BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
TRANSFER TAXATION
Transfer Taxes
those imposed upon the gratuitous
disposition of private property
Under our law, they are taxes levied on
the transmission of private properties from
a prior decedent to his heirs in the case of
estate tax, or from a donor to a donee in
the case of donors tax.
Kinds of Transfer Taxes
1. Death / Estate taxes
- those levied on the gratuitous transfers of
property upon ones death, formerly comprised of
the estate and inheritance taxes: Both taxes are
now integrated into one estate tax.
2. Gift Taxes
- Are imposed on the gratuitous transfers of
property during ones lifetime, formerly
comprised of the donors and donees gift taxes;
both taxes are now integrated into a donors tax.
I. DEATH / ESTATE TAX
Estate tax
graduated tax imposed on the privilege of
the decedent to transmit property at
death and is base on the entire net estate,
regardless of the number heirs and
relations to the decedent.
a transfer tax not a property tax.
tax on the right to transmit property at
death and on certain transfers which are
made by the statute the equivalent of
testamentary dispositions.
Nature of Estate Tax
It is not a direct tax on property nor is it a
capitation tax, that is, the tax is laid
neither on the property, nor on the
transferee or transferor, but on the right of
the decedent to transmit his estate.
It is not a property tax but an excise tax.
Purpose and justification of estate tax:
The following theories have been advanced to
justify death taxation: (BRAP)
a.) Benefit-Received Theory
For the performance of services rendered
by the government in the distribution of
the estate of the decedent and other
benefits that accrue to the estate and the
heirs, the state collects the tax.
b.) Redistribution of Wealth Theory
Estate tax is a contributing factor to the
inequalities in wealth and income. The
imposition of death tax reduces the
property received by the successor
bringing about a more equitable
distribution of wealth in society.
c.) Ability to pay theory
The receipt of inheritance places assets in
the hands of the heirs and beneficiaries
BAR OPERATIONS COMMITTEE
thereby creating an ability to pay the tax
and thus, ability to contribute to
governmental income; and
d.) Privilege theory or State Partnership
theory
Inheritance is not a right but a privilege
granted by the state and large estates
have been acquired only with the
protection of the state. The State, as a
passive and silent partner in the
accumulation of property has the right to
collect the share which is properly due to
it.
Incidence or burden of estate of tax
Three views on who is the taxpayer in
estate taxation:
1. PREDECESSOR the object of the tax is
the property which has been held or
accumulated by the deceased and the tax
has fallen upon him in the sense it has
affected the amount of the property which
he could dispose.
2. SUCCESSOR the tax is not paid by the
predecessor who has no liability till he dies
and who is free to ignore the duty if he
wishes, while the successor comes into
less than he would have, and has no kind
of redress.
3. No Personal Incidence - the estate tax has
no personal incidence at all, merely falling
upon the estate as such.
Law applicable
Estate taxation is governed by the statute
in force at the time of the death of the decedent.
Reciprocity
There is reciprocity if the foreign country
of which the decedent was a citizen or resident at
the time of his death:
1.) Did not impose an estate tax; or
2.) Allowed a similar exemption from estate tax
with respect
to intangible personal property owned by
Filipino citizens
residing in that foreign country.
Note:
1. Reciprocity applies only when:
a.) The property is an intangible; and
b.) The decedent is a nonresident alien
2. The following intangibles are deemed located
in the Philippines: (an exception to the principle
of Res Mobilia Sequuntur Personam and Situs of
Taxation)
a.) Franchises which must be exercised in the
Philippines;
b.) Shares, obligations or bonds issued by any
corporation or
sociedad anonima organized or constituted in
the Philippines in accordance with its laws;
c.) Shares, obligations or bonds issued by any
foreign corporation 85% of the business of
which is located in the Philippines;
d.) Shares, obligations or bonds issued by any
foreign corporation if such shares obligations
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
2
or bonds have acquired a business situs in the
Philippines; and
e.) Shares or rights in any partnership, business,
or industry
established in the Philippines.
GROSS ESTATE
the total value of all property, whether
real or personal, tangible or intangible
belonging to the decedent at the time of
his death, situated within or outside the
Philippines, where such decedent was a
resident or citizen of the Philippines.
In the case of a nonresident alien
decedent, it shall include only property
situated in the Philippines.
Property Included in the Gross Estate
(INCLUSIONS):
A. In case of resident citizens, nonresident
citizens and resident aliens:
1. Real Property within and without the
Philippines;
2. Tangible personal property within and without
the Philippines; and
3. Intangible personal property within and without
the Philippines.
B. In cases of nonresident aliens:
1. Real property within the Philippines;
2. Tangible personal property within the
Philippines and;
3. Intangible personal property within the
Philippines, unless there is reciprocity in which
case, it is not taxable.
Note: These are either:
A) Properties actually owned at the time of death
B) Properties deemed by law to be owned by the
decedent
under Sec. 85
Inter Vivos Transfers Subject to Estate Tax
The gross estate extends to gratuitous
transfers made by the decedent during his
lifetime which are treated by the law as
substitutes for testamentary dispositions.
They are transfers inter vivos in form but
mortis causa in substance.
Rationale for taxability:
To reach such transfers which are really
substitutes for testamentary dispositions and
thus prevent the evasion of the estate tax.
These transfers are:
a.) transfers in contemplation of death
(sec.85 b);
b.) transfers with retention or reservation of
certain rights (sec.85 b);
c.) revocable transfers (sec.85 c)
d.) transfers of property arising under a
general power of appointment ( sec.85
d); and
e.) transfers for insufficient consideration
(sec.85 g)
Note:
Transfers by virtue of a bona fide sale of
property for an adequate and full
consideration in money or moneys worth are
excluded and not taxable.
BAR OPERATIONS COMMITTEE
INCLUSIONS IN THE GROSS ESTATE (CR2IG
DIP)
1) Decedents interest at a specific
property
- To the extent of the interest therein of the
decedent at the time of his death. (Sec. 85 A)
- Ex: partnership interest, dividends
2) Transfer in contemplation of death
- A transfer with the thought of death.
- The term in contemplation of death means
that the impelling or controlling motive is the
thought of death, regardless of whether the
transferor is near the possibility of death or
not, which induces the disposition of the
property for the purpose of avoiding the tax.
- Example: donation was made concurrently
with the execution of a will (Vidal de Rocs vs.
Posadas, 58 Phil 108)
Circumstances taken into account in
determining in whether the transfer was made
in contemplation of death:
A.) Age and state of health of the decedent at
the time of the gift;
B.) Length of time between the gift and the
date of death; and
C.) Concurrent making of a will or making a
will within a short time after the transfer.
Note: Check the factual settings before and at
time of death because proximity to death is not
always conclusive.
Examples of motives precluding the
category of a transfer in contemplation of
death:
a.) To relieve the donor from the burden of
management;
b.) To save income or property taxes;
c.) To settle family litigated and unlitigated
disputes;
d.) To provide independent income for
dependents;
e.) To see the children enjoy the property
while the donor is alive;
f.) To protect the family from hazards of
business operations;
g.) To reward services rendered
Note:
The THREE (3) YEAR PRESUMPTION provides
that any transfer of a material part of his property
in the nature of a final disposition or distribution
thereof made by the decedent within three years
prior to his death without such adequate and full
consideration shall, unless shown to the contrary,
be deemed to be have been made in
contemplation of death.
This provision, however, has been already
deleted in Sec. 100 (b) now sec. 85 (B) of the Tax
Code by PD No. 1705.
Under BIR Ruling No. 261 September 2, 1987, the
law does not specify the number of years prior to
a decedents death within which a transfer can be
considered in contemplation of death.
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
3
Note: In relation to transfers with retention of
rights which are made in contemplation of death
if the right of retention by the Decedent is co-
terminous with his lifetime.
- Ex: X has a house and lot which he transferred
to Y
a) with the condition that X will use it while X
lives
- Effect: Still part of estate of X as he has
control over it
b) with the condition that X will use it only for 10
years and then X dies before 10 years
- Effect: Not part of the estate of X as he is not
the actual owner
3.) Transfer with retention or reservation of
certain rights
- This contemplates the instances where the
owner transfers his property during his lifetime
but still retains economic benefits (the possession
or enjoyment of the property or the power to
designate the person who may exercise such
rights).
- It includes:
A. Transfer without retention of interest but
intended to take
effect at or after the decedents death.
- Example: donations mortis causa.
B. Transfer with retention of interest in respect to:
- 1. The possession or enjoyment of or the right to
the
income from the property; or
2. The right either alone or in conjunction with
any person, to designate the person who shall
possess or enjoy the property or the income
therefrom. And such interest is retained by
the decedent for his life or for any period
which does not in fact end before his death.
C. Transfer with reversionary interest, wherein
there is a possibility that the transferred
property may return to the decedent or his
estate or that it may become subject to a
power of disposition by the decedent.
- Ex: A transfers his property to B in naked
ownership and to C in usufruct throughout Cs
lifetime subject to the condition that if C
predeceases A, the property shall return to A. If A
dies during Cs lifetime, the value of the
reversionary interest of A at death is included in
his gross estate.
3.) Revocable transfer
- the decedent has full control of disposition of
property
- even if the control is not exercised, it is enough
that it is
exists
- A transfer where:
a.) The decedent or in conjunction with any other
person has reserved the right to alter, amend,
revoke, or terminate; or
b.) Any such power is relinquished in
contemplation of the decedents death.
The power to alter, amend or revoke shall be
considered to exist on the date of the decedents
death even though:
a.) the exercise of the power is subject to a
precedent giving of notice; or
BAR OPERATIONS COMMITTEE
b.) The alteration, amendment or revocation
takes effect only upon the expiration of a
stated period after the exercise of the
power.
If the notice has not been given or
the power has not been exercised on or
before the decedents death, such notice
or the power shall be considered to have
been given or exercised on the date of the
decedents death.
4.) Transfer of property under a general
power of appointment
- A transfer where the donor of the power of
appointment authorizes the donee of such power
to designate any person he chooses to be given
the right over the appointed property.
- The transferee may choose freely any person
who will own the property after he dies
- Rationale: the will of the transferee is followed;
hence, part of transferees estate
* Note: the decedent is the transferee in this
provision
General power of appointment vs. special
power of appointment:
A.) A power is general, when it authorizes
the donee of the power to appoint any
person he pleases including himself, thus
having a full dominion over the property
as if he owned it.
B.) It is special when, the donee can appoint
only among a restricted or designated
class of persons other than himself.
Note:
If the power of appointment is general, it
makes the appointed property a part of the
donees property.
Under a general power of appointment,
title to the property is legally transferred to
the donee. Therefore the property shall form
part of the gross estate of the donee.
5.) Transfer for insufficient consideration
- A transfer that is not a bona fide sale of
property for an adequate and full
consideration in money or moneys worth. The
excess of the fair market value at the time of
death over the value of the consideration
received by the decedent shall form part of
his gross estate.
- However, if the purported absolute sale inter
vivos by the decedent is shown to be
fictitious, then the total value of the property
transferred is subject to inclusion in the
taxable estate.
- Ex: X owns a house and lot, he wants to help Y
so he sells his house worth P5M for only P1M. At
the time of Xs death, his house and lot is worth
P10M.
How much is included in the gross estatre of X?
10-1 = 9M
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
4
- Ex: X bought a car worth P1.3M. X needed
money so he sells his car to Y for only P1M. This
is not a transfer for insufficient consideration as
this is a bona fide transfer at arms length; hence,
a valid transfer.
6.) Proceeds of life insurance
- Proceeds of life insurance taken by the decedent
on his own life shall be included in the gross
estate if the beneficiary:
A.) Is the estate of the decedent, his executor,
or administrator (regardless whether the
designation is revocable or irrevocable); or
B.) Third person other than the estate,
executor, administrator but the
designation of the beneficiary is
revocable.
- Presumption: proceeds are revocable
- include in the estate only if it is revocable as the
decedent retained control over the proceeds
7.) Prior Interest
- Except as otherwise specifically provided
therein, subsections (B), (C), (E) of Section 85
referring to transfer in contemplation of death,
revocable transfer and proceeds of life
insurance respectively shall apply to the
transfers, trusts, estates, interests, rights,
powers and relinquishment of powers as
severally enumerated and described therein,
whether made, created, arising, existing,
exercised or relinquished before or after the
effectivity of the CTRP.
NOTE:
In most of these transfers the property
remains substantially that of the transferor during
his lifetime notwithstanding the transfer since he
still retains either the beneficial ownership or
naked title to the property.
EXCLUSIONS FROM THE GROSS ESTATE
1. Merger of usufruct in the owner of the
naked title
- ex: X has a house and lot. X gave the title to Z.
X also allows Y to use the same and that in case Y
dies, the use goes to Z. What are the effects?
a) If X dies include the house and lot in Xs
estate
b) If Y dies exclude from the estate of Y as the
will of X is being followed, there is a merger of
usufruct in Z (the owner of the naked title).
2. Fideicommisary and transmissions from
the first heir, legatee, or donee in favor of
another beneficiary, in accordance with the
desire of the predecessor
- ex: X has a house and lot. In the will of X, Y may
have the title to the house and lot but in case Y
dies, the property will go to Z. What are the
effects?
a) If X dies include as part of Xs estate as he
actually owns it
b) If Y dies excluded from the estate of Y as he
has no control over its disposition
- Ex: X has a house and lot which he wants to
give to Y but Y is a minor at the moment so that X
institutes T to hold the property in trust for Y until
Y reaches the age of majority. X died. The
property passed to T. T died. Y reached the age of
majority. Effect if T dies: Not part of estate of T.
BAR OPERATIONS COMMITTEE
Note: Common reasons for 1 and 2 the will of
the first decedent is followed, the second
decedent has no control over the disposition.
3. Transfers to social welfare, cultural, and
charitable institutions
- Requisites:
a) Qualified organization
b) Not more than 30% will be used for
administrative purposes
- Reason: to encourage such transfers
4. Proceeds of insurance not includible in
the gross estate of the decedent
a) Amount receivable by any beneficiary
irrevocably designated in the policy of insurance
by the insured.
b) Proceeds of a group insurance policy taken out
by a company for its employees.
c) Proceeds of insurance policies issued by the
GSIS to government officials and employees.
d) Benefits accruing under the Social Security
Act.
e) Proceeds of life insurance payable to the heirs
of deceased members of the military personnel of
the United States Army or Philippine Army under
laws administered by the United States Veterans
Administration.
f) Accident insurance proceeds.
5. Separate property of the surviving
spouse.
Note:
In the determination of the gross estate, the
nature of the property, whether common
property of the spouses, separate or exclusive
property either of the deceased or of the
surviving spouse, becomes of vital
importance.
What regime of property relations shall
govern the spouses?
Under the Civil Code, the husband and
wife who got married before August 3, 1988
are governed by the Conjugal Partnership of
Gains, while those who got married on or after
August 3, 1988 are governed by the Absolute
Community of Property, unless a different
regime was agreed upon in the marriage
settlement.
EXEMPTION FROM ESTATE TAX
A. The first P200, 000.00 value of the estate (sec.
84 NIRC)
B. The merger of the usufruct in the owner of the
naked title.
C. The transmission from the first heir, legatee, or
donee in favor of another beneficiary in
accordance with the desire of the predecessor.
D. All bequest, devises, legacies or transfers to
social welfare, cultural and charitable
institutions, no part of the net income of which
inured to the benefit of any individual and
provided that not more than 30% of the said
bequest, etc shall be used by such institution
for administration purposes.
E. Intangible personal property of non-resident
aliens under the principle of reciprocity.
F. Retirement benefits of employees of private
firms from private pension plans approved by
the BIR.
G. Amount received for war damages.
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
5
H. Grants and donations to the Intramuros
administration.
ALLOWABLE DEDUCTIONS FROM THE GROSS
ESTATE
- Granted by mere legislative grace
- Construed strictly against the taxpayer
- Requisites:
a) Substantiate the claim for deduction
b) Identify the provision granting the
deduction.
The provision must be clear and definite.
RESIDENT DECEDENT
A. Ordinary Deductions (ELIT):
1) Funeral Expenses
- The amount deductible is equal to 5% of the
gross estate or the amount of the actual funeral
expenses whichever is lower, but in no case to
exceed P200,000;
- Actual funeral expenses are those which were
actually incurred in connection with the interment
or burial of the deceased and paid for from the
estate of said deceased.
- Funeral expenses include:
a) Costs of coffin, tombstone,
mausoleum, and burial lot;
b) Funeral parlor fees;
c) Mourning clothing of the surviving
spouse and the unmarried minor children;
d) Costs of obituary notices; and
e) Expenses during the wake.
- The following cannot be deducted under funeral
expenses:
a) Cash advances of the surviving spouse and
the heirs;
b) Expenses paid by the relatives and friends;
and
c) Expenses after the burial.
- Requisites:
a) The expenses must be due to the
interment, wake and burial; hence,
expenses on the death anniversary are not
included
b) The expenses must have been shouldered
by the estate and not by other people
2) Judicial expenses of the testamentary or
intestate proceedings
- Requisite: administration expenses to those
actually incurred in the administration of the
estate.
- Examples:
a) fees of the executor or administrator;
b) attorneys fees;
c) accountants fees;
d) court fees;
e) salaries of employees; and
f) All other expense related to the
administration of the estate.
Note:
This includes all expenses necessary to
settle or preserve the estate hence,
extrajudicial expenses are included.
Expenses not essential to the proper
settlement of the estate but incurred for the
BAR OPERATIONS COMMITTEE
individual benefit of the heirs, legatees, or
devisees are not allowed as deductions.
- ex: expenses to be declared as administrator
vs. an oppositor is a personal expense
3) Claims against the decedents estate
- Debts or obligations of the decedent that is
enforceable
against the estate provided that the following
requisites are
met:
a) They were contracted in good faith and for
an adequate and full consideration in
money or moneys worth.
b) They must be existing against the estate.
c) They must be legally enforceable
obligations of the decedent and ought to be
enforced by the claimants.
d) They must be reasonably certain in
amount; and;
e) At the time the indebtedness was incurred,
the debt instrument was duly notarized
and if the loan was contracted within three
(3) years before the death of the
decedent, the administrator or executor
shall submit a statement showing the
disposition of the proceeds of the loan.
4) Claims against the insolvent persons
- Requisites for deductibility:
a) The amount of said claims has been
initially included as part of the gross estate;
and
b) The incapacity of the debtors to pay their
obligations is proven and not merely alleged.
5) Unpaid mortgages indebtedness
- Requisites for deductibility:
a) The fair market value of the property
mortgaged without deducting the
mortgage indebtedness has been initially
included as part of his gross estate;
b) The mortgage indebtedness was
contracted in good faith and for an adequate
and full consideration in money or moneys
worth.
- ex: X obtained a 3M loan from Y and executed a
Real Estate Mortgage over his house and lot
worth 5M. X paid 1M. X died.
Effect: in the estate of X, include the 5M in the
gross estate of X and claim as deduction the
unpaid 2M.
Accommodated Loan
- Ex: X owns a house and lot worth 5M. Y obtained
a 3M loan from Z with Xs house and lot as
collateral. Y paid 1M. Z died. X died.
Effect: Include in the gross estate of X the 5M as
receivable from Y (reason: right of
reimbursement); and claim as deduction the
unpaid 2M.
6) Casualty Losses (TRECUSO)
- They include all losses incurred during the
settlement of the estate arising from fires,
storms, shipwreck or other casualties or from
robbery, theft or embezzlement.
- Requisites for deductibility:
a) Losses not compensated by an insurance or
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
6
otherwise;
b) Losses that were not claimed as a
deduction for income tax purposes; and
c) Losses incurred not later than the last day
for payment of the estate tax (6 months
from death).
d) Include the worth of the property in the
gross estate
e) File a sworn declaration of the fact of loss
within 45 days from its occurrence
7) Unpaid Taxes
- Unpaid income tax on income due or received
before death of the decedent, and real
property taxes, which have accrued prior to
the death of the decedent (real property taxes
accrued at the beginning of the year but may
be paid before or at the end of each quarter)
are deductible.
- Income taxes upon income received after the
death of the decedent, or property taxes not
accrued before his death, or any estate tax
cannot be deducted because they are
chargeable to the income of the estate.
- except: estate tax because estate tax liability is
determined at the time of death
B. Vanishing / Alternating Deduction Or
Property Previously Taxed
- an amount allowed to reduce the taxable estate
of a decedent where the property was:
a. received by him from prior decedent by
gift, bequest, devise or inheritance, or
b. transferred to him by gift, has been the
object of previous transfer deduction.
- VANISHING DEDUCTION: because the rate of
deduction gradually diminishes and entirely
vanishes depending upon the time interval
between the two (2) successive transfers.
- ALTERNATING DEDUCTION: because the
present decedents estate cannot claim it if
the prior decedents estate claimed it
- Factors necessary in vanishing deduction,
these are;
a. There are two (2) deceased persons and the
first is the donor; and
b. The second decedent dies within five (5)
years after the death of the prior decedent or
in the case of gifts the decedent donee dies
within the same period after the date of the
gift.
- Rationale:
The deduction operates to ease the
harshness of successive taxation of the same
property within a relatively short period of time.
Requisites for deductibility:
1. The present decedent must have acquired
the property by inheritance or by donation.
2. The property must have been acquired within
five (5) years prior to the death of the present
decedent
3. The property must have formed part of the
gross estate of the prior decedent if acquired by
inheritance, or the taxable gift of the donor if
acquired by donation.
BAR OPERATIONS COMMITTEE
4. The estate tax or the donors tax, as the case
may be, must have been paid on the previous
transfer.
5. The property must be identified as the one
received from the prior decedent or from the
donor, as the case may be.
6. The estate of the prior decedent must not
have previously availed of the vanishing
deduction on the subject property.
Procedure in computing vanishing
deductions:
1. Value taken of property previously taxed
Less:Mortgage paid by the present decedent on
property previously mortgaged by prior
decedent / donor, if any (Ist deduction)
= Initial basis
2. Initial basis divided by the value of the gross
estate of present decedent X Expenses, and
transfer for public purpose
=2nddeduction
3. Initial Basis
Less: 2nd deduction
Final Basis
Multiplied by rate deduction (sec.86 (A.2),
NIRC)
Vanishing Deduction
C. Transfers For Public Use
- Requisites:
1. The disposition must be testamentary in
character.
2. To take effect after death.
3. In favor of the government of the
Philippines, or any
political subdivision thereof.
4. Exclusively for public purpose.
5. Included in the gross estate
Query: If in a will the property was bequeathed
to a city and an NGO, are the tax effects the
same? No.
a) City - included in the gross estate and claimed
as deduction
b) NGO excluded from the gross estate and
subject to the limitation that not more than 30%
must be used for administrative purposes
D. Family Home
- Refers to the dwelling house, including the
land on which it is situated, where the
husband and wife, or an unmarried person
who is the head of the family and members of
their immediate family resides as certified by
the Barangay Captain of the locality.
- For the purpose of availing of a family home
deduction to the extent provided by law, a
person may constitute only one family home.
- The amount deductible is equivalent to the
current fair market value of the decedents
family home if said current fair market value
exceeds P1,000,000, the excess shall be
subject to estate tax.
- Requisites to be deductible:
a. The family home must be the actual residential
home of the decedent and his family at the
time of his death. (Decedent is married and
BARCOM2008-09
has dependents or is a head of family with
dependents.)
b. Such fact must be certified by the Barangay
Captain of the locality where the family is
situated.
c. The total value of the family home must be
included in the gross estate of the decedent.
d. The allowable deduction must be in an amount
equivalent to the current fair market value of
the family home as declared or included in the
gross estate not exceeding
P1, 000,000.
E. Standard Deduction Of P1, 000,000.00
- on top of other deductions, unlike the optional
standard deduction which is in lieu of other
deductions; hence, it does not include the P
200,000 exemption
F. Medical Expenses
- Requisites:
a. Must be incurred by the decedent within one
(1) year
prior to his death
b. Must be duly substantiated by receipts; and
c. Must not exceed P500, 000
*Opinion of JB: medical expense must be related
to the cause of death as it is the estate that is
being settled. Otherwise, if not related, it is a
personal expense.
G. Amounts Received By Heirs Under RA
4917 From The Decedents Employer As A
Consequence Of The Death Of The
DecedentEmployee, Provided That Such
Amount Is Included In The Gross Estate Of
The Decedent.
- retirement benefits
- Requisite: include in gross estate
H. NET SHARE OF THE SURVIVING SPOUSE
IN THE CONJUGAL / COMMUNITY PROPERTY.
- Requisite: Include the entire amount in the gross
estate then deduct the share of the surviving
spouse
- Ex: H owns a car worth 1M and a house and lot
worth 5M
W owns a truck worth 2M and jewelry worth
10M
H and W owns a conjugal lot worth 20M
H died.
Gross estate of H:
Exclusive Conjugal
5 M house and lot 20 M lot
1M car _________ _______
6M 20 M
Total gross estate = 26 M
Then claim as deduction the 10M, which is
the share of the surviving spouse in the
conjugal lot.
- Ex: H and W died simultaneously. In computing
the gross estate of H and W, their shares
shares as to the conjugal lot may immediately be
split as there is no surviving spouse left.
I) Tax Credit For Estate Tax Paid To A
Foreign Country
- The estate tax imposed by the tax code shall be
credited with the amount of any estate tax paid
to a foreign country.
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
7
- Concept: if a property located in the Philippines
was already subjected to estate tax abroad and
the same property is also subjected to estate tax
in the Philippines, the foreign tax paid is allowed
to reduce his Philippine estate tax
- Purpose: minimize the effect of international
double taxation
- applicable only to residents and citizens, not to
NRA since he is taxed only on his properties
within the Philippines; hence, the NRA will not be
made to pay estate taxes twice for his property
located abroad = no international double taxation
= no tax credit. (Sec. 86 (E)(2))
- Requisites:
1. Prove that the foreign estate tax has been paid
2. Prove reciprocity : that in the decedents
foreign country, a similar tax credit is given to
Filipinos
Limitations on tax credit:
A.)The tax credit limit for estate taxes paid to one
foreign country is determined by the following:
TAX CREDIT LIMIT=
Decedents Net Estate situated in a foreign
country x Phil. Estate tax of the Entire net estate
B.) The tax credit limit for estate taxes paid to
two or more countries is determined as follows:
TAX CREDIT LIMIT =
Decedents net estate situated outside of the Phil
X Phil. Estate tax of Entire net Estate
Note:
1.) Under limitation A the allowable tax credit is
the lower amount between the tax credit limit
and the estate tax paid to the foreign country.
2.) Under limitation B the allowable tax credit is
the lower amount between the tax credit limit
computed under (A) and that computed under
(B)
B.) IF DECEDENT IS A NON RESIDENT ALIEN
The deductions allowed to citizens or
residents of the Philippines are also extended to a
non-resident alien decedent with respect to his
estates situated in the Philippines at the time of
his death.
In case of deductions for expenses, losses,
indebtedness and taxes, the amount of the
allowable deduction is limited only to the
proportion of such deductions with the value of
such part of his gross estate which at the time of
his death, is situated in the Philippines, bears to
the value of his entire gross estate wherever
situated. (Sec. 86 (B))
Formula:
Allowable deduction of non-resident estate =
Philippine Gross Estate x Deductions
Claimed
Entire Gross estate
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
8
As a prerequisite to the deduction, it must
be included in the return required to be filed the
value at the time of his death, of that part of the
gross estate of the non-resident not situated in
the Philippines, to determine the ratable portion
of the deduction for expenses allowable.
Valuation of Property
The estate shall be appraised at its fair market
value (FMV) at the time of death of the decedent
(Sec.88, NIRC). This is regardless of any
subsequent contingency affecting the estate.
(Lorenzo vs. Posadas, 64 Phil. 353)
1. Real Property
- higher amount of :
a) FMV as determined by the Commissioner
- This is the zonal value (of the land) as fixed
by the CIR, and can be obtained from the BIR
website or regional office
b) FMV fixed by the provincial or city assessor
- This is the value as shown in the tax
declaration of the property
- Use this amount for real properties with no
zonal values (i.e. real properties other than
land such as buildings and improvements)
* Note : The law does not state that the
prevailing market rate or the consideration as a
basis for determining the FMV
* Note: If there are no improvements in the
property, get a Certificate of No-improvement,
(which you can get only after obtaining a
Certificate of Non-tax delinquency) and attach
these to the estate tax return.
2. Personal Properties
a) Shares of Stock
- book or par value at the time of death, and can
be obtained by writing a letter of inquiry, asking
for a formal certification from the corporation
which issued the shares of stock as to the value
of such stock at the time of death of the decedent
b) Inventories
- value as stated in the invoices (i.e.: price at
purchase); or the prevailing market rate (ask for
the value from those engaged in the same
business); or if value cannot be definitely
ascertained, state the approximate reasonable
value (but this will be subject to the discretion of
the BIR inspector)
c) Motor vehicles
- these depreciate 20% per year from purchase
- Hence, motor vehicles are fully liquidated and
has no estate tax liability after 5 years but
include in the gross estate placing zero as the
amount (to secure a tax clearance therefor)
3. Right to Usufruct, use or habitation; or
annuity
- probable life of the beneficiary shall be taken
into account, in accordance with the latest basic
mortality table, to be approved by the Sec. of
Finance, upon recommendation of the Insurance
Commissioner
Filing of Notice of Death
BAR OPERATIONS COMMITTEE
Where the gross value of the estate exceeds P
20,000 although exempt, the executor,
administrator, or any of the legal heirs shall give,
within 2 months after the decedents death or
within like period after the executor or
administrator qualifies as such, a written notice
thereof, to the Commissioner of Internal Revenue.
(Sec. 89, NIRC)
- Contents of the letter:
1. The fact that the decedent died
2. Residence of the decedent
3. Date of death
- Effect of failure to file notice: subject to penalty
not lower than P1,000
* Note: Filing with the nearest Revenue District
Office is sufficient compliance.
Filing of Return and Payment of Tax
1.) By whom?
An estate tax return under oath is required
by law to be filed by the executor,
administrator, or any of the legal heirs:
a.) Where the gross value of the estate
exceeds P200,000 though exempt from
the estate tax; or
b.) Regardless of the gross value of the
estate, where the said estate consists
of registered or registrable real
property, such as real property (land,
bank accounts, others with definite
records), motor vehicle, shares of stock
or other similar property for which a
clearance from the Bureau of Internal
Revenue is required as a condition
precedent for the transfer of ownership
thereof in the name of the transferee.
2.) When to file?
The return shall be filed within 6
months from the decedents death.
The Commissioner shall have the
authority to grant, in meritorious
cases, a reasonable extension not
exceeding 30 days for filing the return.
3.) Where to file?
Except in cases where the Commissioner
otherwise permits, the return shall be filed
with:
* if the decedent is a resident
a) an authorized agent bank
b) Revenue District Officer
c) Revenue Collection Officer
d) duly authorized treasurer of the city or
municipality where the decedent was
domiciled at the time of his death, or
* if the decedent is a non-resident
a) with the Revenue District Office where
his executor/administrator is registered
b) with the Revenue District Office having
jurisdiction over the residence of the
executor/administrator
e) with the Office of the Commissioner if
the decedent has no executor or
administrator
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
9
4.) Copies:
The return shall be filed in triplicate, two (2)
for the BIR and one (1) copy for the taxpayer.
5.) When to Pay
Pay the estate tax at the time you will file
your estate tax return. (Pay as you file
system)
6.) Extension for Payment:
- allowed in meritorious cases when the
Commisioner finds that the payment of the
esate tax on the due date would impose
undue hardships upon the estate or any heir :
At most 2 years if estate extrajudicially
settled
At most 5 years if estate judicially
settled
- NOTE: The taxpayer must not be guilty of
a) negligence
b) intentional disregard of the rules and
regulations, or
c) fraud
- the taxpayer may also be required to pay a
bond not exceeding double the amount of tax and
with such sureties, as the Commissioner deems
necessary
* Note: The filing of the estate tax return is not
sufficient to obtain a tax clearance, the
administrator/executor/heir must submit
additional documents to determine the
correctness of the values stated by him in the
estate tax return.
- such as the title of the land, tax declaration of
the land and its improvements or Certificate of
No-improvement, vicinity map to fix the exact
location and zonal value, etc.
(Read: Revenue Memorandum Order 15-2003)
* Note: To avoid the imposition of penalties while
there is no extra/judicial settlement yet, any heir
may file a sworn declaration to the BIR stating
the fact of death, that the estate has not yet
been settled and the list of the properties
included in the estate, as basis for payment of
estate tax.
If Gross Estate >2M, additional
requirement:
- must submit a certificate of an independent
CPA stating:
1. itemized assets of the decedent with
corresponding gross value at the time of
his death;
or if NRA, that part of his gross estate
situated in the Philippines
2. itemized deductions from the gross estate
3. amount of tax due, whether paid or still
due and outstanding
Liability for Payment of Estate Tax
Primarily Liable : Executor or administrator -
before delivery to any beneficiary of his
distributive shares. After due payment, the
executor or administrator shall be discharged
from personal liability.
BAR OPERATIONS COMMITTEE
Subsidiarily Liable : Beneficiary - to the extent
of his distributive share, liable for the portion
of the estate tax as his distributive share
bears to the value of the total net estate.
NOTE: There are two ways the government may
enforce collection of estate taxes from the
decedents heirs:
1. It can collect from all the heirs the amount of
the estate tax proportionate to the inheritance
they received.
2. It can subject properties of the estate which
are in the hands of the heirs/transferees to the
payment of the tax. (CIR vs. Pineda, 21 SCRA
105)
NOTE: The heirs have a solidary obligation to
settle the estate. Hence, the BIR can collect from
or sue any of the heirs, but only up to the amount
of that heirs share in the hereditary estate. This
is without prejudice to such heirs right of
reimbursement from his co-heirs of their share in
the payment of the estate tax. (CIR vs. Pineda, 21
SCRA 105)
Measures to Insure Payment of Estate Tax
a. No judge shall authorize the executor or
judicial administrator to deliver a distributive
share to any party interested in the estate unless
a certification from the Commissioner that the
estate tax has been paid as shown. (Sec.94)
- by the court requiring the
executor/administrator to submit an inventory of
properties of the estate, these properties are to
be distributed only after payment of estate taxes
and receipt of clearance by the Commissioner or
his duly authorized representative
- NOTE: The approval of the probate court is not
required before estate taxes may be collected.
The enforcement and collection of taxes are
executive in nature. (Marcos II vs. CA, 273 SCRA
47)
b. Registers of Deeds shall not register in
the Registry of Property any document
transferring real property any document
transferring real property or real right therein or
any chattel mortgage, by way of gift inter vivos
or mortis causa, legacy or inheritance, unless
certification from the commissioner that the tax
has been paid and the y shall immediately notify
the Commissioner, Regional Director, Revenue
District Officer, or Revenue collection Officer or
treasurer of the city or municipality where their
officer are located, of the non-payment of the tax
discovered by them. (Sec. 95)
- before the properties are transferred in the
name of the heirs, a Certificate Authorizing
Registration (CAR) must be shown
c. Any lawyer notary public, or any
Government Officer who, by reason of his official
duties, intervenes in the preparation or
acknowledgement of documents regarding
partition or disposal of donation inter vivos or
mortis causa, legacy or inheritance, shall have
the duty of furnishing the Commissioner, etc.,
with copies of such documents and any
information whatsoever, which may facilitate the
collection of the aforementioned tax. (Sec. 95)
- ex: deed of extrajudicial settlement, deed of
donation
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
10

