
d Between those made to a public officer or his wife,
descendants, ascendants by reason of his office. b. Sale
c. Barter
Effects of General and Specific Renunciation d. Exchange
An heirs general renunciation of inheritance in favor e. Lease
of a co-heir is not subject to donors tax, but if it is Note: letters b-e must be conducted in the course of
specifically renounced in favor of a co-heir to the trade or business.
exclusion of others, it shall be subject to donors tax.
in the course of trade or business (Sec. 105)
Renunciation of a surviving spouse of his/her share in the -means the regular conduct or pursuit of a commercial or an
conjugal partnership or absolute community after dissolution of economic activity, including transactions incidental thereto, by
marriage any person regardless of whether or not the person engaged
whether made in favor of the heirs of the deceased therein is a non-stock, non-profit private organization
spouse or in favor of a third person, the same is (irrespective of the disposition of its net income and whether or
subject to donors tax not it sells exclusively to members or their guests), or
government entity.

D. VALUE-ADDED TAX (VAT) Sec. 105 3. Characteristics/Elements of a VAT-Taxable

1. Concept transaction
It is a percentage tax imposed at every stage of the distribution a. It is an indirect tax
process on: b. It is equitable
- the sale, barter, or exchange, or lease of goods or c. VAT by its very nature, is regressive
properties, and on the performance of service in the
course of trade or business, or Other characteristics:
- on the importation of goods, whether for business or a. It is consumption-based.
non-business purposes. b. It is imposed on the value-added in each stage of
It is not the tax itself which is shifted or passes but it is the c. It is a credit-invoice method value-added tax.
burden to pay the tax d. It is not a cascading tax.
Reason: Tax is personal. Seller is still liable, only that the
economic burden is shouldered by the buyer. 4. Impact of tax
The point on which a tax is originally imposed. In so
2. Transactions Subject to VAT far as the law is concerned, the taxpayer is the person
a. Importation(whether or not in the course of trade or business) who must pay the tax to the government. He is also
termed as the statutory taxpayer-the one on whom
Reason: the tax is formally assessed. He is the subject of the
To protect our local or domestic goods or articles and to regulate tax
the entry or introduction of foreign articles to our local market. the seller upon whom the tax has been imposed.
Regulation is one of the purposes of Taxation.
5. Incidence of tax

Page 50 of 104
That point on which the tax burden finally rests or Note: Absence of any of the above requisites
settles down. It takes place when shifting has been exempts the transaction from VAT. However,
effected from the statutory taxpayer to another. percentage taxes may apply (Section 116, NIRC).
It is on the final consumer, the place at which the tax
comes to rest. The tax is shifted to the buyer of the 10. Zero-rated sales of goods or properties, and
goods, properties, or services. effectively zero-rated sales of goods or properties
Sales which are zero-rated shall result to zero output
6. Tax credit method tax since the tax rate applied to the tax base is 0%.
The input tax shifted by the seller to the buyer is Since the output tax is zero, the seller shall pay NO
credited against the buyers output taxes when he in VAT.
turn sells the taxable goods, properties or services. Advantage: the seller shall be entitled to an input tax which he
Also called invoice method may credit against his zero output tax giving rise to an excess
input tax.
Output Note: The seller must be a VAT-registered person to
Less: Input__ make his export sales zero-rate
=VAT Due
If he is a not VAT-registered person (i.e., he registered as VAT-
If the output taxes are equal to the input taxes, no exempt), then his export sales shall be merely VAT-exempt
payment is required under Sec.109 (1)(O) of the NIRC, disallowing him to claim his
When the output taxes exceeds the input taxes, the unused creditable input taxes attributable to export sales in the
excess has to be paid form of refund or tax credit.
If input is greater than output, tax credit is available
However, the input tax on the purchases of goods, or properties
7. Destination principle related to such zero-rated sale shall be available as tax credit or
Under this doctrine, goods and services are taxed only refund.
in the country where they are consumed. No VAT shall
Zero-rated sales of goods by a VAT-registered person:
be imposed to form part of the cost of goods destined
a. Export Sales Sec. 106(A)(2)(a)
outside the territorial border of the taxing authority.
b. Foreign Currency Denominated Sale- Sec. 106(A)(2)
Thus, exports are zero-rated, while imports are taxed.
c. Sale to persons or entities which is VAT exempt under
Cross-border Principle
special laws or international agreements to
Goods going out of the Philippines shall not
which the Philippines is a signatory- Sec. 106(A)(2)(c)
be subjected to tax since these goods are
d. Transactions subject to 0% - Sec. 108(B)
not destined to be consumed in the
Zero Rated Transactions
refers to transactions, either sales by a VAT-registered
8. Persons liable
A. any person who, in the regular course of trade or business persons or services performed in thePhilippines by
1. sells, barters, exchanges goods or properties, VAT-registered persons that are subject to 0%.
2. leases goods or properties, these are taxable transactions for the purpose of VAT
3. renders services; and but the seller is not liable to pay output tax. However,
he is allowed to credit/deduct input tax from his other
B. any person who imports goods tax liabilities.

Note: The importer, whether an individual or As to how the transaction shall be subject to zero-rating.
corporation and whether or not made in the course of A. Automatically Zero Rated Sales
his trade or business, shall be liable to pay VAT. (RR refers to a sale of goods, properties and services by a
16-2005) VAT registered seller/supplier that is regarded as
either an export sale or a foreign currency
9. VAT on sale of goods or properties denominated sale under Sec. 106 of the NIRC (RMC
A. Requisites of taxability of sale of goods or properties No. 50-07 dated July 30, 2007).
1. There is an actual or deemed sale, barter or exchange
of goods or personal properties for valuable B. Effectively Zero-rated sale of goods and properties
consideration; refers to the local sale of goods, properties, and
2. The sale is in the course of trade or business in the services by a VAT-registered person to a person or
Philippines; entity that was granted indirect tax exemption under
3. The goods or properties are located in the Philippines special laws or international agreements.
and are for use or consumption therein Since the buyer is exempt from indirect tax, the seller
4. The sale is not exempt from VAT. cannot pass on the VAT and therefore, the exemption

Page 51 of 104
enjoyed by the buyer shall extend to the seller, making The goods or properties used in the business or those
the sale effectively zero-rated comprising the stock-in trade of the corporation will
(RMC No. 50-07 dated July 30, 2007). not be considered sold, bartered or exchanged
despite the change in the ownership interest.
However, exchange of property by corporation
Zero Rated vs. Exempt transactions acquiring control for the shares of stocks of the target
1. A zero-rated scale is taxable transaction, but does not corporation is subject to VAT.
result in an output tax while an exempted transaction 2. Change in the trade or corporate name of the business
is not subject to the output tax; 3. Merger or consolidation of corporations
2. In zero-rated transactions, tax credit is available. The unused input tax of the dissolved corporation, as
However, in exempt transactions, tax credit is not of the date of merger or consolidation, shall be
available. absorbed by the surviving or new corp.
3. Persons engaged in transactions which are zero-
rated, being subject to VAT, are required to register 13. VAT on importation of goods
while registration is option for VAT-exempt persons. VAT shall be assessed and collected upon goods
brought into the Philippines, whether or not goods are
Input tax attributable to zero-rated sales, at the option of for use in business.
the taxpayer, may be: a) Transfer of goods by tax exempt persons- Sec. 107 (B)
a. Carried over to the succeeding quarters; OR
The subsequent purchasers, transferees or
b. Refund against other INTERNAL REVENUE taxes
recipients of such imported goods shall be considered
(Sec.110 [B], NIRC).
as importers who shall be liable for the tax on
11. Transactions deemed sale - Sec. 106 (B)
a. Transfer, use or consumption not in the course of business of
14. VAT on sale of service and use or lease of
goods/properties originally intended for sale or use in the course
of business properties Sec. 108
e.g. when a VAT-registered person withdraws goods Requisites for taxability
from his business for his personal use. 1. There is a sale or exchange of service or lease or use
b. Distribution or transfer to shareholders, investors or creditors of property enumerated in the law or other
c. Consignment of goods if actual sale not made within 60 days similar services;
from date of consignment 2. The service is:
a. performed or to be performed in the Philippines;
Consigned goods returned by the consignee within the
b. in the course of trade of taxpayers trade or
60-day period are not deemed sold (RR 16-2005)
business or profession;
d. Retirement from or cessation of business with respect to
c. for a valuable consideration actually or
inventories on hand
constructively received; and
d. not exempt under the Tax Code, special law or
12. Change or cessation of status as VAT-registered international agreement.
VAT shall apply to goods disposed of or existing as of 15. Zero-rated sale of services Sec.108 (B)
a certain date if under the circumstances, the status of 16. VAT exempt transactions
a person as a VAT-registered person changes or is a) VAT exempt transactions, in general
terminated. It involves goods or services which, by their nature,
are specifically listed in and expressly exempted from
a) Subject to VAT
VAT under the Tax Code, without regard to the tax
Subject to output tax - applicable to goods/properties status of the party to the transaction.
originally intended for sale or use in business and b) Exempt transactions- Sec. 109
capital goods which are existing as of the occurrence
of the following: 17. Input tax and output tax, defined (Sec. 110)
1 Change of business activity from VAT taxable status to
Input Tax
VAT-exempt status
means the value-added tax due from or paid by a
2 Approval of request for cancellation of a registration
due to reversion to exempt status VAT-registered person in the course of his trade or
3 Approval of request for cancellation of registration due business on importation of goods or local purchase of
to desire to revert to exempt status after lapse of 3 goods or services, including lease or use of property,
consecutive years from a VAT-registered person. It shall also include the
transitional input tax determined in accordance with
b) Not subject to VAT Sec. 111
1. Change of control of a corporation
Output Tax
By the acquisition of the controlling interest of such
means the value-added tax due on the sale or lease of
corporation by another stockholder or group of
stockholders. taxable goods or properties or services by any person
registered or required to register under Section 236.

Page 52 of 104
amount of claim for refund or tax credit for value-
added tax and other adjustments, such as purchase
18. Sources of input tax returns or allowances and input tax attributable to
a. Purchase or importation of goods exempt sale.
b. Purchase of real properties for which a VAT has actually The claim for tax credit shall include not only those
been paid filed with the Bureau of Internal Revenue but also
c. Purchase of services in which VAT has actually been paid those filed with other government agencies.
d. Transactions deemed sale c) Allocation of input tax on mixed transactions
e. Presumptive input tax A VAT-registered person who is also engaged in
It is an input tax credit allowed to persons or firms transactions not subject to Vat shall be allowed to
engaged in the: recognize input tax credit on transactions subject to
1. processing of: VAT as follows:
a. sardines 1. All the input taxes that can be directly attributed to
b. mackerel transactions subject to VAT may be recognized for
c. milk input tax credit. Input taxes that can be directly
2. manufacturing of: attributable to VAT taxable sales of goods and
a. refined sugar services to the Government or any of its political
b. cooking oil subdivisions, instrumentalities or agencies, including
c. packed noodle based instant meals GOCCs shall not be credited against output taxes
The allowed input tax shall be equivalent to 4% of the arising from sales to non-Government entities; and
gross value in money of their purchases of primary 2. If any input tax cannot be directly attributed to either
agricultural products which are used as inputs to their a VAT taxable or VAT-exempt transaction, the input tax
production. shall be pro-rated to the VAT taxable and VAT-exempt
transactions and only the ratable portion pertaining to
f. Transitional input tax transactions subject to VAT may be recognized for
It is an input tax credit allowed to person who input tax credit.
becomes liable to value-added tax or any person who
elects to be a VAT-registered person. The allowed d) Determination of the output tax and VAT payable and
input tax shall be whichever is higher between: computation of VAT payable or excess tax credits
1. 2% of the value of the taxpayers beginning
inventory of goods, materials and supplies; or Formula:
2. The actual value-added tax paid on such goods. Output tax
Less: Input tax________________
19. Persons who can avail of input tax credit VAT payable/ excess tax credits
- upon consummation of sale and on importation of goods or 21. Substantiation of input tax credits- RR 16-2005
properties; and
- upon payment of the VAT prior to the release of the goods from 1. Input taxes on domestic purchases of goods or VAT invoice
the custody of the Bureau of Customs. properties made in the course of trade or business

However, in the case of purchase of services, lease or use of 2. Input tax on purchases of real property
properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the a. Cash/deferred
compensation, rental, royalty or fee. basis -Public instrume
-VAT invoice for
20. Determination of output/input tax; VAT payable; -non-VAT Officia
excess input tax credits
a) Determination of output tax
Sellers of goods or properties: -Public instrume
Gross selling price x VAT rate -VAT Official Re
b. Instalment basis
Sellers of service:
Gross receipts x VAT rate 3. Input tax on domestic purchases of service VAT Official Rec

b) Determination of input tax creditable 4. Input tax on importation of goods Import entry or
The sum of the excess input tax carried over from the VAT on the impo
preceding month or quarter and the input tax
creditable to a VAT-registered person during the 5. Transitional input tax Inventory of goo
taxable month or quarter shall be reduced by the BIR

Page 53 of 104
or for use in the course of business for personal use
6. Input tax on deemed sale transaction Required invoices
2. Distribution or transfer to Invoice, at the time of the
7. Input tax from payments made to non-residents Monthly Remittance
Return of VAT Withheld
or creditors
filed by the resident
transaction, which should
payor in behalf of the non-resident evidencing remittance include
of VAT due
all the information
which was withheld by the payor. of goods if actual
3. Consignment prescribed in Sec. 113 (B)
sale is not made within 60 days
8. Advance VAT on sugar Payment order showing payment of the advance VAT
4. Retirement from or cessation of An inventory shall be
22. Refund or tax credit of excess input tax business with respect to all goods in prepared and submitted to
a. Who may claim for refund/apply for issuance of tax credit hand the RDO who has
certificate (TCC)? jurisdiction over the
Any VAT-registered person, whose sales are zero- taxpayers principal place
rated or effectively zero-rated may apply for the of business not later than
issuance of a tax credit certificate or refund of 30 days after retirement or
creditable input tax due or paid attributable to such cessation from the
sales, except transitional input tax, to the extent that business. An invoice shall
such input tax has not been applied against output tax be prepared for the entire
(Sec.112 [A]). inventory, which shall be
the basis of the entry into
b. Period to file claim/apply for issuance of TCC the subsidiary sales
Within 2 years after the close of the taxable quarter journal. The invoice need
when the sales were made. not enumerate the specific
items appearing in the
c. Manner of giving refund Sec.112 (D) inventory regarding the
description of the goods. If
Upon warrants drawn by the Commissioner or by his
the business is to be
duly authorized representative without the necessity of
continued by the new
being countersigned by the Chairman, Commission on
owners or successors, the
audit, subject to post audit by the Commission on
entire amount of output tax
on the amount deemed
sold shall be allowed as
d. Destination principle or cross-border doctrine
input taxes.
Destination Principle Cross-border doctrine
c. Consequences of issuing erroneous VAT invoice or VAT
Goods and services are Mandates that no VAT shall be
official receipt Sec. 113 (D)
taxed only in the country imposed to form part of the cost of
In case of:
where these are the goods destined for consumption
1. Non-VAT registered person who issues a VAT invoice/receipt
consumed outside the territorial border of the
shall be held liable to:
taxing authority.
a. payment of percentage tax if applicable;
b. payment of VAT without input tax;
23. Invoicing requirements Sec.113 c. 50% surcharge on tax due; and
a. Invoicing requirements in general d. the purchaser shall be allowed to recognize an input
For every sale, a VAT-registered person shall issue an tax credit provided that the invoice/official receipt
invoice or receipt. contains the required information.
Aside from the information required under Sec. 237, the 2. VAT-registered who issues a VAT invoice/official receipt for a
following information shall be indicated in the invoice or VAT exempt sale without the words VAT Exempt Sale shall
receipt: be held liable to pay 12% VAT.
1. A statement that the seller is a VAT-registered person, 24. Filing of return and payment- Sec. 114
followed by his taxpayer's identification number a. Who are required to file VAT Return?
(TIN); and 1. Every person or entity who in the course of trade or
2. The total amount which the purchaser pays or is business, sells or leases goods, properties, and
obligated to pay to the seller with the indication that services subject to VAT, if the aggregate amount of
such amount includes the VAT. actual gross sales or receipts exceed P1,919,500
for any 12 - month period (RR 16-2011)
b. Invoicing and recording deemed sale transactions 2. A person required to register as VAT taxpayer but
failed to register
Transaction Invoicing Requirement 3. Any person who imports goods
4. Professional practitioners (RR 16-2005)
1. Transfer, use or consumption not Memorandum entry in the
in the course of business of goods or subsidiary sales journal to b. Where to File the return and pay the tax?
properties originally intended for sale record withdrawal of goods To any of the following:

Page 54 of 104
1 Authorized Agent Bank 1. Bank Expenditure Method
2 Revenue Collection Officer - bank records of the TP are analysed and the BIR estimates
3 Duly authorized city or municipal Treasurer in the income on the basis of the total bank deposits after eliminating
Philippines located within the revenue district where non-income items.
the taxpayer is registered or required to register.
c. When to File? This method stands on the premise that deposits represent
The monthly return shall be filed not later than the 20 th taxable income unless otherwise explained as being non-
day following the end of each month taxable items.
VAT-registered shall pay the VAT on a monthly basis.
It may be used only where the BIR has been legally allowed
25. Withholding of final VAT on sales to government access to the taxpayers bank records.
Sec.114 (C)
2. Cash Expenditure Method
The Government or any of its political subdivisions,
- assumes that the excess of a TPs expenditures during the tax
instrumentalities or agencies, including GOCCs shall, period over his reported income for that period is taxable to the
before making payment on account of its purchase of extent not disproved otherwise.
goods and/or services taxed at 12% shall deduct and
withhold a final VAT of 5% of the gross payment. 3. Net Worth Method
The 5% final VAT withholding rate shall represent the (also called Inventory Method for income determination)
net VAT payable to the seller - A method of reconstructing income which is based on the
The remaining 7% effectively accounts for the theory that if the taxpayers net worth has increased in a given
standard input VAT for sales of goods or services to year in an amount larger than his reported income, he has
government or any of its political subdivisions, understated his income for that year.
instrumentalities or agencies including GOCCs, in lieu
of the actual Input VAT directly attributable or ratably The net worth on a fixed starting date is compared with the net
apportioned to such sales. worth on a fixed ending date. Any increase in net worth is
Should actual input VAT attributable to sale to presumed to be income not declared for tax purposes.
government exceed 7% of gross payments, the
excess may form part of the sellers expense or cost 4. Percentage Method
If actual input VAT attributable to sale to government is The computed amount of revenues based on the percentage
less than 7% of gross payment, the difference must be computation is compared to the amount of revenues reflected
closed to expense or cost. on the return.

E. TAX REMEDIES UNDER THE NIRC The percentages used may be obtained from the TP, industry
Importance: publication, prior years audit results, or third parties. The
They enhance and support the governments comparison will provide an indication on the possibility of
collection of taxes revenue being understated.
They are safeguard of taxpayers rights against
arbitrary action 5. Surveillance and Assessment Method
A letter sent by the BIR to a taxpayer asking him to explain
1. Taxpayers remedies within a period of 15 days from receipt why he should not be the
A. Assessment subject of an assessment notice. It is part of the due process
(i) Concept of assessment rights of a taxpayer
It fixes and determines the tax liability of a taxpayer,
6. Third party information or access to records method-
it is also a demand made on the taxpayer concerned
Sec. 5 (B)
to settle the amount indicted in it. It also signals the
The BIR may require third parties, public or private to supply
time when the penalties and interests begin to accrue
information to the BIR.
against the taxpayer. It is a step preliminary but
essential to warrant of distraint and levy, if still
7. Unit and value method
feasible, and also to establish a cause for judicial
The determination or verification of gross receipts may be
action against the taxpayer.
computed by applying price and profit figures to the known
ascertainable quality of business of the taxpayer
a Requisites for valid assessment (Sec.228)
1. It must be in writing and signed by the BIR; (c) Jeopardy assessment
2. It must contain the law and the facts on which the It is a tax assessment made by an authorized Revenue Officer
assessment is made; (RO) without the benefit of complete or partial audit, in the
3. It must contain a demand for payment within the light of the said officials belief that the assessment and
prescribed period. collection of a deficiency tax will be jeopardized by delay caused
by the TPs failure to:
(b) Constructive methods of income determination:

Page 55 of 104
1. Comply with audit investigation requirements to Civil Action
present his books of accounts and/or pertinent
records, or The filing of a civil action for the The filling of a civil action at the
2. Substantiate all or any of the deductions, exemptions collection of the delinquent tax ordinary court for collection
or credits claimed in his return. in the ordinary court is a during the pendency of protest
proper remedy may be the subject of a motion
An assessment made demanding immediate payment of the tax to dismiss.
due without the usual formalities in instances when the CIR
believes that if the tax will be collected under normal In addition to a motion to
procedures, the collection of such tax is at risk which might dismiss, the taxpayer must file a
result in loss to the government. petition for review with the CTA.
Reason: to toll the running of
How to prevent the issuance of a jeopardy assessment? the prescriptive period
The taxpayer may be required to execute a waiver of the statute Penalties
of limitations. A delinquent tax is subject to A deficiency tax is generally not
administrative penalties such subject to the 25% surcharge,
Instances when jeopardy assessment may be issued: as 25% surcharge, interest, although subject to interest and
When it shall come to the knowledge of the Commissioner that a and compromise penalty. compromise penalty.
taxpayer is:
1. retiring from business subject to tax; or (ii) Power of the Commissioner to make assessments and
2. intending prescribe additional requirements for tax administration
a. to leave the Philippines or remove his property and enforcement (Sec.6)
therefrom; or
b. to hide or conceal his property; or (a) Power of the Commissioner to obtain information,
3. performing any act tending: and to summon/examine, and take testimony of persons (Sec.5)
a. to obstruct the proceedings for the collection of The Commissioner is authorized:
the tax for the past or current quarter or year; or 1. To examine any book, paper, record, or other data which may
b. to render the same totally or partly ineffective be relevant or material to such inquiry;
unless such proceedings are begun immediately
(Sec. 6 (D), R.A. 8424) 2. To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
Note: Jeopardy assessment is an indication of the investigation, or from any office or officer of the national and
doubtful validity of the assessment, hence it may be local governments, government agencies and instrumentalities,
subject to a compromise [Sec. 3.1 (a), Rev. Regs. No. including the BSP and GOCCs, any information such as, but
6-2000]. not limited to:
a. costs and volume of production,
(d) Tax delinquency and tax deficiency b. receipts or sales and gross incomes of TPs, and
c. the names, addresses, and financial statements of
Tax delinquency Tax deficiency corporations, mutual fund companies, insurance
companies, regional operating headquarters of
A TP is considered delinquent in a. The amount by which the tax multinational companies, joint accounts, associations,
the payment of taxes when: imposed by law as determined joint ventures of consortia and registered partnerships,
by the CIR or his authorized and their members;
a. Self-assessed tax per return representative exceeds the
filed by the TP on the prescribed amount shown as tax by the TP 3. To summon:
date was not paid at all or only upon his return; or a. the person liable for tax or required to file a return, or
partially paid; or b. any officer or employee of such person, or
b. If no amount is shown as tax c. any person having possession, custody, or care of the
b. Deficiency tax assessed by by the TP upon his return is books of accounts and other accounting records
the BIR becomes final and made by the TP, then the containing entries relating to the business of the
executory. amount by which the tax person liable for tax, or
exceeds the amounts d. any other person,
previously assessed or to appear before the Commissioner or his
collected without assessment duly authorized representative at a time and
as deficiency place specified in the summons and
Collection to produce such books, papers, records, or
other data, and
It can immediately be collected to give testimony;
administratively through :
1.the issuance of a warrant of 4. To take such testimony of the person concerned, under
distraint and levy, and/or oath, as may be relevant or material to such inquiry; and
2. judicial action.

Page 56 of 104
5. To cause revenue officers and employees to make a (c) Compromise penalties
canvass from time to time of any revenue district or region and 1. It is a certain amount of money which the TP pays to
inquire after and concerning all persons therein who may be compromise a tax violation.
liable to pay any internal revenue tax, and all persons owning or 2. It is paid in lieu of a criminal prosecution
having the care, management or possession of any object with 3. Since it is voluntary in character, the same may be
respect to which a tax is imposed. collected only if the TP is willing to pay them.