d. Neither shall a debtor of a deceased NOTE: Additional Readings

pay his debts to the heirs, legatees, executor or
administrator of his creditor, unless a certification
of the Commissioner that the tax fixed has been
paid is shown; but he may pay the executor or
judicial administrator without said certification if
the credit is included in the inventory of the
estate of the deceased. (Sec. 95)
- else: debtor may be personally liable for the
payment of the lost tax, like a withholding agent
who fails to withhold taxes
e. Corporations, sociedad anonima,
partnerships, business or industry organized in
the Philippines shall not transfer in their books
any shares obligations, bonds or rights by way of
gift inter vivos or mortis causa, legacy or
inheritance to the new owner unless a
certification from the Commissioner that the
taxes fixed and due thereon have been is shown;
(Sec. 97)
- obligation of corporate secretary
f. If a bank has knowledge of the death of
a person who maintained a bank deposit account
alone or jointly with another, it shall not allow any
withdrawal from the said joint deposit account
unless the Commissioner has certified that the
estate taxes imposed thereon have been paid.
However, the administrator of the estate or any
of the heirs of the decedent may, upon
authorization by the Commissioner of Internal
Revenue withdraw an amount not exceeding P
20,00 without the said certification . (Sec. 97)
1. Revenue Regulation 2-2003
2. Revenue Memorandum Order 15-2003
TAX TIPS: Avoidance of Estate Tax Liability
1. Maximize your claims for deductions such as
the use of the transfers falling under the
exclusions from gross estate.
2. Donate properties to your relatives as the tax
rates for donors taxes are lower than for estate
taxes.
3. Estate Planning (Section 40 (c), NIRC)
- execute a Deed of Exchange; the properties of
at most 5 persons in exchange for shares of
stock in order to obtain control of the
corporation (more than 51% ownership)
- this exchange is not taxable for income tax
purposes
- more tax savings if real properties are
exchanged
- the properties in the deed will no longer be
part of the gross estate as it is now owned by
the corporation
- the stock shares will be included in the gross
estate but the tax would be lower as the value
at time of death might still be the same original
value at the time of exchange; on the other
hand, if there was no exchange the estate tax
for the land would be higher as the value of the
land at time of death will be higher than at the
time of the acquisition.

- For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the
joint depositors are still living at the time of
withdrawal by any one of the joint depositors and
such statement shall be under oath. Otherwise,
the joint depositor will be liable for perjury (Sec.
267).
- joint accounts covered by this rule include and
and and/or accounts, but do not include an
account subject to a Survivorship Agreement with
a survivor-take-all feature (because there is an
automatic transfer of right to the survivor; hence,
not included in gross estate of the joint depositor
who died tax avoidance scheme)
4. Set up a living trust
- Trust: obligation imposed by a person
regarding his
property
- Create an irrevocable trust over your
properties so that they will not form part of your
gross estate when you die. This is because the
Irrevocable Trust is a new taxpayer created.
- Ex: grandfather (Grantor) during his lifetime
would like to give certain properties to his
grandchild. Until he reaches the age of
maturity, the properties will be held in trust by
X (trustee) for the grandchild (Beneficiary).

g. The estate tax together with interest,

penalties, and costs that may accrue in addition
thereto constitutes a lien upon all property and
rights to property belonging to the taxpayer. The
lien attaches when the taxpayer neglects or DISTINCTION BETWEEN DONORS AND
refuses to pay after demand. (Sec. 219) ESTATE TAX

h. In judicial settlement of estates, the DONORS TAX ESTATE TAX

court is required to furnish the commissioner of Tax on the privilege to Tax on the privilege to
Internal Revenue a certified copy of the schedule transmit property transmit property upon
of participation and the court order approving the during the lifetime of ones death
same within 30 days after its promulgation. (Sec. the donor
91(b)); Tax rates are lower (2 Tax rates are higher (5
to 15) to20)
i. The estate tax shall be paid by the Exemption is only P Tax exemption is
executor or administrator before delivery to any 100,000.00 P200,000.00
beneficiary his distributive share of the estate Notice of donation is Notice of death is
(Sec. 91 (c)). He may be discharged from generally not required required
personal liability for deficiency in the estate tax
only after written application to the commissioner Extension of payment Extension of payment
and upon determination that no such deficiency is not provided may be granted by the
appears. (Sec. 92) Commissioner of
Internal Revenue
BAR OPERATIONS COMMITTEE
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
11
Payable within 30 days Payable within 6 2.)
from the date of gift months from the date
of death
Imposed on the net Imposed on the net
gift estate
II. DONORS TAX / GIFT TAX
A. NATURE
- It is an excise (privilege) tax, imposed on the
privilege of the donor to give or on the privilege
of the done to receive. It is not a tax on the
property as such because its imposition does not
rest upon general ownership.
- The tax is imposed without reference to the
death of the donor unlike in the case of estate
tax.
Donation / Gift
- an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another
who accepts it.
- For tax purposes, the term has a much wider
meaning, 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 or
intangible. (Sec. 98)
b. any transfer of property by gift, except in
forced sales and in the sale of real property
which is a capital asset, for less than and
adequate and full consideration in money or
moneys worth. (Sec. 100)
c. Condonation or remission of debt, where
the creditor merely desires to benefit a
debtor and without any consideration
therefore cancels the debt.
Requisites Of A Taxable Gift:
1.) CAPACITY of the donor to make the
donation;
2.) DONATIVE INTENT or INTENT on the part
of the donor to make a gift;
3.) DELIVERY, whether actual or constructive,
of the gift; and
4.) ACCEPTANCE of the gift by the donee.
Note:
A. The donee, unlike the donor need not be
capacitated.
B. donors tax applies now to both natural and
juridical
persons.
C. donative intent must be present in direct gift
but with respect to indirect gift, e.g. transfer of
property for less than an adequate and full
consideration, donative intent is superfluous.
Thus, donative intent is not always essential to
constitute a gift.
D. In Abello vs. CIR (Feb. 25, 2005), donative
intent is evidenced by a reduction of patrimony
of one and an increase in patrimony to the
other.
Purposes Of Gift Tax
1.) The gift tax was enacted originally to
supplement the estate and inheritance taxes
by preventing their avoidance through the
taxation of gifts inter vivos.
BAR OPERATIONS COMMITTEE
The donors tax is also intended to prevent
the avoidance of income tax through the
device of splitting income among
numerous/different donees with the donor
thereby escaping the effect of the progressive
rates of income taxation.
Kinds Of Gift Taxes:
1. Donors tax or tax levied on the act of
giving; it supplements the estate tax; and
2. Donees tax or tax levied on the act of
receiving; it was formerly the counterpart of
the inheritance tax, which has been
integrated into an estate tax.
*Both taxes have now been integrated into a
donors tax.
Parties To A Donation:
1. Donor - the Person who disposes of his
property or right.
2. Donee - the Person who receives the property
or right.
Properties Included In The Term Gift
(A). In the case of resident citizens, non-
resident citizens and resident aliens:
1. Real property within and without the
Philippines.
2. Tangible personal property within and
without the Philippines; and
3. Intangible personal property within and
without the Philippines.
(B.) In the case of non-resident aliens:
1. Real property within the Philippines.
2. Tangible personal property within the
Philippines.
3. Intangible personal property within the
Philippines, unless there is reciprocity in
which case, it is not taxable.
Note:
The specific items includible in the gross
estate are applicable to and are embraced
by the term gift.
B. FACTORS AFFECTING LIABILITY FOR GIFT
TAXES
1. Relationship of the donor and the donee
a) when the donee is considered a stranger to
the
donor, the donors tax shall be 30% of the
net gifts.
b) when the donee is a relative of the donor,
the tax
shall be based on the 2-15% table under
Sec. 99(A).
Stranger
1.) one who is not a :
(a) brother/sister (whole or half blood),
spouse,
ancestor and lineal descendant
(b) relative by consanguinity in the collateral
line
within the fourth degree of relationship
2.) donations made between individuals and
business
organizations are considered donations to
strangers
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
12
3.) donations made between business
organizations
are considered donations made to strangers
(RR 2-2003)
Note: Donees who have no blood relation to the
donor are considered strangers to the donor, such
as those made to ones in-laws or to juridical
persons.
2. Value of the Gift
- the higher the value of the gift, the higher the
gift taxes
C. DEDUCTIONS / EXEMPTIONS FROM GIFT
TAX
1. Gifts Made by a Resident:
a.) Dowries or gifts made on account of marriage
before its celebration or within one year
thereafter by parents to each of their legitimate,
illegitimate or adopted children to the extent of
the first P10,000.00.
Requisites:
1. The donation must be given on account of
marriage.
2. The parent must give it to his child.
3. The child must be either the legitimate,
recognized natural or legally adopted child
of the donor, and;
4. It must be given before or one year after
the celebration of the marriage.
b.) Gifts made to or for the use of the National
Government or any of its agencies which is not
conducted for profit, or to any political
subdivision of the said government.
c.) Gifts in favor of educational, charitable,
religious, cultural or social welfare corporation,
institutions, foundations, trust or philanthropic
organization, research institution or organization,
or accredited non-government organization.
Provided, that no more than 30% of said gifts
shall be used by such donee for administration
purposes.
Note:
For purposes of exemption, a non-profit
educational and/or charitable corporation,
institution, accredited non-government
organization, trust or philanthropic
organization is defined as:
school, trust or university and/ or
charitable corporation, foundation trust or
philanthropic organization and/ or
research institution or organization
incorporated as a non-stock entity:
paying no dividends.
governed by trustees who receive no
compensation; and
devoting all its income to the
accomplishment and promotion of the
purposes enumerated in its articles of
incorporation.
Note:
Only donations made to non-stock, non-profit
educational institutions are exempt from gift
taxes as although Article 14 of the Constitution
BAR OPERATIONS COMMITTEE
states that proprietary educational institutions
may be given the same privileges subject to a
guideline; as a guideline, the NIRC does not
provide for such exemption to them.
2. Gifts made by a Non-Resident Alien
a.) Gifts made to or for the use of the National
Government or any entity created by of its
agencies which is not conducted for profit,
or to any political subdivision of the said
government.
b.) Gifts in favor of educational, charitable,
religious, cultural or social welfare
corporation, institution, foundations trust or
philanthropic organization, research
organization or institution; Provided, that no
more than 30% of said gifts shall be used by
such donee for administration purposes.
Note: doesnt include accredited NGO
Note:
1. Intangible personal property in the gross gift of
a NON-RESIDENT ALIEN donor shall be taxable in
the Philippines, if the PRINCIPLE OF RECIPROCITY
is not cognizable.
2. Intangible personal properties considered
situated in the Philippines.
Franchise which must be exercised in the
Philippines
Shares of stocks issued by any corporation
or sociedad anonima organized or
constituted in the Philippines in
accordance with its laws.
Shares of stocks issued by any foreign
corporation 85% of the business of which
is situated in the Philippines.
Shares of stock issued by a foreign
corporation, if such shares, obligations, or
bonds, have acquired a business situs in
the Philippines; and
Shares or rights in any partnership,
business or industry established in the
Philippines.
D. TAX TREATMENT OF PROPERTIES
TRANSFERRED FOR LESS THAN FULL /
ADEQUATE CONSIDERATION
General Rule: The amount by which the FMV of
the property exceeded the value of the
consideration shall be deemed a gift
Exception: real properties classified as capital
assets (not used in business) as there were
already subjected to Capital Gains Tax
E. TAX TREATMENT OF POLITICAL
CONTRIBUTIONS
- any contribution in cash or in kind to any
candidate, political party or coalition of parties for
campaign purposes shall be governed by the
Election Code; hence, this is not subject to gift
tax (report to COMELEC?)
BARCOM2008-09
F. TAX CREDIT FOR DONORS TAXES PAID TO
A FOREIGN COUNTRY
1. Donor was a Filipino citizen or resident alien, at
the time of foreign donation
2. Donors taxes of any character and description
are imposed and paid by the authority of a
foreign country.
Limitations:
A.) For donors tax paid to one foreign country;
The amount of tax credit in respect to the
tax paid to any country shall not exceed the
same proportion of the tax against which
credit is taken which the net gifts situated
within such country taxable under the
National Internal Revenue Code bears to his
entire net gift, and
B.) For donors tax paid to two or more foreign
countries:
The total amount of the credit shall not
exceed the same proportion of the tax against
which such credit is taken, which the donors
net gift situated outside the Philippines
taxable under the National Internal Revenue
Code bears to his entire net gift.
Formula:
1. Donors Tax Paid to 1 Foreign Country
Tax Credit Limit =
Net gift situated in a foreign country X Phil.
Donors Tax
Entire net gifts
2. Donors Taxes paid to 2 or more Foreign
Countries
Tax Credit Limit =
Net gifts outside the Philippines X Phil.
Donors Tax
Entire net gifts
Note:
Under limitation A the allowable tax credit
limit is the LOWER AMOUNT between the
tax credit limit and the gift tax paid to the
foreign country.
Under limitation B the allowable tax credit
is the LOWER AMOUNT between the tax
credits; limit computed under A and that
computed Under B.
Note: Void Donations Are Not Subject To
Donors Tax
Such as:
Between husband and wife, even if the
relationship has not been solemnized.
Between persons guilty of adultery or
concubinage.
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
13
Between those found guilty of the same
criminal offenses.
Between those made to a public officer or his
wife, descendants, ascendants by reason of
his office.
Note: Effects Of General And Specific
Renunciation
- An heirs general renunciation of inheritance in
favor of a co-heir is not subject to donors tax, but
if it is specifically renounced in favor of a co-heir
to the exclusion of others, it shall be subject to
donors tax.
Note: Renunciation of a surviving spouse of
his/her share in the conjugal partnership or
absolute community after dissolution of
marriage
- whether made in favor of the heirs of the
deceased spouse or in favor of a third person, the
same is subject to donors tax
G. NET GIFT
- the total amount of gifts less the allowable
deductions and specific exemptions.
- the total net gifts made during the SAME
calendar year is used as basis for computing the
donors tax
H. VALUATION
- the gift tax is based on the fair market value of
the gift at the time it was given
I. LAW APPLICABLE
- the law in force at the time of the perfection /
completion of the donation shall govern the
imposition of donors tax. A donation is
considered as completed FOR TAX PURPOSES at
the time the donee accepts the gift.
J. ADMINISTRATIVE PROVISIONS
1. Filing of notice of donation
General Rule: Filing of notice of donation is not
required
Exception: if the donor wishes to claim exemption
from tax and the donee is an organization under
Sec.101(A3) and Sec. 101 (B2)
Requisites to be exempt from gift tax :
1. Donor is engaged in business
2. Donee is any of the organizations
mentioned under Sec. 101(A3) and Sec. 101 (B2)
3. Donor must give notice to the RDO on
every donation worth at least P50,000.
4. The notice must be given within 30 days
from the issuance by the donee of a Certificate of
Donation.
5. The certificate of Donation must be
attached to the notice.
2. Filing of Donors Tax Return
- within 30 days after the completion of the gift
- donation is completed FOR TAX PURPOSES at
the time the donee accepts the gift
- Contents:
1. Gifts made during the calendar year
2. Deductions claimed and allowed
3. Previous net gifts made during the
year
4. Name of the done
5. Relationship of the donor and the done
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
14
6. Other information as may be required
3. Payment of Donors Tax
- pay as you file the tax return
- Note: if the donors tax was paid for the
transfer, there is no more need to subject the
transfer again to estate tax. Applying the Back
Tax Theory, there is no tax that remained unpaid
regarding this transfer.
4. Extensions For Payment Of Donors Tax
- the NIRC does not provide for any extension for
payment of gift tax, as it is presumed that if you
can donate, you still have sufficient properties to
pay for the tax. Unlike in estate tax where
extension is granted, because the payment of
the tax may cause undue hardship on the heirs
specifically for non-liquid properties which
requires time to be sold first to be converted into
cash for payment of the estate tax.
TAX TIPS : Avoidance of Gift Taxes
Execute a Deed of Extra-judicial Settlement with
simultaneous general renunciation of all
inheritance
(by operation of law, the renounced inheritance
will go to the co-heirs anyway).
PROBLEMS ON DOWRY DEDUCTION
1. A is the child of H and W
January A got married, H and W gave him
P2,000
March H and W gave A P2,000
April H and W gave A another P2,000
Can the parents claim dowry deduction even if
these were made on a staggered basis?
- Yes, provided these were made on account of
marriage, before the marriage or 1 year
thereafter.
2. January - A married B and was given dowry
February B died
December A married C and was given dowry
Can the parents of A still claim dowry deduction
even if it was claimed already for the January
dowry?
- There is no rule on the matter yet but it is
submitted that as it was made on account of 2
different marriages, the deduction for the
December dowry may be made.
3. A and C are the children of H and W
January - A married B, given dowry
February C married D, given dowry
Can H and W claim dowry deduction for both?
-Yes, as the dowries were given to different
children
4. H and W jointly donated to their child A 1M on
account of his marriage to B. Show computation.
For each of H and W the computation is:
500,000 to A 250,000
- to B 250,000
A B
250,000 250,000
-10,000 _______
240,000 250,000
*2 to 15% * 30%
BAR OPERATIONS COMMITTEE
3, 600 75,000
Note: Do not deduct the first 100,000 in case of
donee-relatives as this is incorporated already in
the table under Section 99.
General Rule: H and W are considered separate
and distinct taxpayers for purposes of donors
tax.
Exception: What was donated is a conjugal
property and only H signed. There is only one
donor, without prejudice to the right of W to
question the validity of the donation without
her consent.
PROBLEMS
1. Donations made by X
January 300,000 to his brother
April 400,000 to his sister
August 500,000 to his mother
Compute donors tax:
a) For January donation
= 300,000 * (percentage in the 2 to 15%
table) = tax
b) For April Donation
= (300,000 + 400,000) * (2 to 15% table) =
tax
c) For August Donation
= (300,000 + 400,000 + 700,000) * (2 to 15%
table)
= tax less tax paid for January and April
2. X wants to give Y 200,000, will there be tax
savings to X if he will donate one time the
amount of 200,000 or should he split by donating
100,000 on December 2007 and 100,000 on
January 2008?
- It depends if X and Y are relative or not.
a) relatives yes, there will be savings as under
the table in Section 99, the first 100,000 is
exempt from Donors tax. No donors tax will then
be paid for both donations.
b) strangers nom there will be no tax savings. A
flat rate if 30% is imposed on donations made
between strangers; hence, the same amount of
P60,000 donors tax will be paid whether made
one time or split.
3. X died and left 1M each to his heirs A, B, C. The
heirs agreed to settle extrajudicially.
a) A renounced his inheritance in favor of B. Is
there liability for donors tax?
- Yes, this is a case of waiver. A is deemed to have
accepted the property before he gave it to B as
one cannot give what one does not own. A
specific renunciation is taxable.
b) A renounced his share without specifying a co-
heir who will receive the same. Is there liability
for donors tax?
- No donors tax because as if A never inherited
anything from X and the transfer was made
directly from X to B and C.
VALUE ADDED TAX
A. Value Added Tax
- Indirect Tax
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
15
- It is not the tax itself which is shifted or passed but
it is the burden to pay the tax
Why? Tax is Personal. Seller is still liable,
only that the economic burden is shouldered
by the buyer.
F.
B. Transactions Subject to VAT (ISBEL)
a. Importation whether or not in the regular
course of business
b. Sale
conducted in the
c. Barter
regular course
d. Exchange of business
e. Lease
* The phrase in the course of business means the
regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental
thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, non-profit
private organization (irrespective of the disposition of
its net income and whether or not it sells exclusively to
members or their guests), or government entity.
* VAT becomes due when the following conditioned
concur:
a. There is sale, barter, exchange, transfer or
similar transactions, either for nominal or
valuable consideration, intended to transfer
ownership of, or title to, articles imported, milled,
produced or manufactured; and
b. The sale is consummated, not merely
perfected, in the Philippines. The place where the
title to the thing passes determines the place of
delivery or tax situs.
C. Specific Characteristics of VAT
a. Consumption Based Tax
- the person who last consumes the
product absorbs the effect of VAT
1. Destination Principle
- Goods are destined to be consumed in
the Philippines
2. Cross-border principle
- Goods going out of the Philippines shall
not be subjected to tax since these
goods are not destined to be consumed
in the Phils.
*VAT is imposed only on whatever value was
added.
D. Exempt Transactions (Sec. 109, NIRC, as
amended by RA 9337)
E. Zero rating vs. Exemption
a. A zero-rated scale is taxable transaction,
but does not result in an output tax while
an exempted transaction is not subject to
the output tax;
b. The input VAT on the purchases of VAT-
registered person with zero-rated sales
may be allowed as tax credits or refunded
while the seller in an exempt transaction is
not entitled to any input tax on his
purchases despite the issuance of a VAT
invoice or receipt; and
BAR OPERATIONS COMMITTEE
c. Persons engaged in transactions which are
zero-rated, being subject to VAT, are
required to register while registration is
option for VAT-exempt persons.
Tax Credits
a. Transitional Input Tax Credits (Sec.
111(A), NIRC, as amended by RA 9337)
b. Presumptive Input Tax Credits (Sec.
111(B), NIRC, as amended by RA 9337)
TAX ADMINISTRATION AND ENFORCEMENT
A. Tax Administration: Its general
concepts
- is the power of the Bureau of
Internal Revenue (BIR) to enforced
and administer taxes.
B. Government agencies involved in tax
administration
- the BIR and Bureau of Customs
are tasked to implement revenues
laws as the case may be.
C. The Bureau of Internal Revenue
a. Composition Functions
- The Bureau of Internal Revenue
shall have a chief to be known as
Commissioner of Internal Revenue,
hereinafter referred to as the
Commissioner and four (4)
assistant chiefs to be known as
Deputy Commissioners. (Sec. 3,
NIRC)
b. Powers and Duties
i. In general
- The Bureau of Internal Revenue
shall be under the supervision and
control of the Department of
Finance and its powers and duties
shall comprehend the assessment
and collection of all national
internal revenue taxes, fees, and
charges, and the enforcement of
all forfeitures, penalties, and fines
connected therewith, including
the execution of judgments in all
cases decided in its favor by the
Court of Tax Appeals and the
ordinary courts. The Bureau shall
give effect to and administer the
supervisory and police powers
conferred to it by this Code or
other laws. (Sec. 2, NIRC)
ii. Specific
1. Interpret tax laws and
decide cases (Sec.4,
NIRC)
- The power to interpret the
provisions of this Code and other
tax laws shall be under the
exclusive and original jurisdiction of
the Commissioner, subject to
review by the Secretary of Finance.
The power to decide disputed
assessments, refunds of internal
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
16

revenue taxes, fees or other every person (taxpayer) engaged

charges, penalties imposed in in a business
relation thereto, or other matters
arising under this Code or other a. however before a tax
laws or portions thereof official could inquire into
administered by the Bureau of said books of accounts a
Internal Revenue is vested in the letter of authority is
Commissioner, subject to the required.
exclusive appellate jurisdiction of
the Court of Tax Appeals. b. What is third-party
verification rule?
a. BIR Issuances and rules
relevant thereto - In ascertaining the correctness of
any return, or in making a return when
The power to issue none has been made, or in
regulations is expressly determining the liability of any person
conferred in the Tax Code. for any internal revenue tax, or in
Thus, the Secretary of collecting any such liability, or in
Finance, upon the evaluating tax compliance, the
recommendation of the Commissioner is authorized to obtain
Commissioner, shall on a regular basis from any person
promulgate all needful rules other than the person whose internal
and regulations for the revenue tax liability is subject to audit
effective enforcement of the or investigation, or from any office or
provisions of the Tax Code. officer of the national and local
(see Sec.244, NIRC). The governments, government agencies
rules and regulations of the and instrumentalities, including the
Bureau shall contain, among Bangko Sentral ng Pilipinas and
others, provisions government-owned or -controlled
specifying, prescribing or corporations, any information such as,
defining the time and but not limited to, costs and volume of
manner of canvassing production, receipts or sales and gross
revenue regions, form of incomes of taxpayers, and the names,
labels, conditions to be addresses, and financial statements of
observed by revenue corporations, mutual fund companies,
officers respecting the insurance companies, regional
institutions and conduct of operating headquarters of
legal actions. (see Sec.245, multinational companies, joint
NIRC) accounts, associations, joint ventures
of consortia and registered
- the Bureau has the power to issue partnerships, and their members;
rules and issuances as the case
may be but subject to the c. Inquiry into bank deposits (Sec 6
following rule: {f}), NIRC)

SEC. 246. Non-Retroactivity of General Rule:

Rulings. - Any revocation, modification or
reversal of any of the rules and regulations
promulgated in accordance with the
preceding Sections or any of the rulings or
circulars promulgated by the
Commissioner shall not be given
retroactive application if the revocation,
modification or reversal will be prejudicial
to the taxpayers, except in the following
cases:
(a) Where the taxpayer deliberately
misstates or omits material facts from his
return or any document required of him by
the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered
by the Bureau of Internal Revenue are
materially different from the facts on
which the ruling is based; or
The Bureau of Internal Revenue has
no power to inquire into the bank
deposits of a person or taxpayer.
Exceptions:
Notwithstanding any contrary
provision of Republic Act No. 1405 and
other general or special laws, the
Commissioner is hereby authorized to
inquire into the bank deposits of:
1) a decedent to determine his
gross estate; and
(2) any taxpayer who has filed an
application for compromise of his tax
liability under Sec. 204 (A) (2) of this Code
by reason of financial incapacity to pay his
tax liability.

(c) Where the taxpayer acted in bad faith. In case a taxpayer files an application to
compromise the payment of his tax liabilities on
2. Examination of Books of his claim that his financial position demonstrates
Accounts (Sec. 5, NIRC) a clear inability to pay the tax assessed, his
- the Bureau has the power to application shall not be considered unless and
examine books of accounts of until he waives in writing his privilege under
Republic Act No. 1405 or under other general or
BAR OPERATIONS COMMITTEE
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
17

special laws, and such waiver shall constitute the duly authorized representative may
authority of the Commissioner to inquire into the authorize the examination of any
bank deposits of the taxpayer. taxpayer and the assessment of
the correct amount of tax:
Such limited power of the Commissioner Provided, however; That failure to
does not conflict with R.A 1405 or the Secrecy of file a return shall not prevent the
Bank Deposits Law because the provisions of the Commissioner from authorizing the
Tax Code granting this power are an exception to examination of any taxpayer.
the said legislation. Any return, statement of
declaration filed in any office
If the bank has knowledge of the death of authorized to receive the same
a person, who maintained a bank deposit account shall not be withdrawn: Provided,
either alone or jointly with another, it shall not That within three (3) years from
allow any withdrawal from the said deposit the date of such filing, the same
account, unless the Commissioner has certified may be modified, changed, or
that the transfer taxes imposed thereon have amended: Provided, further, That
been paid. However the administrator of the no notice for audit or investigation
estate or any one of the heirs of the decedent of such return, statement or
may, upon authorization by the Commissioner, declaration has in the meantime
withdraw an amount not exceeding twenty been actually served upon the
thousand pesos (P20, 000.00) without the taxpayer.
certification. For this purpose all withdrawal slips
shall contain a statement to the effect that all of i. Amendment of Returns
the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and When a report required by
such statement shall be under oath by the said law as a basis for the assessment
depositors. of any national internal revenue tax
shall not be forthcoming within the
d. Summons persons, take time fixed by laws or rules and
testimony regulations or when there is reason
to believe that any such report is
In ascertaining the correctness of any false, incomplete or erroneous, the
return, or in making a return when none has been Commissioner shall assess the
made, or in determining the liability of any proper tax on the best evidence
person for any internal revenue tax, or in obtainable.
collecting any such liability, or in evaluating tax In case a person fails to file
compliance, the Commissioner is authorized: a required return or other
document at the time prescribed
1. To summon the person liable for tax or by law, or willfully or otherwise
required to file a return, or any officer or files a false or fraudulent return or
employee of such person, or any person having other document, the
possession, custody, or care of the books of Commissioner shall make or
accounts and other accounting records containing amend the return from his own
entries relating to the business of the person knowledge and from such
liable for tax, or any other person, to appear information as he can obtain
before the Commissioner or his duly authorized through testimony or otherwise,
representative at a time and place specified in which shall be prima facie correct
the summons and to produce such books, papers, and sufficient for all legal
records, or other data, and to give testimony purposes. (Sec. 6 {b}, NIRC)
(Sec.5 {c}, NIRC)