Note: The Commissioner has no authority to inquire (d) other civil penalties or administrative fines such as for:
bank deposits except: 1. failure to file certain information returns (Sec.250)
1. To determine the gross estate of a decedent; and 2. violations committed by withholding agents (Secs.
2. To inquire into the bank deposits of any taxpayer who 251 and 252)
has filed an application for compromise (Sec.6F)
(v) Assessment process
(iii) When assessment is made (a) Tax Audit
When it is released, mailed or sent by the collector of internal It is the process of examining, going over, or
revenue to the taxpayer within the 3-year or 10-year period, as scrutinizing the books and records of the taxpayer to
the case may be (CIR vs. Pascor, June 29,1999). ascertain the correctness of the tax declared and paid
by the taxpayer.
(a) Prescriptive period for assessment It can only be performed upon a Letter of Authority
1. False, fraudulent, and non-filing of returns (Sec.222) issued by the Commissioner or Regional Director.
10 years from the discovery of the falsity, fraud or
omission to file the return. (b) Notice of Informal Conference
2. Except as provided in (1) Sec. 203 A written notice informing a taxpayer that the findings
3 years after the last day prescribed by law for the of the audit conducted on his books of accounts and
filing of the return accounting records indicate that additional taxes or
What if the return was filed beyond the period prescribed by deficiency assessments have to be paid.
The 3-year period shall be counted from the day the return was If, after the culmination of an audit, a Revenue Officer
filed. recommends the imposition of deficiency tax
assessments, this recommendation is communicated
(b) Suspension of running of statute of limitations by the Bureau to the taxpayer concerned during an
1. Periods suspended: informal conference called for this purpose, the
a. periods for assessment taxpayer shall have 15 days from receipt of the notice
b. beginning of distraint or levy of informal conference to explain his side.
c. proceeding in court for collection
(c) Issuance of Preliminary Assessment notice (PAN)
2. Grounds for suspension of prescriptive periods (Sec. 223) Communication issued by the Regional Assessment
a. Commissioner is prohibited from making the Division or any other concerned BIR office, informing
assessment or beginning distraint or levy or a a taxpayer who has been audited of the findings of the
proceeding in court and for 60 days thereafter Revenue Officer, following the review of these
b. TP requests for Reinvestigation which is granted findings. The assessment shall be in writing, and
c. TP cannot be located in the address given in the should inform the taxpayer of the law and the facts on
return filed which the assessment is made; otherwise, the
Except: if the TP informs the CIR of a change in address assessment is void.
d. When the warrant is duly served upon the TP and no
property could be located (d) Exceptions to issuance of PAN (Sec.228)
e. When the TP is out of the Phils. 1. The finding for any deficiency tax is the result of
f. When there is an Answer filed by the BIR to the mathematical error in the computation of the tax as
petition for review in the CTA where the court justified appearing on the face of the return; or
this by saying that in the answer filed by the BIR, it 2. A discrepancy has been determined between the tax
prayed for the collection of taxes. withheld and the amount actually remitted by the
withholding agent; or
(iv) General provisions on additions to the tax 3. A taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period
(a) Civil penalties was determined to have carried over and
otherwise known as surcharge, which may either be 25% or 50 automatically applied the same amount claimed
% of the tax depending upon the nature of the violation; againstthe estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or
(b) Interest 4. The excise tax due on excisable articles has not been
interest either for a deficiency tax or delinquency as to payment paid; or

Page 57 of 104
5. The article locally purchased or imported by an interrupted once a TP protests the assessment and
exempt person, such as, but not limited to, vehicles, requests for its cancellation.
capital equipment, machineries and spare parts, has
been sold, traded or transferred to non-exempt 2. When to file a protest
persons. within 30 days from receipt of assessment.

(e) Reply to PAN 3. Forms of protest

Within 15 days, the TP has to file a written reply
contesting the proposed assessment if he disagrees Request for Reconsideration Request for Reinvestigation
with the findings of the PAN.
- it is a claim for re-evaluation of - it is a claim for re-evaluation of
Failure of the taxpayer to file a reply would now the assessment. the assessment.
enable the RO to issue a Final Assessment Notice
(FAN). However no liability for additional or deficiency Basis: existing records without Basis: newly-discovered or
tax arises from such failure. need of additional evidence. additional evidence.
(f) Issuance of Formal Letter of Demand and Assessment
Notice or FAN - it may involve a question of fact
Notice of Assessment is a formal letter of demand or law or both. - it may also involve a question
where a declaration of deficiency taxes is issued to a of fact or law or both.
taxpayer who fails to respond to a pre-assessment
notice within the prescribed period of time, or whose -it does not toll the statute of - it tolls the statute of limitations
reply to the PAN was found to be without merit. limitations.

(g) Disputed assessment 4. Content and validity of protest

When the taxpayer, indicates its protest against the Requirements of a valid protest:
delinquent assessment of the RO and requests for 1. In writing;
reconsideration, through a letter. After the request is 2. Addressed to the CIR;
filed and received by the BIR, the assessment 3. Must be accompanied by a waiver of the Statute of
becomes a disputed assessment. Limitations in favor of the government;
4. States the facts, applicable law, rules and regulations and
(h) Administrative decision on a disputed assessment jurisprudence on which his protest is based.
The taxpayer may elevate the protest to the CIR within Reason: Failure to state such shall render his protest
30 days from receipt of the decision for a request for void and without force and effect on the event the
reconsideration and that his case is referred to the letter of protest submitted by the taxpayer is accepted.
Bureaus Appellate Division. Otherwise, it becomes
final and appeal to the CTA may be taken. Contents of a protest:
1. Name of the TP and address for the immediate past 3
(vi) Protesting assessment taxable years;
(a) protest of assessment by TP(Sec.228) 2. Nature of request(reinvestigation or reconsideration)
specifying newly discovered evidence that he
It is the act by the taxpayer of questioning the validity
intends to present if it is a request for reinvestigation;
of the imposition of the corresponding delinquency
3. Taxable periods covered by the assessment;
increments for internal revenue taxes as shown in the
4. Amounts and kind/s of tax involved, and Assessment
notice of assessment and letter of demand.
Notice Number;
5. Date of receipt of Assessment notice or letter of
A vital document which is a formal declaration of 6. Itemized statement of the findings to which the TP agrees,
resistance of the TP. It is a repository of all arguments. if any, as a basis for computing the tax due, which
It can be used in court in case of administrative amount should be paid immediately upon filing of the
remedies have been exhausted. It is also the formal protest. For this purpose, the protest shall not be
act of the taxpayer questioning the official actuations deemed validly filed unless payment of the agreed
of the CIR. This is equivalent to a pleading. portion of the tax is paid first;
7. Itemized schedule of the adjustments with which the
1. Protested assessment TP does not agree;
The TP files an administrative protest against the 8. Statement of facts and/or law in support of the protest;
assessment. Such protest may either be a: and
a. request for reconsideration or 9. Documentary evidence as it may deem necessary and
b. for reinvestigation. relevant to support its protest to be submitted within
60 days from the filing of the protest. If the taxpayer
Prescriptive period provided by law to make collection fails to comply with this requirement, the assessment
by distraint or levy or by a proceeding in court is shall become final

Page 58 of 104
(b) Submission of documents within 60 days from filing of When are assessments deemed final?
protest (Sec.228) 1. when the TP failed to file a protest 30 days from
All relevant documents should be filed, otherwise receipt of the assessment
assessment becomes final and cannot be appealed. 2. after the 180 day period and the CIR has not yet acted
on the protest the TP fails to appeal it
(c) Effect of failure to protest 3. after 30 days from the receipt of the decision of the
It makes the preliminary assessment notice final and CIR the TP fails to appeal.
executory and the taxpayer losses his right to contest
the assessment at the administrative and judicial (ii) Prescriptive periods
Assessment was made False or fraudulent return or
(d) Period provided for the protest to be acted upon failure to file a return
the CIR shall act upon the protest within 180 days
from submission of documents. By distraint or levy or by a A proceeding in court for the
proceeding in court collection of such tax may be filed
(vii) Rendition of decision by Commissioner without assessment
(a) Denial of protest
1. Commissioners actions equivalent to denial of protest within 3 years following the at any time within 10 years after
a. Filing of criminal action against taxpayer assessment released, the discovery of the falsity, fraud or
b. Issuing a warrant of distraint and levy mailed, or sent. omission.
*these actions of the CIR serves as bases for appeal to the
(iii) Distraint of personal property including garnishment
2. Inaction by Commissioner Distraint
the protest is not acted upon by the CIR within 180 -seizure by the government of personal property, tangible or
days from the submission of the documents. intangible, to enforce the payment of taxes, to be followed by its
public sale, if the taxes are not voluntarily paid
(viii) Remedies of taxpayer to action by Commissioner
a. In case of denial of protest KINDS:
- appeal the decision to the CTA within 30 days from receipt 1. Actual
of decision denying the protest. -there is taking of possession of personal property out of the
b. In case of inaction by Commissioner within 180 days from taxpayer into that of the government. In case of intangible
submission of documents property, taxpayer is also diverted of the power to control over
2 alternative options: the property.
1. File a petition for review with the CTA within 30 days
after the expiration of the 180-day period; or 2. Constructive
2. Wait for the final decision of the CIR on the disputed -the owner is merely prohibited from disposing of his personal
assessment and appeal the final decision to the CTA property.
within 30 days from the receipt of the decision.
Difference between Actual and Constructive Distraint
c. Effect of failure to appeal:
1. The decision or assessment becomes final and Actual Constructive
2. In an action for the collection of the tax by the -made on the property only of a -property of any taxpayer
government, the TP is barred from re-opening the delinquent taxpayer whether delinquent or not
question already decided.
3. The assessment is considered correct which may be -there is actual taking or -TP is merely prohibited from
enforced by summary or judicial remedies. possession of the property disposing of his property
4. In a proceeding for collection of tax by judicial action,
the TPs defenses are similar to those of the effected by: having a list of the - by requiring the taxpayer to
defendant in a case for the enforcement of a judgment distraint property or by service or sign a receipt of the property or
by judicial action. warrant of distraint or by leaving a list of same
5. The assessment which has become final and garnishment.
executory cannot be superseded by a new
assessment. -an immediate step for collection -such immediate step is not
of taxes where the amount due necessary; tax due may not be
B. Collection is definite definite or it is being questioned
(i) Requisites
collection is only allowed when there is already a final Requisites of Actual Distraint:
assessment made for the determination of the tax 1. TP is delinquent in the payment of tax
due. 2. subsequent demand for its payment
3. TP failed to pay delinquent tax at time required

Page 59 of 104
4. period with in to assess or collect has not yet f. Residue shall be returned to the owner of the property
prescribed sold.

Who may effect distraint 3. Purchase by the government at sale upon distraint (Sec.212)
1. CIR or his duly authorized representative- when the a. When the amount for the bid property under distraint
amount involved exceeds P1M. is not equal to the amount of the tax;
2. Revenue District Officer (RDO)- P1M or less b. When the amount for the bid is very much less than
the actual market value of the articles for sale;
When remedy may not be available:
where the amount involved does not exceed P100. Note: The property purchased may be
Reason resold by the Commissioner or his deputy.
In keeping with the provision on the abatement of the
collection of tax as the cost of same might even be 4. Report of sale to the BIR (Sec.211)
more than P100. Within 2 days after the sale, the officer making the
same shall make a report of his proceedings in writing
Summary remedy of distraint of personal property to the CIR and shall himself preserve a copy of such
1. Procedure for distraint and garnishment (Sec. 208) report as an official record.
How Actual Distraint Effected
a. In case of Tangible property: 5. Constructive distraint to protect the interest of the
Copy of an account of the property distrained, signed Government (Sec. 206)
by the officer, left either with the owner or person from
whom the property was taken, at the dwelling or place Grounds of Constructive Distraint
of business and with someone of suitable age and When the taxpayer is:
discretion 1. retiring from any business subject to tax;
statement of the sum demanded, 2. intending to
Time and place of the sale a. leave the Philippines,
b. remove his property therefrom,
a In case Intangible property: c. hide or conceal his property,
Stocks and other securities 3. performing any act tending to obstruct the collection
Serving a copy of the warrant upon taxpayer and of the tax due or which may be due from him.
upon president, manager, treasurer or other How constructive distraint effected
responsible officer of the issuing corporation, Require taxpayer or person in possession to:
company or association. a. Sign a receipt covering property distrained
Debts and Credits b. Obligate him to preserve the same properties
Leaving a copy of the warrant with the person owing c. Prohibit him from disposing the property in any
manner, without the authority of the CIR.
the debts of having in his possession such credits or
his agent.
Where taxpayer or person in possession refuses to sign:
Warrant shall be sufficient authority for such person to
a. Officer shall prepare a list of the property distrained
pay CIR his credits or debts. b. In the presence of 2 witnesses of sufficient age and
Bank Accounts-garnishment discretion, leave a copy in the premises where
Serve warrant upon TP and president, manager, property is located.
treasurer or responsible officer of the bank Note:
Bank shall turn over to CIR so much of the bank Bank accounts may be distrained without violating the
accounts as may be sufficient to satisfy the claim. confidential nature of bank accounts for no inquiry is
made. BIR simply seize so much of the deposit
2. Sale of property distrained and disposition of proceeds without having to know how much the deposit s are or
(Sec.209) where the money or any part of it came from.
a. Notice of the sale must specify the time and place of If at any time prior to the consummation of the sale, all
sale and the articles distrained;
proper charges are paid to the officer conducting the
b. Notice must be exhibited in not less than 2 public
same, the goods distrained shall be restored to the
owner (Sec.210).
c. The time of sale shall not be less than 20 days after
When the amount of the bid for the property under
notice to the owner or possessor of the property and
the publication or posting of such notice. distraint is not equal to the amount of the tax or is very
d. The sale shall be at public auction to the highest much less than the actual market value of articles, the
bidder for cash or with the approval of the CIR, CIR or his deputy may purchase the distrained
through duly licensed commodity or stock exchanges. property on behalf of the national government.
e. In case of stocks or securities, the officer making the
sale shall execute a bill of sale which shall deliver to (iv) Summary remedy of levy on real property
the buyer and a copy thereof furnished the corporation Levy on real property
or entity which issued the stocks or other securities.

Page 60 of 104
an act of seizure of real property in order to enforce a. Be posted at the main entrance of the
the payment of taxes. The property may be sold at municipal building; and
public sale, if after seizure the taxes are not voluntarily b. public and conspicuous place in the barrio
paid. or district; and
Note: The requisites are the same as that of distraint. c. be published once a week for 3 consecutive
weeks in a newspaper of general circulation.
Procedure: 3. Right of Pre-emption At any time before the day
1. Internal Revenue officer shall prepare a duly authenticated fixed for the sale, the taxpayer may discontinue all
certificate showing: proceedings by paying the taxes, penalties, and
a. name of the taxpayer interest.
b. amount of tax and 4. 5 days after the sale, a return by the distraining or
c. penalty due levying officer of the proceedings shall be entered
*enforceable throughout the Philippines upon the records of the Revenue Collection Officer
2. Officer shall write upon the certificate a description of the (RCO), the RDO and Revenue Regional Director.
property upon which levy is made. 5. A certificate of sale shall be delivered to the
3. Service of written notice to: purchaser.
a. the TP, and 6. Excess of the proceeds of the sale shall be delivered
b. ROD where the property is located to the TP
4. Advertisement of the time and place of sale
5.Sale at public auction to the highest bidder b. Redemption of property sold (Sec.214)
6. Disposition of proceeds of sale Person entitled: Taxpayer or anyone for him
Time to redeem: 1 year from the date of sale
Note: The excess shall be turned over to the owner. Begins from the registration of the deed of sale
Cannot be extended by the courts
Difference and Similarities between Distraint and Levy Possession pending redemption: owner not deprived of
Distraint Levy possession
Price: Amount of :
Personal property Real property
Forfeiture by the Forfeiture by the government is penalties and
government, not provided authorized where: interest thereon (from date of delinquency to the date
1 there is no bidder of sale) together with
2 the highest bid is not interest on said purchase price at 15% per annum
sufficient to pay the taxes, (from date of purchase to date of redemption)
penalties and costs.
c. Final deed of purchaser (Sec.202)
TP is not given the right of TP can redeem properties levied In case the TP shall not redeem the property, the RDO
redemption upon and sold/forfeited to the shall, as grantor, execute a deed conveying to the
govt purchaser so much of the property as has been sold,
Similarities: free from all liens of any kind whatsoever, and the
-both are summary remedies for collection of taxes deed shall succinctly recite all the proceedings upon
-both cannot be availed of where amount involved is not more than which the validity of the sale depends.
(v) Forfeiture to government for want of bidder (Sec.215)
a. Remedy of enforcement of forfeitures
Action to contest forfeiture of chattel (Sec.231)
The owner desiring to contest the validity of the
Note: forfeiture may, at any time before sale or destruction
It is the duty of the ROD concerned upon registration of the property, bring an action against the person
of the declaration of forfeiture to transfer the title to the seizing the property or having possession thereof to
property without an order from a competent court recover the same, and upon giving proper bond, may
enjoin the sale; or after the sale and within 6 months,
The remedy of distraint or levy may be repeated if
he may bring an action to recover the net proceeds
necessary until the full amount, including all expenses, realized at the sale.
is collected (Sec.217)
b. Resale of real estate taken for taxes (Sec.216)
a. Advertisement and sale (Sec. 213)
The Commissioner shall have charge of any real
1. 20 days after levy, the officer conducting the
estate obtained by the Government of the Philippines
proceedings shall proceed to advertise the property or
in payment or satisfaction of taxes, penalties or costs
a usable portion thereof as may be necessary to
or in compromise or adjustment of any claim
satisfy the claim and cost of the sale and such
therefore, and said Commissioner may, upon the
advertisement shall be for a period of at least 30 days.
2. The notice of sale shall:

Page 61 of 104
giving of not less than 20 days notice, sell and Extent: Upon all property and rights to property
dispose of the same: belonging to the taxpayer.
1. At public auction or Effectivity
2. At private sale(with the prior approval of the against third
Secretary of Finance) persons: Only when notice of such lien is filed by the
In either case, the proceeds of the sale shall CIR in the Register of Deeds concerned.
be deposited with the National Treasury, and
an accounting of the same shall be rendered Extinguishment of Tax lien:
to the Chairman of the Commission on 1. Payment or remission of the tax
Audit. 2. Prescription of the right of the government to assess
or collect
c. When property to be sold or destroyed (Sec.225) 3. Failure to file notice of such lien in the office of
To be destroyed by order of the CIR when the sale Register of Deeds, purchases or judgment creditor
for consumption or use of the following would be 4. Destruction of the property subject to the lien
injurious to the public health or prejudicial to the NOTE: In Nos. 1 and 2, there is no more tax
enforcement of the law (at least 20 days after seizure) liability while under nos. 3 and 4,the
1. distilled spirits taxpayer is still liable.
2. liquors
3. cigars (viii) Compromise (Sec.204)
4. cigarettes, and other manufactured products of A. Compromise
tobacco a contract whereby the parties by reciprocal
5. playing cards concessions avoid litigation or put an end to one
6. all apparatus used in or about the illicit already commenced.
production of such articles
To be sold or destroyed- depends upon the 1. A reasonable doubt as to the validity of the claim
discretion of CIR: against the taxpayer exist; or
1. All other articles subject to excise tax, (wine, 2. The financial position of the taxpayer demonstrates a
automobile, manufactured oils, mineral oils, clear inability to pay the assessed tax.
miscellaneous products), manufactured or removed in
violation of the Tax Code. Requisites:
2. Dies for printing or making IR stamps, labels and tags, 1. The taxpayer must have a tax liability
in imitation of or purport to be lawful stamps, labels or 2. There must be an offer by the taxpayer of an amount to be
tags. paid by the taxpayer
3. There must be an acceptance by the CIR or the
d. Disposition of funds recovered in legal proceedings or authorized representative as the case may be of the
obtained from forfeiture (Sec.226) offer in the settlement of the original claim.
All judgments and monies recovered and received for
taxes, costs, forfeitures, fines and penalties shall be Limitations:
paid to the Commissioner or his authorized deputies 1. Minimum compromise rate
as the taxes themselves are required to be paid and a) 10% of the basic tax assessed-in case of financial
shall be accounted for and dealt with the same way. incapacity
b) 40% of the basic tax assessed-in other cases.
(vi) Further distraint or levy (Sec.217) 2. Subject to approval of the Evaluation Board
The remedy by distraint of personal property and levy a) when the basic tax involved exceeds 1 Million or
on realty may be repeated if necessary until the full b) where the settlement offered is less than the
amount due, including all expenses, is collected. prescribe minimum rates

Cases that MAY be compromised(RR 30-2002):

(vii) Tax lien (Sec.219) 1. Delinquent accounts
2. Cases under administrative protest
It is a legal claim or charge on property, either real or
3. Cases disputed before the courts
personal, established by law as a security in default of
4. Cases for collection already filed in courts
the payment of taxes.
5. Criminal violations except those already filed in court
and those involving fraud
Nature: A lien in favor of the government of the
Philippines when a person liable to pay a tax
Cases which CANNOT be compromised(RR 30-2002):
neglects or fails to do so upon demand.
1. Withholding tax cases
Duration: Exists from time assessment is made by the
2. Criminal tax fraud cases
CIR until paid, with interests, penalties and
3. Criminal cases already filed in court
4. Delinquent accounts with duly approved schedule of
Instalment payments

Page 62 of 104
5. Cases where reduction of payments had already been 2 Penalties imposed without authority
granted 3 Any sum alleged to have been excessive or
6. Cases already decided and are final and executory in any manner wrongfully collected

B. Abatement (b) Necessity of proof for claim or refund (mandatory)

It is the cancellation of a tax liability by the CIR Reasons:
1. to afford the CIR an opportunity to correct
Grounds: the action of subordinate officer and
1. The tax appears to have been unjustly or excessively 2. to notify the government that such taxes
assessed, or have been questioned, and the notice be
2. The administrative and collection costs do not justify the borne in mind in estimating the revenue
collection of the amount due. available for expenditure (CIR vs. ACOSTA,
3 August 2007)
Note: The power to compromise or abate shall not be Exception:
delegated by the CIR except in the following cases: Where on the face of the return upon which
1. Assessments issued by the Regional Offices payment is made, such payment appears
involving basic tax of P 500,000 or less; clearly to have been erroneous (Sec.229).
2. Minor criminal violations
(c)Burden of proof for claim of refund
(d) Nature of erroneously-paid tax/illegally assessed
(ix) Civil and criminal actions collected
Suit to recover tax based on false or fraudulent returns TP pays under the mistake of fact, as for
If tax is collected under an assessment that the list, instance in a case where he is not aware of
statement or return is false/fraudulently made, it the existing exemption in his favor at the
cannot be recovered by any suit unless it is proved time payments were made.
that the said list, statement or return was neither false A tax is illegally collected if payments are
nor fraudulent & did not contain any understatement made under duress
or undervaluation.
(e) Tax refund vs. tax credit
C. Refund (Sec.229)
(i) Grounds for refund: Tax Refund
1. Tax erroneously or illegally assessed or collected
2. Penalty claimed to have been collected without - a claim for refund where the TP asks for the restitution of the -a
authority money he paid as tax. fro
3. any sum alleged to have been excessively or in any
manner wrongfully collected -it
4. 4.Value of internal revenue stamps when they are -it requires a physical return of the sum erroneously paid by the liab
returned to be in good condition taxpayer.
5. Unused stamps that have been rendered unfit for use -re
(Engtek Phils. vs. CIR,26 January 1995) de

(ii) Requirements for refund as laid down by cases: -the TP to whom the tax is refunded would have the option,
1. There must be a written claim for refund among others, to invest for profit the returned sum, an option not
2. The claim must contain a categorical demand for proximately available if the TP chooses instead to receive a tax
reimbursement credit
3. The claim must be filed before the CTA within 2 years
from date of payment regardless of any (v) Who may claim/apply for tax refund/tax credit:
supervening cause 1. Taxpayer
4. Present proof of payment of the tax 2. withholding agents of non-resident foreign corporation

CIR vs. Procter and Gamble PMC, 204 SCRA 377

(iii) Legal basis of tax refunds: A person liable for tax has been held to be a person subject to
1. Legal principle of quasi-contracts or solutio indebiti tax and properly considered a taxpayer. By any reasonable
(Art.2142 and 2154 of the NCC) standard, such a person should be regarded as a party in
2. The Government is within the scope of the principle of interest, or as a person having sufficient legal interest, to bring a
solutio indebiti (CIR vs. Firemans Fund Insurance suit for refund of taxes.
Sikair vs. CIR, February 06, 2008
(iv) Statutory basis for tax refund under the tax code (Sec.229) The proper party to question or seek a refund of an indirect tax
a Scope of claims for refund: is the statutory taxpayer, the person whom the tax is imposed
1 Erroneously or illegally assessed or by laws and who paid the same even if he shifts the burden to
collected internal revenue taxes another.

Page 63 of 104
Exception: Injunction may be issued by the CTA in aid of its
(vi) Prescriptive period for recovery of tax erroneously or illegally appellate Jurisdiction
2 years from the date of payment of tax or penalty. Requisites:
1. There is a pending case before the CTA (ancillary remedy,
(vii) Other consideration affecting tax refunds not a main cause of action)
1. TP may file an action for refund in the CTA even 2. Identify that the collection of tax is prejudicial to the
before the CIR decides his pending claim in the BIR interest of either the TP or government.
2. Suspension of the 2-year prescriptive period may be
had when: B. Judicial remedies
a. there is a pending litigation between the two
parties (government and TP) as to the Civil Action
proper tax to be paid and of the proper
interpretation of the taxpayers charter in 1. By filing a civil case to collect internal revenue taxes in regular
relation to the disputed tax; and courts
b. the CIR in that litigated case agreed to abide
by the decision of the SC as to the collection 2. By filing an answer to the petition for review filed by the TP with the
of taxes relative thereto. CTA
3. Even if the 2-year period has lapsed, the same is not
jurisdictional and may be suspended for reasons of 1 Brought in the name of the Government of the Philippines
equity and other special circumstances. 2 Conducted by Legal Officer of the BIR
4. 2-year prescriptive period for filing of tax refund or 3 Must be with the approval of the CIR, in cases of:
credit claim computed from date of payment of tax or a action for recovery of taxes or
penalty except in the following: b enforcement of fine, penalty or forfeiture.

a) Corporations 1. Period within which the action may be filed

2-year prescriptive period for overpaid quarterly income tax is A. Civil Cases (Secs. 203,222)
counted not from the date the corporation files its quarterly 3 years from the following whichever comes later:
income tax return, but from the date the final adjusted return is - the last day prescribed by law for filing the return
filed after the taxable year -the day when the return was actually filed

b) Taxes payable in instalment 10 years from the discovery of the fraud, falsity or
2-years from the payment of the last instalment omission in case of:
-false or fraudulent with intent to evade tax, or
c) Withholding Taxes -failure to file a return
Prescriptive period counted not from the date the tax is withheld
and remitted to the BIR, but from the end of the taxable year Within the period agreed upon, when both the TP and
the CIR have agreed in writing, before the expiration
d) VAT Registered Person whose sales are zero-rated of the period in Sec. 203 for the assessment of the
or effectively zero-rated tax.
2-years from the end of the taxable quarter when the sales
transactions were made Where to File:
5. Interest on Tax Refund 1. CTA
The Government cannot be required to pay interest on where the principal amount of taxes and fees
taxes refunded to the taxpayer unless: exclusive of charges and penalties claimed is P1M
a. The Commissioner acted with patent arbitrariness and above
b. In case of Income Tax withheld on the wages of 2. RTC,MTC, MeTC
employees. where the basic tax claimed is less than P1M (Sec.
7[c],RA 9282)
2. Government remedies
A. Administrative remedies Note:
(i) Tax lien
The approval of the CIR is essential in civil
(ii) Levy and sale of real property
cases (Sec.220). However under Sec. 7 of
(iii) Forfeiture of real property to the government for want
the NIRC, the CIR may delegate such power
of bidder (Sec.215)
to a Regional Director.
(iv) Further distraint and levy (Sec. 217)
Actions instituted by the government to collect internal
(v) Suspension of business operation
(vi)Non-availability of injunction to restrain collection of revenue taxes in regular courts (RTC or MTCs,
Tax(Sec. 218) depending on the amount involved). It includes filing
by the government with the probate court claims
No court shall have the authority to grant an injunction
against the deceased taxpayer.
to restrain the collection of any national internal
revenue tax, fee or charge imposed by the Code

Page 64 of 104
MARCOS II vs. CA, June 05,1997
The BIR is authorized to collect estate tax deficiency (i) Surcharge
through the summary remedy of the levying upon and A civil penalty imposed by law as an addition to the
sale of properties of a decedent, without the cognition main tax required to be paid. It is not a criminal
and authority of the court sitting in probate over the penalty but a civil administrative sanction provided
supposed will of the deceased, because the collection primarily as safeguard for the protection of the State
of estate tax is executive in character. As such, estate revenue and to reimburse the government for the
tax is exempted from the application of the statute of expenses of investigation and the loss resulting from
the non- claims and this is justified by the necessity of the taxpayers fraud
the government finding, immortalized in the maxim Note: A surcharge added to the main tax is
that taxes are the lifeblood of the government. subject to interest.

B. Criminal Case (Sec. 281) (ii) Interest (Sec.249)

All violations of any provision of the tax code shall prescribe This is an increment on any unpaid amount of tax
after 5 years. assessed at the rate of 20% per annum or such higher
rate as may be prescribed by the regulations from the
When should it commence? date prescribed for the payment until the amount is
The 5-year prescriptive period shall begin to run from the fully paid.
a. the day of the commission of the violation(if known), or
b. from the time of discovery and the institution of judicial a. In general
proceeding for its investigation and punishment (if not There shall be assessed and collected on
known) any unpaid amount of tax at the rate of 20%
per annum from the date prescribed for
When is it interrupted? payment until the amount is fully paid.
a. when a proceeding is instituted against the guilty
person b. Deficiency interest
b. when the offender is absent from the Philippines The interest due on any amount of tax due
or instalment thereof which is not paid on or
When should it run again? before the date prescribed for its payment
-When the proceeding is dismissed for reason not constituting computed at the rate of 20% per annum,
jeopardy from the date prescribed for its payment
until it is fully paid
Where to file
1. CTA on criminal offenses arising from violations of the: c. Delinquency interest
a. NIRC The interest of 20% per annum required to
b. TCC be paid in case of failure to pay:
c. other laws administered by the BIR and the BOC, 1. The amount of the tax due on any return
where the basic tax claimed is P1M and above. to be filed, or
2. The amount of the tax due for which no
2. RTC, MTC, MeTC where: return is required, or
a. the basic tax claimed is less than P1M or 3. A deficiency tax, or any surcharge or
b. where there is no specified amount claimed interest thereon on the due date appearing
(Sec 7[b],RA 9282). in the notice and demand of the CIR.
CIR vs. LA SUERTE CIGAR, July 04, 1992 d. Interest on extended payment
The institution or commencement before a proper 1. any person who is qualified and elects to pay the tax
court of civil and criminal actions and proceedings on instalment but fails to pay the tax, or any
arising under the Tax Reform Act which shall be instalment, or any part on or before the date
conducted by legal officers of the BIR is not in prescribed; or
dispute. An appeal from such court, however, is not a 2. where the CIR has authorized an extension of time
matter of right. Section 220 of the Tax Reform Act within which to pay a tax or a deficiency tax or any
must not be understood as overturning the long part thereof, from the date of notice and demand until
established procedure before this Court in requiring it is paid.
the Solicitor General to represent the interest of the
Republic. The Court continues to maintain that it is the 4. Compromise and abatement of taxes (Sec. 204)
Solicitor General who has the primary responsibility to
appear for the government in appellate proceedings.
3. Statutory offenses and penalties BUREAU OF INTERNAL REVENUE
Civil penalties (Sec.248)
they are imposed in addition to the tax required to be 1. Rule-making authority of the Secretary of Finance

Page 65 of 104
a) Authority of Secretary of Finance to promulgate rules and taxes, fees and other charges pursuant to Article X, section 5 of
regulations (Sec. 244) the 1987 Constitution. This paradigm shift results from the
The Secretary, upon the recommendation of the realization that genuine development can be achieved only by
Commissioner, shall promulgate all needful rules and strengthening local autonomy and promoting decentralization of
regulations for the effective enforcement of the governance. To achieve this goal, section 5 of Article X of the
provisions of the Tax Code. 1987 Constitution mandates Congress to enact a local
b) Specific provisions to be contained in rules and regulations government code that will, consistent with the basic policy of
(Sec.245) local autonomy, set the guidelines and limitations to this grant of
c) Non-retroactivity of rulings (Sec.246) taxing powers.
If the revocation, modification or reversal will be
prejudicial to the TPs, any of the rules and regulations 1. Fundamental Principles (Sec. 130 of the LGC)
promulgated in accordance with the Tax Code shall a Taxation shall be uniform in each LGU
not be given retroactive application b. TFCs and other impositions shall be:
except: 1. Equitable and based on the taxpayers ability
1. Where the TP deliberately misstates or omits material to pay.
facts from his return or any 2. for public purpose.
document required of him by the BIR; 3. Not unjust, excessive, oppressive or
2. Where the facts subsequently gathered by the BIR confiscatory.
are materially different from the facts on 4. not contrary to law, public policy, national
which the ruling is based; or economic policy, or in restraint of trade.
3. Where the TP acted in bad faith c The collection of local TFC and other impositions shall
in no case be let to any private person;
2. Power of the Commissioner to suspend the d The revenue collected pursuant to the provisions of
business operation of a taxpayer (Sec.115) the LGC shall inure solely to the benefit of, and be
a) In the case of VAT-registered person subject to the disposition by, the local government unit
1. failure to issue receipts or invoices levying the TFC or other imposition unless otherwise
2. failure to file a VAT returns as required under Sec.114 specifically provided; and
or e Each LGU shall, as far as practicable, evolve a
3. understatement of taxable sales or receipts by 30% or progressive system of taxation.
more of his correct taxable sales or
receipts for the taxable quarter. 2. Nature and Source of Taxing Power
A. Grant of local taxing power under the Local Government
b) failure of any person to register as required under Sec.236 Code (Sec. 129)
the CIR may temporarily close the establishment for Each LGU shall exercise its power to create its own
the duration of not less than 5 days and shall be lifted sources of revenue and to levy TFC subject to the
only upon compliance with whatever requirements provisions of the LGC, consistent with the basic policy
prescribed by the CIR in the closure order. of local autonomy. Such TFC shall accrue exclusively
to the LGUs.
Nature of the taxing power:
2. exercised only if delegated to them by law or
Mactan Cebu International Airport Authority vs. Marcos, Constitution;
September 11, 1996 3. not absolute; subject to limitations provided for by law.
The power to tax which may be exercised by local legislative
bodies is no longer merely by nature of a valid delegation as Q: Considering the provisions of Article X, Section 5 of the
before but pursuant to direct authority conferred by Sec. 5, Art. 1987 Constitution, can we now say that in the Philippines,
X of the Constitution local government units have the inherent power to tax?

City of San Pablo Laguna vs. Reyes, March 25, 1999 A: No. While the power of LGUs to tax is a power that is
The power to tax is primarily vested in Congress. However, in expressly granted, vested, and guaranteed by the 1987
our jurisdiction, it may be exercised by local legislative bodies, Constitution, still, the power of local government units to tax
no longer merely by virtue of a valid delegation as before, but could not be considered as inherent. Inherent taxing power
pursuant to direct authority conferred by Section 5, Article X of belongs only to the State, not to its political subdivisions. It is
the Constitution. The important legal effect of Section 5 is that only the State which may exercise the power of taxation even
henceforth, in interpreting statutory provisions on municipal absent any Constitutional grant.
fiscal powers, doubts will have to resolved in favor of municipal
corporations. Manila Electric Co. vs. Province of Laguna, G.R. No. 131359
Under the present constitutional rule, where there is neither a
NAPOCOR vs. City of Cabanatuan, April 9, 2003 grant nor a prohibition by statute, the tax power must be
The power to tax is no longer vested exclusively on Congress; deemed to exist although Congress may provide statutory
local legislative bodies are now given direct authority to levy limitations and guidelines. The basic rationale for the current

Page 66 of 104
rule is to safeguard the viability and self-sufficiency of LGUs by Local governments are authorized to impose and
directly granting them general and broad tax powers. collect the following charges:
1. Reasonable fees and charges for services rendered.
B. Authority to prescribe penalties for tax violations (Sec.516) 2. Public Utility Charges if:
1. The sanggunian of a LGU a. Owned, operated and maintained
authorized to prescribe fines or other penalties for b. Within their jurisdiction (Sec.154)
violation of tax ordinances: 3. Toll Fees or Charges for:
a. Fine- P1,000 to P5,000 a. Use of public road, pier or wharf, Waterway Bridge,
b. Imprisonment- 1 month to 6 months ferry or telecommunication system
c. Such fine or other penalty, or both, shall be imposed at the b. Funded and constructed by the local government
discretion of the court. (Sec.155)

2. The sangguniang barangay B. Procedure for approval and effectivity of tax ordinances
may prescribe a fine of not less than P100 nor more (Secs. 188 &189)
than P1,000 1. The procedure applicable to local government
ordinances in general should be observed.
C. Authority to grant local tax exemptions (Sec. 192) The following procedural details must be complied
LGUs may, through ordinances duly approved, grant with:
tax exemptions, incentives or reliefs under such terms a. Necessity of quorum
and conditions as they may deem necessary. b. Submission for approval by the local chief
Note: c. The matter of veto and overriding the same
1. The power to grant tax exemptions, tax d. Publication and effectivity
incentives and tax reliefs shall not apply to
regulatory fees which are levied under the police 2. Public hearings are required before any local tax
power of the LGU. ordinance is enacted.
2. Tax exemptions shall be conferred through the 3. Within 10 days after their approval, publication in full
issuance of a non-transferable tax exemption for 3 consecutive days in a newspaper of general
certificate. circulation. In the absence of such newspaper in the
province, city or municipality, then the ordinance may
D. Withdrawal of exemptions (Sec. 193) be posted in at least two conspicuous and publicly
Tax exemptions or incentives granted to, or presently accessible places.
enjoyed by all persons (natural or juridical), including
GOCCs are withdrawn, except:
1. LWDs, cooperatives duly registered under R.A. No. 6938,
2. non-stock and non-profit hospitals and educational
4. Scope of Taxing Power
E. Authority to adjust local tax rates (Sec. 191)
LGUs are given authority to adjust the tax rates, but a. Each LGU shall exercise its power to create its own sources
the adjustment should be made not oftener than once of revenue and to levy TFCs, consistent with the basic policy of
every 5 years but in no case shall the adjustment local autonomy. Such TFCs shall exclusively accrue to it.
exceed 10% of the rates fixed under the LGC.
b. All LGUs are granted general powers to levy TF/Cs on any
F. Residual taxing power of LGUs (Sec.186) base or subject not otherwise specifically enumerated herein or
LGUs may exercise the power to levy TFC on any taxed under the provisions of the NIRC, as amended, or other
applicable laws. The levy must not be unjust, excessive,
base or subject not otherwise specifically enumerated
oppressive, confiscatory or contrary to a declared national
herein or taxed under the:
economic policy.
1. LGC (provided there is no express prohibition);
2. NIRC; or
c. No such TFCs shall be imposed without a public hearing
3. Other applicable laws.
having been held prior to the enactment of the ordinance.
d. Copies of the provincial, city, and municipal tax ordinances or
G. Authority to issue local tax ordinances (Sec. 132)
revenue measures shall be published in full for three
The power to impose a TFC or to generate revenue
consecutive days in a newspaper of local circulation or posted in
shall be exercised by the sanggunian of the local
at least two conspicuous and publicly accessible places.
government unit concerned through an appropriate
5. Specific Taxing Power of LGUs
3. Local Taxing Authority (Sec. 132)
A. Taxing powers of provinces
A. Power to create revenues exercised thru LGUs
1. Tax on transfer of real property ownership (Sec. 135)

Page 67 of 104
Taxable transaction Sale, barter, or any otherTaxable
mode oftransaction
transferring ownership of, or
title to, real
of quarry
resources as defin

Tax rate At not more than of 1%

Tax rate Not more than 10%

Tax base 1. total consideration

Tax base
or FMV in the locality per cubic meter of
2. FMV, whichever is higher
Who issues permit Exclusively issued by the provincial go
Tax exempt Transfers or dispositions pursuant to RA 6697 Sangguniang panlalawigan

Persons liable to pay Seller, donor, transferor, Distribution

executor, or administrator
of tax proceeds 1.Province-30%
2.component city or municipality where
When Within 60 days from the: resources were extracted-30% of execution of the deed or 3.Barangay where resources were
2. date of the decedents death extracted- 40%

Note: Pre-emption Rule is not applicable 5. Professional tax (Sec. 139)

2. Tax on business of printing and publication (Sec. 136)

Taxable transaction Exercise or practice of profess

Taxable Transaction printing and publication of books, cards,

Tax rate
posters, leaflets, handbills, certificates, receipts,
Not to exceed
P300 and
other similar nature.
Tax base Reasonable classification by th
Tax rate 1.At not more than of 1% or
2. 1/20 of 1% for newly started business
Tax exempt Professionals exclusively empl

Tax base Time of payment

1.gross annual receipts for the preceding Payable annually on or before
year or Before beginning the practice o
2. capital investment for a newly started
Business Place of payment Province where:
1.the TP practice his profession
Tax exempt Printing of DepEd/CHED/TESDA prescribed texts or references 2.the TPs principal office is loc

Capital investment (Sec.131[f]) Note:

The capital which a person employs in any 1. Professional tax applies only to natural or
undertaking, or which he contributes to the capital of a physical persons. Said tax is fixed on the
partnership, corporation, or any other juridical entity or privilege of exercising or engaging in a
association in a particular taxing jurisdiction. profession. The tax is not based on the amount of
earnings of the taxpayer.
3. Franchise tax (Sec. 137)
Franchise (Sec. 131 [m] 6. Amusement tax (Sec.140)
a right or privilege, affected with public interest which
is conferred upon private persons or corporations,
under such terms and conditions as the government Taxable Ownership, lease or operation of theatres,
and its political subdivisions may impose in the transaction cinemas, concert halls, circuses, boxing
interest of public welfare, security, and safety. stadium and other places of amusement

Tax rate Not more than10%

Taxable Enjoyment of a Franchise Tax base Gross receipts from admission fees
Tax exempt Operas, concerts, dramas, recitals, painting
Tax rate 1.not more than of 1%; or and art exhibitions, flower shows, musical
2.1/20 of 1% programs, literary and oratorical presentation
except pop, rock, or similar concerts
Tax base 1.gross annual receipts for the preceding year or investment for a newly started business Distribution of Tax shall be shared equally by the province
proceeds and municipality where such amusement
4. Tax on sand, gravel and other quarry resources places are located
(Sec. 138)
PBA vs. CA, August 08, 2000 (Principle of ejusdem generis)

Page 68 of 104
Professional basketball games are not subject to Amusement f. Banks and other financial not exceeding of 1 %
Tax. They do not fall on the meaning of other places of institutions
amusement under the same category as theatres,
cinematographs, concert halls and circuses which basically g. Peddlers not exceeding P50 per
belong to artistic forms of entertainment, while the former cater peddler annually
sports and gaming.
h. Any business not otherwise As the Sanggunian may deem
7. Tax on delivery truck/van (Sec. 141) specified proper. When subject to excise,
VAT or percentage tax, it shall
not exceed 2%
Taxable transaction Use of truck, van vehicle in the delivery or distribution of distilled spirits, fermented liquors,
Softdrinks, cigar and cigarettes and other products, as may be determined by the
Sanggunian to sales outlets or consumers.
1. Wholesale
Tax rate Not to exceed P500 a sale where the purchaser buys or imports
Tax base Every truck, van, or any vehicle used the commodities for resale to persons other
than the end user regardless of the quantity
Note: manufacturers, producers, wholesalers and of the transaction (Sec. 131 [z]).
retailers referred to in this section shall be shall be 2. Dealers
exempt from the tax on peddlers one whose business is to buy and sell
merchandise, goods, and chattels as a
B. Taxing powers of cities (Sec. 151) merchant. He stands immediately between
Cities are authorized specifically to impose TFC that the producer or manufacturer and the
provinces and municipalities may levy. consumer and depends for his profit not
Tax rate: May be above the maximum established for provinces upon the labor he bestows upon his
and municipalities but not exceeding 50% commodities but upon the skill and foresight
of such maximum rates except the rates of professional and with which he watches the market (Sec. 131
amusement taxes [k]).
3. Retail
C. Taxing powers of municipalities (Sec. 142) a sale where the purchaser buys the
Municipality may levy TFC not otherwise levied by commodity for his own consumption,
provinces and cities. irrespective of the quantity of the commodity
sold (Sec. 131[w]).
1. Tax on various types of businesses (Sec. 143) 4. Contractor
includes persons (natural/juridical) whose
Tax base: activity consists essentially of the sale of all
Gross sales or receipts for the preceding calendar year(except kinds of services for a fee, regardless of
letter g) whether the performance of the service calls
for the exercise or use of the physical or
Persons liable to tax Tax Rate mental faculties of such contractor or his
employees (Sec. 131[h])
a. Manufacturers, assemblers, Graduated scale (GS) of P165- Note: They are not subject to professional tax under
repackers of liquors, distilled P24,375 /yr. or Sec. 139
spirits and wines a rate not exceeding 37 .5% of
1% 5. Peddler
Any person who either for himself or on
b. Wholesalers, distributors, or GS of P18-P10,000 /yr. or commission, travels from place to place and
dealers in any article of a rate not exceeding of 1% sells his goods or offers to sell and deliver
commerce the same (Sec. 131[t]).

c. Exporters, manufacturers, not exceeding of the rates 2. Ceiling on business tax impossible on municipalities within
millers, producers of essential prescribed under (a,b, and Metro Manila (Sec. 144)
commodities d) The municipalities within the Metropolitan Manila Area
may levy taxes at rates which shall not exceed by
d. Retailers 2% for the first P400,000; 50% the maximum rates prescribed for other
1% for the excess over municipalities.
3. Tax on retirement on business (Sec. 145)
e. Contractors and other GS of P27.50-P11,500/yr A business subject to tax shall, upon termination
independent contractors or a rate not exceeding thereof, submit a sworn statement of its gross sales or
of 1 % receipts for the current year.

Page 69 of 104
If the tax paid during the year be less than the tax due
on said gross sales or receipts of the current year, the Where there is a factory, project office, plant or Of all sales recorded in
difference shall be paid before the business is plantation (FPPP) in pursuit of business
considered officially retired. 1. 30% taxable to the c
where the principal off
4. Rules on payment of business tax (Sec. 146)
a. It shall be payable for every separate or distinct 2. 70% taxable to the c
establishment or place where the business subject to where the FPPP is loc
the tax is conducted and one line of business does not
become exempt by being conducted with some other
business for which such tax has been paid.
b. The tax on a business must be paid by the person
conducting the same.
c. In cases where a person conducts or operates 2 or
If plantation is at a place other than where the The 70% (above) shal
more of the businesses:
factory is located
1.subject to the same rate of tax - the tax
1. 60% to the city or m
shall be computed on the combined total gross sales
factory is.
or receipts of the said 2 or more related businesses.
2. subject to different rates of tax - the gross
2. 40% to the city or m
sales or receipts of each business shall be separately
plantation is located
reported for the purpose of computing the tax due
from each business.
If manufacturer, contractor, assembler, exporter The 70% (above) shal
5. Fees and charges for regulation & licensing (Sec. 147)
has 2 or more FPPPs located in different the localities where the
The municipality may impose and collect such
localities. proportion to their resp
reasonable fees and charges on business and production during the p
occupation is due
except: Professional taxes reserved for provinces
a. Fees for Sealing and Licensing of Weights and
1.Branch office (Art.243 [a][2],IRR of the LGC)
Measures (Sec. 148)
a fixed place in a locality which conducts operations of the busine
b. Fishery Rentals, Fees and Charges, including the
authority to grant fishery privileges within municipal
waters, as well as issue licenses for the operation of 2. Principal office (Art.243 [a][1],IRR of the LGC)
fishing vessels of three tons or less (Sec. 149) head or main office of the business appearing in pertinent docum
c. The sanggunian may penalize the use of explosives, Incorporation.
noxious or poisonous substances, electricity, muro
ami, and other deleterious methods of fishing and 3. Plantation (Art.243 [a][1],IRR of the LGC)
prescribe a criminal penalty therefore (Sec. 149) a tract of agricultural land planted of trees or seedlings whether fr
normally arranged to allow higher production. Inland fishing groun
6. Situs of tax collected (Sec. 150)
D. Taxing powers of barangays (Sec. 152)
Situation Payment of tax
Tax rate
With branch or sales office or warehouse Taxes on stores
payable to the city or municipality whereortheretailers with fixed Not exceeding 1% on
same is located. business establishment such gross sales or
a. with gross sales or receipts of the receipts
Where there is no branch or sales Office or preceding
payable to the city or municipality wherecalendar
the year of
warehouse. principal office is located P50,000 or less in the cities and;
b. P30,000 or less in the case of

Service Fees/ Charges for services reasonable fees or

rendered in connection with regulations or charges as may be
the use of barangay-owned properties imposed by the
reasonable fees as
Barangay Clearance may be imposed by the
Other fees & charges
1.On commercial breeding of reasonable fees or
fighting cocks & cockpits; charges as may be

Page 70 of 104
2. On places of recreation w/c imposed by the
charge admission fees; and Sanggunian. Distribution of proceeds: Collected by the city or
3. On billboards, signs boards, neon - entire proceeds shall a
signs and outdoor advertisement
Collected through the b
E. Common revenue raising powers of LGUs (Article V) - 50% shall accrue to th
1. Service fees and charges (Sec. 153) - 50% shall accrue to th
2. Public utility charges (Sec. 154)
3. Toll fees or charges (Sec. 155) Community Tax Certificate: Issued to every person
to any person or corpor
F. Community tax (Sec. 156)
used to be referred to as Residence Tax or Cedula 6. Common Limitations on the Taxing Power of the
a fixed tax for being a resident and member of a LGUs (Sec. 133)
community, essentially a poll or capitalization tax
collectible by the city or municipal treasurer who can A. The Principle of Pre-emption or Exlusionary Rule
deputize the barangay treasurers in the collection Where the National Government elects to tax a
thereof in their respective territorial jurisdiction particular area, it impliedly withholds from the local
without regard to their property or the occupation in government the delegated power to tax the same field.
which they may be engaged (Lim, Dictionary of Terms This doctrine principally rests on the intention of the
and Phrases in Taxation,2012,p.126). Congress.