2. To take such testimony of the person ii. Rule on confidentiality of

concerned, under oath, as may be relevant or tax returns and exceptions
material to such inquiry (Sec.5 {d}, NIRC) thereto (Sec.71 and 270,
NIRC)
- To summon the person liable for
tax or required to file a return, or any officer or - After the assessment shall
employee of such person, or any person having have been made, as provided in
possession, custody, or care of the books of this Title, the returns, together with
accounts and other accounting records containing any corrections thereof which may
entries relating to the business of the person have been made by the
liable for tax, or any other person, to appear Commissioner, shall be filed in the
before the Commissioner or his duly authorized Office of the Commissioner and
representative at a time and place specified in shall constitute public records and
the summons and to produce such books, papers, be open to inspection as such upon
records, or other data, and to give testimony. the order of the President of the
Philippines, under rules and
3. Power to assess and prescribe regulations to be prescribed by the
requirements for tax administration Secretary of Finance, upon
recommendation of the
a. Power to examine returns Commissioner.
(Sec. 6 {a}, NIRC)
- After a return has been filed The Commissioner may, in
as required under the provisions of each year, cause to be prepared
this Code, the Commissioner or his and published in any newspaper
BAR OPERATIONS COMMITTEE
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
18
the lists containing the names and
addresses of persons who have
filed income tax returns. (see
Sec.71, NIRC)
Any internal revenue officer
who is or shall become interested,
directly or indirectly, in the
manufacture, sale or importation of
any article subject to excise tax
under Title VI of this Code or in the
manufacture or repair or sale, of
any die for printing, or making of
stamps, or labels shall upon
conviction for each act or omission,
be punished by a fine of not less
than Five thousand pesos (P5,000)
but not more than Ten thousand
pesos (P10,000), or suffer
imprisonment of not less than two
(2) years and one (1) day but not
more than four (4) years, or both.
(see Sec.270, NIRC)
b. Power to make a returns
(Sec.6 {b}, NIRC)
What is Best
Evidence Obtainable Rule?
- In case a person fails to file a
required return or other document
at the time prescribed by law, or
willfully or otherwise files a false
or fraudulent return or other
document, the Commissioner
shall make or amend the return
from his own knowledge and from
such information as he can obtain
through testimony or otherwise,
which shall be prima facie correct
and sufficient for all legal
purposes.
c. Power to conduct inventory
taking, surveillance and to
issue presumptive gross
sales/receipts (see Sec.6
{c}, NIRC)
- The Commissioner may, at any
time during the taxable year, order
inventory-taking of goods of any taxpayer
as a basis for determining his internal
revenue tax liabilities, or may place the
business operations of any person, natural
or juridical, under observation or
surveillance if there is reason to believe
that such person is not declaring his
correct income, sales or receipts for
internal revenue tax purposes. The
findings may be used as the basis for
assessing the taxes for the other months
or quarters of the same or different
taxable years and such assessment shall
be deemed prima facie correct.
When it is found that a person has
failed to issue receipts and invoices in
violation of the requirements of Sections
113 and 237 of the Tax Code, or when
there is reason to believe that the books of
accounts or other records do not correctly
BAR OPERATIONS COMMITTEE
reflect the declarations made or to be
made in a return required to be filed under
the provisions of this Code, the
Commissioner, after taking into account
the sales, receipts, income or other
taxable base of other persons engaged in
similar businesses under similar situations
or circumstances or after considering
other relevant information may prescribe a
minimum amount of such gross receipts,
sales and taxable base, and such amount
so prescribed shall be prima facie correct
for purposes of determining the internal
revenue tax liabilities of such person.
d. Power to terminate tax
period (see Sec. 6 {d}),
NIRC)
- When it shall come to the
knowledge of the Commissioner
that a taxpayer is retiring from
business subject to tax, or is
intending to leave the Philippines
or to remove his property
therefore or to hide or conceal his
property, or is performing any act
tending to obstruct the
proceedings for the collection of
the tax for the past or current
quarter or year or to render the
same totally or partly ineffective
unless such proceedings are
begun immediately, the
Commissioner shall declare the
tax period of such taxpayer
terminated at any time and shall
send the taxpayer a notice of
such decision, together with a
request for the immediate
payment of the tax for the period
so declared terminated and the
tax for the preceding year or
quarter, or such portion thereof as
may be unpaid, and said taxes
shall be due and payable
immediately and shall be subject
to all the penalties hereafter
prescribed, unless paid within the
time fixed in the demand made by
the Commissioner.
- the BIR has the power to
terminate tax period under the
following instances:
when the taxpayer conceals
his properties with the
intention to evade taxes
when the taxpayer is leaving
the Philippines with the
intention to evade taxes
when the taxpayer is
obstructing proceedings for
the collection of taxes
when the taxpayer is
removing properties with the
intention of evading taxes
when the taxpayer is retiring
form business
e. Power to fix real property
values (see Sec.6 {e}, NIRC)
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
19

- The Commissioner is authorized to - The Commissioner may delegate

divide the Philippines into different the powers vested in him under
zones or areas and shall, upon the pertinent provisions of the Tax
consultation with competent Code to any or such subordinate
appraisers both from the private officials with the rank equivalent
and public sectors, determine the to a division chief or higher,
fair market value of real properties subject to such limitations and
located in each zone or area. For restrictions as may be imposed
purposes of computing any internal under rules and regulations to be
revenue tax, the value of the promulgated by the Secretary of
property shall be whichever the finance, upon recommendation of
higher is of: the Commissioner: Provided,
however, That the following
(1) The fair market value as powers of the Commissioner shall
determined by the Commissioner, not be delegated:
or
(2) The fair market value as (a) The power to recommend the
shown in the schedule of promulgation of rules and
values of the Provincial and regulations by the Secretary of
City Assessors. Finance;

f. Power to accredit tax agents (b) The power to issue rulings of

(see Sec.6 {g}, NIRC) first impression or to reverse,
- The Commissioner shall accredit revoke or modify any existing
and register, based on their ruling of the Bureau;
professional competence,
integrity and moral fitness, (c) The power to compromise or
individuals and general abate, under Sec. 204 (A) and (B)
professional partnerships and of this Code, any tax liability:
their representatives who prepare Provided, however, That
and file tax returns, statements, assessments issued by the regional
reports, protests, and other offices involving basic deficiency
papers with or who appear before, taxes of Five hundred thousand
the Bureau for taxpayers. Within pesos (P500,000) or less, and
one hundred twenty (120) days minor criminal violations, as may
from January 1, 1998, the be determined by rules and
Commissioner shall create regulations to be promulgated by
national and regional the Secretary of finance, upon
accreditation boards, the recommendation of the
members of which shall serve for Commissioner, discovered by
three (3) years, and shall regional and district officials, may
designate from among the senior be compromised by a regional
officials of the Bureau, one (1) evaluation board which shall be
chairman and two (2) members composed of the Regional Director
for each board, subject to such as Chairman, the Assistant
rules and regulations as the Regional Director, the heads of the
Secretary of Finance shall Legal, Assessment and Collection
promulgate upon the Divisions and the Revenue District
recommendation of the Officer having jurisdiction over the
Commissioner. taxpayer, as members;

Individuals and general (d) The power to assign or reassign

professional partnerships and their internal revenue officers to
representatives who are denied establishments where articles
accreditation by the Commissioner subject to excise tax are produced
and/or the national and regional or kept.
accreditation boards may appeal
such denial to the Secretary of i. Non-delegable powers in
Finance, who shall rule on the relation to Section 16 of NIRC
appeal within sixty (60) days from
receipt of such appeal. Failure of - the following are the powers
the Secretary of Finance to rule on which the Bureau of Internal
the Appeal within the prescribed Revenue cannot delegate:
period shall be deemed as
approval of the application for a. the power to
accreditation of the appellant. compromise

g. Power to prescribe - as a general rule the power of the

procedural/documentary BIR to compromise cannot be
requirements delegated to other administrative
- the BIR has the power to prescribe agencies unless in the following
the manner of filing of a returns grounds:
1. a reasonable doubt
h. Power to delegate (see as to the validity of
Sec.7, NIRC)
BAR OPERATIONS COMMITTEE
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
20
the claim against
the taxpayer exists
2. financial inability to
pay
The compromise settlement of any tax
liability shall be subject to the following
minimum accounts:
a. For cases of financial inability to
pay, a minimum compromise rate
equivalent to ten per cent (10%) of
the basic tax assessed
b. For other cases, a minimum
compromise rate equivalent to
forty percent (40%) of the basic tax
assessed.
Where the basic tax involved exceeds One
million pesos (P 1,000,000.00) or where
the settlement offered is less than the
prescribed minimum rates, the
compromise shall be subject to the
approval of the Evaluation Board which
shall be composed of the Commissioner
and the Deputy Commissioners.
All criminal violations may be
compromised except those
a. those already filed in
court
b. those involving fraud
(see Sec. 204 {a}, NIRC)
The taxpayers offer to compromise
shall not be considered, unless and
until he waives in writing his
privilege under RA 1405 or under
other general or special laws, and
such waiver shall constitute the
authority of the Commissioner to
inquire into his bank deposits. (see
Sec. 6 {f}, NIRC)
b. power to abate
The BIR may abate or cancel tax
liability when:
a. the tax or any portion
thereof appears to be
unjustly or excessively
assessed
b. the administration and
collection costs involved
do not justify the
collection of the amount
due
The power to compromise or abate shall
not be delegated by the Commissioner,
except in the following cases;
a. assessments issued by
the regional offices
involving basic taxes of
P 500,000.00 or less
b. Minor criminal violations.
These cases may be
compromised by the
regional evaluation
board. (see Sec.7, NIRC)
BAR OPERATIONS COMMITTEE
i. Enforcement of police power
(see Sec.15, NIRC)
The Commissioner, the Deputy
Commissioners, the Revenue Regional
Directors, the Revenue District Officers
and other internal revenue officers shall
have authority to make arrests and
seizures for the violation of any penal law,
rule or regulation administered by the
Bureau of Internal Revenue. Any person so
arrested shall be forthwith brought before
a court, there to be dealt with according to
law.
j. Authority to Abate and
Compromise Tax Liabilities (see
Sec.6 {f}{2}, 204 in relation to
Rev. Regs.30-2002 as amended
by RR No.8-2004)
SEC. 204. Authority of the
Commissioner to Compromise, Abate
and Refund or Credit Taxes. - The
Commissioner may -
(A) Compromise the Payment of any
Internal Revenue Tax, when:
(1) A reasonable doubt as to the
validity of the claim against the
taxpayer exists; or
(2) The financial position of the
taxpayer demonstrates a clear
inability to pay the assessed tax.
The compromise settlement of any
tax liability shall be subject to the
following minimum amounts:
For cases of financial
incapacity, a minimum
compromise rate equivalent
to ten percent (10%) of the
basic assessed tax; and
For other
cases, a minimum
compromise rate equivalent
to forty percent (40%) of the
basic assessed tax.
Where the basic tax involved exceeds One million
pesos (P1,000.000) or where the settlement
offered is less than the prescribed minimum
rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be
composed of the Commissioner and the four (4)
Deputy Commissioners.
(B) Abate or Cancel a Tax Liability,
when:
(1) The tax or any portion thereof
appears to be unjustly or
excessively assessed; or
(2) The administration and
collection costs involved do not
justify the collection of the
amount due.
All criminal violations may be
compromised except: (a) those
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
21
already filed in court, or (b) those
involving fraud.
D. The rule on estoppel in relation to tax
administration
a. Against the government
The error made by a tax official in the assessment
of his tax liabilities does not have the effect of
relieving the taxpayer from the obligation to pay
the full amount of his tax liability, for taxes are
fixed by law and the government is never
estopped to collect the legitimate taxes because
of the errors committed by its agents. However,
like other principles, the principle of estoppel also
admits exceptions in the interest of justice and
fair play. The Commissioner is precluded from
adopting a position inconsistent with one
previously taken where in justice would result
therefore or where there has been a
misrepresentation.
Any mistakes committed by
the agents of the sovereign, namely government
officials and employees are their own and cannot
bind the government, which cannot be placed on
estoppel on account of the mistakes of its agents.
b. Against the taxpayer
E. Assessments and its governing principles
a. Definition
The notice and demand for payment of a
tax liability should not be confused with
assessment relative to real property
taxation which refers to the listing and
evaluation of taxable real property.
b. What constitutes an assessment
i. CIR v. Pascor Realty, 29 June 1999
Neither the NIRC nor the revenue
regulations governing the protest of
assessments provide a specific definition
of form of an assessment however the
NIRC defines the specific function and
effects of an assessment:
An assessment must be sent to and
received by a tax payer, and must
demand payment of the taxes described
therein within a specific period.
Issuance of an assessment is vital in
determining the period of limitation
regarding its proper issuance and the
period within which to protest.
An assessment is deemed made only
when the collector of Internal Revenue
releases or mails or sends such notice to
the tax payer.
An assessment is not necessary before
acriminal charge can be filed.
Before an assessment is issued, there is
by practice, a pre-assessment notice
sent to the tax payer.The tax Payer is
then given a chance to submit position
papers and documents to prove that the
assessment is unwarranted. If the
commissioner is unsatisfied, an
assessment signed by him/her is then
sent to the tax payer informing the latter
specifically and clearly that an
assessment has been made against
BAR OPERATIONS COMMITTEE
him/her. In contrast, the criminal charge
need not go through all this.
ii. CIR v. Reyes, G.R. No. 159694,
January 27, 2006
Tax payers shall be informed in writing of
the law and the facts on which the
assessment and the assessment is made;
otherwise the assessment shall be void.
(2nd paragraph of section 228 is clear and
mandatory)
c. Kinds of Assessment
d. Statute of Limitation on Assessment
of Internal Revenue Taxes (Sections 203,
222, NIRC)
General rule (sec203)
Internal revenue taxes shall be assessed
within three years after the last day
prescribed for the filing of the return, and
no proceeding in court without
assessment for the collection of sluch
taxes shall begun after the expiration of
such period.
Exceptions (sec.222)
In the case of a false of fraudulent return
with intent to evade tax or of failure to file
a return, the tax collection may be filed
without an assessment at any time within
ten years after the discovery of the falsity,
fraud or omission:
If before the expiration of the time
prescribed in the tax codes for the
assessment of the tax, both the
commissioner and the taxpayer have
agreed in writing to its assessment after
such time, the tax may be assessed within
the period agreed upon.
i. RMO 20-90, Philippine Journalist
Inc., v. CIR, G.R. No. 162852, 16 December
2004
Appellate Jurisdiction of the CTA is not
limited to cases which involve decisions of
the CIR on matters relating to
assessments or refunds. The second part
of the provision covers other cases that
arise out of the NIRC or related laws and
administered by the BIR. The wording of
the provision is clear and simple. It gives
the CTA the Jurisdiction to determine if the
warrant of distraint and levy issued by the
BIR is valid and to rule if the waiver of
stature of limitations was validly effected.
A waiver of the statute of limitations under
the NIRC, to a certain extent, is a
derogation of the taxpayers right to
security against prolonged and
unscrupulous investigations and must
therefore be carefully and strictly
construed. The waiver of the statute of
limitations is not a waiver of the right to
invoke the defense of prescription as
erroneously held by the CA. It is an
agreement between the taxpayer and the
BIR that the period to issue an assessment
and collect the taxes due id extended to a
date certain.
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
22
The waiver does not mean that the
taxpayer relinquishes the right to invoke
prescription unequivocally particularly
where the language of the document is
equivocal. For the purpose of safeguarding
taxpayers from any unreasonable
examination, investigation or assessment,
out tax law provides a statute of limitation
in collection of taxes. Thus the law on
prescription, being a remedial measure
should be liberally construed in order to
afford such protection/
ii. CIR v. CA and Carnation, G. R. No.
115712, 25 February 1999
Finality of findings of facts as a matter of
principle, this court will not set aside the
conclusion reached by an agency such as
the CTA unless there has been an abuse or
improvident exercise of authority. By the
very nature of its function, dedicated
exclusively to the study and consideration
of tax problems and has necessarily
developed an expertise of the subject.
e. Instances where the running of the
prescriptive period is suspended (section
223)
i. Republic v. Hizon, 13 December
1999
Sec. 229 of the code mandates that a
request for reconsideration must be made
within thirty (30) days from the tax
payers receipt of tax deficiency
assessment, otherwise the assessment
becomes final, unappealable and,
therefore, demandable. The notice of
assessment for respondents tax
deficiency was issued by petitioner on July
18, 1986. On the other hand, respondent
made her request for reconsideration
thereof only on November 3. 1992,
without stating when she received the
notice of tax assessment. She explained
that she was constrained to ask for a
reconsideration in order to avoid the
harrrasment of BIR collectors. In all
likelihood, she must have been referring to
the distraint and levy of her properties by
petitioners agents which took place of
January 12, 1989. Even assuming that she
first learned of the deficiency assessment
on this date her request for
reconsideration was nonetheless filed late
since she made it more than 30 days
thereafter. Hence, her request for
reconsideration did not suspend the
running for the prescriptive period
provided under section 223. Although the
commissioner acted on her request by
eventually denying it on August 11, 1994,
this is of no moment and does not distract
from the fact that the assessment had
become demandable
ii. BPI v. CIR, G.R. No. 139736, 17
October 2005
The court had consistently ruled in a
number of cases that a request for
reconsideration by the tax payer without a
BAR OPERATIONS COMMITTEE
valid waiver of the prescriptive period for
the assessment and collection of tax, as
required by the tax code and
implementing rules, will not suspend the
running thereof. (Exception: section 224)
Wherein the statute of limitations on
assessment and collection of taxes is
considered suspended, when the tax
payer request for a reinvestigation which
is granted by the commissioner.
f. Procedure in the process of
assessment (Section 228)
i. Estate of the Late Juliana Diez Vda.
De Gabriel v. CIR, G.R. No. 155541, January
27, 2004
The rule that an assessment is deemed
made for the purpose of giving effect to
such assessment when the notice is
released, mailed or sent to the taxpayer to
effectuate the assessment requires that
the notice must be sent to the taxpayer,
and not merely to a disinterested party.
Although there is no specific requirement
that the taxpayer should receive that
notice within the said period, due process
requires at the very least that such notice
actually be received.
When an estate is under administration,
notice must be sent to the administrator
of the estate.
ii. CIR v. Reyes, G.R. No. 159694,
January 27, 2006
The tax payers shall be informed in writing
of the law and facts on which the
assessment is made otherwise the
assessment itself is void.
iii. CIR v. BPI, G.R. No. 134062, 17,
April 2007
The inevitable conclusion is that BPIs
failure to protest the assessments within
the 30-day period provided in the former
section 270 meant that they became final
and unappealable. Thus, the CTA correctly
dismissed BPIs appeal for lack of
jurisdiction. BPI was, from then on barred
from disputing the correctness of the
assessments or invoking any defense that
would reopen the question of its liability
on the merits. Not only that. There arose a
presumption of correctness when BPI
failed to protest the assessments: Tax
assessments by tax examiners are
presumed correct and made in good faith.
The taxpayer has the duty to prove
otherwise. In the absence of proof of any
irregularities in the performance of duties,
an assessment duly made by a BIR
examiner and approved by his superior
offices will not be disturbed. All
presumptions are in favor of the
correctness of tax assessments.
iv. PNOC v. Court of Appeals, G.R. No.,
109976, April 26, 2005
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
23
The defense of prescription of the period
for the assessment and collection of tax
liabilities shall be deemed waived when
such defense was not properly pleaded
and the facts alleged and evidenced
submitted by the parties were not
sufficient to support a finding by the
supreme court on the matter
prescription, being a matter of defense,
imposes the burden on the taxpayer to
prove that the full period of the limitation
has expired, and this requires him to
positively establish the date when the
period started running and when the same
was fully accomplished.
g. Instances when pre-assessment is not
required (Section 228)
A preassessment notice shall not be
required in the following cases:
When any tax deficiency is the result
of mathematical error in the
computation of the tax as appearing
on the face of the return.
When a discrepancy has been
determined between the tax
withheld and the amount actually
remitted by the withholding agent.
When a taxpayer who opted to claim
a refund or tax credit of excess
creditable withholding tax for a
taxable period was determined to
have carried over and automatically
applied the same amount claimed
against the estimated tax liabilities
for the taxable quarter or quarters of
the succeeding taxable year.
When the excise tax due on
exciseable articles has not been paid.
When the article locally purchased or
imported by an exempt person has
been sold, traded, or transferred to
non-exempt persons.
h. Governing principles concerning
assessment
Injunction is not available to restrain the
collection of internal revenue taxes.
Exception: the Court of Appeals may issue
injunctions against administrative
collection, when collection could
jeopardize the interest of the Government
or taxpayer.
i. When do we reckon the period when
the assessment was made?
Internal revenue taxes shall be assessed
within three years after the last day
prescribed by law for the filing of the
return.
In case where a return is filed beyond the
three year period shall be counted form
the day the return was filed.
j. Is assessment necessary before a
taxpayer could be prosecuted for violation
of the NIRC?
i. Ungab v. Cusi, May 30, 1980
BAR OPERATIONS COMMITTEE
What is involved here is not collection of
taxes where the assessment of the
commissioner of internal revenue may be
reviewed by the court of tax appeals, but
a criminal prosecution for violations of the
NIRC which is within the recognizance of
the CFI. While there can be no civil action
to enforce collection before the
assessment procedures provided in the
code have been followed, there is no
requirement for the precise computation
and assessment of the tax before there
can be a criminal prosecution under the
code.
ii. CIR v. CA, G.R. No. 119322, 4 June
1996
Reading Ungab carefully, the
pronouncement therein that deficiency
assessment is not necessary prior to
prosecution is pointedly and deliberately
qualified by the Court with following
statement quoted form Guzik v. U. S.: the
crime is complete when the violator has
knowingly and willfully filed a fraudulent
return with intent to evade and defeat a
part or all of the tax. In plain words, for
criminal prosecution to proceed before
assessment, there must be a prima facie
showing of willful attempt to evade taxes.
There was willful attempt to evade tax in
Ungab because of the taxpayers failure to
declare in his income tax return his
income derived from banana saplings. In
the mind of the trial court and the Court of
Appeals, Fortunes situation is quite apart
factually since the registered wholesale
price of the goods. Approved by the BIR, is
presumed to be the actual wholesale
price, therefore, not fraudulent and unless
and until the BIR has made a final
determination of what is supposed to be
the correct taxes, the taxpayer should not
be placed in the crucible of criminal
prosecution. Herein lies a whale of
difference between Ungab and the case at
bar.
iii. CIR v. Pascor Realty, 29 June 1999
The issuance of an assessment is vital in
determining the period of limitation
regarding its proper issuance and the
period within which to protest it. Section
203 of NIRC provides that internal revenue
taxes must be assessed within three years
from the last day within which to file the
return. Section 222, on the other hand,
specifies a period of ten years in case a
fraudulent return with intent to evade was
submitted or in case of failure to file a
return. Also, Section 228 of the same law
states that said assessment may be
protested only within thirty days from
receipt thereof. Necessarily, the taxpayer
must be certain that a specific document
constitutes an assessment. Otherwise,
confusion would arise regarding the period
within which t make an assessment or to
protest the same, or whether interest and
penalty may accrue thereon.
k. Are the procedures outlined in Section
228 of the NIRC retroactive?
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
24
i. CIR v. Reyes, G.R. No. 159694,
January 27, 2006
The general rule is that statutes are
prospective. However, statutes that are
remedial, or that do not create new or
take away vested rights, do not fall under
the general rule against the retroactive
operation of statutes. Clearly, Section 228
provides for the procedure in case an
assessment is protested. The provision
does not create new or take away vested
rights. In both instances, it can surely be
applied retroactively. Moreover, RA 8424
does not state, either expressly or by
necessary implication, that pending
actions are excepted from the operation of
section 228, or that applying it to pending
proceedings would impair vested rights.
INTERNAL REVENUE TAX REMEDIES
Tax Remedies: Its general concepts
Importance: They exist to enhance the
Governments tax collection efforts, they, too,
come in as safeguards against arbitrary action.
While taxes are the lifeblood of the Government
and should be collected without unnecessary
hindrance, such collection must nevertheless be
made in accordance with law as any arbitrariness
will negate the very reason or the Government
itself.
Classification:
1. Remedies in favor of the taxpayer
A. Administrative
(1) Before Payment
a. Filing of a petition or request for
reconsideration or reinvestigation
(Administrative Protest);
b. Entering into compromise
(2) After Payment
a. Filing of claim for tax refund; and
b. Filing of claim for tax credit
B. Judicial
(1) Civil action
a. Appeal to the Court of Tax Appeals
b. Action to contest forfeiture of
chattel; and
c. Action for Damages
(2) Criminal Action
Filing of complaint against erring
Bureau of Internal Revenue officials
and employees
2. Remedies available to the government
Applicability of the Doctrine Exhaustion of
Administrative Remedies
- No civil or criminal action for the
recovery of taxes shall be filed in
court without the approval of the
Commissioner. (Sec. 220, NIRC)
Remedies Available to Taxpayers
A. Before Payment
BAR OPERATIONS COMMITTEE
1. Protest (Section 228, NIRC)
Protest is a vital document which is
a formal declaration of resistance of the
taxpayer. It is a repository of all
arguments. It can be used in court in case
administrative remedies have been
exhausted. It is also the formal act of the
taxpayer questioning the official actuation
of the CIR. This is equivalent to a pleading.
It may be a:
Request for reconsideration- a
plea for the re-evaluation of an
assessment on the basis of existing
records without need of additional
evidence. It may involve a question of fact
or law or both.
Request for reinvestigation- a
plea for reinvestigation of an assessment
on the basis of newly-discovered or
additional evidence that a taxpayer
intends to present in the reinvestigation. It
may also involve question of fact or law or
both.
Requirements of a valid protest
1. In writing;
2. Addressed to the CIR;
3. Must be accompanied by a waiver of the
Statute of Limitations in favor of the
government;
4. States the Facts, applicable law rules
and regulations and jurisprudence on
which his protest is based; otherwise, his
protest shall be considered void and
without force and effect on the event the
letter of protest submitted by the
taxpayer is accepted;
5. Contains the following:
1. Name of the taxpayer and address
for the immediate past three taxable
years;
2. Nature of request whether
reinvestigation or reconsideration
specifying newly discovered
evidence that he intends to present
it is a request for reinvestigation;
3. Taxable periods covered by the
assessment;
4. Amounts and kind/s of tax involved,
and Assessment Notice Number;
5. Date of receipt of assessment notice or
letter of demand;
6. Itemized statement of the findings to which
the taxpayer agrees, if any, as a basis for
computing the tax due, which amount
should be paid immediately upon the filing
of the protest. For this purpose, the protest
shall not be deemed validly filed unless
payment of the agreed portion of the tax is
paid first;
7. Itemized schedule of the adjustments with
which the taxpayer does not agree;
8. Statement of facts and/or law in support of
the protest; and
9. Documentary evidence as it may deem
necessary and relevant to support its
protest to be submitted within sixty (60)
days from the filing of the protest. If the
taxpayer fails to comply with this
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
25
requirement, the assessment shall become
final. (Revenue Regulation No. 12-85, dated
Nov. 27, 1985.)
Effect of a protest on the period to collect
deficiency taxes:
The prescriptive period is arrested by the
taxpayer's request for re-examination or
reinvestigation even if he has not previously
waived it (CIR vs. Wyeth, G.R. No. 76281,Sep 30,
1991)
Failure of the BIR to act within the 180-day
period.
If the Commissioner or his duly authorized
representative fails to act on the taxpayers
protest within 180 days from the date of
submission by the taxpayer of the required
documents in support of his protest, the taxpayer
may appeal to the CA within 30 days from the
lapse of the 180-day period.
Administrative actions taken during the
180-day period.
1. Grant of the Protest
2. Denial of Protest:
A. Direct Denial
The decision of the Commissioner or his duly rep
shall (a) state the facts, applicable law, rules and
regulations or jurisprudence on which his protest
is based, otherwise the protest shall be
considered void and without force and effect, in
which case the same shall not be considered a
decision a disputed assessment and (b) that the
same is his final decision. (sec. 3.1.5, RR 12-99)
B.Indirect Denial
a. Commissioner did not rule on the taxpayers
MR of the assessment it was only when
respondent received summons on the civil action
for the collection of deficiency income tax that
the period to appeal commenced to run. (CIR vs.
Union Shipping
b. Referral by the Commissioner of request for
reinvestigation to the Solicitor General (Republic
vs.Lim Tian Teng Sons)
c. Reiterating the demand for immediate
payment of the deficiency tax due to taxpayers
continued refusal to execute waiver (CIR vs. Ayala
Securities Corp.)
d. Preliminary collection letter may serve as
assessment notice (United Intl Pictures vs. CIR)
Acts of BIR Commissioner Considered as
Denial of Protest which serves as a Basis for
Appeal to CTA:
1. Filing by the BIR of a civil suit for
collection of the deficiency tax (CIR v. Union
Shipping Corp . 185 SCRA 547)
2. Indication to the taxpayer by the
Commissioner in clear and unequivocal language
of his final denial. (CIR v. Union Shipping Corp)
3. BIR demand letter reiterating his
previous demand to pay, sent to taxpayer after
BAR OPERATIONS COMMITTEE
his protest of the assessment (Surigao Electric
Co. Inc. v. CTA, 57 SCRA 523)
4. The actual issuance of a warrant of
distraint and levy in certain cases cannot be
considered as final decision on a disputed
settlement (CIR v. Union Shipping Corp)
b. Effect of protest filed out of time
The pendency of the taxpayer's appeal in the
Court of Tax Appeals and in the Supreme Court
had the effect of temporarily staying the hands of
the said Commissioner. If the taxpayer's stand
that the pendency of the appeal did not stop the
running of the period because the Court of Tax
Appeals did not have jurisdiction over the case of
taxes is upheld, taxpayers would be encouraged
to delay the payment of taxes in the hope of
ultimately avoiding the same. Under the
circumstances, the running of the prescriptive
period was suspended. Deficiency Percentage
Taxes must be imposed.(PROTECTOR'S SERVICES,
INC., petitioner, vs. CA, G.R. No. 118176, 2000
Apr 12)
Remedies from a denial of protest
1. Motion for reconsideration
2. Appeal to the Court of Tax Appeals(RA 1125, as
amended by RA 9282)
2. Compromise
B. After Payment
1. Refund (Section 229, NIRC)
The Legal Principle of quasi-contracts or
solutio indebiti (see Art. 2142 & 2154 of the Civil
Code). The Government is within the scope of the
principle of solutio indebiti. (CIR vs. Firemans
Fund Insurance Co.)
a. Must be strictly construed against taxpayer
Grounds for filing a claim for refund:
Erroneously or illegally assessed or collected
internal revenue taxes;
Taxpayer pays under the mistake of fact, as for
instance in a case where he is not aware of the
existing exemption in his favor at the time
payments were made.
A tax is illegally collected if payments are made
under duress.
1. Penalties imposed without authority; and
2. Any sum alleged to have been excessive or in any
manner wrongfully collected.
The value of internal revenue stamps when they
are returned in good condition by the purchaser
may also be redeemed.
b. Period within which to file a claim for refund
BARCOM2008-09
1. General Rule is two years from the date of
payment
The two-year prescriptive period provided in
Section 292 (now Section 230 of the Tax Code
should be computed from the time of filing the
Adjustment Return or Annual Income Tax Return
and final payment of income tax.(CIR vs. TMX
SALES, G.R. No. 83736, 1992 Jan 15,)
The rationale in computing the two-year
prescriptive period with respect to the petitioner
corporation's claim for refund from the time it
filed its final adjustment return is the fact that it
was only then that ACCRAIN could ascertain
whether it made profits or incurred losses in its
business operations. The "date of payment",
therefore, in ACCRAIN's case was when its tax
liability, if any, fell due upon its filing of its final
adjustment return. (ACCRA vs CA, G.R. No. 96322,
1991 Dec 20)
The two-year period for prescription should be
counted from the date of payment of the tax,
which for actions for refund of corporate income
tax should be computed from the time of actual
filing of the adjustment return or annual income
tax return. This is so because at that point, it can
already be determined whether there has been
an overpayment by the taxpayer. Moreover,
under Sec. 49 (a) by the NIRC (now Sec. 56(a),
1997 NIRC), payment is made at the time the
return is filed. (CIR V CA, CTA, BPI, GR No.
117254. January 21, 1999)
There is some likelihood that the above rule could
apply also to individuals who are self employed
(i.e., in business and professional practice) as
well as estates and trusts, which are likewise
required to file quarterly returns.
The prescriptive period of two years should
commence to run only from the time that the
refund is ascertained, which can only be
determined after a final adjustment return is
accomplished.(CIR V PHILAMLIFE, 244 SCRA 446.
May 29, 1995)
2. In case of Amended Returns
3. In case of taxpayers contemplating
dissolution
c. Who has the personality to file a claim for refund?
The duty of the withholding agent to withhold the
corresponding tax arises at the time of such
accrual. The withholding agent/corporation is
then obliged to remit the tax to the Government
since it already and properly belongs to the
Government. If a withholding agent who is
personally liable for income tax withheld at
source fails to pay said withholding tax, an
assessment for said deficiency withholding tax
would, therefore, be legal and proper. (FILIPINAS
SYNTHETIC FIBER CORP. V CA, GR No.113347.
June 14, 1996)
d. Is setting-off of taxes against a pending claim for
refund allowed?
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
26
e. Is automatic application of excess tax credits
allowed?
f. Effect of existing tax liability on a pending claim
for refund
g. Period of validity of a tax refund/credit
1. Returns are not actionable documents for
purposes of the rules on civil procedure and
evidence
h. Refund and Protest are mutually exclusive
remedies
i. Is the taxpayer entitled to claim interest on the
refunded tax?
General Rule: The Government cannot be
required to pay interest on taxes refunded to the
taxpayer, unless:
1. The Commissioner acted with patent
arbitrariness
Arbitrariness presupposes inexcusable or
obstinate disregard of legal provisions. (CIR vs.
Victorias Milling Corp., Inc. L-19607, Nov. 29,
1966.)
2. In case of Income Tax withheld on the wages of
employees
Any excess of the taxes withheld over the tax due
from the taxpayer shall be returned or credited
within 3 months from the fifteenth (15th) day of
April. Refund or credit after such time earn
interest at the rate of 6% per annum, starting
after the lapse of the 3-month period to the date
the refund or credit is made (Sec 79 (c) (2) 1997
NIRC
b. Other Remedies
1. Action to Contest Forfeiture of Chattel (Sec.
231)
In case of seizure of personal property under
claim for forfeiture, the owner desiring to contest
the validity of the forfeiture may bring an action:
a. Before sale or destruction of the
property to recover the property from the person
seizing the property or in possession thereof upon
filing of the proper bond to enjoin the sale.
b. After the sale and within 6 months
to recover the net proceeds realized at the sale
(see. Sec. 231, 1997 NIRC)
Action partakes the nature of an ordinary civil
action for recovery of personal property or the
net proceeds of its sale which must be brought in
the ordinary courts and not the CTA
2. Redemption of Property Sold (Sec. 214)
Remedies available to the Government
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
27
A. No Injunction to restrain collection
of taxes ( Sec. 218, NIRC)
G.R. No Court shall have the authority to
grant an injunction to restrain the
collection of any national internal revenue
tax, fee, or charge imposed by the NIRC.
EXC: CTA may enjoin the collection of
Internal Revenue taxes.
REQUISITES:
1. there is a pending case before
the CTA (ancillary remedy, not a main
cause of action)
2. identify that the collection of tax
is prejudicial to the interest of either the
TP or government.
B. Period within which the government could
collect ( Secs. 203, 222, NIRC)
Assessment of Tax Liability
Three (3)years from the following,
whichever comes later:
1. The last day prescribed by law
for filing the return
2. The day when the return was
actually filed
Ten (10) years after the discovery
of the falsity, fraud or omission in
case of:
1. False or fraudulent return with
intent to evade tax, or
2. Failure to file a return
Within the period agreed upon,
when both the TP and the
Commissioner have agreed in
writing, before the expiration of the
period in Sec. 203 for the
assessment of the tax.
CASES:
REPUBLIC V. HIZON, DEC. 13, 1999
Revenue Adm. Order No. 10-95
specifically authorizes the
Litigation and Prosecution section
of the Legal Division of regional
district offices to institute the
necessary civil and criminal actions
for tax collection. As the complaint
filed in this case was signed by the
BIRs Chief of Legal Division for
Region 4 and verified by the
Regional Director, there was,
therefore, compliance with the law.
Sec. 7 of NIRC, authorizes the BIR
Commissioner to delegate the
powers vested in him under the
pertinent provision of the Code to
any subordinate official with the
rank equivalent to a division chief
or higher.
CIR V. JAVIER, JULY 31, 1991
There was no actual intentional
fraud in filing the return. Private
respondents notation on the tax
return was at most an error or
mistake of fact or law not
constituting fraud, an invitation
for investigation and private
respondent had literally laid his
cards on the table.
PNOC V. CA, APRIL 26, 2005
BAR OPERATIONS COMMITTEE
C. OVERVIEW OF REMEDIES (SECTION
205)
1. Tax Lien (Sec 219, NIRC)
When a taxpayer neglects or
refuses to pay his internal revenue
tax liability after demand, the
amount so demanded shall be a
lien in favor of the government
from the time the assessment was
made by the Commissioner until
paid with interest, penalties, and
costs that may secure in addition
thereto, upon all property and
rights to property belonging to the
taxpayer.
Lien shall not be valid against any
mortgagee, purchaser or judgment
creditor until notice of such lien
shall be filed by the Commissioner
in the Register of Deeds of the
province or city where the property
of the taxpayer is located.
A tax lien created in favor of the
government is superior to all other
claims and preferences, even to
that of a private litigant predicated
on a court judgment.
Extinguishment of Tax Lien
1. Payment or remission of the tax
2. Prescription of the right of the government
to assess or collect.
3. Failure to file notice of such lien in the
office of register of Deeds, purchases or
judgment creditor.
4. Destruction of the property subject to the
lien.
NOTE: In Nos. 1 and 2, there is no more tax
liability while under nos. 3 and 4, the taxpayer is
still liable.
CASE: CIR V. NLRC, NOV. 09, 1994
A tax lien created in favor of the
government is superior to all other
claims and preferences, even to
that of a private litigant predicated
on a court judgment. The tax lien
attaches not only from the service
of the warrant of distraint of
personal property but from the
time the tax became due and
payable.
2. Compromise
CIR may compromise both civil
and criminal liability of the
taxpayer.
REQUISITES:
1. The taxpayer have a tax liability
2. There must be an offer by the
taxpayer of an amount to be
paid by the taxpayer
3. There must be an acceptance
by the Commissioner or the
taxpayer as the case may be of
the offer in the settlement of
the original claim
Grounds for compromise
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
28