B. LGUs cannot levy:

Taxing Authority: Cities or Municipalities 1. Income tax, except on banks and other financial
Person liable: 1. Individuals who are: 2. Documentary stamp tax;
3. Estate tax, inheritance, gifts, legacies and other
a. inhabitant of the Philippines;
(Sec.157 and 158) b. at least 18) years of age; acquisitions mortis causa except as otherwise
c. under any of the following instances:
who has been regularly4. Customs
employedduties, registration
on a wage feesbasis
or salary of vessels and 30 consecutive
for at least
working days during anywharfage
or tonnage dues and all other
is engaged in business kinds of customs
or occupation; or fees, charges and dues except
wharfage on
owns real property with an aggregate assessedwharves constructed and maintained
value of P1,000 or more; orby
theLGU concerned;
is required by law to file an income tax return
5. TFCs and other impositions upon goods carried into or
out of, or passing through, the territorial
Tax Rate: P5.00 and an annual additional tax of
jurisdictions of P1.00
LGUs in forthe
every P1,000
guise of income
of charges for which in no
case shall exceed P5,000. wharfage, tolls for bridges or
Place of Payment: otherwise.
6. TF/Cs on agricultural and aquatic products when sold
In case of husband and wife by marginal farmers or fishermen;
property owned by them and7.the total
Taxesgross receipts enterprises
on business or earnings certified
derived byby them.
the Board
of Investments as pioneer or non-pioneer for a period
2. Juridical Persons of 6 and 4 years, respectively, from the date of
a. domestic or resident foreign, registration;
b. engaged in or doing business
8. inExcise
the Philippines
taxes on articles enumerated under the NIRC,
as amended, and TF/C on petroleum products;
Tax Rate :P500 and an annual 9. additional
Percentage tax which in no casetax
or value-added shall exceed
(VAT) P10,000
on sales, barters
or exchanges or similar transactions on goods or
Place of Payment: services except as otherwise provided herein;
10. Taxes on the gross receipts of transportation
Dividends received by a corporation shall, forand
contractors the persons
purpose engaged
of the additional tax, be considered as
in the transportation
part of the gross receipts or earnings of said corporation.
of passengers or freight by hire and common carriers
by air, land or water, except as provided in the Code;
Tax Exempt: 1. Diplomatic and consular representatives; and
11. Taxes on premiums paid by way of Reinsurance or
(Sec.159) 2. Transient visitors when their stay in the Philippines
retrocession; does not exceed 3 mos.
12. TF/C for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the
Time for Payment: accrues on the 1st day of Januarydriving
of each year which
thereof, exceptshall be paid not later than the last day of
(Sec. 161) February of each year. 13. TF/C on Philippine products actually exported, except
as otherwise provided in the Code;
Penalties for Delinquency: an interest of 24% per annum 14.from the on
TF/C dueCountryside
date until it and
is paid shall bebusiness
barangay added to the amount due.
enterprises and cooperatives duly registered under

Page 71 of 104
R.A. 6810 and R.A. 6938, (Cooperatives Code of the Province of Bulacan vs. CA, November 27, 1998
Philippines) ; and A province has no authority to impose taxes on stones, sand,
15. TF/C of any kind on the National Government, its gravel, earth and other quarry resources extracted from private
agencies and instrumentalities, and LGUs. lands. The tax imposed by the Province of Bulacan is an excise
tax, being a tax under the performance, carrying on, or exercise
C. Classification of Common Limitations: of an activity. The province can however, impose tax on stones,
1. Taxes which are levied under the NIRC unless otherwise sand, gravel, earth and other quarry resources extracted from
provided by the LGC public lands because it is expressly empowered to do so under
Nos. 1, 2, 3, 8, 9, 10 the LGC
2. Taxes, fees, etc. which are imposed under the Tariffs and
Customs Code 7. Collection of Business Tax
Number 4
3. TFC where the imposition of which contravenes existing
governmental policies or which are violative of the Tax period Calendar year
fundamental principles of taxation (Sec. 165):
Numbers 5, 6, 7, 11, 13, 14, 15
4. TFC imposed under special laws. Manner of may be paid in quarterly instalments
Number 12 payment(Sec.

Accrual of tax: 1st day of January

(Sec. 166) new or changes in the rates of TF/C
first day of the quarter next
following the effectivity of the
D. Cases ordinance
Batangas Power Corp. vs. Batangas City, April 28, 2004 (Sec. Time of payment: 1. within the 1st 20 days of January or
133g) No. 7 above (Sec. 167) of each subsequent quarter as the
Sec. 133 (g) of the LGC, which proscribes LGUs from levying case may be.
taxes on BOI-certified pioneer enterprises for a period of 6 years 2. may be extended without
from the date of registration, applies specifically to taxes surcharges or penalties, but only for
imposed by the local government, like the business tax imposed a period not exceeding 6 mos.
by Batangas City on BPC in the case at bar. Reliance of BPC
on the provision of Executive Order No. 226, [18] specifically Surcharges and Surcharge not exceeding 25% of the amount
Section 1, Article 39, Title III, is clearly misplaced as the 6-year Penalties on including surcharges, until such amount is
tax holiday provided therein which commences from the date of Unpaid TF/Cs: fully paid.
commercial operation refers to income taxes imposed by the (Sec. 168)
national government on BOI-registered pioneer firms. Clearly, it Limit: the total interest on the unpaid amount
is the provision of the LGC that should apply to the tax claim of or portion thereof shall in no case exceed 36
Batangas City against the BPC. The 6-year tax exemption of mos.
BPC should thus commence from the date of BPCs registration
with the BOI on July 16, 1993 and end on July 15, 1999. Interest on An interest rate not exceeding 2% per month
other unpaid from the date it is due until it is paid.
LTO vs. Butuan, January 20,2000 (Sec. 133[l]) No.12 above revenues:
Congress has no intention to delegate issuance of permits to (Sec. 169) Limit: the total interest on the unpaid amount
LGUs. The intention of the law is to centralize issuance of or portion thereof shall in no case exceed 36
permits to drive motor vehicles including tricycles is to monitor mos.
the operation of the same. Section 133(l) is only for franchise
where to grant the same is within the discretion of LGUs. The
Collecting 1. Shall be made by local treasurer
permit to drive is issued by LTO.
authority: (provincial, city, municipality, or barangay
(Sec. 170) treasurer as the case may be), or
First Philippine Industrial Corp vs. CA, December 9, 1998
2. his duly authorized deputies
(Sec.133[j]) No. 10 above
It is clear that the legislative intent in excluding from the taxing
Examination Shall be made by the local treasurer or his
power of the LGU the imposition of business tax against
or inspection deputies duly authorized in writing.
common carriers is to prevent a duplication of the so called
of books:
Common Carriers Tax. Petitioner is already paying 3%
(Sec. 171) Such examination shall:
common carriers tax on its gross sales/earnings under the
be made during regular business
NIRC. To tax the petitioner again on its gross receipts in its
transportation of petroleum business would defeat the purpose hours
of the LGC. ONCE for every tax period
certified to by the examining official

Page 72 of 104
2. deny (wholly or partially) the protest if not
Note: records of the revenue meritorious, with notice to the TP
district officer of the BIR shall be d. 1. In case of denial: TP appeals within 30 days after
made available to the examining receipt of denial to the court of competent jurisdiction
officer for such purpose. (RTC)
2. Inaction by the treasurer: TP appeals within 30
days from the lapse of 60 days
8. Taxpayers Remedies
Note: The Assessment shall become final an
A. ADMINISTRATIVE executory should the TP failed to file a protest
Before assessment 2. Claim for refund tax credit (Sec. 196)
1. Question the constitutionality or legality of tax A written claim for refund or credit must be filed
ordinance or revenue measures on appeal within 30 Ground: any TF/C erroneously or illegally collected
days from effectivity thereof to Secretary of Justice
(Sec. 187 LGC) Period to claim: within 2 years from
a. the date of payment or
Drilon vs. Lim, August 4, 1994 b. the date the taxpayer is entitled to a refund or
Section 187 authorizes the Secretary of Justice to review only credit
the constitutionality or legality of the tax ordinance and, if The supervening cause applies(unlike in Internal
warranted, to revoke it on either or both of these grounds. revenue taxes [Sec.229,NIRC]) because the period for
the filing of claims for refund or credit of local taxes is
counted not necessarily from the date of payment but
Jardine vs. Judge Alipose, February 27, 2003 from the date the taxpayer is entitled to a refund or
The TP may file a complaint assailing the validity of the credit.
ordinance and praying for a refund of its perceived
overpayments without first filing a protest to the payment of 3. Right of Redemption (Sec. 179)
taxes due under the ordinance. 1 year from the date of sale or forfeiture
2. Declaratory Relief whenever applicable The owner still enjoys the possession and the fruits of
the property until the expiration of the time allowed for
After assessment its redemption
Periods of assessment and collection of local TF/Cs (Sec. 194)
Assessment B. JUDICIAL
1. Court action
Period of: - within 5 years from the date they become
Filedue an appropriate action with a court of competent
- within 10 years from the discovery in case of fraud within 30 days after receipt of decision or
or intent to evade payment lapse of 60 days of Secretary of Justices inaction
(Sec. 187)
Prescriptive periods: -5 years from the date they became due Appeal with a court of competent jurisdiction within 30
-10 years from discovery of the fraud or intent
days tofrom receipt of notice of denial
evade the payment (Sec. 195)
if no action is taken by the treasurer in refund cases
Grounds for suspension of the running of the prescriptive period:
and the two year period is about to lapse (Sec. 196)
1. Treasurer is legally prevented from the making the assessment or collection
if remedies available does not provide plain, speedy
2. TP requests for reinvestigation and executes waiver in writing
3. TP is out of the country and adequate remedy.
4. TP cannot be located
Note: Court of competent jurisdiction refers to the
Note: RTC (Domondon, Bar Reviewer in Taxation, Vol 1,
1. TF/Cs which have become accrued before the effectivity of the LGC may be2006,7th ed.,p.729)
assessed within a period of 3 years from the date they
become due
2. 2. within
TF/Cs assessed before the effectivity of the LGC may be collected Actionaforperiod
declaratory relieffrom the date of assessment
of 3 years
3. Date of Effectivity of the LGC- January 1, 1992 3. Injunction
if irreparable damage would be caused to the taxpayer
1. Protest of assessment (Sec. 195) and no adequate remedy is available.
a. Assessment made by the local Treasurer
b. TP has 60 days from receipt to file written protest with 9. Civil Remedies by the LGU for the collection of
Treasurer, otherwise it shall become final and revenues
executor A. Local governments lien for delinquent TF/C(Sec.173)
c. Treasurer has 10 days within which either to: Superior to all items, charges or encumbrances in
1. cancel (wholly or partially) the assessment favor of any person,
in meritorious cases enforceable by the administrative of judicial action
enforceable on:

Page 73 of 104
a. property or rights therein which may be subject to the deputy shall issue a duly authenticated
lien certificate showing:
b. property used in business, occupation, practice of a. the fact of delinquency
profession or calling b. the amounts of TF/C and
c. exercise or privilege with respect to which the lien is c. penalty due.
4. Distrained personal property shall be
extinguished upon full payment of the delinquent local sold at public auction.
TF/C including related surcharges and interest

Angeles City vs. Angeles City Electric Corporation, Note:

June 29, 2010 1.Such certificate shall serve as sufficient
Unlike the NIRC, the LGC does not contain any specific arrant for the distraint of personal property, subject
provision prohibiting courts from enjoining the collection of local to the taxpayer's right to claim exemption under the
taxes. Such statutory lapse or intent, however may be viewed, provisions of existing laws.
may have allowed preliminary injunction where local taxes are
involved but cannot negate the procedural requirements under b. The officer executing the distraint shall make an
Rule 58 of the Rules of Court. Accounting account of the goods, chattels or effects (GCEs)
of distrained distrained, a copy of which signed by himself shall
B. Civil remedies, in general (Sec. 174) goods be left either with the:
1. Administrative action a. owner or
a. Distraint of goods, chattels or effects and other b. person from whose possession the GCEs
personal property of whatever character are taken, or
b. Levy upon real property and interest in or rights to real c. at the dwelling or
property d. place or business of that person and with
someone of suitable age and discretion,
2. Judicial action to which list shall be added a:
Note: Either of these remedies or all may be pursued aa. statement of the sum demanded and
concurrently or simultaneously at the discretion of bb. a note of the time and place of sale.
LGU concerned.
c. The officer shall forthwith cause a notification to be
Procedure for administrative action Publication exhibited in not less than 3 public and conspicuous
1. Distraint of personal property (Sec. 175) places in the territory of the local government unit
Procedure: where the distraint is made; specifying the time and
1. Delinquency place of sale, and the articles distrained.
2. Assessment (Sec. 194)
3. Issuance of a duly authenticated certificate The time of sale: not less than 20 days after:
4. Seizure or confiscation of assets sufficient to satisfy a. the notice to the owner or possessor of
the liability the property and
5. Accounting of distraint goods b. the publication or posting of the notice.
6. Publication/Posting of the notice of sale
7. Sale at Public Auction Note:
8. Report of the proceedings to the Local Chief 1.One place for the posting of the notice shall be at
Executive the office of the chief executive of the local
9. Disposition of the proceeds government unit in which the property is distrained.
10. Further distraint if necessary (Sec. 184)
11. Return of balance to the TP d. Release If at any time prior to the consummation of the sale,
of distrained all the proper charges are paid to the officer
property conducting the sale, the goods or effects distrained
a. Seizure 1. The TP must be delinquent. upon shall be restored to the owner.
2. Local treasurer or his deputy may payment
seize or confiscate any personal prior to Also called Right of Pre-emption
property: sale
a. belonging to the delinquent TP or
b. subject to the lien in sufficient e. Procedure At the time and place fixed in the notice, the officer
quantity to satisfy the: of sale conducting the sale shall sell the goods or effects
aa. TF/C in question together with so distrained at public auction to the highest bidder
bb. any increment thereto incident for cash.
to delinquency and
cc. the expenses of the seizure. Within 5 days after the sale, the local treasurer shall
3. In such case, the local treasurer or his make a report of the proceedings in writing to the

Page 74 of 104
local chief executive concerned. k. Return of the balance to the TP
l. Execution of the final deed to the purchaser after
Note: lapse of the redemption period in case there is failure
1. Should the property be not disposed of within to redeem
120 days from the date of distraint, the same shall
be considered as sold to the LGU concerned. 3. Further distraint or levy (Sec. 184)

f. Disposition The proceeds shall be applied to satisfy the Properties exempt from distraint or levy (Sec. 185)
of proceeds following: a. Tools and implements necessarily used by the
a. tax delinquent TP in his trade or employment;
b. surcharges b. One horse, cow, carabao, or other beast of burden,
c. interest such as the delinquent TP may select, and necessarily
d. penalties incident to delinquency used by him in his ordinary occupation;
e. expenses of the distraint and sale. c. TPs necessary clothing, and that of all his family;
d. Household furniture and utensils necessary for
Note: housekeeping and used for that purpose by the
1. The balance shall be returned to the delinquent TP, such as he may select, of a value not
owner of the property sold. exceeding P10,000;
2. The expenses chargeable upon the seizure e. Provisions, including crops, actually provided for
and sale shall embrace only the individual or family use sufficient for 4 mos.;
actual expenses of seizure and f. The professional libraries of :
preservation of the property pending the 1. doctors,
sale. 2. engineers,
3. No charge shall be imposed for the 3. lawyers and
services of the local officer or his deputy. 4. judges;
4. Where the proceeds are insufficient to g. One fishing boat and net, not exceeding the total
satisfy the claim, other property may, in value of P10, 000 by the lawful use of which a
like manner, be distrained until the full fisherman earns his livelihood; and
amount due, including all expenses, h. Any material or article forming part of a house or
is collected (Sec. 184). improvement of any real property.

2. Levy of real property (Sec. 176) Penalty on local treasurer for failure to issue and execute
Procedure: warrant of distraint or levy (Sec. 177)
a. Delinquency Any local treasurer who:
b. Assessment (Sec. 194) a. fails to issue or execute the warrant of distraint or levy
c. The local treasurer concerned shall prepare a duly after the expiration of the time prescribed, or
authenticated certificate showing the: b. is found guilty of abusing the exercise thereof by
1. name of the TP competent authority shall be automatically dismissed
2. amount of the TF/C and from the service after due notice and hearing.
3. penalty due. Without prejudice to criminal prosecution under RPC
Note: Said certificate shall operate with the force of a and other applicable laws
legal execution throughout the Philippines.
D. Procedure for judicial action
d. written notice of the levy shall be mailed to or served (Sec. 183 in relation to Sec.194)
upon the: The LGU concerned may enforce the collection of
1. assessor delinquent TF/Cs or other revenues by civil action in
2. Registrar of Deeds (for annotation) any court of competent jurisdiction.
3. taxpayer or, The civil action shall be filed by the local treasurer
a. to his agent or within the period prescribed for assessment and
b. the manager of the business or collection of TF/Cs
c. to the occupant of the property in The LGU files an ordinary suit for the collection of sum
question as the case may be of money before the:
e. Levy of real property (before, simultaneously or after a. MTC,
distraint of personal property)within 5 years from b. RTC or
assessment c. CTA Division depending upon the jurisdictional
f. Advertisement for sale or auction of the property amount.
levied for 30 days (Posting and Publication)
g. Sale Jurisdiction
h. Report of the sale by the levying officer to the Court Jurisdiction Jurisdictional Amount
i. Delivery to the purchaser of the certificates of sale MTC Original If the principal amount of taxes, fees
j. Disposition of the proceeds of the sale exclusive of:

Page 75 of 104
1. charges and building or improvements erected thereon are
2. penalties does not exceed: assessed separately except when the land and
a. P300,000 or building or improvements belong to separate owners
b. P400,000 in Metro Manila (Lim, Dictionary of Terms and Phrases in Taxation,
RTC Original If the principal amount of taxes, fees
exclusive of: Real Property (RP)
1. charges and subject to the definition given by Art. 415 of the NCC
2. penalties does not exceed:
a. P300,000 or Improvement
b. P400,000 in Metro Manila Sec. 199[m]

Provided: the amount is < P1M 1. Fundamental Principles (Sec. 198)

a. RP shall be appraised at its current and FMV;
b. RP shall be classified for assessment purposes on the
Appellate Jurisdiction over all cases decided by basis of its actual use;
the courts of limited jurisdiction in c. RP shall be assessed on the basis of a uniform
their respective territorial jurisdiction. standard within each LGU;
d. The appraisal, assessment and collection of RPT shall
CTA Original If the principal amount of taxes, fees not be let to any private person; and
Division exclusive of: e. The appraisal and assessment of RP shall be
1. charges and equitable.
2. penalties is P1M or above
Fair Market Value (FMV)- Sec.199 [l]
Appellate Jurisdiction over appeals from the The price at which a property may be sold by a seller
judgement or orders of the RTC in who is not compelled to sell and bought by a buyer
tax collection cases originally who is not compelled to buy.
decided by them in their respective
jurisdiction Assessment (Sec. 199 [f])
The act or process of determining the value of the
CTA En Appellate 1. Decisions or resolutions over property, or proportion thereof subject to tax including
Banc petitions for review of the Court in the:
Divisions in the exercise of its a. discovery,
exclusive appellate jurisdiction over b. listing,
local tax cases decided by the RTC c. classification, and
in the exercise of their original d. appraisal of properties.
Appraisal (Sec. 199[e])
2. Over petitions for review of the the act or process of determining the value of the
judgements, resolutions or orders of property as of a specific date for a specific purpose.
the RTC in the exercise of their
appellate jurisdiction over tax Allied Banking Corp. vs. Quezon City, September 15, 2006
collection cases originally decided by Appraisal of Real Property is at current FMV and based on
the courts of limited jurisdiction in actual use not on the actual amount reflected in the Deed of
their respective territorial jurisdiction. Conveyance or the current approved zonal valuation of the BIR
prevailing at the time of the sale.
3. Compromise (Sec. 148[b] in relation to Sec. 151)
The Sanggunian concerned may authorize the city or
2. Nature of Real Property Tax
municipal treasurer to settle an offense not involving Hybrid of national and local tax
the commission of fraud before a case therefor is filed
The provisions of the LGC are applied nationwide but
in court, upon the payment of a compromise penalty of
rates imposed are different per LGU ordinance
not less than P200.
Characteristics of RPT
B. REAL PROPERTY TAXATION 1. Progressive/Proportionate in character depending on
Real Property Tax (RPT) the:
It is a direct tax on the ownership of lands and a. use and
buildings or other improvements thereon not b. value of the property (Domondon, Bar
specifically exempted. It is payable regardless of Reviewer in Taxation Vol.1,2006 7th
whether the property is used or not, although the ed.,p.743)
value may vary in accordance with such factors. It is 2. Ad valorem tax
usually single and indivisible although the land and 3. Direct tax

Page 76 of 104
4. Local tax MIAA vs. Paranaque, July 20, 2006
5. Imposed on the Use and not on the ownership Under Art. 20 of the NCC, the airport lands and buildings of
MIAA, being devoted to public use are properties of public
Province of Nueva Ecija vs. Imperial Mining Co., Inc., November dominion and thus owned by the state. As properties of public
19,1982 dominion owned by the Republic, there is no doubt that the
RPT taxes are direct taxes on the privilege to use real property airport land and buildings are expressly exempt from real estate
such as land, building, machinery and other improvements, tax under Sec. 243[a] of the LGC.under 1[a] above
unless specifically exempted.
PD No. 464 (Real Property Tax Code) changed the basis of real Lung Center of the Philippines vs. Quezon City, June 29, 2004
property taxation (from ownership) adopting the policy of taxing the Court held that Lung Center of the Philipines, a charitable
real property on the basis of actual use, even if the user is not institution does not lose its character as such and its exemption
the owner. from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or
Meralco Securities Industrial Corp v. CBAA, 114 SCRA 260 receives subsidies from the government, so long as the money
The real property tax has been considered and held to be a received is devoted or used altogether to the charitable object
national, not a local tax. The Court said that realty tax has which it is intended to achieve; and no money inures to the
always been imposed by the national law-making body. The real private benefit of the persons managing or operating the
estate tax is enforced throughout the Philippines and not in a institution. However, those portions of its real property that are
particular political subdivision, although the bulk of the tax leased to private entities are not exempt from real property
proceeds accrue to the various LGUs where the property is taxes as these are not actually, directly and exclusively used for
located. charitable purposes.

3. Imposition of Real Property Tax NAPOCOR vs. Province of Quezon, July 15, 2005
A. Power to levy real property tax (Sec. 232) 2 elements to successfully claim exemption under Sec. 234[c]:
LGUs may levy an annual ad valorem tax on real a. Machines and equipment are ADE used by LWDs and
property not specifically exempted GOCCs
b. The LWDs and GOCCs claiming exemption must be
B. Exemption from real property tax engaged in the supply and distribution of water
1. Exemption under Sec. 234 and/or the generation and transmission of electric
a. those owned by the State or any of its political power.
subdivisions Test of exemption: Use and not the ownership
Except: when the beneficial use thereof has been
granted to a taxable person; Sta. Lucia Realty and Development, Inc. vs. City of Pasig,
b. Charitable institutions, churches, parsonages or June 15, 2011
convents appurtenant thereto, mosques, While a local government unit is authorized under several laws
non-profit or religious cemeteries, and all the lands, to collect real estate tax on the properties falling under its
buildings, and improvements actually, territorial jurisdiction, it is imperative to first show that these
directly, and exclusively (ADE) used for religious, properties are unquestionable within its geographical
charitable, or educational purposes; boundaries.
c. All pieces of machinery and equipment that are ADE
used by local water districts (LWDs), and 2001 BAR QUESTION: Under Article 415 of the Civil Code, in
GOCCs engaged in the supply and distribution of order for machinery and equipment to be considered real
water and/or generation and transmission of property, they must be placed by the owner of the land and, in
electric power; addition, must tend to directly meet the needs of the industry or
d. those owned by duly registered cooperatives under works carried on by the owner. Oil companies, such as Caltex
RA 6938; and and Shell, install underground tanks in the gasoline stations
e. Machinery and equipment used for pollution control located in land leased by the oil companies from others. Are
and environmental protection. those underground tanks, which were not placed there by the
owner of the land but by the lessee, considered real property for
2. Idle lands (Sec. 238) purposes of real property taxation under the LGC?
3. Constitutional Exemptions
(Art. VI, Sec.28 [3]letter [b] above) SUGGESTED ANSWER FROM UP LAW CENTER: Yes. The
4. Condonation or reduction of RPT and interest by the: underground tanks although installed by the lessee, Shell and
a. Sanggunian upon recommendation of the Local Caltex, are considered as real property for purposes of the
Disaster Coordinating Council in case of a: imposition of real property taxes. It is only for purposes of
1. general failure of crops, or executing a final judgment that these machinery and equipment,
2. substantial decrease in the price of agricultural installed by the lessee on a leased land, would not be
or agri-based products, or considered as real property. But in the imposition of real
3. calamity in any LGU property tax, the underground tanks are taxable as necessary
b. President of the Philippines when public interest so fixtures of the gasoline station without which the gasoline station
requires would not be operational (Caltex vs. CBAA, May 31, 1982).

Page 77 of 104
c. occupancy of make a
the declaration
improvement, within the
4. Appraisal and Assessment of Real Property Tax whichever prescribed
A. Rule on appraisal of real property (Sec. 201) comes earlier time.
Real properties (taxable or exempt), shall be
appraised at the current and FMV prevailing in the C. Listing of real property in assessment rolls (Sec. 205)
locality where the property is situated. Real property shall be listed, valued, and assessed in the name
of the:
Distinguish FMV from assessed value for purposes of real a. owner,
property taxation b. administrator or
FMV Assessed Value c. anyone having legal interest in the property.
-refers to the price at which a - it is the value placed on Exceptions:
property may be sold taxable property 1. Undivided real property
-determined by the local assessor - in the name of the estate or heirs or devisees without
designating them individually;
Basis: Basis: 2. In case of undivided real property other than that owned by
- location of the property -Actual Use which may be: the deceased
-transactions involving properties residential, agricultural, - in the name of one or more co-owners;
in the said area commercial, industrial, 3. Corporation, partnership, and association
-other similar considerations mineral, timberland, or special - same as individuals;
Expressed in Mathematical Formula: 4. Owned by the Republic of the Philippines, its
FMV x Assessment Level = Assessed Value instrumentalities, political subdivision, beneficial use is
transferred to taxable person
Assessment level (Sec. 199[g]) - in the name of the possessor.
-is the percentage applied to the FMV to determine the taxable
value of the property Note: All declarations shall be kept and filed under a
uniform classification system to be established by the
B. Declaration of real property local assessor (Sec.207)
Declaration of Real Property
D. Preparation of schedules of FMV (Sec. 212)
By the Owner By the Person By the Before any general revision of property assessment is
or Acquiring Real Assessor made, there shall be prepared a schedule of fair
Administrator Property or (Sec. 204) market values by the provincial, city and municipal
(Sec.202) Making assessor of the municipalities within the Metropolitan
Improvements Manila Area for the different classes of real property
Thereon situated in their respective local government units for
(Sec.203) enactment by ordinance of the sanggunian concerned.
The schedule of fair market values shall be published
Form Sworn -same- Declaration in a newspaper of general circulation in the province,
statement *no oath city or municipality concerned or in the absence
required thereof, shall be posted in the provincial capitol, city or
municipal hall and in two other conspicuous public
Content of 1. True Value 1. True Value of 1. True Value places therein.
the Sworn (current and the subject of the
statement or FMV) of the property property 1. Authority of assessor to take evidence (Sec.213)
Declaration property the assessor or his deputy may summon:
as the case 2. Description a. the owners of the properties to be affected
may be 2. Description of the or
of the property b. persons having legal interest therein and
property c. witnesses
Purpose: To obtain information on which to base the
Where to file Assessor -same- market value of the property
2. Amendment of schedule of FMV (Sec.214)
When Once every 3 Within 60 days When the assessor may recommend to the sanggunian
years during after: person under concerned
the period Sec. 202: The sanggunian concerned shall, by ordinance, act
from January a. acquisition or upon the recommendation within 90 days
1-June 30 b. upon a. refuses or from receipt thereof.
completion or b. fails to

Page 78 of 104
E. Classes of real property for assessment purposes (Sec.215) i. personally or
1. Agricultural land devoted principally to the planting ii. by registered mail or
of trees, raising of crops, livestock and poultry, iii. through the assistance of the
dairying, salt making, inland fishing and similar aqua punong barangay to the last
cultural activities, and other agricultural activities. known address of the person to
2. Residential land principally devoted to habitation be served.
3. Timberland
4. Mineral- land in which minerals, metallic or non- H. Appraisal and assessment of machinery (Sec.224)
metallic, exists in sufficient quantity or grade to justify a. brand-new machinery FMV shall be the acquisition
the necessary expenditures to extract and utilize such cost.
materials b. imported machinery - the acquisition cost includes
5. Industrial- land devoted principally to industrial activity freight, bank and other charges, brokerage, arrastre
as capital investment and handling, duties and taxes, plus charges at the
6. Commercial- land devoted principally for the object of present site.
profit c. other cases- the FMV shall be determined by dividing
7. Special the remaining economic life of the machinery by its
Note: The city or municipality within the Metropolitan estimated economic life and multiplied by the
Manila Area through their respective Sanggunian is replacement or reproduction cost.
empowered to classify lands in accordance with their
zoning ordinance (Sec.215) Note: The cost in foreign currency of imported
machinery shall be converted to peso cost on the
F. Actual use of property as basis of assessment (Sec.217) basis of foreign currency exchange rates as fixed by
G. Assessment of real property the Central Bank.
1. Assessment levels (Sec.218)
is the percentage applied to the market value of a 5. Collection of Real Property Tax
property to determine the taxable or assessed value of A. Date of accrual of real property tax (Sec. 246)
the property for purposes of real property tax 1st day of January
it is fixed by ordinances of the sangguniang From that date it shall constitute a lien on the property
panlalawigan, sangguniang panlungsod or which shall be superior to any other lien, mortgage, or
sangguniang bayan of a municipality within the encumbrance of any kind whatsoever, and shall be
Metropolitan Manila Area at rates not to exceed as extinguished only upon the payment of the delinquent
provided by Sec. 218 tax

2. General revisions of assessments and property B. Collection of tax (Sec. 247)

classification (Sec.219)
Within 2 years after the effectivity of this Code and 1. Collecting authority
every 3 years thereafter, the assessor shall undertake It is the responsibility of the city or municipal treasurer
a general revision of real property assessments. concerned.
The city or municipal treasurer may deputize the
3. Date of effectivity of assessment or reassessment barangay treasurer to collect all taxes on real property
(Sec.221) located in the barangay: Provided, the barangay
Made after the 1st day of January of any year - shall treasurer is properly bonded for the purpose and the
take effect on the 1st day of January of the premium on the bond shall be paid by the city or
succeeding year municipal government concerned.

4. Assessment of property subject to back taxes Provincial treasurers are obviously relieved of the authority to
(Sec.222) collect RPT; however, it appears that such omission is only a
Real property declared for the first time shall be typographical error:
assessed for back taxes for not more than 10 years 1. Sec. 170 of the LGC provides that all local TFCs shall
prior to the date of initial assessment. Such taxes shall be collected by the provincial, city, municipal or
be computed on the basis of the applicable schedule barangay treasurer;
of values in force during the corresponding period. 2. Sec. 470 (d)(6) of the LGC provides that the provincial
treasurer shall exercise technical supervision over all
5. Notification of new or revised assessment (Sec.223) treasury officials of component cities and
When: municipalities;
a. real property is assessed for the first time or 3. RPT is a shared tax where the proceeds thereof are
b. when an existing assessment is increased or distributed:
decreased, assessor shall within 30 days give a. 35% to the province which shall accrue to
written notice of such new or revised assessment the general fund ;
to the person in whose name the property is b. 40% to the general fund of the municipality
declared. The notice may be delivered: where the property is located; and

Page 79 of 104
c. 25% to the barangay where the property is 2 % per month, until the delinquent tax shall have
located been fully paid
In no case shall the total interest on the unpaid tax or
2. Duty of assessor to furnish local treasurer with assessment portion thereof exceed 36 mos.
rolls (Sec. 248)
The assessor shall prepare and submit to the Note: The Sanggunian concerned may grant a
treasurer of the LGU, discount not exceeding 20% of the annual tax due for
What: assessment roll advance payment of basic RPT and SEF
Contents: (Sec. 251).
1. list of all persons whose real properties have
been newly assessed or reassessed and 3. Condonation of RPT (Sec. 276)
2. values of such properties Condonation or reduction of RPT and interest by the:
When: on or before the 31st day of December each a. Sanggunian upon recommendation of the Local
year Disaster Coordinating Council in case of a:
1. general failure of crops, or
3. Notice of time for collection of tax (Sec.249) 2. substantial decrease in the price of
The notice of the dates when the basic RPT and agricultural or agri-based products, or
additional tax for Special Education Fund (SEF) 3. calamity in any LGU
may be paid without interest shall be posted by b. President of the Philippines when public interest so
Who: city or municipal treasurer requires.
a. On or before the 31st day of January each E. Remedies of LGUs for collection of real property tax
year or 1. Issuance of notice of delinquency for RPT payment
b. any other date as may be prescribed by the (Sec. 254)
Sanggunian concerned A notice shall be issued by the local treasurer
Where: at a conspicuous and publicly accessible concerned
place at the city or municipal hall. To be posted at:
a. the main entrance of the provincial capitol,
Said notice shall likewise be published in a newspaper or city or municipal hall and
of general circulation in the locality once a week for 2 b. in a publicly accessible and conspicuous
consecutive weeks. place in each barangay of the LGU
C. Periods within which to collect real property tax (Sec.270) the notice shall also be published once a week for 2
1. Within 5 years from the date they become due or consecutive weeks, in a newspaper of general
2. Within 10 years from discovery of fraud or intent to circulation in the province, city, or municipality.
evade payment of the tax. The notice shall:
a. specify the date of delinquency
Grounds for suspension of the running of the prescriptive b. state that personal property may be
period: distrained to effect payment
a. Treasurer is legally prevented from collecting the tax
b. TP requests for reinvestigation and executes waiver in
2. Local governments lien (Sec. 257)
writing before the expiration of the period within which
The basic RPT and any other tax levied constitutes a
to collect
c. TP is out of the country lien on the property subject to tax, superior to all liens,
d. TP cannot be located charges or encumbrances in favor of any person,
No action for the collection of the tax, whether irrespective of the owner or possessor thereof,
enforceable by administrative or judicial action.
administrative or judicial, shall be instituted after the
may only be extinguished upon payment of the tax
expiration of such period.
and the related interests and expenses.
D. Special rules on payment
1. Payment of real property tax in instalments (Sec. 250) 3. Remedies in general (Sec. 256)
a. basic RPT and additional tax for SEF may be paid The LGU concerned may avail of the remedies by:
without interest in 4 equal instalments: a. administrative action thru levy on real property or
1st instalment- on or before March 31st b. by judicial action.
2nd instalment- on or before June 30
3rd instalment- on or before September 30 4. Resale of real estate taken for TF/C (Sec. 264)
4th instalment- on or before December 31st The sanggunian concerned may, by ordinance duly
b. other special levies- governed by the ordinance of the approved, and upon notice of not less than 20 days,
sanggunian concerned sell and dispose of the real property acquired at public
2. Interests on unpaid RPT (Sec. 255) The proceeds of the sale shall accrue to the general
fund of the LGU concerned.

Page 80 of 104
a. owner or
5. Further levy until full payment of amount due (Sec. 265) b. person having legal interest in the property or
Levy may be repeated if necessary until the full c. the assessor who is not satisfied with the decision of
amount due, including all expenses, is collected. the LBAA.

The decision of the CBAA shall be final and executory.

6. Refund or Credit of Real Property Tax
A. Payment under protest (Sec.252) 3. Effect of Appeal on the payment of RPT (Sec. 231)
No protest shall be entertained unless the TP first Appeal on assessments shall not suspend the
pays the tax. collection without prejudice to subsequent adjustment
The words paid under protest shall be annotated on depending upon the final outcome of the appeal.
the tax receipts
The protest must be: Justification: Lifeblood Theory
a. in writing
b. filed within 30 days from the payment of the Q: A non-stock non-profit educational institution applied for
tax real property tax exemption for the properties that it claims
c. filed with the provincial, city or municipal to be actually, directly and exclusively used for educational
treasurer purposes. The local government denied such application.
the protest shall be decided within 60 days from The school filed a case for mandamus with the Regional
receipt Trial Court. Should the suit prosper?
The tax or a portion thereof paid under protest shall be
held in trust by the treasurer concerned. The suit will not prosper. Mandamus will lie only if there is no
In the event that the protest is finally decided in favor other plain, speedy, and adequate remedy in the ordinary
course of law. Where administrative remedies are available, a
of the taxpayer, the amount or portion of the tax
petition for mandamus does not lie. Under Sec. 226 of RA 7160,
protested shall be:
the remedy of appeal to the LBAA is available from an adverse
a. refunded to the protestant, or
ruling or action of the provincial, city or municipal assessor in
b. applied as tax credit against his existing or
the assessment of property.
future tax liability.
In the event that the protest is denied or upon the
Petitioner also argues that it is seeking to enforce, through the
lapse of the 60- day period the TP may appeal.
petition for mandamus, a clear legal right under the Constitution
and the pertinent provisions of the LGC granting tax exemption
B. Repayment of excessive collections (Sec. 253)
on properties actually, directly and exclusively used for
When an assessment of basic RPT or any other tax
educational purposes. But petitioner is taking an unwarranted
levied is found to be illegal or erroneous and the tax is shortcut. The argument gratuitously presumes the existence of
accordingly reduced or adjusted, the TP may file a the fact which it must first prove by competent and sufficient
written claim for refund or credit for taxes and interests evidence before the City Assessor. It must be stressed that the
with the provincial or city treasurer within 2 years from authority to receive evidence, as basis for classification of
the date the taxpayer is entitled to such reduction or properties for taxation, is legally vested on the respondent City
adjustment. Assessor whose action is appealable to the LBAA and the
The provincial or city treasurer shall decide the claim CBAA, if necessary (Systems Plus Computer College v.
within 60 days from receipt thereof. Caloocan City, August 7, 2003).
In case the claim for tax refund or credit is denied, the
TP may appeal. B. Payment of real property under protest
1. File protest with local treasurer
7. Taxpayers Remedies 2. Appeal to the LBAA
A. Contesting an assessment of value of real property 3. Appeal to the CBAA
1. Appeal to the LBAA- Sec. 226 4. Appeal to the CTA
When to appeal: Within 60 days from the date of receipt 5. Appeal to the SC
of the written notice of assessment,
Who may appeal: Q: X, a TP who believes that an ordinance passed by the
a. owner or City Council of Pasay is unconstitutional for being
b. person having legal interest in the property discriminatory against him, wants to know from you, his
How: by filing a petition under oath in the form tax lawyer, whether or not he can file an appeal. In the
prescribed for the purpose, together with copies of the affirmative, he asks you where such appeal should be
tax declarations and such affidavits or documents made: the Secretary of Finance, or the Secretary of Justice,
submitted in support of the appeal. or the Court of Tax Appeals, or the regular courts. What
would your advice be to your client, X? [2003 Bar Exams]
2. Appeal to the CBAA-Sec. 229 [c]
When: Within 30 days after receipt of the decision of the The appeal should be made with the Secretary of Justice. Any
LBAA question on the constitutionality or legality of a tax ordinance
Who may appeal: may be raised on appeal with the Secretary of Justice within 30

Page 81 of 104
days from the effectivity thereof(Section 187, LGC; Hagonoy
Market Vendor Association vs. Municipality of Hagonoy,
February 06, 2002).


list or schedule of articles on which a duty is
imposed upon the importation into the country with
the rates at which they are severally taxed.
Derivatively, it is the system of imposing duties or
taxes on the importation of foreign merchandise.

Customs duties
the name given to taxes on the importation and
exportation of commodities, the tariff or tax assessed
upon merchandise imported from or exported to, a
foreign country (Nestle v. CA, July 6, 2001).

Note: Tariff and customs duties are used


B. GENERAL RULE: all imported articles are subject to


1. Importation by government taxable (Sec.100)

What is the rule on imported articles?

As a general rule, all imported articles shall be subject to
duty even though previously exported from the Philippines
(Sec. 1205)

What is the rule on government importations?

All importations of the government for its own use or that of its
subordinate branches or instrumentalities, or corporations,
agencies or instrumentalities owned or controlled by the
government shall be subject to duties.


They are imposed to:
1. Raise government revenues
2. Protect consumers and manufacturers, as well as,
Philippine products.


The flexible tariff clause is a provision in the
TCC which implements the constitutionally
delegated power to the Congress to further
delegate to the President of the Philippines, in the
interest of national economy, general welfare,
and/or national security upon recommendation of the
a. Increase, reduce or remove existing
protective rates of import duty, provided that
the increase should not be higher than
100% ad valorem

Page 82 of 104
b. Establish import quota or to ban imports When are imported articles deemed have been withdrawn
of any commodity from the warehouse in the PH for consumption?
c. To impose additional duty on all imports not Imported articles shall be deemed "withdrawn" from
exceeding 10% ad valorem, whenever the warehouse in the Philippines for consumption
necessary when the specified form is properly filed and
accepted, together with any related documents
required by any provisions of this Code and/or
regulations to be filed with such form at the time of
E. REQUIREMENTS OF IMPORTATION withdrawal, by the customs official designated to
1. Beginning and ending of importation (Sec 1201 and 1202) receive the withdrawal entry and any duties,
taxes, fees and/or other lawful charges required to be
When does importation begin and when does it end? paid at the time of withdrawal have been deposited
Importation begins: with the customs official designated to receive
when the conveying vessel or aircraft enters the such payment. (Sec. 205)
jurisdiction of the Philippines with intention to unlade
therein. What is meant by entry in relation to the TCC?
Importation is deemed terminated: Entry has a three-fold meaning:
1. upon payment of the duties, taxes, and other a. The documents filed at the customs house
charges due upon the agencies or b. The submission and acceptance of the documents;
2. Secured to be paid at the port of entry and legal and
permit for withdrawal shall have been granted c. Customs declaration forms or customs entry forms
3. Articles have legally left the jurisdiction of customs required to be accomplished by passengers of
incoming vessels or passenger planes as
Why is it important to know when importation begins and envisaged under Sec. 2505.
The jurisdiction of the BoC to enforce the Q: A flight attendant arrived from Singapore. Upon her
provisions of the TCC including seizure and forfeiture arrival she was asked whether she has anything to
also begins from the beginning of importation. declare. She answered none, and she submitted her
Thus, the BoC obtains jurisdiction over imported Customs Baggage Declaration Form which she
articles only after importation has begun. On the accomplished and signed with nothing or written on
other hand, the BoC loses jurisdiction to enforce the the space for items to be declared. When her bag was
TCC and to make seizures and forfeitures after examined some pieces of jewelry were found concealed
importation is deemed terminated. within the lining of the bag. She was then convicted of
violating Section 3601 for unlawful importation. She
When does the BoC acquire exclusive jurisdiction over now appeals claiming that the lower court erred in
imported goods for the purpose of enforcing customs convicting her under Section 3601 when the facts alleged
laws? both in the information and those shown by the
From the moment imported goods are actually in the prosecution constitute the offense under Section 2505
possession or control of the Customs authorities, Failure to Declare Baggage of which she was
even if no warrant for seizure or detention had acquitted. Is she correct?
previously been issued by the Collector of Customs in
connection with the seizure and forfeiture No. Section 2505 does not define a crime. It merely provides
proceedings. (see Subic Bay Metropolitan Authority the administrative remedies which can be resorted to by the
vs. Rodriquez, April 23, 2010) and Sec. 205 BoC when seizing dutiable articles found in the baggage of
any person arriving in the Philippines which is not included
When are imported articles deemed to have entered in the accomplished baggage declaration submitted to the
the PH for consumption? customs authorities and he administrative penalties that
Imported articles shall be deemed "entered" in the such person must pay for the release of such goods if not
imported contrary to law. Such administrative penalties are
Philippines for consumption when the specified entry
independent of any criminal liability for smuggling that may be
form is properly filed and accepted, together with
imposed under Section 3601. (Jardeleza v. People, February
any related documents required by the provisions of
6, 2006)
this Code and/or regulations to be filed with such
form at the time of entry, at the port or station by the
2. Obligations of importer
customs official designated to receive such entry
a. Cargo manifest (Sec. 1105)
papers and any duties, taxes, fees and/or other
It is the document used in shipping, containing the list
lawful charges required to be paid at the time of
making such entry have been paid or secured to be of the contents, value, origin and destination of the
paid with the customs official designated to receive goods to be shipped.
such monies, provided that the article has previously
arrived within the limits of the port of entry (Sec. Every vessel from FOREIGN PORT must have on
205). board a complete MANIFEST of all the cargo

Page 83 of 104
All the cargo intended to be landed at a port in the use, may be cleared on an informal entry whenever
Philippines must be described in separate manifests duty, tax or other charges are collectible.
for each port of call shall include: The Collector may, when he deems it necessary for
1. Port of departure the protection of the revenue, require a formal entry
2. Port of delivery regardless of value.
3. Marks, numbers, quantity and description of the A formal entry may be for immediate consumption, or
packages under bond for:
4. Names of the consignees a. Placing the articles in warehouse;
CANNOT be changed or altered after entry of vessel b. Constructive warehousing and immediate
except: transportation to other ports of the
1. amendment by the master, Philippines withoutappraisement; or
consignee or agent c. Constructive warehousing and immediate
2. attached to the original manifest exportation (Sec. 1302)
CANNOT amend the manifest after the invoice and/or
entry covering the importation have been received
and recorded in the office of the appraiser except: c. Declaration of Correct Weight Value - Sec. 1402 and 2523
1. Obvious clerical error or any other Classification:
discrepancy is committed in the When article not specifically classified in the Code, the
preparation interested party, importer or foreign exporter may
2. Without fraudulent intent submit a sample with full description of component
3. Discovery would not have been made materials in a written request.
until after examination of the
importation is completed Value:
Translated into the official language, if written in Upon written application, Collector shall furnish
another language importer within 30 days the latest information as to the
Master shall deliver and mail the cargo manifest to: DV of articles to be imported.
(endorsed by boarding officer) Importer must present all pertinent papers and
1. Chairman documents, act in good faith and unable to obtain
2. COA information due to unusual conditions
3. Collector (Present original) Information given is not an appraisal nor is it binding
upon the Collectors right of appraisal.
b. Import entry (Sec. 1301 to 1307) The declaration, ascertainment or verification of the
a declaration to the BoC showing particulars of the correct weight of the cargo at the port of loading is the
imported articles that will enable the customs duty or obligation of the master, pilot, owner, officer or
authorities to determine the correct duties and employee of the vessel.
internal revenue taxes due on the importation. If he omits or disregards this duty and a punishable
It is also known as Marine Entry and Internal discrepancy between the declared weight and actual
Revenue Declaration. weight of the cargo exists, the inevitable conclusion is
that he is negligent or careless. Similarly, if in the
Imported articles must be entered in the customhouse exercise or performance of this duty, he is negligent or
at the port of entry within 15 days from date of careless resulting in the commission of excessive
discharge of the last package from the vessel either: discrepancy in the weight of the ship's cargo
a. by the importer, being holder of the bill of penalized under the law, carelessness or
lading, incompetency is, nonetheless, imputable to him.
b. by any other holder of the bill of lading in
due course, d. Liability for payment of duties.(Sec. 1204)
c. by a customs broker acting under authority Unless relieved by laws or regulations, the liability for
from a holder of the bill, or duties, taxes, fees and other charges attaching on
d. by a person duly empowered to act as agent importation constitutes a personal debt due from the
or attorney-in-fact for such holder. The importer to the government which can be discharged
Collector may grant an extension of not only by payment in full of all duties, taxes, fees and
more than 15 days (Sec. 1301) other charges legally accruing. It also constitutes a
All imported articles, except importation admitted lien upon the articles imported which may be enforced
free of duty, shall be subject to a formal or informal while such articles are in custody or subject to the
entry. control of the government.
Articles of a commercial nature intended for sale,
barter or hire, the dutiable value of which is five e. Liquidation of duties (Sec. 1601)
hundred pesos or less, and personal and household Upon approval by the Collector of the returns of the
effects or articles, regardless of value, imported in appraiser and reports of the weights, gauge or
passenger's baggage mail, or otherwise, for personal quantity, the liquidation shall be made on the face of
the entry showing the particulars thereof, initiated by

Page 84 of 104
the liquidating clerk, approved by the chief liquidator, officer may make copies or take extracts from any of
and recorded in the record of liquidations. such documents
A daily record of all entries liquidated shall be posted certified copy may be evidence admissible in all courts
in the public corridor of the customhouse, stating the as if original.
name of the vessel or aircraft, the port from which she
arrived, the date of her arrival, the name of the Note: Liquidation means the final computation
importer, and the serial number and date of the entry. or ascertainment of the duties to be imposed on
A daily record must also be kept by the Collector of all the imported articles. It is akin to an assessment
additional duties, taxes and other charges found upon of internal revenue taxes under the NIRC where the
liquidation, and notice shall promptly be sent to the tax liability of the taxpayer is definitely determined
interested parties. (Pilipinas Shell v. CoC ,June 18, 2009), (Sec. 1601 to
Tentative and Final Liquidation
1. Tentative Liquidation(Sec. 1602) F. IMPORTATION IN VIOLATION OF TAX CREDIT
If to determine the exact amount due under the law in
whole or in part some future action is required, the
liquidation shall be deemed to be tentative as to the
item or items affected and shall to that extent be 1. Smuggling (Sec. 3519 and 3601)
subject to future and final readjustment and an act of any person who shall fraudulently
settlement. The entry in such case shall be stamped import or bring into the Philippines or assist in so
"Tentative liquidation". doing, any article, contrary to law or shall receive,
conceal, buy or sell or in any manner facilitate
2. Final Liquidation (Sec. 1603) the transportation, concealment or sale of such
When articles have been entered and passed free of article after importation knowing the same to have
duty or final adjustment of duties made, with been imported contrary to law. It includes the
subsequent delivery, such entry and passage free of exportation of articles in a manner contrary to
duty or settlement of duties will, after the expiration of law.
one year, from the date of the final payment of duties,
in the absence of fraud or protest, be final and Rodriguez vs. CA, September 18, 1995
conclusive upon all parties, unless the liquidation of Smuggling is committed by any person who:
the import entry was merely tentative. a. Fraudulently imports or brings into the country any
article contrary to law
Fractions in the Liquidation(Sec. 1604) b. Assists in so doing any article contrary to law
A fraction of a peso less than fifty centavos shall be c. Receives, conceals, buys, sells, or in any manner
disregarded, and a fraction of a peso amounting to facilitates the transportation, concealment, or sale
fifty centavos or more shall be considered as one of such goods after importation knowing the same to
peso. In case of overpayment or underpayment of have been imported contrary to law.
duties, taxes, surcharges, wharfage and/or other
charges paid on entries, where the amount involved is Note:
less than five pesos, no refund or collection shall be 1.The commission of smuggling through the first type transpired
made. when the shipments of 3x40 container vans were declared
to contain Used Truck Replacement Parts, when in truth
f. Keeping of records and in fact, the shipment contained fifteen units of
Sportage and Galloper (People of the Philippines vs. Sayson,
1. all importers are required to keep at their principal December 12, 2012)
place of business, in the manner prescribed by 2. Mere possession of alleged smuggled goods is prima
regulations to be issued by the Commissioner of facie evidence of guilt of the smuggling unless the defendant
Customs and for a period of 3 years from the date of could explain that his possession is lawful.
importation, all records of their importations and/or
books of accounts, business and computer systems Is payment a defense in smuggling?
and all customs commercial data including payment No. The law expressly provides that payment of the tax due
records relevant to the verification of the accuracy of after apprehension shall not constitute a valid defense in any
the transactions value declared by the prosecution under this section.
importer/customs brokers on the import duty
2. all brokers are required to keep at their principal place 2. Other fraudulent practices (Sec. 3602)
of business for a period of 3 years from date of
importation copies Other fraudulent practices against customs revenue aside
from unlawful importation:
custom officer authorized by BOC may enter during 1. Entry of imported articles or exported article by
office hours any premises or place where the records means of any false or fraudulent practices,
are kept to conduct an audit examination, inspection, invoice, declaration, affidavit, or other documents
verification or investigation