1. A reasonable doubt as to the consequence of a default or

validity of the claim against the offense.
taxpayer exists; or
2. The financial position of the It includes the idea of not only
taxpayer demonstrates a clear losing but also having the property
inability to pay the assessed tax
transferred to another with out the
consent of the owner and
Cases that may be compromised wrongdoer.

1. Delinquent accounts Effect: Transfer the title to the specific thing

2. Cases under administrative protest
3. Cases disputed before the courts
4. Cases for collection already filed in courts
5. Criminal violations except those already
filed, and those involving fraud.
Cases that cannot be compromised
1. Withholding tax cases
2. Criminal tax fraud cases
3. Criminal cases already filed in court
4. Delinquent accounts with duly approved
schedule of installment payments
5. Cases where reduction of payments had
already been granted.
6. cases already decided and are final and
executory
Compromise of criminal violation
from the owner to the government.
When available:
a. No bidder for the real property
exposed for sale.
b. If highest bid is for an amount
insufficient to pay the taxes,
penalties and costs.
With in two days thereafter, a return of
the proceeding is duly made.
How enforced:
a. In case of personal property by
seizure and sale or destruction of
the specific forfeited property.
b. In case of real property by a
judgment of condemnation and
sale in a legal action or proceeding,
civil or criminal, as the case may
require.

In criminal violations, the compromise When forfeited property to be destroyed

must be made prior to the filing of the or sold:
information in court. a. To be destroyed by order of the
All criminal violations may be CIR when the sale for consumption
compromised except: or use of the following would be
injurious to the public health or
1. those already filed in court; and prejudicial to the enforcement of
2. those involved in fraud. the law: (at least 20 days after
seizure)
Limitations: 1. distilled spirits
1. Minimum compromise rate: 2. liquors
a. 10% of the basic tax assessed in 3. cigars
case of financial incapacity. 4. cigarettes, and other
b. 40% of basic tax assessed other manufactured products of
cases. tobacco
2. Subject to approval of the Evaluation 5. playing cards
Board 6. All apparatus used in or
a. When basic tax involved exceeds about the illicit production
P1,000,000.00 or of such articles.
b. Where settlement offered is less b. To be sold or destroyed depends
than the prescribed minimum upon the discretion of CIR
rates. 1. All other articles subject to
exercise tax, (wine,
Delegation of Power to Compromise automobile, mineral
General Rule: The power to compromise or products, manufactured oils,
abate shall not be delegated by the miscellaneous products,
commissioner. non-essential items a
Exception: The Regional Evaluation Board may petroleum products)
compromise the assessment issued by the manufactured or removed in
regional offices involving basic taxes of P violation of the Tax Code.
500,000.00 or less. 2. Dies for printing or making
Remedy in case of failure to comply: IR stamps, labels and tags,
The CIR may either: in imitation of or purport to
a. Enforce the compromise, or be lawful stamps, labels or
b. Regard it as rescinded and insists upon the tags.
original demand.
Where to be sold:
3. Distraint and/or Levy a. Public sale: provided, there is
4. Civil Action notice given not less than 20 days.
5. Criminal Action b. Private sale: provided, it is with
6. Forfeiture the approval of the Secretary of
Implies a divestiture of property Finance.
without compensation, in
BAR OPERATIONS COMMITTEE
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
29

Right of Redemption: Where amount involved does not exceed

a. Personal entitled taxpayer or
anyone for him
b. Time to redeem within one (1)
year from forfeiture
c. Amount to be paid full amount of
the taxes and penalties, plus
interest and cost of the sale
d. To whom paid Commissioner or
the Revenue Collection Officer
e. Effect of failure to redeem
forfeiture shall become absolute.
NOTE:
The Register of Deeds is duty bound to
transfer the title of property forfeited to
the government with out necessity of an
order from a competent court.
7. Suspension of Business Operations
8. Enforcement of Administrative Fines
D. ADMINISTRATIVE REMEDIES IN DETAIL
(SECS. 206-217, NIRC)
A. DISTRAINT - Seizure by the government
of personal property, tangible or intangible, to
enforce the payment of faces, to be followed by
its public sale, if the taxes are not voluntarily
paid.
KINDS
a. Actual There is taking of possession of
personal property out of the taxpayer into that of
the government. In case of intangible property,
taxpayer is also diverted of the power of control
over the property.
b. Constructive The owner is merely
prohibited from disposing of his personal
property.
P100.
In keeping with the provision on the
abatement of the collection of tax as the cost of
same might even be more than P100.
Procedure:
1. Service of warrant of distraint upon
taxpayer or upon person in possession of
taxpayers personal property.
2. Posting of notice is not less than two
places in the municipality or city and
notice to the taxpayer specifying time and
place of sale and the articles distrained.
3. Sale at public auction to highest bidder
4. Disposition of proceeds of the sale.
Who may effect distraint Amount
Involved
1. Commissioner or his In excess of
duly authorized P1,000,000.00
representative P1,000,000.00
2. Revenue District Officer or less
(RDO)
How Actual Distraint Effected
1. In case of Tangible Property:
a. Copy of an account of the property
distrained, signed by the officer,
left either with the owner or person
from whom property was taken, at
the dwelling or place of business
and with someone of suitable age
and discretion
b. Statement of the sum demanded.
c. Time and place of sale.