Page 85 of 104
2. Entry of goods at less than their true weights or
measures or upon a classification as to quality or 3.Conditionally-Free Importations (Sec. 105)
value They refer to those articles which are allowed to be
3. Payment of less than the amount due imported into the PH but subject to conditions.
4. Filing any false or fraudulent claim for the Examples:
payment of drawback or refund of duties upon the 1. Articles for repair, re-conditioning to be re exported
exportation of merchandise within 6 months (requires a bond)
5. Filing any affidavit, certificate or other document ot 2. Personal effects for balikbayans excluding cars,
secure to him or to others the payment of any and must not be commercial quantity and no
drawback, allowance or refund of duties on the exceeding P2,000 (can be brought in 90 days after
exportation of merchandise greater than that legally arrival)
due thereon 3. Articles to be donated to relief organizations (must be
certified by DSWD, DepEd)
4. Samples not for commercial sales, including
Note: medicines (but must not be available in PH)
People of the Philippines vs. Marivic Briones, July 23, 2012 5. Economical, technical, vocational, scientific,
The CTA held that in the prosecution for violation of Section philosophical, historical, cultural books/publications
3602 of the Tariff and Customs of the Philippines, in relation and bibles.
to Article 172 of the Revised Penal Code, it must prove
beyond reasonable doubt that the accused in conspiracy with Problems:
the other accused, made or attempted to make an entry of
the alleged imported article through the filing of the said Q: Jacob after serving a 5-year tour of duty as military
Import Entry at the Bureau of Customs. attach in Jakarta, Indonesia returned to the Philippines
bringing with him his personal effects, including a
G. CLASSIFICATION OF GOODS personal computer and a car. Would Jacob be liable for
1. Taxable importation taxes on these items?
2. Prohibited importation No. Jacob will be exempted provided he complies with the
3. Conditionally-free importation requirements under Section 105 of the TCC.
The requirements are:
Q: What are the classes of importation under the TCC? a. The car must have been ordered or purchased
1. Dutiable Importation (Sec. 100) prior to the receipt by the Philippine mission or
They refer to those imported articles subject to duty consulate of the recall order
and not otherwise exempted by the TCC or other b. The car is registered in his name
special laws. c. The exemption shall apply only to the value of the
2. Prohibited Importations (Sec.101 and 1207) d. The exemption shall apply to the aggregate value of
They refer to those articles that are cannot be his personal and household effects not exceeding
imported into the PH because they are contrary 30% of the total amount received by him as
to policy, morals, laws, etc. salary and allowances during his assignment but
Examples: not to exceed 4 years
1. Dynamite, gunpowder, ammunition and explosives, e. He must not have availed of the exemption more
other weapons (except when authorized by law); oftener than once every four years (Sec.105)
2. Written or printed articles advocating or inciting
treason, rebellion, or insurrection; Q: X and his wife Y, Filipino living in the Philippines
3. Written or printed articles, etc of an obscene or went on a 3-month pleasure trip around the world during
immoral character; the months of June, July, and August 2002. In the
4. Articles, instruments, drugs and substances designed course of their trip, they accumulated some personal
for unlawful abortion; effects which were necessary, appropriate and normally
5. Devices used in gambling or the distribution of used in leisure trips as well as souvenirs in
money, cigarettes, or other articles when such noncommercial quantities. Are they returning residents
distribution is dependent on chance; for purposes of Section 105 of the TCC?
6. Lottery and sweepstakes tickets (Except those No. The term returning residents refers to nationals who have
authorized); stayed in a foreign country for a period of at least 6 months (see
7. Any article manufactured in gold, silver or other Sec. 105[f]). Due to their limited duration of stay abroad, X and
precious metals when there is no indication of the Y are not considered as returning residents but they are
actual fineness of quality; merely considered as travelers or tourists who likewise
8. Adulterated or misbranded articles of food and enjoy the benefit of conditionally-free importation (Sec.
drugs; 105[g]).
9. Marijuana, opium and other narcotics;
10. Opium pipes and parts thereof; 4. Drawbacks (Sec. 106)
11. All other articles and parts prohibited by law or rules
and regulations (Sec. 101)

Page 86 of 104
They refer to refunds or tax credits of duties paid on the transaction value of similar goods sold for export to
goods that are being exported or used in the the Philippines and exported at or about the
production of manufactured exports same time as the goods being valued; similar goods shall
mean goods which, although not alike in
Examples: all respects, have like characteristics and like component
1. Fuel used for propulsion of vessels engaged in trade materials which enable them to perform the
with foreign countries or coastwise trade same functions and to be commercially interchangeable;
2. Petroleum Oils or Oils obtained from bituminous
minerals, crude eventually used for generation of 4. Deductive value
electric power and manufacture of city gas an amount based on the unit price at which the imported
gods or identical or similar imported goods
Problem: are sold in the Philippines, in the same condition as when
Q: What are freely importable commodities? imported, in the greatest aggregate quantity, at
A: Under Section 7(1) of Central Bank Circular no. 1389, or about the time of importation of the goods being valued, to
freely importable commodities are those importations which persons not related to the persons from
are neither regulated nor prohibited and may be effected whom they buy such goods, as adjusted; Methods four and five
without the prior approval of or clearance from any may be reversed.
2012). the aggregate value of the cost or value of materials and
fabrication or other processing employed in
Note: Section 106(e), TCC provides that producing the imported goods, amount for profit and general
Claims for refund or tax credit eligible for such expenses, freight, insurance fees and
benefits shall be paid or granted by the Bureau of other transportation expenses for the importation of the goods,
Customs to claimants within 60 days. among others; and


an amount determined by using other reasonable means
1. Ordinary/Regular duties
and on the basis of data available in the
These are axes that are imposed or assessed upon
merchandise from or exported to a foreign country
for the purpose of raising revenue. They may
Note: The transaction value is the primary
also be imposed to serve as protective barriers
method of determining dutiable value. If the
which would prevent the entry of merchandise that
transaction value of the imported article could not be
would compete with locally manufactured items.
determined using the above, the alternative methods
They are also referred to as tariff barriers.
should be used one after the other.
a. Ad valorem
Q: Define transaction value
These are customs duties that are computed on the
A: It is the price actually paid/payable when exported to PH
basis of value (Sec. 201)
adjusted by adding the following:
1. Commissions, cost of containers, packing cost,
Q: What are the methods of determining dutiable
cost of tools, engineering, artwork if supplied free
values? (Sec. 201-205, 1313 )
of charge, royalties;
The methods of determining the dutiable value are as
2. Value of subsequent resale accruing to the seller;
follows (by order of preference):
3. Cost of transport & loading/unloading charges from
port of exportation to port of entry in PH (costs
1. Transaction value
within PH already excluded);
an ad valorem rate of duty equivalent to the price actually
4. Insurance.
paid or payable for the goods when sold for
export to the Philippines, as adjusted;
Q: When is transaction value (method one) not used?
1. Buyer imposes restrictions on sale or use of goods
2. Transaction value of identical goods
(except if imposed by law, geographical limits, not
the transaction value of identical goods sold for export to the
affect value of goods);
Philippines and exported at or about the
2. Sale is subject to some condition/consideration
same time as the goods being valued; identical goods shall
which cannot be valued;
mean goods which are the same in all
3. Part of subsequent resale accrues to seller and
respects, including physical characteristics, quality and
amount undeterminable;
reputation, discounting minor differences in
4. Buyer and seller are related:
a. business partners;
b. holds 5% equity;
3. Transaction value of similar goods
c. common control;
d. relatives up to 4th degree.

Page 87 of 104
consumers and/or the general public, and other
b. Specific related local industries
Rates are based on unit of weight number or 4. The amount of anti-dumping duty that may be
measurement imposed is the difference between the export price
and the normal value of such product, commodity, or
2. Special duties article (Sec. 302)
These are additional import duties imposed on
specific kinds of imported articles under certain Q: What is a countervailing duty?
conditions. It cannot be applied without the A: It is a special duty imposed on the importation of a product,
regular customs duties. It can only be applied in commodity or article of commerce into the Philippines when
the presence of a special order from government the same is granted directly or indirectly by the government
officers. in the country of origin or exportation any kind or form of
specific subsidy upon the production, manufacture or
Q: What are the kinds of special duties? exportation of such product, commodity or article, and the
A: The following are special duties: importation of such subsidized product, commodity or article
1. Anti-Dumping (Sec. 301) has caused or threatens to cause material injury to a domestic
2. Countervailing (Sec.302) industry or has materially retarded the growth or prevents the
3. Marking (Sec. 303) establishment of a domestic industry as determined by the
4. Discriminatory (Sec. 304) Tariff Commission ( Sec.302)
5. Safeguard Duties (RA 8800). ( Sec. 301)
Q: What is an anti-dumping duty? 1. The countervailing duty shall be in addition to any
A: It is a special duty imposed on the importation of a product, ordinary duties, taxes, and charges imposed bylaw
commodity or article of commerce into the Philippines at less on such imported product or article
than its normal value when destined for domestic 2. The countervailing duty is equivalent to the
consumption in the exporting country which is the difference bounty (cash award paid to an exporter),
between the export price and the normal value of such subsidy(fiscal incentives, not in the form of cash
product, commodity or article. (Sec. 301[s][1]) award, to encourage manufacturers or exporters) or
subvention (any assistance other than bounty or
Requisites for the imposition of anti-dumpingduty: subsidy).
a. Where the product, commodity or article of commerce, 3. The imposing authority for the countervailing duties is
i. Is exported into the Philippines, Normal the DTI Secretary in the case of non-agricultural
value for purposes of imposing the anti- product, commodity, or article or the DA Secretary
dumping duty is the comparable price at in the case of agricultural product, commodity or
the date of sale of like product, article (Sec. 303)
commodity or article in the ordinary course
of trade when destined for consumption in Q: What is a marking duty?
the country of export (Sec. 301(s)(3), as A: A marking duty are the additional customs duties
amended by RA 8752); imposed on foreign articles (or its containers if the article
ii. At a price less than its normal value; and itself cannot be marked) not marked in any official language
iii. When destined for domestic consumption. in the Philippines in a conspicuous place as legibly, indelibly
b. And such exportation and permanently in such manner as to indicate to an ultimate
i. Is causing; or purchaser in the Philippines the name of the country of
ii. Is threatening to cause material injury to a origin (Sec.303)
domestic industry; or
iii. Materially retards the establishment of a Q: What are the exceptions to marking of articles?
domestic industry producing like product 1. The article is incapable of being marked;
2. The article cannot be marked prior to importation to
Note: the Philippines without injury;
1. The imposing authority for the anti-dumping duty is 3. The article cannot be marked prior to importation to
the DTI Secretary in the case of non - the Philippines except at an expense economically
agricultural product, commodity, or article or the DA prohibitive of its importation;
Secretary in the case of agricultural product, 4. The marking of the container of such article will
commodity or article. reasonably indicate the origin of such article;
2. Even when all the requirements for the imposition 5. The article is of a crude substance;
have been fulfilled, the decision on whether or not to 6. Such article is for the use of the importer and not
impose a definitive anti-dumping duty remains the intended for sale in its imported or other form;
prerogative of the Tariff Commission 7. Such article is to be processed in the Philippines by
3. In the determination of whether to impose the the importer or for his own account and not for the
anti dumping duty, the Tariff Commission may purpose of concealing the origin of such article;
consider among others, the effect of imposing an anti-
dumping duty on the welfare of the

Page 88 of 104
8. The ultimate purchaser by the Character of the (i) Rules on appeal including jurisdiction
article necessarily know the country of origin of
such article; When does the BoC normally avail itself of the
9. Such article was produced more than 20 years administrative remedy instead of the judicial remedy and
prior to its importation into the Philippines; and vice versa?
10. Such article cannot be marked after importation a. Administrative Remedy
except at an expense economically prohibitive and when the goods to which the tax lien attaches,
the failure to mark the article before importation regardless of ownership is still in the custody or
was not due to any purpose of the importer, control of the government. In the case, however, of
producer, seller or shipper to avoid compliance. importations which are prohibited or undeclared,
the remedy of seizure and forfeiture may still be
Note: exercised even if the goods are no longer in its
1. Only the CoC may impose marking duties custody
2. The marking duty is equivalent to 5% ad valorem
(Sec. 304)
Q: What is a discriminatory duty?
A: It is an additional customs duty imposed upon articles b. Judicial Remedy
wholly or in part, the growth or product of, or imported in a when the goods are properly released and thus
vessel of any foreign country whenever the President shall beyond the reach of a tax lien, the government can
find as a fact that such country: seek payment of the tax liability through judicial
a. Directly or indirectly upon any Philippine product action since the tax liability of the importer
unreasonable charge, exaction, regulation or constitutes a personal debt to the government,
limitation which is not equally enforced upon like therefore, enforceable by action.
articles of other foreign countries
b. Discriminates in fact against the commerce of the Q: What are the extrajudicial (or administrative
Philippines as o place the Philippines at a remedies) available to the government?
disadvantage compared with the commerce of any 1. Enforcement of tax lien (Sec. 1204 and 1508)
foreign country (Sec 304) 2. Seizure and forfeiture (Sec. 2201-2212, 2301-2317, 2530-
2536,), (Sec. 1024, 1058, NCC)
Note: It is the President who imposes the
discriminatory duties. Q: What is a tax lien in relation to the TCC?
The liability for duties, taxes, fees and other charges of an
Q: What are safeguard measures? importer constitutes a lien upon the articles imported which
A: Safeguard measures are emergency measures including may be enforced while such articles are in custody or subject
tariffs to protect domestic industries and producers from to the control of the government.
increased imports which inflict or could inflict serious injury on
them. Note: The Collector shall hold the delivery of
any article imported or consigned to an importer
Note: whenever such importer has an outstanding and
1. The CTA is vested with jurisdiction to review demandable account with the BoC. If subsequently
decisions of the DTI Secretary imposing safeguard authorized by the Commissioner and upon notice,
measures as provided under RA 8800, the the Collector may sell such importation or a
Safeguard Measures Act (see Southern Cross portion thereof to cover the outstanding account of
Cement Corporation v. Philippine Cement the importer.
Manufacturers Corp, July 8, 2004)
2. The imposing authority for the safeguard measures is Search, seizure, forfeiture, arrest
the DTI Secretary in the case of non-agricultural Note: This is how seizure and forfeiture works:
product, commodity, or article or the DA Secretary 1. The articles are seized by the customs authorities. A warrant
in the case of agricultural product, commodity or of seizure is used for -said purpose. In the case of a search in a
article. dwelling, a search warrant from the regular courts would have to
3. The DTI Secretary cannot impose the safeguard be procured.
measures if the Tariff Commission does not
favorably recommend its imposition. 2. The Collector upon making any seizure shall issue a
Warrant of Detention. The articles may be released if a bond is
filed except if there is prima facie evidence of fraud in their
I. REMEDIES importation in which case the seized articles may not be
1. Government released by a bond.
a) Administrative/extrajudicial
(i) Search, seizure, forfeiture, arrest 3. Forfeiture proceedings take place. The only issue is whether
the seized goods should be forfeited. The case can be
b) Judicial compromised or be subject of a settlement. The Collector

Page 89 of 104
may either issue a Declaration of Forfeiture or rule that the operation is sufficient for it to be deemed to have been used in
seized articles are not subject to forfeiture. smuggling.

Thus, either the importer or the government can be aggrieved Q: What properties are not subject to forfeiture?
by said decision. If the importer is aggrieved, he may file an See Section 2531, TCC.
administrative protest to the CoC and if denied, he can proceed
to the CTA and so on. If the government is aggrieved, there is Q: Are common carriers subject to forfeiture?
automatic review by the CoC and then by the DOF Secretary. If As a general rule, they are not subject to forfeiture. However, if
said bodies decide in favor of the government, the importer may the owner has knowledge of its use in smuggling and was
proceed to the CTA and so on (Sec. 2201-2212) a consenting party, it may be forfeited.

Q: Who has the power to seize and arrest? Note: Pursuant to Section 2530 of the Tariff and
Customs officers may seize any vessel, aircraft, cargo, Customs Code of the Philippines, the mere carrying or
article, animal or other movable property when the same is holding on board of smuggled articles shall subject
subject to forfeiture or liable for any time as imposed under the vessel to forfeiture. However, the vessel is not
the TCC and related rules and regulations (Sec. 2205) subject to forfeiture if it is engaged as duly
Note: The BoC may conduct search and seizures authorized common carrier and as such carrier it is not
even without the benefit of a warrant issued by a chartered or leased (The Commissioner of Customs
judge upon probable cause except if the search is to and the Undersecretary of Finance vs. Gold Mark Sea
be conducted in a dwelling. Carriers Inc., December 24, 2012).

Q: When is a warrant of seizure may be issued by the

CoC? Q: When is there prima facie knowledge by the owner of the
The CoC upon probable cause that the articles are imported or common carrier?
exported or are attempted to be imported or exported, in There is prima facie knowledge by the owner of the common
violation of the TCC shall issue a warrant of seizure. carrier of its use in smuggling:
a. If the conveyance was used for smuggling at least
Note: twice before;
1. If the search and seizure is to be conducted in a b. If the owner is not in the business for which the
dwelling place, then a search warrant should be conveyance is generally used;
issued by the regular courts and not the BoC. c. If the owner is not in a position to own such
2. The rules on warrantless search and seizures conveyance.
also apply such as in search and seizures of
motor vehicles and vessels. In such cases, no Q: In smuggling a shipment of garlic, the smugglers
warrants issued by the BoC or regulars is required. used an eight-wheeler truck which they hired for the
3. If the smuggled goods are seized by virtue of a court purpose of taking out the shipment from the customs
warrant, they should be surrendered to the court zone. Danny, the truck owner, did not have a certificate
that issued the warrant not to the BoC because the of public convenience to operate his trucking business.
goods are in custodia legis. Danny did not know that the shipment of garlic was
4. The payment of customs duties, taxes does not illegally imported. Can the CoC of the port seize and forfeit
necessarily render as irregular and improper the the truck as an instrument in the smuggling?
issuance of a warrant of seizure (Sec. 2530-2536)
Yes, the CoC of the port can seize and forfeit the truck
Q: What are the requisites for forfeiture of imported as an instrument of the smuggling since the same was
goods? used unlawfully in the importation of smuggled articles. The
a. Wrongful making by the owner, importer, exporter mere carrying of such articles on board the truck in
or consignee of any declaration or affidavit or the commercial quantities shall subject the truck to forfeiture, since
wrongful making or delivery by the same person of it was no being used as a duly authorized common carrier,
any invoice, letter or paper all touching on the which was chartered or leased as such (Sec. 2530[a])
importation or exportation of merchandise Further, although forfeiture of the vehicle will not be affected if
b. The falsity of such declaration, affidavit, invoice, it is established that the owner thereof had no knowledge of
letter or paper or participation in the unlawful act, there arises a prima facie
c. An intention on the part of the importer/consignee presumption of knowledge or participation if the owner is not in
to evade the payment of the duties due (Republic vs. the business for which the conveyance is generally used.
CA, October 2, 2001), (Sec 2530 to 2536) Thus, not having a certificate of public convenience to
operate a trucking business, he is legally deemed no to
Q: What properties are subject to forfeiture under the have been engaged in the trucking business (Sec. 2531,
TCC? 2301-2317);
Under Section 2530(a), it is not necessary that the vessel or
aircraft must itself carry the contraband. The complementary Q: Discuss the administrative proceeding of forfeiture from
if collateral use of the vessel or aircraft for the smuggling issuance of warrant of detention to declaration of

Page 90 of 104
1. Collector issues warrant for detention of property the strict merits of the case (Zuno v. Cabredo,
(if owner or importer desires to secure release of 402 SCRA 75);
property for legitimate use, Collector may surrender 5. Under the doctrine of primary jurisdiction, the BoC
subject property upon filing of sufficient bond); has exclusive administrative jurisdiction to
2. Collector immediately reports seizure to COC and conduct searches and seizures and forfeitures of
Chairman of COA; contraband without interference from the courts. It
3. Collector gives owner or importer or his agent could conduct search and seizures without need of a
written notice of seizure and opportunity to be judicial warrant except if the search is to be
heard; conducted in a dwelling place.
4. Collector causes preparation of list and particular
description of property seized, as well as appraisal Q: What is the nature of customs seizure and forfeiture
and classification of the same; cases?
5. Collector, after hearing and in writing, makes a They are administrative and civil in nature and are directed
declaration of forfeiture or fixes amount of fine or against the res or the imported articles and entail the
takes such action as may be proper. determination of the legality of the importation. These are
actions in rem. Thus, it is of no defense that the owner of the
Note: As a result of (5), the aggrieved owner or vessel sought to be forfeited had no actual knowledge that
imported may file what is called an administrative his property is used illegally. The absence or lack of actual
protest. In said protest, he is essentially knowledge of such use is a defense personal to the owner
questioning the decision of the Collector before himself, which cannot in any way absolve the vessel from the
CoC. In some cases, instead of a declaration of liability of forfeiture (CoC v. Manila Star Ferry ,October 21,
forfeiture, it is the government who is aggrieved. In 1993)
such case, automatic review shall apply.
Q: Who has jurisdiction to hear and determine questions Cornelio Q. Casido vs. Republic of the Philippines, February 08,
touching on the seizure and forfeiture of dutiable goods? 2012
The CoC sitting in seizure and forfeiture proceedings has The CTA held that forfeiture of seized goods by the BOC is an
exclusive jurisdiction to hear and determine all questions action in rem against the goods and not against the owner.
touching on the seizure and forfeiture of dutiable goods. As Absence of knowledge or participation of the owner in the
held in Subic Bay Metropolitan Authority vs. Rodriguez, April unlawful act does not absolve the vessel/goods from
23, 2010, the Collector of Customs has exclusive jurisdiction forfeiture.
over seizure and forfeiture proceedings and the regular courts
cannot interfere with his exercise thereof or enjoin or Note:
interfere with it. The regular courts are precluded from 1. The issue is limited to whether the imported
assuming cognizance over such matters even through goods should be forfeited and disposed of in
petitions for certiorari, prohibition, or mandamus. accordance with law for violation of the TCC
(Transglobe International v. CA, January 25, 1999 ).
Note: The RTC must defer to the exclusive 2. Forfeiture of seized goods in the BoC is a proceeding
original jurisdiction of the BOC in such proceedings. against the goods and not against the owner
This is known as the doctrine of primary jurisdiction. (Asian Terminals v. Bautista-Ricafort ,October 27,
Q: What is the rationale for the exclusive customs
jurisdiction doctrine? Q: May forfeiture cases be compromised?
1. RTCs have no jurisdiction to replevin a property Yes. Subject to the approval of the Secretary of Finance,
which is subject to seizure or forfeiture the CoC may compromise any case arising under the TCC or
proceedings for violation of the TCC. Otherwise, other laws or part of laws enforced by the BoC involving the
actions for forfeiture of property for violation of the imposition of fines, surcharges, and forfeitures (Sec. 2306).
Customs laws could easily be undermined by the
simple device of replevin (Dela Fuente v. De Veyra, Q: May forfeiture cases be settled?
120 SCRA 455); Yes. Settlement of cases by payment of fine or redemption
2. The doctrine of exclusive customs jurisdiction over of forfeited property is allowed. There are, however,
customs cases to the exclusion of the RTC is exceptions:
anchored upon the policy of placing no unnecessary a. The importation is absolutely prohibited
hindrance on the governments drive, not only to b. The surrender of the property to the person offering to
prevent smuggling and other frauds upon customs; redeem would be contrary to law
3. To render effective and efficient the collection of c. When there is fraud
import and export duties due he State which enables
the government to carry out its functions; Note: The above enumeration are also the
4. The issuance by regular courts of preliminary instances where there is no right of redemption of
injunction in seizure and forfeiture proceedings seized and forfeited articles (Transglobe
before the BoC may arouse suspicion that the International v. CA, January 25, 1999).
issuance or grant was for consideration other than

Page 91 of 104
Q: What are the judicial remedies that may be availed which questions the legality or correctness of assessed customs
of by the Government? duties.
a. Civil Action
b. Criminal Action Is payment prior to protest required?
Yes. No protest shall be considered unless payment of the
Note: Such actions shall be brought in the name amount due has first been made and the corresponding
of the Government of the Philippines and shall be docket fee (Sec. 2308).
conducted by customs officers but no action shall
be filed in court without the approval of the CoC. Discuss the procedure for customs protest from
issuance of warrant of detention to appeal to the
Rules on appeal including jurisdiction(Sec. 2042) Supreme Court.
The party aggrieved by a ruling of the Commissioner 1. Collector issues warrant for detention of property
in any matter brought before him upon protest or by (if owner or importer desires to secure release of
his action or ruling in any case of seizure may appeal property for legitimate use, Collector may surrender
to the Court of Tax Appeals, in the manner and within subject property upon filing of sufficient bond)
the period prescribed by law and regulations. 2. Collector immediately reports seizure to COC and
Unless an appeal is made to the Court of Tax Appeals Chairman of COA
in the manner and within the period prescribed by 3. Collector gives owner or importer or his agent
laws and regulations, the action or ruling of the written notice of seizure and opportunity to be heard
Commissioner shall be final and conclusive (Sec. 4. Collector causes preparation of list and particular
2402) description of property seized, as well as appraisal
and classification of the same
Note: 5. The Collector, after hearing and in writing, can
either make a declaration of forfeiture (owner or
1. The Decision of the CoC in cases involving liability for
importer is aggrieved) or rule otherwise
customs duties, fees, or other money charges,
(government is aggrieved).
that must be appealed to the CTA in Division
within 30 days from receipt refers to his decisions
If the owner or importer is aggrieved by the decision of the
on administrative tax protests. Unless an appeal is
made to the CTA in the manner and within the period
1. Protest to the Collector within 15 days
prescribed by law, the action or ruling of the CoC shall
2. If aggrieved by the decision or action of the
be final and conclusive (Pilipinas Shell v. CoC, June
collector upon protest, appeal to the Commissioner
18, 2009).
within 15days after notification in writing by the
2. The CTA has jurisdiction only over decisions of the
Collector of his action or decision
CoC in cases involving seizures, detention or release
3. Appeal to CTA Division within 30 days from notice
ofproperty affected, not the decision of the Collector
4. Appeal to CTA En Banc
5. Appeal to SC by certiorari within 15 days
2. Taxpayer
a) Protest(Sec. 2308 to 2315)
written protest If the government is aggrieved by the decision of the Collector:
1. Automatic review by COC
payment before protest is necessary
2. Automatic review by DOF Secretary
(amount due + docket fee) 3. If owner or importer is aggrieved by decision of COC
When: at the time payment of the amount claimed to be or DOF Secretary
due is made within 15 days thereafter 4. Appeal to CTA Division within 30 days from notice
Form: filed according to RR; point out the particular 5. Appeal to CTA En Banc
decision or ruling grounds used as basis for the 6. Appeal to SC by certiorari within 15 days
Scope: limited to the subject matter of a single adjustment
(refers to the entire content of one liquidation
1. Automatic review is intended to protect the interests of
including duties, fees, surcharges and fines) or other
the Government in the collection of taxes and
independent transaction
customs duties in seizure and protest cases.
Without such automatic review, nether the CoC or
the DOF Secretary would know about the decision of
Failure to protest will render the action of the Collector final and the Collector of Customs favoring the taxpayer. The
conclusive except for manifest error power to decide seizure and protest cases may be
upon demand of Collector, the importer shall furnish samples of abused if no checks are instituted. Automatic review
the articles which are the subject of the protest. is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the
What is an administrative tax protest? taxpayer and adverse to the government (Yaokasin v.
A tax protest case, under the TCC, involves a protest of CoC,180 SCRA 591).
the liquidation of import entries. In other words, it is a protest 2. The CTA does not have jurisdiction on rulings of
the Secretary of Finance over seizure and

Page 92 of 104
forfeiture proceedings which do not involve 1. Damage incurred during voyage
assessment of any duties (3-D Industries, Inc. vs. 2. Missing package
Secretary of Finance, June 06, 2012). 3. Deficiency in contents of packages
4. Articles lost or destroyed after arrival
b) Abandonment (Sec.1801-1802) 5. Dead or injured animals
6. Refund of Excess payments (made due to manifest
What is abandonment? clerical errors)
Abandonment is the renunciation by an importer of all his
interests and property rights in imported articles (Sec. 1801) What is the procedure for claiming refund?
1. The taxpayer shall make his claim for refund of duties
When is an article deemed abandoned? in writing and forward it to the Collector for
1. Importer expressly signifies in writing to the Collector verification
his intention to abandon (express abandonment) 2. If the Collector found the claim to be correct, he shall
2. When the importer fails to file an entry within 30 certify it to the CoC with his recommendation
days (not extendible) from the date of discharge 3. If found correct by the CoC, he shall cause the same
of the last package or having filed such entry, fails to be paid (Sec. 1708)
to claim the imported articles within 15 days (not
extendible) from the date of posting of the notice
to claim such importation (implied abandonment)
Note: Both the Import Entry Declaration (IED) and V. JUDICIAL REMEDIES (CTA)
Import Entry and Internal Revenue Declaration
(IEIRD) should be filed within 30- days from he date Note: The rules here are those found in R.A.
of discharge of the last package from the vessel or 1125, as amended by RA 9282. Some sources and
aircraft. When the importer fails to file the entry answers to past bar questions may still contain
within the said period, he shall be deemed to rules applicable to R.A. 1125 before its
have renounced all his interest and property rights amendment. So make sure you have an updated
to the importations and these should be considered codal and reference material.
impliedly abandoned in favor of the government
(Chevron Philippines v. CoC, August 11, 2008)
What are the effects of abandonment? Note: The CTA is composed of a Presiding Justice
a. Any person who abandons an article shall be and 8 associate justices organized into three divisions.
deemed to have renounced all his interests and
property rights therein. 1. Exclusive Appellate Jurisdiction
b. An abandoned article shall ipso facto be deemed a. Cases within the jurisdiction of the court en banc
the property of the Government. b. Cases within the jurisdiction of the court in divisions
c. It does not relieve the owner from any criminal Note: This refers to the exclusive jurisdiction to
liability review by appeal of the CTA en banc and CTA in
d. If the abandoned articles are transferred to a customs division. (Sec. 2, Rule 4, RRCTA)
bonded warehouse, he operator shall be liable for
the payment of duties and taxes in the case of What are the cases within the exclusive appellate
losses of the stored abandoned imported articles jurisdiction to review by appeal of the CTA en banc?
(R.V. Marzan vs. CA, March 4, 2004) a. Decisions or resolutions on MRs or MNTs of the Court
in Division in the exercise of its exclusive
c) Abatement and Refund (Sec. 1701-1708) appellate jurisdiction over:
i. Cases arising from administrative agencies
What is abatement? ii. Local tax cases decided by the RTCs in the
Abatement is the reduction or non-imposition of customs exercise of their original jurisdiction
duties on certain imported materials as a result of damage iii. Tax collection cases decided by RTCs in
incurred during voyage; deficiency in contents of packages; the exercise of their original jurisdiction
loss or destruction of articles after arrival; or death or injury of involving final and executory assessments
animals. for taxes, fees, charges, and penalties,
where the principal amount of taxes and
Note: The general rule is that no abatement of penalties claimed is less than P1M
duties shall be made on account of damage incurred iv. Criminal offenses arising from violations
or deterioration suffered during voyage of of the NIRC or TCC and other laws
importation and duties will be assessed on the administered by the BIR
actual quantity imported (Sec. 1701). or BOC
b. Decisions, resolutions or orders on MRs or MNTs of
What are the instances where the Collector may abate or the Court in Division in the exercise of its
refund the amount of duties accruing or paid by the exclusive original jurisdiction over:
importer? (exceptions to the general rule) i. Tax Collection cases

Page 93 of 104
ii. Cases involving criminal offenses Rule 4, A.M. No. 05-11-07-CTA)
arising from violations of the NIRC
or TCC and other laws administered Note: Any dispute or controversy involving
by the BIR or BOC national internal revenue taxes or customs duties not
c. Decisions, resolutions or orders of the RTCs in falling within the purview of the exclusive appellate
the exercise of its appellate jurisdiction over: jurisdiction of the CTA must fall within the jurisdiction
i. Local tax cases of the regular courts. A taxpayers suit impugning he
ii. Tax Collection cases constitutionality of a tax statute, for example, even
iii. Criminal offenses arising from violations if involving the NIRC or TCC would fall within the
of the NIRC or TCC and other laws jurisdiction of the regular courts.
administered by the BIR
or BOC When is a decision of the CIR appealable to the CTA?
d. Decisions of the CBAA in the exercise of its First view: The appealable decision is the one which
appellate jurisdiction over cases involving categorically stated that the CIRs action on the disputed
assessment and taxation of real property originally assessment is final (CIR vs. Union Shipping Corporation, May
decided by the provincial or city board of 21, 1990)
assessment appeals (Sec. 2, Rule 4, A.M. No. 05-11-
07-CTA), Sec 3(a), Rule 4, RRCTA Second view: There is no need for a categorical statement.
So long as the tenor of the decision is that the dispute of
What are the cases within the exclusive appellate the taxpayer is denied, it is appealable (Surigao Electric vs.
jurisdiction to review by appeal of the CTA in division? CTA, June 28, 1974).
a. Decisions of the CIR A survey of cases would indicate that the second view is
i. In cases involving disputed assessments, followed. There is no need for a categorical statement that the
refunds of internal revenue taxes, fees action is final. The rationale is that to let the taxpayer defer
or other charges, the period is to unduly put in his hand the collection of taxes.
penalties in relation thereto; or
ii. Other maters arising under the NIRC or Q: A taxpayer received on 15 Jan 1996 an assessment
other laws administered by the BIR for internal revenue tax deficiency. On 10 Feb 1996, the
b. Inaction by the CIR where the NIRC provides a taxpayer filed a petition for review with the CTA. Should
specific period of action the CTA entertain the appeal?
i. In cases involving disputed assessments,
refunds of internal revenue taxes, fees No. Before the taxpayer can avail of a judicial remedy, he
or other charges, must first exhaust administrative remedies by filing a protest
penalties in relation thereto; or within 30 days from receipt of the assessment. An
ii. Other matters arising under the NIRC or assessment by the BIR is not the CIRs decision from
other laws administered by the BIR which a petition for review may be filed with the CTA. Rather, it
is the action taken by the CIR in response to the taxpayers
c. Decisions, orders or resolutions of the RTCs in protest on the assessment that would constitute the
local tax cases decided or resolved by them in appealable decision.
the exercise of their original jurisdiction
d. Decisions of the Commissioner of Customs Q: ABC Corp. received an income tax deficiency from
i. In cases involving liability for customs the BIR. ABC filed a protest and submitted to the BIR all
duties, fees, or other money charges, relevant supporting documents. The CIR did not
seizure, detention or release of property formally rule on the protest. Thereafter, ABC was served
affected, fines, forfeitures of other penalties summons and a copy of the complaint for collection of
in relation thereto; or the tax deficiency filed by the BIR with the RTC. ABC
ii. Other matters arising under the Customs filed a petition for review before the CTA. The BIR
Law or other laws administered by the contends that the petition is premature since there was
BoC no formal denial of the protest of ABC. Is the BIRs
e. Decisions of the Secretary of Finance on customs contention correct?
cases elevated to him automatically for review from
decisions of the Commissioner of Customs which No. The CTA has jurisdiction because the action of the CIR
are adverse to the Government under Sec. 2315. qualifies as an appeal from the CIRs decision on the
f. Decisions of the DTI Secretary in the case of disputed assessment. When the CIR decided to collect the
non-agricultural product, commodity or article and the tax assessed without first deciding on the taxpayers
DA Secretary in case of agricultural product, protest, the effect of his action of filing a judicial action for
commodity or article, involving dumping and collection is a decision of denial of the protest, in which event
countervailing duties under Sections 301 and 302 of the taxpayer may file an appeal with the CTA (Republic v. Lim
the TCC and safeguard measures under the Tian Teng & Sons, 16 SCRA 584).
Safeguard Measures Act (RA 8800) where either party
may appeal the decision to impose or not to impose Q: Name some communications sent by the CIR to
said duties(Sec. 3(a), taxpayers that are deemed appealable to the CTA.

Page 94 of 104
Surigao Electric vs. CTA, June 28,1974: A: The reviewable decision is the latter letter where the CIR
1. a letter which stated the result of the investigation clearly directed the taxpayer to appeal to the CTA and not
requested by the taxpayer and the the warrants of levy and distraint. No amount of quibbling
consequentmodification of the assessment; or sophistry can blink the fact that said letter, as its tenor
2. letter which denied the request of the taxpayer for shows, embodies the Commissioner's final decision. He even
the reconsideration cancellation, or withdrawal of directed the taxpayer to appeal it to the Tax Court. The directive
the original assessment; is in consonance with this Court's dictum that the
3. a letter which contained a demand on the Commissioner should always indicate to the taxpayer in
taxpayer for the payment of the revised or clear and unequivocal language what constitutes his final
reduced assessment; and determination of the disputed assessment. That procedure is
4. a letter which notified the taxpayer of a revision of demanded by the pressing need for fair play, regularity and
previous assessments. orderliness in administrative action (Advertising Associates,
Inc. vs. CA, December 26, 1984).
Is the final demand letter issued by the BIR reiterating
the demand for immediate payment considered a final Q: U Corp was assessed deficiency income taxes (FAN).
decision appealable to the CTA? U Corp protested the assessment. BIR, without ruling
Yes. The letter is deemed as the CIRs final act since on the protest, issued a warrant of distraint and levy. U
failure to comply therewith exposes the property to distraint Corp requested reinvestigation and reconsideration of
and levy. The Supreme Court stated that a final demand issuance of the warrant. Thereafter, BIR filed a
letter from BIR, reiterating to the taxpayer the immediate collection suit to collect the taxes. U Corp then filed a
payment of a tax deficiency assessment previously made, is petition for review with the CTA, on the theory that its
tantamount to a denial of the taxpayers request for period to appeal only began to run from its receipt of
reconsideration. Such letter amounts to a final decision on summons in the civil collection case. BIR argued the
a disputed assessment and is thus appealable to the CTA appeal was filed out of time, as the period began to run
(CIR vs. Isabela Cultural Corp.,July 11, 2001). when the warrant of distrant and levy was issued. Who
is correct?
Oceanic Wireless Network vs. CIR, December 09, 2005 U Corp is correct. Under the circumstances, the CIR didnt
The Supreme Court reiterated that a demand letter for clearly signify his final action on the disputed assessment.
payment of delinquent taxes may be considered a decision Thus, it was only when U Corp received the summons on
on a disputed or protested assessment. The determination the civil suit for collection of deficiency income that the period
on whether or not a demand letter is final is conditioned upon to appeal commenced to run. The request for
the language used or the tenor of the letter being sent to the reinvestigation and reconsideration was in effect considered
taxpayer. denied by the CIR when the latter filed a civil suit for
In this case, the letter of demand dated January 24, 1991, collection of deficiency income (CIR vs. Union Shipping
unquestionably constitutes the final action taken by the BIR Corporation, May 21, 1990).
on petitioners request for reconsideration when it reiterated
the tax deficiency assessments due from petitioner, and Q: The City of Makati received assessment notices
requested its payment. Failure to do so would result in the imposing deficiency taxes. Makati protested. The BIR
issuance of a warrant of distraint and levy to enforce its stated that the assessments were already final and
collection without further notice. In addition, the letter executory. Nonetheless, Makati requested for another
contained a notation indicating that petitioners request for reinvestigation. The Revenue officer and deputy
reconsideration had been denied for lack of supporting Commissioner granted this request. Did the
documents. reinvestigation of the case reversed the finality of the
Q: AA Corp received a FAN for contractors tax. It No. Only the Commissioner of Internal Revenue has the power
protested the assessments. Thereafter, AA requested for to reverse, revoke or modify any existing ruling of the Bureau
the cancellation of the assessments. 4 years passed of Internal Revenue (BIR), which power cannot be
and nothing happened. CIR then issued 2 warrants of delegated. In assessment cases, a reopening/reinvestigation
distraint to collect the taxes. One year later, CIR after a final decision on disputed assessment has been
answered and denied AAs request for cancellation. The issued must be initiated by the commissioner. Otherwise, the
CIR, in its answer to AAs request for the cancellation reopening / reinvestigation is without authority and failure to
of the assessments, requested the taxpayer to pay the appeal the final decision on disputed assessment to CTA
deficiency taxes within ten days from receipt of the would render the assessment final and executory. Here, the
demand; otherwise, the Bureau would enforce the reinvestigation was merely granted by a revenue officer and
warrants of distraint. He closed his demand letter with this a deputy commissioner (City of Makati vs. CIR, September 16,
paragraph: This constitutes our final decision on the 2011).
matter. If you are not agreeable, you may appeal to the
Court of Tax Appeals within 30 days from receipt of this Q: The CIR filed a Motion to Dismiss the Petition for
letter. What is the reckoning point of the appeal period to Review commenced by Festo Holdings on the ground
the CTA the issuance of the warrant of distraint or of lack of jurisdiction. The CIR argued that the Revenue
the letter embodying the final demand of payment? District Officer who signed the letter which became the
basis of the instant petition, cannot be deemed an alter

Page 95 of 104
ego of the CIR for purposes of issuing a final decision The other matters cognizable by the CTA should be of the
on Festos protest under a delegated authority. As same nature, kind or class as the matters specifically
such, the subject letter is not the CIR's final decision enumerated as within its jurisdiction.
on Festos protest; thus, the 30 day period to file an
appeal was yet to commence, rendering the instant Q: Sec 7(a)(1) of RA 1125 as amended by RA 9262 provides
petition premature. Is the contention of the CIR correct? that the CTA has exclusive appellate jurisdiction to review
Yes, the appeal to the CTA was premature. The Revenue by appeal the decisions of the Commissioner of Internal
District Officer who issued the letter cannot be considered Revenue in cases involving disputed assessments, refunds
as the CIR's decision appealable to this Court, in the of internal revenue taxes, fees or other charges, penalties
absence of any proof that the former was authorized to decide in relation thereto, or other matters arising under the
and act in behalf of the latter on the protest of a taxpayer. National Internal Revenue or other laws administered by the
Nowhere is it provided that a Revenue District Officer can Bureau of Internal Revenue. Does the CTA also have
issue decisions that are appealable to this Court. Therefore, jurisdiction to determine the validity of warrants of
there being no decision of the CIR in the present case, distraint/levy and the waiver of statute of limitations?
this Court cannot take cognizance of the present case (Festo Yes. The appellate jurisdiction of the CTA is not limited to
Holdings, Inc. vs. CIR, September 2, 2011). cases which involve decisions of the Commissioner of
Internal Revenue on matters relating to assessments or
Is the denial by the BIR of the protest on the PAN (not the refunds. The second part of the provision covers other cases
FAN) appealable to the CTA? that arise out of the NIRC or related laws administered by
No, the denial of the CIR must be on the protest of the FAN. the Bureau of Internal Revenue. The wording of the
The Supreme Court ruled that it is the Formal Letter of Demand provision is clear and simple. It gives the CTA the
and Assessment Notice (FAN) that must be administratively jurisdiction to determine if the warrant of distraint and levy
protested or disputed within 30 days, and not the PAN (Allied issued by the BIR is valid and to rule if the Waiver of Statute of
Banking Corporation vs. CIR, February 5,2010). Limitations was validly effected. This is not the first case where
the CTA validly ruled on issues that did not relate directly to
Q: BIR issued a PAN to AB Corp for deficiency DST. a disputed assessment or a claim for refund. In Pantoja v.
AB protested the PAN. Thereafter, BIR sent a FAN to AB David, we upheld the jurisdiction of the CTA to act on a
Corp. The letter provided: It is requested that the petition to invalidate and annul the distraint orders of the
above deficiency tax be paid immediately upon receipt Commissioner of Internal Revenue.
hereof, inclusive of penalties incident to delinquency. Also, in Commissioner of Internal Revenue v. Court of Appeals,
This is our final decision based on investigation. If you the decision of the CTA declaring several waivers executed
disagree, you may appeal the final decision within 30 days by the taxpayer as null and void, thus invalidating the
from receipt hereof, otherwise said deficiency tax assessments issued by the BIR, was upheld by this Court
assessment shall become final, executory and (Philippine Journalists Inc. vs. CIR, December 16, 2004).
demandable. Thereafter, AB immediately filed a petition
for review with the CTA. Should the petition be Q: The CIR, pursuant to the NIRC, issued a RMO imposing
dismissed? a 5% lending investors tax on pawnshops. The RMO
No. Ordinarily, the procedure is that its the FAN that must be identified pawnshops as a lending investor due to the
administratively protested, as a prerequisite to subsequently nature of its activities. Leal, a pawnshop owner, filed with
filing a PFR with the CTA. However, the SC ruled in this case the RTC a petition for prohibition that sought to stop the
that the CIR was estopped from claiming the need for a protest. CIR from implementing the RMO. CIR filed a motion to
AB Corp cant be blamed for not filing a protest against the dismiss. CIR alleged RTC had no jurisdiction over the
FAN since the language used and the tenor of the PAN matter. Did the RTC have jurisdiction over the action to
indicate that it is the final decision of the CIR on the matter. nullify the RMO?
The CIR is required to indicate, in a clear and unequivocal No, the CTA had exclusive jurisdiction. The questioned is
language, whether his action on a disputed assessment actually a ruling or opinion of the CIR in implementing the Tax
constitutes his final determination thereon in order for the Code with regard taxability of pawnshops. The RMO was
taxpayer concerned to determine when his or her right to issued pursuant to CIRs powers under Section 244 of the
appeal to the tax court accrues. Thus, CIR is now NIRC (providing for the power of the Commissioner of
estopped from claiming that he did not intend the PAN to Internal Revenue to make rulings or opinions in connection
be a final decision. Moreover in the Formal Letter of Demand with the implementation of the provisions of internal revenue
with Assessment Notices, CIR used the word appeal laws, including ruling on the classification of articles of
instead of protest, reinvestigation, or reconsideration. sales and similar purposes). Thus, the petition should have
Although there was no direct reference for petitioner to bring been filed with the CTA (CIR vs. Leal , November 18, 2002).
the matter directly to the CTA, it cannot be denied that the Similarly, in the case of Asia International Auctioneers, Inc.
word appeal under prevailing tax laws refers to the filing vs. Parayno (December 18,2007), several RRs and RMOs
of a Petition for Review with the CTA (Allied Banking were also considered as rulings/opinions of the CIR on the tax
Corporation vs. CIR, February 5,2010). treatment of motor vehicles sold at public auction within the
SSEZ. They were deemed issued pursuant to the power of
Q: What other matters are cognizable by the CTA? the CIR to interpret provisions of the NIRC. Thus, when an
action to annul such RRs/RMOs was filed with the RTC, SC