2. In case of intangible property:

a. Stocks and other securities
Difference between Actual and Constructive Serving a copy of the
Distraint warrant upon taxpayer and upon
Actual Constructive president, manager, treasurer or
Made on the property May be made on the other responsible officer of the
only of a delinquent property of any issuing corporation, company or
taxpayer. taxpayer whether association.
delinquent or not b. Debts and credits
There is actual taking or Taxpayer is merely 1. Leaving a copy of the warrant
possession of the prohibited from with the person owing the debts
property. disposing of his or having in his possession such
property. credits or his agent.
Effected by having a list Effected by requiring 2. Warrant shall be sufficient
of the distraint property the taxpayer to sign a authority for such person to pay
or by service or warrant receipt of the property CIR his credits or debts.
of distraint or or by leaving a list of
garnishment. same c. Bank Accounts garnishment
An immediate step for Such immediate step 1. Serve warrant upon taxpayer
collection of taxes is not necessary; tax and president, manager,
where amount due is due may not be treasurer or responsible officer
definite. definite or it is being of the bank.
questioned. 2. Bank shall turn over to CIR so
much of the bank accounts as
Requisites: may be sufficient.
1. Taxpayer is delinquent in the payment of
tax. How constructive Distraint Effected
2. Subsequent demand for its payment. 1. Require taxpayer or person in possession
3. Taxpayer must fail to pay delinquent tax at to:
time required. - Sign a receipt covering property
4. Period with in to assess or collect has not distrained
yet prescribed. - Obligate him to preserve the same
properties.
When remedy not available: - Prohibit him from disposing the
property from disposing the
BAR OPERATIONS COMMITTEE
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
30
property in any manner, with out
the authority of the CIR.
2. Where Taxpayer or person in possession
refuses to sign:
- Officer shall prepare list of the
property distrained.
- In the presence of two witnesses of
sufficient age and discretion, leave
a copy in the premises where
property is located.
Grounds of Constructive Distraint
1. Taxpayer is retiring from any business
subject to tax.
2. Taxpayer is intending to leave the
Philippines; or
3. To remove his property there from.
4. Taxpayer hides or conceals his property.
5. Taxpayer acts tending to obstruct
collection proceedings.
NOTE:
1. Bank accounts may be distrained without
violating the confidential nature of bank
accounts for no inquiry is made. BIR
simply seizes so much of the deposit with
out having to know how much the deposits
are or where the money or any part of it
came from.
2. If at any time prior to the consummation
of the sale, all proper charges are paid to
the officer conducting the same, the goods
distrained shall be restored to the owner.
3. When the amount of the bid for the
property under distraint is not equal to the
amount of the tax or is very much less
than the actual market value of articles,
the CIR or his deputy may purchase the
distrained property on behalf of the
national government.
B. LEVY OF REAL PROPERTY - an act of
seizure of real property in order to enforce the
payment of taxes. The property may be sold at
public sale, if after seizure the taxes are not
voluntarily paid.
NOTE: The requisites are the same as that
of distraint.
Procedure:
1. International Revenue officer shall prepare
a duly authenticated certificate showing
a. Name of taxpayer
b. Amount of tax and
c. Penalty due.
- enforceable throughout the Philippines
2. Officer shall write upon the certificate a
description of the property upon which
levy is made.
3. Service of written notice to:
a. The taxpayer, and
b. RD where property is located.
4. Advertisement of the time and place of
sale.
5. Sale at public auction to the highest
bidder.
6. Disposition of proceeds of sale.
NOTE: The excess shall be turned over to owner.
Redemption of property sold or forfeited
a. Person entitled: Taxpayer or anyone for
him
b. Time to redeem: one year from date of
sale or forfeiture
- Begins from registration of the deed of
sale or declaration of forfeiture.
BAR OPERATIONS COMMITTEE
- Cannot be extended by the courts.
c. Possession pending redemption:
owner not deprived of possession
d. Price: Amount of taxes, penalties and
interest thereon from date of delinquency
to the date of sale together with interest
on said purchase price at 15% per annum
from date of purchase to date of
redemption.
Difference between Distraint and Levy
Distraint Levy
personal property real property
forfeiture by forfeiture by
government, not government authorized
provided where there is no bidder
or the highest bid is not
sufficient to pay the
taxes, penalties and
costs.
Taxpayer no given the Taxpayer can redeem
right of redemption properties levied upon
and sold/forfeited to the
government.
1. Both are summary remedies for collection
of taxes.
2. Both cannot be availed of where amount
involved is not more than P100.
NOTE:
1. It is the duty of the Register of Deeds
concerned upon registration of the
declaration of forfeiture, to transfer the
title to the property with out of an order
from a competent court
2. The remedy of distraint or levy may be
repeated if necessary until the full
amount, including all expenses, is
collected.
C. GARNISHMENT
Bank Accounts garnishment
1. Serve warrant upon taxpayer and president,
manager, treasurer or responsible officer of the
bank.
2. Bank shall turn over to CIR so much of the
bank accounts as may be sufficient.
E. JUDICIAL REMEDIES IN DETAIL (SEC 220,
NIRC)
1. Period within which the action may be filed
Civil and Criminal Actions:
1. Brought in the name of the
Government of the Philippines.
2. Conducted by Legal Officer of BIR
3. Must be with the approval of the
CIR, in case of action, for recovery
of taxes, or enforcement of a fine,
penalty or forfeiture.
A. CIVIL CASES (SECS 203,222,NIRC)
Three (3)years from the following,
whichever comes later:
3. The last day prescribed by law
for filing the return
4. The day when the return was
actually filed
Ten (10) years after the discovery
of the falsity, fraud or omission in
case of:
3. False or fraudulent return with
intent to evade tax, or
4. Failure to file a return
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
31
Within the period agreed upon,
when both the TP and the
Commissioner have agreed in
writing, before the expiration of the
period in Sec. 203 for the
assessment of the tax.
Where to File
1) Court of Tax Appeals- where the principal
amount of taxes and fees exclusive of charges
and penalties claimed is one million pesos and
above
2) RTC, Mun. TC, Metro TC- where the principal
amount of taxes and fees, exclusive of charges
and penalties claimed is less thanP1,000,000.00
(Sec 7[c], RA 9282)
The approval of the CIR is essential
in civil cases (Sec. 220). However
under Sec. 7 of
NIRC, the Commissioner may
delegate suchpower to a Regional Director.
Actions instituted by the government to
collect internal revenue taxes in regular
courts (RTC or MTCs, depending on the
amount involved). It includes filing by the
government with the probate court claims
against the deceased taxpayer.
Resorted to when the tax liability becomes
final and unappealable, or when the
decision of the
Commissioner becomes final or executory.
When:
A tax is assessed and the assessment
becomes final and unappealable because
the taxpayer
fails to file an administrative protest with
the BIR within 30 days from the receipt of the
assessment.
When an administrative protest filed by
the taxpayer against the assessment is
denied, in whole and in part or Is not acted
upon within 180 days from submission of
the documents, and
The taxpayer adversely affected by the
decision or inaction fails to file an appeal
with the CTA within 30 days from receipt
of said decision or from the lapse of
the180 day period.
B. CRIMINAL CASES ( TITLE X, NIRC; SEC.
281, NIRC)
All violations of any provision of the tax
code shall prescribe after five (5) years.
NOTE:
When should it commence: The five (5)
year prescriptive period shall begin to run
from the
a. If known, day of the commission of the
violation.
b. If not known, from the time of
discovery and the institution of judicial
proceeding for its investigation and
punishment.
When is it interrupted:
a. When a proceeding is instituted
against the guilty person
b. When the offender is absent from the
Philippines.
BAR OPERATIONS COMMITTEE
When should it run again: When the
proceeding is dismissed for reason not
constituting jeopardy.
Where to file
1) Court of Tax Appeals- on criminal offenses
arising from violations of the NIRC or TCC and
other laws administered by the BIR and the BOC,
where the principal amount of taxes and fees,
exclusive of charges and penalties claimed is
P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on criminal offenses
arising from violations of the NIRC or TCC and
other laws administered by the BIR and the BOC,
where the principal amount of taxes and fess
exclusive of charges and penalties claimed is less
than P1,000,000.00 or where there is no specified
amount claimed (Sec 7[b], RA 9282)
CASES:
REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval
of filing of civil and criminal actions)
Revenue Adm. Order No. 10-95 specifically
authorizes the Litigation and Prosecution
section of the Legal Division of regional
district offices to institute the necessary
civil and criminal actions for tax collection.
As the complaint filed in this case was
signed by the BIRs Chief of Legal Division
for Region 4 and verified by the Regional
Director, there was, therefore, compliance
with the law.
Sec. 7 of NIRC, authorizes the BIR
Commissioner to delegate the powers
vested in him under the pertinent
provision of the Code to any subordinate
official with the rank equivalent to a
division chief or higher.
CIR V. LA SUERTE CIGAR, JULY 04, 1992 (re:
participation of the Office of the Solicitor General)
The institution or commencement before a
proper court of civil and criminal actions
and proceedings arising under the Tax
Reform Act which "shall be conducted by
legal officers of the Bureau of Internal
Revenue" is not in dispute. An appeal
from such court, however, is not a matter
of right. Section 220 of the Tax Reform Act
must not be understood as overturning
the long established procedure before this
Court in requiring the Solicitor General to
represent the interest of the Republic.
This Court continues to maintain that it is
the Solicitor General who has the primary
responsibility to appear for the
government in appellate proceedings.
PNOC V. CA, APRIL 26, 2005
LIM V. CA, OCT. 18, 1990 ( re: prescription
of criminal actions, Sec, 281, NIRC)
should be filed 5 years from the (1) day of
the commission of the violation of the law,
and if the same shall be not known, from
the (2) discovery thereof and the
institution of the judicial proceedings for
its investigation and punishment.
MARCOS II V. CA, JUNE 5, 1997 (re: enforcement
of tax liability during pendency of probate
proceedings)
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
32
The BIR is authorized to collect estate tax
deficiency through the summary remedy
of the levying upon and sale of properties
of a decedent, without the cognition and
authority of the court sitting in probate
over the supposed will of the deceased,
because the collection of estate tax is
executive in character. As such the estate
tax is exempted from the application of
the statute of the non claims, and this is
justified by the necessity of the
government finding, immortalized in the
maxim that taxes are the lifeblood of the
government
E. EFFECTS OF FAILURE TO PAY THE TAX ON
TIME: ADDITIONS TO THE TAX (CHAPTER I,
TITLE X, NIRC)
1. SURCHARGES- a civil penalty imposed
by law as an addition to the main tax required to
be paid. It is not a criminal penalty but a civil
administrative sanction provided primarily as
safeguard for the protection of the State
revenue and to reimburse the government for the
expenses of investigation and the loss
resulting from the taxpayers fraud. A surcharge
added to the main tax is subject to
interest.
a. ORDINARY (SEC. 248A, NIRC)
Penalty: 25% of the amount due, in addition to
the tax required to be paid
a. Failure to file any return and to pay
the tax due thereon as required by
the NIRC or rules.
b. Filing a return with an internal
revenue officer other than those
with whom the return is required to
be fired. Not authorized officer.
c. Failure to pay the deficiency tax
within the time prescribed for its
payment in the notice of
assessment.
d. Failure to pay the full or part of the
amount of tax shown on any
return, or the full amount of tax
due for which no return is required
to be filed, on or before the date
prescribed for its payment.
b. FRAUD PENALTY (SEC. 248B, NIRC)
Penalty: 50% of the amount due, in addition to
the tax required to be paid
a. In case of willful neglect to file the
return within the period prescribed
by the NIRC or rule.
b. In case a false or fraudulent return
is willfully made.
CASE: CIR V. JAVIER, JULY 31, 1991
There was no actual intentional
fraud in filing the return. Private
respondents notation on the tax
return was at most an error or
mistake of fact or law not
constituting fraud, an invitation
for investigation and private
respondent had literally laid his
cards on the table.
BAR OPERATIONS COMMITTEE
2. INTEREST- This is an increment on any
unpaid amount of tax assessed at the rate of 20%
per annum or such higher rate as may be
prescribed by the regulations from the date
prescribed for payment until the amount is
fully paid.
Classes of interest
1. Deficiency interest
2. Delinquency interest
3. Interest on extended payment
Deficiency interest
Any deficiency in the tax due shall be
subject to the interest of 20% per annum
which shall be assessed and collected
from the date prescribed for its payment
until the full payment thereof.
When delinquency interest imposed?
Delinquency interest is imposed in case of
failure to pay:
1. The amount of the tax due on any
return required to be filed; or
2. The amount of tax due for which no
return is required; or
3. A deficiency tax or any surcharge or
interest thereon on the issue date
appearing in the notice and demand of
the Commissioner.
Rate is 20% per annum until the amount is
fully paid which interest shall form part of
the tax.
Interest on Extended Payment.
1) any person who is qualified and elects to pay
the tax on installment but fails to pay the tax, or
any installment, or any part on or before the date
prescribed; or
2) where the Commissioner has authorized an
extension of time within which to pay a tax or a
deficiency tax or any part thereof,
3) from the date of notice and demand until it is
paid.
Compromise Penalty
1. It is a certain amount of money which the
taxpayer pays to compromise a tax
violation.
2. It is pain in lieu of a criminal prosecution.
3. Since it is voluntary in character, the same
may be collected only if the taxpayer is
willing to pay them.
Failure to File Certain Information Returns
(Sec. 250, NIRC)
A) Penalty: P 1,000 for each failure
B) The aggregate amount for all such failure shall
not exceed P 25,000 during a calendar year
C) Upon notice and demand by the Commissioner
D) Unless it is shown that such failure is due to
reasonable cause and not to willful neglect.
In the case of each failure to file:
1) information return;
2) statement or list;
3) keep any record;
4) supply any information
E) required by this Code or by the Commissioner
on the date prescribed thereof.
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
33
LOCAL TAXATION
A. Local Taxation: General Concepts
1. Nature of Local Taxing Power
a. Constitutional Provision (Section 5,
Article X)
Each local government unit shall have
the power to create its own sources of
revenues and to levy taxes, fees and
charges subject to such guidelines and
limitations as the Congress may
provide, consistent with the basic policy
of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the
local governments.
b. Delegated Power
i. City of San Pablo Laguna vs. Reyes,
March 25, 1999
The power to tax is primarily
vested in Congress. However, in
our jurisdiction, it may be exercised
by local legislative bodies, no
longer merely by virtue of a valid
delegation as before, but pursuant
to direct authority conferred by
Section 5, Article X of the
Constitution. The important legal
effect of Section 5 is that
henceforth, in interpreting
statutory provisions on municipal
fiscal powers, doubts will have to
resolved in favor of municipal
corporations.
ii. Meralco vs. Province of Laguna,
May 5, 1999
Prefatorily, it might be well to
recall that local governments do
not have the inherent power to tax
except to the extent that such
power might be delegated to them
either by the basic law or by
statute. Presently, under Article X
of the 1987 Constitution, a general
delegation of that power has been
given in favor of local government
units. The 1987 Constitution has a
counterpart provision in the 1973
Constitution, which did come out
with a similar delegation of
revenue making powers to local
governments. Under the regime of
the 1935 Constitution no similar
delegation of tax powers was
provided, and local government
units instead derived their tax
powers under a limited statutory
authority. Whereas, then, the
delegation of tax powers granted
at that time by statute to local
governments was confined and
defined (outside of which the
power was deemed withheld), the
present constitutional rule (starting
with the 1973 Constitution),
however, would broadly confer
such tax powers subject only to
specific exceptions that the law
might prescribe. Under the now
prevailing Constitution, where
BAR OPERATIONS COMMITTEE
there is neither a grant nor a
prohibition by statute, the tax
power must be deemed to exist
although Congress may provide
statutory limitations and
guidelines. The basic rationale for
the current rule is to safeguard the
viability and self-sufficiency of local
government units by directly
granting them general and broad
tax powers. Nevertheless, the
fundamental law did not intend the
delegation to be absolute and
unconditional; the constitutional
objective obviously is to ensure
that, while the local government
units are being strengthened and
made more autonomous, the
legislature must still see to it that
(a) the taxpayer will not be over-
burdened or saddled with multiple
and unreasonable impositions; (b)
each local government unit will
have its fair share of available
resources, (c) the resources of the
national government will not be
unduly disturbed; and (d) local
taxation will be fair, uniform, and
just.
iii. Mactan Cebu International Airport
Authority vs. Marcos, September
11, 1996
The taxing powers of local
government units cannot extend to
the levy of, inter alia, taxes, fees
and charges of any kind on the
National Government, its agencies
and instrumentalities, and local
government units; however,
pursuant to Section 232, provinces,
cities, and municipalities in the
Metropolitan Manila Area may
impose the real property tax except
on, inter alia, real property owned
by the Republic of the Philippines
or any of its political subdivisions
except when the beneficial use
thereof has been granted, for
consideration or otherwise, to a
taxable person, as provided in
item (a) of the first paragraph of
Section 234.
iv. NAPOCOR vs. City of Cabanatuan,
April 9, 2003
In recent years, the increasing
social challenges of the times
expanded the scope of state
activity, and taxation has become a
tool to realize social justice and the
equitable distribution of wealth,
economic progress and the
protection of local industries as
well as public welfare and similar
objectives. Taxation assumes even
greater significance with the
ratification of the 1987
Constitution. Thenceforth, the
power to tax is no longer vested
exclusively on Congress; local
legislative bodies are now given
direct authority to levy taxes, fees
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
34
and other charges pursuant to
Article X, section 5 of the 1987
Constitution.
This paradigm shift results from the
realization that genuine
development can be achieved only
by strengthening local autonomy
and promoting decentralization of
governance. For a long time, the
countrys highly centralized
government structure has bred a
culture of dependence among local
government leaders upon the
national leadership. It has also
dampened the spirit of initiative,
innovation and imaginative
resilience in matters of local
development on the part of local
government leaders. The only way
to shatter this culture of
dependence is to give the LGUs a
wider role in the delivery of basic
services, and confer them sufficient
powers to generate their own
sources for the purpose. To achieve
this goal, section 3 of Article X of
the 1987 Constitution mandates
Congress to enact a local
government code that will,
consistent with the basic policy of
local autonomy, set the guidelines
and limitations to this grant of
taxing powers.
- Extent of the Power of Congress in Local
Taxation
- City Govt. of Quezon City vs. Bayantel,
March 6, 2006
The power to tax is primarily vested
in the Congress; however, in our
jurisdiction, it may be exercised by
local legislative bodies, no longer
merely be virtue of a valid delegation
as before, but pursuant to direct
authority conferred by Section 5,
Article X of the Constitution. Under the
latter, the exercise of the power may
be subject to such guidelines and
limitations as the Congress may
provide which, however, must be
consistent with the basic policy of local
autonomy.
Clearly then, while a new slant on the
subject of local taxation now prevails
in the sense that the former doctrine
of local government units delegated
power to tax had been effectively
modified with Article X, Section 5 of
the 1987 Constitution now in place,
.the basic doctrine on local taxation
remains essentially the same. For as
the Court stressed in Mactan, "the
power to tax is [still] primarily vested
in the Congress."
In net effect, the controversy presently
before the Court involves, at bottom, a
clash between the inherent taxing
power of the legislature, which
necessarily includes the power to
exempt, and the local governments
BAR OPERATIONS COMMITTEE
delegated power to tax under the
aegis of the 1987 Constitution.
2. Fundamental Principles in the exercise of
Local Taxing Power (Sec. 130, LGC)
3. Exercise of Local Taxing Power
B. Common Limitations on the Exercise of
Local Taxing Power
1. The Principle of Preemption / Exclusionary
Rule (Sec. 133, LGC)
- If the national government elects to
tax a particular subject within a Local
Government Unit, it is impliedly
withholding the power of LGU to tax
the same.
- Adopted in the Philippines despite non-
prohibition of double taxation unless
expressly allowed by Congress.
2. Cases:
a. Province of Bulacan vs. CA, November
27, 1998
A province may not levy excise taxes
on articles already taxed by the
National Internal Revenue Code. It is
clearly apparent from Section 151 of
the National Internal Revenue Code
levies a tax on all quarry resources,
regardless of origin, whether extracted
from public or private land. Thus, a
province may not ordinarily impose
taxes on stones, sand, gravel, earth
and other quarry resources, as the
same are already taxed under the
National Internal Revenue Code. The
province can, however, impose a tax
on stones, sand, gravel, earth and
other quarry resources extracted from
public land because it is expressly
empowered to do so under the Local
Government Code. As to stones, sand,
gravel, earth and other quarry
resources extracted from private land,
however, it may not do so, because of
the limitation provided by Section 133
of the Code in relation to Section 151
of the National Internal Revenue Code.
b. First Philippine Industrial Corp. vs. CA,
December 9, 1998 (Section 133j; Local
Tax on Common Carriers)
There is no doubt that petitioner is a
"common carrier" and, therefore,
exempt from the business tax as
provided for in Section 133 (j), of the
Local Government Code, to wit:
"Section 133. Common Limitations on
the Taxing Powers of Local Government
Units.
Unless otherwise provided herein, the
exercise of the taxing powers of
provinces, cities, municipalities, and
barangays shall not extend to the levy
of the following :
xxx xxx
xxx
(j) Taxes on the gross receipts of
transportation contractors and persons
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
35

engaged in the transportation of commence from the date of BPCs

passengers or freight by hire and registration with the BOI on July 16,
common carriers by air, land or water, 1993 and end on July 15, 1999.
except as provided in this Code."
3. Local Taxing Power cannot extend to:
It is clear that the legislative intent in
excluding from the taxing power of the - Those already covered by the
local government unit the imposition of National Internal Revenue Code,
business tax against common carriers i.e. Income tax, Transfer tax, VAT,
is to prevent a duplication of the so- percentage tax, Excise Tax,
called "common carrier's tax." Documentary Stamp Tax;

Petitioner is already paying three (3%) - Those already covered by the Tariff
percent common carrier's tax on its and Customs Code;
gross sales/earnings under the - Duties upon products
National Internal Revenue Code.[19] To about to be exported and
tax petitioner again on its gross goods passing through
receipts in its transportation of territorial jurisdiction
petroleum business would defeat the cannot be taxed by LGUs.
purpose of the Local Government
Code. - Taxation of the National
Government, including its agencies
c. Palma Development Corp. vs. and instrumentalities as we as local
Municipality of Malangas, October 16, government units;
2003 (Sec. 133e)
- Those subjects not within the ambit
By express language of Sections 153 of real taxation by reason of public
and 155 of RA No. 7160, local policy, i.e. Cooperatives registered
government units, through their under RA 6938 (CDA);
Sanggunian, may prescribe the terms
and conditions for the imposition of toll - Those enjoying privileges as
fees or charges for the use of any granted by the Board of
public road, pier or wharf funded and Investments (Investments Priorities
constructed by them. A service fee Plan);
imposed on vehicles using municipal - Both pioneer and non-
roads leading to the wharf is thus pioneer enterprises enjoy
valid. However, Section 133(e) of RA such kind of privileges
No. 7160 prohibits the imposition, in under the Omnibus
the guise of wharfage, of fees -- as well Investments Code.
as all other taxes or charges in any
form whatsoever -- on goods or - Taxes on agricultural or aquatic
merchandise. It is therefore irrelevant products sold by marginal
if the fees imposed are actually for enterprises;
police surveillance on the goods,
because any other form of imposition - Taxes, fees, or charges for the
on goods passing through the registration of motor vehicles and
territorial jurisdiction of the for the issuance of all kinds of
municipality is clearly prohibited by licenses or permits for the driving
Section 133(e). thereof, except tricycles.
d. Batangas Power Corp. vs. Batangas
City, April 28, 2004 (Section 133g) - LTO vs. Butuan Congress has no
intention to delegate issuance of
Sec. 133 (g) of the LGC, which permits to LGUs. The intention of
proscribes local government units the law is to centralize issuance of
(LGUs) from levying taxes on BOI- permits to drive motor vehicles
certified pioneer enterprises for a including tricycles is to monitor the
period of six years from the date of operation of the same. Section
registration, applies specifically to 133(l) is only for franchise where
taxes imposed by the local to grant the same is within the
government, like the business tax discretion of LGUs. The permit to
imposed by Batangas City on BPC in drive is issued by LTO.
the case at bar. Reliance of BPC on the
provision of Executive Order No. 226, 4. Time of Payment (Section 167, LGC)
[18] specifically Section 1, Article 39,
Title III, is clearly misplaced as the six- Unless otherwise provided in LGC, all local
year tax holiday provided therein taxes, fees, and charges shall be paid
which commences from the date of within the first twenty (20) days of January
commercial operation refers to income or of each subsequent quarter, as the case
taxes imposed by the national may be. The Sanggunian concerned may,
government on BOI-registered pioneer for a justifiable reason or cause, extend
firms. Clearly, it is the provision of the the time for payment of such taxes, fees,
Local Government Code that should or charges without surcharges or
apply to the tax claim of Batangas City penalties, but only for a period not
against the BPC. The 6-year tax exceeding six (6) months.
exemption of BPC should thus

BAR OPERATIONS COMMITTEE

BARCOM2008-09
5. Surcharges, Interests and Penalties
C. Residual Power to Tax (Sec. 186)
- The power of LGU to tax even of not
expressly granted by the LGC provided
that there is no express prohibition.
D. Specific Taxing Units
1. Provinces may tax:
i. Transfer of Real Property ownership
- Onerous or gratuitous
- Preemption rule is not applicable
- of 1%
ii. Printing and Publication
iii. Franchise Tax
- Government franchise, whether
primary or secondary, i.e. public
utility companies
- If the franchise grants tax exemption
and the same was executed prior to
1991 LGC, it is deemed revoked by
reason of the laws blanket
revocation.
- At a rate not exceeding of 1% of
the Gross Amount receipt of the
preceding calendar year
iv. Professional Tax
- Those who have passed government
licensure examinations are the ones
liable
- Amount not exceeding Php 300.00
- Imposed by the city or province
where the taxpayers principal office
is located
- With employer-employee relationship
liability to PTR depends on the
extent of services provided. If
services provided is exclusive to the
employer, PTR is not necessary,
otherwise, the employee is liable.
v. Sand and Gravel Tax
- Imposed on extraction of sand,
gravel and other quarry resources
- Not more than 10% of the FMV of
what was extracted
- Case: Province of Bulacan vs. CA
vi. Amusement Tax
- As high as 30%
- Applies to theaters, cinemas, concert
halls, boxing stadiums, circuses and
other places of amusements.
vii. Taxes on Delivery trucks
2. Cities may tax those that may be taxed by
a province and a municipality. They may
impose a tax rate which is 50% higher
than the rates being imposed by provinces
and municipalities.
3. Municipalities
i. Business permit
ii. Community Taxes
iii. May levy taxes, fees, and charges not
otherwise levied by provinces (Sec.
142)
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
36
REMEDIES IN LOCAL TAXATION
A. REMEDIES OF THE GOVERNMENT
a. ADMINISTRATIVE
1) Local Governments Lien (Sec
173, LGC)
2) Assessment by the Local
Treasurer
3) Distraint of goods, chattels or
effect and other personal
properties of whatever character
(Sec. 174 and 175, LGC)
a. Seizure
b. Accounting of distrained goods
c. Publication
d. Release of distrained property
upon payment prior to sale
e. Procedure of sale
f. Disposition of proceeds
4) Levy (Sec. 174 and 176,. LGC)
Contents of assessment:
1. Meralco vs. Barlis (Feb. 1, 2002) - A
notice of assessment as provided for in
the Real Property Tax Code should
effectively inform the taxpayer of the
value of a specific property, or
proportion thereof subject to tax,
including the discovery, listing,
classification, and appraisal of
properties. The petitioner is also
correct in pointing out that the last
paragraph of the said notices that
inform the taxpayer that in case
payment has already been made, the
notices may be disregarded is an
indication that it is in fact a notice of
collection. It could only qualify as a
notice of collection if there is an
unmistakable demand for payment of
back taxes.
Who is entitled to the notice of
assessment
1. Talusan vs. Tayag, (April 04, 2001) -
Cases involving an auction sale of land
for the collection of delinquent taxes
are in personam. Thus, notice by
publication, though sufficient in
proceedings in rem, does not as a rule
satisfy the requirement of proceedings
in personam. As such, mere
publication of the notice of delinquency
would not suffice, considering that the
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
37
procedure in tax sales is in personam. It
was, therefore, still incumbent upon the
city treasurer to send the notice of tax
delinquency directly to the taxpayer in
order to protect the interests of the
latter.
In the present case, the notice of
delinquency was sent by registered
mail to the permanent address of the
registered owner in Manila. In that
notice, the city treasurer of Baguio City
directed him to settle the charges
immediately and to protect his interest
in the property. Under the
circumstances, we hold that the notice
sent by registered mail adequately
protected the rights of the taxpayer,
who was the registered owner of the
condominium unit.
For purposes of the real property
tax, the registered owner of the
property is deemed the taxpayer.
Hence, only the registered owner is
entitled to a notice of tax delinquency
and other proceedings relative to the
tax sale. Not being registered owners of
the property, petitioners cannot claim
to have been deprived of such notice. In
fact, they were not entitled to it.
b. JUDICIAL (Sec. 174, LGC)
1) Civil Action in the court
2) Filed by Local Treasurer
3) Within 5 years from the date
the taxes, fees or charges
became due
Period within which to
collect within 5 years
from the date of assessment
by administrative or judicial
action
c. OTHER PROVISIONS
Accrual of the tax (Sec. 166,
LGC)
- General rule: All local taxes, fees, and
charges shall accrue on the 1st day of
January of each year.
- Except:
i. Unless otherwise provided in the LGC,
ii. New taxes, fees or charges, or changes
in the rates thereof, shall accrue on the
1st day of the quarter next following the
effectivity of the ordinance imposing
such new levies or rates
Time of payment (Sec. 167, LGC)
- General Rule: All local taxes, fees and
charges shall be paid within the first 20
days of January or of each subsequent
quarter, as the case may be.
BAR OPERATIONS COMMITTEE
- Except:
i. Unless otherwise provided by the LGC
ii. The Sanggunian concerned may, for a
justifiable reason or cause, extend the
time for payment of such taxes, fees, or
charges or penalties, but only for a
period not exceeding 6 months.
Surcharges, Interests and Penalties
(Sec. 168, LGC)
- Sanggunian may impose:
i. Surcharge not exceeding 25% of the
amount of taxes, fees or charges not
paid on time and
ii. Interest not exceeding 2% per month
of the unpaid taxes, fees or charges,
including surcharges, until such amount
is fully paid, BUT in no case shall the
total interest on the unpaid amount or
portion thereof exceed 36 months.
B. REMEDIES OF THE TAXPAYER
a. ADMINISTRATIVE
Appeal to the Secretary of
Justice; Re: newly enacted tax
ordinance (Sec. 187, LGC)
Any question on the
constitutionality or legality of tax
ordinances or revenue measures;
Within 30 days from its effectivity.
1. Drilon vs. Lim, (August 4, 1994)
- Section 187 authorizes the
Secretary of Justice to review only
the constitutionality or legality of
the tax ordinance and, if
warranted, to revoke it on either
or both of these grounds. When he
alters or modifies or sets aside a
tax ordinance, he is not also
permitted to substitute his own
judgment for the judgment of the
local government that enacted the
measure. Secretary Drilon did set
aside the Manila Revenue Code,
but he did not replace it with his
own version of what the Code
should be. He did not pronounce
the ordinance unwise or
unreasonable as a basis for its
annulment. He did not say that in
his judgment it was a bad law.
What he found only was that it
was illegal. All he did in reviewing
the said measure was determine if
the petitioners were performing
their functions is accordance with
law, that is, with the prescribed
procedure for the enactment of
tax ordinances and the grant of
powers to the city government
under the Local Government Code.
As we see it, that was an act not
of control but of mere supervision.
2. Hagonoy Market Vednors
Assn. vs. Municipality of
Hagonoy. Bulacan, (February 6,
2002) - Sec. 187, LGC requires
that an appeal of a tax ordinance
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
38
or revenue measure should be
made to the Secretary of Justice
within 30 days from effectivity of
the ordinance and even during its
pendency, the effectivity of the
assailed ordinance shall not be
suspended. In the case at bar,
Municipal Ordinance No. 28 took
effect in October 1996. Petitioner
filed its appeal only in December
1997, more than a year after the
effectivity of the ordinance in
1996. Clearly, the Secretary of
Justice correctly dismissed it for
being time-barred. At this point, it
is apropos to state that the
timeframe fixed by law for parties
to avail of their legal remedies
before competent court is not a
"mere technicality" that can be
easily brushed aside. The periods
stated in the section are
mandatory. Ordinance No. 28 is a
revenue measure adopted by the
municipality of Hagonoy to fix and
collect public market stall rentals.
Being its lifeblood, collection of
revenues by the government is of
paramount importance. The funds
for the operation of its agencies
and provision of basic services to
its inhabitants are largely derived
from its revenues and collections.
Thus, it is essential that the
validity of revenue measures is
not left uncertain for a refunded to the protestant or
considerable length of time.
Hence, the law provided a time
limit for an aggrieved party to
assail the legality of revenue
measures and tax ordinances.
3. Ty vs. Trampe, (December 1,
1995) Petitioners failed to appeal
the assessment of their properties
to the Board of Assessment
Appeal within sixty (60) days from
the date of receipt of the written
Notice of Assessment, and if it is
true that petitioner, as alleged in
their pleadings, was not afforded
the opportunity to appeal to the
board of assessment appeal, then
they could have availed of the
provisions of Section 252, of the
same R.A. 7160 by paying the real
estate tax under protest. Because
of petitioners failure to avail of
either Sections 226 or 252 of R.A.
7160, they failed to exhaust
administrative remedies provided
for by law before bringing the case
to Court. Therefore the filing of
this case before this Court is
premature, the same not falling
under the exception because the
issue involved is not a question of
law but of fact.
Appeal to the Board of
Assessment Appeals (Secs.
226 and 252, LGC)
- Sec. 226, LGC Any owner or
person who is not satisfied with
the action of the provincial, city or
BAR OPERATIONS COMMITTEE
municipal assessor in the
assessment of his property; Within
60 days from receipt of the written
notice of assessment; Appeal to
the BAA of the province or city by
filing a petition under oath and
copies of the tax declarations and
affidavits or documents in support
of appeal.
- Sec. 252 (d), LGC In the event
that the protest is denied or upon
the lapse of the 60-day period to
decide, the taxpayer may appeal
to the BAA.
Protest of the assessment
(Sec. 226 and 252, LGC)
- Pay under protest and such shall
be annotated in the tax receipt
- Protest in writing must be filed
within 30 days from payment of
the tax to the provincial, city or
municipal treasurer, who shall
decide the protest within 60 days
from receipt.
- The tax or a portion thereof paid
under protest shall be held in trust
by the treasurer concerned.
- Protest decided in favor of
taxpayer the amount or portion
of the tax protested shall be
applied as tax credit against his
existing or future tax liability.
- Protest denied or upon lapse of
the period to decide - appeal to
the BAA.
Claim for refund (Sec. 253,
LGC)
- When an assessment of basic real
property tax, or any other tax
levied is found to be illegal or
erroneous and the tax is
accordingly reduced or adjusted,
- The taxpayer may file a written
claim for refund or credit of taxes
and interests
- With the provincial or city
treasurer
- Within 2 years from the date the
taxpayer is entitled to such
reduction or adjustment.
- The provincial or city treasurer
shall decide the claim for refund or
credit within 60 days from receipt
- In case the claim is denied, the
taxpayer may appeal to the BAA.
Remedies from a denial of the
protest and refund
- It should not only be the written
claim before the treasurer that
must be filed in 2 years but the
BARCOM2008-09
taxpayer must also be able to file
a case in court before the
expiration of the 2 year period.
- There is no appellate remedy from
the denial of the treasurer before
the regular court but an
independent and original action
for refund.
b. JUDICIAL
Questioning Tax Sale
REAL PROPERTY TAXATION
Real Property Tax, defined
A direct tax on ownership of lands and
buildings or other improvements thereon
Payable regardless of whether the
property is used or not,
although the value may
vary in accordance with such factor.
A. Governing Law
Historical Background:
1. Commonwealth Act No. 470 Old
Assessment Law
- since 1920
2. Real Property
Tax Code (Presidential Decree No.
464, as amended)
- June 1, 1974
3. Local Government Code (Republic Act
No. 7160)
- January 1, 1992
- The changes however were only
on the tax rate ceilings and assessment
levels.
The Local Government Code covers
the administration, appraisal, assessment,
levy and collection of Real Property Tax,
i.e. tax on land and building and other
structures and improvements on it,
including machineries. (Subject to the definition
given by Art. 415 of the New Civil Code)
B. Nature of Real Property Tax National or
Local?
Hybrid of national and local tax
Provisions of LGC are applied
nationwide but rates imposed are
different per LGU ordinance
The real property tax has been considered
and held to be national, despite the fact that in
practice it is local in its imposition and utilization.
Justice Vitug points out that: The real
property tax has been considered and held to be
a national, not a local tax in Meralco Securities
Industrial Corp v. CBAA, 114 SCRA 260. The Court
said that realty tax has always been imposed by
the national law-making body. The real estate tax
is enforced throughout the Philippines and not in
a particular political subdivision, although the
bulk of the tax proceeds accrue to the various
local government units where the property is
located. Under the Local Government Code, local
government units are mandated to fix a uniform
rate of basic real property tax applicable to their
respective localities, the proceeds of which
exclusively accrue to them. (See Secs. 233 and
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
39
271, LGC), [Page 479, Tax Law and
Jurisprudence, 2000 Edition by Justice Vitug and
Judge Acosta].
CHARACTERISTIC OF REAL PROPERTY TAX:
1. Direct tax on the ownership of real
property
2. Ad Valorem tax. The value is based on
the tax base
3. Proportion - the tax is calculated on the
basis of a certain percentage of the value
assessed
4. Indivisible single obligation
5. Local Tax
C. Fundamental Principles Governing
Appraisal and Assessment of Real
Property (Section 198, LGC)
1. Real property shall be appraised at
its current and fair market value.
2. Real property shall be classified for
assessment purposes on the basis of
its actual use.
3. Real property shall be assessed on
the basis of a uniform standard within
each local government unit.
4. The appraisal, assessment, and
collection of real property tax shall not
be let to any private person; and
5. The appraisal and assessment of
real property shall be equitable.
D. Properties Covered (Sec. 232, LGC)
1. Land,
2. Buildings
3. Machinery and
4. Other improvements not otherwise
exempted under said code (Sec 232, LGC)
Machinery embraces machines,
equipment, mechanical contrivances,
instruments, appliances or apparatus
which may or may not be attached,
permanently or temporarily, to the real
property. It includes the physical facilities
for production, the installations and
appurtenant service facilities, those which
are mobile, selfpowered or self-propelled,
and those not permanently attached to
the real property which are actually,
directly, and exclusively used to meet the
needs of the particular industry, business
or activity and which by their very nature
and purpose are designed for, or
necessary to its manufacturing, mining,
logging, commercial, industrial or
agricultural purposes. (Sec. 199 [o],
LGC)
Machinery which are of general purpose
use including but not limited to office
equipment, typewriters, telephone
equipment, breakable or easily damaged
containers (glass or cartons),
microcomputers, facsimile machines, telex
machine, cash dispensers, furnitures and
fixtures, freezers, refrigerators, display
cases or racks, fruit juice or beverage
automatic dispensing machines which
are not directly and exclusively used
to meet the needs of a particular
industry, business or activity shall not be
considered within the definition of
machinery. (Sec. 290 [o], IRR of RA
7160)
BARCOM2008-09
Improvements include valuable
additions made to a property or an
amelioration in its condition, amounting to
more than a mere repair or replacement of
parts involving capital expenditures and
labor, which is intended to enhance its
value, beauty or utility or to adopt it for
new or further purposes.
Note: Although the term real property
has not been expressly defined in the LGC, early
decisions of the Supreme Court in
Mindanao Bus Co. v City Assessor of Cagayan de
Oro, 6 SCRA `97; Board of Assessment
Appeals v Meralco, 119 PHIL 328; Manila
Electric Co. v Board of Assessment
Appeals,10 SCRA 68) seem to suggest that Art.
415 of the Civil Code could also be controlling,
to wit:.
Art. 415. The following are immovable
property:
(1) Land, buildings, roads and
constructions of all kinds adhered to the
soil;
(2) Trees, plants, and growing fruits, while
they are attached to the land or form an
integral part of an immovable;
(3) Everything attached to an immovable
in a fixed manner, in such a way that it
cannot be separated therefrom without
breaking the material or deterioration of
the object;
(4) Statues, reliefs, paintings or other
objects for use or ornamentation, placed
in buildings or on lands by the owner of
the immovable in such a manner that it
reveals the intention to attach them
permanently to the tenements;
(5) Machinery, receptacles, instruments or
implements intended by the owner of the
tenement for an industry or works which
may be carried on in a building or on a
piece of land, and which tend directly to
meet the needs of the said industry or
works;
(6) Animal houses, pigeon-houses,
beehives, fish ponds or breeding places of
similar nature, in case their owner has
placed them or preserves them with the
intention to have them permanently
attached to the land, and forming a
permanent part of it; the animals in these
places are included;
(7) Fertilizer actually used on a piece of
land;
(8) Mines, quarries, and slag dumps, while
the matter thereof forms part of the bed,
and waters either running or stagnant;
(9) Docks and structures which, though
floating, are intended by their nature and
object to remain at a fixed place on a
river, lake, or coast;
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
40
(10) Contracts for public works, and
servitudes and other real rights over
immovable property.
In Caltex vs. CBAA, May 31, 1982:
Machinery and equipment,
consisting of underground tanks, elevated
tanks, water tanks, gasoline pumps,
computing pumps, water pumps, car
washer, car and truck hoists, air
compressors and similar articles, installed
by Caltex (Philippines) Inc. in its gasoline
stations, located on leased land, have
been held to be real property subject to
the tax. (real properties which have
characteristics of permanency, the lease is
for a long period of time)
2001 BAR QUESTION: Under
Article 415 of the Civil Code, in order
for machinery and equipment to be
considered real property, they must
be placed by the owner of the land
and, in addition, must tend to
directly meet the needs of the
industry or works carried on by the
owner. Oil companies, such as
Caltex and Shell, install underground
tanks in the gasoline stations
located in land leased by the oil
companies from others. Are those
underground tanks, which were not
placed there by the owner of the
land but by the lessee, considered
real property for purposes of real
property taxation under the LGC?
SUGGESTED ANSWER FROM UP
LAW CENTER: Yes. The
underground tanks although
installed by the lessee, Shell and
Caltex, are considered as real
property for purposes of the
imposition of real property taxes. It
is only for purposes of executing a
final judgment that these machinery
and equipment, installed by the
lessee on a leased land, would not
be considered as real property. But
in the imposition of real property
tax, the underground tanks are
taxable as necessary fixtures of the
gasoline station without which the
gasoline station would not be
operational. (Caltex v. CBAA, 114
SCRA 296).
SPECIAL CLASSES OF REAL PROPERTY (Sec.
216, LGC)
1. HOSPITALS
2. CULTURAL and SCIENTIFIC purposes
3. owned and used by LOCAL WATER
DISTRICTS
4. GOCCs rendering essential public
services in the supply and distribution of
water and/or generation or transmission of
electric power.
E. Properties Exempt
1. Section 234, LGC
a. Real property owned by the
Republic of the Philippines or any of its
political subdivisions except
when the beneficial use thereof has been
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
granted, for consideration or
otherwise, to a taxable person;
- except: when beneficial
use thereof is granted to a taxable
person
- cases of MIAA and MCAA:
GOCCs are not automatically
exempt from real property tax,
depending on its charter giving it
exemption
- charter enacted after LGC
so that the exemption is not
revoked
b. Charitable institutions, churches,
parsonages, or convents
appurtenant thereto, mosques,
non profit or religious
cemeteries, and all lands,
buildings, and improvements
actually, directly and
exclusively used for religious,
charitable, or educational
purposes.
- traditional exemptees
c. All pieces of machinery and
equipment that are actually,
directly, and exclusively used by
local water districts, and
government owned or controlled
corporations engaged in the supply
and distribution of water and/or
generation and transmission of
electric power.
d. All real property owned by duly
registered cooperatives as
provided for under RA 6938, and
e. Machinery and equipment used
for pollution control and
environmental protection.
2. Section 238, LGC
Idle Lands Exempt From Tax:
By reason of:
a. force majeure
b. civil disturbance
c. natural calamity
d. any cause which
legally/physically prevents the owner
of the
property or person having legal
interest therein from
improving, utilizing,
cultivating the same
What Are Considered as Idle Lands:
(Sec. 237, LGC)
1. Agricultural lands More than 1
hectare if more than of which remain
uncultivated or unimproved by the owner of the
property or person having legal interest therein.
Not Idle Lands:
Agricultural lands planted to permanent
or perennial crops with at least 50 trees to a
hectare
Lands actually used for grazing
purposes
2. Non-Agricultural Lands More than
1,000 sq. m. in area if more than of which
remain uncultivated or unimproved by the owner
BAR OPERATIONS COMMITTEE
41
of the property or person having legal interest
therein.
Proof of Tax Exemption:
Every person by or for whom real property
is declared who shall claim the exemption shall
file with the provincial, city or municipal assessor
within 30 days from date of declaration of real
property sufficient documentary evidence in
support of such claim (i.e. corporate
charters, title of ownership,articles of
incorporation, contracts, affidavits, etc.)
3. Constitutional Exemptions
- actually, directly, exclusively used
for religious, educational and
charitable purposes are exempt
from real property tax
Query: To where does the exemption
attach? To the property or to the entity?
Case: X owns a parcel of land, leased by
church. May X claim exemption from Real
Property Taxation? Yes, exemption
attaches on property as long as
exclusively used for religious purchases.
Case: School - not subject to Real
Property Tax if directly used for
educational purposes.
A. Has a mansion near the school
where the president of the school
resides and where guests may be
accommodated - incidental, president
has to live near school
B. Near the school is a hospital
where medical students are trained -
incidental to operation of the school
(Herrera vs. CBAA use as trainee
students)
C. Near the school is a mens dorm,
a student center
exempt, incidental to operation of
the school
D. Near the school is another
school building with 2 floors used as
classrooms while 2 floors are for
commercial stores.
- incidental to operation of school
(Bishop of Neva Segovia Case
vegetable garden near convent is
or incidental to convent operation)
- that part not used for educational
purpose is subject to real property tax
- As to the land, pro-rate according to
use, one-half taxed pursuant to Abra
Valley College Case
Note:
Incidental exemptions
promulgated prior to 1987 Constitution
meant, primarily used for the
purposes even if not solely.
CASES:
1. In MIAA v. Paranaque, July
20, 2006, the Court declared the
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
42
Airport Lands and Buildings of the
Manila International Airport
Authority exempt from the real
estate tax imposed by the City of
Paraaque. The Court declared
void all the real estate tax
assessments issued by the City of
Paraaque on the Airport Lands