Page 96 of 104
held that such was improper, as it was the CTA that had in the exercise of its exclusive original jurisdiction
exclusive jurisdiction. over criminal offenses arising from violations of the
NIRC or TCC and other Tax Laws (Sec. 3[b] and 3[a],
Q: A was assessed for income tax deficiency. The Rule 4, RRCTA
taxpayer failed to file a protest and thus the said
assessment has become final and unappealable. Q: What are the criminal cases within the exclusive
Thereafter, the taxpayer filed a petition for review to the original jurisdiction of the CTA?
CTA arguing that the right of the CIR to collect the The CTA shall exercise exclusive original jurisdiction over all
assessed tax has prescribed. The CIR contends that the criminal cases where the principal amount involved of taxes
CTA has no jurisdiction because when the law says that and fees is P1,000,000 or more, exclusive of charges and
the CTA has jurisdiction over other matters it penalties, arising from violations of the NIRC, TCC and
presupposes that the tax assessment has not become other laws administered by the BOC or the BIR.
final and unappealable. Is the CIRs contention correct?
Q: What are the criminal cases within the exclusive
No. The fact that an assessment has become final for original jurisdiction of the regular courts?
failure of the taxpayer to file a protest within the time allowed The regular courts have original jurisdiction in offenses and
only means that the validity or correctness of the felonies where:
assessment may no longer be questioned on appeal. a. The principal amount of taxes and fees, exclusive of
However, the validity of the assessment itself is a separate charges and penalties, claimed is less than
and distinct issue from the issue of whether the right of P1M
the CIR to collect the validly assessed tax has prescribed. This b. There is no specified amount claimed
issue of prescription, being a matter provided for by the NIRC, is
well within the jurisdiction of the CTA to decide (CIR vs. Q: What are the criminal cases within the exclusive
Hambrecht & Quist Philippines, Inc., November 17, 2010). appellate jurisdiction of the CTA?
Q: Does the CTA have jurisdiction relative to matters a. Appeals from judgments, resolutions or orders of the
involving the constitutionality of regulations issued by RTCs in tax cases originally decided by them in
the BIR? their respective territorial jurisdiction; and
No. The doctrine in Asia International Auctioneers vs. b. Petitions for review of the judgments, resolutions or
Parayno, December 18, 2007 which ruled that the CTA has orders of the RTCs in the exercise of their
such jurisdiction has been reversed in British American appellate jurisdiction over tax cases originally
Tobacco vs. Camacho , August 20, 2008. The regular courts decided by the MeTCs, MTCs or MCTCs.
have jurisdiction to rule upon the constitutionality of a tax law or Note:
a regulation issued by the BIR. 1. The same rules apply with regard to the exclusive
jurisdiction of the CTA in division over tax
Note: collection cases.
See also Egis Projects S.A. vs. The Secretary Of Finance, 2. The Supreme Court held that the lower courts can
January 29, 2013 where the CTA held that the issue on acquire jurisdiction over a claim for collection of
the constitutionality or validity of RMO Nos. 72-2010 and 1- deficiency taxes only after the assessment made by
2000 or its relevant provisions is beyond the jurisdiction of the CIR has become final and unappealable, not
the CTA, but of the regular courts. where there is still a pending CTA case (Yabes vs.
Flojo ,July 20, 1982).
Smart Communications, Inc. vs. Municipality Of
Malvar,Batangas, CTA Eb No. 767 (CTA Ac No. 58), June B. JUDICIAL PROCEDURES
26,2012, where the CTA held that the issue on the validity or 1. Judicial action for collection of taxes
constitutionality of Ordinance is not within the jurisdiction of the a) Internal revenue taxes
CTA, but with the regular courts. However, in Negros The remedies for the collection of internal revenue
Consolidated Farmers Association Multi-Purpose Cooperative taxes, fees or charges, and any increment thereto
Vs. Commissioner Of Internal Revenue [CTA Case No. resulting from delinquency can be through the
7994; February 17,2012], the CTA held that it has jurisdiction institution of a civil or criminal action.
to rule on the validity of a rule or regulation issued by the
The judgment in the criminal case shall not only
Bureau of Internal Revenue. This case should not be
controlling in light of the SC ruling in British American Tobacco. impose the penalty but shall also order payment of the
taxes subject of the criminal case as finally decided by
the Commissioner.
2. Criminal Cases
The Bureau of Internal Revenue shall advance the
a) Exclusive original jurisdiction
b) Exclusive appellate jurisdiction in criminal cases amounts needed to defray costs of collection by
means of civil or criminal action, including the
preservation or transportation of personal property
Note: This applies to CTA in Divisions. Note that,
distrained and the advertisement and sale thereof, as
with regard to criminal cases, the CTA en banc has
well as of real property and improvements thereon.
exclusive appellate jurisdiction over the decisions or
(Sec. 205, NIRC)
resolutions on MRs or MNTs of the Court in Division in
the exercise of its exclusive appellate jurisdiction or

Page 97 of 104
The Court of Tax Appeals has: copy of such Rules of Court).
EXCLUSIVE ORIGINAL JURISDICTION in tax collection cases 1. Decision, decision or ruling,
involving final and 185xecutor assessments for taxes, fees, ruling; or or expiration of the The Court in
charges and penalties. period fixed by law Division shall act
Exception: Collection cases where the principal amount of 2. The inaction for the CIR to act on the appeal.
taxes and fees, exclusive of charges and penalties, claimed is of the CIR on on the disputed
less than P1Mshall be tried by the proper Municipal Trial disputed assessments
Court, Metropolitan Trial Court and Regional Trial Court. assessments or
claims for refund of In case of inaction
EXCLUSIVE APPELLATE JURISDICTION in tax collection internal revenue of the CIR on
cases: taxes; or claims for refund
a. Over appeals from the judgments, resolutions or of internal revenue
orders of the Regional Trial Courts in tax collection 3. By a decision taxes erroneously
cases originally decided by them, in their respective or ruling of the or illegally
territorial jurisdiction. CoC, the Secretary collected - within
b. Over petitions for review of the judgments, resolutions of Finance, the the 2-year period
or orders of the Regional Trial Courts in the exercise Secretary of Trade prescribed by law
of their appellate jurisdiction over tax collection cases and Industry, the from payment or
originally decided by the Metropolitan Trial Courts, Secretary of collection of the
Municipal Trial Courts and Municipal Circuit Trial Agriculture, or a taxes.
Courts, in their respective jurisdiction. RTC in the
exercise of its
b) Local taxes original jurisdiction
The LGU concerned may enforce the collection of
delinquent taxes, fees, charges or other revenues by
civil action in any court of competent jurisdiction. The A party adversely within 15 days Petition for review
civil action shall be filed by the local treasurer (Sec. affected by a from receipt of a (Rule 43 of the
183, LGC). decision or copy of the Rules of Court).
resolution of a questioned
Prescriptive period Division of the decision or The Court en
Local TF/Cs may be collected within 5 years from the date Court on a MR or resolution banc shall act on
of assessment by: MNT The Court may the appeal.
1. administrative or grant an additional
2. judicial action. period not
a. Local TF/Cs shall be assessed within 5 years from the exceeding 15 days
date they became due. No action for the collection of from the expiration
such TF/Cs whether administrative or judicial, shall be of the original
instituted after the expiration of such period. period within which
b. In case of fraud or intent to evade the collection- to file the petition
within 10 years from discovery of the fraud or intent to for review
evade payment.

Grounds for suspension of the prescriptive period: A party adversely within 30 days Petition for review
1. The treasurer is legally prevented from making the affected by a from receipt of a (Rule 43 of the
assessment or collection; decision or ruling copy of the Rules of Court).
2. The TP requests for a reinvestigation and executes a of the CBAA and questioned
waiver in writing before expiration of the period within the RTC in the decision or ruling The Court en banc
which to assess or collect; an exercise of their shall act on the
3. The TP is out of the country or otherwise cannot be appellate appeal.
located(Sec. 194, LGC) jurisdiction
Note: Please refer to Remedies and Local
Government Taxation.
i. Suspension of collection of tax
2. Civil Cases
General Rule
a) Who may appeal, mode of appeal, effect of appeal No appeal taken to the Court shall suspend the payment, levy,
distraint, or sale of any property of the taxpayer for the
Who may appeal Period to appeal Mode of appeal satisfaction of his tax liability as provided under existing laws.

A party adversely within 30 days Petition for review Exception

affected by: after receipt of a (Rule 42 of the Where the collection of the amount of the taxpayers liability,
sought by means of a demand for payment, by levy, distraint or

Page 98 of 104
sale of any property of the taxpayer, or by whatever means, as a. In all cases falling within the original
provided under existing laws, may jeopardize the interest of the jurisdiction of the Court in Division pursuant
Government or the taxpayer, an interested party may file a to Section 3, Rule 4 of these Rules; and
motion for the suspension of the collection of the tax liability. b. In appeals in both civil and criminal cases
where the Court grants a new trial pursuant
Injunction not available to restrain collection to Section 2, Rule 53 and Section 12, Rule
No court shall have authority to grant an injunction to restrain 124 of the Rules of Court (Sec. 2, Rule 12,
the collection of any national internal revenue tax, fee or charge A.M. No. 05-11-07)
imposed by the Code (Sec. 217, NIRC)
Q: Who are authorized to take evidence? (Sec. 3-4, Rule 12,
Q: Does the perfection of an appeal suspend the collection RRCTA)
of taxes? (effect of an appeal) The following are authorized:
No appeal taken to the CTA shall suspend the payment, a. Any justice of the court when:
levy, distraint and/or sale of any of the taxpayers property i. The determination of a
for the satisfaction of his tax liability. However, when in the question of fact arises at
opinion of the CTA the collection of the tax may jeopardize the any stage of the proceedings;
interest of the Government and/or the taxpayer, the Court at any or
stage of the proceedings may suspend or restrain the ii. The taking of an account is
collection of the tax and require the taxpayer either to necessary; or
deposit the amount claimed or to file a surety bond for no iii. The determination of an
more than double the amount with the Court. issue of fact requires the
examination of a long
Note: Nonetheless, during the pendency of the account.
appeal, the taxpayer may still enter into a b. Any court official for the sole purpose
compromise settlement of his tax liability for as of marking comparison with the original
long as any of the grounds for a compromise is and identification by witnesses of the
present. A compromise of a tax liability is possible received documentary evidence.
at any stage of litigation even during appeal
(Pampanga Sugar Co. v. CIR [114 SCRA 496]) iii. Motion for reconsideration or new
trial. (Rule 15, A.M. No. 05-11-07)
Q: May the CTA issue an injunction to enjoin the collection
of taxes by the BIR? Q: Who may file a MR or MNT?
Yes. When a decision of the CIR on a tax protest is appealed to Any aggrieved party may seek a reconsideration or new trial of
the CTA, such appeal does not suspend the payment, levy, any decision, resolution or order of the court.
distraint and/or sale of any of the taxpayers property. However, - Maybe opposed by: The adverse party may file an opposition
when in the opinion of the CTA the collection of the tax may to the motion for reconsideration or new trial within ten days
jeopardize the interest of the Government and/or the TP, the after his receipt of a copy of the motion for reconsideration or
Court at any stage of the proceedings may suspend or restrain new trial of a decision, resolution or order of the Court
the collection of the tax and require the TP either to deposit
the amount claimed or to file a surety bond for no more than Q: What is the effect of the filing of the MR or MNT?
double the amount with the Court. The filing of the MR or MNT shall suspend the running of
the period within which an appeal may be perfected.
1. The CTA may issue injunction only in Q: What are the grounds for the filing of a MR or
the exercise of its appellate jurisdiction MNT?
(CIR vs. J.C. Yuseco [G.R. No. L-12518, a. Fraud, accident, mistake or excusable negligence (FAME)
October 28, 1961]) which ordinary prudence could not have guarded against
2. The prohibition on the issuance of a writ of and by reason of which such aggrieved party has
injunction to enjoin the collection of taxes probably been impaired in his rights; or
is applied only to national internal revenue b. Newly discovered evidence which he could not, with
taxes, not to local taxes (ANGELES CITY reasonable diligence, have discovered and produced at
V.ANGELES ELECTRIC CORPORATION the trial and which, if presented, would probably alter
[JUNE 29, 2010]) the result.
3. TROs and injunctions issued by courts other
than the CTA against the BIR should be How: The motion shall be in writing stating the grounds, a
annulled and cancelled for lack of written notice of which shall be served by the movant on the
jurisdiction (see RMO 042-10 [MAY 4, adverse party.
A MNT shall include all grounds then available and those not
ii. Taking of evidence included shall be deemed waived.
The Court may receive evidence in the following
cases: Note:

Page 99 of 104
1. The period to file the MR or MNT is 15 days. Yes. CTA en banc did not err in denying petitioners Motion for
2. No second MR or MNT is allowed (see Section 7, Rule Extension of Time to File Petition for Review. Petitioner
15, RRCTA) cannot file a Petition for Review with the CTA en banc to
Note, however, that a Motion for Reconsideration filed on the appeal the Resolution of the CTA First Division denying her
Amended Decision of the Court in Division is not a second Motion to Quash. The Resolution is interlocutory and, thus,
motion for reconsideration, which is a proscribed under unappealable. Even if her Petition for Review is to be
Section 7, Rule 15 of the CTA Rules, in relation to Section 2, treated as a petition for certiorari, it is dismissible for lack of
Rule 52 of the 1997 Rules of Civil Procedure, as amended. merit (Judy Anne L. Santos vs. People Of The Philippines
(Mirant Corporation vs. CIR, CTA EB CASE NO.783, July 18, And Bureau Of Internal Revenue , August 26, 2008).
c)Petition for review on certiorari to the Supreme Court
b) Appeal to the CTA, en banc(Sec. 18, RA 1125) (Sec. 19, RA 1125 and Sec. 1, Rule 16, RRCTA)
No civil proceeding involving matter arising under the
NIRC, the TCC or the LGC shall be maintained, A party adversely affected by a decision or ruling of
except as provided, until and unless an appeal has the Court en banc may appeal by filing with the
been previously filed with the CTA and disposed of in Supreme Court a verified petition for review on
accordance with the provisions of this Act. certiorari within 15 days from receipt of a copy of the
A party adversely affected by a resolution of a decision or resolution, as provided in Rule 45 of the
Division of the CTA on a motion for reconsideration or Rules of Court. If such party has filed a motion for
new trial, may file a petition for review with the CTA reconsideration or for new trial, the period herein
en banc fixed shall run from the partys receipt of a copy of the
resolution denying the motion for reconsideration or
Q: Who may file an appeal to the CTA en banc? for new trial.
a. A party adversely affected by a resolution of a The motion for reconsideration or for new trial filed
Division of the CTA on a MR or MNT may file a before the Court shall be deemed abandoned if,
petition for review with the CTA en banc; and during its pendency, the movant shall appeal to the
b. A party adversely affected by a decision or Supreme Court.
ruling of the CBAA or the RTC in the Q: Who may file an appeal to the Supreme Court?
exercise of their appellate jurisdiction. Any party adversely affected by a decision or ruling of the CTA
en banc may appeal to the Supreme Court.
Note: You cannot directly appeal a decision or order
of a Division to the CTA en banc. You must first Q: What is the mode of appeal from the CTA en banc to the
file a timely MR or MNT (Sec. 1, Rule 8, RRCTA) Supreme Court?
Petition for review on certiorari under Rule 45.
Q: Is a prior MR required before filing a Petition for
Review of a decision of a CTA division? Q: ABC Corporation, engaged in the retail of medicines
Yes. The mandatory provisions of Rule 8, Section 1 of the and other pharmaceutical drugs filed a claim for TCC
Revised Rules of the Court of Tax Appeals requiring that pertaining to the 20% sales discounts granted to senior
the petition for review of a decision or resolution of the citizens. The CTA denied the claim for insufficiency of
Court in Division must be preceded by the filing of a timely evidence. Thus, ABC filed its petition for review before
motion for reconsideration or new trial with the Division. the SC. Instead of filing a reply to the comments of
The word "must" clearly indicates the mandatory -- not respondent, ABC filed a motion to withdraw praying
merely directory -- nature of a requirement. The rules are that the case be dismissed without prejudice. According
clear. Before the CTA En Banc could take cognizance of to ABC, the amount of tax credit being claimed would
the petition for review concerning a case falling under its just be included in its future claims for issuance of TCC.
exclusive appellate jurisdiction, the litigant must sufficiently The CIR argues that the decision of the CTA became
show that it sought prior reconsideration or moved for a new final and executory and thus the tax credit could no longer
trial with the concerned CTA division (Commissioner Of be claimed in the future. Is the contention of the CIR
Customs vs. Marina Sales, Inc., November 22, 2010) correct?
Yes. By withdrawing the appeal the taxpayer is deemed to
Q: Juday was criminally charged in the CTA for filing a have accepted the decision of the CTA. And since the CTA
fraudulent income tax return. Thereafter, she filed a had already denied taxpayers request for the issuance of
motion to quash in the CTA 1st division. The MTQ was TCC for insufficiency of evidence, it may no longer be included
denied. MR was also denied. She then filed a motion for in taxpayers future claim. (Central Luzon Drug Corporation vs.
extension of time to file her petition for review in CTA CIR , March 2, 201).
en banc. Thereafter, she filed her petition for review with
CTA en banc. CTA en banc denied both the petition for Q: CC Corp filed a petition in the RTC to nullify an
extension, and the petition for review, on the theory that the ordinance enacted by the City of Manila. RTC dismissed
denial of the motion to quash was an interlocutory order, the petition. CC Corp filed a petition for review with
and therefore, unappealable. Was the dismissal by CTA en CTA. It was argued that the petition for review was filed
banc proper? out of time. Can the 30 day period to file a petition for
review to the CTA of an adverse decision or ruling of the

Page 100 of 104

RTC (in the exercise of its original jurisdiction) be - The prosecution may be conducted by their respective duly
extended? deputized legal officers.
Yes. As held in City Of Manila vs. Coca-Cola Bottlers
Philippines, Inc. [August 4, 2009], it is clear from the Institution of civil action in criminal action (Sec. 2, Rule 9,
Section 3 of the Revised Rules of the CTA that to appeal an RRCTA)
adverse decision or ruling of the RTC to the CTA, the taxpayer - In cases within the jurisdiction of the Court, the criminal action
must file a Petition for Review with the CTA within 30 days from and the corresponding civil action for the recovery of civil liability
receipt of said adverse decision or ruling of the RTC. It must be for taxes and penalties shall be deemed jointly instituted in
pointed out that the rule is silent as to whether the 30 day the same proceeding. The filing of the criminal action shall
period can be extended or not. However, Section 11 of Republic necessarily carry with it the filing of the civil action. No right to
Act No. 9282 does state that the Petition for Review shall be reserve the filing of such civil action separately from the criminal
filed with the CTA following the procedure analogous to Rule action shall be allowed or recognized.
42 of the Revised Rules of Civil Procedure. Following by
analogy Section 1, Rule 42 of the Revised Rules of Civil Note:
Procedure, the 30-day original period for filing a Petition for 1. The institution of the criminal action shall interrupt the
Review with the CTA under Section 11 of Republic Act No. running of the period of prescription.
9282, as implemented by Section 3(a), Rule 8 of the Revised
Rules of the CTA, may be extended for a period of 15 b) Appeal and period to appeal
days. No further extension shall be allowed thereafter,
except only for the most compelling reasons, in which case Criminal Case Period to appeal Mode of Appeal
the extended period shall not exceed 15 days. The Court in
Division must be preceded by the filing of a timely MR or MNT cases decided by a Within 15 days Notice of Appeal
with the Division. (Section 1, Rule 8, RRCTA), (SM Land vs. RTC in the from receipt of a pursuant to Sec.
City of Manila, G.R. No. 197151, October 22, 2012) exercise of its copy of the 3(a) and 6, Rule
DOCTRINE: The 30-day period to appeal decisions of the RTC original jurisdiction decision or final 122 of the Rules of
to the CTA is extendible order with the court Court.
which rendered the
Municipality of Cainta, Rizal vs. Brillante Realty Corporation final judgment or The Court in
[CTA AcCNo. 88, January 02,2013] order appealed division shall act
The CTA held that the thirty-day period to appeal an from and by on the appeal.
adverse decision of the Regional Trial Court to the Court of serving a copy
Tax Appeals may be extended for a period of 15 days, subject to upon the adverse
filing of motion for extension before the CTA and payment party
of appropriate fees.
cases decided by Within 15 days Petition for review
Q: Does a Motion for Reconsideration of the decision of the Court in from receipt of a (Rule 43 of the
the CIR toll the 30 day period to appeal the denial of the Division copy of the Rules of Court)
protest of the FAN to the CTA? decision or
No (Fishwealth Canning Corporation vs. CIR, January 21, resolution The Court en banc
2010) appealed from. shall act on the
3. Criminal Cases The Court may, for
good cause,
a) Institution and prosecution of criminal actions extend the time for
filing of the petition
Institution of criminal action for review for an
-Instituted by the filing an information in the name of the additional period
People of the Philippines not exceeding 15
* Those involving violations of the NIRC and other laws enforced days.
by the BIR
- Must be approved by the CIR
cases decided by Within 15 days Petition for review
* Those involving violations of the TCC and other laws enforced the RTCs in the from receipt of a (Rule 43 of the
by the BoC exercise of their copy of the Rules of Court).
- Must be approved by the COC appellate decision or final
jurisdiction order appealed The Court in
Prosecution of criminal action from. Division shall act
- Conducted and prosecuted under the direction and control of on the appeal.
the public prosecutor
* Those involving violations of the NIRC and other laws enforced i. Solicitor General as counsel for the
by the BIR or violations of the tariff and Customs Code and people and government officials
other laws enforced by the Bureau of Customs

Page 101 of 104

sued in their official capacity (Sec. 9, 1. Public funds are disbursed by a political
Rule 9, RRCTA) subdivision or instrumentality and in doing so, a law is
violated or some irregularity is committed; and
The Solicitor General shall represent the People of 2. Petitioner is directly affected by the alleged ultravires
the Philippines and government officials sued in their act(Anti-Graft League vs. San Juan, 260 SCRA
official capacity in all cases brought to the Court in the 251).
exercise of its appellate jurisdiction. He may deputize
the legal officers of the BIR in cases brought under the Lozada vs. Comelec , 120 SCRA 337
NIRC or other laws enforced by the BIR, or the legal Petitioners action for mandamus to compel the COMELEC to
officers of the BoC in cases brought under the TCC of hold a special collection is not considered a taxpayers suit
the Philippines or other laws enforced by the BoC, to because it does not involve public expenditure. Further, there
appear in behalf of the officials of said agencies sued is no allegation that tax money is spent illegally.
in their official capacity: Provided, however, such duly
deputized legal officers shall remain at all times under Q: Must a taxpayer be a party to a government
the direct control and supervision of the Solicitor contract so that it can challenge the validity of a
General. disbursement of public funds?
No. The prevailing doctrine in taxpayers suit is to allow
c. Petition for review on certiorari to the Supreme Court taxpayers to question contracts entered into by the national
- A party adversely affected by a decision or ruling of the CTA en government or GOCCs allegedly in contravention of law. A
banc may file with the Supreme Court a verified petition for taxpayer need not be a party to the contract to challenge its
review on certiorari pursuant to Rule 45 of the 1997 Rules of validity ( ABAYA vs. EBDANE [515 SCRA 720])
Civil Procedure(Sec.19, R.A. No. 1125 as amended) .

Q: How is the Doctrine of Transcendental Importance

applied to a taxpayers suit?
As a general rule, only those with locus standi may impugn the
tax measure or illegal imbursement of public funds.
C. TAXPAYERS SUIT IMPUGNING THE VALIDITY However, the Supreme Court has discretion to entertain a
taxpayers suit and brush aside lack of locus standi where
OF TAX MEASURES OR ACTS OF TAXING the issues are of such transcendental importance in keeping
AUTHORITIES with the courts duty to determine if public officers have not
abused the discretion given to them (Kilosbayan vs. Guingona,
Q: Distinguish a Taxpayers suit from a Citizens suit May 5, 1994)

Taxpayers suit Q: What determines the Principle of

Transcendental Importance?
A case where the act complained of directly involves the illegal 1. The character of the funds or other
disbursement of public funds derived from taxation. assets involved in the case;
2. The presence of a clear case of
The plaintiff is affected by the expenditure of public funds disregard of a constitutional or statutory
prohibition by the public respondent
agency or instrumentality of the
Constantino, Jr vs. Cuisia, October 13, 2005
3. The lack of any other party with a more
A TP is allowed to sue where there is a claim that:
direct and specific interest in raising the
a. public funds are illegally disbursed or
questions being raised (Francisco, Jr.
b. that the public money is being directed to any
vs. House of Representatives,
improper purpose, or that
November 10, 2003).
c. there is wastage of public funds through the
enforcement of an invalid or unconstitutional law.
Note: However, while the taxpayer need
Q: How is the concept of locus standi applied in a not suffer personal damage if matter is of
Taxpayers Suit? transcendental important, he must prove
Locus standi is a right of appearance in a court of justice damage to others (Jumamil vs. Caf,
on a given question. It is the personal and substantial September 1, 2005).
interest in the case, such that the party has sustained or will
sustain direct injury as a result of a challenged act. In order DEFINITIONRipeness for judicial determination means
to challenge the constitutionality of tax measures or illegal that litigation is inevitable or there is no adequate relief
expenditures of public money, the taxpayer must have locus available in any other form or proceeding.
Q: How is ripeness for judicial determination applied
Q: What are the requisites of a Taxpayers Suit? in a taxpayers suit?

Page 102 of 104

A constitutional question is ripe for adjudication when the
government act being challenged has a direct adverse effect
on the individual challenging it. As a general rule, a taxpayer
must show that he would be prejudiced or benefited by the
suit which questions the validity of the collection of taxes or the
manner of expenditure of funds collected from taxation.
Personal injury or benefit must be shown for judicial
controversy to be ripe for judicial determination.

Note: However, it must be noted that

where the public interest requires the
resolution of the constitutional issues raised
by the taxpayer, the doctrine of ripe for
judicial determination is within the Courts
discretion to set aside (Abakada Guro
Party-List vs. Purisima G.R. No.166715,
August 14, 2008).


Co Untian, Cresencio P. (2009). Tax Digest. Manila, Rex Book Store

De Leon, Hector S. and De Leon, Jr. Hector M. (2009) The Law on Transfer and Business Taxation. Manila, Rex Book Store

Dimaampao, Japar B. (2008). Tax Principles and Remedies. Manila, Rex Book Store.

Dimaampao, Japar B. (2008). The Essentials of Local Government and Real Property Taxation. Mandaluyong City, National Book Store

Dizon, Efren Vincent M. (2006). Q & A in Taxation. Manila, Rex Book Store.

Lim, Virginia Jeannie P. (2012). Dictionary of Terns and Phrases in Taxation. Manila, Central Book Supply, Inc.

Local Government Code of 1991 (2005).

Mamalateo, Victorino C. (2010). Reviewer on Taxation. Manila, Rex Book Store.

National Internal Revenue Code of 1997 (2009).

Page 103 of 104

Sababan, Francisco J. (2010). Taxation Law Review. Manila, Rex Printing Company, Inc.

Vitug, Jose C. and Acosta, Ernesto D. (2006). Tax Law and Jurisprudence. Manila, Rex Printing Company, Inc.

Page 104 of 104