and Buildings of the MIAA, except
for the portions that the MIAA has
leased to private parties. The
Court based its ruling under
Section 2(10) and (13) of the
Introductory Provisions of the
Administrative Code, which
governs the legal relation and
status of government units,
agencies and offices within the
entire government machinery,
under which MIAA is a government
instrumentality and not a non-stock corporation, MIAA does
government-owned or controlled
corporation. Under Section 133(o)
of the Local Government Code,
MIAA as a government
instrumentality is not a taxable
person because it is not subject to
"[t]axes, fees or charges of any
kind" by local governments. The
only exception is when MIAA leases
its real property to a "taxable
person" as provided in Section
234(a) of the Local Government
Code, in which case the specific
real property leased becomes
subject to real estate tax. Thus,
only portions of the Airport Lands
and Buildings leased to taxable
persons like private parties are
subject to real estate tax by the
City of Paraaque.
Under Article 420 of the
Civil Code, the Airport Lands and
Buildings of MIAA, being devoted to
public use, are properties of public
dominion and thus owned by the
State or the Republic of the
Philippines. Article 420 specifically
mentions "ports x x x constructed
by the State," which includes public
airports and seaports, as properties
of public dominion and owned by
the Republic. As properties of
public dominion owned by the
Republic, there is no doubt that the
Airport Lands and Buildings are
expressly exempt from real estate
tax under Section 234(a) of the
Local Government Code.
Furthermore, the Court made a
distinction between a GOCC and an
instrumentality. Thus:
Government-owned or controlled
corporation refers to any agency
organized as a stock or non-stock
corporation, vested with functions
relating to public needs whether
governmental or proprietary in
nature, and owned by the
Government directly or through its
instrumentalities either wholly, or,
where applicable as in the case of
BAR OPERATIONS COMMITTEE
stock corporations, to the extent of
at least fifty-one (51) percent of its
capital stock: x x x
A government-owned or controlled
corporation must be "organized as
a stock or non-stock corporation."
MIAA is not organized as a stock or
non-stock corporation. MIAA is not
a stock corporation because it has
no capital stock divided into
shares. MIAA has no stockholders
or voting shares.
MIAA is also not a non-stock
corporation because it has no
members.
Since MIAA is neither a stock nor a
not qualify as a government-owned
or controlled corporation.
Thus, for an entity to be considered
as a GOCC, it must either be
organized as a stock or non-stock
corporation. Two requisites must
concur before one may be
classified as a stock corporation,
namely: (1) that it has capital stock
divided into shares, and (2) that it
is authorized to distribute
dividends and allotments of surplus
and profits to its stockholders. If
only one requisite is present, it
cannot be properly classified as a
stock corporation. As for non-stock
corporations, they must have
members and must not distribute
any part of their income to said
members.
2. In Lung Center of the
Philippines vs. Quezon City, June
29, 2004, the Court held that Lung
Center of the Philipines, a
charitable institution does not lose
its character as such and its
exemption from taxes simply
because it derives income from
paying patients, whether out-
patient, or confined in the hospital,
or receives subsidies from the
government, so long as the money
received is devoted or used
altogether to the charitable object
which it is intended to achieve; and
no money inures to the private
benefit of the persons managing or
operating the institution. However,
those portions of its real property
that are leased to private entities
are not exempt from real property
taxes as these are not actually,
directly and exclusively used for
charitable purposes.
Under the 1973 and 1987
Constitutions and Rep. Act No.
7160 in order to be entitled to the
exemption, the petitioner is
burdened to prove, by clear and
unequivocal proof, that (a) it is a
charitable institution; and (b) its
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
43
real properties are ACTUALLY,
DIRECTLY and EXCLUSIVELY used
for charitable purposes. "Exclusive"
is defined as possessed and
enjoyed to the exclusion of others;
debarred from participation or
enjoyment; and "exclusively" is
defined, "in a manner to exclude;
as enjoying a privilege exclusively."
If real property is used for one or
more commercial purposes, it is
not exclusively used for the
exempted purposes but is subject
to taxation. The words "dominant
use" or "principal use" cannot be
substituted for the words "used
exclusively" without doing violence
to the Constitutions and the law.
Solely is synonymous with
exclusively.
What is meant by actual,
direct and exclusive use of the
property for charitable purposes is
the direct and immediate and
actual application of the property
itself to the purposes for which the
charitable institution is organized.
It is not the use of the income from
the real property that is
determinative of whether the
property is used for tax-exempt
purposes.
The petitioner failed to
discharge its burden to prove that
the entirety of its real property is
actually, directly and exclusively
used for charitable purposes. While
portions of the hospital are used for
the treatment of patients and the
dispensation of medical services to
them, whether paying or non-
paying, other portions thereof are
being leased to private individuals
for their clinics and a canteen.
Further, a portion of the land is
being leased to a private individual
for her business enterprise under
the business name "Elliptical
Orchids and Garden Center."
Accordingly, the Court held
that the portions of the land leased
to private entities as well as those
parts of the hospital leased to
private individuals are not exempt
from such taxes. On the other
hand, the portions of the land
occupied by the hospital and
portions of the hospital used for its
patients, whether paying or non-
paying, are exempt from real
property taxes.
Analysis:
Is Lung Center liable for Real Property
Tax?
Yes.
a. exclusively used means
solely used for
charitable purposes
b. exemption in its charter
revoked by new LGC
BAR OPERATIONS COMMITTEE
c. incidental exemption no
longer recognized
d. taxed on orchidarium,
canteen, private clinics
Query: are the older cases now not
applicable so that they are
now taxable?
- not clear as to the
extent of Lung
Center case as to
areas which used to
be considered as real
property tax
exempted as
incidental
- If city decides to tax
SLU on its hospital,
parking lot, etc., use
as ground that they
should be exempt
due to necessity, do
not use the word
incidental
3. In LRTA vs. CBAA, October 12,
2000, though the creation of the
LRTA was impelled by public
service to provide mass
transportation in MM- its operations
undeniably partakes of ordinary
business. . . Given that it is engage
in a service-oriented commercial
endeavour, its carriage ways and
terminal stations are patrimonial
property subject to tax,
notwithstanding its claim of being a
GOCC.
Under its charter, LRT is not
exempt from real property tax.
Taxation is the rule and exemption
is the exception.
4. In DIGITEL vs. Province of
Pangasinan, February 23, 2007, the
Court ruled that in view of the
unequivocal intent of Congress to
exempt from real property tax
those real properties actually,
directly and exclusively used by
petitioner DIGITEL in the pursuit of
its franchise, respondent Province
of Pangasinan can only levy real
property tax on the remaining real
properties of the grantee located
within its territorial jurisdiction not
part of the above-stated
classification. Said exemption,
however, merely applies from the
time of the effectivity of petitioner
DIGITELs legislative franchise and
not a moment sooner.
5. In Philippine Fisheries
Development Authority vs. Court of
Appeals, July 31, 2007, the Court
reversed the Court of Appeals
decision which held that petitioner
Philippine Fisheries Development
Authority is liable to pay real
property taxes on the land and
buildings of the Iloilo Fishing Port
Complex which are owned by the
Republic of the Philippines but
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
44
operated and governed by the
Authority.
The Court ruled that the
Authority is not a GOCC but an
instrumentality of the national
government which is generally
exempt from payment of real
property tax. However, said
exemption does not apply to the
portions of the IFPC which the
Authority leased to private entities.
With respect to these properties,
the Authority is liable to pay real
property tax.
The Authority should be
classified as an instrumentality of
the national government. As such,
it is generally exempt from
payment of real property tax,
except those portions which have
been leased to private entities.
F. May LGUs grant exemption? Yes
Power to Grant Local Exemptions (Sec. 192
LGC)
- LGUs, may through ordinances duly approved,
grant tax exemptions, incentives or reliefs under
such terms and conditions, as they may deem
necessary.
- Although powerless to grant RPT exemption,
LGU in MM can exempt the 5% ad valorem
tax on idle lands.
- LGUs (within and outside MM) may also grant
condonation which actually partake of
exemption.
G. Who are liable for the Real Property
Taxes
1. Ownership vs. Use
Doctrine of Ownership
- owner is liable
Doctrine of Use
- property is exempt due to
Use (REC-religious,
educational, charitable)
Actual Use of Property as Basis for
Assessment (Sec. 217, LGC)
Real property shall be classified,
valued and assessed on the basis of actual use
regardless of where located,
whoever owns it, and whoever uses it.
Beneficial User May Be
Liable if:
* he leased property from
the government
* he leased property from
an exempt owner
* use is not exempt from
real property tax
2. In Testate Estate of Concordia Lim vs.
Manila, February 21, 1990, GSIS foreclosed the
property mortgaged by Lim and for failure to
redeem, owned by GSIS for the years 1977 to
1978. In 1979, heirs of Lim repurchased the
BAR OPERATIONS COMMITTEE
property. Manila sought to levy real property
tax on heirs for back taxes covering 1977 and
1978.
Who is lible for the back taxes?
a. not the heirs because they were not the
owners nor beneficial owners at the time
b. not GSIS because at the time it was
exempt
c. beneficial users or those using the
property for commercial use must pay
however not made liable since not
impleaded
H. Procedure in Real Property Taxation
In Lopez vs. City of Manila, February 19,
1999, the Court discussed the steps to be
followed for the mandatory conduct of General
Revision of Real Property assessments, pursuant
to the provision of Sec. 219, of R.A. No. 7160
which are as follows:
1. The preparation of Schedule of Fair
Market Values.
2. The enactment of Ordinances:
a) levying an annual "ad valorem"
tax on real property and an additional tax
accruing to the SEF.
b) fixing the assessment levels to
be applied to the market values of real
properties;
c) providing necessary
appropriation to defray expenses incident to
general revision of real property
assessments; and
d) adopting the Schedule of Fair
Market Values prepared by the assessors.
The preparation of fair market values as a
preliminary step in the conduct of general
revision was set forth in Section 212 of R.A. 7160,
to wit: (1) The city or municipal assessor shall
prepare a schedule of fair market values for the
different classes of real property situated in their
respective Local Government Units for the
enactment of an ordinance by the sanggunian
concerned. (2) The schedule of fair market values
shall be published in a newspaper of general
circulation in the province, city or municipality
concerned or the posting in the provincial capitol
or other places as required by law.
The Court also laid down the procedure in
computing the real property tax. With the
introduction of assessment levels, tax rates could
be maintained, although tax payments can be
made either higher or lower depending on their
percentage (assessment level) applied to the fair
market value of property to derive its assessed
value which is subject to tax. Moreover, classes
and values of real properties can be given proper
consideration, like assigning lower assessment
levels to residential properties and higher levels
to properties used in business. The procedural
steps in computing the real property tax are as
follows:
1) Ascertain the assessment level of the
property
2) Multiply the market value by the
applicable assessment level of the property
3) Find the tax rate which corresponds to
the class (use) of the property and multiply the
BARCOM2008-09
assessed value by the applicable tax
rates.
The computation of real property tax is cited
below:
Market Value
Pxxx
Multiplied by Assessment Level
(x %)
Assessed Value
Pxxx
Multiplied by Rate of Tax
(x %)
Real Property Tax
Pxx
1. Declaration of Real Properties whose duty?
DECLARATION OF REAL PROPERTY
It shall be the responsibility of the
owner, administrator or their
representatives to declare, under
oath, the true value of real property,
taxable or exempt, within 60 days
after the acquisition. The sworn
declaration shall be filed once every
3 years before June 30th of the year
commencing 1992. The failure or
refusal to make that declaration
within the prescribed period would
authorize the provincial or city
assessor to declare the property in
the name of the defaulting owner, if
known, or against an unknown
owner as the case may be, and to
assess the property for taxation.
(Secs. 201-204 LGC).
In the case of Testate Estate of
Concordia Lim V. City of Manila, February 21,
1990, it was held that the unpaid tax
attaches to the property and is chargeable
against the person who had actual or beneficial
use and possession of it regardless of whether or
not he is the owner. To impose the real
property tax on the subsequent owner who was
neither the owner nor the beneficial user
of the property during the designated periods
would not only be contrary to law but also
unjust.
a. Owner or Administrator (Secs.
202-203, LGC)
When: once every 3 years
during the period from January 1 to June 30
What: file a sworn declaration
with the assessor with description of the
property
IF newly acquired property -
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
45
a. files with assessor within 60
DAYS from date of transfer a
b. SWORN statement containing
FMV and description of property
IF improvement on real property
a. file w/in 60 DAYS upon
completion or occupation (whichever is
earlier)
b. SWORN statement containing
FMV and description of property
b. Provincial / City / Municipal
Assessor (Sec. 204)
WHEN only when the person under Sec
202 refuses or fails to make the
declaration within the prescribed time. No
oath by assessor is required
NOTE: IF FILING FOR EXEMPTION
(Sec. 206)
WHAT person claiming exemptions must
file with assessor sufficient
documentary evidence to support claim
WHEN within 30 days from the date of
DECLARATION of property
IF required evidence is not
submittedwithin 30 days, the property will be
listed as taxable in the roll
IF proven to be tax-exempt, property
will be dropped from the roll
NOTE: IF PROPERTY DECLARED FOR
THE FIRST TIME (Sec. 222)
If declared for 1st time, real property shall
be assessed for back taxes
a) for not more than ten (10) years
prior to the date of initial assessment
b) taxes shall be computed on the
basis of applicable schedule of values in
force during the corresponding periods
*Assessor will compare the entry on file
with the Registry of Deeds and the assessment
roll in his office.
c. building officials
Prior to construction of building, as
required in procuring building permit.
Permit transmitted by building officials to
Registry of Deeds.
d. Geodetic engineers - For lands
surveyed
e. Notaries Public - For document
notarization, must furnish the assessors a copy
2. Valuation by Assessors
Assessment
- the act or process of determining the value of a
property, or proportion thereof subject to tax,
including the discovery, listing, classification, and
appraisal of properties.
Appraisal
- the act or process of determining the value of
property as of a specific date for a specific
purpose.
LISTING OF REAL PROPERTY IN THE
ASSESSMENT ROLLS
(Secs. 205, 207)
Listing of all Real Property whether taxable or
exempt within the jurisdiction of LGU in the
assessment roll.
BARCOM2008-09 REVIEW NOTES FOR TAXATION 2
46
o Undivided real property in the name of the
estate or heirs or devisees
o Corporation, partnership and association
same as individuals
o Owned by the Republic of the Philippines,
its instrumentalities, political subdivisions,
beneficial use is transferred to a taxable
person in the name of the possessor
All declarations shall be kept and filed under a
uniform classification system to be established by
the provincial, city or municipal assessor.
Steps in assessment of Real Property :
1. Listing of all properties subject to the
tax; and
2. The valuation of such properties.
In Callanta vs. Ombudsman, January 30,
1998, where the issue was whether officials and
employees of the Office of the City Assessor may
reduce the new assessed values of real properties
upon requests of the affected property owners,
the Court ruled that forestall the practice of
initially setting unreasonably high reassessment
values only to eventually change them to
unreasonably lower values upon "requests" of
property owners, the law gives no such authority
to the city assessor or his subalterns.. . Thus,
petitioners' unauthorized reduction of the
assessed values ineluctably resulted in the local
government's deprivation of the corresponding
revenues. Lost or reduced revenues undeniably
translate into damages or injury within the
contemplation of the law. The city government of
Cebu, therefore, had every legal right to feel
aggrieved and to institute the proceeding against
petitioners.
3. Preparation of Schedule of Fair Market Values
APPRAISAL AND VALUATION OF REAL
PROPERTY
(Sec 212-214, 224-225)
How to determine Fair Market Value:
For Land
1. Assessor of the province/city or municipality
may summon the owners of the properties to be
affected and may take depositions concerning the
property, its ownership amount, nature and
value. (sec. 213,LGC)
2. Assessor prepares a schedule of FMV for
different classes of properties.
3. Sanggunian enacts an ordinance.
4. The schedule of FMV is published in a
newspaper of general circulation in the province
city or municipality concerned or in the absence
thereof shall be posted in the provincial capitol
city or municipal hall places therein (Sec. 212,
LGC)
Classification of Land for purposes of
assessment - Sec 218, LGC
1. Commercial land devoted principally for the
object of profit and is not classified as
agricultural, industrial, mineral, timber, or
residential land
2. Agricultural land devoted principally to the
planting of trees, raising of crops, livestock and
poultry, dairying, salt making, inland fishing and
similar aquacultural activities, and other
agricultural activities
BAR OPERATIONS COMMITTEE
3. Residential land principally devoted to
habitation
4.Mineral- lands which minerals, metallic or non-
metallic, exist in sufficient quantity or grade
to justify the necessary expenditures to extract
and utilize such materials
5. Industrial-land devoted principally to industrial
activity as capital investment and is not
classified as agricultural, commercial,
timber, mineral or residential land
6. Timberland
7. Special
- Classification of lands made by respective
sanggunian in accordance with zoning
ordinances.
-It is based on actual use. Actual use refers to
the purpose for which the property is
principally or predominantly utilized by the
person in possession thereof.
For Machinery
1. For Brand New machinery : FMV is acquisition
cost
2. In all other cases:
FMV = Remaining economic life x
Replacement cost
DETERMINE ASSESSED VALUE (Sec. 218)
Procedure
1. take the schedule of FMV (Fair Market Value)
2. Assessed value = FMV x Assessment level
3. Real Property Tax = Assessed value x Allowable
Real Property Tax rate
4.Enactment of a Real Property Tax Ordinance
Barangays cannot impose realty taxes.
Municipalities cannot fix real estate tax rates.
Procedure:
a.hearing and modification of prepared
schedule
b.publication
c.adoption of the schedule
d.adoption of real property ordinance with
assessment levels
Coverage / Types of Real Property Tax:
1. Basic real property tax / Annual Ad Valorem Tax
For real property not specifically exempted
a.Provinces not more than 1% of
assessed value;
b.Cities, Municipalities in MM not more
than 2% of assessed value
2. Special levies:
a. Special Education Fund (SEF)
- 1% additional real estate tax to finance
the SEF (Sec.236) within MM area only
b. Additional Ad Valorem on the Lands
not exceeding 5% of the assessed value
of the property (Sec. 236, LGC)
c. Special Assessments/ For Public Works
- on lands specially benefited by public
works, projects or improvements funded by the
LGU
- May be imposed even by municipalities
outside MM provided:
- Special levy shall not exceed 60%
of the actual cost of such projects and
BARCOM2008-09
improvements, including the costs of acquiring
land and such other real property in connection
therewith not apply to lands exempt from basic
real property tax and the remainder of the land
have been donated to the local government unit
concerned for the construction of said
projects. (Sec. 240, LGC).
Special Levy
Requirements for validity:
1. infrastructure project financed by
government whereby real property
owners benefit from it
2. not more than 60% of actual cost
of project
3. not less than five but not more
than ten years
4. thru an ordinance
a. nature of project
b. extent of project
c. cost spent
d. metes and bounds
What may be done:
i. levy ad valorem taxes (see above)
ii. Fix Assessment levels
Assessment level is the percentage
applied to the fair market value to determine the
taxable or taxation value of the property.
In City Assessor of Cebu City vs.
Association of Benevola de Cebu, June 8, 2007,
applying Secs. 215-216, of LGC, in line with City
Tax Ordinance LXX of Cebu City, the 10% special
assessment should be imposed for the Chong
Hua Hospital Medical Arts Center (CHHMAC)
building which should be classified as special.
Sec. 216, LGC states that:
SEC. 216. Special Classes of
Real Property.All lands,
buildings, and other
improvements thereon
actually, directly and
exclusively used for hospitals,
cultural or scientific purposes,
and those owned and used by
local water districts, and
government-owned or
controlled corporations
rendering essential public
services in the supply and
distribution of water and/or
generation and transmission
of electric power shall be
classified as special.
iii. Provide for appropriations
iv. Adopt Schedule of Fair Market Values
Fair Market Value and Assessed Value Whats
the difference?
Fair Market Value (FMV)
- price at which a property may be
sold by a seller who is not compelled to
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2
47
sell and bought by a buyer who is not
compelled to buy
Assessed Value or Assessment Value (AV)
- fair market value of the real
property multiplied by the assessment
level. It is synonymous with taxable
value.
Payment of Tax
When: January 1 of every year (Sec 246)
The tax shall constitute as superior lien (Sec. 246)
How:
a. basic real prop tax in 4 equal installments (Mar
31,Jun 30,Sep 30, Dec 31)
b. special levy - governed by ordinance
Interest for Late Payment
- two percent (2%) each month on unpaid
amount until the delinquent amt is paid.
- provided in no case shall the total interest
exceed thirty-six (36) months
Advance and Prompt Payment
a) advance payment - discount not exceeding
20% of annual tax (Sec 251, LGC)
b) prompt payment - discount not exceeding 10%
of annual tax due(Art 342 IRR)
Collection of Tax (Sec.247, LGC)
The collection of the real property tax with
interest thereon and related expenses and the
enforcement of the remedies provided by the LGC
or any applicable laws shall be the responsibility
of the city or municipal treasurer concerned.
The city or municipal treasurer my
deputize the barangay treasurer to collect all
taxes on real property located in the barangay
provided the barangay treasurer is properly
bonded.
Who Collects:
The provincial, city, municipal or barangay
treasurer
Period Within Which To Collect (Sec 270):
Within five (5) yrs from the date they become due
within ten (10) yrs. from discovery of fraud, in
case there is fraud or intent to evade
Period of prescription shall be SUSPENDED
when: (Sec 270, LGC)
1. local treasurer is legally prevented to collect
tax
2. the owner of prop requests for
reinvestigation and writes a waiver before
expiration of period to collect
3. the owner of the property is out of the
country or cannot be located